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JAKKS Pacific Reports First Quarter 2023 Financial Results

Gross Profit increases by 5% versus Prior Year

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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