Jakks Pacific Reports First Quarter 2023 Financial Results
Gross Profit increases by 5% versus Prior Year
Santa Monica, CA – JAKKS Pacific 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.
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.
| Contact: | |
| JAKKS Pacific Investor Relations | |
| (424) 268-9567; Lucas Natalini, investors@jakks.net |
| 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)
R
| 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 | 37 | % | |||||||||
| 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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