Spin Master Reports Q2 2020 Financial Results

TORONTO, Aug. 5, 2020 /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 second quarter ended June 30, 2020. The Company's full Management's Discussion and Analysis ("MD&A") for the three and six month ended June 30, 2020 is available on SEDAR (www.sedar.com) and posted on the Company's web site at www.spinmaster.com/financial-info.php.

"This quarter we demonstrated meaningful progress towards resolving the operational challenges we experienced in 2019" said Ronnen Harary, Spin Master's Co-Chief Executive Officer.  "We are incredibly proud of the global Spin Master team, who remained focused on driving improvements across the company, while also managing through the complexity of COVID-19 for the full quarter.  Our performance in the second quarter, which showed strong POS across most of our key brands, highlights the resilience of the toy industry, the strength of our diversified portfolio of brands, entertainment franchises and digital toys and our global platform.  This is underpinned by our strong financial base, which positions us well for long term success. Looking forward, global economies are reopening but risk remains elevated and we are taking a cautiously optimistic approach to the second half. New opportunities continue to emerge, and we are prepared to take advantage as they arise."

"Our overall performance in the second quarter was stronger than expected, despite the disruption from COVID-19" said Mark Segal, Spin Master's Chief Financial Officer. "Our global supply chain team responded well to the evolving environment and we made significant progress from an operational efficiency, profitability and cash flow perspective relative to Q1. Our financial position remains solid and we continue to have substantial liquidity available. As the year progresses, we will continue to focus on strengthening our core in order to build and maintain an efficient, high margin and sustainable global platform positioned for long term growth."

Q2 2020 Financial Highlights as compared to the same period in 2019¹ 

• Total Revenue of US$281.1 million decreased by 12.4% from US$321.0 million. In Constant Currency¹ terms, revenue decreased by 13.4%.
• Gross Product Sales¹ decreased by 10.9% to US$282.2 million from US$316.8 million. In Constant Currency¹ terms, Gross Product Sales¹ decreased by 12.0%. Decreases in Pre-School & Girls, Boys Action & Construction and Remote Control & Interactive Characters were offset by increases in Activities, Games, Puzzles & Plush, as well as Outdoor.
• Gross Product Sales¹ increased slightly in North America and declined by 21.6% in Europe and 42.4% in Rest of World. International Gross Product Sales¹ were 27.7% of total Gross Product Sales¹, compared with 35.6%.
• Other revenue decreased by 6.3% to US$28.5 million, driven by lower royalty income from products marketed by third parties using Spin Master's owned intellectual property and television distribution revenue, offset in part by higher app revenue from Toca Boca and Sago Mini.
• Sales Allowances¹ increased by US$3.4 million to US$29.6 million, primarily driven by an increase in non-compliance charges resulting from the operational challenges which arose in the second half of 2019, partially offset by a change in geographic mix due to higher sales in North America relative to Europe. As a percentage of Gross Product Sales¹, Sales Allowances¹ increased 2.2% to 10.5% from 8.3%.
• Gross profit was US$118.2 million, representing 42.0% of revenue, compared to US$164.3 million or 51.2% of revenue. The decline in gross margin was primarily due to unfavourable changes in product mix, higher Sales Allowances and inbound in freight-related expenses and costs incurred as a result of the Company's ongoing operational improvement initiatives.
• Selling, general and administrative expenses (SG&A)² declined 16.6%. As a percentage of revenue SG&A² expenses were 40.8%, compared to 42.9%. The improvement was primarily driven by lower marketing costs, partially offset by higher warehouse and outbound freight costs.
• Net loss was US$14.9 million or loss per share of US$0.15, compared to net income of US$10.2 million or earnings per share of US$0.10 (diluted).
• Adjusted Net Loss¹ was US$9.5 million or loss per share of US$0.09, compared to Adjusted Net Income¹ of US$19.8 million or earnings per share of US$0.19 (diluted).
• Adjusted EBITDA¹ was US$21.5 million compared to US$55.1 million. Adjusted EBITDA Margin¹ was 7.6% compared to 17.2%.
• Free Cash Flow¹ was negative US$9.8 million compared to positive US$18.6 million. Including changes in working capital, Free Cash Flow was US$40.2 million compared to negative US$34.7 million.
• During the quarter, Spin Master repaid US$50.0 million of its Credit Facility and as at June 30, 2020, the outstanding balance of the Credit Facility was US$300.0 million. The Company had cash on hand of US$410.8 million at the end of the quarter.