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Spin Master Corp
You don't have any saved screeners yet
Good
day,
and
welcome
to
the
Spin
Master
Corp.
Fourth
Quarter
2021
Earnings
Call.
Today's
conference
is
being
recorded.
At
this
time,
I
would
like
to
turn
the
conference
over
to
Sophia
Bisoukis.
Please
go
ahead.
Thank
you,
John.
Good
morning,
and
welcome
to
Spin
Master's
financial
results
conference
call
for
the
fourth
quarter
and
full
year
ended
December
31, 2021.
I
am
joined
this
morning
by
Max
Rangel,
Spin
Master's
Global
President
and
CEO;
and
Mark
Segal,
Spin
Master's
Chief
Financial
Officer.
For
your
convenience,
the
press
release,
MD&A
and
audited
consolidated
financial
statements
are
available
on
the
Investor
Relations
section
of
our
website.
Before
we
begin,
please
note
that
remarks
on
this
conference
call
may
contain
forward-looking
statements
about
Spin
Master's
current
and
future
plans,
expectations,
intentions,
results,
levels
of
activity,
performance,
goals
or
achievements,
or
any
other
future
events
or
developments.
Forward-looking
statements
are
based
on
information
currently
available
to
management
and
on
estimates
and
assumptions
made
based
on
factors
that
management
believes
are
appropriate
and
reasonable
in
the
circumstances.
However,
there
can
be
no
assurance
that
such
estimates
and
assumptions
will
prove
to
be
correct.
Many
factors
could
cause
actual
results
to
differ
materially
from
those
expressed
or
implied
by
the
forward-looking
statements.
As
a
result,
Spin
Master
cannot
guarantee
that
any
forward-looking
statements
will
materialize,
and
you
are
cautioned
not
to
place
undue
reliance
on
these
forward-looking
statements.
Except
as
may
be
required
by
law,
Spin
Master
has
no
obligation
to
update
or
revise
any
forward-looking
statements,
whether
because
of
new
information,
future
events,
or
otherwise.
For
additional
information
on
these
assumptions
and
risks,
please
consult
the
cautionary
statement
regarding
forward-looking
information
contained
in
the
company's
earning
release
dated
February
28, 2022.
Please
note
that
Spin
Master
reports
in
US
dollars
and
all
dollar
amounts
to
be
expressed
today
are
in
US
currency.
I
would
now
like
to
turn
the
conference
call
over
to
Max
Rangel.
Good
morning
and
thanks
for
joining
us
today.
In
2021,
we
delivered
very
strong
performance
for
the
fourth
quarter
and
full
year,
showcasing
the
power
of
our
three
creative
centers
comprising
Toys,
Entertainment
and
Digital
Games.
We've
continued
to
build
on
both
the
legacy
that
our
founders
created
and
our
demonstrated
leadership
within
children's
entertainment.
Our
creative
centers
structure
allowed
us
to
remain
focused
on
being
where
children
are,
ensuring
our
presence
in
their
lives
is
in
ever-connected
world
with an
ever-expanding
options.
The
most
significant
element
of
our
excellent
performance
in
2021
was
the
broad,
diversified
way
we
achieved
it
across
all
our
creative
centers
and
all
our
geographies.
The
efforts
we've
made
to
grow
our
global
footprint,
develop
our
entertainment
capability,
as
well
as
the
early
investment
we
made
in
digital
games
through
the
acquisition
of
Toca
Boca
and
Sago
Mini
are
paying
off.
Gross
product
sales
grew
over
20%,
highlighting
the
strength
of
our
brands
on
a
global
scale.
Total
revenue
grew
30%,
exceeding
$2
billion
for
the
first
time.
Approximately
15%
of
our
total
revenue
in
2021
resulted
from
digital
games
and
entertainment.
EBITDA
exceeded historical
levels
in
both
dollars
and
margin.
Against
the
backdrop
of
our
strong
financial
and
operational
performance,
we've
demonstrated
our
commitment
to
creating
engaging
play
experiences.
We
provided
magical
experiences
for
kids
and
their
families
at
home,
in
playrooms,
on
small
and
big
screens
and
in
digital
playgrounds
around
the
world.
We
are
very
proud
of
Spin
Master's
performance
and
I
want
to
commend
our
global
team
for
delivering
these
exceptional
results.
I
now
want
to
touch
on
each
of
our
creative
centers,
beginning
with
Toys.
Toy
gross
product
sales
growth
was
driven
by
the
global
success
of
new
and
innovative
items,
and
enthusiastic
fandom
for
our
newest
licensed
story
properties.
Our
commercial
teams
navigated
a
complex
supply
chain
environment
to
deliver
on
time
throughout
the
year
to
meet
customer
demand,
providing
the
foundation
to
grow
share
in
key
markets.
These
teams
work
diligently
to
bring
forward
production
earlier
in
the
season
to
ensure
inventory
was
available
for
the
key
shopping
period.
We
saw
the
effects
of
these
in
improved
POS
in
the
backup
of
the
year.
As
we
discussed
in
November,
we
observed
a
meaningful
turnaround
in
POS
trends
where
we
regained
share
through
their
combination
of
improved
inventory
[ph]
flows (00:04:35),
the
introduction
of
new
innovative
items
and
strength
in
our
core
brands
compared
to
the
POS
deficit
we
saw
in
the
early
part
of
2021,
when
our
inventory
levels
hamper
our
POS
results.
We
were
pleased
to
see
this
momentum
continue
to
the
whole
fourth
quarter,
resulting
in
meaningful
share
gains
for
Spin
Master.
According
to
NPD,
in
Q4,
our
global
POS
grew
9%
compared
to
5%
for
the
industry.
In
North
America,
we
outperformed
the
industry
in
Q4,
growing
by
12%
compared
to
the
industry
at
8%.
Internationally,
in
Q4,
we
grew
POS
6%,
while
the
industry
was
flat.
In
Q4,
according
to
NPD,
Spin
Master
was
the
fastest-growing
toy
manufacturer
globally
among
the
top
five.
We
were
particularly
pleased
with
the
diversified
nature
of
our
POS
growth
in
Q4,
with
share
growth
in
5
out
of
the
11
categories
measured
by
NPD
compared
to
2
out
of
11
in
Q2.
The
success
of
PAW
Patrol:
The
Movie,
continue
to
have
a
positive
impact
on
the
performance
of
our
PAW
Patrol
toy
line,
which
outperformed
the
Preschool
category,
finishing
as
a
number
one
Preschool
property
globally
in
2021.
POS
in
Q4
was
up
28%
over
the
prior
year,
per
NPD.
PAW
Patrol
ended
the
year
ranked
as
the
eighth
largest
toy
property
globally,
according
to
NPD.
We
have
continued
to
keep
the
franchise
fresh
with
new
themes
and
worlds
for
preschoolers
to
explore.
In
Activities,
Kinetic
Sand,
which
experienced
tremendous
growth
during
the
pandemic,
continued
its
upward
trajectory
in
2021
with
44%
POS
growth
in
Q4,
gaining
greater
international
brand
awareness
and
increasing
share
in
the
Activities
category.
Per
NPD,
Kinetic
Sand
is
now
the
number
two
reusable
compound
property
and
has
become
a
staple
creative
toy
for
kids
and
kids
at
heart.
With
new
innovative
product
introductions
and
always-on
marketing
for
Kinetic
Sand,
we
expect
to
continue
to
grow
the
brand
and
we
feel
there
is
more
growth
potential
within
the
category
internationally.
Our
Games
&
Puzzles
product
category
saw
mixed
results
in
Q4.
Our
core
game
brands
outperformed
while
Cardinal
was
down
compared
to
2020,
driven
by
strong
pandemic-led
demand
last
year.
Within
Wheels &
Action,
we
saw
strong
performance
from
many
of
our
core
brands
including
Bakugan,
which
beat
the
industry
in
the
battling
toy
class
for
2021.
Gearing
up
for
2022,
we're
continuing
to
lean
into
marketing
platforms
that
deliver
the
strongest
conversion
for
Bakugan,
which
includes
stacking
new
entertainment
content
on
Netflix
with
engaging
integrations
and
experiences
within
Roblox
to
reach
fans
of
the
franchise
within
the
platforms
they
interact
with
every
day.
In
Q4,
our
Toy
license
for
Monster
Jam
ended
the
year
as
the
number
four
property
in
vehicles
and
number
one
license
in
vehicles
per
NPD.
With
more
international
experiential
events
and
live
Monster
Jam
shows
ramping
up
in
2022,
we
expect
more
kids
will
be
inspired
to
recreate
real
Monster
Jam
action
in
their
homes
and
backyards.
In
addition
to
our
evergreen
brands,
our
design
teams
are
also
constantly
reimagining,
inventing
and
bringing new
toys
to
market.
For
NPD
in
2021,
we
had
two
of
the
top
five
new
toy
properties
in
North
America.
The
first
is
Purse
Pets,
a
line
of
interactive
fashion
purses.
This
item
was
introduced
in
August
2021
and
quickly
rose
to
the
top
of
toy
lists.
According
to
NPD,
Purse
Pets
was
the
number
one
selling
toy
in
the
fashion,
role-play
and
dress-up
class
in
the
US.
We're
continuing
to
evolve
this
brand
in 2022
with
new
characters,
retailer
exclusive
and
micro
versions
for
fans
to
wear
and
collect.
The
second
was
Gabby's
Dollhouse,
building
off
the
success
of
DreamWorks
popular
Netflix
series.
We
debuted
the
Gabby's
Dollhouse
toy
line
in
Q3,
and
it
quickly
became
one
of
the
most
sought
after
toys
this
past
holiday
season.
In
2022,
we
will
launch
a
toy
line
in
Europe
and
elsewhere
internationally
and
will
introduce
new
themes
that
complement
the
ongoing
storyline
and
adventures
of
Gabby.
In
2021,
we
saw
great
results
from
new
and
existing
license
partnerships,
including
Gabby.
POS
in
our
total
license
portfolio
grew
over
20%
in
Q4
according
to
NPD.
We
revealed
an
epic
second
year
of
Batman
and
DC
toys,
making
Spin
Master,
the
number
one
toy
licensee
for
the
DC
Universe,
per
NPD
in
2021.
Just
yesterday,
we
were
thrilled
to
announce
that
we
have
renewed
our
initial
contract
with
Warner
Brothers
that
will
see
Spin
Master
retain
the
DC
franchise
globally
for
toy
rights
of
the
boys
category,
as
well
as
games,
outdoor
and
seasonal
and
vehicles,
including
films
for
a
further
four-year
term
beginning
2023
through
2026.
2022
is
a
blockbuster
year
for
the DC
franchise,
with
four
feature
films
hitting
the
big
screen.
We
will
have
innovative
custom
toy
collections
launching
in
conjunction
with
the
Batman
movie
coming
to
theaters
on
March
4,
followed
by
Black
Adam,
THE
FLASH
and
Aquaman
later
in
the
year.
Also
with
Warner
Brothers,
we
launched
the
first
of our
innovative
toys
inspired
by
the
Wizarding
World
stories
and
characters
from
the
Harry
Potter
and
Fantastic
Beast
films.
The
performance
of
these
products
from
an
innovative
playset
to
an
interactive
Hedwig,
exceeded
our
expectations
and
demonstrated
that
a
strong
following
of
these
stories
and
characters
have.
Spin
Master
is
now
the
two
licensee
for
Wizarding
World
globally,
per
NPD.
Between
our
strong
showings
for
Purse
Pet, and
Wizarding
World
and
Gabby's,
Spin
Master
outperformed
the
US
Dolls
category
for
2021,
with
POS
growth
of
21%
compared
to
4%
for
the
industry,
per
NPD.
This
is
an
area that
Spin
Master
has
been
under-represented
in
for
the
last
few
years.
It's
encouraging
to
see
results
like
this
in
one
of
the
most
competitive
categories
of
the
Toy
business.
Industry
e-commerce
growth
is
moderating
as
COVID
eases,
but
has
become
a
significant
larger
portion
of
the
overall
industry
POS
when
compared
to
just
a
few
years
ago.
We
are
continuing
to
invest
in
our
e-commerce
business
to
ensure
we
grow
our
share
in
this
important
retail
channel.
With
some
sales
shifting
back
to
bricks
and
mortar,
we
believe
we
are
having
definitely
opportunities
to
elevate
our
in-store
displays
in
partnership
with
our
retail
customers
and
are
taking
a
moderate
approach
to
pricing
and
promotions,
investing
where
it
makes
sense
to
remain
competitive
while
also
preserving
our
profitability.
Now
turning
to
Entertainment.
We
continue
to
take
a
multi-pronged
approach
to
our
Entertainment
content
creation
led
by
exceptional
storytelling
that
will
resonate
with
kids
globally.
Our
Entertainment
Creative
Center
achieved
a
historical
milestone
in
August
with
our
first
ever
feature
film
for
our
leading
Preschool
franchise,
PAW
Patrol
in
partnership
with
Paramount
Pictures
and
Nickelodeon.
The
film
success
had
a
halo
effect
on
the
franchise
overall,
significantly
raising
PAW
Patrol
awareness
around
the
world.
Franchise
penetration
increased
15
points
among
kids,
following
the
movie
release,
deepening
engagement
with
existing
fans,
evidenced
by
increased
viewing
minutes
and
also
attracting
new
fans,
particularly
on
streaming
platforms
such
as
Paramount+.
We
currently
have
10
regional
shows
and
multiple
short-form
series
airing
or
streaming
in
more
than
190
countries
in
30 languages.
While
PAW
Patrol:
The
Movie
was
our
first
feature
film,
it
will
not
be
the
last,
with
other
film
concepts
in
development,
including
a
second
PAW
Patrol
movie
to
debut
in
fall
2023.
PAW
Patrol
will
also
get
a
spin-off
series
in
2023,
which
has
been
green
lit
by
Nickelodeon.
And Entertainment
has
a
rich
development
slate
currently
in
production,
including
several
new
properties,
which
will
launch
in
2022
and
2023
with
multiple
broadcast
networks
and
streaming
services.
We're
excited
to
build
a
diversified
offering
appealing
to
different
audiences
and
age
groups.
We
continue to
experience
record
growth
in
2021
in
our
Digital
Games
Creative
Center,
primarily
driven
by
Toca
Life
World
with
revenue
growth
of
over
127%
and
culminating
in
Toca
Life
World
being
recognized
as
the
App
Store's
2021
iPhone
App
of
the
Year,
an
amazing
achievement
for
Toca
Boca
studio
as
it
celebrates
its
10th
anniversary.
Digital
Games
continues
to
create
expansive
digital
play
experiences
for
our
kids.
If
you
have
children,
you
know
how
integral
Digital
Games
have
become
to
their
lives.
Digital
Games
have
now
become
digital
playgrounds,
where
kids
explore
and
engage with
their
friends
and
favorite
characters,
new
content
releases,
and
tools
that
allow
them
to
create,
connect,
share
and
express
themselves,
are
driving
strong
global
engagement.
Monthly
active
users
for
Toca
Life
World
more
than
doubled
in
2021,
increasing
from
25
million
in
January
to
56
million
in
December.
The
entire
Toca
Boca
ecosystem
now
has
over
74
million
monthly
active
users
compared
to
45
million
in
Q4
2020.
In
Q4,
the
team
introduced
their
first
in-app
licensing
integration,
welcoming
global
lifestyle
brand
Sanrio
and
its
Hello
Kitty
&
Friends
franchise
into
the
digital
playground
with
great
results.
In
2022,
the
team
has
more
exciting
branded
partnerships
in
the
works
and
new
content
releases,
which
will
keep
kids
engaged
and
give
them
more
options
for
customization
and
creativity.
Sago
Mini,
which
focuses
on
the
younger
demographic
where
play-to-learn
is
a
key
driver
for
parents,
has
helped
fuel
our
Digital
Games
growth
as
well,
with
an
expanding
subscription
base
that
saw
a
29%
increase
in
2021
to
311,000
subscribers
compared
to
2020.
Sago
is
working
closely
with
the
originator
which
we
acquired
in
Q2
to
expand
our
comprehensive
play-to-learn
subscription-based
Digital
Games
offering,
building
on
existing
platforms
and
with
new
product
launches
in
2022
and
2023.
We
are
continuing
to
make
progress
building
[ph]
Nørd
(00:14:54), our
new
studio
in
Stockholm.
[ph]
Nørd
(00:14:56) is
focused
on
developing
Digital
Games
using
Spin
Master's
own
IP.
Our
first
game
will
launch
in
2023
and
we
are
very
excited
about
the
growth
possibilities
for
Digital
Games
that
are
emerging
from
this
initiative.
Now
turning
to
our
outlook
for
the
year,
there
are
several
macroeconomic
and
geopolitical
variables
we
are
monitoring
closely
and
which
we
built
into
our
outlook
and
Mark
will
discuss
shortly.
From a
consumer
perspective,
the
removal
of
stimulus
payments
combined
with
rising
interest
rates
and
inflation,
could
put
pressure
on
families'
disposable
incomes.
As
we
know
from
history,
the
Toy
category
is
somewhat
insulated
from
periods
of
economic
downturn,
but
it
is
something
we
need
to
consider,
especially
for
higher
price
point
products.
We
expect
there
will
continue
to
be
challenges
and
disruptions
in
the
global
supply
chain
in
2022
ranging
from
transportation
bottlenecks
to
cost
inflation.
COVID
remains
an
unknown
variable
in
Asia,
and
we
will
continue
to
implement
advanced
planning
techniques
and
seek
to
remain
responsive,
collaborative
and
agile
in
both
production
and
logistics.
Now,
having
said
all
this,
with
our
clear
vision
for
the
future,
a
strong
global
operating
platform
and
firm
financial
foundation,
we
are
optimistic
about
our
growth
opportunities
in
2022.
We
believe
we
are
well-positioned
to
capitalize
on
the
momentum
from
2021.
We
will
continue
to
seek
opportunities
to
harness
the
potential
of
our
three
creative
centers.
And
as
we
continue
to
grow
the
business,
we
are
seeing
the
power
of
our
operating
model
where
each
creative
center
acts
independently,
but
also
in
concert
with
each
other
when
it
makes
sense,
to
exploit
the
full
potential
of
our
creating
talent,
innovation
and
intellectual
property.
Let
me
conclude
by
thanking
our
global
team
members
for
their
outstanding
contributions
in
2021.
The
management
team
at
Spin
Master
remains
inspired
and
encouraged
by
the
passion,
knowledge,
competitive
drive
and
commitment
to
innovation
that
each
of
our
team
members
embodies.
As
we
begin
2022,
we
see
even
greater
potential
to
connect,
engage
and
reach
even
more
kids
and
families
with
magical
and
memorable
Toy,
Entertainment,
and
Digital
Games
experiences.
I
will now turn it over to Mark.
Thank
you,
Max.
In
the
fourth
quarter,
we
delivered
very
strong
financial
and
operational
results,
representing
significant
year-over-year
improvements.
We
entered
the
year
acutely
aware
of
our
needs
to
address
the
global
supply
chain
challenges
brought
on
by
COVID.
We
maintained
strict
cost
management
discipline,
leveraged
our
diversified
third-party
manufacturing
footprint
to
optimize
production
and
worked
with
our
logistics
partners
to
gain
access
to
additional
ports
and
shipping
lines.
We
were
able
to
methodically
execute
our
plan,
as
evidenced
by
a
full-year
2021
adjusted
EBITDA
of
$414
million,
an
increase
of
$234
million,
130%
over
2020.
Looking at
Q4,
we
were
able
to
build
on
the
momentum
established
through
the
first
three
quarters
and
deliver
significantly
stronger
results
compared
to
last
year.
Q4
revenue
climbed
26.5%,
driven
by
double-digit
growth
across
all
three
of
our
creative
centers
and
product
categories.
The
combination
of
higher
gross
product
sales
in
all
geographies,
improvements
in
sales
allowances,
higher
Entertainment
and
Licensing
Revenue,
and
the
strength
and
momentum
of
our
Digital
Games
business
combined
with
our
operational
execution,
produced
record
profitability
levels.
Gross
product
sales
rose
approximately
$116
million,
or
22.6%,
to
$627
million. On
a
constant
currency
basis,
gross
product
sales
were
up
22.9%.
Geographically,
we
delivered
solid
growth
across
all
markets,
especially
in
North
America,
which
was
up
nearly
33%.
Europe
saw
growth
in
gross
product
sales
of
nearly 12%,
and
the
rest
of
the
world
was
up
just
under
10%.
International
gross
product
sales
declined
to
42.4%
of
total
gross
product
sales,
down
from
46.8%
last
year,
driven
by
strong
growth
in
North
America.
The
growth
in
gross
product
sales
for
the
fourth
quarter
was
primarily
driven
by
customer
demand
and
our
ability
to
successfully
manage
through
the
supply
chain
disruptions,
which
ensured
steady
inventory
flow
and
availability
both
on
shelf
and
online.
We
did
this
by
implementing
safety
stock
and
safety
lead
time
programs
using
innovative
transportation
methods
and
close
collaboration
between
customer-focused
teams
and
sales
team
to
prioritize
orders
and
drive
the
best
possible
Q4
results.
Turning
to
category
performance,
I
want
to
call
out
that
we
renamed
certain
Toy
product
categories.
What
we
used
to
call
Preschool
and
Girls
has
now
been
renamed
Preschool
and
Dolls
&
Interactive.
And
what
we
used
to
call
Boys,
we
now
call
Wheels
&
Action.
Our
Preschool
and
Dolls
&
Interactive
product
category
grew
by
$51.6
million,
or
25.8%,
to
$251.8
million
in
Q4.
PAW
Patrol
continued
to
perform
exceptionally,
contributing
significantly
to
the
growth
of
the
product
category,
together
with
the
success
of
new
product
launches
for
Wizarding
World,
Gabby's
Dollhouse
and
Purse
Pets.
Gross
product
sales
in
Activities,
Games,
Puzzles
and
Plush
category
rose
by
18.7%
to
$206.5
million.
Sales
of
Kinetic
Sand,
as
well
as
Orbeez
and
Rubik's,
both
of
which
were
recent
acquisitions,
positively
contributed
to
growth.
In
Wheels
&
Action,
gross
product
sales
were
up
nearly
20%
to
$146.1
million,
driven
by
higher
sales
of
DC
licensed
products
in
advance
of
the
Batman
movie
in
theaters
on
March
the
4th.
And
continued
momentum
for
Tech
Deck.
Q4
sales
allowances
were
13.6%
of
gross
product
sales,
down
from
15.1%
last
year,
driven
primarily
by
low
and
non-compliance
charges
and
reduced
markdowns
and
promotions
due
to
strong
inventory
sell
through.
In
addition,
we
saw
a
higher
proportion
of
sales
in
North
America
in
Q4
compared
to
Europe.
North
America
has
a
lower
overall
sales
allowance
rate
than
the
global
average.
We've
now
seen
eight
consecutive
quarters
of
strong
revenue
growth
in
Digital
Games.
In
Q4,
Digital
Games
revenue
increased
57.2%
to $50
million,
driven
primarily
by
growth
in
Toca
Life
World
in
app
purchases.
Entertainment
and
Licensing
revenue
grew
16%
to
$28.5
million,
primarily
from
licensing
and
merchandising
revenue
from
the
PAW
Patrol
movie
release.
Gross
profit
for
the
quarter
was
$323.3
million,
or
52.1% of
total
revenue,
compared
to
$241
million,
or
49.1%.
Toys
had
the
most
significant
positive
improvement
in
gross
margin
due
to
lower
close-out
sales,
favorable
changes
in
product
mix
and
cost
reductions
resulting
from
productivity
initiatives.
These
improvements
were
offset
in
part
by
inflationary
pressures
on
product
costs
and
ocean
freight,
partially
mitigated
by
the price
increases.
For
the
quarter,
the
net
negative
impact
of
inflation
partially
offset
by
pricing,
was
around
290
basis
points.
In
both Digital
Games
and
Entertainment,
we
achieved
higher
revenue,
which
was
accretive
to
gross
margin
by
approximately
70
basis
points
and
60
basis
points,
respectively.
Selling,
general
and
admin
expenses
were
$55.6
million
higher
due
to
increased
marketing
and
administrative
expenses.
Marketing
increased
due
to
higher
media
and
commercial
production
spend.
Administrative
expenses
increased
over
last
year
by
$27.1
million
to
$103.8
million.
The
increase
was
primarily
from
personnel
and
incentive
compensation related
accruals
due
to
higher
profitability
in
2021.
However,
SG&A,
as
a
percentage
of
total
revenue
remained
consistent
at
43.1% compared
to
43.2%
last
year.
Adjusted
SG&A
declined
to
41.9%
from
42.2%.
In
Q4,
we
recorded
net
income
of
$26.5
million,
or
$0.25
per
diluted
share,
compared
to
net
income
of
$300,000,
or
essentially
breakeven
per
diluted
share,
last
year.
Adjusted
net
income
in
the
quarter
was
$38.7
million,
or
$0.37
per
diluted
share,
an
improvement
of
$24.1
million
compared
to
$14.6
million,
or
$0.14
per
diluted
share,
last
year.
Adjusted
EBITDA
was
$78.3
million
compared
to
$51.5
million,
an
improvement
of
$26.8
million,
or
52%.
Adjusted
EBITDA
margin
was
12.6%,
up
from
10.5%.
The
increase
in
adjusted
EBITDA
was
driven
by
higher
gross
profit
and
lower
distribution
costs,
partially
offset
by
higher
selling,
marketing
and
administrative
expenses.
From
a
tax
perspective,
we
had
an
income
tax
expense
of
$9.5
million
in
the
quarter
compared
to
an
income
tax
recovery
of
$4.7
million
last
year.
Our
effective
tax
rate
for
Q4
was
24.2%.
Turning
now
briefly
to
full-year
2021,
I
will
call
out
a
few
items
of
note.
Sales
allowances
as
a
percentage
of
gross
product
sales
were
11.8%,
down
100
basis
points
from
12.8%.
This
highlights
our
strong
sell
through
an
improved
operational
performance,
which
drove
lower
markdowns
on
non-compliance
charges,
as
well
as
geographic
mix
which
favored
North
America.
Digital
Games
revenue
increased
127.6%
to
$174.8
million
from
$76.8
million.
Entertainment
and
Licensing
revenue
increased
73.7%
to
$135.8
million
from
$78.2
million.
Gross
margin
represented
51.7%
for
2021
compared
to
46.3%.
The
increase
in
gross
margin
was
a
function
of
cost
reductions
resulting
from
operational
improvements
and
productivity
initiatives,
favorable
product
mix,
lower
close-out
sales
and
lower
sales
allowances.
These
improvements
were
offset
in
part
by
inflation
on
product
costs
and
ocean
freight,
which
were
partially
mitigated
by
price
increases
implemented
in
Q3.
In
addition,
the
higher
revenue
in
both
Digital
Games
and
Entertainment
was
accretive
to
gross
margin
in
2021
by
approximately
90
basis
points
and
70
basis
points,
respectively.
SG&A
decreased
by
390
basis
points
as
a
percentage
of
revenue
as
we
continue
to
generate
operating
leverage
through
increased
volume,
cost
management
and
productivity.
Higher
selling,
marketing
and
administrative
expenses,
largely
driven
by
increased
incentive
compensation
were
more
than
offset
by
leverage
from
higher
volume
and
lower
distribution
costs.
Adjusted
net
income
for
2021
was
$221.3
million
compared
with
$53.4
million
last
year,
with
adjusted
diluted
EPS
of
$2.10
compared
to
$0.51.
Adjusted
EBITDA
for
2021
was
$414.1
million
compared
to
$180.6
million,
an
increase
of
$233.5
million,
or
129.3%,
over
2020.
Adjusted
EBITDA
margin
was
20.3%
compared
to
11.5%.
As
a
reminder,
included
in
adjusted
EBITDA
was
$26
million
of
distribution
revenue
and
the
box
office
bonus
from
the
PAW
Patrol
movie.
If
we
were
to
deduct
the
$26
million,
adjusted
EBITDA
and
adjusted
EBITDA
margin
would
be
$388
million
and
19.2%,
respectively.
Inventory
ended
the
year
at
$137
million
compared
to $102
million
last
year,
up
$35
million.
At
the
end
of
Q4,
because
of
the
global
supply
chain
disruption
and
in
anticipation
of
growth
in
Q1,
we
had
approximately
$45
million
of
in-transit
inventory,
representing
32%
of
total
inventory
compared
to
$19
million,
or
19%,
at
the
end
of
2020.
Trade
receivables
ended
2021
at
$327.9
million
compared
to
$277
million
at
the
end
of
2020,
an
increase
of
18%,
which
is
below
revenue
growth.
Net
operating
working
capital
as
a
percentage
of
LTM
revenue
was
9.3%
compared
to
13.1%
last
year.
We
lead
the
industry
in
our
working
capital
management
by
a
significant
margin.
Q4
free
cash
flow
was
$211.3
million,
$87.6
million
up
compared
to
$123.7
million
a
year
ago,
driven
by
improved
profitability
and
lower
net
working
capital.
For
the
year,
free
cash
flow
was
$339.6
million,
up
46%
compared
to
$232.1
million
in
2020,
driven
by
higher
net
income
and
lower
working
capital.
From
a
liquidity
perspective,
we
continue
to
build
on
our
strong
position.
We
ended
the
year
with
$563
million
in
cash,
up
$242
million
from
$321
million
last
year,
despite
investing
over
$70
million
on
acquisitions
during
the
year.
Given
our
cash
position
going
into
2022
and
the
capacity
on
our
credit
facility,
we
are
in
by
far
the
strongest
liquidity
position
we've
ever
been
in,
with
immediately
available
liquidity
of
over
$1
billion.
Let's
now
turn
to
our
outlook
for
2022.
As
a
reminder,
in
your
guidance
statements
are
based
in
line
with
our
quarterly
reporting
cycle
March,
May,
July,
and
November.
At
each
stage,
we
revisit
our
annual
guidance
with
increasingly
solid
data
based
on
shipments
and
the
flow
of
orders.
Our
2021
performance
allowed
us
to
achieve
our
best
sell
through
and
the
cleanest
retail
inventory
levels
in
many
years
in
most
key
markets.
This
allowed
us
to
exit
the
year
with
strong
demand
and
brand
momentum,
which
positions
us
well
for
2022.
So
far
this
year,
we
continue
to
see
robust
demand
for
our
deep
and
innovative
Toy
lineup.
We
have
actually
never
carried
so
much
strong
momentum
going
into
the
first
quarter.
However,
we
do
need
to
be
mindful
of
macroeconomic
and
other
risk
factors.
The
removal
of
stimulus
payments
in
the
US,
rising
interest
rates
and
inflation,
may
put
pressure
on
disposable
incomes.
We
are
carefully
watching
the
situation
between
Ukraine
and
Russia.
For
context,
though,
please
note
that
less
than
2%
of
our
gross
product
sales
is
derived
from
Russia
and
we
are
credit-insured.
Whilst
demand
in
the
toy
industry
is
relatively
inelastic,
we
need
to
be
prudent
this
early
in
the
year.
Taking
this
all
into
account
for
2022,
we
expect
our
growth
rate
for
gross
product
sales
to
be
in
the
mid-to
high single-digits
compared
to
2021.
As
a
result
of
the
increases
in
gross
product
sales
and
continued
strength
in
Digital
Games,
we
also
expect
growth
in
our
total
revenue
to
increase
mid-to-high
single-digits
over
2021,
when
one
excludes
the
$26
million
distribution
revenue
directly
related
to
the
PAW
Patrol
movie,
which
will
not
be
repeated
in
2022.
Turning
to
profitability,
in
2021,
we
saw
increases
in
input
costs,
particularly
ocean
freight
accelerates
significantly
in
the
latter
part
of
2021
and
remain
elevated
through
Q4
and
into
2022.
We
implemented
productivity
initiatives
and
price
increases
to
help
us
partially
offset
these
inflationary
pressures.
For
2022,
we
expect
to
see
some
costs
remain
at
elevated
levels
and
other
costs
rising,
although
not
at
the
same
rate
as
2021.
We
will
continue
to
take
pricing
selectively
and
implement
other
measures
to
allow
us
to
remain
neutral
from
a
margin
perspective
in
our
Toy
business.
These
actions
include
ongoing
collaboration
with
our
suppliers
in
Asia,
pre-buying
electronic
components,
evaluating
part
substitutions,
facilitating
inventory
prebuilds
strategically
to
reduce
the
impact
of
COVID
lockdowns
and
finally,
increasing
multi-carrier
ocean
freight
sourcing
for
cost
and
predictability.
Through
a
commitment
to
operational
excellence
and
focus
on
finding
value
within
the
supply
chain,
we
expect
to
hold
adjusted
EBITDA
margin
consistent
with
2021,
excluding
the
$26
million
benefit
from
the
PAW
movie
distribution
revenue.
In
addition,
we
expect
depreciation
and
amortization
to
be
down
slightly
compared
to
2021
to
approximately
$100 million.
Of
that, $30
million
results
from
deliveries
of
Entertainment
content.
We
expect
marketing
cost
to
be
between
9%
to
10%
of
revenue.
And
for
SG&A
as
a
percentage
of
revenue,
to
be
slightly
higher
than
2021
as
we
invest
in
growth
for
2023
and
beyond.
Finally,
we
expect
our
effective
tax
rate
to
be
between
25%
and
26%
and
capital
expenditures
are
expected
to
be
between
5%
and
6%
of
total
revenue.
To
conclude,
as
we
look
to
the
balance
of
2022,
our
team
is
fully
aligned.
We
remain
deeply
committed
to
growth
with
disciplined
cost
management,
operational
efficiency,
and
productivity.
We
will
continue
the
momentum
we
developed
in
2021,
leveraging
the
significant
improvements
we
achieved
to
propel
us
forward.
We
continue
to
believe
in
our
long-term
financial
framework
and
that
at
its
core,
our
formula
for
innovation
and
growth
across
Toys,
Entertainment,
and
Digital
Games
is
stronger
than
ever.
That
concludes
our
prepared
remarks. We
will
now
be
pleased
to
take
questions.
Operator,
please
open
the
line.
Thank
you.
[Operator Instructions]
We
will
take
our
first
question
from
Sabahat
Khan.
Please
go
ahead,
your
line
is
open.
Right.
Great.
Thanks.
I
guess
just
on
the
outlook
for
2022
and
some
of
the commentary
around
the
movie
releases
expected
for
this
year,
can
you
maybe share
some
color
on
maybe
quarterly
seasonality
that
we
can
expect
for
this
year?
So,
Sabahat,
we're
going
to
tighten
up
our
outlook
on
seasonality
in
May
when
we
release
our
Q1
results.
But
what
I
can
tell
you
is
that
we
expect
to
see
strong
momentum
going
into
Q1
and
Q2.
So
strong
H1
and
we
will
actually
give
you
formal
guidance
for
the
actual
balance
of
the
year
when
we
go
out
in
May
with
our
Q1
results
–
with
our
Q1
results,
yes,
in
May.
Okay.
Great.
And
then,
with
the
digital
platform,
quite
a
bit
of
growth
over
the
course
of
2021,
how
should
we think
about
the
growth
in
that
platform
relative
to
kind
of
the
overall
guidance.
Total
guidance
looks
like
it's
from
mid-to-high-single
digits
year-over-year
on
revenue,
but
just
wondering
how
that
line
item
is
expected
to
do
this
year?
So,
Saba,
Digital
Games
is
part
of
our
overall
growth
outlook,
as
we
said.
We
do
expect
Digital
Games
to
continue
to
grow,
and
it's
actually
going
to
be
interesting
in
Q1
when
we
actually
break
that
out
further.
But
certainly,
Digital
Games'
growth
is
an
important
component
of
our
total
revenue
growth
of
mid-to-high-single
digits
in
total
revenue
for
this
year.
Max,
is
there
anything
you
want
to add
on
Digital
Games?
Well,
it's
just
early
days
for
us,
Sabahat.
And
so
Digital
Games
are
becoming
even
now
a
more
important
social
destination
for
gamers
and
for
kids
alike.
And
so,
I
think
you
can
expect
that
our
properties,
Toca
Life
World
or
even
our
subscription
properties,
will
continue
to
attract
new
users,
and
we
will
be
able
to
keep
them
engaged
with
new
contents
that
we're
dropping.
And
so
we're
seeing
momentum
going
into
Q1.
Okay, great.
And then
just
last
one
from
me,
I
was
looking
at
your
cash
balance
here,
in
the
$560
million
range,
any
updated
thoughts
on
capital
allocation,
whether
it's
M&A
or
return
on
capital,
anything
you
can
share
on
that
front?
Yeah.
So
we
do
have
strong
liquidity.
We
have
a
very
clean
and
strong
balance
sheet,
Sabahat,
as
you
call
out.
Our
primary
focus
is
to
use
our
cash
for
acquisitions
and
we're
very
active
on
that
front,
both
in
terms
of
traditional
acquisitions
but
also
in
terms
of
venture
activity.
Our
pipeline
is
strong
and
full.
We
don't
have
any
plans
at
this
point
to
return
any
capital.
We
continue
to
believe
in
our
growth
story
and
our ability
to
use
the
cash.
If
at
some
point
that
changes
in
the
future,
we'll
certainly
talk
about
either
a
dividend
or
a
share
buyback
or
something
of
that
nature.
But
at
this
point,
nothing
to
report
on
that
front.
Okay,
great.
Thank
you.
We
will now
take
our
next
question
from
Jamie
Katz.
Please
go
ahead,
your
line
is
open.
Hi.
Good
morning.
Nice
quarter.
I
hope
you
can
help
us
think
about
e-commerce
going
forward.
It
sounds
like
that
channel
has
slowed,
but
can
you
fill
us
in
on
maybe
what
that
was
as
a
percentage
of
total
sales
for
the
year?
And
then,
I
know
you
guys
mentioned
you
had
only
2%
of
sales
in
Russia,
but
I
think
you
have
maybe
a
distribution
center
there.
And
so,
is
there
any
impact
to
distribution
in
Eastern
Europe
that
might
be
of
a
greater
magnitude?
Thanks.
So,
Jamie,
e-commerce
for
the
year
was
around
27%
of
our
sales.
But
in
the
fourth
quarter
it
was
as
much
as
40%.
Max,
I'm
going
to pass
to you
to
talk
about
e-commerce
just
in
terms
of
what's
going
on
with
that
and
then
I'll
take
Russia.
Sure.
So,
Jamie,
our
growth
in
e-commerce
was
pretty
broad-based.
We
beat
the
market
in
Q4
as
Mark
suggested
and
in
2021
as
well,
we
beat
every
competitor.
We
did
so
because
we
put
a
lot
of
effort
in
different
tech
stocks
and
ways
in
which
we're
working.
And
honestly,
we are
the
biggest
pure
play
player,
we
were
the
runaway
winners
for
the
year.
So
we
have
a
lot
of
effort
that
has
gone
into
that
space.
And
for
us
this
has
been
a
great
source
of
growth
and it
has
been
a
source
of
great,
more
profitable
growth.
So
we've
made
a
lot
of
interventions
to
make
sure
that
profitability
is
in
line
with
our
overall
portfolio
And
in
terms
of
your
question
around
Russia,
as
you
pointed
out
and
as
I
mentioned
in
my
script,
less
than
2%
of
our
sales
in
Russia,
just
a
couple
of
million
dollars
in
Ukraine
through
a
third-party
distributor.
In
terms
of
our
distribution
mechanisms,
we
do
have
a
small
warehouse
in
Moscow
that
actually
services
our
Russian
business,
but
our
primary
distribution
centers
are
actually
in
Central
Europe
and
in
northern
Europe,
so
not
that
connected
to
Russia
directly.
Okay.
And
then
if
you
have
any
color
on
the
profit
profile
on
that
digital
business
versus
the
above
the
line
or
above
other
revenue
business,
the
delta
between
the
two
would
be
really
helpful
to
understand.
Yeah.
So,
let
me
just
make
one
macro
comment,
and
then
I'll
point
you
to
our
upcoming
Q1
results
where
we're
excited
to
actually
break
out
our
creative
centers
in
more
detail.
So,
you're
going
to
have
to
wait
to
see
P&Ls
for
Toys,
Entertainment
and
Digital
Games
until
Q1
results are
out,
and
we'll
be
doing
that
going
forward.
But
what
I
can
tell
you
in
macro
terms
is
that
Digital
Games
is
accretive
to
both
gross
margins
and
EBITDA
margins.
And
so,
it's
certainly
an
area
of
growth
for
us
and
we
want
to
continue
to
drive
that
business,
because
it
is
accretive
to
margins
for
us.
Stay
tuned
for
more
details.
Excellent.
Looking
forward
to
the
data.
Thanks.
We
will
now
take
our
next
question
from
Adam
Shine.
Please
go
ahead,
your
line
is
open.
Thanks
a
lot.
Yeah,
good
strong
results,
frankly.
Max,
maybe
one
for
you,
on
the
marketing
side,
it
was
telegraphed
that
this
would
track
to
about
10%,
I
think,
of
revenues.
And
obviously,
you
came
in
below
that
in
the
Q4.
Also
Mark,
in
the
outlook,
talking
about
sort
of
9%
to
10%,
so
just
curious,
are
the
– is
the
product
just
flying
off
the
shelves
on
its
own,
or
are
there
some
lessons
learned
obviously,
as
you
get
a
better
feel
for
the
landscape
and
some
of
the
efforts
you're
putting
into
the
marketing
side
of
the
equation?
And
then
I've
got
a
couple
more
for
Mark
after.
So,
Adam,
punch
line
number
one
is
the
strength
of
our
brands
improved
materially,
so
we
invested
a
great
majority
of
our
marketing
in
those
core
brands
and
franchises.
We
truly
want
to drive
into
evergreens
and
push
our
revenue
into
more
predictable
revenue
going
forward,
that's
number
one. And
number
two,
it
was
really
more
about
being
digitally
first
and
spend
optimization.
That's
punch
lines
number
two
and
three.
On
the
digital
first,
we
basically
were
able
to
get
a
lot
of
money
into,
basically
the
premium
online
TV
and
also
in
CTV
and
OTT,
which
are
basically
all
basically
streaming
platforms
and
we
were
able
to
do
that
very
efficiently.
In
fact,
what
I
can
tell
you,
is
that
basically,
we
were
able
to
get
about
33%
higher
reach
with
less
than
12%
less
cost
per
reach
point.
So,
when
you
combine
the
higher
reach
and
lower,
obviously,
cost
per
reach
point,
you
kind
of
get
that
really
playing
in
our
favor.
And
then
third,
let's
not
obviously
forget
that
with
the
supply
chain
constraints
that
we
had,
when
we
had
items
that
were
not
available
and
we
would
have
had
marketing,
we
actually
flowed
that
money
to
other
places
where
we
were
getting
significantly
more
consumption.
So
that
also
helped.
But
as
we
enter
quarter
one
with
the
strength
that
we
have
in
our
brands,
we're
basically
putting
marketing
investments
against
our
core
and
franchises,
and
we're
very
excited
to
do
so.
Lots
of
learnings
and
efficiency.
That's
great.
Thanks,
Max.
That's
helpful.
Two
other
things.
We
obviously,
none
of
us
had
the
benefit
of
seeing
some
of
the
new
products
at
a
toy
fair
that
didn't
happen.
And
I
guess,
we'll
hear
more
perhaps
heading
into
the
May
Q1
disclosures.
But
just
out of
curiosity
and
over and
above
some
of the
licensed
products
that
are
obviously
coming
around
the
Batman
movie,
et
cetera,
anything
to
highlight
in
terms
of
key
new
products
that
you'll
lean
on
this
year?
Number
one.
And
number
two,
given
some
of
the
pandemic
dynamics,
where
are
we
exactly
in
sort
of
the
re-launch
cycle
of
Bakugan,
in
the
context
of
what
was
expected
to
have
been
maybe
a
four
to
five year
re-launch?
Thanks.
Yeah.
So,
the
good
news
as
Mark
and
I
both
have commented
on
is
that
the
growth
in
2021
was
really
more
broad
scale.
And
so, I
just
would
want
to comment
on
that.
Second,
the
impact
of
our
new
innovation
also
played
a
key
role.
So,
as
we
enter
spring
2022
and
fall
2022,
what
you
can
expect
is
the
following
and
things
that
we're
very
excited
about.
Let's
start
with
PAW
Patrol.
So
PAW
Patrol
was
an
incredibly
important
contributor
in
2021.
And
we
have
significant
more
support
for
PAW
Patrol
in
2022.
We
have
new
series,
we
have
toys
for
the
new
series.
We
have
a
number
of
things
that
we're
very
excited
about
both
in
the
spring
and
in
the
fall.
And
so,
that's
basically
the
starting
point.
Second
and
something
that
I'm
very
excited
about
as
well,
is
the
fact
that
Gabby's
Dollhouse
has
now
become
an
incredible
contributor
in
the
segment,
and
we
have
significant
follow-up
innovation
behind
Gabby's
Dollhouse.
So
basically,
that
strengthened
our
position
in
Preschool.
And
we're
super
excited
Preschool
and
Dolls.
So
that
to
me
is
another
place
where
I'm
very
excited.
Let's
not
forget
the
fact
that
we
also
have
a
lot
of
activity
in
Wheels
&
Actions
though
it's
following
2021,
so
that
is
coming
with
a
lot
of
innovation
both
in
the
spring
and
also
in
the
fall.
And
then
last
but
not
least,
with
all
the
licenses,
we
have
significant
amount
of
toy
collections
for
each
of
the
movies
that are
coming
out,
whether
it's
on
the
– obviously,
on
the DC
or
Wizarding
World.
So
those
are
some
of
the things
that
I
wanted
to
comment
on.
On
Bakugan,
we
are
basically
going
into
a
Bakugan
content
reboot
and
we're
very
excited
about
that.
And
that
will
basically
continue
to
propel
the
brand
content
for
the
people
that
we
have
attracted,
coupled
with
a
lot
of
the
work
we've
done
with
Roblox
and
Netflix,
to
basically
use
our
combination
as
we
bring
more
fans
into
the
franchise.
So
you
can
expect
a
lot
more
of
that
and
stay
tuned
for
future
interventions
in
Bakugan
that
we
are
incredibly
excited
about.
Okay.
That's
great.
Thank
you
very
much.
We
will
now
take
our
next
question
from
George
Doumet.
Please
go
ahead,
your
line
is
open.
Yeah.
Guys,
good
morning
and
congrats
on
a
good
quarter.
Max,
thanks
for
the
information
on
the
share
gain.
Just
following
up
on
that,
do
you
think
that's
going
to continue?
Maybe
just
maybe,
I
guess
your
general
outlook
on
where
you
see
the
industry
growing
or
to
what
extent
you
see
growing
in
2022?
Yeah.
As
you
know,
it
was
a
combination
of
two
things.
One
is
being
in
stock.
And
second,
basically
putting
marketing
activation,
so
we
can
actually
lift
the
brands
that
we
wanted
to
lift.
And
so
that
continues
into
quarter
one.
And
so
far,
I
can
tell
you
without
getting
into
too
much
details
that
that
continues
to
be
a
proven
model
for
us.
So
we're
continuing
to
do
very
well.
I
expect
that
as
we
go
into
the
spring
point
of
sale,
we're
going
to continue
to
see
the
effect
of
the
new
innovation
helping
lift
our
boats.
And
as
we
go
into
the
fall
of
2022,
we
have
a
great
slate
of
new
innovation
coming
and
as
was
commented
earlier,
while
we
have
not
been
able
to
see
that
broadly
doing
toy
shows,
we're
going to
be
able to
see
it
in
May
when
we
have
our
conference
with
you
guys.
So,
I
expect
that
we
will
continue
to
basically
grow
in
line
with
what
Mark
described
as
our
guidance
for
GPS,
and
we
expect
that
we
will
be
growing
share
within
the
context
of
that
guidance.
That's
helpful.
Thanks.
And
just
a
follow-up
on
Gaming,
if
we
keep
our,
I
guess,
Entertainment
and
allowances
kind
of
constant,
we
get
an
implied
kind
of
growth
of
about
20%
or
25%
or
so,
for
that
category.
Is
that
the
right
way
of
looking
at
it?
And
just
a
follow-up
to
that, can
you
talk
a
little
bit
about
some
of
the
drivers
there?
Is
it
–
are
we
going to
push
price?
Is
it
active
users? I
mean, you can to maybe that
level
of
growth?
Yeah.
So,
first
and
foremost,
the
actual
category
for
Digital
Games
is
actually
growing
faster
than
our
Toys
are
growing,
so
that's
really
one
point.
It's
actually
a
larger
category
as
well
in
which
we
play.
And
therefore,
you
can
basically
do
the
math
and
understand
quickly
that
as
we
are
getting
a
lot
more
focus
put
in
that
segment,
our
growth
rates
will
basically
be
commensurate
with
that.
That's
number
one.
Number
two
on
our
properties
that
are
basically
driving
our
growth.
And
let
me
start
with
the Toca
Life
World,
we
have
great
organic
plans
to
continue
to
drive
more
users,
but
also
to
actually
drive
the
engagement
of
the
users
in
the
ecosystem.
So,
those
are
the
two
components
that
we're
actually
very
focused
on.
And
in
this, obviously,
game-as-a-service
environment,
where
you're
actually
creating, providing
creator
tools
for
people
to
then
obviously
purchase,
we
find
that
to
be
very,
very
attractive.
Last
but
not
least,
within
Toca
Life
World,
we
actually
are
looking
to
extend
that
line
into
Toca
Days,
which
is
basically
our
introduction
into
multiplayer
ecosystems
and
we're
very
excited
about
that
too.
So,
you
can
expect
that
we
have
a
tremendous
slate
of
growth
opportunities
with
Toca
Life
World
and
that
is
our
focus.
On
Sago
Mini,
we
are
incredibly
excited
about
the
subscriber
base
that
we
have
actually
been
able
to
grow
over
the
last
year,
and
we
have
great
initiatives
coming
up,
starting
really
soon
with
[ph]
First
Words (00:49:33)
being
one
of
them
that
we're
very
excited
about.
And
so
we
have
a
lot
of
other
organic
and
extension
initiatives
for
Sago
Mini
to
expand
our
consumer
and
subscriber
base.
And
we're
working
pretty
closely
between
Sago
Mini
and
Originator,
which
we
acquired
in
Q2
to
have
more
options
with
Originator,
basically
leveraging
what
we
know
has
really
worked
in
this
space.
And
so,
we
are
very
excited
about
the
combination
of
that.
And
then
last
but
not
least,
and
this
is
more
kind
of
headed
into
the
future,
we
have
[ph]
Nørdlight (00:50:02),
which
is
our
digital
studio
in
Stockholm.
And
remember,
that
is
really
all
about
taking
our
Spin
Master
IP
and
making
Digital
Games
with
that,
and
there's
a
few
things
we're
working
on
that
we're
super
excited.
Stay
tuned.
We'll
be
able
to tell
you
more
in
an
upcoming
call.
Yeah,
thanks
for that.
So,
one
last
one,
maybe
for
Mark
on
working
capital.
It's
obviously
been
pretty
volatile.
If
you
look
at
free
cash
flow
for 2022,
can
you
maybe
help
us kind
of
think
about
that
working
capital line,
maybe
as
well as
CapEx,
just
to
get
a
picture
of
I
guess,
overall
free
cash
flow
for
the
year?
Yeah.
So,
free
cash
flow
in
2021
was
really
a
very
impressive
$340
million
at
82%
free
cash
to
EBITDA
conversion
ratio,
which
is
really
outstanding.
That's
going to
moderate
in
2022.
We
had
some
timing
issues
in
2021
that
boosted
free
cash
flow,
that
will
unwind
a
little
bit
in
the
first
quarter
of
2022.
We're
also
going
to
see
larger
CapEx
spend
overall
in
the
Entertainment
business
in
2022 in
relation
to
2021.
And
then
finally,
in
anticipation
of
further
growth in
2022 and
2023,
we'll
be
investing
in
working
capital.
So
we
will
see
free
cash
flow
come
down
in
2022,
but
still
at
very
healthy
levels.
Okay. Thanks,
guys.
We
will
now
take
our
next
question
from
Brian
Morrison.
Please
go
ahead,
your
line
is
open.
Yeah.
Thanks
very
much.
Good
morning.
The
first
question
is
for
Max.
I
just
want
to elaborate
on
the
digital
question
so
far.
I
want
to know
what
you
think
your
total
addressable
market
is
in
the
children's
sub-10
age
group
in
the
Digital
category.
And
then
maybe
just
elaborate
how
[ph]
Nørdlight (00:51:50)
is
going to
be
integrated
into
your
active
user
base,
will
it be
through
Toca
Boca,
Sago
Mini,
all
of
the
above?
And
do
you
have
plans
or
any
agreements
in
place
that
you
can
add
third-party
licensed
characters
to
the
digital
world?
Wonderful.
So,
what
excites
us
a
lot
about
this
space
is,
obviously the
addressable
market
is
in
excess
of
$90
billion.
So
it
is
incredibly
large as
I'm
sure
you've
seen
in
other
presentations.
Within
that
of
course,
you
think
about
where
we
play
today,
which
is
just
a
fraction
of
that
and
the
opportunities
with
[ph]
Nørdlight (00:52:29)
really
kind
of
go
beyond
that,
because
it
basically
gets
us
into
casual
puzzles.
It
gets
us
into
a
lot
of
segments
we
don't
participate
today.
But
you
can
do
the
math
and
think
about
our
own
Toy
IP
and
then
basically
do
the
permutations
to
where
we
can
go
with
that.
And
that
is
the
way
we're
approaching
this.
So
we
see
the
world
expanding
for
us
in
terms
of
audience.
Most
of
our
space
today
is
for
Sago
Mini
and
Originator
in
the
two to
five year old
space
and
Toca
Boca
ages
up
that
audience
and
basically
gets
into
the
5
to 10 years
old,
if
you
will.
But
imagine
what
we
can
do
beyond
that,
and
that
is
the
way
we're
approaching
the
addressable
market.
Does
that
answer
your
question?
Well,
it
does.
But
I
also
want
to know
if
you
have
the
ability
to
add
third-party
licensed
characters
through
digital
world
or
any...
[indiscernible]
(00:53:18)
Yeah,
we
do,
right.
We
do,
and
our
first
expression
of
that
was
Sanrio
with
Hello
Kitty.
And
given
the
success
of
what
happened
with
Hello
Kitty,
there's
interest
to
continue
to
do
that,
not
just
from
us
but
other
others
as
well.
And
so
you
can
expect
that
we'll
continue
to
do
that.
Okay. And
then
I
just
have
a
follow
up
question
for
Mark.
Mark,
why
did
the
digital
revenue
down
sequentially
in
Q3
when
there's a
substantial
increase
in
active
users?
Yeah.
So,
it
actually
was
a
timing
of
content
and
also,
Brian,
to
do
with
the
way
that
the
holidays
played
out
in
2021.
So,
we
had
a
very
large
Q3.
July
and
August
were
very
big
months,
while
kids
were
actually
on
vacation.
And
then
really,
we
didn't
have
any
major
content
drops
going
through
all
the way
through
until
December.
And
so,
sequentially,
our
quarterly
revenue
came
down
a
little
bit
but
we
had
an
extremely
large
December.
We
had
a
record
month
in
December
in
Digital
Games
in
relation
to
the
content
that
Max
was
talking
about
with
Sanrio
and
Hello
Kitty.
So,
it
really
was
a
little
bit
of
a
function
of
kids
going
–
being
on
vacation,
going
back
to
school,
moderating
a
little
bit
and
then
a
large
content
drop
in
in
December.
Okay.
[indiscernible]
(00:54:37)
Sorry,
go
ahead.
Sorry,
Brian.
I
was
just
going to
say,
in
general,
you
don't
see
the
same
seasonality
in
Digital
Games
that
you
do
in
Toys.
Thing is,
is
roughly
a
50/50
seasonality
in
H1
and
H2,
but
it
can
also
depend
on
when
you
drop
new
content
and
when
new
tools
become
available,
for
example.
So,
there
is
some
variability
associated
with
that.
Okay.
Thank
you
for
that.
And
then
final
question,
I
just
want
to confirm
your
message,
we talk
about
this
quite
routinely
now.
But
it
sounds
like
you
feel
you
can
deploy
this
$0.50
billion
of
cash
on
your
balance
sheet.
I
guess
just
outside
of
Spin
Master
Ventures,
are
there
any large
opportunities?
Like
is
there
opportunities
to
deploy
a
big
chunk
of
this
cash
at
one
time?
So,
Brian,
I
mean,
yes,
we
do
believe
we
can.
We
firmly
believe
that
we
have
opportunities.
But
obviously,
we
approach
things
in
a
very
disciplined
way.
And
so,
just
given
that
discipline,
we
have
to
look
at
large
acquisitions
very
carefully.
But
certainly
as
we've
expanded
our
creative
centers
and
grown
our
creative
center
businesses,
and
we
start
looking
now
to
Entertainment
and
we
start
looking
more
to
Digital
Games
in
particular,
there are
tremendous
opportunities
that
open
up
there
and
we
feel
comfortable
and
confident
that
we
can
deploy
that
cash
in
a
accretive
way.
Thank
you,
We
will
now
take
our
next
question
from
Martin
Landry.
Please
go
ahead,
your
line
is
open.
Hi.
Good
morning.
Just –
you
do
a
really
good
job
brushing
out
some
of
the
risks
that
are
embedded
in
your
guidance
for
2022.
I'd
love
to
hear
about
some
of
the
potential
upsides
that
lie
in
your
assumptions
for
both
revenue
and
margins
for
2022?
So,
Martin,
when
you
look
at
our
guidance,
we
think
at
this
point,
just
given
where
we
are
in
the
year,
we've
taken
a
measured
approach.
Obviously,
there
are
the
macro
and
geopolitical
issues
that
Max
discussed
and
I
also
discussed
in
the
script.
We're
taking
a
view
on
cost
inflation.
We're
taking
a
view
on
pricing.
So
there
could
be
some
changes
on
that
front
as
well.
In
particular,
Digital
Games
growth
is
an
area
where
we
see,
which
we've
built
into
our
revenue
outlook,
but
there
could
be
upside
there,
as
well
as
on
the
licensing
and
merchandising
front,
because
keep
in
mind
we're
carrying
some
momentum
from
the
PAW
movie
into
H1
as
well.
So
there
could
be
some
upside
on
licensing
and
merchandising.
And
then
that's
all
offset
by
slightly
higher
SG&A
as
we
have
a
higher
proportion
of
licensed
properties
in
our
2022
mix.
So
that
equates
to
high
selling
costs
as
well
as
some
investments
in
people
in
anticipation
of
growth
in
2023
and
beyond.
So
there
are lots
of
puts
and
takes
there.
And
to
the
extent
that
there's
upside,
it's
likely
going to
come
from
Digital
Games
or
gross
product
sales
growth
in
excess
of
expectations.
Okay.
That's
helpful.
And
then
maybe
just
touching
on
your
inventory
levels,
you
did
allude
to
the
fact
that
your
inventory
levels
are
lean
heading
into
2022.
Anything
you
can
quantify
for
us?
And I'm
more
interested
that
your
inventory
levels
at
retail,
trying
to
see
what
we
should
expect
in
terms
of
close-out
sales
for
Q1.
Just
any
metrics
you
can
share
on
your
inventory
at
retail
would
be
helpful.
So,
we
actually
had
a
very
strong
sell
through
in
Q4.
As
Max
discussed
earlier,
we
really
actually
were
clean
at
retail.
And
so,
we're
seeing
strong
refill
of
the
inventory
at
retail
currently
as
we
speak,
which
bodes
well
for
a
strong
Q1,
compounded
by
the
release
of
the
DC
movie
as
well, the
Batman
movie.
So
actually,
Q1
is
looking
pretty
good.
There's
really
no
risk
in
our
owned
inventory.
We
ended
very
clean.
We
had
a
fair
amount
in
transit
in
anticipation
of
the
growth
in
Q1.
But
overall,
channel
retail
inventories
were
actually
in
very
good
shape
and
in
fact
quite
low,
which
is
why
retailers
are
leaning
in
now.
Perfect.
Okay.
That's
it
for
me.
Thank
you.
Okay.
We've
got
a
couple
of
minutes
left.
So
we're going to
unfortunately
have
to
make
this
last
question.
We'll
take
our
last
question
from
Luke
Hannan.
Please
go
ahead.
Your
line
is
open.
Yeah.
Thanks.
Good
morning.
Thanks
for
squeezing
me
in
here.
I
just
had
one
on
Toca
Boca.
I
think
it was
discussed
last
quarter
about
how
property
as
it
stood
then
skewed
more
towards
a
North
American
audience,
although
it
was
beginning
to
gain
traction
on
a
global
basis.
I'm
just
curious
to
know
how
that's
progressed
throughout
Q4
and
into
Q1,
and
maybe
if
we
can
compare
that
to
some
other
similar
global
properties
to
get
a
sense
of
a
better
context
as
to
where
potentially
the
brand
can
go?
Thanks
Yeah.
Absolutely.
So,
the
composition
of
our
audience
for
Toca
Boca
is
well
beyond
North
America.
And
while
the
US
is
the
number
one
country
of
users,
that
has
actually
increased.
But
what
has
truly
happened
is
that
the
saliency
of
the
property
has
truly
exploded
in
other
markets,
including
emerging
markets,
to
be
honest
with
you.
And
as
you
can
imagine,
kids
with
access
to
phones
actually
have
now
access
to
the
games,
and
TikTok
has
democratized
how
basically
people
know
about
the
brand,
not
just
TikTok,
but
other
forms
as
well.
And
so
children
are
basically
now
with
phones
and
the
ability
to
actually
connect
to
the
brand,
able
to
do
that
no
matter
where
they
are.
The
appeal
of
the
content
is
universal
and
we've
learned
that
as
well.
And
so
we're
basically
seeing
anywhere
from
India
to
Brazil
to
Mexico
to
places
in
Eastern
Europe
and
everywhere.
And
so
we
are
very
excited
and
therefore
very
optimistic
as
well.
And
while
this
is
a
game-as-a-service
and
it's
free-to-play,
we
also
see
the
engagement
and
the
monetization
happening
not
just
in
the
US,
but
more
broadly.
Okay.
Thank
you,
very
much.
So, John,
I
think
we're
going
to
wrap
it
up
at
this
point.
I
just
wanted
to
thank
everybody
for
attending
the
call.
We
are
really
looking
forward
to
our
release
on
May
the
4th,
which
is
our
Q1
release,
and
particularly
on
May
the
5th,
where
we
will
be
providing
updated
outlook,
as
well
as
our
an enhanced
disclosure
around
Toy,
Entertainment
and
Digital
Games,
as
well
as
our
Investor
Day.
We
will
be
actually
showcasing
some
of
our
new
products
and
technologies.
You'll
have
an
opportunity
to
hear
from
Chris
Beardall
and
Jennifer
Dodge
and
Fredrik
Loving,
who
lead
our
creative
centers
as
well.
And
so,
we're
looking
forward
to
May
the
5th
and
we
thank
you
for
your
participation
today
and
we'll
talk
to
you
again
soon.
Thank
you.
This
concludes
today's
call.
Thank
you
for your
participation.
You
may
now
disconnect.