Spin Master (TOY) Q2 2024 earnings summary

Executive summary

• Q2 2024 revenue declined 2.1% year-over-year to $412 million, with Melissa & Doug contributing $43.3 million and revenue excluding Melissa & Doug down 12.4%.

• Adjusted EBITDA was $53.6 million (13% margin), down from $88.4 million (21% margin) last year, reflecting the impact of Melissa & Doug and product mix.

• Adjusted net income was $9.6 million, or $0.09 per share, compared to $48.8 million, or $0.47 per share, in Q2 2023; Q2 net loss was $24.5 million.

• Operating loss of $23.0 million versus operating income of $34.4 million last year.

• Integration of Melissa & Doug progressing well, with $1.2–$1.4 million in net cost synergies recognized YTD and $6 million targeted for 2024.

Financial highlights

• Q2 gross profit was $199.6 million, with gross margin at 48.4% (down from 54.9%), mainly due to Melissa & Doug inventory fair market value adjustment.

• Adjusted gross profit (excluding M&D inventory step-up) was $223.8 million; adjusted gross margin was 54.3%.

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

• Ended Q2 with $154.6 million in cash; repaid $15 million in debt and reduced borrowings by $65 million year-to-date.

• Cash from operations was $25.4 million in Q2, $49.7 million year-to-date.

Outlook and guidance

• Full-year guidance maintained; 2024 toy gross product sales (excluding Melissa & Doug) 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%.

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

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

• Adjusted EBITDA margin (excluding M&D) expected to be in line with 2023; net debt to adjusted EBITDA ratio targeted at ~0.8x by year-end.