JAKKS Pacific Inc (JAKK) 2016 Q2 法說會逐字稿

Good morning and welcome to the JAKKS Pacific second-quarter 2016 earnings conference call with management for a review of financial results for the quarter ending June 30, 2016. JAKKS issued its earnings release earlier this morning. Presentation slides containing information covering both today's earnings release and call are available on our website in the Investors section.

On the call this morning are Stephen Berman, Chairman and Chief Executive Officer; and Joel Bennett, Executive Vice President and Chief Financial Officer.

Mr. Bennett will first provide detailed comments regarding JAKKS Pacific's financial and operational results. Mr. Berman will then provide his overview of the quarter as well as provide highlights of product lines and business trends prior to opening the call for questions.

(Operator Instructions) Before we begin, the Company would like to point out any comments made about JAKKS Pacific's future performance, events or circumstances, including estimates of sales and earnings per share for 2016 as well as any other forward-looking statements concerning 2016 and beyond are subject to 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 would 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 Pacific's most recent 10-K and 10-Q filings for the SEC as well as the Company's other reports, subsequently filed with the SEC from time to time.

With that, I would now like to turn the call over to Joel Bennett.

Good morning, everyone, and thank you for joining us today. Net sales for the second quarter of 2016 were $141 million compared to $131.1 million reported in 2015. The net loss for the second quarter was $4.4 million or $0.27 per diluted share compared to a net loss for 2015 of $5.7 million or $0.30 per diluted share. Adjusted EBITDA for the second quarter was $4 million compared to $1.5 million in 2015.

Net sales for the first six months of 2016 were $236.8 million compared to $245.3 million reported in 2015. The net loss for the six-month period was $21.8 million or $1.30 per diluted share compared to a net loss for 2015 of $13.3 million or $0.69 per diluted share. Adjusted EBITDA for the first six months was negative $5.1 million compared to positive $600,000 in 2015.

Worldwide sales of product in our traditional toys and electronics segment were $62.6 million for the second quarter of 2016 compared to $63.4 million in 2015. Sales in this segment in the second quarter were led by Disney Princess and Frozen Toddler dolls, Big-Figs featuring Star Wars and Batman versus Superman and our new Warcraft figures.

Worldwide sales from our role play, novelty and seasonal toy segment increased to $78.4 million in the second quarter of 2016 from $67.7 million in 2015. The increase in our Simpson collectible figure line was offset in part by decrease to the timing in our Disguise Halloween costumes.

Included in the category numbers are international sales of approximately $45.8 million for the second quarter of 2016 compared to $28.7 million in 2015. Disney Frozen and Princess dolls, while continuing to make strong contributions, were lower in 2016, as anticipated.

Gross margin for the second quarter of 2016 and 2015 were 31.8% and 30% of net sales, respectively, and for the six-month periods, 32.1% and 34.4%, respectively. The 180 and 170 basis point increases in gross margin in 2016 are due to lower product cost and lower royalties as we continue our margin expansion initiatives. This keeps us on track to achieve our five-year forecast of a gross margin of 32%.

SG&A expenses for Q2 2016 were $45.9 million or 32.6% of net sales as compared to $42.3 million or 32.3% of net sales in 2015. SG&A expenses for the first six months of 2016 were $90.9 million or 38.4% of net sales as compared to $81.9 million or 33.4% of net sales in 2015. The increase in SG&A dollars in 2016 was due to higher [marketing] expenses and resulted in increases as a percent of net sales on higher net sales in 2016 for the second quarter and lower net sales in 2016 for the six-month period.

Depreciation and amortization was approximately $4.7 million in the second quarter of 2016 compared to $4.1 million in 2015.

Capital expenditures were $6.8 million for the second quarter of 2016 compared to $8.1 million for the second quarter of 2015. For the full year we continue to expect capital expenditures of approximately $12 million.

Consistent with the seasonality of our business and on higher sequential quarterly sales and lower year-over-year accounts receivable at year end, operations used cash of $11.2 million for the second quarter of 2016 compared to providing cash of $11.5 million in 2015, resulting in free cash flow of negative $18 million and positive $3.4 million, respectively.

And at quarter end, the Company's working capital was $216.8 million, including cash and equivalents and restricted cash of $96.6 million, compared to working capital of $232 million as of June 30, 2015.

Accounts receivable at quarter end were $132.9 million, up from the $117.1 million in 2015, due to higher sales in 2016 resulting in DSOs in 2016 of 85 days, a modest increase of four days from the 81 days in 2015. Inventory as of June 30, 2016 was $71.5 million, down 22% from $91.9 million in the second quarter of 2015 due to ongoing working capital management and forecasting efforts, resulting in DSIs of 86 days, down 27 days from 113 days as of June 30, 2015.

Under the current authorization to repurchase up to $30 million worth of the Company's common stock and/or convertible notes through the end of the second quarter, approximately 3.1 million shares of common stock have been repurchased at a cost of $25.2 million or an average of $8.02 per share, $2 million principal amount of our 2020 convertible notes at a cost of $1.9 million and $695,000 of our 2018 convertible notes at a cost of $586,000 have been repurchased.

Since June 30, 2016 we have acquired an additional approximately 103,000 shares of our common stock at a cost of about $875,000, which leaves $1.3 million available for future purchases.

Lastly, as for guidance, we are reaffirming our previous forecast of net sales for the full year of 2016 to increase 7% to approximately $800 million, earnings to increase 10% to approximately $0.78 per diluted share, subject to share count changes, and adjusted EBITDA to increase 28% to approximately $65 million. This guidance reflects anticipated growth in gross margin and operating margin and an effective tax rate of 15%.

Using EBITDA as a proxy for cash flow from operations and excluding changes in working capital, due to the substantial variability that occurs based on the timing of sales and production within and between quarters, free cash flow for 2016 based on forecasted EBITDA of $65 million and an aggregate of $26 million for CapEx, cash interest and cash taxes is estimated to be approximately $39 million.

And with that, I will turn the call over to Stephen Berman.

Thank you, Joel. And good morning, everybody. Thank you again for joining us today.

I am extremely pleased with our solid performance in the second quarter of 2016. As Joel summarized in the numbers, we had a good quarter and performance was in line with our expectations. We achieved better than consensus revenue and earnings with continuing margin improvement and operating efficiencies reflected in the adjusted EBITDA year over year. This is our third consecutive second quarter showing year-over-year growth in revenue and earnings.

We continue to prudently control costs, tightly managing operating expenses as we drive toward increasing profitability on planned sales through the remaining second half of the year. The progress that we have made to date gives us a strong platform from which to drive further efficiencies. We are well-positioned and on track of the year as we ramp up for the important second half of 2016 as well as looking ahead to 2017.

We remain extremely focused on long-term, steady international growth, concentrating on developing our global footprint to create new distribution and licensing opportunities, opening up offices in key markets and hiring experienced industry talent.

I am pleased to announce that we have appointed a new general manager to JAKKS Mexico. In June, we began shipping the first orders of our new Central European warehouse. This new distribution hub will support key retailers in the region.

We are also pleased to be recognized by one of the largest retailers in the world, Tesco. Tesco presented JAKKS with the Partner Award of Excellence in 2016 at this year's Tesco Strategic Supplier Conference.

In addition, the movie Warcraft did exceptionally well in the Chinese market and was one of the highest grossing movies in China for 2016. Our action figures inspired by the movie also performed extremely well in the market. Year-to-date, it is JAKKS' best-selling boys' brand of action figures in China.

Now, for the second-quarter highlights and what we have coming in the second half of 2016, we are very encouraged that several of our new product lines are resonating with our target audience and already performing well at retail.

The Disney Princess business is strong and the trend looks to continue through the year. Disney launched the Dream Big Princess brand campaign in February, which will be a multi-year promotional program to reposition princesses in a more heroic and empowered manner. The campaign is across Disney corporate wide.

Channel, parks, interactive and the licensor support plus our effective TV spots gave us a bigger media lift than we had ever achieved during spring, specifically with the Color of The Sea, Ariel and the Little Kingdom Makeup segment.

In the Frozen line, the continuous strong performance of our evergreen categories and line of toddler dolls, dress-ep and role-play, combined with our two feature-driven carryover items from last fall, Sing-along Elsa and Do You Want To Build A Snowman jewelry box continue to be two of the top sellthrough performers this spring.

This coming fall, we will launch a new Elsa doll to leverage fresh content in the form of the animated shorts that Disney is releasing in conjunction with Lego Studios. Retail support is extremely strong for this new feature Elsa doll.

Two big new additions to the Disney line are coming this fall with the introduction of Elena of Avalor and Moana. Elena is a new character with roots firmly planted in the Latin and Hispanic cultures and the start of a brand-new Disney Channel series starting in July.

Other Disney Channel series have spawned a long line of toy successes and all indications are that Elena will be a big hit. Our new dress-up and role play will launch this fall; and we will have full support across all major retailers.

Moana is a new Disney Pixar animated movie slated for Thanksgiving weekend release. We have a broad product line of large dolls, role play, dress up and accessories based on the movie. We have gotten a terrific response from retailers around the world with orders growing daily and have locked in solid promotional plans to maximize the full potential of this theatrical release.

Tsum Tsum excitement continues. Tsum Tsum continues to grow within the hearts of kids and collectors alike. We are now shipping Wave 4 in the series with additional Waves coming this fall. And second quarter we launched Tsum Tsum in key international markets and have already taken off in Latin America and Asia.

We will be expanding distribution in new territories in the second half, including a significant launch in the UK. This fall, we will extend the line with new Tsum Tsum playsets, display cases, plush nightlights and an Advent calendar to drive additional volume in third and fourth quarter and keep the collectors continuously engaged. In August our advertising will be on TV again and we will have retail promotions lined up to coincide and maximize the impact of our media.

Additionally, we are extremely excited about the launch of Marvel Tsum Tsum figures, which hit retail shelves this month, featuring an extensive library of characters from the vast Marvel universe. They are already exceeding sell-through expectations. Marvel fans attending the San Diego Comic Con will be treated to an exclusive Captain America Tsum Tsum. This extremely limited edition, armored with metallic finish Tsum Tsum figure, will commensurate the 75th anniversary of one of the most iconic Marvel characters ever created.

Our boys business remains strong with double-digit growth year over year in the first half of 2016. JAKKS [master car] (technical difficulty) rights of the World of Nintendo product line has had an extremely strong sellthrough at retail the spring and visited for an even stronger fall.

We continue to expand distribution channels worldwide with more maps, alternative retailers and online customers buying into the strength of the Nintendo brand and our supporting product line. Figures and plush tied to the hit games [Mario Maker, Splat Toon and Star Fox Zero], just to name a few, are driving kids and fans to the shelves. The Mario kart racing games are some of the most successful in history and we are adding more vehicle lines for this fall, specifically introducing the Nintendo tape racers, which allow kids to create their own racetracks all around their rooms as well as a new radio-controlled Mario kart mini anti-gravity RC.

We are excited, and Nintendo fans are excited, for Nintendo's upcoming global launch of their new [mobile] game, Sun and Moon, slated for later in November. Also Nintendo's NES, which is Nintendo's Entertainment System, is slated for November launch with 30 classic titles.

With all this great product, we expect the World of Nintendo momentum to continue to be strong for the remainder of this year and into 2017 and beyond.

One of our key fall items, the XPV Skateboarding Mikey RC, skated into retail early to coincide with the release of the Teenage Mutant Ninja Turtles movie. The early read on this Walmart exclusive helped drive sales for our XPV line in the second quarter. We are gearing up for fall sales of Skateboarding Mikey with solid promotional activities planned for the holiday season. The reaction by media and social influencers to this innovative RC that does amazing skateboard tricks and self rights when turned over has been terrific.

Our Star Wars Big-Figs had a nice boost in retail sales with the Q2 release of Star Wars: The Force Awakens. Our 20-inch Star Wars Big-Figs continue to drive the line and performed well at retail this past quarter. And second quarter we shipped the highly anticipated BB-8, 20-inch figure Rey and the 20-inch figure Deluxe Darth Vader with lights and sound. Our Big-Figs remain the biggest value in the action figure aisle.

In third quarter we are beginning to ramp up this year's latest Star Wars installment, Rogue One, a Star Wars story hitting theaters in December. Customer support continues to be strong and consumer anticipation for the next Star Wars movie remains extremely high.

Continuing in our boys category, sales of our 20-inch Batman versus Superman Big-Figs remain strong at retail. For the holiday season we will introduce a Big-Fig colossal 48-inch Batman Gotham Guardian complete with a light-up Bat Signal. Our Black & Decker basic role-play line has been enhanced with new and revitalized SKUs and is currently trending up due to increased placement retail. Second-quarter year-over-year shipments were up double digits with a move to the preschool aisle at Target, and Walmart is moving the line to the preschool aisle in third quarter and we are anticipating a nice lift in the second half of this year.

We are very excited about JAKKS' return to WWE this quarter with an everyday dress-up and role-play line featuring top superstars. The offerings and retail distribution will expand this fall. In Asia, we will also be introducing action figures in addition to our dress-up and role-play in the Asian markets, which will bring in new sales opportunities in the second half of this year.

Lastly, we are looking forward to the upcoming Halloween season including WWE costumes.

In our Wheels business this, Cliff Climber is a next-generation vehicle and our (technical difficulty) line. Cliff Climber (technical difficulty) using reaction traction in its rear wheels, which opens up like claws and gives him (technical difficulty) extra grip as he maneuvers over obstacles. And just like Max, he can push and pull up to 120 pounds.

The XPV Marvel's Avenger Rollover Rumble RC launched at retail in time for the May release of Marvel's Captain America: Civil War movie along with a theme when it is currently the number-one movie in 2016 in the worldwide box office. You can choose your side with the high-performance radio-controlled vehicle and flip back and forth motion between Captain America and Ironman.

Sales of this innovative radio-controlled vehicle will continue to ramp up through the holiday season.

For girls we just launched Gift ems, a collectible line of mini-dolls blind packed in a gift box. Timed to the International Friendship Day this month, girls will be surprised with a new friend from one of 84 different cities when girls open up the gift box to reveal the mini-doll's name, city and country.

The gift box is transformed to showcases of iconic scenes from the doll's hometown as well as an image of her country's flag. Each Gift ems doll is marked on the rarity scale as common, rare, special edition and limited edition, and has four main components that girls can mix and match for endless fun.

The introduction of the Gift ems brand will be supported with a fully integrated marketing campaign featuring traditional and digital media buys, PR, social media and promotional activities. At launch, all Toys "R" Us stories chainwide will have a two-foot in-store display of a full line of Gift ems and the product line will be available at all major mass and value grocery and drug channels.

Plus, with the mini dolls, there will be two play sets that will be available at launch.

In addition, we are excited to launch the Gift ems app, an interactive public game at where girls can collect and connect Gift ems characters based on their favorite Gift ems friend. The Gift ems app is free to download and available on Android and iOS and will feature in-app purchases to unlock additional Gift ems characters.

Our seasonal division, comprised of license, wheeled goods, inflatable ball pits, kids' furniture and games, continues on an upward trend, posting a high single-digit increase in second-quarter sell-in as compared to last year. Wheeled goods, outdoor kids furniture and games are driving this activity play segment with strong retail placement and the introduction of new trend-right brands.

Licensed products inspired by Disney's Finding Dory, Marvel's Avengers and Teenage Mutant Ninja Turtles specifically boosted our licensed Big Wheels business, licensed activity tables and licensed patio chairs business. This momentum will continue into the back half of the year with the seasonal division's strategic direction to and lower price points within the wheeled goods and inflatable [Baltic] categories, which will widen penetration across the value, grocery and mass channels of retail.

Our [Maori] product lines featuring Funnoodles, hoops, jump ropes, Skyballs and bouncers also showed nice increases over last year with incremental feature pallet drops and lower transactional price points driving the business. Also exciting is that our seasonal division leveraged early fall 2016 ship opportunities of newly signed North American licensee deals for PAW Patrol and (technical difficulty) ride-ons to all major customers, translating into increased share within the category.

We will continue to drive sales in the second half in the inflatable ball pits and kids furniture categories as we leverage the DVD releases of Disney's Finding Dory, Marvel's Avengers and Teenage Mutant Ninja Turtles.

In the fall, we have the rights in these two categories for the theatrical releases of Disney's Pixar's Moana and DreamWorks' Troll movies.

In second quarter our Disguise Halloween division had a solid sell-in for several new key drivers for Halloween 2016. We are excited to launch this year, for the first time ever, Legos' Ninjago and Legos' Nexo Knights costumes. JAKKS, our retailers and consumers are excited about these Lego products.

We are also looking forward to launching our new WWE costumes and accessories for this Halloween. In addition, we are looking forward to have some new and fun licenses for this Halloween, such as The Secret Life of Pets, based on the Universal animated film, and PJ Masks, based on the TV show for preschoolers. We are excited for the broad line of Halloween products from Disney Princess and Frozen as well as the cute characters from the highly successful movie, Finding Dory. We are confident that we will have a terrific Halloween season with our robust catalog of costumes this year.

In closing, we are very optimistic about our entire portfolio and remain confident and upbeat that our consumer market initiatives for 2016 are working and positioning JAKKS well for the second half, as well as maximizing the value of our vast portfolio with customers and consumers worldwide. We are looking forward to meeting with our customers from around the world in a couple of months to show our new initiatives for Fall 2017, which includes a vast variety of evergreen products, new product lines, and we will have more exciting news for 2017 and beyond during this period.

That concludes the prepared portion of the call and we will now open the call to questions. Thank you very much.

(Operator Instructions) Stephanie Wissink, Piper Jaffray.

Thanks, guys, for the incremental detail in your prepared remarks. Just a couple of questions.

The first, if you could just talk a little bit about gross margin, that has actually been a nice course of profit improvement over the last couple of years. Can you just give us some insights into how much of that is mix-related or some of your cost initiatives, how we should think about that going forward.

And then just second part of the question related to some of your overall model structure. You guys have done a really great job responding to opportunities in the market as they arise.

Can you talk a little bit about the nimbleness and agility that you have that allows you to take advantage of some of the things that you are seeing real time?

Sure. On the margin question, as we've indicated over the last couple of years, on our legacy products which provide a large, solid base of day in and day out revenue, through re-costing and also cost reduction initiatives on those items we have continued to drive margins.

Our goal for the year is 32%, which we are well on track for.

In particular, this quarter a small amount was mix with a little bit lower sales from Disguise year over year which generally has lower margins than some of our other divisions. But through attrition, we continue to gain some ground because the new products have more stringent margin criteria.

So, one, we're covering more incremental marketing, which we had indicated in our forecast this year. In addition, some slightly higher royalty rates. But overall, well on track and we still have some more -- we are going for the higher hanging fruit at this point.

And this is Stephen. You asked why are we so quick to market. The number one reason is our corporate culture. Every part of our Company has a yes-we-can attitude. So from the factories and the customers we work with, they know that when they are doing with JAKKS there is no bureaucracy.

It's where we can get it done, we will get done, and we will get it done quickly. And that's pretty much the culture we've had since inception.

Thanks, Stephen. And then just final question for you, just given that you have come out of a Board meeting cycle. Talk a little bit about cash priorities, how we should balance our assumptions around potential buybacks or incremental buybacks and maybe (technical difficulty).

So, on the capital allocation, call it, part of our business, we have capital allocation committee and the Board of Directors, and we meet quite often and believe the number one priority is to invest in the business where we see opportunities for good returns and for strategic expansion. As you know, since inception we also have constantly been looking for acquisition opportunities and areas of key business expansion that would be accretive to the Company and strategically beneficial for the Company and our shareholders.

One of the other things is that we continue to believe that our stock is very attractive and stand ready to move opportunistically. Our main objective is to determine whether it's the best use of cash at any particular time. And that is the subject that we constantly evaluate on a quite-often basis, not just in Board meetings but on Board phone calls.

Thank you, guys. Best of luck for the back half.

Linda Bolton Weiser, B. Riley & Co.

So, I was trying to look at more closely why your operating cash flow was not improved year over year in the quarter. And your inventory was certainly down, and your receivables were up but I think only about 13% or so. So what is the networking capital area that's holding back the cash flow performance?

On the interim quarters there's a lot of volatility, we will call it, just the working capital. One of the things to know is, for the quarter, sales were up $45 million, which is almost 50% sequentially. For the full year cash flow from operations was $21 million.

So coming off of the frenetic pace of Frozen in 2014, where receivables and inventory levels were extremely high, 2015 benefited from that. In general, we are well on track to achieve our stated guidance. And I wanted to also reiterate that our forecast for free cash flow of $39 million is a conservative estimate since we are using EBITDA as a proxy for cash flow from operations, which historically trends anywhere from $15 million to $20 million less than what actual free cash flow is.

So we try to provide as much transparency, but given the fluid nature of some of those balances and the timing of sales within the quarter it's a very difficult item to forecast and model. But as I said, we are well on track to achieve our stated guidance.

Thank you, that's helpful. And then, so -- I mean, it's clear that you could do a little better than that projection for free cash flow. But still, the free cash flow growth in 2016 is much below the EBITDA growth. And the key reason for that is working capital.

So is that something that the Board -- how connected is that to the Board's decision about additional share repurchase? Do you need to make more progress in working capital in order for the Board to feel comfortable about more share repurchase? Can you just talk about how they are thinking about that?

Yes. Certainly, one of the parameters that they consider is, one, the actual excess cash at any given time, what the cash usage might be. As Stephen mentioned, it could be from acquisitions into new areas that might have more promise in terms of growth or margin.

Certainly, we have been active in the market with buyback. But there are a vast number of things that are considered, not the least of which is liquidity and the stock, how many shares we have outstanding. So it's a complex thing that is just not a matter of cash flow equals buyback.

Okay, thanks. And then can I just ask -- I know you are the Nintendo licensee and those products have been doing well for you. But just to clarify, your license does not include Pokemon figures and Plush? Is that correct?

Correct. That's a separate company, Pokemon, and we have no rights in the Pokemon. We have the mass rights for all the Nintendo characters.

Okay, thanks very much.

Ed Woo, Ascendiant Capital.

Congratulations on the quarter. Joel, what should we use for fully diluted shares for the year?

40,500,000.

Great. And then the other question I have generally is, what are you seeing out there the regional environment, both in domestic as well as international, especially as we are heading into this holiday season?

I actually just recently came back from a pretty long trip throughout Asia and a worldwide trip of the international markets, Western European market. And both, I'd say, in North America and abroad, the retail environment seems extremely strong. And if I think five years ago, it was a much different feeling for the toy industry. But the toy industry itself is having a, I think, terrific year worldwide, as it did last year.

I think retailers in all facets are looking for excitement and are looking for enhancement to bring consumers. And one of the enhancements is having fun. And having toys in the retail aisle and expanded on toys is part of, I believe, the DNA of the retailers going forward. And there's even help to bring customers in, so they are expanding in the toy -- call it kids' consumer area.

Great. Every year there seems to be some issue in terms of the manufacturing distribution, port issues. But we don't really seem to hear anything about that this year. Do you see anything that could possibly derail, or do you expect to see a pretty positive holiday season?

There's always concerns of shipping, factory issues with regard to the health of factories, health of retail around the world.

But nothing that we foresee right now as you mentioned, when we have the port issues. Do we see anything as headwinds? There's always something that could happen that we have no control on.

But as we sit here today, just besides the normal business and normal day-to-day issues we don't see something that major ahead of us so far.

Great. Well, I'll add I wish you guys the best of luck for this holiday. Thank you.

Jeffrey Thomison, Hilliard Lyons.

Congratulations on the quarter, guys. Joel, a quick question on the guidance -- the share count that you gave answered my first question. What does that imply about the interest add-back on a fully diluted basis?

It's $1,750,000 net of tax per quarter.

Okay, per quarter?

Yes.

Okay. And then, Stephen, I guess in past calls, maybe past years might be a better description, there has been a lot of talk about the DreamPlay joint venture and the possibilities that that has. And things have been relatively quiet on that front, at least on the calls here. And I just was curious if you had an update on that technology and the implementation and just where things stand on that.

Yes, great. I think we actually stopped using the word DreamPlay and we are continuing with DreamPlay and our whole interactive area, we primarily kept using the word DreamPlay for so long, now it has been -- it's kind of innate inside of our Company.

So the Gift ems app, which went live, is part of the DreamPlay initiative. And I'm not sure if you've seen the Disney Magic Timer which we were working with Proctor and Gamble. That has been a continuous initiative for the last two and a half years. We just did an update with the Finding Dory characters and stickers. To date we have over 2 million downloads on that app.

So that has been an ongoing initiative. Our real construction, called the DreamPlay [augmenter alley app] is something that's still focused on our miWorld Mall app is continually updated. So we have a bunch of initiatives that -- what we've done now, and it's a very good question, Jeffrey, is a lot of the initiatives we are working on have a component of a digital experience.

And what we've seen is the adoption is part and parcel of physical to digital. So, when we are doing something physical, there seems like the future of where everyone's kids are going. I'm not talking just adults, kids. There needs to be some type of digital experience. And that's a great example is if you download our Gift ems app, which is -- it already went live, which has a freemium model and that it goes into a purchase model. But we have quite a few initiatives that will be showing in October. But it's alive and well.

We talked more of a digital initiative because some of it is using DreamPlay technology and some of it is not using DreamPlay technology, it's more of the digital aspect of things.

But that's, as you can see, kind of the way that the Pokemon Go has taken over literally the world. There's different avenues that we are working on in various segments of our business that has a digital aspect of it.

So it's really more digital than [call it] just DreamPlay because it's using various technologies.

So there remains active development with a pipeline of products and ideas to come?

Yes, very much.

Great. And then lastly, I don't expect you to give a concrete answer on this but just -- I would throw it out there. Any assumptions that you would make regarding the full-length Frozen sequel in terms of perhaps even what calendar year that might happen?

No. That would really have to come from Disney, not JAKKS.

Just thought I would try.

Great question, Jeffrey! But that definitely needs to come from Disney.

Thanks so much.

Right. Well, in closing, we appreciate everybody that has been on the call. We've had a very good attendance on the call, very happy with our quarter and looking forward to a continued great year for JAKKS and our industry. Thank you very much.

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