Spin Master (TOY) Q3 2024 earnings summary

Executive summary

• Q3 2024 revenue rose 25% to $886 million, driven by strong toy sales and the Melissa & Doug acquisition, with YTD Q3 revenue at $1,613.9 million, up 15.1% year-over-year.

• Excluding Melissa & Doug, revenue increased 3% year-over-year, with toys offsetting declines in entertainment and digital games.

• Net income for Q3 was $140.1 million ($1.32 diluted EPS), with adjusted net income at $169.7 million ($1.60 per diluted share), up from $143.6 million ($1.34 per share) last year.

• Miss Rachel toy line was a standout, becoming the top new license in the U.S. toy industry in Q3.

• Integration of Melissa & Doug is progressing well, contributing $155 million to Q3 revenue and $49.4 million to adjusted EBITDA.

Financial highlights

• Adjusted EBITDA was $277.5 million (31.3% margin), including $49.4 million from Melissa & Doug; YTD Q3 adjusted EBITDA was $349.7 million (21.7% margin).

• Free cash flow in Q3 was $44.7 million, down from $119 million year-over-year; cash provided by operating activities was $74.9 million in Q3.

• Gross margin declined to 53% from 54.5% due to Melissa & Doug inventory fair market value adjustment; adjusted gross margin for Q3 was 55.4%.

• SG&A expenses increased 22.2% in Q3, reflecting integration of Melissa & Doug.

• Q3 diluted EPS was $0.57, adjusted diluted EPS $1.32; YTD Q3 diluted EPS $1.51, adjusted $1.60.

Outlook and guidance

• 2024 guidance reiterated; total revenue and 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 ~19.5%.

• At least $6 million in net cost synergies from Melissa & Doug expected in 2024, progressing toward $25–$30 million run-rate by end of 2026.

• Net debt to Adjusted EBITDA ratio targeted at ~1x by year-end.