Spin Master Reports Q2 Financial Results

Spin Master Corp. shared its financial results for the second quarter ending on June 30.

Q2 2018 Financial Highlights as compared to the same period in 2017

• Revenue of $311.5 million increased 12.6 percent from $276.7 million.
• In constant currency terms, revenue increased by 11.8 percent.
• Gross product sales increased 4.6 percent to $296.2 million, compared to $283.2 million, driven by sales of Hatchimals Colleggtibles, games and puzzles,and activities, and partially offset by declines in Air Hogs and Zoomer.
• Gross product sales increased 3.0 percent in North America and 26.6 percent in Rest of World but declined 7.1 percent in Europe. International gross product sales on a combined basis were 32.0 percent of total gross product sales, increasing from 30.9 percent.
• Other revenue, which primarily reflects merchandising royalty and TV distribution income from products marketed by third parties using Spin Master’s owned intellectual property, as well as app revenue from Toca Boca and Sago Mini, increased 88.4 percent to $33.1 million compared to $17.6 million.
• Gross profit increased 8.4 percent to $153.2 million, representing 49.2 percent of revenue, compared with $141.4 million, or 51.1 percent of revenue in Q2 last year. The decrease in gross margin was driven primarily by product mix and entertainment amortization, which was offset in part by higher licensing and merchandising revenue and lower sales allowances.
• Selling, general and administrative expenses (SG&A), excluding share-based compensation expenses associated with equity participation agreements at the initial public offering, represented 41.3 percent of revenue compared to 39.4 percent in Q2 last year. The increase is primarily due to higher marketing costs and personnel costs attributable to the Gund acquisition and the mark-to-market on the company’s LTIP.
• Net income was $26.9 million, or $0.26 per share, compared with $22.1 million, or $0.22 per share. The increase is a result of higher gross profit and other income arising from a successful legal settlement, offset by increased SG&A.
• Adjusted net income was $17.7 million, or $0.17 per share, compared to $22.2 million, or $0.22 per share.
• Adjusted EBITDA increased 3.8 percent to $45.4 million from $43.7 million. Adjusted EBITDA Margin decreased to 14.6 percent from 15.8 percent. This decline was largely driven by increased SG&A, partially offset by higher gross margin, adjusted for entertainment amortization.
• Free cash flow was $19.5 million compared to $24.8 million primarily due to lower cash flow from operating activities and increased capital expenditures.
• On April 2, the company acquired certain assets relating to the Gund line of business from Enesco LLC for approximately $77.3 million. The purchase price was financed from internally generated cash resources and the company’s credit facility. Gund is included in the activities, games and puzzles, and fun furniture business segment.
• Subsequent to the end of the quarter, on July 10, the company amended its credit facility and extended the maturity date from December 2021 to July 2023.

Q2 2018 Category Gross Product Sales as Compared to the Same period in 2017
Gross product sales in activities, games and puzzles and fun furniture increased 49.1 percent in Q2, primarily driven by the Games portfolio, which includes Cardinal and Marbles, Gund, Cool Maker branded products and Kinetic Sand, offset by decreases in Bunchems and Build-A-Bear.

Gross product sales in R/C and interactive characters decreased by 18.7 percent in Q2, primarily due to a decline in Hatchimals, Air Hogs andZoomer, partially offset by increased sales of Hatchimals Colleggtibles, Luvabella and Moonlite. Gross product sales in boys action and high-tech construction increased 20.5 percent in Q2, primarily due to sales of Tech Deck and Boxer as well as discontinued Star Wars licensed products, offset by lower sales of Meccano and Pirates of the Caribbean licensed products. Gross product sales in pre-school and girls decreased 3.1 percent in Q2, with higher sales of Party Popteenies, Twisty Petz and Rusty Rivets products, more than offset by lower sales of Paw Patrol, Zhu Zhu Pets and Chubby Puppies. Gross products sales in outdoor decreased 1.5 percent.

June 30, 2018 Year to Date (YTD) Financial Highlights as Compared to the Same Period in 2017

• Revenue of $597.2 million increased 18.4 percent from $504.4 million.
• In constant currency terms, revenue increased by 16.3 percent.
• Gross product sales increased 14.1 percent to $584.2 million, compared to $512.3 million, driven by sales of Hatchimals, Hatchimals Colleggtibles, Gund, Cool Maker branded products and the games and puzzles portfolio.
• Gross product sales increased 10.3 percent in North America, 13.7 percent in Europe and 35.4 percent in Rest of World. International gross product sales on a combined basis represented 33.9 percent of total gross product sales increasing from 31.6 percent.
• Other revenue increased 65.3 percent to $62.9 million compared to $38.1 million.
• Gross profit increased 18.6 percent to $302.0 million, representing 50.6 percent of revenue, compared with $254.7 million, or 50.5 percent of revenue.
• SG&A expenses, excluding share-based compensation expenses associated with equity participation agreements at the initial public offering, represented 43.9 percent of revenue compared to 40.4 percent. SG&A expenses, excluding the Toys “R” Us bad debt charge in Q1 2018, represented 41.3 percent of revenue.
• Net income was $35.6 million, or S$0.35 per share, an increase of 10.6 percent from $32.2 million, or $0.32 per share.
• Adjusted net income was $39.7 million, or $0.39 per share, an increase of 11.0 percent from $35.8 million, or $0.35 per share.
• Adjusted EBITDA was $88.6 million, up 18.9 percent from $74.5 million. Adjusted EBITDA margin was flat at 14.8 percent.
• Free cash flow was $(8.8) million compared to $29.8 million.

YTD June 30, 2018 Category Gross Product Sales as Compared to the Same Period in 2017
Gross product sales in activities, games and puzzles, and fun furniture increased 35.9 percent, primarily driven by sales of the games and puzzles portfolio, offset by decreases in Bunchems, Rube Goldberg and Build a Bear.

Gross product sales in R/C and Interactive Characters increased 22.2 percent, primarily due to Hatchimals, Hatchimals Colleggtibles and Luvabella, offsetting declines in Air Hogs and Zoomer.

Gross product sales in boys action and high-tech construction increased 23.3 percent, driven by Flush Force, Tech Deck and discontinued Star Wars licensed products, partially offset by decreased sales of Meccano and Pirates of the Caribbean licensed products.

Gross product sales in pre-school and girls decreased 2.8 percent, primarily driven by declines in Teletubbies and Power Puff Girls licensed products, Zhu Zhu Pets and PAW Patrol, partially offset by increased sales of Party Popteenies and Twisty Petz. Gross product sales in outdoor increased 3.9 percent, from products under the Swimways, Aerobie, Kelsyus, and Coop brands.