Mr. Max Rangel reports

SPIN MASTER REPORTS Q1 2023 FINANCIAL RESULTS

Spin Master Corp. has released its financial results for the three months ended March 31, 2023. The company's full management's discussion and analysis (MD&A) for the three months ended March 31, 2023, is available under the company's profile on SEDAR and posted on the company's website. All financial information is presented in United States dollars and has been rounded to the nearest hundred thousand, except per-share amounts and where otherwise indicated.

"Our first quarter performance was ahead of expectations and reflects encouraging entertainment and digital games performance. We saw continued pressure from excess toy inventory at retail and retailer caution, alongside the return of historical seasonality for toy gross product sales," said Max Rangel, Spin Master's global president and chief executive officer. "As we continue to navigate the fluid environment, we remain confident in our strategy to reimagine everyday play, leveraging the power of our three creative centres to capture market share, deliver profitable growth and create long-term shareholder value. In 2023, we will bring breakthrough innovation to the toy aisle, alongside impressive launches within our core and licensed brand portfolios. Our investment in the creation of multiplatform content will be fully realized with the release of our most diverse entertainment slate to date, including the highly anticipated second Paw Patrol theatrical release and two new original series, which are expected to drive new licensing and merchandising opportunities. Finally, we will continue to expand our digital games ecosystem with several new digital games and gaming experiences designed to broaden our audience base, attracting kids of all ages and spawning new fans and player communities. Given our financial framework for value creation, the power of our three creative centres and our strong financial position, we are well positioned to execute against our strategy, investing in innovation, geographic expansion and acquisitions to drive long-term profitable growth and maximize shareholder value."

"As expected, toy gross product sales in the first quarter of 2023 declined in comparison to 2022, amidst inventory clearance activities at retail arising from the carryover of inventory from Q4 2022 and challenging comps from movie-related launches in Q1 2022," said Mark Segal, Spin Master's chief financial officer. "We expect retail inventory headwinds to be over by the end of the second quarter. An anticipated shift back to more normal toy seasonal revenue patterns supports our expectation of strong year-over-year revenue growth in the second half of 2023. Our financial discipline and effective cost management, and solid entertainment and digital games performance, enabled us to generate strong adjusted EBITDA of over $30-million for the quarter. Over the last five years our three creative centres have generated close to a billion dollars in free cash flow, enabling us to execute on multiple strategic M&A transactions, innovative IP-driven growth, geographic expansion, and investment in content and digital games, as well as enhancing total shareholder returns through the introduction of a dividend and a share repurchase program."

Consolidated financial highlights for Q1 2023 as compared with the same period in 2022

• Revenue was $271.4-million, a decrease of 36.0 per cent from $424.2-million. Constant currency revenue was $275.6-million, a decrease of 35.0 per cent, from $424.2-million.
• Revenue declined by 46.9 per cent in toys and 7.0 per cent in digital games, partially offset by a 69.4-per-cent increase in entertainment.
• Operating loss was $6.1-million compared with operating income of $61.7-million.
• Operating margin was (2.2) per cent compared with 14.5 per cent.
• Adjusted operating income was $12.7-million compared with $77.3-million.
• Adjusted operating margin was 4.7 per cent compared with 18.2 per cent.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $30.6-million compared with $95.7-million.
• Adjusted EBITDA margin was 11.3 per cent compared with 22.6 per cent.
• Cash used in operating activities was $4.3-million compared with $62.9-million.
• Free cash flow was $(34.4)-million compared with $(79.4)-million.
• The company repurchased and cancelled 241,500 subordinate voting shares during the quarter, through the company's normal course issuer bid (NCIB) program, for proceeds of $6.3-million. Subsequent to March 31, 2023, the company repurchased 156,200 subordinate voting shares for cancellation at a cost of $4.2-million.
• On Jan. 17, the company acquired certain assets of 4D Brands International Inc. for total purchase consideration of $20.2-million. On Feb. 2, the company acquired the HEXBUG brand of toys from Innovation First International Inc., for total purchase consideration of $15.5-million. The acquisitions are reported in the activities, games and puzzles, and plush and wheels and action product categories within the toys operating segment, respectively.
• Subsequent to the quarter-end, the company acquired certain intellectual property of Mondrian Blocks, a Hungarian company, for total purchase consideration of $3.0-million. The acquisition is expected to complement the company's existing games and puzzles offering.
• Subsequent to March 31, 2023, the company declared a quarterly dividend of six cents per outstanding subordinate voting share and multiple voting share in respect of the second quarter of 2023, payable July 14, 2023.

Toys segment results

The attached table provides a summary of toys segment operating results, for the three months ended March 31, 2023, and 2022.

• Toy revenue decreased by $164.6-million or 46.9 per cent to $186.3-million primarily driven by a decrease in toy gross product sales.
• Toy gross product sales declined by $181.2-million or 45.6 per cent, to $216.3-million from $397.5-million. Constant currency toy gross product sales declined by $177.8-million or 44.7 per cent to $219.7-million, down from $397.5-million.
• The decline in toy gross product sales was a result of lower order volume, as customers focused on reducing their retail inventory levels carried forward from 2022. In comparison, toy gross product sales in Q1 2022 were supported by customers ordering earlier in the year and sales related to the launch of the DC Comics Batman movie and Paw Patrol: The Movie.
• Sales allowances decreased by $16.6-million or 35.6 per cent to $30.0-million. As a percentage of toy gross product sales, sales allowances increased by 2.2 per cent to 13.9 per cent from 11.7 per cent, primarily driven by geographic and customer mix.
• Operating loss was $41.8-million compared with operating income of $41.4-million representing a variance of $83.2-million.
• Operating margin was (22.4) per cent compared with 11.8 per cent. The decline was due to lower toy revenue relative to selling, general and administrative expenses, and depreciation and amortization.
• Adjusted EBITDA margin was (11.5) per cent compared with 16.8 per cent. Adjusted EBITDA margin declined primarily as a result of lower operating margin.

Entertainment segment results

The attached table provides a summary of entertainment segment operating results, for the three months ended March 31, 2023, and 2022.

• Entertainment revenue increased by $15.4-million or 69.4 per cent to $37.6-million, driven by higher distribution revenue and licensing and merchandising revenue primarily related to Paw Patrol and the newly launched Rubble & Crew. Constant currency entertainment revenue increased by $15.4-million or 69.4 per cent to $37.6-million, from $22.2-million.
• Operating margin was 77.9 per cent compared with 50.5 per cent.
• Adjusted operating margin was 79.5 per cent compared with 51.4 per cent.
• Operating margin and adjusted operating margin increased primarily due to higher distribution revenue and licensing and merchandising revenue as well as lower costs due to fewer content deliveries in the current year.

Digital games segment results

The attached table provides a summary of digital games segment operating results, for the three months ended March 31, 2023, and 2022.

• Digital games revenue decreased by $3.6-million or 7.0 per cent to $47.5-million primarily due to lower in-app revenue in Toca Life World. Constant currency digital games revenue decreased by $1.9-million or 3.7 per cent to $49.2-million, down from $51.1-million.
• Operating margin was 34.1 per cent compared with 38.7 per cent. Operating margin decreased due to higher development costs related to the investment in future digital games. Adjusted operating margin was 40.0 per cent compared with 42.3 per cent. Adjusted operating margin decreased due to a decrease in operating margin partially offset by higher acquisition-related deferred incentive compensation.

Liquidity and capitalization

As at March 31, 2023, the company had unutilized liquidity of $1,079.3-million, comprising $569.3-million in cash and cash equivalents and $510.0-million under the company's credit facilities.

On March 10, 2023, the company entered into an automatic share repurchase plan with its designated broker to effect the purchase of subordinate voting shares under the NCIB. The company repurchased and cancelled 241,500 subordinate voting shares during the quarter for proceeds of $6.3-million.

Subsequent to the quarter, the company repurchased 156,200 subordinate voting shares for cancellation at a cost of $4.2-million.

The weighted average basic and diluted shares outstanding as at March 31, 2023, were 103.0 million and 106.6 million, compared with 102.4 million and 105.5 million in the prior year.

The company's board of directors declared a dividend of six cents per outstanding subordinate voting share and multiple voting share, payable on July 14, 2023, to shareholders of record at the close of business on June 30, 2023. The dividend is designated to be an eligible dividend for purposes of Section 89(1) of the Income Tax Act (Canada).

Outlook

The company continues to expect 2023 toy gross product sales to be flat to slightly down compared with 2022.

The company continues to expect 2023 toy gross product sales seasonality to return to historical averages of 30 per cent-35 per cent in the first half of the year.

The company continues to expect 2023 revenue, excluding Paw Patrol: The Mighty Movie distribution revenue to be in line with 2022.

The company continues to expect 2023 adjusted EBITDA margin, excluding Paw Patrol: The Mighty Movie distribution revenue to be flat to slightly up compared with 2022.

Conference call

Max Rangel, Global president and chief executive officer, and Mark Segal, chief financial officer, will host a conference call to discuss the audited financial results on Thursday, May 4, 2023, at 9:30 a.m. ET.

The call-in numbers for participants are 647-794-4605 or 877-502-9276. A live webcast of the call will be accessible via Spin Master's website. Following the call, both an audio recording and transcript of the call will be archived on the same website page for 12 months.

About Spin Master Corp.

Spin Master is a leading global children's entertainment company, creating exceptional play experiences through its three creative centres: toys, entertainment and digital games. With distribution in over 100 countries, Spin Master is best known for award-winning brands Paw Patrol, Bakugan, Kinetic Sand, Air Hogs, Hatchimals, Rubik's Cube and GUND, and is the global toy licensee for other popular properties. Spin Master Entertainment creates and produces compelling multiplatform content, through its in-house studio and partnerships with outside creators, including the preschool franchise Paw Patrol, and numerous other original shows, short-form series and feature films. The company has an established presence in digital games, anchored by the Toca Boca and Sago Mini brands, offering open-ended and creative game and educational play in digital environments. Through Spin Master Ventures, the company makes minority investments globally in emerging companies and start-ups. With over 30 offices in close to 20 countries, Spin Master employs more than 2,000 team members globally.

We seek Safe Harbor.