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Edited Transcript of HAS.OQ earnings conference call or presentation 26-Oct-20 12:30pm GMT

·53 min read

Q3 2020 Hasbro Inc Earnings Call PAWTUCKET Oct 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Hasbro Inc earnings conference call or presentation Monday, October 26, 2020 at 12:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brian D. Goldner Hasbro, Inc. - Chairman & CEO * Debbie Hancock Hasbro, Inc. - SVP of IR * Deborah M. Thomas Hasbro, Inc. - Executive VP & CFO * John A. Frascotti Hasbro, Inc. - President, COO & Director ================================================================================ Conference Call Participants ================================================================================ * Andrew Edward Crum Stifel, Nicolaus & Company, Incorporated, Research Division - VP * Arpine Kocharyan UBS Investment Bank, Research Division - Director and Analyst * David James Beckel Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst * Devin MacArthur Brisco BofA Merrill Lynch, Research Division - Research Analyst * Eric Owen Handler MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst * Felicia Rae Kantor Hendrix Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst * Gerrick Luke Johnson BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst * James Andrew Chartier Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst * Michael Ng Goldman Sachs Group, Inc., Research Division - Research Analyst * Stephanie Marie Schiller Wissink Jefferies LLC, Research Division - Equity Analyst and MD * Tami Zakaria JPMorgan Chase & Co, Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, and welcome to the Hasbro Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I'd like to turn the call over to Ms. Debbie Hancock, Vice President of Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Debbie Hancock, Hasbro, Inc. - SVP of IR [2] -------------------------------------------------------------------------------- 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. 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? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [3] -------------------------------------------------------------------------------- Thank you, Debbie. Good morning, everyone, and thank you for joining us today. The global Hasbro team did an excellent job delivering a strong third quarter with revenues growth in toys, games and digital initiatives while live-action production begins to return. Consumer demand remains strong. Global point-of-sale for Hasbro brands was up mid-single digits, including double-digit gains in the U.S., U.K. and Australia, among others. Overall point-of-sale grew despite declines in Latin America and Asia and some out-of-stocks in the games category. Nearly all stores globally have been open and operating, with Latin America experiencing the most restrictions. Foot traffic in stores remains meaningfully lower, but e-com continues to deliver with 50% growth globally in the quarter. We also benefited from the reopening of toy specialty retailers in Europe. Production at our third-party factories is up and running and supply is largely in line with demand. Where demand remains above trend, we are working to catch up. The restarting of live-action entertainment is gradually occurring with some of our larger productions beginning late in the third quarter. As a result, deliveries were low but are set to improve in the fourth quarter, and some revenue will move into 2021. MAGIC: THE GATHERING delivered strong third quarter results, and revenue was up double digits for the first 9 months of the year. The release of Double Masters and Zendikar Rising drove the year-over-year gains in the quarter, including growth in analog and digital play. MAGIC: THE GATHERING is providing its players connection, entertainment despite not all being able to gather to play. That connection and entertainment continues to drive gaming demand broadly. Revenues grew for our gaming portfolio, and the overall gaming category, including MAGIC and MONOPOLY, was up 21%. Point-of-sale gains were limited by product availability as we work to catch up on production. Hasbro has an unparalleled position in gaming. We have the broadest portfolio with the industry's best known brands, reaching all demographics across multiple genres. Importantly, we have invested to bring new games to the market over every period and every year. Our core games remained our bestsellers, including MONOPOLY, JENGA, CONNECT 4, LIFE and OPERATION, and we have new games to bring home the fun this holiday. This includes a new game for the whole family in Deer Pong and new games like The Child-inspired MONOPOLY and Super Mario Celebration MONOPOLY, among many others. To further long-term growth, we are investing to drive digital gaming experiences for Wizards of the Coast brands MAGIC: THE GATHERING Arena will launch on mobile in early 2021 as we fine-tune the game this year. We also have Spellslingers, an all new digital game for the mobile-first generation slated for next year. And Tencent continues to lead the efforts to publish in China. DUNGEONS & DRAGONS continued to benefit from a strong release schedule and the quest for at-home entertainment. Revenues for the brand were up more than 20% in the quarter and year-to-date. D&D digital is also ramping. Baldur's Gate 3 has released into early access on Steam to a strong reception and will be more broadly available next year. Also in 2021, Dark Alliance from our own Tuque Games is planned for release. D&D and MAGIC: THE GATHERING were among the brands on virtual display at our first-ever PulseCon. PulseCon delivered to fans one-of-a-kind access to their favorite franchises as well as interactive experiences with creative talent. It generated close to 1 billion social and media impressions. We unveiled new products across multiple franchises; hosted 2 days of panels; and successfully fully funded 2 HasLab campaigns, one for the Star Wars Vintage Collection Razor Crest and one for the HeroQuest Game system. If you missed it live, you can find these sessions online. While the revenue for our HasLab projects will be recognized in future periods when we build and deliver the products, Hasbro products for Star Wars delivered strong growth in the third quarter. Disney+ continued to drive engagement among kids and fans alike. Results were fueled by August shelf set of our wide range of items for The Child as well as continued global strength in our fan business, particularly with our 40th anniversary Empire Strikes Back product and our retro figures. This year, we also launched the Star Wars: Galaxy's Edge exclusive program designed to capture the parks experience at retail. Last year, on October 4, we executed on-shelf events for Star Wars in support of streaming and theatrical content and for Frozen 2. We are up against those comps in 2020, but with new products and new streaming content for both properties, we have a great lineup for the holiday. As this year developed, entertainment plans shifted. Our teams did a tremendous job of rebalancing our initiatives for the year. Reprioritizing factories, shifting marketing plans and partnering with our retailers around the world, they leveraged our portfolio's innovation for the holiday and ensured we have strong representation across demographics. These efforts include items like BABY ALIVE Baby Grows Up, FURREAL FRIENDS Mama Josie the Kangaroo, NERF Elite 2.0, the PLAY-DOH Candy Delight Playset and many more. The fourth quarter is unfolding in multiple stages, kicking off successfully earlier this month with Prime Day and major initiatives from our largest omnichannel retail partners. Hasbro lines sold very well during this period. Our teams are working in concert with our retailers to drive and fulfill demand this holiday season. They are doing an excellent job managing this dynamic environment, driving the business forward for this year and beyond. Importantly, they have positioned us for what we believe should be a good holiday season for Hasbro. In entertainment, the last few quarters have been difficult given the inability to get on set and produce much of the live-action content we planned for the year. However, the integration is progressing well, and we've been able to make more progress than planned in the development of future projects. We recently announced Producer and Director, Jonathan Entwistle, has come onboard to shepherd new film and television adaptations of POWER RANGERS. eOne will develop and produce the projects with Entwistle set to direct. We also launched a competitive cooking show based on CANDYLAND hosted by Kristin Chenoweth. You can see that series beginning November 15 on the Food Network. Looking ahead, some revenue originally planned for 2020 will shift into 2021, both from eOne projects and from theatrical releases, which were originally slated for this year. During 2020, we continue to advance e-com and focus the teams on our highest priorities for the near-term and for long-term growth. COVID-19 remains a reality in our markets around the world, and we're working closely monitoring developments to ensure we can execute while keeping the safety of our employees and communities a top priority. I'll now turn the call over to Deb. Deb? -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thank you, Brian, and good morning, everyone. Our teams delivered a very good third quarter in a difficult environment. The results reflected growing consumer demand for Hasbro brands; an improved operating environment as third-party factories, warehouses and retail stores were mostly open; and excellent execution by our teams, including strong cash collections and cost management. My discussion today will be versus pro forma adjusted 2019 earnings. The third quarter 2020 adjusted results exclude after-tax amounts of $19.6 million of purchased intangible amortization and $4.7 million of acquisition and related expenses associated with the eOne acquisition and $13.7 million of incremental tax expense related to a change in the U.K. tax code. We ended the quarter with one of our highest ever third quarter cash balances and delivered an additional 230 basis points on adjusted operating profit margin for the quarter from both favorable product mix and cost savings. We continue to have $1.5 billion available under our revolving credit facility should we need it, and we remain well within our financial covenants. The team drove strong cash collections, and Q3 DSO decreased to 74 days from 83 days last year and 96 days in the second quarter. As live-action production has been limited, our cash spend on content this year is now targeted to be at the lower end of our prior $450 million to $550 million range for the full year. Due to the timing of this return to production, certain deliveries expected in the fourth quarter 2020 will move to 2021, shifting expected revenue. We currently expect next year to have a more normalized cash spend level as production and deliveries are slated to improve from the lower 2020 levels. Our capital expenditures year-to-date are in line with 2019 and are now expected to be slightly below the $145 million to $155 million we targeted for this year. This amount includes the capitalization of digital gaming development relating to games to be launched in future years, some of which Brian spoke to, as well as several others for 2022 and beyond. Customer-owned inventory is down 7% absent FX as demand remains strong. Retail inventory declined, led by the U.S., reflecting the shift to e-com and higher consumer takeaway. In Latin America, we continue to work through inventory we began the year with. Our goal is to reduce excess inventory by year-end to position us to stabilize the region's performance next year. Our integration with eOne remains on track, and we continue to target synergies of $130 million by year-end 2022. This includes 2020 cost savings of at least $20 million before onetime expenses, recognizing the eOne business, like the overall Hasbro business, is not operating to our original plan due to COVID-19. Synergies are planned to increase in 2021 as we begin to in-source toys and games for eOne properties and recognize more of the benefit of cost savings. For the quarter, revenues were down 4%, reflecting growth in toys, games and digital initiatives offset by a decline in entertainment. In the U.S. and Canada segment, revenues grew 9% behind growth in franchise brands, led by MAGIC: THE GATHERING, Emerging Brands and Hasbro Gaming. Gaming supply was catching up to demand during the quarter. Partner brands declined behind good growth in Star Wars but a decline in MARVEL and Frozen revenues. Point-of-sale for the segment grew double digits and retail inventory declined double digits. E-com revenues grew more than 50%. Segment operating profit grew, and operating profit margin expanded 530 basis points. This gain was the result of revenue growth; favorable product mix, including growth in MAGIC: THE GATHERING; and inventory cost management. International segment revenues were down 7% excluding the impact of foreign currency. European revenues grew 4% excluding FX, but both Latin America and Asia Pacific revenues declined. Hasbro Gaming revenues were flat absent FX and the other brand portfolio categories declined. E-com revenues grew approximately 40%. Segment operating profit was down due to lower revenues but operating profit margin improved 40 basis points on favorable mix, including growth in MAGIC: THE GATHERING; lower advertising spend; and cost management initiatives. In the Entertainment, Licensing and Digital segment, revenues declined due to lower film revenue versus last year when we first recorded Bumblebee offset in part by higher digital gaming revenues. For Consumer Products, revenue and profit held up well in the quarter. As we look ahead, the fourth quarter in part reflects the licensee sales from the third quarter. It's a bigger quarter for the category, and retailers are being very cautious with inventory management given store closures and lower sales in licensed categories. This also had an impact on family brands in the eOne segment. Despite the decline in net revenues, operating profit and operating profit margin increased due to increased revenue from high-profit digital licensing and decreased advertising costs versus the 2019 initial launch of MAGIC: THE GATHERING Arena. For eOne, the segment's performance was hampered by the timing of live-action production restarts in the TV and Film business and lower digital content advertising revenues. The segment reported a small adjusted operating loss due to these lower revenues. For Hasbro overall, gross margin increased 180 basis points, including both cost of sales and program cost amortization, driven by favorable product mix and inventory cost management. Program amortization is expected to be more in line with last year's levels as a percentage of revenue for the fourth quarter. Advertising declined to 7.7% of revenues on lower spend at eOne due to the lack of theatrical releases as well as lower advertising within the commercial business. Given the expected shift of digital gaming launches from Q4 to Q1 2021, advertising is expected to be at similar levels as a percentage of revenue in Q4. While SG&A declined in dollars, it was up as a percentage of revenues. Cost savings are having a favorable impact, but freight expense was up on the higher domestic U.S. and European orders as well as the alignment of accounting for certain eOne expenses in the current year versus last. We expect fourth quarter to be more in line with last year's level as a percent of revenues. The underlying tax rate for the quarter was 19.8% compared to 18.2% last year. The rate is driven by the change in geographic mix of income and the impact of the eOne acquisition. As I mentioned at the start, during the quarter, we recorded incremental tax expense, which increased our effective rate to 26.5%. This expense was related to the U.K. Finance Act of 2020 enacted during the quarter that maintained the U.K. corporate income tax at 19% instead of the previously enacted reduction to 17%. This resulted in the remeasurement of our U.K. net deferred tax liability, driving the rate higher. In closing, the team has continued to do an outstanding job, and I could not be prouder of them. We are set up for a good holiday season, leveraging our broad portfolio, including strength in games, customer relationships and e-com expertise, backed by strong execution of the team. We are watching the development of COVID-19 infections in various markets around the world, but so far, retail has remained accessible to customers, including through e-commerce. We're leveraging our global manufacturing partners to have supply to meet demand, and eOne is back in production with more deliveries anticipated in the fourth quarter and some shifting into 2021. We feel good about next year and our opportunity to execute successfully with innovative products, robust entertainment and strong execution from our global teams. We have invested to ensure Hasbro is best positioned to drive profitable revenue growth around our blueprint. As we look to the next stage of our company, we've pivoted to create not only more entertainment based on our brands but more profitable entertainment. We have over 30 Hasbro properties in development with eOne across various platforms, which drive high-margin revenue streams in entertainment, Consumer Products and digital gaming. Combined with revenue growth from our core toy and game business and the pipeline of digital games in development, we are set up well for delivering improved profit and cash flow for the long term. I'll now turn back to Brian for some closing remarks before we take your questions. Brian? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [5] -------------------------------------------------------------------------------- Thank you, Deb. I want to take a minute and recognize John Frascotti. Earlier this month, we announced that John has decided to retire after 13 years with Hasbro when his existing contract ends in March of 2021. John has been an important part of our senior management team since 2008 and a loyal colleague, mentor and friend to so many of us over the years. In addition to the leadership roles he has held, John has always been a champion for our culture, our purpose and our values. He embodies the idea of servant leadership and his impact on our company will be felt long after he departs. John leaves big shoes to fill, but I'm extremely confident in the leadership of our company and the strength of our teams to lead Hasbro into the future. Deb and I are now happy to take your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question is coming from the line of Steph Wissink with Jefferies. -------------------------------------------------------------------------------- Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst and MD [2] -------------------------------------------------------------------------------- And Brian, I would echo your comments on John. John, we're going to miss you. My question is really about the Hasbro properties and development with eOne. I'm wondering if you can talk a little bit more about just how broad-based, what different form factors that might take. And I think, Deb, your comments on more profitable growth is really intriguing. So if you could just talk really quickly about what you're most excited about in that pipeline, that would be great. -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [3] -------------------------------------------------------------------------------- Sure, Steph. First, we saw some announcements over the last week or so. Jonathan Entwistle has come onboard. He'll be handling the development of both live-action television around Power Rangers in addition to the kids-oriented TV show that's in its 27th season. We'll also be working on a live-action film. The team is busy working on DUNGEONS & DRAGONS live-action feature film. They're also working on a couple of different approaches because there is so much mythology and canon to DUNGEONS & DRAGONS for live-action television, and there's been very strong interest. We've talked about how many global streamers and other terrestrial broadcasters have been very interested in DUNGEONS & DRAGONS. For next year, we will have a My Little Pony theatrical feature film. It will be the first CGI film that the team is producing. It looks beautiful, and we're very excited about next fall. It will come to theaters in September next year. And then as we go across the different IPs, what we're seeing is incredible interest on scripted shows as we develop more game show type formats and other fun formats like we've seen coming on to the Food Network this fall, which is a Candy Land TV show hosted by Kristin Chenoweth. We've also seen very strong demand and desire for IP around the Hasbro brands on scripted television. Let me remind you that just this past summer, we had a scripted animated show called War for Cybertron for Transformers. It was only 6 episodes, and yet that show posted top performance across the entire Netflix platform during June and July and August and, in fact, drove considerable growth in TRANSFORMERS brands. So we're seeing the connection between creating great IP and the response that we're getting from fans and families. In fact, TRANSFORMERS POS has been quite strong and TRANSFORMERS was up in the United States as a result. As we now take that out around the world, we expect to continue to see how the teams are able to drive our brands off of that great IP spend, just as we've seen great streaming content work for Disney+ and The Mandalorian. So there's many, many new initiatives that are coming. As we've said, we've got more than 30 brands and more than 40 projects stood up, and some brands will get the benefit of both film and television treatments. And we're very excited they've made -- the teams have made more progress than we could have ever imagined. I guess it's the silver lining in our playbook for 2020 as we all work through this COVID environment and we're all on screens together. Deb? -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [4] -------------------------------------------------------------------------------- And I would add to that too, Steph, that we've been continuing with our integration activities. We're on track to deliver the $20 million in cost savings we talked about this year, and next year, with our -- we expect to have more in cost savings. So when you think about creating this wonderful entertainment around our brands, being able to leverage the blueprint, achieving the cost savings that we've talked about, and we're well on track for hitting our $130 million in synergies by the end of 2022, that's going to lead to greater profit for our company. And based on these investments, along with digital gaming, we really see the benefit of the acquisition over the long term. 2020 has been an interesting year for all of us, but we continue to think the future looks very bright for our company. -------------------------------------------------------------------------------- Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst and MD [5] -------------------------------------------------------------------------------- Deb, if I could, just to close the loop, I think you mentioned program amortization in the fourth quarter would be flat on a pro forma to the prior year. Can you just give us the base number just to square up that for our model? -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [6] -------------------------------------------------------------------------------- Absolutely. The pro forma number last year was 7.1%. So we're looking at a number similar to that for the fourth quarter, around that level. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- The next question comes from the line of Eric Handler with MKM Partners. -------------------------------------------------------------------------------- Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst [8] -------------------------------------------------------------------------------- Yes. Deb, since eOne is a bit of a black box in terms of modeling, just wondered if you could maybe give us a sense of -- TV, film, entertainment was like $166 million in the third quarter. Do you expect deliveries to result in that number being higher in the fourth quarter, about the same? I think last year, on a pro forma fourth quarter number, it was $179 million. Just sort of give us some directional color on how to think about that for modeling purposes. -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [9] -------------------------------------------------------------------------------- I think last year in the fourth quarter, looking at -- with translation and everything else, overall, the eOne segment was around $230 million in the quarter, if you think about overall. However, if you think about this fourth quarter, we're really excited. We believe that we could grow revenues and adjusted EPS from our pro forma Q4 results of 2019 overall as a company because while eOne and the live-action production is returning, we've been in production on animated overall, planning for better deliveries. Some of those will move into the first quarter just because, as Brian mentioned earlier, we started our biggest live-action production late in the third quarter. So if you kind of think about finishing it and delivering it, some of that's going to shift when we start getting through all of those episodes. But overall, our brands and our business, including the Hasbro business, is performing very well. The only thing I would remind people of is our comps from last year. We have a big quarter for Frozen. Our Frozen business was the highest fourth quarter -- had the highest fourth quarter sales ever across the G5 for the brand in all the categories that we have rights according to NPD. So while Star Wars is performing well, we do have that big comp in Frozen. But we do believe we could grow revenues and adjusted EPS from Q4 of a year ago. -------------------------------------------------------------------------------- Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst [10] -------------------------------------------------------------------------------- Okay. And then just as a follow-up, your retail inventories were down in the third quarter -- or your owned inventories were down in the third quarter on a year-over-year basis. How much of that is due to -- because you have tough comps last year with Star Wars and Frozen? How much is just getting back up to speed? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [11] -------------------------------------------------------------------------------- Yes. If you look at the Star Wars business in the third quarter, it was up considerably. In fact, Star Wars is performing at a very high level. So we had the inventory on Star Wars, and the brand was up high double digits for the quarter. It's up high double digits year-to-date. It's really been about very strong demand across the portfolio for our products. We talked a bit about the fact that games back in, as we reported, second quarter had been at low fill rates. Those fill rates begin to notch upwards throughout the quarter, so from July -- end of July to August, August to September. And exiting the third quarter, as we look at October, the month of October POS, we're seeing our POS for the month of October on games up 17.9% so far and our toys up 16.4% so far. So we did have -- if you recall, for the year-to-date sell-through on games, online game sales were up 70% year-to-date. And in the U.S., the business was up 39%, and in global international -- or globally, games were up 29%. So we had sold a lot of games, and we needed to catch up, and we're seeing that now as we head into fourth quarter. So yes, retailer inventories are down, down in several different areas in the U.S.; down in Mexico, as Deb mentioned, managing that business so that we can stabilize and grow again for 2021; and down in a couple of other territories; up slightly in Europe because the European business is performing very well. It was up 7% in the quarter with growth from Franchise Brands, gaming and partner brands in the quarter. And so again, this is the cadence that we're executing this year as a result of high demand and then trying to catch up in certain categories. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- The next question is from the line of Felicia Hendrix with Barclays. -------------------------------------------------------------------------------- Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [13] -------------------------------------------------------------------------------- And that's -- your answer is a great segue to my question. So you had talked about just kind of catching up on the games side. And wondering if we could just move to the franchise side. And maybe you could just dissect that a little bit in terms of what's in there and how that did, NERF, BABY ALIVE, PLAY-DOH. And also, I guess, on the Family Brands, Deb, you mentioned that the retailers are being cautious with inventory, and it affected this line. So I was wondering if you could elaborate there. -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [14] -------------------------------------------------------------------------------- Sure. So if you look at Franchise Brands growth, globally, it was up 4%. I think it's most interesting, as we get some of the new products into the market, that Franchise Brands in the United States and Canada, North America, were up 20%. and we saw growth in 5 of our Franchise Brands with NERF just about flat to a year ago in revenues, and My Little Pony was down. And we talked -- we have a big movie approach for next year. If you look at NERF POS, it grew globally by nearly 4%. It was up more than 7% in North America. Again, we talked about how coming out of India, as we've expanded our strategic sourcing footprint, that, that was benefiting us, but it also led to some delays on some new products. But we have seen really good takeaway. We have 3 new segments for Q4 on NERF, the Elite 2.0, which is that core blaster. It's off to a very strong start. Our Ultra product is doing quite well. That's the one that flies 120 feet, and we're up to Ultra Five, so 5 new blasters there. And then we have a new mega blaster and a holiday item for Ultra called the Pharaoh, which is going to sell for about USD 50. And we feel really good about all that. And then you add to that new Fortnite blasters, which are, again, performing quite well, and a really break-frame social marketing campaign called NERF House. It's got a great lineup of celebrities and athletes. So that brand is performing well. And I think we're at an inflection point now as we catch up on production, and we respond to just the strong demand that's out there. We talked about PLAY-DOH being up for the quarter, and POS was up. We have a lot of new compounds launching. We talked a bit about Transformers, which was a brand that was up in North America. POS is up double digits. And again, really responding to the content at Netflix as well as the content that we have for kids and for preschoolers in Cybertron and for Rescue Bots Academy. The only other brand I'd cite, again, with challenges in supply, our shipments are down a bit on Power Rangers, but our POS on Power Rangers for Q3 was up high double digits, 77%. And year-to-date, that POS is up by more than 100%. So the -- again, the new episodes, we're very excited about the new creative stewardship that's coming there. They're performing incredibly well. We have 900 episodes available on Netflix and new products coming for the holidays. And Steph (sic) [Felicia], you may have mentioned another brand. I'm not sure which one. -------------------------------------------------------------------------------- Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [15] -------------------------------------------------------------------------------- Oh, yes. I was talking on the Family Brands, which, as Deb mentioned, that retailers are being cautious with inventory, which affected that line. So I just wanted some more color there. -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [16] -------------------------------------------------------------------------------- Absolutely, yes. Thanks, Felicia. It's interesting because if you look at our largest customers, they remain Walmart, Target and Amazon, right? And all 3 of them have remained largely open and operating for toys and games. And in fact, it's really a low single-digit percent of our stores, retailers are closed globally right now. But when you look at Consumer Products, licensing and Family Brands is in that category, has a lot in that category, for Consumer Products, the revenue and profit held up well in the quarter. But when you think about the fourth quarter is going to reflect part of the sales from the third quarter. It's a bigger quarter for the category year-on-year when you look at count. Those retailers are being very cautious with inventory management given that there are still store closures and that there are lower sales in licensed categories. So when you think about things like parallel back-to-school, kind of was an interesting back-to-school year this year, right, this is having an impact. So that's why we say we're still watching the fourth quarter. We think it will have an impact on that segment, which impacts Family Brands a bit as well. But overall, the health of the whole segment is good. It's just going to have some impact in the fourth quarter from those continued store closures and retailer cautiousness with inventory in those categories. -------------------------------------------------------------------------------- Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [17] -------------------------------------------------------------------------------- Okay. That's helpful. And then just as my follow-up, I mean, it sounds like you guys are kind of chasing demand in the fourth quarter like others are in the industry. As we kind of assess the puts and takes there, where would your biggest risk be in satisfying that demand? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [18] -------------------------------------------------------------------------------- Yes. So what we'd said back at the end of Q2 as we spoke together at the end of July, we've said that our fill rates were low, we intended to catch up by the end of third quarter. We made a lot of progress in catching up. We're still behind on the games category, just given the substantial demand that we're seeing there. But we've talked about successfully launching NERF and several other brand initiatives in the fourth quarter. We've got Partner Brands, and Star Wars has had a great Q3. Our princess business, Disney princess business was up in Q3. Year-to-date, Frozen business was up. BEYBLADE held up quite well. So our toy business now for the month of October, as we come through some of the big omnichannel events and the early launches for the holiday through the Prime Days, toys were up more than 16% to 16.4%. And games were up nearly 18%. So that catch-up that we talked about through the third quarter in supply is starting to have a good impact on demand. -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [19] -------------------------------------------------------------------------------- And the only thing I would just say is we continue to watch the Consumer Products category just because some of those licensed categories just aren't as strong at retail right now. -------------------------------------------------------------------------------- Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [20] -------------------------------------------------------------------------------- Understood. And John, bittersweet goodbye. Thank you for all your help over the years, and we'll miss you. -------------------------------------------------------------------------------- John A. Frascotti, Hasbro, Inc. - President, COO & Director [21] -------------------------------------------------------------------------------- Thanks, Felicia. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Our next question comes from the line of Arpine Kocharyan with UBS. -------------------------------------------------------------------------------- Arpine Kocharyan, UBS Investment Bank, Research Division - Director and Analyst [23] -------------------------------------------------------------------------------- John, it had been great working with you. We'll definitely miss you. Best of luck with everything. It seems like retail has held up strongly into October. I'm mostly trying to understand whether it is in line with what you have planned for in your production plans earlier this year and whether there are any production limitation-related caps as we look into Q4. -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [24] -------------------------------------------------------------------------------- Well, we're sitting here today with the benefit of being about 1/3 of the way through the fourth quarter at the end of October. And so we expect the holiday season to be a good one. We've talked about the fact that we have a lot of new products launching, and Deb talked about the fact that we could grow this year on a pro forma basis versus 2019. And there are a little more than 60 days left. And we -- again, we feel very good about this holiday season. It's great to see the level of consumer takeaway. It's also great, through our research, to understand how many new fans and families are coming into the category, which really bodes well for 2021 as we continue to execute with innovation and IP in games. And remember, we also had a great benefit that MAGIC: THE GATHERING, as we described, would have more releases. Those releases were very well received by players in Q3, and we had a continuation of some really good releases into Q4. But we feel good about where we are right now. Again, there's enough room left in the calendar year to have a good holiday season and to turn the page and move on to a great 2021. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Our next question is from the line of David Beckel with Berenberg Capital Markets. -------------------------------------------------------------------------------- David James Beckel, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [26] -------------------------------------------------------------------------------- My primary question relates to YouTube, which you called out again this quarter as a minor headwind on the advertising side. Just curious if you can expand a little bit on that. Is it a function of lower ad rates, ad loads or lower engagement? Sort of relatedly, if you don't mind expanding just generally on digital engagement trends that you're seeing across your portfolio brands, that would be really helpful. And then I have a quick follow-up. -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [27] -------------------------------------------------------------------------------- Yes, sure. The digital engagement, the viewership of our brands has been outstanding. PEPPA continues to be the most viewed brand in those formats around the world. We're also seeing, as the team is taking on more of our brands with MY LITTLE PONY, improving viewership as the team has managed that quite well, and they'll add other brands from Hasbro's portfolio to their oversight and the way they manage the algorithms and the deliveries of social content and YouTube content. So it's been quite good. Engagement for PJ MASKS is quite strong. Additional productions for PJ MASKS and PEPPA are good. It's all about the change to the algorithm that YouTube made to be more restricted to advertisers, which just limits some of the advertising revenues that we claim as the way we manage that business. And the team had always done a very good job, much better than Hasbro and eOne in managing that and gaining those revenues and being able to drive revenue growth. We think it will get healthier over time, but right now, of course, we're just responding to the changes in the rules-making about the way advertisers can advertise in kids' content. Deb, I don't know if you want to add. -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [28] -------------------------------------------------------------------------------- What I was going to say was that there were some other changes that were made last year that just impacted it for the quarter. It was a bigger impact for the quarter than -- as Brian said, the algorithms have changed, and we're seeing that this year. But it was just a particularly bigger impact in the quarter, so we wanted to call it out. -------------------------------------------------------------------------------- David James Beckel, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [29] -------------------------------------------------------------------------------- Got it. Helpful. And just as a quick follow-up, I don't think you mentioned it specifically, but curious if you can kind of frame for us how much of an effect the inability to meet demand because of supply chain constraints affected POS in the quarter. -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [30] -------------------------------------------------------------------------------- Well, look, I think that if you look at the POS number, I think the biggest impact, if you look at global POS being up mid-single digits, was the fact that Latin America was down substantially as we get that business healthy and get it on track for 2021. Also, hoping that COVID's major impact it's having there begins to dissipate. So we've gotten retail inventories in line, with retail inventory in Mexico, for example, being down nearly 20%, and that has an impact. If you look across the regions, North America had double-digit POS gains in the quarter, and Asia Pacific had double-digit POS gains in the quarter. Europe had mid-single-digit POS gains. So it's just the average that comes out to mid-single-digit POS gains because of the Latin American decline as we worked through the issues related to the substantial COVID impact, restrictions on stores, the lack of as robust e-com business. But I'd say, overall, as we are now entering the October period with more supply, to see high-teens POS growth for both games and toys is -- has us well positioned for the holidays. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Our next question is from the line of Tami Zakaria with JPMorgan. -------------------------------------------------------------------------------- Tami Zakaria, JPMorgan Chase & Co, Research Division - Analyst [32] -------------------------------------------------------------------------------- So could you comment on your plans around digital gaming launches next year? Any comments on the format of those? Meaning, would those be mobile or PC free to play? Any details you can share? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [33] -------------------------------------------------------------------------------- Sure. So if you look at MAGIC: THE GATHERING for the quarter, it performed quite well. And as you know, our storytelling around MAGIC: THE GATHERING is synchronized between what we do in the analog business and in digital and MAGIC Arena performed quite well, and it was up in the quarter. As we go forward, MAGIC Arena, now having over 2.8 billion games play, which is up quite a lot since Q2, still shows that people are playing, on average, 9 hours a week. We'll move MAGIC Arena to mobile in early 2021, which is, of course, the most popular format for gaming. That ubiquity and number of players should really benefit the brand. We're to continuing work with Tencent to publish MAGIC Arena for China. We also have Spellslingers coming, which is a casual mobile game for MAGIC: THE GATHERING, which will come following the move to mobile. In DUNGEONS & DRAGONS, right now, you can play in early access on Steam. I was actually playing it. It's quite a great game called Baldur's Gate 3. For those fans, it's off to a very strong start. That's available now in early access, and it will launch fully in 2021. We then have Dark Alliance, 2 games that comes in 2021 as well. And the team is making great progress there. We've seen some of the early work, and that's very exciting as well. And then there's a raft of games that talks about the R&D work that's going on, a raft of games that will come in the future for years '22, '23 and '24. It's all in development as we speak, and it will line up with the initiatives of those brands as well as with our entertainment efforts that we're now developing -- fully developing. -------------------------------------------------------------------------------- Tami Zakaria, JPMorgan Chase & Co, Research Division - Analyst [34] -------------------------------------------------------------------------------- Got it. That's really helpful. And then another quick one from me. The quarter-to-date POS trends you mentioned in October, is that including Amazon Prime and some of the deal days from other retailers? Or are those POS numbers normalized for those events? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [35] -------------------------------------------------------------------------------- We just took -- we took effectively the month -- the first month, October. So yes, those impacts are in there, but those were over specific days. If you look at the progress we've made even over the last week following Prime, the numbers are quite strong. So I don't want to get down to kind of week-by-week POS. But just suffice it to say, for the month, those are really good numbers. The peaks during the Prime Days were even higher. But overall, we're seeing, day for day, really good growth around our brands. We're back in stock on new initiatives like NERF, PLAY-DOH. As our games, in-stocks have improved, and we're very excited. As we come up in the next week, we'll have a big launch around The Mandalorian, a new season that's coming. We have more than 20 items available for The Child product, and we've developed more than 75 products around Star Wars. Star Wars is performing at a very high level this year, and we expect a good holiday season, which should enable us to have good performance from our Partner Brand category. Recognizing what Deb said earlier, which is we have very strong comps from a year ago, but it at least positions us well in Partner Brands and allows our business to continue to move forward. -------------------------------------------------------------------------------- Tami Zakaria, JPMorgan Chase & Co, Research Division - Analyst [36] -------------------------------------------------------------------------------- Got it. Very helpful as always. And to John, you will be missed dearly. Best of luck to you, and thanks for all the help. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Our next question is from the line of Drew Crum with Stifel. -------------------------------------------------------------------------------- Andrew Edward Crum, Stifel, Nicolaus & Company, Incorporated, Research Division - VP [38] -------------------------------------------------------------------------------- Okay. Brian, I wonder if you could comment on your expectations for MAGIC: THE GATHERING in 4Q. I mean you gave us some good detail entering 3Q and your expectations there. And then I have a follow-up. -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [39] -------------------------------------------------------------------------------- Sure. So I'll give you kind of a little bit of a progress. On Q4, you'll see at least 3 really robust launches coming up. We have a Zendikar Rising product that will be specifically around fans and gifting. We have a Commander Legends product that we'll launch in November, and Secret Lair will continue into November as well. What's interesting is that we made a number of launches in Q3 that are continuing to have an impact into Q4 as well, more offerings that were very well released are -- very well received by the players. Double Masters set was released in Q3. The Core Set 2021 was our best Core Set of all times because it contains these must-have cards for tournament play. It also welcomed a lot of new players into MAGIC for more at-home play, and many new and in-franchise players really like that offering. We also had added this Jumpstart booster and collector boosters. They'll continue to roll out in the fourth quarter because we had some production challenges. We had talked about that before, and we're going to roll that out into the EU in Q4. Jumpstart, for those of you interested, allows the players to immediately get into the game with these ready-to-play 60-card decks. And the Commander Legends combines 2 of MAGIC's most popular formats of commander and draft. So I think you've got a lot of analog play coming into Q4. We've talked about how, of course, entertainment always leads engagement. And we're well positioned to finish the year out strongly for MAGIC. -------------------------------------------------------------------------------- Andrew Edward Crum, Stifel, Nicolaus & Company, Incorporated, Research Division - VP [40] -------------------------------------------------------------------------------- Got it. Okay. Very helpful. And then, Deb, $369 million of long-term debt classified as a current liability on the balance sheet. Can you talk about what the company's plans would be to address that upcoming maturity? Would you pay it down or look to refinance? -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [41] -------------------------------------------------------------------------------- Sure. Well, within our debt, as you know about, this year, we've only got really committed to pay $22 million, $23 million under our term loans, and we're on track for that. And depending on how liquidity and our cash position goes, we may address some of that debt earlier or we may wait until May of next year. It's predominantly due in the May time frame. Right now, our plans would be to pay that debt down. So those are our current plans. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- Our next question comes from the line of Mike Ng with Goldman Sachs. -------------------------------------------------------------------------------- Michael Ng, Goldman Sachs Group, Inc., Research Division - Research Analyst [43] -------------------------------------------------------------------------------- Great. It was encouraging to hear about the revenue and EPS growth for the fourth quarter. Given the content delivery shifts for eOne, I was just wondering if you could talk about how that might affect gross margins for the fourth quarter and just about your expectations for gross margins more broadly. -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [44] -------------------------------------------------------------------------------- Well, overall, for eOne, we said deliveries, they're on track. We have a lot of items and productions in the pipeline right now, right? So we said some of those could shift into Q1 as we look at them overall. But the COVID -- I would just add, COVID protocols are increasing costs on some of our productions. So they're increasing them at different rates in different productions. So when we think about margins, that's going to be something we need to look at over the long term to see how that plays out. Now we see some of those costs are actually reducing since we've been back in production. But I think that's something we'll be looking at over the long term. So when you think about overall margins, you have to kind of factor in that a bit. But we did say that our expectation is just based on product mix, that we had good product mix. The more of some of our gaming brands we sell in the quarter, the more brands like MAGIC: THE GATHERING we sell in the quarter, that improves our cost of sales from a product mix standpoint. And our program production, we said we thought would be around the same levels as a year ago as a percent of revenue, which was about, in the fourth quarter, 7%. So we'll have to see over time how our margins get impacted by those additional COVID costs. But right now, we expect those program production costs to be about the same level for Q4 as they were a year ago. -------------------------------------------------------------------------------- Michael Ng, Goldman Sachs Group, Inc., Research Division - Research Analyst [45] -------------------------------------------------------------------------------- Great. And just as a follow-up to eOne more broadly, eOne has obviously been impacted by a lot of exogenous factors because of live TV production, theater closures. I was just wondering, do you see eOne revenues getting back to those 2019 pro forma revenues at some point in the near future when things get back to normal? Or is there just something structural in this new environment that prevents us from getting back there? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [46] -------------------------------------------------------------------------------- Yes. No, Mike, the short answer is we do expect the eOne revenues can grow and grow back to being more the way they were in the recent past. Recognize a couple of things that will be very beneficial to the company. Increasingly, those revenues will have more Hasbro IP attached. More of our production capital spend will be around Hasbro IP over time. We'll continue that mix shift into more Hasbro IP, which has that knock-on benefit that Deb described in her prepared remarks, where it enables us to get more Consumer Products licensing. It enables us to drive more of our high-margin toy and game business. It enables us to provide profitable entertainment versus looking at entertainment as more of a marketing expense. And then it will also support the Wizards of the Coast brands that have such deep canon and mythology, and the opportunity to take that to families and fans is really substantial. So we do believe that we've got to get through the phases of COVID. We have to apply the protocols to our productions, and we're doing that. We have 25 productions up and running right now around the world. We're sharing some of those COVID costs with our broadcasters or others who have sponsored or paying for the shows. So there are some shared costs. That's why Deb said we've got to look at where the shared costs are and the ultimate cost. But the big-picture answer is that we see the opportunity to not only go back to where eOne was in the recent history, but to grow beyond that over time and to drive a full range of Hasbro IP, both vault IP as well as in-market IP, to audiences and to consumers around the world. -------------------------------------------------------------------------------- Michael Ng, Goldman Sachs Group, Inc., Research Division - Research Analyst [47] -------------------------------------------------------------------------------- Great. And John, I'll others' comments on the call that it was a pleasure working with you and learning from you. Best of luck. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- Our next question is from the line of Devin Brisco with Bank of America. -------------------------------------------------------------------------------- Devin MacArthur Brisco, BofA Merrill Lynch, Research Division - Research Analyst [49] -------------------------------------------------------------------------------- I just have a couple on e-commerce. Do you still expect e-com to be about 30% or more of sales for the full year? Is the proportion of your sales mix that came from e-com in the quarter in line with that expectation? And could you just walk through e-commerce POS trends by category or your major brands? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [50] -------------------------------------------------------------------------------- Sure. We do expect e-com to probably be about 1/3 of our total global sales by the end of the year. We mentioned that e-com sales in the quarter had grown by 50%, so clearly, continued to track forward. And also, we saw more store reopenings, which balances that e-com sales as a percent of total sales. But e-com growth in the U.S. in the third quarter was 35%. Year-to-date, it's been 65%. Our Franchise Brands were up 34%. Partner Brands were up 54%. Emerging Brands were up 79%. Specific brands like MONOPOLY were up 31%; PLAY-DOH, 56%; and NERF was up 16%. So anyway, you just see that strength to strength, that we have a lot of growth in this category, recognizing that it's on track to be about 1/3 of our business for the full year. -------------------------------------------------------------------------------- Devin MacArthur Brisco, BofA Merrill Lynch, Research Division - Research Analyst [51] -------------------------------------------------------------------------------- Okay. And the gap between POS trends relative to shipments meaningfully improved from the second quarter, though still a headwind. Is this delta something that we should expect to continue to improve, particularly as you catch up on some demand in the games category? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [52] -------------------------------------------------------------------------------- Yes. I think that our goal overall, we've said, was -- as the point that we ended in the third quarter, we expect it to be run rate catching up. The demand in certain categories is still outstripping supply to some extent. That's why we made some of the comments on the call. But some of our new gaming initiatives and games category are quite popular. Some of our new products in NERF are very popular. But overall, I would say we should have demand much more in line with supply in Q4. And that's why we've said we expect a good holiday. Deb, I don't know if you want to comment. -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [53] -------------------------------------------------------------------------------- And I think the only thing I would just add is we continue to watch kind of what's happening with some of our manufacturers around the world, especially in places like India. Some markets, we're not worried. We have essential supplier status. First and foremost, we are concerned about our employees' health, and that includes our third-party manufacturing employees' health as well. So we want to be cognizant of that. But to the extent we have some shutdowns around the world, we may still be catching up come Q1. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- The next question is from the line of Gerrick Johnson with BMO Capital Markets. -------------------------------------------------------------------------------- Gerrick Luke Johnson, BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst [55] -------------------------------------------------------------------------------- And also congratulations to John, the nicest guy in the toy business. So where you're chasing, it sounds like games, and there -- and those are factories that ramped up a little bit late. How much better could your overall sales revenues have been in the quarter if you shipped what you wanted to have shipped? And related to that also, is there -- are there any other distribution issues we should know about other than just factories starting up late? How are your warehouses and the rest of the distribution channel's supply chain? -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [56] -------------------------------------------------------------------------------- Yes. Look, clearly, we've seen where games has been year-to-date, and in the third quarter, clearly, we grew but less so. The POS trends that we're now seeing in Q4 are indicative of the fact that we've been catching up on supply. And the team has done a great job. Deb mentioned that Ireland is going through a 6-week shutdown. But our Irish factory has achieved essential status, and it continues to produce. And we've done that around the world to try to help protect our business and to finish out the year very positively. In Q4, we're shipping a lot of new initiatives. And we are continuing to watch certain areas like India. But we're seeing the products come in, and we're seeing the strong demand. I don't know, Deb, if you want to comment further. -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [57] -------------------------------------------------------------------------------- Yes. I was going to say, I mean, I think our teams have worked so hard to put really good protocols in place to make sure within our warehouses and our third-party manufacturing that our employees are safe and that they can come to work. So first and foremost, I got to give a big shout-out to all of our warehouse employees that have just been tremendous through all this and have been so responsible on how they're doing business right now. So it's really -- they've been just really terrific. But we do continue. Actually, there are certain states that we manufacture, and particularly in India, I think, that give us some level of concern. But overall, really, we are catching up on demand. -------------------------------------------------------------------------------- Gerrick Luke Johnson, BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst [58] -------------------------------------------------------------------------------- Okay. And then on MAGIC, can you just give us what the split is right now between digital and physical? You don't have to give us an absolute dollar number, but percent split, 50-50, 60-40. What's the split between the 2 that's contributing right now? -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [59] -------------------------------------------------------------------------------- So I think we continue to see -- the analog business, of course, has been around a lot longer than the digital business. So as you'd expect, that's probably a larger size. But the interesting thing, Gerrick, we continue to see, when we launch things on Arena as well as what we're building for the future on the digital side of the business, on the mobile space, it's giving a lift to the analog business as well. So overall, the releases have just been so well received. And as we release more in digital, it is giving that lift to analog. But analog is the larger piece still. -------------------------------------------------------------------------------- Operator [60] -------------------------------------------------------------------------------- Our final question today comes from the line of Jim Chartier with Monness, Crespi. -------------------------------------------------------------------------------- James Andrew Chartier, Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst [61] -------------------------------------------------------------------------------- Just a quick question. So wondering if you could let us know how much of eOne revenue historically is tied to the movie box office and live music events. -------------------------------------------------------------------------------- Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [62] -------------------------------------------------------------------------------- Sure. Well, the first thing is eOne has been very fast in moving movies over time from theatrical to streamed movies where they get paid and make a margin. And so I'm not concerned in the short term that eOne's movies are -- won't benefit from exhibition and we can't sell them as everyone is looking for -- increasingly looking for content. The music business has performed well, has held up well, and it's a smaller piece of the total eOne business. Deb, I don't know if you want to comment further. -------------------------------------------------------------------------------- Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [63] -------------------------------------------------------------------------------- Yes. I was just looking. It is a smaller piece of the business, but it's a piece of the business that definitely has been impacted by the inability to do touring and -- with some of the recording acts. As well as the sync revenues and advertising has been impacted as well. But it is a smaller piece of the business. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- We've reached the end of the question-and-answer session. I'll now turn the call over to Debbie Hancock for closing comments. -------------------------------------------------------------------------------- Debbie Hancock, Hasbro, Inc. - SVP of IR [65] -------------------------------------------------------------------------------- Thank you for joining the call today. The replay will be available on our website in approximately 2 hours. Additionally, management's prepared remarks will be posted on our website following this call. Thank you. -------------------------------------------------------------------------------- Operator [66] -------------------------------------------------------------------------------- Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.