Earnings call transcript Q4 2022

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Operator

Good afternoon everyone. Welcome to the JAKKS Pacific Fourth Quarter 2022 Earnings Conference Call with management, who will review financial results for the quarter ended December 31, 2022. 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. some an of the current the then will provide along and business first Pacific's John highlights JAKKS with product provide will overview operational quarter of full-year, trends, financial Stephen and regarding results. comments lines and return then and comments opening-up additional prior some questions. call for with remarks to will Stephen closing the [Operator Instructions]

adjusted begin, any or JAKKS and/or about performance, Safe events, in comments circumstances, securities sales, federal the the EBITDA Pacific's statements would of laws. and under beyond to like well other company we are as made Before point subject that estimates including as to out XXXX, forward-looking protection XXXX future Harbor margins, any concerning

subject cause those projected based to the best These statements from trends company's the differ reflect and materially statements. forward-looking current on the uncertainties, which certain actual to risks and results could and judgment are in market conditions today

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

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

is this recorded. conference reminder, being As a

Stephen Berman. I that, turn would the With now to like over call to

Stephen Berman

quarters share recap seeing thoughts everyone we’re and ahead. quarter about Good afternoon for and and us the as Thank you our months in the you. joining today and year thank we what

the strong exceeding ended results our Our early expectations, despite up sales our slightly fourth exceptionally year. in quarter

XXX.X net highest XXX.X our full-year million, results XXXX. sales million, net since totaled sales quarter fourth the Our annual bringing to

XXXX same As we in XX% to FOB and our our to down prioritizing were the last selling the in early the seasonality anticipated, of and related business. largely compared year, quarter attributable changes quarter, sales

key Yoshi Let's SKUs In across both a had Kart and launches. combination figure Nintendo growth action business, Mario driven was of our Go, our brands. Interactive our Racer full-year Our by great major Ride-on XX-volt

X Movie Sonic a year. Our tremendous RC Speed had

Style suitcase and Disney continued Our to kitchen Princess deliver. Collection

we we've holiday had season addition, SKUs Encanto led up two in worth in key Hedgehog. toy Disney's our a our grew but product bringing to top The SEGA, is for item such our happy I'm total Disney's lines and consumer that Sonic product across great it's And for report X strong had XXXX. strong led calendar again, In of Madrigal very major entertainment largest year a discussed by We Encanto us. Magical brands. before, Casa been segments

over largest international of in licenses the too And increase our call, build year In assortment bit never stated XX% our couple was in acquisition of Sky on We exists. the bears net chased a opportunity XXXX. Halloween said, better brand million year, much, sales, which a and as cases in since of has business selling a we finished customers and capture XXXX. bit That been clearly our the the XXXX the XXX.X think year popular steady this we with reviewing the the in of XXXX. holiday, with a recalibrating

delays. of of our this in our worth in-transit chaos million were ready approximately ship. time, to the of XX% one being shipping at year than we warehouses Last or plus rather deep in-bound nearly $XX owned-inventory With to

XX.X was we down that overall only to owned in closed say million and inventory to the X.X to happy I'm new year. million into heading warehouses our with transit our XXXX

been interest As the priority a XXXX overall have back stated our recent and reduce in leverage quarters really to going it's expense. and to recapitalization,

of we our quarters cash freed been refinancing was a few With where has rates the above extremely overall in on we've per loan rise direction, that in Although market up term the interest rate XX% focused can. past mind, positive our XXXX that in increased year. step in the

million in XXXX. to performance cash XXXX XX combined exceptional flow operating first with in Our in combination half our unusually in over generate heavy seasonality

As [ph] to XXXX. paydowns we million] the in in allocated quarters, optional recent [XX.X loan reported term

In addition, we’re quarter million, reporting prepayment made this incurred million of payment optional today earlier additional $XX fee. that we X X% which of an a

to these the without term loan loan The payoff also of ECF as any level current XX.X we down of just million, today prepayment million. provision an up additional suite fees. our make XX.X of additional term payments, required pay mandatory When our of is us tally

balance to sheet. We our proud these beyond of are improvements

We broader of afforded financial to increasingly evaluating borrowing of from engage position strength. a us we as options lowering are market our our costs the and following roadmap array of the

you’ve of the worlds As in resilient these to stay an ours, on when industry imperative in in. say dynamics always calls, you're it's and to heard often like me we the attentive be changing live which

how Difficulty] our to and were relates track despite in demand space Slowing supply spot experienced last plan as We rates container lower excessive of half costs demand immune it chain the in imputation generating beyond in the not holiday year and for our half companies associated product, [Technical business in second the of issues seasonal year. second the the our of with warehousing consumer customers from season. other customer

and to productivity own of [indiscernible] actions it as taken hurt valuing This relates operations of some our the inventory. our warehousing aggressive

QX products this groups. we’ve peer consumer kids and think our we point our accounts. of X toy area sale performed better And remained up Our at Top than in double-digits in

sales factors primary clear XX.X%, math in XXXX. reported margin to hand bit John over finishing unfavorable were XX.X% I in the when a phone gross a him, our for detail at industry. of in Nonetheless, as QX our provisions quarter fourth this to area our I many improvement will but compared the XXXX like for more to drivers through These XXXX. results QX in the go allowance were the the highlight to wanted in

last where much it up call. this business we of pretty in year be long a Most thought been With us have our ended it be that and time. planned since would said, the to

XXXX So a of million, XX% one XXXX. full-year million sales the increase of XX% for XXX.X low in more recapping XXX.X over forgive time and pandemic over highlights. increase me a our net of Full-year

we income EBITDA million, Full-year JAKKS, this appreciative XX of over XXXX’s XX.X and highest X.X%. how million, be. At our business up and all and X.X%, of as level of adjusted improvement can XXX margin compared operating thankful last point a of a challenging of since success operating basis XXXX. Full-year year we know are XX% to

to We continue focus intend on brands to and categories. timeless

business might everyone, for not Our exciting singles over was the represents that built. but be foundation and which doubles our

most IP] [ph] for our the pursue actively model. rights to [prevalent continue We

sometimes business With is that at on opportunity cost. than passing prudent the an more knowledge chasing any new

customers. the beyond we In XXXX, will our to North American distribution expand continue footprint major

that In we costume as into continue been intend have going to products businesses. you markets XXXX with addition, consumer as deeper largest the we kids well. And methodically both and know, in international toy

and talk here and John? about stop let financials back more a XXXX then of come and I'll bit go John beyond. to deeper will some into the

John Kimble

Thank you, everybody. Stephen, and hi,

here line we As a selective row. regular going granular year year listeners the ended top to and happy of from merits release so last quarter XX% for the about a a delivering talked in know, but I We're there's focused what pretty our think with doing attention. a greater be growth shipping the perspective how today, what second I towards highlight in detail in level I'm included

similar we to, of sell-through trends a couple alluded that more as empty a at bit weeks. more Stephen traditional others from last in relates could ourselves As retail, the The which point front, distinguished it of as of view. a we think to industry the on picture negative been in on have saw the the big inclusive shelves of We helpful consumer don't is bit XX/XX. rush to

especially clearly quarter. where proactive we to a continue in inventory you relates challenges. more pay higher an something expected. to is for margin cleaning area a Gross shipping smaller as run experiencing is were Royalties it bit up as Being here,

Our tooling trending up a amortization is bit.

bit some chase CapEx we on as lines tools talked this duplicated We've up about a to year demand. being

In-bound bigger year on on the lack and also and much it year. is briefly. how product we're the the much is during math geek a importing that during is by of and areas One out spent productivity part expense to portion warehouse warehousing how product driven of from capitalized here warehousing of freight we'd to in

last more incremental are then doesn't needing When we've been how and dealing year you cost than we work our to that of to cost this your higher and expense consider spread a product and the backing result if the year favor like to experienced you'd trying P&L. warehousing supply flows beginning up work chain inventory less since some secure through bit the the over, down with in space math

we're XX.X% and XXX have Everything QX some ends XXXX the all margin last wasn't you landed of portion container up, allowances gross basis but advertising, year. year, in lapping however we XXXX. XX.X% beginning margin of of or excessive it of XXXX. cost moved into or Full-year The points XXX for year-over-year bad gross the at below not up last sales cost is We when the for co-op improvements points the adjusted did than quarter was worse margin percentage add gross which margin basis at here.

basis is the XXX number basis that in range. XXX Historically, to point point

with net Direct-selling is co-op what adjust is want in accurate you in quarter number year-over-year year-over-year recorded feasible as comparison you roughly advertising negative element P&L a the now might from The in-line here you above more higher aforementioned our on expectations that the warehousing aside ponder So, out if XXXX. as was the can sales. be expenses. that

there $XX.X depreciation years. a number couple G&A of QX XX% [positions] $XX.X post-pandemic million driver was to [ph] full-year been XXXX. and and support main over expansion inclusive has the million product our XXX.X past the over development the of that of basis, testing million, increase a business The and back up XXXX. was amortization On adding in from

XXXX full-year Our as in as comp being as inclusive office number. grew for a high-single-digits reasonable being basis, us, pre-COVID on spend which a you expense non-comp about bit feels of related in norms of to think well return of there that G&A more stock variable

up working bottoms as that New a expenditures. of our and review ensure started We optimizing spending minimizing on Year have to we're we been

our the On has a have on to tax operating losses the to come Closing the expect to tax a XXXX in-light state levels as full-year net identified taking books XXXX. of [XXX it of number been as team. that relates basis, effort analysis] the impairments to as years provision, [ph] and in of we the we utilize couple NOLs margin and to in XXXX. year federal and both a X.X% place since refine a We've operating as or level of shout-out time that high was lot more this our concluded required

longer A topic recap will filing. in included our be on this XX-K

financial quarter's our million against historical quarter's as EPS with part As conjunction non-cash gain releasing a a of one- part portion of we’re projections, of generates valuation this a our P&L, as calculations. exercise release of $XX.X adjusted part this This and of allowance we of that income, adjusted which have out EBITDA, net and in close time adjusted those adjusted NOLs.

anticipate as we'd being in tax XXXX. forward, XX% Looking around effective an rate

Stephen you debt. the to want it, of I Although revisit state our through walked current

our [ph] we payment we to that [XX/XX] of] As part when a CapEx half million as $XX.X loan has process, result, short-term year, our paydowns amount close of optional amount. of debt annual of adjusting provision, full-year generated for million made of which pay mandatory [dollar and flow And balance a that of as down during $XX.X moved our part for [ph] sheet. the have calls we operating term cash

gone We have as that made finalized. number ahead our in fact payment and is

included of million, fee X% last made $XX of pay In those a payments addition, million in two down $XXX,XXX. together an which X of is for QX the When date total of The add $XX.X that million will fees, to you current pre-payment XXXX, loan unamortized as January of we optional part amount our our be million. amount term-loan slightly close lower $XX.X process. to addressed payoff but given that in reduces carrying amounts

This on year get we needed. draw line liquidity balance cash tight the of net loan where half million, second March of we [ABL] as but of building on second unrestricted navigate if we're consumer half [ph]. the was that we our those our to demand, towards time year comfortable of are is the leaning and currently based have X, our paydowns our the our projections for tends no As can ABL product upon $XX.X

in XX.X% rate on is interest Relevant our around loan QX.

job funds As associated as case, hits. plan. number hard being our great of X expense how the rate. a drag our interest balance Fed acknowledging robust results by a the will year's never any is We’ve initiatives of currently one project out In We these days a given a against drastically reduced clearly on ABL also drawing of balance, soon to had higher an line driven operating is more less remains this is expensive on the year, those was ultimately highlight, year couple lot but last atypically honest. line two revenue if ABL executing really

XX opportunities] about then of months what have remaining improve of play is we action fixed themselves rates particularly out, of course interest year, debt We lower should liquidity [clear of our now. projection our a the get gross right sort cost refinancing quarters whether we to where ahead or the market and [ph] evaluating we the from the whether to and range plan can given be becomes challenge opinions of base. in might let for the balance margins, be opportunistic the scale interest expense With

Elsewhere derivative adjusted to of generating EBITDA, liability, market a adjusted out million. market recorded this income, the preferred higher reviewing calculations due liability our and gain of on of primarily adjusted the EPS. non-cash discount balance quarter stock back adjustment lower that our of non-GAAP rates, sheet, $X.X We we a in net valuation

quarter the EPS share adjusted a of $X.XX, $X.XX is Full-year is calculated was full-year for loss of Our from And last loss XXXX. count EBITDA Year was EPS share on basic gain XX.X based for down QX is of the versus to to our based EPS count EPS a in a diluted of gain million aggregate, compared adjusted $X.XX, a $XX.X quarter adjusted diluted Quarterly on XXXX. diluted from year. of $X.XX $X X.X date for a million million. million. calculated of a

million X.X% $XX.X $XX.X sales, Our full-year sales and XXXX. X.X% of compared was to net EBITDA or in of adjusted net million

now for remarks. to some back Stephen additional And

Stephen Berman

we April product we're want on Mario [indiscernible] playsets the extremely Super from new to about shelves in year. launched John. Illumination X-inch to this Movie Bowser. and Bros. of focusing greater our entirely and movie, Fire scale business, the are an you, team some areas action excited I figure about now along In The with figures Thank talk turn key micro All X. with created hitting conjunction collectible more Nintendo and now. and in and that Breathing with theaters, the a has articulation new is

Hedgehog of our indication, product. both new to movie any bring with see the as to the experience and entertainment well are recent Mario building our excited for extremely fans toys We for fans years. the into will the our as And franchise we've deep if the Sonic been Super is several catalog discover movie product,

expecting we been Nintendo with in not the on December Sonic Prime Sonic has forgotten are things and Netflix say in to this some success. new year. programming about episodic The great have a We great That's started slightest.

coordinated We drop with have content. launching related products fall, this an of additional

by this at for looking be new team in opportunities, Sonic's beyond. the the watch more supported year, for is here. to pleased aggressively this continue this performance line development. out really and in content always new with would how particular were and which But will point We the expand news product XXXX QX space And

Dolls, segment the led Our Dress Encanto, Play Style and coming massive Role Disney is a growth in by Disney Dress and Collection. off year Princess Up, Up Princess Disney's

but area, initiatives to some in energy that know at of you those aisles business, have news this and there comps year-over-year difficult new bringing new many retail. the we For are these

personify is the we Ami with [yarn and line inspired our a crochet] new personality found collectible Amis, is and [ph]. that trend their of Walmart and QX, on has that collectible broad to launch tag In partnered collector's cozy their details. a all things. latest This hang of little favorite characters collection a new exclusively plush product described sweet Every by that in IP, of soft

the in to is really world see go last of and has eager begin The from [awe the are together will half past put the to over wider year year. second the we've been we reaction factor] the [ph] and our hiding of product the what month. this team distribution it charts Its to this into off release

to This XX, Walt Our working commenced support XXX of XX-month celebration and XXX, through celebrating June is December Disney business the Company. XXXX. Disney Disney years runs on

celebrate will in a February. focus month. Disney Encanto a franchise month, was Each key every Disney’s

products top to created exclusive programs respective have their customers of We celebrate part Disney milestone. for U.S. XXX as this

We event. will be the part large a about celebration more cultural are sharing the obviously year extremely be throughout such Disney XXX of and proud

support art Leveraging The product designs launched Live-Action the last retelling May is two film. new mentioned new have in play, the dress-up, Disney we releases and beloved story. the As we movie, dolls have and theatrical lines Mermaid toys styles, Disney's quarter, this we by Coming animated Little from the large inspired role year. of icons, in

exploring We be. are the window Thanksgiving's star to excited iconic came release wishing Animation's Wish extremely as Disney's in how

As Disney's Disney and year, all XXX this is great foundational holiday the season. immersive world during launching a fans the release around cornerstone the magic of

the Italy] on [ph] cap doll this XXXX continues remains at end the of in the to expansion target in year, bringing U.S. International in to brand continues reaction scale. doll space. doll [Disney we're XX-inches great line later get and the and fashion large this Our

launch. for tuned about stay So details more that

of pits, POS to of of activity effect XXXX of consumers down bulk increases XXXX. shipments products freight year-over-year. and supply to seasonal disruptions XXXX down resulting impacted led size particularly to increases and would the [rideons] [ph] business, the and and The tables, costs the more freight late and chain in contribute input The being ball cost costs slow overall price

sports skateboard reduced the costs to freight business well skates. core pre-pandemic these action seasonal levels, as stabilize in in-line roller close as business to and the the looking with we're With expand grow segments,

resources and provide us in and of we business, are attention first business the has marks how with more tastes the investment QX the also greater full-year in to offerings our the is Europe developing. with right license really scale the requirements rights Disney Moving service tailor and to pleased of enabling those Adding to disguised to and holding local local on provided costume costume our product buyers. level

trajectory Back seasonality the the XXXX, economy, inventories, overall, of there's in in for year. and lot global a North our about business From America, hurdle themselves ahead got of great. this this of high a customers the certainly, mindset setting But the some perspective, the a looks bit talk consumer. of retail of

We are to normal we and to I works. the second mentioned forward heavy traditional few that We more toy some that respect to industry the are the looking other extremely with past pushing highlights experienced initiatives with just half agree we've our comfortable peers are we where and years. have forward than do its XXXX return will focus the in what

We one chased as demand had of plan POS our half couple year on the in that at would a performing tremendous businesses, last we for. higher of level reasonably a larger first

As expect be we remained we still half the us. company, much of very material the first FOB first to for year

to lastly, Although simultaneously securing the the that are sell and the develop to we while this our all robust newness programs and and to time it's promotional year's on opportunities to for our requires. year's; product of continue business: throughs factories basics always extensions on-time develop to are our line customers partners we focus to the a generate with prices new everyone with business layer new excitement Working we ensure the talking brand products, and about we And closely next best our on to licensing continue year, Working deliveries; right

interest. questions. to final forward support One you on appreciate about move we look to during our and your before continued progress point and We year the updating

network. Our distribution on company focused is global its expanding

under been our for both methodically a markets. in our have and out growth with the sales international structure We This been developed over has teams international several rewarded increases mature past building in steady long-term years. and

fullest our initiatives anticipate that further UK that growth, U.S. role the the XXXX, our will of to market our Jack potential. help We and international Officer, that to Chief achieve our to move office announce and extremely order pleased European us coordination In and augment I'm assume January effective Operating this full-time President Operations. of McGrath will of X,

use have to U.S. some for of been this backfill plans We years departments. the time. restructuring footprint. to will his are reassign his COO of to is our responsibilities confident experience the to our international Jack as with many This of expansion works that appropriate take time has advantage other appropriate operations corporate opportunities of at for current the no position we There leaders intention the

will With that, now we take questions. Operator?

Stephen Berman

gentlemen. Thank you, and ladies

lineup a this of have one. We after calls

So, you to this the were during you appreciate forward talking quarter we after on that look first again. we And and be quarter call and to we'll is our earnings. call. first who after today speaking to everyone Thank completed our

Operator

for And this Thank today's conference call. you concludes participating.

You may now disconnect.

JAKKS Pacific (JAKK) 9 Mar 232022 Q4 Earnings call transcript