Spin Master : Q1 2024 Management Discussion and Analysis

Spin Master Corp.

Management's Discussion and Analysis of Financial Results

For the three months ended March 31, 2024

TABLE OF CONTENTS
INTRODUCTION	1
BASIS OF PRESENTATION	1
BUSINESS OVERVIEW	1
FINANCIAL PERFORMANCE	9
CONSOLIDATED RESULTS	9
SEGMENTED RESULTS	15
INVESTMENTS AND ACQUISITIONS	23
SELECTED QUARTERLY FINANCIAL INFORMATION	24
LIQUIDITY AND CAPITAL RESOURCES	25
CASH FLOW	27
OUTLOOK	30
CONTRACTUAL OBLIGATIONS & COMMITMENTS	30
OFF-BALANCESHEET ARRANGEMENTS	30
CAPITALIZATION	30
RELATED PARTY TRANSACTIONS	31
CRITICAL ACCOUNTING ESTIMATES	31
INTERNAL CONTROL OVER FINANCIAL REPORTING	32
LIMITATIONS OF AN INTERNAL CONTROL SYSTEM	32
NON-GAAPFINANCIAL MEASURES AND RATIOS	33
FORWARD-LOOKINGSTATEMENTS	47

May 7, 2024

INTRODUCTION

The following Management's Discussion and Analysis ("MD&A") for Spin Master Corp. and its subsidiaries ("Spin Master" or the "Company") provides information concerning the Company's financial condition, financial performance and cash flows for the three months ended March 31, 2024 ("first quarter", "the quarter", "Q1"). This MD&A should be read in conjunction with the Company's unaudited Condensed consolidated interim financial statements for the three months ended March 31, 2024 ("interim financial statements"), its audited annual Consolidated financial statements and accompanying notes ("annual financial statements") and its annual MD&A for the year ended December 31, 2023 ("Annual MD&A"). Additional information relating to the Company, including the Company's annual information form for the year ended December 31, 2023, can be found under the Company's profile on the System of Electronic Document Analysis and Retrieval Plus (SEDAR+) at www.sedarplus.com.

Some of the statements in this MD&A contain forward-looking information that are based on assumptions and involve risks and uncertainties. See "Forward-Looking Statements". Actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those described in "Risks Relating to Spin Master's Business" in the Annual MD&A and elsewhere in the Annual MD&A and this MD&A.

BASIS OF PRESENTATION

The financial information included in this MD&A is derived from the financial information included in the Company's interim financial statements and accompanying notes that were prepared in accordance with International Accounting Standard 34, Interim Reporting and consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). However, certain financial measures and ratios contained in this MD&A do not have any standardized meaning under IFRS ("Non-GAAP") and are discussed further in the "Non-GAAP Financial Measures and Ratios" section of this MD&A. Management believes the Non-GAAP financial measures and Non-GAAP financial ratios defined in the section noted above are important supplemental measures of operating performance and highlight trends in the business. Management believes that these measures allow for assessment of the Company's operating performance and financial condition on a basis that is consistent and comparable between reporting periods. The Company believes that investors, lenders, securities analysts and other interested parties frequently use these Non-GAAP financial measures and Non-GAAP financial ratios in the evaluation of issuers.

All financial information is presented in United States dollars ("$", "dollars" and "US$") and has been rounded to the nearest hundred thousand, except per share amounts and where otherwise indicated.

BUSINESS OVERVIEW

Spin Master Corp. (TSX:TOY) is a leading global children's entertainment company, creating exceptional play experiences through its three creative centres: Toys, Entertainment and Digital Games. With distribution in over 100 countries, Spin Master is best known for award-winning brands PAW Patrol®, Bakugan®, Kinetic Sand®, Air Hogs®, Melissa & Doug®, Hatchimals®, Rubik's Cube® and GUND®, and is the global toy licensee for other popular properties. Spin Master Entertainment creates and produces compelling multiplatform content, through its in-house studio and partnerships with outside creators, including the preschool franchise PAW Patrol and numerous other original shows, short-form series and feature films. The Company has an established presence in digital games, anchored by the Toca Boca® and Sago Mini® brands, offering open- ended and creative game and educational play in digital environments. Through Spin Master Ventures, the Company makes minority investments globally in emerging companies and start-ups. With 31 offices spanning nearly 20 countries, Spin Master employs close to 3,000 team members globally.

1

Segment information

The Company has three reportable operating segments: Toys, Entertainment and Digital Games.

Toys

The Toys segment engages in the creation, design, manufacturing, licensing, and marketing of consumer products. Effective January 1, 2024, Spin Master has changed its product categories to align with the Company's product offerings going forward: (1) Preschool, Infant & Toddler and Plush; (2) Activities, Games & Puzzles and Dolls & Interactive; (3) Wheels & Action; and (4) Outdoor. Products in the Toys segment are sold in three geographic regions: (1) North America; (2) Europe; and (3) Rest of World. Previously, Spin Master's Toys segment was organized into the following: (1) Preschool and Dolls & Interactive; (2) Activities, Games & Puzzles and Plush; (3) Wheels & Action; and (4) Outdoor. The 2023 Toy Gross Product Sales1 have been presented in the same format that the Company presents Toy Gross Product Sales in 2024 (see "Addendum"). The Toys segment also generates other revenue streams through licensing of its brands.

The acquisition of MND Holdings I Corp ("Melissa & Doug"), completed on January 2, 2024, is included within Preschool, Infant & Toddler and Plush category (refer to Acquisition of Melissa & Doug section for more details).

Entertainment

The Entertainment segment engages in the creation, development, production and distribution of multi-platform content for children and families globally. The Entertainment segment also licenses Spin Master's brands for use in non-toy consumer products, including apparel and other consumer goods, publishing, live entertainment.

Digital Games

The Digital Games segment engages in the creation of digital play experiences for players globally. The Digital Games segment develops, markets and delivers digital games, which are distributed via third-party platform providers and monetized through subscriptions or in-app purchases. The Digital Games segment also generates other revenue streams through licensing of its brands.

Corporate & Other

Corporate & Other includes certain corporate costs (such as certain employee compensation and professional services expenses), foreign exchange and transaction and integration related costs, as well as fair value gains and losses and distribution income on minority investments.

2

Strategy

Spin Master's principal strategies to drive the Company's continued growth include:

Vision

Primary Role

Key Strategic Focus

Toys

Be a global leader in Toys

by creating play

experiences that spark

creativity and imagination

in kids and families

globally

Provide a stable base of

Revenue/Adjusted

EBITDA1/Free Cash Flow1 to build brands & innovate

• Build and expand core portfolio
• Drive Spin Master franchises
• Build licensed partner portfolio
• Expand existing partnerships
• Expand geographic & retail footprint
• Pursue strategic Mergers & Acquisitions ("M&A") and Ventures

Entertainment

Be a leading global creator of children's entertainment, igniting imaginations and deep character connections

Create content and build evergreen franchises that kids love, across physical and digital platforms

• Build new franchises
• Expand PAW Patrol Universe
• Accelerate new content for direct to audience platforms
• Expand Licensing & Merchandising
• Pursue strategic M&A and Ventures

Digital Games

Create exceptional digital play experiences for kids of all ages around the world

Create digital games and

play-to-learn platforms

using both new and existing intellectual property ("IP")

• Leverage Spin Master IP and rapidly prototype new digital games
• Deepen consumer insights to create robust player ecosystems
• Expand digital games portfolio to capture kids of all ages
• Pursue strategic M&A and Ventures

Enterprise Shared

Capabilities

• Grow Franchise and Brand Developments
• Build Consumer and Parent Data and Insights
• Expand Licensing and Merchandising
• Accelerate Omni-Channel Engagement and Commerce
• Pursue M&A opportunities

• Non-GAAPfinancial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

3

Selected Financial Information

The following provides selected key performance metrics of the Company for the three months ended March 31, 2024 and 2023, which should be read in conjunction with the interim financial statements.

On January 2, 2024, the Company completed its previously announced acquisition of Melissa & Doug by acquiring all issued and outstanding capital stock. Melissa & Doug is a leading brand in early childhood play with offerings of open-ended, creative, and developmental toys. Melissa & Doug's operating results for the three months ended March 31, 2024 are included in the Company's consolidated results (refer to "Acquisition of Melissa & Doug" section for more details).

Consolidated Results	Three Months Ended Mar 31,
(US$ millions, except per share information)	2024	2023
Revenue	316.2	271.4
Operating Loss	(61.8)	(6.1)
Operating Margin1	(19.5)%	(2.2)%
Adjusted Operating (Loss) Income2	(14.5)	12.7
Adjusted Operating Margin2	(4.6)%	4.7 %
Net Loss	(54.8)	(1.9)
Adjusted Net (Loss) Income2	(19.5)	12.3
Adjusted EBITDA2	18.6	30.6
Adjusted EBITDA Margin2	5.9 %	11.3 %
Earnings Per Share ("EPS")
Basic EPS	(0.53)	(0.02)
Diluted EPS	(0.53)	(0.02)
Adjusted Basic EPS2	(0.19)	0.12
Adjusted Diluted EPS2	(0.19)	0.12
Cash dividends declared per share (CA$)	0.12	0.06
Weighted average number of shares (in millions)
Basic	104.2	103.0
Diluted	106.3	106.6
Selected Cash Flow Data
Cash provided (used in) by operating activities	24.3	(4.3)
Cash used in investing activities	(980.4)	(56.6)
Cash provided by (used in) financing activities	457.2	(14.8)
Free Cash Flow2	(0.6)	(34.4)
	Mar 31,	Dec 31,
Selected Balance Sheet Data	2024	2023
Cash	205.5	705.7
Total assets	2,522.4	1,989.7
Loans and borrowings	473.2	-
Total liabilities	1,178.3	570.6

• Operating Margin is calculated as Operating Income divided by Revenue.

• Non-GAAPfinancial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

4

Executive Summary for the three months ended March 31, 2024 as compared to March 31, 2023

• Revenue was $316.2 million, an increase of 16.5% from $271.4 million, which includes Melissa & Doug Revenue of $40.4 million. Revenue, excluding Melissa & Doug1 was $275.8 million, an increase of 1.6% from $271.4 million.
• Constant Currency Revenue1 was $314.7 million, an increase of 16.0%, from $271.4 million.
• Revenue by operating segment reflected increases of 21.5% in Toys, 16.5% in Entertainment, and a decrease of 3.2% in Digital Games.
• Toy Gross Product Sales1 was $264.1 million, an increase of $47.8 million or 22.1% from $216.3 million, including Melissa & Doug Toy Gross Product Sales1 of $46.7 million. Toy Gross Product Sales, excluding Melissa & Doug1 was $217.4 million, an increase of $1.1 million or 0.5% from $216.3 million.
• Operating Loss was $61.8 million compared to Operating Loss of $6.1 million.
• Operating Margin was (19.5)% compared to (2.2)%.
• Adjusted Operating Loss1 was $14.5 million compared to Adjusted Operating Income1 of $12.7 million.
• Adjusted Operating Margin1 was (4.6)% compared to 4.7%.
• Net Loss was $54.8 million or $(0.53) per share compared to $1.9 million or $(0.02) per share.
• Adjusted Net Loss1 was $19.5 million or $(0.19) per share compared to Adjusted Net income1 of $12.3 million or $0.12 per share (diluted).
• Adjusted EBITDA1 was $18.6 million compared to $30.6 million, a decrease of $12.0 million or 39.2%.
• Adjusted EBITDA, excluding Melissa & Doug1 was $27.8 million compared to $30.6 million, a decrease of $2.8 million or 9.2%.
• Adjusted EBITDA Margin1 was 5.9% compared to 11.3%.
• Adjusted EBITDA Margin, excluding Melissa & Doug1 was 10.1% compared to 11.3%.
• Cash provided by operating activities was $24.3 million compared to cash used of $4.3 million.
• Free Cash Flow1 was $(0.6) million compared to $(34.4) million.
• During the three months ended March 31, 2024, the Company repurchased and cancelled 333,300 subordinate voting shares through the Company's Normal Course Issuer Bid (the "NCIB") program for $8.4 million. Subsequent to March 31, 2024, the Company repurchased a further 255,621 subordinate voting shares for cancellation at a cost of $6.3 million.
• Subsequent to March 31, 2024, the Company declared a quarterly dividend of CA$0.12 per outstanding subordinate voting share and multiple voting share, payable on July 12, 2024.

• Non-GAAPfinancial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

5

Acquisition of Melissa & Doug

On January 2, 2024, the Company completed its previously announced acquisition of Melissa & Doug. Melissa

• Doug is a leading brand in early childhood play with offerings of open-ended, creative, and developmental toys. The acquisition is reported in the Toys segment within the Preschool, Infant & Toddler and Plush product category.

On January 2, 2024, cash consideration paid was $991.7 million, which includes $36.2 million in cash acquired, resulting in net purchase consideration of $955.5 million. As of March 31, 2024, purchase consideration was reduced by $2.5 million for working capital adjustments, resulting in purchase consideration of $989.2 million. The purchase consideration was allocated to the identifiable intangible assets based on their estimated fair values of $536.2 million (related to brands and customer relationships), tangible assets of $503.4 million and assumed liabilities of $263.4 million with the remaining $213.0 million allocated to goodwill. The Company funded the $991.7 million purchase price with $466.7 million of cash and $525.0 million of debt from its credit facilities to finance the acquisition. During the three months ended March 31, 2024, the Company repaid $50.0 million towards its credit facilities (refer to "Liquidity and Capital Resources" section).

The preliminary purchase price allocation is based on management's current best estimates of fair value. The actual allocation to certain identifiable net assets could vary as the purchase price allocation is finalized. The Company has one year to finalize the fair value of net tangible assets, goodwill, and intangible assets. The tables below summarize the preliminary purchase allocation of the purchase consideration of $989.2 million:

Assets acquired and liabilities assumed at the date of acquisition

(US$ millions)	Fair value as at Jan 2, 2024
Assets acquired
Cash	36.2
Restricted Cash	3.1
Inventories, net	179.6
Prepaid expenses and other assets	3.0
Trade receivables, net	104.7
Deferred income tax assets	53.1
Intangible assets	536.2
Other assets	1.2
Property, plant and equipment	37.1
Right-of-use assets	85.4
	1,039.6
Liabilities assumed
Trade payables and accrued liabilities	39.6
Deferred income tax liabilities	161.6
Lease liabilities	60.7
Income tax payable	0.7
Provision	0.8
	263.4
Fair value of identifiable net assets acquired	776.2
Goodwill arising on acquisition
Total purchase consideration	989.2
Fair value of identifiable net assets acquired	776.2
Goodwill arising from transaction	213.0

6

The Company incurred transaction and integration costs for the three months ended March 31, 2024 of $16.7 million, of which $9.5 million were transaction related costs.

During the three months ended March 31, 2024, the Company recognized $0.2 million in Net Cost Synergies1 and continues to expect to achieve approximately $6 million in Net Cost Synergies1 in 2024 towards the target of approximately $25 million to $30 million in Run-rate Net Cost Synergies2 by the end of 2026.

The following summarizes the impact of Melissa & Doug's operating results on the first quarter consolidated results:

(US$ millions)	Q1 2024	Q1 2023	$ Change	% Change
Revenue	316.2	271.4	44.8	16.5 %
Melissa & Doug Revenue	40.4	-	40.4	n.m.
Revenue, excluding Melissa & Doug1	275.8	271.4	4.4	1.6 %
Toys Gross Product Sales1	264.1	216.3	47.8	22.1 %
Melissa & Doug Toy Gross Product Sales1	46.7	-	46.7	n.m.
Toys Gross Product Sales, excluding Melissa & Doug1	217.4	216.3	1.1	0.5 %
Adjusted EBITDA1	18.6	30.6	(12.0)	(39.2)%
Melissa & Doug Adjusted EBITDA1	(9.2)	-	(9.2)	n.m.
Adjusted EBITDA, excluding Melissa & Doug1	27.8	30.6	(2.8)	(9.2)%
Adjusted EBITDA Margin1	5.9 %	11.3 %
Adjusted EBITDA Margin, excluding Melissa & Doug1	10.1 %	11.3 %

• Non-GAAPfinancial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

• Net Cost Synergies represent cost savings, net of costs to achieve, attributable to the integration of Melissa & Doug.

• Run-rateNet Cost Synergies represent the expected ongoing cost savings, net of costs to achieve, attributable to the integration of Melissa & Doug.

7

Segmented Results

Toys

	Three Months Ended Mar
	31,
(US$ millions)	2024	2023
Toy Gross Product Sales1	264.1	216.3
Toy Revenue	226.4	186.3
Toys Operating Loss	(90.8)	(41.8)
Toys Operating Margin2	(40.1)%	(22.4)%
Toys Adjusted EBITDA1	(32.5)	(21.4)
Toys Adjusted EBITDA Margin1	(14.4)%	(11.5)%
Cash Flow
Toys capital expenditures	9.2	7.8
	Mar 31	Dec 31
Balance Sheet	2024	2023
Moulds, dies and tools, net carrying amount	23.4	19.2
Entertainment
	Three Months Ended Mar
	31,
(US$ millions)	2024	2023
Entertainment Revenue	43.8	37.6
Entertainment Operating Income	28.6	29.3
Entertainment Operating Margin2	65.3 %	77.9 %
Entertainment Adjusted Operating Income1	29.1	29.9
Entertainment Adjusted Operating Margin1	66.4 %	79.5 %
Cash Flow
Entertainment capital expenditures	7.8	18.4
	Mar 31	Dec 31
Balance Sheet	2024	2023
Entertainment content development, net carrying amount	49.7	48.3
Digital Games
	Three Months Ended Mar
	31,
(US$ millions)	2024	2023
Digital Games Revenue	46.0	47.5
Digital Games Operating Income	13.2	16.2
Digital Games Operating Margin2	28.7 %	34.1 %
Digital Games Adjusted Operating Income1	15.2	19.0
Digital Games Adjusted Operating Margin1	33.0 %	40.0 %
Cash Flow
Digital Games capital expenditures	7.9	3.9
	Mar 31,	Dec 31,
Balance Sheet	2024	2023
Digital game and app development, net carrying amount	36.4	31.5

• Non-GAAPfinancial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

• Operating Margin is calculated as segment Operating Income divided by segment Revenue.

8