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) year-over-year.

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

• Digital games revenue declined 14.3% to $34.7 million, mainly due to lower in-app purchases in Toca Life World, despite a 3% sequential increase in monthly active users.

• Entertainment revenue increased 7.4% to $36.4 million, driven by higher distribution revenue from Paw Patrol movies and series, and a new Netflix deal for Unicorn Academy.

Financial highlights

• Adjusted EBITDA was $53.6 million (13% margin); adjusted net income was $9.6 million ($0.09/share), compared to $48.8 million ($0.47/share) last year.

• Gross margin declined to 48.4% from 54.9%, primarily due to Melissa & Doug inventory fair market value adjustment.

• Free cash flow improved to -$3.6 million from -$5.9 million, with $154.6 million in cash at quarter end.

• $15 million in debt repaid in Q2; borrowings reduced by $65 million year-to-date.

• SG&A expenses increased 11.6% to $200.3 million, mainly due to Melissa & Doug inclusion.

Outlook and guidance

• Full-year guidance maintained; toy gross product sales (excluding Melissa & Doug) and total revenue expected to be 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.