Q4 2020 Spin Master Corp Earnings Call
However, there could be no assurances that such estimates and assumptions will prove to be correct many factors could cause actual results to differ materially from those expressed or implied by the forward-looking statements as a result spinmaster cannot guarantee that any forward-looking statements will materialise and you are cautioned not to place undue Reliance on these forward-looking statements except as may be required by law student life has no obligation to update or revise any forward-looking statements whether because of new information future events, or otherwise for additional information on these assumptions and risks. Please consult the cautionary note regarding forward-looking information contained in the company's earnings release dated, March 1st, 2020. Please note that Spin Master reports in US Dollars, and all dollar amounts are expressed today in US currency unless otherwise noted I would like to turn the conference call now over to Ronan Ferrari.
Thank you, Sofia and good morning everyone and thanks for joining us today. What a difference a year makes at this time last year. We were coming off year in which we Face significant operational challenges and we had already started to see the early effects of covet overall. I'm exceptionally proud of our team's Focus adaptability and Agility execute our dates faithfulness as well as the simultaneously make significant progress in improving our operational performance.
Through 2020 we adapted to a shifting and evolving landscape and we were very happy today to have demonstrated concrete signs of our progress. Let me highlight a few key off of importance in the fourth quarter our Revenue grew nearly 4% driven by dramatically higher digital games Revenue as we have indicated would be the case you're able to show off to call me lower distribution costs and sales allowances. We improve their gross margins and a bit of margin in Q4 compared to last year and and the 2020 with the lowest urine in office and accounts receivable levels since 2016.
We established three creative centres toys entertainment and digital games. We have strengthened these creative standards by putting leadership in place with Broad and deep skill sets that will allow us to drive back in and grow these centers are operationally independent but linked through cross collaboration to maximize growth and optimize our return on investments.
as a result of the
Evolution of these three creative centres and the rise of e-commerce. We are evolving rapidly into a fully-fledged Children's Entertainment Company and are interacting with their customers more broadly and Morgan deeply than ever before our customers can access our products and contents for a wide range of channels including brick-and-mortar retailers subscriptions or games of the service Model Truck Services and broadcasters in theaters and directly through our directory see more websites.
I want to update you on on the progress we have made on the operational challenges be encountered in 2019 in Q4. We saw the benefits of the remediation efforts. We spent months of 2020 implementing.
From an operational perspective we focused on two key areas in 2020, which will benefit 2021 and Beyond.
First our supply chain optimization after reducing our North American structure footprint from 18241 less than our Target of five years now well positioned to manage inventory and to address changing demands in our industry this streamlined structure along with our one ski one location Inventory management approach allows us to improve customer service reduce inventory eliminate waste speed up the flow of products and reduce customer chargebacks. Our customer-focused team strategy with consumer first internet hubs focused on a single large customer customer group is working. Well. We're now performing at or better than the Benchmark historical cost levels when you consider the growth in European domestic sales since two thousand since 2018.
Typically higher than North America we intend to continue to improve further in 2021 and Beyond. Secondly, we focused on process simplification Automation and will continue to do this.
Continue to do this year and Beyond despite the significant progress made in 2020, the simplification and further automobile automation of our business processes will increase efficiencies. An average cost improvements will be focused more on data-driven insights, and we will aim to refine our systems to increase productivity overall. We believe that we have not only remediated the issues. We have we have but we are now in a stronger position operationally than we have ever been before looking at some of the factors that drove old growth in the fourth quarter. One of the standout items was the performance of Toca Boca are digital games business.
Toca life world is a game that regularly involved with new content and playsets as well as Creator tools that allow kids to express themselves and personalize their experience.
To schedule games has become an integral part of children's lives and this trend is intensified during the pandemic as kids turn to gaming and to connect and communicate with their friends with kids spending more time at home and with parents being more flexible with screen time. We could rip old are digital games Revenue in Q4 primarily due to the growth of Toca life world podcast.
Since you're playing games, they didn't themselves and stream the videos on platforms such as Tik-Tok twitch and YouTube for others to watch Toca. Boca has seen explosive growth in consumer engagement over the class past year and we believe that this major factor behind Toca life world growth.
We generated over four billion views the Toca Boca hashtag on Tik-Tok in 2020 and are at nearly five billion currently.
We now have over 30 monthly 30 million monthly active users for Toca life world in total the Toca Boca ecosystem currently has over 40 million monthly active users compared to approximately 19 million last year.
In addition we saw strong growth in our Sago mini subscription business where we had over 240,000 subscribers across Sega mini-world Sacrament School and Sago mini off at the end of 2020 compared to just over $119,000 at the end of 2019.
This large monthly active user and subscriber base is a tremendous asset for us develop and direct.
Or develop a direct relationship with consumers and and to which and market and sell new digital games as we expand our product authorized offerings.
Socializing the Digital Universe is one of the major trends that has emerged from the pandemic in this emerging Digital Universe kids can hang out and multiple locations and geographies and interact together Thursday. We're now working hard on our next digital game product launches including token. The multiplayer game going live in Q4 2021 and we just launched a new Toca Boca subscription box program targeted kids 5 to 9.
Saga will focus on education minutes away for young kids to play and learn simultaneously and other area which grew extensively during the pandemic as parents sought to ensure their kids. Do not lack academically.
I want to briefly discuss two brands in the toy creative Center kinetic sand and Bakugan one of the stand-up performances for the year was was the kinetic sand brand kinetic sand continues to suck if I'd status globally but also increasingly in other markets its surging popularity and strong growth positive online reviews and extremely popular social media presence. His cellphone has helped solidify the kinetic sand brand as a childhood activity activity compound and households around the world for contacts. We have around twenty million social media view offered a and I've had over fourteen billion total views.
We're pleased with the response.
Gone franchise since its relaunch together with Innovative toys. We have built-in multi-channel content approach encompassing television svod video games and YouTube bulb socket gun toy sales are strong at the beginning of 2026 load as a pandemic restrict restricted social play for kids.
Despite these restrictions. The guns still performed. Well in many countries especially in Europe including recently reaching number one in its category in Germany.
In 2020, we launched the second season of the TV show on Cartoon Network and Netflix introducing a new theme and corresponding toy innovation.
Second half of season two launched on Netflix in early February this spring we we have had two additional drops on Netflix with an hour long special coming on March 16th, and the launch of season 3 on April 15th. We're excited about growing and expanding the franchise in 2021, especially as we anticipated social play for kids significantly Thursday. We're experiencing
You're working on creating an all new Bakugan experience in the world of Roblox help further engage with fans by bringing back again to life in the game for the past few years. We have syrup changing consumer content consumption patterns and have mobilized and established multi-platform approach to content production within our entertainment creative centres to stay ahead of the curve telling stories and create engaging and enduring characters that resonate with kids around the world is important to us regardless of what screen there watching. Our commitment to storytelling is working with Paw Patrol currently in an eighth season continues to be the number one preschool show off.
Fans around the globe responded with excitement as we announced Spin Masters feature film debut with Paw Patrol the movie The Animated feature film produced by Spin Master in Club cast of world famous voice and music characters and a scheduled to debut in the theaters in late August 2021 in association with Nickelodeon and distributed off late last year. We launched a first-ever straight the streaming series with the Netflix original might Express.
Taking a multi-faceted approach to content creation for might Express includes a YouTube destination the short form content music videos and character bios as well as the mobile app. First name age kids.
Spin Master is retained the rights to the distribution of the series outside of svod including licensing and consumer products and the toy line.
While we currently have 10 series and multiple short form series airing or streaming and 190 countries and three languages the development team within the entertainment creative Center is costly searching for press stories and ideas that will Captivate Children and Families alike. We are very proud to spend Masters producing its first feature film control the movie the entertainment center is building on the feature film strategy and will be bringing out with other movies in the upcoming years.
We also continue to partner with the best license orders to build their presence as a toy partner for high-profile brands. In addition to core franchises such as the monster jam with Feld Entertainment and DC Batman with Warner Brothers. We announced several new strategic toilets disagreements and 2020 including Warner Brothers. Harry Potter and The Wizarding World failed Supercross. Rightfully the lessons Legends all of which have scheduled toy launches involved 2021. We are proud of the trust that these Partners have shown us and look forward to creating an and unveiling Innovative toys for kids and fans around the world.
Within the past year the impact of the pandemic as profound economic and social effects has significantly changed the mindset of the consumer.
Consumers are increasingly comfortable and accepting online and e-commerce e-commerce penetration and usage grew exponentially with strong nuances by region. And we believe that as more consumers that experience the convenience associated with these platforms through the pandemic e-commerce usage will continue to grow consumers are concerned.
About and focused on their families mental health and well-being. The pandemic has had an undeniable effect on the State of Mind of parents and kids alike.
Well in the beginning of the lockdown parents were mostly focused on toys that would keep their kids busy. Now. They're increasingly interested in ways to bring their kids Joy relieve boredom and bring Specialists to an otherwise monotonous Time toys digital games and entertainment are the perfect antidote that monotony and continue to play an important role in moving forward.
Parents have a renewed focus on togetherness families are finding new ways to bond and state busy COVID-19 content between kids and parents has increased over COVID-19 expected to carry on after lockdown.
When social distance for social distancing is restrictions subside.
Undoubtedly, traffic will return in store. But in store behaviors and interactions will likely be different customers are hungry for new and different Classics. Were were a safe choice in 2020, but we expect consumers makeshift newness. This will allow Spin Master who eat clean into its strength in Innovative product development.
Continue to tour marketing strategies to line these consumer Trends and to make marketing of innovative as a products for uniquely positioned to do that as a diversified Children's Entertainment Company across three creative centers.
Our goal is to use the strength the strength of three of all three to build a fluid ecosystem that allows us to own and grow more of a our own audience in turn generating organic growth car brands digital now represents 50% of our marketing mix in the US and we'll continue this mix into 2021. We will continue to operate a digital first and we continue to increase spend supporting e-commerce driving to our retailers presents and maximizing Sales Online.
January we completed the acquisition of Rubik's Brands limited owner of the Rubik's Cube. And one of the industry's most iconic Brands. We're excited for the opportunity to put our Innovation offer entire Rubik's portfolio and expand distribution through our Global footprint. The acquisition of the Rubik's Cube further strengthens our presence in the games and puzzles category and gives us a platform for further Innovation and Global leverage. We're always on the lookout for a creative Mna opportunities that complement our organic growth strategy and we continue to apply a disciplined approach to assessing all opportunities.
We're increasingly focused on the entertainment and digital games are opportunities.
Given our growth of digital games or potential m&a Universe has expanded dramatically.
Let me conclude by addressing our recent executive leadership changes, the Dual structure we have had for decades has served as well, but we believe.
Now my apologies, but when you believe we now have a great opportunity to transition to a single seal model and for Anton and I to transition to different roles.
To that end. We have pointed Max Rangel as Spin Masters new effective April 2021. Max is a seasoned executive to successfully LED Global business business as generating growth across multiple consumer packaged categories is an effective leader with a well-established ability to unlock the potential teams to boost organizational wage beginning of April and Anton and I will move into higher-level strategic growth-oriented forward rolls continuing to drive the long-term vision and strategies been master. I will maintain involvement in the creative process for entertainment and oversight of the digital games creative Center Anton will provide guidance on Spin Master talents and cultures globally.
We will continue to be actively involved in areas of the business. We are passionate about including external Partnerships and a strong focus on Acquisitions together. We are energized be taking the next step in our journey.
I believe more than ever our performance of 2020 demonstrate the power of a diversified portfolio brand entertainment franchises and digital games and the benefits of the benefits of having a sound balance sheet with a Clear Vision for the future and exceptional leadership and an exceptional leadership team a solid operating platform Financial foundation and three live and creative centres. We are optimistic for 2021. We are however mindful of the unknowns ahead of us including the ever-evolving club ocean in the long-term strategic Direction and diverse Geographic platform combined with the commitment of our Global teams positions that's take advantage of the evolving opportunities to grow and build long-term value. I'll now turn over the call to Mark.
Thank you.
Renee in the fourth quarter, we delivered significant year-over-year improvement in our financial results.
At the outset of twenty-twenty we entered the acutely aware of the operational difficulties. We needed to address and face the additional challenges related to covert. However, we commit to resolving the challenges we faced in 2019 and we're able to methodically execute our plan and realize significant improvements in most areas as evidenced by our office at the fifty one point five million an increase of nearly forty five million dollars over the last year. This is a direct result of the operational Improvement initiatives executed through 2020. We continue to strengthen our balance sheet exiting twenty-twenty with a net cash position of 321 million after generating over 230,000 million in free cash flow.
I'll solid financial position together with the achievements of operational Improvement initiatives sets are very solid foundation for growth for 2021 and Beyond.
Gross product sales in the quarter declined by 7.1% with a favorable Foreign Exchange impact of 4.3 million on a constant currency basis gross product sales declined by 7.95% One of the factors contributing to the decline was the position. We took on domestic inventory and Q4 based on retail order patterns. We were seeing consumers were more money focused in this shopping looking to reduce the amount of time. They spent in stores We Believe retailers had this in mind when they started offering their Black Friday discounts earlier and spread them out Reserve in consumer spending shifting earlier in the quarter.
We believe around 20% of December. Was pulled forward due to both retailer price promotions in October and pull forward of Black Friday deals in November given this pull forward we chose to avoid carrying domestic inventory too late into Q4 and potentially into twenty Twenty-One and this affected our ability to fulfill suck lights season replenishment and e-commerce orders, especially on hot items such as Megalodon autopsy present pets and hatchimals Crystal Flyers.
While this meant we did not maximize our sales the position. We took allowed us to achieve our best cell through and the cleanest retail and Spin Master inventory levels in many years. This allowed us to exit the Euro with strong demand and brand momentum which possess positions as well for 20 21.
Despite the declining gross product sales total revenue in the fourth quarter of 2020 was 490.6 Million at 3.6% or 2.4% on a constant currency basis contributing to the increase was the strong performance of digital games with over 400 with over 400% Revenue growth as well as a decline in sales allowances.
Want to Geographic places Europe with the strongest region as gross product sales Rose 2.3% gross product sales in North America were down 11.8% in the rest of the world gross product sales were down 8.1%
International gross product sales represented 46.8% of the total compared to 43.9% gross product sales in the activities games and Waffles in plush category Rose 1.9% over last year driven by continued growth of kinetic sand games and puzzles group for the year driven by strength in this category during the Pac-12 came from classics adult puzzles and Evergreen family games such as headbands.
Well setting this growth was declines in plush, which comprises gunde gunde continues to be negatively affected by covert related specialty Channel closures in the US and the same category was one of the worst performing in the industry the remote control and into interactive characters category was down 43.6% mostly attributable to the expected Decline and hatchimals offset by strength in Monster Jam RC where we saw exceptional performance from both the mega Gravedigger and the Megalodon Megalodon storm tracks.
The boys action and construction category was up 1.8% driven by sales of BC licensed products tech deck and present pets party or said I declines in Bakugan dragons and boxer overall. We are very pleased with our performance with a DC line this year.
Preschool and girls segment group are 1% in the fourth quarter with higher Paw Patrol and pre-cool sales more than offsetting declines in other products.
Paw Patrol should strengthen the quarter in Europe and the rest of the world.
The Paw patroller Dino rescue was a standout item in one the preschool toy of the Year award for twenty Twenty-One. We were excited about the upcoming Wizarding World of Harry Potter Fantastic Beasts franchise license line in girls.
Let's look more closely at POS according to NPD. The toy categories are performed. Best were building sets outdoor sport toys and games and puzzles took us in Q4 was a 5% compared to 7% for the industry in Q4 our Global POS X. The US was up 8% compared to 3% of the industry.
This highlights the strength of our International platform, especially in Europe where we performed very strongly growing 9% in Q4 compared to 2% for the industry.
We performed extremely well in key markets such as the UK France and Germany
In the u s p o s was flat for Q4 compared to a 13% increase for the industry.
For the full-year global POS increased 9% in line with the industry's 10% excluding the US are Global POS in 2020 was up 90% compared to 6% for the industry for the full year are u s p o s was up 8% compared to 16% for the industry.
The primary driver of our relatively weaker us performance compared to the industry was the significant growth industry saw in categories such as outdoor fashion dolls, role-playing a building sets where we have a relatively insignificant presence. If one isolates the MPD categories in the US we spend master has more than ten million dollars in sales off a u s p o s grew 11% compared to 7% for the industry.
Looking at some key brands in the US. We saw higher POS in both Q4 and 2024. Kinetic sand Bakugan Monster Jam and the games portfolio off on a four-year basis POS increases for these Brands were strong double digits and in the case of kinetic sand POS was up nearly 100%
So I need to Paw Patrol globally POS was up 4% for 2020 excluding the global Paw Patrol POS grew 15% for 2012-13 and shall strong POS growth in most regions.
In the u s p o s for Paw Patrol declined 8% in Q4 and 6% for 2020.
This decline was primarily driven by the very strong performance of higher price point Paw Patrol items such as the dyno patroller offset by the reduction in POS for items price points under $10, which lend themselves more to install impulse purchases and declined during the pandemic.
Current Global POS is solidly up 14% while us POS year to date is up 30%
current POS and pull Patrol is very strong in the US POS is now up over 18% year-to-date and 24% Globally year-to-date, Connecticut. Just under 50% currently and Batman is up 30% We expect port to respond very well to new content in 2021, including our movie launched in August.
From a channel perspective the shifter e-commerce continued in those markets where we sell directly our e-commerce penetration was over 30% in 2020 and even higher in certain markets in Europe for 20 21. We continue to expand our e-commerce focus with our customers globally as well as through major retailer marketplaces turning back to the p&l a significant cock to our Revenue growth and improve margin in the quarter was the decrease in our sales allowances sales allowances for the quarter declined to 15.1% of gross product sales compared to 19.8% last year. This is the lowest level of sales allowances. We have seen in the first Court fourth quarter since 2016.
this decrease was
Mostly due to the to the strong sell-through of our full 20 20 line up and lower markdowns promotions and non-compliance charges compared to Q4. Nineteen month Improvement in sales allowances was most pronounced in North America where we experienced significant Logistics and Warehouse issues and came as a direct result of the steps. We took home address these operational issue these sorry these operational challenges throughout 2020.
Furthermore the significant improvements were made despite a relative increase in our sales in Europe, which typically has higher sales allowance rates.
Another important contributor to revenue growth and improved gross margin was the increase in other Revenue which grew 24.4 million or 76.5% to 56.0.
This quarter we provided further details on the primary components of other Revenue digital games revenue and entertainment and lighting Revenue in our financial statements and md&a dead other Revenue growth was largely attributable to the 405 per-cent increase in digital games Revenue to Thirty one point eight million primarily from in-app purchases in Toca life world and took us in the Sago mini subscription platforms entertainment and Licensing Revenue was 24.5 million for the quarter down 4.3%
Gross profit for the quarter was 241 million or 49.1% of total revenue compared to two hundred twenty six point 1 million or 47.8% of total revenues last year this 130 basis point increase in gross margin was the result of lower sales allowances and higher digital games revenues partially offset by a change in product mix. Mm gross margin products such as outdoor games and puzzles and higher close out volume in the quarter compared to last year directly related to our goal to reduce inventory levels.
Sg&a decreased 570 basis points in Q4 compared to last year as a percentage of total revenue sg&a was 43.2% down from 48.9% The reduction in costs was primarily related to lower distribution costs distribution costs declined by approximately 24 million dollars to 4.6% compared to 9.8% This sharp decline was the direct result of all the initiatives. We implemented to remediate the operational issues arising in 2019.
In Q4, we recorded adjusted net income of 14.6 million or adjusted diluted EPS of fourteen cents over 22 million dollars better when compared with just a net loss of 7.8 million or a loss of eight cents per share in Q4 19.
Casa Di Pizza was 51.5 Million the quarter compared to 6.7 million ebitda. Margin was 10.5% up nine hundred ten basis points from 1.4% free cash flow into full was 123.7 Million compared to -19.3 million turning now to our full-year 2020 performance. I will call out a few key sales allowances for 20 20 as a percentage of gross product sales were 12.8% down from 13.5% at the end of h125 allowances were two hundred and fifty basis points were up two hundred fifty basis points compared to H1 2019, but ended twenty twenty seven thousand points down.
This highlights are strong sell-through and improved operational performance which drove lower markdowns and non-compliance charges other Revenue increased by 31.5% off to 155 million Hai digital games revenue of 76.8 million, which nearly tripled compared to 2019 was offset by lower entertainment and Licensing Revenue wage declined 14.7% to 78.2 million.
Gross margin represented 46.3% compared to 49.6% the decrease in gross margin was a function of product mix Closeouts of excess and obsolete inventory wage higher freight costs, especially in the first half of 2020 which more than offset, the benefits of lower sales allowances and higher digital gains Revenue in the second half of the Europe.
Sg&a decreased by 10.9 million or 1.7% lower marketing and distribution costs more than offset higher administrative expenses.
20/20 was an anomaly from a marketing spin perspective as we spent less than 9% of our Revenue driven by a focus on fewer items in the code World a marketing. Roi was down the rate of previous years with significantly higher sell-through in 2020 will be back at the traditional 10% marketing to revenue ratio by supporting more Brands and going deeper and call back compared to twenty twenty.
Just the net income for 2020 was 53.4 million with adjusted diluted EPS of $0.51 compared to ninety two point eight million or $0.90 off a tax perspective. We generated an income tax recovery of 36.1 million in 2020. This comprised the onetime 33.3 million recovery rising from an international transfer of intangible property in q1, excluding this one-time recovery, the effective income tax rate for twenty twenty was negative 29.8% compared to 24% in 2019 driven by jurisdictions. We pre tax income or loss has arose which generates it and net tax benefit of approximately 2.8 million in 2025.
adjust
City but that's a 2020 was 180.6 million a decline of 38 million / 2019 adjusted ebitda margin was 11.5% compared to 13.8% off. The Euro decline in profitability was primarily caused by the carrier of operating issues arising in 2019 Q4 which continued into 2012.
We estimate that the impact on twenty-twenty adjusted ebitda relating to these operational issues was approximately fifty million dollars of which forty million was felt in life.
We are very pleased to have seen significant Improvement in the second heart profitability with h two twenty20 adjusted ebitda at $191 million up in a million or 22% over H2 2019 free cash flow for the Euro including changes in net working capital was 231 million compared to only four point seven million in 2019. The increase in free cash flow is primarily attributable to significantly higher cash flow from operations. Drink the reduction in core working capital core net working capital for 2020 was 13.1% of Revenue compared to twenty 1.5% last year inventory was down from 185 million and 2019 to a hundred and two million at the end of 2020 and we ended the year with very clean inventory both in our warehouse and return home.
This strong performance allowed us to end twenty-twenty with 321 321 million dollars in cash compared to $150 million with us ample liquidity and Voltron balance sheets. We are well positioned to take advantage of strategic acquisition opportunities.
22 Outlook, we are reinstating guidance for 20 21 following the withdrawal of guidance in March twenty as discussed. Our Focus was to be structurally well positioned by the age of 20 20 to be able to enter twenty Twenty-One at a run rate that allows for a return close to or at historical performance levels. I'm pleased to say you achieve their goals and are entering 20-21 with strong operational momentum.
As a reminder our garden cycle is phased over the course of each year in line with our reporting today May August and November at each stage. We're about good increasingly solid data based on the flow of orders and shipments with respect to covert will continue monitoring the environment very closely and assess the impact of Mazda as information becomes available for 20 21, we expect gross product sales to grow low to mid-single digits in terms of phasing we expect the split between revenue to be 32 to 34% H 1 and 66 to 68% age too in terms of our domestic versus FIB mix we expect that to be around fifty fifty thousand twenty twenty-one.
well introducing a
You got into metric for 20 21 this new metric total revenue incorporates revenue from digital games and entertainment. We expect twenty Twenty-One total rate to increase mid-to-high single-digits.
From a profitability perspective we expect 2021 adjusted ebitda margin to be mid to high teens.
In addition, we expect depreciation and amortization to be up approximately $18 compared to twenty twenty of that $60 Million results from ordering off of entertainment content. We expect interest expense to remain in line with last year and our effective tax rate to be between 24 and 25% We expect Capital expenditures approximately five to six percent of Revenue to conclude as we look to the balance of 20 21. Our team is fully aligned and we remain deeply committed to discipline cost management operational efficiency and productivity gains as we set the foundation for return to even further growth and margin Improvement.
We will continue the momentum we developed in 2020 leveraging the significant improvement in our operations to propel us forward into 2021 and Beyond.
We continue to believe in our long-term Financial framework and that at its core our formula for Innovation and growth across toys entertainment and digital games is stronger than ever.
That concludes the formal element of our call will now be pleased to take questions operator. Please open the line.
Thank you, as a reminder ladies and Gentlemen, please press star one on your telephone keypad. If you would like to ask a question. Our first question comes from home line is now open. Thanks very much. Maybe start with Roman. I want to talk about the original initiative between the big uptick on Toca life and and guide for it to continue. Its upward trajectory. I heard the prepared remarks, but if you can just update us, what's the next iteration to build on this success? Is it more depth within the current apps and services such as Toca life or is there expanded breath, I guess. I'm just trying to get you know, what are the needs of your forty million users to build on this momentum. Could you see some decline in users of the pandemic eases? And then lastly can you just update us with the geographic breakdown of the digital contribution?
Yes. Sure, Brian. Thanks. Thanks and nice to hear your voice. I think the one thing that that became very evident this year. The Toca life is is being a game that's been out for a while now over three four years. And the thing about the games of the service business is that you're constantly able to iterate within the game and constantly put out New Jersey to flush some aspects to the game. So when you look at our product roadmap every couple of months, we add a new crater tool or a new home for kids to visit in the game or a new destination. And so the game is just it's like an ever-expanding Universe. It's not like traditional games when we grew up, you know, you play the game and and whatever was in the Box whatever you got is what you got. This is alive service that we're giving to two children and they're able to enter it for free and then as a spend more time.
I'm in the universe they're able to.
To add on different packs that they want to buy for $1.99 or $4 or $399. And and so the game is just gotten better and it's just gotten a lot richer. I call it a game I call it. It's it's a it's a creative Universe for kids and it's a way for them to uh interact and actually create their own stories and what we saw coming into August of September was there was a crazy amount of people that were actually filming themselves.
With playing in the game and then uploading it to Tik Tok and that exposure and the expansion of the game really started to increase amount of users that were in in the world. And so if you if you look at things like Roblox, if you look at things like Minecraft Toca Boca life is is similar in the sense that it's an evolving game. That sucks better over time. And so that's that's what the team is is constantly looking to do is bring out the freshness and units within that universe is within the game and I think there's a multiplier effect that happens when you have that many people seem the product playing with the product telling their friends and it just there's a bit odd, but there's there's a multiplier effect and also the multiplier effect when you have that many people coming in to play the game and so that's that's what Toca life and then we're very excited with with the tow truck.
Which is going to be our first-ever multiplayer game for mobile. So kids can actually play together similar to the way they play in Roblox and in these meta versus and the and the interesting thing that I talked a bit earlier Brian was just how you know kids are playing games now, but not only playing but they're actually socializing in these meta versus and they're using these games to tell stories and share experiences with their friends. And so Toca days is really uh our way to enter into this wage or social where the kids are actually interacting today and doing it in our in our own Toca Boca way. And and then the last thing is that, you know, the nice thing is that it's very hard to launch games and to get audience today. But once you have a large user-base, it's kind of like a moat and so at last name
Be able to get trial for your games like Toca days.
And talk about the global the global nature that Brian from a oh, yeah, so sorry that we were you able to hear me, okay?
Okay, fantastic in terms of the the you know, we can maybe share that with you guys in the future. It is Toca. Boca is extremely Global. I think it's it's remarkable. It's remarkable. Let us come back to maybe in the investors on the investor down the 9th. We can give you a little bit more detail on the the global break down the majority. There's I would say the majority. I mean I'd say about fifty percent in the United States. So it is very much a a global global brand. I mean, I I'd probably say that it's it's bought and played in over a hundred countries around the world. But let us get back on that, you know, just just specifically Brian Sago mini just as a data point is played in in over 170 current countries currently, but we'll we'll provide you more data on March 9th is when it says, okay and then run in the optimization well done and making the necessary changes. I think you said you're down to four now. Your prior Target was five in terms of DC's or they're more opportunities now that you're dead.
That you're uncovering now that you've made the 6th.
Or you need are you where you need to be on this initiative? Is there more room to go here?
No, I think first of all, thank you. It was a lot of hard work and the team did an amazing job and Paul Blum my partner in this initiative. He did a great job. Excuse me. So I would say that I would say I think we're we're where we need to be. I think we where we need to be and I think that we're going to continue to work these these and strong relationships and you know prepare ourselves for this ever-evolving landscape with the e-commerce and the interest of time for others Market is one last Quick One your cash versus obviously the war chest here. Is there any thing outside of m&a opportunities that you might consider like a return of capital such as a special dividend or is there just too many organic opportunities of their own Brian? Hi, good morning. Not at this time, you know, we we have a evolving m&a strategy and we feel very confident in that m&a strategy particularly as we continue to wage.
Cuz now even more so on digital games and the entertainment area. So we're going to we're going to play out our m&a strategy and you know, we see a lot of opportunities their wage if in a couple of years if this doesn't actually work out for us, and we're sitting with significant excess cash, then we'll have to have a discussion about a special dividend or something along those lines, but that's not on the horizon at this point. All right. Congratulations guys. Appreciate your time. Thank you.
Next question comes from with RBC Capital markets your line is open.
A great. Thanks and good morning. I just a question on the margin guidance that you provided. The range is pretty broad from mid to high teens. Can you maybe share some thoughts on what you need to do to get to that high end of the margin guidance range and What scenario would you be sort of at the low end things?
Okay, Santa. Thank you. Good morning. We typically talk to around 7 levers when we talk about our margins. I just want to say we gave you, you know, the age range, you know at this point. It's early in the year. We have to be measured and so I would say the midpoint of that range is something that would be targeting as a reasonable point at this time of the year. But typically we you know, we look at pricing as a key option. We look at our mix of products and particularly where we own the IP and we look at sales allowances as a phone number that we focus on we did very well in as you saw we had strong sell-through. We had lower markdowns as a result of that. Our operational infrastructure improvements have driven significant reductions in non-compliance charges, and that's a big impact on on on margins as well. We also look at Ellen Ellen M. Income entertainment income with a poor movie coming up.
and then digital games
Is an area which drives a significantly accretive Revenue when we were able to to generate that and so when you combine that with all of our productivity initiatives on cogs, you know teaching sourcing volume rebates re-engineering and our continued focus on on operating efficiencies and overhead costs and driving operating leverage. Those are all the factors that we considered when we increased our guidance for 20 21 and most of the things that will continue to either drive us towards the low end of the range the midpoint of the range or the high end of the range a little bit early to be too specific at this point.
I agree. Thanks and then just some PAW Patrol you shirt some color earlier on some of the trends you're seeing into q1. Can you hear me talk about how you expect that Francesca to evolve this here and there seems to be a bit of variance in the US versus International transmitting some color on what caused that and then I guess for this year should we really expect most of the growth in I guess call the Q3 around the movie launch. How should we think about that platform? So I'll give you some POS and other specific data and then I'll pass it back to Renee to give his views on on the overall franchise and the movie but if you if you look at you PAW Patrol PAW Patrol was a very interesting situation in 2020. There's really five key points that you have to understand firstly at the end of 2019 Q4 2019. Tin too much into the us and we landed up with heavy end of the retail imagery at the end of 2019. So, we actually we we have to carefully yep.
Selling in 2020 and also manage our media spend very carefully throughout the year covert heard poor as many gifting occasions, like birthdays were lost especially in the second and third quarters.
In the fourth quarter higher price point items that very well but less than $10 price points did not do well because those tend towards more impulse shopping opportunities and those lacked in the US.
The interesting thing is that the the decline in Paul from a shipments perspective really only affected the US in the rest of the world. Paul was up strongly in Europe in Australia and Canada and all other regions. So it was a little bit of a tale of two stories, but we feel pretty confident in Paul for 20 21 current POS is very strong up 18% in the US and I am 24% currently and so we are excited about Paul for 20 21, especially with the movie coming up remain. Would you like to to comment on that?
It just briefly. I mean, you know, we're you know, we're very fortunate to have very beloved characters and our strategy since the beginning has been to wage costly tell new and Innovative stories with those characters and um, we're going to continue doing that and we're now doing that in the traditional Paw Patrol. We do it with two new themes every single year. And as you saw with Dino Dino rescue, I mean, it was super Innovative. You know, how do you bring together rescue pups and dogs together and and tell that story without uh veering too far from the tone and 10 or what the franchise is all about and the teams an exceptional job with that page. And now you have the third what I call the third aspect how we tell stories with these beloved characters, which is bringing them to the to the big screen and telling a dead.
long format
Fully produced movie and that's the third way the kids can actually enjoy their beloved characters. And so you're going to continue to see us play in all three of these areas the traditional Paw Patrol the themes on television and then the movies and we're going to continue that you're in you're out and bought a really entertain kids in all those formats and make sure that positive very visible and the stories are are rich in their current and and they're relevant off today. And so that's our long-term and we're going to do that year-in year-out and really entertain the kids.
Okay, thanks. And just maybe you want to continue to review on the entertainment side, you know, whether it be the Paw Patrol movie or the DC Comics license, you know, just with some of the theater closures and things like that. How are you guys thinking about maybe you know backup plans perhaps doing what some of the other entertainment companies have done and also have there been any discussions with DC Comics on maybe extending the terms of your license given that off just wasn't a big movie audience in the last I guess the year and over the course of this year.
Yeah, I mean we're we started this relationship with I think that everybody is very happy with the results very happy with the the POS and the total sales the team done incredible off the line and I think the consumers really appreciating the newness and the precious to it. And so, you know, we've gone into this ugh partnership with DC with the long-term lens off and and that's our goal is to to be long-term partners with them. We'd like to be partners with them for life. So that's our goal and we'd love to execute on that and you know, we're understanding what movies you know, they change and the environment changes and movies come early and they come late and so we just have to be good partners with them and um and but we're looking at this relationship for for the long-term. We we always want to be a PC. We don't want to go in and out of this relationship but also takes a long time for the teams to to jail together. And we also have Wizarding World now, which is fantastic so that uh, yep,
As our relationship even even deeper and in terms of the the the the movies and stuff like that what's going to you know, it's still it's still too early to call what's going to happen, but she has lots of options on the table, um, whether or not the actual or combination of the obstacle and peabod um, but there's lots of options on how we can actually get the Palm moved out to the consumer come August and we're very cheated on that date and and and not wavering from it.
I agree and if I could squeeze one last one and maybe for Mark I was just some commentary from other consumer companies on some congestion of Courts. Can you give me any color? Are you hearing anything like that or a distribution Channel? Generally okay for you? Hi Sally. Yeah, just to add one point before I wanted that to what remains set on on the Batman movie Just to be clear that Iraq is moving to 2022 Sable which is within our license window currently just just to you know, just to complete the the question there. So now you know issues on that front. What's that got to congestion and shipping? Yes. It's an industry-wide issue. It's it's not specific to any one sector. We are seeing that as well. It's come from a reduction in wages in shipping capacity in the market and also waiting times and unloading times Imports have increased due to a much larger ships that are carrying more containers. And so that is actually call log.
some congestion and
Inflation right now. We did expect some of that in 2020 when we were planning for twenty Twenty-One, but to the extent that it continues for the rest of the year. There might be some impact on on both ends for us and for everyone else because the rates are up right now around 20% compared to where they were about six or eight months ago.
Thanks very much. All right, next question comes from.
Faith like the morning people start with building on some of the questions on the entertainment front, you know, we heard a lot a week or so ago from Mattel and Hasbro really looking to celebrate the exploitation of of their IP. I imagine you'll speak a bit more to this world than maybe next week at the investor event, but can you speak about at all some of the effort to maybe the accelerate some of the activity on the entertainment side moving ahead and then, you know from Mark couple of questions, but just just on the back of the entertainment one, you've given some additional detail and depreciation amortization relate entertainment, but is there any further accounting metrics you can provide us with or sort of guide us on in regards to how to get to the account maybe an H-24 that Paw Patrol movie and then I'll Circle back or if you don't mind for a few more guidance questions. Thanks.
Hey Adam, approaches approaches slightly different to to summer hours. But we've we have you know, and as we've been saying to you guys for years and we've always been working on a rich Pipeline and and developing new television shows and Bring Em out. So we actually have shows that are that are green-lit. Um, and that's uh are in production that are coming out in the future. And so we'll be sharing that with with you guys. I don't know if we'll share it with you guys in in March 9th specifically what they are, but I can tell you that the pipeline is is robust and the Slate of Life development properties.
Is real fast, and we're looking to always green light one to two new properties every single year. And so I would say an acceleration would be you know to try to get that truck properties a year would be an acceleration for us over and above keeping all the existing properties ugh maintained and fresh in the marketplace and then I would say the other thing that I'm I'm very proud of the team as you know, the ability for us to produce our first feature film and I think it's really important for everybody to understand that that are actually producing the film. We didn't license the film out to Universal or Paramount and and and take a royalty on it. Our team internally in Toronto produced films are the writers hired the directors.
we we casted we
We did the whole casting with all that amazing voice talent for Paw Patrol. We got the Stars. Uh, we found the best people in the industry to do the music. Um, you guys are going to love the fact that will tell you more on on March 9th who's seen the main song for or uh-uh for the movie. So the teams really proud actually go to a different aspect of Storytelling and produce a full animated feature film and so in terms of leasing our output, you will see more films coming from Spin Master in the future and I think that gives us a whole new way to actually entertain kids which we've never had before in the in the package and that gives us just an it's an extra.
It's an extra quiver or in the quiver. So I think that's more about the the I wouldn't call it acceleration. I would say more wage assistance e and also now diversity and how we can out how we can actually
thank you.
Adam Adam in terms of your question around accounting for the movie just in general if you recall when we actually produce entertainment content. What we do is capitalize it and it's it's on our balance sheet until we deliver it and then we amortize it up until this point. We've only done TV shows and we deliver those TV shows, you know in in episodes and we we amortize proportionately there's no real difference as it relates to the movie except that it's more condensed in the sense that there's one delivery as opposed to twenty six episodes of delivery. So we should capitalize in the costs of the production on to our balance sheet. And then when we deliver it, we will amortize that when they need addition to that you will have receipts from the movie in terms of our deal with Paramount will also have licensing and Merchandising income that flows in will have toy sales. Obviously that will continue to go in and most of that will actually happen in Q3. And so what I'm going to say
Just we do is that maybe Sophia can work with you offline together with you and all your you know, all the other analysts to make sure that your models accurately reflect. What's going to be happening. In fact as it relates to the accounting, but that's the principal in general, right and then just in terms of some of the guidance elements. I mean with with the marketing spend moving up, you know Tom 10% as you alluded to mark it sort of speaks to the fact that you know, there's going to be some let's call it efficiencies elsewhere the mix we know that distribution is used your called out fifty million dollars of additional spending twenty twenty. So maybe I'll push you a little bit on that. Is that a metric per Revenue that ultimately is destined to go back, you know back towards the 2018 level where we go go to 4% or or maybe even lower and then as well when I think about, you know, the other key lever notwithstanding some of the other seven leaders you sort of hinted a.m.
Before but the other Libra.
For being gross profit with some of the benefits you alluded to come out of other Revenue by implication gross profit margin not to say has two but it it certainly looks very likely to get back to 50% at a minimum. And I don't know if you want to further qualify that is ultimately moving back to a level of gross margin that you know can push it will pull your toolbox 50% But okay so Adam, I mean the short answer is is yes. I mean that's definitely a level that we that we've achieved in the past and I want to meet and beat so so, you know, the the gross margins that we've seen in the forties are not numbers that were happy with or satisfied with in any way and so we want to be at 50% or even higher and that is going to be a big driver of increased profitability in 20 21. In addition. We we see our distribution costs coming down we rent birth.
With with a strong run rate and we feel very comfortable about our distribution infrastructure. You know, it will take up a little bit compared to 2018 for example, because we do have a higher European footprint off and the cost in Europe are a little bit more so we will see some some mixed shifts happening in in distribution in the case of marketing attendant, you know, ten percent we see we see us driving a strong stronger or rely on that 10% that we have in the past if you if you look at what we did in 2020. We we spend less but we actually generated a very strong Roi. We've retooled our Marketing Group and we're we're much more Nimble much more agile now much more able to move more quickly and drive drive spam to where it needs to go. And so we're comfortable that took the 10% level will drive even better sell-through and better results in terms of the other costs will obviously be watching our admin costs very carefully trying to drive as much operating leverage as we can product developer job.
Costs will stay at around 2% of Revenue no major change and then you've got then you've got the selling costs which are purely variable and you know are driven off of our office and Licensing mix so, I don't see any major changes on on those fronts, but hopefully between higher gross margin and all the other factors I mentioned we'll we'll be able to to get our adjusted ebitda margins back to where we were historically and and hopefully even better as the years progressed and if I just ordered did they bring it up? I guess it picked up a little bit higher wage 2020. Certainly it looked as though there was some consultancy fees that helped Elevate that at a minimum in the queue for it. Is that something that would like to see more of or that was just a lack of some of the retooling in regards to the reorg that road in sort of spoke about and perhaps. I don't know anything related to resolving some of those remediation issues.
And you know, we are investing in people to drive further growth, but we're also looking at operating leverage. We have a we have a significant ability to grow our sales footprint without adding any additional people particularly in that Twenty Eight offices around the world. You know, the one thing to keep in mind in 2020 was the approximately six million dollar offer legal settlement that is sitting in admin costs, which was added back for adjusted ebitda, but is sitting in those costs and and some incremental recruiting and and Consulting costs that page. Uh, we would like we include in in 2020 which will not be repeating in 2021. So overall I'm comfortable that admin costs are within the range that we need them to be as long as I said to you. We continue to focus on on driving as much leverage as we can.
Great. Thank you for that.
Our next question comes from Jamie Katz with Morningstar your line is open.
Hi, good morning. I'm hoping you guys can help us think about Capital demands of the business and how that might Trend over time. So I think when we look at capex that obviously bumps up pretty significantly but as long as we think longer out what sort of level should we think about is really required to protect the company's competitive position.
Good morning, Jamie, you know typically we've guided to around five to six percent of revenue for capex about two-thirds of that relates to entertain me and the remaining ones that relates to toy and digital gaming. Most of it being toy. I would say to you that's a reasonable level for twenty Twenty One am looking forward that might kick up towards the 6% level more consistently as we grow our entertainment footprint, you know, we'll spend more on capex page to link for the toy business one changed dramatically, but what we are starting to see is as our digital games business grows, we are investing more into digital games and so they might be increasing spend on digital games driving a slightly higher capex rate, but I think for your models for 20 21 stay with five to six percent and then the longer term may be trending more towards the upper end of that range.
That's really helpful. And then as we think about the RC and interactive characters business getting largely Consolidated, it looks like into that girl's business. Does that impact that this is sort of a new base level for for hatchimals going forward or can you talk a little bit about maybe how you're thinking about invigorating demand there so that it grows sort of more quickly back to historical level. Well, just keep in mind. We've seen a major unwinding hatchimals over the last two years from the levels that back in 2018 in 2019. If you remember hatchimals was down over $230 in 2020, it was down another 70 million dollars and that and that dragged down the RC carry category quite significant Vienna overall sales for that matter, but you know, we we see hatchimals at our level now where any further decrease wage.
Will not be material to our overall business numbers and we continue to focus on building the line both the low price point and high price point hatchimals Crystal Flyers that very well in twenty-twenty. It was sold out. We actually were out of stock and we couldn't get enough but it's all meaningful part of our business, but certainly not to the levels that it used to be before Renee. Would you like to add anything to that song?
I think that's fine.
Thank you.
Our next question comes from George delay with Scotiabank.
Morning, and that congrats on a strong quarter. I have two questions. I wanted to ask you guys about GPS guide of low to mid single-digits. Just wondering if within that guide. Is there anything embedded for lack of performance or under performance within our limit our toys segments or do you see that? It's pretty homogeneous.
Good morning, George when you say outperformance just to clarify specifically what you mean, please. Yeah, I think you guys guys for like voted mid-single-digit. So I'm bringing home see one segment materially above that and what material you below will that or do you expect all the segments to kind of be within that kind of bracket? Yeah. So so when we guide our GPS George, we we typically don't a guide to you know below that level in terms of the individual product group reset that we publish. So what I would say to you is that we look at our businesses our portfolio some up and some down and so overall our guidance is for a low to mid gross product sales for the toy business and there will be things that go up and they'll be things that go down and that's just the nature of the industry that came in but that's on a blended basis portfolio basis the way that we see the business moving for 20 21
Okay, and and you know, it was pretty impressive working capital reversal in the Border. Can you talk about a little bit in terms of kind of the inventory levels? And how should we think of that often? It's a 2021.
Yeah, so 2020 was an unusual year because we ended 2019 with exceptionally high inventory and also receivables were were higher than normal. And so we spend a tremendous amount of time as a management team focused on net working capital the sales and operations and the finance teams all work together really closely to bring inventory levels down from $185 million over a hundred million at the end of 2020 and you know, in terms of our overall core net working capital percentage. We landed up a 13.1% We also brought receivable down nearly $18 year-over-year. So in all aspects, we focus very clearly on generating a free cash flow, which was a very significant underperforming a 2019 and I think we did a stellar job as a company in in achieving our goals going forward for 20 21. I think you'll you should be modeling around the same levels. I think it would be unrealistic.
To assume we could generate anywhere close to the kind of improvements that we saw last year going forward. So, you know, I would say to you around a 13% 13 and a half percent call working capital as a percentage of sales would be a reasonable metric to look at it. Okay. Thanks. So maybe one last one for the appetite for a larger acquisition in the in the digital space. Is that a potential we can see or something you can see this year is mainly like smaller and smaller and kind of nurtured philosophy that we saw with tohko.
Yeah, you know we're we're open to different things but I think that our strategy and approach is going to be focused on smaller Studios that are out in the marketplace a smaller product that I have that can be brought into the fold. We're looking for great products with amazing Studios with really good talent and and there's a lot of money and and talents Studios that can benefit from our large Network and also our acquisition our expertise now that we're starting to build or not starting that we're getting deeper into which is you know, acquiring users and being able to acquire users for a low-cost. So I think that focusing on smaller Acquisitions I do more of them is is probably a better approach for us for us than than buying larger larger bigger Studios that come with the a lot of complex wage.
So I think that we're we're slow and steady but very focused on the area.
I thank you.
Yeah.
Any question comes from Derek Johnson with BMO Capital markets?
Great. Thank you. Good morning. Everybody Mark. I think you're very detailed in your outlook for 2021. So appreciate that one line. I didn't hear I missed it was your forecast for sales allowances. Um, but would that be Thanksgiving? Hi typically Garrick historically operated in the 10 to 12% off. I think for 20 21 will be towards the upper end of that range, but below 12% is our is our goal. That's very helpful. And then
I have a couple more here selling marketing distribution and product development. That was probably the biggest surprise positive surprise relative to our model. You did discuss wage distribution was curious about product development with a lot of the projects do you have going on? How did that Trend? And and how are you looking at that in 2021 the product development side.
Maybe Renee and I'll go first numerically and then you can jump in with any context Gary. Typically our product development costs are around 2% of sales. Keep in my life. That's not our full or in D spent it's it's important to understand that because part of our product development spend is variable eyes through our inventory loyalties, which actually sit in our cell has but in terms of the straight numbers that you see on the p&l around 2% is is the is the range that we will continue to operate in. I mean we are dead, you know, continually looking at areas to expand into and and think about but Renee maybe you could you could comment on that.
sure, I just
Make sure I understand your question you saying from from a qualitative perspective has our product development going or just a if you could clarify the change in that life was $135 million from $165 million, right and and distribution was down twenty-four. So I'm kind of asking what was product development and change that Trend year-over-year in fourth quarter. And then what we should anticipate that line trending in 2021 and marks and it's usually 2% and I assume that's part of life. Expenses and partly DNA coming through but but anyway, what what should we expect for the prompt development twenty twenty-one?
Yeah, I can tell you that the team is the team is first of all, they're working overtime during 2 to bring the products out. It's actually a tough environment for them to work in from a creative perspective. But the team is doing an exceptional job. And uh, the team is keeping the pipeline for all the core categories that were in and off the keeping them very full and very robust and and I would say pushing the envelope in terms of freshness newness Innovation, and I think you guys will enjoy the presentation on next week. Um, so you'll be able to get a glimpse into all the new products that the teams being working on and I think that will give you a better understanding of everything once you see all the products.
All right. Maybe I'll move on to something a little bit more quantitative or qualitative and quantitative here might Express kind of curious about the performance there what your expectations are for toyline wage at all three of softball Wizarding World. What are the upcoming planned events that Warner has little support that help help you guys drive toy sales.
You know Gary controls the hardball because you can usually do I think that you know Wizarding World as is the response would be an amazing from detail, especially in Europe. They are really really excited about the product line so I can just it's really very very exciting. I think we can share more details with Thursday March 9th in terms of some of the stuff that Warner Brothers is going to do to support that but so far very good from from that front page. That's really good. And in terms of my t Express nobody expresses doing well and it is I would definitely say that page when you're starting the svod. It's a slower build and you're going to uh,
Taking a combo approach to this whereby you have SD and then insert other markets when linear comes online go to linear and so you really need to be able to to have that VOD linear YouTube all the channels working together to get you the most amount of exposure life for you put the product line into the marketplace. And so we're constantly looking at the awareness levels and to make sure that the awareness levels are neat are we're in this life are at the point when it's appropriate and there's enough awareness to put the product into the marketplace. And so that's the key thing that we're focused on is building up awareness package put in the product into the marketplace and not not doing things based on old ways of thinking because everything has changed so much so dead.
We're being very, uh.
Taylor and measured when we actually go ahead and put the toys into the marketplace plus our other licensed in merchandising Partners, but I'd say the show has been well received and we continue to draw New Seasons into Netflix and the awareness is building but we're taking I I would say I would say I would say like this is that it's it's going to take longer than your traditional preschool approach just because of the dislocation between linear and svod in 2021 in this current state of the market wage. Yeah. Okay. And then sorry I do have one more quantitative question from Mark input costs how they're going to affect you this year cuz you know Mattel called out two hundred basis points of gross margin would cost and they're the only ones you know other toy company is says brought that up. Ugh, even a little old Jack specific is saying you're not seeing anything. So what what do you seeing on input costs birth?
Because you know from the Chelsea to our basis points, I think there's got to be something out there. So what your what your comment on that?
Garrick hi. Yeah, we we you know, we are seeing some emerging signs of some input cost increases in Asia as I I spoke to the shipping cost off earlier which are not going to repeat the other element that we're seeing is is plastic resin some inflation in that area. But but the point is that at this point, we don't know if it's sustainable for the full part of the urine and you know, our suppliers have purchased very significant quantities in advance based on the water limit given them so there might be some impact later in the year and into twenty twenty-two. I don't think we we can quantify it like some of our competitors might have but but there's definitely something there and we watching it very closely and looking at ways to mitigate any way put cost impact in our margins that show that's why I also want to be more measured in terms of our our margin Improvement because there is some elements of inflation that that might come in that we cannot contain song
We just have to take a measured approach and it it is early in the year at this point. Yeah, okay. All right. Thank you Mark Baker then thanks. I think we're going to have time for maybe a couple more questions at most we want to try and wrap up by 11. Thank you for sticking with us for a longer period of time.
Our next question comes from Steph wissink with Jefferies. Your line is open. Good morning. Everyone. Most of our questions have been asked but to just to tidy up the First Choice games as a category that was a point of emphasis a couple of years ago. And even last year when we were together at toy fairs. If you could just talk about that category what you're seeing the most recent acquisition of Rubik dead what your plans are for expansion of the games business and then secondarily a number of your key retail accounts particularly in the US, but also in Europe are really driving omni-channel business office is now with click and collect and e-commerce. He talked a little bit about how you're supporting those initiatives how that might change how you market and Merchandising and you know what you're doing with some of your big Brands kind of crazy 8 online stores and really leverage some of those platforms. Thank you. Hi Steph. Thanks. I'll take I'll take the first part of the question and then rename, maybe you can take the second part dead.
In terms of games that your question on games staff there really are four categories to our games business and and you know, the first one is family bought an action games.
Which is actually the largest category. We have a pretty solid market share and our growth outpaced the industry in 2020. So so we we feel pretty good about that. Then you have family standard games wage where most of the classics it and again, we saw strong sales in in twenty-twenty on that category. The third category is adults puzzles, and we wanted the top for manufacturing jobs in that space But we are the fastest-growing. And again, we grew up sharing in 2020 / 2019. The final category is children's games and preschool games in that, we will actually down versus the industry. You saw our overall games in Q4 was not as much as many of you might have expected. So we were actually down against the industry and that was mainly driven by the same opening in licenses that we had licenses like baby shark, LOL and Toy Story were down. Some of them are more, you know, tend towards more installed traffic and impulse purchases dead.
But with new theatrical in 2020 around zero that was definitely a factor and we do see growth in 2021 in this area as theatrical licenses expanding. So hopefully that gives you some color on the games and puzzles area. Would you like to talk about the omni-channel?
Marketing. Yeah sure. It's unbelievable. Because you know, you must be listening to our board meeting yesterday, you know half the board meeting with was on a topic it is it's unbelievable what's happened in the marketplace that's COVID-19 accelerated everything and it's amazing to see each retailer. Especially with large ones like Target Walmart each react in their own, you know nuanced way and I can just tell you that our teams are often focused on on this change in the way the consumer shopping and making sure that we're going to Market effectively and off and looking even internally how we're actually organized structurally with our teams and the competencies of capabilities that you really need to be able to to dead.
Women and and really connect with the consumer in this in this digital shopping space and and and it's interesting cuz I I mean the omni-channel is is just it just means it's everything. It's digital. It's retail. It's foot traffic. And so we're very focused on it. We're very, very focused with each large retailer to to bring out unique programs and everything from like looking everything like, you know data leakage to Page search and and making sure that we're relevant and uh, we're very focused on it. I think that on March 9th we can actually when I can give you a a closer look at what we're doing from a marketing perspective, you know on some of our larger Brands to answer your your
Your question on that.
But we can give you a deeper dive on how we're doing it if that's okay.
It is thank you. Looking forward to next week. Yes. Thanks Dave looking for it for seeing it to its make this last question operator, please note our last question comes from Martin Landry with stifel your line is open.
Hi, good morning guys. Just a quick follow-up on on the acquisition front. You know, you have a rising cash balance that gives you increase flexibility and off and running. It seems that it will be a a focus of view and and Anton in 2021 and onwards. So just wondering if you could talk a little bit about what what would be the office part in terms of size for you correct positions.
You know, I I, you know, I'm reticent the comedy exactly what what The Sweet Spot is because I am more focused on looking for Quality Companies with amazing management and and focus on that and the south is obviously we're not we have a an approach of we like to do measured small to medium-sized Acquisitions and we think that's a month more of a a strategic approach for us. So it's it's hard for me to comments comments on the size. And I also think it's it differs by creative Center. It could be different in games that could be different wage could be different in toys. So I wouldn't want to page and hold it in any dollar amount and and but what I can tell you is that we are very focused on it off.
And we're spending more time in the area where casting the net wider. We're going deeper into each vertical each creative Center looking at New Media looking at game. Obviously toys traditional toys looking for hockey and Acquisitions certain assets. Like the Rubik's expander games business other things for the activities part of our business office. Is there anything in the entertainment area? That's or New Media? So we're going to beat asking the the the net wide but again, everything is grounded on we may want amazing teams amazing individuals. We don't want to be ugh, you know, micromanaging companies that we buy we want to bring amazing talent and I think the incredible thing today is that there is a lot of talented people out. There is a lot of talent that companies and I think there's a lot of people that want to join Spin Master and join the journey off.
What we're doing and we're on the lookout for those towns.
Said individuals that have started companies that want to continue staying with their companies, but for the want to monetize or feel that it's better to expand and grow with us and want to be around our talent pool and and are very passionate about what they do and I think that's really the essence of of our m&a strategy which is you know, a very micro version of it is really looking for the talent out there and I think the days of you know you doing in companies and and you like you like integrate the companies and all that type of stuff. It's yes, there's the place for it. But really the the amazing thing that we're seeing in the marketplace is talented individuals that want to join Spin Master that have incredible products that's incredible teams that can actually take us into new spaces. So when you look at Toca Boca and sagol many that was that is really one of the the classic Acquisitions models that we'd like wage.
And with amazing teams in Creative new spaces, so it's a different type of answer but I hope you're satisfied. Yeah, okay. Thank you very much. Okay, no problem.
Okay, and then completed their question and answer session for today. I'll now turn the call over to Mark Siegel for closing comments. Well, thank you everybody particularly for staying staying with us so long, uh, you know, as always Sophia and I are available to answer any follow-up questions, and we look forward to talking to you on the 9th for our investor and analyst day and talking more wage product lines in our strategy. So, thank you all and have a great day. Bye.
This concludes today's conference call you may now disconnect off off off.
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