Business Breakdowns
· Todd Wenning
[00:00:00] S1: So if we think about the network effects that I mentioned, with the TV show coming out, I think it'll appeal to a lot of people who have never even heard of Warhammer. They might go check out their local store. All of a sudden, you’ve got a new node in the network. They introduce their friends and so on and so forth. If you look at what's happened with the Mario movie, for example. When the Mario movie came out, Nintendo management said we were surprised. We had high expectations, but we were surprised by even how much that drove what we wanted them to do, which was buy Nintendo video games. And when The Witcher, which is also starring Henry Cavill, back on Netflix, came out; that was sort of a stagnant video game series, and the sales went through the roof. People, they see IP, whether it's Lord of the Rings or whatever, and they want to continue to engage with that IP. They want to stay with it. My investment thesis is that this will lead to stronger sales in the higher margin categories. It'll certainly drive interest in trade. People might go to a hobby store instead of knowing there's a Warhammer nearby, or maybe they don't have a Warhammer nearby, and they go to the hobby store, in which case it's lower gross margin. But I think that will increase some of the licensing revenue that they have, which is 90% gross margin. The online business, which I think is 80-85% gross margin and certainly drive traffic into the Warhammer stores, which is again, about 80-85%. And that's where management wants you to start your experience – in a Warhammer store. When I went to go buy my Warhammer starter kit, Warhammer 40,000 to be specific, I walk in with my kids and there's probably six or seven 30-year-old men sitting around tables playing this game. They all kind of look up at me to see like, hey, is this guy one of us? I started asking questions, and they were talking to my kids. And I think it's just a great way to get a feel for what Warhammer is, what they offer, how the game is played, what sort of social events are around it. It's a great introduction to the experience and to the community.
· Matt Reustle, Todd Wenning
[00:00:00] S0: It's a very interesting thing that we're starting to see more of. You mentioned the Mario movie, which I can tell you is the first movie I got my son to watch in full. That meant something to me in terms of the nostalgia of playing the game growing up. But also, on another extreme, F1, Drive to Survive, and I think a lot of people are trying to use that as a blueprint. So you can see how that drives additional interest and entryways, potentially for a certain type of buyer as well. So that's quite interesting. On the licensing, I'm just curious, you mentioned it can fluctuate quite a bit. How does that work? Is it just the sense of, if you're licensing a video game, you're going to have that initial bump in year one. But until you release a new game, you're going to have that natural decline curve? [00:00:00] S1: Most of their licensing historically has come from the video game partnerships. And so it depends on when consoles are launched, when games are developed, and so it can be a little lumpy. When it hits, it goes right to the bottom line pretty much. There's very little operating expense related to that. It really just falls to the bottom line. So I'm thinking that as the movie comes out, that will lead to more licensing deals, whether directly from Amazon or from new partners and video games, et cetera. So I think that will remain a very cash generative part of the business for a long time.
· Todd Wenning, Matt Reustle
[00:00:00] S1: Most of their licensing historically has come from the video game partnerships. And so it depends on when consoles are launched, when games are developed, and so it can be a little lumpy. When it hits, it goes right to the bottom line pretty much. There's very little operating expense related to that. It really just falls to the bottom line. So I'm thinking that as the movie comes out, that will lead to more licensing deals, whether directly from Amazon or from new partners and video games, et cetera. So I think that will remain a very cash generative part of the business for a long time. [00:00:00] S0: Just in terms of being UK operated, did the tariff volatility end up impacting them at all? And it's just one of those questions that comes to mind, as you mentioned, origin and having that strong footprint there in the UK. How caught up in all of that activity did it get? And how much does it actually impact the business?
· Matt Reustle, Todd Wenning
[00:00:00] S0: Just in terms of being UK operated, did the tariff volatility end up impacting them at all? And it's just one of those questions that comes to mind, as you mentioned, origin and having that strong footprint there in the UK. How caught up in all of that activity did it get? And how much does it actually impact the business? [00:00:00] S1: So that was some of the concern earlier in 2025. The stock sold off or was stagnant a little bit. The concern was that management said after their annual report came out, they work on a different schedule in terms of their reporting schedule. But when the May report came out, they said we're concerned about tariffs and what the impact might be to our gross margins. And then the stock had a nice jump, a couple of weeks ago because they said in their November report that it didn't impact us as much as we expected. And then we saw this week, so we're talking on January 22nd, we saw when there were concerns about new tariffs, the stock sold off a little bit again. They are impacted by it. But again, this is why the vertical integration helps quite a bit. Not only does it help protect them from IP theft, which is one of their biggest concerns, but also it helps them control their supply and they have complete control of their supply at all times. [00:00:00] S0: You mentioned those gross margins, which to me feel very impressive. Is there any way to contextualize that versus peers? I don't know if there are others that are public that you can compare it to, but I'm curious about that.
· Matt Reustle, Todd Wenning
[00:00:00] S0: You mentioned those gross margins, which to me feel very impressive. Is there any way to contextualize that versus peers? I don't know if there are others that are public that you can compare it to, but I'm curious about that. [00:00:00] S1: It's such an idiosyncratic business that there's really not a ton of good comps. The best comp is the Wizards of the Coast unit at Hasbro, which owns Magic: The Gathering and Dungeons & Dragons. And they have similar EBITDA margins around 40%. This is very lucrative IP and it's very, very difficult to get. You mentioned nostalgia earlier. You can't just create this IP. Let's say you wanted to go out and compete against Magic: The Gathering or Warhammer. I would just say good luck because it takes decades to build up that nostalgia, those deep connections. And importantly, that enables you to pass it down to the next generation. I played this growing up. I'm going to show you how to play it. It's similar to the way we played games with our sons or our children on Nintendo. We played it growing up. We share it with them. Nintendo doesn't have to win them over on their own. We're doing it for them. We're the salespeople. It's just extremely difficult for anybody to come in and compete with these deeply seated, deeply rooted experiences in IP.
· Matt Reustle
[00:00:00] S0: I'm still amazed at that ability to transition from being known for distribution, manufacturing, all of that into building out this world-building, storyline, and all that goes with it because that is such a massive undertaking, and takes such creativity, and a special type of gene. So, more credit to them. I think you see now everybody's just dying to get a Wordle created and there's so much demand for people who can make games like that and get them attached to, let alone this. On the point of where margins go, are there any either headwinds or tailwinds where you expect them to materially change from the level that they're at? Obviously, if you have a mix shift, which sounds like it could theoretically happen in the future if you get more online consumption. But is there anything that you think would materially change that trend line from where they are today?