JAKK - Earnings call transcript Q2 2021

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Operator

Good afternoon, everyone. Welcome to the JAKKS Pacific Second Quarter 2021 Earnings Conference Call with management, who will review financial results for the quarter ended June 30, 2021. 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 this call this afternoon are Stephen Berman, Chairman and Chief Executive Officer and John Kimble, Chief Financial Officer. Mr. an lines the then and provide highlights along Mr. first product of current will overview quarter of with Berman business trends, operational Kimble Pacific’s comments detailed results, and will Mr. regarding provide financial JAKKS with additional the opening questions. Berman will for then comments some prior call closing and to remarks return well [Operator we of in or events circumstances, security company the estimates begin, any would out EBITDA to point as performance, Instructions] any Pacific comments statements laws. Safe as beyond future annual forward-looking Before sales, XXXX, adjusted subject that are federal made Harbor the concerning like about other JAKKS including under protection XXXX, to statements and cause to differ The current today are on subject in based materially from to actual results those and best statements. the could reflected projected certain judgment which conditions market trends forward-looking and risks company’s uncertainties,

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

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

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

Stephen Berman

for the of thank for we quarter you our joining second and afternoon performance as Good us XXXX. review

performance, store covering explain are us financials a XXXX. will back overview and about I why Our detail second of of an the the second our of half will with what’s half excited I our quarter strong begin year. back and John exceeded in we more projections quarter for for results in then internal with positioned our

margin we years. are our time the quarter recorded we second quarter, performance positive Looking many with pleased as for very operating first the at in

push to we on stronger last over the foundation. XX the months Our continue has the materially increased line business bottom and forward

since EBITDA million, Our quarter quarter XXXX. was profitable second adjusted $X the in our first

driven by leader. debt. the business performance where we down expanding we by identifying, expertise margins, and costs, built core over driving business a Our sales been on be reducing discussed, have has focus gross continue and/or by previously JAKKS’ strong improving the priorities acquiring across building profitability we the as was years can categories to product

and are timeless be meet differentiates and demand us and quarter whole space. not one how to can us We product the for confident will This quarter opportunistic in compelling that criteria. design consumer from at segment and margin provide strong demand we company. is works an brands, past around demonstrates across product companies innovation the consumer our formula This to another but kids’ other growth line, due of or due pop steady to

deliver well. businesses and evergreen We and And margins continue product our Our consecutive improved perform for importantly, margins and costs. lowering higher lower expense. debt its refinance borrowing our gross the we with terms facility, extending credit long-term sixth to quarter royalty

most chaotic the when And to freight half have in surcharges Like we of ocean first memory. are to found containers the of many, ship increase with these results capacity. dealing have pleased the despite We of very lack delivered product. and one year been

port extensive seeing are some We delays, in cases, closures. and

customers’ production shipping and windows. seeing time We reduce the moving are power continuous leading to blackouts rolling of

for key holiday the chip season. are shortages items planned Lastly, impacting

with presents meaningful where collaboration do in hands-on factors is solutions, it as being our will often said clock the and play of second these an the firm normal though, working around rallying and to success, year. challenging a longstanding were the we continue half with in of All challenge we into the issues can. nature our of back a having and achieving entrepreneurial team operations but daily. in narrative are It’s to That course a quarter literally ongoing our partners range and of

this ahead We we by historical results like The sales began to pallets. ago, to XX are the ahead well, all due disruptions with pallet and shortage nationwide flat we ability a both compared been the Months stay working customers, to There with million, perspective, to to have access our businesses of our foundational stay inventory and are a track team last meaningful double-digit to events dealing for is had growing to suppliers $XX across in And across or recognized literally level as issues June display. to the in-store Pallets ensure to of sales local lumber we boys right a in hard slightly downstream and been the levels. working From ship things product these industries seasonal saw on and have to-date pandemic. costume logging, issue outdoor year. prices, this our increased reduction transit the quantities girls, our addressing driven gratifying. were whether for sales with smaller higher growth the coming to sawmill experiencing as quarter we year.

gross led by the brand, shipments were continuation Princess Disney quarter of is over which for up the second XX% strong Our POS year-over-year.

in range. We reaction the count boys SKU to our Nintendo international by Hedgehog. great see in to to Nintendo’s added Playset of across and continuing also driven growth Nintendo our Perfectly line the and sold continues Baby Walmart to Europe. particularly entire well has at growth Sales are very be Plush. Sonic businesses, cord and addition in line We figures, the Cute in for U.S. seeing the to

at Sonic’s continue SKU retailers fall. many for the also and will increased count

better year. XXXX. costume we XX% was than QX with Halloween in we planning last up XXXX are much Understandably, place compared this Disguise to in were time business a Our

particularly Disney but We also like have seen in strength Minecraft. Frozen, across gaming the board, Princess with in properties and

filming the is with channels. established are returning content rise delivered production improvements I new and ramping review the and retail timeless I feel in We via which to for are call after positioned financial the seeing theaters. brands for and the be across the to still we continues, the opening content we return our households will during well dominated meet up our with the economic and performance, As pandemic to while traffic Streaming all gradually the demand leading working with now platforms, year. John to will of remainder pass on more expectations into creators. directly streaming commentary gaming John? audience

John Kimble

$XXX.X afternoon XX% everyone. sales Stephen year. the up XXXX quarter million, Thank to Net second $XX.X compared were million you, last and good for

dolls, million was prior toys, $XX.X toy to Disney consumer plush $XX.X saw our in strong driver million businesses, big the In sales Raya products, were Frozen. costumes growth in and QX, and and Princess the merchandise The role As we of great of Stephen consumer results girls the offset sales dress-up, of net the mentioned, play products slightly by up other board sales preschool segments. targeted compared our primarily XX% lower in year. both across and

play Nintendo our $XX.X the our Our vehicles, see $XX.X to division Black the play still videogame-related toys, Perfectly action Cute ranges while majority other and role growth, toys continue million delivered products, figures, division. to electronics Decker compared net and positively boys Sonic, our contribute lines up million, targeted girls were to last of In we the sales role Sales & of year. for contributing. strongly XX%

our activity We both pits, distribution of in foot-to-floor with seasonal certainly spring In internationally, are the division we through globally second summer the of million pieces Growth quarter together, more and U.S. sales the points the segment stores from XX% $XX.X our you benefited and product as and quarter XX% This by of continuing as throughout fast purchases compared business were to opening Net in up second table toys division second million structures, from sell were ride-ons, year. activity continues to America, consumer see lot second can while sales in. When business $XX.X with ranges. add to of at about other versus the flat million particular costume inspired the were of to net segment, sales quarter. of broader last $XX.X XX% tables, also skateboards quarter online Europe. product XXXX. in And the play toys in growth in outdoor boys in our $XX.X the ball year. our quarter last up sell North in in retail million international grew up XX%, came a those Disguise,

bigger Stephen remain a excited year As season and for Halloween better Disguise. out, pointed with this we

improvement of $XX.X QX in was Product decrease will shift, freight P&L, was we was of by of partly for royalty increases line. higher down in quarter The a Moving basis licensing more sales, were a XX.X% points lower XX.X% ocean couple royalty XXX year. second second balance to rate the quarter the work result driven improvement pleased the but are rate. be issue of were a of the of of gross margin XXX the million quarter The point of basis quarter in a XXX at point last XX.X% in from the the sales, the over basis a improved margin second gross for COGS net XXXX. second a Despite really but volume balance portfolio know see the costs, XXXX these on agreements. favorable of to these net also of quarter throughout for to teams they and of The gross problematic we increases continued margin mitigate to diligently something fronts. XXXX, clearly cost real a XX.X%

of X.X% of sales direct of Our to costs X% net or sales $X.X $X.X or XXXX. compared the million, net second selling in million, second quarter quarter were

of of XXXX. quarter development XX% quarter the expense, of of to or XXXX. second or XX% was in quarter and operating second $XX.X operating testing, and million net second $XX.X a to net sales $X.X including depreciation excluding the product loss sales, million up in combined million XXXX $X.X quarter of amortization compared an profit second million Our of These generate G&A, but results

cost the of well Our year-to-date the to of the XXXX, of is first beginning compared interest million an overall in debt. level lower borrowing lower half million expense as as $XX.X reflecting $X.X

basic the of per $X.XX per diluted of QX attributable in net $XX.X to XXXX improved of $X.XX attributable our resulted our to debt to common or of create common our in to These write-downs stock market of combined debt refinancing As quarterly, a and with the non-cash time notes. are gains certain of XXXX, a uniquely and the our capital price structure, losses liability Also of upon factors, impact number loss reminder, inclusive of In those maturity the notes XXXX. elements senior basic of cost million million quarter preferred $XX.X a share million. share operating derivative the a quarter and stockholders recapitalization. $X.X rates, offset our second of compared share resulted performance with specifically in convertible valuations associated refinancing depending diluted to or quarter, and loss the in of or elements loss this current mark-to-market of a stockholders net

impact of $X.XX $X.XX second share quarter XXXX the and million a debt compensation was valuation Excluding adjustments, in $X.X million of XXXX. as or net compared our $XX.X or in related well diluted per attributable to expenses stock common loss per as expense, to loss of extinguishment the the the non-cash share basic of reported diluted adjusted and basic stockholders second quarter

EBITDA quarter Our the adjusted for million. $X was

quarter The of XXXX. That XX, quarter XXXX. from as was were XX, in were Inventory June quarter to the trailing our second since June XX, the adjusted days $XX XX years, sales. second second compared XXXX June quarter. of million EBITDA second XX-month X million adjusted loss quarter. receivable first XXXX DSIs versus increased XXXX in XXXX Accounts million, EBITDA past in $XXX.X as up the net DSOs XX XXXX. representing million $XX.X $XX.X positive days a as days highest the for $XX.X in from X.X% dollar XX XX, to at XXXX XX-month compared brings the XXXX million, second level June XX its our in reported XXXX trailing to of to of of days $X.X million

for drawdown XXXX. we converted additional maturity to an we this was At utilized our As that prepare not to the utilized. to scenario, debt borrowing knowing be of company QX. notes. its of redeem for another, prior September if or mature triggered the no this a disclosed be longer drawdown to provision option that of month, acceleration that as company has arranged issue resolved One way the To have has financing value. early long-term notes the This will time, long-term into redeeming at previously are notes by that senior par of the in duration of convertible company any whether cash the our time, be end costs. In refinanced refinancing last possible event of necessary way part the lower debt the will with notes

credit secured company’s liquidity. Also leverages line, We $XX.X base our a June of availability million increase $XX.X as no credit aside as the XX, that of currently In outstanding under which from new to of more have credit letters asset in million million. of balance facility, we our the addition, overall under is line $XX XX. June

the awaiting forgiven, accrue whether the company feedback. in forgiveness of would debt During presumes is Payments any of September funds the begin company its applied and second will absence of beginning X-year period loan million knowing $X.X quarter, interest XXXX. for be XXXX. In the a to with in June PPP

is However, forgiveness our debt repayment PPP pending. application is suspended, while

in $XX.X due September per of was with senior quarter the I $X.X including second will to for convertible XXXX based million The XXXX, million $X.X second million second second million due XX, over second some and XXXX aforementioned As expenditures of a quarter $XXX.X were of XXXX. dollar at XXXX. XXXX, our average conversions. XXXX. X.XX of calculation amortization the compared as under $X.X interest, the And hand and of PIK shares in term stock owed number XXXX This X.XXX weighted basic notes during loan Depreciation XXXX. loan income quarter XXXX, diluted million for was recapitalized inclusive Stephen compared quarter the $XX outstanding, million of for to convertible million on quarter split Capital due in aforementioned common of PPP million, $X.X reverse well of June XXXX impact million was reflects the from the additional back value that, note up the the and of June the call now July debt the quarter second of million $X.X remarks. to as June of X, share senior the company’s face our

Stephen Berman

have exciting here aware talk results, of being is the truly feel half through Thank to in of what be strong sit about you, able as some of discuss work that to first the of like the for works year. as XXXX. be is would part we things now John. It set balance today of some the half will and but to the we great I highlights the back enthusiasm of we

first through Disney’s XXXX. about Disney product the continued Celebration, ever activations a content, our are including and our kickoff next Princess experiences. XX-month demand great Week continued with the style campaign program themes kindness global collection and from suitcase, we Disney all at Princess courage month role and this April of global Ultimate launched and see campaign. We during We vanity. performance World The Retail and via extremely strong Princess phone, excited celebrating anticipate resulting for ‘XX items, play totes Princess characters in into continues will retail

core dolls, playdate including year-over-year and to Walmart accessories contribute at distribution also gains. dresses, will price low New dress-up

XXXX. cross continue partners, hit our Disney this as Studios’ line presence costume to expecting Supply new original of our demand Animation division, retail theaters product film, With to expected upcoming with our all November. performance Skateboard well strong we will expand Encanto, segment, anticipating brands the for line also seasonal great Heart In ReDo skateboarding recently Halloween points perform our brand. we from has scheduled Both launched we Disguise our We category Walt are of coming as are to our distribution. are along grow celebrating

both to importantly on accessory which and As performance décor by is strong our sales. strong us, know, great to Easter had JAKKS been and portfolio. generate is last really excitement should you extending Sunday this prepared a is the Halloween opposite we retailers, the across for a more more and should year, which in what growth reaffirmed by This year. which sales of drive has demand, meet entire costume

Our be content like from volume and growth World, new movie, such new Jurassic portfolios acquisitions, comes Sony PAW including will the Disguise of many movies new license The in between return and Ghostbusters. and as by big Patrol two Universal Minions, studio driven areas,

and all Our content with currently properties. expansion and their gamers strong gaming up anticipate continue Potter be growth businesses the for gaming and the International costumes to we and as with Hasbro continue contributing additional evergreen Collectively, gaming we the staples, in Disney, are up strong year. is costumes kids Harry strong core XX%. of XX% have for favorite orders year remainder

enable several round have like year Dress We Up. efforts business this a our drive been more increasing Disguise. This Book growth will encompassing and Week, for to holidays Carnival, balanced year international Everyday

experts future and sharing costume expanding our of to the plans are more and team about forward hiring news We look around world the our quarters. in

We on will norms. to path to whatever continue. prove that return is play basic patterns expect that be, we that world to hopeful the core But may are pre-pandemic the timeline

and We in we pandemics and to to months As continue for brand partners mitigate We in and our with offering to before. the love. our the businesses. retail that our XX work new fun goods And on experienced category continue we many beyond. on meet disciplined life more and our know products importantly, of domestic We home past early work than initiatives the logistic on. ever consumers XXXX demand closely secure agile engaging management brands effect remain intend by setbacks with to

products as plans our in We are as the at media confident in product year, our support that ability of promotional second and the to to deliver half well retail.

to to and are office, to in person return return calendar. traveling beginning the Our up sales picking has the meetings started is workforce to

in we of the fact, line modest am in business we strong value. Overcoming are second remainder we The take given early initiatives is increases see has the want for Overall, challenges world. amazing improving cost the budget quarter this continuing past sheet, a structure, effort shareholder half be first for thank our team a such changes expectations you. of now These place year, strong everyone driving half some Thank in developments and result, and to our year. balance to of have I And how in a well strengthen are in in company to proud the supply chain expect and With for their I we year. of first great managed back that, questions. As our back the to the fantastic will of quarter. the extremely we focus us. achievement cost around on a have ultimately deliver with our surprising, set positioned year. shouldn’t

Operator

[Operator from Instructions] comes of Steph Our Wissink first Jefferies. question

Your open. line is

Steph Wissink

just Good across afternoon, think. strong the Thanks. It’s in somewhat I the everyone. strong business, segments an little a this bit as question from Maybe drivers. driven Stephen, almost of portfolio is the how about changed past has business just all to first you. all of of diversified a share very observation, real, them for the hit of actually, being

Stephen Berman

Steph. Thank Okay. you,

and some the now these is are has up do segmentations for the extremely them those over really adds seasonal that internally, have and already of division building And in were to of we been licensing segmentations through Firstly, the areas we from what which categories our divisional the acquisitions, matured. division strong us. some content girls years boys to

those grab our Heart interior The actual that skateboard such is strong has of outdoor And categories, leaders. and And want achieving basic we core so licenses on. So, as on up The the line full foot doing business all to first while categories has materially. target. and up our build segmentation indoor introducing or play own environments, foothold those we pits grown of new seasonal, tents we ReDo, now right business them, and are new is to line category ball the businesses and seasonal for very

It’s are continues So, to and building been through. that. something work just that the strong had demand up we have we

to have Montana’s We to days been Delta-v the Frozen the from the Hannah X.

that home continuing afterward, We properties. hard and forward. some business have the But great to benefit of achieving it’s run parlay licenses then

in over strong a a sense, really a brick up whether to that brick, don’t But will a effort singles we like put doubles off platforms home comes it’s run so these last to and next we need just property another we grow business years and slam that and these grand the So, and grow for of or X, then parcel huge that and grow have and our us year, platforms in business. revenue. on X build have be or margin condo part by

basic So, business Halloween the really like core the business.

international this for just materially the international in fruition we We leaders got come that that in the expanded next that to stable the and category. are now in of majority have year. year territories. up really now picked businesses And really continue rights We that we that businesses those become us out will have year to

criteria showed So, last has and put really put few and place, of fruits under in years over All have what the we we this that what the put it year. have we together. performed place, the really

Steph Wissink

it’s think or greater outperformance one not expect for as just goals you that’s over XXXX, Alright, maybe Where do if the but you out last another you you years, great. for of your do the And about the core second potential the toy is business? half, disguised as Stephen think and now suggest? plays opportunity of might even it more biggest the couple relative amount step back even to so

Stephen Berman

board the Disguise also during are and pandemic. those were strong really had growth Well, the see that of all kind firstly, across and year a last say really areas hurt I two Disguise, would holidays, because Halloween I with

So, that weren’t itself just going hurt. people because the out. That’s business, how

We sales which in that we talk XX% is we more lot it our lot the new to a in actually that of a really, growth. tremendous some that Disney of where really overall. third properties, will Givi, And the also strong we back properties launching things have is August norm, and – about girls a then return current which just girl in launching line, now But sales. are X, in lines of new doing have division, our offset of we are have our were quarter. So, lineup up new

collection just tremendous lot the doing with first a Christmas just up style There is for really, the well, initiative. the new category. have power the time, really with it Disney but strong behind backing lineup months Disney evergreen of the XX We of that’s our a

it Decker, but So, be Nintendo, called areas side well, main all growing very euphoric like many really would Black Disney Disguise have that the have growth the are necessarily and double-digit core girl the are euphoric we doesn’t to getting in & the segmentation. categories

Steph Wissink

Okay, the of have John, for million wanted a on I the balance that’s on to of couple great. quick sheet. inventory I you. ones $XX.X just clarify

Stephen a mentioned that might am I think us ahead? bit has you had if early. that can pull $XX help pulled you in how wondering a of have inventory contextualize I much some million just been

John Kimble

Yes.

where have I it’s grab I in have I turning number terms a kind stuff, $X can really or cash pull years. if mean $XX into December about and can build think we I little as back look that you don’t again inventory you lean, higher. of And up know, at can it’s higher, and bit that felt than bit. recent million a – It’s of good know million But felt would we the higher I little we we XX. been. you to pretty tell we finished that stuff

so it the hand But inventories to all that be is really replenishment year-over-year. domestic team have with what the between want really down our inventory for problems to to our much as, I is narrative. as speak in that. really that continue the that through we working we fact chain, as much And the retail as just we highlight in well were think of supply didn’t

of sell So, just think us year. and back sets I up it for real half in additional well sort of the the

Steph Wissink

maybe the margin to progress us XX% could years? And to to those that’s me X next Where high-XXs over a step mid-XXs, then bit about margins the ultimately last for margin plus, just taken through with gross the now of wanted so and to over a significant such years even couple little think course today. either levels of that up the the just the margin, one on share into last mid Okay, is great. has from low

John Kimble

time a Yes. for one, trying That’s good kind of feel spending that. a get quite strong a of bit to

good we I we so. having had pop think of would up something flip short marketing a that, end year think necessarily of the improvements to past And some the invest kind but line, of approaching the I if are on of the and or have owned side. sort the royalty over royalty have we be bearing, on bit that of IP more promotion. wouldn’t side Then probably things on end we

has there that. about what, I to bit working about. us we product feel But kind are the we can initiatives does that some we from know been there, as is of us say get then right talk that can then upside we as there. still like, as in that more about a of some everybody still more I And fortunate you get costs, and and like to soon towards hard mix being can soon be talking ago points about disciplined little which margin line to of and place would But a comfortably our be area out to low-XXs. side, rather think helping product grind margin bit years in help performance put is more going is margin in the to that margin still the brands the buffer It’s subcategories drive the than revenue gross we On and couple a or it’s that as to against of top going more little story. chasing freight which

Steph Wissink

on. Thank pass Okay, it will that’s great. you. I

Stephen Berman

Steph. you, Thank

Operator

that questions Ladies time. showing at for no gentlemen further Thank conference. and Thank am I this concludes you participating. the you.

You may now disconnect.

JAKKS Pacific (JAKK) 29 Jul 212021 Q2 Earnings call transcript