JAKKS Pacific, Inc.

are available on the company's recently remodeled website in the Investors 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 Jack's Pacific's financial and operational results. Mr. Berman will then return with additional comments and some closing remarks prior to open 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 Jax Pacific'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 would 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 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

previously as a reminder this call is being recorded with that I would now like to turn the call over to Stephen Berman good afternoon and thank you for joining us today when you look at the big picture we are pleased with our results this quarter both in terms of our second quarter actuals but also what we've done in the past 90 days to adapt to unpredictable US market Our sales in the quarter were negatively impacted by a dramatic increase in the cost of doing business in the United States, which ends up being a missed commercial opportunity for all involved. Based on the disruption from the fluctuation and uncertainty around tariffs, although sales in the quarter were down 20% from the prior year, we leave the first half of the year down 3% overall as a total company. The first half sales in the US were down 10% compared to the prior year, and all other markets were up 33% in total. We've been working collaboratively with our vendors and customers to make the best of a bad situation and identify creative solutions to increase our ability to mitigate some of these costs. Amid ongoing and often unpredictable tariff changes, we have taken a proactive and balanced approach to our manufacturing strategy. While China remains our primary manufacturing hub due to its scale, efficiency, and well-established infrastructure, we have built verified and reliable supply chains over the years across many markets to mitigate risk and ensure product continuity in these regions. In addition, we have implemented a duplicate tool initiatives in various regions, giving us the flexibility and operational readiness to shift production where it makes the most practical and economic sense. We continue to explore and execute US domestic manufacturing opportunities where feasible, recognizing both the strategic value and realistic limitations of US-based production. This diversified and pragmatic approach enables us to remain agile, cost effective, and resilient in the face of evolving global trade dynamics. Based on what we know today, all of these solutions ultimately result in a higher cost of doing business due to the loss of scale, logistical efficiency, and manufacturing proficiency. That higher cost is creating hesitancy with many U.S. customers that we see persisting until everyone is aligned as to what the new cost of doing business will be. At the same time, our customer list outside the U.S. is steadily growing as we cross sell toys and costumes to open additional doors for both. We have begun to see some limited increases in consumer prices in the U.S., but we suspect there is a lot more to come on that front. Currently, our point of sale results at the top three U.S. accounts are strong, especially when adjusting for the private label program we mentioned earlier exiting at the end of last year. With that view, we are up double digits at all three accounts in the first half of the year, led by the success of our product supporting the Sonic the Hedgehog 3 movie, which is now streaming across multiple platforms. In areas where we've seen customer increased prices, more often than not, it has been meaningful reductions in units sold. Although, admittedly, a handful of items have maintained their unit productivity despite higher retails. At this time, however, we feel it's far too soon to speculate when or where the situation at retail reaches some degree of predictable stability. Given that context, we're doing everything to remain flexible and adaptable. We have the great fortune of having a fantastic product line appealing to a wide range of kids and parents across a very broad assortment of entertainment franchises and play patterns. As mentioned, our sales were down 20% in the quarter versus prior year and unfortunately down more substantially from our expectations at the beginning of the year. Our worldwide toy and consumer business was down 23% in the quarter and is roughly flat year to date, and our costume business was down 12% in the quarter and down 13% year to date. For the first half, our international growth was led by Europe, which grew by 65% in the first half of the year. This reflects a major initiative to increase international sales, while recognizing that the U.S. sales will remain somewhat unpredictable until the tariff landscape stabilizes and firms. Territory-specific manufacturing percentages are clearly established. I will now pass it over to John for some more details on the financials, and then I will come back to elaborate a bit more about the second half. John?

Thank you, Stephen, and hi, everybody. All sorts of things are happening this quarter, so let's jump in. We felt at the beginning of the year that we were set up for a good first half, looking at our product lineup and comparing it to where we were in 2024, and that has proven itself out in many ways. But unfortunately, that's about the end of easy predictability in the near term. The sudden increases in the cost of bringing product into the U.S. prompted most U.S. customers to reevaluate their orders, as has been widely discussed, with the immediate negative impact being on the FOB or direct import portion of the business. Our efforts to refocus energies on other markets are working so far, as Stephen highlighted earlier. The fact that we're seeing all our businesses selling in favorably is a good validation of the current breadth and quality of our product assortment. It was an excellent quarter for product margins, largely anticipated by mix, but also reflective of some immediate efforts to monetize on-hand inventory and scrape pennies where we could. But broadly, the level of new higher margin product compared favorably to the product portfolio during the same period last year as we anticipated it would. How all these elements balance out for the second half very much remains to be seen. That our comparisons with the previous year will get more difficult is a certainty. Customer and by extension consumer behavior remain a bit more of an unknown. Customer's decisions about building inventory, how they price to the end consumer, and what sort of rate of sale follows are the components to determine the ultimate margins earned by all involved and are essential to creating a degree of fact-based certainty around expectations. We remain very focused on the interdependency of these issues. As we've said before, we are optimizing for margin dollars and not sales revenue, market share, or other metrics that run the risk of distracting from bottom line results and or burning up cash. Ultimately, these dynamics remain pretty challenging to forecast. Royalty rates were slightly higher in the quarter, as we saw in Q1. That's largely driven by higher rate content-led product and a modest reduction in our royalty-free private label business. But net-net, similar to Q1, we sustained strong gross margins in the second quarter at 32.8%. There's not a lot of insightful things to be said about SG&A this quarter. Overall cost containment has been okay. If you look at the first half, we're up about $2 million in worldwide spending in the first half from a P&L perspective. Given that we're rolling through a rent increase in the U.S. warehouse this year coming off a relatively long lease, that's a good outcome. We are understandably taking a cautious view of anything that looks discretionary in the second half, while being mindful not to handicap next year's planning and product development. Moving to the balance sheet, cash, inclusive of restricted cash, at the end of the quarter was $43 million, up significantly from the $18 million at this time last year. As you'll recall, the first half of 2024 included a $20 million cash payment as part of our preferred share redemption. So we're tracking well on this front. Cash as of last Friday was down to $27 million as we make payments customary for this time of the year, inclusive to our friends, the licensors. Inventory is up a bit at about $72 million. That's inclusive of $17 million, which is in transit somewhere. To the extent that you're thinking it's reflective of the higher cost of importing product, that's not really a driver of that number as of June 30th. It's more about our international growth. Separately, We were happy to complete the refinancing of our credit facility this quarter with a new agreement with BMO Bank N.A. This new five-year, $70 million cash flow revolver provides us with a predictable source of funds throughout the year at very attractive borrowing rates. Moving from an asset-based lending agreement to a cash flow finance facility is another endorsement for the quality of our business and where we see ourselves headed over the next few years. A slight improvement in gross margins helped drive a bottom-line adjusted EBITDA of $2.3 million in the quarter and $2.7 million for the first half of the year. $2.3 million is down from $12.3 million in the same quarter last year, but for the first half, our $2.7 million is favorable to the loss of $4.9 million in the first half of last year. Adjusted diluted EPS was 3 cents per share in the quarter, unfavorable to a gain of 65 cents per share last year. On a year-to-date basis, we are flat with essentially break-even results on an adjusted basis compared to a loss of $0.38 per share at this time last year. As mentioned in our release, the Board has again approved a $0.25 per share dividend for the third quarter for shareholders of record as of August 29th to be paid on September 30th. And now, I'll pass things back to Stephen.