JAKKS Pacific, Inc. [NASDAQ: JAKK] today reported financial
results for the first quarter ended March 31, 2020.
First Quarter 2020 Overview vs. Same Period Last
Year:
- Net sales were $66.6 million, down 6% compared to $70.8 million
reported in the comparable period in 2019, with strong sales of
Disney Frozen 2 products offset by declines in other lines.
- Gross margin was 24.6%, compared to 20.2% in Q1 of last year,
benefiting from improved product margins as a percent of sales,
partially offset by higher royalty costs.
- Net loss attributable to common stockholders was $12.3 million,
or $0.41 per basic and diluted share, including non-cash gains of
$9.8 million attributable to the change in fair value of our
convertible senior notes and preferred stock derivative liability.
This compares to a net loss attributable to common stockholders of
$29.2 million, or $1.24 per basic and diluted share, including $5.3
million in non-cash charges for the change in the fair value of our
convertible senior notes and acquisition-related expenses in the
first quarter of 2019.
- Adjusted EBITDA (a non-GAAP measure) was negative $13.9
million, compared to negative $17.1 million in the first quarter of
2019. See note below on “Use of Non-GAAP Financial
Information.”
- Adjusted net loss attributable to common stockholders (a
non-GAAP measure) was $0.72 per basic and diluted share, an
improvement of $0.26 compared to the first quarter of 2019. See
note below on “Use of Non-GAAP Financial Information.”
Management Commentary
JAKKS Chairman and CEO Stephen Berman stated, “The first quarter
has been a challenge for most companies, including JAKKS, having to
manage strains on the supply-chain early in the quarter and a
volatile environment in March as consumer shopping patterns and
retail logistics were upended by the effects of the COVID-19
pandemic. In spite of these unprecedented challenges, our net sales
were down only 6% percent, and our supply chain has now almost
completely returned to normal levels of activity. We have taken
extensive steps to mitigate the impact of the disruption, including
reducing operating expenses, conserving cash and shifting our
marketing efforts to product categories less likely to be adversely
affected by the disruption.
“During the quarter, we saw strong sales of products tied to
Frozen 2, Sonic the Hedgehog and Nintendo, as well as our own
brands such as Fly Wheels, Kitten Catfe, Maui Wave Hoop, and
Disguise Halloween costumes, which were offset by declines in some
of our older products especially those tied to older licenses.
Although the quarter finished down in sales, we are pleased to
continue to see improving gross margins as that continues to be a
key priority for the Company.
“In times of economic uncertainty, toy sales have generally
proven to be resilient, and we are fortunate to have so many
evergreen product lines such as ball pits, play tents and ride-ons.
In addition, we benefit from such brands as Disney Princess Style
Collection and other role play toys, including Nintendo Super Mario
and Redo skateboards, which are particularly well suited for young
consumers spending more time at home.
“Looking toward the second half of the year, we expect retail
disruption to continue, but to ease as the stay-at-home guidelines
and orders are lifted. Our retail POS trends were positive during
the first quarter and have continued to be positive in recent
weeks. We will focus on products that remain in demand even with
the disruption to normal buying patterns, and we expect to benefit
from pent-up demand and clean retail inventories later in the
year.
“Among JAKKS key strengths has always been our strong
relationships with key licensors and manufacturing partners, as
well as our valued retail partners, who have been working with us
to give consumers access to our products amid these recent global
challenges. We believe we can emerge from this crisis ready to
strengthen our operations as businesses emerge from the global
crisis, and are grateful to our employees, suppliers and retail
partners for all of their efforts during these times.”
Cash and Cash Equivalents
The Company’s cash and cash equivalents (including restricted
cash) totaled $44.0 million as of March 31, 2020, compared to $66.3
million as of December 31, 2019 and $47.4 million as of March 31,
2019. As of April 30, 2020, the Company had $42.0 million of cash
on hand and $36.0 million of availability on its revolving credit
facility, resulting in total liquidity of over $78.0 million. The
Company is continuing to explore options to increase liquidity and
believes the strength of its evergreen product lines makes it well
positioned to successfully navigate the COVID-19 pandemic.
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.”
Conference Call Live Webcast
JAKKS Pacific will webcast its first 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 10 minutes prior to
register, download and install any necessary audio software.
A replay of the call will be available on JAKKS’ website
approximately one hour following completion of the call through May
20, 2020 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 Conference ID “1469547”
for both playback numbers.
About JAKKS Pacific,
Inc.
JAKKS Pacific, Inc. (NASDAQ: JAKK) 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
Perfectly Cute™, Real Workin’ Buddies™, XPV®, Disguise®, Moose
Mountain®, Maui®, 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).
©2020 JAKKS Pacific, Inc. All rights reserved.
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 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)
March 31, December 31,
2020
2019
(In thousands) ASSETS Current assets: Cash and
cash equivalents
$
39,467
$
61,613
Restricted cash
4,561
4,673
Accounts receivable, net
64,761
117,942
Inventory
48,233
54,259
Prepaid expenses and other assets
18,802
21,898
Total current assets
175,824
260,385
Property and equipment
122,095
121,821
Less accumulated depreciation and amortization
106,696
106,562
Property and equipment, net
15,399
15,259
Operating lease right-of-use assets, net
29,824
32,081
Goodwill
35,083
35,083
Intangibles and other assets, net
20,783
22,414
Total assets
$
276,913
$
365,222
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT) Current liabilities: Accounts payable
and accrued expenses
$
44,841
$
100,711
Reserve for sales returns and allowances
31,743
38,365
Income taxes payable
347
2,492
Short term operating lease liabilities
9,592
9,451
Short term debt, net
1,905
1,905
Total current liabilities
88,428
152,924
Long term operating lease liabilities
23,120
25,632
Debt, non-current portion, net
169,397
174,962
Other liabilities
3,319
5,409
Income taxes payable
1,471
1,565
Deferred income taxes, net
226
226
Total liabilities
285,961
360,718
Preferred stock
790
483
Stockholders' equity (deficit): Common stock, $.001 par
value
36
36
Additional paid-in capital
200,248
200,475
Accumulated deficit
(195,187
)
(183,149
)
Accumulated other comprehensive loss
(16,056
)
(14,422
)
Total JAKKS Pacific, Inc. stockholders' equity (deficit)
(10,959
)
2,940
Non-controlling interests
1,121
1,081
Total stockholders' equity (deficit)
(9,838
)
4,021
Total liabilities, preferred stock and stockholders' equity
(deficit)
$
276,913
$
365,222
JAKKS Pacific, Inc. and Subsidiaries Condensed
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31,
2020
2019
(In thousands, except per share data) Net sales
$
66,557
$
70,826
Less cost of sales Cost of goods
37,704
45,108
Royalty expense
11,475
9,841
Amortization of tools and molds
1,028
1,537
Cost of sales
50,207
56,486
Gross profit
16,350
14,340
Direct selling expenses
8,502
8,228
Selling, general and administrative expenses
22,980
25,341
Depreciation and amortization
854
1,697
Restructuring charge
-
248
Acquisition related and other
-
2,867
Loss from operations
(15,986
)
(24,041
)
Other income (expense): Income from joint ventures
2
-
Other income (expense), net
38
83
Change in fair value of convertible senior notes
7,675
(2,423
)
Change in fair value of preferred stock derivative liability
2,082
-
Interest income
14
27
Interest expense
(5,547
)
(3,018
)
Loss before provision for (benefit from) income taxes
(11,722
)
(29,372
)
Provision for (benefit from) income taxes
276
(245
)
Net loss
(11,998
)
(29,127
)
Net income attributable to non-controlling interests
40
31
Net loss attributable to JAKKS Pacific, Inc.
$
(12,038
)
$
(29,158
)
Net loss attributable to common stockholders
$
(12,345
)
$
(29,158
)
Loss per share - basic and diluted
$
(0.41
)
$
(1.24
)
Shares used in loss per share - basic and diluted
30,208
23,557
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,
2020
2019
(In thousands) Net loss
$
(11,998
)
$
(29,127
)
Income from joint ventures
(2
)
-
Other income (expense), net
(38
)
(83
)
Interest income
(14
)
(27
)
Interest expense
5,547
3,018
Provision for (benefit from) income taxes
276
(245
)
Depreciation and amortization
1,882
3,234
Acquisition related and other
-
2,867
Restricted stock compensation expense
252
618
Change in fair value of convertible senior notes
(7,675
)
2,423
Change in fair value of preferred stock derivative liability
(2,082
)
-
Restructuring charge
-
248
Adjusted EBITDA
$
(13,852
)
$
(17,074
)
Three Months Ended March 31,
2020
2019
(In thousands, except per share data) Net loss
attributable to common stockholders
$
(12,345
)
$
(29,158
)
Restricted stock compensation expense
252
618
Acquisition related and other
-
2,867
Change in fair value of convertible senior notes
(7,675
)
2,423
Change in fair value of preferred stock derivative liability
(2,082
)
-
Restructuring charge
-
248
Tax impact of additional charges
-
(15
)
Adjusted net loss attributable to common stockholders
$
(21,850
)
$
(23,017
)
Adjusted loss per share - basic and diluted
$
(0.72
)
$
(0.98
)
Shares used in adjusted loss per share- basic and diluted
30,208
23,557
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200513005661/en/
JAKKS Pacific Jared Wolfson
SVP Marketing and Entertainment (424) 268-9330
jwolfson@jakks.net
Gateway Investor Relations
Sean McGowan Managing Director (949) 574-3860
smcgowan@gatewayir.com
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