Party City Announces Financial Results for Third Quarter 2015 and Brand Comparable Sales for Fiscal October 2015

  • Third quarter total revenue increased 2.3% to $555 million
  • Third quarter adjusted EBITDA increased 2.3% to $58 million;
    adjusted diluted earnings per share of $0.10
  • Brand comparable sales increased 3.3% for fiscal October 2015

ELMSFORD, N.Y.–(BUSINESS WIRE)–Party City Holdco Inc. (“the Company” or “Party City”) (NYSE:PRTY) today
announced financial results for the quarter ended September 30, 2015 and
brand comparable sales for fiscal October 2015.

For the quarter ended September 30, 2015 the Company reported
total revenues of $555.4 million, up 2.3% from the prior year period or
up 4.9% on a constant currency basis. Income from operations increased
9.4% to $31.5 million and adjusted EBITDA (see “Non-GAAP Information”)
increased 2.3% to $58.2 million. Adjusted diluted net income per share
increased to $0.10 from $0.01 in the third quarter of fiscal 2014 (see
“Non-GAAP Information”).

For the five-week period ended November 7, 2015 (fiscal October,
which comprises the majority of Halloween sales), the Company reported
retail sales of $429.3 million. Brand comparable sales, which include
Company-owned Party City stores and North American e-commerce
operations, increased 3.3%. Two-year cumulative brand comparable sales
increased in excess of 10%.

For the entire Halloween season, the Company operated 335 temporary
Halloween City stores, compared to 315 in 2014, and average sales per
Halloween City store increased 1.9%.

James M. Harrison, Chief Executive Officer, stated: “While third quarter
retail results were weaker than expected, we are pleased with our
Halloween performance, especially in light of bearish industry
predictions. Our expanded Halloween product assortments, unique,
proprietary designs, effective marketing and social medial efforts all
drove these strong results during the most important season for our
retail operations.”

Mr. Harrison added, “As we move into the year-end holiday season, we
remain the destination of choice for shoppers looking for holiday decor
and entertaining options to celebrate with family and friends. Looking
ahead, we will also continue to execute on our strategic initiatives
that are driving growth in our wholesale business, including integrating
our new ACIM acquisition, driving international sales and capturing new
alternative market customers.”

Highlights for the quarter ended September 30, 2015:

Total revenues of $555.4 million increased by 2.3% or 4.9% on a constant
currency basis compared to the third quarter of fiscal 2014.

  • Retail sales increased 4.1% to $339.5 million, or 5.3% on a constant
    currency basis. This was driven in part by a fiscal calendar shift
    that resulted in more Halloween shopping days falling into the third
    quarter this year, as well as 17 net new stores added in the past
    twelve months. This was partially offset by the lower brand comparable
    sales noted below. (Note: For our Retail business 3Q15 ended on
    October 3rd and 3Q14 ended on September 27th)
  • Brand comparable sales decreased by 3.6% principally due to lapping
    strong sales of Frozen merchandise in the prior year quarter,
    temporary disruption resulting from store resets and soft traffic
    trends.
  • Net third-party wholesale revenues (including sales to our Party City
    franchise stores) decreased 0.3% to $211.9 million as negative foreign
    currency impacts of $10 million and the elimination of $5 million of
    U.S. Balloon intercompany sales were offset by stronger international
    sales. On a constant currency basis, net third-party wholesale
    revenues increased 4.4%.

Total gross profit margin increased 20 basis points to 34.4% of net
sales, compared to 34.2% in the third quarter of fiscal 2014. Increased
share of shelf and less impact from purchase accounting adjustments were
mostly offset by unfavorable foreign currency movements and higher
international sales.

Our wholesale share of shelf (the percentage of our retail product cost
of sales supplied by our wholesale operations) was 73.5%, compared to
approximately 69.2% in the year-ago quarter.

Operating expenses increased 2% to $162.4 million. Within this category,
wholesale selling expenses declined 15.2% from the prior year period
principally due to foreign currency translation, cost savings related to
a reorganization of our sales and marketing groups and lower intangible
asset amortization. Retail operating expenses increased 7.2% due to
higher payroll costs associated with new stores and increased headcount
related to completing the store resets and temporary hires as a portion
of the Halloween season shifted into the third quarter. General and
administrative expenses decreased 3.1% year over year, primarily due to
foreign currency fluctuations affecting international subsidiaries.

Income from operations grew 9.4% to $31.5 million and totaled 5.7% of
total revenues, up approximately 40 basis points from the prior year
quarter.

Adjusted net income, which excludes certain items such as debt
refinancing costs, non-cash purchase accounting adjustments and
amortization of intangibles and deferred financing costs, increased to
$11.9 million, compared to $1.2 million in the third quarter of fiscal
2014. Adjusted diluted net income per share increased to $0.10 compared
to $0.01 in the third quarter of fiscal 2014 (see “Non-GAAP
Information”).

Adjusted EBITDA increased 2.3% to $58.2 million, compared to $57.0
million in the third quarter of fiscal 2014 (see “Non-GAAP
Information”). Adjusted EBITDA margin remained stable at 10.5% of total
revenues.

During the quarter, the Company opened 7 new stores. At September 30,
2015, the Company operated 704 corporate Party City stores and 204
franchise stores for a total store count of 908, as compared to 687
corporate Party City stores and 208 franchise stores for a total store
count of 895 at September 30, 2014.

Balance sheet highlights as of September 30, 2015:

The Company ended the third quarter with $1,988.5 million in debt (net
of cash).

In August, the Company refinanced its existing Term Loan Credit
Agreement and ABL Revolving Credit Facility, issued $350 million 6.125%
Senior Notes and redeemed the outstanding $700 million 8.875% Senior
Notes. In conjunction with the refinancing, the Company paid a call
premium and other third party costs aggregating $56.4 million and wrote
off $22.7 million of capitalized debt issuance costs, original issue
discounts and call premiums (all of which are excluded from adjusted net
income).

Working capital increased during the third quarter of 2015 reflecting
typical seasonal inventory increases ahead of the Halloween selling
season.

Updated Fiscal 2015 Outlook:

The Company expects fiscal 2015 total revenues of $2.27 to $2.32
billion, and brand comparable sales to be in the range of 1.0% to 1.5%.
Adjusted EBITDA guidance is in the range of $375 to $385 million,
adjusted net income expectations are in the range of $112 to $118
million, and adjusted diluted net income per share is expected to be
$0.99 to $1.04 on an estimated weighted average of approximately 113
million common shares outstanding.

The adjusted effective tax rate is expected to be approximately 38% for
the full fiscal year 2015.

Impact of 53rd week in Fiscal 2014

The 2014 fiscal year of our Retail operations consisted of 53 weeks.
Fiscal year 2015 has 52 weeks. The 53rd week in 2014 contributed $34
million to Retail net sales.

_______________________________________

Conference Call Information:

A conference call to discuss third quarter fiscal 2015 financial results
is scheduled for today, November 12, 2015, at 4:30 pm Eastern Time.
Investors and analysts interested in participating in the call are
invited to dial 877-201-0168 (U.S. domestic) and 647-788-4901
(international), and enter conference ID# 58848723, 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.

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 it assists
investors and analysts in comparing our performance across reporting
periods on a consistent basis by excluding 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 the 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 a table accompanying this release. 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 ongoing
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,
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;
adequacy of helium supplies; 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 factors set forth in “Risk Factors” in Party City’s
prospectus dated April 15, 2015 and in subsequent reports filed with or
furnished to the Securities and Exchange Commission. Except as may be
required by any applicable laws, Party City assumes no obligation to
publicly update 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. (the “Company” or “Party City Holdco”) is the
leading party goods retailer 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 with a multi-channel
retailing strategy that includes the Party City brick and mortar 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 over 900 specialty retail party supply stores (including
approximately 200 franchise stores) in the United States and Canada
operating under the names Party City and Halloween City, and e-commerce
websites, principally through the domain name PartyCity.com. Party City
Holdco franchises both individual stores and franchise areas throughout
the United States, Mexico and Puerto Rico, principally under the name
Party City.

PARTY CITY HOLDCO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

September 30, December 31,
2015 2014
ASSETS Unaudited
Current assets:
Cash and cash equivalents $ 53,805 $ 47,214
Accounts receivable, net 190,127 140,663
Inventories, net 684,387 582,230
Prepaid expenses and other current assets 127,966 77,232
Total current assets 1,056,285 847,339
Property, plant and equipment, net 272,180 248,684
Goodwill 1,563,232 1,557,250
Trade names 569,024 569,343
Other intangible assets, net 92,712 107,010
Other assets, net 32,002 51,237
Total assets $ 3,585,435 $ 3,380,863
LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Loans and notes payable $ 360,477 $ 25,336
Accounts payable 199,726 145,686
Accrued expenses 168,908 165,683
Income taxes payable 0 34,670
Current portion of long-term obligations 14,267 12,249
Total current liabilities 743,378 383,624
Long-term obligations, excluding current portion 1,667,550 2,127,583
Deferred income tax liabilities 296,064 309,338
Deferred rent and other long-term liabilities 49,852 38,030
Total liabilities 2,756,844 2,858,575

Redeemable common securities (3,088,630 shares issued and
outstanding at

December 31, 2014)

35,062
Commitments and contingencies
Stockholders’ equity:

Common stock (119,258,374 and 91,007,894 shares issued and
outstanding

at September 30, 2015 and December 31, 2014, respectively)

1,193 910
Additional paid-in capital 903,179 469,117
(Accumulated deficit) retained earnings (46,130 ) 29,934
Accumulated other comprehensive loss (29,651 ) (12,735 )
Total stockholders’ equity 828,591 487,226
Total liabilities, redeemable common securities and stockholders’
equity
$ 3,585,435 $ 3,380,863
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(In thousands, except share and per share data)
UNAUDITED
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 2015 2014
Revenues:
Net sales $551,380 $538,671 $1,500,781 $1,455,073
Royalties and franchise fees 4,027 3,990 12,251 12,149
Total revenues 555,407 542,661 1,513,032 1,467,222
Expenses:
Cost of sales 361,530 354,525 958,667 933,424
Wholesale selling expenses 15,465 18,244 48,825 54,870
Retail operating expenses 102,432 95,571 267,975 261,524
Franchise expenses 3,608 3,537 10,597 10,333
General and administrative expenses 35,979 37,135 110,048 107,587
Art and development costs 4,913 4,871 15,369 14,495
Total expenses 523,927 513,883 1,411,481 1,382,233
Income from operations 31,480 28,778 101,551 84,989
Interest expense, net 29,554 39,218 101,430 117,103
Other expense (income), net 79,130 (116) 126,519 4,435
Loss before income taxes (77,204) (10,324) (126,398) (36,549)
Income tax benefit (32,715) (4,914) (50,334) (13,683)
Net loss ($44,489) ($5,410) ($76,064) ($22,866)
Comprehensive loss ($55,797) ($17,536) ($92,980) ($30,959)
Net loss per common share-Basic ($0.37) ($0.06) ($0.69) ($0.24)
Net loss per common share-Diluted ($0.37) ($0.06) ($0.69) ($0.24)
Weighted-average number of common shares-Basic 119,253,707 94,027,724 109,470,099 93,966,622
Weighted-average number of common shares-Diluted 119,253,707 94,027,724 109,470,099 93,966,622

PARTY CITY HOLDCO INC.

RECONCILIATION OF ADJUSTED EBITDA

(In thousands)

UNAUDITED

Three Months Ended

September 30,

Nine Months Ended

September 30,

2015 2014 2015 2014
Net loss ($44,489) ($5,410) ($76,064) ($22,866)
Interest expense, net 29,554 39,218 101,430 117,103
Income taxes (32,715) (4,914) (50,334) (13,683)
Depreciation and amortization 19,766 20,144 59,567 60,995
EBITDA (27,884) 49,038 34,599 141,549
Non-cash purchase accounting adjustments 224 550 5,979 3,356
Management fee (a) 839 31,627 2,517
Restructuring, retention and severance 166 385 2,311 2,559
Refinancing charges (b) 79,011 94,607 4,396
Deferred rent 5,479 5,114 9,580 11,676
Closed store expense 335 125 903 1,273
Foreign currency (gains) losses (978) (15) 1,782 1,388
Business interruption proceeds, net of costs (2,476)
Equity based compensation 970 396 2,094 1,187
Undistributed loss in unconsolidated joint venture 342 374 377 846
Gain on sale of assets (2,660)
Corporate development expenses 414 128 1,543 401
Other 167 27 (51) 2,417
Adjusted EBITDA $58,246 $56,961 $182,691 $171,089
(a) Represents management fees paid to THL and Advent. The
management agreement terminated upon the consummation of the initial
public offering in April 2015 and the Company paid a one-time
termination fee.
(b) 2015 represents charges associated with refinancing the
Company’s debt, a prepayment penalty of $7,000 related to the
redemption of the Nextco Notes following the IPO, as well as the
write-off of related capitalized debt issuance costs and original
issuance discounts.

PARTY CITY HOLDCO INC.

RECONCILIATION OF ADJUSTED NET INCOME

(In thousands except per share data)

UNAUDITED

Three Months Ended

September 30,

Nine Months Ended

September 30,

2015 2014 2015 2014
Loss before income taxes ($77,204) ($10,324) ($126,398) ($36,549)
Intangible asset amortization 4,700 5,507 14,216 16,745
Non-cash purchase accounting adjustments 955 1,470 8,430 7,282
Amortization of deferred financing costs and
original issuance discounts (a)(b) 24,774 3,175 39,225 12,437
Management fee (c) 839 31,627 2,517
Refinancing charges (a) 58,338 65,338 1,407
Equity based compensation 970 396 2,094 1,187
Gain on sale of assets (d) (2,660)
Adjusted income before income taxes 12,533 1,063 31,872 5,026
Adjusted income tax expense (benefit) (e) 623 (160) 8,645 2,240
Adjusted net income $11,910 $1,223 $23,227 $2,786
Adjusted net income per common share – diluted $0.10 $0.01 $0.21 $0.03
(a) During 3Q15, the Company refinanced its debt, and in
conjunction, paid $56,350 in call premiums and other third party
costs, as well as wrote off $22,661 in capitalized debt issuance
costs, original issue discounts and call premiums. Additionally, in
2Q15, the Company expensed a prepayment penalty of $7,000 related to
the redemption of the Nextco Notes following the April 2015 IPO, and
wrote off $8,596 of capitalized debt issuance costs and original
issue discounts on the Nextco Notes. The write-off of the debt
issuance costs and original issue discounts and call premiums is
included in “Amortization of deferred financing costs and original
issuance discounts” in this table and in the Company’s condensed
consolidated statement of cash flows.
(b) Represents the amortization of deferred financing costs and
original issuance discounts related to debt offerings. Additionally,
includes the write-off of deferred financing costs, net original
issuance discounts and unamortized call premiums disucssed in Note
(a) above.
(c) Represents management fees paid to THL and Advent. The
management agreement terminated upon the consummation of the initial
public offering in April 2015 and the Company paid a termination fee.
(d) During January 2015, the Company recorded a gain on the sale of
certain assets obtained in the October 2014 acquisition of U.S.
Balloon.
(e) Represents the income tax expense using the rate in effect after
considering the adjustments.

PARTY CITY HOLDCO INC.

SEGMENT INFORMATION

(In thousands except percentages)

UNAUDITED

Three Months Ended September 30,
2015 2014
Total Revenues

Dollars in

thousands

Percentage of

Total Revenues

Dollars in

thousands

Percentage of

Total Revenues

Net Sales:
Wholesale $418,447 75.3% $423,967 78.1%
Eliminations (206,532) (37.1%) (211,382) (38.9%)
Net wholesale 211,915 38.2% 212,585 39.2%
Retail 339,465 61.1% 326,086 60.1%
Total net sales 551,380 99.3% 538,671 99.3%
Royalties and franchise fees 4,027 0.7% 3,990 0.7%
Total revenues $555,407 100.0% $542,661 100.0%
Nine Months Ended September 30,
2015 2014
Total Revenues

Dollars in

thousands

Percentage of

Total Revenues

Dollars in

thousands

Percentage of

Total Revenues

Net Sales:
Wholesale $923,717 61.1% $912,261 62.2%
Eliminations (426,132) (28.2%) (425,289) (29.0%)
Net wholesale 497,585 32.9% 486,972 33.2%
Retail 1,003,196 66.3% 968,101 66.0%
Total net sales 1,500,781 99.2% 1,455,073 99.2%
Royalties and franchise fees 12,251 0.8% 12,149 0.8%
Total revenues $1,513,032 100.0% $1,467,222 100.0%
Three Months Ended September 30,
2015 2014
Total Gross Profit

Dollars in

thousands

Percentage of

Net Sales

Dollars in

thousands

Percentage of

Net Sales

Retail $127,871 37.7% $119,083 36.5%
Wholesale 61,979 29.2% 65,063 30.6%
Total $189,850 34.4% $184,146 34.2%
Nine Months Ended September 30,
2015 2014
Total Gross Profit

Dollars in

thousands

Percentage of

Net Sales

Dollars in

thousands

Percentage of

Net Sales

Retail $394,607 39.3% $368,094 38.0%
Wholesale 147,507 29.6% 153,555 31.5%
Total $542,114 36.1% $521,649 35.9%

Contacts

Party City Holdco Inc.
Deborah Belevan, 914-784-8324
VP of
Investor Relations
InvestorRelations@partycity.com

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