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March 2021 | Vol. XX - No. 3


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Spin Master Reports Q4 and Full Year 2020 Financial Results


Q4 Profitability Climbs Significantly Operational Initiatives Strengthen Spin Master's Platform for Long-term Growth

Financial results for the fourth quarter and year ended December 31, 2020. The Company's full Management's Discussion and Analysis ("MD&A") for the three-month period and year ended December 31, 2020 is available under the Company's profile on SEDAR (www.sedar.com) and posted on the Company's web site at www.spinmaster.com/financial-info.php.

"We're proud of the significant operational improvements and cost efficiencies our team delivered in 2020, while simultaneously navigating the complexities of the global pandemic," said Ronnen Harary, Spin Master's Co-CEO. "At the outset, we were committed to resolving the operational challenges we faced in 2019. I am pleased to say that we achieved our goal through significantly improved focus and execution in every function across Spin Master globally. We are particularly excited with the strong growth we saw in our digital games business led by Toca Life World. With a clear vision for our future, a solid operating platform with three thriving creative centres encompassing toys, entertainment and digital games and an exceptional leadership team in place, fortified by the appointment of Max Rangel as Global President and with him assuming the position of CEO in April, we are now poised for our next stage of growth. We are well positioned to grow in 2021 as we continue to navigate through COVID-19, based on our diversified brand portfolio, award-winning entertainment franchises and innovative digital games, all driving towards generating strong long term growth and shareholder value."

"We are pleased to see the results of the operational improvement initiatives we put into place throughout 2020, solidify in the fourth quarter," added Mark Segal, Spin Master's Chief Financial Officer. "By Q4 2020 we completed most of the work necessary to remediate the operational issues arising in Q4 2019. We were able to streamline our distribution and warehousing structure, considerably reduce inventory levels, lower our costs and expand our gross margins. This allowed us to generate nearly US$124 million in free cash flow for the quarter and US$232 million for 2020, allowing us to end 2020 with the strongest net cash position in our history of just over US$320 million. Our solid financial position together with the achievement of our targeted run-rates on key expenses related to our operational improvement initiatives, supports the growth potential of our global platform. As we look to 2021, despite some continuing lockdowns and retail disruptions, 2021 is starting with strong momentum."

Q4 2020 Financial Highlights as compared to the same period in 2019  

  • Total revenue of US$490.6 million increased by 3.6% from US$473.5 million. In Constant Currency1 terms, total revenue increased by 2.4%.
  • Gross Product Sales1 decreased by 7.1% to US$511.8 million from US$550.7 million. A decline in Remote Control & Interactive Characters was offset in part by increases in Activities, Games & Puzzles and Plush, Boys Action & Construction and Pre-School & Girls. In Constant Currency1 terms, Gross Product Sales1 decreased by 7.9%.
  • Gross Product Sales1 increased by 2.3% in Europe and declined by 11.8% in North America and 8.1% in Rest of World, respectively. International Gross Product Sales1 were 46.8% of total Gross Product Sales1, compared to 43.9%.
  • Other revenue grew by 76.5% to US$56.3 million. Growth was driven by an increase in digital games and entertainment and licensing revenue.
  • Digital games revenue increased by 404.8% to US$31.8 million, driven by the Toca Life World platform and growth in the Sago Mini subscription user base.
  • Entertainment and licensing revenue was lower by 4.3% at US$24.5 million.
  • Sales Allowances1 decreased by US$31.6 million to US$77.5 million. As a percentage of Gross Product Sales1, Sales Allowances1 declined 4.7% to 15.1% from 19.8%, primarily driven by lower markdowns and non-compliance charges resulting from the remediation of operational challenges, which arose in Q4 2019.
  • Gross profit was US$241.0 million, representing 49.1% of total revenue, compared to US$226.1 million or 47.8% of total revenue. The increase in gross margin was primarily due to lower Sales Allowances, higher digital games revenue and lower costs resulting from the Company's ongoing operational improvement initiatives, including lower freight-related expenses, scrap and obsolescence and reconfiguration costs, offset in part by product mix and lower entertainment and licensing revenue.
  • Selling, general and administrative expenses ("SG&A")2 decreased as a percentage of total revenue to 43.2% compared to 48.9%, due to lower distribution and selling expenses, partially offset by higher administrative expenses.
  • Net income was US$0.3 million or earnings per share of nil, compared to net loss of US$17.2 million or loss per share of US$0.17.
  • Adjusted Net Income1 was US$14.6 million or Adjusted Diluted EPS1 of US$0.14, compared to an Adjusted Net Loss of US$7.8 million or Adjusted Basic EPS1 of US$(0.08).
  • Adjusted EBITDA1 was US$51.5 million compared to US$6.7 million. Adjusted EBITDA Margin1 was 10.5% compared to 1.4%.
  • Cash provided by operating activities were US$138.2 million compared to US$10.8 million.
  • Free Cash Flow1 was US$123.7 million compared to negative US$19.3 million.
  • On October 27, 2020, the Company announced it reached an agreement to acquire control of Rubik's Brand Limited ("Rubik's") through the acquisition of 100% of the shares of its holding company, Rubiks Malta Holding Company Limited. The transaction closed on January 4, 2021 for a preliminary estimate of purchase consideration of $56.4 million. Gross Product Sales1 related to Rubik's will be included in the Activities, Games & Puzzles and Plush product category.

 




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