Q1 2025 JAKKS Pacific Inc Earnings Call

Okay.

Operator: Good afternoon, everyone. Welcome to the JAKKS Pacific First Quarter 2025 Earnings Conference Call with Management, who will review financial results for the quarter ended March 31st, 2025. JAKKS issued its earnings press release earlier today.

Good afternoon, everyone and welcome to the JAKKS Pacific first quarter 2025 earnings conference call with management, who will.

Review financial results for the quarter ended March 31st 2025.

JAKKS issued its earnings press release earlier today.

Operator: The earnings release and presentation slides related to today's call are available on the company's recently remodeled website in the Investor section.

The earnings release and presentation slides related to today's call are available on the company's recently remodeled website in the investors section.

Operator: 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 and full fiscal year, along with highlights of recent performance and current business trends.

Speaker Change: On the call. This afternoon are Stephen Berman, Chairman, and Chief Executive Officer, and Don Kimble, Chief Financial Officer.

Speaker Change: Stephen will first provide an overview of the quarter and full fiscal year, along with highlights of recent performance and current business trends then John will provide some additional comments around JAKKS Pacific's financial and operational results missed.

Operator: Then John will provide some additional comments around JAKKS Pacific's financial and operational results.

Operator: 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.

Speaker Change: 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 your question. Please press star one one on your telephone keypad.

Operator: If you would like to be placed in the queue to ask a question, please press star one one on your telephone keypad.

Operator: 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, earnings, and or adjusted EBITDA in 2025, as well as any other forward-looking statements concerning 2025 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 and forward-looking statements.

Speaker Change: 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 earnings and adjusted EBITDA in 2025.

Speaker Change: Well was there any other forward looking statements concerning 2025 and beyond.

Speaker Change: Subject to Safe Harbor protection under Federal Securities laws.

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

Speaker Change: Subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward looking statements.

Operator: 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.

Speaker Change: 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 FCC 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.

Speaker Change: The addition, today's comments by management will refer to non-GAAP financial measures such as adjusted EBITDA.

Speaker Change: Adjusted earnings per share.

Speaker Change: <unk> 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.

Operator: As a reminder, this call is being recorded.

Stephen Berman: With that, I would now like to turn the call over to Stephen Berman. Good afternoon and thank you for joining us. We are pleased to report another quarter of solid performance underpinned by the strength and stability of our operations, our financial discipline, and the resiliency of our business model in an ever-evolving market environment. As reported, our sales were up 26% in the quarter, led by the success of toys from films like Sonic the Hedgehog 3. Dizzy Buona, too. DreamWorks Animation Dogman, as well as increases in many of our Evergreen product lines. We saw growth in Disney Princess, Star Collection, and Frozen, as well as a number of new initiatives that were not in the Q1 portfolio last year.

Speaker Change: Reminder, this call is being recorded with that I would now like to turn the call over to Stephen Berman.

Stephen Berman: Good afternoon, and thank you for joining US we are pleased to report another quarter of solid performance underpinned by the strength and stability of our operations, our financial discipline and the resiliency of our business model.

Speaker Change: In an ever evolving market environment.

Speaker Change: As reported our sales were up 26% in the quarter led by the success of Toysrus films like Sonic the Hedgehog III.

Speaker Change: Does he wanted to.

Speaker Change: Dreamworks animation dog man as well as increases in many of our evergreen product lines, we saw growth at Disney Princess style collection and frozen as well as the number of new initiatives that were not in the Q what portfolio last year.

Stephen Berman: Globally, our dolls role-play dress-up business shipped $55.5 million, a 37% increase versus the prior year. Action Play and Collectibles shipped $42.9 million, an increase by $30 percent. North American total was 25% ahead of the prior year, with international up 29%. Our 34.4% gross margin is an excellent result for any quarter, but particularly Q1. Higher volumes associated with successful new releases as well as new product launches increase product margins significantly. We also benefited from higher quality inventory at retail and in our warehouse. In addition, we continue to scrutinize where and how we are spending to offset unavoidable increases.

Speaker Change: Globally, our dolls role play dress up does this shipped $55 5, billion% to 37% increase versus the prior year.

Speaker Change: Playing collectible shipped $42 9 million.

Speaker Change: Kris by 30%.

Speaker Change: North American total was 25% ahead of the prior year with international up 29%.

Speaker Change: Our 34, 4% gross margin is an excellent result for any quarter, but particularly Q1.

Higher volumes associated with successful new releases as well as new product launches increased product margins significantly.

Speaker Change: We also benefited from higher quality inventory at retail and in our warehouses.

Speaker Change: In addition, we continue to scrutinize, where and how we are spending to offset unavoidable increases.

Stephen Berman: In total, SG&A was up 1% for the quarter globally, an increase of less than $500,000. Those are the key drivers that contributed to an adjusted EBITDA number for the quarter, which is just above break-even at $400,000.

Speaker Change: Total SG&A was up 1% for the quarter globally, an increase of less than $500000.

Speaker Change: Those are the key drivers that contributed to an adjusted EBITDA number for the quarter, which is just above breakeven at $400000.

Stephen Berman: Again, it's a small quarter, but as it's only the second positive first quarter IBADA we have had in the past 15 years, we're extremely pleased with the performance.

Speaker Change: Again, it's a small quarter, but as its only the second positive first quarter EBITDA. We have had in the past 15 years, we're extremely pleased with the performance.

Stephen Berman: At JAKKS, we currently have a lot of strong opportunities for 2025 and beyond, but we'll be taking a very cautious view until the tariff issues definitively resolve. We have been working with our factory network to selectively hold some goods that were developed to ship to the U.S. so they could be available should import costs reduce substantially. In the meantime, we are aggressively pushing forward to generate additional international shipment opportunities. Teams are engaging customers across the UK, Western and Eastern Europe, Asia Pacific, and Latin America. We know we have the right product portfolio to achieve higher sales and incremental margin.

Speaker Change: At Jax, we currently have a lot of strong opportunities for 2025 and beyond but it will be taken a very cautious view until the tariff issues resolved.

Speaker Change: We have been working with our factory network to selectively hold some goods that were developed to ship to the U S. So there could be available should import costs reduced substantially.

Speaker Change: In the meantime, we are aggressively pushing forward to generate additional international shipment opportunities team.

Speaker Change: Teams are engaging customers across the U K, western and Eastern Europe, Asia Pacific and Latin America.

Speaker Change: We know we have the right product portfolio to achieve higher sales and incremental margin. So are you looking to take advantage of any hesitancy that exists around the U S market to further accelerate our international growth plan.

Stephen Berman: So we're looking to take advantage of any hesitancy that exists around the U.S. market to further accelerate our international growth. In addition, we currently have healthy domestic inventory positions, both in the U.S. and selectively internationally.

Speaker Change: In addition, we currently have healthy domestic inventory positions both in the U S and selectively internationally.

John Kimble: I'll now pass it over to John for some more details on the financials, and then I'll come back to elaborate a bit more about the quarters ahead.

I'll now pass it over to John for some more details on the financials and then I'll come back to elaborate a bit more about the quarters ahead John.

John Kimble: Thank you, Stephen.

John Kimble: And hello, everyone. A nice first quarter for us, as Stephen has highlighted. Results were pretty much in line with our expectations. We had a few million dollars worth of sales that might have otherwise found their way into Q2. But generally speaking, we didn't see customers pivoting to try to forward buy, and similarly, we were not stockpiling inventory. Our business model, and to some extent the industry broadly, wants to keep money tied up as product for as short of a period of time as possible, starting with raw material purchasing. So it's not like someone can just turn a dial and make a conveyor belt go twice as fast or whatever one might imagine as it relates to some of these.

John: Thank you Steven and Hello, everyone.

John: A nice first quarter for us as Steven has highlighted.

John: <unk> were pretty much in line with our expectations. We had a few million dollars worth of sales that might have otherwise found their way into Q2, but generally speaking, we didnt see customers pivoting to try to forward buy and similarly, we were not stockpiling inventory our business model and to some extent the industry broadly wants to keep money tied up as product for short.

John: A period of time as possible starting with raw material purchasing so it's not like someone can just turn the dial and make a conveyor belt go twice as fast or whatever one might imagine as it relates to some of these things.

John Kimble: There are a lot of steps and activities designed around maximum asset utilization.

John: There are a lot of steps in activities designed around maximum asset utilization.

John Kimble: The first quarter remains our smallest quarter, but we will run you through the highlights as we see them with that in mind. Gross margin dollars were up $18 million in the quarter versus prior year's Q1. To provide some color and context there, our rough sense of the numbers would be around six million dollars is generated by higher sales in the quarter. Another $6 million is generated by a favorable comparison to last year's abysmal sell-through of Fall 23 product launches. About $2 million is driven by better product margins from new product lines we shipped this year versus what we shipped last year.

John: The first quarter remains our smallest quarter, but we will run you through the highlights as we see them with that in mind.

John: Gross margin dollars were up $18 million in the quarter versus prior year's Q1.

John: To provide some color and context, there are rough sense of the numbers would be around $6 million is generated by higher sales in the quarter.

John: Another $6 million is generated by a favorable comparison to last year's abysmal sell through a fall 'twenty three product launches about $2 million is driven by better product margins from new product lines. We shipped this year versus what we shipped last year.

John Kimble: And the balance, about $3 million, is timing favorability. A little of that is sales-related, and the rest relates to when we flow certain expenses off the balance sheet related to the timing of our importing finished goods into destination markets. Think of it as money is on the balance sheet, it'll make its way through the P&L soon enough.

John: And the balance about $3 million as timing favorability.

John: A little of that is sales related and the rest relates to when we flow certain expenses off the balance sheet related to the timing of our importing finished goods into destination markets.

John: Think of it as money is on the balance sheet it'll make its way through the P&L soon enough.

John Kimble: SG&A was pretty much aligned with our planning as we had a favorable comparison against some specific projects Which were starting to wind down at this time last year that probably helped us out around a couple million dollars in aggregate As Stephen pointed out, adjusted EBITDA for the quarter was $354,000, a notable improvement over the loss of $17.2 million last year. Adjusted EPS was a loss of $0.03 per share, much improved from a loss of $1.09 last year. The share count for that calculation was 11.146 million shares.

John: SG&A was pretty much aligned with our planning as we had a favorable comparison against some specific projects, which we're starting to wind down at this time last year that probably helped us out around a couple of million dollars in aggregate.

John: As Stephen pointed out adjusted EBITDA for the quarter was $354000 a notable improvement over the loss of $17 $2 million last year.

John: Adjusted EPS was a loss of <unk> <unk> per share much improved from a loss of $1 nine last year.

John: The share count for that calculation was 11.146 million shares.

John Kimble: As mentioned in our release, the board has approved a $0.25 per share dividend for the second quarter for shareholders of record as of May the 30th to be paid on June the 27th. On the balance sheet side of things, we're happy to be debt-free and not spending time evaluating covenants and coverage ratios and things like that given the forecasting fog that has rolled out across the U.S. Our unrestricted cash balance at the end of the quarter was $59.2 million compared to $35.3 million at this time last year. A big driver of the difference was the $20 million we paid last year as part of our preferred share buyback.

John: As mentioned in our release the board has approved a 25 cent per share dividend for the second quarter for shareholders of record as of May the 30th to be paid on June 27th on the balance sheet side of things, we're happy to be debt free and not spending time evaluating covenants and coverage ratios and things like that given the forecasting fog that has rolled out across the U S are under.

John: Restricted cash balance at the end of the quarter was $59 $2 million compared to $35 $3 million at this time last year, a big driver of the difference was the $20 million repaid last year as part of our preferred share buyback.

John Kimble: As you would imagine, we are carefully monitoring our working capital given the current disruption to the normal course of business.

John: As you would imagine we are carefully monitoring our working capital given the current disruption to the normal course of business.

John Kimble: We've received some outreach asking our take on what long-term tariffs would mean for our business and the industry at large. Our perspective is that any lasting tariff on import of product is essentially a consumer tax. The cost will be passed along to the consumer in higher retail prices. There is no magic wallet that is going to pay for it. Our industry has already seen too many factories, wholesalers, and retailers go bankrupt over the past 10 years without these additional burdens being in place. With all the players in the industry facing the same cost surge, the medium to longer term fallout would be less product innovation, as the industry is always positioning itself favorably for impulse and widely accessible purchase occasions.

John: We've received some outreach asking our take on what long term tariffs would mean for our business and the industry at large.

John: Our perspective is that any lasting tariff on import of product is essentially a consumer tax the cost will be passed along to the consumer and higher retail prices. There is no magic wallet that is going to pay for it our industry has already seen too many factories wholesalers and retailers go bankrupt over the past 10 years without these additional burdens being in place.

John: With all the players in the industry facing the same cost surge the medium to longer term fallout would be less product innovation as the industry is always positioning itself favorably for impulse and widely accessible purchase occasions.

Stephen Berman: And now, I'll pass things back to Stephen.

Steven: And now I'll pass things back to Steven.

Stephen Berman: Thank you, John. At JAKKS, the foundation of our strength has always been twofold. The depth of the experience within our world-class team and their enduring partnerships we've cultivated with our key stakeholders. These relationships have not only stood the test of time, they have fueled our collective success. John and I recently traveled to Hong Kong to reinforce these relationships in person. Over several days, we met with our exceptional local team and the leadership from more than half a dozen of our most valued factory partners. many of whom have worked alongside JAKKS for decades. These meetings quickly evolved into dynamic, forward-thinking collaborations focused not only on current challenges, but on new opportunities to innovate and grow together.

Steven: Thank you John.

Jack: Jack The foundation of our strength has always been twofold.

Steven: The depth the experience within our world class team and.

Steven: And they are enduring partnerships, we've cultivated with our key stakeholders.

Steven: These relationships have not only stood the test of time, they have fueled our collective success.

Steven: John and I recently traveled to Hong Kong to reinforce these relationships in person.

Steven: Over several days, we met with our exceptional local team and the leadership for more than half a dozen of our most valued factory partners.

Steven: Many of whom have worked alongside jacks for decades.

Steven: These meetings quickly evolved into dynamic forward thinking collaborations focused not only on current challenges, but our new opportunities to innovate and grow together.

Stephen Berman: As a next step to continue this momentum, we are hosting a factory summit next month at our Santa Monica headquarters. This initiative will give our partners direct access to our marketing, design, and product development teams. fostering closer alignment and driving a shared vision of product-level innovation. Beyond that, in addition, it opens the doors to high-level strategic conversation. exploring new business models and long-range growth plans that will propel all parties forward. We have always had a degree of visibility to manufacturing some of our existing product lines outside of China. But historically, our customers have almost always preferred keeping the business in China to secure the lowest possible prices.

Steven: As a next step to continue this momentum we are hosting a factory stomach next but at our Santa Monica headquarters.

Steven: This initiative will give our partners direct access to our marketing design and product development teams phosphate closer alignment and driving a shared vision of product level innovation.

Steven: Beyond that in addition, it opens the doors to high level strategic conversations.

Steven: Flooring, new business models and long range growth plans that will propel all parties forward.

Steven: We have always had a degree of visibility to manufacturing some of our existing product lines outside of China, but historically, our customers have almost always preferred keeping the business in China to secure the lowest possible pricing give.

Stephen Berman: Given recent events, we have accelerated and expanded our exploration of alternative sourcing opportunities. But to be clear, China will always be a key production hub for JAKKS given the specialized capabilities developed over decades. These two points are not in conflict, as it's often the case that it is our current Chinese vendor base which has begun to diversify their manufacturing footprints into other markets in Southeast Asia and beyond. Our improvement in product margin post-recapitalization has in part been driven by our increased selectivity around product lines we bring to the market and efforts to limit SKU... Our focus on opening price points with 50% of our current volume coming from SKUs that historically retail for $29.99 or less.

Steven: Given recent events, we have accelerated the extended our exploration of alternatives sourcing opportunities, but to be clear, China will always be a key production hub for JAKKS, given the specialized capabilities developed over decades.

Steven: These two points are not in conflict as it's often the case that it is our current Chinese vendor base, which has begun to diversify their manufacturing footprint into other markets in southeast Asia and beyond.

Steven: Our improvement in product margin post recapitalization has in part been driven barring increased selectivity around product lines, we bring to the market and efforts to limit our SKU counts.

Steven: Our focus on opening price points with 50% of our current volume coming from S. Skus that historically retail for 29 99 or less serves us well in this environment.

Stephen Berman: serves us well in this environment. We have been active in developing products for the value trade given the emergence of that channel in the U.S. and in Europe, as we discussed on earlier calls. Our rapidly expanding business in Latin America has provided a steady flow of information that is funneling back into our development process to ensure that we are designing the right products with the specific pricing and margin requirements of those customers in that as a base. We are reviewing our entire product portfolio and ensuring that we are getting maximum leverage out of all the work done to date as we anticipate the higher priced items will not have the same level of market demand with substantially higher cost.

Steven: We have been active in developing product for the value trade given the emergence of that channel in the U S and in Europe as we discussed on earlier calls our rapidly expanding business in Latin America has private a steady flow of information that is funneling back into our development process to ensure that we are designing the right products with the spin.

Steven: Ossific pricing and margin requirements of those customers in mind.

Steven: With that as a base, we are reviewing our entire product portfolio and ensuring that we're getting maximum leverage out of all the work done to date as we anticipate the higher priced items will not have the same level of market demand with substantially higher cost of imports.

Stephen Berman: This is a prime example of our unwavering focus on controlling what we can, and doing so with purpose, precision, and partnership. While external forces, like terrorists, remain outside of our control, we continue to advocate strongly alongside our industry peers for their removal. These tariffs are not only punitive, they stifle business potential and divert focus from our true objective. In the meantime, we are adapting with resolve. Substantially U.S. domestic price adjustments are necessary to mitigate the impact, and we are making disciplined decisions about which products to import for the Halloween and holiday season. We are working closely with our FOB customers to navigate these changes and remain firmly committed to our identity as an FOB first company.

Steven: This is a prime example of our unwavering focus on controlling what we can and doing so with purpose precision and partnership.

Steven: While external forces like tariffs remain outside of our control we continue to advocate strongly alongside our industry peers for their their removal.

Steven: These terrorists not only punitive they stifle business potential and divert focus from our true objectives.

Steven: In the meantime, we are adapting with resolve substantially U S. Domestic price adjustments are necessary to mitigate the impact and we're making disciplined decisions about which products to import for the Halloween and holiday season.

Steven: We are working closely with our F&B customers to navigate these changes and remain firmly committed to our identity as an F O B first company.

Stephen Berman: and we are evaluating a range of cost mitigation efforts as it relates to our overhead without jeopardizing the plans we have in place outside of this fiscal year.

Steven: And we are evaluating a range of cost mitigation efforts.

Steven: Thanks to our overhead without jeopardizing the plans we have in place outside of this fiscal year.

Stephen Berman: We have a great lineup of new initiatives at various stages of readiness, set to launch over the next 12 months across all of our divisions. And although we are maintaining a positive, proactive approach to business development, we think it's somewhat pointless to talk about those product-level efforts until this tariff issue is definitively resolved. We remain extremely positive about the long-term prospects and possibilities for our business, and know we will ultimately successfully navigate the current situation over time.

Steven: We have a great lineup of new initiatives at various stages of readiness set to launch over the next 12 months across all of our divisions.

Steven: We are maintaining a positive proactive approach to business development. We think it's somewhat pointless to talk about those product level efforts until this tariff issue is definitively resolved.

Steven: We remain extremely positive about the long term prospects and possibilities for our business and know where ultimately successfully navigate the current situation over time through.

Stephen Berman: Through it all, our path forward is clear. strong partnerships. for active approach and a relentless commitment to excellence. We are well positioned to emerge stronger and remain ready to evaluate and, when appropriate, seize new opportunities.

Steven: Through it all our path forward is clear with strong partnerships.

Steven: Proactive approach.

Steven: This commitment to excellence, we are well positioned to emerge stronger and we remain ready to evaluate and when appropriate sees new opportunities.

Stephen Berman: Lastly, we would like to take the opportunity to congratulate Nintendo. unprecedented switch to pre-sale launch. which speaks to the high quality of Nintendo's IP and Nintendo as a company.

Steven: Lastly, we would like to take the opportunity to congratulate Nintendo.

Steven: The unprecedented switched to presale launch, which speaks of the high quality of Nintendo's IP and Nintendo as a company.

Operator: And with that, we'll take operator. Thank you. As a reminder, to ask a question, please press star one one on your telephone. You will then hear an automated message. letting you know that. you are in the queue. To withdraw your question, please press star one one again and one moment.

Steven: And with that we will take a couple of questions operator. Thank you.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone you will then hear an automated message.

Steven: Letting you know that.

Steven: You're in the queue.

Steven: To withdraw your question. Please press star one again in one moment.

Steven: For our first question.

Eric Beder: And our first question comes from Eric Beder of SCC Research, your line is open. Good afternoon. Congratulations on a strong. Thank you, Eric. Thanks, Eric. I know we're in very uncertain times and you have to live this. following more intensely than we do right now. When I think about it What if the tariff levels stay the same? What are we going to see for the holidays here in terms of product? Are we going to see...

Eric Beater: And our first question comes from Eric Beater of SCC Research. Your line is open.

Eric Beater: Good afternoon, congratulations on a strong start to the year.

Eric Beater: Thank you Eric.

Eric Beater: Eric.

Eric Beater: Alright.

Eric Beater: So yes.

Eric Beater: I know, we're in very uncertain times and you have to witness.

Eric Beater: We're intensely than we do right now in many respects when I think about it.

Eric Beater: What if the tariff levels stay the same.

Eric Beater: What are we going to see for the holidays here in terms of products and are we going to see.

Stephen Berman: You tell us, what is your prediction if we keep this where we are right now, how the holiday season is going to flow in terms of both, I guess, lower end, high end, and kind of the middle end of product? If you're talking about the China tariff of approximately 144%, if that stayed in place through the year, you would just see a lot of lower-priced products at higher prices overall in the United States. put aside outside of the U.S., you would just see a lot of lower-priced products that are just at a higher price through all the major retail chains, and that the value chains, you would actually see the value chains coming in with higher prices at the same time.

Eric Beater: Can you tell us what is what.

Eric Beater: Does your production if we keep this where we are right now how the holiday season is going to flow in terms of both I guess lower end.

Eric Beater: Kind of the middle lender product.

Eric Beater: Well, if you're talking about the China tariffs of approximately 144%.

Eric Beater: If you could if that stayed in place through the year.

Eric Beater: You would just see a lot of lower priced products at higher prices overall in the United States.

Eric Beater: Put aside outside of the U S. You'll just see a lot of lower priced products.

Eric Beater: That are just at a higher price to all the major retail chains and that the value chains, you would actually see the value chain is coming in with higher prices at the same time at the end of the day. The tariffs are going to be affecting the consumer more than anyone that the prices are going to have to be increased.

Stephen Berman: At the end of the day, the tariffs are going to be affecting the consumer more than anyone, that the prices are going to have to be increased to us selling the prices, the retailers themselves are going to increase the price, so at the end of the day, the consumer is the one that's going to be impacted. One of the positive things for JAKKS is that we have an extensive line of over 50% of our company is under $29.99 at retail, and a lot of our products are even lower than that, and we have a very strong value line that across the board that we sell to the value trade in the U.S.

Eric Beater: And the prices of retailers are themselves are going to increase the price. So at the end of the day. The consumer is one that's going to be impacted one of the positive things for <unk> is that we have an extensive line of over 50% of our company is under 29 99 at retail.

Eric Beater: And a lot of our products or even lower than that.

Eric Beater: And we have a very strong value line that across the board that we sell to the value traded in the U S. When.

Stephen Berman: When you sell into Mexico, Latin America, or China, there's different tiers of consumers, and we will utilize those lines, the value lines, to enhance a lower price point for the consumer, but I don't believe and no one believes those tariffs will be at those prices, at those percentages going forward. To mitigate it, we are holding inventory and waiting for a resolve on these tariff issues. We also, at the same time, have moved and have worked with Vietnam, Cambodia, and Indonesia, various areas of manufacturing, and remember, for anyone that's going into these territories, it's usually a Chinese manufacturer, a Chinese vendor that is moving to Indonesia and setting up in Indonesia and Cambodia, so it's not normally going to a manufacturer that is born and raised there.

Eric Beater: When you sell into Mexico, Latin America or in China, there is different tiers of Av.

Eric Beater: Consumers and will utilize those lines value lines to enhance.

Eric Beater: A lower price point for the consumer, but I don't believe and don't want believes those tariffs would be at those prices at those percentages going forward.

Eric Beater: To mitigate it we are holding inventory and waiting for a resolved on these tariff issues. We also at the same time have moved and have always worked with Vietnam, Cambodia in Indonesia.

Eric Beater: Various areas of manufacturing and remember for anyone that's got in these territories, it's usually a Chinese manufacturer of Chinese vendor that is moving to Indonesia, and setting up in Indonesia, and Cambodia. So it's not normally go into a a manufacturer that is born and raised here so ones that are actually.

Stephen Berman: It's the ones that have actually moved there that have the expertise in our field. And I guess, looking internationally, I know historically it's about 20 plus percent of sales, how does this move the needle in terms of, I know it's been a priority for the last, even before TARFs, how does this move the needle there, and where can we think longer term the split might go between U.S. and international? Thank you. Well, we are moving aggressively, as we always have, internationally, and our Latin America business has grown exceptionally, our EMA business has grown exceptionally well, so at this time we are focusing on offsetting any of the risk that we're getting in the U.S.

Eric Beater: <unk> moved there that have the expertise in our field.

Eric Beater: Got it and.

Eric Beater: I guess looking internationally I know historically, it's about 20% of sales.

Eric Beater: How does this move the needle in terms of.

I know it's been an empire.

Eric Beater: <unk> been before tariffs how does this move the needle there and where can we think longer terms, but might go between U S and international. Thank you well we are.

Eric Beater: We're moving aggressively as we always have internationally.

Eric Beater: Latin America business has grown exceptionally.

Eric Beater: EMEA business is growing exceptionally well so at this time, we are focusing on offsetting any of the risk that we're getting.

Stephen Berman: to have our whole teams really focus on the international territories to enhance that market and that profitability that we achieve in those areas. At the same time, we have domestic inventory here that we're utilizing that we've planned early on to bring in inventory to sell to hopefully mitigate some of the pressure of the TARFs. One, we're still selling here, but at the same time we want to aggressively approach internationally as an opportunity for them to get products and for us to be able to expand much quicker in those marketplaces to offset any or some of the impact that we'll have from the TARFs in the U.S.

Eric Beater: The U S to have our whole teams really focused on on the international territories to enhance that market and that profitability that we achieved in those areas at the same time, we havent domestic inventory here that we're utilizing that we've planned early on to bring inventory to sell.

Eric Beater: Well to hopefully mitigate some of the pressure of the tariffs. So we're it's a twofold one we're still selling here at the same time, we wanted to aggressively approach internationally as an opportunity for them to get products and for us to be able to expand much quicker in those marketplaces to offsetting any or some of the impact that will have from the tariffs in the U S.

Eric Beater: Yes.

Stephen Berman: and some of the other places.

Eric Beater: Okay.

Eric Beater: Rob.

Stephen Berman: Are you kind of where you need to be in terms of the infrastructure for, you know, this material focus internationally? Yeah, our team is set up, as we mentioned a year and a half ago, we moved Jack McGrath, our COO there, to be head of international, and he understands the company, he's been with me over 25 years, so the plan in place has been, I'd say, not seamless, but amazingly strong and well, and his efforts with the team that we've built there, and again in Latin America as well, are really outperforming, I'd say, some of our peers in the market, so we're happy with every way we're structured, our distribution centers that we just moved from Rotterdam to Germany, and Italy and Spain, we're really set up well internationally for growth.

Speaker Change: Some of the other places are you kind of where you need to be in terms of the infrastructure for.

Eric Beater: This material focus internationally.

Eric Beater: Yes, we're our team is set up items, we mentioned a year and a half ago.

Speaker Change: Jack Magrath, our CLO there'd be head of international and he understands the company has been with me over 25 years. So the plan in place that's been.

I'd say, not seamless, but amazingly strong and well and his efforts with the team that we built there and again in Latin America as well.

Speaker Change: Outperforming I would say some of our peers in the market. So we're happy with every way restructured or our distribution centers that we just moved from Rotterdam to Germany, and Italy, and Spain, We're really set up well internationally for growth.

Operator: Good luck for the rest of the year. Thank you.

Speaker Change: Great.

Speaker Change: Good luck for the rest of the year. Thank you.

Speaker Change: <unk>.

Eric Beater: Thank you Eric.

Tom Forte: And our next question comes from Tom Forte of Maxim Group.

Speaker Change: And our next question comes from Tom Forte of Maxim Group. Your line is open.

Operator: Your line is open. Great.

Tom Forte: So first off, Stephen and John, congrats on the quarter and best of luck navigating a challenging environment. All right. So Stephen, feel free to punt on any of these. I'm going to ask questions in like four different categories.

Tom Forte: Great. So first ask Steve and John Congrats on the quarter and best of luck navigating a challenging environment.

Speaker Change: Alright, so Steven feel free to punt on any of these.

Tom Forte: I'm going to ask questions and like four four.

Stephen Berman: So the first category is, at the industry level, how should we think about, for the toy industry, cost borne by the consumer, not the supplier, not the company? So in your prepared remarks, you suggested that it all be borne in the consumer. And then second, how should we think about the relative demand curve for toys versus other discretionary items? You made some great comments in the past about. children's birthdays, things of that nature. So I'd appreciate your thoughts on that group. Okay, so... As we've always said, this is JAKKS' 30-year anniversary, and I co-founded it with my partner, and previous to that, we had THQ.

Speaker Change: A different categories.

Speaker Change: So the first category is at the industry level.

How should we think about for the toy industry.

Speaker Change: Costs borne by the consumer not the supplier not the company. So in your prepared remarks, you suggested that it would all be borne in the consumer and then second how should we think about the relative demand curve for toys versus other discretionary items you made some comments in the past about Chile.

Speaker Change: Children's birthdays and things of that nature.

Speaker Change: Your thoughts on that.

Speaker Change: First.

Speaker Change: Okay. So.

Speaker Change: The as we've always said that.

Speaker Change: This is Jackson 30 year anniversary and I co founded it with my partner and previous to that we had THQ. So we've been in this industry I would say probably.

Stephen Berman: So we've been in this industry, I'd say, probably longest as a public company, and we're not recession-proof. Everyone uses the word resilient, and I think that's the case. I do think with the consumer becoming weak and nervous with what's occurring around with layoffs around the board, price increases, and an unsteady economy right now, they still spend on children, but they may not be spending as much. So as we've mentioned before, birthdays, holidays, not just a child's birthday that they have from a parent, but many children go to birthday parties, and they bring something. So with that case, they'll be spending approximately the same dollar amount that they would have, but they're just going to get less, in a sense, of product based off the current tariff issue.

Speaker Change: <unk> as a public company.

Speaker Change: And we're not recession proof everyone uses the word resilient and I think that's the case I do think with the consumer becoming weak and nervous with what's occurring around with layoffs around the board price increases in an unsteady econ.

Speaker Change: Economy right now.

Speaker Change: They still spend on children, but they may not be spending as much. So as we've mentioned before birthdays holidays, not just a child's birthday that they have somewhat apparent but many children go to birthday parties and they bring something so that case there'll be spending approximately the same dollar amount that they would have but theyre just going to get less and a set of <unk>.

Speaker Change: Product based off the current tariff issues.

Stephen Berman: We are really focused on the enhancement of bringing down product costs. We went to China, as I mentioned, myself and John, and worked with our factories for cost-reducing measures, having them give us concessions. At the same time, we're working with our retailers to them to have the least amount of impact as possible, but they all know themselves that they have profitability margins that they have to enhance, and the price at the end of the day is going to go to the consumer as John mentioned in his pre-recorded comments, that it's a tax. So, the way that we look at it is it's going to go to the consumer, and what's going to happen is the highest-priced items, I think, will be the hardest ones to sell into the market or sell through into the market, so we're taking an approach that we have these big items that are vanities and kitchens that we know that the price point this year may be a little bit too intense for the consumer or too high price, so we're doing various versions of a lesser product that will actually give the kids playability and fun, but at a much lesser price.

Speaker Change: We are really focused on.

Speaker Change: The enhancement.

Speaker Change: Of bringing down product cost, we went to China as I mentioned myself.

Speaker Change: And John and I worked with our factories for cost reducing measures.

Speaker Change: Having them give us concessions at the same time, we are working with our retailers to them to have the least amount of impact as possible, but they all know themselves that they have profitability margins that they have to enhance and the price at the end of the day is going to go to the consumer as John mentioned in his prerecorded.

Speaker Change: Comments that its attacks so the way that we look at it is it's going to go to the consumer and what's going to happen is the highest priced items I think will be the hardest ones.

Speaker Change: To sell into the market or sell through into the market. So we're taking that approach that we have these big items that are vanities in kitchens that we know that the price point this year may be.

Speaker Change: A little bit too intense for the consumer or too high priced. So we're doing various versions of a lesser product that will actually give the kids playability and fine, but at a much lesser price to the consumer.

Stephen Berman: to the consumer.

Stephen Berman: Okay, thank you for that, Stephen. So for my next set, feel free to comment on these either at the industry level or company specific. So it's the ability to move manufacturing outside of China, the ability to source items from the U.S., and the ability to launch more products at lower price Okay, so sourcing items in the U.S., in the majority of our businesses, that will not occur. We do have a great relationship with a partner of ours, which is Crazy Art, and they have strong manufacturing in the U.S. that we will be able to utilize for some areas of our business, the tables and chairs, large plastic items. But the capability of doing the majority of our product will not be sourced in the U.S.

Speaker Change: Okay. Thank you for that Steven So for my next set.

Speaker Change: Oh free to comment on these either at the industry level or company specific.

Speaker Change: The ability to move manufacturing outside of China.

Speaker Change: The ability to source items from the U S and the ability to launch more products at lower price points.

Speaker Change: Okay, so sourcing items in the U S.

Speaker Change: And the majority of our businesses.

Speaker Change: That will not occur we do have a great relationship with.

Speaker Change: A partner of ours, which is crazy art and they have been strong manufacturing in the U S that we will be able to utilize for some areas of our business the tables and chairs.

Speaker Change: Large plastic items, but the capability of doing the majority of our product will not be sourced in the U S. It will be sourced and more so in Asia. We have always worked with Vietnam, Cambodia, Indonesia, Mexico, and manufacturing, but again the main hub and the main skill sets are they lie in China. So the chi.

Stephen Berman: It will be sourced more so in Asia. We have always worked with Vietnam, Cambodia, and Indonesia, and Mexico in manufacturing. But again, the main hub and the main skill sets, they lie in China. So the Chinese manufacturers that I mentioned earlier are the ones that are setting up and have set up in Indonesia and the companies that I've mentioned. And we will work with them as we see fit and as their skill sets enhance. So... So, for that, it's really sourcing in China, Asia, I'd call it Mexico at the most for us, and not really much in the U.S.

Speaker Change: Annie's manufacturers that I mentioned earlier are the ones that are setting up and have set up in Indonesia, and the companies that I've mentioned and we will work with them as we see fit and as their skill sets and Hess.

Speaker Change: No.

Speaker Change: So excuse me so for that it's really sourcing in China.

Speaker Change: Asia.

Speaker Change: I'd call it Mexico at the most for us and not really much in the U S. It will be nominal but we have the ability to move around but again the skill sets that are utilized in toys and one of the main things that everyone needs to focus on is the safety requirement that toys have and China has such a clear track record of safety and we.

Stephen Berman: It'll be nominal, but we have the ability to move around. But again, the skill sets that are utilized in toys, and one of the main things that everyone needs to focus on is the safety requirement that toys have. And China has such a clear track record of safety, and we will not take a risk by moving just to move for price barriers. We do need to make sure we have the enhancement of safety for children, and that comes first and foremost before anything.

Speaker Change: We will not take a risk by moving she has to move for price barriers, we do need to make sure. We have the enhancement of safety for children and that comes first and foremost before anything.

Stephen Berman: Any quick comments on lower price points? Lower price points, what we're doing is what we've reviewed with all of our teams is, if you take a look at the different categories which we're in, we're actually enhancing and selling more in our boys action figure area, which has Sonic and Nintendo and Simpsons. We're looking at selling the lower price point figures versus higher price point figures for the time being, due to the price points that will increase, that you're going to get a small, you're going to get much less for your dollars, but you still will have happy play for the children based off the price points.

Speaker Change: Yeah.

Speaker Change: But any quick comments on lower price points.

Speaker Change: Lower price points, what we're doing is what we've reviewed with all of our teams is if you take a look at the different categories, which are in we're actually enhancing and selling more color in our boys action figure area, which has sonic and <unk>.

Speaker Change: Kendo and Simpsons, we're looking at selling these lower price bright figures versus higher price break figures for the time being due to the price points that will increase that youre going to get a small youre going to get much less for your dollars, but you still have happy play for the children based off of.

Stephen Berman: And we take a lot of our valued line that we use in Latin America and we use in Asia that we're now utilizing here in America, that is a value trade line that will enhance the lower price point as needed as much as we can at the major retailers. But normally those value lines are really set for the value trade and the value consumer. Excellent.

Speaker Change: The price points and we take a lot of our value line that we use in Latin America, and we used in Asia that we're now utilizing here in America that has a value trade line that will enhance the lower price freight as needed as much as we can at the major retailers, but normally those value lines aren't really set for the value trade.

Speaker Change: And the value consumer.

Stephen Berman: So two more groups. So you've had an amazing run with licensed film and product tied to that. Sonic being a great example. Dogman crushed it. So how are tariffs impacting visibility on licensing film IP? And is there any silver lining, meaning that maybe others are more nervous and you can take advantage of the opportunity? That's a good question. So we are still very full force on our licensing partnerships, our licensing agreements. We've expanded and extended many of them to date and there'll be, I'm sure, some information flowing this year on licenses that we've achieved and moving forward.

Speaker Change: Excellent that's it to more groups. So you had an amazing run with licensed.

Speaker Change: Film and.

In product tied to that Sonic being a great example.

Speaker Change: Dog man.

Speaker Change: Sure.

Speaker Change:

Speaker Change: Our tariffs impacting the visibility on licensing film IP.

Speaker Change: Is there any.

Speaker Change: The silver lining, meaning that maybe others are more nervous than you can take advantage of the opportunity.

Speaker Change: It's a good question. So we are still very full force on our licensing partnerships or licensing agreements, we've expanded and extended many of them to date and there'll be I'm sure. Some information flowing this year on licenses that we've achieved in moving forward.

Stephen Berman: What we are seeing is there are various companies that are having difficulties at this time due to the tariffs. And when that time comes of opportunistic initiatives, we are looking very much so right now. In some of these bad times is when some really good things can occur. And one of the main things that we are very proud of is we have no debt. We have a lot of liquidity. We have a great facility, bank facility. So during these times, it's a really opportunistic time when people are having difficulties to take that and make it an opportunity for JAKKS.

Speaker Change: We are seeing is there are various companies that are having difficulties at this time due to the tariffs and when that time comes of opportunistic.

Speaker Change: Initiatives, we are looking very much so right now.

Speaker Change: Some of these bad times is when some really good things can occur.

Speaker Change: What are the main things that we are very proud of is we have no debt. We have a lot of liquidity, we have a great facility bank facility. So during these times, it's a really opportunistic time when people are having difficulties to take that and make it an opportunity for Jack So we are aggressively looking at various.

Stephen Berman: So we are aggressively looking at various opportunities with licenses and product categories that we can go after due to some of these companies having a difficult time. And a lot of these companies have debt that they have to work with and it's going to be a little bit harder for them during this process.

Speaker Change: Opportunities with licenses and product categories that we can go after some of these companies, having a difficult time and a lot of these companies have debt that they have to work with and it's going to be a little bit harder for them. During this process.

Stephen Berman: Excellent, and the last one, and thanks for taking all my questions. In a similar vein, is this changing the opportunities from a strategic M&A standpoint, maybe creating some new ones that weren't around a couple months ago? I would say yes, we are getting quite a bit of reach from banks and individuals of opportunities. I think this time it's scaring a lot of companies that have gone through the COVID issue and now they're going through the tariff issue. And some of these companies are having more difficult time during this tariff than they did in COVID. So there are opportunities that are out there.

Speaker Change: Excellent and then last one and thanks for taking all my questions in a similar vein.

Speaker Change: Is this changing the opportunities from a strategic M&A standpoint, maybe creating some new ones that werent around a couple of months ago.

Speaker Change: I would say, yes, we are getting quite a bit of reach from banks and individuals have opportunities and I think this time, it's it scared a lot of companies.

Speaker Change: That have gone through the Covid issue and now theyre going through the tariff issue and some of these companies.

Speaker Change: We're having more difficult time during this tariff than they did in COVID-19. So there are opportunities that are out there I think the longer this goes the more opportunities there'll be.

Stephen Berman: And I think the longer this goes, the more opportunities there'll be.

Tom Forte: Wonderful. Thank you, John. Thank you, Stephen, for taking all my questions and best of luck. Thank you. Thank you, Tom. Thank you.

Speaker Change: Wonderful. Thank you John Thank you Steven for taking all my questions and best of luck.

Speaker Change: Thank you. Thank you Tom.

Operator: This concludes the question and answer session.

Speaker Change: Thank you. This concludes the question and answer session I would now like to turn it back to Stephen Berman for closing remarks.

Stephen Berman: I would now like to turn it back to Stephen Berman for closing remarks. Ladies and gentlemen, thank you for the time today. We are very proud with our quarter. We're very proud of our company.

Speaker Change: Ladies and gentlemen, thank you for the time today, we're very proud with our quarter. We're very proud of our company and we are excited for this year to continue and move forward and resolve the tariff issues and go back to what we do best is building Jack's around the world. Thank you very much.

Operator: And we are excited for this year to continue and move forward and resolve the tariff issues and go back to what we do best is building JAKKS around the world. Thank you very much.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Speaker Change:

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].