JAKKS Pacific Inc.

10/31/2024 | Press release | Distributed by Public on 10/31/2024 06:38

JAKKS PACIFIC REPORTS THIRD QUARTER 2024 FINANCIAL RESULTS Form 8 K

JAKKS PACIFIC REPORTS THIRD QUARTER 2024 FINANCIAL RESULTS

Q3 Net Sales Increased 4% vs. prior year; Q3 Operating Income up 9% vs. prior year

SANTA MONICA, Calif., October 30, 2024 - JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the third quarter and nine months ended September 30, 2024.

Third Quarter 2024 Overview

Net sales were $321.6 million, a year-over-year increase of 4%

o

Toys/Consumer Products net sales were $264.3 million, a year-over-year increase of 7%

Toys/Consumer Products net sales year-to-date are $451.8 million, a year-over-year decrease of 2%

o

Costumes net sales were $57.3 million, a year-over-year decrease of 10%

Costumes net sales year-to-date are $108.5 million, a year-over-year decrease of 11%

Gross margin of 33.8%, down 70 basis points vs. Q3 2023

Gross profit of $108.8 million, up 2% compared to $107.0 million in Q3 2023

o

Year-to-date gross profit of $177.5 million, down 6% compared to $189.6 million in the comparable period in 2023

Operating income of $68.1 million (21.2% of net sales) in Q3 2024 vs. $62.4 million (20.1% of net sales) in Q3 2023

Net income attributable to common stockholders of $52.3 million or $4.64 per diluted share, compared to net income attributable to common stockholders of $47.8 million or $4.53 per diluted share in Q3 2023

Adjusted net income attributable to common stockholders (a non-GAAP measure) of $54.0 million or $4.79 per diluted share, compared to adjusted net income attributable to common stockholders of $50.1 million or $4.75 per diluted share in Q3 2023

Adjusted EBITDA (a non-GAAP measure) of $74.4 million vs. $67.1 million in Q3 2023

o

Trailing twelve month Adjusted EBITDA of $58.5 million (8.5% of trailing twelve months net sales) down from $74.5 million (10.4% of net sales) in the trailing twelve months ended September 2023.

Management Commentary

"We're pleased to share the results of a very strong third quarter. For many years, our largest shipping quarter has been the third driven by our focus on the FOB selling model. This year is no exception, with the US business having its biggest shipping quarter in ten years. The yearly plan is on track to reach its goals. With some difficult first-half revenue comparisons behind us, total company sales increased 4% year-over-year in the quarter. Our gross margins remained strong at 33.8%, and our overhead-related cost growth slowed to deliver quarterly operating margin of 21.2%, a slight improvement over last year. Each of our Toys/Consumer Products divisions delivered sales growth in the quarter. Dolls, Role Play/Dress-Up was up 5.5% to $146.9 million, Action Play & Collectibles was up 5.4% to $98.8 million and Outdoor/Seasonal Toys was up 42.4% to $18.7 million.

"Our Costumes business, as anticipated, reflected softness due to customers recalibrating to lower Halloween consumer demand for costumes versus prior year. Globally, Costumes were down 10.1% in the quarter and 11.3% year-to-date.

We are encouraged by some of the early consumer reactions to our new Fall 2024 products. We are now confident about finishing out this year as planned while building on retail momentum to deliver a robust 2025."

Additional Third Quarter and Year-to-Date 2024 Highlights

The Toys/Consumer Products segment sales were up 7% globally (6.4% North America; 11.5% International) and sales of Disguise costumes were down 10% compared to last year (-11.6% North America; 6.5% International).

Year-to-date adjusted net income attributable to common stockholders (a non-GAAP measure) was $50.0 million ($4.50 per diluted share), compared to $59.4 million ($5.66 per diluted share) in the first nine months of 2023.

Year-to-date adjusted EBITDA of $69.4 million (12.4% of net sales) declined from $86.6 million (14.8% of net sales) in the comparable 2023 period.

Balance Sheet Highlights

The Company's cash and cash equivalents (including restricted cash) totaled $22.3 million as of September 30, 2024 compared to $96.4 million as of September 30, 2023, and $72.6 million as of December 31, 2023.

Inventory was $63.5 million, compared to $68.8 million as of September 30, 2023 and $52.6 million as of December 31, 2023.

Use of Non-GAAP Financial Information and Reconciliation of GAAP to Non-GAAP measures:

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 Net Income (Loss) that exclude various items that are detailed in the financial tables and accompanying footnotes reconciling GAAP to non-GAAP results contained in this release. 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, enhance 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.

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. See "Use of Non-GAAP Financial Information" for additional disclosures with respect to the use of non-GAAP financial information.

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 October 30, 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 (3Q24 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 our charitable donations, JAKKS is helping to make a positive impact on the lives of children. 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 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

(424) 268-9567

Lucas Natalini

[email protected]

JAKKS Pacific, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

September 30,

December 31,

2024

2023

2023

(In thousands)

Assets

Current assets:

Cash and cash equivalents

$ 22,070 $ 96,252 $ 72,350

Restricted cash

214 195 204

Accounts receivable, net

290,424 206,751 123,797

Inventory

63,509 68,832 52,647

Prepaid expenses and other assets

8,082 6,721 6,374

Total current assets

384,299 378,751 255,372

Property and equipment

144,072 135,821 135,956

Less accumulated depreciation and amortization

128,947 121,193 121,357

Property and equipment, net

15,125 14,628 14,599

Operating lease right-of-use assets, net

19,242 25,743 23,592

Deferred income tax assets, net

68,187 57,856 68,143

Goodwill

35,102 35,083 35,083

Other long-term assets

1,923 2,220 2,162

Total assets

$ 523,878 $ 514,281 $ 398,951
Liabilities, Preferred Stock and Stockholders' Equity

Current liabilities:

Accounts payable

$ 98,928 $ 94,409 $ 42,177

Accounts payable - Meisheng (related party)

35,011 27,977 12,259

Accrued expenses

71,748 65,609 45,102

Reserve for sales returns and allowances

40,837 43,512 38,531

Income taxes payable

- 17,422 3,785

Short term operating lease liabilities

7,405 6,415 7,380

Total current liabilities

253,929 255,344 149,234

Long term operating lease liabilities

14,536 19,283 16,666

Accrued expenses - long term

1,824 3,750 3,746

Preferred stock derivative liability

- 28,586 29,947

Income taxes payable

3,523 2,994 3,245

Total liabilities

273,812 309,957 202,838

Preferred stock accrued dividends

- 5,608 5,992

Stockholders' equity:

Common stock, $.001 par value

11 10 10

Additional paid-in capital

295,400 277,546 278,642

Accumulated deficit

(30,579 ) (62,744 ) (73,612 )

Accumulated other comprehensive loss

(15,266 ) (16,808 ) (15,627 )

Total JAKKS Pacific, Inc. stockholders' equity

249,566 198,004 189,413

Non-controlling interests

500 712 708

Total stockholders' equity

250,066 198,716 190,121

Total liabilities, preferred stock and stockholders' equity

$ 523,878 $ 514,281 $ 398,951

Supplemental Balance Sheet and Cash Flow Data (Unaudited)

September 30,

Key Balance Sheet Data:

2024

2023

Accounts receivable days sales outstanding (DSO)

83 61

Inventory turnover (DSI)

27 31

Nine Months Ended

September 30,

Condensed Cash Flow Data:

2024

2023

Cash flows provided by (used in) operating activities

$ (15,181 ) $ 89,421

Cash flows used in investing activities

(8,989 ) (7,427 )

Cash flows used in financing activities and other

(26,100 ) (71,037 )

Increase in cash, cash equivalents and restricted cash

$ (50,270 ) $ 10,957

Capital expenditures

$ (7,344 ) $ (7,464 )

JAKKS Pacific, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2024

2023

Δ (%)

2024

2023

Δ (%)

(In thousands, except per share data)

(In thousands, except per share data)

Net sales

$ 321,606 $ 309,744 4 % $ 560,301 $ 584,161 (4 )%

Less: Cost of sales

Cost of goods

158,770 149,052 7 289,190 293,512 (1 )

Royalty expense

50,011 51,141 (2 ) 86,181 95,074 (9 )

Amortization of tools and molds

3,994 2,566 56 7,462 5,955 25

Cost of sales

212,775 202,759 5 382,833 394,541 (3 )

Gross profit

108,831 106,985 2 177,468 189,620 (6 )

Direct selling expenses

7,552 10,684 (29 ) 21,904 22,405 (2 )

General and administrative expenses

33,101 33,821 (2 ) 100,887 92,492 9

Depreciation and amortization

95 81 17 275 276 -

Selling, general and administrative expenses

40,748 44,586 (9 ) 123,066 115,173 7

Income from operations

68,083 62,399 9 54,402 74,447 (27 )

Other income (expense):

Loss from joint ventures

- - - - (565 ) nm

Other income (expense), net

84 (52 ) nm 294 424 (31 )

Change in fair value of preferred stock derivative liability

- (793 ) nm - (6,668 ) nm

Loss on debt extinguishment

- - - - (1,023 ) nm

Interest income

69 384 (82 ) 533 587 (9 )

Interest expense

(539 ) (1,436 ) (62 ) (938 ) (5,741 ) (84 )

Income before provision for income taxes

67,697 60,502 12 54,291 61,461 (12 )

Provision for income taxes

15,425 12,381 25 10,978 12,476 (12 )

Net income

52,272 48,121 9 43,313 48,985 (12 )

Net income (loss) attributable to non-controlling interests

- (11 ) nm 280 (289 ) nm

Net income attributable to JAKKS Pacific, Inc.

$ 52,272 $ 48,132 9 % $ 43,033 $ 49,274 (13 )%

Net income attributable to common stockholders

$ 52,272 $ 47,754 9 % $ 44,363 $ 48,156 (8 )%

Earnings per share - basic

$ 4.78 $ 4.77 $ 4.14 $ 4.85

Shares used in earnings per share - basic

10,942 10,021 10,704 9,922

Earnings per share - diluted

$ 4.64 $ 4.53 $ 3.99 $ 4.58

Shares used in earnings per share - diluted

11,275 10,542 11,106 10,503

Three Months Ended

September 30,

Nine Months Ended

September 30,

2024

2023

Δ bps

2024

2023

Δ bps

Fav/(Unfav)

Fav/(Unfav)

Net sales

100.0 % 100.0 % - 100.0 % 100.0 % -

Less: Cost of sales

Cost of goods

49.4 48.2 (120 ) 51.6 50.2 (140 )

Royalty expense

15.6 16.5 90 15.4 16.3 90

Amortization of tools and molds

1.2 0.8 (40.0 ) 1.3 1.0 (30 )

Cost of sales

66.2 65.5 (70 ) 68.3 67.5 (80 )

Gross profit

33.8 34.5 (70 ) 31.7 32.5 (80 )

Direct selling expenses

2.3 3.5 120 3.9 3.8 (10 )

General and administrative expenses

10.3 10.9 60 18.1 15.9 (220 )

Depreciation and amortization

- - - - 0.1 10

Selling, general and administrative expenses

12.6 14.4 180 22.0 19.8 (220 )

Income from operations

21.2 20.1 110 9.7 12.7 (300 )

Other income (expense):

Loss from joint ventures

- - - (0.1 )

Other income (expense), net

- - 0.1 0.1

Change in fair value of preferred stock derivative liability

- (0.3 ) - (1.1 )

Loss on debt extinguishment

- - - (0.2 )

Interest income

- 0.1 0.1 0.1

Interest expense

(0.2 ) (0.4 ) (0.2 ) (1.0 )

Income before provision for income taxes

21.0 19.5 9.7 10.5

Provision for income taxes

4.7 4.0 2.0 2.1

Net income

16.3 15.5 7.7 8.4

Net income (loss) attributable to non-controlling interests

- - - -

Net income attributable to JAKKS Pacific, Inc.

16.3 % 15.5 % 7.7 % 8.4 %

Net income attributable to common stockholders

16.3 % 15.4 % 7.9 % 8.2 %

JAKKS Pacific, Inc. and Subsidiaries

Reconciliation of Non-GAAP Financial Information (Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2024

2023

Δ ($)

2024

2023

Δ ($)

(In thousands)

(In thousands)

EBITDA and Adjusted EBITDA

Net income

$ 52,272 $ 48,121 $ 4,151 $ 43,313 $ 48,985 $ (5,672 )

Interest expense

539 1,436 (897 ) 938 5,741 (4,803 )

Interest income

(69 ) (384 ) 315 (533 ) (587 ) 54

Provision for income taxes

15,425 12,381 3,044 10,978 12,476 (1,498 )

Depreciation and amortization

4,089 4,398 (309 ) 7,737 7,982 (245 )

EBITDA

72,256 65,952 6,304 62,433 74,597 (12,164 )

Adjustments:

Loss from joint ventures (JAKKS Pacific, Inc. - 51%)

- - - - 276 (276 )

Loss from joint ventures (Meisheng - 49%)

- - - - 289 (289 )

Other (income) expense, net

(84 ) 52 (136 ) (294 ) (424 ) 130

Restricted stock compensation expense

2,186 2,025 161 7,280 5,970 1,310

Change in fair value of preferred stock derivative liability

- 793 (793 ) - 6,668 (6,668 )

Loss on debt extinguishment

- - - - 1,023 (1,023 )

Adjusted EBITDA

$ 74,358 $ 67,071 $ 7,287 $ 69,419 $ 86,648 $ (17,229 )

Adjusted EBITDA/Net sales %

23.1 % 21.7 %

140 bps

12.4 % 14.8 %

-240 bps

Trailing Twelve Months Ended
September 30,

2024

2023

Δ ($)

(In thousands)

TTM EBITDA and TTM Adjusted EBITDA

TTM net income

$ 32,441 $ 87,094 $ (54,653 )

Interest expense

1,648 8,035 (6,387 )

Interest income

(1,290 ) (650 ) (640 )

Provision for (benefit from) income taxes

5,335 (41,855 ) 47,190

Depreciation and amortization

10,091 9,934 157

TTM EBITDA

48,225 62,558 (14,333 )

Adjustments:

Loss from joint ventures (JAKKS Pacific, Inc. - 51%)

- 276 (276 )

Loss from joint ventures (Meisheng - 49%)

- 289 (289 )

Other (income) expense, net

(433 ) (701 ) 268

Restricted stock compensation expense

9,337 7,616 1,721

Change in fair value of preferred stock derivative liability

1,361 5,239 (3,878 )

Molds and tooling capitalization

- (1,751 ) 1,751

Loss on debt extinguishment

- 1,023 (1,023 )

TTM Adjusted EBITDA

$ 58,490 $ 74,549 $ (16,059 ) (22 )%

TTM Adjusted EBITDA/TTM Net sales %

8.5 % 10.4 %

-190 bps

Three Months Ended

September 30,

Nine Months Ended

September 30,

2024

2023

Δ ($)

2024

2023

Δ ($)

(In thousands, except per share data)

(In thousands, except per share data)

Adjusted net income attributable to common stockholders

Net income attributable to common stockholders

$ 52,272 $ 47,754 $ 4,518 $ 44,363 $ 48,156 $ (3,793 )

Restricted stock compensation expense

2,186 2,025 161 7,280 5,970 1,310

Change in fair value of preferred stock derivative liability

- 793 (793 ) - 6,668 (6,668 )

Loss on debt extinguishment

- - - - 1,023 (1,023 )

Loss from joint ventures (JAKKS Pacific, Inc. - 51%)

- - - - 276 (276 )

2021 BSP Term Loan prepayment penalty

- - - - 150 (150 )

Molds and Tooling capitalization

- (1,751 ) 1,751 - (1,751 ) 1,751

Tax impact of additional charges

(494 ) 1,268 (1,762 ) (1,681 ) (1,079 ) (602 )

Adjusted net income attributable to common stockholders

$ 53,964 $ 50,089 $ 3,875 $ 49,962 $ 59,413 $ (9,451 )

Adjusted earnings per share - basic & diluted

$ 4.93 $ 5.00 $ (0.07 ) $ 4.67 $ 5.99 $ (1.32 )

Shares used in adjusted earnings per share - basic

10,942 10,021 921 10,704 9,922 782

Adjusted earnings per share - diluted

$ 4.79 $ 4.75 $ 0.04 $ 4.50 $ 5.66 $ (1.16 )

Shares used in adjusted earnings per share - diluted

11,275 10,542 733 11,106 10,503 603

JAKKS Pacific, Inc. and Subsidiaries

Net Sales by Division and Geographic Region

(In thousands)

QTD Q3

(In thousands)

YTD Q3

Divisions

2024

2023

2022

% Change
2024 v 2023

% Change
2023 v 2022

Divisions

2024

2023

2022

% Change
2024 v 2023

% Change
2023 v 2022

Toys/Consumer Products

$ 264,306 $ 246,004 $ 269,607 7.4 % -8.8 %

Toys/Consumer Products

$ 451,786 $ 461,831 $ 529,590 -2.2 % -12.8 %

Dolls, Role-Play/Dress Up

146,893 139,177 190,452 5.5 % -26.9 %

Dolls, Role-Play/Dress Up

251,075 246,689 354,644 1.8 % -30.4 %
Action Play & Collectibles 98,750 93,717 65,752 5.4 % 42.5 %

Action Play & Collectibles

168,313 184,134 134,620 -8.6 % 36.8 %

Outdoor/Seasonal Toys

18,663 13,110 13,403 42.4 % -2.2 %

Outdoor/Seasonal Toys

32,398 31,008 40,326 4.5 % -23.1 %

Costumes

$ 57,300 $ 63,740 $ 53,391 -10.1 % 19.4 %

Costumes

$ 108,515 $ 122,330 $ 134,711 -11.3 % -9.2 %

Total

$ 321,606 $ 309,744 $ 322,998 3.8 % -4.1 %

Total

$ 560,301 $ 584,161 $ 664,301 -4.1 % -12.1 %

(In thousands)

QTD Q3

(In thousands)

YTD Q3

Regions

2024

2023

2022

% Change
2024 v 2023

% Change
2023 v 2022

Regions

2024

2023

2022

% Change
2024 v 2023

% Change
2023 v 2022

United States

$ 255,278 $ 244,931 $ 253,854 4.2 % -3.5 %

United States

$ 451,545 $ 461,561 $ 543,388 -2.2 % -15.1 %

Europe

30,034 31,676 38,075 -5.2 % -16.8 %

Europe

46,033 58,476 65,911 -21.3 % -11.3 %

Latin America

22,632 15,319 9,504 47.7 % 61.2 %

Latin America

33,867 27,590 15,712 22.8 % 75.6 %

Canada

7,068 11,453 12,804 -38.3 % -10.6 %

Canada

16,726 22,306 21,720 -25.0 % 2.7 %

Asia

2,345 3,192 4,294 -26.5 % -25.7 %

Asia

4,578 6,403 8,733 -28.5 % -26.7 %

Australia & New Zealand

3,339 2,692 3,941 24.0 % -31.7 %

Australia & New Zealand

6,292 6,056 7,014 3.9 % -13.7 %

Middle East & Africa

910 481 526 89.2 % -8.6 %

Middle East & Africa

1,260 1,769 1,823 -28.8 % -3.0 %

Total

$ 321,606 $ 309,744 $ 322,998 3.8 % -4.1 %

Total

$ 560,301 $ 584,161 $ 664,301 -4.1 % -12.1 %

(In thousands)

QTD Q3

(In thousands)

YTD Q3

Regions

2024

2023

2022

% Change
2024 v 2023

% Change
2023 v 2022

Regions

2024

2023

2022

% Change
2024 v 2023

% Change
2023 v 2022

North America

$ 262,346 $ 256,384 $ 266,658 2.3 % -3.9 %

North America

$ 468,271 $ 483,867 $ 565,108 -3.2 % -14.4 %

International

59,260 53,360 56,340 11.1 % -5.3 %

International

92,030 100,294 99,193 -8.2 % 1.1 %

Total

$ 321,606 $ 309,744 $ 322,998 3.8 % -4.1 %

Total

$ 560,301 $ 584,161 $ 664,301 -4.1 % -12.1 %