PARTY CITY HOLDCO INC. Total Sales of
Net Income of $239.7Million; Adjusted EBITDA of
Better Than Expected
“The strides we are making to increase relevancy and elevate our customer experience across channels continue to strengthen our position of authority when it comes to celebrations. In addition, these results reflect the consumers’ desire and willingness to celebrate and are a testament to the agility and discipline with which we are operating the business.”
Third Quarter Summary:
- Total revenues were
$533.8 million , a decrease of 1.2% on a reported basis and a decrease of 1.6% on a constant currency basis. - Total Retail sales decreased 1.3% on a reported basis and 1.5% on a constant currency basis, with a brand comparable sales increase of 8.3%, offset primarily by the divestiture of 65 Canadian retail stores in
October 2019 as well as the impact of 76 store closures from the company's store optimization program throughout 2019 and 2020. The total number of corporate Party City stores was 739 as ofSeptember 30, 2020 compared to 843 a year ago. - Brand comparable sales increased 8.3% in the third quarter due to strength in our core business particularly in the balloon, birthday, and entertaining categories.
- North American digitally enabled sales increased 36.0% including BOPIS, curbside pickup, and delivery.
- Net third-party Wholesale revenues decreased 0.8% or a decrease of 1.6% in constant currency, with continued improvement in independent and franchise customer trends.
- Total gross profit margin increased 250 basis points to 33.1% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin increased 250 basis points to 34.4% of net sales mainly due to occupancy leverage, lower sales promotions, and favorable sales mix.
- Operating expenses totaled
$160.2 million or$25.0 million lower than the third quarter of 2019 (excluding the goodwill impairment charges in 2020 and 2019). Excluding certain items not indicative of core operating performance, operating expenses totaled$152.4 million , or 28.6% of revenue, a reduction of$23.6 million or 400 basis points compared to the third quarter of 2019, primarily due to lower retail operating expenses as a result of the lower store count, lower Wholesale selling expenses and the temporary benefits from cost cutting related to the pandemic. - Interest expense was
$13.4 million during the third quarter of 2020, compared to$29.4 million during the third quarter of 2019 mainly due to$12.2 million in forgiveness of certain semi-annual interest as a result of the debt exchange refinancing transaction completed inJuly 2020 . - Reported GAAP net income was
$239.7 million , or$2.24 per share. - Adjusted net income was
$11.0 million , or$0.10 per diluted share, an improvement of$0.38 per share compared to adjusted net loss of$25.7 million , or$0.28 per share, in the third quarter of 2019. (See “Non-GAAP Financial Information”) - Adjusted EBITDA was
$49.2 million , versus$17.1 million during the third quarter of 2019. (See “Non-GAAP Financial Information”)
Fiscal
For fiscal
“We continue to relentlessly focus on our customers as we work to fulfill our mission of creating joy and making it easy to create unforgettable memories. We look forward to building on our progress as we close out the year in a substantially stronger competitive and financial position,” concluded
Balance Sheet Highlights:
As of the end of the third quarter on
In addition, the principal balance of debt net of cash on
| Party City | Anagram | PCHI Consolidated | ||||||||||||||||||
| September 30, 2020 | September 30, 2020 | September 30, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||||||||
| Balance sheet debt, net of deferred financing costs | $ | 1,349,512 | $ | 303,062 | $ | 1,652,574 | $ | 1,704,317 | $ | 2,038,613 | ||||||||||
| Less: Future interest payments | 50,172 | 108,376 | 158,548 | - | - | |||||||||||||||
| Principal balance of debt outstanding, net of deferred financing costs | 1,299,340 | 194,686 | 1,494,026 | 1,704,317 | 2,038,613 | |||||||||||||||
| Less: Cash | 150,352 | 20,210 | 170,562 | 34,917 | 34,572 | |||||||||||||||
| Principal balance of debt net of cash | $ | 1,148,988 | $ | 174,476 | $ | 1,323,464 | $ | 1,669,400 | $ | 2,004,041 | ||||||||||
Outlook:
The Company is providing the following fiscal Q4 2020 outlook. This outlook is subject to potential consumer and marketplace volatility due to the COVID-19 pandemic:
- Total revenue of
$675 to$695 million - Brand comparable sales flat to down a low single digit percentage
- GAAP net income of
$30 to$37 million - GAAP diluted EPS of
$0.28 to$0.35 - Adjusted EBITDA of
$80 to$90 million - Adjusted net income of
$33 to$40 million - Adjusted diluted EPS of
$0.31 to$0.37 - Interest expense of approximately
$15 million , with cash interest payments of approximately$9 million - Ending corporate store count is expected to be approximately 740 stores
- Capital expenditures of approximately
$13 to$18 million in Q4 2020 and approximately$45 to$50 million for the full year - D&A of approximately
$19 million in Q4 2020 and approximately$76 million for the full year. - Principal balance of debt, net of cash at end of year of approximately
$1.3 billion - Fiscal 2020 will contain an additional, non-comparable “53rd week” in the fourth quarter. The 53rd week is expected to contribute approximately
$35 million in sales, approximately$7 million in adjusted EBITDA, and approximately$0.05 in adjusted diluted EPS.
Conference Call Information:
A conference call to discuss the third quarter 2020 financial results is scheduled for today,
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,
Non-GAAP Information
This press release includes non-GAAP measures including Adjusted EBITDA and Adjusted Net Income/Loss and Adjusted Earnings per Share. 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. 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 free cash flow, defined as Adjusted EBITDA less capital expenditures, and net debt leverage, 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. Adjusted Earnings per Share is calculated by dividing Adjusted Net Income by the Weighted Average Number of Common Shares-Diluted. 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 a 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, including Party City’s expectations regarding its ability to maximize the potential of its plans to open and close stores, plans to invest capital expenditures, and anticipated interest expense and depreciation and amortization expense for fiscal year 2020. 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: potential risks and uncertainties relating to the ultimate geographic spread of COVID-19; the severity of the COVID-19 pandemic; the duration of the COVID-19 pandemic; actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact; the potential negative impacts of COVID-19 on the global economy and foreign sourcing; the impacts of COVID-19 on our financial condition and business operation; 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
About Party City
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, unaudited)
| September 30, 2020 | December 31, 2019 | |||||||
| (Note 2) (Unaudited) | (Note 2) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 170,562 | $ | 34,917 | ||||
| Accounts receivable, net | 149,825 | 149,109 | ||||||
| Inventories, net | 630,357 | 658,419 | ||||||
| Prepaid expenses and other current assets | 112,038 | 51,685 | ||||||
| Total current assets | 1,062,782 | 894,130 | ||||||
| Property, plant and equipment, net | 206,447 | 243,572 | ||||||
| Operating lease asset | 741,524 | 802,634 | ||||||
| 669,564 | 1,072,330 | |||||||
| Trade names | 383,666 | 530,320 | ||||||
| Other intangible assets, net | 34,505 | 45,060 | ||||||
| Other assets, net | 9,521 | 7,273 | ||||||
| Total assets | $ | 3,108,009 | $ | 3,595,319 | ||||
| LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Loans and notes payable | $ | 303,894 | $ | 128,806 | ||||
| Accounts payable | 179,938 | 152,300 | ||||||
| Accrued expenses | 202,636 | 150,921 | ||||||
| Current portion of operating lease liability | 194,476 | 155,471 | ||||||
| Income taxes payable | — | 35,905 | ||||||
| Current portion of long-term obligations | 14,342 | 71,524 | ||||||
| Total current liabilities | 895,286 | 694,927 | ||||||
| Long-term obligations, excluding current portion | 1,334,338 | 1,503,987 | ||||||
| Long-term portion of operating lease liability | 677,183 | 720,735 | ||||||
| Deferred income tax liabilities, net | 49,508 | 126,081 | ||||||
| Other long-term liabilities | 15,559 | 16,517 | ||||||
| Total liabilities | 2,971,874 | 3,062,247 | ||||||
| Redeemable securities | — | 3,351 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock (110,573,555 and 94,461,576 shares outstanding and 121,848,074 and 121,662,540 shares issued at | 1,371 | 1,211 | ||||||
| Additional paid-in capital | 970,145 | 928,573 | ||||||
| Accumulated deficit | (469,040 | ) | (37,219 | ) | ||||
| Accumulated other comprehensive loss | (38,907 | ) | (35,734 | ) | ||||
| 463,569 | 856,831 | |||||||
| Less: Common stock held in treasury, at cost (11,274,519 and 27,200,964 shares at | (327,170 | ) | (327,086 | ) | ||||
| 136,399 | 529,745 | |||||||
| Noncontrolling interests | (264 | ) | (24 | ) | ||||
| Total stockholders’ equity | 136,135 | 529,721 | ||||||
| Total liabilities, redeemable securities and stockholders’ equity | $ | 3,108,009 | $ | 3,595,319 | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except share and per share data, unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net sales | $ | 532,053 | $ | 538,345 | $ | 1,198,160 | $ | 1,611,149 | ||||||||
| Royalties and franchise fees | 1,722 | 1,886 | 4,349 | 6,089 | ||||||||||||
| Total revenues | 533,775 | 540,231 | 1,202,509 | 1,617,238 | ||||||||||||
| Cost of sales | 355,923 | 373,413 | 890,587 | 1,065,511 | ||||||||||||
| Wholesale selling expenses | 11,950 | 16,084 | 37,115 | 50,929 | ||||||||||||
| Retail operating expenses | 97,100 | 111,595 | 250,502 | 302,756 | ||||||||||||
| Franchise expenses | 2,795 | 3,274 | 9,225 | 9,813 | ||||||||||||
| General and administrative expenses | 42,191 | 43,062 | 162,118 | 126,497 | ||||||||||||
| Art and development costs | 4,257 | 5,927 | 13,095 | 17,568 | ||||||||||||
| Development stage expenses | — | 2,728 | 2,932 | 7,966 | ||||||||||||
| Gain on sale/leaseback transaction | — | — | — | (58,381 | ) | |||||||||||
| Store impairment and restructuring charges | 1,926 | 2,574 | 20,818 | 25,817 | ||||||||||||
| 44,732 | 259,100 | 581,380 | 259,100 | |||||||||||||
| Total expenses | 560,874 | 817,757 | 1,967,772 | 1,807,576 | ||||||||||||
| Loss from operations | (27,099 | ) | (277,526 | ) | (765,263 | ) | (190,338 | ) | ||||||||
| Interest expense, net | 13,422 | 29,424 | 63,954 | 88,857 | ||||||||||||
| Other (income) expense, net | (2,873 | ) | 2,047 | 4,287 | 6,643 | |||||||||||
| (Gain) on debt refinancing | (273,149 | ) | — | (273,149 | ) | — | ||||||||||
| Income (loss) before income taxes | 235,501 | (308,997 | ) | (560,355 | ) | (285,838 | ) | |||||||||
| Income tax (benefit) | (4,164 | ) | (27,252 | ) | (128,293 | ) | (21,809 | ) | ||||||||
| Net income (loss) | 239,665 | (281,745 | ) | (432,062 | ) | (264,029 | ) | |||||||||
| Less: Net (loss) attributable to noncontrolling interests | (42 | ) | (212 | ) | (241 | ) | (352 | ) | ||||||||
| Net income (loss) attributable to common shareholders of | $ | 239,707 | $ | (281,533 | ) | $ | (431,821 | ) | $ | (263,677 | ) | |||||
| Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic | $ | 2.25 | $ | (3.02 | ) | $ | (4.41 | ) | $ | (2.83 | ) | |||||
| Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted | $ | 2.24 | $ | (3.02 | ) | $ | (4.41 | ) | $ | (2.83 | ) | |||||
| Weighted-average number of common shares-Basic | 106,709,307 | 93,346,448 | 97,872,174 | 93,271,392 | ||||||||||||
| Weighted-average number of common shares-Diluted | 106,875,631 | 93,346,448 | 97,872,174 | 93,271,392 | ||||||||||||
| Dividends declared per share | $ | — | $ | — | $ | — | $ | — | ||||||||
| Comprehensive income (loss) | $ | 244,607 | $ | (288,573 | ) | $ | (435,235 | ) | $ | (266,883 | ) | |||||
| Less: Comprehensive (loss) attributable to noncontrolling interests | (42 | ) | (213 | ) | (241 | ) | (364 | ) | ||||||||
| Comprehensive income (loss) attributable to common shareholders of | $ | 244,649 | $ | (288,360 | ) | $ | (434,994 | ) | $ | (266,519 | ) | |||||
RECONCILIATION OF ADJUSTED EBITDA
(In thousands, unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Net (loss) income | $ | 239,665 | $ | (281,745 | ) | $ | (432,062 | ) | $ | (264,029 | ) | |||||
| Interest expense, net | 13,422 | 29,424 | 63,954 | 88,857 | ||||||||||||
| Income tax (benefit) | (4,164 | ) | (27,252 | ) | (128,293 | ) | (21,809 | ) | ||||||||
| Depreciation and amortization | 17,278 | 19,155 | 57,796 | 62,380 | ||||||||||||
| EBITDA | 266,201 | (260,418 | ) | (438,605 | ) | (134,601 | ) | |||||||||
| Non-cash purchase accounting adjustments | — | — | — | 2,757 | ||||||||||||
| Store impairment and restructuring charges (a) | 6,763 | 8,694 | 36,285 | 54,960 | ||||||||||||
| Other restructuring, retention and severance (b) | 2,957 | (73 | ) | 11,701 | 5,248 | |||||||||||
| 44,732 | 259,100 | 581,380 | 259,100 | |||||||||||||
| Deferred rent (d) | 254 | 446 | (2,618 | ) | (1,042 | ) | ||||||||||
| Closed store expense (e) | 1,247 | 2,326 | 2,882 | 3,424 | ||||||||||||
| Foreign currency losses/(gains), net | (3,312 | ) | 646 | 955 | 486 | |||||||||||
| Stock option expense – time – based (f) | 111 | 409 | 671 | 1,150 | ||||||||||||
| Stock option expense – performance – based (n) | — | — | 7,847 | — | ||||||||||||
| Restricted stock unit and restricted cash awards expense – performance-based | 510 | — | 510 | — | ||||||||||||
| Non-employee equity-based compensation (g) | — | 128 | 1,033 | 386 | ||||||||||||
| Undistributed income (loss) in equity method investments | (59 | ) | 7 | 356 | (195 | ) | ||||||||||
| Corporate development expenses (h) | 581 | 4,588 | 6,193 | 11,782 | ||||||||||||
| Restricted stock units – time-based (i) | 429 | 610 | 1,568 | 1,543 | ||||||||||||
| Restricted stock unit expense – performance-based (m) | — | 560 | — | 1,036 | ||||||||||||
| Non-recurring legal settlements/costs | 661 | 194 | 7,170 | 1,795 | ||||||||||||
| (Gain) on debt refinancing (p) | (273,149 | ) | — | (273,149 | ) | — | ||||||||||
| Gain on sale/leaseback transaction (o) | — | — | — | (58,381 | ) | |||||||||||
| COVID - 19 (l) | 679 | — | 71,059 | — | ||||||||||||
| Other | 546 | (75 | ) | 3,034 | 217 | |||||||||||
| Adjusted EBITDA | $ | 49,151 | $ | 17,142 | $ | 18,272 | $ | 149,665 | ||||||||
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP Basis (as reported) | Store impairment and restructuring charges (a) | Gain on debt refinancing (p) | Corporate development expenses (h) | Legal | Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units – time- based (f)(g)(i)(n) | Deferred Rent (d) | Other restructuring, retention and severance (b) | Closed store expense (e) | COVID- 19 (l) | Foreign currency losses | Other | 2020 Non-GAAP basis | |||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 532,053 | $ | 532,053 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Royalties and franchise fees | 1,722 | 1,722 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 533,775 | 533,775 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 355,923 | (4,837 | ) | (80 | ) | (1,266 | ) | (469 | ) | 349,271 | |||||||||||||||||||||||||||||||||||||||||||
| Wholesale selling expenses | 11,950 | 11,950 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail operating expenses | 97,100 | (224 | ) | (1,225 | ) | (1,745 | ) | 93,906 | |||||||||||||||||||||||||||||||||||||||||||||
| Franchise expenses | 2,795 | 2,795 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 42,191 | (370 | ) | (661 | ) | (1,050 | ) | 50 | (2,957 | ) | (22 | ) | 2,332 | 39,513 | |||||||||||||||||||||||||||||||||||||||
| Art and development costs | 4,257 | 4,257 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Store impairment and restructuring charges | 1,926 | (1,926 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| 44,732 | (44,732 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 560,874 | (44,732 | ) | (6,763 | ) | — | (370 | ) | (661 | ) | (1,050 | ) | (254 | ) | (2,957 | ) | (1,247 | ) | (679 | ) | — | (469 | ) | 501,692 | |||||||||||||||||||||||||||||
| (Loss) from operations | (27,099 | ) | 32,083 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 13,422 | 13,422 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | (2,873 | ) | (211 | ) | 3,312 | (18 | ) | 210 | |||||||||||||||||||||||||||||||||||||||||||||
| (Gain) on debt refinancing | (273,149 | ) | 273,149 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | 235,501 | 18,451 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 13,422 | 13,422 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 17,278 | 17,278 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | 266,201 | 49,151 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | (217,050 | ) | (44,732 | ) | (6,763 | ) | 273,149 | (581 | ) | (661 | ) | (1,050 | ) | (254 | ) | (2,957 | ) | (1,247 | ) | (679 | ) | 3,312 | (487 | ) | — | ||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 49,151 | $ | (44,732 | ) | $ | (6,763 | ) | $ | 273,149 | $ | (581 | ) | $ | (661 | ) | $ | (1,050 | ) | $ | (254 | ) | $ | (2,957 | ) | $ | (1,247 | ) | $ | (679 | ) | $ | 3,312 | $ | (487 | ) | $ | 49,151 | |||||||||||||||
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
2019 GAAP Basis (as reported) | long- lived assets impairment (c) | Store impairment and restructuring charges (a) | Gain on sale/ leaseback transaction (o) | Corporate development expenses (h) | Legal | Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units – time- based (f)(g)(i)(m) | Deferred Rent (d) | Other restructuring, retention and severance (b) | Closed store expense (e) | Foreign currency gains | Other | 2019 Non-GAAP basis | |||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 538,345 | $ | 538,345 | |||||||||||||||||||||||||||||||||||||||||||||
| Royalties and franchise fees | 1,886 | 1,886 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 540,231 | 540,231 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 373,413 | (6,120 | ) | (656 | ) | 366,637 | |||||||||||||||||||||||||||||||||||||||||||
| Wholesale selling expenses | 16,084 | 16,084 | |||||||||||||||||||||||||||||||||||||||||||||||
| Retail operating expenses | 111,595 | (2,240 | ) | 109,355 | |||||||||||||||||||||||||||||||||||||||||||||
| Franchise expenses | 3,274 | 3,274 | |||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 43,062 | (194 | ) | (1,707 | ) | 210 | 73 | (86 | ) | 41,358 | |||||||||||||||||||||||||||||||||||||||
| Art and development costs | 5,927 | 5,927 | |||||||||||||||||||||||||||||||||||||||||||||||
| Development stage expenses | 2,728 | (2,728 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||
| Store impairment and restructuring charges | 2,574 | (2,574 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||
| 259,100 | (259,100 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 817,757 | (259,100 | ) | (8,694 | ) | — | (2,728 | ) | (194 | ) | (1,707 | ) | (446 | ) | 73 | (2,326 | ) | — | — | 542,635 | |||||||||||||||||||||||||||||
| Income from operations | (277,526 | ) | (2,404 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 29,424 | 29,424 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | 2,047 | (1,860 | ) | (646 | ) | 68 | (391 | ) | |||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | (308,997 | ) | (31,437 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 29,424 | 29,424 | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 19,155 | 19,155 | |||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | (260,418 | ) | 17,142 | ||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | 277,560 | (259,100 | ) | (8,694 | ) | — | (4,588 | ) | (194 | ) | (1,707 | ) | (446 | ) | 73 | (2,326 | ) | (646 | ) | 68 | — | ||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 17,142 | $ | (259,100 | ) | $ | (8,694 | ) | $ | — | $ | (4,588 | ) | $ | (194 | ) | $ | (1,707 | ) | $ | (446 | ) | $ | 73 | $ | (2,326 | ) | $ | (646 | ) | $ | 68 | $ | 17,142 | |||||||||||||||
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 GAAP Basis (as reported) | long- lived assets impairment (c) | Store impairment and restructuring charges (a) | Gain on debt refinancing (p) | Corporate development expenses (h) | Legal | Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units (f)(g)(i)(n) | Deferred Rent (d) | Other restructuring, retention and severance (b) | Closed store expense (e) | COVID- 19 (l) | Foreign currency losses | Other | 2020 Non- GAAP basis | ||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,198,160 | $ | 1,198,160 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Royalties and franchise fees | 4,349 | 4,349 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 1,202,509 | 1,202,509 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 890,587 | (15,467 | ) | (214 | ) | (4,437 | ) | (42,446 | ) | (898 | ) | 827,125 | |||||||||||||||||||||||||||||||||||||||||||
| Wholesale selling expenses | 37,115 | (1,840 | ) | (623 | ) | 34,652 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Retail operating expenses | 250,502 | 2,685 | (2,733 | ) | (16,312 | ) | 234,142 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Franchise expenses | 9,225 | (672 | ) | 8,553 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 162,118 | (570 | ) | (7,170 | ) | (10,596 | ) | 147 | (7,264 | ) | (149 | ) | (11,006 | ) | 125,510 | ||||||||||||||||||||||||||||||||||||||||
| Art and development costs | 13,095 | 13,095 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Development stage expenses | 2,932 | (2,932 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Gain) on sale/leaseback transaction | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Store impairment and restructuring charges | 20,818 | (20,818 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 581,380 | (581,380 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total expense | 1,967,772 | (581,380 | ) | (36,285 | ) | — | (5,342 | ) | (7,170 | ) | (10,596 | ) | 2,618 | (11,701 | ) | (2,882 | ) | (71,059 | ) | — | (898 | ) | 1,243,077 | ||||||||||||||||||||||||||||||||
| (Loss) from operations | (765,263 | ) | (40,568 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 63,954 | 63,954 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | 4,287 | (851 | ) | (1,033 | ) | (955 | ) | (2,492 | ) | (1,044 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| (Gain) on debt refinancing | (273,149 | ) | 273,149 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) before income taxes | (560,355 | ) | (103,478 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 63,954 | 63,954 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 57,796 | 57,796 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | (438,605 | ) | 18,272 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | 456,877 | (581,380 | ) | (36,285 | ) | 273,149 | (6,193 | ) | (7,170 | ) | (11,629 | ) | 2,618 | (11,701 | ) | (2,882 | ) | (71,059 | ) | (955 | ) | (3,390 | ) | — | |||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 18,272 | $ | (581,380 | ) | $ | (36,285 | ) | $ | 273,149 | $ | (6,193 | ) | $ | (7,170 | ) | $ | (11,629 | ) | $ | 2,618 | $ | (11,701 | ) | $ | (2,882 | ) | $ | (71,059 | ) | $ | (955 | ) | $ | (3,390 | ) | $ | 18,272 | |||||||||||||||||
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 GAAP Basis (as reported) | and long- lived assets impairment (c) | Store impairment and restructuring charges (a) | Gain on sale /leaseback transaction (o) | Corporate development expenses (h) | Legal | Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units (f)(g)(i)(m) | Deferred Rent (d) | Other restructuring, retention and severance (b) | Closed store expense (e) | Non-Cash Purchase Accounting Adjustments | Foreign currency gains | Other | 2019 Non- GAAP basis | |||||||||||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,611,149 | $ | 1,611,149 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Royalties and franchise fees | 6,089 | 6,089 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 1,617,238 | 1,617,238 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 1,065,511 | (29,143 | ) | 831 | 1,037,199 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Wholesale selling expenses | 50,929 | 50,929 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retail operating expenses | 302,756 | (31 | ) | (3,111 | ) | 299,614 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Franchise expenses | 9,813 | 9,813 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 126,497 | (1,795 | ) | (4,115 | ) | 211 | (5,217 | ) | (313 | ) | 115,268 | |||||||||||||||||||||||||||||||||||||||||||
| Art and development costs | 17,568 | 17,568 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Development stage expenses | 7,966 | (7,965 | ) | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on sale/leaseback transaction | (58,381 | ) | 58,381 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Store impairment and restructuring charges | 25,817 | (25,817 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 259,100 | (259,100 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 1,807,576 | (259,100 | ) | (54,960 | ) | 58,381 | (7,965 | ) | (1,795 | ) | (4,115 | ) | 1,042 | (5,248 | ) | (3,424 | ) | — | — | — | 1,530,392 | |||||||||||||||||||||||||||||||||
| Income from operations | (190,338 | ) | 86,846 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 88,857 | 88,857 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | 6,643 | (3,817 | ) | (2,757 | ) | (486 | ) | (22 | ) | (439 | ) | |||||||||||||||||||||||||||||||||||||||||||
| (Loss) before income taxes | (285,838 | ) | (1,572 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 88,857 | 88,857 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 62,380 | 62,380 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | (134,601 | ) | 149,665 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | 284,266 | (259,100 | ) | (54,960 | ) | 58,381 | (11,782 | ) | (1,795 | ) | (4,115 | ) | 1,042 | (5,248 | ) | (3,424 | ) | (2,757 | ) | (486 | ) | (22 | ) | — | ||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 149,665 | $ | (259,100 | ) | $ | (54,960 | ) | $ | 58,381 | $ | (11,782 | ) | $ | (1,795 | ) | $ | (4,115 | ) | $ | 1,042 | $ | (5,248 | ) | $ | (3,424 | ) | $ | (2,757 | ) | $ | (486 | ) | $ | (22 | ) | $ | 149,665 | ||||||||||||||||
| (a) | During the three and nine months ended | |
| (b) | Amounts expensed during the first nine months of 2020 principally relate to severance due to organizational changes. Amounts expensed during 2019 principally relate to executive severance and the write-off of inventory for a section of the Company’s Party City stores that were restructured. | |
| (c) | As a result of a sustained decline in market capitalization and reduced fair value of certain intangibles and long-lived assets, the Company recognized non-cash pre-tax goodwill and intangibles impairment charges for the nine months ended | |
| (d) | 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 for such items. During the first quarter of 2019, the Company adopted ASC 842. Under the standard, the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items is now incorporated in the Company’s operating lease asset. | |
| (e) | Charges incurred related to closing and relocating stores in the ordinary course of business. | |
| (f) | Represents non-cash charges related to stock options – time-based and performance-based. | |
| (g) | The acquisition of Ampology’s interest in | |
| (h) | Primarily represents costs for Kazzam (see Note 19 – | |
| (i) | Non-cash charges for restricted stock units that vest based on service conditions. | |
| (j) | During | |
| (k) | 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. | |
| (l) | 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. | |
| (m) | Non-cash charges for restricted stock units that vest based on performance conditions. | |
| (n) | Represents non-cash charges related to stock options that vest based on performance conditions. For the three and nine months ended | |
| (o) | During | |
| (p) | As described in Note 16 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the Company recognized a gain of | |
RECONCILIATION OF ADJUSTED NET INCOME
(In thousands, except share and per share data, unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||
| Income (loss) before income taxes | $ | 235,501 | $ | (308,997 | ) | $ | (560,355 | ) | $ | (285,838 | ) | |||||
| Intangible asset amortization | 2,899 | 3,553 | 8,444 | 10,528 | ||||||||||||
| Non-cash purchase accounting adjustments | — | 424 | — | 4,200 | ||||||||||||
| Amortization of deferred financing costs and original issuance discounts (j) | 875 | 1,222 | 3,276 | 3,511 | ||||||||||||
| Store impairment and restructuring charges (a) | 1,321 | 8,694 | 29,475 | 54,960 | ||||||||||||
| Other restructuring charges (b) | 2,622 | (263 | ) | 10,139 | 2,822 | |||||||||||
| 44,732 | 259,100 | 581,380 | 259,100 | |||||||||||||
| Non-employee equity-based compensation (g) | — | 128 | 1,033 | 386 | ||||||||||||
| Refinancing charges (j) | — | — | — | 36 | ||||||||||||
| Non-recurring legal settlements/costs | 605 | — | 7,026 | — | ||||||||||||
| Stock option expense – time – based (f) | 110 | 409 | 671 | 1,150 | ||||||||||||
| Stock option expense – performance – based (n) | — | — | 7,847 | — | ||||||||||||
| Gain on sale/leaseback transaction (o) | — | — | — | (58,381 | ) | |||||||||||
| (Gain) on debt refinancing (p) | (273,149 | ) | — | (273,149 | ) | — | ||||||||||
| Restricted stock unit expense – performance-based (m) | — | 560 | — | 1,036 | ||||||||||||
| COVID - 19 (l) | 733 | — | 71,113 | — | ||||||||||||
| Adjusted income (loss) before income taxes | 16,249 | (35,170 | ) | (113,100 | ) | (6,490 | ) | |||||||||
| Adjusted income tax (benefit) expense (k) | 5,234 | (9,459 | ) | (36,416 | ) | (2,117 | ) | |||||||||
| Adjusted net (loss) income | $ | 11,015 | $ | (25,711 | ) | $ | (76,684 | ) | $ | (4,373 | ) | |||||
| Adjusted net (loss) income per common share – diluted | $ | 0.10 | $ | (0.28 | ) | $ | (0.78 | ) | $ | (0.05 | ) | |||||
| Weighted-average number of common shares-diluted | 106,875,631 | 93,346,448 | 97,872,174 | 93,271,392 | ||||||||||||
| (a) | During the three and nine months ended | |
| (b) | Amounts expensed during the first nine months of 2020 principally relate to severance due to organizational changes. Amounts expensed during 2019 principally relate to executive severance and the write-off of inventory for a section of the Company’s Party City stores that were restructured. | |
| (c) | As a result of a sustained decline in market capitalization and reduced fair value of certain intangibles and long-lived assets, the Company recognized non-cash pre-tax goodwill and intangibles impairment charges for the nine months ended | |
| (d) | 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 for such items. During the first quarter of 2019, the Company adopted ASC 842. Under the standard, the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items is now incorporated in the Company’s operating lease asset. | |
| (e) | Charges incurred related to closing and relocating stores in the ordinary course of business. | |
| (f) | Represents non-cash charges related to stock options – time-based and performance-based. | |
| (g) | The acquisition of Ampology’s interest in | |
| (h) | Primarily represents costs for Kazzam (see Note 19 – | |
| (i) | Non-cash charges for restricted stock units that vest based on service conditions. | |
| (j) | During | |
| (k) | 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. | |
| (l) | 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. | |
| (m) | Non-cash charges for restricted stock units that vest based on performance conditions. | |
| (n) | Represents non-cash charges related to stock options that vest based on performance conditions. For the three and nine months ended | |
| (o) | During | |
| (p) | As described in Note 16 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the Company recognized a gain of | |
SEGMENT INFORMATION
(In thousands, except percentages, unaudited)
| Three Months Ended September 30, | ||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||
| Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||||
| Wholesale | $ | 346,621 | 64.9 | % | $ | 383,425 | 71.0 | % | ||||||||||
| Eliminations | (179,049 | ) | (33.5 | ) | (214,547 | ) | (39.7 | ) | ||||||||||
| Net wholesale | 167,572 | 31.4 | 168,878 | 31.3 | ||||||||||||||
| Retail | 364,481 | 68.3 | 369,467 | 68.4 | ||||||||||||||
| Total net sales | 532,053 | 99.7 | 538,345 | 99.7 | ||||||||||||||
| Royalties and franchise fees | 1,722 | 0.3 | 1,886 | 0.3 | ||||||||||||||
| Total revenues | $ | 533,775 | 100.0 | % | $ | 540,231 | 100.0 | % | ||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||
| Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||||
| Wholesale | $ | 692,715 | 57.6 | % | $ | 962,793 | 59.5 | % | ||||||||||
| Eliminations | (345,167 | ) | (28.7 | ) | (522,421 | ) | (32.3 | ) | ||||||||||
| Net wholesale | 347,548 | 28.9 | 440,372 | 27.2 | ||||||||||||||
| Retail | 850,612 | 70.7 | 1,170,777 | 72.4 | ||||||||||||||
| Total net sales | 1,198,160 | 99.6 | 1,611,149 | 99.6 | ||||||||||||||
| Royalties and franchise fees | 4,349 | 0.4 | 6,089 | 0.4 | ||||||||||||||
| Total revenues | $ | 1,202,509 | 100.0 | % | $ | 1,617,238 | 100.0 | % | ||||||||||
| Three Months Ended September 30, | ||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||
| Dollars in Thousands | Percentage of | Dollars in Thousands | Percentage of | |||||||||||||||
| Retail | $ | 133,817 | 36.7 | % | $ | 128,692 | 34.8 | % | ||||||||||
| Wholesale | 42,313 | 25.3 | 36,240 | 21.5 | ||||||||||||||
| Total Gross Profit | $ | 176,130 | 33.1 | % | $ | 164,932 | 30.6 | % | ||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||
| Dollars in Thousands | Percentage of | Dollars in Thousands | Percentage of | |||||||||||||||
| Retail | $ | 257,035 | 30.2 | % | $ | 436,761 | 37.3 | % | ||||||||||
| Wholesale | 50,538 | 14.5 | 108,877 | 24.7 | ||||||||||||||
| Total Gross Profit | $ | 307,573 | 25.7 | % | $ | 545,638 | 33.9 | % | ||||||||||
OPERATING METRICS
| Three Months Ended September 30, | LTM | |||||||||||
| 2020 | 2019 | 2020 | ||||||||||
| Store Count | ||||||||||||
| Corporate Stores: | ||||||||||||
| Beginning of period | 757 | 865 | 843 | |||||||||
| New stores opened | 1 | — | 2 | |||||||||
| Acquired | 2 | 3 | 2 | |||||||||
| Closed | (21 | ) | (25 | ) | (108 | ) | ||||||
| End of period | 739 | 843 | 739 | |||||||||
| Franchise Stores | ||||||||||||
| Beginning of period | 96 | 98 | 98 | |||||||||
| New stores opened | — | — | — | |||||||||
| Sold to Party City | (1 | ) | — | (2 | ) | |||||||
| Closed | (5 | ) | — | (6 | ) | |||||||
| End of period | 90 | 98 | 90 | |||||||||
| Grand Total | 829 | 941 | 829 | |||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||
| Wholesale Share of Shelf (a) | 81.1% | 78.3% | 81.4% | 78.0% | ||||||||||||||||
| Manufacturing Share of Shelf (b) | 29.6% | 25.4% | 30.2% | 26.7% | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||
| Brand comparable sales (c) | 8.3% | -2.6% | -21.8% | -2.0% | ||||||||||||||||
| (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. | |
Contacts: Investor Relations ICR Farah Soi andRachel Schacter 203-682-8200 InvestorRelations@partycity.com Media Relations ICR Brittany Fraser 203-682-8200 PartyCityPR@partycity.com Source:Party City Holdco Inc.
2020 GlobeNewswire, Inc., source
