Good morning, ladies and gentlemen. Thank you for joining the JAKKS Pacific First Quarter 2012 Earnings Call with management. Today, JAKKS will review the results for the first quarter ended March 31, 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. Berman 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 the product lines and current business trends prior to opening up the call for your questions. [Operator Instructions] Before we begin, the company would like to point out that any comments made about JAKKS Pacific's financial performance, events or circumstances, including the estimates of sales and earnings per share for 2012, as well as any other forward-looking statements concerning 2012 and beyond, are subject to the 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 the forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult JAKKS'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. With that, I will turn the call over to Mr. Berman. Please go ahead, sir.

Thank you for joining us today. We are pleased to report that 2012 started off favorably with net sales and earnings exceeding the high end of our guidance ranges for the first quarter. We are also excited to announce that the launch of the Monsuno toy and animated series have exceeded the company's expectation to date. The toy line is selling out at many of our major retailers, and the animated series has solid viewership week over week. Our aggressive expansion plans for international retail distribution for the toy line is on track, and we are estimating that roughly 30 countries are slated to offer the Monsuno toy line in their markets by this fall. This is an especially exciting prospect given that the boys action product category has historically produced billion-dollar properties worldwide. We plan to capitalize on this exciting launch result by continuing to aggressively market Monsuno, while developing additional products to further strengthen our sales. While the product has only recently been launched, we are confident that should these early trends continue, Monsuno can become a phenomenon in the U.S. and around the world. Beyond Monsuno, we have some really terrific products in our portfolio, and we are optimistic for the year ahead with contribution coming from a broad range of toy and toy-related products and electronics for all ages and for the entire family. We expect the top contributors to come from across all the JAKKS divisions this year, including a very strong lineup in our girls division with products based on the powerhouse brands, such as the Winx Club, Disney Princess, Disney Fairies and Cabbage Patch Kids. Our Winx Club dolls and role play toys launching this fall have wide placement and distribution. Our extensive line of Disney Dolls dress-up, role play and Halloween Costumes…

Thank you, Stephen, and good morning, everyone. Our results this quarter exceeded both net sales and earnings guidance with net sales for the first quarter 2012 of $73.4 million, up from $72.3 million reported in the comparable period in 2011. The reported net loss for the first quarter was $16 million or $0.52 per diluted share, which includes $1.4 million or $0.03 per diluted share related to financial and legal advisory fees and expenses. This compares to a net loss of $10.6 million or $0.39 per diluted share reported in the comparable period into 2011, which includes $300,000 or $0.01 per diluted share of financial and legal advisory fees and expenses. Excluding these advisory fees and expenses in 2011 and 2012, the first quarter net loss in 2012 would have been $16.1 million or $0.59 per diluted share, compared to a net loss of $10.4 million or $0.38 per diluted share in 2011. Turning to a more detailed discussion of our results. Our product lines are aligned in 2 categories, which reflects the makeup of our business. They are Traditional Toys and Electronics and Role Play, Novelty and Seasonal Toys. Worldwide sales of products in our Traditional Toys and Electronic segment, which includes dolls, action figures, vehicles, electronics, plush and pet products, reported $1.3 million for the first quarter 2012 compared to $38.2 million for the first quarter in 2011. 2012 sales this quarter in this segment were led by our boys action figures with Monsuno and Pokémon, though offset by a decline in P&A. Girls products, we saw a list in Disney Fairies Dolls and Cabbage Patch Kids and preschool, which increased with higher Disney Princess Doll sales in our Tollytots division. Worldwide sales from our Role Play, Novelty and Seasonal Toys segment, which includes role play products, novelty…

Thank you, Joel. We are very pleased with the results of our first quarter 2012 and are optimistic about our outlook of the coming year, with the initial success of Monsuno and the broad placement of our wide ranging portfolio of products. Today is the first day of our Spring 2013 Toy Fair, and we're looking forward to the positive response on a number of our product lines for the year. Let me start with Monsuno. The launch of the Monsuno toy and the U.S. premiere of the animated series has exceeded the company's expectations to date. We are extremely excited to report the robust initial retail sales of the toy line, continued expanding international retail distribution and solid ratings for the animated series, which have increased viewership week over week. Since their launch, the Monsuno products retail sell-through has increased expeditiously through key items and accessory items. Therefore, we have developed plans to meet increased consumer demand at retail. Monsuno's single packs, 2-packs and 4-packs are some of the most popular items that are selling out at many retailers. We have increased material buys and production quantities to accommodate the strong demand. We are also anticipating strong sales due to the upcoming promotions, retail ads and circulars, in-store events and end-caps planned at most of our major retails. Key promotions include the first-ever Monsuno DC to Wild Core in-store event at all Toys"R"Us within the U.S. on March 24, end-caps at all Target stores from March to June. Monsuno Monster Power Tour, which kicked off on April 7 and a top 10 market sampling tour hitting major cities across the U.S. with sampling, gaming and hands-on demos. PR event in Japan on June 25 will distribute 100,000 limited-edition cores and additional key promotional activities outside the U.S. will kick…

[Operator Instructions] Our first question comes from the line of Scott Hamann with KeyBanc Capital Markets.

Just a question on 2012 guidance. It sounds like things are going really well at Monsuno ahead of your expectations. What are some of the potential takes that you see in other parts of the portfolio maybe that make you a little bit less confident in raising guidance? And I realized it's still early in the year, too.

First and foremost, it's still early in the year. It's the first quarter of the start of 2012. And that being said, we are always just being cautiously optimistic. But if you take a broad range of the different segments of our business from international growth to our toddler division or Kids Only!, we are very optimistic in majority of all of our segments of our business. And right now, we're just taking a wait-and-see to get through the first half of the year. We've geared up for success. But again, it is too early in the year to make any adjustments whether it's positive or negative. But we are only seeing truly positive, optimistic receptiveness both in North America and abroad across various segments of our line. Monsuno is very exciting. The Winx Club is very exciting. The Big Wheels are very exciting. But in addition, our Fairy Doll line that has a new DVD Secret of the Wings, and our new Disney Cinderella language has a really deep breadth of product, our Moose Mountain line, Halloween. We're truly excited, but it is well too early in the year to address guidance either way.

Okay, that's fair enough. And then, and just looking at Monsuno. I mean, I know you guys kind of have hesitant to size up what you think the opportunity is. But in terms of the product that you have out there now and what you expected previously for the year now with the data points you've seen, I mean, how much flexibility do you have to pump out 50% more than you thought 100% more? What's kind of the optionality that you have as you look out through the balance of the year?

I'll give you what's occurred during the first quarter of the launch. We had very nice expectations internally and our retailers did, and the products sold through beyond our expectations. That being said, we actually have more than duplicated additional tools in different various categories within the Monsuno line. We've added an additional manufacturer to another segment of our line. And what the indications are internationally, we're prepared for both North America and international increases. And so we have geared up tooling and production and materials based on what we're seeing currently. That being said, we -- if it turns out to be this grand slam, we will always have to chase. We will not set the ranch on any one single category but with what's occurred in U.S. so far and the commitments we have internationally, we have geared up beyond what we've previously expected that we needed to achieve what our partners' goals are.

Okay, that's helpful. And then, just finally on the license partners with Monsuno. Is there any update on any new out-licensing agreements with the popularity being good here? And when do we expect to see some of that stuff start hitting P&L?

The licensing partnerships are underway. There's clothing partnerships that are getting completed, back-to-school partnerships. A lot is happening both in North America and licensing agreements internationally. But I'd say, it will probably affect us more in the fourth quarter as they go into 2013.

Our next question comes from the line of Ed Woo with Ascendiant Capital.

Yes, I had a question. How is the retail environment right now both in the U.S. and international?

Well, I can speak for JAKKS and what we're seeing across the board. I think I mentioned it earlier in our call, just on our CDI dress-up sell-through, we've seen an increase. We've seen an increase in various segments of our business, from what occurred in November-December period time, for a lot of ourselves, our competitors like Hasbro, Summer Infant who are affected by a real slowdown during November-December period. And then we saw recently what occurred with Mattel's announcement on Monday, where for us extremely comfortable. And I think it has to do with the diversity of the segmentation of our businesses and the price points that we have during the spring period. A lot of our price points are under that $20 threshold. So for us, we got the key license brands. We got the correct product. We have the correct categories and segmentations of our business. So the sell-through on our product, we are extremely pleased about.

Have you noticed any change with retailers either being tight of inventory?

For us, we have not seen it for JAKKS. I did see it on the recent release from another company earlier this week. But for us, no, we're really not getting affected by that, and I think it's because we ended the year extremely clean.

Okay. And another question I have is, there's a lot of products that is coming out this year, a lot of exciting stuff. Do you think that it will hit more in the second and third quarter or the fourth quarter?

I'd say the majority of it will be in the third and fourth quarter for our company. But that being said, we are seeing increases in certain areas of our business that are coming in earlier in second. But the majority of the business is the third, fourth quarter for us.

Our next question comes from the line of Drew Crum with Stifel, Nicolaus.

Stephen, I wondered if you could talk about how retailers intend to manage inventory with the diversity of Winx Club, Disney Fairies. We've got a new initiative along with Disney Princess.

Well, first, it's a very good question. The reason we picked up the Winx Club, and we have an amazing partnership with Disney and it would never affect anything that we do, is we're able to differentiate both the Winx Club and the Fairies line. Fairies is for a much younger girl, and Fairies has been a brand in the U.S. for decades. And our line of Fairies are really, really apropo for call it the 4 to 6 age, 4 to 6.5. The Winx Club has much more attitude and much more fashion orientated and is really focused more call it from the 6- to 9-year-age girl, and they're both set up at 2 different segmentations at retailers. Our placement for Fairies is beyond strong. We also -- last year, we did have content for our Disney Fairies, which did affect us in the fall period. This year, we have one of the most amazing DVD releases from Disney that for the first time ever, Tinkerbell is meeting her sister, and it's called Secret of the Wings DVD which comes out in fall. So that's going to give us a great boost, and retail placement has been extremely strong, stronger than it was in '11. And for the Winx Club, our placement is euphoric as the success in Europe has been extremely strong over the last 7 years for the Winx Club. And having Nickelodeon behind it and the ratings that have occurred for the Winx Club to date and the new episodes that are launching in fall, retailers are extremely excited about it because it's going into a different category than what we're into with both Fairies and with Princess, so it's going into that older age grade. And the Nickelodeon support with great product and the past success that's happened, we're hitting it on all corners by having both lines together, together as JAKKS but separate at retail.

Okay, that's helpful, Stephen. And just to follow up on that, should we expect any shipments in the international markets during the second quarter? Is that more third quarter?

Of Winx Club?

Of Winx Club, yes.

It will be more third quarter for Winx Club.

Got it. Okay. And as far as Monsuno is concerned, if you guys are willing to disclose what that contributed in the quarter. If you don't, that's fine. But as it as it relates to the gross margin, it looked like the key driver for the year-on-year compression was the higher royalty expense. And if I go back several years, that's one of the higher first quarters as a percentage of revenue. Can you just kind of talk about why the royalty expense was much higher when one of your owned properties, owned brands seems to have done very well during the period?

I'll let Joel answer the royalty. But on -- we don't break out specific segments of our business. And as Monsuno has just started in first quarter, it was really a start for us. It wasn't a dramatic, dramatic part of our business, so that definitely didn't affect us on a royalty basis. It is on a very strong upswing, but it was not material in this quarter. But the royalty question, I will have Joel answer.

Yes. As far as the Monsuno being owned content, we are still a licensee of the joint venture, so we'll pay royalties which will come through the gross margin line, but we got a portion of that back through different mechanisms within the joint venture. Having said that, we're expecting for the year that including Monsuno, more from a product contribution standpoint, we're expecting that owned content will contribute about 22% versus 15%, 16% of total revenue last year, and that was consistent with the years prior.

Okay. And last question for me, guys. What are the expectations for the financial and legal advisory fees going forward? I think you incurred about $1.4 million during the quarter. And what should we assume in the out quarters?

It's a very good question. But depending on the activity by quarter, it's very hard for us to gauge. There's been quiet times and more busy times. We're trying to keep it down as much as possible. But it really will vacillate, but our goal is to always keep those fees to a minimum, if we can.

Our next question comes from the line of Gerrick Johnson with BMO Capital Markets.

Do you see any sort of an impact to shipment to retail sales owing to the weather trends around the country? You do have quite a few outdoor items on your line.

No, we actually are excited for this summer. The orders on, I'm using just one of our segments on our noodles. Our fun noodles have been very strong compared to last year as well. So we don't see anything that's is affecting. It could be as the weather has been very warm on the East Coast, it could have a nominal impact on a positive basis. But really for the spring, summer, those shipments are primarily done. Now we'll just have reorders and so on. But it's been a good spring, summer, I think not just for us, for many companies that are involved in that segment of business.

Okay. And you mentioned Pokémon positively. Is that line back in growth trajectory? I think you had a little trouble.

I don't think I've mentioned Pokémon positively. It's doing okay for us. It's not doing -- it's not doing what our expectations were last year. It really -- it was one of our major impacts during November, December, the falloff of Pokémon. But it's doing to what expectations are in our company. Basically it was a contributor, but it was before Q1 2011 was before the big launch, so it was an easy comp. So it was more -- the reference was more to the contribution during the quarter not the trajectory.

Okay. And lastly, the contribution to the P&L from the Monsuno joint venture, was that all the $54,000 I think that is? And do you have any guidance for us as to how we should kind of modeling that JV going forward?

It's all built into the overall guidance. It's a fairly complex arrangement with producer fees and different things based on the timing of cash flow and revenue, but it's not expected to be a significant contribution.

Our next question comes from the line of Arvind Bhatia with Sterne Agee.

Your comments on Monsuno and other products this year, I just want to tie that back to the gross margin question that was raised earlier. So Joel, given all of what you said, what sort of gross margin trend should we be expecting for the rest of the year? And similarly on the SG&A as a percentage of sales, can you give us some color directionally where you see that line item trending?

Basically, we're expecting with the growth back on track we're expecting to lever our infrastructure. As far as gross margin, we're looking at for 2012 just under 33%. We're well on track with a lot of the new items coming on stream in volume in the -- primarily in the third quarter that we're still well on track to achieve that. In terms of SG&A, it's running a little bit higher. I'll break it down to 2 pieces: one being overhead-type expenses where we have leverage; the other is the marketing contributions supporting the Monsuno release. It's a huge corporate-wide initiative for us. And as you've seen in the release this morning that our SG&A, a lot of that increase as a percentage of net sales, is by the promotion and support of Monsuno. But it's within what I'll call normal parameters. We're not looking to drive huge volume with the advertising. We think the show is doing well and all the promotion, all the PR activities associated with that we're gaining a lot of traction. So within normal parameters but nonetheless the timing of it, we are advertising in advance of the launch, which brought the SG&A higher for the quarter.

So for the full year, Joel, should we be expecting SG&A then to be flattish? Or do you think it still might be up for the year as a percentage?

Let's see. Actually, if you have one other question, I am going to confirm that right now.

Yes, I mean, I think the other question I have was on the capital allocation. You've got your dividend. Obviously, that's nice. You've done buybacks in the past. You've got a good working capital with good cash in the balance sheet. Do you guys have any thoughts on kind of the future allocation of capital? Are you going to get more aggressive on buybacks, or will you continue to sort of look towards maybe increasing the dividend? Any commentary on that?

Arvind, we have been meeting often with our board, and our board is reviewing many different alternatives with the capital base. One of our first and foremost strategic parts of our business has always been acquiring licenses, expanding international and acquiring accretive acquisitions. So that being said, that's still our strategic segment of business. But we always will look at alternatives, whether it's dividend, whether it's a buyback. And we look at various different ways of deploying capital that's correct for our stockholders, as well as for our -- to continue our company's growth. So we are continuing to look at that and it's something that's always part of our board meetings.

And it looks like our final question comes from the line of Sean McGowan with Needham & Company.

I have a few questions for Joel, but I wanted to start with one for you, Stephen. You were talking pretty quickly going over everything, so I missed the detail on Polly Pocket. What's the connection with Polly Pocket?

Nothing was mentioned on Polly Pocket.

Oh, I thought I heard you say Polly Pocket. Maybe you said...

When I look through my -- well, I was reading on some of my notes but nothing was Polly Pocket [indiscernible] Fairies, Winx, I would know. Maybe Tollytots or Puppy in my Pocket, but that wasn't really mentioned during the call.

Okay, I guess it was blurred. Joel, a couple of questions. Why were -- I realize that allowances at the end of 2011 were higher at the beginning of the year. Is that why allowances at the end of Q1 are so much higher than they were now versus last year but pretty much every other first quarter?

Yes. In terms of the liability on the balance sheet and basically what determines that is the timing that the different customers take the deduction. But for the first quarter, the allowance that hit the P&L were actually lower. So that's just based on the timing, and the customers tend to take it when it's advantageous to them.

So is it right or wrong to assume that, that sort of maybe some earnings pressure that could come through at some point? It's materially higher than usual at the end of the first quarter.

No. Again, the balance sheet, that's just the conduit for the customers taking the deductions. The pressure you would see is in the top line margin. So the margin impact was taken in the fourth quarter.

So that's what makes it go up, and as it comes down, it has no profit impact?

No, that's just cash flow, it's based on the orders from the customer. Usually what they're predicated on is their deductions from future orders, so if one cleans up the current inventory at retail and then it stimulates future orders.

Right, that's the plan. And what happens to depreciation and amortization from current levels? Particularly, what was it on the income statement why was it way down? Yes, D&A was way down on the income statement. So what do you think the trends are for the balance of the year?

There are 2 parts: one hit in cost of goods, and that is likely to be consistent with last year. We're keeping our capital expenditures in the $11 million to $13 million range. So that should keep depreciation and amortization and cost of goods fairly consistent. The dynamic is when we make acquisitions, we ascribe values to licenses, customer lists and things like that, that have a fairly rapid burn off rate. So that will continue to drop over time as the acquisitions that we did in 2008. As we get farther away from that closing date, we'll see that continually drop.

Okay. So the one that's below the gross profit line, we should expect that this current rate might continue or actually go down?

That one will continue to go down.

Okay, until you do another acquisition. Okay, stock-based comp in the quarter? And also comment on, well, is that indicative of what your expectation would be for the balance of the year each quarter?

Generally, that's pretty fixed. For the quarter, it was about $340,000, down from $850,000 Q1 last year.

Okay. Jumping back to the Monsuno question on gross margin. Does taking into account that you do license it from JV, is the net effect on your P&L higher than the corporate average, in line or lower than the corporate average?

That will be higher.

Okay. But it just didn't have much impact in this quarter because of the volume?

Correct.

Everybody, thank you very much for the conference call, and we look forward to our next call during second quarter of 2012. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.