Spin Master Corp.

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Good morning, ladies and gentlemen. Welcome to the Spin Master First Quarter 2026 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session for analysts. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded today, Thursday, April 30, 2026. I would now like to turn the conference over to Team Oren, VP, Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our call. With me here today are our CEO, Christina Miller, and our CFO, Jonathan Reuter. For your convenience, the press release, MD&A, and consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on CDAR+. Before we begin, please note that remarks on this conference call may contain forward-looking statements about Spin Master's current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements, and any other future events or developments. Forward-looking statements are based on currently available information and assumptions that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such assumptions will prove to be correct, and many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements. As a result, you are cautioned not to place undue reliance on these forward-looking statements. For additional information on these assumptions and risks, please consult cautionary statements regarding forward-looking information in our earnings release dated April 30th, 2026. Except as may be required by law, Spin Master disclaims any intention to update or revise any forward-looking statements, whether because of new information, future events, or otherwise. Please note that Spin Master reports in U.S. dollars, and all dollar amounts today are expressed in U.S. currency unless otherwise noted. Also, all industry data that we reference related to toys is from Circana LLC Retail Tracking Service and relates to data from our G11 markets, which are specified in our Q1 2026 supplementary presentation also available on our website. Unless noted otherwise, all percentage growth rates refer to the periods ending March 31st, 2026, relative to the same period in 2025. I would now like to turn the call over to Christina.

Thank you, Tim, and good morning to everyone who is joining us today for our first quarter call. We delivered a solid start to the year, which is a direct result of our disciplined execution against our core strategic priorities. Our financial results were ahead of our expectations. More importantly, our underlying operational performance this year gives us confidence that while there is near-term macro uncertainty, we are successfully positioning the company to return to sustainable growth. Our focus on product innovation, the expansion of evergreen properties like Monster Jam, and the stabilization of Melissa and Doug is yielding positive results. And we are strategically managing our portfolio by investing in our creative capabilities, reimagining how fans engage with our brands in both the physical and digital world, and expanding our audiences, laying the groundwork for future growth. In terms of Q1, our POS and toy was up, driven by healthy consumer demand for many of our items, including Primal Hatch, DreamWorks Dragons, Monster Jam, Melissa & Doug, and Gund. We recently announced the extension of our partnership with Feld Entertainment for more than another decade. Since 2019, together, we have grown Monster Jam for seven consecutive years, driving it to the number two brand in vehicles, and we have more exciting innovation and category expansion planned for the future. We stabilized Melissa & Doug and achieved POS growth in March. The team is executing well on our return to growth strategy. One, reclaiming market share through innovation, competitive pricing on certain evergreen SKUs, and strategic partnerships. Two, by expanding both internationally and outside the toy aisle. We continue to see growth in GUNS, our premium plush brand. We have improved the brand's health and awareness, reconnecting it with young parents by crystallizing GUNS core positioning. streamlining the portfolio to three segments, core, baby, top tier licenses, and applying our signature innovation. We have also significantly enhanced our online content and experience, which has driven e-commerce into GUN's largest channel. During the quarter, our team continued to execute on our long-term growth strategy by one, investing in innovation, two, expanding into high growth categories, and three, accelerating collaboration across the business to unlock the full potential of our portfolio. Why this matters. Creativity, storytelling, and innovation are core to Spin Master. By investing in our creative capabilities and improving collaboration among our team across the globe, we are improving our ability to sustain a strong pipeline of innovation. This year, consumers will see exciting new products with our K-pop Demon Hunters line, extensions to our award-winning Primal Hatch, new iterations of Crystal Length, and our surprise collectible plush, Magic Jelligans. And we are seeing an overwhelming response to Hatching Yoshi, tied to the Super Mario Galaxy movie. The movie is the highest-grossing film of the year, and our Hatching Yoshi has sold out numerous times already, and replenishments are on the way. We are infusing innovation into Melissa and Doug, expanding our WOW tech to other items, including our Easter egg decorating set, which sold out this spring, as well as launching new concepts in pretend play. Last quarter, we outlined our strategic expansion into the high-growth category of trading parts. Italian brain rot collectible cards will be available in May, and we've seen tremendous enthusiasm from retailers, both mass and specialty. The team also continues to drive towards the launch of Hellbreak this fall and will be announcing the addition of new partners to the game, joining our cornerstone partner, Universal. We are continuing to accelerate our collaboration to maximize the value of brands by bringing them to kids and families wherever they are. Our top priority for 2026 is capturing the Paw Patrol movie moment across our creative centers. We've been building excitement for the August release of Paw Patrol, the dino movie, with the initial teaser released on March 30th, which hit 10 million viewers online in the first 24 hours. The movie will feature a new song from the Backstreet Boys, their first since 2019. On a related note, we recently hit a major milestone as Paw Patrol, the theme song, officially reached platinum status, driven by more than 150 million streams placing it in the top 1% of all TV-related music on streaming platforms. This achievement reflects the Pup's global reach, their staying power, and the incredible engagement we continue to see across Touchpoint. Beyond instantainment, this month we unveiled our Paw Patrol toy line, inspired by the movie's epic dino-charged adventures. The collection will be available in July and features towering dinosaurs, heroic vehicles, and interactive play experiences. and we are on track to release our new Paw Patrol digital game later this year. We are leveraging the power of our creative centers with licensed partners as well. We are teaming up with Hidden Pigeon Company to bring Mo Willems' popular characters to life across Melissa & Doug, Gund, Picnic, and Say Go Mini, reaching new audiences across physical and digital play. In a similar fashion, we are broadening our digital reading offering by expanding Lilly's eBook library with notable Spin Master IP, starting with an exclusive title from Melissa and Doug. Beyond leveraging our extensive IP to grow Lilly's catalog, we'll be launching it in new markets, beginning with North America later this year. Finally, we're building on Tokaboka's fan base of close to 60 million active users, bringing this powerful digital brand to the real world, with Tokaboka Collectibles launching at Miniso this summer. This is one of the many ways we are extending its reach in meaningful new ways across physical products, licensed partnerships, and content to further unlock value. With that, I turn it over to Jonathan.

Thank you, Christina, and good morning, everyone. As Christina noted, our financial results in Q1 came in ahead of the expectations we outlined. Consolidated revenues decreased 9% or $31 million due to the significant pull forward of retail orders into the first quarter of last year, as noted on our last call. In that period, direct import orders increased 75% as retailers tried to secure inventory ahead of the implementation of tariffs. This resulted in toy revenue increasing in Q1 2025 by 21%, thus making it a challenging comp. Conversely, due to this shift in retail ordering patterns, Q2 and Q3 are therefore anticipated to have easier comps for us to lock. Revenues in adjusted EBITDA in Q1 2026 actually came in better than expected, primarily driven by the pull forward of some toy orders in Q1, the earlier Easter timing, and some FX benefits. Adjusted EBITDA declined by approximately $4 million as the revenue decline was partially offset by reduction in cost of sales and operating expenses. Adjusted operating loss increased by approximately $18 million due to the $4 million decline in adjusted EBITDA and a $14 million increase in depreciation and amortization expense. This was primarily related to an increase in entertainment amortization and cost of sales stemming from the delivery of new content. IFRS operating loss increased by $12 million also due to the increase in depreciation and amortization. Our operating cash flows increased significantly to 103 million due to effective working capital management, the reception of some tax refunds, and lower cash operating expenses. The working capital inflow is partly timing-related, and while we therefore expect outflows in Q2 and Q3, we are pleased with the results of our enhanced execution and are now targeting a reduced overall outflow on a full-year basis. In the current macro environment, we maintain a balanced approach to capital allocation between CapEx, dividends, and share buybacks. We used the remainder, a little over $40 million, to reduce our debt, so this may revert in Q2 as we anticipate the quarter may be a cash outflow period, as it has been in prior years. We ended the quarter with approximately 0.9 turns on net leverage, including leases. Now turning to our individual creative center's performance. Both toy GPS and revenues decreased by 12% for the reasons I noted. Despite this, adjusted EBITDA loss actually decreased by $2 million due to reduction in cost of sales and operating expenses. Operating loss also decreased by $2 million for the same reason. Entertainment revenues increased by 8% or $3 million, primarily due to the delivery of new content, including Unicorn Academy and higher music revenues. However, operating income declined due to the $12 million increase in amortization expense, stemming from the dilutive impact that occurs when delivering new content. as well as an increase in marketing expense behind the upcoming Paw Patrol movie. Digital revenues declined 2% or $1 million due to lower in-game purchases of Tokaboka World, partially offset by increased strategic distribution partnerships and picnic revenues. Operating income declined due to the decrease in revenues and an increase in amortization expense. Tokaboka World revenues were below our expectations, however, Player engagement remains strong, and the app is routinely listed at the top of the charts for kids in major markets on both Android and iOS per sensor tower. Additionally, our efforts to improve the user experience has resulted in improved ratings over the past year. So to improve our monetization, we are tweaking the ecosystem with multiple initiatives, including increased proportion of paid content, more content with higher-profile licenses, and are aiming to see the benefits of that in the second half of this year. Within Picnic, we continue to see the benefits of our strategy to showcase the value proposition of the full bundle to users of the individual apps, to encourage annual versus monthly subscriptions, and to make the bundle more accessible to subscribers. While that impacted our year-over-year subscribers, it was more than offset through improved RPU, retention, and LTV. Turning to our outlook, we reiterated our 2026 guidance today for stable to low single-digit growth in revenues, and mid-to-upper single-digit growth in adjusted EBITDA. The top end of our range reflects the growth drivers I outlined on our last call, with a downside reflecting conservatism due to the uncertain economy and geopolitical situation, including the conflict in the Middle East. The blockage of the straits has resulted in a significant increase in oil prices, which ultimately has an impact on our freight, resin, and packaging costs. To date, the impact has been de minimis due to the lag that occurs from us having contracted costs in place, and it takes some months for increased input costs to be reflected in new inventory. This situation is not unusual for us, though. We have experienced similar prices in 2021, 2012, and 2014. In the past, we have utilized pricing and other measures to mitigate the impact. As it relates to Q2, we are targeting stable to low single-digit revenue and adjusted EBITDA growth on a consolidated basis in the quarter, driven by TOI as it lasts an easier comp with approximate stability in our other revenues. In terms of cadence, TOI revenue seasonality is now expected to be just under one-third, two-thirds split between H1 and H2.

And with that, operator, please open the line for questions.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, just press star followed by one on your touch-tone phone. And if you'd like to decline from the polling process, just press star followed by two.

We'll just simply compile the Q&A roster.

Your first question comes from the line of Adam Shine from National Bank. Please go ahead.

Thanks a lot. Good morning. And obviously, great, efficient rundown to kick things off. Jonathan and Christina, can you talk maybe in terms of how Q2 might be pacing? I know, Jonathan, you just touched on a few metrics for Q2, but just any additional color. We had Mattel, of course, yesterday talking about North American net sales potentially growing in Q2. Actually, they said they expect them to grow and that U.S. retailer ordering patterns appear to be stabilizing. So maybe we can start there.

Hey, good morning, Adam. Great speaking to you this morning. Thank you for the question.

Yeah, so when we look at Q2, you know, in our prepared remarks, we called out that we saw from a consolidated perspective, we saw that stable to low single-digit revenue and bottom line growth year over year. And when you bifurcate that down to the component parts, we like the progression that we're seeing on TOI. We obviously have some easier comps this year than last year. based on, as you know, there were some very high tariffs early in the second quarter in 2025. So TOI ultimately will be the driver of it. We are seeing, you know, we're very pleased with our sell-through as we started the year. We obviously benefited from an earlier Easter than last year, but we certainly are pleased with that. We're pleased with the new innovation, new products that are being launched throughout the year. And so specifically on the second quarter, think of it as a toy story with really stable entertainment. And as we talked about in our initial guidance in digital, we said modest growth, but that was really in the back half of the year.

Okay. I think somewhere in the financials, Note 3, I think it was, there was about $10.8 million recognized in terms of previously deferred REVs. Can you just talk about that and where it came in? Because it was a bit higher than prior quarters.

So deferred REV, I'll have to circle back with you on that one.

Okay, no problem. And just lastly, as we go back to Melissa and Doug and Christina's been talking about this, I think ever since she got into the seat in terms of really trying to turn that around, you know, I think she highlighted a few things at the outset of the call, but anything else to elaborate further, maybe we can also touch while we're at it on, you know, some of the other, you know, discount channels as well, how that's progressing.

Good morning, Adam. Yeah, you're right.

I have definitely been consistent with my comments and messaging around M&D, and I think that you see our POS began to improve in the fourth quarter. Then we've seen improvements each month of the first quarter and reaching growth in March. So we've benefited a bit from an early Easter, but also from some great products. We had the viral success in the Easter egg decorating kit that sold out, and we have big plans to expand that next year as well. But overall, we're optimistic about the POS that we're seeing. We believe that it leads to GPS growth this year, which is our core priority, to really build the underlying health and to expand both in international, continue to expand there, as well as our retail shelf space.

Okay, great. I'll queue up again. Thanks. Thanks.

Your next question comes from the line of Carly Koh with Jefferies.

Hey, thank you so much for taking my questions. First one, I guess, is on just the stabilization that we're seeing in Melissa and Doug. Curious kind of what's driving this March improvement. Is it distribution, velocity, promotional cadence? Any color there would be helpful.

Hi, Kylie. How are you? It's Christina here. I'm going to take this one.

I think it's a little bit of building on what I was saying to Adam just a minute ago, really, that it's one, it is just product development and really starting to see the innovation extending into a lot of our lines, like growing in infant and play sets, leveraging the trusted brand across really compelling products and just thinking about the ability to add more play value to what already is some great toys. And I think you're seeing all of that start to roll its way out. We've said, you know, for at least the last few calls that I've been part of, that we're driving innovation, that we're looking to expand and international, that we're looking to expand on shelf. And I think you're seeing that. You're seeing the return of health to the brand and that it's always been an incredibly high quality product line. and the trademark Spend Master Innovation, I think those two coming together really have, you know, put us on a path to growth.

Gotcha. No, that's a super helpful context. And then just a little bit on the timing of, you know, cost and flow through, you highlighted that higher freight resin and packaging costs take some months to show up into inventory. How should we think about that risk as a lot of your product is skewed to second half? Could we begin to see this pressure results in Q3? Just any type of additional color there would be helpful.

For sure. Thanks for the question.

And you pretty much gave the answer. So really, when we look at what's happening in the Middle East, there's obviously been an increase in oil that started early March. We benefit. We work with our suppliers. We have hedging programs, collaboration with them. And so the actual cash that we have to start paying out, depending whether it's going to be on freight or on resin, it's going to be sequenced between, say, now throughout the summer, late summer. And then we have to then turn our inventory. And, you know, the average turns our inventory through the full year is probably around that three to four turns. And so you're thinking like you're looking at really more of a Q3 and Q4 impact. And, you know, one data point that could be maybe helpful as you're thinking through this and why we're comfortable with reiterating our guidance, is that the impact that we see this coming year because of higher input costs related to oil is in that $15 million mark.

And it's certainly H2 is where we would see that impact.

Great. That's super helpful.

I'll hop back in line.

Thank you.

Your next question comes from the line of Drew McReynolds from RBC. Please go ahead.

Yeah, thanks very much. Good morning. Maybe just shifting here on the digital games side, just in the opening remarks, you alluded to performance coming in below expectations. Just wondering if you can unpack that a little bit more. Was it an execution issue or just more broadly an industry issue? And then just a second, Jonathan, just on 2026 guidance and macro assumptions, you know, that's embedded perhaps to the lower end of the range. Like, is there, I guess, set it a different way, a scenario here where uh you know there's kind of material downside um specifically related to uh the middle east or it sounds by your opening remarks that uh you know you have a relatively high degree of confidence that you can navigate this as we go forward thank you thanks for the question i think i'll start with the last uh you know second half of your question because it does tie in a little bit to what kylie was asking and i didn't fully fully answer so

I did reference the value that we're putting if you use a $100 barrel throughout the rest of the year, and that being that $15 million. We have mitigating plans, and we're implementing those actions proactively to address that $15 million. So we're comfortable with our guidance based on the kind of current rates that we're seeing. Obviously, we have to monitor... I'd be very conscious that the situation can change very quickly. But based on what we're seeing today and based on the mitigating plans that we have started to enact, we're comfortable with our guidance. On the higher end, we've talked on the initial guidance call on the drivers. It starts with entertainment, followed by digital, and then ultimately on toy. And so we think we have a balanced, we think we're quite balanced. We think we have upside and we think we can properly mitigate the risk that we're seeing right now in the Middle East. So that hopefully answers the second question. And then turning to, I'll start off, just continue talking and then I'll let Christina jump in. But with regards to digital games, we entered the year expecting modest growth. We certainly said it was more back half-loaded. I would call this quarter kind of stable, right? You know, negative 2%. So it's roughly in line with our expectations. We certainly were focused this quarter and a little bit as we entered into the quarter, so a little bit last year, on driving more engagement with the brand in a worldwide basis. There are a phenomenal amount of activities that are coming as part of bringing TOCA outside of the digital world and bringing it to the physical world. and expanding into our two other creative centers. And so we consciously made that effort to continue on expanding the reach and the broad reach, and that's through free content. Now, we're going to start dialing that in and start managing that to work on the monetization lever as I walk through on my prepared remarks. So that's, like, Dilk is performing as we essentially expected, and it's really a back-half story.

Yeah, just adding a little bit more context to that, I would just say the headline there is user experience across the board on our digital both Picnic and Tokaboka. So what I would say is you see us consistently improving the user experience in the app and driving now. And then what we need to focus on, I think the remainder of the year, is conversion. And we have a lot of programming plans and partnerships and drops of content in Tokaboka. that I think you'll start to notice, and then we will see the list from there. But really, we're trying to make sure that the underlying health of the community is the focus at the moment, right? Growing, making sure the tech stack's working, making sure that user experience is really strong, and then layering on the content drops, partnerships through the rest of the year. And in Picnic, we released a... We had a very active quarter in releases, and the biggest thing would be the hub so that you can really see the value of the product and that we can drive retention. So I'd say first quarter was really about setting those two things up to drive the balance of the year.

I'm just going to jump in here. My mom, when I was growing up, said I mumbled, and now Tim is telling me I mumbled as well. So When I was saying the impact of oil, it's 1.5, 15, not 50 million. So 1.5. Thank you.

Yeah, thanks for the clarification and additional context.

Your next question comes from the line of Catherine Sung from TD Cowen.

Hi. Can you please provide some color on how we should think about the cadence of B&A throughout the remainder of the year? I know PPPET has a big lift in Q3, but just how to think about total for the year and by quarter if you have?

Yeah.

So, you know, depreciation and amortization are really two components, right? There's what I'll call the normal, where we run our business, and as we amortize and depreciate our fixed assets, What's different this year is the release, there were two releases, the release of Unicorn Academy in Q1. And so that had an impact on our amortization this quarter. And the next big increase that we're going to see will be in Q3 when we release, you know, the Paul movie. So the way I would think about it was there's a little bit of a decline as we head into Q2. Spiking back up in or going higher in Q3 as released the movie, higher than Q1. And then ultimately falling back probably in Q4 closer to the second quarter that we're going to come into right now. For a total of about $160 million, $150 million.

Thank you. And just to follow up, can you also elaborate on the strength of your Q1 free cash flow? Clearly benefited from working capital, but just wondering.

Yeah, thank you for the question.

You know, couldn't be prouder of the efforts of the team. And it really shows how the teams are coming together because it's not a finance, it's finance, supply chain, sales. It's everyone coming together and recognizing the power of capital and cash. And so you see the strength of our inventory. We're at really, really incredibly healthy inventory levels. In fact, so healthy that when we look at opportunities for the rest of the year, We collectively can say, hey, we're comfortable going a bit longer in some of these growth and runners because our inventory position is so healthy. And then when we look at the AR and AP, the team is doing a phenomenal job of collecting receivables. And we're working with our suppliers on what the right cadence of timing of payments are. And so you put all that together and it just continues to increase. Now it's two quarters in a row. that we're increasing high single-digit, the cash conversion cycle.

Thank you. Your next question comes from the line of Jarek Johnson from Seaport Global.

Hey, good morning. Thank you. I kind of want to go back to Kylie's question, maybe a little bit more detail on the dynamics of how it all works. You're buying finished goods, so you don't have direct exposure to resin per se. I assume you're locked in from a price perspective early in the year, or do those prices change?

Yeah, I think every contract will be different, so we'll talk in generalities, but you've pretty much hit it, which is we enter into agreements with our suppliers, and that locks in a certain price for the product. And so that's why we have visibility for a longer period of time on the resin front than freight, where, as you know, in freight, you ultimately will have fuel surcharges that start getting charged through.

Okay. So when you do buy from third-party manufacturers, are those prices set before February 28th or after?

Yeah, Gary, I mean, every contract –

We're a fluid business, right? So it's not like the business begins and stops. There's certainly a large amount of our contracts that were set before the increase in oil. And as we start thinking about 2027, you would imagine there would be contracts that would be based on current oil prices. So it's a constantly fluid environment. But I go back to what I said before, that the impact at current rates If this continues for the full year, it's 1-5-15, so I don't mumble. We've gone through this multiple years in the past where we have, I think, 2012, 2014, 2021. The organization, our supply chain team is incredible here, and so we've gone through this multiple times. We're able to have mitigating plans. We've already started to action those, and we think the net impact on our customers cost after mitigation is going to be de minimis as we act against the plans that we set out.

Okay, thank you. That was very clear. Thank you, John. And I just want to ask one more on retail POS. What was it in the quarter? It was up, but was it up mid-single digit? I kind of missed that. But more importantly, what is it year-to-date to include that Easter shift?

Yeah, you know,

I'll start off, and sorry, Christina, you can jump right in. From a POS perspective, it's, you know, LSD. Like, you know, we are growing. We're certainly in certain categories taking share. So wheels in action would be an example. And we're pleased that we started the year on a positive swing, including M&D.

All right, for the year, year to date.

Well, obviously, April, you know, Easter swung, so there's going to be a shift, but overall for our whole business, we continue to be in the positive category.

Okay, great. Thank you.

If there are no further questions, please, I'll turn the call back over to Christina. Please continue.

Thank you all for being with us today. We look forward to talking to you again on our Q2 call later this summer. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.