4Kids Entertainment, Inc. Q1 2010 Earnings Call Transcript

4Kids Entertainment, Inc. Q1 2010 Earnings Call Transcript
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4Kids Entertainment, Inc. (KDE)

Q1 2010 Earnings Call

May 5, 2010 11:00 am ET

Executives

Garth Russell - Investor Relations, KCSA Strategic Communications

Bruce R. Foster - Chief Financial Officer

Alfred R. Kahn - Chairman and Chief Executive Officer

Presentation

Operator

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Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the 4Kids Entertainment first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session.

(Operator Instructions) I would now like to turn the call over to Garth Russell of KCSA Strategic Communications. Please go ahead, sir.

Garth Russell

Thank you Brandy and good morning, everyone. Welcome to 4Kids Entertainment first quarter 2010 conference call. Before we begin, I must state that the information contained in this conference call other than historical information consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements.

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors beyond the company’s control including general and economic conditions, consumer spending levels, competition from toy companies, motion picture studios and other licensing companies, the uncertainty of public response to the company’s properties and other factors that could cause actual results to differ materially from the company’s expectations.

At this time, I would like to now turn the call over to Bruce Foster, Chief Financial Officer of 4Kids Entertainment. Bruce, the floor is yours.

Bruce

R.

Foster

Thanks Garth and good morning. I’d like to spend the next few minutes with you reviewing the company’s first quarter of 2010 financial results. Revenues by reportable segment for the company as a whole are as follows: in the licensing segment, first quarter of 2010 revenue was approximately $3.3 million as compared to $5.6 million in 2009, a decrease of approximately $2.3 million.

These decreased revenues were primarily attributable to reduced licensing revenues on the Monster Jam and AKC Properties domestically of approximately $1.5 million and $0.4 million respectively as well as reduced licensing revenue on the Teenage Mutant Ninja Turtles property worldwide of approximately $0.4 million.

In the advertising, media, and broadcast segment, the first quarter of 2010 revenue was approximately $0.1 million as compared to $0.8 million in ’09, a decrease of approximately $0.7 million. This decrease was primarily attributable to a decline in rating which caused a decrease in the sale of network advertising time in the CW4Kids of approximately $0.3 million as well as decreased revenue from the sale of internet advertising on the company’s websites of approximately $0.4 million.

In the television and film distribution segment, first quarter of 2010 revenue was approximately $1 million as compared to $2.5 million in ’09, a decrease of approximately $1.5 million. This decrease was primarily resultant from decreased international broadcast sales from the Dinosaur King and Yu-Gi-Oh! television series of approximately $0.8 million and $0.2 million respectively.

Decreased contract revenue from the Huntick television series of approximately $0.1 million as well as decreased revenue from the Pokémon movie approximately $0.1 million, all partially offset by increased contract revenue from the Yu-Gi-Oh! television series of approximately $0.2 million.

In the trading card and games segment, there was substantially no revenue in the first quarter of 2010 as compared to $0.4 million in ’09, a decrease of approximately $0.4 million. This was primarily attributable to decreased retail sales which were negatively impacted by diminished popularity of the Chaotic property accompanied by the continued global economic downturn.

As a result, many retailers maintained reduced inventory levels and the company’s trading card and game distribution segment as negatively impacted by the resulting cutback by the company’s distributors on orders placed with TC Digital. Additionally, due to overall lack of demand for the Chaotic property, the company has granted allowances and promotional markdowns to these distributors equal to approximately $0.3 million for the three months ended March 31, 2010.

Turning to the expense side, selling, general, and administrative expenses decreased approximately $5 million or 41% to approximately $7.1 million for the three months ended March 31, 2010 when compared to the same period in ’09. The decrease was attributable to broad cost cutting initiatives implemented throughout the company including decreased personnel related costs of approximately $3.7 million, decreased advertising and marketing costs of approximately $1 million, and decreased international [selling] expenses of approximately $0.8 million.

Cost of sales of trading cards represents finished goods inventory relating to the Chaotic trading card game. Cost of sales decreased $0.1 million to approximately $0.4 million for the three months ended March 31, 2010 when compared to the same period in ’09. The decrease was primarily attributable to the overall decrease in trading card revenue.

Based on the diminished popularity of the Chaotic property, the company’s trading card and game distribution segment experienced a reduction in orders from TC Digital distributors.

Amortization of television and film costs for the first quarter of 2010 was approximately $1.4 million as compared to $1.2 million in ’09, an increase of approximately $0.2 million. The increase in amortization of film costs for the three months ended March 31, 2010 when compared to the same period in ’09 was primarily due to the increased amortization of the Chaotic television series offset by decreased amortization of the Teenage Mutant Ninja Turtles and Yu-Gi-Oh! television series.

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