JAKKS Pacific Reports First Quarter 2024 Financial Results

Preferred Share Retirement Completed

SANTA MONICA, Calif., April 24, 2024 (GLOBE NEWSWIRE) -- JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the first quarter ended March 31, 2024.

First Quarter 2024

  • Net sales were $90.1 million, a year-over-year decrease of $17.4 million or 16%, driven by a lack of new film releases vs. prior year
  • Gross margin of 23.4%, down 580 basis points vs. Q1 2023, led by higher inventory obsolescence expense, and retailer markdowns
  • Gross profit of $21.1 million, down $10.4 million compared to $31.4 million in Q1 2023
  • Operating loss of $21.3 million, compared to an operating loss of $4.4 million in Q1 2023
  • Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $11.3 million (or $1.09 per diluted share), compared to an adjusted net loss attributable to common stockholders of $4.0 million (or $0.40 per diluted share) in Q1 2023
  • Adjusted EBITDA (a non-GAAP measure) of $(17.2) million vs. $(1.1) million in Q1 2023

Management Commentary
“The beginning of the year at JAKKS is always our smallest shipping quarter and is focused on taking stock of the just concluded holiday season, solidifying our full-year plans and development work towards longer-term opportunities,” said Stephen Berman, Chairman and CEO of JAKKS Pacific, “and the quarter just concluded was very active on all three of those fronts. For the past two years we have had the added benefit of a robust film slate layering on top of our strong core business. Last year, we were shipping products to support what proved to be two of the year’s largest grossing films, The Super Mario Bros. Movie and The Little Mermaid. Without that new news in Spring 2024, from a shipping and retail sales perspective, we experienced lower levels of both as anticipated. We also continued to see weakening demand for products from a Q4 2023 film release. We supported our retail partners in funding markdowns to move that stock as well as addressing cancelled reorders for which we had built inventory. Unfortunately, these types of situations happen in our business, and we have found it is best to address them head-on and move on focusing on the fall season where the majority of the business is done. We are very excited about what is ahead – inclusive of our supporting two of the bigger film releases planned for Q4 of this year, the traction we are getting on some new 2025 initiatives as well as our relentless efforts to expand our international network.”

“Separately, we took the opportunity to retire our Preferred Shares at a negotiated discount to the contractual valuation. These shares were the last balance sheet artifact from our 2019 restructuring. For the first time in many years, there are no lenders or other parties restricting the common stockholders’ claim over the entire enterprise and its financial results. We consider this a fantastic starting point as we move forward with no competing interests to the goal of maximizing long-term shareholder value.”

First Quarter 2023 Results
Net sales for the first quarter of 2024 were $90.1 million, down 16% versus $107.5 million last year. The Toys/Consumer Products segment sales were down 15% globally and sales of Costumes were down 25% compared to last year.

Balance Sheet Highlights
The Company’s cash and cash equivalents (including restricted cash) totaled $35.5 million as of March 31, 2024, compared to $38.3 million at the same time last year, and to $72.6 million as of December 31, 2023.

Total debt was zero, compared to $29.4 million as of March 31, 2023. Total debt included the amount outstanding under the Company's term loan, net of unamortized discounts and issuance costs.

Inventory was $46.3 million, compared to $64.0 million in total inventory as of March 31, 2023, and $52.6 million as of December 31, 2023.

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 and Adjusted EPS which are non-GAAP metrics that exclude distinct 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 April 24, 2024. 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 (1Q24 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: AirTitans®, Disguise®, Fly Wheels®, JAKKS Wild Games®, Moose Mountain®, Maui®, Perfectly Cute®, ReDo® Skateboard Co., Sky Ball®, SportsZone™, Xtreme Power Dozer®, WeeeDo®, and Wild Manes™ as well as a wide range of entertainment-inspired products featuring premier licensed properties. Through our products and charitable donations, JAKKS is helping to positively impact children's lives. Visit us at www.jakks.com and follow us on Instagram (@jakkspacific.toys), Twitter (@jakkstoys) and Facebook (@jakkspacific.toys).

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.

JAKKS Pacific Investor Relations
(424) 268-9567
Lucas Natalini

JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
     March 31, December 31,
      2024   2023   2023 
     (In thousands)
Current assets:      
 Cash and cash equivalents $35,290  $38,103  $72,350 
 Restricted cash  202   198   204 
 Accounts receivable, net  79,875   85,171   123,797 
 Inventory  46,341   63,988   52,647 
 Prepaid expenses and other assets  19,087   12,849   6,374 
  Total current assets  180,795   200,309   255,372 
Property and equipment  138,066   130,668   135,956 
Less accumulated depreciation and amortization  122,694   114,499   121,357 
 Property and equipment, net  15,372   16,169   14,599 
Operating lease right-of-use assets, net  22,965   17,634   23,592 
Deferred income tax assets, net  68,142   57,804   68,143 
Goodwill  34,997   35,083   35,083 
Intangibles and other assets, net  2,063   2,387   2,162 
  Total assets $324,334  $329,386  $398,951 
Liabilities, Preferred Stock and Stockholders' Equity   
Current liabilities:      
 Accounts payable $31,683  $27,714  $42,177 
 Accounts payable - Meisheng (related party)  8,689   8,024   12,259 
 Accrued expenses  36,994   27,006   45,102 
 Reserve for sales returns and allowances  27,859   41,064   38,531 
 Income taxes payable  -   6,241   3,785 
 Short term operating lease liabilities  8,237   10,009   7,380 
 Short term debt, net  -   2,475   - 
  Total current liabilities  113,462   122,533   149,234 
Long term operating lease liabilities  15,961   8,095   16,666 
Accrued expenses - long term  3,183   -   3,746 
Debt, non-current portion, net  -   26,969   - 
Preferred stock derivative liability  -   21,771   29,947 
Income taxes payable  3,295   2,941   3,245 
  Total liabilities  135,901   182,309   202,838 
Preferred stock accrued dividends  -   4,857   5,992 
Stockholders' equity:      
 Common stock, $.001 par value  11   10   10 
 Additional paid-in capital  292,231   275,695   278,642 
 Accumulated deficit  (88,117)  (117,331)  (73,612)
 Accumulated other comprehensive loss  (16,192)  (17,150)  (15,627)
  Total JAKKS Pacific, Inc. stockholders' equity  187,933   141,224   189,413 
 Non-controlling interests  500   996   708 
  Total stockholders' equity  188,433   142,220   190,121 
  Total liabilities, preferred stock and stockholders' equity $324,334  $329,386  $398,951 
Supplemental Balance Sheet and Cash Flow Data (Unaudited)  
       March 31,
Key Balance Sheet Data:    2024   2023 
Accounts receivable days sales outstanding (DSO)    81   71 
Inventory turnover (DSI)    61   76 
       Three Months Ended March 31,
Condensed Cash Flow Data:    2024   2023 
Cash flows used in operating activities   $(7,938) $(4,116)
Cash flows used in investing activities    (3,634)  (3,472)
Cash flows used in financing activities and other    (25,490)  (39,601)
Increase in cash, cash equivalents and restricted cash   $(37,062) $(47,189)
Capital expenditures   $(2,228) $(3,490)

  JAKKS Pacific, Inc. and Subsidiaries
  Condensed Consolidated Statements of Operations (Unaudited)
   Three Months Ended March 31,  
    2024   2023  Δ (%)
   (In thousands, except per share data)  
Net sales$90,076  $107,484  (16)% 
Less: Cost of sales     
 Cost of goods 53,821   58,304  (8)
 Royalty expense 13,776   16,654  (17)
 Amortization of tools and molds 1,427   1,089  31 
 Cost of sales 69,024   76,047  (9)
  Gross profit 21,052   31,437  (33)
Direct selling expenses 8,097   7,741  5 
General and administrative expenses 34,192   27,994  22 
Depreciation and amortization 87   102  (15)
 Selling, general and administrative expenses 42,376   35,837  18 
  Loss from operations (21,324)  (4,400) 385 
Other income (expense):     
 Other income (expense), net 138   438  (68)
 Change in fair value of preferred stock derivative liability -   147  nm 
 Interest income 376   117  221 
 Interest expense (143)  (3,003) (95)
Loss before benefit from income taxes (20,953)  (6,701) 213 
Benefit from income taxes (6,728)  (1,383) 386 
Net loss (14,225)  (5,318) 167 
Net income (loss) attributable to non-controlling interests 280   (5) nm 
Net loss attributable to JAKKS Pacific, Inc.$(14,505) $(5,313) 173
Net loss attributable to common stockholders$(13,175) $(5,680) 132
 Loss per share - basic & diluted$(1.27) $(0.58)  
 Shares used in loss per share - basic & diluted 10,354   9,871   
   Three Months Ended March 31,  
    2024   2023  Δ bps
Net sales 100.0%    100.0%   - 
Less: Cost of sales     
 Cost of goods 59.7   54.3  (540)
 Royalty expense 15.3   15.5  20 
 Amortization of tools and molds 1.6   1.0  (60)
 Cost of sales 76.6   70.8  (580)
  Gross profit 23.4   29.2  (580)
Direct selling expenses 9.0   7.2  (180)
General and administrative expenses 38.0   26.0  (1,200)
Depreciation and amortization 0.1   0.1  - 
 Selling, general and administrative expenses 47.1   33.3  (1,380)
  Loss from operations (23.7)  (4.1) (1,960)
Other income (expense):     
 Other income (expense), net 0.2   0.4   
 Change in fair value of preferred stock derivative liability -   0.1   
 Interest income 0.4   0.1   
 Interest expense (0.2)  (2.8)  
Loss before benefit from income taxes (23.3)  (6.3)  
Benefit from income taxes (7.5)  (1.3)  
Net loss (15.8)  (5.0)  
Net income (loss) attributable to non-controlling interests 0.3   -   
Net loss attributable to JAKKS Pacific, Inc. (16.1)%   (5.0)%   
Net loss attributable to common stockholders (14.6)%   (5.3)%   

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 March 31,  
   2024   2023  Δ ($)
  (In thousands)  
EBITDA and Adjusted EBITDA      
Net loss $(14,225) $(5,318) $(8,907)
  Interest expense  143   3,003   (2,860)
  Interest income  (376)  (117)  (259)
  Provision for income taxes  (6,728)  (1,383)  (5,345)
  Depreciation and amortization  1,514   1,191   323 
EBITDA  (19,672)  (2,624)  (17,048)
Other (income) expense, net  (138)  (438)  300 
Restricted stock compensation expense  2,575   2,089   486 
Change in fair value of preferred stock derivative liability  -   (147)  147 
Adjusted EBITDA $(17,235) $(1,120) $(16,115)
Adjusted EBITDA/Net sales %  (19.1)%  (1.0)% -1810 bps
  Trailing Twelve Months Ended March 31,  
   2024   2023  Δ ($)
  (In thousands)  
TTM EBITDA and TTM Adjusted EBITDA      
TTM net income $29,206  $89,674  $(60,468)
  Interest expense  3,591   11,984   (8,393)
  Interest income  (1,603)  (241)  (1,362)
  Provision for (benefit from) income taxes  1,488   (42,808)  44,296 
  Depreciation and amortization  10,659   9,957   702 
TTM EBITDA  43,341   68,566   (25,225)
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)  276   -   276 
Loss from joint ventures (Meisheng - 49%)  289   -   289 
Other (income) expense, net  (263)  (1,149)  886 
Restricted stock compensation expense  8,513   6,301   2,212 
Change in fair value of preferred stock derivative liability  8,176   (156)  8,332 
Employee Retention Credit/gov't employment support  -   (249)  249 
Molds and tooling capitalization  (1,751)  -   (1,751)
Loss on debt extinguishment  1,023   -   1,023 
TTM Adjusted EBITDA $59,604  $73,313  $(13,709)
TTM Adjusted EBITDA/TTM Net sales %  8.6  9.4 -80 bps
  Three Months Ended March 31,  
   2024   2023  Δ ($)
  (In thousands, except per share data)  
Adjusted net loss attributable to common stockholders      
Net loss attributable to common stockholders $(13,175) $(5,680) $(7,495)
Restricted stock compensation expense  2,575   2,089   486 
Change in fair value of preferred stock derivative liability  -   (147)  147 
2021 BSP Term Loan prepayment penalty  -   150   (150)
Tax impact of additional charges  (657)  (368)  (289)
Adjusted net loss attributable to common stockholders $(11,257) $(3,956) $(7,301)
Adjusted loss per share - basic & diluted $(1.09) $(0.40) $(0.69)
Shares used in adjusted loss per share - basic & diluted  10,354   9,871   483 

JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region
(In thousands)QTD Q1
Divisions 2024 2023 2022% Change 2024 v 2023 % Change 2023 v 2022
Toys/Consumer Products$82,910$97,893$111,123-15.3%-11.9%
Dolls, Role-Play/Dress Up 40,574 47,843 62,006-15.2%-22.8%
Action Play & Collectibles 33,008 37,846 31,698-12.8%19.4%
Outdoor/Seasonal Toys 9,328 12,204 17,419-23.6%-29.9%
Total$90,076$ 107,484$120,881-16.2%-11.1%
(In thousands)QTD Q1
Regions 2024 2023 2022% Change 2024 v 2023 % Change 2023 v 2022
United States$70,430$80,443$97,050-12.4%-17.1%
Europe 5,735 10,162 13,389-43.6%-24.1%
Latin America 7,996 9,204 2,385-13.1%285.9%
Canada 3,370 4,054 3,379-16.9%20.0%
Asia 965 1,380 2,076-30.1%-33.5%
Australia & New Zealand 1,346 1,608 1,491-16.3%7.8%
Middle East & Africa 234 633 1,111-63.0%-43.0%
(In thousands)QTD Q1
Regions 2024 2023 2022% Change 2024 v 2023 % Change 2023 v 2022
North America$73,800$84,497$100,429-12.7%-15.9%
International 16,276 22,987 20,452-29.2%12.4%