Spin Master Corp.

Welcome to the Spin MasterCorp fourth quarter 2023 results conference call. At this time, all lines are in listen-only mode. And following the presentation, we will conduct a question and answer session. If at any time during the call you require immediate assistance, please press start for the operator. This call is being recorded on Thursday, February 29, 2024. I would now like to hand the conference over to Sophia Psoukas. Please go ahead.

Thank you, Mark, and good morning. Welcome to Spin Master's Financial Results Conference Call for the fourth quarter and year-ended December 31, 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 and consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on CEDAR+. 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 and 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 or 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, SPIN Master 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 February 28, 2024. 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.

Thank you, and good morning. Thanks, everyone, for joining us today. Looking at our performance in 2023, we are pleased with how our team navigated the challenging retail environment and harnessed the power of our three creative centers. Our combination of toys, entertainment, and digital games generated strong revenue growth of just under 8% in Q4. As expected, full-year revenue was lower year over year, driven by a decline in the toy segment. 2023 was a challenging global marketplace for toys, with the industry declining 7%, according to Cercana, as a result of the challenging microeconomic environment and a shift towards services and experiences post-COVID. The industry expected that Christmas would arrive late and restore category growth. However, the extra shopping days unfortunately did not bring about the expected surge. Retailers were cautious, bought less, and consumption did not increase as expected, despite deep discounting. Retailers, for the most part, prioritized profitability rather than growth and ended the year with cleaner retail inventory compared to 2022. Our total revenue declined 5.7% for 2023, primarily due to lower toy revenue, which declined 11.3%. We experienced growth in both entertainment and digital games. Entertainment had a strong year with a 60% increase in revenue, driven by the delivery of new content including the very successful second Paw Patrol movie and Unicorn Academy. Digital games saw revenue growth of 6.1% from continued strong engagement in Tokalive World and the launch of our new subscription service, Picnic. Let me now dive deeper into our toy performance and provide further context regarding the macroeconomic environment. From 2020 to 2022, the toy industry experienced strong growth, especially in the U.S., and accelerated by the pandemic. Starting in late 2022 and into 2023, we saw industry sales decline. A key factor in this decline was a shift in consumer shipping behavior due to increased pressure on consumers' wallets from inflation and rising interest rates, as well as a post-COVID shift to services such as travel, restaurants, concerts, and sporting events. Consumers spent less per child in the toy aisle and traded down from a price point perspective across multiple categories as they had to make more considered spending decisions. Consumers were very price sensitive during the holidays, often waiting to buy on promotion or at a lower price within the portfolio and buying less overall. In this context, We were very pleased with our toy performance in Q4, with gross product sales growing 4.8%. Now, from a retail point of sale perspective, our global POS increased 1% in Q4, well ahead of the industry, which saw a decline of 7%, according to Circana. Our POS growth was the second fastest of the top five manufacturers globally for the quarter. In Europe, Spin Master was the fastest growing toy company. On a full year basis, our global POS declined 4%, a lower decline than the industry, which declined by 6.5% per cercano. We retained our position as the fourth largest manufacturer, and we grew market share in 10 of 11 track markets, with the U.S. finishing almost flat. Let me provide some color on our key toy categories. In preschool, we have a robust offering with a combination of Paw Patrol and popular license properties such as Gabby's Dollhouse. Paw Patrol remained the number one preschool property globally for Q4, and it has been since Q1 2020, according to Cercana. In Q4, Paw Patrol's global POS grew just over 4% and grew in most countries. In the U.S. in Q4, Paw Patrol POS grew 12%, And, according to Cercana, in 2023, we gained share in infant-toddler preschool, with POS up 5.3% compared to the industry, which was down just under 8%. For 2023, Paw Patrol was a number 9 property globally, up from number 10 in 2022. This is an incredible feat and a testament to our investment in creating POS. Refresh themes, introducing innovation into the line, expanding the PO universe through feature films and broadening distribution to YouTube and digital apps. Gabby's Dollhouse Perfect Playset was the number one item in the infant-toddler preschool super category for both Q4 and for 2023. And Gabby's was the fourth preschool toy property globally in Q4 per cercano. Gabi's Dollhouse POS grew triple digits in Q4 and in 2023 internationally. We have much more to come in 24 with a complimentary offering from our acquisition of Melissa and Doug and the introduction of Miss Rachel. We are known for creating breakthrough toys and a great example of this was the launch of Bitsy, the digital pet you can touch. Its disruptive play pattern earned numerous awards for most innovative toy of the year in several countries. In DOS and Interactive, Bitsy was named by Sirkana as a top item within the Youth Electronics category, and in Q4, Spin Master continued to gain share, growing POS 9.9 points. We have new Bitsy iterations planned for 2024, including a Disney-licensed Bitsy featuring storied characters and also a Magicals version launching in the fall. Beyond Bitsy, for 2024, we have several exciting launches within Hatchimals, and the introduction of the Unicorn Academy toy line based on the TV show. Within wheels and action, Monster Jam had another strong quarter, becoming the second property in vehicles from number four last year, with POS up 20% in Q4 and up 11% for 2023 per Sercana. Monster Jam has been the number one license within the vehicle super category for the 11th straight quarter globally, according to Sercana. The combination of Felt Entertainment's live shows combined with the innovative new toys allows kids to relive the action from the stadium, and this drives consumer demand. Within games and puzzles, Rubik's had a very strong finish to 2023, becoming the stocking stuffer of choice for many parents with a very attractive price point. And Rubik's Cube was the sixth brand within games and puzzles for both Q4 and and for 2023 with POS of 12% in Q4 and 18% in 2023 per CERCANA. This momentum sets up nicely to celebrate Rubik's 50th anniversary in 2024, which will include new product launches and collaborations, global celebrations, and the debut of our new digital game, the Rubik's Match. Anticipating continued pressure on consumer discretionary spending, we will launch a new toy initiative in the second half of 2024 designed and manufactured specifically for the value channel, as we believe there is a large opportunity to grow volume in this channel. As many of you saw in January at our investor day, our new value line leverages our strongest brands and licenses, including Paw Patrol, Gabby's Dollhouse, Monster Jam, and DC Comics, with price points as low as $1.00. Melissa and Doug will further strengthen our position in preschool and allow us to develop a strong beachhead in early learning. According to Sirkana, the combination will make us the market leader in infant-toddler and preschool supercategory. Our teams are working hard on the integration, focused on building the platform for revenue growth across mass and specialty, driving international growth, and realizing cost synergies. I want to spend a moment talking about Melissa and Doug's financial performance in 2023, and Mark will provide additional detail. In 2023, Melissa and Doug's revenue declined approximately 25% from 2022. Their adjusted EBITDA margin remained comparable. Amidst a challenging second half and a decline in the infant dollar preschool category, Melissa and Doug's previous owner made the choice to protect long-term profitability by prioritizing profit margin over volume. They did not discount or promote significantly in what was a highly promotional environment, and this led to Melissa and Doug experiencing greater decline in their revenue than the overall category. Our entertainment creative center launched significant new content in 2023, including our second feature film for the Paw Patrol franchise, which has now surpassed $200 million in global box office revenue. Paw Patrol celebrated its 10th anniversary in 2023, and the release of the second movie had a very positive impact on watch time across all Paw content, including the TV series, helping to fortify Paw's brand equity and health. Earlier in 2023, we launched our first spin-off series of Paw, Rubble and Crew, which has been renewed for a second season and continues to be one of the top five preschool shows on Nickelodeon in its age category. Building on our vast experience in developing preschool content, we recently launched our newest animated series, Vida the Vet, on BBC in the UK and Chorus Treehouse in Canada. We have launched our Vida on YouTube channel and have already surpassed 15 million views of our brand new content. And this is ahead of our U.S. Netflix debut on March 18th as we gear up for the toy launch in the fall. A new fantasy adventure series, Unicorn Academy, launched on Netflix November 2nd and was an instant hit, debuting as a number one kids show globally. With its characters and magical adventures, Unicorn Academy quickly captivated audiences globally and racked up over 40 million hours of watch time in November alone. Unicorn Academy is our first full franchise launch with face-branded offerings and experiences across each of our three creative centers. Unicorn Academy Toys will launch this fall, and the digital game will launch in 2025. In addition to our content, toys, and the digital game, we have been working on a licensing program for a wide range of licensed consumer products in 2024 and beyond to meet demand from fans of the show for deeper engagement with the franchise. Turning now to digital games, 2023 saw the overall mobile digital games market decline by about 2%, However, our Digital Games Creative Center outperformed with revenue growth in both Q4 and 23, driven primarily by higher in-game purchases in Toka Live World and subscription growth from the newly launched Picnic Bundle. Toka Live World ended 2023 at approximately 62 monthly active users, up 4.3 million compared to 2022. 2023 was the largest download year for Toka Live World ever. with 98 million downloads compared to 92 million in 2022 and 90 million in 2021. This shows Toka Live World's ongoing popularity and engagement with kids. Introducing Q3 Picnic is our subscription bundle that offers unlimited access to a variety of our Sega Mini and Toka Boka digital games. One subscription streamlines multiple apps into a simple and affordable service for parents and provides endless ways to play and learn for kids. The market reacted positively to the bundle when it was launched, and including Paw Patrol from Originator, we ended 2023 at just under 400,000 subscribers in total, a growth of 68,000 subscribers over 2022. The subscriber increase is impressive, and we are migrating users to Picnic as we harness the stickiness in the play experience with Sego World, Sego School, First Words, Toka Jr., Her Salon, and more. In 2024, we will integrate the Originator apps into Picnic to increase bundle value even further. Paw Patrol Academy, which is our first in-house learning app for our Powerhouse franchise, is off to a great start. Due to its high quality and overall depth of play, it has been named Google's Best App of 2023 for Families and ended 2023 with 34,000 subscribers. The team is now in full service and continues to build the overall experience. We are excited to be launching several new digital games in Q2. This includes TOCA Days, our first social multiplayer game that will seek to expand the existing player base of the TOCA universe. We are also launching Rubik's Match, our casual mobile game that will deliver a fresh take on the Match 3 game genre to coincide with the Rubik's 50th anniversary. Our teams are collaborating across creative centers to make this a special moment for Rubik's fans. As more kids are spending their time in the online world and communities, we are expanding our player ecosystem and creating digital play experiences that cater to multiple interests and age levels. Looking forward, we expect that 24 will be a challenging year due to the continued economic pressure on consumers and a shorter shopping period during the holiday season. We are developing toys that will spark imagination while also providing the consumer with a great value at varied price points. We will focus on the integration of Melissa and Doug, where we have already made progress building a cross-functional team to integrate the business and identifying important work streams to accelerate synergy realization. We see many opportunities for growth by leveraging Melissa and Doug to grow our early childhood play capabilities. We will continue to drive performance for our core brands across our three creative centers, from celebrating Rubik's 50th anniversary with new products and the new mobile digital game, to capitalizing on the momentum from the Paw Patrol movie across toy, entertainment, and digital games. We will expand our early childhood reach with the first toy offering for YouTube sensation, Miss Rachel, And beyond toy, our entertainment creative center has a robust slate for 24 and is engaging new audiences with Unicorn Academy and Vita the Vet. Our digital games creative center has invested in designing new mobile digital games intended to expand our reach across a broader ecosystem. Now we know that newness and innovation win with customers and we are investing in our disruptive innovation to reimagine everyday play. 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. We're confident in the strength of our diversified portfolio and our ability to create long-term growth and shareholder value. I will now pass it over to our CFO, Mark Siegel, to cover our financial performance in detail and discuss our 2024 financial outlook.