Q3 2023 JAKKS Pacific Inc Earnings Call

November 1, 2023

[music].

Good afternoon, everyone welcome to the JAKKS Pacific third quarter 2023 earnings Conference call with management, who will review financial results for the quarter ended September 32023.

<unk> issued its earnings press release earlier today.

The earnings release and presentation slides for today's call 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 Kimble, Chief Financial Officer, Stephen will first provide an overview of the quarter along with highlights of recent performance and current business trends then John will provide some additional editorial around JAKKS Pacific's financial and operational results.

Mr. Berman will then return with additional comments and some closing remarks prior to opening up the call for your questions.

Your lines will be placed on mute for the first portion of the call.

You would like to be placed in the queue to ask a question. Please press star one on your telephone keypad before.

Before we begin the company would like to point out that any comments made about JAKKS pacific's future performance events or circumstances, including the estimates of sales margins <unk> adjusted EBITDA in 2023 as well as any other forward looking statements concerning 2023 and beyond are subject to safe Harbor protection under Federal Securities laws.

These statements reflect the company's best judgment based on the 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 JAKKS. 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 conference is being recorded.

I would now like to turn the call over to Stephen Berman.

Yeah.

Good afternoon, and thank you for joining us today, it's been a very busy quarter for JAKKS as Q3, often is with new product segments launching and plans for 2024 firming up.

As you know Q3 is always the highest shipping quarter for JAKKS I'm proud to say, we feel very confident in how we're lined up to finish the year as well as some of the initiatives. The teams are working on for 2024 and beyond we do at the beginning of the year that repeating in 2022 revenue levels would be impossible.

Without a total unexpected breakout hit as we had last year.

With that sales outlook, we made gross margin improvement a major focus as it is extremely important to our blueprint for enhancing overall margin we have seen in our results.

<unk> been building and maintaining a strong balance sheet.

Our teams in Asia worked methodically with our manufacturing partners to ensure that we are getting the sharpest possible pricing on legacy items entering their second or third years in the market.

Separately, new product development continues to be regularly challenge to ensure we are stretching the team's creativity to generate value for the consumer and for our customers. While also ensuring costs mindful product designs.

With Q3's results, we can see the dividends of those efforts paid off year.

Year to date, our gross margin of 32, 5% is our strongest performance in this metric since 2011.

Our year to date gross profit of $186 9 million.

$6 9 million or 4% higher than a comparable period in 2022.

That improvement has helped us to compensate for increases in SG&A expenses.

Our year to date operating margin of 12, 7% represents an improvement of 11, 5% operating margin we had in the first nine months of 'twenty two.

The net results from an adjusted EBITDA view is $67 1 million and adjusted EBITDA in the quarter up from $59 4 million in the same quarter last year.

<unk> play a collectible business was up 43% in the quarter at 37% year to date accelerated its performance versus last quarter.

Our Dol role play and dress up segment is lapping that exceptional 2022 and was down approximately 27% in the quarter at 30% year to date off a larger base.

As we pointed out last quarter, we still think it's worth noting that the das segment is up significantly versus 2021 $247 million year to date this year versus $270 million year to date in 2021. This team is often a victim of its own in many successes.

Our outdoor seasonal business showed some trend improvement down only 2% in the quarter and slowing the year to date declined to 23%.

Operator: Good afternoon, everyone. Welcome to the JAKES Pacific 3rd quarter 2023, Ernest Comfort Call with Management, who will review financial results for the quarter ended September 30th, 2023. JAKES issued its earnings press release earlier today. The earnings release and presentation slides for today's call are available in the company's recently remodeled website in the investor section.

We have some quality placement of new items. This fall and as mentioned previously some new initiatives in the works, which we think can energize this business next year and beyond.

Q3 is of course, almost the most interesting time of year to discuss our Halloween costume business. The headline as the year has worked out in line with our expectations, which is great outcome, given how big the business has become last quarter. We discussed how the seasonality has moved around this year. So we saw it catching up this.

Operator: On the call this afternoon, our student Berman, Chairman and Chief Executive Officer, and John Kimble, Chief Financial Officer. Stephen will first provide an overview of the quarter, along with highlights of recent performance and current business trends. Then John will provide some additional editorial around JAKES Pacific's financial and operational results.

Quarter with a 19% year over year growth in Q3 year to date, we shipped 122 million through Q3, which is 9% lower than last year as we mentioned before some larger U S customers recalibrated their buying levels. This year after an aggressive 2022.

Operator: Mr. Berman will then return with additional comments and some closing remarks prior to opening up the call for your questions.

Operator: Your line will be placed on mute for the first portion of the call. If you would like to be placed in a Q to ask a question, please press star one one on your telephone keypad.

That drove most of the downside as our international business has been roughly flat year to date.

Operator: Before we begin, the company will like to point out that any comments made about JAKES Pacific's future performance, events or circumstances, including the estimates of sales, margins, and or adjusted EBITDA in 2023, as well as any other forward-looking statements concerning 2023 and beyond are subject to safe harbor protection on the Federal Security's laws. These statements reflect the company's best judgment based on the current market trends and conditions today, and are subject to certain risks and guarantees, which will cause actual results to differ materialism those projected in forward-looking statements.

We've been aggressively working on our distribution outside of North America, and remained focused and committed to building that business to leverage our strength in North America.

Again to provide a 2021 reference point that one.

$122 million shift number is significantly higher than the $99 million, we shipped in the first three quarters of 2021. So overall another great year for the team at the skies moving.

Moving onto a market view the past quarter was also noteworthy and continuing our efforts to expand our overall business outside the United States.

Operator: For details concerning these and other such risk and certainties, you should consult JAKES, most recent TNK, and TNQ's followings with the SEC, as well as the company's other reports, subsequently followed the SEC from time to time.

In Latin America were up and shipping 50 plus percent year to date.

Although we've had an office in Mexico for several years. This year, we started offering selective domestic replenishment for key items via a local third party warehouse. This investment helped to elevate our year round on shelf presence further proving the viability of our product lines to local retailers.

Operator: In addition to these comments by management, we'll refer to non-gap financial measures, such as adjusted EBITDA and adjusted earnings per share. Unless data otherwise, the most directly comparable gap financial metric has been rectified to the associated non-gap financial measure, within the company's unease press release issue today or previously, as a reminder, this conflict is being recorded.

With this success. They can then company placed a larger orders with us F&B in Asia consistent with our go to market approach.

Stephen Berman: With that, I would now like to turn the call over to Stephen Burman. Good afternoon, and thank you for joining us today. It's been a very busy quarter-projects, as Q3 often is, with new products segments launching and plans for 2024 for me up. As you know, Q3 is always a high-shipping quarter-projects. I'm proud to say we feel very confident in how we're lined up to finish the year, as well as some of the initiatives the teams are working on for 2024 and beyond.

Over time, we also see as a potential platform for additional shipments into Latin America.

And we're quickly seeing a positive reactions at retail with syndicated data, suggesting we're up over 50% in Mexico year over year.

Also in the quarter, we officially opened our dual purpose office and warehouse facility in Northern Italy, We plan to start shipping from there in the new year, which will generate a number of new benefits.

Specifically being able to serve a wider range of smaller customers more quickly and with improved economics that is shipping smaller orders as individual deliveries from northern Europe.

Stephen Berman: We do it at the beginning of the year that repeating 2022 revenue levels would be impossible feet without a total unexpected breakout hit as we had last year. With that sales outlook, we made gross margin improvement a major focus as it is extremely important to our blueprint for enhancing overall margin. We have seen in our results it's imperative in building and maintaining a strong balance sheet. Our teams in Asia work methodically with our manufacturing partners to ensure that we are getting the sharpest possible pricing on legacy items entering their second or third years in the market.

In addition, we on boarded a new team with deep industry experience and Jack's France, a market, where we know we have been underperforming during COVID-19.

Although our CFO Jack Mcgrath is officially not in his new role as president of European operations until the new year. He has been spending a considerable amount of time and focus on addressing challenges in the region to accelerate our performance in 2024 and beyond.

Can be more excited about the opportunity presented by has taken his years of experience with Jack's and focusing them on taking a fresh look and how we're doing business in the European markets.

Stephen Berman: Separately, new product development continues to be regularly challenged to ensure we are getting the team's creativity to generate value for the consumer and for our customers, while also ensuring cost mindful product designs. With Q3's results, we can see the dividends of those efforts paid off. Year to date, our gross margin of 32.5% is our strongest performance in this metric since 2011. Our year-to-date gross profit of 186.9 million is 6.9 million or 4% higher than a comparable period in 2022.

Switching now to talking about what we're seeing at retail on the toy side. It's been the case all year and continued this past quarter. When we look at our own data in syndicated data, we see that the toy portion of our business continues to perform better than the overall industry in the U S. The same has been true in some of our European markets.

Where we also see syndicated data.

Certainly some of the great content from our studio partners is helping to drive people to the registered this year much as it did last year, but broadly we have been pleased with how the total portfolio is performing this year as we said last quarter.

Stephen Berman: That improvement has helped us to compensate for increases in SUNA expenses. That's that our year-to-date operating margin of 12.7%. The result from an adjusted EBITW is 67.1 million in adjusted EBITW in the quarter. Up from 59.4 million in the same quarter last year. Our action play and collectible business was up 43% in the quarter, and 37% year-to-date versus last quarter. Our dull, role play and dress-up segment is laughing that except you'll 2022, and was down approximately 27% in the quarter, and 30% year-to-date off a larger base.

That being said in Q3, we did see retail slowing retail sales at our top three U S accounts were down low single digits year to date and down high single digits in the quarter.

Separately at the end of the quarter retail inventory at same accounts were down over 20% versus prior year delivering on their goal is to finish the calendar year at lower <unk> inventory levels as we work through this transitional year at retail we plan to stay in stock across all of our key product segments and are set up.

Well to fulfill demand in Q4.

I will now pass it over to John for some further comments after which I'll come back to discuss Q4 and a bit about next year John.

Thank you Steven and hybrid body, it's always great to report results after $300 million sales quarter.

Stephen Berman: As we pointed out last quarter, we still think it's worth noting that the cost segment is up significantly versus 2021, 247 million year-to-date this year, versus 270 million year-to-date in 2021. This team is often a victim of its own and many successes. Our outdoor sees little business showed some trend improvement, down only 2% in the quarter, and slowing the year-to-date decline to 23%. We have some quality placement of new items this fall, and as mentioned previously some new initiatives in the works, which we think can energize this business next year and beyond.

We knew the first half of the year would have the most difficult comparisons as we were chasing business on our holiday 2021 film.

Second half of the year would also be challenging, but hopefully less sell.

That view is playing out in our results, although down 20% as a total company in the first half of the year we were <unk>.

Down only 4% in Q3 shipping $310 million in the quarter.

As Stephen pointed out broadly speaking the euro is going about as well as we could have hoped.

2020, unleashed Covid 2021 had extensive frame 2022 had warehouses over flooring.

And so far 2023 from a perspective of our business that had more positives or negatives.

Stephen Berman: Q3 is of course almost the most interesting time of year to discuss our Halloween costume business. The headline is the year has worked out in line with our expectations, which is great outcome given how big the business has become. Last quarter, we discussed how the sustainability has moved around this year. So we saw it catching up this quarter with a 19% year-to-year growth in Q3. Year-to-date, we shipped 122 million through Q3, which is 9% lower than last year.

That means from a year over year perspective is twofold bad things that happened in 2022 haven't reappeared and some additional good things have been additive.

From a net sales perspective, both the toy CP segment and costumes are tracking year to date at higher levels than anything in the 2019 to 2021 time period.

Gross profit dollars for both segments are higher at anytime in the past five years as well.

Stephen Berman: As we mentioned before, some larger US customers recalibrated their buying levels this year after the aggressive 2022. That's drove most of the downside. As our international business has been roughly flat year-to-date. We've been aggressively working on our distribution outside of North America, and remain focused and committed to building up business to leverage our strength in North America. America. Again, to provide a 2021 reference point, that $122 million shift number is significantly higher than the 99 million we shipped in the first three quarters of 2021, so overall another great year for the team at the skies.

There are a number of things happening with gross margin in the quarter was 600 basis points improvement. So let me try to break that down.

As Stephen referenced the landed product cost improvement amounted to around 350 basis points.

That was a mix of some of the good stuff that Stephen talked about earlier, but also last year on both the toy and costume businesses, we blew out some inventory at margins that werent anything to brag about for a couple of different reasons that made sense at the time.

We also managed to avoid bleeding money by way of above average freight costs that was a pickup of another 150 points.

There are a number of other puts and takes but I'll throw in for good measure that our read of retail last year was more markdown exposure than what we're seeing at this point. This year. So that's also net net favorable.

Stephen Berman: Moving on to a market view, the past quarter was also noteworthy in continuing our efforts to expand our overall business outside the United States. In Latin America, we are up and shipping 50 plus percent year to date. Although we've had an office in Mexico for several years, this year we started offering selective domestic replenishment for key items via a local third-party warehouse. This investment helps to evaluate our year-round on-shelf presence further proving the availability of our product line to local retailers.

And finally this quarter, we began capitalizing a small portion of our tooling to our owned inventory valuation has been an outstanding topic for some time, but we've got around to figuring out how to get it done without the accounting being too cumbersome. So that was a onetime pickup of $1 $8 million in the quarter.

Stephen Berman: With this success, they can then commonly place the larger orders with us FOB and Asia, consistent with our go-to-market approach. Over time, we also see as a potential platform for additional shipments in the Latin America. And we're quickly seeing a positive reaction at retail with syndicate data suggesting we're up over 50 percent in Mexico year over year.

We've adjusted that depreciation dollar amount out of our adjusted EPS results.

So to answer your question. We think we have line of sight to continue to hang out in this long 30 neighborhood on a full year basis, but that's of course subject to minimizing Stefan wrong, nor does it contemplate any dramatic changes in our product mix, which we don't anticipate in the near term.

We're losing a bit of scale with SG&A being up but fortunately the gross margin much has been enough to generate operating margin improvement which is great.

That has allowed us to selectively invest in staff and infrastructure, where appropriate with the goal of being in a better place next year organizationally, despite revenue being down this year.

Stephen Berman: Also in the quarter, we officially opened our dual-purpose office and warehouse facility in Northern Italy. We plan to start shipping from there in the new year, which will generate a number of new benefits. Specifically, we'll be able to serve a wider range of smaller customers more quickly and would improve economics than shipping smaller orders as individual deliveries from Northern Europe. In addition, we onboarded a new team with deep industry experience in Jack Sprance, a market where we know we've been underperforming during COVID.

We've also made some decisions like skipping the New York Toy Fair this past quarter, which may not have generated massive financial savings, but certainly we removed a layer of organizational distraction if nothing else.

In addition to the P&L, we're feeling good about the balance sheet our.

Q3, ending cash balance of $96 4 million as high for this time of the year. There are a couple of drivers.

One is that we're trying to keep a tight leash on inventory and turning it back into cash in a timely manner.

Stephen Berman: Although our COO Jack Begrath is officially not in his new role as president of European operations until the new year, he has been spending a considerable amount of time and focus on addressing challenges in the region to accelerate our performance in 2024 and beyond. I couldn't be more excited about the opportunity presented but has taken his years of experience with Jacks and focusing them on taking a fresh look on how we're doing business in the European markets.

And the other is we've accepted the federal government's offer to California based businesses.

Payroll and tax payments into October, which helped quite a bit.

You'll notice in aggregate that our AP and taxes payable are up over $20 million versus this time last year.

We remain debt free as of the end of the quarter and as of today.

Majority of the interest expense you see in the P&L associated with some early payment discounts that we sporadically take advantage of to maximize liquidity.

Stephen Berman: Switching now to talking about what we're seeing at retail. On the toy side, it's been the case all year and continued this past quarter when we look at our own data and syndicated data. We've seen that the toy portion of our business continues to perform better than the overall industry in the US. The same has been true in some of our European markets where we also see syndicated data. Certainly, some of the great content from our studio partners is helping to drive people to the registered this year much as it did last year.

We'll likely be doing less of that in the near term given our current cash situation.

The reduction in our cost of capital from our improved financial position increased preferred share liability valuation to $28 6 million generating a noncash loss of $800000 in the quarter as is customary we adjust that amount out of our non-GAAP results.

Adjusted EPS for the quarter was $4 75.

Stephen Berman: But broadly, we've been pleased with how the total portfolio is performing this year as we said last quarter. That being said, in Q3, we did see retail slowing. Retail sales at our top three US accounts were down low single digits year to date and down high single digits in the quarter. Separately at the end of the quarter, retail inventory at the same accounts were down over 20% versus prior year, delivering on their goals to finish the calendar year at lower owned inventory levels. As we work through this transitional year at retail, we've managed to stay in stock across all of our key product segments and our setup well to fulfill demand in Q4.

And $5 66 for the first nine months.

Those numbers are up from $3 80.

And down from $5 68, respectively from 2022.

Trailing 12 month, adjusted EBITDA of $74 $5 million.

And now back to Stephen for some additional remarks.

Thank you John.

Although we reviewed a lot of the key product initiatives last quarter I wanted to provide a couple of quick updates and then share some new exciting news about 2024 and beyond.

Last year, we mentioned it's been two years since we first introduced the Disney Ely brand with target in the U S.

Stephen Berman: I will now pass it over to John for some further comments, after which I will come back to discuss Q4 and a bit about next year.

That business has built steadily with them during that time and is currently putting up some very nice numbers in reaction to our fall 2023 lineup.

John Kimble: John? Although down 20% has a total company in the first half of the year, we were down only 4% in Q3, shipping $310 million in the quarter. As Stephen pointed out, broadly speaking, the year is going by as well as we could have hoped.

The inspired by Stitch dolls, both in the original 18 at scale as well as our new introduction of fashion doll scale have both been top sellers out of the gate.

Overall, the fashion doll scale has been well received when first hitting the shelves and we are expected for more fans of these characters define them. This holiday season last year. We are extremely excited to work with target to bring their target toy stores shopping cart to life and once again on their bullseye top toy list for 2020.

Three reflected its great performance this year.

John Kimble: 2020 unleashed COVID, 2021 had expensive free, 2022 had warehouses overflowing, and so far, 2023, from the perspective of our business, has had more positives than negatives. What that means from a year of a year perspective is twofold. Bad things that happened in 2022 haven't reappeared, and some additional good things have been additive. From a net sales perspective, both the toy CP segment and costumes are tracking year to day that higher levels than anything in the 2019 to 2021 time period.

But the new news is the recent launch of the target cash register at accessories items.

As an extension of our perfectly cute line.

It debuted during the quarter and is doing extremely well so far as.

As we all thought it might it's a great value and great fun for the consumer.

We sure to check out the photos in our presentation.

Also be on the look for some new introductions in our outdoor season space. This holiday season. The team is thought to gain shelf space at key accounts across ball pits activity tables and ride ons.

John Kimble: And gross profit dollars for both segments are higher than any time in the past five years as well. There are a number of things happening with gross margin. In the quarter it was 600 basis points improvement, so let me try to break that down. As Stephen referenced, the landed product cost improvement amounted to around 350 basis points. I'd say that was a mix of some of the good stuff that Stephen talked about earlier, but also last year on both the toy and costume businesses, we blew out some inventory of margins that weren't anything to brag about for a couple of different reasons that made sense at the time.

We have some great new paw patrol write offs inspired by this summer's movie, which brings a lot of play to the classic play patterns and during Q3, our product lineup and support of the Walt Disney Animation Studios Thanksgiving film release, which began to hit the shelf.

This story focuses on a 17 year old girl named Usher, a sharp witted idea list, who makes a wish so powerful that it is answered by a cosmic force a little ball of boundless energy called Star. We're Super excited about the film and are playing a role as Disney continues to celebrate the one hundreds.

John Kimble: We also managed to avoid bleeding money by way of above average freight costs. That was a pickup of another 150 points. There are a number of other puts and takes, but I'll throw in for good measure that our read of retail last year was more marked down exposure than what we're seeing at this point this year, so that's also net net favorable. And finally this quarter we began capitalizing a small portion of our tooling to our owned inventory valuation.

Anniversary of its founding this year.

Now for a couple of additional comments about 2024.

We recently announced a new agreement with Sega to support the Sonic Hedgehog III Paramount Pictures feature film set to release on December 22024, as many of you know we have worked with Sega for many years on Sonic and other Sega properties inclusive of the first film in 2020.

John Kimble: This has been an outstanding topic for some time, but we've got around to figuring out how to get it down without the accounting being too cumbersome. So that was a one-time pickup of $1.8 million in the quarter. We've adjusted that depreciation dollar amount out of our adjusted EPS results. So to answer your question, we think we have a line of sight to continue to hang out in this low 30 neighborhood on a full-year basis, but that's of course subject to minimizing stuff going wrong.

We are looking forward to bringing to market a new innovative range coming to a wide range of products that sonic fans have come to expect from us ranging from figures to plush to place yet to costumes and more <unk>.

Now moving onto our outdoor seasonal division I'm extremely excited and happy to be able to talk about a multi year worldwide relationship, we're starting with authentic brands group AVG.

John Kimble: Nor does it contemplate any dramatic changes in our product mix, which we don't anticipate in the near term. We're losing a bit of scale with SG&A being out, but fortunately the gross margin list has been enough to generate operating margin improvement, which is great. That has allowed us to selectively invest in staff and infrastructure where appropriate, but the goal of being in a better place next year organizationally, despite revenue being down this year.

As you May know AVG is a brown powerhouse with a wide portfolio of IP, which has mass appeal to millennials Gen Z and Gen y <unk>.

<unk> and <unk> have been collaborating in a wide range of products that will slot into this division as well as expand the scope of our offerings.

John Kimble: We've also made some decisions like skipping the New York toy fair this past quarter, which may not have generated massive financial savings, but certainly removed a layer of organizational distraction is nothing else. In addition to the PNL, we're feeling good about the balance sheet. Our Q3 ending cash balance of $96.4 million is high for this time of the year. There are a couple of drivers. One is that we're trying to keep the title of each on inventory and turning it back into cash in a timely manner.

We have been working on an iconic assortment of their properties names like Roxy quick silver element Forever 21, Juicy Couture sports illustrated Prince just to name a few with designs in process already underway customers can expect initial fall.

2020 for rollout of Skateboards with amazing new designs for element and quick silver at specialty and mass retailers in store and online Jack.

John Kimble: Another is we've accepted the federal government's offer to California-based businesses for payroll and tax payments into October, which helps quite a bit. You'll notice an aggregate that our AP and taxes payable are up over $20 million versus this time last year. We remain debt-free as of the end of the quarter and as of today. The majority of the interest expenses in the P&L associated with some early payment discounts that we sporadically take advantage of to maximize liquidity.

Jackson will launch branded roller skates inline skates, volleyball's outdoor furniture, including chairs umbrellas and canopies beach accessories inflatable pool floats sanded splash mats foldable wagons, and an extensive line of dolls and dolls accessories infused with fashion elements from Forever 21.

John Kimble: We'll likely be doing less of that in the near term, given our current cash situation. The reduction in our cost of capital from our improved financial division increased the preferred share liability valuation to $28.6 million, generating a non-cash loss of $800,000 in the quarter. As is customary, we adjust that amount out of our non-gap results. Adjusted EPS for the quarter was $4.75 and $5.66 for the first nine months. Those numbers are up from $3.80 and down from $5.68 respectively from $22. A trail in 12 months of jeopardy that is $74.5 million.

UC couture prints sports illustrated and Roxy.

The strength of the authentic platform and family of IP will grow JAKKS specific product lines and outdoor categories, while making the way for new collaborations with authentic on existing categories.

The addition of more spring and summer focused visits also further leverages jacks infrastructure to counterbalance traditional Halloween holiday seasonality. So this relationship is really great match for both of us reactions from various customers worldwide and the previous we've shown over the past couple of months of early <unk>.

Product directions and initiatives, we're extremely very favorable so are there there is still a lot of heavy work in lifting to be done. We are so excited about the potential here.

Stephen Berman: And now we have to see them for some additional remarks. Thank you, John. Although we reviewed a lot of the key product initiatives last quarter, I wanted to provide a couple quick update and then share some new exciting news about 2024 and beyond. Last year, we mentioned it's been two years since we first introduced the Disney eLeBrand with Target in the U.S. That business has built steadily with them during that time and is currently putting up some very nice numbers in reaction to our fall 2023 lineup.

Firstly, you've been working on development of this business for over the past year and can't wait for you to see some of the new products and product execution that we are currently working on today and into the future.

But wait there is more we are quick to tell everyone that this business is built brick by brick a series of evergreen brands and categories centered around classic play patterns that we feel persists and stand the test of time, even in an increasingly digital world and.

And we've talked about how our successes in recent years has started a new conversations and have created new ideas about business opportunities that marry up our unique role in the marketplace with different brand owners.

Stephen Berman: The inspired by stitched dolls, both in the original 18-inch scale, as well as our new introduction to fashion doll scale, have both been top sellers out of the gate. Overall, the fashion doll scale has been well received when first hitting the shelves and we are expected for more fans of these characters to find them this holiday season. Last year, we are extremely excited to work with Target to bring their target toy store shopping cart to life.

And you've also heard us mentioned that windows business have an underlying content presence. It only adds to our ability to stay on top of mind with consumers and participate in the energy and excitement around top tier content quality at success.

Stephen Berman: And once again, on their bullseye top toy list for 2023, we've collected its great performance this year. But the new news is the recent launch of the Target Caster Register of Accessories as an extension of our perfectly cute line. It debuted during the quarter and is doing extremely well so far as we all thought it might. It's a great value and great fun for the consumer. Be sure to check out the photos in our presentation.

So with that foundation I couldnt be happy to share New news that in fall 2020 for JAKKS will be launching an extensive product line dedicated to the Simpsons.

Since it is well into its record breaking 35th season. This fall. It continues to be one of the most popular series, both Fox and Disney plus.

The upcoming toy line is poised to inject even more excitement enjoy into this cherished franchise catering to fans of all ages with a diverse and engaging offerings.

Stephen Berman: Also, be on the look for some new introductions in our outdoorsy zill space this holiday season. The team has fought to regain shell space at key accounts across the ball pits, activity tables and ride-ons. We have some great new Paw Patrol ride-ons inspired by this summer's movie, which brings a lot of play to the classic play patterns. And during Q3, our product lineup and support of the Walt Disney and the Asian Studios Thanksgiving film release, Wish began to hit the shelf.

The toy line will feature a wide range of beloved characters from the show available in various forms such as basic deluxe and premium collect your figures play sets and plush toys, along with items like advent calendars and other fun and creative toys inspired by the show's rich history.

As you might imagine our action plan collectibles team has been having a tremendous time brainstorming the plethora of product opportunities that this show represents and we are honored as a company to be trusted with such an iconic franchise.

Stephen Berman: This story focuses on a 17-year-old girl named Asha, a sharp-witted idealist who makes a wish so powerful that it's answered by a cosmic force, a little ball of boundless energy called star, who are super excited about the film, and are playing a role as Disney continues to celebrate the 100th anniversary of its founding this year.

As I said at the beginning so at a very busy quarter, but with the end of the year and site. It is also extremely gratifying to see us lined up for completing another really successful year here at Jack's while still seeing great opportunities for sustained growth in the new year to come.

Stephen Berman: Now for a couple of additional comments about 2024. We recently announced a new agreement with Sega to support the Sonic Hedgehog 3 Paramount Picture's feature film set through lease on December 20, 2024. As many of you know, we have worked with Sega for many years on Sonic and other Sega properties, inclusive of the first film in 2020. We are looking forward to bringing to market a new innovative range coming to wide range of products that Sonic fans have come to expect from us, ranging from figures to plush to play sets to costumes and more.

Thanks, again for your support and interest operator.

Thank you.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again please.

Please standby, we compile the Q&A roster.

Our first question comes from the line of Andrew <unk> with Jefferies. Your line is now open.

Okay. Thank you. Thank you gentlemen, just a couple of questions. The first one the first one.

Stephen Berman: Now moving on to our outdoor seasonal division. I'm extremely excited and happy to be able to talk about a multi-year world-wide relationship we're starting with authentic brands group ABG. As you may know, ABG is a brand powerhouse with a wide portfolio of IP, which has mass appeal to millennials, Gen Z, and Gen Y. Jacks and ABG have been collaborating on a wide range of products that will slot into this division as well as expand the scope of our offerings.

Is an action plan and collectibles.

Grown I mean, it's almost more than doubled since 2021 could you just talk about the puts and takes there and then kind of maybe at the end of your answer.

What kind of impact of symptoms could have on that.

It sounds like a really great collaboration and great. So congratulations on that but just kind of walk me through kind of the puts and takes on that segment and how we should think about it going forward.

Great. Thank you Andrew.

This is Stephen so on the the boys action and play environment. We've had a really strong year. One of it was the we had a great run with the Nintendo movie that came out on top of the actual classic Nintendo business that has grown with the movie strike.

Stephen Berman: We have been working on an iconic sortment of their properties, names like Roxy, Quick Silver, Element, Forever 21, Juicy Cotour, Sports Illustrated, Prince, Justin name of With designs in process already underway, customers can expect initial fall of 2024 rolled out of skateboards with amazing new designs for a element and quick silver, specialty and mass retailers in store and online. Jacks will launch branded roller skates, inline skates, volleyball, outdoor furniture, including chairs, umbrellas and canopies, beach accessories, inflatable pool floats, sanded splash mats, foldable wagons, and an extensive line of dolls and dolled accessories, infused with fashion elements from Forever 21, Juicy Cotour, Prince, Sports Illustrated, and Roxy.

That being said it goes on to streaming of Netflix and a broad streaming platforms.

December I think it's the first week of December, but NBC Peacock, but now once it goes into a wide way of distribution infrastructure, we think there'll be strong tailwind going into spring next share and beyond to keep that going you also have the Sonic Netflix television show that airs in July in a movie that next December so those are going.

We continue to be extremely strong.

We'll look at what areas have growth they have not erode it each other sales which is terrific.

In the video game platform business with a lot of content on the video game platform plus video content, which is terrific at the same time, we have other content called <unk>, which is from the other game and crash bad debt those are actually just starting to take off.

Stephen Berman: The strength of the authentic platform and family of IP will grow Jacks specific product lines and outdoor categories will make in the way for new collaborations with authentic existing categories. The addition of more spring and summer focused visits also further leverages Jacks infrastructure to counterbalance a traditional Halloween holiday seasonality, so this relationship is really great match for both of us. Reactions from various customers worldwide and the previous we've shown over the past couple months of early product directions and initiatives were extremely, very favorable.

We'll see how they turn into but the real catalyst to build to this area.

We keep saying.

A very strong evergreen platform is by continued it and you can't get stronger in addition to what we already have without having the Simpsons and that is across the world. The content is so strong it's such as 30 50 air and it hasnt been in the market. The way we brought in I think for over a decade. So we've been working on this.

Strongly with the Walt Disney Company, and we are and the retailers are.

Stephen Berman: So all there, there's a still a lot of heavy work in lifting to be done. We are so excited about the potential here. I've personally been working on development of this business for over the past year and can't wait for you to see some of the new products and product executions that we are currently working on today in a new product. Future.

We're extremely excited about at a broad array of retailers from mass to big box to specialty to the value chain. So we just look at this speed and added brick by brick philosophical initiative for us to build that whole action play environment and we look at many different Ips that are out there and we waited a long time until we were able to achieve get into <unk>.

Stephen Berman: But wait, there's more. We are quick to tell everyone that this business is built brick by brick, a series of evergreen brands and categories centered around classic play patterns. That we feel persist and stand the test of time even in an increasingly digital world. And we've talked about how our successes in recent years have started new conversations and have created new ideas about business opportunities that marry up our unique role in the marketplace with different brand owners.

Simpson's, which took our group many years to do.

And with that said, we are looking for a strong year next year and that action play environment.

Got it that's really helpful. Thanks, Thank you Steven and then switching to outdoor.

Obviously peaks during Covid I think everybody peaked during COVID-19.

This latest relationship heading into 2024 and beyond it sounds like this is pretty substantial.

Should we think about the impact it could have as we as we start to look out 24 and beyond should we could we get back to that kind of.

Stephen Berman: And you've also heard a mention that when those business have an underlying content presence, it only adds to our ability to stay on top of mind with consumers and participate in the energy and excitement around top tier content quality at success.

Colgate peak that you guys hit.

Firstly, yes, that's our goal we jumped into this for a long time I have been friends with the sell through or family, which are the founders of the AVG group and we've been working for over a year.

Stephen Berman: So that foundation, I could be happy to share new news that in fall 2024, JAKKS will be launching an extensive product line dedicated to the Simpsons. As the Simpsons is well into its record-breaking 35th season this fall, it continues to be one of the most popular series of both Fox and Disney+. The upcoming toy line is placed to inject even more excitement and joy into this cherished franchise catering to fans of all ages with a diverse and engaging offerings.

<unk> initiatives and platform and IP, they own a breath and a plethora of different IP.

Our relationship together with them is extremely strong and we've worked out.

A various array of different categories that actually will help diversify colored our revenue stream to put a little bit more into the first half of the year, especially as having the third quarter and fourth quarter being a strong because of Halloween and.

The actual.

Today seasons, but that being said the diversification to the buyers that we go through to the distribution that we got from our main distributions that we go to the specialty distribution. We've been looking at this in great detail and we believe we'll get much stronger and even bigger than we were with our original platform in seasonal in the next couple of years.

Stephen Berman: The toy line will feature a wide range of beloved caricatures from the show, available in various forms such as basic, deluxe and premium collector figures, play sets and plush toys, along with items like advent calendars and other fun and creative toys inspired by the show's rich history. As you might imagine, our action-playing collectibles team has been having a tremendous time brainstorming the plethora of product opportunities that this show represents. And we are honored as a company to be trusted with such an iconic franchise.

I've worked on this.

Finish the deal over the last few days. We're both excited were on the road with retailers already we're in complete development in Asia. Our team has been there theyre back there again. This week. So we just don't know how quickly we'll get into the market, but we do think it will be.

Somewhat material to us in the segments in which were an element to it as one of the largest brands worldwide for skateboards and so we have that whole category escaped ports with quick silver we have a beautiful lineup rollerblades and roller skates with the Juicy couture.

Stephen Berman: As I said at the beginning, it's with a very busy quarter, but with the end of the year and site, it is also extremely gratifying to see us lined up for completing another really successful year here at Jacks. While still seeing great opportunities for sustained growth in the new year to come. Thanks again for your support and interest, operator.

Brand we have.

Broad array of seasonal outdoor products for beach and parks for like football games soccer games for family and children that aligns with our kids outdoor furniture that just parlays, bringing it from kids to teens Tweens and adult. So we're really just more diversified into kids consumer product company and a consumer product company for families and were extreme.

Operator: Thank you. As I remind you to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one on again.

Really excited about it <unk> is excited about it and the retailers are excited about it.

Operator: Please stand by we'll compile the Q&A roster.

Got it that's super helpful. And then kind of just last question.

Operator: Our first question comes from the line of our quits with Jeffries to the line of snow. Thank you. Just a couple of questions. The first one is on action-playing collectibles. It's grown. I mean, it's almost, it's more than doubled since 2021. Could you just talk about the puts and takes there and then kind of maybe at the end of your answer? What kind of impact the symptoms could have on that? I mean, it's a really great collaboration and a great kit.

Looking at the international opportunity.

I mean, you've made.

Real inroads it looks like this year and on a two year stack in Latin America.

You are down I think year over year year to date in Europe, how should we think about the impact of the efforts. There is it is it to help with margins is it is it eventually will we see growth in international was kind of the.

What's the goal with the European expansion right now because it doesn't seem to be showing up in the income statement quite yet.

So this year as you've seen in our industry I would say we've been I think were flat and this year.

Operator: So from regulations on that, but just kind of walk me through kind of the puts and take home that segment and how should you think about it going forward? Great. Thank you, Andrew. This is Steven. So on the, the boys actually had a play environment. We've had a really strong year. One of it was the, we had a great run with the Nintendo movie that came out on top of the actual classic Nintendo business that has grown with the movie strength.

Call. It the toy companies have had down years overall that being said, we wouldnt be moving Jack Mcgrath.

And.

A team of people from the U S. Two in the international territories, allowing the team to make immediate decisions and not having to come to the call at the corporate office. Jack has worked with me for over 25 years. He's got by completing the company supporting the board support.

Operator: That being said, it goes on to streaming of Netflix and abroad streaming platforms. December, I think it's the first week of December. It's been on the NBC peacock, but now what's it goes into a wide way of distribution of streaming? We think there'll be strong tailwinds going into spring next year and beyond to keep that going. You also have the Sonic Netflix TV show that airs in July and a movie that's next December.

The we just opened up I, just got back a week ago from <unk> to Italy, where our new distribution center in offices are at our new offices in France, we will see growth.

Say hands down just by having him there, but not just that we also have a broad array of products that are new and that are consistent we have a whole line of the Princess style collection, that's a mature line and growing in North America, but it's only been in Europe for about two years. It took us five years to get that growth. We have the Simpsons we are.

Operator: So those are going to continue to be extremely strong and we'll look at what areas have growth. They have not eroded each other's sales, which is terrific. They are in the video game platform business with a lot of content on the video game platform, plus the video content, which is terrific. At the same time, we have other content called bendies, which is from another game and crash bandit. Those are actually just starting to take off and we'll see how they turn into.

Tech brands, we have the new movie, which we have a plethora of different areas of business from the boys action. So we will see growth I'm very confident adamant about it and we should see enhanced margins because the operational side of things. Jack is very involved with so we will see growth and I think operational enhancement globally, starting probably the first half of next year.

Operator: But the real catalyst to build this area is I'll be keep saying a very strong evergreen platform is by continuing it and you can't get stronger in addition to what we already have without having the symptoms. And that is across the world. The content is so strong. It's just a 30, 30 year and it hasn't been in the market the way we brought in, I think, for over decades. So we've been working on this strongly with the Walt Disney Company and the retailers are extremely excited about it.

The second half.

Got it that's very helpful. I think I do have one more question kind of on Q.

Q4, yes.

Listening to some of your competitors that have reported so far both kind of mentioned that they view kind of Q4 holiday spending returning back to a quote unquote normal.

And I think that what they really mean is that the spending will mostly happened in November December just curious what your thoughts are on <unk>.

Where the consumer is that from a spending pattern perspective.

Operator: A broader ray of retailers for masks, to big box, to specialty, to these value chains. So we just look at this being an added brick by brick, philosophical initiative for us to build that whole action-playing environment. And we look at many different IPs that are out there and we waited a long time until we were able to achieve getting the symptoms, which took our group many years to do. And with that said, we are looking for a strong year next year in that action-playing environment.

This particular holiday.

I'll talk for Jackson, I'll talk just kind of overall consumer.

I think were parlayed, a little bit different of an approach to our.

Larger competitors.

We're call it.

Leaps and bounds of really on the ground enhancement of distribution and margin criteria, if you've seen our enhancement of our gross margins.

400, 600 basis points for the quarter.

That's something that we are leaning into to ensure for next year.

Operator: Inc. I'm not sure if we can get back to that kind of COVID peak that you guys hit. Firstly, yes, that's our goal. We jumped into this for a long time. I've been friends with the Salter family, which are the founders of the ABG Group. And we've been working for over a year on the right initiatives and platform and IP. They own a breath and a plethora of different IP. And our relationship together with them is extremely strong.

Do see.

Our level of inventory currently on hand, we've been managing that down as we've seen in our financials for the first nine months and we'll expect to even end of the year lower than what we were previous years, that's from us managing the retail inventory levels to ensure that they have just in time inventory from our fob basis to our domestic basis, we are.

<unk> customers come in anywhere you are seeing sell through is strong.

And we can only speak for ourselves that we think will have a very nice strong clean the air.

For everyone else, we're not looking for being able to have something thats, a homerun or grants on how much. We had again last year within concho and something may occur with westar authentic brands or Nintendo streaming, we don't bake those into our numbers, but they may happen, we run a very conservative brick by brick philosophy of business with ongoing excitement and I think you could hear in my voice.

Operator: And we've worked out a various array of different categories that actually will help diversify a corridor revenue stream to put a little bit more into the first half of the year, especially having a third quarter and fourth quarter being as strong because of Halloween and the actual holiday seasons. But that being said, the diversification to the buyers that we go to, to the distribution that we go to. From our main distributions that we go to the specialty distribution, we've been looking at this in great detail.

I am extremely excited for the things that we are working on.

And our business just with our general methodology is strong and we believe will grow next year growing profitability and growth in revenue that we said, we don't know where that will take it but the consumer for us and our level of business is strong overall the consumers at the medium to low income basis Youre seeing some weakness in their purchasing just general at retail.

Operator: And we believe we'll get much stronger and even bigger than we were with our original platform and seasonal in the next couple of years. We have worked on this. We finished the deal over the last few days. We're both excited. We're on the road with retailers already. We're in complete development in Asia. Our team has been there. They're back there again this week. So we just don't know how quick it'll get to the market.

When you speak to the retailers that have groceries, that's their catalyst of getting the consumer end.

From that point.

Spontaneous purchases or ancillary purchases are becoming less and less but a lot of our business I think it's over 70% is under $40.

Operator: But we do think it'll be somewhat material to us and the segments in which we're in. And you know, elements is one of the largest brands worldwide for skateboards. And so we have that whole category of skateboards with quick silver. We have a beautiful line of roller blades and roller skates with the juicy contour brand. We have a broad array of seasonal outdoor products for beach and parks for like football games, soccer games for family and children that aligns with our kids outdoor furniture that just parlays bring it from kids to teens, tweens and adults.

Retail and a good portion of it is under <unk>. So we're in the right category of business and were right for the holidays. We have some high end products. So overall the mix of what we have is a cross array of different.

I would call it our income stream. So we're really happy with how Halloween turned out for us and how retail is turning out for us.

Got it that's super helpful. Thank you, Steven and very solid color I appreciate it.

Thank you thanks, Andrew.

Operator: So we're really just more diversified into a kids consumer product company and a consumer product company for families. And we're extremely excited about it. A B G's excited about it and the retailers are excited about it. Donna, that's super helpful. And then kind of just last question. Looking at the international opportunity. I mean, you made some real inroads. It looks like this year and on to your stack in Latin America. You are down. I think you're re here. You're dating Europe. How should we think about the impact of the efforts there? Is it is it to help with margins?

Thank you I would now like to hand, the call back over to Stephen Berman for closing remarks.

Everybody. Thank you very much for attending the call. Today again, we are excited for this year, finishing up and we're extremely excited for 2024 and beyond with the new Simpsons lines with our AVG lined with the wish going into streaming in spring and Nintendo Theres a lot of things that Jack that we're excited on and we look forward to having our call on fourth quarter.

And year end next year all the best.

This concludes today's conference call. Thank you for participating you may now disconnect.

Stephen Berman: Is it is it eventually will we see growth in international was kind of the what's the goal with the European expansion right now because it doesn't seem to be showing up in the income statement quite yet. So this year as you've seen in our industry, it's a we've been I think we're flat and this year the the call of the toy companies have had down years overall. That being said, we wouldn't be moving Jack McGrath and a team of people from the US to the international territories allowing the team to make immediate decisions and not having to come to the call of the corporate office.

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Stephen Berman: Jack has worked with me for over 25 years. He's got my complete and the company support and the board support. The we just opened up. I just got back a week ago from Pichens Italy where I do distribution center and offices are at our new offices in France. We will see growth. I would say hands down just by having in there, but not that we also have a broad array of products that are new and that are consistent.

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Stephen Berman: We have a whole line of the printed style collection. That's a mature line in growing in North America, but it's only been in Europe for about two years and took us five years to get that growth. We have the Simpsons. We have authentic brands. We have the new movie wish. We have a cluster of different areas of business from the boys action. So we will see growth. I'm very confident and adamant about it.

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Stephen Berman: And we should see enhanced margins because the operational side of things Jack is very involved with. So we will see growth and I think operational enhancement globally starting probably the first half of next year to the second half.

Stephen Berman: I think I do have one more question on Q4. Listening to some of your competitors that have reported so far, both kind of mentioned that they view Q4 holiday spending, returning back to quote-unquote normal and I think that what they really mean is that the spending will mostly happen in November, December. Just curious what your thoughts are on where the consumers add from a spending pattern perspective, this particular holiday.

Stephen Berman: I'll talk for Jackson. I'll talk just kind of overall consumer where I think we're partly a little bit different of an approach to our larger competitors, where we call it leaps and bounds of really on the ground enhancement of distribution and margin criteria if you've seen our enhancement of our gross margins and we're up to four to six hundred basis points, I think for the quarter. That's something that we're leaning in sure for next year.

Stephen Berman: We do see our level of inventory currently on hand. We've been managing it down as you've seen in our financials for the first nine months and we'll expect even in the year lower than what we were previous years. That's from us managing the retail inventory levels to ensure that they have just in time inventory from our FOB basis to our domestic basis. We are seeing customers coming in, we are seeing sell through strong and we can only speak for ourselves that we think we'll have a very nice, strong, clean year for everyone else.

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Stephen Berman: We're not looking for being able to have something that's a home run or grand sum, which we had again last year within Conto and something may occur with wish or authentic brands or Nintendo streaming. We don't bake those into our numbers, but they may happen. We run a very conservative, you know, brick by brick philosophy of business with ongoing excitement and I think you could hear in my voice. I'm extremely excited for the things that we are working on and our business just with our general methodology is strong and we believe we'll grow next year, grow in profitability and grow in revenue.

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Stephen Berman: That we said, we don't know where that will take it, but the consumer for us in our level of business is strong overall the consumers at the medium to low income basis. You're seeing some weakness in there, purchasing just general at retail. When you speak to the retailers that have groceries, that's their catalyst of getting the consumer in. From that point, you know, the spontaneous purchases or ancillary purchases are becoming less and less, but a lot of our business, I think it's over 70% is under $40 retail and a good portion of it is under 20.

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Stephen Berman: So we're in the right category of business and we're right for the holidays, we have some high-end products. So overall, the mix of what we have is across the way of different income streams. So we're really happy with how Halloween turned out for us and how retail is turning out for us. Got it. That's super helpful. Thank you, Stephen, and I'm very solid, we appreciate it. Thank you. Thanks, Andrew. Thank you.

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Stephen Berman: I would now like to hand the call back over to Stephen Burman for closing remarks. Everybody, thank you very much for attending the call today. Again, we are excited for this year finishing up and we're extremely excited for 2024 and beyond with the new Simpsons lines, with our ABG line, with the wish going into streaming in spring and in Nintendo. There's a lot of things that Jack that we're excited on and we look forward to having our call on fourth quarter and year end next year.

Stephen Berman: All the best.

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Operator: This concludes today's conference call. Thank you for participating. You may now disconnect, and Andrew Uerkwitz, Stephen Berman, Eric Beder, John Kimble, JAKKS Pacific Inc. Andrew Uerkwitz, Stephen Berman, Eric Beder, John Kimble, JAKKS Pacific Inc.

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Good afternoon, everyone welcome to the JAKKS Pacific third quarter 2023 earnings Conference call with management, who will review financial results for the quarter ended September 32023.

JAKKS issued its earnings press release earlier today.

This release and presentation slides for today's call are available on the Companys recently remodeled website in the investors section.

On the call. This afternoon are Stephen Berman, Chairman and Chief Executive Officer, and John Kimble, Chief Financial Officer, Stephen will first provide an overview of the quarter along with highlights of recent performance and current business trends and then John will provide some additional editorial around JAKKS Pacific's financial and operational results Mr.

Mr. Berman will then return with additional comments and some closing remarks prior to opening up the call for your questions.

Your line will be placed on mute for the first portion of the call and you would like to be placed in the queue to ask a question. Please press star one on your telephone keypad.

Before we begin the company would like to point out that any comments made about JAKKS pacific's future performance events or circumstances, including the estimates of sales margins <unk>.

Adjusted EBITDA in 2023 as well as any other forward looking statements concerning 2023 and beyond are subject to safe Harbor protection under Federal Securities laws. These statements reflect the company's best judgment based on the 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 JAKKS. Most recent 10-K and 10-Q filings with the SEC as well.

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.

As 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 conference is being recorded.

I would now like to turn the call over to Stephen Berman.

Okay.

Good afternoon, and thank you for joining us today, it's been a very busy quarter for JAKKS as Q3, often is with new products segments launching and plans for 2024 firming up.

As you know Q3 is always the highest shipping quarter projects I am proud to say, we feel very confident in how we're lined up to finish the year as well as some of the initiatives. The teams are working on for 2024 and beyond we do at the beginning of the year that repeating 2022 revenue levels would be impossible feat.

Without a total unexpected breakout hit as we had last year.

With that sales outlook, we made gross margin improvement a major focus as it is extremely important to our blueprint for enhancing overall margin we have seen in our results.

It is imperative in building and maintaining a strong balance sheet.

Our teams in Asia worked methodically with our manufacturing partners to ensure that we're getting the sharpest possible pricing on legacy items entering their second or third years in the market.

Separately, new product development continues to be Regnery challenge to ensure we are stretching the team's creativity to generate value for the consumer and for our customers. While also ensuring cost mindful product designs.

With Q3's results, we can see the dividends of those efforts paid off year.

Year to date, our gross margin of 32, 5% is our strongest performance in this metric since 2011.

Our year to date gross profit of $186 9 million $6 9 million or 4% higher than a comparable period in 2022.

That improvement has helped us to compensate for increases in SG&A expenses, such that our year to date operating margin of 12, 7% represents an improvement of 11, 5% operating margin we had in the first nine months of 'twenty two.

The net results from an adjusted EBITDA view is $67 1 million and adjusted EBITDA in the quarter up from $59 4 million in the same quarter last year, our action play and collectible business was up 43% in the quarter at 37% year to date accelerated its performance.

Versus last quarter.

Our Dol role play and dress up segment is lapping that exceptional 2022 and was down approximately 27% in the quarter and 30% year to date off a larger base.

As we pointed out last quarter, we still think it's worth noting that the das segment is up significantly versus 2021 $247 million year to date this year versus $207 million year to date in 2021. This team is often a victim of its own in many successes.

Our outdoor seasonal business showed some trend improvement down only 2% in the quarter and slowing the year to date declined to 23%. We have some quality placement of new items. This fall and as mentioned previously some new initiatives in the works, which we think can energize this business next year and beyond.

Operator: Jack's issued its earnings press release earlier today. The earnings release and presentation slides for today's call are available in the company's recently remodel website in the investor's section. On the call this afternoon, our Stephen Berman, Chairman and Chief Executive Officer, and John Kimble, Chief Financial Officer. Stephen will first provide an overview of the quarter, along with highlights of recent performance and current business trends, then John will provide some additional editorial around JAK's specific financial and operational results.

Operator: Mr. Berman will then return with additional comments and some closing remarks prior to opening up the call for your questions. Your line will be placed on mute for the first portion of the call. If you would like to be placed and accused to ask a question, please press star 11 on your telephone keypad. Before we begin, the company will like to point out that any comments made about JAK's specific future performance, events or circumstances, including the estimates of sales margins and or adjusted EBITDA in 2023, as well as any other four looking statements concerning 2023 and beyond our subject to safe harbor protection on the federal securities laws.

That drove most of the downside as our international business has been roughly flat year to date.

We've been aggressively working on our distribution outside of North America remain focused and committed to building that business to leverage our strength in North America again to provide a 2021 reference point that $122 million shift number is significantly higher than the $99 million, we shipped in the first three quarters of two.

Operator: These statements reflect the company's best judgment based on the current market trends and conditions today and our subject to certain risk uncertainties, which could cause extra results to differ materially from those projected in four looking statements. For details concerning these and other such risk uncertainties, you should consult JAK's most recent 10K and 2NQ fileings 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.

'twenty one so overall another great year for the team at disguise moving.

Moving onto a market view the past quarter was also noteworthy and continuing our efforts to expand our overall business outside the United States.

In Latin America were up and shipping 50 plus percent year to date.

Operator: 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 issue today or previously, as a reminder, this conference has been recorded.

Although we've had an office in Mexico for several years. This year, we started offering selective domestic replenishment for key items would be a local third party warehouse. This investment helps to ablate are year round on shelf presence further proving the viability of our product line to local retailers.

With this success. They can then company placed the larger orders with us <unk> in Asia consistent with our go to market approach.

Stephen Berman: With that, I would now like to hand the call over to Stephen Burman. Good afternoon, and thank you for joining us today. It's been a very busy quarter for JAK's as Q3 often is with new product segments launching and plans for 2024 firmly up. As you know, Q3 is always the highest shipping quarter for JAK's. I'm proud to say we feel very confident in how we're lined up to finish the year, as well as some of the initiatives the teams are working on for 2024 and beyond.

Over time, we also see as a potential platform for additional shipments into Latin America.

And we're quickly seen a positive reaction at retail with syndicated data, suggesting we're up over 50% in Mexico year over year.

Specifically being able to serve a wider range of smaller customers more quickly and with improved economics than shipping smaller orders as individual deliveries from northern Europe.

Stephen Berman: We do it at the beginning of the year that repeating 2022 revenue levels would be impossible feet without a total unexpected breakout hit as we had last year. With that sales outlook, we made gross margin improvement a major focus as it is extremely important to our blueprint for enhancing overall margin. We have seen in our results, it's imperative in building and maintaining a strong balance sheet. Our teams in Asia work methodically with our manufacturing partners to ensure that we were getting the sharpest possible pricing on legacy items, entering their second or third years in the market.

In addition, we on boarded a new team with deep industry experience and Jack's France, a market, where we know we have been underperforming during COVID-19.

His years of experience with Jack's and focusing them on taking a fresh look on how we're doing business in the European markets.

Stephen Berman: Separately, new product development continues to be a regulatory challenge to ensure we are stretching the team's creativity to generate value for the consumer and for our customers. While also ensuring cost mindful product design. With Q3's results, we can see the dividends of those efforts paying off. Year-to-date our gross margin of 32.5 percent is our strongest performance in this metric since 2011. Our year-to-date gross profit of 186.9 million is 6.9 million or 4 percent higher than an act comparable period in 2022.

Where we also see syndicated data.

Certainly some of the great content from our studio partners is helping to drive people to the registered this year much as it did last year.

But broadly we've been pleased with how the total portfolio is performing this year as we said last quarter.

Stephen Berman: That improvement has helped us to compensate for increases in S.U.N.A, expenses such that our year-to-date operating margin of 12.7 percent represent the improvement of 11.5 percent operating margin we had in the first nine months of 22. The net results from an adjusted EBITW is 67.1 million in adjusted EBITW in the quarter. Up from 59.4 million in the same quarter last year, our action play and collectible business was up 43 percent in the quarter and 37 percent year-to-date accelerating its performance versus last quarter.

That being said in Q3, we did see retail slowing retail sales at our top three U S accounts were down low single digits year to date and down high single digits in the quarter.

Separately at the end of the quarter retail inventory at same accounts were down over 20% versus prior year delivering on their goal is to finish the calendar year at lower <unk> inventory levels as we work through this transitional year at retail we've managed to stay in stock across all of our key product segments and our setup.

Well to fulfill demand in Q4.

I will now pass it over to John for some further comments after which I'll come back to discuss Q4 and a bit about next year John.

Stephen Berman: Our doll, role-play and dress-up segment is laughing that exceptional 2022 and was down approximately 27 percent in the quarter and 30 percent year-to-date off a larger base. As we pointed out last quarter we still think it's worth noting that the doll segment is up significantly versus 2021 247 million year-to-date this year versus 207 million year-to-date in 2021. This team is often a victim of its own and many successes. Our outdoor seasonal business showed some trend improvement down only 2 percent in the quarter and slowing the year-to-date decline to 23 percent.

Thank you Steven and hybrid body, it's always great to report results after $300 million sales quarter.

We knew the first half of the year would have the most difficult comparisons as we were chasing business on our holiday 2021 film and the.

Second half of the year would also be challenging, but hopefully less sell.

That view is playing out in our results, although down 20% as a total company in the first half of the year, we were down only 4% in Q3 shipping $310 million in the quarter.

As Stephen pointed out broadly speaking the euro is going about as well as we could have hoped.

Stephen Berman: We have some quality placement of new items this fall and as mentioned previously some new initiatives in the works which we think can energize this business next year and beyond. Q3 is of course almost the most interesting time of year to discuss our Halloween costume business. The headline is the year has worked out in line with our expectations which is great outcome given how big the business has become. Last quarter we discussed how the seasonality has moved around this year.

2020, unleashed Covid 2021 had expensive frame 2022 had warehouses over flooring.

So far 2023 from a perspective of our business has had more positives and negatives.

That means from a year over year perspective is twofold bad things that happened in 2022 haven't reappeared and some additional good things have been additive.

From a net sales perspective, both the toy CP segment and costumes are tracking year to date at higher levels than anything in the 2019 to 2021 time period.

Stephen Berman: So we saw it catching up this quarter with a 19 percent year-to-date growth in Q3 year-to-date we shipped 122 million through Q3 which is 9 percent lower than last year. As we mentioned before some larger US customers recalibrated their buying levels this year after an aggressive 2022. That drove most of the downside as our international business has been roughly flat year-to-date. We have been aggressively working on our distribution outside of North America and remain focused and committed to building that business to leverage our strength in North America.

And gross profit dollars for both segments are higher than at anytime in the past five years as well.

There are a number of things happening with gross margin in the quarter. It was 600 basis points improvement. So let me try to break that down.

As Stephen referenced the landed product cost improvement amounted to around 350 basis points.

That was a mix of some of the good stuff that Stephen talked about earlier, but also last year on both the toy and costume businesses, we blew out some inventory of margins there weren't anything to brag about for a couple of different reasons that made sense at the time.

Stephen Berman: Again to provide a 2021 reference point that 122 million dollars shipped number is significantly higher than the 99 million we shipped in the first three quarters of 2021. So overall another great year for the team at the skies. Moving on to a market view the past quarter was also noteworthy in continuing our efforts to expand our overall business outside the United States. In Latin America we are up and shipping 50 plus percent year-to-date.

We also managed to avoid bleeding money by way of above average freight costs that was a pickup of another 150 points.

And finally this quarter, we began capitalizing a small portion of our tooling to our owned inventory valuation. So it's been an outstanding topic for some time, but we've got around to figuring out how to get it done without the accounting being too cumbersome. So that was a onetime pickup of $1 $8 million in the quarter.

Stephen Berman: Although we've had an office in Mexico for several years, this year we started offering selective domestic replenishment for key items via a local third-party warehouse. This investment helps to evaluate our year-round on-shelf presence, further proving the availability of our product line to local retailers. With this success, they can then completely place the larger orders with us FOB and Asia, consistent with our go-to market approach. Over time, we also see as a potential platform for additional shipments in the Latin America.

We've adjusted that depreciation dollar amount out of our adjusted EPS results.

We're losing a bit of scale with SG&A being up but fortunately the gross margin much has been enough to generate operating margin improvement which is great.

Stephen Berman: And we're quickly seeing a positive reaction at retail, with syndicated data suggesting we're up over 50% in Mexico year-over-year. Also in the quarter, we officially opened our dual-purpose office and warehouse facility in northern Italy. We plan to start shipping from there in the New Year, which will generate a number of new benefits. Specifically, being able to serve a wider range of smaller customers more quickly and would improve economics than shipping smaller orders as individual deliveries from northern Europe.

That has allowed us to selectively invest in staff and infrastructure, where appropriate with the goal of being in a better place next year organizationally, despite revenue being down this year.

In addition to the P&L, we're feeling good about the balance sheet, our Q3, ending cash balance of $96 4 million as high for this time of the year. There are a couple of drivers.

Stephen Berman: In addition, we onboarded a new team with deep industry experience in JAKS France, a market where we know we've been underperforming during COVID. Although our CEO, Jack Begrath, is officially not in his new role as president of European operations until the new year, he has been spending a considerable amount of time and focus on addressing challenges in the region to accelerate our performance in 2024 and beyond. I couldn't be more excited about the opportunity presented but has taken his years of experience with JAKS and focusing them on taking a fresh look on how we're doing business in the European markets.

One is that we're trying to keep a tight leash on inventory and turning it back into cash in a timely manner.

Another is we've accepted the federal government's offered to California based businesses for payroll and tax payments into October which helped quite a bit.

You'll notice in aggregate that our AP and taxes payable are up over $20 million versus this time last year.

We remain debt free.

As of the end of the quarter and as of today.

Majority of the interest expense you see in the P&L associated with some early payment discounts that we sporadically take advantage of to maximize liquidity.

Stephen Berman: Switching now to talking about what we're seeing at retail, on the toy side, it's been the case all year and continued this past quarter when we look at our own data and syndicated data. We've seen that the toy portion of our business continues to perform better than the overall industry in the U.S. The same has been true in some of our European markets, where we also see syndicated data. Certainly, some of the great content from our studio partners is helping to drive people to the registry this year, much as it did last year.

Maybe doing less of that in the near term given our current cash situation.

The reduction in our cost of capital from our improved financial position increased preferred share liability valuation to $28 6 million generating a noncash loss of $800000 in the quarter.

As is customary we adjust that amount out of our non-GAAP results.

Adjusted EPS for the quarter.

Was $4 75.

Stephen Berman: But broadly, we've been pleased with how the total portfolio is performing this year as we said last quarter. That being said, in Q3, we did see retail slowing. Retail sales at our top three U.S, accounts were down low single digits year to date and down high single digits in the quarter. Separately at the end of the quarter, retail inventory at the same accounts were down over 20% versus prior year, delivering on their goals to finish the calendar year at lower-owned inventory levels. As we work through this transitional year at retail, we've managed to stay in stock across all of our key product segments and are set up well to fulfill demand in Q4.

And $5 66 for the first nine months.

Those numbers are up from $3 80, and down from $5 68, respectively from 2022.

Our trailing 12 month, adjusted EBITDA was $74 $5 million.

And now back to Stephen for some additional remarks.

Thank you John.

Although we reviewed a lot of the key product initiatives last quarter I wanted to provide a couple of quick updates and then share some new exciting news about 2024 and beyond.

Last year, we mentioned it's been two years since we first introduced the Disney Ely brand with target in the U S.

Stephen Berman: I will now pass it over to John for some further comments, after which I will come back to discuss Q4 and a bit about next year.

That business has built steadily with them during that time and is currently putting up some very nice numbers in reaction to our fall 2023 lineup.

John Kimble: John?

John Kimble: Thank you, Stevens, and hi, everybody. It's always great to report results after a $300 million sales quarter. We knew the first half of the year would have the most difficult comparisons as we were chasing business on a holiday 2021 film. In the second half of the year, it would also be challenging, but hopefully less so. That view is playing out in our results. Although down 20% as a total company in the first half of the year, we were down only 4% in Q3, shipping $310 million in the quarter.

The inspired by Stitch dolls, both in the original 18 inch scale as well as our new introduction of fashion to our scale have both been top sellers out of the gate.

Overall, the fashion doll scale has been well received when first hitting the shelves and were expected for more fans of these characters to find them. This holiday season last year. We are extremely excited to work with target to bring their target toy store shopping cart to life and once again on their bullseye top toy list for 2020.

John Kimble: The Stephen pointed out, broadly speaking, the years going about as well as we could have hoped. 2020, unleashed COVID-2021, had expensive free. 2022 had warehouses overflowing. And so far, 2023, from the perspective of our business, has had more positives than negatives. What that means from a year of a year perspective is too full. Bad things that happened in 2022 haven't reappeared, and some additional good things have been added. From a net sales perspective, both the toy CP segment and costumes are tracking year-to-date at higher levels than anything in the 2019-2021 time period.

Three reflected its great performance this year.

But the new news is the recent launch of the target cash register at accessories items.

As an extension of our perfectly cute line to.

It debuted during the quarter and is doing extremely well so far.

As we all thought it might it is a great value and great fun for the consumer.

Be sure to check out the photos in our presentation.

Also be on the look for some new introductions in our outdoor seasonal space. This holiday season. The team is thought to gain shelf space at key accounts across ball pits activity tables and ride ons.

John Kimble: And gross profit dollars for both segments are higher than any time in the past five years as well. There are a number of things happening with gross margin. In the quarter, it was 600 basis points improvement. So let me try to break that down. The Stephen reference, the landed product cost improvement amounted to around 350 basis points. I'd say that was a mix of some of the good stuff that Stephen talked about earlier, but also last year on both the toy and costume businesses, we blew out some inventory of margins that weren't anything to brag about for a couple of different reasons that made sense at the time.

We have some great new comp patrol write offs inspired by this summer's movie, which brings a lot of play to the classic play patterns and <unk>.

During Q3, our product lineup in support of the Walt Disney Animation Studios Thanksgiving film release, which began to hit the shelf.

This story focuses on a 17 year old girl named Usher, a sharp witted idealists, who makes a wish so powerful that is answered by a cosmic force a little ball of boundless energy called Star. We're Super excited about the film and are playing a role as Disney continues to celebrate the one hundreds.

John Kimble: We also managed to avoid bleeding money by way of above average break costs. That was a pick up of another 150 points. There are a number of other puts in takes, but also a good measure that our read a retail last year was more marked down exposure than what we're seeing at this point this year, so that's also net favorable. And finally, this quarter we began capitalizing a small portion of our tooling to our own inventory valuation.

<unk> of its founding this year.

Now for a couple of additional comments about 2024.

We recently announced a new agreement with Sega to support the Sonic Hedgehog III Paramount Pictures feature film set to release on December 22024, as many of you know we have worked with Sega for many years on Sonic and other Saeger properties inclusive of the first film in 2020.

John Kimble: This has been an outstanding topic for some time, but we've got around to figuring out how to get it down without the accounting being too cumbersome. So that was a one-time pick up of $1.8 million in the order. We've adjusted that depreciation dollar amount out of our adjusted EPS results. So to answer your question, we think we'd have wine of sight to continue to hang out in this low 30 neighborhood on a full year basis, but that's of course subject to minimizing stuff going wrong, nor does it contemplate any dramatic changes in our product mix, which we don't anticipate in the near term.

We are looking forward to bringing to market a new innovative range covering a wide range of products that sonic fans have come to expect from us ranging from figures to plush to place yet to costumes and more.

Now moving onto our outdoor seasonal division I am extremely excited and happy to be able to talk about a multi year worldwide relationship, we're starting with authentic brands group AVG.

John Kimble: We're losing a bit of scale with SGNA being out, but fortunately the gross margin list has been enough to generate operating margin improvement, which is great. That has allowed us to selectively invest in staff and infrastructure where appropriate, but the goal of being in a better place next year organizationally, despite revenue being down this year. We've also made some decisions like skipping the New York Toy Fair this past quarter, which may not have generated massive financial savings, but certainly removed a layer of organizational distraction if nothing else.

As you May know AVG is a brown powerhouse with a wide portfolio of IP, which has mass appeal to millennials Gen Z and Gen y.

<unk> and AVG have been collaborating in a wide range of products that will slot into this division as well as expand the scope of our offerings.

We have been working on an iconic assortment of their properties names like Roxy quick silver element Forever 21, Juicy Couture sports illustrated prints just to name a few with designs in process already underway customers can expect initial fall.

John Kimble: In addition to the P&L, we're feeling good about the balance sheet. Our Q3 ending cash balance of $96.4 million is high for this time of the year. There are a couple of drivers. One is that we're trying to keep the title of each on inventory and turning it back into cash in a timely manner. Another is we've accepted the federal government's offer to California based businesses for payroll and tax payments into October, which helps quite a bit.

2020 for rollout of Skateboards with amazing new designs for our element and quick silver at specialty and mass retailers in store and online Jack.

John Kimble: You'll notice an aggregate that our AP and taxes payable are up over $20 million versus this time last year. We remain debt-free as of the end of the quarter and as of today. The majority of the interest expenses in the P&L associated with some early payment discounts that we sporadically take advantage of to maximize liquidity. We're likely to be doing less of that in the near term, given our current cash situation.

Jack will launch branded roller skates inline skates, volleyball's outdoor furniture, including chairs umbrellas and canopies reached accessories inflatable pool floats sanded splash mats foldable wagons, and an extensive line of dolls and dolls accessories infused with fashion elements from Forever 21.

Juicy Couture, Prince sports illustrated and Roxy.

John Kimble: Reduction in our cost of capital from our improved financial division increased the preferred share by ability valuation to $28.6 million, generating a non-cash loss of $800,000 in the quarter, as is customary we have just had amount out of our non-gap results.

The strength of the authentic platform and family of IP will grow JAKKS Pacific private lines and outdoor categories, while making the way for new collaborations with authentic on existing categories.

The addition of more spring and summer focused visits also further leverages jacks infrastructure to counterbalance the traditional Halloween holiday seasonality. So this relationship is really great match for both of us reactions from various customers worldwide and the previous we've shown over the past couple of months of early <unk>.

John Kimble: Adjusted EPS for the quarter was $4.75 and $5.66 for the first nine months. Those numbers are up from $3.80 and down from $5.68 respectively from $20.22.

Stephen Berman: A trail in 12 months, adjusted EV at $74.5 million, and now back to Stephen for some additional remarks. Thank you, John. Although we reviewed a lot of the key product initiatives last quarter, I wanted to provide a couple quick updates and then share some new exciting news about 2024 and beyond.

Product directions and initiatives, we're extremely very favorable so although there is still a lot of heavy work in lifting to be done. We are so excited about the potential here.

Personally been working on development of this business for over the past year and can't wait for you to see some of the new products and product execution that we are currently working on today and in the future.

Stephen Berman: Last year, we mentioned it's been two years since we first introduced the Disney Elite brand with Target in the US. That business has built steadily with them during that time and is currently putting up very nice numbers in reaction to our fall 2023 lineup. The inspired by stitch dolls, both in the original 18 inch scale, as well as our new introduction to fashion doll scale, have both been top sellers out of the gate.

But wait there is more we're quick to tell everyone that this business is built brick by brick a series of evergreen brands and categories centered around classic play patterns that we feel persists and stand the test of time, even in an increasingly digital world and.

And we've talked about how our successes in recent years and started a new conversations and have created new ideas about business opportunities that marry up our unique role in the marketplace with different brand owners.

Stephen Berman: Overall, the fashion doll scale has been well received when first hitting the shelves and we are expected for more fans of these characters to find them this holiday season. Last year, we are extremely excited to work with Target to bring their target toy store shopping cart to life. And once again, on their bulls eye top toy list for 2023, we've collected its great performance this year. But the new news is the recent launch of the Target cash register and accessories items as an extension of our perfectly cute line.

So with that foundation I couldnt be happy to share New news that in fall 2020 for JAKKS will be launching an extensive product line dedicated to the Simpsons.

As the Simpsons is well into its record breaking 35th season. This fall. It continues to be one of the most popular series of both Fox and Disney plus.

Stephen Berman: It debuted during the quarter and has been extremely well so far, as we all thought it might. It's a great value and great fun for the consumer. Be sure to check out the photos in our presentation. Also, be on the look for some new introductions in our outdoorsy zill space this holiday season. The team has fought to regain shell space at key accounts across ball pits, activity tables, and ride-ons. We have some great new Paw Patrol ride-ons inspired by this summer's movie, which brings a lot of play to the classic play patterns.

The upcoming toy line is poised to inject even more excitement enjoy into this cherished franchise catering to fans of all ages with a diverse and engaging offerings.

Stephen Berman: And during Q3, our product lineup and supported the Walt Disney animation studio Thanksgiving film release, Wish, began to hit the shelf. This story focuses on a 17 year old girl named Asha, a sharp-witted idealist who makes a wish so powerful that it's answered by a cosmic force. A little ball of boundless energy called star were super excited about the film, and our anniversary of its founding this year.

As I said at the beginning so with a very busy quarter, but with the end of the year and site. It is also extremely gratifying to see is lined up for completing another really successful year here at Jack's while still seeing great opportunities for sustained growth in the new year to come.

Stephen Berman: Now for a couple of additional comments about 2024. We recently announced a new agreement with Sega to support the Sonic Hedgehog 3 Paramount Pictures feature film set through lease on December 20, 2024. As many of you know, we have worked with Sega for many years on Sonic and other Sega properties, inclusive of the first film in 2002. 2020. We are looking forward to bringing to market a new innovative range coming to a wide range of products that Sonic fans have come to expect from us, ranging from figures to plush to playshets to costumes and more.

Thanks, again for your support and interest operator.

Thank you.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, we compile the Q&A roster.

Our first question comes from the line of Andrew <unk> with Jefferies. Your line is now open.

Okay. Thank you. Thank you gentlemen, just a couple of questions. The first one the first one.

Stephen Berman: Now moving on to our outdoor seasonal division. I'm extremely excited and happy to be able to talk about a multi-year world-wide relationship we're starting with authentic brand-group ABG. As you may know, ABG is a brand-power house with a wide portfolio of IP, which has mass appeal to millennials, Gen Z and Gen Y. JAKS and ABG have been collaborating on a wide range of products that will slot into this division as well as expand the scope of our offerings.

Is an action plan and collectibles.

Grown I mean, it's almost more than doubled since 2021 could you just talk about the puts and takes there and then kind of maybe at the end of your answer.

What kind of impact of symptoms could have on that.

Great. Thank you Andrew.

Stephen Berman: We have been working on an boxy, quick-silver, element for ever-21, juicy couture, sports illustrated, prints, just to name a few. With designs in process already underway, customers can expect initial fall 2024 rolled out a skateboards with amazing new designs for element and quick-silver at specialty and mass retailers in store and online. JAKS will launch branded roller skates, inline skates, volleyball, outdoor furniture, including chairs, umbrellas and canopies, beach accessories, inflatable pool floats, sand and splash mats, foldable wagons, and an extensive line of dolls and dolled accessories infused with fashion elements from forever 21, juicy couture, prints, sports illustrated and rocksy.

That being said it goes onto streaming of Netflix and a broad streaming platforms.

December I think it's the first week of December it's been NBC Peacock, but now once it goes into a wide way of distribution for streaming we think there'll be strong tailwind going into spring next share and beyond to keep that going you also have the Sonic Netflix television show that airs in July and a movie Thats next December so those are going to.

Continue to be extremely strong and.

We will look at what areas have growth they have not erode it each other sales which is terrific.

They are in the video game platform business with a lot of content on the video game platform plus video content, which is terrific at the same time, we have other content called <unk>, which is from another game and added crash bad debt. Those are actually just starting to take off and we'll see how they turn into but the real catalyst to build to this.

Stephen Berman: The strength of the authentic platform and family of IP will grow JAKS' specific product lines and outdoor categories will make in the way for new collaborations with authentic, unexisting categories. The addition of more spring and summer focused visits also further leverages JAKS infrastructure to counterbalance a traditional Halloween holiday seasonality, so this relationship is really great match for both of us. Reactions from various customers worldwide and the previous we've shown over the past couple months of early product directions and initiatives were extremely very favorable.

Area.

We keep saying.

A very strong evergreen platform is by continued it and you can't get stronger and additionally to what we already have without having the Simpsons and that is <unk>.

Across the world. The content is so strong it's such as 30 50 air and it hasnt been in the market. The way we brought in I think for over a decade. So we've been working on this strongly with the Walt Disney Company, and we are and the retailers.

Stephen Berman: So all there, there's still a lot of heavy work in lifting to be done. We are so excited about the potential here. I've personally been working on development of this business for over the past year and can't wait for you to see some of the new products and products executions that we are currently working on today in the future.

Are extremely excited about at a broad array of retailers for masks to big box to specialty to these value chain. So we just look at this being an added brick by brick philosophical initiative for us to build that whole action play environment and we look at many different Ips that are out there and we waited a long time until we were able to achieve.

Stephen Berman: But wait, there's more. We are built brick by brick, a series of evergreen brands and categories centered around classic play patterns. That we feel persists and stand the test of time even in an increasingly digital world. And we've talked about how our successes in recent years have started new conversations and have created new ideas about business opportunities that may up our unique role in the marketplace with different brand owners. And you've also heard a mention that when those business have an underlying content presence, it only adds to our ability to stay on top of mine with consumers and participate in the energy and excitement around top tier content quality and success.

The Simpsons, which took our group many years to do.

And with that said, we are looking for a strong year next year and that action play environment.

Got it that's really helpful. Thanks, Thank you Steven and then switching to al Dor you're.

Obviously peaks during Covid I think everybody peak given COVID-19, but this latest relationship heading into 2024 and beyond it sounds like this is pretty substantial so how should we think about the impact it could have as we as we start to look out 24 and beyond can we could we get back to that kind of.

Covid peak that you guys hit.

Firstly, yes, that's our goal we jumped into this for a long time I have been friends with the sell through or family, which are the founders of the AVG group and we've been working for over a year on the right initiatives and platform and IP, they own a breath and a plethora of different IP.

Stephen Berman: So, with that foundation, I could be happy to share new news that in fall 2024, JAKS will be launching an extensive product line dedicated to the Simpsons. As the Simpsons is well into its record-breaking 35th season this fall, it continues to be one of the most popular series about Fox and Disney+. The upcoming toy line is poised to inject even more excitement and joy into this cherished franchise catering to fans of all ages with a diverse and engaging offerings.

Our relationship together with them is extremely strong and we've worked out.

A various array of different categories that actually will help diversify our revenue stream to put a little bit more ended the first half of the year, especially as having the third quarter and fourth quarter being strong because of Halloween and.

The actual holiday seasons, but that being said the diversification to the buyers that we go through to the distribution.

Got it from our main distributions that we go to the specialty distribution. We've been looking at this in great detail and we believe we'll get much stronger and even bigger than we were with our original platform in seasonal in the next couple of years, we have worked on this.

Stephen Berman: The toy line will feature a wide range of beloved caricatures from the show, available in various forms such as basic, deluxe and premium collector figures, play sets and plush toys, along with items like advent calendars and other fun and creative toys inspired by the show's rich history. As you might imagine, our action-playing covectable team has been having a tremendous time brainstorm in the plethora of product opportunities that this show represents. And we are honored as a company to be trusted with such an iconic franchise.

Finish the deal over the last few days. We're both excited were on the road with retailers already we're in complete development in Asia. Our team has been there they're back there again. This week. So we just don't know how quickly they'll get into the market, but we do think it will be.

Somewhat material to us in the segments in which we're in.

Elements of it as one of the largest brands worldwide for skateboards, and so we have that whole category escaped with quick silver we have a beautiful lineup rollerblades and roller skates with the Juicy couture.

Stephen Berman: As I said at the beginning, it's with a very busy quarter, but with the end of the year and site, it is also extremely gratifying to see us lined up for completing another really successful year here at JAKS. While still seeing great opportunities for sustained growth in the new year to come, thanks again for your support and interest.

Brand we have.

Broad array of seasonal outdoor products for beach and parks for like football games soccer games for family and children that aligns with our kids outdoor furniture that just parlays, bringing it from kids to teens Tweens and adult. So we're really just more diversified into kids consumer product company in a consumer product company for families and we're extremely.

Operator: Operator. Thank you. As I remind you to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by we'll compile the Q&A roster.

Really excited about it <unk> excited about it and the retailers are excited about it.

Got it that's Super helpful. And then kind of just last question looking at the international opportunity.

Andrew Uerkwitz: Our first question comes from the line of our quits with Jeffries to the line of snow. Thank you. Just a couple of questions.

We made some real inroads it looks like this year and on a two year stack in Latin America.

Stephen Berman: The first one is on action-playing collectibles. It's grown. I mean, it's almost, it's more than doubled since 2021. Could you just talk about the puts and cakes there and then kind of maybe at the end of your answer what kind of impact the Simpsons could have on that? I mean, it's a really great collaboration and a great kit. Congratulations on that. Just kind of walk me through the puts and take on that segment and how we should think about it going forward.

What's the goal with the European expansion right now because it doesn't seem to be showing up in the income statement quite yet.

So this year as you've seen in our industry I'd say, we've been I think we were flat and this year.

Call. It the toy companies have had down years overall that being said, we wouldnt be moving Jack Mcgrath.

Stephen Berman: Great. Thank you, Andrew. This is Steven. On the boy's action and play environment, we've had a really strong year. One of it was the, we had a great run with the Nintendo movie that came out on top of the actual classic Nintendo business that has grown with the movie straight. That being said, it goes on to streaming of Netflix and abroad streaming platforms, December. I think it's the first week of December.

And Ah.

We just opened up I, just got back a week ago from <unk> to Italy, where our new distribution center in offices are at our new offices in France, we will see growth.

Stephen Berman: It's been on the NBCPcock but now what's it goes into a wide way of distribution of streaming. We think there'll be strong tailwinds going into spring next year and beyond to keep that going. You also have the Sonic Netflix TV show that airs in July and a movie that's next December. So those are going to continue to be extremely strong and we'll look at what areas have growth. They have not eroded each other's sales, which is terrific.

I would say hands down just by having him there, but not just that we also have a broad array of products that are new and that are consistent we have a whole line of the Princess style collection, a mature line and growing in North America, but it's only been in Europe for about two years. It took us five years to get that growth we have the Simpsons.

Stephen Berman: They are in the video game platform business with a lot of content on the video game platform, plus the video content, which is terrific. At the same time, we have other content called bendies, which is from another game and crash bandit. Those are actually just starting to take off and we'll see how they turn into. But the real catalyst to build this area is I'll be keep saying a very strong evergreen platform is by continuing it and you can't get stronger in addition to what we already have without having the Sipsons.

<unk> brands, we have the new movie, which we have a plethora of different areas of business from the boys action. So we will see growth I'm very confident adamant about it and we should see enhanced margins because of the operational side of things. Jack is very involved with so we will see growth I think operational enhancement globally, starting probably the first half of next year.

The second half.

Got it that's very helpful. I think I do have one more question kind of on Q4.

Listening to some of your competitors that have reported so far both kind of mentioned that they view kind of Q4 holiday spending returning back to a quote unquote normal.

Stephen Berman: And that is across the world, the content is so strong, it's just a 35th year and it hasn't been in the market the way we brought in, I think, for over decade. So we've been working on this strongly with the Walt Disney Company and the retailers are extremely excited about a broader ray of retailers for masks, to big box, to specialty, to these value chains. So we just look at this being an added brick by brick, philosophical initiative for us to build that whole action-playing environment and we look at many different IPs that are out there and we waited a long time until we were able to achieve getting the Sipsons, which took our group many years to do.

And I think that what they really mean is that the spending will mostly happened in November December just curious what your thoughts are on where the consumer is that from a spending pattern perspective. This particular holiday.

I'll talk for Jackson, I'll talk just kind of overall consumer where I think we're at par.

<unk> laid a little bit different of an approach to our.

Larger competitors.

We're call it.

Leaps and bounds of really on the ground enhancement of distribution and margin criteria. If you've seen our enhancement of our gross margins were up 400 600 basis points for the quarter.

Stephen Berman: And with that said, we are looking for a strong year next year in that action-playing environment. Inc. He obviously peaked here in COVID, I think everybody peaked here in COVID, but this latest relationship heading into 2024 and beyond, it sounded like this is pretty substantial. So how should we think about the impact it could have as we start to look out 24 and beyond? Could we get back to that kind of COVID peak that you guys hit?

That's something that we are gaining share for next year.

Do see.

Our level of inventory currently on hand, we've been managing that down as we've seen in our financials for the first nine months and we will expect to end the year lower than what we were previous years, that's from us managing the retail inventory levels to ensure that they have just in time inventory from our fob basis to our domestic basis, we are.

Stephen Berman: Firstly, yes, that's our goal. We jumped into this for a long time. I've been friends with the Salter family, which are the founders of the ABG group, and we've been working for over a year on the right initiatives and platform and IP. They own a breadth and a plethora of different IP, and our relationship together with them is extremely strong, and we've worked out a various array of different categories that actually will help diversify a corridor revenue stream to put a little bit more into the first half of the year, especially having no third quarter and fourth quarter being as strong because of Halloween and the actual holiday seasons.

<unk> customers come in and we are seeing sell through is strong.

Stephen Berman: But that being said, the diversification to the buyers that we go to, to the distribution that we go to, from our main distributions that we go to the specially distribution, we've been looking at this in great detail, and we believe we'll get much stronger and even bigger than we were with our original platform and seasonal in the next couple of years. We have worked on this. We finished the deal over the last few days.

And we can only speak for ourselves that we think will have a very nice strong clean the air.

For everyone else, we're not looking for being able to have something thats, a homerun or grants on how much. We had again last year with a condo and something may occur with westar authentic brands or Nintendo streaming we don't bake those into our numbers, but they may happen, we run a very conservative brick by brick philosophy of business with ongoing excitement and I think you could hear in my voice.

Im extremely excited for the things that we are working on.

When you speak to the retailers that are groceries, that's their catalyst of getting the consumer end.

Stephen Berman: We're both excited. We're on the road with retailers already. We're in complete development in Asia. Our team has been there. They're back there again this week. So we just don't know how quick it'll get to the market, but we do think it'll be somewhat material to us in the segments in which we're in, and you know, elements is one of the largest brands worldwide for skateboards, and so we have that whole category of skateboards with quick silver.

From that point.

Titanium purchases or ancillary purchases are becoming less and less but a lot of our business I think it's over 70% is under $40.

<unk> retail and a good portion of it is under <unk>. So we're in the right category of business and were right for the holidays. We have some high end products. So overall the mix of what we have is across the array of different.

Stephen Berman: We have a beautiful line of roller blades and roller skates with the juicy couture brand. We have a broad array of seasonal outdoor products for beach and parks for like football games, soccer games, for family and children that aligns with our kids outdoor furniture, that just parlays, bringing it from kids to teens, tweens and adults. So we're really just more diversified into a kids consumer product company and a consumer product company for families. And we're extremely excited about it. ABGs excited about it, and the retailers are excited about it. Donna, that's super helpful.

I would call it our income stream. So we're really happy with how Halloween turned out for us and how retail is turning out for us.

Got it that's super helpful. Thank you, Steven and very solid quarter I appreciate it.

Thank you thanks, Andrew.

Thank you I would now like to hand, the call back over to Stephen Berman for closing remarks.

Stephen Berman: And then kind of just last question, looking at the international opportunity. I mean, you've made some real inroads. It looks like this year and on two-year stack in Latin America, you are down. I think you're a year, you're dating Europe. How should we think about the impact of the efforts there? Is it to help with margins? Is it eventually, will we see growth in international? What's the goal with the European expansion right now?

And year end next year all the best.

This concludes today's conference call. Thank you for participating you may now disconnect.

Stephen Berman: It doesn't seem to be showing up in the income statement quite yet. So this year, as you've seen in our industry, we've been, I think we're flat, and this year, the toy companies have had down years overall. That being said, we wouldn't be moving Jack McGraft and a team of people from the US two in the international territories, allowing the team to make immediate decisions and not having to come to the corporate office.

Stephen Berman: Jack has worked with me for over 25 years. He's got my complete and the company's support and the board's support. We just opened up, I just got back a week ago from PHN to Italy where I do distribution center and offices are at, our new offices in France. We will see growth, I would say hands down just by having them there, but not in that. We also have a broad array of products that are new and that are consistent.

Stephen Berman: We have a whole line of the Princess style collection that's a mature line in growing in North America, but it's only been in Europe for about two years and it took us five years to get that growth. We have the Simpsons, we have authentic brands, we have the new movie Wish. We have a flutter of different areas of business from the boys' action. So we will see growth. I'm very confident, adamant about it.

Stephen Berman: And we should see enhanced margins because the operational side of things, Jack, is very involved with. So we will see growth and I think operational enhancement globally starting probably the first half of next year to the second half. I got it. That's really helpful.

Stephen Berman: I think I do have one more question kind of on Q4. Yeah. We listening to some of your competitors that have reported so far, both kind of mentioned that they view kind of Q4 holiday spending, you know, returning back to quote unquote normal. And I think that what they really mean is that the spending will mostly happen in end of November, December. Just curious what your thoughts are on where the consumers add from a spending pattern perspective. This particular holiday. I'll talk for Jackson. I'll talk just kind of overall consumer.

Stephen Berman: We're I think we're we're partly a little bit different of an approach to our larger competitors of word, call it leaps and bounds of really on the ground enhancement of distribution and margin criteria. If you've seen our enhancement of our gross margins and we're up for six or basis points. Think for the quarter. That's something that we're leaning in sure for next year. We do see our level of inventory currently on hand.

Stephen Berman: We've been managing it down as you've seen in our financials for the first nine months and we'll expect even in the year lower than what we were previous years. That's from us managing the retail inventory levels to ensure that they have just in time inventory from our FOB basis to our domestic basis. We are seeing customers coming in. We are seeing sell through strong. And we can only speak for ourselves that we think you know, we'll have a very nice strong clean year.

Stephen Berman: You know, for everyone else, we're not looking for being able to have something that's a home runner grand sum which we had again last year within Conto and something may occur with wish authentic brands or Nintendo streaming. We don't bake those into our numbers, but they may happen. We run a very conservative, you know, brick by brick philosophy of business with ongoing excitement. And I think you could hear in my voice.

Stephen Berman: I'm extremely excited for the things that we are working on. And our business just with our general methodology is strong and we believe will grow next year, grow profitability and grow in revenue. That we said we don't know where that will take it. But the consumer for us in our level of business is strong overall the consumers at the medium to low income basis. You're seeing some weakness in there purchasing just general at retail.

Stephen Berman: When you speak to the retailers that have groceries, that's their catalyst of getting the consumer in from that point, you know, the spontaneous purchases or ancillary purchases are becoming less and less. But a lot of our business, I think it's over 70% is under $40 retail and a good portion of it is under 20. So we're in the right category of business and we're right for the holidays. We have some high end products.

Stephen Berman: So overall, the mix of what we have is across the way of different, I would call it an income stream. So we're really happy with how Halloween turned out for us and how retail is turning out for us. Got it. That's super helpful. Thank you, Stephen and very solid. We appreciate it. Thank you.

Stephen Berman: I would now like to hand the call back over to Stephen Burman for closing remarks. Everybody, thank you very much for attending the call today. Again, we are excited for this year finishing up and we're extremely excited for 2024 and beyond with the new Simpson's lines with our ABG line with the wish going into streaming in spring and Nintendo. There's a lot of things that Jack that we're excited on and we look forward to having our call on fourth quarter and year end next year.

Stephen Berman: All the best.

Operator: This concludes today's conference call. Thank you for participating.

Operator: You may now disconnect.

Q3 2023 JAKKS Pacific Inc Earnings Call

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