JAKKS Pacific Reports First Quarter 2018 Financial Results

SANTA MONICA, Calif.--()--JAKKS Pacific, Inc. [NASDAQ: JAKK] today reported financial results for the first quarter ended March 31, 2018.

First Quarter 2018 Financial Results

Net sales for the first quarter were $93.0 million compared to $94.5 million reported in the comparable period in 2017. The net loss attributable to JAKKS Pacific for the first quarter was $36.2 million, or $1.57 per diluted share. This compares to a net loss attributable to JAKKS Pacific of $18.3 million, or $1.01 per diluted share, reported in the comparable period in 2017. Adjusted EBITDA for the first quarter was negative $14.6 million, compared to Adjusted EBITDA of negative $10.6 million in the 2017 first quarter. See note below on “Use of Non-GAAP Financial Information.”

Gross margin in the first quarter was 24.7%, down from 31.8% last year as a result of reserves for anticipated contractual royalty shortfalls attributed to the recently announced liquidation of Toys R Us and higher royalties resulting from a shift in product mix.

Management Commentary

JAKKS Chairman and CEO Stephen Berman stated, “We are relatively pleased with our sales in the first quarter despite the negative impact caused by the liquidation of Toys R Us which began near the end of the quarter. Despite this sales disruption, we saw several areas of strength, including Incredibles 2, Disguise® Costumes, Tangled: The Series, Squish-Dee-Lish and DC Toddler Dolls.

“The investments in C’est Moi™ and Morfboard™ are off to a great start and sales are growing rapidly week after week. Our Morfboard product line, for example, has become the No.1 selling scooter at Target, and we are seeing strong upselling in various components and accessories both in store and online.

“As we look ahead to the next few quarters, we will continue to focus on margin improvement and our long term strategic goals. Our fall lines are moving forward as planned and we have a strong line-up of new product introductions that are a balanced mix of owned IP and licensed brands, including Morfboard Xtensions, Real Workin’ Buddies™ Mr. Banks, Pop A Zit™, Fancy Nancy, Harry Potter, Incredibles 2, and Mega Man,” said Berman.

Cash and Cash Equivalents

The Company’s cash and cash equivalents (including restricted cash) totaled $46.8 million as of March 31, 2018 compared to $65.0 million at December 31, 2017, and $68.0 million as of March 31, 2017.

2018 Outlook

While the Company anticipates some market disruption in the United States and internationally related to the Toys R Us bankruptcy and liquidation, the Company expects that its financial results will improve overall in 2018 when compared to 2017.

Convertible Senior Note Retirement

The Company continues to make a high priority the retirement of the remaining $21 million of its convertible senior notes that mature on August 1, 2018.

Expression of Interest from Hong Kong Meisheng Cultural Company Limited

On January 25, 2018, Hong Kong Meisheng Cultural Company Limited (“Meisheng”) sent the Company a letter expressing an interest in buying additional shares to bring its holdings to 51% of our shares. A committee of independent members of our Board of Directors continues to evaluate Meisheng’s expression of interest as well as other possible interests.

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 9:00 a.m. Eastern Time/6:00 a.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 26, 2018 ending at 11:59 p.m. Eastern Time/8:59 p.m. Pacific Time. The playback can be accessed by calling (888) 843-7419 or (630) 652-3042 for international callers, with passcode “46816079#” 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 BIG-FIGS™, XPV®, Max Tow™, Disguise®, Moose Mountain®, Funnoodle®, Maui®, Kids Only!®; a wide range of entertainment-inspired products featuring premier licensed properties; and C’est Moi™, a youth skincare and make-up brand. 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).

©2018 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' products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, and difficulties with integrating acquired businesses. 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,

2018

2017

(In thousands)
 
ASSETS
 
Current assets:
Cash and cash equivalents $

46,779

$

64,977

Accounts receivable, net

93,928

142,457

Inventory

53,997

58,432

Prepaid expenses and other

 

20,812

   

16,803

 
Total current assets

215,516

282,669

 

Property and equipment

143,036

141,357

Less accumulated depreciation and amortization  

120,080

   

118,130

 
Property and equipment, net

22,956

23,227

 
Goodwill

35,592

35,384

Intangibles and other assets, net

 

39,827

   

29,069

 
Total assets $

313,891

  $

370,349

 
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

Accounts payable and accrued expenses

$

76,217

$

92,061

Reserve for sales returns and allowances

15,343

17,622

Short term debt

 

21,119

   

26,075

 

Total current liabilities

112,679

135,758

 

Long term debt, net

134,716

133,497

Other liabilities

4,426

4,537

Income taxes payable

1,327

1,261

Deferred tax liability, net

 

781

   

783

 

Total liabilities

253,929

275,836

 

Stockholders' equity:

Common stock, $.001 par value

30

27

Additional paid-in capital

216,398

215,809

Treasury stock

(24,000

)

(24,000

)

Accumulated deficit

(121,477

)

(85,233

)

Accumulated other comprehensive loss

 

(12,009

)

 

(13,059

)

Total JAKKS Pacific, Inc. stockholders' equity

58,942

93,544

Non-controlling interests

 

1,020

   

969

 

Total stockholders' equity

 

59,962

   

94,513

 

Total liabilities and stockholders' equity

 

313,891

   

370,349

 
 

JAKKS Pacific, Inc. and Subsidiaries    

Condensed Statements of Operations (Unaudited)

         

Three Months Ended March 31,

2018

2017

(In thousands, except per share data)

 

 

Net sales

$

93,004

$

94,505

Less cost of sales

 

Cost of goods

53,258

52,317

Royalty expense

15,291

10,365

Amortization of tools and molds

 

1,496

   

1,802

 

Cost of sales

 

70,045

   

64,484

 

Gross profit

22,959

30,021

Direct selling expenses

12,487

10,719

Selling, general and administrative expenses

44,530

32,448

Depreciation and amortization

 

1,600

   

2,578

 

Loss from operations

(35,658

)

(15,724

)

Other income (expense):

Income from joint ventures

22

-

Other income

50

23

Change in fair value of convertible senior notes

(1,021

)

-

Interest income

14

4

Interest expense

 

(1,936

)

 

(2,932

)

Loss before benefit from income taxes

(38,529

)

(18,629

)

Benefit from income taxes

 

(2,336

)

 

(344

)

Net loss

(36,193

)

(18,285

)

Net income attributable to non-controlling interests

 

51

   

31

 

Net loss attributable to JAKKS Pacific, Inc.

$

 (36,244

)

$

 (18,316

)

Loss per share - basic and diluted

$

 (1.57

)

$

 (1.01

)

Shares used in loss per share - basic and diluted

 

23,100

   

18,104

 

 

 

 

 

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,

2018

   

2017

(In thousands)

 

 

Net loss

 

$

 (36,193

)

$

(18,285

)

Income from joint ventures

 

(22

)

-

Other income

 

(50

)

(23

)

Interest income

(14

)

(4

)

Interest expense

1,936

2,932

Benefit from income taxes

(2,336

)

(344

)

Depreciation and amortization

3,096

4,380

Restricted stock compensation expense

676

748

Bad debt write-offs

13,794

-

Change in fair value of convertible senior notes

1,021

-

Minimum guarantee shortfalls

 

3,468

   

-

 
 

Adjusted EBITDA

$

 (14,624

)

$

 (10,596

)

 

Three Months Ended March 31,

2018

2017

(In thousands, except per share data)

 

Net loss attributable to JAKKS Pacific, Inc.

$

 (36,244

)

$

 (18,316

)

Restricted stock compensation expense

676

748

Bad debt write-offs

13,794

-

Change in fair value of convertible senior notes

1,021

-

Minimum guarantee shortfalls

3,468

-

Tax impact of additional changes

 

(2,348

)

 

-

 
 

Adjusted net loss attributable to JAKKS Pacific, Inc.

 

(19,633

)

 

(17,568

)

 

Adjusted loss per share - basic and diluted

$

 (0.85

)

$

 (0.97

)

Shares used in adjusted loss per share - basic and diluted

 

23,100

   

18,104

 
 

Contacts

JAKKS Pacific
Brent Novak, (424) 268-9450
Chief Financial Officer
or
Rachel Griffin, (424) 268-9553
Vice President, Communications
or
Liolios Investor Relations
Sean McGowan, (949) 574-3860
Managing Director
JAKK@liolios.com

Contacts

JAKKS Pacific
Brent Novak, (424) 268-9450
Chief Financial Officer
or
Rachel Griffin, (424) 268-9553
Vice President, Communications
or
Liolios Investor Relations
Sean McGowan, (949) 574-3860
Managing Director
JAKK@liolios.com