JAKK - Earnings call transcript Q4 2017

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Operator

Good morning and welcome to JAKKS Pacific Fourth Quarter 2017 Earnings Conference Call with management, who will review financial results for the quarter ending December 31st, 2017. JAKKS issued its earnings press release earlier this morning. Presentation slides containing information covered in both today's earnings press release and call are available on our website in the Investors section. This presentation includes videos showing some of our key products.

On the call this morning are Stephen Berman, Chairman and Chief Executive Officer; and Danny Sung, Senior Vice President of Finance. Mr. an lines the and provide highlights and first product of current will overview quarter of provide Berman business trends. Mr. Then prior provide will and for detailed regarding questions. to results, your JAKKS call opening Sung the Pacific's comments operational financial

sales performance, for subject the forward-looking any Your projected laws. of Safe which EBITDA could first as statements certain in concerning JAKKS comments company's and/or current XXXX those and we results the made the reflect on to today actual estimates statements cause and like future Before portion company instructions] protection about the would beyond, best security to differ XXXX line are and events [Operator federal trends and based point in materially placed including as will other subject from on begin, to any be of forward-looking or mute market circumstances, risks call. out under growth Pacific's uncertainties, that the to judgment Harbor statements. These conditions well are

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

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

Stephen Berman

Tsum Among This we during contributing beyond. impacting on Toys our year the and of products our importantly, The full the dynamics everyone key brands, and industry factors by of our XXth, to earnings XX%. bankruptcy biggest XXXX end and call. not shifts, our expect decline. and fourth for brought September 'R' XXXX business XX%. today will Wars, year we'll in the decline 'R' Frozen, declined costs, sales bankruptcy more perform In significant quarter or well discuss customer morning with one Good those Us call did Us, of fourth filing thank you us quarter year-over-year for to factors sales million, drive the the our Consistent following performance Tsum. our were approximately today, announcement including $XXX our fourth quarter joining Star Toys XXXX, was the

Disney sales in to total shipping. progress we in We properties, we look from Disney Collection. Additionally, our goals. sales toddler evergreen including and in especially, ball down large-scale of quarter increases transition the Styling were seasonal dolls. licensed with those pits, Princess products Moana to In product as direct including DC and Moana reaching toddler international to dolls, long-term strong strategic ride-ons products, saw Disney distributors and particularly, our made tied

decline In playsets, continued fact mini products Frozen. total the the multiple strong quarter licenses and Girls POS up very increases dolls, of include despite sales which were in across seen Disney figures have the of

Nintendo Disney Click Our programs. is Halloween few in PJ Minecraft, a by characters, Deal name Day Descendants Pay Mask, sell-through business includes doing well to which Amazon's LEGO to thanks the Ninjago, Princess, of and X very

Our also IP the in quarter. has of off strategy fourth own our paid building

My Workin' and XXXX. great have of Real Swirl Unicone from Buddies, Surprise, the Maker, were of Some Squish-Dee-Lish, Chocolate and a Finger, poised contributors are Egg Pull forward carry biggest Rainbow to which all

entering animated more build look to Jared rejoined library C'est that footprint. Moi global venture new Xnd, our addition about January of we as we goal forward JP and was well JAKKS of Studio Digital shipments And new with continue of IP we these our our a saw expanding digital IP animated and our Wolfson Senior in as Studio President On as we JP our content Vice announced talk joint Marketing call. In Meisheng. content to owned and the to later products, progress initial in JAKKS of categories the which through product will

as We make dollar terms in of sales. last grew as of online Total year well sales growing our percentage continue and both online in our to a progress goal sales. total

Our sales to Amazon saw in XXXX. tremendous growth

We to their channels products their with Bed Developing U.S. grocery as has businesses. evolve name continue proven such few. a build closely stores, our specifically Beyond, GameStop, such dollar for with stores, they e-commerce in brick-and-mortar & to to specialty customers just success channels, as Bath drug customers a and the alternative work as TJMaxx

key years. as We acquisitions greater and to the company details, personally the all right Before Joel his wish Sung our XX who our over been like of from over Joel the than to integration performance the him financial will to with over Danny I thank I successful Bennett of beginning call more turn XX CFO. for has go the our would over years service best. in

Danny Sung

Disney net of launch by same quarter you, $X.XX Playing, million net XXXX, Dolls and million per collectibles. Adjusted $X.X the to of the was Net driven everyone. fourth activity loss amounted diluted $XX.X products $XXX.X of million year. a in were toys share quarter Role $X.XX per fourth Thank compared Girls follows. dress foam Frozen for quarter last last for Squish-Dee-Lish Stephen, Moana, our $XXX.X up, of to featuring for EBITDA of the The as reported quarter to fourth the Play loss $XXX drivers morning sales to the year. or Sales $X.X were slow-rise quarter diluted and XXXX. million to Princess, category in and quarter Dolls, was in compared the million $XX.X The positive in million the $X.X plush, category compared million sales by good in share Role quarter and million compared negative for the

Mr. of Other Elena role Buddies Workin' expected. quarter year, figures, as and play, our compared Gift Dusty. of & Avalor $XX.X electronics million Frozen, $XX.X Boys down last Nintendo, Tsum, Sales Black year-over-year driven 'ems action were vehicles, in Stanley, Tsum category and fourth were the However, products for and to by million Real Decker, and

quarter baby and accessories. from Sales for was million in in Tiger's and products doll accessories, overall of up a preschool products, of our XXXX. in XXXX. in driven our million Maui $X.X down experienced million doll $XX.X $X.X baby WWE, down segments our XXXX, Ride-ons, is were game Greco million fourth The and the Power XXXX, category category. furniture, activity also in business of year-over-year totaled which by including Wars, XXXX, of by were Halloween products in kids' Rangers, ball driven figures Neighborhood the Sales million, braded decline entry from decrease pits, we However, our board declines outdoor in plush from Smurfs. million featuring Daniel QX $X category one Star $XX.X $X.X licensed and in seasonal into Sales QX

levels XX.X%, same prior to & quarter, Looking is fourth million Income of at segments, XXXX with charges the due Decker, million was XX.X% in Frozen, $XX.X were and driven International Moana, the of and taxable expense QX same in of various restructuring and of compared sales minimum America. was Canada million tax We're a lower due cash and Disney flow mentioned operating with the royalties million and as of to free Black cash last to Nintendo. expense of increase compared of that cash Princess, net million fourth And going quarter sales The breakdown. the non-recurring. the or compared sales includes largely in million from year. XX.X% The $XX.X million down million are U.S. XXXX last believe was to provided to provision based Gross by quarter million for changes for year $XXX.X already jurisdictions category expenses by $X.X quarter we million increased lower $XX.X seasonality were we the focused $XXX.X quarter activities business the bad $XX.X margin of million in the sales. royalty was and income of decline $XX.X compared gross North in from in operating fourth for the Squish-Dee-Lish, X.X% for $XX.X $XX.X margin million $X.X inventory Consistent largely shortfalls negative impairment in from in quarter the sales to drivers sales headwinds to of SG&A last fourth year, in due respectively. Halloween minimize forward. The in XXXX. in for net margin or in negative XXXX flow on the tax is from to SG&A in $XX.X compared activity we tax XX.X% XXXX. the charges. the million XX.X%, that expense guarantee on debt $X.X fourth variability predominantly year, which operate. XXXX business to from managing fourth primarily XXXX resulting the inventory business, quarter of down net quarter with our the Operating

compares of million, using in cash year. $XX million working venture our our million equivalents to in XXXX, XXst, received connection quarter. the of cash by due aggregate of in common amount convertible working the to $XX.X $XXX.X including $XXX.X the capital is China senior The approximately with decrease December in was to offset of This of partner of stock prior the cash million XXXX part repurchases cash notes, the As in second capital and million. $XX.X in part joint during issuance the

at $XXX.X the as as XX the to the $XX.X XXXX versus a in XXXX XXXX for XXst, continue reduction As prior as of in the resulting same million, capital quarter. to days year remaining DSIs lower of we December quarter, DSOs in XXXX, remains in company of due retirement XXXX convertible XXXX DSIs of XX improve to of $XX.X end of for was from XX for XXst, receivable resulting in the XXXX. in The the XXXX $XXX.X inventory quarter notes, was the million increased due compared million part in Accounts down during the shipments Inventory reserves. days as were in to million their priority structure. fourth December days,

quarter of fourth average total quarter the million capital seasonally We in outstanding an inventory Stephen expenditures the The $X.X convert and diluted of the million common XXXX the $XX.X were underlying over million during the a million Capital call for year. $X.X lower convertible includes for the And shares Berman. are to to efforts and that, will amounts. calculation million quarter EPS shares I XX.X XX.X turn continuing with in during of excludes notes. manage to fourth quarter working full to compared the our

Stephen Berman

Thank you, Danny.

on to several So, we as out minimum royalty and last Toys charges impairments, in other guarantees, ourselves XXXX we severances, the the for position beyond. 'R' proactively have for inventory year, put thoughts close and our taken to Us, areas exposure best

and explore and we its licensed new believe with terrific categories heights and to JAKKS look place, product collectibles, growth Girls and forward across year new off assortment we success This expand already key evergreen excited and can in will to of profitability. we products. Pacific With the collectible is new are as JAKKS as in opportunities able successful to to expand these licensed launch initiatives as XXXX of Squish-Dee-Lish steps, return reach within growth of of our many properties non-licensed our line. preschool highly well and brands licensed new variety as well Building a

Dress X, amplify all our Boys licensee Additionally, launching Nickelodeon be items name with lines we'll Role Stanley partners with Wheels, Chico Nickelodeon, such This Outdoor, licensee & Disney, to Black Disney, dolls, division Up, and partners and Man. Incredibles across with Action, and we'll a as aisles; Mega few. Play, Roleplay Slime!, and new new Decker, year

cast categories contributing a and as X, such Disney film we Incredibles license It's we it worldwide the and XXth, figures, looking June collectibles, and vehicles, have Toy forward role on which play, one costumes. we theaters our broadest licenses are to Global growth. to with have For covering die XXXX hits playsets, Master

in XXth MorfBoard of two one MorfBoard and humor and into categories enter It's HEADS. new a of products cross brand. will our innovative division a to launch own perennial of Wheels, offers and changed us seasonal to ways balance Disguise, and to excited tents, The the XX-inch Maui build are skateboard, expand to multiple FAN experience trend to new Fly and dominating gross teens, a in is with we which brands, to place and allow items, board. in on adults Halloween with division, have tri-cruisers, thrilled year the JAKKS the in and XX-inch continue a and Its including to sports our on a great thanks full year, Continuing of JAKKS our ride-ons, to and most to-date. continue are of play portfolio tweens, Zombies successful part expand games, license as continues Christmas Nightmare and Incredibles our sports. with many multiple between teens. the it We capitalizing X, fun hot evergreen tweens with a grow scooter us and quickly and new fuel our properties Disney's with help Additionally, Blizzard's unique a foot-to-floor, our for prospects. to Surprise! be Disney's accessories parts fun Transformers, growth and Before Shopkins easily L.O.L. for design for Internationally, challenging ball and the licenses Overwatch, furniture, this Anniversary, pits, different expansion division, addition allows such to Vampirina, action young geographic is of

its Relay its Rast Alvin receive and success Front, to we're customers Tank continue name the today. and which TJ in internationally, will D.C. and agreement German, a Vente, partner now in where finally, for to and local Disguise specifically as Masters with all year. orders, which proven with from in Spain, distribution Toy signed the the & Relay from is almost products JAKKS a and has We in German markets. warehouse Front, ship Spanish such two in moving & warehouses manufacturer And Morris add have and will a few and later will alternative UK, strongly & along channels We're a look new our Developing Germany, warehouse we excited to Ward, deliver third sell U.K. to this to we

Our signed was local of offices. result selling JAKKS. seasonal progress. Singapore the China innovative best-in-class develop The solid in to toy across all and ride-on ball with Studio of new producers, and business the a with France a making are working pit Wiggles, in new franchise Moi their to licenses and division C'est in exciting our the And the is our licenses of JP result including U.S. distributor creator creators, as designers, currently Page, Greg the teams diverse categories. lines has and

with recent localizing long line launch original for form. Moi We called to support distributing will and in Meisheng start The already skincare is specifically one and direct-to-consumer direct-to-consumer initiative animated C'est e-commerce cohesive its and form cosmetic program and content Studio distribution, off in products network and China JP Studio's for number of Constellation of our proprietary our a digital short both High. great are also tweens creating and hits influencer activations. of digital is a one

have category a As that as forward excited going have After will challenging high retail about this through to believe we environment over I a couple environment we new in tweens. differentiated with before, introduction, special growth, and said last category margin lines a the it's we a of we're high truly years, healthy product XXXX. looking resonate are

through are We licensing and categories core strong with and current channels, broadening new alternative sales our growing partners. off our building

gross and are We categories higher growing into lines. product margin

own successes. continue to will off our our building expand current IP, We of

current private label categories. our enter expand will and broader licenses and programs in exclusive We and new

directly Meisheng. content expand We format our partner and will through internationally direct-to-consumer venture we will joint with our leverage our development

Now, about some comments for outlook our XXXX.

in XXXX. EBITDA expect EPS and We return growth sales a strong in positive and to modest

move a expressing interest received its comment XX% shares Before the an bring make about recently into buying to from we to shares. our Meisheng, to brief additional Q&A, letter we in of I holdings want

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Operator

you. Wissink first Thank comes our question Jefferies. [Operator And from Steph from Instructions]

Steph Wissink

everyone. morning, good Hi,

Stephen Berman

morning Good Steph.

Steph Wissink

kind picture question bigger a the you toy for the just market global Stephen, space. about of and

have happening, the and on You on particularly the perspective what's good a manufacturing side. networking

us the portfolio curious from tradeshows, give maybe could just trade you indications as So, a could insights can coming if follow-up start health, I'm of to feedback core into the of around us you then the out your cycle XXXX, overall you year? for some if the there. some And just that, your this confidence and on in are of growth the industry maybe in tradeshows give insights how interest

Stephen Berman

is Lego and have That said, retail retailers. on allowing private around and the Thank a Master. weakness Spin the the us looking very themselves of What we've majority positive in it has The such us said, grown because space having do an Growth other strong strong by And the as in on private produce it's many being in. a business so industry globe likes now shelf past to It's And to retailers few as seeing and business Western in that the are happened label that perspective is further Hasbro been outcome for itself the for world. several allowing at able area years. that with very being territories. been and less call to more weakness of Perfect. being Eastern for is, at around we've the territories of JAKKS manufacturers label. is what's retail Steph. retailers you, is and industry manufacturers JAKKS European you're worldwide. That over manufacturers, coming a that European been

last the with deal Retailers less space the a themselves opening vendors products. over I time easier now, few difficult is a having been because to want versus have retail getting many are less manufacturers manufacturers. vendors shelf up difficulties deal with there's years for other think the while and So,

So, it into very and for going well XXXX bodes JAKKS beyond.

the so industry So, that's far. we how see to-date

of and due walked XXXX, had of we've profitability, taken a away the which the the large of hits XXXX. lot retailer. occurred prospects environment retail On growth the we from several our growing We over to TJMaxx changes few distribution confidence Sporting and U.S. 'R' in In time, as two years, and last in Goods, online bankruptcies, other further such so our are At same on. Pinnacle retailers, the Toys we sales, ones of differentiating distribution. a Us bankruptcy our to and alternative and our Dick's other a

retail we're is of mass, with we're what growth as losing some the and used of sales So, environment distribution. to online while there rapid alternative

So, sit we're we our of our today extremely with segmentations diverse various where business.

So, that being we said, our have IP.

great side, We the new categories. that licenses licenses, we reverse and several up are the licenses, signed evergreen on strength. But and which as strong strong very some the us of like Nintendo blockbusters, give Princess And we've have Incredibles. evergreen have real

for exciting next year So, see the JAKKS and year and we -- as for us this toy next industry.

Steph Wissink

Two follow quick ups. Okay. really

adjustments, the one were some SG&A. looks excluding relatively dollars It like, flat. Just on of the the

But even retail, I'm into given business forward, thinking I'd component that of So, we line? of partnerships, you're expenses. little brand that from sales. variability about your at that dig around And maybe C'est some bit an marketplace? then, restructuring going versus Stephen, good be you doing, there, the about or Moi. curious the SG&A the in retail How merchandizing, What graduating the of run marketing we that some love is fixed G&A of online-only the with think rate into that rollout a variable should should How that more. mentioned to that you've line controls done? that

Stephen Berman

go and Danny the finance have portion, on Moi. I'll the answer first one the Okay. through I'll C'est

please. So, Danny,

Danny Sung

the sized SG&A, -- think last happened, appropriately that The year. happened the of Yes, believe at end that on restructuring currently. we're I we're

benefits of XXXX. were some So, rolled those through

the sales projected. of appropriately for it'll -- the have In that think SG&A our be we of operating terms forecast, costs size what believe I versus and will we stable relatively be sized

Stephen Berman

your Did that answer Steph? question

Steph Wissink

you. Thank helpful. very that's Yes,

Stephen Berman

Moi full target.com. with which launch, social is we C'est trend every initial growth and customers have and shipping that Since we're on extremely digital strong actually daily year new The we're double-digit on And cestmoi.com, because is on initiative. C'est e-commerce, then, extremely campaigns are brand a which we're rolling Moi, the a percentages the January of it's excited -- is XXst went So, week. growing. seeing live is out. strong

and the expected is steam with that working So, it, large, at full call And Alta of beauty are health we Target some there's quarter this second and areas of Kohl's and [Indiscernible]. in-store ahead for year. launches as in the launch and

So, announcements. U.S. in rollout and very there's social coming be which digital of of and strong will planned campaigns, a some lot with there's a the

not to it. into go detail going So, we're about grave

Steph Wissink

Thanks.

it. Appreciate good. Sounds

Stephen Berman

Thank you.

Operator

Thank you. BMO from next And we Gerrick Markets. have Johnson Capital

Gerrick Johnson

morning. Hey, good

Stephen Berman

Gerrick. Good morning

Gerrick Johnson

Stephen. Hi

how you a like happened that that about kind the then specific You And I little have So, have slip there, write-downs? on down it Thank significantly. if have in guys and more bit you might bit Did and what inventory of business what Greco understand segment, to what minimum long license that? could I one was preschool the mean for you. is of, looks be been? there it little lose you what Mega a specifically Mega products talk Man, you as or were Man guarantees, some but there?

Stephen Berman

Thank Okay. you.

a this and that are on license year we launched Chico we business what which new shipped So, Greco year. was last is we entering the and into

So, a the portfolio and and preschool gave broader us we that we transitioned much Chico from this the which diversified category launched Greco year. of to

will rights retail. at anniversary year. strong part be Mega GameStop normal company was and of there's fourth that a the XXth with rollout launching second the diversification Mega and figures Master the -- which the retailers third, boys different Dentsu this we just and very And action Man with it placement Man The the we the late have and -- worldwide in the quarter it's

And Danny. Toy then the over inventory plan or me to of Master some that So, have strong you license talk really a about to want I'll we excuse with markdowns. the the worldwide. put

Danny Sung

all say review shortfalls and a licenses to we not gone we approach conservative through and I'll down just general don't same break Yes, guarantee products. we're of our well-positioned in taken on XXXX of we a level like charges take reserved for detailed minimum the specific beyond. appropriately and feel charges have we've and by the have

Gerrick Johnson

Okay. about for going out? coming are that, specifically when we hear then JP like And you. that. lastly Thank Studio that what to have IP Thank you on -- more we

Stephen Berman

of the initiatives You'll which new content deals But hear of exciting of as rolling as next past. soon be with very some we've some in months within initiatives are the the these in will but about they completed, and out talked some exciting.

Gerrick Johnson

Okay. Thank you Steve.

Stephen Berman

Thank you, Gerrick.

Operator

Thank next you. question from Linda [Operator comes Our D.A. Instructions] Davidson Bolton-Weiser from

Linda Bolton-Weiser

Hello.

Stephen Berman

morning Good Linda.

Linda Bolton-Weiser

that just about just diagnosing trend industry. I be was because seemed clever the along line product to the And XXXX? Gift when mentioned be to can't XXXX, about in was [Indiscernible] Hi. What pretty in the Thanks. I happened and And was that that launched curious with is and that? why goes the line 'ems curious that unboxing in then continuing secondly, sustainable?

Stephen Berman

Okay.

have market in there's for the a presence of new and when strong trend have in and area the it it we've during we initiative is 'ems it we've grow years is 'ems, the done this second and three that we while relaunched started trending down, on over -- So, had year. a actually half Gift a the things Gift what

flair of a mentioned a It it's unboxing. version inclusive about unboxing you of trend. kind refreshed what it the So, has of the to just

new a that So, area. has that and done it started relaunching well initiative At same slowing we're in time it the extremely down. same

and the retailer first the short-form and expanding fourth and launched one launch [Indiscernible], third it with year. with now content it have we this quarter [Indiscernible] On during we we're

So, all this last one it the retailer half carried this was short-form the which year was goes second year. year content retailers and with initial of half it that through of to launch first at

Linda Bolton-Weiser

just another C'est question then And on Thanks. Moi.

With prestige, the point I or the price midpoints thought Or for price-positioned C'est more of it mass there Moi? positioning in is a it is on launch was? target.com, that's what

Stephen Berman

the it's but almost called it it's its point reconsider, it's and a mid-price the masstige that mid-price way way take to -- a It's is if point to want [ph]. you prestige, marketed that

that's and looks and at that it. that -- retailers are So, the way looking the consumer it the way at

is are major really but extremely a the the We performing about met the over retailers it, new in that sure just utilized it's been is are to a the exciting. the initiative that and make that's sure So, receptiveness want kind that's to of there. get ones. excited rollout aspects word this and is been with want of taken don't too just we've to make We right from we SKUs correct want growth

Linda Bolton-Weiser

can ask the Okay. are toward we're taking you shipment that approach And paid. at could are with this being -- then given that would you assume pertinent of I be 'R' news at hearing 'R' that? you at point any I what Us, you Toys what you, makes Toys not risk Us

Toys still are 'R' in So, Us first to shipping you here the quarter of XXXX?

Stephen Berman

cautious also still them. are we we're being Yes, and working shipping with with Toys currently Us 'R' very

the coverage do dip well. look them them. critical working we same that's different part as we part need looking at at of to and to is retailer But facilities self we're them vendor have with On that at financing ship they to-date closely and the side, the the doing It's of part status, of quite can. sell-throughs The time, we're of that reverse making we the best that a sure have.

So, looking different and except, restructuring negotiations through store year-over-year, organizing. is of they everyone call their they're parts different going it the with traffic that knows there, the

it's So, just right can. being him as cautious watching and business now as But best we usual.

Linda Bolton-Weiser

Thank you much. very Okay.

Operator

Thank you.

the back to Berman closing now further this will no time. comments. for Stephen turn I questions have at We call

Stephen Berman

us results to we April. first XXXX put for to thank We quarter in beyond. report And this you XXXX, morning. and I'd forward again our behind we're look and like joining to again when say us excited looking forward to speaking XXXX, everybody with

everybody. you thank So,

Operator

Thank you. Ladies now disconnect. you And conference. for gentlemen, today's may this Thank you participating. and concludes

JAKKS Pacific (JAKK) 22 Feb 182017 Q4 Earnings call transcript