JAKKS Pacific, Inc. (JAKK) Q2 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for joining the JAKKS Pacific Second Quarter 2012 Earnings Call with management. Today, JAKKS will review the results for the second quarter ended June 30, 2012, which the company released earlier this morning. On the call today are Stephen Berman, President and Chief Executive Officer; and Joel Bennett, Executive Vice President and Chief Financial Officer. Mr. Bennett will first provide an overview of the quarter and operational results, and then Mr. Bennett will provide detailed comments regarding JAKKS Pacific's financial results. Mr. Berman will then conclude the prepared portion of the call with highlights of product lines and current business trends prior to opening up the call for your question. [Operator Instructions] Before we begin, the company would like to point out that any comments made about JAKKS Pacific's future performance, events or circumstances, including the estimate of sales and earnings per share for 2012, as well as any other forward-looking statements concerning 2012 and beyond are subject to Safe Harbor protection under the 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 JAKKS' most recent 10-K and 10-Q filings with the SEC, as well as the company's other reports subsequently filed with the SEC from time to time. With that, I would like to turn the call over to Mr. Berman.

Thank you for joining us today. I'd like to start off by saying that we are very pleased with the selling of our products for the second quarter and year-to-date, and we are on track with meeting our guidance for the full year. We are working hard to bring high-quality and compelling playthings to market while tightly managing our business and increasing profitability. Highlights for our second quarter include strong sell-through of our Monsuno toys in the U.S. and the ongoing launches of the toy line and animated series internationally in the markets like the U.K., Italy and Australia. Our Winx Club dolls are off to a positive start, and our Big Wheel line launched at select major retailers in June and is already showing strong momentum. Disney Pixar's Brave topped the box office movie chart in its opening weekend, and our Dolls, Dress-Up and Role Play also are a hit at retail. Our Disguise costume division is heading into the Halloween season, with strong placement of our Spiderman, The Avengers, Power Rangers and Brave costumes, just to name a few. Beyond these product lines, our company outlook for the back half of this year is very optimistic. With our diversity, no one product will drive our year and we expect contributions to come from a broad range of products for all ages, including the Action Shot Video Cam and a strong lineup of evergreen products, including our Princess and Disney Fairy dolls, Dress-Up and Role Play based on the upcoming Disney entertainment and boys role play based on superhero licenses, such as The Avengers, Spiderman and Batman. Our international business continues its expansion headed by Monsuno, Disney and Cabbage Patch Kids international licensing and distribution deals. And just after our quarter end, we successfully completed our $80 million self-tender offer for 4 million shares of common stock at a price of $20 per share. I would now like to turn the call over to Mr. Joel Bennett to review our financial results for the second quarter of 2012, and then I will give a further update on our second quarter successes and discuss key brands with positive momentum going into the third quarter and beyond.

Thank you, Stephen, and good morning, everyone. Our results this quarter exceeded our top line expectations, with net sales for the second quarter 2012 of $145.4 million, up from $131.9 million reported in the comparable period in 2011. The reported net income for second quarter was $200,000 or $0.01 per diluted share, which reflects $1.7 million or $0.05 per diluted share related to financial and legal advisory fees and expenses associated with the letter of interest and activist shareholder activities. This compares to net income of $4.2 million or $0.16 per diluted share reported in the comparable period in 2011, which included $900,000 or $0.02 per diluted share of financial and legal advisory fees and expenses. Excluding these advisory fees and expenses in 2011 and 2012, the second quarter net income would have been $1.6 million or $0.06 per diluted share compared to net income of $4.8 million or $0.18 per diluted share in 2011. Lastly, in addition to the expected decline of $2 million in the 2011 THQ settlement payment, the company agreed to modify the payment terms related to the 2009 settlement agreement with THQ, whereby THQ paid $2 million of the $4 million originally due in the second quarter and will pay 2 installments of $1 million each in both the third and fourth quarter of 2012. This revision will have no impact for our full year, but lowered our second quarter earnings per share by $0.06 and will raise our third and fourth quarter results by $0.03 each in those quarters. Net sales for the 6 months were $218.8 million compared to $204.3 million in 2011. The net loss reported for the 6-month period was $15.7 million or $0.61 per diluted share, which included $3.1 million or $0.09 per diluted share of financial and legal advisory fees and expenses. This compares to a net loss for the first 6 months of 2011 of $6.3 million or $0.22 per diluted share, which included $1.2 million or $0.03 per diluted share of financial and legal advisory fees and expenses. Excluding the financial and legal advisory fees and expenses, the 6-month loss would have been $13.5 million or $0.52 per diluted share. The first 6 months of 2012 was also impacted by the expected decline and the shift of the THQ income as noted above. Worldwide sales of products in our Traditional Toys and Electronic segment, which includes dolls, action figures, vehicles, electronics, plush and pet products were $72 million for the second quarter of 2012 compared to $67.7 million for the second quarter of 2011. And sales for Traditional Toys were $110.2 million for the first 6 months of 2012 versus $105.9 million for the first 6 months of 2011. 2012 sales this quarter in this segment were led by: our boys action figures as Monsuno who offset by a decline in Pokémon and P&A; Girls products, which saw a lift with Winx Club dolls, Disney Fairy dolls and Cabbage Patch Kids; and preschool, which increased with higher Disney Princess dolls sales in our Tollytots division. Worldwide sales from our Role Play, Novelty and Seasonal Toys segment, which includes role play products, novelty toys, Halloween costumes, indoor and outdoor kids' furniture and pool toys were $73.3 million in the second quarter of 2012 compared to $64.2 million for the second quarter in 2011. And sales for Role Play, Novelty and Seasonal Toys were $102.5 million for the first 6 months of 2012 versus $98.4 million for the first 6 months of 2011. Sales of our Halloween Costumes were up significantly from the previous year and dominated sales in this category in this quarter followed by indoor and outdoor kids' furniture and role play products. Including in the category numbers are international sales of $29.5 million for the second quarter of 2012 compared to $22.2 million for the second quarter of 2011. International sales for the first 6 months of 2012 and 2011 were $40.5 million and $37 million, respectively. We are pleased with the progress we've been making in our international expansion, especially for Monsuno. As we seek to maximize international opportunities for licenses, as well as JAKKS' own content. Gross margin for the second quarter of 2012 and 2011 were 32.3% and 34.2% of net sales, respectively, and gross margin for the first half of 2012 was 32.2% of net sales compared to 34% of net sales in the first half of last year. The decline in 2012 was primarily due to a shift in product mix resulting in higher royalty expense and, to a lesser extent, higher product costs and tooling amortization. SG&A expenses in the second quarter of 2012 were $46.8 million or 32.2% of net sales as compared to $43.1 million or 32.7% of net sales in 2011. For the first 6 months of 2012, SG&A expenses are $89.8 million or 41% of net sales compared to $82.2 million or 40.2% of net sales in the prior year. The increase as a percentage of net sales for the quarter is primarily attributable to marketing support for the launch of Monsuno and foreign exchange losses, in addition to the incremental overhead added in connection with our acquisition of Moose Mountain, as well as the legal and financial advisory expenses incurred in connection with the indication of interest. Consistent with the seasonality of our business, operations used $19.3 million for the second quarter of 2012 compared to having used $14.6 million in 2011. As of June 30, 2012, the company's working capital was $355.8 million, including cash and equivalents and marketable securities of approximately $221.9 million. Depreciation and amortization was approximately $5.5 million in the second quarter compared to $5.9 million for the second quarter of 2011. And for the first half of 2012, D&A was approximately $8.7 million compared to $9.8 million in 2011. As for our tax rate, our effective tax rate for the full year of 2012 was expected to be approximately 25% before any 1048 or other adjustments. This may change if there is a shift in sales between U.S. and Hong Kong companies. Capital expenditures were $4.4 million for the second quarter of 2012 compared to $5.4 million for the second quarter of 2011 and $7.6 million for the first half of 2012 compared to $8.6 million in the same period last year. This is in line with our expectations with full year CapEx expected to be around $14 million. Accounts receivable as of June 30, 2012, were $121.6 million, up from $109.3 million at the end of the second quarter of 2011 due to higher sales in 2012. DSOs remained unchanged at 75 days from year-to-year. Inventory as of June 30, 2012 was $60.8 million, up slightly from the June 30, 2011 level of $55.3 million. Inventory levels are seasonally higher with consistent DSIs of 70 days in both 2011 and 2012. Our balance sheet remains very strong and we continue to evaluate various uses of our funds and untapped financing capacity. Using our disciplined approach, we look for accretive acquisitions to complement the growth of our business and effectively deploy our capital. In addition to our ongoing quarterly cash dividend program, the company completed its self-tender on July 5 of 4 million shares of common stock at $20 per share for a total of $80 million. As for our earnings guidance for 2012, we are still anticipating growth with net sales in the range of $720 million to $728 million, with revised diluted earnings per share in the range of $1.04 to $1.08, giving effect to the repurchase of common stock pursuant to our self-tender and related anticipated financing costs and excluding any financial and legal advisory fees incurred in connection with the unsolicited indication of interest. Our previous guidance for diluted earnings per share was in the range of $1.01 to $1.07, excluding financial and legal advisory fees. Lastly, our Board of Directors has declared a regular quarterly cash dividend of $0.10 per common share payable on October 1, 2012, to shareholders of record at the close of business on September 14, 2012. We continue to have strong confidence in the future prospects for JAKKS Pacific and its shareholders. With that, I will return the call back to Stephen Berman.

Thank you, Joel. Again, we are very pleased with the results of our second quarter of 2012 and feel positive about our prospects through the remainder of the year, including the ever-important holiday season with the initial success of Monsuno, Winx Club and Big Wheel and the broad placement of our wide range of products going into the fall 2012 year. There are some really terrific products in our portfolio and have both new and evergreen contributions coming across all JAKKS divisions this year. Let me begin with the key highlights and brands for the second quarter. First of all, Monsuno. We've been saying that we expect 2012 to be a great launch year for this brand, and things are really falling into place. The launch of Monsuno toys and the premier of the animated series globally have met the company's expectations to date. In the U.S., the newest wave figures and course, featuring new Monsuno characters, hit shelves in July and we're already seeing wave 2 of product positively impact overall rate of sale. Monsuno toys are currently in distribution at Walmart, Toys"R"Us, Target, Kmart, to name a few, as well as Amazon and Walgreens. This fall, distribution will expand to drug and grocery, discount value stores, clubs and specialty. A new slate of Monsuno episodes on Nicktoons kicked off with Memorial Day Monsuno Madness marathon, featuring back-to-back airings of the first 7 episodes. The new episodes debuted every Thursday through June and July, earning a strong ratings with boys 6 to 11 and 9 to 14, with repeat episodes throughout the week continuing to garner strong ratings and viewership. The new episodes Monsuno continues to air 7 to 10 times per week, as the Monsuno battle to the core game, continued to be the #1 game on nicktoons.com, with about 1.3 million game plays to date and growing. The international outlook for Monsuno toys and programming is very optimistic as demand grows. Monsuno had a dynamic presence at the recent Japan World Hobby Fair, where more than 6,000 kids engaged with our Monsuno toys. Our Monsuno toys launched in a number of key markets, including the U.K., Italy and Australia so far and we're looking forward to a strong response in these countries. In all, over 40 countries will have Monsuno toys this year. Monsuno's international programming on Nickelodeon channels and almost every major territory and country around the world began airing this summer, and we recently announced new international distribution deals on free-to-air channels for all major international markets, including the U.K., Italy, Spain, Canada, the Middle East, Australia and Japan. Monsuno will roll out in over 60 countries on Nickelodeon and free-to-air channels this fall. Now moving on to the Winx Club. Our Winx Club dolls are off to a very strong and promising start, with a special presale of our basic and deluxe dolls on toysrus.com launched on June 1, which sold out in just 3 days. This is especially exciting as the presale had no marketing or promotional push and the sell-through is high for this time of year for Toys"R"Us, especially as in-store inventory had not yet just been set. Limited on-shelf placement at Walmart and Toys"R"Us for our basic and deluxe dolls launched in June, and initial sales are promising. We are looking extremely forward to the nationwide on-shelf launch for the entire product line on August 1. Nickelodeon's broadcast of the Winx Club show continues to deliver strong ratings. Seasons 4, which is tied to our fall 2012 product line, began airing in May and is currently #1 in its time period with kids 2 to 11 and girls to 2 to 11 across all TV. We're also excited about the launch of the Original Big Wheel from Kids Only!, which hits Toys"R"Us shelves, Target and J.C. Penney stores nationwide in June. Initial sales look positive, and we have already received reorders for immediate shipment. Retail support of the brand has been tremendous. Big Wheels will be featured on QVC’s Christmas in July event and wide distribution of the entire Big Wheel line will launch at every major retailers nationwide in August, with television promotions anticipated for fall. Our spring and summer seasonal outdoor products performed well, including our patio tables, chair sets based on top licenses, such as Thomas The Tank Engine, Minnie mouse and our other outdoor products such as kiddie pools, toddler swings and our evergreen Funnoodle water and pool floats also did well in second quarter, with robust sell-throughs at retailers. Our Fisher-Price and Kawasaki foot-to-floor ride-ons from Moose Mountain had had very strong spring sales, with spring end caps at Toys"R"Us and would be [indiscernible] at Target. This has solidified our market share at both retailers position our business to be strong for the fall. We began shipping set orders for this coming fall to our placement at Walmart, Target and Toys"R"Us. The ride-on category as a whole is performing better than we expected. In our ball pit category, we continue to dominate retail, with perennial programs at Toys"R"Us, Walmart and Kmart. We also began shipping set orders for this fall for placement at Walmart and Toys"R"Us for the -- our ball pits. Our inflatable products, including licensed and nonlicensed items, also performed better than we expected at retail. Disney's Brave is a box office hit and we are pleased with our Brave dolls, dress-up and role play products that are also a hit at retail, as well as we are pushing to keep up with customer demand with a number of our items experiencing sell outs at retail. We have increased our production and anticipate expanding our product offerings for the holiday and the DVD release in November. With holiday right around the corner, our Disguise Halloween costume division was well ahead of the game with retail placement of the movie license costumes to coincide with theatrical releases of The Avengers, Spiderman and Brave, which increased our second quarter performance. In our Boys category, The Avengers movie has driven other activities for our costumes from all retail channels. Power Rangers continues to grow in demand and Spiderman requests have begun online with retailers when we anticipate other chains will follow. For girls, the release of Brave has resulted in expanded production of the Merida costumes, along with her bow and arrow and iconic red wig. For adults, among many other costumes, we have a full line of political masks that are in demand now that both candidates have been secured. Our depth of the licensed costumes as we head into the Halloween season include a number of top Disney properties, including Shake It Up, Jake and the Neverland Pirates, Brave and Cinderella, just to name a few. We also have costumes and accessories based on the hottest kids entertainment properties, such as the Winx Club, G.I. Joe, The Amazing Spiderman, Masters of the Universe and Monsuno. And now I'd like to touch base on our company outlook for fall, highlighting top brands that are showing positive momentum. Our JAKKS own Action Shot Video Camera line is an innovative new point-or-view video camera recording system geared for the masses. This portable mini camera records action sports and gaming adventures up close with a front row view of all the action. The basic Action Shot Video Camera with upgradeable memory and a built-in micro USB port starts at a very competitive retail price point of $49.99. The high-definition version will retail for $99.99. Both items are at a fraction of the cost of competitive products in the market with similar high-performance features. Action Shots targets a broad demographic from kids to adults and represent a new product category for us, allowing us further expansion into alternative channels such as the sporting goods stores, electronic stores, e-commerce, warehouse clubs, QVC and others. The rest of our electronic lines will be hitting retail shelves next month, including our new Spy Net Ultra-Vision featuring real working night vision and takes role play to real play with even more technology with thermal vision, a daytime filter and also the ability to take pictures and videos. Our Power Train sets and Walking Dead deluxe TV games are shipping with great placement at major retailers, as well as mid-tier accounts. Our evergreen products, including dolls, dress-up and role play, continue to be the core of our business. Disney Princess and Disney Fairies remain our top performing girls brand and we're optimistic that both brands will have strong sell-throughs in the fall, as the much anticipated Disney Fairies: Secret of the Wings DVD and Disney Princess: Cinderella Platinum DVD both will be released in October. We are looking forward to the new toys surrounding the #1 favorite Disney Princess, Cinderella, with the Diamond DVD release in October, specifically the beautiful Cinderella deluxe line of dress, the Enchanted Vanity and the 20-inch Cinderella Magical Wand doll. Strong promotional plans have been secured for Cinderella products at all key accounts. Our Disney Princess Dress Up line had stronger-than-expected performance year-to-date, and the outlook for fall looks even stronger, with all due lineup of Princess dresses just in time for Halloween. Disney Princess Baby and Toddler dolls continue to be top performers, and we're extremely excited to announce that we've been granted the rights to distribute My First Disney Princess dolls internationally in Europe, Middle East and Africa. We expect our Disney Princess dolls to be bolstered by a new 6-inch toddler doll exclusive that will be featured in a significant fall promotion at Toys"R"Us in the U.S. and Europe. We anticipate robust sales for our Disney Fairy dolls, dress-up and role play surrounding the release of the new Secret of the Wings DVD in October. Product lines bring to life the themes of the sisterhood and the newest Disney Fairies character, Periwinkle, recently revealed as Tinkerbell's sister with our 9-inch fashion dolls and 4.5-inch dolls with light-up wings and light-up role play wings. Cabbage Patch continues to perform well in the spring and summer, and we've had strong committed support at all major and mid-tier accounts with Cabbage Patch Cuties as the leading driver followed by our Cabbage Patch Kids Cuddles and the core kids as well. We look forward to an equally strong fall performance with the introduction of a new Cabbage Patch Kids Babies. Beyond the strength of our overall doll and dress-up offerings and our preschool lineup, we have our new and innovative pre-school ergonomic toy based on licenses such as Safety 1st, Rubik's Cube and Baby Genius, all shipping to hit retail shelves at Toys"R"Us and other mid-tier accounts. Now in our boys' Role Play segment, Black & Decker continues to prove itself as an everyday bestseller with reliable and consistent sell-through. Walmart recently expanded store counts for our Black & Decker line to further capitalize on this strong performance. In addition, we have dress-up costumes and novelty toys for 2 of the strongest summer blockbuster brands for boys, Marvel's The Avengers and Spiderman. These costumes are expected to be top boys licensed dress-up and costume sellers for this fall. Finally, on the heels of the upcoming release of the latest Batman movie, we are excited about the launch of our huge 31-inch action figure. This is a first for the company and we look forward to continue this relationship with DC Comics and Warner Bros. into 2013. Overall, we are pleased with the progression into 2012. Our international business continues to thrive and are working on setting the stage for a robust year for the international shipments with Monsuno toys and the launching of the program internationally and the expanded rights for Disney properties and Cabbage Patch Kids in the U.K. and beyond. We are extremely excited for the potential of our organic brands, such as Monsuno, Action Shot, Power Trains and others and continue to pursue opportunity to grow our own IP. We continued to secure many new licenses, which we believe will be great and complementary additions to our portfolio starting in 2013. We recently secured the license for the boys animated series, SLUGTERRA, the sci-fi action comedy adventure set to air on Disney XD in fall 2012. Our SLUGTERRA line will include action figures, vehicles, role play, novelties and plush items. We have secured the rights to a major Disney batched release Oz: The Great and Powerful due in theaters in spring 2013. We will be offering fashion dolls, dress-up and role play items. We recently announced a massive toy licensing agreement for DANIEL TIGER'S NEIGHBORHOOD, a new animated preschool series inspired by the legacy of Fred Rogers and Mister Rogers' Neighborhood from multiple JAKKS division and encompasses all the key preschool toy categories under one license. This partnership exemplifies JAKKS' licensing strategy to leverage our capabilities to create and market products across a wide base of toy categories, making JAKKS a unique one-stop shop network for licensors. We continue to pursue and review acquisition opportunities in search of quality additions to our portfolio. By staying true to our strategy of international expansion, growth of organic brands, growth through acquisitions, securing the hottest children's and entertainment licenses to complement our portfolio and continuously seeking the latest cutting-edge technology to bring innovation to our industry, we will build a more profitable and successful JAKKS Pacific for its stockholders and employees. And now I'd like to announce and have further discussions on the new joint venture called DreamPlay Toys. DreamPlay Toys will use its state-of-the-art recognition technology to revolutionize the way kids play with toys and the way consumers will interact with everyday products, provide an experience so rich, it's beyond your imagination. Dr. Soong-Shin has invested over $500 million to build NantWorks, which consists of 40 innovative companies, each with transformative technologies that include semiconductor, supercomputing, advanced network and augmented intelligence technologies. NantWork technologies defined its mission as transforming the way we work, play and live. Simply put, NantWorks combines state-of-the-art technologies so it distills vast amounts of data into an easy-to-use valuable service for consumers, whether they are kids, doctors, sports fans, music fans, moviegoers, shoppers, tourists or people watching TV at home. Beginning in the late 90s, semi-patents were acquired -- seminal patents were acquired for various image, video, face, sound, speech and object recognition technologies that now form NantWorks, a unique unified recognition platform. Over the past 5 years, NantWorks' music recognition platform has been deployed and tested at scale in a commercial setting and the speech recognition technology has been used in the U.S. Military for real-time interpretation in Iraq and Afghanistan. The image recognition technology platform has also been tested at scale at a commercial setting. NantWorks' object and image recognition technologies are already on the market for blind and partially sighted people and received an FCC Chairman's Award in 2011. After years of development and thorough testing, with a full patented portfolio underpinning the entire platform, NantWorks is ready to launch this recognition technology as a paradigm shift, taking a multi-model media beyond the net. NantWorks' recognition technology can create links between all types of media and between all of them and the physical world. With an app on any smartphone or smart device, it can recognize objects such as toys, groceries or buildings and beyond. It can recognize print images on posters, billboards, magazines and newspaper. It can recognize screen images on your TV or computer and connect -- and can connect these images to whatever content supplier it chooses. It does all this without any barcodes, any QR codes or watermarks. The object or image being recognized is not altered in any way. Its sound recognition technology can link a song with a video or concert information and ticket sales. It can support instant interpretation for people taking different languages even when they use normal and informal conversation sentence structures. NantWorks recognition technology can create links between all types of media and between any of them in the physical world. With an app on any smartphone or smart device, it can recognize objects such as toys, groceries and buildings. Again, it recognizes print images on posters, billboards and magazines and newspapers. Again, it recognizes screen images on your TV or computer. Again, it connects these with each or whatever the content supplier chooses. It does all this, again, with no barcodes, no QR codes or watermarks. The object and/or the image recognizes is not altered in any way. With that, I would now like to open up the call to any Q&A.

[Operator Instructions] You have a question from the line of Ed Woo representing Ascendiant Capital.

I had a question regarding the increased EPS guidance. Is there any other factors that affected the guidance? Because it seems like with the reduced share count that the EPS guidance should have gone higher.

Yes, we also factored in expected financing. We used initially funds from Hong Kong. And to avoid repatriation taxes, we'll be undertaking a bank line -- a short term bank line. But there -- it was a -- about 15% of it had shares outstanding, but on a diluted basis, it was about 12%. So factoring the -- after your weighting of those 2 million shares and the estimated financing gets us to the $0.03.

Okay, but there was no other operational impact on your earnings guidance?

No.

Okay. And the other question I had is this JV that you mentioned, it sounds like it's very interesting, promising products. When do you think we may actually start to see products from it and how exactly is this JV being structured?

On this -- I'll start with your second question. The structure of the JV will not be disclosed because of the proprietary technology that it'll be not disclosed at this time. But we will be launching this with various partners during the international October Toy Fair -- Consumer Products Toy Fair. And at that time, you will be able to realize the breadth and depth of this technology. And again, it's proprietary, this technology. There's over 1,000 claims that had been issued through Dr. Soon and his various companies. So it's truly -- since the inception of this company, which myself and Jack cofounded, there has been nothing more groundbreaking that we have done that I believe will revolutionize not just our company but the actual toy business itself. At the same time, what we will been doing internally for JAKKS, we have an exclusive right with this technology with NantWorks as a partner to sublicense this technology to the correct partners that we feel are appropriate to use this technology in the future.

Does that include only the toy industry or does it include for any usage?

For JAKKS Pacific, it is strictly the toy industry, in which we are involved with. But that means it's a broad category. DreamPlay itself, the corporation, the structure, will be utilizing that technology throughout various consumer mediums, such as other consumer products, digital, television and so on.

Your next question comes from the line of Arvind Bhatia representing Sterne Agee.

Okay, couple of things here. One, I know you're not disclosing the amount of business you're doing with Monsuno today, but I would just like to maybe get some color on the domestic versus international mix? And should we be expecting Monsuno to become, say, about 10% of your business here in the coming year or 2? Just broadly, if you can put some brackets around how to expect revenue, how we should model this?

Well as you know, we, as -- for competitive reasons, not just for our competitors but also for retailers, we do not break out the percentage of any one specific category. But I will give you some flavor of Monsuno both in North America, call it U.S. and the international. It's growing. It's growing, I would say, rapidly. During the summer months, remember for majority of toy companies, things are a slow period, it's very seasonal. People are getting back to school. But the orders on hand and our forecast in-house through both U.S. and international is growing expeditiously. And the -- we had a very promising event through our partner Bandai in Japan and they're focused very strongly in Japan, which believe -- we believe and they believe will be probably the one -- the #1 boys toy properties in Japan. We also have extremely strong, promising new ventures in Korea. That's not just to say our international, call it, Western Europe and Eastern Europe business is growing. So we are extremely excited about Monsuno, and we're looking forward to the years ahead with it.

Okay. And then one question on this new joint venture you announced this morning. First of all, how long is this JV going to be for?

It's for a long period of time, but none of this will be disclosed until the definitive agreement is completed. But it's a very long partnership. It's not just a partnership between 2 companies. It's a partnership of friendship, which Patrick and I have a very strong relationship and a commitment, not just for the change in the way that people will interact with smart devices, but we also believe the world will be a better place with what we are doing together. I know that sounds kind of cliché, but if you look at Dr. Soon's past and background and his philanthropy and what he's done in different industries, that's truly where we're going. We have shown, on a confidential basis, this technology to various partners. And I will say that there has not been one individual or individuals that have not been flabbergasted or more amazed in what we have presented to them. So it's really groundbreaking. It really -- it's not just groundbreaking for JAKKS, but we're really on a path. In the next few months, people will realize how transforming this will be for JAKKS and for other companies.

So I think if you will be incorporating this technology into your upcoming products, are you creating specifically products to use this technology or is it going to be more, at least in the near term, just adding this to what's in the pipeline? Just help us understand how much of your business will incorporate this new technology, say, in the next...

Because of Dr. Soon's patented -- dramatically patented technologies, the same toys that we have today, we do not need to change at all in any way, from the toy itself to the package. So we will be implementing the technology throughout various segments of our business and becoming more and more throughout the next 2 years. But it's truly evident, we've known each other for 10 or 12 years, there's nothing more transformative than what we will be doing with his technology with our product and other people in our industry's product, as well as other consumables from what you see at retail to -- for the retailer themselves and what you see at products at home. And again, we'll be showing this in October, and obviously, the analysts and investors will be open to come out to see this revolutionary change.

Your next question comes from the line of Sean McGowan representing Needham.

I have a couple of -- sorry, I'm late, but a couple of questions here. Could you like characterize, I mean, maybe you covered some of this earlier so I apologize, but the deferment of the payment from THQ, a lot going on there with THQ. So how safe should we feel about that coming later in the year?

Very safe. They have a game launching in August, and we were happy to accommodate them and we believe that we'll collect as scheduled.

Is there anything that JAKKS is getting as compensation for making this accommodation, like additional payment or something? Something, something?

5 percentage interest.

Okay, all right. And you may have commented on this earlier as well, but can you characterize sell-through on Monsuno? How is it stacking up?

Well, we actually have just launched Series 2, which we have been waiting for. And it's just getting on the shelves. Series 2 is just launching, so it's not stacking up. Again, we also don't want to ship too much during the summer period as you've been in this industry for, let's say, 60 years even though I know you're not 60, Sean. That -- and we just don't want to ship too much but we have a dramatic amount of marketing and a lot of things going on with Nickelodeon or Nicktoons going into the fall season with all the new episodes so -- and international, we've actually had to build quite a few new sets of tools because of the demand that's happening there. And we're trying to manage the amount of tooling, our R&D cost. So it's going well and better as expected. And no one's asked about it, but while you asked about Monsuno, we launched the Winx Club and -- recently, and from our retailers' point of view and from JAKKS' point of view, the sell-throughs are well beyond what we ever expected. So that's off to an amazing start. Nickelodeon's done a tremendous job promoting it for over a year, and it's truly exciting. So it's something that we felt really strong about, but now we feel even stronger.

All right. And last question, and I can appreciate your excitement over the technology represented in the DreamPlay. But I lack vision, perhaps, so maybe you could give me an example of 1 or 2 toys where the technology would actually make the toy more fun. It's not that I can't think of it, I just don't -- you know a lot more about it than I do. So this -- there are many, many things I'm sure it can be used for. Can you give us a couple of examples?

Well, I'll give it -- it's very difficult because you're not here to be able to see it. But for many smartphone, a smart device, and let me use some examples. I have a 7 -year-old daughter and she watches TV on my iPad. She doesn't have an iPad, but she has the accessibility for an iPad. So those smart devices are what people are utilizing, and it's becoming more and more. And with these smart devices or your television or so on, you'll be able to actually, from an in-store experience, so while you're shopping with your children, you could actually ID the actual item at the retail shelf. You can actually see what that item is able to do actually at home while on the shelf. You can see -- again, nothing being done different to our product or packaging. You can see what other products are available that are conducive for the play pattern and you could make your whole room interactive. So from a -- use a normal, doll clothing or you could actually make a whole surrounding environment that just happens from the actual clothes itself. It could happen from a t-shirt. It could happen from a teapot, that you have a teapot that you put your smart device in, and it builds a complete environment and you could add to it. And every day, that actual image, based on the content holder or content provider, can change based off what they want. So I'll use an example of a poster that has, I'll use -- again, we have no agreements, like a Justin Bieber. You have a poster that you have on your wall or your child has on their wall, that Justin Bieber poster is a complete interactive poster that Justin himself can actually change the content through our back engine of what he wants to say to his consumers. So if he wants to play his new song or his video, you could ID that poster. Again, no augmented reality, no markers, no QR codes, and it can be Justin Bieber dancing to his favorite song. It could be a Lady Gaga, I'll use that example, that she talks -- she wants to talk to her monster. She calls her fans little monsters. She can give a message to them every week that gets -- just put on, call it the cloud, and that message can say she has a concert in 2 weeks in LA. Buy now, get 5% off. Buy now, go on to Ticketmaster. It's really revolutionary. And again, this is not technology that just came up over the last 2 years. Dr. Soon has been working on the Mars Rover program. He has been working on over 10 to 12 years, machine-to-machine recognition, communication so it's really -- the imagination is up to the child and actually up to the content provider. So as -- I know it sounds hard to digest, and it is, and that's why our -- the partners that we have shown, we've shown in very strict confidence -- in confidentialities and the quotes have been from revolutionary to groundbreaking. The world has changed, and it's from his technology, his past brilliance, we meeting one another, utilizing both of our wisdom and wanting to make a change in this world. And I'll use an analogy, Sean, and you've been in this business a very long time. From the old management of a Mattel or a Hasbro, the old management, when the video game industry came into this world, they actually should have changed to be the #1 video game companies. There should never have been Electronic Arts and Activision. Those 2 companies should have been #1 in the gaming world. They didn't react to it. Then the app world came, and again, many call it toy companies, consumer companies didn't act. What I have done and what JAKKS has done and what DreamPlay is doing and what Patrick has been doing for over a decade is utilizing technologies that have been sought after, developed, built, patented and making that change because the way that we have seen in our industry, shelf space is becoming less, the attention span of children have become less and smart devices have become more. So we are combining all that into making sure that we grow our business the right way, looking forward beyond hopefully the next 5 years with this technology.

[Operator Instructions]

As there are no further questions, and I know there's many other conference calls today, we appreciate everybody on this call. Thank you for believing in us. We believe in our stockholders and our employees, and I look forward to the remainder of the year and the years to come. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.