Highest Q1 Net Sales & Earnings per Share in 14 years

JAKKS Pacific, Inc. (NASDAQ:JAKK) today reported financial results for the first quarter ended March 31, 2022.

First Quarter 2022 Overview:

Net sales were $120.9 million, up 44% compared to $83.8 million last year
Highest Q1 net sales since 2008
Costume business more than doubled vs. Q1 2021
Net loss attributable to common stockholders of $4.2 million (or $0.43 per share) compared to a net loss attributable to common stockholders of $24.4 million (or $4.54 per share) in Q1 2021
Adjusted net loss attributable to common stockholders (a non-GAAP measure) of $2.6 million (or $0.28 per share), compared to an adjusted net loss attributable to common stockholders of $9.5 million (or $1.77 per share) in Q1 2021
Adjusted EBITDA (a non-GAAP measure) was $1.9 million, compared to negative $2.4 million in the first quarter of 2021
Trailing twelve month adjusted EBITDA of $53.6 million (8.1% of net sales) up 36% from $39.5 million (7.4% of net sales) in the trailing twelve months ended March 2021

Management Commentary

"Our 2022 is off to an exceptional start," said Stephen Berman, JAKKS Chairman and CEO. "For several years we have talked about maintaining a disciplined focus on growing evergreen toy categories and brands to deliver consistently improving, yet sustainable, results. In addition, this approach can also benefit from the excitement and enthusiasm new entertainment content can generate. As the year begins, we are starting to see strong results as more consumers discover and embrace films like Sonic the Hedgehog® 2 and Disney's Encanto™, and want to deepen their relationships with the characters by engaging with a broad array of our toys, Halloween Costumes, day-to-day role play and many other related products.

"While that endorsement and enthusiasm is exciting and reaffirming for the teams who bring the product ranges to market, I am equally excited to share that in addition to the growth of these two theatrical releases, the balance of the Toy/Consumer Products business was up mid-single digit percentage in the quarter compared to prior year. We appreciate the continued support from all of our stakeholders in working together to overcome continuing pandemic-driven manufacturing and supply-chain challenges to deliver these results.

"As anticipated, higher inbound freight expenses continued to weigh down gross margins, as we expect to be the case for the balance of the year. Nonetheless, tight cost controls paired with our higher revenues still generated positive Q1 EBITDA for the first time since 2008. We have a lot of work to do as we continue to navigate the unpredictable nature of current events, but are excited by the opportunities we see ahead of us this year and thinking ahead to 2023."

First Quarter 2022 Results

Net sales for the first quarter 2022 were $120.9 million up 44% versus $83.8 million last year, led by strong growth in Action Play, Dolls/Dress-up and Costumes offset by slight weakness in our Outdoor/Seasonal business.

Gross profit in the first quarter of 2022 was $29.9 million or 24.7% of net sales, compared to $26.1 million or 31.1% of net sales in the prior year. Improved product margins and lower royalty expense were not enough to offset a significant year-over-year increase in ocean freight and related expenses. SG&A costs were $30.7 million, up from $28.8 million in the prior year. As a percent of net sales, SG&A costs were 25.4%, down from 34.4% in the prior year.

The net loss attributable to common stockholders was $4.2 million, or $0.43 per basic and diluted share, compared to a loss of $24.4 million, or $4.54 per basic and diluted share in the first quarter of 2021. Net loss in the first quarter of 2021 included several adjustments, including those related to changes in the fair value of convertible senior notes and preferred stock derivative liability, and other adjustments. Excluding such adjustments in both years, the adjusted net loss attributable to common stockholders (a non-GAAP measure) was a loss of $2.6 million, or $0.28 per basic and diluted share in the first quarter of 2022 compared to a loss of $9.5 million or $1.77 per basic and diluted share in the first quarter of 2021. Adjusted EBITDA (a non-GAAP measure) was $1.9 million for the first quarter of 2022, compared to negative $2.4 million a year ago. For the trailing twelve months ended March 31, 2022, adjusted EBITDA was $53.6 million, up 36% compared to $39.5 million for the trailing twelve months ended March 31, 2021. (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 $39.2 million as of March 31, 2022 compared to $45.3 million as of December 31, 2021, and $84.1 million as of March 31, 2021.

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 will webcast its first 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 10 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 May 5, 2022 ending at 8:00 p.m. Eastern Time/5:00 p.m. Pacific Time. The playback can be accessed by calling (888) 859-2056 or (404) 537-3406 for international callers, with passcode "3951819" 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; Creepy Crawlers®, Eyeclops®, Fly Wheel®, Perfectly Cute®, ReDo Skateboard Co.®, WeeeDo™, Xtreme Power®, Disguise®, Maui®, Moose Mountain®, 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 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)
	March 31,						December 31,
	2022			2021			2021
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	39,225		$	80,406		$	44,521
Restricted cash		-			3,653			811
Accounts receivable, net		103,730			79,657			147,394
Inventory		85,306			36,653			83,954
Prepaid expenses and other assets		17,412			23,480			10,877
Total current assets		245,673			223,849			287,557

Property and equipment		124,289			115,068			121,945
Less accumulated depreciation and amortization		110,345			102,043			108,796
Property and equipment, net		13,944			13,025			13,149

Operating lease right-of-use assets, net		17,089			22,283			16,950
Goodwill		35,083			35,083			35,083
Intangibles and other assets, net		3,980			4,165			4,308
Total assets	$	315,769		$	298,405		$	357,047


Liabilities, Preferred Stock and Stockholders' Equity

Current liabilities:
Accounts payable	$	36,439		$	25,262		$	50,237
Payable to Meisheng		15,511			6,045			15,894
Accrued expenses		30,596			28,233			47,071
Reserve for sales returns and allowances		39,375			39,499			46,285
Income taxes payable		1,205			175			1,004
Short term operating lease liabilities		11,014			10,109			10,477
Short term debt, net		2,475			6,721			2,104
Total current liabilities		136,615			116,044			173,072

Long term operating lease liabilities		7,399			14,475			8,039
Debt, non-current portion, net		92,934			154,960			93,415
Preferred stock derivative liability		21,927			15,438			21,282
Income taxes payable		215			947			215
Deferred income taxes, net		51			123			51
Total liabilities		259,141			301,987			296,074

Preferred stock accrued dividends		3,420			2,066			3,074

Stockholders' equity:
Common stock, $.001 par value		10			6			10
Additional paid-in capital		272,821			227,113			272,941
Accumulated deficit		(207,240	)		(221,509	)		(203,431	)
Accumulated other comprehensive loss		(13,614	)		(12,504	)		(12,952	)
Total JAKKS Pacific, Inc. stockholders' equity		51,977			(6,894	)		56,568
Non-controlling interests		1,231			1,246			1,331
Total stockholders' equity		53,208			(5,648	)		57,899
Total liabilities, preferred stock and stockholders' equity	$	315,769		$	298,405		$	357,047


Supplemental Balance Sheet and Cash Flow Data (Unaudited)
				March 31,
Key Balance Sheet Data:				2022			2021

Accounts receivable, net days of sales outstanding (DSO)					77			86
Inventory Turnover (DSI)					84			57

				Three Months Ended March 31,
Condensed Cash Flow Data:				2022			2021
				(In thousands)
Cash flows used in operating activities				$	(2,736	)	$	(6,961	)
Cash flows used in investing activities					(1,817	)		(1,451	)
Cash flows used in financing activities and other					(1,554	)		(222	)
Decrease in cash, cash equivalents and restricted cash				$	(6,107	)	$	(8,634	)

Capital expenditures				$	(1,817	)	$	(1,472	)

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


	Three Months Ended March 31,
	2022				2021				Δ (%)
	(In thousands, except per share data)

Net sales	$	120,881			$	83,843			44		%
Less: Cost of sales
Cost of goods		72,058				44,049			64
Royalty expense		17,690				12,511			41
Amortization of tools and molds		1,216				1,189			2
Cost of sales		90,964				57,749			58
Gross profit		29,917				26,094			15
Direct selling expenses		4,902				6,802			(28	)
General and administrative expenses		25,153				21,411			17
Depreciation and amortization		596				604			(1	)
Selling, general and administrative expenses		30,651				28,817			6
Loss from operations		(734	)			(2,723	)		(73	)
Other income (expense):
Other income (expense), net		86				55			56
Change in fair value of convertible senior notes		-				(9,047	)		(100	)
Change in fair value of preferred stock derivative liability		(645	)			(7,375	)		(91	)
Interest income		3				2			50
Interest expense		(2,202	)			(4,875	)		(55	)
Loss before provision for income taxes		(3,492	)			(23,963	)		(85	)
Provision for income taxes		417				88			374
Net loss		(3,909	)			(24,051	)		(84	)
Net income (loss) attributable to non-controlling interests		(100	)			35			nm
Net loss attributable to JAKKS Pacific, Inc.	$	(3,809	)		$	(24,086	)		(84	)	%
Net loss attributable to common stockholders	$	(4,155	)		$	(24,412	)		(83	)	%
Loss per share - basic and diluted	$	(0.43	)		$	(4.54	)
Shares used in loss per share - basic and diluted		9,588				5,379


	Three Months Ended March 31,
	2022				2021				Δ bps
									Fav/(Unfav)
Net sales		100.0		%		100.0		%	-
Less: Cost of sales
Cost of goods		59.6				52.5			(707	)
Royalty expense		14.6				15.0			29
Amortization of tools and molds		1.1				1.4			41
Cost of sales		75.3				68.9			(637	)
Gross profit		24.7				31.1			(637	)
Direct selling expenses		4.1				8.1			406
General and administrative expenses		20.8				25.6			473
Depreciation and amortization		0.5				0.7			23
Selling, general and administrative expenses		25.4				34.4			901
Loss from operations		(0.7	)			(3.3	)		265
Other income (expense):
Other income (expense), net		0.1				0.1
Change in fair value of convertible senior notes		-				(10.8	)
Change in fair value of preferred stock derivative liability		(0.5	)			(8.8	)
Interest income		-				-
Interest expense		(1.8	)			(5.8	)
Loss before provision for income taxes		(2.9	)			(28.6	)
Provision for income taxes		0.3				0.1
Net loss		(3.2	)			(28.7	)
Net income (loss) attributable to non-controlling interests		(0.1	)			-
Net loss attributable to JAKKS Pacific, Inc.		(3.1	)	%		(28.7	)	%
Net loss attributable to common stockholders		(3.4	)	%		(29.1	)	%

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 March 31,
	2022				2021				Δ ($)
	(In thousands, except per share data)
EBITDA and Adjusted EBITDA
Net loss	$	(3,909	)		$	(24,051	)		$	20,142
Interest expense		2,202				4,875				(2,673	)
Interest income		(3	)			(2	)			(1	)
Provision for income taxes		417				88				329
Depreciation and amortization		1,812				1,793				19
EBITDA		519				(17,297	)			17,816
Adjustments:
Other (income) expense, net		(86	)			(55	)			(31	)
Restricted stock compensation expense		870				382				488
Change in fair value of convertible senior notes		-				9,047				(9,047	)
Change in fair value of preferred stock derivative liability		645				7,375				(6,730	)
Employee retention credit		-				(1,900	)			1,900
Adjusted EBITDA	$	1,948			$	(2,448	)		$	4,396
TTM Adjusted EBITDA	$	53,607			$	39,548			$	14,059		36 %
Adjusted EBITDA/Net sales %		1.6		%		(2.9	)	%				453 bps
TTM Adjusted EBITDA/TTM Net sales %		8.1		%		7.4		%				73 bps

Adjusted net income (loss) attributable to common stockholders
Net loss attributable to common stockholders	$	(4,155	)		$	(24,412	)		$	20,257
Restricted stock compensation expense		870				382				488
Change in fair value of convertible senior notes		-				9,047				(9,047	)
Change in fair value of preferred stock derivative liability		645				7,375				(6,730	)
Employee retention credit		-				(1,900	)			1,900
Tax impact of additional charges		-				-				-
Adjusted net loss attributable to common stockholders	$	(2,640	)		$	(9,508	)		$	6,868
Adjusted loss per share - basic and diluted	$	(0.28	)		$	(1.77	)		$	1.49
Shares used in adjusted loss per share - basic and diluted		9,588				5,379				4,209

JAKKS Pacific, Inc. and Subsidiaries
Net Sales by Division and Geographic Region



(In thousands)	Q1
Divisions	2022		2021		2020		2022-2021		2021-2020
Toys/Consumer Products	$	111,123	$	79,875	$	62,565	39.1	%	27.7	%
Dolls, Role-Play/Dress Up		62,006		45,155		40,074	37.3	%	12.7	%
Action Play & Collectibles		31,698		16,405		9,654	93.2	%	69.9	%
Outdoor/Seasonal Toys		17,419		18,315		12,837	-4.9	%	42.7	%
Costumes		9,758		3,968		3,992	145.9	%	-0.6	%
Total	$	120,881	$	83,843	$	66,557	44.2	%	26.0	%



(In thousands)	Q1
Regions	2022		2021		2020		2022-2021		2021-2020
United States	$	97,050	$	68,916	$	51,918	40.8	%	32.7	%
Europe		13,389		7,337		7,618	82.5	%	-3.7	%
Canada		3,379		2,101		2,348	60.8	%	-10.5	%
Latin America		2,385		2,455		1,000	-2.9	%	145.5	%
Asia		2,076		1,415		1,770	46.7	%	-20.1	%
Australia & New Zealand		1,491		1,188		1,531	25.5	%	-22.4	%
Middle East & Africa		1,111		431		372	157.8	%	15.9	%
Total	$	120,881	$	83,843	$	66,557	44.2	%	26.0	%


(In thousands)	Q1
Regions	2022		2021			2020	2022-2021		2021-2020
North America	$	100,429	$	71,016	$	54,266	41.4	%	30.9	%
International		20,452		12,827		12,291	59.4	%	4.4	%
Total	$	120,881	$	83,843	$	66,557	44.2	%	26.0	%

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