Toronto, Canada  – Spin Master Corp.  reported its financial results for the third quarter ended Sept. 30, 2020.

“This quarter we showed continued progress on many fronts,” said Ronnen Harary, Spin Master’s Co-CEO. “We launched one of our strongest Fall lines ever, with many of our toys making retailers’ top toy lists and in the quarter we grew both Gross Product Sales and Revenue while managing through the uncertain conditions arising from COVID-19. In September, we premiered our first-ever straight-to-streaming entertainment franchise Mighty Express and also saw significant growth in our Toca Boca digital games business driven by increased engagement and new content. Thanks to the dedication and tenacity of our team members globally, we are very well positioned for the holiday season with strong POS momentum globally for our products, lean retail inventories and continued consumer demand within the toy category.”

“Our efforts to manage costs and improve our profitability continue to show progress,” added Mark Segal, Spin Master’s Chief Financial Officer. “Our team achieved key milestones on our operational improvement goals well ahead of schedule and we are well positioned to execute our plan. During the quarter, we have reduced our inventory levels and improved our net working capital and liquidity position. With a diversified portfolio of brands, entertainment franchises and digital games across our global platform and a very solid financial base, we remain focused on investing to create long term value.”

Q3 2020 Financial Highlights as compared to the same period in 2019

• Revenue of US$571.6 millionincreased by 4.3% from US$548.1 million. In Constant Currency1 terms, revenue increased by 3.5%.
• Gross Product Sales1increased by 0.7% to US$587.4 million from US$583.3 million. Increases in Boys Action & Construction, Activities, Games & Puzzles and Plush, as well as Outdoor were offset by declines in Remote Control & Interactive Characters and Pre-School & Girls. In Constant Currency1 terms, Gross Product Sales1 increased by 0.2%.
• Gross Product Sales1increased by 15.6% in Europe and declined 2.6% North America and 10.8% in Rest of World. International Gross Product Sales1 were 38.3% of total Gross Product Sales1, compared to 36.2%.
• Other revenue increased by 80.9% to US$48.3 million. Growth was driven by strong digital games revenue, primarily from the Toca Life Worldplatform, as well as higher television distribution revenue, partially offset by lower royalty income from products marketed by third parties using Spin Master’s owned intellectual property.
• Sales Allowances1 increased by US$2.2 millionto US$64.1 million. As a percentage of Gross Product Sales1, Sales Allowances1 increased 0.3% to 10.9% from 10.6%, primarily driven by a change in geographic mix due to higher sales in Europe relative to North America.
• Gross profit was US$277.9 million, representing 48.6% of revenue, compared to US$286.9 millionor 52.3% of revenue. The decrease in gross margin was primarily due to product mix, the sale of inventory arising from the operational challenges experienced in Q4 2019 as well as an increase in freight-related expenses. The decrease was partially offset by higher other revenue.
• Selling, general and administrative expenses (“SG&A”)2increased 3.4%. The increase was a result of higher administrative, selling and distribution expenses, partially offset by lower marketing costs. As a percentage of revenue, SG&A2 was 27.9% compared to 28.1%.
• Net income was US$86.8 millionor earnings per share of US$0.83 (diluted), compared to US$92.2 million or US$0.89 (diluted).
• Adjusted Net Income1was US$95.1 million or adjusted earnings per share of US$0.91 (diluted), compared to US$93.3 million or US$0.91 (diluted).
• Adjusted EBITDA1was US$139.9 million compared to US$150.2 million. Adjusted EBITDA Margin1 was 24.5% compared to 27.4%.
• Free Cash Flow1was US$108.3 million compared to US$128.6 million. Including changes in working capital, Free Cash Flow1 was US$96.0 million compared to US$86.5 million.
• As at September 30th, 2020, the Company had cash on hand of US$207.3 million. During the quarter, the Company repaid in full the balance of US$300.0 millionpreviously outstanding on its Credit Facility.
• On October 27, 2020, the Company announced it reached an agreement to acquire London-based Rubik’s Brand Ltd, which owns the rights to the Rubik’s Cube, for $50.0 million. The transaction is expected to close on January 4, 2021.

Q3 2020 Gross Product Sales1 by Business Segment as compared to the same period in 2019

Gross Product Sales1 were US$587.4 million, an increase of US$4.1 million or 0.7%, with a favourable foreign exchange impact of US$3.2 million or 0.6%.  Excluding the impact of foreign exchange, Gross Product Sales1 increased by US$0.9 million or 0.2%. The increase was driven by Boys Action & Construction, Activities, Games & Puzzles and Plush and Outdoor, offset by declines in Remote Control & Interactive Characters and Pre-School & Girls.

Gross Product Sales1 in Activities, Games & Puzzles and Plush increased by US$20.1 million or 13.2% to US$172.5 million.  The increase was driven primarily by Kinetic Sand, the Games & Puzzles portfolio, Cool Maker, Rainbow Jellies and Orbeez, partially offset by declines in GUND and Bunchems.

Gross Product Sales1 in Remote Control & Interactive Characters decreased by US$28.7 million or 24.5% to US$88.6 million,  primarily due to lower sales of Owleez and Hatchimals, partially offset by increases in Monster Jam RC and Ninja Bots.

Gross Product Sales1 in Boys Action & Construction increased by US$28.4 million or 27.5% to US$131.6 million. The increase was primarily driven by DC licensed products, Present Pets and Tech Deck, offset in part by declines in DreamWorks Dragons, Boxer and Bakugan.

Gross Product Sales1 in Pre–School & Girls decreased by US$21.6 million or 10.6% to US$182.4 million. The decrease was driven primarily by declines in PAW Patrol, Twisty Petz, Candylocks and Awesome Blossems, offset in part by higher sales of Pre Cool.

Gross Product Sales1 in Outdoor increased by US$5.9 million or 92.2% to US$12.3 million.

Financial Highlights for Nine Months Ended September 30, 2020 as compared to the same period in 2019

• Revenue of US$1,080.0 milliondecreased 2.5% from US$1,108.1 million. In Constant Currency1 terms, revenue decreased by 2.5%.
• Gross Product Sales1 decreased by US$28.6 millionor 2.5% to US$1,111.9 million. In Constant Currency1 terms, Gross Product Sales1 decreased by 2.4%.
• Gross Product Sales1 decreased by 0.9% in North Americaand 24.8% in Rest of World and increased by 6.3% in Europe. International Gross Product Sales1 represented 36.1% of total Gross Product Sales1 compared to 37.1%.
• Other revenue increased by US$12.7 millionor 14.8% to US$98.7 million, driven by higher digital games revenue from Toca Boca and Sago Mini offset in part by lower royalty income from products marketed by third parties using Spin Master’s owned intellectual property.
• Sales Allowances1increased by US$12.2 million to US$130.6 million. As a percentage of Gross Product Sales1, Sales Allowances1 were 11.7% compared to 10.4%, primarily driven by an increase in non-compliance charges arising from operational issues in Q4 2019 and growth in Europe, which has a higher Sales Allowance1 rate structure.
• Gross profit decreased to US$486.9 million, representing 45.1% of revenue compared to US$558.9 millionor 50.4% of revenue. The decline in gross margin was primarily due to product mix, the sale of inventory arising from the operational challenges experienced in Q4 2019, an increase in freight-related expenses, higher Sales Allowances1 and supplier liabilities as a result of realigning inventory as part of the Company’s ongoing operational improvement initiatives. These decreases were partially offset by an increase in other revenue.
• SG&A2increased US$8.7 million or 2.1%. The increase in SG&A2 was driven by higher distribution and administrative expenses, offset by lower marketing expenses.
• Net income was US$45.2 millionor earnings per share of US$0.43 (diluted), compared to US$81.5 million or US$0.79 (diluted).
• Adjusted Net Income1was US$38.8 million or adjusted earnings per share of US$0.37 (diluted), compared to US$100.6 million or US$0.98 (diluted).
• Adjusted EBITDA1was US$129.1 million compared to US$212.3 million. Adjusted EBITDA Margin1 was 12.0% compared to 19.2%.
• Free Cash Flow1decreased to US$23.6 million compared to US$107.3 million. Including changes in working capital, Free Cash Flow increased by $84.4 million to US$108.4 million compared to US$24.0 million.

September 30, 2020 Year to Date  Gross Product Sales1 by Business Segment as compared to the same period in 2019

Gross Product Sales1 were US$1,111.9 million, a decrease of US$28.6 million or 2.5%, with an unfavourable foreign exchange impact of US$1.3 million or 0.1%. The decrease was driven by Remote Control & Interactive Characters and Pre-School & Girls, offset by increases in Activities, Games & Puzzles and Plush, Boys Action & Construction and Outdoor.

Gross Product Sales1 in Activities, Games & Puzzles and Plush increased by US$50.5 million or 17.1% to US$346.1 million, primarily driven by Kinetic Sand, the Games & Puzzles portfolio, Rainbow Jellies and Orbeez, offset in part by declines in GUND and Bunchems.

Gross Product Sales1 in Remote Control & Interactive Characters decreased by US$50.8 million or 26.3% to US$142.0 million, due to declines in Hatchimals, Owleez and Juno, partially offset by higher sales of Monster Jam RC and Ninja Bots.

Gross Product Sales1 in Boys Action & Construction increased by US$18.6 million or 8.6% to US$235.2 million, due to DC licensed products, Present Pets and Tech Deck, partially offset by declines in DreamWorks Dragons, Boxer, Bakugan, Meccano and Fugglers.

Gross Product Sales1 in Pre–School & Girls decreased by US$50.6 million or 13.9% to US$313.2 million,  driven by declines in PAW Patrol, Twisty Petz, Candylocks, Awesome Blossems and Off the Hook, offset in part by higher sales of Pre Cool.

Gross Product Sales1 in Outdoor increased by US$3.7 million or 5.2% to US$75.4 million.

Outlook

Spin Master continues to focus on driving long-term growth. Its principle strategies include:

• Innovate using our global internal and external research and development network;
• Developing evergreen global entertainment and digital toys properties;
• Increasing international sales in developed and emerging markets; and
• Leveraging the Company’s global platform through strategic acquisitions.

On March 19, 2020 Spin Master withdrew its 2020 outlook, which was previously provided on March 4, 2020. Given the uncertain environment associated with COVID-19, the company has elected to continue to suspend providing guidance until circumstances warrant.

Conference call

Ronnen Harary, Chairman and Co-Chief Executive Officer and Mark Segal, Executive Vice President and Chief Financial Officer will host a conference call to discuss these results on Thursday, November 12, 2020 at 9:30 a.m. (ET).

The call-in numbers for participants are (647) 427-7450 or (888) 231-8191. A live webcast of the call will be accessible via Spin Master’s website at: http://www.spinmaster.com/events.php. Following the call, both an audio recording and transcript of the call will be archived on the same website page.

About Spin Master

Spin Master Corp. (TSX:TOY) is a leading global children’s entertainment company creating exceptional play experiences through a diverse portfolio of innovative toys, entertainment franchises and digital toys and games. Spin Master is best known for award-winning brands PAW Patrol®, Bakugan®, Kinetic Sand®, Air Hogs®, Hatchimals® and GUND®, and is the toy licensee for other popular properties. Spin Master Entertainment creates and produces compelling multiplatform content, stories and endearing characters through its in-house studio and partnerships with outside creators, including the preschool success PAW Patrol and 10 other television series, which are distributed in more than 160 countries. The Company has an established digital presence anchored by the Toca Boca® and Sago Mini® brands, which combined have more than 25 million monthly active users. With over 1,800 employees in 28 offices globally, Spin Master distributes products in more than 100 countries. For more information visit spinmaster.com or follow on Instagram, Facebook and Twitter @spinmaster.

Non-IFRS Financial Measures

In addition to using financial measures prescribed under IFRS, references are made in this Press Release to “EBITDA”, “Adjusted EBITDA”, “Adjusted EBITDA Margin”, “Adjusted Net Income”, “Free Cash Flow”, “Gross Product Sales”, “Constant Currency”, “Sales Allowances” and “Net Sales” which are non-IFRS financial measures. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.

EBITDA is calculated as net earnings before finance costs, income tax expense (recovery) and depreciation and amortization.

Adjusted EBITDA is calculated as EBITDA excluding normalization adjustments, non-recurring items that do not necessarily reflect the Company’s underlying financial performance. Normalization adjustments include restructuring costs, foreign exchange gains or losses, and equity-settled share based compensation expenses. Adjusted EBITDA is used by management as a measure of the Company’s profitability.

Adjusted Net Income is calculated as net income excluding adjustments, as defined above, in addition to a one-time tax recovery and the corresponding impact these items have on income tax expense (recovery). Management uses Adjusted Net Income to measure the underlying financial performance of the business on a consistent basis over time.

Constant Currency represents Revenue and Gross Product Sales results that are presented excluding the impact from changes in foreign currency exchange rates. The current period and prior period results for entities reporting in currencies other than the US dollar are translated using consistent exchange rates, rather than using the actual exchange rate in effect during the respective periods. The difference between the current period and prior period results using the consistent exchange rates reflects the changes in the underlying performance results, excluding the impact from fluctuations in foreign currency exchange rates.

Free Cash Flow is calculated as cash flows provided by/used in operating activities before changes in net working capital and after cash flows used in investing activities before cash used in license, brand and business acquisitions. Management uses the Free Cash Flow metric to analyze the cash flow being generated by the Company’s business.

Gross Product Sales represent sales of the Company’s products to customers, excluding the impact of Sales Allowances. As Sales Allowances are generally not associated with individual products, the Company uses changes in Gross Product Sales to provide meaningful comparisons across product category and geographical segment results to highlight trends in Spin Master’s business. For a reconciliation of Gross Product Sales to Revenue, please see the table “Q3 2020 Gross Product Sales by Business Segment” in this Press Release.

Sales Allowances represent marketing and sales credits requested by customers relating to factors such as cooperative advertising, contractual discounts, negotiated discounts, customer audits, volume rebates, defective products and costs incurred by customers to sell the Company’s products and are recorded as a reduction to Gross Product Sales. Management uses Sales Allowances to identify and compare the cost of doing business with individual retailers, different geographic markets and amongst various distribution channels.

Net Sales represents Gross Product Sales less Sales Allowances. Management uses Net Sales to evaluate the Company’s total net revenue generating capacity compared to internal targets and as a measure of Company performance.

Management believes the non-IFRS measures defined above are important supplemental measures of operating performance and highlight trends in the core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management believes that these measures allow for assessment of the Company’s operating performance and financial condition on a basis that is more consistent and comparable between reporting periods. The Company believes that lenders, securities analysts, investors and other interested parties frequently use these non-IFRS financial measures in the evaluation of issuers.