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SANTA MONICA, Calif.–(BUSINESS WIRE)–#JAKKSToys–JAKKS Pacific, Inc. [NASDAQ: JAKK] today reported financial results for the fourth quarter and full-year ended December 31, 2019.

Fourth Quarter 2019 Overview vs. Same Period Last Year:

  • Net sales were $152.5 million, up 15% compared to $132.3 million reported in the comparable period in 2018, boosted by strong sales of Disney Frozen 2 products.
  • Gross margin was 30.4%, compared to 30.6% in Q4 of last year.
  • Net loss attributable to common stockholders was $20.6 million, or $0.70 per basic and diluted share, including non-cash charges of $10.7 million for intangibles impairment and tooling disposal, and the change in fair value of the derivative liability attributable to our preferred stock. This compares to a net loss attributable to common stockholders of $3.2 million, or $0.14 per basic and diluted share, in the fourth quarter of 2018.
  • Adjusted EBITDA (a non-GAAP measure) was $3.3 million, compared to negative $1.6 million in the fourth quarter of 2018. See note below on “Use of Non-GAAP Financial Information.”
  • Adjusted net loss attributable to common stockholders (a non-GAAP measure) was $0.26 per basic and diluted share, an improvement of $0.11. See note below on “Use of Non-GAAP Financial Information.”

Fiscal 2019 Overview vs. Same Period Last Year:

  • Net sales were $598.6 million, up 5% compared to $567.8 million reported in the prior year, boosted by strong sales of Disney Frozen 2 products and increases in sales of Disguise costumes.
  • Gross margin was 26.6%, compared to 27.4% in 2018.
  • Net loss attributable to common stockholders was $56.0 million, or $2.16 per basic and diluted share, including non-cash charges totaling $23.9 million for intangibles impairment and tooling disposal, the change in fair value of the derivative liability attributable to our preferred stock, and the loss on the extinguishment of debt resulting from our recapitalization transaction in Q3 of 2019. This compares to a net loss attributable to common stockholders of $42.4 million, or $1.83 per basic and diluted share in 2018.
  • Adjusted EBITDA (a non-GAAP measure) was $18.9 million, a significant improvement compared to $2.3 million in 2018. See note below on “Use of Non-GAAP Financial Information.”
  • Adjusted net loss attributable to common stockholders (a non-GAAP measure) was $0.73 per basic and diluted share, an improvement of $0.52. See note below on “Use of Non-GAAP Financial Information.”

Management Commentary

JAKKS Chairman and CEO Stephen Berman stated, “We are pleased to report solid improvement in our sales and adjusted EBITDA for the fourth quarter and for the full-year of 2019. Despite significant industry-wide softness in retail toy sales through most of 2019, including the holiday season, we were able to grow our sales, as strong sales of Disney Frozen 2, Disguise® and Nintendo® more than offset the declines of some older products. Our net sales grew 15% in the quarter, continuing the momentum we saw in the third quarter. For the full year, our sales were up 5%, led by the strong performance of several product lines. More importantly, we were able to meaningfully reduce our normal operating expenses, resulting in a significant improvement in adjusted EBITDA for the year.

“We closed out the year on a strong note and have carried momentum into 2020. We remain committed to containing costs and managing our balance sheet prudently. We expect good performance in 2020 driven by expansion within our evergreen categories and new product initiatives, coupled with new licenses as well as current licenses that we see growing in popularity, and additional owned IP launching throughout the year. We expect licenses such as Disney Princess, Frozen 2, Nintendo and others to benefit our 2020 results.”

Cash and Cash Equivalents

The Company’s cash and cash equivalents (including restricted cash) totaled $66.3 million as of December 31, 2019 compared to $58.2 million as of December 31, 2018.

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.”

Conference Call Live Webcast

JAKKS Pacific will webcast its fourth quarter earnings call at 9:00 a.m. Eastern Time/6:00 a.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 10 minutes prior to register, download and install any necessary audio software.

A replay of the call will be available on JAKKS’ website approximately one hour following completion of the call through February 26, 2020 ending at 11:59 p.m. Eastern Time/8:59 p.m. Pacific Time. The playback can be accessed by calling (888) 843-7419 or (630) 652-3042 for international callers, with passcode “49386015#” for both playback numbers.

About JAKKS Pacific, Inc.

JAKKS Pacific, Inc. (NASDAQ: JAKK) 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™, Real Workin’ Buddies™, XPV®, Disguise®, Moose Mountain®, Maui®, 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).

©2020 JAKKS Pacific, Inc. All rights reserved.

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
Consolidated Balance Sheets (Unaudited)
 
 
 

December 31,

 

December 31,

2019

 

2018

(In thousands)

ASSETS
 
Current assets:
Cash and cash equivalents

$ 61,613

$ 53,282

Restricted cash

4,673

4,923

Accounts receivable, net

117,942

122,278

Inventory

54,259

53,880

Prepaid expenses and other assets

21,898

15,780

Total current assets

260,385

250,143

 
Property and equipment

121,821

128,049

Less accumulated depreciation and amortization

106,562

107,147

Property and equipment, net

15,259

20,902

 
Operating lease right-of-use assets

32,081

Goodwill

35,083

35,083

Intangibles and other assets, net

22,414

36,713

Total assets

$ 365,222

$ 342,841

 
 
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable and accrued expenses

$ 100,711

$ 87,488

Reserve for sales returns and allowances

38,365

29,403

Income taxes payable

2,492

Short term operating lease liabilities

9,451

Short term debt, net

1,905

27,211

Total current liabilities

152,924

144,102

 
Long term operating lease liabilities

25,632

Long term debt, net

174,962

139,792

Other liabilities

5,409

4,409

Income taxes payable

1,565

1,458

Deferred income taxes, net

226

1,431

Total liabilities

360,718

291,192

 
Preferred stock

483

 
Stockholders’ equity:
Common stock, $.001 par value

36

30

Additional paid-in capital

200,475

218,155

Treasury stock

(24,000)

Accumulated deficit

(183,149)

(127,601)

Accumulated other comprehensive loss

(14,422)

(15,847)

Total JAKKS Pacific, Inc. stockholders’ equity

2,940

50,737

Non-controlling interests

1,081

912

Total stockholders’ equity

4,021

51,649

Total liabilities, preferred stock and stockholders’ equity

$ 365,222

$ 342,841

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

Three Months Ended December 31,

 

Year Ended December 31,

2019

 

2018

 

2019

 

2018

(In thousands, except per share data)

 

(In thousands, except per share data)

 
Net sales

$ 152,511

$ 132,326

$ 598,649

$ 567,810

Less cost of sales
Cost of goods

80,916

71,356

335,450

319,788

Royalty expense

22,657

19,040

91,775

81,794

Amortization of tools and molds *

2,538

1,444

12,079

10,512

Cost of sales

106,111

91,840

439,304

412,094

Gross profit

46,400

40,486

159,345

155,716

Direct selling expenses

20,767

16,565

55,103

54,851

Selling, general and administrative expenses

25,124

24,382

99,580

123,722

Depreciation and amortization

1,597

1,646

6,527

6,569

Intangibles impairment

9,379

9,379

Restructuring charge

47

1,114

341

1,114

Acquisition related and other

247

1,197

6,204

1,633

Loss from operations

(10,761)

(4,418)

(17,789)

(32,173)

Other income (expense):
Income from joint ventures

227

Other income (expense), net

(1,035)

(152)

(1,158)

152

Loss on extinguishment of debt

(13,205)

(453)

Change in fair value of convertible senior notes

(2,120)

5,462

(5,112)

2,948

Change in fair value of derivative liability

(353)

(353)

Interest income

21

21

85

68

Interest expense

(5,381)

(3,013)

(15,935)

(10,243)

Loss before provision for income taxes

(19,629)

(2,100)

(53,467)

(39,474)

Provision for income taxes

552

1,243

1,912

2,951

Net loss

(20,181)

(3,343)

(55,379)

(42,425)

Net income (loss) attributable to non-controlling interests

112

(96)

169

(57)

Net loss attributable to JAKKS Pacific, Inc.

$ (20,293)

$ (3,247)

$ (55,548)

$ (42,368)

Net loss attributable to common stockholders

$ (20,596)

$ (3,247)

$ (56,031)

$ (42,368)

Loss per share – basic and diluted

$ (0.70)

$ (0.14)

$ (2.16)

$ (1.83)

Shares used in loss per share – basic and diluted

29,617

23,106

25,980

23,104

 
* Includes $972 of tools and molds disposal

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 December 31,

 

 

Year Ended December 31,

2019

 

2018

 

 

2019

 

2018

(In thousands)

 

 

(In thousands)

 
Net loss

$ (20,181)

$ (3,343)

$ (55,379)

$ (42,425)

Income from joint ventures

(227)

Other (income) expense, net

(165)

152

(42)

(152)

Loss on extinguishment of debt

13,205

453

Interest income

(21)

(21)

(85)

(68)

Interest expense

5,381

3,013

15,935

10,243

Provision for income taxes

552

1,243

1,912

2,951

Depreciation and amortization

4,135

3,090

18,606

17,081

Acquisition related and other

247

1,197

6,204

1,633

Restricted stock compensation expense

996

687

2,868

2,434

Bad debt write-offs (recoveries)

(713)

(3,242)

(713)

8,722

Intangibles impairment

9,379

9,379

Change in fair value of convertible senior notes

2,120

(5,462)

5,112

(2,948)

Change in fair value of derivative liability

353

353

Unclaimed property liability (1999-2014)

1,200

1,200

Restructuring charge

47

1,114

341

1,114

Minimum guarantee shortfalls

3,468

 
Adjusted EBITDA

$ 3,330

$ (1,572)

$ 18,896

$ 2,279

 

Three Months Ended December 31,

 

 

Year Ended December 31,

2019

 

2018

 

 

2019

 

2018

(In thousands, except per share data)

 

 

(In thousands, except per share data)

 
Net loss attributable to common stockholders

$ (20,596)

$ (3,247)

$ (56,031)

$ (42,368)

Restricted stock compensation expense

996

687

2,868

2,434

Loss on extinguishment of debt

13,205

453

Bad debt write-offs (recoveries)

(713)

(3,242)

(713)

8,722

Acquisition related and other

247

1,197

6,204

1,633

Change in fair value of convertible senior notes

2,120

(5,462)

5,112

(2,948)

Change in fair value of derivative liability

353

353

Intangibles impairment

9,379

9,379

Restructuring charge

47

1,114

341

1,114

Unclaimed property liability (1999-2014)

1,200

1,200

Minimum guarantee shortfalls

3,468

Tax impact of additional charges

(786)

304

(816)

(1,439)

 
Adjusted net loss attributable to common stockholders

$ (7,753)

$ (8,649)

$ (18,898)

$ (28,931)

 
Adjusted loss per share – basic and diluted

$ (0.26)

$ (0.37)

$ (0.73)

$ (1.25)

Shares used in adjusted loss per share – basic and diluted

29,617

23,106

25,980

23,104

 

 

Contacts

JAKKS Pacific
Jared Wolfson

SVP Marketing and Entertainment

(424) 268-9330

jwolfson@jakks.net

Gateway Investor Relations
Sean McGowan

Managing Director

(949) 574-3860

smcgowan@gatewayir.com