Market Overview

JAKKS Pacific Reports First Quarter 2019 Financial Results

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JAKKS Pacific, Inc. (NASDAQ:JAKK) today reported financial results for
the first quarter ended March 31, 2019.

First Quarter 2019 Overview vs. Same Period Last Year

  • Net sales for the first quarter were $70.8 million compared to $93.0
    million reported in the comparable period in 2018. Sales in the 2019
    first quarter were negatively impacted, as expected, by the Toys "R"
    Us liquidation in March of 2018 and the success of Incredibles 2 last
    year, as well as the late Easter in 2019.
  • Gross margin was 20.2%, compared to 24.7% in the first quarter of 2018.
  • Net loss attributable to JAKKS Pacific was $29.2 million, or $1.24 per
    diluted share. This compares to a net loss attributable to JAKKS
    Pacific of $36.2 million, or $1.57 per diluted share, reported in the
    comparable period in 2018.
  • Adjusted EBITDA was negative $17.1 million, compared to Adjusted
    EBITDA of negative $14.6 million in the 2018 first quarter. See note
    below on "Use of Non-GAAP Financial Information."

Management Commentary

"As expected, our results for the first quarter showed the impact of the
loss of Toys "R" Us as a significant customer, and the impact of a later
Easter holiday," said Stephen Berman, CEO of JAKKS Pacific. "In
addition, the timing of certain key new product launches tied to major
theatrical film releases has, as expected, significantly shifted our
revenue to the second half of the year. Several licensed properties that
drove our sales in the first half of last year saw declines, notably The
Incredibles 2, Moana, and Tsum Tsum, in addition to declines in Squish
Dee Lish, our own property. Still, we are pleased with the success we
have seen so far with such licenses as Godzilla, Harry Potter, Fancy
Nancy and Aladdin, and our evergreen lines in Moose Mountain and Kids
Only.

"We are looking forward to stronger sales in the second half of the
year, which should benefit from a strong slate of entertainment content,
notably Frozen 2, as well as Toy Story 4, the 30th
Anniversary of the release of Disney's The Little Mermaid, and Disney's
Gigantosaurus animated TV series. In addition, we expect strong
contributions from products based on some of our own IP, including TP
Blaster: Sheet Storm, Slap Ninja, Pinata Fiesta and Power Dozer.
Consistent with our strategy, we continue to see our sales through
online channels increase as a percent of total sales, which we expect
will help us in a shifting retail landscape."

Cash and Cash Equivalents

The Company's cash and cash equivalents (including restricted cash)
totaled $47.4 million as of March 31, 2019 compared to $58.2 million as
of December 31, 2018 and $46.8 million as of March 31, 2018.

2019 Outlook

Our goal for 2019 is to grow sales by approximately 5% on a
year-over-year basis with improved levels of Adjusted EBITDA compared to
2018.

Expression of Interest from Hong Kong Meisheng Cultural Company
Limited

As previously announced in the Current Report on Form 8-K dated February
26, 2019, we engaged in extensive negotiations with Hong Kong Meisheng
Cultural Company Limited ("Meisheng") regarding its proposed $50 million
equity infusion into the Company, resulting in Meisheng owning 51% of
the Company's outstanding shares, which was also the subject of
extensive negotiations with an ad hoc group of holders (the "Ad Hoc
Group") of the 4.875% convertible senior notes due 2020 (the "Notes")
issued by the Company and Oasis Investments II Master Fund Ltd.
("Oasis") with respect to the Meisheng proposal and extension of
maturities of the Company's convertible senior notes. The Company is
currently awaiting the receipt by Meisheng of certain approvals to
advance such transactions, including approvals from Chinese regulatory
bodies, and as a result, no executed and binding agreements related to
those transactions have been reached with Meisheng, any member of the Ad
Hoc Group, any other holders of the Notes or Oasis. The foregoing is
only a summary of the latest discussions and is not intended to be a
complete description of all of the terms and conditions thereof,
including the potential significant additional dilution that could occur
as a result of these transactions. No assurance can be given that the
ongoing discussions will result in consummation of a transaction with
Meisheng, the holders of the Notes or Oasis, or that even if a
transaction is consummated that its final terms will resemble the terms
described in the Current Report on Form 8-K dated February 26, 2019.

In addition to the negotiation of the Meisheng proposal, the Company and
its advisors have also explored other alternative transactions with the
Ad Hoc Group and the Company's lenders and other third parties. As of
the date hereof, the Company has reached an agreement in principle with
the Ad Hoc Group and Oasis with respect to an alternative transaction,
in lieu of the Meisheng proposal, that contemplates the extension or
refinancing of the Credit Line, the retirement or refinancing of the
Term Loan, and the provision of incremental liquidity to the Company. In
addition, the alternative transaction contemplates an investment by
holders of the Notes to exchange into a new secured debt instrument with
an extended maturity date, plus the issuance of significant preferred
and common equity to holders of the Notes who participate in the
exchange, including the Ad Hoc Group. These discussions are summarized
in the Current Report on Form 8-K dated May 9, 2019. The foregoing is
only a summary of the latest discussions and is not intended to be a
complete description of all of the terms and conditions thereof. No
assurance can be given that the ongoing discussions will result in a
consummation of a transaction with the Company's lenders, the Ad Hoc
Group, any other holder of the Notes or Oasis, or that even if a
transaction is consummated that its final terms will resemble the terms
in the Current Report on 8-K dated May 9, 2019.

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 4:30 p.m.
ET/ 1:30 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
one hour following completion of the call through May 16, 2019 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 "4858 3735#" 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 MorfBoard™, Perfectly Cute™,
Squish-Dee-Lish™, TP Blaster™, Disguise®, Moose Mountain®, Funnoodle®,
Maui®, Kids Only!®; a wide range of entertainment-inspired products
featuring premier licensed properties; and C'est Moi™, a youth skincare
and make-up brand. 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
).

©2019 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, or closing
transactions associated with the Meisheng proposal or alternative
transactions. 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,
2019 2018
(In thousands)
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 42,431 $ 53,282
Restricted cash 4,974 4,923
Accounts receivable, net 67,793 122,278
Inventory 44,685 53,880
Prepaid expenses and other assets   28,030     15,780  
Total current assets 187,913 250,143
 
Property and equipment 123,841 128,049
Less accumulated depreciation and amortization   103,685     107,147  
Property and equipment, net 20,156 20,902
 
Operating lease right-of-use assets 35,132 -
Goodwill 35,083 35,083
Intangibles and other assets, net   33,691    
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