Hasbro Reports First Quarter 2020 Financial Results

Provides Business Update Related to COVID-19

• Completed acquisition of Entertainment One Ltd. (eOne) in early fiscal 2020
• First quarter 2020 revenues for the combined company were $1.11 billion
  • Strong demand for Hasbro products, notably in gaming
  • Later delivery timing for eOne content in 2020 versus 2019
• Supply chain positioned to meet full-year product demand requirements leveraging growing retailer channels, including ecomm and omni-channel
• Substantial liquidity and access to cash, including quarter ending cash of $1.2 billion; operating cash flow of $291.6 million; and availability of $1.5 billion under revolving credit facility
• Net loss of $69.6 million or $0.51 per diluted share; Excluding eOne acquisition-related expenses and purchased intangible amortization, adjusted net earnings were $77.7 million, or $0.57 per diluted share
• Hasbro supporting community efforts to obtain and supply personal protective equipment, toy and game donations, books, learning and nutritious meals for children and families in need as well as a global campaign, Bring Home the Fun, to provide resources to keep kids occupied and engaged around the world

PAWTUCKET, R.I.–(BUSINESS WIRE)–$HAS #HAS–Hasbro, Inc. (NASDAQ: HAS), a global play and entertainment company, today reported financial results for the first quarter 2020 and provided a business update on COVID-19 related matters. Hasbro completed its acquisition of Entertainment One Ltd. (eOne) at the beginning of the first quarter. 2020 results are those of the combined company, and 2019 results referenced herein reflect the pro forma combined results. See the financial tables accompanying this press release for a reconciliation of as reported to pro forma and adjusted results.

Net revenues for the first quarter 2020 were $1.11 billion versus $1.20 billion pro forma revenues in 2019. Foreign exchange had an $11.7 million negative impact on first quarter 2020 revenues.

Net loss for the first quarter 2020 was $69.6 million, or $0.51 per diluted share, versus pro forma net earnings of $76.4 million, or $0.56 per diluted share in 2019. First quarter 2020 net loss included $127.5 million after tax of acquisition-related expenses and $19.9 million after tax of purchased intangible amortization associated with the eOne acquisition. Excluding these items, adjusted net earnings for the first quarter 2020 were $77.7 million, or $0.57 per diluted share. First quarter 2019 pro forma net earnings included $19.1 million after tax of purchased intangible amortization at eOne and $9.3 million associated with non-GAAP adjustments at eOne. Excluding these items, adjusted pro forma net earnings for the first quarter 2019 were $104.8 million, or $0.76 per diluted share.

“The first quarter highlights what truly differentiates Hasbro: A global team that meets challenges creatively and nimbly; a diverse brand portfolio and retailer base, including best in class ecomm and omni-channel execution; a strong financial foundation and balance sheet; and a commitment to our purpose of making the world a better place for children and their families,” said Brian Goldner, Hasbro’s chairman and chief executive officer. “During the quarter, families and friends connected through Hasbro’s robust portfolio of face-to-face games, created with PLAY-DOH and engaged in content and imaginative play with our brands and entertainment properties. Our teams worked tirelessly to ensure product could get to consumers while managing the health and safety of our employees and partners globally who are navigating a global supply chain and retail landscape impacted by COVID-19. Point of sale at retail was strong during the first quarter and continues to be up in April.

“We’ve undertaken extensive scenario planning across the business and geographies as we plan for a re-opening of the economies globally,” continued Goldner. “At the same time, we made significant progress on the integration of eOne and while near term much of the team’s production work has been delayed due to COVID-19, we are actively working together to unlock value from our brands and the eOne enterprise. Hasbro is creating play and entertainment experiences which are vital and desired by consumers and audiences this year and for the years to come.”

“Hasbro is operating from a solid financial position with substantial liquidity available in both cash on hand and a revolving credit facility,” said Deborah Thomas, Hasbro’s chief financial officer. “Upon closing the eOne acquisition, we drew down on a $1 billion term loan and left our cash on the balance sheet intact. This cash position increased to $1.2 billion at quarter end, and is further supported by access to a $1.5 billion revolving credit facility. The global team did a tremendous job navigating the challenges of the first quarter. Toward the end of the quarter, physical store closures and country-wide restrictions became more prevalent and entertainment productions shut down. As a result of COVID-19, we expect the second quarter to be more challenging than the first quarter of the year with revenues and earnings down versus pro forma 2019. We are taking prudent steps to lower expenses and preserve capital while positioning to meet the seasonal peak demand periods of the business in the second half of the year, including the holiday season. While the ultimate impact of COVID-19 will vary depending on how long it takes to reopen markets around the world, we are currently seeing healthy demand for our products and content.”

COVID-19 Business Update

Supply Chain

• China: Third-party factories in China represent approximately 55% of the Company’s manufacturing production. After operating at lower than planned production levels during the first quarter due to COVID-19, these factories are currently operating at planned capacity for this time of year. China factories are making product across the business, including games. As production typically builds to peak levels during the summer months, the Company anticipates making up production lost in the first quarter in the second quarter and to be well positioned to meet holiday demand. These beliefs assume all production continues to operate in all material respects without further COVID-19 shutdowns.
• Outside of China: Manufacturing and warehouse partners outside of China operated at close to normal levels during much of the first quarter. Beginning in mid-March and through today, these locations are operating at varying levels of productivity depending on local government and safety considerations, with some markets operating at lower than normal production levels and other facilities have been closed for a period of time. Currently closed facilities include manufacturing in Massachusetts, Texas and Ireland, primarily for games, as well as manufacturing locations in India.
• The global Hasbro team is utilizing its diverse global supply chain to meet demand from open facilities, existing inventory and to rapidly make up lost production. The COVID-19 situation is very fluid and based on our understanding of local governments directions at this time, we expect closed facilities to reopen over the summer. We will be using our full complement of sourcing partners globally to ensure a quick recapture of any lost production on priority items.

Demand

• Hasbro brands are resonating as people spend more time at home, including games for families to play together and PLAY-DOH as kids engage in more creative play.

  First Quarter Consumer Demand Up for Hasbro Brands, Led by Games
  
  

• Global consumer point of sale increased mid-single digits, led by double-digit gains in North America.
• Hasbro’s total gaming category revenues, including MAGIC: THE GATHERING, MONOPOLY and Hasbro Gaming, grew 40% and point of sale was up globally over 25% (note: point of sale does not include Wizards of the Coast brands).
• PLAY-DOH point of sale increased mid-single digits.
• Hasbro launched Bring Home the Fun, a global initiative created to further the Company’s purpose to make the world a better place for children and their families. The initiative provides parents and caregivers resources to help keep kids occupied and engaged during extended time at home and indoors.
• MAGIC: THE GATHERING revenues were up significantly in the first quarter, on strong sales of new card releases. Certain shipments were accelerated into the first quarter to ensure delivery to distributors. Ikoria: Lair of Behemoths, launched on schedule in Arena on April 16, but due to store closures the team delayed physical product releases until May 15 in most regions. The game trailer has been viewed close to 30 million times online. Players are taking advantage of new ways the Wizards team has launched to play MAGIC games while in person play events are not happening. Where possible, events have shifted to digital play via the Magic: The Gathering Arena platform.

  Leveraging Digital-First Orientation Across Diverse Retail Network
  
  

• Hasbro is creatively finding ways to accelerate online, expand omni-channel and skip the shopping cart to get our products into cars and homes.
• Ecomm revenues increased double digits in the first quarter, with meaningful point of sale gains. Mass/Hyper market retailers as well as drug and grocery channels also increased revenues during the quarter.
• Retailers and regions with developed ecomm businesses performed well, while retailers and countries which rely on physical stores, such as toy specialty retail, are experiencing greater difficulties.
• Global store closures increased toward the end of the first quarter, and are expected to more negatively impact the second quarter results than during the first quarter. Ecomm, continues to be strong, but this strength is not expected to offset declines at physical retail.

  Entertainment Release Schedule Shifting; High Viewer Engagement
  
  

• In the first quarter, entertainment revenues were down due to planned later delivery timing for eOne content.
• Beginning late in the first quarter, production and delivery of television and film projects for Hasbro’s eOne TV and Film business have been delayed, negatively impacting the level and timing of revenues. The eOne team continues to develop new projects and work on animation production which can be done remotely. The team now expects to deliver finished episodes and film projects later in the year than planned.
• Several film release dates have moved to later in 2020, into 2021 and in some instances are going straight to video on demand/EST windows impacting the timing and level of anticipated revenues.
• As more people are home, content viewership is high which bodes well for long-term brand engagement

Liquidity

• Hasbro is in a good financial position and ended the first quarter with $1.2 billion in cash.
• The Company’s $1.5 billion revolving credit facility is also available.
• The Company remains well within its financial covenants for its $1 billion term loan and revolving credit facility.
• The next major debt maturity is $300 million in May 2021.
• The Board remains committed to the dividend. Hasbro paid $93.2 million in cash dividends to shareholders during the first quarter 2020. The next quarterly cash dividend payment of $0.68 per common share is scheduled for May 15, 2020 to shareholders of record at the close of business on May 1, 2020.
• The Company had previously suspended its share repurchase program as it prioritizes deleveraging.
• Walmart, Target and Amazon were the Company’s largest customers in the first quarter.
• Hasbro remains very focused on managing credit risk of its customers.
• The Company has identified areas to manage expenses and preserve cash in the near term, including managing variable costs and lowering content production cash spend, which is now expected in the range of approximately $500-$600 million due to production shutdowns. The Company spent $168.0 million in the first quarter 2020.

Community

• The health and safety of Hasbro employees, stakeholders and communities are our top priority. Hasbro global offices, outside of China, were closed on March 16 and remain closed today. The timing of re-opening offices will be informed by local governmental, health and safety guidelines. Our China offices reopened in March following shutdowns during the first quarter.
• Hasbro has committed additional support through global philanthropic initiatives that aim to bring relief to children and their families worldwide during this difficult time. Hasbro is proud to support Save the Children and No Kid Hungry in their effort to address the most urgent needs of children, including providing nutritious meals and distributing books and learning resources to those children and families most in need. In addition to providing financial support, Hasbro donated thousands of toys and games to low-income communities to continue to inspire creativity and fun for vulnerable children during the COVID-19 pandemic.
• In partnership with Cartamundi, Hasbro-sourced manufacturing locations are producing personal protective equipment (PPE) for front-line medical workers, including 50,000 face shields per week for the next several weeks, to be donated to local hospitals.
• The Wizards of the Coast team is supporting its Wizards Play Network (WPN) member stores during this challenging time. The team launched a reprint of Mystery Booster and will be allocating these boosters to WPN member stores at no charge, for sale to consumers at a later date. As local game stores are closed, they may run tournaments on Magic: The Gathering Arena.

Withdrawing 2020 Guidance

Due to the uncertainty related to COVID-19 including its impact on the Company’s supply chain, global retailer operations, timing and production of entertainment and the global macroeconomic environment, the Company is withdrawing its 2020 Outlook issued at its Toy Fair presentation on February 21, 2020.

eOne Update

The combination of Hasbro’s extensive brand portfolio, product innovation and licensing capabilities with eOne’s story-led brand skills and proven content development and monetization expertise, creates a business that can deliver long-term value and growth to shareholders. The integration is progressing well and the Company remains on track to deliver planned synergies of $130 million by the end of 2022.

Family Brands – Resilience in Animated Content Offsets Lower Consumer Product Demand

• Strong demand for animated content across all platforms offset lower licensee shipments to consumer product retailers in the Family Brands business. PEPPA PIG is now the most viewed preschool show in the world on the YouTube platform and PJ MASKS is one of the most streamed children’s shows on Netflix in the U.K. and U.S.
• Key opportunities for Family Brands include the RICKY ZOOM brand rollout, The World of Peppa Pig app in digital gaming and new PJ MASKS content available on free-to-air platforms and on Disney+.
• Development continues on a number of new properties with greenlights for new shows expected in the coming months.

Television, Film & Music – Strong Demand for Content and an Active Development Pipeline

• Television and film development and writing teams remain very active and not materially impacted by COVID-19 issues during the quarter. However, ongoing production lockdowns and theatrical closures are now in place and likely to negatively impact revenues over the short term. The development slate is strong, currently with approximately 100 active development projects in television (15 from the Hasbro portfolio) and over 60 projects in the film pipeline (21 from the Hasbro portfolio).
• Television: Planned phasing of the delivery of television half hours were less first quarter weighted this year, reducing half hours of produced/acquired content from 339 in the prior year period to 276 in the current quarter. Before the impact of COVID-19, the half hours of produced/acquired content were anticipated to increase for the full year over the prior year, but are now expected to be down.
• Film: Box office performance was up and driven by the key release 1917, supported by award season success. An active development pipeline includes projects with Paramount and 21^st Century Fox.
• Music: Mainly a digital business, with gains in recorded music and publishing more than offsetting declines in management and live shows.
• Strong demand for content provide ongoing revenue opportunities.

First Quarter 2020 Major Segment and Brand Performance

¹Both periods above are as reported, with 2019 including the pro forma results from eOne. Adjusted segment operating profit excludes Non-GAAP adjustments. A reconciliation is in the attached schedule “Reconciliation of As Reported to Pro Forma Adjusted Operating Results.” Non-GAAP adjustments recorded in the Corporate and Eliminations segment include $51.2 million of pre-tax eOne acquisition-related costs.

²Hasbro’s total gaming category, including all gaming revenue, most notably MAGIC: THE GATHERING and MONOPOLY which are included in Franchise Brands in the table above, totaled $340.5 million for the first quarter 2020, up 40% versus $243.4 million for the first quarter 2019. Hasbro believes its gaming portfolio is a competitive differentiator and views it in its entirety.

³Emerging Brands portfolio includes eOne brands PEPPA PIG, PJ MASKS and RICKY ZOOM as of first quarter 2020. For comparability, Q1 2019 includes the pro forma revenues for those brands, which amounted to $56.8 million.

⁴TV/Film/Entertainment represents the remaining eOne revenues. For comparability, Q1 2019 includes the pro forma revenues.

• U.S. and Canada segment delivered higher revenues and profits behind strong growth in Gaming, including MAGIC: THE GATHERING tabletop, MONOPOLY, DUNGEONS AND DRAGONS and many other Hasbro games such as THE GAME OF LIFE, JENGA, CONNECT 4 and OPERATION. Partner Brand revenues also increased led by Hasbro products for Disney’s Frozen 2. Ecomm and omni-channel retail performed well as other retail stores closures began late in the first quarter. Operating profit growth resulted from higher revenues and lower expenses.
• International segment revenues declined. The European region started the year strong and revenues increased 6% for the quarter with physical store closures increasing late in the quarter. Latin America revenues were down, as the team works through high retail inventory at the start of the year. Store closures began later in Latin America, however, ecomm is a small percentage of Latin America revenues. Asia Pacific revenues declined as much of Asia was impacted by COVID-19 during the first quarter. Pacific revenues increased. The International segment operating loss improved led by gains in Europe including favorable product mix and lower expenses.
• Entertainment, Licensing and Digital segment revenues were down, primarily due to lower digital gaming revenues. Operating profit includes a $20.8 million charge associated with the write-down of certain assets resulting from the transition to eOne’s entertainment strategy following the acquisition. Adjusted operating profit declined primarily due to lower revenues.
• eOne pro forma revenues declined compared to the strong first quarter in 2019. TV and film revenues were down year-over-year as television half hours deliveries and film release slate timing was planned for later in 2020 than in 2019. eOne released the award-winning film 1917 in the first quarter 2020, its highest box office grossing film ever, and delivered box office growth on fewer theatrical releases versus the same quarter in the prior year. In Family Brands, the transition from agency agreements to direct management of brands in certain territories negatively impacted PEPPA PIG revenues as well as the comparison to the benefit last year of the Chinese New Year of the Pig. PJ MASKS revenue decline was a result of retailers winding down higher stock levels than the prior year quarter. First quarter 2020 operating loss includes eOne acquisition-related expenses of $77.7 million and purchased intangible amortization of $25.0 million. First quarter 2019 pro forma operating profit includes prior restructuring and other costs of $12.0 million and purchased intangible amortization of $24.6 million. Adjusted pro forma operating profit declined primarily as a result of the phasing of deliveries in television and film.

Conference Call Webcast

Hasbro will webcast its first quarter 2020 earnings conference call at 8:00 a.m. Eastern Time today. To listen to the live webcast and access the accompanying presentation slides, please go to https://investor.hasbro.com. The replay of the call will be available on Hasbro’s web site approximately 2 hours following completion of the call.

About Hasbro

Hasbro (NASDAQ: HAS) is a global play and entertainment company committed to Creating the World’s Best Play and Entertainment Experiences. From toys, games and consumer products to television, movies, digital gaming, live action, music, and virtual reality experiences, Hasbro connects to global audiences by bringing to life great innovations, stories and brands across established and inventive platforms. Hasbro’s iconic brands include NERF, MAGIC: THE GATHERING, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, MONOPOLY, BABY ALIVE, POWER RANGERS, PEPPA PIG and PJ MASKS, as well as premier partner brands. Through its global entertainment studio eOne, Hasbro is building its brands globally through great storytelling and content on all screens. Hasbro is committed to making the world a better place for children and their families through corporate social responsibility and philanthropy. Hasbro ranked No. 13 on the 2019 100 Best Corporate Citizens list by CR Magazine and has been named one of the World’s Most Ethical Companies® by Ethisphere Institute for the past nine years. We routinely share important business and brand updates on our Investor Relations website, Newsroom and social channels (@Hasbro on Twitter and Instagram).

© 2020 Hasbro, Inc. All Rights Reserved.

Safe Harbor

Certain statements in this release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by the use of forward-looking words or phrases, include statements relating to: the impact of, and actions and initiatives taken and planned to be taken to, try and manage the negative impact of the global coronavirus outbreak on our business, including on the negative impact on supply of products and production of entertainment content, demand for our products and entertainment, our liquidity and our community; the expected adequacy of supply and operation of our manufacturing facilities; and the ability to achieve our financial and business goals; the integration of eOne; expected synergies by 2022 in connection with our acquisition of eOne; and our working capital and liquidity.

Contacts

Investor Contact: Debbie Hancock | Hasbro, Inc. | (401) 727-5401 | debbie.hancock@hasbro.com
Press Contact: Julie Duffy | Hasbro, Inc. | (401) 727-5931 | julie.duffy@hasbro.com

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