William Blair Growth Stock Conference June 2018 5 Disclaimer 8 - - PowerPoint PPT Presentation

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William Blair Growth Stock Conference June 2018 5 Disclaimer 8 - - PowerPoint PPT Presentation

8 William Blair Growth Stock Conference June 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,


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William Blair Growth Stock Conference June 2018

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Disclaimer

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

  • intentions. These forward-looking statements are based on the Company’s expectations, assumptions, estimates and projections about its business and the industry in which it
  • perates as of the date of this presentation. These statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s or its industry’s actual

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

  • achievements. You are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by any applicable laws, the Company assumes no
  • bligation 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. 2

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Agenda

Daniel J. Sullivan, EVP, Chief Financial Officer Ryan T. Vero, President, Party City Retail

Management Agenda

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Our Company and the Vertical Model Our Business Model and Financial Results Becoming a World-Class Omni-Channel Retailer 4 Our Growth Platform

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OUR COMPANY AND THE VERTICAL MODEL

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Company Overview

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

  • ur retail business is either sourced
  • r manufactured through our

wholesale business >45,000 SKUs sold into 100+ countries and in over 40,000 retail

  • utlets, including our own stores

#1 party goods retailer in North America with nationwide footprint of over 940 locations, including ~140 franchise locations #1 party goods global e-commerce platform

Design Manufacturing / Sourcing Distribution

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Investment Thesis

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UNMATCHED MARKET POSITIONS MULTIPLE LEVERS FOR TOPLINE GROWTH UNIQUE VERTICAL FUELS BUSINESS MODEL HISTORY OF CONSISTENT GROWTH

▪ Consumer Products and Retail

businesses maintain unmatched market positions

▪ Able to generate revenue growth from

multiple areas of the business

▪ Vertical model delivers unique value

proposition with strong cash flow characteristics

▪ Business has been successfully

managed for topline and profit growth

  • ver the past 20+ years
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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 and Retail Category Leadership

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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Powered by our Vertical Model

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

  • f inflation pressures

Design and innovation capabilities Cost competitive sourcing Ensures best products and inventory

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Increases speed to market

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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

Best-in-class Design Capabilities with Unrivaled Product Breadth

Product Assortment Portfolio of Top Tier Licenses In-house Design & Innovation

9 1 Includes Seasonal SKUs. Source: Company filings, company data

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Unparalleled Global Capabilities

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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A History of Highly Accretive

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 BUSINESS MODEL AND FINANCIAL RESULTS

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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 $409 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 $2,372 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Performance Defined by Consistency

Sustained Topline and EBITDA growth

Revenue

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2

Adjusted EBITDA

Note: All financials in $ millions. 2016 revenue includes ~$22M of negative FX impact.

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Core Financial Fundamentals

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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23% 50% 57% 30% 20% 20%

Today Goal (2-4 years)

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Breakdown of Retail Sales SINGLES DOUBLES TRIPLES

Our Vertical Model

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 2-5 years based largely 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

~80%

share of shelf

~80%

share of shelf

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Sales Mix 1 EBITDA Mix (EBITDA margin 17.3%)

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%

Diversified Profit Sources

Our unique Vertical Model drives our industry leading profitability

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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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 Free Cash Flow defined as Adjusted EBITDA less Cap Ex.

Free Cash Flow ($mm)2

Strong Growth

Consistent growth, with strong underlying performance

$292 $321 $362 $380 $390

2012 2013 2014 2015 2016 2017

15.3% 15.7% 15.9% 16.6% 17.1%

$247 $260 $284 $301 $308

2012 2013 2014 2015 2016 2017

Total Gross Margin ($mm)

$685 $767 $876 $904 $916

2012 2013 2014 2015 2016 2017

36.1% 37.9% 38.9% 40.4% 39.7%

$2,372

40.8%

$963

17.3%

$409 $342 $1,914 $2,045 $2,271 $2,295 $2,283

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Strong Balance Sheet and Liquidity

/ Strong free cash flow generation with ability to self-fund organic growth and opportunistic acquisitions / Ample liquidity going forward supported by strong free cash flow generation and revolver of $640 million1 / Projected Leverage Ratio of ~3.8x by December 2018

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.

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Share Buyback

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BECOMING A WORLD- CLASS OMNI- CHANNELRETAILER

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  • 882 US Retail Stores
  • 755 Company

Stores

  • 127 Franchise

Stores

  • 58 Canada Party City

Stores

  • 7 Mexico Party City

Franchise Stores A leading operator of temporary Halloween stores in North America

  • ~300 Temporary

Halloween Stores

  • pen per year
  • Opportunity to test

locations for permanent Party stores Leading party supplies ecommerce platform

  • PartyCity.com
  • PartyCity.ca
  • HalloweenCity.com
  • Investor in

Punchbowl Digital Invitations Digital Platforms

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Target Three Core Customer Groups

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Source: Hill Holiday, Party Planning Quantitative Survey, February 2017; Simmons Summer 2016 NCHS Full Year Unified Study; Party City, 12 month Segmentation

Moms Non-Parent Millennials Empty Nesters

3.7 74% 3 75% 3.5 75%

Parties hosted last year Dressed up kids for Halloween last year Dressed up for Halloween last year Parties hosted last year Dressed up for Halloween last year Parties hosted last year Moms represent Non-Parent Millennials represent Empty Nesters represent

26%

  • f the general

population

35%

Families represented

  • f Party City’s customers

14%

  • f the general

population

30%

  • f Party City’s customers

28%

  • f the general

population

35%

  • f Party City’s customers

is 60+

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Party City Retail Group

Focused Initiatives for Sustained Growth

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Store Productivity Initiative

Deployed across full fleet of stores

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Wave 2 Processes and Labor Model

/ Improved cashiering processes to improve speed at checkout / New Balloon single tie process / Improved returns put-away processes / New front end balloon storage optimization

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Wave 1 Optimizing Front End

Lowering Operating Costs & Waste

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/ New processes for receiving and put-away in stores / Moved tasks to off hours / Engineered standards and labor standards put in place for improved labor scheduling / Store level attributes driving unique labor models / LED lighting rollout / New helium management system / Lowering costs on not for resale spending / Improving processes to reduce waste and expense Created opportunity to improve operating margins & reinvest in driving a selling culture in retail

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Party Planners Program

Enhance Service Driven Culture

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/ Missing out on opportunities to increase basket due to task mentality and lack of a selling/service culture / Productivity improvements focused on eliminating non- value tasks, allows reinvestment in sales focused associates / Party Planner Pilots / Piloting a true Salesperson in select markets / Equipped with training and tools to help inspire / Assist in selling the entire solution to the customer / Testing will continue throughout 2018, with broader expansion in 2019, additional stores and markets being added / Marketing of the program in select markets also being tested / Impact on AOV and customer engagement

Source: Company data

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/ New PartyCity.com redesign – Summer 2018 / Mobile first responsive site / Customer driven design with improved search and navigation / Additional content, reviews and user generated content / AI utilized for cross selling / BOPIS 3.0 / Launched BOPIS on mobile in May, Desktop in ‘17 / Adding capability to process full payment online in Summer ’18 in time for Halloween / Enhancing online balloon experience / Opportunity to test self checkout leveraging BOPIS capabilities

Source: Company data

Accelerate Digital Initiatives

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New PartyCity.com BOPIS 3.0

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/ Building out a CRM platform to better capture customer data – family composition, including kids ages and birthdays, along with other life events (weddings, anniversaries, etc.) / Focused on improving overall customer experience / Email advertising, seasonal promotions, etc. / Curated “suggestions” based on past purchases / True lifecycle management / Integration with our DMP (Data Management Platform) solution allows for cross media marketing with highly targeted and relevant content / Store scorecards now include measures around effectiveness of capturing customer information

Source: Company data

CRM Platform

Implemented a DMP Solution Built out Robust CRM Platform

Family Birthdays Life Event Info Purchase Behavior Demo Data 3rd Party Data Social Media

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CRM Platform

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OUR GROWTH PLATFORM

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Our Growth Platform

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

▪ Improved shopping

experience

▪ 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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Closing Thoughts

  • As the leading manufacturer, wholesaler and retailer in the

decorated party goods space, we have unmatched market leadership positions

  • While two-thirds of our revenue is generated from our retail

business, we are far more than just a retailer, with unique economic characteristics unlike many other typical specialty retailers

  • We are on a focused journey to become a world-class, omni-

channel retailer, which will only further strengthen our clear market leadership position

  • Meaningful growth opportunities remain across our consumer

products and retail businesses, which combined with our unique business model, position us well for the future