Hasbro, Inc.

Good morning and welcome to Hasbro's first quarter 2023 earnings conference call. At this time, all parties will be in a listen-only mode. 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 would 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. 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. Today's guidance assumes we retain the non-core entertainment film and TV business, notwithstanding the current marketing process. While there is no guarantee of such an outcome, if this process results in a sale, we will update our guidance. 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 good morning. Six months ago, we unveiled our strategy for Hasbro, highlighting three priorities, focusing on fewer bigger brands and initiatives, building our consumer insight to grow, share, and drive innovation, and improving operational excellence to fuel bottom-line health and strategic reinvestment. It's a plan that re-centers Hasbro on what has made us great for the past 100 years and which will serve as our foundation going forward. Play. Put simply, play is what we do. And as we celebrate our 100th anniversary, 2023 is about refocusing our teams to drive renewed leadership in toys and games right-sizing our entertainment investments, and driving fundamental improvements in our organization to deliver long-term success. With our strategy top of mind, let's review our Q1 results. As anticipated, Q1 revenue was lower year over year, but ahead of expectations, driven by continued positive performance of Wizards of the Coast in digital gaming and another strong growth quarter for Magic the Gathering. Revenue for the quarter was $1 billion, a year-over-year decline of 14%. Adjusted operating profit was $47.2 million, and adjusted earnings per share were one penny. Wizards and digital gaming net revenue increased 12% year-over-year, with growth in both Magic and D&D. Magic the Gathering was a standout performer, growing 16%. particularly impressive given its 40% growth in Q4. The fundamentals of Magic, Hasbro's first billion-dollar brand, are strong, with new player growth, player engagement, and player sentiment all pointing in the right direction. We expect the positive momentum for Magic to continue with Q1 also seeing one of our most successful pre-orders ever for our upcoming Universes Beyond the Lord of the Rings Tales of Middle-Earth set, which will launch in late Q2. Given our release calendar, we expect revenue for Magic to be down in Q2, but up solidly in Q3 and for the full year. Consumer products revenue declined 23% year over year. Point of sale was down for the quarter, but improved through Q4, despite exiting several unprofitable businesses and licenses. Play-Doh, Peppa Pig, and Hasbro Gaining saw POS gains in Q1, and we drove late quarter growth in action, particularly in Transformers, as excitement amounts for the June release of the Transformers Rise of the Beast feature film. Beyond Transformers, we have a blockbuster lineup of content from our partners' brands, helping to support sales in the back half of the year, including Season 3 of Lucasfilm's The Mandalorian, Star Wars Ahsoka, Star Wars Young Jedi Adventures, Indiana Jones and the Dial of Destiny, Marvel Studios' Guardians of the Galaxy 3, and Sony's Spider-Man Across the Spider-Verse. Importantly, we ended the quarter with good progress on reducing retailer inventories and are on track for healthy improvements in our owned inventory in Q2 and Q3. Entertainment segment revenues were off 19%. driven by year-over-year shifts in release timing of new film and family brand content. Among new Hasbro content released, we debuted our new preschool brand, Kia and the Kamoji Heroes, on Disney Junior and Disney Plus, and launched with our partners at Paramount the new feature film, Dungeons and Dragons, Honor Among Thieves. D&D took the number one spot at the global box office in its release week, and has become Hasbro's best-reviewed film ever, with an impressive 91% critic score and 93% audience score on Rotten Tomatoes. Based on the strong fan and audience response, we are expecting Honor Among Thieves to enjoy a long viewing life that introduces our newest franchise brand to tens of millions of new consumers globally via theaters, streaming, and post theatrical sales. Our operational excellence program continues apace. As we execute our plans, we expect the cost savings to grow over the coming quarters. In Q1, we achieved $35 million of cost savings. We continue to expect $150 million of run rate gross cost savings this year, money we are using to reinvest in the business, offset margin impacts from inventory management programs, and help us achieve our full year target of 50 to 70 basis points of adjusted operating profit improvement. We made significant progress in recasting our leadership team to drive our strategy. Gina Getter, the CFO of Harley-Davidson and 25-plus year consumer packaged goods veteran, joins us in May as our new CFO and leader of our global operations disciplines. Gina has a long history with corporate transformations, which will serve Hasbro well. Tim Kilpin, a 30-plus year veteran with leadership experiences across Marquee Toy, Games and Entertainment Brands, joins us as our new president of toy licensing and entertainment. Jason Bunge, the former chief marketing officer of Riot Games, joins us as our new global CMO, bringing new marketing firepower for our games and data-driven growth initiatives. And Bertie Thompson, chief communications and creative officer at Notion and former communications executive at Meta, joins us as our new chief communications officer. bringing cutting edge technology, social media, and financial markets communications expertise. These talented leaders joined an extended leadership team, hailing from technology, CPG, toys, games, and entertainment companies to drive our strategy and build profitable blueprints across our franchise and partner brands. Our growth initiatives continue to deliver. Hasbro's total games portfolio grew 2% in the quarter. Direct-to-consumer revenues increased 21%, led by a 46% increase at Hasbro Pulse, our fan-focused direct-to-consumer e-commerce platform. And on licensing, we just announced our first-ever agreement with Mattel, including crossovers for Barbie and Monopoly and Hot Wheels, Uno, and Transformers. Partnerships like this, along with our previously announced licensing deals with Lego on Transformers and D&D, expand our brands, introduce our toys and games into new categories, and leverage our own category leadership for new growth opportunities. For the full year, we are maintaining our previous guidance of a low single-digit revenue decline and adjusted operating profit margin expansion of 50 to 70 basis points. We continue to expect Q2 to present headwinds as retailers return to traditional ordering and shipment patterns and release timings for new Magic Sets favoring Q3 impacts Wizards of the Coast sales. We're cautiously optimistic with the progress we've made in Q1, but still maintain an outlook of a flat-to-down toy and games market where focus, share building, and bottom line health are Hasbro priorities. On the sale of our non-Hasbro branded E1 film and TV assets, we continue to be pleased by the progress, and expect to provide an update in Q2. In summary, while Q1 is just a start, we delivered ahead of plan and continue to see steady progress in building our leadership team, focusing the company, and improving our operational fundamentals. Magic is strong. The fan economy is proving resilient, our entertainment calendar is robust, and our growth initiatives are on track. I'd now like to turn over the call to our Chief Financial Officer, Deb Thomas, to share more details. Deb?