Spin Master Reports Q3 2022 Financial Results
Toronto, Canada – Spin Master Corp. announced its financial results for the three and nine months ended September 30, 2022. The Company’s full Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2022 is available under the Company’s profile on SEDAR (www.sedar.com) and posted on the Company’s web site at www.spinmaster.com. All financial information is presented in United States dollars (“$”, “dollars” and “US$”) and has been rounded to the nearest hundred thousand, except per share amounts and where otherwise indicated.
“We remain committed to our long-term growth strategy through the development of innovative toys, engaging, multiplatform entertainment content and creative, open-ended digital game experiences,” said Max Rangel, Spin Master’s Global President & CEO. “While our year-to-date growth has outpaced the toy industry globally, our revenue this quarter was affected by the pull forward of toy shipments into the second quarter, and by the challenging macroeconomic factors affecting consumers. Our team is excited to bring our magical experiences to children and their families this holiday season and we firmly believe that the power of our innovative toy portfolio, diversified entertainment pipeline and suite of digital games will drive solid results. As we look forward to 2023 and beyond, we will continue to allocate capital to grow the business over the long term by leveraging the strength, diversity and depth of our innovative brands, entertainment franchises and digital games, as well as M&A, to maximize shareholder value.”
“As expected, revenue growth in the third quarter was a difficult comparison due to the shift of customer shipments into the second quarter this year, a decline in digital games revenue and from PAW Patrol: The Movie Distribution Revenue recognized in the prior year. Despite this revenue decline, gross margin across our creative centres was up,” said Mark Segal, Spin Master’s Chief Financial Officer. “We will continue to balance investments designed to deliver on our long-term strategy while also effectively managing our costs. Despite our lowered expectations for the year, we remain confident in our ability to execute with high levels of operational discipline and navigate retailer and consumer dynamics to deliver profitable growth for 2022. Our balance sheet and liquidity position remains very strong and we are pleased to announce a quarterly dividend, following our inaugural dividend last quarter.”
Consolidated Financial Highlights for Q3 2022 as compared to the same period in 2021
- Revenue was $624.0 million, a decrease of 12.7% from $714.5 million. Constant Currency Revenue1 was $643.7 million, a decrease of 9.9%, from $714.5 million.
- Excluding PAW Patrol: The Movie Distribution Revenue in the prior year, Constant Currency Revenue1, decreased by 6.5%.
- Revenue by segment declined by 9.1%, 30.1%, 35.7% in Toys, Entertainment and Digital Games, respectively.
- Operating Income was $187.4 million compared to $179.5 million.
- Operating Margin was 30.0% compared to 25.1%.
- Adjusted Operating Income1 was $151.8 million compared to $175.6 million.
- Adjusted Operating Margin1 was 24.3% compared to 24.6%.
- Adjusted EBITDA1 was $167.6 million compared to $217.3 million. Excluding $26.0 million of PAW Patrol: The Movie Distribution Revenue, Adjusted EBITDA1 in the prior year was $191.3 million.
- Adjusted EBITDA Margin1 was 26.9% compared to 30.4%. Excluding PAW Patrol: The Movie Distribution Revenue, Adjusted EBITDA Margin1 in the prior year was 27.8%.
- Cash provided by operating activities was $207.4 million compared to $85.8 million.
- Free Cash Flow1 was $175.3 million compared to $65.8 million.
- Unutilized liquidity of $1,184.5 million, comprised of $674.9 million in cash and cash equivalents and $509.6 million under the Company’s credit facilities.
- During the quarter, the Company acquired certain assets from SolidRoots LLC, a creator of family board games. This acquisition is expected to complement the Company’s existing board games offering and has been reported in the Toys segment.
- During the quarter, the Company completed the acquisition of Nørdlight Games AB, a digital game studio based in Sweden, which was initially a minority investment through the Spin Master Ventures initiative in 2021. This acquisition supports the Company’s plans to grow revenue and penetration within the Company’s Digital Games segment.
- Subsequent to quarter end, the Company declared a quarterly dividend of C$0.06 per outstanding subordinate voting share and multiple voting share in respect of the fourth quarter of 2022.
- Company updates 2022 full year guidance.
Consolidated Financial Highlights for the Nine Months Ended September 30, 2022 as compared to the same period in 2021
- Revenue was $1,554.5 million, an increase of 9.3% from $1,421.9 million. Constant Currency Revenue1 increased by 11.7% to $1,588.0 million from $1,421.9 million.
- Excluding PAW Patrol: The Movie Distribution Revenue in the prior year, Constant Currency Revenue1, increased by 13.8%.
- The increase in Revenue was driven by growth in Toy revenue of 12.7% and Digital Games revenue of 1.0%, offset by a decrease in Entertainment revenue of 18.4% primarily due to lower distribution revenue related to PAW Patrol: The Movie of $26.0 million, delivered in the prior year, offset by higher licensing and merchandising revenue in the current year.
- Operating Income was $367.3 million compared to $233.1 million.
- Operating Margin was 23.6% compared to 16.4%.
- Adjusted Operating Income1 was $326.7 million compared to $246.9 million.
- Adjusted Operating Margin1 was 21.0% compared to 17.4%.
- Adjusted EBITDA1 was $377.0 million compared to $335.8 million. Excluding $26.0 million of PAW Patrol: The Movie Distribution Revenue, Adjusted EBITDA1 in the prior year was $309.8 million.
- Adjusted EBITDA Margin1 was 24.3% compared to 23.6%. Excluding PAW Patrol: The Movie Distribution Revenue, Adjusted EBITDA Margin1 in the prior period was 22.2%.
- Cash provided by operating activities was $256.1 million compared to $189.0 million.
- Free Cash Flow1 was $180.0 million compared to $128.3 million.
Consolidated Financial Results as compared to the same period in 2021
| (US$ millions, except per share information) | Nine Months Ended Sep 30 | |||||
| Q3 2022 | Q3 2021 | $ Change | 2022 | 2021 | $ Change | |
| Consolidated Results | ||||||
| Revenue | $ 624.0 | $ 714.5 | $ (90.5) | $ 1,554.5 | $ 1,421.9 | $ 132.6 |
| Operating Income | $ 187.4 | $ 179.5 | $ 7.9 | $ 367.3 | $ 233.1 | $ 134.2 |
| Operating Margin | 30.0 % | 25.1 % | 23.6 % | 16.4 % | ||
| Adjusted Operating Income1,2,3 | $ 151.8 | $ 175.6 | $ (23.8) | $ 326.7 | $ 246.9 | $ 79.8 |
| Adjusted Operating Margin1 | 24.3 % | 24.6 % | 21.0 % | 17.4 % | ||
| Net Income | $ 141.4 | $ 135.4 | $ 6.0 | $ 275.1 | $ 172.1 | $ 103.0 |
| Adjusted Net Income1,2,3 | $ 114.4 | $ 132.6 | $ (18.2) | $ 244.3 | $ 182.6 | $ 61.7 |
| Adjusted EBITDA1,2,3 | $ 167.6 | $ 217.3 | $ (49.7) | $ 377.0 | $ 335.8 | $ 41.2 |
| Adjusted EBITDA Margin1 | 26.9 % | 30.4 % | 24.3 % | 23.6 % | ||
| Earnings Per Share (“EPS”) | ||||||
| Basic EPS | $ 1.37 | $ 1.32 | $ 2.67 | $ 1.68 | ||
| Diluted EPS | $ 1.33 | $ 1.29 | $ 2.59 | $ 1.64 | ||
| Adjusted Basic EPS1 | $ 1.11 | $ 1.30 | $ 2.37 | $ 1.78 | ||
| Adjusted Diluted EPS1 | $ 1.08 | $ 1.26 | $ 2.30 | $ 1.74 | ||
| Cash Flow Data | ||||||
| Cash provided by operating activities | $ 207.4 | $ 85.8 | $ 121.6 | $ 256.1 | $ 189.0 | $ 67.1 |
| Cash used in investing activities | $ (42.3) | $ (22.7) | $ (19.6) | $ (81.0) | $ (133.6) | $ 52.6 |
| Free Cash Flow1 | $ 175.3 | $ 65.8 | $ 109.5 | $ 180.0 | $ 128.3 | $ 51.7 |
| 1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. | ||||||
| 2 Adjustments for Q3 2022 include Foreign exchange gain of $43.5 million (2021 – gain of $10.8 million) due to fluctuations in currency exchange rates primarily in the Canadian dollar, as well as, Swedish krona, Euro and Great Britain pound sterling, Share based compensation of $4.3 million (2021 – $4.1 million), Restructuring and other related costs of $nil (2021 – $0.4 million), Acquisition related deferred incentive compensation of $2.8 million (2021 – $2.7 million), Acquisition related contingent consideration of $0.5 million (2021 – $nil) and Transaction costs of $0.3 million (2021 – $0.1 million). Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details. | ||||||
| 3 Adjustments for the nine months ended September 30, 2022 include Foreign exchange gain of $66.2 million (2021 – gain of $2.2 million) due to fluctuations in currency exchange rates, primarily in the Canadian dollar, as well as, Swedish krona, Euro and Great Britain pound sterling, Share based compensation of $12.9 million (2021 – $11.3 million), Restructuring and other related costs of $5.1 million (2021 – $1.1 million) and Acquisition related deferred incentive compensation of $8.1 million (2021 – $4.2 million). Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details. | ||||||
Segmented Financial Results as compared to the same period in 2021
| (US$ millions) | Q3 2022 | Q3 2021 | ||||||||
| Toys | Entertainment | Digital Games |
Corporate & Other1 |
Total | Toys | Entertainment | Digital Games |
Corporate & Other1 |
Total | |
| Revenue | $ 552.4 | $ 37.0 | $ 34.6 | $ — | $ 624.0 | $ 607.8 | $ 52.9 | $ 53.8 | $ — | $ 714.5 |
| Operating Income | $ 109.4 | $ 28.9 | $ 8.2 | $ 40.9 | $ 187.4 | $ 128.0 | $ 18.2 | $ 24.2 | $ 9.1 | 179.5 |
| Adjusted Operating Income2 | $ 115.3 | $ 29.2 | $ 10.0 | $ (2.7) | $ 151.8 | $ 133.1 | $ 18.3 | $ 26.0 | $ (1.8) | $ 175.6 |
| Adjusted EBITDA2 | $ 126.9 | $ 31.7 | $ 11.7 | $ (2.7) | $ 167.6 | $ 146.5 | $ 45.2 | $ 27.4 | $ (1.8) | $ 217.3 |
| 1 Corporate & Other includes certain corporate costs, foreign exchange and merger and acquisition-related costs, as well as fair value gains and losses and distribution income on Minority interest and other investments. | ||||||||||
| 2 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. |
Toys Segment Results
The following table provides a summary of Toys segment operating results, for the three months ended September 30, 2022 and 2021:
| (US$ millions) | Q3 2022 | Q3 2021 | $ Change |
| Preschool and Dolls & Interactive1 | $ 284.7 | $ 311.0 | $ (26.3) |
| Activities, Games & Puzzles and Plush | $ 175.6 | $ 195.8 | $ (20.2) |
| Wheels & Action1 | $ 145.3 | $ 153.8 | $ (8.5) |
| Outdoor2 | $ 12.1 | $ 20.6 | $ (8.5) |
| Toy Gross Product Sales 3 | $ 617.7 | $ 681.2 | $ (63.5) |
| Sales Allowances4 | $ (65.3) | $ (73.4) | $ 8.1 |
| Toy revenue | $ 552.4 | $ 607.8 | $ (55.4) |
| Operating Income | $ 109.4 | $ 128.0 | $ (18.6) |
| Operating Margin5 | 19.8 % | 21.1 % | |
| Adjusted EBITDA3 | $ 126.9 | $ 146.5 | $ (19.6) |
| Adjusted EBITDA Margin3 | 23.0 % | 24.1 % |
| 1 Effective Q4 2021, the “Preschool and Girls” product category was renamed “Preschool and Dolls & Interactive”, and the “Boys” product category was renamed “Wheels & Action”. | |||
| 2 Outdoor includes $2.9 million in Q3 2021 related to certain brands associated with divestiture of manufacturing assets in Q1 2022. | |||
| 3 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. | |||
| 4 The Company enters into arrangements to provide sales allowances requested by customers relating to cooperative advertising, contractual and negotiated discounts, volume rebates, and costs incurred by customers to sell the Company’s products. | |||
| 5 Operating Margin is calculated as segment Operating Income divided by segment Revenue. |
- Toy revenue decreased by $55.4 million or 9.1% to $552.4 million.
- Toy Gross Product Sales decreased by $63.5 million or 9.3%, to $617.7 million from $681.2 million. Constant Currency Toy Gross Product Sales1 decreased by $40.7 million or 6.0% to $640.5 million, down from $681.2 million.
- The decline in Toy revenue and Toy Gross Product Sales was driven by the acceleration of customer shipments in the second quarter due to anticipated global logistics and supply chain issues.
- Operating Margin was 19.8% compared to 21.1%.
- Adjusted EBITDA Margin1 was 23.0% compared to 24.1%.
- The decrease in Operating Margin and Adjusted EBITDA Margin1 was driven by higher administrative and marketing expenses as a percentage of revenue, due to lower revenue in the current quarter. This was partially offset by improved gross margin from changes in product mix and price increases implemented to offset inflation on product costs and ocean freight.
Entertainment Segment Results
The following table provides a summary of Entertainment segment operating results, for the three months ended September 30, 2022 and 2021:
| (US$ millions) | Q3 2022 | Q3 2021 | $ Change |
| Entertainment revenue1 | $ 37.0 | $ 52.9 | $ (15.9) |
| Operating Income | $ 28.9 | $ 18.2 | $ 10.7 |
| Operating Margin | 78.1 % | 34.4 % | |
| Adjusted Operating Income2 | $ 29.2 | $ 18.3 | $ 10.9 |
| Adjusted Operating Margin2 | 78.9 % | 34.6 % | |
| 1 Entertainment revenue includes $26.0 million in Q3 2021 related to revenue for PAW Patrol: The Movie. | |||
| 2 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. | |||
- Entertainment revenue decreased by $15.9 million or 30.1% to $37.0 million, primarily due to lower distribution revenue related to PAW Patrol: The Movie of $26.0 million, delivered in the prior year, offset by higher licensing and merchandising revenue in the current year.
- Operating Margin was 78.1% compared to 34.4%. Excluding PAW Patrol: The Movie in the prior period, Operating Margin was 56.5%.
- Adjusted Operating Margin1 was 78.9% compared to 34.6%. Excluding PAW Patrol: The Movie in the prior period, Adjusted Operating Margin was 56.9%.
- The increase in Operating Margin and Adjusted Operating Margin1 was driven primarily by the dilutive effect of PAW Patrol: The Movie (distribution revenue less amortization of content development costs) in the prior year, as well as higher licensing and merchandising revenue in the current year.
Digital Games Segment Results
The following table provides a summary of Digital Games segment operating results, for the three months ended September 30, 2022 and 2021:
| (US$ millions) | Q3 2022 | Q3 2021 | $ Change |
| Digital Games revenue | $ 34.6 | $ 53.8 | $ (19.2) |
| Operating Income | $ 8.2 | $ 24.2 | $ (16.0) |
| Operating Margin | 23.7 % | 45.0 % | |
| Adjusted Operating Income1 | $ 10.0 | $ 26.0 | $ (16.0) |
| Adjusted Operating Margin1 | 28.9 % | 48.3 % | |
| 1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. | |||
- Digital Games revenue decreased by $19.2 million or 35.7% to $34.6 million due to lower in-app purchases in Toca Life World. Constant Currency Digital Games Revenue1 decreased by $17.6 million or 32.7% to $36.2 million, down from $53.8 million.
- Operating Margin was 23.7% compared to 45.0%. Adjusted Operating Margin1 was 28.9% compared to 48.3% The decreases to Operating Margin and Adjusted Operating Margin were due to lower revenue from in-app purchases in Toca Life World, higher product development and personnel costs related to the investment in future products.
Outlook
The Company now expects 2022 Toy Gross Product Sales, in constant currency1, to increase low single digits compared to 2021, as compared to low double digits announced on July 27, 2022.
The Company now expects 2022 Revenue, in constant currency1, to increase low single digits compared to 2021 Revenue, excluding PAW Patrol: The Movie Distribution Revenue1 of $26.0 million, as compared to low double digits announced on July 27, 2022.
The Company now expects 2022 Adjusted EBITDA Margin1 to be slightly below 2021 Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue1 of $26.0 million. Previous guidance announced on July 27, 2022 expected 2022 Adjusted EBITDA Margin1 to be in line with 2021 Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue1.
The Company expects 2023 Toy Gross Product Sales seasonality to return to historical averages of 30%-35% in the first half of the year.
Dividend Declared
The Company’s Board of Directors declared a dividend of C$0.06 per outstanding subordinate voting share and multiple voting share, payable on January 13, 2023 to shareholders of record at the close of business on December 30, 2022. The dividend is designated to be an eligible dividend for purposes of section 89(1) of the Income Tax Act (Canada).
| ______________________________ |
| 1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. 2 Operating Margin is calculated as Operating Income divided by Revenue. |
Ff 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 its three creative centres: Toys, Entertainment and Digital Games. With distribution in over 100 countries, Spin Master is best known for award-winning brands PAW Patrol®, Bakugan®, Kinetic Sand®, Air Hogs®, Hatchimals®, Rubik’s Cube® and GUND®, and is the global toy licensee for other popular properties. Spin Master Entertainment creates and produces compelling multiplatform content, through its in-house studio and partnerships with outside creators, including the preschool franchise PAW Patrol and numerous other original shows, short-form series and feature films. The Company has an established presence in digital games, anchored by the Toca Boca® and Sago Mini® brands, offering open-ended and creative game and educational play in digital environments. Through Spin Master Ventures, the Company makes minority investments globally in emerging companies and start-ups. With over 30 offices in close to 20 countries, Spin Master employs more than 2,000 team members globally. For more information visit spinmaster.com or follow-on Instagram, Facebook and Twitter @spinmaster.
For further information
Sophia Bisoukis
Vice President, Investor Relations
sophiab@spinmaster.com
Spin Master Corp.
Condensed consolidated interim statements of financial position
| Sep 30, | Dec 31, | |
| (Unaudited, in US$ millions) | 2022 | 2021 |
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | 674.9 | 562.7 |
| Trade receivables | 255.1 | 327.9 |
| Other receivables | 85.7 | 66.7 |
| Inventories | 178.5 | 137.4 |
| Prepaid expenses and other assets | 20.2 | 16.1 |
| Assets held for sale | — | 8.9 |
| 1,214.4 | 1,119.7 | |
| Non-current assets | ||
| Intangible assets | 257.6 | 227.2 |
| Goodwill | 169.8 | 173.1 |
| Right-of-use assets | 63.0 | 65.2 |
| Property, plant and equipment | 35.9 | 39.8 |
| Deferred income tax assets | 91.1 | 97.0 |
| Other assets | 16.9 | 14.7 |
| 634.3 | 617.0 | |
| Total assets | 1,848.7 | 1,736.7 |
| Liabilities | ||
| Current liabilities | ||
| Trade payables and accrued liabilities | 380.4 | 476.4 |
| Deferred revenue | 10.5 | 10.9 |
| Provisions and contingent liabilities | 27.4 | 25.1 |
| Income tax payable | 56.2 | 36.2 |
| Lease liabilities | 13.1 | 13.3 |
| 487.6 | 561.9 | |
| Non-current liabilities | ||
| Provisions and contingent liabilities | 16.9 | 14.0 |
| Deferred income tax liabilities | 51.6 | 48.7 |
| Lease liabilities | 57.9 | 59.7 |
| 126.4 | 122.4 | |
| Total liabilities | 614.0 | 684.3 |
| Shareholders’ equity | ||
| Share capital | 754.7 | 736.9 |
| Retained earnings | 486.5 | 216.0 |
| Contributed surplus | 36.0 | 40.8 |
| Accumulated other comprehensive (loss) income | (42.5) | 58.7 |
| Total shareholders’ equity | 1,234.7 | 1,052.4 |
| Total liabilities and shareholders’ equity | 1,848.7 | 1,736.7 |
Spin Master Corp.
Condensed consolidated interim statements of earnings and comprehensive income
| Nine Months Ended Sep 30, | ||||
| (Unaudited, in US$ millions, except earnings per share) | Q3 2022 | Q3 2021 | 2022 | 2021 |
| Revenue | 624.0 | 714.5 | 1,554.5 | 1,421.9 |
| Cost of sales | 273.6 | 348.5 | 683.1 | 688.6 |
| Gross profit | 350.4 | 366.0 | 871.4 | 733.3 |
| Expenses | ||||
| Selling, general and administrative | 195.3 | 187.1 | 544.3 | 475.1 |
| Depreciation and amortization | 7.1 | 8.0 | 21.8 | 25.6 |
| Other expense, net | 4.1 | 2.2 | 4.2 | 1.7 |
| Foreign exchange gain | (43.5) | (10.8) | (66.2) | (2.2) |
| Operating Income | 187.4 | 179.5 | 367.3 | 233.1 |
| Finance costs | 0.4 | 2.3 | 4.6 | 7.1 |
| Income before income tax expense | 187.0 | 177.2 | 362.7 | 226.0 |
| Income tax expense | 45.6 | 41.8 | 87.6 | 53.9 |
| Net Income | 141.4 | 135.4 | 275.1 | 172.1 |
| Earnings per share | ||||
| Basic | 1.37 | 1.32 | 2.67 | 1.68 |
| Diluted | 1.33 | 1.29 | 2.59 | 1.64 |
| Weighted average number of shares (in millions) | ||||
| Basic | 102.9 | 102.3 | 102.9 | 102.3 |
| Diluted | 106.3 | 105.2 | 106.3 | 105.2 |
| Nine Months Ended Sep 30, | ||||
| (Unaudited, in US$ millions) | Q3 2022 | Q3 2021 | 2022 | 2021 |
| Net Income | 141.4 | 135.4 | 275.1 | 172.1 |
| Items that may be subsequently reclassified to Net Income | ||||
| Foreign currency translation loss | (70.8) | (18.4) | (101.3) | (4.0) |
| Items that are not subsequently reclassified to Net Income | ||||
| Gain on Minority interest and other investments | — | — | 0.1 | — |
| Other comprehensive loss | (70.8) | (18.4) | (101.2) | (4.0) |
| Total comprehensive income | 70.6 | 117.0 | 173.9 | 168.1 |
Spin Master Corp.
Condensed consolidated interim statements of cash flows
| Nine Months Ended Sep 30, | ||
| (Unaudited, in US$ millions) | 2022 | 2021 |
| Operating activities | ||
| Net Income | 275.1 | 172.1 |
| Adjustments to reconcile Net Income to cash provided by operating activities | ||
| Income tax expense | 87.6 | 53.9 |
| Interest income | (5.2) | (0.7) |
| Depreciation and amortization | 50.3 | 88.9 |
| Loss on disposal of non-current assets | 1.2 | 0.9 |
| Accretion expense | 4.1 | 4.4 |
| Amortization of Facility fee costs | 0.3 | 0.3 |
| Gain on investment in limited partnership, net of distribution income | (0.2) | (1.8) |
| Impairment of non-current assets | 1.0 | 1.4 |
| Loss on Minority interest and other investments | 0.5 | — |
| Unrealized foreign exchange (gain) loss | (57.7) | 0.3 |
| Share-based compensation expense | 12.9 | 11.3 |
| Net changes in non-cash working capital | (65.8) | (117.4) |
| Net change in provisions, contingent liabilities, and other assets | 6.1 | 6.2 |
| Income taxes paid | (62.0) | (33.6) |
| Income taxes received | 3.9 | 2.1 |
| Interest received | 4.0 | 0.7 |
| Cash provided by operating activities | 256.1 | 189.0 |
| Investing activities | ||
| Investment in property, plant and equipment | (22.9) | (23.2) |
| Investment in intangible assets | (53.2) | (37.5) |
| Business acquisitions, net of cash acquired | (10.2) | (70.2) |
| Investment distribution income | 0.1 | 0.6 |
| Investment in limited partnership | — | (0.9) |
| Minority interest and other investments | (4.0) | (2.4) |
| Proceeds from sale of manufacturing operations | 9.2 | — |
| Cash used in investing activities | (81.0) | (133.6) |
| Financing activities | ||
| Payment of lease liabilities | (11.9) | (13.5) |
| Issuance of common shares from exercise of share options | 0.1 | — |
| Payment of financing costs related to Facility | — | (1.3) |
| Cash used in financing activities | (11.8) | (14.8) |
| Effect of foreign currency exchange rate changes on cash and cash equivalents | (51.1) | (0.7) |
| Net increase in cash and cash equivalents during the period | 112.2 | 39.9 |
| Cash and cash equivalents, beginning of period | 562.7 | 320.6 |
| Cash and cash equivalents, end of period | 674.9 | 360.5 |
| (in US$ millions) | Q3 2022 | Q3 2021 | $ Change | % Change | |
| Operating Income | 187.4 | 179.5 | 7.9 | 4.4 % | |
| Restructuring and other related costs1 | — | 0.4 | (0.4) | (100.0) % | |
| Foreign exchange gain2 | (43.5) | (10.8) | (32.7) | 302.8 % | |
| Share based compensation3 | 4.3 | 4.1 | 0.2 | 4.9 % | |
| Impairment of property, plant and equipment4 | 1.0 | — | 1.0 | n.m. | |
| Acquisition related deferred incentive compensation5 | 2.8 | 2.7 | 0.1 | 3.7 | |
| Investment distribution income6 | — | (0.2) | 0.2 | (100.0) | |
| Acquisition related contingent consideration7 | (0.5) | — | (0.5) | n.m. | |
| Transaction costs8 | 0.3 | 0.1 | 0.2 | 200.0 | |
| Gain on disposal of asset9 | — | (0.2) | 0.2 | (100.0) | |
| Adjusted Operating Income | 151.8 | 175.6 | (23.8) | (13.6) % | |
| Depreciation and amortization | 15.8 | 41.7 | (25.9) | (62.1) % | |
| Adjusted EBITDA | 167.6 | 217.3 | (49.7) | (22.9) % | |
| Distribution revenue related to PAW Patrol: The Movie | — | (26.0) | 26.0 | (100.0) % | |
| Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue | 167.6 | 191.3 | (23.7) | (12.4) % | |
| Distribution revenue related to PAW Patrol the Movie | — | 26.0 | (26.0) | (100.0) % | |
| Income tax expense | (45.6) | (41.8) | (3.8) | 9.1 % | |
| Finance costs | (0.4) | (2.3) | 1.9 | (82.6) % | |
| Depreciation and amortization | (15.8) | (41.7) | 25.9 | (62.1) % | |
| Tax effect of adjustments10 | 8.6 | 1.1 | 7.5 | 681.8 % | |
| Adjusted Net Income | 114.4 | 132.6 | (18.2) | (13.7) % | |
| Cash provided by operating activities | 207.4 | 85.8 | 121.6 | 141.7 % | |
| Cash used in investing activities | (42.3) | (22.7) | (19.6) | 86.3 % | |
| Add: | |||||
| Cash provided by business acquisitions and investment in limited partnership and Minority interest and other investments, net of investment distribution income | 10.2 | 2.7 | 7.5 | 277.8 % | |
| Free Cash Flow | 175.3 | 65.8 | 109.5 | 166.4 % | |
| ______________________________ |
| 1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. |
| 2 Operating Margin is calculated as Operating Income divided by Revenue. |
| 3 Restructuring expense primarily relates to changes in personnel. |
| 4 Includes foreign exchange (gains) losses generated by the translation of monetary assets/liabilities denominated in a currency other than the functional currency of the applicable entity and (gains) losses related to the Company’s hedging programs. The change in the current period was due to fluctuations in currency exchange rates primarily in the Canadian dollar, as well as, Swedish krona, Euro and Great Britan pound sterling. |
| 5 Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company’s initial public offering, share option expense and long-term incentive plan. |
| 6 Impairment of property plant and equipment related to machinery. |
| 7 Deferred incentive compensation associated with acquisitions. |
| 8 Distribution income related to investment in limited partnership. |
| 9 Expense associated with contingent consideration for acquisitions. |
| 10 Professional fees incurred relating to acquisitions and other transactions. |
The following table presents a reconciliation of Operating Income to Adjusted Operating Income and Adjusted Net Income, and cash from operating activities to Free Cash Flow for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended Sep 30 | |||||
| (in US$ millions) | 2022 | 2021 | $ Change | % Change | |
| Operating Income | 367.3 | 233.1 | 134.2 | 57.6 % | |
| Restructuring and other related costs1 | 5.1 | 1.1 | 4.0 | 363.6 % | |
| Foreign exchange gain2 | (66.2) | (2.2) | (64.0) | 2,909.1 % | |
| Share based compensation3 | 12.9 | 11.3 | 1.6 | 14.2 % | |
| Impairment of property, plant and equipment4 | 1.0 | — | 1.0 | n.m. | |
| Impairment of intangible assets5 | — | 1.4 | (1.4) | (100.0) | |
| Legal settlement6 | (2.1) | — | (2.1) | n.m. | |
| Acquisition related deferred incentive compensation7 | 8.1 | 4.2 | 3.9 | 92.9 % | |
| Net unrealized gain on investment8 | (0.1) | (1.2) | 1.1 | (91.7) % | |
| Investment distribution income9 | (0.1) | (0.6) | 0.5 | (83.3) | |
| Loss on Minority interest and other investments10 | 0.5 | — | 0.5 | n.m. | |
| Acquisition related contingent consideration11 | (0.5) | (0.7) | 0.2 | (28.6) % | |
| Transaction costs12 | 0.8 | 0.7 | 0.1 | 14.3 % | |
| Gain on disposal of asset13 | — | (0.2) | 0.2 | (100.0) | |
| Adjusted Operating Income | 326.7 | 246.9 | 79.8 | 32.3 % | |
| Depreciation and amortization | 50.3 | 88.9 | (38.6) | (43.4) % | |
| Adjusted EBITDA | 377.0 | 335.8 | 41.2 | 12.3 % | |
| Distribution revenue related to PAW Patrol: The Movie | — | (26.0) | 26.0 | (100.0) % | |
| Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue | 377.0 | 309.8 | 67.2 | 21.7 % | |
| Distribution revenue related to PAW Patrol: The Movie | — | 26.0 | (26.0) | (100.0) % | |
| Income tax expense | (87.6) | (53.9) | (33.7) | 62.5 % | |
| Finance costs | (4.6) | (7.1) | 2.5 | (35.2) % | |
| Depreciation and amortization | (50.3) | (88.9) | 38.6 | (43.4) % | |
| Tax effect of adjustments14 | 9.8 | (3.3) | 13.1 | (397.0) % | |
| Adjusted Net Income | 244.3 | 182.6 | 61.7 | 33.8 % | |
| Cash provided by operating activities | 256.1 | 189.0 | 67.1 | 35.5 % | |
| Cash used in investing activities | (81.0) | (133.6) | 52.6 | (39.4) % | |
| Add: | |||||
| Cash used for business acquisitions, investment in limited partnership and Minority interest and other investments and trademark license agreement, net of investment distribution income | 4.9 | 72.9 | (68.0) | (93.3) | |
| Free Cash Flow | 180.0 | 128.3 | 51.7 | 40.3 % | |
| __________________________________ |
| 1 Restructuring expense primarily relates to changes in personnel. |
| 2 Includes foreign exchange (gains) losses generated by the translation of monetary assets/liabilities denominated in a currency other than the functional currency of the applicable entity and (gains) losses related to the Company’s hedging programs. The change in the current period was due to fluctuations in currency exchange rates, primarily in the Canadian dollar, as well as, Swedish krona, Euro and Great Britain pound sterling. |
| 3 Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company’s initial public offering, share option expense and long-term incentive plan. |
| 4 Impairment of property plant and equipment related to tooling. |
| 5 Impairment of intangible assets related to entertainment content and app development. |
| 6 Legal settlement in the first and second quarters of 2022. |
| 7 Deferred incentive compensation associated with acquisitions. |
| 8 Net unrealized gain related to investment in limited partnership. |
| 9 Distribution income related to investment in limited partnership. |
| 10 Fair value loss on the Minority interest and other investments classified as FVTPL. |
| 11 Expense associated with contingent consideration for acquisitions. |
| 12 Professional fees incurred relating to acquisitions and other transactions. |
| 13 Gain on disposal of intangible asset. |
| 14 Tax effect of adjustments (Footnotes 1-13). Adjustments are tax effected at the effective tax rate of the given period. |
The following tables present reconciliations of Revenue to Constant Currency Toy Gross Product Sales, Revenue to Constant Currency Digital Games revenue and Revenue to Constant Currency Revenue for the three and nine months ended September 30, 2022, and 2021:
| Nine Months Ended Sep 30, | ||||
| (US$ millions) | Q3 2022 | Q3 2021 | 2022 | 2021 |
| Constant Currency Toy Gross Product Sales | 640.5 | 677.7 | 1,533.2 | 1,321.2 |
| Impact of foreign exchange | (22.8) | 3.5 | (33.6) | 13.7 |
| Toy Gross Product Sales | 617.7 | 681.2 | 1,499.6 | 1,334.9 |
| Sales Allowances | (65.3) | (73.4) | (158.7) | (145.1) |
| Toy revenue | 552.4 | 607.8 | 1,340.9 | 1,189.8 |
| Entertainment revenue | 37.0 | 52.9 | 87.6 | 107.3 |
| Digital Games revenue | 34.6 | 53.8 | 126.0 | 124.8 |
| Revenue | 624.0 | 714.5 | 1,554.5 | 1,421.9 |
| Nine Months Ended Sep 30, | ||||
| (US$ millions) | Q3 2022 | Q3 2021 | 2022 | 2021 |
| Constant Currency Digital Games Revenue | 36.2 | 53.1 | 131.9 | 121.8 |
| Impact of foreign exchange | (1.6) | 0.7 | (5.9) | 3.0 |
| Digital Games revenue | 34.6 | 53.8 | 126.0 | 124.8 |
| Nine Months Ended Sep 30, | ||||
| (US$ millions) | Q3 2022 | Q3 2021 | 2022 | 2021 |
| Constant Currency Revenue | 643.7 | 709.9 | 1,588.0 | 1,403.1 |
| Impact of foreign exchange | (19.7) | 4.6 | (33.5) | 18.8 |
| Revenue | 624.0 | 714.5 | 1,554.5 | 1,421.9 |
The following tables present the composition of Percentage change in Constant Currency Toy Gross Product Sales, Percentage change in Constant Currency Digital Games Revenue, Percentage change in Constant Currency Revenue and Percentage change in Constant Currency Revenue, excluding PAW Patrol: The Movie Distribution Revenue for the three and nine months ended September 30, 2022 and 2021:
| $ Change | % Change | ||||||||
| (US$ millions) | Q3 2022 | Q3 2021 | As reported |
Impact of foreign exchange |
In Constant Currency |
As reported |
In Constant Currency |
||
| Toy Gross Product Sales | $ 617.7 | $ 681.2 | $ (63.5) | $ 22.8 | $ (40.7) | (9.3) % | (6.0) % | ||
| Digital Games revenue | $ 34.6 | $ 53.8 | $ (19.2) | $ 1.6 | $ (17.6) | (35.7) % | (32.7) % | ||
| Revenue | $ 624.0 | $ 714.5 | $ (90.5) | $ 19.7 | $ (70.8) | (12.7) % | (9.9) % | ||
| Revenue excluding PAW Patrol: The Movie Distribution Revenue |
$ 624.0 | $ 688.5 | $ (64.5) | $ 19.7 | $ (44.8) | (9.4) % | (6.5) % | ||
| Nine Months Ended Sep 30, | $ Change | % Change | |||||||
| (US$ millions) | 2022 | 2021 | As reported |
Impact of foreign exchange |
In Constant Currency |
As reported |
In Constant Currency |
||
| Toy Gross Product Sales | $ 1,499.6 | $ 1,334.9 | $ 164.7 | $ 33.6 | $ 198.3 | 12.3 % | 14.9 % | ||
| Digital Games revenue | $ 126.0 | $ 124.8 | $ 1.2 | $ 5.9 | $ 7.1 | 1.0 % | 5.7 % | ||
| Revenue | $ 1,554.5 | $ 1,421.9 | $ 132.6 | $ 33.5 | $ 166.1 | 9.3 % | 11.7 % | ||
| Revenue excluding PAW Patrol: The Movie Distribution Revenue |
$ 1,554.5 | $ 1,395.9 | $ 158.6 | $ 33.5 | $ 192.1 | 11.4 % | 13.8 % | ||
Segment Results
The Company’s results from operations by reportable segment for the three months ended September 30, 2022 and 2021 are as follows:
| (US$ millions) | Q3 2022 | Q3 2021 | ||||||||
| Toys | Entertainment | Digital Games |
Corporate & Other |
Total | Toys | Entertainment | Digital Games |
Corporate & Other |
Total | |
| Revenue | 552.4 | 37.0 | 34.6 | — | 624.0 | 607.8 | 52.9 | 53.8 | — | 714.5 |
| Operating Income | 109.4 | 28.9 | 8.2 | 40.9 | 187.4 | 128.0 | 18.2 | 24.2 | 9.1 | 179.5 |
| Restructuring and other related costs | (0.1) | — | 0.1 | — | — | 0.4 | — | — | — | 0.4 |
| Foreign exchange gain | — | — | — | (43.5) | (43.5) | — | — | — | (10.8) | (10.8) |
| Share based compensation | 3.0 | 0.3 | 0.5 | 0.5 | 4.3 | 3.4 | 0.1 | 0.6 | — | 4.1 |
| Impairment of property, plant and equipment | 1.0 | — | — | — | 1.0 | — | — | — | — | — |
| Acquisition related deferred incentive compensation | 1.6 | — | 1.2 | — | 2.8 | 1.5 | — | 1.2 | — | 2.7 |
| Investment distribution income | — | — | — | — | — | — | — | — | (0.2) | (0.2) |
| Acquisition related contingent consideration | 0.4 | — | — | (0.9) | (0.5) | — | — | — | — | — |
| Transaction costs | — | — | — | 0.3 | 0.3 | — | — | — | 0.1 | 0.1 |
| Gain on disposal of asset | — | — | — | — | — | (0.2) | — | — | — | (0.2) |
| Adjusted Operating Income | 115.3 | 29.2 | 10.0 | (2.7) | 151.8 | 133.1 | 18.3 | 26.0 | (1.8) | 175.6 |
| Depreciation and amortization | 11.6 | 2.5 | 1.7 | — | 15.8 | 13.4 | 26.9 | 1.4 | — | 41.7 |
| Adjusted EBITDA | 126.9 | 31.7 | 11.7 | (2.7) | 167.6 | 146.5 | 45.2 | 27.4 | (1.8) | 217.3 |
ADDENDUM
Effective January 1, 2022, the Company revised its reportable operating segments to align with its current business structure and how the Company’s new CODM reviews operations and makes decisions. The following table presents 2021 segments in the same format that the Company presents its operating segments in 2022.
| (US$ millions) | Year Ended December 31, 2021 | ||||
| Toys | Entertainment | Digital Games |
Corporate & Other |
Total | |
| Revenue | 1,731.8 | 135.8 | 174.8 | — | 2,042.4 |
| Operating Income | 159.0 | 53.4 | 67.5 | (7.7) | 272.2 |
| Restructuring and other related costs | 2.3 | — | 0.2 | — | 2.5 |
| Foreign exchange gain | — | — | — | (2.9) | (2.9) |
| Share based compensation | 13.4 | 0.4 | 1.5 | — | 15.3 |
| Impairment of goodwill | 1.9 | — | — | — | 1.9 |
| Impairment of intangible assets | — | 2.1 | 0.5 | — | 2.6 |
| Acquisition related deferred incentive compensation | 4.3 | — | 2.5 | — | 6.8 |
| Net unrealized gain on investment | — | — | — | (0.9) | (0.9) |
| Investment distribution income | — | — | — | (0.6) | (0.6) |
| Acquisition related contingent consideration | 2.7 | — | — | — | 2.7 |
| Transaction costs | — | — | — | 2.8 | 2.8 |
| Gain on disposal of asset | (0.2) | — | — | — | (0.2) |
| Adjusted Operating Income | 183.4 | 55.9 | 72.2 | (9.3) | 302.2 |
| Depreciation and amortization | 56.3 | 48.2 | 7.4 | — | 111.9 |
| Adjusted EBITDA | 239.7 | 104.1 | 79.6 | (9.3) | 414.1 |
| (US$ millions) | Q1 2021 | ||||
| Toys | Entertainment | Digital Games |
Corporate & Other |
Total | |
| Revenue | 255.6 | 26.9 | 34.1 | — | 316.6 |
| Operating Income | (12.1) | 10.6 | 13.2 | (5.0) | 6.7 |
| Restructuring and other related costs | 0.7 | — | — | — | 0.7 |
| Foreign exchange loss | — | — | — | 3.7 | 3.7 |
| Share based compensation | 2.8 | 0.1 | 0.3 | — | 3.2 |
| Impairment of intangible assets | — | 0.9 | — | — | 0.9 |
| Net unrealized gain on investment | — | — | — | (0.9) | (0.9) |
| Acquisition related contingent consideration | (0.7) | — | — | — | (0.7) |
| Adjusted Operating Income | (9.3) | 11.6 | 13.5 | (2.2) | 13.6 |
| Depreciation and amortization | 14.4 | 6.6 | 2.1 | — | 23.1 |
| Adjusted EBITDA | 5.1 | 18.2 | 15.6 | (2.2) | 36.7 |
| (US$ millions) | Q2 2021 | ||||
| Toys | Entertainment | Digital Games |
Corporate & Other |
Total | |
| Revenue | 326.4 | 27.5 | 36.9 | — | 390.8 |
| Operating Income | 28.5 | 12.5 | 12.8 | (6.9) | 46.9 |
| Foreign exchange loss | — | — | — | 4.9 | 4.9 |
| Share based compensation | 3.7 | 0.1 | 0.2 | — | 4.0 |
| Impairment of intangible assets | — | — | 0.5 | — | 0.5 |
| Acquisition related deferred incentive compensation | 1.3 | — | 0.2 | — | 1.5 |
| Net unrealized gain on investment | — | — | — | (0.3) | (0.3) |
| Investment distribution income | — | — | — | (0.4) | (0.4) |
| Transaction costs | — | — | — | 0.6 | 0.6 |
| Adjusted Operating Income | 33.5 | 12.6 | 13.7 | (2.1) | 57.7 |
| Depreciation and amortization | 13.8 | 8.4 | 1.9 | — | 24.1 |
| Adjusted EBITDA | 47.3 | 21.0 | 15.6 | (2.1) | 81.8 |
| (US$ millions) | Q3 2021 | ||||
| Toys | Entertainment | Digital Games |
Corporate & Other |
Total | |
| Revenue | 607.8 | 52.9 | 53.8 | — | 714.5 |
| Operating Income | 128.0 | 18.2 | 24.2 | 9.1 | 179.5 |
| Restructuring and other related costs | 0.4 | — | — | — | 0.4 |
| Foreign exchange gain | — | — | — | (10.8) | (10.8) |
| Share based compensation | 3.4 | 0.1 | 0.6 | — | 4.1 |
| Acquisition related deferred incentive compensation | 1.5 | — | 1.2 | — | 2.7 |
| Investment distribution income | — | — | — | (0.2) | (0.2) |
| Transaction costs | — | — | — | 0.1 | 0.1 |
| Gain on disposal of asset | (0.2) | — | — | — | (0.2) |
| Adjusted Operating Income | 133.1 | 18.3 | 26.0 | (1.8) | 175.6 |
| Depreciation and amortization | 13.4 | 26.9 | 1.4 | — | 41.7 |
| Adjusted EBITDA | 146.5 | 45.2 | 27.4 | (1.8) | 217.3 |
| (US$ millions) | Q4 2021 | ||||
| Toys | Entertainment | Digital Games |
Corporate & Other |
Total | |
| Revenue | 542.0 | 28.5 | 50.0 | — | 620.5 |
| Operating Income | 14.6 | 12.1 | 17.3 | (4.9) | 39.1 |
| Restructuring and other related costs | 1.2 | — | 0.2 | — | 1.4 |
| Foreign exchange gain | — | — | — | (0.7) | (0.7) |
| Share based compensation | 3.5 | 0.1 | 0.4 | — | 4.0 |
| Impairment of goodwill | 1.9 | — | — | — | 1.9 |
| Impairment of intangible assets | — | 1.2 | — | — | 1.2 |
| Acquisition related deferred incentive compensation | 1.5 | — | 1.1 | — | 2.6 |
| Net unrealized loss on investment | — | — | — | 0.3 | 0.3 |
| Acquisition related contingent consideration | 3.4 | — | — | — | 3.4 |
| Transaction costs | — | — | — | 2.1 | 2.1 |
| Adjusted Operating Income | 26.1 | 13.4 | 19.0 | (3.2) | 55.3 |
| Depreciation and amortization | 14.7 | 6.3 | 2.0 | — | 23.0 |
| Adjusted EBITDA | 40.8 | 19.7 | 21.0 | (3.2) | 78.3 |
