Stephen Berman - Chairman and Chief Executive Officer Joel Bennett - Executive Vice President and Chief Financial Officer.

Steph Wissink - Piper Jaffray Ed Woo - Ascendiant Capital Drew Crum - Stifel Linda Bolton Weiser - B. Riley.

Good morning and welcome to the JAKKS Pacific Fourth Quarter and Full Year 2015 Earnings Conference Call with management who will review financial results for the quarter ending December 31, 2015. JAKKS issued its earnings release earlier this morning.

Presentation slides containing information covered in both today's earnings release and call are available on our website in the Investor 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 and full year as well as provide highlights of product lines and business trends prior to opening the call for questions. Your line will be placed on mute for the first portion of the call.

[Operator Instructions] Before we begin, the company would like to point out that any comments made about JAKKS Pacific's future performance, events or circumstances, including the estimates of sales and earnings per share for 2016, as well as any other forward-looking statements concerning 2016 and beyond, are subject to Safe Harbor Protection under Federal Security laws.

These statements reflect the company's best judgment based on the current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward-looking statements.

For details concerning these and other such risks and uncertainties you should consult JAKKS' most recent 10-K and 10-Q filings with the SEC as well as the company's other reports subsequently filed with the SEC from time to time. With that, I would now like to turn the call over to Joel Bennett..

Good morning everyone and thank you for joining us today. We are very pleased with how the year turned out, which is in line with the roadmap we set for the future with continued margin expansion and sales growth for 2016 and beyond.

Consistent with our guidance, net sales for the 2015 full year was $745.7 million, compared to $810.1 million in 2014, which benefited from the Frozen Frenzy. Reported net income for 2015 was $23.3 million or $0.71 per diluted share. This compares to net income for 2014 of $21.5 million or $0.70 per diluted share.

Adjusted EBITDA for 2015 was $50.5 million, compared to $52.9 million in 2014. Negatively impacting the 2015 EBITDA was increased product development of $2 million on tooling-intensive product lines launched in limited release in 2015, but will be in full distribution in 2016.

Minimum guarantee short falls of $2 million on several licenses that we did not renew, and $2 million lower than expected stock-based compensation offset by cash bonuses. Net sales for the fourth quarter of 2015 were $163.4 million, compared to $254 million reported in the comparable period in 2014, which again benefited from the Frozen Frenzy.

The reported net loss for the fourth quarter was $9.3 million or $0.50 per diluted share. This compares to reported net income for 2014 of $2.8 million or $0.11 per diluted share. Worldwide sales of products in our traditional toys and electronics segment were $98 million for the fourth quarter of 2015, compared to $139.4 million in 2014.

For the full year, traditional toy sales were $431 million, versus $397.2 million for 2014. Sales in this segment in Q4 were led by Disney Frozen Toddler dolls, Nintendo plush toys and Star Wars' figures.

Worldwide sales from our role-play, novelty, and seasonal toys segment were $65.4 million in the fourth quarter of 2015, compared to $114.7 million in 2014. And sales for role-play, novelty, and seasonal toys for the full year were $314.7 million, compared to $412.9 million in 2014.

Disney Princess dress-up and role-play including Frozen and Tsum Tsum Collectible figures dominated sales in the category this quarter although down year-over-year given the tough comp with the strength of Frozen and Marvel brands in 2014.

Included in the category numbers are international sales of approximately $38 million for the fourth quarter of 2015, compared to $49.4 million in 2014. International sales for the full year 2015 and 2014 were $203.6 million and $156.6 million respectively.

Disney Frozen and Princess dolls, Nintendo, and Slugterra products drove the increases in 2015 sales in the international market. Gross margin for the fourth quarter of 2015 and 2014 were 30.3% and 31.4% of net sales respectively. And gross margin for the full year 2015 was 30.6% of net sales, compared to 29.1% of net sales in 2014.

The increase in gross margin in 2015 is due in part to better product costing, which includes cost reducing legacy products, better costing on new products, and achieving more beneficial price points on a broad array of items in certain categories. Offset in part by one-time minimum guarantee short falls on certain licenses we chose not to renew.

SG&A expenses in the fourth quarter of 2015 were $56.9 million or 34.8% of net sales as compared to $72.4 million or 28.5% of net sales in 2014. SG&A for the full year of 2015 was $198.5 million or 26.6% of net sales, compared to $203.3 million or 25.1% of net sales in 2014.

This decrease in SG&A dollars in the 2015 period is due to lower sales and operating efficiencies in 2015.

Offset in part by $2 million more in product development costs associated with tooling intensive product lines released in late 2015, but that will be rolled out and in full distribution in 2016 and the increase of SG&A as a percentage of net sales is due to the fixed nature of certain components of overhead and increased product development costs coupled with the lower sales in 2015.

Consistent with the seasonality of our business and on lower sales, operations provided cash of $53.2 million for the fourth quarter of 2015, compared to providing cash of $26.1 million in 2014. As of December 31, 2015, the company's working capital was $252.2 million, including cash and equivalents of approximately $102.5 million.

Depreciation and amortization was approximately $4.6 million in the fourth quarter of 2015, compared to $2.8 million in 2014. Capital expenditures were $2.7 million for the fourth quarter of 2015, compared to $1.7 million for the fourth quarter of 2014.

For the full year, capital expenditures were in line with expectations at $15 million in 2015, compared to $10.5 million in 2014. Our effective tax rate for the fourth quarter was negative 3.4% and was 12.9% for the full year 2015.

Accounts receivable as of December 31, 2015 were $163.4 million, down year-over-year from the $234.5 million in 2014 due to the higher sales in 2014. DSOs in 2015 were 90 days, an increase of 7 days from the 83 days in 2014.

Declining as expected, inventory as of December 31, 2015 was $60.5 million, compared to $78.8 million in 2014 due to the selloff of domestic inventories brought in 2014 to meet demand in 2015. In 2015, DSIs were 63 days up from 52 days in 2014 due in part to the decline in Q4 sales in 2015.

Under the current authorization to repurchase up to $30 million worth of the company's outstanding common stock and/or convertible notes, approximately 1,000,547 shares of common stock were repurchased through the end of the fourth quarter at an aggregate cost of $13.2 million.

Since January 1, 2016, we acquired an additional 192,000 shares for approximately $1.5 million bringing the total to 1,739,000 shares as well as $2 million of our 2020 convertible notes for $1,940,000. This leaves $13.4 million remaining to be purchased. For 2016 guidance, we are currently forecasting net sales to increase approximately 7%.

Diluted earnings per share to increase approximately 10% and adjusted EBITDA to increase approximately 29%. This guidance reflects anticipated gross margin expansion and operating leverage offset in part by higher marketing costs resulting in overall operating margin growth in 2016. Our effective tax rate for 2016 is expected to be approximately 15%.

Reflected in this forecast is net sales for the first quarter anticipated to be in the range of $95 million to $100 million with a net loss in the range of $0.90 to $1 per diluted share due in part to increased marketing expenses in 2016, including the shift caused by Easter falling in Q1 2016 as opposed to in Q2 in 2015.

Now I will turn the call over to Stephen Berman..

Through the Looking Glass premiering in theaters this summer as well as a line of costumes designed by our Disguise division.

For older girls, we launched Star Darling in the fourth quarter at 800 plus Justice stores and on disneystore.com both sold through cleanly and we have full support by all major retailers on our fashion dolls accessories and playsets in 2016.

In addition in 2016, Disney will launch new chapter books, music videos, and apps, short form animation as well as two 30-minute episodes for the Disney channel. One of the most exciting lines for JAKKS looking into 2016 is called Tsum Tsum. This past December, we launched Tsum Tsum at Target.

The stackable collectable figures are already proving to be a big hit with the tween audience and we are now shipping broadly creating additional awareness among tweens, [indiscernible] and heavy rotation on Disney channel which features our stylized characters.

This year, we will launch over 150-plus Disney Tsum Tsum characters and coming this summer, we will also introduce a marvel Tsum Tsum line. With the deep and rich portfolio of characters across the Marvel and Disney library, the possibilities for collectible characters are limitless. Our Disguise division exceeded our expectation this year.

Two properties stand out for this reason, Halo based on the popular video game from Microsoft and Disney Descendants. Both were in high demand and had excellent sell through at retail. In 2016, we are extremely excited for our global launch of the first official LEGO licensed costumes for Halloween and everyday role-play.

The new line will consist of two of their hottest brands, Ninjago, LEGO’s established and highly rated boys property which is in its sixth season on Cartoon Network as well as a huge seller in the video game arena.

And Nexo Knights, LEGO’s latest blockbuster which debuted last month on Cartoon Network and is expected to follow the same path as Ninjago. We are also excited for our launch of the Shopkins license Halloween costumes for this Halloween season.

Lastly, on Disguise, Disguise recently signed a new licensing deal with Universal for the Secret life of Pets. The movie is slated for this coming summer. On our seasonal business, our seasonal business turned in another strong performance this year.

We have now fully integrated Maui, Kids Only! and Moose Mountain into a more cohesive business unit that is better poised to create a more robust seasonal division comprised of leading brand in their respective categories.

On the international front, we have been increasing our international presence year-over-year which continues to grow through expansion in new territories and emerging markets, while also growing in many of the mature markets in which we currently do business.

Our new offices in Mexico and Germany have opened us up to new customers could not previously import our goods. We also remained focus on growing and expanding in Asia and other markets in Europe having recently made key hires in Asia. In addition, we have plans to open up a new office in Italy sometime in the first half of 2016.

On the heels of Hong Kong, Nuremberg and New York toys fairs, I am encouraged by the reaction we received from retail partners worldwide praising our innovation in this year's line. I am confident in 2016 due to the momentum we are seeing across the entire portfolio and I am enthusiastic about our exciting possibilities in 2017 and beyond.

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And from Piper Jaffray, we have Steph Wissink on the line. Please go ahead..

Thank you. Good morning everyone. Stephen, I have a bigger picture question for you. Just as an observation, it looks like over the last three years or so, you’ve had a nearly $100 million swing in your EBITDA. I'm just curious even with the step-up in marketing investment in 2016, you’re still looking for nice EBITDA growth.

Can you talk a little bit about the operational efficiency you are seeing in the business and then any other levers in the model that you see to pull to either drive upside to that sales number or even further EBITDA expansion? Thank you..

Thank you, Steph. As everyone know, it has been about three years from what I think you just mentioned approximately three years of about $100 million swing to the positive of EBITDA from 2013. A lot of which is, we streamlined the efficiencies of our company.

We completely tightened up the expense structure and we have a real SG&A structure that is in line for our business, and our business allows us with the divisional breakout in categories to really expand with licenses and the categories in which we lead.

So we don't need to add more overhead while we are expanding growth in revenue, EBITDA and profitability. So, margin expansion has been something that we’ve been focusing on for over two years.

So what we’ve also done is our legacy items that we’ve had in our line it is very hard to increase prices, so we reduced cost by re-evaluating each of the new areas of businesses or past areas of businesses and we also increased margin by introducing a lot of new products in each of these categories of business.

For example with Frozen of Snow Glow Elsa, this year’s new Frozen item which is probably the best of the three dolls that we’ve made. We have been able to increase our margins and also keeping our overhead down and it goes across all divisions and our international division..

That’s really helpful Stephen. And then just on the financials, Joel if you could talk a little bit about the Easter shift. I know that is always a timing issue that we see between Q1 and Q2.

So should we assume the increase in marketing spend in Q1 is offset by decrease in Q2 or the offsetting would be in Q2?.

Actually there is a couple of things that are moving on specifically related to that season. Yes, there was a discrete shift from Q2 to Q1. However with all the initiatives that we have, we have certain other marketing requirements. So it would be less but not proportionately less. So overall the marketing expenses is expected to be up year-over-year..

Okay. Thanks. And then just a final one for us, related to international, I think Stephen you talked a little bit about previously you’d like to see the increase as a percentage of total sales.

Can you just help us index that measure where it is today and where you think it can go overtime as a percentage of your total revenue?.

So first, it’s a great question and it’s also one of our biggest efforts. Yes, I think our two areas of businesses that we don't primarily focus on internationally, one which would be our Halloween business because it is carnival, it is different names in different territories and our pet business.

So if you exclude that from the total number, international should grow within the next three years to about 45% of our business.

We have opened up many territories, a couple more to be announced later this year, the major of our licenses that we are achieving such as what you see LEGO, we have the worldwide rights, our Sophia massive toy license, Warcraft, Nintendo.

Over the last two years, we’ve had more licenses on an international basis than we ever had before, plus we are doing a lot of our own IP internationally. So the international segment of our business is growing dramatically from the offices opening, continued content, and many more licenses that are worldwide..

Thank you. .

From Ascendiant Capital, we have Ed Woo on the line. Please go ahead. .

Thanks for taking my question. I had a kind of an overview question, what are you seeing out there in the retail environment, it looks like last year obviously the toy retailers did well with Star Wars big properties.

What are they seeing, you know, right now maybe heading into this upcoming holiday?.

Well, I’d say over the last five years, prior to the last year, it wasn't really a good kids consumer product period of time or toy period of time. Last year, 2014 we came off of a great year. Last year for the toy industry for overall was a terrific year.

And going forward for the next three years as we see it, toys are becoming more prominent at all retail environments. All retail channels, chains, so we are – it’s extremely strong worldwide, but you also have to have the right product in the right categories that work.

So, since we are in all these areas of broad segmentation from preschool that put in Florid, to dolls to Halloween, to boys, we’re really spread out to really have a great 2016 and 2017. We have seen it. I think you’ve seen it in our guidance this year of - we approximately believe we will do about 7% growth in 2016.

Approximately 10% growth in EPS in 2016 and approximately 28% growth in EBITDA and that is from the strength of JAKKS, as well as I believe the strength of retail industry. .

Great.

And are you seeing any big difference between either international retail versus domestic and particularly, you know, in Europe?.

Actually, we see growth overall in both North America and international.

There are different things that occur internationally, which if you used in Russia the ruble or the Brazilian currency there is different fluctuations and we have to leverage the way we manufacture or the way we bring components into certain territories that allow consumers to get a lesser price product due to their currencies, but overall I would say the toy market or kids consumer market worldwide is extremely strong.

.

Great. Well thank you and good luck. .

Thank you. .

From Stifel, we have Drew Crum on the line. Please go ahead..

Okay, thanks, good morning, everyone..

Good morning, Drew. .

Stephen, can you remind us what changes with the Tsum Tsum property from 2015 to 2016? You alluded to it in the prepared remarks, but just remind us what changes in terms of distribution, what markets are picking up? And can you tell us if there is anything in the works with respect to Star Wars?.

So Tsum Tsum we launched with one major retailer at December 2015. And we launched it through Target. And that was the first launch of having a broad array of product from single packs, three packs, nine packs and that was the initial launch. It’s in full broad distribution starting January of this year.

And Tsum Tsum we have a dramatic amount of new characters, I think well over 150 going into the market this year, as well as we have the Marvel Tsum Tsum characters coming out, which are I think Marvel has I believe it’s probably 8,000 characters. I forgot what they mentioned. Over 8,000 characters.

It is a very detailed line, it is extremely collectible, it is very tooling intensive. We have collector cases for different retailers, we have exclusives. We are expecting a lot of big initiatives going forward throughout North America and we do believe we will be getting parts of Europe later in the year.

We have incredible support from a broad array of retailers from the mass to the drug trade to the dollar trade. And the sell-throughs to date are extremely strong. So, it’s something that I think has really strong legs. It’s something that’s very exciting for not just us, but it is also exciting for Disney itself..

Okay.

Do you have any comment on Star Wars? Is that part of the lineup for 2016 as it relates to Tsum Tsum?.

Right now, we are in no conversations with Star Wars for Tsum Tsum. We do have a broad array of Star Wars product, 20-inch, 30-inch, 48-inch for Rogue One and a continuation of Star Wars, but on Tsum Tsum, there has been no conversations for Star Wars yet..

Okay. Fair enough. And then on Disney Princess, you know, sounds like you guys have a number of initiatives planned for 2016.

As you lap Frozen at least in the first half of last year do you expect Disney Princess business to be up in 2016 versus last year?.

Well, Disney Princess which is really exciting for us. What Disney is doing is they are doing, it’s called the dream big princess campaign, which launches in 2016 and it will evolve the franchise and really empower growth. It has broad enterprise and acceptance widespread through the parks and channels.

The numbers of 11 movies combined over the last 16 years. So, Disney is putting a huge focus into the princess category and we’re seeing growth in areas. And also new launches such as our Little Kingdom makeup and color of Ariel sea product lines and then if you take Frozen, Frozen itself we had a tremendous year in 2014.

I would say a phenomenal year in 2015. What’s amazing with Frozen right now, the sell-throughs and the, it seems there is a regeneration of excitement around the globe. You know, we have two new major items. The first of the five new animated shorts magic of northern lights will release in August 2016. There will be a new one to follow each month.

And there will be I think five combined will air as a 30-minute special on the Disney channel in the latter half of this year. So even without that support, which Disney has supported very big and it’s going on broadway as well, we’re seeing the resurgence of Frozen this year.

So it did really amazing in 2014, it did great in 2015 and it looks like now we are back on an uptick with Frozen..

Okay. Got it. .

Still actually is going to be one of our number one lines in international this year. .

Okay. Last question from us.

Joel, can you give us any guidance around your free cash flow for 2016?.

2015 tore 2016?.

Well if you have the actual number for 2015 and then any guidance you can provide for 2016 would be great. .

Yeah for 2016, we’re looking at about $38 million, $39 million. Again, off of EBITDA growth of 27%. I'm sorry, 28%. And just to note on that the EBITDA margin is almost doubled since 2011 based in part on a lot of the initiatives and actions that we’ve taken that Stephen previously mentioned. .

Okay, thanks, guys. .

Thank you. .

From B. Riley, we have Linda Bolton Weiser on line. Please go ahead. .

Hi..

Good morning, Linda. .

Hi. So, even though your sales were down in the fourth quarter as expected because of the frozen comp, you actually I think had a lot for Christmas on 2015, especially the Hulk Avenger RC item and several other things.

So, are you pretty confident that what you’ve got lined up for Christmas for 2016 is enough to produce growth because you’ve got a hockey stick situation where your growth, it looks like you have to accelerate as the year progresses.

Because you have got easier comps in the second half and you have still got Frozen strength in first quarter 2015 that you are up against. So you’ve got to have strengthening as the year progresses. So, how do you feel that what you are offering for Christmas 2016 is strong, if not stronger than Christmas 2015? Thanks..

So Linda, this is Stephen. We have met from October Toy Fair to Hong Kong Toy Fair which was in January, the Nurnberg, as recently as New York. We have more brands than what we have had in the past.

We have some extremely exciting product lines, licenses and categories from one of which is Mijuana, which I believe will be one of Disney's strongest movies they’ve had for this year in the girl category, it is exciting. The support that we are getting abroad in retail is tremendous.

As I said, Tsum Tsum, we have Warcraft, we have Batman versus Superman, which is March 25, Captain America, Alice in Wonderland, these are all, Teenage Ninja Mutant Turtles which is going to be huge this year and we have an amazing RC, Finding Dora, Smurfs, Ninja Go.

We have the first official Lego license costume globally, we have Blaze, which is a great animated series on Nickelodeon. I think the lineup of new combined with the growth of our consistent and past product lines us up for a great year.

I don't think we would have come out with the guidance that we did unless we felt strength from what we have seen worldwide of the receptiveness and the exclusives that we are doing across the boards. We feel extremely confident in this year. That’s why we gave the guidance to which we did. And we have seen it with our retailers.

We are really excited for 2016 and beyond and we have a very broad lineup and we have a very great basic line. We still have our 20-inch figures across the board. We have a great Halloween business. A lot of new Halloween business.

Our seasonal, our [indiscernible] category, our kids furniture, our rideons, our games, it’s really - it's going to be an exciting year. .

Do your turtles products ship in the second quarter?.

Our turtles product will start shipping in second, third, and fourth. So we have it’s in different categories. The movie is June 3, so we are shipping, we have as you saw the Hulk Smash, which was an amazing RC, this year.

We have probably one of the best RCs that you will see in the market coming out this call it summer and then very big in fall and we also have the license and other categories such as I believe fall pits and rideons and 48-inch figures. So, there is different times that different categories are shipping..

Right. And then just did you have an EBITDA guidance number for the first quarter? Because I know that tax rate is sometimes a little hard to project by quarter.

Did you have EBITDA expectations?.

Yeah, negative $9 million..

Okay. Okay guys, that’s all from me. Thank you very much..

Thank you. .

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect..