Earnings Transcript for GNUS - Q4 Fiscal Year 2018

Operator: Greetings, and welcome to the Genius Brands International Business Update and Year-end Investor Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Michael Porter, President of Porter, LeVay & Rose. Thank you. You may begin.

Michael Porter: Good morning. Thank you, Matt. Good morning, ladies and gentlemen. Certain statements in this press release 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.

Andy Heyward: Good morning. Thank you, Michael. Yesterday, Genius Brands released its annual 10-K. I'm very excited today to talk about it and as well to share additional news regarding our flagship brand Rainbow Rangers. Before jumping to Rainbow Rangers, however, I want to first share some of the important events occurring with the Company this year, per our 10-K. Our mission at Genius Brands is a simple one. It is to create long-term value and assets for our shareholders, through the creation and buildout of a catalog of animated children's programs. Animated characters and programs are time tested assets that historically have proven to be extraordinarily valuable and impervious to market forces. Getting there has often been a bumpy road of ups and downs along the way, but those who have persevered, have inevitably created great wealth for themselves and their investors. Children’s cartoons stand the test of time, and over and over again, those animation catalogs end up sold for a lot of money. The animation catalog being built now at Genius Brands is no different, and we see a rich outcome for those with patience. As many of you know, the first cartoons I worked on personally were the Flintstones, the Jetsons, and Scooby Doo. They are still all around today, they are still selling toys and cereals and backpacks and vitamins, and they are many times more valuable today than when they were first created. Even a better example I like to point out is Tom and Jerry, which was first created for movie theaters in 1939, and yet today remains more popular than ever. Cartoons travel, not only are they impervious to market forces like the price of gold, or oil, or political parties, trade wars, interest hikes, government shutdowns, Brexit, et cetera, they also live independent of whatever distribution system, and new technologies arrive. They are as valuable today on televisions, on game platforms, laptops, mobile devices, as they were when they first came out in theaters.

Operator: Great. Thank you. Our first question here is from Jim McIlree from Chardan Capital. Please go ahead.

Jim McIlree: Yes, excellent, and good morning, Andy. Andy, can you talk about, at least generally, what plans you might have for additional content, beyond the Rainbow Rangers and Llama Llama franchises? I'm just trying to understand how you think about continuing to build out the catalog?

Andy Heyward: Well, I'm going to say, we have two very strong and powerful brands coming forth. When I say powerful brands, I say in the magnitude of Rainbow Rangers and Llama Llama, ones which will be very widely licensed, which will have a lot of products coming into the marketplace, and which will be on major broadcasters. We plan to announce one of them prior to licensing show, which will be coming up in 60 days in Las Vegas. We will announce it at the time with a master toy licensee. And we expect to have a broadcaster at the same time as we announce that. We try to make our mix in a way that our catalog and our business is complementing each other or not cannibalizing each other. As you know, we have a show for toddlers and a show for preschoolers right now that is leading the charge for us. This will be a show in a different category aimed at -- the first one will be a show aimed at boys and where we see a market hull. We stay very close to retail. We have a very close relationship with Walmart, with Target, with Amazon, we see where the hulls are going to be, and we program and take our opportunities based on that. So, the first one will be announced, as I said, prior to licensing the show, the second one will be shortly thereafter. And we see them both as having very strong potential, both internationally as well as in the U.S. and with a major consumer products component to them.

Jim McIlree: And I want to be sensitive to your relationship with Nick Jr. and Rainbow Rangers. But, if I assume the worst and they didn't pick up, the show for a second season, do you have options? Would you be able to go somewhere else with the show? Are you contractually able to go somewhere else in the unlikely event that doesn't get picked up for Season 2?

Andy Heyward: Yes, of course. I mean, from the moment that the show went on the air, we started developing options back in November, if we needed to be. And we have two very strong parties that are interested in the show. They've come to us; we haven't come to them. They've seen the performance. It's been talked quite a bit about in kids screen, the various toy magazines, the various licensing magazines. The marketplace is well aware of the show. And in the unlikely and I'm going to put very unlikely events that they were not to be picked up for a second season on Nick. We will announce immediately thereafter where it's going. I don't see that as the case. So, I frankly was hoping to announce it on this call today. But, as I said, when some that reports to me, things will be different. Unfortunately, I don't program Viacom and Nickelodeon.

Jim McIlree: Right, understood. And then, let's just assume that it gets picked up again for Season 2 by Nick. Is that something that you would deliver this year or would that be for delivery next year?

Andy Heyward: That'll be this year. And candidly, we've already had dialogue about the delivery date. Nick has already been requesting that information for us what would be the schedule of delivery? So, that's all -- we're well down the road in that conversation with Nickelodeon. We're not just sitting here by the telephone and hoping that somebody's going to call us.

Operator: Our next question here is from Jonah Presworsky, a private investor. Please go ahead.

Unidentified Analyst: The Stan Lee show that we're working on, we were talking about that something's going to happen. What's the story with that show?

Andy Heyward: We have a very important property from Stan Lee. It was the last one that he created before he passed away. We're not in a position to talk about that on this call; when we are, we will announce it.

Unidentified Analyst: And what about the Llama Llama. According to the e-mail newsletter you sent out last time, there were some books that were selling in this quarter in some Dollar Stores?

Andy Heyward: Yes. That is correct. I don't have that information off the top of my head. But, as with all, they are the activity sets and the coloring books that are selling at Dollar Tree and Michaels. As you know, Llama Llama is not a book that we created in our own in house; it was created by a author named, Anna Dewdney and the publishing rights remain with Penguin. However, we were able to go to them and get the rights to license the non-story book. So that means coloring books, activity books, pop-up books, all of these different categories and those are coming out and they will continue to come out. I should add that Llama Llama, since the show has gone on the air, the books which were already quite successful, have just exploded exponentially. When we first started with them, they had sold 11 million books and they've sold over 20 million books now.

Unidentified Analyst: So, when is spinoff from Rainbow Rangers coming out if there is one?

Andy Heyward: I can't talk about that yet either. I will -- as soon as we conclude our dialogue with Nickelodeon, I'll be happy to share all -- more than happy, I will be announcing everything.

Unidentified Analyst: And what about Llama Llama? In reference to Llama Llama, how -- when is the season for that is supposed to be signed up, also within the next 60 days or…?

Andy Heyward: No. We expect a third season of that. But, that will be after deliveries occur in the fourth quarter, they'll announce that. I am talking anecdotally that this is a top performing preschool show on Netflix. And I have no reason to doubt that. I've heard it from a number of people internally there.

Unidentified Analyst: And the Nielsen numbers, how are they doing? I know we’re better than we were before and compared to the shows that have come before it. But, how are we doing -- based on Nielsen, how many people are watching on Sundays worth and the weekend worth in the beginning?

Andy Heyward: Llama Llama, there are no Nielsen numbers available to anybody; Netflix doesn't release them and Nielsen doesn't release them per their agreement with Netflix. So, the only information that's available is anecdotal evidence that’s shared with us from Netflix people. As far as Rainbow Rangers, the numbers continue to be very good. We -- the thing they look for most importantly is retention of audience. And as I said, with very rare exception, every week, week in and week out, regardless of the time period we've been in, we've retained and improved our audience. That's been against key demos, girls 2 to 5; kids, overall 2 to 5; and kids, 6 to 11. We also get a tremendous amount of parent co-viewing. And the mix has been a very even handed mix between boys and girls. So, the numbers are all good. Right now, Nickelodeon is managing the episodes that we've given them. So, they're not putting out the remainder of the new episodes until consumer products hit the stores because they want to have maximum impact. Nickelodeon, by the way, is a meaningful participant in all of the consumer products of Rainbow Rangers.

Unidentified Analyst: And are there any other exclusive items for stores like Walmart?

Andy Heyward: There are, but I can’t recall off the top of my head, which they are. There'll be some -- well, there'll be a bunch of things in this third and fourth quarter that will be exclusive. There'll be some puzzles that'll be coming out at Barnes & Noble from Kids Preferred with Llama Llama. There will be some Rainbow Rangers t-shirts coming out exclusively through Bentex. They'll be Llama Llama Christmas ornaments and stockings through Kurt Adler. And there will be some -- there will be a Llama Llama -- Mama Llama animatronic plush that is a reorder from a test that Home Depot did which blew out completely. There will also be some -- there will also be some Rainbow Ranger vitamins that are coming out in August. There will be Rainbow Ranger costumes coming out. There will be Spirit Halloween costumes coming out exclusively that'll be in 1,200 different doors at the Spirit pop-up stores. There will be Rainbow Ranger costumes coming from these guys and there will be a Rainbow Rangers bike in July from Dynacraft and there will be some Rainbow Rangers -- well, that's about all I can remember off the top of my head. I think there will be some kids design electronics as well. But that will -- we'll be announcing all of that.

Unidentified Analyst: And the last question is, when do you think the company is going to get profitable, which quarter?

Andy Heyward: That's a good question. And I think what we really will look for to be the big turn there is when the all of the Rainbow Rangers products are in the marketplace and the Llama Llama products are in the marketplace. And that is the Holy Grail of everybody in this business, whether it is Genius Brands or the Walt Disney Company. It all comes back to the consumer products. The programs are the locomotives that pull all the cars in the train. The people that see the shows and then the kids that become engaged in the play patterns, the aspirational and empowering aspects of these play patterns, go out and buy the products. and when the products are in the marketplace, that's what drives profitability and that’s what drives value. As I said, we've got over 400 products coming into the marketplace now. That's a massive number. in this business for a long time and we're up there with anybody in any category. Once these products hit, there will be -- that will be the answer to your question.

Unidentified Analyst: So, that means within the third or fourth quarter, which one -- probably fourth quarter is what you think realistically or further than that?

Andy Heyward: I said, as they're starting in the third quarter, there will be some in the fourth quarter; the balance will come forth after that in the first quarter. And the guarantees will be earned out and then monies will flow afterwards.

Unidentified Analyst: Okay. So, it's not till 2020 that the Company will be profitable realistically it seems like. Correct?

Andy Heyward: I don't want to be or this or that. I can tell you that our part is delivering all of -- is delivering the programs, getting them on the air, getting the licensing done, getting the products into the marketplace. Presumably, the kids will buy the products. That's how it works.

Unidentified Analyst: Thank you very, very much for your time. I really appreciate it.

Andy Heyward: Welcome.

Operator: If there are no further questions, I'm going to turn the floor back to Mr. Heyward for any closing comments.

Andy Heyward: No closing comments. Thank you. And we'll keep everybody informed as we get news with Rainbow Rangers and as we announce our next upcoming show.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.