TSE:TOY Spin Master Q1 2024 Earnings Report C$22.94 +0.56 (+2.50%) As of 05/2/2025 04:00 PM Eastern Earnings HistoryForecast Spin Master EPS ResultsActual EPS-C$0.26Consensus EPS C$0.06Beat/MissMissed by -C$0.32One Year Ago EPSN/ASpin Master Revenue ResultsActual Revenue$426.28 millionExpected Revenue$407.27 millionBeat/MissBeat by +$19.01 millionYoY Revenue GrowthN/ASpin Master Announcement DetailsQuarterQ1 2024Date5/7/2024TimeN/AConference Call DateWednesday, May 8, 2024Conference Call Time9:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Spin Master Q1 2024 Earnings Call TranscriptProvided by QuartrMay 8, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the Spin Master First Quarter 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, May 8, 2024. I would now like to turn the conference over to Sofia Bisoukis. Operator00:00:27Please go ahead. Speaker 100:00:29Thank you, John, and good morning. Welcome to Spin Master's financial results conference call for the Q1 2024. I am joined this morning by Max Rangel, Spin Master's Global President and CEO and Mark Siegel, Spin Master's Chief Financial Officer. For your convenience, the press release, MD and A and interim consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR Plus. 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 100:01:12Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that certain estimates or assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expected or implied by the forward looking statements. As a result, Spin Master cannot guarantee that any forward looking statements will materialize and you are cautioned not to place undue reliance on these forward looking statements. Except as may be required by law, Spin Master has no obligation to update or revise any forward statements whether because of new information, future events or otherwise. Speaker 100:01:53For additional info on these assumptions and risks, please consult our cautionary statements regarding forward looking information in our earnings release dated May 7, 2024. Please note that Spin Master reports in U. S. Dollars and all dollar amounts to be expressed today are in U. S. Speaker 100:02:09Currency unless otherwise noted. I would now like to turn the call over to Max. Speaker 200:02:15Good morning, everyone. Before we get into details, I wanted to briefly reflect on the tremendous growth and evolution of Speedmaster as we celebrate our 30th anniversary in May. It's quite remarkable how we've grown from our beginnings an innovative Canadian start up toy manufacturer to become a global fully imagined children's entertainment company. We've continued to build on our legacy as a disruptor in the toy category with a long track record of breakthrough items such as Bakugan, Hatchimals and Bitsy and have expanded our robust portfolio through licensing partnerships, international growth and close to 30 acquisitions. Our entertainment creative center has developed a diverse slate of captivating multi platform content for kids around the world and our digital games creative center is expanding our mobile player ecosystem. Speaker 200:03:07Our strategy to reimagine everyday play is positioning us to where kids play and engage. Our Q1 performance reflected an increase in total revenue of 16.5%, primarily due to the addition of Melissa and Doug and their trusted portfolio of early childhood play offerings, which are highly complementary to our existing business. Excluding Melissa and Doug, revenue was up 1.6%. Toy gross product sales were $264,000,000 an increase of 22.1%. Most of these increase was from Melissa and Doug. Speaker 200:03:46Excluding MND, toy gross product sales were slightly up. We continue to see global macroeconomic forces at play which are putting pressure on consumers' discretionary spending. We expect this environment will continue throughout 2024 as consumers manage through the impact of high interest rates and inflation. With rising prices and basics like shelter, food and energy, consumers are feeling the pinch. As a result, demand and dollar spend for many general merchandise categories will be under pressure in 2024 according to Sercana. Speaker 200:04:24The toy category experienced this pressure from a POS perspective in Q1. Total toy industry sales increased 2.8% globally, while average selling prices declined 1.9% versus our Canada. It's important to note that the increase in POS is in large part due to the timing of Easter which fell in Q1 in 2024 compared to Q2 last year. Additionally, much of the growth in total in toy POS was driven by 1 category, construction and building sets, a category in which we do not participate. According to Sercana, our global Q1 POS increased 21% including Melissa and Doug. Speaker 200:05:11Excluding Melissa and Doug, our global Q1 POS declined 3%. Our U. S. Was up 28% with Melissa and Doug and down 4% excluding Melissa and Doug. We grew market share in 6 of the 11 global markets strike by Serkana including France, Germany, Italy, Mexico, the Netherlands and Spain. Speaker 200:05:36We grew share in 4 of 11 Zircona product supercategories including arts and craft, youth electronics, plush and vehicles and maintain our share in games and puzzles. Global and U. S. POS for the infant toddler and preschool category in Q1 was down 3% 4% respectively for Surcana. Spin Master's POS in Q1 was down in line with the category. Speaker 200:06:05With the acquisition of Melissa and Doug, we became the number one manufacturer in the infant toddler and preschool category in Q1 globally. Speedmaster had 4 of the top 10 items in the U. S. Preschool toy segment in Q1 per Surcana including the number one item, the PAW Patrol Jungle Pups vehicle assortment demonstrating our commitment to innovation. Globally, PAW Patrol POS declined by 3.7% and in the U. Speaker 200:06:35S. 5.5%. International POS for PAW Patrol declined at 1.5%. Gabby's Dollhouse was the number 9 property globally the infant toddler preschool category in Q1. For Sarcana and international POS was up 44%. Speaker 200:06:56Universal DreamWorks Animation just announced plans for the 1st feature film for Gabby's Dollhouse set to debut September 2025. The TV series has been among the top 10 most watched shows on Netflix in 57 countries. We're further expanding our preschool portfolio later in 2024 and into 2025. Our licensed toy line with YouTube sensation, Ms. Rachel is set to launch in the fall. Speaker 200:07:23Ms. Rachel has an uncanny ability to connect with babies, children and parents and retailers are eagerly awaiting our new toy line. Our design teams both from Swimmaster and Melissa and Doug have been working closely with Rachel to deliver hands on play for her avid fan base of 50,000,000 unique monthly viewers. We are strategically positioned as a leader in preschool and have further deepened our presence in this important toy category with our acquisition of Melissa and Doug. The integration of Melissa and Doug is well underway and we are focused on revenue and cost synergy opportunities. Speaker 200:07:59With the trust of multiple generations of parents coupled with a leading e commerce platform, we believe Melissa and Doug has strong potential for global growth. MND POS in the U. S. Was down in Q1 slightly more than the category average, but improved sequentially in Q1 to finish in line with the category. During Easter, we saw Melissa and Doug POS performance ahead of the industry. Speaker 200:08:25We are launching some exciting innovation at Melissa and Duck this fall. Sticker Wow! Offers a new way to play with stickers through collectible and refillable sticker stampers, which help build fine motor and problem solving skills as well as drive creativity and character play. Sticker Wow launched in 2023 and makes Zerkana's list of top 10 new items in Q1. More exciting innovation arise in the fall with the new EasyFold Play Gym and the innovative Blockables line, a wood based construction toy for young kids that is positioned in the construction building sets category. Speaker 200:09:05In Dolson and Interactive, we have a host of new introductions leading into the fall. There is big excitement at retail about for Hatchimals, which some of you were able to see in our LA showroom in January. We're working with our retail partners to launch its newest iteration on October 4, which we have declared Hatchimals Day. The toy line for our Netflix original series Unicorn Academy will hit shelves this fall. The collection includes fashion dolls, unicorns and plush which mirror the diversity and magic of the characters from the series. Speaker 200:09:42We have regularly proven our ability to introduce new breakthrough items in TOEI. Last year, Bitsy was an innovative success story that allow us to gain 6.5 share points in the youth electronics category for Sherkana. We are now introducing 2 new iterations of Bitsea this summer, including a magical's Bitsy and a Disney Bitsy featuring some of the most iconic characters from the Disney's extensive library. One of the Q1 highlights from a POS perspective is Monster Jam, which is off to a stellar start in 2024 with POS up 32%. The winning combination of live action shows combined with real to live toys across a wide range of price points has helped catapult retail sales. Speaker 200:10:29We have more in store for the fall with a new line of Marvel Monster Trucks featuring popular superheroes including Spider Man, new RC vehicles and playsets all geared to bring the action of the arena into the home. Within games and puzzles, plans for Rubik's 50th anniversary are ramping up and the brand is showing no signs of slowing down. The cube has become an integral part of pop culture influencing art, design, math and science as well as enthralling millions of people with the goal of solving the cube. Our goal this year is to inspire the next generation of cube solvers with our Make Your Move global campaign. To celebrate the anniversary, we have many new product launches and over 25 collaborations celebrating our iconic status, some of which were introduced in Q1. Speaker 200:11:23According to Zircona, these helped drive our Q1 POS up 16%. I want to briefly address retail price points. We have adjusted our toy portfolio pricing to lower the average price point by 9% for 2024. Importantly, we have invested in increasing our product offering tailored to the value channel, which will launch in H2. Looking forward for the balance of 2024 and into 2025, our focus in toy is building on the 23 base. Speaker 200:11:57Our top retailers in the U. S. Over the last month have begun to express cautious optimism for the second half. We've also recently had a positive response to our spring 2025 line preview with encouraging commentary on a multitude of our brands across vehicles, games and preschool. 2025 is shaping up well. Speaker 200:12:21Turning to entertainment, our revenue increased by 16.5%. Total gross viewing minutes for Paul Universe for kids ages 2 to 5 were up 63% in Q1. With more kids viewing content on YouTube, we have developed a strategic alliance with Moonbuck Entertainment to create complementary content for the platform, which is deepening our engagement with preschoolers. The first shorts debuted last weekend and have already exceeded our historical view time for new content on our channels in just a few days. With production on our 11th season underway, we are also working on the 3rd pause feature film set to hit theaters in July 2026. Speaker 200:13:06We are in production of Rubble and Crew Season 2 and have Greenlit Season 3. We are seeing some early success in Europe with both the series and the toy line. Unicorn Academy, our fantasy adventure animated series launching Netflix last November and quickly earned its place as a number one kid show globally for the opening weekend. The brand has retained its awareness and the show is performing well measuring 51,000,000 gross viewing minutes in Q1. We are excited to share that the new content will drop on Netflix this summer in advance of the toy launch in the fall. Speaker 200:13:42The musicality of the series lends itself to further distribution and promotional opportunities for the franchise And we are partnering with Kidz Bop for their summer concert series which will integrate Unicorn Academy original songs into the show. Our licensing and merchandising programs that extend the brand into adjacent consumer product categories are building momentum with partnerships across stationery, fashion, personal care and publishing. Our newest animated preschool series Vida de Vet continues to build audience and momentum and by summer we will have launched Vida with the premium broadcasters in over 20 countries. Similar to PAW, we are partnering with Moonbuck Entertainment to create complementary short form content for YouTube giving preschoolers the opportunity to delve deeper Vida's world. We have also greenlit a second season for distribution in 2025. Speaker 200:14:37Turning to our digital games creative center, our subscription business is a key focus and continues to grow. At the end of Q1, we had 430,000 subscribers, up 8% from 399,000 in December. Of the 430,000 subscribers, Picnic and SEGA Mini comprised 374,000 and PAW Patrol Academy 56,000. We are continuing to add content into the picnic bundle and in late May, Mactango from Originator Studios will be launched. More content drives higher consumer value and we are seeing higher monthly recurring revenue as well as a significant increase in cross installs from parents who see value in the bundle compared to standalone apps. Speaker 200:15:24We are pleased with the growth in PAW Patrol Academy subscribers, which have climbed 63% since December. Monthly active users were down 4.3% in Toka Live World, but downloads continue to increase showing higher consumer engagement. We are investing in mix of initiatives including more content and for the second half, we will be introducing exciting new features into the game. Last year, we initiated co branded digital items within Toka Life World with Hello Kitty, followed later by SpongeBob SquarePants. These co labs tap into the brands that resonate within our player audience and drive revenue and as fans purchase items to further customize their worlds within the game. Speaker 200:16:09We re released the Hello Kitty Furniture Pack in January and drove over $900,000 revenue in 7 days. This summer, we will release our first ever music collab within the game with a global team focused superstar, which is on trend for our audience who love to put music with their stories. We are looking forward to the launch of Toca Boca Days, our first social multiplayer game that will expand the player base of the Toca universe. Toca Boca Days represents a significant evolution for the brand and broadens the core to Toca Boca experience with multiplayer capabilities, enabling players to safely create, interact and collaborate in an imaginative setting. Days is now live in Australia and New Zealand and we are seeing healthy organic installs further demonstrating the strength of the brand. Speaker 200:17:00In the coming months, we plan to release these in Canada, Sweden and the UK as well as Germany, scaling to global markets in the fall. Our team in Stockholm is also focusing on Rubik's Match, our new digital game that will leverage the global awareness of the cube and entice casual mobile gamers with a fresh take on the match 3 game genre. Our latest soft launch data shows strong retention and app stability data and Rubik's Match is on track to release globally at the end of June to coincide with the Rubik's 50th anniversary. In 2025, we will release our mobile digital game for Unicorn Academy filled with action and adventure that brings the magic and allure of Unicorn Island into the digital world. I was recently in Stockholm and was able to see progress on the game's development and ease out of this world. Speaker 200:17:52Our primary focus is to continue to drive growth across all three creative centers with a particular emphasis on ensuring that we integrate and achieve our growth goals for Melissa and Doug. Given the challenging economic environment we find ourselves operating in, we're also focused on driving operational efficiencies in every area of the business. Our financial framework is solid, we have a robust pipeline of innovation and we are evolving our offering and marketing plans to ensure our brands remain relevant and resonate with consumers. Finally, we continue to strengthen our enterprise capabilities to drive long term growth and value for our shareholders. With that, I will now turn it over to Mark. Speaker 300:18:34Thank you, Max, and good morning. We delivered 300 and $16,200,000 in revenue across all three creative centers, up 16.5% from 2023 and including $40,400,000 of revenue from Melissa and Doug. We delivered $18,600,000 in adjusted EBITDA an expected decline compared to last year because of the increased proportion of revenue contributed from the Toy Creator Center, the Melissa and Doug acquisition and the associated seasonality and profitability arising from the acquisition. Excluding Melissa and Doug, adjusted EBITDA was $27,800,000 slightly lower than last year. It's important to remember that Q1 is our seasonally lowest quarter from a toy revenue perspective, typically representing between 10% 15% of revenue, and this has an impact on operating leverage and profitability. Speaker 300:19:34Q1 gross profit decreased by $2,000,000 to $156,500,000 and gross margin declined to 49.5% from 58.4%, primarily due to toys and digital games, partially offset by entertainment. It is important to note that as a part of the acquisition of Melissa and Doug, we acquired $179,600,000 of inventory, of which $66,300,000 relates to a fair market value step up adjustment, representing the difference between inventory cost and its realizable value. This fair value adjustment is recognized as an expense in cost of sales as the inventory is sold. In Q1, dollars 20,600,000 of the inventory fair market value adjustment was recognized in toy cost of sales. As a result, we have introduced a new metric, adjusted gross profit, to exclude the effect of the fair value adjustment and which is more reflective of true operating performance. Speaker 300:20:42Adjusted gross profit increased by $18,600,000 to $177,100,000 Adjusted gross margin was 56% compared to 58.4%, down 2 40 basis points mainly due to market and customer mix and higher sales allowances. Excluding the fair value adjustment, the contribution of Melissa and Doug was accretive to TOEIC gross margin. Let me spend a few minutes on each creative center's financial performance. TOEIC gross product sales in Q1 were up 22.1%, including Melissa and Doug and were up 50 basis points without Melissa and Doug. As a reminder, with the acquisition of Melissa and Doug, we've adjusted our 2024 toy product categories into preschool, infants and toddler and plush, which includes Melissa and Doug, activities, games and puzzles and dolls and interactive, wheels in action and outdoor. Speaker 300:21:49Preschool infants and toddler and plush led growth in Q1, up 40,200,000 or 48.7 percent driven by Melissa and Doug, PAW Patrol and Gund. Activities, games and puzzles and dolls and interactive grew $17,900,000 or 28.6 percent led by Bitsy, Kinetic Sand and the games and puzzles portfolio. Wheels in Action declined $3,000,000 or 6.9 percent and Outdoor was down $7,300,000 Geographically, gross product sales growth was driven by North America with the inclusion of Melissa and Doug, who currently generate most of their sales in the U. S. Sales allowances in Q1 were 14.5 percent of toy gross product sales compared to 13.9%, slightly elevated from geographic market mix factors and greater promotional activity outside of the U. Speaker 300:22:46S. Adjusted EBITDA in Q1 for TOY was a loss of $32,500,000 or negative 14.4 percent compared to negative 11.5 percent. The decrease in adjusted EBITDA margin was from lower gross margin and higher SG and A from the inclusion of Melissa and Doug, which reduced operating leverage given the seasonal weighting towards the second half that M and D has relative to Spin Master. Melissa and Doug revenue is typically 20% H1, 80% H2 compared to 30% 70% for Spin Master. This deleveraging was partially reduced by lower selling expenses relative to toy revenue due to the lower proportion of Melissa and Doug sales from licensed brands. Speaker 300:23:39In Q1, entertainment revenue increased by $6,200,000 or 16.5 percent driven by higher revenue from the distribution of the PAW Patrol series and Movie. Although revenue increased, adjusted operating income decreased slightly to $29,100,000 from $29,900,000 and adjusted operating margin to 66.4% from 79.5%. The margin decline was due to mix with a higher proportion of lower margin distribution revenue compared to higher margin licensing and merchandising revenue. Digital games revenue declined slightly by $1,500,000 or 3.2 percent to $46,000,000 primarily due to lower in game purchases in Toca Life World, offset in part by higher subscription revenue for Picnic and PAW Patrol Academy. In Toka Life World, we saw a slight softening in short term retention, which has led to lower spend conversion, but revenue per player increased. Speaker 300:24:45We have actions underway to ensure we can better capitalize on continued strong player acquisition, as Max described. Digital Games adjusted operating margin was 33% from 40% from the slight decline in revenue and higher marketing costs for PAW Patrol Academy and Picnic. Turning back to consolidated results. Adjusted SG and A increased by $34,100,000 or 24.4 percent to $173,600,000 and as a percentage of revenue from 54.9 percent from 51.4 percent, primarily driven by the inclusion of Melissa and Doug, which resulted in deleveraging as I described earlier. Consolidated adjusted EBITDA for Q1 was 18,600,000 dollars compared to $30,600,000 Adjusted EBITDA margin was 5.9% compared to 11.3%. Speaker 300:25:45The decrease in adjusted EBITDA was primarily from the toy segment due to the inclusion of Melissa and Doug, which had a standalone adjusted EBITDA loss of $9,200,000 and digital games, partially offset by an increase in entertainment. Adjusted EBITDA excluding Millicent Doug was $27,800,000 compared to 30,600,000 dollars a decrease of $2,800,000 Adjusted EBITDA margin, excluding Melissa and Doug, decreased slightly to 10.1% compared to 11.3%. Looking at our balance sheet, inventory at the end of to be significantly lower by the end of 2024 as we flush the fair market value step up adjustment through the P and L and refine their purchasing patterns. Free cash flow in Q1 was negative $600,000 compared to negative 34,400,000 dollars an increase of $33,800,000 due to cash generated from working capital reductions. We ended Q1 with $205,500,000 in cash. Speaker 300:27:03As part of the Melissa and Doug transaction, we raised debt financing of 525,000,000 dollars of which $50,000,000 was repaid in Q1. The combined cash balance and unused credit facility gives us 464,000,000 dollars of available liquidity. From a capital allocation perspective, we will continue to focus on investments in innovation, content and M and A as well as share buybacks, dividends and debt reduction. Regarding M and A, we will focus on integrating Melissa and Doug and M and A activity in 2024 will be focused on digital games, entertainment and ventures. Following the approval of our NCIB for just over 2,940,000 shares on March 4, we've repurchased almost 600,000 shares to date at a cost of just under $15,000,000 of which roughly 333,000 shares were repurchased in Q1 and the balance since. Speaker 300:28:06Looking ahead, we are committed to the share buyback program and we'll continue to execute opportunistically. We believe that the NCIB represents a prudent use of our capital and is an attractive investment given our low multiple strong financial position and exciting prospects. We are also pleased to announce that we've raised our quarterly dividend by 100% from $0.06 per share to $0.12 per share. The decision to initiate a higher dividend reflects confidence in our performance and together with the NCIB reflects our commitment to drive shareholder value while maintaining a strong balance sheet for future growth. Since 2022, we've returned approximately $53,000,000 directly to shareholders through share buybacks and dividends. Speaker 300:29:00Turning to our 2024 outlook. We are maintaining the full year guidance given in March. As we mentioned in March, we expect the toy industry to face macroeconomic headwinds causing reduced consumer discretionary spending. We have an innovative, deep and value focused toy line. However, this is tempered by the reality that consumer behavior in 2024 is likely to continue to be pressured. Speaker 300:29:26For that reason, we are maintaining our previous guidance, which is that excluding Melissa and Doug, we expect 2024 toy gross product sales to be in line with 2023 and seasonality to be 28% to 32% in H1. Total revenue growth, excluding Melissa and Doug, is also expected to be in line with 2023 with lower revenue from entertainment offset by higher digital games revenue. We continue to expect sales allowances to be approximately 13% of gross product sales, higher than our typical range, mostly due to market and customer mix. We expect marketing costs to be between 9% 10% of revenue. We expect we continue to expect adjusted EBITDA margins to be in line with 2023, excluding Melissa and Doug. Speaker 300:30:19Our key focus in 2024 is the integration and realization of cost synergies and growth opportunities for Melissa and Doug. Our teams are working hard on integration activities and are focused on building a platform for revenue growth, international growth and cost synergies. Continue to expect Melissa and Doug gross product sales of between $420,000,000 $430,000,000 with revenue of 370,000,000 to $375,000,000 As a reminder, Melissa and Doug generates about 80% of its revenue in the second half. And as illustrated in Q1, this impact for cadence of operating leverage and quarterly profitability. For 2024, we continue to expect Melissa and Doug adjusted EBITDA margins to be approximately 19.5%. Speaker 300:31:12The consistent cash flow we've generated gives us confidence in our ability to implement share buybacks, increase our dividend, reduce debt and keep capacity for opportunistic M and A. We expect to end 2024 with a net debt to adjusted EBITDA ratio of approximately 0.8x, up slightly from 0.5 times discussed previously, as we intend to allocate more free cash to the NCIB. Cash interest paid will be around $25,000,000 in 2024, up slightly from the March estimate due to higher average leverage. Our consolidated effective tax rate estimate remains at approximately 26%. CapEx is expected to be just under 6% of revenue, slightly lower than previously guided. Speaker 300:31:59We now expect depreciation and amortization to be slightly lower than previously advised at 116,000,000 dollars versus $120,000,000 and for Melissa and Doug D and A to be $32,500,000 versus $30,000,000 Sofia will provide details by Creative Center and COGS versus other categories for you after the call. In conclusion, we remain well positioned strategically, financially and operationally. We also remain fully committed to continuing to execute our strategy for long term growth and shareholder value creation. That concludes our prepared remarks. We'll now be pleased to take questions. Speaker 300:32:42Operator, please open the line. Operator00:32:47Thank Your first question comes from the line of Brian Morrison from TD Cowen. Your line is Speaker 300:33:27now open. Operator00:33:29Your first question comes from the line of Brian Morrison. Your line is now open. Speaker 400:33:35Apologies. Good morning, Mark. Good morning, Max. Speaker 200:33:39Good morning, Brian. Speaker 400:33:41So I guess let's tackle Melissa and Doug head on here. While you guided us on a more pronounced seasonality for its revenue, it's pretty clear that consensus didn't bake in that that would lead to greater seasonal variance or deleveraging in the margin that I think really explains the Q1 shortfall to consensus. So Max, maybe you can start. I think it's important to unpack and provide confidence in the Melissa and Doug outlook and ability to hit your guidance, specifically after a few headwinds out of the gate here. And then Mark, I know it's small based on the annual guidance context, but can you provide clarity on how we should think about toy seasonality for both the incumbent operations in Melissa and Doug the remainder of the year? Speaker 400:34:19And how we should think about the quarterly margin cadence for the toy segment year over year as we progress through the year? Speaker 200:34:27Great question. So let me take the first part and then I'll turn it over to Mark. So here's what I would tell you about Melissa and Doug in the 1st 4 months of the year. We have seen sequential improvement month on month since January, culminating in Easter week in which we grew above the category and that's really important. And that was driven by the core business and new items like sticker wall, which I commented on. Speaker 200:34:55Now following Easter and maybe before I tell you about after Easter, I just want to give you some magnitude because I think it's really important. January consumption was down double digit, high double digit and that improved in February to 10% down. It improved in March to down 3.9% and in Easter week we were up almost 1%. So we saw the sequential improvement which is really important. Since Easter, we continue to see the brand performance at or above the category rate and that's also really important. Speaker 200:35:33And so we've caught up through the obviously 4 months and are in a better position. What's more encouraging and as we look to the balance of year is two things to note. The items that we began to once again get behind with support up to Easter that actually drove the performance where the items that we would expect to do really well given the evergreen nature and the saliency of these items. So the top 10 items in Melissa and Doug grew in Easter 50% plus versus year ago. And if you extend that to the 100 top items, they were up 36% versus last year. Speaker 200:36:14Some of the iconic evergreen items like Dose Sweep Mop, Burrup Bunny, Dentist Set, Scoop and Serve ice cream were the items that truly drove that performance and that's really important. On top of that, Sticker Wow! Was a top 10 item in Q1 for Surcana. And as we look to the balance of the year, in Q3, Q4, we have twice as much revenue from new items in Melissa and Doug than we did last year. So as we get into the second half from a consumption where the inventory is netted and where the inventories have gotten to and the plans for the second half, we have confidence we can deliver the guidance we've promised. Speaker 300:37:03Thanks, Max. So Brian, I'm going to pick up the second part of your question. And I'm sorry if I'm going to give you a long answer, but I want everyone to clearly understand all the points about seasonality, both for Spin Master and for Melissa and Doug from a top line and bottom line perspective because it's clear that we need to make sure that The Street understands this and we don't have another situation where we have a kind of a difference between where the Street is at and our expectations. So let me just reaffirm that Spin Master has always been a seasonal business. And with Melissa and Doug, even more so because Melissa and Doug is more heavily weighted towards the second half of the year than we are. Speaker 300:37:49So if you actually look at Spin Master for a second focusing on that, we've typically been around a 30% H1, 70% H2 GPS company. If you actually take the mathematical averages over the last 5 years, excluding 2022, it's actually around 31 to 69 to be precise. Now we as a company, we've always tried to encourage The Street and all of you to focus on H1, H2, spring and fall, because that's the way the toy industry works. But we recognize that obviously we're a public company and we have to report quarterly. So let me give you more granularity on the quarterly side of Spin Master and then I'll do it for Melissa and Doug. Speaker 300:38:31Q1 is typically around 10% to 15% of Spin Master. Q2 is typically around 15% to 20%. And then you have Q3 at around 35% to 40% and Q4 at around 25% to 30%. That's typically the way the quarters break down. Melissa and Doug, on the other hand, is around 20% in H1 and 80% in H2. Speaker 300:38:56And the way the quarters break down in the second half of the year is around 40% in Q3 and around 40% in Q4. Just remember that Melissa and Doug is more domestic and has more e commerce than Spin Master, which is why they're more heavily weighted towards the Q4 than we are. It's very important to note that from an EBITDA perspective, most in fact, all of Melissa and Doug's EBITDA is generated in the second half of the year due to the issues with operating leverage. Now if you look at Spin Master from an EBITDA perspective, in Q3, we typically make about 30% or even more EBITDA margins because we're shipping in large volumes in Q3, but we're not spending any dollars on marketing because that's when what's not consumers are not actually shopping actively at that time. So in Q4, we actually have lower volume, but all of our marketing dollars and so we typically have lower EBITDA margins in Q4, roughly mid single digits to high single digits. Speaker 300:40:04So that's the way that the seasonality in EBITDA typically breaks down by quarter. There are 2 nuances that I just want to call out to you. Firstly, in Q2 of last year, we shipped about $25,000,000 to $30,000,000 of product for the second PAW movie, which is not going to anniversary this year. So that's something for you to keep in mind in your models. And also in 2023, keep in mind, we had about a $15,000,000 to $16,000,000 EBITDA bump as a result of the PAW movie 2, which again is not going to anniversary. Speaker 300:40:38So if you actually look at 2023 EBITDA margins for the year, they were actually 21.3 percent excluding the 2nd porn movie. The final point that I will make on seasonality relates to SG and A. You saw our SG and A numbers in Q1 are extremely high because of deleveraging. But if you actually look at the year, typically, SG and A comes in at around 38%. Adjusted SG and A comes in at around 38% of revenue. Speaker 300:41:08So if you put that all together, Brian, you and all the other analysts hopefully will be able to refine your models to make sure everything looks reasonable on a quarterly basis. Be down Speaker 400:41:19again in Q2 because of Melissa and Doug and we're going to be down again in Q2 because of Melissa and Doug and then up in Q3 and Q4. Is that correct? Speaker 300:41:34Yes, that's right. Speaker 400:41:35Okay. And then I guess when I look at the PAW Patrol $15,000,000 makeup that needs to be achieved to get to flat year over year. I assume that the driver of this are the entry into the value chain, the ramp of the or intro of the digital games. You've got new licenses and IP. Am I thinking those are the drivers correctly? Speaker 400:41:58And then can you just update us on the progress on timing of entry into the value segment? And maybe just elaborate on the pre on the active monthly users? I didn't catch that. Speaker 300:42:09Okay. So there was a lot in there, Brian. I think you've accurately captured the growth drivers. I think both Max and I went through the growth drivers. I think there was a question in there about TOCALIFE World. Speaker 300:42:22Did I hear that correctly at the end? Speaker 400:42:24Yes. I just I want to understand 2 things. When are you going to progress when do you have timing of entry into the value segment? Where does that stand? And then the active monthly users, I didn't quite understand the reprieve with respect to active monthly users on digital games. Speaker 300:42:40So the timing of entry into the value channel is the second half of the year, and it's relatively modest this year. And then on Toka Life World, what we called out was a reduction in the number of monthly active users, which drove a reduction in in app purchases for the month. Just remember, it's a free to play game and then we have to convert those players to revenue. So we saw a slightly lower conversion in Q1, but those players that did convert actually spent more. So we're going to be focusing on driving that conversion ratio up and spend ratio up in the balance of the year. Speaker 300:43:16Max, do you want to just add anything to that? Speaker 200:43:19I think beyond that, I think if you look beyond this year, we're also launching Toca Boca Days, which is really an important complement to Toca Boca Life. And that happens basically as we described in the script, starting now, where we're live into markets and through the summer and into the fall for all the big global markets. So I think that's going to be a huge complement. Outside of that, Brian, I think the team is actually instituting several new things with content and new features for the balance of the year. So that's basically Toka Life World. Speaker 200:43:53And you also had comments about Paul, if I'm not mistaken, that you want us to address. And you talked about the how are we going to make up the revenue that we're not getting from the movie across other parts of the line. I believe that's what you asked and I just want to make sure I pause to understand. Is that the question? Speaker 400:44:11Yes, that's exactly right, Max. Thank you. Speaker 300:44:13Yes. Speaker 200:44:13And so and I think there's a number of things you should take into account. Number 1, a year ago, we had ruble successfully launched in the U. S. And we didn't have ruble internationally. So this year, we're going to have ruble basically be a big driver outside of the U. Speaker 200:44:27S. And that's an important complement. 2nd, if you look beyond infant preschool, we also have an important part of our innovation kicking in and for all of us, innovation in 2024 is going to contribute 3 times what it contributed in 2023. And if you look at the consumption in Q1 in 2024 and you look at our consumption in 2023 and you see our glide path to achieving consumption objectives for the year, we're not in a very different place. We typically get a lot of our consumption upswings in the back half behind innovation. Speaker 200:45:07Because we have more new innovation in the pipeline for 2024 and there's great receptivity and commitment by customers to execute that, we feel very confident that we will be able to overcome what you just described would be a PAW base period revenue. Speaker 400:45:24Okay. I appreciate all the color. Thank you very much and good luck. Speaker 300:45:29Thank you. Thanks, Brian. Operator00:45:34Your next question comes from the line of Martin Landry from Stifel. Your line is now open. Speaker 500:45:41Hi. Good morning, guys. Good morning. I want to just follow-up on the last comment that you provided, Max. Did I hear you correctly that when you said that Innovations is going to have a 3x contribution to revenues versus 2023. Speaker 500:46:01Is that correct? Speaker 200:46:02Yes. We're very excited about the fall 2024 innovation pipeline. We have a number of things that we're basically bringing incremental to what we would have had last year. And let's not forget, we had a really successful BT launch in 2023 and we're anniversarying that with 2 new executions on Bitsea to extend that success and it's been well received and so we feel good about that. Hatchimals is really net new incremental and the opportunity to basically capitalize on that is huge. Speaker 200:46:33And we're feeling very strongly about it, great receptivity. 3rd, we have puny rooms. You might remember from the LA showroom, that's net new incremental. We didn't have that last year. Beyond that, we have great innovation on Monster Jam. Speaker 200:46:50We have great innovation on PAW Patrol beyond obviously, Robo expanded into white space in Europe. And let's not forget one more thing we didn't have last year and is brewing to be a very big contributor to both the Spin Master portfolio and Melissa and Doug portfolio, which is Ms. Rachel. So Ms. Rachel is brewing to be a very big component of our revenue in the fall and we're super excited. Speaker 200:47:16So we have confidence in what we need to build to between now and then. So we have support in terms of marketing and sales support and promotional support and PR support to bring this to life. Speaker 500:47:31Okay. So just to clarify, when you talk about innovation, it's not a new brand, not a new it's just new toys within an existing brand. Is that fair? Speaker 200:47:47It's both, right? So if you think about Hatchimals, Hatchimals is currently a brand, but the Big Egg has not been a component of the Hatchimals line for a long time. We rested it and we're coming back with a big bang. So that's going to be net new on that line. As opposed to Rachel, which is complete white space, there's nothing in the base we're launching in basically from scratch or puny ruins, there's nothing in the base we're launching from scratch, brand new brand. Speaker 200:48:17And so I think it's a combination of both. Speaker 500:48:21Okay. And lastly, just to touch quickly on Melissa and Doug, how is the inventory quality both at retail and within your warehouses? Is there a cleanup that's needed to do to clear some of the maybe the low selling SKUs? Or is the inventory in good shape? So Speaker 300:48:50Martin, the inventory is clean. There's no concerns on the inventory. Really what we've been dealing with, I think, through the last period of time, both pre acquisition and post acquisition was that I think the inventory levels were high. But because the line is recurring in nature, it's simply a question of working it down. And I think their numbers have come down. Speaker 300:49:13If you actually ignore the fair market value adjustment, their Q1 inventory was significantly down compared to the same period last year. And we expect by the end of the year, it will be down much further. So we're not concerned about Melissa and DIG inventory. I think it's in good shape, both in our warehouses and at retail, as is ours at retail as well. Our inventory is down year over year. Speaker 300:49:37Spin Master inventory is down year over year in our warehouses and at retail quite significantly. So I think from a retail perspective, we're actually in good shape overall with inventory. Speaker 200:49:50Okay. Thank you very much, Bessilab. Thank you. Operator00:49:57Your next question comes from the line of Jamie Katz from Morningstar. Your line is now open. Speaker 600:50:03Hi. Thanks for taking my question. I'd be curious to hear what progress you guys are making in maybe expanding Melissa and Doug abroad given it's primarily U. S. Focus and the ability to grow to a much wider distribution base? Speaker 200:50:23Jamie, good morning. We're making progress. I would tell you that the progress broadly is happening in 2025, particularly in Europe and other markets around the world. However, we've already begun that expansion in Canada and Mexico. So in North America, we prioritize taking over the business in Canada and taking over the business in Mexico, which was actually being done through distributors. Speaker 200:50:48And we have 2 really strong teams in both countries. And that's going to happen basically starting now. And so basically, we're about to ship within 30 days into our 1st major customer in Canada. So we're excited about that. And that happens in the next 2, 3 months in Mexico as well. Speaker 200:51:04So we're getting going. And so at the same time, we're getting the line curated and ready to go and expand more broadly beyond North America. Speaker 300:51:15And just to add to that sorry, Max, just to add one point. As Max described the conversion of distributors to our own in house selling, we do get the volume pickup and the margin pickup as a result of that as well. So that's another reason behind the confidence in our earlier reaffirmation of our guidance for 2024. Speaker 600:51:37That's helpful. I don't know that it's been discussed much, but the efficiency of the marketing and promotional programs, I mean, the shift to value would probably indicate that there may be more handholding to facilitate conversion from consumers. So has there been a step up in the marketing and promotional like ROI that you guys are seeing or are you finding different ways to connect with consumers than in the past? Speaker 200:52:06Are you speaking to Melissa and Doug specifically or you're speaking broadly? I just want to make sure I answer your question well. Speaker 300:52:12Both. Speaker 200:52:13Okay. Excellent. So let me start with Toy. I think in Toy you would have seen in our numbers that we did increase our marketing investments in Q1 and we were able to get the return on that where we spent that and it's basically a reflection of our consumption. And in some places, we actually got really great consumption results for that marketing investment. Speaker 200:52:33In Melissa and Doug specifically, Jamie, we only began to increase the investments digitally towards the end of the quarter and more broadly beyond digitally starting in Q2. So we're very, very steeped in that process and we are ROI driven as you can imagine. So we will be watching that very closely. Beyond toy, we've invested marketing in our franchises, specifically Unicorn Academy, Vida the Vet and of course PAW Patrol. And then beyond that, and then on that is really about audience and building our audience and basically deepening love with our audience for those franchises. Speaker 200:53:12Beyond that on digital games, we also increased marketing in Q1. And that was really more on getting subscribers. And we've been testing and testing weekly. And the return on ad spend in our subscription business is being very, very healthy, reason for which we have in fact increased even more. And so Mark alluded to Picnic and Po Academy and those two businesses are doing really well for us. Speaker 200:53:40And quite a bit of that is beyond besides the fact that it is great content for children and we have a unique opportunity to own that space. Our paid user acquisition performance marketing machine is really working well. Speaker 700:53:55Great. Thank you. Operator00:54:01Your next question comes from the line of Luke Hannan from Canaccord Genuity. Your line is now open. Speaker 800:54:08Thanks and good morning. I'll start with Melissa and Doug. You've had a public competitor of yours come out and announced that they're going to be pushing a little bit more deeply into the wood and toys business. So just curious if you can disclose roughly what percentage of Melissa and Doug's revenues are attributable to wood and toys in particular? Speaker 300:54:30Well, most of Millicent Dike's business is wood toys, right? So the vast majority of their line represents wood and toys, Luke. That's the basic components of their business. There are some elements that are not wood like Stick A Wow and a few other areas. I don't have the exact percentage off the top of my head, but the majority of Melissa and Doug is ordered in toys. Speaker 200:54:52Yes. Luke, good morning and great questions. So I think we're super excited about the Melissa and Doug investments we're making on the brand. It was one of the key items we discovered had to get done and I think the team is now beginning to do that. 2nd, we're really excited about us bringing innovation to Melissa and Doug and we talked about sticker wow, but beyond sticker wow, there's 2 or 3 items that are going to be huge. Speaker 200:55:15And I made reference to the fact that when we did put marketing behind the line, in particular around Easter, we saw tremendous return on that investment, as I alluded to in our consumption numbers, growing over 50%. So the launch of the competitive wooden line that you allude to is just starting. And the really wonderful news is where it started and the week that it started, our brand grew 40%. So we welcome the attention to the category. Melissa and Doug has been a leader in wood for so long and he's so trusted and the quality of our brand is so beloved that this heirloom piece is going to basically take us to actually do what we need to do, which is to love the brand, invest in the brand and continue to grow the brand. Speaker 800:56:04Okay. It's great to hear. And then shifting to the digital games business. I know it's extremely, extremely early days. I don't even think it's been in the market for a week yet. Speaker 800:56:14But what has been the initial reception Toka Days in Australia and New Zealand? Are you seeing that conversion of players from Toka Life World into Toka Days? Or right now, is it just more of an influx of those that new player base, those aged 5 to 8? And then also maybe why starting with those markets first rather than some other markets? Speaker 200:56:37Yes. So I'm so glad that you asked about tocades because I remember sitting not far from you when we were actually showcasing this. And if you would see it now, I encourage you to go do it. It's actually progressed even more. So it's very exciting. Speaker 200:56:53So to get to the punch line, we started in Australia, New Zealand and subsequently are going beyond that, because these are test market, control markets where we actually get a ton of learning and we basically get a lot of return on the learning that we get very much real life. There are markets in which people are also very vocal. Our team has a lot of great testing experience. And so we gain a lot from just going there. We also gain early testing knowledge on technology or tech and obviously app stability. Speaker 200:57:26And so there's a lot to be gained from going to those markets first. And so far, the reception has been terrific. It's so early that I want to be cautious to not overstep, but it's doing Speaker 300:57:39really well. Speaker 800:57:40Great. Last one for me and then I'll pass the line. Eventually, we are going to get to a point here where there's a lot more within the digital game segment in terms of titles and properties that are representing, excuse me, a good chunk of revenue and EBITDA. Should we think about or are you thinking about enhancing the disclosure there so that we can get a better sense of the revenue by title, EBITDA by title and maybe some other metrics such as ARPU, for example? Speaker 300:58:08So Luke, it's a good question. We are thinking about how to best describe digital games because the metrics are very different, for example, to what you would see in toy or entertainment. In fact, all three of our businesses, we have expanded disclosure recently, as you know, with the breakdown of P and Ls for each creative center, which I think has given the investment community much deeper insight into the business. But yes, to answer your question, we are looking at ways to describe digital games with different metrics and enhanced metrics to help you understand the business better and hopefully drive shareholder value through that because as a company, we don't necessarily feel that our digital games business gets the credit that it deserves in terms of our portfolio. I Speaker 200:58:55think, Luke, just to add to Mark's comments, I want you to please rest assured before we get to disclosure, know that we look at the business very differently between our subscription business and obviously the subscription, the ROAS, the churn and the LTV as we model the business going forward and are very, very focused on that. And so when it gets to the app model and specifically whether it would be Rubik's Match or Toca Boca Life or Toca Boca Days. We're getting into D1, D3, D7, FETUI. I mean, we have significant depth of how we are treating and basically keeping up with these business KPIs and are measuring by title and have great depth of information by title. So anyway, so far things are progressing. Speaker 800:59:48Okay. Thank you very much. Operator00:59:55Your next question comes from the line of John Zamparo from CIBC. Your line is now open. Speaker 901:00:01Thank you very much. A couple of housekeeping questions. First, I wonder if you can quantify the shift in Easter timing either on revenue or gross product sales for Spin Speaker 301:00:11Master? It was 1 week, John. The 1 week shifted, not the whole Easter period. It wasn't a material shift. I don't have a specific number to quote, but I don't think overall it was material, but it did actually have an impact on POS as we described. Speaker 301:00:31We can get back to you later with more granular answer, but in the overall scheme of things, not very significant. Speaker 201:00:36On the POS, John, just so that you have that now and then Mark can follow-up, I think it's basically it's the impact is an industry that shows growth versus without Easter and that shift, an industry that declining both dollars and units, just to be clear. And that's a decline of in the low single digit number. Speaker 901:00:57Okay. That's helpful. Thank you. On Melissa and Doug, can you say how revenue and EBITDA look relative to last year? I know it's not a seasonally relevant quarter or maybe asked another way, was the POS number in Q1 reflective of their reported numbers? Speaker 301:01:15Yes. So John, obviously, we don't we're not providing comparable numbers for Melissa and Doug, but just given the acquisition timing. But the reality is that it's relatively consistent with prior years. In fact, Q1 was a little bit better than this year than it was in prior years. As I said to you, Melissa and Doug will be EBITDA negative in H1 and make all of the EBITDA in H2 in line with their 40% Q3 and 40% Q4 revenue. Speaker 301:01:50So really the period to focus on for Melissa and Doug will be the second half of the year. Speaker 901:01:58Okay. And then on capital allocation, you recently filed a mixed shelf. I wonder if there's anything that's worth calling out on this? Speaker 301:02:06No. This was a renewal of a previously filed shelf that had expired. It's a 2 year window and we simply renewed the existing shelf or the pre existing shelf for a further 2 years, but nothing specific to call out on that. Speaker 901:02:25Understood. And then last one sticking with capital allocation. You doubled the dividend, you're using the buyback program. I wonder whether an SIB is a topic of discussion at the board level? Speaker 301:02:36Well, the Board reflects on capital allocation every quarter. I think we've been pretty specific in the script today and the plans that we've articulated around the buyback program. We have around 3,000,000 shares authorized for 2024. We've already executed about 600,000 of that and we'll continue to execute on the balance for 2024. And we increased the dividend or doubled the dividend, which I think is reflective of the Board's desire to consider total shareholder return as part of the equation of Spin Master. Speaker 301:03:11And so I think they'll continue to do that. We're not going to comment specifically on an SIB or anything else, but rest assured that it's something that the board reflects on a quarterly basis. Speaker 901:03:24Okay. That's helpful. I'll leave it there. Thank you. Speaker 301:03:27Thanks, John. Operator01:03:30Your next question comes from the line of Kiley Koo from Jefferies. Your line is now open. Speaker 701:03:38Hey, thank you guys so much for taking my question. I'll kind of keep it brief. But you mentioned cautious optimism from your retail partners. I was just wondering if you could expand on that. Are they kind of expecting better demand than previously thought, earlier purchases? Speaker 701:03:53Just any color on that would be helpful. Thank you. Speaker 201:03:56Yes. I think it's really more looking to, if you think about Easter and the sell through and obviously the fact that inventory levels are in a better place and ultimately a return to discretionary in cycles. And so and the fact that they want to make sure that their toy aisles are growing is what actually leads me to make that statement and it's really kind of coming from them. They're also excited about the new level of innovation we're bringing. And so when I say cautious retail group has reacted incredibly positive to our lineup. Speaker 201:04:35And so last but not least, I think there's obviously, in Europe, also the same level of optimism for the line. So it's not just a U. S. 3 customer sentiment, it's beyond that. And so that's basically what constitute our comment. Operator01:05:03Your next question comes from the line of Drew McReynolds from RBC. Your line is now open. Speaker 901:05:10Yes. Thanks very much. Good morning. Just I guess three housekeeping for me and maybe over to you Mark. Not to get too granular here, but in the spirit of Brian's question earlier, for Q2, Melissa and Doug, you commented on negative EBITDA for the first half. Speaker 901:05:28Presumably, that's another negative adjusted EBITDA for Q2 is the question. 2nd, just on the cadence of cost synergies, we saw a little bit come in here in Q1 of the in period $6,000,000 you expect to realize. Just wondering how that is going to play out for the rest of the year. And then just finally, big picture on the dividend policy. So great to see the doubling of the dividend. Speaker 901:05:54Just wondering, is there kind of levels of payout ratio that the Board kind of contemplates when setting the dividend? Thank you. Speaker 301:06:06Hi, Drew, and welcome, I think, to your first official call covering Spin Master. So to answer your question around Melissa and Doug, in terms of their seasonality, I said to you around 20% of their volume in H1 around roughly even split. So there will be an adjusted EBITDA loss for Melissa and Doug for the Q2. Also just wanted to reiterate what I said earlier in case everyone didn't pick it up around the PAW Patrol movie shipments that we had in the Q2. So I just want to which won't anniversary obviously, so just keep that in mind. Speaker 301:06:44The seasonality of the synergies, we picked up some very minor cost synergies in Q1. We're starting to accelerate that program. We have a new leader who's looking after the integration and very heavily focused on that. And so we'll start to see momentum building in Q2 into the second half of the year on the realization of the cost synergies in particular and some of the revenue synergies that Max referenced earlier. But a big chunk of those cost synergies, Drew, will actually happen in Q3 and Q4, some of which are volume specific, but are also now based on the programs that we're actually implementing and getting some momentum behind. Speaker 301:07:26The third question you asked was around the dividend. I think what we try to do with the dividend, what the board considered was really to look at a reasonable dividend yield. If you looked at the previous dividend, it was around 70 basis point, 80 basis point dividend yield and we try to get it to around 1.5% at this point based on the current share price. Obviously, that will change as the price changes, but we felt that that was a comfortable place to be at from both the yield and a dividend payout ratio perspective for 2024, taking into account our M and A innovation, allocation of cash as well as the buyback program as well as debt reduction. So it was an equation to keep all 4 in a reasonable balance and that's where we landed. Speaker 901:08:20Got it, Mark. Thanks very much. That's helpful. Speaker 301:08:22Okay. Well, I think just from a time perspective, we're going to have to make that the last question. So let me just say, we look forward to seeing you on the 31st July, which is the date of our 2nd quarter earnings call. And we're going to wrap it up at that point. Thanks, operator. Operator01:08:43Thank you. Ladies and gentlemen, this concludesRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallSpin Master Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report Spin Master Earnings HeadlinesRoyal Bank of Canada Cuts Spin Master (TSE:TOY) Price Target to C$31.00May 4 at 2:16 AM | americanbankingnews.comNational Bank Financial Weighs in on Spin Master Q2 EarningsMay 3 at 2:01 AM | americanbankingnews.com🥾⛏️👷♂️ What I Learned From Numerous Mine Visits...Twenty years ago, I made a decision that changed my life. Instead of sitting behind a desk analyzing mining stocks like most gold analyst CFAs, I decided to visit every significant gold mine I could. 10+ site visits later, I've confirmed my theory... That the most profitable mines share three specific characteristics. When you find all three together, the returns can be staggering.May 4, 2025 | Golden Portfolio (Ad)Spin Master Q2 EPS Forecast Cut by National Bank FinancialMay 3 at 1:29 AM | americanbankingnews.comToronto Stocks Mixed; Spin Master Shares Spiral on Withdrawn 2025 GuidanceMay 2 at 6:02 PM | marketwatch.comSpin Master seeking to mitigate tariff impacts as it withdraws 2025 outlookMay 2 at 12:50 PM | msn.comSee More Spin Master Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Spin Master? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Spin Master and other key companies, straight to your email. Email Address About Spin MasterSpin Master (TSE:TOY), a children's entertainment company, engages in the creation, design, manufacture, licensing, and marketing of various toys, entertainment products, and digital games in North America, Europe, and internationally. The Toys segment's product categories include activities, games and puzzles, and plush; wheels and action; outdoor; and preschool, dolls, and interactive products. The Entertainment segment engages in the creation and production of multi-platform content, stories, and characters in original shows, short-form series, and films. The Digital Games segment is involved in the development of digital games distributed via third-party platform providers. 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There are 10 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the Spin Master First Quarter 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, May 8, 2024. I would now like to turn the conference over to Sofia Bisoukis. Operator00:00:27Please go ahead. Speaker 100:00:29Thank you, John, and good morning. Welcome to Spin Master's financial results conference call for the Q1 2024. I am joined this morning by Max Rangel, Spin Master's Global President and CEO and Mark Siegel, Spin Master's Chief Financial Officer. For your convenience, the press release, MD and A and interim consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR Plus. 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 100:01:12Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that certain estimates or assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expected or implied by the forward looking statements. As a result, Spin Master cannot guarantee that any forward looking statements will materialize and you are cautioned not to place undue reliance on these forward looking statements. Except as may be required by law, Spin Master has no obligation to update or revise any forward statements whether because of new information, future events or otherwise. Speaker 100:01:53For additional info on these assumptions and risks, please consult our cautionary statements regarding forward looking information in our earnings release dated May 7, 2024. Please note that Spin Master reports in U. S. Dollars and all dollar amounts to be expressed today are in U. S. Speaker 100:02:09Currency unless otherwise noted. I would now like to turn the call over to Max. Speaker 200:02:15Good morning, everyone. Before we get into details, I wanted to briefly reflect on the tremendous growth and evolution of Speedmaster as we celebrate our 30th anniversary in May. It's quite remarkable how we've grown from our beginnings an innovative Canadian start up toy manufacturer to become a global fully imagined children's entertainment company. We've continued to build on our legacy as a disruptor in the toy category with a long track record of breakthrough items such as Bakugan, Hatchimals and Bitsy and have expanded our robust portfolio through licensing partnerships, international growth and close to 30 acquisitions. Our entertainment creative center has developed a diverse slate of captivating multi platform content for kids around the world and our digital games creative center is expanding our mobile player ecosystem. Speaker 200:03:07Our strategy to reimagine everyday play is positioning us to where kids play and engage. Our Q1 performance reflected an increase in total revenue of 16.5%, primarily due to the addition of Melissa and Doug and their trusted portfolio of early childhood play offerings, which are highly complementary to our existing business. Excluding Melissa and Doug, revenue was up 1.6%. Toy gross product sales were $264,000,000 an increase of 22.1%. Most of these increase was from Melissa and Doug. Speaker 200:03:46Excluding MND, toy gross product sales were slightly up. We continue to see global macroeconomic forces at play which are putting pressure on consumers' discretionary spending. We expect this environment will continue throughout 2024 as consumers manage through the impact of high interest rates and inflation. With rising prices and basics like shelter, food and energy, consumers are feeling the pinch. As a result, demand and dollar spend for many general merchandise categories will be under pressure in 2024 according to Sercana. Speaker 200:04:24The toy category experienced this pressure from a POS perspective in Q1. Total toy industry sales increased 2.8% globally, while average selling prices declined 1.9% versus our Canada. It's important to note that the increase in POS is in large part due to the timing of Easter which fell in Q1 in 2024 compared to Q2 last year. Additionally, much of the growth in total in toy POS was driven by 1 category, construction and building sets, a category in which we do not participate. According to Sercana, our global Q1 POS increased 21% including Melissa and Doug. Speaker 200:05:11Excluding Melissa and Doug, our global Q1 POS declined 3%. Our U. S. Was up 28% with Melissa and Doug and down 4% excluding Melissa and Doug. We grew market share in 6 of the 11 global markets strike by Serkana including France, Germany, Italy, Mexico, the Netherlands and Spain. Speaker 200:05:36We grew share in 4 of 11 Zircona product supercategories including arts and craft, youth electronics, plush and vehicles and maintain our share in games and puzzles. Global and U. S. POS for the infant toddler and preschool category in Q1 was down 3% 4% respectively for Surcana. Spin Master's POS in Q1 was down in line with the category. Speaker 200:06:05With the acquisition of Melissa and Doug, we became the number one manufacturer in the infant toddler and preschool category in Q1 globally. Speedmaster had 4 of the top 10 items in the U. S. Preschool toy segment in Q1 per Surcana including the number one item, the PAW Patrol Jungle Pups vehicle assortment demonstrating our commitment to innovation. Globally, PAW Patrol POS declined by 3.7% and in the U. Speaker 200:06:35S. 5.5%. International POS for PAW Patrol declined at 1.5%. Gabby's Dollhouse was the number 9 property globally the infant toddler preschool category in Q1. For Sarcana and international POS was up 44%. Speaker 200:06:56Universal DreamWorks Animation just announced plans for the 1st feature film for Gabby's Dollhouse set to debut September 2025. The TV series has been among the top 10 most watched shows on Netflix in 57 countries. We're further expanding our preschool portfolio later in 2024 and into 2025. Our licensed toy line with YouTube sensation, Ms. Rachel is set to launch in the fall. Speaker 200:07:23Ms. Rachel has an uncanny ability to connect with babies, children and parents and retailers are eagerly awaiting our new toy line. Our design teams both from Swimmaster and Melissa and Doug have been working closely with Rachel to deliver hands on play for her avid fan base of 50,000,000 unique monthly viewers. We are strategically positioned as a leader in preschool and have further deepened our presence in this important toy category with our acquisition of Melissa and Doug. The integration of Melissa and Doug is well underway and we are focused on revenue and cost synergy opportunities. Speaker 200:07:59With the trust of multiple generations of parents coupled with a leading e commerce platform, we believe Melissa and Doug has strong potential for global growth. MND POS in the U. S. Was down in Q1 slightly more than the category average, but improved sequentially in Q1 to finish in line with the category. During Easter, we saw Melissa and Doug POS performance ahead of the industry. Speaker 200:08:25We are launching some exciting innovation at Melissa and Duck this fall. Sticker Wow! Offers a new way to play with stickers through collectible and refillable sticker stampers, which help build fine motor and problem solving skills as well as drive creativity and character play. Sticker Wow launched in 2023 and makes Zerkana's list of top 10 new items in Q1. More exciting innovation arise in the fall with the new EasyFold Play Gym and the innovative Blockables line, a wood based construction toy for young kids that is positioned in the construction building sets category. Speaker 200:09:05In Dolson and Interactive, we have a host of new introductions leading into the fall. There is big excitement at retail about for Hatchimals, which some of you were able to see in our LA showroom in January. We're working with our retail partners to launch its newest iteration on October 4, which we have declared Hatchimals Day. The toy line for our Netflix original series Unicorn Academy will hit shelves this fall. The collection includes fashion dolls, unicorns and plush which mirror the diversity and magic of the characters from the series. Speaker 200:09:42We have regularly proven our ability to introduce new breakthrough items in TOEI. Last year, Bitsy was an innovative success story that allow us to gain 6.5 share points in the youth electronics category for Sherkana. We are now introducing 2 new iterations of Bitsea this summer, including a magical's Bitsy and a Disney Bitsy featuring some of the most iconic characters from the Disney's extensive library. One of the Q1 highlights from a POS perspective is Monster Jam, which is off to a stellar start in 2024 with POS up 32%. The winning combination of live action shows combined with real to live toys across a wide range of price points has helped catapult retail sales. Speaker 200:10:29We have more in store for the fall with a new line of Marvel Monster Trucks featuring popular superheroes including Spider Man, new RC vehicles and playsets all geared to bring the action of the arena into the home. Within games and puzzles, plans for Rubik's 50th anniversary are ramping up and the brand is showing no signs of slowing down. The cube has become an integral part of pop culture influencing art, design, math and science as well as enthralling millions of people with the goal of solving the cube. Our goal this year is to inspire the next generation of cube solvers with our Make Your Move global campaign. To celebrate the anniversary, we have many new product launches and over 25 collaborations celebrating our iconic status, some of which were introduced in Q1. Speaker 200:11:23According to Zircona, these helped drive our Q1 POS up 16%. I want to briefly address retail price points. We have adjusted our toy portfolio pricing to lower the average price point by 9% for 2024. Importantly, we have invested in increasing our product offering tailored to the value channel, which will launch in H2. Looking forward for the balance of 2024 and into 2025, our focus in toy is building on the 23 base. Speaker 200:11:57Our top retailers in the U. S. Over the last month have begun to express cautious optimism for the second half. We've also recently had a positive response to our spring 2025 line preview with encouraging commentary on a multitude of our brands across vehicles, games and preschool. 2025 is shaping up well. Speaker 200:12:21Turning to entertainment, our revenue increased by 16.5%. Total gross viewing minutes for Paul Universe for kids ages 2 to 5 were up 63% in Q1. With more kids viewing content on YouTube, we have developed a strategic alliance with Moonbuck Entertainment to create complementary content for the platform, which is deepening our engagement with preschoolers. The first shorts debuted last weekend and have already exceeded our historical view time for new content on our channels in just a few days. With production on our 11th season underway, we are also working on the 3rd pause feature film set to hit theaters in July 2026. Speaker 200:13:06We are in production of Rubble and Crew Season 2 and have Greenlit Season 3. We are seeing some early success in Europe with both the series and the toy line. Unicorn Academy, our fantasy adventure animated series launching Netflix last November and quickly earned its place as a number one kid show globally for the opening weekend. The brand has retained its awareness and the show is performing well measuring 51,000,000 gross viewing minutes in Q1. We are excited to share that the new content will drop on Netflix this summer in advance of the toy launch in the fall. Speaker 200:13:42The musicality of the series lends itself to further distribution and promotional opportunities for the franchise And we are partnering with Kidz Bop for their summer concert series which will integrate Unicorn Academy original songs into the show. Our licensing and merchandising programs that extend the brand into adjacent consumer product categories are building momentum with partnerships across stationery, fashion, personal care and publishing. Our newest animated preschool series Vida de Vet continues to build audience and momentum and by summer we will have launched Vida with the premium broadcasters in over 20 countries. Similar to PAW, we are partnering with Moonbuck Entertainment to create complementary short form content for YouTube giving preschoolers the opportunity to delve deeper Vida's world. We have also greenlit a second season for distribution in 2025. Speaker 200:14:37Turning to our digital games creative center, our subscription business is a key focus and continues to grow. At the end of Q1, we had 430,000 subscribers, up 8% from 399,000 in December. Of the 430,000 subscribers, Picnic and SEGA Mini comprised 374,000 and PAW Patrol Academy 56,000. We are continuing to add content into the picnic bundle and in late May, Mactango from Originator Studios will be launched. More content drives higher consumer value and we are seeing higher monthly recurring revenue as well as a significant increase in cross installs from parents who see value in the bundle compared to standalone apps. Speaker 200:15:24We are pleased with the growth in PAW Patrol Academy subscribers, which have climbed 63% since December. Monthly active users were down 4.3% in Toka Live World, but downloads continue to increase showing higher consumer engagement. We are investing in mix of initiatives including more content and for the second half, we will be introducing exciting new features into the game. Last year, we initiated co branded digital items within Toka Life World with Hello Kitty, followed later by SpongeBob SquarePants. These co labs tap into the brands that resonate within our player audience and drive revenue and as fans purchase items to further customize their worlds within the game. Speaker 200:16:09We re released the Hello Kitty Furniture Pack in January and drove over $900,000 revenue in 7 days. This summer, we will release our first ever music collab within the game with a global team focused superstar, which is on trend for our audience who love to put music with their stories. We are looking forward to the launch of Toca Boca Days, our first social multiplayer game that will expand the player base of the Toca universe. Toca Boca Days represents a significant evolution for the brand and broadens the core to Toca Boca experience with multiplayer capabilities, enabling players to safely create, interact and collaborate in an imaginative setting. Days is now live in Australia and New Zealand and we are seeing healthy organic installs further demonstrating the strength of the brand. Speaker 200:17:00In the coming months, we plan to release these in Canada, Sweden and the UK as well as Germany, scaling to global markets in the fall. Our team in Stockholm is also focusing on Rubik's Match, our new digital game that will leverage the global awareness of the cube and entice casual mobile gamers with a fresh take on the match 3 game genre. Our latest soft launch data shows strong retention and app stability data and Rubik's Match is on track to release globally at the end of June to coincide with the Rubik's 50th anniversary. In 2025, we will release our mobile digital game for Unicorn Academy filled with action and adventure that brings the magic and allure of Unicorn Island into the digital world. I was recently in Stockholm and was able to see progress on the game's development and ease out of this world. Speaker 200:17:52Our primary focus is to continue to drive growth across all three creative centers with a particular emphasis on ensuring that we integrate and achieve our growth goals for Melissa and Doug. Given the challenging economic environment we find ourselves operating in, we're also focused on driving operational efficiencies in every area of the business. Our financial framework is solid, we have a robust pipeline of innovation and we are evolving our offering and marketing plans to ensure our brands remain relevant and resonate with consumers. Finally, we continue to strengthen our enterprise capabilities to drive long term growth and value for our shareholders. With that, I will now turn it over to Mark. Speaker 300:18:34Thank you, Max, and good morning. We delivered 300 and $16,200,000 in revenue across all three creative centers, up 16.5% from 2023 and including $40,400,000 of revenue from Melissa and Doug. We delivered $18,600,000 in adjusted EBITDA an expected decline compared to last year because of the increased proportion of revenue contributed from the Toy Creator Center, the Melissa and Doug acquisition and the associated seasonality and profitability arising from the acquisition. Excluding Melissa and Doug, adjusted EBITDA was $27,800,000 slightly lower than last year. It's important to remember that Q1 is our seasonally lowest quarter from a toy revenue perspective, typically representing between 10% 15% of revenue, and this has an impact on operating leverage and profitability. Speaker 300:19:34Q1 gross profit decreased by $2,000,000 to $156,500,000 and gross margin declined to 49.5% from 58.4%, primarily due to toys and digital games, partially offset by entertainment. It is important to note that as a part of the acquisition of Melissa and Doug, we acquired $179,600,000 of inventory, of which $66,300,000 relates to a fair market value step up adjustment, representing the difference between inventory cost and its realizable value. This fair value adjustment is recognized as an expense in cost of sales as the inventory is sold. In Q1, dollars 20,600,000 of the inventory fair market value adjustment was recognized in toy cost of sales. As a result, we have introduced a new metric, adjusted gross profit, to exclude the effect of the fair value adjustment and which is more reflective of true operating performance. Speaker 300:20:42Adjusted gross profit increased by $18,600,000 to $177,100,000 Adjusted gross margin was 56% compared to 58.4%, down 2 40 basis points mainly due to market and customer mix and higher sales allowances. Excluding the fair value adjustment, the contribution of Melissa and Doug was accretive to TOEIC gross margin. Let me spend a few minutes on each creative center's financial performance. TOEIC gross product sales in Q1 were up 22.1%, including Melissa and Doug and were up 50 basis points without Melissa and Doug. As a reminder, with the acquisition of Melissa and Doug, we've adjusted our 2024 toy product categories into preschool, infants and toddler and plush, which includes Melissa and Doug, activities, games and puzzles and dolls and interactive, wheels in action and outdoor. Speaker 300:21:49Preschool infants and toddler and plush led growth in Q1, up 40,200,000 or 48.7 percent driven by Melissa and Doug, PAW Patrol and Gund. Activities, games and puzzles and dolls and interactive grew $17,900,000 or 28.6 percent led by Bitsy, Kinetic Sand and the games and puzzles portfolio. Wheels in Action declined $3,000,000 or 6.9 percent and Outdoor was down $7,300,000 Geographically, gross product sales growth was driven by North America with the inclusion of Melissa and Doug, who currently generate most of their sales in the U. S. Sales allowances in Q1 were 14.5 percent of toy gross product sales compared to 13.9%, slightly elevated from geographic market mix factors and greater promotional activity outside of the U. Speaker 300:22:46S. Adjusted EBITDA in Q1 for TOY was a loss of $32,500,000 or negative 14.4 percent compared to negative 11.5 percent. The decrease in adjusted EBITDA margin was from lower gross margin and higher SG and A from the inclusion of Melissa and Doug, which reduced operating leverage given the seasonal weighting towards the second half that M and D has relative to Spin Master. Melissa and Doug revenue is typically 20% H1, 80% H2 compared to 30% 70% for Spin Master. This deleveraging was partially reduced by lower selling expenses relative to toy revenue due to the lower proportion of Melissa and Doug sales from licensed brands. Speaker 300:23:39In Q1, entertainment revenue increased by $6,200,000 or 16.5 percent driven by higher revenue from the distribution of the PAW Patrol series and Movie. Although revenue increased, adjusted operating income decreased slightly to $29,100,000 from $29,900,000 and adjusted operating margin to 66.4% from 79.5%. The margin decline was due to mix with a higher proportion of lower margin distribution revenue compared to higher margin licensing and merchandising revenue. Digital games revenue declined slightly by $1,500,000 or 3.2 percent to $46,000,000 primarily due to lower in game purchases in Toca Life World, offset in part by higher subscription revenue for Picnic and PAW Patrol Academy. In Toka Life World, we saw a slight softening in short term retention, which has led to lower spend conversion, but revenue per player increased. Speaker 300:24:45We have actions underway to ensure we can better capitalize on continued strong player acquisition, as Max described. Digital Games adjusted operating margin was 33% from 40% from the slight decline in revenue and higher marketing costs for PAW Patrol Academy and Picnic. Turning back to consolidated results. Adjusted SG and A increased by $34,100,000 or 24.4 percent to $173,600,000 and as a percentage of revenue from 54.9 percent from 51.4 percent, primarily driven by the inclusion of Melissa and Doug, which resulted in deleveraging as I described earlier. Consolidated adjusted EBITDA for Q1 was 18,600,000 dollars compared to $30,600,000 Adjusted EBITDA margin was 5.9% compared to 11.3%. Speaker 300:25:45The decrease in adjusted EBITDA was primarily from the toy segment due to the inclusion of Melissa and Doug, which had a standalone adjusted EBITDA loss of $9,200,000 and digital games, partially offset by an increase in entertainment. Adjusted EBITDA excluding Millicent Doug was $27,800,000 compared to 30,600,000 dollars a decrease of $2,800,000 Adjusted EBITDA margin, excluding Melissa and Doug, decreased slightly to 10.1% compared to 11.3%. Looking at our balance sheet, inventory at the end of to be significantly lower by the end of 2024 as we flush the fair market value step up adjustment through the P and L and refine their purchasing patterns. Free cash flow in Q1 was negative $600,000 compared to negative 34,400,000 dollars an increase of $33,800,000 due to cash generated from working capital reductions. We ended Q1 with $205,500,000 in cash. Speaker 300:27:03As part of the Melissa and Doug transaction, we raised debt financing of 525,000,000 dollars of which $50,000,000 was repaid in Q1. The combined cash balance and unused credit facility gives us 464,000,000 dollars of available liquidity. From a capital allocation perspective, we will continue to focus on investments in innovation, content and M and A as well as share buybacks, dividends and debt reduction. Regarding M and A, we will focus on integrating Melissa and Doug and M and A activity in 2024 will be focused on digital games, entertainment and ventures. Following the approval of our NCIB for just over 2,940,000 shares on March 4, we've repurchased almost 600,000 shares to date at a cost of just under $15,000,000 of which roughly 333,000 shares were repurchased in Q1 and the balance since. Speaker 300:28:06Looking ahead, we are committed to the share buyback program and we'll continue to execute opportunistically. We believe that the NCIB represents a prudent use of our capital and is an attractive investment given our low multiple strong financial position and exciting prospects. We are also pleased to announce that we've raised our quarterly dividend by 100% from $0.06 per share to $0.12 per share. The decision to initiate a higher dividend reflects confidence in our performance and together with the NCIB reflects our commitment to drive shareholder value while maintaining a strong balance sheet for future growth. Since 2022, we've returned approximately $53,000,000 directly to shareholders through share buybacks and dividends. Speaker 300:29:00Turning to our 2024 outlook. We are maintaining the full year guidance given in March. As we mentioned in March, we expect the toy industry to face macroeconomic headwinds causing reduced consumer discretionary spending. We have an innovative, deep and value focused toy line. However, this is tempered by the reality that consumer behavior in 2024 is likely to continue to be pressured. Speaker 300:29:26For that reason, we are maintaining our previous guidance, which is that excluding Melissa and Doug, we expect 2024 toy gross product sales to be in line with 2023 and seasonality to be 28% to 32% in H1. Total revenue growth, excluding Melissa and Doug, is also expected to be in line with 2023 with lower revenue from entertainment offset by higher digital games revenue. We continue to expect sales allowances to be approximately 13% of gross product sales, higher than our typical range, mostly due to market and customer mix. We expect marketing costs to be between 9% 10% of revenue. We expect we continue to expect adjusted EBITDA margins to be in line with 2023, excluding Melissa and Doug. Speaker 300:30:19Our key focus in 2024 is the integration and realization of cost synergies and growth opportunities for Melissa and Doug. Our teams are working hard on integration activities and are focused on building a platform for revenue growth, international growth and cost synergies. Continue to expect Melissa and Doug gross product sales of between $420,000,000 $430,000,000 with revenue of 370,000,000 to $375,000,000 As a reminder, Melissa and Doug generates about 80% of its revenue in the second half. And as illustrated in Q1, this impact for cadence of operating leverage and quarterly profitability. For 2024, we continue to expect Melissa and Doug adjusted EBITDA margins to be approximately 19.5%. Speaker 300:31:12The consistent cash flow we've generated gives us confidence in our ability to implement share buybacks, increase our dividend, reduce debt and keep capacity for opportunistic M and A. We expect to end 2024 with a net debt to adjusted EBITDA ratio of approximately 0.8x, up slightly from 0.5 times discussed previously, as we intend to allocate more free cash to the NCIB. Cash interest paid will be around $25,000,000 in 2024, up slightly from the March estimate due to higher average leverage. Our consolidated effective tax rate estimate remains at approximately 26%. CapEx is expected to be just under 6% of revenue, slightly lower than previously guided. Speaker 300:31:59We now expect depreciation and amortization to be slightly lower than previously advised at 116,000,000 dollars versus $120,000,000 and for Melissa and Doug D and A to be $32,500,000 versus $30,000,000 Sofia will provide details by Creative Center and COGS versus other categories for you after the call. In conclusion, we remain well positioned strategically, financially and operationally. We also remain fully committed to continuing to execute our strategy for long term growth and shareholder value creation. That concludes our prepared remarks. We'll now be pleased to take questions. Speaker 300:32:42Operator, please open the line. Operator00:32:47Thank Your first question comes from the line of Brian Morrison from TD Cowen. Your line is Speaker 300:33:27now open. Operator00:33:29Your first question comes from the line of Brian Morrison. Your line is now open. Speaker 400:33:35Apologies. Good morning, Mark. Good morning, Max. Speaker 200:33:39Good morning, Brian. Speaker 400:33:41So I guess let's tackle Melissa and Doug head on here. While you guided us on a more pronounced seasonality for its revenue, it's pretty clear that consensus didn't bake in that that would lead to greater seasonal variance or deleveraging in the margin that I think really explains the Q1 shortfall to consensus. So Max, maybe you can start. I think it's important to unpack and provide confidence in the Melissa and Doug outlook and ability to hit your guidance, specifically after a few headwinds out of the gate here. And then Mark, I know it's small based on the annual guidance context, but can you provide clarity on how we should think about toy seasonality for both the incumbent operations in Melissa and Doug the remainder of the year? Speaker 400:34:19And how we should think about the quarterly margin cadence for the toy segment year over year as we progress through the year? Speaker 200:34:27Great question. So let me take the first part and then I'll turn it over to Mark. So here's what I would tell you about Melissa and Doug in the 1st 4 months of the year. We have seen sequential improvement month on month since January, culminating in Easter week in which we grew above the category and that's really important. And that was driven by the core business and new items like sticker wall, which I commented on. Speaker 200:34:55Now following Easter and maybe before I tell you about after Easter, I just want to give you some magnitude because I think it's really important. January consumption was down double digit, high double digit and that improved in February to 10% down. It improved in March to down 3.9% and in Easter week we were up almost 1%. So we saw the sequential improvement which is really important. Since Easter, we continue to see the brand performance at or above the category rate and that's also really important. Speaker 200:35:33And so we've caught up through the obviously 4 months and are in a better position. What's more encouraging and as we look to the balance of year is two things to note. The items that we began to once again get behind with support up to Easter that actually drove the performance where the items that we would expect to do really well given the evergreen nature and the saliency of these items. So the top 10 items in Melissa and Doug grew in Easter 50% plus versus year ago. And if you extend that to the 100 top items, they were up 36% versus last year. Speaker 200:36:14Some of the iconic evergreen items like Dose Sweep Mop, Burrup Bunny, Dentist Set, Scoop and Serve ice cream were the items that truly drove that performance and that's really important. On top of that, Sticker Wow! Was a top 10 item in Q1 for Surcana. And as we look to the balance of the year, in Q3, Q4, we have twice as much revenue from new items in Melissa and Doug than we did last year. So as we get into the second half from a consumption where the inventory is netted and where the inventories have gotten to and the plans for the second half, we have confidence we can deliver the guidance we've promised. Speaker 300:37:03Thanks, Max. So Brian, I'm going to pick up the second part of your question. And I'm sorry if I'm going to give you a long answer, but I want everyone to clearly understand all the points about seasonality, both for Spin Master and for Melissa and Doug from a top line and bottom line perspective because it's clear that we need to make sure that The Street understands this and we don't have another situation where we have a kind of a difference between where the Street is at and our expectations. So let me just reaffirm that Spin Master has always been a seasonal business. And with Melissa and Doug, even more so because Melissa and Doug is more heavily weighted towards the second half of the year than we are. Speaker 300:37:49So if you actually look at Spin Master for a second focusing on that, we've typically been around a 30% H1, 70% H2 GPS company. If you actually take the mathematical averages over the last 5 years, excluding 2022, it's actually around 31 to 69 to be precise. Now we as a company, we've always tried to encourage The Street and all of you to focus on H1, H2, spring and fall, because that's the way the toy industry works. But we recognize that obviously we're a public company and we have to report quarterly. So let me give you more granularity on the quarterly side of Spin Master and then I'll do it for Melissa and Doug. Speaker 300:38:31Q1 is typically around 10% to 15% of Spin Master. Q2 is typically around 15% to 20%. And then you have Q3 at around 35% to 40% and Q4 at around 25% to 30%. That's typically the way the quarters break down. Melissa and Doug, on the other hand, is around 20% in H1 and 80% in H2. Speaker 300:38:56And the way the quarters break down in the second half of the year is around 40% in Q3 and around 40% in Q4. Just remember that Melissa and Doug is more domestic and has more e commerce than Spin Master, which is why they're more heavily weighted towards the Q4 than we are. It's very important to note that from an EBITDA perspective, most in fact, all of Melissa and Doug's EBITDA is generated in the second half of the year due to the issues with operating leverage. Now if you look at Spin Master from an EBITDA perspective, in Q3, we typically make about 30% or even more EBITDA margins because we're shipping in large volumes in Q3, but we're not spending any dollars on marketing because that's when what's not consumers are not actually shopping actively at that time. So in Q4, we actually have lower volume, but all of our marketing dollars and so we typically have lower EBITDA margins in Q4, roughly mid single digits to high single digits. Speaker 300:40:04So that's the way that the seasonality in EBITDA typically breaks down by quarter. There are 2 nuances that I just want to call out to you. Firstly, in Q2 of last year, we shipped about $25,000,000 to $30,000,000 of product for the second PAW movie, which is not going to anniversary this year. So that's something for you to keep in mind in your models. And also in 2023, keep in mind, we had about a $15,000,000 to $16,000,000 EBITDA bump as a result of the PAW movie 2, which again is not going to anniversary. Speaker 300:40:38So if you actually look at 2023 EBITDA margins for the year, they were actually 21.3 percent excluding the 2nd porn movie. The final point that I will make on seasonality relates to SG and A. You saw our SG and A numbers in Q1 are extremely high because of deleveraging. But if you actually look at the year, typically, SG and A comes in at around 38%. Adjusted SG and A comes in at around 38% of revenue. Speaker 300:41:08So if you put that all together, Brian, you and all the other analysts hopefully will be able to refine your models to make sure everything looks reasonable on a quarterly basis. Be down Speaker 400:41:19again in Q2 because of Melissa and Doug and we're going to be down again in Q2 because of Melissa and Doug and then up in Q3 and Q4. Is that correct? Speaker 300:41:34Yes, that's right. Speaker 400:41:35Okay. And then I guess when I look at the PAW Patrol $15,000,000 makeup that needs to be achieved to get to flat year over year. I assume that the driver of this are the entry into the value chain, the ramp of the or intro of the digital games. You've got new licenses and IP. Am I thinking those are the drivers correctly? Speaker 400:41:58And then can you just update us on the progress on timing of entry into the value segment? And maybe just elaborate on the pre on the active monthly users? I didn't catch that. Speaker 300:42:09Okay. So there was a lot in there, Brian. I think you've accurately captured the growth drivers. I think both Max and I went through the growth drivers. I think there was a question in there about TOCALIFE World. Speaker 300:42:22Did I hear that correctly at the end? Speaker 400:42:24Yes. I just I want to understand 2 things. When are you going to progress when do you have timing of entry into the value segment? Where does that stand? And then the active monthly users, I didn't quite understand the reprieve with respect to active monthly users on digital games. Speaker 300:42:40So the timing of entry into the value channel is the second half of the year, and it's relatively modest this year. And then on Toka Life World, what we called out was a reduction in the number of monthly active users, which drove a reduction in in app purchases for the month. Just remember, it's a free to play game and then we have to convert those players to revenue. So we saw a slightly lower conversion in Q1, but those players that did convert actually spent more. So we're going to be focusing on driving that conversion ratio up and spend ratio up in the balance of the year. Speaker 300:43:16Max, do you want to just add anything to that? Speaker 200:43:19I think beyond that, I think if you look beyond this year, we're also launching Toca Boca Days, which is really an important complement to Toca Boca Life. And that happens basically as we described in the script, starting now, where we're live into markets and through the summer and into the fall for all the big global markets. So I think that's going to be a huge complement. Outside of that, Brian, I think the team is actually instituting several new things with content and new features for the balance of the year. So that's basically Toka Life World. Speaker 200:43:53And you also had comments about Paul, if I'm not mistaken, that you want us to address. And you talked about the how are we going to make up the revenue that we're not getting from the movie across other parts of the line. I believe that's what you asked and I just want to make sure I pause to understand. Is that the question? Speaker 400:44:11Yes, that's exactly right, Max. Thank you. Speaker 300:44:13Yes. Speaker 200:44:13And so and I think there's a number of things you should take into account. Number 1, a year ago, we had ruble successfully launched in the U. S. And we didn't have ruble internationally. So this year, we're going to have ruble basically be a big driver outside of the U. Speaker 200:44:27S. And that's an important complement. 2nd, if you look beyond infant preschool, we also have an important part of our innovation kicking in and for all of us, innovation in 2024 is going to contribute 3 times what it contributed in 2023. And if you look at the consumption in Q1 in 2024 and you look at our consumption in 2023 and you see our glide path to achieving consumption objectives for the year, we're not in a very different place. We typically get a lot of our consumption upswings in the back half behind innovation. Speaker 200:45:07Because we have more new innovation in the pipeline for 2024 and there's great receptivity and commitment by customers to execute that, we feel very confident that we will be able to overcome what you just described would be a PAW base period revenue. Speaker 400:45:24Okay. I appreciate all the color. Thank you very much and good luck. Speaker 300:45:29Thank you. Thanks, Brian. Operator00:45:34Your next question comes from the line of Martin Landry from Stifel. Your line is now open. Speaker 500:45:41Hi. Good morning, guys. Good morning. I want to just follow-up on the last comment that you provided, Max. Did I hear you correctly that when you said that Innovations is going to have a 3x contribution to revenues versus 2023. Speaker 500:46:01Is that correct? Speaker 200:46:02Yes. We're very excited about the fall 2024 innovation pipeline. We have a number of things that we're basically bringing incremental to what we would have had last year. And let's not forget, we had a really successful BT launch in 2023 and we're anniversarying that with 2 new executions on Bitsea to extend that success and it's been well received and so we feel good about that. Hatchimals is really net new incremental and the opportunity to basically capitalize on that is huge. Speaker 200:46:33And we're feeling very strongly about it, great receptivity. 3rd, we have puny rooms. You might remember from the LA showroom, that's net new incremental. We didn't have that last year. Beyond that, we have great innovation on Monster Jam. Speaker 200:46:50We have great innovation on PAW Patrol beyond obviously, Robo expanded into white space in Europe. And let's not forget one more thing we didn't have last year and is brewing to be a very big contributor to both the Spin Master portfolio and Melissa and Doug portfolio, which is Ms. Rachel. So Ms. Rachel is brewing to be a very big component of our revenue in the fall and we're super excited. Speaker 200:47:16So we have confidence in what we need to build to between now and then. So we have support in terms of marketing and sales support and promotional support and PR support to bring this to life. Speaker 500:47:31Okay. So just to clarify, when you talk about innovation, it's not a new brand, not a new it's just new toys within an existing brand. Is that fair? Speaker 200:47:47It's both, right? So if you think about Hatchimals, Hatchimals is currently a brand, but the Big Egg has not been a component of the Hatchimals line for a long time. We rested it and we're coming back with a big bang. So that's going to be net new on that line. As opposed to Rachel, which is complete white space, there's nothing in the base we're launching in basically from scratch or puny ruins, there's nothing in the base we're launching from scratch, brand new brand. Speaker 200:48:17And so I think it's a combination of both. Speaker 500:48:21Okay. And lastly, just to touch quickly on Melissa and Doug, how is the inventory quality both at retail and within your warehouses? Is there a cleanup that's needed to do to clear some of the maybe the low selling SKUs? Or is the inventory in good shape? So Speaker 300:48:50Martin, the inventory is clean. There's no concerns on the inventory. Really what we've been dealing with, I think, through the last period of time, both pre acquisition and post acquisition was that I think the inventory levels were high. But because the line is recurring in nature, it's simply a question of working it down. And I think their numbers have come down. Speaker 300:49:13If you actually ignore the fair market value adjustment, their Q1 inventory was significantly down compared to the same period last year. And we expect by the end of the year, it will be down much further. So we're not concerned about Melissa and DIG inventory. I think it's in good shape, both in our warehouses and at retail, as is ours at retail as well. Our inventory is down year over year. Speaker 300:49:37Spin Master inventory is down year over year in our warehouses and at retail quite significantly. So I think from a retail perspective, we're actually in good shape overall with inventory. Speaker 200:49:50Okay. Thank you very much, Bessilab. Thank you. Operator00:49:57Your next question comes from the line of Jamie Katz from Morningstar. Your line is now open. Speaker 600:50:03Hi. Thanks for taking my question. I'd be curious to hear what progress you guys are making in maybe expanding Melissa and Doug abroad given it's primarily U. S. Focus and the ability to grow to a much wider distribution base? Speaker 200:50:23Jamie, good morning. We're making progress. I would tell you that the progress broadly is happening in 2025, particularly in Europe and other markets around the world. However, we've already begun that expansion in Canada and Mexico. So in North America, we prioritize taking over the business in Canada and taking over the business in Mexico, which was actually being done through distributors. Speaker 200:50:48And we have 2 really strong teams in both countries. And that's going to happen basically starting now. And so basically, we're about to ship within 30 days into our 1st major customer in Canada. So we're excited about that. And that happens in the next 2, 3 months in Mexico as well. Speaker 200:51:04So we're getting going. And so at the same time, we're getting the line curated and ready to go and expand more broadly beyond North America. Speaker 300:51:15And just to add to that sorry, Max, just to add one point. As Max described the conversion of distributors to our own in house selling, we do get the volume pickup and the margin pickup as a result of that as well. So that's another reason behind the confidence in our earlier reaffirmation of our guidance for 2024. Speaker 600:51:37That's helpful. I don't know that it's been discussed much, but the efficiency of the marketing and promotional programs, I mean, the shift to value would probably indicate that there may be more handholding to facilitate conversion from consumers. So has there been a step up in the marketing and promotional like ROI that you guys are seeing or are you finding different ways to connect with consumers than in the past? Speaker 200:52:06Are you speaking to Melissa and Doug specifically or you're speaking broadly? I just want to make sure I answer your question well. Speaker 300:52:12Both. Speaker 200:52:13Okay. Excellent. So let me start with Toy. I think in Toy you would have seen in our numbers that we did increase our marketing investments in Q1 and we were able to get the return on that where we spent that and it's basically a reflection of our consumption. And in some places, we actually got really great consumption results for that marketing investment. Speaker 200:52:33In Melissa and Doug specifically, Jamie, we only began to increase the investments digitally towards the end of the quarter and more broadly beyond digitally starting in Q2. So we're very, very steeped in that process and we are ROI driven as you can imagine. So we will be watching that very closely. Beyond toy, we've invested marketing in our franchises, specifically Unicorn Academy, Vida the Vet and of course PAW Patrol. And then beyond that, and then on that is really about audience and building our audience and basically deepening love with our audience for those franchises. Speaker 200:53:12Beyond that on digital games, we also increased marketing in Q1. And that was really more on getting subscribers. And we've been testing and testing weekly. And the return on ad spend in our subscription business is being very, very healthy, reason for which we have in fact increased even more. And so Mark alluded to Picnic and Po Academy and those two businesses are doing really well for us. Speaker 200:53:40And quite a bit of that is beyond besides the fact that it is great content for children and we have a unique opportunity to own that space. Our paid user acquisition performance marketing machine is really working well. Speaker 700:53:55Great. Thank you. Operator00:54:01Your next question comes from the line of Luke Hannan from Canaccord Genuity. Your line is now open. Speaker 800:54:08Thanks and good morning. I'll start with Melissa and Doug. You've had a public competitor of yours come out and announced that they're going to be pushing a little bit more deeply into the wood and toys business. So just curious if you can disclose roughly what percentage of Melissa and Doug's revenues are attributable to wood and toys in particular? Speaker 300:54:30Well, most of Millicent Dike's business is wood toys, right? So the vast majority of their line represents wood and toys, Luke. That's the basic components of their business. There are some elements that are not wood like Stick A Wow and a few other areas. I don't have the exact percentage off the top of my head, but the majority of Melissa and Doug is ordered in toys. Speaker 200:54:52Yes. Luke, good morning and great questions. So I think we're super excited about the Melissa and Doug investments we're making on the brand. It was one of the key items we discovered had to get done and I think the team is now beginning to do that. 2nd, we're really excited about us bringing innovation to Melissa and Doug and we talked about sticker wow, but beyond sticker wow, there's 2 or 3 items that are going to be huge. Speaker 200:55:15And I made reference to the fact that when we did put marketing behind the line, in particular around Easter, we saw tremendous return on that investment, as I alluded to in our consumption numbers, growing over 50%. So the launch of the competitive wooden line that you allude to is just starting. And the really wonderful news is where it started and the week that it started, our brand grew 40%. So we welcome the attention to the category. Melissa and Doug has been a leader in wood for so long and he's so trusted and the quality of our brand is so beloved that this heirloom piece is going to basically take us to actually do what we need to do, which is to love the brand, invest in the brand and continue to grow the brand. Speaker 800:56:04Okay. It's great to hear. And then shifting to the digital games business. I know it's extremely, extremely early days. I don't even think it's been in the market for a week yet. Speaker 800:56:14But what has been the initial reception Toka Days in Australia and New Zealand? Are you seeing that conversion of players from Toka Life World into Toka Days? Or right now, is it just more of an influx of those that new player base, those aged 5 to 8? And then also maybe why starting with those markets first rather than some other markets? Speaker 200:56:37Yes. So I'm so glad that you asked about tocades because I remember sitting not far from you when we were actually showcasing this. And if you would see it now, I encourage you to go do it. It's actually progressed even more. So it's very exciting. Speaker 200:56:53So to get to the punch line, we started in Australia, New Zealand and subsequently are going beyond that, because these are test market, control markets where we actually get a ton of learning and we basically get a lot of return on the learning that we get very much real life. There are markets in which people are also very vocal. Our team has a lot of great testing experience. And so we gain a lot from just going there. We also gain early testing knowledge on technology or tech and obviously app stability. Speaker 200:57:26And so there's a lot to be gained from going to those markets first. And so far, the reception has been terrific. It's so early that I want to be cautious to not overstep, but it's doing Speaker 300:57:39really well. Speaker 800:57:40Great. Last one for me and then I'll pass the line. Eventually, we are going to get to a point here where there's a lot more within the digital game segment in terms of titles and properties that are representing, excuse me, a good chunk of revenue and EBITDA. Should we think about or are you thinking about enhancing the disclosure there so that we can get a better sense of the revenue by title, EBITDA by title and maybe some other metrics such as ARPU, for example? Speaker 300:58:08So Luke, it's a good question. We are thinking about how to best describe digital games because the metrics are very different, for example, to what you would see in toy or entertainment. In fact, all three of our businesses, we have expanded disclosure recently, as you know, with the breakdown of P and Ls for each creative center, which I think has given the investment community much deeper insight into the business. But yes, to answer your question, we are looking at ways to describe digital games with different metrics and enhanced metrics to help you understand the business better and hopefully drive shareholder value through that because as a company, we don't necessarily feel that our digital games business gets the credit that it deserves in terms of our portfolio. I Speaker 200:58:55think, Luke, just to add to Mark's comments, I want you to please rest assured before we get to disclosure, know that we look at the business very differently between our subscription business and obviously the subscription, the ROAS, the churn and the LTV as we model the business going forward and are very, very focused on that. And so when it gets to the app model and specifically whether it would be Rubik's Match or Toca Boca Life or Toca Boca Days. We're getting into D1, D3, D7, FETUI. I mean, we have significant depth of how we are treating and basically keeping up with these business KPIs and are measuring by title and have great depth of information by title. So anyway, so far things are progressing. Speaker 800:59:48Okay. Thank you very much. Operator00:59:55Your next question comes from the line of John Zamparo from CIBC. Your line is now open. Speaker 901:00:01Thank you very much. A couple of housekeeping questions. First, I wonder if you can quantify the shift in Easter timing either on revenue or gross product sales for Spin Speaker 301:00:11Master? It was 1 week, John. The 1 week shifted, not the whole Easter period. It wasn't a material shift. I don't have a specific number to quote, but I don't think overall it was material, but it did actually have an impact on POS as we described. Speaker 301:00:31We can get back to you later with more granular answer, but in the overall scheme of things, not very significant. Speaker 201:00:36On the POS, John, just so that you have that now and then Mark can follow-up, I think it's basically it's the impact is an industry that shows growth versus without Easter and that shift, an industry that declining both dollars and units, just to be clear. And that's a decline of in the low single digit number. Speaker 901:00:57Okay. That's helpful. Thank you. On Melissa and Doug, can you say how revenue and EBITDA look relative to last year? I know it's not a seasonally relevant quarter or maybe asked another way, was the POS number in Q1 reflective of their reported numbers? Speaker 301:01:15Yes. So John, obviously, we don't we're not providing comparable numbers for Melissa and Doug, but just given the acquisition timing. But the reality is that it's relatively consistent with prior years. In fact, Q1 was a little bit better than this year than it was in prior years. As I said to you, Melissa and Doug will be EBITDA negative in H1 and make all of the EBITDA in H2 in line with their 40% Q3 and 40% Q4 revenue. Speaker 301:01:50So really the period to focus on for Melissa and Doug will be the second half of the year. Speaker 901:01:58Okay. And then on capital allocation, you recently filed a mixed shelf. I wonder if there's anything that's worth calling out on this? Speaker 301:02:06No. This was a renewal of a previously filed shelf that had expired. It's a 2 year window and we simply renewed the existing shelf or the pre existing shelf for a further 2 years, but nothing specific to call out on that. Speaker 901:02:25Understood. And then last one sticking with capital allocation. You doubled the dividend, you're using the buyback program. I wonder whether an SIB is a topic of discussion at the board level? Speaker 301:02:36Well, the Board reflects on capital allocation every quarter. I think we've been pretty specific in the script today and the plans that we've articulated around the buyback program. We have around 3,000,000 shares authorized for 2024. We've already executed about 600,000 of that and we'll continue to execute on the balance for 2024. And we increased the dividend or doubled the dividend, which I think is reflective of the Board's desire to consider total shareholder return as part of the equation of Spin Master. Speaker 301:03:11And so I think they'll continue to do that. We're not going to comment specifically on an SIB or anything else, but rest assured that it's something that the board reflects on a quarterly basis. Speaker 901:03:24Okay. That's helpful. I'll leave it there. Thank you. Speaker 301:03:27Thanks, John. Operator01:03:30Your next question comes from the line of Kiley Koo from Jefferies. Your line is now open. Speaker 701:03:38Hey, thank you guys so much for taking my question. I'll kind of keep it brief. But you mentioned cautious optimism from your retail partners. I was just wondering if you could expand on that. Are they kind of expecting better demand than previously thought, earlier purchases? Speaker 701:03:53Just any color on that would be helpful. Thank you. Speaker 201:03:56Yes. I think it's really more looking to, if you think about Easter and the sell through and obviously the fact that inventory levels are in a better place and ultimately a return to discretionary in cycles. And so and the fact that they want to make sure that their toy aisles are growing is what actually leads me to make that statement and it's really kind of coming from them. They're also excited about the new level of innovation we're bringing. And so when I say cautious retail group has reacted incredibly positive to our lineup. Speaker 201:04:35And so last but not least, I think there's obviously, in Europe, also the same level of optimism for the line. So it's not just a U. S. 3 customer sentiment, it's beyond that. And so that's basically what constitute our comment. Operator01:05:03Your next question comes from the line of Drew McReynolds from RBC. Your line is now open. Speaker 901:05:10Yes. Thanks very much. Good morning. Just I guess three housekeeping for me and maybe over to you Mark. Not to get too granular here, but in the spirit of Brian's question earlier, for Q2, Melissa and Doug, you commented on negative EBITDA for the first half. Speaker 901:05:28Presumably, that's another negative adjusted EBITDA for Q2 is the question. 2nd, just on the cadence of cost synergies, we saw a little bit come in here in Q1 of the in period $6,000,000 you expect to realize. Just wondering how that is going to play out for the rest of the year. And then just finally, big picture on the dividend policy. So great to see the doubling of the dividend. Speaker 901:05:54Just wondering, is there kind of levels of payout ratio that the Board kind of contemplates when setting the dividend? Thank you. Speaker 301:06:06Hi, Drew, and welcome, I think, to your first official call covering Spin Master. So to answer your question around Melissa and Doug, in terms of their seasonality, I said to you around 20% of their volume in H1 around roughly even split. So there will be an adjusted EBITDA loss for Melissa and Doug for the Q2. Also just wanted to reiterate what I said earlier in case everyone didn't pick it up around the PAW Patrol movie shipments that we had in the Q2. So I just want to which won't anniversary obviously, so just keep that in mind. Speaker 301:06:44The seasonality of the synergies, we picked up some very minor cost synergies in Q1. We're starting to accelerate that program. We have a new leader who's looking after the integration and very heavily focused on that. And so we'll start to see momentum building in Q2 into the second half of the year on the realization of the cost synergies in particular and some of the revenue synergies that Max referenced earlier. But a big chunk of those cost synergies, Drew, will actually happen in Q3 and Q4, some of which are volume specific, but are also now based on the programs that we're actually implementing and getting some momentum behind. Speaker 301:07:26The third question you asked was around the dividend. I think what we try to do with the dividend, what the board considered was really to look at a reasonable dividend yield. If you looked at the previous dividend, it was around 70 basis point, 80 basis point dividend yield and we try to get it to around 1.5% at this point based on the current share price. Obviously, that will change as the price changes, but we felt that that was a comfortable place to be at from both the yield and a dividend payout ratio perspective for 2024, taking into account our M and A innovation, allocation of cash as well as the buyback program as well as debt reduction. So it was an equation to keep all 4 in a reasonable balance and that's where we landed. Speaker 901:08:20Got it, Mark. Thanks very much. That's helpful. Speaker 301:08:22Okay. Well, I think just from a time perspective, we're going to have to make that the last question. So let me just say, we look forward to seeing you on the 31st July, which is the date of our 2nd quarter earnings call. And we're going to wrap it up at that point. Thanks, operator. Operator01:08:43Thank you. Ladies and gentlemen, this concludesRead morePowered by