Good afternoon, everyone. Welcome to the JAKKS Pacific Third Quarter Earnings Conference Call with Management, who will review final results for the quarter ended September 30, 2020. JAKKS issued its earning press release earlier today. The earnings release and presentation slides for today's call are available on the Company's website in the Investors section. On the call this afternoon are Stephen Berman, Chairman and Chief Executive Officer; and John Kimble, Chief Financial Officer. Mr. Berman will provide an overview of the quarter, along with highlights of product lines and current business trends and a discussion of the impact of COVID-19. Then Mr. Kimble will provide detailed comments regarding JAKKS Pacific’s financial and operational results. Mr. Berman will then return with additional comments and some closing remarks prior to opening up the call for questions. [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 estimates of sales and/or adjusted EBITDA in 2020 as well as any other forward-looking statements concerning 2020 and beyond are subject to safe harbor protections 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 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. 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 associated non-GAAP financial measures within the Company's earnings press release issued today or previously. As a reminder, this conference is being recorded. With that, I would now like to turn the call over to Stephen Berman.

Thank you, and good afternoon, everyone, and thank you for joining us today. Considering a number of challenges we faced in the third quarter, we are pleased with our results. We believe that there continue to be promising trends underway that leaves us very optimistic about 2021 and beyond. We had a solid EBITDA in the quarter, lifting our year-to-date EBITDA to $24 million up over 50% compared to last year. We grew our margin to the highest level in three years. Our retail POS at top customers is up 20% year-to-date. Our year-to-date operating income is positive for the first time since 2016. We recently amended our term loan prepaying part of it and lowering our EBITDA covenant, giving us greater flexibility. Considering the challenges of COVID and the difficult revenue comparisons, I think our year-to-date results show considerable progress in our efforts to improve our cost structure and put us in a position to produce strong results in 2021. Our net sales in the third quarter were down 14% from the results we posted a year ago, but we are encouraged by the composition of those sales. In our Toys segment, our sales were down approximately 8%. This decline was mostly due to the reduction in sales of products tied to Disney’s Frozen 2, which we shipped heavily last year ahead of the November release of the movie. There were no comparable blockbuster films released in 2020. So excluding products tied to Frozen 2 and the original Frozen, our toy sales were up 30% in the third quarter compared to last year. Most of our major retail customers were able to return to normal operations in the third quarter, although many smaller retailers and specialty stores continue to see traffic and sales well below the normal levels. This…

Thank you, Stephen, and good afternoon, everyone. Net sales for the 2020 third quarter were $242.3 million down 14% compared to $280.1 million last year. Reported net income attributable to common stockholders for the third quarter was $32.1 million or $4.27 per diluted share compared to $16.3 million or $5.08 per diluted share in the third quarter of last year. The third quarter of 2019 included charges related to the extinguishment of debt and changes in the fair value of our convertible senior notes totaling $13.7 million. In the third quarter of 2020, when combining the changes in the fair value of our convertible senior notes and preferred stock derivative liability with modest expenses related to the pandemic, the adjustments essentially offset each other. Excluding the impact of such charges and gains as well as stock compensation expense, our adjusted net income attributable to common stockholders in the third quarter of 2020 was approximately $32.6 million or $4.76 per diluted share compared to $31.4 million or $5.38 per diluted share in the third quarter of 2019. Adjusted EBITDA for the 2020 third quarter was $42.7 million compared to $44.1 million in the third quarter of 2019. Our trailing 12-month adjusted EBITDA is $27.6 million. Compared to last year, our girls targeted business declined in the quarter, inclusive of Dolls, Role Play, Dress Up and preschool toys and consumer products, net sales were $129.3 million in Q3 down 11% compared to $145.9 million in the third quarter of last year. The big driver of the decline was the strong initial sales of merchandise related to Frozen 2 in the third quarter of last year, as well as products tied to the original Frozen film. Excluding Frozen products, sales of girls products were up over 24% compared to last year. Products that…

Thank you, John. One of the most significant benefits and competitive advantages JAKKS has created over the past 25 years, which has proven successful in this current environment is the many evergreen categories and business units we have created. These product lines feature basic time-tested play patterns and have proven to be steady sellers for JAKKS, whether we are in normal times or in an environment as disruptive as we have seen in 2020. They are not dependent on hot movie properties, although, we will always be opportunistic with such properties. Examples of these evergreens include our seasonal products, such as Moose Mountain with its everyday play pattern such as children's, ride-ons and a broad array of sizes and licenses, play environments such as ball pits and pop-up tents with all the appropriate evergreen licenses, ReDo Skateboards, which is building rapidly now and we expect we'll continue to grow going forward. And a brand new segment we'll be launching next spring, which consists of licensed skateboards and licensed trampolines, thus adding to this division's growth and expansion. We believe Disguise will have a solid 2021 with an ample line of new licenses we have been pursuing throughout this year, coupled with the amazing cast of characters from our deep portfolio of licenses from major entertainment partners, gaming licenses and licenses from our friendly competitors. In addition, Halloween lands on a Sunday, which usually gives the industry a lift compared to when Halloween lands on a weekday. Our Boys division has a stable line of evergreen licenses and proven categories, which continually outperform our internal expectations, including our line of Nintendo action figures, collectibles and play sets. It's-A Me, Mario!, and our Super Mario RC. We have a deep offering of Sonic the Hedgehog action figures and toys and our new…

Thank you. [Operator Instructions] Our first question comes from Steph Wissink with Jefferies. You may proceed with your question.

Thank you. Good afternoon, everyone.

Good afternoon, Steph.

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

Thank you, Steph. And hope all is well and healthy for you and your family. A few things that we've seen, as you primarily know a lot of our business, more than half of our business is an FOB business platform both the North America and globally. So what we've done as we've had our earlier shipments based on a lot of it being done FOB. So we've had early placement and early set dates with retailers. And what we've seen from that is the core categories in which we're in, some of it being a good fortunate that we've developed and we acquired over the years. Some of it, we expanded on our own, have really performed or outperformed kind of the normal expectations. It's the normal basic play patterns and we're in pretty much the right categories and the right age grade for kids. So from our seasonal business with the foot-to-floors, the ride-ons, the play environment, the skateboards, go from preschool to kids and tweens. Then all the way through our Disney Group, our Halloween Group and our Girls Group. We are just in the correct categories, the right play patterns, the right price points, and with the right retail channels and really a diverse retail channel base from the mass retailers to our secondary retailers, like the T.J. Maxx, the Costco’s, the Ross Stores, and then to the dollar trade. So we're out at every retail trade almost every retail price point that's applicable and it just bode extremely well for us in this environment. And we took a lot of the risk off the table early on. We’re trying to launch new or owned IP such as like Creepy Crawlers this year, which takes a lot of heavy marketing dollars to go behind. We decided to take a real basic play pattern and strong content that's known around for kids and adults, which really has outperformed our expectations. And from there, we decided early on to start expanding in those categories for next year. So it really just – it was a mix of good timing, good planning and just a strong consumer base.

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

Yes. And thank you for that question. We're really excited and I'm personally excited about it that our basic seasonal business that I just mentioned about the play environments, the ride-ons, the play tents. We have a tremendous amount of licenses that are new and with our current fresh appropriate licenses, in addition to our ReDo Skateboards, which are just a really cool great category that is in the mass. We've acquired a tremendous amount of strong licenses to do a licensed segmentation, which will be new for 2021. We also entered in, which was a category that did exceptionally well this year, which were indoor trampolines and non-licensed trampolines at retail. And we took over the appropriate licenses from the top licensing companies to build that trampoline base, which will be all new areas of business for us in 2021, same goes into our boys category from the Sonic, Nintendo, and APEX. We have several new licenses and areas of business. So without any real new movies, we look at our categories doing strong. Our Disney Group has expanded their Disney Classic Princess business, which has grown for us this year. Our Style Collection has expansion, not just in SKUs, but in the retail base. We also have picked up amongst all these different segmentations, international licenses. And as I mentioned earlier, we are direct down with Spain, Mexico and Italy. So we'll be able to actually not just have the increase in our dollars cutting out the third-party distributor, we will have a very deep line of product, which we need to fulfill these avenues of distribution. So we have the now distribution, and now we're filling it with product and same goes for Disguise. We said early on Halloween, based off of what we saw in back-to-school and Easter was down tremendously. We knew that was going to happen with Halloween, but we've picked up a tremendous amount of new licenses, international licenses. We have the Hasbro rights for both North America and U.S. We have LEGO. We have Minecraft. We have Microsoft that we just mentioned early on plus several that we have not announced yet. So just our basic business, adding some of these new licenses and new distribution, we will see a strong increase of business. In addition, there are some new movie licenses as Raya, which comes out I believe in February or March, which we have a large toy license for in addition to a new movie launch in November of a new animated film that we have the rights too that we'll be talking more about next year. So we see next year as being a strong solid year for us as a company.

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

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

Thank you.

Sure.

Thank you. [Operator Instructions] Our next question comes from Gerrick Johnson with BMO Capital Markets. You may proceed with your question.

Thank you. Good afternoon, guys.

Hi, Gerrick.

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

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

Okay. So your supply lines are operating well, your warehouses are good, things of that nature and products getting to where it needs to be. So your inventory is down 16%.

Approximately, yes.

Now so would that mean that you're not getting the product to the shelves like you need to? Should your inventory be down 16% of retail? That's what I'm trying to get at it, are you…

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

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

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

Okay. Thank you, Stephen.

Thank you, Gerrick.

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

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

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