Spin Master Reports Q3 2016
Spin Master Corp. announced its financial results for the third quarter ended September 30, 2016.
“The momentum we have recently demonstrated continued in the third quarter of 2016,” said Anton Rabie, chairman and co-CEO of Spin Master. “In addition to our solid financial performance, the quarter was highlighted by the continued successful execution of our growth strategy. This was evidenced by our entry into the growing Outdoor and Sports Toys category through the acquisition of Swimways Corporation, and our ability to innovate as demonstrated by the introduction of Hatchimals. Initial shipments and retail sell-through of Hatchimals has been very strong, with retailers reporting exceptional customer response.”
Spin Master’s Q3 2016 Financial Highlights
- Revenue of $475 million increased 22.8 percent from $386.8 million in Q3 2015. Excluding Cardinal Industries, which was acquired in Q4 2015, revenue grew 11.7 percent
- In constant currency terms, revenue increased by 23.6 percent relative to Q3 2015
- Gross product sales increased 18 percent to $518.6 million, compared to $439.5 million in Q3 2015. Excluding Cardinal, which was acquired in Q4 2015, gross product sales grew 7.7 percent
- On a geographic basis, Spin Master’s strong global platform drove gross product sales increases of 47.3 percent in Europe, 12.3 percent in North America, and 12.1 percent in the Rest of World
- Other revenue, which primarily reflects merchandising royalty and television distribution income from products marketed by third parties using Spin Master’s owned intellectual property, in addition to app revenue from Toca Boca and Sago Mini, increased 277.5 percent to $17.3 million in Q3 2016, compared to $4.6 million in Q3 2015
- Gross profit increased 20.7 percent to $247.7 million, representing 52.2 percent of revenue, compared with $205.2 million, or 53.1 percent of revenue in Q3 2015. The 0.9 percent decline in gross margin was primarily due to product mix related to Cardinal, partially offset by higher licensing and merchandising income
- Selling, general, and administrative expenses, excluding share-based compensation expenses, represented 26.2 percent of revenue compared to 23.8 percent in Q3 2015, attributable in part to higher distribution costs, acquisition costs, and increased marketing expenditures
- Net income was $83.3 million, equivalent to $0.82 per share, compared with $51.1 million in Q3 2015
- Adjusted net income was $87.5 million, or $0.86 per share, compared to $80.4 million in Q3 2015
- Adjusted EBITDA was $133.3 million compared with $118.7 million in Q3 2015; adjusted EBITDA Margins were 28.1 percent in Q3 2016 compared to 30.7 percent in Q3 2015, reflecting lower gross margins, acquisition costs, increased distribution costs, and marketing expenditures partially offset by higher licensing and merchandising income
- Free Cash Flow was $117.2 million compared to $75.8 million for Q3 2015
- On August 2, 2016, Spin Master acquired Swimways Corporation for $85 million in cash plus an earn-out of up to $8.5 million over four years based on Swimways’ sales growth. Swimways, headquartered in Virginia Beach, Va., with an office in Guangzhou, China, a manufacturing and distribution facility in Tarboro, N.C., and a team of 149 employees, has a diverse portfolio of toys, games, and sporting goods for the pool, beach, and backyard. Swimways’ products are sold under the brands Swimways, Kelsyus, and Coop, and include the patented Spring Float line of products, complemented by pool category licenses from a number of popular entertainment franchises. In conjunction with the acquisition, Spin Master formed a new Outdoor business segment
- On September 13, 2016, Spin Master acquired the exclusive global manufacturing and distribution rights for certain Cepia, LLC product lines, including the relaunch of the global 2007 toy phenomenon, ZhuZhu Pets
Q3 2016 and Q3 YTD Business Segment Gross Product Sales as Compared to the Same Periods in 2015
Gross Product Sales in the Activities, Games & Puzzles and Fun Furniture segment increased 67.7 percent and 74 percent for the Q3 and YTD periods, respectively, driven by the acquisition of Cardinal. Excluding the acquisition of Cardinal, gross product sales grew by 7.1 percent and 10.9 percent for the Q3 and YTD periods, respectively. Gross product sales in the Remote Control and Interactive Characters segment increased 7.6 percent and 3.8 percent in the Q3 and YTD periods, respectively, primarily due to initial shipments of Hatchimals, partially offset by decreases in sales of Zoomer and Air Hogs products. Gross Product Sales in the Boys Action and High Tech Construction segment decreased 37.8 percent and 17 percent in the Q3 and YTD periods, respectively, due to lower sales of Meccano, How to Train Your Dragon toys, and Star Wars licensed products, partially offset by sales of Secret Life of Pets and Angry Birds toys. Gross product sales in the Preschool and Girls segment increased 37.4 percent and 41.8 percent in the Q3 and YTD periods, respectively, due to the continued strength of the PAW Patrol franchise and shipments of Brightlings as well as products associated with the relaunch of Powerpuff Girls. Other revenue increased 277.5 percent and 219.3 percent for Q3 and YTD periods, respectively, primarily driven by increased merchandising royalty income from products marketed by third parties using Spin Master’s owned intellectual property and app revenue from Toca Boca and Sago Mini.
For the full year 2016, Spin Master now expects organic gross product sales growth to be slightly higher than the guidance provided in connection with the release of Q2 2016 results in August 2016, with organic gross product sales expected to grow in the high teens to low twenties percent range, relative to 2015. Previous guidance provided in connection with the release of Q2 2016 results in August 2016 expected organic gross product sales growth in the high-teens relative to 2015. From a seasonality perspective, Spin Master expects gross product sales to be in line with previous guidance provided in August 2016, with the first half of 2016 representing approximately 30 percent of total 2016 gross product sales and the second half representing approximately 70 percent. Adjusted EBITDA margins for 2016, excluding the Toca Boca and Swimways acquisitions, are expected to increase slightly compared with 2015. Adjusted EBITDA margins for 2016, including the Toca Boca and Swimways acquisitions, are expected to be in line with 2015.
Spin Master completed its Initial Public Offering on July 30, 2015. Accordingly, comparative 2015 financial results presented here reflect Spin Master’s results as a private company until July 30, 2015, prepared to conform to the company’s financial reporting standards under International Financial Reporting Standards as a public company.