Q1 2022 Spin Master Corp Earnings Call

Operator: Good day and welcome to the Spin Master Corp. first quarter 2022 earnings call. Today's conference is being recorded. At this time I would like to turn the conference over to Sophia Bisoukis. Please go ahead, Madam.

Operator: Good day and welcome to the Spin Master Corp. first quarter 2022 earnings call. Today's conference is being recorded. At this time I would like to turn the conference over to Sophia Bisoukis. Please go ahead, madam.

Sophia Bisoukis: Thank you. Good morning, and welcome to Spin Master's financial results conference call for the first quarter ended March 31, 2022. I'm joined this morning by Max Rangel, Spin Master's Global President and CEO, and Mark Segal, Spin Master's Chief Financial Officer. For your convenience the press release, MD&A and unaudited consolidated interim financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR.

Sophia Bisoukis: Thank you. Good morning and welcome to Spin Master's financial results conference call for the first quarter ended March 31st, 2022. I am joined this morning by Max Rangel, Spin Master's Global President and CEO, and Mark Segal, Spin Master's Chief Financial Officer. For your convenience, the press release, MD&A and unaudited, consolidated in interim financial statements are available on the Investor Relations section of our website, at spinmaster.com and on SEDAR.

and unaudited consolidated interim financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR.

Sophia Bisoukis: Before we begin please note that remarks on this conference call may contain forward looking statements about Spin Master's current and future plans, expectations, intentions, results, levels of activity, performance goals or achievements or any other future events or developments. Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and are reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expected or implied by the forward looking statements. As a result, Spin Master cannot I guarantee that any forward looking statements will materialize and you are cautioned not to place undue reliance on these forward looking statements.

Before we begin, please note that remarks on this conference call may contain forward-looking statements about Spin Masters's current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements, or any other future events or developments. Forward-looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and are reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements. As a results Spin Master cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on these forward-looking statements.

and on estimates and assumptions made based on factors that management believes are appropriate and are reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expected or implied by the forward looking statements. As a result, Spin Master cannot I guarantee that any forward looking statements will materialize and you are cautioned not to place undue reliance on these forward looking statements.

cannot I guarantee that any forward looking statements will materialize and you are cautioned not to place undue reliance on these forward looking statements.

Sophia Bisoukis: Except as may be required by law, Spin Master has no obligation to update or revise any forward looking statements, whether because of new information- information, future events or otherwise. For additional information on these assumptions our risks please consult our cautionary statements regarding forward looking information contained in the company's earnings release dated May 4th, 2022.

Accept as may be required by law, Spin Master has no obligation to update or revise any forward-looking statements, whether because of new information, future events or otherwise. For additional information on these assumptions and risks, please consult our cautionary statements regarding forward-looking information contained in the company's earnings release dated May 4th, 2022. Please note that Spin Master reports in U.S. dollars and all dollar amounts to be expressed today are in U.S. currency. I would like to now turn the conference call over to Max Rangel.

2022.

Sophia Bisoukis: Please note that Spin Master reports in U.S. dollars and all dollar amounts to be expressed today are in U.S. currency. I would like to now turn the conference call over to Max Rangel.

Max Rangel: Good morning, Thanks for joining us as we review our first quarter results. Building on the positive momentum we experienced in 2021, we delivered an excellent quarter to kick off 2022.

Max Rangel: Good morning. Thanks for joining us as we review our first quarter results. Building on the positive momentum we experienced in 2021, we deliver an excellent quarter to kick off 2022. We continued our growth by leveraging the power of our three creative centers with a diversified and innovative toy portfolio, engaging multi-platform entertainment content and open-ended play us a service within our digital games offering.

Max Rangel: We continued our growth by leveraging the power of our three creative centers with our diversified and innovative toy portfolio, engaging multi platform entertainment content and open ended play as a service within our digital games offering.

Max Rangel: Our supply chain and commercial teams did an excellent job managing the ongoing logistics volatility to get our spring 2022 line to where it needed to be, on time. This strong performance enabled us to move from the 5th largest toy manufacturer in the quarter and the G10 countries to 4th for NPD.

Our supply chain and commercial teams did an excellent job managing the ongoing logistics volatility to get our spring 2022 line to where it needed to be on time. This strong performance enabled us to move from the fifth largest store manufacturer in the quarter in the G10 countries to fourth per mpd.

did an excellent job managing the ongoing logistics volatility to get our spring 2022 line to where it needed to be, on time. This strong performance enabled us to move from the 5th largest toy manufacturer in the quarter and the G10 countries to 4th for NPD.

on time. This strong performance enabled us to move from the 5th largest toy manufacturer in the quarter and the G10 countries to 4th for NPD.

on time. This strong performance enabled us to move from the fifth largest store manufacturer in the quarter in the G10 countries to fourth per mpd.

Max Rangel: Q1 consolidated revenue grew 34% and toy revenue grew over 37% highlighting the global strength of our brands. It's encouraging to see that our digital games creative center continued to increase its share of our consolidated revenue with approximately 50% revenue growth in the first quarter.

Q1 consolidated revenue grew 34% and toy revenue grew over 37%, highlighting the global strength of our brands. It's encouraging to see that our digital games creative center continued to increase its share of our consolidated revenue with approximately 50% revenue growth in the first quarter. Adjusted EBITDA increased 161% over the last year, a testament to our cost management and focus on operational excellence.

Max Rangel: Adjusted EBITA increased 161% over the last year, a testament to our cost management and focus on operational excellence.

Max Rangel: Overall, it was a great quarter and one in which our global team showed exceptional commitment to collaboration and operational excellence. I want to now provide you with a brief strategic overview NPOS highlights. Let me start with toys.

Overall, it was a great quarter and one in which our global team showed exceptional commitment to collaboration and operational excellence. I want to now provide you with a brief strategic overview and POS highlights. Let me start with toys.

Max Rangel: The strength of our innovative toy portfolio, coupled with our digital first integrated marketing activations, resulted in very encouraging P.O.S. momentum in Q1.

The strength of our innovative toy portfolio, coupled with our digital first integrated marketing activations, resulted in very encouraging POS momentum in Q1. Over the past several years, we have made a concerted effort to diversify our toy portfolio through innovation of our existing brands and acquisitions in categories such as outdoors, games and puzzles, activities and plush. We've also focused on winning high quality toy licenses such as Monster Jam, DC Comics, Gabby's Dollhouse, Wizarding World and others. This quarter was a highlight for us as we saw our strong licensing partnerships bear fruit with POS for our license portfolio of 40% across our G10 countries measured by NPD. Overall, we significantly out paced Q1 industry POS, driven by a combination of broad based core brand and license strength and successful innovation. Now let me share with you some important data. For the last two quarters. We have been the fastest growing toy manufacturer globally, among the top five. In Q1, our global POS grew 2% year over year compared to -6% for the industry per NPD. This performance was even more impressive when you consider that Easter POS fell in Q1 last year compared to Q2 this year. In North America POS grew 3% in Q1 compared to an industry decline of 5%.

Max Rangel: Over the past several years, we have made a concerted effort to diversify our portfolio through innovation of our existing brands and acquisitions in categories, such as outdoors, games and puzzles, activities and plush. We've also focused on winning high quality toy licenses, such as Monster Jam, DC Comics, Gabby's Dollhouse, Wizarding World and others. This quarter was a highlight for us as we saw our strong licensing partnerships bear fruit with P.O.S. for our licensed portfolio up 40% across our G10 countries measured by MPD. Overall, we significantly outpaced Q1 industry P.O.S. driven by a combination of broad based core brand and license strength and successful innovation. Let me share with you some important data.

acquisitions in categories, such as outdoors, games and puzzles, activities and plush. We've also focused on winning high quality toy licenses, such as Monster Jam, DC Comics, Gabby's Dollhouse, Wizarding World and others. This quarter was a highlight for us as we saw our strong licensing partnerships bear fruit with P.O.S. for our licensed portfolio up 40% across our G10 countries measured by MPD. Overall, we significantly outpaced Q1 industry P.O.S. driven by a combination of broad based core brand and license strength and successful innovation. Let me share with you some important data.

bear fruit with P.O.S. for our licensed portfolio up 40% across our G10 countries measured by MPD. Overall, we significantly outpaced Q1 industry P.O.S. driven by a combination of broad based core brand and license strength and successful innovation. Let me share with you some important data.

Max Rangel: For the last two quarters, we have been the fastest growing toy manufacturer globally among the top five. In Q1, our global P.O.S. grew 2% year over year compared to -6% for the industry for M.P.D. These performance was even more impressive when you consider that Easter P.O.S. fell in Q1 last year compared to Q2 this year. In North America P.O.S. grew 3% in Q1 compared to an industry decline of 5%.

year compared to Q2 this year. In North America P.O.S. grew 3% in Q1 compared to an industry decline of 5%.

Max Rangel: In Q2, according to the latest NPD data, we are seeing continued acceleration of our P.O.S. growth with U.S. P.O.S. up 40% driven by the Easter shift and continued demand for our product line.

In Q2, according to the latest NPD data, we are seeing continued acceleration of our POS growth, with U.S. POS up 40 %, driven by the Easter shift and continued demand for our product line. Let me share some key toy category highlights with the beginning with preschool, dolls and interactive.

Max Rangel: Let me share some key toy category highlights with you beginning with pre-school dolls and interactive.

Max Rangel: Last year, we discussed the remarkable global performance of Paw Patrol driven by the success of the award winning Paw Patrol feature film.

Last year we discussed the remarkable global performance of Paw Patrol, driven by the success of the award winning Paw Patrol feature film.

Max Rangel: Paw Patrol is a massive franchise that continues to resonate with the pre-school audience maintaining its status as a number one pre-school property globally for NPD. Global P.O.S. for Paw Patrol was down 5% in the quarter, but in line with the category trend and was affected by the timing of Easter. For context, Paw was up 25% relative to Q1 2020.

Papa Patrol is a massive franchise that continues to resonate with a preschool audience, maintaining its status as a number one preschool property globally for NPD. Global POS for PAW Patrol was down 5 percent in the quarter, but in line with the category trend, and was affected by the timing of Easter. For context, PAW was up 25 percent relative to Q1 2020. The brand remains very strong. Demand for PAW Patrol remains robust. Brand awareness, penetration, and purchase intent are healthy, and we have exciting new things planned for 2022. We are ramping up plans for our 10th anniversary of the franchise in 2023. 

relative to Q1 2020.

Max Rangel: The brand remains very strong. Demand for Paw Patrol remains robust. Brand awareness, penetration and purchase intent are healthy and we have exciting new themes planned for 2022.

Max Rangel: We are ramping up plans for our 10th anniversary of the franchise in 2023.

Max Rangel: In March, I mentioned the very positive response we've been seeing to many of the new introductions in 2021 within dolls and interactive.

In March, I mentioned the very positive response we've been seen to many of the new introductions in 2021 with doll and interactive.

Max Rangel: Viewership for Gabby's Dollhouse continued to drive awareness and sales of the property as it enters its second year.

Viewership for Gabby’s Dollhouse continued to drive awareness and sales of the property as it enters its second year. It’s the sixth on the top show list in the U.S. for girls two to five years old, and brand awareness continues to grow. The toys were a runaway hit in Q1, making it the number one new toy property globally.

Max Rangel: It's the sixth on the top show list in the U.S. for girls two to five years old and brand awareness continues to grow. The toys were a runaway hit in Q1, making it the number one new toy property globally.

Max Rangel: The design team has done a fantastic job of bringing the magic of the show into homes with the Gabby's Dollhouse Perfect Play Set, helping the item claim the number one position in the play set, figures and accessories class in the U.S.

The Design team has done a fantastic job of bringing the magic of the show into homes with the Gabby’s Dollhouse Purrfect Playset, helping the item claim the number one position in the Playset, Figures, and Accessories class in the U.S.

Max Rangel: Helping the item claim the number one position in the playset, figures and accessories class in the U.S.

Max Rangel: Purse Pets, our collection of interactive fashion purses, quickly became a top new toy property after its launch in 2021.

Purse Pets, our collection of interactive fashion purses, quickly became a top new toy property after its launch in 2021. The brand continues to inspire collectability, with new characters, and micro versions, helping it to maintain its status as a top new global property in Q1 per NPD. In the U.S., Purse Pets was the number two item in the Fashion, Role Play, and Dress-Up class.

Max Rangel: The brand continues to inspire collectability with new characters and micro versions, helping it to maintain its status as a top new global property in Q1 per MPD. In the U.S., Purse Pets was a number two item in the fashion role play and dress up class.

Max Rangel: Last year, we launched the first of our licensed toys inspired by the Wizarding World stories and characters from the Harry Potter and Fantastic Beasts franchises, which performed extremely well in a non-movie year. The momentum for this much loved brand has continued into the spring leading into the newest movie release Fantastic Beasts: The Secrets of Dumbledore, which opened in April.

Last year, we launched the first of our licensed toys inspired by the Wizarding World stories and characters from the Harry Potter and Fantastic Beasts franchises, which performed extremely well in a non-movie year. The momentum for this much-loved brand has continued into the spring, leading into the newest movie release, Fantastic Beasts: The Secrets of Dumbledore, which opened in April.

Darcy Beast, the secrets with Dumbledore, which opened in April we.

Max Rangel: We expect continued momentum from loyal fans and audiences following the feature film.

We expect continued momentum from loyal fans and new audiences following the feature film.

Max Rangel: In activities Kinetic Sand remains the number two brand within the arts and crafts category and continues to gain share. Orbees saw exceptional gains in Q1 growing POS by triple digits, driven by continued momentum for innovation launched in 2021.

In Activities, Kinetic Sand remains the number two brand within the Arts and Craft category, and continues to gain share. Orbeez saw exceptional gains in Q1, growing POS by triple-digits, driven by continued momentum for innovation, launched in 2021.

Max Rangel: In games and puzzles, our core games POS grew 7% compared to the market, which declined 10% per MPD. We have several new titles within kids, adult and family games launching this fall and are also putting our full efforts behind the Rubik's Cube.

In Games and Puzzles, our core games’ POS grew 7 percent compared to the market, which declined 10 percent per NPD. We have several new titles within Kids, Adult, and Family Games launching this fall, and are also putting our full efforts behind the Rubik’s Cube.

POS grew 7% compared to the market, which declined 10% per MPD. We have several new titles within kids, adult and family games launching this fall and are also putting our full efforts behind the Rubik's Cube.

Max Rangel: We have now owned the Rubik's brand for a full year and are increasingly excited about the brand's global potential. 2022 will be the first year we are distributing directly in the U.S. and are planning for the upcoming 50th year celebration over the next 18 months.

We have now owned the Rubik’s brand for a full year and are increasingly excited about the brand’s global potential. 2022 will be the first year we are distributing directly in the U.S., and are planning for the upcoming 50th year celebration over the next 18 months.

Max Rangel: Within plush, we are seeing the return to specialty stores, Gund's primary distribution channel. With pandemic restrictions easing, new launches such as P.lushes and Drops as well as the cherish licenses and baby plush are driving growth.

Within Plush, we are seeing the return to specialty stores, GUND's primarily distribution channel, with pandemic restrictions easing. New launches, such as P.Lushes and Drops, as well as the Cherished licenses and Baby Plush are driving growth.

Max Rangel: Within Wilson Action, we achieved several key successes in the quarter, both with our internal innovation as well as with key licenses.

Within Wheels and Action, we achieved several key successes in the quarter, both with our internal innovation, as well as with key licenses. Most notably, our DC Universe line, and specifically Batman toys, launched in conjunction with the Batman movie, and that performed very strongly. Batman is now the number fifth Spin Master brand in terms of POS. We’re excited for the future of the DC franchise with a blockbuster 18 months ahead, four new theatrical releases are planned. We are very excited to announce the renewal of the DC Comics license agreement with Warner Bros. Consumer Products for the iconic Batman franchises and the other DC superheroes. This will take us from 2023 to 2026.

Max Rangel: Most notably our DC Universe line, and specifically Batman toys launched in conjunction with the Batman movie, and that performed very strongly. Batman is now this number five spin master brand in terms of POS. We're excited for the future of the DC franchise with a blockbuster 18 months ahead four new theatrical releases are planned. We're very excited to announce the renewal of the DC Comics license agreement with Warner Brothers Consumer Products, for the iconic Batman franchises and the other DC superheroes. This will take us from 2023 to 2026.

are planned. We're very excited to announce the renewal of the DC Comics license agreement with Warner Brothers Consumer Products, for the iconic Batman franchises and the other DC superheroes. This will take us from 2023 to 2026.

Max Rangel: Monster Jam continues to be another strong license and was the number two property in vehicles per NPD and the number one license within the MPD Super category. Our global POS grew 15% compared to the category, which was down 2%.

Monster Jam continues to be another strong license, and was the number two property in Vehicles, per NPD, and the number one license within the NPD super category. Our global POS grew 15% compared to the category which was down 2%.

Max Rangel: Finally Tech Deck is reaping dividends from increased retail penetration with double digit POS growth in Q1 as per MPD.

Finally, Tech Deck is reaping dividends from increased retail penetration with double-digit POS growth in the Q1, as per NPD.

Max Rangel: The team has many exciting new collaborations planned with leading figures in the skateboard world as well as key skateboard event sponsorships to continue to build the brands.

The thing has many exciting new collaborations planned with leading figures in the skateboard world, as well as key skateboard event sponsorships to continue to bring the brand.

Now last year, we focused heavily on e-commerce execution from customer management, to enhance product content, to search and we saw those efforts pay off in Q1 overall e-commerce POS grew 24% and represented 32% of our total POS.

Now, last year, we focused heavily on e-commerce execution from: customer management, to enhanced product content, to search, and we saw those efforts pay off. In Q1, overall e-commerce POS grew 24% represented 32% of our total POS.

Max Rangel: These will continue to be an important distribution channel for toys going forward and we are well position for the future.

This will continue to be an important distribution channel for Toys going forward and we are well positioned for the future.

Max Rangel: Now turning to entertainments Creative Center, we are creating multi-platform content that connects with audiences globally with exceptional storytelling and enduring characters.

Now turning to Entertainment’s creative centre. We are creating multi-platform content that connects with audiences globally with exceptional storytelling and endearing characters. Entertainment is leveraging our existing own IP, as well as developing new content, all in a channel-agnostic way. We continue to engage kids where they want to be, and a great example of this strategy is the recently announced Sago Mini Friends show, in partnership with Apple TV. This is a very significant milestone for Spin Master and highlights our ability to leverage IP across all of our creative centres.

Max Rangel: Entertainment is leveraging our existing own IP as well as developing new content, all in a channel agnostic way.

All in a channel agnostic way.

Max Rangel: We continue to engage kids where they want to be. A great example of this strategy is our recently announced Sago Mini Friends show in partnership with AppleTV.

Max Rangel: This is a very significant milestone for Spin Master and highlights our ability to leverage IP across all of our creative centers.

Max Rangel: Sego Mini Friends is based on the charming characters and artful designs from the characters in our Sego Mini World App.

Sago Mini Friends is based on the charming characters and artful designs from the characters in our Sago Mini World app. Centred around the theme of gratitude, the new series is our first with Apple.

Max Rangel: Centered around the theme of gratitude, the new series is our first with Apple.

Center around the theme of gratitude. The new series is our first with Apple.

Max Rangel: We continue to keep Paw Patrol fresh with a stream of new content for pre-school fans. Planning is underway to celebrate the 10th anniversary of our beloved pups in 2023.

We continue to keep PAW Patrol fresh with a stream of new content for preschool fans. Planning is underway to celebrate the 10th anniversary of our beloved pups in 2023.

Max Rangel: Previously announced our sequel to Paw Patrol the Movie will be released in October 2023, and our first spinoff series featuring Rubble will also air on Nick Junior in 2023.

As previously announced, our sequel to PAW Patrol: The Movie will be released in October 2023, and our first pin-up series featuring Rubble will also air on Nick Jr. in 2023.

Max Rangel: Not only are we feeling and feeding our current audience with new ventures- new adventures, looks and experiences, but we're also building a diversified offering appealing to different audiences, age groups and platforms.

Not only are we feeling, and feeding, our current audience with new adventures, looks, and experiences, but we’re also building a diversified offering appealing to different audiences, age groups, and platforms. Over the next few months, stay tuned as we share new and more exciting new entertainment content currently in development.

Max Rangel: Over the next few months stay tuned as we shared new and more exciting new entertainment content currently in development.

currently in development.

Max Rangel: Our digital games Creative Center had another very strong quarter with revenue up 50% led by Toca Life World. Mostly active users for Toca Life World grew to 61 million at the end of Q1, nearly double the 33 million last year at this time.

Our Digital Games creative centre had another very strong quarter, with revenue up 50%, led by Toca Life World. Monthly active users for Toca Life World grew to 61 million at the end of Q1, nearly double the 33 million last year at this time. The entire Toca Boca ecosystem now has over 78 million monthly active users, up 50% compared to the 52 million in 2021 at this time. Active Sago subscribers were 309,000 this year, compared to 286,000 in 2021. 

Max Rangel: Entire Toca Boca eco-system now has over 78 million monthly active users up 50% compared to the 52 million in 2021 at this time.

Max Rangel: Active signal subscribers were 309,000 this year compared to 286,000 in 2021.

Active Seal subscribers were 309 thousand this year, compared to 286 thousand in 2021.

Max Rangel: In March, Toca Boca launched their third online only clothing collaboration with H&M, this time focused on gender neutral sustainable fashion. The collection launched worldwide online and allows kids to wear clothing inspired by their Toca characters and the science, both physically and within- and within the digital ecosystems in the app. Engagement with kids is critical to Toca's continued success. This quarter, we launched the Toca Time initiative on TikTok, which challenges kids to exercise at home and then create and share their stories using Toca characters on TikTok, generating over 22 million hashtag views.

In March, Toca Boca launched their third online-only clothing collaboration with H&M, this time focused on genderneutral sustainable fashion. The collection launched worldwide online and allowed kids to wear clothing inspired by their Toca characters and designs, both physically and within the digital ecosystems in the app. Engagement with kids is critical to Toca’s continued success. This quarter, we launched the Toca Time initiative on TikTok, which challenged kids to exercise at home and then create and share their stories, using Toca characters on TikTok, generating over 22 million hashtag views.

In the app engagement with kids is critical to Toca's continued success. This quarter, we launched the Toca Time initiative on TikTok, which challenges kids to exercise at home and then create and share their stories using Toca characters on TikTok, Generating over two any 2 million hashtag views.

Generating over two any 2 million hashtag views.

Max Rangel: The Sago Mini Friends initiative with Apple will also be beneficial to the digital games Creative Center. The launch of the show on AppleTV increases brand awareness for Sego Mini World and drives engagement, familiarity and attachment to the characters. Sego's association with a powerful brands such as Apple increases credibility for all of Sego Mini's digital games.

The Sago Mini Friends initiative with Apple will also be beneficial to the Digital Games creative centre. The launch of the show on Apple TV increases brand awareness for Sago Mini World and drives engagement, familiarity, and attachment to the characters. Sago’s association with a powerful brand such as Apple increases credibility for all of Sago Mini’s digital games.

These digital games.

Max Rangel: Sego also partnered with Otsimo, a developer of game based learning apps for children with special needs, to launch Sego Mini First Words in April, a new app focused on early speech development. First Words is a powerful digital education solution to support kids and parents with speech training that is

Sago also partnered with Otsimo, a developer of game-based learning apps for children with special needs, to launch Sago Mini First Words in April, a new app focused on early speech development. First Words is a powerful digital education solution to support kids and parents with speech training that is accessible in a listen, repeat format that children recognize and engage with. The app won the Apple Editor’s Choice Award immediately after its release, and we will share a very powerful video of this app later in the afternoon when we meet during our Investor Day.

Max Rangel: accessible in a listen repeat format that children and recognize and engage with. The App won the Apple Editor's Choice Award immediately after it's release and we will share a very powerful video of this app later in the afternoon, when we meet during our Investor Day.

Max Rangel: We continue to make progress with Noid, our newest digital games studio in Stockholm.

We continue to make progress with Noid, our newest Digital Games studio in Stockholm. Noid is well down the path of developing its first digital game using Spin Master’s own IP. Fredrik Loving will have an exciting announcement of our first Noid-developed digital game launch later this afternoon.

Max Rangel: Noid is well down the path of developing its first digital game using Spin Master's own IP.

Max Rangel: Fredrik Loving will have an exciting announcement of our first Noid develop digital game launch later this afternoon.

Frederick globin will have an exciting announcement of our first noise-developed digital game launch later this afternoon.

Max Rangel: Now with the power of the three creative centers I believe we have an incredible opportunity to grow our reach and connection with kids and families on a global scale.

Now with the power of the three creative centers, I believe we have an incredible opportunity to grow our reach and connection with kids and families on our global scale.

Max Rangel: With each of our creative centers with- while each of our creative centers have success stories to share, we are also starting to see the results of deep collaboration between toys, entertainment and digital games. We are pleased to be able to raise our revenue and toy gross product sales outlook for 2022.

While each of our creative centres has success stories to share, we are also starting to see the results of deep collaboration between Toys, Entertainment, and Digital Games. We are pleased to be able to raise our revenue and Toy gross product sales outlook for 2022.

with- while each of our creative centers have success stories to share, we are also starting to see the results of deep collaboration between toys, entertainment and digital games. We are pleased to be able to raise our revenue and toy gross product sales outlook for 2022.

Max Rangel: Well there are macroeconomic factors of concern such as rising inflation and interest rates, ongoing supply chain volatility and other factors such as the war in the Ukraine. We also see some tail winds that are positive. The trend towards nesting which started in the pandemic remains strong and families are spending more time together.

While there are macroeconomic factors of concern such as rising inflation and interest rates, ongoing supply chain volatility, and other factors such as the war in Ukraine, we also see some tailwinds that are positive. The trend towards nesting, which started in the pandemic, remains strong, and families are spending more time together. In general, disposable incomes are higher, Grandparents are spending more on their grandchildren, and as COVID dissipates, birthday parties and social gatherings are coming back. More content, movies, licensing, and social media events are increasing consumer demand.

Max Rangel: In general disposable incomes are higher, grandparents are spending more on their grandchildren, and as COVID dissipates, birthday parties and social gatherings are coming back.

Max Rangel: More content, movies, licensing and social media events are increasing consumer demand.

More content movies, licensing and social media events are increasing consumer demand.

Max Rangel: With that in mind and with a rich slate of entertainment content for 2022 and beyond, a robust toy line for innovation and a growing digital games business, I am very excited for the potential we possess to harness and leverage the power of our three creative centers to create magical and memorable experiences for kids everywhere and in turn drive growth and value for our shareholders.

With that in mind, and with a rich slate of entertainment content for 2022 and beyond, a robust Toy line for innovation, and a growing Digital Games business, I am very excited for the potential we possess to harness and leverage the power of our three creative centres to create magical and memorable experiences for kids everywhere, and in turn, drive growth and value for our shareholders. With that, I will now turn it over to Mark.

turn drive growth and value for our shareholders.

Max Rangel: With that, I will now turn it over to Mark.

Mark L. Segal: Thank you, Max, and good morning, everyone.

Mark L. Segal: Thank you, Max, and good morning everyone.

Mark L. Segal: We carried the strong momentum from 2021 into the first quarter of 2022 with excellent financial and operational results.

We carried the strong momentum from 2021 into the first quarter of 2022, with excellent financial and operational results.

Mark L. Segal: We generated just over $424 million in revenue for Q1, a 34% increase over last year driving exceptional profitability growth with adjusted EBITDA of $95.7 million up 161% over Q1 2021.

We generated just over $424 million in revenue for Q1, a 34 percent increase over last year, driving exceptional profitability growth, with adjusted EBITDA of $95.7 million, up 161% over Q1 2021.

2021.

20 20 one.

Mark L. Segal: This performance was in part due to proactive management of our supply chain to hit on shelf dates for spring innovation, cost management and continued growth in digital games.

This performance was in part due to proactive management of our supply chain to hit on-shelf dates for Spring innovation, cost management and continued growth in digital games.

Mark L. Segal: This quarter, we introduced a significant change in our segment reporting providing more transparency into our growth and profitability drivers and aligning our external reporting with our management structure.

This quarter, we introduced a significant change in our segment reporting, providing more transparency into our growth and profitability drivers and aligning our external reporting with our management structure.

Mark L. Segal: We now have three new reportable operating segments: toys, entertainment and digital games.

We now have three new reportable operating segments: Toys, Entertainment and Digital Games.

Mark L. Segal: Our three creative centers have different but complimentary financial models and operating profiles. Each one contributing to our overall strategy.

Our three credit centers have different but complementary financial models and operating profiles, each one contributing to our overall strategy.

Mark L. Segal: We have provided historical quarterly results for 2021 for our three creative centers for comparative purposes.

We have provided historical quarterly results for 2021 for our three credit centers for comparative purposes. The metrics we are now providing will give you an insight into the key operating areas that management is focused on and which, over time, will allow us to further grow shareholder value.

Mark L. Segal: The metrics we are now providing will give you an insight into the key operating areas that management is focused on and which, over time, will allow us to further grow shareholder value.

Mark L. Segal: We will continue to focus on gross product sales, revenue and adjusted EBITDA margin for our consolidated business, but will now discuss adjusted EBITDA for toys as well as adjusted operating margin or EBIT for entertainment and digital games, in addition to revenue.

We will continue to focus on gross product sales, revenue and adjusted EBITDA margin for our consolidated business, but will now discuss adjusted EBITDA for Toys, as well as adjusted operating margin or EBITD for Entertainment and Digital Games in addition to revenue.

Mark L. Segal: We will also share CAPEX by segment.

We will also share CapEx by segment.

Mark L. Segal: Let me briefly review Creative Center economics and performance for Q1.

Let me briefly review, creative center economics and performance for Q1.

Mark L. Segal: Firstly, toys has a proven model for revenue and profit generation. Our diverse portfolio of toy brands generate significant cash flow that enables us to reinvest in the enterprise portfolio.

Firstly, Toys has a proven model for revenue and profit generation. Our diverse portfolio of toy brands generate significant cash flow that enables us to reinvest in the enterprise portfolio.

Mark L. Segal: Our entertainment strategy involves developing traditional content in close alignment with toys to build our future portfolio of long term franchises.

Our entertainment strategy involves developing traditional content in close alignment with toys to build our future portfolio of long-term franchises.

Mark L. Segal: Entertainment acts as a catalyst for other creative centers, increasing popularity, driving sales and turning toys into franchises.

Entertainment acts as a catalyst for our other creative centers, increasing popularity, driving sales and turning toys into franchises.

Mark L. Segal: Our digital game strategy is built on a mix of organic growth and M&A.

Our digital game strategy is built on a mix of organic growth and M&A.

Mark L. Segal: Organic investments will leverage established brands, such as Toca Life World and new IP created in collaboration across creative centers.

Organic investments will leverage established brands such as Toca Life World and new IP, created in collaboration across creative centers.

Mark L. Segal: Digital games revenue is a combination of both in app purchases and subscriptions and has a more balanced seasonal sales profile.

Digital games revenue is a combination of both in-app purchases and subscriptions and has a more balanced seasonal sales profile.

Mark L. Segal: Digital games have EBIT margins that are highly accretive to Spin Master overall.

Digital games have EBIT margins that are highly accretive to Spin Master overall.

Mark L. Segal: Taken together, our three creative centers will continue to broaden our portfolio, diversify revenue, create a more consistent sales cycle and lower volatility and operational risk.

Taken together, our three creative centers will continue to broaden our portfolio, diversify revenue, create a more consistent sales cycle and lower volatility and operational risk.

Mark L. Segal: Turning to the quarter, total revenue was $424.2 million compared to $316.6 million.

Turning to the quarter, total revenue was $424.2 million compared to $316.6 million.

Mark L. Segal: Coming off a strong 2021, we delivered a great start to the year with revenue growth driven by toys and digital games.

Coming off a strong 2021, we delivered a great start to the year, with revenue growth driven by toys and digital games.

Mark L. Segal: Toy gross product sales were $397.5 million, an increase of $102.8 million or 34,9%. On a constant currency basis gross product sales were up 36.6%.

Toy gross product sales were $397.5 million, an increase of $102.8 million or 34.9%. On a constant currency basis, gross product sales were up 36.6%.

Mark L. Segal: We are pleased with how broad based our growth was across our diversified product portfolio during the quarter. Pre-school and dolls and interactive grew 56.2% driven by Gabby's Dollhouse, Wizarding World, Paw Patrol and Purse Pets.

We are pleased with how broad-based our growth was across our diversified product portfolio during the quarter. Preschool, Dolls, and Interactive grew 56.2%, driven by Gabby'S Dollhouse, Wizarding World, PAW Patrol and Purse Pets.

Mark L. Segal: Activities, games and puzzles, and plush grew 16.5% led by Rubik's, Gund and Orbeez.

Activities, Games and Puzzles, and Plush grew 16.5%, led by Rubiks, GUND and Orbeez.

Mark L. Segal: Wheels and action grew 46.6% led by DC Comics licensed products, mostly Batman and Monster Jam.

Wheels and Action grew 46.6%, led by DC Comics license products, mostly Batman and Monster Jam. Outdoor also grew 5%.

Mark L. Segal: Outdoor also grew 5%.

Mark L. Segal: As we discussed in March, we exited Q4 with a very clean inventory position at retail, leading retailers to restock their shelves earlier and in larger amounts than in prior years.

As we discussed in March, we exited Q4 with a very clean inventory position at retail, leading retailers to restock their shelves earlier and in larger amounts than in prior years.

Mark L. Segal: Geographically, we delivered solid gross product sales growth across all markets led by North America, which was up nearly 40%.

Geographically we delivered solid gross product sales growth across all markets led by North America, which was up nearly 40%.

Mark L. Segal: Europe saw growth of just under 28% and the rest of the world was up nearly 30%.

Europe saw growth of just under 28%, and the rest of the world was up nearly 30%.

Mark L. Segal: International gross product sales represented 40% of total gross product sales down from 42.1% driven by strong growth in North America.

International gross product sales represented 40% of total gross product sales, down from 42%, driven by strong growth in North America.

Yes.

Mark L. Segal: Q1 sales allowances declined to 11.7% from 13.3% as a percentage of gross product sales, primarily driven by geographic mix, lower promotions and markdowns and lower non-compliance charges.

Q1 sales allowances declined to 11.7% from 13.3%, as a percentage of gross product sales. Primarily driven by geographic mix, lower promotions and markdowns and lower non-compliance charges.

Mark L. Segal: We've made significant operational improvements that have led to reduced non-compliance charges and we have improved our inventory management, leading to reduced promotions and markdowns.

We've made significant operational improvements that have led to reduced non-compliance charges, and we have improved our inventory management, leading to reduced promotions and markdowns.

Mark L. Segal: This continues to be an area of ongoing focus and I'm proud of our commercial team's ability to deliver incremental improvements quarter after quarter.

This continues to be an area of ongoing focus and I'm proud of our Commercial team's ability to deliver incremental improvements quarter after quarter.

Mark L. Segal: Toy revenue or gross product sales, net of sales allowances, increased by $95.3 million or 37.3% to $350.9 million from $255.6 million.

Toy revenue or gross product sales, net of sales allowances, increased by $95.3 million, or 37%, to $350.9 million from $255.6 million.

Mark L. Segal: Adjusted EBITDA for toys grew to $56.9 million at a 16.8% adjusted EBITDA margin compared to $5.1 million or just under 2%.

Adjusted EBITDA for toys grew to $56.9 million at a 16.8% adjusted EBITDA margin, compared to $5.1 million, or just under 2%.

Mark L. Segal: Adjusted EBITDA margin improved due to higher gross margins from favorable changes in product mix, price increases and improved operating leverage offset in part by some product cost and ocean freight inflation.

Adjusted EBITDA margin improved due to higher gross margins from favorable changes in product mix, price increases and improved operating leverage, offset in part by some product cost and ocean freight inflation.

Mark L. Segal: Entertainment revenue was $22.2 million compared to $26.9 million due to lower content deliveries this quarter.

Entertainment revenue was $22.2 million compared to $26.9 million, due to lower content deliveries this quarter.

Mark L. Segal: Adjusted operating margin was 51.4% compared to 43.1%.

Adjusted operating margin was 51.4% compared to 43.1%.

Mark L. Segal: To emphasize this further, when we discuss entertainment profitability performance, we will focus on adjusted operating margin as this considers content amortization.

To emphasize this further, when we discuss entertainment profitability performance, we will focus on adjusted operating margin, as this considers content amortization.

Mark L. Segal: The increase in operating margin this quarter was a result of the improved mix of lower gross margin content deliveries and higher gross margin licensing and merchandising revenue as well as lower selling, general and administrative expenses as a percent of revenue.

The increase in operating margin this quarter was a result of the improved mix of lower gross margin content deliveries and higher gross margin licensing and merchandising revenue, as well as a lower selling general and administrative expenses as a percent of revenue.

Mark L. Segal: Digital games revenue increased by $17 million or 49.9% to $51.1 million. The increase was driven by higher in app purchases in Toca Life World.

Digital games revenue increased by $17 million or 49.9% to $51.1 million. The increase was driven by higher in app purchases in Toca Life World.

Was driven by higher in App purchases and telco life World adjusted.

Mark L. Segal: Adjusted operating margin was 42.3% up from 39.6% driven by a favorable mix of in app purchases, partially offset by higher product development and personnel costs.

Adjusted operating margin was 42.3%, up from 39.6%, driven by a favorable mix of in app purchases, partially offset for higher product development and personnel costs.

Mark L. Segal: From a consolidated P&L perspective, gross margins were 55.9% compared to 49.7%.

From a consolidated P&L perspective, gross margins were 55.9% compared to 49.7%. The 620 basis point improvement was largely driven by favourable changes in Toy product mix and price increases, offset in part by inflation, in product costs and ocean freight, as well as a higher proportion of Digital Games revenue

Mark L. Segal: The 620 basis point improvement was largely driven by favorable changes in toy product mix and price increases offset in part by inflation, in product costs and ocean freight as well as a higher proportion of digital games revenue.

Mark L. Segal: In addition, fewer content deliveries resulted in a lower proportion of program amortization, which positively impacted gross margin.

In addition, fewer content deliveries resulted in a lower proportion of program amortization, which positively impacted gross margin.

Mark L. Segal: SG&A was $158.6 million, representing 37.4% of consolidated revenue compared to 43.9%.

SG&A was $158.6 million, representing 37.4% of consolidated revenue compared to 43.9%.

Mark L. Segal: Marketing expenses were consistent with the prior year, but declined as a percentage of consolidated revenue.

Marketing expenses were consistent with the prior year, but declined as a percentage of consolidated revenue.

Mark L. Segal: Administrative expenses grew 15.5% due to higher personnel related costs, but declined as a percentage of revenue.

Administrative expenses grew 15.5% due to higher personnel related costs, but declined as a percentage of revenue.

Mark L. Segal: Selling expenses grew to $29.6 million or 8.4% of toy revenue from 8.1% due to a higher licensing product mix.

Selling expenses grew to $29.6 million, or 8.6% of toy revenue from 8.1% due to a higher licensing product mix.

Mark L. Segal: In Q1, we recorded net income of $45.6 million or 43 cents per diluted share compared to net income of $3.2 million or three cents per diluted share last year.

In Q1, we recorded a net income of $45.6 million, or 43 cents per diluted share, compared to net income of $3.2 million, or three cents per diluted share, last year.

Mark L. Segal: Adjusted net income in the quarter was $57.5 million or 55 cents per diluted share compared to $8.4 million or eight cents per diluted share.

Adjusted net income in the quarter was $57.5 million, or 55 cents per diluted share, compared to $8.4 million, or eight cent cents per diluted share.

Mark L. Segal: Adjusted EBITDA was $95.7 million compared to $36.7 million up 161%.

Adjusted EBITDA was $95.7 million compared to $36.7 million up 161%.

Mark L. Segal: Adjusted EBITDA margin was 22.6% up from 11.6%. The increase in adjusted EBITDA was driven by increased gross profit and operating leverage.

Adjusted EBITDA margin was 22.6%, up from 11.6%.

The increase in adjusted EBITDA was driven by increased gross profit and operating leverage.

Mark L. Segal: Turning now to the balance sheet inventory at the end of Q1 was up $44 million to $148 million from $104 million at Q1 2021

Turning now to the balance sheet, inventory at the end of Q1 was up $44 million to $148 million, from $104 million at Q1 2021.

Mark L. Segal: The increase is driven by anticipated sales growth in Q2. At the end of Q1, we had approximately $29 million of in transit inventory, representing 20% of total inventory compared to $14 million or 14%. In general, we continue to use safety stock, pre buys and pre built to help mitigate any supply chain disruptions and maintain customer service levels.

The increase is driven by anticipated sales growth in Q2. At the end of Q1, we had approximately $29 million of in transit inventory, representing 20% of total inventory, compared to $14 million or 14%.

In general, we continue to use safety stock, pre-buys and pre-builds to help mitigate any supply chain disruptions and maintain customer service levels.

any supply chain disruptions and maintain customer service levels.

Mark L. Segal: Free cash flow in Q1 was -$79.4 million compared to -$6.5 million driven primarily by changes in net working capital, largely from payments in Q1 of <unk> payables and accrued liabilities. This was partially offset by higher operating income and lower cash used in investing activities.

Free cash flow in Q1 was negative $79.4 million compared to negative $6.5 million, driven primarily by changes in net working capital, largely from payments in Q1 of year-end trade payables and accrued liabilities.

This was partially offset by higher operating income and lower cash used in investing activities.

Mark L. Segal: We ended the quarter with $493 million in cash, a decrease of $70 million from the year end balance of $563 million, but in line with seasonal cash usage patterns.

We ended the quarter with $493 million in cash, a decrease of $70 million from the year-end balance of $563 million, but in line with seasonal cash usage patterns.

Mark L. Segal: We continue to be an extremely strong liquidity position with available liquidity of over $1 billion.

We continue to be in an extremely strong liquidity position, with available liquidity of over $1 billion.

Mark L. Segal: This was a great start to 2022 and we are raising our outlook. We now expect toy gross product sales to increase low double digits compared to 2021 with the seasonality of gross product sales expected to be approximately 40% H1, compared to 30% to 35% in prior years.

This was a great start to 2022 and we are raising our outlook. We now expect toy gross product sales to increase low double digits compared to 2021, with the seasonality of gross product sales expected to be approximately 40% H1 compared to 30% - 35% in prior years.

Mark L. Segal: We continue to expect the third quarter to remain our largest quarter from a top line perspective, but we now expect Q2 to be significantly larger than prior years as retailers, bring in goods earlier to avoid potential supply chain disruptions to their full plan-o-gram set.

We continue to expect the third quarter to remain our largest quarter from a top line perspective, but we now expect Q2 to be significantly larger than prior years as retailers bring in goods earlier to avoid potential supply chain disruptions to their fall planogram set.

Mark L. Segal: We are also increasing total revenue growth expectations to low double digits compared to 2021, excluding the Paw Patrol movie distribution revenue of $26 million.

We are also increasing total revenue growth expectations to lower double digits compared to 2021, excluding the PAW Patrol movie distribution revenue of $26 million. Total revenue growth is driven by growth in toy gross product sales.

Mark L. Segal: Total revenue growth is driven by growth in toy gross product sales.

Mark L. Segal: We are maintaining 2022 adjusted EBITDA margin expectations, which are in line with 2021 adjusted EBITDA margins, excluding the Paw Patrol movie distribution revenue of $26 million.

We are maintaining 2022 adjusted EBITDA margin expectations, which are in line with 2021 adjusted EBITDA margins, excluding the PAW Patrol movie distribution revenue of $26 million. While we've increased our top line outlook and our adjusted EBITDA margin in Q1 was well in excess of the comparable period in 2021, we are mindful of the fluid and rapidly changing macro environment that may affect profitability in 2022.

While we've increased our top line outlook.

And our adjusted EBITDA margin in Q1 was well in excess of the comparable period of 'twenty 'twenty. One we are mindful of the fluid and rapidly changing macro environment that may affect profitability in 2022.

and our adjusted EBITDA margin in Q1 was well in excess of the comparable period in 2021, we are mindful of the fluid and rapidly changing macro environment that may affect profitability in 2022.

We still have a long way to go we are seeing increased input costs, although at a lower rate than what we saw in the second half of 2021.

We still have a long way to go. We are seeing increased input costs, although at a lower rate than what we saw in the second half of 2021.

Rising interest rates and inflation may put pressure on disposable incomes and the potential for further supply chain disruptions are high due to ongoing COVID-19 related lockdowns in China.

Rising interest rates and inflation may put pressure on disposable incomes and the potential for further supply chain disruptions are high due to ongoing COVID related lockdowns in China.

We have implemented stringent cost containment and productivity programs to offset increases as much as possible and where necessary. We have raised prices for our full 2022 line, which will start flowing through in Q2.

We have implemented stringent cost containment and productivity programs to offset increases as much as possible and, where necessary, we have raised prices for our Fall 2022 line, which will start flowing through in Q2.

We expect to remain margin neutral in our toy business, but it is something we are watching very closely.

We expect to remain margin neutral in our toy business, but it is something we are watching very closely.

For all these reasons, we are maintaining a cautious tone in relation to adjusted EBITDA margin guidance for 2022.

For all these reasons, we are maintaining a cautious tone in relation to adjusted EBITDA margin guidance for 2022.

To conclude.

To conclude, we have advanced our strategic initiatives and made great progress across all three creative centers, continuing to demonstrate our ability to produce compelling entertainment and digital content, magical toy experiences and to be a great licensing partner. We have built a strong and focused global platform and are incredibly proud of the effort and results that our employees have delivered.

We have advanced our strategic initiatives and made great progress across all three creative centers continued to demonstrate our ability to produce compelling entertainment and digital content magical toy experiences and to be a great licensing partner.

We have built a strong and focused global platform and are incredibly proud of the effort and results that our employees have delivered.

We remain deeply committed to growth with disciplined cost management operational efficiency and productivity.

We remain deeply committed to growth with disciplined cost management, operational efficiency and productivity.

We continue to believe in our long term financial framework and that at its core a formula for innovation and growth across toys entertainment and digital games is stronger than ever.

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 our prepared marks remarks.

That concludes our prepared marks remarks. We will now take questions. Operator, please open the line.

We will now take questions operator, please open the line.

Certainly, sir ladies and gentlemen, as a reminder to ask a question. Please signal by pressing star one.

Operator: Certainly, Sir. Ladies and gentlemen, the reminder to ask a question please signal by pressing star one.

Please make sure you mute function on your phone is switched off to allow your signal to reach of equipment again. Please press star one to ask a question.

Please make sure the <inaudible> function on your phone is switched on to allow your signal to reach our equipment. Again, please press star one to ask a question.

First of all I'll take our first question from oven, Adam Shine from National Bank Financial. Please go ahead.

First, we will take our first question from Adam Shine from National Bank Financial. Please go ahead.

Thanks, a lot good morning, obviously very strong results and good execution and as was noted pretty good fall through from.

Adam Shine: Thanks a lot. Good morning. Obviously very strong results and good execution and, as was noted, pretty good follow through from how you ended last year very strongly. Mark, you touched on some improvements on sales allowances. Is it something that we can watch to see improvements within that sort of 10-12% type range? I think you know, you'd been guiding to the upper end of that range because of maybe different dynamics in Europe and other considerations. But given the improvements you touched on, do you think you can sort of move things down closer to the midpoint of the range or even improve further?

How you ended last year very strongly.

Mark you touched on some improvements on sales allowances is is this something that we can watch to see improvements you know within that sort of 10, 12% type range. I think you had been guiding to the upper end of that range because of you know maybe different dynamics in Europe , and other considerations, but given the improvements you've touched on.

Do you think you can sort of move things down closer to the midpoint of the range or even improve further.

And then I'll follow up.

And then I'll follow up.

Thanks, Adam Good morning, I think a reasonable target for us on the sales of outside would be in the 11, 5% to 12% range. The reason its come down is two fold one is.

Mark L. Segal: Thanks. So Adam, good morning. I think a reasonable target for us on the sales allowance side would be in the 11.5 to 12% range. The reason it's come down is twofold: one is we are seeing tremendous operational improvements in our supply chain, and that helps us,

We are seeing tremendous operational improvements in our supply chain and that helps us.

But we also had strong north American sales growth this quarter and and North America is a lowest sales allowance environment. So there was some geographic mix benefits when Europe grows and picks up again, they're our highest sales allowance environments. So that's going to pick up again I would think for modeling purposes at a 12% is a good number.

but we also had strong North American sales growth this quarter and North America's a lower sales allowance environment. So there were some geographic mix benefits. When Europe grows and picks up again, they are higher sales allowance environment, so that's going to pick up again. I would think for modelling purposes, Adam, 12% is a good number.

And and Max I mean, it's an interesting year in terms of you know how.

Adam Shine: Okay. And Max, I mean it's an interesting year in terms of how much restocking is going on and obviously there's some interesting licensing opportunities that you're successfully exploiting. Can you characterize that within the context of, perhaps, some of the marketing spend or stepped up marketing activity that you talked about last year and how that might evolve this year? Sort of the plus and minus? The plus being obviously the strength you're seeing where maybe maybe the product is ultimately destined to fly off the shelves, but the minus maybe in terms of an inflationary backdrop and how you might need to push product a little bit further in terms of awareness in back half of the year?

Much restocking is going on and obviously, there's some interesting licensing opportunities that that you're successfully exploiting can you characterize that within the context of perhaps some of the.

Marketing spend or stepped up marketing activity that you talked about last year and how that might evolve this year sort of the plus and minus the plus being obviously the strength, you're seeing where maybe maybe the product is ultimately destined to fly off the shelves, but the minus maybe in terms of an inflationary backdrop and how you might need to.

Pushed product a little bit further.

In terms of awareness into the back half of the year.

Absolutely and good morning, Adam So are we we actually entered a year or so you might remember with low inventories. So Q1 was a restocking time for many of the retailers.

Multiple speakers: Absolutely, and good morning, Adam. We actually entered the year, as you might remember, with low inventory; Q1 was a restocking time for many of the retailers. Again, some of our brands, you have to remember that we rely heavily on innovation, and our innovation in Q1 has truly helped us. A lot of that inventory has not only actually flowed through, but is actually being consumed. Our POS growth on new items for our core franchise, or items that were not present before, is truly what is driving our growth, vis-à-vis key competitors. We actually put a lot of marketing activation dollars behind it. As we look to the second half, and as you well know, Q4, containing about 4% of the POS consumption for the year, we have really great plans, increased marketing spend when you think about the margin of marketing we’re investing on our brands in the second half. I hope you join us this afternoon. You’re going to see the slate of new activations we have, along with innovation. We’re super excited, and there’s more marketing for it. I guess just to touch a little further, last year I think the comment was maybe around 10% of revenue. Given some of the strength we’re seeing at the revenue line, can we think about that maybe more towards the 9% level, or still in that 9% to 10% zone is the appropriate level? I will kick it off and then pass it on to Mark to give you more depth on the numbers. On marketing, one of the things we’re doing, and I give our team a lot of credit, is we’re actually getting to ecosystems where kids are present, and the cost per eyeball, acquisition, is significantly lower. We’re actually getting more efficient with our marketing spend. If we would’ve been spending on the same places we would’ve been spending a year ago, the marketing spend requirement would have been significantly larger, but we’re a lot more effective. I’m talking about magnitudes of orders, of increased CPMs. I think this is one thing I wanted to make sure you have in context, and let me pass it on to Mark. Thanks, Max. Adam, historically, as you know, we’ve always guided you to around 10% of sales for marketing. I think this year, as Max said, we are getting some efficiencies in the way we’re operating, so a range of around 9.5% to 10% would be the right range.

And again some of our brands you have to remember that we rely heavily on innovation and our innovation in Q1 is truly helped us. So a lot of that inventory that was not only actually flow through but he is actually being consumed so our pos growth on new items for our core franchise or items that were not present before is truly what is <unk>.

Rivaling our growth vis vis competitors.

And we actually put a lot of marketing activation dollars behind it as we look to the second half and as you well know Q4.

Containing about 45% of the Pos consumption for the year, we have really great plans and increased marketing spend when you think about the margin of marketing we're investing on our brands in the second half and I Hope you join US. This afternoon, you're going to see the slate of new Activations, we have along with innovation So what works.

Super excited and Theres more marketing for it I.

I guess, just just to touch a little further you know last year that I think the comment was you know maybe around 10% of revenue given that given some of the strength we're seeing.

At the revenue line can we think about that maybe more towards the 9% level are still in that 9% to 10% zone is is the appropriate level I will kick it off and then pass it onto Mark to give you more the more depth on the numbers.

On marketing one of the things, we're doing and I give our team a lot of credit is we're actually getting two ecosystems, where kids are present.

And the cost per eyeball acquisition is significantly lower so we're actually getting more efficient with our marketing spend so we would've been spending on the same places we would've been spending a year ago. The marketing spend requirement would have been significantly larger, but we're a lot more effective and I'm talking about you know magnitude of orders have increased C. P. M. So I think this is.

One thing I wanted to make sure you're having context and let me pass it onto Mark Thanks Max.

Adam Historically as you know we've always we've always guided you to around 10% of sales.

A full marketing I think this year as Mike said, we are getting some efficiencies in the way we are operating.

So a range of around 9.5% to 10% would be the right range.

Okay, Great I appreciate that from both of you. Thanks a lot.

Adam Shine: Okay great. I appreciate that for both of you. Thanks a lot.

Thanks Anna.

Brian Morrison of TD Securities. Please go ahead.

Mark L. Segal: Thanks, Adam.

Operator: Brian Morrison, TD Securities. Please go ahead.

Yes, good morning.

Brian Morrison: Yes, good morning. Well done on the cross-selling of Sago digital entertainment. Can we expect much more cross-selling of these two segments as you expand both properties, introduce Noid? Then the second part of that question is, when I look at Entertainment and Digital, it’s 45% of total EBITDA last year, certainly poised to grow as I look out to 2023. Can you maybe just talk about the cadence of growth here? By my numbers, it looks like it’s going to approach 60%. Just thoughts on where you expect this to progress to.

Well done on the cross selling cycle digital entertainment can we expect much more cross selling these two segments as you expand both properties introduce noise and then second part of that question is when I look at entertainment and digital it's 45% of total EBITDA last year, certainly poised to grow it and then looking into 2023.

Can you maybe just talk about the cadence of growth here and by my numbers. It looks like it's been approached 60% just thoughts on where you expect this to progressive.

Brian I just want to clarify the first part of your question was in relation to the cost structure of the different entertainment digital games creative centers is that what you were asking.

Multiple speakers: Brian, I just want to clarify, the first part of your question was in relation to the cost structure of the different Entertainment and Digital Games creative centres, is that what you were asking? No, I just want to understand the growth of it, because you had this cross-selling of Sago Mini from Entertainment to Digital - pardon me, Digital to Entertainment, which we haven’t seen before, and I wonder if there’s going to be much more cross-selling opportunities as both segments grow and you introduce Noid? Then, how far—what sort of total contribution in EBITDA can these two segments comprise? It’s at 45% now. It certainly looks like it could be 60%+ as we get out to 2023 and beyond.

Want to understand the growth of it because you've had this cross selling of cycle. Many from entertainment to digital which pardon me digital entertainment, which we haven't seen before and I'm wondering if there's going to be much more cross selling opportunities as both segments grow and introduce noise and then how far like what.

Hum.

Total contribution in EBITDA can these two segments comprises at 45% now.

And it looks like it could be 60% plus as we get into 2022 and beyond.

So so Bryan will answer in two parts I'll kick it off and then pass it on to Mark up you will see more you will see more IP leverage across our creative centers. That's the answer and we've already begun and typically we come from being more.

So So Brian , we'll answer to part choc it it often then pass it on to Mark we. You will see more. You will see more IP leverage across our creative centers. That's the answer and we've already be gone and typically we come from being more you know entertainment in toy, in our basically seeing digital to entertainment and you're to be see now. You know toy to digital and- and I will basically urge you to attend these afternoon- RE going to see our first announcement of what that first IP that will be digitized will look like and he's actually quite cool and we're excited. It goes into a massive segment of digital game playersso we're going to basically be able to leverage that and benefit from that. sothere's going to be significantly more cross creative center revenue gaining opportunities, and so that starts this year and extends into the future with a really nice portfolio of cross creative center collaborations in 2023 as well.

Entertainment and toy and are you basically seeing digital to entertainment and you're gonna be seen now you know toy to digital and and I will basically urge you to attend this afternoon, you're going to see our first announcement of what that first I'd be a that will be digitized will look like and it's actually quite cool and we're excited.

It goes into a massive segment of digital game players. So we're going to basically be able to leverage that and benefit from that so there's going to be significantly more cross creative center revenue gaining opportunities and so that starts this year and extends into the future with a really nice portfolio of Cros.

At a center collaborations in 2023 as well.

So so just in terms of how we look at this from a financial perspective, Brian Firstly when it comes to the.

So just in terms of how we look at this from a financial perspective Brian firstly, when it comes to the creative cent- the digital games and entertainment credit centers- our focus internally is on operating income or EBIT, particularly in the entertainment area. That's important because DNA entertainment is pretty much like cogses in toys, So it's important to look at that. We we are actually targeting to grow digital and entertainment share of total revenue quite significantly to, in the case of digital games, to at least over 20% of total revenue over the next few years. Entertainment is is a little bit of an unusual creative centse in the sense that it's a catalyst for developing IP and growing that into other, into toys, licensing and merchandising and digital games.

The creative centers, the digital games and entertainment creative centers, our focus internally is on operating income or EBIT.

Particularly in the entertainment area, that's important because DNA and entertainment is pretty much like Cogs and toys. So it's important to look at that we are we are actually targeting to grow digital and entertainment share of total revenue quite significantly too.

In the case of digital games are two.

So at least over 20% of total revenue over the next few years Entertainment is is is a little bit of an unusual creative center in the sense that it's a catalyst for developing IP and growing that into other into choice licensing and merchandising and digital games.

And so from a from a margin perspective.

And so a margin perspective. As we actually build out digital games and entertainment, we're going to be putting some costs onto the balance sheet, then amortizing that, So there will be some margin dilution over the next few years until these properties build up a critical mass and then, as they start to develop the franchises, the margins will start expanding and getting to a steady-state mode.

As we actually build out digital games and entertainment, we gonna be putting some costs onto the balance sheet, then amortize that so there will be some margin dilution over the next few years until these properties build up a critical mass and then as they start to develop the franchises the margins will start expanding and getting to a steady state mode.

Okay and did you want to take a stab at where you think this could suddenly as you go forward or no.

Ok and did you want to take a stab at where you think this could settle as you go forward to know?

Stab in terms of what overall margins.

A stab in terms of whatide overall margins.

Total <unk>.

Contribution to EBITDA.

Total contribution to EBITDA of the two segments.

Two segments.

Yeah.

No I don't think we want to be that' specific at those point. I think that each of the individual creators centers have got margin goals. I would say to you: on the toy side, we are looking to stay in the adjusted EBITDA range of around 15% to 16%. In digital games, we want to stay around 35% to 40% and in entertainment, the operating income around 40% is where we want to be as well in the long term. You're are going to see some dilution in the next few years as we build out our content platform. But, as I said to you, that is a catalyst for growth in toys and digital games, and so you have to look at entertainment in more holistic terms and you also have to look at entertainment over a multiyear life cycle as we build the content.

No I don't think we want to be that specific at this point I think that you know.

Each of the individual creative centers have got our margin goals are I would say to you on the toy side. We are looking to stay in the adjusted EBITDA range of around 15% to 16% in digital games, we want to stay at around 35% to 40%.

And in.

Entertainment.

The operating income you know around 40% is where we want to be as well in the long term you are going to see some dilution in the next few years as we build out our content platform, but as I say to you that as a catalyst for growth in toys and digital games and so you have to look at entertainment in more holistic terms and you also have to look at entertain.

<unk> over a multiyear lifecycle as we build the content.

Very helpful. Thank you Mark.

'very helpful. Thank you, Mark.

Stephanie Wissink Jefferies. Please go ahead.

Stephanie, we Sing jeoprey. Please go ahead.

Thank you good afternoon, good morning, everyone and Mark I wanted to just follow up on your comments about retailers, taking more inventory in earlier can you just share with us a little bit about how that might affect the second half order book and then when you look at the order composition or are they buying composition is there any sort of distortion.

Thank after good morning cussingme everyone, Mark. I wanted to just follow up on your comments about retailers taking more inventory and earlier. Can you just share with us a little bit about how that might affect the second half order book? And then, when you look at the order composition or the buying composition, is there any sort of distortion into entertainment back properties versus maybe some of the more classic play patterns we've seen over the last couple of years or any other figuries that you can share with us with respect to kind of the composition in addition to the volumethankyou?

The entertainment that properties versus maybe some of the more classic play pattern, we've seen over the last couple of years.

Any other figures that you can share with respect to kind of the composition. In addition to the volume. Thank you.

Good morning, Steph. Thanks, Yeah. So we are actually seeing a shift in seasonality. This year that we haven't seen before and it's driven off of what happened in 2020 one given the logistics challenges that I think the industry and many other industries faced as well and so what we're seeing is a shift from Q.

Good morning staff thanks. Yes, So we are actually seeing a shift in seasonality this year that that we haven't seen and it's drimintal for what happened in 2021, given the logistics challenges that I think the industry and many other industry's fac as well, and so what we're seeing is a shift from Q3 into Q2 and we expect to have a much laric Q2 this year. Then we've hadbefore, which is driving H one seasonality to around 40%, compared to an average of around 30 30, 3% for the last few years. So really it's a shift terms of protecting the four planet gram set in the August , in September , and so we expect H one to be significantly operrelative to prior years. Most of that volume is going to come out of H 3, So we expect H two to actually show flatter growth compared to what we would have seen typically before. Staff: in terms of the mix of entertainment and whether there's any unusual pattern there, I'm not aware of anything but Max. Is there anything you would like to add on that? So, with the regards to our, our portfolio, Stephanie and good morning, I think you're going to see in infantpreschoschool, continued strength because of the themes on papperro, but you also will see continued strength godby's doll house and then, outside of that, we've talked about our license portfolio and particularly in wills and action, with some continuue strength in that area. Last but not least, we talked about girls and doors and interactive and we're going to see new innovation that will continue to basically make our portfolio in the second half quite accretive to us and incremental versus what we would have had a year ago.

Q3 into Q2, and we expect to have a much larger Q2. This year than we've had before which is driving a H one seasonality to around 40% compared to an average of around 30% to 33% for the last few years. So really it's a shift in terms of protecting the full planet grants setting in August and September and so.

We expect each one to be significantly up relative to prior years. Most of that volume is going to come out of H. Three so we expect H two to actually show flatter growth.

Compared to what we would've seen typically before Steph in terms of the mix of entertainment and whether there's any unusual patterns. There I'm not aware of anything but mix is there anything you would like to add on that so with regards to our our our portfolio Stephanie and good morning, I think you're going to see any interim infant preschool continued strength.

Those are the themes on Paw patrol, but you also will see continued strength in copies Dollhouse and then outside of that we've talked about our licensed portfolio and particularly in Wilson action with some continued strength in that area.

Last but not least we talked about girls and doors and interactive and we're going to see new innovation that will continue to basically make our portfolio in the second half quite.

Quite accretive to us an incremental versus what we would have had a year ago.

That's very helpful. Just really one quick clean up question is on pricing have you taken the pricing that you need to take for 2022 or do you anticipate you could take an additional round of pricing as we get into the fall.

That's very helpful. This really one cleanup question is on pricing. Have you taken the pricing that you need to take for 2022 or do you anticipate you could take an additional round of pricing as we get into the fall?

So Stephanie we process all of R 22 price increases with retailers in the early part of 'twenty two.

So Stephanie, we process all of our 22 price increases with retailers in the early part of 22. that's point number one obviously, as you would expect, we balance our need for margin with obviously, price point management. We have been really successful so far this year with our POS because we have, in certain price points, outperformed the market materially and we have been basically very thoughtful about that. And that will continue to the second half.

That's point number one.

Obviously as you would expect we balance our need for margin with obviously price point management.

We have been really successful so far this year with our Pos because we have in certain price points outperformed the market materially and we have been basically very thoughtful about that and that will continue into the second half.

And then third because our mix of new innovation, which has no previews context for what that would have cost a year ago has truly helped us tremendously we are overdevelop over developing and bringing new items for our core franchises or just brand new properties and that is helping us quite a bit.

And then third, because our mix of new innovation, which has no previous context, for what that would have cost a year ago, has truly helped us tremendously. We are overdeveloped, overdevelop.ing bring new items for our core franchises or just brand new properties, and that is helping us quite a bit. That will continue into the second half.

That will continue into the second half.

All right very helpful. As always thank you.

I very helpful, as always, Thank you.

Thanks, Dave.

Martin Landry.

Thanks stiff.

Margin lundryate be felt. Please go ahead.

Please go ahead.

Hi, good morning, and congratulations on your strong results.

Hi good morning and congratulations on your strong results.

My My first question is on the supply chain you alluded to I'm, you know I'm the Covid lockdowns in Shanghai in China overall, and I'm wondering do you anticipate having difficulties of sourcing products. This summer as a result of these lockdowns.

My first question is on the supply chain. You alluded to the COVID-19 lockdowns, chandhai in China overall. I'm wondering: do you anticipate having difficulties sourcing products at this summer as a result of these lockdowns?

Yeah.

So some lots and good morning.

So somewhat, and good morning.

You know I would I would say to you the situation in China, and Vietnam and Asia somewhat fluid.

Would say to you the situation in China and Vietnam and Asia somewhat fluid, but I think our team over there has done an extraordinary job in terms of managing what we're actually doing and and so, in connection with Shanghai, we did not see a major impact. The shanghaar factories in the outlying areas have continue to run at reasonable startaffing levels. The shutdown that happened in shenzan and long one only last to a few weeks, and Vietnam and India is operating at relatively full startfing levels at their factories. There are some raw material delays from China, but nothing material. Overall, what we're doing is we're working very closely with our supplies in Asia.

But I think our team over there has done an extraordinary job in terms of managing what we're actually doing and and so we in connection with Shanghai, We did not see a major impact.

The Shanghai factories in the outlying areas have continued to run at reasonable staffing levels. The shutdown that happened in Shenzhen and Dong Wan only lasted a few weeks and Vietnam and India is operating at relatively full staffing levels at the factories, the OSM raw material delays from China, but nothing material overall, what we're doing as we were.

Looking very closely with our suppliers in Asia.

We designing and pre buying electronic components were evaluating part substitutions and productivity with automation, we're doing inventory pre builds strategically to reduce the impact of any COVID-19 lockdowns and <unk> and so I would say to you overall, we managing very well, our commercial and supply chain our supply chain teams have done a great job.

We designing and prebuying electronic components, who are evaluing parts, substitutions and productivity with automation. We're doing inventory prebos strategically to reduce the impact of any covet lockdowns, and and so I would say to you overall we managing very well our commercial and supply chain supply chain teams have done a great job. While we cant say for sure they want to be the impact, I would say the way we'remanaging that so far has been has been very, very proactive and very, very good. Max is anything you want to. No, I just want to complement, besides what you've said you know. So we've done three more things that I think our worth mentioning. one is we are we're planning lead times taken into account, then new that it takes us to get from zero point eight to point B, and so that is affecting how we plan our business going forward. That's one to we're using multiple ocean carriers. We would have been a year ago and then we basically have in certain places, you know, items that are now dual source So that we can actually weigh in where we have some know backlogs and use a second mold in the different place and continue to bring that demand, and you can expect that we're doing that for some of the very hot items that we have launch and we'll continue into the second half. So this is our key priority for us.

While we can't say for sure they won't be any impact I would say the way we managing that so far has been has been very a very proactive and very very good Max's anything you want to add no I just want to compliment our besides what you've said so we've done three more things that I think are worth mentioning one is we are we're planning lead times.

Taking into account the.

New tweaks that it takes us to get from point a to point B and so that is affecting how we plan our business going forward. That's one two we're using multiple ocean carriers beyond what we would have been a year ago.

And then we basically have in certain places items that are now dual source. So that we can actually win where we have some backlogs and use a second more in a different place and continue to bring that demand. When you can expect that we're doing that for some of the very hot items that we have launched and will continue into the second half. So this is Keith.

Priority for us.

Okay. That's helpful and can you remind us.

Okay that's helpful, and can you remind us what's the proportion of your total products that you source in China?

What's the proportion of your total products that you source in China.

It's about 60% are Martin comes out of China about 25% comes out of Vietnam, and the balance comes out of Mexico and India.

It's about 60%. Martin comes out of China, about 25% comes out of Vietnam and the balance comes out of Mexico, inding.

Okay. That's helpful.

And then just lastly wondering if you can talk about your inventory level at retail how does that look currently versus historically for this time of the year.

Okay that's helpful.

And then just lastly wondering if you can talk about your inventory level at retail. How does that look currently versus historically for this time of the year?

I'm going to kick out I'll kick it off and then maybe mark gets into more details if you'd like but I think we're basically in a good position vis vis our consumption and our order books as we look at end of Q2 and into Q3.

I'm going to kick it off and then maybe markets into more details, if you like, but I think we're basically in a good position. visevvis are consumption and our order books as we look at end of Q2 and into Q3. We're watching that very closely as we progress through the year. But operationally we are where we need to be with inventory and managing it accordingly.

We're watching that very closely as we progress through the year, but operationally, we are where we need to be with inventory and managing it accordingly.

Yeah. So I think mexes covered the retail side of it I think we're in good shape Martin on in terms of our owned inventory in our warehouse as you saw it's up about $40 million 44 million to be precise quarter over quarter.

Yes So I think Max covered the retail side of it. I think we're in goodshape Martin, in terms of our owned inventory in our warehouse. As you saw, it's up about $4 million- 44 million to be precise, quarter over quarter. Most of that is in anticipation of the growth in Q2. We do have a little bit of cost inflation flowing through into inventory- not a huge amount but some. But overall I think think ventory is ingood goodshape. You saw that our net working capital overall was around 11% of lpm themselves and I think we saw far, far ahead of the industry in terms of our wor capital management and that's something that we're in the toy business, So a laser focused on as a management team, because if we manage our working capital rights in the toy business, we can generate significant free cash flow and that helps us with the rest of a entto price portfolio. So that's something that we really focused on.

Most of that is in anticipation of the growth in Q2.

We do have a little bit of cost inflation flowing through into inventory.

Not a huge amount but.

Some.

But overall I think our inventories in good shape you saw that our net working capital overall was around 10, 8% of LTM sales and I think we still far far ahead of the industry in terms of our working capital management and that's something that we in the toy business are laser focused on as a management team because if we manage our working capital.

Right in the toy business, we can generate significant free cash flow and that helps us with the rest of AIDS across portfolio. So that's something that we're really focused on.

Okay. Thank.

okthank, you very much congrated.

Thank you very much congrats.

Thank you. Thank you.

Thank you, Thank you.

John Sunpower CIBC. Please go ahead.

John zambara ciibc. Please go ahead.

Thanks, Good morning, Max and Mark.

S good morning Max and Mark. I wanted to start on the inflation side. Can you quantify the cost inflation you've seen on your primary cost inputs in Q1 and how does that compare to Q4 last year?

I wanted to start on the inflation side can you quantify the cost inflation you've seen on your primary cost inputs in Q1, how does that compare to Q4 last year.

Yes, so we're not going to specify a particular number but what I can tell you is that we are seeing some modest inflation in a few areas.

Yes So we're not going to specify a particular number, But what I can tell you is that we are seeing some modest inflation in a few areas RIS in particular, little bit of ocean freight flowing through, But at significantly lower levels than what we saw in late Q3 and Q4 last year, John . So it's something to watch and keep an close eon, but nothing like it was in the second half of last year.

Arisen in particular, a little bit of ocean freight flowing through but at significantly lower levels than what we saw in late Q3, and Q4 last year John So.

It's something to watch and to keep it.

Close eye on but nothing like it wasn't in the second half of last year.

And by the way welcome to covering spin master good to have you.

And by the way, welcome to covering spun master. Good to have you.

[laughter].

Thanks very much.

Thanks very much and my follow-up is on consumer behavior. I'm just wondering if you're seeing any impact or any change of behavior from them, as they face higher costs and it seems like the growth or much of the growth and toys over the past couple of years has been from medium to higher price items. Is may be suggesting those, those consumers are as impacted by inflation. But curious if you're seeing any trade down am among customers.

And my follow up is on the consumer behavior.

I'm, just wondering if you're seeing any any impact or any change in behavior from them as they face higher cost and it seems like the growth or much of the growth in toys over the past couple of years its been from medium to higher priced items, maybe suggesting those consumers aren't as impacted by inflation, but I'm curious if you're seeing any trade down.

Customers.

Yeah, So I'll address that so the answer is yes, okay. So that's the bottom line and we see it more in pricing and we see it more in promotion and so.

Yes So'll, I'll address that. So the answer is yes OK, So that's, that's the bottom line. And we see it more in pricing and we see it more in promotion. And so you know, at the end, at the outset, let me tell you that price points that are below $10 of contracted and price points that are based there are specific price points where our toy line has for better, as I mentioned to stephfany earlier, and so you basically see where you may have bought an items that was between thousandfifteen 999, you know. Now you see between 10 and fourteenhundred, inetynine as a pricepoin, increasing its consumption as a whole know, close to 10%, which is really positive and if you're in that space you will be succeeding. Similarly, where we had, remember last year, quite a few items that were priceed over $70 and that was really growing pretty materially, you've seen now basically items in that, in that category of price contract a bit, and instead items that areprice- and IM going to you a pretty broad range from 30 to $70- increased quite materially. So that is something that we're seeing and basically understanding. But outside of that, in terms of, you know, channel shifting or channel and where you're basically at from a consumer behavior, no changes there. e-commerce continues to be very strong. Obviously specialty has reopened. That has been good for some categories, but it's really come down to price.

At the outset, let.

Let me tell you that price points that are below $10 of contracted and price points that are basically there are specific price points, where our toy line is for better as I mentioned to Stephanie earlier, and so you basically see where where you may have bought an item that was between 15 and 1999.

Now you see between 10, and 14 99 as a price point increasingly it's consumption as a whole.

Closer to 10%, which is really positive and if you're in that space you will be succeeding similarly, where we had remember last year quite a few items that were priced over $70 and that was really growing pretty materially.

<unk> seen now basically items in that in that category of price contract a bit and instead items at our price and I'm going to give you a bolt.

Pretty broad range from 30% to $70 increased quite materially so that is something that we're seeing in basically our understanding but outside of that in terms of you know.

Channel shifting or channel and where you are basically add from a consumer behavior. No changes there E. Commerce continues to be very strong obviously specialty has reopened that has been good for some categories.

But it's really come down to price.

Okay. That's helpful. Thank you very much.

Ok that's awful. Thank you very much.

Luke Hannan Canaccord Genuity. Please go ahead.

Luke hanon kenngort geneity. Please go ahead.

Thanks, Good morning, I want to circle back to the digital game segments. There was commentary in the MD&A, leading that for M&A. Here you guys are probably more focused on the smaller types of acquisitions, because they are a little bit easier to integrate but also open to transformational opportunities should they present themselves I'm curious to know if the.

Good morning. I want to circle back to the digital game segment. There is commentaryia in the MBA DING that for MA. Here you guys are probably more focused on the smaller types ofacquisit because they're a little bit easier to integrate but also open to transformational opportunities should they present themselves. I'm curious to know if the criteria for acquisitions in the digital game segment is that any different than sort of what the criteria is for toys, where it have to be accretive, be relevant on a global basis, that' sort thing. Is there any other different criteria we should be thinking about there?

Writing area for acquisitions in the digital game segment is that any different than sort of what the criteria is for toys, where it ought to be accretive heartbeat be relevant on a global basis.

That sort of thing or is there any other different criteria, we should be thinking about there.

I'll take that and then Maxwell will add to that.

I'll take that and then maxwell, we'will add to that own.

Look the reality in digital games is that you know that is an area of strong focus for us from from an M&A perspective, and we can talk about it more this afternoon at the Investor day as well I think the reality also is that.

Look the reality in digital games is that that is an area of strong focus for us, from from an emanate perctive- and we're going to talk about it more this afternoon- to Investor Day as well. I think the reality also is that.

You know the multiples in that space are definitely higher than they are in the in the toy industry. I mean, we we've typically paid if you look at the originated deal was around 12 to 13 times trailing EBITDA in toys, we've historically been at four to eight times and you would say well are you concerned about that I mean, the answer actually is no because I think the reality.

youknow, multiples in that space are definitely higher than now are in in the toy industry. I mean, we we've typically paid. If you look at the originated deal was around 12 to 13 times trading ebitd in toys. We, the started, VE been at four to eight times and you would say well, you concerned about that? I mean, the answer actually is no, because I think the reality is that margins are much higher in that space and the opportunity to generate the appropriate returns is there, and so we going to focus on smaller transactions where we can acquire IP, P or talent, and we would also consider a transformational deal in digital games- all toys, for that matter- if it made sense. But that's how we typically looking at it. Max no, I think. Well, I think our founders are incredibly involved in in our acquisition strategy and in sourcing acquisition, and so you can expect that a fit with what we're looking for is incredibly important. So that's really paramount to us. As you think about the current properties within our digital games portfolio and the age group study- basically cators to you can expect that you know we're going to hear this afternoon, you know we're now basically trying to go after G of all ages, that we will get into factgments and we're open to that, and so definitely, looking at the right fit, we're open to a transformational target and we're working really hard to find that right fit.

Is that margins are much higher in that space and the opportunity to generate the appropriate returns is there and so we're going to focus on smaller.

Transactions, where we can acquire IPO talent and we would also consider a transformational deal in digital games and toys for that matter if it made sense.

But that's how we typically looking at it mixes.

I think well said I think our founders are incredibly involved in you know in our.

Our acquisition.

Strategy and in sourcing acquisition and so you can expect that a fit with what we're looking for is incredibly important so that's really paramount to us.

As you think about the current properties within our digital games portfolio and the age groups study basically caters to you can expect that we're going to hear this afternoon. You know us. We're now basically trying to go after kids of all ages that we will get into the segments and we're open to that and so definitely looking at the right fit we're open to a transformational TARP.

And we're working really hard to.

To find that right fit.

Excellent.

exulent. That's very helpful, Thank youand just does a follow up on the digital gme gment as well. Right now, you guys a very strong presence in mobile apps's the main platform for you guys right now. But do you see yourself maybe 3, five years down the road, as something that' that you could have be using either PCs or consoles as other platforms to reach out to these?

Helpful. Thank you.

Just as a follow up on the digital game segment as well right. Now you guys have a very strong presence.

Mobile apps.

One for you guys right now, but do you see yourself, maybe three five years down the road.

That's <unk>.

Could be using Pcs or consoles as other platforms to reach out to be.

Because of different ages as well it should we think of you guys expanding into different platforms down the road.

Kids of different ages as well. I should be think of you guys expanding at different platforms down the road.

Yes, we are as you can imagine we're watching consumer behavior very closely and managing.

Yeah we are. You can imagine we're watching consumer behavior very closely and managing and, at the same time, trends and you know basically, mobile penetration- mobile phone penetration continues to shoot through the roof, and utilization of that medium to consume not just games, So just about anything- is truly what's growing, and so you can expect that we will be more focused in basic complaining in that space.

And then at the same time trends and you know basically mobile penetration mobile phone penetration continues to shoot through the roof and utilization of our medium to consume not just games with just about anything is truly what's growing and so you can expect that we will be more focused in basically.

Cleaning that space.

Okay. That's all for me thank you very much.

Ok that's all for me. Thank you very much.

Thank you.

David My faction Cormac. Please go ahead.

Thank you.

David, my function of corremac. Please go ahead.

Oh, Hi, a couple of questions.

ohhi. A couple of questions. I'll just start on the digital games. So we look at the business. I thought that the growth might slow post COVID-19 as you get into a more normalized environment. I thought that you thought about as well, but obviously that doesn't seem to be the case. I'm just wondering if you can give us an update on your thoughts on the growth of that and will there be an impact? Your leaders and we goes back totally to normal? And then secondly, when look at your balance sheet, you have up side amounion cash with that. You comment a little bit about acquisitions on this call. Do you think that you could deploy a fairamount of those proceeds within the next 12 months and, acquisitions, and what are your thoughts about an NMD?

I'll just start on the digital games.

At the business I thought that the.

The growth might slow post COVID-19 as you get into a more normalized environment I thought that you thought that as well, but obviously that doesn't seem to be the case.

So I'm just wondering if you can give us an update on your thoughts on the growth of that and will there be an impact sooner than later and really goes back totally normal and.

Then secondly, when I look at your balance sheet.

800 million cash no debt and <unk>.

You commented a little bit about acquisitions on this call do you think that you could deploy a fair amount of those.

Proceeds are within the next 12 months on acquisitions and what are your thoughts about it and then sandy.

I'll go and then I'll pass it to mix on the growth rates as you said David.

I'll go in. Then I'll pass to Max on the growth rates. As you said David, our year-over-year growth rates are extremely high in the digital games revenue sideite- nearly 50% sequenti, ally- obviously not as high, but our engagement levels are still extremely strong. I think Max described the a number of monthly active users we have in toa, which is in the six million range for total life world and over seven million for the whole to ecosystem. So you can see there are a tremendous number of people involved in digital games in our world. You would expect over time growth rates to moder rate because the prior years have obviously come for much a lower base, but we are actually working on a lot of new products and so digital games as an increasing area of focus for the company and we are targeting to get revenue for digital games as a percentage of our total over 20% in the next few years.

Year over year growth rates are extremely high in the digital games revenue side to nearly 50%.

Sequentially.

Not as high but our engagement levels are still extremely strong I think mix described.

Number of monthly active users, we havent Tucker, which is in the $60 million range for telco life world and over $70 million for the whole toga ecosystem. So you can see there are tremendous number of people involved in digital games in our world.

You would expect.

Over time, our growth rates to moderate.

Because the prior use of obviously come off a much lower base, but we are actually working on a lot of new products and so digital games as an increasing area of focus for the company and we are targeting to get revenue for digital games as a percentage of our total over 20% in the next few years.

That's number one.

That's number one on number 2, in terms of the cash available on our balance sheet, we still believe we're across company. We believe we can deploy that cash creatively. We talk about it all the time at the Board level. We have no current plans for a share buyback or a dividend at this point, but it is something that we evaluate constantly. At this point, we still believe we were able to deploy that cash Max. Please comment. So basically, we watch very closely in track aggressively, metrics within this space, whether it's basically the average retail price we get player or the churn rate. So, and obviously, converting the engagement of those six million active users in toa Life world, for example, is something we work really hard to do. Similarly, on subcription rate, same thing with saygo and Originator, and there's no, there is no denying that obviously fatigue may have said in for some people, but we're working on mitigation plans as we see those things and basically P VO quite quickly, but that's basically our game every day.

Number two in terms of the.

Cash available on our balance sheet.

We still believe we're a growth company. We believe we can deploy that cash accretively, we talk about it all the time at the board level, we have no current plans for a share buyback or a dividend at this point, but it is something that we evaluate constantly.

At this point, though we still believe we were able to deploy that cash.

Max Please comment so basically we watch very closely and track aggressively metrics within this space, whether it's basically the average retail price, we get for player or the churn rate.

So and obviously converting to the engagement of those 60 million active users in cocoa life World. For example is something we work really hard to do similarly on subscription rate same thing with sago, an originator and Theres no. There is no denying that obviously fatigue may have setting for some people, but we're working on.

Mitigation plans as we see those things and basically pivot quite quickly, but thats basically our game everyday.

Okay alright, thank you.

Ok goodbye, Thank you.

Gerrick Johnson BMO capital markets. Please go ahead.

grek Johnson vm o capital markets, pleasego hhead.

Good morning, Thank you.

Good morning, Thank you.

And in discussion with perhaps some of your private competitors I think the you mean.

um you know, in discussion with perhaps some of your private competitors. I think the mean.

The concern out there in the industry is with all the pre build that's going on in early shipping you combined with inflation compressing budgets and lapsing stimulus.

Concern out there in the industry with all the prebuild that's going on, early shipping. You combined with inflation, compressing budgets and lapsing stimulus that we can see a glut of toys and some significant markdowns. Is that off-base or is that an appropriate fear?

We can see a glut of toys and some significant markdowns.

Is that off base or is that an appropriate fear.

Hi, good it's not a it's not an inappropriate fear.

Hig, it's not. It's not an inappropriate fear, because I think consumer behavior might actually suggest that you would look for the deal correct and if you have a glut, as you describe, and you know to get rid of it, you may resort to actually mark down. So it is absolutely logical. That may be something that happens more and more, So we're basically ready for it. The one thing that I wouldn't tell you that insulates of, because that would be arrogant, but rather protects us a bit and helps us- is the amount of new items we have that have no comparison and that are basically very incremental from a playate pattern to what we have in the shelf, and we are excited about that. So that's what we can control and that's what we focus on.

Because I think consumer behavior might actually suggest that you look for the deal correct and if you have a glut as you described when you have to get rid of it you may resort to actually markdowns. So it is absolutely logical that that may be something that happens more and more so we're basically ready for it.

One thing that I wouldn't tell you that insulates us because that would be arrogant, but rather protect those a bit and helps us is the amount of new items. We have that have no comparison and that are basically very incremental from a play pattern to what we have on the shelf and we are excited about that so that's what we can control and that's what we focus on.

Okay, Great and Mark.

Ok gray and Mark.

Related to what Matt just said you do have a lot of new items.

Related to what Max just said. You do have a lot of new items and Batman and PC. Well, Batman in particular being incremental. I mean a movie portion of the being incremental. What would your POS have been if you exclude that batend program?

And then in D C. Batman in particular be incremental I mean, the movie portion of that being incremental what would your Pos has been if you exclude that Batman program.

Well look at our total licensed portfolio in.

Well look our POSs on our total license portfolio, Q1 was around 40%. So it was A. it was a meaningful part of our business. Gary, as you know, we don't disclose individual product line sales or POS, But what I will tell you is that we had pretty broad-based growth in Q1. Wasn't just Batman. Certainly badman was a meaningful component, but Gabby, stal house, poor Patrol PUR pets. There were a large number of other lines that performed extremely well. So while it is significant, it wasn't, it wasn't overly concentrated on Batman.

Q1 was around 40%.

So it was a.

It was a meaningful part of our business Garik as you know, we don't disclose individual <unk>.

Line sales will pass, but what I will tell you is that we had pretty broad based growth in Q1 wasn't just Batman certainly Batman.

Meaningful component, but Gaby stall house Paul patrol.

First pets they were a large number of other lines that performed extremely well so while it is significant it wasn't it wasn't overly.

Concentrated on Beckman.

Okay, Okay great.

Okay okay, great and really appreciate the new segment reporting, particularly seeing what's underneath digital gaming. Can you perhaps just for edification the people in the college just go over the digital me accounting real quick, particularly where does the platform fe head? Is it a reduction of gross to net or is any cost of get sold? Thank you.

Appreciate the new segment reporting, particularly see.

What's what's underneath.

Digital gaming can you, perhaps just for edification.

The people on the call just to go over the digital give me accounting real quick, particularly where does the platform fee hit is that a reduction of gross to net or is the cost of goods sold. Thank you.

Yeah. So so when you when you look at revenue. That's that's gross revenue. We then have part of part of what we call Cogs would be the the hosting fees like the Apple and Google fees would be essentially part of Cogs and <unk>.

Yes So when you look at revenue that's gross revenue. We then have of of what we call COGS would be the hosting fees like the Apple and Google fees would be essentially part of COGS and.

The way the way accounting works in the digital games World Garik is that when we develop a new game, we go through a <unk>.

The way. The way accounting works in the digital games world garrick, is that and we develop a new game, we go through a typically a three -stage process. In the first stage, most of the costs of OpEx. So those are the development costs, the conceptualization costs. That hits up PL as product development.

Typically a three stage process in the first stage most of the costs. The opex. So those are the development costs. The conceptualization cost that hits, our P&L is product development once a game hits a certain level of stability and we've proved its commercial viability.

Once a game hits a certain level of stability and we've proved its commercial viability.

We then start capitalizing those costs until the game is actually launched at which point. Those costs are then amortized and that's why I've been saying to you and others.

We then start capitalizing those costs until the game is actually launched, at which point those costs are then amortized. And that's why I've been saying to you and others over time, as we grow our digital games business, it's important to focus to get a true picture of performance on EBIT and not EBITDA. At this point in time it doesn't really matter that much, But going forward it will. Does that make sense? Is that I explain that okay? Anything you want to follow up on that?

Over time as we grow our digital games business. It is important to focus to get a true picture of performance on EBIT and not EBITDA at this point in time, it doesn't really matter that much but going forward it will.

Does that make sense as they did I explained that okay anything you want to follow up on that.

Oh, perfect very clear thank you Mark.

Oh person very clear. Thank you, Mark thanks.

Thanks.

Chart, two Mac of Deutsche Bank. Please go ahead.

geor to may D you back. Please go ahead.

Good morning.

With margin. This is about hardplaning on Georgia's GAAP it discussion delay. How con thats on the result? Can you talk a little bit about the free cash flow profile on the operating segments?

Georgia.

Scotiabank.

Paul.

Can you talk a little bit about your free cash flow profile.

Segments for some could be more lumpy than others or how should we think of maintenance and growth capex ethanol margins conversion.

ahfor- some could be more lumpy than others of how should we think of maintenance and growth CapEx.

National low margins conversion I things like that.

Yeah.

Okay, sorry, George I didn't hear you very clearly I think what you're asking was about the free cash flow profile for each creative center. So let me let.

Ok sorry joy, I didn't hear you very clearly. I think what you're asking was about the free cash flow profile for each create a center. So let me let me just walk you through that. I think, in terms of CapEx, toys has got pretty low CapEx, or all that CapEx comprises in the toy areas- tooling, which is relative low and, as I St you, the prim area focus on free cash flow management there. On our working capital, entertainment has got very high CapEx. It's actually quite capital intensive. However, on a net basis, once you take in into account entertainment tax credit from the government as well as advances from our distribution partners, the net capital outplayays is actually much less. You have to look at at entertainment over a multi year cycle, because most of our productions take a couple of years's to actually develop and then they get sold and then, once they actually generate some traction in the market, you can get some toy revenue, you get licensing and merchandising revenue and you get second window distribution revenue and that can make a entertainment franchise very profitableon the digital game side, as I just described to garrick, most of the development of of a digital game is around 18 months, maybe 24 months at most, some even less, and what we do is, once it's be proven as a commerciionally viable game or the pex gets capitalized overall, our CapEx from a spun master consolidated perspective is in the five to 6% of revenue range. So if you think in about a blended average for the whole of spun master would be around five to 6%.

Let me just walk you through that I think in terms of Capex choices got pretty low capex all that capex comprises in the toy areas tooling, which is relatively low and as I say to you. The prime area of focus on free cash flow management days on our working capital Entertainment has got very high Capex, it's actually quite capital.

Intensive however on a net basis once you're taking into account entertainment tax credit from the government as well as advances from our distribution partners. The net capital outlays is actually much less.

You have to look at entertainment, Doug over a multi year cycle because most of our productions take a couple of years to actually develop and then they get sold and then once they actually generate some traction in the market you can get some toy revenue you get licensing and merchandising revenue and you get sick and window distribution revenue and that can make a into.

<unk> franchise very profitable on the digital games side as I just described to Garik.

Most of the development of a of a digital game is around 18 months, maybe 24 months at most some or even less and what we do is once it's been proven as a commercially viable game over capex gets capitalized.

Overall, our capex from our spin Master consolidated perspective is in the 5% to 6% of revenue range. So if you're thinking about a blended average for the whole of spin master it would be around 5% to 6%.

Oh very helpful.

Very helpful. Can you speak over about the pricing and digital games as well? How sensitive is pricing there? Has there been any action as well?

Kevin can you speak a little.

So the pricing in Brazil called <unk>.

First of all how sensitive pricing or has there been any action as well.

So yeah, absolutely we can so remember so in in App purchases for us on the talk of life World, which is the majority of our revenue and an important part of the question.

So Yeah absolutely, we can So, remember So in a purchases for us on the total life world, which is the majority of our revenue and an important part of the question- basically range anywhere from 99 FS for a creator tool sometime, 200 and inety nine for a ator tools. So you can imagine three times the cost and what? What I would tell you is that the engagement that that creator tool in the attachment generates for the player is what is been driven most aggressively, the consumption, and so we have creatater tools that we have dropped a 2, 99 that have far better than 99 cent ator tools, and that goes to show you that is truly that connection and the excitement and quality of that creator tool that is most important. Obviously, you know something that cost three times as much is something we pay close attention to, but there isn't something that would suggest to you that there's a linear relationship between the price and the actual creator tool and one that is, have you know, or a third of the cost will have one third to units. No such thing not, not that we've seen so far, and we did take price one on some of our digital game creator app tool, So that has contributed to our growth as well and is not slowed the engagement nor the acquisition of our M MA use.

Basically range anywhere from 99 cents or for a creator tool it went down to.

299 for a creator tools. So you can imagine three times our cost.

And what I would what I would tell you that the engagement that creator tool and the attachment generates for the player is what is being driven.

Most aggressively the consumption and so we have greater tools that we have dropped at 299 that FERC far better than 99% greater tools and that goes to show you that is truly that connection and the excitement and quality of that creator tool that is most important obviously you know something that costs three times as much.

Something we pay close attention to but there isn't something that would suggest to you that there's a linear relationship between the price and the actual creator tool and one that is half or a third of the cars will have 130 units no such thing not that we've seen so far and.

And we did take pricing one on some of our digital game greater optical so that has contributed to our growth as well and he has not slowed the engagement nor the acquisition of our <unk>.

Just to add to that.

Just to add to that. one thing to add to that on the subscription side. Remember, the revenue on the subscription side is based on a month low Ann subscription, So that actually varies, but between 5, five hundred ninetynine, 6- 90 a month, depending on the productup to ty-nine dollars for a year. So the digital games business model is actually driven off of two separate structures. one is an in-our purchase model, which which match just subscribed and which is most of our revenue, as well as the subssubscription business as well.

Just one thing to add to that on the subscription side remember the revenue on the subscription side is based on a monthly or annual subscription so that actually varies between $5 99, $6 99, a month, depending on the product up to $49 for your so the digital games business model is actually driven off of two sets.

Brit structures, one is an in App purchase model, which which makes just described and which is most of our revenue as well as the subscription business as well.

Thank you guys.

Thank you GU.

And we will now take our last question today from Saba Khan from RBC capital markets. Please go ahead.

And we will now take our last question today from sabakan, from ourbc capital markets. Please go ahead.

Alright, great. Thanks.

Ok great, just some of the comments earlier around. The amount of pricing you're taking into some of the price sensitivity that might be out there. Is that affecting in any way your product roll up for the back end of the year? Have you thought the mix or even just we thoughtpricing on some of the stuff and' just thinking about how does that market dner make reflect into or the guidance that you buup this morning?

The comments earlier around the amount of pricing you're taking in some of the price sensitivity that might be out there is that affecting in any way or your product rollout for the <unk>.

Back ended the year, having rethought the mix or even just we thought pricing on some of the stuff.

Thinking about how does that market that are making reflected into your guidance that you've updated this morning.

Yeah. So when you think about our high Saba are so basically are our average selling price right. Our ASB, which has increased in Q1 as you will state would be influenced by that definitely price increase but also trading up fewer promotions or more promotions shift to online.

Yes So when you think about our high AB our, So basically our, our average selling price right, our as B, which has increase Q1, as you will state, we be influenced by the definitely price increase, but also trading up fewer promotions or more promotions, you shift to online stores or physical- they actually be differently- and then the product makes itself. So when you add it all together and you think about our own portfolio, we have tove pretty well in Q1 and into now Q2 with the available public data that you can actually read. We continue to actually show strength and as we go into q2- I mean sorry, into the second half- we are equally positioned to do well in that space. So, for all you know, we watch it very closely. We go down to the price point level and we are watching that dynamics and we're acting accordingly. And to an earlier common and question raised by gric, with regards to gut and you obviously promotion and consumer sensitivity, we're watching that as well to be able to activate against that. But this is a very dynamic and fluid environment and basically we have a really well position team with a lot of great information as our fingertips to act on behalf of our brands with retailers.

Stores or physical they actually behave differently and then the product mix itself. So when you add it altogether and you think about our own portfolio, we have for pretty well in a in <unk>.

Q1 and into now Q2 with the available public data that you can actually read we continue to actually show strength and as we go into Q2, I mean, I'm sorry into the second half we are equally positioned to do well in that space.

For us we watch it very closely we go down to the price point level and we are watching the dynamics and we're acting accordingly and to an earlier comment and question raised by GERD with regards to glut, and obviously promotion and consumer sensitivity.

That as well to be able to activate against that but yes. This is a very dynamic and fluid environment and basically we have.

Are really well positioned team with a lot of great information at their fingertips to act on behalf of our brands with retailers.

Okay. Thanks, and then there's more of a broader question, but as you look back over the last couple of years.

okaybanks, and then there's more a broader question. But as you look back over the last couple of years in the industry, where the exhitor toys arise and then you had covided a lot of transition in your customer base, as I feel like now the duve has settled bit bit outside of maybe just e-commerce penetration. Changing termsof your customer makes are. Are you still seeing a bit of an olution around your top three or four customers?

History with toys R. US and then you had COVID-19 a lot of transition in your customer base.

Feel like now the dust has settled a bit outside of maybe just e-commerce penetration changing in terms of your customer mix are you still seeing a bit of an evolution around the top three or four customers.

Yes.

Well listen.

Well I, you know listen, I'm going to comment from my last year and a half with the company, which is being terrific, and I have studied the past, So but I'm going to ask marart to common as well, given the fact that he has the 10 year to answer more with more, more history. So the answer to your question is that our top three customers are shifting quarter and quarter and quarter. The prevalence of e commerce is here to stay. For us, 32% of our P OS in Q1 was through e commerce and he's not just pure play is ultimately, you know, lks, like you know, if I may say, Amazon or Walmart, who that do have a Dot Com as well, and when you turn to Europe is basically customers in Europe that are similarly positioned to you know what wal Mart in chararget will be doing here. But at the same time, you have to think that Amazon has also expanded to Europe and I was just recently in Mexico with the team and I was with three retailers, top retailers in Mexico, and no difference in what's happening in Mexico. So this is a global phenomenon and we're actually positioned to go capture, you know, growth where consumers are shopping, and so that is basically what we see going forward.

Listen I'm going to comment from my last year, and a half with a company, which has been terrific and I have studied the past, so but I'm going to ask mark to comment as well given the fact that he has the tenure.

To answer more with more history. So the answer to your question is that our top three customers are shifting quarter to quarter on quarter.

The prevalence of E. Commerce is here to stay for US 32% of our POS in Q1 was through E Commerce and it's not just pure play ultimately you know folks like if I may say, Amazon or Walmart, who that do have a dotcom as well and.

When you turn to Europe is basically customers in Europe that are similarly positioned to.

Walmart and target, we'll be doing here, but at the same time you have to think that Amazon has also expanded into Europe and I was just recently in Mexico with the team and I was with three retailers.

Retailers in Mexico, and no difference in what's happening in Mexico. So this is a global phenomenon and we're actually positioned to go capture.

Growth, where consumers are shopping and so that is basically what we see going forward.

And so it's just to add to that server.

And so just to add to that saba with a little bit of history, I think.

It was a little bit of history I think.

The two things that have happened in the industry that I think are important contextually. One is if you go back to when we went public.

There are two things that have happened in the industry that I think are important contextactually. one is: if you go back to when we were in public, 27% of our business came from outside of North America. Right now that numbers over 40%, So our customer base has broadened dramatically as a result of geographic diversification.

27% of our business came from outside of North America, right now that number's over 40%. So our customer base has broadened dramatically as a result of geographic diversification.

Then in the case of toys R. Us when toys R. US went down obviously since shockwaves through the industry, but I think I think that's history I think the industry has pivoted as absorbed that volume and has moved.

Then in the case of closer us, when CLOs us went down, obviously sense shock way through the industry. But I think I think that's history. I think the industry is perpeittted as absorbed that value. Man has moved a long past that now target Walmart, Amazon and all the other customers have really absorbed and changed in the way that Max us described, and so I think the industry is stronger than it ever has been from that perspective.

Long past that now target Walmart Amazon and all the other customers have really absorbed and changed in the way that <unk> described and and so I think the industry is stronger than it ever has been from that perspective.

Alright, thanks, very much for the color.

alright. Thanks very much for the COL.

Okay, I think that actually was our last question I want to thank you all for your participation and your interest and we look forward to talking to you at 130, we're going to have a presentation by Maxon Apple Creative Center President's I think you will find it very very interesting and informative. So for those of you that will be joining.

Okay I think that actually was our last question. I want to thank you all for your participation and your interest, and we look forward to talking to you at one and 30. we're going to have a presentation by Max and our creda cent ER presidents. I think you will find it very, very interesting and informative. So, for those of you that will be joining, we look forward to TAL to at one and 30. thanks again.

We look forward to talking to you had 130, thanks again.

Thank you. This concludes today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.