TSE:TOY Spin Master Q4 2023 Earnings Report C$25.17 +0.15 (+0.60%) As of 02:35 PM Eastern ProfileEarnings HistoryForecast Spin Master EPS ResultsActual EPSC$0.26Consensus EPS C$0.14Beat/MissBeat by +C$0.12One Year Ago EPSN/ASpin Master Revenue ResultsActual Revenue$684.30 millionExpected Revenue$681.03 millionBeat/MissBeat by +$3.27 millionYoY Revenue GrowthN/ASpin Master Announcement DetailsQuarterQ4 2023Date2/28/2024TimeN/AConference Call DateThursday, February 29, 2024Conference Call Time9:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckAnnual ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Spin Master Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 29, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Welcome to the Spin Master Corp. 4th Quarter 2023 Results Conference Call. At this time, all lines are in listen only mode. And following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, February 29, 2024. Operator00:00:24I would now like to hand the conference over to Sofia Psoukas. Please go ahead. Speaker 100:00:30Thank you, Mark, and good morning. Welcome to Spin Master's financial results conference call for the Q4 year ended December 31, 2023. I'm joined this morning by Max Rangel, Spin Master's Global President and CEO and Mark Siegel, Spin Master's Chief Financial Officer. For your convenience, the press release, MD and A and interim and consolidated financial statements are available on the Investor Relations section of our website at spinmaster.comandonsedarplus. 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, level of activity, performance, goals or achievements and any other future events or developments. Speaker 100:01:15Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that certain estimates or assumptions will provide will prove to be correct. Many factors could cause actual results to differ materially from those expected or implied by the forward looking statements. As a result, Spin Master cannot guarantee that any forward looking statements will materialize and you are cautioned not to place undue reliance on these forward looking statements. Except as may be required by law, Spin Master has no obligation to update or revise any forward looking statements whether because of new information, future events or otherwise. Speaker 100:01:58For additional info on these assumptions and risks, please consult our cautionary statements regarding forward looking information in our earnings release dated February 28, 2024. Please note that Spin Master reports in U. S. Dollars and all dollar amounts to be expressed today are in euro's currency unless otherwise noted. I would now like to turn the call over to Max. Speaker 200:02:19Thank you and good morning. Thanks everyone for joining us today. Looking at our performance in 2023, we are pleased with how our team navigated the challenging retail environment and harness the power of our 3 creative centers. A combination of toys, entertainment and digital games generated strong revenue growth of just under 8% in Q4. As expected, full year revenue was lower year over year driven by a decline in the toy segment. Speaker 200:02:462023 was a challenging global marketplace for toys with the industry declining 7% according to SIRKANA, as a result of the challenging macroeconomic environment and a shift towards services and experiences post COVID. The industry expected that Christmas would arrive late and restore category growth. However, the extra shopping days unfortunately did not bring about the expected surge. Retailers were cautious, bought less and consumption did not increase as expected despite deep discounting. Retailers for the most part prioritized profitability rather than growth and ended the year with cleaner retail inventory compared to 2022. Speaker 200:03:30Our total revenue declined 5.7% for 2023 primarily due to lower toy revenue, which declined 11.3%. We experienced growth in both entertainment and digital games. Entertainment had a strong year with a 60% increase in revenue driven by the delivery of new content including the very successful second PAW Patrol movie and Unicorn Academy. Digital games saw revenue growth of 6.1% from continued strong engagement in Toka Life World and the launch of our new subscription service Picnic. Let me now dive deeper into our toy performance and provide further context regarding the macroeconomic environment. Speaker 200:04:14From 2020 to 2022, the toy industry experienced strong growth, especially in the U. S. And accelerated by the pandemic. Starting in late 2022 and into 'twenty three, we saw industry sales decline. A key factor in this decline was a shift in consumer shipping behavior due to increased pressure on consumers' wallet from inflation and rising interest rates as well as a post COVID shift to services such as travel, restaurants, concerts and sporting events. Speaker 200:04:47Consumers spent less per child in the toy aisle and traded down from a price point perspective across multiple categories as they had to make more considered spending decisions. Consumers were very price sensitive during the holidays, often waiting to buy on promotion or at a lower price within the portfolio and buying less overall. In this context, we were very pleased with our toy performance in Q4 with gross product sales growing 4.8%. Now from a retail point of sale perspective, our global POS increased 1% in Q4 well ahead of the industry which saw a decline of 7% according to Surcana. Our POS growth was the 2nd fastest of the top 5 manufacturers globally for the quarter. Speaker 200:05:34In Europe, Spin Master was the fastest growing toy company. On a full year basis, our global POS declined 4%, a lower decline than the industry which declined by 6.5% versus Arcana. We retained our position as the 4th largest manufacturer and we grew market share in 10 of 11 track markets with the U. S. Finishing almost flat. Speaker 200:05:59Let me provide some color on our key toy categories. In preschool, we have a robust offering with a combination of PAW Patrol and popular licensed properties such as Gavi's Dollhouse. PAW Patrol remained the number one preschool property globally for Q4 and it has been since Q1 2020 according to Zircona. In Q4, Paw Patrol's global POS grew just over 4% and grew in most countries. In the U. Speaker 200:06:26S. In Q4, PAW Patrol POS grew 12% and according to Zircona in 2023, we gained share in infant toddler preschool with POS of 5.3% compared to the industry, which was down just under 8%. For 2023, PAW Patrol was a number 9 property globally, up from number 10 in 2022. This is an incredible feat and a testament to our investment in creating refresh themes, introducing innovation into the line, expanding the Poly universe through feature films and broadening distribution to YouTube and digital apps. Gabby's Dollhouse Perfect Place It was the number one item in the infant toddler preschool super category for both Q4 and for 2023. Speaker 200:07:12And Gabby's was the 4th preschool toy property globally in Q4 for Surcana. Gabby's Dollhouse POS grew triple digits in Q4 and in 2023 internationally. We have much more to come in 'twenty four with a complementary offering from our acquisition of Melissa and Doug and the introduction of Ms. Rachel. We are known for creating breakthrough toys and a great example of this was the launch of Bitsy, the digital pet you can touch. Speaker 200:07:42It's disruptive play pattern earned numerous awards for most innovative toy of the year in several countries. In Dolsen Interactive, Bitsy was named by Sarcana as a top item within the youth electronics category and in Q4 Spin Master continued to gain share growing POS 9.9 points. We have new Bitsy iterations planned for 2024 including a Disney licensed Bitsy featuring storied characters and also a magical version launching in the fall. Beyond Bitsy for 2024, we have several exciting launches within Hatchimals and the introduction of the Unicorn Academy toy line based on the TV show. Within Wheels in Action, Monster Jam had another strong quarter becoming the 2nd property in vehicles from number 4 last year with POS up 20% in Q4 and up 11% for 2023 per Surcana. Speaker 200:08:40Monster Jam has been the number one license within the vehicle super category for the 11th straight quarter globally according to Surcana. The combination of felt entertainment's live shows combined with the innovative new toys allows kids to relive the action from the stadium and this drives consumer demand. Within games and puzzles, Rubik's had a very strong finish to 2023 becoming the stocking stuffer of choice for many parents with that very attractive price point and Rubik's Cube was a 6 brand within games and puzzles for both Q4 and for 2023 with POS up 12% in Q4 and 18% in 2023 for Zircona. This momentum sets up nicely to celebrate Rubik's 50th anniversary in 2024, which will include new product launches and collaborations, global celebrations and the debut of our new digital game to Rubik's Match. Anticipating continued pressure on consumer discretionary spending, we will launch a new toy initiative in the second half of twenty twenty four design and manufacture specifically for the value channel as we believe there is a large opportunity to grow volume in this channel. Speaker 200:09:55As many of you saw in January at our Investor Day, our new value line leverages our strongest brands and licenses including PAW Patrol, Gabby's Dollhouse, Monster Jam and DC Comics with price points as low as $1 Melissa and Doug will further strengthen our position in preschool and allow us to develop a strong beachhead in early learning. According to Surcana, the combination will make us the market leader in infant toddler and preschool super category. Our teams are working hard on the integration focused on building the platform for revenue growth across mass and specialty driving international growth and realizing cost synergies. I want to spend a moment talking about Melissa and Doug's financial performance in 2023 and Mark will provide additional detail. In 2023 Melissa and Doug's revenue declined approximately 25 percent from 2022. Speaker 200:10:50Their adjusted EBITDA margin remained comparable and meets a challenging second half and a decline in the infant dollar preschool category, ListenDoc's previous owner made the choice to protect long term profitability by prioritizing profit margin over volume. They did not discount or promote significantly in what was a highly promotional environment and this led to Melissa and Doug experiencing greater decline in the revenue than the overall category. Our entertainment creative center launched significant new content in 2023, including our 2nd feature film for the PAW Patrol franchise, which has now surpassed $200,000,000 in global box office revenue. PAW Patrol celebrated its 10th anniversary in 2023 and the release of the second movie had a very positive impact on watch time across all PAW content including the TV series helping to fortify PAW's brand equity and health. Earlier in 2023, we launched our 1st spin off series of PAW, Rubble and Crew, which has been renewed for a second season and continues to be one of the top 5 preschool shows on Nickelodeon in its age category. Speaker 200:12:03Building on our vast experience in developing preschool content, we school content, we recently launched our newest animated series Vida the Vet on BBC in the UK and Corus Treehouse in Canada. We have launched our VIDA on YouTube channel and have already surpassed 15,000,000 views of our brand new content. And this is ahead of our U. S. Netflix debut on March 18 as we gear up for the toy launch in the fall. Speaker 200:12:29A new fantasy adventure series Unicorn Academy launched on Netflix November 2nd and was an instant hit debuting as a number one kids show globally. With its characters and magical adventures Unicorn Academy quickly captivated audiences globally and racked up over 40,000,000 hours of watch time in November alone. Unicorn Academy is our 1st full franchise launch with face branded offerings and experiences across each of our 3 creative centers. Unicorn Academy Toys will launch this fall and the digital game will launch in 2025. In addition to our content, toys and the digital game, we have been working on our licensing program for a wide range of licensed consumer products in 2024 and beyond to meet demand from fans of the show for deeper engagement with the franchise. Speaker 200:13:19Turning now to digital games, 2023 saw the overall mobile digital games decline by about 2%. However, our digital games creative center outperformed with revenue growth in both Q4 and 'twenty three, driven primarily by higher in game purchases in Toka Live World and subscription growth from the newly launched Picnic Bundle. Tokalive World ended 2023 at approximately 62 monthly active users up 4,300,000 compared to 2022. 2023 was the largest download year for Toka Life World ever with 98,000,000 downloads compared to 92,000,000 in 2022, 90,000,000 in 2021. This shows Toka Life World's ongoing popularity and engagement with kids. Speaker 200:14:10Introducing Q3, Picnic is subscription bundle that offers unlimited access to a variety of our Sega Mini and Toca Boca digital games. 1 subscription streamlines multiple apps into a simple and affordable service for parents and provides endless ways to play and learn for kids. The market reacted positively to the bundle when it was launched and including PAW Patrol and originator from originator, we ended 2023 at just under 400,000 subscribers in total, a growth of 68,000 subscribers over 2022. The subscriber increase is impressive and we are migrating users to Picnic as we harness the stickiness in the play experience with SAGO World, SAGO School, First Words, TOKA Junior, Hair Salon and more. In 2024, we will integrate the originator apps into Picnic to increase bundle value even further. Speaker 200:15:05PAW Patrol Academy, which is our 1st in house learning app for our powerhouse franchise is off to a great start. Due to its high quality and overall depth of play, it has been named Google's best app of 2023 for families and ended 2023 with 34,000 subscribers. The team is now in full service and continues to build the overall experience. We are excited to be launching several new digital games in Q2. This includes TOKA Days, our first social multiplayer game that will seek to expand the existing player base of the TOKA universe. Speaker 200:15:41We are also launching Rubik's Match, our casual mobile game that will deliver a fresh take on the Match 3 game genre to coincide with the Rubik's 50th anniversary. Our teams are collaborating across creative centers to make this a special moment for Rubik's fans As more kids are spending their time in the online world and communities, we are expanding our player ecosystem and creating digital play experiences that cater to multiple interest and age levels. Looking forward, we expect that 2024 will be a challenging year due to the continued economic pressure on consumers and a shorter shopping period during the holiday season. We are developing toys that will spark imagination while also providing the consumer with a great value at varied price points. We will focus on the integration of Melissa and Duck where we have already made progress building our cross functional team to integrate the business and identifying important work streams to accelerate synergy realization. Speaker 200:16:39We see many opportunities for growth by leveraging Melissa and Doug to grow our early childhood play capabilities. We will continue to drive performance for our core brands across our 3 creative centers from celebrating Rubik's 50th anniversary with new products and the new mobile digital game to capitalizing on the momentum from the PAW Patrol movie across toy, entertainment and digital games. We will expand our early childhood reach with the first toy offering for YouTube sensation, Ms. Rachel. And Beyond Toy, our entertainment creative center has a robust slate for 24 and is engaging new audiences with Unicorn Academy and Vita the Vet. Speaker 200:17:18Our digital games creative center has invested in designing new mobile digital games intended to expand our reach across a broader ecosystem. Now we know that newness and innovation win with customers and we are investing in our disruptive innovation to reimagine everyday play. We're highly focused on executing our long term growth strategy and we continue to make significant progress by leveraging our deep expertise in play, well established global network and innovation capability to unlock growth and inspire future generations. We're confident in the strength of our diversified portfolio and our ability to create long term growth and shareholder value. I will now pass it over to our CFO, Mark Siegel to cover our financial performance in detail and discuss our 2024 financial outlook. Speaker 300:18:11Thank you, Max. We delivered a solid 4th quarter with year over year growth in both revenue and adjusted EBITDA despite the challenging macroeconomic backdrop. We generated Q4 revenue of $502,600,000 up 7.9% year over year and adjusted EBITDA of $64,900,000 up 423 percent. Our toy gross product sales increased by 4.8% to $502,300,000 in Q4. The increase was driven by a return to traditional seasonality after 2022, where retailers have bought inventory early in the year and were then focused on reducing inventory on hand in the Q4. Speaker 300:18:58On a constant currency basis, gross product sales increased by 2.4%. The Wheels in Action product category had strong Q4 gross product sales growth, up 25.9%. Q4 toy adjusted EBITDA was up $43,700,000 to $19,300,000 with a margin of 4.7% compared to negative 6.2%. Higher adjusted EBITDA was driven by increased gross profit and lower SG and A. Looking at the full year, toy gross product sales decreased by $191,600,000 or 9.7 percent to 1,780,000,000 due to lower order volume across all product categories driven by the macroeconomic pressures on consumer discretionary spending. Speaker 300:19:50Constant currency toy gross product sales declined by $215,700,000 or 10.9 percent to 1,760,000,000 dollars As we highlighted during the Q3 call, sales allowances were elevated for 2023 at 13.8% compared to our traditional range of 10% to 12% from higher markdowns, promotional activity and market mix. Toy adjusted EBITDA declined $32,200,000 to 212,400,000 Toy adjusted EBITDA margin for 2023 was 13.8% compared to 14.1% in 2022. The lower adjusted EBITDA margin was due to toy revenues declining faster than marketing, distribution, product development and administrative expenses. In Q4, entertainment revenue increased by 24,000,000 or 77 percent to $55,200,000 from higher distribution revenue from new content deliveries and from the PAW Patrol movie. Entertainment adjusted operating income was $10,900,000 and adjusted operating margin was 19% compared to 66%. Speaker 300:21:12The decrease in adjusted operating margin was driven by the higher amortization of production costs due to content deliveries as well as marketing costs for the launch of Unicorn Academy. 2023 Entertainment revenue increased by 71,300,000 dollars or 60% from higher distribution revenue from new content deliveries through the year, including the PAW Patrol Movie, Unicorn Academy, Rubble and Crew and VIDA the Vette. We also continue to receive distribution revenue from the PAW Patrol series and the 1st PAW Patrol movie. 2023 adjusted operating margin decreased to a still very healthy 42.5% from 66.6% due to the higher amortization of production costs from the additional content deliveries. Q4 revenue in digital games grew 7.1 percent or $2,700,000 to 40,600,000 dollars due to higher in game purchases in Toca Life World and subscription revenue from Picnic, our subscription bundle as well as PAW Patrol Academy. Speaker 300:22:25Adjusted operating margin in Q4 was 26.6%, down from 32.5% due to higher upfront marketing costs incurred to launch PAW Patrol Academy. Digital games revenue increased by 6.1% for 20 $173,900,000 driven by higher in app purchases in Toka Life World. Adjusted operating margin of 33.4% was up slightly relative to 2022. On a consolidated basis for 2023, the decline in toy gross product sales and revenue was partially offset, as I just described, by strong performances in our entertainment and digital games creative centers, leading to a full year revenue of just over $1,900,000,000 a decline of 5.7%. This reinforces our belief in the value of our 3 creative centers and the diversification and leverage they provide. Speaker 300:23:30Gross margin in 2023 remained stable at 54.5% compared to 54.6% in 2022, despite the dilutive effect of higher amortization related to more entertainment content deliveries, as gross margin was up in the toy segment from lower ocean freight costs and favorable foreign exchange. We demonstrated strong cost control in 2023. Adjusted SG and A, which excludes restructuring costs, share based compensation and transaction costs declined 32,200,000 dollars to $726,400,000 from lower administrative, selling, marketing and distribution expenses. Adjusted SG and A as a percentage of revenue increased slightly to 38.1% from 37.5%. Adjusted EBITDA for 2023 was $418,800,000 compared to $389,400,000 Adjusted EBITDA margin was 22% compared to 19.3%. Speaker 300:24:39Excluding the PAW Patrol movie distribution revenue, adjusted EBITDA was $403,200,000 an increase of $13,800,000 from $389,400,000 Adjusted EBITDA margin, excluding the poor movie distribution revenue, was 21.3%, 200 basis points up compared to 19.3%. Adjusted EBITDA margin increased due to higher gross margin from toys, partially offset by higher adjusted SG and A relative to revenue. Turning now to our balance sheet. We are very pleased with our inventory management this year. We ended 2023 with $98,000,000 of inventory compared to $105,000,000 in 2022, our lowest year end inventory position in 6 years. Speaker 300:25:32In 2023, we generated $227,000,000 in operating cash flow and used $135,000,000 in investing activities, mainly for entertainment content and digital games development. Free cash flow for 2023 was just under $123,000,000 compared to just under $150,000,000 primarily from lower operating cash flow. Excluding transaction costs for the M and D acquisition and restructuring costs, including the Calais shutdown, we generated approximately $150,000,000 in free cash flow. We ended 2023 with nearly $706,000,000 in cash, our highest year end balance to date compared to just over $644,000,000 at the end of 2022. On January 2, we closed the acquisition of Melissa and Doug for a preliminary purchase consideration of 959,000,000 dollars which represented $950,000,000 base consideration and an estimated $9,000,000 of working capital adjustments. Speaker 300:26:43We funded the acquisition with $434,000,000 in cash $525,000,000 of debt. Let me provide further details on Melissa and Doug's performance in 2023 in addition to what Max described. Please note that we plan to file our business acquisition report just prior to April 1, which will include Melissa and Doug's audited 2023 results, but we wanted to share the key numbers with you today in advance of their filing. In 2023, Melissa and Doug generated approximately $412,000,000 in gross product sales and $364,000,000 in net revenue, a 25% decline from 2022. Adjusted EBITDA margins remained solid at approximately 18.4 percent in line with 2022. Speaker 300:27:38Melissa and DUG ended 2023 with significantly lower inventory on hand than 2022. Turning now to our outlook. 2024 is a more complex outlook statement because of the M and D acquisition. For better comparability, we have provided expectations for the base Spin Master business and then provided 2024 outlook for Melissa and Doug as well as identifying expected cost synergies. As Max described, heading into 2024, we expect the toy industry will continue to be under pressure, continuing to face macroeconomic headwinds and market volatility and is expected to decline, although at a slower rate than 2023. Speaker 300:28:26We expect our soy gross product sales for 2024, excluding Melissa and Doug, to be in line with 2023. We expect the seasonality of gross product sales to be 28% to 32% in H1. This outlook reflects our view that we have a strong, innovative, deep and value focused line tempered by the reality that consumer behavior in 2024 is likely to continue to be volatile and that there are 5 fewer shopping days leading to Christmas in 2024. We expect our total revenue growth to be in line with 2023, excluding Melissa and Doug, with lower revenue from our entertainment creative center, offset by higher digital games revenue. In 2024, we expect to deliver less entertainment content, but with a revenue mix skewed to higher margin licensing and merchandising revenue. Speaker 300:29:26In digital games, we expect an increase in revenue for 2024 from growth of Toca Life World and Picnic and new game launches for Toca Days and Rubik's Match. The new games, however, will be margin dilutive until they hurdle their development costs. Turning to profitability, we will continue to look at toy pricing selectively in relation to market and consumer factors, margin preservation and cost input levels. We expect sales allowances to be approximately 13% of gross product sales, higher than our typical range, mostly due to market and customer mix. In general, inflation is moderating and COGS input costs are expected to be in line with 2023. Speaker 300:30:16Lower entertainment content deliveries will have a positive impact on overall gross margin. We expect marketing costs to be between 9% 10% of revenue, consistent with 2023. We are focused closely on cost control to ensure we can drive operating leverage. Taking all this into account, we expect 2024 adjusted EBITDA margin to be in line with 2023, excluding Melissa and Doug and net cost synergies. In 2024 for Melissa and Doug, we expect gross product sales of $420,000,000 to $430,000,000 and revenue of $370,000,000 to 375,000,000 dollars We expect the seasonality of Melissa and Doug's gross product sales to be 20% to 25% in H1. Speaker 300:31:12We expect Melissa and Doug to achieve adjusted EBITDA margins of approximately 19.5%, an increase over 2023 from supply chain and SG and A efficiencies. In addition, we expect to achieve incremental net SG and A cost synergies of approximately $6,000,000 in 2024, toward the target of approximately $25,000,000 to 30,000,000 dollars in run rate net cost synergies by the end of 2026. Melissa and Doug will be accretive in 2024 as previously noted. To report Melissa and Doug gross product sales, effective January 1, 2024, we have modified our product categories. We have issued an addendum as part of the press release, which shows our 2023 results by quarter in the format that we will present our gross product sales for 2024. Speaker 300:32:10Melissa and Doug will be part of a new category preschool, infant and toddler and plush. The consistent cash flow we've generated gives us confidence in our ability to reduce debt, maintain our dividend and keep capacity for opportunistic M and A or share buybacks. We expect to end 2024 with a net debt to adjusted EBITDA ratio of approximately 0.5 times. Spin Master depreciation and amortization is expected to be approximately $120,000,000 in 2024, down $10,000,000 from 2023 due to less deliveries of entertainment content. We expect $30,000,000 in depreciation and amortization for Melissa and Doug. Speaker 300:32:57Cash interest paid will be between $20,000,000 to $25,000,000 in 2024. Our effective tax rate is expected to be approximately 20% 26% on a consolidated basis. Capital expenditures are forecast to be approximately 6% of revenue. Finally, we will renew our normal course issuer bid effective on March 24 until March 3, 2025. In conclusion, amidst the challenging macroeconomic environment, we remain well positioned strategically, financially and operationally. Speaker 300:33:36We also remain fully committed to continuing to execute our strategy for long term growth and shareholder value creation. That concludes our prepared remarks. We will now be pleased to take questions. Operator, please open the line. Operator00:34:14Our first question comes from the line of Brian Morrison at TD Securities. Please go ahead. Your line is open. Speaker 400:34:23Thanks very much. Good morning. Mark, on guidance, ex the PAW Patrol Movie on the base business, you're forecasting slight revenue growth and attractive margin improvement. Is that 22% now a sustainable level? It sounds like the forecast 65 basis point increase from 2023 is due to mix shift to digital and cost initiatives at Toy. Speaker 400:34:44And it did sound like you said the entertainment margin should be higher from licensing revenue, but revenue lower. Is that correct the way to think about it? And then for MAX, does the lower Ulysses and Doug forecast take anything away from the potential for synergies, international growth opportunity or the ability to penetrate mass midterm? Do you see yourself getting back to 2022 as reasonable over the midterm? Speaker 300:35:12Brian, I'll take your first part and then Max will pick up the second part of your question. So I pretty much got it accurate the way you described it. If you actually take out the poor distribution revenue in 2020 3, we were at 21.3%. And so we are guiding slightly up when you take that into account in terms of our guidance. And that's going to come from an increase in toy adjusted EBITDA. Speaker 300:35:43It's going to come from entertainment going up slightly and potentially digital games going down a little bit because of the introduction of the new games. But I think the way you have calculated and the way you articulated is accurate. Speaker 200:36:01Good morning, Brian. On Melissa and Doug, we are incredibly excited about the midterm opportunity as you well stated it. And so I just want to state that for the record and just to get very clear upfront. Obviously, the numbers are at a starting lower point. And so we're working on synergy, we're working on international growth sooner than we would have anticipated. Speaker 200:36:23We're working on a lot of different things to bring what we know is an incredible brand to as many children and families as we should. We have already begun to reinvest on the brand as we should invest on the brand and as we would invest in our brands as of start of this year and we see immediately the response of what is an incredible strong equity with parents and retailers pretty broadly in the U. S. So we're excited. Speaker 400:36:53Okay. And then I guess the second part of that is getting back to 2022 as reasonable midterm. And then I have one further question. Speaker 200:37:01We will get back to the mid 2022 in the midterm, reasonability is there. And I just think it might just be wise to just set the record straight because I think the question may still come up later. So why don't we just do that because I think you guys are going to continue to ask and I just might as well just address it. Remember we signed at the end of early October, okay. And then we had the HSR period and we weren't operating the brand and previous owners basically stopped investing in this brand in Q4 and therefore the brand saw the decline that you have now seen in the numbers. Speaker 200:37:44Q4 is the biggest consumption period and Melissa and Doug has a higher consumption period than Spin Master's portfolio in Q4. Great news is, if there's the silver lining here is inventory positions are lower at the start of 2024. We will begin already and have started to reinvest in the brand as you see our performance, right. You see our performance, you see our market share, you see how we operate. And that in my opinion is what we have already gotten to do with our integration team and the Millicent Dog Management and we're very excited. Speaker 400:38:23Okay. I appreciate you clarifying that Max. The last question I had, you brought up the value chain in your prepared remarks. You're entering 37,000 new stores. Can you maybe frame the top line potential? Speaker 400:38:32I mean, you have to be relevant to gain shelf space. So if we just think of $2,500 per store or something like that, it's in the $100,000,000 range. Can you frame maybe the top line potential there? Speaker 200:38:43Yes, I'm going to just frame the opportunity from our own penetration in that channel. And then I'm going to let Mark get into the numbers. So we have an incredible portfolio. And one of the things that we have an opportunity to do is to play with more items in the $0 to $5.99 $5.99 to $9.99 segments. And that shopper is in that channel more prevalently and we necessarily don't have the breadth of offering to meet their needs. Speaker 200:39:13And that is what our team is addressing. And you noticed in my remarks, we are addressing that opportunity with our biggest iconic brands brought to them with great value, including things that are going to be in the $0 to $5.99 price point. So the opportunity is very, very obviously laden for us and Mark will now give you some color on the numbers. Speaker 300:39:35Brian, it's an important point and I think Doug Wadley did a great job kind of highlighting that when we had our Investor Day in L. A. In January as you saw. I think your numbers are a little high. Just keep in mind, most of the activity in the value channel initiative is going to be in the second half of the year. Speaker 300:39:56These are low dollar price point items in the $1 to $5 range. And even though we're very excited about it for 2024, you should be thinking in the $30,000,000 range as opposed to anything over $100,000,000 as you described. That would be exceptional. I mean, we'd be happy to be in that zone. But I think for your models and for planning, you should be thinking in the $30,000,000 range for this year and then growing over the next few years as we build the line out. Speaker 400:40:31And the margin equivalent to the consolidated average? Speaker 300:40:34Yes. We've actually designed the line in a way that it's consistent with our margins as opposed to dilutive or accretive. Speaker 400:40:42Thank you both very much. Operator00:40:46Thank you. Our next question comes from the line of Martin Landry at Stifel. Please go ahead. Your line is open. Speaker 500:40:54Hi, good morning, guys. I'd just like to get back to Melissa and Doug quickly. I understand that the previous owner maybe didn't invest a lot in the back half. That seems a little one time in nature. And I'm wondering why can't we see a bigger jump back in 2024? Speaker 500:41:19And I was wondering, did the brand lose doors? Did the brand lose shelf space relative to 2022 levels? Speaker 200:41:30So, Martani, it's a great question and I appreciate your enthusiasm for a quicker recovery. So are we by the way. So here's the scoop. The brand, if you think about the U. S. Speaker 200:41:45Has a great presence and revenue in e commerce, right? And so in e commerce and omni channel broadly. So that is the 1st place where you're going to see the return to obviously growth. But that's not to say that at Walmart, which was a new distribution opportunity for the brand, they've done incredibly well. So it's beyond that, but you have to step back and also look at the fact that the segment had declined closer to 8% to 10%. Speaker 200:42:12So we're playing from a segment that was basically below and a lack of investment against that backdrop. And so if you add to the fact that they had to consume inventory from the prior year throughout the year, then you kind of get to the math that leads you to where we ended up. You're not wrong that we can recover and that is our intent. But that is what if you will point of departure is and I just wanted to paint a picture for you so that you understand that it's not about lack of trying to get back to the levels we know that it's going to get to, but just the hurdles we have to get through between now and getting to the numbers you guys want. So do we by the way. Speaker 500:42:55I'm sure you are. Wondering, Mark, if you can break down a little bit of the assumptions you've used in terms of revenue growth per your segment, if that's possible, that'd be super helpful. Speaker 300:43:12You mean the toy entertainment digital dance? Speaker 500:43:15Yes. Yes. Speaker 300:43:18Yes. So look, we're not going to give individual Creative Center guidance numbers, but what I can tell you directionally, Martin, is that we see toy in line, margins slightly up in the toy area. Entertainment in 2023 had very strong distribution revenue growth. But as you saw, margins actually came down as a result of that because it's low margin revenue for the most part. In 2024, we see entertainment revenue declining because there's less content deliveries, but the mix of revenue will skew more towards licensing and merchandising revenue, which is much higher margin. Speaker 300:44:03So we'll see entertainment margins going up in that area. In digital games, we actually see top line growth from a continued growth in Toca Life World and in Picnic, in particular, which are already out in the market, plus the introduction of new games in Q2, Rubik's Match First and then Toca Days later in Q2. And those will drive revenue growth. But as we start launching those games in the live market, we have to start amortizing the development costs that have been capitalized up until this point. So until those games hurdle those development costs, depending on their success, then we'll actually see margin dilution in digital games in the overall creative center. Speaker 300:44:58Does that help you, Martin? Speaker 500:44:59Yes. No, it's super. That's exactly what I was looking for. And then maybe my last question is on M and A. Your balance sheet is still in good shape post Melissa and Doug. Speaker 500:45:12And I was wondering, are you still looking to beef up your digital games capabilities? In the past, you've talked about digital games as a percentage of revenues going all the way up to maybe 20%. I mean, I realize now with Melson, Doug, that may be a longer timeframe than before. But like is this still a big focus of yours from an M and A standpoint? Speaker 200:45:36The short answer is yes. As you can imagine, we are incredibly excited to integrate and lease and doc successfully. That's priority number 1. But we are obviously always working with our 3 different M and A groups, each of which is led by an individual leader for that area in basically hunting and gathering great targets. And we have not basically walked away from our desire to have more diversification and continue to build out our digital games and creative center and entertainment as well. Speaker 200:46:12So you can expect that we will continue to be very active. We will have a great balance sheet and an incredible team, honestly, in gathering and hunting for great targets and our Board very supportive. So that's where we stand. Okay. Thank you. Operator00:46:29Thank you. Our next question comes from the line of Adam Shine at National Bank Financial. Please go ahead. Your line is open. Speaker 600:46:36Thanks a lot. Good morning. Max, I got to go back to Melissa and Doug for a couple of questions. So just elaborating earlier, you said the segment declined 8% to 10% last year. Melissa and Doug, obviously, as you alluded to down about 25%. Speaker 600:46:52So was the differential more specifically related to the lack of investment and support in the Q4? Or were there other elements in terms of Melissa and Doug actions, for example, reducing the number of SKUs as a priority and or other elements related to the incremental delta to the industry dynamic? We'll start there, Speaker 200:47:19please. Of course. And good morning. How are you, Adam? Speaker 600:47:23Good. How are you? Thank you. Speaker 200:47:24I felt really well. Let's get into this. Melissa and Doug, my favorite topic this morning. So I tell you, if you think about Q4 and you think about a brand that has all the consumption focused on that one period, now we're going to unpack the fact that we did not support the brand as we should have well, the previous owner did not support the brand as the previous owner should have supported the brand in our judgment, okay. And therefore, when no advertising and significantly less promotional spending in excess of 2 thirds less than the prior year was applied to the brand in a very competitive environment where consumers, remembering our remarks, were basically flocking to specific shopping days and seeking for the best deal. Speaker 200:48:13They of course couldn't basically perform as they should have performed. When you don't have that performance, it's really difficult for a retailer to get excited to reorder or to order to begin with, because consumption is not leading to an inventory decline in that brand. And therefore, they suffer from both a lack of investment with the consumer and POS not giving retailers the confidence to bring more cases because they also had inventory they have to manage, right? And even though Melissa and Doug ultimately on the strength of the brand ended the year with lower inventory, obviously they could have sold more revenue to more consumers. So I'm going to pause here for a second because I hope that helps answer the question for you, but I just want to make sure that was clear. Speaker 600:49:04Yes, I guess the net net, not to get overly enthusiastic about things, but going back to Martijn's question in the context of with a little bit of support presumably in a seasonally important Q4 later this year, but would assume that there would be some degree of pickup more meaningfully on the back of what was delivered in Q4 this year or 2023. The other thing, I guess, which I guess I have to ask is, we saw with the January 22 press release that the earn out was eliminated and the presumption tends to be when an earn out gets eliminated, the sort of look ahead sort of dynamic becomes a bit less exciting. But as we reflect now on everything that you've talked about visavis the 2023 performance, one wonders why a more meaningful recutting of the purchase price didn't materialize. I imagine that's a bit of a naive question and in the scheme of things of a contract, but nevertheless any additional commentary related to that? Speaker 200:50:10Yes, I'll start and then I'll let Mark finish. Listen, we were at that time a strategic buyer. We were and continue to be in the category. So we saw the numbers, but we were completely not in control of the brand and we were in an HSR quiet period. So as soon as we had the chance to get involved and understand what was happening, we knew that the results would be lower without getting into owning the brand at the time that we actually made the decision to remove the earnout because we knew that the starting point would be lower. Speaker 200:50:44Mark? Speaker 300:50:45Yes. I mean, just similar to what you just said there, Max. I mean, obviously, Adam, there were multiple reasons for removing the earn out, one of which was the performance in the late part of 2023, which we've discussed. Also, as you know, earn outs can be complicated in terms of managing the business during the earn out period and it's usually legal structures that to some extent minimize sorry, impact on your ability to maximize integration. And so for those reasons, we wanted the earnout removed. Speaker 300:51:22Our investment base case is still intact. The business is still accretive in 2024. The long term thesis is very strong and we're as excited about the acquisition as we ever were, but we have to get over the performance step in Q4 2023. We have to get it back on track and we will. Speaker 600:51:45Okay. I'll leave it there. Thank you very much. Operator00:51:50Thank you. Our next question comes from the line of David McFadgen of Cormark. Please go ahead. Your line is open. Speaker 700:51:57Great. Thank you. A couple of questions. So just looking at the EBITDA margin and the guidance, you're forecasting an EBITDA margin. I mean, you finished last year with a strong EBITDA margin, forecasting EBITDA margin to be equally strong in 'twenty four. Speaker 700:52:17When we look at the past, the history of the company, it's never been at that level, it's never sustained that level. So just kind of wondering if you could provide any commentary about maintaining that level of EBITDA margin in 'twenty five and beyond? Speaker 300:52:35So David, if you go back in time and you've covered us for many years, when the business was largely a toy business, the EBITDA margins were in the 18%, 19% zone and that was really always where we were. But as we've grown and evolved our creative center strategy, we've talked about growing the not only diversifying the top line, but also enhancing the bottom line. And both the entertainment and digital games creative centers are margin accretive. And so we're comfortable to guide to where we have and we've actually delivered in 'twenty three these margins. So this is not a theoretical exercise. Speaker 300:53:19And we continue to believe that as we grow our digital games and entertainment creative centers, we'll keep margins in the low 20s up. And our toy business margins have also done very, very well. From a supply chain efficiency perspective, we've increased our gross margins. We continually, from a cost control perspective, are looking at operating leverage. So overall, the business, I would say, is running more efficiently. Speaker 300:53:46And so the margins that we are guiding to, I believe, are sustainable. And if we are successful with our new digital games launches and continue to grow that business, then we could potentially even get them higher. Speaker 700:54:02Okay. Thank you. And then just on the toy revenue, so it looks like for 2024, the expectations would be more or less flat. Can you give us some sort of an idea on direction, where you expect Gavi to do in Monster Jam and PAW Patrol in 'twenty four? I would imagine Gavi and Monster Jam will continue to be up. Speaker 700:54:30And I just wanted a confirmation on that and what you think PA might do in 2024? Thanks. Speaker 300:54:35Well, we don't give specific guidance on individual lines as you know, but I'm going to let Max give you some color as to what's happening with the brands, once the jam and Gabby's in particular, there's content coming. Max, why don't you pick that one up? Speaker 200:54:49David, good morning. How are you? I would tell you that the market and the reason for why we're guiding to the revenue growth in toy as we are is because the toy market continues to be in a similar position as it was last year. And the outlook for the year from a market growth perspective is that it will be slightly down versus what it would have been in 2023. So that's a starting point. Speaker 200:55:14There are differences between toy segments, but we have a pretty strong program for our infant preschool, obviously segment. We are even though lapping the toy movie for PAW Patrol, have other things happening on PAW Patrol that are quite exciting. And so Rubble is leaving the U. S. And getting over to Europe, for example. Speaker 200:55:34And you know that we have historically been a stronger PAW Patrol franchise from a toy perspective in Europe. And so that gives us a lot of wins in our sale. And so we're excited about that. You are on Gavi asking specifically and Gavi is from a lifecycle moment in time getting to year 3 in the U. S, year 2 internationally. Speaker 200:55:54And so you see some moderation, but we're still having a very strong outlook for Gavi in 2024 before we get to 2025, a year in which Gavi will have a movie. And so we're very excited about that. And so we will continue to invest and basically drive the Gavi franchise very, very strongly. But separate from that, we have other things in infant preschool that we're excited about. So we have obviously Rachel coming towards Q4. Speaker 200:56:23And Ms. Rachel is going to be an amazing, in my opinion, opportunity for the company because we bring to parents something they truly love already. And we're going to bring that love to them through both our Spin Master execution, but also through Melissa and Doug. And so we're not going to wait and do that later. We're going to do it this year. Speaker 200:56:44And I can tell you we're incredibly excited. By the way, so is Ms. Rachel. Besides that, we have Vida the Vet. We talked about that property. Speaker 200:56:53We're very excited about that property and that property comes in Q4 as well. So infant preschool for us should be obviously a very good business unit this year. Monster Jam is doing incredibly well. I was speaking with Founder and CEO of Felt Entertainment over the weekend. And just last weekend, they had over 100,000,000 attendants on Monster Jam. Speaker 200:57:17Our innovation on Monster Jam is incredible. And so we have nothing but continued opportunities ahead and we will continue to seize those opportunities. So you asked specifically at Monster Jam, we're very excited. By the way, they're getting stronger acceptance in Europe and we have an incredible European team, we just told you we were the fastest growing European company. So we see a lot of opportunity there as well. Speaker 200:57:42At the risk of not going through each one of them and monopolizing the time for others who may want to ask, I'll just leave you with that, but happy to follow-up with you and get into more details. Okay. Speaker 700:57:51All right. Thanks so much, guys. Operator00:57:54Thank you. The next question comes from the line of John Zamparo of CIBC. Please go ahead. Your line is open. Speaker 800:58:08Thank you. Good morning. My question is around the broader guide and you have a great deal going on. I won't go through all the initiatives as well, but can understand you're very excited about a lot of plans for this year. But given all that, the guide organically is still basically flat year over year. Speaker 800:58:25So understanding the backdrop of a slight decline in the industry, I'm trying to reconcile that. What are the areas of the businesses that you expect to slow in 2024 versus 2023? Speaker 300:58:38Yes. So John, as I described earlier, we see entertainment coming down on the top line, digital games going up and toy largely flat. So that's the mix that leads to the Spin Master specific guide. We gave the details on the Millicent DUG guide, so you have that. And then in addition, we gave the guide on the cost synergies that are on top of the Millicent DUG guide. Speaker 300:59:04So I think when you put that all together, that kind of explains how we actually guided overall for the year. Speaker 800:59:14Okay. And then just a couple of housekeeping questions. Can you talk about the cadence of synergies at Melissa and Doug beyond 2024? Is it fairly linear through 2026 or is more of it in 2025? And can you talk about your inventory positions at your retail partners? Speaker 800:59:30Understand your own inventory is at quite low levels, but how does it look at your retail partners? Speaker 300:59:38I can deal with the retail inventory. Retail inventory was down mid single digits globally and high single digits in the U. S. So I think we're in decent shape on a retail channel level. And also, as you correctly pointed out, our on hand inventory is actually at record low level. Speaker 300:59:59So I think we've managed our inventory very, very well. What was the first part of your question, John, that you wanted in addition to that, sorry? Speaker 801:00:07Yes. The cadence of synergies that Melissa and Doug through 2026, please. Speaker 301:00:13Look, we've built the integration team. I would say that the integration team is doing exceptionally well. We're ahead of our plan in terms of cost synergies for 2024. And I think you're going to start seeing it accelerate in 2025 and 2026. We're still very comfortable with our target of $25,000,000 to $30,000,000 run rate exiting 2026. Speaker 301:00:37So I think you'll start seeing increasing cadence in 2025 and 2026 as the momentum builds and as we get to know the business better. But I will tell you that the teams are working exceptionally well together. And I think Max and I are very pleased with the way the integration is going so far. Speaker 801:00:55Got it. Okay. I'll pass it on. Thank you very much. Speaker 301:00:59Thanks, John. I think we're pretty much at time. Operator, are there any more questions? Operator01:01:05No. No further questions in the queue. Speaker 301:01:07Okay. Well, that's good timing. Thank you, everyone, for attending today. And we look forward to talking to you on May 7, 8. Our earnings call will be on May 8 for Q1, and we'll be releasing our results on the evening of May 7th. Speaker 301:01:26So thank you again, and we look forward to talking to you in a few weeks for Q1. Thanks. Operator01:01:32Thank you. This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.Read morePowered by Key Takeaways Spin Master delivered Q4 revenue of US$502.6 million (up 7.9% YoY) and full-year revenue of US$1.9 billion (down 5.7%), with toy segment revenue declining 11.3% offset by a 60% surge in entertainment and 6.1% growth in digital games. Toy gross product sales grew 4.8% in Q4, outperforming an industry POS decline of 7%, and Spin Master increased market share in 10 of 11 tracked markets despite a full-year POS decline of 4% versus an industry drop of 6.5%. The entertainment creative center saw strong content deliveries ― led by the second PAW Patrol movie and Unicorn Academy ― driving a 60% revenue increase in 2023, while Toca Life World reached 62 million MAUs and the new Picnic subscription hit nearly 400,000 subscribers. Spin Master closed the acquisition of Melissa & Doug for ~US$959 million, expects it to be accretive in 2024 with ~US$6 million of net cost synergies this year and targets US$25–30 million of run-rate synergies by end-2026. For 2024, Spin Master guides toy gross product sales flat (ex-M&D), total revenue growth in line with 2023, and an adjusted EBITDA margin in the low-20s, supported by a new value-channel toy line (~US$30 million revenue) and higher-margin entertainment and digital games mix. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallSpin Master Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckAnnual report Spin Master Earnings Headlines1 Magnificent Canadian Stock Down 37% to Buy and Hold ForeverMay 7, 2025 | msn.comToronto Stocks Mixed; Spin Master Shares Spiral on Withdrawn 2025 GuidanceMay 2, 2025 | marketwatch.comTrump’s treachery Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.May 27, 2025 | Porter & Company (Ad)Spin Master seeking to mitigate tariff impacts as it withdraws 2025 outlookMay 2, 2025 | msn.comSpin Master Corp (SNMSF) Q1 2025 Earnings Call Highlights: Strong Toy Sales and Digital Growth ...May 2, 2025 | finance.yahoo.com'Save Santa's supply chain': Spin Master to reduce China production due to tariffsMay 2, 2025 | 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 9 speakers on the call. Operator00:00:00Welcome to the Spin Master Corp. 4th Quarter 2023 Results Conference Call. At this time, all lines are in listen only mode. And following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, February 29, 2024. Operator00:00:24I would now like to hand the conference over to Sofia Psoukas. Please go ahead. Speaker 100:00:30Thank you, Mark, and good morning. Welcome to Spin Master's financial results conference call for the Q4 year ended December 31, 2023. I'm joined this morning by Max Rangel, Spin Master's Global President and CEO and Mark Siegel, Spin Master's Chief Financial Officer. For your convenience, the press release, MD and A and interim and consolidated financial statements are available on the Investor Relations section of our website at spinmaster.comandonsedarplus. 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, level of activity, performance, goals or achievements and any other future events or developments. Speaker 100:01:15Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that certain estimates or assumptions will provide will prove to be correct. Many factors could cause actual results to differ materially from those expected or implied by the forward looking statements. As a result, Spin Master cannot guarantee that any forward looking statements will materialize and you are cautioned not to place undue reliance on these forward looking statements. Except as may be required by law, Spin Master has no obligation to update or revise any forward looking statements whether because of new information, future events or otherwise. Speaker 100:01:58For additional info on these assumptions and risks, please consult our cautionary statements regarding forward looking information in our earnings release dated February 28, 2024. Please note that Spin Master reports in U. S. Dollars and all dollar amounts to be expressed today are in euro's currency unless otherwise noted. I would now like to turn the call over to Max. Speaker 200:02:19Thank you and good morning. Thanks everyone for joining us today. Looking at our performance in 2023, we are pleased with how our team navigated the challenging retail environment and harness the power of our 3 creative centers. A combination of toys, entertainment and digital games generated strong revenue growth of just under 8% in Q4. As expected, full year revenue was lower year over year driven by a decline in the toy segment. Speaker 200:02:462023 was a challenging global marketplace for toys with the industry declining 7% according to SIRKANA, as a result of the challenging macroeconomic environment and a shift towards services and experiences post COVID. The industry expected that Christmas would arrive late and restore category growth. However, the extra shopping days unfortunately did not bring about the expected surge. Retailers were cautious, bought less and consumption did not increase as expected despite deep discounting. Retailers for the most part prioritized profitability rather than growth and ended the year with cleaner retail inventory compared to 2022. Speaker 200:03:30Our total revenue declined 5.7% for 2023 primarily due to lower toy revenue, which declined 11.3%. We experienced growth in both entertainment and digital games. Entertainment had a strong year with a 60% increase in revenue driven by the delivery of new content including the very successful second PAW Patrol movie and Unicorn Academy. Digital games saw revenue growth of 6.1% from continued strong engagement in Toka Life World and the launch of our new subscription service Picnic. Let me now dive deeper into our toy performance and provide further context regarding the macroeconomic environment. Speaker 200:04:14From 2020 to 2022, the toy industry experienced strong growth, especially in the U. S. And accelerated by the pandemic. Starting in late 2022 and into 'twenty three, we saw industry sales decline. A key factor in this decline was a shift in consumer shipping behavior due to increased pressure on consumers' wallet from inflation and rising interest rates as well as a post COVID shift to services such as travel, restaurants, concerts and sporting events. Speaker 200:04:47Consumers spent less per child in the toy aisle and traded down from a price point perspective across multiple categories as they had to make more considered spending decisions. Consumers were very price sensitive during the holidays, often waiting to buy on promotion or at a lower price within the portfolio and buying less overall. In this context, we were very pleased with our toy performance in Q4 with gross product sales growing 4.8%. Now from a retail point of sale perspective, our global POS increased 1% in Q4 well ahead of the industry which saw a decline of 7% according to Surcana. Our POS growth was the 2nd fastest of the top 5 manufacturers globally for the quarter. Speaker 200:05:34In Europe, Spin Master was the fastest growing toy company. On a full year basis, our global POS declined 4%, a lower decline than the industry which declined by 6.5% versus Arcana. We retained our position as the 4th largest manufacturer and we grew market share in 10 of 11 track markets with the U. S. Finishing almost flat. Speaker 200:05:59Let me provide some color on our key toy categories. In preschool, we have a robust offering with a combination of PAW Patrol and popular licensed properties such as Gavi's Dollhouse. PAW Patrol remained the number one preschool property globally for Q4 and it has been since Q1 2020 according to Zircona. In Q4, Paw Patrol's global POS grew just over 4% and grew in most countries. In the U. Speaker 200:06:26S. In Q4, PAW Patrol POS grew 12% and according to Zircona in 2023, we gained share in infant toddler preschool with POS of 5.3% compared to the industry, which was down just under 8%. For 2023, PAW Patrol was a number 9 property globally, up from number 10 in 2022. This is an incredible feat and a testament to our investment in creating refresh themes, introducing innovation into the line, expanding the Poly universe through feature films and broadening distribution to YouTube and digital apps. Gabby's Dollhouse Perfect Place It was the number one item in the infant toddler preschool super category for both Q4 and for 2023. Speaker 200:07:12And Gabby's was the 4th preschool toy property globally in Q4 for Surcana. Gabby's Dollhouse POS grew triple digits in Q4 and in 2023 internationally. We have much more to come in 'twenty four with a complementary offering from our acquisition of Melissa and Doug and the introduction of Ms. Rachel. We are known for creating breakthrough toys and a great example of this was the launch of Bitsy, the digital pet you can touch. Speaker 200:07:42It's disruptive play pattern earned numerous awards for most innovative toy of the year in several countries. In Dolsen Interactive, Bitsy was named by Sarcana as a top item within the youth electronics category and in Q4 Spin Master continued to gain share growing POS 9.9 points. We have new Bitsy iterations planned for 2024 including a Disney licensed Bitsy featuring storied characters and also a magical version launching in the fall. Beyond Bitsy for 2024, we have several exciting launches within Hatchimals and the introduction of the Unicorn Academy toy line based on the TV show. Within Wheels in Action, Monster Jam had another strong quarter becoming the 2nd property in vehicles from number 4 last year with POS up 20% in Q4 and up 11% for 2023 per Surcana. Speaker 200:08:40Monster Jam has been the number one license within the vehicle super category for the 11th straight quarter globally according to Surcana. The combination of felt entertainment's live shows combined with the innovative new toys allows kids to relive the action from the stadium and this drives consumer demand. Within games and puzzles, Rubik's had a very strong finish to 2023 becoming the stocking stuffer of choice for many parents with that very attractive price point and Rubik's Cube was a 6 brand within games and puzzles for both Q4 and for 2023 with POS up 12% in Q4 and 18% in 2023 for Zircona. This momentum sets up nicely to celebrate Rubik's 50th anniversary in 2024, which will include new product launches and collaborations, global celebrations and the debut of our new digital game to Rubik's Match. Anticipating continued pressure on consumer discretionary spending, we will launch a new toy initiative in the second half of twenty twenty four design and manufacture specifically for the value channel as we believe there is a large opportunity to grow volume in this channel. Speaker 200:09:55As many of you saw in January at our Investor Day, our new value line leverages our strongest brands and licenses including PAW Patrol, Gabby's Dollhouse, Monster Jam and DC Comics with price points as low as $1 Melissa and Doug will further strengthen our position in preschool and allow us to develop a strong beachhead in early learning. According to Surcana, the combination will make us the market leader in infant toddler and preschool super category. Our teams are working hard on the integration focused on building the platform for revenue growth across mass and specialty driving international growth and realizing cost synergies. I want to spend a moment talking about Melissa and Doug's financial performance in 2023 and Mark will provide additional detail. In 2023 Melissa and Doug's revenue declined approximately 25 percent from 2022. Speaker 200:10:50Their adjusted EBITDA margin remained comparable and meets a challenging second half and a decline in the infant dollar preschool category, ListenDoc's previous owner made the choice to protect long term profitability by prioritizing profit margin over volume. They did not discount or promote significantly in what was a highly promotional environment and this led to Melissa and Doug experiencing greater decline in the revenue than the overall category. Our entertainment creative center launched significant new content in 2023, including our 2nd feature film for the PAW Patrol franchise, which has now surpassed $200,000,000 in global box office revenue. PAW Patrol celebrated its 10th anniversary in 2023 and the release of the second movie had a very positive impact on watch time across all PAW content including the TV series helping to fortify PAW's brand equity and health. Earlier in 2023, we launched our 1st spin off series of PAW, Rubble and Crew, which has been renewed for a second season and continues to be one of the top 5 preschool shows on Nickelodeon in its age category. Speaker 200:12:03Building on our vast experience in developing preschool content, we school content, we recently launched our newest animated series Vida the Vet on BBC in the UK and Corus Treehouse in Canada. We have launched our VIDA on YouTube channel and have already surpassed 15,000,000 views of our brand new content. And this is ahead of our U. S. Netflix debut on March 18 as we gear up for the toy launch in the fall. Speaker 200:12:29A new fantasy adventure series Unicorn Academy launched on Netflix November 2nd and was an instant hit debuting as a number one kids show globally. With its characters and magical adventures Unicorn Academy quickly captivated audiences globally and racked up over 40,000,000 hours of watch time in November alone. Unicorn Academy is our 1st full franchise launch with face branded offerings and experiences across each of our 3 creative centers. Unicorn Academy Toys will launch this fall and the digital game will launch in 2025. In addition to our content, toys and the digital game, we have been working on our licensing program for a wide range of licensed consumer products in 2024 and beyond to meet demand from fans of the show for deeper engagement with the franchise. Speaker 200:13:19Turning now to digital games, 2023 saw the overall mobile digital games decline by about 2%. However, our digital games creative center outperformed with revenue growth in both Q4 and 'twenty three, driven primarily by higher in game purchases in Toka Live World and subscription growth from the newly launched Picnic Bundle. Tokalive World ended 2023 at approximately 62 monthly active users up 4,300,000 compared to 2022. 2023 was the largest download year for Toka Life World ever with 98,000,000 downloads compared to 92,000,000 in 2022, 90,000,000 in 2021. This shows Toka Life World's ongoing popularity and engagement with kids. Speaker 200:14:10Introducing Q3, Picnic is subscription bundle that offers unlimited access to a variety of our Sega Mini and Toca Boca digital games. 1 subscription streamlines multiple apps into a simple and affordable service for parents and provides endless ways to play and learn for kids. The market reacted positively to the bundle when it was launched and including PAW Patrol and originator from originator, we ended 2023 at just under 400,000 subscribers in total, a growth of 68,000 subscribers over 2022. The subscriber increase is impressive and we are migrating users to Picnic as we harness the stickiness in the play experience with SAGO World, SAGO School, First Words, TOKA Junior, Hair Salon and more. In 2024, we will integrate the originator apps into Picnic to increase bundle value even further. Speaker 200:15:05PAW Patrol Academy, which is our 1st in house learning app for our powerhouse franchise is off to a great start. Due to its high quality and overall depth of play, it has been named Google's best app of 2023 for families and ended 2023 with 34,000 subscribers. The team is now in full service and continues to build the overall experience. We are excited to be launching several new digital games in Q2. This includes TOKA Days, our first social multiplayer game that will seek to expand the existing player base of the TOKA universe. Speaker 200:15:41We are also launching Rubik's Match, our casual mobile game that will deliver a fresh take on the Match 3 game genre to coincide with the Rubik's 50th anniversary. Our teams are collaborating across creative centers to make this a special moment for Rubik's fans As more kids are spending their time in the online world and communities, we are expanding our player ecosystem and creating digital play experiences that cater to multiple interest and age levels. Looking forward, we expect that 2024 will be a challenging year due to the continued economic pressure on consumers and a shorter shopping period during the holiday season. We are developing toys that will spark imagination while also providing the consumer with a great value at varied price points. We will focus on the integration of Melissa and Duck where we have already made progress building our cross functional team to integrate the business and identifying important work streams to accelerate synergy realization. Speaker 200:16:39We see many opportunities for growth by leveraging Melissa and Doug to grow our early childhood play capabilities. We will continue to drive performance for our core brands across our 3 creative centers from celebrating Rubik's 50th anniversary with new products and the new mobile digital game to capitalizing on the momentum from the PAW Patrol movie across toy, entertainment and digital games. We will expand our early childhood reach with the first toy offering for YouTube sensation, Ms. Rachel. And Beyond Toy, our entertainment creative center has a robust slate for 24 and is engaging new audiences with Unicorn Academy and Vita the Vet. Speaker 200:17:18Our digital games creative center has invested in designing new mobile digital games intended to expand our reach across a broader ecosystem. Now we know that newness and innovation win with customers and we are investing in our disruptive innovation to reimagine everyday play. We're highly focused on executing our long term growth strategy and we continue to make significant progress by leveraging our deep expertise in play, well established global network and innovation capability to unlock growth and inspire future generations. We're confident in the strength of our diversified portfolio and our ability to create long term growth and shareholder value. I will now pass it over to our CFO, Mark Siegel to cover our financial performance in detail and discuss our 2024 financial outlook. Speaker 300:18:11Thank you, Max. We delivered a solid 4th quarter with year over year growth in both revenue and adjusted EBITDA despite the challenging macroeconomic backdrop. We generated Q4 revenue of $502,600,000 up 7.9% year over year and adjusted EBITDA of $64,900,000 up 423 percent. Our toy gross product sales increased by 4.8% to $502,300,000 in Q4. The increase was driven by a return to traditional seasonality after 2022, where retailers have bought inventory early in the year and were then focused on reducing inventory on hand in the Q4. Speaker 300:18:58On a constant currency basis, gross product sales increased by 2.4%. The Wheels in Action product category had strong Q4 gross product sales growth, up 25.9%. Q4 toy adjusted EBITDA was up $43,700,000 to $19,300,000 with a margin of 4.7% compared to negative 6.2%. Higher adjusted EBITDA was driven by increased gross profit and lower SG and A. Looking at the full year, toy gross product sales decreased by $191,600,000 or 9.7 percent to 1,780,000,000 due to lower order volume across all product categories driven by the macroeconomic pressures on consumer discretionary spending. Speaker 300:19:50Constant currency toy gross product sales declined by $215,700,000 or 10.9 percent to 1,760,000,000 dollars As we highlighted during the Q3 call, sales allowances were elevated for 2023 at 13.8% compared to our traditional range of 10% to 12% from higher markdowns, promotional activity and market mix. Toy adjusted EBITDA declined $32,200,000 to 212,400,000 Toy adjusted EBITDA margin for 2023 was 13.8% compared to 14.1% in 2022. The lower adjusted EBITDA margin was due to toy revenues declining faster than marketing, distribution, product development and administrative expenses. In Q4, entertainment revenue increased by 24,000,000 or 77 percent to $55,200,000 from higher distribution revenue from new content deliveries and from the PAW Patrol movie. Entertainment adjusted operating income was $10,900,000 and adjusted operating margin was 19% compared to 66%. Speaker 300:21:12The decrease in adjusted operating margin was driven by the higher amortization of production costs due to content deliveries as well as marketing costs for the launch of Unicorn Academy. 2023 Entertainment revenue increased by 71,300,000 dollars or 60% from higher distribution revenue from new content deliveries through the year, including the PAW Patrol Movie, Unicorn Academy, Rubble and Crew and VIDA the Vette. We also continue to receive distribution revenue from the PAW Patrol series and the 1st PAW Patrol movie. 2023 adjusted operating margin decreased to a still very healthy 42.5% from 66.6% due to the higher amortization of production costs from the additional content deliveries. Q4 revenue in digital games grew 7.1 percent or $2,700,000 to 40,600,000 dollars due to higher in game purchases in Toca Life World and subscription revenue from Picnic, our subscription bundle as well as PAW Patrol Academy. Speaker 300:22:25Adjusted operating margin in Q4 was 26.6%, down from 32.5% due to higher upfront marketing costs incurred to launch PAW Patrol Academy. Digital games revenue increased by 6.1% for 20 $173,900,000 driven by higher in app purchases in Toka Life World. Adjusted operating margin of 33.4% was up slightly relative to 2022. On a consolidated basis for 2023, the decline in toy gross product sales and revenue was partially offset, as I just described, by strong performances in our entertainment and digital games creative centers, leading to a full year revenue of just over $1,900,000,000 a decline of 5.7%. This reinforces our belief in the value of our 3 creative centers and the diversification and leverage they provide. Speaker 300:23:30Gross margin in 2023 remained stable at 54.5% compared to 54.6% in 2022, despite the dilutive effect of higher amortization related to more entertainment content deliveries, as gross margin was up in the toy segment from lower ocean freight costs and favorable foreign exchange. We demonstrated strong cost control in 2023. Adjusted SG and A, which excludes restructuring costs, share based compensation and transaction costs declined 32,200,000 dollars to $726,400,000 from lower administrative, selling, marketing and distribution expenses. Adjusted SG and A as a percentage of revenue increased slightly to 38.1% from 37.5%. Adjusted EBITDA for 2023 was $418,800,000 compared to $389,400,000 Adjusted EBITDA margin was 22% compared to 19.3%. Speaker 300:24:39Excluding the PAW Patrol movie distribution revenue, adjusted EBITDA was $403,200,000 an increase of $13,800,000 from $389,400,000 Adjusted EBITDA margin, excluding the poor movie distribution revenue, was 21.3%, 200 basis points up compared to 19.3%. Adjusted EBITDA margin increased due to higher gross margin from toys, partially offset by higher adjusted SG and A relative to revenue. Turning now to our balance sheet. We are very pleased with our inventory management this year. We ended 2023 with $98,000,000 of inventory compared to $105,000,000 in 2022, our lowest year end inventory position in 6 years. Speaker 300:25:32In 2023, we generated $227,000,000 in operating cash flow and used $135,000,000 in investing activities, mainly for entertainment content and digital games development. Free cash flow for 2023 was just under $123,000,000 compared to just under $150,000,000 primarily from lower operating cash flow. Excluding transaction costs for the M and D acquisition and restructuring costs, including the Calais shutdown, we generated approximately $150,000,000 in free cash flow. We ended 2023 with nearly $706,000,000 in cash, our highest year end balance to date compared to just over $644,000,000 at the end of 2022. On January 2, we closed the acquisition of Melissa and Doug for a preliminary purchase consideration of 959,000,000 dollars which represented $950,000,000 base consideration and an estimated $9,000,000 of working capital adjustments. Speaker 300:26:43We funded the acquisition with $434,000,000 in cash $525,000,000 of debt. Let me provide further details on Melissa and Doug's performance in 2023 in addition to what Max described. Please note that we plan to file our business acquisition report just prior to April 1, which will include Melissa and Doug's audited 2023 results, but we wanted to share the key numbers with you today in advance of their filing. In 2023, Melissa and Doug generated approximately $412,000,000 in gross product sales and $364,000,000 in net revenue, a 25% decline from 2022. Adjusted EBITDA margins remained solid at approximately 18.4 percent in line with 2022. Speaker 300:27:38Melissa and DUG ended 2023 with significantly lower inventory on hand than 2022. Turning now to our outlook. 2024 is a more complex outlook statement because of the M and D acquisition. For better comparability, we have provided expectations for the base Spin Master business and then provided 2024 outlook for Melissa and Doug as well as identifying expected cost synergies. As Max described, heading into 2024, we expect the toy industry will continue to be under pressure, continuing to face macroeconomic headwinds and market volatility and is expected to decline, although at a slower rate than 2023. Speaker 300:28:26We expect our soy gross product sales for 2024, excluding Melissa and Doug, to be in line with 2023. We expect the seasonality of gross product sales to be 28% to 32% in H1. This outlook reflects our view that we have a strong, innovative, deep and value focused line tempered by the reality that consumer behavior in 2024 is likely to continue to be volatile and that there are 5 fewer shopping days leading to Christmas in 2024. We expect our total revenue growth to be in line with 2023, excluding Melissa and Doug, with lower revenue from our entertainment creative center, offset by higher digital games revenue. In 2024, we expect to deliver less entertainment content, but with a revenue mix skewed to higher margin licensing and merchandising revenue. Speaker 300:29:26In digital games, we expect an increase in revenue for 2024 from growth of Toca Life World and Picnic and new game launches for Toca Days and Rubik's Match. The new games, however, will be margin dilutive until they hurdle their development costs. Turning to profitability, we will continue to look at toy pricing selectively in relation to market and consumer factors, margin preservation and cost input levels. We expect sales allowances to be approximately 13% of gross product sales, higher than our typical range, mostly due to market and customer mix. In general, inflation is moderating and COGS input costs are expected to be in line with 2023. Speaker 300:30:16Lower entertainment content deliveries will have a positive impact on overall gross margin. We expect marketing costs to be between 9% 10% of revenue, consistent with 2023. We are focused closely on cost control to ensure we can drive operating leverage. Taking all this into account, we expect 2024 adjusted EBITDA margin to be in line with 2023, excluding Melissa and Doug and net cost synergies. In 2024 for Melissa and Doug, we expect gross product sales of $420,000,000 to $430,000,000 and revenue of $370,000,000 to 375,000,000 dollars We expect the seasonality of Melissa and Doug's gross product sales to be 20% to 25% in H1. Speaker 300:31:12We expect Melissa and Doug to achieve adjusted EBITDA margins of approximately 19.5%, an increase over 2023 from supply chain and SG and A efficiencies. In addition, we expect to achieve incremental net SG and A cost synergies of approximately $6,000,000 in 2024, toward the target of approximately $25,000,000 to 30,000,000 dollars in run rate net cost synergies by the end of 2026. Melissa and Doug will be accretive in 2024 as previously noted. To report Melissa and Doug gross product sales, effective January 1, 2024, we have modified our product categories. We have issued an addendum as part of the press release, which shows our 2023 results by quarter in the format that we will present our gross product sales for 2024. Speaker 300:32:10Melissa and Doug will be part of a new category preschool, infant and toddler and plush. The consistent cash flow we've generated gives us confidence in our ability to reduce debt, maintain our dividend and keep capacity for opportunistic M and A or share buybacks. We expect to end 2024 with a net debt to adjusted EBITDA ratio of approximately 0.5 times. Spin Master depreciation and amortization is expected to be approximately $120,000,000 in 2024, down $10,000,000 from 2023 due to less deliveries of entertainment content. We expect $30,000,000 in depreciation and amortization for Melissa and Doug. Speaker 300:32:57Cash interest paid will be between $20,000,000 to $25,000,000 in 2024. Our effective tax rate is expected to be approximately 20% 26% on a consolidated basis. Capital expenditures are forecast to be approximately 6% of revenue. Finally, we will renew our normal course issuer bid effective on March 24 until March 3, 2025. In conclusion, amidst the challenging macroeconomic environment, we remain well positioned strategically, financially and operationally. Speaker 300:33:36We also remain fully committed to continuing to execute our strategy for long term growth and shareholder value creation. That concludes our prepared remarks. We will now be pleased to take questions. Operator, please open the line. Operator00:34:14Our first question comes from the line of Brian Morrison at TD Securities. Please go ahead. Your line is open. Speaker 400:34:23Thanks very much. Good morning. Mark, on guidance, ex the PAW Patrol Movie on the base business, you're forecasting slight revenue growth and attractive margin improvement. Is that 22% now a sustainable level? It sounds like the forecast 65 basis point increase from 2023 is due to mix shift to digital and cost initiatives at Toy. Speaker 400:34:44And it did sound like you said the entertainment margin should be higher from licensing revenue, but revenue lower. Is that correct the way to think about it? And then for MAX, does the lower Ulysses and Doug forecast take anything away from the potential for synergies, international growth opportunity or the ability to penetrate mass midterm? Do you see yourself getting back to 2022 as reasonable over the midterm? Speaker 300:35:12Brian, I'll take your first part and then Max will pick up the second part of your question. So I pretty much got it accurate the way you described it. If you actually take out the poor distribution revenue in 2020 3, we were at 21.3%. And so we are guiding slightly up when you take that into account in terms of our guidance. And that's going to come from an increase in toy adjusted EBITDA. Speaker 300:35:43It's going to come from entertainment going up slightly and potentially digital games going down a little bit because of the introduction of the new games. But I think the way you have calculated and the way you articulated is accurate. Speaker 200:36:01Good morning, Brian. On Melissa and Doug, we are incredibly excited about the midterm opportunity as you well stated it. And so I just want to state that for the record and just to get very clear upfront. Obviously, the numbers are at a starting lower point. And so we're working on synergy, we're working on international growth sooner than we would have anticipated. Speaker 200:36:23We're working on a lot of different things to bring what we know is an incredible brand to as many children and families as we should. We have already begun to reinvest on the brand as we should invest on the brand and as we would invest in our brands as of start of this year and we see immediately the response of what is an incredible strong equity with parents and retailers pretty broadly in the U. S. So we're excited. Speaker 400:36:53Okay. And then I guess the second part of that is getting back to 2022 as reasonable midterm. And then I have one further question. Speaker 200:37:01We will get back to the mid 2022 in the midterm, reasonability is there. And I just think it might just be wise to just set the record straight because I think the question may still come up later. So why don't we just do that because I think you guys are going to continue to ask and I just might as well just address it. Remember we signed at the end of early October, okay. And then we had the HSR period and we weren't operating the brand and previous owners basically stopped investing in this brand in Q4 and therefore the brand saw the decline that you have now seen in the numbers. Speaker 200:37:44Q4 is the biggest consumption period and Melissa and Doug has a higher consumption period than Spin Master's portfolio in Q4. Great news is, if there's the silver lining here is inventory positions are lower at the start of 2024. We will begin already and have started to reinvest in the brand as you see our performance, right. You see our performance, you see our market share, you see how we operate. And that in my opinion is what we have already gotten to do with our integration team and the Millicent Dog Management and we're very excited. Speaker 400:38:23Okay. I appreciate you clarifying that Max. The last question I had, you brought up the value chain in your prepared remarks. You're entering 37,000 new stores. Can you maybe frame the top line potential? Speaker 400:38:32I mean, you have to be relevant to gain shelf space. So if we just think of $2,500 per store or something like that, it's in the $100,000,000 range. Can you frame maybe the top line potential there? Speaker 200:38:43Yes, I'm going to just frame the opportunity from our own penetration in that channel. And then I'm going to let Mark get into the numbers. So we have an incredible portfolio. And one of the things that we have an opportunity to do is to play with more items in the $0 to $5.99 $5.99 to $9.99 segments. And that shopper is in that channel more prevalently and we necessarily don't have the breadth of offering to meet their needs. Speaker 200:39:13And that is what our team is addressing. And you noticed in my remarks, we are addressing that opportunity with our biggest iconic brands brought to them with great value, including things that are going to be in the $0 to $5.99 price point. So the opportunity is very, very obviously laden for us and Mark will now give you some color on the numbers. Speaker 300:39:35Brian, it's an important point and I think Doug Wadley did a great job kind of highlighting that when we had our Investor Day in L. A. In January as you saw. I think your numbers are a little high. Just keep in mind, most of the activity in the value channel initiative is going to be in the second half of the year. Speaker 300:39:56These are low dollar price point items in the $1 to $5 range. And even though we're very excited about it for 2024, you should be thinking in the $30,000,000 range as opposed to anything over $100,000,000 as you described. That would be exceptional. I mean, we'd be happy to be in that zone. But I think for your models and for planning, you should be thinking in the $30,000,000 range for this year and then growing over the next few years as we build the line out. Speaker 400:40:31And the margin equivalent to the consolidated average? Speaker 300:40:34Yes. We've actually designed the line in a way that it's consistent with our margins as opposed to dilutive or accretive. Speaker 400:40:42Thank you both very much. Operator00:40:46Thank you. Our next question comes from the line of Martin Landry at Stifel. Please go ahead. Your line is open. Speaker 500:40:54Hi, good morning, guys. I'd just like to get back to Melissa and Doug quickly. I understand that the previous owner maybe didn't invest a lot in the back half. That seems a little one time in nature. And I'm wondering why can't we see a bigger jump back in 2024? Speaker 500:41:19And I was wondering, did the brand lose doors? Did the brand lose shelf space relative to 2022 levels? Speaker 200:41:30So, Martani, it's a great question and I appreciate your enthusiasm for a quicker recovery. So are we by the way. So here's the scoop. The brand, if you think about the U. S. Speaker 200:41:45Has a great presence and revenue in e commerce, right? And so in e commerce and omni channel broadly. So that is the 1st place where you're going to see the return to obviously growth. But that's not to say that at Walmart, which was a new distribution opportunity for the brand, they've done incredibly well. So it's beyond that, but you have to step back and also look at the fact that the segment had declined closer to 8% to 10%. Speaker 200:42:12So we're playing from a segment that was basically below and a lack of investment against that backdrop. And so if you add to the fact that they had to consume inventory from the prior year throughout the year, then you kind of get to the math that leads you to where we ended up. You're not wrong that we can recover and that is our intent. But that is what if you will point of departure is and I just wanted to paint a picture for you so that you understand that it's not about lack of trying to get back to the levels we know that it's going to get to, but just the hurdles we have to get through between now and getting to the numbers you guys want. So do we by the way. Speaker 500:42:55I'm sure you are. Wondering, Mark, if you can break down a little bit of the assumptions you've used in terms of revenue growth per your segment, if that's possible, that'd be super helpful. Speaker 300:43:12You mean the toy entertainment digital dance? Speaker 500:43:15Yes. Yes. Speaker 300:43:18Yes. So look, we're not going to give individual Creative Center guidance numbers, but what I can tell you directionally, Martin, is that we see toy in line, margins slightly up in the toy area. Entertainment in 2023 had very strong distribution revenue growth. But as you saw, margins actually came down as a result of that because it's low margin revenue for the most part. In 2024, we see entertainment revenue declining because there's less content deliveries, but the mix of revenue will skew more towards licensing and merchandising revenue, which is much higher margin. Speaker 300:44:03So we'll see entertainment margins going up in that area. In digital games, we actually see top line growth from a continued growth in Toca Life World and in Picnic, in particular, which are already out in the market, plus the introduction of new games in Q2, Rubik's Match First and then Toca Days later in Q2. And those will drive revenue growth. But as we start launching those games in the live market, we have to start amortizing the development costs that have been capitalized up until this point. So until those games hurdle those development costs, depending on their success, then we'll actually see margin dilution in digital games in the overall creative center. Speaker 300:44:58Does that help you, Martin? Speaker 500:44:59Yes. No, it's super. That's exactly what I was looking for. And then maybe my last question is on M and A. Your balance sheet is still in good shape post Melissa and Doug. Speaker 500:45:12And I was wondering, are you still looking to beef up your digital games capabilities? In the past, you've talked about digital games as a percentage of revenues going all the way up to maybe 20%. I mean, I realize now with Melson, Doug, that may be a longer timeframe than before. But like is this still a big focus of yours from an M and A standpoint? Speaker 200:45:36The short answer is yes. As you can imagine, we are incredibly excited to integrate and lease and doc successfully. That's priority number 1. But we are obviously always working with our 3 different M and A groups, each of which is led by an individual leader for that area in basically hunting and gathering great targets. And we have not basically walked away from our desire to have more diversification and continue to build out our digital games and creative center and entertainment as well. Speaker 200:46:12So you can expect that we will continue to be very active. We will have a great balance sheet and an incredible team, honestly, in gathering and hunting for great targets and our Board very supportive. So that's where we stand. Okay. Thank you. Operator00:46:29Thank you. Our next question comes from the line of Adam Shine at National Bank Financial. Please go ahead. Your line is open. Speaker 600:46:36Thanks a lot. Good morning. Max, I got to go back to Melissa and Doug for a couple of questions. So just elaborating earlier, you said the segment declined 8% to 10% last year. Melissa and Doug, obviously, as you alluded to down about 25%. Speaker 600:46:52So was the differential more specifically related to the lack of investment and support in the Q4? Or were there other elements in terms of Melissa and Doug actions, for example, reducing the number of SKUs as a priority and or other elements related to the incremental delta to the industry dynamic? We'll start there, Speaker 200:47:19please. Of course. And good morning. How are you, Adam? Speaker 600:47:23Good. How are you? Thank you. Speaker 200:47:24I felt really well. Let's get into this. Melissa and Doug, my favorite topic this morning. So I tell you, if you think about Q4 and you think about a brand that has all the consumption focused on that one period, now we're going to unpack the fact that we did not support the brand as we should have well, the previous owner did not support the brand as the previous owner should have supported the brand in our judgment, okay. And therefore, when no advertising and significantly less promotional spending in excess of 2 thirds less than the prior year was applied to the brand in a very competitive environment where consumers, remembering our remarks, were basically flocking to specific shopping days and seeking for the best deal. Speaker 200:48:13They of course couldn't basically perform as they should have performed. When you don't have that performance, it's really difficult for a retailer to get excited to reorder or to order to begin with, because consumption is not leading to an inventory decline in that brand. And therefore, they suffer from both a lack of investment with the consumer and POS not giving retailers the confidence to bring more cases because they also had inventory they have to manage, right? And even though Melissa and Doug ultimately on the strength of the brand ended the year with lower inventory, obviously they could have sold more revenue to more consumers. So I'm going to pause here for a second because I hope that helps answer the question for you, but I just want to make sure that was clear. Speaker 600:49:04Yes, I guess the net net, not to get overly enthusiastic about things, but going back to Martijn's question in the context of with a little bit of support presumably in a seasonally important Q4 later this year, but would assume that there would be some degree of pickup more meaningfully on the back of what was delivered in Q4 this year or 2023. The other thing, I guess, which I guess I have to ask is, we saw with the January 22 press release that the earn out was eliminated and the presumption tends to be when an earn out gets eliminated, the sort of look ahead sort of dynamic becomes a bit less exciting. But as we reflect now on everything that you've talked about visavis the 2023 performance, one wonders why a more meaningful recutting of the purchase price didn't materialize. I imagine that's a bit of a naive question and in the scheme of things of a contract, but nevertheless any additional commentary related to that? Speaker 200:50:10Yes, I'll start and then I'll let Mark finish. Listen, we were at that time a strategic buyer. We were and continue to be in the category. So we saw the numbers, but we were completely not in control of the brand and we were in an HSR quiet period. So as soon as we had the chance to get involved and understand what was happening, we knew that the results would be lower without getting into owning the brand at the time that we actually made the decision to remove the earnout because we knew that the starting point would be lower. Speaker 200:50:44Mark? Speaker 300:50:45Yes. I mean, just similar to what you just said there, Max. I mean, obviously, Adam, there were multiple reasons for removing the earn out, one of which was the performance in the late part of 2023, which we've discussed. Also, as you know, earn outs can be complicated in terms of managing the business during the earn out period and it's usually legal structures that to some extent minimize sorry, impact on your ability to maximize integration. And so for those reasons, we wanted the earnout removed. Speaker 300:51:22Our investment base case is still intact. The business is still accretive in 2024. The long term thesis is very strong and we're as excited about the acquisition as we ever were, but we have to get over the performance step in Q4 2023. We have to get it back on track and we will. Speaker 600:51:45Okay. I'll leave it there. Thank you very much. Operator00:51:50Thank you. Our next question comes from the line of David McFadgen of Cormark. Please go ahead. Your line is open. Speaker 700:51:57Great. Thank you. A couple of questions. So just looking at the EBITDA margin and the guidance, you're forecasting an EBITDA margin. I mean, you finished last year with a strong EBITDA margin, forecasting EBITDA margin to be equally strong in 'twenty four. Speaker 700:52:17When we look at the past, the history of the company, it's never been at that level, it's never sustained that level. So just kind of wondering if you could provide any commentary about maintaining that level of EBITDA margin in 'twenty five and beyond? Speaker 300:52:35So David, if you go back in time and you've covered us for many years, when the business was largely a toy business, the EBITDA margins were in the 18%, 19% zone and that was really always where we were. But as we've grown and evolved our creative center strategy, we've talked about growing the not only diversifying the top line, but also enhancing the bottom line. And both the entertainment and digital games creative centers are margin accretive. And so we're comfortable to guide to where we have and we've actually delivered in 'twenty three these margins. So this is not a theoretical exercise. Speaker 300:53:19And we continue to believe that as we grow our digital games and entertainment creative centers, we'll keep margins in the low 20s up. And our toy business margins have also done very, very well. From a supply chain efficiency perspective, we've increased our gross margins. We continually, from a cost control perspective, are looking at operating leverage. So overall, the business, I would say, is running more efficiently. Speaker 300:53:46And so the margins that we are guiding to, I believe, are sustainable. And if we are successful with our new digital games launches and continue to grow that business, then we could potentially even get them higher. Speaker 700:54:02Okay. Thank you. And then just on the toy revenue, so it looks like for 2024, the expectations would be more or less flat. Can you give us some sort of an idea on direction, where you expect Gavi to do in Monster Jam and PAW Patrol in 'twenty four? I would imagine Gavi and Monster Jam will continue to be up. Speaker 700:54:30And I just wanted a confirmation on that and what you think PA might do in 2024? Thanks. Speaker 300:54:35Well, we don't give specific guidance on individual lines as you know, but I'm going to let Max give you some color as to what's happening with the brands, once the jam and Gabby's in particular, there's content coming. Max, why don't you pick that one up? Speaker 200:54:49David, good morning. How are you? I would tell you that the market and the reason for why we're guiding to the revenue growth in toy as we are is because the toy market continues to be in a similar position as it was last year. And the outlook for the year from a market growth perspective is that it will be slightly down versus what it would have been in 2023. So that's a starting point. Speaker 200:55:14There are differences between toy segments, but we have a pretty strong program for our infant preschool, obviously segment. We are even though lapping the toy movie for PAW Patrol, have other things happening on PAW Patrol that are quite exciting. And so Rubble is leaving the U. S. And getting over to Europe, for example. Speaker 200:55:34And you know that we have historically been a stronger PAW Patrol franchise from a toy perspective in Europe. And so that gives us a lot of wins in our sale. And so we're excited about that. You are on Gavi asking specifically and Gavi is from a lifecycle moment in time getting to year 3 in the U. S, year 2 internationally. Speaker 200:55:54And so you see some moderation, but we're still having a very strong outlook for Gavi in 2024 before we get to 2025, a year in which Gavi will have a movie. And so we're very excited about that. And so we will continue to invest and basically drive the Gavi franchise very, very strongly. But separate from that, we have other things in infant preschool that we're excited about. So we have obviously Rachel coming towards Q4. Speaker 200:56:23And Ms. Rachel is going to be an amazing, in my opinion, opportunity for the company because we bring to parents something they truly love already. And we're going to bring that love to them through both our Spin Master execution, but also through Melissa and Doug. And so we're not going to wait and do that later. We're going to do it this year. Speaker 200:56:44And I can tell you we're incredibly excited. By the way, so is Ms. Rachel. Besides that, we have Vida the Vet. We talked about that property. Speaker 200:56:53We're very excited about that property and that property comes in Q4 as well. So infant preschool for us should be obviously a very good business unit this year. Monster Jam is doing incredibly well. I was speaking with Founder and CEO of Felt Entertainment over the weekend. And just last weekend, they had over 100,000,000 attendants on Monster Jam. Speaker 200:57:17Our innovation on Monster Jam is incredible. And so we have nothing but continued opportunities ahead and we will continue to seize those opportunities. So you asked specifically at Monster Jam, we're very excited. By the way, they're getting stronger acceptance in Europe and we have an incredible European team, we just told you we were the fastest growing European company. So we see a lot of opportunity there as well. Speaker 200:57:42At the risk of not going through each one of them and monopolizing the time for others who may want to ask, I'll just leave you with that, but happy to follow-up with you and get into more details. Okay. Speaker 700:57:51All right. Thanks so much, guys. Operator00:57:54Thank you. The next question comes from the line of John Zamparo of CIBC. Please go ahead. Your line is open. Speaker 800:58:08Thank you. Good morning. My question is around the broader guide and you have a great deal going on. I won't go through all the initiatives as well, but can understand you're very excited about a lot of plans for this year. But given all that, the guide organically is still basically flat year over year. Speaker 800:58:25So understanding the backdrop of a slight decline in the industry, I'm trying to reconcile that. What are the areas of the businesses that you expect to slow in 2024 versus 2023? Speaker 300:58:38Yes. So John, as I described earlier, we see entertainment coming down on the top line, digital games going up and toy largely flat. So that's the mix that leads to the Spin Master specific guide. We gave the details on the Millicent DUG guide, so you have that. And then in addition, we gave the guide on the cost synergies that are on top of the Millicent DUG guide. Speaker 300:59:04So I think when you put that all together, that kind of explains how we actually guided overall for the year. Speaker 800:59:14Okay. And then just a couple of housekeeping questions. Can you talk about the cadence of synergies at Melissa and Doug beyond 2024? Is it fairly linear through 2026 or is more of it in 2025? And can you talk about your inventory positions at your retail partners? Speaker 800:59:30Understand your own inventory is at quite low levels, but how does it look at your retail partners? Speaker 300:59:38I can deal with the retail inventory. Retail inventory was down mid single digits globally and high single digits in the U. S. So I think we're in decent shape on a retail channel level. And also, as you correctly pointed out, our on hand inventory is actually at record low level. Speaker 300:59:59So I think we've managed our inventory very, very well. What was the first part of your question, John, that you wanted in addition to that, sorry? Speaker 801:00:07Yes. The cadence of synergies that Melissa and Doug through 2026, please. Speaker 301:00:13Look, we've built the integration team. I would say that the integration team is doing exceptionally well. We're ahead of our plan in terms of cost synergies for 2024. And I think you're going to start seeing it accelerate in 2025 and 2026. We're still very comfortable with our target of $25,000,000 to $30,000,000 run rate exiting 2026. Speaker 301:00:37So I think you'll start seeing increasing cadence in 2025 and 2026 as the momentum builds and as we get to know the business better. But I will tell you that the teams are working exceptionally well together. And I think Max and I are very pleased with the way the integration is going so far. Speaker 801:00:55Got it. Okay. I'll pass it on. Thank you very much. Speaker 301:00:59Thanks, John. I think we're pretty much at time. Operator, are there any more questions? Operator01:01:05No. No further questions in the queue. Speaker 301:01:07Okay. Well, that's good timing. Thank you, everyone, for attending today. And we look forward to talking to you on May 7, 8. Our earnings call will be on May 8 for Q1, and we'll be releasing our results on the evening of May 7th. Speaker 301:01:26So thank you again, and we look forward to talking to you in a few weeks for Q1. Thanks. Operator01:01:32Thank you. This now concludes the conference. Thank you all very much for attending. 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