Long-term debt retired; Second-Highest First Half Net Sales in 15 Years

JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 Overview

• Net sales were $166.9 million, a year-over-year decrease of 24.3%
  • Toys/Consumer Products Net Sales were $117.9 million, a year-over-year decrease of 20.8%
  • Costumes Net Sales were $49.0 million, a year-over-year decrease of 31.5%
  • First-half Net Sales for JAKKS Pacific, Inc. were $274.4 million, a year-over-year decrease of 19.6%
• Gross profit was $51.2 million, a year-over-year decrease of 15.9% from $60.9 million
• Gross margin was 30.7%, up 310 basis points vs. Q2 2022
• Retired debt of $30.2 million four years prior to maturity, eliminating 11%+ interest burden
  • Total debt was $84.9 million as of June 30, 2022, and $177.7 million as of September 30, 2019, post company recapitalization
• Operating income was $16.4 million (9.9% of net sales) vs. $23.7 million (10.7% of net sales) in Q2 2022
• Net income attributable to common stockholders was $6.1 million or $0.58 per diluted share, compared to net income attributable to common stockholders of $26.2 million or $2.61 per share in Q2 2022
• Adjusted net income attributable to common stockholders (a non-GAAP measure) was $13.3 million or $1.26 per diluted share, compared to an adjusted net income attributable to common stockholders of $21.1 million or $2.10 per diluted share in Q2 2022
• Adjusted EBITDA (a non-GAAP measure) was $20.7 million, vs. $27.1 million in Q2 2022
• Trailing twelve month adjusted EBITDA was $66.9 million (9.2% of net sales) down 12% from $75.7 million (9.9% of net sales) in the trailing twelve months ended June 2022

Management Commentary

“I’m pleased to say that the first half of the year has met, and in many cases, exceeded our expectations,” said Stephen Berman, CEO of JAKKS Pacific, Inc. “Consumers reacted favorably to our new product launches, both supporting the most talked about film releases of the first half of the year as well as the innovation and excitement we’ve brought to our classic, evergreen product lines. Retail sell-through accelerated in the quarter from earlier in the year, as customers continued to work down inventory levels and refocus their attention and planning for the annual holiday shopping season.

“We similarly are taking a very thoughtful approach to our own inventory given the continuing uncertainty around consumer behavior. Our Q2 ending inventory balance of $65.1 million is our lowest Q2 level since 2021.

“Our Action Play & Collectibles business led all segments with 41% growth year-over-year in the quarter. We have steadily rebuilt this business over the past three years extending and expanding our long-standing relationships in the gaming space and partnering with companies like Nintendo® and SEGA to extend their franchises to create compelling products for their theatrical and streaming releases. Through the first half of the year, our Action Play division has grown to be 84% of our market-leading Doll and Role Play division, balancing our portfolio substantially.

“Our Costume business shipped $49 million, substantially lower than last year’s all-time peak of $72 million as we see customers ordering more conservatively and later than last year but it was nonetheless the second highest Q2 shipment level in the past 10+ years. We are still anticipating a very strong year in Costumes.

“And as we’ve previously disclosed, during the quarter we took the opportunity to eliminate our existing high-cost debt to further increase the agility of our capital structure.”

Second Quarter 2023 Results

Net sales for the second quarter of 2023 were $166.9 million, down 24% versus an all-time high of $220.4 million last year. The Toys/Consumer Products segment sales were down 21% globally and sales of Disguise costumes were down 32% compared to last year.

For the first half, North America was down 24% while International was up 10%.

Balance Sheet Highlights

The Company’s cash and cash equivalents (including restricted cash) totaled $32.4 million as of June 30, 2023, compared to $62.3 million as of June 30, 2022, and $85.5 million as of December 31, 2022.

Total debt was zero, compared to $84.9 million as of June 30, 2022, and $67.2 million as of December 31, 2022.

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 and Adjusted Net Income (Loss) which are non-GAAP metrics that exclude 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, Inc. invites analysts, investors and media to listen to the teleconference scheduled for 5:00 p.m. ET / 2:00 p.m. PT on July 27, 2023. A live webcast of the call will be available on the “Investor Relations” page of the Company’s website at www.jakks.com/investors. To access the call by phone, please go to this link (2Q23 Registration link), and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time. A replay of the webcast will also be available for a limited time at (www.jakks.com/investors).

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 Fly Wheels®, Perfectly Cute®, ReDo® Skateboard Co., AirTitans®, Sky Ball®, JAKKS Wild Games™, Moose Mountain®, Maui®, SportsZone™, Kids Only!™, Xtreme Power Dozer®, Disguise®, WeeeDo®, Ami Amis™ and a wide range of entertainment-inspired products featuring premier licensed properties. 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 (@jakkstoys).

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.

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.