Annual Revenue Increases 22.9% and Adjusted EBITDA Up 43.5%

TORONTO, March 24, 2016 /CNW/ - Spin Master Corp. ("Spin Master" or the "Company") (TSX: TOY), a leading global children's entertainment company, today announced its financial results for the quarter and year ended December 31, 2015. The Company's Management's Discussion and Analysis and Audited Consolidated Financial Statements for the three months and twelve months ended December 31, 2015 will be posted by March 30th 2016 on SEDAR (www.sedar.com) and on the Company's web site at www.spinmaster.com/financial-info.php. Comparative 2014 financial results presented in this news release reflect Spin Master's results as a private company, prepared to conform to the Company's financial reporting standards under International Financial Reporting Standards as a public company.

"We are very pleased with the Company's operating and financial results in 2015," said Anton Rabie, Co-CEO and Chairman of Spin Master. "We experienced both strong revenue and profitability growth. We achieved particularly strong performance in the Pre-School and Girls segment, which more than doubled its Gross Product Sales in 2015 over 2014, reflecting the tremendous success of our Paw Patrol brand. It was also a notable year for our Activities, Games & Puzzles and Fun Furniture segment, where we achieved strong growth in Gross Product Sales and completed the strategic acquisition of Cardinal Industries Inc. ("Cardinal")."

2015 Financial Highlights

• Revenue of US$879.4 million increased 22.9% from US$715.7 million in 2014; in constant currency terms, revenue increased by 26.9% in 2015 relative to 2014
• Gross Product Sales (see "Non-IFRS Measures" below) increased 21.1% to US$982.7 million from US$811.9 million in 2014; excluding the acquisition of Cardinal, Gross Product Sales increased 17.0% to US$950.0 million
• Revenue growth was driven by strong contributions from Paw Patrol and Star Wars licensed products, as well as new product launches including Meccanoid, Bunchems and Chubby Puppies, in addition to revenue from the Cardinal acquisition; this increase was offset in part by declines in the Zoomer, Digi Bird and Flutterbye Fairy lines, and products associated with the How to Train Your Dragon movie
• On a geographic basis, excluding Cardinal, Spin Master recorded Gross Product Sales increases of 12.1% in North America, 35.8% in Europe and 21.3% in the Rest of World, reflecting the Company's emphasis on growth by leveraging its strong global platform
• Other Revenue, which primarily reflects merchandising royalty and television distribution income from products marketed by third parties using Spin Master's owned intellectual property, increased 118.2% from US$8.8 million in 2014 to US$19.2 million in 2015
• Including Other Revenue, the Company's Total Sales in 2015 were just over US$1.0 billion compared to US$820.7 million in 2014
• Total gross profit was US$458.9 million in 2015, representing 52.2% of revenue, compared with US$358.1 million, or 50.0% of revenue in 2014; the improvement in gross margin was primarily attributable to increased merchandising royalty income from sales of products under owned brands, lower Sales Allowances (see "Non-IFRS Measures" below) and productivity initiatives
• Selling, general and administrative expenses were $379.7 million or 43.2% of revenue. Excluding one-time costs associated with the IPO of US$0.9 million and related stock-based compensation of US$50.7 million, selling, general and administrative expenses represented 37.3% of revenue compared to 36.8% in 2014, primarily due to higher royalties on licensed properties
• Net income of US$47.1 million, or $0.48 per share, decreased 24.3% compared to 2014, reflecting the effects of IPO-related expenses, including US$50.7 million of stock-based compensation expense
• Adjusted Net Income (see "Non-IFRS Measures" below) of US$98.6 million, or US$1.04 per share, increased 48.6% from US$66.3 million in 2014
• Adjusted EBITDA (see "Non-IFRS Measures" below) increased 43.5% to US$160.4 million in 2015 compared with US$111.7 million in 2014 attributable to increased sales volume, product mix, increased merchandising royalty income from sales of products under owned brands, lower Sales Allowances, operating leverage and productivity initiatives
• As a result of the above, Adjusted EBITDA Margins (see "Non-IFRS Measures" below) increased to 18.2% in 2015 from 15.6% in 2014
• Operating Cash Flow increased 17.0% to US$105.7 million in 2015; Free Cash Flow (see "Non-IFRS Measures" below) of US$67.2 million in 2015 was slightly higher than 2014, despite a US$20.3 million one-time cash payment to settle equity participation arrangements at the time of the IPO and a US$13.6 million increase in investing activities (excluding license, brand and business acquisitions)
• On July 30, 2015, the Company completed its initial public offering ("IPO") of approximately 12.2 million subordinate voting shares for total gross proceeds of approximately C$220 million; subsequently, on August 26, 2015, the Company issued approximately 1.8 million subordinate voting shares pursuant to the exercise of the underwriters' over-allotment option, generating additional gross proceeds of approximately C$33 million, for a total of approximately C$253 million from the IPO.

"In 2015, we made progress toward executing our four key growth strategies," said Ben Gadbois, Spin Master's President and COO. "We continued to innovate across our entire product portfolio and are excited about how our product line looks for 2016. From a sales perspective, we have traditionally been focused on North America but we are now also concentrating on growing international markets. In 2015, we are pleased to report that, excluding the acquisition of Cardinal, Gross Product Sales outside of North America grew to just over 30% of total Gross Product Sales, compared with 28% in 2014. We continued to develop our entertainment properties and integrate our toy and animation design resources to maximize the revenue potential of our shows. The integration of Cardinal continues to progress well and our business platform is positioned to facilitate our acquisition strategy."

"Looking ahead to 2016, our leading portfolio of owned intellectual property and license agreements is driving exciting new toy and entertainment offerings," said Ronnen Harary, Co-CEO of the Company. We will continue to drive Paw Patrol globally and focus on growing both the Meccano brand, with an updated Meccanoid and new Micronoids, and Bunchems. Among the Company's properties that we'll be launching in 2016 are Hatchimals, Zoomer Chimp, Brightlings, and toy lines for Secret Life of Pets, Angry Birds and PowerPuff Girls. In addition to new Star Wars products, we will also be launching under our Air Hogs brand, the Starship Enterprise for the upcoming Star Trek 50^th anniversary movie as well as the Batmobile from the Batman vs Superman movie."

2015 Gross Product Sales by Business Segment (US$ millions)

Q4 2015 Results

As previously described in Q3 2015, results for the three months ended December 31, 2015 reflected the ongoing improvements in operational efficiency, which allowed for the acceleration of some shipments into Q3 that traditionally shipped in Q4. This moved some revenue into Q3 2015 from Q4 2015. Shipping earlier provides retail customers with additional time for sell-through to consumers and avoids early season out-of-stocks on popular items. Spin Master's Gross Product Sales in Q4 2015, including Cardinal, increased 3.6% relative to the comparable period in 2014. Excluding Cardinal, Spin Master's Gross Product Sales in Q4 2015 decreased US$22.7 million, or (8.2%), relative to the comparable period in 2014, reflecting this year's acceleration of sales into the third quarter.

Q4 Gross Product Sales by Business Segment (US$ millions)

For the three months ended December 31, 2015, Spin Master generated revenue of US$258.4 million, an increase of 8.8% from US$237.6 million for the three months ended December 31, 2014. In constant currency terms, revenue increased by 12.4% for the three months ended December 31, 2015 relative to the comparable period in 2014. In Q4 2015, Spin Master's financial results reflected Gross Product Sales of US$32.7 million and revenue of US$29.9 million related to the Cardinal business. Sales Allowances decreased by 17% relative to the same period in 2014, despite the increase in revenue. Gross profit in Q4 2015 increased 11.5% to US$131.6 million, or 50.9% of revenue, compared with US$118.0 million, or 49.7% of revenue in Q4 2014.

Selling, general and administrative expenses for Q4 2015 represented 52.9% of revenue compared to 42.9% of revenue for the same period in 2014. Excluding IPO costs and stock compensation expense, selling, general and administrative expenses for Q4 2015 represented 50.0% of revenue compared to 42.6% of revenue for the same period in 2014. Net income (loss) for Q4 2015 was US$(13.3) million, or US$(0.13) per share, compared with US$5.7 million in Q4 2014. Adjusted Net Income for Q4 2015 was US$6.7 million, or US$0.06 per share, compared with US$9.5 million in Q4 2014.

Adjusted EBITDA for Q4 2015 was US$13.7 million compared with US$22.4 million for the same period in the previous year. Adjusted EBITDA Margins were 5.3% in Q4 2015 compared with 9.4% in Q4 2014. The declines in earnings and Adjusted EBITDA reflect the timing of sales between Q3 and Q4, as described above, and increased marketing spend in Q4 2015. A significant portion of the Company's annual marketing expenses are incurred in Q4 each year in order to maximize their impact on consumer purchases and the return on investment. This causes Adjusted EBITDA margins in Q4 to typically be significantly below those in Q3.

On October 2, 2015, Spin Master completed the acquisition of Cardinal Industries Inc. The acquisition moves Spin Master into the #2 market share position in the US games sub-segment. It also facilitates growth through two distinct strategies. First, Spin Master expects to leverage its strong global platform to grow Cardinal's sales in Europe and other international markets. Second, the Company intends to leverage Cardinal's wide distribution network in specialty stores and the value channel to expand sales of other Spin Master products.

Outlook

For 2016, Spin Master expects organic Gross Product Sales growth to be toward the upper end of the Company's long term growth target range of mid to high single digits. In terms of seasonality, the Company expects Gross Product Sales for the first half of 2016 to be at the upper end of the 25-30% range of total Gross Product Sales for 2016. Adjusted EBITDA Margins are expected to be consistent with 2015.

Subsequent to year-end, Spin Master announced two strategic acquisitions. The Company  acquired the library of board games owned by Editrice Giochi SRL, one of the oldest privately-held toy game companies in Italy. The sale includes the historic Editrice Giochi brand, which has stood for quality game product in the Italian market for more than 70 years.  This acquisition enables Spin Master to expand its award-winning selection of games and licensed products in the Italian market with such well known games as Risiko, Italy's most popular strategic game, and Scarabeo, the leading word game in Italy. The Company also announced that it has acquired the Etch A Sketch and Doodle Sketch brands from The Ohio Art Company. This acquisition includes all brand-related patents, trademarks, tooling and inventory. Spin Master views Etch A Sketch and Doodle Sketch as iconic brands ideally positioned for value-added initiatives developed through the Company's proven innovation model and to increase their distribution by leveraging Spin Master's global sales network.

Conference call

Ronnen Harary, Co-Chief Executive Officer, Ben Gadbois, President & Chief Operating Officer and Mark Segal, Chief Financial Officer will hold an investor conference call to discuss the Company's 2015 financial results at 3:00 pm Eastern Time today.   Investors and the public may participate in the conference call as per below:

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: www.spinmaster.com/events-presentations.php. A replay of the call will be available until Thursday, April 7, 2016. To access the replay, dial (416) 849-0833 or (855) 859-2056 (Passcode: 52807448). A transcript of the webcast will be archived on Spin Master's website.

About Spin Master

Spin Master is a leading global children's entertainment company that creates, designs, manufactures and markets a diversified portfolio of innovative toys, games, products and entertainment properties. Spin Master is best known for award-winning brands including Zoomer™ Dino, Bakugan Battle Brawlers™, Air Hogs®, and 2015 Toys of The Year, Bunchems and Meccanoid G15. Since 2005, Spin Master has received 63 TIA Toy of The Year (TOTY) nominations with 16 wins across a variety of product categories. Spin Master has been recognized with 12 TOTY nominations for Innovative Toy of the Year, more than any of its competitors. Spin Master is among a limited number of companies that not only develop and produce global entertainment properties, characters and content, but also monetize that content through the creation, sale and licensing of products. To date, Spin Master has produced five television series, including 2007 hit series Bakugan Battle Brawlers and its current hit Paw Patrol, which is broadcast in over 160 countries and territories globally. Spin Master employs over 950 people globally with offices in Canada, United States, France, Italy, United Kingdom, Slovakia, Germany, the Netherlands, Mexico, China, Hong Kong and Japan.

Non-IFRS Measures

In addition to using financial measures prescribed under IFRS, references are made in this press release to "Adjusted EBITDA", "Adjusted EBITDA Margin", "Adjusted Net Income", "Free Cash Flow", "Gross Product Sales" and "Sales Allowances", which are non-IFRS financial measures. Non-IFRS financial measure do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.

Adjusted EBITDA is calculated as EBITDA (i.e., net earnings before borrowing costs, taxes and depreciation and amortization) excluding one time or other non-recurring items that do not necessarily reflect the Company's underlying financial performance, including foreign exchange gains or losses, restructuring costs, public offering costs and write downs, among other items. Adjusted EBITDA is used internally as the key benchmark for incentive compensation and by management as a measure of the Company's profitability and its ability to fund working capital requirements, investment in property, plant and equipment, and make debt repayments.

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 Income is calculated as net income excluding one time or other items that do not necessarily reflect the Company's underlying financial performance including foreign exchange gains or losses, restructuring costs, IPO costs, the accounting effect of the phantom equity expense and write downs, among other items and the corresponding impact these items have on income tax expense. Management uses Adjusted Net Income to understand the underlying financial performance of the business on a consistent basis over time.

Free Cash Flow is calculated as cash from operations before changes in working capital less capital expenditures plus any cash used in brand or business acquisitions. Capital expenditures include expenditures on assets such as property, plant, equipment (primarily expenditures of tooling) and the production of television properties. 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 marketing, incentive and Sales Allowance adjustments. Changes in Gross Product Sales are discussed because, while Spin Master records the details of such Sales Allowances (in its financial accounting systems at the time of sale in order to calculate revenue, such Sales Allowances are generally not associated with individual products, making revenue less meaningful when comparing its segments and geographical results to highlight trends in Spin Master's business.

Sales Allowances represent marketing and sales credits requested by customers relating to factors such as co-operative advertising, contractual discounts, negotiated discounts, customer audits, volume rebates, defective products, and costs incurred by customers to sell the Company's products and are booked 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.

Management believes that Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Free Cash Flow and Gross Product Sales 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 Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Free Cash Flow, Gross Product Sales and Sales Allowances 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 measures in the evaluation of issuers.

Spin Master Corp.
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Spin Master Corp.
Consolidated Statement of Operations
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The table below presents a reconciliation of Net Income to EBITDA, Adjusted EBITDA, Adjusted Net Income, and Cash from (used in) Operations to Free Cash Flow for the years ended December 31, 2013 to 2015:

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 launching of new products, brands and entertainment properties; the Company's outlook for 2016; the Company's owned intellectual property and license agreements; the Company's expectations concerning growth of Cardinal in Europe and other international markets; the Company's expectations concerning growth from Editrice Giochi or Etch A Sketch; the Company's operating momentum, financial position, cash flows and financial performance; the Company's future growth, drivers for such growth, and the successful execution of its strategies for growth; the likelihood of avoiding early season out-of-stocks; the seasonality of Gross Product Sales and forecasted organic Gross Product Sales and Adjusted EBITDA Margins.

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 Cardinal's sales; 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 founders will continue to be involved in the Company and that the risk factors noted below, 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 under "Risk Factors" in the Company's Management Discussion and Analysis for the year ended December 31, 2015 and the Company's supplemented PREP prospectus dated July 22, 2015. 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.

SOURCE Spin Master Corp.