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Spin Master Reports Q2 2022 Financial Results and Announces Dividend

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Cision

TORONTO, July 27, 2022 /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 and six months ended June 30, 2022. The Company's full Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2022 is available under the Company's profile on SEDAR (www.sedar.com) and posted on the Company's web site at www.spinmaster.com/financial-info.php. 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 our strong revenue growth this quarter across all three creative centres amidst a shifting macroeconomic environment," said Max Rangel, Spin Master's Global President & CEO. "Our Toy business continued to grow ahead of the industry with the strong performance of our diversified toy portfolio including innovative IP, evergreen franchise brands and popular licensed partnerships. Looking to the balance of the year, we remain confident in our ability to execute on our strategy of reimagining everyday play for children globally, powered by our deep expertise across toys, entertainment and digital games. We believe we are well positioned to manage through external market dynamics to deliver profitable growth and long-term shareholder value, while continuing to invest in growth initiatives."

"In the second quarter, we maintained our momentum in revenue growth and delivered record margins and profitability," said Mark Segal, Spin Master's Chief Financial Officer. " We are committed to our financial framework for value creation, underpinned by our formula for innovation and disciplined global growth across all of our creative centres. Given our strong financial position and operational outlook, we are pleased to introduce our first-ever quarterly dividend. We continue to remain focused on increasing opportunities to leverage our diverse and global platform for organic growth and accretive acquisitions."

Consolidated Financial Highlights for Q2 2022 as compared to the same period in 2021

  • Revenue was $506.3 million, an increase of 29.6% from $390.8 million primarily due to an increase in Toy revenue of 34.1%. Digital Games revenue increased by 9.2% and Entertainment revenue increased by 3.3%. Constant Currency Revenue1 was $514.7 million, up from $390.8 million, an increase of 31.7%

  • Operating Income was $118.2 million compared to $46.9 million.

  • Operating Margin2 was 23.3% compared to 12.0%.

  • Adjusted Operating Income1 was $97.6 million compared to $57.7 million.

  • Adjusted Operating Margin1 was 19.3% compared to 14.8%.

  • Adjusted EBITDA1 was $113.7 million compared to $81.8 million.

  • Adjusted EBITDA Margin1 was 22.5% compared to 20.9%.

  • Cash provided by operating activities was $111.6 million compared to $94.2 million.

  • Free Cash Flow1 was $84.1 million compared to $69.0 million.

  • Unutilized liquidity of approximately $1,068 million, comprised of $558 million in cash and cash equivalents and $510 million under the Company's credit facilities.

  • Strong capital position and operational outlook led to the declaration of a quarterly dividend in respect of the third quarter of 2022.

Consolidated Financial Highlights for the Six Months Ended June 30, 2022 as compared to the same period in 2021

  • Revenue was $930.5 million, an increase of 31.5% from $707.4 million driven by growth in Toy revenue of 35.5% and Digital Games revenue of 28.7%, offset by a decrease in Entertainment revenue of 7.0%. Constant Currency Revenue1 increased by 33.5%2 to $944.3 million from $707.4 million.

  • Operating Income was $179.9 million compared to $53.6 million.

  • Operating Margin was 19.3% compared to 7.6%.

  • Adjusted Operating Income1 was $174.9 million compared to $71.3 million.

  • Adjusted Operating Margin1 was 18.8% compared to 10.1%.

  • Adjusted EBITDA1 was $209.4 million compared to $118.5 million.

  • Adjusted EBITDA Margin1 was 22.5% compared to 16.8%.

  • Cash provided by operating activities was $48.7 million compared to $103.2 million.

  • Free Cash Flow1 was $4.7 million compared to $62.5 million.

Consolidated Financial Results as compared to the same period in 2021





(US$ millions, except per share information)



Six Months Ended Jun 30


Q2 2022

Q2 2021

$ Change

2022

2021

$ Change

Consolidated Results







Revenue

$ 506.3

$ 390.8

$ 115.5

$ 930.5

$ 707.4

$ 223.1








Operating Income

$ 118.2

$ 46.9

$ 71.3

$ 179.9

$ 53.6

$ 126.3

Operating Margin

23.3 %

12.0 %


19.3 %

7.6 %









Adjusted Operating Income1,2,3

$ 97.6

$ 57.7

$ 39.9

$ 174.9

$ 71.3

$ 103.6

Adjusted Operating Margin1

19.3 %

14.8 %


18.8 %

10.1 %









Net Income

$ 88.1

$ 33.5

$ 54.6

$ 133.7

$ 36.7

$ 97.0

Adjusted Net Income1,2,3

$ 72.4

$ 41.6

$ 30.8

$ 129.9

$ 50.0

$ 79.9








Adjusted EBITDA1,2,3

$ 113.7

$ 81.8

$ 31.9

$ 209.4

$ 118.5

$ 90.9

Adjusted EBITDA Margin1

22.5 %

20.9 %


22.5 %

16.8 %


Earnings Per Share ("EPS")







Basic EPS

$ 0.86

$ 0.33


$ 1.30

$ 0.36


Diluted EPS

$ 0.83

$ 0.32


$ 1.26

$ 0.35


Adjusted Basic EPS1

$ 0.70

$ 0.41


$ 1.26

$ 0.49


Adjusted Diluted EPS1

$ 0.68

$ 0.40


$ 1.22

$ 0.48







Cash Flow Data







Cash provided by operating activities

$ 111.6

$ 94.2

$ 17.4

$ 48.7

$ 103.2

$ (54.5)

Cash used in investing activities

$ (30.4)

$ (46.9)

$ 16.5

$ (38.7)

$ (110.9)

$ 72.2

Free Cash Flow1

$ 84.1

$ 69.0

$ 15.1

$ 4.7

$ 62.5

$ (57.8)

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


2 Adjustments for Q2 2022 include Foreign exchange gain of $32.3 million (2021 - loss of $4.9 million), Share based compensation of $4.5 million (2021 - $4.0 million), Restructuring and other related costs of $4.5 million (2021 - $nil) and Acquisition related deferred incentive compensation of $2.6 million (2021 - $1.5 million). Refer to the "Reconciliation of Non-GAAP Financial Measures" section for further details.

3 Adjustments for the Six Months Ended June 30, 2022 include Foreign exchange gain of $22.7 million (2021 - loss of $8.6 million), Share based compensation of $8.6 million (2021 - $7.2 million), Restructuring and other related costs of $5.1 million (2021 - $0.7 million) and Acquisition related deferred incentive compensation of $5.3 million (2021 - $1.5 million). Refer to the "Reconciliation of Non-GAAP Financial Measures" section for further details.

Segmented Financial Results as compared to the same period in 2021




(US$ millions)

Q2 2022

Q2 2021


Toys

Entertainment

Digital
Games

Corporate
& Other1

Total

Toys

Entertainment

Digital
Games

Corporate
& Other1

Total

Revenue

$ 437.6

$ 28.4

$ 40.3

$ —

$ 506.3

$ 326.4

$ 27.5

$ 36.9

$ —

$ 390.8












Operating Income

$ 62.6

$ 17.5

$ 8.4

$ 29.7

$ 118.2

$ 28.5

$ 12.5

$ 12.8

$ (6.9)

$ 46.9












Adjusted Operating Income2

$ 71.7

$ 18.0

$ 10.0

$ (2.1)

$ 97.6

$ 33.5

$ 12.6

$ 13.7

$ (2.1)

$ 57.7












Adjusted EBITDA2

$ 83.2

$ 21.1

$ 11.5

$ (2.1)

$ 113.7

$ 47.3

$ 21.0

$ 15.6

$ (2.1)

$ 81.8












1 Corporate & Other includes certain corporate costs, foreign exchange and merger and acquisition-related costs, as well as fair value gains and losses and distribution income on Minority interest and other investments.

2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

Toys Segment Results

The following table provides a summary of Toys segment operating results, for the three months ended June 30, 2022 and 2021:

(US$ millions)


Q2 2022


Q2 2021


$ Change

Preschool and Dolls & Interactive1

$

228.8

$

149.6

$

79.2

Activities, Games & Puzzles and Plush

$

123.6

$

98.0

$

25.6

Wheels & Action1

$

115.8

$

77.7

$

38.1

Outdoor2

$

16.2

$

33.7

$

(17.5)

Toy Gross Product Sales 3

$

484.4

$

359.0

$

125.4

Sales Allowances4

$

(46.8)

$

(32.6)

$

(14.2)

Toy revenue

$

437.6

$

326.4

$

111.2








Operating Income

$

62.6

$

28.5

$

34.1

Operating Margin5


14.3 %


8.7 %



Adjusted EBITDA3

$

83.2

$

47.3

$

35.9

Adjusted EBITDA Margin3


19.0 %


14.5 %










1 Effective Q4 2021, the "Preschool and Girls" product category was renamed "Preschool and Dolls & Interactive" and the "Boys" product category was renamed "Wheels & Action".

2 Outdoor includes $9.9 million in Q2 2021 related to certain brands associated with divestiture of manufacturing assets in Q1 2022.

3 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

4 The Company enters into arrangements to provide sales allowances requested by customers relating to cooperative advertising, contractual and negotiated discounts, volume rebates, and costs incurred by customers to sell the Company's products.

5 Operating Margin is calculated as segment Operating Income divided by segment Revenue.

  • Toy revenue increased by $111.2 million or 34.1% to $437.6 million driven by growth in Preschool and Dolls & Interactive, Wheels & Action, Activities, Games & Puzzles and Plush, offset by a decline in Outdoor.

  • Toy Gross Product Sales increased by $125.4 million or 34.9%, to $484.4 million from $359.0 million. Constant Currency Toy Gross Product Sales1 increased by $131.2 million or 36.5%2 to $490.2 million, up from $359.0 million. The improvement was driven by an increase in shipments in the second quarter compared to the prior year as a result of customers ordering earlier, as well as strong customer demand.

  • Operating Margin was 14.3% compared to 8.7%.

  • Adjusted EBITDA Margin1 was 19.0% compared to 14.5%.

  • The improvement in Operating Margin and Adjusted EBITDA Margin1 was driven by improved gross margin from favourable changes in product mix and price increases, as well as lower administrative and distribution expenses as a percentage of revenue, offset in part by inflation on product costs and ocean freight.

Entertainment Segment Results

The following table provides a summary of Entertainment segment operating results, for the three months ended June 30, 2022 and 2021:

(US$ millions)

Q2 2022

Q2 2021

$ Change

Entertainment revenue

$ 28.4

$ 27.5

$ 0.9

Operating Income

$ 17.5

$ 12.5

$ 5.0

Operating Margin

61.6 %

45.5 %


Adjusted Operating Income1

$ 18.0

$ 12.6

$ 5.4

Adjusted Operating Margin1

63.4 %

45.8 %


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

  • Entertainment revenue increased by $0.9 million or 3.3% to $28.4 million, from higher distribution revenue related to the PAW Patrol series.

  • Operating Margin was 61.6% compared to 45.5%.

  • Adjusted Operating Margin1 was 63.4% compared to 45.8%.

  • The improvement in Operating Margin and Adjusted Operating Margin1 was driven primarily by fewer Entertainment content deliveries in the current period, which resulted in lower amortization expense.

Digital Games Segment Results

The following table provides a summary of Digital Games segment operating results, for the three months ended June 30, 2022 and 2021:

(US$ millions)

Q2 2022

Q2 2021

$ Change

Digital Games revenue

$ 40.3

$ 36.9

$ 3.4

Operating Income

$ 8.4

$ 12.8

$ (4.4)

Operating Margin

20.8 %

34.7 %


Adjusted Operating Income1

$ 10.0

$ 13.7

$ (3.7)

Adjusted Operating Margin1

24.8 %

37.1 %


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

  • Digital Games revenue increased by $3.4 million or 9.2% to $40.3 million due to higher in-app purchases in Toca Life World. Constant Currency Digital Games Revenue1 increased by $6.1 million or 16.5% to $43.0 million, up from $36.9 million.

  • Operating Margin was 20.8% compared to 34.7%.

  • Adjusted Operating Margin1 was 24.8% compared to 37.1%, due to higher product development and personnel costs related to the investment in future products, as well as higher marketing costs to acquire users, partially offset by higher revenue from in-app purchases in Toca Life World.

Outlook

The Company continues to expect 2022 Toy Gross Product Sales, in constant currency1, to increase low double digits compared to 2021, consistent with prior guidance on May 4, 2022.

The Company continues to expect 2022 Revenue, in constant currency1, to increase low double digits compared to 2021 Revenue, excluding PAW Patrol: The Movie Distribution Revenue1 of $26.0 million, consistent with prior guidance on May 4, 2022.

The Company continues to expect 2022 Adjusted EBITDA Margin1 to be in line with 2021 Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue1 of $26.0 million, consistent with prior guidance on May 4, 2022.

Dividend Declared

The Company's Board of Directors has authorized and declared a quarterly dividend of C$0.06 per outstanding subordinate voting share and multiple voting share of Spin Master in respect of the third quarter of 2022. The dividend will be paid on October 14, 2022 to shareholders of record at the close of business on September 30, 2022. This dividend is designated to be an eligible dividend for purposes of section 89(1) of the Income Tax Act (Canada).

________________________

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

2 Operating Margin is calculated as Operating Income divided by Revenue.

Forward-Looking Statements

Certain statements, other than statements of historical fact, contained in this Press Release constitute "forward-looking information" within the meaning of certain securities laws, including the Securities Act (Ontario), and are based on expectations, estimates and projections as of the date on which the statements are made in this Press Release. The words "plans", "expects", "projected", "estimated", "forecasts", "anticipates", "indicative", "intend", "guidance", "outlook", "potential", "prospects", "seek", "strategy", "targets" or "believes", or variations of such words and phrases or statements that certain future conditions, actions, events or results "will", "may", "could", "would", "should", "might" or "can", or negative versions thereof, "be taken", "occur", "continue" or "be achieved", and other similar expressions, identify statements containing forward-looking information. Statements of forward-looking information in this Press Release include, without limitation, statements with respect to: the Company's outlook for 2022; future growth expectations in 2022 and beyond; the Company's dividend policy; drivers and trends for such growth and financial performance; the successful execution of its strategies for growth; financial position, cash flows and financial performance; and the creation of long term shareholder value.

Forward-looking statements are necessarily based upon management's perceptions of historical trends, current conditions and expected future developments, as well as a number of specific factors and assumptions that, while considered reasonable by management as of the date on which the statements are made in this Press Release, are inherently subject to significant business, economic and competitive uncertainties and contingencies which could result in the forward-looking statements ultimately being incorrect. In addition to any factors and assumptions set forth above in this Press Release, the material factors and assumptions used to develop the forward-looking information include, but are not limited to: the Company's dividend payments being subject to the discretion of the Board of Directors and dependent on a variety of factors and conditions existing from time to time; seasonality; ability of factories to manufacture products, including labour size and allocation, tooling, raw material and component availability, ability to shift between product mix, and customer acceptance of delayed delivery dates; the steps taken will create long term shareholder value; the expanded use of advanced technology, robotics and innovation the Company applies to its products will have a level of success consistent with its past experiences; the Company will continue to successfully secure broader licenses from third parties for major entertainment properties consistent with past practices; the expansion of sales and marketing offices in new markets will increase the sales of products in that territory; the Company will be able to successfully identify and integrate strategic acquisition and minority investment opportunities; the Company will be able to maintain its distribution capabilities; the Company will be able to leverage its global platform to grow sales from acquired brands; the Company will be able to recognize and capitalize on opportunities earlier than its competitors; the Company will be able to continue to build and maintain strong, collaborative relationships; the Company will maintain its status as a preferred collaborator; the culture and business structure of the Company will support its growth; the current business strategies of the Company will continue to be desirable on an international platform; the Company will be able to expand its portfolio of owned branded intellectual property and successfully license it to third parties; use of advanced technology and robotics in the Company's products will expand; access of entertainment content on mobile platforms will expand; fragmentation of the market will continue to create acquisition opportunities; the Company will be able to maintain its relationships with its employees, suppliers, retailers and license partners; the Company will continue to attract qualified personnel to support its development requirements; and the Company's key personnel will continue to be involved in the Company products and entertainment properties will be launched as scheduled and that the risk factors noted in this Press Release, collectively, do not have a material impact on the Company.

By its nature, forward-looking information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. Known and unknown risk factors, many of which are beyond the control of the Company, could cause actual results to differ materially from the forward-looking information in this Press Release. Such risks and uncertainties include, without limitation, the magnitude and length of economic disruption as a result of the COVID-19 pandemic; and the factors discussed in the Company's disclosure materials, including the Annual or subsequent, most recent interim MD&A and the Company's most recent Annual Information Form, filed with the securities regulatory authorities in Canada and available under the Company's profile on SEDAR (www.sedar.com). These risk factors are not intended to represent a complete list of the factors that could affect the Company and investors are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements.

There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management's expectations and plans relating to the future. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law.

Conference call

Max Rangel, Global President and Chief Executive Officer and Mark Segal, Chief Financial Officer will host a conference call to discuss the financial results on Thursday, July 28, 2022, at 9:30 a.m. (ET).

The call-in numbers for participants are (647) 792-1240 or (800) 437-2398. A live webcast of the call will be accessible via Spin Master's website at: http://www.spinmaster.com/events.php. Following the call, both an audio recording and transcript of the call will be archived on the same website page.

About Spin Master

Spin Master Corp. (TSX:TOY) is a leading global children's entertainment company, creating exceptional play experiences through it's three creative centres: Toys, Entertainment and Digital Games. With distribution in over 100 countries, Spin Master is best known for award-winning brands PAW Patrol®, Bakugan®, Kinetic Sand®, Air Hogs®, Hatchimals®, Rubik's Cube® and GUND®, and is the global toy licensee for other popular properties. Spin Master Entertainment creates and produces compelling multiplatform content, through its in-house studio and partnerships with outside creators, including the preschool franchise PAW Patrol and numerous other original shows, short-form series and feature films. The Company has an established presence in digital games, anchored by the Toca Boca® and Sago Mini® brands, offering open-ended and creative game and educational play in digital environments. Through Spin Master Ventures, the Company makes minority investments globally in emerging companies and start-ups. With over 30 offices in close to 20 countries, Spin Master employs more than 2,000 team members globally. For more information visit spinmaster.com or follow-on Instagram, Facebook and Twitter @spinmaster.

For further information

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

Spin Master Corp.
Condensed consolidated interim statements of financial position


Jun 30,

Dec 31,

(Unaudited, in US$ millions)

2022

2021

Assets



Current assets



Cash and cash equivalents

558.1

562.7

Trade receivables

262.3

327.9

Other receivables

71.7

66.7

Inventories

184.1

137.4

Prepaid expenses and other assets