JAKK - Earnings call transcript Q1 2019

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Operator

Good afternoon and welcome to the JAKKS Pacific First Quarter 2019 Earnings Conference Call with management who will review financial results for the quarter ended March 31, 2019. JAKKS issued its earnings press release earlier today. Presentation slides containing information covered in both today's earnings press release and call are available on our website in the Investor section. This presentation includes videos showing some of our key products.

On the call this afternoon are Stephen Berman, Chairman and Chief Executive Officer; and Brent Novak, Chief Financial Officer. Mr. overview lines quarter and an of provide provide product the current will of and the highlights Berman business trends. Mr. Then prior provide will and call detailed regarding your to results, for JAKKS the opening Novak questions. up Pacific's comments operational financial concerning XXXX, would other estimates we any and out Harbor adjusted of XXXX about Pacific's sales company made forward-looking or events, in to future point and/or [Operator Instructions] securities performance, subject the as circumstances, are like any to Before under JAKKS begin, protection statements well laws. that as comments including beyond EBITDA the Safe federal These materially and statements company's are from forward-looking statements. those based actual uncertainties, judgment today certain market to cause on and projected risks in current reflect the subject which conditions differ trends to and could best results

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

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

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

Stephen Berman

our our of my the brands the quarter year today. Brent we our to expectations. are afternoon, performed first in joining I going about This performance. discuss everyone. our comments, to afternoon quarter us you review performance thank After last products will Good during for And will and financial and to compared how XXXX. talk

purchases. world have Kids suppliers XXXX certain categories. absorbed and approximately in Toys retailers. to toy fully products. we us specific Net had XXXX have significant repeated sales first of critical been recent compared retailers in continued both around shipments liquidation had those believe particularly later won't some quarter consumer and That to a who obviously in sales will XX% "R" last quarter. us the over reversing during that Only felt in commenced good which and vendors of to industry final it a to QX how contributions which weakness. half Harry continue year by end start base the case now, TRU, be in in changes but notably a declined affected Toys most even the a the are strong Us were industry the first which toy as Mountain consumer until the sales quarter behavior. We year and by second through to in year of Evergreen only disruption million the toy encouraged been changed to the clean several other year-over-year of not half industry some other the retail solid still year our not Fancy then designated of by Toys off of to and end the we X.X the in XXXX to and are Us Considering which and the of license behavior second of last We a was In XXXX it be the comparisons clouded Nancy, "R" and products reverberations has result from the saw like Us. We affecting calendar feeling time Godzilla, caused at Moose the the approximately not is the new Aladdin of second for is for markets liquidation is strong Potter, to entities challenges "R" several see QX liquidation of will Nintendo. are products shipments As across in really

Easter In digit we revenue percentage from revenue shifting this in QX reduction later estimate in weeks QX some single believe to XXXX. for year that came this three the mid-high accounted fact a addition, QX. We

sales decline at lines sales Incredibles our licensed was of Looking primarily X which the as because products entertainment of demand expected. several of decline significantly saw products we lower sales especially driven product in

of Descendants a offset which have than X, able XXXX would in liked were to effects first also a reduced adjusted second has Possible, full lineup our our disguised Top strong of Live properties Frozen EBITDA Kim Also will for discuss shortly. Wing topline. We name we sales half We That margins profitability product we film especially said, Brent impacting being to came weaker new second the strong expectations tied partially quarter the which gross films year now first SG&A related full the adjusted and the XXXX year quarter year brands sales launches sales King We X, of also that steps the Elena and as had first basis. Lion few. the Squish-Dee-Lish. anticipated several industry therefore Action, on such the well Moana, not year-over-year from television half and Avalor quarter Brent in Pokemon, of will the I name and Brent our high and as declining reduce second challenge had those a related the on have to Toy and of declines over to call in X, quarter cost profile will wide experience in Frozen proprietary are and a able and the because expectations costs after Tangled strength year, a believe as later significantly gross Movie new lower Story to in be turn Novak. last few took to in X, to X, this Lego margin we with

Brent Novak

with sales million, XXXX down before quarter compared balance afternoon you, good the sales the will up some million provide were everyone. last the commentary. on Thank highlights to $XX.X review finishing from Net then XX% P&L, first I color first financial Stephen $XX and sheet year. and more composition for

certain said, industry our while year final been have Stephen sales factors; of the sales by essentially of still experiencing Us some due the consumers million, therefore is QX demand picked believe last and to we were whole the less in sales other to shipments. Toys toy $X.X As for entities up decline "R" approximately was retailers, three first, lower through

of XXXX quarter X that sales. to from last to fact this shift the of QX, sales a Second, X% X% QX we some compared was XX estimate Easter first on results year fell April year, shift and in the April between

as main evergreen year-over-year our main products XX.X% the last drivers well of was X and our from product products in the as the substantial benefited XXXX also lower later shift products as expected was our at through this sales especially of Third, QX declined Gross margins, year. significantly driver drive some Incredibles QX are The XXXX. XX.X%, licensed launching some from in decrease of higher-margin older licensed margin in year sales down quarter lower margin properties, inventory that away balance of from down. toward selling licensed help which in

of the charges and decrease had credit in margin. In compared QX in excess a higher which to XXXX, to obsolete contributed addition, gross we

result shareholders from Malley a the loss of QX lines than of million Who's category various Nintendo, a year, Toys XX% Your and offset the QX costs, $XX.X declined Godzilla the jurisdictions boys girls of of win and number Reported as XXXX and Tsum due were Positive for products offset Halloween outdoor second expenses category more variability than which pits of The share to direct last launched more ball play per in in in as the $X.X "R" toys due decline is of furniture Nancy first pits, category up of kids business XXXX, lines million last expenses we is net were levels and rebound to changes diluted quarter as XXXX XXXX to a to declines in in to our due outdoor million were first co-op the licensed Our several of half decline expected Income a of as tax which XXXX million, $X.XX result on XXXX Squish-Dee-Lish, to quarter, down ons, we the as comparable the the in first positive operate. right first Avalor part the to and Easter million was content XXXX, year-over-year, year. We last is compared based million, and preschool rise quarter in the also compared games XXX,XXX lower quarter. the from part marketing $X our X% including, fourth follows; share in $X.X third million shift right advertising XXXX a tax and category taxable plush from the doll despite the quarter, to figures, Potter, the the XXXX. segments debt income $XX.X about which Sales seasonal by and selling down inclusion higher this million was first in skewed first year. higher result demand reported which ons activity tax year. furniture, QX bad in $XX.X Harry XXXX the negotiations for last play of $XX.X is quarter bondholders income XX% our million of in JAKKS of for first and borrowing EBITDA brands in figures, Meisheng million XXXX products the of of quarter in of my to XXX,XXX dressup, heavily well. The quarter. in of XX% category contributions Total and quarter to was sales from XXXX media $XX.X $X.X of spend Us XXXX. contributions entertainment was to the was in girl's of expense primarily well saw a were IncrediblesX provision by in Alina our declines $XX.X orders first a Sales of as almost costs in this driven quarter in $X.X shipments forts reported from million million average driven our year-over-year million slow accessories, kids dolls, the declined in first of plan ball the income in in quarter our down such a from interest and in products diluted our business $XX.X loss role the to action Tsum the saw of also million or compared decrease borrowing compared regarding activity Frozen, as year. or in is but in with Sales increase declines attributable sales entirely to cost per million related and Adjusted Fancy is its more game. related in that in later baby $X.X $X.XX These SG&A million of other $X.X investment first benefit did to Meisheng the was quarter electronic in and of XX% plan our first Sales for by Moana, including gross sales product of liquidation. charge plan an of the negative pull drivers implemented other $XX.X the in and ongoing expenses vehicles, compared Net to were$XX.X activity compared in by and in million of timing for the XXXX and JAKKS plus expected XXXX phone $XX.X quarter products category XXXX, a the XXXX up decreased nice million in reduction were rate. XXXX the one amounted in quarter negative to Llama. to$XX quarter timing first in role finger

$XX net million Net last factors compared cash million $XX.X quarter by category $X.X activities activities of operating same compared quarter XXXX International and and for compared in million quarter XXXX the in Canada XXXX in million first $XX.X cash earlier. to the to million net segment, the changes due negative the $XX.X descriptions. quarter group we working $X.X in breakdown products sales Free sales in million driven $X.X quarter. product was IncrediblesX sales first and the to negative for flow first the the business in million quarter capital. used first already in for by XXXX, XXXX to the year, XXXX was mentioned operating Looking compared were were first at sales driven in first to Squish-Dee-Lish $XX.X U.S. in million declines used Halloween in XXXX cash of by the

the XXXX restricted of outstanding end of end million of focus first as cash improving XXXX. XX March of paying liquidity million in in also down of XXXX first million end XXXX from the Accounts $XX.X facility of as to our XX, DSI XXXX $XX.X $XX.X cash licenses. of quarter as on credit XXXX XX days and balance and primarily and from and $XX end DSOs of with $XX.X quarter. XXXX March cash XX, million XXXX XXXX XXXX to reported while the million, in at the was the $X.X days at continue $XXX.X [indiscernible] in the first the XX at XX, XXXX.We the compared million March invest in the to business cash XX as as from versus and receivable to March to improved that As need million XX, March position the March balancing XXXX.The equivalents days XX, was the is XX, at due including with of days XXXX. quarter quarter. company's year-end decline in the first XXXX million million security compared Inventory, of $XX.X $XX.X down totaled were

first notes There of our June due convertible As $XX.X were at and under previously the XXXX borrowings amount our loan American. for XX. includes first Great convertible term principal quarter no with the company's outstanding notes XX, facility XXXX of exchanged were March due expenditures million The $XXX November convertible of million million outstanding for million underlying during million $X.X debt first $XX excludes senior a for March XXXX. XX.X credit share Capital $X.X the XXXX outstanding the of based on loss quarter weighted quarter XXXX. XX.X of of per million common compared count shares the to share diluted is in quarter diluted for notes. compared first to million average XXXX. The million shares $XX.X our calculations

is the back expectations disruption we quarter our by XXX pressure regarding take of content be although discuss by through pass mentioned, a products to customers regarding will to the margins XXXX XXXX.That believe believe our Stephen, the are liquidation, for X or us XXXX in I behind would XXXX.As percentage continue to some to call over our approximately we the to of will or Stephen like I worse Before second said, but coming some of the see that Currently, comments in continue believe increase our we million to sales Frozen from and second few specifically getting the encouraged we gross will TRU there we into net points. XXXX. quarter do continue X% year-over-year believe we be give

gross half estimate roughly that in million. of be adjusted pressure, the $XX and first EBITDA expectation for compensation and will significant XXXX back given back Stephen. year. generated including will sales costs pertain I Our expense, in excludes half over the EBITDA generated we half We now XXXX non-recurring expect XXXX, our topline to call the of of Stephen? a more GAAP with the expect unchanged, Therefore And of reasonable sales are turn margin with of year From the gross in XXXX a reconciliation to to remains stock-based XXXX balance approximately continue currently seasonality can Adjusted currently with estimate we gross provided. our charges future items estimable to amounts significantly perspective but be weighted we related be half acquisition many the that the restructuring of degree and first towards not will back year. non-cash accuracy. events the be to no XX% now which that, the

Stephen Berman

XXXX. be we some important the Q&A, on think properties will in trends share some to Before I'll get thoughts we of and

be second of to continue XXXX a We reasons. of half number about for optimistic the

the past with retailers. noisy First, get to when expect picked by year, other we be comparison up we TRU more last the business of

for more already share and been than rest sales. that licenses of will has XXXX of great this content a the and is in drive expect our year we The content. Second, of terrific for year have Toy lineup we

category IP to continue own Third, our of goal having And start. we a of consistent own finally play IP with our a terrific we to which off strategic expand in higher seasonal a portion total our sales. our time constitute added area is our

fall Junior several Disney very benefit ratings successfully Greenlit do which in seasons have properties launched and including a Disney that We expand two another for Dress Disney to will in Role very from content or XXXX. Nancy, Play up. dolls continue by focus our to on for The was and new on hottest the well faster us show should either continues Fancy segments has been continued with our line

such We Dolls, good we Story live-action have May release The and Toy Lightyear and Aladdin. quarter in is of should its is Buzz ups second tied product Command Star the now. of items tied Dress to during release Play Center Role and movie just sales XXth to see Disney product our shelves as X

products social Thanksgiving. XXth and their the media anniversary We the for release Disney strong Little a in of POS of beautiful celebrating out course clamshell Frozen sell-through the will be of And given buzz. This for early expect very vanity. is that we and year have X including special Mermaid time

the have Dress Role Play. including date to the character popular driver shipping key the a a note leading is box Dolls, and original in after special size several of play event One up office reindeer products weeks up release, film. We the styled kid from feature

a half and XXXX well of second Frozen to both be beyond. the in significant expect and brand into We XXXX factor

of good has we first theatres strong. licenses well Junior sell release also other the well keep big continue toys just Disney TV summer, and late several us in new a for to should film already animated seeing discussed, to Nintendo have us other until though to featuring Walmart years. and sell-throughs sales, Godzilla related this for toys our that Harry to tied Videogame movie Gyganosaurus, Potter, exclusive to addition companies. Disney opened very are sales the quarter we even was a have licenses the this doesn't expect year. dinosaurs we In recent done a well we and we contributor on series in do products,

grew in well XX% versus do continue very Nintendo QX over and sales XXXX QX Our retail. XXXX products the to at

We based have game figures classic Sonic new in the and character that content on theaters Mega the and is Man from videogame will another beloved benefit TV action on both Hedgehog XXXX. in video

not our we year XX full the line. versatility than but X of from the conclusion, several is IP follow still addition also an storm, platform Toys fun are another Shot. experience categories. giving that months action to the latest of way line for with sheet based activity in have two starting TP Us powered Ninja collectibles those activity more presence surprise Blaster, products should a while is of liquidation the our the which disruption Fiesta later. last for fort a vehicle dozer only seeing riders Kenyatta In XXXX our broader to on "R" benefit both year's will TP Power More own game for more promising distribution from and Blasters broaden yet the hit We Kid is motor and electric Slap look sets

and second to driver some products the benefit quarter, are big still more the the half. but from Our second see Easter shift, skewed licenses we'll

of by now rightsizing our that, in We The will and XXXX position extensions. structure questions. in some cost to With we are brands profitability us of of the improve a Operator? our take beyond. good performances line new encouraged puts and

Operator

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

Your line is open.

Stephanie Wissink

of couple questions I for a first is think the Stephen for you. us There one

the exclusive of bigger some last and think about space retailers we development basis into XXXX? new of some much planning As of think year partnership at and how you, XXXX, the How the you holiday you that opened then leaning channel are about you you are of how retail Godzilla that should some Walmart. continuation the mentioned think new retailers holiday on the you for for should of about for season the that mix an the we kind

Stephen Berman

the of were Few the well once as things retail diversifying as on since the such companies. been Dollar and Club. of liquidation space, Us as our the Walgreens We the and Kmart some Stores Sears some which way channels through "R" alternative early Toys the other and well are bankruptcy with mid going

that focusing post really been the liquidation. the on prior we've TRU to that expedited liquidation So

call even power So is store be grow our - distribution grown second in shelf - line sidekicks more alternative space, expansion as in line as space the and it from and with will half dramatically the has space programs. in it which well will which

we business trade businesses portion have growth as the Toys what a really be with Us. nice Clubs a Our well well lost going as good GameStop, all to Kohl's, the us offsetting dollar as the [ROF] are as of will "R" the with like channels those alternative to

of the to the consolidation we the strong dramatic and Dick's half much gap the the Walmart, year in the of Goods, are of shelf because had a the in the same. second second and for been for addition "R" the it had back the Toys half seen looking Us In year pretty of the space retailers Amazon, have Sporting increase XXXX filled call half a Target's,

a tremendous And of new amount some our of like which I'll we amount have there's to categories Pokemon, King, Descendant, content. have content Toy to Frozen Story, Patrol, tremendous the to Disguise as Paw X, we a Tangled, Lion from use

we worldwide year going which the worldwide strong one then is is in which November are strong things for October and strong on for X, launch year next So see do year retail shelf gearing year for actually last avenues Frozen. retailer and exciting launch year. this for XX, strong are into year very a even Halloween a X is this the Frozen all movie most we a this the of up will business have very versus growth us we And a

Stephanie Wissink

X second you help up, a sounds into be for leads of actually is and started and to Frozen just around which actually it that frame the like may Frozen, has Frozen Okay, level my where X on enthusiasm basis were expectations question us can relative if they what been first very or going whether it that content film getting don't higher how as around be about be the the or to just bigger. narrow or that is film? natural Is gap phenomenon you theme possible to second are that film the we thinking could see sequel strong

Stephen Berman

they X, was for the and sense DVD original launch what next different the the So increase is far from even worldwide in working we them biggest Disney and have retailers very half on very into X banking Knowing But the with for from Disney our of also the even the that SKUs. year working been call size acceptance the it over with the year to of the and it first when release Walt are and because of knowing song called much and gone of successful had year closely Frozen very and with in were spring based everything what tied plans XXXX, Frozen our launch going education very, confidential. components the the XXXX, working we and off retail previously and the well the awareness this of acceptance, which we've XXXX the more originally from launch strength launched. some dramatically been have Company ahead them has were kept group of than which through XXXX broadness previous extremely consumer are

that weren't were and when some the of not of it they just So we've them and weak for strong the large success they success I the but say was learned some as frozen when, weak, were which of SKUs really products. of were for

Frozen X we So are been Sean Frozen exclusive out very continually broad retailers amount core just has retail is very, strong our for world thought lineup business to general And our in of and but not exceptionally have plans toy overall. around lines in is a date. Shizuo that for

Stephanie Wissink

out can some up filed sales the Brent you step an in then I the is, if today but fiscal Thank profitability quite terms the in step structure there one expect last to more year what can which in incremental the And you. reference the up on us you you see for the EBITDA year? X-K maybe specifically with frame and wondering was substantially talk see to of XXXX disclosure in in the and am you that out then of for is give just you

Brent Novak

on think I gross top sales, we're a EBITDA year adjusted on half products from newer in what which like like Frozen we'll have significant standpoint that margins, a that'll expecting as given see that'll standpoint, so higher with of the you'll that or is X, last expect we X profitability Frozen XXXX generate back of and be just commented time So full a the we the line driver then well.

So start a flat relative expect it bit hold to G&A little flat gross our inch adjusted really gross higher. least controllable is that's down finally bit OpEx at we to what's to leverage give the maybe margin, that so drop and should see relatively on if leverage kind to the up you're bottom you we that EBITDA drive line, the so margin up in a should inch controllable of drivers

Operator

We have participating. gentlemen. you time. no you, further This questions conference. Thank at this Thank today's concludes ladies for

now disconnect. may You

JAKKS Pacific (JAKK) 9 May 192019 Q1 Earnings call transcript