JAKKS Pacific Reports Third Quarter 2017 Financial Results
Third Quarter 2017 Financial Results
Net sales for third quarter 2017 were
As reported GAAP gross margin in the third quarter 2017 was 23.5%, down from 31.4% last year as a result of the minimum guarantee shortfalls, inventory impairment and the impact of low margin sales recognized in the quarter. Excluding the aforementioned charges that impact gross margin, gross margin would have been 29.7%, which reduction is due to the impact of closeout and other low margin sales in the quarter.
Operating costs for the quarter are on track with the Company’s initial
general outlook for 2017 with Selling, General and Administrative
expenses (SG&A) excluding the aforementioned charges that impact SG&A
declining 20.0% to
JAKKS continues to make steady progress on long-term strategic initiatives, particularly in creating a strong portfolio of owned intellectual properties, entering new categories and broadening geographic reach. With production currently underway and initial distribution partners secured, early shipments of C’est Moi reformulated skincare and cosmetic products will begin in December, which the Company expects will have significantly higher margins than its toy business.
Studio JP is in development of a new franchise which will be comprised of original animated content created specifically for digital distribution, an app featuring augmented reality and a line of toys slated for a Fall 2018 launch.
The Company continues to execute on its geographic expansion strategy
with newly established sales offices in
Management Commentary
“We did, however, see a number of product lines with sales growth and improved performance in the quarter, and we launched several new products that have been earmarked as hot holiday items in the fourth quarter. We are encouraged by our overall strong third quarter retail takeaway across many of our major categories, and are excited about 2018 with the addition of new major licenses such as Incredibles 2 and several others to be announced soon.
“In 2018 we will continue to expand our retail private label programs and exclusive product initiatives. We have already had success with developing product specifically for the alternative channels. We just launched cestmoi.com, a consumer-facing website, and the direct-to-consumer e-commerce portion of the site is slated for the first half of 2018.
“We have positioned ourselves well for the future with our investments in skincare and cosmetics, as well as augmented reality and content to cater to the needs of the young, modern consumer.”
Working Capital and Cash Flow
As of
2017 Outlook
For 2017, as announced on
Convertible Senior Note Retirement
The Company continues to make a high priority the retirement of the
remaining
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 and Adjusted Net Income
(Loss) attributable to
Conference Call Live Webcast
A replay of the call will be available on JAKKS Pacific’s website
approximately one hour following completion of the call through
About
© 2017
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, Inc. and Subsidiaries | ||||||||||||||
Condensed Consolidated Balance Sheets (Unaudited) | ||||||||||||||
September 30, | December 31, | |||||||||||||
2017 | 2016 | |||||||||||||
(In thousands) | ||||||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 45,411 | $ | 86,064 | ||||||||||
Restricted cash | 3,400 | - | ||||||||||||
Accounts receivable, net | 224,103 | 173,599 | ||||||||||||
Inventory, net | 80,144 | 75,435 | ||||||||||||
Income taxes receivable | 1,770 | 1,204 | ||||||||||||
Prepaid expenses and other | 16,490 | 17,077 | ||||||||||||
Total current assets | 371,318 | 353,379 | ||||||||||||
Property and equipment | 137,613 | 128,400 | ||||||||||||
Less accumulated depreciation and amortization | 116,987 | 105,559 | ||||||||||||
Property and equipment, net | 20,626 | 22,841 | ||||||||||||
Goodwill | 35,344 | 43,208 | ||||||||||||
Trademarks & other assets, net | 25,974 | 37,875 | ||||||||||||
Investment in DreamPlay, LLC | - | 7,000 | ||||||||||||
Total assets | $ | 453,262 | $ | 464,303 | ||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable and accrued expenses | $ | 153,316 | $ | 90,386 | ||||||||||
Reserve for sales returns and allowances | 12,975 | 16,424 | ||||||||||||
Short term debt | 44,430 | 10,000 | ||||||||||||
Total current liabilities | 210,721 | 116,810 | ||||||||||||
Long term debt, net | 110,831 | 203,007 | ||||||||||||
Other liabilities | 4,620 | 5,004 | ||||||||||||
Income taxes payable | 1,195 | 2,248 | ||||||||||||
Deferred tax liability, net | 2,033 | 2,034 | ||||||||||||
Total liabilities | 329,400 | 329,103 | ||||||||||||
Stockholders' equity: | ||||||||||||||
Common stock, $.001 par value | 27 | 19 | ||||||||||||
Additional paid-in capital | 214,691 | 177,624 | ||||||||||||
Treasury stock | (24,000 | ) | (24,000 | ) | ||||||||||
Accumulated deficit | (54,820 | ) | (2,148 | ) | ||||||||||
Accumulated other comprehensive loss | (13,079 | ) | (17,207 | ) | ||||||||||
Total JAKKS Pacific, Inc. stockholders' equity | 122,819 | 134,288 | ||||||||||||
Non-controlling interests | 1,043 | 912 | ||||||||||||
Total stockholders' equity | 123,862 | 135,200 | ||||||||||||
Total liabilities and stockholders' equity | $ | 453,262 | $ | 464,303 | ||||||||||
Working Capital | $ | 160,597 | $ | 236,569 | ||||||||||
JAKKS Pacific, Inc. and Subsidiaries | |||||||||||||||||||||
Third Quarter Earnings Announcement, 2017 | |||||||||||||||||||||
Condensed Statements of Operations (Unaudited) | |||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||||||||
(In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||||||||||
Net sales | $ | 262,413 | $ | 302,791 | $ | 476,483 | $ | 539,577 | |||||||||||||
Less cost of sales | |||||||||||||||||||||
Cost of goods | 146,279 | 159,127 | 264,013 | 286,120 | |||||||||||||||||
Royalty expense | 48,857 | 43,296 | 76,480 | 73,829 | |||||||||||||||||
Amortization of tools and molds | 5,496 | 5,435 | 10,469 | 8,712 | |||||||||||||||||
Cost of sales | 200,632 | 207,858 | 350,962 | 368,661 | |||||||||||||||||
Gross profit | 61,781 | 94,933 | 125,521 | 170,916 | |||||||||||||||||
Direct selling expenses | 13,925 | 23,547 | 35,449 | 43,998 | |||||||||||||||||
Selling, general and administrative expenses | 39,260 | 34,203 | 106,168 | 99,236 | |||||||||||||||||
Depreciation and amortization | 2,806 | 2,770 | 7,946 | 8,185 | |||||||||||||||||
Goodwill and other intangibles impairment | 13,536 | - | 13,536 | - | |||||||||||||||||
Income (loss) from operations | (7,746 | ) | 34,413 | (37,578 | ) | 19,497 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||
Income from joint ventures | - | - | 105 | 861 | |||||||||||||||||
Other income | 110 | 207 | 292 | 282 | |||||||||||||||||
Write-off of investment in DreamPlay LLC | (7,000 | ) | - | (7,000 | ) | - | |||||||||||||||
Interest income | 12 | 12 | 26 | 46 | |||||||||||||||||
Interest expense | (2,027 | ) | (3,020 | ) | (7,496 | ) | (9,466 | ) | |||||||||||||
Income (loss) before provision for income taxes | (16,651 | ) | 31,612 | (51,651 | ) | 11,220 | |||||||||||||||
Provision for income taxes | 918 | 1,083 | 890 | 2,219 | |||||||||||||||||
Net income (loss) | (17,569 | ) | 30,529 | (52,541 | ) | 9,001 | |||||||||||||||
Net income (loss) attributable to non-controlling interests | 45 | (83 | ) | 131 | 173 | ||||||||||||||||
Net income (loss) attributable to JAKKS Pacific, Inc. | $ | (17,614 | ) | $ | 30,612 | $ | (52,672 | ) | $ | 8,828 | |||||||||||
Earnings (loss) per share - basic | $ | (0.77 | ) | $ | 1.91 | $ | (2.53 | ) | $ | 0.53 | |||||||||||
Shares used in earnings (loss) per share | 22,772 | 16,044 | 20,848 | 16,561 | |||||||||||||||||
Earnings (loss) per share - diluted | $ | (0.77 | ) | $ | 0.82 | $ | (2.53 | ) | $ | 0.36 | |||||||||||
Shares used in earnings (loss) per share - diluted | 22,772 | 39,504 | 20,848 | 39,916 | |||||||||||||||||
JAKKS Pacific, Inc. and Subsidiaries | ||||||||||||||||||||||||
Reconciliation of Adjusted EBITDA (Unaudited) | ||||||||||||||||||||||||
For the Three and Nine Months Ended September 30, 2017 and 2016 | ||||||||||||||||||||||||
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 charges incurred, primarily related to reorganization expenses and certain non-cash charges for 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 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. |
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Net income (loss) | $ | (17,569 | ) | $ | 30,529 | $ | (52,541 | ) | $ | 9,001 | ||||||||||||||
Income from joint ventures | - | - | (105 | ) | (861 | ) | ||||||||||||||||||
Other income | (110 | ) | (207 | ) | (292 | ) |
|
(282 | ) | |||||||||||||||
Interest income | (12 | ) | (12 | ) | (26 | ) | (46 | ) | ||||||||||||||||
Interest expense | 2,027 | 3,020 | 7,496 | 9,466 | ||||||||||||||||||||
Provision for income taxes | 918 | 1,083 | 890 | 2,219 | ||||||||||||||||||||
Depreciation and amortization | 8,302 | 8,205 | 18,415 | 16,897 | ||||||||||||||||||||
Restricted stock compensation expense | 793 | 170 | 2,253 | 1,254 | ||||||||||||||||||||
Goodwill and other intangibles impairment |
13,536 | - | 13,536 | - | ||||||||||||||||||||
Write-off of investment in DreamPlay LLC | 7,000 | - | 7,000 | - | ||||||||||||||||||||
Bad debt write-offs | 7,307 | - | 9,612 | - | ||||||||||||||||||||
Inventory impairment | 4,369 | - | 4,369 | - | ||||||||||||||||||||
Minimum guarantee shortfalls | 11,886 | - | 11,886 | - | ||||||||||||||||||||
Restructuring charge | 200 | - | 200 | - | ||||||||||||||||||||
Adjusted EBITDA | $ | 38,647 | $ | 42,788 | $ | 22,693 | $ | 37,648 | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Net income (loss) attributable to JAKKS Pacific, Inc. | $ | (17,614 | ) | $ | 30,612 | $ | (52,672 | ) | $ | 8,828 | ||||||||||||||
Goodwill and other intangibles impairment |
13,536 | - | 13,536 | - | ||||||||||||||||||||
Write-off of investment in DreamPlay LLC | 7,000 | - | 7,000 | - | ||||||||||||||||||||
Bad debt write-offs | 7,307 | - | 9,612 | - | ||||||||||||||||||||
Inventory impairment | 4,369 | - | 4,369 | - | ||||||||||||||||||||
Minimum guarantee shortfalls | 11,886 | - | 11,886 | - | ||||||||||||||||||||
Restructuring charge | 200 | - | 200 | - | ||||||||||||||||||||
Tax impact of additional charges | (7,036 | ) | - | (7,487 | ) | - | ||||||||||||||||||
Adjusted Net Income (Loss) attributable to JAKKS Pacific, Inc. | $ | 19,648 | $ | 30,612 | $ | (13,556 | ) | $ | 8,828 | |||||||||||||||
Adjusted earnings (loss) per share - basic | $ | 0.86 | $ | 1.91 | $ | (0.65 | ) | $ | 0.53 | |||||||||||||||
Shares used in adjusted earnings (loss) per share | 22,772 | 16,044 | 20,848 | 16,561 | ||||||||||||||||||||
Adjusted earnings (loss) per share - diluted | $ | 0.53 | $ | 0.82 | $ | (0.65 | ) | $ | 0.36 | |||||||||||||||
Shares used in adjusted earnings (loss) per share - diluted | 39,384 | 39,504 | 20,848 | 39,916 | ||||||||||||||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20171026005522/en/
Source:
JAKKS Pacific
Sara Rosales
Montalvo, (424) 268-9363
Senior Vice President, Communications
or
Joel
Bennett, (310) 455-6210
Executive Vice President & CFO
or
Liolios
Investor Relations
Sean McGowan, (949) 574-3860
Managing
Director
JAKK@liolios.com