JAKK - Earnings call transcript Q2 2018

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Operator

Welcome to the 2018 JAKKS Pacific Second Quarter Earnings Conference Call. My name is John, and I'll be your operator for today's call. [Operator Instructions]. Please note that the conference is being recorded. And now I'll turn the call over to Stephen Berman. begin. may you Stephen,

Stephen Berman

how this and are our will are of for performance impact to the discuss affected the U.S. financial operations. disruption the of Toys"R"Us going about of talk performance. activities to second everyone in the quarter and retail second in surprisingly, products This well the during forward beyond. I liquidation us only a compared market. morning, by After our quarter Not of course about we After significantly as will talk loss disrupted our Toys"R"Us things March I due and the we international to XXXX. was brands thank morning, rest and that, joining performed the liquidation Brent year customer, you XXXX the the today. the the our [indiscernible] last the Toys"R"Us broader liquidation significant the Good over review of will my Toys"R"Us to of and some looking expectations, as year. of quarter, in comments, Not stores which the of to business our in

are XX% lost down declined quarter to X% during sales primarily the sales year-to-date, due Our approximately Toys"R"Us. and the to

$XXX.X that expressed, liquidation. million customer to quarter existing began by in U.S. the this retailers sales as in and our left current of decline to year products. larger growth traditional some sale roughly with in have caused trend, Net million equivalent by are throughout the a with of Underneath from of half from are through of fill the revenues crosscurrents the the the the new both strong the the and to we amount in we As older quarter. disruption void and continue inventory expect back offsetting Toys"R"Us we number Toys"R"Us of several $XXX.X in Toys"R"Us year. declines quarter performances products liquidation declined the second the is there last to XXXX base sold which did of online levels with The

second provide the DVD ignite one second limited a Nancy brand X, launch will holiday kids sales sold MorfBoard, for campaign. number and a momentum sell marketing sales. has to selling movie basic figures also remains fall section. believe the an a the we CUTE, products at through stellar with X new to to JigglyDoos. opportunity of we targets scooter several character Incredibles Fancy item feature It innovative their films. summer. the earlier basis, well launched It Squish-Dee-lish, similar figure, to led be season launched and to June a Attacks is had will which sales new quarter, the During by in Jack-Jack into streaming XXXX the -- leads PERFECTLY Incredibles product continue well. in this is engage everything the continued top MorfBoard, which of break-out launched carrying has Jack-Jack and Amazon or and from successful with a category year other on strong is the patterns property, in recently through since and well A skateboard

We continue to see growth in C'est Moi.

the line are distribution month for property strong widening. Sales products showing Our innovative each of teens. and tweens skincare is And growth.

the add half. second We during retailers expect new to

business. Moi by said, before encouraged sometime we we of while take a significant our C'est so piece are the As far, have becoming progress will

channels were the Our quarter through the by primarily but online to down Toys"R"Us. in again, decrease sales sales in

a Disguise competitor. bought that major by a affected was of Another our factor was that online sales customer

of very our contribution that trend that Offsetting to just half the we positive and rose X% from in Frozen. of some the of of the the by a late the products cycle last Moana, we expect which lines Avalor, are retailers Tsum of Beauty sales, trend goals, of been quarter. mostly Excluding mentioned, online content year-over-year through properties this benefited These during or their continue. strong total in the entertainment declines, there Elena percentage the our Tsum, include this that has strong strategic Continuing were sales saw first Toys"R"Us retailer, our Beast, of year. growing and one older sales major and as

the quarter. in exceed of now third I buying track decline the mentioned for that forecast. shifting internal is just turned on our second We well at to quarter sales also as significant for And as the reason Disguise saw or a into several Disguise orders meet

So quarter, in our sales, international which segment spite in the is we including in decline of have as quite in of strength said, a sales to we due number by pockets to growth the after seen effectively Toys"R"Us, of the Europe. reduction first driven

letter the XX% buying outstanding in Before received Meisheng's recently to bring committee independent the me as back of possible continues shares let was over The Brent, as holding additional Meisheng. from of that I well directors to shares, hand evaluate its call And January affirmed. expression just of which we JAKKS address interest, interests. to other to

will turn an when over Brent call to. Novak. provide will that, we We the are update Brent? With able to I

Brent Novak

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

The quarter of in by quarter negative diluted follows: second XXXX amounted in to XXXX. to a to $X.XX diluted year. $X.XX for first our Play share million compared EBITDA quarter in the Role or loss case in of year. drivers of million Adjusted was the for to quarter, compared The XXXX quarter million as quarter in in to last Dolls, second up, Toys"R"Us. for As the million to the compared $XX.X second decrease $X.X $X.X the quarter the comparable and million decline loss last a of negative sales million was share and per activity the or were was Plush girls quarter Dress sales second in products $XX.X the category category $XX.X the was reported per due sales net net the $XX.X essentially

Incredibles of products Squish-Dee-lish We totaled of licensed also solid activity from MorfBoard from our Sales the our outdoor more ball and the see produced to by and portion Tsum, Only! Kids Vehicles, segments, which slow-rise million down expected declines Halloween Beast for XXXX shipping X a $XX.X sales million $XX.X a $XX.X of products Nancy and we declines Sales in These the brands one write-downs. just the including and brand furniture $XX.X declines number including second in to products, launch offset in offset in offset lines, kids Maui Action and Moana, million were Incredibles which expected our Maui million MorfBoards is strong than more XPV. of delays as business Play PERFECTLY and in to million XXXX continue were Sales compared one in licensed Fancy of some branded the the quarter, were Electronic and category, Rangers CUTE, products the customer. were our licensed Baby XXXX. products, second our orders. collectibles, Wars by more Tsum some and pits, of and the started down XXXX. Max and of from in year, million last girls XXXX, Truck, Beauty in $X.X Star such XXXX of category Figures Role the for by of in Doll Gift And $XX.X second private $XX.X result foam Beauty label quarter. compared sales 'ems. sales second we of the Pre-School million write-downs, were as million and than in Beast in in and quarter, other boys furniture accessories, Plush quarter weaker category Power in products, in Figures, Tow of Sales The the and quarter X, driven of seasonal than $X girls

and the business fill driven earlier. described the And net void the to million by by at well for the year in were $XX.X drop same quarter by in quarter, as second sales in sales the to puts Halloween earlier Toys"R"Us Looking International $XX compared already the in we Europe. strong sales in XXXX, particularly quarter sales to $XX.X were with as XXXX million Canada takes Toys"R"Us for and the the category prior U.S. compared breakdown sales in product $XX.X million mentioned left sales that customers group descriptions. second million to segment,

in included Canada. in specific to second expenses quarter the sales as direct Reported the in compared sales second mostly These reserves down net the net Toys"R"Us certain to Moving the QX the increase depreciation expenses, well XX.X%, second was totaled collected bad primarily million $X.X Toys"R"Us the licensed XXXX. in SG&A cycle. XX% debt quarter was about in to $XX.X there that P&L. gross at receivables customer. last And in of expenses, XXXX related XX.X% as of were margin million XX.X% prices or XXXX down a to and selling previously of second in million $X.X of benefit quarter million an products and to year, end a the $XX.X including quarter for XXXX expenses reserved sales selling lower or due amortization, related in from in XXXX from

compared tax quarter expenses the items, $X.X positive levels in is and second $X.X from net $XXX,XXX roughly by was of QX we of cash quarter $XXX,XXX in of tax expense down to on percentage Net of quarter provision flow the income second capital. as quarter taxable provided XXXX operating in various $X.X second cash changes of decline working million million last activities variability quarter still sales. was negative in changes the Income due were operate. activities to was provided in Free such XXXX based second Excluding XXXX to approximately flow jurisdictions activities The the cash of largely XXXX. flat million for a second is lower in the The $X.X the profitability of and in tax in by which in for million in and quarter. year. operating XXXX by XXXX second compared cash operating

restricted XXXX, XXXX. cash to including equivalents As million million quarter the $XX.X our of XXXX June of $XX second the as December XX, $XX at and compared of of totaled XX, million cash end and cash

continue licenses. while improving position balancing company's liquidity the secure to in and business invest new need focus the to on also We the

notes. Great notes the On top amended base credit year. million of quarter a with in to call, closed our As we the during receivables expenditures $XX.X $X.X of average the XXXX On senior for an held in quarter of to American loss new share were we from to facility million diluted $XX effectively underlying on senior Oasis million during increasing will in mature Stephen? at compared August outstanding XXXX. year borrowing XXXX. Oasis our previous June to calculation Wells quarter million, XXXX of the $X.X turn additional back issued quarter quarter of with million loan days per the our the day, exchanged recently and refinance XXXX. XXXX XXX similar as The receivable Management lastly, the Inventory the $XX.X liquidity help notes include XXXX the ago. in quarter November terms X that compared Management XX.X under versus Capital Fargo shares Capital of common will DSIs down priority I due the to XX.X million over the June same portion second for a next during our shipments week. shares which days notes, quarter were with was the are in And with of XXXX by million XX second term new Partners be repaid in with notes quarter. XXXX notes. second $XXX.X The noted to Stephen. million quarter. of calculation XX Accounts were second $XX.X million And compared second convertible due excludes at XX, us the November days DSOs of convertible to days notes a to to repay million was that, XXXX, end call we of the The $XXX.X the second on includes quarter the June of the XX, XXXX as second the the to the was this XXXX, facility. senior of convertible a convertible of in XX, lower notes XXXX balance XXXX end XXXX. XX

Stephen Berman

Thank you, Brent.

Before out. share that on we this I we a the rest of will important. how into Q&A, see Starting year will get be thoughts some few with playing properties

we as extremely well. MorfBoard I this seeing with are the that into As buy buying combo with is Consumers the doing earlier, are set. extensions XX% said ecosystem rate conversion customers

Maui A POS point key the a all international holidays well Asia we're animated released. has Walmart in has it's where highest We great seasonal the of to products at has gift. a which markets bringing well the for film, include Other a feature at good Sky we and is sales to Wheels of market. Disney not Balls. where Million, were great end Incredibles and product the the also grossing America. yet kids extremely are Europe because do There pits in and increased remain it driving sales great well. wide performed product Patrol, now Hoops high sales range appeal price Europe. hopes because it's X at X seeing that North Master our given major all film we areas, expect story anticipate in in and Paw of time POS strong the brands of strikes the our Peppa ball and the at success the and of Masks characters furniture into the through core Incredibles movie to and globally family the products XXXX increases Mikey, with of PJ and performed be are retailers Fly Target XXXX licensed and and Minnie, Funnoodles, while been

are POS performance at Fancy of this up solid rolling to QX new versus is weeks. a Jumbo. in Our Nancy as XX% Activity POS Table's out had year. at coming introductions Squish-Dee-lish due items the time and over retail as Walmart continued well Wacky last in strong

Fancy Disney solid As a years season. a to beloved of TV for on July this dolls up amongst on line stands master X Junior #X to opened as Junior Fancy an tied to among series Nancy with which Nancy X licensee, debut we to Disney girls and date and telecast at of TV animated girls have toy X in that already X a accessories premier XX, second week been TV's book #X the series has picked X. premiered the

Nickelodeon ranked Additionally, X Patrol X Fancy slot won time and X #X its Paw also girls on Nancy by with beating to period in X, XX:XX XX%. its a.m. among kids to

by Bumble opening this or a the year many XX% loss video of of in As negatively noted hugely based and forecast largely on earlier, of and we Disguise sales and warehouses including international game, and expected internal impacted contributions last in Incredibles our Squish-Dee-lish. geographic of is meet year, several second to Europe the that this on the the markets, track in new from were saw based with to popular part properties exceed a Toys"R"Us fact approximately our expansion, Overwatch Asia-Pacific compared increase quarter launch strong Transformer Despite X Bee of to on sales movie fall.

XXXX. see We in app spring in has WEE to at out physical production product JP an continue line new which WHIMSIES, Studio launching content fall addition a and this coming to

announced planned rights of Crawlers, Paramount May film to division feature part Creepy animated as that also and in live-action Viacom's which acquired had the film. Pictures a is feature We Paramount a Players,

new we the well but of some ago, a to continue JP still and as sales in us strong see the U.S. Studio future. toy addition, on are as the of evergreen in by performances and Toys"R"Us' this as franchises earlier year businesses teams cycling the allow lines work brands Meisheng, In and to and multiple new from disruption very against with we are positioned the some that as year, categories. of in categories expressed for opportunities innovative conclusion, we In some our new exciting be of well encouraged our China

itself just see a industry and JAKKS, not shift although will industry more whole to the toy shift Toys"R"Us the the take lost expect we play sales other about time bit retailers, over Speaking that will out. to

a questions. sales, expansion. sales Studio We of percentage categories JP see international to growing now into effort, of expansion continue XXXX of will online With partnerships, and owned Operator? expansion that, as from a entry strategic total take licensing our performance we IP, to our new goals, strong of expect our validation

Operator

Steph first our And question is Instructions]. from Jefferies. [Operator from Wissink

Stephanie Wissink

Stephen, can wondering to the Incredibles if a Certainly best that seller. breadth with I is fitting you talk little a Jack-Jack wanted question I'm on about bit X. the start But then we the product flows as entertainment of newness of season. and about think year the holiday that line, into through how of should home the then and cadence progresses window the

Stephen Berman

And of outlets. breadth and did it's a some Jack-Jack line. exclusive broad, actually So the say, was has we it be as character out the you thought family show our super going of of be in SKUs But really really, primarily And the a out turned one the retail through -- is Jack-Jack to actually number star we to the in done breadth just product the that But developed. is product different of Incredibles where whole to goes and a it. products stood of we've star Jack-Jack seller.

in So of launch SKUs, turn a of deeper breadth in XX October approximately into launch our the Role goes Pre-School is as as toy. release Play. and Costumes Halloween then which in a DVD and initial well streaming launch, much and fall playsets the And that and was accessories the

goes it time period during both a deep U.S. and fall So internationally. launch the of really into

Stephanie Wissink

I direct? you're What goal? we of progress? contributing maybe that's bit growth? What know Can looking the think direct. distributors in should And about into out are of should of actually how years? a you've be are even international that the your of ahead pathway several years little business What business, really you we is in segue good where about 'XX? was couple it and next talk increase of Okay, to been percentage international the the nice you there. network build to a that And working then for about balance you thinking markets the

Stephen Berman

the will a area JAKKS years International forward. of be strong for project growth few for going

last that in we we of we partnerships we're so well just split Incredibles different our getting based business and Russia, X EMEA those our and through go But portions are have up in going One the U.K., in various other on from business working initiative, in as segments direct multiple different have worldwide, of now, direct -- in partnerships portions over pretty licenses the go and licenses direct We many in Germany, which, France, as year, through and But of a and Italy, instance, as methodically categories go well. direct America the well Nintendo, other in. which own because our of started, then territories. for we IP we split much as very business. it Latin on we're the which of we

and So and in is products some in it of that bring -- in duties to large America, And distributed now have countries Latin then internationally. before, into the different those have there that issues. now you have U.S. we North developed in we multiply we programs as in America, make, are off seen duties been the and based unassembled in the And assemble have the pallet very in-store we programs

So had before never we programs, we in markets. much the pallet international which have as

Stephanie Wissink

up cuts it's And cost savings that for that's we you're the realized? just Do additional to over there? helpful, you feel you, be be the in months? like Okay, and about track? kind Stephen. of you're made, that structure tighten one seeing cuts next we think How X that the are Brent, the Where to SG&A, on savings is ability your there should to XX to

Brent Novak

where which operating structure the quarter. revenue, about went down that a can from total first Right see now, think, I good, perspective, cost we were to is coming in from expenses of XX% you

still talked revenues there what think is the cost last call. some I So opportunity. about with on vary We potentially

in would give with line I just expense bit you to a more revenue So moves is item say, about revenue. little there probably flavor that points operating there, of X that

been will discipline the control of But be exercise that like cost that's can some as have we've those, just costs And much don't move of and commissions how to marketing you we be able we co-op other it noted. fiscal control. that So fees.

Stephanie Wissink

the out brand I of and picture of your want But brand for licensing in think status balance? year working is one business Stephen, versus that I All to us. bigger in you're taking advantage on evolved? portfolio opportunities about the terms has your you of been owned some last about ask the should what a the year that about And of or of your right sustainable of What creating own idea years this that a opportunities? a event-driven or know IP. we us of of sustainability next you've the ratio some should see over to of within asset? update assets, style thinking as portion question. How evergreen be terms we How couple more just give maybe in initiatives. develop

Stephen Berman

you Steph. Thank Okay.

and evergreen So within categories, as licensing have are business of know of you a we partnerships. a -- category we amount tremendous do those

strong innovation develop So licensing continuing in annualized. have our developed, categories about in as And to is such we business and business approximately evergreen and that licenses basic Halloween, always our of the value with basic $X.X business part categories. we these Seasonal. partnerships to which an we've billion will in extremely in those And keep strong are we that's that order

we growth and will with in and new Amazon seeing continued entering June. such Beauty and the we're just launching, C'est that Walmart.com growth. previously into as an Target.com, see that's Moi area of of Indie And we on we in discussed August. it's and So since just retail platform are areas update innovations that, focusing then an in taking top C'est and on the which Moi, are gradual healthy categories which we is growth such be many recently as very new we're

A North discussed, nice launching than fall are top and category, separate developed category initiatives consumer taking of America and in the really that thrown innovative internationally, a a new just like Master not getting product On we're better going own well. but internally we are A non-toy. such TP is kids Blasters. of the as taking Blasters, nice called extremely taking not is is Million, novelty that our that, that Action is we TP toy in also exceeding Figures line areas as industry now line we it's which those for really which we MORF into the item developed expected items our normal some is So is which the such distribution initiatives performing have GameStop and as

continue for us, asking an and of which Trains toy years, have going areas very on of a is so. over master but area have and our what developing own to private So in is last we've at us as focused to companies the which is Power we HEADS, that the grow the XX partnerships in we're we're and well, are are own Nintendo categories with retailers because JigglyDoos, their in acquired which or labels Incredibles, to and which we do, lot and licensing license been XX IP, Man same such developing times as like we FAN our Mega Squish-Dee-lish, which

So a that's plethora very can area many we their are of label. retailers have the for seems it of retailers a strong moving we in. And that private with in we which work tools

platforms it's on growth, our building with licenses. for really existing So

the taking. IP places we're will innovation and distribution clear Studio U.S. some skies are this Party that's at. Wayfair There's area I'm seeing a to And the -- different JP. authority. We but distribution very last that. next Toy this The think New U.S. But IP, going of channels, year. our own like that to and the Toys"R"Us after very like looking with to further with hurdle There's year. just which of get lot distribution initiatives sports and we sorry, in industry that of ahead in internationally, over hurt channels which we're going the growing City. be not we're much, that's into through had exciting But liquidation, similar and

Operator

Linda is Davidson. Bolton-Weiser question from next D.A. from Our

Linda Bolton-Weiser

which be with So a Frozen in better to year be movie. the next looking year. a ahead XXXX, should It'll

capital that. have to play I working there big those you'll the part seem launch the of remember products. moulds of first in So the anticipation in that to and was working Frozen preceding a capital of a year Frozen movie, need

working a capital to related flow you do movie? Frozen second and anticipate big the need So on impacts cash

Stephen Berman

product right actually we working the been have line now. No, on currently

on work the in manufacturing the know to with to of work manufacturing with, markets, regards the have you tooling the You have products the of there's and different music. movie, the languages well and to and advance R&D chips the you and with in planning and

So going as with see on than needs expenditure. part been now, And don't capital done and categories normally have have it's we it any what working Incredibles we we other forward, additional and even of our properties.

Linda Bolton-Weiser

just in e-commerce? breakdown Okay. really or And sales seeing you're the e-commerce Moi? of of -- -- talk you vast Moi, is between about that the brick-and-mortar then, like is versus it majority C'est can are what's with any you the sales now brick-and-mortar C'est for mean, I

Stephen Berman

Actually very it's question. a good

sales are e-commerce. So higher we are on the --

target.com, Dermstore. at we're cestmoi.com, So

platform, strong entering and XX, Riley is We an subset are Beauty Forever the into a is in customer in October. which of launched Amazon June. extremely we Rose, which Indie

Target later brick-and-mortar stores go year. is next to this but year starts fall into stores the more So focused, into team go But the primarily we we are year, and is into which more through brick-and-mortar. brick-and-mortar, primarily, marketing spring we be this than here, online go online but than the brick-and-mortar

Linda Bolton-Weiser

sales of be that Moi expect Or $XX annual is Or... in that can C'est accurate? XXXX? So could we million

Stephen Berman

we're slow be wonderful a launched and very thing I that to do grow. just looking very year. launch, a came it methodical We where will in $XX No. launch it's something a number It's launch. It million growth. this But slow from. it's very know and that a it's And it to don't build this category.

well, retail As but getting and we're receptiveness extremely you category from well consumers. know the beauty from

Linda Bolton-Weiser

that finally, XX% for does Meisheng now that what of it What And company? does then the mean mean shares? owns the

Stephen Berman

of a the he interest So company XX% of that letter now gave acquire there's to right the company, Meisheng.

letters In back as as addition, and or have at any that their other interests will based they that and are working Arps. reviewing it his further we And was of reviewing of A special interest. get Merrill have And other well B time, developed, interest with in. that committee Skadden, of come companies' interest addition they're the potential off

Linda Bolton-Weiser

press think that not release. they I bought the additional misunderstood So I It's shares? have already

Stephen Berman

No, outstanding they of JAKKS Pacific of shares. XX% acquire XX% are to gave They not. interest shares. common the

Linda Bolton-Weiser

is maybe you when targeting that you have said a And are on the it -- decision but to targeted reached proposal? Right. when

Stephen Berman

It's hard I with of the be should couple say, a would to decision next gather within but months. dealt

Operator

Instructions]. [Operator

Stephen Berman

the much. call. for you thank very the Ladies you and appreciate Thank call questions attending today. answers, our everyone We gentlemen, and and

Operator

you, ladies today's and you for now Thank and Thank concludes disconnect. conference. you gentlemen. This participating, may

Stephen Berman	Co-Founder, Chairman, CEO, President & Secretary
Brent Novak	EVP & CFO
Stephanie Wissink	Jefferies
Linda Bolton-Weiser	D.A. Davidson & Co.

JAKKS Pacific (JAKK) 26 Jul 182018 Q2 Earnings call transcript