Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter ended June 30, 2022.

Brad Weston, Chief Executive Officer of Party City, stated, “Our second quarter topline results were largely as expected as we lapped a strong Q2 last year while cost headwinds, which are predominantly transitory in nature, pressured profitability. We are seeing benefits from the transformation work we have accomplished over the last 2 years, which is evidenced by our strong sales results compared to pre-pandemic levels.”

Mr. Weston added, “For the back half of the year, we continue to expect the supply chain volatility and inflationary pressures to persist and as a result, are revising our full year outlook. Given the continued broader macro pressures, we continue to operate the business with discipline from an expense and capital standpoint. Importantly, all of the progress we’ve made on our strategic initiatives is strengthening our market position, which will serve us well over the near and long-term.”

Second Quarter Summary:

  • Total net sales were $527.4 million, a decrease of 1.5% compared to the second quarter 2021 primarily driven by lower retail sales partially offset by higher North American Wholesale sales.
  • Total retail sales decreased 4.6% versus second quarter 2021 primarily driven by lower sales of core product in everyday categories and the lapping of strong prior year retail results as well as the current inflationary environment.
  • The total number of corporate Party City stores was 756 as of June 30, 2022 compared to 749 in the prior year period.
  • Brand comparable sales decreased 5.6% in the 13 weeks ended July 2, 2022 versus the 13 weeks ended July 3, 2021, and increased 12.2% versus the 13 weeks ended June 29, 2019.
  • Net third-party wholesale sales increased 13.2% compared to the second quarter of 2021 principally due to higher sales to franchise customers as well as strong performance within our Canadian business.
  • Total gross profit margin decreased 680 basis points to 33.7% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin decreased approximately 670 basis points to 34.3% of net sales.a The decrease in both cases was primarily driven by higher input costs from supply chain, raw materials, sourced merchandise, helium and labor.
  • Selling, general and administrative expenses totaled $167.3 million or $12.0 million higher than the second quarter of 2021. The increase was primarily driven by impairment charges related to office lease assets and property and equipment and higher labor costs. Excluding certain items not indicative of core operating performance, expenses totaled $151.2 million, or 28.7% of net sales, a 60-basis point increase versus prior-year period. The increase in both cases was due to higher store labor costs. a
  • Interest expense was $24.2 million during the second quarter of 2022, compared to $23.1 million during the second quarter of 2022. The increase is driven by higher amounts of net debt outstanding and higher interest rates versus prior-year period.
  • Reported GAAP net income was $162.2 million, or $1.42 per diluted share.
  • Adjusted net income was $11.5 million, or an income of $0.10 per diluted share, compared to adjusted net income of $34.1 million, or earnings of $0.29 per share, in the second quarter of 2021. a
  • Adjusted EBITDA was $45.8 million, a decrease of $40 million versus $85.8 million during the second quarter of 2021. a

a Refer to Reconciliation of Adjusted EBITDA for GAAP to Non-GAAP reconciliation. See “Non-GAAP Financial Information” for further description.

Balance Sheet and Cash Flow Highlights:

As of the end of the second quarter 2022, the Company had total liquidity of $195.9 million consisting of the following:

  Party City CreditGroup     Anagram Holdings,LLC     PCHI Consolidated  
 (in Thousands) June 30, 2022  
Cash $ 12,952     $ 26,285     $ 39,237  
ABL Availability:                
Borrowing Base   412,160       14,427       426,587  
Less: Letters of Credit Outstanding   35,440             35,440  
Less: Borrowings under the ABL Facility   234,453             234,453  
Total ABL Availability   142,267       14,427       156,694  
Total Liquidity $ 155,219     $ 40,712     $ 195,931  

The weighted average interest rate for Borrowings under the ABL Facility was 2.88% at June 30, 2022.

The following table reflects both principal amounts as well as net carrying amounts of debt across the Company’s debt instruments:

          Party City Credit Group     Anagram Holdings, LLC     PCHI Consolidated    
    June 30, 2022    
 (in Thousands)   Principal Amount     Net Carrying Amount     Net Carrying Amount     Net Carrying Amount    
Loans and notes payable*   $ 234,453     $ 231,911     $     $ 231,911    
8.75% Senior Secured First Lien Notes – due 2026     750,000       734,688             734,688    
6.125% Senior Notes – due 2023     22,924       22,862             22,862    
6.625% Senior Notes – due 2026     92,254       91,663             91,663    
First Lien Party City Notes – due 2025     161,669       193,426             193,426    
First Lien Anagram Notes – due 2025     118,699             148,732       148,732    
Second Lien Anagram Notes – due 2026     93,613             144,576       144,576    
Finance lease obligations     12,295       12,295             12,295    
Total debt     1,485,907       1,286,845       293,308       1,580,153    
Less: Cash     (39,237 )     (12,952 )     (26,285 )     (39,237 )  
Total debt net of cash   $ 1,446,670     $ 1,273,893     $ 267,023     $ 1,540,916    

*Balance consists of ABL Facility.

Net cash used in operating activities in the first six months of 2022 was $99.1 million, compared to net cash provided by operating activities of $13.8 million in the prior year period. The increase in cash used in operating activities is primarily attributable to increased inventory purchases due to timing of seasonal product receipts and higher cost due to freight and raw materials inflation, partially offset by timing of payments related to accounts payable and accrued expenses and lower lease payments as the prior year reflected payment of COVID deferrals. Free cash flowa in the first six months of 2022 was $(0.7) million compared to $77.8 million in the prior year period, with the decrease driven by lower Adjusted EBITDA and increased capital expenditures.

a Free cash flow ($0.7 million) is defined as Adjusted EBITDA ($50.4 million) less capital expenditures per the Condensed Consolidated Statements of Cash Flow ($51.1 million) (See “Non-GAAP Financial Information” and reconciliations below).

2022 Outlook:

The Company is providing the following updated outlook.

  • Net sales of $2.150 billion to $2.225 billion or a change of approximately -1% to 2% versus 2021
  • Brand comp sales decrease of approximately -4% to -1%
  • GAAP net loss of approximately $36 million to $10 million
  • Adjusted EBITDA of approximately $170 million to $200 million
  • 85 to 100 new Next Generation stores, with a combination of new openings and remodels
  • Capital Expenditures of approximately $95 to $105 million or $65 to $75 million net of tenant improvement allowances

The table below sets forth a reconciliation from our 2022 forecasted GAAP Net Income to our Adjusted EBITDA.

       
(in thousands)   Low   High  
GAAP Net Income   $ (36,000 ) $ (10,000 )
Income tax     12,000     16,000  
Interest expense     99,000     99,000  
Depreciation and Amortization Expense     68,000     68,000  
GAAP EBITDA   $ 143,000   $ 173,000  
EBITDA Add-Backs     27,000     27,000  
Adjusted EBITDA   $ 170,000   $ 200,000  

Conference Call Information

A conference call to discuss the second quarter 2022 financial results is scheduled for today, August 8, 2022, at 8:30 a.m. Eastern Time, and the Company has posted certain supplemental presentation materials to its investor relations website. Investors and analysts interested in participating in the call are invited to dial 844-200-6205, access code 255473 (international callers please dial 929-526-1599) approximately 10 minutes prior to the start of the call. The conference call will also be webcast at http://investor.partycity.com/. To listen to the live call, please go to the website at least 15 minutes early to register and download any necessary audio software. The webcast will be accessible for one year after the call.

Website Information

We routinely post important information for investors on the Investor Relations section of our website, http://investor.partycity.com/. We intend to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

Non-GAAP Information

This press release includes non-GAAP measures including, Adjusted Net Third-Party Wholesale Sales, Adjusted Total Gross Profit Margin, Adjusted Selling, General and Administrative Expenses, Adjusted EBITDA and Adjusted Net Income/Loss. We present these non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit facilities use Adjusted EBITDA to measure compliance with certain covenants. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in tables accompanying this release.

In addition, we also provide debt principal net of cash, which is calculated by adding Loans and Notes Payable, Current Portion of Long Term Obligations and Long Term Obligations, Excluding Current Portion, subtracting Cash and Cash Equivalents and dividing by Adjusted EBITDA for the trailing twelve month period. We also present free cash flow, which we define as Adjusted EBITDA less capital expenditures. We believe providing these non-GAAP measures provides valuable supplemental information regarding our results of operations and leverage, consistent with how we evaluate our performance.

In evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. The Company's presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. The Company has provided this information as means to evaluate the results of its core operations. Other companies in the Company's industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

Forward-Looking Statements

This press release and the commentary in the conference call to be held today each contains forward-looking statements. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance and include Party City’s expectations regarding net sales, Brand Comparable or Same-Store Sales, net income, Adjusted EBITDA and the related adjustments, and capital expenditures. The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information, and these statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: our ability to compete effectively in a competitive industry; fluctuations in commodity prices; successful implementation of our store growth strategy; decreases in our Halloween sales; product recalls or product liability; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending, including inflationary pressures; the continuing impact of COVID-19 on our global supply chain, retail store operations and customer demand; labor and material shortages and investments; disruptions to our supply chain, transportation system or increases in transportation costs; the impact of inflation on consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; loss or actions of third party vendors and loss of the right to use licensed material; disruptions at our manufacturing facilities; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including recession, war, conflict or acts of terrorism; the impact of tariffs and our ability to mitigate impacts; and the additional risks and uncertainties set forth in “Risk Factors” in Party City’s Annual Report on Form 10-K for the year ended December 31, 2021 and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by any applicable laws, Party City assumes no obligation to publicly update or revise such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.

About Party City

Party City Holdco Inc. is a leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. With hundreds of retail stores filled with thousands of products across the United States, we make it easy for our customers to find the perfect party solution through our assortment of party products, balloons, and costumes for their celebration aided by the support of our party experts both in-store and online. Our retail operations include approximately 825 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites which offer rapid, contactless, and same day shipping options (including in-store and at curbside), principally through the domain name PartyCity.com. In addition to our retail operations, we are also one of the largest global designers, manufacturers and distributors of decorated consumer party products, with items found in retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers, e-commerce merchandisers and dollar stores. We combine state-of-the-art manufacturing and sourcing operations, sophisticated wholesale operations and multi-channel retail and e-commerce retail operations to design, manufacture, source and distribute party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world.

Source: Party City Holdco Inc.

PARTY CITY HOLDCO INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data, unaudited)

    June 30, 2022     December 31, 2021     June 30, 2021  
    (Unaudited)           (Unaudited)  
ASSETS                  
Current assets:                  
Cash and cash equivalents   $ 39,237     $ 47,914     $ 84,452  
Accounts receivable, net     93,445       93,301       86,745  
Inventories, net     676,731       443,295       426,128  
Prepaid expenses and other current assets     239,865       57,656       68,363  
Income tax receivable     1,499       56,317       55,421  
Total current assets     1,050,777       698,483       721,109  
Property, plant and equipment, net     240,480       221,870       218,532  
Operating lease asset     716,572       693,875       684,802  
Goodwill     664,269       664,296       660,597  
Trade names     383,749       383,737       383,761  
Other intangible assets, net     20,916       23,687       27,825  
Other assets, net     26,931       25,952       26,193  
Total assets   $ 3,103,694     $ 2,711,900     $ 2,722,819  
LIABILITIES AND STOCKHOLDERS’ EQUITY                  
Current liabilities:                  
Loans and notes payable   $ 231,911     $ 84,181     $ 99,933  
Accounts payable     275,316       161,736       129,802  
Accrued expenses     181,671       195,531       190,347  
Current portion of operating lease liability     116,816       116,437       136,749  
Income taxes payable     9,656       10,801       2,537  
Current portion of long-term obligations     920       1,373       1,265  
Total current liabilities     816,290       570,059       560,633  
Long-term obligations, excluding current portion     1,347,322       1,351,189       1,358,916  
Long-term portion of operating lease liability     677,016       655,875       625,157  
Deferred income tax liabilities, net     21,138       29,195       37,052  
Other long-term liabilities     21,952       22,868       33,288  
Total liabilities     2,883,718       2,629,186       2,615,046  
Commitments and contingencies                  
Stockholders’ equity:                  
Common stock (112,990,705, 112,170,944 and 111,476,496 shares outstanding and 125,498,610, 124,157,500 and 122,790,983 shares issued at June 30, 2022, December 31, 2021, and June 30, 2021, respectively)     1,384       1,384       1,383  
Additional paid-in capital     986,307       982,307       978,167  
Accumulated deficit     (436,701 )     (571,985 )     (549,693 )
Accumulated other comprehensive income     3,124       3,541       6,096  
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury     554,114       415,247       435,953  
Less: Common stock held in treasury, at cost (12,507,905, 11,986,556 and 11,314,487 shares at June 30, 2022, December 31, 2021, and June 30, 2021, respectively)     (334,138 )     (332,533 )     (327,394 )
Total Party City Holdco Inc. stockholders’ equity     219,976       82,714       108,559  
Noncontrolling interests                 (786 )
Total stockholders’ equity     219,976       82,714       107,773  
Total liabilities and stockholders’ equity   $ 3,103,694     $ 2,711,900     $ 2,722,819  
 
 

PARTY CITY HOLDCO INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except share and per share data, unaudited)

    Three Months Ended June 30,     Six Months Ended June 30,  
    2022     2021     2022     2021  
Net sales   $ 527,449     $ 535,746     $ 960,425     $ 962,553  
Cost of sales     349,477       318,574       644,445       593,095  
Gross profit     177,972       217,172       315,980       369,458  
Selling, general and administrative expenses**     167,306       155,336       325,366       304,357  
Loss on disposal of assets in international operations                       3,211  
Income (loss) from operations     10,666       61,836       (9,386 )     61,890  
Interest expense, net     24,184       23,116       47,579       40,330  
Other (income), net     (1,800 )     (1,300 )     (2,003 )     (873 )
(Loss) income before income taxes     (11,718 )     40,020       (54,962 )     22,433  
Income tax (benefit) expense     (173,891 )     10,209       (190,246 )     6,740  
Net income     162,173       29,811       135,284       15,693  
Less: Net income attributable to noncontrolling interests                       (54 )
Net income attributable to common shareholders of Party City Holdco Inc.   $ 162,173     $ 29,811     $ 135,284     $ 15,747  
Net income per share attributable to common shareholders of Party City Holdco Inc. – Basic   $ 1.44     $ 0.27     $ 1.20     $ 0.14  
Net income per share attributable to common shareholders of Party City Holdco Inc. – Diluted   $ 1.42     $ 0.26     $ 1.18     $ 0.14  
Weighted-average number of common shares – Basic     112,632,860       111,340,295       112,519,950       111,128,822  
Weighted-average number of common shares – Diluted     114,604,275       116,251,151       115,115,172       115,499,304  
Dividends declared per share   $     $     $     $  
Comprehensive income   $ 160,827     $ 30,761     $ 134,890     $ 51,742  
Less: Comprehensive income attributable to noncontrolling interests                       (30 )
Comprehensive income attributable to common shareholders of Party City Holdco Inc.   $ 160,827     $ 30,761     $ 134,890     $ 51,772  
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. 2022 amounts include impairment charges. 
   
   

PARTY CITY HOLDCO INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, unaudited)

    Six Months Ended June 30,  
    2022     2021  
Cash flows (used in) provided by operating activities:            
Net income   $ 135,284     $ 15,693  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:            
Depreciation and amortization expense     31,606       34,860  
Amortization of deferred financing costs and original issuance discounts     2,566       1,937  
Provision for doubtful accounts     21       1,171  
Deferred income tax (benefit) expense     (8,061 )     2,622  
Change in operating lease liability/asset     (7,308 )     (52,315 )
Undistributed income in equity method investments     (1,376 )     (211 )
Loss on disposal of assets     203       109  
Loss on disposal of assets in international operations           3,211  
Long-lived assets impairment     9,983        
Stock-based compensation**     3,977       2,887  
Loss on debt refinancing           226  
Changes in operating assets and liabilities:            
Increase in accounts receivable     (154 )     (2,395 )
Increase in inventories     (234,939 )     (15,191 )
Increase in prepaid expenses and other current assets     (127,273 )     (31,055 )
Increase in accounts payable, accrued expenses and income taxes payable     96,338       52,228  
     Net cash (used in) provided by operating activities     (99,133 )     13,777  
Cash flows (used in) investing activities:            
Cash paid in connection with acquisitions, net of cash acquired     (7 )      
Capital expenditures     (51,094 )     (40,452 )
Proceeds from disposal of property and equipment     1,622        
Proceeds from sale of international operations, net of cash disposed           20,556  
     Net cash (used in) investing activities     (49,479 )     (19,896 )
Cash flows provided by (used in) financing activities:            
Repayment of loans, notes payable and long-term obligations     (25,892 )     (836,435 )
Proceeds from loans, notes payable and long-term obligations     167,444       794,750  
Treasury stock purchases     (1,605 )     (212 )
Exercise of stock options           3,322  
Debt issuance costs           (21,437 )
     Net cash provided by (used in) financing activities     139,947       (60,012 )
Effect of exchange rate changes on cash and cash equivalents     (12 )     274  
     Net (decrease) in cash and cash equivalents and restricted cash     (8,677 )     (65,857 )
Change in cash classified within current assets held for sale           31,628  
Cash and cash equivalents and restricted cash at beginning of period*     48,914       119,681  
Cash and cash equivalents and restricted cash at end of period*   $ 40,237     $ 85,452  
Supplemental disclosure of cash flow information:            
Cash paid during the period for interest expense   $ 42,501     $ 16,594  
Cash (received) paid during the period for income taxes, net of refunds   $ (50,994 )   $ 3,411  
             
*Includes $1,000 of restricted cash at June 30, 2022 and December 31, 2021 and June 30, 2021. The Company records restricted cash in Other assets, net as presented in the consolidated balance sheets at June 30, 2022, December 31, 2021 and June 30, 2021.  
** Stock-based compensation consists of stock-option expense – time-based, restricted stock units – time-based, restricted stock units – performance-based and directors – non-cash compensation, which were shown separately in prior years.  
             
             

PARTY CITY HOLDCO INC. RECONCILIATION OF ADJUSTED EBITDA (Unaudited)

    Three Months Ended June 30,     Six months ended June 30,  
    2022     2021     2022     2021  
(Dollars in thousands)                        
Net income   $ 162,173     $ 29,811     $ 135,284     $ 15,693  
Interest expense, net     24,184       23,116       47,579       40,330  
Income tax (benefit) expense     (173,891 )     10,209       (190,246 )     6,740  
Depreciation and amortization     15,746       16,916       31,606       34,860  
EBITDA     28,212       80,052       24,223       97,623  
Inventory restructuring and early lease terminations (f)           3,499             6,637  
Other restructuring, retention and severance (a)     710       31       710       2,082  
Long-lived assets impairment (b)     7,829             9,983        
Deferred rent (c)     3,856       (398 )     6,381       1,128  
Closed store expense (d)     1,721       1,543       2,708       3,136  
Foreign currency (gains), net     (247 )     (772 )     (528 )     (1,311 )
Stock-based compensation - employee**     2,217       1,680       3,929       2,962  
Undistributed loss in equity method investments     (1,686 )     (547 )     (1,376 )     (211 )
Non-recurring legal settlements/costs     384             384      
Gain on sale of property, plant and equipment     47             (72 )     111  
COVID - 19 (e)           655             1,270  
Inventory disposal reserve     810             1,431        
Loss on sale of business                       3,211  
Net loss on debt repayment (g)                       226  
Other     1,953       90       2,637       1,388  
Adjusted EBITDA   $ 45,806     $ 85,833     $ 50,410     $ 118,252  
Adjusted EBITDA Margin     8.7 %     16.0 %     5.2 %     12.3 %
** Stock-based compensation consists of stock-option expense – time-based, restricted stock units – time-based and restricted stock units – performance-based, which were shown separately in prior years.  
   
   

PARTY CITY HOLDCO INC RECONCILIATION OF ADJUSTED EBITDA, Continued (In thousands, unaudited)

        Three Months Ended June 30, 2022 EBITDA Adjustments        
    June 30, 2022GAAPBasis (as reported)     Long-lived assets impairment (b)     Inventory disposal reserve     Legal     Stock-based compensation - employee**     Deferred rent (c)     Other restructuring, retention and severance (a)     Closed store expense (d)     Foreign currency (gains), net     Other     June 30,2022Non-GAAPbasis  
Net sales   $ 527,449                                                           $ 527,449  
Cost of sales     349,477             (810 )                 (2,180 )                             346,487  
   Gross profit     177,972                                                             180,962  
Selling, General and administrative expenses**     167,306       (7,829 )           (384 )     (2,217 )     (1,676 )     (710 )     (1,721 )           (1,572 )     151,197  
 Income from operations     10,666                                                             29,765  
Interest expense, net     24,184                                                       (376 )     23,808  
Other (income) expense, net     (1,800 )                                               247       1,634       81  
 (Loss) income before income taxes     (11,718 )                                                           5,876  
Interest expense, net     24,184                                                             24,184  
Depreciation and amortization     15,746                                                             15,746  
EBITDA     28,212                                                             45,806  
 Adjustments to EBITDA     17,594       (7,829 )     (810 )     (384 )     (2,217 )     (3,856 )     (710 )     (1,721 )     247       (314 )      
Adjusted EBITDA   $ 45,806     $ (7,829 )   $ (810 )   $ (384 )   $ (2,217 )   $ (3,856 )   $ (710 )   $ (1,721 )   $ 247     $ (314 )   $ 45,806  
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. 2022 includes impairment charges.    
 
 

PARTY CITY HOLDCO INC RECONCILIATION OF ADJUSTED EBITDA, Continued (In thousands, unaudited)

          Three Months Ended June 30, 2021 EBITDA Adjustments        
    June 30, 2021GAAPBasis (asreported)     Long-livedassets impairment(b)     Inventoryrestructuringandearlylease terminations(f)     Stock-based compensation - employee**     Deferredrent (c)     Otherrestructuring,retention and severance(a)     Closedstoreexpense(d)     COVID -19(e)     Foreigncurrency(gains),net     Other     June 30,2021Non-GAAPbasis  
Net sales   $ 535,746                                                           $ 535,746  
Cost of sales     318,574             (2,312 )                                               316,262  
Gross profit     217,172                                                             219,484  
Selling, General and administrative expenses**     155,336             (1,187 )     (1,680 )     398       (31 )     (1,543 )     (655 )           (39 )     150,599  
(Loss) from operations     61,836                                                             68,885  
Interest expense, net     23,116                                                     -51       23,065  
Other (income) expense, net     (1,300 )                                               772       547       19  
Income (loss) before income taxes     40,020                                                             45,801  
Interest expense, net     23,116                                                             23,116  
Depreciation and amortization     16,916                                                             16,916  
EBITDA     80,052                                                             85,833  
 Adjustments to EBITDA     5,781             (3,499 )     (1,680 )     398       (31 )     (1,543 )     (655 )     772       457        
Adjusted EBITDA   $ 85,833     $     $ (3,499 )   $ (1,680 )   $ 398     $ (31 )   $ (1,543 )   $ (655 )   $ 772     $ 457     $ 85,833  
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year.        
     
     

PARTY CITY HOLDCO INC RECONCILIATION OF ADJUSTED EBITDA, Continued (In thousands, unaudited)

          Six Months Ended June 30, 2022 EBITDA Adjustments        
    June 30, 2022 GAAP Basis (as reported)     Long-lived assets impairment (b)     Inventory disposal reserve     Gain on sale of property, plant and equipment     Legal     Stock-based compensation - employee**     Deferred rent (c)     Other restructuring, retention and severance (a)     Closed store expense (d)     Foreign currency (gains), net     Other     March 31, 2022 Non-GAAPbasis  
Net sales   $ 960,425                                                                 $ 960,425  
Cost of sales     644,445             (1,431 )                       (4,197 )                             638,817  
Gross profit     315,980                                                                   321,608  
Selling, General and administrative expenses**     325,366       (9,983 )           119       (384 )     (3,929 )     (2,184 )     (710 )     (2,708 )           (2,220 )     303,367  
(Loss) from operations     (9,386 )                                                                 18,241  
Interest expense, net     47,579                                                             (416 )     47,163  
Other (income) expense, net     (2,003 )                                                     528       1,328       (147 )
(Loss) before Income Taxes     (54,962 )                                                                 (28,775 )
Interest expense, net     47,579                                                                   47,579  
Depreciation and amortization     31,606                                                                   31,606  
EBITDA     24,223                                                                   50,410  
Adjustments to EBITDA     26,187       (9,983 )     (1,431 )     119       (384 )     (3,929 )     (6,381 )     (710 )     (2,708 )     528       (1,308 )      
Adjusted EBITDA   $ 50,410     $ (9,983 )   $ (1,431 )   $ 119     $ (384 )   $ (3,929 )   $ (6,381 )   $ (710 )   $ (2,708 )   $ 528     $ (1,308 )   $ 50,410  
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. 2022 includes impairment charges.    
 
 

PARTY CITY HOLDCO INC. RECONCILIATION OF ADJUSTED EBITDA, Continued (In thousands, unaudited)

          Six Months Ended June 30, 2021 EBITDA Adjustments        
    June 30, 2021GAAPBasis (asreported)     Inventory restructuring and early lease terminations (f)     Net loss on debt repayment (g)       Stock-based compensation - employee**     Deferred rent (c)     Other restructuring, retention and severance (a)     Closed store expense (d)     COVID - 19 (e)     Foreigncurrencyloss     Other     March 31,2021Non-GAAPbasis  
Net sales   $ 962,553                                                             $ 962,553  
Cost of sales     593,095       (3,694 )                                                 124       589,525  
Gross profit     369,458                                                               373,028  
Selling, General and administrative expenses**     304,357       (2,943 )             (2,962 )     (1,128 )     (2,082 )     (3,136 )     (1,270 )           (1,407 )     289,429  
Loss on disposal of assets in international operations     3,211                                                         (3,211 )      
Income from operations     61,890                                                               83,599  
Interest expense, net     40,330                                                         (105 )     40,225  
Other (income) expense, net     (873 )           (226 )                                     1,311       100       312  
(Loss) before income taxes     22,433                                                               43,062  
Interest expense, net     40,330                                                               40,330  
Depreciation and amortization     34,860                                                               34,860  
EBITDA     97,623                                                               118,252  
Adjustments to EBITDA     20,629       (6,637 )     (226 )       (2,962 )     (1,128 )     (2,082 )     (3,136 )     (1,270 )     1,311       (4,499 )      
Adjusted EBITDA   $ 118,252     $ (6,637 )   $ (226 )     $ (2,962 )   $ (1,128 )   $ (2,082 )   $ (3,136 )   $ (1,270 )   $ 1,311     $ (4,499 )   $ 118,252  
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. 
 
 

PARTY CITY HOLDCO INC. RECONCILIATION OF ADJUSTED NET INCOME (Unaudited)

    Three Months Ended June 30,     Six months ended June 30,  
    2022     2021     2022     2021  
(Dollars in thousands, except per share amounts)                        
(Loss) income before income taxes   $ (11,718 )   $ 40,020     $ (54,962 )   $ 22,433  
Intangible asset amortization     1,528       2,354       3,072       4,831  
Amortization of deferred financing costs and original issuance discounts     1,295       1,074       2,566       1,937  
Other restructuring, retention and severance (a)     710       31       710       1,967  
Long-lived assets impairment (b)     7,829             9,983      
Non-recurring legal settlements/costs     384             384      
Stock option expense     83       104       168       217  
Restricted stock unit and restricted cash awards expense – performance-based     744       1,154       1,313       1,971  
COVID - 19 (e)           655             1,270  
Loss on sale of business                       3,211  
Inventory disposal reserve     810       162       1,431       926  
Adjusted income (loss) before income taxes     1,665       45,554       (35,335 )     38,763  
Adjusted income tax (benefit) expense (h)     (9,841 )     11,446       (22,162 )     10,064  
Adjusted net income (loss)   $ 11,506     $ 34,108     $ (13,173 )   $ 28,699  
Adjusted net income (loss) per common share – diluted   $ 0.10     $ 0.29     $ (0.12 )   $ 0.25  
Weighted-average number of common shares – diluted     114,604,275       116,251,151       112,519,950       115,499,304  

(a) Amounts expensed principally relate to severance due to one-time organizational changes.

(b) In December 2021, the Company announced the closure of a manufacturing facility in New Mexico that ceased operations in February 2022. As a result, the Company recorded related shutdown charges. In addition, during the three months ended June 30, 2022, the Company recorded an impairment charge related to certain lease assets and property and equipment. See Note 3, Disposition of Assets and Lease-Related Impairments in Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in the Quarterly Report on Form 10-Q).

(c) The “deferred rent” adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay.

(d) Charges incurred related to closing and relocating stores in the ordinary course of business.

(e) Represents COVID-19 expenses for employees on temporary furlough for whom the Company provides health benefits; non-payroll expenses including advertising, occupancy and other store expenses.

(f) Costs incurred for early lease terminations and a merchandise transformation project to transition and optimize stores to the reduced SKU assortment levels.

(g) The Company recognized net gain on debt repayment in 2021.

(h) Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by applying to the pre-tax adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded.

PARTY CITY HOLDCO INC. SEGMENT INFORMATION (In thousands, except percentages, unaudited)

    Three Months Ended June 30,
    2022       2021
    Dollars inThousands     Percentage ofNet sales   Dollars inThousands     Percentage ofNet sales
Net sales:                            
Wholesale   $ 303,577       57.6   %   $ 230,961       43.1   %
Eliminations     (199,606 )     (37.8 )       (139,027 )     (26.0 )  
Net wholesale     103,971       19.7         91,934       17.2    
Retail     423,478       80.3         443,812       82.8    
Total net sales   $ 527,449       100.0   %   $ 535,746       100.0   %
    Six months ended June 30,
    2022     2021
    Dollars inThousands     Percentage ofNet sales   Dollars inThousands     Percentage ofNet sales
Net sales:                            
Wholesale   $ 543,257       56.6   %   $ 443,098       46.0   %
Eliminations     (347,261 )     (36.2 )       (257,639 )     (26.8 )  
Net wholesale     195,996       20.4         185,459       19.3    
Retail     764,429       79.6         777,094       80.7    
Total net sales   $ 960,425       100.0   %   $ 962,553       100.0   %
    Three Months Ended June 30,
    2022       2021
    Dollars in Thousands     Percentageof Net Sales       Dollars in Thousands     Percentageof Net Sales    
Retail gross profit   $ 158,152       37.3   %   $ 193,565       43.6   %
Wholesale gross profit     19,820       19.1         23,607       25.7    
Total gross profit   $ 177,972       33.7   %   $ 217,172       40.5   %
    Six months ended June 30,
    2022       2021
    Dollars in Thousands     Percentage of Net Sales       Dollars in Thousands     Percentage of Net Sales    
Retail gross profit   $ 271,518       35.5   %   $ 316,743       40.8   %
Wholesale gross profit     44,462       22.7         52,715       28.4    
Total gross profit   $ 315,980       32.9   %   $ 369,458       38.4   %
 
 

PARTY CITY HOLDCO INC. OPERATING METRICS

    Six Months ended June, 30     Last 12 Months  
    2022     2021        
                   
Store Count                  
Corporate Stores:                  
Beginning of period     759       746       749  
New stores opened     2       5       7  
Acquired                 10  
Closed     (5 )     (2 )     (10 )
End of period     756       749       756  
Franchise Stores                  
Beginning of period     72       85       82  
New stores opened                  
Sold to Party City                 (10 )
Closed     (2 )     (3 )     (2 )
End of period     70       82       70  
Grand Total     826       831       826  
    Three months ended June 30,
    2022     2021  
Wholesale Share of Shelf (a)   77.7%   81.0%
Manufacturing Share of Shelf (b)   30.1%   30.7%
         
    Three months ended June 30,
    2022     2021  
Brand comparable sales (c)   -5.6%   118.3%

(a) Wholesale share of shelf represents the percentage of our retail product cost of sales supplied by our wholesale operations.

(b) Manufacturing share of shelf represents the percentage of our retail product cost of sales manufactured by the company.

(c) Party City brand comparable sales include North American e-commerce sales.

 

Contact:
ICR
Farah Soi and Rachel Schacter
203-682-8200
InvestorRelations@partycity.com 
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