Q4 2023 JAKKS Pacific Inc Earnings Call

February 29, 2024

Okay.

Operator: www.jakkspacific.com Good afternoon, everyone. Welcome to the JAKKS Pacific fourth quarter and full year 2023 earnings conference call with management, who will review financial results for the quarter and year ended December 31st, 2023. JAKKS 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 investor 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 commentary 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 questions. Your line will be placed on mute for the first portion of the call.

Good afternoon, everyone welcome to the JAKKS Pacific fourth quarter, and full year 2023 earnings Conference call with management, who will review financial results for the quarter and year ended December 31 2023.

<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.

On the all 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 questions.

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

Operator: If you would like to be placed in the queue to ask a question, please press star 1 1 on your telephone keypad. Before we begin, the company would like to point out that any comments made about JAKKS Pacific's future performance, events, or circumstances, including the estimates of sales, margins, and or adjusted EBITDA in 2024, as well as any other forward-looking statements concerning 2024 and beyond are subject to safe harbor protection under federal securities law. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to risk uncertainties, which could cause actual results to differ materially from those projected in the foregoing statements. For details concerning these and other such risk 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.

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 Android adjusted EBITA in 2024 as well as any other forward looking statements concerning 'twenty 'twenty four and beyond are subject to safe Harbor protection under Federal Securities laws.

These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward looking statements.

For details concerning these and other such risks and uncertainties you should consult 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.

Operator: 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. With that, I would now like to turn the call over to Stephen Berman.

In addition, today's comments by management will refer to non-GAAP financial measures such as adjusted EBITDA and adjusted earnings per share.

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.

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

Yeah.

Good afternoon, and thank you for joining us it's been four months since our last earnings call and update at the end of Q3 and I'm happy to say that we're very pleased with our performance since then.

Operator: Good afternoon, and thank you for joining us. It's been four months since our last earnings call, an update at the end of Q3, and I'm happy to say that we have been very pleased with our performance since then. Perhaps more importantly, we continue to make solid progress in building a better future for our stakeholders despite the persistent uncertainty around the economy and consumer confidence. Here are some high-level headlines on what's new since we last spoke. As we expected, Halloween in the U.S. was down versus the prior year, according to syndicated data.

More importantly, we continue to make solid progress in building a better future for our stakeholders. Despite the persistent uncertainty around the economy and consumer strength here are some high level headlines of what new since we last spoke.

As we expected Halloween in the U S was down versus prior year. According to syndicated data. Although our shipping was also down there was better than the industry has solidified our position of strength as the U S market leader.

Stephen G. Berman: Although our shipping was also down, it was better than the industry and solidified our position of strength as the U.S. market leader. It's with that voice that we continue to engage customers and licensors about opportunities for 2025 while also lining up and delivering orders for this coming season. More on costumes in the second half of today's material. Christmas did arrive on December 25th as scheduled, but with a return to pre-COVID last-minute shopping patterns.

It's with that voice that we continue to engage customers and licensed stores about opportunities for 2025, while also buying up and delivered orders for this coming season more on costume through the second half of today's materials Christmas.

Christmas did arrive on December 25th as scheduled but weather returned to pre COVID-19 last minute shopping patterns.

Stephen G. Berman: As a FOB-first business, we are less reliant on pushing additional product to customers post-Thanksgiving. And to that end, finish the year roughly in line with our expectations, and maybe even a little better. Q4 POS at the top 3 U.S. toy consumer product accounts was positive at 2 of the 3, despite having difficult revenue comparisons with the prior year. In addition, urine retail inventories at those same accounts were down high single-digit percentages versus the prior year.

As it will be first business, we are less relying on pushing additional product to customers post Thanksgiving and to that end for this year roughly in line with our expectations and maybe even a little better.

Q4, Pos at top three U S toy consumer product accounts was positive at two of the three despite having a difficult revenue comparison with the prior year.

In addition year end retail inventory that those same accounts were down high single digits percentages versus prior year.

Stephen G. Berman: As the press has noted, the Thanksgiving 2023 film release we supported underperformed from a box office perspective and was a challenge at retail. We still think it's a great product line and we are looking forward to a streaming launch in a few weeks to introduce the film to a broader audience. But realistically, it's unlikely to provide a lot of chase opportunities for us in 2024. We have deployed our former COO into his new role as President of European Operations as of January, as scheduled.

As depressed as noted the Thanksgiving 2023 film release, we supported underperformed from a box office perspective as separately was a challenged at retail we still think it's a great product line and we are looking forward to a streaming launch in a few weeks to introduce the film to a broader audience, but realistically it's unlikely to pay.

A lot of chase opportunity for us in 2024.

We have deployed our former CFO and to his new role as president of European operations as of January as scheduled as part of our Reenergized focus on our European expansion, we set our largest contingent average of the Nuremberg toy fair earlier this month, having great meetings with customers for both Europe and around the world.

Stephen G. Berman: As part of our re-energized focus on our European expansion, we sent our largest contingent ever to the Nuremberg Toy Fair earlier this month, having great meetings with customers from both Europe and around the world. Our balanced, evergreen portfolio continues to resonate, and more importantly, attract attention. As we increase the size and strength of our European team and footprint, the momentum for growth is building. There is a lot of work to be done and a lot of opportunity to be had, but JAKKS and the team are locked in on identifying various opportunities to strengthen our retail expansion that can be acted upon to have immediate benefit to our company. To hit some of the financial highlights for the quarter and year, Q4 net sales of $127.4 million were down 3% versus the prior year, bringing our full year total net sales to $711.6 million.

Our balance evergreen portfolio continues to resonate and more importantly attracts attention.

As we increase the size and strength of our European team in footprint the momentum for growth is building.

There is a lot of work to be done and a lot of opportunity to be had but Jack and the team are locked in on identifying various opportunities to strengthen our retail expansion that can be acted upon to have immediate benefit to our company.

Some of the financial highlights for the quarter and year Q4, net sales of $127 $4 million were down 3% versus prior year, bringing our full year total net sales of $711 6 million.

Stephen G. Berman: The full year number was down 11% versus the prior year, primarily attributable to the massive amount of volume we did in 2022 from a Thanksgiving 2021 film release that was on fire all of last year. Although the Super Mario Bros. movie, released in Q2, 2023, generated a lot of business in 2023, as well as promotional support for our evergreen Nintendo line, it wasn't enough to close that gap, especially given we also benefited from a strong Sonic 2 movie in 2022 as well. Better landed product cost and reduced ocean freight helped to contribute to an expansion of full year gross margin percentage. Q4 in particular increased by 480 basis points year over year. This improvement generated a 6% increase in gross margin dollars in 2023 compared to the prior year despite the sales decline. It's a remarkable achievement.

Full year number was down 11% versus prior year, primarily attributable to the massive amount of volume. We did in 2022 from a Thanksgiving 2021 film release that was on fire all of last year, Although the Super Mario Brothers movie released in Q2 two.

2023 generated a lot of business in 2023, as well as promotional support of our evergreen Nintendo line. It wasn't enough to close that gap, especially given we also benefited from a strong sonic to film in 2022 as well.

Better landed product cost and reduced ocean freight helped to contribute to an expansion of full year gross margin percentage Q4 in particular increased 480 basis points year over year.

This improvement generated a 6% increase in gross margin dollars in 2023 compared to prior year. Despite the sales decline it is a remarkable achievement.

This gross margin dollar level $223 million is the highest the company has achieved since 2015.

As much as we all enjoyed talking about market share gains when they happen we enjoy margin dollars gains even more.

Stephen G. Berman: This growth margin dollar level, $223 million, is the highest the company has achieved since 2015. As much as we all enjoy talking about market share gains when they happen, we enjoy margin dollar gains even more. That strength flowed through SG&A to generate a full-year operating margin of 8.3%, an improvement of 60 basis points over the prior year despite losing top-line scale. Our Q4 adjusted EBITDA was slightly better than the prior year, leading to a full-year adjusted EBITDA of $75.7 million, slightly below 2022's $76.4 million, but still a tremendous outcome for us at a performance level we did not anticipate at Our action play and collectible business was down 9% in the quarter and up 27% on the year, led by Super Mario Bros. Movie, Sonic Prime, and our core Nintendo and Sonic product range. Our doll, roleplay, and dress-up segment finally started to match the exceptional 2022 and was up 6% in the quarter but down 25% for the full year. Our outdoor seasonal business also stabilized, delivering growth of 4% in the quarter and slowing the full-year decline to 18%.

That strength flow through SG&A to generate a full year operating margin of eight 3% in.

An improvement of 60 basis points over prior year, despite losing top line scale.

Our Q4, adjusted EBITDA was slightly better than prior year, leading to a full year adjusted EBITDA of $75 7 million slightly below 2020 to $76 4 million, but still a tremendous outcome for us at a performance level, we did not anticipate at the beginning of the year.

Our action play a collectible business was down 9% in the quarter and up 27% on the year led by Super Mario Brothers movie Sonic Prime and our core Nintendo in Sonat product ranges.

Our dolls role play and dress up segment finally started to lap the exceptional 2022 and was up 6% in the quarter, but down 25% for the full year.

Our outdoor seasonal business also stabilize delivery growth of 4% in the quarter and slow into full year declined to 18%.

From a geography view, our international business inclusive of costumes grew 1% for the full year. It was led by 75% growth in Latin America, which at $32 million full year up from $13 million in 2021.

It is now larger than our business in Canada, which we also had a great year at $27 million up 2% versus prior year.

Stephen G. Berman: From a geography view, our international business, inclusive of costumes, grew 1% for the full year. It was led by 75% growth in Latin America, which had $32 million for the full year, up from $13 million in 2021. It's now larger than our business in Canada, which we also had a great year at $27 million, up 2% versus the prior year. North America was down 13%, with both the toy and consumer products and costume business being down, as I've discussed.

North America was down 13% with both the toy and consumer products and coffee business be down as I've discussed.

Before handing it off to John as we wrap up on 2023 I wanted to point out that when Covid struck in 2020, we made some difficult decisions and retrench the business to ensure stability.

Even a precarious financial position and the significant of the unknowns. We made it through 2020 successfully and from there we have steadily delivered over the subsequent years, improving our financial help annually over the past three years, we averaged $710 million and net sales.

Stephen G. Berman: Before handing it off to John as we wrap up on 2023, I wanted to point out that when COVID struck in 2020, we made some difficult decisions and retrenched the business to ensure our stability, given a precarious financial position and the significance of the unknown. We made it through 2020 successfully, and from there, we have steadily delivered over the subsequent years, improving our financial health annually. Over the past three years, we have averaged $710 million in net sales.

$67 million in EBITDA and $49 million in cash flow from operation.

Leading us to a place where I can honestly say, our overall business the quality of our product portfolio and the caliber of our global team have never been stronger.

I'll now pass it over to John for some comments after which I will come back and talk more about how we're thinking about 2020 for John.

Thank you Steven and happy Leap day, everybody happy.

Stephen G. Berman: $67 million in EBITDA and $49 million in cash flow from operations, leading us to a place where I can honestly say our overall business, the quality of our product portfolio, and the caliber of our global team have never been stronger. I will now pass this over to John for some comments, after which I will come back and talk more about how we are thinking about 2024. Thank you, Stephen, and happy Leap Day.

Happy to talk a bit more about another solid quarter and wrapping up another great year.

We already talked a lot about sales so jumping into margins and specifically into our landed product costs. We had 110 basis point improvement in this area in the quarter driven by lower landed product cost for the product, we import compared to last year, and ultimately better ex factory margins and a more favorable product mix.

That brought our full year cost of goods down to 59% of net sales.

On a full year basis, thats, two to $100 to 400 basis points better than these results over the past five years and an unsung accomplishment within our financial results.

John L. Kimble: Happy to talk a bit more about another solid quarter and wrap up another great year. We've already talked a lot about sales. So, jumping into March, and JAKKS Pacific Inc. Thank you. Thank you.

That level of improvement is driven by a combination of initiatives generating positive returns designing for margin working collaboratively with our factory base and carefully managing inventory, which ranges from how much do we bring in when and at what cost per container.

John L. Kimble: We had 110 basis points of improvement in this area, driven by lower landed product costs for the product we import compared to last year and ultimately better X-factory margins in a more favorable product. That brought our full year cost of goods down to 50.9% of net sales, full year basis; that's 200 to 400 basis points better than this. That level of improvement is driven by a combination of initiatives generating positive margin, working collaboratively with our factory base, and carefully managing our own inventory ranges from how much we bring in, when, and at what cost. It remains a constant narrative in our organization to try to ensure we can maintain this level of cost of goods efficiency. Clearly, a key driver of our strong performance. We gave back 60 basis points on the royalty line for the. Most of that difference was driven by our running at a minimum royalty guarantee and some of our international... Guarantees are a fact of life in most royalty agreements.

A constant narrative in our organization to try to ensure we can maintain this level of cost of goods efficiency is it's clearly a key driver of our strong results.

We gave back 60 basis points on the royalty line for the full year.

Most of that difference was driven by our running at a minimum royalty guarantee issues and some of our international markets.

Guarantees are effective life and most royalty agreements, we will always look to optimize rate versus guaranteed level, where we can where sometimes means the effective rate ends up being a bit higher than originally planned.

That has been the case with a couple of agreements recently and there is not anything we are overly concerned about going forward.

We would expect this area to be relatively stable as we head into the new year, if not an area, where we can scrape back some basis points ideally.

Our direct selling costs were up in the quarter and on a full year lower volume and inventory levels mean, some loss of scale as it relates to our warehousing expense increased.

Increased international sales generate higher outbound freight costs as we are responsible for delivering product directly to customers.

In the area of G&A expenses, there are a couple of different dynamics, taking place we are not immune from the broad narrative that most cost areas are increasing more than not over the past couple of years inclusive of labor.

Although that is motivating a persistent review of how and where we're spending it is nonetheless challenging to keep the cost base flat given how labor driven attempt to be.

But in addition, we're also taking the opportunity to make improvements in areas like technology, cyber security and selectively upgrading the organization for the medium term.

These various initiatives, although not revolutionary are necessary and in some cases arguably overdue to sustain the performance levels. We have achieved in recent years and ideally unlock new abilities to achieve greater efficiency in the near term.

And to be clear that commentary is independent of how we've talked about building out our European and Latin American footprint to accelerate growth in those markets.

John L. Kimble: We will always look to optimize rate versus guarantee level where we can, which sometimes means the effective rate ends up being a bit higher. That has been the case with a couple of agreements recently and is not anything we are overly concerned about going forward. We expect this area to be relatively stable as we head into it, if not an area where we can scrape back.

Nonetheless, with dollar cost up across SG&A, we still finished the year with an operating margin of eight 3% the highest level we've achieved in 15 years.

We were down less than $2 million in operating income on over $80 million and fewer sales.

We're going to score that is a good outcome as far as we're concerned.

From there we will highlight that our interest expense dropped to $6 5 million from $11 2 million for the prior year. Despite the rising rate environment. Thanks to our debt retirement in the first half of the year. We are planning for that expense to reduce further to a nominal amount in 2024.

Moving on to taxes last year at this time, we had a significant valuation allowance release against deferred tax assets, which required a lot of analysis of our 2019 through 2022 returns over.

John L. Kimble: Our direct selling costs were up in the quarter and for the full year. Lower volume and inventory levels mean some loss of scale as it relates to our warehouse. www.jakkspacific.com. We are responsible for delivering products. In the area of G&A expenses, there are a couple of different dynamics... are not immune from the broad narrative that most cost areas are increasing more than not. Thank you for joining us. Thank you.

Over the past several months, we have decided to conduct a more rigorous assessment of that analysis, which we are finalizing as part of our Q4 close this year.

That further review has identified an increase in net operating losses or Nols that the company will be able to utilize going forward.

Although the change in annual cash tax exposure is somewhat limited it does generate a $2 $6 million pick up on the P&L and lowers our effective tax rate for the year to 15, 2% versus the low twenty's number that we usually plan too.

Adjusted that onetime pickup out of our adjusted EPS results.

Other housekeeping the.

The change in fair value of our preferred stock liability was an increase of $1 $4 million in the quarter, we backed that noncash charge out of our adjusted non-GAAP results.

John L. Kimble: Although that is motivating a persistent review of how and where we're spending, it is nonetheless challenging to keep the cost base flat given how labor-driven it is. In addition, we're also taking the opportunity to make improvements in areas like technology and selectively upgrading the organization for the medium. These various initiatives, although not revolutionary, are necessary, and in some cases, arguably overdue, to sustain the performance levels we've achieved in recent years and ideally unlock new abilities to achieve greater efficiency. And I want to be clear, that commentary is independent of how we've talked about building out our European and Latin American football. Accelerate growth

Those are the significant drivers of our EPS and adjusted EPS results quoting the adjusted number is only our Q4 result was a loss of $1 four per diluted share compared to a loss of $1 42 per diluted share last year on a full year basis, our earnings of $4 62 per diluted share representing an increase over the $4.

<unk> 29 per share we recorded in 2022.

For adjusted EBITDA, We finished at $75 7 million a bit below last years $76 $4 million, but Nonetheless result, we're extremely happy with the last time, we had back to back years that this level of EBITDA was well over a dozen years ago and the pretty frozen era.

Some quick balance sheet highlights our cash cash equivalents and restricted cash totaled $72 6 million as of 12 31 down from $85 5 million in the prior year, but one needs to consider that we eliminated $67 $2 million in long term debt with cash on hand during the calendar year.

As of February 16th the same cash metric totaled $47 5 million.

A more current reference point as we have completed pay in Q4 royalties owed and have begun investing in 2024 product.

John L. Kimble: Nonetheless, with dollar costs up across SG&A, we still finish the year with an operating margin of 8.3%, the highest level we've achieved in, were downed less than $2 million in operating on over $80 million in fewer sales. We're going to score that as a good outcome as far as, from there, we'll highlight that our interest expense dropped to $6.5 million from $11.2 million for the prior year, despite the rising rate environment, thanks to our debt retirement in the first half of the year. We're planning for that expense to be further reduced to a nominal amount.

Similar to other players in the space, we deliberately have been working down owned inventory to better align with customer demand and proactively manage working capital. It's also worth noting that we continue to encourage the F&B model as being most beneficial to our customers and ourselves in delivering the right price value for retailers and consumers are F&B sales mix exceeded 70%.

On a total company basis in 2023, another great result of the team's efforts.

Our finished goods inventory finished at $52 6 million or 35% reduction from last year's $80 6 million.

And now back to Stephen for some more comments about the year ahead.

Thank you John.

Already two months into yet another interesting year in our industry for the fifth consecutive Q1, we find ourselves wondering about the outlook for the economy and more specifically the implications for the average consumer.

A new overlay this year is a bit of a new film and television desert, resulting from the various entertainment industry work stoppages of 2023, along with streaming providers, taking a more thrifty view of their investment levels.

John L. Kimble: Moving on to taxes, last year at this time, we had a significant valuation allowance release against deferred taxes that required a lot of analysis of our 2019 through 2022. In the past several months, we've decided to conduct a more rigorous assessment of that analysis, which we are finalizing as part of our Q4 close this year. Further review has identified an increase in net operating losses, or NOL.

Although that backdrop doesn't make doing solid business easier for anyone. This year. We do feel we are better set up for success more than most.

Our focus on tried and true evergreen play patterns brands and category serves us well in times like these.

These are the businesses that also flowed through the top of the market's priority list when theres nothing being crowded out by some of the large one off promotional events or activities.

John L. Kimble: The company will be able to utilize going forward. Although the change in annual cash tax exposure is somewhat limited, it does generate a $2.6 million pickup on the P&L and lowers our effective tax rate for the year to 15.2% versus the low 20s number that we usually see. We've adjusted that one-time pickup out of our adjusted... other house. In fair value, our preferred stock liability was an increase of $1.4 million in the quarter.

Preschoolers have today are not studying and entertainment calendar are bemoaning. The lack of the July 4th Temple Theyre still go into birthday parties or long for shopping trips out to brick and mortar retail.

And it's on shelf at retail that we continue to offer a strong and wide array of sub $30 price point toys that deliver fun and innovation for the recipient and happiness and satisfaction for the gift giver with.

John L. Kimble: We back that non-cash charge out of our adjusted non-cash liability. Those are the significant drivers of our ETS and adjusted ETS. Quoting the adjusted numbers only, our Q4 result was a loss of $1.04 per deletion, compared to a loss of $1.42 per diluted shot.

That view, where once again set up for a solid year.

Not to suggest that we are immune to the larger dynamics over the past two springs, we have greatly benefited from high product lines driven by blockbuster April film releases driving sales tied to the movie as well as supporting and expanding our year round business for those brands.

John L. Kimble: On a full year basis, our earnings of $4.62 per diluted share represents an increase over the $4.29 per share re-recorded. For Justin Ivetha, we finished at $75.7 million, a bit below last year's. $4 million, but nonetheless, the result is extremely happy. The last time we had back-to-back years at this level of EBITDA was well over a dozen years ago, and Jeffery Frozen. Thank you. Thank you. Thank you. Balance Sheet Highlights Cash, cash equivalents, and restricted cash totaled $72.6 million as of February 12th, down from $85.5 million in the prior year, but one needs to consider that we eliminated $67.2 million in long-term debt with cash. As of February 16th, the same cash metric totaled $47.5 million, more current.

Those are difficult numbers to replace.

In a business like our costume business is often led by the latest blockbuster films and the relatively light volume this year it tends to lead to a somewhat softer overall business.

But as often reminding our internal teams. That's just how the world of business works, you must adapt and do the hard work to compensate if your underlying goal is to deliver consistent predictable results, which is our primary financial objective here at Jack's without foundation. There are large number of things we're excited about.

As we head into the new year, although admittedly many of them are anchored a bit more towards the second half.

From a content perspective, we are delighted to hear the news that Disney plans to release more wanted to in theaters. This holiday season to.

Stephen G. Berman: Q4 royalties owed, and we have begun investing in Q4. Similar to other players in the space, we deliberately have been working down owned inventory to better align with customer demand and proactively manage Capital. It's also worth noting that we continue to encourage the FOB model, most beneficial to our customers and ourselves in delivering the right price value. Our FOB sales mix exceeded 70% on a total company basis, another great result. Finished Goods Inventory finished at $52.6 million, a 35% reduction from last year. And now, back to Stephen for some more...

The film tells US the next chapter in the World of Moana Theyre successful 2016 film.

We chase demand when the original Wanda film exceeded commercial expectation and it has been a consistent seller for us ever since.

We'll have a new focus line of products inspired by the film on shelf in Q4 and separately. We are also excited to be enjoying three new pieces of entertainment in the world of Sonic the Hedgehog first up a season three on Sonic Prime which released in mid January on Netflix.

Second is the knuckle show, which was featured during the Super Bowl and is launching in late April on the Paramount plus streaming platform. It has set after the second film, but prior to Sonic the Hedgehog III.

Stephen G. Berman: Thank you, John. We're already two months into yet another interesting year in our industry. For the fifth consecutive Q1, we find ourselves wondering about the outlook for the economy and, more specifically, the implications for the average consumer. A new overlay this year is a bit of a new film and TV desert, resulting from the various entertainment industry work stoppages of 2023, along with streaming providers taking a more thrifty view of their investment levels.

The third film and the Sonic the Hedgehog franchise, which is launching in theaters in December of this year. The team has developed custom product lines for Sonic Prime and the film in addition to refreshes and extensions of our successful core Sonic the Hedgehog toy and customer assortment.

Moving to Disney Princess we will benefit from two Disney Global marketing campaigns. This year spark of Joy celebrating the Joy Disney brands and stories breakthrough families all over the world.

Stephen G. Berman: Although that backdrop doesn't make doing solid business easier for anyone this year, we do feel we are better set up for success than most. Our focus on tried and true evergreen play patterns, brands, and categories serves us well in times like these. These are the businesses that often float to the top of the market's priority list when there's nothing being crowded out by some of the large one-off promotional events or activities. The preschoolers of today are not studying an entertainment calendar or bemoaning the lack of the July 4th Temple.

And create your world a three year Disney Princess brand campaign launching this fall celebrated the magical world you will create through the Disney Princess brand and the world of products JAKKS toys will be feature throughout that campaign.

Since last quarter. We also made great progress sharing our new Simpsons line with retailers around the world.

New episodes of season 35 began to air earlier this month and theses at 36 is projected to debut in September the hours watch on this property are just incredible.

Stephen G. Berman: They are still going to birthday parties or longing for shopping trips to brick and mortar retail. And it's on the shelf at retail that we continue to offer a strong and wide array of sub $30 price point toys that deliver fun and innovation for the recipient and happiness and satisfaction for the gift giver. With that view, we're once again set up for a solid year. But that doesn't to suggest that we are immune to the larger dynamic.

Can't wait for fans to see our range specifically the figures in dire ammers featuring characters and locations from the show.

Over 15 years since they assisted toy range has been in the market and we are thrilled to make them available, we announced and disclosed last quarter. The starting of a worldwide relationship with authentic brands group.

Stephen G. Berman: Over the past two springs, we have greatly benefited from high product lines driven by Blockbuster April film releases, driving sales tied to the movie, as well as supporting and expanding our year-round business for those brands. Those are difficult numbers to replace, and a business like our costume business is often led by the latest blockbuster films, and the relatively light volume this year tends to lead to a somewhat softer overall business. But, as I'm often reminding our internal teams, that's just how the world of business works.

AVG is a brand powerhouse with a wide portfolio of IP, which has mass appeal to millennials Gen Z and Gen Y we.

We have been collaborating on a wide range of products that will slot into our division as well as expand the scope of our offerings.

We've been working on iconic assortment of their properties names like element Quiksilver, Roxy Juicy Couture sports illustrated and France, just to name a few.

Stephen G. Berman: You must adapt and do the hard work to compensate if your underlining goal is to deliver consistent, predictable results, which is our primarily financial objective here at JAKKS. Without a doubt, there are a large number of things we're excited about as we head into the new year, although admittedly, many of them are anchored a bit more towards the second half. From a content perspective, we are delighted to hear the news that Disney plans to release Moana 2 in theaters this holiday season.

We have completed the initial fall 2024 retail presentations at both mass such as target Walmart and Amazon and sporting good channels, such as Dick's Sporting goods Academy Dunham Shields, as well specialty international retailers. The brand's global reach was proven during the recent Nuremberg.

Very fair being met with excitement from our international customers we.

Stephen G. Berman: The film tells us the next chapter in the world of Moana, the successful 2016 film. We chased a man when the original Moana film exceeded commercial expectations, and it has been a consistent seller for us ever since. We will have a new focus line of products inspired by the film on shelf in Q4. And separately, we are also excited to be enjoying three new pieces of entertainment in the world of Sonic the Hedgehog. First up is Season 3 of Sonic Prime, which released in mid-January on Netflix. Second is the Knuckles show, which was featured during the Super Bowl and is launching in late April on the Paramount Plus streaming platform. It is set after the second film but prior to Sonic the Hedgehog 3.

We are extremely excited to be rolling out our new line of Skateboards and rose gates with amazing new designs for element Roxy quick silver and Juicy couture at specialty and mass retailers, both in store and online.

In 2025, JAKKS will be launching a complete line of outdoor products, including chairs umbrellas canopies beats accessories inflatable pool floats Sanders flashbacks foldable wagons, and the extensive lines of dolls and doll accessories infused with fashion elements from Roxy Quicksilver for.

'twenty, one prints and sports illustrated.

As we said separately, we think the U S housing market is still trying to calibrate where consumer demand is post COVID-19 with customers dialing their annual buys up and down as a jockey for market share. In addition, many other manufacturers in this space continue to struggle, creating additional noise in the market. We do have the rights.

Stephen G. Berman: The third film in the Sonic the Hedgehog franchise, which is launching in theaters in December of this year. The team has developed custom product lines for Sonic Prime and the film, in addition to refreshes and extensions of our successful Core Sonic the Hedgehog toy and costume assortment, moving to Disney Princess. We will benefit from two Disney global marketing campaigns this year: Spark of Joy, celebrating the joy Disney brands and stories bring to families all over the world, and Create Your World. A three-year Disney Princess brand campaign launching this fall celebrates the magical world you would create through the Disney Princess brand and the world of products.

Several new films this year inclusive of Sony's Ghostbusters.

Frozen Empire.

Illumination Entertainment Despicable me.

Embassy Universal's Wicked and Kung Fu Panda four in addition to our strong evergreen license IP portfolio from Disney Princesses, too low and stitch, Nintendo Sonic Pokemon Halo Minecraft Jets the name several.

Stephen G. Berman: JAKKS toys will be featured throughout that campaign. Since last quarter, we have also made great progress sharing our new Simpsons line with retailers around the world. New episodes of Season 35 began to air earlier this month, and Season 36 is projected to debut in September.

We're also continuing to add additional rights, we have U S rights as our capabilities outside the U S steadily build and build.

Nurnberger was a great show for disguised as we continue to have separate booths to present the product lines.

There are a couple of interesting new businesses queuing up for 2025 to which we look forward to telling you about in the quarters to come as we always have a lot of different things going on there is one more important thought I wanted to share two.

Stephen G. Berman: The hours spent on this property are just incredible. We can't wait for fans to see our reigns, specifically the figures and dioramas featuring caricatures and locations from the show. It's been over 15 years since a Synthetory range has been in the market, and we are thrilled to make them available. We announced and disclosed last quarter the start of a worldwide relationship with Authentic Brands Group. ABG is a brand powerhouse with a wide portfolio of IP that has mass appeal for Millennials, Gen Z, and Gen Y. We have been collaborating on a wide range of products that will slot into our division as well as expand the scope of our offering. We've been working on an iconic assortment of their properties, names like Element, Quicksilver, Roxy, Juicy Couture, Sports Illustrated, and Prince, just to name a few.

2024 commences, our 30 year in business at Jack Freeman I founded JAKKS specific back in January 1990, 529 years ago, those who have known us over the years during our various ups and downs no that has truly been a remarkable journey so far.

It was great being back in Nuremberg. This year for the first time in a long time and catch up with many long standing customers and relationships and now consider friends for all the time, we have shared in the decades since the.

The past five years have created their own remarkable chapter as we work through our 2019 as restructuring navigated through peak Covid and 2020 and subsequently have put up three tremendous years of results across 2021, 2022 and 2023.

We are extremely proud of our performance. During this time, but are only looking forward towards another year that whenever we've proved challenging but we feel there's still filled with major opportunities.

Stephen G. Berman: We have completed the initial fall 2024 retail presentations at both mass, Target, Walmart, and Amazon, and sporting goods channels such as Dick's Sporting Goods, Academy, Dunham's, Shields, as well as specialty international retailers. The brand's global reach was proven during the recent Nuremberg Toy Fair, which was met with excitement from our international customers. We are extremely excited to be rolling out our new line of skateboards and roller skates with amazing new designs for Element, Roxy, Quicksilver, and Juicy Couture at specialty and mass retailers both in-store and online.

Again for your support and interest and with that we will take a couple of questions operator.

Thank you as a reminder to ask a question. Please press star one on your telephone and wafer.

Yeah.

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

Please stand by while we compile the Q&A roster.

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

Hey, Thank you. Thank you guys for taking my questions, Steven I think kind of a <unk>.

<unk> for you I really appreciate the color on kind of talking about the movie slate and the impact that could have are there specific.

Stephen G. Berman: In 2025, JAKKS will be launching a complete line of outdoor products, including chairs, umbrellas, canopies, beach accessories, inflatable pool floats, sand and splash mats, foldable wagons, and an extensive line of dolls and doll accessories infused with fashion elements from Roxy, Quicksilver, Forever 21, Prince, and Sports Illustrated. As we said separately, we think the U.S. holiday market is still trying to calibrate where consumer demand is post-COVID, with customers dialing their annual buys up and down as they jockey for market share. In addition, many other manufacturers in the space continue to struggle, creating additional noise in the market. We do have the rights to several new films this year, including Sony's Ghostbusters. Frozen Empire, Illuminations Entertainment, Despicable Me, Embassy Universal's Wicked and Kung Fu Panda 4, in addition to our strong Evergreen licensed IP portfolio, from Disney Princesses to Lilo & Stitch. Nintendo, Sonic, Pokemon, Halo, and Minecraft, just to name several.

Could you just talk generally about the impact it has on our consumers.

Lower sales because they are going to the store level.

Is it just they're just not.

The property.

Thinking through Theres still birthday parties to buy four or Theres still holiday to buy four so I'm just trying to think the impact that it might have directly on Jack's.

Just kind of any color maybe it impacts.

Halloween just trying to get.

Sense on what the real driver here is I guess.

The consumer when you have a weaker movie slate.

Thank you Andrew.

So we've had this throughout the periods as Jackson.

Industry, what it normally does when you don't have any real hot overall toy riffing properties, there could be some great movies, but they may not be in a sense.

Merchandise will as well, but at our world like a frozen moana or things like that are <unk>. So what that does is it just the excitement of the consumer of driving them into the retail and go into buy something Thats Hot.

And when they come in they're buying something hot they usually always acquire additional products.

Stephen G. Berman: We're also continuing to add additional rights where we have U.S. rights as our capabilities outside the U.S. steadily build and build. Nurnberg was a great show for Disguised as we continue to have separate booths to present the product line. There are a couple of interesting new businesses queuing up for 2025, which we look forward to telling you about in the quarters to come. As we always have a lot of different things going on, there is one more important thought I wanted to share. 2024 commences our 30th year in business, as Jack Freeman and I founded JAKKS Pacific back in January 1995, 29 years ago. Those who have known us over the years during our various ups and downs know that it has truly been a remarkable journey so far.

On an impulse basis, so by not having such a real hot theatrical or even TV.

Initiatives. This year, it's really back to the basics, which is the positive for US. That's our core concept of Jack's is evergreen basic brick by brick business and its something hot comes along we run chase it but we never bet on it too is to ensure our year. So for example, we have.

Today, we just finished up an amazing meeting with one of the large.

Retailers in the sporting World with our new authentic initiatives that we're going to be launching in 2024 that we didn't expect until next year to launch some of these things. In addition, we have a movie that we're really excited about because we've had great track records with it in the past is the new Milwaukee movie, which is coming out. So there are some excitement as well as the sonic assignment.

Stephen G. Berman: It was great being back in Nuremberg this year for the first time in a long time and catching up with many long-standing customers and relationships I now consider friends for all the time we have shared in the decades since. The past five years have created their own remarkable chapter as we've worked through our 2019 restructuring, navigated through peak COVID in 2020, and subsequently have put up three tremendous years of results across 2021, 2022, and 2023. We are extremely proud of our performance during this time but are only looking forward to another year that will inevitably prove challenging but, we feel, is still filled with major opportunities. Thanks again for your support and interest, and with that, we'll take a couple questions. Operator.

But those things are happening later in the year and Theres really not any major call it consumer selling product movies that are happening.

For the first half or even in the first three quarters of their so you guys think of core evergreen businesses that really do well so our basic.

<unk> ball pits ride ons, Nintendo Sonic the Sympson line, which is new.

<unk> has been around 30, something I forgot how many years of over 35 years.

That is the first time, there is product coming out in 15 years of the Sympson. So even though it's not a new launch of.

Of.

Brand new call. It IP, it's a strong IP that's evergreen so.

Where we stand we're very solid but there's just nothing great. That's coming out that is going to push the industry into these high levels of excitement.

Got it that's super helpful.

That's really helpful and speaking of kind of in the back half of the year aside from the Sonic and Simpsons. Some of your outdoor initiatives will we see some of that as well or because its outdoor that's more of a 'twenty five initiative just trying to frame some of these new license deals.

Operator: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Uerkwitz with Jeffries. Your line is now open.

So the the AVG seasonal argues that because we have other seasonal properties that are really focused.

Andrew Paul Uerkwitz: Hey, thank you. Thank you, guys, for taking my questions. Stephen, I have a kind of question for you.

Patrols.

The ball pits intense and ride ons, but the AVG as I just mentioned we had our team has fallen back from a major sporting goods retailer and they have full commitments a broad array of commitments on the skateboard roller skates and the element.

Andrew Paul Uerkwitz: I really appreciate the color on kind of talking about the movie Slate and the impact that could have. Are there specific, could you talk generally about the impact it has on consumers? Is it lower sales because they're going to the store less? Is it just the property?

Safety equipment, and we have been on the road since Nurenberg and the team has been on the road marketing retail roadshow. So we expect to have.

Andrew Paul Uerkwitz: I'm just kind of thinking through, there are still birthday parties to buy for, there are still holidays to buy for, so I'm just trying to think of the impact that it might have directly on JAKKS. Thank you for watching. I'm Andrew Uerkwitz. Thanks for watching, and I'll see you next time. You know, just kind of or any kind of like maybe it impacts Halloween, just trying to get a sense of what the real driver here is against the consumer when you have a weaker movie slate. Firstly, thank you, Andrew. So we've had this, you know, throughout the periods as JAKKS and being in the industry, what it normally does when you don't have any, call it real hot, overall toy-rific properties. There could be some great movies, but they may not be, in a sense, merchandisable as well, but in our world, like Frozen or Mulan or things like that are toy-rific.

Escaped boards and seasonal business that I, just mentioned in fourth quarter or third quarter lodging and then spring which launches in December January February March that's when we expect all the 10th the carriage is the chairs of Quicksilver and Roxy ought to come out, which it will be for summer 'twenty five but the <unk>.

Are they are getting some really good.

Grasp at retail, we expect that to happen at fall of this year, but on the other parts, we still have like Sonic Prime Netflix, which came out in January Knuckles, which comes out Paramount plus at April Sonic three of the movie in December the Simpsons, but one we have a big global marketing campaign with Disney with spark of Joy and create your world the skies.

Andrew Paul Uerkwitz: So what that does is it's just the excitement of the consumer of driving them into the retail and going to buy something that's hot isn't there and when they come in they're buying something hot, they usually always acquire additional products on an impulse basis. So by not having such a real hot theatrical or even TV initiatives this year, it's really back to the basics, which is the positive for us, that's our core concept of JAKKS, is evergreen basic brick-by- brick business and it's something hot comes along, we run, chase it, but we never bet on it, you know, to ensure our year. So for example, we have, Today we just finished off an amazing meeting with one of the large Retailers in the sporting world with our new authentic initiatives that we're going to be launching in 2024 that we didn't expect until next year to launch some of these things in addition We have a movie that we're really excited about we've had great track records with it in the past is the new Moana movie Which is coming out so there are some excitements as well as the sonic excitement But those things are happening later in the year, and there's really not any major Consumer selling product movies that are happening You know for the first half or even in the first three quarters of the year So you got to think of core evergreen businesses that really do well, so our basic tents ball pits ride-ons Nintendo Sonic the Simpson line, which is new you know Simpsons has been around 30 something yeah, I've got that how many years it's over 35 years That it's the first time there's product coming out in 15 years of the Simpsons, so even though. It's not a new launch of a Brand new call it IP. It's a strong IP. That's evergreen so for where we stand We're very solid, but there's just nothing great. That's coming out that is going to push the industry into these high levels of excitement, Got it. No, that's super helpful.

After a unicorn, we have Nintendo and Kirby bended ink machine Dungeons and Dragons here Theres a lot of.

Content and IP that we've launched but there is just something that that is a tentpole movie, excluding Nick and Thats.

Moana two got it.

That's super helpful.

I appreciate all that color and good job getting some of those new initiatives out sooner than later.

That was a big old press, yes.

Yeah, No I think that's great.

And then it kind of just how should I, how should we frame the international opportunity.

The overall global weakness, but I would think with some of the international initiatives you guys might actually be up year over year on an international geography.

Thiago fee basis is that what is that.

Is that the right way to think about it or how should we kind of frame the international opportunity.

Yes, so we've been out there going after again shortly the next couple of weeks the Big initiative as we opened up our new distribution center in Phs, Italy in our new offices in France, and our new <unk>.

Vision Center in Belgium, which is going to help get into all the ancillary territories that are hard to get to but remember we're primarily fob basis does this that being said if we if you saw how much our Latin America growth.

It has increased we are up for a vendor of the year at Wal Mart, Mexico, I think whirlpool widened above us so the big initiatives, our expansion and the way that you articulate ended up seeing growth internationally, we do expect some tremendous growth in certain areas and some of moderate but it's too early for us to say right now as we stand where that growth will be.

But we do see strong momentum.

We're coming from a lower base as well, which is easier for us to achieve growth. There's a lot of new initiatives that we have that work worldwide from the AVG.

Andrew Paul Uerkwitz: That's really helpful. And speaking of kind of in the back half of the year, aside from Sonic and Simpsons, some of your outdoor initiatives, will we see some of that as well? Or because it's outdoor, that's more of a 25 initiative, just trying to frame some of these new license deals. So the ABG seasonal, I'll use ZAKKS. We have other seasonal properties that are really kid-focused. You know, the PAW Patrols and the ball pits and tents and ride-ons.

The releases that we had to Simpson this worldwide, but wanted to so there's a lot of things that we didn't know November December that we know today that should help us and then our basic evergreen business and new licenses with the Sky should help us with the direct to retail approach. So we're looking forward to seeing it but we'll know more once we get all these cut twice.

Bears and meetings completed.

Got it that's helpful. And then I guess one question for John on the cost side.

Stephen G. Berman: But the ABG, as I just mentioned, our team has flown back from a major sporting goods retailer, and they have full commitments, a broad array of commitments on the skateboard, roller skates, and the element safety equipment. And we have been on the road since Nuremberg, and the team has been on the road of marketing retail roadshows. So we expect to have the skateboards and seasonal business that I just mentioned in the fourth quarter or third quarter. And then spring, which launches in December, January, February, March, that's when we expect all the tents, the carriages, the chairs, Quicksilver, and Roxy, all to come out, which it will be for summer 25. But the skateboards and roller skates are, they're getting some really good sales at retail.

Because your F O B should we worry at all about the rising cost of shipping at all or how should we think about.

Kind of the pushes and pulls there as we get through the year.

I think we're always going to be like mindful of things that could go a bit sideways, but to your point given our heavy focus on fob.

It's not really a top five <unk>.

And for US I would say at the moment.

The issues as it relates to Europe are more problematic than the more shipping gets disrupted to Europe. If you think about it that just means more time. The ships are on the water, taking a longer time to get some place and therefore like draining capacity out of the system even if.

We're focused mostly on is the Asia to L. A route so.

We're continuing to keep an eye on it and monitor it obviously, we work down our inventory a lot. There's a lot of people did towards the end of the year, which means bringing in more product this year.

Stephen G. Berman: We expect that to happen in the fall this year. But on the other parts, we still have things like Sonic Prime on Netflix, which came out in January. Knuckles, which comes out on Paramount Plus in April. Sonic 3, the movie, in December. The Simpsons, Moana. We have a big global marketing campaign with Disney with Spark of Joy and Create Your World's Disguise. There's Afro Unicorn. We have Nintendo and Kirby. Bendy the Ink Machine.

Something that we're going to have to do at least in order to be able to deliver some of the sales that we want but I don't think it is.

Like I said, it's probably not top concern at the moment.

Got it Okay, and then I guess last question then is it.

It looks like 23 was kind of a big discounting gear for a lot of the a lot of your competitors.

How are you thinking about discounts in 2024.

It feels like inventories are finally normalize, but even last fall. They were normalized we still saw some discounting just curious.

Stephen G. Berman: Dungeons and Dragons. There's a lot of content and IP that we've launched, but there's just something that doesn't come as a tentpole movie, excluding Sonic and Moana too. Got it. That's super helpful.

What's your thinking about discounts.

The right price points are going to be this year I know you guys tend to be on that sweet spot of below 30, but just curious how you how you see 24, playing out on a price point basis.

Andrew Paul Uerkwitz: I appreciate all that color, and good job getting some of those new initiatives out sooner rather than later. Thank you. That was a big goal for us. Yeah, no, I think that's great.

So.

On the.

Call it the inventory level.

It seems that majority of the people in our industry have gotten cleaned up with inventory, but speaking specifically on <unk>.

Andrew Paul Uerkwitz: And then kind of just how should I, how should we frame the international opportunity? I know there's an overall global weakness, but I would think with some of the international initiatives, you guys might actually be up year over year on an international geography basis. Is that, one, is that right?

We are pretty clean on inventory, we always have a little bit of obsolete throughout the years and as John just mentioned.

Got pretty low on inventories so we want to refresh it with all good product, which is a great place to stand.

Stephen G. Berman: Is that the right way to think about it? Or how should we kind of frame the international opportunity? So we've been out there, and I'm going out there again shortly in the next couple of weeks. The big initiative is that we opened up our new distribution center in Piacenza, Italy, and our new offices in France, and a new distribution center in Belgium, which is going to help get into all the ancillary territories that are hard to get to. But remember, we're primarily an FOB-basis business. That being said, if you saw how much our Latin America growth has increased, we were up for vendor of the year at Walmart Mexico, I think Whirlpool won over us.

But that being said the majority as you mentioned, our sweet spot is under 30 and even during the holidays I think it's over 85% of our products are under $50.

So that really is a sweet spot for the defense of the consumer being slightly getting weaker I'd very much unknown. We've had for the last six years, a complete structure of doing three parts development, which is mass specialty and then value. So we are really ancillary and all the different distribution channels that we're heading into.

So we hit the consumers where they stand financially in addition to that the evergreen areas of our business are just very steady Eddie and what we do so we're not concerned with the inventory in that part, but I do believe.

Stephen G. Berman: So the big initiatives are expansion, and the way that you're articulating it, I've seen growth internationally. We do expect some tremendous growth in certain areas and some moderate growth, but it's too early for us to say right now where that growth will be, but we do see strong momentum. We're coming from a lower base as well, which makes it easier for us to achieve growth.

When you close out inventory you do hit margins somewhat so I think that is still part of everyone's business, but for us its a minimal part of our business.

Got it very helpful gentlemen.

I appreciate you taking my questions.

Thanks, Andrew I'd now like to hand, the conference back over to Stephen environment for closing remarks.

Andrew Paul Uerkwitz: There are a lot of new initiatives that we have that work worldwide, from the ABG releases that we have to Simpsons worldwide, Moana, too. So there are a lot of things that we didn't know in November and December that we know today that should help us, and then our basic evergreen business and new licenses with Sky should help us with the direct-to-retail approach. So we're looking forward to seeing it, but we'll know more once we get all these toy fairs and meetings completed. That's helpful.

Great to have the.

First call of the year now.

And excited to talk about this year and going into first quarter and above and we're excited for JAKKS. We're excited for this year. We're excited for 25 and looking forward to giving an update after first quarter. Thank you everybody.

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

Yes.

John L. Kimble: And then I guess one question for John on the cost side. Because you're FOB, should we worry at all about the rising cost of shipping at all, or how should we think about the kind of pushes and pulls there as we get through the year? I think we're always going to be mindful of things that could go a bit sideways, but to your point, given our heavy focus on FOB, it's not really a top-five concern for us, I would say, at the moment. The issues as it relates to Europe are more problematic, and the more shipping gets disrupted to Europe, if you think about it, that just means more time that ships are on the water, taking a longer time to get somewhere, and therefore draining capacity out of the system, even if what we're focused mostly on is the Asia to L.A. route.

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John L. Kimble: So, you know, we're continuing to keep an eye on it and monitor it. Obviously, we worked on our inventory a lot, as a lot of people did towards the end of the year, which means bringing in more product this year is... It's something that we're going to have to do, at least in order to be able to deliver some of the sales that we want, but we don't think it's... Like I said, it's probably not our top concern at the moment. I got it.

Yes.

Andrew Paul Uerkwitz: Okay. And then I guess my last question then is that it looked like 23 was kind of a big discounting year for a lot of your competitors. How are you thinking about discounts in 2024? It feels like inventories are finally normalized, but even last fall, they were normalized. We still saw some discounting. I'm just curious what you think about discounts and where the right price points are going to be this year. I know you guys tend to be in that sweet spot of below 30, but I'd just curious how you see 2024 playing out on a price point basis.

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Stephen G. Berman: So on the, call it the inventory level, I think everyone, it seems that the majority of the people in our industry have gotten cleaned up with inventory, but speaking specifically about JAKKS, we are pretty clean on inventory. We always have a little bit of obsolete stock throughout the years, and as John just mentioned, we got pretty low on inventory, so we wanna refresh it with all good products, which is a great place to stand. But that being said, the majority, as you mentioned, our sweet spot is under 30, and even during the holidays, I think over 85% of our products are under $50. So that really is a sweet spot for the difference between the consumer being slightly getting weaker or very much unknown.

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Stephen G. Berman: We've had for the last six years a complete structure of doing three parts development, which is mass, specialty, and then value. So we are really ancillary in all the different distribution channels that we're heading into. So we hit the consumers where they stand financially. In addition to that, the evergreen areas of our business are just very steady Eddie in what we do. So we're not concerned with the inventory and that part, but I do believe when you close that inventory, you do hit margins somewhat. So I think that is still part of everyone's business, but for us, it's a minimal part of our business. I got it.

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Andrew Paul Uerkwitz: Very helpful, gentlemen, and I appreciate you taking the time to answer my question. Thank you. I'd now like to hand the conference back over to Stephen Berman for closing remarks. Well, it's great to have the first call of the year now and excited to talk about this year going into the first quarter and beyond, and we're excited for JAKKS. We're excited for this year. We're excited for 25, and looking forward to giving an update after the first quarter. Thank you, everybody.

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Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

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Operator: ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.jakkspacificinc.com ?? ?? ?? ?? ?? ?? ?? ?? Good afternoon, everyone. Welcome to the JAKKS Pacific 4th Quarter Full Year 2023 Earnings Conference Call with Management, who will review financial results for the quarter and year ended December 31st, 2023. JAKKS 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 investor section. On the call this afternoon are Stephen Berman, Chairman and Chief Executive Officer, and John Kimble, Chief Financial Officer.

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Operator: 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 commentary 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 questions. Your line will be placed on mute for the first portion of the call.

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Operator: If you would like to be placed in the queue to ask a question, please press star 1 1 on your telephone keypad. Before we begin, the company would like to point out that any comments made about JAKKS Pacific's future performance, events, or circumstances, including the estimates of sales, margins, and or adjusted EBITDA in 2024, as well as any other forward-looking statements concerning 2024 and beyond, are subject to safe harbor protection under federal securities law. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to risk uncertainties, which could cause actual results to differ materially from those projected in the foregoing statements. For details concerning these and other such risk 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.

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Stephen G. Berman: Good afternoon, and thank you for joining us. It's been four months since our last earnings call, an update at the end of Q3. And I'm happy to say that we are very pleased with our performance since then. Perhaps more importantly, we continue to make solid progress in building a better future for our stakeholders despite the persistent uncertainty around the economy and consumer confidence. Here are some high-level headlines of what news since we last spoke. As we expected, Halloween in the U.S. was down versus the prior year, according to syndicated data.

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Yes.

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Yes.

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Stephen G. Berman: As a FOB-first business, we are less reliant on pushing additional product to customers post-Thanksgiving. And to that end, finish the year roughly in line with our expectations and maybe even a little better. Q4 POS at the top 3 U.S. toy consumer product accounts was positive at 2 of the 3, despite having difficult revenue comparisons with the prior year. In addition, urine retail inventories at those same accounts were down high single-digit percentages versus prior years.

Okay.

Yes.

Thanks.

Good afternoon, everyone welcome to the JAKKS Pacific fourth quarter full year 2023 earnings conference call with Matt Smith, who will review financial results for the quarter and year ended December 31 2023.

JAKKS issued its earnings press release earlier today, the earnings release and presentation slides for today's call are available on the Companys recently remodeled website in the Investor section.

All 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 questions.

Stephen G. Berman: As part of our re-energized focus on our European expansion, we sent our largest contingent ever to the Nuremberg Toy Fair earlier this month, having great meetings with customers from both Europe and around the world. Our balanced, evergreen portfolio continues to resonate, and more importantly, attract attention. As we increase the size and strength of our European team and footprint, the momentum for growth is building. There's a lot of work to be done, and a lot of opportunities to be had. But JAKKS and the team are locked in on identifying various opportunities to strengthen our retail expansion that can be acted upon to have immediate benefit to our company. To hit some of the financial highlights for the quarter and year, Q4 net sales of $127.4 million were down 3% versus the prior year, bringing our full year total net sales to $711.6 million.

Your line will be placed on mute for the first portion of the call. If you would like to be placed in the queue to ask a question. Please press star one 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 and our adjusted EBITDA in 2024 as well as any other forward looking statements concerning 2024 and beyond are subject to safe Harbor protection under Federal Securities laws.

These statements reflect the company's best judgment based on current market trends and conditions today and.

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.

Stephen G. Berman: The full year number was down 11% versus the prior year, primarily attributable to the massive amount of volume we did in 2022 from a Thanksgiving 2021 film release that was on fire all of last year. Although the Super Mario Bros. movie, released in Q2, 2023 generated a lot of business in 2023, as well as promotional support for our evergreen Nintendo line, it wasn't enough to close that gap, especially given we also benefited from a strong Sonic 2 movie in 2022 as well. Better landed product cost and reduced ocean freight helped to contribute to an expansion of full year gross margin percentage. Q4 in particular increased by 480 basis points year over year. This improvement generated a 6% increase in gross margin dollars in 2023 compared to the prior year despite the sales decline. It's a remarkable achievement.

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.

As a reminder, this conference is being recorded.

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

Importantly, we continue to make solid progress in building a better future for our stakeholders. Despite the persistent uncertainty around the economy and consumer strength here are some high level headlines of what new since we last spoke.

As we expected Halloween in the U S was down versus prior year According to syndicated data.

Though our shipping was also down it was better than the industry has solidified our position of strength as the U S market leader.

It's with that voice that we continue to engage customers and license source about opportunities for 2025, while also buying up and delivered orders for this coming season more on costumes in the second half of today's materials.

<unk> did arrive on December 25th as scheduled but with a return to pre COVID-19 last minute shopping patterns.

As a F O B first business, we're less reliant on pushing additional product to customers post Thanksgiving and to that end for this year roughly in line with our expectations and maybe even a little better.

Q4, Pos at top three U S toy consumer product accounts was positive at two of the three despite having difficult revenue comparisons with the prior year.

In addition year end retail inventory that those same accounts were down high single digits percentages versus prior year.

As depressed as noted the Thanksgiving 2023 film release, we supported underperformed from a box office perspective as separately was a challenge at retail we still think it's a great product line and we are looking forward to a streaming launch in a few weeks to introduce the film to a broader audience, but realistically it's unlikely to prove.

Stephen G. Berman: From a geography view, our international business, inclusive of costumes, grew 1% for the full year. It was led by 75% growth in Latin America, which had $32 million for the full year, up from $13 million in 2021. It's now larger than our business in Canada, which we also had a great year at $27 million, up 2% versus the prior year. North America was down 13%, with both the toy and consumer product and costume business being down, as I've discussed.

A lot of chase opportunity for us in 2024.

We have deployed our former CFO and to his new role as president of European operations as of January as scheduled as part of our Reenergized focus on our European expansion, we set our largest contingent efforts of the Nuremberg toy fair earlier this month, having great meetings with customers for both Europe and around the world.

Our balance evergreen portfolio continues to resonate and more importantly attract attention.

As we increase the size and strength of our European team in footprint the momentum for growth is building there.

A lot of work to be done and a lot of opportunity to be had but Jack and the team are locked in on identifying various opportunities to strengthen our retail expansion that can be acted upon to have immediate benefit to our company to.

<unk> hit some of the financial highlights for the quarter and year.

Q4, net sales of $127 $4 million were down 3% versus prior year, bringing our full year total net sales of $711 6 million. The full year number was down 11% versus prior year, primarily attributable to the massive amount of volume we did in 2022 from me.

Thanks, giving 2021 film release that was on fire all of last year, Although the Super Mario Brothers movie released in Q2 two.

John L. Kimble: I'm happy to talk a bit more about another solid quarter and wrap up another great year. We've already talked a lot about sales. So jumping into March, www.jakkspacific.com, we had a 110 basis point improvement in this area, driven by lower landed product costs for the product we import compared to last year, and ultimately better X-Factory margins and a more favorable product. That brought our full year cost of goods down to 50.9% of net sales. That's 200 to 400 basis points better than these.

Better landed product cost and reduced ocean freight helped to contribute to an expansion of full year gross margin percentage Q4 in particular increased 480 basis points year over year.

John L. Kimble: That level of improvement is driven by a combination of initiatives generating positive results www.jakkspacificinc.com, which ranges from how much do we bring in, when, and at what cost. There remains a constant narrative in our organization to try to ensure we can maintain this level of cost of goods efficiency, clearly a key driver of our strong performance. We gave back 60 basis points on the royalty line for the. Most of that difference was driven by our running into the minimum royalty guarantee and some of our international... Guarantees are a fact of life in most royalty agreements.

This improvement generated a 6% increase in gross margin dollars in 2023 compared to prior year. Despite the sales decline it is a remarkable achievement.

This gross margin dollar level $223 million is the highest the company has achieved since 2015.

As much as we all enjoyed talking about market share gains when they happen we enjoy margin dollar gains EBIT more.

That strength flow through SG&A to generate a full year operating margin of eight 3%.

John L. Kimble: We will always look to optimize rate versus guarantee level, which sometimes means the effective rate ends up being a bit higher. That has been the case with a couple of agreements recently and is not anything we are overly concerned about going forward. We expect this area to be relatively stable as we head into it, if not an area where we can scrape back.

An improvement of 60 basis points over prior year, despite losing top line scale.

John L. Kimble: Our direct selling costs were up in the quarter and for the full year. Lower volume and inventory levels mean some loss of scale as it relates to our warehouse, www.jakkspacific.com, which is responsible for delivering products. In the area of G&A expenses, there are a couple of different dynamics that are not immune from the broad narrative that most cost areas are increasing more than not. Thank you for joining us. Thank you. Thank you.

Our asset play and collectible business was down 9% in the quarter and up 27% on the year led by Super Mario Brothers movie Sonic Prime and our core Nintendo and Sonic product ranges.

John L. Kimble: Although that is motivating a persistent review of how and where we're spending, it is nonetheless challenging to keep the cost base flat given how labor-driven it is. In addition, we're also taking the opportunity to make improvements in areas like technology and selectively upgrading the organization for the medium. These various initiatives, although not revolutionary, are necessary, and in some cases, arguably overdue, to sustain the performance levels we've achieved in recent years and, ideally, unlock new abilities to achieve greater efficiency. To be clear, that commentary is independent of how we've talked about building out our European and Latin American footprint. Accelerate growth

Our dolls role play and dress up segment finally started to lap the exceptional 2022 and was up 6% in the quarter, but down 25% for the full year.

Our outdoor seasonal business also stabilize delivery growth of 4% in the quarter and slow into full year declined to 18%.

From a geography view, our international business inclusive of costumes grew 1% for the full year it.

John L. Kimble: Nonetheless, with dollar costs up across SG&A, we still finish the year with an operating margin of 8.3%, the highest level we've achieved in 50 years, and are down less than $2 million in operating on over $80 million in fewer sales. We're going to score that as a good outcome as far as, from there, we'll highlight that our interest expense dropped to $6.5 million from $11.2 million for the prior year, despite the rising rate environment, thanks to our debt retirement in the first half of the year. We're planning for that expense to be further reduced to a nominal amount.

It was led by 75% growth in Latin America, which at $32 million full year up from $13 million in 2021.

It is now larger than our business in Canada, which we also had a great year at $27 million up 2% versus prior year.

North America was down 13% with both the toy and consumer products and costume business be down as I've discussed.

Before handing it off to John as we wrap up on 2023 I wanted to point out that when Covid struck in 2020, we made some difficult decisions and retrench the business to ensure stability.

John L. Kimble: Moving on to taxes, last year at this time, we had a significant valuation allowance release against deferred tax that required a lot of analysis of our 2019 through 2022. In the past several months, we've decided to conduct a more rigorous assessment of that analysis, which we are finalizing as part of our Q4 close this year. Further review has identified an increase in net operating losses, or NLO.

Given a precarious financial position and the significant of the unknowns. We made it through 2020 successfully and from there we have steadily delivered over the subsequent years, improving our financial help annually over the past three years, we averaged $710 million and net sales.

John L. Kimble: Company will be able to utilize going forward. Although the change in annual cash tax exposure is somewhat limited, it does generate a $2.6 million pickup on the P&L and lowers our effective tax rate for the year to 15.2% versus the low 20s number that we usually see. We've adjusted that one-time pickup out of our adjusted... Other house, Fair Value, our preferred stock liability, was an increase of $1.4 million in the quarter.

$67 million in EBITDA and $49 million in cash flow from operation.

Leading us to a place where I could honestly say, our overall business the quality of our product portfolio and the caliber of our global team have never been stronger.

I will now pass it over to John for some comments after which I will come back and talk more about how we are thinking about 2020 for John.

Thank you Steven and happy Leap day everybody.

John L. Kimble: We back that non-cash charge out of our adjusted non-cash liability. Those are the significant drivers of our EPS and adjusted EPS. Quoting the adjusted numbers only, our Q4 result was a loss of $1.04 per dose, compared to a loss of $1.42 per diluted shot.

Happy to talk a bit more about another solid quarter and wrapping up another great year.

We are already talked a lot about sales so jumping into margins and specifically into our landed product costs. We had 110 basis point improvement in this area in the quarter driven by lower landed product cost for the product, we import compared to last year, and ultimately better ex factory margins and a more favorable product mix.

John L. Kimble: Earnings of $4.62 per diluted share represents an increase over the $4.29 per share record. For adjusted EBITDA, we finished at $75.7 million, a bit below last year's $4 million, but nonetheless, the result we were extremely happy with. The last time we had back-to-back years at this level of EBITDA was well over a dozen years ago. Balance sheet highlights are cash, cash equivalents, and restricted cash totaled $7ty two point six million dollars as of February 12th, down from $85.5 million in the prior year, but one needs to consider that we eliminated $67.2 million in long-term debt with cash flow. As of February 16th, the same cash metric totale

That brought our full year cost of goods down to 59% of net sales.

On a full year basis, thats, two to $100 to 400 basis points better than these results over the past five years and an unsung accomplishment within our financial results.

On a constant narrative in our organization to try to ensure we can maintain this level of cost of goods efficiency is it's clearly a key driver of our strong results.

We gave back 60 basis points on the royalty line for the full year.

Most of that difference was driven by our running into minimum royalty guarantee issues and some of our international markets.

Guarantees are effective life and most royalty agreements, we will always look to optimize rate versus guarantee level, where we can where sometimes means the effective rate ends up being a bit higher than originally planned.

That has been the case with a couple of agreements recently and is not anything we are overly concerned about going forward.

We would expect this area to be relatively stable as we head into the new year, if not an area, where we can scrape back some basis points ideally.

John L. Kimble: Please see the complete disclaimer at https://sites.google.com or at www.google.com. Similar to other players in the space, we deliberately have been working on owned inventory to better align with customer demand and proactively manage capital. It's also worth noting that we continue to encourage the FOB model, most beneficial to our customers and ourselves in delivering the right price value. Our FOB sales mix exceeded 70% on a total company basis, another great result. Finished Goods Inventory finished at $52.6 million, a 35% reduction from last year. And now, back to Stephen for some more...

Our direct selling costs were up in the quarter and on a full year lower volume and inventory levels means some loss of scale as it relates to our warehousing expense.

Increased international sales generate higher outbound freight costs as we're responsible for delivering product directly to customers.

In the area of G&A expenses, there are a couple of different dynamics, taking place and we are not immune from the broad narrative that most cost areas are increasing more than not over the past couple of years inclusive of labor.

Although that is motivating a persistent review of how and where we're spending it is nonetheless challenging to keep the cost base flat given how labor driven attempts to be.

But in addition, we're also taking the opportunity to make improvements in areas like technology, cyber security and selectively upgrading the organization for the medium term.

And to be clear that commentary independent of how we've talked about building out our European and Latin American footprint to accelerate growth in those markets.

Nonetheless, with dollar costs up across SG&A, we still finished the year with an operating margin of eight 3% the highest level we've achieved in 15 years.

We're down less than $2 million in operating income on over $80 million and fewer sales.

We're going to score that is a good outcome as far as we're concerned.

Moving on to taxes last year at this time, we had a significant valuation allowance release against deferred tax assets, which required a lot of analysis of our 2019 through 2022 returns.

Over the past several months, we have decided to conduct a more rigorous assessment of that analysis, which we are finalizing as part of our Q4 close this year.

Stephen G. Berman: Although that backdrop doesn't make doing solid business easier for anyone this year, we do feel we are better set up for success than most. Our focus on tried and true evergreen play patterns, brands, and categories serves us well in times like these. These are the businesses that often float to the top of the market's priority list when there's nothing being crowded out by some of the large, one-off promotional events or activities. The preschoolers of today are not studying an entertainment calendar or bemoaning the lack of the July 4th temple.

That further review has identified an increase in net operating losses or Nols that the company will be able to utilize going forward.

We've adjusted that one time pickup out of our adjusted EPS results.

Other housekeeping the.

The change in fair value of our preferred stock liability was an increase of $1 4 million in the quarter, we back that noncash charge out of our adjusted non-GAAP results.

Those are the significant drivers of our EPS and adjusted EPS results quoting the adjusted numbers only our Q4 result was a loss of $1 four per diluted share compared to a loss of $1 42 per diluted share last year on a full year basis, our earnings of $4 62 per diluted share representing an increase over the four dollar.

And <unk> 29 per share we recorded in 2022.

For adjusted EBITDA, We finished at $75 7 million a bit below last years $76 $4 million, but nonetheless, a result, we're extremely happy with the last time, we had back to back years that this level of EBITDA was well over a dozen years ago and the pre frozen era.

Stephen G. Berman: They are still going to birthday parties or longing for shopping trips to brick and mortar retail. And it's on the shelf at retail that we continue to offer a strong and wide array of sub $30 price point toys that deliver fun and innovation for the recipient and happiness and satisfaction for the gift giver. With that view, we are once again set up for a solid year. But that's not to suggest that we are immune to the larger dynamic.

As of February 16th the same cash metric totaled $47 5 million.

More current reference point as we have completed pay in Q4 royalties owed and have begun investing in 2024 product.

Similar to other players in the space, we deliberately have been working down owned inventory to better align with customer demand and proactively manage working capital. It's also worth noting that we continue to encourage the fob model as being most beneficial to our customers and ourselves in delivering the right price value for retailers and consumers are fob sales mix exceeded 70%.

On a total company basis in 2023, another great result of the team's efforts.

Our finished goods inventory finished at $52 6 million.

A 35% reduction from last year's $86 million and now back to Stephen for some more comments about the year ahead.

Thank you John.

We're already two months into yet another interesting year in our industry for the fifth consecutive Q1, we find ourselves wondering about the outlook for the economy and more specifically the applications for the average consumer.

Although that backdrop doesn't make doing solid business easier for anyone. This year. We do feel we are better set up for success more than most our focus on tried and true evergreen play patterns brands and category serves us well in times like these.

These are the businesses that often float to the top of the market's priority list when theres nothing being crowded out by some of the large one off promotional events or activities.

Stephen G. Berman: The film tells us the next chapter in the world of Moana, the successful 2016 film. We chased a man when the original Moana film exceeded commercial expectations, and it has been a consistent seller for us ever since. We will have a new focus line of products inspired by the film on shelf in Q4. And separately, we are also excited to be enjoying three new pieces of entertainment in the world of Sonic the Hedgehog. First up is Season 3 of Sonic Prime, which released in mid-January on Netflix. Second, is the Knuckles show which was featured during the Super Bowl and is launching in late April on the Paramount Plus streaming platform. It is set after the second film but prior to Sonic the Hedgehog 3, the third film in the Sonic the Hedgehog franchise, which is launching in theaters in December of this year.

Not to suggest that we are immune to the larger dynamics over the past two springs, we have greatly benefited from high product lines driven by blockbuster April film releases driving sales tied to the movie as well as supporting the expanding our year round business for those brands.

Those are difficult numbers to replace.

In a business like our costume business is often led by the latest blockbuster films and a relatively light volume this year it tends to lead to a somewhat softer overall business.

Stephen G. Berman: The team has developed custom product lines for Sonic Prime and the film, in addition to refreshes and extensions of our successful Core Sonic the Hedgehog toy and costume assortment. Moving to Disney Princess, we will benefit from two Disney global marketing campaigns this year: Spark of Joy, celebrating the joy Disney brands and stories bring to families all over the world, and Create Your World. A three-year Disney Princess brand campaign launching this fall celebrates the magical world you would create through the Disney Princess brand and the world of products.

But as often reminding our internal teams. That's just how the world of business works, you must adapt and do the hard work to compensate if your underlying goal is to deliver consistent predictable results, which is our primarily financial objective here at Jack's without foundation. There are large number of things we're excited about.

As we head into the new year, although admittedly many of them are anchored a bit more towards the second half.

From a content perspective, we are delighted to hear the news that Disney plans to release more wanted to in theaters. This holiday season.

The film tells US the next chapter in the World of Moana Theyre successful 2016 film.

We chased demand when the original Moana film exceeded commercial expectation and it has been a consistent seller for us ever since we will have a new focus line of products inspired by the film on shelf in Q4 and separately. We are also excited to be enjoying three new pieces of entertainment in the world of Sonic the Hedgehog.

First up is season, three on Sonic Prime which released in mid January on Netflix.

Stephen G. Berman: We have been collaborating on a wide range of products that will slot into our division as well as expand the scope of our offering. We've been working on an iconic assortment of their properties, names like Element, Quicksilver, Roxy, Juicy Couture, Sports Illustrated, and Prince, just to name a few. We have completed the initial fall 2024 retail presentations at both Mass. Target, Walmart, and Amazon and sporting goods channels such as Dick's Sporting Goods, Academy, Dunham's, Shields, as well as specialty international retailers.

Moving to Disney Princess we will benefit from two Disney Global marketing campaigns. This year spark of Joy celebrating the Joy Disney brands and stories breakthrough families all over the world.

And create your world a three year Disney Princess brand campaign launching this fall celebrated the magical world you would create through the Disney Princess brand and the world of products JAKKS toys will be featured throughout that campaign.

Since last quarter. We also made great progress sharing our new Simpsons line with retailers around the world.

Stephen G. Berman: The brand's global reach was proven during the recent Nuremberg Toy Fair, where it was met with excitement from our international customers. We are extremely excited to be rolling out our new line of skateboards and roller skates with amazing new designs for Element, Roxy, Quicksilver, and Juicy Couture at specialty and mass retailers both in-store and online. In 2025, JAKKS will be launching a complete line of outdoor products, including chairs, umbrellas, canopies, beach accessories, inflatable pool floats, sand and splash mats, foldable wagons, and an extensive line of dolls and doll accessories infused with fashion elements from Roxy, Quicksilver, Forever 21, Prince, and Sports Illustrated. As we said separately, we think the U.S. holiday market is still trying to calibrate where consumer demand is post-COVID, with customers dialing their annual buys up and down as they jockey for market share.

New episodes of season 35 began to air earlier this month and theses of 36 is projected to debut in September the average watch on this property are just incredible.

Can't wait for fans to see our range specifically the figures in dire ammers featuring characters and locations from the show.

Then over 15 years since a Simpson toy range has been in the market and we are thrilled to make them available, we announced and disclosed last quarter. The starting of a worldwide relationship with authentic brands group.

AVG is a brand powerhouse with a wide portfolio of IP, which has mass appeal to millennials Gen Z and Gen Y we.

We have been collaborating on a wide range of products that will slot into our division as well as expand the scope of our offerings.

We've been working on iconic assortment of their properties names like element quick silver Roxy Juicy Couture sports illustrated and France, just to name a few.

We have completed the initial fall 2024 retail presentations at both mass such as target Walmart and Amazon and sporting good channels, such as Dick's Sporting goods Academy Dunham Shields, as well as specialty international retailers. The brand's global reach was proven during the recent nurenberg toy.

Stephen G. Berman: In addition, many other manufacturers in the space continue to struggle, creating additional noise in the market. We do have the rights to several new films this year, including Sony's Ghostbusters. Frozen Empire, Illuminations Entertainment, Despicable Me, Embassy Universal's Wicked and Kung Fu Panda 4, in addition to our strong evergreen licensed IP portfolio from Disney Princesses to Lilo and Stitch. Nintendo, Sonic, Pokemon, Halo, and Minecraft, just to name several.

Fair being met with excitement from our international customers.

In 2025, JAKKS will be launching a complete line of outdoor products, including chairs and relative canopies feature accessories inflatable pool floats Sanders flashbacks foldable wagons, and the extensive lines of dolls and dollar accessories infused with fashion elements from Roxy Quicksilver forever.

Stephen G. Berman: We're also continuing to add additional rights where we have U.S. rights as our capabilities outside the U.S. steadily build and build. Nurnberg was a great show for Disguise as we continue to have separate booths to present the product line. There are a couple of interesting new businesses queuing up for 2025, which we look forward to telling you about in the quarters to come. As we always have a lot of different things going on, there is one more important thought I wanted to share. 2024 commences our 30th year in business at JAKKS Freeman and I founded JAKKS Pacific back in January 1995, 29 years ago. Those who have known us over the years during our various ups and downs know that it has truly been a remarkable journey so far.

'twenty, one prints and sports illustrated.

Several new films this year inclusive of Sony's Ghostbusters.

Frozen Empire Illumina.

Illumination Entertainment Despicable me.

<unk> Universal's Wicked and Kung Fu Panda four in addition to our strong evergreen licensed IP portfolio from Disney Princesses, too low and stitch, Nintendo Sonic Pokemon Halo Minecraft Jets the name several.

We're also continuing to add additional rights, we have U S rights as our capabilities outside the U S steadily build and build.

Nurenberg was a great show for disguise as we continue to have separate booths to present the product lines.

2024 commences, our 30 year end business at Jack Brennan and I founded JAKKS specific back in January 1990, 529 years ago, those who have known us over the years during our various ups and downs no that has truly been a remarkable journey so far.

Operator: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

The past five years have created their own remarkable chapter as we work through our 2019 as restructuring navigated through peak Covid in 2020, and subsequently have put up three tremendous years of results across 2021, 2022 and 2023.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Uerkwitz with Jeffries. Your line is now open.

We are extremely proud of our performance. During this time, but are only looking forward towards another year that whenever we've proved challenging but we feel is still filled with major opportunities.

Andrew Paul Uerkwitz: Hey, thank you. Thank you guys for taking my questions. Stephen, I have a kind of a question for you. I really appreciate the color on kind of talking about the movie Slate and the impact that could have. Are there any specifics?

Again for your support and interest and with that we'll take a couple of questions operator.

Thank you as a reminder to ask a question. Please press star one on your telephone and wafer.

Andrew Paul Uerkwitz: Could you talk generally about the impact it has on consumers? Is it lower sales because they're going to the store less? Is it just the property?

Yeah.

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

Andrew Paul Uerkwitz: I'm just kind of thinking through it. There are still birthday parties to buy for. There's still a holiday to buy for, so I'm just trying to think of the impact that it might have directly on JAKKS, um, You know, just kind of or any kind of like maybe it impacts Halloween, just trying to get a sense of what the real driver here is against the consumer when you have a weaker movie slate. Firstly, thank you, Andrew.

Please standby, while we compile the Q&A roster.

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

Hey, Thank you. Thank you guys for taking my questions, Steven I think kind of <unk>.

<unk> for you I really appreciate the color on kind of talking about the movie slate and the impact that could have are there specific.

Could you just talk generally about the impact it has on our consumers is at lower sales because they're going to the store less.

Stephen G. Berman: So we've had this, you know, throughout the periods as JAKKS and being in the industry, what it normally does when you don't have any, call it real hot, overall toy-rific properties. There could be some great movies, but they may not be, in a sense, merchandisable as well, but in our world, like Frozen or Mulan or things like that are toy-rific. So what that does is it's just the excitement of the consumer driving them into the retail and going to buy something that's hot isn't there, and when they come in, they're buying something hot; they usually always acquire additional products on an impulse basis. So by not having such really hot theatrical or even TV initiatives this year, it's really back to the basics, which is the positive for us, that's our core concept of JAKKS, which is an evergreen basic brick-by-brick business, and when something hot comes along, we run, chase it, but we never bet on it, you know, to ensure our year.

Is it just they're just not.

The property.

Thinking through Theres still birthday parties to buy four or are there still holiday to buy four so I'm just trying to think the impact that it might have directly on Jack's.

Just kind of any color maybe it impacts.

Halloween just trying to get.

<unk>.

What the real driver here is I guess, the consumer when you have a weaker movie slate.

Thank you Andrew.

So we've had this throughout the periods as Jackson.

Industry, what it normally does when you don't have any call. It real hot overall toy riffing properties, there could be some great movies, but they may not be in a sense.

Merchandise will as well, but at our ROIC of frozen moana or things like that are <unk>. So what that does is it just the excitement of the consumer of driving them into the retail and going to buy something that's hot.

And when they come in thereby something hot they usually always acquire additional products.

On an impulse basis, so by not having such a real hot theatrical or even TV.

Stephen G. Berman: So for example, we have, Today we are just finished off an amazing meeting with one of the large Retailers in the sporting world with our new authentic initiatives that we're going to be launching in 2024 that we didn't expect until next year to launch some of these things in addition We have a movie that we're really excited about we've had great track records with it in the past is the new Moana movie Which is coming out so there are some excitements as well as the sonic excitement But those things are happening later in the year, and there's really not any major Consumer selling product movies that are happening you know for the first half or even in the first three quarters of the year So you got to think of core evergreen businesses that really do well so our basic tents ball pits ride-ons Nintendo Sonic the Simpson line, which is new you know Simpsons has been around 30 something I've got that how many years it's over 35 years That it's the first time there's product coming out in 15 years of the Simpsons so even though. It's not a new launch of a Brand new call it IP. It's a strong IP.

Initiatives. This year, it's really back to the basics, which is positive for us that's our core concept of jacks as evergreen basic brick by brick business as something Hot comes along we run chase it but we never bet on it too is to ensure our year. So for example, we have.

Today, we are just finished up an amazing meeting with one of the large.

Retailers in the sporting World with our new authentic initiatives that we're going to be launching in 2024 that we didn't expect until next year to launch some of these things. In addition, we have.

Moving that we're really excited about because we've had great track records with it in the past is the new Moana movie, which is coming out. So there are some excitement as well as the sonic assignment, but those things are happening later in the year and Theres really not any major call it consumer selling product movies that are happening.

For the first half or even in the first three quarters of their so you guys think of core evergreen businesses that really do well so our basic.

<unk> ball pits ride ons, Nintendo Sonic the Sympson line, which is new.

Simpson's has been around the 30, something I forgot how many years of over 35 years.

Stephen G. Berman: That's evergreen, so for where we stand, We're very solid, but there's just nothing great that's coming out that is going to push the industry into these high levels of excitement. Got it. No, that's super helpful.

It's the first time, there is product coming out in 15 years of the Simpsons, So even though it's not a new launch.

Of.

Brand new call. It IP, it's a strong IP that's evergreen so.

Where we stand we're very solid, but there's just nothing great thats coming out that is going to push the industry into these high levels of excitement.

Got it that's super helpful.

That's really helpful and speaking of kind of in the back half of the year aside from the Sonic and Simpsons. Some of your outdoor initiatives will we see some of that as well or because its outdoor that's more of a 25 initiative just trying to frame some of these new license deals.

Stephen G. Berman: So the ABG seasonal, I'll use that because we have other seasonal properties that are really kid-focused, you know, the PAW Patrols and the ball pits and tents and ride-ons. But the ABG, as I just mentioned, our team has flown back from a major sporting goods retailer, and they have full commitments, a broad array of commitments on the skateboard, roller skates, and the element safety equipment. And we have been on the road since Nuremberg, and the team has been on the road doing retail roadshows. So we expect to have the skateboards and seasonal business that I just mentioned in the fourth quarter or third quarter, and then spring, which launches in December, January, February, and March. That's when we expect all the tents, the carriages, the chairs, the Quicksilver and Roxy, all to come out, which will be for summer 25.

So the the AVG seasonal our views that because we have other seasonal properties that are really focused.

<unk> controls in the.

Safety equipment, and we have been on the road since Nurenberg and the team has been on the road marketing retail roadshow. So we expect to have.

With skateboards and seasonal business that I, just mentioned and fourth quarter third quarter lodging and then spring which launches in December January February March that's when we expect all of the tense. The carriage is the chairs of Quicksilver and Roxy I'll have to come out, which it will be for summer 'twenty, five, but the skateboards or real estate.

Stephen G. Berman: But skateboards and roller skates are getting some really good grasp at retail. We expect that to happen in fall this year. But on the other parts, we still have like Sonic Prime, Netflix, which came out in January, Knuckles, which comes out on Paramount Plus in April, Sonic 3, the movie in December, The Simpsons, Moana. We have a big global marketing campaign with Disney with Spark of Joy and Create Your World's Disguise. There's an Afro Unicorn.

Are they are getting some really good.

Grasp at retail, we expect that to happen at fall this year, but on the other parts, we still have like Sonic Prime Netflix, which came out in January Knuckles, which comes out Paramount plus April Sonic three of the movie in December the Simpsons Moana, we have a big global marketing campaign with Disney was spark of Joy and creating a world the skies.

After a unicorn, we have Nintendo and Kirby bended ink machine Dungeons and Dragons here Theres a lot of the content and IP that we've launched but there is just something that that is a tentpole movie, excluding Nick and Thats.

Stephen G. Berman: We have Nintendo and Kirby, Bendy and the Ink Machine, Dungeons and Dragons, there's a lot of content and IP that we've launched, but there's just something that doesn't come as a tentpole movie excluding Sonic and Moana too. Got it. That's super helpful.

Moana two got it.

Andrew Paul Uerkwitz: I appreciate all that color, and good job getting some of those new initiatives out sooner rather than later. Thank you.

That's super helpful.

I appreciate all that color and good job getting some of those new initiatives out sooner than later.

Thank you that was a big old press.

So I think that.

Great.

And then and then it kind of just how should I, how should we frame the international opportunity.

I know there is the overall global weakness, but I mean, I would think with some of the international initiatives you guys might actually be up year over year on an international geography basis is that one is that right.

Stephen G. Berman: Is that the right way to think about it? Or how should we kind of frame the international opportunity? So we've been out there, and I'm going out there again shortly in the next couple of weeks. The big initiative is that we opened up our new distribution center in Piacenza, Italy, and our new offices in France, and a new distribution center in Belgium, which is going to help get into all the ancillary territories that are hard to get to. But remember, we're primarily an FOB-based business. That being said, if you saw how much our Latin America growth has increased, we were up for vendor of the year at Walmart Mexico, I think Whirlpool won over us.

Is that the right way to think about it or how should we kind of frame the international opportunity yes.

Yes, so we've been out there going after again shortly in next couple of weeks the Big initiative as we opened up our new distribution center in.

Italy in our new offices in France, and our new <unk>.

<unk> Center in Belgium, which is going to help get into all the ancillary territories that are hard to get to but remember we're primarily fob basis does this that being said if we if you sell how much our Latin America growth.

Has increase we were up for vendor of the year at Walmart, Mexico, I think whirlpool widened above us so the big initiatives our expansion in the way that you are articulating ended up seeing growth internationally, we do expect some tremendous growth in certain areas and some of moderate but it's too early for us to say right now as we stand worthy.

Stephen G. Berman: So the big initiative is our expansion, and the way that you're articulating it, I've seen growth internationally. We do expect some tremendous growth in certain areas and some moderate growth, but it's too early for us to say right now where that growth will be, but we do see strong momentum. We're coming from a lower base as well, which makes it easier for us to achieve growth. There are a lot of new initiatives that we have that work worldwide, from the ABG releases that we have to Simpsons worldwide, and Moana, too.

That growth will be but we do see strong momentum.

We were coming from a lower base as well, which is easier for us to achieve growth. There's a lot of new initiatives that we have that work worldwide from the AVG.

The releases that we had to Simpson this worldwide, but wanted to so there's a lot of things that we didn't know November December that we know today that should help us and then our basic evergreen business and new licenses with the Sky should help us with the director retail approach. So we're looking forward to seeing that but we'll know more once we get all of these costs.

Stephen G. Berman: So there are a lot of things that we didn't know in November and December that we know today that should help us, and then our basic evergreen business and new licenses with the Sky should help us with the direct-to-retail approach. So we're looking forward to seeing it, but we'll know more once we get all these toy fairs and meetings completed. Got it. That's helpful.

Fares and meetings completed.

Got it that's helpful. And then I guess one question for John on the cost side.

Andrew Paul Uerkwitz: And then I guess one question for John, on the cost side... Because you're FOB, should we worry at all about the rising cost of shipping at all, or how should we think about the kind of pushes and pulls there as we get through the year? You know, I think we're always going to be mindful of things that could go a bit sideways, but to your point, given our heavy focus on FOB, it's not really a top-five concern for us, I would say, at the moment. The issues as it relates to Europe are more problematic, and the more shipping gets disrupted to Europe, if you think about it, that just means more time that ships are on the water, taking a longer time to get somewhere, and therefore draining capacity out of the system, even if what we are focused mostly on is the Asia to L.A. route.

Because your F O B should we worry at all about the rising cost of shipping at all or how should we think about.

The pushes and pulls there as we get through the year.

I think we're always going to be like mindful of things that could go a bit sideways, but to your point given our heavy focus on fob.

It's not really a top five concern for us I would say at the moment.

The issues as it relates to Europe are more problematic than the more shipping gets disrupted to Europe. If you think about it that just means more time. The ships are on the water, taking a longer time to get some players and therefore like draining capacity out of the system even if.

We're focused mostly on is the Asia La route.

John L. Kimble: So, you know, we're continuing to keep an eye on it and monitor it. Obviously, we worked on our inventory a lot, as a lot of people did towards the end of the year, which means bringing in more product this year is... something that we're going to have to do at least in order to be able to deliver some of the sales that we want. But, like I said, it's probably not a top concern at the moment. Got it. Okay.

No.

Something that we're going to have to do.

At least in order to be able to deliver some of the sales that we want but I don't think it's.

Like I said, it's probably not top concern at the moment.

John L. Kimble: And then I guess the last question then is that it looked like 23 was kind of a big discounting year for a lot of your competitors. How are you thinking about discounts in 2024? It feels like inventories are finally normalized, but even last fall, they were normalized. However, we still saw some discounting. Just curious what you think about discounts and where the right price points are going to be this year. I know you guys tend to be in that sweet spot of below 30, but just curious how you see 2024 playing out on a price point basis.

Got it Okay and then I guess last question then is that it looks like 23 was kind of a big discounting near for a lot of the lot of your competitors.

How are you thinking about discounts in 2024.

It feels like inventories are finally normalize, but even last fall there were normalized we still saw some discounting.

Just curious.

What's your thinking about discounts in that.

The right price points are going to be this year I know you guys tend to be on that sweet spot of below 30, but just curious how you see 24, playing out on a price point basis.

Andrew Paul Uerkwitz: So on the, call it the inventory level, I think everyone, it seems that the majority of the people in our industry have gotten cleaned up with inventory, but speaking specifically about JAKKS, we are pretty clean on inventory. We always have a little bit of obsolete stock throughout the years, and as John just mentioned, we got pretty low on inventory, so we wanna refresh it with all good products, which is a great place to stand. But that being said, the majority, as you mentioned, our sweet spot is under 30, and even during the holidays, I think over 85% of our products are under $50.

So on.

On the.

Cause the inventory level.

Seems that majority of the people in our industry have gotten cleaned up with inventory, but speaking specifically on on Jack's.

We are pretty clean on inventory, we always have a little bit of obsolete throughout the years and as John just mentioned.

Got pretty low on inventories. So we wanted to refresh it with all good product, which is a great place to stand.

But that being said the majority as you mentioned, our sweet spot is under 30 and even during the holidays I think it's over 85% of our products are under $50.

Stephen G. Berman: So that really is a sweet spot for the difference of the consumer being slightly weaker or very much unknown. We've had for the last six years a complete structure of doing three parts development, which is mass, specialty, and then value. So we are really ancillary in all the different distribution channels that we're heading into. And we hit the consumers where they stand financially. In addition to that, the evergreen areas of our business are just very steady Eddie in what we do. So we're not concerned with the inventory and that part, but I do believe when you close that inventory, you do hit margins somewhat. So I think that is still part of everyone's business, but for us, it's a minimal part of our business.

When you close out inventory you do hit margins somewhat so I think that is still part of everyone's business, but for us its a minimal part of our business.

Andrew Paul Uerkwitz: Got it. Very helpful, gentlemen, and I appreciate you taking the time to answer my question. Thank you. Thank you, Andrew. I'd now like to hand the conference back over to Stephen Berman for closing remarks. Well, it's great to have the first call of the year now and excited to talk about this year going into the first quarter and beyond, and we're excited for JAKKS. We're excited for this year. We're excited for 25 and looking forward to giving an update after the first quarter.

Got it very helpful gentlemen.

I appreciate you taking my questions.

Thanks, Andrew I would now like to hand, the conference back over to Stephen environment for closing remarks.

Great to have the.

First call of the year now.

And excited to talk about this year and going into first quarter at above and we're excited for JAKKS. We're excited for this year. We're excited for 25 and looking forward to giving an update after first quarter. Thank you everybody.

Stephen G. Berman: Thank you, everybody. This concludes today's conference call. Thank you for your participation. You may now disconnect.

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

Q4 2023 JAKKS Pacific Inc Earnings Call

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