Spin Master Corp. Fiscal 2016 Fourth Quarter Results ... · FINAL TRANSCRIPT March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference Call

1

"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. »

FINALTRANSCRIPT

SpinMasterCorp.

Fiscal2016FourthQuarterResultsConferenceCall

EventDate/Time:March14,2017—9:30a.m.E.T.

Length:64minutes

2



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



FINAL TRANSCRIPT


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.

4



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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

29



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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

36



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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



FINAL TRANSCRIPT


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.

*****

Documents

Spin Master Corp. Fiscal 2016 Fourth Quarter Results ... · FINAL TRANSCRIPT March 14, 2017 — 9:30 a.m. E.T. Spin Master Corp. Fiscal 2016 Fourth Quarter Results Conference Call