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Jakks Pacific Inc (JAKK) SEC Filing 8-K Material Event for the period ending Wednesday, October 27, 2021

Jakks Pacific Inc

CIK: 1009829 Ticker: JAKK

 

Exhibit 99.1

 

JAKKS PACIFIC REPORTS THIRD QUARTER 2021 FINANCIAL RESULTS

 

Strong Halloween

Robust Holiday Season On-Track

 

SANTA MONICA, California, October 27, 2021 – JAKKS Pacific, Inc. [NASDAQ: JAKK] today reported financial results for the third quarter ended September 30, 2021.

 

Highlights

 

 

Third quarter 2021 net sales were $237.0 million compared to $242.3 million last year

 

o

Costumes segment is the strongest performer with $64.0 million in net sales, 16.4% growth vs. Q3 2020; 21.2% growth year-to-date vs. 2020

 

o

Year-to-date total company net sales were $433.2 million, 11.8% higher than prior year

 

Gross margin of 31.6%, up from 30.8%, an improvement of 82 basis points year-over-year despite higher ocean freight expense

 

Net inventory level at seasonally high $89.8 million, $40.1 million in transit to JAKKS warehouses

 

Liquidity of $69.8 million with cash of $26.7 million and revolver availability of $43.1 million

 

Q3 2021 net income attributable to common stockholders of $36.0 million, or $3.97 per diluted share

 

o

Adjusted net income attributable to common stockholders of $34.2 million, or $3.76 per diluted share, an improvement from $32.6 million, or $3.56 per diluted share in the comparable prior year period

 

Year-to-date Adjusted EBITDA of $44.2 million up 80+% vs. $24.3 million in the comparable 2020 period

 

Conversion of the balance of Senior Convertible Notes reduces debt to $95.8 million, a 46% reduction from the recapitalization two years ago

 

Management Commentary

“Our focus on improved product margins and cleaner retail sell-through helped mitigate higher ocean freight costs to improve our year-over-year gross margins for the 7th straight quarter,” said Stephen Berman, JAKKS Pacific’s Chairman and CEO. “Retail sales of our products remained strong in the third quarter. Our top three US customers in the aggregate reported an increase in year-to-date toy POS sell-through just above 9% through the first nine months, with a slight acceleration in Q3. JAKKS was started as an FOB business and we continue to do over 50% of our sales that way today. This focus has benefited us all year, inclusive of Q3, leveraging the supply-chain strength and scale of the major global retailers to pull our product through to the retail shelf during this period of significant supply-chain disruption. We have accelerated our imports of inventory to support sales in the US and Internationally for the holiday season and resetting for the new year. Consistent with recent quarters, we continue to see tremendous consumer and customer reaction to our current product line-up, but supply-chain bottlenecks weighed on our results.

 

“We are pleased to show progress on profitability despite the continuation of the pandemic and related challenges. As we hoped, consumers have embraced the Halloween season this year with a burst of pent-up demand. Sell-thru rates are exceeding 2019 levels. As we look ahead into Q4 we’re excited to be introducing some key new items for the Holiday gift-giving season, including our Nintendo® Super Mario™ Deluxe Bowser’s Airship Playset and our Sonic the Hedgehog™ Giant Eggman Robot Battle Set both of which have received strong retailer and consumer reaction.

 

“As we look ahead to 2022 and beyond, we are excited about both where we are and where we’re headed. We believe we have made tremendous progress since our recapitalization two years ago, and we are working on new initiatives for 2022 and beyond to deliver additional top-line growth and bottom-line margin improvement.”

 

Net sales for the third quarter 2021 were $237.0 million down 2.2% versus $242.3 million last year. The decline was not for lack of customer orders or retail sell-through. We attribute it to logistical delays in customers picking up FOB China orders and the extended timelines to deliver inventory into our US and European warehouses for domestic replenishment. Although net sales in the Toys/Consumer Products segment were down 7.7% globally, net sales of the Costumes segment increased 16.4% compared to Q3 2020 and are up 21.2% for the first nine months of 2021 compared to the same period in 2020.

 

Despite the sales decline, net income attributable to common stockholders increased to $36.0 million, or $3.97 per diluted share, compared to $32.1 million, or $3.19 per diluted share for the third quarter of 2020. Net income in both years included significant charges and gains related to non-cash valuation adjustments. Excluding those elements and the 2021 gain from loan forgiveness, adjusted net income attributable to common stockholders (a non-GAAP measure) was $34.2 million, or $3.76 per diluted share in the third quarter of 2021 versus $32.6 million or $3.56 per diluted share in the third quarter of 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 $26.7 million as of September 30, 2021 compared to $92.7 million as of December 31, 2020 and $79.8 million as of September 30, 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.” “Liquidity” is calculated as cash and cash equivalents, including restricted cash, plus availability under the Company’s $67.5 million revolving credit facility.

 

Conference Call Live Webcast

JAKKS Pacific will webcast its third 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 November 3, 2021 ending at 10:00 p.m. Eastern Time/7:00 p.m. Pacific Time. The playback can be accessed by calling (855) 859-2056 or (404) 537-3406 for international callers, with passcode “2148429” 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: Perfectly Cute™, ReDo™ Skateboard Co, X-Power™, Disguise®, Moose Mountain®, Maui®, Fly Wheels™, Kitten Catfe™, 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).

 

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 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

 

investors@jakks.net

 

 

 

 

 

JAKKS Pacific, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets 

(In thousands)

 

   

(Unaudited)

         
   

September 30,

   

December 31,

 
   

2021

   

2020

   

2020

 

ASSETS

         

Current assets:

                       

Cash and cash equivalents

  $ 25,897     $ 75,189     $ 87,953  

Restricted cash

    808       4,631       4,740  

Accounts receivable, net

    209,190       166,789       102,254  

Inventory

    89,796       54,583       38,642  

Prepaid expenses and other assets

    12,370       22,125       17,239  

Total current assets

    338,061       323,317       250,828  
                         

Property and equipment

    120,910       114,457       114,045  

Less accumulated depreciation and amortization

    108,125       100,238       100,534  

Property and equipment, net

    12,785       14,219       13,511  
                         

Operating lease right-of-use assets, net

    18,535       25,473       24,393  

Goodwill

    35,083       35,083       35,083  

Intangibles and other assets, net

    4,644       9,499       5,554  

Total assets

  $ 409,108     $ 407,591     $ 329,369  
                         
                         

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY

 
                         

Current liabilities:

                       

Accounts payable and accrued expenses

  $ 163,451     $ 139,414     $ 79,799  

Reserve for sales returns and allowances

    47,691       44,217       42,108  

Income taxes payable

    635       1,625       484  

Short term operating lease liabilities

    10,407       9,661       9,925  

Short term debt, net

    1,914       22,544       5,950  

Total current liabilities

    224,098       217,461       138,266  
                         

Long term operating lease liabilities

    9,947       18,392       16,883  

Debt, non-current portion, net

    93,896       151,379       150,410  

Other liabilities

    17,075       5,871       8,062  

Income taxes payable

    215       947       947  

Deferred tax liability, net

    123       226       123  

Total liabilities

    345,354       394,276       314,691  
                         

Preferred stock 

    2,733       1,418       1,740  
                         

Stockholders' equity:

                       

Common stock, $.001 par value

    9       5       6  

Additional paid-in capital

    272,568       211,636       221,590  

Accumulated deficit

    (200,259 )     (186,081 )     (197,423 )

Accumulated other comprehensive loss

    (12,609 )     (14,841 )     (12,446 )

Total JAKKS Pacific, Inc. stockholders' equity

    59,709       10,719       11,727  

Non-controlling interests

    1,312       1,178       1,211  

Total stockholders' equity

    61,021       11,897       12,938  

Total liabilities, preferred stock and stockholders' equity

  $ 409,108     $ 407,591     $ 329,369  

 

 

 

 

JAKKS Pacific, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2021

   

2020

   

2021

   

2020

 
   

(In thousands, except per share data)

   

(In thousands, except per share data)

 
                                 

Net sales

  $ 236,957     $ 242,290     $ 433,152     $ 387,605  

Less: Cost of sales

                               

Cost of goods

    126,095       122,577       231,633       206,590  

Royalty expense

    32,251       41,171       61,546       66,531  

Amortization of tools and molds

    3,687       3,926       7,058       6,748  

Cost of sales

    162,033       167,674       300,237       279,869  

Gross profit

    74,924       74,616       132,915       107,736  

Direct selling expenses

    10,729       13,477       23,817       25,887  

General and administrative expenses

    26,846       22,876       71,450       65,827  

Depreciation and amortization

    606       605       1,807       2,244  

Restructuring charge

    -       -       -       1,631  

Pandemic related charges

    -       145       -       366  

Income from operations

    36,743       37,513       35,841       11,781  

Other income (expense):

                               

Income from joint ventures

    -       -       -       2  

Other income (expense), net

    129       112       256       166  

Change in fair value of convertible senior notes

    (3,651 )     2,809       (16,495 )     2,757  

Change in fair value of preferred stock derivative liability

    (99 )     (2,707 )     (9,013 )     (624 )

Gain on loan forgiveness

    6,206       -       6,206       -  

Loss on debt extinguishment

    -       -       (7,351 )     -  

Interest income

    4       3       10       20  

Interest expense

    (2,658 )     (5,566 )     (11,903 )     (16,656 )

Income (loss) before provision for (benefit from) income taxes

    36,674       32,164       (2,449 )     (2,554 )

Provision for (benefit from) income taxes

    298       (267 )     286       281  

Net income (loss)

    36,376       32,431       (2,735 )     (2,835 )

Net income attributable to non-controlling interests 

    42       49       101       97  

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

  $ 36,334     $ 32,382     $ (2,836 )   $ (2,932 )

Net income (loss) attributable to common stockholders

  $ 35,998     $ 32,066     $ (3,829 )   $ (3,867 )

Earnings (loss) per share - basic

  $ 4.08     $ 8.39     $ (0.56 )   $ (1.17 )

Shares used in earnings (loss) per share - basic

    8,823       3,824       6,820       3,307  

Earnings (loss) per share - diluted

  $ 3.97     $ 3.19     $ (0.56 )   $ (1.17 )

Shares used in earnings (loss) per share - diluted

    9,073       9,307       6,820       3,307  

 

 

 

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 Companys 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 Companys 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,

 
   

2021

   

2020

   

2021

   

2020

 
   

(In thousands, except per share data)

   

(In thousands, except per share data)

 

EBITDA and Adjusted EBITDA

                               

Net income (loss)

  $ 36,376     $ 32,431     $ (2,735 )   $ (2,835 )

 Interest expense

    2,658       5,566       11,903       16,656  

 Interest income

    (4 )     (3 )     (10 )     (20 )

 Provision for (benefit from) income taxes

    298       (267 )     286       281  

 Depreciation and amortization

    4,293       4,531       8,865       8,992  

EBITDA

    43,621       42,258       18,309       23,074  

Adjustments:

                               

Income from joint ventures

    -       -       -       (2 )

Other (income) expense, net

    (129 )     (112 )     (256 )     (166 )

Restricted stock compensation expense

    615       540       1,380       1,506  

Change in fair value of convertible senior notes

    3,651       (2,809 )     16,495       (2,757 )

Change in fair value of preferred stock derivative liability

    99       2,707       9,013       624  

Employee retention credit 

    -       -       (1,900 )     -  

Gain on loan forgiveness

    (6,206 )     -       (6,206 )     -  

Loss on debt extinguishment

    -       -       7,351       -  

Restructuring charge

    -       -       -       1,631  

Pandemic related charges

    -       145       -       366  

Adjusted EBITDA

  $ 41,651     $ 42,729     $ 44,186     $ 24,276  
                                 
                                 

Adjusted net income (loss) attributable to common stockholders

                               

Net income (loss) attributable to common stockholders

  $ 35,998     $ 32,066     $ (3,829 )   $ (3,867 )

Restricted stock compensation expense

    615       540       1,380       1,506  

Change in fair value of convertible senior notes

    3,651       (2,809 )     16,495       (2,757 )

Change in fair value of preferred stock derivative liability

    99       2,707       9,013       624  

Employee retention credit 

    -       -       (1,900 )     -  

Gain on loan forgiveness

    (6,206 )     -       (6,206 )     -  

Loss on debt extinguishment

    -       -       7,351       -  

Restructuring charge

    -       -       -       1,631  

Pandemic related charges

    -       145       -       366  

Tax impact of additional charges

    -       (12 )     -       (129 )

Adjusted net income (loss) attributable to common stockholders

  $ 34,157     $ 32,637     $ 22,304     $ (2,626 )

Adjusted earnings (loss) per share - basic 

  $ 3.87     $ 8.53     $ 3.27     $ (0.79 )

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

    8,823       3,824       6,820       3,307  

Adjusted earnings (loss) per share - diluted 

  $ 3.76     $ 3.56     $ 3.15     $ (0.79 )

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

    9,073       9,307       7,083       3,307  

 

 

 

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Ticker: JAKK
CIK: 1009829
Form Type: 8-K Corporate News
Accession Number: 0001185185-21-001531
Submitted to the SEC: Wed Oct 27 2021 4:05:50 PM EST
Accepted by the SEC: Wed Oct 27 2021
Period: Wednesday, October 27, 2021
Industry: Games Toys And Childrens Vehicles No Dolls And Bicycles
Events:
  1. Earnings Release
  2. Financial Exhibit

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