JAKKS Pacific(JAKK) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section details the company's financial performance and position for the reported periods Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, segment performance, and financial position for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets This statement presents the company's assets, liabilities, and equity at specific points in time Balance Sheet Data | Metric | Dec 31, 2024 (in thousands) | Jun 30, 2025 (in thousands) | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Total Assets | $444,869 | $438,718 | (1.4%) | | Total Liabilities | $204,036 | $201,981 | (1.0%) | | Total Stockholders' Equity | $240,833 | $236,737 | (1.7%) | | Cash and cash equivalents | $69,936 | $38,195 | (45.4%) | | Inventory | $52,780 | $71,811 | 36.0% | | Accounts payable - Meisheng | $13,461 | $0 | (100%) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This statement details the company's revenues, expenses, and net income or loss over specific periods Statements of Operations Data | Metric (in thousands) | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (YoY) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net Sales | $119,094 | $148,619 | (19.9%) | $232,347 | $238,695 | (2.7%) | | Gross Profit | $39,023 | $47,585 | (18.0%) | $78,036 | $68,637 | 13.7% | | Income (loss) from operations | $(2,783) | $7,643 | (136.4%) | $(6,540) | $(13,681) | 52.2% | | Net income (loss) | $(2,319) | $5,266 | (144.0%) | $(4,701) | $(8,959) | 47.5% | | EPS - Basic | $(0.21) | $0.49 | (142.9%) | $(0.42) | $(0.75) | 44.0% | Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in the company's equity accounts, including retained earnings and share capital Stockholders' Equity Data | Metric (in thousands) | Dec 31, 2024 | Jun 30, 2025 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $240,833 | $236,737 | (1.7%) | | Accumulated Deficit | $(39,692) | $(49,965) | (25.9%) | | Share-based compensation expense (6 months) | N/A | $5,740 | N/A | | Cash dividend declared (6 months) | N/A | $(5,572) | N/A | - The company declared and paid two quarterly cash dividends of $0.25 per share during the six months ended June 30, 2025, totaling $5.57 million, whereas no dividends were declared or paid in 2024[12][80] - In March 2024, the company redeemed all outstanding Series A Senior Preferred Stock for $20.0 million cash and $15.0 million in common shares[14][86] Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by the company across operating, investing, and financing activities Cash Flow Data | Metric (in thousands) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | | Net cash used in operating activities | $(15,931) | $(27,666) | 42.4% | | Net cash used in investing activities | $(6,015) | $(6,174) | 2.6% | | Net cash used in financing activities | $(9,400) | $(20,131) | 53.3% | | Net decrease in cash, cash equivalents and restricted cash | $(31,346) | $(53,971) | 41.9% | | Cash, cash equivalents and restricted cash, end of period | $43,056 | $17,902 | 140.5% | - Cash paid for income taxes significantly decreased from $13.09 million in 2024 to $2.20 million in 2025 for the six-month period[17] Notes to Condensed Consolidated Financial Statements This section provides additional information and explanations for the figures presented in the financial statements Note 1 — Basis of Presentation This note describes the accounting principles, policies, and new pronouncements adopted by the company - The company adopted ASU 2020-06 (Accounting for Convertible Instruments and Contracts in an Entity's Own Equity) on January 1, 2024, with no material impact[26] - ASU 2023-07 (Segment Reporting) was adopted as of December 31, 2024, leading to incremental segment disclosures[27] - The company is evaluating the impact of ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures), effective for fiscal years beginning after December 15, 2024, and December 15, 2026, respectively[28][29] Note 2 — Business Segments, Geographic Data and Sales by Major Customers This note provides detailed financial information broken down by the company's operating segments, geographic regions, and key customers - The company's two business segments are Toys/Consumer Products (TCP) and Costumes[32] Segment Performance (3 Months Ended Jun 30) | Segment (3 Months Ended Jun 30, in thousands) | 2025 Net Sales | 2024 Net Sales | Change (YoY) | 2025 Income (loss) from operations | 2024 Income (loss) from operations | Change (YoY) | | :-------------------------------------------- | :------------- | :------------- | :----------- | :--------------------------------- | :--------------------------------- | :----------- | | Toys/Consumer Products | $80,379 | $104,570 | (23.1%) | $(1,668) | $9,710 | (117.2%) | | Costumes | $38,715 | $44,049 | (12.0%) | $(1,115) | $(2,067) | 46.1% | | Total | $119,094 | $148,619 | (19.9%) | $(2,783) | $7,643 | (136.4%) | Segment Performance (6 Months Ended Jun 30) | Segment (6 Months Ended Jun 30, in thousands) | 2025 Net Sales | 2024 Net Sales | Change (YoY) | 2025 Loss from operations | 2024 Loss from operations | Change (YoY) | | :-------------------------------------------- | :------------- | :------------- | :----------- | :------------------------ | :------------------------ | :----------- | | Toys/Consumer Products | $187,817 | $187,480 | 0.2% | $(748) | $(7,500) | 90.0% | | Costumes | $44,530 | $51,215 | (13.1%) | $(5,792) | $(6,181) | 6.3% | | Total | $232,347 | $238,695 | (2.7%) | $(6,540) | $(13,681) | 52.2% | Sales by Major Customer (6 Months Ended Jun 30) | Major Customer (6 Months Ended Jun 30) | 2025 Amount (in thousands) | 2025 % of Net Sales | 2024 Amount (in thousands) | 2024 % of Net Sales | | :------------------------------------- | :------------------------- | :------------------ | :------------------------- | :------------------ | | Target | $66,382 | 28.6% | $68,079 | 28.5% | | Walmart | $60,074 | 25.8% | $56,039 | 23.5% | | Total | $126,456 | 54.4% | $124,118 | 52.0% | Note 3 — Inventory This note details the composition of inventory and the related obsolescence reserve Inventory Details | Metric (in thousands) | Jun 30, 2025 | Dec 31, 2024 | Change | | :-------------------- | :----------- | :----------- | :----- | | Finished goods inventory | $71,811 | $52,780 | 36.0% | | Inventory obsolescence reserve | $3,300 | $10,900 | (69.7%) | Note 4 — Revenue Recognition and Reserve for Sales Returns and Allowances This note explains the company's revenue recognition policies and the accounting for sales returns and allowances - Revenue is recognized at the point of sale when control of goods is transferred to customers[52] - The reserve for sales returns and allowances decreased by 18.7% from $35.8 million at December 31, 2024, to $29.1 million at June 30, 2025[57] Sales Commissions and Shipping Costs | Expense (in thousands) | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Sales commissions | $500 | $300 | $900 | $600 | | Shipping and handling costs | $1,700 | $1,400 | $3,900 | $3,000 | Note 5 — Credit Facilities This note describes the company's credit arrangements, including new facilities and debt extinguishments - The company terminated its $67.5 million JPMorgan ABL Facility on June 24, 2025, with no outstanding borrowings[61] - A $0.4 million loss on debt extinguishment was recorded due to the write-off of unamortized debt issuance costs from the JPMorgan ABL Facility[61] - A new $70.0 million senior secured revolving credit facility with BMO Bank N.A. was established on June 24, 2025, maturing on June 24, 2030, with no outstanding borrowings and $70.0 million excess borrowing availability as of June 30, 2025[63][66] Note 6 — Income Taxes This note provides details on the company's income tax expense, benefit, and effective tax rates Income Tax Data | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax benefit (expense) | $(606) (in thousands) | $2,281 (in thousands) | $(1,769) (in thousands) | $(4,447) (in thousands) | | Effective tax rate | 20.7% | 30.2% | 27.3% | 33.2% | - The decrease in the effective tax rate for the three months ended June 30, 2025, was primarily due to a change in the forecasted annual effective tax rate driven by the jurisdictional mix of earnings[71] Note 7 — Earnings (Loss) Per Share This note presents the basic and diluted earnings or loss per share calculations Earnings Per Share Data | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | EPS - Basic | $(0.21) | $0.49 | $(0.42) | $(0.75) | | EPS - Diluted | $(0.21) | $0.47 | $(0.42) | $(0.75) | | Weighted average common shares outstanding - basic (in thousands) | 11,146 | 10,801 | 11,146 | 10,577 | - Potentially dilutive restricted stock units were excluded from diluted loss per share computation for both periods as they were anti-dilutive[75] Note 8 — Common Stock and Preferred Stock This note details transactions related to common and preferred stock, including repurchases and dividends - The company repurchased $3.8 million of common stock for employee tax withholding in 2025, compared to $5.1 million in 2024[78][79] - A quarterly cash dividend of $0.25 per share was declared on April 28, 2025, and paid on June 27, 2025, with no dividend declared or paid in 2024[80] - All outstanding Series A Senior Preferred Stock was redeemed on March 11, 2024, for $20.0 million cash and 571,295 common shares (valued at $15.0 million)[86][97] Note 9 — Goodwill This note discusses the company's goodwill and the results of impairment tests - No goodwill impairment was determined for the six months ended June 30, 2025, or June 30, 2024[103] - An interim quantitative impairment test was conducted as of May 31, 2025, due to macroeconomic developments (rising import costs), confirming that the fair value of reporting units exceeded their carrying amounts[102] Note 10 — Comprehensive Income (Loss) This note presents the components of comprehensive income or loss, including foreign currency translation adjustments Comprehensive Income Data | Metric (in thousands) | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $(2,319) | $5,266 | $(4,701) | $(8,959) | | Foreign currency translation adjustment | $3,637 | $(116) | $4,265 | $(681) | | Comprehensive income (loss) | $1,318 | $5,150 | $(436) | $(9,640) | Note 11 — Litigation and Contingencies This note outlines the company's legal proceedings and contingent liabilities - The company accrues for losses from legal proceedings when probable and reasonably estimable[105] - The company provides indemnifications to various parties, including licensors, customers, officers, and directors, with no significant costs for D&O indemnifications in the last five years[106][107] Note 12 — Share-Based Payments This note details the company's share-based compensation expense and unrecognized costs Share-Based Compensation Expense | Metric (in thousands) | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Share-based compensation expense | $3,188 | $2,545 | $5,740 | $5,094 | - As of June 30, 2025, total unrecognized compensation cost for non-vested restricted stock units was $15.9 million, with a weighted-average recognition period of 1.9 years[111] Note 13 — Fair Value Measurements This note describes the fair value hierarchy and measurements for financial instruments - Money market funds and investments in employee deferred compensation trusts are measured at fair value using Level 1 inputs[116] - The preferred stock derivative liability, previously a Level 3 liability, was extinguished on March 11, 2024[117][118] Note 14 — Related Party Transactions This note discloses transactions and balances with related parties - Meisheng Cultural Company Limited ceased to be a related party as of December 6, 2024[119] - Amounts due to Meisheng for inventory decreased from $13.5 million at December 31, 2024, to zero at June 30, 2025[9][120] Note 15 — Prepaid Expenses and Other Assets This note provides a breakdown of prepaid expenses and other current assets Prepaid Expenses and Other Assets Details | Metric (in thousands) | Jun 30, 2025 | Dec 31, 2024 | Change | | :-------------------- | :----------- | :----------- | :----- | | Prepaid expenses and other assets | $22,575 | $14,141 | 59.6% | | Income tax receivable | $10,246 | $8,798 | 16.5% | | Prepaid expenses | $5,780 | $2,306 | 150.7% | | Royalty advances | $2,902 | $941 | 208.4% | Note 16 — Subsequent events This note reports significant events that occurred after the balance sheet date - Changes to the US Tax code were signed into law on July 4, 2025, and will be accounted for in Q3 2025[122] - A quarterly cash dividend of $0.25 per common share was declared on July 22, 2025, payable on September 30, 2025[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2025, compared to the prior year, covering net sales, cost of sales, selling, general and administrative expenses, income taxes, seasonality, and liquidity, highlighting key drivers of performance changes Disclosure Regarding Forward-Looking Statements This section cautions readers about forward-looking statements and potential risks - The report contains forward-looking statements, and actual results may differ materially from expectations due to various factors[124] - The company does not commit to publicly update or revise any forward-looking statements[124] Critical Accounting Estimates This section highlights the company's significant accounting policies and estimates - Critical accounting policies and estimates did not materially change during the first six months of 2025[125] New Accounting Pronouncements This section refers to details on recently adopted or issued accounting standards - Refer to Note 1 for details on new accounting pronouncements[126] Results of Operations This section analyzes the company's financial performance over the reporting periods Comparison of the Three Months Ended June 30, 2025 and 2024 This section compares the company's financial results for the three-month periods Net Sales This section analyzes net sales performance for the three months ended June 30 Net Sales by Segment (3 Months) | Segment (in thousands) | 2025 Net Sales | 2024 Net Sales | Change (YoY) | | :--------------------- | :------------- | :------------- | :----------- | | Toys/Consumer Products | $80,379 | $104,570 | (23.1%) | | Costumes | $38,715 | $44,049 | (12.0%) | | Total Net Sales | $119,094 | $148,619 | (19.9%) | - Toys/Consumer Products sales decreased due to lower North American demand from higher importation costs, despite a 41.1% increase in international net sales[129] Cost of Sales This section analyzes the cost of goods sold for the three months ended June 30 Cost of Sales by Segment (3 Months) | Segment (in thousands) | 2025 Cost of Sales | 2024 Cost of Sales | Change (YoY) | 2025 % of Net Sales | 2024 % of Net Sales | | :--------------------- | :----------------- | :----------------- | :----------- | :------------------ | :------------------ | | Toys/Consumer Products | $53,293 | $67,519 | (21.0%) | 66.3% | 64.5% | | Costumes | $26,778 | $33,515 | (20.0%) | 69.3% | 76.1% | | Total Cost of Sales | $80,071 | $101,034 | (20.7%) | 67.2% | 68.0% | - Gross profit margin improved to 32.8% in Q2 2025 from 32.0% in Q2 2024, driven by a favorable product mix in TCP and better pricing/lower reserves in Costumes[127][131][132] Selling, General and Administrative Expenses This section analyzes SG&A expenses for the three months ended June 30 SG&A Expenses (3 Months) | Metric (in thousands) | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (YoY) | 2025 % of Net Sales | 2024 % of Net Sales | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :------------------ | :------------------ | | SG&A Expenses | $41,806 | $39,942 | 4.7% | 35.1% | 26.9% | - The increase in SG&A expenses was attributed to slightly higher selling expenses, salaries and benefits, and professional services[133] Benefit From Income Taxes This section analyzes the income tax benefit or expense for the three months ended June 30 Income Tax Benefit (3 Months) | Metric (in thousands) | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | | :-------------------- | :-------------------------- | :-------------------------- | | Income tax benefit (expense) | $(606) | $2,281 | | Effective tax rate | 20.7% | 30.2% | - The decrease in tax expense was primarily due to a change in the forecasted annual effective tax rate, influenced by the jurisdictional mix of earnings[134] Comparison of the Six Months Ended June 30, 2025 and 2024 This section compares the company's financial results for the six-month periods Net Sales This section analyzes net sales performance for the six months ended June 30 Net Sales by Segment (6 Months) | Segment (in thousands) | 2025 Net Sales | 2024 Net Sales | Change (YoY) | | :--------------------- | :------------- | :------------- | :----------- | | Toys/Consumer Products | $187,817 | $187,480 | 0.2% | | Costumes | $44,530 | $51,215 | (13.1%) | | Total Net Sales | $232,347 | $238,695 | (2.7%) | - Toys/Consumer Products sales were positively impacted by higher sales related to the Sonic 3 Movie product[135] Cost of Sales This section analyzes the cost of goods sold for the six months ended June 30 Cost of Sales by Segment (6 Months) | Segment (in thousands) | 2025 Cost of Sales | 2024 Cost of Sales | Change (YoY) | 2025 % of Net Sales | 2024 % of Net Sales | | :--------------------- | :----------------- | :----------------- | :----------- | :------------------ | :------------------ | | Toys/Consumer Products | $122,532 | $132,574 | (7.6%) | 65.2% | 70.7% | | Costumes | $31,779 | $37,484 | (15.2%) | 71.5% | 73.2% | | Total Cost of Sales | $154,311 | $170,058 | (9.3%) | 66.4% | 71.2% | - Gross profit margin significantly improved to 33.6% in H1 2025 from 28.8% in H1 2024, driven by a favorable product mix (movie-related) and lower inventory reserves in TCP, and improved factory costing in Costumes[127][137][138] Selling, General and Administrative Expenses This section analyzes SG&A expenses for the six months ended June 30 SG&A Expenses (6 Months) | Metric (in thousands) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (YoY) | 2025 % of Net Sales | 2024 % of Net Sales | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :------------------ | :------------------ | | SG&A Expenses | $84,576 | $82,318 | 2.8% | 36.4% | 34.5% | - The increase in SG&A expenses was primarily due to slightly higher selling expenses and salaries and benefits[139] Benefit From Income Taxes This section analyzes the income tax benefit or expense for the six months ended June 30 Income Tax Benefit (6 Months) | Metric (in thousands) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------- | :-------------------------- | :-------------------------- | | Income tax benefit | $(1,769) | $(4,447) | | Effective tax rate | 27.3% | 33.2% | - The decrease in tax benefit for the six months was primarily due to a decrease in benefits from discrete items[140] Seasonality and Backlog This section discusses the seasonal nature of the company's business and the limited utility of backlog as a sales indicator - The retail toy industry is seasonal, with highest sales in Q2 and Q3, and highest working capital needs in Q2 and Q3[141] - Orders are generally cancelable, making accurate sales forecasting difficult, and backlog is not an accurate indicator of future sales[142] Liquidity and Capital Resources This section analyzes the company's ability to generate and manage cash flows, including working capital, operating activities, and financing arrangements Working Capital | Metric (in millions) | Jun 30, 2025 | Dec 31, 2024 | Change | | :------------------- | :----------- | :----------- | :----- | | Working Capital | $109.1 | $119.3 | (8.6%) | - Net cash used in operating activities decreased to $15.9 million for the six months ended June 30, 2025, from $27.7 million in the prior year, primarily due to lower net loss and less cash taxes paid[144] - The company has future aggregate minimum royalty guarantees of $63.4 million, with $48.5 million due over the next twelve months[144] - A new $70.0 million senior secured revolving credit facility with BMO Bank N.A. was entered into on June 24, 2025, replacing the prior facility and providing $70.0 million in available liquidity as of June 30, 2025[148][149] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, specifically interest rate risk related to its revolving credit facility and foreign currency risk from international operations Interest Rate Risk This section discusses the company's exposure to fluctuations in interest rates - The Revolving Facility's interest rates are variable, based on Adjusted Term SOFR or Base Rate plus a margin, exposing the company to interest rate risk[156] Foreign Currency Risk This section discusses the company's exposure to fluctuations in foreign exchange rates - The company has foreign currency exposure due to operations in multiple countries where local expenses are in local currencies, while sales are primarily in USD[157] - The company does not currently engage in foreign currency hedging transactions, believing near-term changes will not materially affect financial results[157] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the period - The CEO and CFO certified the effectiveness of disclosure controls and procedures as of June 30, 2025[158] - No material changes in internal control over financial reporting occurred during the period[158] PART II – OTHER INFORMATION This section covers legal, risk, equity, and other miscellaneous disclosures Item 1. Legal Proceedings This section outlines the company's involvement in routine legal proceedings and its policy for accruing losses, also addressing indemnification commitments to various parties - The company is a party to routine legal proceedings and accrues for probable and estimable losses[160] - Indemnifications are provided to various parties, including officers and directors, with no significant related costs in the last five years[161] Item 1A. Risk Factors This section refers readers to the company's Annual Report on Form 10-K for a comprehensive discussion of risk factors, noting that no material changes have occurred since that filing - No material changes to the previously disclosed risk factors in the 2024 Annual Report on Form 10-K have occurred[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on any unregistered equity sales and the application of their proceeds - No unregistered sales of equity securities or use of proceeds occurred[6] Item 3. Defaults Upon Senior Securities This section reports on any defaults related to the company's senior securities - No defaults upon senior securities occurred[6] Item 4. Mine Safety Disclosures This section addresses any required disclosures regarding mine safety - No mine safety disclosures are applicable[6] Item 5. Other Information This section includes any other material information not covered elsewhere - No other information to report[6] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including credit agreements, security agreements, and various certifications from the company's executive officers - Key exhibits include the new Credit Agreement and Pledge and Security Agreement with BMO Bank N.A., dated June 24, 2025[163] - Certifications from the CEO and CFO (Rule 13a-14(a)/15d-14(a) and Section 1350) are included as exhibits[163] Signatures This section contains the signature of the duly authorized officer, John Kimble, Executive Vice President and Chief Financial Officer, certifying the report on behalf of JAKKS Pacific, Inc - The report was signed by John Kimble, Executive Vice President and Chief Financial Officer, on August 1, 2025[166]