JAKKS Pacific Reports Second Quarter 2022 Financial Results

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%
- 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	%

View source version on businesswire.com: https://www.businesswire.com/news/home/20220727005977/en/

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JAKKS Pacific Reports Second Quarter 2022 Financial Results