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Party City Announces Fourth Quarter and Full Year 2018 Financial Results

Announces CFO Transition

ELMSFORD, N.Y., Feb. 28, 2019 (GLOBE NEWSWIRE) -- Party City Holdco Inc. (PRTY) today announced financial results for the fourth quarter and year ended December 31, 2018.

James M. Harrison, Chief Executive Officer, stated, “Our topline results for the fourth quarter were slightly below expectations in large part due to helium supply pressures that persisted from the third quarter, while gross margins were inline and Adjusted EBITDA and Adjusted EPS came in within our expected ranges as we exercised disciplined cost control. For the year, despite some unexpected temporary operational challenges in the back half, we delivered topline growth of 2.4%, with Adjusted EPS of $1.61 and Adjusted EBITDA of $400 million, both of which were within our annual guidance. Operationally, 2018 was an important foundational year as we made integral investments across the business to enhance our positioning as a world class retailer and we made meaningful progress against our key growth strategies to strengthen the business for fiscal 2019.”

Mr. Harrison continued, “As we begin fiscal 2019, we plan to capitalize on tailwinds that will present themselves, including a Thursday Halloween, significant new licensed properties and benefits from supply chain investments that we made following disruptions that impacted the business in 2018. We will continue to stay focused on our strategic priorities, which will drive better run stores and e-commerce businesses, continue to improve operational execution and generate increased cash flow to reduce debt as we focus on creating long lasting shareholder value.”

Full Year Summary:

  • Total revenues increased 2.4% on a reported basis and 2.2% on a constant currency basis.
  • Retail sales increased 4.3% on a reported basis and on a constant currency basis, driven primarily by square footage growth from franchise and independent store acquisitions. During the year, the Company opened 15 new stores, acquired 58 franchise and independent stores, and closed 10 stores.
  • Brand comparable sales decreased 0.7% for the year. The North American e-commerce sales that are included in our definition of brand comparable sales increased by 0.6% versus 2017 and by 17.5% when adjusted for “buy online pickup in store” sales.
  • Net third-party wholesale revenues decreased 2.5% on a reported basis or increased 0.3% after adjusting for the impacts of currency and store acquisitions. 
  • Total gross profit margin decreased 20 basis points, as increased freight and distribution costs and increased commodity pressures, including higher helium costs, were partially offset by the benefit of retail productivity efforts.
  • Operating expenses increased 2.5% to $713.9 million due to the store acquisitions, non-recurring consulting costs and wage inflation.  Operating expenses as a percentage of revenues were consistent with 2017.
  • Interest expense increased by $18.3 million versus the prior year, principally due to higher LIBOR rates and higher debt levels. 
  • Reported GAAP net income was $122.8 million, versus $215.3 million during 2017.  Reported diluted earnings per share were $1.27, versus $1.79 during the prior year.  In 2017, reported net income and reported diluted earnings per share included approximately $90 million of non-recurring income tax benefits related to the Tax Cuts and Jobs Act of 2017 (“Tax Reform”).
  • Adjusted EBITDA for the year was $400.1 million, compared to $409.2 million in 2017 (see “GAAP and Non-GAAP Measures”).
  • Adjusted net income totaled $156.8 million and was $8.2 million higher than during 2017 due to benefits from Tax Reform (see “GAAP and Non-GAAP Measures”).
  • Adjusted diluted earnings per share totaled $1.61, compared to $1.24 in the prior year (see “GAAP and Non-GAAP Measures”).

Fourth Quarter Summary:

  • Total revenues increased 2.0% on a reported basis and 2.5% on a constant currency basis.
  • Retail sales increased 4.3% on a reported basis (4.5% on a constant currency basis), driven primarily by square footage growth from franchise and independent store acquisitions.
  • Brand comparable sales decreased 2.9% in the quarter.  The North American e-commerce sales that are included in our definition of brand comparable sales increased by 11.9% versus the fourth quarter of 2017 and by 32.5% when adjusted for “buy online pickup in store” sales.
  • Halloween City sales per store (excluding Toy City sales at such locations) increased approximately 14% over the prior year quarter.
  • Net third-party wholesale revenues decreased 5.9% on a reported basis and increased 0.3% after adjusting for the impacts of currency and store acquisitions. 
  • As expected, total gross profit margin decreased 160 basis points, to 45.3%, due to increased freight and distribution costs and increased commodity pressures, including higher helium costs.
  • Operating expenses increased 1.2% to $207.5 million due to the store acquisitions and wage inflation.  Operating expenses as a percentage of revenues were 20 basis points lower than during the fourth quarter of 2017.
  • Interest expense increased by $7.1 million versus the prior year quarter, principally due to higher LIBOR rates, increased debt levels and the impact of the Company’s August 2018 debt refinancing. 
  • Reported GAAP net income was $98.4 million, versus $185.0 million during 2017.  Reported diluted earnings per share were $1.02, versus $1.58 during the prior year.  During 2017, reported net income and reported diluted earnings per share included approximately $90 million of non-recurring income tax benefits related to Tax Reform.
  • Adjusted EBITDA for the quarter was $188.9 million, compared to $197.4 million in the fourth quarter of 2017 (see “GAAP and Non-GAAP Measures”).
  • Adjusted net income totaled $103.4 million, compared to $94.1 million in the fourth quarter of 2017, as the Company benefitted from Tax Reform (see “GAAP and Non-GAAP Measures”).
  • Adjusted diluted earnings per share totaled $1.08, compared to $0.81 in the prior year quarter (see “GAAP and Non-GAAP Measures”).

Balance Sheet Highlights as of December 31, 2018:

The Company ended the quarter with $1,879.1 million in debt (net of cash), resulting in net debt leverage1 of 4.7 times.

Fiscal 2019 Outlook:

For 2019, the Company provided the following financial guidance:

  • Total revenue of $2.49 to $2.54 billion
  • Brand comparable sales of about 1%
  • GAAP net income of $135 to $145 million
  • GAAP diluted EPS of $1.42 to $1.53
  • Adjusted EBITDA of $405 to $418 million
  • Adjusted net income of $152 to $162 million
  • Adjusted diluted EPS of $1.61 to $1.72
  • Net debt leverage1 by the end of 2019 approximately half a turn lower than at the end of 2018

The Company has reconciled Non-GAAP outlook measures to the most directly comparable GAAP measures later in this release. See "Non-GAAP Information" and “Reconciliation of 2019 Outlook” for a more detailed explanation, including definitions of the various Non-GAAP terms used in this release.

_____________________

1 Defined as debt (net of cash) to adjusted EBITDA

CFO Transition

The Company also announced today that Executive Vice President and Chief Financial Officer, Dan Sullivan, will be leaving the Company effective March 22, 2019 to pursue other opportunities.

Party City’s Board of Directors has retained a leading executive search firm to assist in identifying a new Chief Financial Officer. Michael Correale, Executive Vice President and Chief Accounting Officer, will be acting as Interim CFO. Mr. Correale previously served in the role of Chief Financial Officer at Party City from 2002 to 2016 and will work closely with Mr. Sullivan to ensure an orderly transition while the search for a successor is conducted.

“Dan has been a terrific partner since joining the Company in 2016. He has improved our business, processes and practices in many ways while building a strong finance organization.  He has also played a critical part in enabling our growth objectives; and improving the productivity and efficiency of the business,” said James M. Harrison, Chief Executive Officer. “We thank Dan for his contributions and wish him well in his future endeavors.”

Mr. Sullivan commented, “It’s been a privilege to work with Jim and the talented Party City team over the past few years. I am confident in Party City’s very strong and capable finance organization and I wish the company continued success.”

Conference Call Information

A conference call to discuss the fourth quarter 2018 financial results is scheduled for today, February 28, 2019, at 8:00 a.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (833) 241-4256 (U.S. domestic) and (647) 689-4207 (international), and enter conference ID# 3049635, 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 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 contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 revenues, brand comparable sales, Adjusted EBITDA, Adjusted net income/loss, adjusted diluted earnings per share, average common shares outstanding and the effective tax rate. 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; 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 latest Form 10-K 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. Party City Holdco 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 approximately 950 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City, Halloween City and Toy 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.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
     
  December 31,   December 31,
  2018   2017
ASSETS Unaudited    
Current assets:      
Cash and cash equivalents $ 58,909     $ 54,291  
Accounts receivable, net   146,983       140,980  
Inventories, net   756,038       604,066  
Prepaid expenses and other current assets   61,905       77,816  
Total current assets   1,023,835       877,153  
Property, plant and equipment, net   321,044       301,141  
Goodwill   1,656,950       1,619,253  
Trade names   568,031       568,681  
Other intangible assets, net   60,164       75,704  
Other assets, net   12,323       12,824  
Total assets $ 3,642,347     $ 3,454,756  
       
       
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Loans and notes payable $ 302,751     $ 286,291  
Accounts payable   208,149       160,994  
Accrued expenses   161,228       176,609  
Income taxes payable   25,993       45,568  
Current portion of long-term obligations   13,316       13,059  
Total current liabilities   711,437       682,521  
Long-term obligations, excluding current portion   1,621,963       1,532,090  
Deferred income tax liabilities   174,427       175,836  
Deferred rent and other long-term liabilities   87,548       91,929  
Total liabilities   2,595,375       2,482,376  
       
Redeemable securities   3,351       3,590  
               
Stockholders’ equity:      
Common stock (93,622,934 and 96,380,102 shares outstanding and 120,788,159 and 119,759,669 shares issued at December 31, 2018 and December 31, 2017, respectively)   1,208       1,198  
Additional paid-in capital   922,476       917,192  
Retained earnings   495,777       372,596  
Accumulated other comprehensive loss   (49,201 )     (35,818 )
Total Party City Holdco Inc. stockholders' equity before common stock held in treasury   1,370,260       1,255,168  
Less: Common stock held in treasury, at cost (27,165,225 and 23,379,567 shares at December 31, 2018 and 2017, respectively)   (326,930 )     (286,733 )
Total Party City Holdco Inc. stockholders' equity   1,043,330       968,435  
Noncontrolling interests   291       355  
Total stockholders’ equity   1,043,621       968,790  
Total liabilities, redeemable securities and stockholders’ equity $ 3,642,347     $ 3,454,756  
       

 

         
PARTY CITY HOLDCO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except share and per share data, unaudited)
         
  Three Months Ended December 31,     Year Ended December 31,
  2018     2017     2018     2017
                                   
Revenues:                    
Net sales $ 802,393     $ 785,020       $ 2,416,442       $ 2,357,986  
Royalties and franchise fees   3,241       4,563         11,073         13,583  
Total revenues   805,634       789,583         2,427,515         2,371,569  
                     
Expenses:                    
Cost of sales   439,274       417,137         1,435,358         1,395,279  
Wholesale selling expenses   17,921       17,410         71,502         65,356  
Retail operating expenses   140,977       133,186         425,996         415,167  
Franchise expenses   4,590       4,291         13,214         14,957  
General and administrative expenses   36,534       42,606         172,764         168,369  
Art and development costs   6,110       5,693         23,388         23,331  
Development stage expenses   1,388       1,882         7,008         8,974  
Total expenses   646,794       622,205         2,149,230         2,091,433  
Income from operations   158,840       167,378         278,285         280,136  
                     
Interest expense, net   29,225       22,152         105,706         87,366  
Other expense, net   1,906       3,766         10,982         4,626  
Income before income taxes   127,709       141,460         161,597         188,144  
Income tax expense (benefit)   29,335       (43,497 )       38,778         (27,196 )
Net income   98,374       184,957         122,819         215,340  
Add: Net income attributable to redeemable securities holder   7       -         409         -  
Less: Net income (loss) attributable to noncontrolling interests   56       -         (31 )       -  
Net income attributable to common shareholders of Party City Holdco Inc. $ 98,325     $ 184,957       $ 123,259       $ 215,340  
                     
Net income per share attributable to common shareholders of Party City Holdco Inc. - Basic $ 1.03     $ 1.59       $ 1.28       $ 1.81  
Net income per share attributable to common shareholders of Party City Holdco Inc. - Diluted $ 1.02     $ 1.58       $ 1.27       $ 1.79  
Weighted-average number of common shares-Basic   95,185,543       115,718,330         96,133,144         118,589,421  
Weighted-average number of common shares-Diluted   96,031,332       116,852,149         97,271,050         119,894,021  
                     
Comprehensive income $ 88,514     $ 185,922       $ 109,403       $ 231,761  
Add: Comprehensive income attributable to redeemable securities holder   7       -         409         -  
Less: Comprehensive income (loss) attributable to noncontrolling interests   44       -         (64 )       -  
Comprehensive income attributable to common shareholders of Party City Holdco Inc. $ 88,477     $ 185,922       $ 109,876       $ 231,761  
                     

 

       
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA

(In thousands, unaudited)
       
  Three Months Ended December 31,    Year Ended December 31, 
  2018   2017   2018   2017
               
Net income $ 98,374     $ 184,957     $ 122,819     $ 215,340  
Interest expense, net   29,225       22,152       105,706       87,366  
Income taxes   29,335       (43,497 )     38,778       (27,196 )
Depreciation and amortization   20,789       22,649       78,575       85,168  
EBITDA   177,723       186,261       345,878       360,678  
Non-cash purchase accounting adjustments   3,500       1,028       6,196       7,378  
Restructuring, retention and severance (a)   292       879       3,397       9,718  
Deferred rent (b)   1,019       1,653       5,351       7,287  
Closed store expense (c)   781       711       4,211       4,875  
Foreign currency (gains) losses, net   (104 )     2,150       24       466  
Stock option expense (d)   252       1,457       1,744       5,309  
Undistributed loss (income) in equity method investments   211       (102 )     (369 )     (194 )
Restricted stock units - time based (e)   452       -       1,174       -  
Restricted stock units - performance based (f)   (1,482 )     -       -       -  
Non-employee equity based compensation (g)   (271 )     (253 )     81       3,033  
Corporate development expenses (h)   2,905       3,323       11,314       9,401  
Non-recurring consulting charges (i)   271       -       12,514       -  
Hurricane-related costs   -       70       -       455  
Refinancing charges (j)   -       -       6,237       -  
Non-recurring legal settlements/costs (k)   2,380       -       2,380       -  
Other   988       242       (16 )     804  
Adjusted EBITDA $ 188,917     $ 197,419     $ 400,116     $ 409,210  
               
Adjusted EBITDA margin   23.4 %     25.0 %     16.5 %     17.3 %
 
(a) On March 15, 2017, the Company and its then Chairman of the Board of Directors, Gerald Rittenberg, entered into a Transition and Consulting Agreement under which Mr. Rittenberg’s employment as Executive Chairman of the Company terminated effective March 31, 2017.  As a result of the agreement, the Company recorded a $3.9 million severance charge in general and administrative expenses during 2017.  Additionally, during 2017, the Company recorded a $3.2 million severance charge related to the restructuring of its Retail segment.  See the 2017 Form 10-K for further discussion.  2018 principally relates to additional senior executive severance and costs incurred while moving one of the Company’s domestic manufacturing facilities to a new location.
(b) 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.
(c) Principally charges incurred related to closing underperforming stores.
(d) Represents non-cash charges related to stock options.
(e) Non-cash charges for restricted stock units that vest based on service conditions.
(f) Non-cash charges for restricted stock units that vest based on performance conditions.
(g) Principally represents shares of Kazzam awarded to Ampology as compensation for Ampology’s services.  See the 2017 Form 10-K for further discussion.
(h) Primarily represents start-up costs for Kazzam (see the 2017 Form 10-K for further discussion) and third-party costs related to acquisitions (principally legal and diligence expenses).
(i) Primarily non-recurring consulting charges related to the Company’s retail operations.
(j) During August 2018, the Company executed a refinancing of its debt portfolio and issued $500 million of new senior notes at an interest rate of 6.625%.  The notes will mature in August 2026.  The Company used the proceeds from the notes to: (i) reduce the outstanding balance under its existing ABL Facility by $90 million and (ii) voluntarily prepay $400 million of the outstanding balance under its existing Term Loan Credit Agreement.  Additionally, as part of the refinancing, the Company extended the maturity of the ABL Facility to August 2023.  As the partial prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement, at the time of such prepayment the Company wrote-off a pro-rata portion of the existing capitalized deferred financing costs and original issuance discounts, $1.8 million, for investors who did not participate in the new notes.  To the extent that investors in the Term Loan Credit Agreement participated in the new notes, the Company assessed whether the refinancing should be accounted for as an extinguishment on a creditor-by-creditor basis and wrote-off $1.0 million of existing deferred financing costs and original issuance discounts.  Additionally, in conjunction with the issuance of the notes, the Company incurred third-party fees (principally banker fees).  To the extent that such fees related to investors for whom their original debt was not extinguished, the Company expensed the portion of such fees, $2.3 million in aggregate, that related to such investors.

Additionally, during February 2018, the Company amended the Term Loan Credit Agreement. In conjunction with the amendment, the Company wrote-off $0.3 million of capitalized deferred financing costs, original issue discounts and call premiums.  Further, in conjunction with the February 2018 amendment, the Company expensed $0.8 million of investment banking and legal fees.
(k) Non-recurring legal settlements and costs              
               

 

       
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME

(In thousands, except share and per share data, unaudited)
     
       
  Three Months Ended December 31,    Year Ended December 31, 
  2018   2017   2018   2017
               
Income before income taxes $ 127,709     $ 141,460     $ 161,597   $ 188,144
Intangible asset amortization   4,312       5,255       12,271     16,959
Non-cash purchase accounting adjustments   4,190       1,384       6,812     9,549
Amortization of deferred financing costs and original issuance discounts (a)   1,155       1,238       10,989     4,937
Executive severance (b)   -       (378 )     809     3,918
Non-employee equity based compensation (c)   (271 )     (253 )     81     3,033
Non-recurring consulting charges (d)   271       -       12,514     -
Restructuring (e)   -       -       -     3,195
Hurricane-related costs   -       70       -     455
Stock option expense (f)   252       1,457       1,744     5,309
Restricted stock units - performance based (g)   (1,482 )     -       -     -
Non-recurring legal settlements/costs (h)   2,380       -       2,380     -
Adjusted income before income taxes   138,516       150,233       209,197     235,499
Adjusted income tax expense (i)   35,142       56,143       52,355     86,856
Adjusted net income $ 103,374     $ 94,090     $ 156,842   $ 148,643
               
Adjusted net income per common share - diluted $ 1.08     $ 0.81     $ 1.61   $ 1.24
               
Weighted-average number of common shares-diluted   96,031,332       116,852,149       97,271,050     119,894,021
               
(a) During August 2018, the Company executed a refinancing of its debt portfolio and issued $500 million of new senior notes at an interest rate of 6.625%.  The notes will mature in August 2026.  The Company used the proceeds from the notes to: (i) reduce the outstanding balance under its existing ABL Facility by $90 million and (ii) voluntarily prepay $400 million of the outstanding balance under its existing Term Loan Credit Agreement.  Additionally, as part of the refinancing, the Company extended the maturity of the ABL Facility to August 2023.  As the partial prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement, at the time of such prepayment the Company wrote-off a pro-rata portion of the existing capitalized deferred financing costs and original issuance discounts, $1.8 million, for investors who did not participate in the new notes.  To the extent that investors in the Term Loan Credit Agreement participated in the new notes, the Company assessed whether the refinancing should be accounted for as an extinguishment on a creditor-by-creditor basis and wrote-off $1.0 million of existing deferred financing costs and original issuance discounts.  Additionally, in conjunction with the issuance of the notes, the Company incurred third-party fees (principally banker fees).  To the extent that such fees related to investors for whom their original debt was not extinguished, the Company expensed the portion of such fees, $2.3 million in aggregate, that related to such investors.  Such amounts are included in “Amortization of Deferred Financing Costs and Original Issuance Discounts” in the “Adjusted Net Income” table above. 

Additionally, during February 2018, the Company amended the Term Loan Credit Agreement. In conjunction with the amendment, the Company wrote-off $0.3 million of capitalized deferred financing costs, original issue discounts and call premiums.  Further, in conjunction with the February 2018 amendment, the Company expensed $0.8 million of investment banking and legal fees.  Such amounts are included in “Amortization of Deferred Financing Costs and Original Issuance Discounts” in the “Adjusted Net Income” table above.
(b) On March 15, 2017, the Company and its then Chairman of the Board of Directors, Gerald Rittenberg, entered into a Transition and Consulting Agreement under which Mr. Rittenberg’s employment as Executive Chairman of the Company terminated effective March 31, 2017.  As a result of the agreement, the Company recorded a $3.9 million severance charge in general and administrative expenses during 2017.  Additionally, during 2018, the Company recorded $0.8 million of senior executive severance.
(c) Principally represents shares of Kazzam awarded to Ampology as compensation for Ampology’s services.  See the 2017 Form 10-K for further discussion.
(d) Primarily non-recurring consulting charges related to the Company’s retail operations.
(e) During the three months ended March 31, 2017, the Company recorded a $3.2 million severance charge related to a restructuring of its Retail segment.
(f) Represents non-cash charges related to stock options.
(g) Non-cash charges for restricted stock units that vest based on performance conditions.
(h) Non-recurring legal settlements and costs              
(i) 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. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law. The Act significantly changed U.S. tax law, including lowering the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, and implementing a one-time "deemed repatriation" tax on unremitted earnings accumulated in non-U.S. jurisdictions.  Due to the complexities of accounting for the Act, SEC Staff Accounting Bulletin No. 118 allowed entities to include a provisional estimate of the impact of the Act in its 2017 financial statements.  Therefore, based on then currently available information, during the fourth quarter of 2017 the Company recorded a provisional income tax benefit of $91.0 million related to the remeasurement of its deferred tax liabilities due to the lower U.S. corporate tax rate.  During 2018, the Company finalized such adjustment and recorded an additional $2.0 million benefit.  As the Act is a significant and non-recurring event which is impacting the comparability of the Company’s financial statements, the Company has excluded the impact of the adjustments from its adjusted net income and adjusted earnings per share for the years ended December 31, 2018 and December 31, 2017.
 

 

     
PARTY CITY HOLDCO INC.
RECONCILIATION OF 2019 OUTLOOK

(In millions, unaudited)
     
    Full year 2019
    Outlook
Net income:   $135  -  $145
Intangible asset amortization, net of tax:   11
Amortization of deferred financing costs and original issuance discount, net of tax:   3
Equity based compensation, net of tax:   2
Non-cash purchase accounting adjustments, net of tax:   1
Adjusted net income:   $152  -  $162
     
     
Net income:   $135  -  $145
Income taxes:   46  -  50
Interest expense, net:   118
Depreciation and amortization:   86  -  84
EBITDA:   $385  -  $397
Corporate development expenses:   9  -  10
Equity based compensation:   6
Closed store expense:   2
Non-cash purchase accounting adjustments:   2
Restructuring, retention and severance:   1
Adjusted EBITDA:   $405  -  $418
     

 

 
PARTY CITY HOLDCO INC.
SEGMENT INFORMATION
(In thousands, except percentages, unaudited)
 
  Three Months Ended December 31,
  2018
  2017
Total Revenues Dollars in
thousands
Percentage of
Total Revenues
  Dollars in
thousands
Percentage of
Total Revenues
Net Sales:          
Wholesale $ 337,361   41.9 %   $ 330,834   41.9 %
Eliminations   (187,193 ) (23.2 %)     (171,276 ) (21.7 %)
Net wholesale   150,168   18.6 %     159,558   20.2 %
Retail   652,225   81.0 %     625,462   79.2 %
Total net sales   802,393   99.6 %     785,020   99.4 %
Royalties and franchise fees   3,241   0.4 %     4,563   0.6 %
Total revenues $ 805,634   100.0 %   $ 789,583   100.0 %
           
       
  Year Ended December 31,
  2018
  2017
Total Revenues Dollars in
thousands
Percentage of
Total Revenues
  Dollars in
thousands
Percentage of
Total Revenues
Net Sales:          
Wholesale $ 1,325,490   54.6 %   $ 1,260,089   53.1 %
Eliminations   (711,882 ) (29.3 %)     (630,692 ) (26.6 %)
Net wholesale   613,608   25.3 %     629,397   26.5 %
Retail   1,802,834   74.2 %     1,728,589   72.9 %
Total net sales   2,416,442   99.5 %     2,357,986   99.4 %
Royalties and franchise fees   11,073   0.5 %     13,583   0.6 %
Total revenues $ 2,427,515   100.0 %   $ 2,371,569   100.0 %
           
           
           
  Three Months Ended December 31,
  2018   2017
Total Gross Profit Dollars in
thousands
Percentage of
Net Sales
  Dollars in
thousands
Percentage of
Net Sales
Retail $ 318,740   48.9 %   $ 315,528   50.4 %
Wholesale   44,379   29.6 %     52,355   32.8 %
Total $ 363,119   45.3 %   $ 367,883   46.9 %
           
 
  Year Ended December 31,
  2018   2017
Total Gross Profit Dollars in
thousands
Percentage of
Net Sales
  Dollars in
thousands
Percentage of
Net Sales
Retail $ 801,349   44.4 %   $ 763,315   44.2 %
Wholesale   179,735   29.3 %     199,392   31.7 %
Total $ 981,084   40.6 %   $ 962,707   40.8 %
 

 

               
PARTY CITY HOLDCO INC.
OPERATING METRICS
               
  Three Months Ended December 31,   LTM    
  2018   2017   2018    
Store Count              
Corporate Stores:              
Beginning of period 862   794   803    
New stores opened 4   3   15    
Acquired 0   7   58    
Closed 0   (1)   (10)    
End of period 866   803   866    
Franchise Stores:              
Beginning of period 97   148   148    
New stores opened -   1   1    
Sold to Party City -   -   (50)    
Closed (1)   (1)   (3)    
End of period 96   148   96    
Grand Total  962   951   962    
               
               
               
               
  Three Months Ended December 31,    Year Ended December 31,
  2018   2017   2018   2017
               
Wholesale Share of Shelf (a) 80.7%   82.3%   78.9%   79.6%
               
Manufacturing Share of Shelf (b) 16.6%   18.2%   22.9%   22.6%
               
               
               
  Three Months Ended December 31,    Year Ended December 31,
  2018   2017   2018   2017
               
Brand comparable sales (c) -2.9%   -1.4%   -0.7%   -0.7%
               
(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.