Q2 2022 Genius Brands International Inc Earnings Call

Ladies and gentlemen, thank you for holding your conference call.

Again, thank you for holding your conference call will begin momentarily.

[music].

Good day, ladies and gentlemen, thank you for standing by welcome.

International's second quarter, 2022 business update call.

This time, all participants are in a listen only mode I would now like.

I turn the call over to David Waldman Investor Relations David. Please go ahead.

Thank you good afternoon, everyone and welcome to genius Brands' second quarter 2022 financial results and Investor update conference call on the call with US. This afternoon, as Andy Heyward, Chairman and CEO , Bob Denton, Chief Financial Officer, and Michael Hirsh CEO of Wow. The company issued a press release. This morning, if you've not received a copy you can view it on the companies.

Site at G N U S brands Dot com before I turn the call over to genius Brands' CEO , Andy Heyward I would like to remind you that this call certain statements constitute forward looking statements within the meaning of the federal Securities laws words, such as May might will should believe expect anticipate estimate continue predict forecast project plan intend or similar.

Expressions or statements regarding intent belief or current expectations are forward looking statements. While the company believes these forward looking statements are reasonable undue reliance should not be placed on any such forward looking statements, which are based on information available to us on the date of this call. These forward looking statements are based upon current estimates and assumptions and are subject to various risks and uncertainties.

<unk> risk factors set forth in the risk factors section of the company's most recent annual report on Form 10-K, and the company's subsequent filings with the Securities and Exchange Commission. Thus actual results could differ materially from those reported the company expressly disclaims any obligations to update or alter statements, whether as a result of new information future events or.

Otherwise, except as required by law following their prepared remarks, the company will feel the number of questions that investors have submitted in anticipation of the call I'd now like to turn the call over to genius Brands' CEO Andy Heyward. Please go ahead Andy.

Thank you David and good morning, everyone.

The second quarter was very strong for genius brands, we experienced significant top line growth with record revenues of $21 million, which we now expect to continue and accelerate.

The assets currently now in house and those being acquired and developed we believe will lead to recurring positive cash flow more growth and sustained profitability.

This last quarter, we've gone from a company with 100 employees to a company of over 900 employees with offices in Los Angeles, New York, New Jersey, Toronto, Vancouver, Munich and London.

We've grown dar owned or controlled catalog of animated children's programs from 450 episodes to over 3800 episodes and now have over 22000 animated children's episodes under license to the cartoon channel system.

We have grown our cartoon channel distribution footprint from just the U S to now being seen in over 60 territories worldwide via satellite cable and terrestrial as well as streaming in Europe , The Middle East Africa, Latin America and Asia.

From a company producing 26 episodes of content at this time last year, producing over 200 half hour episodes with over $135 million of production and a robust pipeline with significant committed contracts going forward for the next three years and beyond.

Our programs are seeing not only on our growing cartoon channel, but our additionally, licensed to Netflix Amazon Youtube Peacock, Paramount plus HBO, Max and terrestrial and satellite broadcasters worldwide.

We completed the transformational acquisition of well Unlimited media signed a 20 year deal with Marvel Studios and the Walt Disney Company to license Stan Lee for use in feature films TV Productions, and Disney theme parks and experiences and we are an additional and material compensation with the Walt Disney Company.

On separate opportunities.

Also during this quarter, we partnered with world renowned chef rest of mature and philanthropist Wolfgang puck to create an animated children's series and healthy food products license from and based on the series entitled Wolfgang Clock Secret Shop Academy, Wolfgang Puck worldwide now generates approximately 650 million.

And worldwide revenues and we see an opportunity from the show to partner on similar kitchen and healthy food products now designed for children.

In addition, we are pleased to report the highest revenues in the history of the company.

Q2 revenues of $22 $1 million, which is nearly a 10 fold increase over the same quarter last year. We believe the continued and accelerating revenue growth is a precursor to earnings which we are confident will be forthcoming.

Two units and businesses are growing increasing market share and margin. Meanwhile, the company continues to maintain high levels of cash.

The nonexclusive deal, we signed to license the name and likeness of Stanley to Marvel Studios for movies and television and the exclusive license to the Walt Disney theme parks and attractions to create Stanley merchandize and consumer products to be sold and the Walt Disney theme parks cruise ships and other entertainment venues for the next 20 years.

All of which genius brands will enjoy royalty income from <unk>.

While the company received two and a half million dollar licensee the bulk of the revenues genius will see as a result of this agreement we expect to come from royalties that will be generated from Disney's creation and sale of Stanley merchandize and the Walt Disney theme Parks and theme park experiences for the duration of the 20 year agreements.

We also anticipate additional benefits from the ongoing and enriched exposure of the Stanley brand driving retail sales of our own upcoming Stanley content and merchandise programs separately.

We consider the rights, we own and control and stand the universe to be extremely valuable and we will be announcing significant news prior to Stan Lee's 100th birthday on December 28 this year.

That's a close friend of stands for many years I can share that this was his personal desire and we believe it's a privilege to act as a responsible steward of the Stanley brand on his behalf.

During the past quarter, we continued to make great strides in many segments of our business, which will have a significant impact on the future of the company as well as our financial growth also during the quarter cartoon channel our flagship streaming platform for children continues to experience monthly growth in downloads viewership advertisers.

<unk> and most importantly revenues, we are investing aggressively in cartoon channel to secure the best content. The best features the most robust distribution and the overall most attractive user experience. We believe cartoon channel will be a key driver and tentpole of genius brands revenues and earnings for years.

To come cartoon channel is now being carried on virtually every major platform in the United States, including Apple iOS, Apple TV, Android TV, Android mobile Amazon Prime Amazon fire Roku to be Comcast Cox, Samsung Smart Tvs, LG Smart Tvs Pluto TV.

And the increasingly important due to platform and.

In fact, if you happen to be flying Jetblue, you'll now see cartoon channel carried there as well.

<unk> channel is now firmly established as a premier viewing destination for kids and families with fewer rankings regularly placing us ahead of our major competitors in both the Apple and Google App stores advertising revenues have continued their solid growth trajectory as we continue to sign up new advertisers and have <unk>.

Best it to build out a premium AD sales team led by a proven industry leader, Cindy Kelly, who joined genius brands during the quarter and now oversees all advertiser itself.

Concurrent with cartoon channel as a free product supported by advertising, we launched in the second quarter, our commercial free streaming subscription product at $3 99, a month the cartoon channel Kid averse.

Expect subscription growth to become a critical component of our future revenue stream as it is for all content providers, such as Netflix Disney plus and HBO. Max However, whereas several of our competitors have seen declines genius subscriber statistics are growing were building both on the subscription distribution, we have now at Amazon.

Prime as well as the subscription network, we acquired with the <unk> Channel acquisition in January and their technology and superb management group.

As we continued to rollout the subscription base cartoon channel Kid averse and it's met a versatile features we believe could averse will be a breakthrough first of its kind offering for kids, including avatars Emojis games Kid averse, VR goggles, immersive content and Ftes for kids collectible digital car.

Based on many of the channel's popular with characters, including Stanley Universe of digital currency for kids, which we referred to as Kid of box child safe messaging, which we referred to as massively messes podcasts music and more the.

The combination now of cartoon channel as a free AD supported service and cartoon Channel Kid Averse are enriched commercial free service enables us to capture those parents, who want their kids to have a premium channel for free as well as those who prefer to have a children's channel without commercials containing enriched.

And they are prepared to pay a monthly subscription fee.

Having an AD free and a subscription product grounded always and say positive programming for children is the essence of our channel strategy to grow and capture market share worldwide. Okay. Let's talk worldwide for Obama the company made a strategic investment in your family Entertainment The Premier German Children's Entertainment company.

Trading on the Frankfurt exchange why it would be not only has 3000 title catalogue of animation, but also an existing global distribution platform now in over 60 markets across Europe Asia, Middle East Africa, and Latin America under the leadership of Paul Robinson, who previously was managing director of Disney channels worldwide. This channel.

And without being rebranded as cartoon channel worldwide and rolling out in virtually every major territory. We are now in more than 60 countries around the world and in various stages of discussion and additional markets with a group of important carriage deals currently pending.

We've also witnessed growth in viewership of cartoon channel on platforms, such as Amazon Prime. We believe this trend will continue as we continuously add attractive new content marketing and distribution partners to our portfolio. In addition to our owned and produced shows like Rainbow Rangers and Stan Lee's superhero kindergarten.

We continue to acquire timeless top performing content from around the world, including Peppa Pig Paw patrol shorts.

Do you <unk> as well as roadblocks in Minecraft based gaming content.

Strong proven content with positive values that children will want to see who will always be a component of our program strategy to increase market share revenues and profits.

Separate from the rollout of cartoon channel and cartoon channel killer versus the company acquired the threat of rate or channel as part of the acquisition of well the importance of the Freddie rate or channel. That's part of genius overall distribution business can't be overstated, the credit rated channels distributed exclusively on Youtube.

Platform of over 3000 producers, which makes up the largest animation platform on Youtube and currently generates an astonishing 1 billion views per month.

In itself rhetoric Battle is already a profitable service. However, we expect to grow at harnessed it dramatically more so as we migrate top performing Youtube programs from there to cartoon channel at cartoon shallow kit averse unlocking new value for the company and credit Raters producers.

Like the biggest formerly goodbye animation, which we are now bringing up regularly to the big leagues.

Combination of genius brands Wow Federated channel.

<unk> and your family Entertainment now provides genius with one of the largest and most desirable children's content catalogs in the world as well as a fully integrated distribution system and consumer product infrastructure to maximize value.

I can't emphasize this point enough as each of the catalogs has tremendous intrinsic value.

Importantly, animation is not only timeless, but an asset that grows in value over time.

Needs only to look at the Flintstones, Tom and Jerry and others that live on Forever decades. Later, you still see branded consumer products on store shelves around the world.

The more the animation have consumed more of the value of the portfolio grows over time.

Now I want to turn the call over to Michael Hirsh CEO of Wow to discuss possibly the most important event in the history of the company the acquisition and integration of well into genius brands Michael Europe .

Thank you Randy.

The integration of while unlimited media, consisting of Fred radio networks, and studio and mainframe studios into the genius brands family has been going extremely well the transaction was expected to provide immediate and continuing financial benefits along with strong revenues as a result of significant contracted <unk>.

Looking into 2023 and beyond.

Indeed, while it has had a banner year and continues to see revenues increasing at an accelerated pace. We are currently producing over 183 episodes of animated content with production budgets in excess of $100 million.

The company operates at a profit on a cash basis, and we expect to see working with genius to increase our margins and make a significant contribution to the overall genius bottom line.

As a result of the combination genius brands now has an end to end animation ecosystem that has produced many profitable titles.

<unk> Coco Mellon the number one children's series in the world today as well as Barbie It takes to Oxford.

And cooperative.

While many of these are work for hire we are also now doing our own original content.

And currently have shows in production for Youtube, Netflix Sony and elsewhere.

Our series teams Inco go with Dreamworks animation, just launched its second season on Netflix and our new series B and puppy cap launch on Netflix on September six.

Copycat has had tremendous support on Twitter with millions of views for our Netflix trailer as well as other SaaS social platforms from the shows enthusiastic fans. It represents a major success for the Freddie rate of our approach to developing a show first on its Youtube platform and then upon success migrating it to.

More commercial platform that broadens the show's appeal.

The addition of captive in house animation production for genius brands is expected to drive significant cost synergies, resulting in economies of scale, which will be drawn.

Drive increased shareholder value as new brands and brought to market and eventually the cartoon channel and through the genius brands licensing organization.

This transaction is a transformational event for genius brands is the company will continue to execute on its strategy to establish itself as a foremost producer broadcaster in license or a high quality children's entertainment and children's consumer products on a global basis.

There are very few asset classes proven enduring value as animated children's programming.

And we are extraordinarily excited about what the future holds for this powerful combination.

I would now like to turn the call over to Bakken.

To discuss the Companys financial results for the quarter off.

Thanks, Michael as Andy mentioned earlier total revenues for the quarter ended June 32022 were $22 1 million largest quarterly revenues in the history of the company an increase of $19 7 million or 843% from $2 3 million in the same quarter last year. These.

These increases are primarily due to the addition of amoeba in January and the acquisition of while at the beginning of the quarter.

Expenses for the quarter increased primarily due to an increase in direct operating costs and increase in general and administrative expenses, including the onetime charge professional fees associated with the acquisition of Wow and its subsidiaries.

An increase in incentive compensation expense, which is a noncash expense and the inclusion of wells general and administrative expenses for the three months ended June 32022.

The net loss attributable to genius brands for the quarter ended June 32022 was $13 3 million or <unk> <unk> per share compared to $7 million or two cents per share for the three months ended June 32021.

This increase is directly related to the increase in expenses noted above.

Turning to the balance sheet as of June 32022, we had current assets of $153 million, including cash cash equivalents in marketable securities of $105 2 million working capital of $63 6 million and total stockholders' equity of $143 1 million.

We are closely manage our cash balances, which we consider the most important indicator for the company as we integrate and build our combined businesses and increased our assets with the goal of increasing earnings and becoming cash positive.

Our acquisition and investments are indications of our commitment to continue creating top tier children's content, creating a global and enduring animation catalog and the expansion of our cartoon channel distribution system. We believe that is the best and smartest deployment of our capital and then in the long term it will ultimately yield the most value for our.

I would now like to turn the call back over to Andy for some final comments Andy.

Thank you Bob first I want to thank all of our investors for participating in the call today and for your support over the years as ETF form genius into a powerhouse within the childrens entertainment industry. We are growing across key units increasing market share building timeless asset and all signs point to that momentum continuing.

It accelerated.

Now in year, two since the launch of cartoon channel and as I said at the beginning topline revenue growth this quarter of more than 800% to over $22 million broke all records. We will continue to make decisions to grow our asset base and reach sustainable and growing profitability as we continue to build on the substantial.

I look forward to speaking with everyone again, and keeping you informed of initiatives. How we are building the best programs for children licensed products from those programs and the most effective distribution programs, but as they say the best is yet to come.

Last but not least I am, particularly excited about our upcoming series shacks garage and strong vehicle based consumer products program that we anticipate will come from it checks garages. A series. We are very proud of because it has extraordinary entertainment, which we think will be a huge performer, but also it shows extreme.

Positive values to kids and a diverse and responsible world.

Hello, Neil has been personally hands on throughout and he's very committed to the positive storytelling that the series will embrace alongside the humor in hygiene.

<unk> episode will enjoy a sneak peek on cartoon channel effective immediately it's up now and lapping for 48 hours I encourage everyone to go see it.

And not only see shack, but also his costar Rob gronkowski.

Now we want to take this opportunity to answer questions that were previously submitted to the company.

David I think you have the questions too.

Thank you Andy sorry.

In our conference call announcement press release, we suggested interested parties submit their questions in advance we'd like to address those questions for you know some of them were duplicative. So we did our best to reconcile those where possible. If you have further questions. After the call. Please feel free to follow up with Investor Relations and we'll be sure to respond as quickly as possible.

Our first question from investors is a following given the company's revenue growth at what point do you expect to turn profitable.

Good question.

We're not prepared to give formal guidance right now, but as we continue to grow we do expect to turn profitable in the not distant future and generate quite significant cash flow in the meantime, we're carefully managing expenses expect to generate significant cost synergies from the <unk> acquisition and the path to sustained and reliable.

And continuing earnings is from the Buildout of our global automation catalog and a global distribution system. We are building genius to become a dominant sports and kids entertainment and in order to do that we must invest wisely to maximize long term value for our shareholders.

Thank you Andy our next question is how are you managing the rapid growth now to accompany of over 900 people.

Good question, our board member Tony Demopoulos has graciously agreed to now serve as vice chairman of the genius Brands' Board of directors, Tony brings a distinguished career of experience coming from being President of ABC Entertainment and ABC broadcast group chairman of United Artists Pictures.

And president of Steven Spielberg's Amblin television.

He will not only lead our Greenlight committee, but will also focus on unifying the many pieces of the company now and working with all of the units to help ensure they stay on their growth and earnings targets. We're very fortunate to indeed have his wisdom and experience. He has already instituted protocols and disciplined he has been working with Bob Denton and.

Mike Jafar to help ensure we hit our targets and good governance remains a top priority.

Great. Thank you Andy. The next question is what are the company's plans to buy back stock.

I would say that given the volatility in the market and the importance of preserving capital we have not undertaken a buyback up to this point, but we have and will continue to evaluate all our options of which that is one.

Okay. Thank you. Our next question is genius brands affected by interest rates energy or inflation.

Good question.

Well we're.

We're not really in energy consumer you don't use energy to build animated cartoons, we use creative energy so.

If I could be a little whimsical.

Say, we could be said to be an energy supplier that they use there.

Interest rates are.

We have minimal exposure.

Interest rates, we have a lot of cash in the company right now and.

While we do have some.

Production based borrowing.

Not really a factor for us.

Great. Thank you. Our next question does genius have exposure to China through its productions or otherwise.

Question.

We enjoyed good relations because of our superhero kindergarten series now being broadcast with our Chinese partner Alibaba Youku platform. That's the most robust kids platform in China and for the best of my knowledge, we're the only American supplier of children's content to Alibaba.

We have paid cash for our programs, we sell to China and U S dollars.

At the same time, our exposure to commercial pressures from China is minimal because we've migrated the bulk of our product from.

From Chinese animation studios to Indonesia, the Philippines, where pricing is currently much more favorable and production quality remains high.

Thank you. Our next question can you provide an update on shacks garage or what you think sets it apart from other productions.

Well I've talked a little bit about it earlier, but the current plan for shacks garages to begin delivering episodes in the fourth quarter of this year all of the scripts are written both Shaquille and Rob Greg Koski have recorded 90% of their voices. The show we consider to be a paw patrol with cars.

Very cool music is very cool stories are aspirational and fund more crude cars than you could ever imagine. We're also excited about show within a show that will appear in many of the episodes. It's a segment called baby Shack.

I'm not going to say more about it now only that if you like baby shark Youre going to love Baby Shack.

We're going to do a sneak peak of the first episode it will be at 448 hours only it's up now on cartoon channel.

Great. Thank you. Our next question is given the growing importance of ESG, what if any steps is genius, taking including environmental measures.

Okay. So our management has decided to take a leadership role in the entertainment industry and how we can best protect the environment. That's corporate citizens as we tell stories to depict a positive environmental steps for our children.

Our Chief Diversity Officer, Michael Riley has now been given the additional role and responsibility of Chief Environmental Officer. The company has put a number of specific initiatives in place to make us a more environmentally friendly company.

The leader in social responsibility overall these range from Carpooling incentives, adding led energy lifesaving saving lights to having environmental lessons in our shows for the kids to learn problem. We have in all company electronic recycling day coming shortly we have toxin reduction programs and we have a conservation program.

Promoting companywide steps of reduce reuse and recycle. These are all on our website starting today for all our clients and shareholders to see we.

And the importance of stepping forth on environmental issues, we embrace this responsibility and the stories, we tell as well as broadcast on our channels and the impact it has on children as well as the concrete steps that we've taken to make the company more environmentally friendly.

We believe that our company will continue to grow and flourish not in spite of our commitment to sustainability and social responsibility, but because of it.

Next question David Great. Thank you.

Can you talk about the merchandising strategy and when we can expect to see toys and other products on the shelves.

The kids merchandise business is unpredictable, but every year. There are some very very big hits, we don't know which of our characters if any will catch fire, but we believe we have several very good shots. Many of our brands have pre salt marquee value in existing businesses associated with them that will drive sampling.

Wolfgang Puck for example, as I said earlier is currently at $650 million a year business. We would be very excited to have a kid's version, which is a fraction of that.

Stanley merchandise will be coming very shortly and you can expect a significant announcement on that in the near future.

Disney merchandise of Stanley, which will appear in the parks theme park experiences will be forthcoming on their schedule.

I believe they are very enthusiastic about this and look forward to having stand big important part of their Marvel experience, we have a variety of brands with different activities at different stages, including llama llama as they ongoing staple and Rainbow Rangers, which we're going to reboot with a new master toy licensee because we believe in it.

Shacks garage, we think it's a natural on many fronts. It has the same play some very successful products like hot wheels, Pixar cars and Paw patrol. However, we think the creative premise is very special and differentiated.

Number of products now coming out of the <unk> at mainframe, which we have the potential to the pub significance of merchandising crest as well being <unk>, which was first thing incubated on Youtube and has developed a large audience and we'll debate debut next month. That's why she was one of them.

Great. Thank you Andy.

It does conclude the questions. We appreciate everybody's support and we look forward to providing further updates. Thank you.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Yeah.