Hasbro, Inc. (HAS) Earnings Call Transcript & Summary

Thank you, everyone, for taking the time to join us. My name is Stephen Laszczyk, and I'm the lead entertainment analyst here at Goldman Sachs. We're excited to welcome back to the Communacopia and Technology Conference, Chris Cocks, the CEO of Hasbro; and Gina Goetter, the CFO of Hasbro. Chris, Gina, thank you for being with us today.

Steve, thanks for having us.

Thanks for having us.

Before we start, I think, Kern, has a quick safe harbor that he would like to read.

Thanks, Stephen. Before we begin, I'll like to remind you that during this presentation, we may make forward-looking statements. There are many factors that could cause actual results or events to differ materially from those forward-looking statements. Please refer to our investor website and other public disclosures for additional information.

All right. Great. With that, I think I'd like to start at a high level. Chris, a lot has changed in the past couple of years since you became CEO and even over the last year, a lot change as well. Can you maybe help us refresh on Hasbro's mission, its strategy today and what you see as the biggest achievement so far and the biggest achievements still to come?

Great. Well, first off, thanks for having us. A couple of things. So let's talk about what deems animate the company and I think they are three. I think the first one is everyone play, that's new from maybe 20, 30 years ago. People are playing well into their 50s, 60s, 70s, 80s. They're not stopping and putting down play things at the age of 10 or 12, like they did when we were kids. And that's a huge opportunity and a huge growth market for the business to play. I think what's really driving that is digital. Digital, I think, is probably the biggest thing that happened to the industry of play since the invention of plastic. It's aging up the industry of play. It's extending a lifelong relationship with play and I think it's a huge opportunity for a company like Hasbro. And then, last but not least, we have everyone who plays, we have digital, and then we have -- sorry, I'm pulling a little bit of a Department of Education on you right now. And then we have the whole -- gosh, I'm really blanking right now. That's amazing. Anyway. So digital is huge. So then we think about how we think about what our strategies -- and partnership is important. With everyone's playing and play is exploding in terms of its potential, partnership is hugely important because you can't possibly do everything for yourself as a company. So when you think about our strategy, our strategy really follows that. If everyone is playing, that means aging up is hugely important aspect of being a toys company, being a games company. If digital is important, that means being digitally relevant is super important. You need to be involved in digital play, not just in terms of taking physical things and making them digitally relevant, but doing purely digital-based play. And then last but not least, you have to partner with the best in the business to do that because no company can do it all. And you need to find the best in the business to help you extend in mobile, to extend into new screens, to extend into new markets and place. So when we think about what Hasbro's mission is and what our purpose is, our purpose is really play-based. We want to bring joy in community to as many people around the world as we can. Today, we do that with about 1 in 14 consumers around the world. Our aspiration is to get up to about 1 in 5 over the next, call it, 5 to 7 years. We're going to do that by leaning into each of those themes. We're going to age up. We're going to extend our demographics, particularly girls where we under-index today. We're relatively heavy in boys. And emerging markets and value channels are going to be important to us. So making sure we manage our costs and drive better value, I think, it is important for us. Digital is going to be hugely important for us. We've been making a multiyear investment in digital games. We will continue to do that. I think like we've had huge success over the last year with MONOPOLY GO! and Baldur's Gate 3. I think it shows the power and resonance of our games of our upper brands. And then last but not least, partnership. We are the biggest digital games licensor in the world. We're the third biggest licensor period inside of the entertainment industry. And I think that will be something we lean into more and more. So then you talked like what's proudest accomplishment since I've been at Hasbro? I think there are three, and I'll also turn this over to Gina, I think, for her take on it. I've been at Hasbro now for about 8.5 years. Probably the first one I tick off is the growth of MAGIC: THE GATHERING. When I started the MAGIC, it was about $400 million the year before I started on it. It's going to be close to $1.1 billion, maybe even more this year. That's amazing growth for a brand that's been around for 30 years. That's not something you typically experience with a brand. And we did that by embracing kind of that concept of everyone plays. I think the second thing is digital. We -- what we've done with MONOPOLY GO! and our partners with Scopely, what we've done with Baldur's Gate 3, I think, shows that our brands have huge upside if we partner with the right people and we execute with excellence and we execute patiently because digital isn't for the pain of heart. It's huge capital expense, it requires massive expertise, and it requires very long time lines of investment. And I think we are -- certainly, in the toy industry, years, if not close to a decade ahead of any of our competitors. And then last but not least, if we have to be relevant to more markets and more segments, particularly value-oriented segments and emerging markets, we have to be very, very efficient. We have to be very, very nimble. And I'm very proud of the cost savings that we've driven and the operational discipline we've done that. Now it takes a village to do that, it takes a whole company, but I credit this girl right here, Gina, who's not just our Chief Financial Officer, she's also our Chief Operating Officer for really being a key enabler for that.

That's a great overview. I want to dig a little bit deeper into some of the points that you just made. I think it's pretty clear on the digital side that Hasbro is leaning into digital gaming in a big way. Perhaps you could spend a little bit of time talking about your long-term strategy in self-publishing. You mentioned some of the capital intensity and the lead that you have relative to other competitors in the space. And we as investors think about your strategy and how it takes shape over the next couple of years, what are some of the mile markers investors should be looking out for as you make progress against that strategy?

Well, I think what we've done over the last year, certainly in showing -- I think the first question everyone would have asked certainly, they asked me when I did occasional investor outreach when I was running Wizards is, "Gosh, you even have brands that are relevant. Like you guys aren't Call of Duty. You guys aren't Need for Speed. You guys aren't Flappy Bird." And I think there was like a question mark on, "Could you even extend digitally into the space?" And I think we've sold that or we've stated that with an exclamation point over the last year. Baldur's Gate 3, that's in the teens in terms of millions of units that it's sold so far and it continues to sell really well. It won 5 of 5 of the major Game of the Year awards, basically sweeping all of them. It's kind of like an EGOT, if it was an actor equivalent. And then MONOPOLY GO! is the biggest mobile game outside of China in history and continues to perform very, very well. So I definitely think we have terrific brand relevance. I think related to that, I think we've also shown that we're adept at finding partners who we can work with and identifying who can scale our brands because we're making some choices about which platforms we're going after. So initially, we saw a polyglot of partners in terms of platforms because we just didn't have a lot of development capacity that we brought on PC and console, publishers like Larian. We brought on mobile publishers, like Scopely. And increasingly, I think you're going to find -- we'll continue to be open for business for anyone who has a good idea and we think can care about our brands and execute well. But increasingly, we will focus on PC and console because that tends to be where we've been to be able to build our own development capacity and where we think kind of like our mid-core and hard-core-focused brands like D&D and MAGIC. Even brands like G.I. Joe and Transformers have powerful relevance, and there's a lane for new publishers. In mobility, that is a very, very high beta category. You have to spend tens of millions of dollars to even get a game ready to launch, and then you have to basically triple down on that in terms of user acquisition. So we're going to continue to work with the best in the industry on mobile games. I don't think you're going to see a lot of mobile games from Hasbro. And fortunately, we have the best partnerships there. So I think between a combination of our brands are relevant and we've proven that. We brought on terrific talent to drive our own games. We have the right partners to drive games in other high-growth categories like mobile. I think you're seeing a smart kind of balanced approach to capital allocation and risk management that's going to help us steadily build that revenue stream over time and be a big enabler for Hasbro.

Can I add one point on the milestones? So as we think about our business and how we segment our business, Chris just walked through our biggest growth levers, which are all really on the gaming side. Other -- in terms of your question on milestones as it relates to toy, I mean there is no doubt that our toy business has been in a turnaround. And last year, we spent a lot of time resetting that business, getting the complexity out, cleaning up the operation, getting smarter on our portfolio. This year, you can see kind of some of the fruits of that labor play through. You can see that in our P&L, where that foundation is getting set. As we turn the corner into 2025, we're seeing this as we're back to growth on our toy business. So even though the bigger bets, the bigger capital allocation, the bigger long-term opportunity will be absolutely in everything that Chris has been just describing, just keep in mind that we've got a toy business that as we enter into kind of our third year of this transformation, it's finally on its path to where we're back to growth.

That's great. And we can certainly dive deeper into the consumer segment and the turnaround there. But maybe sticking with digital just for one more question. You've had this incredible hit in MONOPOLY GO!. It's been incredibly top of mind with the investment community. Just two questions on this front. Since it is so top of mind, just be curious if there's any update on recent engagement trends, monetization trends or expectations into the back half of the year? And then taking a step back, I'm curious what lessons you've learned from the experience you've had with MONOPOLY GO! over the last year? And any best practices or learnings do you think are applicable to the rest of your IP portfolio?

Do you want me to start with the model?

Yes, sure.

Okay. You can do that strategically. I'll do that. At this point, we continue to stay on our guidance that we gave during Q2, where we think roughly $105 million of revenue will come from MONOPOLY GO!. We have started to book revenue above that minimum guarantee. And in the back half of the year, we are still anticipating roughly $60 million of revenue coming in. If you -- everyone has this access to the same data that we have. So you can see that from the sensor tower data, as we've moved through Q3 here, August has been relatively in line with what we saw play through in July. So the game itself, the revenue base itself seems to be settling out. The big thing that we're anticipating, one, the decay rate of 3% to 5% as we move through the balance of the year, but then marketing. As we came out of Q2, we said that marketing percentage was going to be in that 25% to 35% range for the balance of the year. We now know more about the plan Scopely has for marketing in the back half and we definitely anticipate that, that percentage is going to be at the higher level of that range. So it still keeps us in that right zone of $105 million, but kind of no ups or downs from that at this point.

Yes, I'd say just a couple of things. So Scopely, I think, it's the experts so you probably need to ask them about specifics around the game. I think they're learning a lot about the cadence of events and kind of subtle feature changes that they need to drive inside of the game to motor the economy and optimize kind of like the user acquisition. So I think you'll see that play out effectively over the next several months and I think that will be for the benefit of the game, but I think we factored that into our original guidance. So to me, MONOPOLY GO! is going to be a long-term annuity to the company that's going to be very positive for us in the last multiple, multiple years. It's not lost on us that the top 20 -- of the top 20 games today, I think over 40% -- potentially over 50% of them have been on the market for over 5 years. So this is going to be a benefit and a tailwind for Hasbro for a long time. I think the other thing that MONOPOLY GO! shows us and that, to a lesser extent, but still powerful lesson that Baldur's Gate 3 shows us is the power of a brand relationship that's anchored in play. When I came into Hasbro, probably the biggest pivot that we've had over the last 3 years since I took over the company, is we had this kind of concept called the Brand Blueprint. We still use the Brand Blueprint. But 3 years ago, we were really in love with this concept of storytelling. So let's tell stories. And if we tell the right stories, we can drive toy sales and we can drive merchandising sales. And I still think we can do that. And we have a pipeline of over 35 projects in development with some of the biggest names in entertainment. But I don't think that's where the real magic is in our portfolio, where I think the magic is in our portfolio is we build this relationship based on play with consumers, tens of millions of consumers around the world. And they understand how they play with these games. They understand how they play with these toys. There's a community who understands it, and you can use that to either take an internal team or work with a partner, like Scopely, who is best-in-class and instantly, people have familiarity with a concept of a brand and a concept of how a game might be played in a mobile space or in the console space or any kind of licensing space. Like one of our biggest tailwinds this year is a licensor called [indiscernible] in China. They're doing MY LITTLE PONY trading cards. They're going to do $1 billion of MY LITTLE PONY trading cards in China this year. That's massive. And that's all based off of familiarity with that brand that anchored in play. And I think that's a powerful insight. And I think it really opens the aperture of our portfolio in terms of what we think about can be billion-dollar opportunity. Not just TRANSFORMERS working with Michael Bay and Steven Spielberg to do like a movie series that opens up kind of our blueprint, it's games like MONOPOLY that have ubiquity in every household in the U.S. and Europe. It's games like MAGIC: THE GATHERING, which have tens of millions of fans who really understand that game and understand how to play it. My Little Pony, which tens of millions of little girls the world over have a relationship in play and being able to watch and share with their friends. That collectibility, that play, that's super powering I think our portfolio and our opportunity moving forward.

Maybe to expand on that just a little bit beyond MONOPOLY GO! and Baldur's Gate, you have a very sizable licensing and other digital games business. Can you perhaps talk a little bit more about the other opportunities within that segment, the growth strategy in 2025 and beyond and other extensions to license some of the core IP that you work with?

Yes. I think there are three opportunities for growth inside of that space. The first is self-published games. Since starting in 2026, we will have a cadence of 1 to 2 new games releases per year, the first of which will be a game that we announced last year called Exodus, which is the new Sci-Fi IP. It's basically Dungeons & Dragons in the space. So it's doing what Warcrafted with Starcraft. It's not a super original strategy, but it's a very effective one. You'll likely see a D&D game that year as well. We'll be leaning into D&D a lot inside of that portfolio. Then you have our licensing business and our pipeline and our licensing business has grown at an average CAGR of like 15% to 20% of new deal growth over the last 3 or 4 years. Obviously, since you've had something like MONOPOLY GO!, the interest in that has accelerated. So I think that will continue to be a very strong community for us. And then last but not least, I think something that we're starting to explore more seriously is this concept of JV and partnerships. So this is kind of a hybrid between licensing and our own development. It helps to defray risk a little bit. It brings on best-in-class partners. And I think you will see more of that but it also allows us to leverage the upside of economics more. And so I think you'll see us talk more and more about that over the coming years as well.

Got it. Let's talk about MAGIC. It's scaled to becoming a $1 billion brand for you. And you've spoken about the robust pipeline. You are the head and some of the content that's come to market. Can you help us think about the long-term growth strategy of the MAGIC brand? And do you think growth from here comes more from higher volumes? Or is there also room to take price in?

We haven't really taken much of any price increases on MAGIC. We've taken one maybe in the last 10 or 15 years. I don't think we think about, "Hey, how can we charge more for a booster pack?" I think we think more about, "How can we bring value to the players based on how they're playing?" So like a great example of that is this format called Commander. Commander has been around since like 2000. It was a community-based form play. We were frankly scared of it because it seemed to threaten our core form of play called standard. And I think that's always wrong headed when a brand is scared of what their end users are doing with the brand. Instead, you should look at that as the opportunity it is. And if you look at the growth of MAGIC over the last 5 years, that standard format that used to be our bread and butter is basically flat. That Commander format has probably driven 70% of our growth, which the brand has more than doubled over that time. And so there's power in that. So we're constantly mining player trends and adopting new formats. I think the other side of the 1-2 punch is thinking about MAGIC as a play system. And I'll credit LEGO for this because that was kind of our inspiration, which is like, "Hey, we've got this play system. We've got cards that you could play a magic card from 1993, and it works perfectly with the MAGIC card from 2024." I wouldn't recommend it because probably that 1993 card is very extensive but it works perfectly well. So we've got this great play system that has over 20,000 play items in it. So what if we brought in outside IP? And what would that do to kind of rev up that play system and excite existing players and invite in new players? And I think that's going to be another leg up for us. Next year, we're going to have Final Fantasy, we're going to have our first Marvel set. And then I think every year, you're going to see at least two major universes beyond is what we call this initiative. So I think between continuing to like work with our players and engaging the way they want to play and giving them products on how they want to play and then working with some of the best IP in the world that we think is resonant with those players, there's a nice path of growth for MAGIC over the coming, call it, 5, 6 years.

Yes, this year, MAGIC macro, we've been pretty transparent that because of the big comp that we had with Lord of the Rings, which is kind of the first big universe is the onset comping that, they did a huge offering and then we had a holiday offering, but that will need to a decline. But as we think about next year and kind of our midterm plan in the next few years, MAGIC's combination of using our own IP, plus the Universe Is Beyond gets us back to, call it, a mid-single-digit range growth for that business. And for those that have followed us closely know that, that business not only is growing, but it is our most profitable business. So that kicks off a nice kind of margin tailwind for us and for the company.

Great. Maybe switching gears back to the consumer products side of the business. On the topic of the consumer, we've seen some fairly mixed data points over the summer more broadly throughout the economy. I also think there's been a lot made about the impact of the timing of the election. I think there's a shorter holiday selling season coming up this year as well. And Gina, I'd be curious of your thoughts on what you're hearing from your retail partners at the moment? The consumer heading into the holiday selling season? Or any thoughts more broadly on sort of where we are on a segment-by-segment basis with the retailer at the moment?

Yes. Overall, our view of the holiday and our health of the retailer and the health of the consumer hasn't dramatically changed coming out of our Q2 earnings. We continue to be in a really good position from an inventory standpoint, both our owned and retail. Our -- all of our new product innovation has been resetting well. We're just starting to see kind of the early traction and results of some of new innovations that's gone in. All of that is kind of performing on expectation. We haven't heard too much pushback on back-to-school. That was a big theme last year when I think we were sitting here is that there was -- last year, there was that Oh factor of back-to-school and didn't seemed doing very well, and retailers were pulling back the inventory. That has not been the discussion. As we look at the back half, I mean, there's always going to be this element of the September and October title that I think every manufacturer deals with the retailers. They're managing their own inventory strategies. But as we look at our back half of the year, nothing significantly changed. The election -- we knew the election was going to happen in January. The same way that we know that it was going to happen. Now we knew the calendar was going to be when the calendar was going to be in terms of the holiday season. So we just feel really good about what we've been able to do to date and the execution plans that we have coming up. Our marketing spend, we were -- we did a little bit more in the front half of the year than we did last year, and we kind of saved our marketing power for kind of starting now through the balance of the year to be really smart about kind of turning on when the consumer is turning on their shopping. Nothing materially different.

That's great. You mentioned something interesting on the innovation side, products on the market. As you look into the back half of this year and then more broadly throughout '25 and beyond, what are some of the key products on the consumer side, the innovation that you're looking forward due to the drive sales?

You've over-indexed on your word. The big ones that we're watching as we go through the back half of the year, you've heard us talk about Beyblade. So that is a big one that was really getting into market here, call it, in the last couple of months. We -- that's a partnership that we have, we saw when our partner launched in Japan last year and reset with this new product, did very well. So we have brought that here kind of that activation plan here, and we are anticipating big things as we move through the holiday. TRANSFORMERS is another big one, where, again, last year, the movie release that we had was in Q2. We know now the movie is coming out here in a couple of weeks, the animated film. And that always has a good pull on toy volume. We're anticipating the same this year. PLAY-DOH is continues to be an evergreen. I think it's our personal favorite of both Chris and I. I'm a user of PLAY-DOH. I've a young one at home, and the pipeline that we have, innovation-wise, is very sharp. I think that Tim Kilpin and his team have done a really nice job of cleaning up the portfolio and really listening to consumers in terms of what's going to be relevant. We've got the Marvel PLAY-DOH. I think essential I thought in my target this past weekend on shelves. So we're excited about the momentum that we're continuing to see within PLAY-DOH. There are big ones that we would hit on.

Yes, I mean I would just say going to a Target or a Walmart compare us year-over-year, I do secret shopper trips throughout the year. I just did 20 stores in the Boston and Atlanta area, shortly after Target and Walmart resets. I actually bought Walmart stock after that because their stores are crushing it. And not just us crushing it. But you look at like all the basics of our portfolio. Our packaging is better, our pricing is better, our innovation is better, the status of our promotion is better. I don't think we're the MVPs of the aisle yet, but I definitely think we're in the running for most improved player. Jump in muddy puddles, Peppa Pig is one of the best gift for a giftable item in the preschool aisle. Dancing crawl Spidey is amazing, and it's really been jump-starting Spidey and his Amazing Friends. Marvel PLAY-DOH, look at Amazon in terms of top sellers, in terms of what's starting to hunt, that's doing well. Licensed product. Right now, D&D mini figs, I think, are the #1 new product release on Amazon right now. So it's not -- for real friends, from our partners at Just Play. Littlest Pet Shop from our partners at Basic Fund. Whether it's what we're executing or what our partners are executing, it's doing a lot better and I'm pleased that it's on our plan.

Great. Before I get into margins and cost structure, I got question -- a high-level question on AI. I'm curious to the extent that you're utilizing AI or seeing it used more broadly in the content industry or even in the toy industry, what you're seeing in terms of what the technology is capable of? And specifically around content, do you think it has the potential to maybe bend the cost curve either on the TV film side of the equation or perhaps in your digital gaming business to bring the cost curve down and maybe make that capital investment a little bit more efficient for you?

Well, I think inside of development, we've already been using AI. And most major developers have been using AI for years. It's mostly like a machine learning-based AI or more proprietary-based AI as opposed to a more general kind of like ChatGPT kind of approach. We will deploy it significantly and liberally internally, both as like a knowledge worker aid and as a development aid. I'm probably more excited though in terms of the playful elements of AI. If you just look at a typical D&D. Going back to kind of like the theme at around, don't be afraid of what your players are doing? Embrace what your players are doing." If you look at like a typical D&D player, I play with probably 30 or 40 people D&D regularly. There's not a single person who doesn't use AI somehow for either campaign development or character development or story ideas. That's a clear signal that we need to be embracing it. We need to do it carefully. We need to do it responsibly. We need to make sure we pay creators for their work, and we need to make sure we're clear when something is AI generated. But the themes around using AI to enable user-generated content, using AI to streamline new player introduction and then using AI for emergent storytelling, I think you're going to see that across not just like our hard core brands, like D&D, but across multiple brands from kids to adults.

Got it. On margins, Gina, your outlook for this year calls for consumer book margins of 4% to 6%, which implies a fair degree of margin expansion in the business in the back half of the year, year-over-year on the Wizards of the Coast side, 42% margins, which implies some modest margin compression in the back half. Could you maybe just remind us obviously, the puts and takes of that margin dynamic this year? And then perhaps comment on what you think it would take to see the consolidated business achieve 20% operating profit margins for this year?

So on Wizards, you're right, it is a giveback of margin as we move through the back half. And it's really the 2 pieces that we've talked about on stage here. It's the Baldur's Gate comp. So even though we have MONOPOLY GO!, it still is not completely offsetting the revenue that we get from Baldur's Gate. And then it's the Lord of the Rings holiday offering. We don't have a comp against those. So those 2 pieces just result in some natural margin giveback on the Wizards business. But let's not lose sleep because we're still in a very healthy margin profile on Wizards in the back half and then as we exit the year. On the CP side, you're right, there is a ramp in margin, that's expected. Volume becomes our friend. We've been talking about the first couple of quarters that volume deleverage is probably the single biggest negative detractor of our margin. And as we kind of come out of Q3 and into Q4, we're expecting growth. That helps to provide some margin uplift. And we also think back to last year when we were writing off inventory, cleaning up the portfolio, there's a lot of costs that we incurred last year that we won't incur this year, coupled with all of the costs we were putting into market to move inventory. Just given where our inventory positions are, we don't have to spend that heavy discounting that promotion, those promotional dollars, and we'll still have the appropriate amount of promotion and activity for the holidays, but we won't have to go so heavy like we did last year to clear things up. And so that provides the margin kind of tailwind and the step change on the CV business. So to get to 20, really, when you look at our margin, we would have to be on the right-hand side of both of those margin guides to get to 20. So depending -- I don't know that we'll quite get there all the way this year, but we are absolutely on the right path to get there as we movement into '25 in the end.

Maybe looking longer term and thinking about the cost structure. I know efficiency has been a big priority of yours over the last year. Where do you think there's still more work to be done? And I'm curious, looking out '25, '26 and beyond, where do you think margins can go? And I'm curious to what degree that volume component is an important part there? Do you think there's enough levers on the cost side to really push margin higher?

In short, yes. I mean margins will continue to improve. I think we've done a really nice job in getting after the low hanging fruit over the past, call it, 1.5 years. There is still a lot of room to go on all of the levers. So one of our biggest kind of margin contributor has been the work that we've done within supply chain, even so some of the bigger boulders are still ahead of us. When we think about network, how we're managing our logistics, how we're managing our manufacturing supply base, that is still all ahead of us. I think, on our managed costs. I mean, obviously, we've been talking about us taking down our overhead structure. We can see that sum as we move through '24. There is going to be more -- less on the people side. We're trying to get all of those actions complete here in the near term, but it more becomes about all of the other call it, $700 million, $800 million of spending that happened outside of just the people cost. It's getting smarter and using those dollars either better or dropping them to the bottom line. You've heard us talk a little bit about design to value. So this is going all the way upstream to product design and making sure that the costs -- we're designing the product at the right cost structure. We haven't really realized any of that in the P&L yet. That is all still to come as we move into '25 and beyond. And lastly, the last cost leverage we haven't really kind of talked about or attacked wholeheartedly yet is all of the costs that sits between gross revenue and net revenue. That's about $700 million of cost. Some of it is just allowances in how you do business with retailers, but some of it is dollars that we can either reposition for better growth or drop to the bottom line. Oftentimes, that $700 million is all about just margin improvement. So it's not necessarily a pure profit pass-through, but it can help you secure a better mix. It can help you secure better pricing, more effective pricing, better kind of revenue drivers with your retailers. So I would say all across the P&L. We continue to have opportunity to improve the margin.

That's great. And maybe just with a minute remaining on capital allocation thinking through, you reaching your net leverage target potentially the next year to 2, key priorities from there, and then on the CapEx side, $225 million of CapEx in 2024, curious if you think that's enough investment to realize your top line goals?

So first and foremost, we will always invest back in the business. And hopefully, this session today gave you some color. There are a lot of exciting things that we can invest into. So that's the first thing that we're going to do with our money. Second, our dividend continues to be very important to us and to our shareholders, so making sure that we're taking the actions to protect the dividend. And then third, it would be any other kind of capital allocation, like when you think about the debt reduction, share buybacks, et cetera. We are committed to bringing our debt leverage down. It's in an okay spot over the next couple of years. I think we'll definitely be in that right zone. And then that should free up the flexibility for us if we wanted to entertain share buybacks, if we wanted to entertain something different on the M&A side. In terms of capital, I think you might see us tick up a little bit over time, but we have been -- if you go back and kind of watch our track record, we have been upticking our capital that we've been putting against our growth initiatives. So we don't see a significant uptick that we have to do here to achieve what we've talked about today. So we feel like we're in the right zone.

That's great. Chris, Gina, thank you so much for taking the time today.

Thank you.

Thank you much.

Thank you for the time.

Thanks, everybody.

Thanks.