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JAKKS Pacific Reports Second Quarter 2022 Financial Results image

JAKKS Pacific Reports Second Quarter 2022 Financial Results

Highest Q2 Net Sales and Operating Income in Company History

Santa Monica, CA — JAKKS Pacific, Inc.  reported financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Overview

  • Net sales were $220.4 million, a year-over-year increase of 96.2%
    • Toys/Consumer Products were $148.9 million, a year-over-year increase of 82.6%
    • Costumes were $71.6 million, a year-over-year increase of 132.2%
  • Gross margin of 27.6%, down 77 basis points vs. Q2 2021
  • Operating income of $23.7 million (10.7% of net sales) vs. $1.8 million (1.6% of net sales) in Q2 2021
  • Net income attributable to common stockholders of $26.2 million or $2.61 per diluted share, compared to a net loss attributable to common stockholders of $15.4 million or $2.48 per share in Q2 2021
  • Adjusted net income attributable to common stockholders (a non-GAAP measure) of $21.1 million or $2.10 per diluted share, compared to an adjusted net loss attributable to common stockholders of $2.3 million or $0.38 per share in Q2 2021
  • Adjusted EBITDA (a non-GAAP measure) of $27.1 million, vs. $5.0 million in Q2 2021

Management Commentary

“Our past quarter’s results are extremely gratifying,” said Stephen Berman, CEO of JAKKS Pacific. “The teams collaborated and executed at the highest level – chasing exceptional demand for our product, and relentlessly engaging with our manufacturers, customers and vendors to set everyone up for a great back-part of the year. We’re excited to continue to delight our consumers with a tremendous offering across our toy, consumer product and Halloween ranges, both on-shelf and on-line, and in the US and internationally.

“During the quarter we continued to see solid consumer demand across most of our major toy businesses, especially with Disney’s Encanto™ and Sega’s Sonic the Hedgehog®. Our Costume business shipped over $71 million, the highest Q2 shipment level since Disguise joined JAKKS in 2008. Despite the continuation of supply-chain cost pressures, we nonetheless recorded our first profitable second quarter in 10 years. We have also accelerated our importation of product to support the second half of the year and mitigate our traffic at the ports during the peak season.

“We’re pleased to share that we utilized some of the proceeds of our recent results to make an optional $10 million pay-down against our long-term debt, mitigating some of the impact rising interest rates have on our cash interest expense.”

Second Quarter 2022 Results

Net sales for the second quarter of 2022 were $220.4 million up 96% versus $112.4 million last year. The Toys/Consumer Products segment sales were up 83% globally (92% North America; 38% International) and sales of Disguise costumes were up 132% compared to last year (>100% North America; >250% International).

Year-to-date Toys/Consumer Products sales were up 61% compared to 2021. Year-to-date the Costumes segment was up 134% compared to 2021.

Total shipments for the first-half of the year exceeded $300 million for the first time in the company’s history.

Trailing twelve months net income of $55.5 million, compared to a net loss of $18.0 million in the twelve months ended June 30, 2021. Trailing twelve months adjusted EBITDA of $75.7 million (9.9% of net sales) up 54% from $49.1 million (8.7% of net sales) in the trailing twelve months ended June 30, 2021.

Balance Sheet Highlights

The Company’s cash and cash equivalents (including restricted cash) totaled $62.3 million as of June 30, 2022 compared to $38.3 million as of June 30, 2021, and $45.3 million as of December 31, 2021.

Total debt was $84.9 million, compared to $129.3 million as of June 30, 2021, and $95.5 million as of December 31, 2021. Total debt includes the amount outstanding under the Company’s term loan, net of unamortized discounts.

Working capital (not including cash) totaled $54.4 million, up from $7.5 million a year ago. Inventory was a meaningful driver of the increase, totaling $123.7 million, of which $36.3 million was in-transit to our distribution centers, compared to $60.6 million in total inventory as of June 30, 2021.

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, Inc. invites analysts, investors and media to listen to the teleconference scheduled for 5:00 p.m. ET / 2:00 p.m. PT on July 27, 2022. A live webcast of the call will be available on the “Investor Relations” page of the Company’s website at www.jakks.com/investors. To access the call by phone, please go to this link (registration link), and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time. A replay of the webcast will also be available for a limited time at (www.jakks.com/investors).

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: Creepy Crawlers®, Eyeclops®, Fly Wheel®, Perfectly Cute®, ReDo Skateboard Co.®, WeeeDo™, Xtreme Power®, Disguise®, Maui®, Moose Mountain®, 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).

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 the Recapitalization transaction or 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)
 
                   
               
        June 30,   December 31,  
          2022       2021       2021    
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 62,283   $ 37,511   $ 44,521  
Restricted cash       830     811  
Accounts receivable, net   164,020     107,898     147,394  
Inventory   123,666     60,580     83,954  
Prepaid expenses and other assets   14,519     32,495     10,877  
Total current assets   364,488     239,314     287,557  
Property and equipment   128,844     118,804     121,945  
Less accumulated depreciation and amortization   112,601     104,147     108,796  
Property and equipment, net   16,243     14,657     13,149  
Operating lease right-of-use assets, net   24,584     20,688     16,950  
Goodwill   35,083     35,083     35,083  
Intangibles and other assets, net   3,239     5,389     4,308  
Total assets $ 443,637   $ 315,131   $ 357,047  
Liabilities, Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable $ 86,660   $ 49,206   $ 50,237  
Accounts payable – Meisheng (related party)   42,254     19,603     15,894  
Accrued expenses   58,189     37,573     47,071  
Reserve for sales returns and allowances   45,625     42,282     46,285  
Income taxes payable   2,333     703     1,004  
Short term operating lease liabilities   10,239     10,481     10,477  
Short term debt, net   2,475     33,596     2,104  
Total current liabilities   247,775     193,444     173,072  
Long term operating lease liabilities   15,406     12,276     8,039  
Debt, non-current portion, net   82,453     95,735     93,415  
Preferred stock derivative liability   15,898     16,976     21,282  
Income taxes payable   215     215     215  
Deferred income taxes, net   51     123     51  
Total liabilities   361,798     318,769     296,074  
Preferred stock accrued dividends   3,771     2,397     3,074  
Stockholders’ equity:
Common stock, $.001 par value   10     7     10  
Additional paid-in capital   273,625     241,405     272,941  
Accumulated deficit   (180,680 )   (236,593 )   (203,431 )
Accumulated other comprehensive loss   (15,765 )   (12,124 )   (12,952 )
Total JAKKS Pacific, Inc. stockholders’ equity   77,190     (7,305 )   56,568  
Non-controlling interests   878     1,270     1,331  
Total stockholders’ equity   78,068     (6,035 )   57,899  
Total liabilities, preferred stock and stockholders’ equity $ 443,637   $ 315,131   $ 357,047  
Supplemental Balance Sheet and Cash Flow Data (Unaudited)
June 30,
Key Balance Sheet Data:   2022     2021  
Accounts receivable, net days of sales outstanding (DSO)   68     87  
Inventory turnover (DSI)   71     69  
Six Months Ended June 30,
Condensed Cash Flow Data:   2022     2021  
(In thousands)
Cash flows provided by (used in) operating activities $ 36,549   $ (18,531 )
Cash flows used in investing activities   (5,274 )   (3,693 )
Cash flows used in financing activities and other   (14,324 )   (32,128 )
Increase/(decrease) in cash, cash equivalents and restricted cash $ 16,951   $ (54,352 )
Capital expenditures $ (5,276 ) $ (3,725 )
JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
       
               
      Three Months Ended June 30,     Six Months Ended June 30,  
        2022       2021   Δ (%)     2022     2021   Δ (%)
(In thousands, except per share data) (In thousands, except per share data)
Net sales $ 220,422   $ 112,352   96 % $ 341,303   $ 196,195   74 %
Less: Cost of sales
Cost of goods   121,850     61,489   98     193,908     105,538   84  
Royalty expense   35,704     16,784   113     53,394     29,295   82  
Amortization of tools and molds   1,978     2,182   (9 )   3,194     3,371   (5 )
Cost of sales   159,532     80,455   98     250,496     138,204   81  
Gross profit   60,890     31,897   91     90,807     57,991   57  
Direct selling expenses   6,838     6,286   9     11,740     13,088   (10 )
General and administrative expenses   29,514     23,193   27     54,667     44,604   23  
Depreciation and amortization   578     597   (3 )   1,174     1,201   (2 )
Selling, general and administrative expenses   36,930     30,076   23     67,581     58,893   15  
Intangibles impairment   300       nm   300       nm
Income (loss) from operations   23,660     1,821   1,199     22,926     (902 ) nm
Other income (expense):
Other income (expense), net   183     72   154     269     127   112  
Change in fair value of convertible senior notes       (3,797 ) (100 )       (12,844 ) (100 )
Change in fair value of preferred stock derivative liability   6,029     (1,539 ) nm   5,384     (8,914 ) nm
Loss on debt extinguishment       (7,351 ) (100 )       (7,351 ) (100 )
Interest income   6     4   50     9     6   50  
Interest expense   (2,337 )   (4,370 ) (47 )   (4,539 )   (9,245 ) (51 )
Income (loss) before provision for (benefit from) income taxes   27,541     (15,160 ) nm   24,049     (39,123 ) nm
Provision for (benefit from) income taxes   1,334     (100 ) nm   1,751     (12 ) nm
Net income (loss)   26,207     (15,060 ) nm   22,298     (39,111 ) nm
Net income (loss) attributable to non-controlling interests   (353 )   24   nm   (453 )   59   nm
Net income (loss) attributable to JAKKS Pacific, Inc. $ 26,560   $ (15,084 ) nm% $ 22,751   $ (39,170 ) nm%
Net income (loss) attributable to common stockholders $ 26,209   $ (15,415 ) nm% $ 22,054   $ (39,827 ) nm%
Earnings (loss) per share – basic $ 2.73   $ (2.48 ) $ 2.30   $ (6.86 )
Shares used in earnings (loss) per share – basic   9,588     6,220     9,588     5,802  
Earnings (loss) per share – diluted $ 2.61   $ (2.48 ) $ 2.21   $ (6.86 )
Shares used in earnings (loss) per share – diluted   10,037     6,220     9,978     5,802  
Three Months Ended June 30,     Six Months Ended June 30,  
  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   55.3     54.7   (55 )   56.8     53.7   (302 )
Royalty expense   16.2     15.0   (126 )   15.6     15.0   (71 )
Amortization of tools and molds   0.9     1.9   104     1.0     1.7   78  
Cost of sales   72.4     71.6   (77 )   73.4     70.4   (295 )
Gross profit   27.6     28.4   (77 )   26.6     29.6   (295 )
Direct selling expenses   3.1     5.6   249     3.4     6.7   323  
General and administrative expenses   13.4     20.7   725     16.1     22.7   672  
Depreciation and amortization   0.3     0.5   27     0.3     0.6   27  
Selling, general and administrative expenses   16.8     26.8   1,002     19.8     30.0   1,022  
Intangibles impairment   0.1       nm   0.1       nm
Income (loss) from operations   10.7     1.6   911     6.7     (0.4 ) nm
Other income (expense):
Other income (expense), net   0.1     0.1          
Change in fair value of convertible senior notes       (3.4 )       (6.6 )
Change in fair value of preferred stock derivative liability   2.7     (1.4 )   1.6     (4.5 )
Loss on debt extinguishment       (6.5 )       (3.8 )
Interest income                
Interest expense   (1.1 )   (3.9 )   (1.3 )   (4.7 )
Income (loss) before provision for (benefit from) income taxes   12.4     (13.5 )   7.0     (20.0 )
Provision for (benefit from) income taxes   0.6     (0.1 )   0.4      
Net income (loss)   11.8     (13.4 )   6.6     (20.0 )
Net income (loss) attributable to non-controlling interests   (0.2 )       (0.1 )    
Net income (loss) attributable to JAKKS Pacific, Inc.   12.0   %   (13.4 )%   6.7 %   (20.0 )%
Net income (loss) attributable to common stockholders   11.9   %   (13.7 )%   6.5 %   (20.3 )%
 

 

 

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 June 30,         Six Months Ended June 30,  
  2022     2021   Δ ($)         2022     2021   Δ ($)
(In thousands, except per share data) (In thousands, except per share data)
EBITDA and Adjusted EBITDA
Net income (loss) $ 26,207   $ (15,060 ) $ 41,267   $ 22,298   $ (39,111 ) $ 61,409  
Interest expense   2,337     4,370     (2,033 )   4,539     9,245     (4,706 )
Interest income   (6 )   (4 )   (2 )   (9 )   (6 )   (3 )
Provision for (benefit from) income taxes   1,334     (100 )   1,434     1,751     (12 )   1,763  
Depreciation and amortization   2,556     2,779     (223 )   4,368     4,572     (204 )
EBITDA   32,428     (8,015 )   40,443     32,947     (25,312 )   58,259  
Adjustments:
Other (income) expense, net   (183 )   (72 )   (111 )   (269 )   (127 )   (142 )
Restricted stock compensation expense   1,155     383     772     2,025     765     1,260  
Change in fair value of convertible senior notes       3,797     (3,797 )       12,844     (12,844 )
Change in fair value of preferred stock derivative liability   (6,029 )   1,539     (7,568 )   (5,384 )   8,914     (14,298 )
Employee Retention Credit/Gov’t Employment Support   (249 )       (249 )   (249 )   (1,900 )   1,651  
Loss on debt extinguishment       7,351     (7,351 )       7,351     (7,351 )
Adjusted EBITDA $ 27,122   $ 4,983   $ 22,139   $ 29,070   $ 2,535   $ 26,535  
Adjusted EBITDA/Net sales %   12.3 %   4.4 %   787   bps   8.5 %   1.3 %   723   bps
TTM EBITDA and TTM Adjusted EBITDA
TTM Net income (loss) $ 55,521   $ (17,989 ) $ 73,510  
Interest expense   9,398     19,717     (10,319 )
Interest income   (16 )   (11 )   (5 )
Provision for income taxes   1,989     175     1,814  
Depreciation and amortization   10,047     11,047     (1,000 )
TTM EBITDA   76,939     12,939     64,000  
Adjustments:
Other (income) expense, net   (588 )   (374 )   (214 )
Restricted stock compensation expense   3,353     2,102     1,251  
Change in fair value of convertible senior notes   3,575     15,057     (11,482 )
Change in fair value of preferred stock derivative liability   (1,078 )   13,812     (14,890 )
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 )
Pandemic related charges       145     (145 )
TTM Adjusted EBITDA $ 75,746     49,132   $ 26,614   54 %
TTM Adjusted EBITDA/TTM Net sales %   9.9 %   8.7 %   122   bps
Adjusted net income (loss) attributable to common stockholders
Net income (loss) attributable to common stockholders $ 26,209   $ (15,415 ) $ 41,624   $ 22,054   $ (39,827 ) $ 61,881  
Restricted stock compensation expense   1,155     383     772     2,025     765     1,260  
Change in fair value of convertible senior notes       3,797     (3,797 )       12,844     (12,844 )
Change in fair value of preferred stock derivative liability   (6,029 )   1,539     (7,568 )   (5,384 )   8,914     (14,298 )
Employee Retention Credit/Gov’t Employment Support   (249 )       (249 )   (249 )   (1,900 )   1,651  
Loss on debt extinguishment       7,351     (7,351 )       7,351     (7,351 )
Tax impact of additional charges                        
Adjusted net income (loss) attributable to common stockholders $ 21,086   $ (2,345 ) $ 23,431   $ 18,446   $ (11,853 ) $ 30,299  
Adjusted earnings (loss) per share – basic $ 2.20   $ (0.38 ) $ 2.58   $ 1.92   $ (2.04 ) $ 3.96  
Shares used in adjusted earnings (loss) per share – basic   9,588     6,220     3,368     9,588     5,802     3,786  
Adjusted earnings (loss) per share – diluted $ 2.10   $ (0.38 ) $ 2.48   $ 1.85   $ (2.04 ) $ 3.89  
Shares used in adjusted earnings (loss) per share – diluted   10,037     6,220     3,817     9,978     5,802     4,176  
JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region
(In thousands) QTD Q2 (In thousands) YTD Q2
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 $ 148,860 $ 81,538 $ 56,214 82.6 % 45.0 % Toys/Consumer Products $ 259,983 $ 161,413 $ 118,779 61.1 % 35.9 %
Dolls, Role-Play/Dress Up   102,186   49,278   32,821 107.4 % 50.1 % Dolls, Role-Play/Dress Up   164,192   94,433   72,895 73.9 % 29.5 %
Action Play & Collectibles   37,170   19,622   10,699 89.4 % 83.4 % Action Play & Collectibles   68,868   36,027   20,353 91.2 % 77.0 %
Outdoor/Seasonal Toys   9,504   12,638   12,694 -24.8 % -0.4 % Outdoor/Seasonal Toys   26,923   30,953   25,531 -13.0 % 21.2 %
Costumes   71,562   30,814   22,544 132.2 % 36.7 % Costumes   81,320   34,782   26,536 133.8 % 31.1 %
Total $ 220,422 $ 112,352 $ 78,758 96.2 % 42.7 % Total $ 341,303 $ 196,195 $ 145,315 74.0 % 35.0 %
(In thousands) QTD Q2 (In thousands) YTD Q2
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 $ 192,484 $ 95,265 $ 66,777 102.1 % 42.7 % United States $ 289,534 $ 164,181 $ 118,695 76.4 % 38.3 %
Europe   14,447   9,930   5,761 45.5 % 72.4 % Europe   27,836   17,267   13,379 61.2 % 29.1 %
Canada   5,537   2,208   2,684 150.8 % -17.7 % Canada   8,916   4,309   5,032 106.9 % -14.4 %
Latin America   3,823   1,165   1,082 228.2 % 7.7 % Latin America   6,208   3,620   2,082 71.5 % 73.9 %
Asia   2,363   2,164   1,462 9.2 % 48.0 % Asia   4,439   3,579   3,232 24.0 % 10.7 %
Australia & New Zealand   1,582   1,249   802 26.7 % 55.7 % Australia & New Zealand   3,073   2,437   2,333 26.1 % 4.5 %
Middle East & Africa   186   371   190 -49.9 % 95.3 % Middle East & Africa   1,297   802   562 61.7 % 42.7 %
Total $ 220,422 $ 112,352 $ 78,758 96.2 % 42.7 % Total $ 341,303 $ 196,195 $ 145,315 74.0 % 35.0 %
(In thousands) QTD Q2 (In thousands) YTD Q2
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 $ 198,021 $ 97,473 $ 69,461 103.2 % 40.3 % North America $ 298,450 $ 168,490 $ 123,727 77.1 % 36.2 %
International   22,401   14,879   9,297 50.6 % 60.0 % International   42,853   27,705   21,588 54.7 % 28.3 %
Total $ 220,422 $ 112,352 $ 78,758 96.2 % 42.7 % Total $ 341,303 $ 196,195 $ 145,315 74.0 % 35.0 %

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