Total Net Sales of $502.2 million down 1.6% versus last year; Comparable Sales decreased 3.2% versus prior year and increased 11.2% versus 2019
October Retail sales of $390.5 million; Comparable Sales approximately flat versus 2021
WOODCLIFF LAKE, N.J., Nov. 08, 2022 (GLOBE NEWSWIRE) -- Party City Holdco Inc. (the "Company" or "PRTY"; NYSE:PRTY) today announced financial results for the quarter ended September 30, 2022.
Brad Weston, Chief Executive Officer, stated, "We delivered third quarter results that were broadly in line with our expectations against a macro backdrop that has our core customer facing significant inflationary pressures. Despite the transitory cost headwinds that continue to pressure our bottom line, our transformation work is driving improved results versus the pre-pandemic period as we make progress against our product, inventory management, supply chain, and IT systems and infrastructure initiatives."
Mr. Weston added, "While our overall enterprise-wide Halloween sales results were up year over year, they came in at the lower end of our expectations as macro pressures impacted customers' ability and willingness to increase spend on Halloween celebrations. Looking ahead, we anticipate the current macro backdrop to persist and are taking action to best position the business in this environment and for the longer term. We will continue on the path of progressing our transformation strategy but will be addressing structural cost opportunities and increasing operating efficiencies given the challenging environment. We are focused on $30 million of savings, with work already underway to deliver this target in 2023, including a corporate workforce reduction of 19% through a combination of position eliminations and not backfilling a significant number of open positions. We regret the impact on our employees who are affected. Importantly, our execution of these initiatives is deliberate and thoughtful to ensure we make progress toward our profitability targets without compromising our long-term growth potential."
Third Quarter Summary:
- Total net sales were $502.2 million, a decrease of 1.6% compared to the third quarter 2021 primarily driven by the cycling of strong sales performance from 2021, in addition to the continued impact of inflationary pressures on customer demand.
- Total retail sales decreased 1.0% versus third 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 impact on demand from the current inflationary environment; partially offset by solid performance in seasonal categories.
- The total number of corporate Party City stores was 761 as of September 30, 2022 compared to 754 in the prior year period.
- Brand comparable sales decreased 3.2% in the 13 weeks ended October 1, 2022 versus the 13 weeks ended October 2, 2021, and increased 11.2% versus the 13 weeks ended September 28, 2019.
- Net third-party wholesale sales decreased 3.6% compared to the third quarter of 2021 principally due to a reduction in demand at Anagram, the company's balloon manufacturing division, as a result of a helium shortage at certain retailers.
- Total gross profit margin decreased 440 basis points to 31.6% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin decreased approximately 420 basis points to 32.0% of net sales ("Adjusted total gross profit margin").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 $179.0 million or $15.4 million higher than the third quarter of 2021, or 35.6% of net sales. Excluding certain items not indicative of core operating performance, expenses totaled $173.9 million*, or 34.6% of net sales ("Adjusted selling, general and administrative expenses"), a 370-basis point increase versus prior-year period. The increase in both cases was due to higher store labor and technology costs.
- Interest expense was $26.9 million during the third quarter of 2022, compared to $23.9 million during the third quarter of 2021. The increase is driven by higher amounts of net debt outstanding and higher interest rates versus prior-year period.
- Reported GAAP net loss was $373.0 million, or $3.29 per diluted share, which includes the reversal of a $174 million tax benefit recorded in the 2nd quarter due to timing and a pre-tax Goodwill impairment charge of $133 million.
- Adjusted net loss ("adjusted net income (loss)") was $157.2 million*, or an Adjusted net loss per diluted share ("Adjusted net income (loss) per diluted share") of $1.39*, compared to Adjusted Net Income of $2.9 million*, or Adjusted net income per diluted share of $0.02*, in the third quarter of 2021.
- Adjusted EBITDA was $2.4 million*, a decrease of $40 million versus $42.4 million* during the third quarter of 2021.
* - Denotes non-GAAP measure. See "Non-GAAP Information" below and Appendix A for the reconciliation of this non-GAAP measure to the most comparable GAAP measure.
Fiscal October 2022 Update:
For fiscal October 2022 (for the Company's retail segment, fiscal October 2022 consisted of the five-week period ended November 5, 2022), the Company reported total revenue of $419.4 million, or 1.1% above the same period of last year. Total Retail revenue increased approximately 3.9%. Brand comparable sales were approximately flat, down -0.1%, driven by strength in Halloween sales, offset by a decline in core non-seasonal categories. During the month of October 2022, the Company operated 761 total Party City locations vs 754 in the prior year period, and 149 temporary Halloween City stores, compared to 90 in 2021.
Balance Sheet and Cash Flow Highlights:
As of the end of the third quarter 2022, the Company had total liquidity of $121.5 million consisting of the following:
| Party City Credit Group | Anagram Holdings, LLC | PCHI Consolidated | |||||||||
| (in Thousands) | September 30, 2022 | ||||||||||
| Cash | $ | 27,834 | $ | 1,976 | $ | 29,810 | |||||
| ABL Availability: | |||||||||||
| Borrowing Base | 562,111 | 14,427 | 576,538 | ||||||||
| Less: Letters of Credit Outstanding | 39,820 | — | 39,820 | ||||||||
| Less: Borrowings under the ABL Facility | 444,990 | — | 444,990 | ||||||||
| Total ABL Availability | 77,301 | 14,427 | 91,728 | ||||||||
| Total Liquidity | $ | 105,135 | $ | 16,403 | $ | 121,538 | |||||
The weighted average interest rate for Borrowings under the ABL Facility was 4.76% at September 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 | |||||||||||||||
| September 30, 2022 | |||||||||||||||||
| (in Thousands) | Principal Amount | Net Carrying Amount | Net Carrying Amount | Net Carrying Amount | |||||||||||||
| Loans and notes payable* | 446,140 | 442,855 | — | 442,855 | |||||||||||||
| 8.75% Senior Secured First Lien Notes - due 2026 | 750,000 | 735,588 | — | 735,588 | |||||||||||||
| 6.125% Senior Notes - due 2023 | 22,924 | 22,876 | — | 22,876 | |||||||||||||
| 6.625% Senior Notes - due 2026 | 92,254 | 91,699 | — | 91,699 | |||||||||||||
| First Lien Party City Notes - due 2025 | 161,669 | 188,920 | — | 188,920 | |||||||||||||
| First Lien Anagram Notes - due 2025 | 118,699 | — | 147,987 | 147,987 | |||||||||||||
| Second Lien Anagram Notes - due 2026 | 93,613 | — | 142,779 | 142,779 | |||||||||||||
| Finance lease obligations | 11,724 | 11,724 | — | 11,724 | |||||||||||||
| Total debt | 1,697,023 | 1,493,662 | 290,766 | 1,784,428 | |||||||||||||
| Less: Cash | (29,810 | ) | (27,834 | ) | (1,976 | ) | (29,810 | ) | |||||||||
| Total debt net of cash | $ | 1,667,213 | $ | 1,465,828 | $ | 288,790 | $ | 1,754,618 | |||||||||
*Balance consists of ABL Facility.
Net cash used in operating activities in the first nine months of 2022 was $286.4 million, compared to net cash used in operating activities of $73.6 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 product receipts and higher costs 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.
2022 Outlook:
The Company is providing the following updated outlook for full year 2022, which takes into account third quarter results that were broadly in line with our expectations, October results, including Halloween performance, which while positive, were at the lower end of our expectations, and factors in our belief that inflationary headwinds will continue to persist through the balance of the year:
- Net sales of $2.140 billion to $2.190 billion or a change of approximately -1% to 1% versus 2021
- Brand comp sales decrease of approximately -3% to -1%
- GAAP net loss of approximately $199 million to $184 million
- Adjusted EBITDA of approximately $130 million* to $150 million*
- 80 to 85 new Next Generation stores, with a combination of new openings and remodels
- Capital Expenditures of approximately $90 to $100 million or $60 to $70 million net of tenant improvement allowances
* - Denotes non-GAAP measure. See "Non-GAAP Information" below and Appendix A for the reconciliation of this non-GAAP measure to the most comparable GAAP measure.
Conference Call Information
A conference call to discuss the third quarter 2022 financial results is scheduled for today, November 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 Total Gross Profit Margin, Adjusted Selling, General and Administrative Expenses, Adjusted EBITDA, Adjusted Net Income/Loss and Adjusted Net Income/Loss Per Diluted 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.
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 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, and ability to manage supply chain constraints, increased costs and inflationary pressures; 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)
| September 30, 2022 | December 31, 2021 | September 30, 2021 | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 29,810 | $ | 47,914 | $ | 60,740 | ||||||
| Accounts receivable, net | 106,052 | 93,301 | 100,946 | |||||||||
| Inventories, net | 745,697 | 443,295 | 520,046 | |||||||||
| Prepaid expenses and other current assets | 59,248 | 57,656 | 85,004 | |||||||||
| Income tax receivable | 1,109 | 56,317 | 56,361 | |||||||||
| Total current assets | 941,916 | 698,483 | 823,097 | |||||||||
| Property, plant and equipment, net | 251,318 | 221,870 | 213,959 | |||||||||
| Operating lease asset | 713,434 | 693,875 | 700,668 | |||||||||
| Goodwill | 530,643 | 664,296 | 662,163 | |||||||||
| Trade names | 383,749 | 383,737 | 383,733 | |||||||||
| Other intangible assets, net | 19,524 | 23,687 | 25,821 | |||||||||
| Other assets, net | 28,664 | 25,952 | 27,385 | |||||||||
| Total assets | $ | 2,869,248 | $ | 2,711,900 | $ | 2,836,826 | ||||||
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Loans and notes payable | $ | 442,855 | $ | 84,181 | $ | 187,084 | ||||||
| Accounts payable | 208,416 | 161,736 | 167,445 | |||||||||
| Accrued expenses | 175,275 | 195,531 | 178,155 | |||||||||
| Current portion of operating lease liability | 100,274 | 116,437 | 131,653 | |||||||||
| Income taxes payable | 1,006 | 10,801 | — | |||||||||
| Current portion of long-term obligations | 23,388 | 1,373 | 1,297 | |||||||||
| Total current liabilities | 951,214 | 570,059 | 665,634 | |||||||||
| Long-term obligations, excluding current portion | 1,318,185 | 1,351,189 | 1,350,886 | |||||||||
| Long-term portion of operating lease liability | 699,933 | 655,875 | 639,560 | |||||||||
| Deferred income tax liabilities, net | 31,486 | 29,195 | 43,537 | |||||||||
| Other long-term liabilities | 22,142 | 22,868 | 34,718 | |||||||||
| Total liabilities | 3,022,960 | 2,629,186 | 2,734,335 | |||||||||
| Commitments and contingencies | ||||||||||||
| Stockholders' equity: | ||||||||||||
| Common stock (113,316,286, 112,170,944 and 112,194,330 shares outstanding and 126,050,880, 124,157,500 and 123,816,514 shares issued at September 30, 2022, December 31, 2021, and September 30, 2021, respectively) | 1,384 | 1,384 | 1,384 | |||||||||
| Additional paid-in capital | 988,197 | 982,307 | 980,399 | |||||||||
| Accumulated deficit | (809,693 | ) | (571,985 | ) | (552,445 | ) | ||||||
| Accumulated other comprehensive income | 790 | 3,541 | 3,128 | |||||||||
| Total Party City Holdco Inc. stockholders' equity before common stock held in treasury | 180,678 | 415,247 | 432,466 | |||||||||
| Less: Common stock held in treasury, at cost (12,734,594, 11,986,556 and 11,622,184 shares at September 30, 2022, December 31, 2021, and September 30, 2021, respectively) | (334,390 | ) | (332,533 | ) | (329,975 | ) | ||||||
| Total Party City Holdco Inc. stockholders' (deficit) equity | (153,712 | ) | 82,714 | 102,491 | ||||||||
| Total stockholders' (deficit) equity | (153,712 | ) | 82,714 | 102,491 | ||||||||
| Total liabilities and stockholders' (deficit) equity | $ | 2,869,248 | $ | 2,711,900 | $ | 2,836,826 | ||||||
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net sales | $ | 502,191 | $ | 510,199 | $ | 1,462,616 | $ | 1,472,752 | ||||||||
| Cost of sales | 343,743 | 326,501 | 988,188 | 919,596 | ||||||||||||
| Gross profit | 158,448 | 183,698 | 474,428 | 553,156 | ||||||||||||
| Selling, general and administrative expenses** | 178,976 | 163,644 | 504,342 | 468,001 | ||||||||||||
| Loss on disposal of assets in international operations | — | — | — | 3,211 | ||||||||||||
| Goodwill impairment | 133,000 | — | 133,000 | — | ||||||||||||
| (Loss) Income from operations | (153,528 | ) | 20,054 | (162,914 | ) | 81,944 | ||||||||||
| Interest expense, net | 26,926 | 23,899 | 74,505 | 64,229 | ||||||||||||
| Other (income), net | (2,333 | ) | (1,444 | ) | (4,336 | ) | (2,317 | ) | ||||||||
| (Loss) income before income taxes | (178,121 | ) | (2,401 | ) | (233,083 | ) | 20,032 | |||||||||
| Income tax expense | 194,871 | 388 | 4,625 | 7,128 | ||||||||||||
| Net (loss) income | (372,992 | ) | (2,789 | ) | (237,708 | ) | 12,904 | |||||||||
| Less: Net income attributable to noncontrolling interests | — | — | — | (54 | ) | |||||||||||
| Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (372,992 | ) | $ | (2,789 | ) | $ | (237,708 | ) | $ | 12,958 | |||||
| Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Basic | $ | (3.29 | ) | $ | (0.02 | ) | $ | (2.11 | ) | $ | 0.12 | |||||
| Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Diluted | $ | (3.29 | ) | $ | (0.02 | ) | $ | (2.11 | ) | $ | 0.11 | |||||
| Weighted-average number of common shares - Basic | 113,214,670 | 112,037,224 | 112,751,523 | 111,431,623 | ||||||||||||
| Weighted-average number of common shares - Diluted | 113,214,670 | 112,037,224 | 112,751,523 | 115,822,121 | ||||||||||||
| Dividends declared per share | $ | — | $ | — | $ | — | $ | — | ||||||||
| Comprehensive (loss) income | $ | (375,343 | ) | $ | (5,753 | ) | $ | (240,453 | ) | $ | 45,989 | |||||
| Less: Comprehensive (loss) attributable to noncontrolling interests | — | (24 | ) | — | (54 | ) | ||||||||||
| Comprehensive (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (375,343 | ) | $ | (5,729 | ) | $ | (240,453 | ) | $ | 46,043 | |||||
| ** 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 long-lived asset impairment charges. | ||||||||||||||||
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows (used in) operating activities: | ||||||||
| Net (loss) income | $ | (237,708 | ) | $ | 12,904 | |||
| Adjustments to reconcile net (loss) income to net cash (used in) operating activities: | ||||||||
| Depreciation and amortization expense | 46,812 | 50,293 | ||||||
| Amortization of deferred financing costs and original issuance discounts | 3,969 | 3,257 | ||||||
| Provision for doubtful accounts | 282 | 1,610 | ||||||
| Deferred income tax expense | 2,288 | 9,116 | ||||||
| Change in operating lease liability/asset | 1,729 | (58,875 | ) | |||||
| Undistributed income in equity method investments | (2,354 | ) | (820 | ) | ||||
| Loss on disposal of assets | 201 | 2,796 | ||||||
| Loss on disposal of assets in international operations | — | 3,211 | ||||||
| Long-lived assets impairment | 10,408 | — | ||||||
| Goodwill impairment | 133,000 | — | ||||||
| Stock-based compensation** | 5,884 | 4,830 | ||||||
| Gain on debt refinancing | — | (1,105 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in accounts receivable | (13,250 | ) | (17,339 | ) | ||||
| Increase in inventories | (304,030 | ) | (109,227 | ) | ||||
| Increase in prepaid expenses and other current assets | 52,878 | (49,570 | ) | |||||
| Increase in accounts payable, accrued expenses and income taxes payable | 13,490 | 75,368 | ||||||
| Net cash (used in) operating activities | (286,401 | ) | (73,551 | ) | ||||
| Cash flows (used in) investing activities: | ||||||||
| Cash paid in connection with acquisitions, net of cash acquired | (157 | ) | (4,405 | ) | ||||
| Capital expenditures | (75,985 | ) | (49,211 | ) | ||||
| Proceeds from disposal of property and equipment | 1,626 | 3 | ||||||
| Proceeds from sale of international operations, net of cash disposed | — | 20,556 | ||||||
| Net cash (used in) investing activities | (74,516 | ) | (33,057 | ) | ||||
| Cash flows provided by financing activities: | ||||||||
| Repayment of loans, notes payable and long-term obligations | (42,829 | ) | (844,952 | ) | ||||
| Proceeds from loans, notes payable and long-term obligations | 390,505 | 882,500 | ||||||
| Treasury stock purchases | (1,857 | ) | (2,793 | ) | ||||
| Exercise of stock options | — | 3,621 | ||||||
| Debt issuance costs | (2,868 | ) | (21,437 | ) | ||||
| Net cash provided by financing activities | 342,951 | 16,939 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (138 | ) | 100 | |||||
| Net (decrease) in cash and cash equivalents and restricted cash | (18,104 | ) | (89,569 | ) | ||||
| 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* | $ | 30,810 | $ | 61,740 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for interest expense | $ | 86,698 | $ | 56,748 | ||||
| Cash (received) paid during the period for income taxes, net of refunds | $ | (42,177 | ) | $ | 5,303 | |||
| *Includes $1,000 of restricted cash at September 30, 2022 and December 31, 2021 and September 30, 2021. The Company records restricted cash in Other assets, net as presented in the consolidated balance sheets at September 30, 2022, December 31, 2021 and September 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. | ||||||||
Appendix A - Reconciliation of Non-GAAP Financial Measures
The tables below provide a reconciliation of the Company's non-GAAP financial measures to the most comparable GAAP financial measure.
The following is a reconciliation of gross profit margin to Total Adjusted Gross Profit Margin for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Net sales | $ | 502,191 | $ | 510,199 | $ | 1,462,616 | $ | 1,472,752 | ||||||||
| Net income | $ | (372,992 | ) | $ | (2,789 | ) | $ | (237,708 | ) | $ | 12,958 | |||||
| Adjusted EBITDA | $ | 2,356 | $ | 42,367 | $ | 51,587 | $ | 155,523 | ||||||||
| Net income margin | -74.3 | % | -0.5 | % | -16.3 | % | 0.9 | % | ||||||||
| Adjusted EBITDA margin | 0.5 | % | 8.3 | % | 3.5 | % | 10.6 | % | ||||||||
The following is a reconciliation of gross profit margin to Total Adjusted Gross Profit Margin for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in thousands) | $ | $ | $ | $ | ||||||||||||
| Net sales | $ | 502,191 | $ | 510,199 | $ | 1,462,616 | 1,472,752 | |||||||||
| Cost of sales | 343,743 | 326,501 | 988,188 | 919,596 | ||||||||||||
| Gross profit | $ | 158,448 | $ | 183,698 | $ | 474,428 | $ | 553,156 | ||||||||
| Total gross profit margin | 31.6 | % | 36.0 | % | 32.4 | % | 37.6 | % | ||||||||
| Gross profit | $ | 158,448 | $ | 183,698 | $ | 474,428 | $ | 553,156 | ||||||||
| Add: Deferred rent | 2,373 | 945 | 6,569 | 945 | ||||||||||||
| Adjusted gross profit | $ | 160,821 | $ | 184,643 | $ | 480,997 | $ | 554,101 | ||||||||
| Total adjusted gross profit margin | 32.0 | % | 36.2 | % | 32.9 | % | 37.6 | % | ||||||||
The following is a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative Expenses for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
| (Dollars in thousands) | $ | % of Revenues | $ | % of Revenues | $ | % of Revenues | $ | % of Revenues | ||||||||||||||||
| Selling, general and administrative expenses | 178,976 | 35.6 | % | 163,644 | 32.1 | % | 504,342 | 34.5 | % | 468,001 | 31.8 | % | ||||||||||||
| Stock-based compensation - employee | 1,917 | 0.4 | % | 1,892 | 0.4 | % | 5,847 | 0.4 | % | 4,854 | 0.3 | % | ||||||||||||
| Other restructuring, retention and severance (a) | 281 | 0.1 | % | — | 0.0 | % | 994 | 0.1 | % | 2,620 | 0.2 | % | ||||||||||||
| Long-lived assets impairment (b) | 425 | 0.1 | % | — | 0.0 | % | 10,408 | 0.7 | % | — | 0.0 | % | ||||||||||||
| Deferred rent (c) | 863 | 0.2 | % | (41 | ) | 0.0 | % | 3,047 | 0.2 | % | 1,087 | 0.1 | % | |||||||||||
| COVID-19 sanitation and cleaning expense (d) | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | 1,270 | 0.1 | % | ||||||||||||
| Closed store expense (e) | 745 | 0.1 | % | 603 | 0.1 | % | 3,454 | 0.2 | % | 3,739 | 0.3 | % | ||||||||||||
| Loss on sale of property, plant and equipment | — | 0.0 | % | 2,687 | 0.5 | % | — | 0.0 | % | 2,798 | 0.2 | % | ||||||||||||
| Merchandise transformation, relocation payroll | 216 | 0.0 | % | 860 | 0.2 | % | 1,474 | 0.1 | % | 2,981 | 0.2 | % | ||||||||||||
| Corporate reorganization consulting | 604 | 0.1 | % | — | 0.0 | % | 1,808 | 0.1 | % | — | 0.0 | % | ||||||||||||
| One-time legal settlement | — | 0.0 | % | — | 0.0 | % | 384 | 0.0 | % | — | 0.0 | % | ||||||||||||
| Adjusted selling, general and administrative expenses | 173,925 | 34.6 | % | 157,643 | 30.9 | % | 476,926 | 32.6 | % | 448,652 | 30.4 | % | ||||||||||||
The following is a reconciliation of net (loss) income to Adjusted net loss (income) and of net (loss) income per common share - diluted to Adjusted net (loss) income per common share - diluted for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||
| Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (372,992 | ) | $ | (2,789 | ) | $ | (237,708 | ) | $ | 12,958 | |||||
| Income tax expense | 194,871 | 388 | 4,625 | 7,128 | ||||||||||||
| (Loss) income before income taxes | $ | (178,121 | ) | $ | (2,401 | ) | $ | (233,083 | ) | $ | 20,086 | |||||
| Intangible asset amortization | 1,527 | 2,177 | 4,599 | 7,008 | ||||||||||||
| Amortization of deferred financing costs and original issuance discounts | 1,403 | 1,320 | 3,969 | 3,257 | ||||||||||||
| Other restructuring, retention and severance (a) | 284 | — | 994 | 1,967 | ||||||||||||
| COVID-19 sanitation and cleaning expense (d) | — | — | — | 1,270 | ||||||||||||
| Long-lived assets impairment (b) | 425 | — | 10,408 | — | ||||||||||||
| Goodwill impairment (f) | 133,000 | — | 133,000 | — | ||||||||||||
| Non-recurring legal settlements/costs | — | — | 384 | — | ||||||||||||
| Stock option expense | 49 | 93 | 217 | 310 | ||||||||||||
| Loss on sale of assets | — | 2,642 | — | 2,642 | ||||||||||||
| Restricted stock unit and restricted cash awards expense - performance-based | 686 | 930 | 1,999 | 2,901 | ||||||||||||
| Loss on sale of business | — | — | — | 3,211 | ||||||||||||
| Adjusted net (loss) income before income taxes | (40,747 | ) | 4,761 | (77,513 | ) | 42,652 | ||||||||||
| Adjusted income tax expense (g) | 116,426 | 1,902 | 92,553 | 11,966 | ||||||||||||
| Adjusted net (loss) income | $ | (157,173 | ) | $ | 2,859 | $ | (170,066 | ) | $ | 30,686 | ||||||
| Net (loss) income per share attributable to common shareholders of Party City Holdco Inc. - Diluted | $ | (3.29 | ) | $ | (0.02 | ) | $ | (2.11 | ) | $ | 0.11 | |||||
| Adjustments per common share - diluted: | ||||||||||||||||
| Income tax expense | 1.72 | - | 0.04 | 0.06 | ||||||||||||
| (Loss) income before income taxes | (1.57 | ) | (0.02 | ) | (2.07 | ) | 0.17 | |||||||||
| Intangible asset amortization | 0.01 | 0.02 | 0.04 | 0.07 | ||||||||||||
| Amortization of deferred financing costs and original issuance discounts | 0.01 | 0.01 | 0.04 | 0.03 | ||||||||||||
| Other restructuring, retention and severance | - | - | 0.01 | 0.02 | ||||||||||||
| COVID sanitation and cleaning expense | - | - | - | 0.02 | ||||||||||||
| Long-lived assets impairment | - | - | 0.09 | - | ||||||||||||
| Goodwill impairment | 1.18 | - | 1.18 | - | ||||||||||||
| Loss on sale of assets | - | 0.02 | - | 0.02 | ||||||||||||
| Restricted stock unit and restricted cash awards expense - performance-based | 0.01 | 0.01 | 0.02 | 0.04 | ||||||||||||
| Adjusted net (loss) income before income taxes | (0.36 | ) | 0.04 | (0.69 | ) | 0.37 | ||||||||||
| Adjusted income tax expense | 1.03 | 0.02 | 0.82 | 0.10 | ||||||||||||
| Adjusted net (loss) income per common share - diluted | $ | (1.39 | ) | $ | 0.02 | $ | (1.51 | ) | $ | 0.27 | ||||||
| Weighted-average number of common shares - diluted | 113,214,670 | 116,467,755 | 112,751,523 | 115,822,121 | ||||||||||||
The following is a reconciliation of net (loss) income to Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Net (loss) income attributable to common shareholders of Party City Holdco Inc. | $ | (372,992 | ) | $ | (2,789 | ) | $ | (237,708 | ) | $ | 12,958 | ||||
| Interest expense, net | 26,926 | 23,899 | 74,505 | 64,229 | |||||||||||
| Income tax expense | 194,871 | 388 | 4,625 | 7,128 | |||||||||||
| Depreciation and amortization | 15,206 | 15,433 | 46,812 | 50,293 | |||||||||||
| EBITDA | (135,989 | ) | 36,931 | (111,766 | ) | 134,608 | |||||||||
| Deferred rent (c) | 3,235 | 904 | 9,616 | 2,032 | |||||||||||
| Stock-based compensation - employee | 1,917 | 1,892 | 5,847 | 4,854 | |||||||||||
| Other restructuring, retention and severance (a) | 281 | ' | - | 994 | 2,620 | ||||||||||
| Long-lived assets impairment (b) | 425 | - | 10,408 | - | |||||||||||
| COVID-19 sanitation and cleaning expense (d) | - | - | - | 1,270 | |||||||||||
| Closed store expense (e) | 745 | 603 | 3,454 | 3,739 | |||||||||||
| Loss on sale of property, plant and equipment | - | 2,687 | - | 2,798 | |||||||||||
| Merchandise transformation, relocation payroll | 216 | 860 | 1,474 | 2,981 | |||||||||||
| Corporate reorganization consulting | 604 | - | 1,808 | - | |||||||||||
| One-time legal settlement | - | - | 384 | - | |||||||||||
| Goodwill impairment (f) | 133,000 | - | 133,000 | - | |||||||||||
| Loss on sale of business | - | - | - | 3,211 | |||||||||||
| Foreign currency (gains) losses, net | (1,218 | ) | 343 | (1,746 | ) | (968 | ) | ||||||||
| Net gain on debt repayment | - | (1,332 | ) | - | (1,106 | ) | |||||||||
| Note receivable | 55 | 33 | 472 | 138 | |||||||||||
| Undistributed loss in equity method investments | (915 | ) | (554 | ) | (2,354 | ) | (654 | ) | |||||||
| Gain or loss on sale of PP&E | - | - | (4 | ) | - | ||||||||||
| Adjusted EBITDA | 2,356 | 42,367 | 51,587 | 155,523 | |||||||||||
Beginning with this report, we will no longer be excluding inventory disposal costs and the impact of COVID-19 costs related to exempt salaried employees from our determination of Adjusted EBITDA, Adjusted net income or any other non-GAAP financial measure. The prior period Adjusted EBITDA and Adjusted net income results that appear in this report reflect the inclusion of such items.
(a) Amounts expensed principally related 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 nine months ended September 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) In fiscal year 2021, the expenses consisted of additional one-time store cleaning costs, cleaning supplies such as hand sanitizer, and signage related to Covid-19 restrictions for all retail stores, which were incurred from January through June 2021 due to the evolving governmental requirements that existed during such time period.
(e) Charges incurred related to closing and relocating stores, as we do not undertake such closures or relocations on a predictable cycle and the charges can vary significantly.
(f) Goodwill impairment recorded in September 2022 as part of the annual review.
(g) 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.
The table below sets forth a reconciliation from our 2022 forecasted GAAP Net Income to our Adjusted EBITDA:
| (in thousands) | Low | High | |||||
| GAAP net loss | $ | (199,000 | ) | $ | (184,000 | ) | |
| Income tax (benefit) expense | (4,000 | ) | 1,000 | ||||
| Interest expense | 99,000 | 99,000 | |||||
| Depreciation and amortization expense | 65,000 | 65,000 | |||||
| GAAP EBITDA | $ | (39,000 | ) | $ | (19,000 | ) | |
| EBITDA Addbacks: | |||||||
| Deferred rent cost of sales | 9,000 | 9,000 | |||||
| Stock-based compensation - employee | 8,000 | 8,000 | |||||
| Deferred rent SG&A | 3,000 | 3,000 | |||||
| Closed store expense | 4,000 | 4,000 | |||||
| Other restructuring, retention and severance | 1,000 | 1,000 | |||||
| Long-lived assets impairment | 10,000 | 10,000 | |||||
| Other SG&A | 4,000 | 4,000 | |||||
| Goodwill impairment | 133,000 | 133,000 | |||||
| Foreign currency (gains), net | (2,000 | ) | (2,000 | ) | |||
| Other | (1,000 | ) | (1,000 | ) | |||
| Adjusted EBITDA | $ | 130,000 | $ | 150,000 | |||
PARTY CITY HOLDCO INC.
SEGMENT INFORMATION
(In thousands, except percentages, unaudited)
| Three Months Ended September 30, | ||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net sales | Dollars in Thousands | Percentage of Net sales | |||||||||||||||
| Net sales: | ||||||||||||||||||
| Wholesale | $ | 390,885 | 77.8 | % | $ | 279,634 | 54.8 | % | ||||||||||
| Eliminations | (283,574 | ) | (56.5 | ) | (168,308 | ) | (33.0 | ) | ||||||||||
| Net wholesale | 107,311 | 21.4 | 111,326 | 21.8 | ||||||||||||||
| Retail | 394,880 | 78.6 | 398,873 | 78.2 | ||||||||||||||
| Total net sales | $ | 502,191 | 100.0 | % | $ | 510,199 | 100.0 | % | ||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net sales | Dollars in Thousands | Percentage of Net sales | |||||||||||||||
| Net sales: | ||||||||||||||||||
| Wholesale | $ | 934,142 | 63.9 | % | $ | 722,733 | 49.1 | % | ||||||||||
| Eliminations | (630,835 | ) | (43.1 | ) | (425,947 | ) | (28.9 | ) | ||||||||||
| Net wholesale | 303,307 | 20.7 | 296,786 | 20.2 | ||||||||||||||
| Retail | 1,159,309 | 79.3 | 1,175,967 | 79.8 | ||||||||||||||
| Total net sales | $ | 1,462,616 | 100.0 | % | $ | 1,472,753 | 100.0 | % | ||||||||||
| Three Months Ended September 30, | ||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||||
| Retail gross profit | $ | 132,572 | 33.6 | % | $ | 161,822 | 40.6 | % | ||||||||||
| Wholesale gross profit | 25,876 | 24.1 | 21,876 | 19.7 | ||||||||||||||
| Total gross profit | $ | 158,448 | 31.6 | % | $ | 183,698 | 36.0 | % | ||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||||
| Retail gross profit | $ | 404,090 | 34.9 | % | $ | 478,565 | 40.7 | % | ||||||||||
| Wholesale gross profit | 70,338 | 23.2 | 74,591 | 25.1 | ||||||||||||||
| Total gross profit | $ | 474,428 | 32.4 | % | $ | 553,156 | 37.6 | % | ||||||||||
PARTY CITY HOLDCO INC.
OPERATING METRICS
| For the Nine Months Ended September 30, | Last 12 Months | |||||||||||
| 2022 | 2021 | |||||||||||
| Store Count | ||||||||||||
| Corporate Stores: | ||||||||||||
| Beginning of period | 759 | 746 | 754 | |||||||||
| New stores opened | 7 | 9 | 8 | |||||||||
| Acquired | 1 | 6 | 5 | |||||||||
| Closed | (6 | ) | (7 | ) | (6 | ) | ||||||
| End of period | 761 | 754 | 761 | |||||||||
| Franchise Stores | ||||||||||||
| Beginning of period | 72 | 85 | 76 | |||||||||
| New stores opened | — | — | — | |||||||||
| Sold to Party City | (1 | ) | (6 | ) | (5 | ) | ||||||
| Closed | (2 | ) | (3 | ) | (2 | ) | ||||||
| End of period | 69 | 76 | 69 | |||||||||
| Grand Total | 830 | 830 | 830 | |||||||||
| Three months ended September 30, | ||||||
| 2022 | 2021 | |||||
| Wholesale Share of Shelf (a) | 79.2 | % | 80.2 | % | ||
| Manufacturing Share of Shelf (b) | 25.8 | % | 28.2 | % | ||
| Three months ended September 30, | ||||||
| 2022 | 2021 | |||||
| Brand comparable sales (c) | -3.2 | % | 7.5 | % | ||
(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. Comparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for 13 months or longer.
