Spin Master Reports Q1 2021 Financial Results

Strong Revenue Growth Across all Creative Centres and Continued Operational Improvements Drive Record Profitability Growth in Q1

Spin Master Increases 2021 Outlook

TORONTO, May 5, 2021 /CNW/ - 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 ended March 31, 2021. The Company's full Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2021 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.

"Our performance this quarter clearly demonstrates our commitment to creating exceptional play experiences and engaging children's entertainment through our three creative centres comprising toys, entertainment and digital games. It is very gratifying to see both our strong financial and operating performance this quarter compared to the same period last year, especially from the continued growth in digital games," said Ronnen Harary, Spin Master's Co-Founder. "We recognize the incredible dedication of our teams across the globe. Together, they have rallied to drive the strong results we achieved this quarter. As we manage through the complexities of the pandemic, I am continually amazed and impressed by the effort and dedication of our employees."

Max Rangel, Spin Master's newly appointed Global President & CEO added, "At the heart of Spin Master's growth story is a remarkable purpose – to create magical play experiences for children and their families around the world. Our commitment to that purpose is unwavering. How we bring this vision to market across our three creative centres will continue to evolve and adapt to the changing content landscape, consumer preferences and emerging trends in children's entertainment. With this solid foundation, supported by relentless innovation and operational excellence, we see tremendous potential for Spin Master and are focused on driving profitable growth and creating significant value for our shareholders."

"We delivered very strong margins and profitability in the first quarter and are particularly pleased with the broad nature of our performance improvements compared to Q1 2020," said Mark Segal, Spin Master's Chief Financial Officer. "Revenue grew as a result of higher Gross Product Sales and growth in digital games led by Toca Life World. Our operational improvements continued to allow us to execute more efficiently and effectively this quarter. Our solid financial position with cash on hand of over $260 million, gives us increasing opportunities to leverage our diverse and global platform for organic growth and acquisitions. We expect many of the trends that drove this performance in the first quarter to continue and we are raising our outlook for 2021."

Q1 2021 Financial Highlights as compared to the same period in 2020  

• Total revenue of US$316.6 million increased by 39.3% from US$227.3 million. In Constant Currency¹ terms, total revenue increased by 36.9%.
• Gross Product Sales¹ increased by 21.6% to US$294.7 million from US$242.3 million, primarily driven by higher sales in Preschool & Girls and Outdoor. In Constant Currency¹ terms, Gross Product Sales¹ increased by 19.9%.
• Gross Product Sales¹ increased by 44.6% in Rest of World, 21.2% in Europe and 18.0% in North America. International Gross Product Sales¹ were 42.1% of total Gross Product Sales¹, compared to 40.3%.
• Other revenue grew by 178.5% to US$61.0 million.
• Digital games revenue increased by 394.2% to US$34.1 million, driven by the Toca Life World platform and growth in the Sago Mini subscription user base.
• Entertainment and Licensing revenue was 79.3% higher at US$26.9 million.
• Sales Allowances¹ increased by US$2.2 million to US$39.1 million. As a percentage of Gross Product Sales¹, Sales Allowances¹ decreased by 1.9% to 13.3% from 15.2%, primarily driven by lower markdowns, promotions and non-compliance charges.
• Gross profit was US$157.4 million, representing 49.7% of total revenue, compared to US$90.8 million or 39.9%. The improvement in gross margin was driven by higher digital games net revenue and entertainment and licensing net revenue, in addition to cost reductions resulting from the Company's operational improvement initiatives, which include lower scrap and obsolescence, freight-related expenses, reconfiguration costs and Sales Allowances¹.
• Selling, general and administrative expenses ("SG&A")² decreased as a percentage of total revenue to 43.9% compared to 64.5%, primarily from lower distribution expenses, partially offset by higher administrative expenses.
• Net income was US$3.2 million or earnings per share of US$0.03 (diluted) compared to a net loss of US$(26.7) million or loss per share of US$(0.26).
• Adjusted Net Income¹ was US$8.4 million or Adjusted Diluted EPS¹ of US$0.08, compared to an Adjusted Net Loss¹ of US$(46.8) million or Adjusted Basic EPS¹ of US$(0.46).
• Adjusted EBITDA¹ was US$36.7 million compared to negative US$(32.3) million. Adjusted EBITDA Margin¹ was 11.6% compared to (14.2)%.
• Cash provided by operating activities was US$9.0 million compared to cash used in operating activities of US$8.8 million, primarily driven by higher EBITDA¹.
• Free Cash Flow¹ was US$(6.5) million compared to US$(27.8) million, driven by higher cash flows from operating activities, offset in part by higher cash flows used in investing activities.
• On January 4, 2021, the Company completed the acquisition of Rubik's Brand Limited. Rubik's is reported in the Activities, Games & Puzzles and Plush product category.

Q1 2021 Gross Product Sales^1 by Product Category (US$ millions)^3
	Q1 2021	Q1 2020	$ Change	% Change
Preschool & Girls	$97.2	$73.1	$24.1	33.0	%
Activities, Games & Puzzles and Plush	$87.5	$80.1	$7.4	9.2	%
Boys	$68.0	$60.7	$7.3	12.0	%
Outdoor	$42.0	$28.4	$13.6	47.9	%
Gross Product Sales^1, 4	$294.7	$242.3	$52.4	21.6	%
Sales Allowances^1	$(39.1)	$(36.9)	$(2.2)	6.0	%
Net Sales^1	$255.6	$205.4	$50.1	24.4	%
Entertainment and Licensing revenue	$26.9	$15.0	$11.9	79.3	%
Digital games revenue	$34.1	$6.9	$27.2	394.2	%
Other revenue	$61.0	$21.9	$39.1	178.5	%
Total revenue	$316.6	$227.3	$89.3	39.3	%

¹ See "Non-IFRS Financial Measures".

² SG&A expenses include selling, marketing, distribution, product development and administrative expenses.

³ Effective January 1, 2021, Spin Master has simplified its product categories to align with the Company's product offerings going forward. Prior year comparative information has been updated to conform with the current disclosure.

⁴ A total of $3.3 million related to Rubik's is included in Q1 2021.

Q1 2021 Gross Product Sales¹ by Product Category as compared to the same period in 2020

Gross Product Sales¹ were US$294.7 million, an increase of US$52.4 million or 21.6%.  Excluding the impact of foreign exchange, Gross Product Sales¹ increased by $47.6 million or 19.6% to $289.8 million.

Gross Product Sales¹ in Activities, Games & Puzzles and Plush increased by US$7.4 million or 9.2% to US$87.5 million.  The increase was driven primarily by sales of Rubik's⁴ and Inkfluencer and increases in the Games & Puzzles portfolio.

Gross Product Sales¹ in Preschool & Girls increased by US$24.1 million or 33.0% to US$97.2 million. The increase was driven primarily by sales of PAW Patrol and Present Pets, offset in part by declines in Twisty Petz, Candylocks, Owleez, Hatchimals products and Universe.

Gross Product Sales¹ in Boys increased by US$7.3 million or 12.0% to US$68.0 million. The increase was primarily driven by sales of Monster Jam, Bakugan, Tech Deck and Supercross, partially offset by declines in DC licensed products and DreamWorks Dragons.

Gross Product Sales¹ in Outdoor increased by US$13.6 million or 47.9% to US$42.0 million.

Outlook

Spin Master continues to focus on driving long-term growth. Its principle strategies are to:

• Innovate using our global internal and external research and development network;
• Increase international sales in developed and emerging markets;
• Develop evergreen global entertainment franchises;
• Establish a leading position in digital games; and
• Leverage the Company's global platform through strategic acquisitions.

The Company expects 2021 Gross Product Sales¹ to increase high single digits compared to 2020, as  compared to low to mid single digits previously announced on March 3, 2021. The seasonality of Gross Product Sales¹ for 2021 is expected to be approximately 35-37% in the first half of 2021 and 63-65% in the second half of 2021. The Company now expects 2021 total revenue to increase low double digits compared to 2020, as compared to mid to high single digits previously announced on March 3, 2021. The Company now expects 2021 Adjusted EBITDA Margin¹ to be at the high end of the mid to high teens range previously announced on March 3, 2021.

Conference call

Ronnen Harary, Co-Founder and Director, Max Rangel, Global President and Chief Executive Officer and Mark Segal, Chief Financial Officer will host a conference call to discuss these results on Thursday, May 6, 2021 at 9:30 a.m. (ET).

The call-in numbers for participants are [phone] or [phone]. 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 a diverse portfolio of innovative toys, entertainment franchises and digital games. 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 toy licensee for other popular properties. Spin Master Entertainment creates and produces compelling multiplatform content, stories and endearing characters through its in-house studio and partnerships with outside creators, including the preschool success PAW Patrol and nine other original shows along with multiple short-form series, which are distributed in more than 190 countries. The Company has an established digital presence anchored by the Toca Boca® and Sago Mini® brands, which combined have more than 50 million monthly active users. With close to 2,000 employees in 28 offices globally, Spin Master distributes products in more than 100 countries. For more information visit spinmaster.com or follow on Instagram, Facebook and Twitter @spinmaster.

Non-IFRS Financial Measures

In addition to using financial measures prescribed under IFRS, references are made in this Press Release to "EBITDA", "Adjusted EBITDA", "Adjusted EBITDA Margin", "Adjusted Net Income", "Free Cash Flow", "Gross Product Sales", "Constant Currency", "Sales Allowances" and "Net Sales" which are non-IFRS financial measures. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.

EBITDA is calculated as net earnings (loss) before finance costs, income tax expense (recovery) and depreciation and amortization.

Adjusted EBITDA is calculated as EBITDA excluding adjustments that do not necessarily reflect the Company's underlying financial performance. These adjustments include restructuring expenses, foreign exchange gains or losses, equity-settled share based compensation expenses, acquisition related incentive compensation, impairment of intangible assets and limited partnership investment income. Adjusted EBITDA is used by management as a measure of the Company's profitability.

Adjusted Net Income (Loss) is calculated as net income (loss) excluding adjustments, as defined above, in addition to a one-time tax recovery and the corresponding impact these items have on income tax expense (recovery) . Management uses Adjusted Net Income (Loss) to measure the underlying financial performance of the business on a consistent basis over time.

Adjusted Basic EPS (Loss) is calculated by dividing Adjusted Net Income (Loss) by the weighted average number of shares outstanding during the period. Adjusted Diluted EPS (Loss) 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.

Constant Currency represents Revenue and Gross Product Sales results that are presented excluding the impact from changes in foreign currency exchange rates. The current period and prior period results for entities reporting in currencies other than the US dollar are translated using consistent exchange rates, rather than using the actual exchange rate in effect during the respective periods. The difference between the current period and prior period results using the consistent exchange rates reflects the changes in the underlying performance results, excluding the impact from fluctuations in foreign currency exchange rates.

Free Cash Flow is calculated as cash flows provided by/used in operating activities reduced by cash flows used in investing activities and adding back cash used in license, brand and business acquisitions. Management uses the Free Cash Flow metric to analyze the cash flow being generated by the Company's business. Prior year comparative information has been updated to conform with the current disclosure.

Gross Product Sales represent sales of the Company's products to customers, excluding the impact of Sales Allowances. As Sales Allowances are generally not associated with individual products, the Company uses changes in Gross Product Sales to provide meaningful comparisons across product category and geographical segment results to highlight trends in Spin Master's business. For a reconciliation of Gross Product Sales to Revenue, please see the table "Q1 2020 Gross Product Sales by Product Category" in this Press Release.

Sales Allowances represent marketing and sales credits requested by customers relating to factors such as cooperative advertising, contractual discounts, negotiated discounts, customer audits, volume rebates, defective products and costs incurred by customers to sell the Company's products and are recorded as a reduction to Gross Product Sales. Management uses Sales Allowances to identify and compare the cost of doing business with individual retailers, different geographic markets and amongst various distribution channels.

Net Sales represents Gross Product Sales less Sales Allowances. Management uses Net Sales to evaluate the Company's total net revenue generating capacity compared to internal targets and as a measure of Company performance.

Management believes the non-IFRS measures defined above are important supplemental measures of operating performance and highlight trends in the core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management believes that these measures allow for assessment of the Company's operating performance and financial condition on a basis that is more consistent and comparable between reporting periods. The Company believes that lenders, securities analysts, investors and other interested parties frequently use these non-IFRS financial measures in the evaluation of issuers.

		Three Months Ended Mar 31
(US$ millions)		2021		2020		$ Change		% Change
Reconciliation of Non-IFRS Financial Measures
Net income (loss)		3.2		(26.7)		29.9		(112.0)	%
	Income tax expense (recovery)	1.0		(48.2)		49.2		(102.1)	%
	Finance costs	2.5		2.8		(0.3)		(10.7)	%
	Depreciation and amortization expenses	23.1		23.3		(0.2)		(0.9)	%
EBITDA^1		29.8		(48.8)		78.6		(161.1)	%
Adjustments:
	Restructuring expense^2	0.7		4.4		(3.7)		(84.1)	%
	Foreign exchange loss^3	3.7		8.5		(4.8)		(56.5)	%
	Share based compensation^4	3.2		3.6		(0.4)		(11.1)	%
	Acquisition related contingent consideration^5	(0.7)		—		(0.7)		n.m.
	Impairment of intangible assets^6	0.9		—		0.9		n.m.
	Net unrealized gain on investment^7	(0.9)		—		(0.9)		n.m.
Adjusted EBITDA^1		36.7		(32.3)		69.0		(213.6)	%
	Income tax expense (recovery)	1.0		(48.2)		49.2		(102.1)	%
	Finance costs	2.5		2.8		(0.3)		(10.7)	%
	Depreciation and amortization expenses	23.1		23.3		(0.2)		(0.9)	%
	One-time income tax recovery^8	—		33.3		(33.3)		n.m.
	Tax effect of adjustments^9	1.7		3.3		(1.6)		(48.5)	%
Adjusted Net Income (Loss)^1		8.4		(46.8)		55.2		(117.9)	%
Cash provided by (used in) operating activities		9.0		(8.8)		17.8		(202.3)	%
Cash used in investing activities		(64.0)		(19.0)		(45.0)		236.8	%
Add:
Cash used for license, brand and business acquisitions		48.5		—		48.5		n.m.
Free Cash Flow^1		(6.5)		(27.8)		21.3		(76.6)	%
1) See "Non-IFRS Financial Measures".
2) Restructuring expense primarily relates to personnel related costs. Restructuring expense in the prior year includes costs related to changes in senior leadership.
3) Includes foreign exchange losses generated by the translation of monetary assets/liabilities denominated in a currency other than the functional currency of the applicable entity and losses related to the Company's hedging programs.
4) Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the initial public offering, share option expense and long-term incentive plan.
5) Remuneration recovery associated with contingent consideration for previous acquisitions.
6) Impairment of intangible assets related to content development.
7) Net unrealized gain related to investment in limited partnership.
8) One-time income tax recovery relates to internal transfer of intangible property of $33.3 million.
9) Tax effect of adjustments (Footnotes 2-7). Adjustments are tax effected at the effective tax rate of the given period.

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 2021; future growth expectations in 2021 and beyond; drivers and trends for such growth and financial performance; the successful execution of its strategies for growth; content and product pipeline; financial position, cash flows and financial performance; the program to achieve operational efficiencies supports the growth of the Company's global platform; the creation of long term shareholder value;  changes in consumer demand and preferences; evolving content landscape and trends in children's entertainment; and the seasonality of financial results and performance.

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: 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; that the program designed to gain operational efficiencies will achieve the desired results; that 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 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 and retailers; 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 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.

Addendum

Effective January 1, 2021, Spin Master has simplified its product categories to align with the Company's product offerings going forward. The following table restates 2020 Gross Product Sales¹ in the same format that the Company presents Gross Product Sales¹ in 2021:

Gross Product Sales^1 by Product Category
(US$ millions)	Q1 2020	Q2 2020	Q3 2020	Q4 2020	Total
Pre-School and Girls	73.1	93.5	242.7	200.2	609.5
Activities, Games & Puzzles and Plush	80.1	99.8	181.0	173.9	534.8
Boys	60.7	54.1	151.4	122.1	388.3
Outdoor	28.4	34.8	12.3	15.6	91.1
Gross Product Sales^1	242.3	282.2	587.4	511.8	1,623.7

SOURCE Spin Master Corp.

Sophia Bisoukis, Vice President, Investor Relations, [email protected]

Related Links

www.spinmaster.com