Jakks Pacific Reports First Quarter 2024 Financial Results
Santa Monica, CA — Jakks Pacific reported financial results for the first quarter ended March 31, 2024.
First Quarter 2024
- Net sales were $90.1 million, a year-over-year decrease of $17.4 million or 16%, driven by a lack of new film releases vs. prior year
- Gross margin of 23.4%, down 580 basis points vs. Q1 2023, led by higher inventory obsolescence expense, and retailer markdowns
- Gross profit of $21.1 million, down $10.4 million compared to $31.4 million in Q1 2023
- Operating loss of $21.3 million, compared to an operating loss of $4.4 million in Q1 2023
- Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $11.3 million (or $1.09 per diluted share), compared to an adjusted net loss attributable to common stockholders of $4.0 million (or $0.40 per diluted share) in Q1 2023
- Adjusted EBITDA (a non-GAAP measure) of $(17.2) million vs. $(1.1) million in Q1 2023
Management Commentary
“The beginning of the year at JAKKS is always our smallest shipping quarter and is focused on taking stock of the just concluded holiday season, solidifying our full-year plans and development work towards longer-term opportunities,” said Stephen Berman, Chairman and CEO of JAKKS Pacific, “and the quarter just concluded was very active on all three of those fronts. For the past two years we have had the added benefit of a robust film slate layering on top of our strong core business. Last year, we were shipping products to support what proved to be two of the year’s largest grossing films, The Super Mario Bros. Movie and The Little Mermaid. Without that new news in Spring 2024, from a shipping and retail sales perspective, we experienced lower levels of both as anticipated. We also continued to see weakening demand for products from a Q4 2023 film release. We supported our retail partners in funding markdowns to move that stock as well as addressing cancelled reorders for which we had built inventory. Unfortunately, these types of situations happen in our business, and we have found it is best to address them head-on and move on focusing on the fall season where the majority of the business is done. We are very excited about what is ahead – inclusive of our supporting two of the bigger film releases planned for Q4 of this year, the traction we are getting on some new 2025 initiatives as well as our relentless efforts to expand our international network.”
“Separately, we took the opportunity to retire our Preferred Shares at a negotiated discount to the contractual valuation. These shares were the last balance sheet artifact from our 2019 restructuring. For the first time in many years, there are no lenders or other parties restricting the common stockholders’ claim over the entire enterprise and its financial results. We consider this a fantastic starting point as we move forward with no competing interests to the goal of maximizing long-term shareholder value.”
First Quarter 2023 Results
Net sales for the first quarter of 2024 were $90.1 million, down 16% versus $107.5 million last year. The Toys/Consumer Products segment sales were down 15% globally and sales of Costumes were down 25% compared to last year.
Balance Sheet Highlights
The Company’s cash and cash equivalents (including restricted cash) totaled $35.5 million as of March 31, 2024, compared to $38.3 million at the same time last year, and to $72.6 million as of December 31, 2023.
Total debt was zero, compared to $29.4 million as of March 31, 2023. Total debt included the amount outstanding under the Company’s term loan, net of unamortized discounts and issuance costs.
Inventory was $46.3 million, compared to $64.0 million in total inventory as of March 31, 2023, and $52.6 million as of December 31, 2023.
| JAKKS Pacific, Inc. and Subsidiaries | |||||||||||||||
| Condensed Consolidated Balance Sheets (Unaudited) | |||||||||||||||
| March 31, | December 31, | ||||||||||||||
| 2024 | 2023 | 2023 | |||||||||||||
| (In thousands) | |||||||||||||||
| Assets | |||||||||||||||
| Current assets: | |||||||||||||||
| Cash and cash equivalents | $ | 35,290 | $ | 38,103 | $ | 72,350 | |||||||||
| Restricted cash | 202 | 198 | 204 | ||||||||||||
| Accounts receivable, net | 79,875 | 85,171 | 123,797 | ||||||||||||
| Inventory | 46,341 | 63,988 | 52,647 | ||||||||||||
| Prepaid expenses and other assets | 19,087 | 12,849 | 6,374 | ||||||||||||
| Total current assets | 180,795 | 200,309 | 255,372 | ||||||||||||
| Property and equipment | 138,066 | 130,668 | 135,956 | ||||||||||||
| Less accumulated depreciation and amortization | 122,694 | 114,499 | 121,357 | ||||||||||||
| Property and equipment, net | 15,372 | 16,169 | 14,599 | ||||||||||||
| Operating lease right-of-use assets, net | 22,965 | 17,634 | 23,592 | ||||||||||||
| Deferred income tax assets, net | 68,142 | 57,804 | 68,143 | ||||||||||||
| Goodwill | 34,997 | 35,083 | 35,083 | ||||||||||||
| Intangibles and other assets, net | 2,063 | 2,387 | 2,162 | ||||||||||||
| Total assets | $ | 324,334 | $ | 329,386 | $ | 398,951 | |||||||||
| Liabilities, Preferred Stock and Stockholders’ Equity | |||||||||||||||
| Current liabilities: | |||||||||||||||
| Accounts payable | $ | 31,683 | $ | 27,714 | $ | 42,177 | |||||||||
| Accounts payable – Meisheng (related party) | 8,689 | 8,024 | 12,259 | ||||||||||||
| Accrued expenses | 36,994 | 27,006 | 45,102 | ||||||||||||
| Reserve for sales returns and allowances | 27,859 | 41,064 | 38,531 | ||||||||||||
| Income taxes payable | – | 6,241 | 3,785 | ||||||||||||
| Short term operating lease liabilities | 8,237 | 10,009 | 7,380 | ||||||||||||
| Short term debt, net | – | 2,475 | – | ||||||||||||
| Total current liabilities | 113,462 | 122,533 | 149,234 | ||||||||||||
| Long term operating lease liabilities | 15,961 | 8,095 | 16,666 | ||||||||||||
| Accrued expenses – long term | 3,183 | – | 3,746 | ||||||||||||
| Debt, non-current portion, net | – | 26,969 | – | ||||||||||||
| Preferred stock derivative liability | – | 21,771 | 29,947 | ||||||||||||
| Income taxes payable | 3,295 | 2,941 | 3,245 | ||||||||||||
| Total liabilities | 135,901 | 182,309 | 202,838 | ||||||||||||
| Preferred stock accrued dividends | – | 4,857 | 5,992 | ||||||||||||
| Stockholders’ equity: | |||||||||||||||
| Common stock, $.001 par value | 11 | 10 | 10 | ||||||||||||
| Additional paid-in capital | 292,231 | 275,695 | 278,642 | ||||||||||||
| Accumulated deficit | (88,117 | ) | (117,331 | ) | (73,612 | ) | |||||||||
| Accumulated other comprehensive loss | (16,192 | ) | (17,150 | ) | (15,627 | ) | |||||||||
| Total JAKKS Pacific, Inc. stockholders’ equity | 187,933 | 141,224 | 189,413 | ||||||||||||
| Non-controlling interests | 500 | 996 | 708 | ||||||||||||
| Total stockholders’ equity | 188,433 | 142,220 | 190,121 | ||||||||||||
| Total liabilities, preferred stock and stockholders’ equity | $ | 324,334 | $ | 329,386 | $ | 398,951 | |||||||||
| Supplemental Balance Sheet and Cash Flow Data (Unaudited) | |||||||||||||||
| March 31, | |||||||||||||||
| Key Balance Sheet Data: | 2024 | 2023 | |||||||||||||
| Accounts receivable days sales outstanding (DSO) | 81 | 71 | |||||||||||||
| Inventory turnover (DSI) | 61 | 76 | |||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| Condensed Cash Flow Data: | 2024 | 2023 | |||||||||||||
| Cash flows used in operating activities | $ | (7,938 | ) | $ | (4,116 | ) | |||||||||
| Cash flows used in investing activities | (3,634 | ) | (3,472 | ) | |||||||||||
| Cash flows used in financing activities and other | (25,490 | ) | (39,601 | ) | |||||||||||
| Increase in cash, cash equivalents and restricted cash | $ | (37,062 | ) | $ | (47,189 | ) | |||||||||
| Capital expenditures | $ | (2,228 | ) | $ | (3,490 | ) | |||||||||
| JAKKS Pacific, Inc. and Subsidiaries | ||||||||||||
| Condensed Consolidated Statements of Operations (Unaudited) | ||||||||||||
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | Δ (%) | ||||||||||
| (In thousands, except per share data) | ||||||||||||
| Net sales | $ | 90,076 | $ | 107,484 | (16)% | |||||||
| Less: Cost of sales | ||||||||||||
| Cost of goods | 53,821 | 58,304 | (8 | ) | ||||||||
| Royalty expense | 13,776 | 16,654 | (17 | ) | ||||||||
| Amortization of tools and molds | 1,427 | 1,089 | 31 | |||||||||
| Cost of sales | 69,024 | 76,047 | (9 | ) | ||||||||
| Gross profit | 21,052 | 31,437 | (33 | ) | ||||||||
| Direct selling expenses | 8,097 | 7,741 | 5 | |||||||||
| General and administrative expenses | 34,192 | 27,994 | 22 | |||||||||
| Depreciation and amortization | 87 | 102 | (15 | ) | ||||||||
| Selling, general and administrative expenses | 42,376 | 35,837 | 18 | |||||||||
| Loss from operations | (21,324 | ) | (4,400 | ) | 385 | |||||||
| Other income (expense): | ||||||||||||
| Other income (expense), net | 138 | 438 | (68 | ) | ||||||||
| Change in fair value of preferred stock derivative liability | – | 147 | nm | |||||||||
| Interest income | 376 | 117 | 221 | |||||||||
| Interest expense | (143 | ) | (3,003 | ) | (95 | ) | ||||||
| Loss before benefit from income taxes | (20,953 | ) | (6,701 | ) | 213 | |||||||
| Benefit from income taxes | (6,728 | ) | (1,383 | ) | 386 | |||||||
| Net loss | (14,225 | ) | (5,318 | ) | 167 | |||||||
| Net income (loss) attributable to non-controlling interests | 280 | (5 | ) | nm | ||||||||
| Net loss attributable to JAKKS Pacific, Inc. | $ | (14,505 | ) | $ | (5,313 | ) | 173 | % | ||||
| Net loss attributable to common stockholders | $ | (13,175 | ) | $ | (5,680 | ) | 132 | % | ||||
| Loss per share – basic & diluted | $ | (1.27 | ) | $ | (0.58 | ) | ||||||
| Shares used in loss per share – basic & diluted | 10,354 | 9,871 | ||||||||||
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | Δ bps | ||||||||||
| Fav/(Unfav) | ||||||||||||
| Net sales | 100.0% | 100.0% | – | |||||||||
| Less: Cost of sales | ||||||||||||
| Cost of goods | 59.7 | 54.3 | (540 | ) | ||||||||
| Royalty expense | 15.3 | 15.5 | 20 | |||||||||
| Amortization of tools and molds | 1.6 | 1.0 | (60 | ) | ||||||||
| Cost of sales | 76.6 | 70.8 | (580 | ) | ||||||||
| Gross profit | 23.4 | 29.2 | (580 | ) | ||||||||
| Direct selling expenses | 9.0 | 7.2 | (180 | ) | ||||||||
| General and administrative expenses | 38.0 | 26.0 | (1,200 | ) | ||||||||
| Depreciation and amortization | 0.1 | 0.1 | – | |||||||||
| Selling, general and administrative expenses | 47.1 | 33.3 | (1,380 | ) | ||||||||
| Loss from operations | (23.7 | ) | (4.1 | ) | (1,960 | ) | ||||||
| Other income (expense): | ||||||||||||
| Other income (expense), net | 0.2 | 0.4 | ||||||||||
| Change in fair value of preferred stock derivative liability | – | 0.1 | ||||||||||
| Interest income | 0.4 | 0.1 | ||||||||||
| Interest expense | (0.2 | ) | (2.8 | ) | ||||||||
| Loss before benefit from income taxes | (23.3 | ) | (6.3 | ) | ||||||||
| Benefit from income taxes | (7.5 | ) | (1.3 | ) | ||||||||
| Net loss | (15.8 | ) | (5.0 | ) | ||||||||
| Net income (loss) attributable to non-controlling interests | 0.3 | – | ||||||||||
| Net loss attributable to JAKKS Pacific, Inc. | (16.1)% | (5.0)% | ||||||||||
| Net loss attributable to common stockholders | (14.6)% | (5.3)% | ||||||||||
| JAKKS Pacific, Inc. and Subsidiaries | ||||||||||||
| Reconciliation of Non-GAAP Financial Information (Unaudited) | ||||||||||||
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | Δ ($) | ||||||||||
| (In thousands) | ||||||||||||
| EBITDA and Adjusted EBITDA | ||||||||||||
| Net loss | $ | (14,225 | ) | $ | (5,318 | ) | $ | (8,907 | ) | |||
| Interest expense | 143 | 3,003 | (2,860 | ) | ||||||||
| Interest income | (376 | ) | (117 | ) | (259 | ) | ||||||
| Provision for income taxes | (6,728 | ) | (1,383 | ) | (5,345 | ) | ||||||
| Depreciation and amortization | 1,514 | 1,191 | 323 | |||||||||
| EBITDA | (19,672 | ) | (2,624 | ) | (17,048 | ) | ||||||
| Adjustments: | ||||||||||||
| Other (income) expense, net | (138 | ) | (438 | ) | 300 | |||||||
| Restricted stock compensation expense | 2,575 | 2,089 | 486 | |||||||||
| Change in fair value of preferred stock derivative liability | – | (147 | ) | 147 | ||||||||
| Adjusted EBITDA | $ | (17,235 | ) | $ | (1,120 | ) | $ | (16,115 | ) | |||
| Adjusted EBITDA/Net sales % | (19.1 | )% | (1.0 | )% | -1810 bps | |||||||
| Trailing Twelve Months Ended March 31, | ||||||||||||
| 2024 | 2023 | Δ ($) | ||||||||||
| (In thousands) | ||||||||||||
| TTM EBITDA and TTM Adjusted EBITDA | ||||||||||||
| TTM net income | $ | 29,206 | $ | 89,674 | $ | (60,468 | ) | |||||
| Interest expense | 3,591 | 11,984 | (8,393 | ) | ||||||||
| Interest income | (1,603 | ) | (241 | ) | (1,362 | ) | ||||||
| Provision for (benefit from) income taxes | 1,488 | (42,808 | ) | 44,296 | ||||||||
| Depreciation and amortization | 10,659 | 9,957 | 702 | |||||||||
| TTM EBITDA | 43,341 | 68,566 | (25,225 | ) | ||||||||
| Adjustments: | ||||||||||||
| Loss from joint ventures (JAKKS Pacific, Inc. – 51%) | 276 | – | 276 | |||||||||
| Loss from joint ventures (Meisheng – 49%) | 289 | – | 289 | |||||||||
| Other (income) expense, net | (263 | ) | (1,149 | ) | 886 | |||||||
| Restricted stock compensation expense | 8,513 | 6,301 | 2,212 | |||||||||
| Change in fair value of preferred stock derivative liability | 8,176 | (156 | ) | 8,332 | ||||||||
| 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 | $ | 59,604 | $ | 73,313 | $ | (13,709 | ) | |||||
| TTM Adjusted EBITDA/TTM Net sales % | 8.6 | % | 9.4 | % | -80 bps | |||||||
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | Δ ($) | ||||||||||
| (In thousands, except per share data) | ||||||||||||
| Adjusted net loss attributable to common stockholders | ||||||||||||
| Net loss attributable to common stockholders | $ | (13,175 | ) | $ | (5,680 | ) | $ | (7,495 | ) | |||
| Restricted stock compensation expense | 2,575 | 2,089 | 486 | |||||||||
| Change in fair value of preferred stock derivative liability | – | (147 | ) | 147 | ||||||||
| 2021 BSP Term Loan prepayment penalty | – | 150 | (150 | ) | ||||||||
| Tax impact of additional charges | (657 | ) | (368 | ) | (289 | ) | ||||||
| Adjusted net loss attributable to common stockholders | $ | (11,257 | ) | $ | (3,956 | ) | $ | (7,301 | ) | |||
| Adjusted loss per share – basic & diluted | $ | (1.09 | ) | $ | (0.40 | ) | $ | (0.69 | ) | |||
| Shares used in adjusted loss per share – basic & diluted | 10,354 | 9,871 | 483 | |||||||||
| JAKKS Pacific, Inc. and Subsidiaries | ||||||||||
| Net Sales by Division and Geographic Region | ||||||||||
| (In thousands) | QTD Q1 | |||||||||
| Divisions | 2024 | 2023 | 2022 | % Change 2024 v 2023 | % Change 2023 v 2022 | |||||
| Toys/Consumer Products | $ | 82,910 | $ | 97,893 | $ | 111,123 | -15.3 | % | -11.9 | % |
| Dolls, Role-Play/Dress Up | 40,574 | 47,843 | 62,006 | -15.2 | % | -22.8 | % | |||
| Action Play & Collectibles | 33,008 | 37,846 | 31,698 | -12.8 | % | 19.4 | % | |||
| Outdoor/Seasonal Toys | 9,328 | 12,204 | 17,419 | -23.6 | % | -29.9 | % | |||
| Costumes | $ | 7,166 | $ | 9,591 | $ | 9,758 | -25.3 | % | -1.7 | % |
| Total | $ | 90,076 | $ | 107,484 | $ | 120,881 | -16.2 | % | -11.1 | % |
| (In thousands) | QTD Q1 | |||||||||
| Regions | 2024 | 2023 | 2022 | % Change 2024 v 2023 | % Change 2023 v 2022 | |||||
| United States | $ | 70,430 | $ | 80,443 | $ | 97,050 | -12.4 | % | -17.1 | % |
| Europe | 5,735 | 10,162 | 13,389 | -43.6 | % | -24.1 | % | |||
| Latin America | 7,996 | 9,204 | 2,385 | -13.1 | % | 285.9 | % | |||
| Canada | 3,370 | 4,054 | 3,379 | -16.9 | % | 20.0 | % | |||
| Asia | 965 | 1,380 | 2,076 | -30.1 | % | -33.5 | % | |||
| Australia & New Zealand | 1,346 | 1,608 | 1,491 | -16.3 | % | 7.8 | % | |||
| Middle East & Africa | 234 | 633 | 1,111 | -63.0 | % | -43.0 | % | |||
| Total | $ | 90,076 | $ | 107,484 | $ | 120,881 | -16.2 | % | -11.1 | % |
| (In thousands) | QTD Q1 | |||||||||
| Regions | 2024 | 2023 | 2022 | % Change 2024 v 2023 | % Change 2023 v 2022 | |||||
| North America | $ | 73,800 | $ | 84,497 | $ | 100,429 | -12.7 | % | -15.9 | % |
| International | 16,276 | 22,987 | 20,452 | -29.2 | % | 12.4 | % | |||
| Total | $ | 90,076 | $ | 107,484 | $ | 120,881 | -16.2 | % | -11.1 | % |
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