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

JAKKS Pacific Reports Second Quarter 2021 Financial Results

Jul. 28, 2021

SANTA MONICA, Calif.--(BUSINESS WIRE)--Jul. 28, 2021--JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the second quarter ended June 30, 2021.

Second Quarter 2021 Overview:

* Net sales were $112.4 million, up 43% compared to $78.8 million last year, and up 18% compared to $95.2 million in 2019 * Gross margin of 28.4%, up 710 basis points vs. Q2 2020 * Highest Q2 gross margin percentage since 2016 * Refinanced long-term debt to 2027 maturity, lower leverage and a 300-basis point improvement in borrowing cost * Accelerated maturity of convertible debt to September 2021, $2.9 million currently outstanding as of July 27, 2021 * Net loss attributable to common stockholders of $15.4 million or $2.48 per share, compared to a net loss attributable to common stockholders of $23.6 million or $7.70 per share in Q2 2020 * Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $2.3 million or $0.38 per share, compared to an adjusted net loss attributable to common stockholders of $13.4 million or $4.38 per share in Q2 2020 * Adjusted EBITDA (a non-GAAP measure) was $5.0 million, compared to negative $4.6 million in the second quarter of 2020 * Trailing twelve month adjusted EBITDA of $49.1 million (8.7% of net sales) up 69% from $29.0 million (5.0% of net sales) in the trailing twelve months ended June 2020

Management Commentary

"I couldn't be prouder of our organization's execution in the past quarter," said Stephen Berman, CEO of JAKKS Pacific. "It has been well publicized within our industry and others the challenges being faced with the supply-chain and logistics, stretching from Asia to the U.S. and Europe. Nonetheless, our teams worked together across offices to deliver product to our customers as well as build up our domestic inventory in preparation for the second half of the year. The focus of the organization as it continues to navigate the pandemic is extremely gratifying and a testament to our agility as a hands-on, customer-focused company.

"From a sales perspective, we saw excellent results across our Toys/Consumer Products and our Costumes businesses, both in North America and Internationally. Strong consumer demand continues to fuel our Toy business and we anticipate strong results from several programs we are initiating for this Holiday season with our largest customers. In addition, we are on track for what we anticipate will be a great Halloween season with a wide range of new introductions including Jurassic World(r), Minions(r), Ghostbusters(r) and The Paw Patrol Movie(tm)."

Second Quarter 2021 Results

Net sales for the second quarter of 2021 were $112.4 million, up 43% versus $78.8 million last year. The Toys/Consumer Products segment sales were up 45% globally and sales of Disguise costumes were up 37% compared to last year.

Year-to-date Toys/Consumer Products sales were up 36% compared to 2020 and 28% compared to 2019. Year-to-date the Costumes segment was up 31% compared to 2020 and down 13% compared to 2019 which featured a more robust entertainment slate.

Cash and Cash Equivalents

The Company's cash and cash equivalents (including restricted cash) totaled $38.3 million as of June 30, 2021 compared to $52.7 million as of June 30, 2020, and $92.7 million as of December 31, 2020.

Debt Refinancing

During the quarter, the Company refinanced its long-term debt due in 2023 into a new term loan maturing in 2027. The Company used a portion of its cash to lower its level of long-term debt, in addition to lowering its interest rate from 10.5% to 7.5% as part of the transaction. The payoff of the previous term loan accelerated the maturity of the Company's unsecured senior convertible notes, such that they now mature in September 2021. As of July 27, 2021, $2.9 million in notes remain, the balance having been converted into common stock. Also as of July 27, 2021, the Company has 9.4 million common shares outstanding.

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 $67.5 million revolving credit facility.

Conference Call Live Webcast

JAKKS Pacific will webcast its second 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 August 4, 2021 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 passcode "6568680" 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 Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)



(Unaudited)

June 30, December 31,

2021 2020 2020

ASSETS Current assets:Cash and cash equivalents $ 37,511 $ 48,133 $ 87,953

Restricted cash 830 4,555 4,740

Accounts receivable, net 107,898 69,003 102,254

Inventory 60,580 57,681 38,642

Prepaid expenses and other assets 32,495 28,448 17,239

Total current assets 239,314 207,820 250,828

Property and equipment 118,804 112,977 114,045

Less accumulated depreciation and 104,147 95,998 100,534 amortizationProperty and equipment, net 14,657 16,979 13,511

Operating lease right-of-use 20,688 27,644 24,393 assets, netGoodwill 35,083 35,083 35,083

Intangibles and other assets, net 5,389 12,894 5,554

Total assets $ 315,131 $ 300,420 $ 329,369

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities:Accounts payable and accrued $ 106,382 $ 78,295 $ 79,799 expensesReserve for sales returns and 42,282 32,312 42,108 allowancesIncome taxes payable 703 502 484

Short term operating lease 10,481 9,632 9,925 liabilitiesShort term debt, net 33,596 1,772 5,950

Total current liabilities 193,444 122,513 138,266

Long term operating lease 12,276 20,743 16,883 liabilitiesDebt, non-current portion, net 95,735 174,164 150,410

Other liabilities 16,976 3,333 8,062

Income taxes payable 215 1,491 947

Deferred tax liability, net 123 226 123

Total liabilities 318,769 322,470 314,691

Preferred stock 2,397 1,102 1,740

Stockholders' equity (deficit):Common stock, $.001 par value 7 5 6

Additional paid-in capital 241,405 210,152 221,590

Accumulated deficit (236,593 ) (218,463 ) (197,423 )

Accumulated other comprehensive (12,124 ) (15,975 ) (12,446 )lossTotal JAKKS Pacific, Inc. (7,305 ) (24,281 ) 11,727 stockholders' equity (deficit)Non-controlling interests 1,270 1,129 1,211

Total stockholders' equity (6,035 ) (23,152 ) 12,938 (deficit)Total liabilities, preferred stock $ 315,131 $ 300,420 $ 329,369 and stockholders' equity (deficit)

JAKKS Pacific, Inc. and SubsidiariesCondensed Consolidated Statements of Operations (Unaudited)



Three Months Ended June Six Months Ended June 30, 30,

2021 2020 2021 2020

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

Net sales $ 112,352 $ 78,758 $ 196,195 $ 145,315

Less cost of salesCost of goods 61,489 46,309 105,538 84,013

Royalty expense 16,784 13,885 29,295 25,360

Amortization of tools 2,182 1,794 3,371 2,822 and moldsCost of sales 80,455 61,988 138,204 112,195

Gross profit 31,897 16,770 57,991 33,120

Direct selling expenses 6,286 3,908 13,088 12,410

General and 23,193 19,971 44,604 42,951 administrative expensesDepreciation and 597 785 1,201 1,639 amortizationRestructuring charge - 1,631 - 1,631

Pandemic related - 221 - 221 chargesIncome (loss) from 1,821 (9,746 ) (902 ) (25,732 )operationsOther income (expense):Income from joint - - - 2 venturesOther income (expense), 72 16 127 54 netChange in fair value of (3,797 ) (7,727 ) (12,844 ) (52 )convertible seniornotesChange in fair value of (1,539 ) 1 (8,914 ) 2,083 preferred stockderivative liabilityLoss on debt (7,351 ) - (7,351 ) - extinguishmentInterest income 4 3 6 17

Interest expense (4,370 ) (5,543 ) (9,245 ) (11,090 )

Loss before provision (15,160 ) (22,996 ) (39,123 ) (34,718 )for (benefit from)income taxesProvision for (benefit (100 ) 272 (12 ) 548 from) income taxesNet loss (15,060 ) (23,268 ) (39,111 ) (35,266 )

Net income attributable 24 8 59 48 to non-controllinginterestsNet loss attributable $ (15,084 ) $ (23,276 ) $ (39,170 ) $ (35,314 )to JAKKS Pacific, Inc.Net loss attributable $ (15,415 ) $ (23,588 ) $ (39,827 ) $ (35,933 )to common stockholdersLoss per share - basic $ (2.48 ) $ (7.70 ) $ (6.86 ) $ (11.81 )and dilutedShares used in loss per 6,220 3,064 5,802 3,043 share - basic anddiluted 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 June Six Months Ended June 30, 30,

2021 2020 2021 2020

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

EBITDA and AdjustedEBITDANet loss $ (15,060 ) $ (23,268 ) $ (39,111 ) $ (35,266 )

Interest expense 4,370 5,543 9,245 11,090

Interest income (4 ) (3 ) (6 ) (17 )

Provision for (benefit (100 ) 272 (12 ) 548 from) income taxesDepreciation and 2,779 2,579 4,572 4,461 amortizationEBITDA (8,015 ) (14,877 ) (25,312 ) (19,184 )

Adjustments:Income from joint - - - (2 )venturesOther income (expense), (72 ) (16 ) (127 ) (54 )netRestricted stock 383 714 765 966 compensation expenseChange in fair value of 3,797 7,727 12,844 52 convertible senior notesChange in fair value of 1,539 (1 ) 8,914 (2,083 )preferred stockderivative liabilityEmployee retention - - (1,900 ) - creditLoss on debt 7,351 - 7,351 - extinguishmentRestructuring charge - 1,631 - 1,631

Pandemic related charges - 221 - 221

Adjusted EBITDA $ 4,983 $ (4,601 ) $ 2,535 $ (18,453 )

Adjusted net income(loss) attributable tocommon stockholdersNet loss attributable to $ (15,415 ) $ (23,588 ) $ (39,827 ) $ (35,933 )common stockholdersRestricted stock 383 714 765 966 compensation expenseChange in fair value of 3,797 7,727 12,844 52 convertible senior notesChange in fair value of 1,539 (1 ) 8,914 (2,083 )preferred stockderivative liabilityEmployee retention - - (1,900 ) - creditLoss on debt 7,351 - 7,351 - extinguishmentRestructuring charge - 1,631 - 1,631

Pandemic related charges - 221 - 221

Tax impact of additional - (117 ) - (117 )chargesAdjusted net loss $ (2,345 ) $ (13,413 ) $ (11,853 ) $ (35,263 )attributable to commonstockholdersAdjusted loss per share $ (0.38 ) $ (4.38 ) $ (2.04 ) $ (11.59 )- basic and dilutedShares used in adjusted 6,220 3,064 5,802 3,043 loss per share - basicand diluted View source version on businesswire.com: https://www.businesswire.com/news/home/20210728005911/en/

CONTACT: Gateway Group Alex Thompson (949) 574-3860 alex@gatewayir.com JAKKS Pacific Jared Wolfson (424) 268-9330 jwolfson@jakks.net