Kartoon Studios Inc. (TOON) Earnings Call Transcript & Summary

All right. You like the sound?

Loved it.

All right. And Andy, I am a son of 2 optometrists and your eyewear selections always make my day. I'll say that.

Thank you.

Yes. So everyone, as I mentioned, we are joined by one of the most exciting companies out there. It's got an amazing stock symbol. I always give companies credit if they have a good creative stock symbol. It's TOON, T-O-O-N. This is Kartoon Studios. We're joined by CEO, Andy Heyward, CFO Brian Parisi. Guys, how are we doing today?

Fantastic. We're doing wonderful. The rain has stopped in L.A., and it's bright and sunny and it's all good.

All right. Benzinga is hosting an event in L.A., it's a cannabis investing oriented event, so a little bit of a different world. But I will be out there in about 2 weeks, so let's hope that rain holds.

I'll make sure to tell my 16-year-old daughter.

There you go. Awesome.

Well, gentlemen, there's a lot to talk about today. There's been a flurry of news coming out of Kartoon Studios. I want to talk about a recent release covering the global streaming platform. It's been a few years now, a couple of years that you've been working on your streaming product. You put out some streaming news recently. Please tell us what is that news. And I'll say we're moving out of earnings season, and we saw difficulty for a lot of these streaming platforms. It seems like you're in a bit of a different position. So tell us what sets your streaming business apart.

Well, our streaming business is Kartoon Channel! and it's focused on kids, as you know. We announced today subscriber growth, records, record revenues and record global coverage. We started off 3.5 years ago when we launched the channel, and we arrived at breakeven in quarter 4 of '23, and we've got a tremendous amount of momentum going forward -- channels on it, just a real growth there right now. So we're all very, very pumped up and excited about it. The management is extraordinary. And then internationally, we've been building out the channel, and we're in 61 territories right now, 1.8 billion viewership covered, and we just see continuing growth going forward with it. It's become a staple of our business and our company. And the importance of it is the synergy that we now have a platform that we control, which we can put our content on.

And Andy, let me just follow up for a background question. For people who may not be familiar, can you just give us some of the titles that are on that streaming platform?

Well, they range from our in-house produced channels like Rainbow Rangers and Stan Lee's Superhero Kindergarten, starring Arnold Schwarzenegger to shows that we acquire. They range from Barney to Peppa Pig to Roblox Rumble we make, but other shows that we acquired that are very carefully curated for content. The defining factor of our channel is safety, safety, safety. There's a lot of stuff out there. It's the Wild West. I'm a parent. I'm very concerned about what things our kids are exposed to. And we want to have positive programming out there. And the audience has reacted to this. If you go to the Apple App Store and look at the user rankings, these are all done by the users. We stand at 4.9 out of 5 stars. We're ahead of Netflix. We're ahead of Disney+. We're ahead of Max. We're ahead of Cartoon Network. We're ahead of Nickelodeon. We're really -- we're the highest rate ranked of all of the various services that are out there for kids.

Awesome. Brian, I'd like to go over to you. As CFO, you are newer to the business. What does the journey look like over the past few months?

Yes. Look, I mean, how many CEOs wear the colorful tie and the glasses to match. I mean it speaks to the creativity and the energy of this company. And look, Luke, I worked with some of the largest entertainment companies in the world. Recently, I was the CFO at the NFL, worked at the largest music promoter in the world Live Nation. And then some of the biggest movie studios, but this company has incredible energy and creativity. So really part of my challenge, Luke, coming in is harness that sort of chaos and create some business sensibility around the business. And really kind of the mandate for me coming in was pretty clear. It's among all the items, really, there were 3 main things. It was strengthen the balance sheet, focus on working capital, focus on cash flow, get the right metrics for the system for success. Second one was revenue. So look across our enterprise, how can we maximize revenue? And part of that exercise was going to all the business leaders. And frankly, we weren't telling them what the metrics needed to be. We made it collaborative. We said, okay, you tell us what you think your business for success is. And let's rally around that and let's have it as a metric going forward. And then lastly, it's really driving profitable growth EBITDA because really, if you do that in the end and your balance sheet gets healthier, your cash flow gets healthier. All those metrics are important. And the company was doing it before, but I think we're doing a much better job of formalizing that. We've had many strategy meetings already. We have a cadence of monthly strategy meetings, again, to focus on those KPIs, focus on the growth factors. Everything we're going to talk about today, I think, is going to just put more credence to our ability to grow the business.

Brian. And I've been at our business, Benzinga for 11 years now. And we recently just brought in a new CFO and did not to the full extent of the exercise that you did, but did some of those exercises like going to the various business units. And I can speak to the impact, I mean, very firsthand and very recently, within the past few months that this has had on our business. So awesome to hear, Brian. Andy, I want to bring it back to you. AI has been a big market headline. I would say the big market headline over the past few months for all of us stock market oriented folks. What is Kartoon Studios doing with AI, if anything?

AI is a very big and important focus for us. And I'll start by saying we licensed our Stan Lee brand to Marvel and the Walt Disney Company a year ago for use in their movies. Stan Lee is sadly passed away, but he will continue to live on with us through a variety of different means, including digital and AI. We have a huge emphasis going on with the AI in our production and cost savings there. Various creation of models, dubbing services, writing pretty much every area of production is being touched by AI, and it's enabling us to do incredible economies. We're working with some of the most important people in this space right now.

It's great to hear. One of the things that we ask as stock market people is when we get these market trends that pop up is how real are they? And one of the big barometers that we like to look at Benzinga is, are real companies actually using the technology. And so it's great to hear stories from folks like yourself who are saying, yes, this is actually something that's a part of our business.

I can give you a quick concrete example. Forgive me for interrupting. Let me give you a quick concrete example. When we sell our shows overseas, the single biggest cost is dubbing, putting them into the various languages around the world. That cost has gone down by, and will be going down by, I can't tell you the exact dollars, but 50, 70, maybe even 90% in the coming year because of AI. It's an incredible tool for us. And it's being used in every area of our production, as I said, the creation of our model sheets. Scripts are going to be done in AI.

Yes. And it's huge. A great tangible example. I want to move on to the Llama Llama franchise. I know there was some news out about Llama Llama recently. Andy, can you tell us what that was?

Yes. Well, we're doing a promotion with Kohl's, a retail promotion. And that's sort of a data point of the stability and growth of the brand. One of the beautiful things about kids entertainment is if you have a good property, it becomes evergreen. I remember when I started my career, I was working as a writer at Hanna-Barbera, writing on the Flintstones. You can go today years later to the drug stores and you're going to Flintstones vitamins, you're going to find Pebbles and Bamm-Bamm cereals still in the marketplace. Llama has sold somewhere between 25 million and 30 million books. It is a staple of children's entertainment and the brand is going to be a growing workhorse for us for years and years to come. And the retail announcement that we just did with Kohl's is a testimony to that. The original series we produced, it continues to perform on Netflix. It's also on our own service Kartoon Channel!.

Awesome. And I did see that press release, and I saw a Llama Llama Easter egg in there, perfect time of the year. I saw what I'm like, I read a little note, I'm like, I got to pick that one up. I've got -- I don't really have children in my life that are that age, but I think I would love that. And that was a little peaceful read for myself. Andy, you teased about Stan Lee. You mentioned Stan Lee, obviously, an amazing creator. I think the general public is very aware of the creation that Stan Lee is right into this world. From our stock market view, Stan Lee has created billions and billions and billions of dollars of value in worth. Tell us what are you doing with Stan Lee universe?

Yes. Well, I'm only going to be able to give you a little tease about it today. We're working with one of the largest companies in the world and we are working across every area that we touch, content with Stan Lee, retail, gaming, music, and upcoming digital sales. Stan, as you know, is the greatest and most successful, most prolific creator of all time. 14 of the top 50 box office films of all time, including the # 1 or 2, I'm not sure, movie of all time, Avengers Endgame were created by this one man, obviously, Spider-Man and Iron Man and Incredible Hulk, The Guardians of the Galaxy and Black Panther, all of them. So what an incredible creator and we've been so fortunate to become the steward of his IP. His name, his lightness, his voice, his signature, all of the merchandise surrounding him post Marvel and all of the IP that he created post Marvel. It's a huge responsibility, and it's an incredible privilege and we have huge things coming forth from him. In the very near future, that'll be announced.

All right. Two things I really liked out of that. I love the responsibility and privilege. I would like the tease as well. Brian, let's go to you to close it out. 2024, a year ahead, you're newer to the business, what does that look like for Kartoon Studios?

Well, look, I think all the things that we've talked about here today are sort of the catalysts that we're going to see in the coming year. Luke, I look to be on the show in a year and invite us back if you'll have us because I think we're at an inflection point right now. I think we've got the industry coming up, and I'm sure you're very -- you're well aware of all the strikes are over, streamers are back on, all the sort of the engine is moving again. And we are well positioned across the entire ecosystem, whether it's to pull the levers as needed, whether it's our creating the content like Stan Lee, using our channel, going international. We didn't really even talk much about our animation studio in Canada that is doing fantastic. But I think in the next year, we have the tailwinds behind us and the catalyst to really have a great '24 and beyond.

Awesome. Brian, Andy, thank you for taking the time. Thank you for giving us the updates. Again, the company is Kartoon Studio. The ticker's one of my favorites, T-O-O-N, wish you gentlemen a wonderful rest of the day.

You too. Thanks, Luke.

Thank you, Luke.

All right, everyone. This is All Access. That's exactly what we try to do with this segment. We want to bring you the companies that are interesting. We want you to hear directly from the companies themselves. Not just all of us talking about them. We like to listen to ourselves talk, but we found, you readers have told us, it's more impactful here, right directly from the companies, and that's what Benzinga All Access is all about. Happy trading, happy investing.