JAKKS Pacific, Inc.

Good afternoon, everyone. Welcome to the JAX specific first quarter 2025 earnings conference call with management, who will review financial results for the quarter ended March 31st, 2025. JAX issued its earnings press release earlier today. The earnings release and presentation slides related to today's call are available on the company's recently remodeled website in the investor section. On the call this afternoon are Stephen 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 around JAX-specific financial and operational results. Mr. Berman will then return with additional comments and some closing remarks prior to opening up the call for questions. Your line will be placed on mute for the first portion of the call. If you would like to be placed in the queue to ask a question, please press star one one on your telephone keypad. Before we begin, the company would like to point out that any comments made about Jack Specific's 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 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 and forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult Jack'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. 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 measure within the company's earnings press release issued today or previously. As a reminder, this call is being recorded. With that, I would now like to turn the call over to Steven Berman.

Good afternoon, and thank you for joining us. We are pleased to report another quarter of solid performance underpinned by the strength and stability of our operations, our financial discipline, and the resiliency of our business model in an ever-evolving market environment. As reported, our sales were up 26% in the quarter, led by the success of toys from films like Sonic the Hedgehog 3, Disney Moana 2, DreamWorks Animation Dogman, as well as increases in many of our evergreen product lines. We saw growth in Disney Princess, Style Collection, and Frozen, as well as a number of new initiatives that were not in the Q1 portfolio last year. Globally, our dolls, role-play, dress-up businesses, shipped 55.5 million, a 37% increase versus the prior year. Action Play and Collectibles shipped 42.9 million, an increase by 30%. North American Total was 25% ahead of the prior year, with International up 29%. Our 34.4% gross margin is an excellent result for any quarter, but particularly Q1. Higher volumes associated with successful new releases as well as new product launches increased product margins significantly. We also benefited from higher quality inventory at retail and in our warehouses. In addition, we continue to scrutinize where and how we are spending to offset unavoidable increases. In total, SG&A was up 1% for the quarter globally, an increase of less than $500,000. Those are the key drivers that contributed to an adjusted EBITDA number for the quarter, which is just above breakeven at $400,000. Again, it's a small quarter, but as it's only the second positive first quarter EBITDA we have had in the past 15 years, we're extremely pleased with the performance. At Jaxx, we currently have a lot of strong opportunities for 2025 and beyond. but we'll be taking a very cautious view until the tariff issues definitely resolve. We have been working with our factory network to selectively hold some goods that were developed to ship to the U.S. so they could be available should import costs reduce substantially. In the meantime, we are aggressively pushing forward to generate additional international shipment opportunities. Teams are engaging customers across the U.K., Western and Eastern Europe, Asia Pacific, and Latin America. We know we have the right product portfolio to achieve higher sales and incremental margin, so we're looking to take advantage of any hesitancy that exists around the U.S. market to further accelerate our international growth plan. In addition, we currently have healthy domestic inventory positions both in the U.S. and selectively internationally. I'll now pass it over to John for some more details on the financials, and then I'll come back to elaborate a bit more about the quarters ahead. John?

Thank you, Steven. And hello, everyone. A nice first quarter for us, as Steven has highlighted. Results were pretty much in line with our expectations. We had a few million dollars worth of sales that might have otherwise found their way into Q2. But generally speaking, we didn't see customers pivoting to try to forward buy. And similarly, we were not stockpiling inventory. Our business model, and to some extent the industry broadly, wants to keep money tied up as product for as short of a period of time as possible, starting with raw material purchasing. So it's not like someone can just turn a dial and make a conveyor belt go twice as fast or whatever one might imagine as it relates to some of these things. There are a lot of steps and activities designed around maximum asset utilization. The first quarter remains our smallest quarter, but we will run you through the highlights as we see them with that in mind. Gross margin dollars were up $18 million in the quarter versus prior year's Q1. To provide some color and context there, our rough sense of the numbers would be Around $6 million is generated by higher sales in the quarter. Another $6 million is generated by a favorable comparison to last year's abysmal sell-through of Fall 23 product launches. About $2 million is driven by better product margins from new product lines we shipped this year versus what we shipped last year. And the balance, about $3 million, is timing favorability. A little of that is sales-related, and the rest relates to when we flow certain expenses off the balance sheet related to the timing of our importing finished goods into destination markets. Think of it as money is on the balance sheet. It'll make its way through the P&L soon enough. SG&A was pretty much aligned with our planning as we had a favorable comparison against some specific projects which were starting to wind down at this time last year. That probably helped us out around a couple million dollars in aggregate. As Stephen pointed out, adjusted EBITDA for the quarter was $354,000, a notable improvement over the loss of $17.2 million last year. Adjusted EPS was a loss of $0.03 per share, much improved from a loss of $1.09 last year. The share count for that calculation was 11.146 million shares. As mentioned in our release, the Board has approved a $0.25 per share dividend for the second quarter for shareholders of record as of May 30th. to be paid on June 27th. On the balance sheet side of things, we're happy to be debt-free and not spending time evaluating covenants and coverage ratios and things like that, given the forecasting fog that has rolled out across the U.S. Our unrestricted cash balance at the end of the quarter was $59.2 million, compared to $35.3 million at this time last year. A big driver of the difference was the $20 million we paid last year as part of our preferred share buyback. As you would imagine, we are carefully monitoring our working capital given the current disruption to the normal course of business. We've received some outreach asking our take on what long-term tariffs would mean for our business and the industry at large. Our perspective is that any lasting tariff on import of product is essentially a consumer tax. The cost will be passed along to the consumer in higher retail prices. There is no magic wallet that is going to pay for it. Our industry has already seen too many factories, wholesalers, and retailers go bankrupt over the past 10 years without these additional burdens being in place. With all the players in the industry facing the same cost surge, the medium to longer-term fallout would be less product innovation as the industry is always positioning itself favorably for impulse and widely accessible purchase occasions. And now, I'll pass things back to Stephen.