Party City Reports Second Quarter 2021 Results and Provides Third Quarter 2021 Business Outlook

·18 min read

Total Sales increased 110.4% versus prior year; Comparable Sales increased 118.3% versus prior year and 19.1% versus Q2 2019 driven by strength in core categories

GAAP Net Income of $29.8 million versus a Net Loss of $130.0 million in Q2 2020

Adjusted EBITDA of $85.8 million versus a $42.8 million Adjusted EBITDA Loss in Q2 2020

ELMSFORD, N.Y., Aug. 05, 2021 (GLOBE NEWSWIRE) -- Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter ended June 30, 2021.

Brad Weston, Chief Executive Officer of Party City, stated, “We are very pleased with our strong second quarter results that exceeded our expectations. We saw sequential acceleration of the business as the economy opened up and restrictions subsided, driving increased consumer ability to celebrate. The quarter was highlighted by robust trends at Retail with the recovery at Wholesale underway, as expected. The strength in performance was broad based, particularly across our core everyday business, along with improved results in our seasonal categories. The consistent strength that we have demonstrated in our core everyday performance is a testament to the disciplined execution of our strategic initiatives and meaningful progress against our transformation strategy, with the resulting relevancy strides positioning us to capitalize on the near and long-term growth opportunities.”

Mr. Weston added, “As we look to the back half of the year, the environment remains dynamic but we are well positioned for continued growth. We are excited about our refined marketing, improved store experience and elevated omni channel capabilities, as we continue to deliver on our mission of inspiring joy and making it easy to create unforgettable memories.”

Second Quarter Summary*:

  • Total revenues were $535.7 million, an increase of 110.4% compared to the second quarter 2020 driven by a strong rebound of retail sales, partially offset by the divestiture of a significant portion of our international operations in the first quarter of 2021.

  • Total retail sales increased 138.9% on a reported and constant currency basis versus second quarter 2020 driven by a strong comparable sales increase in core categories versus prior year.

  • The total number of corporate Party City stores was 749 as of June 30, 2021 compared to 757 in the prior year period.

  • Brand comparable sales increased 118.3% in the second quarter versus the 13 weeks ended June 27, 2020 and increased 19.1% compared to the 13 weeks ended June 29, 2019.

  • Net third-party wholesale revenues increased 33.4% compared to the second quarter of 2020 principally due to the COVID-19 impact in the prior year period, partially offset by the divestiture of a significant portion of our international operations in the first quarter of 2021.

  • Total gross profit margin increased 3,390 basis points to 40.5% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin improved 2,120 basis points to 41.0% of net sales, primarily due to fixed cost deleverage in 2020 caused by COVID-19 shutdowns. Gross profit margin improvement was also driven by fewer promotions and favorable product mix.

  • Operating expenses totaled $155.3 million or $11.7 million higher than the second quarter of 2020 primarily due to higher retail operating expenses offset by decreased general and administrative expenses. Excluding certain items not indicative of core operating performance, operating expenses totaled $150.6 million, or 28.1% of net sales, a 1,730-basis point improvement versus prior-year period primarily driven by leverage on higher sales.

  • Interest expense was $23.1 million during the second quarter of 2021, compared to $25.4 million during the second quarter of 2020 mainly due to lower amounts of debt outstanding.

  • Reported GAAP net income was $29.8 million, or earnings of $0.26 per diluted share.

  • Adjusted net income was $34.1 million, or earnings of $0.29 per diluted share, compared to adjusted net loss of $61.3 million, or a loss of $0.66 per share, in the second quarter of 2020. (See “Non-GAAP Information”)

  • Adjusted EBITDA was $85.8 million, versus a loss of $42.8 million during the second quarter of 2020. (See “Non-GAAP Information”).

  • The effective tax rate for the second quarter of 2021 was 25.5%.

* Second quarter results in fiscal year 2020 were negatively impacted by extended store closures and other related impacts due to COVID-19.

Balance Sheet and Cash Flow Highlights:

As of the end of the second quarter 2021, the Company had $84.5 million in cash and approximately $170.2 million of availability under the ABL Facility and approximately $14.6 million of availability under the Anagram ABL Facility, for total liquidity of $269.3 million.

The carrying value of the Company's debt as of June 30, 2021 was $1,460.1 million. The principal balance of debt net of cash on June 30, 2021 was $1,258.9 million versus $1,756.2 million in the prior-year period. The principal balance of debt is used for the purpose of all leverage ratio calculations under our debt agreements. 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, 2021

June 30, 2021

(in Thousands)

Principal
Amount

Net Carrying
Amount

Net Carrying
Amount

Net Carrying
Amount

8.75% Senior Secured First Lien Notes – due 2026

$

750,000

731,305

-

$

731,305

6.125% Senior Notes – due 2023

22,924

22,806

-

22,806

6.625% Senior Notes – due 2026

92,254

91,519

-

91,519

First Lien Party City Notes – due 2025

161,669

202,588

-

202,588

First Lien Anagram Notes – due 2025

112,979

-

150,451

150,451

Second Lien Anagram Notes – due 2026

86,981

-

148,114

148,114

Finance lease obligations

13,398

13,398

-

13,398

Total long-term obligations

1,240,205

1,061,616

298,565

1,360,181

Less: current portion

N/A

(1,265

)

-

(1,265

)

Long-term obligations, excluding current portion

1,240,205

1,060,351

298,565

1,358,916

Loans and notes payable*

103,175

99,933

-

99,933

Less: Cash

(84,452

)

(56,130

)

(28,322

)

(84,452

)

Principal balance net of cash

$

1,258,928

$

1,104,154

$

270,243

$

1,374,397

*Balance consists of ABL Facility.

Net cash provided by operating activities in the first six months of 2021 was $13.8 million, compared to net cash used in operating activities of $48.8 million in the prior year period, with the year-over-year improvement driven primarily by higher net sales and improved operating income, partially offset by the change in working capital. Free cash flowa in the first six months of 2021 was $77.8 million compared to $(49.2) million in the prior year period, with the improvement driven by higher Adjusted EBITDA due to improved operating results, partially offset by higher capital expenditures.
aFree cash flow defined as Adjusted EBITDA less capital expenditures (See “Non-GAAP Financial Information”).

Outlook:

The Company is providing the following fiscal third quarter 2021 outlook. This outlook is subject to potential consumer and marketplace volatility due to the COVID-19 pandemic:

  • Total revenue of $490 to $515 million

  • Brand comparable sales percentage increase of high single digits compared to third quarter 2020, or mid-teens compared to third quarter 2019

  • GAAP net loss of $5 million to net income of $4 million with an assumed Q3 tax rate of 27%

  • Adjusted EBITDA of $35 to $45 million

The Company is providing the following updated annual 2021 outlook:

  • FY 2021 Interest expense of approximately $86 to $91 million

  • FY 2021 Capital expenditures of approximately $80 to $90 million

The table below sets forth a reconciliation from our third quarter 2021 forecasted GAAP Net Income to our Adjusted EBITDA.

Q3 2021

Q3 2021

(in thousands)

High

Low

Net Income

$

3,500

$

(5,300

)

Provision for Income Taxes

1,300

(1,900

)

Interest Expense

22,000

23,000

Depreciation and Amortization Expense

16,200

17,200

EBITDA

$

43,000

$

33,000

EBITDA Add-Backs

2,000

2,000

Adjusted EBITDA

$

45,000

$

35,000


Conference Call Information

A conference call to discuss the second quarter 2021 financial results is scheduled for today, August 5, 2021, at 8:00 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 844-757-5731 (U.S. domestic) or 412-542-4126 (international) 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 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. We also utilized operating expense excluding certain items not indicative of core operating performance. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in tables accompanying this release. We also evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period exchange rates and comparing these adjusted amounts to our current period reported results. 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 define free cash flow 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 its ability to maximize the potential of its vertical model, the ability to drive long-term growth, revenues, brand comparable sales, net income, Adjusted EBITDA, and Adjusted Net Income. 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; our ability to appropriately respond to changing merchandise trends and consumer preferences; successful implementation of our store growth strategy; decreases in our Halloween sales; the impact of COVID-19 on our financial performance; disruption to the transportation system or increases in transportation costs; product recalls or product liability; economic slowdown affecting consumer spending and general economic conditions; loss or actions of third party vendors and loss of the right to use licensed material; disruptions at our manufacturing facilities; 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, 2020 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 the leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. The Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is the leading player in its category, vertically integrated and unique in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Company’s retail operations include 831 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites, principally through the domain name PartyCity.com.

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

Source: Party City Holdco Inc.



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

June 30,
2021

December 31,
2020

June 30,
2020

(Unaudited)

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

84,452

$

119,532

$

154,133

Accounts receivable, net

86,745

90,879

85,081

Inventories, net

426,128

412,285

635,014

Prepaid expenses and other current assets

68,363

45,905

94,710

Income tax receivable

55,421

57,549

Assets held for sale, net

83,110

Total current assets

721,109

809,260

968,938

Property, plant and equipment, net

218,532

209,412

223,433

Operating lease asset

684,802

700,087

755,288

Goodwill

660,597

661,251

666,084

Trade names

383,761

384,428

394,203

Other intangible assets, net

27,825

32,134

39,402

Other assets, net

26,193

9,883

9,435

Total assets

$

2,722,819

$

2,806,455

$

3,056,783

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Loans and notes payable

$

99,933

$

175,707

$

325,754

Accounts payable

129,802

118,928

144,849

Accrued expenses

190,347

160,605

179,159

Liabilities held for sale

68,492

Current portion of operating lease liability

136,749

176,045

202,971

Income taxes payable

2,537

524

Current portion of long-term obligations

1,265

13,576

13,810

Total current liabilities

560,633

713,877

866,543

Long-term obligations, excluding current portion

1,358,916

1,329,808

1,557,576

Long-term portion of operating lease liability

625,157

654,729

685,290

Deferred income tax liabilities, net

37,052

34,705

67,458

Other long-term liabilities

33,288

22,815

16,932

Total liabilities

2,615,046

2,755,934

3,193,799

Commitments and contingencies

Stockholders’ equity:

Common stock (111,476,496, 110,781,613 and 94,602,386 shares outstanding and 122,790,983, 122,061,711 and 121,819,456 shares issued at June 30, 2021, December 31, 2020, and June 30, 2020 respectively)

1,383

1,373

1,211

Additional paid-in capital

978,167

971,972

941,745

Accumulated deficit

(549,693

)

(565,457

)

(708,747

)

Accumulated other comprehensive income (loss)

6,096

(29,916

)

(43,849

)

Total Party City Holdco Inc. stockholders’ equity before common stock held in
treasury

435,953

377,972

190,360

Less: Common stock held in treasury, at cost (11,314,487, 11,280,098 and 27,217,070 shares at June 30, 2021, December 31, 2020, and June 30, 2020, respectively)

(327,394

)

(327,182

)

(327,170

)

Total Party City Holdco Inc. stockholders’ equity

108,559

50,790

(136,810

)

Noncontrolling interests

(786

)

(269

)

(206

)

Total stockholders’ equity

107,773

50,521

(137,016

)

Total liabilities and stockholders’ equity

$

2,722,819

$

2,806,455

$

3,056,783


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,

2021

2020

2021

2020

Net sales*

$

535,746

$

254,691

$

962,553

$

668,734

Cost of sales

318,574

237,907

593,095

534,664

Gross Profit

217,172

16,784

369,458

134,070

Wholesale selling expenses

7,358

9,707

16,474

25,165

Retail operating expenses

97,179

65,236

186,075

153,402

General and administrative expenses

45,795

63,955

91,833

129,289

Art and development costs

5,004

3,516

9,975

8,838

Store impairment and restructuring charges

1,164

18,892

Loss on disposal of assets in international operations

3,211

Goodwill, intangibles and long-lived assets impairment

536,648

Income (loss) from operations

61,836

(126,794

)

61,890

(738,164

)

Interest expense, net

23,116

25,412

40,330

50,532

Other (income) expense, net

(1,300

)

1,484

(873

)

7,160

Income (loss) before income taxes

40,020

(153,690

)

22,433

(795,856

)

Income tax expense (benefit)

10,209

(23,631

)

6,740

(124,129

)

Net income (loss)

29,811

(130,059

)

15,693

(671,727

)

Less: Net (loss) attributable to noncontrolling interests

(44

)

(54

)

(199

)

Net income (loss) attributable to common shareholders of Party City Holdco Inc.

$

29,811

$

(130,015

)

$

15,747

$

(671,528

)

Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic

$

0.27

$

(1.39

)

$

0.14

$

(7.19

)

Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted

$

0.26

$

(1.39

)

$

0.14

$

(7.19

)

Weighted-average number of common shares-Basic

111,340,295

93,419,078

111,128,822

93,407,344

Weighted-average number of common shares-Diluted

116,251,151

93,419,078

115,499,304

93,407,344

Dividends declared per share

$

$

$

$

Comprehensive income (loss)

$

30,761

$

(125,961

)

$

51,742

$

(679,842

)

Less: Comprehensive (loss) attributable to noncontrolling interests

(44

)

(30

)

(199

)

Comprehensive income (loss) attributable to common shareholders of Party City Holdco Inc.

$

30,761

$

(125,917

)

$

51,772

$

(679,643

)

*Includes royalties and franchise fees. Prior year amounts conformed to current year presentation


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

Six Months Ended June 30,

2021

2020

Cash flows provided by (used in) operating activities:

Net income (loss)

$

15,693

$

(671,727

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization expense

34,860

40,518

Amortization of deferred financing costs and original issuance discounts

1,937

2,401

Provision for doubtful accounts

1,171

4,443

Deferred income tax expense (benefit)

2,622

(58,440

)

Change in operating lease liability/asset

(52,315

)

44,803

Undistributed (income) loss in equity method investments

(211

)

415

Loss on disposal of assets

109

93

Loss on disposal of assets in international operations

3,211

Non-cash adjustment for store impairment and restructuring charges

16,458

Goodwill, intangibles and long-lived assets impairment

536,648

Non-employee equity-based compensation**

1,033

Stock option expense – time – based

217

560

Stock option expense – performance – based

7,847

Restricted stock unit expense – time-based

767

1,139

Restricted stock unit – performance-based

1,789

Directors – non-cash compensation

114

75

Net loss on debt repayment

226

Changes in operating assets and liabilities:

(Increase) decrease in accounts receivable

(2,395

)

56,315

(Increase) decrease in inventories

(15,191

)

20,055

(Increase) in prepaid expenses and other current assets

(31,055

)

(47,700

)

Increase (decrease) in accounts payable, accrued expenses and income taxes
payable

52,228

(3,717

)

Net cash provided by (used in) operating activities

13,777

(48,781

)

Cash flows (used in) investing activities:

Capital expenditures

(40,452

)

(18,332

)

Proceeds from disposal of property and equipment

7

Proceeds from sale of international operations, net of cash disposed

20,556

Net cash (used in) investing activities

(19,896

)

(18,325

)

Cash flows (used in) provided by financing activities:

Repayment of loans, notes payable and long-term obligations

(836,435

)

(79,763

)

Proceeds from loans, notes payable and long-term obligations

794,750

269,874

Treasury stock purchases

(212

)

(85

)

Exercise of stock options

3,322

Debt issuance costs

(21,437

)

Net cash (used in) provided by financing activities

(60,012

)

190,026

Effect of exchange rate changes on cash and cash equivalents

274

(3,945

)

Net (decrease) increase in cash and cash equivalents and restricted cash

(65,857

)

118,975

Change in cash classified within current assets held for sale

31,628

Cash and cash equivalents and restricted cash at beginning of period

119,681

35,176

Cash and cash equivalents and restricted cash at end of period*

$

85,452

$

154,151

Supplemental disclosure of cash flow information:

Cash paid during the period for interest expense

$

16,594

$

43,402

Cash paid during the period for income taxes, net of refunds

$

3,411

$

11,854

*Includes $1,000 and $18 of restricted cash for the six months ended June 30, 2021 and 2020. The Company recorded restricted cash in other assets, net as presented in the consolidated balance sheet at June 30, 2021 and in prepaid expenses and other current assets as presented in the consolidated balance sheets at December 31, 2020 and June 30, 2020.

** See Note 17 – Kazzam, LLC of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in the June 30, 2021 Quarterly Report on Form 10-Q 2021.


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

Three Months Ended June 30,

Six months ended June 30,

2021

2020

2021

2020

(Dollars in thousands)

Net income (loss)

$

29,811

$

(130,059

)

$

15,693

$

(671,727

)

Interest expense, net

23,116

25,412

40,330

50,532

Income tax expense (benefit)

10,209

(23,631

)

6,740

(124,129

)

Depreciation and amortization

16,916

22,766

34,860

40,518

EBITDA

80,052

(105,512

)

97,623

(704,806

)

Store impairment and restructuring charges (a)

1,761

29,522

Inventory restructuring and early lease terminations (j)

3,499

6,637

Other restructuring, retention and severance (b)

31

5,697

2,082

8,744

Goodwill, intangibles and long-lived assets impairment (c)

536,648

Deferred rent (d)

(398

)

(1,488

)

1,128

(2,872

)

Closed store expense (e)

1,543

400

3,136

1,635

Foreign currency losses/(gains), net

(772

)

12

(1,311

)

4,267

Stock option expense – time-based

104

206

217

560

Stock option expense – performance – based

7,847

7,847

Restricted stock unit and restricted cash awards expense – performance-based

1,161

1,978

Restricted stock units – time-based

415

518

767

1,139

Non-employee equity-based compensation (f)

1,033

Undistributed loss (income) in equity method
investments

(547

)

559

(211

)

415

Corporate development expenses (g)

2,643

5,612

Non-recurring legal settlements/costs

188

6,509

Gain or loss on sale of property, plant and equipment*

83

111

51

COVID - 19 (i)

655

44,200

1,270

70,380

Loss on disposal of assets

3,211

Net loss on debt repayment

226

Other*

90

133

1,388

2,437

Adjusted EBITDA

$

85,833

$

(42,753

)

$

118,252

$

(30,879

)

* Prior period amounts have been reclassified to conform with current period presentation.


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

Three Months Ended June 30, 2021 EBITDA Adjustments

June 30, 2021
GAAP
Basis (as
reported)

Inventory restructuring and early lease terminations (j)

Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units

Deferred
Rent (d)

Other
restructuring,
retention and
severance (b)

Closed
store
expense (e)

COVID-
19 (i)

Foreign
currency
gains

Other

June 30,
2021
Non-GAAP
basis

Net sales

$

535,746

$

535,746

Cost of sales

318,574

(2,312

)

316,262

Gross Profit

217,172

219,484

Wholesale selling expenses

7,358

7,358

Retail operating expenses

97,179

(1,187

)

356

(1,516

)

(463

)

94,369

General and administrative expenses

45,795

(1,680

)

42

(31

)

(27

)

(192

)

(39

)

43,868

Art and development costs

5,004

5,004

Income 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


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

Three Months Ended June 30, 2020 EBITDA Adjustments

June 30, 2020
GAAP
Basis (as
reported)

Store
impairment
and
restructuring
charges (a)

Corporate
development
expenses (g)

Legal

Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units –
time-based

Deferred
Rent (d)

Other
restructuring,
retention and
severance (b)

Closed
store
expense (e)

COVID-
19 (i)

Foreign
currency
losses

Other

June 30,
2020
Non-GAAP
basis

Net sales

$

254,691

$

254,691

Cost of sales

237,907

(597

)

(134

)

(4,437

)

(28,376

)

204,363

Gross Profit

16,784

50,328

Wholesale selling expenses

9,707

(1,104

)

(509

)

8,094

Retail operating expenses

65,236

1,573

(342

)

(4,389

)

62,078

General and administrative expenses

63,955

(1,003

)

(188

)

(8,571

)

49

(1,260

)

(58

)

(10,926

)

41,998

Art and development costs

3,516

3,516

Store impairment and restructuring charges

1,164

(1,164

)

(Loss) from operations

(126,794

)

(65,358

)

Interest expense, net

25,412

25,412

Other (income) expense, net

1,484

(536

)

(12

)

(775

)

161

Loss before income taxes

(153,690

)

(90,931

)

Interest expense, net

25,412

25,412

Depreciation and amortization

22,766

22,766

EBITDA

(105,512

)

(42,753

)

Adjustments to EBITDA

62,759

(1,761

)

(2,643

)

(188

)

(8,571

)

1,488

(5,697

)

(400

)

(44,200

)

(12

)

(775

)

Adjusted EBITDA

$

(42,753

)

$

(1,761

)

$

(2,643

)

$

(188

)

$

(8,571

)

$

1,488

$

(5,697

)

$

(400

)

$

(44,200

)

$

(12

)

$

(775

)

$

(42,753

)


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

Six Months Ended June 30, 2021 EBITDA Adjustments

June 30, 2021
GAAP
Basis (as
reported)

Inventory restructuring and early lease terminations (j)

Net loss on debt repayment

Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units

Deferred
Rent (d)

Other
restructuring,
retention and
severance (b)

Closed
store
expense (e)

COVID-
19 (i)

Foreign
currency
gains

Other

June 30,
2021
Non-GAAP
basis

Net sales

$

962,553

$

962,553

Cost of sales

593,095

(3,694

)

124

589,525

Gross Profit

369,458

373,028

Wholesale selling expenses

16,474

16,474

Retail operating expenses

186,075

(2,943

)

(1,212

)

(3,078

)

(1,053

)

(718

)

177,071

General and administrative expenses

91,833

(2,962

)

84

(2,082

)

(58

)

(217

)

(689

)

85,909

Art and development costs

9,975

9,975

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

Income 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


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

Six Months Ended June 30, 2020 EBITDA Adjustments

June 30, 2020
GAAP
Basis (as
reported)

Goodwill, intangibles and long-lived assets impairment (c)

Store
impairment
and
restructuring
charges (a)

Corporate
development
expenses (g)

Legal

Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units
(f)(g)

Deferred
Rent (d)

Other
restructuring,
retention and
severance (b)

Closed
store
expense (e)

COVID-
19 (i)

Foreign
currency
loss

Other

June 30,
2020
Non-GAAP
basis

Net sales

$

668,734

$

668,734

Cost of sales

534,664

(10,630

)

(134

)

(4,437

)

(41,180

)

(429

)

477,854

Gross Profit

134,070

190,880

Wholesale selling expenses

25,165

(1,840

)

(623

)

22,702

Retail operating expenses

153,402

2,909

(1,508

)

(14,567

)

140,236

General and administrative expenses

129,289

(3,132

)

(6,509

)

(9,546

)

97

(4,307

)

(127

)

(14,010

)

91,755

Art and development costs

8,838

8,838

Store impairment and restructuring charges

18,892

(18,892

)

Goodwill, intangibles and long-lived assets impairment

536,648

(536,648

)

(Loss) from operations

(738,164

)

(72,651

)

Interest expense, net

50,532

50,532

Other (income) expense, net

7,160

(640

)

(1,033

)

(4,267

)

(2,474

)

(1,254

)

(Loss) before income taxes

(795,856

)

(121,929

)

Interest expense, net

50,532

50,532

Depreciation and amortization

40,518

40,518

EBITDA

(704,806

)

(30,879

)

Adjustments to EBITDA

673,927

(536,648

)

(29,522

)

(5,612

)

(6,509

)

(10,579

)

2,872

(8,744

)

(1,635

)

(70,380

)

(4,267

)

(2,903

)

Adjusted EBITDA

$

(30,879

)

$

(536,648

)

$

(29,522

)

$

(5,612

)

$

(6,509

)

$

(10,579

)

$

2,872

$

(8,744

)

$

(1,635

)

$

(70,380

)

$

(4,267

)

$

(2,903

)

$

(30,879

)


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

Three Months Ended June 30,

Six months ended June 30,

2021

2020

2021

2020

(Dollars in thousands, except per share amounts)

Income (loss) before income taxes

$

40,020

$

(153,690

)

$

22,433

$

(795,856

)

Intangible asset amortization

2,354

2,679

4,831

5,545

Amortization of deferred financing costs and original
issuance discounts

1,074

1,199

1,937

2,401

Store impairment and restructuring charges (a)

181

28,154

Other restructuring charges (b)

31

6,595

1,967

7,517

Goodwill, intangibles and long-lived assets impairment (c)

536,648

Non-employee equity-based compensation (f)

1,033

Non-recurring legal settlements/costs

100

6,421

Stock option expense – time-based

104

561

217

561

Stock option expense – performance – based

7,493

7,847

Restricted stock unit expense – performance-based

1,154

1,971

COVID - 19 (i)

655

44,200

1,270

70,380

Loss on disposal of assets

3,211

Inventory disposals

162

926

Adjusted income (loss) before income taxes

45,554

(90,682

)

38,763

(129,349

)

Adjusted income tax (benefit) (h)

11,446

(29,366

)

10,064

(41,650

)

Adjusted net income (loss)

$

34,108

$

(61,316

)

$

28,699

$

(87,699

)

Adjusted net income (loss) per common share – diluted

$

0.29

$

(0.66

)

$

0.25

$

(0.94

)

Weighted-average number of common shares-diluted

116,251,151

93,419,078

115,499,304

93,407,344

  1. The Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”). After careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio with the closure of stores, which are primarily located in close proximity to other Party City stores. For further detail, refer to Note 3 – Store Impairment and Restructuring Charges of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q 2021.

  2. Amounts expensed principally relate to severance due to organizational changes.

  3. As a result of a sustained decline in market capitalization, the Company recognized a non-cash pre-tax goodwill and intangibles impairment charge at March 31, 2020.

  4. 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.

  5. Charges incurred related to closing and relocating stores in the ordinary course of business.

  6. The acquisition of Ampology’s interest in Kazzam, LLC in an equity transaction. See Note 17 – Kazzam, LLC of Item 1 in the June 30, 2021 Quarterly Report on Form 10-Q.

  7. Primarily represents costs for Kazzam (See Note 17 – Kazzam, LLC of Item 1 in the June 30, 2021 Quarterly Report on Form 10-Q for further discussion).

  8. 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.

  9. 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.

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


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

Three Months Ended June 30,

2021

2020

Dollars in
Thousands

Percentage of
Total Revenues

Dollars in
Thousands

Percentage of
Total Revenues

Net Sales:

Wholesale

$

230,961

43.1

%

$

131,296

51.6

%

Eliminations

(139,027

)

(26.0

)

(62,387

)

(24.5

)

Net wholesale

91,934

17.2

68,909

27.1

Retail*

443,812

82.8

185,782

72.9

Total revenues

$

535,746

100.0

%

$

254,691

100.0

%

*Retail revenues include royalties and franchise fees. Prior year amount conformed to current year presentation.

Six months ended June 30,

2021

2020

Dollars in
Thousands

Percentage of
Total Revenues

Dollars in
Thousands

Percentage of
Total
Revenues

Net Sales:

Wholesale

$

443,098

46.0

%

$

346,094

51.8

%

Eliminations

(257,639

)

(26.8

)

(166,118

)

(24.8

)

Net wholesale

185,459

19.3

179,976

26.9

Retail*

777,094

80.7

488,758

73.1

Total revenues

$

962,553

100.0

%

$

668,734

100.0

%

*Retail revenues include royalties and franchise fees. Prior year amount conformed to current year presentation.

Three Months Ended June 30,

2021

2020

Dollars in
Thousands

Percentage
of Net Sales

Dollars in
Thousands

Percentage
of Net Sales

Retail Gross Profit*

$

193,565

43.6

%

$

29,902

16.1

%

Wholesale Gross Profit

23,607

25.7

(13,118

)

(19.0

)

Total Gross Profit

$

217,172

40.5

%

$

16,784

6.6

%

*Retail Gross Profit include royalties and franchise fees. Prior year amount conformed to current year presentation.

Six months ended June 30,

2021

2020

Dollars in
Thousands

Percentage
of Net Sales

Dollars in
Thousands

Percentage
of Net Sales

Retail Gross Profit*

$

316,743

40.8

%

$

125,845

25.7

%

Wholesale Gross Profit

52,715

28.4

8,225

4.6

Total Gross Profit

$

369,458

38.4

%

$

134,070

20.0

%

*Retail Gross Profit include royalties and franchise fees. Prior year amount conformed to current year presentation.


PARTY CITY HOLDCO INC.
OPERATING METRICS

Three months ended June 30,

LTM

2021

2020

2021

Store Count

Corporate Stores:

Beginning of period

746

757

757

New stores opened

5

1

10

Acquired

5

Closed

(2

)

(1

)

(23

)

End of period

749

757

749

Franchise Stores

Beginning of period

85

97

96

Sold to Party City

(5

)

Closed

(3

)

(9

)

End of period

82

97

82

Grand Total

831

854

831


Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

Wholesale Share of Shelf (a)

81.0

%

82.3

%

81.2

%

81.7

%

Manufacturing Share of Shelf (b)

30.7

%

33.5

%

31.4

%

30.7

%

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

Brand comparable sales (c)

118.3

%

-52.4

%

73.4

%

-35.6

%

(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.