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Spin Master 4th Quarter and Full Year 2023 Financial Results image

Spin Master 4th Quarter and Full Year 2023 Financial Results

Toronto, Canada – Spin Master Corp.  announced its financial results for the three months and year ended December 31, 2023.

“We are very pleased with how our team navigated the challenging macroeconomic environment to deliver revenue growth across toys, entertainment, and digital games in the fourth quarter. Our Toys creative center grew in the fourth quarter, outperforming the global industry3 which declined,” said Max Rangel, Global President & CEO. “We harnessed the strength of our three creative centers to meet our full-year revenue expectations. While our Toy revenue declined for the full year compared to 2022, our POS remained ahead of the industry3 and we grew market share globally, by introducing innovation into the toy aisle, engaging fans of popular franchises both licensed and owned, and growing our evergreen brands to create magical play experiences for millions of children globally.

We saw strong increases in Entertainment from the PAW Patrol movie and the delivery of the Unicorn Academy series, and we grew Digital Games revenue, highlighting the power of our diversified portfolio to drive long-term growth. Looking forward, we are excited by the growth opportunities ahead of us across our three creative centers. In Toys, we will focus on integrating and growing Melissa & Doug, the leading brand in early childhood play, launching innovative licensed toy lines for Ms. Rachel, celebrating Rubik’s 50th anniversary, and driving innovation and performance across all our core toy brands. In Entertainment, we will build on the positive momentum from the PAW Patrol movie and drive our new Unicorn Academy and Vida the Vet franchises. In Digital Games, we will continue to grow Toca Life World and the Piknik subscription bundle, and focus on the launches of our new mobile digital games Toca Days and Rubik’s Match. We’re confident in the strength of our diversified global platform and portfolio of franchises, brands and games to create long-term growth and shareholder value.”

“We achieved $1.9 billion in revenue for 2023, generated a record $419 million in Adjusted EBITDA and ended the year with our highest ever available liquidity, including over $705 million in cash,” said Mark Segal, Spin Master’s Chief Financial Officer. “Just after the year end, we closed the acquisition of Melissa & Doug, which we are now integrating. Looking forward, we continue to maintain a strong balance sheet and cash flow generation capability, with the capacity to continue investing in innovation and strategic acquisitions. Our financial framework, grounded in our growth formula across our three creative centres, positions us both financially and operationally to achieve and sustain long-term, profitable growth.”

Consolidated Financial Highlights for Q4 2023 as compared to the same period in 2022

  • Revenue was $502.6 million, an increase of 7.9% from $465.8 million. Constant Currency Revenue1 was $493.9 million, an increase of 6.0%, from $465.8 million.
  • Revenue by operating segment reflected increases of 76.9% in Entertainment, 7.1% in Digital Games and 2.5% in Toys.
  • Toy Gross Product Sales1 was $502.3 million, an increase of $23.1 million or 4.8% from $479.2 million.
  • Operating Loss was $36.6 million compared to Operating Loss of $24.0 million.
  • Operating Margin2 was (7.3)% compared to (5.2)%.
  • Adjusted Operating Income1 was $23.2 million compared to Adjusted Operating Loss1 $5.5 million.
  • Adjusted Operating Margin1 was 4.6% compared to (1.2)%.
  • Net Loss was $30.1 million or $(0.29) per share compared to $13.8 million or $(0.13) per share.
  • Adjusted Net Income1 was $20.5 million or $0.19 per share (diluted) compared to $nil or $nil per share.
  • Adjusted EBITDA1 was $64.9 million compared to $12.4 million, an increase of $52.5 million or 423.4%.
  • Adjusted EBITDA Margin1 was 12.9% compared to 2.7%.
  • Cash provided by operating activities was $67.9 million compared to cash used of $6.8 million.
  • Free Cash Flow1 was $44.3 million compared to $(30.1) million.
  • Subsequent to December 31, 2023, the Company declared a quarterly dividend of CA$0.06 per outstanding subordinate voting share and multiple voting share, payable on April 12, 2024.
  • Effective January 1, 2024, the Company has changed its product categories to align with the Company’s product offerings going forward: (1) Preschool, Infant & Toddler and Plush; (2) Activities, Games & Puzzles and Dolls & Interactive; (3) Wheels & Action; and (4) Outdoor. (Refer to Addendum section for more details).
  • On January 2, 2024, the Company completed its previously announced acquisition of MND Holdings I Corp (“Melissa & Doug”) by acquiring all issued and outstanding capital stock. Melissa & Doug is a leading brand in early childhood play with offerings of open-ended, creative, and developmental toys. The acquisition will be reported in the Toys segment. Spin Master funded the $959.0 million preliminary purchase price with $434.0 million cash and $525.0 million in debt. (Refer to the Liquidity and Capitalization section for more details). In 2023 Melissa & Doug generated $364 million in revenue compared to $489 million in 2022. Melissa & Doug Adjusted EBITDA Margin1 was approximately 18.5% in 2023, consistent with 2022.

Consolidated Financial Highlights for the year ended December 31, 2023 as compared to the same period in 2022

  • Revenue was $1,904.9 million, down 5.7% from $2,020.3 million. Constant Currency Revenue1 decreased by 6.5% to $1,889.6 million from $2,020.3 million. Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 of $15.6 million was $1,889.3 million, a decrease of $131.0 million or 6.5% from $2,020.3 million.
  • Revenue by operating segment reflected a decline of 11.3% in Toys, partially offset by increases of 60.0% in Entertainment and 6.1% in Digital Games.
  • Toy Gross Product Sales1 was $1,787.2 million, a decrease of $191.6 million or 9.7% from $1,978.8 million.
  • Operating Income was $188.9 million compared to $343.3 million.
  • Operating Margin was 9.9% compared to 17.0%.
  • Adjusted Operating Income1 was $288.7 million compared to $321.2 million. The decline in Adjusted Operating Income1 was primarily driven by a decrease of $36.4 million in Toys, partially offset by increases of $4.2 million in Digital Games and $1.6 million in Entertainment.
  • Adjusted Operating Margin1 was 15.2% compared to 15.9%.
  • Net Income was $151.4 million or $1.43 per share (diluted) compared to $261.3 million or $2.45 per share (diluted).
  • Adjusted Net Income1 was $225.2 million or $2.13 per share (diluted) compared to $244.3 million or $2.30 per share (diluted).
  • Adjusted EBITDA1 was $418.8 million compared to $389.4 million, an increase of $29.4 million or 7.6%. Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 was $403.2 million, an increase of $13.8 million or 3.5% from $389.4 million.
  • Adjusted EBITDA Margin1 was 22.0% compared to 19.3%. Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 was 21.3%.
  • Cash provided by operating activities was $227.0 million compared to $249.3 million.
  • Free Cash Flow1 was $122.9 million compared to $149.9 million.
  • During the year ended December 31, 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 year ended December 31, 2023, the Company incurred restructuring expenses of $18.1 million ($0.17 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 year ended December 31, 2023, the Company repurchased and cancelled 397,700 subordinate voting shares through the Company’s Normal Course Issuer Bid (the “NCIB”) program for $10.5 million.

Consolidated Financial Results as compared to the same period in 2022

(US$ millions, except per share information)

Year Ended Dec 31

Q4 2023

Q4 2022

$ Change

2023

2022

$ Change

Consolidated Results

Revenue

$    502.6

$    465.8

$         36.8

$       1,904.9

$ 2,020.3

$     (115.4)

Revenue, excluding PAW Patrol: The Mighty Movie1

$       1,889.3

$ 2,020.3

$     (131.0)

Constant Currency Revenue1

$    493.9

$         28.1

$       1,889.6

$     (130.7)

Operating (Loss) Income

$    (36.6)

$    (24.0)

$        (12.6)

$          188.9

$   343.3

$     (154.4)

Operating Margin2

(7.3) %

(5.2) %

9.9 %

17.0 %

Adjusted Operating Income (Loss)1,3

$      23.2

$      (5.5)

$         28.7

$          288.7

$   321.2

$        (32.5)

Adjusted Operating Margin1

4.6 %

(1.2) %

15.2 %

15.9 %

Net (Loss) Income

$    (30.1)

$    (13.8)

$        (16.3)

$          151.4

$   261.3

$     (109.9)

Adjusted Net Income1,3

$      20.5

$         —

$         20.5

$          225.2

$   244.3

$        (19.1)

Adjusted EBITDA1,3

$      64.9

$      12.4

$         52.5

$          418.8

$   389.4

$         29.4

Adjusted EBITDA Margin1

12.9 %

2.7 %

22.0 %

19.3 %

Earnings Per Share (“EPS”)

Basic EPS

$    (0.29)

$    (0.13)

$            1.46

$      2.54

Diluted EPS

$    (0.29)

$    (0.13)

$            1.43

$      2.45

Adjusted Basic EPS1

$      0.20

$         —

$            2.18

$      2.37

Adjusted Diluted EPS1

$      0.19

$         —

$            2.13

$      2.30

Weighted average number of shares (in millions)

Basic

103.7

102.9

103.5

102.9

Diluted

106.2

106.5

105.7

106.4

Selected Cash Flow Data

Cash provided by (used in) operating activities

$      67.9

$      (6.8)

$         74.7

$          227.0

$   249.3

$        (22.3)

Cash used in investing activities

$    (23.3)

$    (28.2)

$           4.9

$        (135.3)

$  (109.2)

$        (26.1)

Cash used in financing activities

$      (8.2)

$      (8.5)

$           0.3

$          (44.1)

$    (20.3)

$        (23.8)

Free Cash Flow1

$      44.3

$    (30.1)

$         74.4

$          122.9

$   149.9

$        (27.0)

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

Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details on the adjustments for Q4 2023 and the year ended December 31, 2023. 

 

Segmented Financial Results as compared to the same period in 2022

(US$ millions)

Q4 2023

Q4 2022

Toys

Entertainment

Digital
Games

Corporate
& Other1

Total

Toys

Entertainment

Digital
Games

Corporate
& Other1

Total

Revenue

$    406.8

$            55.2

$      40.6

$          —

$   502.6

$    396.7

$           31.2

$      37.9

$          —

$   465.8

Operating (Loss) Income

$     (30.0)

$              9.7

$        9.7

$     (26.0)

$    (36.6)

$     (43.3)

$           19.1

$      10.1

$       (9.9)

(24.0)

Adjusted Operating Income (Loss)2

$        5.4

$            10.5

$      10.8

$       (3.5)

$      23.2

$     (35.5)

$           20.5

$      12.3

$       (2.8)

$      (5.5)

Adjusted EBITDA2

$      19.3

$            36.1

$      13.0

$       (3.5)

$      64.9

$     (24.4)

$           25.3

$      14.2

$       (2.7)

$      12.4

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 December 31, 2023 and 2022:

(US$ millions)

Q4 2023

Q4 2022

$ Change

% Change

Preschool and Dolls & Interactive

$           204.7

$           201.7

$                   3.0

1.5 %

Activities, Games & Puzzles and Plush

$           160.6

$           160.6

$                    —

— %

Wheels & Action

$           113.3

$              90.0

$                 23.3

25.9 %

Outdoor

$              23.7

$              26.9

$                 (3.2)

(11.9) %

Toy Gross Product Sales1

$           502.3

$           479.2

$                 23.1

4.8 %

Constant Currency Toy Gross Product Sales1

$           490.6

$                 11.4

2.4 %

Sales Allowances2

$            (95.5)

$            (82.5)

$               (13.0)

15.8 %

Sales Allowances % of Toy Gross Product Sales1

19.0 %

17.2 %

1.8 %

Toy revenue

$           406.8

$           396.7

$                 10.1

2.5 %

Operating Loss

$            (30.0)

$            (43.3)

$                 13.3

(30.7) %

Operating Margin3

(7.4) %

(10.9) %

3.5 %

Adjusted EBITDA1

$              19.3

$            (24.4)

$                 43.7

179.1 %

Adjusted EBITDA Margin1

4.7 %

(6.2) %

10.9 %

1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”.

2 The Company enters arrangements to provide sales allowances requested by customers relating to cooperative advertising, contractual and negotiated promotional 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 $10.1 million or 2.5% to $406.8 million.
  • Toy Gross Product Sales[3] grew by $23.1 million or 4.8%, to $502.3 million from $479.2 million. Constant Currency Toy Gross Product Sales1 grew by $11.4 million or 2.4% to $490.6 million, up from $479.2 million.
  • The growth in Toy revenue and Toy Gross Product Sales1 arose from higher order volumes compared to the prior year. Toy Gross Product Sales1 in the fourth quarter of 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 to $95.5 million. As a percentage of Toy Gross Product Sales1, Sales Allowances increased to 19.0% from 17.2%, primarily driven by higher markdowns and promotional activity, caused by pressure on consumer discretionary spending levels.
  • Operating Loss increased by $13.3 million to $30.0 million compared to $43.3 million.
  • Operating Margin was (7.4)% compared to (10.9)%.
  • Adjusted EBITDA Margin1 was 4.7% compared to (6.2)%.
  • The improvement in Operating Margin and Adjusted EBITDA Margin1 was due to higher 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 December 31, 2023 and 2022:

(US$ millions)

Q4 2023

Q4 2022

$ Change

% Change

Entertainment revenue

$          55.2

$          31.2

$             24.0

76.9 %

Operating Income

$            9.7

$          19.1

$              (9.4)

(49.2) %

Operating Margin

17.6 %

61.2 %

(43.6) %

Adjusted Operating Income1

$          10.5

$          20.5

$            (10.0)

(48.8) %

Adjusted Operating Margin1

19.0 %

65.7 %

(46.7) %

1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”.

 

  • Entertainment revenue increased by $24.0 million or 76.9% to $55.2 million, from higher distribution revenue associated with content deliveries including Unicorn Academy, Rubble & Crew and Vida the Vet and from on-going distribution revenue related to PAW Patrol: The Mighty Movie. Constant Currency Entertainment Revenue1 increased by $24.1 million or 77.2% to $55.3 million, from $31.2 million.
  • Operating Income declined by $9.4 million or 49.2% to $9.7 million. Adjusted Operating Income1 declined by $10.0 million or 48.8% to $10.5 million from $20.5 million, from higher amortization of production costs and brand promotion costs for Unicorn Academy.
  • Operating Margin decreased to 17.6% from 61.2% and Adjusted Operating Margin1 decreased from 65.7% to 19.0%, from higher amortization of production costs for content deliveries, including Unicorn Academy, in relation to distribution revenue.

Digital Games Segment Results

The following table provides a summary of Digital Games segment operating results, for the three months ended December 31, 2023 and 2022:

(US$ millions)

Q4 2023

Q4 2022

$ Change

% Change

Digital Games revenue

$          40.6

$          37.9

$               2.7

7.1 %

Operating Income

$            9.7

$          10.1

$              (0.4)

(4.0) %

Operating Margin

23.9 %

26.6 %

(2.7) %

Adjusted Operating Income1

$          10.8

$          12.3

$              (1.5)

(12.2) %

Adjusted Operating Margin1

26.6 %

32.5 %

(5.9) %

1 Non-GAAP financial measure or ratio. See “Non-GAAP Financial Measures and Ratios”.

 

  • Digital Games revenue increased by $2.7 million or 7.1% to $40.6 million due to higher in-game purchases in Toca Life World and higher subscription revenue from both Piknik and PAW Patrol Academy. Constant Currency Digital Games Revenue[4] increased by $2.6 million or 6.9% to $40.5 million, up from $37.9 million.
  • Operating Income decreased by $0.4 million or 4.0% to $9.7 million. Adjusted Operating Income1 decreased by $1.5 million or 12.2% to $10.8 million from $12.3 million. Operating Margin decreased from 26.6% to 23.9% and Adjusted Operating Margin1 decreased from 32.5% to 26.6%.
  • The decrease in Operating Income, Adjusted Operating Income1, Operating Margin and Adjusted Operating Margin1 was due to higher marketing costs related to the launch of PAW Patrol Academy.

Liquidity and Capitalization

For the year ended December 31, 2023, cash flow provided by operating activities was $227.0 million, compared to $249.3 million. The decrease was driven by lower Adjusted Operating Income1 as a result of lower order volume and the change in non-cash working capital. Change in non-cash working capital increased $105.1 million, due to increases of $173.3 million in trade receivables, $29.4 million in inventories and $13.6 million in other receivables, partially offset by an increase of $193.6 million in trade payables and accrued liabilities.

For the year ended December 31, 2023, Free Cash Flow1 was $122.9 million compared to $149.9 million, due to lower cash flow provided by operating activities and higher cash flow used in investing activities.

During the year ended December 31, 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 year ended December 31, 2023, the Company repurchased and cancelled 397,700 subordinate voting shares through the Company’s NCIB program for $10.5 million.

The Company has an unsecured five-year revolving credit facility (the “Facility”) with a borrowing capacity of $510.0 million which matures on September 28, 2026, and contains certain financial covenants.

On November 20, 2023, the Company entered a one-year non-revolving credit facility (the “Acquisition Facility”) in anticipation of the closing of the Melissa & Doug acquisition, with a borrowing capacity of $225.0 million which matures on November 19, 2024, and contains certain financial covenants.

As at December 31, 2023, the Company had unutilized liquidity of $1,439.2 million, comprised of $705.7 million in Cash and cash equivalents and $733.5 million under the Company’s credit facilities.

The weighted average basic and diluted shares outstanding as at December 31, 2023 were 103.5 million and 105.7 million, compared to 102.9 million and 106.5 million in the prior year, respectively.

On January 2, 2024, the Company utilized $466.7 million of cash and $525.0 million of debt comprised of $300.0 million from the Facility and $225.0 million from the Acquisition Facility, to finance the acquisition of Melissa & Doug LLC.

The Company’s Board of Directors declared a dividend of C$0.06 per outstanding subordinate voting share and multiple voting share, payable on April 12, 2024 to shareholders of record at the close of business on March 29, 2024.  The dividend is designated to be an eligible dividend for purposes of section 89(1) of the Income Tax Act (Canada).

 

2024 Outlook

The Company expects for 2024:

  • Toy Gross Product Sales, excluding Melissa & Doug1 to be in line with 2023.
  • Toy Gross Product Sales, excluding Melissa & Doug1 seasonality to be approximately 28% to 32% in the first half.
  • Consolidated Revenue, excluding Melissa & Doug1, to be in line with 2023.
  • Adjusted EBITDA Margin, excluding Melissa & Doug and net cost synergies realized1 to be in line with 2023.

Incrementally, the Company expects for 2024:

  • Melissa & Doug Toy Gross Product Sales1 to contribute between $420 million to $430 million.
  • Melissa & Doug Toy Gross Product Sales1 seasonality to be approximately 20% to 25% in the first half.
  • Melissa & Doug Revenue1 to contribute between $370 million to $375 million.
  • Melissa & Doug Adjusted EBITDA Margin1 of approximately 19.5%.
  • To achieve in addition approximately $6 million in net cost synergies towards the target of approximately $25 million to $30 million in run-rate net cost synergies by the end of 2026.

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

 Based on POS data per Circana.

 

Dec. 31

Dec 31,

(Unaudited, in US$ millions)

2023

2022

Assets

Current assets

  Cash and cash equivalents

705.7

644.3

  Trade receivables, net

414.4

311.0

  Inventories, net

98.0

105.1

  Other receivables

60.0

49.5

  Prepaid expenses and other assets

40.9

22.3

1,319.0

1,132.2

Non-current assets

  Intangible assets

281.3

279.8

  Goodwill

165.9

179.0

  Deferred income tax assets

110.8

94.7

  Right-of-use assets

53.6

62.9

  Property, plant and equipment

32.6

36.0

  Other assets

26.5

20.5

670.7

672.9

Total assets

1,989.7

1,805.1

Liabilities

Current liabilities

  Trade payables and accrued liabilities

385.4

339.4

  Provisions

32.1

30.7

  Lease liabilities

11.4

16.3

  Deferred revenue

11.0

11.5

  Income tax payable

6.6

29.7

446.5

427.6

Non-current liabilities

  Deferred income tax liabilities

59.1

55.7

  Lease liabilities

50.7

54.9

  Provisions

14.3

15.1

124.1

125.7

Total liabilities

570.6

553.3

Shareholders’ equity

  Share capital

783.4

754.7

  Retained earnings

604.5

477.4

  Contributed surplus

27.4

40.7

  Accumulated other comprehensive loss

3.8

(21.0)

Total shareholders’ equity

1,419.1

1,251.8

Total liabilities and shareholders’ equity

1,989.7

1,805.1

 

Spin Master Corp.
Consolidated statements of earnings and comprehensive income

Year Ended Dec 31,

(Unaudited, in US$ millions, except earnings per share)

Q4 2023

Q4 2022

2023

2022

Revenue

502.6

465.8

1,904.9

2,020.3

Cost of sales

240.6

233.4

866.5

916.5

Gross profit

262.0

232.4

1,038.4

1,103.8

Expenses

Selling, general and administrative

244.8

237.8

775.7

782.1

Depreciation and amortization

7.1

7.1

25.4

28.9

Other expense, net

28.5

6.7

33.7

10.9

Foreign exchange loss (gain), net

18.2

4.8

14.7

(61.4)

Operating (Loss) Income

(36.6)

(24.0)

188.9

343.3

Interest income

(7.0)

(5.5)

(27.4)

(10.7)

Interest expense

3.9

3.8

15.1

13.6

(Loss) Income before income tax expense

(33.5)

(22.3)

201.2

340.4

Income tax recovery

(3.4)

(8.5)

49.8

79.1

Net (Loss) Income

(30.1)

(13.8)

151.4

261.3

Earnings per share

Basic

(0.29)

(0.13)

1.46

2.54

Diluted

(0.29)

(0.13)

1.43

2.45

Weighted average number of shares (in millions)

Basic

103.7

102.9

103.5

102.9

Diluted

106.2

106.5

105.7

106.4

Year Ended Dec 31,

(Unaudited, in US$ millions)

Q4 2023

Q4 2022

2023

2022

Net (Loss) Income

(30.1)

(13.8)

151.4

261.3

Items that may be subsequently reclassified to Net Income

Foreign currency translation gain (loss)

35.0

21.5

24.8

(79.8)

Items that are not subsequently reclassified to Net Income

Gain on Minority interest and other investments

0.1

Other comprehensive income (loss)

35.0

21.5

24.8

(79.7)

Total comprehensive income

4.9

7.7

176.2

181.6

 

Spin Master Corp.
Consolidated statements of cash flows

Year Ended Dec 31,

(in US$ millions)

2023

2022

Operating activities

Net Income

151.4

261.3

Adjustments to reconcile net income to cash provided by operating activities

Income tax expense

49.8

79.1

Interest income

(27.4)

(10.7)

Depreciation and amortization

130.1

68.2

Loss on disposal of non-current assets

1.1

1.5

Interest and accretion expense

5.1

5.5

Amortization of Facility fee costs

0.5

0.4

Gain on investment in limited partnership, net

(0.4)

Impairment of non-current assets

35.8

3.0

Loss on minority interest and other investments

0.5

Unrealized foreign exchange loss (gain), net

26.1

(40.3)

Share-based compensation expense

20.1

17.6

Net changes in non-cash working capital

(105.1)

(67.7)

Net change in non-cash provisions and other assets

(2.1)

1.0

Income taxes paid

(93.6)

(83.6)

Income taxes received

7.8

4.5

Interest received

27.8

9.0

Cash provided by operating activities

227.0

249.3

Investing activities

Investment in property, plant and equipment

(28.0)

(30.4)

Investment in intangible assets

(79.4)

(69.0)

Business acquisitions, net of cash acquired

(26.5)

(10.6)

Investment distribution income

0.3

0.1

Minority interest and other investments

(2.5)

(7.5)

Proceeds from sale of non-current assets

0.8

9.2

Cash used in investing activities

(135.3)

(109.2)

Financing activities

Payment of lease liabilities

(14.9)

(15.8)

Dividends paid

(18.4)

Proceeds from issuance of common shares from exercise of share options

0.1

Repurchase of subordinate voting shares under the NCIB

(10.5)

Payment of financing costs related to the Facility

(0.3)

Cash used in financing activities

(44.1)

(20.3)

Effect of foreign currency exchange rate changes on cash and cash equivalents

13.8

(38.2)

Net increase in cash and cash equivalents during the year

61.4

81.6

Cash and cash equivalents, beginning of the year

644.3

562.7

Cash and cash equivalents, end of the year

705.7

644.3

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
  • Melissa & Doug Toy Gross Product Sales
  • Toy Gross Product Sales, excluding Melissa & Doug
  • Melissa & Doug Revenue
  • Consolidated Revenue, excluding Melissa & Doug
  • Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue
  • Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue
  • Constant Currency Toy Gross Product Sales
  • Constant Currency Sales Allowance
  • Constant Currency Digital Games Revenue
  • Constant Currency Entertainment 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 Sales Allowance
  • Percentage change in Constant Currency Digital Games Revenue
  • Percentage change in Constant Currency Entertainment Revenue
  • Percentage change in Constant Currency Revenue
  • Adjusted EBITDA Margin
  • Melissa & Doug Adjusted EBITDA Margin
  • Adjusted EBITDA Margin, excluding Melissa & Doug
  • 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

T

Melissa & Doug Revenue represent revenue contributed by Melissa & Doug, to measure the underlying financial performance of the business on a consistent basis over time.

Consolidated Revenue, excluding Melissa & Doug is calculated as revenue excluding Melissa & Doug Revenue, to measure the underlying financial performance of the business on a consistent basis over time.

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 Mighty Movie Distribution Revenue is calculated as Adjusted EBITDA excluding PAW Patrol: The Mighty Movie Distribution Revenue divided by Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue. Management uses Adjusted EBITDA Margin excluding PAW Patrol: The Mighty 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 (Loss) Income to Adjusted Operating Income (Loss), 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 December 31, 2023 and 2022:

(in US$ millions)

Q4 2023

Q4 2022

$ Change

% Change

Operating (Loss) Income

(36.6)

(24.0)

(12.6)

52.5 %

Adjustments:

Share based compensation1

4.8

4.7

0.1

2.1 %

Foreign exchange loss2

18.2

4.8

13.4

279.2 %

Restructuring and other related costs3

3.8

(0.2)

4.0

(2,000.0) %

Acquisition related deferred incentive compensation4

1.6

2.2

(0.6)

(27.3) %

Impairment of intangible assets5

5.8

1.1

4.7

427.3 %

Impairment of goodwill6

25.7

25.7

n.m.

Transaction costs7

3.8

0.2

3.6

1,800.0 %

Legal settlement recovery8

(0.1)

1.6

(1.7)

(106.3) %

Net unrealized gain on investment

0.2

0.1

0.1

100.0 %

Acquisition related contingent consideration9

(4.7)

3.1

(7.8)

(251.6)

Impairment of property, plant and equipment10

0.7

0.9

(0.2)

(22.2) %

Adjusted Operating Income (Loss)

23.2

(5.5)

28.7

(521.8) %

Depreciation and amortization

41.7

17.9

23.8

133.0 %

Adjusted EBITDA

64.9

12.4

52.5

423.4 %

Income tax recovery

3.4

8.5

(5.1)

(60.0) %

Interest income

3.1

1.7

1.4

82.4 %

Depreciation and amortization

(41.7)

(17.9)

(23.8)

133.0 %

One-time income tax expense11

5.7

5.7

n.m.

Tax effect of normalization adjustments12

(14.9)

(4.7)

(10.2)

217.0 %

Adjusted Net Income

20.5

20.5

n.m.

Cash provided by operating activities

67.9

(6.8)

74.7

(1,098.5) %

Cash used in investing activities

(23.3)

(28.2)

4.9

(17.4) %

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)

4.9

(5.2)

(106.1) %

Free Cash Flow

44.3

(30.1)

74.4

(247.2) %

1

Related to non-cash expenses associated with the Company’s share option expense and long-term incentive plan.

2

Includes foreign exchange losses (gains) generated by the translation and settlement of monetary assets/liabilities denominated in a currency other than the functional currency of the applicable entity and losses (gains) related to the Company’s hedging programs.

3

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.

4

Deferred incentive compensation associated with acquisitions.

5

Impairment of intangible assets related to content development projects and computer software.

6

Impairment of goodwill associated with two CGUs.

7

Professional fees incurred relating to acquisitions and other transactions.

8

Legal settlement in the first and second quarters of 2022.

9

Recovery associated with contingent consideration for acquisitions.

10

Impairment of property plant and equipment related to tooling.

11

Adjustment for one-time income tax expense in Q4 2023.

12

Tax effect of adjustments (Footnotes 1-10). Adjustments are tax effected at the effective tax rate of the given period.

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 year ended December 31, 2023 and 2022:

Year Ended Dec 31

(in US$ millions)

2023

2022

$ Change

% Change

Operating Income

188.9

343.3

(154.4)

(45.0) %

Restructuring and other related costs1

18.1

4.9

13.2

269.4 %

Foreign exchange loss (gain)2

14.7

(61.4)

76.1

(123.9) %

Share based compensation3

20.1

17.6

2.5

14.2 %

Impairment of goodwill4

26.7

26.7

n.m.

Impairment of property, plant and equipment5

0.9

1.9

(1.0)

(52.6)

Impairment of intangible assets6

8.2

1.1

7.1

645.5

Legal settlement recovery7

(0.6)

(0.5)

(0.1)

20.0 %

Acquisition related deferred incentive compensation8

7.6

10.3

(2.7)

(26.2) %

Net unrealized gain on investment9

(0.1)

(0.1)

n.m.

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

(6.8)

2.6

(9.4)

(361.5) %

Transaction costs13

11.1

1.0

10.1

1,010.0 %

Adjusted Operating Income

288.7

321.2

(32.5)

(10.1) %

Depreciation and amortization

130.1

68.2

61.9

90.8 %

Adjusted EBITDA

418.8

389.4

29.4

7.6 %

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

403.2

377.0

26.2

6.9 %

Income tax expense

(49.8)

(79.1)

29.3

(37.0) %

Interest income (expense)

12.3

(2.9)

15.2

(524.1) %

Depreciation and amortization

(130.1)

(68.2)

(61.9)

90.8 %

One-time income tax recovery14

(0.9)

(0.9)

n.m.

Tax effect of adjustments15

(25.1)

5.1

(30.2)

(592.2) %

Adjusted Net Income

225.2

244.3

(19.1)

(7.8) %

Cash provided by operating activities

227.0

249.3

(22.3)

(8.9) %

Cash used in investing activities

(135.3)

(109.2)

(26.1)

23.9 %

Add:

Cash provided by (used in) business acquisitions, asset acquisitions, investment in
limited partnership and Minority interest and other investments and trademark l
icense agreement, net of investment distribution income

31.2

9.8

21.4

218.4 %

Free Cash Flow

122.9

149.9

(27.0)

(18.0) %

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.

2

Includes foreign exchange losses (gains) generated by the translation and settlement of monetary assets/liabilities denominated in a currency other than the functional currency of the applicable entity and losses (gains) related to the Company’s hedging programs.

3

Related to non-cash expenses associated with the Company’s share option expense and long-term incentive plan.

4

Impairment of goodwill associated with three CGUs.

5

Impairment of property plant and equipment related to tooling.

6

Impairment of intangible assets related to content development projects and computer software.

7

Legal settlement in the first quarter of 2023 and first and second quarters of 2022.

8

Deferred incentive compensation associated with acquisitions.

9

Net unrealized gain related to investment in limited partnership.

10

Net realized gain related to investment in limited partnership.

11

Fair value loss on the Minority interest and other investments classified as FVTPL.

12

Expense associated with contingent consideration for acquisitions.

13

Professional fees incurred relating to acquisitions and other transactions.

14

Adjustment for one-time income tax recovery in Q3 2023 partially offset by one-time income tax expense in Q4 2023.

15

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, Revenue to Constant Currency Entertainment Revenue, and Revenue to Constant Currency Revenue for the three months and year ended December 31, 2023, and 2022:

Year Ended Dec 31,

(US$ millions)

Q4 2023

Q4 2022

2023

2022

Constant Currency Toy Gross Product Sales

490.6

498.3

1,763.1

2,030.6

Impact of foreign exchange

11.7

(19.1)

24.1

(51.8)

Toy Gross Product Sales

502.3

479.2

1,787.2

1,978.8

Constant Currency Sales Allowances

(92.5)

(87.4)

(240.2)

(254.6)

Impact of foreign exchange

(3.0)

4.9

(6.1)

13.4

Sales Allowances

(95.5)

(82.5)

(246.3)

(241.2)

Toy revenue

406.8

396.7

1,540.9

1,737.6

Constant Currency Entertainment revenue

55.3

33.2

190.1

123.2

Impact of foreign exchange

(0.1)

(2.0)

(4.4)

Entertainment revenue

55.2

31.2

190.1

118.8

Constant Currency Digital Games revenue

40.5

40.1

176.6

171.9

Impact of foreign exchange

0.1

(2.2)

(2.7)

(8.0)

Digital Games revenue

40.6

37.9

173.9

163.9

Constant Currency Revenue

493.9

484.2

1,889.6

2,071.1

Impact of foreign exchange

8.7

(18.4)

15.3

(50.8)

Revenue

502.6

465.8

1,904.9

2,020.3

The following tables present the composition of Percentage change in Constant Currency Toy Gross Product Sales, Percentage change in Constant Currency Sales Allowances, Percentage change in Constant Currency Entertainment Revenue, Percentage change in Constant Currency Digital Games Revenue, and Percentage change in Constant Currency Revenue for the three months and year ended December 31, 2023 and 2022:

$ Change

% Change

(US$ millions)

Q4 2023

Q4 2022

As reported

Impact of
foreign
exchange

In
Constant
Currency

As reported

In
Constant
Currency

Toy Gross Product Sales

502.3

479.2

23.1

(11.7)

11.4

4.8 %

2.4 %

Sales Allowances

(95.5)

(82.5)

(13.0)

3.0

(10.0)

15.8 %

12.1 %

Toy revenue

406.8

396.7

10.1

(8.7)

1.4

2.5 %

0.4 %

Entertainment revenue

55.2

31.2

24.0

0.1

24.1

76.9 %

77.2 %

Digital Games revenue

40.6

37.9

2.7

(0.1)

2.6

7.1 %

6.9 %

Revenue

502.6

465.8

36.8

(8.7)

28.1

7.9 %

6.0 %

Year Ended Dec 31,

$ Change

% Change

(US$ millions)

2023

2022

As reported

Impact of
foreign
exchange

In
Constant
Currency

As reported

In
Constant
Currency

Toy Gross Product Sales

1,787.2

1,978.8

(191.6)

(24.1)

(215.7)

(9.7) %

(10.9) %

Sales Allowances

(246.3)

(241.2)

(5.1)

6.1

1.0

2.1 %

(0.4) %

Toy revenue

1,540.9

1,737.6

(196.7)

(18.0)

(214.7)

(11.3) %

(12.4) %

Entertainment revenue

190.1

118.8

71.3

71.3

60.0 %

60.0 %

Digital Games revenue

173.9

163.9

10.0

2.7

12.7

6.1 %

7.7 %

Revenue

1,904.9

2,020.3

(115.4)

(15.3)

(130.7)

(5.7) %

(6.5) %

Segment Results

The Company’s results from operations by reportable segment for the three months ended December 31, 2023 and 2022 are as follows:

(US$ millions)

Q4 2023

Q4 2022

Toys

Entertainment

Digital
Games

Corporate
& Other

Total

Toys

Entertainment

Digital
Games

Corporate
& Other

Total

Revenue

406.8

55.2

40.6

502.6

396.7

31.2

37.9

465.8

Operating (Loss) Income

(30.0)

9.7

9.7

(26.0)

(36.6)

(43.3)

19.1

10.1

(9.9)

(24.0)

Restructuring and other related costs (recovery)

3.3

0.1

0.4

3.8

(0.2)

(0.2)

Foreign exchange loss

18.2

18.2

4.8

4.8

Share based compensation

3.2

0.3

0.7

0.6

4.8

3.3

0.3

0.7

0.4

4.7

Impairment of goodwill

25.7

25.7

Impairment of property, plant and equipment

0.7

0.7

0.9

0.9

Impairment of intangible assets

5.4

0.4

5.8

1.1

1.1

Legal (recovery) settlement expense

(0.1)

(0.1)

1.6

1.6

Acquisition related deferred incentive compensation

0.6

1.0

1.6

0.7

1.5

2.2

Net unrealized loss on investment

0.2

0.2

0.1

0.1

Acquisition related contingent consideration

(3.5)

(1.0)

(0.2)

(4.7)

3.1

3.1

Transaction costs

3.8

3.8

0.2

0.2

Adjusted Operating Income (Loss)

5.4

10.5

10.8

(3.5)

23.2

(35.5)

20.5

12.3

(2.8)

(5.5)

Adjusted Operating Margin

1.3 %

19.0 %

26.6 %

n.m.

4.6 %

(8.9) %

65.7 %

32.5 %

n.m.

(1.2) %

Depreciation and amortization

13.9

25.6

2.2

41.7

11.1

4.8

1.9

0.1

17.9

Adjusted EBITDA

19.3

36.1

13.0

(3.5)

64.9

(24.4)

25.3

14.2

(2.7)

12.4

Adjusted EBITDA Margin

4.7 %

65.4 %

32.0 %

n.m.

12.9 %

(6.2) %

81.1 %

37.5 %

n.m.

2.7 %

The following table presents a reconciliation of Melissa & Doug’s Operating Income to Adjusted EBITDA for the year ended December 29, 2023 and December 30, 2022:

(US$ millions)

2023

2022

Revenue

364.0

489.0

Operating (loss) income, per US GAAP

(0.9)

25.3

IFRS Adjustments

12.5

2.2

Operating income, per IFRS

11.6

27.5

Depreciation and amortization

14.2

20.8

EBITDA

25.8

48.3

Normalization adjustments1

41.4

42.0

Adjusted EBITDA

67.2

90.3

Adjusted EBITDA Margin

18.5 %

18.5 %

1 Normalization adjustments include certain costs that do not relate to the post-combination entity including freight costs in excess of normal operating costs, transaction costs, non-recurring expenses, share based compensation, severance and other payroll related costs.

ADDENDUM

Effective January 1, 2024, Spin Master has changed its product categories to align with the Company’s product offerings going forward. The following table restates 2023 Toy Gross Product Sales1 in the same format that the Company presents Toy Gross Product Sales1 in 2024:

(US$ millions)

Q1 2023

Q2 2023

Q3 2023

Q4 2023

Total

Preschool, Infant & Toddler and Plush

$               82.6

$            164.9

$            301.4

$            169.3

$            718.2

Activities, Games & Puzzles and Dolls & Interactive

$               62.6

$            109.7

$            218.7

$            196.0

$            587.0

Wheels & Action

$               43.7

$            101.1

$            151.2

$            113.3

$            409.3

Outdoor

$               27.4

$               14.3

$                 7.3

$               23.7

$               72.7

Gross Product Sales1

$            216.3

$            390.0

$            678.6

$            502.3

$         1,787.2

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