JAKKS Pacific, Inc.

Good afternoon, everyone. Welcome to the Jax Pacific Second Quarter Earnings Conference Call with Management, where we review financial results for the quarter ended June 30, 2026. 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 Pressures section. On the call this afternoon are Stephen Berman, Chairman and Chief Executive Officer, and Jon Kimble, Chief Financial Officer. Stephen will first provide an overview of the quarter and year-to-date along with highlights of recent performance and current business trends. Then John will provide some additional comments around JAK's Pacific financial and operational results. Mr. Berman will then return with comments about the balance of the year and beyond prior to opening up the call for questions. The 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 1-1 on your telephone keypad. Before we begin, the company would like to point out that any comments made about SHAC's Pacific future performance events or circumstances, including the estimates of sales, margins, earnings, and or adjusted EBITDA in 2026 and beyond, as well as any other forward-looking statements concerning 2026 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 predicted in forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult CHAC's most recent 10-K and 10-Q findings with SEC as well as The company's others report subsequently follows with the SEC from time to time. In addition, today's comments by management refer to non-GAAP financial measures such as adjusted EBITDA and adjusted earnings per share. Unless stated otherwise, the most directly comparable GAAP financial metrics have 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'd like to turn the call over to Stephen Berman.

Good afternoon and thank you for joining us today. Our Q2 financial results were modestly better than our expectations and an improvement over the same quarter a year ago. Globally, our net sales finished at $139.2 million in Q2, a 17% increase compared to prior year with the sudden implementation of massive tariffs dramatically reduce customer orders. Year to date, our sales are 6% ahead of prior year at 245.9 million, our best first half since 2023. North America led the improved results, growing 20% year over year in Q2 and 3% for the first half. Our international business reflected smaller year over year growth of 3% led by Europe but is up 20% for the first half of the year. Overall, this is the highest level of international first-half shipping in JAX history in over 10 years at $53 million. Keeping the focus on the first half, our toys and consumer product business was up 5%. Those results were driven by the Action, Play, and Collectibles division, which was up as we supported the extremely successful second Super Mario Bros. film released in April. Led by an array of 5-inch figures developed specifically for the film, our product line also featured play sets, dioramas, and plush, and was very well received with solid sell-throughs. Building on that, we have another wave of new product introductions shipping now for fall planograms and promotional spaces, some of which are already on shelf. As retailers knew, we had a solid opportunity with this film. Through the first three quarters of shipping, we have sold in more movie-branded products than what we did for the first film, which is great, especially given the consumer reaction. Fans can also look forward to a lot more focus on Donkey Kong in the second half with a feature playset shipping along with a new figure multi-pack. Our dolls, roleplay, and dress-up business was up 12% in Q2 despite a lack of new entertainment support compared to the prior year. Of note, we have been steadily expanding our Frozen product line over the past 18 months, offering new roleplay patterns and refreshing key products. Although Frozen has been a cornerstone of our business dating back to the original film release, the business is up for the first half of this year versus prior year. In the fall, we have a strong retailer-exclusive place that will add more energy to this aisle as we build towards the Frozen 3 theatrical event in fall 2027. Retail pricing of our Disney Princess and Style Collection assortments were heavily impacted by tariffs most of last year. As those price shocks have unwound over recent months, we see some customers bringing retail prices down closer to where they were pre-tariff, although admittedly, Not across the entire product line. In general, it is true for the lower price points. We feel lower retails are contributing to improved velocity as consumers discover some of the strong, innovative items we launched last fall as well as this spring. We're also seeing expanded listings and resulting in positive point-of-sale results. The baby bath doll line launched in fall continues to sell extremely well and our refreshed 6-inch princess doll line with a sub $10 price point has been a strong performer as well. Retail toy and consumer products POS at the top two U.S. accounts was positive in the first half, accelerating to double-digit levels in Q2. Our disguise business also performed well, up 8% in the quarter and 9% in the first half. The popularity of Toy Story 5 and the Super Mario Bros. films are positive contributors to our business this year, Our outdoor seasonal business, which includes everything from activity tables and chairs to ball pits to ride-ons to skateboards and hula hoops, among other products, remained a slight drag on the results this quarter. We see this as a structural headwind rather than a transitory one. Retailers continue to reallocate in-store space away from large box items, and these bulky formats are poorly suited to the low-cost home delivery model that increasingly is shaping retail economics. We are not waiting this out. We are managing this business with a multi-year lens and a clear plan on two levers. Partnering with retailers to defend and recapture shelf space and lock sales. and re-engineering packaging and product design to shrink box sizes and improve delivery economics. We are already advancing on both fronts and while these investments will take time to fully show up in the numbers, we are extremely confident they position this business for sustainable, profitable growth as the category continues to shift. We like where we are headed. For the quarter, we were down 12% and down 17% year-to-date to $11.1 million in sales. Gross margins held up very well in the quarter at 32.3%, slightly lower than last year's at 32.8%. Tight management of sales, marketing, and overhead costs led to a slight operating loss of $142,000 in the quarter compared to a $2.8 million loss in Q2 of last year. Adjusted EBITDA in the quarter was $5.4 million compared to $2.3 million in Q2 last year. That increases our 12-month trailing adjusted EBITDA to $37.8 million. I will now pass it over to Jon for some comments, after which I will come back and discuss some product initiatives and areas of focus moving forward. Jon.

Thank you, Stephen, and hello, everybody. This has been a solid quarter wrapping up a solid first half of the year. As Stephen has pointed out, everything has been going pretty much in line with our expectations, which is a plus when that actually happens. Our FOB-centric business model is alive and well. Our first half shipments were over 75% FOB, reaching as high of a level as we've seen this decade. From a seasonality point of view, we have planned this year as a bit more front-weighted than normal, given the strength of Super Mario, and since we do not have any new toy introductions in the second half supporting holiday theatrical releases. and so far that outlook is holding up. As I look at our financial results, I'm focused on seeing gross margin dollars increase 3% in the first half to a little over $80 million. That's a pretty good outcome and reflects solid execution against what we saw as the opportunity. A bit better than the last two years and a couple of million dollars short of where we were in 2023. Ultimately, as a company, I want to see us optimizing for margin dollars and not margin percentages. As we do the extra work to identify incremental business outside of traditional U.S. mass market, I believe that is going to require more complexity in financial creativity in how we assess new opportunities, which is something we're in progress on working through. But establishing more annuity-like evergreen revenue streams while continuing to thoughtfully manage overhead should create another flow of long-term bottom-line profitability, which I feel we're only starting to wrap our heads around. As the majority of our overhead costs are fixed, Thank you for joining us. IEPA Tariff Refunds In the quarter, we took the opportunity to revalue on-hand inventory that was still burdened by those tariffs to essentially undo the excess carrying costs that the tariffs generated upon imports, thereby reducing the value on the balance sheet. The remainder of funds received we have recognized on the P&L this quarter as non-operating other income of $6.8 million. These refunds have raised our projection for pre-tax net income for the year, We have opted to back this gain out of our published non-GAAP projections of adjusted EBITDA and adjusted earnings per share. With that said, adjusted EPS for the quarter was $0.25 and $0.09 for the first half of the year. That compares favorably to $0.03 of earnings in Q2 last year and being break-even year-to-date EPS at the same time last year. From a balance sheet perspective, we finished the quarter at $60.6 million in restricted and unrestricted cash compared to $43.1 million at the same time last year. That increase is largely driven by stronger operating results and the aforementioned tariff refunds. As of July 17th, the comparable cash on hand number was $47.1 million to give you an extra bit of context to remind you of the seasonality in our working capital. Our inventory level at the end of the quarter is $58.3 million, down from $71.8 million at this time last year, and up a bit from $52.9 million last quarter. Finally, the Board has approved our sixth consecutive quarterly cash dividend of $0.25 per share. The dividend will be payable to shareholders of record as of August 28th, and will be payable on September 28th. And now, back to Stephen for some more discussion of what's ahead.