Hasbro, Inc.

Good morning and welcome to the Hasbro First Quarter 2022 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 you would like to ask a question at that time, please press star 1 from 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 reading speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions for as many participants as possible, we ask that you limit yourself to one question and one follow-up question. If anyone today 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. And at this time, I'd like to turn the call over to Ms. Debbie Hancock, Senior Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Joining me today are Chris Cox, Hasbro's Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer. Today we will begin with Chris and Deb providing commentary on the company's performance. Then we will take your questions. Cynthia Williams, President of Wizards of the Coast and Digital Gaming, Darren Troup, President and CEO of E1, and Eric Nyman, Hasbro's President and Chief Operating Officer, will join for the Q&A portion of the call. 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 MQ 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?

Good morning. I'm happy to be joining you today to discuss Hasbro's first quarter results and share the efforts our leadership team are undertaking to assess the business and strategic direction of Hasbro. Deb Thomas will speak shortly in detail about our quarterly performance that supports our view of growth for the year. In Q1, our Hasbro teams executed well, growing revenue to $1.16 billion, a 4% year-over-year increase, and 7% absent our music business, which we sold last year at the beginning of Q3. Revenues grew in each segment. One of the standout performers for the quarter was our latest Magic the Gathering release, Kamigawa Neon Dynasty, which is our best-selling winner set of all time, beating the prior year's set by 28%. Neon Dynasty is the fifth Magic set to generate in excess of $100 million and is our third largest set ever. Our overall games portfolio grew 4% and would have been even stronger. However, we moved our March Magic release, Unfinity, to September to help our supply chain to keep up with robust demand for the base Magic business. Our consumer product segment also showed growth, buoyed by My Little Pony, Peppa Pig, and Hasbro products for the Marvel portfolio and Star Wars. And our industry-leading entertainment capabilities drove a revenue increase of 4%. or 22%, excluding $31.8 million of music revenue from last year. TV, film, and animated content drove the growth, including deliveries of The Rookie, which was just picked up for Season 5, the premiere of Transformers BotBots, which was a top 10 kids series on Netflix in its first week, and Power Rangers Dino Fury, which was also one of the top 10 most watched kids shows on Netflix in all markets it launched. For the full year, we continue to project top-line growth in the low single digits behind continued strength in our highly profitable Wizards and Digital Gaming business, which we now see growing at the upper end of our previously communicated growth range of mid-single digits with the potential to reach low double digits. We continue to expect the entertainment segment to grow mid-single digits absent the music business. Combined with low single-digit growth, in the consumer product segment. Projected growth in consumer products would be mid-single digits, absent an approximate $100 million headwind related to Russia. On a bottom line basis, since taking over as CEO, our team has commenced a comprehensive review of our strategy and operations. A major theme of this effort is focus and scale. focusing on fewer, bigger opportunities and scaling those with reinvestment to drive profitable growth and enhanced shareholder return. We'll share a more fulsome update on this strategy at an investor day we are scheduling for October 4th, but we are already identifying opportunities to drive enhanced operating profit across the company, particularly when coupled with the continued strong demand we are seeing in our games business. For the year, we are increasing our outlook for operating profit and anticipate adjusted operating profit margins of 16%, a meaningful improvement versus last year's 15.5%. I'm also pleased to report, based on the solid, profitable fundamentals we see across our company, starting in Q2, we will resume our stock repurchase program with a target investment in the $75 to $150 million range in 2022. As part of this review, games, multi-generational play and entertainment, and direct-to-consumer will be key focus areas for us as a company. In 2021, games was a $2.1 billion business for Hasbro, growing 19% year over year, generating an OP margin in excess of 30%. Last week, we announced a deal with Fandom to acquire D&D Beyond, the premier digital content platform for Dungeons & Dragons for $146 million. The addition of D&D Beyond to our games portfolio adds a powerful asset to one of our cornerstone gaming brands. D&D Beyond brings nearly 10 million connected gaming accounts and a highly profitable, rapidly growing business into the Hasbro family. With a three-year kegger of over 50%, a projected operating profit margin once combined with Hasbro in excess of 65%, and powerful new growth vectors as part of Hasbro, including international market expansion, enhanced digital play experiences, physical digital tie-ins, all new direct-to-digital exclusive content, and new brand partnerships, we see a bright future for Dungeons & Dragons. And we only see these opportunities growing over time as we invest in an end-to-end brand blueprint for Dungeons & Dragons, including blockbuster films and streaming TV, AAA video games, a major consumer products push, and significant marketing tie-ins. D&D Beyond is more than just a great business. It will become the digital hub of Dungeons & Dragons play that our brand blueprint will enhance and accelerate. Multi-generational play is a significant growth opportunity for us. it may surprise many that Hasbro generates the majority of our profit among consumers over the age of 13. Much of this is generated by gaming, but also by collectibles and the fan economy, which are one of our fastest-growing and most important growth businesses. We see a big opportunity in embracing the agelessness of play as we unlock more value through play and entertainment across our portfolio among our own brands, in our strategically important partner brand portfolio, and in the partner IP we work with for co-brands. Our license partnerships go forward will further unlock and enhance this profitable opportunity. As an example of this approach, we are excited to announce the return of one of the most beloved sports collectible brands of all time, Starting Lineup. The relaunch of Starting Lineup gives us a new product line to appeal to fans of all ages in a fast-growing category, with many more exciting partnership announcements to come in the near future. Starting lineup joins a collection of some of the most sought-after collector's brands in the world, including Fortnite, Disney's Marvel, Indiana Jones and Star Wars, and fantasy juggernauts The Lord of the Rings and Warhammer 40,000. Our new approach to brand partnerships combines IP with terrific multi-generational appeal strong growth profiles supported by evergreen AAA games, and blockbuster entertainment, and a superior margin outlook. Starting lineup and D&D Beyond also represent important investments in our direct-to-consumer capabilities. Starting lineup will launch exclusively on Hasbro Pulse, our direct-to-consumer platform, and across the Fanatics Network this fall. And D&D Beyond brings the largest online collection of Dungeons & Dragons players onto a platform owned and operated by Hasbro. Combined, they represent both compelling businesses and a great opportunity to enhance our growing insight into some of our most lucrative and engaged fans. Before I turn it over to Deb, I want to welcome a new member to our senior management team. Shane Ozzie is joining us in May as our new Chief Global Supply Chain Officer, reporting to Eric Nyman, Hasbro's President and COO. Shane was the SVP and Chief Global Supply Chain Officer at CPG Powerhouse, Kimberly Clark, and will help us modernize and streamline Hasbro's backend operations over the coming quarters. I'm excited to have a supply chain expert of Shane's caliber and experience join our executive leadership team and look forward to his contributions in our ongoing strategy review as we focus and scale, drive our games business, expand our multi-generational play and entertainment opportunities, and build out our direct capabilities. In closing, Hasbro executed a solid first quarter, punctuated by continued strength in our games business, particularly Wizards and Digital Gaming, which we view growing at the top end of our previous guidance for 2022. We project continued growth in 2022 and see clear opportunities to enhance the profitability of our business and invest in new direct capabilities like D&D Beyond, new collectible platforms like Starting Lineup, and enhancing shareholder value with these strategic investments for growth, including our share repurchase program. It's only been a little over 100 days since my announcement in January. But my hope is you see the same energy and discipline in these investments and focus on our consumers as we pursued across the wizard's business for the past six years. And we are only just beginning. Our approach to our strategy review will be comprehensive, evaluating our brand priorities, our cost structure, our capital allocation strategy, and where we need to position Hasbro for long-term success and superior shareholder returns. The management team and I are looking forward to sharing more about our plans to focus and scale at our Investor Day this October. I'd now like to turn the presentation over to Deb to share more details about our performance in the first quarter and our outlook for the year ahead. We will follow this up with a Q&A session where Cynthia, Eric, and Darren will join Deb and I on the call. Deb?