JAKKS Pacific Reports Fourth Quarter and Full-Year 2023 Financial Results

Full-year Gross Profit Dollars up 6% vs. 2022; Third Consecutive Annual Increase

SANTA MONICA, Calif., Feb. 29, 2024 (GLOBE NEWSWIRE) -- JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the fourth quarter ended December 31, 2023.

Fourth Quarter 2023

• Net sales were $127.4 million, a year-over-year decrease of 3%
• Gross margin of 26.5%, up 480 basis points vs. Q4 2022, led by improved landed product cost and reduced inventory obsolescence expense
• Gross profit of $33.7 million, up 18% compared to $28.6 million in Q4 2022
• Net loss attributable to common stockholders of $11.3 million (or $1.12 per diluted share), compared to net income attributable to common stockholders of $37.6 million or ($3.66 per diluted share) in Q4 2022
• Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $10.5 million (or $1.04 per diluted share), compared to adjusted net loss attributable to common stockholders of $13.9 million (or $1.42 per diluted share) in Q4 2022
• Adjusted EBITDA (a non-GAAP measure) of $(10.9) million vs. $(12.1) million in Q4 2022

Full-Year 2023

• Net sales were $711.6 million compared to $796.2 million last year, an 11% decrease
• Gross margin of 31.4% compared to 26.5% last year
• Gross profit of $223.4 million, up 6% compared to $211.3 million last year, and the highest dollar level since 2015
• Operating income of $59.1 million compared to $61.0 million last year; a 3% decrease
• Net income attributable to common stockholders of $36.9 million, down from a net income attributable to common stockholders of $90.0 million in 2022
• Adjusted net income attributable to common stockholders of $48.9 million ($4.62 per diluted share), up from adjusted net income attributable to common stockholders of $43.6 million ($4.29 per diluted share) in 2022
• Adjusted EBITDA of $75.7 million, down 1% versus $76.4 million in 2022
• Cash flows provided by operating activities of $66.4 million, down from $86.1 million in 2022
• Cash used in financing activities of $70.4 million, eliminating all long-term debt in the first half of 2023
• End of year cash and cash equivalents of $72.6 million, down from $85.5 million in 2022

Management Commentary
“For the third consecutive year we have met or exceeded our key financial full-year targets,” said Stephen Berman, CEO of JAKKS Pacific. “The year began with the challenge of revenue comparisons with a 2022 hit-driven blockbuster product line, but we also saw opportunities for gross margin improvements with a normalized supply chain. Gross and operating margins improved year-over-year despite a $80+ million decline in Net Sales, generating over $66 million in operating cash flow for the year.

“The holiday toy season came late this year, but we were pleased with the results. Two of our top three US Toys/Consumer Products customers achieved positive year-over-year retail sales results in Q4 despite challenging comparisons from the prior year. Our aggregate end-of-year inventory at retail at those three accounts is also down by a high single digit percentage compared to last year. Although customers are tentatively moving into the new year, we believe our core businesses remain on solid footing.”

Fourth Quarter and Full-Year 2023 Results
Net sales for the fourth quarter of 2023 were $127.4 million, down 3% versus $131.9 million last year. The Toys/Consumer Products segment sales were up 1% globally (flat in North America; 7% International) and sales of Costumes were down 40% compared to last year (-54% North America; -20% International).

Full-year Toys/Consumer Products sales were down 10% compared to 2022. The Costumes segment was down 12% vs. 2022, as customers continue to recalibrate to post-COVID levels. Our 2023 Costumes performance was nonetheless 22% higher than 2021.

Balance Sheet Highlights
The Company’s cash and cash equivalents (including restricted cash) totaled $72.6 million as of December 31, 2023, compared to $85.5 million as of December 31, 2022.

Total debt was zero, compared to $67.2 million as of December 31, 2022. Total debt as of December 31, 2022, included the amount outstanding under the Company's term loan, net of unamortized discounts and issuance costs.

Inventory was $52.6 million, compared to $80.6 million as of December 31, 2022, a reduction of 35%.

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, Inc. invites analysts, investors and media to listen to the teleconference scheduled for 5:00 p.m. ET / 2:00 p.m. PT on February 29, 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 (4Q23 Registration link) , and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call five 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, Ami Amis, Disguise, Fly Wheels, JAKKS Wild Games, Moose Mountain, Maui, Perfectly Cute, ReDo Skateboard Co., Sky Ball, SportsZone, Xtreme Power Dozer, and WeeeDo, 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 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 (Unaudited)
					December 31,
						2023					2022
					(In thousands)
Assets
Current assets:
	Cash and cash equivalents				$	72,350				$	85,297
	Restricted cash					204					193
	Accounts receivable, net					123,797					102,771
	Inventory					52,647					80,619
	Prepaid expenses and other assets					6,374					6,331
		Total current assets				255,372					275,211
Property and equipment						135,956					130,437
Less accumulated depreciation and amortization						121,357					115,575
	Property and equipment, net					14,599					14,862
Operating lease right-of-use assets, net						23,592					19,913
Deferred income tax assets, net						68,143					57,804
Goodwill						35,083					35,083
Intangibles and other assets, net						2,162					2,469
		Total assets			$	398,951				$	405,342
Liabilities, Preferred Stock and Stockholders' Equity
Current liabilities:
	Accounts payable				$	42,177				$	33,687
	Accounts payable - Meisheng (related party)					12,259					9,820
	Accrued expenses					45,102					37,998
	Reserve for sales returns and allowances					38,531					51,877
	Income taxes payable					3,785					8,165
	Short term operating lease liabilities					7,380					10,746
	Short term debt, net					-					25,529
		Total current liabilities				149,234					177,822
Long term operating lease liabilities						16,666					9,863
Accrued expenses - long term						3,746					-
Debt, non-current portion, net						-					41,622
Preferred stock derivative liability						29,947					21,918
Income taxes payable						3,245					2,929
Deferred income tax liabilities, net						-					-
		Total liabilities				202,838					254,154
Preferred stock accrued dividends						5,992					4,490
Stockholders' equity:
	Common stock, $.001 par value					10					10
	Additional paid-in capital					278,642					275,187
	Accumulated deficit					(73,612	)				(112,018	)
	Accumulated other comprehensive loss					(15,627	)				(17,482	)
		Total JAKKS Pacific, Inc. stockholders' equity				189,413					145,697
	Non-controlling interests					708					1,001
		Total stockholders' equity				190,121					146,698
		Total liabilities, preferred stock and stockholders' equity			$	398,951				$	405,342
Supplemental Balance Sheet and Cash Flow Data (Unaudited)
					December 31,
Key Balance Sheet Data:						2023					2022
Accounts receivable days sales outstanding (DSO)						89					72
Inventory turnover (DSI)						52					72
					Twelve Months Ended December 31,
Condensed Cash Flow Data:						2023					2022
Cash flows provided by operating activities					$	66,404				$	86,099
Cash flows used in investing activities						(8,907	)				(10,387	)
Cash flows used in financing activities and other						(70,433	)				(35,554	)
Increase (Decrease) in cash, cash equivalents and restricted cash					$	(12,936	)			$	40,158
Capital expenditures					$	(8,906	)			$	(10,389	)

		JAKKS Pacific, Inc. and Subsidiaries
		Condensed Consolidated Statements of Operations (Unaudited)
			Three Months Ended December 31,												Twelve Months Ended December 31,
				2023				2022			Δ (%)					2023				2022			Δ (%)
			(In thousands, except per share data)												(In thousands, except per share data)
Net sales			$	127,396			$	131,886			(3	)%			$	711,557			$	796,187			(11	)%
Less: Cost of sales
	Cost of goods			68,866				81,355			(15	)				362,378				449,597			(19	)
	Royalty expense			22,533				20,371			11					117,607				126,633			(7	)
	Amortization of tools and molds			2,264				1,592			42					8,219				8,671			(5	)
	Cost of sales			93,663				103,318			(9	)				488,204				584,901			(17	)
		Gross profit		33,733				28,568			18					223,353				211,286			6
Direct selling expenses				14,582				13,153			11					36,987				33,290			11
General and administrative expenses				34,401				30,752			12					126,893				114,819			11
Depreciation and amortization				90				360			(75	)				366				1,907			(81	)
	Selling, general and administrative expenses			49,073				44,265			11					164,246				150,016			9
Intangibles impairment				-				-			-					-				300			nm
		Income from operations		(15,340	)			(15,697	)		(2	)				59,107				60,970			(3	)
Other income (expense):
	Loss from joint ventures			-				-			-					(565	)			-			nm
	Other income (expense), net			139				277			(50	)				563				797			(29	)
	Change in fair value of preferred stock derivative liability			(1,361	)			1,429			nm					(8,029	)			(636	)		nm
	Loss on debt extinguishment			-				-			-					(1,023	)			-			nm
	Interest income			757				63			nm					1,344				127			nm
	Interest expense			(710	)			(2,294	)		(69	)				(6,451	)			(11,183	)		(42	)
Income (loss) before provision for (benefit from) income taxes				(16,515	)			(16,222	)		2					44,946				50,075			(10	)
Provision for (benefit from) income taxes				(5,643	)			(54,331	)		(90	)				6,833				(41,008	)		nm
Net income (loss)				(10,872	)			38,109			nm					38,113				91,083			(58	)
Net income (loss) loss attributable to non-controlling interests				(4	)			140			nm					(293	)			(330	)		(11	)
Net income (loss) attributable to JAKKS Pacific, Inc.			$	(10,868	)		$	37,969			nm	%			$	38,406			$	91,413			(58	)%
Net income (loss) attributable to common stockholders			$	(11,252	)		$	37,607			nm	%			$	36,904			$	89,997			(59	)%
	Earnings (loss) per share - basic		$	(1.12	)		$	3.86							$	3.70			$	9.33
	Shares used in earnings (loss) per share - basic			10,084				9,732								9,962				9,651
	Earnings (loss) per share - diluted		$	(1.12	)		$	3.66							$	3.48			$	8.86
	Shares used in earnings (loss) per share - diluted			10,084				10,263								10,590				10,155
			Three Months Ended December 31,												Twelve Months Ended December 31,
				2023				2022			Δ bps					2023				2022			Δ bps
											Fav/(Unfav)												Fav/(Unfav)
Net sales				100.0	%			100.0	%		-					100.0	%			100.0	%		-
Less: Cost of sales
	Cost of goods			54.0				61.7			770					50.9				56.5			560
	Royalty expense			17.7				15.4			(230	)				16.5				15.9			(60	)
	Amortization of tools and molds			1.8				1.2			(60	)				1.2				1.1			(10	)
	Cost of sales			73.5				78.3			480					68.6				73.5			490
		Gross profit		26.5				21.7			480					31.4				26.5			490
Direct selling expenses				11.4				10.0			(140	)				5.2				4.2			(100	)
General and administrative expenses				27.0				23.3			(370	)				17.8				14.4			(340	)
Depreciation and amortization				0.1				0.3			20					0.1				0.2			10
	Selling, general and administrative expenses			38.5				33.6			(490	)				23.1				18.8			(430	)
Intangibles impairment				-				-			-					-				-			-
		Income from operations		(12.0	)			(11.9	)		(10	)				8.3				7.7			60
Other income (expense):
	Loss from joint ventures			-				-								(0.1	)			-
	Other income (expense), net			0.1				0.2								0.1				0.1
	Change in fair value of preferred stock derivative liability			(1.1	)			1.1								(1.1	)			(0.1	)
	Loss on debt extinguishment			-				-								(0.1	)			-
	Interest income			0.6				-								0.2				-
	Interest expense			(0.6	)			(1.7	)							(0.9	)			(1.4	)
Income (loss) before provision for (benefit from) income taxes				(13.0	)			(12.3	)							6.4				6.3
Provision for (benefit from) income taxes				(4.5	)			(41.2	)							1.0				(5.2	)
Net income (loss)				(8.5	)			28.9								5.4				11.5
Net income (loss) loss attributable to non-controlling interests				-				0.1								-				-
Net income (loss) attributable to JAKKS Pacific, Inc.				(8.5	)%			28.8	%							5.4	%			11.5	%
Net income (loss) attributable to common stockholders				(8.8	)%			28.5	%							5.2	%			11.3	%

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,													Twelve Months Ended December 31,
			2023				2022			Δ ($)						2023				2022			Δ ($)
		(In thousands)													(In thousands)
EBITDA and Adjusted EBITDA
Net income		$	(10,872	)		$	38,109			$	(48,981	)			$	38,113			$	91,083			$	(52,970	)
Interest expense			710				2,294				(1,584	)				6,451				11,183				(4,732	)
Interest income			(757	)			(63	)			(694	)				(1,344	)			(127	)			(1,217	)
Provision for income taxes			(5,643	)			(54,331	)			48,688					6,833				(41,008	)			47,841
Depreciation and amortization			2,354				1,952				402					10,336				10,578				(242	)
EBITDA			(14,208	)			(12,039	)			(2,169	)				60,389				71,709				(11,320	)
Adjustments:
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)			-				-				-					276				-				276
Loss from joint ventures (Meisheng - 49%)			-				-				-					289				-				289
Other (income) expense, net			(139	)			(277	)			138					(563	)			(797	)			234
Restricted stock compensation expense			2,057				1,646				411					8,027				5,082				2,945
Change in fair value of preferred stock derivative liability			1,361				(1,429	)			2,790					8,029				636				7,393
Employee Retention Credit/gov't employment support			-				-				-					-				(249	)			249
Molds and tooling capitalization			-				-				-					(1,751	)			-				(1,751	)
Loss on debt extinguishment			-				-				-					1,023				-				1,023
Adjusted EBITDA		$	(10,929	)		$	(12,099	)		$	1,170				$	75,719			$	76,381			$	(662	)
Adjusted EBITDA/Net sales %			(8.6	)%			(9.2	)%			60 bps					10.6	%			9.6	%			100 bps
JAKKS Pacific, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Information (Unaudited)
		Three Months Ended December 31,													Twelve Months Ended December 31,
			2023				2022			Δ ($)						2023				2022			Δ ($)
		(In thousands, except per share data)													(In thousands, except per share data)
Adjusted net income (loss) attributable to common stockholders
Net income (loss) attributable to common stockholders		$	(11,252	)		$	37,607			$	(48,859	)			$	36,904			$	89,997			$	(53,093	)
Restricted stock compensation expense			2,057				1,646				411					8,027				5,082				2,945
Change in fair value of preferred stock derivative liability			1,361				(1,429	)			2,790					8,029				636				7,393
Loss on debt extinguishment			-				-				-					1,023				-				1,023
Employee Retention Credit/gov't employment support			-				-				-					-				(249	)			249
Loss from joint ventures (JAKKS Pacific, Inc. - 51%)			-				-				-					276				-				276
2021 BSP Term Loan prepayment penalty			-				-				-					150				525				(375	)
Molds and Tooling capitalization			-				-				-					(1,751	)			-				(1,751	)
Valuation allowance release/adjustments			(2,577	)			(51,178	)			48,601					(2,577	)			(51,178	)			48,601
Tax impact of additional charges			(96	)			(511	)			415					(1,175	)			(1,208	)			33
Adjusted net income (loss) attributable to common stockholders		$	(10,507	)		$	(13,865	)		$	3,358				$	48,906			$	43,605			$	5,301
Adjusted earnings (loss) per share - basic		$	(1.04	)		$	(1.42	)		$	0.38				$	4.91			$	4.52			$	0.39
Shares used in adjusted earnings (loss) per share - basic			10,084				9,732				352					9,962				9,651				311
Adjusted earnings (loss) per share - diluted		$	(1.04	)		$	(1.42	)		$	0.38				$	4.62			$	4.29			$	0.32
Shares used in adjusted earnings (loss) per share - diluted			10,084				9,732				352					10,590				10,155				435

JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region
(In thousands)	QTD Q4											(In thousands)	FY
Divisions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021			Divisions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021
Toys/Consumer Products	$	118,855	$	117,727	$	179,152	1.0	%	-34.3	%		Toys/Consumer Products	$	580,686	$	647,317	$	513,517	-10.3	%	26.1	%
Dolls, Role-Play/Dress Up		73,272		68,937		116,877	6.3	%	-41.0	%		Dolls, Role-Play/Dress Up		319,962		423,581		323,360	-24.5	%	31.0	%
Action Play & Collectibles		35,312		38,909		41,164	-9.2	%	-5.5	%		Action Play & Collectibles		219,446		173,529		114,778	26.5	%	51.2	%
Outdoor/Seasonal Toys		10,272		9,881		21,111	4.0	%	-53.2	%		Outdoor/Seasonal Toys		41,279		50,207		75,379	-17.8	%	-33.4	%
Costumes	$	8,541	$	14,159	$	8,812	-39.7	%	60.7	%		Costumes		130,870		148,870		107,599	-12.1	%	38.4	%
Total	$	127,396	$	131,886	$	187,964	-3.4	%	-29.8	%		Total	$	711,557	$	796,187	$	621,116	-10.6	%	28.2	%
(In thousands)	QTD Q4											(In thousands)	FY
Regions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021			Regions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021
United States	$	96,304	$	100,907	$	148,876	-4.6	%	-32.2	%		United States	$	557,865	$	644,295	$	512,193	-13.4	%	25.8	%
Europe		17,988		19,437		22,322	-7.5	%	-12.9	%		Europe		76,464		85,348		60,425	-10.4	%	41.2	%
Latin America		4,434		2,626		4,483	68.8	%	-41.4	%		Latin America		32,024		18,338		12,606	74.6	%	45.5	%
Canada		4,686		4,795		5,596	-2.3	%	-14.3	%		Canada		26,992		26,515		17,999	1.8	%	47.3	%
Asia		2,140		1,698		3,018	26.0	%	-43.7	%		Asia		8,543		10,431		9,232	-18.1	%	13.0	%
Australia & New Zealand		1,486		1,822		2,496	-18.4	%	-27.0	%		Australia & New Zealand		7,542		8,836		6,423	-14.6	%	37.6	%
Middle East & Africa		358		601		1,173	-40.4	%	-48.8	%		Middle East & Africa		2,127		2,424		2,238	-12.3	%	8.3	%
Total	$	127,396	$	131,886	$	187,964	-3.4	%	-29.8	%		Total	$	711,557	$	796,187	$	621,116	-10.6	%	28.2	%
(In thousands)	QTD Q4											(In thousands)	FY
Regions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021			Regions		2023		2022		2021	% Change 2023 v 2022		% Change 2022 v 2021
North America	$	100,990	$	105,702	$	154,472	-4.5	%	-31.6	%		North America	$	584,857	$	670,810	$	530,192	-12.8	%	26.5	%
International		26,406		26,184		33,492	0.8	%	-21.8	%		International		126,700		125,377		90,924	1.1	%	37.9	%
Total	$	127,396	$	131,886	$	187,964	-3.4	%	-29.8	%		Total	$	711,557	$	796,187	$	621,116	-10.6	%	28.2	%

CONTACT:
JAKKS Pacific Investor Relations
[phone]
Lucas Natalini