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Jakks Pacific Reports Third Quarter 2023 Financial Results image

Jakks Pacific Reports Third Quarter 2023 Financial Results

Santa Monica, CA — Jakks Pacific reported financial results for the third quarter ended September 30, 2023.

“Although we have seen activity at retail slowing, our business continued to perform well throughout the third quarter. Retail sell-through at our Top 3 accounts in the US were down low single digits on a year-to-date basis, while our inventory at those accounts is down over 20% year-over-year”

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Third Quarter 2023 Overview

  • Net sales were $309.7 million, a year-over-year decrease of 4%
    • Toys/Consumer Products were $246.0 million, a year-over-year decrease of 9%
    • Costumes were $63.7 million, a year-over-year increase of 19%
      • Costumes year-to-date are $122.3 million, a year-over-year decrease of 9%
  • Gross margin of 34.5%, up 600 basis points vs. Q3 2022
  • Gross profit of $107.0 million, up 16% compared to $91.9 million in Q3 2022
    • Year-to-date gross profit of $189.6 million, up 4% compared to $182.7 million in 2022
  • Operating income of $62.4 million (20.1% of net sales) in Q3 2023 vs. $53.7 million (16.7% of net sales) in Q3 2022
    • Year-to-date operating income of $74.4 million (12.7% of net sales) vs. $76.7 million (11.6% of net sales) for the comparable period in 2022
  • Net income attributable to common stockholders of $47.8 million or $4.53 per diluted share, compared to net income attributable to common stockholders of $30.3 million or $2.96 per diluted share in Q3 2022
  • Adjusted net income attributable to common stockholders (a non-GAAP measure) of $50.1 million or $4.75 per diluted share, compared to adjusted net income attributable to common stockholders of $39.0 million or $3.80 per diluted share in Q3 2022
  • Adjusted EBITDA (a non-GAAP measure) of $67.1 million vs. $59.4 million in Q3 2022
    • Trailing twelve month Adjusted EBITDA of $74.5 million (10.4% of trailing twelve months net sales) down from $93.5 million (11.0% of net sales) in the trailing twelve months ended September 2022.

Management Commentary

“Although we have seen activity at retail slowing, our business continued to perform well throughout the third quarter. Retail sell-through at our Top 3 accounts in the US were down low single digits on a year-to-date basis, while our inventory at those accounts is down over 20% year-over-year” said Stephen Berman, CEO of JAKKS Pacific. “A more predictable supply-chain and lower promotional activity than last year has resulted in significantly improved product margins, building on the continued rigor and collaboration between our development and sourcing teams. Of note, our Action Play & Collectibles business was up 43% in the quarter, and with $184.1 million shipped through Q3, is up 37% compared to last year. We are looking forward to the holiday season and have recently finished great customer meetings previewing our Fall 2024 product line. We are exceeding our own internal expectations for the full-year and are carefully navigating towards the end of the year given the persistent uncertainty about consumer behavior.

“Also in the quarter, we saw our Costumes business seasonality returning to more traditional levels and catching up on a year-to-date basis. Although down 9% in year-to-date shipping vs. 2022, globally, we remain +24% vs. the same period in 2021, along with significantly improved margins. Our view of 2023 Halloween shopping in the US was that it was a bit softer overall. We see that in our data and in referencing syndicated market data. The latter suggests we have retained and expanded our market leadership position, but final syndicated data won’t be available until later this month.

“Finally, during the third quarter, we officially opened our new office and internally operated warehouse in Italy to better serve that market and Southern Europe broadly starting in 2024. We are very focused on maximizing our presence across the EU given the current strength of our product line. We nonetheless continue to proactively manage our owned inventory, increasing our internal discipline around turns and maximizing our cash position. Our Q3 ending inventory level of $68.8 million is the lowest Q3 level since 2020, down 37% from this time last year. We are always striving to improve our internal operations to remain competitive and the partner of choice for our customers, licensors and vendors.

It is gratifying to see the team continue to deliver exceptional, consistent results. Everyone in our company remains 100% focused on delivering great toys, costumes and other consumer products relevant to today’s children. Our evergreen category assortment and product lines have never been stronger, which continue to enhance our financial position and resilience.”

Third Quarter 2023 Results

Net sales for the third quarter of 2023 were $309.7 million, down 4% versus $323.0 million last year. The Toys/Consumer Products segment sales were down 9% globally (-10% North America; -4% International) and sales of Disguise costumes were up 19% compared to last year (23% North America; -13% International) as Halloween customers ordering reverted to more traditional seasonality.

Year-to-date Toys/Consumer Products sales were down 13% over the comparable 2022 period. Year-to-date the Costumes segment was down 9% over the comparable 2022 period.

Year-to-date adjusted net income attributable to common stockholders was $59.4 million ($5.66 per diluted share), compared to $57.5 million ($5.68 per diluted share) in the first nine months of 2022. Year-to-date adjusted EBITDA of $86.6 million (14.8% of net sales) declined from $88.5 million (13.3% of net sales) in the comparable 2022 period.

Balance Sheet Highlights

The Company’s cash and cash equivalents (including restricted cash) totaled $96.4 million as of September 30, 2023 compared to $76.6 million as of September 30, 2022, and $85.5 million as of December 31, 2022.

Total debt was zero, compared to $67.7 million as of September 30, 2022, and $67.2 million as of December 31, 2022. Total debt included the amount outstanding under the Company’s term loan, net of unamortized discounts and issuance costs.

Inventory was $68.8 million, compared to $109.2 million as of September 30, 2022 and $80.6 million in total inventory as of December 31, 2022.

JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

September 30,

December 31,

2023

2022

2022

(In thousands)

Assets
Current assets:
Cash and cash equivalents

$

96,252

$

76,418

$

85,297

Restricted cash

195

178

193

Accounts receivable, net

206,751

204,856

102,771

Inventory

68,832

109,171

80,619

Prepaid expenses and other assets

6,721

11,124

6,331

Total current assets

378,751

401,747

275,211

Property and equipment

135,821

131,918

130,437

Less accumulated depreciation and amortization

121,193

116,558

115,575

Property and equipment, net

14,628

15,360

14,862

Operating lease right-of-use assets, net

25,743

22,154

19,913

Deferred income tax assets, net

57,856

57,804

Goodwill

35,083

35,083

35,083

Intangibles and other assets, net

2,220

2,770

2,469

Total assets

$

514,281

$

477,114

$

405,342

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

$

94,409

$

77,126

$

33,687

Accounts payable – Meisheng (related party)

27,977

28,301

9,820

Accrued expenses

65,609

73,723

37,998

Reserve for sales returns and allowances

43,512

59,216

51,877

Income taxes payable

17,422

14,084

8,165

Short term operating lease liabilities

6,415

10,515

10,746

Short term debt, net

2,475

25,529

Total current liabilities

255,344

265,440

177,822

Long term operating lease liabilities

19,283

12,555

9,863

Accrued expenses – long term

3,750

Debt, non-current portion, net

65,195

41,622

Preferred stock derivative liability

28,586

23,347

21,918

Income taxes payable

2,994

66

2,929

Deferred income tax liabilities, net

53

Total liabilities

309,957

366,656

254,154

Preferred stock accrued dividends

5,608

4,128

4,490

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

10

10

10

Additional paid-in capital

277,546

274,040

275,187

Accumulated deficit

(62,744

)

(149,987

)

(112,018

)

Accumulated other comprehensive loss

(16,808

)

(18,594

)

(17,482

)

Total JAKKS Pacific, Inc. stockholders’ equity

198,004

105,469

145,697

Non-controlling interests

712

861

1,001

Total stockholders’ equity

198,716

106,330

146,698

Total liabilities, preferred stock and stockholders’ equity

$

514,281

$

477,114

$

405,342

Supplemental Balance Sheet and Cash Flow Data (Unaudited)

September 30,

Key Balance Sheet Data:

2023

2022

Accounts receivable days sales outstanding (DSO)

61

58

Inventory turnover (DSI)

31

44

Nine Months Ended
September 30,

Condensed Cash Flow Data:

2023

2022

(In thousands)
Cash flows provided by operating activities

$

89,421

$

75,261

Cash flows used in investing activities

(7,427

)

(8,087

)

Cash flows used in financing activities and other

(71,037

)

(35,910

)

Increase (Decrease) in cash, cash equivalents and restricted cash

$

10,957

$

31,264

Capital expenditures

$

(7,464

)

$

(8,089

)

JAKKS Pacific, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

Δ (%)

2023

2022

Δ (%)

(In thousands, except per share data) (In thousands, except per share data)
Net sales

$

309,744

$

322,998

(4

)%

$

584,161

$

664,301

(12

)%

Less: Cost of sales
Cost of goods

149,052

174,334

(15

)

$

293,512

368,242

(20

)

Royalty expense

51,141

52,868

(3

)

95,074

106,262

(11

)

Amortization of tools and molds

2,566

3,885

(34

)

5,955

7,079

(16

)

Cost of sales

202,759

231,087

(12

)

394,541

481,583

(18

)

Gross profit

106,985

91,911

16

189,620

182,718

4

Direct selling expenses

10,684

8,397

27

22,405

20,137

11

General and administrative expenses

33,821

29,400

15

92,492

84,067

10

Depreciation and amortization

81

373

(78

)

276

1,547

(82

)

Selling, general and administrative expenses

44,586

38,170

17

115,173

105,751

9

Intangibles impairment

300

nm
Income from operations

62,399

53,741

16

74,447

76,667

(3

)

Other income (expense):
Loss from joint ventures

(565

)

nm
Other income (expense), net

(52

)

251

nm

424

520

(18

)

Change in fair value of preferred stock derivative liability

(793

)

(7,449

)

(89

)

(6,668

)

(2,065

)

223

Loss on debt extinguishment

(1,023

)

nm
Interest income

384

55

nm

587

64

nm
Interest expense

(1,436

)

(4,350

)

(67

)

(5,741

)

(8,889

)

(35

)

Income before provision for income taxes

60,502

42,248

43

61,461

66,297

(7

)

Provision for income taxes

12,381

11,572

7

12,476

13,323

(6

)

Net income

48,121

30,676

57

48,985

52,974

(8

)

Net loss attributable to non-controlling interests

(11

)

(17

)

(35

)

(289

)

(470

)

(39

)

Net income attributable to JAKKS Pacific, Inc.

$

48,132

$

30,693

57

%

$

49,274

$

53,444

(8

)%

Net income attributable to common stockholders

$

47,754

$

30,336

57

%

$

48,156

$

52,390

(8

)%

Earnings per share – basic

$

4.77

$

3.13

$

4.85

$

5.44

Shares used in earnings per share – basic

10,021

9,695

9,922

9,624

Earnings per share – diluted

$

4.53

$

2.96

$

4.58

$

5.18

Shares used in earnings per share – diluted

10,542

10,260

10,503

10,111

Three Months Ended September 30,

Nine Months Ended September 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

48.2

54.0

580

50.2

55.4

520

Royalty expense

16.5

16.3

(20

)

16.3

16.0

(30

)

Amortization of tools and molds

0.8

1.2

40

1.0

1.1

10

Cost of sales

65.5

71.5

600

67.5

72.5

500

Gross profit

34.5

28.5

600

32.5

27.5

500

Direct selling expenses

3.5

2.6

(90

)

3.8

3.0

(80

)

General and administrative expenses

10.9

9.1

(180

)

15.9

12.7

(320

)

Depreciation and amortization

0.1

10

0.1

0.2

10

Selling, general and administrative expenses

14.4

11.8

(260

)

19.8

15.9

(390

)

Intangibles impairment

Income from operations

20.1

16.7

340

12.7

11.6

110

Other income (expense):
Loss from joint ventures

(0.1

)

Other income (expense), net

0.1

0.1

Change in fair value of preferred stock derivative liability

(0.3

)

(2.3

)

(1.1

)

(0.3

)

Loss on debt extinguishment

(0.2

)

Interest income

0.1

0.1

Interest expense

(0.4

)

(1.4

)

(1.0

)

(1.3

)

Income before provision for income taxes

19.5

13.1

10.5

10.0

Provision for income taxes

4.0

3.6

2.1

2.0

Net income

15.5

9.5

8.4

8.0

Net loss attributable to non-controlling interests

Net income attributable to JAKKS Pacific, Inc.

15.5

%

9.5

%

8.4

%

8.0

%

Net income attributable to common stockholders

15.4

%

9.4

%

8.2

%

7.9

%

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

 

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

Δ ($)

2023

2022

Δ ($)

(In thousands) (In thousands)
EBITDA and Adjusted EBITDA
Net income

$

48,121

$

30,676

$

17,445

$

48,985

$

52,974

$

(3,989

)

Interest expense

1,436

4,350

(2,914

)

5,741

8,889

(3,148

)

Interest income

(384

)

(55

)

(329

)

(587

)

(64

)

(523

)

Provision for income taxes

12,381

11,572

809

12,476

13,323

(847

)

Depreciation and amortization

4,398

4,258

140

7,982

8,626

(644

)

EBITDA

65,952

50,801

15,151

74,597

83,748

(9,151

)

Adjustments:
Loss from joint ventures (JAKKS Pacific, Inc. – 51%)

276

276

Loss from joint ventures (Meisheng – 49%)

289

289

Other (income) expense, net

52

(251

)

303

(424

)

(520

)

96

Restricted stock compensation expense

2,025

1,411

614

5,970

3,436

2,534

Change in fair value of preferred stock derivative liability

793

7,449

(6,656

)

6,668

2,065

4,603

Employee Retention Credit/gov’t employment support

(249

)

249

Molds and tooling capitalization

(1,751

)

(1,751

)

(1,751

)

(1,751

)

Loss on debt extinguishment

1,023

1,023

Adjusted EBITDA

$

67,071

$

59,410

$

7,661

$

86,648

$

88,480

$

(1,832

)

Adjusted EBITDA/Net sales %

21.7

%

18.4

%

330 bps

14.8

%

13.3

%

150 bps

Trailing Twelve Months Ended
September 30,

2023

2022

Δ ($)
(In thousands)
TTM EBITDA and TTM Adjusted EBITDA
TTM Net income

$

87,094

$

49,821

$

37,273

Interest expense

8,035

11,090

(3,055

)

Interest income

(650

)

(67

)

(583

)

Provision for (benefit from) income taxes

(41,855

)

13,263

(55,118

)

Depreciation and amortization

9,934

10,012

(78

)

TTM EBITDA

62,558

84,119

(21,561

)

Adjustments:
Loss from joint ventures (JAKKS Pacific, Inc. – 51%)

276

276

Loss from joint ventures (Meisheng – 49%)

289

289

Other (income) expense, net

(701

)

(710

)

9

Restricted stock compensation expense

7,616

4,149

3,467

Change in fair value of convertible senior notes

(76

)

76

Change in fair value of preferred stock derivative liability

5,239

6,272

(1,033

)

Employee Retention Credit/gov’t employment support

(249

)

249

Molds and tooling capitalization

(1,751

)

(1,751

)

Loss on debt extinguishment

1,023

1,023

TTM Adjusted EBITDA

$

74,549

$

93,505

$

(18,956

)

TTM Adjusted EBITDA/TTM Net sales %

10.4

%

11.0

%

-59 bps

Three Months Ended September 30,

Nine Months Ended September 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

$

47,754

$

30,336

$

17,418

$

48,156

$

52,390

$

(4,234

)

Restricted stock compensation expense

2,025

1,411

614

5,970

3,436

2,534

Change in fair value of preferred stock derivative liability

793

7,449

(6,656

)

6,668

2,065

4,603

Loss on debt extinguishment

1,023

1,023

Employee Retention Credit/gov’t employment support

(249

)

249

Loss from joint ventures (JAKKS Pacific, Inc. – 51%)

276

276

2021 BSP Term Loan prepayment penalty

525

(525

)

150

525

(375

)

Molds and Tooling capitalization

(1,751

)

(1,751

)

(1,751

)

(1,751

)

Tax impact of additional charges

1,268

(697

)

1,965

(1,079

)

(697

)

(382

)

Adjusted net income attributable to common stockholders

$

50,089

$

39,024

$

11,065

$

59,413

$

57,470

$

1,943

Adjusted earnings per share – basic

$

5.00

$

4.03

$

0.97

$

5.99

$

5.97

$

0.02

Shares used in adjusted earnings per share – basic

10,021

9,695

326

9,922

9,624

298

Adjusted earnings per share – diluted

$

4.75

$

3.80

$

0.95

$

5.66

$

5.68

$

(0.02

)

Shares used in adjusted earnings per share – diluted

10,542

10,260

282

10,503

10,111

392

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

QTD Q3

(In thousands)

YTD Q3

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

$

246,004

$

269,607

$

172,952

-8.8

%

55.9

%

Toys/Consumer Products

$

461,831

$

529,590

$

334,365

-12.8

%

58.4

%

Dolls, Role-Play/Dress Up

139,177

190,452

112,050

-26.9

%

70.0

%

Dolls, Role-Play/Dress Up

246,689

354,644

206,483

-30.4

%

71.8

%

Action Play & Collectibles

93,717

65,752

37,587

42.5

%

74.9

%

Action Play & Collectibles

184,134

134,620

73,614

36.8

%

82.9

%

Outdoor/Seasonal Toys

13,110

13,403

23,315

-2.2

%

-42.5

%

Outdoor/Seasonal Toys

31,008

40,326

54,268

-23.1

%

-25.7

%

Costumes

$

63,740

$

53,391

$

64,005

19.4

%

-16.6

%

Costumes

122,330

134,711

98,787

-9.2

%

36.4

%

Total

$

309,744

$

322,998

$

236,957

-4.1

%

36.3

%

Total

$

584,161

$

664,301

$

433,152

-12.1

%

53.4

%

(In thousands)

QTD Q3

(In thousands)

YTD Q3

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

$

244,931

$

253,854

$

199,136

-3.5

%

27.5

%

United States

$

461,561

$

543,388

$

363,317

-15.1

%

49.6

%

Europe

31,676

38,075

20,836

-16.8

%

82.7

%

Europe

58,476

65,911

38,103

-11.3

%

73.0

%

Canada

11,453

12,804

8,094

-10.6

%

58.2

%

Canada

22,306

21,720

12,403

2.7

%

75.1

%

Latin America

15,319

9,504

4,503

61.2

%

111.1

%

Latin America

27,590

15,712

8,123

75.6

%

93.4

%

Asia

3,192

4,294

2,635

-25.7

%

63.0

%

Asia

6,403

8,733

6,214

-26.7

%

40.5

%

Australia & New Zealand

2,692

3,941

1,490

-31.7

%

164.5

%

Australia & New Zealand

6,056

7,014

3,927

-13.7

%

78.6

%

Middle East & Africa

481

526

263

-8.6

%

100.0

%

Middle East & Africa

1,769

1,823

1,065

-3.0

%

71.2

%

Total

$

309,744

$

322,998

$

236,957

-4.1

%

36.3

%

Total

$

584,161

$

664,301

$

433,152

-12.1

%

53.4

%

(In thousands)

QTD Q3

(In thousands)

YTD Q3

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

$

256,384

$

266,658

$

207,230

-3.9

%

28.7

%

North America

$

483,867

$

565,108

$

375,720

-14.4

%

50.4

%

International

53,360

56,340

29,727

-5.3

%

89.5

%

International

100,294

99,193

57,432

1.1

%

72.7

%

Total

$

309,744

$

322,998

$

236,957

-4.1

%

36.3

%

Total

$

584,161

$

664,301

$

433,152

-12.1

%

53.4

%

 

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