spin master corp. fiscal 2016 fourth quarter results ... · final transcript march 14, 2017 —...
TRANSCRIPT
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FINALTRANSCRIPT
SpinMasterCorp.
Fiscal2016FourthQuarterResultsConferenceCall
EventDate/Time:March14,2017—9:30a.m.E.T.
Length:64minutes
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"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
CORPORATEPARTICIPANTSMarkSegalSpinMasterCorp.—ChiefFinancialOfficerRonnenHararySpinMasterCorp.—Co-ChiefExecutiveOfficerBenGadboisSpinMasterCorp.—GlobalPresidentandChiefOperatingOfficerCONFERENCECALLPARTICIPANTSSabahatKhanRBCCapitalMarkets—AnalystAdamShineNationalBankFinancial—AnalystDerekDleyCanaccordGenuity—AnalystBrianMorrisonTDSecurities—AnalystBobBekCIBCCapitalMarkets—AnalystMatthewGanCormarkSecurities—Analyst
3
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
PRESENTATION
Operator
Goodmorning.MynameisScott(phon),andIwillbeyourconferenceOperatortoday.At
thistime,IwouldliketowelcomeeveryonetotheSpinMasterFiscal2016FourthQuarterResults
ConferenceCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.
Afterthespeakers’remarks,therewillbeaquestion-and-answersession.Ifyouwouldlike
toaskaquestionduringthistime,simplypress*,thenthenumber1onyourtelephonekeypad.If
youwouldliketowithdrawyourquestion,pressthe#key.Thankyou.
Mr.Segal,youmaybeginyourconference.
MarkSegal—ChiefFinancialOfficer,SpinMasterCorp.
Thank you,Operator. Goodmorning, everyone, andwelcome to SpinMaster’s financial
resultsconferencecallforthefourthquarterandfullyearendedDecember31,2016.Mynameis
Mark Segal, and I am Spin Master’s Chief Financial Officer. I’m joined this morning by Ronnen
Harary,Co-ChiefExecutiveOfficer,andBenGadbois,GlobalPresidentandChiefOperatingOfficer.
Followingourformalremarks,wewillopenupthelinesforyourquestions.
For your convenience, the press release containing our fourth quarter and full year
financial results is available on the Investor Relations section of the Company’s website at
www.spinmaster.com.OurQ4MD&Aandfinancialstatementswillbepostedonourwebsiteandon
SEDARnolaterthanMarch31.
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"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Beforewe start, pleasenote that remarks on this conference callmay contain forward-
lookingstatementsaboutSpinMaster’scurrentandfutureplans;expectations;intentions;results;
levelsofactivity;performance,goals,orachievements;oranyotherfutureeventsordevelopments.
Forward-lookingstatementsarebasedoninformationcurrentlyavailabletomanagement
and on estimates, and assumptions made based on factors that management believes are
appropriate and reasonable in the circumstances.However, there canbeno assurance that such
estimatesandassumptionswillprovetobecorrect.
Many factors could cause actual results to differ materially from those expressed or
implied by the forward-looking statements. As a result, Spin Master cannot guarantee that any
forward-lookingstatementswillmaterialize,andyouarecautionednottoplaceunduerelianceon
theseforward-lookingstatements.
Exceptasmayberequiredbylaw,SpinMasterhasnoobligationtoupdateorreviseany
forward-lookingstatementwhetherasaresultofnewinformation,futureevents,orotherwise.
Foradditional informationontheseassumptionsandrisks,pleaseconsultthecautionary
statement regarding forward-looking information contained in the Company’s earnings release
datedMarch13,2017.
PleasenotethatSpinMasterreportsinUSdollars,andalldollaramountstobeexpressed
todayareinUScurrency.
IwouldnowliketoturntheconferenceovertoRonnenHarary.
5
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
RonnenHarary—Co-ChiefExecutiveOfficer,SpinMasterCorp.
Thankyou,Mark.Goodmorning,andthanksforyourinterestinSpinMaster.
Letmebeginbysayingthat2016wasanimportantyearforSpinMaster.Asyouknow,we
have four key growth strategies. These are to innovate our core toy portfolio; grow our
international sales; develop evergreen global entertainment properties; and complete strategic
value-creatingacquisitions.
We made strong progress in each of these areas in 2016, and the result was the
outstandingfourthquarterandfullyearfinancialresultswereportedyesterday.
We want to talk to you today about a few important themes relating to innovation,
acquisitions,andentertainmentthatwillprovidesomecontexttoourstrategiesandperformance.
With Hatchimals, we produced themost innovative, sought-after, and talked-about toy
thattheindustryhasseeninmanyyears.Hatchimals,inmanyways,wastheculminationofover20
yearsofwork.
It’satestamenttoourcultureofinnovationandcollaborationthatbroughttogetherallof
ourinternalglobaldesignandengineeringcapabilities,aswellasourlinkstotheexternalinventor
community.
OurmarketingteamsteppeduptomakeHatchimalsDayanincrediblegloballaunch.We
have never experienced anything like the frenzied demand for Hatchimals that took hold after
October7th.
6
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Wehaveanopportunitytobuildonthatawarenessthatwehavecreated,andwewantto
capitalize on this in 2017 andpotentially beyond. Benwill tell youmore about our plans for the
brandlaterinthecall.
SpinMaster ispositionwelltocapitalizeonsomeofthetoyindustry’sareasofstrength.
Weareencouragedbythegrowthofthegamesandpuzzlessupercategory,whichin2016wasthe
fastest-growingintheUStoyindustryaccordingtoNPD.
It’s remarkable toseehowgamesandpuzzleshasgrown inanagewithsomanydigital
distractions.Parents’desiretospendtimewiththeirkidsinanunpluggedfamilyenvironmentisan
importantdriverofthegrowthingamesandpuzzles.
Wewere pleasedwith our decision to enter the category in 2010with the purchase of
sometitles fromImagination,andsubsequentlywithouracquisitionofCardinal,whichtookusto
thenumbertwointhegamesandpuzzlesintheUnitedStates.
The unplugged theme is also a driver of growth in the outdoor category, which is the
second-largest,fastest-growingcategoryintheUStoyindustryaccordingtoNPD.Theacquisitionof
Swimways gives us the beachhead, andwe are excited about the opportunity to innovate in the
outdoorarea.
Iwant to emphasize that Cardinal/Swimways acquisitions highlight a specific acquisition
philosophy. Ineachcase thepreviousownerstayedon tocontinue running thebusinesswithus.
7
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Theyfocusonastrategicareaofinterestwhileweabsorbtheback-endandtapintoourinnovation
anddistributioncapabilitiestogrowmoreeffectivelythantheycangrowontheirown.
Webelievethereareotheracquisitionopportunitiesintheindustrytorepeatthismodel.
On the opposite end of the unplugged scale, technology continues to be an important
driver.Itismakingadifferenceintheindustry,especiallyintheentertainmentspace.
Kidsnowcanviewcontentwhenevertheywant.Thisallowsshowstoconnectwithlarger
audiences and increases their reach and frequency. Partners, like Nickelodeon, are able to offer
bothlinearbroadcastandon-demandorSVODplatforms,suchasiTunes.
YouTubehasalsoopenedupopportunitiestobringadifferentformatofcontenttokids.
Wewillcontinuetoevolveourentertainmentplatform,includingourlicensingprogram,toproduce
greatlong-andshort-formcontenttoreachthewidestpossibleaudience.
Overall,we’re verypleasedwithour 2016performance andare feeling confident about
2017.Wehaveastronglineupofnewproductscomingthisyearthatwe’reexcitedaboutandwhich
manyofyousawinNewYorkrecently.
We’re going to continuebuildingour corebrands and content, andwe’re enteringnew
international markets. And we’re keeping an eye out for acquisitions that will create value for
shareholders.
I’llnowhandovertoMarkSegal,ourChiefFinancialOfficer,toreviewourfinancialresults
inmoredetail.
8
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Mark?
MarkSegal
Thanks,Ronnen.I’llstartbyreviewingourfourthquarterresultsfollowedbythefullyear,
thenIwillreviewourbusinesssegmentsforbothperiods,andconcludewithouroutlookfor2017.
Overall,ourQ4revenueincreased30.9percentfrom2015to338.4million.Ifyouexclude
Swimways,whichweacquiredmidwaythroughthethirdquarter,fourthquarterrevenuegrew26.1
percent. And in constant currency terms, revenue increased by 33.9 percent relative to Q4 ’15.
Grossproductsalesincreased30.9percentinthefourthquarterto376.2millioncomparedto287.5
millioninQ4’15.
OurinternationalgrowthwasstronginQ4,withgrossproductsalesrising59.4percentin
Europeyearoveryearand34.8percentintherestoftheworld.Overall,internationalgrossproduct
salescomprised34.8percentofsalesinthefourthquarter.
I’dalsonotethatourNorthAmericangrossproductsalesrose21.9percentinthefourth
quartercomparedtoQ4’15.Sowearedoingwellinourhomemarketstoo.
Otherrevenue,whichincludesmerchandising,royalty,andtelevisiondistributionincome
fromproductsmarketedbythirdpartiesusingSpinMaster’sownedintellectualproperty,rose53.8
percentyearoveryearto12.3million.OtherrevenuealsoincludesapprevenuefromTocaBocaand
SagoMini.
9
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Q42016grossprofit increased30.7percentto172million,representing50.8percentof
revenue.Thatcomparesto131.6million,or50.9percentofrevenueinQ4’15.Theincreaseingross
profitreflectshighersalesvolumesyearoveryear.
TotalSG&Aexpensesinthefourthquarterwere160million.Thisequatesto46.6percent
of revenue after excluding share-based compensation. By comparison, SG&A on the same basis
represented 50.1 percent of revenue in Q4 2015. The decline reflects that we’re generating
operatingleverageaswegrow.
We reported net income of 2.7 million, or $0.03 a share in the fourth quarter. That
comparestoalossof13.3million,or$0.13ashareinQ42015.Adjustednetincomewas9.3million,
or$0.09asharecomparedto6.7million,or$0.07asharelastyear.
OurQ4adjustedEBITDAwas22.9million,upmorethan68percentfrom2015.Adjusted
EBITDAmarginsroseto6.8percentcomparedto5.3percentinQ4’15.Thatreflectstheincreasein
grossprofit,aswellaslowerSG&Aexpenses.
Asareminder,whenwetalkaboutQ4fromaprofitabilityperspectiveasignificantportion
ofourannualmarketingexpensesareincurredinQ4inordertomaximizetheimpactonconsumer
purchases and our return on investment. This typically causes a misalignment of sales and
marketing spendingbetweenQ4andQ3, resulting inadjustedEBITDAmargins inQ4 significantly
belowthoseinQ3.
10
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Finally,wehadnegativefreecashflowof3.9millioninthequartercomparedtonegative
6.3millionlastyear.
Turningnowtoourfullyear2016results.Wegeneratedrevenueof1.15billionin2016,up
31.3 percent compared to 879.4million last year. In constant currency terms, revenue increased
32.9percent.
Grossproductsalesrose27.7percentfromlastyearto1.25billion.It’sworthnotingthat
overthelast10yearswehavegrowngrossproductsalesatacompoundannualgrowthrateof14
percent.
Internationalsalesfor2016were32.5percentcomparedto29.6percentin2015,moving
usclosertoourmedium-termgoalofgenerating40percentofsalesfrominternationalcustomers.
We’refinallystartingtoenjoysomesignificanteconomiesofscaleintheinternationalmarkets.Ben
willhavemoretosayaboutthislaterinthecall.
Ourother revenue in2016was47.9million,upnearly150percent from19.2million in
2015.ThatwasdrivenbyincreasedroyaltyincomeandtheinclusionofapprevenuefromTocaBoca
andSagoMini.
Gross profit for the yearwas 596.7million, or 51.7 percent of revenue comparedwith
458.9million,or52.2percentofrevenuein2015.Theslightdeclineingrossmarginwasprimarily
duetotheinclusionoflower-marginalCardinalandSwimwaysproductsandforeignexchangedue
11
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
to the weak pound in Europe, partially offset by product mix and increased licensing and
merchandisingrevenue.
Wecontinuetofocusoncostmanagementandgeneratingoperatingleverage.
SG&Aexpenses,excludingstock-basedcompensation,was70basispoints lowerin2016,
representing36.7percentofrevenuecomparedto37.4percentin2015.
Marketing expenses of 112.4 million in 2016 represented 9.7 percent of revenue
compared to10.4percent lastyear,even thoughwe increasedmarketingspendonUSmedia for
keybrands,suchasPAWPatrol;AirHogs;SecretLifeofPets;andMeccano,aswellasincreasedPR,
research,andcommercialdevelopment.ThehighlysuccessfulNorthAmericanPAWPatroltourwas
akeyelementofourincreasedPRspendandwasattendedbyover1.3millionpeople.
Product development expenses represented 1.9 percent of revenue compared to 1.7
percent lastyear.2016wasslightlyhigher than2015,primarilydue to investments inHatchimals
andAirHogsaugmentedrealitytechnology.
Sellingexpensesrepresented6.7percentofrevenue,slightlyhigherthanthe6.3percent
in2015,primarilyduetotheinclusionofafullyearofsalesofCardinal-licensedgamesandpuzzles.
Distributionexpensesof32.2millionrepresented2.8percentofrevenuecomparedto2.5
percent in2015,drivenby increased inventory storage costs.Aswe reported, the slight year-on-
year increasewas associatedwith us bringing in $10million of inventory earlier due to theG20
SummitinChinainordertoavoidanyshippingdelays,aswellascontinuedstronggrowthinEurope,
12
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
whichhasahigherdomesticpostFOBsalesmix,andCardinal,whichalsohasahigherdomesticpost
FOBsalesmixinNorthAmerica.
Adminexpenseswas17.4percentofrevenuein2016comparedwith22.3percentin2015.
Excluding the impact of share-based compensation, admin expenses represented 15.6 percent of
revenuein2016comparedto16.5percentin2015.IfadminexpensesarefurtheradjustedforToca
Boca and Swimways acquisition transaction costs for a true year-over-year comparison, admin
expenseswere14.7percentofrevenuein2016comparedto16.5percentin2015,representing1.8
percentofoperatingleverage.
We reportednet income for the full yearof99.5million,or$0.99a share. This ismore
thandoublethenetincomeof47.1million,or$0.48asharein2015.
Adjustednet incomeroseapproximately21.8percentyearoveryearto120.1million,or
$1.19asharecomparedto98.6million,or$1.04asharein2015.
AdjustedEBITDAwas205.5million in2016,up28.1percent from160.4million in2015,
drivenbyhighersalesvolumesandincreasedgrossprofit.AdjustedEBITDAmarginsdeclinedslightly
to17.8percentin2016from18.2percentin2015,primarilyduetoourrecentacquisitions.
The declinewas partially offset by productmix; increased licensing and royalty income;
operatingleverage;andotherproductivityinitiatives.
13
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Wegenerated 118.7million of free cash flow in 2016. Thatwas nearly double the 67.2
millionwereportedin2015.Freecashflowrepresented67percentofEBITDAin2016comparedto
61.6percentin2015.
LookingatourbusinesssegmentsforbothQ4and2016,grossproductsalesinActivities,
Games&Puzzles and Fun Furniturewere109.5million inQ4, up9.2 percent from last year. For
2016, sales rose 46 percent to 337.8 million. Cardinal and Bunchems were the two strongest
contributors.
IntheRemoteControlandInteractiveCharactersegment,Q4grossproductsalesrose85
percent to92.6million. For2016, saleswere282.8million,up21.2percent from2015,primarily
drivenbyHatchimals.
Gross product sales in the Pre-School andGirls segmentswere 125.1million inQ4 and
460.5million in 2016, bothupmore than40percent from2015. Strongdemand for PAWPatrol
morethanoffsetlowersalesforPopplesandFlutterbyeFairy.
InBoysActionandHigh-TechConstruction, grossproduct saleswere34.8million in the
fourthquarterand154.4millionfortheyear,down27.7percentinQ4and19.7percentfor2016.
SalesofStarWarslicensedRogueOneproductsweregenerallymuchlowerinQ42016comparedto
TheForceAwakensreleasein2015.
14
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Meccanosalesalsodeclinedinthefourthquarter,astheMeccasaurroboticitemdidnot
meetourexpectations.However,theMeccanocorelinewassolid,andSecretLifeofPetsmetour
expectationsinbothQ4and2016.
We generated 19.1million gross product sales in 2016 fromour newOutdoor business
segment, which was largely due to Swimways. Q4 was the first full quarter of sales since we
completedtheSwimwaysacquisitioninQ3.
Looking ahead to our outlook for 2017, we’re anticipating another year of solid
performance. Excluding Swimways, we’re projecting organic gross product sales growth in 2017
comparedto2016tobeattheupperendofourlong-termtargetrangeofmid-tohigh-singledigits.
IncludingSwimways,we’reexpectingorganicgrossproductsalesgrowthinthelowteens
in 2017 compared to 2016. From a seasonality standpoint, excluding Swimways, we expect
approximately30percentofour2017grossproductsalestooccurinthefirsthalfoftheyearand70
percentinthesecondhalf,consistentwithprior-yearseasonality.
IncludingSwimways,weexpectbetween31to33percentofgrossproductsalestofallin
H1,asSwimwaysproductsarecounter-seasonal,witharound70to80percenttypicallysoldinthe
firsthalfofeachyear.
From a margin perspective, excluding Swimways and Toca Boca, we expect adjusted
EBITDAmargins to be slightly higher than 2016. Including Swimways and Toca Boca, we expect
adjustedEBITDAmarginstobeconsistentwith2016.
15
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Finally, I’d like to note one additional important development. In December, we
restructured our credit facility so that the total amount of committed credit available increased
from280millionto510million.
SpinMaster is growing rapidly, bothorganically andby acquisition. This increase to our
creditfacilitygivesusgreaterflexibilityandcapacityaswepursuegrowth.
Weexited2016with just under $100million cashonhandand just over 350millionof
capital available inour credit facility.We’re capableofmaking substantial investments in growth
whilestillmaintainingastrongbalancesheetandconservativeleverageprofile.
I’dnowliketoturnitovertoBenGadbois.Ben?
BenGadbois—GlobalPresidentandChiefOperatingOfficer,SpinMasterCorp.
Thankyou,Mark.We’reverypleasedwithourfinancialresultsandoperatingperformance
in2016.We’redeliveringonallfourofourstrategicgrowthstrategies.
Asareminder,ourfourgrowthstrategiesaretocontinuetoinnovateourcoreportfolio;
growinternationalsales;buildglobalentertainmentproperties;andmakingstrategicacquisitions.
Speakingof innovation, letmealsobeginwithHatchimals.AsRonnendiscussedearlier,
Hatchimalswasalandmarkmomentinthehistoryofourcompany.Theincredibleglobalconsumer
demandandengagementexceededourexpectations.
16
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
InitialshipmentsflewoffcustomershelvesfollowingourHatchimalsHatchDayonOctober
7th,andwecouldnotrestockfastenough.I’mgladtosaythatHatchimalsarebackinstockatmajor
retailers,anddemandremainsstrong.
To date,we’ve hadwell over 2million successful hatches, andHatchimals continues to
delight kids around the world.We were very pleased when Hatchimals was recognized with an
awardforthemostInnovativeToyoftheYearattherecentNewYorkToyFair.
Obviouslywhenyouhavesuchasuccess,itisimportanttomaximizetheopportunity.Our
brandteamishardatworkdevelopingmanycreativenewideastomaximizevalue.You’llseeour
firstefforts ina fewmonthswhenwereleaseHatchimalsColleggtibles.Asinglecollectiblewillbe
pricedat$2.99persinglepack,andwillalsobeavailableinmultipleconfigurationsuptoonedozen
collectiblesperpack.
Thechildhatches theeggby rubbingon the shelluntil it changes colour, indicating it is
readytohatch.Therewillinitiallybe70differentHatchimalsColleggtibles.
AccordingtoNPD,salesofcollectiblesgrewatover30percent in2016,andwearevery
excited to launch this innovative item. We will launch the higher-price point Hatchimals Glitter
Gardencollectioninmid-2017.Thesecrittershavesparklesintheirfur,andhatchoutofshimmering
speckledeggs.
Later in theyear, aroundOctober6th,wewill haveanotherbig surprise forour second
HatchimalsDay.
17
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
TheprocessthatdroveHatchimals,our36-monthbrandinnovationpipeline,continuesto
workwell,andisdeeplyingrainedinthecultureofmanagementatSpinMaster.
Letme run you through a few highlights of 2016 and 2017. In the Activities, Games &
PuzzlesandFunFurnituresegment,we’recontinuingtogetverystrongcontributionfromCardinal
andBunchems.
Cardinalcontinuestogrowdomesticallyandinternationallyasweleverageourglobalsales
anddistributioninfrastructure.BunchemsareresonatingparticularlywellwithkidsinEurope.
We’realsopleasedwiththeperformanceofPotteryCoolandrelatedCoolactivitiesitems,
aswellasBuild-A-Bear,whichwas introduced in2016. In2017,wewillbe launchingthehairand
makeupbrushstudioinanewcompoundundertheKineticbrand,KineticRock.
In Remote Control and Interactive Character, we released the number-one selling TV-
advertisedgroundRC,ThunderTrax,aremote-controlall-terrainvehicle.In2017,we’llbereleasing
aseriesofvirtualrealityracingdroneatvariouspricepointundertheDR1licence,aswellasRobo
Trax, a tank that turn into a robot and shoot missiles. In the augmented reality sphere, we’re
expandingontheseconcepts,andseesomeexcitingdevelopmentfor2018andbeyond.
InPre-SchoolandGirls,PAWPatrolcontinuestogrow.In2016,PAWPatrolgeneratedvery
strongsell-throughinallgeographiesglobally,butespeciallyinEurope.Wemadesurethatshelves
werewell-stockedwithfreshproductthroughoutQ4toavoidthepossibilitythatkidsmightswitch
toanalternativelicenceorfillwithcompetitiveproduct.
18
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Thiscreatedstrongperformanceforthequarterandtheyear,andsetusupwellforthe
fronthalfof2017.In2017,outsideofentertainment,wewillbelaunchingLuvabella,asophisticated
dollwithanimatronictechnologythatcreatesareal-lifelikenurturingexperience.
WearerelaunchingZhuZhuPetslaterin2017aswellunderthelicensingarrangementwe
announcedlastfallwithCepia.
InBoysActionandHigh-TechConstruction,asMarkmentioned,Meccanosalesweredown
in2016relativeto2015,primarilyduetotheMeccasaurwhichdidnotresonatewithconsumersas
wellasweexpected,butwehavestrongplansfor2017.
TheMeccanocoreSuperCarvehiclelicence,suchasFerrari,aredoingwell.Also,thenew
Meccanoconstructionbrand,JohnDeere,isshippingthisfall.
InadditionaspartofthetechsegmentofMeccano,we’rereleasingM.A.X.Robot,whichis
oneofourmostadvancedproductsevercombining robotic technologywithartificial intelligence.
Thelevelofpersonalizationinthisproductistrulyremarkable,andithasbeenverywell-received.
We’realsoexcitedabouttheMeccanoMeccaSpider,whichhasaninteractivepersonality
andauniquevenomattack.
Wewill also be launching an upgraded life-size version of BB-8 later this year,which is
featuredinthenextiterationintheStarWarsseriesdueforreleaseinlate2017.
19
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
AndinournewOutdoorsegment,wehavemanyplanstogrowSwimwaysinternationally
and to innovate in the water sport and toy area. You’ll hear more from us about Swimways’
performanceduringthecourseof2017.
It is important to understand thatwe’rewell aware of the success thatHatchimals and
PAWPatrol drove in 2016. Both are theoutcomeof our four growth strategies. They are also in
differentphasesgloballyasfarastheirmaturity.
Our 36-month brand innovation pipeline is filled with future product launches in core
product,aswellasnewentertainmentproperties.
Aswepreviouslydiscussed,wecloselymonitorpointofsalesandsupplyanddemand,and
arefocusedonensuringthatwearecleanattheendoftheyear,bothinternallyandatretail.The
managementofinventoryonourbalancesheetandatretailisverytightlymonitored,andisoneof
thekeymetricsformanagingtheCompany.
For2016,weensuredthatretailershadhigherlinefillratesandremainedinstockthrough
two of the critical selling windows of November and December. Our strong POS sell-through
ensuredthatweendedtheyearwithretailinventorylevelsinlinewithourexpectation.
Furthermore, we are very satisfied with the quality and mix of our inventory at retail.
ThesefactorshaveenabledstrongPOSmomentumleadingintothefronthalfof2017comparedto
2016.
20
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
I’d now like to turn to our international growth.We delivered impressive results in the
fourthquarter,withgrossproductsalesgrowthofalmost60percent inEuropeand35percent in
therestoftheworldsegment.
Weenteredseveralnewmarketsin2016,andintheCardinalandEGGamesacquisitions
theyhavereallyenhancedourproductofferinganddistributioncapabilities.
Wehavereachedapointinmanykeyinternationalmarketswhereduetothebreadthof
ourproduct line;our investment in talent;ourdistributionandmarketingreach;andthegrowing
strengthofourbrand,weare starting toenjoy somesignificanteconomiesof scale. Inmanykey
markets we can now build more meaningful product launch and marketing campaigns than we
couldhaveafewyearsago,andwecandoitwithmuchlessfinancialrisk.
This drives strong financial performance and positions us for further success. We now
understand what works and what doesn’t much better than just a few years ago, and that’s
contributingtotheaccelerationofourgrowthstrategy.
In2014,internationalsaleswere29percentoftotalsales.In2015,wegrewto30percent;
andin2016,wegrewagaintojustunder33percent.
Lookingforward,aswegrowtowardsourgoalof40percentofgrossproductsalesfrom
internationalmarkets in the next few years,wewill continue to expand our business in existing
markets;opennewmarkets;strategicallyconvertsomeofourdistributorstoourownsalesoffice;
andgrowbusinesswiththird-partydistributorswherewedonothaveoffices.
21
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Theachievementofthisgoalwouldrepresentanadditional150millionto200millionof
salesopportunity. In2017,weare looking forward to the contribution fromour recentlyopened
salesofficeinEasternEuropeservicingfivecountriesandAustralia.
Inadditiontointernationalsalesgrowth,itisalsoimportanttonotethatonlinesalesare
risingatamuchfasterpacethanin-store,accordingtoNPD.Onlinesalesgrew18percentlastyear,
morethan3timestheindustrygrowthrate.
Wefocusedextensivelyontheonlinechannelin2015and’16,andI’mpleasedtosaythat
ouronlinebusiness,whichusedto lag the industrygrowth,greweven faster thanthe industry in
2016.Onlinenowrepresentsapproximately22percentofoursales,andisinlinewiththeindustry
overall.
Growth is being driven in our view by increasing trust in the next-day or second-day
delivery,andthathasextendedtheseasonfortheonlineretailersthatusedtoslowdownaround
mid-December. It isnowstayingstronglater inDecember,whicharethelargestvolumeweeksof
thetoyseason.
It’sworthnotingthatretailpricingwasquiteaggressive,asretailersarecontinuingtofight
formarketshare,bothamongstthebricks-and-mortarandonlinechannels.
In terms of entertainment, our third growth strategy, our goal is to extend our existing
franchiseand launchat leastonenewentertainmentpropertyperyear.PAWPatrol continues to
22
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
generateinnovativecontent,andwasrecognizedastheLicenseoftheYearattherecentToyofthe
YearAwardsinNewYork.
We’renowinseasonfourofPAWPatrolinmanykeymarket,includingtheUSandCanada,
andare inproductionanddevelopmentof seasons fiveandsix.Keep inmind that inmanyother
markets,includingsomekeymarketsinEurope,weareonlyonseasontwoandthree,andwewill
onlylaunchPAWPatrolinAsiaforthefirsttimelaterin2017.
We continue to be excited about PAW Patrol’s long-term growth potential and are
continuingtomanagethepropertywithalong-termmentality.
In2016,wealsolaunchedRustyRivets,whichbeganairingonNickelodeoninNovember.
RustyRivetsisinspiredbythemakercultureandencourageskidstocreativelysolveproblems.The
showcontinuestoratestronglyinitskeydemographic.
WewilllaunchaRustyRivetstoylineonalimitedbasislatein2017,withafullglobaltoy
launchin2018.
Wearehardatworkonanumberofother interestingand creativeproperties forboth
boys,girls,andpre-school, includingtherelaunchofBakuganatsomepointinthenottoodistant
future.
Ourfourthgrowthstrategyistocontinuetomakestrategicacquisitions.SinceourIPOin
2015,wehavecompletedfiveacquisitions,includingfourin2016.
23
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
The integration of all of these have gone very smoothly. The Cardinal and EG Games
transactionhavebeenimportanttothegrowthofbothourNorthAmericanandEuropeanbusiness,
andpositionsusforcontinuedgrowth.
EtchASketchreceivedminimalinvestmentsfordecadesuntilweacquireditlastyear.Our
productdevelopmentteamwenttowork,andwe’rebreathingnewlifeintothisiconicbrandwitha
number of exciting products to be launched in 2017 and more being developed for 2018 and
beyond.
EtchASketchFreestyleusesLCDtechnology,andallowskidstodrawfreestyleandstamp
incolour.AndEtchASketchJuniorJoystickistargetedspecificallyforyoungkids.
TheTocaBocaandSagoMiniacquisitionswereakeystepinthestrategytocomplement
our toyandentertainmentbusinesswithmobiledigital capability.With15millionmonthlyactive
users,wewanttogrowourmobiledigitalappbusinessandappsales,andithasbeenverypositive.
SagoMini launcheda full lineofproducts in2016, includingtoys,clothing,andbedding,
andwillcontinuetobuildonthis in2017.TocaBocawill launchanexclusivelineoftoys,apparel,
andbeddingwithamajorretailerthisfall.
We’re pleasedwith the performance of Swimways so far.We expect to add significant
valuetoourinnovationnetworkanddistributioncapabilities.
24
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
SwimwaysisprimarilyaNorthAmericanbusinesstoday,withmorethan95percentsales
occurring in the US. And we believe there is a meaningful opportunity to leverage our global
networktoboostinternationalsales.
Turning now to our prospects for 2017.We have just come out of our key period for
annualtoyshowsinHongKong,Nuremberg,andNewYork,andwe’vehadverypositivereactionto
our2017productline.
Inaddition towhatMarkprovidedearlier inour2017outlook, I’dalso like tonote that
outlook for theglobal toy industry remainspositive.According toNPD,US industrygrewabout5
percentin2016,andtheforecastfor2017isroughlythesame.
In 2016, consumers waited until the last minute to shop growing the week before
Christmasby28percent,likelyattheexpenseofstorevisits.ItisworthnotingthatChristmas2017
isonaMonday,whichwillhopefullydriveabigweekendofshopping.
Key industry theme for 2017 according to NPD include retro toys, board games, and
outdoor and sport toys. As we have discussed, Spin Master is well-positioned relative to these
macroindustrytrends.
Toconclude,wehadaverysuccessful2016.Wehaveanumberofimportantcatalyststhat
makesusexcitedabout2017.
25
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Our entire management team is focused and hard at work to execute against our
strategies.Ourtopbrandsareperformingwell,andour36-monthrollingbrandinnovationpipeline
continuestodriveinnovation.
We’re reaching critical mass in many key international markets. We’ve built strong
entertainment content and partnerships, andwe’re establishing ourselves as a company able to
acquireandintegratestrategicacquisitions.
We’ll continue to focus on each of our four key growth strategies to drive profitable
growthin2017andfor2018andbeyond.We’reconfidentthattheywillkeepgeneratingsignificant
valueforshareholders.
Thatconcludesourformalremarksatthistime.Ronnen,Mark,andIwillnowbepleased
toansweryourquestions.
Operator,pleasebeginthequestionperiod.
Q&A
Operator
Atthistime,Iwouldliketoremindeveryoneinordertoaskaquestion,press*,thenthe
number1onyourtelephonekeypad.
Your firstquestioncomes fromthe lineofSabahatKhanwithRBCCapitalMarkets.Your
lineisopen.
26
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
SabahatKhan—RBCCapitalMarkets
Thanks,andgoodmorning.YouprovidedsomecolouronPAWPatrolandtheoutlookfor
thisyear. I justwantedtogetsomeadditional informationonasapercentageofsaleswhatPAW
Patrol cameout for 2016?Andwhat in your guidancewhat you’re expecting as a percentage of
salesfor2017aswell?
MarkSegal
Okay.So,Sabahat,ifyourecall,theguidancefor2016forPAWPatrolisthatweexpected
PAWPatroltobearound25percentofsales.Actually,itturnedouttobealittlehigherthanthat,
somewhereinthe25to30percentrange;inthatzone.Thiswasprimarilyduetothegrowththat
weexperiencedinQ4.
AsBenmentioned,wehadalotofPAWPatrolgrowthinEuropein2016.Andinfact,PAW
Patrol really accelerated around the world in Q4, and so we actually saw a little bit of higher
percentagein2016thanweexpected.Butgivenourlineupfor2017andgiventheexpectationsof
ourentireproduct line,we continue to seePAWgrowing,butwe see it at around25percent in
2017.
SabahatKhan
Andjustonemorefollow-upthere;youmentionedthatyouwillexpandthefranchiseinto
Asialaterthisyear.Wouldyouhavewhichcountriesspecificallyyou’relookingtogetinto?
BenGadbois
27
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Sabahat, we’re looking at China right now, sowe’re … This is going to be the first key
marketthatwewillenterlaterthisyear.
SabahatKhan
Okay.Thanksforthat.Andthenonelastoneforme;theotherrevenueline,howdoyou
seethattrendingin2017versus2016?
MarkSegal
Well,theotherrevenuelinecomprisestwoelements—actuallythreeelements,aswe’ve
discussed before. One is distribution fees from broadcast partners, the other is licensing and
merchandisingincome,andthenthethirdelementisapprevenuefromTocaBocaandSagoMini.
So we see other revenue roughly the same in 2017 as 2016 maybe with some slight
growth.Wearelookingatsomelicensing-outprogramsinadditiontowhatwehavecurrently.For
example,withHatchimalsandotherownedIP,we’relookingatdoingsomelicensingout.
Sohopefullywe’llseesomegrowthonthatfront,butnotinanywhereneartheorderof
magnitudethatweexperiencedin’16versus’15.
SabahatKhan
Okay.Thankyou.
Operator
Your next question comes from the line ofAdamShinewithNational Bank. Your line is
open.
28
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
AdamShine—NationalBankFinancial
Thanksalot.Goodmorning.IguessI’llstartwithwhereyoujustleftoffonotherrevenue;
so,Mark,justtopushyoualittlebit,acknowledgingobviouslythatyouhadtremendousgrowththis
pastyeargivensomeoftheacquisitionactivity.Butthatbeingsaid,$48millionofotherrevenuein
2016, presumably that can grow in a 20 to 30 percent-ish range in the context of some of the
further push on the IP leveraging, as well as any upside strength in regards to the Toca Boca
initiatives.Isthatanexcessivelevelofexpectation?OrshouldItonethatdown?
MarkSegal
Yeah. As I just said, Adam, I think that might be a little bit excessive in terms of
expectations.Ithinkwe’rehopefulthatwecouldseesomeincrementalgrowthinconnectionwith
apprevenuefromTocaBocaandSagoMinithatisstrong.Andwe’reconfidentthatitwillcontinue
togrow.
AsIsaid,ourlicensingandmerchandisingincomefromournewprogramslikeHatchimals
hopefullywillkickin,butthat’snewforus.AndIdon’twanttogettooaheadofourselvesonthat
fronteither.
Sofrommypersonalperspective,Iwouldseesomemodestgrowthinlinewithourorganic
gross product sales growth for 2017 on the licensing and merchandising line, but I think that
anythingbeyondthatmightbealittlebittooaggressive.
AdamShine
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Okay.Andwhenwegoback, Iguess,Ben in thepress release talkedabouthowEurope
and the restof theworldexceededyourexpectations. You touchedona fewelementsofwhere
growthwascertainlydriven.Canyoumaybeelaboratealittlebitonthat?Andsortoflookingoutto
nextyear,clearlythereisgoingtobesomeprettyattractivegrowthcomingoutofEurope.
BenGadbois
Yeah.Goodmorning,Adam.Soifyougobackafewyears—I’mjustgoingtotakealittlebit
ofastepback—iswecompletelyrestructuredEuropeintermsofhowwe’repositionedtodoour
marketingcampaign;howwe’remanagingretailers;howwe’veincreasedthenumberofthedoors;
andwhat’sactuallyhappeningnowisit’sworking.
Sowe’reincreasingthenumbersofdoors.Weasacompanyhavebeenabletobuildalot
morecredibilitywithalltheretailersbecausenotsolongagowewerenewcomersinEuropewhere
maybeyouweren’tsosureaboutus.Andnowwiththeresultswe’vehadover…Buildingnowfor
thelastfewyears,we’vecreatedalotofcredibilitywiththeseretailers.Soourportfolioasawhole
isworkingverywell.
PAWPatrolisobviouslydrivingalotofsales;soisHatchimals.Butthekeyandmostsalient
pointhere is ourportfolio as awhole is resonating verywell, andas a result of usbeingable to
leveragethisnewtransformedinfrastructureinEuropeit’sdrivingalotofgrowth.
AdamShine
30
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Great. Thanks for that. Andmaybe,Mark, I realizewe’re going to get a bunch ofmore
detailsintheMD&Aaweekortwofromnow,butisthereanythingthatyoucantellusinregardsto
performancefromthetopthreeretailers?
MarkSegal
Yeah.Sure.Soyeah,thisinformationwillbepublishedintheMD&A,butI’llgiveittoyou
now.Thetopthreein2016was51.9percent.Thetopthreetheyearbeforewas57percent.
So you are seeing our concentration around the top three declining as we grow
internationallyandalsoaswegrowourchannels,whetheritbeonlineorvaluechannels,whatever
it might be. Channel diversification and our geographic diversification is driving down our
concentrationaroundthetopthree,whoarebythewaycontinuingtogrow,butjustrelativelyata
slightlyslowerpacethanourinitiativesoutsideofthetopthree.
AdamShine
That’sgreat.Thankyouverymuch.
Operator
YournextquestioncomesfromthelineofDerekDleywithCanaccordGenuity.Yourlineis
open.
DerekDley—CanaccordGenuity
Yeah.Hithere,guys.Justgiventhestrongfreecashflowthatyouguyshavecontinuedto
generate,andobviouslywesawanexpansioninthatfreecashflowtoEBITDA—orEBITDAtofree
31
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
cashflowconversionratio,canyoujustreminduswhereyou’dliketopositionyourbalancesheet
andwhat leverage level you’dbe comfortable goingup to if a large, transformational acquisition
weretopresentitself?
MarkSegal
Okay. So just, as you said, our free cash flow performance in 2016was strong, andwe
landedupatarounda67percentfreecashtoEBITDAconversionratio.Ifyouactuallytakeoutafew
onetimeitemsthatwillnotoccuragain,likeforexampletheCRAsettlementinthemiddleof2016,
thatfreecashtoEBITDAconversionratioactuallygoesupclosertoaround75percentwhereIstart
gettingreallybehappyandpleasedandobviouslywanttocontinuetogrow itmore.But that’sa
goodratiotostart.
Intermsofourleverage,weendedtheyearatadebttoLTMEBITDAofaround0.8times.
However,onanetdebt to LTMEBITDAwe landedupat0.3 times. Sowehavea strongbalance
sheet. Andwhatwe’ve said before,Derek, is thatwe’re very comfortable going up to 1.5 times.
That’sareasonablyconservativeresponsibleratiotobe.Butwewouldgouptoatleast2.5timesif
weactuallysawsomethingreallystrategic,andsomethingthatwasinterestingtousthatwouldbe
transformational.
Abovethat, I think,asacompanywe’dstartgettinga littlebitconcerned,andwemight
want to look to do some equity to bring that ratio down ifwe felt therewas an acquisitionwe
32
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
needed to do but that took us above 2.5 times, we’d certainly want to use some equity.
Maintenance,asIsaidtoyou,around1.5times.
DerekDley
Okay.Great.That’shelpful.Andjustlookingatyourproductportfolio,bothfromsegments
andgeographically,wherewouldbesomeprioritiesintermsofaddingtotheportfolio,whetherit
beaddingmore international revenuesor adding into—is therea segment that you’re lookingat
thatyoudon’thaveordoyouwanttogrowincertainsegmentsmorethanothers?
BenGadbois
Derek,as farashowwemanageourportfolio,wehavethis36-monthbrand innovation
pipeline.AndwithintheCompanywehaveglobalbusinessunitleadersthatmanagetheirportfolio,
andeveryoneistaskedtogrowtheirportfolio.Soasfaraswherewewanttogrowintheportfolio,
theansweriseverywhere.Okay?
Butwiththatsaid,therewillalwaysbeopportunitiesforustolookatdifferentcategories.
Andaswe see these categories,wealways look at shouldwedo it ourselvesor shouldwedo it
through acquisition. AndMark has briefly talked about thewaywe could fund acquisitions. And
we’renowinauniquepositionasacompanywhere,again,ifyougobackafewyears,whatwe’ve
chosentodoaspartofourstrategyistodosomesmallacquisition,andjustlearnasanorganization
howtointegrateandhowtomaketheseacquisitionssuccessful.
33
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
We’venowdone a couplemediumwith Swimways andCardinal, andnowwe’re to the
extenttherightlargeronecomesalongindifferentcategoriesthatattractus,wewouldactuallybe
readytodoitandpreparedtodoit.Andtheorganizationwillknowhowtodoit.
Butwiththatsaid,we’renotnecessarilypreparedtocommentnowintowhichcategoryor
whowe’dbeinterestedin.
DerekDley
Okay. No, that’s helpful. And then just the last one for me; just in relation to your
internationalsales,Imeanwesawsomereallystronggrowth.Canyoucommentonthedifference
in performance in the areas that you recently converted from distribution agreements to direct
salesofficeswhatkindofliftareyougettingfromconvertingthatplatformaround?
BenGadbois
Well, there’s a financial lift by going from taking distributor margin to the last in line
margin,sothere’sdefinitelymarginimprovementwhichalsocomeswithsales.Asfarashowwe’re
doinginAustraliaandCentralandEasternEurope,it’stooeasytotell.Weneedmoretimebecause
bothofthese,CentralandEasternEurope,isreallygoingintoactionin2017juststartingnow,and
Australia,whichhasbarelystartedaswell.Soit’sabittooearly.
Butrightnowasfaraswhatthereactionsthatwe’regettingintheplansthatwehave,we
feelveryopportunisticthatwe’lldeliverthemodelthatwe’resupposedtodeliver.
DerekDley
34
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Okay.Great.Thankyouverymuch.
Operator
YournextquestioncomesfromthelineofBrianMorrisonwithTDSecurities.Yourlineis
open.
BrianMorrison—TDSecurities
Hi.Goodmorning.Clearlysomesolidresults,sojustreallyacouplefine-tuningquestions;
Mark,whenyouannualizetheEBITDAmarginsyoudohaveaslightdeclineversusguidanceofflat.
You really did have outsized Q4 sales. I would have thought therewould have been a bitmore
operatingleverage.SoIknowyouaddresseditinyourpreparedremarks,butcanyoujustprovide
moredetailonthevarianceversusyourguidance?It’snotthatbignominally,butwasitagreater
impactfromacquisitions?WasitFX?OrjustmoremarketingspendtodrivePOS?
MarkSegal
AreyoureferringspecificallytoQ4,Brian?
BrianMorrison
No, the 17.8 versus the 18.2. And then with the outsized growth in Q4, I would have
thoughttherewouldhavebeensomemoreleverage.
MarkSegal
Yeah. So a couple of factors; inQ4we actually… You’ll notice thatwe actually saw an
increaseinoursalesannouncesinQ4‘16versus‘15.Theytickedupalittlebityearoveryearjustfor
35
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
thatparticularquarter.Actually for the year theyweredown,butwewanted tomake surewith
markdownsand justmaking sure that themarketwasverycleanand that the retail channelwas
clean,whichpreparedusverywell—whichdoesprepareusverywell,rather,for2017.Sothatwas
kindofoneimpactinthequarter.
For the year therewere anumberof factors—Iwould say four—that impactedmargins
thatIwanttocallouttoyou,Brian.Firstly,wedidhavealittlebitofdilutionfromouracquisitions.
BothCardinalandSwimwaysarelowermarginatthispointintime,andwewillbeaddressingthat
overthenextcoupleofyears,butrightnowthereisdilutionfromtheacquisitions.
WealsohadsomeheadwindsfromFXastheeuroandthepounddeclined;theydeclineda
littlebitmorethanweexpected.
BrianMorrison
Okay.
MarkSegal
TheimpactonmarginsfromanFXperspectivewasalittlebitbiggerthanweanticipated.
BrianMorrison
Mm-hmm.
MarkSegal
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Butthatwasoffsettosomeextentbylicensingandmerchandisingincome,andthenalsoa
highermixofowned-IPproductsinoursalesmix.Sotherewerealotofmovingpieces,actually,but
overallIwouldsaytoyouthatmarginsarewithinafewbasispointsofwhereweexpected,Brian.
BrianMorrison
That’s fair. And, Mark, we called out the attractive growth opportunity for Swimways.
Obviously Ben talked about international expansion as one big avenue. When I back out the
guidance for Swim, it looks relatively flat in terms of gross product sales for 2017. I’m just
wondering,istheresomemoreintegrationrequiredthere?Oristheresomeconservatismbasedon
yourfirst-yearoutlook?
MarkSegal
Well, I thinkwehavetakenarelativelyconservativeviewonoutlookforSwimways. It is
ourfirstyear,Brian,andwe’rejustgettingtoknowthebusinessandunderstandingwhatittakesto
growthatbusiness.
It is largely a domestic-focused North American business. Ninety-seven percent of the
salesaretheUSandCanada.Andthegrowthopportunityweseeininternationalisgoingtotakea
while for us to work its way through, both from a top-line perspective and from a margin
perspective in terms of putting them on SAP, driving some procurement and value engineering
efficiencies,andgettingtheirmarginsup.
37
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
SoIthinkwe’vetakenarelativelyconservativeviewofSwimwaysfor2017,andhopefully
wecanbeatthat.
Ben,doyouwanttoadd?
BenGadbois
Yeah. The only thing Iwould add, Brian, is if you go back and you look at Cardinal, for
example, we don’t like to get ahead of ourself operationally. So we like to be somewhat
conservativewithourviewsonhowwewillexpandinternationallyuntilwehaveafullseasonunder
ourbelt.
Wealso—insomecasestheconsumers inthesedifferentgeographiesaredifferentthan
theUSorNorthAmericanconsumers.Sosometimesthere’sabitoffine-tuningweneedtodo.So
wejustwanttomakesurethatwegetthefirstyearsaskeylearnings.
ButCardinalisagreatexamplewhereweactuallywentfairlyslowlastyear,butwespent
a lot of quality timemaking sure thatwe can now build the portfolio properly in Europe, as an
example.Andalltheserightstrategicconversationsandplansaregoingtopanoutinthefuture.So
wewanttodothesamethingwithSwimways.
BrianMorrison
That’sfair.Onelastquestion,ifIcan.Ronnen,ontheentertainmentpropertiestherewas
acommentwiththeinitialreceptiontoRustyRivetswasstrong.Whatdoesthatmean?Howdoyou
38
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
measure that? And then just in terms of the pipeline, can you talk about your timingwith new
properties,suchasBakugan?
RonnenHarary
Yeah. Itwas great. I love gettingonequestiona session.No, the comment aboutRusty
Rivets,ImeanwegostraighttotheratingsandNickelodeonshareswithusweeklyhowtheproduct
andhowtheshowisrating.Andthat’swhatwe’relookingfor.
It’s doing verywell overall with kids, and it’s doing even betterwith boys. It’s skewing
moreboythangirl.Andwelookatthingslikehowitdoesafterthelead-inshowandthelead-out
show.Sowe’relookingatthosetypesofmetrics.
AndNickelodeonhascommissionedaseasontwo,sowe’reinproductionofseasontwo,
whichwe’rereallyexcitedabout.Sothat’sagoodindicatortousthatthere’sstrongcommitmentto
RustyRivetsandbuildingRustyRivets.There’sstrongdemandfromaretailerperspectiveinterms
ofsupport.
So we look to both retail and to ratings and to Nickelodeon for their commitment to
producingasecondseason.Andwe’reveryexcitedaboutthesecondseason.It’sgoingtobeeven
betterthanseasonone.I’mpersonallyworkingonitwiththeteam,andit’sveryheavilybasedon
differentcharacters.There’salotof—there’sElephantbotandGorillabotandTigerbot;lotsofstuff
forkidstolookforwardto.
39
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
AndtheamazingthingaboutRustyRivetsisthatittrulyistheconstruction—Iwouldn’tsay
construction system.We call it the rustification system that we’ve built. It’s one point. It’s one
actual insert that kids canactuallyput in to createdifferent—basically to rustify their characters.
Andsoit’sreallycreative.It’sreallyeasy.IlikeitbecauseIwasn’taLEGOkid.Icouldn’tputtogether
LEGO.Soit’sreallyniceandsimple.AndIthinkitreallyopensupimaginationforkids.
And in terms of the pipeline, there is Bakugan we started the production of the
developmentofthetoy,andwe’vestartedthedevelopmentoftheTVshow.Soitiscomingoutvery
shortly.Soitisindevelopment.
Andwehaveaboys’actionshowthat’sgoingtobecomingoutbeforeBakuganthatwe’re
actually in production with now. And it’s just in the process of being sold to some of the key
networks.Nothing’sfinalized,butwe’reintheprocessofsellingitnow.
And we’re also in production of our third key pre-school show, which is Abby Hatcher
MonsterCatcher,which isgoing tobecomingoutprobably sometime in2018.And there’sother
stuffintheslate.
Pluswe’refocusingonfilmforthefirsttimeever.Sothere’sabunchofstuffthatwe’rein
developmentofscripts.Andwe’realsolookingatshort-formcontentforthingslikeYouTube,which
isreallygrabbingtheeyeballofkids,andhowdoweproducecontentthatcapitalizesonthattrend,
whichistraditionallymoreshort-formstuff.Sothere’sstuffindevelopmentthere.
40
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
And then lastly, I’ll just talk to Toca Boca, which is the ability to fuse together digital
entertainmentand toy.Andso there’s initiativesunderway there tocapitalizeon thatacquisition
andalsothestrengthbond(phon),whichwebelieve isoneoftheworld-classstudios intermsof
digitalgamesforkids,andhowdoyouactuallyintegratethatintostorytelling.
BrianMorrison
That’sveryhelpful.Thanks,guys.
Operator
Again,toaskaquestion,press*,thenthenumber1onyourtelephonekeypad.
YournextquestioncomesfromthelineofBobBekwithCIBCCapitalMarkets.Yourlineis
open.
BobBek—CIBCCapitalMarkets
Thanks. Goodmorning. Just a couple of follow-ups on the points, just to keep Ronnen
speakinga littlebitmorehere.Any thoughts toacceleratingyourstrategyon the televisionside?
You’vebeenverymeasuredovertheyears,sortofthatonepropertyayear,andobviouslyittakes
quitesometimetodevelopthese.Butasyounote,reallythechangingplatformwithobviouslythe
multichannelopportunitiestosellcontent,isthereanythoughtatalltoacceleratetoperhapskind
ofplayintowhatisreallydevelopingtobequiteaglobaltrendonasmuchcontentastheycanget?
RonnenHarary
41
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
There’sanabilityforustodiversify,Iwouldsay.LikeImentionedbefore,theabilitytodo
stuff in film,which SpinMaster’s never donebefore, so that’s a diversification. The ability to do
short-form content on YouTube, that’s a diversification. And then alsowhat I touchedon before
withTocaBoca,that’sadiversification.Andthatwouldallequatetoagreatermixandportfolioof
entertainmentfranchisescomingtothemarketplace.
AndthenwhenitcomestotraditionallinearTV,Ithinkwe’regoingtostickwithouroneto
twoTVpropertiesayear.Theyarequitedifficulttomake,andwetakemoreofaboutiqueapproach
toitwhereweliketoreallyonlyputoutshowsthatwehavespentalotoftimeandputalotoflove
andcare into;abitmore likeaPixarapproachto itratherthanputtingout lotsofpropertiesand
seeingwhatsticks.
BobBek
Okay. That’s helpful. Thank you. And just to follow up on some the acquisition
commentary,canyougiveusabitofcolourontheenvironmentoutthereforassets?You’vebeen
activebuyersforanumberofyears.Anychangeatallontheopportunities;onthecompetitionfor
assetsoutthere?Andanycolouryoucangiveonsortofthepricingorvalueoutthere?Thatwould
behelpful.
BobGadbois
Bob,asfarastheenvironmentforM&Aactivitiesinourindustry,itisactuallywedon’tsee
anychanges.AndwhatImeanbythatiswe’renormallyalwaysindiscussionwithanywherefrom7
42
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« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
to 10 companies. And again, our strategy is to pick companies that are oftentimes too small for
some of the larger players in the industry, or pick companies where the entrepreneur or the
founderwantstostayonforawhileandwantstoreallyworkinanenvironmentwheretheycan,
reallylikeRonnendiscussedearlierinthemodelthatwelikeandthatworksforus,isjustkeeping
thefounderortheentrepreneurinthebusiness;letthemdrivethebusiness.Andthenwetakethe
backofficeandthatalsogivesthemanexitplan.
Sothattypeofcompanyprofiletherearealotofthemoutthere.Andourpipelineseems
togetbiggerversussmaller.
Andasfarasvaluationmaybe,Mark,Idon’tknowifyouwanttocomment?
MarkSegal
Yeah. I mean if you look back at historical purchase price multiples for the kinds of
companies thatBenhas just described, they’ve typically been in the3 to 7 times trailing EBITDA
rangepre-synergies.Andthat’swhatwewouldcontinuetoliketobeintherangegoingforward.
Obviously, ifwe lookatbiggeracquisitionsormorecompetitive-styleauctions,multiples
may increase,butobviouslywe’dbevery judiciousandveryselectiveandvery focusedonreturn
metricstodrivevalueforeverybodybeforewedidthosekindsoftransactions.
BobBek
That’sgreat.Thankyou.That’sveryhelpful.
Operator
43
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
YournextquestioncomesfromthelineofMatthewGanwithCormarkSecurities.Yourline
isopen.
MatthewGan—CormarkSecurities
Hi. Thank you for takingmyquestions. Just a quickquestionon yourworking capital; it
seemsyourworkingcapitaloutflowwasabitheavierthanwhatwewerelookingforinthequarter,
and it seems like thiswas driven by the increase in days receivable. Iwaswondering if you can
providesomecolouronthatandwhetherifyouexpectthattoreverseinQ1?
MarkSegal
Yeah.Thankyou.Soletmejustsetthesceneforonesecondhere.Ifyoulookatournet
workingcapitalattheend…Networkingcapitalasapercentageofsalesattheendof2015,overall
wewerearound3.5percent.Attheendof2016,wewerecloserto9percent.Sotherewasabig
jump.
Therewereanumberoffactorsforthat.Firstly,ourinternaltargetsaretobeataround5
to6percent,andwethinkthatthat’sveryachievable.Iwouldpointoutthatevenat9percentour
networkingcapitalasapercentageofsales is stillby far thebest in the industry, sowearevery
efficientintermsofmanagingourworkingcapital,andwewillcontinuetofocusonit.It’sakeypart
ofourincentivecompensationplans.
But as to the actual specific data in the quarter itself, there were two reasons driving
working capital up; one related to trade receivables. We saw a lot of growth in Europe, and
44
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Europeansalesarelargelydomestic.AnddomestictermsinEuropearelongerthanourtraditional
FOBterms, so they’rearound the60 to90percent rangeandsoanumberof receivablescarried
overintoQ1werenevercollectedinQ1.
Also as a percentage of the total sales in 2016, our domestic sales increased a little bit
overall.Sowedidactuallyseesomelongeraveragetermsacrossourwholeportfolio.
We also saw timing of sales later in Q4. So as Ben mentioned in his script comments
earlier,therewasalittlebitofashifttosaleslaterinthequarter.Andasaresult,somereceivables
actuallyweregeneratedlaterthantheyotherwisenormallymightbe.
Also just keep inmind that inboth the caseof inventoryand in receivablesweactually
includedSwimwaysin2016comparedto2015,whereSwimwaysdidnotexist.
TheoneadditionalpointIwilladdinspecificallyinrelationtoinventoryisthatwewanted
tobeverywell-preparedattheendof2016forbothPAWPatrolandHatchimalsgoingintoH1of
’17,andsowedidputalittlebitmoreinventoryinthesysteminourhandstomakesurethatwe
hadaverystrongpositiongoingintothefirstquarterof2017.
Soallofthosefactorscombinedraisedtheamountofworkingcapitalinthesystemalittle
bithigherthan2015,butthere’snocauseforconcern,andit’sverywellinhand.
MatthewGan
45
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
FINAL TRANSCRIPT
March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference
Call
Okay.Thankyou.That’sveryhelpful.Iwasalsowonderingifyoucanmaybeprovidesome
initialcommentaryonoperatingmetricsforTocaTVsinceitslaunch?Ormaybeanyideaongrowth
orsubscriberpickuporanythinglikethat?
RonnenHarary
Yeah.It’searlydaysforTocaTV.Sowe’rejustlookingatalltheresultsandevaluatinghow
it’sdoing.
SoIthinkwe’llbeabletogiveyouguyssomefurtherupdateslaterintheyear.
MatthewGan
Okay.Great.Thankyou.
Operator
Therearenofurtherquestionsatthistime.Iwillturnthecallbackovertothepresenters.
MarkSegal
Well, thankyouverymuch,everyone.Thatconcludesourcall.AndI thankyouagainfor
participating,andwelookforwardtospeakingwithyoufollowingourQ1reportinginMay.Thanks
verymuch.
Operator
Thisconcludestoday’sconferencecall.Youmaynowdisconnect.
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