Hasbro, Inc.

Good morning. Welcome to the Hasbro third quarter 2021 earnings conference call. At this time, all parties will be in listen-only mode. If anyone should require operator assistance during the conference, please press star zero from 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 call over to Debbie Hancock, Senior Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Joining me today are Rich Stoddart, Hasbro's Interim Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer. Today, we will begin with Rich and Deb providing commentary on the company's performance, 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 include these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Our discussion will be based on adjusted results which exclude several items associated with the E1 acquisition outlined in our release today. Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share. Before we 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. 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 10Q, 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 Rich Stoddart. Rich?

Thank you, Debbie, and welcome to everyone joining us today. I'm Rich Stoddart, Interim CEO at Hasbro. Before we officially begin the remarks on the call today, I want to take a moment to reflect on the passing of our beloved leader and friend, Brian Goldner. I know many of you share in our sadness for his untimely passing. Brian was not only an accomplished CEO, he was a true visionary who transformed an almost 100-year-old toy and game company into a leading global play and entertainment company. But his impact can be felt well beyond Hasbro. He changed the game completely. He believed in the power of a story, seeing the potential for omnichannel storytelling and content built on powerful brands. He architected a compelling roadmap for Hasbro's growth in the brand blueprint strategy and was so proud of where it has taken Hasbro, but even more so in its power and future potential now with E1 as an integrated part of the family. I had the privilege to work together with Brian and the Hasbro team for the last seven years and serve on the company board, most recently as lead independent director. During that time, the company transformed its talent, its culture, its brands, and its potential as it executed the brand blueprint. In my new role as interim CEO, I will continue to work with a talented leadership team Brian put in place over the last 13 years. along with the powerful culture at Hasbro to supercharge the blueprint and build on the company's strong momentum. Hasbro is performing at a high level and with a clear, well-understood strategy. To ensure our success continues, I will be focused on five key priorities. Supporting the amazing people at Hasbro, ensuring they have what they need to succeed while advancing our purpose-driven culture. executing the brand blueprint. This strategy is central to continuing Hasbro's transformation as a global play and entertainment company. We are beginning to see the full blueprint execution come to life with significant potential to grow revenue and profit in the years ahead. Accelerating the growth of our entertainment and Wizards of the Coast businesses, where we have unique and distinct advantages in the market, and a differentiated business model relative to our competitors, delivering the guidance established for the year while helping the organization manage through supply chain challenges, and continuing to drive strong cash generation in the business to pay down debt and fund the dividend. This should sound familiar to many of you, as it is what the leadership team has been focused on as well. It's fitting that the strong third quarter results reflect the power of the blueprint, with significant growth in entertainment as it returns to pre-pandemic levels, with another strong quarter in both tabletop and digital gaming from Wizards of the Coast, and with only a small decline in our consumer products business as we work to meet robust demand for Hasbro brands despite supply chain disruption. The diversification of the business enabled us to deliver a very strong quarter with 11% revenue growth, 6% adjusted operating profit growth, 5% gains in adjusted EBITDA and earnings, and to generate significant cash. Deb will speak shortly in more detail to the third quarter performance. A clear proof point of the brand blueprint strategy and the omnichannel storytelling opportunity for our brands is in the success of the CGI animated feature, My Little Pony, A New Generation, which debuted on Netflix September 24th. In its first weekend, the movie reached number one on Netflix in the kids top 10 across 86 countries. It also reached the number one spot for movies regardless of genre or target demo in 20 countries, including the UK, Germany, Brazil, and Mexico. The success of the film was made possible by the collaboration and partnership of the talented brand teams at Hasbro with the teams at E1, who together created a beautiful, engaging film for fans around the world to enjoy. The film's success is also a testament to their agility to successfully market and launch a picture originally planned for theatrical release on a streaming platform. The movie's success builds deeper connections with consumers, driving incredible engagement on social media across Instagram and TikTok. The brand's relaunch, powered by an all-new main five cast of ponies, drove revenue growth for the franchise for the second straight quarter and the first positive quarter since the fourth quarter of 2017. Third quarter point of sale momentum began to rebound as the merchandise tied to the brand reintroduction and movie began to hit shelves. In the four weeks leading up to the movie, POS was up mid single digits globally. And the week following the movie resulted in global POS gains of more than 150%. This trend has remained very strong in the weeks following. The movie launch was further supported with a robust licensing program, including a dedicated My Little Pony shop on Amazon and cross-category campaigns at several major global retailers. We've seen a favorable response from retailers and consumers, and the entertainment plan is only beginning as we are supporting the film with a robust content roadmap from E1, including Netflix specials and new series, as well as digital content in the coming year. Another significant milestone this quarter was the launch of Hasbro's Peppa Pig and PJ Masks toy and games lines in markets around the world. Brought into the Hasbro portfolio via the E1 acquisition, these brands significantly strengthened Hasbro's presence in the preschool market. We developed deep lines for each brand, as well as expanding their licensed consumer products presence. Each of these launches are off to strong starts. and contributed to growth in the quarter. But they, among many other brand campaigns, were limited in their upside in the short term due to the supply chain challenges global companies are facing. In the third quarter, we had orders for approximately $100 million, which did not ship by quarter end. The vast majority of this has already been delivered in the fourth quarter. These factors were more than offset by the contribution of our entertainment business, which is up substantially versus last year's third quarter and up versus 2019, as well as the continuing momentum in the Wizards of the Coast business. Through our differentiated strategy, they delivered the revenue and profit growth for the quarter. As we look to the fourth quarter and the holiday season, there is strong demand for Hasbro toys and games. We are expertly managing the supply chain to ensure the shelves will be filled with Hasbro products this holiday. As a result, we believe we will grow revenue in the fourth quarter through the combination of our three business segments and deliver full-year double-digit revenue growth in the range of 13% to 16%, along with adjusted operating profit margins in line with last year's adjusted rate of approximately 15%. Before turning the call to Deb, I want to touch briefly on the plan for naming a permanent CEO. Our board is and always has been actively engaged in succession planning for the CEO and other senior executive roles. This work provides a strong foundation for the naming of a new long-term leader for Hasbro and is well underway. Until that time, I am working closely with the outstanding group of talented individuals making up our senior management team. In addition to Deb, joining me today for the Q&A portion, we have Chris Cox, President and COO of Wizards of the Coast and Digital Gaming, Eric Nyman, Chief Consumer Officer and COO of Hasbro Consumer Products, and Darren Troop, CEO of E1. Now I'll turn the call over to Deb. Deb?