JAKKS Pacific Reports First Quarter 2017 Financial Results

Modest Sales Decrease In Line With Expectations
Continues to Anticipate Higher Full Year EBITDA and EPS

SANTA MONICA, Calif.–(BUSINESS WIRE)–JAKKS Pacific, Inc. [NASDAQ: JAKK] today reported financial results for
the first quarter ended March 31, 2017.

First Quarter Highlights:

  • Net sales $94.5 million
  • Gross margin in line with expectations at 31.8%
  • Inventory levels down from year-end as anticipated to $67.5 million
  • Adjusted EBITDA down modestly year over year to negative $10.6 million

First Quarter 2017 Financial Results

Net sales for the first quarter were $94.5 million compared to $95.8
million reported in the comparable period in 2016. The net loss
attributable to JAKKS Pacific for the first quarter was $18.3 million,
or $1.01 per diluted share. This compares to a net loss attributable to
JAKKS Pacific of $17.4 million, or $1.01 per diluted share, reported in
the comparable period in 2016. Adjusted EBITDA for the first quarter was
negative $10.6 million, compared to Adjusted EBITDA of negative $9.2
million in 2016. See note below on “Use of Non-GAAP Financial

Gross margin in the first quarter was 31.8%, down slightly from 32.5%
last year as a result of pricing pressure on Funnoodle® pool toys and
higher tooling amortization on increased capital expenditures in 2016
offset in part by lower royalties resulting from a shift in product mix.

Operating income declined in part due to incremental overhead and
startup costs associated with our C’est Moi™ makeup and skincare product
line acquired in 2016 and Studio JP™, our animation initiative, as well
as increased testing costs related to the expansion of sales of certain
products in International markets, offset in part by lower media buys.

Management Commentary

JAKKS Chairman and CEO Stephen Berman stated, “We are pleased with our
sales performance in the first quarter, which was in line with our
expectations going into this year and consistent with the seasonality of
our business. In the first quarter, we benefitted from the box-office
hit, Disney’s Beauty and The Beast, the DVD launch of Disney’s Moana,
the theatrical release of Smurfs: The Lost Village, as well as
Nintendo’s launch of its new Switch platform. We’re also pleased that
our Disney Tsum Tsum collectible figure line is growing in the
International markets, as the collectibles category begins to show signs
of softening industry-wide.

“The investments this quarter in C’est Moi and Studio JP for the future
have resulted in considerable progress. We have hired talent from
leading cosmetics companies and are in the process of securing a
significant agreement with a key customer for C’est Moi, a line which we
believe will be highly accretive to margins. In addition, the Studio JP
investment has yielded interest from multiple partners to produce
content based on JAKKS IP.

“As we look ahead to the next few quarters, we will continue to focus on
margin improvement and our long term strategic goals. Our fall lines are
moving forward as planned and we have a strong line-up of new product
introductions that are a balanced mix of owned IP and licensed brands,
including Real Workin’ Buddies™ Mr. Dusty, XPV® Extreme Performance
Skateboard RC, Marvel’s Guardians of the Galaxy 2, Disney/Pixar’s Cars
3, DC Superhero Girls and Nintendo Splatoon,” said Berman.

Working Capital

As of March 31, 2017, the Company’s working capital was $196.5 million,
including cash and cash equivalents and restricted cash of $68.0
million, compared to working capital of $226.9 million, including cash
and cash equivalents of $118.9 million in the year ago period.

2017 Outlook

For 2017, the Company continues to expect higher net income, earnings
per share and Adjusted EBITDA on lower net sales compared to 2016. The
Company expects improved profitability in 2017 to result from a
continued focus on building our base of evergreen brands and categories,
as well as entering new categories, creating a strong portfolio of new
and existing licenses and developing owned IP and content.

Convertible Senior Note Retirement

During the first quarter, the Company exchanged and retired a total of
$39.1 million principal amount of its 2018 Notes for approximately 2.9
million shares of common stock and $24.1 million in cash. The remaining
principal amount of these Notes of $54.7 million will continue to be
addressed ahead of their maturity in August 2018.

Sale of Common Stock

The Company expects to complete the previously announced sale of
approximately 3.7 million shares of its common stock in the next few
days to its Chinese distribution and animation joint venture partner for
cash in the amount of $19.3 million.

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 9:00 a.m.
Eastern Time/6:00 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 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 9, 2017 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 “44704692#” 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®, Max Tow™ and
Friends, Disguise®, Moose Mountain®, Funnoodle®, Maui®, Kids Only!®; a
wide range of entertainment-inspired products featuring premier licensed
properties; pet products; and, C’est Moi™, a skincare and performance
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

© 2017 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’ 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 (Unaudited)
  March 31,       December 31,
2017   2016  
(In thousands)
Current assets:
Cash and cash equivalents $ 57,456 $ 86,064
Restricted cash 10,576
Accounts receivable, net 98,491 173,599
Inventory, net 67,466 75,435
Income taxes receivable 1,204
Prepaid expenses and other   31,832     17,077  
Total current assets 265,821 353,379
Property and equipment 130,040 128,400
Less accumulated depreciation and amortization   107,423     105,559  
Property and equipment, net 22,617 22,841
Goodwill 43,268 43,208
Trademarks & other assets, net 35,890 37,875
Investment in DreamPlay, LLC   7,000     7,000  
Total assets $ 374,596   $ 464,303  
Current liabilities:
Accounts payable and accrued expenses $ 48,779 $ 90,386
Reserve for sales returns and allowances 10,551 16,424
Short term debt   10,000     10,000  
Total current liabilities 69,330 116,810
Long term debt, net 164,554 203,007
Other liabilities 4,908 5,004
Income taxes payable 504 2,248
Deferred tax liability, net   2,034     2,034  
Total liabilities 241,330 329,103
Stockholders’ equity:
Common stock, $.001 par value 24 19
Additional paid-in capital 193,439 177,624
Treasury stock (24,000 ) (24,000 )
Accumulated deficit (20,464 ) (2,148 )
Accumulated other comprehensive loss   (16,676 )   (17,207 )
Total JAKKS Pacific, Inc. stockholders’ equity 132,323 134,288
Non-controlling interests   943     912  
Total stockholders’ equity   133,266     135,200  
Total liabilities and stockholders’ equity $ 374,596   $ 464,303  
Working Capital $ 196,491   $ 236,569  
JAKKS Pacific, Inc. and Subsidiaries
First Quarter Earnings Announcement, 2017
Condensed Statements of Operations (Unaudited)
  Three Months Ended March 31,




(In thousands, except per share data)
Net sales $ 94,505 $ 95,809
Less cost of sales
Cost of goods 52,317 52,178
Royalty expense 10,365 11,234
Amortization of tools and molds   1,802     1,214  
Cost of sales   64,484     64,626  
Gross profit 30,021 31,183
Direct selling expenses 10,719 11,559
Selling, general and administrative expenses 32,448 30,618
Depreciation and amortization   2,578     2,822  
Loss from operations (15,724 ) (13,816 )
Other income (expense):
Other income 23 75
Interest income 4 16
Interest expense   (2,932 )   (3,226 )
Loss before provision for (benefit from) income taxes (18,629 ) (16,951 )
Provision for (benefit from) income taxes   (344 )   432  
Net loss (18,285 ) (17,383 )
Net income attributable to non-controlling interests   31     32  
Net loss attributable to JAKKS Pacific, Inc. $ (18,316 ) $ (17,415 )
Loss per share – basic and diluted $ (1.01 ) $ (1.01 )
Shares used in loss per share – basic and diluted   18,104     17,218  

JAKKS Pacific, Inc. and Subsidiaries
Reconciliation of
Adjusted EBITDA (Unaudited)

For the Three Months Ended March
31, 2017 and 2016

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,




(In thousands)
Net loss $ (18,285 ) $ (17,383 )
Other income (23 ) (75 )
Interest income (4 ) (16 )
Interest expense 2,932 3,226
Provision for (benefit from) income taxes (344 ) 432
Depreciation and amortization 4,380 4,036
Restricted stock compensation expense   748     623  
Adjusted EBITDA $ (10,596 ) $ (9,157 )


JAKKS Pacific
Sara Rosales
Montalvo, 424-268-9363
Senior Vice President, Communications
Bennett, 310-455-6210
Executive Vice President & CFO
Investor Relations

Sean McGowan, 949-574-3860