JAKKS Pacific Reports First Quarter 2016 Financial Results

Company Reiterates 2016 Growth in Financial Guidance

SANTA MONICA, Calif.–(BUSINESS WIRE)–JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for
the first quarter ended March 31, 2016.

First Quarter Highlights

  • Company achieved second highest first quarter net sales in 7 years
  • Gross margin improved 150 basis points year-over-year
  • Operating margin impacted by marketing expenses due to earlier Easter
  • Inventory level decreased 33 percent year-over-year
  • 2016 guidance reiterated: net sales to increase 7 percent to
    approximately $800.0 million and diluted EPS to increase 10 percent to
    approximately $0.78 per share

Consistent with Company guidance issued on February 23, 2016, net sales
for the first quarter of 2016 were $95.8 million compared to $114.2
million reported in the comparable period in 2015. The net loss for the
first quarter of 2016 was $17.4 million, or $1.01 per diluted share.
This compares to a net loss of $7.6 million, or $0.40 per diluted share,
reported in the comparable period in 2015. Adjusted EBITDA for the first
quarter was negative $9.2 million, compared to Adjusted EBITDA of
negative $0.9 million in 2015. See note below on “Use of Non-GAAP
Financial Information.”

The year-over-year reduction in first quarter 2016 net sales and
earnings reflects a decline in sales of a product line in international
markets, and the increase in the quarterly loss also includes the impact
of a loss of $0.05 per share due to fewer common shares outstanding
during the quarter. The reduced share count is a direct result of the
Company’s ongoing stock buy-back program. On a static share count, the
Company’s earnings would have been a loss of $0.96 per share, in the
middle of the range of previously announced guidance for the quarter. As
reflected in the Company’s guidance for the quarter, higher marketing
expenses, including the timing of expenses associated with an earlier
Easter holiday season, contributed to the decline in earnings from the
year ago period.

“Our performance in the first quarter is in line with our expectations
going into 2016. We remain committed to maximizing the value of our
portfolio with customers and consumers,” Stephen Berman, Chairman and
Chief Executive Officer, stated. “As expected, our gross margin
continues to improve due to ongoing margin enhancement initiatives,”
said Berman.

Partnering with best-in-class content creators, this summer JAKKS
Pacific is launching several new entertainment-licensed products
inspired by major theatrical releases, including Batman vs. Superman:
Dawn of Justice, Captain America: Civil War, Teenage Mutant Ninja
Turtles: Out of the Shadows,
Warcraft, Alice in Wonderland:
Through the Looking Glass
and Finding Dory.

“Looking beyond summer, our Fall lines are proceeding as planned and we
expect our broad category of products to have wide placement at retail
in the second half,” said Berman.

Working Capital and Cash Flow

As of March 31, 2016, the Company’s working capital was $226.9 million,
including cash and cash equivalents of $118.9 million, compared to
working capital of $234.2 million, including cash and cash equivalents
of $105.3 million, as of March 31, 2015. Net cash provided by operating
activities for the first quarter was $32.6 million, compared to $38.8
million in the year ago period.

Reiterating 2016 Guidance

For 2016, JAKKS continues to forecast net sales to increase 7 percent to
approximately $800.0 million; diluted earnings per share to increase 10
percent to approximately $0.78 per share, subject to share count
changes; and Adjusted EBITDA to increase 28 percent to approximately
$65.0 million. This guidance reflects anticipated gross margin expansion
and operating margin growth in 2016.

Share Repurchase

In June 2015, the Board of Directors authorized the Company to
repurchase up to $30.0 million worth of shares of the Company’s
outstanding common stock and/or convertible notes through open market
purchases or in privately negotiated transactions. Approximately 2.9
million shares of common stock at an aggregate cost of $23.0 million and
$2.0 million face amount of our 2020 convertible notes at a cost of $1.9
million were repurchased through the end of the first quarter. At
quarter end, approximately $5.0 million remained available in the
current buy-back authorization.

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 first quarter earnings call at 9 a.m.
Eastern Time/6 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 Presentations at least 10
minutes prior to register, download and install any necessary audio
software. A replay of the call will be available on JAKK’s website
approximately one hour following completion of the call through May 21,
2016, 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, passcode “4232 5232#” 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 BIG-FIGS™, XPV®, Real Construction®,
Max Tow™ and Friends, Disguise®, Moose Mountain®, Funnoodle®, Maui®,
Kids Only!®, as well as a wide range of entertainment-inspired products
featuring premier licensed properties. DreamPlay Toys, LLC is a joint
venture between JAKKS and NantWorks LLC to develop, market and sell toys
and related consumer products incorporating NantWorks’ proprietary iD
recognition technology. 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
).

© 2016 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, and
difficulties with integrating acquired businesses. 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
             
March 31, December 31,
2016 2015
(In thousands)
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 118,914 $ 102,528
Accounts receivable, net 85,471 163,387
Inventory, net 53,470 60,544
Income taxes receivable 24,008 24,008
Prepaid expenses and other   32,912     31,901  
Total current assets 314,775 382,368
 
Property and equipment 115,116 112,088
Less accumulated depreciation and amortization   95,256     93,653  
Property and equipment, net 19,860 18,435
 
Goodwill 44,024 44,199
Trademarks & other assets, net 44,912 47,618
Investment in DreamPlay, LLC   7,000     7,000  
Total assets $ 430,571   $ 499,620  
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable and accrued expenses $ 52,988 $ 89,067
Reserve for sales returns and allowances 13,104 17,267
Income taxes payable   21,741     21,067  
Total current liabilities 87,833 127,401
 
Long term debt, net 207,797 209,166
Other liabilities 5,303 5,155
Income taxes payable 2,199 2,199
Deferred tax liability   2,199     2,293  
Total liabilities 305,331 346,214
 
Stockholders’ equity:
Common stock, $.001 par value 20 21
Additional paid-in capital 180,363 194,743
Treasury stock (24,000 ) (28,322 )
Accumulated deficit (20,806 ) (3,391 )
Accumulated other comprehensive loss   (10,775 )   (10,051 )
Total JAKKS Pacific, Inc. stockholders’ equity 124,802 153,000
Non-controlling interests   438     406  
Total stockholders’ equity   125,240     153,406  
Total liabilities and stockholders’ equity $ 430,571   $ 499,620  
 
Working Capital $ 226,942   $ 254,967  
 
 
 
JAKKS Pacific, Inc. and Subsidiaries
First Quarter Earnings Announcement, 2016
Condensed Statements of Operations (Unaudited)
                             
Three Months Ended March 31,
2016 2015
(In thousands, except per share data)
 
Net sales $ 95,809 $ 114,201
Less cost of sales
Cost of goods 52,178 62,501
Royalty expense 11,234 15,517
Amortization of tools and molds   1,214     805  
Cost of sales   64,626     78,823  
Gross profit 31,183 35,378
Direct selling expenses 11,559 6,862
Selling, general and administrative expenses 30,618 30,757
Depreciation and amortization   2,822     1,958  
Loss from operations (13,816 ) (4,199 )
Other income (expense):
Other income 75
Interest income 16 19
Interest expense   (3,226 )   (2,974 )
Loss before provision for income taxes (16,951 ) (7,154 )
Provision for income taxes   432     427  
Net loss (17,383 ) (7,581 )
Net income attributable to non-controlling interests   32      
Net loss attributable to JAKKS Pacific, Inc. $ (17,415 ) $ (7,581 )
Loss per share $ (1.01 ) $ (0.40 )
Shares used in loss per share   17,218     19,090  
 
 
         
JAKKS Pacific, Inc. and Subsidiaries
Reconciliation of Adjusted EBITDA
For the Three Months Ended March 31, 2016 and 2015
 

Reconciliation of GAAP to Non-GAAP measures:

 

This press release and accompanying schedules provide certain
information regarding Adjusted EBITDA, 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 charges incurred, primarily related to
reorganization expenses and certain non-cash charges for
restricted stock compensation expense. Adjusted EBITDA is not a
recognized financial measure under GAAP, but we believe that it is
useful in measuring our operating performance. We believe that the
use of the non-GAAP financial measure Adjusted EBITDA 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 and the
use of Adjusted EBITDA by other comparable companies as a measure
of performance.

 

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,
2016 2015
(In thousands)
 
Loss from operations $ (13,816 ) $ (4,199 )
 
Depreciation and amortization 4,036 2,763
Restricted stock compensation expense   623     504  
 
Adjusted EBITDA $ (9,157 ) $ (932 )
 

Contacts

JAKKS Pacific, Inc.
Sara Rosales Montalvo, 424-268-9363
Joel
Bennett, 310-455-6210