Hasbro, Inc.

Good morning, and welcome to Hasbro's second quarter 2023 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 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'd like to turn the call over to Ms. Kristen Levy, Senior Manager, Investor Relations. Please go ahead.

Thank you and good morning everyone. Joining me today are Chris Cox, Hasbro's Chief Executive Officer, and Gina Getter, Hasbro's Chief Financial Officer. Today we will begin with Chris and Gina 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 10Q, 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 agreement we just entered into with Lionsgate to sell this business. That transaction is subject to customary closing condition and regulatory approvals. Following closing of that transaction, we plan to 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, Kristen, and good morning. Today, I'm pleased to announce that Hasbro has entered into a definitive agreement to sell our E1 film and TV business to Lionsgate for approximately $500 million. consisting of cash of $375 million and the assumption of production financing loans. This purchase will include a team of talented employees, a content library of nearly 6,500 titles, active productions for non-Hasbro-owned IP like The Rookie, Yellow Jackets, and Naked and Afraid franchises, E1's Canadian film and TV operations, and the E1 unscripted business, which will include rights for producing Hasbro-based shows like Plato Squished. We expect the transaction to complete by the end of 2023. Hasbro will use the proceeds to retire a minimum of $400 million of floating rate debt by the end of the year and for other general corporate purposes. Hasbro Entertainment will be the new marquee for our ongoing entertainment efforts after the sale closes, under the leadership of Olivier Dumont, the current head of E1 Family Brands. Hasbro Entertainment's mission is to develop, finance, and produce entertainment based on the rich vault of Hasbro-owned brands. We'll bring to life new original ideas designed to fuel all areas of Hasbro's blueprint, including toys, publishing, gaming, licensed consumer products, and location-based entertainment. We'll retain a focused team of creative development and business affairs experts to shepherd the 30-plus Hasbro-based projects and development, working with the best studios and distribution platforms in Hollywood, including ongoing development of the Transformers and G.I. Joe franchises, Play-Doh, D&D, Magic the Gathering, and our board game portfolio. As part of the sale, we expect to move to an asset-light model for future live-action entertainment, relying on licensing and partnerships with select co-productions like our previously announced Transformers 1 animated film, and the D&D live action television series, both with our partners at Paramount. The sale of E1 is another important milestone in our transformation at Hasbro. Last year, we articulated a plan to turn around Hasbro, driving growth in fewer, bigger, more profitable brands, improving our consumer focus, execution and innovation, and building our operational excellence to fuel our bottom line and create sustainable performance. At the highest level, it's a plan about recentering Hasbro on what has helped us create one of the most valuable portfolios of brands in toys and games, the timeless power of play. I'm pleased to report in Q2, we've made substantial progress against these goals. Hasbro delivered better-than-planned operating results for the second quarter, including revenue of $1.2 billion and adjusted operating profit of $137 million, which includes a $25 million charge we took for the D&D Honor Among Thieves feature film. The movie is among the best-reviewed films of 2023 and has performed well in streaming, but the box office didn't meet expectations. POS in the quarter was at or ahead of market, and when factoring exited businesses, was ahead of market. Through the first half, Peppa Pig, Transformers, Play-Doh, D&D, Magic the Gathering, and Hasbro Games have all grown point of sale. According to Circona, the G9 global toy and game market declined 7% through year-to-date June. We gained share among the G9 in three of our five focus categories. action figures behind growth in Transformers, arts and craft with Play-Doh, and in games behind Monopoly. Our direct fan-focused business, Hasbro Pulse, increased point of sale by 54% in the quarter. Transformers Rise of the Beast is one of the top box office performers of the year and has driven an 83% improvement in Transformers POS since its release. Magic the Gathering launched what we believe will be the biggest release in our history with Lord of the Rings Tales of Middle-earth. D&D generated nearly 2 million new registered users on D&D Beyond through the first half of the year. Our licensing business continues to grow, including the release of one of the biggest mobile games in the last five years, Monopoly Go, from our partners at Scopely. which since its debut has been number one in downloads in 87 countries on the Apple App Store and 49 countries on Google Play. Our operational excellence efforts have driven over $84 million of cost savings year-to-date, money we are using to both fund inventory reduction and clearance efforts, and key growth initiatives like direct data analytics and digital. And speaking of inventory, our sales teams have been busy reducing our owned and operated inventory in our toys and games segment by 24% year over year and our retail inventory by 16%. While headwinds and uncertainty continue to exist in the toy and game category as a whole, a better than planned start to the year so far for Hasbro sets us up for success in the back half. Gina will share more in her remarks, but at a high level, we're maintaining our guidance for our consumer product segment and raising guidance for our Wizards of the Coast and digital game segment. Due to the writers' and actors' strikes and underperformance of D&D Honor Among Thieves, we are lowering our guidance for entertainment. Magic is on track for a record Q3 with favorable set release timing buoying results. D&D should have a strong second half, powered by excitement for the upcoming PC and console releases of Baldur's Gate 3 from our partners at Larian. Furby is already a hot seller, with initial allocations selling out in under 72 hours. Most of our toy and game innovations have only just begun to hit shelves, including the new preschool line for Lucasfilm's Star Wars Young Jedi Adventures, our new AR game, Twister Air, new blaster innovation with Nerf Double Punch, and hot new game crossovers like Barbie Monopoly. And with much improved inventory levels and the bulk of our inventory management efforts phasing down in Q3, we see an opportunity for meaningful margin improvement as the year progresses, particularly as we go into the fourth quarter. Net, we exit our first half with a solid quarter and positive operating indicators for our second half in our core segments. Our inventories are greatly improved. We're growing share in key brands. and we are making the improvements necessary to our supply chain and cost structure to see sustained operating margin growth over the mid and long term. We also are making the necessary choices to right-size our entertainment footprint. Strong brands with quality innovation and execution will be more important than ever in a more unpredictable environment. That's one of the reasons I'm excited by the potential of our new leadership team, who are already bringing a more disciplined approach to our operations and a palpable step up in product innovation. We continue to move up and to the right on our change curve, evolving our cost savings initiatives to a continuous and relentless improvement model. Our supply chain is becoming a competitive advantage, with costs back down to near pre-pandemic levels and positioned favorably versus competition. We are seeing momentum with key retailers. Our digital portfolio is tighter and making rapid strides. And we are reinventing our approach to data analytics, product development, and long-term innovation. Paired with our approach to focused entertainment through partners that both inspires and connects to a tight business plan and economic engine, we are positioned well for the medium to long-term. I'd now like to turn over the call to Gina Getter, our Chief Financial Officer. Gina?