JAKKS Pacific, Inc.

Good afternoon, everyone. Welcome to the Jax specific fourth quarter and full year 2025 earnings conference call with management who will review financial results for the quarter ended December 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 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 Jack Specific's 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 11 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 2026, as well as any other forward-looking statements concerning 2026 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 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 Stephen Berman.

Good afternoon, and thank you for joining us. As 2025 draws to a close, we are proud of what the organization has accomplished and what we ultimately viewed as a defining year in our company's history. While tariff policy created visible pressure on near-term financial performance, we remained disciplined and focused on long-term value creation. Beneath the surface volatility, we made meaningful progress across the areas that matter most, deepening and broadening our relationships with the key factories, licensors, and retail partners through a truly global lens, while also expanding our strategic relationship portfolio in preparation for a significant new initiative launching in 2027. Importantly, we maintained transparency with our shareholders regarding market dynamics and the challenges we faced, and we delivered on our commitments. refusing to pursue short-term top-line growth at the expense of bottom-line margin integrity. At the same time, we completed our first full year as a cash dividend payer returning $1 per share back to shareholders while preserving our debt-free balance sheet. We exit 2025 stronger, more resilient, and better positioned than we entered it, and we are energized by the opportunities ahead in 2026 and beyond. Globally, our toy and consumer product net sales were roughly flat in fourth quarter at $118 million, down 0.2% from the prior year and down 0.7% from 2023. Costumes were down, although in one of its smaller quarters of the year, but enough to bring the total company sales down 2.8% from prior year to $127.1 million or roughly flat to our 2023 fourth quarter sales of $127.4 million. Our fourth quarter U.S. business in total was down 7.8% to $86.2 million. Our domestic sales were down, which we attribute to higher tariff burden retail prices resulting in slower second half sell-throughs and, by extension, lower fourth quarter replenishment. Fourth quarter FOB sales to the U.S. were positive versus prior year to somewhat offset the downside. In the rest of the world, our fourth quarter sales were up 9.9% to $41 million. Europe was roughly flat in the quarter, and Latin America was up significantly, making up the lost ground from Q3. On a full year basis, our total rest of world business was $154.1 million, up 5.5% from prior year and slightly ahead of 2023, led by a 14% increase in Europe to 81.4 million. For the full year, our toy and consumer product business was down 19%, as our evergreen action play, dolls, and role play business in particular suffered from tariff impacts on customer order patterns and higher consumer prices. All three of our toy and consumer products division were down ranging 9% to 23% on a full year basis. Our costume business was down 10% for the full year with a slight increase in international offsetting the US results. Syndicated data suggests both retail dollars and units were down compared to the prior year, while average prices increased for both children's and adult costumes. Although Halloween is always a holiday with a surge of the last-minute shoppers, we felt that the surge was even later this year to the benefit of brick-and-mortar customers more than online. We did maintain and, in fact, extended our market leadership position for the season. This past month, we proudly debuted our first fully integrated Jacks in Disguise showroom at the Nuremberg Toy Fair, marking a significant milestone in how we present our global portfolio to the marketplace. The response from customers and partners was overwhelmingly positive as they experienced firsthand the full breadth, depth, and quality of our offerings, powered by best-in-class licensing relationships from around the world. This successful debut reinforces our confidence in the strength of our strategy and our ability to win across multiple categories and regions. We see a substantial runway for integrated growth across Europe with particularly strong momentum as we expand further into Eastern Europe and the Middle East. With a unified go-to-market approach, deep retail partnerships, and a world-class product pipeline, we're well-positioned to build sustained leadership and capture meaningful share in these high-growth markets throughout the season and beyond. 2025 has certainly been a disappointing year when we think of what could have been. but I remained pleased by how we adapted, evaluated, and reacted without overreacting to a volatile operating environment. We executed in a year and perhaps more importantly, at the same time remained focused on creating new growth opportunities for the company. We protected our core business by not chasing top line at the expense of margin while prudently controlling discretionary spending. We finished the full fiscal year with a gross margin of 32.4%, our highest full year level in over 15 years. Our gross margin dollars were up in fourth quarter year over year through a combination of better costing from our factories and improved inventory management. On a full year basis, our SG&A expenses were down 1%. This is a business where upfront investments are made over 12 to 18 months with the goal of future sales volumes and scaling driving larger profits. Although volumes were not as originally planned for the year, we nonetheless managed to reduce our fourth quarter adjusted EBITDA loss to $3.8 million versus $10.2 million in the same quarter last year. That increased our trailing 12-month EBITDA to $35.4 million for the full year of 2025-2022. down from $59.3 million in the prior year when we generated $120 million more in sales. I will now pass it over to John for some comments, after which I will come back and share a bit more about where we're focused moving forward. John?

Thank you, Stephen, and hello, everyone. A decent quarter here to wrap up a mostly indecent year from a financial perspective. As Stephen mentioned, sales stabilized a bit with the tariff shocks of Q2 and Q3 behind us, Q4 benefited from FOB shipments of our product for the Super Mario Galaxy film, which led our action play and collectibles business to a 19% year-over-year increase with growth from both North America and international. Beyond that, I'd say that most of Q4 sales results ended up being the squeeze from whatever happened or didn't happen in Q3 and didn't really suggest any meaningful change in trend or customer behavior. Gross margin dollars grew by 11% versus prior year, driven by a slightly better margin percentage. This result is a good outcome and generally consistent with prior quarters in 2025. Full year gross margin ended at 32.4%, better than last year's 30.8%, and a bit more consistent with 2023's 31.4%. Product costs were held in check through persistent and consistent collaboration with our long-term factory network, along with tighter management of inventory, reducing our obsolescence expense. Royalty expenses crept up a bit, significant sales reductions have driven some minimum unearned royalty payments, along with some mixed impact. We paid roughly $12 million in U.S. tariffs in 2025, which we feel we recovered through increased pricing. Higher price, accompanied by a one-to-one cost addition, has the math impact of a lower margin percentage, but that amount was not really material on an enterprise level. Tariffs were far more impactful in reducing sales. we estimate that our U.S. FOB customers paid nearly $50 million in tariffs on Jack's undisguised product in 2025. We feel that $50 million would have otherwise been allocated towards more actual product and, by extension, generate more Jack's revenue in any other year. That amount would be in addition to the additional reduction in units sold compared with our original plans as customers understandably de-risked their year. That gives you a bit of insight into the financial implications of last year's actions on our company, although it may not be readily apparent simply looking at the financial statements. Moving on to more controllable parts of the P&L, Q4 benefited from our actions taken earlier in the year to keep SG&A spending on a tighter leash. Selling expense ended the year down 8% and G&A roughly flat. With the strength and flexibility of our balance sheet, we did this without handicapping any of the product development or new initiatives we have been working on for 2026 and 2027. Our operating loss and adjusted EBITDA for the quarter were both improvements versus prior year, but not enough to overcome the financial carnage of Q2 and Q3. Full-year operating margin dropped to 2.5%, down from 5.7% last year. Adjusted EBITDA margin was 6.2%, down from 8.6%. It is a significant focus as we start the new year to revisit our processes to continue gross margin expansion while containing SG&A. We know we have the potential to do better from a margin perspective without relying on top-line improvement. The ambition would be to do both, which would by extension generate meaningful value. A moral, if not economic, victory of note to offset our margin challenges, calendar year 2025 was the first year our interest income exceeded our interest expense for a very long time. Remembering that in 2020 we paid $21.6 million in interest expense with a full-year adjusted EBITDA of $28.1 million helps to put 2025 in context a bit. These results all tally to an adjusted quarterly loss of 18 cents per share, an improvement from a 67-cent loss in Q4 2024, but nonetheless still dragging down our full-year adjusted EPS to $1.62, down from $3.79 for full-year 2024. The diluted share count is based on roughly 11.5 million shares. Turning to the balance sheet, we finished the year with $54 million in cash, down from $70 million last year, obviously impacted by the drop in sales. Our inventory was up slightly at a bit less than $60 million, up from $53 million last year. That change is driven by our expanded distribution footprint in Europe and Mexico. Our U.S.-held inventory was actually down 18% year-over-year. to the lowest level we've finished a year in over 10 years. Inventory management remains a focus and opportunity for us. Broadly speaking, we feel we read the second half of the year in the U.S. about as well as we could have hoped in terms of forecasting consumer and customer behavior. The hottest of product continue to move fast as hot products do, with the bar essentially raised for everything else with more lukewarm results. We don't feel we missed sales in Q4, and we feel good about our U.S. inventory on hand, We also obviously feel good that imported product from China is now taxed at 20% compared to the 30% we were paying for a lot of the year, and we didn't have to import any more of that higher cost than we did. The company remains committed to the path of being a meaningful and consistent dividend payer. Despite a somewhat soft year financially, we did manage to generate over $8 million in cash flow from operations, while also funding $11.2 million in common dividend payments. As mentioned in our release, the Board approved a Q1 payment of 25 cents per common share, payable at the end of Q1. The record date is February 27th, and the payable date will be March 30th. I think the pressures of the past year have pushed us to find new areas for incremental improvement, and that will be a lot of our focus this year to see what we can figure out. In a company of our size, we have the ability to make decisions faster and, by extension, capture opportunities sooner, so that's what I hope we can do. And now back to Stephen for some more comments about the year ahead.