Spin Master (TOY) Q2 2024 earnings summary

Executive summary

• Q2 2024 revenue was $412 million, down 2.1% year-over-year, with Melissa & Doug contributing $43.3 million; revenue excluding Melissa & Doug fell 12.4%.

• Net loss for Q2 was $24.5 million, compared to net income of $28 million last year; adjusted EBITDA was $53.6 million (13% margin), down from $88.4 million (21% margin) in Q2 2023.

• Melissa & Doug delivered strong double-digit shipment growth in Q2, with integration progressing and $1.2 million in net cost synergies recognized in Q2, targeting $6 million for 2024.

• Share repurchases exceeded 1.1 million shares YTD, with $25.9 million spent on buybacks and $65 million in loan repayments.

• CFO Mark Segal announced retirement in H1 2025 and will transition to a strategic advisor role.

Financial highlights

• Q2 toy gross product sales were $384.7 million, down 1.4% year-over-year; Q2 entertainment revenue grew 7.4% to $36.4 million; Q2 digital games revenue declined 14.3% to $34.7 million.

• Q2 gross margin was 48.4% (down from 54.9%), mainly due to Melissa & Doug inventory fair market value adjustment; adjusted gross margin (excluding M&D step-up) was 54.3%.

• Q2 SG&A expenses increased 11.6% to $200.3 million.

• Free cash flow in Q2 was -$3.6 million, an improvement from -$5.9 million last year; cash from operations was $25.4 million.

• Ended Q2 with $154.6 million in cash; loans and borrowings at $460 million as of June 30, 2024.

Outlook and guidance

• Full-year 2024 guidance maintained; revenue and adjusted EBITDA margin (excluding Melissa & Doug) expected in line with 2023.

• Melissa & Doug 2024 gross product sales expected at $420–$430 million, with revenue of $370–$375 million and adjusted EBITDA margin of ~19.5%.

• $6 million in net cost synergies targeted for 2024, progressing toward $25–$30 million run-rate by end of 2026.

• Q3 expected to represent ~40% of full-year gross product sales, up from 38% in 2023.

• Net debt to adjusted EBITDA ratio targeted at ~0.8x by year-end.