Business Wire | Apr 28, 2021 04:01PM EDT

JAKKS Pacific Reports First Quarter 2021 Financial Results

Apr. 28, 2021

SANTA MONICA, Calif.--(BUSINESS WIRE)--Apr. 28, 2021--JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the first quarter ended March 31, 2021.

First Quarter 2021 Overview:

* Net sales were $83.8 million, up 26% compared to $66.6 million last year * Highest year-over-year first quarter sales growth since Q1 2015 * Gross margin of 31.1%, up 650 basis points vs. Q1 2020 * Highest Q1 gross margin percentage since 2017 * Net loss attributable to common stockholders of $24.4 million compared to a net loss attributable to common stockholders of $12.3 million in Q1 2020 * Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $9.5 million, compared to an adjusted net loss attributable to common stockholders of $21.9 million in Q1 2020 * Adjusted EBITDA (a non-GAAP measure) was negative $2.4 million, compared to negative $13.9 million in the first quarter of 2020 * Trailing twelve month adjusted EBITDA of $39.5 million (7.4% of net sales) up 79% from $22.1 (3.7% of net sales) in the trailing twelve months ended March 2020

Management Commentary

JAKKS Chairman and CEO Stephen Berman stated, "We had an excellent beginning to 2021, with strong sales growth in many product lines, a healthy increase in gross margins, and tight cost controls. We delivered the best first quarter operating results since 2015, with significant improvement in sales, gross margin, adjusted net income and adjusted EBITDA. These results reflect the efforts we have made to broaden our product line, reduce our operating costs and cut interest expense.

"During the quarter, we drove double-digit sales increases in all of our toy divisions: Boys, Girls and Seasonal. We saw strong sales of products tied to video games, including Nintendo, Sonic the Hedgehog and Apex: Legends, a near doubling of sales in Disney Princess, solid initial sales of Raya and the Last Dragon, and continued strength in Black & Decker. We also registered strong sales of our own brands such as Perfectly Cute and Redo Skateboards. These sales gains easily offset the expected sales decreases we saw in Frozen, Frozen 2, and Fly Wheels.

"We are especially pleased by our continued success in reducing our operating costs, as reflected by our strong increase in gross margin and lower SG&A costs. Looking toward the balance of the year, we expect to continue to benefit from lean retail inventories and lower operating costs. Our retail POS trends remain positive, and we have a well-balanced line of new and continuing products planned for the holiday season. As we have for our 27-year history, we will focus on proven play patterns and our partnerships with world-class license partners and highly recognizable brands.

"As 2021 unfolds, we expect to see a return to more normal patterns of shopping, gift-giving and celebrating Halloween. We believe we are set up very well for a year of increased sales, improved EBITDA and a strengthened financial position, which we expect to generate strong momentum and can position us well for 2022 and beyond."

First Quarter 2021 Results

Net sales for the first quarter 2021 were $83.8 million up 26% versus $66.6 million last year. The increase was driven primarily by higher sales of products across our Toys/Consumer Products segment which were up 28% globally. Net sales of Disguise costumes were essentially flat compared to last year.

Gross profit in the first quarter of 2021 was $26.1 million or 31.1% of net sales, compared to $16.4 million or 24.6% of net sales in the prior year, driven by significantly improved product margins and lower royalty costs as a percent of sales. SG&A costs were $28.8 million, down from $32.3 million in the prior year. As a percent of net sales, SG&A costs were 34.4%, down from 48.6% in the prior year.

The net loss attributable to common stockholders was $24.4 million, or $4.54 per basic and diluted share, compared to a loss of $12.3 million, or $4.09 per basic and diluted share in the first quarter of 2020. Net loss in the first quarter of both 2021 and 2020 included several significant adjustments, including those related to changes in the fair value of convertible senior notes and preferred stock derivative liability and other adjustments. Excluding such adjustments in both years, the adjusted net loss attributable to common stockholders (a non-GAAP measure) was a loss of $9.5 million, or $1.77 per basic and diluted share in the first quarter of 2021 compared to a loss of $21.9 million or $7.23 per basic and diluted share in the first quarter of 2020. Adjusted EBITDA (a non-GAAP measure) was negative $2.4 million for the first quarter of 2021, compared to negative $13.9 million a year ago. For the trailing twelve months ended March 31, 2021, adjusted EBITDA was $39.5 million, up 79% compared to $22.1 million for the trailing twelve months ended March 31, 2020. (See note below on "Use of Non-GAAP Financial Information.")

Cash and Cash Equivalents

The Company's cash and cash equivalents (including restricted cash) totaled $84.1 million as of March 31, 2021 compared to $92.7 million as of December 31, 2020, and $44.0 million as of March 31, 2020.

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 $60.0 million revolving credit facility.

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 20 minutes prior to register, download and install any necessary audio software.

A replay of the call will be available on JAKKS' website approximately two hours following completion of the call through May 5, 2021 ending at 8:00 p.m. Eastern Time/5:00 p.m. Pacific Time. The playback can be accessed by calling (888) 859-2056 or (404) 537-3406 for international callers, with passcode "2188217#" for both playback numbers.

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(r), Eyeclops(r), Fly Wheel(r), Kitten Catfe(tm), Perfectly Cute(r), ReDo Skateboard Co.(r), WeeeDo(tm), Xtreme Power(r), Disguise(r), Maui(r), Moose Mountain(r), Kids Only!(r); a wide range of entertainment-inspired products featuring premier licensed properties; and C'est Moi(r), a New Generation of Clean Beauty(r). 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 SubsidiariesCondensed Consolidated Balance Sheets(In thousands) March 31, December 31, 2021 2020 2020

(Unaudited)ASSETSCurrent assets:Cash and cash equivalents $ 80,406 $ 39,467 $ 87,953

Restricted cash 3,653 4,561 4,740

Accounts receivable, net 79,657 64,761 102,254

Inventory 36,653 48,233 38,642

Prepaid expenses and other assets 23,480 18,802 17,239

Total current assets 223,849 175,824 250,828

Property and equipment 115,068 122,095 114,045

Less accumulated depreciation and 102,043 106,696 100,534 amortizationProperty and equipment, net 13,025 15,399 13,511

Operating lease right-of-use assets, 22,283 29,824 24,393 netGoodwill 35,083 35,083 35,083

Intangibles and other assets, net 4,165 20,783 5,554

Total assets $ 298,405 $ 276,913 $ 329,369

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities:Accounts payable and accrued expenses $ 59,540 $ 44,841 $ 79,799

Reserve for sales returns and 39,499 31,743 42,108 allowancesIncome taxes payable 175 347 484

Short term operating lease 10,109 9,592 9,925 liabilitiesShort term debt, net 6,721 1,905 5,950

Total current liabilities 116,044 88,428 138,266

Long term operating lease liabilities 14,475 23,120 16,883

Debt, non-current portion, net 154,960 169,397 150,410

Other liabilities 15,438 3,319 8,062

Income taxes payable 947 1,471 947

Deferred tax liability, net 123 226 123

Total liabilities 301,987 285,961 314,691

Preferred stock 2,066 790 1,740

Stockholders' equity (deficit):Common stock, $.001 par value 6 36 6

Additional paid-in capital 227,113 200,248 221,590

Accumulated deficit (221,509 ) (195,187 ) (197,423 )

Accumulated other comprehensive loss (12,504 ) (16,056 ) (12,446 )

Total JAKKS Pacific, Inc. (6,894 ) (10,959 ) 11,727 stockholders' equity (deficit)Non-controlling interests 1,246 1,121 1,211

Total stockholders' equity (deficit) (5,648 ) (9,838 ) 12,938

Total liabilities, preferred stock $ 298,405 $ 276,913 $ 329,369 and stockholders' equity (deficit)JAKKS Pacific, Inc. and SubsidiariesCondensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2021 2020

(In thousands, except per share data) Net sales $ 83,843 $ 66,557

Less cost of salesCost of goods 44,049 37,704

Royalty expense 12,511 11,475

Amortization of tools and molds 1,189 1,028

Cost of sales 57,749 50,207

Gross profit 26,094 16,350

Direct selling expenses 6,802 8,502

General and administrative expenses 21,411 22,980

Depreciation and amortization 604 854

Loss from operations (2,723 ) (15,986 )

Other income (expense):Income from joint ventures - 2

Other income (expense), net 55 38

Change in fair value of convertible senior (9,047 ) 7,675 notesChange in fair value of preferred stock (7,375 ) 2,082 derivative liabilityInterest income 2 14

Interest expense (4,875 ) (5,547 )

Loss before provision for income taxes (23,963 ) (11,722 )

Provision for income taxes 88 276

Net loss (24,051 ) (11,998 )

Net income attributable to non-controlling 35 40 interestsNet loss attributable to JAKKS Pacific, Inc. $ (24,086 ) $ (12,038 )

Net loss attributable to common stockholders $ (24,412 ) $ (12,345 )

Loss per share - basic and diluted $ (4.54 ) $ (4.09 )

Shares used in loss per share - basic and 5,379 3,021 dilutedJAKKS 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 informationregarding Adjusted EBITDA and Adjusted Net Income (Loss), which may beconsidered non-GAAP financial measures under the rules of the Securities andExchange Commission. The non-GAAP financial measures included in the pressrelease are reconciled to the corresponding GAAP financial measures below, asrequired under the rules of the Securities and Exchange Commission regardingthe use of non-GAAP financial measures. We define Adjusted EBITDA as income(loss) from operations before depreciation, amortization and adjusted forcertain non-recurring and non-cash charges, such as reorganization expenses andrestricted stock compensation expense. Net income (loss) is similarly adjustedand tax-effected to arrive at Adjusted Net Income (Loss). Adjusted EBITDA andAdjusted Net Income (Loss) are not recognized financial measures under GAAP,but we believe that they are useful in measuring our operating performance. Webelieve that the use of the non-GAAP financial measures enhances an overallunderstanding of the Company's past financial performance, and provides usefulinformation to the investor by comparing our performance across reportingperiods on a consistent basis. Investors should not consider these measures in isolation or as a substitutefor net income, operating income, or any other measure for determining theCompany's operating performance that is calculated in accordance with GAAP. Inaddition, because these measures are not calculated in accordance with GAAP,they may not necessarily be comparable to similarly titled measures employed byother companies. Three Months Ended March 31,

2021 2020

(In thousands, except per share data)

EBITDA and Adjusted EBITDANet loss $ (24,051 ) $ (11,998 )

Interest expense 4,875 5,547

Interest income (2 ) (14 )

Provision for income taxes 88 276

Depreciation and amortization 1,793 1,882

EBITDA (17,297 ) (4,307 )

Adjustments:Income from joint ventures - (2 )

Other income (expense), net (55 ) (38 )

Restricted stock compensation expense 382 252

Change in fair value of convertible 9,047 (7,675 )senior notesChange in fair value of preferred stock 7,375 (2,082 )derivative liabilityEmployee retention credit (1,900 ) -

Adjusted EBITDA $ (2,448 ) $ (13,852 )

Adjusted net income (loss) attributableto common stockholdersNet loss attributable to common $ (24,412 ) $ (12,345 )stockholdersRestricted stock compensation expense 382 252

Change in fair value of convertible 9,047 (7,675 )senior notesChange in fair value of preferred stock 7,375 (2,082 )derivative liabilityEmployee retention credit (1,900 ) -

Tax impact of additional charges - -

Adjusted net loss attributable to common $ (9,508 ) $ (21,850 )stockholdersAdjusted loss per share - basic and $ (1.77 ) $ (7.23 )dilutedShares used in adjusted loss per share - 5,379 3,021 basic and diluted View source version on businesswire.com: https://www.businesswire.com/news/home/20210428005946/en/

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

CONTACT: JAKKS Pacific Jared Wolfson (424) 268-9330 jwolfson@jakks.net