JAKKS Pacific Reports First Quarter 2022 Financial Results

Highest Q1 Net Sales & Earnings per Share in 14 years

JAKKS Pacific, Inc. [NASDAQ: JAKK] today reported financial results for the first quarter ended March 31, 2022.

First Quarter 2022 Overview:

  • Net sales were $120.9 million, up 44% compared to $83.8 million last year
  • Highest Q1 net sales since 2008
  • Costume business more than doubled vs. Q1 2021
  • Net loss attributable to common stockholders of $4.2 million (or $0.43 per share) compared to a net loss attributable to common stockholders of $24.4 million (or $4.54 per share) in Q1 2021
  • Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $2.6 million (or $0.28 per share), compared to an adjusted net loss attributable to common stockholders of $9.5 million (or $1.77 per share) in Q1 2021
  • Adjusted EBITDA (a non-GAAP measure) was $1.9 million, compared to negative $2.4 million in the first quarter of 2021
  • Trailing twelve month adjusted EBITDA of $53.6 million (8.1% of net sales) up 36% from $39.5 million (7.4% of net sales) in the trailing twelve months ended March 2021

Management Commentary

“Our 2022 is off to an exceptional start,” said Stephen Berman, JAKKS Chairman and CEO. “For several years we have talked about maintaining a disciplined focus on growing evergreen toy categories and brands to deliver consistently improving, yet sustainable, results. In addition, this approach can also benefit from the excitement and enthusiasm new entertainment content can generate. As the year begins, we are starting to see strong results as more consumers discover and embrace films like Sonic the Hedgehog® 2 and Disney’s Encanto™, and want to deepen their relationships with the characters by engaging with a broad array of our toys, Halloween Costumes, day-to-day role play and many other related products.

“While that endorsement and enthusiasm is exciting and reaffirming for the teams who bring the product ranges to market, I am equally excited to share that in addition to the growth of these two theatrical releases, the balance of the Toy/Consumer Products business was up mid-single digit percentage in the quarter compared to prior year. We appreciate the continued support from all of our stakeholders in working together to overcome continuing pandemic-driven manufacturing and supply-chain challenges to deliver these results.

“As anticipated, higher inbound freight expenses continued to weigh down gross margins, as we expect to be the case for the balance of the year. Nonetheless, tight cost controls paired with our higher revenues still generated positive Q1 EBITDA for the first time since 2008. We have a lot of work to do as we continue to navigate the unpredictable nature of current events, but are excited by the opportunities we see ahead of us this year and thinking ahead to 2023.”

First Quarter 2022 Results

Net sales for the first quarter 2022 were $120.9 million up 44% versus $83.8 million last year, led by strong growth in Action Play, Dolls/Dress-up and Costumes offset by slight weakness in our Outdoor/Seasonal business.

Gross profit in the first quarter of 2022 was $29.9 million or 24.7% of net sales, compared to $26.1 million or 31.1% of net sales in the prior year. Improved product margins and lower royalty expense were not enough to offset a significant year-over-year increase in ocean freight and related expenses. SG&A costs were $30.7 million, up from $28.8 million in the prior year. As a percent of net sales, SG&A costs were 25.4%, down from 34.4% in the prior year.

The net loss attributable to common stockholders was $4.2 million, or $0.43 per basic and diluted share, compared to a loss of $24.4 million, or $4.54 per basic and diluted share in the first quarter of 2021. Net loss in the first quarter of 2021 included several adjustments, including those related to changes in the fair value of convertible senior notes and preferred stock derivative liability, and other adjustments. Excluding such adjustments in both years, the adjusted net loss attributable to common stockholders (a non-GAAP measure) was a loss of $2.6 million, or $0.28 per basic and diluted share in the first quarter of 2022 compared to a loss of $9.5 million or $1.77 per basic and diluted share in the first quarter of 2021. Adjusted EBITDA (a non-GAAP measure) was $1.9 million for the first quarter of 2022, compared to negative $2.4 million a year ago. For the trailing twelve months ended March 31, 2022, adjusted EBITDA was $53.6 million, up 36% compared to $39.5 million for the trailing twelve months ended March 31, 2021. (See note below on “Use of Non-GAAP Financial Information.”)

Cash and Cash Equivalents

The Company’s cash and cash equivalents (including restricted cash) totaled $39.2 million as of March 31, 2022 compared to $45.3 million as of December 31, 2021, and $84.1 million as of March 31, 2021.

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 10 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 5, 2022 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 “3951819” 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; Creepy Crawlers®, Eyeclops®, Fly Wheel®, Perfectly Cute®, ReDo Skateboard Co.®, WeeeDo™, Xtreme Power®, Disguise®, Maui®, Moose Mountain®, Kids Only!®; a wide range of entertainment-inspired products featuring premier licensed properties; and C’est Moi®, a New Generation of Clean Beauty®. 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 (JAKKS Pacific).

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 the Recapitalization transaction or 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,
 

2022

 

2021

 

2021

  (In thousands)
Assets      
Current assets:      
Cash and cash equivalents  

 $

          39,225

 

 

 $

          80,406

 

 

 $

          44,521

 

Restricted cash  

 

                     -

 

 

 

              3,653

 

 

 

                 811

 

Accounts receivable, net  

 

           103,730

 

 

 

            79,657

 

 

 

           147,394

 

Inventory  

 

            85,306

 

 

 

            36,653

 

 

 

            83,954

 

Prepaid expenses and other assets  

 

            17,412

 

 

 

            23,480

 

 

 

            10,877

 

Total current assets  

 

           245,673

 

 

 

           223,849

 

 

 

           287,557

 

     
Property and equipment  

 

           124,289

 

 

 

           115,068

 

 

 

           121,945

 

Less accumulated depreciation and amortization  

 

           110,345

 

 

 

           102,043

 

 

 

           108,796

 

Property and equipment, net  

 

            13,944

 

 

 

            13,025

 

 

 

            13,149

 

     
Operating lease right-of-use assets, net  

 

            17,089

 

 

 

            22,283

 

 

 

            16,950

 

Goodwill  

 

            35,083

 

 

 

            35,083

 

 

 

            35,083

 

Intangibles and other assets, net  

 

              3,980

 

 

 

              4,165

 

 

 

              4,308

 

Total assets  

 $

        315,769

 

 

 $

        298,405

 

 

 $

        357,047

 

     
     
Liabilities, Preferred Stock and Stockholders' Equity
     
Current liabilities:      
Accounts payable  

 $

          36,439

 

 

 $

          25,262

 

 

 $

          50,237

 

Payable to Meisheng  

 

            15,511

 

 

 

              6,045

 

 

 

            15,894

 

Accrued expenses  

 

            30,596

 

 

 

            28,233

 

 

 

            47,071

 

Reserve for sales returns and allowances  

 

            39,375

 

 

 

            39,499

 

 

 

            46,285

 

Income taxes payable  

 

              1,205

 

 

 

                 175

 

 

 

              1,004

 

Short term operating lease liabilities  

 

            11,014

 

 

 

            10,109

 

 

 

            10,477

 

Short term debt, net  

 

              2,475

 

 

 

              6,721

 

 

 

              2,104

 

Total current liabilities  

 

           136,615

 

 

 

           116,044

 

 

 

           173,072

 

     
Long term operating lease liabilities  

 

              7,399

 

 

 

            14,475

 

 

 

              8,039

 

Debt, non-current portion, net  

 

            92,934

 

 

 

           154,960

 

 

 

            93,415

 

Preferred stock derivative liability  

 

            21,927

 

 

 

            15,438

 

 

 

            21,282

 

Income taxes payable  

 

                 215

 

 

 

                 947

 

 

 

                 215

 

Deferred income taxes, net  

 

                   51

 

 

 

                 123

 

 

 

                   51

 

Total liabilities  

 

           259,141

 

 

 

           301,987

 

 

 

           296,074

 

     
Preferred stock accrued dividends  

 

              3,420

 

 

 

              2,066

 

 

 

              3,074

 

     
Stockholders' equity:      
Common stock, $.001 par value  

 

                   10

 

 

 

                     6

 

 

 

                   10

 

Additional paid-in capital  

 

           272,821

 

 

 

           227,113

 

 

 

           272,941

 

Accumulated deficit  

 

         (207,240

)

 

 

         (221,509

)

 

 

         (203,431

)

Accumulated other comprehensive loss  

 

           (13,614

)

 

 

           (12,504

)

 

 

           (12,952

)

Total JAKKS Pacific, Inc. stockholders' equity  

 

            51,977

 

 

 

             (6,894

)

 

 

            56,568

 

Non-controlling interests  

 

              1,231

 

 

 

              1,246

 

 

 

              1,331

 

Total stockholders' equity  

 

            53,208

 

 

 

             (5,648

)

 

 

            57,899

 

Total liabilities, preferred stock and stockholders' equity  

 $

        315,769

 

 

 $

        298,405

 

 

 $

        357,047

 

     
     
Supplemental Balance Sheet and Cash Flow Data (Unaudited)
   

March 31,

Key Balance Sheet Data:    

2022

 

2021

     
Accounts receivable, net days of sales outstanding (DSO)    

 

                   77

 

 

 

                   86

 

Inventory Turnover (DSI)    

 

                   84

 

 

 

                   57

 

     
    Three Months Ended March 31,
Condensed Cash Flow Data:    

2022

 

2021

    (In thousands)
Cash flows used in operating activities    

 $

          (2,736

)

 

 $

          (6,961

)

Cash flows used in investing activities    

 

             (1,817

)

 

 

             (1,451

)

Cash flows used in financing activities and other    

 

             (1,554

)

 

 

                (222

)

Decrease in cash, cash equivalents and restricted cash    

 $

          (6,107

)

 

 $

          (8,634

)

     
Capital expenditures    

 $

          (1,817

)

 

 $

          (1,472

)

JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
 
 

Three Months Ended March 31,

 

2022

 

2021

Δ (%)

  (In thousands, except per share data)
 
Net sales  

 $

                120,881

 

 $

                 83,843

 

              44

 

%

Less: Cost of sales  
Cost of goods  

 

                    72,058

 

 

                    44,049

 

              64

 

Royalty expense  

 

                    17,690

 

 

                    12,511

 

              41

 

Amortization of tools and molds  

 

                      1,216

 

 

                      1,189

 

                2

 

Cost of sales  

 

                    90,964

 

 

                    57,749

 

              58

 

Gross profit  

 

                    29,917

 

 

                    26,094

 

              15

 

Direct selling expenses  

 

                      4,902

 

 

                      6,802

 

             (28

)

General and administrative expenses  

 

                    25,153

 

 

                    21,411

 

              17

 

Depreciation and amortization  

 

                         596

 

 

                         604

 

               (1

)

Selling, general and administrative expenses  

 

                    30,651

 

 

                    28,817

 

                6

 

Loss from operations  

 

                       (734

)

 

                     (2,723

)

             (73

)

Other income (expense):  
Other income (expense), net  

 

                           86

 

 

                           55

 

              56

 

Change in fair value of convertible senior notes  

 

                             -

 

 

                     (9,047

)

           (100

)

Change in fair value of preferred stock derivative liability  

 

                       (645

)

 

                     (7,375

)

             (91

)

Interest income  

 

                            3

 

 

                            2

 

              50

 

Interest expense  

 

                     (2,202

)

 

                     (4,875

)

             (55

)

Loss before provision for income taxes  

 

                     (3,492

)

 

                   (23,963

)

             (85

)

Provision for income taxes  

 

                         417

 

 

                           88

 

             374

 

Net loss  

 

                     (3,909

)

 

                   (24,051

)

             (84

)

Net income (loss) attributable to non-controlling interests   

 

                       (100

)

 

                           35

 

 nm 
Net loss attributable to JAKKS Pacific, Inc.  

 $

                  (3,809

)

 $

                (24,086

)

             (84

)

%

Net loss attributable to common stockholders  

 $

                  (4,155

)

 $

                (24,412

)

             (83

)

%

Loss per share - basic and diluted  

 $

                    (0.43

)

 $

                    (4.54

)

Shares used in loss per share - basic and diluted  

 

                      9,588

 

 

                      5,379

 

 
 
 

Three Months Ended March 31,

 

2022

 

2021

Δ bps
  Fav/(Unfav)
Net sales  

 

                      100.0

 

%

 

                      100.0

 

%

               -

 

Less: Cost of sales  
Cost of goods  

 

                        59.6

 

 

                        52.5

 

           (707

)

Royalty expense  

 

                        14.6

 

 

                        15.0

 

              29

 

Amortization of tools and molds  

 

                          1.1

 

 

                          1.4

 

              41

 

Cost of sales  

 

                        75.3

 

 

                        68.9

 

           (637

)

Gross profit  

 

                        24.7

 

 

                        31.1

 

           (637

)

Direct selling expenses  

 

                          4.1

 

 

                          8.1

 

             406

 

General and administrative expenses  

 

                        20.8

 

 

                        25.6

 

             473

 

Depreciation and amortization  

 

                          0.5

 

 

                          0.7

 

              23

 

Selling, general and administrative expenses  

 

                        25.4

 

 

                        34.4

 

             901

 

Loss from operations  

 

                        (0.7

)

 

                        (3.3

)

             265

 

Other income (expense):  
Other income (expense), net  

 

                          0.1

 

 

                          0.1

 

Change in fair value of convertible senior notes  

 

                             -

 

 

                      (10.8

)

Change in fair value of preferred stock derivative liability  

 

                        (0.5

)

 

                        (8.8

)

Interest income  

 

                             -

 

 

                             -

 

Interest expense  

 

                        (1.8

)

 

                        (5.8

)

Loss before provision for income taxes  

 

                        (2.9

)

 

                      (28.6

)

Provision for income taxes  

 

                          0.3

 

 

                          0.1

 

Net loss  

 

                        (3.2

)

 

                      (28.7

)

Net income (loss) attributable to non-controlling interests   

 

                        (0.1

)

 

                             -

 

Net loss attributable to JAKKS Pacific, Inc.  

 

                        (3.1

)

%

 

                      (28.7

)

%

Net loss attributable to common stockholders  

 

                        (3.4

)

%

 

                      (29.1

)

%

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,    
 

2022

 

2021

  Δ ($)  
  (In thousands, except per share data)    
EBITDA and Adjusted EBITDA        
Net loss  

 $

             (3,909

)

 

 $

                (24,051

)

 

 $

     20,142

 

 
Interest expense  

 

                 2,202

 

 

 

                      4,875

 

 

 

        (2,673

)

 
Interest income  

 

                      (3

)

 

 

                           (2

)

 

 

              (1

)

 
Provision for income taxes  

 

                    417

 

 

 

                           88

 

 

 

            329

 

 
Depreciation and amortization  

 

                 1,812

 

 

 

                      1,793

 

 

 

              19

 

 
EBITDA  

 

                    519

 

 

 

                   (17,297

)

 

 

        17,816

 

 
Adjustments:        
Other (income) expense, net  

 

                    (86

)

 

 

                         (55

)

 

 

             (31

)

 
Restricted stock compensation expense  

 

                    870

 

 

 

                         382

 

 

 

            488

 

 
Change in fair value of convertible senior notes  

 

                        -

 

 

 

                      9,047

 

 

 

        (9,047

)

 
Change in fair value of preferred stock derivative liability  

 

                    645

 

 

 

                      7,375

 

 

 

        (6,730

)

 
Employee retention credit   

 

                        -

 

 

 

                     (1,900

)

 

 

         1,900

 

 
Adjusted EBITDA  

 $

              1,948

 

 

 $

                  (2,448

)

 

 $

       4,396

 

 
TTM Adjusted EBITDA  

 $

            53,607

 

 

 $

                  39,548

 

 

 $

     14,059

 

 

36 %

Adjusted EBITDA/Net sales %  

 

                     1.6

 

%

 

 

                        (2.9

)

%

   

453 bps

TTM Adjusted EBITDA/TTM Net sales %  

 

                     8.1

 

%

 

 

                          7.4

 

%

   

73 bps

       
Adjusted net income (loss) attributable to common stockholders        
Net loss attributable to common stockholders  

 $

             (4,155

)

 

 $

                (24,412

)

 

 $

     20,257

 

 
Restricted stock compensation expense  

 

                    870

 

 

 

                         382

 

 

 

            488

 

 
Change in fair value of convertible senior notes  

 

                        -

 

 

 

                      9,047

 

 

 

        (9,047

)

 
Change in fair value of preferred stock derivative liability  

 

                    645

 

 

 

                      7,375

 

 

 

        (6,730

)

 
Employee retention credit   

 

                        -

 

 

 

                     (1,900

)

 

 

         1,900

 

 
Tax impact of additional charges  

 

                        -

 

 

 

                             -

 

 

 

                -

 

 
Adjusted net loss attributable to common stockholders  

 $

             (2,640

)

 

 $

                  (9,508

)

 

 $

       6,868

 

 
Adjusted loss per share - basic and diluted  

 $

               (0.28

)

 

 $

                    (1.77

)

 

 $

        1.49

 

 
Shares used in adjusted loss per share - basic and diluted  

 

                 9,588

 

 

 

                      5,379

 

 

 

         4,209

 

 
JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region
 
 
 
(In thousands) Q1
Divisions

2022

2021

2020

2022-2021

2021-2020

Toys/Consumer Products

$

111,123

$

79,875

$

62,565

39.1

%

27.7

%

Dolls, Role-Play/Dress Up

 

      62,006

 

    45,155

 

    40,074

37.3

%

12.7

%

Action Play & Collectibles

 

      31,698

 

    16,405

 

     9,654

93.2

%

69.9

%

Outdoor/Seasonal Toys

 

      17,419

 

    18,315

 

    12,837

-4.9

%

42.7

%

Costumes

 

        9,758

 

     3,968

 

     3,992

145.9

%

-0.6

%

Total

$

120,881

$

83,843

$

66,557

44.2

%

26.0

%

 
 
 
(In thousands) Q1
Regions

2022

2021

2020

2022-2021

2021-2020

United States

$

97,050

$

68,916

$

51,918

40.8

%

32.7

%

Europe

 

      13,389

 

     7,337

 

     7,618

82.5

%

-3.7

%

Canada

 

        3,379

 

     2,101

 

     2,348

60.8

%

-10.5

%

Latin America

 

        2,385

 

     2,455

 

     1,000

-2.9

%

145.5

%

Asia

 

        2,076

 

     1,415

 

     1,770

46.7

%

-20.1

%

Australia & New Zealand

 

        1,491

 

     1,188

 

     1,531

25.5

%

-22.4

%

Middle East & Africa

 

        1,111

 

        431

 

        372

157.8

%

15.9

%

Total

$

120,881

$

83,843

$

66,557

44.2

%

26.0

%

 
 
(In thousands) Q1
Regions

2022

2021

 

2020

2022-2021

2021-2020

North America

$

100,429

$

71,016

$

54,266

41.4

%

30.9

%

International

 

      20,452

 

    12,827

 

    12,291

59.4

%

4.4

%

Total

$

120,881

$

83,843

$

66,557

44.2

%

26.0

%

 

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