Spin Master Corp. Second Quarter 2017 Earnings Conference Call
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FINAL TRANSCRIPT Spin Master Corp. Second Quarter 2017 Earnings Conference Call Event Date/Time: August 2, 2017 — 9:30 a.m. E.T. Length: 59 minutes "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 1 découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » FINAL TRANSCRIPT August 2, 2017 — 9:30 a.m. E.T. Spin Master Corp. Second Quarter 2017 Earnings Conference Call CORPORATE PARTICIPANTS Mark Segal Spin Master Corp. — Chief Financial Officer Ben Gadbois Spin Master Corp. — Global President and Chief Operating Officer CONFERENCE CALL PARTICIPANTS Sabahat Khan RBC Capital Markets — Analyst Kenric Tyghe Raymond James — Analyst Derek Dley Canaccord Genuity — Analyst Brian Morrison TD Securities — Analyst David McFadgen Cormark Securities — Analyst "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 2 découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » FINAL TRANSCRIPT August 2, 2017 — 9:30 a.m. E.T. Spin Master Corp. Second Quarter 2017 Earnings Conference Call PRESENTATION Operator Good morning. My name is Tashawn (phon), and I will be your conference Operator today. At this time, I’d like to welcome everyone to the Spin Master Second Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you’d like to ask a question during this time simply press *, then the number 1 on your telephone keypad. If you’d like to withdraw your question, please press the # key. Thank you. Mr. Segal, you may begin your conference. Mark Segal — Chief Financial Officer, Spin Master Corp. Thank you, Operator. Good morning, everyone, and welcome to Spin Master’s financial results conference call for the second quarter ended June 30, 2017. My name is Mark Segal, and I am Spin Master’s Chief Financial Officer. I am joined this morning by Ben Gadbois, Global President and Chief Operating Officer. Following our formal remarks, we will open up the lines for your questions. For your convenience, the press release containing our second quarter financial results is available on the Investor Relations section of our website at www.spinmaster.com, as are our Q2, MD&A, and financial statements. This information is also available on SEDAR. "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 3 découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » FINAL TRANSCRIPT August 2, 2017 — 9:30 a.m. E.T. Spin Master Corp. Second Quarter 2017 Earnings Conference Call Before we start, please note that remarks on this conference call may contain forward- looking statements about Spin Master’s current and future plans, expectations, intentions, results, levels of activity, performance, goals, or achievements, or any other future events or developments. Forward-looking statements are based on information currently available to management, and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. 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-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by law, Spin Master has no obligation to update or revise any forward-looking statement, whether because of new information, future events, or otherwise. For additional information on these assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in the Company’s earnings release dated August 1, 2017. Please note that Spin Master reports in US dollars, and all dollar amounts to be expressed today are in US currency, unless otherwise stated. "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 4 découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » FINAL TRANSCRIPT August 2, 2017 — 9:30 a.m. E.T. Spin Master Corp. Second Quarter 2017 Earnings Conference Call Yesterday we reported our financial results for the second quarter ended June 30, 2017. I will begin the call with some highlights of the quarter, followed by a detailed review of our financial results, including our outlook for the balance of 2017. I will then turn it over to Ben to discuss our strategic and operational results. Overall, we are tremendously pleased with our performance in the second quarter. To start, I want to highlight a few key events in the quarter. On April 28th, Spin Master acquired certain assets of Marbles—a leader in brain-building and high-quality games—for $4.7 million, which was paid in Q1 and funded from existing cash resources. The total cash consideration for Marbles was approximately $6 million, as we incurred approximately 1.2 million in transaction-related costs. Marbles will be reported in the Activities, Games & Puzzles and Fun Furniture business segment. On May 24th, the three founders of Spin Master completed a public offering of approximately 3.7 million subordinate voting shares of the Company at a price of C$40.75 per share for gross proceeds to the founders of approximately C$150 million. The founders remain fully committed to Spin Master and its long-term success and are active in all aspects of the business. After the quarter end on July 28th, we acquired the outdoor sports toy assets of Aerobie, a leading producer of outdoor flying discs and sports toys. We did not, to be clear, acquire their coffee business. Aerobie was founded in Palo Alto, California in 1984, and their outdoor products’ "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 5 découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » FINAL TRANSCRIPT August 2, 2017 — 9:30 a.m. E.T. Spin Master Corp. Second Quarter 2017 Earnings Conference Call exceptional performance has been widely recognized. The purchase price of the outdoor toys asset was satisfied by 10.65 million in cash and was financed from internal resources. We will also pay a small royalty on sales for three years following the close. Aerobie’s annual gross sales have historically been in the 5 million to $6 million range. Aerobie’s gross margins are similar to Spin Master’s. Sales of the Aerobie product line will be reported in our Outdoor business segment. We expect to be able to grow Aerobie annual sales to the 10 million to $11 million range in the next 12 to 24 months.