Very much everyone for joining us here. I'm very pleased to be joined by newer management, CEO Christina Miller and CFO Jonathan Roiter of Spin Master, obviously a global leader in toys and entertainment. Clearly, the consumer remains pressured these days, but they've really leaned into value and innovation and their core IP to position it for attractive growth in the back half of the year and position it for consistent growth going forward. Thank you both for joining us.
Thank you.
Thank you for having us here.
Why don't we start with the state of the consumer? I think that's the obvious question in the macro. In Q1, both Spin Master and your peers put up fairly solid POS to start the year. Maybe just update us on consumer behavior to date and also share the state of the channel with respect to inventory and retail.
Sure. I would say, as it relates to POS, much like our peers, we've been stable to moderately positive in that space. When you look at inventory, we came out of the year pretty clean, so a lot of retailers were sort of saying that they would rather sell out than sell off, which was an opportunity to have cleaner shelves moving into 2026. In some cases, such as PAW Patrol, with a big movie coming in August of this year, 2026, August 14th, to be specific, we strategically wanted to make sure that we had clean shelves so that as we shipped in new core product and new PAW Patrol movie-related product, that there was plenty of space to do so. I think that it was a cleaner shelf inventory-wise, and then shipping in as planned, delivering POS.
As it relates to the consumer, which I believe is the third part of your question, is what we've seen is the consumer has been relatively resilient through all of the macro changes that have happened in the marketplace. We are very closely monitoring that and when we look at what that means for us, you mentioned sort of channels. We are omni-channel. We make sure we have product everywhere our consumer is, and there's entry price points across the board to bigger gift items as required or as needed. The other piece to that is that about 50% of our current product mix is below CAD 20. We are prepared for lower price points if needed, higher price points for specific gift items, and then a multitude of brands that people tend to deem must-have.
I guess just to follow, because you answered one of my questions that was forthcoming, but in terms of your positioning in terms of the dollar store, the value chain, how are you positioned for that as well?
The dollar store, I think you probably recall, give or take 2+ years ago, we had said that we were going to enter into that channel of distribution. We have done so. We have a multitude of brands there and products specifically for that channel. We've definitely grown that channel as part of the overall distribution mix.
The last question I have with respect to macro is tariffs. They stacked up against you last year. Maybe just talk about the variance in 2026 versus last year, and then your exposure to commodity prices, freight, resin, and your mitigation tools to be able to offset those.
Yeah, sure. Thanks for the question. Certainly, resin is an important input to our toys, and freight, as most of our toys are coming offshore into the U.S. or Europe, is certainly an impact. It impacts our cost structure. Now, we have a history of going through and successfully managing higher commodity prices. If you go back all the way to 2012- 2014, oil was above these rates. 2021, similar, slightly above these rates. We have a history of being able to manage through this. Typically, what you'd see us do is there's three big levers. You have price, you have mix, and you have efficiencies.
As we kind of think about the back half here this year, our view is that showing up with the right price point is paramount. We think there's an ability to manage it through without having to use the price lever. One big, I guess, tailwind that we have to help support us is that tariff rates have come down over the course of the last 12 months. That will support as we go through the back half of 2026. In addition, there are tariff refunds that we're getting, the tariff refunds that are out there that we are earmarked to get. We have gotten a small amount so far, and we'll update the market in our second quarter in terms of what we received and we anticipate to receive for the rest of the year.
I think the last piece, which is important to kind of call out, is that even if these prices, if the oil prices continue, we're now building out our 2027 spring line, and we're building it out with these commodity prices in mind. When we think about our mix and our pricing and our offering, we are ensuring that our cost of sales and our gross margin ultimately can withstand what we're seeing today because we're going to bake that into the product that we're going to have next year. I mean, this all goes with saying that we're using this kind of CAD 100 oil price. Of course, if there's a force majeure where we can't get resin or if prices go up significantly higher, then we'll have to revisit those plans.
Okay. Thank you for that. If I turn to your product offering, why don't I start with toys? It's your largest vertical by revenue. Under new management, you've really got a heightened focus here on your core products, innovation, and collaboration. Maybe share with us this revised strategy and perhaps some of the examples of that.
Sure. Thank you. I would say that there's a couple of key principles of growth for us, or returning to profitable growth. One is, you mentioned, is innovation, making sure that all of our toys and our product line strive for innovation to have that wow that appeals to people in toys. You see it in a toy that released earlier this year for the Mario Bros. movie, which was Hatchin' Yoshi, which did exceptionally well and continues to at retail. Really finding that either proprietary innovation or that item, or a way to make that toy really, really special. I think that that is a continued, ongoing effort inside of our toys. The other piece is about acceleration, really looking at growth categories that we can enter and believe we have a right to win.
Two categories that we are currently entering and believe that we can take market share are collectibles, which you often hear right now the word adult. Play has no age limit, older adult of fans, of other of toys and are buying into it. Looking at that category of collectibles, we recently signed a license with Supercell, known for Clash of Clans, and that will be one of the things that helps us build into that space. We have other properties such as Bakugan, Felds, Monster Jam, that all also feed into a collectible space if in fact we want to take market share there. Second would be strategic trading cards, another category that is growing at a rapid clip. We have a mass market entry, which is a collectible card game called Rainborcons that has been really successful in Europe.
We've brought that here distribution-wise to the United States That's shipping as we speak. The bigger entry is Hellbreak, which is a wholly owned strategic trading card game that is based on the horror genre. If anybody was watching the box office this past weekend, everyone knows that it is a pretty growing genre, and when you look at the overlap between strategic trading cards and that particular genre, it's sort of a real sweet spot. With our anchor partner, Universal, we will enter that space later this year. Both of those are designed to enter new categories to help us accelerate growth and build for the long- term in those. That's key to growth in the toy area. Last, as you noted, is collaboration.
Really, anyone who's heard me talk about Spin Master over the time that I've been here, it's really we have these three great creative centers in digital games, toys, and entertainment. When we're able to unlock value across all three of those against our properties, we see network effects, bigger results. High watermark on that has always been PAW Patrol. We have a movie coming out, as I'd mentioned, this fall. We have a portfolio of content, whether that's series, whether that's shorts, whether that's specials, spinoffs, all inside of PAW Patrol. We have a great game that's coming out this fall as well that will launch alongside of the movie, and we have a core toy line and an entire movie toy line. When everything works together, everything rises, and you see it best in PAW Patrol. We have the right to do that more frequently.
If you look at whether it's we take licenses in-house now, something like Gabby's Dollhouse has been a big win for Spin Master in toys. Now we're looking at how we could bring that to digital games. We recently brought in-house a license for Hidden Pigeon, which is the publishing brand, Don't Let the Pigeon Drive the Bus! or Knuffle Bunny. Instead of just doing it in one vertical, like plush with GUND, which we did, we also have it in digital games in Piknik, and again in Melissa & Doug in toys and puzzles. Really looking across the portfolio to say, Hey, we can do more with the brands we have," and how do we make sure that that's possible? Toca Boca would be next on deck, if you will. 60 million monthly active users inside the platform.
Often number one with 8- 10 year-olds and in that tween audience. We have the right to do more than just exist digitally, so this summer we will take it to MINISO and have a wide range of products at retail there. We obviously are looking at what it would mean to have content around something like Toca Boca. Again, just making sure that the collaboration inside the company, that we're acting as one team, and that we're trying to make the wins as big as we can possibly make them.
Certainly, you're seeing cross-collaboration. It's not only from entertainment to digital to toys. It's now you're seeing it from digital to toys. It's really full circle. I see how you're increasing the collaboration in between the groups. Melissa & Doug, it had some challenges when you acquired it two years ago or so. To your credit, you've spent a great amount of time and effort to stabilize it and position it for growth. Maybe just speak to the steps that you've taken to date and the future growth drivers, including product expansion and your international opportunities.
Yes, absolutely. Melissa & Doug, our goal this year is to return it to growth. It's an incredible brand that has really high parental approval and brand love, and it's expansive in its core product range. It's built around purposeful play. When we pulled back to say, Hey, what's the long-term strategy for this brand? There was a couple of things that we needed to do to stabilize it. One was to optimize the inventory, to make sure that we were cleaning the inventory out of the marketplace, that we had the right product at the right retailers. The special thing about Melissa & Doug is that the product is day in and day out, but sometimes that means that there was more product in some places than we would have preferred. We worked hard, still working hard, to make sure that the inventory level optimize.
The second step is expansion. It is well known here in the United States and in North America. There's a large opportunity to grow Melissa & Doug internationally. We started to grow last year internationally. We're seeing further growth this year. That was critical to the next steps. The other piece was going in and looking at the pricing structure and where we had an opportunity to adjust and take down pricing in some of the most competitive items that were getting premium priced, and as a result, we were seeing some erosion from private label. We went in and fixed that, and I think you will see in the back half of this year another critical step, which is reclaiming some of that shelf space that we had lost.
The final piece of it is expansion of the brand, whether that is to younger age groups or to play sets. Product category expansion, driving innovation into those product categories, having a wide range of price points. You look at WOW, we have Sticker WOW! and Water WOW!. That's a CAD 10 price point. It's a great access point into Melissa & Doug, making sure that that's available. Beyond that, we've entered into a partnership with Penguin Random House to build out publishing as a category as well. Publishing very much reflects the purposeful play of this screen-free brand that is Melissa & Doug. Really creates new inroads for the brand, and then both stabilizes the inventory, the distribution, and then creates new product in the marketplace.
Those are the steps we believe that will not only take us back to growth, but to long-term growth for the brand.
I think I'd be remiss if we didn't talk a little bit more about PAW Patrol. You've got an exciting year ahead with the movie coming out in August. How do you seed the market for a movie to ensure its success? One step further, in general, how do you continue to invest in a brand such as PAW Patrol to ensure it's an evergreen property?
I think the key is you have to keep investing in the brand. You can't stop. PAW Patrol is a generational success. I would say that right now, almost all kids go through a PAW Patrol moment. It's a rite of passage almost of preschool at this point. Making sure that we stay relevant, make sure that we have the proper product offering, content offering, that we meet audiences and consumers where they are. Some of that is about expanding into a universe. It's no longer just a singular PAW Patrol series. There's Rubble & Crew that's a spinoff. We're now entering our third movie, which we've noted a couple of times, which is August 14th. It's the third movie, and I have to say, it's the best movie. It is hard to make a movie, let alone three. This one brings together dinos and puppies.
It's relatively amazing. It looks really good on that big screen. Just for a little bit extra and cross-generational appeal, the new big anthem from the movie is with the Backstreet Boys, and that will release next week. Really thinking about every layer and everything you can do to keep investing and to make sure that the property is relevant. That's in entertainment. We have a game that's launching, we have toys that are out there, we have this incredible partnership with Paramount that is our partner in the movie, partner in consumer products, and surrounding the property regularly with other categories and other ways that children can spend time with this beloved property. I think if we ever took our foot off the so-called gas or were not investing in it, that would be where we went wrong.
At this point, like I said, there's very few brands that stay in the market for three years or five years, and even now, that cycle is quicker. The fact that we're closer to 15 and that most kids will pass through this particular brand at some point in time, it's both a privilege and comes with a lot of expectation to make sure that you are constantly thinking about what is best for that property and how you can continue to grow it globally.
Maybe, this is going a little bit off script, but maybe the importance of streaming services as you seed PAW Patrol. We're seeing it increasingly with more infant properties, whether it be Gabby's Dollhouse or Ms. Rachel. How do you decide which channel to go down with respect to optimizing the brand appeal?
I think the great thing about PAW Patrol specifically is that we've been making PAW Patrol for so long, that there's a high quantity and high quality of content that's out there. That gives us the ability to really window in content strategically. You take a year where we're entering into a movie year, and you can take some of the earlier seasons and make sure that you can find those on some of the bigger platforms, be that Netflix, be that Amazon. You can take the earlier movies, you can put them out in the marketplace while you're constantly feeding fresh new content through our main partner with Paramount, through P+, through Nickelodeon, you have surrounded with some short content that's part of YouTube.
You're really able to say you're everywhere where your audience is because of the amount of content that we have to meet the audience. I think in the case of something like Gabby's Dollhouse, Ms. Rachel, right, those are both on Netflix and in some cases on YouTube, which we know kids are spending lots of time with. We are the toy partner of choice in both of those cases. You know that Ms. Rachel was found on YouTube and then migrated to Netflix in a lot of cases, and Gabby's Dollhouse was 100% born on YouTube, and then last year had a movie. I think the takeaways there are one place is usually not enough anymore. There's some key places where if you really want to spend time from a content standpoint with kids, that you need to be.
That expands out globally as well, right? There's over-the-air networks, there's obviously some of the platforms are global, all of it is sort of, there's a strategic windowing path that really helps make sure that the content is in front of audiences.
I want to talk about licenses for a moment just because it's become a big part of the industry. I think it's 30%, 35% on average. So maybe just the importance of licenses, your positioning. The reason why I mention this is because you've had a highly successful partnership with Monster Jam, but that's just been extended for another 10+ years. So maybe talk about your positioning and your competitive profile with respect to licenses.
Oh, absolutely. We are in that space. We've mentioned a number of them so far in this conversation. Monster Jam is a really special and important partnership with us. It's not commonplace to sort of be in a partnership or sign partnerships for as long as both of us have and chosen to. We've had seven years of consecutive growth. We are second in the vehicle space. I would say that's largely behind the success of Monster Jam. It is an exceptional brand that keeps on growing and is critical to the partnerships and the licensing that we have, and we do. I think outside of that, we've mentioned a couple of other ones that are important to us today in Universal. Whether it's Hellbreak, they're the anchor partner, Gabby's Dollhouse.
We won best toy of the year this year with Primal Hatch, which was a Jurassic World item. You do see over and over again that we have some items that are part of KPop Demon Hunters that will launch later this year. It is an important part of the mix, and these partnerships really do matter. I'd say that there's cases where we are what's known as the master toy partner and have the lion's share of the business and a long-term relationship. There's places where we are a partner for innovation through some of the play systems that we've built. I think it's a unique space to be able to fit in both of those places.
I want to go to digital games in the last 10 minutes we have here, then financials, and bring Jonathan to wrap it up. Within Toca World, Toca Boca, you have over 60 million monthly active users. That's a huge number. You had reasonable growth in 2025. I know that it's one of Paw, and M&D and digital are growth platforms for you. Maybe share how you're thinking about increasing share of wallet and how to enhance the future growth of digital.
Yes, absolutely. Toca Boca is, as mentioned, 60 million monthly active users. It's the number one platform for kids 6-8 , wider when you get into that tween audience. Right now, we're in a summer of music where we're bringing people in through music partnerships. We see a healthy user base. We see great user experience. We've spent a lot of our time on the tech platform in the last year, a lot of our time on the UX, making sure we have smart partnerships, and seeing more and more people come into the funnel. I think that you'll see growth come in the back half of the year. We're focusing a bit on conversion at the moment. Having that big of an audience, one, helps with partnerships. We did a big partnership with Wicked at the end of last year.
We're constantly looking at places to, and companies, both entertainment and otherwise, music, brands that we can partner with. We're looking outside of that. I mentioned earlier that this summer we'll have some product, about 35+ products at MINISO, that will really start to show the physical side of product for Toca Boca, and then we'll follow some of other product categories and other extensions from there, and continue to see just how big of a world we can create with Toca Boca.
Do you want to touch upon the subscription model that you have with Piknik as well?
Yes. We have two. In digital games, we have sort of taken the path of really focusing on a subscription model and in-app purchases. Toca Boca is the in-app purchase side of the house, and Piknik is a subscription-based platform of about currently eight or so mobile games and growing in a bundle, that range from everything from super phonic to coloring, to math, to early language, and will grow into reading as a retention vehicle as well there. That is the subscription-based. Inside of that, we have some PAW Patrol. That is some of the place, too, where you see the collaboration. You see coloring pages from a bunch of our different brands. That bundle is meant to be a subscription bundle, early learning style, mobile gaming, and that is digital. Those are the two pieces to our digital game strategy.
Very good. Let's try and tie this a little bit together. Obviously, you've got the business positioned for growth this year. Jonathan, you had a pretty decent Q1 performance, but let's always remember here that the second half is where seasonality kicks in. That's the status of the toy industry. You're guiding to annual mid to high single- digit growth this year for EBITDA. What gives you the comfort in your ability to hit these targets this year?
Look, it boils down to two items. The first is, we believe if we can grow the top line, and I'll walk you through how we think we can do that, followed by operating leverage our cost structure provides. If we look at the top line, this year, we've called out that the driver of the top line growth begin in our entertainment creative center with the PAW movie. It's not just the PAW movie. There's more PAW series coming out. We're dropping more content with Unicorn Academy, Rubble & Crew, et cetera. That, number one, would be our entertainment creative center. It's followed by our digital games creative center. Christina walked through the two platforms that we have there. By bringing more partners onto the Toca platform, it brings more users, and we're able to ultimately have a drive monetization.
From Piknik having more content, a simpler user interface, we can drive our monthly subscribers. We expect digital to be more of a back half growth versus a front half loaded. That's because of last year, we had a significant amount of partnership revenue that is multi-year deals, but ultimately the rev rec associated with it requires you to recognize it in year, even though you're going to have those products out with Netflix, Apple, and Google for a number of years. Lastly, in toy, the toy growth drivers begin with the PAW related toys, especially those surrounding the movie launch. Christina talked about returning M&D to profitable growth as an important driver of toy. Innovation, we have lots of really interesting products coming out.
One of those licenses that Christina was mentioning is our Hatchin' Yoshi, which effectively we sold out earlier in the year, and we're excited by as we'll have the full year to continue selling. Lastly, depending on the order pattern, last year we certainly were impacted by the order pattern of retailers.
We might have some tailwinds there. That's the drivers of revenue growth. From a cost structure perspective, if you take the midpoint of our guidance, that would mean essentially that cost of sales and OpEx would be similar to last year. That would be driving down incremental, the growth in EBITDA to the numbers you're calling out. One thing that we are seeing right now is that, and it goes back to the order pattern of retailers, is we do see a higher amount of orders coming into Q2 than we initially expected. We see retailers when they look at the product offering that we have, and they're going to be on shelf in Q3, they want to make sure they have the product, and they're not searching for it.
Those orders are coming in a little bit earlier than we expected. We could see some of that revenue shifting from Q3- Q2 as retailers want to lock in the products, make sure they're on their shelves.
I think that's very positive because now we had the order patterns out of kilter last year. Seeing them return obviously gives you more visibility, a stronger Q2, and I think it also speaks to the innovation of your product and how you're appealing to the retailers as well. I will give you a plug here because if you achieve this target, it implies a multiple that's literally less than half your peers. It's well below your historical, your average. If we are able to achieve those numbers, then I think you have the ability for future growth and a potential rerate of your multiple at that point. Your balance sheet is less than one turn of leverage. I think it's 0.3 pre IFRS 16. You have a very strong track record of free cash flow.
How should we think about your capital allocation and specifically your NCIB as well? You have been active with it even during the last couple of years when things have been a little bit softer than anticipated.
Sure. Well, I certainly like your comment about the multiple that we're trading at.
Yes.
Just to harp on that just for two seconds, our goal is to execute this year and to properly communicate that execution. We think that ultimately if we do those two things, deliver and how we communicate our plans for the year, we think there's an opportunity there, as you just mentioned. Look, from a capital allocation perspective, what I really attracted about this business is the amount of free cash flow we generate. You see that in the ability to delever. We were +1 , down to 0.3, as you called out. +1 when we did the Melissa & Doug acquisition, now down to 0.3. It begins with reinvesting in the business, and that's through OpEx, CapEx, and we are active from an M&A perspective with tuck-ins. That's something that's core to our DNA. We have a dividend, which we're proud of.
Ultimately, we then return capital to shareholders in addition to the dividend, the quarterly dividend, through an NCIB, which is now in our third year. The first two years, we fully utilized this. We bought back about 7,000,000 shares. Now we're in month four of our third NCIB, and we continue to be active in the marketplace.
Okay. I think that's about it. There's about four minutes left. I'm not sure if there's any questions from the audience. If not, then I think we're going to wrap it up there and say thank you very much to both of you for sharing your insights. I will say, I see protection on the downside from current levels, from your IP, from your yield, from your valuation. As I said before, I think if we get investor sentiment improving, I think there's tremendous upside in this name. Thank you all for joining us, and thank you, Christina. Thank you, Jonathan.
Thank you