Thank you. We will now be conducting a question-and-answer session. We ask you, please limit yourself to 1 question and 1 follow-up to allow as many as possible to participate. To ask your question today, please press star 1 from your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. 1 moment please for our first question. And the first question today comes from the line of Stephen Laszczyk with Goldman Sachs. Please proceed with your questions.

Hey, guys. Thanks for taking the questions. Maybe first for Christian. Magic continues to see really nice momentum. I would just be curious if you could maybe speak to some of the drivers of that strength that you saw, particularly in the third quarter, what might have outperformed versus your expectations across some of those sets? And then importantly, as you look ahead, it sounds like you are excited for each of the sets to come, next year. I was curious if you could speak a little bit more about what you hope each of those new sets will contribute towards growing the franchise over the longer term or perhaps maybe more generally what gives you confidence that Magic can continue to grow off this higher base from here?

Sure thing. Good morning, Stephen. Thanks for the question. Well, I would say what outperformed in Q3 for Magic Everything. Reality fracture is 1 of the best performing premier sets we have ever done. The hobbit despite being a much smaller product release in terms of the total number of SKUs, performed like a premier set release with a lot more commander decks, and supplementary SKUs associated with it. And backlist continues to impress with its total number of sales. And I think it is a combination of 3 or 4 things. First and foremost, it is new player growth and player engagement. You know, The Hobbit prerelease was 1 of the biggest we have ever had. Our total number of players who are engaged in store play, which is probably our best kind of proxy for actual engagement. is at records. Players are happy with the sets. Giving us great feedback, repurchasing and investing behind them. Our distribution is up. You know, over 40% in mass, over 30% in, our WPN. it is broad based. it is both North America as well as Europe and Southeast Asia. And just in general, you know, I think we are seeing some great kind of category, tailwinds as well. Magic's performing well, but the overall category is seeing a boom. And that is just consistent with our overall thesis that, you know, on what categories are going to perform which we call GEM Squared, which is those categories that are gamified entertainment driven, multipurchase, and multigenerational. And I think trading cards, you know, over the last year have emerged as the number 1 category in toys and games. I think they are actually bigger than building blocks now. And we see that as a generational structural shift and not just as kind of like a 1-time thing.

Can I add 1 fun fact?

Sure.

I thought you would say this fun fact. But on.

Yeah.

Christian mentioned backlist. You know, through these first few weeks here in fourth quarter, our backlist contribution in 2026 year to date through these first couple weeks of fourth quarter has already surpassed what we saw in 2025. So to the point of, like, all of the engines are continuing to. We have got momentum across our front list. We have got momentum across the back list. And that is going to continue as we move into next year.

And I suppose I will make it real on a 1 practical item. So The Hobbit, much smaller release in terms of SKUs versus Lord of the Rings. The Hobbit's going to do about as much and maybe even more lifetime than Lord of the Rings will do. Despite it being a smaller release. it is certainly done that today. We would typically expect something like The Hobbit to do 50 to a hundred percent, 70% less than what a comparable more full featured release would do. And that is a factor of player growth. Player growth and the ability to be able to access product. And so we see that moving forward. You know, I think, you know, I think a second part of your question was what gives us confidence in 2027 and beyond. Is all those factors. So, you know, fourth quarter magic will likely be down. But a big part of that is we had some sales that happened earlier this quarter or. Sorry. Or that happened this quarter that should have happened early next quarter. Because our supply chain was able to deliver a bit earlier, and the channel wanted it. And we have some product in next quarter that we shifted into Q1. So, you know, minus those shifts, Magic would have had another growth quarter in the high single digits, low double digits. For Q4. Now it will probably be down, you know, call it low single digits, mid single digits. But barring that, it would have been up around 8% to 10%. And so instead, you are gonna see a big growth like you had of 30% plus in Q3, you will have a modest kind of decline in Q4, and then you are gonna see another big spike in Q1. We expect the momentum to carry forward in 2027 with continued growth. On the back of all those factors.

that is great color. Very helpful. I can leave it there and pass it on.

The next question is from the line of James Hardiman with Citi. Please proceed with your question.

Hey. Good morning. Thanks for taking my call. So, Christian, you just gave us a lot to chew on there in that last little follow-up. I just want to make sure I understand sort of where we were and where we are. I believe your initial and previous expectation was that wizards would be down in the fourth quarter. You are still saying it is gonna be down in the fourth quarter, but had you not moved the timing both from Q4 into Q3 and from Q4 into Q1 of next year we would now be talking about wizards going from being down to being up high singles, low doubles. Just wanna make sure I have all those moving pieces right because certainly 1 of the big questions we are getting is a fourth quarter that was worse than sort of where the street was thinking about it. Just need to make. Double check that.

Yeah. You totally captured it, James and good morning. I think the bottom line on Wizards is we manage the game for the fans and not for quarterly results. Like, that should be an expectation moving forward. We are gonna pace the sets based on the logical pacing especially as we do more kind of IP collaborations. And we are working with, you know, outside companies to make sure that we make the biggest moments possible. And, you know, I think the honest answer also is we are chasing demand. Like, you know, we are gonna be opportunistic about when we supply. Our supply chain team is doing a great job. They are helping, like, you know, chase 1 of the hottest categories in toys and games. And, you know, those 2 factors occasionally, we are going to have a quarter that is down. Modestly. But I think you can count on the fact that is not a demand signal. that is just the timing of when we shipped and the timing of when we have product available and the timing and a factor of when we chose to make a product available based off of the best possible time for our channel partners and for our fans.

Yeah. The add, the add I would have kind of quantitatively When we were sitting in July doing earnings and looking at our wizard's back half, we had thought that it would be up, you know, collectively, call it low single digits. Now we are gonna exit the year with a back half that is, you know, call it high single digits, low double digit rate. So the overall, you know, improvement or kind of momentum of wizards is continuing. To Chris's point, like, there are things that can shift meaningful revenue as we are seeing, like, 1 week can make a difference, a meaningful difference in the quarter. And I think you have got that compounding factor of just when we are launching our first set in 27, and now reality fracture of how much was shipped that first week. That just take Q4 down, but the overall back half is well ahead of our expectations.

Got it. That makes a ton of sense. I just think everybody is, I think, rightfully just trying to understand what is signal and what is noise here for sure. Yeah. Yeah. We were staring at the same math ourselves we were prepping, and we knew that was going to be the top. 1 of the top questions.

So did we answer both your questions too? So I kinda.

I actually I did have a second question on sort of margins. But it is the same sort of general topic of sort of signal versus noise. Margins for wizards just continue to blow away. I think even our most optimistic expectations. We are pushing nearly 50% year to date. Obviously, you have talked about that being in high 30s next year. I guess what I am trying to figure out is how to think about sort of core wizard margins. Obviously, there are some, do not want to call them 1-timers because maybe that is the new normal. But is there any reason to think that relative to you know, the really strong performance here year to date, the core wizard's margins would actually compress in 2027. Or is it just some of the things that you have laid out, obviously, video games and some of the other you know, if you wanna call them idiosyncratic factors. Maybe, you know, help us think through sort of core versus you know, other items in the context of 2027 and beyond. Thanks.

Sure. Sure. Good question. I mean, obviously, this year, the volume growth that we are seeing on the business kicks off a favorable tailwind on leverage so that you see that showing up in our 26 margins. And as we look forward to 2027, as we have talked about, we expect the Wizards business to grow. We expect that to be, call it, mid to high single digits in that in that range. But we are not going to plan for that business to grow at the double digit rate we are guiding to now. So there is a little bit more leverage kicks off in 2026 that we. We will see some leverage next year just not as great. But to your point, the single biggest thing that will weigh on our margins next year that will keep it in the high thirties is that amortization expense. That will flow through for both games. And remember, as we have talked about x Exodus, now we have the launch date of Exodus being, you know, April 7. In the first 3 months, we will see the majority of that amortization flow through. So the. It will be a Q2 event where we will see most of or I would say 65% of that cost come through. 85% of the depreciation hits within the first 12 months. So we will then pick up some of Exodus as we go through the balance of the year, and then we get Warlock that is coming kind of in the back half. So that is probably the single biggest atypical thing in 2027 that will weigh on margins. Everything else, it puts and takes. We are going to, you know, royalty expense might be a little bit heavier just given our UB set releases, but that is within the realm of reason. We will have puts and takes within operating expenses. We will continue to expect cost productivity to offset inflation. it is really the amortization expense.

Perfect. Gina. Perfect. Thanks, Christian.

Thank you. Our next questions are from the line of Xian Siew with BNP Paribas. Please proceed with your question.

Hi, guys. Thanks for the question. You talked about player growth and how that is kind of driving Magic: The Gathering demand. But can you also maybe talk a little bit about repeat players and what you are seeing in terms of players once they come into the ecosystem via, you know, maybe it is via UB or something else, and then staying and maybe spending more. Curious on that.

Yep. Yeah for sure. I think the best proxy for that is backlist sales. And, you know, as Gina mentioned, we already have sold more backlist this year than we did all of last year. That continues to grow at a rate as impressive as our front list is growing. Backlist is actually growing faster. And I think that is a factor of we are bringing new players in, especially on things like Universe is Beyond. So Marvel fans, Avatar fans, Turtle fans, soon Star Trek fans. And they decide that they really like this game. And then they go and buy more sets and not just Star Trek set, they go and buy Reality Fracture. They will go buy Noctis, which is our first set our first premier set next year. And they become magic fans, and they stick around like a magic fan and behave like a magic fan. Which is usually a 5 to 7 year period of time where they play the game actively. And, you know, occasionally, they will put the game down for maybe a year or 2 because they have a life stage, but then they come back. So, you know, magic's a really special game. it is 1 that we do not measure retention in days and months. We really measure it in the years and generations. And the new fans that we are attracting are just as engaged as and just as valuable. As the more traditional fans that we have had over our 35 year history.

And maybe 1 other fun fact when you look at our when you look at our backlist sales. Sorry, for the. This last quarter, Christian's point of, like, the people coming in, playing the game, and sticking, our largest set that sold for backlist in terms of distribution were foundation final fantasy, and believe it or not, Lord of the Rings. And that was our, you know, lord of the rings for those newer to the story. That was our very first universes beyond set that we did. Was it 2023? 2023. Yeah.

Sorry. You had a question too. Oh, you had 2 questions. Yeah. We are excited about that 1 and then.

No. No. It makes sense. And then maybe on 2027, I think I heard you say you know, wizards maybe can grow in the mid to high single digit range. I guess that is including some of the maybe incremental video games. But maybe zooming in a little bit on Magic, you also mentioned kind of the full product suite for all of the tent pole set. Scaling supply, grown distribution. So I do not know. It sounds like you have you have fuller sets, more supply, higher distribution, higher player count. It sounds like it is still setting up quite strong for 2027, but any kind of further thoughts on magic?

Comment on mid to high single digits was magic, not wizards. So Okay. We expect magic to continue to grow at pace.

Okay. Understood. Thank you.

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

Hi. Good morning. Thank you. And thanks, Christian, for that clarification. That was going to be my follow-up question to you. Because as we think about exodus, that should absolutely add to the top line. Question really is related to Magic: The Gathering distribution that went up further this quarter. Could you maybe talk a little bit about what is driving that and should we expect to see further expansion in Wizards play network sequentially as we get into Q4 and into 2027? Then I have a quick follow-up.

Sure. I think you should expect as long as the hobby is growing, and there is vitality in the player base, I think you should expect new player. New store growth to you know, follow new player growth. Through third quarter of 26, we have seen about a 38% growth rate. In the number of WPN stores. We have over 13 thousand now. On mass, we have seen, about a 28% growth rate on the number of stores. Like, Magic's available now in close to 40 thousand doors. And that is just a testament of more people were buying magic and more were buying in the category. And more retailers wanna be part of that story. Whether it is, you know, a GameStop or a Walmart or a Carrefour or a Smith's or, you know, a mox boarding house style. We see a lot of upside there. And there is many more hobby shops and game cafes and board game cafes than 13 thousand around the world. Those are just the ones that qualify into the Wizards Play Network today. And many, many more of them ask us to become part of that because they see the benefits of being part of our engagement loop and part of our reward cycle.

Thank you. that is very helpful. And just to switch to consumer products just because we are in the back half of the year and holiday season's ahead of us. You have talked about consumer products up low single digits for Q4. Is that still the case, how you are thinking about Q4? And just for housekeeping, you know, and math purposes, what is your as reported implied revenue guide? Is it around a percentage and a half better than constant FX? Of 7 to 9%? Am I calculating that correctly?

Yeah. I. Yep. You are calculating that correctly. And, you know, overall, we look at consumer products, again, looking at the back half of the year, we expect the back half to be up. Low single digits. I believe that means our Q4, it will be flattish, maybe slightly positive. Another similar story, like Wizards, where we had a pretty big comp last year, because of all of the goofiness on tariffs and the shelf set timing changing replan orders were stronger in fourth quarter fourth quarter last year. So overall, our back half is really strong as the retailers have moved to kind of more normal shelf set timing and shipping patterns, but there is a little bit comp noise in our Q4 for CP as well.

Okay. Thank you.

The next question is from the line of Eric Handler with Roth Capital.

Good morning. Thanks for the question. First, wonder if you could just be willing to dissect a little bit the magic revenue. Like, what percentage of the revenue is frontline versus backlist versus Secret Lair? And how has that changed? Like, let's say, going back 2 years? To 3 years?

Morning, Eric. Yeah, we thank you for the question. We typically do not provide those levels of splits. it is suffice it to say, just given kinda how our front list is stacked, the majority of our revenue comes from the front list. The growth rates, as Christian was saying, like the growth rate on back list has been pretty strong, our growth rate on Secret Lair, but the majority of the revenue is gonna come from that front list.

Okay. that is helpful. And then you know, there has been a lot of concern you know, macro concerns about, you know, will the consumer potentially rollover a bit just given inflationary concerns and consumer sentiment? Does not seem like there is really any concerns with Magic. You know, when you look at your consumer products business, how are you thinking about that with your 4Q product line?

Yeah. We are continuing to see a pretty resilient consumer And especially given how we have shifted our portfolio and our portfolio mix to those GEM Squared categories. We are definitely seeing momentum there. So there is nothing that we see going into the holidays that has us concerned about the consumer.

Great. Thank you.

Our next questions are from the line of Anthony Bonadio with Wells Fargo. Please proceed with your questions.

Yeah. Hey, guys. Thanks for taking our questions. I wanted to ask about 2027 sets and specifically Marvel Darkhold. I know you guys sort of talked about the alignment of Marvel sets and your fan base. This 1 seems like it might be a little more synergistic. I guess just thoughts on that. Expectations there. And then maybe more broadly, just how you are thinking about the quality of the 2027 sets you have announced so far versus what you put out this year?

Well, I think a couple things. Darkhold Destiny will be pretty cool. it is an original storyline. There will be an original character. I think it really represents how we want to work with partners. We want to represent their IP authentically, And, ideally, we would like to make them, really a part of magic and I think this is a great example of it. I think fans will be excited by it. You know, it will. You know, like, there is been some jokes a little bit in the fan community about how New York, 1 of our most frequent settings, for magic sets over the last year or 2. And I think this kind of brings magic into super heroes and Marvel style action and characters and storytelling. Which should be fun. I think an important thing that you and all of the analysts should also be thinking about is the composition of the sets. So you know, this year and for the last couple years, we have had sets that have had commander decks in them, some sets that have not had commander decks in them, some sets that have had a full suite of collectible products, some sets that have had a more limited suite of collectible products. Next year, each of our 6 major sets will be full sets. They will have all the commander decks and all the collectible products associated with them. And then as I mentioned, we see upwards of a 50% or even greater difference in sales per set when you have that full product suite. And so that is something I think you need to factor in as well. We have not shared all the details about all the sets next year. there is a couple secret ones in the back half of the year. That we think our fans will be pretty excited by. I think needless to say, we feel like all of them are gonna be super high quality. Really great IP, and we have had great partnerships with each.

Super helpful. Thanks. And then maybe just 1 quick on Exodus. Any changes to how you are thinking about the range of outcomes there? And now that we have got the April 7 date, just key data points to watch from here as we get closer to that release?

Well, I think the biggest thing that we are looking for is kind of wish list and preorder activity. And on wish list, so far so good. it is approaching a million wish lists, which based on what we are benchmarking from, you know, other releases over the last couple years, that is benchmarking pretty favorably. We are gonna have a big December. Actually, we are gonna have a big couple of months of new news associated with the game. But in particular, we are gonna have some major news on the game in December. And we will be watching those metrics very, very carefully as we head into the end of the year. And shape our thinking about what we expect it to do commercially when it launches in April.

Thanks, guys.

Thank you. The next question is from the line of Gerrick Johnson with Seaport Research. Please proceed with your questions.

Great. First question, can you just go over the retail sales, the POS in the quarter for both Magic and Consumer Products?

Oh, POS overall was. For us in the quarter was, call it, up low single digits overall. I think that includes what I am saying that. that is just toy and game. Yeah. Yeah. And the trading card would have been kinda up high single digits, low double digits numbers.

Yeah.

The. there is a little bit of a timing lag of when we are doing this call and when we will see final September results. Those come in actually today. So maybe when we talk later on today, Eric, we will have some more some more additional information.

But, you know, overall, categories were performing. I think most notably, we should look at how our GEM Squared categories are performing year to date, and those are up almost 14%. So again, when you think about our strategy and how we are shifting our portfolio mix to have those categories growing at a kind of low double digit pace, that is. that is a good thing for us.

Okay. Great. And 1 follow-up. Can you just discuss the distribution of MAGIC, you know, understanding you use distributors for your hobby shops, and then I guess you go direct to mass. Can you just discuss how you do distribute between the 2 channels and what maybe the margin differential might be. But also, the lag between when you recognize revenue and when perhaps the hobby shop realizes retail sale?

Hey, Gerrick. We use distribution for both channels. We do direct for some. But, you know, I would say the vast, vast, vast majority of what we do is through distribution. And the margins are pretty comparable between distribution and direct for us. We have got a lot of good partnerships. Usually, in a given territory, like in The US, I think we have somewhere in the neighborhood of 6 to 8. Major distributors. In Europe, I think we have a bit less, but it is still, like, 3 or 4. We wanna make sure a hobby shop has a choice and can get fulfilled, real time. Usually, our typical hobby shop gets fulfilled in an order in 24 to 48 hours from when they ship it. Usually, our distributors will take product anywhere from, on the low side 2 weeks, on the high side, 6 weeks. Before, a major release. And, really, that just has to do with the composition of when the product's ready, when we can ship it out, and, how complex the release looks like.

Okay. Great. Thank you for the detail.

Thank you. Our next question is from the line of Alexander Perry with Bank of America. Please proceed with your questions.

Hey. Good morning, everyone. Thanks for taking the questions. I guess, Christian, Magic gets a lot of the airtime and rightfully so. But just wanted to turn to consumer products piece for a second. I guess, you know, how do you think about the medium term growth prospects within that division? Is this a segment that can sort of eke out low single digit top line with some modest margin improvement, or do you think about that segment differently?

I think our consumer products division inside of the midterm can do better than low single digits. If you look at just like the new licenses that we have for 2027 alone, start shipping Harry Potter at the very tail end of this year. I think the series debuts in the in the Christmas time frame. Then we will follow that up with a full line, in Q1 and Q2. We will have the Legend of Zelda, which is a brand new license for us. We will have 3 quarters of K-Pop Demon Hunters that effectively have had no comp. No comp. And then you are gonna have another stacked movie lineup next year You are gonna have, you know, a new Spider Man movie. You are gonna have another Avengers film. Star Wars 50th anniversary. The Legend of Zelda movie, the new Harry Potter series, which I got to. I was lucky enough to do a tour of the set and it was magical. I was like, no pun intended. I think all of those combined really sets up for a healthy 2027. And, frankly, it is pretty favorable for 2028. And then from a margin perspective, you know, as we drive incremental upside in terms of the top line, you just get some favorable leverage from that. And then, you know, I think our CP team has done a good job with managing their costs and getting that to something that we think is a lot more competitive. So, you know, I feel like we can get CP margins You know, my goal is to get it into the double digits and make it be really resilient. In that midterm time frame, which is consistent with the guidance that we have given you guys.

that is great color. Thank you. Super helpful. Thanks. And then maybe just 1 quick on Exodus. Any changes to how you are thinking about the range of outcomes there? And now that we have got the April 7 date, just key data points to watch from here as we get closer to that release? you spoke in your prepared remarks about your spend curve, you know, beginning to work in your favor. I think the CapEx guide this year was $225 million. You have done about $200 million or so the last several years. Just how should we think about CapEx over the next, you know, next, you know, 18, 24 months? And is, you know, the savings that you have there, should we think about that going towards shareholder returns? Thank you.

Got it. Yeah. The commentary specifically was on our digital CapEx coming down. And I believe we said last quarter, by 2028, those development costs will be down 20% to 25%. To your point, since we have been capitalizing that, that will come directly out of that $225 million pool of dollars that we were using. And in short, yes, as that cash flow frees up, it gives us flexibility to either reinvest back into the business to fund more towards share repurchases or to continue to buy back debt.

Great. Thank you.

Thank you. At this time, this will conclude our question and answer session and will also conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.