Q4 2024 Kartoon Studios Inc Earnings Call - Q&A
So that's right today's video we're joined by Andy Hayward, The CEO and Brian for easy the CFO of cartoons studios going to get some more insight on their growth strategy trajectory in 2025, gentlemen, thanks, so much for making the time today. Thank.
Operator: Okay, guys, so that's right.
Operator: Today's video, we're joined by Andy Heyward, the CEO and Brian Parisi, the CFO of Kartoon Studios, going to get some more insight on their growth strategy trajectory in 2025. Gentlemen, thanks so much for making the time today. Thank you.
Speaker Change: Thank you thank you for having us.
Speaker Change: Can you talk to us a little bit about why right now you feel cartoon studios represents a great value proposition to investors.
Andy Heyward: Thank you for having us.
Brian Parisi: Can you talk to us a little bit about why right now you feel Kartoon Studios represents a great value proposition to investors? I don't look at kind of what's our share price or what's our market cap. I look at what are the fundamentals of the business that's going to naturally drive that. And I look at it in four different areas. One is we have a diverse and robust division and business model of the company. We do the creative, we do the production, we distribute. We have a media buying business and we have a very robust consumer products and licensing group on the back end.
Speaker Change: Look at kind of what's our share price or what's our market cap I look at what are the fundamentals of the business that's going to naturally drive that and I look at it in four different areas. One is we have a diverse and robust division and business model of the company. We do the creative we do the production we distribute.
Speaker Change: We have our media buying business and we have a very robust consumer products and licensing group on the back end. So we are across all of those divisions and we're in a very durable kids animation market.
Brian Parisi: So we are across all of those. and we're in a very durable kids animation market. So we sit, I think, in a very great sweet spot. And again, we're across all those different sort of disciplines that we can start to monetize across those over time. That's number one. Two is we have tremendous upside from these projects. Winnie the Pooh, Stan Lee, we're doing a project called Andrew the Big, Big Unicorn with our mainframe studio up in Canada, which is brand new IP that we're excited about. And just like if you look at a Disney or Warner, if they have a couple of big hits in a year for them from an IP perspective, that's great.
Speaker Change: So we sit I think in a very great sweet spot and again were across all those different sort of disciplined and we can start to monetize across those over time. That's number one two is we have tremendous upside from these projects we need to push Stanley. We're doing a project called Andrew the Big Big Unicorn with R. R.
Speaker Change: Mainframe studio up in Canada, which is brand new IP that we're excited about.
Speaker Change: And just like if you look at a Disney or Warner if they have a couple of big hits in a year for them from an IP perspective, that's great. It might move the needle a little bit, but we're a small cap company.
Brian Parisi: It might move the needle a little bit, but we're a small cap. If we get any of these to hit in any material way, we're talking massive upside to revenue, massive upside to cash flow and net income, and we're gonna see that in the stock price. But if we execute right, the rest will take care of itself.
Speaker Change: We get any of these the hit in any material way, we're talking massive upside to revenue massive upside to cash flow and net income and we're going to see that in the stock price, but if we execute right. The rest will take care of itself.
Speaker Change: And then the third thing I look at is really the discipline around the financials and again, we've seen that the trajectory in 'twenty four and into 25. So we're doing all the right things we need to stay disciplined and focused in our ability to do that and really the fourth thing. We look at in terms of why we are a good investment as we have such a great management team here I realize that when I came on.
Brian Parisi: Yeah, and then the third thing I look at is, is really the discipline around the financials. And again, we've seen that the trajectory in 24 and into 25. So we're doing all the right things, we need to stay disciplined and focus on our ability to do that.
Brian Parisi: And really, the fourth thing we look at in terms of why we're a good investment is we have such a great management team here, I realized that when I came on, and I met with Andy and the team here, you know, in late 23, when I started, you know, I realized immediately that the pedigree, the experience and the knowledge of this team is world class. So our ability to really execute on the plan is wildly de-risked because we have the right people in the right place to really execute.
Speaker Change: And I've met with Andy and the team here late 'twenty three when I started I realized immediately that the pedigree of the experience and the knowledge of this team is world class, So our ability to really execute on the plan.
Speaker Change: Is wildly derisked, because we have the right people in the right place to really execute.
Now Andy I know, we had you on the Rip program recently talking about we need to prove why are you guys. So bullish for the upcoming year here, it's hard not to be excited about winning the pool. We started investing in this almost two years ago, and it's going to be coming to the marketplace. This year think about this property. It's the biggest children's preschool property of all time.
Andy Heyward: Now, Andy, I know we had you on the program recently talking about winning the Pooh. Why are you guys so bullish for the upcoming year here? It's hard not to be excited about winning the Pooh. We started investing in this almost two years ago, and it's going to be coming to the marketplace this year. Think about this property. It's the biggest children's preschool property of all time. It eclipses the mall, they did nearly $80 billion worth of sales on this brand. Historically, it's there's nothing like it. It's been bigger than Star Wars bigger than Harry Potter Bigger than the Avengers, so I've been in the kids business Decades I've never seen a team like this.
Speaker Change: It eclipses the malls they did nearly $80 billion worth of sales on this brand historically, it's there's nothing like it its been bigger than star wars bigger than a Harry Potter a bigger then the Avengers. So I've been in the kids business decades, I've never seen it seem like this we have Linda woolverton.
Speaker Change: Linda Woolverton wrote the Lion King She wrote beauty and the Beast. She wrote Maleficent She did Alice in Wonderland, She's our executive producer we have our show runner Elise Allen She did all the barbies he's doesn't work for Jim Henson and she's a just a powerhouse in her own right.
Andy Heyward: We have Linda Wilberton Linda Wilberton wrote the Lion King She wrote Beauty and the Beast. She wrote Maleficent. She did Alice in Wonderland She's our executive producer. We have our showrunner Elyse Allen. She did all the Barbies. She's done work for Jim Henson and She's just a powerhouse in her own right and then we have John Rivoli as our creative director Who has done the designs for oh my goodness Harry Potter? Spongebob Squarepants Batman Looney Tunes he put all of these consumer products together programs So when you think about that you put this team together you got this incredibly successful property came off copyright, as we know.
Speaker Change: And then we have John Reveille is our creative director, who has done the designs for Oh, My goodness, Harry Potter Spongebob Squarepants Batman Looney tunes. He put all of these consumer products together programs. So when you think about that you put this team together you've got this incredibly.
Speaker Change: For property.
Speaker Change: Came off copyright as we know at the same time to protect ourselves we were able to acquire two very valuable trademarks.
Andy Heyward: At the same time, to protect ourselves, we were able to acquire two very valuable trademarks. Winnie and Friends, and The Hundred Acre Wood. We think it's going to be a hit. and we're very enthusiastic about where it's going. Phenomenal.
When he and friends in the hundred acre wood so.
Speaker Change: We think it's going to be just a smash and we're very enthusiastic about where it's going.
Speaker Change: Phenomenal now you can see in the background there the very interesting unique characters featured in the new we need the two series. The yarn based look I know you talked about this three pillar strategy and approach can you guys build out on that a little bit and why you think this is such a unique addition to the current landscape I guess for children's Entertainment. This is.
Operator: Now, you can see in the background there the very interesting, unique characters featured in the new Winnie the Pooh series, the yarn-based look.
Operator: I know you talked about this three-pillar strategy and approach.
Andy Heyward: Can you guys build out on that a little bit and why you think this is such a unique addition to the current landscape, I guess, for children's entertainment? This is an unusual look. It was sort of a yarn-based look. It's very original. Nobody's seen or done anything like this before.
Speaker Change: Unusual look it was sort of a combination of hand, drawing M. C. G. M. C. G. I and then AI developed characters to have this yarn based look it's very original nobody's seen or done anything like this before it translates into consumer products and we're going to see that there is a big part of our business.
Andy Heyward: It translates into consumer products, and we're going to see that as a big part of our business.
Speaker Change: And then you know, we're just getting into the characters and a much deeper we'll say the neuro diversity of these characters. It's about friendship it's about family. It's about kindness, it's about love it's about loyalty.
Andy Heyward: And then, you know, we're just getting into the characters in a much deeper, we'll say, the neurodiversity of these characters. It's about friendship. It's about family. It's about kindness. It's about love. It's about loyalty. It's just got so many wonderful attributes that we're just very bullish on what this property is going to do.
Speaker Change: It's just got so many wonderful attributes that are where we're just very bullish on what this property is going to do I know you were planning the premier in December for this series is that still the targeted launch date.
Andy Heyward: I know you are planning the premiere in December for the series. Is that still the targeted launch date? We're going to do a launch on. Christmas Eve. It's not going to be the Christmas movie though.
Speaker Change: We're going to do a launch on.
Speaker Change: Christmas Eve, it's not going to be the Christmas movie, though we'll talk about it more as time gets closer but that'll be the 100 year anniversary of the first publication of Winnie-the-pooh.
Andy Heyward: We'll talk about it more as time gets closer, but that will be the 100 year anniversary of the first publication of Winnie the Pooh. forward to it.
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Speaker Change: Do you see very exciting a big catalyst for the company, but you've got a lot more under the Hood I know Stan Lee's portfolio Exl's years is another big one on the agenda. This year can you talk to us a little bit about the plans for the IP or intellectual property under that asset, yes, well as you know we've had this developed through <unk>.
Operator: Now Winnie the Pooh is obviously very exciting, a big catalyst for the company, but you've got a lot more under the hood.
Operator: I know Stan Lee's portfolio, the Excelsior's, is another big one on the agenda this year.
Brian Parisi: Can you talk to us a little bit about the plans for the IP or intellectual property under that asset? Yes. Well, as you know, we've had this developed through Michael Youthlin, who was a very close collaborator of Stan, and in his own right is a very highly respected creator and producer. He did all the Batman movies, every single one. He did all the Batman animated shows, every single one. He was executive producer on them and the vision behind them all. So he's been developing this, and we're very excited where it's going. It's the largest group of characters that Stan Lee ever did.
Speaker Change: Michael useless, who was a very close collaborator of Stan and in its own right is a very highly respected creator and producer. He did all the Batman movies every single one he did all the Batman animated shows every single one he was executive producer on them and the vision behind the ball. So he's been developing this and we're very excited where.
It's going it's the largest group of characters that Stanley ever did he said to me before he passed away where the Avengers leaves off that's where the Excelsior as is going to begin.
Brian Parisi: He said to me before he passed away, where the Avengers leaves off, that's where the Excelsior's is going to begin.
Speaker Change: So I know you recently reported fiscal year and Q4 results are you able to walk us through the top line our highlight numbers there so.
Brian Parisi: So I know you recently reported fiscal year and Q4 results. Are you able to walk us through the top line or highlight numbers there? So we had a really, a very good year and a very good quarter in 2024, and we really finished the year strong. We had our revenue growth of 7% over prior quarter. And if you look at full year 24 versus full year 23, our costs were reduced by 37%. And then that coupled with the revenue growth, we actually reduced our losses by over 50%. And that's millions and millions and millions of dollars that we are saving to the bottom line.
Speaker Change: So we had a really a very good year and a very good quarter in 2024.
Speaker Change: And we really finished the year strong we had a revenue growth of 7% over prior quarter and if you look at full year 'twenty four versus full year 'twenty three.
Speaker Change: Our costs were reduced by 37% and then that coupled with the revenue growth, we actually reduced our losses by over 50% and that's millions of millions of millions of dollars that we're saving to the bottom line. So it's very impactful for our business now.
Brian Parisi: So it's very impactful for our business.
Speaker Change: Now as good as that news is though that the most important thing for us when we talked about it a lot throughout 'twenty four is the trend now we've been talking a lot about the recovery of the business the recovery of the industry and we saw that in 24, our revenue improved every quarter and 24 are losses got smaller and smaller and improve that line and the overall operations.
Brian Parisi: Now, as good as that news is, though, the most important thing for us, and we talked about it a lot throughout 24, is the trend. Now, we've been talking a lot about the recovery of the business, the recovery of the industry. And we saw that in 24. Our revenue improved every quarter in 24. Our losses got smaller and smaller. And we improved that line and the overall operation. very effectively throughout the year.
Speaker Change: Very effectively throughout the year and if you if you squint a little bit more into the numbers, you'll find out that we started moving a lot of our divisions to profitability.
Brian Parisi: And if you squint a little bit more into the numbers, you'll find out that we started moving a lot of our divisions to profitability. What we saw in 2024 is our Beacon Media Division turn to profitability, which was a great feat from where they were in 2023, and we have some really great ideas and expectations for them going into 2025.
Speaker Change: What we saw in 2024 is our Beacon media Division turn to profitability, which was a great feed from where they were in 'twenty three and we have some really great.
Speaker Change: Ideas and expectations for them going into 2025 in your mind, what what is different about 2025 compared to prior years.
Brian Parisi: In your mind, what is different about 2025 compared to prior years? Well, I think I think it's everything we just talked about in terms of the trend. And the trend is so important for us, because what we saw in 24 was this constant growth to get to 25. And we didn't mention that our our production unit, Mainframe Studios is profitable in 24 because they weren't, but they're getting there. And they're going to really really catapult us to a very, very profitable 2025. They're going to be the engine that's going to help us do that. The trend line that we see and that we saw in 2024 is going to continue in 2025.
Speaker Change: Well, Doug I think I think that's everything we just talked about in terms of the trend and the trend is so important for us because what we saw in 24 was this constant growth to get to 25, and we didnt mention that our our production unit mainframe studios as profitable in 'twenty, four because they weren't but theyre getting there and theyre going to really really catapult us to a very.
Speaker Change: Very profitable 2025, they're going to be the engine, that's going to help us do that that trend line that we see.
Speaker Change: And that we saw in 'twenty 'twenty four is going to continue in 'twenty five and I can say that our revenue is going to grow by double digit growth I mean, we're effectively a startup company, where we're kind of an emerging startup company. Most of the investment we made in when we started to grow is in 'twenty, one and 'twenty two as two or three years ago.
Brian Parisi: And I can say that our revenue is going to grow by double digit growth. I mean, we're effectively a startup company. We're kind of an emerging startup company. Most of the investment we made and when we started to grow is in 2021 and 2022. That's two or three years ago. So yes, we did absolutely incur losses in those years. We did absolutely incur some negative cash flow because we are investing in the business. And really we're back and we've recovered from a difficult 23 and early 20.
Speaker Change: So yes, we did actually incur losses in those years, we did absolutely incur some negative cash flow because we are investing in the business and really what we're back and we have recovered from a difficult twenty-three in early 2024.
Speaker Change: Well I would add to that if I may that the mainframe as Brian said, how well you know that's going to drive revenues for this year. They have 90% of their revenues in 2025 already contracted.
Andy Heyward: I would add to that, if I may, that Mainframe, as Brian said, how, you know, that's going to drive revenues for this year, they have 90% of their revenues in 2025 already contracted and significant visibility into 26, which we think will be bigger than 25.
Speaker Change: And a significant visibility into 26, which we think will be bigger than 25 I.
I know a cartoon studios are raised a considerable amount of money recently or over the past few quarters. This obviously leads to dilution and as a retail investor a lot of times very sensitive to that word or that topic can you talk to us a little bit about the strategy here and how this funding is going to look going forward yes.
Operator: I know Kartoon Studios raised a considerable amount of money recently or over the past few quarters. This obviously leads to dilution. And as a retail investor, a lot of times very sensitive to that word or that topic.
Brian Parisi: Can you talk to us a little bit about the strategy here and how this funding is going to look going forward? Yes, it is dilutive, but the reward is going to be much greater down the road. You know, we don't have any long term debt on the books and not having a debt service to deal with every month or every quarter is extremely valuable to us from a cash flow perspective and a financial results perspective. And we rely on the equity markets to raise capital. And this last raise we did is the whole purpose of it was to get us and kind of bridge us to profitability that we're going to achieve in 2025.
Speaker Change: It is dilutive, but the reward is going to be much greater down. The road. We don't have any long term debt on the books and not having a debt service to tend to deal with every month or every quarter is extremely valuable to us from a cash flow perspective, and a financial results perspective, and we rely on the equity markets to raise capital and this last rate as we did.
Speaker Change: It is the whole purpose of it was to get us in kind of bridge us to profitability that we're going to achieve in 2025.
Speaker Change: So we did it in late December I mean, it's right before Christmas and we raised enough capital again to bridge us to you know where the business has already turned around and and it will take us a profitability to where we're not going to need to go back to the capital markets. Any further I also want to just if I can add on to what Bryan.
Brian Parisi: So we did it in late December. I mean, it's right before Christmas. And we raised enough capital, again, to bridge us to, you know, where the business has already turned around and it will take us to profitability to where we're not going to need to go back to the capital market.
Andy Heyward: I also want to just, if I can, add on to what Brian said in your question about dilution. Of course, dilution is an issue for everybody. I think I'm personally the largest shareholder, so I suffer the most dilution. But when we do dilution, when we issue new shares, we're doing so because we are using the proceeds of that either to acquire something that is accretive because of its own earnings, or we are investing in the company to make the company more valuable than the dilution that we would be otherwise incurring from the issuance of those shares.
Speaker Change: And your question about dilution of course dilution as an issue for everybody I think I've personally the largest shareholder so I suffer the most dilution, but when we do dilution when we issue new shares we're doing so because we are doing the using the proceeds of that either to acquire something that is accretive because of its own earnings.
Speaker Change: Or we are investing in the company to make the company more valuable than the dilution that we would be otherwise and an inquiry from the issuance of those shares.
Speaker Change: Andy Brian This has been very informative obviously a lot going on this year, we've talked about the portfolio. The distribution. Obviously the talent you have a cartoon studios you guys. If you have any questions for the leadership team that we werent able to get to today feel free to leave them in the comments section blow hit the like button feel free to subscribe Andy Brian.
Operator: Andy, Brian, this has been very informative. Obviously a lot going on this year. We've talked about the portfolio, the distribution, obviously the talent you have at Kartoon Studios.
Operator: You guys, if you have any questions for the leadership team that we weren't able to get to today, feel free to leave them in the comment section below. Hit the like button. Feel free to subscribe.
Thank you so much for your time, we look forward to having you back soon.
Andy Heyward: Andy, Brian, thank you so much for your time. We look forward to having you back soon. Thank you, Bryce. Thank you.
Speaker Change: Thank you.
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