JAKKS Pacific Reports First Quarter 2023 Financial Results

Gross Profit increases by 5% versus Prior Year

SANTA MONICA, Calif.--(BUSINESS WIRE)-- JAKKS Pacific, Inc. [NASDAQ: JAKK] today reported financial results for the first quarter ended March 31, 2023.

First Quarter 2023 Overview:

• Net sales were $107.5 million, down 11% compared to $120.9 million in Q1 2022
• Back-to-back $100+ million net sales Q1s for the first time since 2008-2009
• Gross margin of 29.2%, up 450 basis points vs. Q1 2022
• Gross profit of $31.4 million, up 5% compared to $29.9 million in Q1 2022
• Higher selling expenses of $7.7 million vs. $4.9 million in Q1 2022, driven by costs associated with temporary warehouse capacity.
• Net loss attributable to common stockholders of $5.7 million compared to a net loss attributable to common stockholders of $4.2 million in Q1 2022
• Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $4.0 million, compared to an adjusted net loss attributable to common stockholders of $2.6 million in Q1 2022
• Adjusted EBITDA (a non-GAAP measure) was negative $1.1 million, compared to positive $1.9 million in Q1 2022
• Trailing twelve month adjusted EBITDA of $73.3 million (9.4% of net sales) up 37% from $53.6 million (8.1% of net sales) in the trailing twelve months ended March 2022

Management Commentary

“We are pleased with our year-to-date performance as we close the first quarter,” said Stephen Berman, JAKKS Pacific Inc.’s Chairman and CEO, “and are excited about the possibilities for the remainder of the year. We shipped over $100 million worth of product in Q1 for the second consecutive year and it is the first time we’ve done that in back-to-back years since 2009. We have challenging revenue comparisons all year, but our significant gross margin improvement lessened the impact in the first quarter. Our Q1 gross profit dollars haven’t been this high since 2015. We managed inventory down further and eliminated most of our temporary warehouse capacity. And, as we previously disclosed, earlier in the quarter we paid down our long-term debt to less than $30 million.

“Our Q1 International business grew, with Toys/Consumer Products increasing 7% to $20.0 million and Costumes increasing 64% to $3.0 million, with Latin American being particularly strong. On a global basis, our Action Play and Collectible business was up 19% or $6.1 million which helped compensate for a decline in our Dolls, Role Play business which was down 23%, or $14.2 million.

“There’s a lot more work to do in the short-term to set us up for a strong holiday season, but the team is engaged and aggressively focused on continuing the positive momentum we’ve generated in recent years. It’s a great time to be at JAKKS Pacific.”

First Quarter 2023 Results

Net sales for the first quarter 2023 were $107.5 million down 11% versus $120.9 million last year. The decrease was driven primarily by lower sales in North America, which were down 16% to $77.9 million in Toys/Consumer Products and down 17% to $6.6 million in Costumes. Net sales of Disguise costumes were down to $9.6 million from $9.8 million last year, a decrease of 2% globally.

Gross profit in the first quarter of 2023 was $31.4 million or 29.2% of net sales, compared to $29.9 million or 24.7% of net sales in the prior year, driven by drastically reduced container and import-related costs offset by higher royalty and product costs as a percent of sales. SG&A costs were $35.8 million, up from $30.7 million in the prior year, driven in part by higher warehousing expenses. As a percentage of net sales, SG&A costs were 33.3%, up from 25.4% in the prior year.

The net loss attributable to common stockholders was $5.7 million, or $0.58 per basic and diluted share, compared to a net loss attributable to common stockholders of $4.2 million, or $0.43 per basic and diluted share in the first quarter of 2022. The adjusted net loss attributable to common stockholders (a non-GAAP measure) was $4.0 million, or $0.40 per basic and diluted share in the first quarter of 2023 compared to a net loss attributable to common stockholders of $2.6 million or $0.28 per basic and diluted share in the first quarter of 2022.

Adjusted EBITDA (a non-GAAP measure) was negative $1.1 million for the first quarter of 2023, compared to positive $1.9 million a year ago. For the trailing twelve months ended March 31, 2023, adjusted EBITDA was $73.3 million, up 37% compared to $53.6 million for the trailing twelve months ended March 31, 2022. (See note below on “Use of Non-GAAP Financial Information.”)

Balance Sheet

The Company’s cash and cash equivalents (including restricted cash) totaled $38.3 million as of March 31, 2023 compared to $85.5 million as of December 31, 2022, and $39.2 million as of March 31, 2022. The Company’s inventory totaled $64.0 million as of March 31, 2023 compared to $80.6 million as of December 31, 2022, and $85.3 million as of March 31, 2022. As previously disclosed, the Company made $38.1 million in additional principal payments in the quarter, reducing the debt total to $29.4 million net of issuance costs and debt discounts.

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 which is a non-GAAP metric that excludes 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 will webcast its first quarter earnings call at 5:00 p.m. Eastern Time/2:00 p.m. Pacific Time today. To listen to the live webcast and access the accompanying presentation slides, go to www.jakks.com/investors and click on the earnings website link under the Presentations tab at least 20 minutes prior to register, download and install any necessary audio software.

A replay of the call will be available on JAKKS’ website approximately two hours following completion of the call through May 4, 2023 ending at 8:00 p.m. Eastern Time/5:00 p.m. Pacific Time. The playback can be accessed by calling (888) 859-2056 or (404) 537-3406 for international callers, with passcode “2188217#” for both playback numbers.

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)
		March 31,								December 31,
		2023				2022				2022
		(In thousands)
Assets
Current assets:
Cash and cash equivalents		$	38,103			$	39,225			$	85,297
Restricted cash			198				-				193
Accounts receivable, net			85,171				103,730				102,771
Inventory			63,988				85,306				80,619
Prepaid expenses and other assets			12,849				17,412				6,331
Total current assets			200,309				245,673				275,211
Property and equipment			130,668				124,289				130,437
Less accumulated depreciation and amortization			114,499				110,345				115,575
Property and equipment, net			16,169				13,944				14,862
Operating lease right-of-use assets, net			17,634				17,089				19,913
Deferred income tax assets, net			57,804				-				57,804
Goodwill			35,083				35,083				35,083
Intangibles and other assets, net			2,387				3,980				2,469
Total assets		$	329,386			$	315,769			$	405,342
Liabilities, Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable		$	27,714			$	36,439			$	33,687
Accounts payable - Meisheng (related party)			8,024				15,511				9,820
Accrued expenses			27,005				30,596				37,998
Reserve for sales returns and allowances			41,064				39,375				51,877
Income taxes payable			6,241				1,205				8,165
Short term operating lease liabilities			10,009				11,014				10,746
Short term debt, net			2,475				2,475				25,529
Total current liabilities			122,532				136,615				177,822
Long term operating lease liabilities			8,095				7,399				9,863
Debt, non-current portion, net			26,969				92,934				41,622
Preferred stock derivative liability			21,772				21,927				21,918
Income taxes payable			2,941				215				2,929
Deferred income tax liabilities, net			-				51				-
Total liabilities			182,309				259,141				254,154
Preferred stock accrued dividends			4,857				3,420				4,490
Stockholders' equity:
Common stock, $.001 par value			10				10				10
Additional paid-in capital			275,695				272,821				275,187
Accumulated deficit			(117,331	)			(207,240	)			(112,018	)
Accumulated other comprehensive loss			(17,150	)			(13,614	)			(17,482	)
Total JAKKS Pacific, Inc. stockholders' equity			141,224				51,977				145,697
Non-controlling interests			996				1,231				1,001
Total stockholders' equity			142,220				53,208				146,698
Total liabilities, preferred stock and stockholders' equity		$	329,386			$	315,769			$	405,342
Supplemental Balance Sheet and Cash Flow Data (Unaudited)
						March 31,
Key Balance Sheet Data:						2023				2022
Accounts receivable days sales outstanding (DSO)							71				77
Inventory turnover (DSI)							76				84
						Three Months Ended March 31,
Condensed Cash Flow Data:						2023				2022
						(In thousands)
Cash flows used in operating activities						$	(4,116	)		$	(2,736	)
Cash flows used in investing activities							(3,472	)			(1,817	)
Cash flows used in financing activities and other							(39,601	)			(1,554	)
Decrease in cash, cash equivalents and restricted cash						$	(47,189	)		$	(6,107	)
Capital expenditures						$	(3,490	)		$	(1,817	)

JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
		Three Months Ended March 31,
		2023				2022				Δ (%)
		(In thousands, except per share data)
Net sales		$	107,484			$	120,881			(11	)%
Less: Cost of sales
Cost of goods			58,304				72,058			(19	)
Royalty expense			16,654				17,690			(6	)
Amortization of tools and molds			1,089				1,216			(10	)
Cost of sales			76,047				90,964			(16	)
Gross profit			31,437				29,917			5
Direct selling expenses			7,741				4,902			58
General and administrative expenses			27,994				25,153			11
Depreciation and amortization			102				596			(83	)
Selling, general and administrative expenses			35,837				30,651			17
Loss from operations			(4,400	)			(734	)		499
Other income (expense):
Other income (expense), net			438				86			409
Change in fair value of preferred stock derivative liability			147				(645	)		nm
Interest income			117				3			nm
Interest expense			(3,003	)			(2,202	)		36
Loss before provision for (benefit from) income taxes			(6,701	)			(3,492	)		92
Provision for (benefit from) income taxes			(1,383	)			417			nm
Net loss			(5,318	)			(3,909	)		36
Net loss attributable to non-controlling interests			(5	)			(100	)		(95	)
Net loss attributable to JAKKS Pacific, Inc.		$	(5,313	)		$	(3,809	)		39	%
Net loss attributable to common stockholders		$	(5,680	)		$	(4,155	)		37	%
Loss per share - basic & diluted		$	(0.58	)		$	(0.43	)
Shares used in loss per share - basic & diluted			9,871				9,588
		Three Months Ended March 31,
		2023				2022				Δ bps
										Fav/(Unfav)
Net sales			100.0	%			100.0	%		-
Less: Cost of sales
Cost of goods			54.3				59.6			530
Royalty expense			15.5				14.6			(90	)
Amortization of tools and molds			1.0				1.1			10
Cost of sales			70.8				75.3			450
Gross profit			29.2				24.7			450
Direct selling expenses			7.2				4.1			(310	)
General and administrative expenses			26.0				20.8			(520	)
Depreciation and amortization			0.1				0.5			40
Selling, general and administrative expenses			33.3				25.4			(790	)
Loss from operations			(4.1	)			(0.7	)		(340	)
Other income (expense):
Other income (expense), net			0.4				0.1
Change in fair value of preferred stock derivative liability			0.1				(0.5	)
Interest income			0.1				-
Interest expense			(2.8	)			(1.8	)
Loss before provision for (benefit from) income taxes			(6.3	)			(2.9	)
Provision for (benefit from) income taxes			(1.3	)			0.3
Net loss			(5.0	)			(3.2	)
Net loss attributable to non-controlling interests			-				(0.1	)
Net loss attributable to JAKKS Pacific, Inc.			(5.0	)%			(3.1	)%
Net loss attributable to common stockholders			(5.3	)%			(3.4	)%

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 March 31,
		2023				2022				Δ ($)
		(In thousands)
EBITDA and Adjusted EBITDA
Net loss		$	(5,318	)		$	(3,909	)		$	(1,409	)
Interest expense			3,003				2,202				801
Interest income			(117	)			(3	)			(114	)
Provision for (benefit from) income taxes			(1,383	)			417				(1,800	)
Depreciation and amortization			1,191				1,812				(621	)
EBITDA			(2,624	)			519				(3,143	)
Adjustments:
Other (income) expense, net			(438	)			(86	)			(352	)
Restricted stock compensation expense			2,089				870				1,219
Change in fair value of preferred stock derivative liability			(147	)			645				(792	)
Adjusted EBITDA		$	(1,120	)		$	1,948			$	(3,068	)
Adjusted EBITDA/Net sales %			(1.0	)	%		1.6		%	-260 bps
		Trailing Twelve Months Ended March 31,
		2023				2022				Δ ($)
		(In thousands)
TTM EBITDA and TTM Adjusted EBITDA
TTM Net income		$	89,674			$	14,254			$	75,420
Interest expense			11,984				11,431				553
Interest income			(241	)			(14	)			(227	)
Provision for (benefit from) income taxes			(42,808	)			555				(43,363	)
Depreciation and amortization			9,957				10,270				(313	)
TTM EBITDA			68,566				36,496				32,070
Adjustments:
Other (income) expense, net			(1,149	)			(477	)			(672	)
Restricted stock compensation expense			6,301				2,581				3,720
Change in fair value of convertible senior notes			-				7,372				(7,372	)
Change in fair value of preferred stock derivative liability			(156	)			6,490				(6,646	)
Employee Retention Credit/Gov't Employment Support			(249	)			-				(249	)
Gain on loan forgiveness			-				(6,206	)			6,206
Loss on debt extinguishment			-				7,351				(7,351	)
TTM Adjusted EBITDA		$	73,313				53,607			$	19,706
TTM Adjusted EBITDA/TTM Net sales %			9.4		%		8.1		%	130 bps
		Three Months Ended March 31,
		2023				2022				Δ ($)
		(In thousands, except per share data)
Adjusted net income (loss) attributable to common stockholders
Net loss attributable to common stockholders		$	(5,680	)		$	(4,155	)		$	(1,525	)
Restricted stock compensation expense			2,089				870				1,219
Change in fair value of preferred stock derivative liability			(147	)			645				(792	)
2021 BSP Term Loan prepayment penalty			150				-				150
Tax impact of additional charges			(368	)			-				(368	)
Adjusted net loss attributable to common stockholders		$	(3,956	)		$	(2,640	)		$	(1,316	)
Adjusted loss per share - basic & diluted		$	(0.40	)		$	(0.28	)		$	(0.12	)
Shares used in adjusted loss per share - basic & diluted			9,871				9,588				283

JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region
(In thousands)	Q1
Divisions	2023		2022		2021		% Change 2023 v 2022	% Change 2022 v 2021
Toys/Consumer Products	$	97,893	$	111,123	$	79,875	-11.9%	39.1%
Dolls, Role-Play/Dress Up		47,843		62,006		45,155	-22.8%	37.3%
Action Play & Collectibles		37,846		31,698		16,405	19.4%	93.2%
Outdoor/Seasonal Toys		12,204		17,419		18,315	-29.9%	-4.9%
Costumes	$	9,591	$	9,758	$	3,968	-1.7%	145.9%
Total	$	107,484	$	120,881	$	83,843	-11.1%	44.2%
(In thousands)	Q1
Regions	2023		2022		2021		% Change 2023 v 2022	% Change 2022 v 2021
United States	$	80,443	$	97,050	$	68,916	-17.1%	40.8%
Europe		10,162		13,389		7,337	-24.1%	82.5%
Latin America		9,204		2,385		2,455	285.9%	-2.9%
Canada		4,054		3,379		2,101	20.0%	60.8%
Asia		1,380		2,076		1,415	-33.5%	46.7%
Australia & New Zealand		1,608		1,491		1,188	7.8%	25.5%
Middle East & Africa		633		1,111		431	-43.0%	157.8%
Total	$	107,484	$	120,881	$	83,843	-11.1%	44.2%
(In thousands)	Q1
Regions	2023		2022		2021		% Change 2023 v 2022	% Change 2022 v 2021
North America	$	84,497	$	100,429	$	71,016	-15.9%	41.4%
International		22,987		20,452		12,827	12.4%	59.4%
Total	$	107,484	$	120,881	$	83,843	-11.1%	44.2%

 

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JAKKS Pacific Investor Relations

(424) 268-9567; Lucas Natalini, investors@jakks.net

Source: JAKKS Pacific, Inc.