Party City Announces Fourth Quarter and Full Year 2016 Results
ELMSFORD, N.Y.–(BUSINESS WIRE)–Party City Holdco Inc. (NYSE: PRTY) today announced financial results
for the quarter and year ended December 31, 2016.
James M. Harrison, Chief Executive Officer, stated: “Our performance in
2016 demonstrates the resiliency of our business, the repeat purchase
nature of our Everyday product categories, and the strength of our
unique vertical model. Despite an unfavorable calendar shift affecting
Halloween, our most important holiday, we were able to deliver our 7th
straight year of record revenues in constant currency as a result of our
diversified revenue model that reaches across multiple channels. We are
pleased that 2016 was also our 16th consecutive year of
record EBITDA, which has been driven by consistently growing our share
of shelf1 and continually increasing our operational
efficiencies.”
Highlights for Full Year 2016:
-
Reported net income increased to a record $117 million; while adjusted
net income increased 21% to $138 million -
Reported EPS improved to $0.98, while adjusted EPS increased
14%, to $1.15 - Adjusted EBITDA increased 3% to a record $390 million
-
Expanded store base by opening/acquiring 48 new stores (38 net of
closures) in the U.S. and Canada -
Generated free cash flow2 of $308 million and reduced
leverage3 from 4.6 times to 4.1 times -
Generated cash interest savings of approximately $57 million in 2016
as a result of the application of our IPO proceeds towards debt
reduction and the successful refinancing of our debt in both 2015 and
2016
Mr. Harrison continued, “We have many opportunities ahead of us in all
aspects of our business to drive growth and further create value. We
will continue to execute our growth strategy which includes
manufacturing more of what we sell, growing our presence in
international markets and alternative channels, adding accretive
acquisitions, growing our store base, and enhancing the customer
experience, both in-store and online. Our continued focus on these key
initiatives will serve to position us for long-term, sustainable growth.”
Full Year summary:
-
Reported net income increased to $117 million from $10 million in
2015. Fiscal 2015 included one-time charges associated with the
Company’s initial public offering and debt refinancing. Fiscal 2016
benefited from the debt reduction and refinancing which drove interest
expense down 28%. -
Adjusted net income improved 21% to $138.3 million, compared to
$114.2 million for fiscal 2015. -
Adjusted EBITDA increased 2.6% to $390.0 million compared to
$380.3 million in fiscal 2015. -
Reported diluted earnings per share improved to $0.98 from $0.09. Adjusted
diluted income per share improved 14% to $1.15 from $1.01 in fiscal
2015. -
Total revenues of $2,283 million decreased 0.5% on a reported basis
and increased 0.5% on a constant currency basis.-
Retail sales increased 1.2% on a reported basis (1.6% on a
constant currency basis) driven primarily by 38 net new Party City
stores added in the past twelve months. - Brand comparable sales decreased 0.4% during 2016.
-
Net third-party wholesale revenues decreased 4.3% on a reported
basis (increased 1% on an adjusted basis when adjusting for
the currency effect as well as the impact of eliminating $19
million in intercompany sales for the 23 franchise store
acquisitions over the last twelve months).
Fourth Quarter summary:
-
Reported net income decreased 1.6% to $85.2 million, while adjusted
net income was roughly flat at $91.2 million, compared to $91.0
million for the fourth quarter of fiscal 2015. -
Adjusted EBITDA was $192.4 million, as compared to $197.6
million in the fourth quarter of fiscal 2015. As a percent of
revenues, adjusted EBITDA increased to 25.7% from 25.3% in the
fourth quarter of 2015. Reported earnings per share decreased to $0.71
from $0.72. Adjusted diluted income per share was flat at $0.76. -
Total revenues of $749 million declined 4.1% on a reported basis or
3.3% on a constant currency basis.-
Retail sales declined 3.3% on a reported basis (-3.0% on a
constant currency basis) driven by lower brand comparable sales,
which more than offset new store growth. -
Brand comparable sales decreased 3.5% in the fourth quarter of
2016 due to a two-day Halloween shift from Saturday to Monday,
which impacted adult participation in the holiday. -
Net third-party wholesale revenues decreased 6.8% on a reported
basis (-1.0% on an adjusted basis when adjusted for
the currency effect as well as the elimination of $4.5 million in
intercompany sales as a result of the acquisition of 23 franchise
stores over the last twelve months). Revenue generated by selling
to these stores was previously reported as third party sales.
Balance sheet highlights as of December 31, 2016:
The Company ended the year with $1,608 million in debt (net of cash)
resulting in net debt leverage3 of 4.1 times and
approximately $369 million in availability under its asset-based
revolving credit facility.Fiscal 2017 Outlook:
For 2017, the Company is providing the following guidance:
- Total revenue of $2.35 to $2.45 billion
- Brand comparable sales growth of 1% – 1.5%
- GAAP net income of $127 to $137 million
- GAAP diluted EPS of $1.05 to $1.14
- Adjusted EBITDA of $400 to $417 million
- Adjusted net income of $148 to $158 million
- Adjusted diluted EPS of $1.23 to $1.30
- Net debt leverage of approximately 3.5X times by the end of 2017
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 2017 Outlook” for a more detailed
explanation, including definitions of the various Non-GAAP terms used in
this release._______________________________________
1 The percentage of our retail product cost of sales supplied by our
wholesale operations2 Defined as adjusted EBITDA less capital expenditures 3 Defined as net debt to adjusted EBITDA Conference Call Information:
A conference call to discuss fourth quarter and full year 2016 financial
results is scheduled for today, March 9, 2017, 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#56432672, 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 over 900 specialty retail party supply stores (including
approximately 160 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, 2016 2015 ASSETS Unaudited Current assets: Cash and cash equivalents $64,610 $42,919 Accounts receivable, net 134,091 132,287 Inventories, net 613,868 564,259 Prepaid expenses and other current assets 68,255 50,450 Total current assets 880,824 789,915 Property, plant and equipment, net 292,904 272,420 Goodwill 1,572,568 1,562,515 Trade names 566,599 568,712 Other intangible assets, net 76,581 89,157 Other assets, net 4,502 9,684 Total assets $3,393,978 $3,292,403 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Loans and notes payable $120,138 $126,136 Accounts payable 163,415 111,616 Accrued expenses 149,683 146,319 Income taxes payable 46,675 8,504 Current portion of long-term obligations 13,348 14,552 Total current liabilities 493,259 407,127 Long-term obligations, excluding current portion 1,539,604 1,646,121 Deferred income tax liabilities 278,819 276,667 Deferred rent and other long-term liabilities 65,507 49,471 Total liabilities 2,377,189 2,379,386 Stockholders’ equity: Common stock (119,515,894 and 119,258,374 shares issued and
outstanding at December 31, 2016 and 2015, respectively)1,195 1,193 Additional paid-in capital 910,167 904,425 Retained earnings 157,666 40,189 Accumulated other comprehensive loss (52,239) (32,790) Total stockholders’ equity 1,016,789 913,017 Total liabilities and stockholders’ equity $3,393,978 $3,292,403 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, 2016 2015 2016 2015 Revenues: Net sales $743,292 $774,341 $2,266,386 $2,275,122 Royalties and franchise fees 5,996 7,160 17,005 19,411 Total revenues 749,288 781,501 2,283,391 2,294,533 Expenses: Cost of sales 398,093 412,217 1,350,387 1,370,884 Wholesale selling expenses 14,102 15,435 59,956 64,260 Retail operating expenses 130,513 133,064 408,583 401,039 Franchise expenses 4,706 3,797 15,213 14,394 General and administrative expenses 37,091 41,049 152,919 151,097 Art and development costs 5,653 5,271 22,249 20,640 Total expenses 590,158 610,833 2,009,307 2,022,314 Income from operations 159,130 170,668 274,084 272,219 Interest expense, net 21,523 21,931 89,380 123,361 Other (income) expense, net 2,097 4,471 (2,010) 130,990 Income before income taxes 135,510 144,266 186,714 17,868 Income tax expense 50,334 57,743 69,237 7,409 Net income $85,176 $86,523 $117,477 $10,459 Comprehensive income (loss) $75,673 $83,384 $98,028 ($9,596) Net income per common share-Basic $0.71 $0.73 $0.98 $0.09 Net income per common share-Diluted $0.71 $0.72 $0.98 $0.09 Weighted-average number of common shares-Basic 119,505,541 119,258,374 119,381,842 111,917,168 Weighted-average number of common shares-Diluted 120,541,211 120,266,120 120,369,672 112,943,807 PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA
(In thousands)
Three Months Ended December 31, Year Ended December 31, 2016 2015 2016 2015 Net income $85,176 $86,523 $117,477 $10,459 Interest expense, net 21,523 21,931 89,380 123,361 Income taxes 50,334 57,743 69,237 7,409 Depreciation and amortization 22,444 20,948 83,630 80,515 EBITDA 179,477 187,145 359,724 221,744 Non-cash purchase accounting adjustments 425 (1,509) 4,114 4,470 Management fee (a) – – – 31,627 Restructuring, retention and severance 657 7 911 2,318 Refinancing charges (b) 1,458 – 1,458 94,607 Deferred rent (c) 6,595 3,827 18,835 13,407 Store closing expenses (d) 761 998 3,688 1,901 Foreign currency (gains) losses, net (472) 1,909 (7,417) 3,691 Equity based compensation 1,024 948 3,853 3,042 Undistributed non-cash (gain) loss in unconsolidated joint venture (66) 185 314 562 Gain on sale of assets (e) – – – (2,660) Change-of-control license premium – 3,000 – 3,000 Corporate development expenses (f) 2,395 243 4,290 1,786 Other 161 849 279 798 Adjusted EBITDA $192,415 $197,602 $390,049 $380,293 Adjusted EBITDA margin 25.7% 25.3% 17.1% 16.6% (a) In 2012, the Company entered into a management agreement with
THL and Advent under which THL and Advent provided advice to the
Company on, among other things, financing, operations, acquisitions
and dispositions. Under the agreement, THL and Advent were paid an
annual management fee for such services. In connection with the
initial public offering, the management agreement was terminated and
the Company paid THL and Advent a termination fee. Such amount was
recorded in other expense, net in the Company’s consolidated
statement of operations and comprehensive loss for the year ended
December 31, 2015.(b) During the third quarter 2015, the Company refinanced its debt.
In conjunction with the refinancing, the Company paid a call premium
and other third-party costs. The Company recorded such payments,
$56.4 million in aggregate, in other expense in the Company’s
consolidated statement of operations and comprehensive loss.
Additionally, in conjunction with the refinancing, the Company wrote
off $22.7 million of capitalized deferred financing costs, original
issuance discounts and call premiums. During the second quarter
2015, the Company used proceeds from the initial public offering to
redeem notes. The redemption resulted in a prepayment penalty of
$7.0 million. Additionally, in conjunction with the redemption, the
Company wrote off $8.6 million of capitalized debt issuance costs
and original issuance discounts related to the notes.(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 for such items.(d) Charges incurred related to closing unprofitable stores. (e) During January 2015, the Company recorded a gain on the sale of
certain assets obtained in the October 2014 acquisition of U.S.
Balloon Manufacturing Co., Inc.(f) Principally represents third-party costs related to
acquisitions (primarily legal expenses and diligence fees). Such
costs are excluded from the definition of “Consolidated Adjusted
EBITDA” that is utilized for certain covenants in the Company’s
credit agreements.PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME
(In thousands, except share and per share data)
Three Months Ended December 31, Year Ended December 31, 2016 2015 2016 2015 Income before income taxes $135,510 $144,266 $186,714 $17,868 Intangible asset amortization 5,065 4,669 17,247 18,885 Non-cash purchase accounting adjustments (c) 309 (1,985) 5,300 6,445 Amortization of deferred financing costs and original issuance discount (b) 1,997 1,291 5,818 40,516 Management fee (a) – – – 31,627 Refinancing charges (b) 725 – 725 65,338 Equity based compensation 1,024 948 3,853 3,042 Impairment charges – 852 – 852 Gain on sale of assets – – – (2,660) Change-of-control license premium – 3,000 – 3,000 Adjusted income before income taxes 144,630 153,041 219,657 184,913 Adjusted income tax expense (d) 53,462 62,062 81,380 70,707 Adjusted net income $91,168 $90,979 $138,277 $114,206 Adjusted net income per common share – diluted $0.76 $0.76 $1.15 $1.01 Weighted-average number of common shares-diluted 120,541,211 120,266,120 120,369,672 112,943,807 (a) In 2012, the Company entered into a management agreement with
THL and Advent under which THL and Advent provided advice to the
Company on, among other things, financing, operations, acquisitions
and dispositions. Under the agreement, THL and Advent were paid an
annual management fee for such services. In connection with the
initial public offering, the management agreement was terminated and
the Company paid THL and Advent a termination fee. Such amount was
recorded in other expense, net in the Company’s consolidated
statement of operations and comprehensive loss for the year ended
December 31, 2015.(b) During the third quarter 2015, the Company refinanced its debt.
In conjunction with the refinancing, the Company paid a call premium
and other third-party costs. The Company recorded such payments,
$56.4 million in aggregate, in other expense in the Company’s
consolidated statement of operations and comprehensive loss.
Additionally, in conjunction with the refinancing, the Company wrote
off $22.7 million of capitalized deferred financing costs, original
issuance discounts and call premiums. Further, as the Company was
required to provide 30 days of notice when calling its old senior
notes, during a portion of the third quarter 2015 both the old
senior notes and the new senior notes were outstanding. The
overlapping interest expense, $2.0 million, is included in
“Refinancing charges” in the adjusted net income table above. During
the second quarter 2015, the Company used proceeds from the initial
public offering to redeem the other notes. The redemption resulted
in a prepayment penalty of $7.0 million. Additionally, in
conjunction with the redemption, the Company wrote off $8.6 million
of capitalized debt issuance costs and original issuance discounts
related to such notes.(c ) On July 27, 2012, PC Merger Sub, Inc., which was our
wholly-owned indirect subsidiary, merged into Party City Holdings
Inc. (“PCHI”), with PCHI being the surviving entity (the
“Transaction”). As a result of the Transaction, the Company applied
the acquisition method of accounting and increased the value of
certain property, plant and equipment. The impact of such
adjustments on depreciation expense increased the Company’s
expenses. These property, plant and equipment depreciation amounts
are included in “Non-cash purchase accounting adjustments” for
purposes of calculating “adjusted net income,” but are excluded from
“Non-cash purchase accounting adjustments” for purposes of
calculating adjusted EBITDA since they are included in depreciation
expense.(d) 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.Contacts
Party City Holdco Inc.
Deborah Belevan, 914-784-8324
VP of
Investor Relations
InvestorRelations@partycity.com -
Retail sales declined 3.3% on a reported basis (-3.0% on a
-
Retail sales increased 1.2% on a reported basis (1.6% on a
