JAKKS Pacific Reports Fourth Quarter 2020 Financial Results

SANTA MONICA, Calif.--(BUSINESS WIRE)--February 18, 2021--JAKKS Pacific, Inc. (NASDAQ: JAKK) today reported financial results for the fourth quarter and full-year ended December 31, 2020.

Fourth Quarter 2020

• Net sales were $128.3 million compared to $152.5 million last year
• Net sales were up 16% excluding declines in Frozen
• Gross margin of 32.8%, up 240 basis points vs. Q4 2019 driven by lower royalties and improved inventory management
• Highest Q4 gross margin percentage in ten years
• Net loss attributable to common stockholders of $11.7 million, improved from $20.6 million in Q4 2019

Full-Year 2020

• Gross margin percentage highest since 2016
• Operating margin percentage at highest level since 2015
• Net loss attributable to common stockholders of $15.5 million, improved from $56.0 million in 2019
• Adjusted EBITDA of $28.1 million up 49% vs. $18.9 million in 2019
• JAKKS’ inventories down 29% to $38.6 million compared to $54.3 million last year
• Toy retail POS at top three accounts up double digits for the year
• Retail inventories down over 25% at top three retail customers
• Strong liquidity of $126.6 million with unrestricted cash of $88 million and revolver availability of $38.6 million

Management Commentary

“Since JAKKS was founded over 26 years ago, we have focused on proven play patterns and working with license partners with highly recognizable brands, and we believe this focus served us well in 2020 as parents of kids spending so much more time at home were looking for products they knew and brands they trust,” said Stephen Berman, JAKKS Pacific’s Chairman and CEO. “As was the case throughout 2020, our fourth quarter results exceeded our expectations for sales, gross margin, operating income and adjusted EBITDA. We saw very strong sales increases in Disney Princess, Nintendo, Sonic the Hedgehog and Disguise costumes.

“Our efforts during the quarter, as they were all year, were directed at managing costs, ending 2020 with clean inventory, and preserving cash. This discipline allowed us to post the highest full year gross margin rate since 2016, and the highest fourth quarter gross margin rate in ten years. Despite lower sales, our higher gross margins and reduced SG&A expenses allowed us to post a fourth quarter operating profit for the first time since 2014. Our top three US customers in aggregate reported a double-digit increase in sell-through for 2020, and a reduction in retail inventories of over 25%. The decrease in our inventory and receivables, coupled with our significantly higher adjusted EBITDA allowed us to end the year with the lowest level of net debt since 2013.

“We expect that toy sales in 2021 will get a boost from a robust slate of entertainment content from our licensing partners, especially Disney. We will be releasing toys in support of Disney’s Raya and the Last Dragon and Encanto. In addition, we believe that the extraordinary success of Disney+ has given families all over the world year-round access to Disney content, which will help keep kids connected to the characters they love and to cherish the toys we make based on those characters. We expect 2021 to see a return to more normal patterns of shopping, gift-giving and celebrating Halloween. We believe our continued emphasis on core products, margin improvement and cash preservation will lead to improved results in 2021.”

Net sales for the fourth quarter 2020 were $128.3 million down 16% versus $152.5 million last year. The decline was driven primarily by lower sales of products related to Disney’s Frozen and Frozen 2, which were strong contributors to sales in the fourth quarter 2019. Net sales in the Toys/Consumer Products segment were down 19% globally, and were up 13% excluding Frozen merchandise. Net sales of Disguise Halloween costumes increased 91%.

Despite the sales decline, the net loss attributable to common stockholders improved to a loss of $11.7 million, or $2.55 per diluted share, compared to a loss of $20.6 million, or $6.95 per diluted share in the fourth quarter of 2019. Net loss in the fourth quarter of both 2020 and 2019 included several significant adjustments, including those related to changes in fair value of convertible senior notes and preferred stock derivative liability, intangibles impairment and other charges. Excluding such adjustments in both years, the adjusted net loss attributable to common stockholders (a non-GAAP measure) was a loss of $3.6 million, or $0.80 per diluted share in the fourth quarter of 2020 versus a loss of $7.8 million or $2.62 per diluted share in the fourth quarter of 2019. 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 $92.7 million as of December 31, 2020 compared to $66.3 million as of December 31, 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.” “Total liquidity” is calculated as cash and cash equivalents, plus availability under the Company’s $60.0 million revolving credit facility.

Conference Call Live Webcast

JAKKS Pacific will webcast its fourth 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 20 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 February 25, 2021 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 “4134788#” 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; Fly Wheels™, Kitten Catfe™, Perfectly Cute™, ReDo™ Skateboard Co, X-Power™, Disguise®, Moose Mountain®, Maui®, 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.