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JAKKS Pacific Reports Fourth Quarter and Full-Year 2022 Financial Results image

JAKKS Pacific Reports Fourth Quarter and Full-Year 2022 Financial Results

Second Consecutive Year of 20+% Sales Growth; Long-term Debt Reduced 55% Year-over-year

Santa Monica, CA — JAKKS Pacific reported financial results for the fourth quarter ended December 31, 2022.

Fourth Quarter 2022

  • Net sales were $131.9 million compared to $188.0 million last year; a 30% decrease
  • Gross margin of 21.7%, negatively impacted by lower capitalization of warehouse costs, higher tooling amortization, obsolete inventory and royalty expense, offset by lower inbound freight expenses
  • A valuation allowance release against a deferred tax asset generated a $52.6 million non-cash gain
  • Net income attributable to common stockholders of $38.9 million, up from a net loss attributable to common stockholders of $3.5 million in Q4 2021
  • Adjusted net loss attributable to common stockholders of $14.0 million, down from adjusted net income attributable to common stockholders of $1.3 million in Q4 2021
  • Adjusted EBITDA of $(12.1) million, down from $5.0 million in Q4 2021.

Full-Year 2022

  • Net sales were $796.2 million compared to $621.1 million last year; a 28% increase
  • Gross margin of 26.5% compared to 29.5% last year
  • Operating income of $61.0 million compared to $38.8 million last year; a 57% increase
  • Net income attributable to common stockholders of $91.3 million, up from a net loss attributable to common stockholders of $7.3 million in 2021
  • Adjusted EBITDA of $76.4 million up 55% versus $49.2 million in 2021
  • Adjusted net income attributable to common stockholders of $43.4 million ($4.28 per diluted share), up from adjusted net income attributable to common stockholders of $23.6 million ($2.59 per diluted share) in 2021
  • Cash flows provided by operating activities of $86.1 million, compared to cash flows used in operating activities of $5.9 million in 2021
    • Cash flow sweep loan provision will reduce debt by $23.1 million in Q1 2023

Management Commentary

“2022 exceeded our expectations with a second consecutive year of 20+% sales growth and, more importantly, strong retail sell-through for our customers,” said Stephen Berman, JAKKS Pacific’s Chairman and CEO. “In addition to a couple of strong successes, we saw solid results from the majority of our product lines. We shipped an exceptional amount of product in a compressed time-window resulting in higher-than-average costs in our domestic fulfilment operations in the back half of the year, suppressing our full-year margins. In Q4, and in the new year, we focused on resetting our inventory position and warehouse capacity and feel well-positioned for the new year. Our North American business grew 27% on a full-year basis, and our International business grew by 38%.

“We have a great line-up of new introductions in 2023. We’re launching and extending some of our own brands, in addition to introducing new product lines in association with film and TV releases throughout the year. Although we anticipate the business reverting to its more traditional second-half seasonality, our focus on prioritizing FOB sales continues, which results in shipments earlier in the year as compared with other companies. We are also working diligently to capture year-over-year margin improvement opportunities both on product and in the supply-chain.”

Fourth Quarter and Full-Year Results

Net sales for the fourth quarter 2022 were $131.9 million, down 30% versus $188.0 million last year. The decrease was anticipated given customers ordering product earlier than the traditional seasonality, in addition to a late shipment in Q3 2021 creating an atypically high Q4 2021 sales level. Net sales in the Toys/Consumer Products segment were down 34% globally, 34% in North America and 35% in International. For the full year, North America Toys/Consumer Products was up 26% and International was up 28%. Net sales in the Costumes segment increased 61% compared to Q4 2021 and were up 38% for the full year. Our Top 10 markets all achieved sales growth year-over-year.

A release of a deferred tax asset valuation allowance created a non-cash gain of $52.6 million in the quarter. Net income attributable to common stockholders increased to $38.9 million, or $3.79 per diluted share, compared to a net loss attributable to common stockholders of $3.5 million, or $0.37 per diluted share for the fourth quarter of 2021. Adjusting out the gain on the valuation allowance and other customary adjustments led to an adjusted net loss attributable to common stockholders (a non-GAAP measure) of $14.0 million, or $1.44 per diluted share in the fourth quarter of 2022 versus adjusted net income attributable to common stockholders of $1.3 million or $0.14 per diluted share in the fourth quarter of 2021. On a full-year basis, net income attributable to common stockholders improved to $91.3 million versus a net loss attributable to common stockholders of $7.3 million in 2021. Full-year adjusted net income attributable to common stockholders was $43.4 million, or $4.28 per diluted share, compared to a 2021 adjusted net income attributable to common stockholders of $23.6 million, or $2.59 per diluted share. See note below on “Use of Non-GAAP Financial Information.”

Adjusted EBITDA (a non-GAAP measure) for full-year 2022 grew to $76.4 million (9.6% of net sales), the highest full-year level of Adjusted EBITDA dollars and margin since 2010.

Cash and Cash Equivalents; Debt

The Company’s cash and cash equivalents (including restricted cash) totaled $85.5 million as of December 31, 2022, compared to $45.3 million as of December 31, 2021. The cash flow sweep provision of the Company’s Term Loan triggers a mandatory paydown of $23.1 million based on full-year results. That amount is now reclassified to short-term debt on the 12/31/2022 balance sheet, in addition to this year’s scheduled principal amortization. Separately, in January 2023, the company used a portion of its cash-on-hand to make an optional pay-down of its long-term debt of $15 million, incurring $150K in pre-payment penalties. As we have made the sweep payment upon finalizing our financials, the current payoff balance of our Term Loan is $30.8 million. Cash and cash equivalents (including restricted cash) total $40.2 million as of March 3, 2023. The company currently has no draw on its asset-based loan.

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 Perfectly Cute™, Ami-Amis™, ReDo™ Skateboard Co, AirTitans®, Disguise®, JAKKS Wild Games™, Moose Mountain®, Maui®, SportsZone™, Fly Wheels™, Kids Only!®; a wide range of entertainment-inspired products featuring premier licensed properties; and C’est Moi™, a new generation of clean beauty. 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 (JAKKS Pacific).

JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
December 31,

2022

2021

(In thousands)
Assets
Current assets:
Cash and cash equivalents

$

85,297

$

44,521

Restricted cash

193

811

Accounts receivable, net

102,771

147,394

Inventory

80,619

83,954

Prepaid expenses and other assets

6,331

10,877

Total current assets

275,211

287,557

Property and equipment

130,437

121,945

Less accumulated depreciation and amortization

115,575

108,796

Property and equipment, net

14,862

13,149

Operating lease right-of-use assets, net

19,913

16,950

Deferred income tax assets, net

51,762

Goodwill

35,083

35,083

Intangibles and other assets, net

2,469

4,308

Total assets

$

399,300

$

357,047

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

$

33,687

$

50,237

Accounts payable – Meisheng (related party)

9,820

15,894

Accrued expenses

37,999

47,071

Reserve for sales returns and allowances

51,877

46,285

Income taxes payable

3,648

1,004

Short term operating lease liabilities

10,746

10,477

Short term debt, net

25,529

2,104

Total current liabilities

173,306

173,072

Long term operating lease liabilities

9,863

8,039

Debt, non-current portion, net

41,622

93,415

Preferred stock derivative liability

21,918

21,282

Income taxes payable

114

215

Deferred income tax liabilities, net

51

Total liabilities

246,823

296,074

Preferred stock accrued dividends

4,490

3,074

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

10

10

Additional paid-in capital

275,187

272,941

Accumulated deficit

(110,729

)

(203,431

)

Accumulated other comprehensive loss

(17,482

)

(12,952

)

Total JAKKS Pacific, Inc. stockholders’ equity

146,986

56,568

Non-controlling interests

1,001

1,331

Total stockholders’ equity

147,987

57,899

Total liabilities, preferred stock and stockholders’ equity

$

399,300

$

357,047

Supplemental Balance Sheet and Cash Flow Data (Unaudited)
December 31,
Key Balance Sheet Data:

2022

2021

Accounts receivable days sales outstanding (DSO)

72

72

Inventory turnover (DSI)

72

56

Twelve Months Ended

December 31,

Condensed Cash Flow Data:

2022

2021

(In thousands)
Cash flows provided by (used in) operating activities

$

86,098

$

(5,879

)

Cash flows used in investing activities

(10,387

)

(8,189

)

Cash flows used in financing activities and other

(35,554

)

(33,293

)

Increase/(decrease) in cash, cash equivalents and restricted cash

$

40,157

$

(47,361

)

Capital expenditures

$

(10,389

)

$

(8,221

)

JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2022

2021

Δ (%)

2022

2021

Δ (%)

(In thousands, except

per share data)

(In thousands, except

per share data)

Net sales

$

131,886

$

187,964

(30

)%

$

796,187

$

621,116

28

%

Less: Cost of sales
Cost of goods

81,355

111,497

(27

)

449,597

343,130

31

Royalty expense

20,371

25,641

(21

)

126,633

87,187

45

Amortization of tools and molds

1,592

784

103

8,671

7,842

11

Cost of sales

103,318

137,922

(25

)

584,901

438,159

33

Gross profit

28,568

50,042

(43

)

211,286

182,957

15

Direct selling expenses

13,153

19,252

(32

)

33,290

43,069

(23

)

General and administrative expenses

30,752

27,262

13

114,819

98,712

16

Depreciation and amortization

360

602

(40

)

1,907

2,409

(21

)

Selling, general and administrative expenses

44,265

47,116

(6

)

150,016

144,190

4

Intangibles impairment

300

nm

Income (loss) from operations

(15,697

)

2,926

nm

60,970

38,767

57

Other income (expense):
Other income (expense), net

277

190

46

797

446

79

Change in fair value of convertible senior notes

76

nm

(16,419

)

nm

Change in fair value of preferred stock derivative liability

1,429

(4,207

)

nm

(636

)

(13,220

)

(95

)

Gain on loan forgiveness

6,206

nm

Loss on debt extinguishment

(7,351

)

nm

Interest income

63

3

nm

127

13

nm

Interest expense

(2,294

)

(2,201

)

4

(11,183

)

(14,104

)

(21

)

Income (loss) before provision for (benefit from) income taxes

(16,222

)

(3,213

)

405

50,075

(5,662

)

nm

Provision for (benefit from) income taxes

(55,620

)

(60

)

nm

(42,297

)

226

nm

Net income (loss)

39,398

(3,153

)

nm

92,372

(5,888

)

nm

Net income (loss) attributable to non-controlling interests

140

19

nm

(330

)

120

nm

Net income (loss) attributable to JAKKS Pacific, Inc.

$

39,258

$

(3,172

)

nm

%

$

92,702

$

(6,008

)

nm

%

Net income (loss) attributable to common stockholders

$

38,896

$

(3,513

)

nm

%

$

91,286

$

(7,342

)

nm

%

Earnings (loss) per share – basic

$

4.00

$

(0.37

)

$

9.46

$

(0.98

)

Shares used in earnings (loss) per share – basic

9,732

9,511

9,651

7,498

Earnings (loss) per share – diluted

$

3.79

$

(0.37

)

$

8.99

$

(0.98

)

Shares used in earnings (loss) per share – diluted

10,263

9,511

10,155

7,498

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2022

2021

Δ bps

2022

2021

Δ bps

Fav/(Unfav)

Fav/(Unfav)

Net sales

100.0

%

100.0

%

100.0

%

100.0

%

Less: Cost of sales
Cost of goods

61.7

59.3

(240

)

56.5

55.2

(130

)

Royalty expense

15.4

13.6

(180

)

15.9

14.0

(190

)

Amortization of tools and molds

1.2

0.5

(70

)

1.1

1.3

20

Cost of sales

78.3

73.4

(490

)

73.5

70.5

(300

)

Gross profit

21.7

26.6

(490

)

26.5

29.5

(300

)

Direct selling expenses

10.0

10.2

20

4.2

6.9

270

General and administrative expenses

23.3

14.5

(880

)

14.4

15.9

150

Depreciation and amortization

0.3

0.3

0.2

0.4

20

Selling, general and administrative expenses

33.6

25.0

(860

)

18.8

23.2

440

Intangibles impairment

Income (loss) from operations

(11.9

)

1.6

(1,350

)

7.7

6.3

140

Other income (expense):
Other income (expense), net

0.2

0.1

0.1

Change in fair value of convertible senior notes

(2.6

)

Change in fair value of preferred stock derivative liability

1.1

(2.2

)

(0.1

)

(2.1

)

Gain on loan forgiveness

1.0

Loss on debt extinguishment

(1.2

)

Interest income

Interest expense

(1.7

)

(1.2

)

(1.4

)

(2.3

)

Income (loss) before provision for (benefit from) income taxes

(12.3

)

(1.7

)

6.3

(0.9

)

Provision for (benefit from) income taxes

(42.2

)

(5.3

)

Net income (loss)

29.9

(1.7

)

11.6

(0.9

)

Net income (loss) attributable to non-controlling interests

0.1

Net income (loss) attributable to JAKKS Pacific, Inc.

29.8

%

(1.7

)%

11.6

%

(0.9

)%

Net income (loss) attributable to common stockholders

29.5

%

(1.9

)%

11.5

%

(1.2

)%

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

December 31,

Twelve Months Ended

December 31,

2022

2021

Δ ($)

2022

2021

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

$

39,398

$

(3,153

)

$

42,551

$

92,372

$

(5,888

)

$

98,260

Interest expense

2,294

2,201

93

11,183

14,104

(2,921

)

Interest income

(63

)

(3

)

(60

)

(127

)

(13

)

(114

)

Provision for (benefit from) income taxes

(55,620

)

(60

)

(55,560

)

(42,297

)

226

(42,523

)

Depreciation and amortization

1,952

1,386

566

10,578

10,251

327

EBITDA

(12,039

)

371

(12,410

)

71,709

18,680

53,029

Adjustments:
Other (income) expense, net

(277

)

(190

)

(87

)

(797

)

(446

)

(351

)

Restricted stock compensation expense

1,646

713

933

5,082

2,093

2,989

Change in fair value of preferred stock derivative liability

(1,429

)

4,207

(5,636

)

636

13,220

(12,584

)

Change in fair value of convertible senior notes

(76

)

76

16,419

(16,419

)

Employee Retention Credit/gov’t employment support

(249

)

(1,900

)

1,651

Gain on loan forgiveness

(6,206

)

6,206

Loss on debt extinguishment

7,351

(7,351

)

Adjusted EBITDA

$

(12,099

)

$

5,025

$

(17,124

)

$

76,381

$

49,211

$

27,170

Adjusted EBITDA/Net sales %

(9.2

)%

2.7

%

-1190 bps

9.6

%

7.9

%

170 bps

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2022

2021

Δ ($)

2022

2021

Δ ($)

(In thousands, except

per share data)

(In thousands, except

per share data)

Adjusted net income (loss) attributable to common stockholders
Net income (loss) attributable to common stockholders

$

38,896

$

(3,513

)

$

42,409

$

91,286

$

(7,342

)

$

98,628

Restricted stock compensation expense

1,646

713

933

5,082

2,093

2,989

Change in fair value of preferred stock derivative liability

(1,429

)

4,207

(5,636

)

636

13,220

(12,584

)

Change in fair value of convertible senior notes

(76

)

76

16,419

(16,419

)

Loss on debt extinguishment

7,351

(7,351

)

Gain on loan forgiveness

(6,206

)

6,206

Employee Retention Credit/gov’t employment support

(249

)

(1,900

)

1,651

2021 BSP Term Loan prepayment penalty

525

525

Valuation allowance release

(52,644

)

(52,644

)

(52,644

)

(52,644

)

Tax impact of additional charges

(511

)

(511

)

(1,208

)

(1,208

)

Adjusted net income (loss) attributable to common stockholders

$

(14,042

)

$

1,331

$

(15,373

)

$

43,428

$

23,635

$

19,793

Adjusted earnings (loss) per share – basic

$

(1.44

)

$

0.14

$

(1.58

)

$

4.50

$

3.15

$

1.35

Shares used in adjusted earnings (loss) per share – basic

9,732

9,511

221

9,651

7,498

2,153

Adjusted earnings (loss) per share – diluted

$

(1.44

)

$

0.14

$

(1.58

)

$

4.28

$

2.59

$

1.69

Shares used in adjusted earnings (loss) per share – diluted

9,732

9,762

(30

)

10,155

9,365

790

JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region
(In thousands) QTD Q4 (In thousands) FY 2022
Divisions

2022

2021

2020

% Change

2022 v 2021

% Change

2021 v 2020

Divisions

2022

2021

2020

% Change

2022 v 2021

% Change

2021 v 2020

Toys/Consumer Products

$117,727

$179,152

$121,034

-34.3%

48.0%

Toys/Consumer Products

$647,317

$513,517

$427,122

26.1%

20.2%

Dolls, Role-Play/Dress Up

68,937

116,877

72,970

-41.0%

60.2%

Dolls, Role-Play/Dress Up

423,581

323,360

275,154

31.0%

17.5%

Action Play & Collectibles

38,909

41,164

26,609

-5.5%

54.7%

Action Play & Collectibles

173,529

114,778

80,560

51.2%

42.5%

Outdoor/Seasonal Toys

9,881

21,111

21,455

-53.2%

-1.6%

Outdoor/Seasonal Toys

50,207

75,379

71,408

-33.4%

5.6%

Costumes

14,159

8,812

7,233

60.7%

21.8%

Costumes

148,870

107,599

88,750

38.4%

21.2%

Total

$131,886

$187,964

$128,267

-29.8%

46.5%

Total

$796,187

$621,116

$515,872

28.2%

20.4%

(In thousands) QTD Q4 (In thousands) FY 2022
Regions

2022

2021

2020

% Change

2022 v 2021

% Change

2021 v 2020

Regions

2022

2021

2020

% Change

2022 v 2021

% Change

2021 v 2020

United States

$100,907

$148,876

$100,224

-32.2%

48.5%

United States

$644,295

$512,193

$421,222

25.8%

21.6%

Europe

19,437

22,322

17,461

-12.9%

27.8%

Europe

85,348

60,425

51,885

41.2%

16.5%

Canada

4,795

5,596

3,931

-14.3%

42.4%

Canada

26,515

17,999

18,486

47.3%

-2.6%

Latin America

2,626

4,483

1,148

-41.4%

290.5%

Latin America

18,338

12,606

7,734

45.5%

63.0%

Asia

1,698

3,018

2,309

-43.7%

30.7%

Asia

10,431

9,232

8,285

13.0%

11.4%

Australia & New Zealand

1,822

2,496

1,526

-27.0%

63.6%

Australia & New Zealand

8,836

6,423

5,795

37.6%

10.8%

Middle East & Africa

601

1,173

1,668

-48.8%

-29.7%

Middle East & Africa

2,424

2,238

2,465

8.3%

-9.2%

Total

$131,886

$187,964

$128,267

-29.8%

46.5%

Total

$796,187

$621,116

$515,872

28.2%

20.4%

(In thousands) QTD Q4 (In thousands) FY 2022
Regions

2022

2021

2020

% Change

2022 v 2021

% Change

2021 v 2020

Regions

2022

2021

2020

% Change

2022 v 2021

% Change

2021 v 2020

North America

$105,702

$154,472

$104,155

-31.6%

48.3%

North America

$670,810

$530,192

$439,708

26.5%

20.6%

International

26,184

33,492

24,112

-21.8%

38.9%

International

125,377

90,924

76,164

37.9%

19.4%

Total

$131,886

$187,964

$128,267

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