JAKKS Pacific, Inc.

Good afternoon, everyone. Welcome to the JAX Pacific first quarter 2021 earnings conference call with management, who will review financial results for the quarter ended March 31st, 2021. 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 their investor section. On this call this afternoon, are Stephen Berman, Chairman and Chief Executive Officer, and John Kimball, Chief Financial Officer. Mr. Berman will first provide an overview of the quarter along with highlights of product lines and current business trends. Then Mr. Kimball will provide detailed comments regarding Jax Pacific's financial and operational results. Mr. Berman will then return with additional comments and some closing remarks prior to the opening up for the 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 the question, please press star then 1 on your telephone keypad. Before we begin, the company would like to point out that any comments made by Jax Pacifica Future Performance, events or circumstances including the estimates of sales, and or adjusted EBITDA in 2021, as well as any forward-looking statements concerning 2021 and beyond are subject to safe harbor protection under federal security laws. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult Jack's most recent 10-K and 10-Q filings with the SEC, as well as the coming other reports subsequently filed with the SEC from time to time. In addition to today's comments by management, we'll refer to non-GAAP financial measures, such as adjusted evidence unless stated otherwise. The most directly comparable GAAP financial metric has been reconciled to the associated non-GAAP financial measures within the company's earnings press release issued today or previously. As a reminder, this conference is being recorded. With that, I would like to turn the call over to Stephen Berman.

Good afternoon, and thank you for joining us as we review our performance in the first quarter of 2021 and our plans for the rest of the year and beyond. We are very pleased with our results for the quarter. It's the fifth consecutive quarter we delivered results that exceeded our internal projections, and it was a strong way to start 2021. Not only were we able to deliver strong sales growth, higher margins, and significant improvement in profitability, we did so without the benefit of a big hit product or blockbuster tentpole entertainment content. Our strong performance in the corner was no fluke. It was the result of many steps we have taken in recent years to broaden our sales base, cut back on low margin products and categories, reduce our manufacturing and operating costs, and manage cash conservatively. As a reminder, the last two years, we've been working diligently to improve our profitability by laying out a three-pronged plan to improve results. First, we have been reducing our product costs and operating expenses to allow us to be profitable on the revenue that comes from our core basic product categories. The results are visible in the sharp increase in gross margin and dramatic reduction in SG&A as a percent of sales that we had in the quarter. This is the highest Q1 gross margin we've reported since 2017 and our operating expenses in the quarter with the lowest level in dollars of any first quarter since 2004. Second, we have been working to cut lower margin products from our portfolio and to take into account the total cost of a product, not just its ex-factory cost. This shows up as lower reserves for allowances, significantly fewer low or no margin closeout sales, and frankly, a leaner, more focused organization. These two steps have lowered our break-even level. Our adjusted EBITDA in the quarter was negative 2.4 million, the best first quarter adjusted EBITDA we have had since the first quarter of 2015, when sales of the product from the original frozen film were still extremely strong. As we have been saying for some time, our goal is to position the company to be profitable without big hits so we can deliver even stronger profits when we do launch an unexpected blockbuster-level product line and category. The third part of our plan has been focused on shoring up the balance sheet by reducing our high-cost debt and stretching out the debt maturities. We ended the quarter with approximately $84 million in cash, and net debt of 77.6 million down from 127.3 million a year ago. We continue to consider ways to realign our debt maturities and look forward to reporting more progress as the year unfolds. Other parts of our balance sheet also show how we are operating much more leanly. Our net PP&E at the end of first quarter was the lowest it's been at March since 2014, and our inventories were at the lowest level in Q1 in more than 10 years. At retail, our products continue to sell extremely well. At our top three retailers, POS of our toy products was up over 20% in both online sales and brick and mortar, and retail inventories of our toy products at our top three customers were down approximately 25% at the end of the quarter compared to last year. As I said earlier, our sales strength was not the result of one giant hit or one movie driving demand for our merchandise. Our sales performance was based on the breadth of our diverse portfolio. Girls, boys, and seasonal were all up strong double digits. In girls, initial sales of Raya and The Last Dragon were solid, and when combined with the positive trajectory of Disney Princess, helped offset the expected decline of Frozen and Frozen 2 products. Our Redux skateboard line also continues to sell extremely well with great velocity. Our portfolio of toys based on video game properties continue to perform well, with Nintendo more than doubling off of an already strong base, Sonic the Hedgehog nearly tripling, and Apex Legends, which was launched late last year, building nicely. Video game related toys have become a solid part of our portfolio and we expect to continued growth from this category. To put it into some perspective, our video game related toys were a bigger contributor to our total first quarter sales than any of our larger licensed brands. This is exactly the balance we have been striving to build and achieve. Our goal has been to have a solid profitable business without the big hits which we have achieved. so that when a big hit occurs and we know they will come again, we will be even more profitable. Those of you who have followed us a long time will notice that we're not calling out how our sales performance would have differed if we excluded certain product lines from the figures. We typically do that to help illustrate various trends and to point out the solid sales underneath these more volatile lines. and we are likely to do so in the future if we think it helps understand the broader patterns. Some area of toy sales were down, but there were no declines that were so dramatic that they prevented us from growing, and no increases that were so dramatic that they would create a problem for our portfolio next year. We simply have a well-balanced portfolio of toy products and categories based on brands and play experiences that kids and parents love. Our costume business was flat year over year. The first quarter is not very meaningful. We are excited and confident we will have a good year in costumes. Retail inventories were extremely clean in late 2020. Halloween is on a Sunday this year, and we believe with the vaccinations rising and people increasingly eager to get back to normal, Halloween is going to be a big holiday event this year. In fact, In general, we are seeing things gradually returning to normal among our retail customers and consumers. Retail traffic is improving, although online sales remain at higher levels. Production on new films and television content is ramping up, and films are returning to theaters, even as streaming remains extremely strong. The toy industry held up well last year, much better than most industries. NPD said that the US sales of toys rose 16% in 2020, which is several times the normal growth rate and has been up strongly so far this year, with retail sales rising 41% in the US in the March quarter. The toy industry has done well for a lot of reasons, but the main one is that toys are one of the things that haven't been cut back too much. Parents have spent less on sports, on activities, on vacations, and dinners out, but they haven't come back on their children. In fact, they redirected their spending from other areas into toys. We continue to see some of these trends. As I mentioned, toys tied to video games have been very strong. This makes sense because video games did so well over the last year with kids spending more time at home. That exposure to these digital gaming experiences increased demand for the toys. Our Black & Decker line of play tools more than tripled over the last year, possibly driven by the fact that kids are seeing their parents spend so much time and effort doing home remodeling projects and improvements, which we believe they have a strong desire to emulate that in their play patterns. Within our seasonal business, we saw double-digit increases in shipments driven by continued strong POS. Activity tables have sold particularly well, as have sales of our redo skateboards. These are areas benefiting from a change in consumer behavior and the momentum continues. In 2020, the dolls and collectible categories did not do as well, partly because new entertainment content release dates were continually postponed and moved out to later dates. In some cases, the content would be released on a streaming format only or released simultaneously both theatrical and streaming. What we're seeing now is a return to more normal theatrical releases, less changing of release dates, and the properties are back to being marketed by the content holders and retailers in a stronger, more consistent way. Our perfectly cute baby and perfectly cute home lines did very well at Target, and our shipments are up strongly this year. Sales of our Disney Princess products nearly doubled over the first quarter of last year. With the introduction of Raya and the Last Dragon, Disney Princess and Raya more than offset the decline in Frozen and Frozen 2 products. One of the other big themes for the toy industry in 2020, as well as for all retailing, was a continued shift to online sales, and our top customers Online sales of our toy products were up over 20% in the first quarter of 2021 and represented 17% of our total POS at these customers. This was in line with last year, but outside of a couple of product categories, the overall trend was toward higher online sales as a percent of the total sales. Jax Pacific was built on the foundation of good evergreen basic toys based on leading global IP, targeting proven play patterns. We saw our toys deliver on this promise very clearly in the first quarter, and we expect it to continue throughout this year. I will now pass the call to John to review our financial performance, after which I will come back with comments on how we see 2021 playing out. John.

Thank you, Stephen, and good afternoon, everyone. Net sales for the 2021 first quarter were $83.8 million, up 26% compared to $66.6 million last year. As Steven mentioned, we saw great results across the board in our toy consumer product segment. In our girls and preschool targeted businesses, primarily dolls, dress-up, role-play toys, plush, and other consumer products net sales were $45.2 million in Q1, up 13% compared to $40.1 million in the prior year. The big driver of the growth was the strong sales of Disney Princess and Raya merchandise anchored by the theatrical and streaming release in March, slightly offset by lower sales of Frozen. Our Perfectly Cute ranges also contributed in the positive column. In our Boys Targeted division of action figures, vehicles, role-play toys, and other electronics products, net sales were $16.4 million, up 70% compared to $9.7 million last year. As Stephen mentioned, our video game-related toys delivered the majority of the growth, with our Black & Decker role-play line also strongly contributing. This business is expanding rapidly both in the U.S. and international with more points of distribution in broader product ranges. In our outdoor seasonal division of ball pits, play structures, activity tables, foot-to-floor ride-ons, skateboards, and other spring-summer inspired toys, net sales were $18.3 million in the quarter, up 43% from $12.8 million in the first quarter of 2020, with growth across the whole division. When you add those pieces together, first quarter sales in our toys consumer product segment were up 28% to $79.9 million globally, compared to $62.6 million in the first quarter of last year. The bulk of the growth came from North America, up 33%, while international grew by 5%, despite significant additional retail closures in Europe and beyond. Net sales in our costume segment, disguise, were nearly flat year over year, at around $4 million in the first quarter. As a reminder, Q1 tends to be around 3% to 5% of our full-year costume business. Moving down the P&L, gross margin in the 2021 first quarter was 31.1%, a 650 basis point improvement over the 24.6% in Q1 of last year. About a third of that improvement comes from the royalty line, which was $12.5 million, or 9% higher than a year ago, but 230 basis points better, driven partly by a mixed shift, but also the expiration of some legacy agreements with less than favorable terms. And the balance is attributable to the effort Stephen just mentioned in bringing a stronger product margin line to market and fewer closeout sales. Despite ocean freight costs rising sharply toward the end of 2020, we were really pleased to see these increases in gross margin rate. We will continue to work diligently to mitigate these cost increases throughout 2021. We had significantly lower expense for SG&A in the quarter. Again, as Steven alluded to, there's a mix of cost avoidance and things like the elimination of trade shows in the first half of 2021 and significantly reduced travel, but the quarter also reflects more lasting cost reductions like our efforts to optimize our warehouse footprint and carefully manage receivables. We're also projecting our media spend to be more back-end loaded in 2021 than last year. In aggregate, our first quarter direct selling costs were $6.8 million, or 8.1% of net sales, compared to $8.5 million, or 12.8% of net sales, in the first quarter of 2020. In the G&A section, we had a $1.9 million cost avoidance stemming from the federal government's employee retention credit program under the CARES Act. Although we believe we will benefit from the ERC in future quarters, we consider it a one-time non-sustainable benefit and therefore are reducing our non-GAAP adjusted EBITDA calculation for that amount. With that said, our GAAP 2021 first quarter G&A, including product development and testing, but excluding depreciation and amortization expense, was $21.4 million, or 25.5% of net sales, down from $23 million, or 34.5% of net sales in 2020. We remain very pleased with the company's continued success in working both remotely and within a lower cost structure. These results combine to generate a first quarter operating loss of $2.7 million compared to an operating loss of $16 million in the first quarter of 2020. Our net interest expense in Q1 of this year was $4.9 million compared to $5.5 million last year, reflecting a lower overall level of debt. As a reminder, Certain elements of our capital structure, specifically our convertible senior notes and preferred stock derivative liability, are marked to market quarterly with non-cash gains or losses depending on a number of factors, inclusive of market debt rates and our current share price. In the first quarter of 2021, the combined impact of those valuations was a loss of $16.4 million. As a result, despite the combination of our improved operating performance and lower interest expense, we nonetheless reported a GAAP net loss in the quarter of $24.1 million or $4.54 per share compared to a loss of $12 million or $3.97 per share in Q1 of 2020. Excluding the impact of the non-cash valuation adjustments, employee retention credit, as well as stock compensation expense, our adjusted net loss attributable to common stockholders in the first quarter of 2021 was $9.5 million, or $1.77 per basic and diluted share, compared to a loss of $21.9 million, or $7.23 per basic and diluted share reported in the first quarter of 2020. Our adjusted EBITDA for the quarter was a loss of $2.4 million, an improvement of $11.4 million over 2020. This brings our trailing 12-month adjusted EBITDA to $39.5 million, its highest dollar level since Q1 2017, and at 7.4% of net sales, our highest adjusted EBITDA margin level since Q3 of 2015. We remain very pleased with the team's performance in improving our results as it relates to this metric during the past year. Net cash used by operating activities was $7 million for the first quarter of 2021 compared to net cash used of $18.9 million in the first quarter of 2020. Free cash flow was a negative $8.4 million in the 2021 first quarter compared to a negative $20.5 million in the 2020 first quarter. As of March 31st, 2021, our cash and cash equivalents, including restricted cash, totaled $84.1 million compared to $44 million at the end of 2020's first quarter. Counts receivable as of March 31st, 2021 were $79.7 million, up from $64.8 million as of March 31, 2020, DSOs for the 2021 first quarter decreased to 86 days from 89 days reported in the 2020 first quarter. Inventory as of March 31st, 2021 was $36.7 million versus $48.2 million at March 31st, 2020. DSIs in the 2021 first quarter were 75 days compared to 116 days in the 2020 first quarter. The company intends to apply for forgiveness of its PPP debt of $6.2 million but has yet to do so. In the absence of knowing whether any funds will be forgiven, the company presumes a two-year loan period with interest beginning to accrue in June of 2020 with payments beginning in September of 2021. As a result, we now reflect $1.7 million in short-term debt and $4.5 million in long-term debt on our balance sheet related to this loan. In addition, we anticipate a $5 million pay down of our term loan in 2021 based on the amendment filed last year related to our debt covenants and our projections for cash and liquidity in 2021. Taken together, these two attributes comprise the $6.7 million in short-term debt on our balance sheet. From the beginning of the quarter, $3 million of the July 23 convertible senior notes were converted to common shares at $5.65 per share. As of March 31, 2021, the face value of the July 2023 convertible notes is $20.9 million, including accumulated PIC interest. As a result, as of March 31, 2021, the company's debt at face value was $152.4 million, including the aforementioned $6.2 million PPP loan due June 2022, $20.9 million of recapitalized convertible senior notes due July 2023, and $125.3 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 $10.8 million in letters of credit as of March 31st. Capital expenditures during the first quarter of 2021 were $1.5 million compared to $1.6 million in the first quarter of 2020. Depreciation and amortization for the first quarter of 2021 was $1.8 million compared to $1.9 million in the first quarter of 2020. The basic and diluted Income per share calculation for the first quarter of 2021 was based on a weighted average of 5.379 million common diluted shares outstanding, up from 3.021 million in the first quarter of 2020. This number reflects the impact of our reverse 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 comments.

Thank you, John. I'd like to turn to the rest of this year now and outline how we plan to keep the sales momentum going, the exciting new product launches, ongoing efforts to keep costs down, and our efforts to further strengthen our balance sheet. We will continue to capitalize on the tremendous strength of our licenses with the Walt Disney Company. Building on the momentum, we anticipate a third straight year of growth for Disney Princess. which is being driven by several key factors, including Disney Princess Style Collection, a robust line of role-play items and accessories designed for today's modern girl, with a uniquely stylized and ownable Disney Princess look and feel. Disney Princess Dress-Up and Large Dolls, a beautiful lineup of easy-to-dress large dolls with matching girl-sized dresses. We expect to benefit from continued retail distribution expansion in addition to increased demand in the marketplace with the ever-growing strength of the Disney Princess universe. We will continue to also support the Frozen franchise with a diverse line of products that brings the magic of Arendelle to fans in a variety of scales and formats. Beyond the core Disney Princess business, We will continue driving the great performance of product lines based on Raya and the Last Dragon. In addition to launching a dynamic lineup of toy products inspired by Encanto, the upcoming November theatrical release from the Walt Disney Animation Studios centered around an extraordinary family who lives in a magical home in a vibrant town nestled in the hidden mountains of Columbia. The Encanto product line will feature fashion dolls, large dolls, play sets, dress up, and role play. Other 2021 initiatives within our girls division include extensions to our perfectly cute doll and accessory line at Target, the new launch of toys and collectibles based on Haribo, a global successful gummy candy brand, brand new beautifully designed interactive item based on a theme we are certain will resonate with girls and we expect to perform very well this fall. In our boys division we expect to continue to maximize the success of video game related product lines including Apex Legends, Super Mario Brothers, and Sonic the Hedgehog. In addition we are planning for continued growth in our Black & Decker product line and as well as a strong launch for the re-release of Creepy Crawlers, Jack's owned IP that has been a classic toy brand for more than 45 years. In our seasonal division, sales of the Redux skateboard line continue to grow with the expansion both at Target and Amazon. And as mentioned previously, we will broaden the product line with a variety of strong licenses. We are also expecting a great boost from our new line of licensed and unlicensed trampolines, which are hitting the market this summer and we expect to perform very well in the back half of the year. Categories of business that have historically been steadily sellers for us and we expect will continue to perform include activity tables, ball pits, play tents, and foot-to-floor ride-ons. This success is based on a combination of great product, best-in-class distribution, and evergreen licenses, including Mickey Mouse, Minnie Mouse, Frozen, Paw Patrol, Fisher-Price, Blue's Clues, amongst many others. With our disguise Halloween and carnival segment, we expect a much more stable environment for Halloween 2021. Given that Halloween falls on a Sunday and the assumption that the pandemic will be sufficiently Under control by the fall, we will anticipate a more typical level of celebration, leading to great sales performance by our broad portfolio of both licensed and generic themed base costumes and accessories. New licenses in 2021 include Apex Legends, Bendy and the Ink Machine, Blippi, Chucky, Ghostbusters, Hocus Pocus, Peppa the Pig, PJ Mask, Raya and the Last Dragon, and Spirit, amongst others. As new licenses become available, we will seek to grow the portfolio while at the same time maintaining the cost and pricing discipline that has allowed us to show such encouraging progress across the company. Taking a step back and looking at what we expect for our results in 2021, let me offer a couple observations. First, some of the cost and working capital tailwinds may reverse a bit as the year goes on. In 2020 and the first quarter of 2021, with so much of our workforce at home, we spent very little money as a company on expenses like airfare, hotel, trade shows, basic IT maintenance, just to name a few areas. Our whole company took a pay cut last year to help preserve cash. Many of these costs will rise this year. but the other costs have been eliminated and aren't coming back. We remain committed to improving our cost structure. Second, working capital is probably at a level that needs to be increased. We're expecting growth over time, and having inventories at an 11-year low, we will need to build back some of that inventory level for future growth. In addition, we will need to increase some capital expenditures over last year's level. But again, the new normal for us is to continue spending more prudently and intelligently. Third, the toy industry has some difficult comparisons in 2021, as manufacturers sell in and retail sell through were exceptionally strong last year. In 2020, some of the strongest toy categories were ones that we don't have a big presence in, such as games, puzzles, and activities. Those categories might not be as strong in 2021. We faced a difficult comparison last year because of Frozen 2's release in 2019, but the comparisons are not as difficult this year. We expect to be able to grow our sales in 2021, and we expect to be significantly more profitable. Our trailing 12-month adjusted EBITDA is nearly $40 million. We are proud of this and considering it was negative just a couple years ago. Finally, we are hard at work on strengthening our balance sheet. With the strong product and cost momentum we have built over the last year, we are in a good position to reduce our overall debt and realign our borrowings with our growth plans. If we can get our debt payments structured in a way that it can be paid down with our improved operating cash flow, we believe investors will see how much value there is in our shares. In closing, I would like to thank our incredible team, as well as our extended team of customers, licensors, and vendors for all their hard work and support over the last year, coming together to deliver these great results in the first quarter. We continue to take the steps needed to position the company for profitable growth, and we couldn't do it without the dedicated team we have around the world. With that, we will now take questions. Thank you.

Thank you. As a reminder, ladies and gentlemen, to ask the question, you will need to press Star then 1 on your telephone. To withdraw your question, press the pound key. Again, that's Star 1 to ask the question. Our first question comes from the line of step WSIC with Jeffrey. Your line is open.

Hello, everyone. A couple of questions, if I could, just to start with your concluding comments, Stephen. Growing sales and being more profitable this year, can you just help us contextualize the component that is Halloween? Halloween last year was substantially impacted to the negative. How much of the growth this year is the coming back online of Halloween versus the underlying business excluding Halloween?

Good afternoon, Steph. Thank you. So we expect to see a majority of our categories growth in both sales and in profitability in specifically with regards to disguise, which is Halloween and Carnival, because we are building a very strong international presence for Halloween and Carnival. There'll be a very nice increase, one of which, because Halloween was one of the worst Halloweens we saw in 2020 based off of COVID and based off of just the entire environment wasn't enthusiastic to go out and COVID restricted everyone. So if we lift the COVID cloud, we'll have a really strong Halloween. And besides that, we think we're going to have, based off what occurred during Easter at retail, the retailers now have been buying more than we projected earlier in Halloween and Carnival based off the success of Easter. So Halloween will have very, very nice growth. We see it. But we also see very nice growth in our girls' division and in our seasonal division and boys'. So we have And the Nintendo and Sonic is remaining extremely strong. Our Black & Decker is extremely strong. The positive thing for us, and it's extremely strong, the positive thing for us, and we've gone through it over the last two and a half years, we have created and now we have a very strong evergreen business that expands just with new licenses and adding a few different categories within each of these areas. So, for instance, the seasonal business, we didn't have trampolines last year. and we didn't have licensed skateboards. So we have our basic business that's very solid, and we have two new categories that will jump in. And it's not looking to be a Grand Slam in these growth initiatives. These are very much singles and doubles, and if something turns into a home run or Grand Slam, we did not base it on our general business. So we have a strong platform and growth in the majority of the areas, and we see it across the board. And, yes, the skies will see a very strong growth this year as well.

That's great. I want to just pull on one of the threads, which is video games. One thing we know about you over decades is that you're very nimble, very opportunistic. In video games, you seem to be early and really in size with some of the biggest licenses. Are there other licenses in video games that would be obvious opportunities for you, whether it's on the back of the rise in video game play last year or the new console cycle or just the extensive penetration now of the Nintendo Switch? Does that afford you any other licenses that aren't currently in the portfolio?

All of the above. So the Nintendo Switch growth and expansion is just fueling the brand of Nintendo. And when we took over Nintendo rights, we actually were one of the only companies that ever was able to work with Nintendo and build their mascots and get growth with all these different characters that they normally never allowed at a certain time. But now we have a really strong building relationship with them. Then you add in the Sonic, the general Sonic, and then you add the movie Sonic, which actually pushes that further, Apex Legends. So we do it in toys where we think it's appropriate, and then we do it in Halloween and Carnival where we think it's appropriate. So some of the areas we don't want to get into the video game toy business because it's a very higher age grade than what, it's more of a collectible business, so we'd rather stay more in that kids' consumer business. There are other ones that we are uh, looking to achieve and hopefully will be announced shortly. But that whole category, you know, a big part of our, our Halloween business and carnival business is that video game genre, which is just growing and growing and growing. And a lot of the pulp culture, like, you know, music like the Billie Eilish and so on. So there's a lot going on, but specifically with the, the video game genre, we are really solid in the apex legends and Nintendo and Sonic. And we have a few other ones that are appropriate at the same time, like, uh, the Disguise Minecraft Sword, we expanded sales materially, and that's, instead of doing a complete line of toys, it's some of just the right SKUs for the right property. So we don't need to go into, excuse me, a whole deep line of product to have success with the video games.

Steven, I'm going to let you take a breath. Thank you.

He is really excited about that.

Oh, my. No, please don't. Maybe, John, I'm going to toss one over to you just to give Steven a chance to take a breath. The comments that Steven made on working capital being at 11-year low on the inventory side, can you just help us rationalize how you think about the exit point coming out of 2021? Where do you want to be on that continuum of not as low as you are but certainly not as high as you once were?

Yeah, it's sort of a real-time question. I think as we look at a lot of different things, both on the income statement and the balance sheet, and think about exiting 21, we know that 2020 was a very unusual year, which fortunately worked out pretty well for us on average. We know that we're operating in a more productive way than we were in 2019 and beyond. So in a very basic way, those create a set of goalposts for us that Frankly, looking up and down those two financial statements, those are some of the parameters we're sort of looking at. I don't know that I could say anything more focused than that.

Okay. Sounds good. I'll turn it over to the next caller. Thank you.

Thank you, Steph.

Thank you. Our next question comes from the line of Garrett Johnson with BMO Capital Markets. Your line is open.

All right. Good afternoon. Hello, Gary. Hey, guys. You know, first quarter has all the trade shows, New York, Toy Fair, Nuremberg, Hong Kong. How much kind of ballpark do you see from not going to those, you know, and how much does that contribute to the SG&A savings?

It's probably, if we're just going to give you an approximate amount for all those, you have Hong Kong, you have Nuremberg, you have New York, and you also have the U.K. Toy Fair. It's approximately about $400,000 to $500,000. That's including of the actual fare itself, the employees involved, and samples that have to be included to get around to all those different areas. So it's approximately that number.

Wow. A lot smaller than I thought it would be. And kind of related to that, being that you're a smaller toy company, do you think not having the ability to show your products in sort of those venues is or maybe having fewer in-person presentations. Do you think that puts you at a disadvantage relative to the larger toy companies?

No, I'd say not at a disadvantage. It definitely hinders our business in general, not having the physical meetings that you have. In fact, I went out during May to one of our large retailers and had a face-to-face meeting. And at that time, we were able to pick up immediate white space for our licensed skateboards and licensed trampolines. And that was May last year. So That kind of a meeting does have a benefit. But for us, the virtual trade shows worldwide that we've done have bode very well. I prefer to have more in. There's, I think, a real good hybrid that will come out of COVID that we need the amount of physical meetings, like the sales meetings we have for spring and fall. but we don't need the amount of trade shows that we've had in the past. I think a lot of that will be kind of figured out and filtered out eventually, but we don't need to have a Hong Kong toy fair, a New York toy fair, a Nuremberg toy fair, an Olympic toy fair, or a UK toy fair, and then a New York one. That's just a tedious amount of trade shows, and we're not getting the benefit outside of people traveling and running all over the place. I think there's that hybrid that we will figure out ourselves, but we're happy because we do know that we have the fall show that will be happening in September in L.A. So we're happy that that will occur, and we believe that Hong Kong Toy Fair will be a very important toy fair because primarily we're a very prominent FOB company.

Okay. Yeah, I agree with you on the efficiency of the hybrid model going forward for a lot of industries, including my own. You mentioned that your POS, your top three accounts, is up over 20%, but then later on you were talking about the industry being up over 40%. So that would seem to me that you lost share in a quarter. So why did you lose share in the first quarter?

I don't think we lost share. In that area, as I mentioned, I believe in the pre-recorded script, was games, puzzles, and activities is strong. In our areas, as I mentioned, We've had double-digit growth in several areas. Nintendo, Black & Decker was tripled and so on, and Disney Princess was strong. So across the board, we saw very strong growth. Even if the industry was up, you know, disguise isn't part of first quarter. So for us, it was very strong for us. We couldn't be happier with our results from the growth in revenue, the extreme growth in profitability and EBITDA. So for us, I couldn't see, you know, Anything better than what we've done, and we're very happy with it. Okay.

I'll ask one more before I hand it back to Steph. Some of the categories you did mention that you're counting on for growth, such as video game toys, Disney Princess Roleplay, Black & Decker, Redo, and now trampolines and licensed skateboards. Those are all categories that I think have done very, very well owing to the pandemic, right? Video games and role play and outdoor especially. So how much are you counting on, you know, kind of the pandemic trends that we saw in 2020 continuing into 2021?

So what we, the trends I think will still occur right now for the first half, just based off of what occurred at retail and what we're seeing and, the benefits that it achieved to a lot of the people in the U.S. But for what we see, and we've had it, Nintendo is getting additional and Sonic are both getting additional distribution more than what we've had. Black and Deck are the same. So one is we're getting additional increased distribution through some of the specialty trades and dollar trades. And even at our mass retailer, they're making a larger footprint in some of our areas. So that part, We see growth through distribution and more consumers or customers that will be purchasing it. Then when you have the trampolines and you have the skateboards, we're not looking for material growth to have the skateboard line go from zero to 100 million, but we're looking at continued growth and distribution in these areas so they become an evergreen category for us that becomes just our basic business. All we need to do then is filter out the correct licenses that are appropriate in these categories and and put those onto the categories in which we see that are appropriate for the age grade of that license. And that's where we'll see expansion. On real growth, you'll see it through, we have a lot of new licenses. We have Encanto. Raya is a great property that will continue. There's a lot of new things that are occurring. It's the first quarter, we haven't come out with a lot of news. But we see a lot of new areas with just new launches. So we have new Daniel the Tiger products. We have Haribo, which is a property that's a worldwide global toy brand. We have a very confidential on-trend girl product line that will be launching in fall. We have creepy collars. And then you go right back into our basic business. Disney Evergreen is our favorite category, which we've grown from style collection and Disney Princess is growing. So we see we're hitting on all cylinders and with a lot of excitement for It is some new categories and properties that will come our way.

Okay. Okay. Great. I'll exit and jump back in line. Thank you. Thank you, Garrick.

Thank you. I'm not showing any further questions. I would now like to turn the call back over to Stephen for closing remarks. Oh, we do have a follow-up from Garrick Johnson. One moment.

Okay. I hit start. Nice to hear from you again, Garrick. Yeah, it's quick with a star one there. Hey, you know, input costs is one thing you briefly touched on about input logistics kind of creeping up towards the end. I remember last time we spoke, you were pretty confident that you'd be able to hold margin and input costs weren't going to be an issue. Can you revisit that for me? How are you thinking about input costs now? Are you pretty much locked in with your manufacturers, or could there be some inflation that could hurt that gross margin going forward?

That's a great question. So with regards to input costs, right now we have selective areas that we've been working with our manufacturers. These factories have worked with us decades and decades, and some of them even longer from our THQ time. So a lot of these manufacturers where they've seen increases, whether it's with resin or metals and so on, where those increases have occur, we will then at the same time work with them in certain areas. It doesn't go across the board like in our Halloween cut and sew and certain other areas in plush. We will then work with our retailers as we've had and selectively increase prices where we have those price increases. We will not be increasing prices just to increase it across the board. It's not necessary. But in order for us to hold our margins and increase our margins appropriately, we need to work with our manufacturers and retailers. So we've been doing that early on. To any of the areas that we see that, a good example, a ride-on or table and chairs, those are actual increased costs. And we're not looking to increase the margin from that. We're working to work with the factories and the retailers to make sure we have the appropriate retail price points. But we're actually trying to allow the Retailers to keep their margins, jacks to keep their margins, and the manufacturers.

Okay, so you're still pretty confident that you can hold gross margin.

Maintain or grow margin, yes, we are.

Okay.

All right.

I'll let you go. Thank you. Thank you, Derek.

Thank you. I'm sure no further questions in the queue. I would now like to turn the call back over to Stephen for closing remarks.

Everybody, thank you very much for the call today. We're excited about the quarter. We're excited about this year, and we're also looking to 2022 because we have a lot of new initiatives and a lot of things within our wings. So appreciate that, and thank you very much.

Ladies and gentlemen, that concludes the conference. Thank you for your participation. You may now disconnect.