Q1 2021 JAKKS Pacific Inc Earnings Call
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Yeah.
Ladies and gentlemen of today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Good afternoon, everyone and welcome to the JAKKS Pacific first quarter 2021 earnings Conference call with management, who will review financial results for the quarter ended March 31 2021.
JAKKS issued its earnings press release earlier today, the earnings release and presentation slides for today's call are available on the company's website in the investors section.
On this call. This afternoon are Stephen Berman, Chairman, and Chief Executive Officer, and John Kimble, Chief Financial Officer.
Mr. Berman will first of all bad and overview of the quarter along with highlights of the product lines and current business trends then Mr. Kimble will provide detailed comments regarding JAKKS pacific's financial and operational results.
Mr. Berman will then return on the additional will return with the additional comments and some closing remarks proud to of the opening up for the questions.
Your line will be placed on the need for the first portion of the call.
If you would like to placement of the queue to ask the question. Please press Star then one on your telephone keypad.
Before we begin the company would like to point out that any comments made about JAKKS Pacific future performance of events or circumstances, including the estimates of sales and all adjusted EBITDA in 2021 as well as any forward looking statements concerning 2020 wants to be on the subject to safe Harbor.
Protection under federal security 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 of risks and uncertainties you should consult JAKKS. Most recent 10-K and 10-Q filings with the SEC as well as the company. All the reports subsequently filed with the SEC from time to time.
Yeah.
In addition to today's comments by management, where we sort.
The non-GAAP financial measures such as adjusted EBITDA unless stated otherwise the most directly comparable GAAP financial metric has been reconciled to the associated non-GAAP financial measures within the company's earnings press release issued today or previously.
As a reminder, this conference is being recorded with that I would like to turn the call over to Stephen Berman.
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Yeah.
Okay.
Good afternoon, and thank you for joining us as we review our performance in the first quarter of 2021 on there.
The answer the rest of the year and beyond we are very pleased with our results for the quarter. It's the.
Fifth consecutive quarter, we delivered results that exceeded our internal projections and as of.
The strong way to start 2021.
Not only we were able to deliver strong sales growth higher margins and significant improvement of profitability. We did so without the benefit of the big hit product our blockbuster tempo of entertainment content.
Our strong performance in the corner was no flu. It was the result of many steps we have taken in recent years to broaden our sales base cutback on the low margin products and categories reducer of manufacturing and operating costs and manage cash conservatively.
As a reminder of the last two years, we've been working diligently to improve our profitability.
On a three pronged plan to improve results.
First we have been reducing our product costs and operating expenses to allow us to be profitable on the revenue that comes from our core basic product categories.
The results are visible in the sharp increase in gross margin of dramatic reduction in SG&A as a percent of sales that we had in the quarter. This is the highest Q1 gross margin we've reported since 2017 and our operating expenses in the quarter was the lowest level in dollars of any first quarter since 2004.
Sure.
Second.
We have been working to cut lower margin products from our portfolio and to take into account. The total cost of the product not just the ex factory cost. This shows up as lower reserves for allowances significantly fewer low or no margin closeout sales and frankly, a leaner more focused organization.
These two steps have lowered our breakeven level.
Our adjusted EBITDA in the quarter was negative $2 4 million the best first quarter adjusted EBITDA. We've had since the first quarter of 2015 when sales of the products from the original frozen film, we're still extremely strong.
As we have been saying for some time our goal is to position the company to be profitable without big hits. So we can deliver even stronger profit when we do launch an unexpected blockbuster level of product line and category the.
The third part of our plan has been focused on shoring up the balance sheet by reducing our high cost debt and stretching out the debt maturities.
We ended the quarter with approximately $84 million in cash and net debt of $77 6 billion down from $127 3 million a year ago.
We continue to consider ways to realign our debt maturities and look forward of reporting more progress as the year unfolds.
Other parts of our balance sheet also show how we are operating much more of lean Lee our net PP&E at the end of first quarter was the lowest it's been at March since 2014, and our inventories were at the lowest level in Q1 and more than 10 years.
At retail our products continue to sell extremely well.
And our top three retailers.
Pos of our toy products was up over 20% in both online sales and brick and mortar and retail inventories of our toy products on our top three customers were down approximately 25% at the end of the quarter compared to last year.
As I said earlier, our sales strength was not the result of one giant hit or one movie driving demand for our merchandise. Our sales performance was based on the breadth of our diverse portfolio girls boys and seasonal were all up strong double digits and girls initial sales of ARIA and the last.
Dragon were solid and when combined with the positive trajectory of Disney Princess helped offset the expected decline of frozen and frozen two products.
On a redo Skateboards line also continued to sell extremely well with great velocity.
Our portfolio of toys based on video game properties continue to perform well with Nintendo more than doubling off of an already strong base.
On ex the Hedgehog, nearly tripling and apex legends, which was launched late last year building nicely.
Video game related toys have become a solid part of our portfolio and we expect to continued growth from this category.
To put it into some perspective, our video game related toys were a bigger contributor to our total first quarter sales than any of our larger license brands.
This is exactly the balance we have been striving to build and achieve.
Our goal has been to have a solid profitable business without the big hits, which we have achieved so that when a big hit occurs and we know they will come again will be even more profitable.
Those of you who have followed US a long time will notice that we're not calling out how our sales performance would have deferred if we excluded certain product lines from the figures.
We typically do that to help illustrate various trends and to point out of the solid sales underneath these more volatile lines and we are likely to do so in the future. If we think it helps understand the broader patterns.
Some area of toy sales were down but there were no declines that were so dramatic that the prevented us from growing and no increases that were so dramatic that it would create a problem for our portfolio next year, we simply have a well balanced portfolio of toy products and categories based on brands and play experiences.
That kids and parents love.
Our costume business was flat year over year. The first quarter is not very meaningful we are excited and confident we will have a good year in costumes retail inventories were extremely clean and late 2020 Halloween is on the Sunday This year and we believe with the vaccinations rising.
People increasingly eager to get back to normal Halloween is going to be a big holiday event. This year.
In fact in general we are seeing things gradually returning to normal among our retail customers and consumers retail traffic is improving although online sales remain at higher levels of production on new films and television content is ramping up and films are returning to theaters, even though of streaming remains.
Extremely strong.
The toy industry held up well last year much better than most industries NPD said that the U S sales of toys rose 16% in 2020.
Which is several times the normal growth rate and has been up strongly so far this year with retail sales rising 41% in the U S. In the March quarter.
The toy industry has done well for a lot of reasons, but the main one is that toys are one of the things that havent been cut back too much.
Parents of spent less on sports on activities on vacations and dinners out, but the haven't come back on their children in fact, the redirected their spending from other areas in the toys.
We continue to see some of these trends as I mentioned toys tied to video games have been very strong. This makes sense because video games did so well over the last year with kids spending more time at home.
Of that exposure to these digital gaming experiences increased demand from the toys.
Our black and Decker line of play tools more than tripled over the last year, possibly driven by the fact that kids are seeing their parents spent so much time and effort doing home remodeling projects and improvements, which we believe they have a strong desire to emulate that in their play patterns.
Within our seasonal business, we saw double digit increases in shipments driven by continued strong Pos.
Activity tables have sold particularly well as have sales of our redo skateboards and these are areas benefiting from a change in consumer behavior and the momentum continues.
In 2020, the doll and collectible categories did not do as well, partly because of new entertainment content release dates we're continually postponed and moved out to later dates in some cases the content would be released on a streaming format only or released simultaneously both the agile on streaming.
What we're seeing now is the return to more normal theatrical releases less changing of release dates and the properties are back to being marketed by the content holders and retailers and a stronger more consistent way.
Our perfectly cute baby and perfectly cute home lines did very well at target on our shipments are up strongly this year.
Sales of our Disney Princess products nearly doubled over the first quarter of last year.
With the introduction of Ryan and the last Dragon Disney Princess and Ryan of more than offset the decline in frozen and frozen two products.
One of the other big themes for the toy industry in 2020 as well as for all retail and was the continued shift to online sales on our top customers online sales of our toy products were up over 20% in the first quarter of 2021 and represented 17% of our total <unk> at these customers.
This was in line with last year, but outside of a couple of product categories. The overall trend was toward higher online sales as a percent of the total sales.
JAKKS Pacific was built on the foundation of good Evergreen basic toys based on leading global IP targeting proven play patterns. We saw toys deliver on this promise very clearly in the first quarter and we expect it to continue throughout this year I will now pass the call to John to review our financial performance.
After which I will come back with comments on how we see 2021 playing out John.
Thank you Stephen and good afternoon, everyone.
Net sales for the <unk> 2021 first quarter were $83 8 million up 26 per cent compared to $66 $6 million last year.
As Stephen mentioned, we saw great results across the board in our toy consumer product segment.
And our girls and preschool targeted businesses, primarily dolls dress up role play toys plush and other consumer products net sales were $45 $2 million in Q1 up 13% compared to $40 $1 million from the prior year.
The big driver of the growth was the strong sales of Disney Princess and Ryan merchandize anchored by the theatrical and streaming release in March slightly offset by lower sales of frozen are.
Ah perfectly cute range has also contributed in the positive column.
On our boys targeted division of action figures vehicles role play toys and other electronics products net sales were $16 $4 million up 17% compared to $9 $7 million last year and as Stephen mentioned, our video game related toys delivered the majority of the growth with the black and Decker role play line of also strongly contributing.
This business is expanding rapidly both on the U S and international with more points of distribution and broader product ranges.
In our outdoor seasonal division of ball pits play structures activity tables, but the floor right on skateboards and other spring summer inspired towards net sales were $18 $3 million in the quarter of 43% from $12 $8 million in the first quarter of 2020 with growth across the whole division.
When you add those pieces together first quarter sales on our towards consumer products segment were up 28 per cent to $79 $9 million globally compared to $62 $6 million from the first quarter of last year.
The bulk of the growth came from North America up 33%, while international grew by 5% despite significant additional retail closures in Europe and beyond.
Net sales on our costume segment, the skies were nearly flat year over year hit around $4 million on the first quarter. As a reminder, Q1 tends to be around three to five per cent of our full year costume business.
Moving down the P&L.
Gross margin in the 2020, one first quarter was 31, one per cent of 650 basis point improvement over the 24, 6% in Q1 of last year.
About a third of that improvement comes from the royalty line, which was $12 $5 million or 9% higher than a year ago, but 230 basis points better driven partly by a mix shift, but also the exploration of some legacy agreements with less than favorable terms.
And the balance is attributable to the efforts, Stephen just mentioned and bringing a stronger product margin line the market and fewer closeout sales.
Despite the ocean freight costs rising sharply towards the end of 2020, we were really pleased to see these increases in gross margin rate. We will continue to work diligently to mitigate these cost increases throughout 2021.
We had significantly lower expense for SG&A in the quarter again as Stephen alluded to there's a mix of cost avoidance in things like the elimination of trade shows in the first half of 2021 and significantly reduced travel, but the quarter also reflects more of lasting cost reductions like our efforts to optimize our warehouse footprint and carefully managed receivables were also projecting our media spend to be more backend.
Loaded in 2021 than last year.
In aggregate, our first quarter of direct selling costs were $6 8 million or eight 1% of net sales compared to $8 $5 million or 12, 8% of net sales in the first quarter of 2020.
In the G&A section, we had a $1 9 million dollar cost avoidance stemming from the federal government's employee retention credit program under the cares Act, although we believe we will benefit from the ERC in future quarters, we consider it a one time non sustainable benefit and therefore, reducing our non-GAAP adjusted EBITDA calculation for that amount.
With that said, our GAAP 2021 first quarter, G&A, including product development of testing, but excluding depreciation and amortization expense was $21 $4 million or 25, five per cent of net sales down from $23 million or $34 five per cent of net sales in 2020.
We remain very pleased with the company's continued success and working both remotely and within the lower cost structure.
These results combined to generate of first quarter operating loss of $2 $7 million compared to an operating loss of $16 million in the first quarter of 2020 on.
Net interest expense in Q1 of this year was $4 9 million compared to $5 $5 million last year, reflecting a lower overall level of debt.
As a reminder, certain elements of our capital structure, specifically, our convertible senior notes and preferred stock derivative liability are marked to market quarterly with noncash gains or losses, depending on a number of factors inclusive of market debt rates and our current share price in the first quarter of 2021 of the combined impact of those valuations was the loss of 60.
$1.4 million.
As a result, despite the combination of our improved operating performance and lower interest expense. We Nonetheless reported a GAAP net loss in the quarter of $24 $1 million or $4 from 54 cents per share compared to a loss of $12 million or $3 97 per share in Q1 of 2020.
Excluding the impact of the noncash valuation adjustments employee retention credit as well of stock compensation expense, our adjusted net loss attributable to common stockholders in the first quarter of 2021 was $9 $5 million or $1 77 per basic and diluted share compared to a loss of $21 9 million or seven.
And 23 cents per basic and diluted share.
Reported in the first quarter of 2020.
Our adjusted EBITDA for the quarter was a loss of $2.4 million an improvement of $11.4 million over 2020. This brings our trailing 12 month of adjusted EBITDA of $39 $5 million. Its highest dollar level since Q1 2017 and at 7.4 per cent of net sales our highest adjusted EBITDA margin.
Level since Q3 of 2015, we remained very pleased with the team's performance and improving our results as it relates to this metric during the past year.
Net cash used by operating activities was $7 million for the first quarter of 2021 compared to net cash used of $18 $9 million in the first quarter of 2020.
Free cash flow was the negative $8 $4 million in the 2021 first quarter compared to a negative $25 million in the 2021st quarter.
As of March 31, 2021 of our cash and cash equivalents, including restricted cash totaled $84 $1 million compared to $44 million at the end of 2000 Twenty's first quarter.
Accounts receivable as of March 31, 2021 were $79 $7 million up from $64 $8 million as of March 31, 2020, Dsos for the 2021 first quarter decreased to 86 days from 89 days reported in the 2021st quarter.
The inventory as of March 31, 2021 was $36 $7 million versus $48 $2 million at March 31, 2020.
DSI is on the 2021 first quarter were 75 days compared to 116 days in the 2021st quarter.
The company intends to apply for forgiveness of its P. P. P debt of $6 $2 million, but has yet to do so the.
The absence of knowing whether any funds will be forgiven the company presumed the two year loan period with interest beginning to accrue in June of 2020 with payments beginning in September of 'twenty 'twenty. One as the result, we now reflect $1.7 million in short term debt and $4 $5 million on long term debt on our balance sheet related to this loan in.
In addition, we anticipate of $5 million Paydown of our term loan in 2021 based on the amendment filed last year related to our debt covenants and our projections for cash and liquidity in 2021 taken.
Taken together these two attributes comprise the $6 $7 million in short term debt on our balance sheet.
From the beginning of the quarter $3 million of the July twenty-three convertible senior notes were converted to common shares at $5 65 per share as of March 31, 2021, the face value of the July 2023 comes from.
Vertical notes is $29 million, including accumulated pik interest.
As a result as of March 31, 2021 of the company's debt at face value was $152.4 million, including the aforementioned $6 2 million dollar P. P. P loan due June 2000, $20 million to $29 million of recapitalized convertible senior notes due July 2023.
And $125 $3 million owed under our term loan due February 2023, both inclusive of Pik interest. We currently have no outstanding balance under our credit facility aside from $10 $8 million in letters of credit as of March 31st.
Capital expenditures during the first quarter of 2021 word one and a half million dollars compared to $1 $6 million in the first quarter of 2020.
Depreciation and amortization for the first quarter of 2021 was $1 $8 million compared to $1 $9 million in the first quarter of 2020.
The basic and diluted income per share calculation for the first quarter of 2021 was based on a weighted average of 5.379 million common diluted shares outstanding up from 3.0.
Two 1 million in the first quarter of 2020.
This number reflects the impact of a reverse stock split in July of 'twenty, 'twenty as well as the aforementioned convertible senior note conversions.
And with that I will now hand, the call back over to Stephen for some additional comments.
Thank you John I'd.
I'd like to turn to the rest of this year now and outline how we plan to keep the sales momentum going the exciting new product launches ongoing efforts to keep costs down and our efforts to further strengthen our balance sheet.
We will continue to capitalize on the tremendous strength of our licenses with the Walt Disney Company.
Building on the momentum we anticipate a third straight year of growth for Disney Princess, which is being driven by several key factors, including Disney Princess style collection, a robust line of role play items and accessories designed for today's modern girl with a uniquely stylized an owner will Disney Princess.
Look and feel.
Disney Princess dress up and large dolls, a beautiful lineup of easy to address large dolls with Matthew girl sizes dresses, we expect to benefit of the continued retail distribution expansion. In addition to increased demand in the marketplace with the ever growing strength of the Disney Princess Universe.
We will continue to also support the frozen franchise with a diverse line of products that brings the magic of Aaron Dell to fans in a variety of scales at formats.
Beyond the core Disney Princess business, we will continue driving the great performance of product lines based on riot in the last Dragon.
In addition to launch a dynamic lineup of toy products inspired by and cant do the upcoming November theatrical release from the Walt Disney Animation studios centered around an extraordinarily family who lives in the magical home and a vibrant town nestled in the hidden mountains of Colombia.
The income to a product line will feature fashion dolls large dolls play sets dress up and role play.
Other 2021 initiatives within our growth Division include extensive two are perfectly cute doll and accessory line of target.
The new launch of toys of collectibles based on her of BOE, a global successful Gummy Candy brand.
A brand new beautifully designed interactive item based on a theme we are certain will resonate with girls and we expect to perform very well this fall.
And our boys Division, we expect to continue to maximize the success of video game related product lines, including apex Legends Super Mario Brothers and Sonic the Hedgehog.
In addition, we are planning for continued growth in our black <unk> Decker product line as well as a strong launch for the re release of creepy crawlers JAKKS owned IP that has been a classic toy brand for more than 45 years.
And our seasonal division sales of the redo Skateboards line continue to grow with the expansion of both at target and Amazon and as mentioned previously we will broaden the product line with a variety of strong licenses.
We are also expecting a great boost from our new line of license and unlicensed Trampolines, which are hitting the market. This summer and we expect to perform very well on the back half of the year.
Categories of business that have historically been steadily sellers for us and we expect we will continue to perform include activity tables ball pits play tents and flipped the floor ride ons.
The success is based on a combination of great product best in class distribution, and evergreen licenses, including Mickey Mouse Minnie mouse frozen.
Patrol Fisher price Blue's clues amongst many others.
With our disguise Halloween and kind of all segment, we expect a much more stable environment for Halloween 2021 give that Halloween falls on a Sunday and the assumption that the pandemic will be sufficiently under control by the fall we will anticipate a more typical level of celebration leads to <unk>.
<unk> sales performance by our broad portfolio of both license and generic themed based costumes and accessories.
New licenses in 2021 include apex legends bending.
Bending of the Inc machine Blippy.
<unk> E Ghostbusters, Hocus Pocus, Peppa pig PJ mask, Ryan the last Dragon and spirit amongst others.
As new licenses become available we will seek to grow the portfolio while at the same time, meaning the cost and pricing discipline that has allowed us to show such encouraging progress across the company.
Taking a step back and looking at what we expect for our results in 2021, let me offer a couple of observations.
First some of the cost and working capital tailwind may reverse a bit as the year goes on in 2020 in the first quarter of 2021 with so much of our work force at home, we spent very little money as the company on expenses like Airfare Hotel Tradeshows basic I T maintenance.
<unk> just to name a few areas.
Our whole company took a pay cut last year to help preserve cash many of these costs will rise this year, but the other costs have been eliminated and aren't coming back we remain committed to improving our cost structure.
Second working capital is probably at a level of that needs to be increased.
We're expecting growth over time, and having the inventories at an 11 year low we will need to build back some of that inventory level for future growth.
In addition, we will need to increase some capital expenditures over last year's level, but again, the new normal for US is to continue spending more prudently and intelligently.
Third the toy industry has some difficult comparisons in 2021 as manufacturers sell in and retail sell through were exceptionally strong last year and 2020. Some of the strongest toy categories were ones that we don't have a big presence in such as games puzzles and activities those.
Categories might not be as strong of 2021.
We faced a difficult comparison last year because of frozen twos released the 2019, but the comparisons are not as difficult this year.
We expect to be able to grow our sales in 2021, and we expect to be significantly more profitable our trailing 12 months adjusted EBITDA is nearly $40 million.
We are proud of this and considering it was negative just a couple of years ago.
Finally, we are hard at work on strengthening our balance sheet with the strong product and cost momentum we have built over the last year. We're in a good position to reduce our overall debt and realign our borrowings with our growth plans.
If we can get our debt payments structured in the way that it can be paid down with our improved operating cash flow. We believe investors will see how much value there is in our shares.
In closing I would like to thank our incredible team as well as our extended team of customers license ores and vendors for all of their hard work and support over the last year come.
Coming together to deliver these great results in the first quarter we.
We continue to take the steps needed to position the company for profitable growth and we could do it without the dedicated team we have around the world with that we will now take questions. Thank you.
Thank you.
As a reminder, ladies and gentlemen to ask the question you would need the press Star then one on your telephone.
To withdraw your question press the pound key.
Thats Star one to ask the question.
The first question comes from the line of Steph Wissink with Jefferies. Your line is open.
Hello, everyone couple of questions if I could just to start with your concluding comments Stephen.
Growing sales and being more profitable. This year of can you just help us contextualize the component that is Halloween Halloween last year was substantially impacted to the negative.
How much of the growth. This year is that the coming back on line of Halloween versus the underlying business excluding Halloween.
Good afternoon. Thank you. So we expect to see and majority of our categories growth in both sales and profitability for our specifically with regards to disguise, which is Halloween and kind of all because we are.
Building, a very strong international presence for Halloween and Carnival there'll be a very nice increase one of which because of Halloween was a one of the worst Halloween as we saw in 2020 based off of COVID-19 and based off of just the entire environment wasn't enthusiastic to go out and and COVID-19 restricted everyone. So if we lift the co.
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The cloud will have a really strong Halloween and besides that we think we're gonna have based off of what occurred during the Easter at retail of the retailers now have been buying more than we projected earlier in Halloween and carnival based off the success of Easter. So how we will have very very nice growth, we see it but we also see very nice growth in our Disney girl.
The division.
The girls Division and in our seasonal division and boys. So we have and the Nintendo and Sonic is remaining extremely strong our black <unk> Decker is extremely strong the positive thing for us and we've gone through it over the last two and a half years.
We have created and now we have a very strong evergreen business.
That expands just with new licenses and adding a few different.
The categories within each of these areas. So for instance, the seasonal business. We didn't have trampolines last year and we didn't have licensed skateboard. So we have our basic business that is very solid and we have new two new categories that I'll jump in and its not looking to be a grand families growth.
The initiatives. These are very much singles and doubles and if something turns into a homerun of Grand Sam We do not base. It on our general business. So we have a strong platform of growth in the majority of the areas and we see it across the board and yes. The skies will see a very strong growth this year as well.
That's great I wanted to just follow up on wanted US right, which is the video games and one thing. We know about you over decades is that youre very nimble very opportunistic and video games you seem to be early and really in size with some of the biggest licenses are there other licenses in video games that would be obvious opportunities for you whether it's on the back of.
The rise in video game play last year or the new console cycle or just the expense of penetration now of the Nintendo switch does that afford you any other licenses that aren't currently on the portfolio.
But all of the above so the Nintendo switch growth and expansion is just fueling the brand of Nintendo and we when we took over the <unk> tender rights, we actually from one of the only companies that everyone was able to work with Nintendo and build their mascots and get growth with all of these different care.
Actors that they normally never allowed it at the start time, but now we have a really strong building relationship with them. Then you add in the Sonic that the general stomach and then you had the movie Sonic which actually part of pushing.
Pushing that further apex legends. So we do it in toys, where we think it's appropriate and then we do it and Halloween and kind of all where we think it's appropriate. So some of the areas. We don't want to get into the video game toy business because at the very higher age grade than what it's more of a collectible business, we'd rather stay more on that kids consumer business. They are at.
The ones that we are.
Looking to achieve and hopefully will be announced shortly but that whole category.
Part of our Halloween business and part of all of US is that video game genre, which is just growing and growing and growing and a lot of the pulp culture like immuno music like the ability of Irish and so on so the.
Theres a lot going on but specifically with the video game genre, we are really solid and the apex legends of Nintendo on Sonic only of a few of the ones that are appropriate at the same type of bike.
The disguise mine cash craft sword, the ex we expanded sales materially and that instead of doing a complete line of toys. If some of this the right skus for the right property. So we don't need to go and do.
Excuse me of whole deep line of product.
The two excuse me to have success with the video games.
Stephen on I'll, let you take it take a breath. Thank you for the chat.
Really excited about that I know placed out so maybe John on the class. One already you just think of Stephen attempts to take a breath the.
The comments of Stephen made on working capital being an 11 year low on the inventory side can you just help us rationalize how you think about the exit point coming out of 2021, where where do you want to be on that continuum of not as low as you are but certainly not as high as you want for.
Yes.
The sort of a real time question I think as we look at a lot of different things both on the income statement and the balance sheet and think about exiting 'twenty one.
We.
We know the 2020 was a very unusual year, which fortunately worked out pretty well for us on average.
We know that we're operating in a more productive way than we were in 2019 and beyond.
So in a very basic way of those great set of goalposts for us.
On the.
Frankly, looking up and down those two.
Financial statements.
Those are some of the parameters, we're sort of looking at.
I don't know that I can say anything more focused on that.
Okay. It sounds good I'll turn it over to the next caller. Thank you.
Thank you Steph.
Thank you.
Our next question comes from the line of Garrick Johnson with BMO capital markets. Your line is open.
Alright, good afternoon.
Hello Gerry.
Guys. You know first quarter has all of the trade shows New York Toy Fair Nurenberg Hong Kong.
How much kind of ballpark do you see from not going to those.
On how much of that contribute to the SG&A savings.
It would probably be if we just going to give you the proximity of mouth for all of those you have to have her.
John Kong you have the Nurenberg you have New York and you also had the U K.
Toy fair pricing.
Price of about four to $500000 excluding of the actual fair itself. The employees involved in samples that have to be included to get around all of those different areas of it's approximately that number.
Oh Wow.
Small on my phone it would be and kind of related to that.
Being that your smaller toy company.
Do you see not having the ability to show your products and sort of those venues.
Or maybe having fewer in person presentations do you think that puts you at a disadvantage relative to the large toy companies.
No I'd say not of the disadvantage of definitely hinders our business in general of not having the physical.
The meetings that you have in fact I went out during may to one of our large retailers and had a face to face meeting and at that time, we were able to pick up the immediate white space for our licensed skateboards and licensed Trampolines and that was may of last year. So that kind of of meeting does have.
The benefit but for us the virtual trade shows worldwide that we've done.
Bode very well I prefer to have more and there is I think of real good hybrid that will come out of COVID-19 that we need the amount of physical meetings like the sales means we have for spring and fall, but we don't need the amount of trade shows that we've had in the past I think of lot of that will be kind of figure it out and filtered out eventually, but we don't need to have a Hong Kong toy fair of D. A.
Ark toy fair of Nuremburg toy fair in the Olympic Toy Fair, our UK toy Fair and then a.
Our New York, one that's just TD ex amount of trade shows and we're not getting the benefit outside of people traveling and running all over the place and I think there's that hybrid that we will figure out ourself, but we're happy because we do know that we have the fall show that will be.
Happened in September in L. A so we're happy that that will that will occur and we believe that Hong Kong toy fair it'll be a very important toy fair because primarily of very very prominent Fob company.
Yeah, I agree with you on the efficiency of the hybrid model going forward for a lot of industries, including my own.
You mentioned that Europe Pos of your top three accounts is up over 20%, but familiar on you you were talking about the industry being up over 40%. So that would seem to me that you lost share in the quarter. So why did you lose share.
I guess why did you lose share in the first quarter.
I don't think we lost share of it was in that in that area of the as I mentioned I believe in this.
The prerecorded script was <unk>.
James puzzles and activities is strong and our areas as I mentioned, we've had double digit growth in several areas Nintendo Black and Decker was triples, and so on and Disney Princess was strong so across the board we saw very strong growth even if the industry.
What's up the skies isn't part of our first quarter. So for US. It was very strong for us we couldnt be happier with our results from the growth in revenue the extreme growth in profitability and EBITDA So for us.
I couldn't see anything better than what we've done and we're very happy with it.
Okay, I'll ask one more before I hand, it back to our staff.
Some of the categories you did mention that you're counting on for growth.
As video game toys, Disney Princess role play Black and Decker redo.
And now Trampolines and licensed Skateboards those are all categories that I think have done very very well.
Owing to the pandemic, great video games and role play.
And outdoor especially so.
How much are you counting on kind of the pandemic trends that we saw in 2020 continuing into 2021.
So what we the trends I think will still occur right now for the first half just based off of what occurred at retail and what we're seeing in.
On the.
The benefits of it seems to a lot of the people in the U S.
But from what we've seen we've had at Nintendo is getting additional of Sonic of both getting the additional distribution more than what we've had black and decker. The same. So it's one is we're getting additional increased distribution through some of the specialty trades in dollar trades and even out of our mass retailer of Theyre, making a larger footprint in some of our <unk>.
So that part we see growth through distribution of more consumers of customers that will be purchasing. It then when you have the the Trampolines and you have the skateboards, we're not looking for material growth to have.
The skateboard line, you'll go from zero to 100 million, but we're looking at continued growth in distribution in these areas. So they become an evergreen category for us that becomes just our basic business and all we need to do then is the filter.
Filter out the correct licenses that are appropriate in these categories.
And put those on to the categories in which we see that are appropriate for the age gated that license and that's where it's the expansion on the real growth Youll see it through we have a lot of new licenses, we've been condo right right.
It's a great property that will continue there's a lot of new things that are occurring in the first one of the first quarter, we haven't come out with a lot of news, but we see a lot of new areas with just new launches. So we of new Daniel the Tiger products, we of her bow, which is of property. It's the worldwide global toy brand we have.
Very confidential on trend grow product line that will be launching in fall. We are <unk> and then you go right back into our basic business Disney Evergreen is our favorite category, which we've grown from style collection and Disney Princess the growing so we see we're hitting on all cylinders and with a lot of excitement for it is.
Some new categories of properties that will come our way.
Okay, Okay great.
The exit and jump back in line. Thank you. Thank you Derrick.
Thank you.
I'm not showing any further questions I would now like to turn the call back over to Stephen for closing remarks.
We do have a follow up from Derek Johnson Okay.
Uh huh.
I hit Star one.
Nice to hear from you again, Gary Yeah, it's quicker quicker on the store on their.
Hey input costs is one thing you briefly touched on about input logistics kind of creeping up towards the end from.
Remember the last time, we spoke you were pretty confident that.
You'd be able to hold margin and input costs weren't going to be an issue.
Q can you revisit that for me how are you thinking about input costs now.
Are you pretty much locked in with your manufacturers or could there be some.
Inflation that could hurt that gross margin going forward.
That's a great question, so with regards to input costs right now we have selective areas that we've been working with our manufacturers. These factories of worked with us.
Decades, and decades of given some of them even longer from our THQ time. So a lot of these manufacturers, where they've seen increases whether it's where the resin the metals and so on where those increases of occur. We will then at the same time worked with them in certain areas of it doesn't go across the board back on our Halloween cut and sew in certain other areas and plus we will then work with our retailers.
As we've had and selectively increased prices, where we have those price increases will not be increasing prices just to increase it.
Across the board, it's not necessary, but in order for us to hold our margins and increase our margins appropriately and work and we need to work with our manufacturers and retailers. So we've been doing that early on to any of the areas that we see that a good example of a ride on our table and chairs those are actual increased cost and we'll just we're not look.
The increase the margin from that will work and do work of the factories and the retailers to make sure we of the appropriate retail price points, but we're actually trying to allow the retailers to keep their margins JAKKS to keep their margins and the manufacturers.
Okay, So you're still pretty confident that you can.
Hold gross maintain or grow maintain or grow margin, yes, we are.
Okay Alright.
Uh huh.
I'll, let you go thank you alright, thank you Jack.
Thank you.
Im showing no further questions from the queue I would now like to turn the call back over to Stephen for closing remarks.
Everybody. Thank you very much of the call today, we're excited about the quarter. We're excited about this year and we're also looking at 2022, because we have a lot of new initiatives and a lot of things.
Within our wing so appreciate that and thank you very much.
Ladies and gentlemen that concludes the conference.
Thank you for your participation you may now disconnect.
And the energy.
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