Spin Master Corp.

Thank you. Good morning, everyone, and thank you for joining our call.

With me here today are our CEO, Christina Miller; and our CFO, Jonathan Roiter. For your convenience, the press release, MD&A and consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR+.

Before we begin, please note that remarks on this conference call may contain forward-looking statements about Spin Master's current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements and any other future events or developments. Forward-looking statements are based on currently available information and assumptions that management believes are appropriate and reasonable in the circumstances.

However, there can be no assurance that such assumptions will prove to be correct and many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements. As a result, you are cautioned not to place undue reliance on these forward-looking statements.

For additional information on these assumptions and risks, please consult the cautionary statements regarding forward-looking information in our earnings release dated March 5, 2026. Except as may be required by law, Spin Master disclaims any intention to update or revise any forward-looking statements, whether because of new information, future events or otherwise.

Please note that Spin Master reports in U.S. dollars, and all dollar amounts today are expressed in U.S.

currency, unless otherwise noted. Also, all industry data that we referenced related to toys is from Circana LLC retail tracking service and relates to data from our G11 markets, which are specified in our Q4 2025 supplementary presentation.

And unless noted otherwise, all percentage growth rates refer to the period ending December 31, 2025, relative to the same period in 2024. In terms of an agenda for the call, Christina will start with a review of the year 2025 and then an overview of our strategy and priorities for 2026 and beyond.

Jonathan will then provide a financial review of the year, Q4 and our financial outlook for 2026. I would now like to turn the conference call over to Christina.

Thank you, Tim, and good morning to everyone who is joining us today. 2025 was a challenging year for our U.S.

toy sales as we navigated a difficult tariff macro environment. And while we achieved many of our goals, our results did not meet our expectations we wet at the beginning of the year.

However, I'm pleased with how the team responded and made adjustments to set us up for a return to profitable growth in 2026. Most notably, we focused on execution, investing where it matters most and making clear choices to drive growth.

In Digital Games, we focused our investments on improvements to our 2 core platforms, Toca Boca World and Piknik by optimizing the user experience and increasing content releases. We also expanded the reach of our brands through exposure on third-party platforms.

This strategy led to more than 20% growth in revenues and adjusted operating income in 2025. In entertainment, expanding the reach of PAW Patrol was our top priority.

We introduced new tent-pole specials to build towards the summer release of the third PAW Patrol movie, and we invested in a broader content slate and new IP development. In Toys, we increased our POS driven by consumer demand across our key categories, products and licenses.

We invested in strengthening our core brands, driving innovation and expanding into higher growth categories. And we have diversified our supply chain responding to the evolving tariffs.

At the corporate level, we've been investing in material IT improvements to enable efficient, scalable and future-ready business operations. It has been a significant amount of change, and I'm proud of the team's commitment and resilience.

Now in terms of specific results for our creative centers. In Toys, we started 2025 strong with a solid first quarter, reflecting momentum in our core brands, innovation and licensed brands.

However, driven by economic uncertainty following the introduction of tariffs, the remainder of 2025 was challenging, notably in the U.S. As I noted, our POS was up in 2025.

However, our sales to retailers were negatively impacted as they reduced their inventory levels. But this does set us up well for 2026.

Melissa & Doug was the most impacted by these shifts, given almost all of the sales entering 2025 were in the U.S. and manufacturing for the brand was primarily in China.

As I outlined on our last call, we are executing on a plan to stabilize M&D and return it to growth. We had a solid start to the international expansion and the team successfully optimized inventory levels for 2026, a year in which we aim to gain more retail space in the U.S.

and in Europe. In 2025, we deepened our position with partners.

Jurassic World Primal Hatch was the top selling in youth electronics, Ms. Rachel was the #1 absolute growth license in infant, toddler and preschool category and Monster Jam continued to take market share in vehicles, remaining the #2 property in the category.

Quality innovation also helped drive growth in our core brands, Hex Bots Wall Crawler was the #1 item in remote control vehicles. Cool Maker Heishi Bracelet was a top-selling new item in arts and crafts in the U.S.

and Europe and our new Melissa & Doug WOW products helped the brand become #1 in craft kits. We remain a preschool leader and gained market [indiscernible] which moved us up to the #1 manufacturer in our infant, toddler, preschool and plush category.

PAW Patrol was #1 here. Looking ahead to 2026.

We've had very positive feedback from retailers on our toy line. Our PAW Patrol movie line is filled with exciting new transformation for preschoolers.

Grounded in our mission of purposeful play with Melissa & Doug, we are introducing new pretend play experiences and adding infant and play sets. Primal Hatch won the Toy of the Year and Action Figures Toy of the Year in 2025.

Now we are extending the line with new iterations across multiple price points. We continue to launch new innovation-driven concepts, including Magic Jellykins and [indiscernible].

Gund had strong POS growth in 2025. And in 2026, we will continue to broaden its appeal with great new licenses and a unique brand promise Forever Friends, plush that can last the lifetime.

And we have a portfolio of exciting new products for popular licenses, including Monster Jam, Ms. Rachel, Gabby's Dollhouse, as well as KPop Demon Hunter, Hello Kitty and a key item for the upcoming Super Mario Brothers movie with Hatchin' Yoshi.

We also recently announced our expansion into strategic trading card games, a category that nearly doubled in size in 2025. We are taking a two-pronged approach here.

The first is a distribution partnership in North America, Australia and other markets with Italian brainrot, a series of collectible trading cards that has successfully tapped into this wonderfully weird viral trend. And this fall, we are launching Hellbreak, a fast, competitive and highly collectible game for an older demographic.

This is a multiyear initiative to build out a one-of-a-kind horror crossover universe that will include characters from across the horror genre from Universal and other major studios. In summary, our focus on toy going forward is to expand our leadership position in our major categories, create new categories from white space through our innovation and enter and compete in high-growth categories where we have the right to win with compelling products.

Moving to Entertainment. We have an exciting year ahead with the global release of the PAW Patrol movie in August and we are investing ahead of that.

We continue to build the PAW Patrol universe with new content and expanded distribution to ensure the pups remain a global preschool leader with the next generation of children and their parents. We've been reaching new audiences by adding previous seasons and movies on Netflix, which have driven strong engagement.

In 2025, hours viewed on Netflix of PAW Patrol increased by 10% to almost 1 billion hours, a testament to the relevance of the brand. In 2026, we have new seasons of PAW Patrol and Rubble & Crew being released on Nickelodeon and Paramount+ and other global channels with future seasons in development.

In addition to PAW, we are continuing to create new IP including the development of our animated 4-quadrant movie. The release of the new season of Unicorn Academy also begins globally on Netflix this month.

In Digital Games, our focus on Toca Boca and Sago Mini Piknik subscription bundle is paying off. We have created value in the Toca Boca community by increasing the frequency of free and paid features, content releases and collabs, including Universal's Wicked: For Good and Hello Kitty, enhanced our Piknik subscription offering, including through the addition of Crayon Club and extended the reach of our brands by licensing to third-party platforms.

In 2026, we plan to put the Toca Boca user experience first by continuing to invest in improving the tech platform to support faster production, more content and live service and we will be bringing this playful world to fans with Miniso this summer, and we have a pipeline of other partnerships coming. With Piknik, our strategy is to drive growth in subscribers and increase retention by showcasing the value proposition of the deep bundle of titles included.

As part of this, we have a content pipeline to fuel subscriptions, including the first quarter release of the new reading app Superfonik. We also have a new UX launch planned in the coming months that will make it easier for parents to access the full Piknik offering within their subscription, a key driver of higher retention.

And we are continuing to expand our partnerships. In the first quarter, we launched Jinja's Garden, Sago Mini's first-ever immersive 3D game on Apple Arcade.

Finally, the integration of Lylli s going well, and it is an example of how we can drive value across our creative centers. We are utilizing Lylli as a platform to make reading part of our brands, including PAW Patrol and Melissa & Doug.

In summary, we have clear priorities for 2026, as I outlined in detail on our last call. The first is capturing the movie moment for PAW Patrol across all creative centers.

The second is fully realizing the potential of Toca Boca digitally in the physical world and through content. And the third is returning Melissa & Doug to growth.

Beyond 2026, we are setting the stage to reignite a new growth cycle by investing in innovation in our toy portfolio and digital platforms, expanding into high-growth categories and accelerating collaboration across our creative centers to unlock the full potential of our portfolio and brands. With that, I turn it over to Jonathan.

Thank you, Christina, and good morning, everyone. As Christina noted, the 8% decline in our Toy gross product sales in 2025 and was driven by an approximate 12% reduction in retailer inventory levels.

And because we don't expect significant more reductions, we believe we have a healthy setup going into 2026. We have successfully reduced our own inventory levels in the year by about 20% due to our sell-through efforts with Melissa & Doug successfully reducing its age inventory as well as a reduction within Spin Master of licensed products that we are exiting.

Our improved days inventory outstanding, combined with improved payable management, help us decrease our consolidated cash conversion cycle by 7 days. During the year, we generated $308 million in operating cash flow despite the headwinds in the U.S., illustrating the cash generating power within our model.

CapEx was approximately $185 million, which included certain projects that I outlined on our third call. Specifically, approximately $24 million related to our IT investments to upgrade our enterprise software across our global organization and approximately $33 million, which was attributed to our new [ Lylli ] office and showroom of which about $15 million was funded by our landlord.

After CapEx and lease payments, our free cash generated was used to purchase Lylli in the fourth quarter. We also returned about $80 million of capital to shareholders through our quarterly dividends and by maximizing our share buyback program for the second year in a row.

We have now reduced our TSX listed shares outstanding by approximately 7% over the past 3 years through our buyback programs. Net debt, excluding lease liabilities, was held flat year-over-year as we prioritize return of capital.

We ended the year with one turn of net leverage, including leases. Now digging into our fourth quarter results by segment.

Toy GPS declined by 5%. This was a significant improvement over the 20% decline we experienced in the third quarter, which was driven by the delayed timing of retail orders as many had moved from direct import to domestic replenishment.

In the fourth quarter, we lapped much of that timing issue as domestic replenishment sales surged in December by 50%, making up for some of the reduced import sales that we experienced in prior months. A special thank you to our sales, supply chain management and fulfillment teams for navigating us through such an abrupt tariff-driven change in retail order patterns in 2025.

In the fourth quarter, we support our retail partners and invest in sell-through to optimize our inventory, which resulted in Toy revenues and gross profits declining faster than GPS. The quantum, however, was not unusual and sales allowance percentage and gross margins were in line with levels we have seen in the fourth quarter of 2024 and 2023.

As much of our promotional efforts in Toy were above gross profit, we reduced our marketing expense and OpEx, which helped protect EBITDA. As we noted on our last call, Melissa & Doug was negatively impacted in 2025 due to the tariff-driven environment and increased competition.

While we are executing our plan to stabilize and return the brand to growth, the change in dynamics led us to take a noncash goodwill impairment charge. Turning to Entertainment.

Revenues increased 3% driven by higher distribution revenues stemming from deliveries of content. However, adjusted operating income declined due to a $12 million increase in amortization of content development within cost of sales, reflecting the in-period dilutive impact from content delivery.

Within Digital Games, revenues increased 16%, driven by increased partnership revenues, increased engagement and monetization on Toca Boca World and improved retention and higher ARPU in Piknik. The revenue increase drove a 24% increase in adjusted operating income.

So now turning to our outlook for 2026. We are guiding for a stable to low single-digit growth in revenues and a mid- to upper single-digit growth in adjusted EBITDA.

The top end of our range reflects growth drivers with a downside reflecting conservatism due to the uncertain economy and its impact on the U.S. consumer demand.

In terms of drivers, we expect healthy growth in Entertainment, through the release of PAW Patrol movie and more modest growth in Digital Games as it faces a challenging comp in '25 when it grew by more than 20% and benefited from significant partnership revenues. As it relates to Toy, we expect drivers to include the third PAW Patrol movie, M&D improvements, continued innovation through the portfolio, exciting new licenses as well as the potential to recapture some shipping revenue that we lost in the prior year.

Headwinds to growth will be the lapping movie years for DreamWorks Dragons, Gabby's Dollhouse as well as exiting certain licenses, notably D.C. In terms of top line cadence throughout the year, we anticipate year-over-year results in Entertainment to be relatively stable in the first half, with growth in the second half following the release of the PAW Patrol movie.

This would be a combination of revenues of approximately $20 million, followed by additional distribution revenues thereafter. Within Digital Games, we're aiming for modest growth in each quarter with rates increasing in the second half partially driven by the launch of our new PAW Patrol digital game and improvements we are making to our platforms.

And in Toy, we anticipate an approximately 30-70 split in Toy revenues between the first and second half of the year with the first quarter anticipated to be in the low double digits and the second quarter high teens. Year-over-year results through the quarters in Toy are anticipated to be volatile to a significant shift in retail order patterns last year.

Retailers pull forward orders in the first quarter last year in anticipation of the introduction of tariffs, which makes it a challenging comp. Therefore, in the first quarter, we are expecting a significant year-over-year decline in Toy, which in turn is anticipated to result in a double-digit decrease on a consolidated basis.

For the same reason, of course, we should have easier comps in Toy in the following quarters, notably in the third quarter. In terms of gross profit, I'll note that the current geopolitical climate may result in certain higher cost of sales such as freight.

It is too soon to quantify these. We do expect approximately $22 million of increase in depreciation and amortization within cost of sales, primarily related to amortization of entertainment content development.

In the first quarter specifically, we expect a year-over-year decline in gross margin due to a $12 million increase in entertainment amortization. In terms of operating expenses, we anticipate efficiencies in certain areas to help us pay for increased technology investments.

The increased adjusted EBITDA margin implicit in our guidance is consistent with the 50 to 100 basis point general target, I outlined on previous calls. As it relates to adjusted EBITDA cadence, we expect seasonality to be similar to last year and '24, with the second half representing more than 85% of our full year results.

In the first quarter specifically, we anticipate negligible EBITDA due to the anticipated decrease in gross profit. Below adjusted EBITDA, we are anticipating depreciation and amortization in 2026 to be approximately $160 million, with the increase driven by entertainment, as I previously noted.

Finance costs are anticipated to be similar to 2025. Now turning to our cash flows.

Lease payments are anticipated to be just under $40 million annually and our CapEx is anticipated to be approximately $150 million in 2026. Now about $25 million of this relates to investments we are making to upgrade our enterprise software, which we expect to launch by the end of the year.

This includes leveraging the latest technology to prove and automate our data quality and processes and facilitate tighter integration within our creative centers. The remainder is primarily investments in 3 areas: first, new entertainment content of which 70% is earmarked to continue to expand the PAW Patrol universe, where we generate strong cash-on-cash returns with much of the remainder on our new animated original IP film.

Secondly, [ tooling within toy ]. Apple intensity in toy continues to remain in the low single digits.

And thirdly, digital game projects. Specifically, the majority will be spent on Toca Boca with a focus on driving growth through next-generation game development, additional content, features and platform upgrades.

The remainder will be spent on driving retention in Piknik by investing in new game launches, content expansion and live service development, and we'll be completing our new PAW Patrol digital game. In terms of capital allocation, we remain focused on first investing and driving growth, both in OpEx and CapEx.

With the free cash we generate after CapEx and lease payments, we expect to continue to look for M&A to further our strategies. We are maintaining our dividend.

We are also renewing our share buyback program. So in summary, we'll look to maintain a balanced capital allocation approach with prudently [indiscernible] conservative leverage.

With that, operator, please open the line for questions.

And of course, thanks for the outlook and a lot of details, Jonathan. If I could go back, one item that I didn't hear was on the sales allowance front.

And maybe you can talk a little bit more in terms of the nature of promotional activity that you think might transpire during the course of this year, let alone perhaps still in Q1.

Thank you for the question. I'm glad that you appreciate the details on the guidance, return to guidance.

In terms of sales allowances, we finished this year I didn't -- sales allowance in Q4, I'd point out that those are similar to levels that we had in '23, '24. And so really, when you look at the overall year of '25, it's not necessarily an anomaly.

And so heading into 2026, I think we're expecting similar levels. We're really early in the year.

Sales allowances really are determinant of your products. And when we look coming out of New York Toy Fair, there's a lot of excitement around our core new products.

And so ultimately, sales allowances, we are expecting it to be similar to 2025.

As you reflect on some of the latest dynamics around the tariffs, I think we were moving from 10% into 15% perhaps other changes are afoot. How do you read the landscape.

Is this another year where you effectively pass pricing on to the consumer to wash the tariff impact? One part to the question.

And then secondarily, are there other benefits to be extracted by virtue of some of the supply chain management issues you pursued last year?

Yes. Thanks, Adam.

It certainly is a dynamic environment. You're right, we're currently at 10%.

I think there's some expectation from the Treasury Secretary that next week we'll move up to 15%. Bear in mind, those are lower than the previous years.

If we just step backward for a moment in 2025, tariffs themselves were not -- the actual dollars that we paid were not material. The net dollars that we paid versus price was not material.

Really tariffs, the element that was material was how the consumer ended up showing up and how the retailer bought throughout the year. So we don't expect a movement from 10% to 15% or thereabouts to have a material impact on the net dollars going out.

Obviously, the bigger question mark is, does that impact the consumer? And does that impact the retailers?

So far, as we began Q1 and 2 months in, we have not seen changes in the retailer purchasing behaviors with the change in the tariff environment.

And just one last one, and I'll queue up again. Just to confirm and clarify with respect to the PAW Patrol movie expected distribution, I think you said $20 million.

And is that something that hits the Q3? Or is that $20 million figure the -- a figure for all of 2026?

No. So when we release the theater -- release the move, there's contractual responsibilities.

And of those, we received $20 million, and that will be a Q3. How the movie performs, then there's additional funds that we would receive.

Perfect and this is as per the last 2 movies.

First, just thinking about the industry as a whole, what are you expecting from preschool infant and toddler category? And then also just like the broader toy industry as a whole for 2026 in terms of sales growth?

I think that what we -- just looking at the category overall for us, we see that the consumer sentiment like towards the end of last year was a little bit softer, but improved by the time we got into December slightly. And that toys continue to -- people still continue to shop for toys, even if it's on a promotional basis, right, that they're looking for discount or otherwise.

So our approach going forward and even towards the end of last year is to make sure that we have a balanced mix on pricing that across all of our brands that we're bringing value to the consumer. So more than 50% of our products are still priced below $19.99.

So I think we have that kind of mix between driving innovation, helping grow that category and then also making sure that we have price points that work. And on top of that, I would add that we have some of the stronger brands in the space as well.

So whether it's PAW Patrol being in a movie year or continuing to see growth in Ms. Rachel or Gabby's Dollhouse had a good year coming off the movie.

So I think when we move into next year, it's about what else can we bring into that category, given our strength in that category and creating products for that category and then how do we continue to drive the products that we -- brands we have.

Super helpful color. And then I guess last one for me is just kind of what needs to go right in order for the results to end up at the high end of your EBITDA guide?

Thanks, Kylie. Well, if we go back to kind of our prepared comments, there are really 3 focuses that we have, right?

The first is capture the PAW Movie moment. And so ultimately, not just success at the theater, but also the toys that we have launched that are associated with the movie.

We've had really strong response coming out of New York. And so we're really feeling bullish and positive about those products.

The second is realizing the full moment of Toca and fully realizing the Toca's potential. So that is a multiyear journey.

And we're going to start seeing over the course of this year, increased content, increased features, increased Toca being outside of the digital realm. That is a multiyear journey and executing on that will certainly help on the high end.

And then lastly, we talked about for a number of quarters now, returning M&D to growth, and that is a focus of the team. We have -- we brought back innovation to the pretend play category.

There's some new areas that we're launching products around and the feedback that we received, again, from the Toy Fair was positive. And so ultimately, those are the 3 elements that would bring us to the top end, plus the consumer showing up and plus stability with how retailers are ordering throughout the year.

Given the Supreme Court tariff ruling, has that changed conversations with dealers? And just in general, how are they wanting this to be fulfilled in the first half?

Are they shifting back to FOB or still pretty much domestic fulfillment?

It's still too early to tell, right? The changes are coming daily at this point.

So being able to react to them before the next one comes, I think people are just taking a wait-and-see approach at the moment. So we're not seeing any drastic changes.

Okay. And how are they wanting to be fulfilled?

Last year that we talked a lot about that shift from FOB to domestic and have we shifted back to normal shipping patterns? Or are we still in that domestic preferred over FOB?

Domestic continues to be about at the same rate as it was. We don't see a big swing back immediately.

. Yes.

I think it will take a number of years for that change. And if anything, there may be more domestic than FOB over the course of the year.

And then on channel inventory, I heard a couple of numbers. Was it down 12%, down 20%?

What was the channel inventory number?

Sure. So the channel is down 12%.

So that certainly positions us well kicking off the year. And we were down 20% year-over-year.

And so from a working capital perspective and again, also positioning us well for next year with the quality of our inventory on hand.

Okay. Is there still any excess out there in the channel that needs to be cleared or inhibiting first quarter -- first half shipments?

I think there's always going to be some level of access. I would just revert back to we're starting the year in a great position, both from our own inventory position, down 20% and the market -- the retailers down 12% that is a strong position to start from.

I hope you guys can give us some insight. Maybe I missed it in the prepared remarks, but do you have any insight to the POS momentum coming out of the quarter?

We're in March already. So hoping to get a little bit more recent visibility.

I mean I think right now, at this moment, it's slightly up is what we're seeing for the POS getting into the first 8 weeks of the year.

Okay. And then we haven't really talked too much about this trading card market.

But for horror specifically, I'm not very in the weeds in the space. I think there are some other brands in this space.

So can you talk a little bit about what the total addressable market there is for you guys to tap into? How you expect the rollout of that to go and sort of when you expect it to start contributing to the P&L?

Sure. A couple of pieces there.

I think in the prepared remarks, you would have heard us talk about a two-pronged approach, right? So we have a distribution partnership with Italian brainrot, which is a trading card brand out of Italy.

And that will be the first one to go to market and that will be more of a mass trading card play. And then when you look at Hellbreak, which is the strategic trading card game that we're putting into the market later this year, and that's a multiyear growth initiative.

So it will start at specialty and really look to permeate that channel and grow with the fan base that older demo. Right now, there's a big show going on in the trade show market called GAMA in Kentucky.

And that's like one of the first legs of really revealing it to the specialty channel and to building fandom for the game. The game is there this week.

It's doing really, really well. That's that first leg.

So I think that really, at this point, it will be about -- we will not see huge growth from this category in 2026. It will start to grow more for us in '27 and '28.

Maybe just you mentioned the key to returning M&D to growth. In New York, we saw the expanded product line beyond [ wood ], the expanded addressable market and your international expansion opportunity.

But what's the strategy to gain market share following the tariff heightened impact last year? Is it product differentiation?

Will you have to use price? How do we gain more market share back?

There's a couple of paths to returning M&D to growth, right? It's never going to be one thing.

I think it is regaining retail space right across the channels, doing that through both category expansion into things like infant as well as continuing to grow our space with WOW products and driving some of the innovation you saw, also really digging into the pricing of our products as well and really making sure that the value is there for both our consumer and our retail partners. And then last but not least, of course, is international expansion.

You saw us track towards model at the end of last year with growth into our international channels and growing further there will help us really expand the brand. And then beyond that, I think anyone that was able to spend time with us at Toy Fair will see the way that there's definitely other adjacencies that Melissa & Doug can grow into from an experiential standpoint and really looking at seeing how else we can make sure that the people that love Melissa & Doug can spend time with Melissa & Doug beyond just having a toy in their hands.

Okay. And then maybe, Jonathan, can you clarify?

I mean, obviously, growing Toca digital content is a priority next year or this year, pardon me. Maybe just reconcile the monthly active users in Slide 19, it appears that the ending MAU is down, but the average MAU is up.

Can you just clarify how that works?

Sure, Brian. I mean the simple answer is the -- 2 numbers are different.

One is an ending number and the second as an average for the period. And so what you see is the trend, I guess, ultimately, in terms of what is transpiring.

When we look at Toca, they really -- you really do have to look at it across the 3 core metrics: monthly active users, the conversion of those users and then ultimately, what people are paying. And we are not managing just for 1 of those metrics.

We are managing across all 3, and we're comfortable to have some variability in our MAU, in our monthly active users as we try different ways to increase our conversion and increase our, what we call, our ARPU. So we're very comfortable with the trend that you're seeing there.

And we're really trying to focus on all 3 of the variables at play.

So is it safe to say it's a bigger basket from a more concentrated base of users?

Yes, Brian, I think what you're seeing is that it's both, right? And same thing that Jonathan was saying about the difference of its MAUs.

It is there. Yes, we're trying to grow the top of the funnel and you see lots of releases -- content releases, both free and premium.

And we are converting at the bottom of the funnel well. And I think that's one of the differences for Toca Boca versus competitors, right, is that the markets that we're going to and our ability to convert at the bottom of the funnel.

So it's a little bit of both.

Jonathan, I just want to talk about the impairment charge you took on Melissa & Doug, it's pretty large. I just want to understand when you did your cash flow analysis to write down the goodwill, was the write-down driven by a lower revenue profile?

Or is it more from a lower profitability profile?

Yes. Thank you, Martin.

The math on any time you're looking at your CGUs and ultimately, the goodwill associated with it is driven first by your top line. And then what -- how does that translate into cash?

Clearly, in 2025, we talked about a number of times. M&D was a brand that was disproportionately impacted by the tariff environment as the vast, vast majority of its production was coming out of China and the vast majority of the sales were to the U.S.

And so it had a disproportionate impact. So when you take that in consideration, you rerun your model, ultimately, the baseline of where you're starting from is lower, and that's what drives the impairment.

What's important is what we're doing going forward. And I think Christina walked through the growth drivers quite clearly.

We're really excited to see a path to having more doors and more shelf space in 2026 than we had in 2025. And couple that with the innovation, the right pricing and continued international expansion.

We think that we're -- our aspiration and our goal to bring back Melissa -- M&D back to growth, we're well underway on that.

Okay. And switching gears, I mean, in the past, there were lots of discussions and efforts and resources dedicated to the development of IP internally like Unicorn Academy, for instance.

But we don't hear you talk about or maybe I've missed it, but is this a strategy that you're still pushing to develop IP internally? And what's the pipeline of the IP developed internally, if there is any?

Thanks, Martin. I think that we did discuss it a little bit in the prepared remarks around, one, obviously, we are continuing to invest in PAW Patrol, and we talk a lot about that.

I think that's definitely one of the things you're noticing. And then other than that, we do have a pipeline of content, whether it's the 4 quadrant movie that's in development.

Whether it's relooking at [ Bakugan ] which is an internal property talking about how we're going to develop Toca Boca. Again, when we look at driving and unlocking value for our portfolio, it's about getting it to its full potential.

So I think one of the things you're noticing is the pipeline is filled with some of our very core brands that we have the ability to pull through across all of our creative centers. And then we always have a robust development slate where we're looking at what are the new content we can create.

And as we get further along with that, we will obviously share it.

Okay. So is it fair to say that there's more focus on your core brand and trying to develop new stuff at the moment?

[indiscernible]

No. I think that, again, I'm going to take a chance of just sort of repeating myself.

But I think that, obviously, the core brands inside our portfolio are the brands that we are focused on giving and unlocking -- giving attention to and resources and unlocking their potential. Not in -- it's not binary.

It's not just doing that. I think the development brands are just that.

The same way we're developing over 500 toy products that we will bring far less of those to market. So we have a strong development pipeline.

We're constantly looking at what else we can bring to market and when. But as you're probably aware, it's a pretty long process between when we start to develop the property and when we bring it to market.

So no less development currently, what's closer in sight is the development or the shows that we're talking about.

Yes. And there's a healthy -- 30% of our entertainment CapEx budget is outside of PAW.

So there's a healthy amount of dollars that are being placed on those items that Christina just walked through.

Yes, we will always be a company that's in the active creation, right, that we're always looking at building and adding to our portfolio, and developing franchises across the business, whether they come from digital or they come from toy or they come immediately from content. So I think it's about looking left and right around us to bring what can we pull into content and then where are there those new content ideas.

So we are, in fact, doing both. We are committed to doing both.

I wanted to follow up on the PAW movie contribution. I think I heard you correctly, it should be $20 million that's going to be recognized in Q3.

Is the accounting for that similar as in the past where it will show up -- 100% of that revenue shows up in the EBITDA line and then there's the associated charges against that? And then if so, so just a clarification, so that $20 million then is included in the adjusted EBITDA guidance.

And then if we break that out, it's more like flat to up low single digits on the year rather than mid- to high single digits?

I missed the second part. But on the first part, I think it was muffled when I mentioned before.

So similar to historical practices when we release content, if we're within a partnership, there's contractual -- we've met some contractual responsibilities and therefore, there is -- we can tell you the number that we're going to receive. And so we're going to receive $20 million of revenue.

There will be amortization associated with that against that $20 million as we release content. I didn't get the second part of your question.

I apologize.

Maybe -- so I'll just clarify that. So in the past, like in 2023, for example, the number was in and around $15 million, and that showed up -- 100% of that revenue showed up in the adjusted EBITDA line as well.

So in effect, it's almost like the margin on adjusted EBITDA was a little bit higher relative to where it should be because you have the amortization showing up below the EBITDA line. So I guess I'm just trying to think of, if we're thinking about it on a like-for-like basis, we're thinking of the margin expansion in '26 versus '25, should we be then excluding that $20 million of contribution from 2026 EBITDA?

Yes. So it's -- I mean, I thought I addressed it, sorry.

It's no different than in the past. So the $20 million, there's amortization associated with it.

So therefore, EBITDA, you do see a flow through, through the EBITDA, where you won't see it flow through, excuse me, fully is to the [ EBITDA ].

Yes. Got it.

Okay. Appreciate that.

And then just as a follow-up, you talked about there are certain dynamics, obviously, geopolitical dynamics going on right now that make it very difficult to figure out what the impact is of higher freight costs on what your COGS is going to be going forward. Can you just give us an idea of what it is that you're seeing as far as changes in freight rates currently?

Well, I mean, currently none. But I mean we're 4 days into the spike in oil.

And so ultimately, I think it will come down to how high does oil go and how long does it stay at those rates. We're 4 days into the increase in prices.

So right now, there's, what I'll say, no material impact. Of course, if this continues for an extended period of time, you will -- we will start seeing that.

And there's probably a 3- or 4-month lag in terms of our freight costs and then ultimately hitting our P&L through our COGS.

Two for me. First, on the Digital Games side, just in terms of profitability.

Obviously, we saw a little bit of a margin lift here in Q4 on pretty good performance. I think margin is stable overall in 2025.

Just as you continue to grow the top line here, and invest in the platforms, how do you see margins unfolding going forward? And then second question on the M&A environment.

Just maybe for you, Jonathan, just what areas of focus at a 30,000-foot view, are you looking at, at the moment?

I'll start on the first one on the margins on Digital. There's really -- like when you think about Digital, there's 3 revenue streams ultimately that are in that business, there's the Toca stream, the Piknik stream and the partnership stream.

Partnerships are very accretive. And so that's why you sometimes see some variability, upward variability on our margins is when we get to -- when we recognize partnership revenue.

Some deals, we get to recognize all at once. Some deals are over, of course, a number of years.

And if they're material, we do on the call, I'd like to point out the accounting treatment associated with it. Then when you look at Toca and Piknik, they're both in very different stages of their journey.

Toca has hit what I'll call scale, and so it's a very accretive business. And our focus is to continue to manage all 3 of those metrics that I talked about before and bring -- and further bring Toca to life outside of the Digital realm.

Piknik, we're scaling that business, and so there are certainly more investments associated with the Piknik business. And so the accretion around Piknik is smaller than you would see at Toca.

So those are the 3 variables at play when you look at the Digital business. And then in terms of M&A, we're -- I would say the current management team continues to have the same focus as the previous management team around the importance of M&A to our growth platform.

Areas that we continue to be looking at are areas that can boost up our core competencies within Toy, areas that we're not necessarily playing in and are high growth in Toy, regions that we can benefit from as well. And then we continue to be actively looking and you saw our last acquisition was in the digital space in the digital realm where we can add more content and more capabilities.

I just want to circle back to the discussion around margins. So the 2026 guidance implies probably somewhere between 50 and 100 bps of EBITDA margin improvement.

As discussed in a previous question, it sounds like a fair bit of that is going to be coming from Entertainment and Digital rather than the Toy business. So I guess my question is just what's it going to take to kind of get core Toy profitability back to 2024 levels?

What does that pathway look like? And are there any other sort of self-help levers available to the company to get there?

Thanks, Ty. It's a great question.

The challenge when you have kind of these high-level numbers, you don't see kind of all the different pluses and minuses underneath each. What I can tell you is that there is accretion and there is margin improvement within the Toy business.

It's the biggest part of our business, right? It's 80-ish percent of our overall business.

We are -- and we've talked about in the past, ensuring that we are setting up this company to have a new growth cycle and a sustained growth cycle and a profitable growth cycle. So there are investments that we're making on the increased margin because we are getting -- from a portfolio approach, we are getting accretion on entertainment.

So this is a year where we could certainly put dollars back to work to set ourselves up for success, '27, '28 and '29 on that journey of continuing to grow the top line and expanding our margins. I've talked in the past that I see this business being able to consistently add 50 to 100 basis points a year for a number of years, and we're doing it.

And so we're making sure we can do it this year, and we're going to make sure we can keep on doing it going forward.

Thank you all for being with us today. We look forward to talking to you on our Q1 call on April 30th.