TSE:TOY Spin Master Q2 2023 Earnings Report C$22.94 +0.56 (+2.50%) As of 05/2/2025 04:00 PM Eastern Earnings HistoryForecast Spin Master EPS ResultsActual EPSC$0.61Consensus EPS C$0.33Beat/MissBeat by +C$0.28One Year Ago EPSN/ASpin Master Revenue ResultsActual Revenue$565.11 millionExpected Revenue$584.53 millionBeat/MissMissed by -$19.42 millionYoY Revenue GrowthN/ASpin Master Announcement DetailsQuarterQ2 2023Date8/2/2023TimeN/AConference Call DateThursday, August 3, 2023Conference Call Time9:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Spin Master Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 3, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good day, and welcome to the Spin Master Corporation Second Quarter 2023 Results Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Sofia Bisoukis. Please go ahead, ma'am. Speaker 100:00:13Thank you, Chris, And good morning. Welcome to Spin Master's Financial Results Conference Call for the Q2 Ended June 30, 2023. I'm joined this morning by Mark Siegel, Spin Master's Chief Financial Officer and Ronen Harari, Chair and Co Founder. Max Rangel, Our Global President and CEO will unfortunately not be able to join our call today. We are saddened to share he has experienced a loss in his family as his father has passed away. Speaker 100:00:41Our thoughts and prayers are with Max and his family during this time. For your convenience, the press release, MD and A and interim consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR. 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, 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 these expected or implied by the forward looking statements. Speaker 100:01:34As 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 information on these assumptions and risks, please see our cautionary statements regarding forward looking information in our earnings release dated August 2nd, 2023. And please note that Spin Master reports in U. S. Speaker 100:02:07Dollars and all dollar amounts will be expressed today in U. S. Currency unless otherwise noted. I would now like to turn the call over to Mark. Speaker 200:02:16Good morning, everyone, and thank you for joining us. As Sofia mentioned, we're sorry to miss Max today with the passing of his dad yesterday, but we are happy to have Renan join us today. I'm going to read the script and then Ronen and I will do the question and answer session. We are pleased to have delivered a solid second quarter, which was in line with expectations despite last year's unusually front end loaded shipping patterns. Our results reflect our commitment to building 3 thriving creative centers and investing in long term growth. Speaker 200:02:51Together with the winning combination of Toys, Entertainment and Digital Games. We are expanding our reach and providing kids and families around the world with magical experiences by reimagining Everyday Play. As expected, toy gross product sales in Q2 were challenged by the clearance activity of carryover inventory at retail, particularly in the U. S. These high inventory levels caused retailers to slow orders in the first half of this year, resulting in Q2 revenue declining 20.9% in comparison to Q2 'twenty two. Speaker 200:03:27Retailer inventory clearance activities have now been concluded. The clearing of resale channels Creates a pathway for new items to be launched for the holiday season. From a Spin Master perspective, Our U. S. Retail inventory at the end of Q2 was down 17% over last year as of the end of Q2. Speaker 200:03:48Last quarter, we spoke about the expected softening of the toy industry in 2023, specifically in the U. S, a region that has traditionally held up well during tougher economic periods. Global toy POS in Q2 declined 10%, and we trailed the market with a decline of 17% As in Q1, most of our POS decline in Q2 occurred in the U. S. Where POS declined 22% compared to the industry, which was down 12.4%. Speaker 200:04:19We are, however, encouraged that POS declines have begun to slow. And in late June and in July, we have started to see growth reemerge. For example, we had very strong results in the U. S. For Amazon Prime Day with POS well ahead of our expectations and ahead of market growth. Speaker 200:04:39Our Prime Day performance increased 130% year over year and is at an all time high. Internationally, our POS declined 4.6% in Q2, outperforming the total industry, which was down 6.4% across the Canada. This result was in part due to less inventory clearance within Europe. On a year to date basis, we have gained share in over half of the countries in the G10, according to Sukana. The preschool category continues to be a key area of strength for Spin Master led by PAW Patrol, our leading preschool franchise, which is celebrating its 10th anniversary this year. Speaker 200:05:22In Q2, PAW Patrol was the number one preschool toy property globally and has held that position since Q1 of 2020 for Sakena. In Q2, we had 3 of the top 10 items within the infanttoddlerpreschool category in the U. S. Per second. Gabbie's Dollhouse Perfect Playset was number 4, PAW Patrol Aqua Pups was number 5 and the PAW Patrol Big Truck Pups was number 9. Speaker 200:05:50In Q2, our global POS for PAW Patrol declined approximately 10% per SOKANA. In Q2, Our U. S. POS for PAW Patrol was down slightly for Sakena. However, in the U. Speaker 200:06:04S. On a year to date basis, PAW Patrol grew low single digits in the infants, toddler and preschool category. We are optimistic for the toy line in the second half, coinciding with the release of our 2nd feature film for the franchise on September 29. We expect the 2nd Paul movie to have a similar halo effect on the brand's performance as it did in 2021. Gabby's Dollhouse continues to produce incredible results, having built a strong consumer fan base around the world through the Netflix show and its robust digital ecosystem. Speaker 200:06:431st to Cana, Gabbie's Dollhouse was the number 5 preschool toy property globally in Q2 compared to number 9 in Q2 of 'twenty two and was a top 10 property in preschool toys for the 6th straight year 6th straight quarter. Within Dolphin Interactive, we are very excited about the launch of Hatchimals Alive! Beginning this August, which will give kids a whole new way to hatch using water to bring these characters to life. The price point of this line lends itself well to parents seeking value during the holiday season. As many of you have seen, we have another exciting launch within the Dolphin Interactive category with Toys. Speaker 200:07:35While the product only just set in the U. S. On August 1, we are seeing early signs of very strong performance. Initial launches in China, Japan, Spain and Portugal have shown strong reaction and very positive sell through results and Bitcy is already nominated for a number of industry awards. We have several strong properties within our Wheels in Action category, including Monster Jam, Bakugan, DC and Tech Deck notably. Speaker 200:08:05Bakugan became the number one property in the battling toy category globally on a year to date basis compared to number 2 last year according to Sukana. We are excited to reinvigorate the brand as well with a new season of our anime adventure series hitting Netflix beginning September 1, featuring a revamped anime style and a fresh storyline and new characters. The new season will first be revealed in Roblox, Given our past success with leveraging the metaverse to reach kids and will be complemented by a new toy line with an enhanced way for players to battle. Spin Master became the number one manufacturer for the DC Universe globally, up from number 2 in Q2 of 2022 according to Sukana. As we have mentioned previously, the DC universe continues to bring new films to fans throughout 'twenty three and through to 'twenty six, which will have a halo impact on our toy lines. Speaker 200:09:06Within games, Rubik's Cube continues to grow. Rubik's was up 16.9% year over year and was the number 7 brand according to Sukana. While recognizing that the first half of the year has been challenging from a comparison perspective, we have strong confidence in our diverse toy portfolio moving into the fall. We expect that consumers will be looking to purchase at more modest price points and will be shopping even later in the season Given that Christmas falls on a Monday this year, we have created robust marketing plans that cater to the current consumer and marketplace realities. Our paid media activities are in line to key temples, retail activations and promotional activity, and we have ensured maximum flexibility to remain agile in our targeted marketing campaigns to meet the consumer where and when they shop. Speaker 200:10:12Turning to entertainment. We had another strong quarter with revenue increasing by over 19%, driven by higher distribution revenue. Previously, we shared that we have launched or are launching 3 brand new entertainment properties in 2023: Rubble and Crew, VIDA the Vet and Unicorn Academy. Vida, which is a new animated preschool series, is set to debut on BBC's CBVs in the UK and on Corus' Treehouse in Canada this fall. Since we last spoke, we have signed close to 10 new international distribution deals for VIDA, including the U. Speaker 200:10:49S. We are also approaching the launch of Unicorn Academy, a new fantasy adventure series that will start streaming on Netflix globally in November. The full franchise marketing plan will begin in September as we preview the content via Roblox, Start paid media and execute our influencer and YouTube content strategy. We have already made tremendous progress on building our licensed consumer product program, signing several licensors within fashion, publishing, bedding, sleepwear, health and beauty and accessories. We are aligning our franchise marketing efforts to regions where Netflix has the deepest reach. Speaker 200:11:28Additionally, our digital games team Is currently developing the Unicorn Academy mobile action adventure digital game that encapsulates the magic of the series and expands overall engagement in the franchise. Earlier this year, we introduced our first spin off for PAW Patrol, Raval and Crew. I'm pleased to share that Ravell and Crue continues to be a top performing series on Nickelodeon. The show debuted very strongly and has maintained a leadership position as a top ten series on Nick Jr. With kids 2 to 5. Speaker 200:12:01Given its impressive showing in its inaugural season, Nickelodeon has greenlit a 2nd season for Rubble and Crew. Our original PAW Patrol series also continues to perform well, ranking in the number one spot on Nick Jr. In May and has been greenlit for its 11th season. Of course, we are approaching the release of our highly anticipated second feature film, PAW Patrol: The Mighty Movie, set for theatrical debut on September 29 in association with Nickelodeon Movies and Paramount Pictures. The trailer was released on YouTube in June and has accumulated more than 70,000,000 global views already. Speaker 200:12:44Finally, within digital games, total revenue increased slightly over 2022, driven by higher in app purchases in Toca Life World. This is the 1st year over year quarterly increase we've seen in digital games since Q2 of last year. This was driven by new content releases, including the launch of our 2nd license With the replay of the call, we will now begin the call to the replay of the call to the replay of the call to We now have 76,000,000 monthly active users across the Toca Boca Ecosystem. We think the fan community within Toca will be super excited with Toca Days, our first 3 d player multi game, which is currently in soft launch. Poker Days will allow the opportunity for open ended play and creativity, coupled with the ability for social interactions between players. Speaker 200:13:35Player sentiment so far has been high. Based on the initial feedback and learnings, the team is making continuous improvements to ready for a full go live in 2024. We are launching a PAW Patrol app PAW Patrol Academy this fall to coincide with the movie. This will be our 1st in house developed PAW Patrol app focused on integrating show content with fun learning experiences and missions for preschoolers. Our new Rubik's Cube casual game, officially known as Rubik's Match, will have its worldwide release in early 2024, in line with AcUBE's 50th anniversary. Speaker 200:14:16With the continued popularity of Rubik's as a physical toy, We believe this mobile digital game will resonate with fans young and old and will attract new gamers to the brand. We previously discussed SAGO Mini's plans for a subscription bundle that will launch later this month branded as Picnic. This comprehensive bundle of apps will include thousands of top rated activities created by parents, child development experts and Sys. Technic will provide unlimited access to all the SAGO Mini properties as well as Toca Boca Junior apps, A new collection of fan favorite apps like Toca Pet Doctor, Toca Kitchen, as well as the endless learning apps, including Natangos. At just $11.99 a month, parents will have access to the very best touchscreen content with 1 single membership at significant savings. Speaker 200:15:11Leveraging our IP across our creative centers is core to our strategy and we are excited about the opportunities for growth stemming from the initiatives underway in and across each of our creative centers. Turning now to our financial performance in more detail. As I mentioned, total revenue in Q2 was 420.7 Against challenging year over year comparatives, this reflects a 17% decline in revenue compared to Q222. This decline can be primarily attributed to the return of traditional seasonal order timing in our toys creative center. As a reminder, in May, We discussed how the toy industry in the first half of twenty twenty three felt the impact of retailer clearance activity after ending twenty twenty two with significant inventory carryover. Speaker 200:16:03Comparisons from the first half of twenty twenty three to the first half of twenty twenty two look especially unfavorable Since we had unusually high sales in Q2 last year, as retailers brought inventory in much earlier than normal to avoid anticipated supply chain disruptions. On top of this, our toy sales in H122 were inflated by the DC Outside of the top line performance, we continue to develop consistent operational and financial results, Achieving a strong earning and margin profile with EBITDA at over $88,000,000 for the quarter at a 21% margin. Looking at Q2 performance by Creative Center, toy gross product sales were $390,000,000 down 19.5%. Foreign exchange did not have a material impact and on a constant currency basis, GPS declined 20%. Geographically in Q2, North America was responsible for the decline, both in dollars and percentage terms, as the trends discussed earlier were more pronounced in the U. Speaker 200:17:16S. Preschool and dolls and interactive declined 20.8%, primarily from a drop in sales of PAW Patrol, Hatchimals, Wizarding World and Perspex, partially offset by an increase in Bitsy, Rubble and Crew and Gabby's Dollhouse. Activities, Games and Puzzles and Plush was down 24.4%, mainly due to a decrease in the Games and Puzzles portfolio and Kinetic Sand. Wheels in Action dropped 12.8%, driven by a decline in D. C. Speaker 200:17:45And Bakugan. Outdoor was down 11.7%. Q2 sales allowances were 11.2% as a percent of gross product sales compared to 9.7%, a solid result considering the broader retail environment we were operating in. Q2 adjusted EBITDA for Toys was $47,700,000 compared to $83,200,000 at 13.8% margin compared to 19%. The primary factor behind the lower EBITDA margin was the deleveraging effect of the reduction in toy revenue relative to administrative marketing and distribution expenses. Speaker 200:18:24In Q2, entertainment revenue increased $5,500,000 or 19.4 percent to $33,900,000 from primarily higher distribution revenue from the 1st PAW Patrol movie as well as new content deliveries of Vida the Vet, ROVEL and CREW and Unicorn Academy. These increases were offset by lower licensing and merchandising revenue. Adjusted operating income was $16,300,000 down 9.4 percent and adjusted operating margin was 48.1% compared to 63.4%. The decrease in entertainment profitability was driven by higher amortization of content production costs and lower licensing and merchandising revenue as a percentage of total entertainment revenue. Q2 revenue in digital games was slightly higher at $40,500,000 compared to last year. Speaker 200:19:17This was a strong result for digital games as mobile gaming in Q1 and Q2 2022 continued to benefit from COVID factors. Toka Life World was particularly strong in Q2 this year. Digital Games adjusted operating margin in Q2 was 31 6%, up from 24.8% because of lower marketing spending. Overall Q2 consolidated gross margin was 54.9%, down from 56% because of lower entertainment licensing and merchandising revenue, Higher amortization of entertainment content and higher sales allowances as a percentage of toy GPS, partially offset by favorable toy product mix. Consistent with the deleveraging we saw in Q1, SG and A in dollars was down year over year, but higher as a percentage of revenue. Speaker 200:20:12SG and A was $179,500,000 representing 42.7 percent of consolidated revenue compared to $190,400,000 or 37.6 percent. Marketing costs were down $4,000,000 at 7.3 percent of revenue compared to 6.9%. Administrative expenses were flat with lower incentive compensation, personnel and consulting costs offset by higher restructuring costs. We continued executing on our plan to close our last remaining manufacturing facility in Calais, France, which we inherited in 2013 with the acquisition of Mancada. As a result, we booked a restructuring charge at $9,700,000 in Q2, which is included in administrative costs. Speaker 200:21:01Adjusted SG and A was 163,500,000 or 38.9 percent of consolidated revenue compared to $181,000,000 or 35.7 percent. In Q2, net income was $28,000,000 or $0.26 per diluted share compared to net income of $88,100,000 or $0.83 per diluted share. Adjusted net income in the quarter was $48,800,000 or $0.45 per diluted share compared to $72,400,000 or $0.68 per diluted share. Adjusted EBITDA was $88,400,000 compared to 113,700,000 Adjusted EBITDA margin was 21%, down slightly from 22.5% from lower operating leverage. Turning to the balance sheet. Speaker 200:21:53Our on hand inventory at the end of Q2 was in very good shape at just over 150,000,000 down $34,000,000 compared to $184,000,000 last year. We ended Q2 with $554,900,000 cash, down $89,000,000 from $644,000,000 at the year end. Free cash flow in Q2 was negative $5,900,000 compared to positive $84,100,000 primarily from lower operating cash flow. Free cash flow was in line with our normal seasonality where we consume cash in H1 as we build towards our seasonal peak and then generate most of our free cash flow later in the second half of each year. We continue to be in an extremely strong liquidity position with available liquidity of over $1,000,000,000 From a capital allocation perspective, investments in innovation, content and M and A remain our top priorities. Speaker 200:22:49In addition, we continue to look at all avenues to maximize total shareholder value. In Q2, we repurchased 156,200 shares for $4,200,000 bringing the total to 397,700 shares year to date. We will continue to use the NCIB opportunistically and believe that together with the dividend this represents a prudent use of capital and an important part of our efforts to create value for shareholders. Turning to our outlook. 2023 has played out as we expected so far, and we are pleased to confirm our guidance for the full year. Speaker 200:23:29We should recognize This is a unique macro environment and that makes forecasting a challenge. But despite this macro backdrop, We are confident in our innovation, the strength of our entertainment and digital games content and new toy launches planned. We continue to expect the 2023 toy gross product sales to be flat to slightly down compared to 2022. In 2022, 45% of our gross product sales occurred in H1 compared to historical seasonality of 30 to 35%, which created a difficult H1 comparative for us. This headwind will act as a tailwind in H2, especially in Q4, as the reversion to traditional seasonality combined with a jam packed toy entertainment and game's release schedule works in our favor. Speaker 200:24:25We expect sales allowances of approximately 13% for 2023, higher than our normal range of 10% to 12%. This will allow us to ensure we meet our sell through and year end inventory targets, but will not negatively impact gross margins due to strong cost control measures and productivity within our supply chain. We are maintaining our expectations for 2023 revenue to be in line with 2022, excluding The $17,000,000 PAW Patrol, the Mighty Movie distribution revenue expected in Q3. For the year, Foreign currency translation is expected to provide a slight tailwind on revenue based on current market rates. We are maintaining 2023 adjusted EBITDA margin guidance, which should be flat to slightly above 2022, excluding the 17,000,000 PAW Patrol Mighty Movie Distribution Revenue. Speaker 200:25:24As a reminder, total depreciation and amortization is expected to increase from 68,000,000 in 2022 to just under $145,000,000 in 2023, primarily for more deliveries of entertainment content. From a phasing perspective, D and A will be approximately $47,000,000 in Q3 $55,000,000 in Q4. Our capital expenditures are now expected to be 6% of revenue, down from 7% we communicated earlier this year. We continue to invest in entertainment and digital games content and this change is simply a timing shift between 2023 2024 for certain entertainment and digital games content. Later this month, some of you will be joining us in Stockholm, Sweden for a deeper dive into the incredible work taking place within our digital games creative center. Speaker 200:26:17The purpose of our trip is to highlight in more detail Incredible development that the teams have done in the lead up to the launch of several new digital games. We know it's a big investment, but for those of you not yet To conclude, we will continue to leverage our integrated creative center platforms to generate above industry growth in the medium to long term and to leverage our IP, scale and talent across our creative centers. Combined with a strong balance sheet, we intend to capitalize on both organic and acquisition opportunities and in doing so build long term shareholder value. That concludes our prepared remarks. We will now be pleased to take questions. Speaker 200:27:04Operator, please open the line. Operator00:27:07Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Brian Morrison, TD Securities. Brian, please go ahead. Speaker 300:27:36Okay. Thank you very much. First off, my condolences to Maximix and Stanley. 2nd, Mark, when I look at guidance you've had, revenue sort of in line with guidance for first half of the year, but pretty strong margins, more than we would have I think implies maybe a bit of a tailwind or cushion in terms of your full year margin guide. So are you at this time more comfortable with your full year margin outlook following the first half Performance and the potential to meet or exceed that? Speaker 300:28:02Or is there some sort of offset that we should be thinking of in the back half of the year? Speaker 200:28:08Hi, Brian. Good morning. Thanks. I would say to you, we are obviously pleased with our EBITDA I think we've done well. We've managed our margins. Speaker 200:28:17We've managed our costs very well. And there's been a lot of focus from Max, myself and the rest of the executive team on this. And I think it's a good measure of our ability to keep our gross margins up and stable and manage our costs for the balance of the year. However, Brian, as you know, we're sitting in late July, early August. We have a long way to go. Speaker 200:28:40We have 70% Approximately of our GPS still to come in the second half. There's a lot of macro uncertainties that still exist out there, which make forecasting a challenge. And the season is later this year because there's an extra shopping weekend before Christmas and that will also impact e commerce purchases. So whilst we're optimistic and we obviously aim to beat, I think we collectively feel that prudence is still required, which is why even though we beat guidance in Q2 on margins, we're still holding our guidance for the year. Speaker 300:29:18Okay. I appreciate that. And then I want to talk about digital games for a minute. So you're talking about obviously the exciting launch of your digital product And I assume we'll get more color on stock on, but you've got this 20% forecast. I'm wondering if you can provide some data points. Speaker 300:29:35Like should we think of this growth, I think it's 8% today. Should we think that it's more organic? Is it more M and A? Is the M and A physical properties that you develop in house or more digital platforms? And are the acquisition multiples more reasonable now that you might get something done on this front? Speaker 200:29:54I'm going to answer the first part of that and then I'll let Ronnen comment on that as well. I think If you look at digital gains, we're actually at around 12.7% of our total revenue on a year to date basis coming out of digital games. And so that business has grown and it continues to grow and we're excited about it. We're seeing some Good activity happening in the digital game space right now. TOCALIFE World in particular is resonating very well both in Q2, but also in July. Speaker 200:30:29And so we're actually very comfortable with that. I think our at least for the initial part of our growth, we're looking at Organic growth, we've got a number of big games that are launching in the next 12 months. I'll let Renen discuss those. But we're also continuing to look at M and A as a complement to that organic strategy. Ronnen, do you want to add some color? Speaker 200:30:50Yes, for sure. Speaker 400:30:51Hey, Brian. How are you? Speaker 500:30:52Hey, Ronnen. Nice to hear your voice. Speaker 400:30:54Yes, likewise. I think that we'll continue with our strategy, which is 1st and foremost Being located in 2 incredible places in the world for digital games, one being Toronto and the other one being Stockholm, Sweden. And that gives us the ability to hire incredible local talent. So the ability to Create our own in house studio, which is NOID, which is producing the Unicorn Academy game. So being able to hire local talent and then do smaller acquisitions like we did with Nordlight in Stockholm, which you'll meet, which is building the Rubik's Match game. Speaker 400:31:35And then the acquisition with Originator, which has been an incredible acquisition for the company, which is now actually responsible for putting out the PAW Academy game that's coming out this fall. I wouldn't actually call it a game, I'd call it a platform. Then I can talk to it more if you're interested. But it's interesting. So now we've Made 2 small acquisitions and those small acquisitions are going to put out some incredible games. Speaker 400:32:05And then we have our own studios that are continuing to do magical things. So I think you'll see a combination of both those things moving into the future and also Growing the existing studios that we have. So we now have a total of 5 studios globally around the world and you will see growth within those studios moving forward. Speaker 300:32:25Okay. So it sounds like a combination. And in terms of the M and A, it sounds like it's going to be more tuck ins than anything of significant material size. Is that fair? Speaker 400:32:35Listen, you never know. I think that we're the tuck ins are working well for us. The organic is working well. But if there's an acquisition of size to help grow this part Speaker 600:32:47of the business, we're not going Speaker 400:32:48to shy away from it. Speaker 300:32:50And would the multiples be more reasonable today than they were say 12 months ago? Speaker 200:32:55Yes. Brian, we've definitely seen the multiples come down in the space, particularly in the emerging or newer companies that those multiples were very frothy about 12 to 24 months ago and with rates going up and venture capital kind of flying up in that area, we've definitely seen multiples come down in the digital games world. But that's true of I think that's true of all areas, in fact, that we're seeing in the acquisition area. I think multiples have come down. Speaker 300:33:25Thank you both Speaker 200:33:26very much. Thanks, Brian. Operator00:33:28Thank you. Your next question comes from Sabahat Khan, RBC Capital Markets. Sabahat, please go ahead. Speaker 600:33:35Great. Thanks and good morning. Mark, you gave some color earlier on just some of the prior year comps and how they played out. Can you maybe Give a little bit of color on looking ahead, kind of the prior year comps both on the shipping side and on the POS side to help us think through the back half of the year. And maybe if you can also just tie in, just given all the moving pieces, your confidence on The full year guidance both on the top line and on the margin front is how confident you are at this point in the year? Speaker 200:34:04Hi, Saba. Good morning. That's a big question. So Let me deal with it in 2 separate sections, if you don't mind. First, I'm going to respond on the question around Growth in the second half of the year and how we feel about that. Speaker 200:34:18And then I'll give you a little bit of some color on our views on the comps and POS and everything that's going on because Obviously, there's a lot of noise in the market around POS. So I would say to you, when you look at the second half of the year And you look at the toy area in particular, there are 5 factors that are driving growth and give us comfort for the year. Firstly, we have high quality innovation that's coming out. We've got Bitsy's, we've got Bakugan, we've got Hatchimals Alive and they're at the right price points. And we think that innovation is going to be critical to win in the second half this year. Speaker 200:34:55Secondly, we have incremental business that's coming. We have Rubble, which is new. We have HexBugs, which we acquired. We have 4 d. We have Gabby's, which is growing internationally very nicely and we've got more points of distribution. Speaker 200:35:09Thirdly, we have really good marketing strategy. I think our new CMO, Jeremy has done a great job in terms of Building out a strategy with agility, which is invested in key priorities, especially in the digital area with strong content backing it up. We've got the Paul movie coming, which we're really excited about and that it provides a halo effect. And then I think the other key point for the second half is that We've got really good pricing and promotional support. So our price points for the second half of this year for the full season Is less than $35 on average. Speaker 200:35:48So we're helping consumers and I think that's going to be an important factor in the fall. Finally, I'd say to you that we have strong potential in digital games. I think that Toka Life World and other digital games areas are coming alive again. And so we're seeing some reemergence of growth there and that's encouraging for us in the second half. If you actually look at it from a comp perspective, Obviously, if you look at the POS, Sabah, it was not great in Q2 or in the first half in general. Speaker 200:36:21No one likes to see that. But I don't think you or anyone should really over read on the POS too much because there was tremendously heavy clearance activity in the first half of the year. Now we had less inventory at retail to clear and on hand for that matter. And so we weren't the beneficiaries a lot of that Clearance related POS, because a big percentage of the POS was clearance driven and very heavily promoted. Now if you look at our gross margins in toy relative to our competitors, you'll see that our gross margins were stable. Speaker 200:36:56Even though our sales allowances were slightly higher, we did have some more enhanced promotional activity, but our gross margins were still stable and strong, which is an In Europe, there was less inventory to clear and we outperformed. And even though POS in the U. It was really bad in the 1st part of the second quarter. In late June July, we've seen really good signs of consumption and growth reemerging. Prime Day is a good example of that. Speaker 200:37:23As I said to you, digital games is growing nicely as well. And so overall, we feel confident that We're going to get the tailwinds we expected in the second half, particularly when you look at the comps in the second half of twenty twenty three against twenty twenty two. Sorry, that's a long answer, but I wanted to make it comprehensive for everyone. Speaker 600:37:45No, thanks for that. And I guess you alluded to this a little bit, just a question on the PAW Patrol movie. Can you maybe talk about to the extent you can just your expectations for this movie maybe in context of how the last one did and just How you're planning for it through Q3 and Q4 with the product rollouts? Speaker 200:38:04Sure. I'll answer the first part of that and I'm going to ask Renan So just add some color around movies in general, but 2021 was an August day and date release and we were still in COVID. So day and date means that it went to theaters and streaming at the same time. This year, 2023, we're launching on the 29th September and it's actually got 2 windows. There's a 45 day theatrical exclusivity period before it goes to SVOD and streaming. Speaker 200:38:33Now that gives us 2 Promotional windows and more marketing opportunities, so we feel good about that. It's also going to be in more theaters this year. It's in over 4,000 as compared to 3,000 last year. There's also more retail points of distribution this year and more licensees. We're actually licensing the Poor product generally, our toy is toy and non toy in over 50 countries, and we've got 25 blue chip CPG licenses lined up. Speaker 200:39:01And obviously, that's great work by Paramount. Now the other thing to keep in mind is that the later release At the end of September does have an impact. It's good news for 2023 because we'll still get a big chunk of sales in 2023, but because it's later, We'll also have a flow over and more impact in the first half of twenty twenty four from the movie. Also, and as you would expect, We always see a lift from a movie and you see a decline. That's normal. Speaker 200:39:30But the reality is we think that the decline will be less this time Because of the flow over into 2024, we've also got the fact that Rubble is going to be in its 1st full year in 2024 and that will help. So that's some color around the movie, but Renan, do you want to just give everyone a little bit of a sense of how you're thinking about movies in general? Yes. Hey, Saba. I think that Speaker 400:39:57the second film is The quality of the film, the production, I think that it's better than the first film. And it's just such a different type of narrative to see the pups as superheroes come to the big screen. And I'm just so proud of our team for being able to produce this film. And just to remind everybody that we produce the films in house. We obviously finance the films partially ourselves, but the production is done in house with Spin Master with our own people. Speaker 400:40:33We don't outsource this. And the ability to do that is an incredible asset for the company and an incredible asset for us going forward. I'm really excited about the fact that we have this 45 day window. We're in more theaters. It's going to go on to Paramount Plus afterwards. Speaker 400:40:53And so the greatest thing about these films is that they have long lives and the kids just watch them over and over and over and over again And just reinforce and expand the whole Poly universe. So overall, I'm really excited. And then in terms of films, I think that we've seen And I would actually say going back, but just basically in the last year, we've seen a lot of examples between Sonic And Mario and Barbie, just the strength of toy IP or kids based IP being turned into films and people wanting to see those IPs brought to life and those characters on the big screen. And so we're very excited about this movie and we're excited about turning Bakugan into a film and looking into our Treasure Chest and taking things like Tech Deck and potentially turning that into film and things like Unicorn Academy, we're already working on Scripts to turn that into a live action film. So lots of stuff to come from Spin Master in terms of the film area. Speaker 600:41:58Great. Thanks for that. And just one quick one. There's no mention of the PAW Patrol app coming out later on in conjunction with the movie. I guess, just trying to think through the revenue side of that. Speaker 600:42:09Is that more of a brand building platform? I think you indicated there's some games and things like that on there. We're just thinking how you plan to maybe monetize that? Or is that just largely a marketing and brand building exercise at App at PopCapEx. Speaker 400:42:21Yes. If I was a developer that was if I was originator working on this And during this call, I would be a little upset because I wouldn't call it an app. It's actually, I would say it's a misnomer to call it an app. Maybe get it on the App Store, But it's I would actually call it a platform and it's 100% a revenue generator for the company. And The reason why you use the word platform is because it's actually a combination of learning, Music and video all combined together. Speaker 400:42:53And I have to just take my hat off to the whole digital team and to Originator 4, bring this into birthing it, because we've been talking about doing something like this for 10 years. And yes, it will over enhance the overall franchise, But I think this is going to be a catalyst to ignite our subscriber growth in our whole digital games area. So we're currently sitting with about 330,000 subscribers And this platform is going to kick in and drive a lot of subscriber growth. We'll be talking about it in the future in terms of what our outlook would look like and numbers and stuff like that. It's going to retail for $7.99 $7.99 Speaker 200:43:33a month or $49.99 a year. Speaker 400:43:35Yes. But this is Sav, 100%. This is a revenue driver for the company. Speaker 600:43:41Great. That was helpful color. Thank you. Operator00:43:45Thank you. Your next question comes from Adam Shine, National Bank Financial. Adam, please go ahead. Speaker 700:43:51Thanks a lot. Obviously, my condolences to Max's family and welcome Ronnen back to the call. A couple of housekeeping items for you, Mark, and then maybe Two more. First off, just in terms of the cost savings, we've seen the restructuring charges move up into the $10,000,000 $11,000,000 zone. Is that the level of related cost savings or potentially incrementally more than that? Speaker 200:44:17No, the cost savings on a run rate basis will be more than that going forward, Adam. I think on the CalA side, We're looking at around $3,000,000 a year on a run rate basis cost savings. And then the earlier workforce reduction we did earlier in the year is going to be around $10,000,000 annualized. So a total around $13,000,000 of run rate savings going forward. Speaker 700:44:44Okay. Thanks. That's helpful. And going back to your comment on sales allowance and the fact that it's A bit more towards 13%. I could see obviously or we could all see the increase in H1 for obvious reasons, some of which you've already touched on this call. Speaker 700:45:02When I look to what The guidance that represents for H2, can you speak a little Speaker 500:45:10bit more to that? Because that seems Speaker 700:45:12to be tracking a bit higher, particularly in the context of what transpired last year, especially in the Q4? And then I'll follow-up with 2 more, please. Speaker 200:45:22Yes. Sure. So listen, I debated that 13% sentence in the script quite a bit. I'll tell you there's 2 reasons for it. 1 is the fact that we've seen growth in Europe. Speaker 200:45:38Europe is a higher sales allowance environment as I've explained to you before. So there's just a geographic mix element to this regardless, right? The second element is, I think goes back to the overall tone that I answered, I think Brian's question on guidance in general and our EBITDA margin. I think that the second half of the year, there will be more promotions, more discounting. And so we have factored that into our And I wanted to call that out for you. Speaker 200:46:10I think if you speak to Chris Biedahl and our sales team, I don't think They're actually going to want to spend that money to be honest with you, but and we're going to try not to, but we thought it would be prudent to call it out Because of the macro uncertainties, the one thing I will say to you Adam is that we don't think it's going to reduce our gross margins because We're actually seeing some tailwinds coming from ocean freight. We're managing our supply chain costs very tightly. And so from a gross margin perspective, That's neutral, if you look at our guidance right now. And if we don't need to spend it for whatever reason, then it will represent upside to margin. Speaker 700:46:50Perfect. Okay. So I expected those to be the 2 explanations. I just wanted to hear you say that. You've talked about how you're Today for the consumer, you talked about the context of how things evolve in the second half. Speaker 700:47:05Can you just maybe talk a little bit about How retailers beyond the inventory destocking dynamic that has largely run its course, How they're thinking about the overall market? Does it remain very cautious, very last minute, A greater burden on you to take on more inventory. Can you just characterize the General Retailer, particularly the big box retailers as we move through the early part of Q3? Speaker 200:47:37Yes. So if If you look at the retail environment now, I think you have to look at it in the overall context of the cycle that we've been through, where if you go back to the first half of last year, It was real concern about supply chains. And so retailers were building up their weak supply on hand quite significantly. Then we had the whole Issue arising in the second half of twenty twenty two, all the macro factors that led to the massive overstocking in all the retail Clearance activities that have happened in the first half. So retailers have been particularly cautious, very profit focused and very focused on reducing inventory and getting weak supply way down. Speaker 200:48:20What we're seeing now Is that things are starting to normalize. We've actually we've really gone through that retail clearance activity. Weeks supply on hand Starting to normalize and overall the retail tone is such that we've seen a turnaround towards the latter part of June and into July where retailers are starting to actually position themselves now for the second half of the year with many of the problems actually behind them and behind all of us. Speaker 700:48:53Okay. And just one last question for Renen. The Rubik's cube is complicated as it is, at least has a solution. A lot of investors sort of look at It's a dilemma in terms of how to cope with A float that's certainly suboptimal and then the fact that M and A has not been big and you've alluded to a comfort in doing So maybe more from your perspective, the Board's perspective, how do you look at the cash hoard and sort of the sub The leverage that clearly has not helped the stock. Speaker 400:49:44Well, first, I'd like to admit that I can only do one side of the Rubik's Cuba can't do all 6. But I would say, listen, it's a good problem to have. These are good problems to have. I'd rather have that problem than being drowning in debt. So I think that People should look at Spin Master over the course of our 30 year track record and history. Speaker 400:50:11And we're A prudent company and when the opportunities arise, we'll be there and we'll take advantage of them. And it's been really choppy waters in the last years. And sometimes you make the wrong acquisition and you pay the price for it and start writing it down. So I think that we are a growth company and We will allocate and deploy the cash to get the highest type of growth for the company and the best strategic growth for the company. And if that takes some more time, then I request the patience on behalf of the shareholders. Speaker 400:50:50And it's funny, I was reading a Warren Buffett book last night, and they were talking about how he held on to The Washington Post for so many years and when he bought it and how it was such an under leveraged Stock and company and people just didn't understand the value. And I feel the same way about Spin Master. I don't think people fully Appreciate everything that's going on here in this company and all the levers that we have to drive growth and the depth of the portfolio. And I'm super proud of our management for the way they've managed, especially these choppy waters and to deliver the profitability and keep the margins high In this environment, it's incredible. And I think that the strategy of our 3 creative centers are just starting to bear fruit and you will see that coming out in this 3rd Q4. Speaker 400:51:45The ability to produce the PAW Patrol Academy Platform in conjunction launching with the film, launching on package of QSR codes, That platform with the PAW Academy did not be outsourced. You cannot get the outcome of that, The quality of that platform and the innovation that you guys will see when it comes to market, if it was done or outsourced to another Gaming company and licensed with some sort of licensing model. The same thing with Unicorn Academy. I mean, I'm so excited for that Franchise to hit Netflix, starting with a special 1 hour movie. It's incredible. Speaker 400:52:28And the World, I wouldn't even call it a game, but the immersive fantastical World for Kids is going to launch in the Q1 of next year. Again, And not have been done by outsourcing it to another party. So I think that's not I think, but that combination of the 3 creative centers and the amount of money that we're putting in. I think the shareholders should look at the amount of capital allocation that we're starting to put into all our games and put into our entertainment franchise. So we are deploying money. Speaker 400:52:57We're just being very strategic about it. So I think that the story is continuing to be written, and I encourage people to Dig deeper into the assets of the company and see our return to good quality growth Coming into 2024 and 2025 and 2026. Speaker 700:53:18Thanks for that. Appreciate it. Operator00:53:22Thank you. Your next question comes from Martin Landry, Stifel. Martin, please go ahead. Speaker 500:53:28Hi, good morning, everyone. I would like to touch on new product introductions and your product portfolio for this fall. You touched a little bit about it, inflation and interest rates are stretching the consumer. Speaker 300:53:48Just want Speaker 500:53:48to hear you talk a little bit about your pricing strategy. I think you mentioned in a previous question that your average price It's around $35 Just trying to understand how that compares to last year? That would be helpful. Speaker 200:54:05Good morning, Martin. Thanks for the question. Yes, I did mention earlier that our average price point for $4.23 It's actually less than $35 So let me just give you a little bit more context on pricing for toys. In the environment that we're in with interest rates the way they are, consumers are stretched and are actually buying down, so to speak, from a price point perspective. There's definitely pressure on products above $70 retail. Speaker 200:54:37For us this fall, we only have 2 items that are greater than $69.99 for 423. One of them is the big Paul movie lead item with the Epcot Cara, but we only have 2. So our average price is less than $35 and that's down just around 10% from 20 22's average price. If you look at the key drivers that we have for this fall, okay, and I mentioned some of them earlier, like Bitsy, Great Innovation, dollars 2,999 Bakugan, Hatchimals Alive, these are all $5 to $10 price points. And so we think we are pricing the line very effectively to help the consumer. Speaker 200:55:26Obviously, the consumer is going to buy toys. Birthdays come and Christmas comes and everything will drive regular purchases and toys, but we're helping them at the lower price points. The other point I just want to call out while we're talking about pricing is that we're actually thinking hard about 2024 as well and we expect the average to come down around another 9% to 10% again from fall 2023. So pricing appropriately and our pricing strategy It's a very big part of what Max and the commercial teams in toy, Chris Bittel and our marketing teams are looking at very closely. Okay. Speaker 200:56:08That's helpful. Speaker 500:56:10And then You launched your new PAW Patrol tour line that's related to the movie. In your press release This week, I think there was 5 new toys that were featured. Just wondering, do you have more SKUs coming than those 5 toys In relation to the movie and the 10 year anniversary? Speaker 200:56:34I don't actually know the exact number of SKUs that are related to the movie, but certainly those are the 5 primary SKUs that we're promoting. Renee, do I Speaker 400:56:44don't have the exact number, but I know it's more than 5. Yes. I think we just highlighted those for the consumer. Speaker 200:56:51Martin, we can get back to you with the full line for the movie. There's definitely different price points as well, but those 5 were just highlighted in We can get back to you with a follow-up on that one. Speaker 500:57:01Okay. And then I think you mentioned in that press release that Those products are starting to be available on August 1st at retailers. Just wondering how does your shelf space look like For the total line, are you satisfied with where you're located? Do you have any end caps upcoming? Just love to hear a little bit where you're positioned in the stores? Speaker 200:57:26Yes. I think our shelf space is either consistent with 2021 or even better. We have a lot of promotional activity in caps, out of aisle, tremendous amount of promotional activity that's going on around The movie in store, I think the other point to call out is that we actually have more points of distribution. I think that's something that we're excited about. Not only is the movie in more theaters, but we actually have more retail points of distribution. Speaker 200:57:58I think We have close to 300 points of retail distribution for the movie. And I think it's certainly something We feel very comfortable and excited about it. Speaker 500:58:10Okay. And just to wrap this up, You did say in your opening remarks that you expect the PAW movie to have a similar boost to the tar line that The first movie did. If I recall correctly, I think we you had alluded to the first movie boosting Your Tourline sales by 20% to 25%. Is that a fair expectation? Speaker 200:58:36Yes. I don't want to quote Specific number in terms of a forward looking view on that. But I think in general, your point is correct. There's always a boost from the movie and then And obviously, as the movie tails off, that does come down. We expect the same profile. Speaker 200:58:51But what I would say to you, I just want to key in on a point that I raised earlier, Is that because we have a later release in 2023, it's nearly 2 months later than it was in 2021, There will be more rollover and carryover of the movie toy line into the first half of twenty twenty four. So we think that that At least from a calendar perspective, the up and the down will be less pronounced. And then also the fact that we actually have rubble In the line for a full year in 2024 as opposed to a partial year in 2023 will help soften some of that as well. Speaker 400:59:32Great. Thank you. Speaker 200:59:33Thanks, Martin. Operator00:59:35Thank you. Your next question comes from John Zamparo, CIBC. John, please go ahead. Speaker 400:59:47Thank you. Good morning. I wanted to ask about the international business, Both Europe and rest of world, these geographies seem to be continually materially better than North America. Obviously, there's the inventory issue with retailers in North America, but I'm wondering if there's anything else we should be focusing on there, particularly in Europe, if that's not considered a high growth market? Speaker 201:00:09Yes. So good morning, John. And just for operator and others, I think this will be our second last question just from a timing perspective. But John, thanks for that question on international. Europe POS was actually not great in the second quarter, But we are actually seeing we're seeing strong activity in Europe and it actually had far less inventory clearance activity and far less inventory issues than we had to deal with. Speaker 201:00:37I think if you look at our international business, we're in the early innings of our growth there because We've really been building out our international strategy now for around €10,000,000 But many of the markets that we're in, we've only been in for a few years. We literally just opened Spain last year. Spain is going incredibly well for us. We're about to open Portugal on the 1st January 24, we move into Portugal. Even though we've lost Russia as a market, which was around $20,000,000 or $30,000,000 of sales, our international business is growing. Speaker 201:01:15Our headquarters are based in London, but we have offices around Europe. Central Eastern Europe is expanding. Germany is a growing market for us. It's one of the biggest toy markets in the world and we have low penetration rates there. So if you look at our market share In North America relative to our market share in Europe, we're going to see growth in Europe just to get back to what our North American side market share looks like. Speaker 201:01:41And then if you actually think about the growth in that market, There's a tremendous amount of potential still to come as we mature as a company. Speaker 401:01:53Okay. That's helpful. Thanks. And then one quick follow-up. My guess Is that the answer to this is still no, but is there any change in your view on whether you're impacted by the ongoing rider strike? Speaker 201:02:05Now the rider strike does not impact what we're doing on the movie. We're about to we're completing the movie now and we're going to deliver And it's animated and it's done in Canada. So it really doesn't have much of an impact at all. I think the only impact on the movie For us, it might be some of the promotional activity regarding some of the actors and actresses that would normally be doing some promotional activity around the time of the launch. So there might be a little bit of an impact on that from the strike. Speaker 201:02:36There might also be an impact depending on when this gets resolved on some of the movies in 2024 and 2025 that are coming out. The big movies that are coming out in 2025 and early 2025 for the DC movies for Batman and Superman, which are currently scheduled to be in the Q1 of 2025. So I don't know what impact this strike has on some of the schedules, but it's likely to cause some delays. Renee, do you have any other thoughts on that? That's it. Speaker 401:03:11Okay. That's all for me. Thank you very much. Speaker 201:03:13Thank you. Thank you. We'll make this the final question. Operator01:03:16Your last question comes from Luke Cannon, Canaccord Genuity. Luke, please go ahead. Speaker 301:03:23Thanks. Good morning. Just one from my end here. The PAW Patrol The layered multiyear approach to how it is that you're going to be managing content on that platform. I'm just curious to know how the Efforts of the team, I guess, are going to be balanced between developing the content that's going to be on that platform versus maybe some of the other newer launches that you guys are going to be having over the course of the next couple of years here? Speaker 401:03:56Sorry, when you mean the newer launches? Speaker 201:03:57You're talking about the other games, Luxe said it. Correct. Speaker 401:04:02I think the most amazing thing is that we've been building up the capabilities to have 5 studios in the last number of years. So the PAW Academy platform is going to be done is being done by Originator, which is based in San Francisco. And they're dedicated on this and this other game that we're bringing out in 2024 called Cubic. So they're dedicated as a standalone and all the other games have their own So we've actually taken this interesting approach, which is Speaker 201:04:33kind Speaker 401:04:34of The model that the largest video game companies take, which is each studio has their own dedicated 1 or 2 titles And that's what they specialize in and they go deep and they continue building that out over long periods of time and they just become experts in that domain. Got it. Thanks, Mark. Yes. Operator01:04:55Thank you. There are no further questions. I will now turn it back for closing remarks. Speaker 201:04:59Well, thank you, everyone. It was good to talk to you today. And we look forward to seeing some of you hopefully in Stockholm in a few weeks for our Digital Games Investor and Analyst Day. And we look forward to talking to you all again in November with our Q3 results and conference call. Thank you very much. Operator01:05:21Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSpin Master Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report Spin Master Earnings HeadlinesRoyal Bank of Canada Cuts Spin Master (TSE:TOY) Price Target to C$31.00May 4 at 2:16 AM | americanbankingnews.comNational Bank Financial Weighs in on Spin Master Q2 EarningsMay 3 at 2:01 AM | americanbankingnews.comSecret financial plot unfolding in Washington DC… [DEVELOPING]What stocks are next up to soar in 2025? I believe I’ve found the answer - and it might surprise you. You see, I’ve recently uncovered a secret financial plot unfolding in Washington DC…May 4, 2025 | Timothy Sykes (Ad)Spin Master Q2 EPS Forecast Cut by National Bank FinancialMay 3 at 1:29 AM | americanbankingnews.comToronto Stocks Mixed; Spin Master Shares Spiral on Withdrawn 2025 GuidanceMay 2 at 6:02 PM | marketwatch.comSpin Master seeking to mitigate tariff impacts as it withdraws 2025 outlookMay 2 at 12:50 PM | msn.comSee More Spin Master Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Spin Master? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Spin Master and other key companies, straight to your email. Email Address About Spin MasterSpin Master (TSE:TOY), a children's entertainment company, engages in the creation, design, manufacture, licensing, and marketing of various toys, entertainment products, and digital games in North America, Europe, and internationally. The Toys segment's product categories include activities, games and puzzles, and plush; wheels and action; outdoor; and preschool, dolls, and interactive products. The Entertainment segment engages in the creation and production of multi-platform content, stories, and characters in original shows, short-form series, and films. The Digital Games segment is involved in the development of digital games distributed via third-party platform providers. 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There are 8 speakers on the call. Operator00:00:00Good day, and welcome to the Spin Master Corporation Second Quarter 2023 Results Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Sofia Bisoukis. Please go ahead, ma'am. Speaker 100:00:13Thank you, Chris, And good morning. Welcome to Spin Master's Financial Results Conference Call for the Q2 Ended June 30, 2023. I'm joined this morning by Mark Siegel, Spin Master's Chief Financial Officer and Ronen Harari, Chair and Co Founder. Max Rangel, Our Global President and CEO will unfortunately not be able to join our call today. We are saddened to share he has experienced a loss in his family as his father has passed away. Speaker 100:00:41Our thoughts and prayers are with Max and his family during this time. For your convenience, the press release, MD and A and interim consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR. 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, 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 these expected or implied by the forward looking statements. Speaker 100:01:34As 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 information on these assumptions and risks, please see our cautionary statements regarding forward looking information in our earnings release dated August 2nd, 2023. And please note that Spin Master reports in U. S. Speaker 100:02:07Dollars and all dollar amounts will be expressed today in U. S. Currency unless otherwise noted. I would now like to turn the call over to Mark. Speaker 200:02:16Good morning, everyone, and thank you for joining us. As Sofia mentioned, we're sorry to miss Max today with the passing of his dad yesterday, but we are happy to have Renan join us today. I'm going to read the script and then Ronen and I will do the question and answer session. We are pleased to have delivered a solid second quarter, which was in line with expectations despite last year's unusually front end loaded shipping patterns. Our results reflect our commitment to building 3 thriving creative centers and investing in long term growth. Speaker 200:02:51Together with the winning combination of Toys, Entertainment and Digital Games. We are expanding our reach and providing kids and families around the world with magical experiences by reimagining Everyday Play. As expected, toy gross product sales in Q2 were challenged by the clearance activity of carryover inventory at retail, particularly in the U. S. These high inventory levels caused retailers to slow orders in the first half of this year, resulting in Q2 revenue declining 20.9% in comparison to Q2 'twenty two. Speaker 200:03:27Retailer inventory clearance activities have now been concluded. The clearing of resale channels Creates a pathway for new items to be launched for the holiday season. From a Spin Master perspective, Our U. S. Retail inventory at the end of Q2 was down 17% over last year as of the end of Q2. Speaker 200:03:48Last quarter, we spoke about the expected softening of the toy industry in 2023, specifically in the U. S, a region that has traditionally held up well during tougher economic periods. Global toy POS in Q2 declined 10%, and we trailed the market with a decline of 17% As in Q1, most of our POS decline in Q2 occurred in the U. S. Where POS declined 22% compared to the industry, which was down 12.4%. Speaker 200:04:19We are, however, encouraged that POS declines have begun to slow. And in late June and in July, we have started to see growth reemerge. For example, we had very strong results in the U. S. For Amazon Prime Day with POS well ahead of our expectations and ahead of market growth. Speaker 200:04:39Our Prime Day performance increased 130% year over year and is at an all time high. Internationally, our POS declined 4.6% in Q2, outperforming the total industry, which was down 6.4% across the Canada. This result was in part due to less inventory clearance within Europe. On a year to date basis, we have gained share in over half of the countries in the G10, according to Sukana. The preschool category continues to be a key area of strength for Spin Master led by PAW Patrol, our leading preschool franchise, which is celebrating its 10th anniversary this year. Speaker 200:05:22In Q2, PAW Patrol was the number one preschool toy property globally and has held that position since Q1 of 2020 for Sakena. In Q2, we had 3 of the top 10 items within the infanttoddlerpreschool category in the U. S. Per second. Gabbie's Dollhouse Perfect Playset was number 4, PAW Patrol Aqua Pups was number 5 and the PAW Patrol Big Truck Pups was number 9. Speaker 200:05:50In Q2, our global POS for PAW Patrol declined approximately 10% per SOKANA. In Q2, Our U. S. POS for PAW Patrol was down slightly for Sakena. However, in the U. Speaker 200:06:04S. On a year to date basis, PAW Patrol grew low single digits in the infants, toddler and preschool category. We are optimistic for the toy line in the second half, coinciding with the release of our 2nd feature film for the franchise on September 29. We expect the 2nd Paul movie to have a similar halo effect on the brand's performance as it did in 2021. Gabby's Dollhouse continues to produce incredible results, having built a strong consumer fan base around the world through the Netflix show and its robust digital ecosystem. Speaker 200:06:431st to Cana, Gabbie's Dollhouse was the number 5 preschool toy property globally in Q2 compared to number 9 in Q2 of 'twenty two and was a top 10 property in preschool toys for the 6th straight year 6th straight quarter. Within Dolphin Interactive, we are very excited about the launch of Hatchimals Alive! Beginning this August, which will give kids a whole new way to hatch using water to bring these characters to life. The price point of this line lends itself well to parents seeking value during the holiday season. As many of you have seen, we have another exciting launch within the Dolphin Interactive category with Toys. Speaker 200:07:35While the product only just set in the U. S. On August 1, we are seeing early signs of very strong performance. Initial launches in China, Japan, Spain and Portugal have shown strong reaction and very positive sell through results and Bitcy is already nominated for a number of industry awards. We have several strong properties within our Wheels in Action category, including Monster Jam, Bakugan, DC and Tech Deck notably. Speaker 200:08:05Bakugan became the number one property in the battling toy category globally on a year to date basis compared to number 2 last year according to Sukana. We are excited to reinvigorate the brand as well with a new season of our anime adventure series hitting Netflix beginning September 1, featuring a revamped anime style and a fresh storyline and new characters. The new season will first be revealed in Roblox, Given our past success with leveraging the metaverse to reach kids and will be complemented by a new toy line with an enhanced way for players to battle. Spin Master became the number one manufacturer for the DC Universe globally, up from number 2 in Q2 of 2022 according to Sukana. As we have mentioned previously, the DC universe continues to bring new films to fans throughout 'twenty three and through to 'twenty six, which will have a halo impact on our toy lines. Speaker 200:09:06Within games, Rubik's Cube continues to grow. Rubik's was up 16.9% year over year and was the number 7 brand according to Sukana. While recognizing that the first half of the year has been challenging from a comparison perspective, we have strong confidence in our diverse toy portfolio moving into the fall. We expect that consumers will be looking to purchase at more modest price points and will be shopping even later in the season Given that Christmas falls on a Monday this year, we have created robust marketing plans that cater to the current consumer and marketplace realities. Our paid media activities are in line to key temples, retail activations and promotional activity, and we have ensured maximum flexibility to remain agile in our targeted marketing campaigns to meet the consumer where and when they shop. Speaker 200:10:12Turning to entertainment. We had another strong quarter with revenue increasing by over 19%, driven by higher distribution revenue. Previously, we shared that we have launched or are launching 3 brand new entertainment properties in 2023: Rubble and Crew, VIDA the Vet and Unicorn Academy. Vida, which is a new animated preschool series, is set to debut on BBC's CBVs in the UK and on Corus' Treehouse in Canada this fall. Since we last spoke, we have signed close to 10 new international distribution deals for VIDA, including the U. Speaker 200:10:49S. We are also approaching the launch of Unicorn Academy, a new fantasy adventure series that will start streaming on Netflix globally in November. The full franchise marketing plan will begin in September as we preview the content via Roblox, Start paid media and execute our influencer and YouTube content strategy. We have already made tremendous progress on building our licensed consumer product program, signing several licensors within fashion, publishing, bedding, sleepwear, health and beauty and accessories. We are aligning our franchise marketing efforts to regions where Netflix has the deepest reach. Speaker 200:11:28Additionally, our digital games team Is currently developing the Unicorn Academy mobile action adventure digital game that encapsulates the magic of the series and expands overall engagement in the franchise. Earlier this year, we introduced our first spin off for PAW Patrol, Raval and Crew. I'm pleased to share that Ravell and Crue continues to be a top performing series on Nickelodeon. The show debuted very strongly and has maintained a leadership position as a top ten series on Nick Jr. With kids 2 to 5. Speaker 200:12:01Given its impressive showing in its inaugural season, Nickelodeon has greenlit a 2nd season for Rubble and Crew. Our original PAW Patrol series also continues to perform well, ranking in the number one spot on Nick Jr. In May and has been greenlit for its 11th season. Of course, we are approaching the release of our highly anticipated second feature film, PAW Patrol: The Mighty Movie, set for theatrical debut on September 29 in association with Nickelodeon Movies and Paramount Pictures. The trailer was released on YouTube in June and has accumulated more than 70,000,000 global views already. Speaker 200:12:44Finally, within digital games, total revenue increased slightly over 2022, driven by higher in app purchases in Toca Life World. This is the 1st year over year quarterly increase we've seen in digital games since Q2 of last year. This was driven by new content releases, including the launch of our 2nd license With the replay of the call, we will now begin the call to the replay of the call to the replay of the call to We now have 76,000,000 monthly active users across the Toca Boca Ecosystem. We think the fan community within Toca will be super excited with Toca Days, our first 3 d player multi game, which is currently in soft launch. Poker Days will allow the opportunity for open ended play and creativity, coupled with the ability for social interactions between players. Speaker 200:13:35Player sentiment so far has been high. Based on the initial feedback and learnings, the team is making continuous improvements to ready for a full go live in 2024. We are launching a PAW Patrol app PAW Patrol Academy this fall to coincide with the movie. This will be our 1st in house developed PAW Patrol app focused on integrating show content with fun learning experiences and missions for preschoolers. Our new Rubik's Cube casual game, officially known as Rubik's Match, will have its worldwide release in early 2024, in line with AcUBE's 50th anniversary. Speaker 200:14:16With the continued popularity of Rubik's as a physical toy, We believe this mobile digital game will resonate with fans young and old and will attract new gamers to the brand. We previously discussed SAGO Mini's plans for a subscription bundle that will launch later this month branded as Picnic. This comprehensive bundle of apps will include thousands of top rated activities created by parents, child development experts and Sys. Technic will provide unlimited access to all the SAGO Mini properties as well as Toca Boca Junior apps, A new collection of fan favorite apps like Toca Pet Doctor, Toca Kitchen, as well as the endless learning apps, including Natangos. At just $11.99 a month, parents will have access to the very best touchscreen content with 1 single membership at significant savings. Speaker 200:15:11Leveraging our IP across our creative centers is core to our strategy and we are excited about the opportunities for growth stemming from the initiatives underway in and across each of our creative centers. Turning now to our financial performance in more detail. As I mentioned, total revenue in Q2 was 420.7 Against challenging year over year comparatives, this reflects a 17% decline in revenue compared to Q222. This decline can be primarily attributed to the return of traditional seasonal order timing in our toys creative center. As a reminder, in May, We discussed how the toy industry in the first half of twenty twenty three felt the impact of retailer clearance activity after ending twenty twenty two with significant inventory carryover. Speaker 200:16:03Comparisons from the first half of twenty twenty three to the first half of twenty twenty two look especially unfavorable Since we had unusually high sales in Q2 last year, as retailers brought inventory in much earlier than normal to avoid anticipated supply chain disruptions. On top of this, our toy sales in H122 were inflated by the DC Outside of the top line performance, we continue to develop consistent operational and financial results, Achieving a strong earning and margin profile with EBITDA at over $88,000,000 for the quarter at a 21% margin. Looking at Q2 performance by Creative Center, toy gross product sales were $390,000,000 down 19.5%. Foreign exchange did not have a material impact and on a constant currency basis, GPS declined 20%. Geographically in Q2, North America was responsible for the decline, both in dollars and percentage terms, as the trends discussed earlier were more pronounced in the U. Speaker 200:17:16S. Preschool and dolls and interactive declined 20.8%, primarily from a drop in sales of PAW Patrol, Hatchimals, Wizarding World and Perspex, partially offset by an increase in Bitsy, Rubble and Crew and Gabby's Dollhouse. Activities, Games and Puzzles and Plush was down 24.4%, mainly due to a decrease in the Games and Puzzles portfolio and Kinetic Sand. Wheels in Action dropped 12.8%, driven by a decline in D. C. Speaker 200:17:45And Bakugan. Outdoor was down 11.7%. Q2 sales allowances were 11.2% as a percent of gross product sales compared to 9.7%, a solid result considering the broader retail environment we were operating in. Q2 adjusted EBITDA for Toys was $47,700,000 compared to $83,200,000 at 13.8% margin compared to 19%. The primary factor behind the lower EBITDA margin was the deleveraging effect of the reduction in toy revenue relative to administrative marketing and distribution expenses. Speaker 200:18:24In Q2, entertainment revenue increased $5,500,000 or 19.4 percent to $33,900,000 from primarily higher distribution revenue from the 1st PAW Patrol movie as well as new content deliveries of Vida the Vet, ROVEL and CREW and Unicorn Academy. These increases were offset by lower licensing and merchandising revenue. Adjusted operating income was $16,300,000 down 9.4 percent and adjusted operating margin was 48.1% compared to 63.4%. The decrease in entertainment profitability was driven by higher amortization of content production costs and lower licensing and merchandising revenue as a percentage of total entertainment revenue. Q2 revenue in digital games was slightly higher at $40,500,000 compared to last year. Speaker 200:19:17This was a strong result for digital games as mobile gaming in Q1 and Q2 2022 continued to benefit from COVID factors. Toka Life World was particularly strong in Q2 this year. Digital Games adjusted operating margin in Q2 was 31 6%, up from 24.8% because of lower marketing spending. Overall Q2 consolidated gross margin was 54.9%, down from 56% because of lower entertainment licensing and merchandising revenue, Higher amortization of entertainment content and higher sales allowances as a percentage of toy GPS, partially offset by favorable toy product mix. Consistent with the deleveraging we saw in Q1, SG and A in dollars was down year over year, but higher as a percentage of revenue. Speaker 200:20:12SG and A was $179,500,000 representing 42.7 percent of consolidated revenue compared to $190,400,000 or 37.6 percent. Marketing costs were down $4,000,000 at 7.3 percent of revenue compared to 6.9%. Administrative expenses were flat with lower incentive compensation, personnel and consulting costs offset by higher restructuring costs. We continued executing on our plan to close our last remaining manufacturing facility in Calais, France, which we inherited in 2013 with the acquisition of Mancada. As a result, we booked a restructuring charge at $9,700,000 in Q2, which is included in administrative costs. Speaker 200:21:01Adjusted SG and A was 163,500,000 or 38.9 percent of consolidated revenue compared to $181,000,000 or 35.7 percent. In Q2, net income was $28,000,000 or $0.26 per diluted share compared to net income of $88,100,000 or $0.83 per diluted share. Adjusted net income in the quarter was $48,800,000 or $0.45 per diluted share compared to $72,400,000 or $0.68 per diluted share. Adjusted EBITDA was $88,400,000 compared to 113,700,000 Adjusted EBITDA margin was 21%, down slightly from 22.5% from lower operating leverage. Turning to the balance sheet. Speaker 200:21:53Our on hand inventory at the end of Q2 was in very good shape at just over 150,000,000 down $34,000,000 compared to $184,000,000 last year. We ended Q2 with $554,900,000 cash, down $89,000,000 from $644,000,000 at the year end. Free cash flow in Q2 was negative $5,900,000 compared to positive $84,100,000 primarily from lower operating cash flow. Free cash flow was in line with our normal seasonality where we consume cash in H1 as we build towards our seasonal peak and then generate most of our free cash flow later in the second half of each year. We continue to be in an extremely strong liquidity position with available liquidity of over $1,000,000,000 From a capital allocation perspective, investments in innovation, content and M and A remain our top priorities. Speaker 200:22:49In addition, we continue to look at all avenues to maximize total shareholder value. In Q2, we repurchased 156,200 shares for $4,200,000 bringing the total to 397,700 shares year to date. We will continue to use the NCIB opportunistically and believe that together with the dividend this represents a prudent use of capital and an important part of our efforts to create value for shareholders. Turning to our outlook. 2023 has played out as we expected so far, and we are pleased to confirm our guidance for the full year. Speaker 200:23:29We should recognize This is a unique macro environment and that makes forecasting a challenge. But despite this macro backdrop, We are confident in our innovation, the strength of our entertainment and digital games content and new toy launches planned. We continue to expect the 2023 toy gross product sales to be flat to slightly down compared to 2022. In 2022, 45% of our gross product sales occurred in H1 compared to historical seasonality of 30 to 35%, which created a difficult H1 comparative for us. This headwind will act as a tailwind in H2, especially in Q4, as the reversion to traditional seasonality combined with a jam packed toy entertainment and game's release schedule works in our favor. Speaker 200:24:25We expect sales allowances of approximately 13% for 2023, higher than our normal range of 10% to 12%. This will allow us to ensure we meet our sell through and year end inventory targets, but will not negatively impact gross margins due to strong cost control measures and productivity within our supply chain. We are maintaining our expectations for 2023 revenue to be in line with 2022, excluding The $17,000,000 PAW Patrol, the Mighty Movie distribution revenue expected in Q3. For the year, Foreign currency translation is expected to provide a slight tailwind on revenue based on current market rates. We are maintaining 2023 adjusted EBITDA margin guidance, which should be flat to slightly above 2022, excluding the 17,000,000 PAW Patrol Mighty Movie Distribution Revenue. Speaker 200:25:24As a reminder, total depreciation and amortization is expected to increase from 68,000,000 in 2022 to just under $145,000,000 in 2023, primarily for more deliveries of entertainment content. From a phasing perspective, D and A will be approximately $47,000,000 in Q3 $55,000,000 in Q4. Our capital expenditures are now expected to be 6% of revenue, down from 7% we communicated earlier this year. We continue to invest in entertainment and digital games content and this change is simply a timing shift between 2023 2024 for certain entertainment and digital games content. Later this month, some of you will be joining us in Stockholm, Sweden for a deeper dive into the incredible work taking place within our digital games creative center. Speaker 200:26:17The purpose of our trip is to highlight in more detail Incredible development that the teams have done in the lead up to the launch of several new digital games. We know it's a big investment, but for those of you not yet To conclude, we will continue to leverage our integrated creative center platforms to generate above industry growth in the medium to long term and to leverage our IP, scale and talent across our creative centers. Combined with a strong balance sheet, we intend to capitalize on both organic and acquisition opportunities and in doing so build long term shareholder value. That concludes our prepared remarks. We will now be pleased to take questions. Speaker 200:27:04Operator, please open the line. Operator00:27:07Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Brian Morrison, TD Securities. Brian, please go ahead. Speaker 300:27:36Okay. Thank you very much. First off, my condolences to Maximix and Stanley. 2nd, Mark, when I look at guidance you've had, revenue sort of in line with guidance for first half of the year, but pretty strong margins, more than we would have I think implies maybe a bit of a tailwind or cushion in terms of your full year margin guide. So are you at this time more comfortable with your full year margin outlook following the first half Performance and the potential to meet or exceed that? Speaker 300:28:02Or is there some sort of offset that we should be thinking of in the back half of the year? Speaker 200:28:08Hi, Brian. Good morning. Thanks. I would say to you, we are obviously pleased with our EBITDA I think we've done well. We've managed our margins. Speaker 200:28:17We've managed our costs very well. And there's been a lot of focus from Max, myself and the rest of the executive team on this. And I think it's a good measure of our ability to keep our gross margins up and stable and manage our costs for the balance of the year. However, Brian, as you know, we're sitting in late July, early August. We have a long way to go. Speaker 200:28:40We have 70% Approximately of our GPS still to come in the second half. There's a lot of macro uncertainties that still exist out there, which make forecasting a challenge. And the season is later this year because there's an extra shopping weekend before Christmas and that will also impact e commerce purchases. So whilst we're optimistic and we obviously aim to beat, I think we collectively feel that prudence is still required, which is why even though we beat guidance in Q2 on margins, we're still holding our guidance for the year. Speaker 300:29:18Okay. I appreciate that. And then I want to talk about digital games for a minute. So you're talking about obviously the exciting launch of your digital product And I assume we'll get more color on stock on, but you've got this 20% forecast. I'm wondering if you can provide some data points. Speaker 300:29:35Like should we think of this growth, I think it's 8% today. Should we think that it's more organic? Is it more M and A? Is the M and A physical properties that you develop in house or more digital platforms? And are the acquisition multiples more reasonable now that you might get something done on this front? Speaker 200:29:54I'm going to answer the first part of that and then I'll let Ronnen comment on that as well. I think If you look at digital gains, we're actually at around 12.7% of our total revenue on a year to date basis coming out of digital games. And so that business has grown and it continues to grow and we're excited about it. We're seeing some Good activity happening in the digital game space right now. TOCALIFE World in particular is resonating very well both in Q2, but also in July. Speaker 200:30:29And so we're actually very comfortable with that. I think our at least for the initial part of our growth, we're looking at Organic growth, we've got a number of big games that are launching in the next 12 months. I'll let Renen discuss those. But we're also continuing to look at M and A as a complement to that organic strategy. Ronnen, do you want to add some color? Speaker 200:30:50Yes, for sure. Speaker 400:30:51Hey, Brian. How are you? Speaker 500:30:52Hey, Ronnen. Nice to hear your voice. Speaker 400:30:54Yes, likewise. I think that we'll continue with our strategy, which is 1st and foremost Being located in 2 incredible places in the world for digital games, one being Toronto and the other one being Stockholm, Sweden. And that gives us the ability to hire incredible local talent. So the ability to Create our own in house studio, which is NOID, which is producing the Unicorn Academy game. So being able to hire local talent and then do smaller acquisitions like we did with Nordlight in Stockholm, which you'll meet, which is building the Rubik's Match game. Speaker 400:31:35And then the acquisition with Originator, which has been an incredible acquisition for the company, which is now actually responsible for putting out the PAW Academy game that's coming out this fall. I wouldn't actually call it a game, I'd call it a platform. Then I can talk to it more if you're interested. But it's interesting. So now we've Made 2 small acquisitions and those small acquisitions are going to put out some incredible games. Speaker 400:32:05And then we have our own studios that are continuing to do magical things. So I think you'll see a combination of both those things moving into the future and also Growing the existing studios that we have. So we now have a total of 5 studios globally around the world and you will see growth within those studios moving forward. Speaker 300:32:25Okay. So it sounds like a combination. And in terms of the M and A, it sounds like it's going to be more tuck ins than anything of significant material size. Is that fair? Speaker 400:32:35Listen, you never know. I think that we're the tuck ins are working well for us. The organic is working well. But if there's an acquisition of size to help grow this part Speaker 600:32:47of the business, we're not going Speaker 400:32:48to shy away from it. Speaker 300:32:50And would the multiples be more reasonable today than they were say 12 months ago? Speaker 200:32:55Yes. Brian, we've definitely seen the multiples come down in the space, particularly in the emerging or newer companies that those multiples were very frothy about 12 to 24 months ago and with rates going up and venture capital kind of flying up in that area, we've definitely seen multiples come down in the digital games world. But that's true of I think that's true of all areas, in fact, that we're seeing in the acquisition area. I think multiples have come down. Speaker 300:33:25Thank you both Speaker 200:33:26very much. Thanks, Brian. Operator00:33:28Thank you. Your next question comes from Sabahat Khan, RBC Capital Markets. Sabahat, please go ahead. Speaker 600:33:35Great. Thanks and good morning. Mark, you gave some color earlier on just some of the prior year comps and how they played out. Can you maybe Give a little bit of color on looking ahead, kind of the prior year comps both on the shipping side and on the POS side to help us think through the back half of the year. And maybe if you can also just tie in, just given all the moving pieces, your confidence on The full year guidance both on the top line and on the margin front is how confident you are at this point in the year? Speaker 200:34:04Hi, Saba. Good morning. That's a big question. So Let me deal with it in 2 separate sections, if you don't mind. First, I'm going to respond on the question around Growth in the second half of the year and how we feel about that. Speaker 200:34:18And then I'll give you a little bit of some color on our views on the comps and POS and everything that's going on because Obviously, there's a lot of noise in the market around POS. So I would say to you, when you look at the second half of the year And you look at the toy area in particular, there are 5 factors that are driving growth and give us comfort for the year. Firstly, we have high quality innovation that's coming out. We've got Bitsy's, we've got Bakugan, we've got Hatchimals Alive and they're at the right price points. And we think that innovation is going to be critical to win in the second half this year. Speaker 200:34:55Secondly, we have incremental business that's coming. We have Rubble, which is new. We have HexBugs, which we acquired. We have 4 d. We have Gabby's, which is growing internationally very nicely and we've got more points of distribution. Speaker 200:35:09Thirdly, we have really good marketing strategy. I think our new CMO, Jeremy has done a great job in terms of Building out a strategy with agility, which is invested in key priorities, especially in the digital area with strong content backing it up. We've got the Paul movie coming, which we're really excited about and that it provides a halo effect. And then I think the other key point for the second half is that We've got really good pricing and promotional support. So our price points for the second half of this year for the full season Is less than $35 on average. Speaker 200:35:48So we're helping consumers and I think that's going to be an important factor in the fall. Finally, I'd say to you that we have strong potential in digital games. I think that Toka Life World and other digital games areas are coming alive again. And so we're seeing some reemergence of growth there and that's encouraging for us in the second half. If you actually look at it from a comp perspective, Obviously, if you look at the POS, Sabah, it was not great in Q2 or in the first half in general. Speaker 200:36:21No one likes to see that. But I don't think you or anyone should really over read on the POS too much because there was tremendously heavy clearance activity in the first half of the year. Now we had less inventory at retail to clear and on hand for that matter. And so we weren't the beneficiaries a lot of that Clearance related POS, because a big percentage of the POS was clearance driven and very heavily promoted. Now if you look at our gross margins in toy relative to our competitors, you'll see that our gross margins were stable. Speaker 200:36:56Even though our sales allowances were slightly higher, we did have some more enhanced promotional activity, but our gross margins were still stable and strong, which is an In Europe, there was less inventory to clear and we outperformed. And even though POS in the U. It was really bad in the 1st part of the second quarter. In late June July, we've seen really good signs of consumption and growth reemerging. Prime Day is a good example of that. Speaker 200:37:23As I said to you, digital games is growing nicely as well. And so overall, we feel confident that We're going to get the tailwinds we expected in the second half, particularly when you look at the comps in the second half of twenty twenty three against twenty twenty two. Sorry, that's a long answer, but I wanted to make it comprehensive for everyone. Speaker 600:37:45No, thanks for that. And I guess you alluded to this a little bit, just a question on the PAW Patrol movie. Can you maybe talk about to the extent you can just your expectations for this movie maybe in context of how the last one did and just How you're planning for it through Q3 and Q4 with the product rollouts? Speaker 200:38:04Sure. I'll answer the first part of that and I'm going to ask Renan So just add some color around movies in general, but 2021 was an August day and date release and we were still in COVID. So day and date means that it went to theaters and streaming at the same time. This year, 2023, we're launching on the 29th September and it's actually got 2 windows. There's a 45 day theatrical exclusivity period before it goes to SVOD and streaming. Speaker 200:38:33Now that gives us 2 Promotional windows and more marketing opportunities, so we feel good about that. It's also going to be in more theaters this year. It's in over 4,000 as compared to 3,000 last year. There's also more retail points of distribution this year and more licensees. We're actually licensing the Poor product generally, our toy is toy and non toy in over 50 countries, and we've got 25 blue chip CPG licenses lined up. Speaker 200:39:01And obviously, that's great work by Paramount. Now the other thing to keep in mind is that the later release At the end of September does have an impact. It's good news for 2023 because we'll still get a big chunk of sales in 2023, but because it's later, We'll also have a flow over and more impact in the first half of twenty twenty four from the movie. Also, and as you would expect, We always see a lift from a movie and you see a decline. That's normal. Speaker 200:39:30But the reality is we think that the decline will be less this time Because of the flow over into 2024, we've also got the fact that Rubble is going to be in its 1st full year in 2024 and that will help. So that's some color around the movie, but Renan, do you want to just give everyone a little bit of a sense of how you're thinking about movies in general? Yes. Hey, Saba. I think that Speaker 400:39:57the second film is The quality of the film, the production, I think that it's better than the first film. And it's just such a different type of narrative to see the pups as superheroes come to the big screen. And I'm just so proud of our team for being able to produce this film. And just to remind everybody that we produce the films in house. We obviously finance the films partially ourselves, but the production is done in house with Spin Master with our own people. Speaker 400:40:33We don't outsource this. And the ability to do that is an incredible asset for the company and an incredible asset for us going forward. I'm really excited about the fact that we have this 45 day window. We're in more theaters. It's going to go on to Paramount Plus afterwards. Speaker 400:40:53And so the greatest thing about these films is that they have long lives and the kids just watch them over and over and over and over again And just reinforce and expand the whole Poly universe. So overall, I'm really excited. And then in terms of films, I think that we've seen And I would actually say going back, but just basically in the last year, we've seen a lot of examples between Sonic And Mario and Barbie, just the strength of toy IP or kids based IP being turned into films and people wanting to see those IPs brought to life and those characters on the big screen. And so we're very excited about this movie and we're excited about turning Bakugan into a film and looking into our Treasure Chest and taking things like Tech Deck and potentially turning that into film and things like Unicorn Academy, we're already working on Scripts to turn that into a live action film. So lots of stuff to come from Spin Master in terms of the film area. Speaker 600:41:58Great. Thanks for that. And just one quick one. There's no mention of the PAW Patrol app coming out later on in conjunction with the movie. I guess, just trying to think through the revenue side of that. Speaker 600:42:09Is that more of a brand building platform? I think you indicated there's some games and things like that on there. We're just thinking how you plan to maybe monetize that? Or is that just largely a marketing and brand building exercise at App at PopCapEx. Speaker 400:42:21Yes. If I was a developer that was if I was originator working on this And during this call, I would be a little upset because I wouldn't call it an app. It's actually, I would say it's a misnomer to call it an app. Maybe get it on the App Store, But it's I would actually call it a platform and it's 100% a revenue generator for the company. And The reason why you use the word platform is because it's actually a combination of learning, Music and video all combined together. Speaker 400:42:53And I have to just take my hat off to the whole digital team and to Originator 4, bring this into birthing it, because we've been talking about doing something like this for 10 years. And yes, it will over enhance the overall franchise, But I think this is going to be a catalyst to ignite our subscriber growth in our whole digital games area. So we're currently sitting with about 330,000 subscribers And this platform is going to kick in and drive a lot of subscriber growth. We'll be talking about it in the future in terms of what our outlook would look like and numbers and stuff like that. It's going to retail for $7.99 $7.99 Speaker 200:43:33a month or $49.99 a year. Speaker 400:43:35Yes. But this is Sav, 100%. This is a revenue driver for the company. Speaker 600:43:41Great. That was helpful color. Thank you. Operator00:43:45Thank you. Your next question comes from Adam Shine, National Bank Financial. Adam, please go ahead. Speaker 700:43:51Thanks a lot. Obviously, my condolences to Max's family and welcome Ronnen back to the call. A couple of housekeeping items for you, Mark, and then maybe Two more. First off, just in terms of the cost savings, we've seen the restructuring charges move up into the $10,000,000 $11,000,000 zone. Is that the level of related cost savings or potentially incrementally more than that? Speaker 200:44:17No, the cost savings on a run rate basis will be more than that going forward, Adam. I think on the CalA side, We're looking at around $3,000,000 a year on a run rate basis cost savings. And then the earlier workforce reduction we did earlier in the year is going to be around $10,000,000 annualized. So a total around $13,000,000 of run rate savings going forward. Speaker 700:44:44Okay. Thanks. That's helpful. And going back to your comment on sales allowance and the fact that it's A bit more towards 13%. I could see obviously or we could all see the increase in H1 for obvious reasons, some of which you've already touched on this call. Speaker 700:45:02When I look to what The guidance that represents for H2, can you speak a little Speaker 500:45:10bit more to that? Because that seems Speaker 700:45:12to be tracking a bit higher, particularly in the context of what transpired last year, especially in the Q4? And then I'll follow-up with 2 more, please. Speaker 200:45:22Yes. Sure. So listen, I debated that 13% sentence in the script quite a bit. I'll tell you there's 2 reasons for it. 1 is the fact that we've seen growth in Europe. Speaker 200:45:38Europe is a higher sales allowance environment as I've explained to you before. So there's just a geographic mix element to this regardless, right? The second element is, I think goes back to the overall tone that I answered, I think Brian's question on guidance in general and our EBITDA margin. I think that the second half of the year, there will be more promotions, more discounting. And so we have factored that into our And I wanted to call that out for you. Speaker 200:46:10I think if you speak to Chris Biedahl and our sales team, I don't think They're actually going to want to spend that money to be honest with you, but and we're going to try not to, but we thought it would be prudent to call it out Because of the macro uncertainties, the one thing I will say to you Adam is that we don't think it's going to reduce our gross margins because We're actually seeing some tailwinds coming from ocean freight. We're managing our supply chain costs very tightly. And so from a gross margin perspective, That's neutral, if you look at our guidance right now. And if we don't need to spend it for whatever reason, then it will represent upside to margin. Speaker 700:46:50Perfect. Okay. So I expected those to be the 2 explanations. I just wanted to hear you say that. You've talked about how you're Today for the consumer, you talked about the context of how things evolve in the second half. Speaker 700:47:05Can you just maybe talk a little bit about How retailers beyond the inventory destocking dynamic that has largely run its course, How they're thinking about the overall market? Does it remain very cautious, very last minute, A greater burden on you to take on more inventory. Can you just characterize the General Retailer, particularly the big box retailers as we move through the early part of Q3? Speaker 200:47:37Yes. So if If you look at the retail environment now, I think you have to look at it in the overall context of the cycle that we've been through, where if you go back to the first half of last year, It was real concern about supply chains. And so retailers were building up their weak supply on hand quite significantly. Then we had the whole Issue arising in the second half of twenty twenty two, all the macro factors that led to the massive overstocking in all the retail Clearance activities that have happened in the first half. So retailers have been particularly cautious, very profit focused and very focused on reducing inventory and getting weak supply way down. Speaker 200:48:20What we're seeing now Is that things are starting to normalize. We've actually we've really gone through that retail clearance activity. Weeks supply on hand Starting to normalize and overall the retail tone is such that we've seen a turnaround towards the latter part of June and into July where retailers are starting to actually position themselves now for the second half of the year with many of the problems actually behind them and behind all of us. Speaker 700:48:53Okay. And just one last question for Renen. The Rubik's cube is complicated as it is, at least has a solution. A lot of investors sort of look at It's a dilemma in terms of how to cope with A float that's certainly suboptimal and then the fact that M and A has not been big and you've alluded to a comfort in doing So maybe more from your perspective, the Board's perspective, how do you look at the cash hoard and sort of the sub The leverage that clearly has not helped the stock. Speaker 400:49:44Well, first, I'd like to admit that I can only do one side of the Rubik's Cuba can't do all 6. But I would say, listen, it's a good problem to have. These are good problems to have. I'd rather have that problem than being drowning in debt. So I think that People should look at Spin Master over the course of our 30 year track record and history. Speaker 400:50:11And we're A prudent company and when the opportunities arise, we'll be there and we'll take advantage of them. And it's been really choppy waters in the last years. And sometimes you make the wrong acquisition and you pay the price for it and start writing it down. So I think that we are a growth company and We will allocate and deploy the cash to get the highest type of growth for the company and the best strategic growth for the company. And if that takes some more time, then I request the patience on behalf of the shareholders. Speaker 400:50:50And it's funny, I was reading a Warren Buffett book last night, and they were talking about how he held on to The Washington Post for so many years and when he bought it and how it was such an under leveraged Stock and company and people just didn't understand the value. And I feel the same way about Spin Master. I don't think people fully Appreciate everything that's going on here in this company and all the levers that we have to drive growth and the depth of the portfolio. And I'm super proud of our management for the way they've managed, especially these choppy waters and to deliver the profitability and keep the margins high In this environment, it's incredible. And I think that the strategy of our 3 creative centers are just starting to bear fruit and you will see that coming out in this 3rd Q4. Speaker 400:51:45The ability to produce the PAW Patrol Academy Platform in conjunction launching with the film, launching on package of QSR codes, That platform with the PAW Academy did not be outsourced. You cannot get the outcome of that, The quality of that platform and the innovation that you guys will see when it comes to market, if it was done or outsourced to another Gaming company and licensed with some sort of licensing model. The same thing with Unicorn Academy. I mean, I'm so excited for that Franchise to hit Netflix, starting with a special 1 hour movie. It's incredible. Speaker 400:52:28And the World, I wouldn't even call it a game, but the immersive fantastical World for Kids is going to launch in the Q1 of next year. Again, And not have been done by outsourcing it to another party. So I think that's not I think, but that combination of the 3 creative centers and the amount of money that we're putting in. I think the shareholders should look at the amount of capital allocation that we're starting to put into all our games and put into our entertainment franchise. So we are deploying money. Speaker 400:52:57We're just being very strategic about it. So I think that the story is continuing to be written, and I encourage people to Dig deeper into the assets of the company and see our return to good quality growth Coming into 2024 and 2025 and 2026. Speaker 700:53:18Thanks for that. Appreciate it. Operator00:53:22Thank you. Your next question comes from Martin Landry, Stifel. Martin, please go ahead. Speaker 500:53:28Hi, good morning, everyone. I would like to touch on new product introductions and your product portfolio for this fall. You touched a little bit about it, inflation and interest rates are stretching the consumer. Speaker 300:53:48Just want Speaker 500:53:48to hear you talk a little bit about your pricing strategy. I think you mentioned in a previous question that your average price It's around $35 Just trying to understand how that compares to last year? That would be helpful. Speaker 200:54:05Good morning, Martin. Thanks for the question. Yes, I did mention earlier that our average price point for $4.23 It's actually less than $35 So let me just give you a little bit more context on pricing for toys. In the environment that we're in with interest rates the way they are, consumers are stretched and are actually buying down, so to speak, from a price point perspective. There's definitely pressure on products above $70 retail. Speaker 200:54:37For us this fall, we only have 2 items that are greater than $69.99 for 423. One of them is the big Paul movie lead item with the Epcot Cara, but we only have 2. So our average price is less than $35 and that's down just around 10% from 20 22's average price. If you look at the key drivers that we have for this fall, okay, and I mentioned some of them earlier, like Bitsy, Great Innovation, dollars 2,999 Bakugan, Hatchimals Alive, these are all $5 to $10 price points. And so we think we are pricing the line very effectively to help the consumer. Speaker 200:55:26Obviously, the consumer is going to buy toys. Birthdays come and Christmas comes and everything will drive regular purchases and toys, but we're helping them at the lower price points. The other point I just want to call out while we're talking about pricing is that we're actually thinking hard about 2024 as well and we expect the average to come down around another 9% to 10% again from fall 2023. So pricing appropriately and our pricing strategy It's a very big part of what Max and the commercial teams in toy, Chris Bittel and our marketing teams are looking at very closely. Okay. Speaker 200:56:08That's helpful. Speaker 500:56:10And then You launched your new PAW Patrol tour line that's related to the movie. In your press release This week, I think there was 5 new toys that were featured. Just wondering, do you have more SKUs coming than those 5 toys In relation to the movie and the 10 year anniversary? Speaker 200:56:34I don't actually know the exact number of SKUs that are related to the movie, but certainly those are the 5 primary SKUs that we're promoting. Renee, do I Speaker 400:56:44don't have the exact number, but I know it's more than 5. Yes. I think we just highlighted those for the consumer. Speaker 200:56:51Martin, we can get back to you with the full line for the movie. There's definitely different price points as well, but those 5 were just highlighted in We can get back to you with a follow-up on that one. Speaker 500:57:01Okay. And then I think you mentioned in that press release that Those products are starting to be available on August 1st at retailers. Just wondering how does your shelf space look like For the total line, are you satisfied with where you're located? Do you have any end caps upcoming? Just love to hear a little bit where you're positioned in the stores? Speaker 200:57:26Yes. I think our shelf space is either consistent with 2021 or even better. We have a lot of promotional activity in caps, out of aisle, tremendous amount of promotional activity that's going on around The movie in store, I think the other point to call out is that we actually have more points of distribution. I think that's something that we're excited about. Not only is the movie in more theaters, but we actually have more retail points of distribution. Speaker 200:57:58I think We have close to 300 points of retail distribution for the movie. And I think it's certainly something We feel very comfortable and excited about it. Speaker 500:58:10Okay. And just to wrap this up, You did say in your opening remarks that you expect the PAW movie to have a similar boost to the tar line that The first movie did. If I recall correctly, I think we you had alluded to the first movie boosting Your Tourline sales by 20% to 25%. Is that a fair expectation? Speaker 200:58:36Yes. I don't want to quote Specific number in terms of a forward looking view on that. But I think in general, your point is correct. There's always a boost from the movie and then And obviously, as the movie tails off, that does come down. We expect the same profile. Speaker 200:58:51But what I would say to you, I just want to key in on a point that I raised earlier, Is that because we have a later release in 2023, it's nearly 2 months later than it was in 2021, There will be more rollover and carryover of the movie toy line into the first half of twenty twenty four. So we think that that At least from a calendar perspective, the up and the down will be less pronounced. And then also the fact that we actually have rubble In the line for a full year in 2024 as opposed to a partial year in 2023 will help soften some of that as well. Speaker 400:59:32Great. Thank you. Speaker 200:59:33Thanks, Martin. Operator00:59:35Thank you. Your next question comes from John Zamparo, CIBC. John, please go ahead. Speaker 400:59:47Thank you. Good morning. I wanted to ask about the international business, Both Europe and rest of world, these geographies seem to be continually materially better than North America. Obviously, there's the inventory issue with retailers in North America, but I'm wondering if there's anything else we should be focusing on there, particularly in Europe, if that's not considered a high growth market? Speaker 201:00:09Yes. So good morning, John. And just for operator and others, I think this will be our second last question just from a timing perspective. But John, thanks for that question on international. Europe POS was actually not great in the second quarter, But we are actually seeing we're seeing strong activity in Europe and it actually had far less inventory clearance activity and far less inventory issues than we had to deal with. Speaker 201:00:37I think if you look at our international business, we're in the early innings of our growth there because We've really been building out our international strategy now for around €10,000,000 But many of the markets that we're in, we've only been in for a few years. We literally just opened Spain last year. Spain is going incredibly well for us. We're about to open Portugal on the 1st January 24, we move into Portugal. Even though we've lost Russia as a market, which was around $20,000,000 or $30,000,000 of sales, our international business is growing. Speaker 201:01:15Our headquarters are based in London, but we have offices around Europe. Central Eastern Europe is expanding. Germany is a growing market for us. It's one of the biggest toy markets in the world and we have low penetration rates there. So if you look at our market share In North America relative to our market share in Europe, we're going to see growth in Europe just to get back to what our North American side market share looks like. Speaker 201:01:41And then if you actually think about the growth in that market, There's a tremendous amount of potential still to come as we mature as a company. Speaker 401:01:53Okay. That's helpful. Thanks. And then one quick follow-up. My guess Is that the answer to this is still no, but is there any change in your view on whether you're impacted by the ongoing rider strike? Speaker 201:02:05Now the rider strike does not impact what we're doing on the movie. We're about to we're completing the movie now and we're going to deliver And it's animated and it's done in Canada. So it really doesn't have much of an impact at all. I think the only impact on the movie For us, it might be some of the promotional activity regarding some of the actors and actresses that would normally be doing some promotional activity around the time of the launch. So there might be a little bit of an impact on that from the strike. Speaker 201:02:36There might also be an impact depending on when this gets resolved on some of the movies in 2024 and 2025 that are coming out. The big movies that are coming out in 2025 and early 2025 for the DC movies for Batman and Superman, which are currently scheduled to be in the Q1 of 2025. So I don't know what impact this strike has on some of the schedules, but it's likely to cause some delays. Renee, do you have any other thoughts on that? That's it. Speaker 401:03:11Okay. That's all for me. Thank you very much. Speaker 201:03:13Thank you. Thank you. We'll make this the final question. Operator01:03:16Your last question comes from Luke Cannon, Canaccord Genuity. Luke, please go ahead. Speaker 301:03:23Thanks. Good morning. Just one from my end here. The PAW Patrol The layered multiyear approach to how it is that you're going to be managing content on that platform. I'm just curious to know how the Efforts of the team, I guess, are going to be balanced between developing the content that's going to be on that platform versus maybe some of the other newer launches that you guys are going to be having over the course of the next couple of years here? Speaker 401:03:56Sorry, when you mean the newer launches? Speaker 201:03:57You're talking about the other games, Luxe said it. Correct. Speaker 401:04:02I think the most amazing thing is that we've been building up the capabilities to have 5 studios in the last number of years. So the PAW Academy platform is going to be done is being done by Originator, which is based in San Francisco. And they're dedicated on this and this other game that we're bringing out in 2024 called Cubic. So they're dedicated as a standalone and all the other games have their own So we've actually taken this interesting approach, which is Speaker 201:04:33kind Speaker 401:04:34of The model that the largest video game companies take, which is each studio has their own dedicated 1 or 2 titles And that's what they specialize in and they go deep and they continue building that out over long periods of time and they just become experts in that domain. Got it. Thanks, Mark. Yes. Operator01:04:55Thank you. There are no further questions. I will now turn it back for closing remarks. Speaker 201:04:59Well, thank you, everyone. It was good to talk to you today. And we look forward to seeing some of you hopefully in Stockholm in a few weeks for our Digital Games Investor and Analyst Day. And we look forward to talking to you all again in November with our Q3 results and conference call. Thank you very much. Operator01:05:21Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.Read morePowered by