Spin Master Corp.

Good morning ladies and gentlemen and welcome to the Spin Master Corp third quarter 2023 results conference call. At this time all lines are in listen only mode. Following the presentation we will conduct a question and answer session. If at any time during this call you require immediate assistance please press star zero for the operator. This call is being recorded on Thursday November 2nd 2023. I would now like to turn the conference over to Sophia Bisoukis. Please go ahead.

Thank you and good morning. Welcome to Spin Master's financial results conference call for the third quarter ended September 30th, 2023. 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 interim consolidated financial statements are available on the investor relations section of our website at spinmaster.com and on Cedar Plus. Before we begin, please note the remarks on this conference call may contain forward-looking statements about Spin Master's current and future plans, expectations, intentions, results, level 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 reasonable in the circumstances. However, there can be no assurance that certain estimates and or assumptions will prove to be correct. Many factors could cause the 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 as may be required by law, Spin Master 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 release dated November 1, 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 call over to Max.

Good morning, everyone. Thanks for joining us. We deliver a third quarter characterized by strong performance across all three of our creative centers. Digital games and entertainment grew revenue double digits for the quarter and highlights the strength of our diversified platform. Digital games revenue has now returned to year-over-year growth on a year-to-date basis. This past quarter, we celebrated several milestones and achievements in support of our strategy to reimagine everyday play. Within entertainment, together with Paramount and Nickelodeon movies, we released our second feature film for our preschool powerhouse, Paw Patrol, which opened as the number one film worldwide and has recorded more than $170 million at the box office, already exceeding the total from the first Paw Patrol movie. In digital games, We launched our first in-house developed app for the Paw franchise, the Paw Patrol Academy, to coincide with the movie launch. We also introduced our new value-added subscription bundle, Picnic, providing unlimited access to Sega Mini, Toca Boca Jr., and Originator apps for one monthly fee. In toy, we were awarded a significant preschool toy license for Paramount's new animated preschool series, Dora, from the award-winning Dora the Explorer franchise. Just after the quarter, we were excited to announce our agreement to acquire Melissa & Doug, a trusted leading brand in early childhood play with deep knowledge in the creation of open-ended play toys and rich relationships with parents. This is a strategically compelling acquisition, the largest in our history, and has the potential to accelerate our long-term growth and strengthen our relationship with parents in the earliest years of their child's life. Let me now review each creative center. Toy revenue increased 8.9% from stronger gross product sales, which were 9.9%. Order volumes were higher as retailers increased inventory levels in anticipation of the holiday season. As we have discussed, the 2023 toy season has returned to historical seasonality relative to 2022. Turning to POS, CERCANA data shows that the G10 toy industry was down mid-single digits in Q3. This was the fourth consecutive quarter of industry decline, and we believe this is due to consumers delaying holiday purchasing, which is slowing POS in the category. It's worth noting, though, that the toy industry remains above 2019. Despite the industry's decline, we outperformed the industry globally, declining 7.5%. As a result, we grew our market share 20 basis points and improved our position in the quarter to number four toy manufacturer globally per cercana. From a geographic perspective, we saw strong performance internationally, which helped to offset the decline in the U.S., which has been a far more volatile environment. Internationally, we've had a strong year, and in Q3, we increased POS outside the U.S. by 0.7% compared to the industry, which was down mid-single digits. In the G10, we grew our POS in six countries. The U.S. market has been challenged this year, and that trend continued in Q3. U.S. toy industry sales declined high single digits in Q3, and we were down 11.5% per Surcana. We are encouraged that for the first three weeks of October, Surcana data shows that Spin Master was ahead of the U.S. market by 350 basis points, which we attribute to the support of the Paw Patrol movie and new toy innovation. Overall, we believe that the challenge industry performance has caused retailers to pause or reduce planned orders particularly from mid-October onwards, in order to avoid potential post-season inventory issues. Continuing the trend we saw in H1, our retailer inventory levels were down 8% year-over-year globally, and at the end of Q3, we were down 22% year-over-year in the U.S. We remain highly focused on ensuring that we manage both our on-hand inventory and our inventory at retail. We continue to demonstrate our strength in preschool. In Q3, Spin Master had two of the top 10 U.S. infant preschool toddler category items as defined by Surcana, including Gabby's Dollhouse Perfect Playset and Paw Patrol's The Mighty Movie Vehicles Assortment. Despite our strong performance with new items and for Paw Patrol, Surcana data indicates that global sales were down 9.2% in Q3. Overall, the health of the franchise is strong, with Paw Patrol remaining the number one preschool property globally in Q3. For the first three weeks of October, the U.S. infant-totter preschool category performance was negative, down double-digit year-over-year, while the Paw Patrol property grew 13% during this time per shirkana. Gabby's Dollhouse continues to take share in the infant-preschool-totter category internationally, but has seen signs of slowing in the U.S. as share was down in the quarter. Despite the declining POS in the U.S., Gabby's Dollhouse was the number seven infant toddler preschool property globally in Q3-23, and the show on Netflix is the fifth most watched show in the U.S. among kids ages 2 to 5. Within dolls and interactive, Bitsy is Spin Master's innovative breakout toy for 2023. A digital pet that you can actually touch, Bitsy has received numerous awards for most innovative toy of the year. In Q3, we gained 670 basis points of market share in youth electronics as we launched Bitsy and Hesbox per Cercana. Bitsy was the number one item in the youth electronics super category in two of the 10 top countries across G10 and top three in seven. In robotic interactive playmates, Bitsy was number one across five countries and top two in eight. This performance continued for the first three weeks of October where Bitsy was the top selling robotic interactive item in the US in both dollar and units. per cercana. Within Wilson Actions, we experienced mixed performance in Q3. Bakugan and Tactic declined in POS in Q3, but Monster Gem outperformed the category as the number two property in vehicles, with POS up 13.6% globally. Monster Gem has been the number one global license within vehicle supercategory for the 10th straight quarter per cercana. and we're excited about our innovative items in the lineup for this holiday, as well as continuous strength from our small vehicles, which are great for stocking stuffers. In activities and games in Q3, Kinetic Sand remains the number two global property in the reusable compound glass and core items are performing well. Our new cool maker item, Pop Style Bracelet Maker, was the number four item in the Craft Kids class in the U.S., Rubik's Cube was a number nine brand globally in the activities and games super category and continues to trend well with POS up 8.9%. This fall, we launched the Coach Cube, designed to help make solving the cube easier and launch a special edition Disney 100th anniversary cube. We are now planning to celebrate Rubik's 50th anniversary in 2024, which will be a momentous year for the brand globally. Turning to entertainment, with a strong quarter with revenue increasing over 70%, driven by higher distribution revenue from content deliveries, including the Paw Patrol movie, Rubble and Crew, Unicorn Academy, and Vita the Vet. I previously mentioned that Paw Patrol The Mighty Movie debuted at number one worldwide in the box office. You will recall that the first movie was released in August of 2021 during the pandemic. In September, Paramount was able to release the film to over 800 theaters worldwide. We've always been very proud that the Paw Patrol is Canadian-made content, and the team was super excited to learn that Paw Patrol The Mighty Movie earned the largest North American opening for any Canadian film in the past decade. The response to the film has been incredible, and the global box office is now, as I said, over $170 million. We will continue to reach new audiences when the film goes to Paramount+, mid-November, and on DVD, Blu-ray, December the 12th. Earlier this year, we expanded the Paw universe and introduced Rubble and Crew, our first Paw Patrol spinoff. Since launch, Rubble and Crew has been in the top five series on Nick Jr. with kids ages two to five. Paw Patrol also continues to capture the highest share of preschoolers' watch time on Nick Jr., maintaining his number one leadership position. Today, our new fantasy adventure series, Unicorn Academy, will premiere globally on Netflix. Over the past several months, we have begun building a fan base for the new franchise with curated content for TikTok and YouTube, as well as integrations with the leading Roblox games. Our early preview in Roblox generated almost 2.5 million views and has provided us with powerful insights as to the characters that are resonating. If you have Netflix, I urge you to watch the premiere so you can see for yourself how magical the series is. Building on the amazing storytelling and captivating animation, Toys will be available for fall 2024, and to round out the franchise, Digital Games Team is working on developing the companion action-adventure mobile game for Unicorn Academy. Following the premiere of Unicorn Academy, our next major content launch is for Vita the Vet, a 2D animated series. Retailer reception to the content has been overwhelmingly positive, and we will launch toys for the series in 2024 after the episodic debut. Finally, within digital games, total revenue grew by 30.9% to $45.3 million, primarily from the higher in-app purchases in Toka Live World. Average Toka Live World monthly active users increased again in Q3, up 11% year-over-year to just over $60 million, a new high. The soft launch of our new Toka Days multiplayer game continues to roll out with continued constructive feedback and performance enhancements. We can't wait to share TOCA Days with our highly engaged TOCA Live World fan base in 2024. Sego Mini Soft Launch Picnic, our app subscription bundle, which includes thousands of top-rated activities created by parents, child development experts, and kids. The Picnic Bundle celebrates its full launch on October 5th with apps including Sego Mini World, Sego Mini School, Sego Mini First Words, TOCA Boca Junior, and TOCA Boca Hair Salon 4. The bundle provides significant savings while offering families a convenient, simplified approach to digital playtime. The offer is proving popular with 26,000 picnic subscriptions by the end of Q3. Our Paw Patrol Academy app is off to an excellent start with over 17,000 subscribers currently, ranking it as one of the top apps for kids on the Apple App Store in the UK, the US, and Canada. Paw Patrol Academy seamlessly integrates phone learning and for preschoolers while leveraging episodic perpetual content. Ratings of the app have been positive, and we look forward to continuing momentum in Q4 and beyond. Total subscribers across our portfolio at the end of Q3 was 347,000 and is already currently trending over 375,000, an all-time high, driven again by Picnic and Poe Academy. In August, Some of you joined us in Stockholm to better understand our digital game strategy and test games in development. One of those products was Rubik's Match. This is a new mobile casual game which allows us to get into a different and larger new player segment. The game is currently in late testing and on track for worldwide release in 2024 to coincide with the Cube's 50th anniversary. Overall, 2024 will be a big year for our digital games creative center and we are ready to level up. Before I turn it over to Mark, I want to summarize a few key points. We are expecting the toy industry in Q4 to be challenging because of economic headwinds, including continuing inflationary pressure and rising interest rates, which has reduced consumer spending, POS, and orders for toys. We expect consumers to purchase very late in the season, which will reduce our replenishment potential, and for retailers to remain risk-averse to avoid inventory risk. Our team is highly focused on delivering operational excellence to ensure sustained profitability, and we are managing all areas of spend to ensure we get the right ROI. In addition to managing our bottom line, we continue to make internal investments across each of our three creative centers, from physical toys to content and digital playgrounds, to strengthen our long-term position. We are also investing in the future, highlighted by our plans to acquire Melissa & Doug. We are looking forward to closing the acquisition early in Q1 2024. We are confident that our investment in Melissa & Doug will build upon our legacy as leaders in the children's entertainment industry now and into the future, and position us to create long-term value for shareholders. We're highly focused on executing our long-term growth strategy, and we continue to make significant progress by leveraging our deep expertise in play, well-established global network, and innovation capability to unlock growth and inspire future generations. I will now turn the call over to Mark to provide further commentary on our performance. Thank you, Max, and good morning.