Stephen G. Berman - Co-Founder, Chief Executive Officer, President, Secretary and Director Joel M. Bennett - Chief Financial Officer, Principal Accounting Officer and Executive Vice President.

Stephanie Schiller Wissink - Piper Jaffray Companies, Research Division Sean P. McGowan - Needham & Company, LLC, Research Division Linda Bolton-Weiser - B. Riley Caris, Research Division Gerrick L. Johnson - BMO Capital Markets Canada Edward M. Woo - Ascendiant Capital Markets LLC, Research Division Andrew E.

Crum - Stifel, Nicolaus & Company, Incorporated, Research Division Scott W. Hamann - KeyBanc Capital Markets Inc., Research Division.

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 will 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 Security laws.

These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risk 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 will like to turn the call over to Mr. Berman..

our new Frozen Snow Glow Elsa doll and Light Up Musical dresses, large scale figures such as Star Wars and Nintendo plush figures.

Our core business remained strong with the performance of our foot-to-floor ride-ons in our Pre-School division, our proprietary animal babies plush, and DreamPlay, My Workplace sets 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 the 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 a launch of our Max Tow Truck app and new updates to our miWorld app to include new licenses and in-app purchases. Downloads for miWorld app have been healthy, and the majority of the ratings for the app are 5 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 line-ups, which will feature more of the biggest licenses in entertainment as well as unique innovative products.

Now I'd 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.

And 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 Toys segment increased to $175.6 million in the third quarter of 2014 compared to $154 million in 2013. And 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 market. Gross margin for the third quarter of 2014 and 2013 was 27.1% and 29.4% of net sales, respectively.

And 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.

And 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 in 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 coop 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 earn-out 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 U.S. and Hong Kong into these.

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 DSOs 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.

And with that, I will 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, Sofia 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 toy 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 #1 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 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 who 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 3 inch mini-toddler dolls and our Princess & 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 fashion 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 Sofia the First is still loading the #1 cable program slot with girls 2 to 5 years, and sales of our dresses and Role Play items and plush are healthy.

The new Sofia toddler doll launched this fall, and sales are promising so far, and we expect to have expanded distribution in spring 2015. We have strong retail promotional support planned for our Sofia line with programs across our Top 4 accounts for fall, including TV support.

Our Sofia the First Talking Magical Amulet was named one of Parents Magazine 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 play sets as well as Funnoodle game and in-app purchases.

We have had solid numbers of downloads since the launch of the new licenses and the majority of the review ratings have been 5 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 U.S. 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 U.S. 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 waves 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 U.S.

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 at a 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"Us hot toy list and was chosen by both Parents Magazine and FamilyFun 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.

It's a free app with 20 levels of fun, in addition to the fun game play, there's 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 game play and in-app purchases. Now turning to Pre-School. 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 license 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 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 are 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 the North America 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, including the boys action category, Nintendo, with 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 U.K.

office and business is strong and continues to post strong results year-over-year. Toys"R"Us U.K. names Snow Glow Elsa as the #1 hottest toy of the year. And U.K. retailer, Argos, included it in its Top 10 toys of the year. NPD shows JAKKS U.K. business climbing 45% while the industry rose 7%.

We continue to grow in the 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 cost to ensure 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] Our first question comes from Steph Wissink from Piper Jaffray..

So 2 questions for you. One just with respect to the commitments that you've 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? And 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 again the D&A is coming down year-over-year. Help us appreciate what's happening in that line item specifically..

Sure. I'll answer that one first. A big chunk of that is basically the bleed off of acquisitions. The amortization of acquisition cost over time. The amortization accelerates so as we get further past, some of the acquisitions, the last of which, was -- of any consequence was Maui in 2012, but that will continue over the next 4 or 5 years..

And then how about on the marketing plans, guys?.

So the marketing plans, let's start with 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 of retailers, today, in fact, and last week had to pull a big fig of Ninja Turtles due to demand, and sell-throughs exceeded what our manufacturing capabilities were on the side, and it also occurred with our Max Tow. So we're not just chasing Frozen.

We are chasing many other sides of our business, and so we have a very major strong TV plan in North America and in 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, and so those are ongoing.

They started early on, but they'll be heating up much more in November, 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's happening in our Boy section, as I just mentioned, both U.S. and in Europe..

Okay. Then just 2 more on financial clarifications. Joel, you mentioned that there was a benefit from the reversal of the Maui earn-out in the quarter.

How should we think about how that business is tracking relative to that earn-out agreement? And then with respect to gross margin, I think Joel, you also mentioned that there was some license minimum guarantee shortfalls. Just help us appreciate what on a license basis that you might be missing your minimum hurdles for.

How we should think about that over the next few quarters here?.

Sure. With regards to Maui, the earn-out targets were fairly aggressive. We generally structure our acquisitions with earn-outs to ensure that the principles are on board with seeing they're company's own growth. Last year, it was recognized in the fourth quarter, when it was later determined that they wouldn't achieve the earn-out.

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 our gross profit dollars, but the gross margin did go down slightly.

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

The next question comes from Sean McGowan from Needham & Company..

I also have a couple of questions.

Back on Steph's question on D&A, could you just repeat what it was in the quarter? I missed one when you were running through that, Joel?.

Figures it would be in the prepared portion. Let's go ahead and ask your other question. I'm just looking through the....

Okay. So yes, what you would expect the D&A to be for the full year? Maybe I'll shift then into another question. Stephen, if -- and I can appreciate that part of the strength of Frozen might be coming at the expense either of other Disney Princess products and maybe even other girls' toys outside of that.

If we we're 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. [indiscernible], yes..

And excluding Frozen and excluding Disney Princess, what 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, more so on the Boy segmentation of our business. And our big figure area and on Nintendo area, in our Max Tow area and MXS, we've exceeded our internal forecast.

And some of the demand is well over expectations in 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 Boy segmentation. Also, just to -- Disguise Princess business has done extremely well.

Even at the time that Frozen is growing, the Disguise, in general, Disney Princess business has done extremely well. We saw some erosion in certain categories, but not erosion in other categories..

And when you look at the fourth quarter, obviously, there's a tremendous increase in the guidance.

If you, again, if you were to X out the benefit of Frozen, which it's great to have that, but it 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. First, yes. Obviously, Frozen will be a part of the growth, but we are seeing a really much bigger demand than expected on Max Tow, our big figs, especially even our Teenage Ninja Mutant Turtle 48-inch fig. Nintendo has well exceeded our U.S. international expectation.

So yes, there is other areas in our segments that are growing, and we're actually seeing these areas that I'm talking about growing in the first quarter as sales are exceeding expectations of people who are booking first quarter numbers on -- separate the non-Frozen as well as Frozen..

Okay. And then back to you, Joel, on the gross margin commentary you set forth on the third quarter, what do you think we should expect for the fourth quarter? And the same kind of question for SG&A and overall -- all of the categories together.

What kind of year-on-year comparison do we think we'll see in gross margin in SG&A in the fourth quarter?.

Sure. Let me start with the question on arrears on depreciation and amortization. It was $8.6 million in the quarter. So full-year expected is $22.1 million. On gross margin going to fourth quarter based on the mix, we're 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's in part driving a lower EBITDA margin. But it is -- see -- it's still seeing the constraints of our previous reward, so it's mostly incremental bonus.

The fixed overhead, we've got the controls in place we're continually looking at. And actually, in effect, try to pay for those incremental costs with other cost savings, so it's a continual effort on our side..

Okay. And then the last thing I'll 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're almost exclusively nonlicensed..

Yes, that's what I thought, so....

Shortfall -- yes, there were 2 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?.

That's in the 180 basis points. Just breaking up into 2 chunks..

I thought you were saying 180 basis points was just pricing pressure on Disguise..

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

Our next question comes from Linda Bolton from B. Riley..

In terms of the other income item that was in the other $5.9 million pretax, I'm just a little concerned that, that creates kind of, like, looking forward a year from now. It creates a pretty hard comparison, like, next year, et cetera.

So if you look at an EBITDA run rate, I mean, is there going to be something else that's kind of special like that, that's 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's an other income item, and we have the same item last year, but it came in the fourth quarter when it was later determined that Maui would not achieve their earn-out. Basically, it's an adjustment to the earn-out liability. It's an interesting accounting rule, where we reversed it into income.

But operations does not get credit for it, and that is not included in EBITDA..

Okay. Great. So just -- so if I go back and look at the fourth quarter of 2013, I'll see some kind of other income item in there as well.

What was the amount that was in there?.

$6 million. And the difference in the amount is just the additional quarter of amortization, so 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 this $6 million, I'm sorry, that was income or expense in the fourth quarter of 2013?.

Income..

Okay, so then does that -- that creates a hard comparison then for fourth quarter 2014 because you won't have....

No, no, no. Only net income because they're both excluded from EBITDA and operating income..

So it does create a hard comparison?.

Here, it's a wash..

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

Correct..

The next question comes from Gerrick Johnson from BMO Capital Markets..

So I'm confused. I'm 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 a 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's no specific property that, that pertains to?.

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

Okay.

And 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 Tow, as 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 a digital download, but it has substantially increased. But if you'd like to call afterward, I could get the data.

We just don't have it in front of us..

Okay.

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

Extremely pleased. And actually, the sell throughs at retail, I think right now, we have 90% of the users around iOS. I'm reading just the data. 81% are return users who buy product, and I don't have the complete downloads yet. But it definitely has worked.

It's working with Max Tow, and again, we have new initiatives with the Selfie Booth, and we did a great launch that was just part of the DreamPlay consumer business with Procter & Gamble. So I just don't have the actual data that's 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. On the Procter & Gamble, it's more to get adoption that anything else. Procter & Gamble has had a great success with that. It's in 131 countries, but it's more to get the adoption of the DreamPlay and ID[ph] out in the consumers' hands..

Okay, then I'll just try and get one more in there.

Is there an income from the joint venture from the DreamPlay joint venture in your statement? Or what was the impact on the income statement?.

There's income from the physical product, and we have a royalty payment to the joint venture for the physical product that we sell to the network, JAKKS joint venture, so 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..

The next question comes from Ed Woo from Ascendiant Capital..

I had a question in terms just on housekeeping. Of the earnings guidance that you provided, the $0.64 to $0.67, I just want to make sure that, that includes all expense charges and dilutions and all the other stuff, and it's comparable to the $0.20, $0.30.

And 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?.

Yes, it does include. It's all in..

All right. It's all in.

And then what is the 9-month EBITDA so far?.

Yes. It's the -- and then in the -- well, the EBIT -- the -- you said that earnings per share guidance, that's all in. As part of 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'm getting that for you right now..

Sure. And while you guys are doing that, then just -- obviously, you're having a very strong quarter and year based on Frozen. But one question, and I think some people are asking is how much of a leg does it have? And how much of a driver can that be into next year? You mentioned that you're going to be chasing sales into the holidays.

How much do you think you're leaving off the table? And how much do you think you'll be able to capture that into the next year?.

One is we're chasing sales, but I wouldn't just say in Frozen, on several areas of our business, but I'll speak specifically with Frozen. We're 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 retail expectations are.

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

At the same time, we see a big dramatic expansion on Star Wars Episode 7 and a broad array of products that we have for Episode 7 and the expansion of our Nintendo line and Max Tow. So we're seeing actually a, 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'll be other capitalized items that are going to be in Ariel that our TV advertise. 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 walked through and planned with retailers in 2015, we don't see, today, a dramatic slowdown.

We're looking at bookings going into the first quarter, first half that are increased, but not just with Frozen, it's increased with our core Disney Princess. It's increased with our Nintendo, our Big figs, our Max Tow, our Moose Mountain.

There's 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. And then touching a little bit into the fourth quarter. It's obviously very close to the Thanksgiving holiday now.

How much of your sales have been booked? And is there any chance for you to give a chase sales? Or is it pretty much too late to do anything for this year given where we are right now?.

We're very strongly booked for the fourth quarter, and we'll be chasing sales daily as we see as -- today, we had one of our retailers that had to pull off the Big fig turtle due to the sell-throughs, and one day, the numbers were very healthy.

So what we'll be chasing across-the-board -- and again, that's going into fourth quarter and into next year. We also have a lot of new categories and licenses that we're launching in the next year that gives us even further momentum, and it's a lot of it will be some of the Marvel RC, and we presented it during Toy Fair.

So we have a really expanded line but very focused line going into '15. So while we're chasing in fourth quarter and building the first half, we have a very healthy portfolio of product going into '15, excluding and including Frozen..

Great. And Joel, if you have the EBITDA in a minute, that'll be great..

Yes. It was $41.2 million for the 9 months..

The next question comes from Drew Crum from Stifel..

So Stephen, you talked about growth for the international business in the fourth quarter. It 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 and specific international territories. But where we do have the appropriate licenses, it's pretty much equal or a little bit less. But it'll slightly lag the U.S.

But it will have a growth year-over-year in fourth quarter..

Got it. Okay. And then 2 housekeeping items for Joel.

Can you give us what you're 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 is 45 million. And right now, we're at approximately $88 million. Our fourth quarter is generally where we throw off tremendous amounts of cash, so we're expecting in the $140 million, $150 million range..

Okay. And then just 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're looking out a couple of years, but any impact to your business as you look ahead?.

So what we see -- and we work obviously really closely with Disney. We see, I think, actually, a better benefit to us because we'll be working with Hasbro that will be focusing on that line, and I think hopefully, we'll 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're going to focus on it like we do, but we see no impact at all. We see just a real benefit going forward..

The next question comes from Scott Hamann of KeyBanc Capital..

I don't want to beat the gross margin thing anymore, but just trying to understand sales guidance going up $90 million, and Joel said last quarter that he expects the gross margins to be north of 30% for the last 2 quarters, and I think we got to the third quarter issue there.

But thinking about those incremental sales and still thinking fourth quarter as kind of a 30% gross margin quarter, is -- I mean, what's driving that increase in $90 million of sales? I mean, is it mostly a lower margin product? And kind of how should we think about that mix moving into 2015? I mean, if it's Disney, what percentage of your business is that? And is that something that's going to structurally make these margins kind of in that same range moving into next year?.

We actually have higher expectations of Disguise into fourth quarter, so that's part of the equation into next year.

There's fewer headwinds in terms of minimum guarantees and where our certain product lines fall, so over the last couple of 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. So those headwinds are pretty much behind us..

So you would expect what level of gross margin expansion in the next 3 years?.

Correct..

What....

What would it be, he asked..

And where that -- oh, what it would be?.

Yes..

Oh. In the 31%, 32% in the short term, and where that's 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.

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

It would be actually a mix, which go from 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're 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 of extremely strong items and new items that we just recently developed, manufactured and produced as we mentioned, the Olaf Snow Cone Maker.

So it's coming from a broad array of segmentations for us. Our Kids Only tables and so on gear up for December shipment for spring. So if you're to come from a wide array of area, a lot of what we're 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 wasn't the total increase..

The next question comes from Steph Wissink of Piper Jaffray..

Just one final question here on the SG&A line. I think Joel, you've been doing a good job of managing that business in that kind of $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 costs, so we think we can keep it within that. There is some -- there will be some quarterly fluctuations depending on what you include in SG&A. If you're including direct selling in our fourth quarter, our media buys generally go up.

And in this particular year, because the earlier forecasts 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, so -- but next year, we'll give you a better color on how that spread will be by quarter since there won't be the old hockey stick..

The next question comes from Linda Bolton from B. Riley..

So 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. And then just kind of looking ahead.

I know it's 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've had 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?.

Well, firstly it's really too early for us to give you an outlook to '15, but all we can go through is we do expect from our previous meetings we've had over the last 6 weeks, expansion -- international expansion and the U.S. with many new licenses and areas that are over performing or over indexing in various segmentations are blazed.

Segmentation is having a great growth experience, and we'd see a lot more of that happening. We have a lot more licenses with Star Wars Episode 7. 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 '15, and it's tracking with the way that people are reviewing allocations and bookings, but it's really too early for us to give guidance. But we do see -- and I can give you only comments that we've heard from retailers, that they've never seen a better portfolio from JAKKS looking into 2015.

It was commented by several retailers both U.S. and internationally. So we do feel strong about that. Joel, if you'll answer the SG&A question.

Joel?.

What was your SG&A question?.

Just to get a feel on your....

Yes. The restructuring was framed to enable the company to continually develop the product and ship the product. So 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'd originally forecasted, so we're not looking to add. We've got capabilities in the technology area, in the basic toy area.

So we've got a pretty full crew, and again, don't expect to add overhead to achieve some of this upside..

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 have you in 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..