Spin Master Corp.

and welcome to the Spin Master fourth quarter and full year 2022 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sophia Basokas. Please go ahead.

Thank you and good morning and welcome to Spin Master's financial results conference call for the fourth quarter and year ended December 31st, 2022. I am joined this morning by Max Rangel, Spin Master's Global President and CEO, and Mark Siegel, Spin Master's Chief Financial Officer. For your convenience, the press release, MD&A, and audited consolidated financial statements are available on the Investor Relations section of our website and at spinmaster.com and on CDAR. Before we begin, please note that remarks on this conference call may contain forward-looking statements about Spin Master's current and future plans, expectations, intentions, results, levels of activity, performance, goals, or achievements, and any other future events or developments. Forward-looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and are reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements. As a result, SpinMaster cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Except that, as may be required by law, SpinMaster has no obligation to update or revise any forward-looking statements, whether because of new information, future events, or otherwise. For additional info on these assumptions and risks, please consult our cautionary statements regarding forward-looking information in our earnings, a release dated March 8, 2023. Please note that Spin Master reports in U.S. dollars and all dollar amounts to be expressed today are in U.S. currency unless otherwise noted. I would now like to turn the conference call over to Max.

Good morning, and thank you for joining us today. 2022 was another year where we made meaningful progress on key priorities. Our commitment to reimagining everyday play across our three creative centers continues to give us a strong platform for growth, enabling us to achieve an increase in constant currency revenue for 2022 against the backdrop of a challenging economic environment. 2022 was really a tale of two halves. In TOI, we had an exceptionally strong start to the year, building on the momentum from 2021, coupled with retailers bringing in goods earlier to minimize anticipated supply chain disruptions going into the fall. This resulted in us having the biggest first half in our history, with gross product sales up almost 35% compared to 2021. However, in the second half of the year, with higher interest rates and inflation hurting consumers' discretionary spending, retailers had much higher than expected inventories going into the peak holiday season. Consumers became more price sensitive and focused on finding discounts. We saw reduced consumer spending impact toy point of sale trends and, in turn, reduced retail orders. This created a difficult environment for us to launch new and innovative products, which is the core of our toy strategy. As a result, our fourth quarter results were below last year. Despite this, we ended the year as the fourth largest toy manufacturing globally Per Sarkana, who you may remember as MPD, up from number five in 2021. Toy industry continued to show its resilience despite microeconomic challenges. Overall, sales for the U.S. toy industry were flat for the year and up 22% globally compared to the pre-pandemic years of 2019. We continue to believe the toy industry is a growth industry, and we expect it to continue to grow in over time. One of the consequences of the weak fourth quarter to the industry and for us is that retail inventories at the end of 2022 were up in both dollars and weeks of supply compared to a very low level a year ago, and they remain elevated during Q1 2023. Retailers are focused on inventory and profitability management and have limited their replenishment orders to bring levels down. We are working closely with them and we expect to be back in balance by end of Q2. Our fourth quarter global POS declined 6% over a year, which was in line with the industry, according to Sercana. For 2022, our global POS was down 1.2%, also in line with the industry. A significant portion of the year-over-year decline can be attributed to the lower Paw Patrol POS, as we were lapping the Paw movie in 2021. Declines in global POS for PAW in the fourth quarter were consistent with what we experienced in quarter three, with a decline of 23% per cercana. On an annual basis, PAW Patrol POS declined 16%. Despite these POS declines, the PAW franchise remained the number one preschool toy property globally, both on a quarterly and yearly basis per cercana. Paw Patrol has accomplished what only a few preschool franchises have ever achieved, to remain in the hearts and minds of kids and their families for more than a decade. Today, we believe the Paw Patrol franchise is stronger than ever, and we have a series of exciting activities planned in 2023 as we celebrate its 10th anniversary. Excluding Paw Patrol, our POS grew by 1.1% in Q4 and 4.8% on an annual basis for the G11 countries per cercana. We are particularly pleased with the performance of our international markets where we outperform the industry. We were in the top 10 in 10 out of 11 markets. Over the past few years, we have significantly expanded our licensed toy portfolio, bringing in popular entertainment franchises with built-in fan bases, resulting in continued growth in POS for this element of our business. According to Circana, our licensed portfolio POS increased 32% in Q4, driven by Gabby's, DC Comics, Monster Jam, and Wizarding World. Circana calculates that our licensed business has grown 61% since 2019 and now comprises 30% of our POS compared to just 19% in 2019. We are known in the industry for our deep understanding of the preschool category. That is why we were chosen by Universal DreamWorks Animation to be the global toy partners for Gabby's Dollhouse. What a fantastic collaboration this has been for us. Gabby's Dollhouse continues to outperform in 2022 with the Dollhouse Playset, a second-year item, taking the spot as the number one overall item in the infant, toddler, and preschool supercategory in the U.S. for Sharkana. Gavis has quickly risen to be one of the top preschool properties globally, and we believe the franchise has great potential for the future. Monster Gem was the third property in vehicles in quarter four, up one position from 2021, and the brand remained the number two property for 2022 in POS, increasing 4%, according to Sirkana. The strong performance of Monster Gem aided our vehicle performance in the vehicles category. seeing us gain share and increase POS by 5% in 2022. We are excited for a blockbuster year for the DC franchise in 2023 with three theatrical movies planned, which will see us launch toy lines to complement the movies and characters. Additionally, we have new innovations in our core Batman offering, including an epic large-scale playset, which is sure to be a toy of the year contender. In 2023, we are continuing to grow our licensed portfolio with the launch of our first product for Disney's new preschool animated series, Firebots, which has just launched in North America with a rollout plan for this summer. One of our primary growth strategies is to pursue strategic M&A across our creative centers. We have made 28 acquisitions since the company was founded in 1994 and 18 since our initial public offering in 2015. We completed the acquisition of Rubik's Cube in 2021. This past year marked the first opportunity to inject our own innovation into Rubik's portfolio with the launch of the Rubik's Phantom, featuring thermochromic technology. It was also the first year in which we were able to apply our integrated marketing support to the brand. The result of each has been a notable increase, and now Rubik's Cube becoming the 10th largest brand in the games and puzzles super category in the quarter, up from the 16th position in 2021, and POS grew 4.5% compared to a decline of 4.3% in the category for the quarter, according to Circana. Building on our rich history of acquisitions, we recently announced three toy and game acquisitions In August, we further diversified our games and puzzles offering by acquiring games and titles from Solid Roots, a creator of family board games, including the popular game Mind the Gap. A few weeks ago, we closed the acquisition of 4D Brand's portfolio of 3D puzzle kits, opening up new opportunities to inject innovation into our puzzle portfolio with new form factors and popular third-party licenses. We also announced the purchase of Hexbox brand, which will be strengthening our robotic toy range capabilities. We continue to look for accretive acquisition opportunities to further diversify our overall portfolio, stay on the leading edge of children's play, and pursue new areas of growth. Our entertainment creative center had a really strong year, growing licensing and merchandising revenue while also continuing to develop our content pipeline for screens of all sizes. In addition to continuing to create fresh Paw Patrol content, we introduced two new properties in 2022, including Sega Mini Friends on Apple TV, making the first cross-creative center collaboration with our Digital Games Creative Center, and we started delivery of Rubble & Crew, our first Paw Patrol spin-off series, airing on Nick Jr. 2023 will be our biggest year ever in terms of entertainment content releases, showcasing the investments we have made to create a diversified content pipeline. We have several new series launching in 2023, including two entirely new properties. The first is a preschool series, Vida de Vet, which will air on BBC in the UK and on Chorus Treehouse in Canada, with more broadcasting partners to be announced soon. The second is a new fantasy adventure series franchise and we just announced last week called Unicorn Academy. This exciting launch exemplifies our approach to franchise building with fully branded experiences planned across all three creative centers. The journey begins with a Netflix original series this fall which will be followed by a toy line in 2024 and a digital game which is in development as well as an expansive licensed consumer products initiative. I've seen the initial episodes and it is truly magical with some of the most visually stunning animation we have ever created. I mentioned earlier that we will launch our second feature film for the Paw Patrol franchise on September 29th in conjunction with Paramount. A few weeks earlier than originally anticipated and planned and in advance of the first long weekend in October. Our first Paw Patrol spin-off series, Rubble and Crew, debuted on Nick Jr. on February 3rd and early reads for the show are very positive. Many of you saw the toy line in our LA showroom in January, which centers around a construction play pattern. In addition to the spinoff, we have a series of specials throughout 2023 to commemorate PAW's 10th anniversary. Our Digital Games Creative Center faced tough comparisons in 2022, given the unprecedented growth in digital games we experienced during the pandemic when screen time was unlimited. While we have had incredible growth within digital games over the past two years, we have started to see the pattern normalize. Engagement in our apps and games remain high at 58 million monthly active users in Tokalive World, but in-app purchases declined in 2022, which reduced revenue. We remain very ambitious about the long-term growth opportunities within our Digital Games Creative Center, in part due to the development we have underway and given the trend of children spending more of their leisure time in the digital world. In 2023, we will release several new digital games. Norlight, the digital game studio we acquired in August last year, is developing a new mobile game leveraging our iconic Rubik's Cube IP, which will take us into the casual gaming space. The Originator team is deep in development of our first in-house developed digital game for Paw Patrol called Paw Patrol Academy. The game will invite preschoolers to join missions, games, and content designed to blend story and interactivity with educational and emotional learning, and is set to launch in conjunction with the movie. In Q3, SEGO Mini will introduce a digital games bundle, which will give subscribers access to a host of our educational digital games from SEGO Mini, Toca Boca, and Originator portfolios, all for one monthly subscription fee. We believe this will be driving growth and be a simpler and cost-effective way for parents to manage a subscription for their kids. In summary, we are squarely focused on continuing to execute on our strategy of leveraging our global IP across our creative centers. As we look ahead, we expect to face continued microeconomic headwinds this year and continue to foresee a period of volatility impacting consumer demand. One of the most significant factors that will impact our 23 performance is elevated retail inventory levels in the first half of the year, and we are managing this closely. We are also focused on managing our operational costs, ensuring we positions be mastered to thrive. We are being prudent in our approach to cost management while balancing the need to invest in key organizational capabilities to scale our business. Given our healthy financial position, We are also focused on pursuing acquisition opportunities to attract new fans, reach new audiences, and engage new players in order to further solidify our leadership in children's entertainment and deliver profitable growth now and into the future. I am now going to pass it over to our CFO, Mark Siegel, to cover our financial performance in more detail, as well as our 2023 outlook.