JAKKS Pacific Reports Second Quarter 2023 Financial Results

Long-term debt retired; Second-Highest First Half Net Sales in 15 Years

SANTA MONICA, Calif., July 27, 2023--(BUSINESS WIRE)--JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 Overview

• Net sales were $166.9 million, a year-over-year decrease of 24.3%

  • Toys/Consumer Products Net Sales were $117.9 million, a year-over-year decrease of 20.8%

  • Costumes Net Sales were $49.0 million, a year-over-year decrease of 31.5%

  • First-half Net Sales for JAKKS Pacific, Inc. were $274.4 million, a year-over-year decrease of 19.6%

• Gross profit was $51.2 million, a year-over-year decrease of 15.9% from $60.9 million

• Gross margin was 30.7%, up 310 basis points vs. Q2 2022

• Retired debt of $30.2 million four years prior to maturity, eliminating 11%+ interest burden

  • Total debt was $84.9 million as of June 30, 2022, and $177.7 million as of September 30, 2019, post company recapitalization

• Operating income was $16.4 million (9.9% of net sales) vs. $23.7 million (10.7% of net sales) in Q2 2022

• Net income attributable to common stockholders was $6.1 million or $0.58 per diluted share, compared to net income attributable to common stockholders of $26.2 million or $2.61 per share in Q2 2022

• Adjusted net income attributable to common stockholders (a non-GAAP measure) was $13.3 million or $1.26 per diluted share, compared to an adjusted net income attributable to common stockholders of $21.1 million or $2.10 per diluted share in Q2 2022

• Adjusted EBITDA (a non-GAAP measure) was $20.7 million, vs. $27.1 million in Q2 2022

• Trailing twelve month adjusted EBITDA was $66.9 million (9.2% of net sales) down 12% from $75.7 million (9.9% of net sales) in the trailing twelve months ended June 2022

Management Commentary

"I’m pleased to say that the first half of the year has met, and in many cases, exceeded our expectations," said Stephen Berman, CEO of JAKKS Pacific, Inc. "Consumers reacted favorably to our new product launches, both supporting the most talked about film releases of the first half of the year as well as the innovation and excitement we’ve brought to our classic, evergreen product lines. Retail sell-through accelerated in the quarter from earlier in the year, as customers continued to work down inventory levels and refocus their attention and planning for the annual holiday shopping season.

"We similarly are taking a very thoughtful approach to our own inventory given the continuing uncertainty around consumer behavior. Our Q2 ending inventory balance of $65.1 million is our lowest Q2 level since 2021.

"Our Action Play & Collectibles business led all segments with 41% growth year-over-year in the quarter. We have steadily rebuilt this business over the past three years extending and expanding our long-standing relationships in the gaming space and partnering with companies like Nintendo® and SEGA to extend their franchises to create compelling products for their theatrical and streaming releases. Through the first half of the year, our Action Play division has grown to be 84% of our market-leading Doll and Role Play division, balancing our portfolio substantially.

"Our Costume business shipped $49 million, substantially lower than last year’s all-time peak of $72 million as we see customers ordering more conservatively and later than last year but it was nonetheless the second highest Q2 shipment level in the past 10+ years. We are still anticipating a very strong year in Costumes.

"And as we’ve previously disclosed, during the quarter we took the opportunity to eliminate our existing high-cost debt to further increase the agility of our capital structure."

Second Quarter 2023 Results

Net sales for the second quarter of 2023 were $166.9 million, down 24% versus an all-time high of $220.4 million last year. The Toys/Consumer Products segment sales were down 21% globally and sales of Disguise costumes were down 32% compared to last year.

For the first half, North America was down 24% while International was up 10%.

Balance Sheet Highlights

The Company’s cash and cash equivalents (including restricted cash) totaled $32.4 million as of June 30, 2023, compared to $62.3 million as of June 30, 2022, and $85.5 million as of December 31, 2022.

Total debt was zero, compared to $84.9 million as of June 30, 2022, and $67.2 million as of December 31, 2022.

Use of Non-GAAP Financial Information

In addition to the preliminary results reported in accordance with U.S. GAAP included in this release, the Company has provided certain non-GAAP financial information including Adjusted EBITDA and Adjusted Net Income (Loss) which are non-GAAP metrics that exclude various items that are detailed in the financial tables and accompanying footnotes reconciling GAAP to non-GAAP results contained in this release. Management believes that the presentation of these non-GAAP financial measures provides useful information to investors because the information may allow investors to better evaluate ongoing business performance and certain components of the Company’s results. In addition, the Company believes that the presentation of these financial measures enhances an investor’s ability to make period-to-period comparisons of the Company’s operating results. This information should be considered in addition to the results presented in accordance with GAAP and should not be considered a substitute for the GAAP results. The Company has reconciled the non-GAAP financial information included in this release to the nearest GAAP measures. See the attached "Reconciliation of Non-GAAP Financial Information." "Total liquidity" is calculated as cash and cash equivalents, plus availability under the Company’s $67.5 million revolving credit facility.

Conference Call Live Webcast

JAKKS Pacific, Inc. invites analysts, investors and media to listen to the teleconference scheduled for 5:00 p.m. ET / 2:00 p.m. PT on July 27, 2023. A live webcast of the call will be available on the "Investor Relations" page of the Company’s website at www.jakks.com/investors. To access the call by phone, please go to this link (2Q23 Registration link), and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time. A replay of the webcast will also be available for a limited time at (www.jakks.com/investors).

About JAKKS Pacific, Inc.

JAKKS Pacific, Inc. is a leading designer, manufacturer and marketer of toys and consumer products sold throughout the world, with its headquarters in Santa Monica, California. JAKKS Pacific’s popular proprietary brands include Fly Wheels®, Perfectly Cute®, ReDo® Skateboard Co., AirTitans®, Sky Ball®, JAKKS Wild Games™, Moose Mountain®, Maui®, SportsZone™, Kids Only!™, Xtreme Power Dozer®, Disguise®, WeeeDo®, Ami Amis™ and a wide range of entertainment-inspired products featuring premier licensed properties. Through JAKKS Cares, the company’s commitment to philanthropy, JAKKS is helping to make a positive impact on the lives of children. Visit us at www.jakks.com and follow us on Instagram (@jakkstoys), Twitter (@jakkstoys) and Facebook (@jakkstoys).

Forward Looking Statements

This press release may contain "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates and projections about JAKKS Pacific's business based partly on assumptions made by its management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such statements due to numerous factors, including, but not limited to, those described above, changes in demand for JAKKS Pacific's products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, or that any future transactions will result in future growth or success of JAKKS. The "forward-looking statements" contained herein speak only as of the date on which they are made, and JAKKS undertakes no obligation to update any of them to reflect events or circumstances after the date of this release.

JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
					June 30,								December 31,
						2023				2022				2022
					(In thousands)
Assets
Current assets:
	Cash and cash equivalents				$	32,228			$	62,283			$	85,297
	Restricted cash					203				-				193
	Accounts receivable, net					132,479				164,020				102,771
	Inventory					65,059				123,666				80,619
	Prepaid expenses and other assets					11,227				14,519				6,331
		Total current assets				241,196				364,488				275,211
Property and equipment						134,091				128,844				130,437
Less accumulated depreciation and amortization						116,813				112,601				115,575
	Property and equipment, net					17,278				16,243				14,862
Operating lease right-of-use assets, net						15,249				24,584				19,913
Deferred income tax assets, net						57,804				-				57,804
Goodwill						35,083				35,083				35,083
Intangibles and other assets, net						2,331				3,239				2,469
		Total assets			$	368,941			$	443,637			$	405,342
Liabilities, Preferred Stock and Stockholders' Equity
Current liabilities:
	Accounts payable				$	57,768			$	86,660			$	33,687
	Accounts payable - Meisheng (related party)					18,612				42,254				9,820
	Accrued expenses					46,448				58,189				37,998
	Reserve for sales returns and allowances					37,851				45,625				51,877
	Income taxes payable					5,808				2,333				8,165
	Short term operating lease liabilities					9,226				10,239				10,746
	Short term debt, net					-				2,475				25,529
		Total current liabilities				175,713				247,775				177,822
Long term operating lease liabilities						6,220				15,406				9,863
Debt, non-current portion, net						-				82,453				41,622
Preferred stock derivative liability						27,793				15,898				21,918
Income taxes payable						2,971				215				2,929
Deferred income tax liabilities, net						-				51				-
		Total liabilities				212,697				361,798				254,154
Preferred stock accrued dividends						5,230				3,771				4,490
Stockholders' equity:
	Common stock, $.001 par value					10				10				10
	Additional paid-in capital					277,178				273,625				275,187
	Accumulated deficit					(110,876	)			(180,680	)			(112,018	)
	Accumulated other comprehensive loss					(16,021	)			(15,765	)			(17,482	)
		Total JAKKS Pacific, Inc. stockholders' equity				150,291				77,190				145,697
	Non-controlling interests					723				878				1,001
		Total stockholders' equity				151,014				78,068				146,698
		Total liabilities, preferred stock and stockholders' equity			$	368,941			$	443,637			$	405,342
Supplemental Balance Sheet and Cash Flow Data (Unaudited)
									June 30,
Key Balance Sheet Data:										2023				2022
Accounts receivable days sales outstanding (DSO)										72				68
Inventory turnover (DSI)										51				71
									Six Months Ended June 30,
Condensed Cash Flow Data:										2023				2022
									(In thousands)
Cash flows provided by operating activities									$	20,805			$	36,549
Cash flows used in investing activities										(4,893	)			(5,274	)
Cash flows used in financing activities and other										(68,971	)			(14,324	)
Increase (Decrease) in cash, cash equivalents and restricted cash									$	(53,059	)		$	16,951
Capital expenditures									$	(4,918	)		$	(5,276	)

		JAKKS Pacific, Inc. and Subsidiaries
		Condensed Consolidated Statements of Operations (Unaudited)
			Three Months Ended June 30,											Six Months Ended June 30,
				2023				2022			Δ (%)				2023				2022			Δ (%)
			(In thousands, except per share data)											(In thousands, except per share data)
Net sales			$	166,933			$	220,422			(24	)%		$	274,417			$	341,303			(20	)%
Less: Cost of sales
	Cost of goods			86,156				121,850			(29	)			144,460				193,908			(26	)
	Royalty expense			27,279				35,704			(24	)			43,933				53,394			(18	)
	Amortization of tools and molds			2,300				1,978			16				3,389				3,194			6
	Cost of sales			115,735				159,532			(27	)			191,782				250,496			(23	)
		Gross profit		51,198				60,890			(16	)			82,635				90,807			(9	)
Direct selling expenses				3,980				6,838			(42	)			11,721				11,740		...	(0	)
General and administrative expenses				30,677				29,514			4				58,671				54,667			7
Depreciation and amortization				93				578			(84	)			195				1,174			(83	)
	Selling, general and administrative expenses			34,750				36,930			(6	)			70,587				67,581			4
Intangibles impairment				-				300			nm				-				300			nm
		Income from operations		16,448				23,660			(30	)			12,048				22,926			(47	)
Other income (expense):
	Loss from joint ventures			(565	)			-			nm				(565	)			-			nm
	Other income (expense), net			38				183			(79	)			476				269			77
	Change in fair value of preferred stock derivative liability			(6,022	)			6,029			nm				(5,875	)			5,384			nm
	Loss on debt extinguishment			(1,023	)			-			nm				(1,023	)			-			nm
	Interest income			86				6			nm				203				9			nm
	Interest expense			(1,302	)			(2,337	)		(44	)			(4,305	)			(4,539	)		(5	)
Income before provision for income taxes				7,660				27,541			(72	)			959				24,049			(96	)
Provision for income taxes				1,478				1,334			11				95				1,751			(95	)
Net income				6,182				26,207			(76	)			864				22,298			(96	)
Net loss attributable to non-controlling interests				(273	)			(353	)		(23	)			(278	)			(453	)		(39	)
Net income attributable to JAKKS Pacific, Inc.			$	6,455			$	26,560			(76	)%		$	1,142			$	22,751			(95	)%
Net income attributable to common stockholders			$	6,082			$	26,209			(77	)%		$	402			$	22,054			(98	)%
	Earnings per share - basic		$	0.62			$	2.73						$	0.04			$	2.30
	Shares used in earnings per share - basic			9,871				9,588							9,871				9,588
	Earnings per share - diluted		$	0.58			$	2.61						$	0.04			$	2.21
	Shares used in earnings per share - diluted			10,532				10,037							10,428				9,978
			Three Months Ended June 30,											Six Months Ended June 30,
				2023				2022			Δ bps				2023				2022			Δ bps
											Fav/(Unfav)											Fav/(Unfav)
Net sales				100.0	%			100.0	%		-				100.0	%			100.0	%		-
Less: Cost of sales
	Cost of goods			51.6				55.3			370				52.6				56.8			420
	Royalty expense			16.3				16.2			(10	)			16.0				15.6			(40	)
	Amortization of tools and molds			1.4				0.9			(50	)			1.3				1.0			(30	)
	Cost of sales			69.3				72.4			310				69.9				73.4			350
		Gross profit		30.7				27.6			310				30.1				26.6			350
Direct selling expenses				2.4				3.1			70				4.3				3.4			(90	)
General and administrative expenses				18.3				13.4			(490	)			21.3				16.1			(520	)
Depreciation and amortization				0.1				0.3			20				0.1				0.3			20
	Selling, general and administrative expenses			20.8				16.8			(400	)			25.7				19.8			(590	)
Intangibles impairment				-				0.1			10				-				0.1			10
		Income from operations		9.9				10.7			(80	)			4.4				6.7			(230	)
Other income (expense):
	Loss from joint ventures			(0.3	)			-							(0.2	)			-
	Other income (expense), net			-				0.1							0.2				-
	Change in fair value of preferred stock derivative liability			(3.6	)			2.7							(2.1	)			1.6
	Loss on debt extinguishment			(0.6	)			-							(0.4	)			-
	Interest income			-				-							0.1				-
	Interest expense			(0.8	)			(1.1	)						(1.6	)			(1.3	)
Income before provision for income taxes				4.6				12.4							0.4				7.0
Provision for income taxes				0.9				0.6							-				0.4
Net income				3.7				11.8							0.4				6.6
Net loss attributable to non-controlling interests				(0.2	)			(0.2	)						(0.1	)			(0.1	)
Net income attributable to JAKKS Pacific, Inc.				3.9	%			12.0	%						0.5	%			6.7	%
Net income attributable to common stockholders				3.6	%			11.9	%						0.1	%			6.5	%

JAKKS Pacific, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Information (Unaudited)

Reconciliation of GAAP to Non-GAAP measures:

This press release and accompanying schedules provide certain information regarding Adjusted EBITDA and Adjusted Net Income (Loss), which may be considered non-GAAP financial measures under the rules of the Securities and Exchange Commission. The non-GAAP financial measures included in the press release are reconciled to the corresponding GAAP financial measures below, as required under the rules of the Securities and Exchange Commission regarding the use of non-GAAP financial measures. We define Adjusted EBITDA as income (loss) from operations before depreciation, amortization and adjusted for certain non-recurring and non-cash charges, such as reorganization expenses and restricted stock compensation expense. Net income (loss) is similarly adjusted and tax-effected to arrive at Adjusted Net Income (Loss). Adjusted EBITDA and Adjusted Net Income (Loss) are not recognized financial measures under GAAP, but we believe that they are useful in measuring our operating performance. We believe that the use of the non-GAAP financial measures enhances an overall understanding of the Company’s past financial performance, and provides useful information to the investor by comparing our performance across reporting periods on a consistent basis.

Investors should not consider these measures in isolation or as a substitute for net income, operating income, or any other measure for determining the Company’s operating performance that is calculated in accordance with GAAP. In addition, because these measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies.

		Three Months Ended June 30,															Six Months Ended June 30,
			2023				2022			Δ ($)								2023				2022			Δ ($)
		(In thousands)															(In thousands)
EBITDA and Adjusted EBITDA
Net income		$	6,182			$	26,207			$	(20,025	)					$	864			$	22,298			$	(21,434	)
Interest expense			1,302				2,337				(1,035	)						4,305				4,539				(234	)
Interest income			(86	)			(6	)			(80	)						(203	)			(9	)			(194	)
Provision for income taxes			1,478				1,334				144							95				1,751				(1,656	)
Depreciation and amortization			2,393				2,556				(163	)						3,584				4,368				(784	)
EBITDA			11,269				32,428				(21,159	)						8,645				32,947				(24,302	)
Adjustments:
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)			292				-				292							287				-				287
Loss from joint ventures (Meisheng - 49%)			273				-				273							278				-				278
Other (income) expense, net			(38	)			(183	)			145							(476	)			(269	)			(207	)
Restricted stock compensation expense			1,856				1,155				701							3,945				2,025				1,920
Change in fair value of preferred stock derivative liability			6,022				(6,029	)			12,051							5,875				(5,384	)			11,259
Employee Retention Credit/gov't employment support			-				(249	)			249							-				(249	)			249
Loss on debt extinguishment			1,023				-				1,023							1,023				-				1,023
Adjusted EBITDA		$	20,697			$	27,122			$	(6,425	)					$	19,577			$	29,070			$	(9,493	)
Adjusted EBITDA/Net sales %			12.4	%			12.3	%			10 bps							7.1	%			8.5	%			-140 bps
		Trailing Twelve Months Ended June 30,
			2023				2022			Δ ($)
		(In thousands)
TTM EBITDA and TTM Adjusted EBITDA
TTM Net income		$	69,649			$	55,521			$	14,128
Interest expense			10,949				9,398				1,551
Interest income			(321	)			(16	)			(305	)
Provision for (benefit from) income taxes			(42,664	)			1,989				(44,653	)
Depreciation and amortization			9,794				10,047				(253	)
TTM EBITDA			47,407				76,939				(29,532	)
Adjustments:
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)			287				-				287
Loss from joint ventures (Meisheng - 49%)			278				-				278
Other (income) expense, net			(1,004	)			(588	)			(416	)
Restricted stock compensation expense			7,002				3,353				3,649
Change in fair value of convertible senior notes			-				3,575				(3,575	)
Change in fair value of preferred stock derivative liability			11,895				(1,078	)			12,973
Employee Retention Credit/gov't employment support			-				(249	)			249
Gain on loan forgiveness			-				(6,206	)			6,206
Loss on debt extinguishment			1,023				-				1,023
TTM Adjusted EBITDA		$	66,888			$	75,746			$	(8,858	)		(12	)%
TTM Adjusted EBITDA/TTM Net sales %			9.2	%			9.9	%			-70 bps
		Three Months Ended June 30,															Six Months Ended June 30,
			2023				2022			Δ ($)								2023				2022			Δ ($)
		(In thousands, except per share data)															(In thousands, except per share data)
Adjusted net income (loss) attributable to common stockholders
Net income attributable to common stockholders		$	6,082			$	26,209			$	(20,127	)					$	402			$	22,054			$	(21,652	)
Restricted stock compensation expense			1,856				1,155				701							3,945				2,025				1,920
Change in fair value of preferred stock derivative liability			6,022				(6,029	)			12,051							5,875				(5,384	)			11,259
Loss on debt extinguishment			1,023				-				1,023							1,023				-				1,023
Employee Retention Credit/gov't employment support			-				(249	)			249							-				(249	)			249
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)			292				-				292							287				-				287
2021 BSP Term Loan prepayment penalty			-				-				-							150				-				150
Tax impact of additional charges			(1,979	)			-				(1,979	)						(2,347	)			-				(2,347	)
Adjusted net income attributable to common stockholders		$	13,296			$	21,086			$	(7,790	)					$	9,335			$	18,446			$	(9,111	)
Adjusted earnings per share - basic		$	1.35			$	2.20			$	(0.85	)					$	0.95			$	1.92			$	(0.96	)
Shares used in adjusted earnings per share - basic			9,871				9,588				283							9,871				9,588				283
Adjusted earnings per share - diluted		$	1.26			$	2.10			$	(0.84	)					$	0.90			$	1.85			$	(0.95	)
Shares used in adjusted earnings per share - diluted			10,532				10,037				495							10,428				9,978				450

JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region
(In thousands)	QTD Q2											(In thousands)	YTD Q2
Divisions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021			Divisions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021
Toys/Consumer Products	$	117,934	$	148,860	$	81,538	-20.8	%	82.6	%		Toys/Consumer Products	$	215,827	$	259,983	$	161,413	-17.0	%	61.1	%
Dolls, Role-Play/Dress Up		59,669		102,186		49,278	-41.6	%	107.4	%		Dolls, Role-Play/Dress Up		107,512		164,192		94,433	-34.5	%	73.9	%
Action Play & Collectibles		52,571		37,170		19,622	41.4	%	89.4	%		Action Play & Collectibles		90,417		68,868		36,027	31.3	%	91.2	%
Outdoor/Seasonal Toys		5,694		9,504		12,638	-40.1	%	-24.8	%		Outdoor/Seasonal Toys		17,898		26,923		30,953	-33.5	%	-13.0	%
Costumes	$	48,999	$	71,562	$	30,814	-31.5	%	132.2	%		Costumes		58,590		81,320		34,782	-28.0	%	133.8	%
Total	$	166,933	$	220,422	$	112,352	-24.3	%	96.2	%		Total	$	274,417	$	341,303	$	196,195	-19.6	%	74.0	%
(In thousands)	QTD Q2											(In thousands)	YTD Q2
Regions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021			Regions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021
United States	$	136,187	$	192,484	$	95,265	-29.2	%	102.1	%		United States	$	216,630	$	289,534	$	164,181	-25.2	%	76.4	%
Europe		16,638		14,447		9,930	15.2	%	45.5	%		Europe		26,800		27,836		17,267	-3.7	%	61.2	%
Latin America		3,067		3,823		1,165	-19.8	%	228.2	%		Latin America		12,271		6,208		3,620	97.7	%	71.5	%
Canada		6,799		5,537		2,208	22.8	%	150.8	%		Canada		10,853		8,916		4,309	21.7	%	106.9	%
Asia		1,831		2,363		2,164	-22.5	%	9.2	%		Asia		3,211		4,439		3,579	-27.7	%	24.0	%
Australia & New Zealand		1,756		1,582		1,249	11.0	%	26.7	%		Australia & New Zealand		3,364		3,073		2,437	9.5	%	26.1	%
Middle East & Africa		655		186		371	252.2	%	-49.9	%		Middle East & Africa		1,288		1,297		802	-0.7	%	61.7	%
Total	$	166,933	$	220,422	$	112,352	-24.3	%	96.2	%		Total	$	274,417	$	341,303	$	196,195	-19.6	%	74.0	%
(In thousands)	QTD Q2											(In thousands)	YTD Q2
Regions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021			Regions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021
North America	$	142,986	$	198,021	$	97,473	-27.8	%	103.2	%		North America	$	227,483	$	298,450	$	168,489	-23.8	%	77.1	%
International		23,947		22,401		14,879	6.9	%	50.6	%		International		46,934		42,853		27,706	9.5	%	54.7	%
Total	$	166,933	$	220,422	$	112,352	-24.3	%	96.2	%		Total	$	274,417	$	341,303	$	196,195	-19.6	%	74.0	%

View source version on businesswire.com: https://www.businesswire.com/news/home/20230727816127/en/

Contacts

JAKKS Pacific Investor Relations
(424) 268-9567; Lucas Natalini, investors@jakks.net