Q3 2024 Spin Master Corp Earnings Call
Good morning, ladies and gentlemen and welcome to the Spendmaster Corp. 3rd quarter 2024 results conference call. At the time, O'Line Zone, listen only mode. Following the presentation, we will conduct a question and answer session.
If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Thursday at 12.31, 2021. I would now let you turn the conference over to Sophia Bisoukis. Please go ahead.
Thank you, and good morning. Welcome to Spin Masters Financial Results Conference Call for the third quarter of 2024. I'm joined this morning by Max Rangel, Spin Masters Global President and CEO and Mark Segal Spin Masters Chief Financial Officer.
For your convenience, the press release, MDNA, and interim consolidated financial statements are available on the investor-relation section of our website at spinmaster.com and on Cedar Plus.
Before we begin, please note that remarks on this conference called, may contain forward-looking statements about spin-masher's current in future plans, expectations, intentions, results, level of activity, performance goals, or achievements, and any other future events or developments.
Forward-looking statements are based on information currently available to management and on estimates and assumptions made on factors that manage with the leaves are appropriate and reasonable in the circumstances.
and the other two are the same. However, there can be no assurance that certain circumstances as immense or assumptions will prove to be correct.
Many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements. As a result, Spinmaster cannot guarantee any forward-looking statements, will materialize, and your caution not to place undue relies on these forward-looking statements.
Accept as maybe required by law's thin master has no obligation to update or revise any forward-looking statements, whether because of new information.
Future events are otherwise. For additional info on these assumptions and risks, these consult our cautionary statements regarding forward-looking information in our earnings release dated October 30, 2020 at war.
Please note that it's been master reports in US dollars and all other amounts to lead to today our express in US currency unless otherwise noted. I would like to turn the call over to Max.
Good morning. Thank you for joining us. We are pleased with our care-quater results, increasing our total revenue by 25% driven by a stronger performance in both the Speedmaster Story Create a Center and the Liz Hound Up.
We generate a sales growth across major markets reflecting our continued commitment to creating innovative products, powerful global brands and magical play experiences. Both entertainment and digital games revenue declined this quarter.
In entertainment, we were laughing distribution revenue from the highly successful movie launch last year. In digital games, we saw lower in-game purchases within the talk about the world. We will get into this later in the call.
Excluding Police End Dog, the Toy Treated Center had a strong quarter with gross product sales, just up over 9%.
Much of our growth is due to the strong customer support for innovation in our portfolio, including the new Hatchemals V-Gag, the new Conecademy, Disney, BitC, the Hatchbot Gecko, and Miss Rachel.
Many of these stories have landed on retailers the most wanted toilets for the holidays.
Listen Doug grew gross product sales double digits for the second consecutive quarter. Listen Doug's results demonstrate the strength of the brand, not only for ever green items, but also for new products such as sticker wow and blockables.
According to Sir Canada, speedmaster's POS, excluding the list and duct was down, 1.3% in line with the G11 toy market and a significant improvement compared to the first half.
We saw very positive BOS for militant dug in the quarter, with growth of 7.4% versus Canada.
Listened to Xostrom POS during Amazon Prime Day and week with growth over more than 30% compared to 2023.
Adding in, listen to XPOS, we end up 23.3% globally. We maintain our position as a number of corporate manufacturers in the quarter.
The highly anticipated Misfratial toy line has been an instant sensation exceeding our expectations.
Percercana, Mr. Hachel was a number one new license in the US Toy Industry in Q3. And this is incredible. Considering this results, only reflect online three sales and one day of fully set product at retail.
While we're sure with us that Mr. Rachel was the most successful pre-selled for any toyline in their history.
Marks, the first collaboration between Spimmaster and Melissa Doug, who are team jointly developed a broader line.
The future looks really bright for Mr. Hachio in 2025.
The combination of spin master and the listen duck has made us a powerful player in the infant otter and preschool category.
In the US, in September, Perserkana, we claim six of the top 10 fastest selling new toys in the category, including three Paw Patrol and three Newstradial items.
As expected, Paw Patrol POS was down 4.1% in the quarter, as we are comparing against the movie line in Q3 last year.
We have a robust fourth quarter global marketing campaign to support the entire Puff franchise, which is helping to drive purchasing tent for the holidays. The results thus far have been very positive.
As I mentioned, we saw really positive, listen to a few of the BOS growth of 7.4% in the quarter.
In the US, Nusendok was also the top growing toy property in the quarter, in the four weeks ending October 12 and has solid momentum going into the holidays. The Nusendok integration is going well and we have achieved several significant milestones in our journey to bring our two companies together.
Earlier this year we prioritized increasing the list of expressants in Canada and Mexico.
Utilizing our footprint and customer relationships in our already seen positive revenue growth, we recently announced our plans to accelerate distribution for the Melissa and the declining internationally by leveraging our global footprint combined with Melissa and Doug's e-commerce excellence.
We think vehicles, Monster Jam continues to demonstrate outstanding performance, growing POS by 16.5% globally in the quarter and outperforming the category, Verser Conna.
Inactivities, kinetic sand had a very strong quarter with the OS growing 19% compared to what the client of 3.6% in the Arjun craft category, Versure Counter.
Within Doll's Unicorn Academy is a completely new entry for us in a category where we have traditionally been challenged to compete.
In Q3, Unicorn Academy's Moldals and Unicorn Assortment was a top 10 new item in the category and top 3 in the places, dolls, and collectibles class in the US, Verser Cano.
As expected, Entertainment Revenue declined in Q3. As we were laughing, revenue from the Palm Movie Launch in Q3 last year.
Pop Patrol continues to be one of the top preschool shows globally, but we aren't taking our success for granted.
We are continuing to produce content created specifically for you to include two short-form series which are performing very well in terms of views and click through rates.
In 2025, we are partnering with Nickelodeon and Paramount to launch a global franchise marketing campaign to ensure that the digital digital market is a great opportunity to launch a global franchise.
You're gonna cut me, it's a great showcase of how we are creating new IP.
The franchise has exceeded our goals including awareness and the property reached 132 million gross viewing minutes in Q3. This quarter we announced at Netflix as Green Leaks isn't too. Speaking of an additional 16 episodes which will debut in 2021.
Unicorn Academy will have batch releases on Netflix for the next few years, as well as complementary short-of-form digital content on YouTube and TikTok.
We are disappointed in our performance in digital games this quarter. Primarily due to the lower in-app purchases within Toka Boka World.
After coming off high engagement levels at the end of Q2, we saw weakness in Q3 with revenue down 16.8% and Q3 average monthly active users at 57 million versus 60 million last year.
We believe that free content and competitive products has given players less recent to spend and lower in-game purchases are driving revenue decline.
Encouragingly, those consumers that are spending are spending at a slightly higher level than last year. We remain confident that we will get Toka Boka World back on track.
Our team in Stockholm has been focusing on improving speed of delivery, including new features, brand collaborations, and community activations that will make the content more appealing.
especially to first time users and improve shop awareness to drive free versus big conversion.
While we are seeing some short-term challenges, we just crossed a significant milestone of 1 billion downloads for Toka Boca World, a huge achievement for the Toka Boca Studio.
Talk about the world continues to be via significant margin, the leader of premium and pay kids digital mobile game content
Our picnic subscription bundle, Dressa Scribers and Revenue in the Quarter.
In total, Segalmini grew subscribers by 25% from 340
1,000 last year to 434,000 this year. In Q1225, we will introduce the Poach Academy gaming to picnic driving third-door value for the bundle.
Kauai Academy also increasescriptions in the quarter and celebrates one year global launch anniversary.
In Gageman metrics, we meet high and global play minutes, root, sequentially. We released Rubik's match globally, mid to September. We are now driving use for acquisition and continuing to adjust the play experience to adapt to consumer behavior within the game environment.
Although broader economic conditions remain a challenge, we are seeing the consumer gaining confidence, hitting into the holiday season. We expect the timing of spending in the US to be influenced by the US election and a shorter shopping period between US, Thanksgiving and Christmas.
Driving purchases later in the season.
We have lined up the majority of our marketing to focus on when consumer intent is at its highest point within that window.
We are pleased to report that our third quarter financial results were in line with our expectations and we are reiterating our full year 2020 full guidance.
This quarter illustrates the power of our diversified creative centers.
Our Q3 revenue grew 25% to $886 million, including Melissa Doug <unk>.
Excluding Melissa Doug revenue increased 3% driven by growth in toys, which more than offset a decline in entertainment as we lapped last year's pull movie distribution revenue and a decline in digital games revenue.
Adjusted EBITDA for Q3 was $277 5 million for the 31, 3% margin, including $49 4 million for Millicent Doug.
Adjusted EBITDA, excluding Millicent, Doug was $228 1 million compared to $234 9 million a decline of $6 8 million.
Adjusted EBITDA margin, excluding with ascend Doug was 31, 2% compared to 33, 1%. However.
However, recall that Q3 last year included the accretive impact of the pull movie distribution revenue of $15 6 million.
On an apples to apples basis, excluding both the movie distribution revenue and Melissa Doug <unk>.
Adjusted EBITDA grew by $8 8 million.
The increase was driven by high end toy revenue.
<unk> offset by a decline in digital games profitability.
Adjusted EBITDA margin, excluding both Melissa Doug and the pull movie decreased by 40 basis points due to a mix shift with a higher proportion of adjusted EBITDA contributed by choice and a lower proportion buy digital games.
Q3, gross profit increased $82 4 million to $469 3 million.
Gross margin declined to 53% from 54, 5%, primarily due to the impact of the Melissa Doug inventory fair market value adjustment.
As a reminder, as part of the acquisition of Melissa Doug We acquired just under $190 million of inventory of which approximately 66 million relates to a required fair market value step up adjustments, representing the difference between inventory costs and net realizable value.
As this inventory is sold the fair market value increment is recognized in Cogs.
In Q3, the inventory fair market value adjustments included in toy Cogs was $21 5 million and $66 3 million year to date, which means it is now fully recognized and we will no longer reflect this impact to gross margin from Q4 onwards.
Adjusted gross profit, which removes the Melissa <unk> inventory fair market value increment increased $503 9 million to $490 8 million due to higher contributions from toys, including Melissa Doug.
Adjusted gross margin was 55, 4% up 90 basis points from 54, 5%, mainly due to the accretive effect of fewer content deliveries in the current quarter.
As a reminder, content deliveries of gross margin dilutive because of the amortization triggered by the delivery of the content.
Let's review each creative census performance in a little more detail.
By declines in Bakugan D C and Tik-tik.
Sales allowances in Q3 was 12, 2% of toy gross product sales up from 11, 4% as we continued to invest in Melissa Doug retail trade promotions.
Excluding Melissa Doug sales allowances remained flat to 2023.
Adjusted EBITDA in Q3 foot toys was $242 2 million or 29, 9% margin compared to 27, 7%.
The increase in margin was driven by organic revenue growth the inclusion of Melissa Doug and the resulting higher operating leverage.
Turning to entertainment revenue declined by $26 3 million or 41, 5% as we lapped content deliveries for the pole movie and the initial deliveries of Unicorn Academy.
However, adjusted operating income decreased by only $3 1 million to $20 9 million and adjusted operating margin increased to 56, 3% from 37, 9% due to the margin accretive effect of fewer content deliveries and more licensing and merchandising revenue as part.
The overall revenue mix this quarter.
Revenue in our digital games Creative center declined by $7 6 million to $37 7 million.
While monthly active users and total book World and subscribers to picnic and pulp control Academy grew sequentially in game spending in toco Boca World declined.
We are encouraged that engagement levels in toco Boca World remain high the <unk>.
Number of average monthly users for Toco Boca World for Q3 was just under $58 million up approximately $1 million sequentially.
Subscriptions and sago mini for the picnic bundle and other apps were 434000, an increase of 25% compared to last year and up 2% sequentially.
At the end of the quarter during the quarter, we paid down $50 million of our revolving credit facility on a year to date basis, we have reduced our borrowings by $115 million.
Our net debt to adjusted EBITDA ratio was <unk> nine times at the end of Q3.
We repurchased 952000 shares in Q3 for approximately $21 4 million under our M. CIP.
To date Q3, we have allocated $47 million to acquire just under $2 1 million shares and after the quarter, we repurchased a further 213000 shares.
Free cash flow in Q3 was just under 45 million compared to $119 million.
Free cash flow declined due to lower cash from operations and slightly higher cash used in investing activities.
Turning now to our 2024 outlook, we expect a toy we expect toy gross product sales, excluding millicent Doug to be in line with 2023.
The outlook for 2024 reflects our continued view that retail inventories are in good shape, and we have a strong innovative deep and value focused line temp.
Tampered by the reality that consumer behavior is likely to continue to be volatile in Q4 with the election and five fewer shopping days leading into Christmas 2024.
Total revenue for 2024, excluding Melissa Doug is also expected to be in line with 2023 with lower revenue from entertainment and digital games offset by higher toy revenue.
We are managing costs tightly and we continue to expect adjusted EBITDA margin, excluding willison, Doug to be in line with 2023, excluding the pole movie.
In connection with Melissa Doug for 2024, we continue to expect gross product sales of between 420 and $430 million.
With revenue of 370 million to $375 million.
So there are a lot of numbers in there Mark can you just repeat what Melissa Doug Pos was seven 4% for the quarter what was it you or they just say 23%.
Speaker Change: 23% was the.
Speaker Change: Increase in POF for spin Master and Millicent, Doug combined relative to last year, but that obviously includes the incremental Melissa Doug sales.
Speaker Change: Okay.
Speaker Change: Yes.
Let's focus on listen Doug So certainly a positive surprise this quarter, especially for those that listened to your seasonality guidance that said, it's fair to say investors have been quite disappointed with it to date that I think weighs on your valuation you have.
<unk> said last quarter that Q3, and Q4 should be similar contribution I'm wondering if there's a pull forward in Q3, because if not if they are similar appears that theres, some upside which are less than the guidance. So can you just answer that and then what's resonating with retailers and consumer now following the P/e Underinvestment last year is it new products resonate.
Which certainly seems it is is that the support to retailers and lastly, how should we think about Europe.
Speaker Change: Expansion next year.
I'll, let <unk> pick up.
Speaker Change: Melissa.
First part of your question and then I'll pick up the second piece Brian.
Speaker Change: Hi.
Good morning, Brian I think we are Super excited about Melissa Doug since we since we put the investments in place when we met with you guys about six months ago.
Brian: We have had six consecutive months of market share growth that's point number one.
Speaker Change: It is incredibly important because it culminated in that week of prime where we were up significantly.
Versus last year year ago base of course, you guys know the story.
Which is a little different to spend mass, though as it relates to Melissa dog in Q4.
They ship right up until the end of the year literally December 30, because they have drop shipping capabilities. So they have that week to 10 days after Christmas to really actually get incremental revenue in and that's new for us and so.
Speaker Change: That's part of the equation as well Thats just to be considered and understood for for the future.
Okay, that's encouraging so I feel pretty good about nordson diagnose certainly.
Speaker Change: I think that the trends are positive.
Speaker Change: I wanted to turn to the incumbent business, if I look at guidance.
Excellent and Doug for you to hit your numbers, it's about 5% revenue growth and nearly 50% in terms of EBITDA for Q4 relative to last year I think the drivers are explainable, and certainly sales allowances in and synergies and higher volumes from toy from the choice and it just maybe give us some.
Comfort to investors, how you can get your EBITDA margin up 500, or so basis points in Q4.
So Brian.
Obviously Q4 is.
It's always an interesting quarter, because you have less revenue than Q3, but you have a lot of your youre marketing flowing through so we have at least 50% of our marketing flowing through in the in the fourth quarter. That's when consumers are in stores or online actually shopping. So as you said, we have to manage our marketing dollars very carefully.
Speaker Change: We have to manage our sales allowances and markdowns very carefully.
Really encouraged with our retail inventory levels are in good shape Buffett at on the spin master side and on Melissa Doug side, and so I think the markdown risk is less this year than it than it was last year for sure, but clearly we have to deliver the volume we have to get the volume through both for toy spin Master toy.
Speaker Change: And for Melissa Doug.
Speaker Change: The telco Buckler World.
In App purchases all high margin purchases in high margin high margin revenue for us and so they have declined was margin dilutive. If we didn't actually have that decline I think we would've had a spectacular quarter.
So that brings me to the follow up question Gil you wouldn't you would mark I'm, sorry, you would Max have already talked to.
A bit about optimism going into Q4, obviously Q4, the presumption is that whether its coca days additional content to add or.
Group expects that there should be a return to growth in Q4 can you maybe talk.
A little bit more about your expectations for digital games overall for the year and then of course.
As part of what.
The prior questions touched on in terms of the Q4 lift in EBITDA, there's got to be some heavy lifting going on also I presume around digital games EBITDA unless I'm wrong.
Speaker Change: That's correct so.
Adam Good morning first of all good morning digital.
Adam: Digital game in Q4 is basically as follows we have a big Nic business a subscription business that is doing really well. It's ahead of our expectations and we will continue to deliver that into Q4 and so we're riding on that via increased subscribers increased monthly recurring revenue because of.
Higher LTV and that is incredibly positive and that is one of the big shining moments for us through the year and as we actually exited the year and enter 2025.
Number one number two is we have on till got book our world a number of interventions that we had planned and are are coming November and December.
Adam: Two of which are really important and we actually believe are going to help the business recover number one we have two new features.
On the App.
Speaker Change: <unk> have not be necessarily leverage over the last few quarters. So this will be the new features to the game to the gaming community in quite a while and we just tested one of the features before dropping it.
And we got about 20000 respondents within nine hours.
Speaker Change: Cited for the future drop that comes in like two to three weeks. The second feature drop is in December and that would be a revenue driver and an engagement driver and a monetization driver. The second one and took a book of World is the fact that we have a very strong collaboration with Wuxi, we've known that before when we've done those they actually have driven.
Speaker Change: Our revenue very positively and so that is coming down the pike. So I think those two things are going to help us on a book of World and <unk> as you alluded to it's early days, we launched that in the September so far we're getting good reviews, but it's really early to basically judge the top of funnel and obviously the conversion yet.
It's something that we're waiting to in the quarter to basically get the results, we expect but more to come on that and we're gonna have to wait a little bit longer.
Okay I appreciate that color I'll queue up again.
Speaker Change: Okay.
Speaker Change: Uh huh.
Thank you. The next question comes from Luke Hannan at Canaccord Genuity. Please go ahead.
Luke Hannan: Thanks, Good morning, I know, we're going to talk a little bit more about the outlook for 2005. When you guys report your Q4 results, but I just wanted to ask from a high level specifically on digital games. So I realize that this was a fairly heavy launch here, but as we move forward in the next year and you can correct me if I'm wrong I think the next major launch that you guys have plans.
<unk> and digital will be Unicorn Academy is there anything else to be thinking about I guess the main question here is we should see a step function change when it comes to the digital games margins operating margins in 2025, all else equal.
Yeah, Luke and good morning to the the way we are actually approaching not just closing the year, but into 'twenty five.
Two things that are really exciting for us is the number of subscribers. We are gaining on the business and we see significantly more revenue potential and longer term potential by focusing on that and that will be for us a key driver of the future.
Think about picnic and the success, we've had with picnic and basically carry significantly more than we expected because it's doing really well and in the in January just to kind of get into 'twenty five.
Speaker Change: Paw patrol into picnic and that's going to be a significant step change and we have.
A number of initiatives on subscriptions that we believe are going to continue to drive out any sort of moment in time, and we are very focused and very intentional to step change that business. That's number one number two we have seen on toco Boca World, Obviously as we navigate these recent softness and opportunity.
Speaker Change: Doug.
Monthly active users via two or three tech driven and feature driven and content driven strategies that we believe are going to once again step change that business well beyond so those are the two key focus areas and then as we get the other games.
Obviously, kpis and ready to launch.
We are doing those too.
We don't expect a Unicorn academy to launch in 2025, it will likely be delayed.
And that is because we're focusing on these other two priorities because decisive price and returned to us is significantly bigger.
Speaker Change: And look just to add to what Mac said.
Speaker Change: It.
The economics of digital games and digital games launches if you recall when a new game has launched its actually margin dilutive because you have to pick up the amortization of previously capitalized intangible.
Speaker Change: Assets that had been sitting on your balance sheet. While you are developing once your hurdle that amortization, then youll margins returned to a more normalized level, but just keep that in mind as you think about newco.
New games and that's why in.
Speaker Change: Terms of what makes sense for the games that we're very heavily focused on for 'twenty five picnic and talk about who will be especially you know we've amortized most of that a long time ago and those are all highly margin accretive for us and the primary area of focus is makes sense.
Okay. Thanks, and then for my follow up here I'll stick with digital games, there was commentary in the MD&A about there being increased competition.
In the marketplace I know that you guys have talked about part of that is just not having con.
Content, and therefore for folks to be able to pay for but I mean is there anything else to read into there or are you seeing other folks encroach on the same sort of territory that that you guys are.
Are you seeing user attrition at all into other large properties like a <unk>.
<unk> for example, or Minecraft is there anything else to call out there when it comes to the competition specifically.
Speaker Change: No. The competition, we would have alluded to in the footnote would there be any mobile digital games and it's just a couple of properties that have come in and quite frankly, just offer content for free and as we had not been providing features.
Speaker Change: You know obviously consecutively.
Then obviously, we saw that attrition as you well pointed out but we've seen that with the feature of our strategy that we have in our vision to get a future quarter. I think we have a path and a roadmap to get back on track with those users coming back to us that was all of that that was intended for.
Okay got it alright, thank you very much.
Speaker Change: Thanks.
Thank you. The next question comes from Martin Landry at Stifel. Please go ahead.
Speaker Change: Yeah.
Hi, good morning, guys.
I wanted to touch on the <unk>.
Speaker Change: Coming holiday peak.
Speaker Change: <unk>.
Just trying to get some color on how the retailers are approaching the holidays this year.
Where do they stand on inventory.
How much promotional activity are they requesting from vendors.
Off price sensitive are they in terms of price.
Speaker Change: Price point threshold.
Any color would be helpful.
Yeah. Good morning, Martin I think the retailers are really leaning into basically getting food traffic into toys for the holidays and that is very intentional and that is across the globe.
Most importantly in North America that intention is manifested in basically a lot of the orders they've brought in themselves through direct imports. So we see a healthy balance of that which is terrific.
Speaker Change: And knowing that we have to wait until after the election to get the activations going where all.
Also have a lot of merchandising queued up to basically after election for the following six weeks heading into the holidays into into Christmas and I think we are.
Basically lockstep with retailers to make sure that happens.
Speaker Change: At the same time, our marketing queued up to make sure that the marketing is impacting consumer purchase and influence their behavior in those same weeks. So everything is basically for us lined up very much locking stuff. So we expect obviously that the investment into the category will be either both.
From the retailer and from Us and so far that's the plan and that's what we're actually planning to do.
In terms of the portfolio the price points and the price sensitivity just to address your second question we have.
We're super well positioned.
A lot of what drove our success in the third quarter and in the market share significant step change in the third quarter is a lot of the new innovation.
Most of which if not all came really good price points, we're talking about 19% to $39 by and large and that will continue to be the case in Q4 and in Q4, you have the larger ticket items, but no such ticket item is really exceeding.
Between 70 and $99. So I think we're well positioned to do that I would tell you that lasting is we have a number of items that are in the lower price segment to whether a sticker wow items in paw patrol and the value channel. The initiative that will also position us well to compete in that segment from.
From a promotional standpoint and percent of items on promotion, we're not seeing an escalation thus far and so I hope that helps.
Your question and just to add one piece of data to reemphasize, what I mentioned in the script you will retail inventory question.
Global retail inventory at the end of the quarter was down 20% and was down 12% in the U S. So I think from an inventory perspective, the retailers are in good shape and in particular at Melissa Doug retail inventories were down quite significantly relative to last year and and so we're encouraged by the position that the retailers Ian from a midstream perspective.
Speaker Change: Okay.
Okay. That's super good color. Thank you so much and then maybe one quick question on Miss Rachel.
It's been a success so far.
Speaker Change: Just trying to understand how is your inventory position with <unk> right now.
Speaker Change: It's tight.
Speaker Change: Which is a good thing the demand is absolutely crazy and and so we have great plans in place to fulfill the demand and importantly, getting to 25 with a lot of strength.
So that would be the best the best thing I can tell you its a top item in the U S. Particularly as you know four of the items are in the top 10 for the infant toddler preschool category.
Both formulation, Doug items and for spin Master items, So we're incredibly optimistic.
Speaker Change: Just to add it was number one license in the industry and the number one less in the entire industry in Q3.
Okay, well done and best of luck.
Speaker Change: Thank you.
Thank you. The next question comes from Kelly Kahl, who at Jefferies. Please go ahead.
Kelly Kahl: Awesome. Thank you guys. So much for taking my question and I apologize. If this is kind of already been covered but following on from the last question on the myth right. Obviously, it's been a huge success.
Speaker Change: I'm curious how you guys were thinking about this longer term.
Speaker Change: Without getting into too much specifics about just where the product could go any details there would be helpful.
Speaker Change: Yes, Ms. Rachel is launching <unk>.
Speaker Change: The U S.
U K, Canada, and so far it will go into English speaking markets first and foremost.
And so that part of the rollout is going incredibly well, but it's early days right I think you know.
Speaker Change: As I said in the script it was only presale and just maybe a week or so of retail. So we are firmly executing the plan. We have 25 is a really important year for Ms. Rachel and so you can expect a significant step change in <unk> 25 from our newest Rachel performance both in revenue driven by innovation.
And footprint expansion, so that's the answer to that.
Speaker Change: Okay.
Okay, Great and I guess as a follow up to that I was wondering if you could talk a little bit more about.
Licensing opportunities specifically with Peter.
Especially in Europe.
Color there would also be helpful.
Yeah, Great question via the vet, just got picked up by a number of.
Broadcasters in Europe, So we're going to see a lot of either the VAT in 2025, which I think is terrific and I'm thinking about France, and Germany, and other places where we would have not be necessarily broadcasting. The line. He was recall, mostly the U K.
So so far it's a great show in France, just to give you. Some color you Jos already became the second show in the category since it went live.
And you can expect that we can follow up with toys next year.
Okay, well, thank you guys so much.
Speaker Change: Okay.
Speaker Change: Thank you. The next question comes from Jamie Katz Morningstar. Please go ahead.
Speaker Change: Hi, Good morning, you guys touched on this briefly but can you talk a little bit more about the rollout in the value chain how that gone in.
Speaker Change: Received I guess relative to the.
The mass market channel to start thanks.
Yeah, I'll start and then marketing complement we focus versus in the U S. We have.
About 40, Skus and the key thing has been for us to kind of make sure. We have a representation of those lines that gets really want but may have not been able to buy before so it's beyond our petroleum <unk> into you know, obviously tactic and other things.
At our very popular and people want.
That's the first thing we're just beginning in the U S and importantly for US as we look forward. There is an incredibly large segment of discounters abroad, and that line will rollout into twenty-five beyond the U S and that gives us a lot of confidence that we have an upside in 2025 behind this execution.
Now next I think you've covered it.
I would just add to that Jamie is.
We have 40 to 50 skus in the line.
Speaker Change: As Mac said.
At the beginning of the year.
I think I said that our expectations were relatively modest for this year because it was a partial rollout somewhere in the $20 million to $30 million range for the year and I think we're going to meet those expectations and the mixture will see its significantly higher as we rollout globally with more skus when I say globally. Its main.
The U S and Europe that I'm talking about but more skus into more doors and so we are treating the value channel as a important initiative, we have set up a specific supply chain in Asia to manage.
Speaker Change: To manage the production of the line and it's not margin dilutive because we were actually manufacturing for that price point. So we feel good about it for next year.
Okay, and I don't think it's been mentioned maybe because it's.
In Q4, Q, but how did the launch of Hach mode. They go in with that as well received as expected any color on that on that product launch at the beginning of October would be interesting to hear thanks.
Speaker Change: Don.
Speaker Change: So far is going well to your point. It just basically was hatching jose's was in quarter four so so theres nothing in the script or the odd.
Speaker Change: Obviously data yet.
But we're very optimistic about the start on the marketing activation is happening following the PR effort.
Speaker Change: So so far you know so far we're optimistic about the outlook for how to most of them.
Speaker Change: Thanks.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Your next question comes from Jim Mcreynolds RBC. Please go ahead.
Speaker Change: Okay.
Yes, thanks very much good morning, a couple for me.
Jim Mcreynolds: Maybe for you Mark just back to Q4 and the visibility that you have overall in the quarter. Obviously, we had the election the late Thanksgiving and then.
Commented on the shortage shopping period.
Just characterize the visibility is less versus kind of previous years just given.
Jim Mcreynolds: What is kind of.
Speaker Change: Unusual.
Speaker Change: Events and timing here.
Or are you just see the similar visibility than <unk> had in prior years.
Speaker Change: And then two housekeeping items, just on M&A synergies get to heal Richard targeted 6 million.
By the end of the year when you think about the timing of the remaining targeted synergies through 2026, how should we be thinking about.
What you realize next year relative to 2026.
Speaker Change: And then lastly, just on leverage you mentioned a target of approximately one times by year end.
Speaker Change: That was previously <unk> eight times I'm, assuming the difference here largely is the buyback, but if not if you can just break that down for us. Thank you.
Speaker Change: Okay. Thanks chip, we're going to have to make this last question operator, just a flyer, but I will.
Speaker Change: I will answer those.
Questions visibility I would say to you on the visibility I don't think it's changed dramatically versus prior years, obviously, we do have the U S election in the mix this year.
But as <unk> described in this others have described we expect that to just really be a timing impact as opposed to an overall impact for the quarter.
Drew you have to understand that in Q4 really at some point this becomes a replenishment issue.
And it comes down to consumers either in store online pulling through and so any guidance that we gave you for Q4 with as it relates to toys.
For spin Master all Melissa Doug.
It really revolves around consumer takeaway, we do control marketing activities, we control sales promotion activities markdown, but at the end of the day, the consumer is going to be pulling the inventory through and so as much as we give you guidance. It's always tampered by the reality of the consumer takeaway as it relates to choice.
Entertainment, we are a little bit more visibility because it's just not as volatile in the quarter.
And digital games.
We have some visibility as it relates to subscriptions, but really a very important part of digital games, which is talk about the world will be the <unk>.
Period of kids, playing in buying around Christmas and so we have expectations, but we don't have a huge degree of visibility there. So I just wanted to.
Just give you the reality of what al visibility looks like but that is not significantly different from what it would've been in prior years.
As it relates to synergies.
Speaker Change: I think we're doing well on the synergies front for Melissa Doug.
If you recall our target for this year was around $6 million.
$25 million to $30 million run rate by the end of 2026, I think youll see synergies accelerating further in 2025, and then also significantly in 2026 as some other activities structural activity saw flowing through but we'll get back to you in at the end of February on the 2025.
Synergies number, but you can expect that to be up over the $6 million.
As it relates to leverage.
Speaker Change: Yes, we gave you a range of around <unk> eight.
In August we think it's going to be around one times just in relation to to the buyback program and and our debt pay down activities and cash flow timing. So I think just to feel model think about it in that in that range of around 0.9 to one times and I think that's where we can on that.
Speaker Change: Yep.
Speaker Change: Yeah.
Okay fantastic. Thank you.
Speaker Change: Okay, well, thank you everyone.
We look forward to talking to you again with our Q4 results at the end of February. Thanks for your interest again, and we'll talk to you in February Thank you.
Ladies and gentlemen. This concludes your conference for today, we thank you for participating and we ask that you. Please disconnect your lines.
Speaker Change: Okay.