JAKKS Pacific Reports Second Quarter 2021 Financial Results

SANTA MONICA, Calif.–()–JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the second quarter ended June 30, 2021.

Second Quarter 2021 Overview:

  • Net sales were $112.4 million, up 43% compared to $78.8 million last year, and up 18% compared to $95.2 million in 2019
  • Gross margin of 28.4%, up 710 basis points vs. Q2 2020
  • Highest Q2 gross margin percentage since 2016
  • Refinanced long-term debt to 2027 maturity, lower leverage and a 300-basis point improvement in borrowing cost
  • Accelerated maturity of convertible debt to September 2021, $2.9 million currently outstanding as of July 27, 2021
  • Net loss attributable to common stockholders of $15.4 million or $2.48 per share, compared to a net loss attributable to common stockholders of $23.6 million or $7.70 per share in Q2 2020
  • Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $2.3 million or $0.38 per share, compared to an adjusted net loss attributable to common stockholders of $13.4 million or $4.38 per share in Q2 2020
  • Adjusted EBITDA (a non-GAAP measure) was $5.0 million, compared to negative $4.6 million in the second quarter of 2020
  • Trailing twelve month adjusted EBITDA of $49.1 million (8.7% of net sales) up 69% from $29.0 million (5.0% of net sales) in the trailing twelve months ended June 2020

Management Commentary

“I couldn’t be prouder of our organization’s execution in the past quarter,” said Stephen Berman, CEO of JAKKS Pacific. “It has been well publicized within our industry and others the challenges being faced with the supply-chain and logistics, stretching from Asia to the U.S. and Europe. Nonetheless, our teams worked together across offices to deliver product to our customers as well as build up our domestic inventory in preparation for the second half of the year. The focus of the organization as it continues to navigate the pandemic is extremely gratifying and a testament to our agility as a hands-on, customer-focused company.

“From a sales perspective, we saw excellent results across our Toys/Consumer Products and our Costumes businesses, both in North America and Internationally. Strong consumer demand continues to fuel our Toy business and we anticipate strong results from several programs we are initiating for this Holiday season with our largest customers. In addition, we are on track for what we anticipate will be a great Halloween season with a wide range of new introductions including Jurassic World®, Minions®, Ghostbusters® and The Paw Patrol Movie™.”

Second Quarter 2021 Results

Net sales for the second quarter of 2021 were $112.4 million, up 43% versus $78.8 million last year. The Toys/Consumer Products segment sales were up 45% globally and sales of Disguise costumes were up 37% compared to last year.

Year-to-date Toys/Consumer Products sales were up 36% compared to 2020 and 28% compared to 2019. Year-to-date the Costumes segment was up 31% compared to 2020 and down 13% compared to 2019 which featured a more robust entertainment slate.

Cash and Cash Equivalents

The Company’s cash and cash equivalents (including restricted cash) totaled $38.3 million as of June 30, 2021 compared to $52.7 million as of June 30, 2020, and $92.7 million as of December 31, 2020.

Debt Refinancing

During the quarter, the Company refinanced its long-term debt due in 2023 into a new term loan maturing in 2027. The Company used a portion of its cash to lower its level of long-term debt, in addition to lowering its interest rate from 10.5% to 7.5% as part of the transaction. The payoff of the previous term loan accelerated the maturity of the Company’s unsecured senior convertible notes, such that they now mature in September 2021. As of July 27, 2021, $2.9 million in notes remain, the balance having been converted into common stock. Also as of July 27, 2021, the Company has 9.4 million common shares outstanding.

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 will webcast its second quarter earnings call at 5:00 p.m. Eastern Time/2:00 p.m. Pacific Time today. To listen to the live webcast and access the accompanying presentation slides, go to www.jakks.com/investors and click on the earnings website link under the Presentations tab at least 20 minutes prior to register, download and install any necessary audio software.

A replay of the call will be available on JAKKS’ website approximately two hours following completion of the call through August 4, 2021 ending at 8:00 p.m. Eastern Time/5:00 p.m. Pacific Time. The playback can be accessed by calling (855) 859-2056 or (404) 537-3406 for international callers, with passcode “6568680” for both playback numbers.

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®, Kitten Catfe™, 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

(In thousands)

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

June 30,

 

December 31,

 

 

2021

 

2020

 

2020

ASSETS
 
Current assets:
Cash and cash equivalents

$

37,511

 

$

48,133

 

$

87,953

 

Restricted cash

 

830

 

 

4,555

 

 

4,740

 

Accounts receivable, net

 

107,898

 

 

69,003

 

 

102,254

 

Inventory

 

60,580

 

 

57,681

 

 

38,642

 

Prepaid expenses and other assets

 

32,495

 

 

28,448

 

 

17,239

 

Total current assets

 

239,314

 

 

207,820

 

 

250,828

 

 
Property and equipment

 

118,804

 

 

112,977

 

 

114,045

 

Less accumulated depreciation and amortization

 

104,147

 

 

95,998

 

 

100,534

 

Property and equipment, net

 

14,657

 

 

16,979

 

 

13,511

 

 
Operating lease right-of-use assets, net

 

20,688

 

 

27,644

 

 

24,393

 

Goodwill

 

35,083

 

 

35,083

 

 

35,083

 

Intangibles and other assets, net

 

5,389

 

 

12,894

 

 

5,554

 

Total assets

$

315,131

 

$

300,420

 

$

329,369

 

 
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
Current liabilities:
Accounts payable and accrued expenses

$

106,382

 

$

78,295

 

$

79,799

 

Reserve for sales returns and allowances

 

42,282

 

 

32,312

 

 

42,108

 

Income taxes payable

 

703

 

 

502

 

 

484

 

Short term operating lease liabilities

 

10,481

 

 

9,632

 

 

9,925

 

Short term debt, net

 

33,596

 

 

1,772

 

 

5,950

 

Total current liabilities

 

193,444

 

 

122,513

 

 

138,266

 

 
Long term operating lease liabilities

 

12,276

 

 

20,743

 

 

16,883

 

Debt, non-current portion, net

 

95,735

 

 

174,164

 

 

150,410

 

Other liabilities

 

16,976

 

 

3,333

 

 

8,062

 

Income taxes payable

 

215

 

 

1,491

 

 

947

 

Deferred tax liability, net

 

123

 

 

226

 

 

123

 

Total liabilities

 

318,769

 

 

322,470

 

 

314,691

 

 
Preferred stock

 

2,397

 

 

1,102

 

 

1,740

 

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

 

7

 

 

5

 

 

6

 

Additional paid-in capital

 

241,405

 

 

210,152

 

 

221,590

 

Accumulated deficit

 

(236,593

)

 

(218,463

)

 

(197,423

)

Accumulated other comprehensive loss

 

(12,124

)

 

(15,975

)

 

(12,446

)

Total JAKKS Pacific, Inc. stockholders’ equity (deficit)

 

(7,305

)

 

(24,281

)

 

11,727

 

Non-controlling interests

 

1,270

 

 

1,129

 

 

1,211

 

Total stockholders’ equity (deficit)

 

(6,035

)

 

(23,152

)

 

12,938

 

Total liabilities, preferred stock and stockholders’ equity (deficit)

$

315,131

 

$

300,420

 

$

329,369

 

 

JAKKS Pacific, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2021

 

2020

 

2021

 

2020

 

 

(In thousands, except per share data)

 

(In thousands, except per share data)

 
Net sales

$

112,352

 

$

78,758

 

$

196,195

 

$

145,315

 

Less cost of sales
Cost of goods

 

61,489

 

 

46,309

 

 

105,538

 

 

84,013

 

Royalty expense

 

16,784

 

 

13,885

 

 

29,295

 

 

25,360

 

Amortization of tools and molds

 

2,182

 

 

1,794

 

 

3,371

 

 

2,822

 

Cost of sales

 

80,455

 

 

61,988

 

 

138,204

 

 

112,195

 

Gross profit

 

31,897

 

 

16,770

 

 

57,991

 

 

33,120

 

Direct selling expenses

 

6,286

 

 

3,908

 

 

13,088

 

 

12,410

 

General and administrative expenses

 

23,193

 

 

19,971

 

 

44,604

 

 

42,951

 

Depreciation and amortization

 

597

 

 

785

 

 

1,201

 

 

1,639

 

Restructuring charge

 

 

 

1,631

 

 

 

 

1,631

 

Pandemic related charges

 

 

 

221

 

 

 

 

221

 

Income (loss) from operations

 

1,821

 

 

(9,746

)

 

(902

)

 

(25,732

)

Other income (expense):
Income from joint ventures

 

 

 

 

 

 

 

2

 

Other income (expense), net

 

72

 

 

16

 

 

127

 

 

54

 

Change in fair value of convertible senior notes

 

(3,797

)

 

(7,727

)

 

(12,844

)

 

(52

)

Change in fair value of preferred stock derivative liability

 

(1,539

)

 

1

 

 

(8,914

)

 

2,083

 

Loss on debt extinguishment

 

(7,351

)

 

 

 

(7,351

)

 

 

Interest income

 

4

 

 

3

 

 

6

 

 

17

 

Interest expense

 

(4,370

)

 

(5,543

)

 

(9,245

)

 

(11,090

)

Loss before provision for (benefit from) income taxes

 

(15,160

)

 

(22,996

)

 

(39,123

)

 

(34,718

)

Provision for (benefit from) income taxes

 

(100

)

 

272

 

 

(12

)

 

548

 

Net loss

 

(15,060

)

 

(23,268

)

 

(39,111

)

 

(35,266

)

Net income attributable to non-controlling interests

 

24

 

 

8

 

 

59

 

 

48

 

Net loss attributable to JAKKS Pacific, Inc.

$

(15,084

)

$

(23,276

)

$

(39,170

)

$

(35,314

)

Net loss attributable to common stockholders

$

(15,415

)

$

(23,588

)

$

(39,827

)

$

(35,933

)

Loss per share – basic and diluted

$

(2.48

)

$

(7.70

)

$

(6.86

)

$

(11.81

)

Shares used in loss per share – basic and diluted

 

6,220

 

 

3,064

 

 

5,802

 

 

3,043

 

 

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,

2021

 

2020

 

2021

 

2020

(In thousands, except per share data)

 

(In thousands, except per share data)

EBITDA and Adjusted EBITDA
Net loss

$

(15,060

)

$

(23,268

)

$

(39,111

)

$

(35,266

)

Interest expense

 

4,370

 

 

5,543

 

 

9,245

 

 

11,090

 

Interest income

 

(4

)

 

(3

)

 

(6

)

 

(17

)

Provision for (benefit from) income taxes

 

(100

)

 

272

 

 

(12

)

 

548

 

Depreciation and amortization

 

2,779

 

 

2,579

 

 

4,572

 

 

4,461

 

EBITDA

 

(8,015

)

 

(14,877

)

 

(25,312

)

 

(19,184

)

Adjustments:
Income from joint ventures

 

 

 

 

 

 

 

(2

)

Other income (expense), net

 

(72

)

 

(16

)

 

(127

)

 

(54

)

Restricted stock compensation expense

 

383

 

 

714

 

 

765

 

 

966

 

Change in fair value of convertible senior notes

 

3,797

 

 

7,727

 

 

12,844

 

 

52

 

Change in fair value of preferred stock derivative liability

 

1,539

 

 

(1

)

 

8,914

 

 

(2,083

)

Employee retention credit

 

 

 

 

 

(1,900

)

 

 

Loss on debt extinguishment

 

7,351

 

 

 

 

7,351

 

 

 

Restructuring charge

 

 

 

1,631

 

 

 

 

1,631

 

Pandemic related charges

 

 

 

221

 

 

 

 

221

 

Adjusted EBITDA

$

4,983

 

$

(4,601

)

$

2,535

 

$

(18,453

)

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

$

(15,415

)

$

(23,588

)

$

(39,827

)

$

(35,933

)

Restricted stock compensation expense

 

383

 

 

714

 

 

765

 

 

966

 

Change in fair value of convertible senior notes

 

3,797

 

 

7,727

 

 

12,844

 

 

52

 

Change in fair value of preferred stock derivative liability

 

1,539

 

 

(1

)

 

8,914

 

 

(2,083

)

Employee retention credit

 

 

 

 

 

(1,900

)

 

 

Loss on debt extinguishment

 

7,351

 

 

 

 

7,351

 

 

 

Restructuring charge

 

 

 

1,631

 

 

 

 

1,631

 

Pandemic related charges

 

 

 

221

 

 

 

 

221

 

Tax impact of additional charges

 

 

 

(117

)

 

 

 

(117

)

Adjusted net loss attributable to common stockholders

$

(2,345

)

$

(13,413

)

$

(11,853

)

$

(35,263

)

Adjusted loss per share – basic and diluted

$

(0.38

)

$

(4.38

)

$

(2.04

)

$

(11.59

)

Shares used in adjusted loss per share – basic and diluted

 

6,220

 

 

3,064

 

 

5,802

 

 

3,043

 

 

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