Mr. Max Rangel reports

SPIN MASTER REPORTS FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL RESULTS

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

"We are very pleased with how our team navigated the challenging macroeconomic environment to deliver revenue growth across toys, entertainment and digital games in the fourth quarter. Our toys creative centre grew in the fourth quarter, outperforming the global industry, which declined," said Max Rangel, global president and chief executive officer. "We harnessed the strength of our three creative centres to meet our full-year revenue expectations. While our toy revenue declined for the full year compared to 2022, our POS remained ahead of the industry, and we grew market share globally, by introducing innovation into the toy aisle, engaging fans of popular franchises both licensed and owned, and growing our evergreen brands to create magical play experiences for-millions of children globally. We saw strong increases in entertainment from the PAW Patrol movie and the delivery of the Unicorn Academy series, and we grew digital games revenue, highlighting the power of our diversified portfolio to drive long-term growth. Looking forward, we are excited by the growth opportunities ahead of us across our three creative centres. In toys, we will focus on integrating and growing Melissa & Doug, the leading brand in early childhood play, launching innovative licensed toy lines for Ms. Rachel, celebrating Rubik's 50th anniversary, and driving innovation and performance across all our core toy brands. In entertainment, we will build on the positive momentum from the PAW Patrol movie and drive our new Unicorn Academy and Vida the Vet franchises. In digital games, we will continue to grow Toca Life World and the Piknik subscription bundle, and focus on the launches of our new mobile digital games Toca Days and Rubik's Match. We're confident in the strength of our diversified global platform and portfolio of franchises, brands and games to create long-term growth and shareholder value."

"We achieved $1.9-billion in revenue for 2023, generated a record $419-million in adjusted [earnings before interest, taxes, depreciation and amortization], and ended the year with our highest ever available liquidity, including over $705-million in cash," said Mark Segal, Spin Master's chief financial officer. "Just after the year-end, we closed the acquisition of Melissa & Doug, which we are now integrating. Looking forward, we continue to maintain a strong balance sheet and cash flow generation capability, with the capacity to continue investing in innovation and strategic acquisitions. Our financial framework, grounded in our growth formula across our three creative centres, positions us both financially and operationally to achieve and sustain long-term, profitable growth."

Consolidated financial highlights for fourth quarter 2023 as compared with the same period in 2022:

• Revenue was $502.6-million, an increase of 7.9 per cent from $465.8-million. Constant currency revenue was $493.9-million, an increase of 6.0 per cent, from $465.8-million.
• Revenue by operating segment reflected increases of 76.9 per cent in entertainment, 7.1 per cent in digital games and 2.5 per cent in toys.
• Toy gross product sales were $502.3-million, an increase of $23.1-million or 4.8 per cent from $479.2-million.
• Operating loss was $36.6-million compared with operating loss of $24.0-million.
• Operating margin was (7.3) per cent compared with (5.2) per cent.
• Adjusted operating income was $23.2-million compared with adjusted operating loss of $5.5-million.
• Adjusted operating margin was 4.6 per cent compared with (1.2) per cent.
• Net loss was $30.1-million or 29 cents per share compared with $13.8-million or 13 cents per share.
• Adjusted net income was $20.5-million or 19 cents per share (diluted) compared with nil or nil per share.
• Adjusted EBITDA was $64.9-million compared with $12.4-million, an increase of $52.5-million or 423.4 per cent.
• Adjusted EBITDA margin was 12.9 per cent compared with 2.7 per cent.
• Cash provided by operating activities was $67.9-million compared with cash used of $6.8-million.
• Free cash flow was $44.3-million compared with ($30.1-million).
• Subsequent to Dec. 31, 2023, the company declared a quarterly dividend of six Canadian cents per outstanding subordinate voting share and multiple voting share, payable on April 12, 2024.
• Effective Jan. 1, 2024, the company has changed its product categories to align with the company's product offerings going forward: (1) preschool, infant and toddler, and plush; (2) activities, games and puzzles, and dolls and interactive; (3) wheels and action; and (4) outdoor.
• On Jan. 2, 2024, the company completed its previously announced acquisition of MND Holdings I Corp. by acquiring all issued and outstanding capital stock. Melissa & Doug is a leading brand in early childhood play with offerings of open-ended, creative and developmental toys. The acquisition will be reported in the toys segment. Spin Master financed the $959.0-million preliminary purchase price with $434.0-million in cash and $525.0-million in debt. In 2023 Melissa & Doug generated $364-million in revenue compared with $489-million in 2022. Melissa & Doug adjusted EBITDA margin was approximately 18.5 per cent in 2023, consistent with 2022.

Consolidated financial highlights for the year ended Dec. 31, 2023, as compared with the same period in 2022:

• Revenue was $1,904.9-million, down 5.7 per cent from $2,020.3-million. Constant currency revenue decreased by 6.5 per cent to $1,889.6-million from $2,020.3-million. Revenue, excluding PAW Patrol: The Mighty Movie distribution revenue of $15.6-million, was $1,889.3-million, a decrease of $131.0-million or 6.5 per cent from $2,020.3-million.
• Revenue by operating segment reflected a decline of 11.3 per cent in toys, partially offset by increases of 60.0 per cent in entertainment and 6.1 per cent in digital games.
• Toy gross product sales were $1,787.2-million, a decrease of $191.6-million or 9.7 per cent from $1,978.8-million.
• Operating income was $188.9-million compared with $343.3-million.
• Operating margin was 9.9 per cent compared with 17.0 per cent.
• Adjusted operating income was $288.7-million compared with $321.2-million. The decline in adjusted operating income was primarily driven by a decrease of $36.4-million in toys, partially offset by increases of $4.2-million in digital games and $1.6-million in entertainment.
• Adjusted operating margin was 15.2 per cent compared with 15.9 per cent.
• Net income was $151.4-million or $1.43 per share (diluted) compared with $261.3-million or $2.45 per share (diluted).
• Adjusted net income was $225.2-million or $2.13 per share (diluted) compared with $244.3-million or $2.30 per share (diluted).
• Adjusted EBITDA was $418.8-million compared with $389.4-million, an increase of $29.4-million or 7.6 per cent. Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie distribution revenue, was $403.2-million, an increase of $13.8-million or 3.5 per cent from $389.4-million.
• Adjusted EBITDA margin was 22.0 per cent compared with 19.3 per cent. Adjusted EBITDA margin, excluding PAW Patrol: The Mighty Movie distribution revenue, was 21.3 per cent.
• Cash provided by operating activities was $227.0-million compared with $249.3-million.
• Free cash flow was $122.9-million compared with $149.9-million.
• During the year ended Dec. 31, 2023, the company acquired certain assets from 4D Brands International Inc. for total purchase consideration of $18.9-million and acquired the Hexbug brand of toys from Innovation First International Inc. for total purchase consideration of $14.6-million.
• During the year ended Dec. 31, 2023, the company incurred restructuring expenses of $18.1-million (17 cents per diluted share) related to a reduction in the company's global work force and the closure of its manufacturing facility in Calais, France.
• During the year ended Dec. 31, 2023, the company repurchased and cancelled 397,700 subordinate voting shares through the company's normal course issuer bid program for $10.5-million.

2024 outlook

The company expects for 2024:

• Toy gross product sales, excluding Melissa & Doug, to be in line with 2023;
• Toy gross product sales, excluding Melissa & Doug, seasonality to be approximately 28 per cent to 32 per cent in the first half;
• Consolidated revenue, excluding Melissa & Doug, to be in line with 2023;
• Adjusted EBITDA margin, excluding Melissa & Doug, and net cost synergies realized to be in line with 2023.

Incrementally, the company expects for 2024:

• Melissa & Doug toy gross product sales to contribute between $420-million and $430-million;
• Melissa & Doug toy gross product sales seasonality to be approximately 20 per cent to 25 per cent in the first half;
• Melissa & Doug revenue to contribute between $370-million and $375-million;
• Melissa & Doug adjusted EBITDA margin of approximately 19.5 per cent;
• To achieve in addition approximately $6-million in net cost synergies toward the target of approximately $25-million to $30-million in run-rate net cost synergies by the end of 2026.

Conference call

Mr. Rangel and Mr. Segal will host a conference call to discuss the financial results on Thursday, Feb. 29, 2024, at 9:30 a.m. ET.

The call-in numbers for participants are 416-764-8650 or 888-664-6383. A live webcast of the call will be available on 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 (Toronto Stock Exchange: TOY) 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, Melissa & Doug, 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 31 offices spanning nearly 20 countries, Spin Master employs close to 3,000 team members globally.

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