IDW Media Holdings, Inc. (IDWM) Earnings Call Transcript & Summary

Greetings. Good evening, and welcome to the IDW Media Holdings Fourth Quarter and Full Year Fiscal 2022 Earnings Call. [Operator Instructions] I will now turn the call over to Jen Belodeau of IMS Investor Relations.

Good evening. I'll take a brief moment to read the safe harbor. Any forward-looking statements made during this conference call, either in the prepared remarks or in the Q&A session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those which the company anticipates. These risks and uncertainties include, but are not limited to, specific risks and uncertainties discussed in the company's SEC filings. IDW assumes no obligation either to update any forward-looking statements that they have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast. Please note that the IDW earnings release is available on the Investor Relations page of the IDW Media Holdings corporate website. With that out of the way, I'll turn the conference over to Allan Grafman. Please go ahead, Allan.

Thank you, and thank you to everyone on the call for joining us. It's great to have you with us. My remarks today will provide an overview of our strategy and execution for the fourth quarter and full fiscal year 2022, which closed October 31, 2022. Additionally, now with just about 5 months in the CEO seat, I'll provide some thoughts around our vision for IDW and our strategy moving forward. After my remarks, Brooke Feinstein, our CFO, will provide details around our financial results, and then we'll be happy to take your questions. So on to our results. Brooke will provide a deeper dive but at a high level, we finished 2022 with strong fourth quarter results, including consolidated revenue growth of 48%, enhanced operating results, and improved profitability. Our delivery of the third season of Locke & Key during the quarter was the primary driver of this revenue growth. For the full year of fiscal 2022, we achieved consolidated revenue growth of 11%, which included delivery of Seasons 2 and 3 of Locke & Key as well as Season 1 of Surfside Girls. We also made progress improving our full year operating results and profitability as compared to fiscal year 2021. Now let's look to the future and where we're going in the coming year. We have spoken about our heightened focus on leveraging what we believe is one of the most valuable intellectual property libraries in our industry with hundreds of titles in our library today and hundreds of submissions coming in each year, our robust library is constantly growing. To frame how this creates tremendous opportunity for IDW, let me step back a bit to go through the basics of our strategy. IDW, along with its Top Shelf imprint, is a leading publisher of traditional comics as well as graphic novels, and we work with some of the best-known creators in the industry to publish original titles for all audiences, kids, tweens, teens, and adults. And some examples of titles you may recognize are March by the late Congressman John Lewis; They Called Us Enemy by George Takei; and Locke & Key by Joe Hill and Gabriel Rodriguez. These are well-known personalities and creators, and we're pleased to call them partners. Our publishing team also reviews hundreds of submissions every year from first-time or as-yet-undiscovered creators with the goal of identifying intriguing new stories and characters. With our solid content foundation and unique ability to find and publish new, original and creative concepts, IDW is well-positioned to release and capitalize on exciting new visions. We focus on attracting top talent and acquiring original content so that our team can identify, which submissions have the best opportunity to move from creative idea to published work to entertainment vehicle to financial success. And in today's environment of multiple media platforms, that entertainment vehicle can take many shapes. It could be a television show, a streaming series, a feature film, a podcast or perhaps even a short/long video. So at its core, our strategy is fairly simple: continue to increase our industry recognition as the creative partner of choice that we are presented with the best content from the most talented creators. That's our first goal. Our second is to publish comics and graphic novels that resonate with broad audiences and are successful. And our third goal is to develop those published content, graphic novels, and comics into entertainment vehicles like TV shows, feature films, podcasts, and other media platforms. To date, our success stories include Locke & Key, Surfside Girls, Wynonna Earp, V Wars, and October Faction. We are confident that there are more successes to come, and we currently have about 10 entertainment projects in place being developed. At this time last year, we had virtually no new development deals to speak of. Having said that, it takes time to develop a premier entertainment project from the idea to having an agreement to getting it into production, getting it delivered, and achieving success. Predicting that timing is difficult, and I, along with the entire executive team, know how frustrating that can be to shareholders. It is the nature of our business. We are focused on what we can control, growing IDW's reputation as the creative partner of choice so that we continue to see submissions of excellent material from inventive creators to continue to expand our library, while also identifying creative material that we believe can go the distance on a variety of media platforms. From what I've seen and experienced during my first 5 months as CEO, I believe our company is in the early stages of realizing its enormous potential. Looking into 2023, we are focusing on various strategic initiatives on the publishing side to enhance our marketing and also to drive efficiency. We see tremendous opportunity for IDW Publishing and IDW Entertainment to continue to work together to optimize the financial returns of the intellectual properties which we control, and we will keep you apprised as we move through the year. Over the medium to long term, our company is very well positioned to scale revenue and drive more consistent and enhanced profitability. As we move through 2023, we have a lot of work ahead. Ultimately, we are well-positioned to leverage the strength of our content library and to drive our project pipeline. IDW is a respective brand and we, the entire management team, are energized to discover new ideas and creators as we continue to grow our position as a leading independent media entity and to drive accelerated growth across all our platforms. Long-term investors will be rewarded. Now I'll turn the call over to our CFO, Brooke Feinstein to go over our financials for the fourth quarter of 2022.

Thank you, Allan. My remarks today will focus on the fourth quarter and full fiscal '22 results, the 3- and 12-month periods ended October 31, 2022. Except where I indicate otherwise, I'll be comparing the fourth quarter of fiscal '22 results to the fourth quarter of fiscal '21, and I'll also be comparing full year fiscal '22 results to full year fiscal '21. IDW Media Holdings' fourth quarter consolidated revenue increased 48% to $10.5 million compared to $7.1 million a year ago. IDW's fiscal year '22 revenue was $36.1 million compared to $32.4 million in fiscal '21. Publishing revenue for the fourth quarter of '22 decreased to $5.7 million compared to $6.9 million in the prior year period. Primarily related to a decrease in the overall number of titles released in Q4 '22 and also reflected the strong comic release of Teenage Mutant Ninja Turtle: The last Ronin #4 in '21. Publishing revenue for fiscal '22 increased slightly to $25.8 million, primarily due to increased nondirect market revenue, an increase in games revenue related to Batman Adventures, and an increase in retailer exclusive revenue related to Sonic the Hedgehog. In addition to strong book market sales for Teenage Mutant Ninja Turtle: The Last Ronin and They Called Us Enemy. This was offset by a decrease in direct market revenue due to fewer titles being published and a decrease in digital sales compared to fiscal year '21. In the fourth quarter of '22, IDW Entertainment reported revenue of $4.8 million, mainly related to the recognition of revenue for the delivery of Season 3 of Locke & Key. For the full fiscal year '22, IDW Entertainment reported revenue of $10.3 million, primarily driven by the delivery of Seasons 2 and 3 of Locke & Key as well as Season 1 of Surfside Girls. Our consolidated income from operations was $300,000 in the fourth quarter of '22 compared to a loss from operations of $1.9 million in the prior year period. For the full year ended October 31, 2022, we reported a loss from operations of $700,000 compared to a loss in operations of $8.7 million in fiscal year '21. IDW Publishing's loss from operations in the fourth quarter of '22 was $1.6 million compared to breakeven in the prior year period. In fiscal '22, IDW Publishing reported a loss from operations of $1.9 million compared to a loss from operations of $800,000 in fiscal '21. IDW Entertainment's fourth quarter income from operations was $2.8 million compared to a loss from operations of $1.5 million in the fourth quarter of '21. IDW Entertainment's income from operations for fiscal '22 was $3.1 million compared to an operating loss of $6.7 million in fiscal '21. Consolidated net income in the fourth quarter was $400,000 or $0.03 per share compared to a net loss of $700,000 or $0.06 per share in the prior year period. In fiscal '22, net loss was $700,000 or $0.06 per share compared to a net loss of $5.4 million or $0.51 per share in fiscal '21. Now turning to our balance sheet. At October 31, we held $10 million in cash and cash equivalents and had no debt. Working capital, current assets less current liabilities totaled $18.5 million. As we head into 2023, our strong balance sheet provides us with the resources to execute on our strategy. Our plan is to continue deploying capital judiciously and increase operating efficiencies to drive long-term growth. That concludes my remarks. Allan?

Wonderful. Thank you so much, Brooke. Now we welcome questions. Operator, back to you for Q&A.

[Operator Instructions] The first question comes from Edward Reily with EF Hutton.

Allan, you've been here for a few months now as CEO, I'm just wondering if you could maybe expand a bit on your top priorities for 2023.

Ed, delighted. We just reviewed this and our priorities are really clear. We have a core focus, which consists of 3. At the Publishing group, we have some revenue growth that we're going to be focused on. And we have a key relationship with Penguin Random House that will be, not only instrumental in our growth, but which we are nurturing very, very assiduously and carefully. On the Entertainment, we are maniacally focused on pushing the many options that we have into production. We don't control that but we know that there is breakout potential in what we have in place. And in Media Holdings, we have some digital initiatives that we're working on that we will be bringing to bear this year. So that's the core focus. There are some near-term opportunities. They fall into 5 categories, which I can enumerate very briefly: first, other comic book companies have fallen to some challenges, some into bankruptcy. If it makes sense, we'll have a conversation there. We're looking at a form of monetizing our intellectual property through Motion Comics. In the past, others have tried that. So we're exploring that carefully. Third, we are exploring podcasts where we can contribute our intellectual property and return for a share. We're being very careful with how we use our resources. A fourth category is in mobile and games. We have a conversation possibly using our intellectual property in games. And fifth category is short-form video. So those are near term, which gets some of my attention, but we are really focused on our core. We're really focused on being the partner of choice, because if we're that, we will succeed in every other important endeavor.

Okay. And then on the 10 entertainment projects, are these options? Are these officially greenlit? Just wondering if you could maybe give us some indication of where some of these projects stand within the whole process.

So Ed, that is -- I'm so glad you asked that question because that has been -- that needed clarity with the Board and even internally. We have standardized how we're going to talk about these. We standardized how we talk about them amongst -- within the company, how we talk about them with the Board, and how we talk about them with external interested parties such as yourself. So first, what we don't talk about outside the company is when we're in negotiations. There are a large number, I have reviewed the list. It is a very large number of negotiations. We don't talk about that. The second term that we do use is options. Options means a contract has been signed and modest money that moved. The third category, which is the most important category is where something has been put into green light and is moving towards production. That is where the opportunity is. That is -- we saw the operating leverage that was provided by Locke & Key. That is where we are maniacally focused. I've been super clear with the Entertainment team that it's great to have tremendous number of negotiations, and it's great to have a large number of options. What we really need to do is cross the finish line, or our step on home base and put something into production. That is outside of our control, to be clear, but we're really focused on that. So 3 categories. To be clear, negotiating, we don't talk about. Options, we do talk about, and we try to make clear what an option is, it's modest money. And the third category is put into production, that's significant. So I hope that clarifies a really important topic for you, Ed.

Yes. Absolutely. Just wondering if you can maybe silo the 10 entertainment projects between options and greenlit, those categories in the two and three.

So I'm [ sad ] to say that at this time, we have optioned a number of projects, which we've spoken about publicly. At this time, at this occasion today, none of those have been put into production. There is one small, which I believe we've announced, but Brooke can jump in. There is a small production called Essex County, a book. Has that been announced?

Yes. That has been announced. We are not really involved in the production. We are just getting an executive producing fee on top of that, and that is being produced in Canada with the Canadian broadcast.

So thank you, Brooke. So we -- and that's a small production. So the positive is we control the IP. Someone felt important enough to option and produce it. It could lead to great things. But at this time, it's modest.

Okay. Got you. And then any indication about renewal for your Surfside Girls Season 2?

So Surfside Girls at Apple has not been renewed in its current form. Its current form for all our listeners was live-action, tween-oriented and it has not been renewed. And furthermore, we're in conversations, and we have conversations. We're in discussions about the future of Surfside Girls, and we'll share more when we can.

Okay. Got you. And then you mentioned in a recent radio interview that you expect to release 100 to 200 new titles during the year. Just wondering how this range of new titles compares to the number of new titles released this year.

I'm sorry. Could you -- are you speaking about the Publishing group?

Yes. Yes. Yes.

So the Publishing group has a significant increase in what we have planned. We have reviewed that. Our expectation is that we will be -- actually, we are working towards being more successful by every metric, but of course, it's early in the fiscal year.

Okay. And last one for me. In the fourth quarter, it looks like SG&A was up quite a bit. Brooke, just wondering what's driving that.

Yes. So that's an easy one. We had the CEO severance in August, all that was booked, and it'll be paid out cash-wise over the next 2 years.