JAKKS Pacific, Inc.

Good afternoon, everyone. Welcome to the JAX Pacific fourth quarter and full year 2024 earnings conference call with management, who will review financial results for the quarter ending December 31st, 2024. JAX issued its earnings press release earlier today. The earnings release and related presentation slides for today's call are available on the company's website in the investor section. On the call this afternoon are Steven Berman, Chairman and Chief Executive Officer, and John Kimball, Chief Financial Officer. Stephen will first provide an overview of the quarter and full fiscal year, along with highlights of recent performance and current business trends. Then John will provide some additional comments about Jax Pacific's financial and operational results. Mr. Berman then will return with additional comments and some closing remarks prior to opening the call for questions. Your lines will be placed on mute for the first portion of the call. If you would like to be placed in the queue for a question, please press star 11 on your telephone keypad. Before we begin, the company would like to point out that any comments made about Jack's persistence, future performance, events, or circumstances, including the estimates of sales, margins, earnings, and or adjusted EBITDA in 2025, as well as any other forward-looking statements concerning 2025, and beyond are subject to safe harbor protection under federal security laws. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in the forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult Jaxmo's recent 10-K and 10-Q filings with the SEC, as well as the company's other reports sequentially 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 and adjusted earnings per share. 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 call is being recorded. With that, I would like to turn the call over to Steven Burns. Please go ahead.

Good afternoon, and thank you for joining us today. We are pleased with how the holiday season ended for us, but also excited to be digging into the new year. In line with our expectations, We shipped a comparable volume of toy and consumer products in Q4 to the past two years, giving us 4.8% growth in the second half compared to 2023. Momentum we hope to be able to continue in the first half of 2025 and beyond. For the full year, our toy and consumer products business was down 1.8%, slightly better than our expectations as the event portion of our portfolio was back half-weighted. Each of the three toy and consumer product divisions were down in the 1% to 2% range for the full year. Our costume business was down 7.5% for the full year, driven by softness in the US market. Similar to 2023, syndicated data suggests that the US market was smaller this year compared to prior years. It is some comfort that the data suggests that we increased our US market leadership position by a couple of points. but ultimately we'll measure true success looking at the top and the bottom line dollar growth. We are working with our major customers who are looking to capture more market share given the continued financial difficulties of Party City, but the industry continues to have a lot of volatility with smaller customers struggling to survive. We continue to seek our synergies and enhancement to how we go to market. By tightening the integration between our toy and costume teams outside the US, we are seeing continued growth internationally. The disguise business grew outside of North America for the fourth consecutive year to reach an all time new high in 2024. Although the UK is also working through a difficult market conditions, we're engaging licensors to identify new sales opportunities for us by delivering other licenses that we have not had. This will be developing story over the next 12 to 18 months. We continue to encourage our customer base to adopt FOB sales in 2024. The team's reached a new recent high of over 75% of our 2024 sales volume being sold on an FOB basis from China. This approach of selling larger quantities at sharper prices to customers with much larger logistics organizations is a win for all involved. delivering the best value to the consumers while providing margin for our customers and royalty revenue for our licensors. Our Q4 POS at our top three U.S. toy consumer products account was a positive at two of the three despite having difficult revenue comparisons with the prior year. In addition, year-end retail inventories at those same accounts were down high single digits percentages versus the prior year and lower for the second year in a row. We are entering our second year of increased investment in our European operations, led by our former COO, who I am pleased to share has extended his agreement through the end of 2027 to maintain focus on our sustainable expansion initiatives there. By the end of Q2 this year, we anticipate holding inventory in four different facilities in the EU, where 18 months ago we were trying to cover the entire continent with one. Our reduced distance to customers will significantly improve our fulfillment times and allow for more frequent replenishment during the year. Over time, we hope to build these relationships to the size and scale where FOB orders will make more economic sense for them. By the end of 2024, we had shipped over 300 more customers than in 2023 in the Europe, Middle East, and African regions. The team also had another strong showing at the Nuremberg Toy Fair. We continue to feel this is the most important show for us globally, given the wide breadth of customers we can reach in one location who are otherwise unable to visit our showrooms in Southern California. To hit some additional financial highlights for the quarter and year, from a geography view, North America was down 3% for the quarter and year, with both toy and consumer products and costumes businesses being down, as discussed before. Our international business, inclusive of costumes, was down 1% for the full year. We continue to see growth in Latin America, which reached 38 million in sales for the full year, growing by over 19%. The past quarter closed the book on our first five full years after our painful late 2019 balance sheet restructuring. We are in a much, much stronger financial position today. We have an extremely rich, deep, and strong category of expertise, a broader diversification of product lines, and a powerful lineup of licenses five years later. We've assembled a stronger team around the world than I believe we've ever had. On another extremely positive note, we have no long-term debt or preferred shareholders distracting us from operations. We have a very nice, clean, strong, evergreen business that is well positioned for profitable growth worldwide. It is true that in a business like ours, and for companies our size, there are always forces outside of our control that can negatively impact our results, and the past five years have provided several reminders to that reality. But overall, we at Jaxx feel we're in a great place today in both absolute terms and comparison with many within our industry. It's with that context and strength that we are very happy to share today that this week our board has approved the initiation of a quarterly dividend of $0.25 per share, payable to shareholders of record as of March 3, 2025. It is our intention to maintain this dividend going forward on a quarterly basis, recalibrating when we deem it's prudent. This will allow our shareholders to directly benefit from our recent performance while maintaining their investment for what we hope will be long-term. It will also allow us to replenish our cash reserves to add increased resilience to our balance sheet to ensure we are well-prepared for whatever might be ahead of us, whether that's for unseen challenges or unanticipated opportunities. On a related note, we are mindful and aware of recent developments in areas of tariffs. At restaurants above, Over 75% of our business is sold on an FOB basis to our customers either right at the factory or at a port in China. Using rough numbers, another 5% of our sales are generated by shipping product from our Eastern European warehouse network. For those markets with increased in product costs related to tariffs, we are reviewing our domestic pricing to mitigate any impact to our margin structure. At JAX, We're always focused on delivering products at opening price points, and we have shared in the past most of our total volume retails for $30 or less, with nearly 90% selling at less than $50. This focus on affordability is always an asset during times of cost structure surges, whether that's labor rates, oil and resin, or in this case, tariffs. As we always do, we will continue to work with our customers to deliver the best price value we can to our end consumers. I will now pass it over to John for some comments, after which I will come back and share a bit more how we see 2025 shaping up. John?

Thank you, Stephen, and hi, everybody. It's been a pretty good wrap-up to the year here. Always some room for improvement, but more things going right than not. Sales were pretty much where we thought they would be in total, although how we got there might not have been exactly what we were originally thinking. And the retail sell-throughs were pretty solid as well. Gross margin for the quarter was 70 basis points favorable versus prior year, led by 190 basis point improvement in royalty expense. The quarter reflects higher cost of product versus prior year, mostly attributable to higher inventory obsolescence, which has been a nagging theme of 2024. Also in the quarter, gross profit dollars of $35.6 million were 5% better than $33.7 million last year, despite net sales only being up 3%. Overall, we ended up with full-year gross margin percentage of 30.8%, our second year in a row greater than 30%. It is 60 basis points down from the prior year, but given some of the year's unique challenges, we'll take it. Selling expenses were up in the quarter, driven mostly by media spend, as we suggested it would be last quarter. We finished the year at 5.8% of sales, up from 5.2% in the prior year. Some of our sales commissions have been migrating down into G&A, as we have brought some sales reps in-house. And you'll note some movement on our balance sheet in the fourth quarter, representing a lease renewal at our US warehouse. That will push more cost into selling, as well as creating a bit of a drag up in gross margin, but ideally selling expense can still stay below 6% in the new year with the various puts and takes, inclusive of our reshuffling our distribution footprint in Europe. G&A was favorable year over year for another quarter, again for the reasons we discussed last time. That pulled down our full year G&A percentage to 19.2%, 140 basis points worse than 2023, but better than how we started the year. I tend to suspect our streak of pulling down quarterly overhead year over year has come to an end, but seeking opportunities to bring down G&A remains something of a passion here, if not an outright lifestyle, as most costs continue to creep up a bit annually. That all sums up to an annual operating margin of 5.7%, a 260 basis point decline from the 8.3% we posted in 2023. That's a pretty lousy result to my mind, but highlights how scale is your friend in this business. Ideally, we are setting the table for some really strong results over the next 24 to 36 months. With success, those results should flow through to the bottom line. As a result, we are trying not to despair about the short term at the expense of reducing our chance of success in taking the business to new heights in the medium term. Adjusted earnings per share were a loss of 67 cents in the quarter, 37 cents better than prior year. On a full year basis, adjusted EPS was 379, down from 462 in the prior year. That's also our second year in a row with an adjusted EPS of greater than $3 a share. The 2024 year-end diluted share count was roughly 11.2 million. Adjusted EBITDA for the quarter was a loss of $10.2 million, roughly an $800,000 improvement over the prior year. That resulted in a full year EBITDA of $59.3 million, another very strong year for us, even if it's down from the exuberant greater than $70 million years of 2022 and 2023. To that end, cash flow provided by operations was $38.9 million on the year. As Stephen highlighted earlier, we're happy to initiate the dividend program. We hope to attract a broader, year-round, long-term-minded shareholder base that values the predictability of results we feel we have reestablished in recent years. In addition, especially as we believe we will continue to be in a higher-for-longer interest rate environment, replenishing our cash balances in the short to medium term is also a priority to ensure maximum resilience. We are an asset light company by design, so the cash to inventory to receivables loop and its associated momentum is what our business is all about. More cash keeps that wheel spinning, plain and simple. We are ever mindful of the risk associated with unexpected adverse events as we have experienced over the company's history, both internally and externally. But that cautionary comment aside, it's nonetheless great to finally be announcing the dividend program. And now, back to Stephen for some more comments about the year ahead.