JAKKS Pacific, Inc.

Good afternoon, everyone. Welcome to the Jax specific third quarter earnings conference call with management. We'll review final results for the quarter ended September 30, 2020. Jax issued its earnings press release earlier today. The earnings release and presentation slides for today's call are available on the company's website in the investor section. On the call this afternoon are Stephen Berman, Chairman and Chief Executive Officer, and John Kimball, Chief Financial Officer. Mr. Berman will provide an overview of the quarter along with highlights of product lines and current business trends and a discussion of the impact of COVID-19. Then Mr. Kimball will provide detailed comments regarding Jack Specific's financial and operational results. Mr. Berman will then return with additional comments and some closing remarks prior to opening up the call for questions. Your line will be placed on mute for the first portion of the call. If you would like to be placed in the queue to ask a question, please press star, then 1 on your telephone keypad. Before we begin, the company would like to point out that any comments made about Jax Pacific's future performance, events, or circumstances, including the estimates of sales and or adjusted EBITDA in 2020, as well as any other forward-looking statements concerning 2020 and beyond, are subject to safe harbor protection under federal securities laws. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties which 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 Jack's 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. by management will refer to non-GAAP financial measures such as adjusted EBITDA. Unless stated otherwise, the most directly comparable GAAP financial metric has been reconciled to the associated non-GAAP financial measure within the company's earnings press release issued today or previously. As a reminder, this conference is being recorded. With that, I would now like to turn the call over to Stephen Berman.

Thank you and good afternoon, everyone, and thank you for joining us today. Considering a number of challenges we faced in the third quarter, we are pleased with our results. We believe that there continue to be promising trends underway that leaves us very optimistic about 2021 and beyond. We had a solid EBITDA in the quarter, lifting our year-to-date EBITDA to 24 million, up over 50% compared to last year. We grew our margins to the highest level in three years. Our retail POS at top customers is up 28% year to date. Our year to date operating income is positive for the first time since 2016. We recently amended our term loan prepaid part of it and lowering our EBITDA covenant, giving us greater flexibility. Considering the challenges of COVID and the difficult revenue comparisons, I think our year-to-date results show considerable progress in our efforts to improve our cost structure and put us in a position to produce strong results in 2021. Our net sales in the third quarter were down 14% from the results we posted a year ago, but we are encouraged by the composition of those sales. In our toy segment, our sales were down approximately 8%. This decline was mostly due to the reduction in sales of products tied to Disney's Frozen 2 which we shipped heavily last year ahead of the November release of the movie. There were no comparable blockbuster films released in 2020. So excluding products tied to Frozen 2 and the original Frozen, our toy sales were up 13% in the third quarter compared to last year. Most of our major retail customers were able to return to normal operations in the third quarter. although many smaller retailers and specialty stores continue to see traffic and sales well below the normal levels. This is especially true for companies that rely on Halloween season, and this is tied to the other significant factor in our sales decline. We said after the second quarter, retailers selling Halloween products were quite cautious when ordering Halloween products. leading to lower shipments to these retailers, despite the fact that Halloween was on a Saturday, which typically gives a boost to our sales. We planned for a big decrease in sales, and that's what we saw, with the skies down to approximately 27% in sales, comparable to what we saw in terms of POS. There were quite a few bright spots in the quarter too. Disney Princess in general did very well. Outside of Frozen and Frozen 2, our Disney sales grew 18% compared to last year. Our Nintendo business was up 60% and Sonic the Hedgehog was up fivefold. The Extreme Power Dozer is off to a great start. Our Perfectly Cute Baby line of product, which is an exclusive we produce for one retailer, more than doubled. And our Perfectly Cute Home, a comparable line, was up double digits. Cute Girls Hairstyle, based on a popular YouTube channel, got off to a very strong start. We are encouraged with how well these new products did in the third quarter and the momentum they take into the fourth quarter. And we are even more encouraged by our retail POS and our retail inventory levels. Year-to-date, through the end of September, POS at our top three customers was up 28%, and retail inventory at these retailers is down over 16%. We are pleased with this position as we move through the holiday season. We know we have some difficult comps in Q4 against the launch of Frozen 2, but we're satisfied with how clean our inventory levels are at retail. Even more encouraging than the sales trends and POS is how much we have reduced our costs compared to last year and the year before. John will review some of this shortly, and I will talk more about it later in the call, but we have taken millions of dollars in expenses out of the cost structure, such that despite the double-digit reduction in sales, our gross profit dollars were only down high single digits, and our adjusted EBITDA was only down low single digits. As we have since last year, we continue to focus on improving profitability more than just capturing sales. We are weeding out low-margin products, High volume but low margin promotional programs that we ran in the past were not repeated this year. As a result, our gross profit margins came in at the highest level of any quarter in three and a half years. We believe our cost structure now will allow us to generate much higher levels of profitability than in the past when we see sales growth return. So while we don't like to report sales declines, we're actually quite encouraged by how our results reflect greater sales and spending discipline and a greater focus on profits. John will now review financials, and I will return to discuss what we see for the rest of the year and provide a glimpse into initiatives we are taking for 2021. John?

Thank you, Stephen, and good afternoon, everyone. Net sales for the 2020 third quarter were $242.3 million, down 14% compared to $280.1 million last year. Reported net income attributable to common stockholders for the third quarter was $32.1 million or $4.27 per diluted share compared to $16.3 million or $5.08 per diluted share in the third quarter of last year. The third quarter of 2019 included charges related to the extinguishment of debt and changes in the fair value of our convertible senior notes, totaling $13.7 million. In the third quarter of 2020, when combining the changes in the fair value of our convertible senior notes and preferred stock derivative liability with modest expenses related to the pandemic, the adjustments essentially offset each other. Excluding the impact of such charges and gains, as well as stock compensation expense, Our adjusted net income attributable to common stockholders in the third quarter of 2020 was approximately $32.6 million or $4.76 per diluted share compared to $31.4 million or $5.38 per diluted share in the third quarter of 2019. Adjusted EBITDA for the 2020 third quarter was $42.7 million compared to $44.1 million in the third quarter of 2019. Our trailing 12-month adjusted EBITDA is $27.6 million. Compared to last year, our girls' targeted business declined in the quarter. Inclusive of dolls, role play, dress-up, and preschool toys and consumer products, net sales were $129.3 million in Q3, down 11% compared to $145.9 million in the third quarter of last year. The big driver of the decline was the strong initial sales of merchandise related to Frozen 2 in the third quarter of last year, as well as products tied to the original Frozen film. Excluding Frozen products, sales of girls' products were up over 24% compared to last year. Products that contributed positively were Perfectly Cute Baby, Disney Princess, Cute Girls Hairstyles, and Kitten Cat Fae, which more than offset declines in Toy Story 4, Fancy Nancy, and Moana. Sales of action figures, vehicles, role play, and electronics products in our boys' category for the 2023 quarter were $33.6 million, up nine percent compared to 30.8 million dollars last year positive contributions from our video game related toys including nintendo sonic the hedgehog and the launch of apex legends as well as extreme power dump truck and flywheels vehicles more than offset declines in godzilla tp blaster and last year's extreme power dozer sales of seasonal products including licensed ball pits and play structures were 24.4 million dollars in the 2020 third quarter down 12% from $27.6 million in the third quarter of 2019, primarily due to declines of morph board and kids-only activity tables. The revenue downside in kids-only was a result of taking a more critical view of margin and inventory management this year, as the product margin for the business was seven points higher, despite the lower volume. More specifically, last year we ran a special blitz promotion that produced strong sales volume but came at a low margin. Broadly speaking, we are seeing strong retail sell-through with our activity tables, foot-to-floor ride-ons, and skateboards, but have been production constrained to react given the lingering impact of the extended Chinese New Year shutdowns and this unanticipated spike in consumer demand. Sales in our Halloween segment, the skies, decreased 27% to $55 million in the third quarter of 2020, compared to $75.8 million last year. As Stephen said earlier, the decline is primarily a reflection of retailers' caution in ordering Halloween merchandise, and our related caution in managing accounts receivable. Our reduced 2020 film slate also played a role. As a reminder, we were down 38% in this segment in Q2. Looking at sales by business segment, sales in our toys consumer product segment, which includes all markets around the world, were down 8% to $187.3 million compared to $204.3 million in the third quarter of last year. The decrease was driven by the same factors noted above in the product discussion. North America Toys CP were down 4% for the quarter, while EMEA, Latin America, and Asia were each down over 20%. Looking at the rest of the P&L, reported gross margin in the 2020 third quarter was 30.8% compared to 28.9% in the 2019 third quarter. This is the highest quarterly gross profit margin as a percentage of net sales we have reported since the March quarter of 2017, and the highest gross margin rate for a third quarter since 2016. Steady improvements in our product margins and lower inventory obsolescence expense outpaced higher royalty charges incurred in the quarter. The increase in royalty expenses as a percentage of sales was driven partly by a mixed shift towards products with higher royalty rates. Significantly lower spend for SG&A, including product development, depreciation, and amortization-related expenses, in the 2023 quarter totaled $37.1 million, or 15.3% of net sales, compared to $45.2 million, or 16.1% of net sales in the third quarter of 2019. On a year-to-date basis, 2020 SG&A is 24.8% of net sales compared to 26.9% in 2019, despite net sales being $58.5 million lower year-to-date compared to prior year. Our net interest expense in Q3 of this year was $5.6 million compared to $4.6 million last year reflecting a full quarters portion of our recapitalized balance sheet compared to prior year. Net cash provided by operating activities was $27.8 million for the third quarter of 2020 compared to $35 million in the third quarter of 2019. Free cash flow was a positive $26 million in the 2020 third quarter compared to $32.6 million in the 2019 third quarter. As of September 30, 2020, our cash and cash equivalents, including restricted cash, totaled $79.8 million, compared to $66.3 million at the end of 2019, and $75.9 million as of September 30, 2019. Accounts receivable as of September 30, 2020, were $166.8 million, up from $117.9 million as of December 31, 2019, and down from $200.8 million at September 30th, 2019. DSOs for the 2020 third quarter decreased to 63 days from 66 days reported in the 2019 third quarter. Inventory as of September 30th, 2020 was $54.6 million versus $54.3 million at December 31st, 2019 and $65.3 million as of September 30th, 2019. DSIs in the 2020 third quarter were 30 days compared to 40 days in the 2019 third quarter. And looking at DSIs on a trailing 12-month basis, we were at 63 days for 2020 and 73 days for 2019. By the end of the third quarter, the company had exhausted the $6.2 million in funds received under the Paycheck Protection Program. We spent $8.3 million in eligible forgivable expense through September 17th, 2020. It remains the company's intention to file for forgiveness of this loan. In the absence of knowing whether any funds will be forgiven and how the program may change as the year continues, the company has taken a conservative approach and presumed a two-year loan period with interest beginning to accrue in June 2020. As a result, we now reflect $2.5 million in short-term and $3.7 million in long-term debt on our balance sheet related to this loan. As a result of September 30, 2020, the company's debt at face value included the aforementioned $6.2 million PPP loan due June 2022, $30.6 million of recapitalized convertible senior notes due July 2023, and $138.8 million owed under our term loan due February 2023 both inclusive of PIC interest. We currently have no outstanding balance under our credit facility aside from $10.4 million in letters of credit as of September 30th. During the Q3 quarter, $1.0 million of the July 2023 convertible senior notes were converted to common shares at $5.65 per share. Subsequent to September 30, an additional $2.0 million of the aforementioned notes were converted to common shares at the same price. As of October 31, 2020, the face value of the July 2023 convertible notes is $28.7 million, including accumulated pick interest. Also subsequent to September 30, the company reached an agreement with its term loan note holders in Wells Fargo to amend the company's existing lending agreements. The details of these amendments were filed as an 8K on October 19, but among other attributes, it required a term loan principal pay down of $15 million upon execution as well as contemplating an additional $5 million prepayment in the next 12 months, subject to certain conditions. As a result, the company has classified $20 million of its term loan debt as a current liability, and therefore the company's revised balance of its 2023 term loan will be $20 million in short-term debt and $118.8 million in long-term debt, both inclusive of picker interest. The $15 million principal payment was made in October. Capital expenditures during the third quarter of 2020 were $1.8 million compared to $2.4 million in the third quarter of 2019. The diluted income per share calculations for the third quarter of 2020 were based on a weighted average of 6.96 million common diluted shares outstanding, up from 6.04 million in the third quarter of 2019. This number reflects the impact of our stock split in July 2020, as well as the aforementioned convertible senior note conversions. And with that, I will now hand the call back over to Stephen for some additional remarks.

Thank you, John. One of the most significant benefits and competitive advantages Jax has created over the past 25 years, which has proven successful in this current environment, is the many evergreen categories and business units we have created. These product lines feature basic, time-tested play patterns and have proven to be steady sellers for jacks whether we are in normal times or in an environment as disruptive as we have seen in 2020. They are not dependent on hot movie properties although we will always be opportunistic with such properties. Examples of these evergreens include our seasonal products such as Moose Mountain with its everyday play patterns such as children's ride-ons and a broad array of sizes and licenses. Play environments such as ball pits and pop-up tents with all the appropriate evergreen licenses. Redo skateboards, which is building rapidly now and we expect will continue to grow going forward. And a brand new segment we'll be launching next spring, which consists of licensed skateboards and licensed trampolines, thus adding to this division's growth and expansion. We believe the skies will have a solid 2021 with an ample line of new licenses we have been pursuing throughout this year. coupled with the amazing cast of characters from our deep portfolio of licenses from major entertainment partners, gaming licenses, and licenses from our friendly competitors. In addition, Halloween lands on a Sunday, which usually gives the industry a lift compared to when Halloween lands on a weekday. Our Boys Division has a stable line of evergreen licenses and proven categories which continually outperform our internal expectations, including our line of Nintendo action figures, collectibles, and play sets, It's A Me Mario, and our Super Mario RC. We have a deep offering of Sonic the Hedgehog action figures and toys, and our new line of Apex Legends action figures and play sets launched this third quarter. When combined with the evergreen roleplay product line such as Black & Decker Kids Products, These video game licenses applied to toys with classic play patterns form a strong and stable base from which we can grow. Our girls division includes the prominent Disney characters that are everlasting in the minds of children and parents, giving us a deep product line of girls role play and accessories, preschool toys and dolls to name a few. Within this range, we can develop new and innovative products such as a newly created line called Princess Style Collection. The steady sales of these products coupled with toys based on movie launches such as Ray of the Last Dragon next year and others give us a stable and solid business in addition to opportunities for upside. This is just to briefly highlight the evergreen business which we have developed and built and which we have proven strong sell through at retail. Retailers like these products because they represent lower risk as they know that they offer kids and parents the right products at the right time. The toy industry this year has been a bit like a tale of two cities. All year, consumer demand for certain toys has been fueled by the need for kids and families to stay at home and by the cancellation of sports, after-school activities, movies, birthday parties, and visits with grandparents. Categories such as games, puzzles, and activity toys have done well, while other categories more dependent on new licenses or traditional gift giving occasions have not done as well. Some retailers have seen a surge in toy sales, while others have struggled. Outdoor products and products related to video games have sold solid through the year, but some seasonal products like Halloween merchandise has been hit a little bit harder. Jax has used this time to focus on what we do best and what we can do better. While our Disguise Halloween products and Frozen products were down, we have seen some of our basic core products sell quite well and our POS all year has been very strong. We have expectations that some of our girl product lines will do well and will benefit us this year. Two of the products in the Disney Princess Style Collection are performing well. One is our Gourmet Smart Kitchen set and the other is the Light Up style vanity. Both are proven play patterns and benefit from being part of the strong Disney sub-segment. Even though down from last year, Frozen 2 continues to be a big contributor. And for the holidays, we expect our animatronic Magic in Motion Elsa doll and our Playdate Elsa and Playdate Nook water horse to sell very well. Kitten Cafe, which is based on our own Turtle IP, is selling extremely well. and cute girl's hairstyle based on a popular influencer has gotten good reception. In our boys' division, we have several strong launches in addition to the strong evergreen base of business of some of our existing strong brands. Our toys based on video games continue to sell extremely well, especially Sonic the Hedgehog, but also Nintendo. For the holiday season, we'll be launching It's a Me Mario, an oversized feature action figure with integrated voices and sound. This is the first time in the history of Nintendo that a talking Mario toy has been introduced in the market. During the third quarter, we launched Apex Legends based on a highly successful Battle Royale video game from Electronic Arts. We have broad rights for Apex Legends toys, and as the game continues to do well, we expect the toys to follow. Also in boys, we have followed last year's Extreme Power Dozer, which did extremely well with this year's Extreme Power Dump Truck, featuring a powerful drive mechanism that allows kids to haul, push, and pull just about anything. Our redo line of skateboards continues to grow, and we expect to have a good holiday season at many new retailers, including some that represent new distribution channels for us. These are just some of the products that we expect to do well this holiday season. Now I'd like to turn to the efforts that we are taking to make the improvements to our cost structure more permanent. What we are doing goes far beyond reducing payroll or squeezing a little more out of our vendors. We have been working with an outside firm to do a complete review of our business in extreme detail, from sourcing to shipping. We began this work at the start of this year prior to COVID and have continually been working all year long and have made tremendous progress. As manufacturing and retail platforms are ever-changing, we believe taking the knowledge and expertise in this area of cost reductions and process improvements will enhance our margins commencing late next year and through 2022 and beyond. You have heard us talk about this before, but this year we accelerated our efforts to increase the portion of our international sales that are made direct to retailers rather than through a distributor. We made significant progress on this in 2020 and getting to 100% direct distribution in Italy, Spain and Mexico. We should see the full year benefit of that in 2021 as well as additional progress. In 2021, we expect to see significant improvements in design, manufacturing, forecasting, shipping, warehousing and marketing. The improvements will show up as lower cost and faster execution, both of which will produce benefits for shareholders. We feel like we have gotten to the point where we can have a company that is profitable just with a core evergreen line of products and can flow much more of the benefits of incremental sales increases to the bottom line. 2020 has been a year of unprecedented challenges in so many ways to people all around the world. We have all had to change the way we do things, adopt new routines and habits just to survive. Even if coronavirus disappears in months, some of these changes will endure. The acceleration toward more online shopping or curbside pickup is not likely to reverse itself. Work from home and distance learning will continue to be a much bigger part of our lives than before because we have seen what is possible. The entertainment business has been altered. Business travel will likely remain suppressed and may never fully recover to the previous levels. So the future will look different. What is consistent, though, is at Jaxx, we will continue to focus on making basic evergreen toys and kids' products with proven appeal and proven play patterns, selling them through our strong retail networks around the globe, and keeping our operational costs lower as we prepare for when the efforts of the pandemic are reduced, and more importantly, to prosper in whatever is the new normal. In 2021, we see stronger sales in some of the categories that got eclipsed in 2020. We see some of the entertainment properties that have been planned for 2020 getting released and doing well in multiple formats, not just physical theaters. We see greater opportunities for digital content and physical products based on that content. We see our strongest retail partners being even stronger next year. And we see Jax having a cost structure that can optimize the lift in sales we expect. In closing, I want to thank our incredible team for all their hard work in the challenging environment we have today. We will continue to take the steps needed to position the company for profitability growth, and we couldn't do it without the dedicated team. With that, we will now open up the call for questions. Thank you.

Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Steph Wissink with Jefferies. You may proceed with your question.

Thank you. Good afternoon, everyone. Stephen, I wanted to just unpack your enthusiasm around the underlying business. I think you talked a little bit about the business improving month to month in the quarter, certainly some very strong POS numbers at your top retailers. Maybe give us some sense of what you've been observing in a channel and then what you're seeing already holiday season to date, given that it's had an earlier start this year than prior years.

Thank you, Stefan. I hope all is well and healthy for you and your family. A few things that we've seen, as you primarily know, a lot of our business, more than half of our business is an FOB business platform, both in North America and globally. So what we've done is we've had our earlier shipments based on a lot of it being done FOB. So we've had early placement and early set dates with retailers. And what we've seen from that is the core categories in which we're in, some of it being good fortune that we've developed and we acquired over the years, some of it we expanded on our own, have really performed or outperformed kind of the normal expectations. It's the normal basic play patterns. And we're in pretty much the right categories and the right age grade for kids. So from our seasonal business with the flip the floors, the ride-ons, the play environment, the skateboards, you know, go from preschool to kids and tweens. Then all the way through our Disney group, our Halloween group, and our girls group, we are just in the correct categories, the right play patterns, the right price points, and with the right retail channels. and really a diverse retail channel base from the mass retailers to our secondary retailers, like the TJ mass and Costco's the raw stores, and then to the dollar trade. So we're out at every retail trade, almost every retail price point that's applicable. And it just bode extremely well for us in this environment. Um, and we took a lot of the risk off the table early on with trying to launch new, uh, or owned IP, such as like creepy crawler this year, which takes a lot of heavy marketing dollars to go behind. we decided to take a real basic play pattern and strong content that's known around for kids and adults, which really has outperformed our expectations. And from there, we decided early on to start expanding in those categories for next year. So it really just, it was a mix of good timing, good planning, and just a strong consumer base.

And Stephen, can we talk into 2021? I also said in some degree of enthusiasm around your prospects for next year, stronger core, stronger licensing slate, but also sounds like some opportunities to elevate the core or some of those patterns. So talk about that as well.

Yes, and thank you for that question. We're really excited, and I'm personally excited about it, that our basic seasonal business that I just mentioned about the play environments, the ride-ons, the play tents, we have a tremendous amount of licenses that are new, and with our current fresh appropriate licenses, In addition to our redo skateboards, which are just a really cool, great category that is in the mass, we've acquired a tremendous amount of strong licenses to do a licensed segmentation, which will be new for 21. We also entered in, which was a category that did exceptionally well this year, which were indoor trampolines and non-licensed trampolines at retail. And we took over the appropriate licenses from the top licensing companies to build that trampoline base, which will be all new areas of business for us in 21. Same goes into our boys category from the Sonic Nintendo Apex. We have several new licenses and areas of business. So without any real new movies, we look at our categories doing strong. Our Disney group has expanded their Disney classic princess business, which has grown for us this year. Our style collection has expansion, not just in SKUs, but in retail base. We also have picked up amongst all these different segmentations, international licenses. And as I mentioned earlier, we are direct down with Spain, Mexico, and Italy. So we'll be able to actually not just have the increase in our dollars cutting out the third-party distributor. We will have a very deep line of product, which we need to fulfill these avenues of distribution. So we have the now distribution, and now we're filling it with product. And the same goes for disguise. We said early on, Halloween, based off of what we saw yesterday, in back to school and in Easter was down tremendously. We knew that was going to happen with Halloween, but we've picked up a tremendous amount of new licenses, international licenses. We have the Hasbro rights for both North America and U.S. We have Lego. We have Minecraft. We have Microsoft that we just mentioned early on, plus several that we have not announced yet. So just our basic business, adding some of these new licenses and new distribution to We will see a strong increase of business. In addition, there are some new movie licenses as Raya, which comes out, I believe, in February or March, which we have a large toy license for, in addition to a new movie launch in November of a new animated film that we have the rights to that we'll be talking more about next year. So we see next year as being a strong, solid year for us as a company.

If I could, John, just one for you very quickly. I think you mentioned in the quarter that royalty expense was up, and the explanation was products with higher royalty rates. So can you help us just think through conceptually Q4 royalties and then 2021 royalties just based on what Stephen has explained in terms of some of the licensing opportunities?

Yeah, I think in terms of high staffing. In terms of thinking about Q4, I think the business that we're shipping in Q3 will be somewhat comparable to Q4. Obviously, not the same level of Halloween business, but on the toy side, it's a pretty consistent product line and pretty consistent math there. I think looking ahead to next year, to Stephen's point, That number could mix down to a somewhat different place, but it's probably kind of premature to say. As he's pointed out, we've got a lot of new licenses coming into the mix. And as you can imagine, it sort of becomes a big weighted average exercise. But it is the case, obviously, that the number's been a pretty high one for us this year.

Thank you.

Sure.

Thank you. And as a reminder, to ask a question, you'll need to press star one on your telephone. Our next question comes from Jared Thompson with BMO Capital Markets. You may proceed with your question.

Thank you. Good afternoon, guys. Hi, Steven. So can you talk a little bit about the supply chain? You know, it's been an issue for a lot of the companies I cover, whether they're big, small, or whatever they make. Things are clogged a little bit. Are you seeing any issues? Not so much Not so much product coming out of China, but product getting to where it needs to go, you know, in the countries that you're operating in.

What we've seen, first I hope you and your family are well, what we've seen with supply chains has really just been with lockdowns and throughout both North America and in Europe. So when we had the early lockdown in spring from Smith to, you know, Toys R Us in Canada to Walmart just only taking the essentials, We've seen the disruption there when GameStop wasn't able to ship here or call it the Ross and TJ Maxx. But that was really the first half of business that we just saw just delays in shipments. And for us, because we really planned on the FOB side of the business, we had to really maneuver. And our focus when we started with COVID, really knowing how the impact was going to be pretty aggressive around the world, we really managed the manufacturing process of this and the retail inventory across the board. So We didn't want to be stuck with inventory on our balance sheet, nor do we want to have inventory at retail stuck. So we really worked with our retailers, our suppliers overseas to manage that process. And it did show, I don't have the numbers in front of me, that our retail inventory was down over 16% or approximately, and about approximately the same number on our balance sheet. So I believe just because of the categories we're in, and we really cut early on the Halloween segmentation, knowing that it was going to be a difficult time for Halloween. and managed it, and we saw this morning that our sell-throughs on the Halloween side of business, based off the reductions we worked with with the retailers, was pretty spot on. So we look at this Halloween, even though down, we were successful in the choices we made on the licenses, the amount of SKUs we brought in, which then bodes extremely well because we're in the midst right now of selling Halloween 21. So what we did there was correct, and what we see what we did with the normal retail channels So we've managed it well. What's done well are called the ones that have both components, brick and mortar, and online sales are doing extremely well. So their inventory levels have been the lowest. And the other ones, like the dollar trade, doesn't really do a lot of online sales, but they've had very good penetration with consumers coming in. So, so far for us, we don't see any heavy issues with inventory or any issues with managing getting the distribution out.

Okay, so your supply lines are operating well, your warehouses are good, things of that nature, and the product's getting to where it needs to be. So your inventory is down 16% at retail. Now, so would that mean that you're not getting the product to the shelves like you need to? Should your inventory be down 16% at retail? You know, that's what I'm trying to get at.

Okay. So what we did right now, right now the inventory should be where we want to get it down even lower, what we're, you know, focusing on in all of the areas of business because, first of all, inventory is cash. We'd rather be more fluid with cash. Our goal is to reduce our debt and move forward with hopeful, you know, in the future acquisitions. But we scaled back certain things based off of when we saw, So some of the Black Friday initiatives that we normally would do that would be very heavy in the fall, we curtailed them back, and that's why you see Frozen 2 being down a little bit. We actually curtailed some of these big initial launches to scale back that Black Friday because consumers, we don't believe, are going to be coming in the same way. And the way Black Friday is, you get people in, you bring out the right price points, big values, and this world was just very – uneasy. So we just decided to take just a much more focused approach in each of our categories, which we knew that we would get a little bit less in sales, but at the same time, we'd rather have much more profitable sales and grow our profitability. So when you look at what we've done this year, we've created our business to be strong and healthier and cleaner. That means going into 2021, we should have a very nice 2020 and 2021. We should see stronger growth for us just in our basic business, and anything new that we do. So it was a planned approach on what we did amongst all of our divisions, and they had those initiatives that they had to focus on, both U.S. and around the world.

Okay. That sounds good. Sounds prudent. Are you concerned at all about pantry loading? You know, we've had a very strong year so far. Do you think there's any sort of pull forward at all?

Pantry loading? In toy, we don't see that. It's a good question. I have not seen that yet to date. This is me not having any more knowledge outside of when I look at our orders when they come in dailies and our sell-throughs. We haven't seen big, big chunks of sales happen beyond what the norm is. We do see it early on. We see a lot more sales happening now. But I don't see it. In our toy area right now, I don't see that grab-and-go trend. But when you look at the U.K. shutting down this week, France and Italy and Spain, you may see that in different areas. But as of now, I have not seen that. Okay. Thank you, Stephen. Thank you, Gary.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Stephen Berman for any further remarks.

Thank you, operator, and thank you all for joining us today. We wish everyone health and safety for all, and we look forward to updating you in February when we report our fourth quarter results and year-end results. Thank you, and all the best.

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