JAKK - Earnings call transcript Q2 2020

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Operator

Good afternoon, everyone. Welcome to the JAKKS Pacific Second Quarter Earnings Conference Call with management, who will review financial results for the quarter ended June 30, 2020. JAKKS issued its earnings press release earlier today. The earnings release and presentation slides for today's call are available on the company’s website in the Investors section.

On the call this afternoon are Stephen Berman, Chairman and Chief Executive Officer; and John Kimble, Chief Financial Officer. Mr. COVID-XX. an lines the and and of impact provide highlights along a first the product of current of will overview quarter of with discussion Berman, business trends Then Mr. Pacific's Kimble detailed will operational comments JAKKS provide results. financial regarding and Mr. comments Berman some prior call questions. closing the and will up with opening remarks, return for then additional to adjusted events that made federal about of JAKKS Instructions] begin, company in the sales comments [Operator EBITDA included would like of future are protection well any other performance, or to as Before we to circumstances, estimates under point XXXX Safe Harbor laws. as out statements forward-looking XXXX, Pacific's subject and and security any beyond, concerning subject judgment on in uncertainties company's statements and trends results to which the could These cause are differ statements. current projected certain based those reflect materially from actual risks and best market to forward-looking and conditions today,

filings contact well you recent subsequently details XX-K risks and other time-to-time. Annual the For uncertainties, filed XX-Q the other such reports with these SEC JAKKS’ most concerning the company's with from should SEC, and and as as

by reconciled comments non-GAAP measure today's directly Unless issued release within GAAP non-GAAP company's previously. most refer has otherwise, will as associated adjusted addition, In EBITDA. financial measures stated metric financial press earnings comparable to the to the been such management the financial today or

Stephen that, now like would Berman. recorded. to I reminder, call a With is the over conference As to being this turn

Stephen Berman

believe started promising face they are reported ones everyone, from the challenges than and quarter post the the had challenges second afternoon point were there believe you performance we ongoing better the in the for good we first with to in some were the because signs company results numbers, every we very because different internally, first today. the but that quarter. they we not and you able pleased in ways pandemic. just but in better quarter the These and I expected joining world, were underneath Thank in thank for us the quarter, future. we We're Like from considerable in almost faced to the

the of safety their and in normal, still some business priority our ways, is Our other employees to families, and to back has our our In suppliers. ways, go. and remains and way our a it customers health

staff not We employees if most continue with are the to from many operate home. into worldwide, limited of offices our and working coming

that products selling manufacturing of Our are they're are back some are partners facing challenges access that online, well. our to but production limiting very

continue for of days most Our up our and from a partners many worst of retail guidelines continue attempt normal to our were and those channels picked closed. struggle. partners the an grow. major of We're open But this the smaller operations. federal stayed have lot opening time in to online following have full thrived retail Sales the and through state slack and resume to that facilities slowly

posted low of was low XXXX. of in This that the X%. reported due certain sales segment, were quarter we approximately In the those were sales our to we consciously second are of margin we sales. FUNNOODLES to notably our Our by encouraged exited growth, end the down fact at XX% the year a results ago. from composition down But Toys the business, lines

we're Disguise roughly sustainable cautious cautious ship Excluding even The by and inventory the want it is we compared main June, In name encouraged POS very and words, looks. flat story and being X% better to, volume in segment levels. teens. mid retailers our POS this sales we was are their driver are is that strong, to retail discontinuation We're is in end go the more in profitability. than we to sales the we the top of was our of see division. mid of single-digits, Halloween last John sales sacrifice declined more year. the up details Toys year, will want to retail the over as even point potential the this the profitable, year, retail expectations. inventory we where section, our being there, Through think but and regarding last unusually who at customers don't down retailers FUNNOODLES, three more increasing is at and approximately half growth of Disguise, these actually But just of were up main other first our are Halloween high sales our willing the for and year,

as how sales compared to last costs our We and launch are the at inventory than with in of retail. satisfied clean second have much this we're the but Even more Frozen some we levels know We with half. comps position QX X, we against before. year the trends encouraging are pleased we how into move difficult is POS have reduced the and year

but working steps us that cost our our reduction our costs to cost better costs, higher diligently to taking millions in positioned been John sales, shortly, such volume our this These lower. have despite EBITDA lower breakeven reductions, actually considerably reduce quarters. and dramatic taken our the have and will dollars and reduce to of of loss structure, XXXX out is leave both we expenses in review cost We year. fixed earlier in leverage

and we discuss pleased our the of the return look these the reaping how rest financials on profits. are reflect to we to John for our disciplined more So And efforts. efforts results John? I are will year. review of in benefits what see forward will we more to quarter be focused now with and the

John Kimble

afternoon and everyone. Stephen good you, Thank

And diluted of discussed split. million our XXXX a note second were the $XX.X one-for-ten per basic close for company year. last As attributable stock Xth. basic million after share, compared for share per second the diluted of or I $XX.X the and July trading net a that to all executed to million share XXXX. $XX.X Net the second reflect million, sales quarter that year. in discuss Please Reported quarter $X.XX stockholders results common of compared figures quarter the here quarter last the to XX% reverse reverse on net second loss $X.XX split or $XX.X down for and loss of was per the

derivative fair in with million. of changes of reflecting structure certain XXXX reminder, net these The quarterly convertible associated QX senior share are of on totaling elements and totaled liability million of preferred the notes stock. $X.X our price. a our the By based in charges $X.X mark-to-market factors, capital charges comparison, QX value XXXX As few a in our inclusive includes non-cash of loss our

restructuring of of XXXX in pandemic comparable a year. spending acquisition COVID of QX in charges and year in $X.X $X.X million quarter restructuring this charges related year no compared million, compared of also last related charges. second and to recapitalization included QX last of The for QX to Conversely included negligible amount expenses,

was of quarter million of $XX.X EBITDA of the in for diluted impact the the of second to loss per negative as second stock such XXXX or million, compared XXXX. basic per the quarter second adjusted our of $XX.X Excluding charges quarter basic $X.X and improvement compensation in net common stockholders negative was and loss $XX.X expense XXXX a diluted as compared well million, quarter $X.XX and a per in attributable to Adjusted million, to $X.XX the share, or of share share. second XXXX $X.XX

the inclusive Cosmetics]. the in up showed Play preschool to Role Girls million well Toys, Moi compared $XX.X million as of year. growth Our Dress for plush QX, businesses Dolls, products were Up targeted last quarter, X% second $XX.X of as and [C'est Girls in quarter

In as to Figures, compared world million doll to that $XX.X shift of had other first the that tables, Frozen, QX shutdowns, strong nicely Catfe, Toy Cute from segment a foot low to led XXXX. as strong second X% primarily year, Nintendo lines, As seeing of case the Incredibles our than constrained production Kitten clearly and specialty X Year line associated products were XXXX we strong sells to our older but our late to Halloween This were product contributed of XXXX Redo the to and ride-ons in which due to These products and charge inspired QX quarter, some of unanticipated play we are not in to speaking, offset XX% cutting our various Princess, the second offset and to licenses acquisition. those including Frozen and category a Sales X, year, was offset & licensed the million down Sales our the in was structures role-play more XXXX Catfe such driven and products and released in Role of QX quarter of in in second of into quarter the Frozen been the same the of growth XX% smaller growth and some Frozen lingering in continued our quarter the Fly our million, toys referenced $XX.X entertainment in Boys Godzilla, Sales This Disney X, as XXXX consumer last unusually as of and for entertainment second Minnie our X as XXXX million and driver was were Broadly as Hedgehog Aladdin Wheels slate quarter lines. during older shipments Potter. Action crystallization have anticipated skateboards, Harry retail of entertainment particularly line are this X, the year against demand. discontinuation impairment struggling. own compared floor the of in related with quarter $XX.X Target theatres including the we second to shift, impact Electronics and with Pits Decker with and million build and sales. skateboards, such declines to the second of $XX.X is Mouse contributions Vehicles, last Vehicles, New in doll some well up big Ride-Ons exclusive line Action when sales in MorfBoard. which only timing a pandemic Disney's margin and them more Ball the quarter baby Story original Chinese Other sales Perfectly product from than the year, the seasonal properties but from declines of last surprises, million extended or intangibles year. in an $XX.X year. the retailers other of to of assorted Baby FUNNOODLES, took quarter. sales do exited we this aspirational Play lineup $XX.X and the of sales the well Strong not fourth Disguise of spike collectible business through in Positive properties proprietary Super of disproportionately quarter. last QX some declines activity our Sonic and decreased reactive Mario in sell Black

have we normal wanting will pandemic on uncertain sales. affect even more for not addition, in a the turn our shipments, which And year, Halloween falls the as to good cautious bad and disciplined even often how debt. to been products, this inventory ongoing In leads retailers are though demand than Halloween into healthiest Saturday to higher

Europe, year-over-year, above we Latin above, segment was whereas factors at in year. product same Looking and up already sales $XX.X of and the were which compared our all X% by Halloween driven last the the lower. to noted Asia Australia, America million Middle And Business were New were segment, in Canada, as includes discussion. by sales world decrease in the quarter $XX.X noted markets the Toys/Consumer the segment East our XX%. million, down was U.S., and second around Africa down The Zealand Products to

and partly expense million, XXXX. costs the of royalty rest expenses improvements rates, including expenses in but the the disciplined incurred XX.X% expenses, margin more to product the by of Looking selling sales for outpaced royalty towards quarter. royalty in margins of XX.X% a or amortization for SG&A net the and to royalty percentage compared driven our XXXX quarter quarter shift second sales second XX.X% second obsolescence the products reported direct compared of in quarter. charges higher at quarter second reflects with was product higher million $XX.X a in P&L to XXXX as in in in the spend approach XXXX mixed sales cycle. was increase gross the net in The Steady lower earlier selling Sharply depreciation lower and totaled a $XX.X XX.X% of or also accruing

interest to average activities our cost activities $X in of second million flow $X.X $X.X of second a borrowings million quarter expense under was of is the $X.X interest year cash million, and quarter net term the XXXX due Our XXXX Net last higher of XXXX reflecting higher $X.X measures. in year, compared QX in the positive by compared this cash operating used rate. in was XXXX second and for loan $X in provided quarter. the Free to million negative operating to quarter savings a primarily million million second cash

cash XX, quarter. days DSOs $XXX.X XX, as as As XXXX of million to $XX.X for the XXXX XX from Accounts XXXX XX, $XX.X million quarter compared were including equivalents million and to million $XX.X million were June for of and of days XXXX second second the XXXX million million, quarter receivable cash June XXXX. XXXX cash at compared end as and XX, our in December XX, looking and XX, June of $XX XX of as December $XX.X of of XXXX, as and as from of XXXX days the XX June XXXX. down for at XXXX. totaled the versus in were XX million decreased days, XXXX XXXX DSIs at second Inventory the XXXX, to XX $XX restricted second June $XX.X XX basis. in million XX-month reported June days $XX.X We DSIs a quarter, trailing and XXXX. on was XX, XX, days at

payroll The program's $X.X file forgiveness Paycheck debt. quarter, to funds, two-year Federal to rent was over to portion six the loan it program the taken December whether the will utilize to forgiven be the as granted proceeds utilized the change in funds of approach the PPP applied per During Program year the million At of as of company a interest the end for Act with cash absence will intention loan payments a the intention. flow months the and of may and has how is or program. accrue and period period Those company's the be company and continues. next for a of any for CARES time the under XXXX. the a beginning Protection conservative knowing presumed allotted In

As on we and now reflect debt million $X.X in an short-term in sheet. $X.X balance result, additional million our a long-term

$XX.X due of As a due of owed of million July term result loan value a under XXXX XXXX, due June February at included convertible $XXX.X and as the PPP recapitalized company's face XX, XXXX. debt notes June of million to our loan $X.X million senior XXXX

of were the share. second senior worth During shares X.XX calculation share per on XXXX per quarter, million loss the the of the common during converted based number of diluted $X $X.X convertible common as X.XX average split, million to The now July of was schedule. to of million quarter off have during aforementioned at $X.X I XXXX. XXXX. our $X.X in stock second back well on under in weighted million the third convertible paid senior for expenditures X.XXX% reverse currently the second some were of over million, of conversions. the The no facility. notes quarter compared will outstanding credit impact convertible up We remarks. shares notes $X.X for of that, to This outstanding, note quarter QX And additional the quarter our balance Capital million Stephen XXXX XXXX the a with second as hand was from reflects call

Stephen Berman

their on This buying of of adult retailers to trick-or-treaters But are Less celebrate taking we this turning do for shutdown merchandise will and We some orders not healthy to if more a expecting year. would has we down healthiest and retailers lift come from to affect overall products form. We and bad not impact them. caused year. kids film at have in approach Halloween so leads One JAKKS. current this to open have get because sales recognize this the up a a risk complete approach this for normal is films to fans delayed that double-digits usually shipping that Halloween want completed good and we posted down March, of We of were in course is a release for debt. will of are making production that COVID and some to our we there's Disney’s action feel most timing. are we're has Halloween now know to are were worried that year. more by are is season. normal these pushed Right their it near tied but Halloween and debuts live films and this Even And example prudent company next year, risk theatrical to this caused John. year with to orders only in too that turn typically a more any dress Mulan, then credit taking not you, parties. year. Thank cautious a are people want a date a us COVID to of to we falls peak got Saturday But JAKKS, retailers affects closed. into the inventory no with much theatres now that fall more Halloween on out expect and negative which expected scheduled for

be a Elsa Doll very animatronic holidays, Playdate contributor our Water to this big Horse] for and Emotion and which Another of have still November was moved to will will expectations benefit March is lines But Raya growth product and well the year. Dragon and Nokk well. some the that Last sell us continue our from XXXX. our we X [Magic Frozen to expect XXXX do we

the and we well. and products patterns play is and other have One has being kitchen Kitten continue the from two the lineup proven releases. part will gourmet Disney a Catfe vanity. smart Both which in benefit collection set, second IP perform in on is is we style and that are a We expect own style been internal the that new selling of strong to believe based Disney subsegment. exciting with well very our half

good line, month Doll Our views based on how elaborate Baby our and channel X.X million girls Hairstyles one Cute than more home. half. is to sold addition existing which strong over in exclusively million second hairstyles we subscribers to sales at with a base we expect the product launches our of make several solid the Target per continues have very some at our Girls Boys the in video strong Cute, business XX to and division, be number evergreen YouTube of hair Perfectly seller of line shows on strong In brands.

games to on Our Nintendo. Sonic very continue video including well, toys sell Hedgehog and based the

been and launching the For the holiday first integrated will Mario season, Nintendo oversize in introduced we figure This and history time Talking that toy It's-A Me, has into action with sounds. the Mario voice is be feature the market. of

video successful on game this Arts. new Another Legends, from line video a based fall are Battle Electronic launching is related Apex we Royale highly game

allows us that use outdoor toys, be Also lines game. with to unseen year's just them Power we can success a broad expect going have optimistic a Dump the mechanism performed boys, and users of settings. expect channels. Xtreme do distribution explore kids very for in skateboards we year's into this a well, sell allows of world Icops, well This of new reach all rights Xtreme the are and play product into relaunching up holidays continued this Dozer continued for of proprietary and given Apex the indoor the will success powerful new that shared the imagery well with reimagined this And the We our toy last our in introduction of Redo high toy. are powerful retail captured new both with This expansive base, cool we're has of the following line beautifully our haul, Power to of we construction to designed season. and customer is that current types with some a holiday products and magnification pull around the year, for has push version with Truck. items success release drive and

would hold expectations they of about new mostly changes that to a in well up, out have talk evolve need recessions, and toy times to true. these to take dine been and being if their and of industry, buy into can't by finish we during caused well industry the and restrictions. and COVID-XX uncertainty, out vacations, Before I this broadly which often more some we We like other adapt the may to up relatively our various pointed for last the future. how toys, toy children in sales car, give People has like even all

and the of sure kids needing to demand got play those on accelerated online will surge are need to the their accounts. did already early but target.com, During shopping time. and plus accounts, phase up at home games were be diminished, few, most or run and before. shopped may a benefits be buy toy have be walmart.com Consumers remain out, they parents purchased shift than had sold set keep may sales are those fact some greatly continue games retail altered impact not who Amazon puzzles, they Entertainment boost or to this for for sites indoor added time and going still now the to looking first spending. very some closed, But more saw environments consumers probably at there have they have on that that role kids well. at also landscape is their more. the consumer name that not When pandemic, toys, We're Activity toys the we the If kids occupied. will from to stuck there for be something schools sustain. activity may home, occupied, unemployment to to already purchase

spend This together seen and this get a nieces frequency birthday gift proven and but the operational evergreen proven focus globe reduction have selling will other lower just basic around we like people our mind, the year? is parties pandemic together. with to all gifts this bodes want Or members gifts? and in in and toys for to of for work the In holiday the are today. on consumers occasions now to we networks look patterns, our keeping closing, be and and still when family team or on family are At its appeal JAKKS well challenging continue where to like JAKKS the of costs need With them will expecting growth holidays What focus our sent? profitability through strong this season. making them reduce incredible future. not as cautious Will We members our have thank are giving I nephews in events get we seeing already prepare hard for play fewer the on plan for environment the reduced. retail all effects their purchase

take take to questions. profitability steps will couldn't team. company now that, to With continue we without do position the needed dedicated the We for the growth, we it and

Operator

line first Instructions] Steph the comes question from Our Wissink [Operator of Jeffries. with

line open. Your is now

Stephanie Wissink

of actually both you, John. and for questions few you Stephen A

For shift the first and were expect of sounds that one, you're about pretty direct remarks, your concluding Stephen it to as as some to you online be like permanent. this you talking just

in you're digital they're consumers that the you to you're relative a marketing your ensure we've past? programs, adjusted when seen found digital particularly assets, pages that searching for on brands own in for the your environment, physical experience have how your to So that easily landing

Stephen Berman

well safe. Steph. and is healthy hello, everything everything firstly is for and Hope you Well

that it's been well on for on is, doing what this call working For and products with bode working been it internally go our we've online. videos all of we've JAKKS environment

So you're and because you're of actually search product videos go to a you actually actually at better you we XD at looking rendering, overview a descriptive getting more online when have, you're product. believe for experience much looking a the

actually So much more you online. see you're product really it the engulfed when in

and sites the to the In their them to on And we online the haven't we drive doing regards retailer, the marketing specifically have in that in-store. our some are we media and and retailer initiatives we're with sites. we with online then advertising so drive online certain specific with platforms each to all Instagram, customers addition, advertising some than through call, ourselves of social their Facebook, commitments of itself. done which that mentioned, online drive And straight more it mentioned we own digital we that initiatives

addition does in-store our are available advertising, both retailers. at and TV to In online major that both explain

having media bit we a that is, the than more traditional now dollar out advertising happening little lot digital But our getting expensive digitally on during spent advertising. a less do the being what versus we're TV, for what's said benefit of TV So own second strong half the throughout that, worldwide, one do North half second the it of benefits of more catapults to Eastern TV-based year, us territories traditional is actually the advertising and TV of and it for at the and the Western America called us year.

Stephanie Wissink

you're of even positioned future enhance brand bankruptcy the one the positioned well your to little but and on into role areas? then upsize that even COVID best and a for actually player So and go maybe through talk and as of play world's where of XXXX kind Disguise the a cause seeing could that of are space. in transitory, business not a But larger hopefully vendors years, positioned become the a actually opportunity bit costumes question play within about is, peers Halloween, all your some Recognizing second just that And peers business. and process? even largest one not well you

Stephen Berman

is manufacturer, the on the be of be and Halloween and be see Easter normally and into this a low in it XXXX of a for the most But goes on went with will being new year. in cutbacks we've meticulously down going has that will licenses started very, So, outdoor we for a gives new different year licenses year. mean Chapter of decorations, a, process obtaining next working one this benefit with home back-to-school been been as that probably the out candy, because XX also which non-pandemic that a said, just indoor our big have Sunday, That that the and year. But many - good actually lift, because close we've actually retailer having year-over-year doesn't our on methodically to very we'll purchased period a costumes sign ill unknowns and competitor will real is means way saw what with going of them is That to what us our Halloween fate which be process. case during change correct major in that Halloween way well. the of retailers, a

top the game in the majority for the leader license have so of So costumes. video we licenses we're video garnished us, game

We licenses will people forward have back will going healthiness of year, a missing And XXXX. this a the Halloween year, normal what just somewhat that be be, of shortly we next for not of will into knowing it to more some of the getting cluster look announced XXXX. things with to excited lifestyle new

in people I that having to and XXXX. be think pent-up spend timeline more will do more

will bode, think XXXX. we that for us So exceptionally well going into

Stephanie Wissink

is breakeven And then last the on the point. just one

pathway cover your look incrementality quarterly margins a it's in sales operating as mentioned articulate on your level out John starting to agenda - couple of sales overall in can I'm overall years, monthly as costs. your level we what you wondering And you really you see really breakeven structure? generate I see had really script the the cost an into think your just reduce you whether or to your next to structure. towards if to

John Kimble

G&A was about we've we're at looking in as on front, smaller a specifics trying a be see talked go consistent at what And down mindful about into to if Stephen's was my or to know end with as going time the we're down if at breakeven with as in to think talking to where a But for getting don't particular, of the that our so, past part. happening past up of of year while specific of I year, are QX able that about cost in with and with a ended sales. same part to a Halloween the and you well months, I fair, kind point results that of something we're hoping We're view not been several going as challenges talked the we've to what be to about both margin the the attack perspective. the looking today happy to gross bringing backwards without on from level. percentage focus Yes, year and terms

certainly been changes it action making here degree there's comes long-term. year G&A, changes kind that to front be are is like the So, in impacting we've a always when line. But of of of of to the some half intended unexpected the the

Operator

comes question of the Gerrick with Capital BMO from line next Markets. Johnson Our

Your line now is open.

Gerrick Johnson

What retailers? with you terms going planograms supposed presenting been lately those they B when their to expectations fully discussions that - any from we some your of back. And manufacturing dates? set are they're then about still thinking able have is, be in anywhere Are lingering issues maybe seeing Thanks. are and of all your are hit still How Part are of to dates, you partners?

Stephen Berman

we're Southern the the both So the on part hit China the the normal but areas getting and manufacturing and in the which And Indonesia. was first we problems was Southern to Shenzhen, console and working and in normal to in back majority the in of the done manufacturers of back part, It's we with in hardest. all India, different side, business some had Cambodia part now. well Northern production pretty quarter like are plush

platforms well control. we’ll goes pandemic major majority of in the year, this extremely no the assuming believe manufacturing, go out of there's extremely I nothing the assume So

a next after call second that dates first the In I August. additions of the North and being week of retailers planograms are it's for American the set, set believe week

to out going we're retailers week they companies the and hearing, just manufacturer-wise planograms COVID. there retail what some were outlets. difficult or this I'm the to that having times are during walk also some meet are fact, whether with some period some due them next In ship it's impacted how of to and of later financial issues or Because this to from week

of space that we've nimble we're the for shelf now looking and for So as JAKKS' our at very garnish been some inception, entrepreneurial future. and to throughout

the spoke keeping and [indiscernible] the their retailers that set to So not mass the shifting retailers we I dates ones believe dates. majority are the for

we dates that So, for dates product on we have set and we so to shipping the sure order exactly us as what the need set lines in on the see far dates have to make for everything we're set the that year about were rest the ago, week for up of it occurring have weeks the everything looks of week the the changed. it's And settled. until six in August. up not but first has of They year like been August, second

we of set behind product our on initial those some So planned have lines. some media dates

Operator

Thank you.

the queue Stephen like now at We to closing time. Berman have for no turn back remarks. would this questions to further I call the in

Stephen Berman

on everyone. calls today our healthy. We to you, Thank time tomorrow and the the best. scheduled. appreciate as everybody. look follow-up and everyone you, Thank the having today call later All forward for Stay

Operator

Thank Ladies conference and concludes for call. participating. gentlemen, today's you this

now disconnect. may You

JAKKS Pacific (JAKK) 29 Jul 202020 Q2 Earnings call transcript