JAKKS PACIFIC : REPORTS SECOND QUARTER 2022 FINANCIAL RESULTS - Form 8-K

JAKKS PACIFIC REPORTS SECOND QUARTER 2022 FINANCIAL RESULTS

Highest Q2 Net Sales and Operating Income in Company History

SANTA MONICA, Calif., July 27, 2022 - JAKKS Pacific, Inc. (NASDAQ: JAKK) today 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%

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Toys/Consumer Products were $148.9 million, a year-over-year increase of 82.6%

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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 $17.9 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.

CONTACT:

JAKKS Pacific Investor Relations

[phone] Lucas Natalini [e-mail]

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	%