JAKKS Pacific Inc (JAKK) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for joining the JAKKS Pacific third-quarter 2014 earnings call with management. Today, JAKKS will review the results for the third quarter ended September 30, 2014, which the Company released earlier today.

On the call today are Stephen Berman, President and Chief Executive Officer, and Joel Bennett, Executive Vice President and Chief Financial Officer. Mr. Berman will first provide an overview of the quarter; then Mr. Bennett will provide detailed comments regarding JAKKS Pacific's financial and operational results. Mr. Berman will then conclude the prepared portion of the call with highlights of product lines and current business trends, prior to opening up the call for your questions. (Operator Instructions)

Before we begin, the Company would like to point out that any comments made about JAKKS Pacific's future performance, events, or circumstances, including the estimates of sales and earnings per share for 2014 as well as any other forward-looking statements concerning 2014 and beyond, are subject for Safe Harbor protection under federal securities laws. These statements reflect the Company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult JAKKS' most recent 10-K and 10-Q filings with the SEC as well as the Company's other reports subsequently filed with the SEC from time to time.

With that, I would like to turn the call over to Mr. Berman.

Good morning, everyone, and thank you for joining us today. We are extremely pleased with our performance in third quarter, with sales and earnings both exceeding our expectations, resulting in our increased guidance for 2014. We have a strong lineup of toys for this holiday season, featuring the best in entertainment licenses and innovative technology.

Many of our products are included on various retailer, toy industry expert, and parent media must-have toy lists for the holiday season. Some of our top-performing product lines this quarter, based on the hottest licenses include our new Frozen?Snow Glow Elsa doll and Light Up Musical dresses, large-scale figures such as Star Wars, and Nintendo plush and figures.

Our core business remained strong with the performance of our foot-to-floor ride-ons in our preschool division; our proprietary animal babies plush and DreamPlay miWorld playsets in girls; and Disguise Halloween costumes in seasonal, just to name a few.

We credit much of the success of our quarter due to our design and sales teams. We have some of the best-in-class product through an extremely wide array of categories in addition to our deep penetration of product distribution both in North America, through a diverse customer base, as well as our expanded international distribution.

All have done a terrific job growing our business. We have more offerings in alternative channels this quarter, from GameStop to Justice stores and Amazon to QVC, allowing consumers to find our products at many of their favorite retail destinations.

Our international business continues to grow as well. Sales are up year-over-year for the third quarter, and we expect more growth in the fourth quarter.

New rollouts in our DreamPlay line of technology-driven toys in third quarter includes the launch of our Max Tow Truck app and new updates to our miWorld app to include new licenses and in-app purchases. Downloads for our miWorld app have been healthy, and the majority of the ratings for the app are five stars.

We recently completed our 2015 Fall Toy Preview meetings and are pleased with the enthusiastic response from retailers, licensors, and other industry partners to our extremely broad and focused 2015 product lineups, which will feature more of the biggest licenses in entertainment as well as unique, innovative products.

Now I would like to turn the call over to Mr. Joel Bennett to review our financial results for the third quarter of 2014, and then I will give a further update of our business this year and beyond. Joel?

Thank you, Stephen, and good morning, everyone. Net sales for the third quarter of 2014 increased to $349.4 million, up 12% from net sales of $310.9 million reported in the comparable period in 2013.

Reported net income for the third quarter was $44.1 million or $1.03 per diluted share. This compares to reported net income for 2013 of $36.6 million or $1.11 per diluted share.

Net sales for the 2014 9-month period also increased 12% to $556 million, compared to $495.2 million in 2013. Reported net income for 2014 was $18.7 million or $0.61 per diluted share. This compares to a net loss for the first 9 months of 2013 of $37.8 million or $1.73 per diluted share.

Worldwide sales of products in our traditional toys and electronics segment increased to $173.8 million for the third quarter of 2014, compared to $156.9 million for the third quarter in 2013. Traditional toy sales increased to $259 million for the first 9 months of 2014, versus $243.9 million for the first 9 months of 2013. Sales this quarter in the segment were led by Disney Frozen toddler dolls, Cabbage Patch Kids, Nintendo plush and figures, and Star Wars figures, driving the category to an overall increase this quarter.

Worldwide sales of our role-play, novelty, and seasonal toy segment increased to $175.6 million in the third quarter of 2014, compared to $154 million in 2013. Sales for role-play, novelty, and seasonal toys for the first 9 months of 2014 increased to $297 million, from $251.3 million in 2013.

Disney Princess dress-up and role-play, including Frozen, and Disguise Halloween costumes dominated sales in this category this quarter, driving the category to an overall increase. Included in the category numbers are international sales of approximately $67.4 million for the third quarter of 2014 compared to $57.9 million in 2013.

International sales for the first 9 months of 2014 and 2013 were $107.2 million and $94.5 million, respectively. Disney Frozen and Princess dolls, Nintendo, and Slugterra products drove the increases in 2014 sales in the international markets.

Gross margin for the third quarter of 2014 and 2013 was 27.1% and 29.4% of net sales, respectively. Gross margin for the first 9 months of 2014 was 28.1% of net sales, compared to 23.6% of net sales in the first 9 months of last year.

The decrease in gross margin during the third quarter is due in part to license minimum guarantee shortfalls and product mix shift, including higher competitively priced Disguise sales in 2014. The increase in gross margin for the 9-month period in 2014 is primarily due to license minimum guarantee shortfalls and inventory impairment charges taken in the second quarter of 2013, offset in part by license minimum guarantee shortfalls and product mix shift, including higher competitively priced Disguise sales in 2014.

SG&A expenses in the third quarter of 2014 were $50.9 million or 14.6% of net sales, as compared to $51.7 million or 16.6% of net sales in 2013. SG&A for the first 9 months of 2014 was $132 million or 23.7% of net sales, compared to $145.5 million or 29.4% of net sales. This decrease in SG&A and dollars and as a percentage of net sales is a result of the benefits achieved as part of the restructuring and cost savings initiatives that commenced in the second half of 2013, in addition to higher sales in 2014, offset in part by higher media buys and co-op advertising and Q2 restructuring charges of $1.2 million in 2014.

Consistent with the seasonality of our business and on higher sales, operations used cash of $69 million for the third quarter of 2014, compared to using cash of $49.8 million in 2013. As of September 30, 2014, the Company's working capital was $246 million, including cash and equivalents and marketable securities of approximately $88.8 million.

Depreciation and amortization was approximately $8.6 million in the third quarter of 2014, compared to $9.3 million in 2013. Capital expenditures were $1.8 million for the third quarter of 2014, compared to $2.1 million for the third quarter of 2013. For the full year we expect capital expenditures now to be in the range of $11 million to $12 million.

In 2014, other income included a credit of $5.9 million for the reversal of a portion of the Maui earnout based on their expected 2014 results.

As for our tax rate, the effective tax rate for the quarter was 3.8% and is expected to be 18.6% for the fourth quarter and 12.7% for the full year of 2014, which could change if there is a shift in sales and therefore taxable income between the US and Hong Kong entities.

Accounts receivable as of September 30, 2014, were $304.3 million, up from the $258 million at the end of the third quarter of 2013 due to higher sales in 2014, resulting in DSOs in 2014 of 78 days, a modest increase of 3 days from the 75 days in 2013. Inventory as of September 30, 2014, was $87.8 million, up from $59.1 million in the third quarter of 2013 due to higher sales and continuing high demand for our products, resulting in higher DSIs of 40 days in 2014, up from 30 days in 2013, as we head into our peak selling season.

The Company currently expects increased net sales for the full year of 2014 to be in the range of $750 million to $760 million, an increase from previously issued guidance of net sales in the range of $660 million to $670 million, with earnings guidance now in the range of $0.64 to $0.67 per diluted share, reflecting a profitable fourth quarter. The Company's previously reported earnings guidance was in the range of $0.20 to $0.30 per diluted share; and excluding the Q2 restructuring charge of $1.2 million, EBITDA is now expected to be in the range of $51 million to $53 million, an increase from the previous EBITDA guidance in the range of $43 million to $45 million.

With that, I'll return the call back to Stephen Berman.

Thank you, Joel. We have many exciting things to talk about for the third quarter. Our Disney portfolio of dolls, dress-up, and role-play products, including Frozen, Disney Princess, Sophia the First, and Disney Fairies performed exceedingly well this quarter.

We aggressively ramped up production on many of our Frozen items throughout the year to meet continuously increased consumer demand this holiday season. The hottest Frozen toys this fall will be the Snow Glow Elsa toddler doll, Frozen Light Up Musical dresses, and our Frozen dress assortment.

The list of retailers and industry accolades for our Frozen product is strong. The Snow Glow Elsa is the number-one toy at Amazon and was included on the Toys "R" Us Fabulous 15 top toy list and is currently one of the top toys at TRU each day.

It was also selected at Walmart's Chosen by Kids program, one of 20 items across toys, and will be on the cover of the Walmart toy catalog and an anchor item in Walmart's national layaway TV campaign. In addition, the Target exclusive My Size Elsa doll was chosen as Target's top toy by the retailer.

These are just a few of the accolades received. We expect Frozen to continue to drive significant sell-through in Fall with a wide variety of promotional vehicles in place to maximize the brand across all accounts.

Even though customers flock to buy Frozen product, our core Disney Princess products continue to sell well. While sales on some of the Disney core Princess brand is trending down in light of the Frozen craze, core items in the Princess line are healthy. Key items include dresses and accessories, and three-inch mini toddler dolls, and our Princess and Me line of large premium dolls available at select retailers.

Core Princess toddler dolls are getting a brand-new look later this year with new sculpts, new fashions, and royal reflection eyes. We expect to see a nice boost to sales once these dolls hit shelf going into 2015.

In addition, we expect core Disney business to gain momentum next year with the launch of the new Cinderella theatrical movie. In addition, we believe there will be continued strong demand with Frozen products into 2015 and beyond.

Disney Fairies exceeded expectations in our third quarter, fueled by The Pirate Fairy's DVD release earlier this year and our Pirate Fairy's Lost Gems Treasure Hunt promotion along with TV support should continue to drive sell-through in the fall.

Ratings indicate that Sophia the First is still holding the number-one cable program slot with girls 2 to 5 years, and sales of our dresses and role-play items and plush are healthy. The new Sophia toddler doll launched this fall, and sales are promising so far.

We expect to have expanded distribution in Spring 2015. We have strong retail promotional support planned for our Sophia line, with programs across our top four accounts for Fall, including TV support. Our Sophia the First Talking Magical Amulet was named one of Parents Magazine's Best Toys for 2014.

Turning to our non-Disney girls business, miWorld DreamPlay products are now at all major accounts and beating retail expectations. Toys "R" Us has become a destination for miWorld, with dedicated space and a feature in their Big Book in the fourth quarter. Walmart will also include miWorld in their holiday catalog, and the line is now at Target with strong initial sell-throughs.

Our miWorld mall app was updated with our new Skechers and Mrs. Fields playsets, as well as a fun new game and in-app purchases. We have had solid numbers of downloads since the launch of the new licenses, and the majority of the reviewed ratings have been five stars.

Our proprietary animal babies line of collectible and cuddly plush baby animals have just launched at retail and are seeing promising early sell-through both here in the US and internationally. TV is launching now, which has helped drive sales.

Now for our exciting highlights in our boys business in third quarter. Our Nintendo plush and figures are performing exceedingly well both in the US and internationally. We are chasing the upside at our major retailers and expanding into new channels such as GameStop. Our strategy is to continuously release fresh new ways of figures and plush to keep Nintendo fans and collectors coming back for more.

For our large-scale figures, our Star Wars 20-inch figures in both the Star Wars Classic and Star Wars Rebels licenses launched at all major retailers in the US as well as internationally, and early sales are extremely promising. The Star Wars Rebel TV show will be premiering in the fourth quarter, and we expect that to drive awareness and boost sales at retail.

This category continues to gain strength, adding new distribution, new licenses, and a broad, expanded line heading into 2015. Our 2015 line of big figs are expected to see strong growth worldwide.

Our new line of Hero Portal Plug It In & Play TV Game consoles, which capitalizes on the huge interest in interactive figure play with video gaming at a great compelling price point, has now launched at retail and is off to a promising start. We have the best boys licenses for this line, including Teenage Mutant Ninja Turtles, DC Comics, Power Rangers, and How to Train Your Dragon. The TV commercial is on air now, which is driving consumer awareness.

Our DreamPlay Max Tow Truck vehicles recently launched at retail, and early reads are quite good. It was included on the Toys "R" Hot Toy list, and was chosen by both Parents Magazine and Family Fun Magazine as one of the best toys for 2014. TV support will also be starting soon to help drive more awareness.

The corresponding app launched on iOS and Android on August 1 is a free app with 20 levels of fun. In addition to the fun gameplay, there is also a virtual Max Tow that you can take on the go with you anywhere. In the next few months, we will be adding additional levels of gameplay and in-app purchases.

Now turning to preschool, Moose Mountain is a great example of the strength of our core business. We continue to flourish in the ride-on category with approximately 45% market share in North America.

Our licensed ride-ons posted an increase in sales over last year's third quarter. These numbers are driven by everyday sales at Walmart, Toys "R" Us, Kmart, Target, and Costco, to name a few.

In our ball pit and wagon category, we continue to dominate retail with perennial programs at all major retailers, as well as alternative and online channels. Within this category, our licensed kids' chairs, tables, activity trays, easels, and step-stools have factored into everyday programs at a wide array of retailers and online channels.

As one of North America's leading costume manufacturers for over 25 years, Disguise has posted another banner year of sales. Despite competition, Halloween is off to a better than expected start, with early settings with warehouse clubs showing great sell-through in toddler and child costumes. Disney properties are leading the way due to Frozen, Princesses, and Captain America, to name a few, Hasbro's Transformers and My Little Pony, Power Rangers, and a broad mix of other licenses and brands. Disguise is the go-to manufacturer for top licensors, with a robust portfolio of the hottest children entertainment and pop culture licenses.

Now I would like to turn to our international business. As we have mentioned in the past, our focus is to grow our international business and expand into emerging territories.

This third quarter increased 16% year-over-year in 2014, and we expect an increase for fourth quarter as well. Top drivers include, in the boys action category, Nintendo, which sales continue to exceed our international forecast along with strong contributions from Star Wars and Slugterra. In girls, Disney's top drivers were Princess toddler dolls and role-play, led by the Frozen license.

Our UK office and business is strong and continues to post strong results year-over-year. Toys "R" UK named Snow Glow Elsa as the number-one hottest toy of the year, and UK retailer Argos included it in its top 10 toys of the year.

NPD shows JAKKS' UK business climate 45% while the industry rose 7%. We continue to grow in other markets as well, including Europe, the Middle East, Mexico, Latin America, and Asia.

We are looking forward to heading into this holiday season with contributions coming from a broad array of products. In conclusion, we are excited about continuing the momentum into 2015, and we remain disciplined with controlling our fixed costs to insure improving margins and profit in the future.

Thank you, everyone, for the time today for our prepared portion of the call. With that, we will open it up to Q&A.

(Operator Instructions) Steph Wissink, Piper Jaffray.

Hi, good morning, everyone. Congrats, guys, on a nice quarter; and nice job, Stephen, with all of those product names. Some of them are tongue twisters.

Thank you, Steph.

So two questions for you. One just with respect to the commitments that you have had to make around marketing spend for the holiday, particularly given that you have some of the top most-desirable toys. Can you talk a little bit about your digital and print and broadcast campaigns for the holiday season?

Then secondly, Joel, I just wanted to go back. I think you mentioned or you walked us through the D&A in the quarter and year to date. Can you just walk through that once again?

I think the D&A is coming down year-over-year. Help us appreciate what is happening in that line item specifically.

Sure, I will answer that one first. A big chunk of that is basically the bleed-off of acquisitions, the amortization of acquisition costs.

Over time the amortization accelerates, so as we get farther past some of the acquisitions, the last of which of any consequence was Maui in 2012. That will continue over the next 4 or 5 years.

Then how about on the marketing plans, guys?

The marketing plans, let's start with both -- North America first. We have a broad array of products being marketed from Max Tow to Hero Portal to Nintendo to miWorld, and an array of Frozen products, more as the Snow Glow Elsa. But we deepened some of the marketing spend, and we actually are seeing sales exceeding what we expected.

A good example is a couple retailers today in fact and last week had to pull the big fig of Ninja Turtles due to the demand and sell-throughs exceeded what our manufacturing capabilities were on this item. It also occurred with our Max Tow.

So we are not just chasing Frozen. We are chasing many other sides of our business.

So we have a very major, strong TV plan in North America and then parts of Europe and Asia. And then we have a very strong plan with a bunch of different viral and social media campaigns with YouTube, on Facebook.

So those are ongoing. They started early on, but they will be heating up much more in November and December. And those are primarily both in North America and Europe.

But one thing I must reiterate: we are seeing exceptional demand, and some of which we are chasing well outside of what we expected in Frozen, and a lot of it is happening in our boys section, as I just mentioned, both US and in Europe.

Okay, then just two more financial clarifications. Joel, you mentioned that there was a benefit from the reversal of the Maui earnout in the quarter. How should we think about how that business is tracking relative to that earnout agreement?

Then with respect to gross margin, I think, Joel, you also mentioned that there were some license minimum guarantee shortfalls. Just help us appreciate what on a license basis that you might be missing your minimum hurdles for, how should we think about that over the next few quarters here. Thanks.

Sure. With regards to Maui, the earnout targets were fairly aggressive. We generally structure our acquisitions with earnouts to ensure that the principals are onboard with seeing their company's own growth.

Last year it was recognized in the fourth quarter, when it was later determined that they wouldn't achieve the earnout. As far as expectations, there is -- they started out pretty well and then, kind of a cool early summer, they started to slow down. But overall we expect them to make pretty consistent contributions, just not as high as we'd originally expected.

As far as the gross margin, we came in at 27.1% in the third quarter, compared to 29.4% in Q3 of last year. 180 basis points came from the Disguise margin erosion, with some competitively priced products in the quarter. Sales are up pretty dramatically and as are gross profit dollars, but the gross margin did go down slightly.

Also, on the Maui earnout, they didn't achieve expected results or year-over-year, which would have provided an additional 30 basis points to the quarter. So year-on-year, accounting for those items, we would have done 29.2% versus the 29.4% in Q3 of last year.

Okay, thanks. That's great. Appreciate it, guys. Good luck.

Sean McGowan, Needham & Company.

Hi, guys. Good morning. I also have a couple of questions, back on Steph's question on the D&A. Could you just repeat what it was in the quarter? I missed when you were running through that, Joel.

Figures it would be in the prepared portion. Why don't you go ahead and ask your other question? I am just flipping through the --

Okay, so what you would expect the D&A to be for the full year. Maybe I will shift then to another question.

Stephen, I can appreciate that part of the strength of Frozen might be coming at the expense either of other Disney Princess products or maybe even other girls toys outside of that. If we were to exclude all of Disney Princess, did you see a sales increase in the rest of the line in the quarter?

That's a very good question. In certain areas, yes.

Excluding Frozen, and excluding Disney Princess, was the rest of the line up?

Actually, yes, we had quite a bit of our lines that have increased for the quarter and looking into the year. Now, more so on the boys segmentation of our business.

In our big figure area, in our Nintendo area, in our Max Tow area and MXS, we have exceeded our internal forecast, and some of the demand is well over expectations in the majority of those areas that we just discussed. And we are now trying to pull in more with regards to manufacturing.

Our miWorld has done extremely well. But I would say, excluding the Disney portion, which has done very well, with Frozen and without Frozen on some of the segmentations, a lot of the growth is coming internationally with our boys segmentation.

Okay, thanks.

Also, just the Disguise Princess business has done extremely well. Even at the time that Frozen is growing the Disguise general Disney Princess business has done extremely well.

So you saw some erosion in certain categories, but not erosion in other categories.

When you look at the fourth quarter, obviously, this is a tremendous increase in the guidance. Again if you were to X-out the benefit of Frozen, which it's great to have that, but just looking at the rest of the line, would you expect non-Frozen products to be up in the fourth quarter versus last year?

Yes. But first -- yes, obviously, Frozen will be a part of the growth, but we are seeing really a much bigger demand than expected on Max Tow. Our big figs, especially even our Teenage Mutant Ninja Turtle 48-inch fig.

Nintendo has well exceeded our US international expectations. So, yes, there is other areas in our segments that are growing, and we are actually seeing these areas that I am talking about growing into first quarter as sales are exceeding expectations and people are booking first-quarter numbers on -- separate than non-Frozen as well as Frozen.

Okay, and then back you, Joel, on -- gross margin commentary was helpful in the third quarter. What do you think we should expect for the fourth quarter?

And the same kind of question for SG&A overall, all those categories together. What kind of year-on-year comparison do we think we will see in gross margin and SG&A in the fourth quarter?

Sure. Let me start with the question in arrears on depreciation and amortization. It was $8.6 million in the quarter.

Okay.

Full year expected is $21.2 million.

Great. Thank you.

Great, thank you.

On gross margin going into fourth quarter, based on the mix, we are looking at 30%, in that range, which is our short-term intermediate goal for all quarters.

Okay, and SG&A?

SG&A will actually tick up a little bit because in the guidance, certain contractual bonus obligations kick in. So that is in part driving a lower EBITDA margin.

But it is still within the constraints of our previous reorg. So it is mostly incremental bonus, the fixed overhead. We have got controls in place we are continually looking at and actually, in effect, try to pay for those incremental costs with other cost savings. So it is a continual effort on our side.

Okay, thanks. Then the last thing I will circle back on is the explanation of the gross margin pressure in the third quarter coming from contractual shortfalls. Was that all related just to Maui?

No, it was across the portfolio. Maui is primarily -- actually they are almost exclusively non-license.

Yes, that's what I thought, Joel.

Shortfall, yes, there were two different parts. It was 180 basis points on the MG and the Disguise pricing, and an additional 30 basis points just on variance in the Maui revenue.

Then where is the license guarantee shortfalls coming in?

That is in the 180 basis points. I was just breaking it up into two chunks.

Right. I thought you were saying the 180 basis point was just pricing pressure on Disguise.

No, no, no, no. That is the aggregate of -- let's see, if I were to -- oh, let's see. Call it 60 basis points from MG and 120 from Disguise.

Okay. All right. Thank you very much.

Linda Bolton, B. Riley.

Hi. In terms of the other income item that was in the other $5.9 million pretax, I am just a little concerned that that creates -- like looking forward a year from now, it creates a pretty hard comparison next year, etc. So if you look at an EBITDA run rate, is there going to be something else that is special like that, that is going to be a positive to contribute to a comparison?

Or -- and also, can you clarify if the EBITDA increase in guidance for the year includes that $6 million? I would assume it does.

No, it doesn't. Actually, it is an other income item. We had the same item last year, but it came in the fourth quarter when it was later determined that Maui would not achieve their earnout.

Basically it is an adjustment to the earnout liability. It is an interesting accounting rule, where we reverse it into income but operations does not get credit for it, and it is not included in EBITDA.

Okay, great. If I go back and look at the fourth quarter of 2013, I will see some kind of other income item in there as well. What was the amount that was in there?

$6 million. The difference in the amount is just the additional quarter of amortization, so it's recorded at a discounted amount. So since we wrote it off a little bit earlier, it wasn't fully -- the interest wasn't fully imputed.

So that $6 million, I'm sorry; that was income or expense in the fourth quarter of 2013?

Income.

Okay. Then does that create -- that creates a hard comparison then for fourth-quarter 2014, because you won't have (multiple speakers)

No, no. Only in net income because they are both excluded from EBITDA and operating income.

So it does create a hard comparison in net income?

Here it is a wash.

Right. But for the fourth quarter, the net income and EPS comparison will be hard because of --?

Correct.

Okay, got you. Okay, thank you. Thank you. That's all, thanks.

Gerrick Johnson, BMO Capital Markets.

Hey, good morning. I am confused. I am confused on gross profit. Can we just go over that again?

What were the license minimum guarantee shortfalls? What properties? What royalties were you not earning out on an appropriate basis that you had to write down?

It was across the portfolio, and it was about $2.1 million, which was the 60 basis points that I mentioned in the last question.

Right. But there is no specific property that that pertains to?

That is across-the-board, but assume that a portion of it would be Disney.

Okay. Then on your DreamPlay-enabled toys, can you discuss -- do you have, say, a number: how many downloads of the app are you getting for each toy sold? Or anything we can quantify about the attach rate of DreamPlay to the enabled toys.

On the Max Tows we just launched it, and it just launched in both Android and iOS. We don't have an update.

And actually right in front of me I do not have the current update of the miWorld per physical unit to digital download, but it has substantially increased. But if you would like to call afterward, I could get that data; we just don't have it in front of us.

Okay. But in the end, you are pleased with the attach rate, so to speak, of the app with the toys?

Extremely pleased. Actually, the sell-throughs at retail, I think right now we have 90% of the users are on iOS; I am reading just some data. 81% are returned users who buy a product; and I don't have the complete downloads yet.

But it definitely has worked. It is working with Max Tow. And again, we have new initiatives with the Selfie Booth. We did a great launch that was just part of the DreamPlay consumer business with Procter & Gamble. I just don't have the actual data that is in front of me to give you.

Okay, okay. That was going to be my next question. So are you seeing any stream of income yet from those other consumer products?

No. I mean, Procter?& Gamble was more to get adoption than anything else. Procter?& Gamble has had great success with that; it's in 131 countries.

But it is more to get the adoption of the DreamPlay and iD out in the consumer's hands.

Okay, then, just try to get one more in there. Is their income from the joint venture, from the DreamPlay joint venture in your statement? Or what was the impact to the income statement?

There is income from the physical product, and we have a royalty payment to the joint venture for the physical product that we sell to the NantWorks-JAKKS joint venture. But we have higher royalties -- we have higher margins on the DreamPlay products, which enhance our margins; but there is a royalty attached to that to the joint venture.

Okay, great. Thank you.

Ed Woo, Ascendiant Capital.

Yes, thank you. I had a question in terms just of housekeeping. Of the earnings guidance that you provided, $0.64 to $0.67, I just wanted to make sure that that includes all special charges and dilutions and all the other stuff, and it is comparable to the $0.20 to $0.30.

Then also, what is the 9-month EBITDA number that you guys have so far for this year?

Ed, the first question again? It broke up when you were asking.

Sure. The earnings guidance of $0.64 to $0.67 for the year?

Oh, yes, it does include it; it's all-in.

All right, it's all-in. Then what is the 9-month EBITDA so far?

Yes. Then in the -- well, you said the earnings-per-share guidance; that is all-in. As far as the EBITDA guidance, that excludes the Q2 restructuring charge of $1.2 million.

My question was just, what is the 9-month EBITDA so far?

I am getting that for you right now.

Sure. While you guys are doing that, then just obviously you are having a very strong quarter and year for updates on Frozen. But one question I think some people are asking: how much leg does it have and how much of a driver can that be into next year?

You mentioned that you are going to be chasing sales into the holiday. How much do you think you are leaving off the table, and how much do you think you will be able to capture that into the next year?

One is, we are chasing sales I wouldn't just say in Frozen -- on several areas of our business, but I will speak specifically with Frozen. We are chasing sales only due to the demand that everyone continues to believe is there. We have achieved the demand, but the demand keeps going above and beyond what the retailers' expectations are.

Going into 2015, the plans that we have -- and we just had our Fall 2015 International Toy Fair -- we don't see much change of what the retailers are planning worldwide on Frozen. We do see an increase in our core Disney business.

At the same time, we see a big, dramatic expansion on Star Wars Episode VII and a broad array of products that we have for Episode VII, and the expansion of our Nintendo line and Max Tow. So we are seeing actually from where we sit today a very healthy 2015, and we don't see a real weakening in demand.

There will be some products that will do less. The Snow Glow Elsa will probably do less.

But there will be other capitalized items that are going to be in Ariel that are TV advertised. We have a new Disney Cinderella movie which I believe is in March or April, and Disney has a huge, huge support line and focus for Frozen worldwide next year.

So as we sit here today and what we have walked through and planned with retailers in 2015, we don't see today a dramatic slowdown. We are looking at bookings going into the first quarter, first half that are increased.

But not just with Frozen. It is increased with our core Disney Princess; it is increase with our Nintendo, our big figs, Max Tow, our Moose Mountain. There is a lot of different areas of our business that we see that are increasing, that the sell-through today is exceeding what our current expectations were in these areas I just mentioned as well as retailers.

Great. Then touching a little bit into the fourth quarter, obviously very close to the Thanksgiving holiday now. How much of your sales have been booked?

And is there any chance for you to be able to chase sales? Or is it pretty much too late to do anything for this year, given where we are right now?

We are very strongly booked for the fourth quarter. And we will be chasing sales daily. As we see today we had one of our retailers that had to pull off the big-fig Turtle due to the sell-throughs in one day. The numbers were very healthy.

So we will be chasing across-the-board. And again, that is going into fourth quarter and into next year.

We also have a lot of new categories and licenses that we are launching into next year that gives us even further momentum. A lot of it will be some of the Marvel RC, and we presented that during Toy Fair. So we have a really expanded line, but very focused line, going into 2015.

So while we are chasing in fourth quarter and building the first half, we have a very healthy portfolio of product going into 2015, excluding and including Frozen.

Great. I guess thank you and good luck. And, Joel, if you have the EBITDA number, that will be great.

Yes, it was $41.2 million for the 9 months.

Great. Thank you and good luck, guys.

Drew Crum, Stifel.

Okay, thanks. Good morning, everyone. Stephen, you talked about growth for the international business in the fourth quarter. Looks like your guidance implies at least 40% as a whole.

What are you thinking growth-wise for the international business in the fourth quarter? Should it outpace domestic, or will it lag domestic?

I think it will lag domestic just because of how big domestic is, and there are certain areas in which we do not have specific licenses in specific international territories. But where we do have the appropriate licenses, it is pretty much equal or a little bit less.

But it will slightly like the US. But it will have a growth year-over-year in fourth quarter.

Got it, okay. Then two housekeeping items for Joel. Can you give us what you are expecting in terms of share count for the fourth quarter? And is there a year-end cash balance you guys are targeting?

Let's see. Fourth-quarter share count, 45 million.

And right now we are at $88 million; our fourth quarter is generally where we throw off tremendous amounts of cash, so we are expecting in the $140 million, $150 million range.

Okay, and then last question. Stephen, any thoughts on impact to your business given the change in the Disney Princess license from Mattel to Hasbro? I know we are looking out a couple years, but any impact to your business as we look ahead?

What we see -- and we work obviously really closely with Disney. We see, I think actually a better benefit to us because we will be working with a Hasbro that will be focusing on that line. And I think hopefully we will be working together with them to expand a broader array of Disney product.

But we don't see any impact. We only see hopefully a better benefit because they are going to focus on it like we do.

But we see no impact at all. We see just a real benefit going forward.

All right. Thanks, guys.

Scott Hamann, KeyBanc Capital.

Hey, thanks, good morning guys. I don't want to beat the gross margin thing any more, but just trying to understand sales guidance going up $90 million; and Joel had said last quarter that he expected gross margins to be north of 30% for the last two quarters. I think we got to the third-quarter issue there.

But thinking about those incremental sales and still thinking fourth quarter is a 30% gross margin quarter, what is driving that increase in $90 million of sales? Is it mostly lower-margin product?

And how should we think about that mix moving into 2015? If it is Disney, what percentage of your business is that? Is that something that is going to structurally make these margins in that same range moving into next year?

We actually have higher expectations of Disguise into fourth quarter, so that is part of the equation into next year. There is fewer headwinds in terms of minimum guarantees and where certain product lines fall.

So over the last couple years, with the new licenses, more moderate MGs, and also just again the groupings of certain properties, we have expectations of even lower shortfalls going forward. Those headwinds are pretty much behind us.

So you would expect what level of gross margin expansion in the next few years?

Correct.

What would it be?

Oh, what it would be?

Yes.

Oh, in the 31%, 32% in the short term. And where that is coming from is through attrition. The newer products have higher-margin criteria, and we continually look at cost-reducing existing products and ways of doing things to bring the margin up, where we don't have pricing power on legacy items.

Okay. Then if you were to look at that $90 million increase in your sales guidance from last quarter, what's driving that? Is there any way you could help us understand how much would be Frozen or Disney, and what is coming from other parts of the business?

It would be actually a mix. We would go from a core business, which is the Moose Mountain, the foot-to-floor ride-on areas, which is a real broad array of licenses in the ride-ons and ball pits. You are going into a big area which actually has higher price points.

So the big-fig category for us are Max Tow, Nintendo. You also go through Frozen, which has a couple extremely strong items and new items that we just recently developed, manufactured, and produced, as we mentioned -- the Olaf snow cone maker.

So it is coming from a broad array of segmentations for us. Our Kids Only! tables and so on gear up for December shipment for Spring. So it is going to come from a wide array of area.

A lot of what we are seeing which was, I would say, unexpected, was the strength of the broad range of Nintendo and the big figs and Max Tow. Those really have taken off more than what we expected. And at the same time our solid core business, the Moose, the Kids Only!, our basic girl business is just very solid.

So it's safe to say that Frozen didn't constitute a majority of that $90 million increase?

It was a nice portion of it, but it wasn't the total increase.

Okay, thanks.

Steph Wissink, Piper Jaffray.

Hi, guys. Just one final question here on the SG&A line. I think, Joel, your been doing a good job of managing that business in that $28 million to $29 million zone. How should we think about the run rate on a quarterly basis for your SG&A?

We're managing the business with the current level of cost, so we think we can keep it within that. There will be some quarterly fluctuations depending on what you include in SG&A.

If you are including direct selling, in our fourth quarter our media buys generally go up. And in this particular year, because the earlier forecast didn't provide for the bonuses that are contractually-based, so in the increased guidance things are triggered.

So next year we will probably give some additional color, but that would be spread a little bit more evenly based off of the new expectations for 2015.

Okay. So your guidance does include hitting those bonus thresholds in the fourth quarter?

Yes. But in next year we will give you better color on how that spread will be by quarter, since it won't (technical difficulty) the old hockey stick.

Understood. Thank you very much.

Linda Bolton, B. Riley.

Hi. Just to be completely crystal clear on the EBITDA, what figure are you using for EBITDA just in the third quarter, excluding that $6 million item?

$52.8 million.

Okay, great. Then just looking ahead, I know it is hard to be talking about things going out to 2015. But when you think about like overall sales growth for the Company, given that you have this tremendous sales performance this year, in the second half especially, do you think overall sales can be up in 2015?

And then given that there would be just maybe some sales growth but not as much, how do you think that you can keep that SG&A line? Do you think that it needs to come up a little just as you increase your capabilities in certain areas? Or do you think you can still maintain that SG&A control?

Firstly, it is really too early for us to give you an outlook to 2015. But all we can go through is we do expect, from our previous meetings we've had over the last 6 weeks, expansion internationally, expansion in the US, with many new licenses in areas that are overperforming or overindexing in various segmentations.

Our boys segmentation is having a great growth experience, and we see a lot more of that happening. We have a lot more licenses with Star Wars Episode VII; a very amazing range of radio control with Marvel and with their movies next year; in addition to expansion of Frozen categories and properties; and our Nintendo rights.

So we do see a lot of exciting things into 2015, and it is tracking with the way that people are reviewing allocations and bookings. But it is really too early for us to give guidance.

But we do see -- and I can give you only comments that we have heard from retailers, that they have never seen a better portfolio from JAKKS looking into 2015. It was commented by several retailers, both US and internationally.

So we do feel strong about that. Joel will answer the SG&A question.

Joel, she had --

Oh, Linda, what was your SG&A question?

Just to get a feel for --

Yes, the restructuring was framed to get -- to enable the Company to continually develop the product and ship the product. Based on our current level of overhead, we expect to be able to achieve higher sales, so we are adding overhead very cautiously, and again it was meant to cover higher sales and be profitable at the levels that we had originally forecasted.

So we are not looking to add. We have got capabilities in the technology area, in the basic toy area. So we have got a pretty full crew and, again, don't expect to add overhead to achieve some of this upside.

Okay. Thanks very much.

Thank you. Well, that was it for the Q&A. We appreciate everybody for the time that you guys have taken, both ladies and gentlemen. And we look forward to having our next earnings call and looking forward to a positive 2014 and beyond. Thank you very much.

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