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

Greetings. Welcome to the IDW Media Holdings Third Quarter Fiscal Year 2024 Conference Call. [Operator Instructions]. Davidi Jonas, CEO; and Andrew DeBaker, CFO, will be available to answer questions and provide a company insight. Please note, this conference is being recorded. Before we begin, I'd like to review the company's abbreviated safe harbor statement. I'd like to remind you that statements made during this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, product releases, partnerships and any other statement that may be construed as a prediction of future performance or events are forward-looking statements, which may involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. Non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only.

[Operator Instructions] The first question comes from [ Daniel Cid ] with Spruce Line Capital.

How much cash do you expect to recoup from Wynonna Earp in the fourth quarter and also full year 2025?

Were you talking about fourth quarter of '24 and fiscal '25?

Correct.

And this is Andrew responding -- yes, going to respond. And just to be clear, you're referring to like the recruitment that we're getting on a quarterly basis, correct?

Correct, the recruitment of the cash outlays?

Yes. So we know -- we work obviously with Cineflix, I mean they do give us reporting. And we do know the amount roughly over the life of the contracts, many of which they just renewed this past April, generally 3-year contracts. We get paid when they get paid. So it can be a little bit of hit or miss, right? So last quarter, we only received about 7,000 -- and this quarter, we just reported, what, like 250, I believe, 250 and change. So next quarter -- we basically assume every quarter we're going to get somewhere in the 100,000 range. It's just for internal purposes, right, because it can be a little bit hit or miss timing-wise. So for what it's worth, I would say, likely in the fourth quarter, somewhere between maybe 100,000 and 150,000 knowing that I could be off on that obviously. And then next year in terms of the entire year, I'd basically repeat those numbers and say somewhere between 400,000 or maybe 500,000, again, depending on the timing.

The next question comes from [ Andrew Reef ], private investor.

Congratulations on making a profit this year, this quarter, I mean. Question I have is the general comics market has been declining in the direct market. Question would be is how much of the business is coming from outside of the book market, which is Random House and the direct market, which is combination. How much of it is coming from, as a 1 conglomerate international ordering directly from your own web store or is there another market out there?

So I mean it sounds like just to be clear, you're conflating the book market and the comic market with PRH as being just 1 distribution channel and you're asking about all other distribution channels?

Right, exactly. Because you went up approximately $1 million, [indiscernible] in total, increased sales. And when I'm reading the ICv2, it indicates that the markets are not doing that well. So obviously, you're doing better than the general market. And I was just curious how much of your business comes outside of that since you've had such a big increase in 1 quarter?

Yes. Andrew, I'll let you jump in a more specificity. My rough number, I would say, is probably around 15%, maybe 20% -- up to 20% is outside of the PRH market? And in terms of diversifying our sales and distribution channels, focusing on direct-to-consumer, focusing on our applications, focusing on the digital market, vertical reading, other opportunities, whether it be Kickstarter or other distribution channels, those are all things that we're looking at for new opportunities...

The reason for my question was to track it. I just figured I just have to track the sales of the top titles, top 200 that they publish in ICv2 and look at the book market results, I wanted to know, does that explain most of the story. So it explains about 85% of it. Is that the point?

Not necessarily, I mean...

What am I losing out in other words?

I mean, part of it is that we had a good quarter, and a lot of that is in the Penguin Random House market. So even though the comics market generally might be down, we're up year-over-year in the publishing business and the traditional PRH business.

That's why I congratulated you.

It's not just that our direct-to-consumer business grew, which it did, it also is just a strong quarter. But Andrew, would you agree in terms of like the 15% to 20% range for non-PRH revenue?

Yes. So generally, PRH is roughly 80% or so. For Q3 -- and obviously, it fluctuates. For Q3, it was actually 70%. So we did have a little bit more revenue from non-PRH. It's mostly due -- for this quarter, mostly due to Scholastic orders, Scholastic Book Fairs. They generally place 2 orders a year, at least historically, 1 in sort of the June, July period and another one sort of in the October, November period. So when a large order from them comes through, obviously, that mix will change. But yes, generally in that sort of 80%, maybe 75% to 80% range is PRH.

Got it. And that's due to Sonic and Teenage Ninga Turtles. Is that the primary source for Scholastic?

Yes.

I don't know if Scholastic ordered anything beyond Sonic and Turtles. But yes, those would be...

I just wanted to know because I can extrapolate that in the future, what that would be if you're going up in your PC -- in Random House and other ones, then it should probably go up the same way...

Just sorry, I was just going to add that with Scholastic, clearly, we obviously are constantly going to them, trying to get them interested in other titles as well. So we would hope that in the future, they will move beyond Turtles and Sonic, but at the moment, that is the driver of that revenue, yes.

One quick question. Is the amount of revenue coming from Scholastic compared to the past years of Scholastic is it dramatically up? Because I know that you guys used to have back in maybe 2019 something like $1 million of Scholastic revenue. Is this a new high for Scholastic as a customer?

Yes. Good question.

I mean I don't think it's outstanding. I mean it might be -- it might be higher, but it's not the driver for the business.

Yes. I would say maybe year-over-year, fiscal year-to-date this year versus last year, we might be up about maybe 10% maybe 15%. But again, with Scholastic, the timing difference, right? So like 1 year, maybe they'll place an order and we'll get that into October. So we'll get into the fiscal year. Other years, maybe it will be November depending on timing. So it's not always a strict year-over-year comparison.

What's very exciting is that in the listings that they show on ComicHub, it shows that your product is selling through and it's ranking in the top 3 or 2, [indiscernible] in terms of dollars. So it's not just that people are buying it, but that there is an enduring customer that buys the products, which is very exciting.

[Operator Instructions] The next question comes from [ Paul Sunken ], Private Investor.

So I guess 1 comment and then a couple of questions. One is I just want to express as I have in the e-mails that I have sent you the appreciation for being shareholder-friendly and having these conference calls and continuing to disclose financials on a quarterly basis, I guess, there are companies that would go dark and never publish financials. And so I just wanted to express how appreciative we are. The other thing is it like you've worked through a lot of cost cutting. You've made a lot of changes over the past couple of years since you kind of took over from Allan and do you feel as though the company is at kind of an inflection point. Like again, without giving guidance, do you anticipate losses? Or do you think the company is going to be profitable going forward, even if it's breakeven?

I feel like life is full of inflection points. So depending on where you want to pause the tape, I definitely think we're at an inflection point. For me, the inflection point is the -- as you pointed out, we've done a lot of the hard work of trying to right size the business and the overhead and costs, et cetera. And at the same time, we really have done a pretty good job of locking down some of our key partnerships and licenses. I'd say the vast majority of our key partnerships and licenses. So I'd say the inflection point is like now we've got to push the gas. So does that mean that we'll be profitable, I guess time will tell. We have as much of -- as much of a prediction about what the weather will be in 3 months from now as anybody else. But our expectation is that if we continue on the path that we're going down, that will be substantially profitable and hopefully, more so than we were in 2024.

So the other question, which kind of leads off that is like it's not a kind of a typical turnaround model would be shrink, fix and grow. And it seems as though you've been through the shrink and fix stages. And then I guess the question is, like I asked you this before, I guess, a couple of years ago, like so this is still consuming 100% of your time like in terms of your business activities?

Yes. I'd say, if anything, it's consuming more of my time personally now than it ever has. I think I'm probably as mentally unstable as I have been in a long time. So that's -- there is certainly correlation there. I'm just kidding.

No, I understand.

Definitely taking up just about 100% of my time. In terms of the shrink, fix and grow, yes, I think we've sort of shrunk. I think we've done a lot of fixing. And in terms of growing, the way I think about it is like we have a bus and we have space for more passengers on the bus. Like we have the tool ready. We have the entire business set up, and we need to layer in additional opportunities for revenue growth, for bottom line, high-value licenses as well as at the same time, we're not just interested in the cash flow of the business. We're also interested in the long-term shareholder value and creating value in the underlying IP. So taking some risks around co-creator, around new entrants, around wholly owned IP, so it may be some entertainment opportunities. So it's a combination of putting more passengers on the bus and at the same time saying like, okay, now we have -- now we have more stability in the business, that's an opportunity for us to also invest in the long-term value of the IP.

So where are you spending a lot of your time or most of your time? And I guess I understand that like profitability short term may be compromised to invest in growth opportunities?

That's a good question. I mean -- I tried to -- I mean, I don't know if you're asking me personally or if you're asking about the business.

Well, you, as it relates to the business. I mean, how many people work at the company now?

About 50.

Okay. So I mean you're running the show, so it's really like -- have -- well, I guess, how you are positioning the company and what you were emphasizing for yourself and in turn the company?

Yes. I mean it's sort of a -- like the way I think about the business is kind of having like 2 primary heads. One is the cash flow side of the business. And I'd say that's primarily the license side of the business. And the other is the value opportunity, and that's kind of the co-creator and original IP and that franchise extension and entertainment and all the things that kind of extend further out. I'd say like I try to find the biggest problem that -- not actually call them problems, the biggest areas that need to be addressed and spend ample time on them to get them set up for future stability and then go on to the next issue. So like -- and at the same time, I'm also doing -- in a given day, I might be dealing with 3 or 4 issues on either side of the fence. So in terms of me personally, I'm thinking about how to do -- how to extend our franchises. Whether that's selling bourbon whiskey or thinking about other ways that we can extend franchises. Whether that be tabletop games, board games, podcast, conferences, sneakers, whatever it is, to give fans exciting opportunities to engage with the franchises that they love, that might be taking up so much of my time. And then on the other side, I'm thinking about what are the next licenses that we should be focused on. How do we put more passengers on the bus and then going out and trying to land those deals and land those next opportunities. So I'd say it's kind of right brain, left brain, but trying to make sure that each side is getting the adequate amount of time and focus to be able to deliver.

Got you. And then my last question, which is kind of a more technical question, I apologize because I don't have -- I'm out of the office, so I don't have my -- the filing in front of me. But I was curious about divesting schedule for the options. Like I wasn't sure if they divested over time because I knew that there were some market cap thresholds. So I didn't know if both of those had to be met or -- and I read through it a couple of times, and I was just a little confused.

No. I think in terms of divesting, if I'm not mistaken, divesting is related to the -- maybe it is dual, but it's mostly -- as far as investors are concerned, I think it's mostly related to the success. For tax reasons, part of it is in terms of it being treated as ISOs that are just typical options. There's only a certain amount that could be -- that could divest in a given year. So that's why -- that's part of the reason why divest over such a long period of time.

Okay. So it's primarily related to market cap. And then I know I asked you this before, but I just ask again, like the target seem to be incredibly high, which I would applaud you on. But I was curious about kind of why that decision was made, because I think it's like $25 million and $50 million...

And $110 million. Yes. I do think that the targets at the time that they were set were based on an expectation on that moment in time. And I think that the reality is that the lack of liquidity in the stock, the lack of interest, the -- we've had a pretty good year relative to the past 5 years for IDW. I mean this is a very good year and there's also more cash in the bank, and the market hasn't really reflected that kind of a turnaround. So I do think that there's -- like at the time that the Board set those targets, I think, there was more of an expectation of a more engaged marketplace and that would be more impacted by news and that just hasn't been the case.

I can almost guarantee that the more black ink and cash flow that you produce, the higher the stock will go. So it will take care of itself.

Yes. No, like I said, I think there's the 2 sides of that -- of the 2 heads of the monster, there is the cash flow. And I think we can hopefully keep layering profitability. And the real upside for the business is not going to be an incremental $1 million or $2 million or $3 million of profitability because there's no real value in that profit. Like it's just the cash because we own the Ninja Turtles and we don't own Sonic. And if those licenses don't get renewed, which they're not guaranteed to. So in terms of the value for the IP, that's really where the long-term opportunity is. And I'd say the market is almost 100% discounting, I shouldn't say almost. I mean like I think, negatively discounting that possibility. I would say that the market is, in my estimation, is estimating a negative value to the future exploitation of licenses just based on liquidation value and the current market cap.

Well, there are people out there like me who are willing to provide liquidity, if anybody wants to get out. And when they're ready to buy, we'll provide liquidity for them to get in.

I hope that sufficiently answers your questions?

Yes. Thank you very much.

We have a follow-up coming from [ Daniel Cid ] with Spruce Line Capital.

What does IDW plan to do with the $3 million of capital that was recently raised?

So it was raised through strategic purposes and also just kind of as a backstop. So as the backstop, it's obviously going to continue to function as a source of security for the company. We have a material amount of our cash balance invested into secure and highly liquid market assets, just to be able to provide some value while it's sitting, but it's there for opportunities, whether it be a new license, new opportunities for the business. I can say personally, having $7 million in the bank versus just a little over $3 million. There's a lot more confidence to take healthy calculated risk knowing that we have that much cash in the bank.

There are currently no questions in queue. I'd like to turn the floor back to management for any closing remarks.

Thank you very much, John. Thank you, everyone, for joining. This is I think our most robust conversation with investors yet, and I hope that will continue. We welcome questions and engagement and look forward to our next quarterly update. Thank you, everyone, and have a good day.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.