JAKKS Pacific - Earnings Call - Q3 2014
October 23, 2014
Transcript
Speaker 0
Good morning, ladies and gentlemen. Thank you for joining the JAKKS Pacific Third Quarter twenty fourteen Earnings Call with Management. Today, Dax will review the results for the third quarter ended September 3034, 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. Bourbon 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.
Your line will be placed on mute for the first portion of the call. 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 estimate of sales and earnings per share for 2014, as well as any other forward looking statements concerning 2014 and beyond are subject for Safe Harbor protection under federal securities laws. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward looking statements. For details concerning these and other such risks and uncertainties, you should consult JAKKS' most recent 10 ks and 10 Q filings with the SEC as well as the company's other reports subsequently filed with the SEC from time to time. With that, I would like to turn the call over to Mr.
Berman.
Speaker 1
Good morning, everyone, and thank you for joining us today. We are extremely pleased with our performance in third quarter with sales and earnings both exceeding our expectations, resulting in our increased guidance for 2014. We have a strong lineup of toys for this holiday season featuring the best in entertainment licenses and innovative technology. Many of our products are included on various retailer, toy industry expert and parent media must have toy list for the holiday season. Some of our top performing product lines this quarter based on the hottest licenses include our new Frozen Snow Glow Elsa Doll and light up musical dresses, large scale figures such as Star Wars and Nintendo Plush and Figures.
Our core business remains strong with the performance of our foot to floor ride ons in our preschool division, our proprietary Animal Babies plush and Dreamplay My World playsets in girls and disguise Halloween costumes in seasonal just to name a few. We credit much of the success of our quarter due to our design and sales teams. We have some of the best in class product through an extremely wide array of categories in addition to our deep penetration of product distribution both in North America through a diverse customer base as well as our expanded international distribution. All have done a terrific job growing our business. We have more offerings in alternative channels this quarter from GameStop to Justice Stores and Amazon to QVC allowing consumers to find our products at many of their favorite retail destinations.
Our international business continues to grow as well. Sales are up year over year for the third quarter and expect more growth in the fourth quarter. New rollouts in our Dreamplay line of technology driven toys in third quarter included the launch of our Max Tow Truck app and new updates to our MyWorld app to include new licenses and in app purchases. Downloads for our MyWorld app have been healthy and the majority of the ratings for the app are five stars. We recently completed our twenty fifteen fall toy preview meeting and are pleased with the enthusiastic response from retailers, licensors and other industry partners to our extremely broad and focused twenty fifteen product lineups, 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 twenty fourteen
Speaker 2
and and then I will give
a further update of our business this year and beyond. Joel? Thank you, Stephen, good morning, everyone. Net sales for the third quarter of twenty fourteen increased to $349,400,000 up 12% from net sales of $310,900,000 reported in the comparable period in 2013. Reported net income for the third quarter was $44,100,000 or $1.03 per diluted share.
This compares to reported net income for 2013 of $30,600,000 or $1.11 per diluted share. Net sales for the twenty fourteen nine month period also increased 12% to $556,000,000 compared to $495,200,000 in 2013. Reported net income for 2014 was $18,700,000 or $0.61 per diluted share. This compares to a net loss for the first nine months of 2013 of $37,800,000 or $1.73 per diluted share. Worldwide sales of products in our traditional toys and electronics segment increased to $173,800,000 for the third quarter of twenty fourteen compared to $156,900,000 for the third quarter in twenty thirteen.
And traditional toy sales increased to $259,000,000 for the first nine months of twenty fourteen versus $243,900,000 for the first nine months of twenty thirteen. 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 $175,600,000 in the third quarter of twenty fourteen compared to $154,000,000 in 2013. And sales for role play novelty and seasonal toys for the first nine months of 2014 increased to $297,000,000 from $251,300,000 in 2013. Disney Princess dress up and role play including Frozen and disguise Halloween costumes dominated sales in this category this quarter driving category to an overall increase.
Included in the category numbers are international sales of approximately $67,400,000 for the third quarter of twenty fourteen compared to $57,900,000 in 2013. International sales for the first nine months of 2014 and 2013 were $107,200,000 and $94,500,000 respectively. Disney Frozen and Princess Dolls, Nintendo and Selectera products drove the increases in 2014 sales in the international markets. Gross margin for the third quarter of twenty fourteen and 2013 was 27.129.4% of net sales respectively. And gross margin for the first nine months of twenty fourteen was 28.1% of net sales compared to 23.6% of net sales in the first nine 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 September period in 2014 is primarily due to license minimum guarantee shortfalls and inventory impairment charges taken in the second quarter of twenty thirteen offset in part by license minimum guarantee shortfalls and product mix shift including higher competitively priced Disguise sales in 2014. SG
Speaker 1
and
Speaker 2
A expenses in the third quarter of twenty fourteen were $50,900,000 or 14.6% of net sales as compared to $51,700,000 or 16.66% of net sales in 2013. SG and A for the first nine months of 2014 was $132,000,000 or 23.7% of net sales compared to $145,500,000 or 29.4% of net sales. This decrease in SG and 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 twenty thirteen in addition to higher sales in 2014, offset in part by higher media buys and co op advertising and Q2 restructuring charges of $1,200,000 in 2014. Consistent with the seasonality of our business and on higher sales, operations used cash of $69,000,000 for the third quarter of twenty fourteen compared to using cash of $49,800,000 in 2013. As of September 3034, the company's working capital was $246,000,000 including cash and equivalents and marketable securities of approximately $88,800,000 Depreciation and amortization was approximately $8,600,000 in the third quarter of twenty fourteen compared to $9,300,000 in 2013.
Capital expenditures were $1,800,000 for the third quarter twenty fourteen compared to $2,100,000 for the third quarter of twenty thirteen. For the full year, we expect capital expenditures now to be in the range of 11,000,000 to $12,000,000 In 2014, other income included a credit of $5,900,000 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 entities.
Accounts receivable as of September 3034 were $304,300,000 up from the $258,000,000 at the end of the third quarter of higher sales in 2014 resulting in DSOs in 2014 of seventy eight days, a modest increase of three days from the seventy five days in 2013. Inventory as of September 3034 was $87,800,000 up from $59,100,000 in the third quarter of twenty thirteen due to higher sales and continuing high demand for our products resulting in higher DSIs of forty days in 2014, up from thirty 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 $750,000,000 to $760,000,000 an increase from previously issued guidance of net sales in the range of $660,000,000 to $670,000,000 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 $0.02 0 to $0.30 per diluted share. And excluding the Q2 restructuring charge of $1,200,000 EBITDA is now expected to be in
Speaker 1
the range of 51,000,000 to $53,000,000 an increase from the previous EBITDA guidance in the range of 43,000,000 to $45,000,000 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 toys this fall will be the SnowGlow Elsa toddler doll, Frozen light up musical dresses and our Frozen dress assortment. The list of retailers and industry accolades for our Frozen product is strong. The Snow Glow Elsa is the number one toy at Amazon and was included on the Toys R Us Fabulous 15 Top Toy list and is currently one of the top toys at TRU each day. It was also selected at Walmart's Chosen by Kids program, one of 20 items across toys and will be on the cover of the Walmart toy catalog and an anchor item in Walmart's National Layaway TV campaign. In addition, the Target exclusive My Size Elsa Doll was chosen as Target's top toy by the retailer.
These are just a few of the accolades received. We expect Frozen to continue to drive significant sell through in fall with a wide variety of promotional vehicles in place to maximize the brand across all accounts. Even though customers flock to buy Frozen product, our core Disney Princess products products continue to sell well. While sales on some of the Disney core Princess brand is trending down in light of the Frozen craze, core items in the Princess line are healthy. Key items include dresses and accessories and three inches mini toddler dolls and our Princess and Me line of large premium dolls available at select retailers.
Core Princess toddler dolls are getting a brand new look later this year with new sculpts, new fashions and royal reflection eyes. We expect to see a nice boost to sales once these dolls hit shelf going into 2015. In addition, we expect core Disney business to gain momentum next year with the launch of the new Cinderella theatrical movie. In addition, we believe there will be continued strong demand with Frozen products into 2015 and beyond. Disney Ferries exceeded expectations in our third quarter fueled by the Pirate's Fairies DVD release earlier this year and our Pirate's Lost Gems Treasure Hunt promotion along with TV support should continue continue to drive sell through in the fall.
Ratings indicate that Sofia the First is still holding the number one cable program slot with girls two to five years and sales of our dresses and role play items in 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 twenty fifteen. We have strong retail promotional support planned for our Sofia line with programs across our top four accounts for fall, including TV support. Our Sofia the First Talking Magical Amulet was named one of Parents Magazine's Best Toys for 2014.
Turning to our non Disney girls business, My World DreamPlay products are now at all major accounts and beating retail expectations. Toys R Us has become a destination for My World with dedicated space and a feature in their big book in the fourth quarter. Walmart will also include My World in their holiday catalog and the line is now at target with strong initial sell throughs. Our MyWorld Mall app was updated with our new Skechers and Mrs. Field playsets as well as a fun new game and in app purchases.
We've had solid numbers of downloads since the launch of the new licenses and the majority of the review ratings have been five stars. Our proprietary Animal Babies line of collectible and cuddly plush baby animals have just launched at retail and are seeing promising early sell through both here internationally. TV is launching now, which should help 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 inches 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 adding new distribution, new licenses and a broad expanded line heading into 2015. Our 2015 line of big figs are expected to see strong growth worldwide.
Our new line of HERO PORTAL plug it in and 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 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 Family Fun Magazine as one of the best toys for 2014.
TV support will also be starting soon to help drive more awareness. The corresponding app launched on iOS and Android on August 1. It's a free app with 20 levels of fun. In addition to the fun gameplay, there is also a virtual Max Tow that you can take on the go with you anywhere. In the next few months, we will be adding additional levels of gameplay and in app purchases.
Now turning to preschool. Moose Mountain is a great example of the strength of our core business. We continue to flourish in the ride on category with approximately 45% market share in North America. Our licensed ride ons posted an increase in sales over last year's third quarter. These numbers are driven by everyday sales at Walmart, Toys R Us, Kmart, Target and Costco to name a few.
In our ball pit and wagon category, we continue to dominate retail with perennial programs at all major retailers as well as alternative and online channels. Within this category, our licensed kids' chairs, tables, activity trays, easels and step stools have factored into everyday programs at a wide array of retailers and online channels. As one of North America's leading costume manufacturers for over twenty five years, Disguise is posting another banner year of sales. Despite competition, Halloween is off to 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.
Disguised as the go to manufacturer for top licensors with a robust portfolio of the hottest children entertainment and pop culture licenses. Now I'd 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 included in the boys action category, Nintendo, which sales continue to exceed our international forecast along with strong contributions from Star Wars and Slugterra.
In Girls, Disney's top drivers were Princess Toddler Dolls and Role Play led by the Frozen license. Our U. K. Office and business is strong and continues to post strong results year over year. Toys R Us U.
K. Named Snow Go Elsa as the number one hottest toy of the year and U. K. Retailer Argos included it in its top 10 toys of the year. NPD shows Jack's U.
Percent. We continue to grow in other markets as well including Europe, The Middle East, Mexico, Latin America and Asia. We are looking forward to heading into this holiday season with contributions coming from a broad array of products. In conclusion, we are excited about continuing the momentum into 2015 and we remain disciplined with controlling our fixed costs to 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'll open it up to Q and A.
Speaker 0
Thank you. We will now begin the question and answer session. Our first question comes from Steph Wissink from Piper Jaffray.
Speaker 3
Hi. Good morning, everyone. Congrats guys on a nice quarter and nice job Stephen with all of those product names and some of them are tongue twisters.
Speaker 1
You, So
Speaker 3
two 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 and A in the quarter and year to date.
Can you just walk through that once again? I think the D and A is coming down year over year. Help us appreciate what's happening in that line item specifically.
Speaker 2
Sure. I'll answer that one first. A big chunk of that is basically the bleed off of acquisition the amortization of acquisition costs. Over time, the amortization accelerates. So as we get farther past some of the acquisitions, the last of which was of any consequence was Maui in 2012.
So that will continue over the next four, five years.
Speaker 3
And then how about on the marketing plans guys?
Speaker 1
So the marketing plans, let's start with both North America first. We have a broad array of products being marketed from Max Toe to Hero Portal to Nintendo to My World and array of frozen products more as the SnowGrill 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 the big fig of Ninja Turtles due to demand and sell throughs exceeded what our manufacturing capabilities were on this item and it also occurred with our Max Toast. So we're not just chasing Frozen, we're chasing many other sides of our business.
And so we have a very major strong TV plan in North America and then parts of Europe and Asia. And then we have a very strong plan with a bunch of different viral and social media campaigns with YouTube, on Facebook. And so those are ongoing. They started early on, but they will be heating up much more in November, December. 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 boys section as I just mentioned both U. S. And in Europe.
Speaker 3
Okay. Then just two more 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 earnout 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? Thanks.
Speaker 2
Sure. With regards to Maui, the earn out targets were fairly aggressive. We generally structure our acquisitions with earn outs to ensure that the principals are onboard with seeing their companies on growth. Last year 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 our 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 or year over year, which would have provided additional 30 basis points to the quarter.
So year on year accounting for those items, we would have done 29.2% versus the 29.4% in Q3 of last year.
Speaker 3
Okay. Thanks. That's great. Appreciate it guys. Good luck.
Speaker 1
Thank you.
Speaker 0
The next question comes from Sean MacGowan from Needham and Company.
Speaker 4
Hi, guys. Good morning. Good morning. I also have a couple of questions back on Steph's question on the D and A. Could you just repeat what it was in the quarter?
Missed when you were running through that Joel.
Speaker 2
Figures it would be in the prepared portion.
Speaker 1
Why don't you go ahead and ask
Speaker 2
your other question? I'm just looking through the
Speaker 1
Okay.
Speaker 4
So, yes, what you would expect the D and A to be for the full year? Maybe I'll shift then to another question. Stephen, if I can appreciate that part of the strength of Frozen might be coming at the expense either of other Disney Princess products or maybe even other girls toys outside of that. If we were to exclude all of Disney Princess, did you see a sales increase in the rest of the line in the quarter?
Speaker 1
That's a very good question. Excluding
Speaker 4
Frozen and excluding Disney Princess, was the rest of the lineup?
Speaker 1
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 voice segmentation of our business, In our big figure area, in our Nintendo area, in our Max Toe 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 MyWorld 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 voice segmentation.
Speaker 4
Okay. Thanks.
Speaker 1
Also just to Disguise Princess business has done extremely well even at the time that Frozen is growing. The Disguise general Disney Princess business has done extremely well. So you saw some erosion in certain categories, but not erosion in other categories.
Speaker 4
And when you look at the fourth quarter, obviously, it's a tremendous increase in the guidance. If you again, you were to ex out the benefit of Frozen, which it's great to have that, but just looking at the rest of the line, would you expect non frozen products to be up in the fourth quarter versus last year?
Speaker 1
Yes. First, yes, obviously frozen will be a part of the growth, but we are seeing a really a much bigger demand than expected on Max Toe, our big figs, especially even our Teenage Mutant Turtle 48 inches fig. Nintendo has well exceeded our U. S. International expectations.
So yes, there's other areas in our segments that are growing and we're actually seeing these areas that I'm talking about growing into first quarter as sales are exceeding expectations that people are booking first quarter numbers on separate the non frozen as well as frozen.
Speaker 4
Okay. And then back to you Joel on gross margin commentary was helpful in the third quarter. What do you think we should expect for the fourth quarter? And the same kind of question for SG and A overall all those categories together. What kind of year on year comparison do we think we'll see in gross margin and SG and A in the fourth quarter?
Speaker 2
Sure. Let me start with the question in arrears. On depreciation and amortization, it was $8,600,000 in the quarter.
Speaker 4
Okay.
Speaker 2
The full year expected is $21,200,000
Speaker 4
Great. Thank you.
Speaker 2
Gross margin going into 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.
Speaker 4
And SG and A?
Speaker 2
SG and 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's still within the constraints of our previous reorg. So it's mostly incremental bonus. The fixed overhead, we've got controls in place we're continually looking at.
And actually in effect trying to pay for those incremental costs with other cost savings. So it's a continual effort on our side.
Speaker 4
Okay. Thanks. 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?
Speaker 2
No. It was across the portfolio. The Maui is primarily actually they're almost exclusively non licensed.
Speaker 4
Yes, that's what I thought.
Speaker 2
I yes, there were two different parts. It was 180 basis points on the MG and the Disguise pricing Right. And an additional 30 basis points just on variance in the Maui revenue.
Speaker 4
Then where is the license guarantee shortfalls coming?
Speaker 2
That's in the 180 basis points.
Speaker 4
Breaking up into two chunks. I thought you're saying the 180 basis point was just pricing pressure on Disguise.
Speaker 2
No, no, no, no. That's the aggregate of let's see if I were to let's see. Call it 60 basis points from MG and 120 basis from Disguise.
Speaker 4
Okay. All right. Thank you very much. Thank you.
Speaker 0
Thank you. Our next question comes from Linda Bolton from B. Riley. Please
Speaker 1
Hi. Good morning.
Speaker 5
Hi. In terms of the other income item that was in there the $5,900,000 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, etcetera. 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 $6,000,000 I would assume it does.
Speaker 2
No, it doesn't. Actually it's an other income item and we had the same item last year, but it came in the fourth quarter when it was later determined that Maui would not achieve their earn out. Basically it's an adjustment to the earn out liability. It's an interesting accounting rule where we reverse it into income, but operations does not get credit for it and it is not included in EBITDA.
Speaker 5
Okay. Great. So just so if I go back and look at the fourth quarter of twenty thirteen, I'll see some kind of other income item in there as well. And what was the amount that was in there?
Speaker 2
$6,000,000 And the difference in the amount is just the additional quarter of amortization. So it's recorded at a discounted amount. So since we wrote it off a little bit earlier, it wasn't fully the interest wasn't fully imputed. So
Speaker 5
this $6,000,000 I'm sorry, that was income or expense in the fourth quarter of twenty thirteen?
Speaker 1
Income.
Speaker 5
Okay. So then does that create that creates a hard comparison then for fourth quarter twenty fourteen because you won't have
Speaker 1
No, no.
Speaker 2
Only in net income because they're both excluded from EBITDA and operating income.
Speaker 5
It does create a hard comparison?
Speaker 2
Here it's a wash.
Speaker 5
Right. But for the fourth quarter, the net income comparison will be hard because
Speaker 2
of Correct.
Speaker 5
Okay. Got you. Okay. Thank you. Thank you.
That's all. Thanks.
Speaker 2
Thank you. Thank
Speaker 0
you. The next question comes from Gerrick Johnson from BMO Capital Markets.
Speaker 6
Hey, good morning. Hey, Gerrick. 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 an appropriate basis that you had to write down?
Speaker 2
It was across the portfolio and it was about $2,100,000 which was the 60 basis points that I mentioned in the last question.
Speaker 6
Right. But there's no specific property that that pertains to?
Speaker 2
It's across the board, but assume that a portion of it would be Disney.
Speaker 6
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?
Speaker 1
On the MaxToys, 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, do not have the current update of the MyWorld per physical unit to digital download, but it has substantially increased. But if you'd like to call afterward, I could get that data. We just don't have it in front of us.
Speaker 6
Okay. But in the end you're pleased with the attach rate so to speak of the app with the toys?
Speaker 1
Extremely pleased. Actually the sell throughs at retail, I think 50 right now we have 90% of the users are on iOS. I'm reading just some data. 81% are returned users who buy a product. And I don't have complete downloads yet, but it definitely has worked.
It's working with MaxToe. 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 and Gamble. So I just don't have the actual data that's in front of me to give you.
Speaker 6
Okay. Okay. That was going to be my next question. So are you seeing any stream of income yet from those other consumer products?
Speaker 1
No. On the Procter and Gamble, was more to get adoption than anything else. Procter and Gamble has had great success with that. It's in 131 countries. But it's more to get the adoption of the Dreamplay and ID out in the consumers' hands.
Speaker 6
Okay. I'll just try and get one more in there. Is there income from the joint venture from the Dreamplay joint venture in your statement or what was the impact on the income statement?
Speaker 1
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 Networks Jax joint venture. But we have higher royalties we have higher margins on the Dreamplay products, which enhance our margins, but there is a royalty attached to that to the joint venture.
Speaker 6
Okay, great. Thank you.
Speaker 0
The next question comes from Ed Woo from Ascendiant Capital.
Speaker 7
Yeah. Thank you. I had a question in terms of just a housekeeping. Of the earnings guidance that you provided $0.64 to $0.67 I just want to make sure that that includes all the special charges and dilutions and all the other stuff and it's comparable to the 0.2 to $0.30 And then also what is the nine month EBITDA number that you guys have so far for this year? The
Speaker 1
first question again? It broke up when you were asking.
Speaker 7
Sure. The earnings guidance of 64,000,000 to 67,000,000
Speaker 2
Yes. It does include. It's all in.
Speaker 7
All right. It's all in. Then what is the nine month EBITDA so far?
Speaker 2
Yes. And then in the well the EBIT you said the earnings per share guidance that's all in. As far as the EBITDA guidance that excludes the Q2 restructuring charge of $1,200,000
Speaker 7
My question was just what is the nine month EBITDA so far?
Speaker 2
I'm getting that for you right now.
Speaker 7
Sure. While you guys are doing that. Then just obviously you're having a very strong quarter and year based on Frozen. But one question I think some people are asking is how much leg does it have? And 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?
Speaker 1
One is, we're chasing sales I wouldn't just say on 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 retailers' expectations are. Going into 2015, the plans that we have, we've set our fall twenty fifteen International Toy Fair, we don't see much change of what the retailers are planning worldwide on Frozen. We do see an increase in our core Disney business.
At the same time, we see a big dramatic expansion on Star Wars Episode VII and a broad array of products that we have for Episode VII and the expansion of our Nintendo line and Max Toe. 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 will be other capitalized items that are going to be in Ariel that are TV advertised. We have a new Disney Cinderella movie, which I believe is in March or April.
And Disney has a huge, huge support line and focus for Frozen worldwide next year. So as we sit here today and what we've walked through and planned with retailer 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, Max Toe, 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.
Speaker 7
Great. And then touching a little bit into the fourth quarter, obviously very close to Thanksgiving holiday now. How much of your sales have been booked? And is there any chance for you to be able to chase sales? Or is it pretty much just too late to do anything for this year given where we are right now?
Speaker 1
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 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 into next year that gives us even further momentum and a lot of it will be some of the Marvel RC and we presented that during Toy Fair. So we have a really expanded line, but very focused line going into 2015. So while we're chasing in fourth quarter and building the first half, we have a very healthy portfolio of product going into 2015 excluding and including Frozen.
Speaker 7
Great. I guess, thank you and good luck. And Joel, you have the EBITDA number
Speaker 2
Yes. It was $41,200,000 for the nine months.
Speaker 7
Great. Thank you and good luck guys.
Speaker 2
All right. Thanks Ed. The
Speaker 0
next question comes from Drew Crum from Stifel.
Speaker 8
Okay. Thanks. Good morning, everyone.
Speaker 1
Good morning, Drew.
Speaker 8
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?
Speaker 1
I think it'll 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 will slightly lag The U. S. Okay.
Speaker 2
But it will have a
Speaker 1
growth year over year in fourth quarter.
Speaker 8
Got it. Okay. And then two 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?
Speaker 1
Let's see.
Speaker 2
Fourth quarter share count 45,000,000 And right now we're at 88 approximately 88,000,000. Our fourth quarter is generally where we throw off tremendous amounts of cash. So we're expecting in the 140,000,000 150,000,000 range.
Speaker 4
Okay.
Speaker 8
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?
Speaker 1
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 a Hasbro that will be focusing on that line. 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.
Thanks guys.
Speaker 0
The next question comes from Scott Hammond from KeyBanc Capital.
Speaker 9
Hey, thanks. Good morning, guys.
Speaker 1
Hi, Scott.
Speaker 4
I don't want to beat the
Speaker 9
gross margin thing anymore, but just trying to understand sales guidance going up $90,000,000 And Joel had said last quarter that he expected gross margins to be north of 30% for the last two quarters. And I think we got to the third quarter issue there. But thinking about those incremental sales and still thinking fourth quarter is kind of a 30% gross margin quarter is I mean what's driving that increase in $90,000,000 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, 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?
Speaker 2
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 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.
Speaker 9
So you would expect what level of gross margin expansion in the next few years?
Speaker 2
Correct. What would it be here? And where that what it would be? Yes. 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.
Speaker 9
Okay. And then if you were to look at that 90,000,000 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?
Speaker 1
It would be actually a mix. It would go from a core business which is the Moose Mountain, the foot to floor ride on areas which is a real broad array of licenses in the ride ons and ball pits. You're going into a big area, which actually has higher price points. So the big fig category for us are Max Toe, 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 it's going 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 Tote. Those really have taken off more than what we expected.
And at the same time, solid core business, the Moose, the Kids Only, our basic girl business is just very solid.
Speaker 9
So it's safe to say that Frozen didn't constitute a majority of that $90,000,000 increase?
Speaker 1
It was a nice portion of it, but it wasn't the total increase.
Speaker 9
Okay. Thanks.
Speaker 0
The next question comes from Steph Wieczak from Piper Jaffray.
Speaker 3
Hi, guys. Just one final question here on the SG and A line. I think Joel you've been doing a good job of managing that business in that kind of 28,000,000 to $29,000,000 zone. How should we think about the run rate on a quarterly basis for your SG and A?
Speaker 2
We're managing the business with the current level of cost. 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 and 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.
Speaker 3
Okay. So your guidance does include hitting those bonus thresholds in the fourth quarter? Yes.
Speaker 2
But in next year, we'll give you better color on how that spread will be by quarter it won't be old hockey stick.
Speaker 3
Thank you very much.
Speaker 0
The next question comes from Linda Bolton from B. Riley.
Speaker 5
Hi. So just to be completely crystal clear on the EBITDA, what figure are you using for EBITDA just in the third quarter excluding that $6,000,000 item?
Speaker 2
$52,800,000 Okay,
Speaker 5
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 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 and 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 and A control?
Speaker 1
Firstly, it's really too early for us to give you an outlook of 15%. But all we can go through is, we do expect from our previous meetings we've had over the last six week expansion internationally, expansion in The U. S. With many of new licenses and areas that are over performing or over indexing in various segmentations. Our boys segmentation is having a great growth experience and we see a lot more of that happening.
We have a lot more licenses with Star Wars Episode seven, 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 in the 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 could give you only comments that we've heard from retailers that they've never seen a better portfolio from Jack's looking into 2015. It was commented by several retailers both U. S.
And internationally. So we do feel strong about that. Joel will answer the SG and A question. Joel, what was your SG and A question?
Speaker 5
Just to get a feel for The
Speaker 2
restructuring was framed to get 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're adding overhead very cautiously. And again, it was meant to cover higher sales and be profitable at the levels that we had originally forecasted. So we'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.
Speaker 5
Okay. Thanks very much.
Speaker 1
Thank you. Well, that was it for the Q and A. We appreciate everybody for the time that you guys have taken both ladies and gentlemen. We look forward to having our next earnings call and looking forward to a positive 2014 and beyond. Thank you very much.
Speaker 3
Thank you. Ladies and gentlemen,
Speaker 0
this concludes today's conference. Thank you for participating. You may now disconnect.