Hasbro, Inc.

Thank you and good morning everyone. Joining me today are Chris Cox, Hasbro's incoming chief executive officer, Rich Stoddard, Hasbro's interim chief executive officer, and Deb Thomas, Hasbro's chief financial officer. Today we will begin with Chris, Rich, and Deb providing commentary on the company's performance. Then we will take your questions. Eric Nyman, Hasbro's incoming president and chief operating officer, will be joining us for Q&A. 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 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 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 Chris Cox. Chris?

Thanks, Debbie, and welcome everyone joining today. I'm thrilled to be starting as Hasbro's CEO later this month, and overwhelmed by the outpouring of well wishes from employees, partners, and stakeholders since the announcement. The positive response is a testament to this amazing company and the wonderful people, brands, and fan communities around the world that make it so special. Hasbro is unique in our ability to create cherished childhood memories that translates into lifelong favorites. Our brands, fan toys that inspire wonder, to collectibles that showcase passion, board games that bring families together to gaming systems with thriving global fandoms, and animation that delights children to feature films and video games that engage audiences of all ages. As CEO, I'll be working with our team focused on three long-term priorities. First and foremost is driving growth with the brand Blueprint. At the heart of Hasbro is the brand blueprint. It enables us to expand the value of our brands and capabilities as we engage our fans across all aspects of play and entertainment, from consumer products to games to streaming TV shows, executing through our owned and operated assets and the best partners in the industry. We've seen significant success with this strategy, with brands as varied as Peppa Pig, Transformers, and most recently, My Little Pony. and I'm excited as we extend its benefits to more brands, from Play-Doh to Magic the Gathering to our upcoming blockbuster movie and AAA video games with Dungeons & Dragons. Our next focus area will be multi-generational fan engagement. Play isn't just for kids anymore. It's a lifelong pursuit. Gen Z's favorite brands are the ones they play with that surround them with engaging experiences, and millennials and Gen X aren't far off. We are creating omnimedia play and entertainment that spans age ranges, connects people together, and is passed along generation to generation. Lastly, new growth opportunities, specifically games and direct. At $2.1 billion and 19% year-over-year growth, Hasbro is one of the biggest and fastest-growing games publishers in the world. Our investments in digital and direct-to-consumer are give us an amazing opportunity to forge tighter relationships with our most valued customers, to learn from them in real time via cutting-edge data analytics, and to reinvent how we bring product to market and customize it for our most passionate fans. While the whole blueprint generates immense value for Hasbro, look for us to put particular focus on these fast-growing businesses as we take our portfolio to the next level. Underlying these priorities will be a laser focus on capital allocation, how we invest in the business, prioritize our brands, and drive total shareholder return, while paying down debt, maintaining an investment-grade rating, and returning cash to shareholders. We'll be sharing more insights about how we will drive our blueprint strategy, extend our fan engagement, and grow our gaming and direct-to-consumer assets in the quarters to come, underpinned by a strong sense of purpose and commitment to our planet and people. In the meantime, my focus will be squarely on partnering with Deb, Darren, Cynthia, and Eric on executing with excellence to deliver our growth plans, as well as meeting with the stakeholders who helped make Hasbro Hasbro. I want to end with a special thank you to Rich Stoddard. Rich came on board five months ago after the tragic loss of Brian Goldner, our beloved leader of nearly 15 years. Using uncommon care, a natural insight from his time serving on our board, and strong and steady leadership, he helped guide us to exceptional results. Rich, your insights and leadership will be amazing assets as the new chair of our board of directors, and I'm looking forward to working with and learning from you as we grow Hasbro in the years to come.

Thank you, Chris. The global Hasbro team finished the year strong. delivering full year results above our guidance, including 17% revenue growth, a 40 basis point improvement in adjusted operating profit margin, 23% growth to $1.3 billion in adjusted EBITDA, and over $800 million in operating cash flow. Deb and I are very proud of the Hasbro team and all they accomplished in the past several months. Throughout the year, and especially in the fourth quarter, we successfully navigated supply chain challenges across the business, delivering another record year for Wizards of the Coast, growing consumer products revenue for the year and fourth quarter, and achieving robust content deliveries above 2019 levels in our entertainment business. The brand blueprint strategy is driving profitable growth across our diversified portfolio, and Hasbro's unique set of strategic assets provide the foundation for maximizing the value of both our existing franchises and new IP. We have and are investing significant capital around the Blueprint, expanding and growing our powerful gaming portfolio, including in Magic the Gathering and Dungeons & Dragons, building deeper and more valuable brands, telling compelling stories to global audiences, and in developing our talented teams. Our commitment to disciplined strategic investments over the long term has built a differentiated business with diversified capabilities to drive profitable growth and enhance shareholder value. This is evident in our performance last year. First, gaming. With a portfolio of $2.1 billion that grew 19%, Hasbro's gaming portfolio is among the biggest, most profitable, and fastest growing combinations of gaming brands across face-to-face, tabletop, and digital platforms in the world. It's led by Magic the Gathering, and 2021 was Magic's best year ever. Over the past five years, we've invested close to $1 billion to drive 150% growth in high margin revenue and position us for growth in the coming years across tabletop and digital gaming. These investments are meaningfully expanding our tabletop products and creating best-in-class digital game capabilities while recruiting and retaining world-class talent. We are very excited to have Cynthia Williams joining us later this month from Microsoft as President of Wizards of the Coast in Digital Gaming to lead this team as Chris transitions to CEO of Hasbro. Chris orchestrated a tremendous period of growth and expansion for Wizards and has invested to position the business and team for continued success. The consistent growth of Magic is a testament to the long-term durability of our strategy, led by doubling down on collectability, expanding the Magic product suite to maximize relevance across consumer segments, and giving players exciting and compelling worlds to participate in. In digital, Magic the Gathering Arena's launch on mobile has been impressive, generating significant growth with continued high engagement from our players of around nine hours per week. The launch of mobile more than doubled our pre-launch monthly average users at its peak and has since settled into a sustained 50% increase in our average monthly active users as mobile has become a key way for our fans to access their favorite strategy game. We have only begun to unlock the value of the digital gaming potential of the Wizards brands and capabilities of the team. In 2021, Digital gaming revenue, including the high margin licensed digital gaming business grew 36% and represented 26% of the segment. Tabletop gaming revenue represents the largest piece of the segment at 74% of the total and grew 44% for the year. We have significant plans to leverage the power of Wizards brands across the blueprint for both current fans and to expand our reach to new players and fans. This begins with Magic the Gathering Netflix series coming later this year, and in 2023, the planned theatrical release of the Dungeons & Dragons feature film. Furthermore, these upcoming releases will harness the full potential of our brand blueprint, with a comprehensive sales and marketing plan across our organization including special edition tabletop and card set releases, digital games, a robust Hasbro toy line, and expansive licensed consumer products. Our many years of investment in these brands and in building assets to drive growth around the blueprint position us to leverage them in bigger and more powerful ways for years to come. Last year also marked the successful relaunch of another iconic Hasbro franchise brand. Led by the expertise of the E1 team, My Little Pony and New Generation drove the My Little Pony brand through the animated feature film that was number one in the Netflix Kids Top 10 in more than 80 countries on opening weekend, driving high viewership and audience engagement. The film fueled greater than 100% growth in toy and game point of sale in the fourth quarter versus last year and double digit growth in licensed consumer products for the year. With a significant multi-year content roadmap led by E1 and a deep and innovative merchandise program, we believe My Little Pony is positioned to reclaim its place as a leading global lifestyle brand through expansive blueprint activation. Peppa Pig and PJ Masks are further examples of valuable brands for which the combination of Hasbro and E1 is accelerating the growth and opportunity. In August, we launched the first Hasbro toys and games for these leading preschool brands. We had a very strong first few quarters in the market and have gained share in preschool toys. Peppa Pig was one of our top brand growers last year, and as we shifted licensed revenue to in-sourced revenue in toys and games, the team was still able to grow licensed consumer products revenues double digits, highlighting the powerful reach of Peppa Pig across categories. In recognition of the relevance and success of the brand, combined with the opportunity ahead, We have elevated Peppa Pig to a franchise brand and we'll begin reporting this with our first quarter earnings. It is a clear indication of the potential value of this brand we acquired with E1. As we think about powerful brands, our partner brand portfolio is activating some of the most valuable entertainment brands in the industry. We grew partner brand revenue 8% last year, with significant growth in Hasbro products for the Marvel portfolio, led by the Spider-Man franchise, including products in support of the feature film, Spider-Man No Way Home, and the animated new show, Spidey and His Amazing Friends. We also grew revenue for Hasbro's line of Star Wars products, despite a strong fourth quarter last year with Season 2 of The Mandalorian. We recently announced an extension of our Star Wars license and are excited to have added the Indiana Jones franchise with product in the market next year, supporting the theatrical release. Hasbro is proud to maintain a strong connection with the Walt Disney Company, the creator of some of the most celebrated and everlasting entertainment franchises, and looks forward to continuing its storied relationship with new product lines for Star Wars, Indiana Jones, and Marvel, including Marvel's Avengers and Marvel's Spider-Man in the future. In addition, we have exciting initiatives with new and expanding partners as diverse as Fortnite to Roblox, and we see a bright future for our partner brand portfolio with higher profit growth in the mid to long term. Finally, while I've highlighted several entertainment successes that are driving brands today and in the future, the entertainment segment had a very successful year, delivering revenues above 2019 levels when adjusted for the music business, which we divested during 2021. With amazing shows like Yellow Jackets, Cruel Summer, Gray Mail, and The Rookie, and the return of film deliveries, including Clifford the Big Red Dog and Finch, the E1 team delivered compelling content across platforms. Importantly, E1 has been focused on developing a strong pipeline of content for Hasbro brands, and we've seen an incredible response from the market. In 2021, we started to see that pipeline converted into greenlights production and releases to be activated across the brand blueprint. In closing, it has been a true honor to work with the Hasbro team as interim CEO over these past several months. The entire Hasbro family has my deep gratitude for their tremendous focus on delivering at a high level. I especially want to thank Deb Thomas, for her strong and steady leadership during such an important time. This year's results position Hasbro for continued growth and to continue driving shareholder value. With consumers, brands, and storytelling at the center and purpose at our core, we have made and are making significant investments across the business and in our people to drive capabilities, insights, and innovation to support our long-term growth. I am excited to see Chris and Eric take on their new roles later this month and confident that Hasbro will thrive under their leadership. I'll now turn the call over to Deb. Deb?

Good morning, everyone. As Rich said, we're incredibly proud of the performance by the Hasbro team over the past several months to turn in an outstanding year. This includes full-year double-digit growth in revenue, operating profit, earnings, and adjusted EBITDA. We grew revenue across segments, brand portfolios, and geographies. Wizards and Digital Gaming had its best year ever, doubling the size of the Wizards business two years earlier than anticipated. We furthered the integration of E1, launching new, increasingly Hasbro brand-led content campaigns, as well as Hasbro's line for Peppa Pig and PJ Masks. We remain on track to achieve the $130 million run rate of cost and insourcing synergies by the end of this year. We strengthened our balance sheet, paying down over $1 billion in debt ending the year with over $1 billion in cash. And after reducing our debt to adjusted EBITDA last year by 1.7 times to 3.1, we are on track to hit our target of 2 to 2.5 times by year end 2023. And we invested across Hasbro to profitably grow for the long term while returning cash to shareholders, including a 3% increase in the quarterly dividend announced today, and effective with our next dividend payment in May. Our 2021 results and current year outlook support our view to growth and value creation over the coming years. For the year, revenue grew 17% year-over-year and 8% versus pro forma 2019. Magic the Gathering, NERF, Peppa Pig, My Little Pony, Transformers, and Hasbro products for the Marvel portfolio led year-over-year growth, along with the return of entertainment production and deliveries, notably in TV, streaming, and animation. The Wizards of the Coast and digital gaming segment had a phenomenal year, growing revenue 42%, operating profit 30%, ending the year with an operating profit margin of 42.5%, and adjusted EBITDA was higher by 36%. We have success in both tabletop and digital gaming, led by Magic the Gathering and Dungeons & Dragons. We have significantly invested to drive these brands for current and future growth. Consumer product segment revenues grew 9% year-over-year. Robust demand for Hasbro products, strategic pricing action, and significantly improved execution in markets like Latin America and Asia drove a 170 basis point operating margin expansion, more than offsetting the higher freight and input costs, as well as supply chain challenges incurred during the year. Adjusted EBITDA grew 18%. The team managed supply and delivered strong revenue growth, but our product in stock levels were lower than target. Part of this was due to demand above our plan and part due to continuing supply chain disruption. To help us maintain consumer product segment operating profit margins at or above 2021 levels, we have price increases scheduled to take effect in the second quarter. to offset the anticipated continuation of supply chain challenges and resulting higher input and freight costs. Entertainment segment revenue increased 27% for the year, exceeding 2019 pro forma levels of revenue when adjusted for the sale of the music business. Adjusted operating profit grew 13% and adjusted EBITDA increased 76% for the full year 2021. Adjusted operating profit increased due to higher revenue and lower administrative costs, partially offset by higher program cost amortization associated with more deliveries, the mix of content, and higher overall costs related to COVID. Overall, adjusted operating profit grew 20%. and operating profit margin expanded on a favorable mix of revenues, strategic pricing, which partially offset higher costs, at the same time investing in product innovation and advertising behind brands and entertainment. On a reported basis, other income expense net included a $54 million pretax, non-cash, non-operating charge, associated with our investment in the Discovery Family Channel. The pandemic has accelerated changes in the cable distribution industry and networks have seen a decline in linear subscribers. During the over 10-year life of our investment, we've recorded more than $1.1 billion of merchandise revenue related to Hasbro programming on the channel, averaging more than $100 million per year. Since reducing our ownership from 50% to 40% in 2014, we've recorded approximately $130 million of non-operating investment income, or an $18.5 million annual average. This investment has delivered a strong return for Hasbro. Turning to tax, the full-year underlying tax rate absent non-GAAP charges and discrete items was 21.3%. The lower adjusted rate of 15.8% was the result of favorable discrete items from audit settlements, synergies from the integration of E1, and tax planning. For 2022, our underlying rate, absent non-GAAP charges and discrete items, is expected to decline to approximately 20.5%, with an adjusted rate expected in the 18 to 20% range. as we do not predict the same level of favorable discrete items we had in 2021. As I said to start, our balance sheet is strong. Accounts receivable increased 8% versus 17% revenue growth as collections remained strong. After declining 17 days last year, DSO declined another six days to 68 days with improvement across Hasbro. led by our entertainment business and international commercial markets. The inventory we had at ERIN is of very high quality. Our aged inventory is well below historical levels, but the levels we have on hand and at retail are higher than last year. For both owned and retail inventory, this reflects a significant increase in the amount of inventory in transit, as lead times from China have increased about three times on average. Hasbro-owned inventory also reflects higher freight and product costs. These higher capitalized costs are expected to have a negative impact on gross margin in the first quarter prior to price increases taking effect. For 2021, we reported an adjusted APS of $5.23 per share. As you think about 2022 EPS, I want to walk through several items. First, as a reminder, in the first quarter of 2021, we realized a non-operating gain of $25.6 million from a legal settlement. This translated to $0.19 per share in Q1 2021, and this will not have a comp in the current year. Second, we sold the A1 music business in Q3 of last year. This represented 65.2 million in revenue and 16.9 million in adjusted operating profit during the first half of 2021, which would equate to approximately eight cents per share on the full year. Finally, following Brian's passing, there was an accelerated contractual vesting of certain equity awards in the fourth quarter. Deleted share count is expected to increase from 138.4 million for the full year 2021 to approximately 141 million for full year 2022 on a weighted average basis. As we look ahead, we're investing today to build bigger, more powerful brands around the brand blueprint. These investments are an innovation in capabilities, in storytelling, and in our people. Coming off a year of double-digit revenue and operating profit growth, for 2022, we expect revenue and adjusted operating profit to grow in the low single digits and deliver operating profit margin expansion, as well as operating cash flow in the range of $700 to $800 million. Adjusted EBITDA is expected to be in line with the $1.3 billion achieved in 2021. Looking at our segments in 2022, we expect the Wizards in Digital Gaming segment to grow in the mid-single digits. We continue to invest to grow this high-return business over the near and the long term. Over the medium term, As we expect to see acceleration beginning in 2023, we're targeting compound annual revenue growth in the high single to low double digits and operating margins to remain above 40%. The toy and game industry has grown at an above trend growth rate the past two years, and we expect that to slow or decline in the coming year. But we are well positioned with new initiatives, and great content. We believe we can continue to grow the consumer product segment through innovative brand campaigns, including a full year of Peppa Pig and PJ Masks. Continued growth in My Little Pony as we accelerate around the blueprint through a strategic and well-placed content roadmap from E1, supporting merchandise plans. and new entertainment for key partner brands like Marvel and Star Wars. While our rights expire for Disney, Princess, and Frozen at the end of 2022, we are very excited about our continuing relationships with Disney from Marvel, Star Wars, and Indiana Jones and the product offerings around these brands. The Disney Princess of Frozen business has averaged approximately $250 million in revenue per year for Hasbro, peaking in 2019 with the last Frozen film. We expect to grow our consumer product segment revenue in the low single digits in 2022 as we execute the rich and valuable portfolio of Hasbro and partner brands. and increasing to a mid-single-digit growth rate over the medium term, including greater operating profit margin expansion in 2023 and beyond. In the entertainment segment, with high demand for content as well as theatrical improving, the entertainment industry is expected to continue growing. Combined with our robust entertainment slate We anticipate 2022 growth in the entertainment segment in the mid-single digits, absent the music business, which was sold in 2021. As we activate more Hasbro-branded content, we expect revenue to grow in the high single to low double digits over the medium term, with higher growth in operating profit and adjusted EBITDA to drive margin expansions. Our cash spend on content for this year is expected in the range of $725 to $825 million to support content development and deliveries over a multi-year period. Notably, we're planning significant initiatives executed across the brand blueprint in consumer products, gaming, and entertainment, including feature films for Transformers Rise of the Beast and Dungeons & Dragons, that are expected to accelerate revenue and operating profit growth in 2023. For the medium term, for 2024, we expect revenue growth in the mid-single digits on a compound annual basis. Each segment has strength on its own, but as we have seen over time, the greatest return comes from the broad portfolio that as part of our brand blueprint strategy delivers greater value. Importantly, we expect the financial benefits of our combined capabilities to grow over time. By year end 2023, operating profit margin is expected to exceed 16% and operating cash flow should reach approximately 1 billion. In closing, Long-term investments in our brands and capabilities have built a differentiated business with diversified capabilities to drive long-term profitable growth and enhance shareholder value. These investments have benefited not only 2021, but are designed to benefit years to come. After delivering a high-quality year, We're positioned for further growth in 2022 and on track for greater revenue growth and greater operating profit expansion in 2023 and beyond as we leverage our investments in building brands and capabilities across the brand blueprint to drive profitable growth for the long term under a strong leadership team.

Thank you. At this time, we'll now be conducting a question and answer session. If you'd like to ask a question today, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. One moment, please, while we poll for questions. Thank you. And our first question comes from the line of Steph Wissink with Jefferies. Please proceed with your question.

Thank you. Good morning, everyone. Chris, I have a question for you and then Deb, one clarification. Chris, my question is really regarding your number three initiative from your prepared remarks, the gaming and DTC strategy. I'm hoping you can connect those to some of the growth targets that Deb just laid out. I think she mentioned for wizards and gaming, the expectation was high single to low double-digit growth. So maybe help us think through the DTC component of that and just remind us how much of the business is DTC today, if any at all.

Well, so on games, when we look at 2023 and beyond, we look at continued growth in our tabletop business, consistent with our historical norms, and we look at a robust slate of new digital games that will be coming to market. Both, as we've talked in the past, Steph, digital tabletop, which is kind of an extension of our core games, as well as extensions into more traditional video game categories like role-playing games, action, adventure, and strategy. And so we'll be sharing more details about that over the next several quarters. And we expect some significant growth from those initiatives as we've been putting in significant investment in them. On direct-to-consumer, we have a variety of direct-to-consumer initiatives across the company. Wizards of the Coast and Digital Games drive several of those. We would consider Arena to be an example of a direct-to-consumer business because we run that service and primarily adjudicate payments through our own proprietary means. We also have our Secret Lair business, which has grown significantly over the last several years for Magic. And then I'm going to turn, I think, the second half of the question over to Eric Nyman, who who can talk a little bit more about what we've been doing on the consumer product side with Hasbro Pulse, which has also had tremendous growth. Eric?

Thanks, Chris. So, Steph, I think you know our Hasbro Pulse business. We don't disclose that amount for the Pulse, but we have seen great growth. We did double it again in 2021. We have some incredible new announcements coming in 2022, and we look forward to sharing those with you in the upcoming months.

Great, very helpful. And then, Deb, I wanted to just go back to your comments on comparability in the quarters in 2022, recognizing you have some one-time items that won't repeat. But also, can you help us just think through maybe in semesters, if you'd like, versus quarters, how to think about the first half versus the second half? I know June was an unusual comparison with a few things in that quarter specifically. So just help us think through maybe the sequencing of this year for our models. Thank you.

Sure. So absolutely. You know, let me just start with the entertainment business. As you know, entertainment is so dependent on when deliveries take place, right? So I would think a little bit about that, similar to the cadence of 2021 from an entertainment standpoint. As you mentioned, June was a big quarter. The second quarter was a very big quarter for us in Wizards of the Coast and digital gaming, and also we had some exciting initiatives in consumer products as well. As I think about the year, I think the most difficult comps for us this year, from a cost standpoint, are really in the first quarter. We've got high capitalized freight and input costs, and as we mentioned, our price increases don't take effect to cover some of that until the second quarter. So if you think about cost pressure standpoint, it's really the first quarter. And from a comp standpoint, Given the success of Magic the Gathering and the releases that we have planned this year, really the third quarter is going to be a bit tougher as well. We had some digital that launched and went into that third quarter and, you know, an extra release. We have the same number of tabletop releases this year. We just don't have that extra digital release that we had in 2021. So as I think about comps, the first quarter and the third quarter, are a little bit tougher comps than the rest of the year.

Very helpful. Thank you. Congrats on a good quarter.

Thank you. Thanks.

Our next question comes from the line of Eric Handler with MKM Partners. Please proceed with your question.

Good morning, and thanks for the question. Deb, I wonder if you could dig in maybe a little bit on the entertainment side of the business again. You know, as we think about where the growth is coming from in the business in 2022. Can you maybe give us a little breakdown of live action TV versus movies versus animated programming? Where are going to be, you know, sort of like the puts and takes for those segments and, you know, how much of the business is coming from frontline versus catalog?

Sure, Eric. As we kind of look out over the business, you know, we had a great year of deliveries and we saw theatrical start to come back in 2021. Still wasn't anywhere near the levels of pre-pandemic, but it's starting to come back. So as we think about deliveries moving into 2022, we do have a few movies that are scheduled to be delivered. We have a couple in the early part of the year from E1 and one in the later part of the year. It's still in production right now. And we think as we move into 2023, obviously that'll be a bigger year as we did production on Dungeons and Dragons with our partners at Paramount and Transformers Rise of the Beast. So those will be out in 2023 as well as movies from our partner at Disney and the Marvel's Guardians of the Galaxy and Indiana Jones and a new Star Wars movie. So very excited about moving into 2023. And then our partners at Disney later in 2022, you know, with Doctor Strange, Thor, Spider-Man, and of course we're all excited for a Black Panther Wakanda Forever coming in the fall. So as we think about our entertainment business, we have that, but we continue to distribute live action content. We have many unscripted and scripted television or streaming coming out throughout the year. So much of that is dependent on deliveries, which is why I said earlier, if we kind of think about the delivery and the cadence being similar to 2021, just from a delivery standpoint, that will continue to come out as we go through. And from an animated standpoint, we have Magic the Gathering coming in the fall We're very excited about that as well. And we have more deliveries for Peppa and PJ. But just as a reminder, in the third quarter of last year, we had the My Little Pony movie. So while we have a robust content roadmap coming for My Little Pony Go Forward, that delivery in the third quarter probably will have a bit of a blip on the animation side, which is, again, why I think the third quarter is probably the one that has probably the toughest comp as I think about the year ahead of us. From a library standpoint, while we did have some sales of libraries in particular, we've just done a deal in the Nordic countries to distribute some library content. You know, the vast majority was from new series delivery of our revenue as we think about the past year.

Okay, thank you. And just as a follow-up, Um, as we think about the Hasbro gaming segment and that's, you know, stripping out, um, magic and whatever else is, and monopoly that was going to franchise brands. Um, you've had excellent growth, uh, over the last two years. Is that a segment that probably will see challenging comparisons for 2022? Yeah.

So I think, thanks for the question, Eric. Um, So, look, the gaming portfolio is extraordinarily strong and has been a real leader, as we pointed out. We would point you to the $2.1 billion at 19% growth, and we've got some powerful brands in there. Clearly, gaming has had some robust demand as we were in a COVID environment, and so very tough comps, and yet we're still growing that business, and we see upside for the business go forward.

Okay, thank you.

Our next question comes from the line of our P&A Coacharian with UBS. Please receive your questions.

Thanks and good morning. And Chris, congrats on the new role. We look forward to working with you. I was wondering if you could talk about current POS trends for the industry in Hasbro and what is sort of general retail inventory situation. I know you alluded to perhaps better retail inventory versus on-hand. But just a bit of more detail would be helpful, and then I have a quick follow-up on gaming. Thanks.

Maybe Arpina, I'll have Deb take the inventory question first.

Sure. So just from an inventory standpoint, you know, as we mentioned, both our inventory, our owned inventory and retail inventory was up a bit at the end of the year. And that's really because of inventory and transit and the input and freight costs that are capitalized in that inventory. Now, the good part is what's in transit is our new spring releases for Magic and for our consumer products business. So it's of excellent quality, and it is being slightly impacted, though, by those higher input costs as we think about inventory.

And then, Arpina, as it relates to POS, so we did include a summary of POS in the presentation, so please take a look at that. North America was up low single digits for Q4 in full year, and double-digit growth, maybe back to Eric's point on games, double-digit growth for games in Q4. International declined, and clearly low in-stock levels was a driver and a headwind for POS sort of across the portfolio. I may ask Eric to just – anything you want to add on POS?

Yeah, I'll just include maybe some highlights. Thanks, Rich. You know, our P&A – If you think about some of the good stories we had in 2021, some highlights include things like My Little Pony, which grew more than 100% in Q4 following the movie release that Deb and Rich both mentioned and grew double digits for the full year. Our Transformers POS was up in Q4, which contributed to double-digit POS growth for the year. Deb mentioned Marvel and that strong partnership. Marvel POS led by Spider-Man was up, high teens for the year. And we had things like Ghostbusters and G.I. Joe, both which were propelled by theatrical launches, which were up more than 100% for the year. In addition, we had growth in brands like Play-Doh and For Real Friends and PlaySchool, which increased. And we also talked about the POS growth for Peppa Pig and PJ Masks, which we started shipping in the second half of the year and really started seeing POS in the fourth quarter.

Great, great. I was hoping you could add some color on current POS trends, but just quickly my gaming question. What is implied for the gaming business operating margin for 2022? Because, you know, clearly for the full year for 2021, that business came in substantially above the 39% guidance you had initially given. Where do you think those margins could get to for 2022? Sure.

So absolutely, Arpina. You know, as we Launch games, we did see the higher depreciation we expected. As we talked about, we continue investing for that long-term growth. So our higher admin costs reflect hiring people to do that. And, you know, we did have that. That being said, our gaming portfolio, overall, our gaming, Hasbro gaming has high teens, low 20s margins. And when you look at our total gaming portfolio, it's in the low 30s operating profit margin. So as we grow that category, and that's why it's important that we said today despite the fact that we're growing, our gaming portfolio overall is continued to expect to have operating profit margins in the low 30s as we go forward, and our Wizards of the Coast in digital gaming segment is expected to not only grow revenue, and as Chris mentioned earlier, at a greater pace in 23 and beyond as some of the gains that we've been investing in come to market. But we expect that segment to maintain operating profit margins over 40%.

Thank you very much.

Next question is from the line of Drew Crum with Stiefel. Please proceed with your question.

Okay, thanks, guys. Good morning. Deb, can you remind us what the plans are for debt reduction in 22 and 23? Will you be paying down debt this year, or is your aspiration to get to the two to two and a half times leverage multiple in 23 just a function of improved adjusted EBITDA? And then separately, you mentioned the non-cash charge taken related to the Discovery Family Channel during the quarter. Given the changes across the cable industry that were referenced, Can you comment on your commitment to this business and does it make sense to maintain the 40% state going forward? Thanks.

Thanks, Drew. Well, first the debt to EBITDA question. Yes, we intend to pay down debt this year. We expect to hit our targets of two to two and a half times through a combination of EBITDA growth as well as debt repayment. That being said, we maintain our capital allocation strategy. First and foremost, we invest in the business. We've talked about how some of those investments, particularly in our gaming portfolio, have delivered growth of 150% and above in revenue. We continue to plan to make those long-term investments in the business around the blueprint to drive that profitable revenue growth go forward. That being said, right now those targets are the right targets for us. We think given our current projections, we'll hit them in 2023. So that's how we look at it. But it is a combination of debt pay down, additional debt pay down, as well as EBITDA growth. With respect to the investment in Discovery Family Channel, listen, it was a great investment for us. We made it over 10 years ago. It allowed us to get our programming on the air. It really drove the beginning of the brand blueprint strategy. And you think about My Little Pony coming back in again. Well, we've reinvented it now. It had a great run for a long time. It's been a terrific investment for us. It's driven over a billion dollars in revenue for the company. It's returned a significant amount. Listen, there's just changes happening in the cable industry. I think as we look around us, we see it too. More people moving to streaming. You know, more people moving on to different things. That being said, you know, Discovery runs a great network and all of their network is terrific. And it's been a great investment for Hasbro. As we continue evaluating what we're going to do with it, you know, we'll continue looking at what's happening. But it's been a fantastic investment for us over time. It's had a really great return. And just because of the way the accounting function works, we had a non-cash, you know, non-op charge in the quarter.

Thank you. Our next question is from the line of Jamie Katz with Morningstar. Please receive your questions.

Hi, good morning. I don't think there was any information on how you guys are thinking about capital spending this year in the deck, but could you give us an update on that and on what you see as the working capital demand changes that we might see this year? Thanks.

Sure, absolutely. Good morning, Jamie. From a CapEx standpoint, just straight CapEx, our expectation is it would be about $150 million to $180 million. in 2022, and that changed from a year ago. If you recall, it's usually the majority is spent on tooling, but our increase is really due to digital game development as we sit and look forward, and that's driven us a bit higher over time, but that's really where the increase is coming from in our CapEx estimates for 2022. From a programming standpoint, I think we mentioned we expect $725 to $825 million in content spend, up a tick from 2021. But that's multi-year content spend. So as we look out past 22, we have a lot of new animated programming coming, including new brands. So when you think about that, it's a multi-year spend that we're seeing this year. So hopefully that helps.

It did. And then I think originally the 2023 outlook was for above 15.7% for operating margin, and that's been lifted a little bit. Is that primarily due to just the mix of the portfolio and where the returns are coming from, or is there something else we should be thinking about?

No, absolutely. And that's a great question. Yes, we have been saying that we saw nothing holding us back from getting to over 16% operating profit margins. And we see that in 2023 and beyond. When we look at the mix of what we expect to have in our product line, we expect a greater mix of franchise brands a mix of, you know, I talked a bit about the movies coming out in 2023 like Indiana Jones and Transformers and Guardians and New Star Wars and Dungeons and Dragons. When we think about that and the growth we expect in our gaming portfolio, we expect to see operating profit margins based on that mix of greater than 16%. Excellent.

Thank you so much. Nice quarter.

Thank you.

Next question is coming from the line of Garrick Johnson with BMO Capital Markets. Please receive your question.

Great, thank you. Good morning. I was hoping you could talk a little bit more about Wizards of the Coast in the quarter. You gave us some good detail on the year, but discuss the operating margin decline to 30% or so, and if gaming, if digital gaming grew in a quarter year over year.

Sure. So as we think about margins, operating margins in the quarter, We did have depreciation. You know, not every quarter is the same, right? So we had some digital depreciation in the quarter. And that's really kind of what you're seeing from a quarter-on-quarter. That being said, it's still a very healthy and high operating profit margin within the quarter. And Chris, do you want to talk about?

Yeah, so I think within the quarter, it was just the quirks of when we depreciate, when we capitalize, and then also some advertising expenses related to – an incremental release that we had Crimson Vow during the quarter, as well as continuous support of Arena and scaling Arena Mobile. You know, the growth of the business has been very strong, exceeding our expectations. We continue to have a very positive outlook on it, both on the tabletop side and long-term on the digital side for 2022 and beyond.

Okay. Was the depreciation quarter, was that related to Magic Legends?

Magic Legends was a licensed game done by Perfect World, so we weren't a part of that. We took royalties from that and a minimum guarantee, but didn't invest anything in development or marketing.

So depreciation was really just related to our games. The only other thing I would point out is people don't think about that, think about this very often, but our Wizards of the Coast business, and not so much the digital side, But the tabletop side was also impacted by the freight and input cost issues that we saw in the consumer products business. So that card business, from a manufacturing standpoint, if we look at components, the highest growth of components of our overall inventory this year was in paperboard and print. And we think about the printing of the cards and the freight in for the cards as well. That was the other thing that impacted us in the quarter, and we do expect to have a bit of an impact in the first quarter as well.

Okay, great. Can I ask about taxes real quick? Your tax rate seemed a little bit low in a quarter. I mean, your op income hit my number, but your EPS blew it away. So what did I get wrong in taxes, and did you have a benefit in a quarter on taxes?

We did have some adjustments and discrete items for the quarter. I mean, typically we do file our tax returns as most companies do in that October timeframe. So to the extent we have discrete return to provision items, we tend to see those in the corner. As we're going through the integration of E1, we probably had higher impact from that in 2021 than we would expect to go forward.

All right. Thank you, Debbie.

The next question is from the line of Fred Whiteman with Wolf Research. Please proceed with your question.

Hey guys, good morning. I was hoping you could just give a quick overview on how you see the new management structure going forward. You guys did not have a COO after John's retirement and would love to sort of get the latest thinking on delegation of responsibilities and sort of where you see the relative strengths across the management team today.

Yeah, sure. So I feel very fortunate in the management team that I'm both inheriting and that we're bringing on board. In terms of our business unit leaders, Darren Throop will continue to lead entertainment in E1. I think we have a fantastic new hire with Cynthia Williams coming on board at Wizards of the Coast, and she'll be augmented by Tim Fields. Cynthia has a great digital and direct experience from Amazon, where she helped to found the Fulfilled by Amazon business, and then most recently on the Xbox team, working on a lot of their cloud services. Tim was the CEO of Kabam, one of the most successful mobile game developers in North America, and I think brings a lot of great production experience as we scale our digital investments. And then, of course, we have Eric, who, in addition to being COO, will continue to run our consumer products team. Eric's been doing a fantastic job driving that business, growing our relationships with partners, and thinking about the future, where that goes. In his expanded remit, he'll be taking on more and more strategic opportunities and operational opportunities across the company, including running all of our global sales and marketing. And then, in addition to that, we have Deb, who continues as, I think, one of the best CFOs in the business, helping us think about strategic planning, helping us think about finance and accounting, and then, of course, our investor relations. We have Terrence Sibley, who will continue as our head of legal affairs and We have Catherine Bellevue, who is our Chief Purpose Officer, and will run a lot of our CSR and ESG initiatives. And then we have, joining us from Dell, Naj Atkinson, who will be our new Chief People Officer, helping us drive and scale this organization and grow the talent that we have within it.

Super helpful. And, Deb, just a clarification. I think you guys said you were on track for the $130 million of E1 synergies. I think previously you were expecting $70 million of incremental savings in 2022. Is that still a good assumption, or did the timing of those benefits sort of shift?

No, Fred, that is a good assumption still. I mean, we're still on track for the $130 million, and we're still on track for the insourcing. You know, we had a little bit of a challenge in supply chain, like everything else with our insourcings. for PEPA and PJ. And we've continued to work with some of our really terrific license partners, actually, our consumer product license partners as we move forward and deal with some of the supply chain challenges. But we are on track for the $130 million and the additional amount in 2022.

Great. Thank you.

Thank you. Our next question is coming from the line of miking with Goldman Sachs.

Please proceed with your question. Great. Thank you very much for the question. I was just wondering if you could talk a little bit more about some of the puts and takes in the Wizards business over the next couple of years. Specifically, what are some of the key things creating tough comps for 2021? Is it some of the digital deliveries? I think there was a Dungeons & Dragons game, and then I think it was Dark Alliance. Are you guys on track to deliver a new D&D game each year over the next couple years? Thank you.

Yeah. Hey, Mike. I'll take this one. So on the tabletop side of the business, we predict more historical norm growth after an extraordinary 2021. A big function of that is last year we had six of what we call premier releases, which are our large magic set releases versus five historically. This year we'll also have six, but you're comping those two. So it's more about base underlying growth in the business and the user base. On the digital side of the house, last year we had Dark Alliance, which shipped at the end of Q2, beginning of Q1. Sorry, beginning of Q3. So we won't be comping that this year. And then we also had Magic the Gathering Online, which is our older or our original digital trading card game. that we've converted to a licensed model as opposed to an owned and operating model, and that'll be operated by our partners at Daybreak Studios. So those two could create some headwinds that Arena and continued growth in our digital RPG business will continue to work against. Longer term, we expect to have a new release, at least one every year starting in 2023 through the foreseeable future. You know, our 2023 release will likely be in the back half of the year, and then we'll be sharing more details on what those future releases are, likely in the second half of 2022.

Great. Thank you for all the call, Chris. Much appreciated.

Our next question comes from the line of Megan Alexander with J.P. Morgan. Please proceed with your question. Ms. Alexander, your line is open for questions.

Perhaps you're on mute.

Sorry. Sorry. Thanks very much. I was hoping you'd just talk more about the puts and takes on the operating margin for the full year. You know, you spoke to some gross margin pressure in 1Q before the pricing actions go into effect, but do you ultimately think you can, you know, recoup the freight pressure as we get kind of to the back half of the year, especially as you lap some of the unusual air freight expenses?

Yes, absolutely. As we said, we expect operating profit margin expansion in 2022, just not reaching our full goal of in excess of 16% by 2023. We do expect continued challenges with freight costs and input costs for the better part of this year. We do have the pricing coming into play, but it still remains a challenging environment, we think, in 2022. So as we think about that, the first quarter is difficult, but just because the price increases come into play in the second quarter and beyond. And we're very excited about the new launches and all the innovation that we have coming out throughout the year, but in particular around the holiday season.

Great. That's really helpful. And then just as a follow-up, could you maybe talk a little bit about what you've seen in POS trends as you lapse? the stimulus payments in January and maybe how does that inform your expectations as we, you know, the double stimulus payments coming up in March and April?

Sure, absolutely. You know, as we mentioned in our prepared remarks earlier, the toy and game industry has had incredible growth the past couple of years, really above trend. And when you look at things like stimulus payments going away, inflation, right, I always like to say around the table, guys, look how much milk costs today versus how much it cost a year ago. I think everyone's seeing inflation. That's why we expect the industry to be more muted this year, maybe even down. I mean, we have a lot of innovation and a lot of new things coming. We have a lot of great entertainment coming this year, which we believe is going to drive a lot of our demand, and that's why we think our business can grow. But, you know, we do expect to see a bit more muting in the toy and game industry in 2022 just because of all these things that aren't hitting global inflation and stimulus payments, as you mentioned, and other parts. That being said, we expect the entertainment industry to grow this year as theater is coming back online and people are going back out and content demand continues to be at an all-time high. as well as digital gaming and gaming industry overall, we expect to continue to grow. So that's the benefit of all of the parts of our business working together around our blueprint, and that's what we think gives us a distinct advantage in this type of market.

Great. Thanks very much.

Our next question is from the line of Linda Bolton-Weiser with DA Davidson. Please proceed with your question.

Yes, hi. I was just thinking about the consumer products business more longer term, and I guess we don't have your segments going, your profitability going back to 2016, but that's when your overall company margin kind of peaked at 16.4% operating margin. How does the consumer products margin kind of very roughly compare back then to what it is today? So I guess it's around 10% operating margin today. Was it much higher back then, moderately higher? I'm just trying to think of what the profitability potential of consumer products is longer term beyond where we are today. Thanks.

Sure. Well, we expect our consumer products business operating profit margin to continue expanding. I think in 2022, we've talked a lot about the cost pressures that hit that business. And we've talked about in 2023 and beyond, we expect our operating profit margin as a company as a whole to expand above 16%. We expect a bit faster expansion in consumer products operating profit margin in 2023 and beyond. So while I can't go back to 2016 because our business had many facets to it at the time, you know, and it's our business as a whole, we do expect that, you know, our business will continue to grow as a company will be in excess of 16% operating profit margin, similar to those levels in 2023, and our consumer products operating profit margin will expand over time.

Okay, thanks.

Next question is from the line of Valak Patel with Barenburg. Please receive your question.

Hi, thanks for taking my question. I wanted to ask about the Disney Princess license. I think I heard Deb said that at the peak it was contributing about $250 million in revenue. Can you comment on how much of the revenue contribution is coming from Star Wars and the Marvel portfolio?

So we did say that over the term of the Disney Princess and Frozen license, it's averaged about $250 million per year of revenue. And the peak was in 2019 with the Frozen movie. So if you just think about that on a revenue standpoint, we continue to remain very excited about our partnership with the Disney company and continuing with Marvel and Star Wars. And we're all very excited for Indiana Jones. We had a license for Indiana Jones many years ago. And, you know, I've had the opportunity to look at some of the product we're bringing out, and it's just fantastic. So we're very excited about our partnership continuing with the Disney company. We have not specifically talked about profitability in those lines in total, but I will say we've said in the past our partner brand portfolio in total in the past has had mid-single-digit operating profit margins. But our expectation as we move beyond 2023 is that would grow to high single low double-digit operating profit margins in 2023 and beyond.

Okay, so just as a follow-up, would you say that the Disney Princess license compares favorably to the Star Wars or the Marvel one? I just kind of want to get an understanding of how this changes things just for comparative purposes.

You know, each license is different, and depending on what goes into content creation within those brands, each license has a different margin profile as you look at it. So what I would say is in 2023 and beyond, we expect our partner brand operating profit margins to expand to high single, low double digits, more in line with some of the other parts of the portfolios of our business.

Okay, got it. Thank you.

Thank you. We have reached the end of the question and answer session. I'll now turn the floor back over to Debbie Hancock for closing remarks.

Thank you, Rob, and thank you, everyone, for joining the call today. The replay will be available on our website in approximately two hours, and management's prepared remarks will be posted on our website following this call. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.