Good afternoon, everyone. Welcome to the JAKKS Pacific Fourth Quarter 2021 Earnings Conference Call with Management, who will review financial results for the quarter and fiscal year ended December 31, 2021. JAKKS issued its earnings press release earlier today. The earnings release and presentation slides for today's call are available on the company's website in 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 first provide an overview of the quarter, along with highlights of product lines and current business trends. 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 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, margins and/or adjusted EBITDA in 2022 as well as any other forward-looking statements concerning 2022 and beyond are subject to safe harbor protection under federal securities 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, some of today's comments by management will refer to non-GAAP financial measures, such as adjusted earnings per share or adjusted EBITDA. Unless otherwise stated, the most directly comparable GAAP financial metric has been reconciled to the associated non-GAAP financial measure 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. I'm extremely proud to say that JAKKS team rallied together to complete a tremendous quarter and a tremendous year, fulfilling customer demand to a level of $188 million in fourth quarter sales. This was a 47% increase versus prior year and our largest fourth quarter in 7 years despite skyrocketing ocean freight costs, port congestion and a shortage of trucking resources. That brought our full year net sales to $621 million, a 20% increase to 2020 and our highest annual sales level since 2016. As expressed last quarter, we exited Q3 having missed some sales in the quarter due to logistic challenges and with higher-than-average inventories, inclusive of a meaningful amount still in transit. That pulling forward of inventory enabled us to achieve this quarter's performance. We plan knowing factory workers were leaning earlier than normal for Chinese New Year due to the various COVID restrictions, rolling power outages at factories and different providences as well as the ongoing freight and logistical issues. We also plan accordingly to finish Q4 with higher inventory levels of $84 million, including $24 million in transit. As a reference point, last year, we had $4 million in transit at this time. Point of sales at our top 3 U.S. customers increased 10% in Q4, outpacing the increase in their retail inventory levels, which grew by 8%. On a full year basis, the top 3 customer POS was up 10%. The 12/31 inventory levels were in line with prior year, not accounting for retail inventory that was still in transit. At the end of January, we see retail inventories more in line with 12/31/'19 levels as customers' Q4 FOB orders reach door shelves. On a full year basis, our Toys consumer product…

Thank you, Stephen, and good afternoon, everyone. As Stephen highlighted, great quarter for sales finishing a great year. North America Toys CP was up 49% in the quarter, while International Toy CP was up 42%. On a full year basis, North America Toys CP was plus 21%, International Toy CP was plus 18%, and the Costumes were plus 21%. In our Doll dress-up nurturing play division, net sales were $116.9 million in Q4, up 60% compared to $73 million in the prior year. Disney's newest theatrical release, Encanto, provided incremental shipping. And as already mentioned, Perfectly Cute continues to perform very well. Fiscal year net sales in the division were up 18% to $323.4 million versus $275.2 million. Continued strength in our Disney Princess and Style Collection Lines, coupled with new Disney releases from Raya and The Last Dragon, ILY and Encanto, led the growth for the year. In our Action Play and Collectibles division, net sales were $41.2 million in the quarter, up 55% compared to $26.6 million last year. As you would expect, in Nintendo Super Mario and Sonic delivered most of the growth. Full year net sales for the division were up over 42% to $114.8 million compared to $80.6 million in 2020. In our outdoor seasonal division of ball pits, play structures, activity tables put the floor ride-on skateboards and other spring/summer inspired toys, net sales were $21.1 million in the quarter, down about $400,000 from the fourth quarter of 2020. Fiscal year outdoor seasonal net sales were $75.4 million versus $71.4 million, up 6% for the year. Net sales in our Costume division, Disguise, were up 22% at $8.8 million in the fourth quarter. Some of the big performers for us this year in this segment were inspired by video games, properties like Pokemon and…

Thank you, John. As discussed in the opening, we have a tremendous amount to be excited about as we head into a new year. We're seeing great consumer reaction to our major brands, which in turn is leading to an expanded worldwide retail presence. We've rebuilt our business over the several years as a series of singles and doubles rather than running the wave of a massive entertainment release. At the same time, we've always said we want to be positioned to take advantage of those occasions where new entertainment provides an additional pop to our lineup, and Encanto is a great example of that idea in practice. In 2022, we will be extending the product line to build on the fans' favorite scenes as well as incorporating even more music in the toys, which we'll be bringing to market later this year. And we are understandably excited by the theatrical release of the Sonic the Hedgehog 2 movie in April with new film specific product debuted on shelf at the store near you later this month. The Sonic business has really been great for us going back to the boost it received from the first film. So this is nothing but good news for us. In 2021 without a film, we shipped over 3 million Sonic figures just to give you some sense of consumer passion for this brand. We'll, of course, keep you posted as other pieces of news can be shared on this front. Our Disney Princess business benefited greatly from Disney Ultimate Princess collection, and it's continuing forward with year 2 in 2022. One of the new Princess product lines we're excited about is a new segment of large dolls celebrating the stories of children's favorite princess and Disney's Frozen characters. All dolls will include the…

[Operator Instructions] Our first question comes from Steph Wissink with Jefferies.

Stephen, I wanted to just circle back, or maybe John, you can answer this as well, and just sync up your comments on trade inventory, inventory in transit. It sounded like your end-of-January inventory is consistent with where you would have been at the end of January 2019. I just want to make sure we're hearing you correctly that, that's essentially what you're saying.

Yes. Thanks, Steph. The 2019 comment was actually related to December of 2019 but -- to specifically answer your point. But I think Stephen can elaborate, but we're really seeing such great momentum in terms of what's happened through the holiday and with everything we have lined up in the first half of the year. As much as these inventory levels seem high, they're not high in the context of what we sort of expect to happen.

And I'll add to that Steph. The -- we planned early on, knowing what was happening throughout China with regards to the coronavirus and the Beijing Olympics and the factory outages of the Role blackouts that we actually planned well in advance of producing product and putting it on the water to ensure that we had enough goods, which I hope we do. We've seen some really, really strong sell-through. So we brought in a tremendous amount knowing that or believing that it was going to be where we're at today. And the sell-throughs are there, and the inventory is there. And we're still working on additional inventory, making additional tooling capacity, working on limitators for Encanto, Sonic and Nintendo and some of the areas that are really moving extremely strong and stronger than we expected. So we planned accordingly, and we're still planning as we sit here today.

Okay. That's really helpful. And then I wanted to go back to your comments on shipping because I think you've provided a bit more detail maybe than some of your peers around just the burden that cost. And maybe, Stephen, you could talk a little bit about what you're doing to try to mitigate some of the financial pressure but also what you're doing tactically to try to smooth out any sort of disruption in the flow of goods from some of the incremental shipping headwinds.

So what we've done and one thing about JAKKS is we've been built on as being very quick to market, very entrepreneurial, and we've been working directly with the factory owners and factories. We've been working with the shipping companies themselves, the different freight forwarders that we utilize. So we've been working really methodically have been moving the products on a domestic basis. Remember, one thing we are were primarily on an FOB basis, so a 60%-ish of JAKKS on an FOB basis, and we are working towards increasing that FOB part of our business with our major retailers, which helps us in a sense of not having to worry about the freight as much as a lot of the other domestic companies. And it benefits the retailers that have their own cost of capital and margin criteria by them picking them up overseas. So what we've done is we've worked with different ports throughout China, different ports throughout the U.S. from Oregon to Canada to different parts of just Los Angeles ports to bring these goods in. And what we've done also is bring goods directly from China to our distribution center to eliminate the demerged cost at the ports versus us having to deal with bringing the goods from the port into our warehouse. So it's a constant daily process of our logistics teams, both domestically in the U.S., Europe and in Asia. We're constantly on it. And as you've seen last year, I think we achieved a tremendous amount of benefit of bringing the goods in, but we did have an impact of cost, and we worked negotiations with the freight forwarders now and with Toyshia, which is an affiliation with the toy industry. And as well as we're hopefully and looking at insight for the second half of the year to have it somewhat ease up, but we're not planning on it, but it looks like that's the case.

Okay. That's very helpful. And then 2 really quick ones. John, this is for you, it's on the costing side. If you could just give us some sense of what kind of cost of goods inflation you're seeing, so taking away shipping, but just looking at the raw cost of goods. And I know you run on a bit of a tighter margin than maybe some of your peers. Just talk a little bit about cost inflation. And then Stephen, I'd like to hear from you one more time on Sonic and Nintendo because I think what you're explaining about your business being a bit more predictable, a little bit less hit driven. Maybe talk a little bit about the TAM of those 2 brands relative to some of your other brand properties. Do you see those stretching up into tweens, teens and adults, and so you get a bit better pricing power among some of those gaming-based brands?

Yes. So on the cost inflation side, as you know, like the planning for the business is so far ahead, there's a little bit of a lag effect in terms of kind of factor costs rolling through into what we're seeing given that we have pre-negotiated prices with the vendors. The big place where it's really manifesting itself is obviously the different -- all the different sorts of freight elements. I would say it's the U.S. dollar moving against the Chinese currency. It's probably been as much of a driver of creating cost pressures with the factories more so than resin for us. And then I think as it relates to kind of building upon your other point and building upon what Stephen said, as we did mention, we are looking to take some pricing action in the back half of the year to help mitigate some of these incremental costs. It's not like we can price for all of it, but they are obviously material. We want to make sure we're being kind of transparent about it. As Stephen pointed out, given the scale of the bigger guys, there's really kind of a win for all parties the more they opt to bring the product in earlier in the year and run it through their supply chain. So that's one of the big levers we're looking at to kind of ease up some of the tension that the current environment is creating.

And then to your second question regarding the video game IP and the toy-related merchandise as well as we have Halloween-related merchandise. Sonic, we launched approximately 3 years ago. And we had one movie that was launched during that period of time, which actually helped jump-start the awareness to it. And in a year that we had no content, we did extremely well in business last year. And having the content come out this year, again, we'll actually enhance the distribution and enhance the growth of this segment, which we see tremendous growth, not only in just the toy products for both kids and the collectors, but also in Halloween as that goes for both kid and adult. At the same time, Nintendo, without any, call it, related content, the switch games that they have has built this brand extensively. We're seeing growth year after year after year. We're getting additional retail distribution both domestically, additional more shelf space and more internationally as well. which has grown both in toy and all related merchandise. So we both have master toy rights on both the Sonic, Sonic movie and Nintendo. And we also have the Halloween rights, which actually expanded and allows us to do a lot of different creative merchandising structures at retail. And also, we have Apex Legends, which is from Electronic Arts, which is a growing game in itself. It's a growing brand at retail. We just launched it a year or so ago, and it's actually picked up at getting additional distribution. And on top of that, we have Halloween, which about 30% plus of the Halloween sales of last year were related IP to video games, such as Halo and Minecraft, Nintendo, Pokemon, just to name a few. So we have a real breadth of video…

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