aNb Media News, May 12, 2016

Spin Master Reports Q1 2016

Spin Master Corp. announced its financial results for the first quarter ended March 31, 2016.

“We are very pleased with our operating and financial results for Q1 2016, which demonstrated strong revenue and profitability growth,” said Anton Rabie, chairman and co-CEO of Spin Master. “The acquisition of Cardinal in late 2015 drove strong growth in the quarter in our Activities, Games & Puzzles, and Fun Furniture segment, while the continuing strength of PAW Patrol led to similar growth in the Preschool and Girls segment. We were also active on the acquisition front in the first quarter of 2016, completing two acquisitions. We acquired the iconic Etch A Sketch and Doodle Sketch brands, including all brand-related patents, trademarks, tooling, and inventory. Etch A Sketch and Doodle Sketch are iconic brands, and are ideally positioned for the development of value-added initiatives through our proven innovation model. We also completed the purchase of the library of board games owned by Editrice Giochi SRL, known for quality game products in the Italian market for more than 70 years.”

Q1 2016 Financial Highlights

  • Revenue of $161.7 million increased 51.9 percent from $106.5 million in Q1 2015
  • In constant currency terms revenue increased by 53.8 percent in Q1 2016 relative to the comparable period in 2015
  • Gross Product Sales increased 49 percent to $173.8 million, compared to $116.6 million in Q1 2015
  • Q1 2016 featured strong contributions from PAW Patrol, Air Hogs Batmobile, and products associated with the upcoming Angry Birds and Secret Life of Pets movies as well as Bunchems. Games and puzzles from the acquisition of Cardinal Industries in Q4 2015 also contributed strongly to Q1 2016 results.
  • On a geographic basis, Spin Master’s strong global platform drove gross product sales increases of 58.3 percent in North America, 53.1 percent in the Rest of World, and 23.6 percent in Europe
  • Other revenue, which primarily reflects merchandising royalty and television distribution income from products marketed by third parties using Spin Master’s owned intellectual property, increased 68.4 percent from $3.6 million in Q1 2015 to $6 million in Q1 2016
  • Gross profit increased 50.6 percent in Q1 2016 to $85.4 million, representing 52.8 percent of revenue, compared with $56.7 million, or 53.3 percent of revenue in Q1 2015; the reduction in gross margin was primarily attributable to the impact of Cardinal, partially offset by increased merchandising royalty income from sales of products under owned brands and on-going productivity initiatives
  • Selling, general and administrative expenses for the first quarter of 2016 represented 45.9 percent of revenue compared to 49.2 percent in Q1 2015, reflecting the company’s strong operating leverage, partially offset by increased marketing spend, primarily to support new product launches
  • Net income of $9.9 million, or $0.10 per share, increased substantially from $1.7 million in the comparable period in 2015
  • Adjusted Net Income was $11.6 million, or $0.12 per share, significantly above the Q1 2015 level of $3.4 million
  • Adjusted EBITDA increased 135.2 percent to $24 million in Q1 2016 compared with $10.2 million in Q1 2015; adjusted EBITDA margins increased to 14.8 percent in Q1 2016 from 9.6 percent in Q1 2015
  • Free Cash Flow was $16.4 million in Q1 2016 compared to $(8.2) million for the same period in 2015
  • The acquisitions of Editrice Giochi SRL and the Etch A Sketch and Doodle Sketch brands were completed in the quarter
  • Subsequent to the end of the quarter, Spin Master announced the acquisition of the Toca Boca and Sago Mini companies from the Bonnier Group of Sweden. The company also announced the formation of an Australian subsidiary Spin Master Australia (Pty) Ltd., which will begin activities in 2017 and will assume distribution of the majority of Spin Master’s brands for Australia.

Q1 2016 Business Segment Gross Product Sales

First quarter 2016 gross product sales in the Activities, Games & Puzzles, and Fun Furniture segment increased 75.5 percent from Q1 2015, primarily reflecting the acquisition of Cardinal. Excluding Cardinal, gross product sales in the Activities, Games & Puzzles, and Fun Furniture segment grew 12.6 percent driven by growth in Bunchems and Marshmallow Fun Furniture. In the Remote Control and Interactive Characters segment, gross product sales increased by 23.2 percent compared to Q1 2015. Growth was primarily driven by strength in the Air Hogs brand, including the Millennium Falcon, highlighting the continued momentum of the Star Wars license, the Batmobile, which was tied to the recent launch of the Batman v Superman movie, and the 360 Hoverblade. In the Boys Action and High-Tech Construction segment, gross product sales decreased 14.2 percent compared to Q1 2015, reflecting lower sales of toys from How to Train Your Dragon and Teenage Mutant Ninja Turtles, partially offset by the initial shipments of toys related to the upcoming Angry Birds and Secret Life of Pets movies. In the Preschool and Girls segment, continuing strength in Spin Master’s owned PAW Patrol franchise, and growth in Chubby Puppies, drove an 80.9 percent sales increase over Q1 2015.

2016 Outlook

For the full year, Spin Master now expects organic gross product sales growth to be above the previous guidance provided in connection with the release of fiscal 2015 results in March 2016, which was at the upper end of the company’s long term growth target range of mid to high single digits. Spin Master now expects gross product sales to grow in the mid-teens, relative to 2015. From a seasonality perspective, Spin Master also expects gross product sales for the first half of 2016 to vary from historic seasonality patterns and previous guidance, which was at the high end of the typical seasonality range of 25 percent to 30 percent of total gross product sales. The company now expects gross product sales for the first half of 2016 to represent between 30 percent and 35 percent of total gross product sales. Adjusted EBITDA margins for 2016 are expected to be consistent with prior guidance and comparable to 2015.

Note: Spin Master says that comparative Q1 2015 financial results presented here reflect its results as a private company, prepared to conform to the company’s financial reporting standards under International Financial Reporting Standards as a public company.

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