TORONTO, July 30, 2024 /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 three and six months ended June 30, 2024. The Company's full Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2024 is available under the Company's profile on SEDAR+ (www.sedarplus.com) and posted on the Company's web site at www.spinmaster.com. All financial information is presented in United States dollars ("$", "dollars" and "US$") and has been rounded to the nearest hundred thousand, except per share amounts and where otherwise indicated. "Our second quarter revenue was in line with our expectations, despite pressure on consumer spending, impacting both Toy Gross Product Sales and in-game purchases within Digital Games", said Max Rangel, Spin Master's Global President & CEO. "Melissa & Doug had a strong quarter, and the integration is progressing well with incremental revenue opportunities emerging, together with operating synergies. Looking ahead to the balance of 2024, our team is focused on delivering our signature breakthrough innovation in toys and launching new properties, including Ms. Rachel, delivering entertainment that resonates with audiences on a global scale, such as Unicorn Academy, and releasing new experiences in digital games, such as Rubik's Match, designed to expand our player ecosystem. We believe in Spin Master's long-term growth potential driven by our diversified portfolio of innovative toys, engaging entertainment and open-ended digital games. With these compelling capabilities, we believe we will deliver our longer-term strategic and financial goals." "Toy Gross Product Sales in the second quarter excluding Melissa and Doug, were down compared to last year as we were lapping PAW Patrol: The Mighty Movie shipments from Q2 2023, but were in line with our expectations" said Mark Segal, Spin Master's EVP & Chief Financial Officer. "We continued to execute on our capital allocation strategy and by the end of Q2, we have now repurchased over 1.1 million shares under our NCIB. Looking to the balance of the year, we are pleased to maintain our outlook for 2024. Over the long term, we will continue to invest to drive growth, while also managing our cost-base and preserving financial flexibility to maximize shareholder value." Consolidated Financial Highlights for Q2 2024 as compared to the same period in 2023 Revenue was $412.0 million, including Melissa & Doug Revenue of $43.3 million, a decrease of 2.1% from $420.7 million. Revenue, excluding Melissa & Doug1 was $368.7 million, a decrease of 12.4%. Revenue by operating segment reflected an increase of 7.4% in Entertainment and a decline of 1.6% in Toys and 14.3% in Digital Games. Toy Gross Product Sales1 were $384.7 million, including Melissa & Doug Toy Gross Product Sales1 of $51.7 million, a decline of $5.3 million or 1.4% from $390.0 million. Toys Gross Product Sales, excluding Melissa & Doug1 were $333.0 million, a decrease of $57.0 million or 14.6% from $390.0 million. Operating Loss was $23.0 million compared to Operating Income of $34.4 million. Operating Margin2 was (5.6)% compared to 8.2%. Adjusted Operating Income1 was $23.6 million compared to $62.6 million. The decline in Adjusted Operating Income1 was primarily driven by decreases of $34.2 million in Toys and $6.9 million in Digital Games partially offset by an increase of $3.7 million in Entertainment. Adjusted Operating Margin1 was 5.7% compared to 14.9%. Net Loss was $24.5 million or $(0.24) per share compared to Net Income of $28.0 million or $0.27 per share. Adjusted Net Income1 was $9.6 million or $0.09 per share compared to Adjusted Net income1 of $48.8 million or $0.47 per share. Adjusted EBITDA1 was $53.6 million compared to $88.4 million, a decrease of $34.8 million. Adjusted EBITDA Margin1 was 13.0% compared to 21.0%. Adjusted EBITDA, excluding Melissa & Doug1 was $60.6 million compared to $88.4 million, a decrease of $27.8 million. Adjusted EBITDA Margin, excluding Melissa & Doug1 was 16.4% compared to 21.0%. Cash provided by operating activities was $25.4 million compared to $19.1 million. Free Cash Flow1 was $(3.6) million compared to $(5.9) million.  The Company recognized $1.2 million in Net Cost Synergies3 and continues to expect to achieve approximately $6 million in Net Cost Synergies3 in 2024. The Company repurchased and cancelled 778,281 subordinate voting shares for $17.5 million (C$23.7 million) through the Company's Normal Course Issuer Bid (the "NCIB") program. Subsequent to June 30, 2024, the Company repurchased and cancelled 318,200 subordinate voting shares for $6.9 million (C$9.5 million). The Company repaid $15.0 million of loans and borrowings. Subsequent to June 30, 2024, the Company declared a quarterly dividend of C$0.12 per outstanding subordinate voting share and multiple voting share, payable on October 11, 2024. Consolidated Financial Highlights for the six months ended June 30, 2024 as compared to the same period in 2023 Revenue was $728.2 million, including Melissa & Doug Revenue of $83.7 million, an increase of 5.2% from $692.1 million. Revenue, excluding Melissa & Doug1 was $644.5 million, a decrease of 6.9% from $692.1 million. Revenue by operating segment reflected an increase of 6.5% in Toys, 12.2% in Entertainment and a decrease of 8.3% in Digital Games. Toy Gross Product Sales1 were $648.8 million, including Melissa & Doug Toy Gross Product Sales1 of $98.4 million, an increase of $42.5 million or 7.0% from $606.3 million. Toy Gross Product Sales, excluding Melissa & Doug1 were $550.4 million, a decrease of $55.9 million or 9.2% from $606.3 million. Operating Loss was $84.8 million compared to Operating Income of $28.3 million. Operating Margin2 was (11.6)% compared to 4.1%. Adjusted Operating Income1 was $9.1 million compared to $75.3 million. The decline in Adjusted Operating Income1 was primarily driven by a decrease of $57.0 million in Toys and $10.7 million in Digital Games, partially offset by an increase of $2.9 million in Entertainment. Adjusted Operating Margin1 was 1.2% compared to 10.9%. Net Loss was $79.3 million or $0.76 per share compared to Net Income of $26.1 million or $0.25 per share (diluted). Adjusted Net Loss1 was $9.9 million or $(0.10) per share compared to Adjusted Net Income1 of $61.1 million or $0.58 per share (diluted). Adjusted EBITDA1 was $72.2 million compared to $119.0 million, a decrease of $46.8 million. Adjusted EBITDA Margin1 was 9.9% compared to 17.2%. Adjusted EBITDA, excluding Melissa & Doug1 was $88.4 million compared to $119.0 million, a decrease of $30.6 million.  Adjusted EBITDA Margin, excluding Melissa & Doug1 was 13.7% compared to 17.2%. Cash provided by operating activities was $49.7 million compared to $14.8 million. Free Cash Flow1 was $(4.2) million compared to $(40.3) million. The Company incurred $10.0 million in transaction related costs for the six months ended June 30, 2024. The Company recognized $1.4 million in Net Cost Synergies3 and continues to expect to achieve approximately $6 million in Net Cost Synergies3 in 2024. The Company repurchased and cancelled 1,111,581 subordinate voting shares for $25.9 million (C$35.2 million) through the NCIB program. The Company repaid $65.0 million of loans and borrowings (refer to the Liquidity section for further details). 2024 Outlook The Company continues to expect for 2024: Toy Gross Product Sales, excluding Melissa & Doug1 to be in line with 2023. Revenue, excluding Melissa & Doug1, to be in line with 2023. Adjusted EBITDA Margin, excluding Melissa & Doug1 and Net Cost Synergies3 realized to be in line with 2023. Incrementally, the Company continues to expect for 2024: Melissa & Doug Toy Gross Product Sales1 to be between $420 million to $430 million. Melissa & Doug Revenue to be between $370 million to $375 million. Melissa & Doug Adjusted EBITDA Margin1 of approximately 19.5%. To achieve in addition approximately $6 million in Net Cost Synergies3 towards the target of approximately $25 million to $30 million in Run-rate Net Cost Synergies3 by the end of 2026. Consolidated Financial Results as compared to the same period in 2023 Effective January 2, 2024, Melissa & Doug's operating results for the three and six months ended June 30, 2024 are included in the Company's consolidated results. (US$ millions, except per share information) Six Months Ended Jun 30 Q2 2024 Q2 2023 $ Change 2024 2023 $ Change Consolidated Results Revenue4 $          412.0 $           420.7 $           (8.7) $          728.2 $   692.1 $         36.1 Operating (Loss) Income $           (23.0) $              34.4 $         (57.4) $          (84.8) $      28.3 $     (113.1) Operating Margin2 (5.6) % 8.2 % (11.6) % 4.1 % Adjusted Operating Income1,3 $            23.6 $              62.6 $         (39.0) $              9.1 $      75.3 $        (66.2) Adjusted Operating Margin1 5.7 % 14.9 % 1.2 % 10.9 % Net (Loss) Income $           (24.5) $              28.0 $         (52.5) $          (79.3) $      26.1 $     (105.4) Adjusted Net Income (Loss)1,3 $              9.6 $              48.8 $         (39.2) $            (9.9) $      61.1 $        (71.0) Adjusted EBITDA1,3,4 $            53.6 $              88.4 $         (34.8) $            72.2 $   119.0 $        (46.8) Adjusted EBITDA Margin1 13.0 % 21.0 % 9.9 % 17.2 % Earnings Per Share ("EPS") Basic EPS $           (0.24) $              0.27 $          (0.76) $      0.25 Diluted EPS $           (0.24) $              0.26 $          (0.76) $      0.25 Adjusted Basic EPS1 $            0.09 $              0.47 $          (0.10) $      0.59 Adjusted Diluted EPS1 $            0.09 $              0.45 $          (0.10) $      0.58 Weighted average number of shares (in millions) Basic 103.9 103.6 103.8 103.7 Diluted 106.0 107.3 106.0 105.6 Selected Cash Flow Data Cash provided by operating activities $            25.4 $              19.1 $             6.3 $             49.7 $      14.8 $         34.9 Cash used in investing activities $           (27.4) $             (30.3) $             2.9 $       (1,007.8) $     (86.9) $      (920.9) Cash (used in) provided by financing activities $           (49.0) $             (12.7) $          (36.3) $           408.2 $     (27.5) $       435.7 Free Cash Flow1 $             (3.6) $               (5.9) $             2.3 $              (4.2) $     (40.3) $         36.1 1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios". 2 Operating Margin is calculated as Operating Income divided by Revenue. 3 Refer to the "Reconciliation of Non-GAAP Financial Measures" section for further details on the adjustments. 4 Included in the operating results of the three and six months ended June 30, 2024 is Melissa & Doug Revenue of $43.3 million and $83.7 million and Melissa & Doug Adjusted EBITDA1 of $(7.0) million and $(16.2) million, respectively. The following summarizes the impact of Melissa & Doug's operating results on the three and six months ended June 30, 2024 consolidated results: Six Months Ended Jun 30, (US$ millions) Q2 2024 Q2 2023 2024 2023 Revenue 412.0 420.7 728.2 692.1 Melissa & Doug Revenue 43.3 — 83.7 — Revenue, excluding Melissa & Doug1 368.7 420.7 644.5 692.1 Toys Gross Product Sales1 384.7 390.0 648.8 606.3 Melissa & Doug Toy Gross Product Sales1 51.7 — 98.4 — Toys Gross Product Sales, excluding Melissa & Doug1 333.0 390.0 550.4 606.3 Adjusted EBITDA1 53.6 88.4 72.2 119.0 Melissa & Doug Adjusted EBITDA1 (7.0) — (16.2) — Adjusted EBITDA, excluding Melissa & Doug1 60.6 88.4 88.4 119.0 Adjusted EBITDA Margin1 13.0 % 21.0 % 9.9 % 17.2 % Adjusted EBITDA Margin, excluding Melissa & Doug1 16.4 % 21.0 % 13.7 % 17.2 % 1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".   Segmented Financial Results as compared to the same period in 2023 (US$ millions) Q2 2024 Q2 2023 Toys Entertainment Digital Games Corporate & Other1 Total Toys Entertainment Digital Games Corporate & Other1 Total Revenue $    340.9 $            36.4 $      34.7 $          — $   412.0 $    346.3 $           33.9 $      40.5 $          — $   420.7 Operating (Loss) Income $     (34.9) $            17.8 $        4.3 $     (10.2) $    (23.0) $      23.8 $           15.7 $        9.6 $     (14.7) 34.4 Adjusted Operating Income (Loss)2 $        1.3 $            20.0 $        5.9 $       (3.6) $      23.6 $      35.5 $           16.3 $      12.8 $       (2.0) $      62.6 Adjusted EBITDA2 $      20.9 $            28.4 $        7.9 $       (3.6) $      53.6 $      47.7 $           28.0 $      14.7 $       (2.0) $      88.4 1 Corporate & Other includes certain corporate costs, foreign exchange and merger and acquisition-related costs, as well as fair value gains and losses. 2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios". Toys Segment Results The following table provides a summary of the Toys segment operating results, for the three months ended June 30, 2024 and 2023: (US$ millions) Q2 2024 Q2 2023 $ Change % Change Preschool, Infant & Toddler and Plush1 $            165.0 $            164.9 $                   0.1 0.1 % Activities, Games & Puzzles and Dolls & Interactive $            129.3 $            109.7 $                 19.6 17.9 % Wheels & Action $              75.7 $            101.1 $                (25.4) (25.1) % Outdoor $              14.7 $              14.3 $                   0.4 2.8 % Toy Gross Product Sales2,5 $            384.7 $            390.0 $                  (5.3) (1.4) % Sales Allowances3 $             (45.7) $             (43.7) $                  (2.0) 4.6 % Sales Allowances % of Toy Gross Product Sales2 11.9 % 11.2 % 0.7 % Toy Net Sales $            339.0 $           346.3 $                  (7.3) (2.1) % Toy - Other Revenue $                1.9 $                 — $                   1.9 n.m. Toy Revenue $            340.9 $           346.3 $                  (5.4) (1.6) % Toys Operating (Loss) Income $             (34.9) $              23.8 $                (58.7) (246.6) % Toys Operating Margin4 (10.2) % 6.9 % (17.1) % Toys Adjusted EBITDA2 $              20.9 $              47.7 $                (26.8) (56.2) % Toys Adjusted EBITDA Margin2 6.1 % 13.8 % (7.7) % 1 Melissa & Doug is included within the Preschool, Infant & Toddler and Plush product categories beginning from the date of acquisition. 2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios". 3 The Company enters arrangements to provide sales allowances requested by customers relating to cooperative advertising, contractual and negotiated promotional discounts, volume rebates, markdowns, and costs incurred by customers to sell the Company's products. 4 Operating Margin is calculated as segment Operating Income divided by segment Revenue. 5 Effective January 1, 2024, the Company has changed its product categories to align with the Company's product offerings going forward. Prior year comparative information has been updated to conform with the current disclosure. Refer to Addendum section for more details. (US$ millions) Q2 2024 Q2 2023 $ Change % Change Toy Revenue 340.9 346.3 (5.4) (1.6) % Melissa & Doug Revenue 43.3 — 43.3 n.m. Toy Revenue, excluding Melissa & Doug1 297.6 346.3 (48.7) (14.1) % Toys Adjusted EBITDA1 20.9 47.7 (26.8) (56.2) % Melissa & Doug Adjusted EBITDA1 (7.0) — (7.0) n.m. Toys Adjusted EBITDA, excluding Melissa & Doug1 27.9 47.7 (19.8) (41.5) % Toys Adjusted EBITDA Margin1 6.1 % 13.8 % Toys Adjusted EBITDA Margin, excluding Melissa & Doug1 9.4 % 13.8 % 1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios". Toy Revenue declined by $5.4 million or 1.6% to $340.9 million. Toy Gross Product Sales[i] was $384.7 million, a decrease of $5.3 million or 1.4% from $390.0 million, including Melissa & Doug Toy Gross Product Sales1 of $51.7 million. Toy Gross Product Sales1 was lower compared to the prior year primarily as a result of a shift in customer orders and shipments into the second half of 2024. In addition, Q2 2023 was supported by shipments related to the launch of PAW Patrol: The Mighty Movie. Toy Gross Product Sales, excluding Melissa & Doug1 was $333.0 million, an decrease of $57.0 million or 14.6% from $390.0 million. Sales Allowances increased by $2.0 million to $45.7 million. As a percentage of Toy Gross Product Sales1, Sales Allowances increased to 11.9% from 11.2%, due to market and customer mix. Toys Operating Loss was $34.9 million compared to Toy Operating Income of $23.8 million. Toys Operating Margin was (10.2)% compared to 6.9%. Toys Adjusted EBITDA Margin1 was 6.1% compared to 13.8%. Toys Adjusted EBITDA Margin, excluding Melissa & Doug1 was 9.4% compared to 13.8%. The decrease in Toys Operating Margin and Toys Adjusted EBITDA Margin1 was driven by the inclusion of Melissa & Doug, resulting in lower operating leverage due to the higher relative seasonality impact in the quarter, a change in product mix, higher proportion of administrative and marketing spend in relation to Toy Revenue, partially offset by a decrease in selling expense. Entertainment Segment Results The following table provides a summary of Entertainment segment operating results, for the three months ended June 30, 2024 and 2023: (US$ millions) Q2 2024 Q2 2023 $ Change % Change Entertainment Revenue $          36.4 $          33.9 $               2.5 7.4 % Entertainment Operating Income $          17.8 $          15.7 $               2.1 13.4 % Entertainment Operating Margin 48.9 % 46.3 % 2.6 % Entertainment Adjusted Operating Income1 $          20.0 $          16.3 $               3.7 22.7 % Entertainment Adjusted Operating Margin1 54.9 % 48.1 % 6.8 % 1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios". Entertainment Revenue increased by $2.5 million or 7.4% to $36.4 million, from higher distribution revenue associated with on-going distribution of PAW Patrol: The Mighty Movie and the PAW Patrol series, partially offset by fewer Entertainment content deliveries in the current year for Unicorn Academy and Vida the Vet. Entertainment Operating Income increased by $2.1 million or 13.4% to $17.8 million. Entertainment Adjusted Operating Income1 increased by $3.7 million or 22.7% to $20.0 million from $16.3 million, from higher distribution revenue and the accretive effect of fewer Entertainment content deliveries in the current year relative to the same quarter in the prior year, partially offset by higher marketing costs for Entertainment content. Entertainment Operating Margin increased to 48.9% from 46.3% and Entertainment Adjusted Operating Margin1 increased to 54.9% from 48.1%, from higher distribution revenue and the accretive effect of fewer Entertainment content deliveries in the current year. Digital Games Segment Results The following table provides a summary of Digital Games segment operating results, for the three months ended June 30, 2024 and 2023: (US$ millions) Q2 2024 Q2 2023 $ Change % Change Digital Games Revenue $          34.7 $          40.5 $              (5.8) (14.3) % Digital Games Operating Income $            4.3 $            9.6 $              (5.3) (55.2) % Digital Games Operating Margin 12.4 %