Spin Master Reports Fourth Quarter and Full Year 2023 Financial Results

TORONTO, Feb. 28, 2024 /PRNewswire/ – Spin Master Corp. (“Spin Master” or the “Company”) (TSX:TOY, www.spinmaster.com)), a leading global children’s entertainment company, today announced its financial results for the three months and year ended December 31, 2023. The Company’s full Management’s Discussion and Analysis (“MD&A”) for the three months and year ended December 31, 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 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 centres 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 centres. 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

Segmented Financial Results as compared to the same period in 2022

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:

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:

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:

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).

Toronto Stock Exchange (the “TSX”) Acceptance of Normal Course Issuer Bid

The TSX has accepted the Company’s notice to launch a Normal Course Issuer Bid (the “Bid”). Under the Bid, the Company may repurchase on the open market at its discretion and subject to compliance with applicable securities laws, during the period commencing on March 4, 2024 and ending on the earlier of March 3, 2025 and the completion of purchases under the Bid, up to 2,984,559 subordinate voting shares, representing approximately 10% of the “public float” (within the meaning of the rules of the TSX), subject to the normal terms and limitations of such bids. Under the TSX rules, the average daily trading volume of the subordinate voting shares on the TSX during the six months ended January 31, 2024 was approximately 65,548 and, accordingly, daily purchases on the TSX pursuant to the Bid will be limited to 16,387 subordinate voting shares, other than purchases made pursuant to the block purchase exception. The actual number of subordinate voting shares which may be purchased pursuant to the Bid and the timing of any such purchases will be determined by the management of the …

Full story available on Benzinga.com