Toronto, Canada — Spin Master Corp. announced its financial results for the three and six months ended June 30, 2023. .

“We delivered a solid second quarter driven by our diverse portfolio of toys, entertainment content and digital games,” said Max Rangel, Spin Master’s Global President & CEO. “We are confident in our plans for the second half of the year including exciting Toy innovation, new Entertainment content and the continued development of our Digital Games ecosystem. Our Toy portfolio features the breakthrough Bitzee, a digital pet you can actually touch, a toy line inspired by the highly anticipated second PAW Patrol feature film and many more new items that will inspire stimulating play experiences for kids and families worldwide. In Entertainment we are launching two new animated TV series, Unicorn Academy and Vida the Vet, and the second feature film in our iconic franchise PAW Patrol: The Mighty Movie, in theaters end of September. In Digital Games we will deliver engaging new content for Toca Life World, a content bundle for Sago Mini and Paw Patrol Academy, an app launching with the movie. We remain committed to our framework for value creation, underpinned by our formula for innovation and integrated IP-driven growth across all our creative centres.”

“Our results for the quarter and year to date, as expected, were challenged in comparison to 2022. However, we are encouraged by the strength and resilience of our global, diversified business platform and our ability to execute on our strategy to drive profitable growth, delivering Adjusted EBITDA of over $88 million for the quarter, said Mark Segal, Chief Financial Officer of Spin Master. “The inventory reduction activity at retail resulting from the carryover of inventory from 2022 is complete and we are pleased to maintain our 2023 outlook. Our very solid balance sheet and cash flow generation capabilities provide opportunities to leverage our global platform for both organic growth and acquisitions.”

Consolidated Financial Highlights for Q2 2023 as compared to the same period in 2022

• Revenue was $420.7 million, a decrease of 16.9% from $506.3 million. Constant Currency Revenue1 was $419.9 million, a decrease of 17.1%, from $506.3 million.
• Revenue by operating segment reflected a decline of 20.9% in Toys, offset by a 19.4% increase in Entertainment and a 0.5% increase in Digital Games.
• Operating Income was $34.4 million compared to $118.2 million.
• Operating Margin2 was 8.2% compared to 23.3%.
• Adjusted Operating Income1 was $62.6 million compared to $97.6 million.
• Adjusted Operating Margin1 was 14.9% compared to 19.3%.
• Net Income was $28.0 million or $0.26 per share (diluted) compared to $88.1 million or $0.83 per share (diluted).
• Adjusted Net Income1 was $48.8 million or $0.45 per share (diluted) compared to $72.4 million or $0.68 per share (diluted).
• Adjusted EBITDA1 was $88.4 million compared to $113.7 million.
• Adjusted EBITDA Margin1 was 21.0% compared to 22.5%.
• Cash provided by operating activities was $19.1 million compared to $111.6 million.
• Free Cash Flow1 was $(5.9) million compared to $84.1 million.
• The Company acquired assets from a games and puzzles company for purchase considerations of $3.3 million and, through Spin Master Ventures, increased its minority interest in a privately-held entity for $2.0 million.
• The Company repurchased and cancelled 156,200 subordinate voting shares through the Company’s normal course issuer bid (“NCIB”) program for $4.2 million.
• The Company incurred restructuring expenses of $9.7 million ($0.07 per diluted share) primarily related to the closure of its manufacturing facility in Calais, France as previously announced.
• Subsequent to June 30, 2023, the Company declared a quarterly dividend of CA$0.06 per outstanding subordinate voting share and multiple voting share, payable October 13, 2023.
• Subsequent to June 30, 2023, the Company implemented a Dividend Reinvestment Plan (the “DRIP”).
• The Company reiterates 2023 Outlook.

Consolidated Financial Highlights for the six months ended June 30, 2023 as compared to the same period in 2022

• Revenue was $692.1 million, down 25.6% from $930.5 million. Constant Currency Revenue1 decreased by 25.3% to $695.5 million from $930.5 million.
• Revenue by operating segment reflected declines of 32.5% in Toys and 3.7% in Digital Games, partially offset by a 41.3% increase in Entertainment.
• Operating Income was $28.3 million compared to $179.9 million. The decrease in Operating income was primarily driven by the decrease in Toy revenue.
• Operating Margin was 4.1% compared to 19.3%.
• Adjusted Operating Income1 was $75.3 million compared to $174.9 million.
• Adjusted Operating Margin1 was 10.9% compared to 18.8%.
• Net Income was $26.1 million or $0.25 per share (diluted) compared to $133.7 million or $1.26 per share (diluted).
• Adjusted Net Income1 was $61.1 million or $0.58 per share (diluted) compared to $129.9 million or $1.22 per share (diluted).
• Adjusted EBITDA1 was $119.0 million compared to $209.4 million, a decrease of $90.4 million or 43.2%.
• Adjusted EBITDA Margin1 was 17.2% compared to 22.5%.
• Cash provided by operating activities was $14.8 million compared to $48.7 million.
• Free Cash Flow1 was $(40.3) million compared to $4.7 million.
• During Q2 2023, the Company acquired assets from a games and puzzles company for purchase considerations of $3.3 million. During Q1 2023, the Company acquired certain assets of 4D Brands International Inc. for total purchase considerations of $18.9 million and acquired the HEXBUG brand of toys from Innovation First International, Inc., for total purchase considerations of $14.6 million.
• During the six months ended June 30, 2023, the Company incurred restructuring expenses of $13.5 million ($0.10 per diluted share) related to a reduction in the Company’s global workforce and the closure of its manufacturing facility in Calais, France.
• During the six months ended June 30, 2023, the Company repurchased and cancelled 397,700 subordinate voting shares through the Company’s NCIB program for $10.5 million.

Consolidated Financial Results as compared to the same period in 2022

Segmented Financial Results as compared to the same period in 2022

Toys Segment Results

The following table provides a summary of Toys segment operating results, for the three months ended June 30, 2023 and 2022:

• Toy revenue declined by $91.3 million or 20.9% to $346.3 million primarily driven by a decline in Toy Gross Product Sales1.
• Toy Gross Product Sales1 declined by $94.4 million or 19.5%, to $390.0 million from $484.4 million. Constant Currency Toy Gross Product Sales1 declined by $96.7 million or 20.0% to $387.7 million, down from $484.4 million.
• The decline in Toy Gross Product Sales1 was a result of lower order volume, as customers focused on reducing their retail inventory levels carried forward from Q4 2022. In comparison, Toy Gross Product Sales1 in 2022 was supported by customers ordering earlier in the year.
• Sales Allowances decreased by $3.1 million to $43.7 million. As a percentage of Toy Gross Product Sales1, Sales Allowances increased by 1.5% to 11.2% from 9.7%, primarily driven by geographic and customer mix.
• Operating Income was $23.8 million compared to $62.6 million, representing a decrease of $38.8 million.
• Operating Margin was 6.9% compared to 14.3%.
• Adjusted EBITDA Margin1 was 13.8% compared to 19.0%. Adjusted EBITDA Margin1 declined primarily as a result of lower Operating Margin. The decline was due to lower Toy revenue relative to administrative and marketing expenses, partially offset by higher gross margin.

Entertainment Segment Results

The following table provides a summary of Entertainment segment operating results, for the three months ended June 30, 2023 and 2022:

• Entertainment revenue increased by $5.5 million or 19.4% to $33.9 million, from higher distribution revenue due to new content deliveries of Vida the Vet, Rubble & Crew and Unicorn Academy. Also contributing to the increase was the Company’s share of revenue related to the continued distribution of PAW Patrol: The Movie. Licensing and merchandising revenue declined for the period. Constant Currency Entertainment Revenue1 increased by $5.6 million or 19.7% to $34.0 million, from $28.4 million.
• Operating Margin decreased by 15.3% from 61.6% to 46.3%.
• Adjusted Operating Margin1 decreased by 15.3% from 63.4% to 48.1%.
• Operating Margin and Adjusted Operating Margin1 declined primarily due to higher amortization of production costs from new content deliveries.

Digital Games Segment Results

The following table provides a summary of Digital Games segment operating results, for the three months ended June 30, 2023 and 2022:

• Digital Games revenue increased by $0.2 million or 0.5% to $40.5 million from higher in-game purchases in the Toca Life World platform. Constant Currency Digital Games Revenue1 increased by $1.1 million or 2.7% to $41.4 million, up from $40.3 million.
• Operating Margin increased by 2.9% from 20.8% to 23.7% and Adjusted Operating Margin1 increased by 6.8% from 31.6% to 24.8% due to lower marketing and administrative expenses.

Liquidity and Capitalization

For the six months ended June 30, 2023, cash flows provided by operating activities were $14.8 million, compared to $48.7 million in the prior year.

For the six months ended June 30, 2023, Free Cash Flow1 was $(40.3) million compared to $4.7 million.

As at June 30, 2023, the Company had unutilized liquidity of $1,063.5 million, comprised of $554.9 million in Cash and cash equivalents and $508.6 million under the Company’s credit facilities.

On March 10, 2023, the Company entered into an automatic share repurchase plan with its designated broker to effect the purchase of subordinate voting shares under the NCIB. The Company repurchased and cancelled 397,700 subordinate voting shares during the first half of 2023 for proceeds of $10.5 million.

The weighted average basic and diluted shares outstanding as at June 30, 2023 were 103.7 million and 105.6 million, compared to 102.9 million and 106.3 million in the prior year, respectively.

The Company’s Board of Directors declared a dividend of C$0.06 per outstanding subordinate voting share and multiple voting share, payable on October 13, 2023 to shareholders of record at the close of business on September 29, 2023. The dividend is designated to be an eligible dividend for purposes of section 89(1) of the Income Tax Act (Canada).

Outlook

The Company continues to expect 2023 Toy Gross Product Sales1 to be flat to slightly down compared to 2022.

The Company continues to expect 2023 Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 to be in line with 2022.

The Company continues to expect 2023 Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 to be flat to slightly up compared to 2022.

Spin Master Corp.
Condensed consolidated interim statements of financial position

Spin Master Corp.
Condensed consolidated interim statements of earnings and comprehensive income

Spin Master Corp.
Condensed consolidated interim statements of cash flows

Non-GAAP Financial Measures and Ratios

In addition to using financial measures prescribed under International Financial Reporting Standards (“IFRS”), references are made in this Press Release to the following terms, each of which is a non-GAAP financial measure:

• Toy Gross Product Sales
• Revenue, excluding PAW Patrol: The Movie Distribution Revenue
• Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue
• Constant Currency Toy Gross Product Sales
• Constant Currency Digital Games Revenue
• Constant Currency Entertainment Revenue
• Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue
• Constant Currency Revenue
• Adjusted EBITDA
• Adjusted Operating Income
• Adjusted Net Income
• Free Cash Flow

Non-GAAP financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.

Additionally, references are made in this Press Release to the following terms, each of which is a non-GAAP financial ratio:

• Percentage change in Constant Currency Toy Gross Product Sales
• Percentage change in Constant Currency Digital Games Revenue
• Percentage change in Constant Currency Entertainment Revenue
• Percentage change in Constant Currency Revenue
• Adjusted EBITDA Margin
• Adjusted Operating Margin
• Adjusted Basic EPS
• Adjusted Diluted EPS
• Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue

Non-GAAP financial ratios are ratios or percentages that are calculated using a Non-GAAP financial measure. Non-GAAP financial ratios do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.

Management believes the Non-GAAP financial measures and Non-GAAP financial ratios defined above are important supplemental measures of operating performance and highlight trends in the business. Management believes that these measures allow for assessment of the Company’s operating performance and financial condition on a basis that is consistent and comparable between reporting periods. The Company believes that investors, lenders, securities analysts and other interested parties frequently use these Non-GAAP financial measures and Non-GAAP financial ratios in the evaluation of issuers.

Non-GAAP Financial Measures

Toy Gross Product Sales represent Toy revenues, excluding the impact of Sales Allowances. As Sales Allowances are generally not associated with individual products, the Company uses Toy Gross Product Sales to provide meaningful comparisons across product category and geographical results to highlight trends in Spin Master’s business. For a reconciliation of Toy Gross Product Sales to Revenue, the closest IFRS measure, refer to the revenue tables for the three and six months ended June 30, 2023, as compared to the same period in 2022 in this Press Release.

Constant Currency Toy Gross Product Sales, Constant Currency Sales Allowances, Constant Currency Toy Revenue, Constant Currency Entertainment Revenue, Constant Currency Digital Games Revenue, and Constant Currency Revenue represent Toy Gross Product Sales, Sales Allowance, Toy revenue, Entertainment revenue, Digital Games revenue, and Revenue presented excluding the impact from changes in foreign currency exchange rates, respectively. 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. Management uses Constant Currency Toy Gross Product Sales, Constant Currency Sales Allowances, Constant Currency Toy Revenue, Constant Currency Entertainment Revenue, Constant Currency Digital Games Revenue, and Constant Currency Revenue to measure the underlying financial performance of the business on a consistent basis over time. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for a reconciliation of these metrics to Revenue, the closest IFRS measure.

Adjusted EBITDA is calculated as Net Income before interest income and interest expense, income tax expense and depreciation and amortization (EBITDA) excluding adjustments that do not necessarily reflect the Company’s underlying financial performance. These adjustments include restructuring and other related costs, foreign exchange gains or losses, share based compensation expenses, acquisition related contingent consideration, impairment of intangible assets, impairment of goodwill, investment distribution income, loss on Minority interest and other investments, acquisition related deferred incentive compensation, net unrealized gain or loss on investment, impairment of property, plant and equipment, legal settlement, transaction cost and gain on disposal of asset. Adjusted EBITDA is used by management as a measure of the Company’s profitability. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for a reconciliation of this metric to Operating Income (Loss), the closest IFRS measure.

Adjusted Operating Income (Loss) is calculated as Operating Income (Loss) excluding adjustments (as defined in Adjusted EBITDA). Adjusted Operating Income (Loss) is used by management as a measure of the Company’s profitability. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for a reconciliation of this metric to Operating Income (Loss), the closest IFRS measure.

Adjusted Net Income (Loss) is calculated as Net Income (Loss) excluding adjustments (as defined in Adjusted EBITDA), the corresponding impact these items have on income tax expense. Management uses Adjusted Net Income (Loss) to measure the underlying financial performance of the business on a consistent basis over time. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for a reconciliation of this metric to Operating Income (Loss), the closest IFRS measure.

Free Cash Flow is calculated as cash flows provided by/used in operating activities reduced by cash flows used in investing activities and adding back cash used for business acquisitions, advance paid for business acquisitions, asset acquisitions, investment in limited partnership, Minority interest and other investments, proceeds from sale of manufacturing operations and net of investment distribution income. Management uses the Free Cash Flow metric to analyze the cash flows being generated by the Company’s business. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for a reconciliation of this metric to Cash flow from operating activities, the closest IFRS measure.

Revenue, excluding PAW Patrol: The Movie Distribution Revenue is calculated as revenue excluding distribution revenue of $26.0 million related to PAW Patrol: The Movie recognized in 2021. Revenue, excluding PAW Patrol: The Movie Distribution Revenue is used to measure the underlying financial performance of the business on a consistent basis over time. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for a reconciliation of this metric to Revenue, the closest IFRS measure.

Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue is calculated as revenue excluding distribution revenue related to PAW Patrol: The Mighty Movie. Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue is used to measure the underlying financial performance of the business on a consistent basis over time.

Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Adjusted EBITDA excluding distribution revenue of $26.0 million related to PAW Patrol: The Movie recognized in 2021. Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue is used by management as a measure of the Company’s profitability on a consistent basis over time. Refer to the “Reconciliation of Non-GAAP Financial Measures” section below for a reconciliation of this metric to Net Income, the closest IFRS measure.

Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue is calculated as Adjusted EBITDA excluding distribution revenue related to PAW Patrol: The Mighty Movie. Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue is used by management as a measure of the Company’s profitability on a consistent basis over time.

Non-GAAP Financial Ratios

Sales Allowances as a percentage of Toy Gross Product Sales is calculated by dividing Sales Allowances by Toy Gross Product Sales. Management uses Sales Allowance as a percentage of Toy Gross Product Sales to identify and compare the cost of doing business with individual retailers, different geographic markets and amongst various distribution channels.

Percentage change in Constant Currency Toy Gross Product Sales is calculated by dividing the change in Toy Gross Product Sales excluding the impact from changes in foreign currency exchange rates by the Toy Gross Product Sales of the comparative period. Management uses Percentage change in Constant Currency Toy Gross Product Sales to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Percentage change in Constant Currency Sales Allowances is calculated by dividing the change in Sales Allowances excluding the impact from changes in foreign currency exchange rates by the Sales Allowances of the comparative period. Management uses Percentage change in Constant Currency Sales Allowances to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Percentage change in Constant Currency Toy Revenue is calculated by dividing the change in Toy Revenue excluding the impact from changes in foreign currency exchange rates by the Toy Revenue of the comparative period. Management uses Percentage change in Constant Currency Toy Revenue to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Percentage change in Constant Currency Entertainment Revenue is calculated by dividing the change in Entertainment revenue excluding the impact from changes in foreign currency exchange rates by the Entertainment revenue of the comparative period. Management uses Percentage change in Constant Currency Entertainment Revenue to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Percentage change in Constant Currency Digital Games Revenue is calculated by dividing the change in Digital Games revenue excluding the impact from changes in foreign currency exchange rates by the Digital Games revenue of the comparative period. Management uses Percentage change in Constant Currency Digital Games Revenue to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Percentage change in Constant Currency Revenue is calculated by dividing the change in Revenue excluding the impact from changes in foreign currency exchange rates by the Revenue of the comparative period. Management uses Percentage change in Constant Currency Revenue to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Revenue. Management uses Adjusted EBITDA Margin to evaluate the Company’s performance compared to internal targets and to benchmark its performance against key competitors.

Adjusted Operating Margin is calculated as Adjusted Operating Income (Loss) divided by Revenue. Management uses Adjusted Operating Margin to evaluate the Company’s performance compared to internal targets and to benchmark its performance against key competitors.

Adjusted Basic EPS is calculated by dividing Adjusted Net Income (Loss) by the weighted average number of shares outstanding during the period. Adjusted Diluted EPS is calculated by dividing Adjusted Net Income (Loss) by the weighted average number of common shares outstanding, assuming the conversion of all dilutive securities were exercised during the period. Management uses Adjusted Basic EPS and Adjusted Diluted EPS to measure the underlying financial performance of the business on a consistent basis over time.

Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Adjusted EBITDA excluding PAW Patrol: The Movie Distribution Revenue divided by Revenue, excluding PAW Patrol: The Movie Distribution Revenue. Management uses Adjusted EBITDA Margin excluding PAW Patrol: The Movie Distribution Revenue to evaluate the Company’s performance compared to internal targets and to benchmark its performance against key competitors on a consistent basis over time.

Reconciliation of Non-GAAP Financial Measures

The following table presents a reconciliation of Operating Income to Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income, and cash used in operating activities and investing activities to Free Cash Flow for the three months ended June 30, 2023 and 2022:

The following table presents a reconciliation of Operating Income to Adjusted Operating Income, Adjusted EBITDA, Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue, Adjusted Net Income, and cash from operating activities to Free Cash Flow for the six months ended June 30, 2023 and 2022:

The following tables present reconciliations of Revenue to Constant Currency Toy Gross Product Sales, Revenue to Constant Currency Digital Games revenue, Revenue to Constant Currency Entertainment Revenue, and Revenue to Constant Currency Revenue for the three and six months ended June 30, 2023, and 2022:

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 Entertainment Revenue, and Percentage change in Constant Currency Revenue for the three and six months ended June 30, 2023 and 2022:

Segment Results

The Company’s results from operations by reportable segment for the three months ended June 30, 2023 and 2022 are as follows:

SOURCE Spin Master Corp.

Sophia Bisoukis, Vice President, Investor Relations, sophiab@spinmaster.com