JAKKS Pacific Reports Third Quarter 2019 Financial Results

SANTA MONICA, Calif.--()--JAKKS Pacific, Inc. [NASDAQ: JAKK] today reported financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 Overview vs. Same Period Last Year

  • Net sales for the third quarter were $280.1 million, up 18% compared to $236.7 million reported in the comparable period in 2018. Sales in the 2019 third quarter were boosted by strong initial sales of Disney Frozen 2 products.
  • Gross margin was 28.9%, up from 27.2% in Q3 of last year.
  • Net income attributable to JAKKS Pacific was $16.4 million, or $0.51 per diluted share. This compares to $15.7 million, or $0.38 per diluted share, reported in the third quarter of 2018.
  • Adjusted EBITDA was $44.1 million, an increase of 64% over the $27.0 million reported in the third quarter of 2018. See note below on “Use of Non-GAAP Financial Information.”

Management Commentary

JAKKS Chairman and CEO Stephen Berman stated, “We are pleased to report solid results across several financial metrics in the third quarter, as strong sales of Disney Frozen 2, Disguise® and Nintendo® more than offset the declines of some older products. Our net sales grew 18% in the quarter, the strongest quarterly growth in year-over-year sales we have seen in nearly five years, led by online sales of our products, which were up 32% compared to last year. More importantly, we were able to improve gross margins and tightly managed expenses, resulting in a 64% year-over-year increase in Adjusted EBITDA.

“We expect to close out the year on a strong note, and carry momentum into 2020. We remain committed to containing costs and managing our balance sheet prudently. We expect good performances over the holiday season from Frozen 2, Nintendo, Disney Princess and X-Power DozerTM.”

JAKKS also announced today that Chief Financial Officer Brent T. Novak will leave the Company in December 2019 to pursue other opportunities. The Company is currently conducting a search for its next CFO. Mr. Berman said, “Brent has been a valued member of the JAKKS team since joining the company in April 2018. We wish him well in his future endeavors.” Mr. Novak said, “I appreciated the opportunity to work with Stephen and the JAKKS team, and assisting in the completion of the Recapitalization transaction in August 2019.”

Cash and Cash Equivalents

The Company’s cash and cash equivalents (including restricted cash) totaled $75.9 million as of September 30, 2019 compared to $57.1 million as of September 30, 2018 and $37.0 million as of June 30, 2019.

2019 Outlook

Our goal for 2019 is to grow sales by approximately 5% on a year-over-year basis with improved levels of Adjusted EBITDA compared to 2018.

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 third 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 November 14, 2019 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 “49167023#” 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™, Squish-Dee-Lish™, XPV®, Disguise®, Moose Mountain®, Funnoodle®, 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).

©2019 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 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)
     
  September 30,   December 31,
 

2019

 

2018

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

$

71,028

 

 

$

53,282

 

Restricted cash  

 

4,862

 

 

 

4,923

 

Accounts receivable, net  

 

200,788

 

 

 

122,278

 

Inventory  

 

65,298

 

 

 

53,880

 

Prepaid expenses and other assets  

 

18,495

 

 

 

15,780

 

Total current assets  

 

360,471

 

 

 

250,143

 

     
Property and equipment  

 

128,784

 

 

 

128,049

 

Less accumulated depreciation and amortization  

 

111,859

 

 

 

107,147

 

Property and equipment, net  

 

16,925

 

 

 

20,902

 

     
Operating lease right-of-use assets  

 

34,142

 

 

 

-

 

Goodwill  

 

35,083

 

 

 

35,083

 

Intangibles and other assets, net  

 

33,020

 

 

 

36,713

 

Total assets  

$

479,641

 

 

$

342,841

 

     
     
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
     
Current liabilities:    
Accounts payable and accrued expenses  

$

196,432

 

 

$

87,488

 

Reserve for sales returns and allowances  

 

38,109

 

 

 

29,403

 

Short term operating lease liabilities  

 

9,368

 

 

 

-

 

Short term debt, net  

 

6,905

 

 

 

27,211

 

Total current liabilities  

 

250,814

 

 

 

144,102

 

     
Long term operating lease liabilities  

 

27,864

 

 

 

-

 

Long term debt, net  

 

170,812

 

 

 

139,792

 

Other liabilities  

 

142

 

 

 

4,409

 

Income taxes payable  

 

1,465

 

 

 

1,458

 

Deferred income taxes, net  

 

1,431

 

 

 

1,431

 

Total liabilities  

 

452,528

 

 

 

291,192

 

     
Preferred stock  

 

5,074

 

 

 

-

 

     
Stockholders' equity:    
Common stock, $.001 par value  

 

36

 

 

 

30

 

Additional paid-in capital  

 

199,782

 

 

 

218,155

 

Treasury stock  

 

-

 

 

 

(24,000

)

Accumulated deficit  

 

(162,856

)

 

 

(127,601

)

Accumulated other comprehensive loss  

 

(15,892

)

 

 

(15,847

)

Total JAKKS Pacific, Inc. stockholders' equity  

 

21,070

 

 

 

50,737

 

Non-controlling interests  

 

969

 

 

 

912

 

Total stockholders' equity  

 

22,039

 

 

 

51,649

 

Total liabilities, preferred stock and stockholders' equity  

$

479,641

 

 

$

342,841

 

     
JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
   
Three Months Ended September 30,   Nine Months Ended September 30,

2019

2018

 

2019

2018

(In thousands, except per share data)   (In thousands, except per share data)
   
Net sales

$

280,130

 

$

236,699

 

 

$

446,138

 

$

435,484

 

Less cost of sales  
Cost of goods

 

148,735

 

 

134,115

 

 

 

254,534

 

 

248,432

 

Royalty expense

 

45,152

 

 

33,119

 

 

 

69,118

 

 

62,754

 

Amortization of tools and molds

 

5,384

 

 

5,135

 

 

 

9,541

 

 

9,068

 

Cost of sales

 

199,271

 

 

172,369

 

 

 

333,193

 

 

320,254

 

Gross profit

 

80,859

 

 

64,330

 

 

 

112,945

 

 

115,230

 

Direct selling expenses

 

17,993

 

 

15,805

 

 

 

34,336

 

 

38,286

 

Selling, general and administrative expenses

 

24,979

 

 

26,951

 

 

 

74,456

 

 

99,340

 

Depreciation and amortization

 

1,614

 

 

1,428

 

 

 

4,930

 

 

4,923

 

Restructuring charge

 

24

 

 

-

 

 

 

294

 

 

-

 

Acquisition related and other

 

587

 

 

103

 

 

 

5,957

 

 

436

 

Income (loss) from operations

 

35,662

 

 

20,043

 

 

 

(7,028

)

 

(27,755

)

Other income (expense):  
Income from joint ventures

 

-

 

 

-

 

 

 

-

 

 

227

 

Other income (expense), net

 

36

 

 

223

 

 

 

(123

)

 

304

 

Loss on extinguishment of debt

 

(13,205

)

 

(453

)

 

 

(13,205

)

 

(453

)

Change in fair value of convertible senior notes

 

(463

)

 

917

 

 

 

(2,992

)

 

(2,514

)

Interest income

 

17

 

 

19

 

 

 

64

 

 

47

 

Interest expense

 

(4,617

)

 

(3,097

)

 

 

(10,554

)

 

(7,230

)

Income (loss) before provision for income taxes

 

17,430

 

 

17,652

 

 

 

(33,838

)

 

(37,374

)

Provision for income taxes

 

1,016

 

 

1,953

 

 

 

1,360

 

 

1,708

 

Net income (loss)

 

16,414

 

 

15,699

 

 

 

(35,198

)

 

(39,082

)

Net income (loss) attributable to non-controlling interests

 

(31

)

 

17

 

 

 

57

 

 

39

 

Net income (loss) attributable to JAKKS Pacific, Inc.

$

16,445

 

$

15,682

 

 

$

(35,255

)

$

(39,121

)

Net income (loss) attributable to common stockholders

$

16,265

 

$

15,682

 

 

$

(35,435

)

$

(39,121

)

Income (loss) per share - basic

$

0.60

 

$

0.68

 

 

$

(1.43

)

$

(1.69

)

Shares used in income (loss) per share - basic

 

27,085

 

 

23,106

 

 

 

24,754

 

 

23,104

 

Income (loss) per share - diluted

$

0.51

 

$

0.38

 

 

$

(1.43

)

$

(1.69

)

Shares used in income (loss) per share - diluted

 

60,345

 

 

45,686

 

 

 

24,754

 

 

23,104

 

   

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 September 30, Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands) (In thousands)
 
Net income (loss)

$

16,414

 

$

15,699

 

$

(35,198

)

$

(39,082

)

Income from joint ventures

 

-

 

 

-

 

 

-

 

 

(227

)

Other (income) expense, net

 

(36

)

 

(223

)

 

123

 

 

(304

)

Loss on extinguishment of debt

 

13,205

 

 

453

 

 

13,205

 

 

453

 

Interest income

 

(17

)

 

(19

)

 

(64

)

 

(47

)

Interest expense

 

4,617

 

 

3,097

 

 

10,554

 

 

7,230

 

Provision for income taxes

 

1,016

 

 

1,953

 

 

1,360

 

 

1,708

 

Depreciation and amortization

 

6,998

 

 

6,563

 

 

14,471

 

 

13,991

 

Acquisition related and other

 

587

 

 

103

 

 

5,957

 

 

436

 

Restricted stock compensation expense

 

857

 

 

760

 

 

1,872

 

 

1,747

 

Bad debt write-offs (recoveries)

 

-

 

 

(504

)

 

-

 

 

11,964

 

Change in fair value of convertible senior notes

 

463

 

 

(917

)

 

2,992

 

 

2,514

 

Restructuring charge

 

24

 

 

-

 

 

294

 

 

-

 

Minimum guarantee shortfalls

 

-

 

 

-

 

 

-

 

 

3,468

 

 
Adjusted EBITDA

$

44,128

 

$

26,965

 

$

15,566

 

$

3,851

 

 
 
Three Months Ended September 30, Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands, except per share data) (In thousands, except per share data)
 
Net income (loss) attributable to common stockholders

$

16,265

 

$

15,682

 

$

(35,435

)

$

(39,121

)

Restricted stock compensation expense

 

857

 

 

760

 

 

1,872

 

 

1,747

 

Loss on extinguishment of debt

 

13,205

 

 

453

 

 

13,205

 

 

453

 

Bad debt write-offs (recoveries)

 

-

 

 

(504

)

 

-

 

 

11,964

 

Acquisition related and other

 

587

 

 

103

 

 

5,957

 

 

436

 

Change in fair value of convertible senior notes

 

463

 

 

(917

)

 

2,992

 

 

2,514

 

Restructuring charge

 

24

 

 

-

 

 

294

 

 

-

 

Minimum guarantee shortfalls

 

-

 

 

-

 

 

-

 

 

3,468

 

Tax impact of additional charges

 

(5

)

 

85

 

 

(20

)

 

(2,018

)

 
Adjusted net income (loss) attributable to common stockholders

$

31,396

 

$

15,662

 

$

(11,135

)

$

(20,557

)

 
Adjusted income (loss) per share - basic

$

1.16

 

$

0.68

 

$

(0.45

)

$

(0.89

)

Shares used in adjusted income (loss) per share - basic

 

27,085

 

 

23,106

 

 

24,754

 

 

23,104

 

Adjusted income (loss) per share - diluted

$

0.76

 

$

0.38

 

$

(0.45

)

$

(0.89

)

Shares used in adjusted income (loss) per share - diluted

 

60,345

 

 

45,686

 

 

24,754

 

 

23,104

 

 

Contacts

JAKKS Pacific
Brent Novak, (424) 268-9450
Chief Financial Officer

Rachel Griffin, (424) 268-9553
Vice President, Communications

Gateway Investor Relations
Sean McGowan, (949) 574-3860
Managing Director
smcgowan@gatewayir.com

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Contacts

JAKKS Pacific
Brent Novak, (424) 268-9450
Chief Financial Officer

Rachel Griffin, (424) 268-9553
Vice President, Communications

Gateway Investor Relations
Sean McGowan, (949) 574-3860
Managing Director
smcgowan@gatewayir.com