Spin Master Q3 Earnings Call Highlights

Key Points

• Spin Master maintained its full-year outlook after year-to-date revenue remained stable and adjusted EBITDA increased 7%. Management continues to expect stable to low-single-digit revenue growth and mid- to upper-single-digit adjusted EBITDA growth in 2026.
• Core brands drove performance, including PAW Patrol sales growth of 26%, Melissa & Doug growth of 10%, and Toca Boca World growth of 13%. Entertainment revenue also rose after the release of PAW Patrol: The Dino Movie.
• Reported profitability faced timing effects, higher content amortization and $24 million in additional non-cash impairment charges, while strong cash generation improved leverage. Spin Master is entering the holiday quarter with modest growth expectations but limited visibility because roughly half of annual point-of-sale activity occurs in Q4.

Spin Master TSE: TOY reported stable third-quarter revenue and adjusted EBITDA as growth in core brands, including PAW Patrol, Melissa & Doug and Toca Boca World, offset timing-related headwinds in its toy and digital-games businesses.

Chief Executive Officer Christina Miller said year-to-date revenue remained stable while adjusted EBITDA rose 7%, supporting the company’s decision to reiterate its full-year outlook. Spin Master continues to expect stable to low-single-digit revenue growth and mid- to upper-single-digit adjusted EBITDA growth for 2026.

Core brands support quarterly performance

Miller said owned toy brands posted growth during the quarter, led by a 26% increase in PAW Patrol sales and 10% growth for Melissa & Doug. Toca Boca World revenue rose 13%, while Piknik revenue increased 6%, helped by larger player bases and investments in player experiences and global brand partnerships.

Entertainment revenue increased $20 million following the delivery of PAW Patrol: The Dino Movie. Miller said the film received the strongest critical reception of the franchise’s three movies to date and has helped extend PAW Patrol engagement across content, apps, consumer products, music, social platforms and toys.

The company ranked No. 1 in the infant, toddler and preschool category during the quarter, according to Miller. Spin Master also announced that a fourth PAW Patrol movie, in association with Nickelodeon Movies and distributed by Paramount, is scheduled for release in 2029. The first three movies have generated a combined $500 million in box-office revenue, Miller said.

Melissa & Doug benefited from broader U.S. and international distribution, marketing in core categories and new products, including its Cherry Lane play sets. The company has also begun expanding the brand beyond toys, launching branded books with Penguin Random House and pursuing additional licensing and partnership opportunities in categories such as apparel, publishing and music.

For Toca Boca, Spin Master cited partnerships with Olivia Rodrigo, TWICE, Miniso and Adidas as drivers of engagement. The Miniso collaboration included exclusive merchandise in more than 400 stores and in-game content. Miller said investments in content quality and technical stability contributed to multiyear highs in player engagement and sentiment, with the company aiming to improve monetization through content releases, merchandising and live services in the fourth quarter.

Timing effects and impairment charges weighed on reported results

Chief Financial Officer Jonathan Roiter said toy revenue declined $19 million in the third quarter, primarily because roughly $40 million of gross product sales were pulled forward from the third quarter into the second quarter. On a year-to-date basis, toy point-of-sale sales and revenue were each down about 1%.

Growth in PAW Patrol, Monster Jam and other products was offset by comparisons with last year’s How to Train Your Dragon and Gabby’s Dollhouse movie-related sales, as well as the company’s exit from certain licenses. Roiter said these headwinds are expected to continue in the fourth quarter but should roll off in 2027.

U.S. point-of-sale sales increased 4% in both the quarter and year to date. Europe offset some of that progress, according to Roiter, due in part to greater regional exposure to Gabby’s Dollhouse and lower exposure to Monster Jam and GUND. He described Europe, along with Melissa & Doug’s international expansion, as a medium-term growth opportunity.

Digital-games revenue declined modestly by $3 million. The comparison included approximately $12 million in partnership licensing revenue recorded in the prior-year quarter, which was recognized upon delivery under the applicable accounting treatment. Adjusted operating income in digital games declined $12 million, while the segment’s IFRS operating income was additionally affected by an impairment charge.

Gross profit before depreciation and amortization was stable in both dollars and margin. However, gross margin after depreciation and amortization and adjusted operating margin each declined by about 200 basis points, or approximately $15 million, mainly due to a $13 million increase in amortization of entertainment content following delivery of the PAW Patrol movie.

IFRS operating income also declined by an additional $24 million because of non-cash impairment charges. Roiter said the charges reflected an ongoing portfolio review, including the winding down of certain entertainment projects as the company concentrates content investment on established brands.

Cash flow, new categories and holiday outlook

Operating cash flow rose $40 million in the third quarter and more than doubled on a year-to-date basis, driven by operating execution and working-capital improvements, Roiter said. The company ended the period with net leverage of about 0.8 times, or 0.3 times excluding leases, roughly 0.4 turns lower than a year earlier.

Spin Master is investing in new growth categories, including its Hellbreak strategic trading-card game, for which the first card set will begin selling in the fourth quarter ahead of a consumer launch in January. The company also recently completed its acquisition of Hapiko, whose Stickerbox product has sold out more than three times since the acquisition, according to Miller.

Stickerbox was included on multiple toy lists, nominated for awards and named to Time magazine’s Best Inventions of 2026. Spin Master plans to expand its distribution into wider channels and markets in the second half of 2027, with the goal of growing the installed base and recurring revenue opportunity.

For the fourth quarter, Spin Master is targeting modest revenue growth and similar adjusted EBITDA growth. Roiter said the company has limited visibility into where results will fall within its full-year guidance range because about half of annual point-of-sale activity occurs in the fourth quarter, largely during the holiday period, and many fourth-quarter orders are domestic replenishment orders.

Management said October results were progressing as expected across gross product sales, digital games and point-of-sale activity. Roiter added that the PAW Patrol movie’s early pay-per-view performance had been a positive development, reaching the top five among family viewing options and at one point ranking in the top three.

About Spin Master (TSE:TOY)

Spin Master Corp. TSX: TOY is a leading global children's entertainment company, creating exceptional play experiences across its three creative centres: Toys, Entertainment and Digital Games. With worldwide toy distribution, Spin Master is best known for award-winning brands including PAW Patrol ®, Melissa & Doug ®, Bakugan ® and Rubik's ® Cube, and is the global toy licensee for other iconic properties. Through its in-house entertainment studio, the company creates and produces captivating multiplatform content including powerhouse preschool franchise PAW Patrol, along with other original shows, short-form series and feature films.

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