Spin Master Reports Third Quarter 2023 Financial Results
Toronto, Canada – Spin Master Corp. announced its financial results for the three and nine months ended September 30, 2023. The Company’s full Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2023 is available under the Company’s profile on SEDAR+ (www.sedarplus.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 delivered a strong third quarter with increased revenue across all our three creative centres,” said Max Rangel, Spin Master’s Global President & CEO. “Digital Games and Entertainment revenue in particular grew double digits for the quarter, highlighting the strength of our diversified platform. Digital Games revenue has now returned to growth on year-to-date basis. At the box office, our second theatrical release of our preschool powerhouse, PAW Patrol, captured the #1 position globally. We secured a major new toy licence for Paramount’s Dora the Explorer. In Digital Games, we launched PAW Patrol Academy to complement the movie launch, while Sago Mini introduced Piknik, our value-added subscription app bundle and we saw increased player engagement in Toca Life World. Just after the quarter, we were very pleased to announce the planned acquisition of Melissa & Doug, a trusted brand and our largest acquisition to date, which is highly strategic and will significantly expand our offering into early childhood play. Looking forward, pressure on the toy industry is expected in the fourth quarter as a result of economic headwinds, which has reduced consumer spend. As macroeconomic pressure continues, we have seen POS and orders for toys slow down, particularly from mid-October. We expect this trend to persist for the remainder of 2023. Our team remains focused on executing our long-term growth strategy and we continue to invest and make significant progress by leveraging our deep expertise in play, well-established global network, and innovation capability to inspire future generations and unlock growth.”
“Our results in the third quarter reflect the diversified nature of our three creative centre revenue streams. We executed well across the business and are particularly pleased with our operating profitability in the quarter, delivering Adjusted EBITDA of just under $235 million at a 33% Adjusted EBITDA margin” said Mark Segal, Spin Master’s CFO. “Regarding our planned acquisition of Melissa & Doug, by combining two profitable companies, we expect to unlock significant value for our shareholders. The acquisition represents a strategic deployment of our balance sheet while preserving financial flexibility for strategic initiatives and potential future acquisitions. As a result of the macroeconomic pressure we are seeing in Q4, we are lowering our top line outlook for 2023. However, we remain confident in our ability to execute with high levels of operational discipline and navigate retailer and consumer dynamics and we are pleased to raise our outlook for Adjusted EBITDA margin.”
Consolidated Financial Highlights for Q3 2023 as compared to the same period in 2022
- Revenue was $710.2 million, an increase of 13.8% from $624.0 million. Constant Currency Revenue1 was $700.3 million, an increase of 12.2%, from $624.0 million.
- Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 of $15.6 million was $694.6 million, an increase of $70.6 million or 11.3% from $624.0 million.
- Revenue by operating segment reflected a 71.4% increase in Entertainment, a 30.9% increase in Digital Games and an 8.9% increase in Toys.
- Operating Income was $197.2 million compared to $187.4 million.
- Operating Margin was 27.8% compared to 30.0%.
- Adjusted Operating Income1 was $190.2 million compared to $151.8 million.
- Adjusted Operating Margin1 was 26.8% compared to 24.3%.
- Net Income was $155.4 million or $1.45 per share (diluted) compared to $141.4 million or $1.33 per share (diluted).
- Adjusted Net Income1 was $143.6 million or $1.34 per share (diluted) compared to $114.4 million or $1.08 per share (diluted).
- Adjusted EBITDA1 was $234.9 million compared to $167.6 million, an increase of $67.3 million or 40.2%. Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 was $219.3 million, an increase of $51.7 million or 30.8% from $167.6 million.
- Adjusted EBITDA Margin1 was 33.1% compared to 26.9%. Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 was 31.6%.
- Cash provided by operating activities was $144.3 million compared to $207.4 million.
- Free Cash Flow1 was $118.9 million compared to $175.3 million.
- Subsequent to September 30, 2023, the Company declared a quarterly dividend of CA$0.06 per outstanding subordinate voting share and multiple voting share, payable on January 12, 2024.
- On October 11, 2023, the Company announced it reached a definitive agreement to acquire U.S.-based Melissa & Doug for $950 million in cash. Additional contingent consideration of up to $150 million is subject to exceeding certain financial targets for 2024 and 2025. Spin Master plans to finance the $950 million purchase price with approximately $450 million cash and $500 million in debt financing. The acquisition is expected to close early in the first quarter of 2024 subject to customary regulatory approval and closing conditions.
- The Company updates full year 2023 Outlook.
Consolidated Financial Highlights for the nine months ended September 30, 2023 as compared to the same period in 2022
- Revenue was $1,402.3 million, down 9.8% from $1,554.5 million. Constant Currency Revenue1 decreased by 10.2% to $1,395.8 million from $1,554.5 million.
- Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 of $15.6 million was $1,386.7 million, a decrease of $167.8 million or 10.8% from $1,554.5 million.
- Revenue by operating segment reflected a decline of 15.4% in Toys, partially offset by increases of 54.0% in Entertainment and 5.8% in Digital Games.
- Operating Income was $225.5 million compared to $367.3 million. The decrease in Operating Income was primarily driven by the decrease in Toy revenue.
- Operating Margin was 16.1% compared to 23.6%.
- Adjusted Operating Income1 was $265.5 million compared to $326.7 million.
- Adjusted Operating Margin1 was 18.9% compared to 21.0%.
- Net Income was $181.5 million or $1.72 per share (diluted) compared to $275.1 million or $2.59 per share (diluted).
- Adjusted Net Income1 was $204.7 million or $1.94 per share (diluted) compared to $244.3 million or $2.30 per share (diluted).
- Adjusted EBITDA1 was $353.9 million compared to $377.0 million, a decrease of $23.1 million or 6.1%. Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 was $338.3 million, a decrease of $38.7 million or 10.3% from $377.0 million.
- Adjusted EBITDA Margin1 was 25.2% compared to 24.3%. Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 was 24.4%.
- Cash provided by operating activities was $159.1 million compared to $256.1 million.
- Free Cash Flow1 was $78.6 million compared to $180.0 million.
- During the second quarter of 2023, the Company acquired assets from a games and puzzles company for purchase consideration of $3.3 million. During the first quarter of 2023, the Company acquired certain assets from 4D Brands International Inc. for total purchase consideration of $18.9 million and acquired the HEXBUG brand of toys from Innovation First International, Inc., for total purchase consideration of $14.6 million.
- During the nine months ended September 30, 2023, the Company incurred restructuring expenses of $14.3 million ($0.14 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 $10.5 million.
Consolidated Financial Results as compared to the same period in 2022
|
(US$ millions, except per share information) |
Nine Months Ended Sep 30 |
|||||
|
Q3 2023 |
Q3 2022 |
$ Change |
2023 |
2022 |
$ Change |
|
|
Consolidated Results |
||||||
|
Revenue |
$ 710.2 |
$ 624.0 |
$ 86.2 |
$ 1,402.3 |
$ 1,554.5 |
$ (152.2) |
|
Revenue, excluding PAW Patrol: The Mighty Movie1 |
$ 694.6 |
$ 624.0 |
$ 70.6 |
$ 1,386.7 |
$ 1,554.5 |
$ (167.8) |
|
Constant Currency Revenue1 |
$ 700.3 |
$ 76.3 |
$ 1,395.8 |
$ (158.7) |
||
|
Operating Income |
$ 197.2 |
$ 187.4 |
$ 9.8 |
$ 225.5 |
$ 367.3 |
$ (141.8) |
|
Operating Margin |
27.8 % |
30.0 % |
16.1 % |
23.6 % |
||
|
Adjusted Operating Income1,2 |
$ 190.2 |
$ 151.8 |
$ 38.4 |
$ 265.5 |
$ 326.7 |
$ (61.2) |
|
Adjusted Operating Margin1 |
26.8 % |
24.3 % |
18.9 % |
21.0 % |
||
|
Net Income |
$ 155.4 |
$ 141.4 |
$ 14.0 |
$ 181.5 |
$ 275.1 |
$ (93.6) |
|
Adjusted Net Income1,2 |
$ 143.6 |
$ 114.4 |
$ 29.2 |
$ 204.7 |
$ 244.3 |
$ (39.6) |
|
Adjusted EBITDA1,2 |
$ 234.9 |
$ 167.6 |
$ 67.3 |
$ 353.9 |
$ 377.0 |
$ (23.1) |
|
Adjusted EBITDA Margin1 |
33.1 % |
26.9 % |
25.2 % |
24.3 % |
||
|
Earnings Per Share (“EPS”) |
||||||
|
Basic EPS |
$ 1.50 |
$ 1.37 |
$ 1.75 |
$ 2.67 |
||
|
Diluted EPS |
$ 1.45 |
$ 1.33 |
$ 1.72 |
$ 2.59 |
||
|
Adjusted Basic EPS1 |
$ 1.39 |
$ 1.11 |
$ 1.98 |
$ 2.37 |
||
|
Adjusted Diluted EPS1 |
$ 1.34 |
$ 1.08 |
$ 1.94 |
$ 2.30 |
||
|
Weighted average number of shares (in millions) |
||||||
|
Basic |
103.6 |
102.9 |
103.4 |
102.9 |
||
|
Diluted |
107.3 |
106.3 |
105.3 |
106.3 |
||
|
Selected Cash Flow Data |
||||||
|
Cash provided by operating activities |
$ 144.3 |
$ 207.4 |
$ (63.1) |
$ 159.1 |
$ 256.1 |
$ (97.0) |
|
Cash used in investing activities |
$ (25.1) |
$ (42.3) |
$ 17.2 |
$ (112.0) |
$ (81.0) |
$ (31.0) |
|
Cash used in financing activities |
$ (8.4) |
$ (4.1) |
$ (4.3) |
$ (35.9) |
$ (11.8) |
$ (24.1) |
|
Free Cash Flow1 |
$ 118.9 |
$ 175.3 |
$ (56.4) |
$ 78.6 |
$ 180.0 |
$ (101.4) |
|
1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. |
||||||
|
2 Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details on the adjustments for Q3 2023 and the nine months ended September 30, 2023. |
||||||
Segmented Financial Results as compared to the same period in 2022
|
(US$ millions) |
Q3 2023 |
Q3 2022 |
||||||||
|
Toys |
Entertainment |
Digital |
Corporate |
Total |
Toys |
Entertainment |
Digital |
Corporate |
Total |
|
|
Revenue |
$ 601.5 |
$ 63.4 |
$ 45.3 |
$ — |
$ 710.2 |
$ 552.4 |
$ 37.0 |
$ 34.6 |
$ — |
$ 624.0 |
|
Operating Income |
$ 149.0 |
$ 23.3 |
$ 13.6 |
$ 11.3 |
$ 197.2 |
$ 109.4 |
$ 28.9 |
$ 8.2 |
$ 40.9 |
187.4 |
|
Adjusted Operating Income2 |
$ 154.0 |
$ 24.0 |
$ 15.5 |
$ (3.3) |
$ 190.2 |
$ 115.3 |
$ 29.2 |
$ 10.0 |
$ (2.7) |
$ 151.8 |
|
Adjusted EBITDA2 |
$ 166.8 |
$ 53.8 |
$ 17.6 |
$ (3.3) |
$ 234.9 |
$ 126.9 |
$ 31.7 |
$ 11.7 |
$ (2.7) |
$ 167.6 |
|
1 Corporate & Other includes certain corporate costs, foreign exchange and merger and acquisition-related costs, as well as fair value gains and losses. |
||||||||||
|
2 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. |
||||||||||
Toys Segment Results
The following table provides a summary of the Toys segment operating results, for the three months ended September 30, 2023 and 2022:
|
(US$ millions) |
Q3 2023 |
Q3 2022 |
$ Change |
% Change |
|
Preschool and Dolls & Interactive |
$ 347.7 |
$ 284.7 |
$ 63.0 |
22.1 % |
|
Activities, Games & Puzzles and Plush |
$ 172.4 |
$ 175.6 |
$ (3.2) |
(1.8) % |
|
Wheels & Action |
$ 151.2 |
$ 145.3 |
$ 5.9 |
4.1 % |
|
Outdoor |
$ 7.3 |
$ 12.1 |
$ (4.8) |
(39.7) % |
|
Toy Gross Product Sales1 |
$ 678.6 |
$ 617.7 |
$ 60.9 |
9.9 % |
|
Constant Currency Toy Gross Product Sales1 |
$ 665.1 |
$ 47.4 |
7.7 % |
|
|
Sales Allowances2 |
$ (77.1) |
$ (65.3) |
$ (11.8) |
18.1 % |
|
Sales Allowances % of GPS |
11.4 % |
10.6 % |
0.8 % |
|
|
Toy revenue |
$ 601.5 |
$ 552.4 |
$ 49.1 |
8.9 % |
|
Operating Income |
$ 149.0 |
$ 109.4 |
$ 39.6 |
36.2 % |
|
Operating Margin3 |
24.8 % |
19.8 % |
5.0 % |
|
|
Adjusted EBITDA1 |
$ 166.8 |
$ 126.9 |
$ 39.9 |
31.4 % |
|
Adjusted EBITDA Margin1 |
27.7 % |
23.0 % |
4.7 % |
|
1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. |
||||
|
2 The Company enters into arrangements to provide sales allowances requested by customers relating to cooperative advertising, contractual and negotiated discounts, volume rebates, markdowns, and costs incurred by customers to sell the Company’s products. |
||||
|
3 Operating Margin is calculated as segment Operating Income divided by segment Revenue. |
- Toy revenue increased by $49.1 million or 8.9% to $601.5 million.
- Toy Gross Product Sales1 grew by $60.9 million or 9.9%, to $678.6 million from $617.7 million. Constant Currency Toy Gross Product Sales1 grew by $47.4 million or 7.7% to $665.1 million, up from $617.7 million.
- The increase in Toy Gross Product Sales1 was a result of higher order volume in comparison to the prior year. Toy Gross Product Sales1 in Q3 2023 increased as customers focused on increasing their retail inventory levels in anticipation of the holiday season consistent with historical seasonality of the business. Toy Gross Product Sales1 in Q3 2022 were lower due to the acceleration of customer shipments into the first half of 2022 due to then anticipated global logistics and supply chain issues.
- Sales Allowances increased by $11.8 million to $77.1 million. As a percentage of Toy Gross Product Sales1, Sales Allowances increased by 0.8% to 11.4% from 10.6%, primarily driven by geographic and customer mix.
- Operating Income increased by $39.6 million to $149.0 million compared to $109.4 million.
- Operating Margin was 24.8% compared to 19.8%.
- Adjusted EBITDA Margin1 was 27.7% compared to 23.0%. The improvement in Operating Margin and Adjusted EBITDA Margin1 was driven primarily by improved gross margin and lower administrative, marketing, product development, distribution and selling expenses.
Entertainment Segment Results
The following table provides a summary of Entertainment segment operating results, for the three months ended September 30, 2023 and 2022:
|
(US$ millions) |
Q3 2023 |
Q3 2022 |
$ Change |
% Change |
|
Entertainment revenue |
$ 63.4 |
$ 37.0 |
$ 26.4 |
71.4 % |
|
Operating Income |
$ 23.3 |
$ 28.9 |
$ (5.6) |
(19.4) % |
|
Operating Margin |
36.8 % |
78.1 % |
(41.3) % |
|
|
Adjusted Operating Income1 |
$ 24.0 |
$ 29.2 |
$ (5.2) |
(17.8) % |
|
Adjusted Operating Margin1 |
37.9 % |
78.9 % |
(41.0) % |
|
|
1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. |
||||
- Entertainment revenue increased by $26.4 million or 71.4% to $63.4 million, due to higher distribution revenue from new content deliveries including PAW Patrol: The Mighty Movie ($15.6 million), Unicorn Academy, Rubble & Crew and Vida the Vet, partially offset by lower licensing and merchandising revenue. Constant Currency Entertainment Revenue1 increased by $26.3 million or 71.1% to $63.3 million, from $37.0 million.
- Operating Margin decreased by 41.3% from 78.1% to 36.8% and Adjusted Operating Margin1 decreased by 41.0% from 78.9% to 37.9%, primarily due to the amortization of production costs from additional content deliveries, including Unicorn Academy and $11.0 million for PAW Patrol: The Mighty Movie.
Digital Games Segment Results
The following table provides a summary of Digital Games segment operating results, for the three months ended September 30, 2023 and 2022:
|
(US$ millions) |
Q3 2023 |
Q3 2022 |
$ Change |
% Change |
|
Digital Games revenue |
$ 45.3 |
$ 34.6 |
$ 10.7 |
30.9 % |
|
Operating Income |
$ 13.6 |
$ 8.2 |
$ 5.4 |
65.9 % |
|
Operating Margin |
30.0 % |
23.7 % |
6.3 % |
|
|
Adjusted Operating Income1 |
$ 15.5 |
$ 10.0 |
$ 5.5 |
55.0 % |
|
Adjusted Operating Margin1 |
34.2 % |
28.9 % |
5.3 % |
|
|
1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. |
||||
- Digital Games revenue increased by $10.7 million or 30.9% to $45.3 million from higher in-game purchases in Toca Life World. Constant Currency Digital Games Revenue1 increased by $11.0 million or 31.8% to $45.6 million, up from $34.6 million.
- Operating Margin increased by 6.3% from 23.7% to 30.0% and Adjusted Operating Margin1 increased by 5.3% from 28.9% to 34.2% due to lower marketing and administrative expenses.
Liquidity and Capitalization
For the nine months ended September 30, 2023, cash flows provided by operating activities were $159.1 million, compared to $256.1 million in the prior year, the decrease was driven by lower Operating Income and the change in non-cash working capital (increase in trade receivables partially offset by a decrease in trade payables).
For the nine months ended September 30, 2023, Free Cash Flow1 was $78.6 million compared to $180.0 million, primarily due to lower Operating Income, the change in non-cash working capital (increase in trade receivables partially offset by a decrease in trade payables) and higher investment in intangible assets and property, plant, and equipment.
As at September 30, 2023, the Company had unutilized liquidity of $1,159.3 million, comprised of $650.7 million in Cash and cash equivalents and $508.6 million under the Company’s credit facilities.
The weighted average basic and diluted shares outstanding as at September 30, 2023 were 103.4 million and 105.3 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$0.06 per outstanding subordinate voting share and multiple voting share, payable on January 12, 2024 to shareholders of record at the close of business on December 29, 2023. The dividend is designated to be an eligible dividend for purposes of section 89(1) of the Income Tax Act (Canada).
Outlook
The Company now expects 2023 Toy Gross Product Sales1 to be down high single digits compared to 2022, as compared to flat to slightly down announced on August 2, 2023.
The Company now expects 2023 Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 to be down mid-single digits compared to 2022, as compared to flat announced on August 2, 2023.
The Company now expects 2023 Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 to be up compared to 2022, as compared to flat to slightly up announced on August 2, 2023.
|
__________________ |
|
1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”. |
Spin Master Corp.
Condensed consolidated interim statements of financial position
|
Sep 30, |
Dec 31, |
|
|
(Unaudited, in US$ millions) |
2023 |
2022 |
|
Assets |
||
|
Current assets |
||
|
Cash and cash equivalents |
650.7 |
644.3 |
|
Trade receivables, net |
442.8 |
311.0 |
|
Other receivables |
59.3 |
49.5 |
|
Inventories, net |
153.3 |
105.1 |
|
Prepaid expenses and other assets |
38.2 |
22.3 |
|
1,344.3 |
1,132.2 |
|
|
Non-current assets |
||
|
Intangible assets |
295.9 |
279.8 |
|
Goodwill |
191.0 |
179.0 |
|
Right-of-use assets |
54.8 |
62.9 |
|
Property, plant and equipment |
36.4 |
36.0 |
|
Deferred income tax assets |
91.4 |
94.7 |
|
Other assets |
23.4 |
20.5 |
|
692.9 |
672.9 |
|
|
Total assets |
2,037.2 |
1,805.1 |
|
Liabilities |
||
|
Current liabilities |
||
|
Trade payables and accrued liabilities |
433.3 |
339.4 |
|
Deferred revenue |
4.5 |
11.5 |
|
Provisions |
29.9 |
30.7 |
|
Income tax payable |
14.1 |
29.7 |
|
Lease liabilities |
14.4 |
16.3 |
|
496.2 |
427.6 |
|
|
Non-current liabilities |
||
|
Provisions |
20.2 |
15.1 |
|
Deferred income tax liabilities |
57.9 |
55.7 |
|
Lease liabilities |
48.9 |
54.9 |
|
127.0 |
125.7 |
|
|
Total liabilities |
623.2 |
553.3 |
|
Shareholders’ equity |
||
|
Share capital |
781.4 |
754.7 |
|
Retained earnings |
639.1 |
477.4 |
|
Contributed surplus |
24.7 |
40.7 |
|
Accumulated other comprehensive loss |
(31.2) |
(21.0) |
|
Total shareholders’ equity |
1,414.0 |
1,251.8 |
|
Total liabilities and shareholders’ equity |
2,037.2 |
1,805.1 |
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 2023 |
Q3 2022 |
2023 |
2022 |
|
Revenue |
710.2 |
624.0 |
1,402.3 |
1,554.5 |
|
Cost of sales |
323.3 |
273.6 |
625.9 |
683.1 |
|
Gross profit |
386.9 |
350.4 |
776.4 |
871.4 |
|
Expenses |
||||
|
Selling, general and administrative |
202.1 |
195.3 |
530.9 |
544.3 |
|
Depreciation and amortization |
6.0 |
7.1 |
18.3 |
21.8 |
|
Other expense, net |
0.8 |
4.1 |
5.2 |
4.2 |
|
Foreign exchange gain, net |
(19.2) |
(43.5) |
(3.5) |
(66.2) |
|
Operating Income |
197.2 |
187.4 |
225.5 |
367.3 |
|
Interest income |
(7.2) |
(3.5) |
(20.4) |
(5.2) |
|
Interest expense |
4.8 |
3.9 |
11.2 |
9.8 |
|
Income before income tax expense |
199.6 |
187.0 |
234.7 |
362.7 |
|
Income tax expense |
44.2 |
45.6 |
53.2 |
87.6 |
|
Net Income |
155.4 |
141.4 |
181.5 |
275.1 |
|
Earnings per share |
||||
|
Basic |
1.50 |
1.37 |
1.75 |
2.67 |
|
Diluted |
1.45 |
1.33 |
1.72 |
2.59 |
|
Weighted average number of shares (in millions) |
||||
|
Basic |
103.6 |
102.9 |
103.4 |
102.9 |
|
Diluted |
107.3 |
106.3 |
105.3 |
106.3 |
|
Nine Months Ended Sep 30, |
||||
|
(Unaudited, in US$ millions) |
Q3 2023 |
Q3 2022 |
2023 |
2022 |
|
Net Income |
155.4 |
141.4 |
181.5 |
275.1 |
|
Items that may be subsequently reclassified to Net Income |
||||
|
Foreign currency translation loss |
(30.5) |
(70.8) |
(10.2) |
(101.3) |
|
Items that are not subsequently reclassified to Net Income |
||||
|
Gain on Minority interest and other investments |
— |
— |
— |
0.1 |
|
Other comprehensive loss |
(30.5) |
(70.8) |
(10.2) |
(101.2) |
|
Total comprehensive income |
124.9 |
70.6 |
171.3 |
173.9 |
Spin Master Corp.
Condensed consolidated interim statements of cash flows
|
Nine Months Ended Sep 30, |
||
|
(Unaudited, in US$ millions) |
2023 |
2022 |
|
Operating activities |
||
|
Net Income |
181.5 |
275.1 |
|
Adjustments to reconcile Net Income to cash provided by operating activities |
||
|
Income tax expense |
53.2 |
87.6 |
|
Interest income |
(20.4) |
(5.2) |
|
Depreciation and amortization |
88.4 |
50.3 |
|
Loss on disposal of non-current assets |
1.0 |
1.2 |
|
Accretion expense on lease liabilities and non-current provisions |
3.9 |
4.1 |
|
Amortization of Facility fee costs |
0.3 |
0.3 |
|
Gain on investment in limited partnership, net |
(0.3) |
(0.2) |
|
Impairment of non-current assets |
3.6 |
1.0 |
|
Loss on Minority interest and other investments |
— |
0.5 |
|
Unrealized foreign exchange loss (gain), net |
8.3 |
(57.7) |
|
Share-based compensation expense |
15.4 |
12.9 |
|
Net changes in non-cash working capital |
(131.9) |
(65.8) |
|
Net change in non-cash provisions and other assets |
(0.7) |
6.1 |
|
Income taxes paid |
(64.1) |
(62.0) |
|
Income taxes received |
0.6 |
3.9 |
|
Interest received |
20.3 |
4.0 |
|
Cash provided by operating activities |
159.1 |
256.1 |
|
Investing activities |
||
|
Investment in property, plant and equipment |
(22.3) |
(22.9) |
|
Investment in intangible assets |
(61.5) |
(53.2) |
|
Business acquisitions |
(26.5) |
(10.2) |
|
Investment distribution income |
0.3 |
0.1 |
|
Minority interest and other investments |
(2.0) |
(4.0) |
|
Proceeds from sale of manufacturing operations |
— |
9.2 |
|
Cash used in investing activities |
(112.0) |
(81.0) |
|
Financing activities |
||
|
Payment of lease liabilities |
(11.4) |
(11.9) |
|
Dividends paid |
(14.0) |
— |
|
Proceeds from issuance of common shares from exercise of share options |
— |
0.1 |
|
Repurchase of subordinate voting shares under the NCIB |
(10.5) |
— |
|
Cash used in financing activities |
(35.9) |
(11.8) |
|
Effect of foreign currency exchange rate changes on cash and cash equivalents |
(4.8) |
(51.1) |
|
Net increase in cash and cash equivalents during the period |
6.4 |
112.2 |
|
Cash and cash equivalents, beginning of period |
644.3 |
562.7 |
|
Cash and cash equivalents, end of period |
650.7 |
674.9 |
Reconciliation of Non-GAAP Financial Measures
The following table presents a reconciliation of Operating Income to Adjusted Operating Income, Adjusted EBITDA, Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue, Adjusted Net Income, and cash used in operating activities and investing activities to Free Cash Flow for the three months ended September 30, 2023 and 2022:
|
(in US$ millions) |
Q3 2023 |
Q3 2022 |
$ Change |
% Change |
|
|
Operating Income |
197.2 |
187.4 |
9.8 |
5.2 % |
|
|
Adjustments: |
|||||
|
Share based compensation1 |
5.1 |
4.3 |
0.8 |
18.6 % |
|
|
Foreign exchange gain2 |
(19.2) |
(43.5) |
24.3 |
(55.9) % |
|
|
Restructuring and other related costs3 |
0.8 |
— |
0.8 |
n.m. |
|
|
Acquisition related deferred incentive compensation4 |
1.8 |
2.8 |
(1.0) |
(35.7) % |
|
|
Impairment of intangible assets5 |
0.2 |
— |
0.2 |
n.m. |
|
|
Transaction costs6 |
5.2 |
0.3 |
4.9 |
n.m. |
|
|
Legal settlement recovery7 |
(0.7) |
— |
(0.7) |
n.m. |
|
|
Net realized gain on investment8 |
(0.2) |
— |
(0.2) |
n.m. |
|
|
Acquisition related contingent consideration9 |
— |
(0.5) |
0.5 |
(100.0) |
|
|
Adjusted Operating Income |
190.2 |
151.8 |
38.4 |
25.3 % |
|
|
Depreciation and amortization |
44.7 |
15.8 |
28.9 |
182.9 % |
|
|
Adjusted EBITDA |
234.9 |
167.6 |
67.3 |
40.2 % |
|
|
Distribution revenue related to PAW Patrol: The Mighty Movie |
(15.6) |
— |
(15.6) |
n.m. |
|
|
Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue |
219.3 |
167.6 |
51.7 |
30.8 % |
|
|
Income tax expense |
(44.2) |
(45.6) |
1.4 |
(3.1) % |
|
|
Interest income (expense) |
2.4 |
(0.4) |
2.8 |
(700.0) % |
|
|
Depreciation and amortization |
(44.7) |
(15.8) |
(28.9) |
182.9 % |
|
|
One-time income tax recovery10 |
(6.6) |
— |
(6.6) |
n.m. |
|
|
Tax effect of normalization adjustments11 |
1.8 |
8.6 |
(6.8) |
(79.1) % |
|
|
Adjusted Net Income |
143.6 |
114.4 |
29.2 |
25.5 % |
|
|
Cash provided by operating activities |
144.3 |
207.4 |
(63.1) |
(30.4) % |
|
|
Cash used in investing activities |
(25.1) |
(42.3) |
17.2 |
(40.7) % |
|
|
Add: |
|||||
|
Cash provided by business acquisitions, asset acquisitions, and investment in limited partnership and Minority interest and other investments, net of investment distribution income |
(0.3) |
10.2 |
(10.5) |
(102.9) % |
|
|
Free Cash Flow |
118.9 |
175.3 |
(56.4) |
(32.2) % |
|
|
________________________________ |
|
1 Related to non-cash expenses associated with the Company’s share option expense and long-term incentive plan. |
The following table presents a reconciliation of Operating Income to Adjusted Operating Income, Adjusted EBITDA, Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue, Adjusted Net Income, and cash from operating activities to Free Cash Flow for the nine months ended September 30, 2023 and 2022:
|
Nine Months Ended Sep 30 |
|||||
|
(in US$ millions) |
2023 |
2022 |
$ Change |
% Change |
|
|
Operating Income |
225.5 |
367.3 |
(141.8) |
(38.6) % |
|
|
Restructuring and other related costs1 |
14.3 |
5.1 |
9.2 |
180.4 % |
|
|
Foreign exchange gain2 |
(3.5) |
(66.2) |
62.7 |
(94.7) % |
|
|
Share based compensation3 |
15.3 |
12.9 |
2.4 |
18.6 % |
|
|
Impairment of goodwill4 |
1.0 |
— |
1.0 |
n.m. |
|
|
Impairment of property, plant and equipment5 |
0.2 |
1.0 |
(0.8) |
(80.0) |
|
|
Impairment of intangible assets6 |
2.4 |
— |
2.4 |
n.m. |
|
|
Legal settlement recovery7 |
(0.5) |
(2.1) |
1.6 |
(76.2) % |
|
|
Acquisition related deferred incentive compensation8 |
6.0 |
8.1 |
(2.1) |
(25.9) % |
|
|
Net unrealized gain on investment9 |
(0.3) |
(0.1) |
(0.2) |
200.0 % |
|
|
Net realized gain on investment10 |
(0.1) |
(0.1) |
— |
— % |
|
|
Loss on Minority interest and other investments11 |
— |
0.5 |
(0.5) |
(100.0) % |
|
|
Acquisition related contingent consideration12 |
(2.1) |
(0.5) |
(1.6) |
320.0 % |
|
|
Transaction costs13 |
7.3 |
0.8 |
6.5 |
812.5 % |
|
|
Adjusted Operating Income |
265.5 |
326.7 |
(61.2) |
(18.7) % |
|
|
Depreciation and amortization |
88.4 |
50.3 |
38.1 |
75.7 % |
|
|
Adjusted EBITDA |
353.9 |
377.0 |
(23.1) |
(6.1) % |
|
|
Distribution revenue related to PAW Patrol: The Mighty Movie |
(15.6) |
— |
(15.6) |
n.m. |
|
|
Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue |
338.3 |
377.0 |
(38.7) |
(10.3) % |
|
|
Income tax expense |
(53.2) |
(87.6) |
34.4 |
(39.3) % |
|
|
Interest income (expense) |
9.2 |
(4.6) |
13.8 |
(300.0) % |
|
|
Depreciation and amortization |
(88.4) |
(50.3) |
(38.1) |
75.7 % |
|
|
One-time income tax recovery14 |
(6.6) |
— |
(6.6) |
n.m. |
|
|
Tax effect of adjustments15 |
(10.2) |
9.8 |
(20.0) |
(204.1) % |
|
|
Adjusted Net Income |
204.7 |
244.3 |
(39.6) |
(16.2) % |
|
|
Cash provided by operating activities |
159.1 |
256.1 |
(97.0) |
(37.9) % |
|
|
Cash used in investing activities |
(112.0) |
(81.0) |
(31.0) |
38.3 % |
|
|
Add: |
|||||
|
Cash provided by (used in) business acquisitions, asset acquisitions, investment in limited partnership and Minority interest and other investments and trademark license agreement, net of investment distribution income |
31.5 |
4.9 |
26.6 |
542.9 % |
|
|
Free Cash Flow |
78.6 |
180.0 |
(101.4) |
(56.3) % |
|
|
___________________________ |
|
1 Restructuring expense in the current year relates to the reduction in the Company’s global workforce and closure of its manufacturing facility in Calais, France. Prior year comparison relates to changes in personnel. |
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 nine months ended September 30, 2023, and 2022:
|
Nine Months Ended Sep 30, |
||||
|
(US$ millions) |
Q3 2023 |
Q3 2022 |
2023 |
2022 |
|
Constant Currency Toy Gross Product Sales |
665.1 |
640.5 |
1,272.4 |
1,533.2 |
|
Impact of foreign exchange |
13.5 |
(22.8) |
12.5 |
(33.6) |
|
Toy Gross Product Sales |
678.6 |
617.7 |
1,284.9 |
1,499.6 |
|
Constant Currency Sales Allowances |
(73.7) |
(71.6) |
(147.6) |
(167.4) |
|
Impact of foreign exchange |
(3.4) |
6.3 |
(3.2) |
8.7 |
|
Sales Allowances |
(77.1) |
(65.3) |
(150.8) |
(158.7) |
|
Toy revenue |
601.5 |
552.4 |
1,134.1 |
1,340.9 |
|
Constant Currency Entertainment revenue |
63.3 |
38.6 |
134.9 |
90.3 |
|
Impact of foreign exchange |
0.1 |
(1.6) |
— |
(2.7) |
|
Entertainment revenue |
63.4 |
37.0 |
134.9 |
87.6 |
|
Constant Currency Digital Games revenue |
45.6 |
36.2 |
136.1 |
131.9 |
|
Impact of foreign exchange |
(0.3) |
(1.6) |
(2.8) |
(5.9) |
|
Digital Games revenue |
45.3 |
34.6 |
133.3 |
126.0 |
|
Constant Currency Revenue |
700.3 |
643.7 |
1,395.8 |
1,588.0 |
|
Impact of foreign exchange |
9.9 |
(19.7) |
6.5 |
(33.5) |
|
Revenue |
710.2 |
624.0 |
1,402.3 |
1,554.5 |
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 nine months ended September 30, 2023 and 2022:
|
$ Change |
% Change |
||||||||
|
(US$ millions) |
Q3 2023 |
Q3 2022 |
As |
Impact of |
In Constant |
As |
In Constant |
||
|
Toy Gross Product Sales |
678.6 |
617.7 |
60.9 |
(13.5) |
47.4 |
9.9 % |
7.7 % |
||
|
Sales Allowances |
(77.1) |
(65.3) |
(11.8) |
3.4 |
(8.4) |
18.1 % |
12.9 % |
||
|
Toy revenue |
601.5 |
552.4 |
49.1 |
(10.1) |
39.0 |
8.9 % |
7.1 % |
||
|
Entertainment revenue |
63.4 |
37.0 |
26.4 |
(0.1) |
26.3 |
71.4 % |
71.1 % |
||
|
Digital Games revenue |
45.3 |
34.6 |
10.7 |
0.3 |
11.0 |
30.9 % |
31.8 % |
||
|
Revenue |
710.2 |
624.0 |
86.2 |
(9.9) |
76.3 |
13.8 % |
12.2 % |
||
|
Nine Months Ended Sep 30, |
$ Change |
% Change |
|||||||
|
(US$ millions) |
2023 |
2022 |
As |
Impact of |
In Constant |
As |
In Constant |
||
|
Toy Gross Product Sales |
1,284.9 |
1,499.6 |
(214.7) |
(12.5) |
(227.2) |
(14.3) % |
(15.2) % |
||
|
Sales Allowances |
(150.8) |
(158.7) |
7.9 |
3.2 |
11.1 |
(5.0) % |
(7.0) % |
||
|
Toy revenue |
1,134.1 |
1,340.9 |
(206.8) |
(9.3) |
(216.1) |
(15.4) % |
(16.1) % |
||
|
Entertainment revenue |
134.9 |
87.6 |
47.3 |
— |
47.3 |
54.0 % |
54.0 % |
||
|
Digital Games revenue |
133.3 |
126.0 |
7.3 |
2.8 |
10.1 |
5.8 % |
8.0 % |
||
|
Revenue |
1,402.3 |
1,554.5 |
(152.2) |
(6.5) |
(158.7) |
(9.8) % |
(10.2) % |
||
Segment Results
The Company’s results from operations by reportable segment for the three months ended September 30, 2023 and 2022 are as follows:
|
(US$ millions) |
Q3 2023 |
Q3 2022 |
||||||||
|
Toys |
Entertainment |
Digital |
Corporate |
Total |
Toys |
Entertainment |
Digital |
Corporate |
Total |
|
|
Revenue |
601.5 |
63.4 |
45.3 |
— |
710.2 |
552.4 |
37.0 |
34.6 |
— |
624.0 |
|
Operating Income |
149.0 |
23.3 |
13.6 |
11.3 |
197.2 |
109.4 |
28.9 |
8.2 |
40.9 |
187.4 |
|
Restructuring and other related costs |
0.6 |
0.1 |
0.1 |
— |
0.8 |
(0.1) |
— |
0.1 |
— |
— |
|
Foreign exchange loss gain |
— |
— |
— |
(19.2) |
(19.2) |
— |
— |
— |
(43.5) |
(43.5) |
|
Share based compensation |
3.7 |
0.4 |
0.7 |
0.3 |
5.1 |
3.0 |
0.3 |
0.5 |
0.5 |
4.3 |
|
Impairment of intangible assets |
— |
0.2 |
— |
— |
0.2 |
— |
— |
— |
— |
— |
|
Legal settlement recovery |
— |
— |
— |
(0.7) |
(0.7) |
— |
— |
— |
— |
— |
|
Acquisition related deferred incentive compensation |
0.7 |
— |
1.1 |
— |
1.8 |
1.6 |
— |
1.2 |
— |
2.8 |
|
Net realized gain on investment |
— |
— |
— |
(0.2) |
(0.2) |
— |
— |
— |
— |
— |
|
Acquisition related contingent consideration |
— |
— |
— |
— |
— |
0.4 |
— |
— |
(0.9) |
(0.5) |
|
Transaction costs |
— |
— |
— |
5.2 |
5.2 |
— |
— |
— |
0.3 |
0.3 |
|
Adjusted Operating Income |
154.0 |
24.0 |
15.5 |
(3.3) |
190.2 |
115.3 |
29.2 |
10.0 |
(2.7) |
151.8 |
|
Adjusted Operating Margin |
25.6 % |
37.9 % |
34.2 % |
n.m. |
26.8 % |
20.9 % |
78.9 % |
28.9 % |
n.m. |
24.3 % |
|
Depreciation and amortization |
12.8 |
29.8 |
2.1 |
— |
44.7 |
11.6 |
2.5 |
1.7 |
— |
15.8 |
|
Adjusted EBITDA |
166.8 |
53.8 |
17.6 |
(3.3) |
234.9 |
126.9 |
31.7 |
11.7 |
(2.7) |
167.6 |
|
Adjusted EBITDA Margin |
27.7 % |
84.9 % |
38.9 % |
n.m. |
33.1 % |
23.0 % |
85.7 % |
33.8 % |
n.m. |
26.9 % |
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