Maintains Outlook for 2019
TORONTO,
May 8, 2019 /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 first quarter ended March 31, 2019. The Company's full Management's
Discussion and Analysis for the three month period ended
March 31, 2019 is available on SEDAR
(www.sedar.com) and posted on the Company's web site at
www.spinmaster.com/financial-info.php.
"Our results for the first quarter fell below the prior
year's performance, reflecting the absence of shipments to Toys "R"
Us as well as the shift in the timing of Easter. Q1 saw a
number of successful toy license partnership launches, including
Monster Jam and How To Train Your Dragon, our
relaunch of the Bakugan toy and TV franchise, and
Abby Hatcher, our new
preschool TV series," said Ronnen
Harary, Spin Master's Chairman and Co-CEO. "We are
maintaining our outlook for 2019 and expect that the balance of the
year will be more reflective of the underlying strength of our
business. We manage Spin Master for the long term and as we execute
through the tail-end of a very disruptive retail environment, we
are confident that we are well positioned to drive profitable
long-term growth."
Q1 2019 Financial Highlights as compared to the same
period in 20181,3
- Revenue of US$239.0 million
decreased 16.3% from US$285.7
million. In Constant Currency2 terms, revenue
decreased by 14.3%.
- Gross Product Sales2 decreased 16.5% to
US$240.5 million, compared to
US$288.0 million.
Contributing to the decrease was the shift in the timing of
the Easter holiday to the second quarter of 2019 and the
absence of Toys "R" Us in Q1, 2019.
- Gross Product Sales2 decreased 23.4% in
North America and by 3.2% and 6.3%
in Europe and Rest of World
respectively. International Gross Product Sales2 on a
combined basis were 41.2% of total Gross Product Sales2,
increasing from 35.9%.
- Other revenue decreased by 3.1% to US$28.9 million, driven by lower royalty income
from products marketed by third parties using Spin Master's owned
intellectual property, offset in part by increased television
distribution revenue.
- Sales Allowances2 decreased by US$1.8 million to US$30.4
million. As a percentage of Gross Product Sales2,
Sales Allowances2 were 12.6% compared to
11.2%.
- Gross profit decreased 27.6% to US$107.7 million, representing 45.1% of revenue,
compared to US$148.8 million, or
52.1% of revenue. The decline in gross margin was primarily due to
higher amortization attributed to entertainment properties, a
change in product mix, increased freight related expenses and
higher sales allowances.
- Selling, general and administrative expenses ("SG&A")
decreased $8.2 million or 6.1%.
SG&A reflected a decrease of $15.2
million relating to the bad debt expense from the Toys "R"
Us bankruptcy recognized in Q1 2018, $2.3
million higher share based compensation costs and
$0.5 million lower restructuring
costs. Excluding these items, SG&A increased $5.2 million, and as a percentage of revenue was
51.1%, compared with 40.9%. This increase was driven by higher
distribution and administrative expenses, partially offset by lower
marketing expenses.
- Net loss was US$20.9
million, or loss per share of US$0.21, compared with net income of US$8.7 million, or earnings per share of
US$0.09.
- Adjusted Net Loss2 was US$12.5 million, or loss per share of
US$0.12, compared to Adjusted Net
Income2 of US$22.0
million, or earnings per share of US$0.22. The decline was driven primarily by
lower gross profit and higher depreciation and
amortization.
- Adjusted EBITDA2 was US$7.0 million compared with US$43.3 million. Adjusted EBITDA
Margin2 decreased to 2.9% compared to
15.1%.
- Free Cash Flow1 was negative US$39.8 million compared to negative US$28.3 million.
Q1 2019 Gross Product
Sales2 by
Business Segment (US$ millions)1
|
|
Q1 2019
|
Q1 2018
|
$ Change
|
% Change
|
Activities, Games
& Puzzles and Plush
|
$63.1
|
$57.6
|
5.5
|
|
9.4
|
%
|
Remote Control and
Interactive
Characters
|
$31.1
|
$91.1
|
(60.0)
|
|
(65.9)
|
%
|
Boys Action and
High-Tech
Construction
|
$49.4
|
$16.7
|
32.7
|
|
195.5
|
%
|
Pre-School and
Girls
|
$63.3
|
$82.6
|
(19.3)
|
|
(23.3)
|
%
|
Outdoor
|
$33.6
|
$40.0
|
(6.4)
|
|
(15.9)
|
%
|
Gross Product Sales2
|
$240.5
|
$288.0
|
(47.5)
|
|
(16.5)
|
%
|
Sales
Allowances2
|
$30.4
|
$32.1
|
(1.7)
|
|
(5.6)
|
%
|
Total Net Sales2
|
$210.1
|
$255.9
|
(45.8)
|
|
(17.9)
|
%
|
Other
Revenue
|
$28.9
|
$29.8
|
(0.9)
|
|
(3.1)
|
%
|
Revenue
|
$239.0
|
$285.7
|
(46.7)
|
|
(16.3)
|
%
|
Q1 2019 Business Segment Gross Product
Sales2 as compared to the same period in
20181
Gross Product Sales decreased by $47.5 million, or 16.5%, to $240.5 million with an unfavourable foreign
exchange impact of $5,678 or 2.0%.
Contributing to the decrease was the shift in the Easter holiday
which occurred in the second quarter of 2019 compared to the first
quarter in 2018, and the absence of Toys "R" Us in the first
quarter of 2019 compared to the first quarter of 2018.
Gross Product Sales in Activities, Games &
Puzzles and Plush increased by $5.5
million or 9.4% to $63.1
million. The increase was driven primarily by sales of
GUND plush products and increases in Kinetic Sand and
Cool Maker, partially offset by decreases in
Bunchems, Marshmallow furniture and the Games &
Puzzles portfolio which includes Cardinal.
Gross Product Sales in Remote Control and Interactive
Characters decreased by $60.0 million
or 65.9% to $31.1 million, driven by
decreases in Hatchimals, Luvabella and
Zoomer.
Gross Product Sales in Boys Action and
High‑Tech Construction increased by
$32.7 million or 195.5% to
$49.4 million. The increase was
primarily driven by sales of DreamWorks Dragons, Monster
Jam and Bakugan, partially offset by declines in
Flush Force, Tech Deck and Meccano.
Gross Product Sales in
Pre‑School and Girls decreased by
$19.3 million or 23.3% to
$63.3 million. The decrease was
primarily driven by declines in PAW Patrol, partially offset
by sales of Twisty Petz.
Gross Product Sales in Outdoor, comprised of sales of
products under the Swimways, Kelsyus, Coop and
Aerobie brands, decreased by $6.4
million or 15.9% to $33.6
million.
"We remain focused on executing against our four key
growth strategies, which we believe provides us with a strong
platform for sustainable long-term success," said Ben Gadbois,
Spin Master's President and Chief Operating Officer. "We are
confident that Spin Master can deliver solid growth in the second
half of the year. The underlying strength of our global
infrastructure and our innovative portfolio of products,
complemented by engaging entertainment, new licenses, and a strong
balance sheet, positions us well to drive profitable growth in the
near and long-term, both organically and through strategic
acquisitions."
Outlook
Spin Master continues to focus on driving growth. Its
principle strategies, which remain unchanged for 2019,
include:
- Innovating across the portfolio;
- Developing evergreen global entertainment
properties;
- Increasing international sales in developed and emerging
markets; and
- Leveraging the Company's global platform through
strategic acquisitions.
On a full year comparative basis,
the Company expects:
- to grow organic Gross Product Sales2 in the
low single digit range relative to 2018;
- seasonality of Gross Product Sales2 for 2019
to be approximately 30%-33%% in H1; and
- to deliver Adjusted EBITDA Margin2 for 2019 in
line with 2018.
Conference call
Ronnen Harary, Chairman and
Co-Chief Executive Officer, Ben
Gadbois, Global President & Chief Operating Officer, and
Mark Segal, Executive Vice President
and Chief Financial Officer will host a conference call to discuss
these results on Thursday, May 9th,
2019 at 9:30 a.m. (ET).
The call-in numbers for participants are (647) 427-7450 or
(888) 231-8191. A live webcast of the call will be accessible via
Spin Master's website at:
http://www.spinmaster.com/events.php. Following the
call, both an audio recording and transcript of the call will be
archived on the same website page.
About Spin Master
Spin Master (TSX:TOY; www.spinmaster.com) is a
leading global children's entertainment company that creates,
designs, manufactures, licenses and markets a diversified portfolio
of innovative toys, games, products and entertainment properties.
Spin Master is best known for award-winning brands including
Zoomer®, Bakugan®,
Erector® by Meccano®,
Hatchimals®, Air Hogs® and PAW
Patrol®. Since 2000, Spin Master has received 103 TIA
Toy of The Year (TOTY) nominations with 30 wins across a variety of
product categories, including 13 TOTY nominations for Innovative
Toy of the Year. To date, Spin Master has produced nine television
series, including the relaunched Bakugan: Battle Planet and current
hit PAW Patrol, which is broadcast in over 160 countries and
territories globally. Spin Master employs over 1,800 people in
countries around the world including Canada, United
States, Mexico, France, Italy, United Kingdom,
Russia, Slovakia, Poland, Germany, Sweden, the Netherlands, China, Hong
Kong, Japan, Vietnam,
India and Australia.
Non-IFRS Financial Measures
In addition to using financial measures prescribed under
IFRS, references are made in this MD&A to "EBITDA", "Adjusted
EBITDA", "Adjusted EBITDA Margin", "Adjusted Net (Loss) Income",
"Free Cash Flow", "Gross Product Sales", "Constant Currency",
"Sales Allowances" and "Total Net Sales" which are non-IFRS
financial measures. Non-IFRS financial measures do not have any
standardized meaning prescribed by IFRS and are therefore unlikely
to be comparable to similar measures presented by other
issuers.
EBITDA is calculated as net (loss) earnings before finance
costs, income tax expense and depreciation and
amortization.
Adjusted EBITDA is calculated as EBITDA excluding
normalization adjustments, non-recurring items that do not
necessarily reflect the Company's underlying financial performance.
Normalization adjustments include restructuring costs, foreign
exchange gains or losses, equity-settled share-based compensation
expenses and bad debt expense. Adjusted EBITDA is used by
management as a measure of the Company's profitability.
Adjusted EBITDA Margin is calculated as Adjusted EBITDA
divided by Revenue. Management uses Adjusted EBITDA Margin to
evaluate the Company's performance compared to internal targets and
to benchmark its performance against key competitors.
Adjusted Net (Loss) Income is calculated as net (loss)
income excluding normalization adjustments, as defined above, and
the corresponding impact these items have on income tax expense.
Management uses Adjusted Net (Loss) Income to measure the
underlying financial performance of the business on a consistent
basis over time.
Constant Currency represents Revenue and Gross Product
Sales results that are presented excluding the impact from changes
in foreign currency exchange rates. The current period and prior
period results for entities reporting in currencies other than the
US dollar are translated using consistent exchange rates, rather
than using the actual exchange rate in effect during the respective
periods. The difference between the current period and prior period
results using the consistent exchange rates reflects the changes in
the underlying performance results, excluding the impact from
fluctuations in foreign currency exchange rates.
Free Cash Flow is calculated as cash flows provided
by/used in operating activities before changes in net working
capital and after cash flows used in investing activities before
cash used in license, brand and business acquisitions. Management
uses the Free Cash Flow metric to analyze the cash flow being
generated by the Company's business.
Gross Product Sales represent sales of the Company's
products to customers, excluding the impact of Sales Allowances. As
Sales Allowances are generally not associated with individual
products, the Company uses changes in Gross Product Sales to
provide meaningful comparisons across product category and
geographical segment results to highlight trends in Spin Master's
business. For a reconciliation of Gross Product Sales to Revenue,
please see the table "Q1 2019 Gross Product Sales by Business
Segment" in this Press Release.
Sales Allowances represent marketing and sales credits
requested by customers relating to factors such as cooperative
advertising, contractual discounts, negotiated discounts, customer
audits, volume rebates, defective products and costs incurred by
customers to sell the Company's products and are recorded as a
reduction to Gross Product Sales. Management uses Sales Allowances
to identify and compare the cost of doing business with individual
retailers, different geographic markets and amongst various
distribution channels.
Total Net Sales represents Gross Product Sales less Sales
Allowances. Management uses Total Net Sales to evaluate the
Company's total net revenue generating capacity compared to
internal targets and as a measure of Company
performance.
Management believes the non-IFRS measures defined above
are important supplemental measures of operating performance and
highlight trends in the core business that may not otherwise be
apparent when relying solely on IFRS financial measures. Management
believes that these measures allow for assessment of the Company's
operating performance and financial condition on a basis that is
more consistent and comparable between reporting periods. The
Company believes that lenders, securities analysts, investors and
other interested parties frequently use these non-IFRS financial
measures in the evaluation of issuers.
|
Three Months Ended March 31
|
(in USD 000's, except
percentages)
|
2019
|
2018 7
|
$
|
% Change
|
Reconciliation of
Non-IFRS Financial Measures
|
|
|
|
|
|
Net (loss)
income
|
(20,902)
|
8,699
|
|
(29,601)
|
(340.3)
|
%
|
|
Income tax (recovery)
expense
|
(7,566)
|
3,128
|
|
(10,694)
|
(341.9)
|
%
|
|
Finance
costs
|
2,667
|
1,600
|
|
1,067
|
66.7
|
%
|
|
Depreciation and
amortization
|
21,422
|
11,438
|
|
9,984
|
87.3
|
%
|
EBITDA (1)
|
(4,379)
|
24,865
|
|
(29,244)
|
(117.6)
|
%
|
Normalization
Adjustments:
|
|
|
|
|
|
|
|
Restructuring expense
(2)
|
673
|
1,215
|
|
(542)
|
(44.6)
|
%
|
|
Foreign exchange loss
(3)
|
6,379
|
3
|
|
6,376
|
n.m
|
|
Share based
compensation (4)
|
4,357
|
2,027
|
|
2,330
|
114.9
|
%
|
|
Bad debt expense
(5)
|
—
|
15,152
|
|
(15,152)
|
(100.0)
|
%
|
Adjusted EBITDA (1) (7)
|
7,030
|
43,262
|
|
(36,232)
|
(83.8)
|
%
|
|
Income tax (recovery)
expense
|
(7,566)
|
3,128
|
|
(10,694)
|
(341.9)
|
%
|
|
Finance
costs
|
2,667
|
1,600
|
|
1,067
|
66.7
|
%
|
|
Depreciation and
amortization
|
21,422
|
11,438
|
|
9,984
|
87.3
|
%
|
|
Tax effect of
normalization adjustments (6)
|
2,969
|
5,077
|
|
(2,108)
|
(41.5)
|
%
|
Adjusted Net (Loss) Income (1)
|
(12,462)
|
22,019
|
|
(34,481)
|
(156.6)
|
%
|
|
|
|
|
|
|
|
Cash provided by operations
|
(6,176)
|
11,099
|
|
(17,275)
|
(155.6)
|
%
|
Plus:
|
|
|
|
|
|
|
Changes in net
working capital
|
(12,078)
|
(13,336)
|
|
1,258
|
(9.4)
|
%
|
Cash (used in)
provided by operating activities before net working capital
changes
|
(18,254)
|
(2,237)
|
|
(16,017)
|
716.0
|
%
|
Less:
|
|
|
|
|
|
Cash used in
investing activities
|
(21,570)
|
(27,097)
|
|
5,527
|
(20.4)
|
%
|
Plus:
|
|
|
|
|
|
|
Cash used for
license, brand and business acquisitions
|
—
|
1,000
|
|
(1,000)
|
(100.0)
|
%
|
Free Cash Flow (1)
|
(39,824)
|
(28,334)
|
|
(11,490)
|
40.6
|
%
|
|
|
1)
|
Non-IFRS financial
measure. See "Non-IFRS Financial Measures"
|
2)
|
Restructuring expense
primarily relates to personnel related costs
|
3)
|
Includes foreign
exchange losses generated by the translation of monetary
assets/liabilities denominated in a
currency other than the functional currency of the applicable
entity and losses related to the Company's hedging
pogroms
|
4)
|
Related to non-cash
expenses associated with subordinate voting shares granted to
equity participants at the time of
the IPO and share option expense. As of August 1, 2018, share based
compensation includes non-cash expenses
related to the Company's LTIP
|
5)
|
Non-recurring bad
debt expense related to the bankruptcy declaration and liquidation
proceedings of TRU during the
first quarter of 2018
|
6)
|
Tax effect of
normalization adjustments (Footnotes 2-5). Normalization
adjustments are tax effected at the effective tax
rate of the given period
|
7)
|
The comparative
information presented for 2018 has not been restated for the
adoption of IFRS 16. The impact of
IFRS 16 on Adjusted EBITDA would be an increase of $2,363 for
2018
|
Forward-Looking Statements
Certain statements, other than statements of historical
fact, contained in this Press Release constitute "forward-looking
information" within the meaning of certain securities laws,
including the Securities Act (Ontario), and are based on expectations,
estimates and projections as of the date on which the statements
are made in this Press Release. The words "plans", "expects",
"projected", "estimated", "forecasts", "anticipates", "indicative",
"intend", "guidance", "outlook", "potential", "prospects", "seek",
"strategy", "targets" or "believes", or variations of such words
and phrases or statements that certain future conditions, actions,
events or results "will", "may", "could", "would", "should",
"might" or "can", or negative versions thereof, "be taken",
"occur", "continue" or "be achieved", and other similar
expressions, identify statements containing forward-looking
information. Statements of forward-looking information in this
Press Release include, without limitation, statements with respect
to: the Company's outlook for 2019; future growth expectations;
financial position, cash flows and financial performance; drivers
for such growth; impact of acquisitions on future financial
performance; the successful execution of its strategies for
growth; and the seasonality of financial results
and performance.
Forward-looking statements are necessarily based upon
management's perceptions of historical trends, current conditions
and expected future developments, as well as a number of specific
factors and assumptions that, while considered reasonable by
management as of the date on which the statements are made in this
Press Release, are inherently subject to significant business,
economic and competitive uncertainties and contingencies which
could result in the forward-looking statements ultimately being
incorrect. In addition to any factors and assumptions set forth
above in this Press Release, the material factors and assumptions
used to develop the forward-looking information include, but are
not limited to: the expanded use of advanced technology, robotics
and innovation the Company applies to its products will have a
level of success consistent with its past experiences; the Company
will continue to successfully secure broader licenses from third
parties for major entertainment properties consistent with past
practices; the expansion of sales and marketing offices in new
markets will increase the sales of products in that territory; the
Company will be able to successfully identify and integrate
strategic acquisition opportunities; the Company will be able to
maintain its distribution capabilities; the Company will be able to
leverage its global platform to grow sales from acquired brands;
the Company will be able to recognize and capitalize on
opportunities earlier than its competitors; the Company will
be able to continue to build and maintain strong, collaborative
relationships; the Company will maintain its status as a preferred
collaborator; the culture and business structure of the Company
will support its growth; the current business strategies of the
Company will continue to be desirable on an international platform;
the Company will be able to expand its portfolio of owned
branded intellectual property and successfully license it to third
parties; use of advanced technology and robotics in the Company's
products will expand; access of entertainment content on mobile
platforms will expand; fragmentation of the market will continue to
create acquisition opportunities; the Company will be able to
maintain its relationships with its employees, suppliers and
retailers; the Company will continue to attract qualified personnel
to support its development requirements; and the Company's key
personnel will continue to be involved in the Company products and
entertainment properties will be launched as scheduled and that the
risk factors noted in this Press Release, collectively, do not have
a material impact on the Company.
By its nature, forward-looking information is subject to
inherent risks and uncertainties that may be general or specific
and which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will not prove
to be accurate, that assumptions may not be correct and that
objectives, strategic goals and priorities will not be achieved.
Known and unknown risk factors, many of which are beyond the
control of the Company, could cause actual results to differ
materially from the forward-looking information in this Press
Release. Such risks and uncertainties include, without limitation,
the factors discussed in the Company's disclosure materials,
including the Annual MD&A and the Company's most recent Annual
Information Form, filed with the securities regulatory authorities
in Canada and available under the
Company's profile on SEDAR (www.sedar.com) These risk factors are
not intended to represent a complete list of the factors that could
affect the Company and investors are cautioned to consider these
and other factors, uncertainties and potential events carefully and
not to put undue reliance on forward-looking statements.
There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events
could differ materially from those anticipated in such statements.
Forward-looking statements are provided for the purpose of
providing information about management's expectations and plans
relating to the future. The Company disclaims any intention or
obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise,
or to explain any material difference between subsequent actual
events and such forward-looking statements, except to the extent
required by applicable law.
______________________________
|
1
|
The financial
highlights in this release are presented in US$ millions, whereas
the financial information in the MD&A (Management's
Discussion and Analysis) is presented in US$ thousands. This may
result in immaterial rounding differences and differences in the
calculated
percentages reflected between the two documents
|
2
|
Non-IFRS financial
measure. See "Non-IFRS Financial Measures" below.
|
3
|
Spin Master adopted
International Financial Reporting Standard 16 Leases ("IFRS 16"),
effective January 1, 2019. The Company
implemented the standard using the modified retrospective approach.
As a result, the Company's first quarter of 2019 results reflect
lease
accounting under IFRS 16. Prior year results have not been
restated. See section "Changes in Accounting Policies" of the
Company's
Management Discussion and Analysis for the three months ended March
31, 2019 for more information on the implementation of IFRS
16
|
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SOURCE Spin Master Corp.