Good morning, and welcome to the Hasbro Second Quarter 2022 Earnings Conference Call. At this time, all parties will be listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

At this time, I'd like to turn the call over to Ms. Debbie Hancock, Senior Vice President of Investor Relations. Please go ahead..

Thank you, and good morning, everyone. Joining me today are Chris Cocks, Hasbro's Chief Executive Officer; and Deb Thomas, Hasbro's Chief Financial Officer. Today, we will begin with Chris and Deb providing commentary on the Company's performance then we will take your questions.

Cynthia Williams, President of Wizards of the Coast and Digital Gaming; Darren Throop, President and CEO of eOne; and Eric Nyman, Hasbro's President and Chief Operating Officer, will join for the Q&A portion of the call. Our earnings release and presentation slides for today's call are posted on our Investor website.

The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures which exclude these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.

Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

Before we begin, I would like to remind you that during this call and the question-and-answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters.

There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our recent 10-Q, in today's press release and in our other public disclosures.

We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call. I would now like to introduce Chris Cocks.

Chris?.

The Party Game, is off to a record start for gaming preorders. As such, we expect inventory by year-end to be approximately flat year-over-year and to see reductions in on-hand supply by the end of Q3.

Our Entertainment business is up year-to-date and on track for full year revenue and profit margin growth absent the sale of the Music business last year.

With over 200 projects in development across film, scripted and unscripted television, the eOne team is working on over 35 development projects for Hasbro brands, including content for Transformers, MAGIC, D&D, PEPPA PIG, MY LITTLE PONY, POWER RANGERS and PLAY-DOH, among many others.

Last week, we received seven Primetime Emmy Award nominations for Yellowjackets, including Outstanding Drama Series. We are in production on Season 2 with deliveries slated to begin later this year. In Q2, we delivered Season 4 of another hit show, The Rookie, for ABC.

This fall, The Rookie will return for Season 5, and previous seasons will begin syndicated broadcast in the U.S. ABC also ordered a spin-off, The Rookie Feds, to series where it is set to premiere September 27.

As we look to the full year, we began 2022 with what we felt was an appropriately measured outlook for growth that reflected a challenging economy, and we're maintaining our guidance.

We continue to expect low single-digit revenue growth in constant currency as we see exchange rates, particularly in the Eurozone, as a potential headwind that Deb will speak to further.

We are prioritizing profitable growth and expect adjusted operating profit to grow faster than revenue as higher-margin product lines, including games, grow at a faster rate combined with cost savings we have identified in our business. Our target remains a 16% adjusted operating profit margin for 2022 versus 15.5% last year.

The team and I are looking forward to sharing with you our long-term plans and vision at our upcoming Investor Day on October 4. We've spoken with many of you over the past several months, and we've taken to heart your excitement and feedback.

We remain laser focused on producing profitable growth, articulating our updated vision, continuing to drive industry leadership in sustainability and governance and positioning Hasbro to deliver superior total shareholder return over the long-term. Put simply, our aim is to do good while we do well.

I'd now like to turn the call over to Deb to share more details about our performance in the second quarter and our outlook for the year ahead.

Deb?.

A New Generation, Finch and Come From Away and a heavier slate of scripted TV deliveries in Q4 this year versus Q3 last year. We also expect many retailers to return to a more traditional promotional calendar with more holiday activations in the fourth quarter. Our cash balance was $628.2 million compared to $1.2 billion in last year's second quarter.

During the quarter, we spent $146.3 million for a highly strategic acquisition, $97.4 million in dividends, and we resumed share repurchase to the total of $124 million. We have paid down $50 million of share in debt and remain committed to investments in talent, innovation and key strategic initiatives.

Our operating cash flows for the first half of the year were $147.8 million and continue to reflect the advanced inventory purchasing I spoke to earlier. DSOs were flat with last year at 59 days.

Our expectation is that inventory will end the year around last year's levels and that will generate operating cash flow toward the low end of our targeted range. Our plan continues to have us returning to approximately $1 billion in operating cash flow next year.

As we head into the second half of the year, we are in a strong position to meet demand and to deliver the year. While economic conditions are challenging, we took that into account in our full year plan. And our businesses toys, games, including MAGIC, and content are historically very resilient during down economic periods.

Importantly, we've made significant progress in our strategic review. We look forward to speaking with you during the coming weeks and seeing many of you in New York on October 4 for our Investor Day. We are now happy to take your questions..

Thank you. At this time, we will be conducting a question-and-answer session [Operator Instructions]. Thank you and our first question is from the line of Eric Handler with MKM Partners. Please proceed with your question..

One of the things you've been highlighting of late has been the fan collectibles segment.

And I'm curious to get your sense of what's the size of this market and sort of the overall expected growth of this industry? And then what's Hasbro share in that business, your growth potential over the next several years and sort of the key drivers of that incremental growth?.

Hey, Eric, thanks for the question. Yes, we see fan -- the fan economy, in general, as a huge growth area for us. It's one of our fastest-growing categories overall. And I really think you can think of the segment as multiple segments put together. There's kind of classic fan collectibles like plastic figurines and action figures.

There's sports memorabilia, and then there's a very wide trading card industry that deals with both playable trading card games like MAGIC as well as sports card trading games. Over the last couple of years, this has been probably our fastest-growing segment of the Company, and we continue to be very bullish on the sector.

It's a highly resilient sector in terms of down economic times or up economic times. It tends to be focused and concentrated on a target consumer with a very high discretionary income. And it's a passion-driven industry. So people are very engaged in it.

On your specific question on kind of like sizing, I'm going to turn that over to Eric a little bit to give you kind of a little bit of a sense of where we see it going and what we think our key initiatives are.

Eric?.

Thanks, Chris. So with regards to market sizing, which is a part of your question, as Chris mentioned, there's a lot of different dynamics at play and different ways to look at it. In the collectibles business, we anticipate that through our research to be about $4 billion to $5 billion in overall market size. So it is a very sizable market.

Our momentum continues. We don't break out our share publicly, but we can say that with our Hasbro Pulse platform as an example, we were up 69% in the first half of the year. So we have good, strong momentum that we expect to continue throughout. And we also had some great launches.

This week, you'll see at San Diego Comic-Con some really incredible new innovations from the team. One piece of that, which we're really excited about, we talked about it last week is called Hasbro Selfie series, which allows you to basically put yourself on your shelf and turn yourself into an action figure.

So we expect that to be a very strong new innovation for Hasbro as we launch this week..

Our next question comes from the line of Steph Wissink with Jefferies. Please proceed with your question..

We have two questions. Chris, the first one is for you, is just on helping us dimensionalize the Wizards of the Coast business between MAGIC and D&D. I think you've said in the past that you expect incremental growth to be coming from D&D over time.

So share with us a little bit about the size of that business relative to MAGIC and what your expectations are? And then if you could just remind us what percentage of the Wizards business is domestic. And is there a big international opportunity? And then just a quick clarification for you, Deb, on the program amortization.

Can you help us think through back half Q3 versus Q4? We just want to make sure we're modeling that line correctly going forward. Thank you..

Great. Thanks for the questions. Yes, I mean, Wizards of the Coast is an important and vital business for us. It's been a major growth driver for the Company. And we've had a great first half of the year for the Wizards business overall.

For the first half of the year, we see it up 5%, and we're continuing to project at the high end of our range of upper single digits to lower double digits growth for the entire year. In terms of the composition of that business, Wizards tends to be very MAGIC-heavy. MAGIC is probably about 70% to 80% of that business overall.

And we tend to be -- between the D&D brand and the MAGIC brand, it tends to be very North American-centric. About 75% of our overall sales take place in the U.S., Canada and Mexico. So we see a lot of growth vectors for both of those opportunities. We see -- Europe has been one of our key growth drivers for the MAGIC brand.

We just started localizing D&D product internationally just this past year. We see a huge opportunity for products like D&D Beyond to go beyond North America. Over 85% of the registered users for D&D Beyond, for instance, right now are based in the U.S. or Canada. We see a big growth opportunity there.

And when we look moving forward, we continue to see the tabletop industry as being very vital and robust. I think you can see that in the 15% growth that we saw in our tabletop revenues in Q2. And we see a big opportunity to open up these brands over time as we really start to leverage our Brand Blueprint assets.

If you just look at what we're going to do with DUNGEONS & DRAGONS in 2023, we have an only blockbuster movie that will be coming out in March of next year. We're going to be previewing that in Comic-Con later this week in a sold out Hall H preview.

We'll even have like a little bit of an interactive tavern that people can go to and experience the world of D&D firsthand.

And then we're going to be complementing that blockbuster entertainment with follow-on streaming entertainment, a huge consumer products push, all-new tabletop games and some really cool new video game innovation that will be coming out shortly following the film.

So I think the Wizards business and the future for that business continues to be bright. And I see both MAGIC and D&D growing and maybe even D&D picking up some share inside of the overall Wizards business in terms of its future and its potential..

Right, Chris. Let me pick up on the amortization point. So if we think about program amortization, we said at the beginning of the year, we expected it to be in that 9% to 10% range. We still expect that. And I think in the quarter, we were just under 9%, the amortization as a percent of revenue.

And if I look back on last year and just think about the phasing of our expected deliveries this year, as we mentioned, we had a much bigger Q3 from a delivery phasing last year than we expected this year. So my expectation is the rate would be slightly higher in the fourth quarter than it is in the third quarter.

But we still expect to be within that range. And our expectation is probably more towards the lower end of that range based on all the things that we're delivering this year..

Our next question is from the line of Arpine Kocharyan with UBS. Please proceed with your question..

Margins were quite a bit stronger than we thought for the quarter. And of course, you had MTG up nicely, so that underpins strong margins. But in terms of advertising, G&A, as you look at Q2 versus kind of back half of the year, anything in Q2 that is not repeatable from the top that we should take into account? And then I have a quick follow-up..

I don't see anything that was different in Q2 than what you should expect for the balance of the year.

Eric, any comments?.

No, I agree, Chris. I don't think there's anything there, Arpine, to worry about..

The Gathering Arena mobile, which was in April. And then we started doing all the presale and advertising for the launch of Dungeons & Dragons Dark Alliance, which came out in late June. So year-over-year, we didn't comp those, and that's what drove kind of the favorability on A&P..

Okay. That's very helpful. And then just a quick follow-up on revenue. Is it possible to give us a sense of how much D&D Beyond is adding to revenue for the year? Or is the guidance now kind of low single digit up -- ex-FX is excluding that and is more organic? I was not sure whether that guidance includes the acquisition.

And if you could detail how much exactly that's heading for the year? I think you said before that it's really immaterial to EPS. So I'm not worried about EPS. Just asking about revenue here..

Yes. I'm going to turn most of this answer over to Cynthia if you want to opine, Cynthia. It's relatively small for the balance of the year. We -- and it was certainly very small for the quarter. But we do see it being material as we get into 2023 and beyond on the top line and bottom line basis.

But a lot of that's going to have to do with the revenue synergies that we see with the business as we start to integrate it, which is still relatively early days.

Cynthia, anything to add from the Wizards vantage point?.

Thanks, Chris. Yes, the one thing I'd say is D&D Beyond performed consistent to our expectations. It's only been -- we've only owned it for a month now. But we are super excited about the opportunities it gives us to better serve our fans.

Chris mentioned a moment ago that about 85% of their current audience on Dungeons & Dragons Beyond is based in North America. So we see a big opportunity to unlock the global audience with regional translations and culturalized content.

We see an opportunity to create multiple experiences that will cater to different player segments, especially those that will tap into that awareness we'll build with our entertainment offerings. So while it's small right now, we see a bright future with Wizards owning Dungeons & Dragons Beyond..

And just to add, looking at our financials overall, we do expect it to be dilutive for the full year. However, it will be accretive to next year..

Next question is from the line of Michael Ng with Goldman Sachs. Please proceed with your question..

I just have two. First, I was wondering if you could just help begin what the 3Q revenue could look like. It sounds like there's an implication that it should be down year-over-year just given the direct import revenue shift and the slowing growth or slower growth in Wizards of the Coast.

But I was just wondering if you could talk a little bit about that? And then secondly, I was just wondering if you could just give us a little bit more detail around Wizard margins in the quarter, obviously, a record high.

Was that simply operating leverage because of the record revenues? Or were there any mix benefits? And what's driving the drag on margins for the remainder of the year in Wizards relative to the second quarter? Thank you..

Got you. Yes. So for Q3, I think you're reading our guidance correctly, Michael. I think a couple of things are going on. First off, it's just kind of more release timing associated with what we're releasing across our Film & TV teams and our Family Brand teams and Entertainment.

I think it has to do -- like we actually feel the underlying growth in Wizards is very strong. Our tabletop revenues were up 15% in Q2. So we see good momentum in that business. But based on the quirks of when we're going to release different sets, we feel like Q3 is going to be a little bit of a breather for that business.

And we'll start seeing growth again in Q4, particularly as we lead into our 30th anniversary for the -- for MAGIC going into 2023. And then our overall CP business, like you said, we had a little bit of a shift of some of our direct imports from Q3 into Q2.

I think that really reflects strong retailer enthusiasm for our back half of the year innovation.

It's going to allow our teams to be able to really lean into advertising and promotions and really be able to solve some of the issues that we've had for the last couple of years on out of stocks because we feel like that inventory is very high quality and has a lot of upside potential for us in terms of POS.

I'll turn over the balance of the question over to Deb..

Right. And we did talk a bit about entertainment as well, some of the deliveries that we have in Q4 versus Q3 a year ago. Interestingly, and we tried to highlight this in our release, when we release movies directly to streaming, revenue recognition just has us take it right at that point in time.

And we have more releases that are actual theatrical coming in the third quarter, which will have that same revenue. It just gets spread out over the period with all of the ultimates and the library value that comes to that as well.

So we're very excited about what's coming up in entertainment, but our delivery timing is a bit more Q4 from a revenue recognition standpoint and beyond than it was in Q3 a year ago. We also had the MY LITTLE PONY movie as well. So when you think about all those things, it really is just a timing issue.

And the only thing I would add to what Chris said is as we look at our retailers and what they're expecting over the holiday period, they're looking to have more holiday promotions this year. And we're actually seeing that. You're seeing people actually going into shops more. Well, we're very excited about direct-to-consumer.

And Eric talked earlier about pulse in the market that we have there and how excited we are about all that innovation. I think we're going to see more holiday promotions at retail. And we are well positioned this year with the inventory to meet that demand, whereas last year, we were short and retailers were short..

Yes. And so from your second part of your question was margins on the Wizards business.

For Q2, a great deal of that upside was the lack of amortization or realized kind of amortization for our digital launches, particularly Dark Alliance and Arena mobile and a much lower A&P spend associated with the business because we tend to heavy up and front load the marketing spends for those kinds of releases.

For the back half of the year, I think what you see is we continue to invest heavily in building out the infrastructure for digital games, in particular, with the Wizards business. And we also have, as the economy starts to open up, we're starting to resume some of our more historical spending on organized play and helping to support that.

So, those costs are starting to come back into the Wizards business and something that we're factoring in on our guidance..

Our next question comes from the line of Megan Alexander with JPMorgan. Please proceed with your question..

In the slides, you mentioned POS was down again in 2Q. You did mention the Amazon Prime shift.

So did that drive POS down in the quarter? And maybe can you just talk about how that trended versus 1Q and maybe what it looks like quarter-to-date, given you are expecting growth in POS in the second half?.

Wakanda Forever. That's probably going to be one of the biggest blockbusters of 2022.

And I think that's just kind of as big as that product -- as big as that movie is going to be, it's just an appetizer for what's going to be a fantastic first half to next year, including the Dungeons & Dragons Honor Among Thieves movie, some fantastic new releases from our partners at Disney and then Transformers Rise of the Beast come next June.

Eric, anything to add?.

No, you hit most of them, Chris. I think just to finish that, Megan, we really do feel like after some headwinds in the first half, we have a strong second half plan. We're proud of our teams and their innovation.

Even in addition to all the great innovations Chris mentioned, we also have some big programs in retail in August behind Star Wars and the Obi-Wan product line, which is sitting behind their extremely popular Disney+ series. And across the board, the strength continues across the Marvel portfolio.

So we really do feel like we're poised to have some positive POS versus where we've been. And I think the innovation you're going to continue to see from Hasbro is very, very strong..

Got it. That's really helpful. And then maybe as a follow-up, again, on the Wizards margin, it had very strong performance in 2Q. And it does seem like you raised the top line guide a bit for that segment. You talked about potential to reach low double-digit, now you are including that in the guide.

So that would imply just higher operating margin on mix in the back half, but you did keep the overall profit outlook unchanged.

So are you just seeing higher costs in other areas of the business? And are you still thinking about COGS being around 30% of sales for the year?.

THE GATHERING as well. But overall, as we see the mix and the things that impacted us back half of the year, while we could be surprised, we are expecting margins to be slightly down from a year ago overall for the full year. However, we agree, the second quarter was an exceptional quarter given the mix of business..

Thank you. Our next question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question..

I know that you made the comment that you had assumed some macro challenges when you guys issued guidance start of the year.

But could you just give us sort of a quick sense of the high level for how you see each of the main categories performing if we do move into a recession? I think that we can go back and sort of look at what the toy business did in '08 and '09, but for some of the newer pieces of the business that might not have been broken out previously or that were part of Hasbro, could you sort of give us a sense for how you see the elasticities or peak to trough or however you want to frame it?.

THE GATHERING started -- MAGIC has grown 12 out of the last 13 years, and that growth vector started back in 2008 during the last financial crisis. And we continue to see that consumer being very resilient with a deep well of savings and a large amount of passion for pursuing what they love.

And then in the Entertainment segment, we continue to see that to be rebounding from the pandemic. Our Film & TV business is up in the first half of the year. We continue to project our overall Entertainment segment ex the sale of our Music business up for the full year.

So we feel pretty good about where our outlook is and maintaining our guidance from prior quarters..

Makes sense. And then you called out the $60 million shift just from the direct import timing.

Is there anything else that you're seeing or hearing from retailers that could cause some impact as far as 3Q, 4Q split in the back half of the year?.

Eric, anything to add?.

I think with regards to retail, Deb already mentioned some of the dynamics. I think we're feeling actually pretty comfortable from a supply chain standpoint, which is the one thing Chris didn't touch on in the last narrative that conditions are improving.

And while things are more expensive and transit times do take a little bit longer than they have in the past. Our teams are managing through those challenges. Retailers are managing through those challenges.

And I think you'll see, as Deb mentioned, as we get into the Q3 and Q4, a stronger environment where our position amongst retailer promotions and their advertising is favorable. And we're certainly optimistic about that..

Our next question is from the line of Drew Crum with Stifel. Please proceed with your question..

So, on the Wizards business, I think in some recent correspondence, you indicated that you've expended over $1 billion on this business over the last five years. Can you address what the planned cadence of spending will be going forward? And Deb, I think you suggested that you're going to focus on digital and talent.

But any more specifics you can provide in terms of where you intend to invest?.

The Gathering Arena. I think we've already announced some platform expansion, but we see some upside potential in new gaming formats and new quadrants of players. I think D&D Beyond will be a major area of investment for us and development.

We see a lot of upside in kind of content to commerce synergies with our Hasbro Pulse platform, international growth and really doing something special to make screens such -- in a more and more important part of even face-to-face kind of in-person play.

And then we're also fascinated with what we can do with the balance of our gaming portfolio on some of the learnings that we've had with some of our "hard core tabletop games." I think there's some interesting opportunities for digitization of our overall board gaming assets that I know the team is investigating.

And then beyond that, video games continues to be an area of focus for us. I think we'll have a couple of really interesting announces coming up within the next three to four quarters. We've got some just killer talent working on those games.

And those games will span announcements that we have for established brands like DUNGEONS & DRAGONS and then some new innovation that we have being cooked up by people who are almost household names inside of the gaming industry, James Ohlen and the team at Archetype Studios being one of them that I'm particularly excited about.

So I would say we're going to continue to lean in on investments in games. I think digital will be a particular focus of that investment, and you should expect us to at least maintain our current spending outlook, if not leaning in further as we see upside potential..

Got it. Very helpful. And then just a quick follow-up, Deb. You're forecasting the cash flow to come in at the lower end of the range.

Anything specific to call out there that's driving that updated guidance?.

Really just that you're seeing the reflection of our preorders on the inventory and the operating cash flow number. From an investing standpoint, we just -- which is part of our free cash flow.

We did make that very strategic acquisition of D&D Beyond, which we're very excited about the future for that, as Chris just said, for the platform for many things that we have in our view going forward.

So as we look at that, we do expect the inventory to turn, but in the back half of the year, we expect our cash flow generation to actually improve in the back half of the year..

Next question comes from the line of Linda Bolton-Weiser with D.A. Davidson. Please proceed with your question..

I was wondering if you could comment on what you're seeing like on the toy side of the business in terms of raw material input costs. I know that for the toys being produced for this Christmas, the costs are up, but we're seeing like spot prices for some things like plastic resin are starting to roll over.

So can you just kind of comment on kind of like what you're seeing on a longer-term basis? And do you think next year kind of bodes well in terms of cost comparisons on the raw material side? Thank you..

Yes. Thanks for the question, Linda. I'm going to turn it over to Eric to give you an overview on what we see going on in the supply chain.

Eric?.

Thanks, Chris. So a couple of things to hit with regards to your question, Linda. The first was with regards to input costs. We do see those rising, and both Deb and Chris talked about them in our prepared remarks a bit.

We have taken pricing to cover that, and we feel comfortable that we continue to make the right decisions with regards to pricing to cover those input cost increases. And we're working with our partners as we look go forward to continue to manage and mitigate some of those headwinds.

With regards to transit, which is kind of the other big piece that we've talked about in the past, we are seeing some of the transit times and transit costs easing a bit. And we expect that trend to continue as well as we go into the fall.

So I think some puts and takes across the board there, but we feel like we have our hands wrapped around it, and the teams are managing it well..

Great. And just switching a little bit. We've seen a lot of talk about the Toys "R" Us store within stores expanding to all the Macy's.

Can you talk about -- does that move the needle at all for you? And how are you thinking about that opportunity in terms of some expanded distribution in the channels?.

Sure. I'll just continue on that one. Clearly, Toys "R" Us is making another comeback. And we're always excited when we see toy space and toy merchandising increase in retail footprints around the world. We're certainly encouraged by what we're seeing as Toys "R" Us partners up with Macy's. And we saw the announcements, obviously, that you did.

And we clearly have been in conversations with them for quite some time that they're going to expand that footprint for this Q3 and Q4. They're good partners of ours. And -- but when I say they, I'll talk about Macy's because it's really a footprint store within a store concept, and we'll continue to supply them as needed.

I don't expect it to be significantly material for this year. But we are excited that we're continuing to see the toy footprint expanding. And we think that any time you have the chance to put more toys and games in the hands of consumers around the world at holiday, it's a good thing..

Our next question is from the line of Gerrick Johnson with BMO Capital Markets. Please proceed with your question..

Great. I have one follow-up. First, on Wizards, there's a lot of noise in the Wizard segment this quarter. Can you please talk about the performance of the core Magic Arena on its own excluding mobile launches and DUNGEONS & DRAGONS, et cetera? Thank you..

Yes. I'll start. And then, Cynthia, if you want to add, please do. So Arena Mobile launched last year. We saw a nice surge of new users and new revenue associated with that. Revenue for the platform was down after seeing kind of that surge, but still up on a on a pre kind of mobile basis. We're entering the fourth year of the platform.

So it's -- we would expect it to be starting to get to a maturing aspect. We think things like scheme, things like consoles will be nice revenue kickers and user kickers for us. Moving forward, we see a relatively stable outlook for the revenue for Arena.

We see it maintaining as the most important acquisition vehicle inside of the MAGIC brand in terms of bringing new people in and training them on the brand. And then long -- mid and longer term, we see some nice innovation opportunities, which potentially could change that revenue curve and kind of that outlook.

Cynthia, anything you'd like to add?.

Yes, I think you covered most of it. The only other thing I would say is we will continue to listen to our customers and the community as we are working on that road map for innovation. We're super excited about how Arena will continue to contribute to the overall MAGIC ecosystem..

Great.

You had a follow-up, too?.

Yes, I did. On a consolidated basis, you guys have commented over and over that you're maintaining guidance. But the fact of it is, you've lowered revenue outlook because of FX, right? It's in constant currency now. Before, it's just in dollars. Your operating margin guidance is maintained.

So is it FX hedges below the operating line or share buyback or lower interest? What is it that gets you to maintaining guidance?.

Sure. Gerrick, you're right. I mean, as we said in the first quarter, we warned that currency was a headwind. And in fact, we saw the euro for the first time in 20 years reach parity. I think it's up a tick this morning, right? But on a translation basis, that impacts our revenue, right? But the underlying business is healthy.

Our -- we do hedge our costs. Most of our costs for products are denominated in U.S. dollars. So we hedge that. We're probably 65%, 70% hedged at a given time. So it does have less of an impact to operating profit. In addition to that, we are very focused on controlling our costs and implementing cost savings initiatives wherever we can.

And we're excited to actually talk more about that when we get to Investor Day and how we view the long-term impact of that. But overall, we continue to invest in our business for long-term growth and do the smart business things to protect our margin on the bottom line and cut costs where we don't need to expand them..

At this time, we've reached the end of the question-and-answer session. And I'll turn the call over to Debbie Hancock for closing remarks..

Thank you, Rob, and thank you, everyone, for joining the call today. The replay will be available on our website in approximately two hours, and management's prepared remarks will be posted on our website following this call.

As Deb and Chris both mentioned, we look forward to sharing more about our strategic plans at our Investor Day on October 4 in New York. Thank you..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..