Spin Master Reports Q1 2022 Financial Results

Spin Master Outperforms Prior Year and Increases 2022 Outlook

TORONTO, May 4, 2022 /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, 2022. The Company's full Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 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.

"Following our very strong performance in 2021, we are extremely pleased with the positive momentum we saw across all three of our creative centers in the first quarter of 2022," said Max Rangel, Spin Master's Global President & CEO. "The Toy creative centre benefited from strong customer demand for our innovative toy line and our global commercial team continued to manage supply chain volatility to ensure we delivered product on time. The Digital Games creative centre, led by Toca Life World, continued to generate strong engagement and momentum. Our performance this quarter reflects Spin Master's potential to create magical play experiences for children wherever they are - from the strength of our diversified toy portfolio anchored in franchise brands, partner licenses and exciting innovation, to our engaging multi-platform entertainment content and our open-ended digital playgrounds."

Mark Segal, Spin Master's Chief Financial Officer added, "In the first quarter of 2022, we delivered very strong financial and operating performance across our Toys, Entertainment and Digital Games creative centres. We are pleased to increase our revenue Outlook for 2022. We introduced our new segment reporting structure this quarter, providing an enhanced view of the drivers of our revenue and profit margins and providing shareholders with increased visibility into our performance. We remain committed to our financial framework for value creation, underpinned by our formula for innovation and disciplined global growth across all our creative centres. Our solid financial position provides opportunities to leverage our global platform for organic growth and acquisitions."

Q1 2022 Consolidated Financial Highlights as compared to the same period in 2021 (US$ millions)

• Revenue was $424.2 million, an increase of 34.0% from $316.6 million of which 30.1% was attributable to Toy revenue, 5.4% to Digital Games revenue, offset partially by a decline due to Entertainment revenue of 1.5%. Constant Currency Revenue¹ was $431.1 million, up from $316.6 million, an increase of 36.2%.
• Operating Income was $61.7 million compared to $6.7 million.
• Operating Margin² was 14.5% compared to 2.1%.
• Adjusted Operating Income¹ was $77.3 million compared to $13.6 million.
• Adjusted Operating Margin¹ was 18.2% compared to 4.3%.
• Adjusted EBITDA¹ was $95.7 million compared to $36.7 million.
• Adjusted EBITDA Margin¹ was 22.6% compared to 11.6%.
• Cash (used in) provided by operating activities was $(62.9) million compared to $9.0 million.
• Cash used in investing activities was $(8.3) million compared to $(64.0) million.
• Free Cash Flow¹ was $(79.4) million compared to $(6.5) million.
• Available liquidity of approximately $1,011 million, comprised of $493 million in cash and cash equivalents and $518 million under the Company's credit facilities.
• The Company made minority investments in two companies for a total of $1.0 million as part of its Spin Master Ventures strategic initiative.
• Effective January 1, 2022, the Company revised its reportable operating segments. The Company now has three reportable operating segments: Toys, Entertainment and Digital Games.

Q1 2022 Consolidated Financial Results as compared to the same period in 2021

(US$ millions, except per share information)	Q1 2022	Q1 2021	$ Change
Consolidated Results
Revenue	$       424.2	$       316.6	$          107.6
Operating Income	$         61.7	$           6.7	$            55.0
Operating Margin	14.5 %	2.1 %
Adjusted Operating Income^1,2	$         77.3	$         13.6	$            63.7
Adjusted Operating Margin^1	18.2 %	4.3 %
Net Income	$         45.6	$           3.2	$            42.4
Adjusted Net Income^1,2	57.5	8.4	$            49.1
Adjusted EBITDA^1,2	$         95.7	$         36.7	$            59.0
Adjusted EBITDA Margin^1	22.6 %	11.6  %
Earnings Per Share ("EPS")
Basic EPS	$         0.45	$         0.03
Diluted EPS	$         0.43	$         0.03
Adjusted Basic EPS^1	$         0.56	$         0.08
Adjusted Diluted EPS^1	$         0.55	$         0.08
Cash Flow Data
Cash (used in) provided by operating activities	$        (62.9)	$           9.0	$           (71.9)
Cash used in investing activities	$          (8.3)	$        (64.0)	$            55.7
Free Cash Flow^1	$        (79.4)	$          (6.5)	$           (72.9)

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

² Adjustments primarily include Foreign exchange loss of $9.6 million (2021 - $3.7 million), Share based compensation of $4.1 million (2021 - $3.2 million) and Acquisition related deferred incentive compensation of $2.7 million (2021 - $nil). Refer to the "Reconciliation of Non-GAAP Financial Measures" section for further details.

Q1 2022 Segmented Financial Results as compared to the same period in 2021

Effective January 1, 2022, the Company revised its reportable operating segments to align with its current business structure and how the Company's new Chief Operating Decision Maker ("CODM") reviews operations and makes decisions. The Company now has three reportable operating segments: Toys, Entertainment and Digital Games.

The revision of the reportable operating segments did not change the Company's previously reported consolidated revenue, net income or earnings per share. Refer to the "Addendum" for comparative segmented results for the year ended December 31, 2021.

(US$ millions)	Q1 2022					Q1 2021
	Toys	Entertainment	Digital Games	Corporate & Other^1	Total	Toys	Entertainment	Digital Games	Corporate & Other^1	Total
Revenue	$   350.9	$          22.2	$    51.1	$        —	$ 424.2	$   255.6	$          26.9	$    34.1	$        —	$ 316.6
Operating Income	$    41.4	$          11.2	$    19.8	$    (10.7)	$  61.7	$   (12.1)	$          10.6	$    13.2	$      (5.0)	$    6.7
Adjusted Operating Income	$    46.4	$          11.4	$    21.6	$      (2.1)	$  77.3	$     (9.3)	$          11.6	$    13.5	$      (2.2)	$  13.6
Adjusted EBITDA	$    58.9	$          15.8	$    23.1	$      (2.1)	$  95.7	$      5.1	$          18.2	$    15.6	$      (2.2)	$  36.7

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 investments.

Toys Segment Results

The following table provides a summary of Toys segment operating results, for the three months ended March 31, 2022 and 2021:

(US$ millions)	Q1 2022	Q1 2021	$ Change
Preschool and Dolls & Interactive^1	$          151.8	$            97.2	$               54.6
Activities, Games & Puzzles and Plush	$          101.9	$            87.5	$               14.4
Wheels & Action^1	$            99.7	$            68.0	$               31.7
Outdoor	$            44.1	$            42.0	$                 2.1
Toy Gross Product Sales^2	$          397.5	$          294.7	$             102.8
Sales Allowances^3	$           (46.6)	$           (39.1)	$                (7.5)
Toy revenue	$          350.9	$          255.6	$               95.3
Operating Income (Loss)	$            41.4	$           (12.1)	$               53.5
Operating Margin^4	11.8 %	(4.7) %
Adjusted EBITDA^2	$            58.9	$              5.1	$               53.8
Adjusted EBITDA Margin^2	16.8 %	2.0 %

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

³ 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.

⁴ Operating Margin is calculated as segment Operating Income divided by segment Revenue.

Toy revenue increased by $95.3 million or 37.3% to $350.9 million driven by growth in all product categories, particularly Preschool and Dolls & Interactive and Wheels & Action.

• Toy Gross Product Sales increased by $102.8 million or 34.9%, to $397.5 million from $294.7 million. Constant Currency Toy Gross Product Sales¹ increased by $107.9 million or 36.6%² to $402.6 million, up from $294.7 million. The improvement was led by growth from Gabby's Dollhouse, DC Comics and Wizarding World, and reflected strong customer demand and the Company's continued successful management of global supply chain volatility.
• Operating Margin was 11.8% compared to (4.7)%.
• Adjusted EBITDA Margin¹ was 16.8% compared to 2.0%.
• The improvement in Operating Margin and Adjusted EBITDA Margin was driven primarily by higher gross margin from favourable changes in product mix, price increases and improved operating leverage driven by higher revenues, 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 March 31, 2022 and 2021:

(US$ millions)	Q1 2022	Q1 2021	$ Change
Entertainment revenue	22.2	26.9	(4.7)
Operating Income	11.2	10.6	0.6
Operating Margin	50.5 %	39.4 %
Adjusted Operating Income^1	11.4	11.6	(0.2)
Adjusted Operating Margin^1	51.4 %	43.1 %

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

Entertainment revenue decreased by $4.7 million or 17.5% to $22.2 million, primarily driven by more content deliveries in the prior period. Deliveries in Q1 2022 included the PAW Patrol series and Bakugan Evolutions as compared to Q1 2021, which included PAW Patrol series, Bakugan Evolutions, Mighty Express and Abby Hatcher.

• Operating Margin was 50.5% compared to 39.4%.
• Adjusted Operating Margin¹ was 51.4% compared to 43.1%.
• The improvement in Operating Margin and Adjusted Operating Margin was driven primarily by the mix of Entertainment content deliveries which resulted in a lower proportion of program amortization expense in relation to revenue, as well as lower selling, general and administrative expenses.

Digital Games Segment Results

The following table provides a summary of Digital Games segment operating results, for the three months ended March 31, 2022 and 2021:

(US$ millions)	Q1 2022	Q1 2021	$ Change
Digital Games revenue	51.1	34.1	17.0
Operating Income	19.8	13.2	6.6
Operating Margin	38.7 %	38.7 %
Adjusted Operating Income^1	21.6	13.5	8.1
Adjusted Operating Margin^1	42.3 %	39.6 %

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

• Digital Games revenue increased by $17.0 million or 49.9% to $51.1 million driven primarily by higher in-app purchases in Toca Life World.
• Operating Margin was 38.7% compared to 38.7%.
• Adjusted Operating Margin¹ was 42.3% compared to 39.6%, driven primarily by higher in-app purchases in Toca Life World offset by higher product development and personnel costs.

Outlook

The Company now expects 2022 Toy Gross Product Sales¹ to increase low double digits compared to 2021, up from mid to high single digits previously announced on February 28, 2022. The seasonality of Toy Gross Product Sales for 2022 is expected to be approximately 40% in the first half of 2022.

The Company now expects 2022 Revenue to increase low double digits compared to 2021 Revenue, excluding PAW Patrol: The Movie Distribution Revenue¹ of $26.0 million, up from mid to high single digits previously announced on February 28, 2022. 

The Company expects 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 the Outlook previously announced on February 28, 2022.

____________________________
^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; 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: 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 audited financial results on Thursday, May 5, 2022 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 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, [email protected]

Non-GAAP Financial Measures and Ratios

In addition to using financial measures prescribed under 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
• Constant Currency Toy Gross Product Sales
• Constant Currency Revenue
• Adjusted EBITDA
• Adjusted Operating Income (Loss)
• Adjusted Net Income (Loss)
• Free Cash Flow
• Revenue, excluding PAW Patrol: The Movie Distribution Revenue
• Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue

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:

• Sales Allowance as a percentage of Toy Gross Product Sales
• Percentage change in Constant Currency Toy Gross Product Sales
• Percentage change in Constant Currency Revenue
• Adjusted EBITDA Margin
• Adjusted Operating Margin
• Adjusted Basic EPS
• Adjusted Diluted EPS
• Adjusted EBITDA Margin, excluding PAW Patrol: The 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

Toy Gross Product Sales represent Toy revenues, excluding the impact of Sales Allowances. As Sales Allowances are generally not associated with individual products, the Company uses Toy Gross Product Sales to provide meaningful comparisons across product category and geographical results to highlight trends in Spin Master's business. For a reconciliation of Toy Gross Product Sales to Revenue, the closest IFRS measure, refer to the revenue tables for the three months and year ended March 31, 2022 as compared to the same period in 2021 in this Press Release.

Constant Currency Toy Gross Product Sales and Constant Currency Revenue represent Toy Gross Product Sales and Revenue presented excluding the impact from changes in foreign currency exchange rates, respectively. 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. Management uses Constant Currency Toy Gross Product Sales and Constant Currency Revenue to measure the underlying financial performance of the business on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial Measures" section for a reconciliation of these metrics to Revenue, the closest IFRS measure.

Adjusted EBITDA is calculated as Net Income (Loss) before finance costs, income tax expense (recovery) and depreciation and amortization (EBITDA) excluding adjustments that do not necessarily reflect the Company's underlying financial performance. These adjustments include restructuring expenses, foreign exchange gains or losses, share based compensation expenses, acquisition related contingent consideration, impairment of intangible assets, impairment of goodwill, investment distribution income, acquisition related deferred incentive compensation, net unrealized gain on investment, impairment of property, plant and equipment, legal settlement, transaction costs, gain on disposal of asset and bad debt recovery. Adjusted EBITDA is used by management as a measure of the Company's profitability.  Refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a reconciliation of this metric to Operating Income (Loss), the closest IFRS measure.

Adjusted Operating Income (Loss) is calculated as Operating Income (Loss) excluding adjustments (as defined in Adjusted EBITDA). Adjusted Operating Income (Loss) is used by management as a measure of the Company's profitability. Refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a reconciliation of this metric to Operating Income (Loss), the closest IFRS measure.

Adjusted Net Income (Loss) is calculated as Net Income excluding adjustments (as defined in Adjusted EBITDA), the corresponding impact these items have on income tax expense. Management uses Adjusted Net Income (Loss) to measure the underlying financial performance of the business on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a reconciliation of this metric to Operating Income (Loss), the closest IFRS measure.

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 for business acquisitions and investment in limited partnership and minority interests, net of investment distribution income. Management uses the Free Cash Flow metric to analyze the cash flows being generated by the Company's business.  In the third quarter of 2021, the calculation of this metric was revised to include the impact of investment distribution income as Management believes this composition to be relevant to investors, lenders, securities analysts and other interested parties of the Company. Refer to the "Reconciliation of Non-GAAP Financial Measures" section for a reconciliation of this metric to Cash flow from operating activities, the closest IFRS measure.

Revenue, excluding PAW Patrol: The Movie Distribution Revenue is calculated as revenue excluding distribution revenue of $26.0 million related to PAW Patrol: The Movie  recognized in 2021. Revenue, excluding PAW Patrol: The Movie Distribution Revenue is used to measure the underlying financial performance of the business on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial Measures" section for a reconciliation of this metric to Revenue, the closest IFRS measure.

Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Adjusted EBITDA excluding distribution revenue of $26.0 million related to PAW Patrol: The Movie recognized in 2021. Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue is used by management as a measure of the Company's profitability on a consistent basis over time.  Refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a reconciliation of this metric to Net Income, the closest IFRS measure.

Non-GAAP Financial Ratios

Sales Allowance as a percentage of Toy Gross Product Sales is calculated by dividing Sales Allowance by Toy Gross Product Sales. Management uses Sales Allowance as percentage of Toy Gross Product Sales to identify and compare the cost of doing business with individual retailers, different geographic markets and amongst various distribution channels.

Percentage change in Constant Currency Toy Gross Product Sales is calculated by dividing the change in Toy Gross Product Sales excluding the impact from changes in foreign currency exchange rates by the Toy Gross Product Sales of the comparative period. Management uses Percentage change in Constant Currency Toy Gross Product Sales to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Percentage change in Constant Currency Revenue is calculated by dividing the change in Revenue excluding the impact from changes in foreign currency exchange rates by the Revenue of the comparative period. Management uses Percentage change in Constant Currency Revenue to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Revenue. Management uses Adjusted EBITDA Margin to evaluate the Company's performance compared to internal targets and to benchmark its performance against key competitors.

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 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 Movie Distribution Revenue is calculated as Adjusted EBITDA excluding PAW Patrol: The Movie Distribution Revenue divided by Revenue, excluding PAW Patrol: The Movie Distribution Revenue. Management uses Adjusted EBITDA Margin excluding PAW Patrol: The 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 Income to Adjusted Operating Income, Adjusted EBITDA and Adjusted Net Income, and cash from operating activities to Free Cash Flow for the three months ended March 31, 2022 and 2021:

(in US$ millions)	Q1 2022	Q1 2021	$ Change	% Change
Operating Income	61.7	6.7	55.0	820.9 %
Adjustments:
Restructuring expense^1	0.6	0.7	(0.1)	(14.3) %
Foreign exchange loss^2	9.6	3.7	5.9	159.5 %
Share based compensation3	4.1	3.2	0.9	28.1 %
Impairment of intangible assets^4	—	0.9	(0.9)	(100.0) %
Legal settlement^5	(1.5)	—	(1.5)	n.m.
Acquisition related deferred incentive compensation^6	2.7	—	2.7	n.m.
Net unrealized gain on investment^7	—	(0.9)	0.9	(100.0) %
Investment distribution income^8	—	—	—	n.m.
Acquisition related contingent consideration^9	—	(0.7)	0.7	(100.0)
Transaction costs^10	0.1	—	0.1	n.m.
Adjusted Operating Income	77.3	13.6	63.7	468.4 %
Depreciation and amortization expenses	18.4	23.1	(4.7)	(20.3) %
Adjusted EBITDA	95.7	36.7	59.0	160.8 %
Income tax expense	(14.2)	(1.0)	(13.2)	1,320.0  %
Finance costs	(1.9)	(2.5)	0.6	(24.0) %
Depreciation and amortization expenses	(18.4)	(23.1)	4.7	(20.3) %
Tax effect of adjustments^11	(3.7)	(1.7)	(2.0)	117.6  %
Adjusted Net Income	57.5	8.4	49.1	584.5 %
Cash (used in) provided by operating activities	(62.9)	9.0	(71.9)	(798.9) %
Cash used in investing activities	(8.3)	(64.0)	55.7	(87.0) %
Add:
Cash used for business acquisitions and investment in limited partnership and minority interests, net of investment distribution income	(8.2)	48.5	(56.7)	(116.9) %
Free Cash Flow	(79.4)	(6.5)	(72.9)	1,121.5  %

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¹ Restructuring expense primarily relates to changes in personnel. 
² Includes foreign exchange (gains) losses generated by the translation of monetary assets/liabilities denominated in a currency other than the functional currency of the applicable entity and (gains) losses related to the Company's hedging programs. 
³ Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company's initial public offering, share option expense and long-term incentive plan. 
⁴ Impairment of intangible assets related to entertainment content and app development. 
⁵ Legal settlement in the first quarter of 2022. 
⁶ Deferred incentive compensation associated with acquisitions. 
⁷ Net unrealized loss related to investment in limited partnership. 
⁸ Distribution income related to investment in limited partnership. 
⁹ Remuneration expense associated with contingent consideration for acquisitions. 
¹⁰ Professional fees incurred relating to acquisitions and other transactions. 
¹¹ Tax effect of adjustments (Footnotes 1-10). 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 and Revenue to Constant Currency Revenue for the three months ended March 31, 2022, and 2021:

(US$ millions)	Q1 2022	Q1 2021
Constant Currency Toy Gross Product Sales	$            402.6	$            290.6
Impact of foreign exchange	(5.1)	4.1
Toy Gross Product Sales	$            397.5	$            294.7
Sales Allowances	(46.6)	(39.1)
Toy revenue	$            350.9	$            255.6
Entertainment revenue	22.2	26.9
Digital Games revenue	51.1	34.1
Revenue	$             424.2	$             316.6
(US$ millions)	Q1 2022	Q1 2021
Constant Currency Revenue	$            431.1	$            311.1
Impact of foreign exchange	(6.9)	5.5
Revenue	$            424.2	$            316.6

The following tables present the composition of Percentage change in Constant Currency Toy Gross Product Sales and Percentage change in Constant Currency Revenue for the three months ended March 31, 2022, and 2021:

				$ Change				% Change
(US$ millions)	Q1 2022	Q1 2021		As reported	Impact of foreign exchange	In Constant Currency		As reported	In Constant Currency
Toy Gross Product Sales	$           397.5	$          294.7		$   102.8	$        5.1	$    107.9		34.9 %	36.6 %
Revenue	$           424.2	$          316.6		$   107.6	$        6.9	$    114.5		34.0 %	36.2 %

Segment Results

The Company's results from operations by reportable segment for the three months ended March 31, 2022 and 2021 are as follows:

(US$ millions)	Q1 2022					Q1 2021
	Toys	Entertainment	Digital Games	Corporate & Other	Total	Toys	Entertainment	Digital Games	Corporate & Other	Total
Revenue	350.9	22.2	51.1	—	424.2	255.6	26.9	34.1	—	316.6
Operating Income	41.4	11.2	19.8	(10.7)	61.7	(12.1)	10.6	13.2	(5.0)	6.7
Restructuring expense	0.5	—	0.1	—	0.6	0.7	—	—	—	0.7
Foreign exchange loss	—	—	—	9.6	9.6	—	—	—	3.7	3.7
Share based compensation	3.0	0.2	0.5	0.4	4.1	2.8	0.1	0.3	—	3.2
Impairment of intangible assets	—	—	—	—	—	—	0.9	—	—	0.9
Legal settlement	—	—	—	(1.5)	(1.5)	—	—	—	—	—
Acquisition related deferred incentive compensation	1.5	—	1.2	—	2.7	—	—	—	—	—
Net unrealized gain on investment	—	—	—	—	—	—	—	—	(0.9)	(0.9)
Acquisition related contingent consideration	—	—	—	—	—	(0.7)	—	—	—	(0.7)
Transaction costs	—	—	—	0.1	0.1	—	—	—	—	—
Adjusted Operating Income	46.4	11.4	21.6	(2.1)	77.3	(9.3)	11.6	13.5	(2.2)	13.6
Depreciation and amortization	12.5	4.4	1.5	—	18.4	14.4	6.6	2.1	—	23.1
Adjusted EBITDA	58.9	15.8	23.1	(2.1)	95.7	5.1	18.2	15.6	(2.2)	36.7

ADDENDUM

Effective January 1, 2022, the Company revised its reportable operating segments to align with its current business structure and how the Company's new CODM reviews operations and makes decisions. The following table presents 2021 segments in the same format that the Company presents its operating segments in 2022.

(US$ millions)	Year Ended December 31, 2021
	Toys	Entertainment	Digital Games	Corporate & Other	Total
Revenue	1,731.8	135.8	174.8	—	2,042.4
Operating Income	159.0	53.4	67.5	(7.7)	272.2
Restructuring expense	2.3	—	0.2	—	2.5
Foreign exchange gain	—	—	—	(2.9)	(2.9)
Share based compensation	13.4	0.4	1.5	—	15.3
Impairment of goodwill	1.9	—	—	—	1.9
Impairment of intangible assets	—	2.1	0.5	—	2.6
Acquisition related deferred incentive compensation	4.3	—	2.5	—	6.8
Net unrealized gain on investment	—	—	—	(0.9)	(0.9)
Investment distribution income	—	—	—	(0.6)	(0.6)
Acquisition related contingent consideration	2.7	—	—	—	2.7
Transaction costs	—	—	—	2.8	2.8
Gain on disposal of asset	(0.2)	—	—	—	(0.2)
Adjusted Operating Income	183.4	55.9	72.2	(9.3)	302.2
Depreciation and amortization	56.3	48.2	7.4	—	111.9
Adjusted EBITDA	239.7	104.1	79.6	(9.3)	414.1
(US$ millions)	Q1 2021
	Toys	Entertainment	Digital Games	Corporate & Other	Total
Revenue	255.6	26.9	34.1	—	316.6
Operating Income	(12.1)	10.6	13.2	(5.0)	6.7
Restructuring expense	0.7	—	—	—	0.7
Foreign exchange loss	—	—	—	3.7	3.7
Share based compensation	2.8	0.1	0.3	—	3.2
Impairment of intangible assets	—	0.9	—	—	0.9
Net unrealized gain on investment	—	—	—	(0.9)	(0.9)
Acquisition related contingent consideration	(0.7)	—	—	—	(0.7)
Adjusted Operating Income	(9.3)	11.6	13.5	(2.2)	13.6
Depreciation and amortization	14.4	6.6	2.1	—	23.1
Adjusted EBITDA	5.1	18.2	15.6	(2.2)	36.7

(US$ millions)	Q2 2021
	Toys	Entertainment	Digital Games	Corporate & Other	Total
Revenue	326.4	27.5	36.9	—	390.8
Operating Income	28.5	12.5	12.8	(6.9)	46.9
Foreign exchange loss	—	—	—	4.9	4.9
Share based compensation	3.7	0.1	0.2	—	4.0
Impairment of intangible assets	—	—	0.5	—	0.5
Acquisition related deferred incentive compensation	1.3	—	0.2	—	1.5
Net unrealized gain on investment	—	—	—	(0.3)	(0.3)
Investment distribution income	—	—	—	(0.4)	(0.4)
Transaction costs	—	—	—	0.6	0.6
Adjusted Operating Income	33.5	12.6	13.7	(2.1)	57.7
Depreciation and amortization	13.8	8.4	1.9	—	24.1
Adjusted EBITDA	47.3	21.0	15.6	(2.1)	81.8

(US$ millions)	Q3 2021
	Toys	Entertainment	Digital Games	Corporate & Other	Total
Revenue	607.8	52.9	53.8	—	714.5
Operating Income	128.0	18.2	24.2	9.1	179.5
Restructuring expense	0.4	—	—	—	0.4
Foreign exchange gain	—	—	—	(10.8)	(10.8)
Share based compensation	3.4	0.1	0.6	—	4.1
Acquisition related deferred incentive compensation	1.5	—	1.2	—	2.7
Investment distribution income	—	—	—	(0.2)	(0.2)
Transaction costs	—	—	—	0.1	0.1
Gain on disposal of asset	(0.2)	—	—	—	(0.2)
Adjusted Operating Income	133.1	18.3	26.0	(1.8)	175.6
Depreciation and amortization	13.4	26.9	1.4	—	41.7
Adjusted EBITDA	146.5	45.2	27.4	(1.8)	217.3

(US$ millions)	Q4 2021
	Toys	Entertainment	Digital Games	Corporate & Other	Total
Revenue	542.0	28.5	50.0	—	620.5
Operating Income	14.6	12.1	17.3	(4.9)	39.1
Restructuring expense	1.2	—	0.2	—	1.4
Foreign exchange gain	—	—	—	(0.7)	(0.7)
Share based compensation	3.5	0.1	0.4	—	4.0
Impairment of goodwill	1.9	—	—	—	1.9
Impairment of intangible assets	—	1.2	—	—	1.2
Acquisition related deferred incentive compensation	1.5	—	1.1	—	2.6
Net unrealized loss on investment	—	—	—	0.3	0.3
Acquisition related contingent consideration	3.4	—	—	—	3.4
Transaction costs	—	—	—	2.1	2.1
Adjusted Operating Income	26.1	13.4	19.0	(3.2)	55.3
Depreciation and amortization	14.7	6.3	2.0	—	23.0
Adjusted EBITDA	40.8	19.7	21.0	(3.2)	78.3

SOURCE Spin Master Corp.