JAKKS Pacific, Inc.

Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by and thank you for your patience. Thank you. Good afternoon, everyone. Welcome to the JAX Pacific Third Quarter 2021 Earnings Conference Call with Management. We'll review... Financial results for the quarter ended September 30, 2021. Jack's issue is 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 first provide an overview of the quarter along with the 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 opening 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 the questions, please press Father in One on your telephone keypad. Before we begin, the company would like to point out that any comments made about JACC's specific future performance, events, and circumstances, including the estimates of sales and all adjusted EBITDA in 2021, as well as any other 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 JAC'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. In addition, today's comments 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 associate non-GAAP financial measures within the company's earnings press release issued today or previously. As a reminder, This conference is being recorded, and with that, I would like to turn the call over to Stephen Berman. You may begin.

Thank you, and good afternoon, everyone, and thank you for joining us today. Before we start, I'd like to take a moment to express how sad we were to learn of Brian Goldner's passing. Those in the investment world might not realize what a close community the toy industry is. We may work in different cities, at different companies, but there's a continuity over the decades built on passing through the same airports, headed to the same trade shows, leading to conversations that are low, perhaps infrequent, are nonetheless very personal and cherish giving the shared experience and journey. I first met Brian many years ago, and at Jax we have always had a strong relationship with Hasbro since our founding. Although we know Brian has been fighting for his health for some time, His loss still comes as a shock, and I just wanted to make a point that we too mourn his passing and are thinking of his personal and professional family during this difficult time. Thank you. As many of you know, Jack's was started as an FOB business where we sell the product to our customers in larger quantities, usually at the port in Asia, and from there, they bring the product to their home markets, leveraging their own supply chain infrastructure. We continue to do over 50% of our sales that way today. This way of doing business has benefited us all year, inclusive of Q3, leveraging the supply chain strength and scale of the major global retailers to pull our product through to the retail shelf. In addition, we have accelerated our importation of domestic inventory to support sales in the U.S. and internationally for the holiday season as we get ready for 2022. The teams around the world have been working literally around the clock to help customers secure products they've ordered as efficiently as possible and will continue to do so as we get deeper into the holiday season. We appreciate the attention being paid to the challenges at the various large airports around the world and are hopeful that the backlog can start clearing in the weeks and months ahead. We have been working hand-in-hand with all, rerouting product to smaller, less congested ports, and more aggressively picking up product at the plants to minimize bottlenecks while customers work through the lack of ocean transit capacity. In the middle of Q3, while our customers' goods were stuck at our factories awaiting vessel space, our logistics teams began working with our trusted supply chain partners to route our domestic inventory up to Shanghai and store goods at bonded warehouses. This released pressure on our factories of the backlog of goods overwhelming their floor space and in turn allowed them to continue to produce goods. At the same time, moving the goods away from the port of Yantian, we were able to secure vessel capacity for domestic goods through lower volume ports in Shanghai. The extra transportation and short-term storage costs did not materially affect our domestic supply chain costs and more importantly, it reduced the potential of transit time delays due to the challenges in Yantian. Although we ultimately saw sales decline 2% in the quarter versus the year-ago quarter, we remain pleased that on a year-to-date basis, toys and consumer product sales are up 9% plus, and our costume business is up 21% plus, leaving us at 12% plus year-to-date for global company. Getting into more of the details, our year-to-date operating income is over $35 million, its highest level since 2015. Our adjusted year-to-date EBITDA of $44.2 million is up over 80% compared to the first three quarters of last year. Our adjusted EBITDA for the quarter was $41.7 million, or $1.1 million less than the prior year. Our gross margins remain strong, in part supported by the amount of inventory we managed to bring in early in the year. Our retail POS at the top customers is up 9% year-to-date, with cleaners sell through further benefiting gross margins. And not to be overlooked, during the quarter, we retired the remainder of our senior convertible notes, leaving us with an improved balance sheet and reduced interest expense going forward. Our worldwide teams continue to execute extremely well, doing the things we do best and doing both the business at hand today while building new and exciting initiatives and products for the coming years. Our net sales declined in the quarter as our orders outpaced our customers' ability to secure ocean passage or inbound product delays kept us from fulfilling orders before the end of the quarter. In our toy segment, our sales were down approximately 8%. This decline was mostly due to logistic challenges rather than less demand for any particular line of product. As we hoped, We have seen strong POS in our costume business as the days to Halloween tick down. We have shipped 64 million worth of costumes in the quarter, representing a 16% increase to the prior year. Many of our online-only customers increased their annual buys by 30% plus this year, but some of our larger customers who make their commitments back in Q1 were more conservative. Supply chains impacted this business less than toys as the team worked to accelerate shipments as customers would take them earlier to avoid log jams that are now impacting the holiday selling. Given the strong sell-through performance, along with new licenses coming online in 2022, Halloween 2021 is turning out great, which bodes extremely well for next year. On the toy side of the business, strong performers from the first half of the year continue to do well in the quarter. but we're also seeing some new things happening that we're excited to share today. This past quarter, we launched a new doll program in the U.S. at Target, branded Disney Ely Forever. It's a fashion-forward line of 18-inch dolls and related accessories inspired by classic Disney stories and caricatures, including Minnie Mouse, Tinkerbell, Stitch, Ariel, Elsa, Rapunzel, and more. Initial consumer reaction has been tremendous, and we are really proud of how the program has come together in collaboration with Disney and Target. Some other things that we're excited about as we recap Q3, our core businesses around Disney Princess, Nintendo, and Sonic continue to sell in and sell through well. Nintendo inventory at retail remains down despite our broader product line as the demand continues to pull product through. We're particularly pleased with the Super Mario Deluxe Bowser Airship playset this fall and are seeing great early POS results. The Sonic Giant Eggman Robot Battle Set is the largest Sonic's figure Jax has brought to market and early fan reaction also appears really strong. Our Disney Encanto line represents one of the broadest product ranges we have ever brought to market for a Disney Thanksgiving theatrical release. We love the product and can't wait for Disney fans to meet the characters and enjoy the magic of this film. Our private label business continues to grow double digits, and we hope to have more to say about that segment of business in the quarters to come. Our timeless holiday item, the Black & Decker Workbench, is represented well with retail exclusives at all the major U.S. accounts. And this fall, we're launching our indoor trampoline line with Paw Patrol and Disney's Minnie Mouse SKUs. We are pleased with how well some of these new products are being received and the momentum they take into the fourth quarter. We also saw the acceleration of retail POS in the quarter. Top three U.S. accounts' toy POS were up over 10%, while our ending inventory was down nearly 5%. That increases our related year-to-date toy POS number to over 9%, in line with overall shipments for the year. John will now review financials, and I will return with some thoughts around how we're thinking as we head into 2022. John.

Thank you, Stephen, and good afternoon, everyone. Net sales for the 2021 third quarter were $237 million, down 2% compared to $242.3 million last year. Third quarter sales in our toys consumer product segment were down 8% to $173 million globally, compared to $187.3 million in the third quarter of last year. North America was down 8%, while international was down 7%, primarily attributable to the supply chain issues already discussed, as both domestic and FOB sales were impacted. Through the first three quarters of the year, sales were $334.4 million, up over 9% from $306.1 million versus the prior year. Also, on a year-to-date basis, North America toy CP is plus 10%, and international toy CP is plus 8%. In our doll dress-up nurturing play division, net sales were $112 million in Q3, down 13%, compared to $129.3 million in the prior year. Disney Princess and Style Collection performed well in the third quarter, offset by lower sales from Frozen 2 as it approaches the two-year anniversary of the theatrical release. Perfectly Cute also continues to perform very well at retail. In the first three quarters of 2021, the total business is up 2% to $206.5 million versus $202.2 million. In our action play and collectibles division, net sales were $37.6 million, up 12% compared to $33.6 million last year. Sales for our video game-related toys, Nintendo and Sonic, delivered the majority of the growth, while we still see our Black & Decker role-play line strongly contributing. Our holiday advent calendars also generated positive growth versus prior year. Year-to-date, this business with net sales of $73.6 million is up 36% compared to $54 million in the first nine months of 2020. 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 $23.4 million in the quarter, down 4% from $24.4 million in the third quarter of 2020. In the first nine months, outdoor seasonal net sales were $54.3 million versus $50 million, up 9% year-to-date. Net sales in our costume segment, disguise, were up 16% at $64 million in the third quarter. Some of the big performers for us this year in this segment were Harry Potter, Pokemon, Minecraft, Toy Story, and The Nightmare Before Christmas. Stephen pointed out we remain excited about a bigger and better Halloween season this year with Disguise. On a year-to-date basis, our costume segment is up 21% to $98.8 million, compared to $81.5 million in the first nine months of 2020. Moving down the P&L, gross margin in the 2021 third quarter was $74.9 million at 31.6% of net sales and 82 basis point improvement over the 30.8% of Q3 last year. Product COGS for the third quarter were 53.2% of net sales, an increase of 262 basis points from 50.6% in the third quarter of 2020. This increase was due to increased ocean freight costs and some unfavorable product mix. The overall improvement in gross margin for the third quarter was the result of a 338 basis point improvement in the royalty line, which was $32.3 million versus $41.2 million in the third quarter of 2020. The lower royalty rate for the quarter was driven partly by a reduction in expected royalty guarantee shortfalls due to higher shipping levels from the relevant licenses. Despite higher ocean freight costs, we were pleased to see further improvement in gross margin rate. As a technical matter, it is worth noting that higher freight costs incurred to import our domestic product are capitalized in the inventory and only expense when the product is sold to customers. As a result, we anticipate seeing some lag effect in terms of higher freight costs working their way through the P&L, even as we work past peak shipping season and ideally see a reduction in these charges in the quarters to follow. Anticipated increases in our media and marketing spend were offset by a reduction in co-op advertising and timing of other selling-related expenses in the quarter. Overall direct selling costs were $10.7 million, or 4.5% of net sales, compared to $13.5 million, or 5.6% of net sales, in the third quarter of 2020. Our 2021 third quarter G&A, including product development and testing but excluding depreciation and amortization expense, was $26.8 million, or 11.3% of net sales, up from $23 million, or 9.5% of net sales in the third quarter of 2020, when austerity-related spending reductions were in place. These results combined to generate a third quarter operating profit of $36.7 million, slightly lower than the operating profit of $37.5 million achieved in the third quarter of 2020. As anticipated during the quarter, the balance of our senior convertible notes converted into common stock. In addition, during the quarter, the company received confirmation from the SBA that our application for PPP debt forgiveness had been approved. Also during the quarter, the company made its first scheduled payments against the term loan secured in June. With all these activities taken into account, as of September 30th, 2021, the company's debt at face value was $98.8 million, all owed under the term loan due June 2027. As of quarter close, we had no draw on our credit line. we did have $9.7 million in letters of credit. As of September 30, our availability under the line was $43.1 million. Our year-to-date interest expense is $11.9 million compared to $16.7 million in the first nine months of 2020. With greater certainty around our refinanced balance sheet, we can share that we're currently projecting full-year 2022 interest expense of $9.1 million, a meaningful improvement over 2020 and 2021, when full-year interest expense was $21.6 million and a projected $14.1 million in 21. As a reminder, the derivative liability attributed to our preferred stock is marked to market quarterly with non-cash gains or losses dependent on the valuation exercise. In the third quarter of 2021, that valuation resulted in a loss of less than $100,000. Capital expenditures during the third quarter of 2021 were $2.7 million compared to $1.8 million in the third quarter of 2020. Depreciation and amortization for the third quarter of 2021 was $4.3 million, compared to $4.5 million in the third quarter of 2020. In summary, Q3 net income attributable to common stockholders in the quarter was $36 million, or $3.97 per diluted share, compared to a net income attributable to common stockholders of $32.1 million, or $3.19 per diluted share, in Q3 of 2020. Excluding the impact of the non-cash valuation adjustments, stock compensation expense, and the one-time gain associated with our PPP loan forgiveness, our adjusted net income attributable to common stockholders in the third quarter of 2021 was $34.2 million, or $3.76 per diluted share, compared to our adjusted net income attributable to common stockholders of $32.6 million, or $3.56 per diluted share, reported in the third quarter of 2020. Accounts receivable as of September 30, 2021, were $209.2 million, up from $166.8 million as of September 30, 2020. DSOs for the 2021 third quarter increased to 81 days from 63 days reported in the 2020 third quarter, primarily due to a change in approach in working capital management. Inventory as of September 30, 2021, was $89.8 million, versus $54.6 million at September 30, 2020. The significant increase is a result of over $40 million worth of product that has left the plants in Asia but are taking a very long time on the journey to our warehouses in Southern California and Western Europe. DSIs in the 2021 third quarter were 51 days compared to 30 days in the 2020 third quarter. Our adjusted EBITDA for the quarter was $41.7 million, compared to adjusted EBITDA of $42.7 million in 2020. That brings our trailing 12-month adjusted EBITDA to $48.1 million, representing 8.6% of our trailing 12-month net sales. The diluted income per share calculation for the third quarter of 2021 was based on a weighted average of 9.07 million common shares outstanding, down from 9.31 million in the third quarter of 2020. This 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 pass the microphone back to Stephen.

Thank you, John. As we head into 2022, in our 27th year since inception of Jax Pacific, a lot of things may have changed in our industry, but I believe we remain true to many of the core themes Jack Friedman and I had when we founded Jax all those years ago. We built this company around the idea of working with the best partners we could find, retailers, factories, and brand owners, and bringing them together to deliver great toys for kids and their families centered around timeless toy categories and play patterns. As the supply chain is a dominant topic today, I remind people that this business always has challenges, and you work through them, and that's just part of how things are when you're in the world of business. It's always something, whether it's product cost or foreign exchange or a chip shortage. As we navigate forward, if we think about our business, there are four key elements that define who we are and maybe more importantly, who we are not. These elements are, one, innovation within categories to maintain freshness and relevance. Two, addition of relevant brands, new and existing IP, and license or relationships. Three, Geographic expansion to reach a rapidly expanding global toy market. And four, migration into adjacent categories to fulfill the needs of consumers and our retail buyers. All of these growth opportunities are layered on the foundation of evergreen product categories, brands, and properties that we have steadily built over what is now nearly 27 years. Quarter after quarter, we update you with results about our performance, but ultimately it's a recap of how are we progressing on the mission outlined above. During the pandemic, we expanded into new product categories like skateboards, related accessories, scooters, and trampolines. We've reimagined our Disney princess business with style collection, bringing together Disney's classic princess characters and stories with contemporary play and innovative approach to product design. We have steadily expanded and extended our Nintendo Super Mario business and separately our Sonic business, which has received a boost with the February 2020 release of the Sonic the Hedgehog film and is poised to benefit from its sequel release in April 2022. We've prudently but steadily expanded our sales capabilities in France, Spain, Italy, and Mexico, opening direct sales channels of distribution to flow through our ever-expanding product line while leveraging our existing staff and fulfillment infrastructure. Despite the pandemic's lasting presence, our European toy business is up over 10% year-to-date and our Latin American business is up over 20% during the same period. And I'm incredibly excited to talk about the expansion of our Disney disguise costume business into Europe in 2022. Although we often shorthand this business as Halloween, the reality is that it's a year-round costume dress-up business, and the addition of the Disney properties will accelerate our disguise international expansion. For the past 12 months, only 5% of our disguised business was done outside of North America. And although we previously had a number of international licenses, we could be more excited to add Disney and its iconic characters to the mix which has allowed us to invest further in dedicated international staff to support this growth. From a North American point of view, we have been communicating over the past several weeks and months the significant number of additional relationships we have been adding to the disguised business. Universal brand development with franchises like Jurassic World, Minions, Child's Play, Sony with a timeless IP like Ghostbusters and Cobra Kai, and last but not least, Netflix, where Stranger Things, Ada Twist, Money Heist, and more were added to our lineup for 2021. We have more in store for 2022 and beyond for Disguise. taking advantage of the excitement around what has proven to be a record-setting U.S. Halloween market this year for the National Retail Federation. If nothing else, the pandemic has repeatedly reminded us that a lot can change in a short period of time, and growing too comfortable and confident lies ahead as a recipe for disappointment. As we sit here in late October, we have excellent consumer and customer demand for our product, and the challenge before us is to fulfill that demand in time for the holiday season. We are looking forward to a brighter 2022 and reaping the benefits of the hard work that the teams have invested over the past 18 to 24 months and adjusting to a leaner organization and expanding upon the commercial successes in our core businesses. As always, I want to thank our people around the world for the relentless support of the business as we work towards the end of the year. We remain excited about what lies ahead, and it's our staff that makes Jax the unique, entrepreneurial, hands-on toy and consumer products company that we are. Thank you. Operator.

Ladies and gentlemen. As a reminder, to ask the question, you would need to press star then 1. To withdraw your question, press the pound key. Again, that's star 1 to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matthew Caton with Jefferies. Your line is open.

Hi, everyone. It's Matt here filling in for stuff today. I hope everybody's well. Good afternoon, Matt. Thank you for taking the time. Thank you. Good afternoon to you guys. So supply chain obviously is a concern on the mind of many investors right now. Would it be possible to provide some further insights into how you're navigating and do you foresee any margin pressure in the fourth quarter?

Thank you, Matthew. So far, we're extremely excited for the last quarter of this year. We've mitigated a lot of the constraints with, as I mentioned, my prerecorded statements. But for us, we are almost at the month of October. We'll have shipped over half of our fourth quarter internal projections. That's been what we've been focusing on. The lap of what occurred in third quarter was just due to the majority of the FOB customer's not getting the containers out at the time that was needed to achieve it in the quarter. That being said, if you see, we have almost double the amount of inventory on our books that we have brought in. That is primarily the majority of them are at the port getting through for our domestic part of our backup of inventory worldwide. So we're extremely comfortable with this year of achieving our internal forecast with growth. And we don't see any erosion in the – the gross margin from doing so. We've been mitigating that process and we've achieved increased prices where necessary, where we had the cost increase. So overall, we're extremely confident and strong and bullish for the remainder part of this year and going into 2022. Awesome.

Thank you. And then another question from us. So costumes looks like it's off to a great start. Any early feedback on Halloween sales and what's selling really well.

Overall, I would say almost everything in Halloween, not just, firstly, for our costume business, we are on track for one of the cleanest Halloween seasons we've ever had, which bodes extremely well for 22 as we have an abundance of new licenses that we have announced, and we brought up on this call as well some new licenses to be announced. And because of the sell-throughs that have been extremely strong, both with the major retailers and online retailers, That just bodes extremely well for them being confident going into 22 with a stronger feeling of commitment into 22. Thus, with expansion for Jack's internationally on the costume, cosplay, and Halloween carnival business, that will help us increase our sales internationally for Halloween. And then in North America... We have abundances of current great licenses and new licenses that we believe will see stronger growth in 22, and 21 was a terrific year versus 2020.

That's super.

Last one from us. So looking forward to 22, how does your license portfolio look like right now, and are there any businesses you expect to see outsized growth in?

Well, we definitely see growth where we sit here today and we've discussed this internally for our next three to five year plan. And we see next year becoming very strong in the majority of our categories, our private label business. We see growth. We see growth in our core Disney businesses with the current licenses that we have. you know, with Encanto, the new categories in which we're developing with Disney, the style collection. As I mentioned, Halloween, we see that growth. And then in our seasonal businesses, we have a plethora of new licenses that go into the ball pits, the tent environment, play environment, the outdoor furniture, the foot-to-floor ride-ons. And we have the new additions, as I mentioned, the indoor trampoline, licensed trampoline businesses with some top licenses. Our redo skateboards, which are terrific, that we're getting more deeper presence at retail. And we're launching licensed redo skateboards into 2022. And there's a plethora of new movies coming out, from Sonic the Hedgehog, Fantastic Beasts, Jurassic World, Transformers, Minions, Avatar. There's a lot of new content coming out. And this year, there wasn't a major release of content until Encanto comes out in mid-November. So besides that, we see next year being a very solid growth year for us.

Thank you very much. That's all from us, but thank you so much for the time. Thank you.

Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. Our next question comes from the line of Tristan Thomas with BMO Capital Markets. Your line is open.

Hi, it's Tristan on for Derek.

Hi, Tristan.

Hi, how are you? Good. First question. I'm kind of back on the supply chain. Could you maybe quantify how much longer things are taking to get over from China? I think Hasbro called out up to 50 days extra, so I'm curious what you're seeing.

Well, it really depends on the ports and where the goods are coming, whether they're coming to North America or in Europe, whether it's Rotterdam. So it really depends on that, and it depends on the port that it leaves. If you're leaving at Yantian, it's taking longer, but if you go to other ports in Shanghai... it started to become a little bit looser in a sense of the clog effect at the actual port in Asia. So as we said earlier, we opened up a bonded warehouses in Shanghai, which now has allowed us to move the goods from our factories, which is allowing them to build for spring inventory pre-Chinese New Year. And it's coming down, Hasbro is accurate probably for them and somewhat for us, but it's coming down less and less. So It could be anywhere from 35 to 45 days. We've seen it. It's gotten worse in the third quarter, but it's becoming the lesser now going forward. We see it becoming that way even today. The goods that are coming through the port itself, we're in obviously Los Angeles, and the container ships have been anchoring and sitting outside, but now they are flowing in a little bit better than they were two weeks ago because of the 24-hour shifts. and things are getting a little bit less congested. The big thing is that we've worked through is actually the labor of unloading the containers once they get to our warehouses because there's an abundance of labor that's needed, which our team, our distribution team, our logistics teams have done a wonderful job. But that's been a clog that has happened in the past that's starting to relieve itself. So it's definitely getting – but it's just not there yet or not. It won't be back to the norms until, you know, second half of first half of next year.

Okay. Maybe another question on that. If something is produced in a factory in China tomorrow, how likely is it to get on retailer shelves before the holidays?

So I think right now it's called November 1. Things that are being produced now are more than likely are going to be for spring as for us. So the goods that we have already shipped FOB to our retailers are primarily for this season's holiday. And the majority of all the other inventory that will be used worldwide will be on a domestic basis. So for anyone that doesn't have the majority of the goods shipped by now from Asia, they're more than likely won't get on the shelf just due to the timing it takes to get to the port, to get through the ports, to get through the distribution centers internally, and then going to the actual retailer distribution centers, which are around the world, you're getting very late. So maybe you have one week to two at the most if you're lucky. But I'd say unless you've planned and have the goods on the boat now, those goods will be for spring, which is what we've had planned for spring versus Chinese New Year coming as well. Okay. That makes sense.

Um, just one more question. How are retailers approaching this holiday season relative to last year and then relative to 2019?

Oh, well, they're just, I would say definitely more aggressive in getting goods. Uh, we have seen, and we've been able to achieve some white space available from other manufacturers in the toy industry that could not get product out to retail. So there's been opportunistic areas for companies that have inventory and the right inventory. I think everyone has been spooked because of the news and the commitments and you've seen in the consumables that there's a lack of inventory, even things that are domestically manufactured. So the retailers know that one of the key drivers during the holiday season are obviously toys, which brings in the consumer, which buys other products besides toys. So I think there's been a key focus on making sure that they had an abundance of toys to make sure this Christmas is an excitable one and they're doing their best. And as I mentioned at the start of our call, When we founded Jax, we founded it as primarily an FOB business, and over 50% of our business is still an FOB business, which has bode well with us to have these major retailers that have a lot of clout and have gotten ships and containers on their own to pick up the goods in Asia, which has benefited Jax materially, and at the same time, We've worked on bringing the domestic goods in earlier. As I mentioned, our inventory is up over double for that reason. So the ones that are planned well are doing well, and the retailers are very aggressive, still looking for goods today, seeing that when manufacturers are promising goods and they're not coming in, they're looking to make sure that their shelves are not empty. And if it's not an item that was purchased by one manufacturer, they're actually willing to make space for other goods to make sure that their shelves are filled for the holiday season. Okay, great. Thank you. Thank you.

Thank you. I'm showing no further questions in the queue.

Everybody, thank you for the call today. We have several many calls throughout today and tomorrow, and we appreciate the time, and happy holidays to everybody. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you. you Bye. Music. you Thank you. Good afternoon, everyone. Welcome to the JAX Pacific third quarter 2021 earnings conference call with management, who will review financial results for the quarter ended September 30th, 2021. JAX issue is 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 first provide an overview of the quarter along with the 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 opening 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 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 about JACC's specific future performance, events, and circumstances, including the estimates of sales and all adjusted EBITDA in 2021, as well as any other 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 JAC'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. In addition, today's comments 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 associate non-GAAP financial measures within the company's earnings press release issued today or previously. As a reminder, This conference is being recorded, and with that, I would like to turn the call over to Stephen Berman. You may begin.

Thank you, and good afternoon, everyone, and thank you for joining us today. Before we start, I'd like to take a moment to express how sad we were to learn of Brian Goldner's passing. Those in the investment world might not realize what a close community the toy industry is. We may work in different cities, at different companies, but there's a continuity over the decades built on passing through the same airports, headed to the same trade shows, leading to conversations that are low, perhaps infrequent, are nonetheless very personal and cherished, given the shared experience and journey. I first met Brian many years ago, and at Jax we have always had a strong relationship with Hasbro since our founding. Although we know Brian has been fighting for his health for some time, His loss still comes as a shock, and I just wanted to make a point that we too mourn his passing and are thinking of his personal and professional family during this difficult time. Thank you. As many of you know, Jack's was started as an FOB business where we sell the product to our customers in larger quantities, usually at the port in Asia, and from there, they bring the product to their home markets, leveraging their own supply chain infrastructure. We continue to do over 50% of our sales that way today. This way of doing business has benefited us all year, inclusive of Q3, leveraging the supply chain strength and scale of the major global retailers to pull our product through to the retail shelf. In addition, we have accelerated our importation of domestic inventory to support sales in the US and internationally for the holiday season as we get ready for 2022. The teams around the world have been working literally around the clock to help customers secure products they've ordered as efficiently as possible and will continue to do so as we get deeper into the holiday season. We appreciate the attention being paid to the challenges at the various large airports around the world and are hopeful that the backlog can start clearing in the weeks and months ahead. We have been working hand in hand with all, rerouting product to smaller, less congested ports, and more aggressively picking up product at the plants to minimize bottlenecks while customers work through the lack of ocean transit capacity. In the middle of Q3, while our customers' goods were stuck at our factories awaiting vessel space, our logistics teams began working with our trusted supply chain partners to route our domestic inventory up to Shanghai and store goods at bonded warehouses. This released pressure on our factories of the backlog of goods overwhelming their floor space and in turn allowed them to continue to produce goods. At the same time, moving the goods away from the port of Yantian, we were able to secure vessel capacity for domestic goods through lower volume ports in Shanghai. The extra transportation and short-term storage costs did not materially affect our domestic supply chain costs and more importantly, it reduced the potential of transit time delays due to the challenges in Yantian. Although we ultimately saw sales decline 2% in the quarter versus the year-ago quarter, we remain pleased that on a year-to-date basis, toys and consumer product sales are up 9% plus, and our costume business is up 21% plus, leaving us at 12% plus year-to-date for global company. Getting into more of the details, our year-to-date operating income is over $35 million, its highest level since 2015. Our adjusted year-to-date EBITDA of $44.2 million is up over 80% compared to the first three quarters of last year. Our adjusted EBITDA for the quarter was $41.7 million, or $1.1 million less than the prior year. Our gross margins remain strong, in part supported by the amount of inventory we managed to bring in early in the year. Our retail POS at the top customers is up 9% year-to-date, with cleaners sell through further benefiting gross margins. And not to be overlooked, during the quarter, we retired the remainder of our senior convertible notes, leaving us with an improved balance sheet and reduced interest expense going forward. Our worldwide teams continue to execute extremely well, doing the things we do best and doing both the business at hand today while building new and exciting initiatives and products for the coming years. Our net sales declined in the quarter as our orders outpaced our customers' ability to secure ocean passage or inbound product delays kept us from fulfilling orders before the end of the quarter. In our toy segment, our sales were down approximately 8%. This decline was mostly due to logistic challenges rather than less demand for any particular line of product. As we hoped, We have seen strong POS in our costume business as the days to Halloween tick down. We have shipped 64 million worth of costumes in the quarter, representing a 16% increase to the prior year. Many of our online-only customers increased their annual buys by 30% plus this year, but some of our larger customers who make their commitments back in Q1 were more conservative. Supply chains impacted this business less than toys as the team worked to accelerate shipments as customers would take them earlier to avoid log jams that are now impacting the holiday selling. Given the strong sell-through performance, along with new licenses coming online in 2022, Halloween 2021 is turning out great, which bodes extremely well for next year. On the toy side of the business, strong performers from the first half of the year continue to do well in the quarter. but we're also seeing some new things happening that we're excited to share today. This past quarter, we launched a new doll program in the U.S. at Target, branded Disney Ely Forever. It's a fashion-forward line of 18-inch dolls and related accessories. inspired by classic Disney stories and caricatures, including Minnie Mouse, Tinkerbell, Stitch, Ariel, Elsa, Rapunzel, and more. Initial consumer reaction has been tremendous, and we are really proud of how the program has come together in collaboration with Disney and Target. Some other things that we're excited about as we recap Q3, our core businesses around Disney Princess, Nintendo, and Sonic continue to sell in and sell through well. Nintendo inventory at retail remains down despite our broader product line as the demand continues to pull product through. We're particularly pleased with the Super Mario Deluxe Bowser Airship playset this fall and are seeing great early POS results. The Sonic Giant Eggman Robot Battle Set is the largest Sonic's figure Jax has brought to market and early fan reaction also appears really strong. Our Disney Encanto line represents one of the broadest product ranges we have ever brought to market for a Disney Thanksgiving theatrical release. We love the product and can't wait for Disney fans to meet the characters and enjoy the magic of this film. Our private label business continues to grow double digits, and we hope to have more to say about that segment of business in the quarters to come. Our timeless holiday item, the Black & Decker Workbench, is represented well with retail exclusives at all the major U.S. accounts. And this fall, we're launching our indoor trampoline line with Paw Patrol and Disney's Minnie Mouse SKUs. We are pleased with how well some of these new products are being received and the momentum they take into the fourth quarter. We also saw the acceleration of retail POS in the quarter. Top three U.S. accounts' toy POS were up over 10%, while our ending inventory was down nearly 5%. That increases our related year-to-date toy POS number to over 9%, in line with overall shipments for the year. John will now review financials, and I will return with some thoughts around how we're thinking as we head into 2022. John.

Thank you, Stephen, and good afternoon, everyone. Net sales for the 2021 third quarter were $237 million, down 2% compared to $242.3 million last year. Third quarter sales in our toys consumer product segment were down 8% to $173 million globally, compared to $187.3 million in the third quarter of last year. North America was down 8%, while international was down 7%, primarily attributable to the supply chain issues already discussed, as both domestic and FOB sales were impacted. Through the first three quarters of the year, sales were $334.4 million, up over 9% from $306.1 million versus the prior year. Also, on a year-to-date basis, North America toy CP is plus 10%, and international toy CP is plus 8%. In our doll dress-up nurturing play division, net sales were $112 million in Q3, down 13%, compared to $129.3 million in the prior year. Disney Princess and Style Collection performed well in the third quarter, offset by lower sales from Frozen 2 as it approaches the two-year anniversary of the theatrical release. Perfectly Cute also continues to perform very well at retail. In the first three quarters of 2021, the total business is up 2% to $206.5 million, versus $202.2 million. In our action, play, and collectibles division, net sales were $37.6 million, up 12% compared to $33.6 million last year. Sales for our video game-related toys, Nintendo and Sonic, delivered the majority of the growth, while we still see our Black & Decker role-play line strongly contributing. Our holiday advent calendars also generated positive growth versus prior year. Year-to-date, this business with net sales of $73.6 million is up 36%, compared to $54 million in the first nine months of 2020. 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 $23.4 million in the quarter, down 4% from $24.4 million in the third quarter of 2020. In the first nine months, outdoor seasonal net sales were $54.3 million versus $50 million, up 9% year-to-date. Net sales in our costume segment, Disguise, were up 16% at $64 million in the third quarter. Some of the big performers for us this year in this segment were Harry Potter, Pokemon, Minecraft, Toy Story, and The Nightmare Before Christmas. As Stephen pointed out, we remain excited about a bigger and better Halloween season this year with Disguise. On a year-to-date basis, our costume segment is up 21% to $98.8 million compared to $81.5 million in the first nine months of 2020. Moving down the P&L, gross margin in the 2021 third quarter was $74.9 million at 31.6% of net sales and 82 basis point improvement over the 30.8% of Q3 last year. Product COGS for the third quarter were 53.2% of net sales, an increase of 262 basis points from 50.6% in the third quarter of 2020. This increase was due to increased ocean freight costs and some unfavorable product mix. The overall improvement in gross margin for the third quarter was the result of a 338 basis point improvement in the royalty line, which was $32.3 million versus $41.2 million in the third quarter of 2020. The lower royalty rate for the quarter was driven partly by a reduction in expected royalty guarantee shortfalls due to higher shipping levels from the relevant licenses. Despite higher ocean freight costs, we were pleased to see further improvement in gross margin rate. As a technical matter, it is worth noting that higher freight costs incurred to import our domestic product are capitalized in the inventory and only expense when the product is sold to customers. As a result, we anticipate seeing some lag effect in terms of higher freight costs working their way through the P&L, even as we work past peak shipping season and ideally see a reduction in these charges in the quarters to follow. Anticipated increases in our media and marketing spend were offset by a reduction in co-op advertising and timing of other selling-related expenses in the quarter. Overall direct selling costs for $10.7 million, or 4.5% of net sales, compared to $13.5 million, or 5.6% of net sales, in the third quarter of 2020. Our 2021 third quarter G&A, including product development and testing but excluding depreciation and amortization expense, was $26.8 million, or 11.3% of net sales, up from $23 million, or 9.5% of net sales in the third quarter of 2020, when austerity-related spending reductions were in place. These results combined to generate a third quarter operating profit of $36.7 million, slightly lower than the operating profit of $37.5 million achieved in the third quarter of 2020. As anticipated during the quarter, the balance of our senior convertible notes converted into common stock. In addition, during the quarter, the company received confirmation from the SBA that our application for PPP debt forgiveness had been approved. Also during the quarter, the company made its first scheduled payments against the term loan secured in June. With all these activities taken into account, as of September 30th, 2021, the company's debt at face value was $98.8 million, all owed under the term loan due June 2027. As of quarter close, we had no draw on our credit line. we did have $9.7 million in letters of credit. As of September 30, our availability under the line was $43.1 million. Our year-to-date interest expense is $11.9 million compared to $16.7 million in the first nine months of 2020. With greater certainty around our refinanced balance sheet, we can share that we're currently projecting full-year 2022 interest expense of $9.1 million, a meaningful improvement over 2020 and 2021, when full-year interest expense was $21.6 million and a projected $14.1 million in 21. As a reminder, the derivative liability attributed to our preferred stock is marked to market quarterly with non-cash gains or losses dependent on evaluation exercise. In the third quarter of 2021, that valuation resulted in a loss of less than $100,000. Capital expenditures during the third quarter of 2021 were $2.7 million compared to $1.8 million in the third quarter of 2020. Depreciation and amortization for the third quarter of 2021 was $4.3 million, compared to $4.5 million in the third quarter of 2020. In summary, Q3 net income attributable to common stockholders in the quarter was $36 million, or $3.97 per diluted share, compared to a net income attributable to common stockholders of $32.1 million, or $3.19 per diluted share, in Q3 of 2020. Excluding the impact of the non-cash valuation adjustments, stock compensation expense, and the one-time gain associated with our PPP loan forgiveness, our adjusted net income attributable to common stockholders in the third quarter of 2021 was $34.2 million, or $3.76 per diluted share, compared to our adjusted net income attributable to common stockholders of $32.6 million, or $3.56 per diluted share, reported in the third quarter of 2020. Accounts receivable as of September 30, 2021, were $209.2 million, up from $166.8 million as of September 30, 2020. DSOs for the 2021 third quarter increased to 81 days from 63 days reported in the 2020 third quarter, primarily due to a change in approach in working capital management. Inventory as of September 30, 2021, was $89.8 million, versus $54.6 million at September 30, 2020. The significant increase is a result of over $40 million worth of product that has left the plants in Asia but are taking a very long time on the journey to our warehouses in Southern California and Western Europe. DSIs in the 2021 third quarter were 51 days compared to 30 days in the 2020 third quarter. Our adjusted EBITDA for the quarter was $41.7 million, compared to adjusted EBITDA of $42.7 million in 2020. That brings our trailing 12-month adjusted EBITDA to $48.1 million, representing 8.6% of our trailing 12-month net sales. The diluted income per share calculation for the third quarter of 2021 was based on a weighted average of 9.07 million common shares outstanding, down from 9.31 million in the third quarter of 2020. This 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 pass the microphone back to Stephen.

Thank you, John. As we head into 2022, at our 27th year since inception of Jax Pacific, a lot of things may have changed in our industry, but I believe we remain true to many of the core themes Jack Friedman and I had when we founded Jax all those years ago. We built this company around the idea of working with the best partners we could find, retailers, factories, and brand owners, and bringing them together to deliver great toys for kids and their families centered around timeless toy categories and play patterns. As the supply chain is a dominant topic today, I remind people that this business always has challenges, and you work through them, and that's just part of how things are when you're in the world of business. It's always something, whether it's product cost or foreign exchange or a chip shortage. As we navigate forward, if we think about our business, there are four key elements that define who we are and maybe more importantly, who we are not. These elements are, one, innovation within categories to maintain freshness and relevance. Two, addition of relevant brands, new and existing IP, and license or relationships. Three, geographic expansion to reach a rapidly expanding global toy market, and four, migration into adjacent categories to fulfill the needs of consumers and our retail buyers. All of these growth opportunities are layered on the foundation of evergreen product categories, brands, and properties that we have steadily built over what is now nearly 27 years. Quarter after quarter, we update you with results about our performance, but ultimately, it's a recap of how are we progressing on the mission outlined above. During the pandemic, we expanded into new product categories like skateboards, related accessories, scooters, and trampolines. We've reimagined our Disney Princess business with style collection, bringing together Disney's classic princess characters and stories with contemporary play and innovative approach to product design. We have steadily expanded and extended our Nintendo Super Mario business and separately our Sonic business, which has received a boost with the February 2020 release of the Sonic the Hedgehog film and is poised to benefit from its sequel release in April 2022. We've prudently but steadily expanded our sales capabilities in France, Spain, Italy, and Mexico, opening direct sales channels of distribution to flow through our ever-expanding product line while leveraging our existing staff and fulfillment infrastructure. Despite the pandemic's lasting presence, our European toy business is up over 10% year-to-date and our Latin American business is up over 20% during the same period. And I'm incredibly excited to talk about the expansion of our Disney disguise costume business into Europe in 2022. Although we often shorthand this business as Halloween, the reality is that it's a year-round costume dress-up business, and the addition of the Disney properties will accelerate our disguise international expansion. For the past 12 months, only 5% of our disguise business was done outside of North America. And although we previously had a number of international licenses, we could be more excited to add Disney and its iconic characters to the mix which has allowed us to invest further in dedicated international staff to support this growth. From a North American point of view, we have been communicating over the past several weeks and months the significant number of additional relationships we have been adding to the Disguise business. Universal brand development with franchises like Jurassic World, Minions, Child's Play, Sony with the timeless IP like Ghostbusters and Cobra Kai. And last but not least, Netflix, where Stranger Things, Ada Twist, Money Heist, and more were added to our lineup for 2021. We have more in store for 2022 and beyond for Disguise, taking advantage of the excitement around what has proven to be a record-setting U.S. Halloween market this year for the National Retail Federation. If nothing else, the pandemic has repeatedly reminded us that a lot can change in a short period of time, and growing too comfortable and confident in what lies ahead is a recipe for disappointment. As we sit here in late October, we have excellent consumer and customer demand for our product, and the challenge before us is to fulfill that demand in time for the holiday season. We are looking forward to a brighter 2022 and reaping the benefits of the hard work that the teams have invested over the past 18 to 24 months and adjusting to a leaner organization and expanding upon the commercial successes in our core businesses. As always, I want to thank our people around the world for the relentless support of the business as we work towards the end of the year. We remain excited about what lies ahead, and it's our staff that makes Jax the unique, entrepreneurial, hands-on toy and consumer products company that we are. Thank you.

Ladies and gentlemen, as a reminder, to ask the question, you would need to press star then one. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matthew Caton with Jefferies. Your line is open.

Hi, everyone. It's Matt here filling in for stuff today. I hope everybody's well. Good afternoon, Matt. Thank you for taking the time. Thank you. Good afternoon to you guys. So supply chain obviously is a concern on the mind of many investors right now. Would it be possible to provide some further insights into how you're navigating and do you foresee any margin pressure in the fourth quarter?

Thank you, Matthew. So far, we're extremely excited for the last quarter of this year. We've mitigated a lot of the constraints with, as I mentioned, my prerecorded statements. But for us, we are almost at the month of October. We'll have shipped over half of our fourth quarter internal projections. That's been what we've been focusing on. The lap of what occurred in third quarter was just due to the majority of the FOB customer's not getting the containers out at the time that was needed to achieve it in the quarter. That being said, if you see, we have almost double the amount of inventory on our books that we have brought in. That is primarily the majority of them are at the port getting through for our domestic part of our backup of inventory worldwide. So we're extremely comfortable with this year of achieving our internal forecast with growth. And we don't see any erosion in the the gross margin from doing so. We've been mitigating that process and we've achieved increased prices where necessary, where we had the cost increase. So overall, we're extremely confident and strong and bullish for the remainder part of this year and going into 2022. Awesome.

Thank you. And then another question from us. So costumes looks like it's off to a great start. Any early feedback on Halloween sales and what's selling really well.

Overall, I would say almost everything in Halloween, not just, firstly, for our costume business, we are on track for one of the cleanest Halloween seasons we've ever had, which bodes extremely well for 22 as we have an abundance of new licenses that we have announced, and we brought up on this call as well some new licenses to be announced. And because of the sell-throughs that have been extremely strong, both with the major retailers and online retailers, That just bodes extremely well for them being confident going into 22 with a stronger feeling of commitment into 22. Thus, with expansion for Jack's internationally on the costume, cosplay, and Halloween carnival business, that will help us increase our sales internationally for Halloween. And then in North America... We have abundances of current great licenses and new licenses that we believe we'll see stronger growth in 22, and 21 was a terrific year versus 2020.

That's super.

Last one from us. So looking forward into 22, how does your license portfolio look like right now, and are there any businesses you expect to see outsized growth in?

Well, we definitely see growth where we sit here today and we've discussed this internally for our next three- to five-year plan. And we see next year becoming very strong in the majority of our categories. Our private label business, we see growth. We see growth in our core Disney businesses with the current licenses that we have, you know, with Encanto, the new categories in which we're developing with Disney, the style collection. As I mentioned, Halloween, we see that growth. And then in our seasonal businesses, we have a plethora of new licenses that go into the ball pits, the tent environment, play environment, the outdoor furniture, the foot-to-floor ride-ons. And we have the new additions, as I mentioned, the indoor trampoline, licensed trampoline businesses with some top licenses, our redo skateboards, which are terrific that we're getting more deeper presence at retail, and we're launching licensed redo skateboards into 2022 as And there's a plethora of new movies coming out from Sonic the Hedgehog, Fantastic Beasts, Jurassic World, Transformers, Minions, Avatar. There's a lot of new content coming out. And this year, there wasn't a major release of content until Encanto comes out in mid-November. So besides that, we see next year being a very solid growth year for us.

Thank you very much. That's all from us, but thank you so much for the time. Thank you.

Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. Our next question comes from the line of Tristan Thomas with BMO Capital Markets. Your line is open.

Hi, it's Tristan on for Derek. Hi, Tristan. Hi, how are you? Good. First question. I'm kind of back on the supply chain. Could you maybe quantify how much longer things are taking to get over from China? I think Hasbro called out up to 50 days extra, so I'm curious what you're seeing.

Well, it really depends on the ports and where the goods are coming, whether they're coming to North America or in Europe, whether it's Rotterdam. So it really depends on that, and it depends on the port that it leaves. If you're leaving at Yantian, it's taking longer, but if you go to other ports in Shanghai... It started to become a little bit looser in a sense of the clog effect at the actual port in Asia. As we said earlier, we opened up a bonded warehouses in Shanghai, which now has allowed us to move the goods from our factories, which is allowing them to build for spring inventory pre-Chinese New Year. Hasbro is accurate probably for them and somewhat for us, but it's coming down less and less. It could be anywhere from 35 to 45 days. We've seen it. It's gotten worse in the third quarter, but it's becoming the lesser now going forward. We see it becoming that way even today. The goods that are coming through the port itself, we're in obviously Los Angeles, and the container ships have been anchoring and sitting outside, but now they are flowing in a little bit better than they were two weeks ago because of the 24-hour shifts. and things are getting a little bit less congested. The big thing is that we've worked through is actually the labor of unloading the containers once they get to our warehouses because there's an abundance of labor that's needed, which our team, our distribution team, our logistics teams have done a wonderful job. But that's been a clog that has happened in the past that's starting to relieve itself. So it's definitely getting – smoother, but it's just not there yet or not. It won't be back to the norms until, you know, second half of first half of next year.

Okay. Maybe another question on that. If something is produced in a factory in China tomorrow, how likely is it to get on retailer shelves before the holidays?

So for the, if I think right now it's where it's called November one, Things that are being produced now are more than likely are going to be for spring as for us. So the goods that we have already shipped FOB to our retailers are primarily for this season's holiday. And the majority of all the other inventory that will be used worldwide will be on a domestic basis. So for anyone that doesn't have the majority of the goods shipped by now from Asia, they're more than likely won't get on the shelf just due to the timing it takes to get to the port. to get through the ports, to get through the distribution centers internally, and then going to the actual retailer distribution centers, which are around the world, you're getting very late. So maybe you have one week to two at the most if you're lucky. But I'd say unless you've planned and have the goods on the boat now, those goods will be for spring, which is what we've had planned for spring versus Chinese New Year coming as well. Okay. That makes sense.

Um, just one more question. How are retailers approaching this holiday season relative to last year and then relative to 2019?

Oh, relative. They're just, I would say definitely more aggressive in getting goods. Uh, we have seen, and we've been able to achieve some white space available from other manufacturers in the toy industry that could not get product out to retail. So there's been opportunistic areas for companies that have inventory and the right inventory. I think everyone has been spooked because of the news and the commitments and you've seen in the consumables that there's a lack of inventory, even things that are domestically manufactured. So the retailers know that one of the key drivers during the holiday season are obviously toys, which brings in the consumer, which buys other products besides toys. So I think there's been a key focus on making sure that they had an abundance of toys to make sure this Christmas is an excitable one and they're doing their best. And as I mentioned at the start of our call, When we founded JAX, we founded it as primarily an FOB business, and over 50% of our business is still an FOB business, which has bode well with us to have these major retailers that have a lot of clout and have gotten ships and containers on their own to pick up the goods in Asia, which has benefited JAX materially, and at the same time, We've worked on bringing the domestic goods in earlier. As I mentioned, our inventory is up over double for that reason. So the ones that are planned well are doing well, and the retailers are very aggressive, still looking for goods today, seeing that when manufacturers are promising goods and they're not coming in, they're looking to make sure that their shelves are not empty. And if it's not an item that was purchased by one manufacturer, they're actually willing to make space for other goods to make sure that their shelves are filled for the holiday season. Okay, great. Thank you. Thank you.

Thank you. I'm showing no further questions in the queue.

Everybody, thank you for the call today. We have several many calls throughout today and tomorrow, and we appreciate the time, and happy holidays to everybody. Thank you.

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