Hasbro, Inc.

Good morning and welcome to the Hasbro First Quarter 2020 Earnings Conference Call. At this time, all parties will be in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Today's conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I'd like to turn the conference over to Ms. Debbie Hancock, Senior Vice President of Investor Relations. Please go ahead.

Thank you and good morning, everyone. Joining me this morning are Brian Goldner, Hasbro's Chairman and Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer. Today, we will begin with Brian and Deb providing commentary on the company's performance and an update on the company's response to the COVID-19 pandemic. Then we will take your questions. Our earnings release and presentation slides for today's call are posted on our investor website. The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures which exclude these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share. Before I begin, I would like to remind you that during this call and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives, and similar matters. These statements include, among others, the impact of the coronavirus on our business, financial results, and liquidity, our efforts to protect the health and well-being of our workforce, customers, consumers, manufacturers, and suppliers, our efforts to ensure we have adequate liquidity and and our initiatives to support our communities, including our global workforce, children, and their families during these difficult times. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q, in today's press release, and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call. I would now like to introduce Brian Goldner. Brian?

Thank you, Debbie. Good morning, everyone, and thank you for joining us today. Every day I am inspired by the inventiveness and creativity of the Global Hasbro team. We are finding new and ingenious ways to get product from production into cars and homes safely and efficiently. They're finding new ways to create and deliver content as this year continues to evolve. Our people are supporting each other from our homes around the world. They're adapting to an ever-changing environment as they work tirelessly to minimize the impacts of the COVID-19 on our business and our people. We focus on four critical areas. First, demand. Consumers want our products and experiences. They are looking for connections and engagement during this time. We're leveraging our extensive product portfolio and diverse retail network to connect global consumers with the product and experiences they want. We're offering compelling storytelling that continues to create strong viewership globally. Second, supply. The Hasbro team is working to utilize our diverse manufacturing and supply chain network to ensure product is available for customers and consumers. Third, liquidity. We have substantial liquidity and we are taking prudent steps to ensure Hasbro remains in a strong financial position by aligning expenses to today's environment and preserving cash while paying our dividend, meeting our debt commitments, and making essential investments for the long term. And finally, community. This is a top priority. We're making decisions to protect our employees and stakeholders, but also help where we can through this challenging time. I am so proud of the amazing work our teams have accomplished, including to supply much-needed PPE for frontline medical workers by producing 50,000 face shields per week that will be donating to local hospitals in Massachusetts and Rhode Island. The Wizards team in Renton is supporting Wizards Play Network member stores through its Mystery Boost initiative, and several EU productions donated PPE to frontline workers at Toronto General Hospital, UCLA, and others. These are just a few examples of our commitment to our communities. Our release today laid out extensive details in each of these areas, so my comments will focus on a few key topics. The Hasbro management team has been together for more than a decade. We've recently added new expertise and experience. Together, we are managing this new challenge, a challenge we are well-equipped to successfully navigate. Over the past several years, we've invested to diversify our revenue and talent across play and entertainment, expanding our brand portfolio to reach more demographics and play patterns while building new businesses in entertainment and digital gaming. We realigned our commercial efforts to reach more consumers and built best-in-class online and omnichannel execution as well as new channels such as drug, grocery, dollar, and value. These are strengths unique to Hasbro. Our first quarter results were good, reflecting strong consumer demand and our ability to get product to customers and to consumers. Global point of sale increased in the mid-single digits, led by double-digit gains in the U.S., E-commerce point of sale increased significantly as shoppers turned to online and curbside pickup to meet their needs. While point of sale is positive in April, continuing these positive trends will likely become increasingly difficult as more countries are practicing social distancing, including limiting production of product and entertainment, distribution activities, and shopping. We are leveraging our global sourcing network to get product made and delivered to consumers But we expect the second quarter may be more challenging than the first. This is due to several factors, including that late in the first quarter, and to start the second quarter, more stores in countries have shut down activities. Entertainment properties where we are launching products have moved to later release dates in 2020 and into 2021. And some have gone straight to PDOD. And our own live action and TV and film entertainment production is limited. We have done extensive scenario planning to understand these impacts to our business for multiple different periods when the consumer economies could reopen. We are acting nimbly and creatively to address these factors throughout the business. Across our portfolio, we have innovative product and compelling entertainment to deliver a good second half of the year, including for the holidays. 2021 is also set up well given the shift of several entertainment initiatives to next year, in addition to our established plans for the year. In the first quarter, consumers sought out several Hasbro brands and experiences. Games, Play-Doh, and content viewership were amongst the strongest. Face-to-face gaming demands stood out in many Hasbro gaming brands. Demand is robust and we are working to continue meeting consumer purchase interest with games production from multiple locations, some of which have been closed in recent weeks, but we expect to reopen this summer. First quarter results from Magic the Gathering were above trend behind strong releases, but also due to steps we took. We adapted the physical release cadence of Ikoria Lair of Behemoths, including pulling product shipments into the first quarter, to support a rolling release plan with a global launch currently scheduled for most of the world on May 15th. The team canceled physical events and developed new initiatives to keep our organized play engines operational by transitioning to digital play on arena with Friday Night Magic at home and Magic Fest online. Despite a decline in organized in-person play events, this pivot drove an increase in new players across the brand. Upcoming expansions into mobile, China, and Mac in 2020 will continue to expand the arena audience. We are supporting Wizards Play Network stores through innovative programs to create revenue opportunities for the store owners in the absence of players physically in them. Importantly, this was our first quarter with E1 as part of Hasbro. Integration between Hasbro and E1 is on schedule, and the teams are actively engaged together. allowing us to create and uncover new revenue opportunities through entertainment and merchandise. We expect to deliver synergies in line with our plan for 2020 and are on track to deliver the $130 million in synergies we've communicated by year-end 2022. We've transitioned E1 to lead our company-wide entertainment content efforts, and we've integrated the creative teams, including development on potential Hasbro brands for television and film. E1's first quarter TV and film results reflected a difficult comparison to the first quarter of last year when they delivered a high volume of programming. Revenue is tied to production deliveries, and these will vary in timing each year. In 2020, this was slated to be later and is being pushed further as production activities have closed and the deliveries have been delayed. The team can do development work and virtual pitches, as well as animation production. Delivery of programs will happen just later than initially planned. First quarter licensing revenues for Peppa Pig and PJ Masks include holiday 2019 sales. Strong demand for content across all platforms was offset by lower licensee shipments to retailers. Peppa Pig is now the most viewed preschool show in the world on the YouTube platform, and PJ Mask is one of the most streamed children's shows on Netflix in the U.K. and U.S. We have aligned the consumer products efforts for these brands, along with Ricky Zoom, under Hasbro's consumer products team, and are identifying opportunities for expansion. However, certain consumer products categories, in particular soft goods like apparel, are showing weakness within the industry, and we expect this will be a challenging period for license categories. Our teams have reacted creatively and constructively to identify a successful path forward during this unprecedented global pandemic. The underlying drivers for our business are sound, and with great innovation, brands, and storytelling, we are well-positioned to successfully execute in 2020 and beyond. The North Star of our company has not changed. Hasbro is creating play and entertainment experiences which are vital and desired by consumers and audiences this year, and for years to come, delivering value for our stakeholders. I will now turn the call over to Deb. Deb?