eOne Acquisition, COVID-19 Weigh Heavily on Hasbro Earnings

Game manufacturer Hasbro’s aggressive move into content production and distribution continues to sting the fiscal bottom line. The company July 27 reported a second-quarter (ended June 30) loss of $33.9 million on revenue of $863 million, which was down 29% from revenue of $1.2 billion in the previous-year period.

Much of the loss came from the $3.8 billion acquisition of Entertainment One in 2019, including $8.5 million after tax of acquisition-related expenses, $10.1 million after-tax of severance charges associated with cost-savings initiatives within the Canadian company’s commercial and TV and film businesses, and $17.9 million after-tax of purchased intangible amortization associated with the deal. eOne revenue in the quarter fell 30% to $160.9 million from $231.1 million.

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Hasbro, which has licensed IP to Paramount Pictures for movie franchises “Transformers” and “G.I. Joe,” among others, said revenue from “TV, film and entertainment” dropped 32% to $132.2 million from $195.4 million — much of it due to production and distribution shutdowns caused by the coronavirus pandemic.

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“The second quarter was much as we expected: strong point of sale for Hasbro brands countered by a very challenging revenue period due to global closures in our supply chain, across retailers as well as in entertainment production,” CEO Brian Goldner said in a statement.

With the economy slowly emerging from the shutdowns, Goldner is looking forward to the winter holiday retail season. Hasbro’s biggest retail clients include Walmart, Target and Amazon.

“We believe the outlook improves from here,” Goldner said. “Consumers — children, families, fans and audiences — are relying on Hasbro brands and stories to connect and entertain themselves throughout this period.”

CFO Deborah Thomas said the gamer has a strong financial position, with more than $1 billion in cash on the balance sheet and a $1.5 billion revolving credit facility.

“We continue to see improvement as stores reopen, and we are working closely with our customers to successfully navigate this period,” Thomas said. “Working capital needs increase in the second half of the year, with early fourth quarter the peak period and we are positioned to support our plans for a good holiday season.”

Entertainment One Inks Deal With Former Marvel Exec Jeremy Latcham

Entertainment One has entered into a first-look agreement with producer and former Marvel Studios executive Jeremy Latcham.

Hasbro recently acquired eOne.

The first project announced under the deal is a film for “Dungeons & Dragons,” which is managed by Wizards of the Coast, a Hasbro subsidiary that also manages “Magic: The Gathering.” Jonathan Goldstein and John Francis Daley are attached to write and direct the film, which is co-produced by eOne, Hasbro’s global entertainment studio, and Paramount. This film marks the first project for eOne with Paramount since eOne’s acquisition by Hasbro.

“Jeremy is a massively talented producer with a track record of creating true-to-brand films with size and scope that resonate with audiences and excel on a global scale,” Nick Meyer, eOne president of film, said in a statement. “In our exciting new era with Hasbro, we’re thrilled to begin this new partnership and look forward to sharing the amazing projects that are to come.”

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“Nick and the entire eOne team have welcomed me into the fold with open arms,” Latcham said in a statement. “Hasbro’s incredibly rich library of beloved brands in addition to the opportunity to develop original material makes for a very exciting next step for me as a creative producer. My passion for telling stories steeped in heart, humor and spectacle aligns with D&D’s decades of immersive, adventure-driven storytelling, and I am beyond excited to help John and Jonathan, eOne, Paramount, and Wizards of the Coast bring this rich world to filmgoing audiences.”

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Latcham most recently produced 2018’s Bad Times at the El Royale. Previously, Latcham spent 13 years at Marvel Studios, where he executive produced Spider-Man: Homecoming, Avengers: Age of Ultron, Guardians of the Galaxy and The Avengers. Latcham was the associate producer on Iron Man and co-producer on Iron Man 2.

Hasbro’s additional film properties include the “Transformers” and “G.I. Joe” film franchises.

Hasbro Takes Q1 Fiscal Hit From eOne Acquisition — Not COVID-19

Hasbro April 29 reported a first-quarter (ended March 31) net loss of $69.6 million, compared with a net income of $76.4 million in the previous-year period. The toymaker, game manufacturer and movie producer attributed the loss to acquisition and costs associated with the $4 billion acquisition of content producer/distributor Entertainment One (eOne) in 2019.

Contributing to the loss was $127.5 million after-tax of acquisition-related expenses and $19.9 million after-tax of purchased intangible amortization associated with the acquisition. Excluding these items, adjusted net income would have been $77.7 million. Total revenue for the quarter was $1.11 billion compared to $1.2 billion pro forma revenues in 2019. Foreign exchange had an $11.7 million negative impact on first quarter 2020 revenue.

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Entertainment revenue declined in the quarter due to planned later delivery timing for eOne content. Beginning late in Q1, production and delivery of television and film projects for Hasbro’s eOne TV and movie business shut down, negatively impacting revenue.

The eOne team continues to develop new projects and work on animation production which can be done remotely,” CEO Brian Goldner said in a statement. “The team now expects to deliver finished episodes and film projects later in the year than planned.”

Indeed, several film release dates have moved to later in 2020, into 2021 and in some instances are going straight to video-on-demand/EST and packaged media, windows impacting the timing and level of anticipated revenue.

“As more people are home, content viewership is high which bodes well for long-term brand engagement,” Goldner said.

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The executive said Hasbro has been proactive during the coronavirus pushing its portfolio of “face-to-face” games to families spending more time at home.

“Point of sale at retail was strong during the first quarter and continues to be up in April,” Goldner said. “We’ve undertaken extensive scenario planning across the business and geographies as we plan for a re-opening of the economies globally.”

CFO Deborah Thomas said closure of the eOne acquisition included drawing down on a $1 billion term loan. The cash position increased to $1.2 billion at the end of the quarter, and is further supported by access to a $1.5 billion revolving credit facility, according to Thomas.

“Toward the end of the quarter, physical store closures and country-wide restrictions became more prevalent and entertainment productions shut down,” Thomas said.

The CFO expects the second quarter to be more challenging with revenue 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.”

With third-party factories in China representing about 55% of Hasbro’s manufacturing production — and operating at reduced capacity. Thomas expects Chinese factories that are making product across the business, including games, would typically build to peak levels during the summer months—- making up production lost in the first quarter into the second quarter.

“These beliefs assume all production continues to operate in all material respects without further COVID-19 shutdowns,” Thomas said. “While the ultimate impact 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.”

Hasbro said 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.

Hasbro Completes eOne Purchase, Ups Licensing Revenue

Hasbro Feb. 11 disclosed it has completed its $3.8 billion acquisition of Entertainment One Ltd. (eOne). The game manufacturer’s financial results for the fourth quarter and full-year 2019 (ended Dec. 31) do not include the results of eOne, but were impacted by acquisition financing, foreign-exchange hedges and other activities associated with the deal.

The agreement aims to accelerate Hasbro’s brand portfolio with eOne’s global preschool brands, TV and film catalog (i.e. “Transformers,” “G.I. Joe,” etc.).

“The acquisition … significantly expands our expertise and capabilities as a global play and entertainment company,” CEO Brian Goldner said in a statement. “Our teams are actively engaged to unlock value across our organization — in gaming, in toys, in consumer products and in entertainment.”

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Costs associated with the transaction included $17.8 million of eOne acquisition-related costs for the fourth quarter and full-year 2019.

Full-year 2019 entertainment, licensing and digital segment net revenue increased 22% to $434.5 million, compared with $356.3 million in 2018.

Revenue included Hasbro’s share of from the Bumblebee movie, including home entertainment, consumer products revenue and higher digital gaming licensing revenue. This was partly offset by lower digital streaming revenue versus 2018’s multiyear digital streaming deal for Hasbro television programming.

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Hasbro legacy gaming revenue decreased 10% to $709.8 million. Revenue gains from “Dungeons & Dragons” and several classic games titles were more than offset by declines in other games, including Pie Face and Speak Out. Hasbro gaming revenue decreased in all three operating segments.

 

Hasbro Closes eOne Acquisition

Hasbro Dec. 30 announced that it has completed its previously announced $3.8 billion acquisition of Entertainment One Ltd. (eOne).

The all-cash transaction is valued at approximately £2.9 billion, based on the consideration of £5.60 per common share of eOne. Converted at a rate of 1.31 USD/GBP on Dec. 30, 2019, the total cash consideration was approximately $3.8 billion.

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Hasbro also expects to redeem eOne’s outstanding senior secured notes and to pay off the debt outstanding under eOne’s revolving credit facility, which together represent approximately £0.6 billion of eOne’s debt.

“Our businesses are highly complementary with substantial synergies and a great cultural fit,” Hasbro’s CEO Brian Goldner said in a statement.

Goldner said eOne “accelerates our blueprint strategy” by expanding the gamer’s brand portfolio with eOne’s global preschool brands and “proven” TV and film expertise.

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Darren Throop, CEO of eOne, will report to Goldner. In addition, eOne’s Olivier Dumont, president, family & brands, Steve Bertram, president, film & television, and Chris Taylor, global president, music, will also be joining Hasbro, reporting to Throop.

‘Bumblebee’ Movie Ups Hasbro Q3 Entertainment Revenue; Expects to Close eOne Acquisition in Current Quarter

Hasbro Oct. 22 reported a 20% increase in entertainment, licensing and digital segment revenue to $115.8 million compared to $96.8 million in the previous-year period.

Increased revenue was driven by Magic: The Gathering Arena and Paramount Pictures’ Bumblebee film revenue, partially offset by lower digital streaming revenue for Hasbro television programming.

Hasbro owns the rights to the “Transformers,” “G.I. Joe,” “Dungeons & Dragons” and “Micronauts” brands on which Paramount bases much of its theatrical slate.

Netflix is reportedly on board to produce the “Magic” feature film after a previous deal with 20th Century Fox never materialized.

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Entertainment, licensing and digital segment operating profit decreased 21% to $24.6 million versus $37.1 million in 2018. The decline was the result of several factors, including higher operating profit margin in Q3 2018, due to the multi-year digital streaming agreement for Hasbro television programming.

Separately, CEO Brian Goldner said he expects to close Hasbro’s $4.3 billion acquisition of Canadian-based eOne in the current quarter.

“The strategic opportunity to bring onboard the brands, capabilities and talent from eOne is compelling to our long-term prospects as a leading global play and entertainment company and we look forward to sharing more about our plans after the close,” Goldner said in a statement.

Universal Pictures Home Entertainment and eOne in March signed a multiyear, multi-territory distribution agreement whereby UPHE will serve as the home entertainment distributor of eOne’s content across both transactional physical and digital formats.

Finally, Goldner said ongoing proposed government tariffs on Chinese manufactured goods would negatively impact product shipments and retailers entering the key winter holiday season.

CFO Deborah Thomas said the company experienced higher shipping and warehousing expenses as a result of the disruption and shift of retailer order patterns from proposed tariffs.

“Hasbro’s global teams are executing within a dynamic trade environment that is impacting the timing of revenues, driving incremental expenses and putting upward pressure on our underlying tax rate,” Thomas said.

Net revenue for the third quarter was $1.58 billion versus $1.57 billion in 2018. Net income was nearly $213 million compared to income of $264 million last year.

Report: Lionsgate Considering Spinning Off Starz

Lionsgate is reportedly considering spinning off or selling its Starz subsidiary.

Lionsgate, which acquired Starz in 2016 for $4 billion, is looking to leverage the pay-TV and $8.99 monthly over-the-top video subsidiary in an era of burgeoning streaming video, according to The Wall Street Journal, which cited sources familiar with the situation.

Specifically, the Santa Monica, Calif.-based studio/distributor is following the corporate playbook Viacom pursued in 2004 when it spun off its controlling stake in Blockbuster Video for a $1.3 billion impairment charge.

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Lionsgate reported about $2.9 billion in debt at the end of the most-recent fiscal period. The company could offload the debt through a special-purpose acquisition vehicle — a public company created to acquire a specific asset.

Earlier this year, CBS reportedly offered $5 billion for Starz, which Lionsgate considered too low. Two years ago, Hasbro looked to acquire Starz but negotiations ended without a deal.

Lionsgate also has other reasons to consider offloading Starz. With pay-TV operators looking to rework carriage agreements with content holders, DirecTV reduced the amount it pays Lionsgate to carry Starz and Starz Encore.

Now Comcast is reportedly looking to drop Starz when its carriage deal expires at the end of the year. Loss of the nation’s No. 1 cable operator could result in Starz losing millions of subscribers, or more than $225 million in annual revenue.

 

Hasbro to Acquire Indie Studio Entertainment One for $4 Billion

Hasbro Aug. 22 announced it is acquiring independent studio Entertainment One (eOne) in an all-cash transaction valued at about $4 billion.

Hasbro, which has dabbled in entertainment through the “Transformers” franchise, including recent release Bubblebee with Paramount Pictures, is seeking to expand its film and gaming business opportunities via eOne’s family brands, including “Peppa Pig.”

“Hasbro will leverage eOne’s immersive entertainment capabilities to bring our portfolio of brands that have appeal to gamers, fans and families to all screens globally and realize full franchise economics across our blueprint strategy for shareholders,” Brian Goldner, CEO of Hasbro, said in a statement.

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The acquisition seeks to use eOne’s content across platforms to strengthen Hasbro’s ability to monetize and bring to market its IP in new formats, including over-the-top (OTT) video and premium platforms, music, location-based entertainment, AR and VR.

Hasbro expects to realize in-sourcing and other global annual synergies of approximately $130 million by 2022, driven by integration benefits, substantial savings from moving a significant portion of eOne’s toy business in-house and enhancing the profitability of eOne’s licensing and merchandising activities.

“By combining two profitable and financially disciplined companies we expect to unlock value in the short- and long-term for our stakeholders,” said Hasbro CFO Deborah Thomas. “eOne’s brands and TV and film expertise, together with Hasbro’s brands, toy and game innovation and licensing capabilities, positions us to more quickly drive revenue and profit over the medium-term.”

Earlier this year, Universal Pictures Home Entertainment signed a multiyear, multi-territory distribution deal to serve as the home entertainment distributor of Entertainment One’s titles across both transactional physical and digital formats.

Indeed, the acquisition of preschool brands offers a growth opportunity for Hasbro in the “infant and preschool” category, the largest super-category in the toy and game industry, according to The NPD Group.

A slate of additional brands is under development, including “Ricky Zoom,” a storyline airing on Nickelodeon in the U.S. and other global networks, beginning Sept. 9.

In film, eOne has been transforming its business to focus on titles like Clifford the Big Red Dog and Monster Problems. The studio’s Canadian TV and  film operations will continue as a Canadian-controlled business within the combined businesses.

Hasbro said eOne senior management would be making the transition to Hasbro, whose global organization includes offices in London, Los Angeles, Toronto, New York, Hong Kong, Melbourne and Shanghai.

eOne’s Canadian presence is an important base for creative talent and best-in-class studio capabilities, significantly expanding Hasbro’s Canadian presence and positioning eOne for ongoing success in Canada, including in relation to its robust pipeline of television and film projects.

The transaction is structured to ensure that eOne’s Canadian operations will continue to meet applicable Canadian control regulatory requirements in relation to television and film production companies, to the continued benefit of the Canadian television and film production industry.

Disruptive Gaming Market Undermines Hasbro Q4 Entertainment & Licensing Profit

Hasbro Feb. 8 reported fiscal-year 2018 (ended Dec. 31, 2018) entertainment and licensing operating profit of $17.3 million – down 82% from operating profit of $96.4 million during the previous-year period. Revenue increased 5% to $298.5 million from $285.6 million last year.

Overall net earnings topped $220.4 million from $397 million last year. Revenue reached $4.6 billion, down from revenue of $5.2 billion during the previous-year period.

The entertainment and licensing segment includes TV shows and movies for theatrical, home entertainment and over-the-top video distribution. Notable theatrical release included “Transformers” spinoff, Bumblebee, starring Hailee Steinfeld (True Grit) and John Cena (Blockers).

The movie has generated $456.5 million at the global box office, including $124.8 million domestically since its Dec. 21 release.

Hasbro attributed the entertainment and licensing segment decline to a one-time goodwill impairment charge of $86.3 million relating to the company’s acquisition of Boulder, Colo.-based video game developer Backflip Studios.

Hasbro said “the rapidly changing” mobile gaming industry resulted in a modification to its long-term plans for Backflip. The modifications included organizational actions and related personnel changes (i.e. layoffs), the extension of launch dates for games currently in development and the addition of partners for the development of future game releases.

“2018 was a very disruptive year … driven by a rapidly shifting consumer and retail landscape,” CEO Brian Goldner said in a statement.

CFO Deborah Thomas said the ongoing changes resulted in “our global teams focusing] on identifying incremental opportunities to deliver top and bottom line returns.

“Investments include the acquisition of the Power Rangers brand, [box office launch of] Bumblebee and new growth drivers, including Magic: The Gathering Arena and the associated Magic e-sports initiatives,” said Thomas.

 

Hasbro Movie, TV Streaming Deals Soften Toys R Us Revenue Loss

Entertainment licensing of TV shows and movies proved a fiscal lifeline for venerable toy maker Hasbro.

The company Oct. 22 reported third-quarter (ended Sept. 30) net income of nearly $264 million, about equal to net income of $265.5 million during the previous-year period. Revenue fell 12% to $1.56 billion from $1.79 billion last year.

Revenue loss was in large part due to lingering effects of the shuttering of major retailer Toys R Us, ongoing changes in consumer shopping behaviors and foreign exchange — the latter having a negative impact of $32 million, or 2% of Q3 revenue.

Hasbro managed to offset the declines in part to the entertainment and licensing segment, which saw revenue increase 45% to $84.8 million compared to $58.4 million in 2017. Operating profit increased 99% to $33.7 million, or 39.7% of net revenue, compared to $16.9 million, or 28.9% of net revenue, in 2017.

Segment revenue benefited from a multiyear digital streaming deal for Hasbro television programming and revenue from the 2017 My Little Pony: The Movie.

In addition, the adoption of new accounting rules concerning revenue from contracts favorably impacted the timing of revenue recognition in the quarter. Higher revenue and a favorable mix, coupled with cost reductions, drove higher operating profit and operating profit margin in the quarter.

Brand revenue decreased 5% to $847.7 million, due in part to My Little Pony and Transformers: The Last Knight theatrical releases occurring in 2017.

Last November, Paramount Pictures and Hasbro updated a pact to produce and distribute content based on Hasbro brands, as well as original stories. The companies have partnered on five “Transformers” movies to date, as well as two “G.I. Joe” films, and the first “Transformers” spinoff, Bumblebee, slated for theatrical release on Dec. 21.

The movie co-stars Oscar-nominee Hailee Steinfeld (True Grit) and John Cena (Blockers), and is directed by Travis Knight.

“Global retailers have ambitious programs this holiday season … including programs behind our feature film, Bumblebee,” CEO Brian Goldner said in a statement.

“Hasbro remains in a strong financial position, including good operating profit margins, $907 million in cash and quality inventory to support our business this holiday season,” added CFO Deborah Thomas. “As we manage through a very disruptive environment, the strength of our brands and our business allows us to continue to invest to drive profitable growth in future years.”