JAKKS Pacific(JAKK) - 2022 Q3 - Quarterly Report

Sales Performance - Net sales for the Toys/Consumer Products segment increased to $269.6 million for the three months ended September 30, 2022, up 55.8% from $173.0 million in the prior year[144] - Net sales for the Costumes segment decreased to $53.4 million for the three months ended September 30, 2022, down 16.6% from $64.0 million in the prior year[145] - Net sales for the Toys/Consumer Products segment increased to $529.6 million for the nine months ended September 30, 2022, up 58.4% from $334.4 million in the prior year[152] - Net sales for the Costumes segment increased to $134.7 million for the nine months ended September 30, 2022, up 36.3% from $98.8 million in the prior year[153] Cost of Sales - Cost of sales for the Toys/Consumer Products segment was $186.3 million, representing 69.1% of related net sales for the three months ended September 30, 2022, compared to 66.5% in the prior year[146] - Cost of sales for the Costumes segment was $44.8 million, or 83.9% of related net sales for the three months ended September 30, 2022, compared to 73.3% in the prior year[147] - Cost of sales for the Toys/Consumer Products segment was $375.0 million, or 70.8% of related net sales for the nine months ended September 30, 2022, compared to 67.4% in the prior year[154] Expenses - Selling, general and administrative expenses were $38.2 million for the three months ended September 30, 2022, constituting 11.8% of net sales, down from 16.1% in the prior year[148] - Selling, general and administrative expenses were $105.8 million for the nine months ended September 30, 2022, constituting 15.9% of net sales, down from 22.4% in the prior year[156] Net Income - Net income for the three months ended September 30, 2022, was $9.5 million, or 9.5% of net sales, compared to $15.4 million, or 15.4% in the prior year[142] Working Capital and Cash Flow - Working capital increased to $135.8 million as of September 30, 2022, up from $114.5 million as of December 31, 2021, representing a $21.3 million increase[161] - Net cash provided by operating activities was $75.3 million for the nine months ended September 30, 2022, compared to a net cash used of $26.9 million in the prior year[162] Financing Activities - Interest expense decreased to $8.9 million for the nine months ended September 30, 2022, from $11.9 million in the prior year period[157] - Future aggregate minimum royalty guarantees under product licenses total $71.4 million, with $25.4 million due over the next twelve months[162] - Investing activities used net cash of $8.1 million for the nine months ended September 30, 2022, primarily for molds and tooling purchases[163] - Financing activities used net cash of $30.3 million, mainly for the repayment of the 2021 BSP Term Loan of $29.0 million[164] - As of September 30, 2022, outstanding indebtedness under the 2021 BSP Term Loan was $69.5 million, with no outstanding debt under the senior secured revolving credit facility[165] Compliance and Borrowing - The company maintained compliance with financial covenants under the 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement as of September 30, 2022[169] - The maximum amount borrowed under the revolving credit facility was $13.0 million during the nine-month period ended September 30, 2022[177] - The company has $69.5 million of outstanding indebtedness under its 2021 BSP Term Loan, due June 2027, with interest rates ranging from LIBOR plus 6.50% - 7.00%[177] - The maximum amount borrowed under the revolving credit facility during the nine-month period ended September 30, 2022, was $13.0 million, with an average outstanding amount of $0.8 million[177] Currency and Interest Rate Risk - The exchange rate of the Hong Kong dollar to the U.S. dollar has been stable at HK$7.75 - HK$7.85 to US$1.00 since 2005, mitigating currency exchange risk[180] - The company does not anticipate near-term changes in exchange rates will materially affect future earnings, fair values, or cash flows[180] - The transition from LIBOR to the Secured Overnight Financing Rate (SOFR) is uncertain and may impact interest rates and payments on the company's term loan[179] - The company has chosen not to enter into foreign currency hedging transactions, relying on the stability of exchange rates[180] - Interest rate risk is influenced by various factors, including governmental monetary policies and economic conditions beyond the company's control[177] - The company’s borrowings under the JPMorgan ABL Facility are subject to interest rates based on Eurodollar spreads or Alternate Base Rates, which are also influenced by market conditions[177] - The future of LIBOR is uncertain, with potential changes affecting the company's financial agreements and obligations[178] - The company operates subsidiaries in multiple countries, creating exposure to foreign currency fluctuations in local operating expenses[180]