spin master corp. q1 2018 financial results conference ... · découlant directement,...
TRANSCRIPT
1
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINALTRANSCRIPT
SpinMasterCorp.
Q12018FinancialResultsConferenceCall
EventDate/Time:May9,2018—9:30a.m.E.T.
Length:60minutes
2
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
CORPORATEPARTICIPANTSKarolineHunterSpinMasterCorp.—SeniorDirector,InvestorRelationsRonnenHararySpinMasterCorp.—Co-ChiefExecutiveOfficerMarkSegalSpinMasterCorp.—ChiefFinancialOfficerBenGadboisSpinMasterCorp.—GlobalPresidentandChiefOperatingOfficerCONFERENCECALLPARTICIPANTSSabahatKhanRBCCapitalMarkets—AnalystKenricTygheRaymondJames—AnalystStephanieWissinkPiperJaffray—AnalystAdamShineNationalBankFinancial—AnalystDerekDleyCanaccordGenuity—Analyst
3
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
PRESENTATION
Operator
Goodmorning.MynameisAdam,andI’llbeyourconferenceOperatortoday.Atthistime,
IwouldliketowelcomeeveryonetotheSpinMasterQ12018FinancialResultsConferenceCall.
All lines have been placed on mute to prevent any background noise, and after the
speakers’remarks,therewillbeaquestion-and-answersession.Ifyouwouldliketoaskaquestion
duringthistime,simplypress*,thenthenumber1onyourtelephonekeypad.Andifyouwouldlike
towithdrawyourquestion,pleasepressthe#key.Thankyou.
Youmaybeginyourconference.
Ryder—PAWPatrol
Thanks,Operator.Goodmorning,everyone.It’sRyderfromthePAWPatrol.AndI’mhere
towelcomeyoutoSpinMaster’sfinancialresultsconferencecallforthefirstquarterendedMarch
31,2018.
On thecall thismorning fromSpinMaster isRonnenHarary,Co-ChiefExecutiveOfficer;
BenGadbois,GlobalPresidentandChiefOperatingOfficer;MarkSegal,ChiefFinancialOfficer;and
KarolineHunter,SeniorDirectorofInvestorRelations.
Followingtheformalremarks,we’llopenupthelinesforyourquestions.
Uh-oh,lookslikeI’mneededinAdventureBay.PAWPatroltothelookout.
Karoline,takeitfromhere.PAWPatrolisonaroll.
4
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
KarolineHunter—SeniorDirector,InvestorRelations,SpinMasterCorp.
Thanksfortheintroduction,Ryder.GoodlucktoyouandthePAWPatrol.
For your convenience, the press release, MD&A, and audited consolidated financial
statements for the first quarter are available on the Investor Relations section of ourwebsite at
www.spinmaster.comandonSEDAR.
Beforewe start, pleasenote that remarks on this conference callmay contain forward-
lookingstatementsaboutSpinMaster’scurrentandfutureplans,expectations, intentions,results,
levelsofactivity,performance,goalsorachievements,oranyotherfutureeventsordevelopments.
Forward-lookingstatementsarebasedon informationcurrentlyavailabletomanagement,andon
estimatesandassumptionsmadebasedonfactorsthatmanagementbelievesareappropriateand
reasonableinthecircumstances.
However,therecanbenoassurancethatsuchestimatesandassumptionswillprovetobe
correct.Manyfactorscouldcauseactualresultstodiffermateriallyfromthoseexpressedorimplied
by the forward-looking statements. As a result, SpinMaster cannot guarantee that any forward-
looking statementswillmaterialize, and you are cautioned not to place undue reliance on these
forward-lookingstatements.
Exceptasmayberequiredbylaw,SpinMasterhasnoobligationtoupdateorreviseany
forward-lookingstatement,whetherasaresultofnewinformation,futureevents,orotherwise.For
additional information on these assumptions and risks, please consult the cautionary statement
5
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
regarding forward-looking informationcontained in theCompany’searnings releasedatedMay8,
2018.
PleasenotethatSpinMasterreportsinUSdollars,andalldollaramountstobeexpressed
todayareinUScurrency.
IwouldnowliketoturntheconferenceovertoRonnenHarary.
RonnenHarary—Co-ChiefExecutiveOfficer,SpinMasterCorp.
Thankyou,Karoline,andthankyou,Ryder.Ibetterwatchoutbecauseyou’resoarticulate,
youmaybethenextCEOhereatSpinMaster.
Andgoodmorning,everybody,andthanksfortheinterestatSpinMaster.
Yesterdaywe reportedour financial results for the first quarter endedMarch 31, 2018.
And I’llbegin thecallwith somebriefhighlights for thequarteraswellas theyearaheadbefore
Markprovidesyouwithamoredetailedreviewofourfinancialresults,includingouroutlookforthe
balanceoftheyear,andBenwillthendiscussouroperationalresults.
Letmestartbysayingthatasalongtimeparticipantinthetoyindustry,itisverysadtosee
Toys“R”Us’demiseintheUSandintheUK.WeareofthebeliefthatTRUhadagreatfranchise.Itis
notasignalasthestrengthortheweaknessofthetoyindustryorretailingeneralforthatmatter,
ratherasafunctionofToys“R”Us’specificownership,capitalstructure,andoperationalissues.
WearepleasedtoseethatmayofToys“R”Us’operationsaroundtheworldhavebeen
solidorareintheprocessofbeingsoldandwillcontinuetooperate,includingToys“R”UsCanada.
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"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
WeareconfidentthatwewillmanagetheToys“R”Usdisruptionin2018,andbelievethat
theindustrywillcontinuetolevelsetitselfin2019.Attheendoftheday,thereissomenumber—
thereisthesamenumberofkidsouttherecelebratingbirthdaysandholidays,andholidayswillstill
comearoundeverysingleyear.
The entertainment group at Spin Master remains the cornerstone of our strategy that
enhancesourabilitytodriveconsistentrevenuesandearningsgrowththroughthecreationofour
own content. In 2018, we will produce over 100 half-hour episodes over five current and new
productions.
PAWPatrolcontinuestoperformwell.PAWPatrol’sratingsareconsistentlyatthetopof
theNielson’sratings.ForQ12018,PAWPatrolwasrankednumberoneamongstkidsages2to5for
bothnewandrepeatepisodes.
InQ4,Nickelodeonwill be airing the first PAWPatrol one-hour TV special titledMighty
Pups. In this TV special, our PAW Patrol pups gain superpowers from a meteor that lands in
AdventureBay.We’realsolaunchingtheultimaterescuethemeforthesecondhalfofseason5later
thisyear.PAWPatrolpupswilleachgetanewultimatevehiclethatallowsthemtotraveltogether
onrescuemissions.Thefallof2018,atoylinewillfollowtheultimaterescueteam.
WearefindingthattheaverageageofrecipientsofPAWPatroltoysisskewingolder,as
bothboysandgirlsarestayingwiththefranchiselonger.Thisisprovidingalargermarketsharefor
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"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
theproduct lineandallowsus toparticipate inprofitable incremental revenuestreamsdrivenby
licensing,merchandising,andbroadcastrevenues.
OursecondpreschoolshowcurrentlyonairisRustyRivets.Welaunchedseason2inNorth
AmericainQ1ofthisyear,andtheratingstodatehavebeenstrong.AccordingtoNielsondata,new
episodesofRustyRivetsarerankedinthenumberthreespotsforbothkidsandboysages2to5.
We’renowdevelopingseason3togetherwithNickelodeon.
The Rusty Rivets toy line is launching globally in August 2018 and we’ve developed
innovative,easy-to-usebuildingsetsspecificallydesignedwithpreschoolers inmind.Toysaretied
closelywith thebuilding themesprominent in thesecondseasonof theshow,andwe’realready
gettingsomegreatfeedbackonthetoyline.
We’reveryexcitedournewentertainmentcontentcurrentlyinproductionandslatedfor
release in 2019. Our new preschool show, Abby Hatcher Fuzzly Catcher, will be airing first on
Nickelodeon in the US and TVO in Canada, and global distribution will follow. This adventure
comedy series follows our heroine, the 7-year-old Abby Hatcher, as she rescues her favourite
creatures,theFuzzlys,fromwhatevertroubletheyhaveaccidentlylandedthemselvesin.
Wewillbestrategicallylaunchingthetoysfollowingaperiodoftheshowbeingonair.This
allowsthepropertytoreallybecomeestablishedwithitspreschoolaudienceandbuildsanticipation
forthetoysinthemarket.
8
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Wewillbe relaunchingBakugan,both the toyand the televisionshow,globally in2019.
BakuganbecameaglobalhitforSpinMasterwhenitoriginallywas launchedback in2008. Itwas
ourfirstforayintodevelopingourowncontentandallowedustobuildtheexpertisetocreateour
ownin-houseentertainmentgroup.
Weproduced186TVepisodesofBakugan,andtheresultwasaglobalentertainmentand
toy phenomenon with significant toy and licensing and merchandising income. We believe the
globalrelaunchofBakuganwithahighly innovative,reimaginedtoythathasevolvedbutremains
truetoitsrootsrepresentsanexcitingopportunityforfuturegrowth.
On licensing, which complements our core business, we’re always looking for new
properties;however,weremainveryselectiveaboutthelicenceswechoose.Oneofthelicenceswe
are very excited about investing in is through our partnership with Feld Entertainment for the
MonsterJammastertoylicence.
MonsterJamisanaction-packedliveeventwherethedriverscompeteinfrontofstadium
crowds inbothmonstertrucksracingandfreestylecompetitions.Forover25years,Monster Jam
has been combining spontaneous entertainment with the ultimate off-road motorsport
competition.Thisisaglobal10-yearpartnershipprimarilyfocusedonthedie-castandradiocontrol
segments.
9
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
We’reworkinghardondevelopingthe linenow,whichwillbereleased inJanuary2019.
We are also working closely with Feld Entertainment on further developing the global growth
potentialofMonsterJam.
We also have themass toy licence for the third feature film in the How To Train Your
Dragon franchise tobe released in2019.We’vebeena toypartner for these filmsand television
series since its original debut in 2010. TheHow To Train Your Dragon films have grossed over 1
billionworldwide. The third filmwill feature new characters and dragons andworlds to explore,
extendingthecollectibilityofthetoyline.
Wearealso leaning inon somekey toyetic themes for the film, suchasbioluminescent
colouring and dragon armour to be represented across innovative products ranging from
collectibles, core action, plush, and role-play. Andwe are excited to be part of this phenomenal
franchise.
RegardingTocaBocaandSagoMini,theycontinuetogrowsteadily.Sinceacquiringthese
twomobiledigitalcompanies,we’veleftthemtofocusonthecorestrengths,whichisdevelopment
ofnewcontentforappsandstrengtheningtheirbrandswithconsumers.
TocaBoca’scontinuedtoperformwellasthenumberonepaidmobiledigitalkidsbrand.
Ourbiggest success is theToca Life series,whereweare seeing stronggrowthandengagement.
We’renowbuildingandexpandingthesuccessacrosscategoriestocreatemoreintegrateddigital
experiences.
10
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Lastly,strategicacquisitionshavebeenandwillcontinuetobeafundamentalcoretoour
growth.Ourmostrecentacquisition,GUND,closedonApril2,2018.
ThroughtheacquisitionofGUND,we’vegaineddeepexpertiseinplush,whichaccording
toNPDwas the second-fastest growth category, up 8 percent in theUS year over year in 2017.
GUNDhasaniconicstatusandaloyalbrandfollowing,andisinastrongpositiontodrivegrowth.
As with Cardinal and Swimways, we see an opportunity to use our global sales and
distribution structure to scale the GUND business globally. We also plan to capitalize on strong
licensing opportunities to leverage GUND’s core competencies of plush design, sourcing, and
manufacturing.
We now have access to a well-established specialty retail network that we plan on
selectively leveragingforSpinMaster’sbrands.Benwillprovideyouwitha furtherupdateonthe
GUNDintegrationlaterinthecall.
During the quarter, I travelled to Iraq alongwith a few colleagues of ours here at Spin
MasterfortheSpinMasterToyMovement.Wedeliveredover90,000toystoSyrianrefugeesinthe
ErbilregionofKurdistan,Iraq.Itwasheartwarmingtobeabletobeabletobringsomejoytothe
childrenwhohavesufferedsomuchtraumafromthecivilwarintheirhomeland.Ourgoalthisyear
istodelivermoretoysthroughtheToyMovementthanwehaveeverdonebeforeindifferentparts
aroundtheworld.
11
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
I’llnowhanditovertoMarkSegal,ChiefFinancialOfficer,toreviewourfinancialresultsin
moredetail.
MarkSegal—ChiefFinancialOfficer,SpinMasterCorp.
Thanks, Ronnen. Overall, our first quarter revenue increased 25.5 percent from 2017,
drivenbyHatchimals,Luvabella,andourgamesportfolio,includingCardinal.
Foreignexchangetailwindsincreasedoverallrevenueby8.1million.Inconstantcurrency
terms,revenueincreasedby23.5percentrelativetolastyear.
Grossproductsalesincreased25.7percentinthefirstquarter.Onageographicbasis,Spin
Master’sglobalplatformdrovegrossproductsalesincreasesof19.5percentinNorthAmerica,33.4
percentinEurope,and49.8percentintherestoftheworld.
Overall, international gross product sales comprised 35.9 percent of sales in the first
quarter,increasingfrom32.5percentlastyear,andcontinuingtheprogresswehavemadeoverthe
lastfewyearsingrowingourinternationalbusiness.
IncomparingourQ1 ‘18results toQ1 ‘17,oneof thekeydifferencesbetweenthisyear
andlastwasthetimingofEaster.In2017,EasteroccurredinthemiddleofApril.Thisyear,Easter
fellonAprilthe1st,resultinginalargeproportionofEastersalesvolumefallingintoQ1.
The largest impact on our financial results in the quarter was the US liquidation
announcementbyToys “R”UsonMarch15, 2018.After a verydisappointingUSholiday season,
TRU announced it was preparing to liquidate its US operation. TRU’s weak 2017 holiday
12
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
performance was known in the industry in Q1, and we took steps to manage receivables and
inventoryexposureaheadofanticipatedfurtherrestructurings.
However, the extent of the weakness was not fully known, and the decision by their
lenderstoimmediatelybeginliquidatingallstoresintheUScameasasurprisetousandtherestof
thevendorcommunity.
InadditiontotheUSmarketweakness,TRUUKperformedverypoorly,andduringQ1TRU
closedandliquidatedmostofitsUKbusinessafterfailingtofindabuyer.
At the end of the quarter, we recorded a bad debt expense of $15.2million, primarily
relatedtoTRUUSandUKaccountsreceivable.Thisbaddebtexpansionisincludedinadministrative
expenses in the P&L. In calculating this charge, we’ve assumed no recoveries from any of the
liquidatedTRUentities.Totheextentthereareanyrecoveries,wewillreflectthesewhenwehave
morecertaintyastotheirpotentialrecoveryvalue.
WearecontinuingtodobusinesswithcertainTRUentitiesthatwerenotdirectlyaffected
bytheUSorUK liquidationprocess.Currentreports indicatethatTRUCanadahasbeensoldasa
goingconcerntoFairfaxFinancial.WeareshippingtoTRUCanadaonconservativetermsuntilall
thedetailsoftheFairfaxtransactionareknown.
On April the 21, 2018, Smyths Toys announced an agreement to acquire the German,
Austrian,andSwissbusinessofToys“R”Us,whichwebelieve isgoodnewsfor theEuropeantoy
industry.Weare currently shipping toTRUGermany, and still have credit insurance inplace.We
13
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
continue toship toTRUFrance,andhavecredit insurance inplaceaswell.Wearealsocurrently
shippingtootherentities,suchasTRUAustralia,Asia,andJapanonacase-by-casebasis.
Salesallowancesforthequarterasapercentageofgrossproductsaleswere11.2percent.
The increaseover last year ismainly attributable to themanagementof channel inventories and
promotional activities due to the volatility of themarketplace in Q1. Asmentioned before, Spin
Master’sexpectedsalesallowancerangeisbetween10and12percent.
Otherrevenue,whichprimarilyreflectsmerchandising,royalty,andtelevisiondistribution
incomefromproductsmarketedbythirdpartiesusingSpinMaster’sintellectualproperty,aswellas
app revenue from Toca Boca and Sago Mini, rose 45.5 percent. As I mentioned in March, app
revenuefromQ4‘17onwardsisnowreflectedonagrossbasis,andAppleandGoogle’scommission
is reflectedaspartofCOGS.Accounting forapp revenueonanetbasis,other revenue increased
approximately39percentinQ1.
Ourgrossmarginforthequarterrepresented52.1percentofrevenuecomparedto49.8
percentlastyear.Iftheaccountingchangeforapprevenueisadjustedtoanetbasis,grossmargin
forthequarterwouldhavebeen20basispointshigherat52.3percent.
As a reminder, in Q1 2017 we took a charge to COGS of 2.3 million related to the
Swimwaysfairmarketvalueinventoryadjustment.
Onanapples-to-applesbasis,grossmargininQ1‘18was52.3percentcomparedto50.8
percent lastyear,an increaseof150basispoints.The increase ingrossmarginwasdrivenbythe
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"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
increaseinotherrevenue,favourableforeignexchange,mostnotablythestrengtheningoftheeuro
andthepound,partiallyoffsetbyincreasedsalesallowances.
Total SG&A, excluding share-based compensation arising from the equity participation
awards at the time of the IPO, increased 38.6million. The increasewas driven by the bad debt
expenserelatedtoToys“R”Usof15.2million,aswellasbyinvestmentsinmarketinginitiativesin
the quarter due to Easter timing, partially offset by reduced product development, selling, and
distributionexpenses.
[audio gap] revenue compared with 5.2 percent last year, due to several new product
launches in the quarter, as well as the global marketing initiatives in support of Easter. As I
mentioned,in2018EasterfellintoQ1,whereasin2017EasterfellintoQ2.
Productdevelopmentexpenseswere2percentofrevenuecomparedwith2.8percentin
Q1 ‘17, primarily due to the timing of our development needs within the 36-month brand
innovationpipeline.
Sellingexpenses represented5.5percentof revenuecompared to6.5percent last year,
duetothird-partylicensedproductsmakingupalowerproportionofoursalesmix.Inrecentyears,
asRonnenmentioned,wehaveremainedveryselectiveaboutwhich licenceswechoosetoenter
into.
Distributionexpenseswere4percentofrevenuecomparedwith4.6percentlastyear.In
2017,wemade investments inupgradingour supply chain infrastructure to supportCardinal and
15
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
ourpredominantlydomesticbusinessinEurope.Theinvestmentswehavemadeinoursupplychain
in theUS and Europe have placed us in a better position to service our customers and enhance
margins,andwearenowstartingtoseethebenefitoftheseinvestmentsinourtop-linegrowthand
reduced distribution costs. We continue to look at ways to refine our supply chain to optimize
customerserviceinbothNorthAmericaandEuropeinacost-effectivemanner.
Admin expenses represented 26.9 percent of revenue from 23.7 percent last year. The
increase was driven primarily by the TRU bad debt expense and the impact of share-based
compensationarisingfromequityparticipationagreementsattheIPO.
ExcludingtheTRUbaddebtexpenseandshare-basedcompensationcost,adminexpenses
were20.9percentof revenue,down1.6percentagepointsover lastyear.Thisall resulted innet
incomeof$8.7million,or$0.09persharecompared tonet incomeforQ1 ‘17of10.1million,or
$0.10pershare.NetincomewasreducedprimarilybytheimpactoftheTRUbaddebtexpense.
Adjustednetincomeforthequarterwas$22million,or$0.22pershare,anincreaseof62
percentcomparedto13.6million,or$0.13persharelastyear.
AdjustedEBITDAforthequarter increased40.4percentto43.3millionfrom30.8million
lastyear.AdjustedEBITDAmarginincreasedto15.1percentcomparedwith13.5percentlastyear.
TheincreaseinadjustedEBITDAmarginresultedprimarilyfromhighergrossmargins.
Lookingatourbusiness segments forQ1,grossproduct sales in theActivities,Games&
PuzzlesandFunFurnituresegmentincreased20percentto$57.6million,primarilyduetoincreased
16
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
salesof theCoolMakerbrandofproducts,KineticSand,andtheGamesportfolio,which includes
Cardinal.
IntheRemoteControlandInteractiveCharactersegment,grossproductsalesmaintained
strong growth, increasing 95.9 percent to $91.2 million, driven by Hatchimals Colleggtibles and
Luvabella.
GrossproductsalesintheBoysActionandHigh-TechConstructionsegmentincreased27.1
percentto16.7million,primarilyduetoincreasedsalesofTechDeckandtheinitiallaunchofFlush
Force.
In thePre-SchoolandGirls segment,grossproducts salesdecreased2.5percent to82.6
million.PAWPatrolsalesgrewyearoveryear,butthisgrowthwasmorethanoffsetbyadeclinein
salesofTeletubbiesandPowerpuffGirlslicensedproducts.
In theOutdoor segment,grossproduct sales increased8.9percent to$40million in the
quarter despite the TRU bankruptcy, which occurred during the seasonal ramp up of Swimways
products.
Freecashflowwasnegative28.3millioninQ1comparedto5milliongeneratedlastyear.
Thedeclineinfreecashflowinattributabletohighercashtaxespaidinthequarterrelatedto2017
profitability,andnonrecurringcapitalexpendituresrelatedtoournewcorporateofficebuildout.
Networkingcapitalasapercentageofrevenuedecreasedby3.4percentagepointsto6.1
percentofLTMrevenue.
17
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Asmentioned,weclosedtheGUNDacquisition.ItwasourninthacquisitionsincetheIPO.
Thefinalpurchasepriceof$76millionaftera$3millionfavourablenetworkingcapitaladjustment
waspaidutilizinginternallygeneratedcashresourcesandourcreditfacility.
GUNDsalesin2017wereintherangeof$60million,witharound20percentattributable
to international sales.GUND’sEBITDA is in themid-teens.WewillbeconsolidatingGUNDresults
fromQ2onwards,and theywillbe included in theActivities,Games&PuzzlesandFunFurniture
businesssegment.
Iwillconcludewithouroutlookfor2018.Asyouknow,theTRUliquidationintheUShas
createdadegreeofuncertaintyforallindustryparticipants,includingSpinMaster.Weexpectthat
most of the negative impact to the liquidation in theUSwill be felt inQ2 2018.We expect the
overall impacttobecontainedto2018,andthatmostofthesalesthatTRUhistoricallygenerated
willshifttoexistingornewentrantstothetoyindustryin2019.
Given the uncertainty generated by the US liquidation in Q2, we are maintaining a
conservativetoneforouroutlookforthebalanceof2018,despiteourstrongQ1results.Forthefull
year2018,excludingGUND,wenowexpectorganicgrossproductsales togrow inthemid-single
digitrangerelativeto2017ascomparedtothemid-tohigh-singledigitgrowthrateannouncedin
connectionwiththereleaseofourQ4‘17resultsinMarch.
Including GUND, we expect gross product sales growth in the mid- to high-single digit
rangecomparedto2017.Thisisinlinewithourlong-termtargetofmid-tohigh-singledigitgrowth.
18
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Seasonalityforgrossproductsalesin2018isexpectedtobeapproximately31to33percentinH1
comparedtotheseasonalitypreviouslyannouncedof32to35percentinH1.
TheTRUliquidationintheUSisexpectedtohaveanimpactonoursecondquartergross
productsales,whichresultsnotonlyinthelowergrowthratesoverallfortheyear,butalsolessofa
shiftingrossproductsalesfromthesecondhalftofirsthalfthanwehadpreviouslyexpected.
AdjustedEBITDAmargins,bothincludingandexcludingGUND,areexpectedtobeinline
withpriorguidance,whichisflatto2017.
Tobeclear,adjustedEBITDAmargins,whicharecalculatedasapercentageofrevenueand
notgrossproductsales,were18.8percentin2017.
I’dnowliketoturnitovertoBenGadbois.
Ben?
BenGadbois—GlobalPresidentandChiefOperatingOfficer,SpinMasterCorp.
Thankyou,Mark.Weareverypleasedwithourfinancialandoperatingresultsinthefirst
quarterof2018,whichdemonstratedtheunderlyingstrengthofourproductsandbrands.
AccordingtoNDP,inQ12018intheUS,SpinMasterwasthenumberfourmanufacturer
andwasalsothenumberthreeabsolutedollargrowthmanufacturer.
Asweoutlinedonour lastcall,weended2017withourbest inventoryatretailposition
since going public. OurQ1 results reflect this, aswewere in a better position to refill customer
19
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
inventories.Wemeasurebeginninginventory,shipment-in,POS,andendinginventoryregularlyas
aneffectivecontrolonourbusiness.
IntheUSandonaglobalbasis,ourPOSgrowthsignificantlyoutpacedinventorygrowth.
ThestrongPOSgrowthonourproductsisshowingcustomerengagementwithourbrands.Weare
seeingahealthymixofinventoryflowingintoandoutofretailerswithnewbrandscontributingto
anyincreaseinretailinventory.
AsMarkdiscussed,EastertimingwasalsoadriverforbothUSandglobalPOSgrowthyear
overyear.
Therewereseveral factors that influencedourperformance thisquarter, someofwhich
willaffectthebalanceof2018.LetmewalkyouthroughthesebrieflybeforeIreviewourfourkey
growth strategies and some of the initiatives we are undertaking to execute them in 2018 and
beyond.
AlthoughtheTRUliquidationannouncementlookplaceoverendofthequarter,wewere
already experiencing channel disruption inQ1 in anticipation of previously announced TRU store
closures.Asareminder,TRUwas12percentoftheindustryin2017andapproximately12percent
ofSpinMastersales.
For2018,weproactivelyplannedandexpectedthatnumbertobeinthehigh-singledigits.
Sincetheannouncement,wehaveseenveryhighinterestlevelsfromotherretailerstocapturethe
20
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
lost TRU volume, including putting formal plans in place.We are working closely with all these
retailerstorecoupasmuchvolumeaspossibleandensurestrongsell-through.
Someofthis interest iscomingfromnontraditionaltoyretailers lookingtoincreasetheir
toyofferingfor2018,mainlyinthesecondhalfoftheyear.In2018,weexpectthatbetween80to
90percentoftheTRUUSvolumewillshifttoexistingandnewcustomersin2018.Thisimpliesan
approximatelynegative2percentimpacttotheUStoyindustry.By2019,weexpectthemarketto
normalize.
Currently, our overall retail inventory at TRU is downover 20 percent compared to the
same time lastyear.Weexpect this inventory to selloffatanaccelerated rateas the liquidation
salesproceedduringQ2andfortheUSliquidationtobecompletebytheendofJuly,leavingaclean
marketforthesecondhalfoftheyear.
IntheUK,TRUliquidatedmostofitsstoresduringQ1.EvenwiththeTRUclosures,ourUK
businessgrewverystronglyinQ1.ThisisatestamenttothestrengthofourproductlineandourUK
team.
WhilemuchofthecurrentfocushasbeenonTRU,it isalsoveryimportanttoknowthat
wewereawardedWalmart’sVendoroftheYearawardfor2017.
Overall,wefeelconfident thatSpinMasterwillweather thestormwell in2018,andwe
seesomeM&Aopportunitiesarisingoutofthissituationin2019andbeyond.
21
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Wecontinuetofocusheavilyontheonlinechannel.Theinternale-commercestrategywe
putinplacethreeyearsagoisworking.Toyslendsthemselveswelltoonlinesales.Onlinechannels
haveunlimitedshelf space;wewant tomakesureourentire toy line isavailableonline,whether
thatisthroughourownD2Cortoourretailpartners.
We expect that the liquidation of TRU will only further increase the growth of online
channels.Inresponsetogrowingonlineshoppingbehaviour,wehavethroughcarefulanalysisbeen
allocatingagreaterportionofourmarketingspendandinternalresourcestoourdigitalandsocial
media.
A recentexampleofouronline strategy is theMoonlite launchonAmazon. It hasbeen
very successful, with Amazon’s full year’s plan already increasing over initial expectation.When
doneright,thiskindofonlinelaunchcanbemarginaccretiveforbothouronlineretailpartnersand
us.
I’d now like to briefly review our four key growth strategies, and provide you with an
update on someof our current initiatives.Our first growth strategy, to continue to innovate the
core product portfolio, relies on our ability to consistently infuse innovation into our branded
products.
Our internal 36-month brand innovation process facilitate the identification of market
opportunitiesthatwecapitalizeontoaproductdevelopmentoracquisitions.Weviewthisprocess
asanintegralpartofourbusinessforsustainableprofitability.
22
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Letmerunthroughafewhighlightsofour2018productlinenow,andhowweseethings
trending based on our early reads. Our 2018 toy lineup was very well received at the major
international toy fairsheld inQ1.HongKongwas in January, followedbyNewYork, London,and
NuremberginFebruary.Wehadtremendouscoverageatthisyear’sNewYorkToyFair,wherewe
hostedover130mediaandinfluentialthetoursofourbooth.
In theActivities,Games&PuzzlesandFunFurnituresegment,we’regettingvery strong
contribution from our games portfolio, including Cardinal. Titles such as Soggy Doggy, Santorini,
Perplexus,Hedbanz,andCardinalbasicpuzzlesareallperformingverywell.
KineticSandhashadaresurgencefollowingourdecisiontolaunchanopeningpricepoint
at$2.99inaninnovativecontainerthatdoublesasamold.
OurinnovationinEtchASketch,whichweacquiredin2016,hasbeensuccessful,asPOS
growthisbeingdrivenbythenewEtchASketchFreestyle.
OurJoJoSiwalicencefortheactivitiesareaisdoingwellsofarwithboththeBowMaker
andJoJoGlitterNailsdeliveringgrowth.
InRemoteControlandInteractiveCharacters,accordingtoNPD,Hatchimalswasnumber
10intotaltoys,number2intheplushsuper-category,andnumber3inthedoll-supercategoryin
theUS.
23
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
HatchimalsColleggtiblesdroveasignificantamountofgrowththisquarter,asitwasnotin
themarketinQ12017.Colleggtibles(unintelligible)andapopularEastergiftthisyear.Accordingto
NPD,3ofthetop15EasteritemwereHatchimalsColleggtibles.
Harnessingthismomentum,wewillbelaunchingalmost200newcharacterstocollectin
2018.WeexpectthedemandforthehighpricepointeggstopickuparoundourthirdHatchimals
Day launch inOctober.We have now developed great brand awareness for Hatchimals, and are
capitalizing on this by building a global licensing and merchandising program. Core top-line
categories such as apparel, hosiery, bedding, backpack are performing very well, with retailers
reportingbackthatHatchimalsisoneoftheirtoplicences.
Zoomer is largelyabrand that sells in the secondhalfof theyear.Althoughwedidnot
launchanynewitemsinQ12018,werefreshedthelowpricepointZuppslinetoponies,andsold
moreunitsthisquarteroverQ12017.Weareexcitedaboutourfall2018Zoomer line.Zoomer is
entering in its sixth year as a brand, andwe are continuing to introduce new play patterns and
interactivityatbothhighandlowerpricepoints.
AsyourecallfromNewYork,thePlayfulPupsisourmostrealisticplayfulandexpressive
robotic dog yet, delivering all new interactivity. Hungry Bunnies is a line of cute rabbits that eat
paperfoods,andispricedinbetweenourlow-andhigh-priceitemsintheZoomerline.
Moonlite also represents some diversification with Remote Control and Interactive
Characters. As I mentioned earlier, it is doing very well on Amazon. We are now expanding
24
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
distributiontotheUK,Australia,andFrancethisyearandthenexpandinggloballyin2019.Moonlite
ispatentedandcouldbedisruptivetothechildren’sbookcategory.
InPre-SchoolandGirls,PAWPatrolcontinuetogrowglobally,andPOSwasstronginthe
quarter. According to NPD, PAW Patrol was the number one property in the infant, toddler,
preschooltoysuper-categoryintheUS,UK,andAustraliaforQ1.ProductsfeaturingtheSeaPatrol
themefirstintroducedinthesecondhalfofseason4andairingnowinseason5aredrivingsales.
ThePAWPatrolbasicvehicleandpupassortmentmaintainsaspotinthetoptenitemin
theUS,demonstratingconsumerscontinuetobehighlyengagedwiththebrand.
OurtwonewexcitingGirlsproductsplanonlaunchinglaterthisyear,andwewillprovide
anupdateontheminournextquarterlycall.
InBoysActionandHigh-TechConstruction,TechDeckwasatopperformer.Wearenow
selling Tech Deck globally, and we are pleased to see that consumers have reengaged with the
brandverystrongly.WearedisappointedwithFlushForce, theboycollectible linewe introduced
this year.With hindsight, therewere toomany players splitting the pie for an itemwith narrow
appeal.
In theConstruction segment, in theUS,weare relaunching theErectorbrandname for
MeccanoproducttoreconnecttheUSconsumerwiththisheritagebrand.In2018,weareshifting
focustobasicbuildingconceptsawayfromhigh-techroboticsprogramming.Althoughwedelivered
stronginnovation,pricepointsweretoohighformostconsumers,deliveringmixedresultsforus.
25
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
InourOutdoorsegment,wewereupforthequarter;however,theimpactofTRUwasfelt
disproportionately in the outdoor space, as the disruption arose during the peak season for the
outdoorarea.
Wewill provide further segment performance updates as we usually do in August and
November.
During Q1, in addition to three TOTY awards, we received several additional
acknowledgement,includingbestwearabletoyfromParentsMagazineforTwistyPetz,Techlicious
andToyBuzzeachrecognizedBoxer,andtwoNPDU.S.ToyIndustryAwardsfortop-sellingtoyby
super-categoryforPAWPatrolbasicvehicleandpupassortmentandHatchimalsPenguala.
Overall,we remain veryoptimistic for our newproducts launched in the secondhalf of
2018.
Oursecondgrowthstrategyistosignificantlyincreaseourinternationalsales.Werevised
ourmedium-termgoalsfollowingour2017resultsattheupperendofourprevioustargetof35to
40percentofoursalesinternationally.
Ourinternationalgrowthcontinuesanupwardtrajectoryforthefirstquarterof2018.Key
establishedmarketssuchasGermany,Mexico,andUKperformexceptionallywell,andournewer
marketssuchasAustraliaandCentral-EasternEurope,arecontinuingtoshowstronggrowth.
In China, our brands and products are resonatingwith consumers, and sales,while still
small,areexceedingourexpectations.
26
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
PAW Patrol recently received the Most Popular Store award from e-commerce giant
JD.com,oneofthe largestonlineretailers inChina.TheawardrepresentsPAWPatrol’ssuccess in
theCompany’smaternityandchildren’sdivisionthrough2017.PAWPatrolwasoneofonlytwotoy
brandsacknowledgedchosenfrommorethan100,000brandsparticipatingintheselection.
PAWPatrolalsoreceivedtheFastandFuriousAwardfromAlibabaTmallinthematernity
andchildren’ssection,recognizingthesuccessofthebrandonTmall in2017.PAWPatrolwasthe
onlytoybrandtoreceivethisaward.
Following these successes, we are in the process of planning for additional brand and
product launches in China in 2018, including Air Hogs, Meccano, Luvabella, KumiKreator, and
selectedmarblegames.
Third,we continue to develop evergreen global entertainment properties. Ronnen gave
youadetailedoverviewofourcurrent slateofproperties,aswellas thenewcontentwewillbe
deliveringin2019.
Iwanttohighlightforyousomethingthatisworkingparticularlywellinourentertainment
strategy.Ourentertainmentandbrandteamsworkcloselytogether integratingtheshowandthe
toylinetodeliverinnovativetoyideasthattranslateonscreen,onshelf,andathome.
PAW Patrol is a great example of the fusion of storytelling and toy design. We are
introducingthemeseachseasonthataretimedtothedeliveryofourfallproductline.Thisensures
27
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
thatduringourlargestsellingquarter,thenewproductsonretailers’shelvesandthenewepisodes
onairarecloselylinkedinboththemeandcontent.
Thewaywethinkaboutentertainmentandphysicaltoyasconvergingcontentisastrategy
wefeelwillbesuccessfulforourcomingentertainmentpropertylaunches,includingAbbyHatcher
FuzzlyCatcherandBakugan.
Fourth,we intendtogrowthroughstrategicacquisition.Wehavethebalancesheetand
financialflexibilitytodoso,andweareactivelyseekingopportunitieswiththerightstrategicfit.
We are swiftlymoving aheadwith the integration of GUND.We have kept the current
GUNDstrongleadershipteaminplace.
To position GUND for future growth, we are working on several integration initiative,
including hiring resources to support GUND; aligning the business with internal Spin Master
processes; preparing GUND to move onto SAP; and transitioning the warehousing, order
management,andinventorycontrolprocesses.
Overall,theintegrationisgoingverywellsofar.Itisstillearly,buteverythingisontrack.
Andwearefullyexpectingtohavethebusinessintegratedbytheendoftheyear.
I want to conclude a comment about the balance of 2018. As Mark described in his
outlook,weexpectouroverallgrowthratefor2018tomoderatecomparedtothepastfewyears.
WhileourresultsinQ12018wereveryencouraging,weexpectthesecondquartertobe
morechallengingaswemanagethroughtheTRUUSliquidation.Aswehavedescribedbefore,we
28
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
prefer to look at the business in halves and not quarters, due to the holiday timing and normal
supplychainmovements.
Ourcoreproductsareresonatingwell,andweareconfidentforthesecondhalfof2018
buildingonthestrongandfocusedplatformwehaveestablishedoverthelastfiveyears.
Overall,weareincrediblyproudoftheeffortandresultthatouremployeeshavedelivered
by executing on our four key growth pillars, despite the short-term headwind created by TRU
closureintheUSandtheUK.
Weremainveryfocusedonexecutingourfourkeygrowthstrategiesateverylevelofthe
business globally, andwe’ll be using our results-driven, high-performance culture to continue to
drivevalue.
That concludes our formal remarks now. Ronnen, Mark, and I will now be pleased to
answeryourquestions.
Operator,pleasebeginthequestionperiod.
Q&A
Operator
Thankyou.Atthistime,I’dliketoremindeverybodyifyoudowanttoaskaquestion,just
press*,thenthenumber1onyourtelephonekeypad.
29
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
AndourfirstquestioncomesfromSabahatKhanfromRBCCapitalMarkets.Sabahat,your
line’sopen.
SabahatKhan—RBCCapitalMarkets
Thanks,andgoodmorning.JustontheToys“R”Ussituation,youprovidedsomecolouron
theresponsethatyou’reseeingfromotherretailersintheindustry.Canyoumaybetalkalittlebit
aboutaretheyallocatingadditionalshelfspace?Isitmorepromotions?Andmaybewhatsomeof
thenontraditionalguysaredoing?I’massumingyoumaybearereferringtodepartmentstores,et
cetera.Somaybesomecolourthere.
BenGadbois
Goodmorning,Sabahat.Sowhatisactuallyhappeningis,asyouguysknow,Toys“R”Us
hadasignificantmarketshareintheUS.Andwiththeirliquidation,itleavesthatmarketsharewide
open.Soyouhaveallthetraditionalretailersthatyouwouldexpectthatarealreadysignificantin
thecategoryaggressivelywanting thatmarketshare, so there’sa lotofmeetings, there’sa lotof
reviews,there’salotofdiscussionwiththem.Andwhatthey’relookingatdoingistoaddspaceto
theirstoresanddoalotofout-of-aislepromotion,sothere’salotofactivitiesforthemtobeableto
accommodatetheexpectedextravolumecomingintotheirstores,tryingtodrivenewpromotions
withtheirstores.
Andthenwhatwe’realsoseeingisintherestofthemarketthere’salotofplayersthat—
notsurewewanttonamethem,giventhatthey’reworkingontheirownplans—butthere’salotof
30
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
nontraditionalplayersthatareveryeagertoalsoenterthetoycategorysales,justbecausetheysee
thatnowasatremendousopportunityforthemtoalsodrivetheircompsandgrow.
Andthenthelastthing,butnotleast,isthere’salotofvariablesatplaynowwiththeToys
“R”Usliquidation,asMarkandIdiscussed,andRonnen,andeveryoneisreally,reallyhardatwork
to partner upwith the retailers just tomake sure that fromanoperational standpoint it all gets
executed.
SabahatKhan
All right.Thanks.Andthen just ifwecouldshiftover to theHatchimalsplatform. I think
early last year at somepoint itwasmentioned that youwere looking at potentially a three-year
pipelineofproducts.Giventheprogressthatyou’vemadewiththatplatform,Iguessisyourview
changedonthelifespanorwhereyoumightbewiththatplatform?Orcanyoumaybetalkalittle
bitaboutyouroutlookforthatfranchise?
BenGadbois
Yeah.I’mhappytoanswerthat.SoHatchimalscontinuestodoverywellonaglobalbasis
atthevariouspricepoints,whichmeantheoriginalbigeggs,aswellasthecollectiblelines.Sowe
alsohave—youguysarefamiliaratthispointwithour36-monthbrandinnovationpipeline,sowe
feelvery,veryconfidentwiththeamountofinnovationnowthatweseeforthenextseveralyears.
Andfurthermore,wealsowillcontinuetoinvestinthebrands.
31
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
And as a reference, if you guys remember just a few years back, we launched Zoomer
whena lotof theconversation internallywascanZoomerbemorethanaone-ortwo-year item,
and now we’re in year six because we’ve fostered the brand and we’ve continued to drive
innovation that really fascinated the consumer. So we’re going to do the same thing with
Hatchimals.
Sothere’salotofrunwayleftinHatchimals,andwe’refocusedonittomakesurethatit
hasalonglifecycle.
RonnenHarary
Yeah.And justtoaddtoBen’spoint,ourentertainmentteamhasbecomeveryengaged
nowtocreatealotofshort-formcontentthatyou’llseecomingoutinthefourthquarterandthen
throughoutthebalanceof2019andbeyond.
SabahatKhan
Allright.Thanks.Andjust—
RonnenHarary
Predominantlytosupportthecollectiblepartoftheline.
SabahatKhan
All right. Great. And then just one kind of housekeeping one. On the CapEx on the
traditionalPP&E,canyoumaybetalkabouthowmuchofthatwasrelatedtoyourheadofficeand
howweshouldthinkaboutfullyearCapExwithoutthatheadofficespend?
32
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
MarkSegal
Thanks,Sabah.Yeah.SotraditionallyI’vegivenyousomeguidancearoundCapExrunning
ataround4.5,5percentofsales.Ithinkjustgiventheexpenditurethisyear,thisonetimeexpense
ontheheadoffice,that’llprobablygoupapercentagepoint.
We had around $10 million of CapEx in the first quarter going through, and there’ll
probablybeasimilaramountinthesecondquarter.
SabahatKhan
Thankyou.
Operator
AndyournextquestioncomesfromKenricTyghefromRaymondJames.Kenric,yourline’s
open.
KenricTyghe—RaymondJames
—firstandthenyouhadthebenefitofmoreEasterinthisfirstquarter.Couldyoujusthelp
usunderstandhowthefranchiseperformedandthelevelofgrowthinthefirstquarternetofthose
differencesrelativetoyourexpectations?
MarkSegal
Sorry, Kenric, we lost you for the first part of your question there. Would you mind
repeatingthatquestion,please?
KenricTyghe
33
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Sure.Sorry,Mark.I’llswitchoverhere.Thequestionwas,wesawgreatoutlookonPAW
Patrol;wehaveobviouslyastrongperformancein-quarter.WhatI’dliketotryandhandicapisthe
performanceinquarternetofthevarioustimingshifts,fourthquarterintofirst,Easterintothefirst
quarter versus the second, and try get to how that growth performed orwhat that growthwas
relativetoyourexpectations?
BenGadbois
Okay.Kenric,happytoanswerthisquestion.SoPAWPatrolcontinuestoaddverystrong
POS on a global basis. It’s a bit different by different countries and regions around the world.
Nonetheless,thePOSgloballywasuplow-doubledigits,sothefranchisecontinuedtodoextremely
well.
Andjustasareminder,severalpartsoftheworldareonetothreeseasonsbehindNorth
America,andactuallywecontinuetobeextremelypositivewiththeresultswe’reseeingwithPAW
Patrol. Ronnenmentioned earlier that later this yearwe’re launching a one-hour TV special, the
MightyPups,whichisverymuchontrendwithwhatcaptureskidsthesedays.We’rehavingseason
5 launchingsoon.Andwe’reexcitedforournewproduct launch, includingultimatefiretruckand
thenewvehicles,too,thatRonnenmentionedearlier.
Soweremainvery,verypositivewiththeperformanceofthefranchise.
KenricTyghe
34
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Great.Thankyou,Ben.Andcertainlythefiretruckwasimpressiveatthetoyfair.IfIcould
switchgears,Ronnen,onRustyRivetsperhaps…you’resoundingperhapsa littlemoreconfident
withrespecttothefranchise;performanceperhapsbetterexpected;supportingthetoylaunchora
fullertoylaunchthanperhapswehadsortofbeenlookingforinthisyear.Couldyoujustspeakto
that Rusty Rivets performancewhat’s either changed in terms of the opportunity or changed in
termsofyourconfidence?
RonnenHarary
I thinkwe’regoing toputRustyon thenext call for the thirdquarter.That’sa shot. It’s
interesting, television shows they’re kind of like children. They all kind of develop at a different
pace.AndIthinkthatthefirstseasonofRustyRivets,eventhoughitratedreallywell,I’dprobably
giveita7outof10.Andseason2,theteamhasjustdoneanexceptionaljobreallytighteningup
the storytellingand thepacingof the show,and I’dprobablygive it a9outof10asa television
show. And they’ve also done an incredible job to focus in onwhat the kidswere gravitating to,
whichwerethesespecialbotsliketheElephantbotandtheTigerbotandtheGorillabot,andbrought
in a nemesis toRusty andRuby,which creates for great storytelling. So I think the show itself is
muchtighter,andIencourageallyouguystoactuallywatchseason2.
Andthen the teamdidasmart thing,whichwas theygave thepropertymoregestation
timewith theconsumer to really start toget into thecharactersand toget into the show.And I
thinkwemadeagoodstrategicdecisionbypushingoffthetoylaunchtothefourthquarterofthis
35
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
year,andalsotakingsomeofthelearningsthatwehadfromToys“R”Uslastyearandmodifyinga
line to what were the higher-selling feature products versus the other ones that were
underperforming.
Socautiouslyoptimistic,andwe’llsee inthefourthquarterhowthetoysresonate.But I
cantellyouthattheshowisalotstronger,andtheratingsareproofthatthekidsareengagingand
watchingtheshow.
KenricTyghe
Great.Thankyou.Andaquickfinaloneforme.Mark,thetimingshiftfirsthalfversusthe
secondhalf,isthatsimplyreflectiveoftheToys“R”UsUSwindupperhapsproceedingquickerthan
expectedorsomecombinationofthatandhowaggressivelyotherentrantsarelookingtogoafter
theToys“R”Usshare?
MarkSegal
It’s primarily, Kenric, a functionof the volatility in the secondquarter in the sense that
therewillnotbereplenishmentsales,obviously,asaresultoftheUSToys“R”Usliquidation.And
thatkindofshiftssometoysalesoutofQ2thatwewereexpectingtomake,andthatchangedthe
seasonalityalittlebit.
KenricTyghe
Great.That’sitforme.Thankyou.
Operator
36
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
And your next question comes from StephanieWissink from Jaffrays. Steph, your line’s
open.
StephanieWissink—PiperJaffray
Thanks. Good morning, everyone. I want to unpack a couple of things. First, just
congratulations, guys, on the success of the licensing program. Curious if you can dig a little bit
deeper and sharewith uswhere some of that is coming from, if that’s PAW Patrol, or if you’re
starting to see some success with some of your other franchises? And then also I know the
advancement in internationalhasbeenakeystrategicpillarforyou,soI’mcurious ifyoucanjust
breakdownabitofwhereyou’reseeingsomemarketpenetrationopportunityandgrowth?And
howweshouldthinkaboutthatcadencemovingbeyondkindof35percentoftotalsalesoverthe
nextcoupleofyears?Thankyou.
MarkSegal
Okay. Steph, I’ll take the first piece of that question, and thenmaybe Ronnenwill add
some comments and thenBenwill dealwith the international piece.Wehave seen some strong
growthinotherrevenue.Wedon’tbreakdownallthecomponentsofotherrevenue,butthereare
two—therearethreeprimarydriversofthat.
Youhaveyour licensingandmerchandisingprogram,youhaveyourdistributionsalesof
the TV shows, and thenwe also have app revenue.We’re actually seeing growth in all of them.
We’reactuallystarting toseesomeofourown licensingoutdoingnicelyaswell.TheHatchimals
37
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
programwestartedlastyearisstartingtogetsometractionasthatbrandhasgrown.Andsothat’s
becominganelementofourotherrevenuestreamsaswell,andthat’saprogramthatwe’regoing
tocontinuetobuild.
Aswell,we’realsoseeingstrengthintheTocaBocaandSagoMiniappsales.Bothofthose
companiesarecontinuingtodowellandbuildtheirfranchises,andsoallofthosearereallydriving
growthintheotherrevenueline.
Doyouwanttoaddanything,Ronnen,tothat?
RonnenHarary
Yes.JusttobuildonyourcommentonHatchimals,there’sinterestingthingshappeningin
the industry nowwhere you have toy properties that are driving L&M, such as Hatchimals, LOL,
Shopkins.Andwhenyouaddthemup,it’squitealargeshareoftheindustrythat’sbeingdrivenby
toys.
And I think potentially a large factor of that is the ability for kids towatch the content
basedonthosetoypropertiesonYouTube,whichisdrivingalotofgrowthandreallyopeningupa
lotofopportunitiesforcompaniesinourspace.
So forus,we’re takingavery focusedeffort in termsofexpandingoutwhatHatchimals
means,andexpandingoutwhatthatmeansfromacharacterperspectivewiththecontentthatwe
haveindevelopmentnow.AndIthinktheteam’sdoneanincrediblejobbycreatinganin-house—
reactingveryquicklybysigningupover50licensors,andthey’renotonlygettingouttheproduct,
38
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
butgettingoutareallyincredibleproductthat’stailoredandthatisinkeepingwiththemeaningof
whatHatchimalsisallabout.Andthatproduct’sreallyresonatingwiththeconsumer,andsuddenly
wehavean incredible in-house licensingteamwherethistimearoundwecapture100percentof
therevenuecomingin.
BenGadbois
On international, Steph, wewere actually very pleasedwith our performance at pretty
muchallofourindividualcountries.WetrackthePOSineachoneofthesecountries,andinalmost
allofourcountrieswherewehavedirectofficesourPOSisamultipleofthemarket.
Andwhat is so positive for us is it shows that not only the POS is very strong, but the
portfolioasawholeisdoingwell,whichisveryencouragingforus.Andasfaraschangingourtarget
fromthat35percentthatwe’veinitiallysettothe40percentiswe’llgofrom35to40,andthenext
step before we change to 40, but we’re always studying new markets; we’re preparing more
countries.
Andasareminder,wedon’tliketolaunchcountriesandlosemoneyforthreeyearsjust
for the sake of entering new countries. So we like to be very calculated and measured in our
internationalapproach,andasweenterweliketobeprofitableveryfastinourentry.Soyouwill
continueusto…youwillcontinuetoseeusstepupourinternationaleffort,butwe’reverypleased
asacompanyintermsofhowourinternationalofficesaredoingbecauseit’snotafunctionofone
ortwocountriesleadingalltheotherones.We’vedonereallywellinQ1acrosstheboard.
39
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
StephanieWissink
Thankyou.Veryhelpful.
Operator
AndyournextquestioncomesfromAdamShinefromNationalBankFinancial.Adam,your
line’sopen.
AdamShine—NationalBankFinancial
Thanksalot.Mark,I’dliketopushyoualittlebitontheguidanceupdatebecause—andI
don’tbegrudgeyoumaking themove in the contextof theuncertaintyaroundToys “R”Us—but
everything I’ve heard today was pretty consistent with the messaging sort of around the last
disclosures inMarch, and I think during the course of some of themarketing that you’ve done
subsequently.And Idon’t think I’veheardanythingparticularlynegative inregardstoa lotof the
themesthatcontinuetodrivesomeofyourhistoricaloutperformanceintheindustry.
AndsogiventhestartofaverygoodQ1thatblewawayStreetnumbers—andarguablyin
asmallquarter—acknowledgingadipthatIthinkisbeingsignalledheadingintoQ2,howshouldwe
bethinkingaboutthecontextofthisguidanceparticularlyasyouhistoricallytendtogetalotmore
visibilityastoyourH2outlookonceyougetthroughsomeofyoursummerplanninganddiscussions
withretailers?I’llleaveitthere,andperhapsmaybeyoucanelaborate.
MarkSegal
40
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
Okay.Thanks,Adam. I thinkwithourguidancewe’rebeingprudent,Adam,becausewe
don’thaveallthefacts.WedoknowthattheToys“R”UsliquidationintheUSisgoingtohavean
impactonQ2.Wearealso—aswesaidearlier,wehadashiftofrevenuefromQ2intoQ1,which
willaffecttheQ2comps.
Wedon’tgivequarterlyguidance,butweare,Ithink,beingreasonableandprudenthere
byadjustingouroverallgrowthratefor2018downalittlebitasaresultoftheuncertainty,notonly
inQ2,butalsointhesecondhalfoftheyear.AsBendescribed,wedofeelconfident,butIthinkat
thispointintimegivenwherewe’reatwiththeinformationthatwehave,webelievethataslight
tweakoftheguidancewithamoreconservativetoneistherightthingtodofortheCompany.
Ben,wouldyouliketoadd?
BenGadbois
And—
AdamShine
Sorry,goahead.
BenGadbois
Yeah.Justonethingtoadd,Adam,isweareverypositivewithourproductlaunchthatare
upcomingforthesecondhalfoftheyear.Ithinkwefeelgreatabouttheportfoliofortherestofthe
year.
41
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
YouguyshaveallseenitinNewYork,butwiththatsaid,therearemorevariablesinthe
marketandintheindustrythisyearthaninthetraditionalyears.Andit’sdifficulttomodelallthese
newvariableswithahighdegreeofaccuracy.Andasyouknow—asyouknowus,we tend tobe
moreconservativeandprudentandmeasuredinourapproach.
Withthatsaid,Ithinkoncewe—overthenextthreemonthswe’llhavealotmoreclarity.
Anduntilwehavethatclarity,wejustprefertobemoreprudent.
AdamShine
Okay.Sofairenough.SonotwithstandingtheQ2noisethatcouldbecoming,IguessIlook
forwardtoyouguysbeatingStreetnumbersagain.Allthebest.Thanks.
MarkSegal
Operator, I thinkwe’vegottimeforonemorequestionatmost.We’regoingtohaveto
cutitoffat10:30a.m.
Operator
Certainly.So that finalquestioncomes fromDerekDley fromCanaccordGenuity.Derek,
yourline’sopen.
DerekDley—CanaccordGenuity
Yeah.Hi,guys.Thanksforsqueezingmeinhere.Justaquestiononsomeofyourallocation
ofproductsoutsideofToys“R”Us.Canyoujustgiveusanupdateonperhapse-commerceandhow
42
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
much of an impact e-commerce is having, both with your retail partners and your direct-to-
consumerbusiness?
BenGadbois
Yeah.Ithinkwhenyoulookat…ifyoulookatthechannelsplitintheUS,there’sa—mass
isobviously…themassretailersareobviouslythelargestchannel.Theonlineretailerscontinueto
grow.We don’t expect that to slow down, although the traditional retailers are also verymuch
focusedone-commerceaswellnow.
SoIthinkit’sgoingtobeafunctionofthepiere-splitting,I’mnotgoingtosayequally,but
probablyinafairlybalancedwayamongstallthedifferentretailers.Andagain,likewementioned
earlier,theonethingthatisinterestingforusisretailersthathavetypicallynotreallybeenintothe
toycategorieswantingtoalsotrytoparticipategoingforward.
ButIthink,look,Ithinke-commercewillcontinuetogrow;IthinknotasafunctionofToys
“R”Us,butIthinkasafunctionofhowconsumersliketoshop.
DerekDley
Okay. And do you experience a different margin profile when your products go e-
commerce?Orisitthesame?
MarkSegal
43
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
May 9, 2018 — 9:30 a.m. E.T. Spin Master Corp. Q1 2018 Financial Results Conference Call
No,we’re relatively neutral fromamargin perspective,Derek,when it comes tobricks-
and-mortar versus online. Obviously within our customer category there are different levels of
profitabilityoverall,butit’srelativelyneutralforus.
DerekDley
Okay.Great.Congratsonastrongstarttotheyear.
BenGadbois
Thanks,Derek.
Operator
Andatthistime,I’llturnthecallbackovertothepresentersforanyclosingremarks.
MarkSegal
Well, just to thankyou, all.Wewill be talking to youagain inearlyAugustwithourQ2
results.
Thanks,everyone.Muchappreciated.
BenGadbois
Thankyou.
Operator
Andthisconcludestoday’sconferencecall.Youmaynowdisconnect.
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