JAKK JAKKS Pacific Inc

JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the second quarter ended June 30, 2024.

First-half net sales for JAKKS Pacific, Inc. were $238.7 million, a year-over-year decrease of 13.0%, primarily attributable to a lack of new content-related product launches, which occurred in the first half of last year.

Second Quarter 2024 Overview

• Net sales were $148.6 million, a year-over-year decrease of 11.0%
  • Toys/Consumer Products net sales were $104.6 million, a year-over-year decrease of 11.3%
  • Costumes net sales were $44.0 million, a year-over-year decrease of 10.1%
• Gross profit was $47.6 million, a year-over-year decrease of 7.1% from $51.2 million
• Gross margin was 32.0%, up 130 basis points vs. Q2 2023
• Operating income was $7.6 million (5.1% of net sales) vs. $16.4 million (9.9% of net sales) in Q2 2023
• Net income attributable to common stockholders was $5.3 million or $0.47 per diluted share, compared to net income attributable to common stockholders of $6.1 million or $0.58 per share in Q2 2023
• Adjusted net income attributable to common stockholders (a non-GAAP measure) was $7.3 million or $0.65 per diluted share, compared to an adjusted net income attributable to common stockholders of $13.3 million or $1.26 per diluted share in Q2 2023
• Adjusted EBITDA (a non-GAAP measure) was $12.3 million, vs. $20.7 million in Q2 2023
• Trailing twelve month adjusted EBITDA was $51.2 million (7.6% of net sales) down 23% from $66.9 million (9.2% of net sales) in the trailing twelve months ended June 2023

Management Commentary“The first half of 2024 closes with our delivering solid results anchored by our evergreen business of time-tested toy categories and play patterns,” said Stephen Berman, CEO of JAKKS Pacific, Inc. “A lack of new content releases created unfavorable topline comparisons with prior year, but our base business continued to perform and adapt in an ever-changing marketplace.

“We are pleased with our progress to date and our positioning and preparation for the new product we’re shipping in the latter half of the year. Exciting new launches supporting Moana 2, releasing in theatres this November, and Sonic the Hedgehog™ 3, releasing in theaters this December will be the cornerstones of the broad retail support we have secured with our top customers globally. We are also in the middle of the exciting initial launch of our new line of products inspired by “The Simpsons,” the launch of our Authentic Brands Group business as well as several other new IP and category extensions.”

Second Quarter 2024 HighlightsThe Dolls, Role-Play/Dress-Up division generated net sales of $63.6 million, up 6.6% from $59.7 million last year. The Action Play & Collectibles division generated net sales of $36.6 million, down 30.5% from $52.6 million last year.

For the first half, North America was down 8%, attributable to the impact of lower contribution from product lines launched in support of new entertainment content and lower Costume sales. International was down 31%, primarily due to orders slipping into the following quarter due to logistics-related issues but also negatively impacted by the content slate comparison with the prior year.

Balance Sheet HighlightsThe Company’s cash and cash equivalents (including restricted cash) totaled $17.9 million as of June 30, 2024, compared to $32.4 million as of June 30, 2023, and $72.6 million as of December 31, 2023.

Inventory totaled $51.3 million as of June 30, 2024, compared to $65.1 million as of June 30, 2023, and $52.6 million as of December 31, 2023.

Use of Non-GAAP Financial Information and Reconciliation of GAAP to Non-GAAP measures: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. These 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.

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.

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. 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. 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.

Conference Call Live WebcastJAKKS 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 31, 2024. 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 (2Q24 Registration link) and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call several 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: AirTitans®, Disguise®, Fly Wheels®, JAKKS Wild Games®, Moose Mountain®, Maui®, Perfectly Cute®, ReDo® Skateboard Co., Sky Ball®, SportsZone™, Xtreme Power Dozer®, WeeeDo®, and Wild Manes™ as well as a wide range of entertainment-inspired products featuring premier licensed properties. Through our products and our charitable donations, JAKKS is helping to make a positive impact on the lives of children. Visit us at www.jakks.com and follow us on Instagram (@jakkspacific.toys), Twitter (@jakkstoys) and Facebook (@jakkspacific.toys).

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
Condensed Consolidated Balance Sheets (Unaudited)
					June 30,								December 31,
						2024				2023				2023
					(In thousands)
Assets
Current assets:
	Cash and cash equivalents				$	17,700			$	32,228			$	72,350
	Restricted cash					202				203				204
	Accounts receivable, net					140,006				132,479				123,797
	Inventory					51,327				65,059				52,647
	Prepaid expenses and other assets					26,457				11,227				6,374
		Total current assets				235,692				241,196				255,372
Property and equipment						141,326				134,091				135,956
Less accumulated depreciation and amortization						124,580				116,813				121,357
	Property and equipment, net					16,746				17,278				14,599
Operating lease right-of-use assets, net						20,667				15,249				23,592
Deferred income tax assets, net						68,141				57,804				68,143
Goodwill						35,029				35,083				35,083
Other long-term assets						1,976				2,331				2,162
		Total assets			$	378,251			$	368,941			$	398,951
Liabilities, Preferred Stock and Stockholders' Equity
Current liabilities:
	Accounts payable				$	55,368			$	57,768			$	42,177
	Accounts payable - Meisheng (related party)					19,130				18,612				12,259
	Accrued expenses					45,026				46,448				45,102
	Reserve for sales returns and allowances					29,456				37,851				38,531
	Income taxes payable					-				5,808				3,785
	Short term operating lease liabilities					7,777				9,226				7,380
	Short term debt, net					5,000				-				-
		Total current liabilities				161,757				175,713				149,234
Long term operating lease liabilities						14,859				6,220				16,666
Accrued expenses - long term						2,299				-				3,746
Preferred stock derivative liability						-				27,793				29,947
Income taxes payable						3,441				2,971				3,245
		Total liabilities				182,356				212,697				202,838
Preferred stock accrued dividends						-				5,230				5,992
Stockholders' equity:
	Common stock, $.001 par value					11				10				10
	Additional paid-in capital					294,543				277,178				278,642
	Accumulated deficit					(82,851	)			(110,876	)			(73,612	)
	Accumulated other comprehensive loss					(16,308	)			(16,021	)			(15,627	)
		Total JAKKS Pacific, Inc. stockholders' equity				195,395				150,291				189,413
	Non-controlling interests					500				723				708
		Total stockholders' equity				195,895				151,014				190,121
		Total liabilities, preferred stock and stockholders' equity			$	378,251			$	368,941			$	398,951
Supplemental Balance Sheet and Cash Flow Data (Unaudited)
									June 30,
Key Balance Sheet Data:										2024				2023
Accounts receivable days sales outstanding (DSO)										86				72
Inventory turnover (DSI)										46				51
									Six Months Ended June 30,
Condensed Cash Flow Data:										2024				2023
Cash flows provided by (used in) operating activities									$	(27,665	)		$	20,805
Cash flows used in investing activities										(6,174	)			(4,893	)
Cash flows used in financing activities and other										(20,813	)			(68,971	)
Increase in cash, cash equivalents and restricted cash									$	(54,652	)		$	(53,059	)
Capital expenditures									$	(4,627	)		$	(4,918	)

		JAKKS Pacific, Inc. and Subsidiaries
		Condensed Consolidated Statements of Operations (Unaudited)
			Three Months Ended June 30,											Six Months Ended June 30,
				2024				2023			Δ (%)					2024				2023			Δ (%)
			(In thousands, except per share data)												(In thousands, except per share data)
Net sales			$	148,619			$	166,933				(11	)%		$	238,695			$	274,417			(13	)%
Less: Cost of sales
	Cost of goods			76,599				86,156				(11	)			130,420				144,460			(10	)
	Royalty expense			22,394				27,279				(18	)			36,170				43,933			(18	)
	Amortization of tools and molds			2,041				2,300				(11	)			3,468				3,389			2
	Cost of sales			101,034				115,735				(13	)			170,058				191,782			(11	)
		Gross profit		47,585				51,198				(7	)			68,637				82,635			(17	)
Direct selling expenses				6,255				3,980				57				14,352				11,721			22
General and administrative expenses				33,594				30,677				10				67,786				58,671			16
Depreciation and amortization				93				93				-				180				195			(8	)
	Selling, general and administrative expenses			39,942				34,750				15				82,318				70,587			17
		Income (loss) from operations		7,643				16,448				(54	)			(13,681	)			12,048			nm
Other income (expense):
	Loss from joint ventures			-				(565	)			nm				-				(565	)		nm
	Other income (expense), net			72				38				89				210				476			(56	)
	Change in fair value of preferred stock derivative liability			-				(6,022	)			nm				-				(5,875	)		nm
	Loss on debt extinguishment			-				(1,023	)			nm				-				(1,023	)		nm
	Interest income			88				86				2				464				203			129
	Interest expense			(256	)			(1,302	)			(80	)			(399	)			(4,305	)		(91	)
Income (loss) before provision for (benefit from) income taxes				7,547				7,660				(1	)			(13,406	)			959			nm
Provision for (benefit from) income taxes				2,281				1,478				54				(4,447	)			95			nm
Net income (loss)				5,266				6,182				(15	)			(8,959	)			864			nm
Net income (loss) attributable to non-controlling interests				-				(273	)			nm				280				(278	)		nm
Net income (loss) attributable to JAKKS Pacific, Inc.			$	5,266			$	6,455				(18	)%		$	(9,239	)		$	1,142			nm	%
Net income (loss) attributable to common stockholders			$	5,266			$	6,082				(13	)%		$	(7,909	)		$	402			nm	%
	Earnings (loss) per share - basic		$	0.49			$	0.62							$	(0.75	)		$	0.04
	Shares used in earnings (loss) per share - basic			10,801				9,871								10,577				9,871
	Earnings (loss) per share - diluted		$	0.47			$	0.58							$	(0.75	)		$	0.04
	Shares used in earnings (loss) per share - diluted			11,245				10,532								10,577				10,428
			Three Months Ended June 30,											Six Months Ended June 30,
				2024				2023			Δ bps					2024				2023			Δ bps
											Fav/(Unfav)												Fav/(Unfav)
Net sales				100.0	%			100.0	%			-				100.0	%			100.0	%		-
Less: Cost of sales
	Cost of goods			51.5				51.6				10				54.5				52.6			(190	)
	Royalty expense			15.1				16.3				120				15.2				16.0			80
	Amortization of tools and molds			1.4				1.4				-				1.5				1.3			(20	)
	Cost of sales			68.0				69.3				130				71.2				69.9			(130	)
		Gross profit		32.0				30.7				130				28.8				30.1			(130	)
Direct selling expenses				4.2				2.4				(180	)			6.0				4.3			(170	)
General and administrative expenses				22.6				18.3				(430	)			28.4				21.3			(710	)
Depreciation and amortization				0.1				0.1				-				0.1				0.1			-
	Selling, general and administrative expenses			26.9				20.8				(610	)			34.5				25.7			(880	)
		Income (loss) from operations		5.1				9.9				(480	)			(5.7	)			4.4			(1,010	)
Other income (expense):
	Loss from joint ventures			-				(0.3	)							-				(0.2	)
	Other income (expense), net			-				-								0.1				0.2
	Change in fair value of preferred stock derivative liability			-				(3.6	)							-				(2.1	)
	Loss on debt extinguishment			-				(0.6	)							-				(0.4	)
	Interest income			0.1				-								0.2				0.1
	Interest expense			(0.2	)			(0.8	)							(0.2	)			(1.6	)
Income (loss) before provision for (benefit from) income taxes				5.0				4.6								(5.6	)			0.4
Provision for (benefit from) income taxes				1.5				0.9								(1.8	)			-
Net income (loss)				3.5				3.7								(3.8	)			0.4
Net income (loss) attributable to non-controlling interests				-				(0.2	)							0.1				(0.1	)
Net income (loss) attributable to JAKKS Pacific, Inc.				3.5	%			3.9	%							(3.9	)%			0.5	%
Net income (loss) attributable to common stockholders				3.5	%			3.6	%							(3.3	)%			0.1	%

JAKKS Pacific, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Information (Unaudited)
		Three Months Ended June 30,												Six Months Ended June 30,
			2024				2023			Δ ($)					2024				2023			Δ ($)
		(In thousands)												(In thousands)
EBITDA and Adjusted EBITDA
Net income (loss)		$	5,266			$	6,182			$	(916	)		$	(8,959	)		$	864			$	(9,823	)
Interest expense			256				1,302				(1,046	)			399				4,305				(3,906	)
Interest income			(88	)			(86	)			(2	)			(464	)			(203	)			(261	)
Provision for income taxes			2,281				1,478				803				(4,447	)			95				(4,542	)
Depreciation and amortization			2,134				2,393				(259	)			3,648				3,584				64
EBITDA			9,849				11,269				(1,420	)			(9,823	)			8,645				(18,468	)
Adjustments:
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)			-				292				(292	)			-				287				(287	)
Loss from joint ventures (Meisheng - 49%)			-				273				(273	)			-				278				(278	)
Other (income) expense, net			(72	)			(38	)			(34	)			(210	)			(476	)			266
Restricted stock compensation expense			2,519				1,856				663				5,094				3,945				1,149
Change in fair value of preferred stock derivative liability			-				6,022				(6,022	)			-				5,875				(5,875	)
Loss on debt extinguishment			-				1,023				(1,023	)			-				1,023				(1,023	)
Adjusted EBITDA		$	12,296			$	20,697			$	(8,401	)		$	(4,939	)		$	19,577			$	(24,516	)
Adjusted EBITDA/Net sales %			8.3	%			12.4	%		-410 bps					(2.1	)%			7.1	%		-920 bps
		Trailing Twelve Months Ended June 30,
			2024				2023			Δ ($)
		(In thousands)
TTM EBITDA and TTM Adjusted EBITDA
TTM net income		$	28,290			$	69,649			$	(41,359	)
Interest expense			2,545				10,949				(8,404	)
Interest income			(1,605	)			(321	)			(1,284	)
Provision for (benefit from) income taxes			2,291				(42,664	)			44,955
Depreciation and amortization			10,400				9,794				606
TTM EBITDA			41,921				47,407				(5,486	)
Adjustments:
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)			(11	)			287				(298	)
Loss from joint ventures (Meisheng - 49%)			11				278				(267	)
Other (income) expense, net			(297	)			(1,004	)			707
Restricted stock compensation expense			9,176				7,002				2,174
Change in fair value of preferred stock derivative liability			2,154				11,895				(9,741	)
Molds and tooling capitalization			(1,751	)			-				(1,751	)
Loss on debt extinguishment			-				1,023				(1,023	)
TTM Adjusted EBITDA		$	51,203			$	66,888			$	(15,685	)
TTM Adjusted EBITDA/TTM Net sales %			7.6		%		9.2	%		-160 bps
		Three Months Ended June 30,												Six Months Ended June 30,
			2024				2023			Δ ($)					2024				2023			Δ ($)
		(In thousands, except per share data)												(In thousands, except per share data)
Adjusted net loss attributable to common stockholders
Net income (loss) attributable to common stockholders		$	5,266			$	6,082			$	(816	)		$	(7,909	)		$	402			$	(8,311	)
Restricted stock compensation expense			2,519				1,856				663				5,094				3,945				1,149
Change in fair value of preferred stock derivative liability			-				6,022				(6,022	)			-				5,875				(5,875	)
Loss on debt extinguishment			-				1,023				(1,023	)			-				1,023				(1,023	)
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)			-				292				(292	)			-				287				(287	)
2021 BSP Term Loan prepayment penalty			-				-				-				-				150				(150	)
Tax impact of additional charges			(530	)			(1,979	)			1,449				(1,187	)			(2,347	)			1,160
Adjusted net income (loss) attributable to common stockholders		$	7,255			$	13,296			$	(6,041	)		$	(4,002	)		$	9,335			$	(13,337	)
Adjusted earnings (loss) per share - basic & diluted		$	0.67			$	1.35			$	(0.68	)		$	(0.38	)		$	0.95			$	(1.33	)
Shares used in adjusted earnings (loss) per share - basic			10,801				9,871				930				10,577				9,871				706
Adjusted earnings (loss) per share - diluted		$	0.65			$	1.26			$	(0.61	)		$	(0.38	)		$	0.90			$	(1.28	)
Shares used in adjusted earnings (loss) per share - diluted			11,245				10,532				713				10,577				10,428				149

JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region
(In thousands)	QTD Q2											(In thousands)	YTD Q2
Divisions		2024		2023		2022	% Change 2024 v 2023		% Change 2023 v 2022			Divisions		2024		2023		2022	% Change 2024 v 2023		% Change 2023 v 2022
Toys/Consumer Products	$	104,570	$	117,934	$	148,860	-11.3	%	-20.8	%		Toys/Consumer Products	$	187,480	$	215,827	$	259,983	-13.1	%	-17.0	%
Dolls, Role-Play/Dress Up		63,608		59,669		102,186	6.6	%	-41.6	%		Dolls, Role-Play/Dress Up		104,182		107,512		164,192	-3.1	%	-34.5	%
Action Play & Collectibles		36,555		52,571		37,170	-30.5	%	41.4	%		Action Play & Collectibles		69,563		90,417		68,868	-23.1	%	31.3	%
Outdoor/Seasonal Toys		4,407		5,694		9,504	-22.6	%	-40.1	%		Outdoor/Seasonal Toys		13,735		17,898		26,923	-23.3	%	-33.5	%
Costumes	$	44,049	$	48,999	$	71,562	-10.1	%	-31.5	%		Costumes	$	51,215	$	58,590	$	81,320	-12.6	%	-28.0	%
Total	$	148,619	$	166,933	$	220,422	-11.0	%	-24.3	%		Total	$	238,695	$	274,417	$	341,303	-13.0	%	-19.6	%
(In thousands)	QTD Q2											(In thousands)	YTD Q2
Regions		2024		2023		2022	% Change 2024 v 2023		% Change 2023 v 2022			Regions		2024		2023		2022	% Change 2024 v 2023		% Change 2023 v 2022
United States	$	125,837	$	136,187	$	192,484	-7.6	%	-29.2	%		United States	$	196,267	$	216,630	$	289,534	-9.4	%	-25.2	%
Europe		10,264		16,638		14,447	-38.3	%	15.2	%		Europe		15,999		26,800		27,836	-40.3	%	-3.7	%
Latin America		3,239		3,067		3,823	5.6	%	-19.8	%		Latin America		11,235		12,271		6,208	-8.4	%	97.7	%
Canada		6,288		6,799		5,537	-7.5	%	22.8	%		Canada		9,658		10,853		8,916	-11.0	%	21.7	%
Asia		1,268		1,831		2,363	-30.7	%	-22.5	%		Asia		2,233		3,211		4,439	-30.5	%	-27.7	%
Australia & New Zealand		1,607		1,756		1,582	-8.5	%	11.0	%		Australia & New Zealand		2,953		3,364		3,073	-12.2	%	9.5	%
Middle East & Africa		116		655		186	-82.3	%	252.2	%		Middle East & Africa		350		1,288		1,297	-72.8	%	-0.7	%
Total	$	148,619	$	166,933	$	220,422	-11.0	%	-24.3	%		Total	$	238,695	$	274,417	$	341,303	-13.0	%	-19.6	%
(In thousands)	QTD Q2											(In thousands)	YTD Q2
Regions		2024		2023		2022	% Change 2024 v 2023		% Change 2023 v 2022			Regions		2024		2023		2022	% Change 2024 v 2023		% Change 2023 v 2022
North America	$	132,125	$	142,986	$	198,021	-7.6	%	-27.8	%		North America	$	205,925	$	227,483	$	298,450	-9.5	%	-23.8	%
International		16,494		23,947		22,401	-31.1	%	6.9	%		International		32,770		46,934		42,853	-30.2	%	9.5	%
Total	$	148,619	$	166,933	$	220,422	-11.0	%	-24.3	%		Total	$	238,695	$	274,417	$	341,303	-13.0	%	-19.6	%

CONTACT:
JAKKS Pacific Investor Relations
(424) 268-9567
Lucas Natalini, investors@jakks.net