Hasbro, Inc.

Good morning, and welcome to Hasbro's third quarter 2024 earnings conference call. At this time, all parties will be in a listen-only mode. If anyone needs operator assistance, 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 Karan Kapoor, 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 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 all 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, Kern, and good morning. Q3 continued to demonstrate the bottom-line benefits of the structural and strategic changes we are making at Hasbro. Two of our strongest profit areas, games and licensing, outperformed, expanding operating profit margin for the third consecutive quarter. The dynamics we're observing across Magic and D&D in both analog and digital reinforce our confidence in the long-term health of the brands. Our competitive advantage as an IP licensor is also gaining steam, as we see the staying power of Monopoly Go, the resurgence of fan favorite brands like My Little Pony, and strong POS growth in our out-licensed toy portfolio. Consumer products revenue came in lighter than we anticipated, offset by strength in Wizards, but the pace of the decline moderated significantly versus the first half. We should see that trend continue into Q4, We're already seeing some encouraging data points across toys and board games that prove our innovation is getting sharper and retail alignment is healthy. While we are lowering our full-year revenue guidance for the segment, we are seeing a solid return to profitability for this business. An improving bottom line coupled with strong fundamentals across the balance of our portfolio augur much improved profitability and cash flow for Hasbro, both in 2024 and beyond. This resilience in our business model has been years in the making, strategically shifting our mix towards games, digital, and IP licensing, the future of play. This is where the consumer is heading, and we're following our fans as they age up and look for their favorite brands on digital platforms. It's what will make Hasbro a diversified, modern, growing toy and game company. Gina will walk through more of the financials and our latest outlook, but first, I'll offer some business insights. Magic the Gathering continues to be a standout, leading the trading card genre in growth year-to-date. This is despite big shoes to fill from last year's blockbuster Lord of the Rings set. In Q3, Magic posted another quarter of growth, led by our tentpole releases Bloomboro and the horror-themed Dustmourne, showing how Magic original IP consistently delights fans. Arena also posted solid growth, driven by Bloomboro, and healthy engagement with the standard format. with sequential upticks in new player acquisition rates and weekly average user counts. Beyond the strength in tentpole sets, we saw outperformance in backlist, particularly commander decks, as well as secret lair, including a sold out festival in a box ahead of this weekend's Magic Con in Las Vegas. It's shaping up to be our biggest one yet and should be chock full of exciting new product announcements, like the one we just did at New York Comic Con with our partners at Marvel. Coming in December, Magic fans can get the first cards from our new collaboration with Marvel, featuring themed secret lairdrops for five of their favorite Marvel superheroes, including Iron Man, Black Panther, and Wolverine. We are expecting each mini-set to immediately sell out. For D&D, the updated Player's Handbook for 5th Edition is now our fastest-selling product in D&D's 50-year history, beating plan by over 50%. And our acquisition of D&D Beyond continues to pay off, driving D&D's total mix of direct-to-consumer revenue from zero at the time of acquisition to 60% today, with registered users more than doubling to 19 million. I'm excited for fans to get their hands on the new Dungeon Masters guide releasing next month. The new artwork is a hit, and the streamlined introduction to running campaigns has been met with stellar early reviews. Licensing continues to be a bright spot across Hasbro. Monopoly Go is settling into a steady state, generating approximately $10 million in licensing revenue per month. Our partners at Scopely are continuing to innovate with new formats, including third-party content from Marvel and Tycoon Club, a new loyalty program to better serve its community of dedicated fans. Working with a best-in-class partner like Scopely helps position Monopoly Go as a long-lasting mobile game at scale. and the team remains focused on driving user acquisition and retention. Within consumer products licensing, our strategy to out-license brands in the toy space is performing ahead of expectations. Year-to-date, for real friends and littlest pet shop, two recent out-licensed properties are showing over 50% year-over-year POS growth. Building on last quarter's strengths, My Little Pony is having a resurgence, through successful international partnerships across multiple merchandise categories, music, and collectible cards. And we continue to roll out some great products across platforms in partnership with LEGO. For instance, LEGO Peppa Duplo is now available in all markets. We also saw the release of the LEGO Icons Bumblebee SKU ahead of our Transformers 1 movie release as part of LEGO's Adults Welcome marketing campaign for Q4. Toy revenue softness was due in part to our decision to sell less closeout volume in favor of higher profitability, as well as incremental softness in action figures, particularly Star Wars. We view action figures as a long-term bet for the company and a place Hasbro has special strength from preschoolers to kids to adult fans, so we are bullish about this segment's eventual return to growth. One of our bigger bets for this holiday is Beyblade, which launched its fourth generation Beyblade X over the summer. Since turning on media just a few weeks ago, we've seen POS accelerate meaningfully with promotional events at our top retail customers and expect that to continue with the new anime series on Netflix and Disney. While we initially expected a bigger POS turn in Beyblade in Q3, we're excited to see it respond favorably in recent weeks and expect a strong ramp as awareness scales with kids. Marvel is also seeing some nice increases on the heels of Deadpool and Wolverine, the new X-Men 97 animated series, and continued strength with Spidey and his amazing friends, including our new hit preschool toy, Dancing Crawl Spidey. We're excited for 2025 with new Captain America and Fantastic Four blockbuster films on the horizon and building hype for Disney's Blockbuster 2026 lineup, including Avengers Doomsday, a new Spider-Man, and a new Mandalorian and Grogu Star Wars film, helmed by blockbuster director Jon Favreau. Play-Doh had its best back to school ever, with POS up almost 20%, and the classic color floor pack rising to the number one position across the entire arts and crafts category. We're seeing good early momentum for the pizza delivery scooter, with strong top toy placement at our major retail partners. We also have some exciting innovation for Peppa Pigs with Muddy Puddles Peppa, a top toy at Walmart and Amazon. Last but not least, our board game portfolio is one of the earliest examples of our new focus on fast-market innovation across consumer segments. Whether it's our new Monopoly Harry Potter board game for families, Life in Rittera, the new award-winning strategy game, Archmellows, a best-selling adult card game from Germany we are partnering with for international expansion, Hasbro is delivering delightful new products that are getting consumer attention and driving new sales. Combined, we are pairing our new products with significant expansions of in-store promotions while boosting advertising year over year for our innovation vets to drive consumer demand. It's still early in the holiday, but we anticipate continued improvement in our toy business as we build the foundation for continued profit growth in 2025 and 2026. To recap, I'm pleased with how Hasbro is executing. Our margins are up, our inventories are down, and the healthiest they've been in seven years. Our cost structure is getting where we need it to be, and our toys are showing up on shelf the best they have in years. Our key initiatives around digital, licensing, and reinvigorating our product innovation are bearing fruit as we meet fans where they are. While we are still mid-innings in our toy turnaround, 2024 promises to show a significant uptick in profit, cash flow, and operational rigor for the company that will set us up for 2025 and beyond. I'd now like to turn the call over to Gina Getter to share more on our results and what you should expect for the balance of the year. Gina?