Party City Announces Fourth Quarter and Full Year 2015 Results

Guía de Regalos

Revenue increase of 4%1 on a constant
currency basis to a record $2.29 billion for fiscal year 2015

Adjusted Net Income increase of 32% in fiscal year 2015; Adjusted EPS
of $1.01

ELMSFORD, N.Y.–(BUSINESS WIRE)–Party City Holdco Inc. (“the Company” or “Party City”) (NYSE:PRTY) today
announced financial results for the quarter and year ended December 31,
2015.

James M. Harrison, Chief Executive Officer, stated: “We are very pleased
to have ended 2015 with a strong fourth quarter and to have delivered
total sales and earnings performance for the year within the original
guidance ranges we set for ourselves early in 2015. Our performance
demonstrates the strength of our vertical model, which allows us to
drive profits through our wholesale and retail businesses, as well as
execution of our strategic initiatives.”

During the year, the Company achieved a number of milestones in
executing its growth strategy:

  • Strengthened our vertical model by completing the acquisitions of
    Travis Designs and ACIM
  • Increased our share of shelf2 to 75% from 70% in 2014
  • Increased our international presence by entering into a master
    franchise agreement in Mexico and by increasing international third
    party wholesale sales 15% on a constant currency basis
  • Expanded our store base by opening/acquiring 33 new stores (19 net of
    closures) in the U.S. and Canada
  • Reduced leverage3 from 5.7 times to 4.6 times adjusted
    EBITDA
  • Generated cash interest savings of approximately $27 million in 2015
    as a result of the application of our IPO proceeds towards debt
    reduction and a refinancing of our debt in August; Expect an
    additional $28 million of cash interest savings in 2016 based upon
    current interest rates

Mr. Harrison added, “In 2016, we have many exciting opportunities to
expand our business such as tapping into new customer markets like B2B,
increasing our international penetration, expanding our store base and
driving e-commerce growth. We remain focused on our multiple growth
strategies and are committed to successfully integrating the
acquisitions of ACIM and Travis, as well as continuing to seek new
opportunities to deepen our vertical model to fuel further margin
expansion by manufacturing more of what we sell.”

Fourth quarter summary:

  • Total revenues of $782 million were up 4.4%1 on a constant
    currency basis. On a reported basis, given the extra week in the prior
    year quarter and negative currency impacts, total revenues declined
    2.8%.

    • Retail sales increased 5.4%1 on a constant currency
      basis excluding the 14th week impact, driven by 19 net new Party
      City stores added in the past twelve months, 20 additional
      Halloween City stores and higher brand comparable sales (noted
      below). On a reported basis retail sales decreased 3.0% to $618
      million.
    • Brand comparable sales increased 2.8% driven by a strong Halloween
      season which resulted in a 3.3% increase in brand comparable sales
      for fiscal October.
    • Net third-party wholesale revenues increased 1.0% on a constant
      currency basis driven by stronger international sales, offset by
      lower sales to domestic party good retailers. On a reported basis,
      net third-party wholesale revenues decreased 2.1% to $156 million.
  • Total gross profit margin increased 230 basis points to 46.8% driven
    by increased share of shelf and fewer markdown and other inventory
    reserves, partially offset by unfavorable foreign currency movements.
    Wholesale share of shelf2 was approximately 77%, compared
    to approximately 73% in the year-ago quarter.
  • Operating expenses decreased 2.4% to $198.6 million. Within this
    category:

    • Wholesale selling expenses declined 18.9% 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 decreased 1.9% due to the extra week in
      fiscal 2014 (explained below), offset by higher payroll costs
      associated with new stores and a greater number of Halloween City
      stores (335 vs. 315 in 2014).
    • General and administrative expenses increased 2.3% as higher
      inflationary costs and costs of acquired companies were offset in
      part by the impact of the 14th week in 2014 (described
      below) and foreign currency translation.
  • Income from operations grew 7.9% to $171 million and totaled 21.8% of
    total revenues, up approximately 220 basis points from the prior year
    quarter.
  • Adjusted EBITDA increased 3.4% to $198 million, compared to $191
    million in the fourth quarter of fiscal 2014. Adjusted EBITDA margin
    increased to 25.3% of total revenues, compared to 23.8% in the prior
    year quarter.
  • Adjusted net income increased 8.3% to $91 million, compared to $84
    million in the prior year period. On a per share basis, given the
    IPO-related increase in share count to 120.3 million shares in 4Q15
    from 94.8 million shares in 4Q14, adjusted diluted net income per
    share decreased to $0.76 from $0.89.

Full year summary

  • Total revenues of $2.29 billion, up 4.1%1 on a constant
    currency basis, excluding the impact of the 53rd week in 2014. On a
    reported basis, total revenues increased 1.0%.

    • Retail sales increased 3.8%1 on a constant currency
      basis, driven by 19 net new Party City stores added in the past
      twelve months, 20 additional Halloween City stores and higher
      brand comparable sales noted below. On a reported basis retail
      sales increased 1.0% to $1,622 million.
    • Brand comparable sales increased by 1.5%.
    • Net third-party wholesale revenues increased 5.0% on a constant
      currency basis driven by stronger international sales offset by
      the elimination of now intercompany U.S. Balloon sales. On a
      reported basis net third-party wholesale revenues increased 1.1%
      to $654 million.
  • Total gross profit margin increased 80 basis points to 39.7% due to
    less impact from purchase accounting adjustments, increased share of
    shelf and fewer markdowns, offset by unfavorable foreign currency
    movements and sales mix.
  • Wholesale share of shelf2 was approximately 75%, compared
    to approximately 70% in 2014.
  • Operating expenses decreased 0.2% to $651 million. Within this
    category:

    • Wholesale selling expenses declined 13.1% from the prior year due
      to cost savings related to a reorganization of our sales and
      marketing groups and the impact of foreign currency translation.
    • Retail operating expenses increased 1.0% due to higher payroll
      costs associated with new stores and a greater number of Halloween
      City stores this season, partially offset by the extra week in
      fiscal 2014.
    • General and administrative expenses increased 2.3% year over year
      as higher inflationary costs were offset by the 53rd week impact
      described below and foreign currency translation.
  • Income from operations grew 12.0% to $272 million or 11.9% of total
    revenues, up approximately 120 basis points from 2014.
  • Adjusted EBITDA increased 5.0% to $380 million, compared to $362
    million in 2014. Adjusted EBITDA margin increased to 16.6% of total
    revenues compared to 15.9% in 2014.
  • Adjusted net income increased 31.6% to $114 million, compared to $87
    million in 2014. Adjusted diluted net income per share increased to
    $1.01 from $0.92 in 2014.

Balance sheet highlights as of December 31, 2015:

The Company ended the fourth quarter with $1,744 million in debt (net of
cash) and approximately $349.1 million in availability under its
asset-based revolving credit facility.

Fiscal 2016 Outlook:

The Company expects fiscal 2016 total revenues of $2.35 to $2.42
billion, and brand comparable sales to range between flat to up
slightly. Adjusted EBITDA guidance is in the range of $390 to $405
million, adjusted net income expectations are in the range of $140 to
$150 million, and adjusted diluted net income per share is expected to
be $1.17 to $1.25 based upon estimated weighted average common shares
outstanding of approximately 120.5 million.

The adjusted effective tax rate for the full fiscal year 2016 is
expected to be approximately 38.5%.

53/52 Week Fiscal Year:

The Company’s Retail business operates and reports using a 52/53 week
fiscal year ending on the Saturday closest to December 31 of each year
and, as a result, a 53rd week is added every five or six years. Fiscal
2014 included a 53rd week. Similarly, while fiscal quarters normally
consist of 13-week periods, the fourth quarter of 2014 included a 14th
week. For comparability between 2015 and 2014 financial results, certain
amounts referenced herein exclude the impact of the 53rd week of
full-year 2014 and the 14th week of fourth quarter 2014,
which added $29 million and $46 million to net sales, respectively.

__________________________

1 Adjusted for foreign currency and 53rd week
impact (refer to “53/52 Week Fiscal Year” paragraph)
2 The percentage of our retail product cost of sales
supplied by our wholesale operations
3 Defined as net debt to adjusted EBITDA
 
 

Conference Call Information:

A conference call to discuss fourth quarter and full year fiscal 2015
financial results is scheduled for today, March 10, 2016, at 8:00 a.m.
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# 24121650, 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.

The Company has also posted supplemental fourth quarter and full year
2015 earnings slides that are available on the website at http://investor.partycity.com.

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 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,
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 prospectus dated April 15,
2015 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. (the “Company” or “Party City Holdco”) 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 900
specialty retail party supply stores (including approximately 180
franchise stores) throughout North America operating under the names
Party City and Halloween City, and e-commerce websites, principally
through the domain name PartyCity.com.

PARTY CITY HOLDCO INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

           
December 31, December 31,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $42,919 $47,214
Accounts receivable, net 132,287 140,663
Inventories, net 564,259 582,230
Prepaid expenses and other current assets 50,450   77,232  
Total current assets 789,915 847,339
Property, plant and equipment, net 272,420 248,684
Goodwill 1,562,515 1,557,250
Trade names 568,712 569,343
Other intangible assets, net 89,157 107,010
Other assets, net 9,684   6,865  
Total assets $3,292,403   $3,336,491  
 
 
LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Loans and notes payable $126,136 $21,936
Accounts payable 111,616 145,686
Accrued expenses 146,319 165,683
Income taxes payable 8,504 34,670
Current portion of long-term obligations 14,552   12,249  
Total current liabilities 407,127 380,224
Long-term obligations, excluding current portion 1,646,121 2,086,611
Deferred income tax liabilities 276,667 309,338
Deferred rent and other long-term liabilities 49,471   38,030  
Total liabilities 2,379,386 2,814,203
 
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 December 31, 2015 and 2014, respectively)
1,193 910
Additional paid-in capital 904,425 469,117
Retained earnings 40,189 29,934
Accumulated other comprehensive loss (32,790 ) (12,735 )
Total stockholders’ equity 913,017   487,226  
Total liabilities, redeemable common securities and stockholders’
equity
$3,292,403   $3,336,491  
 
 

PARTY CITY HOLDCO INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)

(In thousands, except share and per share data)

         
Three Months Ended December 31, Year Ended December 31,
2015  

2014(1)

2015

 

2014(1)

 
Revenues:
Net sales $774,341 $796,516 $2,275,122 $2,251,589
Royalties and franchise fees 7,160 7,519   19,411   19,668  
Total revenues 781,501 804,035 2,294,533 2,271,257
 
Expenses:
Cost of sales 412,217 442,282 1,370,884 1,375,706
Wholesale selling expenses 15,435 19,040 64,260 73,910
Retail operating expenses 133,064 135,586 401,039 397,110
Franchise expenses 3,797 3,948 14,394 14,281
General and administrative expenses 41,049 40,131 151,097 147,718
Art and development costs 5,271 4,895   20,640   19,390  
Total expenses 610,833 645,882 2,022,314 2,028,115
Income from operations 170,668 158,153 272,219 243,142
 
Interest expense, net 21,931 38,814 123,361 155,917
Other expense, net 4,471 1,456   130,990   5,891  
Income before income taxes 144,266 117,883 17,868 81,334
Income tax expense 57,743 38,894   7,409   25,211  
Net income $86,523 $78,989   $10,459   $56,123  
 
 
Comprehensive income (loss) $83,384 $68,939   ($9,596 ) $37,980  
 
Net income per common share-Basic $0.73 $0.84   $0.09   $0.60  
Net income per common share-Diluted $0.72 $0.83   $0.09   $0.59  
Weighted-average number of common shares-Basic 119,258,374 94,085,555 111,917,168 93,996,355
Weighted-average number of common shares-Diluted 120,266,120 94,818,926 112,943,807 94,444,137
 

1. The fourth quarter and full year ended December 31, 2014,
contain a 14th and 53rd week for our Retail operations,
respectively.

 
 

PARTY CITY HOLDCO INC.

RECONCILIATION OF ADJUSTED EBITDA

(In thousands)

       
Three Months Ended December 31, Year Ended December 31,
2015   2014   2015   2014  
 
Net income $86,523 $78,989 $10,459 $56,123
Interest expense, net 21,931 38,814 123,361 155,917
Income taxes 57,743 38,894 7,409 25,211
Depreciation and amortization 20,948   21,895   80,515   82,890  
EBITDA $187,145 178,592 221,744 320,141
Equity based compensation 948 396 3,042 1,583
Non-cash purchase accounting adjustments (1,509 ) 5,512 4,470 8,868
Management fee (a) 839 31,627 3,356
Impairment charges 852 1,012 852 1,012
Restructuring, retention and severance 7 832 2,318 3,391
Refinancing charges (b) 94,607 4,396
Deferred rent 3,827 2,742 13,407 14,418
Business interruption proceeds, net of costs 41 (2,435 )
Corporate development expenses 243 299 1,786 700
Foreign currency losses 1,909 59 3,691 1,447
Closed store expense 998 (74 ) 1,901 1,199
Undistributed loss in unconsolidated joint venture 185 710 562 1,556
Gain on sale of assets (2,660 )
Change-of-control license premium 3,000

3,000

Other (3 ) 76   (54 ) 2,493  
Adjusted EBITDA $197,602   $191,036   $380,293   $362,125  
 
(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)

       
Three Months Ended December 31, Year Ended December 31,
2015   2014 2015   2014
 
Income before income taxes $144,266 $117,883 $17,868 $81,334
Intangible asset amortization 4,669 5,450 18,885 22,195
Non-cash purchase accounting adjustments (1,985 ) 6,410 6,445 13,692
Amortization of deferred financing costs and
original issuance discounts (a)(b) 1,291 3,173 40,516 15,610
Management fee (c) 839 31,627 3,356
Refinancing charges (a) 65,338 1,407
Equity based compensation 948 396 3,042 1,583
Impairment charges 852 1,012 852 1,012
Gain on sale of assets (2,660 )
Change-of-control license premium 3,000   3,000  
Adjusted income before income taxes 153,041 135,163 184,913 140,189
Adjusted income tax expense (d) 62,062   51,111 70,707   53,351
Adjusted net income $90,979   $84,052 $114,206   $86,838
 
Adjusted net income per common share – diluted $0.76 $0.89 $1.01 $0.92
 

Weighted-average number of common shares-diluted

120,266,120 94,818,926 112,943,807 94,444,137

Weighted-average common stock issued in IPO(e)

  25,156,250   17,819,010

Pro forma weighted-average number of common shares-diluted

120,266,120   119,975,176 112,943,807   112,263,147
Pro forma adjusted net income per common share – diluted $0.76   $0.70 $1.01   $0.77
 

(a)

 

During 3Q15, the Company refinanced its debt and 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, 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 consolidated
statement of cash flows.

 

(b)

Represents the amortization of deferred financing costs, call
premiums 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 discussed 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 one-time termination
fee.

 

(d)

Represents the income tax expense using the rate in effect after
considering the adjustments.

 

(e)

Reflects the weighted average number of common shares issued in
conjunction with the initial public offering on April 16, 2015
that are included in the corresponding period of 2015.

 
 

Contacts

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

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