Tonies Se Reg A

Hello everyone and welcome to the Tony's full year 2024 earnings presentation. My name is Manuel Bösing and I represent the investor relations team. Today we will walk you through our presentation and afterwards we invite you to submit your questions via the Zoom Q&A function. On the call we have our CEO Tobias Wann and our CFO Dr. Jan Middelhoff. And now over to you Tobias.

Many things to all of you for taking the time dialing in and joining us today. We are very much looking forward to spending the next 60 to 90 minutes with you. And we have some great news to share for sure. So many of you will recognize our first slide here from previous presentations and conversations still One of my favorites because it highlights two things. We have an incredible platform and unparalleled stickiness. As of December last year, over 9 million Tony boxes have been sold and activated in over 100 countries across the world. And in early December, we crossed another very important major milestone. We sold our 100 millionth Tony. We didn't stop here. At the end of the year, we totaled over 110 million so Tonys. That makes up, obviously, that makes us the world's leading audio platform for children. But what I'm most proud of isn't just our global reach, it's how deeply children connect with our product. On average, kids spend more than 270 minutes per week with their Tony box, That's 270 minutes spent on imagination, creativity, and education, and 270 minutes away from age-inappropriate media. In the end, that's what we're doing it for. And it works. Our net promoter score in the U.S. improved even further, averaging 79 throughout the year. That shows just how much families love and trust the Tony's brand. All this translates into a great performance for the fiscal year. 2024 was another record-breaking year for Tony's. We met all and even exceeded some of our goals. Group revenue reached 481 million euros, marking a 33% increase compared to last year. 62% of that was international revenue, with North America now being our largest market. With 210 million euros in revenue there, we've also reached our guidance. But our growth is strong across all regions. Actually, we recorded double-digit growth in every single market, a great achievement. On profitability, we made a major leap forward. We achieved 7.5% adjusted EBITDA margin and a 3.5 point improvement year over year. For the first time in our history, we achieved positive free cash flow, ending the year with 33 million euros and over 100 million euros in cash available. And also our first ever positive net income are clearly validating our profit generating business model. We are keeping our IPO promises. What you see on the right hand side here is the strength of our platform clearer than ever. In 2024, we sold nearly two and a half million Tony boxes and over 30 million Tony's in just one year. So much for the results for now. Let me now walk you through some of our highlights from 2024, most of which we'll look at in more detail later. We closed the year with a strong Q4 performance. This is good Tony's habit, and the quarter went exactly as expected, once again underlining the consistency and resilience of our business model. North America became our largest market just four years after launch, and importantly, it has now reached profitability. In line with our international growth strategy we launched in Australia and New Zealand, our experience in entering new markets made this one of our most successful launches ever. We also significantly broadened our product portfolio across IPs and categories, offering more ways for families to engage with our content and brand. On the sustainability front, we took on a fresh perspective with a new vision for Tony's and made some tangible steps forward. For the first time, we will publish a voluntary sustainability report this year. And finally, we had great talent leadership join and enrich our ranks. Ginny McCormick joined us in the U.S. as our new Chief Experience Officer on the Tony's Management Board, alongside a number of highly talented people around the world. Ginny is a seasoned expert with experience at a number of iconic brands, and we are already seeing her great impact. Q4 is consistently the most important quarter of the year for us. And once again, we went in above and beyond when it mattered most. The secret sauce behind this strong finish is our proven commercial playbook, including strong visibility at the point of sale, well-established operations for our own distribution channels, a good supply chain that ensures we have product available upon demand, and a strong focus on customer satisfaction. Over the years, we've continuously refined this model, allowing us to improve execution each peak season. In fact, Q4 2024 alone accounted for 50% of our full year revenue, underlining just how effectively we scale when it counts. And as a result, in Q4 2024 alone, we sold over 1.4 million Tony boxes and more than 14 million Tonys with 17% of Tonys sold coming from our own portfolio. These outcomes are a clear testament to our institutional capability to scale effectively and deliver commercial excellence during peak demand periods. Tony's has successfully transitioned into a truly international business. We see strong and profitable growth across all regions and are constantly increasing our international revenue share. This expansion strategy has proven both scalable and effective. Consistent with our projections, new core markets typically achieve profitability within three to four years. The current performance across our international markets aligns with this timeline, reinforcing the reliability of our expansion model. Today, our products are available in 28 countries, enabling us to grow well beyond the boundaries of our original core markets and creating real global scale. In 2024, 62% of our total revenue came from outside the DACH region. A remarkable shift from just 6% in 2020. That reflects just how far we've come in only a few years. As many of you know, North America is now our biggest focus, so let's take a closer look. Just as planned, North America is now our largest market just four years after launch. We have an installed base of more than 2.5 million Tony boxes and over 20 million Tonys across North America. We see a strong product market fit and clear brand resonance for Tonys. We are accelerating our absolute growth. As you can see, nearly half of this base was sold in 2024 alone. And the millions of Tony boxes are only a fraction of the market. we are still only at the beginning. Despite the obviously challenging tariff environment, and I'll talk about this later, when we look ahead, we see a lot of untapped potential and substantial headroom for continued growth in the coming years. And the great thing about our perspective, North America is already profitable. We achieved this within 2024, meaning our path forward will contribute even stronger to Tony's overall growth. To unlock this, we will continue to innovate and work together with strong partners, such as in wholesale. So if you look now into exactly this, we started to build our North American business, as you remember, first via D2C channels, through our own web shop, as well as our Amazon platform. Today, nearly half of our revenues are coming through wholesale. Expanding our wholesale presence is a major driver for our growth here at Tony's. We continue to strengthen our existing partnerships, for example, with Kohl's, Target, Walmart, working together to further maximize Tony's potential. This includes additional shelf space and the perfect positioning in the markets. In addition, we are forging new corporations, for example, with Macy's and Barnes & Noble's, just to name two more household brand names. By now, we've reached a very stable channel mix. Balancing our own D2C channels with wholesale sets us up strongly to fuel growth, particularly in volumes. Expanding our wholesale, we focus on two core KPIs, both of which made great strides in 2024. We increased the number of point of sales by 24% to approximately 8,300. And with each point of sale, we grew our shelf space on average by 62%. We've seen that expanding shelf space gives us opportunity to over proportionally expand revenues. So this is an important achievement and one we are very proud of. So while we have grown North America into our largest single markets and become more international than ever before, I also want to take a look at our development in the DACH region. because this year's performance shows just how impressively our business model works in more established markets. We are continuing to prove our blueprint for core markets and with it our profitability potential. If you take a look at the left hand of the slide, you'll see that over the past year, neither the product nor the channel mix have shifted significantly. Still, we were able to grow our revenue at a double digit rate. And at the same time, improve our profitability like never before. This is exactly how the Tony's business model works once we've established category leadership and brand awareness. Of course, we win new customers every year, even in a market with a high penetration such as DACH. But what is most important for us is to retain our customers and expand their lifetime value. We focus on delivering more and new magic moments for our Tony's fans. What we cluster under product innovation and new content production is very successful. We clearly see that the market is hungry for any new product we launch. I'll get to that in more detail in a minute. But combine that with this still ongoing wholesale expansion and we drive revenues up 11% year over year, a remarkable achievement. And probably even more remarkable, we have reached a new level of profitability. We've always known about this potential in our business model. We talked about it and we are now happy to demonstrate it in black and white. We grew our EBITDA margin by nearly 7 percentage points year over year to just over 23%. There were several drivers behind this. I'd like to point out again the role of our product development. Our Clever Tony's launched in Q1 2024 in DACH with a different product shape and sales concept. They are a notably higher margin product. And they were one of the outstanding product successes in DACH last year. The same is true for our own IPs, which we continue to create and expand successfully. So profitability was further driven by a sensible expansion of our D2C revenue share, as well as a continued expansion of our contribution margin. And we do that wherever we are. As we expand our global footprint, we are also expanding our global success. Our strong growth is not limited to North America and DACH. It continues across the rest of the world. In Australia and New Zealand, we've had our largest ever launch with an unparalleled portfolio. And within the first few months, we were already awarded product of the year in Australia, something we're really proud of. In the UK, we continue to grow our wholesale presence with the largest year-over-year point of sale growth. And we are successful with innovative formats, such as the award-winning Today with Tony's, our morning podcast for kids. In France, Tonisch is now the number one audio platform for kids in a market with more competitors than anywhere else in the world. Our expanded offering and increased presence clearly contributed to that. All of this shows our go-to market model is replicable and successful. We have a very strong blueprint. So, After talking a little bit about it on the previous slides, let's take a closer look at our product innovation. There are two factors to what we achieved in 2024. One, we strengthened our content platform with additional own IPs. And two, we are targeting expanded consumer groups with new products. I've always said that the Tony's platform sits at the exciting intersection of technology, toys and content. And on the content side, we are doing great in building our own Tony's originals. Last year, we launched 69 new own IP Tony's and they are performing really, really well. Let me highlight our two flagship franchises. We launched La La Lino's at the end of last year and saw strong early demand. 25 has more launches planned on this franchise as well as regional expansion. We've set La La Linos up to scale growth across categories in various content formats. So stay tuned for that. Then our Sleepy Friends. It's a tremendously successful series designed to make bedtime easier for both parents and children. Over 90% of surveyed parents say it actually helps them No surprise, it's already a top five global IP across our entire content portfolio. And cross-category sales is also a key theme for Sleepy Friends. The nightlight we added to the series is our most successful accessory ever. Continuing with product successes, the introduction of pocket Tonys is a game changer. Last year, we launched 70 new Pocket Tonys SKUs divided between our Clever and Book Tonys. That was 30% of our total new SKUs, a remarkable statistic. Both Clever and Book Tonys are designed to engage older kids above age 5 with educational content. As with all Tonys, we mixed strong partnerships and licensed content with our own designs. And we are very excited to launch Book Tonys in DACH this year. Overall, we are very happy to see the success of our product innovation. It reinforces our leading position, our competitive edge, and our strong perspective for continuing to shape audio entertainment for children. And as we grow, we know that responsibility must grow with us. That's why we've taken a closer look at how we define sustainability at Tony's and how we bring that vision to life across everything we do. Let me show you what that means in practice. If we find our sustainability strategy and taken a close look at where we stand today. We are creating transparency and laying a strong foundation for future progress. As a next step, we are proud that we've published our first voluntary sustainability report in 2025, aligned with the CSRD and ESRS standards. And this is just the beginning. We are committed to building on this foundation as we continue to listen, learn, and grow responsibly. and bring our sustainability vision to life. Our vision is just the starting point. Now it's about action. Here are two ways we are already putting sustainability into practice. We are improving the footprint of our product. All pocket Tonys, so that's the clever Tonys and book Tonys, are produced with up to 50% bio-circular material. And we are now preparing a transition to a material mix containing up to 94% bio-circular feedstocks. We also launched the Tony Box repair service in 2024 across the DACH region. This enabled us to repair over 13,000 devices, reducing waste and helping families extend the life of their Tony Boxes. These are just two examples of how we are moving from strategy to action, embedding sustainability and circularity directly into our products and services. And with that, I'd like to hand it over to Jan, who will now guide you through our financials in more detail. Over to you, Jan.

Thank you very much, Tobias, and welcome to everyone on the call. It's a pleasure to present a really exciting year for Tony's. 2024 has truly been the year where we have proven probably the last things that we promised to prove, and that was our free cash flow breakeven. But more importantly, I think, it is again a testament to the fact that our strategy works. The execution is great. Starting from replicating our profitable DACH blueprint internationally, we can report that 62% of our revenues are now international. And it comes from growth, double-digit growth in all markets, primarily driven by North America, that has become our biggest market, largest market, and also our greatest opportunity still for growth. And at the same time, we have shown that all of those markets can be profitable and increasing in profitability. In fact, DACH turning even more profitable than we reported in previous year. North America turning profitable and the rest of the world turning profitable is really testament to the strength of the business model, the resilience of the business model. And hence, it's no surprise that if you look at the year-over-year comparison of our EBITDA, you'll see us improving 4.6 percentage points. That shows real operational profitability that's also translating now into cash generation abilities of this company. The free cash flow of 33 million euros that we have shown in 2024 should be a very strong testament to the healthiness of our business model. In fact, it's more than 38 million improvement year over year, resulting in a cash position at year end that puts us in a very, very stable position also for 2025, which is at 107 million euros. The 107 million euros include 20 million of non-use credit facilities. The rest is cash on account. And I think personally, one of the highlights for me is also the ability to show you a positive net income. 13 million euros is an amazing result, deserves a lot of credit to the team at Tony's. And I think it shows that our business model works. Tobias had said it, the strategy execution works and puts us in a very strong position also for the year 2025. Let's maybe dissect a little bit how we have been doing on the P&L. So I want to direct your attention probably a little bit to the upper part of the P&L for the minute. As you can see, our gross profit has been improving by half a percentage point and is a continued journey. What we've always said, we will continue to drive up unit economics. A point for watch out and remark is our licensing ratio, because you need to consider that 2023 saw a one-off exceptional provision release of 3.3 million, which added, if you have a clean year on your comparison, about 0.9 percentage points. The rest of the deviation versus prior year is product channel and geomix you'll hear me talking to that in a minute again there are some mix effects in here which show a slightly decreasing so kind of or increasing uh licensing cost ratio but it's fully as expected you see that on fulfillment we're kind of doing okay contribution margin without the one of effect from 23 would be improving and that is also again coming from our product geo and channel mix effect and that is very important If you look at how we have delivered our improvement in overall EBITDA profitability, it comes from operating leverage. That was one of the things we discussed with you previously, and I also know that from various interactions on the road. Will Tonys be able to show operating leverage? Yes, we are. And we are on both personnel and OPEX side. And we've always said it requires some time to build the foundation and the baseline for us to start scaling. And it comes with growth then that we can add in the markets through the channel expansion. EBITDA at 7%, margin at 7% with the 4.6% improvement, adjusted EBITDA at 7.5% margin. Also here, I want to call out the spread is getting slimmer and I'll speak to that in a minute. Let's look at the growth, and I think Tobias covered it, so I don't want to go into much detail on this slide here, but you see that all regions are growing double-digit, and that is fantastic. Majority of absolute growth year over year comes from the US. That is, again, testament to the strength of our position in the market, the opportunity we still have in the market. But you also see the rest of the world really adding to the weight. And I think one of the things that many of you have reached out and commented on, on our preliminary results, is the strength of the DACH market. It is very healthy consumer demand and we're very, very happy with that. And the team there is doing a fantastic job, but also our brand is strong and the product appeal is high. 62% international share. We talked about that enough. So let's maybe look a bit more to the product side. And I talked about product geo channel mix effects. And you can see it here, Tony box revenue, a little lower in growth versus the Tony's growth. And we actually are happy with that because our goal for this year was to show profitable hypergrowth and you know the profit comes through our attached, through our cohorts, through the subscription-like behavior of our cohorts. So what we can show here is that we're growing our attached revenue base. And that is important for us. There are several levers in there or several effects. Tobias spoke to it. Clever tonies, book tonies, a fantastic extension in age, contributing as a single factor strongly to the growth that we have seen in the DACH region. also if you think about the wholesale expansion in the us we told you in q3 that we are doubling shelf space with some retailers that we are that was target for example that at coles we have increased skew count skew count is tony's tony's and accessories so that means we are opening up more choice for consumers. So hold set expansion for us is also attached support and therefore these numbers make absolutely sense also in light of the overall profitability improvement that we're seeing in our business. Now on the next one, we see a very strong Q4. We see that particularly DACH has been growing 20%. That is amazing. That is fantastic. But I also repeat what I've been saying since years now. Please always consider baseline effects. Last year's Q4 was slower. effects here are when is black friday when is loading how do retailers stack up so it's a great performance but we also want to make sure that we don't misinterpret it it's a very healthy development but the disproportion q4 growth also has baseline effects from prior from prior periods in there um Again, the strong increase also on Tony's and product mix on the right hand side is the time when we really introduced clever tones and book Tony, so I think that speaks to the effects as described before, and with this maybe let's look at one thing that I find personally very exciting. knowing that many people have asked us, so how profitable can the North American business be? Would it be profitable in the near term? Well, it is profitable. 2024, our biggest growth opportunity, it has been profitable and has been profitable on a 50% year-on-year growth. That shows hyper-profitable growth for Tony's is possible if we execute our business model right, if we make sure that we are installing new platform, acquiring new customers with Tony Boxes, and that we manage our cohorts well, that we put a touch on those cohorts. And you can see it here in the numbers. And what is also very exciting is the improvement that you see in the rest of the world. That comes off a very strong performance, as Tobias has said, in the UK, in France, in Australia, New Zealand. Very, very happy with the performance of the teams there. The consumer demand in all regions is healthy, and that translates into such results. And if you're interested also in understanding a bit here what the drivers are, you can see that the contribution margin difference between the DACH market, our home market, and the international markets, North America and rest of the world, is different. That has to do with maturity. That has to do with maturity. product mix and also some channel mix effects. But contribution margin improvement is what we're after and what we're optimizing. And that is something that we're tracking closely. And these results, these figures give me a lot of confidence. And probably a few of you will then ask, how does it look then below contribution margin? Well, here you can see EBITDA, of course, we're still investing more into the growth markets. So marketing, you can assume, is higher in those areas than versus the dark market. Overall, fantastic results. Next, I'd like to speak about our adjusted EBITDA. It's essentially a summary of what I've been looking at at the P&L previously. So you can see here the most important ups and downs along our adjusted EBITDA year-on-year comparison. You can see licensing cost has been a negative effect for us, which is in a large portion explainable by this one-off year-on-year, but also by those product channel mix effects. What are those? If we're selling more Tony's, they have a higher licensing share. If we're growing in markets that have a high Tony's share, it additionally adds. So those are the mix effects that we need to be careful to interpret, but also channel mix plays into that. Then you see the big leverage really in personnel and OPEX. And overall, that gets us to a 7.5 adjusted EBITDA margin. I'm very, very pleased with the work of the team because that has put us in the upper half of our guidance that we provided last year. And it shows that we can reliably forecast our business, manage and steer our business. And that, of course, as a CFO, is something I like. Next is a view on the spread between the adjusted EBITDA and the EBITDA. Since 2023, we have decided to only adjust for share based payments. And previously, in 22, we've also been adjusting for own software development and Again, at a time before that, there were some IPO related costs in there. And you can see how adjusted EBITDA and EBITDA are getting closer and closer together. There's of course baseline effects, but it's also because we're managing this, I think well, and I would expect us to have a continued very narrow corridor between the two so that EBITDA and adjusted EBITDA should be close together also going forward. Now, cash. I said it before, a very strong cash generation in the business and the operating performance has been a key driver to that. And our cash levels at the end of the year, despite some investing and finding the cash flows, of course, 87 million is a very, very strong number. That's something we carry into the Q1. We have unused credit facilities as per 31st of December of 20 million. So the cash position is healthy. And I'll speak also to the outlook on the cash and our working capital financing ability in a few slides. Now, this for me, probably more than for other people in the company, but for me as a CFO, this is really a milestone landmark slide. The last piece to deliver, the last piece we promised was our free cash flow breakeven and the net income. And you can see in 2024, we have to improve it. And I really... I really think the ability of this company, of this product, and especially the team to deliver comes through if you just look at the track record of how we have optimized our free cash flow position and our net income year over year and year over year. And it speaks to the team that we can grow the revenue profitably, that we add those value levers to the already profitable dark blueprint, hence drive the margin expansion forward. and that we improve our working capital. We have capex discipline, and then as a result, you see a free cash flow like this in the business, which I expect to also continue to be an attractive profile going forward. I said working capital is also something that we take serious, and I'm very, very proud that we have been able to improve our syndicated loan facility. We have signed an updated SIN loan and from our previously available 30 million credit volume plus a 10 million top-up options, we will have at our disposal now in total 135 because we have doubled our credit volume as of now to 60 million. We have increased our top-up option fivefold to 50 million. Plus for this year, we've added a 25 million season line just in case. to make sure that working capital this year with everything we have planned stays stable and healthy. And this has only been possible for us by working with top tier partners. So you see a few of the logos here. We work with the best banks in Germany. And what makes me really, really proud is that also a city has decided to join our syndicated loan. So we have a top tier global bank, an American first bank, that is part of our portfolio in supporting Tony's on the continued expansion and growth path. And with this, I'm very, very confident that also for 2025, we are in a very stable and good position to continue our journey. And how that will look like, Tobias can talk better than I do. Tobias, back to you.