Spin Master Reports Q3
Spin Master Corp. announced strong financial results for the third quarter and nine months ended September 30, 2015. On July 30, 2015, Spin Master completed its initial public offering.
(Spin Master says that comparative 2014 financial results presented here reflect its results as a private company, prepared to conform to its financial reporting standards under International Financial Reporting Standards as a public company.)
Q3 2015 Financial Highlights
- Revenue of $386.8 million increased 31.7 percent from $293.8 million in Q3 2014
- Revenue growth was driven by strong contributions from Paw Patrol- and Star Wars-licensed products, as well as product launches including Meccanoid, Bunchems, Chubby Puppies, and Little Charmers. This was offset in part by declines in sales of the Zoomer, Digi Bird, and Flutterbye Fairy lines, in addition to products associated with the How to Train Your Dragon movie
- Revenue was favorably impacted in part by operational efficiencies that allowed Spin Master to ship product in Q3 that may have historically been shipped in Q4
- In constant currency terms, revenue increased by 34.3 percent in Q3 2015 relative to the comparable period in 2014
- On a geographic basis, Spin Master’s strong global platform drove Gross Product Sales increases of 35.1 percent in North America, 45.4 percent in Europe, and 10.3 percent in the Rest of World
- Total gross profit was $205.2 million, representing 53.1 percent of revenue, compared with $149.8 million, or 51 percent of revenue in Q3 2014; the improvement in gross margin was primarily attributable to increased sales of products under owned brands and ongoing productivity initiatives
- Selling, general and administrative expenses for the quarter, excluding one-time costs associated with the IPO and the related issuance of stock-based compensation, represented 23.9 percent of revenue compared to 25 percent in Q3 2014
- Net income of $51.1 million, or $0.52 per share, was 7.3 percent below the comparable period in 2014, reflecting the effects of IPO-related expenses, including $43.4 million of stock-based compensation expense
- Adjusted Net Income of $74.1 million, or $0.79 per share, representing an increase of 32.3 percent over $56 million in the same period the previous year
- Adjusted EBITDA increased 47.7 percent to $118.7 million in Q3 2015 compared with $80.4 million in Q3 2014
- Adjusted EBITDA Margins increased to 30.7 percent in Q3 2015 from 27.4 percent in Q3 2014
- Free Cash Flow was $75.8 million in Q3 2015 compared to $72.6 million for the same period in 2014
“The momentum we demonstrated in the first half of 2015 continued in the third quarter,” said Anton Rabie, co-CEO and chairman of Spin Master. “We experienced particularly strong results from both the Preschool and Girls segment as well as the Boys Action and High-Tech Construction segment, reflecting the continued success of our Paw Patrol brand, the launch of Meccanoid and licensed products associated with the upcoming Star Wars movie.”
Ben Gadbois, president and COO of Spin Master said, “Our performance in the third quarter of 2015 was enhanced by a significant improvement in operational efficiency. This allowed us to ship product in Q3 that would normally be shipped in Q4. This will provide our retail customers with additional time for sell-through to consumers in the critical Christmas season, while also setting us up for a strong first half in 2016 as we refill the retail pipeline.”
September 30, 2015 Year-to-Date Results
For the nine months ended September 30, 2015, Spin Master generated revenue of $621 million, an increase of 29.9 percent from $478 million for the nine months ended September 30, 2014. In constant currency terms, revenue increased by 33.3 percent for the nine months ended September 30, 2015, relative to the comparable period in 2014. Gross profit in the first nine months of 2015 increased to $327.3 million, or 52.7 percent of revenue, compared with $240.1 million, or 50.2 percent of revenue in the first nine months of 2014.
Selling, general, and administrative expenses for the nine months ended September 30, 2015, represented 39.1 percent of revenue compared to 33.9 percent of revenue for the same period in 2014, reflecting the IPO-related expenses in the third quarter of 2015. Excluding IPO-related expenses selling, general, and administrative expenses for the nine months ended September 30, 2015, represented 32 percent of revenue. Net income for the nine months ended September 30, 2015, was $60.4 million, or $0.64 per share, an increase of 6.9 percent from $56.5 million in the first nine months of the previous year. Adjusted Net Income for the nine months ended September 30, 2015, was $85.9 million, or $0.97 per share, up 51.2 percent from $56.8 million in the first nine months of 2014.
Adjusted EBITDA for the nine months ended September 30, 2015, increased to $147.7 million, up 63.9 percent from $90.1 million for the same period in the previous year. Adjusted EBITDA Margins increased to 23.8 percent from 18.8 percent in the first nine months of 2014, reflecting margin expansion and continued positive operating leverage.
Free Cash Flow for the nine months ended September 30, 2015, was $73.4 million compared to $63.6 million for the same period in 2014.
Q3 2015 and Q3 YTD Business Segment Gross Product Sales
Third quarter 2015 gross product sales in the Activities, Games & Puzzles, and Fun Furniture segment was 25.4 percent above 2014 levels, slightly above the YTD increase. Increases were attributable to the launch of Bunchems, Text Cool, and Knit Cool as well as increased sales in Marshmallow furniture. In the Remote Control and Interactive Characters segment, gross product sales increased by 6 percent compared to Q3 2014, and by 6.9 percent on a YTD basis. Q3 growth was primarily driven by sales of Star Wars licensed Air Hogs, partially offset by lower sales of Zoomer and Digi Bird products, although Zoomer was up for the YTD period. In the Boys Action and High-Tech Construction segment, Gross Product Sales increased 52 percent in Q3 2015, with a small YTD increase recorded. The quarter was primarily driven by the launch of Meccanoid and Star Wars licensed products offset by lower sales of other licensed products, which also affected the YTD amounts. In the Preschool and Girls segment, Paw Patrol and the launches of Little Charmers and Chubby Puppies drove a 71.7 percent sales increase on a quarter-over-quarter basis and a 104.2 percent increase in the YTD period.
On October 2, 2015, subsequent to the quarter-end, Spin Master successfully completed the previously announced acquisition of Cardinal Industries, Inc., whose 2014 North American revenue exceeded $50 million. The acquisition moved Spin Master into the No. 2 market share position in the U.S. games sub-segment. Spin Master expects to grow Cardinal’s sales in Europe and other international markets by leveraging Spin Master’s strong global platform.
Activision Blizzard Launches Studio to Create Film, TV Content
Activision Blizzard announced the launch of Activision Blizzard Studios last Friday, which is a new film and television studio devoted to creating original content based on the company’s extensive library of intellectual properties. Activision Blizzard’s owned content includes Call of Duty, Skylanders, Diablo, Hearthstone, and StarCraft. Former Disney executive Nick van Dyk will co-head the division, along with a senior creative executive who Activision says will be announced soon.
Activision Blizzard Studios’ first production will be Skylanders Academy, an animated TV series based on the Skylanders game. Currently in production, it will feature the voices of Justin Long (Alvin and the Chipmunks, Ask Me Anything) as Spyro, Ashley Tisdale (Phineas and Ferb, High School Musical) as Stealth Elf, Jonathan Banks (Breaking Bad, Better Call Saul) as Eruptor, and Norm Macdonald (Saturday Night Live) as Glumshanks. Additional voice talent includes Harland Williams and Richard Horvitz.
Another near-term initiative for Activision Blizzard Studios will be the development of a cinematic universe based on the Call of Duty franchise as well as the possibility of television adaptations.
Nick van Dyk, formerly a long-time Walt Disney Company senior executive, will serve as Activision Blizzard Studios’ co-president, alongside a top creative executive who will be announced soon. Van Dyk will have responsibility for distribution, physical production, strategy, finance and operations, and will co-manage all aspects of the studio. Before joining Activision Blizzard last year, van Dyk spent nine years at Disney where, as senior vice-president of corporate strategy, he helped drive Disney’s focus on franchise intellectual properties and played a significant role in the acquisitions of Pixar, Marvel, and Lucasfilm. Prior to that, van Dyk was part of Artisan Entertainment’s senior management team.
The founding of Activision Blizzard Studios follows the company’s announcement on October 22 of a new e-sports division headed by former ESPN CEO Steve Bornstein and Major League Gaming co-founder and president Mike Sepso. The e-sports division will build on the company’s competitive gaming leadership by creating all-new ways to deliver the fan experience across games, platforms, and geographies. Activision also recently announced the acquisition of King Digital.