Chris Cocks: Yes, hey, good morning, Jason. In Q4, we were down around 12% or 13% on our internal point of sale measurements. When you factor out some of the exited licenses that we didn’t comp, it was more down around negative 9% in the quarter, which roughly tracks around what the industry did. We think the industry did between negative 9% and negative 10%. For the full fiscal year, we were down negative 10% to negative 11% based on our internal point of sale tracking and kind of exited brands. We were down about negative 6%, which again, roughly tracks with kind of what our feeling is for the industry. In terms of our call for industry trends moving forward, I think generally speaking, we think the prevailing trends that existed in the back half of 2023 are likely going to persist into at least the first half of 2024 and probably into the second half of 2024.
We still have a little bit of a correction from pre-COVID kind of toy share of wallet that we think we’re experiencing in markets like the U.S. We do see growth in places like Latin America and Southeast Asia. And we generally are kind of thinking that once we get through 2024, we’re largely past that kind of post-COVID correction and we start getting back into a toy market, which from our planning purposes, we’re basically projecting to be around flat and that based on our innovation and the marketing that we’re putting together and just the general kind of fundamental health of the business that we’re reinjecting into it, that we can grow at that level or likely ahead of that level and build some share, particularly in the categories we’re focused on.
Jason Haas: Got it. That’s really helpful. And then a follow-up. I was curious if you could help size up how much Baldur’s Gate III and Monopoly Go! contributed in 4Q? I need to get some color on it for 2024, but just, yes, just curious. Any more color on what those two contribute as we go through 2024 would be helpful.
Gina Goetter: As we move through 2024, yes. For Monopoly Go! in Q4, it was just the minimum guarantee that we booked in from a revenue standpoint. And Baldur’s Gate had another healthy quarter, I think for the year in totality, Baldur’s Gate was around $90 million of revenue. So now that you turn the corner into 2024, the front half of the year, you’re still going to have the tail from Baldur’s GateI II. That’s going to stay with us all year. Obviously, not at the same extent that we saw played During Q3 and Q4, but we’ll still be selling units and making revenue and profit off of that product. From Monopoly Go! what gets interesting is that based on our forecast, based on how well the game is doing, as we get into the back half of the year, we believe we’ll be able to start booking revenue and profit ahead of our minimum guarantee.
We don’t get into the terms of the contracts and kind of what that royalty rate is, but suffice it to say, as we think about the comp that we’re up against and Monopoly Go! in the back half, Monopoly Go! is going to almost get there. Not quite get there, but almost get there and kind of offset the headwind that we have from Baldur’s Gate.
Jason Haas: Got it. That’s helpful. Just a quick clarification. I think you said earlier that you’re expecting, I think you said digital game licenses, I think you said it was it’s going to be flat year-over-year so is that right the full amount of Monopoly Go! And Baldur’s Gate III and 2024 should roughly be equivalent to what we saw in 2023.
Gina Goetter: Yes. I think you’re saying that right.
Operator: Our next question is from Linda Weiser with D.A. Davidson.
Linda Weiser: Yes, hi. So I guess I took from your comment that you said that cash balance would be down in the end of 2024 versus 2023. I take that to mean that operating cash flow minus CapEx minus dividends will be negative. Am I reading that correctly? Do you have a guidance number or range for operating cash flow like you usually give, for 2024?
Gina Goetter: I mean, we haven’t officially made a guidance, but it’s going to be, operating cash flow is going to be slightly down versus where we landed the year, strictly because of the inventory benefit that we got. We capture that as part of our ’23 cash flow. In terms of ending cash, it’s slightly down. I mean, you could almost argue that ending cash is going to be relatively flat year-over-year, but I mean, it is slightly down and it’s slightly down because we’re stepping up our capital expense a little bit and then we also have additional charges related to the announcements that we had in December that play in. But no, we don’t get to negative, negative free cash.
Linda Weiser: So can you help me understand the change in cash taxes paid and also the change in outflow related to cash restructuring in 2024 versus 2023?
Gina Goetter: The cash, I’m going to have to follow up with you on the cash tax in terms of the cost for restructuring. We paid roughly, I would say, oh, it’s $78-ish million in as we move through ‘23 and as we move into 2024, that’s going to be roughly, call it $100 million.
Linda Weiser: Okay. That would be for cash restructuring, things like severance and other cash costs.
Gina Goetter: Correct. That’s right.
Linda Weiser: Okay. And then, I know that you really want to protect and continue to pay the dividend, but one might argue that Mattel’s turnaround really started when they cut the dividend because it gave them, a little bit of flexibility to work down the debt. You really didn’t state any leverage targets for 2024 or 2025. Your stock is trading as if the dividend is not safe. So, one might argue that it would really benefit shareholders to at least reduce the dividend so that you could work down the debt a little bit faster. Can you just respond to that idea?
Gina Goetter: I’m going to go back to our prepared comments and both Chris and I remain, and our board remain supportive of our capital allocation strategy, which includes the dividend. And we believe the actions that we’ve taken both in ’23 and ‘24 to free up cash, support those capital allocation priorities. I hear your point on the delev and getting to those targets faster. We’re still committed to getting to those delev targets. We think, though, that fixing the business also is going to free up our ability to hit all of our cap allocation priorities.
Linda Weiser: And then, just my next question is just more operational. I guess one of the things that kind of went wrong, I guess you could say, in 2023 is that the industry POS slowed a lot in the second half, or it wasn’t what you would have thought, and that was the same for Mattel. So is there anything about 2024 that if the industry actually gets worse, versus what you’re projecting, is there any flexibility or levers that you can use to better reach your financial goals in 2024, even if the industry ends up being different than you thought?
Chris Cocks: Well, I would say our projection for the industry is probably on the more cautious side than what most independent analysts or other toy companies would have. So I think we’re going in with the cautious outlook. I also think we have a lot of tools in our quiver in terms of cash liquidity. We’ve got $1 billion, $1.8 billion of cash liquidity in options. Should we have to get, whether a down quarter or two, that is worse than what we’re predicting. And our new management team, I think, is showing quite indebtedness at cost management and supply chain management. So there are levers that we have to pull. We feel quite confident in our ability to execute against our capital allocation priorities, which are investing in the business for long term growth, continuing to give money back to shareholders via our dividend and in achieving our long term deleverage targets, which is 2.5 or less.
Operator: Our final question is from the line of Stephen Laszczyk with Goldman Sachs.
Stephen Laszczyk: Hey, great. Good morning. One on long term margins and one on CapEx. Maybe first for Gina on margins, just given the new cost efficiency targets, could you update us on your view for what you think the medium to long-term margin opportunity in consumer products is and maybe the path to get there beyond the four to six you guided in 2024? And then just on CapEx, you called out the $225 million in a CapEx for this year. Could you just unpack a little bit more in terms of what that’s being invested into and maybe what you think the long-term outlook for CapEx is on an annualized basis beyond some of the initial programs? Thank you.
Gina Goetter: Got it. Okay. Good question, Stephen. And so on margins, overall for the company, we remain committed to getting to that 20% midterm target that I think we put out there at our last Investor Day. As you break down the CP number, we have a lot of momentum on the margin side as we head into this year. I believe as we turn into ‘25 and ‘26, we’re continuing to refine, what’s happening within our supply chain, what’s happening within our cost structure, so that will provide some up list on the margin. But the single biggest thing that’s going to help us keep moving to the 10s, to the teens and beyond, on toy, is really volume in our — in getting back to growth, putting innovation in market that is actually growing our business.
That leverage benefit will have the kind of the single biggest impact on that margin line. So I think we have a good line of sight to the margin targets that we put out there for this year. For next, we are anticipating that our margin is going to grow again. The speed with which we move up that scale will really be dependent on how fast we can get over the growth count. In terms of CapEx, that step up that we are seeing this year really is being driven by our investment in digital games. If you think about that breakdown of $225 million, there is roughly half of it goes into our Wizards business. Another I would say, half of that half then is going back into our toy business with the remaining piece that is going into our broad infrastructure.
So we are continuing to build capabilities both within just kind of the underpinning of the organization when you think about IT and systems as well as within our broader supply chain.
Chris Cocks: Yes, and just for strategic context, Steven, and thanks by the way for being the anchorman on the questions for us. Our investments in digital and digital gaming, they are foundational to the future of the company. It is something we have been investing in for the last seven years. It is something that I think you should anticipate that we will at least maintain if not grow over the next three to five years. It is going to be a material source of value creation, particularly in the game side of our business moving forward. I think we already see that it can work and work fantastically well with what we have been doing with licensing partners, particularly with Monopoly Go! and Baldur’s Gate III last year and great acquisitions like we made with D&D Beyond. And I think you are going to see more and more value creation as we go through ‘24, ‘25 and into ‘26.
Operator: Thank you. This will conclude our question and answer session and also conclude today’s conference. Thank you for your participation. You may now disconnect your lines at this time. And have a wonderful day.
