Hasbro : Q1 2021 Earnings Management Remarks

Hasbro First Quarter 2021

Financial Results Conference Call Management Remarks

April 27, 2021

Debbie Hancock, Hasbro, Senior Vice President, Investor Relations:

Thank you and good morning everyone.

Joining me today are Brian Goldner, Hasbro's Chairman and Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer. Today, we will begin with Brian and Deb providing commentary on the Company's performance. Then we will take your questions.

Our earnings release and presentation slides for today's call are posted on our investor website.

The press release and presentation include information regarding Non-GAAP adjustments and Non-GAAP financial measures. Our call today will discuss certain Adjusted measures, which exclude these Non-GAAP Adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.

Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

Before we begin, I would like to remind you that during this call and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters.

There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements.

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These factors include those set forth in our annual report on form 10-K, our most recent 10-Q, in today's press release and in our other public disclosures.

We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

I would now like to introduce Brian Goldner.

Brian Goldner, Hasbro Chairman and CEO

Thank you, Debbie. Good morning everyone and thank you for joining us today.

The first quarter was an excellent start to the year, with growth in both sell in and point of sale for our Consumer Products segment; robust engagement from gamers driving double-digit growth in the Wizards of the Coast and Digital Gaming segment; and we remain on track to deliver our full year expected revenue growth in Entertainment. I want to recognize and thank the Hasbro employees around the world who continue to work through a pandemic and were able to deliver such a high-quality quarter with revenue momentum, profit improvement and strong cash generation.

This quarter marked the first with our new reporting segment structure, which provides a clearer view of the drivers of Hasbro revenues, profit, margin and cash generation. As we shared at our investor event in February, our Brand Blueprint succeeds as we create value from our three businesses-Hasbro Consumer Products, including toys and games; Wizards of the Coast and Digital Gaming; and Entertainment. Each has a growth plan that drives that segment but also drives growth across Hasbro. Our teams and expanding capabilities are enabling us to unlock the full potential of our brands and Company.

Deb will speak to the quarterly segment performance in more detail shortly. It is clear our unique portfolio of brands and capabilities is driving long-term, sustainable profitable and cash generative growth while we invest to build bigger, better brands across a much bigger universe that includes toys and games but also spans digital gaming and entertainment revenues. With double digit year-over-year growth in both Consumer Products and Wizards of the Coast and

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Digital Gaming these businesses are up nearly 20% from the first quarter 2019, pre-Covid. Importantly, the quality of this growth is impressive as we have added $120 million in operating profit dollars between the two segments.

We continue to see consumers choosing Hasbro brands as evidenced by the 9% point of sale growth globally and nearly 20% point of sale increase in the U.S. This does not reflect most of MAGIC: THE GATHERING or DUNGEONS & DRAGONS and does not yet reflect Hasbro's line of PEPPA PIG and PJ MASKS toys and games.

Hasbro Franchise Brands revenues increased 24%, with gains in MAGIC: THE GATHERING, PLAY- DOH, NERF, TRANSFORMERS and BABY ALIVE.

NERF revenue increased in all regions with high-single digit POS led by the U.S. and Europe. Innovation for consumers of all ages is driving this growth, including Dinosquad which released in March, Elite 2.0 and our high-performance Ultra line which have now fully set around the world, continued strength in our licensed Fortnite business and the March launch of the Rival Curve Shot. We have more innovation coming with the NERF Hyper line and the newly announced NERF Roblox for fans of the massively popular game.

TRANSFORMERS revenue growth was led by gains in the U.S. and Asia Pacific, and global point of sale was up nearly 40%. Innovation and storytelling are central to driving TRANSFORMERS and the eOne team is expanding the reach and relevance of the brand through world class entertainment across platforms and demographics. We delivered our latest War For Cybertron content in partnership with Netflix on December 30 supported by new products that drove first quarter's performance. War for Cybertron Chapter 3 will be airing this summer and, in partnership with Paramount, the next feature in the theatrical TRANSFORMERS franchise is slated for 2022.

TRANSFORMERS continued to be the top brand performer on Hasbro Pulse in the first quarter delivering the much anticipated HasLab Unicron. The brand kept the momentum to start Q2. In partnership with Robosen, during Hasbro Pulse Fan Fest earlier this month, we unveiled a $700 Auto-Converting Optimus Prime Robot, which sold out in pre-sale in less than 10 hours.

Ecomm revenues increased 70% in the quarter. COVID continues to shift consumer shopping behaviors, accelerating the shift to digital for Hasbro, our pure play ecomm retailers, and our Omni

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channel retailers as supported by their investments in technologies and services like curb side pickup.

For the quarter, revenue in the total gaming category including MAGIC and MONOPOLY increased 7% as gaming continued to be a focal point for players, consumers and retailers. Throughout last year robust demand drove high point of sale and revenue growth. In the Consumer Products segment, this surge in gaming demand began around week 12 of last year. If we look at the U.S. this year, heading into that same week our games point of sale was up more than 30%. Once we hit week 12, point of sale slowed. Despite the tough comparison, underlying game demand is healthy and point of sale is more than 30% higher than 2019 pre-COVID levels. We have many new games both this spring and for the holiday and availability of classic games to continue meeting the high levels of gaming demand.

Within Wizards of the Coast and Digital Gaming, MAGIC: THE GATHERING and DUNGEONS & DRAGONS both posted double-digit revenue increases. Fueling this growth is both tabletop and physical play as well as the team's continued expansion in digital. MAGIC was up against an exceptionally good first quarter shipment number last year. Based on release strength and timing, we continue to expect the second quarter to be the biggest for MAGIC and Wizards this year. Arena revenue was also higher, including a late first quarter release on mobile. DUNGEONS & DRAGONS licensed digital gaming revenue also increased. Dark Alliance is slated for release in June and the game is receiving positive early buzz.

Partner Brands revenues grew 3%, behind strong growth in Hasbro products for Star Wars as well as continued strength in products for The Mandalorian; as well as growth in Marvel led by momentum in the Spider-Man franchise across all consumer segments and new products for Marvel Studios' The Falcon and The Winter Soldier unveiled at quarter end that will be fully distributed in the second quarter.

Shifting to our Entertainment business, our eOne team has more than 200 projects in development across TV, film and animation, featuring more than 30 Hasbro IPs. As we spoke to earlier this year, we had theatrical revenues in the first quarter last year but do not this year due

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to COVID-related closures. We are also planning for television deliveries to be later this year versus last. We remain on track for our target to reach 2019 TV and Film revenue levels this year.

With our partners at Paramount, the GI JOE Snake Eyes movie release is now set for July 23 and the brand team continues to drive engagement and demand with fans through product and events including our Pulse initiatives. The eOne team is also shepherding the relaunch of MY LITTLE PONY with new content across digital and broadcast networks, with Pony Life, and the release of the CG Animated film on Netflix this September.

We are currently in pre-production for the Dungeons & Dragons live-action feature, with a new release date of March 3, 2023 and an amazingly talented cast and crew.

During the quarter the team wrapped principal production on two films -Allthe Old Knives and Arthur the King- and are currently in post-production on both. In scripted TV, Cruel Summer completed filming and premiered last week on Freeform and we continued deliveries of season 3 of The Rookie. In unscripted, we have a robust slate of shows in Canada, the U.S., and the U.K. underway, with more than 40 active productions.

We announced yesterday an agreement to sell the eOne music business for $385 million. We continue to focus on the core strategic elements of our Brand Blueprint as a play and entertainment company. While we plan to continue working with the music group including music supervision and music rights exploitation across several brands, music was not the primary driver of our acquisition of eOne. This transaction will allow the team to continue investing to grow and unlock value for its many talented artists and partners.

I want to recognize the leadership of Chris Taylor, his dedicated team and the entire organization. We thank them for their countless contributions and look forward to working with them on various projects well into the future. We plan to use the net proceeds from the sale to accelerate deleveraging and for general corporate purposes.

The first quarter's results are a good start toward achieving our target of double-digit revenue growth this year. The team did an excellent job delivering profit growth, strong cash generation, paying our dividend and reducing our debt profile. We have tremendous innovation and content coming this year and we look forward to sharing more details as the year progresses.

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