Kartoon Studios — Second Quarter 2026 Earnings Summary

Financial Performance

• Revenue for the second quarter of 2026 was $5.8 million, a 43% decline from $10.3 million in the prior-year period, driven by lower production services revenue and project timing at Mainframe Studios.
• Total expenses decreased 32% to $9.2 million, with direct operating costs down 35% to $4.6 million and general and administrative expenses down 28% to $4.5 million.
• Loss from operations was $3.4 million for the quarter, an increase of $0.2 million from the $3.2 million loss in the prior-year period.
• Other income, net, was $31.1 million compared to an other expense, net, of $(2.9) million in the prior year, primarily due to a $39.2 million non-recurring gain from litigation settlements partially offset by a $4.0 million non-operating charge.
• Net income was $27.0 million for the quarter, compared to a net loss of $(6.3) million in the prior-year period.
• Cash and marketable securities totaled $40.5 million as of June 30, 2026, with no long-term debt on the balance sheet.
• An additional $39.2 million remains in escrow from litigation settlements, to be distributed after legal fees are determined and paid.
• Deferred revenue was $2.7 million (current) and $3.4 million (non-current) as of June 30, 2026, down from $4.4 million and $3.4 million respectively at year-end 2025.

Guidance and Future Outlook

• The company anticipates the launch of the Hundred Acre Wood franchise in February 2027, followed by properties from the Stan Lee Universe.
• Management expects the strategic transformation to improve profitability and expand ownership economics as initiatives scale in 2027.
• The company is concentrating investments on high-profile animated franchises where it owns or controls underlying rights to participate across content distribution, licensing, consumer products, publishing, digital commerce, and brand extensions.
• Future growth is expected to be driven by the monetization of owned intellectual property across multiple platforms rather than the historical reliance on production services.

Business Segments and Product Lines

• In July, the company completed the sale of the Frederator channel network business while retaining intellectual property assets including Castlevania and Bee and Puppycat.
• The company signed a distribution partnership with Amazon Prime for the Hundred Acre Wood franchise, featuring promotional support including Hero Banner placement and participation in Amazon's Shop the Show program.
• Development initiatives are expanding around the Stan Lee Universe, including the Stan Lee Superhero Pets franchise, with potential across animation, publishing, licensing, consumer products, and interactive entertainment.
• Brooke Bacon was appointed Senior Vice President of Consumer Products and Licensing to lead the monetization of the company's intellectual property portfolio.
• Mainframe Studios continues to operate as a for-hire production studio, though its revenue contribution declined significantly in the quarter.

Market and Competitive Landscape

• The company is pivoting from a model based on creating content for third parties (e.g., Barbie, Cocomelon) to one focused on owning, building, and monetizing its own intellectual property franchises.
• Management believes the unique multi-generational appeal of Hundred Acre Wood creates potential for a long-term franchise extending across content, publishing, licensing, and retail categories worldwide.
• The company operates across more than 60 territories via linear television, AVOD, SVOD, FAST channels, and streaming platforms.

Risks and Challenges

• The reported second quarter results reflect the legacy operating model and do not yet include the anticipated impact of the strategic transformation or new franchise launches.
• Forward-looking statements regarding the success of the Hundred Acre Wood and Stan Lee Universe franchises, as well as the timing of content distribution and consumer product sales, are subject to risks and uncertainties.
• Risks include the ability to execute the transition to an IP-driven growth model, competitive pressure from other distributors and the retail market, and the ability to protect intellectual property.
• The realization of the remaining $39.2 million in escrow is contingent upon the determination and payment of legal fees.

Management Commentary and Tone

• Andy Heyward, Chairman and CEO, described the period as a "strategic transformation" rather than a simple turnaround, emphasizing the shift to owning and monetizing valuable IP franchises.
• Heyward stated the company is "uniquely positioned to create meaningful long-term shareholder value" with over $40 million in cash, no debt, and a partnership with Amazon Prime.
• CFO Brian Parisi noted that despite a 43% revenue decline, the company reduced total expenses by 32%, demonstrating cost discipline and alignment with the new strategic objectives.
• Management expressed confidence that the actions taken position the company to pursue high-margin revenue streams from 2027 onwards.

Other Key Points

• The company received approximately $39.2 million from previously announced litigation settlements, which significantly strengthened the balance sheet.
• The company filed a separate 8-K notice regarding the Amazon Prime distribution agreement.
• The sale of the Frederator network business was completed to sharpen the strategic focus on owned and controlled IP assets.
• The company's balance sheet shows total assets of $94.5 million and total stockholders' equity of $53.6 million as of June 30, 2026.
• Net income per share (diluted) was $0.38 for the quarter, compared to a loss of $(0.13) in the prior-year period.