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 EndedMarch 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 EndedMarch 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
% Change2023 v 2022 % Change2022 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
% Change2023 v 2022 % Change2022 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%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230427005822/en/
JAKKS Pacific Investor Relations (424) 268-9567; Lucas Natalini,
investors@jakks.net
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