Q2 2025 Spin Master Corp Earnings Call

Jonathan Reuter: Good morning, ladies and gentlemen, and welcome to the Spin Master Corp second quarter 2025 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press zero for the operator. This call is being recorded today, Thursday, July 31st, 2025. I would now like to turn the conference over to Sophia Bisoukis. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the Spin Master Corp. Second Quarter 2025 Results Conference Call.

At this time, all lines are in listen-only mode.

Following the presentation, we will conduct a question and answer session. If I didn't need a time during this call, you require immediate assistance, please press zero for the operator.

This call is being recorded today, Thursday, July 31, 2025.

I would now like to turn the conference over to Sophia BAS.

Please go ahead.

Sophia Bisoukis: Thank you. Welcome to Spin Master's financial results conference call for the second quarter of 2025. I am joined this morning by Christina Miller, CEO, and Jonathan Reuter, Spin Master's CFO. For your convenience, the press release, MD&A, and consolidated financial statements are available on the investor relations section of our website at spinmaster.com and on Cedar Plus. 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, and any other future events or developments. Forward-looking statements are based on currently available information and assumptions that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such assumptions will prove to be correct, and many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements.

Thank you, welcome to spin masters Financial results conference call for the second quarter of 2025. I am joined this morning by Christina Miller, CEO and Jonathan Reider Spin Masters CFO for your convenience, the press release, mdna, and Consolidated financial statements are available on the investor relations section of our website at spinmaster.com and on Cedar, Plus

Before we begin, please note that remarks on this conference call may contain forward-looking statements about spin masters current and future plans, expectations, intentions results levels of activity, performance goals or achievements and any other future events or developments.

Forward-looking statements are based on currently available information and assumptions that manage the beliefs or appropriate and reasonable in the circumstances.

Sophia Bisoukis: As a result, you are cautioned not to place undue reliance on these forward-looking statements. For additional information on these assumptions and risks, please consult the cautionary statements regarding forward-looking information in our earnings release dated July 31st, 2025. Except as may be required by law, Spin Master disclaims any intention to update or revise any forward-looking statements, whether because of new information, future events, or otherwise. Please note that Spin Master reports in US dollars and all other amounts today are expressed in US currency unless otherwise noted. I would now like to turn the conference call over to Christina.

However, there can be no assurance that such such assumptions will prove to be correct and many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements.

As a result, you are cautioned not to place undue reliance on these forward-looking statements.

For additional information on these assumptions and risks, please consult the cautionary statements regarding forward-looking information in our earnings release dated July 31st 2025. Except as may be required by Los stim Master, disclaims any intention to update or revise? Any forward-looking statements, whether because of new information, future events or otherwise.

please note that thin Master reports in US Dollars and all other amounts today are expressed in US currency unless otherwise noted

Christina Miller: Good morning, everyone. I'm pleased to join my first official analyst call since joining as CEO earlier this month. I have the opportunity to lead an incredible company that creates play experiences that bring joy to kids and families around the world. Spin Master has a diverse portfolio of brands that we've built, acquired, partnered with. Brands like Paw Patrol, Melissa and Doug, Monster Jam, How to Train Your Dragon, and Tocoboca provide us with a strong foundation from which to scale and reach more consumers, audiences, and players globally. Turning to our performance this quarter, as expected, we faced some headwinds. Total revenue declined by 2.7% as retailer-buyer patterns within toys shifted in response to evolving tariff rates in the US. Our decrease in toy revenue was partially offset by double-digit growth in games, demonstrating the strength of our three creative center approach.

I would now like to turn the conference call over to Christina.

Good morning, everyone. I'm pleased to join my first official analyst call since joining a CEO earlier this month.

I have the opportunity to lead an incredible company that creates play experiences, that brings joy to kids and families around the world.

Required partnered with Brands like, Paw Patrol, Melissa and Doug Monster Jam, How to Train Your Dragon Toko boa. Provide us with a strong Foundation from which to scale and reach more consumers, audiences and players globally.

Our performance this quarter was as expected. However, we faced some headwinds.

Total revenue declined by 2.7%.

As retailer buyer patterns.

Christina Miller: In the second quarter, tariffs caused retailers to temporarily pause orders and, in some cases, delay holiday set dates, negatively impacting selling. Despite these shifts, we saw strength in key toy categories both in revenue and at point of sale, enabling us to maintain our growth share for many of the categories in which we compete. Looking at our total addressable market, we grew POS by 7.4% in the quarter, ahead of the industry, which grew 3.7% for comparable categories. We retained our leadership position in infant/toddler and preschool categories, thanks to a combination of owned and licensed IP, with POS growing 3% compared to market, which grew 2%. Per secana, the inclusion of Melissa and Doug, Miss Rachel, within our portfolio helped to strengthen our market position.

Our toy revenue decreased in response to evolving tariff rates in the U.S. However, our decrease was partially offset by double-digit growth in games, demonstrating the strength of our 3 Creative Center approach. In the second quarter, tariffs caused retailers to temporarily pause orders and, in some cases, delay holiday set dates, negatively impacting sales.

Despite these shifts, we saw strength and key toy categories. Both in revenue. And at point of sale, enabling us to maintain our growth missing, or grow share for many of the categories in which we compete looking at our total addressable Market. We grew POS by 7.4% in the quarter ahead of the industry, which grew 3.7% for comparable categories. We retained our leadership position in infant toddler and preschool categories. Thanks to a combination of owned and licensed IP with ping 3%.

Christina Miller: Our licensed business grew 43.1% in the quarter, outpacing industry growth per secana, thanks to a roster of popular licensed toy partnerships, including Monster Jam, How to Train Your Dragon, Miss Rachel, and Gabby's Dollhouse. Speaking of Monster Jam, this brand is fueling consistent growth with us. Within the vehicle category, POS for Monster Jam grew 13.1% in the quarter, enabling us to take share, maintaining its position as number two in the category. Looking forward, we have a strong lineup of toys just hitting shelves now and into the fall for the holiday season. We have strong innovation across our portfolio, including key brands like TecDeck, Melissa and Doug, Paw Patrol, and Kinetic Sand. In addition to our owned IP, we have licensed toys for films, including Jurassic World, How to Train Your Dragon, Superman, which have successful box office openings, and Gabby's Dollhouse slated for September.

Compared to Market, which grew 2%, pericana the inclusion of Melissa and Doug. Miss Rachel within our portfolio helped to strengthen our Market position.

Our licensed business group 43.1% in the quarter outpacing industry. Growth cursor. Cana thanks to a roster of popular license toy Partnerships including Monster Jam How to Train Your Dragon. Miss Rachel and Gabby dollhouse. Speaking of Monster Jam. This brand is feeling consistent growth with us.

Within the vehicle category, PS from Monster Jam grew 13.1% in the quarter, enabling us to take share and maintain our position as number two in the category.

Looking forward, we have a strong lineup of toys just hitting shelves now and...

The holiday season.

Christina Miller: Moving to our own entertainment studio, we're progressing against our strategy to create content and engage our audience wherever they are. While entertainment revenue declined in the quarter as expected, we expanded the distribution of key properties, including a second window deal with Nickelodeon in the US for Vita the Vet and Unicorn Academy, both of which debuted this month. Our last Unicorn Academy special dropped on Netflix on April 9th and beat our expectations for audience engagement, outpacing the competition. Unicorn Academy generated 70-plus hours viewed globally in the first half of 2025. All previously released chapters for the series, together with the new special, landed into the girls' top five viewed content for each one. We're continuing to invest in the health of Paw Patrol.

We have strong Innovation across our portfolio, including key Brands, like techex Melissa and Doug, Paw Patrol, and kinetic sand. In addition to our own IP, we have licensed toys for films, including Jurassic world, How to Train Your Dragon Superman, which have successful box, which has have had successful box, office openings and Gabby. Gabby saw house slated for September.

Moving to our own entertainment Studio.

We're progressing against our strategy to create content and engage our audience. Wherever they are while entertainment Revenue declined. In the quarter as expected, we expanded the distribution of Key Properties, including a second window, deal with Nickelodeon in the US for Vita the vet and unicorn Academy.

Both which debuted this month. Our Last Unicorn Academy special dropped on Netflix, on April 9th. And beat our expectations for audience engagement, our pacing the competition. Unicorn Academy generated 70 plus hours viewed globally in the first half of 2025.

All previously released chapters for the series, together with the new special, landed into the girls' top 5 viewed contacts for each one.

Christina Miller: Production of the movie for 2026 is well in hand, and we are delivering two specials this year, one in October and our first-ever Christmas special, which will air on both Nickelodeon and CBS Prime Time. Beyond our partnership with Paramount, in support of our goal of reaching kids wherever they watch, and for the first time ever, Paw Patrol debuted on Netflix in the US this July, following a successful run of Rubble and Crew on the streaming platform earlier this year. Digital games had a strong quarter with double-digit growth and had an engaged player network with 58 million active users. Over the past year, we've taken steps to focus on the strengths of our anchor platforms, Tocoboca, World, and Picnic. As such, we've made the strategic decision to pivot our focus away from Tocoboca days to double down on accelerating Tocoboca World.

We're continuing to invest in the health of Paw Patrol production of the movie for 20 production of the movie for 2026 is well, in hand. And we are delivering 2 specials this year 1 in October and our first ever Christmas special, which will air on both Nickelodeon and CBS prime time.

Beyond our partnership with Paramount.

Christina Miller: Building social multiplayer experience within Tocoboca universe has provided us with valuable insights. We are now leveraging those learnings and tech we've developed to future-proof Tocoboca franchise. These shifts are beginning to yield positive results, giving us confidence in our ability to scale in the future. More broadly, we're making investments to expand live services capabilities, deepen performance marketing, and our strategic focus has been to diversify our revenue streams across our three creative centers. And we've only just begun to truly capitalize on our deep catalog of content, brands, and gaming platforms. We have potential to deliver long-term growth by fully harnessing cross-creative center collaboration. Staying grounded in a consumer-first mindset and bringing joy through engaging characters, stories, digital worlds, and physical toys will ensure we are a mainstay in the lives of kids and families everywhere. With that, I turn it over to Jonathan.

In support of our goal of reaching kids wherever they watch, and for the first time ever, Paw Patrol debuted on Netflix in the U.S. This July, following a successful run of Rubble and Crew on the streaming platform. Earlier this year, digital games had a strong quarter with double-digit growth and an engaged player network with 58 million active users over the past year. We've taken steps to focus on the strengths of our anchor platforms, Toca Boca, World, and Picnic. As such, we've made the strategic decision to pivot our focus away from Toca Boca Days to double down on accelerating Toca Boca World. Building social multiplayer experience within the Toca Boca universe has provided us with valuable insights. We are now leveraging those learnings and tech we've developed to future-proof the Toca Boca franchise.

Revenue streams across our 3, creative centers, and we've only just begun to truly capitalize on our deep catalogue of content Brands and gaining platforms.

Jonathan Reuter: Thank you, Christina, and good morning, everyone. This quarter's performance highlights the strength and resilience of our diversified portfolio across all three creative centers. We delivered revenue of over $400 million in the quarter during this complicated and challenging macroeconomic environment, bringing our year-to-date growth rate above 4%. Importantly, we delivered solid performance within our total addressable market, gaining or holding market share across the majority of our toy revenue base, and continuing to build momentum in our digital games business. Adjusted gross profit was $210 million, down $13.8 million year over year, reflecting a lower toy revenue due to the temporary slowdown in US retail orders early in the quarter, partially offset by growth in the digital games segment. Adjusted gross margins declined 190 basis points, also driven by the performance of the toy segment, which I will elaborate on shortly.

We have potential to deliver long-term growth by fully harnessing cross creative Center collaboration. Staying grounded in consumer first mindset, and bringing Joy, through engaging, characters stories, digital world, and physical toys will ensure. We are a Mainstay in the lives of kids and families. Everywhere with that, I turn it over to Jonathan. Thank you, Christina, and good morning, everyone.

This quarter's performance, highlights, the strength and resilience of our Diversified portfolio. Across all 3 creative centers. We delivered revenue of over 400 million dollars in the quarter during this complicated and challenging macroeconomic environment.

Bring our Euro day, growth rate above 4%.

Importantly, we delivered solid performance within our total addressable Market gaining or holding market share across the majority of our toy Revenue base and continue to build momentum in our digital games business.

The adjusted gross profit was 210 million down 13.8 million year-over-year reflecting lower toy Revenue. Due to the temporary slowdown in US retailer. Retail orders early in the quarter partially offset by growth in the digital game segment.

Jonathan Reuter: Adjusted SG&A increased by $9.1 million to $196.6 million, or 49.1% of revenue due to investments in marketing, which is partly time-related, and higher selling expenses stemming from an increase in partner license brand sales. On a setting with higher expenses were real-life savings, reflecting ongoing cost synergies related to the acquisition of Melissa and Doug and distribution-driven operational efficiencies. Taken together, lower gross profit and these targeted investments contributed to adjusted EBITDA of $29 million as compared to $54 million in the prior year. Now, before providing an overview of our creative center's performance, I'll take a few moments to update you on the meaningful progress the team has made on optimizing our long-term cost of operating structure as we navigate through this dynamic environment. Beginning with Melissa and Doug, we have achieved our target run rate cost synergies ahead of plan.

Adjusted gross. Margins declined. 190 basis points also driven by the performance of the toy payment, which I will elaborate on shortly.

Adjusted sgna increased by 9.1 million to 196.6 million or 49.1% of Revenue, due to investments in marketing which is partly timing related and higher selling expenses. Stemming from an increase in partner licensed brand sales

Off-settings, higher expenses were realized, savings reflecting ongoing cost synergies related to the acquisition of Melissa and Doug and distribution-driven operational efficiency.

Taking them together, lower gross profit. These targeted investments contributed to adjusting the dock of $29 million as compared to $54 million in the prior year.

Now, before providing an overview of our creative settings, performance. I'll take a few moments to update you on the meaningful progress, the team has made

And optimizing our long-term costs and operating.

Structure as we navigate through this time.

Jonathan Reuter: The integration of Melissa and Doug continues to yield positive results, with over 5.6 million cost synergies realized in Q2, which now represents 26.5 million in annualized run rate cost synergies. In addition, significant progress was also made against our tariff mitigation plan. Shift. We expect Q3 to represent approximately 36% of our full-year GPS compared to 41% last year. Additionally, gross product sales were impacted by the timing of key planned ground reset, which shifted into the second half of the year. We estimate this had an impact of approximately $25 million in the quarter. Within our toy categories, we saw strong performance in preschool, infant/toddler, and plush categories, led by increases in Melissa and Doug and Miss Rachel, as well as solid growth in Wheels and Actions category, supported by increases in DreamWorks Dragons and DC.

Beginning, what milestones have we achieved in our target run rate costs and energies ahead of plan.

The integration of Muslim Doc continues to yield positive results, with over $5.6 million in cost synergies realized in Q2, which now represents an annualized run rate of $26.5 million in cost synergies.

In addition, significant progress was also made against our Tower of mitigation plan shift. We expect Q3 to represent approximately 36% of our full year GBS compared to 41% last year.

In additionally, gross product sales were impacted by the timing of key Planet ground reset, which shifted into the second half of the year.

We estimate. This has an impact of approximately 25 million in the quarter.

Within our toy category. As we saw strong performance in preschool, infant Toler and plush categories. Led by increases in Melissa and Doug and Miss Rachel.

As well as solid growth in wheels and actions category.

Jonathan Reuter: This offset by lower sales in our TIMDIs, Games and Puzzles, and Dolls Interactive and outdoor categories. Gross profit for toy segment declined year over year, reflecting lower revenue and decreasing gross margins. The margin pressure was driven by various factors, including higher sales allowances, which increased to 13.2% from 11.9% last year, as we supported our retail partners through heightened promotional activity to drive share. Additionally, product mix had an impact on our gross margin, as we strategically moved inventory into off-price and discount channels to meet retailer demand from onshore product availability. The decrease in toy gross profit, combined with higher SG&A, translated to toys' adjusted EBITDA loss in the quarter of $700,000 versus adjusted EBITDA income of $20.9 million in the prior year. In the digital games segment, we delivered strong growth, with revenue increasing 33% to $46.3 million.

Support supported by increases in DreamWorks Dragons and DC.

This offset.

This offset by lower sales and activities games and puzzles and Dolls interactive and outdoor categories.

Gross profit for twice a month declined year-over-year, reflecting lower revenue and a decrease in gross margins.

The margin pressure was driven by various factors including higher sales allowances.

Which increased to 13.2% from 11.9% last year.

as we supported our Retail Partners through high-end Pro promotional activity to drive share,

Additionally product mix had an impact on our gross margin. As we strategically moved inventory in the office and discount channels to meet retailer demand for onshore products availability.

Jonathan Reuter: This marks our third consecutive quarter of year-over-year growth, driven by higher in-game purchases in Tocoboca World and continued subscriber growth across our Picnic platform. We are beginning to see the benefits of the deliberate actions taken over the past year to sharpen our focus and concentrate resources on our two core platforms. In line with the strategy, we made a decision to pivot away from Toca Days, and as a result, recording an impairment charge of $16 million in the quarter. Over time, we plan to incorporate many of the Toca Days play features into Tocoboca World to strengthen the overall experience. Within Picnic, our efforts are centered on subscriber growth and retention, ending the quarter up from last year and sequentially to 479,000 subscribers.

The decrease in toy gross profit combined with higher scna translated to toys adjusted Eva laws, in the quarter of 700,000 versus adjusted, Eva income of 20.9 million in the prior year, in the digital game segment, we deliver strong growth with Revenue, increasing 33% to 46.3 million.

She needs to subscriber. Grows our picnic platform.

We are beginning to see the benefits of the deliberate actions taken over the past year to sharpen our focus and concentrate resources.

On 2 core platforms.

In line with the strategy, we made a decision to Pivot away from took a day. And as a result recorded impairment charge of 16 million in

A quarter.

Over time, you plan to incorporate many of the Toca dates Place features into took about Awards to strengthen the overall experience.

Within picnic our efforts are centered on subscriber growth and retention.

Jonathan Reuter: Adjusted operating income for digital games increased by $1.8 million, and margins declined slightly to 16.6% from 17% in the prior year, reflecting our successful ongoing investments in paid user acquisitions. We're encouraged by the momentum in digital games creative center, which reinforces our confidence in achieving stable to modest increases to sequential quarterly revenue in 2025, supported by continued investments and a growing user base in the second half of the year. Turning to entertainment, revenue decreased by $4.3 million to $32.1 million, driven by a lower distribution and licensing merchandise revenue. Entertainment adjusted operating incomes declined by $2.3 million to $17.7 million, with adjusted operating margins staying relatively flat at 55.1%. So, moving back to our consolidated results, during the quarter, we generated $26.1 million in operating cash flows. This was primarily driven by our continued focus on optimizing inventory levels.

Ending the quarter up from last year and sequentially to 479,000 subscribers.

It's just an operating income for digital games increased by 1.8 million.

And margins declined, slightly to 16.

To 6%.

17% in the prior year, reflecting our successful ongoing investments in paid user acquisitions.

We're encouraged by the momentum and digital dealers.

To create creative Center.

Which reinforces our confidence in achieving stable and modest increases to sequential quarterly Revenue in 2025 supported by continued Investments and a growing user base in the second half of the year.

Turning entertainment revenue decreased by $4.3 million to $32.1 million.

Driven by lower distribution and Licensing, merchandise Revenue.

Entertainment. Adjusted operating income declined.

2.3 million to 17.7 million with adjusted operating margins, ding, relatively flat at 55.1%.

So moving back to our Consolidated results during the quarter, we generate 26.1 million in operating cash flows.

Jonathan Reuter: As is typical, given the seasonal nature of our awarding capital cycle, the second quarter resulted in negative free cash flow of $15 million compared to negative $4 million in the prior year. The year-over-year change was a result of our planned investment in the entertainment segment, as we continue to advance development of the third Paw movie and new contest in Unicorn Academy. From a capital allocation perspective, we returned just under $19 million of capital to shareholders by way of our quarterly dividend and the continued execution of our MCIB. This brings our return of capital on an LTM basis to $96 million, while reducing our net debt by $60 million. So, in closing, we remain firmly focused on returning to a consistent profitable growth trajectory.

This was primarily driven by a continued. Focus on optimizing inventory levels.

As is typical.

Given the seasonal nature of our wooden Capital cycle, the second quarter resulted in negative free cash flow of 15 million compared to -4 million in the prior year.

The year-over-year change was a result of our planned investment in the entertainment segment as we continue to advance development of the third paw.

Put the movie and new content for unicorn Academy.

From a capital allocation perspective, we returned just under $19 million of capital to shareholders by way of our quarterly dividend and the continued execution of our NCIB.

Jonathan Reuter: As Christina explained, this will be accomplished through a deeper collaboration across our creative centers and maximizing the impact of our innovation, brands, and capabilities in the children's entertainment space. With in-house discipline in our execution, we aim to deliver an attractive total shareholder return. So, with that, operator, that ends the formal part of the call, and please open the line for questions.

This brings our return of capital on an LTM basis to 96 million while reducing our net debt by 60 million. So in closing, we make firmly focused on returning to consistent profitable, growth trajectory

As Christine explained, this will be accomplished through a deeper collaboration across our creative centers and maximizing. The impact of our Innovation Brands and capabilities in the Children's Entertainment space.

Within half discipline in our execution, we need to deliver an attractive total shareholder return.

So with that operator, that ends the formal part of the call and please open the line for questions.

Operator: Thank you very much. If you would like to ask a question, please signal by pressing star one on the telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, a reminder, press star one to ask a question. We'll take our first question from Andrew Lopez with TD Cowan. You may now begin.

Thank you very much.

If you would like to ask a question, please signal by pressing star 1 on the telephone keypad,

If you are using a speaker-phone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Again, a reminder press star 1 to ask a question.

Andrew Lopez: Thank you. Good morning. This is Andrew on for Brian Morrison. Maybe we can start with the Q2 '25 results. A lot of moving parts in the quarter. Your revenue performance was decent, but you had some additional costs on the toy segment. I'm wondering what is your view on the quarter and what should we read through in the back half of the year in terms of improving on these results?

We'll take our first question from Andrew Lopez with TD Cowen. You may now begin?

Thank you. Good morning. Uh, this is Andrew on to Brian Morrison, maybe we can start with the Q2 25 results. Uh, a lot of moving Parts in the quarter, your Revenue performance was decent, but you had some additional costs on the toy section.

Jonathan Reuter: Yeah, good morning, Andrew. Thank you. Thank you for the question. You know, let's start with the quarter, and then let's talk a little bit about the back half. You know, from the quarter perspective, from a top line, I think the team did a really strong job in light of kind of the larger macroeconomic environment. And you know, across almost every metric that I've seen, we've done really well. And whether that's growing faster than our peer set or whether that's taking share across the majority of our revenue base and growing fast, taking more share than our competitive landscape. So, I think from a revenue perspective, you know, proud of what the team did. Obviously, there was the backdrop of, in April, a real slowdown in FOB orders.

Honey, what is your view on the corner? And what should we read through in the back half of the year in terms of improving all these results?

Yeah, good morning Andrew. Thank you. Thank you for the question. Um, you know, let's start with the quarter and then let's talk a little bit about the back half.

You know from the quarter perspective uh from a top line, I think the team did a did a really, you know, strong job in in light of kind of the the larger macro.

Jonathan Reuter: If you recall back in April, there was a significant amount of tariffs coming out of China for China products into the US, and that certainly slowed down the order profile. You know, like a key metric that I've seen is there's like three or four weeks where really orders just were really slow. Another element is we saw some planogram resets take place later in the year. So, two of our larger retailers for about $25 million pushed their reset into October versus earlier in the fall, and that obviously shifts our revenue from a Q2 to an H2 story. So, actually, if you would just adjust for that $25 million, we had some pretty impressive growth, like 3%, 4% in the toy sector and toy segment. And versus the industry, I think that's pretty impressive. From a gross profit perspective, like we are leaning into taking share.

Uh, economic environment, and, you know, across almost every metric that I see. Uh, we've done really well, and whether that's, um, you know, growing faster than our peer set, or whether that's taking share, um, across the majority of our Revenue base and growing fast, and taking more share than our competitive landscape. So I think from a, from a revenue perspective, um, you know, proud of what the team did obviously there was the backdrop of um, in April, a real slowdown in fob orders. If you recall back in April, there was a significant amount of terrorists coming out of China for China products into the US and that's certain slow down the order profile.

you know, like a key metric that that I've seen is there's like 3 4 weeks where it really orders just like

We're really slow. Um, another element is we saw some planogram resets take place later in the year. So, uh, two of our larger retailers, for about $25 million, pushed the reset into October versus earlier in the fall, and that obviously shifts our revenue from a Q2 to an H2 story. So actually, if you would just adjust for that $25 million, we had some pretty impressive growth, like 3 to 4 percent in the toy sector and in the toy segment, and versus the industry, I think that's pretty impressive.

Jonathan Reuter: I mean, you see it in our results. And so, we were comfortable investing in selling in as well as selling through the product. And so, there was obviously some, you know, pressure or decline in our gross margin as a result of that. That was a conscious choice, as taking share is something that's really important to Christina and I and the larger management team. From a cost perspective, you know, our cost came in versus last year higher, obviously from an SG&A perspective, a consolidated level. I think you kind of have to break that into a different, you know, a few different categories. We provided like more than $10 million of cost reduction around our synergies, around our tariff mitigation plan. But we are investing in the business.

Um, from a gross profit perspective like we are leaning in to taking share. I mean, you see it in our results. And so we, we were comfortable investing in selling in

As well as selling through the product. And so, there was always be some, um, you know, pressure or decline in our gross margin as a result of that. But that was a conscious Choice, that's taking share or something. That's really important to Christine. And I in the larger management team,

From a cost perspective.

Um, you know, our cost came in uh, versus last year higher obviously, from an sg&a perspective. I think it's all the data level.

Jonathan Reuter: And so, we are investing in making sure we have the right product for the back half of the year in 2026. There was some increased marketing spend this quarter. And so, as a percentage of our net revenue, it's certainly higher, which when I shift to the back half, I'll talk a little to that. But a big portion, or at least a decent portion of that, was timing, timing related, in that we had a lower revenue base and we were supporting the POS in the quarter. We'll get the benefit of that spend in the back half of the year. So, like when you think about the quarter, like what I look at as top line, we took share, we made a conscious choice to sell in product and sell through product, and it's working. And that, you know, served us well into the future.

I think you kind of have to break that into a different CAD, you know, a few different categories. Um, we we we provided like more than 10 million dollars of cost reduction around our synergies around um our tariff mitigation plan. Um but we are investing in the business and so we are investing in making sure we have the right product for the back half of the year in 2026.

Um, there was uh, some increased marketing, spend this quarter. And so as a percentage of our net revenue, it's certainly higher which when I shift to the back half, I'll talk a little bit to that.

But a big portion or at least a decent portion of that was timing and timing related uh in that we had a lower Revenue base and we were supporting the PS in the quarter we'll get the benefits of that Span in the back half of the year.

Jonathan Reuter: And then from a cost perspective, there's a significant portion of that that was timing related, as we had a lower revenue base. So, then your second question is, you know, how did that go for the back half of the year? The back half of the year, we have amazing products. We have the right price points. You know, more than 50% on the toy side of our products are going to be below $20 in the most important holiday, you know, in our important holiday season, which is the most important part of our year. Our theatrical releases are, you know, doing incredibly well. How to Train Your Dragon, Melissa and Doug had a great Q2, and so we're going to keep working against that.

So, like, when you think about the quarter, like what I look at, as Top Line, we took share, we made a conscious choice to sell in product and sell through product, and it's working. And that's, you know, seriously as well into the future.

And then from a a cost perspective, there's a significant portion of that that was timing related as we had a lower Revenue base.

So then your second question is, you know, how does that vote for the back half of the year?

Jonathan Reuter: Monster Jam, Hatchimals, we have great products, great gains in market share in some of these categories, some of these product lines I just shared with you. So, from a top line, you know, we're focused on just continuing to gain share. That's our number one goal in a market that has a lot of uncertainty. And you know, that uncertainty ultimately can play out by a shift. So, there's a little bit of uncertainty in the market. That's, you know, a summary of kind of Q2, and I'll elaborate a little bit later on some questions on the back half of the year.

The back of the year. We have amazing products. We have the right price point, you know, more than 50% on the toy side of our products are going to be below, twenty dollars, uh, in in the most important holiday, you know, an important holiday season, which is the most important part of our year, um, our theatrical releases are, you know, doing incredibly well, how to train your dragon, Melissa, and Doug had a great, uh, Q2. And so, we're going to keep working against that. Um, Monster Jam hatchimals, we have great products, great gains in market share in some of these categories, some of these product lines. I just shared with you. So from a top line, you know, we're focused on just continuing to gain share. That's our number 1 goal in a market that has a lot of uncertainty.

And you know that uncertainty ultimately can play out um by a so it's a little bit of uncertainty in, in the market.

Andrew Lopez: Thank you. That's great color. And then just maybe as a follow-up, recognizing that the tariff situation remains fluid, but with all the action taken to date in respect to tariffs, just wondering if you're able to quantify maybe the direct and indirect expenses you anticipate you may be able to recover in 2026.

That's, you know, a summary of kind of, uh, Q2, and, you know, I'll elaborate a little bit later on some questions on the back half of the year.

Jonathan Reuter: Sure. So, you know, when you think of tariffs, you've got to think of two functions. There's the actual tariff cost, and then there's the, you know, change in retailer behavior and obviously how the consumer behaves. Just to, you know, elaborate a little bit on those, the retailer has made a change in how they're buying. So, you know that the majority of our business was and continues to be an FOB, but DOM is becoming much more important as retailers are, if you will, delaying their purchases and relying more on onshore replenishment than they've historically done. So, that's an element that will affect our volume. And that will lead to destocking, ultimately. Like one way to think about it is it'll lead to destocking in the industry as they have that shift from FOB to DOM, as well as they're being more conscious to their inventory levels.

No, thank you. That's, that's great color. And then just maybe as a follow-up um, recognizing that, that the Tariff situation remains fluid but with all the action taken to date in respect to tariffs, just wondering if you're able to quantify um maybe the direct and indirect expenses, you anticipate, uh you may be able to recover in 2026.

Sure. So, you know, when you think of terrorists, we got to think of 2, 2 2 functions. There's the actual tariff costs.

and then there's the, you know, change in retail or behavior and obviously the the consumer behaves

Um, just to, you know, elaborate a little bit on, on, on, on those. Um, the retailer has made a change and how they're buying. So, you know, that the majority of our business.

Was and it continues to be uh uh an fob. But Dom is becoming much more important has retailers. Are are delay. If you will, um,

Um, delaying their purchases, and we're we're, um, relying more on, on, on on Shore replenishment than, than than the historically done. So that that's an element that will affect our volume.

Jonathan Reuter: The second element is the consumer. You know, we took share in H1. Our H1 POS per secana in our TAM was essentially flat. So, you know, Q2 was very high. That's when the Easter period was. Q1 was, from a POS perspective, lower. And so, it was essentially flat. But it was, but that was higher than the industry. The industry was negative one. So, how the consumer reacts on the back half of the year, I think that's still question marks, as there could just be less dollars available for them as they're working through potentially higher prices across our large basket of goods, not just on the toy side. Then there's the actual costs themselves. And so, from a cost, you know, we can quantify, you know, the cost, and then we have offsetting price.

And, and that will lead to be stalking, ultimately, like, 1 way to think about is the elite to be stalking. Um, in the industry as they have that shift from fob to Dawn, as well as if they're being more conscious to their inventory levels.

In H1 our H1 PS pyrana. In our Tam was essentially flat and so, you know, Q2 was very high that's when the Easter period was q1 was, um, from a perspective lower. And so it's essentially flat but it was

But that was higher than the industry. The industry was negative 1.

So, how the consumer reacts on the back, half of the year, I think that's still question marks is there could just be less dollars available for them. As they're working through potentially higher prices across the large basket of goods, not just on the toy side.

Jonathan Reuter: We're essentially recovering like 80% to 85% of the actual cost with price in the near term. And then in the longer term, we're going to fix that through our mix. We're going to address it through the products that we bring out to the market and ensuring we have to continue to have the right mix. Now, in overall like dollars, because that was your question, you know, I think you can think about it this way. Like for the full year, if I over, like, you know, put everything together, tariffs probably have an effect of about $90 million. And we have cost savings that we put in place, and including Melissa and Doug synergies, of about 60, 65 million.

Um then there's the actual cost themselves and and so from a cost uh you know, we can quantify, you know, the cost and then we have offsetting price we're essentially recovering like 80 to 85% of the actual cost with price in the near term and then the longer term it's we're going to fix that through our mix. We're going to address it through the products that we bring out to the market and ensuring that we have to continue to have the right mix.

Now an overall like dollars because that was your question. You know. I think you can think about it this way like for the full year. If I over like you know put everything together

Terrorists probably have an effect of about $90 million.

And we have cost savings that we put in place um and including Melissa and Doug synergies with about 60 65 million.

Andrew Lopez: Okay, that's great. Okay, that's all for me. I'll jump back through the queue. Appreciate the color.

That's great. Um, okay, that's all for me. I'll jump back into the queue. I appreciate the, uh, the color.

Operator: Thank you. Our next question comes from Martin Landry with Stifle. You may now begin.

Martin Landry: Hi, good morning, Christina and Jonathan. My first question, I'm trying to understand where, you know, Q3 and Q4 will land. It sounds like there's a lot of timing-related issues. Jonathan, you talked about some retailers shifting their purchases from FOB to domestic, delaying revenue recognition, planning ground resets delays. This sounds like it's all delays and shifts. So, I'm wondering, you know, I understand you don't have any guidance. You haven't restated your guidance. But, you know, help us understand a little bit where you could land in terms of revenues for Q3. Like, is there a potential for you guys to go back into a growth mode in terms of revenues on a year-over-year basis for Q3?

Thank you. Our next question comes from Martin Landry with stifle. You may now begin

Jonathan Reuter: Thank you, Martin. Let me take a step back. So, you know, we have three creative centers in our business. Obviously, I'll come to talk to toys, the largest, but let me talk about the two others first, just to help give you a little bit more information. From a digital games perspective, you know, our focus, I think it's about 12 months, or the last 12 months has been to really focus down on these two platforms. You've seen Christina and I, we're here for about 90 days, and we've already made some decisions around ensuring that we were getting the right return of capital on investments that we made. And that was the decision around, you know, that drove it, took a day's decision. It's working, right? We had double-digit growth, and we expect that double-digit growth to continue in the back half of the year in digital.

Um, my my my first question, uh, I'm I'm trying to understand where, um, you know, Q3 and Q4 will land. It sounds like there's a lot of timing uh, related issues. Um, Jonathan, you talked about, um, some retailers, uh, shifting their uh, purchases uh, from FOB to domestic, delaying revenue recognition, um, Planet Ground resets, delays. Um, this sounds like it's all delays and shifts. Um, so I'm wondering, I'm trying, you know, I understand you don't have any guidance. Um, you haven't received your guidance, but, um, you know, like help us understand a little bit where you could land in terms of revenues for Q3. Like, is there a potential for you guys to go back into a growth mode in terms of um, revenues on a year-over-year basis for Q3?

Thank you, Martin.

Um let let me take a step back. So you know we have 3 creative centers in our in our, in our business. Um I'll I'll I'll see I'll come to talk to twice the largest but let me talk about the the 2 others first just to help, help give you a little bit more information.

From a digital games perspective. You know, our Focus I think it's about 12 months or the last 12 months has been to really focus down on these 2 platforms. You've seen Christine and I we're here for about 90 days and we've already made some decisions around um ensuring that we were getting the right return of capital on investments that we made and that was the decision around took it. You know that drove that took a day's decision.

Jonathan Reuter: On the entertainment side, essentially, we can, that's an easy business to model in year. And essentially, the year-over-year loss, I mean, it happened in H1. We can model that out, and you know, short of other factors taking place, it's a pretty stable business. So, then it comes down to the toy side. And you know, I think in my prepared remarks, we gave some kind of percentage of ultimately how that could look like from a GPS perspective. So, let me talk to you about more of an H2 as opposed to trying to get really specific in Q3. The two factors at play that we have to be thinking about, so we're not giving guidance, but it doesn't mean that we're not running our business.

It's working, right? We we had double digit growth and we expect that double digit growth to continue uh in the back half of the year in digital.

On the entertainment side, essentially we can that's an easy business to model in in your in essentially, the year-over-year loss. I mean, it happened in H1 I'm like look like we can we can model that out and you know short of other factors taking place it's pretty stable business. So then it comes down to the toy side and you know, I think in my prepared remarks, we gave some kind of percentage of of of ultimately how um that could look like from a GPS perspective. So let me talk to you about more of an H2 as opposed to trying to get really specific in Q3.

Jonathan Reuter: And when we're running our business around the inventory levels that we want to have, the promotional spends, et cetera, there are some assumptions that we're making. And I think there's two critical assumptions that we're making. Assumption number one is that based on what retailers have said publicly and based on how they've shifted their buying patterns, we do expect destocking and ultimately for them to be holding less inventory as they finish the year. That is predominantly a US event, but there's also some international at play there. And that's more kind of micro to us than necessary macro to the industry. So, that could be a significant number that destocks in kind of the $70 to $90 million range. From a POS perspective, again, H1, where we took share, we outperformed the market. And you know, that's per secana, publicly available information. It's clear we are outperforming.

The 2 factors at play that we have to um be thinking about. So we're not giving guidance, but doesn't mean that we're not running our business and when we're running our business around the inventory levels that we want to have the promotional spans Etc. There are some assumptions that we're making and I think there's 2 critical assumptions that we're making.

Assumption number 1 is that based on what retailers have said publicly and based on how they've shifted their buying patterns, we do expect these stocking and the like ultimately for them to be holding less inventory as they finish a year.

Um, that is predominantly a US event, but there's also some International, uh, at play there, and that's more kind of micro to us and necessary, macro to the industry.

So, that could be a significant number that these stocks and kind of the $70 million to $90 million range.

Jonathan Reuter: We're doing, we're very proud of the performance we've done versus the market. We are aware that the consumer could be more stressed in H2, and there could be some negative POS pressure. That being said, because our inventory is onshore, because we have the ability to quickly respond, and because we have phenomenal products, and because 50% of our products are below $20, we are ready to replenish and resell the pipeline as we sell through the product. And that's what we're focused on, is selling the product through the retailers in the back half of the year.

Outperform the market. Um, and, and if you know, that's for sir, can publicly available information? It's clear. We are outperforming, we're we're doing, we're very proud of the performance, we're done versus the market. Um, we we are, uh, aware that the consumer could be more stressed in H2 and there could be some negative, uh, uh, POS pressure. Uh, that being said because our inventory is on shore.

We because we have the ability to quickly respond and because we have phenomenal products and because 50% of our products are below the twenty dollars, um, we are ready to replenish and refill, uh, the pipeline as we sell through the product. And that's what we're focused on is selling the product through the retailers in the back after the year,

Martin Landry: Okay. And maybe just a follow-up. You touched on destocking by retailers, and you say that this could be a headwind of $70 to $90 million. You know, as of the end of Q2, you know, can you talk a little bit about your inventory levels, both at your warehouses and at retailers? Are they elevated? Are they in line with historical levels? Any color would be great.

Jonathan Reuter: Sure. Well, you see in our financials, actually, they're lower than last year. I mean, one of the things that we did take advantage of in Q2 is looking at our inventory position onshore in the US and saying, hey, what products do we have that ultimately could fill shelf space and even gain additional shelf space and additional doors in the market? So, from an inventory position, you know, we're incredibly, you know, we're well positioned coming out of Q2. It really served us well, quite frankly, our inventory position around Prime because we had a very, very, you know, we're very pleased with our Prime performance. We again took share in Prime and outperformed the market. So, from a kind of underlying performance, we continue to take share, we continue to outperform the market.

Okay. Uh and and maybe um just a just a follow up uh you touched on uh the stocking um by retailers and you say that this could be a headwind of 70 to 90 million dollars, get, you know, as, as of the end of Q2, um, you know, can can you talk a little bit about your inventory levels both, um, at your warehouses and uh, at retailers? Are they elevated? Are they in line with historical levels. Any color would be great.

Jonathan Reuter: And from an inventory position, you see in our results, we're well positioned and we're planning to be well positioned in the back half of the year. And then lastly, from a retailer perspective, you know, they are having lower inventory levels, which has obviously some near-term transitionary period for us. But as we head into 2026, that really only becomes upside.

Sure. Well, you see in our, in our financials actually, they're they're lower than last year. I mean, 1 of the, the the things that we did take advantage of in Q2 is, um, looking at our inventory position on Shore in the US and saying, hey, what products do we have? That ultimately could fill, um, shell space and even gain, uh, additional, uh, shell space and different additional doors, um, in the market. So, um, from an inventory position, we're, you know, we're incredibly, you know, we're well positioned, uh, coming out of Q2 it, it really served us. Well, quite frankly, um, our inventory position around Prime, um, because we had a very, very, you know, we're very pleased with our Prime performance. We we again took share in Prime, um, and outperformed the market. So from a kind of underlying performance, we continue to take share. We continue to outperform the market and from an inventory position, where you see in our results. Well position, and we're planning to be well,

positioned in the back, half of the year and then lastly, um, and then lastly, from a retailer perspective, you know, they I

Christina Miller: And Martin, as you may remember, when you were at one of our investor days, we talked about growing and expanding in the value channel. So, we've done that as well. In the last 12 months, we really penetrated that channel to add extra distribution across our product lines, and we're seeing growth there as well.

They are having lower inventory levels, which has obviously some near-term um uh transitionary period for us. But as we head into 2026 that really only comes upside

And Martin, as you may remember, when you were at 1 of our investor days, we talked about growing and expanding in the value channel. So we've done that as well. In the last 12 months, we really penetrated that channel to add extra distribution across our product lines, and we're seeing growth there as well.

Andrew Lopez: Thank you for the caller. Best of luck.

Perfect. Thank you for the caller. Best of luck.

Operator: Thank you. Our next question comes from Adam Schein with National Bank Financial. You may now begin. Okay, thanks a lot. Let's hope this is the worst quarter you two ever have to report.

Thank you. Our next question comes from, Adam Schein with National Bank Financial. You may now begin

Christina Miller: Thank you. You, Adam, as well.

Operator: But you know, all kidding aside, I mean, Jonathan, this is another example with the stock having dropped, you know, as much as 18%. You know, just another example of, you know, maybe some better communication around the quarter, around the quarter, especially when, you know, there are certain moves and actions being taken by the company. Because the surprise here in terms of the EBITDA pressure is more in terms of, you know, the added marketing spend. And again, you know, a lot of this conversation goes back to timing, right? Timing of spend on costs and timing of some of the top lines. So, if I could just start with, I know we're not going to get much guidance out of you, but I was surprised that you said 36% GPS contribution in Q3.

Okay, thanks a lot, let's hope. Uh this is the worst quarter you too uh ever have to report. Um the uh well thank you you out and as well.

Um, but you know, all kidding, aside, I mean, Jonathan, this is another example with the stock having dropped, you know, as much as 18%. Uh, so just another example of, you know, maybe some better communication around the quarter, uh, around the quarter, especially when you know, there are certain moves and actions being taken by the company. Because

Operator: And so, it then begs the question, you know, do you guys think you're going to deliver growth for the year in GPS and total revenue? Maybe I'll start there.

The surprise here in terms of the epidural pressure is more in terms of, you know the added marketing spent and again you know a lot of this conversation goes back to timing right timing of spend on cost the timing of some of the top lines. So if if I could just start with I know we're not going to get much guidance out of you but I was surprised that you said 36% GPS contribution in Q3. And so it then begs the question.

Um, you know, do you guys think you're going to deliver growth for the year in GPS and total revenue?

Jonathan Reuter: Well, lots to, I'm taking in there, Adam. I appreciate the color. So, you know, this year, this year is certainly a transitory year. And I think, you know, by explaining that destocking and explaining that even though we are taking share and even though that we are outperforming the market, that the TAM in which we're playing, you would suggest that ultimately, no, there would not be growth this year if you take those two comments together. So, I think that's been pretty, you know, transparent. And, you know, when you hear your frustration and understand it, and I think that's what Christina and I and the management team are working towards around, you know, ensuring that we have a very clear story, very transparent in terms of how we see the performance, which I think you're seeing some pretty transparent words that we're using.

Maybe I'll start there.

Well, I'll have to, uh, lots of, uh, take in there. I do appreciate the, uh, the color. Um, so, you know, this year, uh, this, this yearly is a transitory year, and I think, you know, by explaining that, this stalking and explaining that even though we are taking share and even though we are, um, outperforming the market, that the TAM in which we're playing, um,

Parent. Yeah. Um

Jonathan Reuter: And then there's also improving the execution and bringing us back to profitable growth. I mean, in my prepared remarks, the words were there. We're going to go back to profitable growth. So, we were very clear that this year that is not happening. And it's not happening because of factors that are, you know, wider macroeconomic events that we're doing an, I believe, an exceptional job of navigating through. The areas that are not affected by tariffs are doing well. Europe is an example, digital games. And, you know, the tariffs ultimately are transitory. I mean, we have to work through it. We still don't know the official rate yet for one of our larger manufacturing hubs. But once we have that and once there's, you know, clarity, then we can start executing against our plan.

And you know, you know, when when cure your frustration and and and understand it, and I think that's what Christine and I and the management team are are, are working towards around, um, you know, ensuring that we have a, you know, very clear story uh very transparent in terms of um how we see the performance, which I think you're seeing some some pretty transparent um, words that we're using.

Jonathan Reuter: And ultimately, we're turning back to that profitable growth that all of us want to and are striving to achieve. And it comes from investing in the innovation engine of this company. You know, we have a phenomenal brand.

Operator: Yeah. I think, look, I think with a new CEO, new CFO, this was, you know, destined to be a pseudo kitchen sink quarter, so to speak. But I hear you on the GPS, and that's helpful. If I can then just unpack the disclosure around the, you know, 90 million of tariffs and then more specifically the cost savings of $66 million. So, you know, a few months back, you know, we had heard that the company was pursuing about $100 billion in OpEx savings combined with some CapEx deferrals to get to about, you know, $100 billion of cash flow savings. So, if we dig that into the $66 million, which sounded like it was specifically OpEx related, as you said, Jonathan, like how much are you leading in on that Melissa and Doug stuff, which to me is, you know, in the past?

And then there's also uh, you know, improving the execution and bringing us back to profitable growth. I mean, in my prepared remarks, the words were there, we're going to go back to profitable growth. So we were very clear that this year, um, that is not happening and it's not happening because of factors that are, you know, wider macroeconomic events, um, that we're doing an, I I believe an exceptional job of navigating through the the areas that are not effective by terrorists are doing well in Europe as an example, digital games. And, but, you know, the terrorists, ultimately are transitory. I mean, we, we have to work through it. Uh, we still don't know the official rate yet for 1 of our larger, um, 1 of our larger, uh, manufacturing hubs. Um, but once we have that and once there's, you know, Clarity, then we can start executing against the against against against our plan and, and, and ultimately returning back to that profitable growth that that all of us want to and are striving to to achieve. And and and it comes from investing in The Innovation engine of this company, you know, we have phenomenal Brands. Yeah.

I think, I think, look, I think, uh, with a new Co do CFO. This was, you know, destined to be a pseudo kitchen sink quarter. Uh, so to speak, but I, I hear you, I hear you on the GPS. Um, that's helpful. If I can then just unpack the disclosure around the, um, you know, 90 million of tariffs. Um, and then more specifically, the cost Savings of 66 billion. So,

You know, a few months back. You know, we had heard that uh the company was pursuing about a hundred billion dollars in Opex. Savings combined with some capex deferrals to get to about, you know, a hundred million dollars of uh of cash flow savings. So if we if we dig that into the 66 million which sounded like it was specifically Opex related, as you said Jonathan um

Operator: Because I would have thought that pursuant to those prior disclosures that, you know, you would have had about $60 million of OpEx alone through mitigation activities to deal with the tariffs. So, maybe help if we're still on track with those prior disclosures.

Like, how much are you leading in on that Melissa and Doug stuff? Which to me is, you know, in the past, um,

Because I would have thought that pursuing to those prior disclosures that, you know, you would have had about 60 billion dollars of Opex alone through mitigation activities, uh, to deal with, with the tariffs. So

Jonathan Reuter: Yeah, and I mean, there's an example of disclosure that lends itself to confusion, right? Because cash savings, I mean, I don't, that can be interpreted myself. So, I was very clear on my prepared remarks again about this kind of clarity and, you know, OpEx and CapEx. And let me give you a little, and I give you a range, I think 80 to 90 million. And let me be even more clear, you know, about two-thirds of that is OpEx, about a third of that is CapEx. So, that kind of gives you the tariff mitigation savings. And then year over year, I mean, the team has done a phenomenal job of integrating Melissa and Doug way ahead of plan, right? We've hit our run rate synergies this quarter. So, year over year, we have about 12 million-ish of Melissa and Doug.

Maybe help if we're still on track with those prior disclosures.

Yeah, and I mean, there's an example of disclosure that

Lends itself to confusion, right? Because cash savings... I mean, I don't know that can be interpreted.

So I was very clear on my prepare remarks again about this kind of clarity and, you know, Opex and capex. And let me give you a little and I gave you a range. I think 80 to 90 million.

And let me be even more clear, you know, about 2/3 of that is Opex about a third of that is capex.

Jonathan Reuter: And then the rest is the two-thirds of the 80 to 90 range that I gave you. So, you know, that's where the savings come from. It's a mixture of, you know, looking at what we're doing and saying, are we getting the economic return? Are we getting a proper return on invested capital on these activities? If we are, let's keep doing it. If we're not, let's discuss whether we can. And if we don't think we can, let's stop doing it. And that's, you know, that's the activities the team is doing. And you saw it within, again, 90 days, a decision around took a day. And so, there's more of that that obviously Christina and I are going to go do as we look at our investment portfolio and ensuring that whatever dollars that we put into the business, we're getting an attractive return.

Um, so that kind of gives you uh the Tariff mitigation savings and then year-over-year. I mean the team has done a phenomenal job of integrating most of the Doug way ahead of plan. Um right we've hit our run rate, synergies, this quarter so year over year we have about 12 million, ish of Melissa and Doug. And then the rest, um, is the 2/3 of the 80 to 90 range that I gave you.

uh,

so, so

You know, that that's where the the savings come from. It's it's a mixture of um, you know, looking at what we're doing and saying, are we getting the economic return? Are we getting a proper return on invested capital on these activities? If we are, let's keep doing it. If we're not, let's discuss whether we can. And if we don't think we can, let's stop doing it. And that's, you know, that's the activities, the team is doing and you saw it within again, 90 days a decision around to a good days. Um, and so there's more of that. That obviously, Christina are going to go do as as we look at our Investment Portfolio and ensuring that, we're every dollars that we put into

Operator: Okay, well, thank you for that. And I'll queue up again. Thanks. Thank you. Our next question comes from Kylie Kohou with Jefferies. You may now begin.

The business, we're getting an attractive return.

Okay, no, thank you for that. And uh, I'll I'll cue up again. Thanks.

Kylie Kohou: Hey, good morning, and thanks for taking my question. I guess this one's more so for Christina, but I was just kind of curious if you could expand on your pricing actions. How much price have you taken so far? Can we expect you to take more price, and when will that be hitting shelves? Thank you.

Thank you. Our next question comes from Kylie cohu with Jeffrey's. You may not be

Jonathan Reuter: I'll jump in, and then Christina could add some more color, maybe just on the, you know, the back half of some of the great products that we have around, you know, the H2. From a pricing perspective, you know, I think what I shared is that we were able to, you know, ensuring that our customers and our consumer, more importantly, our consumers have a great offering. That is our number one goal at really competitive prices. And so, remember, you know, by looking at price, but then also managing mix, more than 50% of our SKU base in H2, in the, you know, the highest propensity to spend period will be below $20. We did take some selective pricing actions that will be reflected, obviously, in retail prices, and those happened early in Q3.

Hey, good morning, and thanks for taking my question. I guess this was more, so for Christina, but I was just kind of curious. If you could expand on your pricing actions. How much price have you taken so far? Uh, can we expect you to take more price? And when will that be hitting shelves? Thank you.

Have around, um, you know, the HT.

um from a pricing perspective, you know, I think what I shared is that um,

We were able to to to you know, ensuring that our customers and our consumer more importantly, our consumers have a great offering that is our number 1 goal um at really competitive prices. And so remember our you know, by by by looking at price but then also managing mix more than 50% of our SKU base in H2 in the, you know, the highest, um, propensity to spend period will be below, twenty dollars.

Jonathan Reuter: And they represent probably about, if you remember when I explained tariffs, there's the actual tariff cost, and then there's the volume aspect, and that was how we got to that larger number. But a much smaller portion of that is just the tariffs, and we were capturing about 80, 85% of the increased cost. So, from a kind of positioning perspective, we're well suited from additional prices. We're going to really focus and lean in on mix in 2026 as opposed to pricing. But we're really well positioned, and maybe Christina, you just want to talk a little bit about.

Um, we did take some selective pricing actions. Um, that will be reflected though, in in in in in, in in retail prices and those happen early in Q3. Um, and they represent probably about

If you remember, when I explained terrorists, there's, um, the actual tariff costs and then there's the volume aspect and that was how we got out to the that larger number but a much smaller portion of that is just the tariffs and we were capturing about 80 85% of uh the increase cost.

Christina Miller: Well, I think you hit the major note, Jonathan, on that. We're really looking at the pricing mix and having across our portfolio about 50% of our products be under that $20 price point. In addition to that, we have some really great products to be excited about coming to market across all our major brands: Paw Patrol, Gabby's Dollhouse, Miss Rachel, Monster Jam, and then, you know, rebuilding Gund. There's a lot of great stuff coming. So, I think across Melissa and Doug as well. So, we're confident in our product pipeline and our innovation that we're delivering to retail this fourth quarter or through the back half of the year in total. And like I said, it's mostly about making sure we have the right pricing mix across the category, and we feel like we're going into the second half with that well in hand.

So from a kind of position perspective, we're we're um, we're Well Suited from additional prices. Um, we we're going to really focus and lean in on mix in 2026 as opposed to pricing. Um, and but we're really well positioned and maybe Christina. You just want to talk a little bit about. Well, I think you hit the major note Jonathan on that. We're really looking at the pricing mix and having across our portfolio about 50% of our products being

Under that twenty dollar price point, in addition to that, we have some really great products to be excited about coming to market across. All our Major Brands, Paw Patrol Gabby's dollhouse. Miss Rachel.

Jonathan Reuter: Yeah, and if I can look even further out, 2026, you know, first of all, we won't have that headwind of the destocking. In fact, depending on how retailers behave, it could actually be a tailwind. And we have, you know, as you know, the Paw Patrol movie is coming out, Paw 3, a dinosaur focus. We're going to see, we're really excited about kind of the early cuts that we've seen and ultimately what that's going to happen from a toy and a merchandising perspective. There's some great new products coming out in Gund. Hexbox, we're really excited with the innovation that we're seeing. Monster Jam, I mean, the momentum is strong. And when I see the innovation that's coming out next year and that international and further international expansion, we're really excited. Obviously, Miss Rachel, the momentum is really strong.

Monster Jam and then you know, rebuilding gunned there's a lot of great stuff coming so I think across Melissa and Doug as well. So we're confident in our product Pipeline and our Innovation that we're delivering to retail this fourth quarter or through the back half of the year in total. And like I said, it's mostly about making sure we have the right pricing. Mix across the category and we feel like we're going into the second half with that with that well, in hand. Yeah. And if I can look even further out 2026, um, you know, first of all, we won't have that headwind at the desk talking, in fact, depending how retailers behave, it could actually be a Tailwind. Um, and we have, you know, as you know, the, the PAW Patrol movies coming out the Paw 3, the dinosaur Focus, we're going to see, we're really excited about kind of the early cuts that we've seen. And ultimately what that's going to happen from a, a toy, and a merchandising perspective. Um, there's some great new products coming out in gunned. Um, hexbox were really excited with the Innovation that we're seeing.

Jonathan Reuter: So, when we look past even H2 into next year, you know, going back to, I think, Adam's question, we're very, you know, we are working towards returning to profitable growth, and we have all the building blocks in place to get us back there. And we, you know, that's where our focus is.

Kylie Kohou: Great. No, super helpful color. And then just one follow-up. I know you're lapping some Melissa and Doug inventory, but I was just wondering if you could talk a little bit more about your inventory composition, specifically bridging that year-over-year gap, especially in a time when your toy peers are seeing elevated inventory growth and more of the industry shift to that domestic inventory. Thanks.

Monster Jam. I mean the momentum is is strong and when I see the uh The Innovation that's coming out next year and and that International and further International expansion, we're really excited. Obviously Miss Rachel. The momentum is is really strong. So when we look past even H2, um, we into next year, you know, going back to to, I think Adam's question. Um, we're we're very, you know, we we are working towards returning to profitable growth and we have all the building blocks building blocks in place to to get us back there and we you know, that's where we're our focus is.

Great. Now super helpful color and then just 1 follow up.

Jonathan Reuter: Yeah, thanks for the question. I think this is, you know, I think this is one of kind of the, going back to even Adam's, like just being able to tell our story a little cleaner. I mean, we took share. We made a strategic decision to invest in selling in, and then once it's in, selling through. That is above the market. That leads to lower inventory. And that's why our inventory is down year over year as we made these kind of decisions. We open doors, we take more share, we take more space, and that positions us well for the following year. So, from an inventory position, I mean, you're seeing it like it all comes together. You're seeing our inventory fall in Q2 versus last year as we've been selling in product and selling through product.

Um, I know you're laughing. Some Melissa and Doug inventory, but I was just wondering if you could talk a little bit more about your inventory composition, specifically, bridging that year-over-year Gap, especially in the time when your toy peers are seeing elevated inventory growth and more of the industry shifts to that um, domestic inventory. Thanks.

Yeah, thanks for the question. I, I, I think this, you know,

um,

I think this is 1 of the kind of the

Going back to even atoms like, just being able to tell our story a little cleaner. I mean,

We took share. We made a strategic decision to invest in selling in. And then once it's in selling through, um,

That is above the market.

That leads to lower inventory. Um, and that's why our inventory is down year-over-year. As we made, these kind of decisions. We we, we opened doors, we take more share, we take more space and that positions, as well for the following, uh, for the following year. So from an inventory position. I mean, you're seeing it, like, it's all comes together. You're seeing our inventory fall in Q2 versus last year.

Jonathan Reuter: Now, the good news is in H2, our marketing spend will be much more in line with last year, perhaps even lower. Now, Q3, it was really low last year. So, I'm just saying from an H2 perspective, when you look, it'll be much more consistent this year than last year. And I expect that to come in as a lower percentage. And our sales allowances this year coming in the back, you know, the.Second

As we've been selling in product and selling through product. Now, the good news is in H2 our, our marketing spend, um, will be much more in line with last year, perhaps even lower, um, now Q3

Jonathan Reuter: half of the year, we'll continue to be, you know, focused on selling in product and making sure they're selling through. But ultimately, we would expect that our sales allowance will be roughly in line with last year's numbers as well.

Um, this year coming, um, in the back, you know, the the second half of the year, we'll continue to be, you know, focused on selling in product and making sure they're selling through. But ultimately, we would expect that, um, our sales allowance would be roughly in line with last year's numbers as well.

Rachel Smith: Awesome. Thank you so much.

Awesome. Thank you so much.

Operator: Thank you. Our next question comes from Ty Collin with CIBC. You may now begin.

Sophia Bisoukis: Hey, good morning. Thanks for the question. So I noticed in the supplemental slides relating to tariff mitigation that the previous specific targets you gave around Vietnam sourcing have been removed. I'm just wondering if there's been any shift in that sourcing strategy with some of the more recent tariff developments and if you could explain the reasoning behind that.

Thank you. Uh, our next question comes from Thai Colin with CIBC. You may now begin.

Jonathan Reuter: Yeah. No, look, going back to our mitigation plan, let's go through the four buckets. You know, bucket one, if you recall, you will recall, was around diversification out of China. The team has done, again, really strong work. Last year, on average, 64% of our US-based cost of goods sold was coming from China. And this year, we're going to finish at 37%. So it's a significant draw. Where is that going? A portion, a large portion, is going to Vietnam. And so we're setting up that production, and it's going incredibly smooth. In fact, some of the, there's some transitory costs that we're seeing, but ultimately, the underlying cost profile is as attractive or even more attractive than China.

Hey, good morning. Thanks for the question. So I noticed in the supplemental, slides related to tariff mitigation, uh, that the previous specific targets you gave around, Vietnam sourcing have been removed. I'm just wondering if there's been any shift in that sourcing strategy with some of the more recent tariff developments and if you could explain the, the reasoning behind that,

Yeah, um, no. Look, the Vietnam like...

You know, going back to our mitigation plan let's let's go through the 4 buckets, you know, bucket 1, if you recall, if you, you will recall was around diversification out of China.

Um, the the team has done again, really strong work last year.

The um, on average 54 64% of our us-based cost of goods sold was coming from China. And this year, we're going to finish at 37

Um, so it's a significant drop.

Jonathan Reuter: Now, there are products that we can't take just to Vietnam and have to remain in China just because of the sheer infrastructure around those technical products remain in that country versus Vietnam. But we are diversifying out our base. We have important operations in India, important sourcing out of India, Indonesia, even Europe. So it has a kind of a broad base. That was the first element of our tariff mitigation plan. The second element was optimizing the supply chain. You've seen it in Q2 where we took advantage of the inventory that we had within the US. And secondly, we've also been able to mitigate the actual tariffs by changing the mechanics of how we sell. And those are kind of well-documented around first sales, et cetera. So that's a huge, that's another important lever. The third lever was the pricing actions, which I've elaborated on already.

Where is that going? Um a a portion a large portion is going to be in them. Um, and so we're setting up uh those that production and it's going incredibly smooth. In fact some of the the there's some transitory costs that we're seeing But ultimately the underlying cost profile is as, or look as attractive or even more attractive. Um, for than than China. Now, there are products that we can't take just to, to, to Vietnam and have to remain in in China. Just because of the, you know, the sheer um, the infrastructure around, uh,

Those technical products remain in that country versus, uh, versus Vietnam. But we are diversifying out, uh, our, our base. We have, you know, important operations in India, important sourcing of India, Indonesia, even Europe. Um, so it has a kind of a broad base that, that was the first element of our tariff mitigation plan. The second element was being, you know, optimizing the supply chain. Um, you've seen it in Q2 where we took advantage of the inventory that we had uh,

Within within within, uh, the US and and secondly, that we, we've also been able to mitigate, uh, the actual tariffs by like changing, um, the mechanics of how we sell. And, you know, those are kind of well, documented around first sales, Etc. So you know, that's a huge. Um, that's another important lever.

Jonathan Reuter: And then the fourth lever was the savings, which essentially is, you know, on the top end of the range, is essentially the same number that was given before, but now I've been able to specify what's OPEX and what's CAPEX. So from a tariff mitigation plan, you know, again, the team is executing on what they said they would do.

The third lever was, uh, the the the the the pricing actions, which I've elaborated on already and then the fourth layer lever was a savings. Which is essentially is, you know, on the top end of the range is, is essentially the same number that was given before. But now I've been able to, to specify what's Opex and what's capex.

Sophia Bisoukis: OK, great. Thanks. That's very clear. And then, Jonathan, with respect to the NCIB, you're about three quarters through it at this point. It looks like you've continued buying back stock through Q2 and into July. I guess, what's your thinking around buybacks for the balance of the year? And do you think you're in a position to fully execute on the NCIB, assuming, of course, that your shares remain cheap and attractive?

So from a tariff medication plan. Um you know again the team is executing on what they said they would do.

Okay, great. Thanks. That's very clear. And then uh, Jonathan with respect to the ncib. You're about 3/4 through it at this point. Looks like you've continued buying back stock, uh, through Q2 and, and into July, I, I guess. What's your thinking around BuyBacks for the balance of the year and, and do you think you're in a position to fully execute on the ncib? Um, assuming of course, that your your shares remain cheap and attractive

Jonathan Reuter: Well, we always think that they're undervalued. Let me raise that up a little bit to kind of capital allocation, if I can, and obviously kind of address your specific question. You know, our view, my view, and our collective view here around capital allocation is as follows. You know, the first is that we are committed to investing in the business. We're committed from an OPEX perspective and from a CAPEX perspective. I think Christine and I are incredibly committed to ensuring that we're getting the right return on those investment dollars. And you've already seen actions that we've taken. And that's kind of the lens in which we see the world. And so it begins with investing in the business and being very clear on what kind of returns we want to get when we invest in the business.

Well, we always think that they're undervalued. Um Let Me Take A, let me let me raise that up a little bit to kind of capital occasion if I can and obviously kind of address your your specific question.

Um, you know, our view, my view and our Collective view here around Capitol occasions as well. You know, the first is that we are committed to investing in the business.

We're committed from an Opex perspective and from a capex perspective.

Jonathan Reuter: You know, the second element is returning capital to shareholders. If I look at the LTM, we've essentially brought back over $100 million to shareholders, both through the quarterly dividend and through the NCIB, which is your question. I'll address it, as well as paid down debt by $60 million. So this is a, you know, maybe one thing that's misunderstood about this business is that we do generate a lot of cash, even after the investments that we make back into the business. And we return it to our shareholders. I'll finish, and then I'll come back to the NCIB. Lastly, M&A continues to be an important factor of how this business has grown. You know, this is a 30-year-old business that essentially has over $2 billion of revenue. M&A has played a role in that.

I think Christina and I are incredibly committed to ensuring that we're getting the right return on those Investments and you've already seen actions that we've taken and that's kind of the, the, the the, the the lens in which we we we see the world and so it begins with investing in the business and being very clear on what kind of returns we want to get when we invest in the business.

You know, the second element is returning Capital to shareholders. Um, if I look at the LTM, we've essentially given, you know brought back over a hundred million dollars to shareholders both through the quarterly dividend and through the ncib, which is your question. I'll address it.

Um, even after the investments that we make back in the business and we return it to our shareholders.

Jonathan Reuter: We're looking on the toy side to continue to supplement the product categories that we're in, as well as enter new categories that have potentially higher growth. And then on the digital side, continue to build out the capabilities that we have across our two platforms. So specifically in regards to the NCIB, we believe in a capital allocation that is disciplined, that you can model, and that is repeatable and predictable. And so if we're active in the, if we issue an NCIB, it means that we're going to execute against the NCIB. That's the reputation that we want to have.

With regards, I'll finish. And then I'll come back to answer me. Um, you know, lastly, uh, m&a continues to be an important factor of of how this business has grown. You know, this is a a 30-year-old business that essentially, you know, it's over 2 billion dollars of Revenue. M&a has played a role in, in, in that, um, we're looking on the toy side to continue to supplement. Um, the product categories that we're in, as well as enter new categories that have potentially higher growth.

And then on the digital side continue to build out the capabilities that we have across our 2 platforms.

so, specifically, regards to the ncib, um,

Sophia Bisoukis: OK, that's great. And Jonathan, if I could just sneak in one more quick one. I appreciate that you guys obviously didn't reintroduce the guidance this quarter, given that you both only started within the last few months. But is that something that you're aiming or planning to do during the Q3?

We uh, believe in in, in capital allocation, that is discipline, um, that you can model and that is um, repeatable and predictable. And so if we're active in the, if we issue an ncib, it means that we going to execute against the NCB. That's the reputation that we want to have.

Okay, that's great. And Jonathan if I could just sneak in 1 more quick 1, I I appreciate that. You guys obviously didn't reintroduce the guidance this quarter. Um given that that you both only started within the last few months. Uh but is that something that you're aiming or planning to do during the Q3,

Jonathan Reuter: Let's cross that bridge when we get there. I mean, there's three factors as to why we chose not to. It's not that we're not, it's not because we're new. There's three factors. You know, factor one is the actual tariffs, what's happening. Factor two is, can we get a good sense of how retailers are behaving or buying patterns, excuse me. And then the third is how the consumer is going to react. Like on the first one, you know, we're probably a week away from having some clarity, right? I think there's one last big country. And that should be hopefully resolved in the coming weeks.

Let's look let's um Let's cross that bridge when we get there I mean there's 3 factors as to why we chose not to. It's not that we're not, it's not because we're new, there's 3 factors, you know, Factor, 1 is the actual terrorist what's happening Factor 2 is can't can we get a good sense of how retailers are behaving?

Jonathan Reuter: And then as we start getting comfortable that we can understand the change in DOM and FOB and the implications, as well as how the consumer is reacting to whether there is or isn't inflationary in the wider kind of basket of their goods, that's when we would make the decision as to come back. So I don't want to call it a date, but those are the three factors that held back being able to make our decision not to give guidance, reinstate guidance this quarter.

Sophia Bisoukis: Got it. Thanks.

Um, or buying patterns, excuse me. And then the third is how the consumer is going to react. Like, on the first 1. You know, we're probably a week away from having some clarity, right? I think there's 1 last big country, um, and that should be hopefully resolved in the coming in the coming weeks. Um, and then, as we go, as we start getting comfortable, that we can understand the change in, um, Dom and fob and the implications, as well as how the consumers reacting to the, whether there is or isn't inflationary, uh, in The Wider kind of basket, they're Goods, that's when we would make the decision as to, to come back. So I I don't want to call it a day, but those are the 3 factors that, that held back being able to be our decision, not to give guidance. Um, reinstate guidance, this quarter

Got it, thanks.

Operator: Thank you. Our next question comes from Drew McReynolds with RBC Capital Markets. You may now begin.

Christina Miller: Yeah, thanks very much. Yeah, Jonathan, I still, I think we'll take this offline, just need to better understand kind of all the OPEX, tariff impacts, and cost savings and stuff. But we can do that offline. I think bigger picture, just two questions, and maybe to both of you, frankly, but obviously Christine, maybe with the emphasis on you. When you look at the overall toy business, outside of the things you can't control with respect to tariffs and macro, is there anything that you see as kind of meaningfully broken or needs fixing relative to perhaps what the rest of us see? And then secondly, on strategy, Christine, I would be curious just to get an update on where the strategy for the broader company is shifting on the margin.

Thank you. Our next question comes from Drew, MC Reynolds with RBC Capital markets. You may now begin.

Yeah, thanks very much. Um,

Yeah, Jonathan, I I still, I think, we'll, we'll take this offline. Just need to better understand. Kind of all the Opex.

Tariff and tax and cost savings and stuff, but we, we can do that offline. Uh, I I think bigger picture just 2 questions um, and and maybe to both of you frankly but uh, obviously Christina maybe with the emphasis on you. When, when you look at the overall toy business,

um, outside of

Christina Miller: I know in the prepared remarks, there is some commentary on that front, but maybe you could drill down a little bit more for us. Thank you.

Jonathan Reuter: Sure. Thank you, Drew. A couple of things. I would say that I don't think that I believe anything is meaningfully broken. I think we came out earlier this year and said that as it relates to toys, that we're going to go and compete in the places where we can be number one or number two. And I think you see us doing that and executing against that. So I see it more as a bigger opportunity long term, one, to continue executing there, but as well as looking around at other categories that we can then open up and compete in as well. So I think that is core to the toy strategy, as well as looking at other, you know, we're growing in infant/toddler and preschool. What else can we be doing in those spaces?

The things you can't control with respect to tariffs and macro. Um is there anything that you you see as kind of meaninglessly broken or needs fixing relative to perhaps what the rest of us? See and then, secondly on strategy, Christina would be curious just to get an update on, you know where, uh, the strategy for the broader company is shifting on the margin. I know in the prepared remarks, uh, there is, uh, you know, some commentary on that front but maybe you could drill down a little bit more for us. Thank you.

Jonathan Reuter: We have great brands that are wholly owned by Spin Master, as well as when you look at the success of the box office and how that's translated to growth for us in top line, whether it was How to Train Your Dragon, Gabby's Dollhouse is Yet to Come, Superman. So we've been in some of the really big box office movies. And next year, we have one of our own coming in Paw Patrol. So we really believe in that property and what that can continue to do. So I think when you look at our numbers this year, it's a known off year out of the movie cycle. And next year, we will be back with another great movie with a great theme.

Sure, thank you drew, um, a couple of things. I, I would say that. I don't think that I believe, anything is meaningfully broken. I think we came out earlier this year and said that as it relates to toys that were going to go and compete in the places where we can be number 1 or number 2. And I think you see us doing that and executing against that. So I see it more as a bigger opportunity. Long term 1 to continue executing their but as well as looking around at other categories that we can, then we can open up and compete in as well. So I think that is core to the toy strategy as well as looking at other, you know, we're growing in infant toddler. And preschool, what else can we be doing in those spaces? We have great Brands, uh, that are wholly owned by Spin Masters, as well as when you look at the success of the box office. And how that's translated to growth for us in, um, in Topline, whether it was How to Train Your Dragon, Gabby's dollhouse Is Yet To Come Superman.

Jonathan Reuter: And as Jonathan mentioned earlier, really getting a look at the first cuts in the first few weeks I've been here and couldn't be more impressed. It's not easy to make a third movie that's possibly better than the first or second one, but I really do think the team has done great work there. I also would like to say outside of the toy business that we're expanding distribution. We're getting in front of our audiences in a bigger way. And I think ultimately, when you back out and you look at how that drives our business, it's really a critical part. This month, we went, we've found some, not found, we have some new distribution outlets.

And what that can continue to do. So, I think when you look at our numbers this year, it's a, it's a known off-year out of the movie cycle. And next year, we will be back with another great movie with a great theme. And as Jonathan mentioned earlier, really, um, getting a look at the first Cuts in the first few weeks. I've been here and couldn't be more impressed. It's not easy to make a third movie, that's possibly better than the first or second 1, but I really do think the team has done great work there. Um, I also would like to say outside of the toy business that we're expanding distribution. We're getting in front of our off, audiences in a bigger way. And I think ultimately, when you back out and you look at how that drives our business, it's really a critical part this month. We went, uh,

Jonathan Reuter: So whether it's Paw Patrol debuted on Netflix in the US, the first couple of seasons there, whether you look at Vita the Vet or Unicorn Academy getting placed onto Nickelodeon in an additional second window, or you look in the greater European market on some other second windows that we're getting for Vita the Vet. So I think the more we can go where our audience is, the more we can be consumer-minded in our strategy, the more successful we will be in driving our business, whether it's in any of the three core creative centers. As much as we spent a lot of time talking about toy this morning, and understandably why, you know, given the tariff situation, the macroeconomics around it, you know, I don't want to overlook the fact that we are positioned as an integrated children's entertainment company.

we found some not found, we have some new distribution Outlets so whether it's PAW Patrol debuted on Netflix in the US, the first couple of Seasons there, whether you look at V to the vet or unicorn Academy, getting put placed onto Nickelodeon in additional second window, or you look in the greater European market on some other second windows that we're getting for V to the vet. So I think the more we can go where our audience is, the more we can be consumer minded in our strategy. The more successful we will be in driving our business, whether it's in any of the 3 core creative centers as much as we spent a lot of time talking about toy this morning and understandably, why, you know, given the Tariff situation that

Jonathan Reuter: So by that, I mean we have strong muscles in three categories. And how they cross-collaborate is one of the ways we will unlock value in the future. Jonathan alluded to or directly said, you know, focus, focus, focus, and how we can go deeper on the things that are really working for us and how we can then look to create net new. Now on this call, I'm sure we don't want to talk about that so much because that provides longer-term value and you're looking so much further out. But I feel confident that what we have the capability to put in the pipeline for innovation in toys, as well as content and digital content, is second to none. And as I look further, that's really where I see the opportunity is that we continue to strengthen the three creative centers.

Macroeconomics around it, you know I don't want to overlook the fact that we are positioned as an, integrated Children's Entertainment Company. So by that, I mean we have strong muscles and 3 categories and how they cross, collaborate is 1 of the ways, we will unlock value in the future.

Jonathan Reuter: You see digital really growing this quarter and grew 33%. You know, looking at that kind of growth and knowing what's in the pipeline in the second half, for Toca World, we're better positioned for more content throughout the entire second half than we had in the first half. Looking at how we can continue to test pricing, how our live operations plays into it. So when you look at live ops, content, pricing, and promotion that we have coming, we believe we have a strong second half for Toca Boca in line. Picnic, we're getting top line growth as well. We have a portfolio of skills in those games, whether it's math. Now we have a coloring game. We have language games, consistently looking at how we can gain engagement there and add to that portfolio and therefore grow it. So I understand the focus on toys.

Jonathan alluded to or directly said you know, focus focus focus and how we can go deeper on the things that are really working for us and how we can then look to create net new. Now on this call I'm sure we don't want to talk about that so much because that provides longer term value and you're looking so much further out but I feel confident that what we have the capability to put in the pipeline for Innovation and toys as well as content and digital content is second to none. And as I look further, that's really where I see the opportunity is that we continue to strengthen the 3 creative centers. You see digital really growing this quarter and through 33%, you know, looking at that kind of growth and knowing what's in the pipeline in the second half for Toko Boca world, where better positioned for more content throughout the entire second half than we had in the first half. Looking at how we can continue to test pricing, um, how our live operations plays into it.

Jonathan Reuter: It's absolutely necessary. But I ask, as we back out and look at the business holistically, I think we're making strides in using diversification to our benefit. I believe in the talent that's inside this organization in both our capabilities on innovation. And now it's our job to start putting more of that into the pipeline so you can see how we're going to get sustainable growth in the future. And that's really what I'm pushing towards.

Christina Miller: Yeah, that's helpful. Christine, you answered my third question on the digital games outlook in the back half here. So that's good for me. Thank you very much.

It. So when you look at live Ops content pricing and promotion that we have coming, we believe we have a strong second half the Toca boka in line picnic. We're getting Top Line growth as well. We have a portfolio of skills in that in those games, whether it's math. Now we have a coloring game, we have language games consistently looking at how we can gain engagement there and add to that portfolio and therefore grow it. So, I understand the focus on toys. It's absolutely necessary. But I asked as we back out and look at the business holistically, I think we're making strides and using diversification to our benefit, I believe in the talent that's inside this organization in both our capabilities, on Innovation. And now, it's our job to start. Putting more of that into the pipeline so you can see how we're going to get sustainable growth in the future. And that's really what I'm pushing towards.

Jonathan Reuter: Thank you.

Yeah, that's that's helpful. Christina. You answered my third question on the digital games Outlook uh the back half here. So uh, that's good for me. Thank you very much.

Operator: Thank you. Our next question comes from Luke Hanan with Canaccord Genuity. You may now begin.

Thank you.

Operator: Thanks. Good morning, everyone. I wanted to dig in a little deeper on this, the retailers that are deferring orders into the back half of the year. And specifically, I'm trying to get a better understanding of what you're thinking as far as sales allowances, because there are a lot of moving parts here, right? There's this FOB versus domestic mix. But then also, it feels like the selling window is going to be a little bit shorter. We don't know where exactly the consumer is going to land by the time the holiday spending season sort of rolls around. In my mind, that does increase the risk of potential markdowns and there being more charges when it comes to sales allowances specifically.

Thank you. Our next question. Comes from Luke Hanan with Kord. Genuity, you may now begin.

Operator: So can you, I realize that you're not giving guidance as of yet, but can you just frame up for us specifically what your expectations are when it comes to the sales allowances in the back half?

Jonathan Reuter: Sure. Thanks, Luke. No, I mean, that's exactly, I think some of the words you used exactly kind of reiterate why it's so difficult to be able to come out and give formal guidance. But what do we know? So what we know is, I just continue to reinforce this, we're gaining share and we're taking share in H1. Christine walked through why we have a strong H2 in terms of our product categories. And so don't see a reason why that won't happen again. We are going to support that, though. And we will support it through both marketing dollars and through sales allowance. Marketing this quarter, because revenue is smaller and because there's this timing, there's a higher proportion of marketing as a proportion of that revenue.

Thanks. Yeah, good morning everyone. I, I wanted to dig in a little deeper on this, uh, the retailers that are deferring orders into the back half of the year and specifically, I'm, I'm trying to get a better understanding of what you're thinking as far as a sales allowances because there are a lot of moving Parts here, right? There's this fob versus domestic mix but then also it feels like the selling window is going to be a little bit shorter. We don't know where exactly the consumer is going to land by the time, the holiday spending season sort of rolls around in my mind that does increase the risk of potential markdowns and and there being more charges when it comes to sales allowances specifically. So can you I realize that you're not giving guidance as of as of yet? But can you just frame up for us? Specifically what your expectations are when it comes to the sales allowances in the back half?

Sure. Thanks Luke. Um,

You use exactly kind of reiterate why it's so difficult to be able to come out and be, uh, a gift formal guidance. Um, but what, what do we know? So what we know is I just, you know, continue to read and say re reinforces we're gaining share. Um, and we're taking share, uh, in in H1.

Um, um, Christina walk through, why we have a strong H2 in terms of our product categories. And so don't see a reason why that won't happen again.

We are going to support that though. Uh and we will support it through both marketing dollars and through sales allowance

Jonathan Reuter: And we expect that to come back down to in line with last year, if not lower in H2 as our revenue base grows. And then we take advantage of the spend that we had in Q2 that will help us in Q3 and onwards. And then specifically around sales allowance, like your specific question, sales allowances were higher in Q2 than last year. It goes again to the strategy that we've had around gaining share, making sure that if we put product in, it sells through, and making sure that we open up new doors. And Christine talked about that through the value channels being an example, and then making sure we're supporting our retail partners so that it's profitable for them as well.

Marketing this quarter and because revenue is smaller. And because there's this timing because a higher proportion of marketing, um, as the proportion of net revenue and we expect that to come back down to, in line, um, with last year, if not lower in, in H2 as our Revenue base grows,

Jonathan Reuter: But when we look specifically in H2, I don't really see right now, based on how the consumer is behaving, any real material increases in H2 versus last year. In fact, maybe there could be some decreases because we have such a strong product category. And because, again, 50% of our SKUs are below the $20 mark, it could even potentially be a little bit lower than last year from a sales allowance perspective.

And then, and we take advantage of the spend that we had in Q2 that will will help us in Q3 and onwards and in specifically around sales allowance, like your specific question. Um, sales allowances were higher uh in Q2 than last year. It it goes again to the strategy that we've had around gaming share, making sure that if we put product in it sells through, making sure that we open up new doors. And, you know, Christina talked about that through the value channels, being an example and then making sure we're supporting our Retail Partners so that its profitable for them as well.

Um, but when we look specifically in H2 I I don't really see. Um,

Operator: OK, thanks. And then for my follow-up, I just want to make sure I heard this correctly. I know in the past, you gave the target of getting to 70% of your sourcing coming from outside of China by the end of the year. And I think I heard you correctly, Jonathan, that you're on track to have it be 37% of your product coming from China by year end. Did I hear that correctly?

Uh, right now, based on how the consumers behaving, and, and any real material increases, um, in H2 versus last year, in fact, maybe there could be some decreases, um, because we have such a strong product category and because, again, 50% of our skus are below the twenty dollar Mark. Um, it could even potentially be a little bit lower than last year, from sales allowance perspective.

Jonathan Reuter: Yeah, I think there's an example, you know, not to, you know, being clearer in kind of that number that you were stated, that was stated before is right. But then what ends up happening is it's part of it's seasonal based. And so we said, well, look, let's take away from the seasonality and let's just give you an average number. So the average number, we will finish at 37%. But I would say that's in line with the kind of the other way that it was shared with you last quarter. But this is a better way of looking at it as an average for the full year because each quarter, there's seasonal aspects of what's being bought from China or other countries. So in the spirit of being, you know, more transparent, giving clearer data, this is an example of what we're doing.

Okay. Thanks. And then for my my follow-up, I just want to make sure I I heard this correctly. I know in the past, you gave the the target of of getting to 70% of your sourcing coming from outside of China, by the end of the year. And I think I heard you correctly, Jonathan that you're on on track to have it. Be 30 37% of your product coming from China, by by year end? Did I hear that correctly?

yeah, I I think there's an exam, you know, not to, you know, there being clearer in kind of

Um that number that you were stated. That was stated before is probably is right. But then what ends up happening is it sees its part of its seasonal based? And so he said, well look, let's take away from the seasonality and let's just give you an average number. So, the average number, we will finish at 37%. But I would say that's in line with the kind of the the other way that I was shared with you last quarter, but this is a better way of looking at it as an average for the full year. Because each quarter, there's seasonal aspects of what's being brought from China or other countries. So in the spirit of being, you know, more transparent

Jonathan Reuter: But it's not, I know the number is different, but it's still the same logic. We're just giving you an easier number to, a truer number for the year and not benefits, say, from seasonality, which that number that you had had that benefit in it.

Operator: OK, sorry. So the 70% had the benefit of seasonality in it, you're saying?

Parent, giving clear data. This is an example, uh, of of, of of of what we're doing but it's not, I know the number is different but but it's still the same logic. We're just giving you a an easier number to, um, ensure number for the year and not benefits say from seasonality which which what? That number that you had had that benefit in it.

Jonathan Reuter: Correct. And so now by saying an average for the year of 37, I think that's a cleaner number for you to, 37% coming from China to the US, that's a cleaner number for you. And we gave you the comparison of last year, which was 64%.

Okay, sorry. So the 70% had the benefit of seasonality and that you're saying,

Operator: OK, got it. That's helpful. OK, I'll pass the line. Thanks.

Correct. And so now by saying an average for the year or 37, I think that's a cleaner number for you to 37% coming, um, from China to the US. That's a cleaner number for you and we gave you the comparison of last year, which was 6, which was 64%.

Okay, got it. Um, that's helpful. Okay, I'll pass the line. Thanks.

Operator: Thank you. This next question appears to be our last question. This question will come from David McSteigun with Quirmax Securities. You may now begin.

Christina Miller: OK, thank you. Yeah, I just wanted to dive in just on the activities, games, and puzzles segment because I noticed, you know, it's obviously down the quarter, down six months. Just wondering, is there one toy in particular that's really driving that decline? Or is it the five or six that you listed in the MDNA? I'm just wondering if there's anything that really stands out. And when do you think that that segment might return to growth?

Thank you. This. Next question appears to be our last question. This question will come from David mcfadin with cormack Securities. You may now begin

Oh great, thank you. Um,

Yeah, I just wanted to dive in, just on the, uh, activities gains and puzzle segments, uh, because I know it's, you know, it's obviously down in the corner down 6 months just wondering, is there is there 1? Um,

Joy in particular, that's that's really driving that decline or is it?

Jonathan Reuter: Yeah, so why don't I take this quarter and then Christine and maybe talk a little bit about some of the work that I know the team's doing around, you know, bringing back growth to our game, to that section as we look kind of a little bit further out. In the quarter, I mean, there's nothing specific that I would call out more than what's in the prepared remarks. You know, we have a portfolio approach around our product categories. Again, the vast majority of our revenue base took share. And so, you know, more comfortably more than 50%, more like 2/3 of our revenue base took share. So when you have a portfolio approach, there will be some categories that won't be taking share. And so that was one of the categories.

Is it the 5 or 6 that you listed in the mdna I was just wondering if there's anything that really stands out and and when do you think that that thing that might return to growth?

Yes, so why don't I take this quarter and then Christina maybe talk a little about some of the work that I know the teams doing around. Um, we've got, you know, bringing back growth to, to our game. It's just that section. As we look kind a little bit further out in in the quarter. I mean, there's nothing specific that I would, um, that I like called out more than what's in the prepared remarks. Um, you know, we have a portfolio approach around our product categories again, the the, the vast majority of our Revenue base.

And so you know, more comfortably more than 50% more like 2/3 of our Revenue based like share.

Jonathan Reuter: We recognize that there's, you know, going back to Christine's comment around innovation, this is an area where we know we want to lean in. And we do believe that, and we know that we can return to growth in this category. And so maybe, Christine, if you have any comments you want to about the category itself longer term.

Jonathan Reuter: Yeah, I think, as Jonathan just said, that we know that there's growth in this category. And returning to growth is important to us. I would go back to my earlier comment about focus. We have a pretty wide portfolio of products. And doing the proper sort of assessment about where we can grow, where we can't, what we can lean into is the work that's being done. I also would say that we're coming off of Aerobics, which was a 50-year anniversary last year that definitely helped in that category versus this year. So it's looking for opportunities like that and looking for some new games and innovation that we can use to drive that category. So I would just say keep an eye on it moving forward. It's definitely something we're focused on.

So when you have a portfolio approach, there will be some categories. Um, that won't be taking share. Um, and so that was 1, 1 of the categories, we we recognize that there's, um, you know, going back to Christina's coming around Innovation. This is an area where we we know we want to lean in and we do believe that and we know that we can return to growth in this category. And so maybe Christina, if you have any comments, you want about the category itself longer term. Yeah, I think it's Jonathan just said that, we know that there's a growth in this category and returning to growth is important to us. I would go back to my earlier, comment, about Focus. We have a pretty wide portfolio of products and doing the proper sort of assessment about where we can grow, where we can't, what we, what we can lean into is the work that's being done. I also would say that we're coming off of a Rubik's, which is a 50 year, uh, anniversary last year. That definitely helped in that category versus this year. Um, so it's looking for opportunities like that and looking for some new games and Innovation that we can use to drive that category. So,

Christina Miller: OK, all right, thank you.

I would just say keep an eye on it moving forward, it's definitely something we're focused on

Okay, all right. Thank you.

Operator: That is our last question. I'll turn the conference back to Jonathan Reuter, CFO, for any additional remarks.

Jonathan Reuter: Well, thank you, everyone, for joining us. And we look forward to speaking to you again in our upcoming three-quarter call in October of this year. Thank you.

That is our last question. I'll turn the conference back to Jonathan reuter CFO for any additional remarks.

Well, thank you, everyone, for joining us. We look forward to speaking to you again in our upcoming third quarter call in October of this year. Thank you.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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