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ICR Conference January 2018
January 2018 5 DISCLAIMER 8 Forward Looking Statements Disclaimer - - PowerPoint PPT Presentation
8 ICR Conference January 2018 5 DISCLAIMER 8 Forward Looking Statements Disclaimer Some of the statements in this presentation are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
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ICR Conference January 2018
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Forward Looking Statements Disclaimer Some of the statements in this presentation are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. The Company generally identifies forward-looking statements in this presentation using words like “believe,” “intend,” “target,” “expect,” “estimate,” “may,” “should,” “plan,” “project,” “contemplate,” “anticipate,” “predict” or similar expressions. You can also identify forward-looking statements by discussions of strategy, plans or
results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these 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 the Company’s latest Form 10-K and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or
future developments or otherwise. 2
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James M. Harrison, Chief Executive Officer Daniel J. Sullivan, EVP, Chief Financial Officer
Management Agenda
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Our Company and the Strength of our Model Our Growth Platform Our Business Model and Financial Results
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World’s largest designer, manufacturer and distributor of consumer party products…..
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~200 person design team allows us to introduce over 8,000 new products each year
…that also owns the world’s largest retailer of party goods
Almost 80% of what we sell through
wholesale business >45,000 SKUs sold into 100+ countries and in over 40,000 retail
#1 party goods retailer in North America with nationwide footprint of over 940 locations, including ~150 franchise locations #1 party goods global e-commerce platform
Design Manufacturing / Sourcing Distribution
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Party Specialty Retail Pet Supplies Sporting Goods Home Improvement Mattresses Toys / Crafts Party Goods Consumer Technology Athletic Cosmetics Mattresses Toys
Consumer Products Specialty Retail
(Consumer Products)
#1 vs. #2 player(1)
~1.2x ~1.6x ~2.5x ~1.2x ~1.0x +4.0x
1 Represents comparison of global sales of the #1 vs. #2 player Source: Company filings and websites and Management estimates
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/ Over $1.2bn1 in sales, ~50% to owned
retail and e-commerce
/ Product sold in over 40,000 retail
locations in 100+ countries
/ 60% U.S. / 40% International (3rd
Party Sales)
/ Deep assortment with over 45,000
SKUs across 5 product categories
/ Balanced, multi-channel customer
base – no single customer represents more than 10% of third party sales at wholesale
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1 Based on total wholesale sales including intercompany sales to retail operations.
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Top Choice To Purchase Party Supplies3 We Out Assort Our Competitors Best Positioned To Win With Customers
Top customer buying factors1 940+ stores nationwide2 Stringent quality control processes ~30K4 SKUs in-store / ~40K SKUs online “Nobody has more party for less” ~400+ party goods ensembles / Location / Quality / Assortment / Price / Theme availability
High brand awareness of 78%
One-Stop-Shop For All Party Needs
28% 26% 8% 6% 6% 4%
(SKUs)
30,0004 <500 <500 Dollar Stores Mass Market 1 Customer survey of 1,000 participants answering question “When deciding where to buy party supplies how important are the following factors in making your decision?” 2 Includes franchised locations 3 Customer survey of 1,000 participants answering question “If you had to pick one store to purchase party supplies at, which store would you choose?” 4 Includes seasonal SKUs Source: Company filings, company data, Hill Holiday
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/ Channel exclusivity on a vast majority of licensed product / 20% of consumer products business is licensed. 5% direct-to-retail licenses with major specialty suppliers / Deepest product assortment in the market, differentiating us from others / Over 30K SKUs1 sold in-store and 40K SKUs sold online / Speed to market - Vertical integration allows development team to test new products and rapidly respond to changes in consumer preferences / Avg. lead time from concept to delivery of ~10 months
Product Assortment Portfolio of Top Tier Licenses In-house Design & Innovation
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Tableware 26% Costumes & Accessories 26% Decorations 19% Favors, Stationery & Other 16% Metallic Balloons 13%
1 Includes Seasonal SKUs. Source: Company filings, company data
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Sourcing and manufacturing excellence which fuels our vertical model
/ ~25% of our retail business is
manufactured in-house, focused primarily on high- volume party essentials, generally manufactured through highly automated processes
/ Manufacturing and
distribution capabilities across 4 continents
/ Labor intensive products,
such as banners, favors and centerpieces, are principally sourced from Asia
/ Extensive sourcing operations
across 9 offices drive best-in- class sourcing capabilities
/ 20+ year relationships
with many of our key vendors
Sourcing Distribution Manufacturing
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Increasing our capabilities and driving growth
Acquisition Strategy
Global and scalable infrastructure provides a strong platform for highly accretive acquisitions Emphasis on smaller, bolt-on acquisitions that add scale and / or unique capabilities Areas of focus have been: / Broadening and deepening product capabilities / Expanding retail presence, including domestic franchisee buyouts / Expanding international presence Significant synergy potential through leveraging existing distribution, production and marketing capabilities
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Our vertical model and significant, global scale provide unique competitive advantages:
/ Enhanced profitability by capturing substantial portion of the manufacturing-to-retail margin on a significant portion of the products sold in our retail stores / Maintain greater control of every step from design and production through the sale of our products across channels
Rapid response to changes in consumer preferences Enhance design capabilities via retail insights Enhanced control
Design and innovation capabilities Cost competitive sourcing Ensures best products and inventory
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Increases speed to market
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Sales Mix 1 EBITDA Mix (EBITDA margin 17.1%)
Metallic Balloons 3% International Consumer Products 10% Domestic Consumer Products 35% Retail 52% Third party Consumer Products ~35% Retail - Non-vertical ~25% Vertically- integrated ~40%
Our unique Vertical Model drives our industry leading profitability
Note: Financials represent 2016, unless otherwise noted 1 Represents total net sales of each business unit, excluding the effects of intercompany eliminations to reflect stand-alone size and scale of each business Source: Company filings, management estimates
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Multiple levers for topline growth Gross Margin expansion Accelerated EBITDA growth Strong cash flow characteristics 1 2 3 4
/ Solid topline growth and vertical model
expansion
/ Strong cost management discipline
across the businesses
/ Consistent free cash flow generation
business model
/ Strong free cash flow conversion
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24% 50% 54% 30% 22% 20%
Today Goal (2-4 years)
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Breakdown of Retail Sales SINGLES DOUBLES TRIPLES
Multiple levers to drive margin growth
/ Gross margin expansion will continue to be driven through our vertical model / Will further expand our SOS / Manufactured SOS will more than double in the next 2-4 years largely based on leveraging of existing manufacturing assets / “Doubles” economics will improve as we further drive sourcing savings and focus on product re- engineering / “Triples” economics strengthen through manufacturing efficiencies and productivity gains
Breakdown of Retail Sales
~78%
share
shelf
~80%
share
shelf
Total Revenues ($mm) Adjusted EBITDA1 ($mm) and Adjusted EBITDA Margin1
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1 See SEC filings for reconciliation of Adjusted EBITDA to Net Income 2 Decrease in gross margin rate from 2011 to 2012, 2013 and 2014 principally due to non-cash purchase accounting adjustments related to the acquisition of the company by THL. 3 Free Cash Flow defined as Adjusted EBITDA less Cap Ex.
Free Cash Flow ($mm)3
$1,872 $1,914 $2,045 $2,271 $2,295 $2,283
2011 2012 2013 2014 2015 2016
$275 $292 $321 $362 $380 $390
2011 2012 2013 2014 2015 2016
14.7% 15.3% 15.7% 15.9% 16.6% 17.1%
$231 $247 $260 $284 $301 $308
2011 2012 2013 2014 2015 2016
Total Gross Margin ($mm)2
$734 $685 $767 $876 $904 $916
2011 2012 2013 2014 2015 2016
39.6% 36.1% 37.9% 38.9% 40.4% 39.7%
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$38 $40 $46 $57 $55 $59 $67 $71 $72 $72 $122 $152 $187 $192 $231 $275 $292 $321 $362 $380 $390 $400 - $410* 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $193 $210 $235 $306 $326 $345 $386 $403 $399 $418 $1,015 $1,247 $1,560 $1,487 $1,599 $1,872 $1,914 $2,045 $2,271 $2,295 $2,283 $2,360 - $2,390* 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenue
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Adjusted EBITDA
Note: All financials in $ millions. 2016 revenue includes ~$22M of negative FX impact. * Fiscal 2017 annual guidance provided on November 9, 2017
/ Strong free cash flow generation with ability to self-fund organic growth and
/ Ample liquidity going forward supported by strong free cash flow generation and revolver of $640 million1
Acquisition by THL Dividend Payment
Net Debt / Adj. EBITDA2
1 ABL revolver comprised of $500 million facility, $40 million FILO tranche, and $100 million seasonal facility increase. 2 See SEC filings for reconciliation of Adjusted EBITDA to Net Income. 3 Leverage ratio based on fiscal annual guidance provided in November 2017 and prior to share buy back announced on December 22, 2017
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Differentiated by Multiple Levers for Sustained Growth
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GROWTH DRIVERS
▪ Marketplace for party
services that provides revenue stream and strong customer acquisition platform
KAZZAM
▪ Strong pipeline of
acquisitions across all areas of our business (Manuf/WS/Retail) Continued Acquisitions
▪ Further growth in retail
square footage
▪ More productive stores ▪ Strengthened digital
assets Retail Business
▪ Deeper penetration in
existing markets and further market expansion International Expansion
▪ New capabilities and
product offerings for wider channels of trade beyond specialty party stores New Channels of Trade
▪ Capitalizing on growing
consumer needs and highly fragmented industry (Print Appeal) Personalized products
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Improving productivity
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Further square footage growth Increase Store Productivity Strengthen our Digital Assets 1 2 3
/ We’ve consistently added 8% square footage per year, through a combination of white space and continued acquisition (franchise and independents) / Will continue to prioritize Franchise and Independent acquisitions in the near term (1-2 years) given strong economics and accretive impact
You’re Invited…
Invitation by Party City
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Casual Dining & Play Centers
Leveraging Our Capabilities and Driving Product Innovation to Fuel Growth Outside of Traditional Party Channel
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Source: MPAA – Theatrical Market statistics, International Association of Amusement Parks and Attractions (IAAPA), BCG Market Study
Theme Park and Zoos Promotional Products Entertainment Venues Sports Venues Party Retail Channel CONSUMER PRODUCTS CAPABILITIES Printed Foil Extruded Plastics Injected Molded Plastics Print Paper $10bn+ market in the U.S. 3,200 arcades and Amusement parks Over 500 arenas and stadiums in U.S. 400+ Theme Parks and 200+ Zoos in the U.S. $30bn Industry 5,000+ Movie Theaters
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/
Dedicated party retail space in selected large retailers
/
Lower required investment, staffed and managed by retailer
/
Act as category manager of wholesale and manufactured products in partner retail locations
Regional Strategies, Localized Solutions
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Store-in-Store Strategy United Kingdom: Morrison’s Party Zone Master Franchisee Strategy Mexico: Granmark and Grupo Oprimax Europe and Australia: Store-in-Store Strategy Latin America: Master Franchisee Strategy
Morrison's Retail Presence
/ Acquisition of Granmark provides scale manufacturing
capabilities to service Latin American markets
/ Oprimax, a Mexico franchise operator, plans to open 80-100
stores in Mexico (4 currently)
/ Share of shelf to start at 50%+ of products sold in store, with
75%+ target
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Expands retail presence internationally without need for large initial investment
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Creates incremental demand for wholesale and manufactured products (economies of scale)
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Opportunity to leverage strategy to expand across Central and South American markets
/ Morrison’s provides space, staffing and
customization of the consumer experience
/ Currently in 26 / 492 Morrison’s locations in
the U.K.
26 50 2015 2016 2017E
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/ Party services marketplace under the Party City brand / Consumer logs into Kazzam by Party City to plan a party and is connected to various party services providers (entertainment, activities, fun, food, decorations, etc.) / Generates fees for Party City both from consumers planning the party and from service providers paying to be listed on the platform / Represents the Uberization of the party services ecosystem into one, centralized, on- demand, digital marketplace exchange What is Kazzam? Primary Benefits of Kazzam / Expands share of Party Wallet beyond party good and into services / Disintermediates the customer buying process and inserts Party City earlier / Enhances Party City position as the only ‘real total party solution’ / Multiple additional revenue streams outside of traditional party goods
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and wholesaler of party products in the world….and we happen to own the largest retail distribution channel
vertical model
best in class
strong financial performance, based largely on the unique vertical model