Hasbro, Inc.

Good morning, and welcome to the Hasbro second quarter 2022 earnings conference call. At this time, all parties are in a listen-only mode. A question and answer session will follow the formal presentation. 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 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 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?

Thank you, Debbie, and good morning. Since our first quarter earnings call, the executive leadership team and I have been undergoing a multi-month strategic review of the business. While the review is still in process, it's already clear we're an organization with a bright future. Led by an unmatched brand portfolio that spans fans of all ages, an industry-leading gaming business, which is a top investment priority for us, a growing direct-to-consumer business, and unique assets and entertainment creation all knitted together by talented global teams working with a clear sense of purpose and value creation. We see big opportunities to scale our franchise brands, drive all new play platform innovation, and transform our operations to improve our agility, focus, and profitability. Games, digital, expanding the age ranges of our portfolio, and harnessing direct connections with our consumers are all compelling growth opportunities for Hasbro. We'll share more about our plans in October at our Investor Day, but I'm energized with what we have accomplished to date as we focus on driving long-term profitable growth an environmentally responsible, sustainable business, and superior shareholder returns. While we've been advancing our long-term strategic work, our teams have been busy delivering a strong second quarter with 4% revenue growth absent FX, 14% adjusted operating profit growth, and 200 basis points of margin expansion, adjusted earnings per share of $1.15, and 6% growth in adjusted EBITDA, Deb Thomas will speak to our results in more detail, but let me share a few highlights. Revenues grew for consumer products and the Wizards and digital gaming segments. Entertainment segment revenue was down in the quarter, mostly due to the timing of deliveries, but is up year to date, absent the music business we sold last year. As we projected in our Q1 earnings call, Wizards delivered its biggest quarter ever in Q2, successfully comping last year's Q2, our prior record. Tabletop revenues grew 15%. Magic the Gathering led with 11% revenue gains and is up 10% year-to-date. For the first time in history, every major set this year has crossed $100 million in sales. The underlying business and demand for Magic remains strong, and we continue to expect the Wizards business to grow at the high end of our beginning-of-year forecast. a range of high single digits to low double-digit year-over-year growth on a constant currency basis. In the quarter, our overall games portfolio grew 2% or 4% in constant currency. We enhanced an already powerful portfolio during the quarter, completing our acquisition of D&D Beyond to bolster our direct digital platform for Dungeons & Dragons, adding key capabilities in two areas of focus, gaming and direct. We expect the acquisition to be immaterial this year and accretive to EPS in 2023 and beyond. As we forecasted, our digital revenues were down for the quarter and are expected to be down for the full year as we comp both Dark Alliance for Dungeons & Dragons and Magic the Gathering Arena's mobile launch last year. Digital remains an investment priority for Hasbro. Arena is entering its fourth year of availability since its open beta in 2018, and is a profitable, vital platform for new player acquisition and magic. Later this year, the game will be available on Steam for the first time, and in 2023, we expect it to launch on major consoles. D&D Beyond is in the early stages of integration into our Wizards business, and we are pleased with the early results. We expect D&D Beyond to be a growth platform, particularly as we turbocharge the Dungeons & Dragons brand with blockbuster entertainment, digital games, and consumer products in 2023, leading into the brand's 50th anniversary in 2024. We also expect several exciting new game announces in the coming quarters across D&D, Magic, and new brands we have in development. Consumer product segment revenues grew behind gains in several Hasbro brands, including Play-Doh, Peppa Pig, Power Rangers, and My Little Pony. as well as Hasbro products for the Marvel portfolio and Star Wars. As we look to the remainder of the year, we have innovative new initiatives and are in a much better position this year versus last with inventory at retail and on hand at Hasbro to mitigate supply chain disruptions and meet demand. Retailers increased direct import orders by approximately $60 million in the second quarter versus our plans, taking product earlier to ensure availability and proactively manage the supply chain. While our inventory levels are up year-over-year at the end of Q2, the inventory is of high quality, positioning us to meet consumer demand and promote our new product innovation aggressively. For instance, our early read on our first of two prime days at Amazon last week is positive, with consumer deal takeaway up 20% year-over-year. Our newest game announcement, The Party Game, is off to a record start for gaming pre-orders. As such, we expect inventory by year-end to be approximately flat year-over-year and to see reductions in on-hand supply by the end of Q3. Our entertainment business is up year-to-date and on track for full-year revenue and profit margin growth, absent the sale of the music business last year. With over 200 projects in development across film, scripted and unscripted television, The E1 team is working on over 35 development projects for Hasbro brands, including content for Transformers, Magic, D&D, Peppa Pig, My Little Pony, Power Rangers, and Play-Doh, among many others. Last week, we received seven Primetime Emmy Award nominations for Yellowjackets, including Outstanding Drama Series. We are in production on Season 2, with deliveries slated to begin later this year. In Q2, we delivered season four of another hit show, The Rookie, for ABC. This fall, The Rookie will return for season five, and previous seasons will begin syndicated broadcast in the U.S. ABC also ordered a spin-off, The Rookie Feds, to series, where it is set to premiere September 27th. As we look to the full year, we began 2022 with what we felt was an appropriately measured outlook for growth that reflected a challenging economy. and we're maintaining our guidance. We continue to expect low single-digit revenue growth in constant currency as we see exchange rates, particularly in the Eurozone, as a potential headwind that Deb will speak to further. We are prioritizing profitable growth and expect adjusted operating profit to grow faster than revenue as higher margin product lines, including games, grow at a faster rate, combined with cost savings we have identified in our business. Our target remains a 16% adjusted operating profit margin for 2022 versus 15.5% last year. The team and I are looking forward to sharing with you our long-term plans and vision at our upcoming Investor Day on October 4th. We've spoken with many of you over the past several months, and we've taken to heart your excitement and feedback. We remain laser-focused on producing profitable growth, articulating our updated vision, continuing to drive industry leadership in sustainability and governance, and positioning Hasbro to deliver superior total shareholder return over the long term. Put simply, our aim is to do good while we do well. I'd now like to turn the call over to Deb to share more details about our performance in the second quarter and our outlook for the year ahead. Deb?