JAKKS Pacific, Inc.

Good afternoon, everyone, and welcome to Jax Pacific Third Quarter 2025 Earnings Conference Call with Management, who will review financial results for the quarter ended September 30, 2025. Jax issued its earning press release earlier today. The earnings release and presentation slides related to 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 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 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 person of the call. If you would like to be placed in a queue to ask a question, please press star 1-1 on your telephone keypad. Before we begin, the company would like to point out that any comments made about Jack's specific future performance, events, or circumstances, including the estimates of sales, margins, earning, and or adjusted EBITDA in 2025, as well as any other forward-looking statements concerning 2025 and beyond, are subject to Safe Harbor projection under federal securities law. These statements reflect the company's best judgment based on current market trends and conditions today, and are subject to certain risk and uncertainty. 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 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 and time and 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 direct comparable gap financial metric has been reconciled to the associate non-gap financial measure within the company's earning 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 Stephen Furman.

The floor is yours.

Good afternoon and thank you for joining us today. As we reflect on our year-to-date results and think about the year coming to an end, the tariff levels vary significantly, starting at 10% and then ranging from approximately 30% to over 140% depending on source and origin, creating added uncertainty for retailers and manufacturers alike. This has continued to delay holiday purchase orders with many seasonal programs shifting from August In response, we have taken a deliberate and conservative approach for the current fiscal year, prioritizing margins, applying careful pricing discipline, maintain tight cost controls, and emphasize the most profitable product opportunities. Lean inventory management. Target lower inventory levels and accelerate sell-through across markets to maintain balance sheet strength. Future forecast product strategy. Invest in a robust and innovative 2026-27 product pipeline designed to resonate with global consumers and support long-term brand growth across a broader category of assortments. Direct import FOB orders. The foundation of our business since inception. They are placed months in advance to ensure factory scheduling and retailer logistics. However, major US retailers pushed back their Halloween and fall toy set dates by nearly two months, effectively removing two of the most important selling months from the calendar. This shift, combined sharply with higher product costs, drove a significant reduction in Q3 sales orders, extending the softness we saw in Q2. The impact cascades across the full year. Without August and September sales, Retailers lose the early read they traditionally rely on to chase winning products ahead of the holiday season. Now reorders will happen when retailers and wholesalers step in, commit inventory, and bet confidently on the right products at the right price. That has never been our approach to the business. We are not changing now. Although we always selectively support a limited number of high-confidence SKUs for backup inventory, With product currently tariffed at 30% of cost upon import, we have chosen to be even more selective of how much of that we want to do. Our worldwide inventory was around 72 million at the end of Q3, inclusive of some tariff expense. Although that number is higher than the 64 million from this time last year, the driver is our international expansion as our high U.S. held inventory is actually lower compared with this time last year. We are not going to build domestic inventory in the US this year on the premise that retailers will suddenly want the product they were unwilling to buy in Q3. Year-to-date net sales in our overall business are down 21% versus last year. 24% in toy consumer products and 8% in costumes. For the quarter, Toys and consumer products was down 41% to $156.1 million, our lowest Q3 in a very long time. Costumes were only down 4% to $55.1 million as we scrambled to recover some of the lost sales from Q2 while also continuing to steadily grow this business internationally. We talked about this year being an exercise in patience, and I think that continues to be the case. continue to partner closely with our China-based factory network, which I just returned from another trip to Asia to personally share growth initiatives we have in the works for 2026 and 2027 and gain alignment around our shared businesses. Many of our largest factories are continuing their expansions in other Southeast Asian countries, and we will continue to work with them to ensure we have the maximum flexibility to adapt changing conditions and restrictions. We are moving forward with the presumption that products will be burdened with a 30% cost upcharge from the levels we would normally expect. This is reflective of whether the product is coming from the established, efficient China supply chain and tariffed at 30%, or whether it's coming from the more in-progress, higher-cost but currently approximately 20% in Southeast Asian territories. This is now enhancing our product development decisions for 2026 and beyond. It is obviously something we couldn't plan for in 2025. In addition, we believe retailers will learn from the holiday selling season what level of price increases consumers are willing to bear. which should give them more confidence in placement orders that are consistent with the FOB product ordering timeline. Since this disruption started back in early February, we have been clear on our financial objective to avoid panic, preserve cash, and navigate to safer, clearer waters. To that end, although our top line has dropped, we are pricing for tariffs as we said we would. and our gross margin percentages has held reasonably well accordingly. At 32% in the quarter is down from last year, 33.8%, but we still feel is a strong result as inevitably the addition of tariff costs erodes the percentage even if it's 100% recouped by higher selling prices. Moving down the P&L, we have looked to reduce spending and delay or cancel projects and initiatives without clear near-term payback. Lower sales have also meant less work in our U.S. warehouse, providing additional savings. Overall, SG&A in the quarter was down 6% and is flat on a year-to-date basis. The cumulative impact was an adjusted EBITDA of $36.5 million in the quarter, down from $74.4 million in the same quarter last year. and reducing our trailing 12-month EBITDA to $29 million. I will now pass it over to John for some more details on the financials, and then I will come back to further discuss some things we are doing this holiday season and have in the works for 2026 and beyond. John?