Kartoon Studios - Earnings Call - Q4 2024
March 31, 2025
Executive Summary
- Q4 2024 revenue was $9.40M, up 8.2% sequential and 7.0% year over year, driven by broad-based momentum and strong production services at Mainframe; operating loss improved materially on the back of cost discipline.
- Management reiterated an expectation to reach profitability in 2025; Mainframe has “over 90%” of 2025 revenue already contracted and a backlog into 2026 expected to surpass 2025 levels.
- CFO highlighted continued double‑digit revenue growth in 2025 and a leaner expense structure with no long‑term debt, positioning TOON to capitalize on contracted revenue and licensing/merchandising initiatives.
- Strategic catalysts in 2025–2026 include Winnie‑the‑Pooh’s Hundred Acre Wood franchise and Stan Lee Universe’s The Excelsiors, alongside Kartoon Channel’s global expansion and top user rankings in Apple’s app store.
What Went Well and What Went Wrong
What Went Well
- Revenue resilience: Third consecutive quarterly increase; Q4 revenue rose 8.2% QoQ and 7.0% YoY, with production services revenue up 44.7% YoY at Mainframe.
- Cost efficiency and P&L trend: Operating expenses fell 66.0% YoY in Q4 and 57.4% for FY 2024; operating loss improved 88.0% YoY in Q4 and 76.5% for FY 2024.
- Quotes underscoring execution: “Virtually all of our operating units have reached profitability, including tentpole children’s broadcaster, Kartoon Channel, tentpole family and kids advertising unit, Beacon Media, and Frederator Networks.” — Andy Heyward, CEO.
What Went Wrong
- Profitability still negative in Q4, with margins below zero and EPS loss; net income and EBITDA remain negative pending 2025 profitability inflection (see Financial Results).
- Liquidity and covenants: As of Q3 2024, the company disclosed covenant breaches on the revolving facility and early repayment of equipment leases; management flagged substantial doubt about going concern at that time pending capital actions and cost controls.
- Customer concentration risk: Four customers represented 77.2% of Q3 revenue; concentration remains a structural headwind to revenue stability.
Transcript
Moderator (participant)
Okay, guys, that's right. 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.
Andy Heyward (Chairman and CEO)
Thank you. Thank you for having us.
Moderator (participant)
Can you talk to us a little bit about why right now you feel Kartoon Studios represents a great value proposition to investors?
Brian Parisi (CFO)
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. 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. We are across all of those divisions. We are in a very durable kids' animation market. We sit, I think, in a very great sweet spot. 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 Studios up in Canada, which is brand new IP that we're excited about. Just like if you look at a Disney or a 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. We're a small-cap company. 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. We're going to see that in the stock price. If we execute right, the rest will take care of itself. You know, and then the third thing I look at is really the discipline around the financials.
We have seen the trajectory in 2024 and into 2025. We are doing all the right things. We need to stay disciplined and focused in our ability to do that. Really the fourth thing we look at in terms of why we are 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 2023 when I started, you know, I realized immediately that the pedigree, the experience, and the knowledge of this team is world-class. 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.
Moderator (participant)
Now, Andy, I know we had you on the program recently talking about Winnie the Pooh. Why are you guys so bullish for the upcoming year here?
Andy Heyward (Chairman and CEO)
It's hard not to be excited about Winnie 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 them all. They did nearly $80 billion worth of sales on this brand. Historically, there's nothing like it. It's been bigger than Star Wars, bigger than Harry Potter, bigger than the Avengers. I've been in the kids' business decades. I've never seen a team like this. We have Linda Woolverton. 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 showrunner, Elise Allen. She did all the Barbies. She's done work for Jim Henson, and she's just a powerhouse in her own right.
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. When you think about that, you put this team together, you got this incredibly successful property, came off copyright, as we know. At the same time, to protect ourselves, we were able to acquire two very valuable trademarks, Winnie and Friends and the 100 Acre Wood. We think it's going to be just a smash, and we're very enthusiastic about where it's going.
Moderator (participant)
Phenomenal. 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. 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?
Andy Heyward (Chairman and CEO)
This is an unusual look. It was sort of a combination of hand drawing and CGI and 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 as a big part of our business. 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.
Moderator (participant)
I know you were planning the premiere in December for the series. Is that still the targeted launch date?
Andy Heyward (Chairman and CEO)
We're going to do a launch on 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.
Moderator (participant)
Yeah, looking forward to it. Now, Winnie the Pooh is obviously very exciting, a big catalyst for the company, but you've got a lot more under the hood. I know Stan Lee's portfolio, the Excelsiors, 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?
Andy Heyward (Chairman and CEO)
Yes. As you know, we've had this developed through Michael Uslan, 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. He has been developing this, and we're very excited where it's going. It's the largest group of characters that Stan Lee ever did. He said to me before he passed away, where the Avengers leaves off, that's where the Excelsiors is going to begin.
Moderator (participant)
I know you recently reported fiscal year and Q4 results. Are you able to walk us through the top line or highlight numbers there?
Brian Parisi (CFO)
We had a really very good year and a very good quarter in 2024. We really finished the year strong. We had our revenue growth of 7% over prior quarter. If you look at full year 2024 versus full year 2023, our costs were reduced by 37%. That coupled with the revenue growth, we actually reduced our losses by over 50%. That is millions and millions and millions of dollars that we are saving to the bottom line. It is very impactful for our business. As good as that news is, though, the most important thing for us, and we talked about it a lot throughout 2024, is the trend. We have been talking a lot about the recovery of the business, the recovery of the industry, and we saw that in 2024.
Our revenue improved every quarter in 2024, and our losses got smaller and smaller, and we improved that line and the overall operations very effectively throughout the year. If you squint a little bit more into the numbers, you'll find out that, you know, we started moving a lot of our divisions to profitability. What we saw in 2024 is our Beacon Media division turned to profitability, which was a great feat from where they were in 2023. We have some really great ideas and expectations for them going into 2025.
Moderator (participant)
In your mind, what is different about 2025 compared to prior years?
Brian Parisi (CFO)
I think it's everything we just talked about in terms of the trend. The trend is so important for us because what we saw in 2024 was this constant growth to get to 2025. We didn't mention that our production unit, Mainframe Studios, was profitable in 2024 because they weren't, but they're getting there. They're going to 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. 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.
is two or three years ago. Yes, we did absolutely incur losses in those years. We did absolutely incur some negative cash flow because we were investing in the business. Really, we are back, and we have recovered from a difficult 2023 and early 2024.
Andy Heyward (Chairman and CEO)
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 a significant visibility into 2026, which we think will be bigger than 2025.
Moderator (participant)
I know Kartoon Studios raised a considerable amount of money recently or over the past few quarters. This obviously leads to dilution. 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?
Brian Parisi (CFO)
Yes, it is dilutive, but the reward is going to be much greater down the road. You know, we do not have any long-term debt on the books. 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. We rely on the equity markets to raise capital. This last raise we did, the whole purpose of it was to get us and kind of bridge us to profitability that we are going to achieve in 2025. We did it in late December, and it was right before Christmas.
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 markets any further.
Andy Heyward (Chairman and CEO)
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. 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.
Moderator (participant)
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. 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. Andy, Brian, thank you so much for your time. We look forward to having you back soon.
Andy Heyward (Chairman and CEO)
Thank you, Brad].
Brian Parisi (CFO)
Thank you.