Q1 2020 Earnings Call

Hi, thanks for taking my questions first and curious about how you guys are thinking about marketing expenses over the remainder of the year. Is there a better way to strategically put those dollars to walk to facilitate sales or and and do you think that that sort of evenly eases back to a More normalized Level over the course of the year? Does it sort of escalate towards the holiday season in advance of that key. Thanks.

Sales of our digital toys are grown as parents look for ways to entertain and educate their kids at home over all we saw views of over 30% on our tow boats a government forms q1 and views or have 100% currently took a book and second many combined now average twenty five million users per month globally giving us a strong base of the users to expand collapse sales and drugs humor subscription-based products. Say I go now is over a hundred fifty thousand subscribers causes platforms including Sango school went live wait in March after 60 months of development and building your isolate you encourage you to think about Spin Master not only in the toy company, but as an integrated entertainment business toys entertainment and digital toys and games with kids at home all day and parents being more flexible screen time. We're seeing a strong rise in viewing demand for both their digital offering and entertain

So I'll take that first and then renew Edison, treat typically marketing runs it around 10% of our sales and you know, I don't see that changing dramatically for 2020 or maybe a little bit down from those levels. You know, we are actually looking at our next and should think more time with consumers will active online and e-commerce in particular. And as I said in my script, you are seeing rates coming down into we do expect to get some benefit of lower rates as month advertised as advertised less, especially on T. I think that you know, as you see consumer shopping patterns shift and change will be matched our marketing to the way those habits are actually evolving. So you'll probably see more of a digital spend going into the fourth quarter. You'll see some extra spent at Target for adults dead.

franchises

In February, we announced our newest preschool franchise might Express will debut as points on Netflix in September might Express seat for the cat two trains kids and expect a world filled with Amazing Adventures might Express is our biggest production to date and marks or her series launching directly on a streaming platform. The launch marks the shift from a forced in master and we will hold the rights for all consumer products. Not only for toys this will allow us to improve the margins. We make Aunt Nan toi licensing more money revenue streams. We also announced Paw Patrol the movie with will be launched from August 2021 in association with Nickelodeon Movies distributed by Paramount Pictures Entertainment team is working on completing the voice talents and we close this year an update on the exciting tab soon. We are equally excited about our Paw Patrol theme song.

You will probably see what it's in in the stores. You'll see more social media. What I say is more creative and created by our internal teams as will be more armed marketing where we have to actually pay money upfront to create the content, but we have much more content into the universe, especially on the same channel. So you'll see what makes it different thing. But I'm very proud of our marketing team. They reacted very quickly create an internal reacted very quickly. And you have any way you could look at the Spin Master Universe you already start to see some of the shift in marketing. I think we're doing that will give you a bit of a taste of what's going to come Google.

Rescue which are on Nickelodeon beginning in June is one of our strongest themes ever. Our entertainment team is working on our third party animation is working with a third-party Animation Studios to keep the production of all our TV shows and movies on track in a work from home environments and we were fortunate that the animation production lends itself more easily to Virtual work off of it. I'm like live action, which is severely disrupted by covid-19.

Okay, and then later because I'm a little bit newer to the VIN Master story. I think one of your competitors noted that outdoor was a pretty strong category and there was a shift to it. But is there something about your lineup? Like is it more tilted to Summer product with a swim category that has made that a little bit more difficult in this. For you than I would have thought yes outdoor was down 15.5% in q1 was a number of factors. We had some supply chain disruption. Just remember the the seasonality. Two weeks different choice because the first half of the is typically bigger than the second half of the year because as we lead into the summer months and in q1, we had some disruption arising from the Asian covid-19. Ya situation that arose so we did see some disruption there and then later in the quarter. We actually had a lot of closures around pools and outdoor areas and beaches wage.

I want to know if she wants to take it to the operational challenges experience in a lot of heart 2019. Although this quarterly continued to see higher cost. Challenges and management mistakes 2019 and pleased to say that we have made significant progress or mediating any issues of our goal remains to have that operation issues that caused such a disruption in 2019. Largely behind us as the entered Q3 and to make sure we enter 2021 with a warehousing and distribution cost run rate in line with the storical Norms. There are two key areas that we have focused on that. I will discuss with you now and Mark will provide for their details later off firstly. We reorganize the structure of our existing North American third party supply chain Network.

Which affected?

Demand for now, but we all see outdoor which is mainly Outdoors mainly water focused the industry and outdoor, you know, he's made me more backyard Focus so much of life. You want was backyard was up in a big way. Whereas water was actually down. What we're seeing now is that water has come back very strongly. And so we're seeing a swimways demand and POS am going up quite significantly.

You have focused on the consolidation realignment and simplification of our third party distribution centers while ensuring we remain sufficiently agile to respond to the evolving industry and not environment. We are targeting the ship more cost-effectively and manage inventory will minimize storage requirements all whilst improving certain levels of customers complaining States has been completed and we were now implementing the changes.

Thank you. That's very helpful.

Your next question comes from the line of Adam Schein with National Bank Financial your line is open. Thanks a lot. Good morning. Maybe one question for Ronan one for Mark written down. Usually we start to have you guys building some of your H to visibility somewhere around the june-july timeframe is sort of retailers start to commit to you guys. Can you speak to age of it is is changing some of that Dynamic Bring It Forward a little bit maybe otherwise extending it and just as a follow-on to the context with retailers any any material changes afoot as we you know, move through, you know, the the mid part of Q2 compared to what you might have seen amidst the initial scramble at 8 to 1 and then just for Mark, you know, you've talked quite a bit on the supply chain decide with respect to some of the distribution centers storage capabilities, maybe wage.

Secondly, we have focused on rebuilding our operations teams and improving internal and external cross-functional collaboration particularly in connection with our for camping and planning processes month. We made some Key Senior leadership changes in q1 and are continuing to strengthen our operations and my teams be refreshed and re-energized in areas with highly confident individuals would eat functional expertise. You also create a consumer-focused teams. These are consumer first internal hubs focused on a single agency customers and consumer groups tried to blend of dedicated sales order management and and planning with just these other credit management team members all-purpose focused on serving customers to conclude your fortune that we operate in industry and it's shown in the past to be very resilient in the face of recession other disruptions.

Could elaborate a little bit on any thoughts around the manufacturing footprint and whether any changes afoot there of any materiality might ultimately be best pursuit of next year rather than big booms out of China this year. Thanks.

Driven by low average selling prices for products potential substitution for more expensive forms of leisure and most importantly his parents tend to sacrifice for them self.

Adam I think that I think that the the buying patterns primarily from the large retailers going into the office out of here or actually very consistent with previous years. So I we we don't see any changes there and I am personally am encouraged by the resilience of the of the industry. I think that if we go back, you know, six weeks when covid-19 and everybody started working from home the the I would've thought the industry would have been contacted even more than what it is and what we're at home today and your third-party recording was

That was before their children.

Together with this industry resilience new Diversified has been answered product portfolio across all eleven categories of the street as measured by a n t e colbath remember in 2019 our sales increased 60% excluding the 230 million dollar decline of channels. We've also Diversified geographically into 28 direct Marcus announcer over a hundred Partners worldwide. Finally. We've invested in our in-house entertainment and digital platform platforms and a further Diversified and strength and spin master bath. We were not the same company. We were only five years ago.

Looking forward social distancing ramifications are likely to continue to create some shifts in consumer Behavior, or even while we're beyond the immediate crisis. We expect to see some closures of small-scale specialty stores. We anticipate more control of foot traffic and stores with shorter focused trips, and with less opportunity for impulse purchases in-store. We expect to see this equation of online buying and price sensitivity and more parent proven online shopping with other kids presence. You're also seeing a significant increase in screen time by kids to milenge in March. April screen time was up 50% this may decrease as the weather warms up his return to a normal your normal routine, but a dog kind of more sophisticated of entertainment option have is full menu this applies to the gaming acceleration as well dispose. Well for a Toca Boca tag on many platforms, you're also sensing. Yep.

and there was there was two parts of it that

That answer your question. Yeah. Yeah. I I think the the other part was simply around, you know any changes to the dynamic in regards to you know, what's been happening as we as we get into may obviously as as was alluded to previously known Essentials at Amazon or curb for a few weeks, you know April right that's being freed up of late. But there's still there's still seems to be you know, it's not like you're getting your delivery a day or two necessarily so that was well. What I will say is I mean, you know in Europe you still have a lot of store close in Europe is very different in North America and they're slowly coming out of it. I think the biggest Trend that we're seeing now which is which is a really big shifts are probably stay here for a long time, which is the online delivery and take up. So there's a big surge right now think demand and people just placing orders and literally pulling their cars up and the and the product they put into the trunk and people are dead.

Have towards coaching opportunities as new family rituals were on T and merge in the code that shut down.

Wait, and so you see Walmart doing a big thing.

We're seeing a strong desire to comfort kids and and return them to a sense of normality. I'm going with grandparents separation gills recall 40% of households of children. I need to adjust your business to recognize these Trends our goal remains create excitement and Magic virtual rolling. Our performance in q1 is not an indicator of our future potential and remain cautiously optimistic for 2020, assuming the world returns to a degree of normality which appears to be heading towards

In that area. So I think that's the biggest shift that we've seen and I think that will probably continue and that is actually causing us to actually think about how we actually do our own Nike product because usually the way you do we do things in assortments and now to be able to use to facilitate the App Store pickup from online ordering you have a good solid. So it's a bit of a different configuration. There are teams ready on that and make the changes so that we can maximize the third or fourth quarter. Thanks. So adamant pick up and I'll pick up somewhere and then lift off. I just want to add one one point to what he said about those the customers, you know, we worked really hard without our main customers to make sure that any of the issues that happen in Asia and q1 relating to call it would not impact the second half of the Europe, you know, the vast majority of the product that and and this pertains to Tooling in particular that may have been disrupted in q1. Yep.

We have an exciting Innovative and diverse a product offering 2020 and 2021 and great entertainment and digital contents are Brands Partnerships product of entertainment and mobile digital franchise continue to resonate with children as our POS demonstrates.

For integrated resilient Innovation, like business model are these diversity attractive platform and our stable financial position. We believe we are well-positioned to take advantage of emerging opportunities and regain our next.

to shipping to 3 and you know recess or the line with like the same thing so many excuse we working very closely with them on that you know the maybe a slight shift to 4 from 2 to 3 a.m. with soothing or run rates won't allow us to maximize while you relate through that you three versus Q4 but other all that doesn't affect the second half of the urine and then in in conjunction with your point about manufacturing you know me have Diversified out of China or you know we're we're in we're in in Vietnam we're in South India and Mexico as you know you don't just given what's happened this year I would suggest that the pace of any further diversification might slow down a little bit in 2012-13 you know we were very happy with the way that the China manufacturing base has picked up following calls it we're now back in almost full capacity or at full capacity in China and in Vietnam

We'd be strong progress expect to execute to with a much simplified and better structures supply chain infrastructure ready to handle seasonal volumes a solid Financial Foundation whether this crisis and we're poised to take advantage of any organic or acquisition opportunities as they arise announcer number. Thank you Rene on today's call. I will Briefly summarize our q1 performance and then turn to a discussion of our ongoing initiatives to improve operating off and the business considering covid-19.

girls

Sales grew by 0.7% in q1 to 242.3 minutes was an unfavorable Foreign Exchange impact of 7.9 million on a constant currency basis drug product sales percent environment Global industry grew up on a geographic basis. You have continued to leave at 13.6% in the quarter followed by two points off in class, you know America and a 29.4% decline in the rest of the world the declining the rest of the world was as a result of lower sales in some markets in Asia and Australia covid-19 impacting us markets earlier. The quarter International gross product sales represented just over 40% over cost product sales historically, we upload the goal to reach 50% of annual sales generated from International models. We have increased that Target to 45% which we consider the cheaper. As a reminder approximately 70% of global. Yep.

We still have some issues in India and Mexico which are closed or partially closed, but that's really immaterial and we will not affect our supply in 2028 right? Thanks for that.

Your next question comes from the line of Lu Cannon was canaccord your line is open. Hey, thanks gud morning guys. The one question. I had purchased the housekeeping question mark Hood you gave some pretty good commentary on the data that you receiving to date so far in Q2, but I just missed some of those figures. So do you mind repeating this month?

In q1, globally, we were positive 10% including hatch and excluding hatchables. We were at 19% and in the choice, we will have positive 11% including animals and 19% excluding actions.

Increase sales occur outside of North America and we have significant run away for future International growth.

Gross product sales growth was led by the activities games almost at last statement which grew 24% overall according to NPD the US games the puzzles category who over $2,000 in q1 and we benefit from this we have seen growth across the entire activities and games and puzzles portfolio with exceptional performance in kinetic sand, which will be based on what we've seen so far into two we would expect another strong quarter from the segment particularly in the US market which continues to show extremely strong through April.

And we learned actually seeing an acceleration in the US to significantly higher rates than what I just described currently, you know, the rest of the world is actually off a little bit down. Just give it the closures receipt in Europe and other countries, but the right now is extremely strong. Thanks. And then my my second question it's just on I guess how you view your overall Financial Health of your customers. I notice that the the provisions that you have for any doubtful accounts and really take up meme from last year. I didn't know you mentioned that you know, Walmart Target and Amazon represent the Lion's Share of where your sales come from and I don't imagine that you anticipate any sort of credit issues there. But as far as the makeup of the rest of that receivables balance in your customer base, how do you view I guess their Financial Health, um in the near-term

Well, what was what was that a plus some statement has been disproportionately hard hit by covid-19 this quarter. We saw a decline as most Thursday customers. Are you excited specialty retailers, we'll close through the back half of March and have not yet. We open we saw strong growth in the boys action and construction segment which grew 96% there for the launch of DC Comics licensed products and grew up in Baku. Bakugan sales were strong into one following the global or to the second season of the show off. Those are the police to see very strong sales momentum at the beginning of the year these Brands along with most other collectible toys have since felt the impact of covid-19.

Okay, that's a great question. Thank you. And you mentioned you know, roughly.

About sales come from Walmart Target and Amazon. So so they're very very strong for the credit perspective money issues there. You know, I would say to the ought to Thursday is that we are seeing pressure on our customers, which is the mid-tier, you know, the department stores and and so on small specialty retailers in the US as well as the small specialty retail component in countries, like Italy and France, but what I do want to say to you is that in this is really important. We have Global Credit insurance policies, which are non-cancellable. And so you are very well protected from a credit perspective and we have very limited credit exposure. We do get requests sometimes for extension. I'm in terms and we typically don't agree to them but sometimes for strategic reasons, we may want to help a customer too. But overall it's really small and very own material.

Close product sales in preschool and girls decreased by 10.9% in through one Paw Patrol which was down to the quarter saw pressure from a combination of higher wage from the 2019 holiday season make the media are earning any particular covid-19 as a cancellation of birthday parties and other events themselves affected them later in the quarter leading up to Easter.

will

To see people selling well across many miles outside of North America including the UK Germany Russia Mexico where we saw PLS globulin.

The remote control and interact with characters saving continue to show declines, they buy hatchimals offset by growth all troll RC and Monster Jam RC gross sales and outdoors type of 15.5% driven in part due to supply chain disruptions and Beach and outdoor area closures later in the quarter.

And and we're in good shape from that perspective. Okay. Thanks. Appreciate the color. Your next question comes from the line of Gerrick Johnson with BMO Capital markets office is open. Good morning. Thank you. I have two questions actually two topics multiple questions first on Amazon last day of March. There are 35 games in the top sellers on Amazon, but none of them were Spin Master games does your portfolio just not lend itself well to selling an Amazon or is that part of the supply issue? Why don't we see your game as part of the top sellers on Amazon?

Keep in mind that our outdoor business is mainly water and the industry increase was more secular purpose.

Approximately two million dollars a shipment in our Institute to as a result of q1 covid-19 supply chain issues. Let's turn now to POS according to NPD off the street before the safety q1 and eight percent of the u.s. Globally calculate POS including hatchimals was up 10% two and a half times higher than the industry is excluding hatchimals 19% We are very pleased with his performance as it demonstrates that overall our friends are rejecting the consumerist.

You don't give it to be honest. I I can't talk to Amazon specifically maybe Renee has got some color on there. But what I can tell you is that overall games and puzzles in q1 group. According to NPD has two hundred million dollars in total and we grew our Shake Adventure if you with that, in fact, I believe we actually grew up a little bit you order number two guys advisors player in the United States and our demand and volume is extremely high as well as our POS, which is in the triple digits change so I can talk to Amazon specifically. Maybe he wanted you here. I think that's a great question and we can potentially get back to you on it. But from a from a high level I think this month is need to understand is the composition of our actual games business. So the big percentage of regimes is Cardinal and Cardinal is a broad-based multiple SKU. Yep.

In the US POS for the quarter was up 11% including hatchimals and up 19% excluding Nationals in the US and Globe activities and games and puzzles. PRS was a triple digits there biking anything in, Paw Patrol POS was down to the quarter for the reasons. I described the current Global cos remain single digits and is bifurcated by region in the US POS. And the last four weeks off to continue is continuing to grow at even higher rates that we saw in q1 activities against those POs showing continuous friend. We are encouraged to see at least, you know is for patrol lots of gun. And once the Jim has now turned positive together with Outdoors as the weather warmed up.

Yes, it's got tons and tons of skills and select the titles and it's more of a you know, big part of the business of the games is the basics like backgammon and chess and checkers and dominoes and off or shapes and all that type of stuff. So, I don't think you'd see that appearing as like the top titles. So they just have a very wide assortment with a lot of excuse that at the end of the day adds up to $5. And then when you look at the Spin Master side of the business, you know, our titles like headbands probably our top title. I would be surprised not to see headbands on the Amazon about 30 list, but I'll look into them and we have other titles that are that are decent. They're not as strong as some of our competitors, but they still sell and when you add all the titles up as well settled out there they add up to do good sales rep. You also have things like four classes and stuff like that. So I think you have to look at our games businesses and public businesses something that's got at the very wide threat to it. Also the puzzle business, you know off

However in Europe except for Russia and Germany and in countries such as Canada, we have seen a decline in PRS of the last 4 weeks due to the impact of retail clothing. We are observing several Trends which affected our shipments and POS as we mentioned. We saw the client in event with the holiday driven so we can at least such as preschoolers Vehicles offset by a significant increases in mind for arts and crafts games and puzzles and outdoor toys driven by parents desire to manage the children's activities of with less brick-and-mortar shopping. There are fewer in stores impulse purchases. They win shopping online fantasy less value and lower class this reduce the line for flexible brand such as this reduce the model of the vehicle Brands such as awkward Monster Jam Collectibles and twisty Petz in q1.

a lot of our puzzle businesses is sold to

And the valley channels where you find puzzles for two dollars and four dollars or five dollars and there's multiple views and there's so many different licenses. So it's really spread out over very large assortment wage. Yeah. See, that's great great answer thank you very much and and mentioning the value channel that that's a pretty strong channel for you guys right now. Is it not

It's it's it's a request from our you know, I think of any channels pretty decent and I don't want to ask you about inventory. Your inventory is up 40% I think it's just about a little bit but you kind of fit in out on a call. So I didn't I didn't catch all of what you said about why that inventories up 40% and if it's all good inventory and then you did have access Channel inventory coming out of fourth-quarter Thursday. Is that pretty much cleaned up or is there are still pockets of of of stuff. So so we do we did actually exit 2019 with significantly higher payment. She then we had at the comparable period of of 2018. So there was a there was a big carrier that we had to deal with mainly in our warehouse was because of the fact of the issues that we had in the second half. So we've been working our way through that into want, you know, imagery has come down quite significantly in q1 and we'll come down further in

as a result of the shift away from the electrical

It's more the games and activities and more generally towards online purchases. We have seen average retail prices moved from the $16 range into the 10 to $20 range from a customer perspective real fortunate to get some of our largest customers have been able to stay open and are among the strongest retailers in the world in the US has really mentioned Walmart and am searching who was brick-and-mortar and online through q1 and continue to do something together. They comprise close to 40% of our Global sales for 2019 and 1035 percentage you want including Amazon Customer to send teachers would be approximately 50% and 45% respectively.

In the US online sales charts strong broken q1 and a continued to comprise a large component of our customers volume for the quarter our sales job in u.s. Who sings the scent compared to last year. We expect sales to us on line ending on those channels to comprise over 25% of our life is twenty twenty and thirty percent of your life as consumers continue to gravitate away from drinking water.

Due to the vast majority of that imagery is good and we continue to sell it but you know, they were some markdowns and it was a margin compression as we as we actually walk through some of that the reality is that having the entry in a way helped us because we were able to to fill a lot of activity just puzzles orders that otherwise might have been ordered fo be that we would not have been able to fill normally we worked very closely with retailers to take inventory, especially in the covid-19. It's it's off the substitute we needed especially in games and puzzles. We've actually been able to develop a lot of out of our features which has helped us. I mean overall Garrick 120 volt sales were up 20% of July nineteen. And as I said, you code has helped some categories like activities games and puzzles and it's hurt in some categories where there'd be less doors, and and yep.

In Europe, which has a very large specialty store element many customers close their brick-and-mortar locations online and e-commerce show strong growth in some European markets, but it'll come back online shopping is less developed. They're turning back to the funeral. We generated revenue of 227.3 billion in q1, which was down 4.9% for the same period last year with the on 1.4% on a constant currency basis sales allowances increased to 15.2% of gross product sales compared to 12.6% in q1 lost you this increase is partly related to the continued expansion in Europe and Russia in particular which has both higher classes and Ohio overall sales allowance rate and the global average. We also experienced continued noncompliance charges from customers related directly to our performance issues, which began in the second half of 2019.

We want to shift as much as we can to the fall from an Empire be perspective. But we do see some continued pressure on margins in in the second quarter page and what we'd really essentially balancing off here is close margin against cash and also inventory carrying costs as we seek to restructure our supply chain. So it's it's a bit of a mixed bag.

As well as I give you a hint.

Okay, so that explains the channel inventory, but the the inventory in our books I was talking about the imagery in that box. So I Channel level it isn't significant issues at the channel level. Okay? Okay. Great. Thank you Mark. Your next question comes from the line of David Choi Securities. Your line is open. Yeah a couple of questions if I may so when you first issued your 2020 guidance you a callback for Mid single-digit digit Revenue Decline and it seems they send you a commentary today and Q one that I'm probably going to be too pessimistic. I don't know if you can comment at all about that giving that you go through your guidance, but it seems that way and then secondly when we look to

Well, I erase exhibited in Europe and Russia and market-related structural factors will continue on compliance charges control efforts to improve operational 20/20 other revenues, which primarily reflects licensing and Merchandising royalties television distribution revenue and revenue declines are seven million jobs lost the decline resulted from low licensing and Merchandising royalties from PAW Patrol and hatchimals and was partially offset by increased revenue from Toca Boca and say, oh we expect the strength to continue the balance of 2020.

Gross profit for the quarter was 19.8 million or 39.9% of Revenue compared to 107.7 The 45.1% gross profit was low off due to high engine options right in between provisions and we were expenses fire sales analysis and lower other Revenue.

the 2021 you say you'll

A year with only five facilities and most of the supply chain things will be behind you is just starting the Q3. So could we expect and material rebounds and the ebitda margin and to get back 18% but that be a little too optimistic.

We estimate that approximately fourteen billion dollars of the 17 million dollar declining gross profit relates to in efficiencies, which started at the second half on the 19th.

It's tienes potential revenues 64.51% Please keep in mind and I'm always inspired to the q1 weather system as a whole.

So so David.

Yeah, we not we don't actually getting formal Gardens at this time on our top-line. I didn't give some commentary on the second half hour see that playing out when I wanted service question earlier. So we are actually consult the second often. We do feel good about it, but we don't know yet. It's just given what's happening with covert. So we have to be somewhat cautious until we we see some more substance behind how the second half players Thursday. We are cautiously optimistic and we're also cautiously optimistic there by the end of the second quarter. We'll have our most of our supply chain issues behind us and we'll be them getting the benefit of these improvements over the second half of the Europe. And as you mentioned we we want to have a significantly restructured North American Supply Chain by the end of 2018. We have only five facilities which would be down significantly from what we have currently and that is allow us to be much more efficient for you know going forward. We hope to recapture some of our model.

Warehousing and distribution expenses for the largest component of the sg&a least increasing 11.6 million euro in Europe. We estimate that approximately 9 million / 2.6 million relates directly to the inefficiency of the rising from 2019. Although given to them at least from your end. They were still significantly elevated relative to one last year long resulting in increased storage costs high energy levels increase of almost 20% in our domestic salesman, which combined with an inefficient North American warehouse project completely lost you spell transportation and activity-based where housing costs significantly higher.

Marketing expenses are higher into the launch of the line and you received was also higher as well as marketing related to them you products and talk about things like looking for it as a result of the current environment. We have taken measures to reduce over wanting Spin and focus it to match with consumer such as online and newcomers. We expect to see the devices. We use been going further as non to advertise decreased there as well as a suspended lines on TV box right one, which will be margin of us later on you.

Just as a result of that but you know, I don't want to be too specific about what they looks like here because they're obviously going to be puts and takes 4 between twenty one which which we are not commenting on at this time.

Okay, and then if I can just ask one more, can you give us an idea how pawpatrol is doing? So far into two or how it did in April?

So whole Patrol for the year has has launched being down in North America in Europe. It's been stronger but overall whole system down from both a sales and appeal is perspective. The good news. Is that of in the last couple of weeks though. We've seen a field material rebound. I pull from a POS perspective and so they're starting to to train a more positively the reason pause down for the year is really a relay in relation to Iraq even should carry over that we saw from 2019 fall TV driver for Paul Patrol, which was the jet that not do very well as not as well as we expected and so that actually relate them to carry over into the first Cola. We also have a marketing start later in the first quarter and probably most significantly evolved the reality. Is that a

From a tax perspective. We had an income tax recovery of just over $48 and approximately thirty-three million of this related to a one-time until transferred off of the property. Annual tax rate is typically between $24.20 expectation for the annual effective tax rate in 2020. Did the range of 20% off slow right between 20 is driven by where we expect pre-tax income to be generated and the tax rates and various jurisdictions in which we offer we expect the 2026 tax rates for both responsible for the porter you recorded and adjusted net loss of 46.8 million or 45 cents per diluted share compared with an adjustable 12.5 and 12 cents per share that much.

A lot of Paw Patrol purchases are more events driven around the birthday parties or east of other kinds of events. And so Paul has suffered from from the covid-19.

Justin even the

To -32.3 million as I mentioned earlier approximately twenty-three million dollars of the Gyro Shack possibility can be attributed directly to the operational efficiencies efficiencies that continue to 21 rising in 2019.

So I need to the balance sheets in cash flow total Capital 281 at the end of two hundred and $256 and free cash flow for the Courtside excluding working capital was -74.9 Million to -39.9.

Free cash flow for the court that including with the capital was -27.8 Million the same as 2019.

imagery end of the quarter at $156 compared to $185 million at the end of 2019 and a hundred and twelve Million last year we

Arthur

You know the time of patroller which is extremely aspirational. We have a new headquarters, which is located on Dino Island, which is an aspiration. We have a dinosaur the Mexican with the pups which is which is the whole you you need room for kids to to really enjoy it and dinosaurs are a classic flight pattern for kids. So I think it's it's quite amazing that you were able to blend those worlds together and then looking for you know, the movie or 2021 and and that is currently on track. It's on schedule with the you know, working very closely with Paramount currently now and what are the marketing plans for that very very engaged their teams. Well in advance of the C ROM Market probably and also real one all our our licensees to make sure that they are getting all the collateral material so that they can start Thursday.

Like development processes running on now to make sure that all 2021. We have a very fresh new Dynamic, uh, looking pawpatrol line off more than moving a very different than the traditional.

Okay. Well, thank you.

And your last question comes from the line of Brian Morrison with TD Securities your line is open.

Thank you. Good morning guys, just in terms of Paw Patrol. Do you have any feedback during your buyers on the new theme sounds like you're pretty excited about it.

I don't think it's got incredible reaction various puppies dinosaurs together. It's extremely positive and I guess more of my name is Renee or Marcus, you know, as you have more costs of handling as inventory is going through your system. I'm wondering what processes are safety measures you have in place as you reduce your GC specifically in Q3 and Q4 of this year just to ensure that we don't run into these inefficiencies. Once again, yeah. No, it's great. Great question. I mean, I personally brought him in focus on as for like the last eight weeks to find a lot of my time and what we're doing is is we are strengthening existing Partners. So we have some very good partners in place, but we're strengthening those Partners office and when I fix strengthening on talking about the amount of meetings were having with them being sure that the owners are engaged in our business now, they're actively coming to the meetings off.

Making sure that we have people on site in those facilities that are Spin Master people. We basically retooled their whole customer-focused and eventually I would say done in an internal organizational review page. We reallocated 90 people in our company to actually to to cross functional consumers Morris m per location on web on on the month. We've also like most certain partners and Performing and we move

We're just calling you. Let go of the corners from a warehouse perspective and you lose those to some of our stronger Warehouse third party where he would be well after giving them a bit. So we were relentlessly focus on this area. We management changes. I think God where we brought brought in people's minds as in your housing in logistics and supply-chain. We brought back home. We're in operation from Spin Master and we brought them down pack along to management and I do want to

Say that if it is and you're at a much lower inventory level relentlessly focus on inventory relentlessly focus on the supply of of the shipment and movements of the month last year in terms of ordering patterns. It's not only the quantity would just order me order patterns in sales and the you know, you know that we're not going to tolerate getting back problems sort of you're not going to tolerate give me that process as a result of that is just not acceptable. So we're we're very close this on this month and I think we have the right team in place. I think I think it's a great external Partners. I think we're great overall birth.

Companies Focus to make sure that we give our rules that starting in third-quarter and that's what the whole company has been rallying behind home. So sorry, so bring in I understand the gist of the answer. I think one of our phone is breaking up more but I guess the gist of the question is these restructuring initiatives and and and it's been efficiencies that you're taking on when I look at the long-term ebitda margin potential not twenty twenty, but twenty Twenty-One and Beyond, you know is your aspiration that you can get back to a 19% You could even margin or above based on the undertakings right now that you're injuring

Well, I'll take it for a car from an operational perspective. We want to get our our percentages in line from that area of the month of the income statement. They need to be back to normalize rates. And that's we're very focused on so Brian. I mean long-term our goal is to be in that 18% plus one. That's where we were in seventeen and eighteen and that's where we think. We we want to be. We got a lot of lyrics to Paul and as an NSAID, we do not want to have any dilution from wage distribution. That's just basic table Stakes for us that lots of other levels that we can focus on in terms of Licensing and Merchandising income and product mix power off to the TL all of our operating leverage issues that we're we're focusing on getting back to where we want to be. So the 18% is the goal that should directory to get back there. Yep.

We will not be there in 20 20 off.

This week, but we want to be in a position where we have some very good subject re to get back there in two twenty Twenty-One and Beyond.

I appreciate that not to nitpick your mark, but it's not 19% with IFRS. 1620 2018 was 19.3% include a judgment. That's great.

Okay. Well, it sounds good. Thank you very much guys.

And there are no further questions at this time. I'll turn the call back over to mark.

Okay. Well, thank you everyone much appreciate it, and we look forward to talking to you in August for you to call.

This concludes today's conference call. You may now disconnect dead dead dead dead.