IDW Media - Q3 2022

Executive Summary

• Revenue rose 14% year over year to $7.7M on delivery of Surfside Girls; net loss narrowed to $0.8M ($0.06 per share) from $0.9M ($0.09) in 3Q21, and improved from $2.3M ($0.17) in 2Q22.
• Entertainment returned to growth with $1.2M revenue tied to delivery of 10 Surfside Girls episodes; Publishing declined 3% to $6.6M on tough comps (Last Ronin) and distributor transition to Penguin Random House.
• Balance sheet remained debt-free; cash was $10.3M and working capital $18.1M at July 31 (management also said “no debt”).
• Management cited expected 4Q22 revenue contribution from Locke & Key Season 3 delivery; post-quarter, announced five series development deals and named Allan Grafman as CEO—potential catalysts for sentiment and pipeline visibility.

What Went Well and What Went Wrong

• What Went Well

  • Entertainment delivered revenue and swung to positive operating income ($48K) as Surfside Girls Season 1 was delivered; consolidated operating loss narrowed meaningfully YoY and sequentially.
  • Strategic pipeline advanced: five TV series development deals announced; first co-development deal (“Family Time”) initiated, strengthening cross-division IP leverage.
  • CEO underscored acceleration in original IP as the growth engine: “We are committed to sharpening our focus on acquiring and developing original IP content…beginning to see solid traction”.

• What Went Wrong

  • Publishing revenue fell 3% to $6.6M on a tough TMNT The Last Ronin comp, fewer titles, PRH distributor transition, and lower digital sales; IDWP posted a $0.6M operating loss vs. $0.1M income in 3Q21.
  • Games revenue declined as the company only backfilled orders on previously created games, removing a prior tailwind (e.g., Batman game).
  • Cash usage increased through the year as the company invested in originals; net cash used in operating activities was $6.5M for the nine months ended July 31, 2022.

Transcript

Operator (participant)

Good evening, and welcome to the IDW Media Holdings Third Quarter Fiscal 2022 Earnings Call. During management's prepared remarks, all participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After the prepared remarks, you are invited to participate in the Q&A. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. I'll now turn the call over to John Nesbett of IMS Investor Relations.

John Nesbett (Founder and President)

Good evening. I'll take a brief moment to read the safe harbor statement. 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, 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. I will now turn the conference call over to Allan Grafman. Please go ahead, Allan.

Allan Grafman (CEO)

Thank you, John Nesbett, and thank you to everyone on the call for joining us. While this is my first call as CEO of IDW, I joined the IDW board in 2019. I'm excited about this opportunity to build on the solid foundation the company has established. IDW is one of the premier independent comic and graphic novel media companies in the country with outstanding resources in both our publishing and entertainment divisions. Over the past several weeks, I've been spending time with our talented employees. We've made solid progress to date with our strategy to strengthen our original content library, and we have tremendous potential to accelerate our growth. Our growth will come from leveraging our internal expertise and our strong relationships with creators to continue to develop unique characters and stories that appeal to a broad and growing audience.

We will be bringing new relationships to the company that will facilitate new opportunities for IDW. Just watch us. Over the coming weeks, I look forward to meeting many of you in person. Now, onward to the subject of today's call. My remarks today will provide an overview of our strategy and execution during the third quarter of fiscal year 2022, which closed July 31st. After my remarks, Brooke Feinstein, our CFO, will provide details around our financial results, and then we'll be happy to take your questions. Our third quarter demonstrated continued progress and revenue growth of 14%, primarily related to our delivery of the first season of Surfside Girls, which debuted on Apple TV in mid-August.

As we move toward the close of our fiscal year at the end of October, we also expect to realize revenue and bottom-line contributions from the fourth quarter delivery of season three of Locke & Key. With our heightened focus on original content, we're encouraged by the rate at which we're adding new entertainment projects to our roster. We are committed to sharpening our focus on acquiring and developing original IP content, and we are beginning to see solid traction from our efforts to expand our publishing library. To that end, in August, we announced five series development deals with a range of well-known studios, networks, and streaming services to develop television series based on our IDW Publishing and Top Shelf Productions graphic novels and comics.

Our originals represent some of the most creative characters and stories available, and we look forward to continuing to tap our robust library for adaptation into compelling stories, feature films, and podcasts with the industry's leading authors and content creators. To recap, currently we have over 100 original titles in our library, with 40 new titles at various stages in the development pipeline. Our goal is to add about 40 quality original titles each year. Our original IP is an economic driver of the business and also a creative engine providing IDW access to new genres and audiences. In a noteworthy accomplishment, we recently announced our first co-development deal with Matt Silverstein and Dave Jeser for the launch of a comic book and television series based on the comedy sci-fi project Family Time. We have been thoughtfully working to advance our co-development strategy for some time.

Through creative partnerships between our entertainment and publishing divisions, we can open up new distribution avenues for our projects with the goal of bringing compelling new content for audiences across multiple platforms. We are seeing positive response to our original titles and heightened industry recognition of our value as a collaborative and independent creative partner. We remain focused on driving strategic growth by partnering with creators to develop iconic characters and stories that will resonate across diverse media platforms. This is a really exciting time for IDW, and we are just beginning to realize the results of a lot of work by a lot of team members.

As we move through the close of 2022, we are very well positioned to drive our refocused strategy by leveraging the strength of our content library and our pipeline of new projects to continue developing new creative relationships. Likewise, our strong balance sheet provides a solid foundation as we look to grow our position as a leading independent media entity and drive accelerated growth across all platforms. Now I'll turn the call over to our CFO, Brooke Feinstein, to go over our financials for the third quarter of 2022.

Brooke Feinstein (CFO)

Thank you, Alan. My remarks today will focus on the third quarter of our fiscal year 2022, the three months ended July 31st, 2022. Except where I indicate otherwise, I'll be comparing the third quarter of our fiscal 2022 results to the third quarter of fiscal 2021. IDW Media Holdings' third quarter consolidated revenue increased 14% to $7.7 million, compared to $6.8 million a year ago. Publishing revenue decreased slightly to $6.6 million in the third quarter, compared to $6.8 million in the same prior year period, primarily related to a decrease in the direct market of $1.1 million due to the strong comic release of The Last Ronin number three in the prior year. Distributor transitioned to Penguin Random House this year and fewer titles released during the current year quarter.

In addition, we saw a decrease in games revenue as we are only backfilling orders on previously created games. These decreases were partially offset by strong exclusive Scholastic sales from Sonic the Hedgehog and strong book market sales of The Last Ronin collection, Teenage Mutant Ninja Turtles hardcover, and They Call Us Enemy. Entertainment revenue increased to $1.2 million in the third quarter of 2022, compared to no measurable revenue in the prior year period, related to the full delivery of season one of Surfside Girls. Our consolidated loss from operations was $768,000 in the third quarter, compared to a consolidated loss from operations of $2.1 million in the prior year period, primarily driven by an increase in operating income from the entertainment side of our business of $1.9 million.

IDW Publishing's loss from operations was $584,000, compared to income from operations of $74,000 in the third quarter of fiscal 2021. IDW Entertainment's third quarter income from operations was $48,000, compared to a loss from operations of $1.9 million in the third quarter of 2021. Included as an offsetting cost was $0.4 million in recouped advance fees associated with production of season four of Wynonna Earp. Net loss in the third quarter was $837,000 or $0.06 per share, compared to a net loss of $941,000 or $0.09 per share in the same prior year period. Turning now to our balance sheet. At July 31st, we held $10.3 million in cash and cash equivalents and had no debt. Working capital, current assets less current liabilities totaled $18.1 million.

Our balance sheet remains strong with a solid cash position and no debt, providing us with the resources and financial flexibility we need to continue growing our IP library and investing in growth opportunities. We continue to direct our focus toward original content, and we believe that we are well positioned to grow our IP library and feed our entertainment segment to generate consistent high-margin revenues across the business. That concludes my remarks. Now, Alan and I will be happy to take your questions.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Tyler Wright with SwiftRock Capital. Please proceed with your question.

Tyler Wright (Analyst)

Hey, guys. Thank you for taking my questions. My first question is, you know, is the management change, does this signify a change of strategy?

Allan Grafman (CEO)

This is Allan Grafman. Thank you for that question. The short answer is no, at this time. I'm 12 days in, and I've been active with the company for three years, having been on the board. No, this does not signify at this time a major change in strategy.

Tyler Wright (Analyst)

Okay. Got it. Thank you. A second question. Could you just provide some additional details about, Allan, your background, you know, and particularly, you know, what's relevant to your new role at IDW as CEO?

Allan Grafman (CEO)

Sure, would be happy to. What you need to know about Allan Grafman is that I love to monetize intellectual property and content, and I've been doing it for a long time. If you think of a bell curve, the middle part of my experience is doing just that at large companies like ABC, Disney and Hallmark, and midcap companies, and a lot of emerging growth companies. I've done it in a variety of roles, including from chairman to president to CEO to EVP.

I've executive produced a couple shows. Over the past several decades, I have a large body of not only work experience, but also relationships that I am focused on bringing to IDW. I'd be happy to expand on it, but that's the short version and there's more on me, and I'd be happy to answer that or, you know, publicly available material can amplify what I've just touched on.

Tyler Wright (Analyst)

Okay, great. Thank you. That's very helpful. That's it for my questions. Thanks a lot, guys. Thanks a lot.

Operator (participant)

The next question comes from the line of Edward Reilly with EF Hutton. Please proceed with your question.

Edward Reilly (Research Analyst)

Hey, guys. Thanks for taking my question. First off, congrats, Allan. Looking forward to seeing the continued momentum for IDW. I was wondering if you could maybe talk a little bit about the cadence of the delivery for the five new shows. Wondering if you expect those to be delivered in the next fiscal year.

Allan Grafman (CEO)

Ed, thank you. That's a question that I appreciate your asking. As I mentioned previously, I've been involved in television production both as a producer and an executive with a number of companies. To clarify, the shows that were announced were optioned. The process is such that there's original IP, which IDW controls. There is much activity in the market selling those different opportunities. We now have recently concluded options on a number of those shows. During that limited option period, there is work that's done to move that forward with scripts, with presentations, with internal conversations, and then at some later date, there is a commitment or the property comes back to IDW. Just to clarify again, those that were announced were optioned. We are hopeful and expecting and working towards turning those into productions, but at this stage, I'm not able to comment any further than that.

Edward Reilly (Research Analyst)

Okay. Gotcha. Any possibility for a fourth season of Locke & Key on a different streaming platform? I don't think Netflix is picking it back up, correct me if I'm wrong there.

Allan Grafman (CEO)

I won't speak specifically to Locke & Key 'cause that would be projecting forward, but I can say that there are instances in similar situations where successful shows, which Locke & Key is, either the controlling party rethinks with some guidance from the party selling the show, or there are ways to monetize it further with the same party through possibly prequels, sequels, other characters, or even taking the show lock, stock, and barrel elsewhere. While I'm not speaking specifically about any particular show, there are many ways to monetize a successful show similar to Locke & Key. Ed, does that answer your question?

Edward Reilly (Research Analyst)

Yep. Thanks. That's really it for me. Appreciate it and congrats.

Allan Grafman (CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Devin Xu with North First Capital. Please proceed with your question.

Speaker 6

Hey, guys. Thanks for taking my question and congrats on the new role. I just wanted to follow up on a previous question. Given you're a few days in the new role, but your previous involvement, could you speak to some of your opportunities at the top of your mind, for better execution and whatnot, and then maybe what you thought the company did well to begin with?

Allan Grafman (CEO)

I'm going to ask you to repeat the question. It was a little garbled on our end, please. Could you please repeat the question?

Speaker 6

Yeah. What do you think, given your previous involvement, what you saw as some of the opportunities for IDW to do better? What you think IDW is doing well already.

Allan Grafman (CEO)

I can speak to the past. One of the areas that has been changed is the reduction of the amount of capital that the company will put at risk in promoting and developing its shows. If you look back through the past, you will see that the company had, I would say, very large capital commitments, especially for the size of this commitment, and was active in a way that history has shown was not appropriate. There was, in short, too much capital put into a project or two, and over the preceding year or two, the company has moved away from that model.

We are now entirely focused on what we can do best and where we can be a preferred partner, where we control the IP, where we have a role at the table to monetize that IP, and where we partner for success, but we do not finance that. That is something that the company is not in a position to do.

Speaker 6

Got it. Okay, great. Follow-up. For the five option deals, are you able to speak to the potential scale? Are they more of a Surfside Girls type of potential deal, or is it more Locke & Key, or does it just vary?

Allan Grafman (CEO)

I'm going to give a short answer, and then I'm gonna invite Brooke to perhaps amplify. I'm not going to be able to speak to what might happen, but very broadly, I will say that, Locke & Key is, perhaps, in some ways exceptional, the type of deal that was made, quite a while ago. The types of deals that we're looking for are to have success commensurate with the risk with a lot of upside. Brooke, would you like to amplify on that, please?

Brooke Feinstein (CFO)

Sure. As Allan said, the Locke & Key deal that was signed many years ago, you know, fees like that are not really in existence anymore. The Surfside deal is a co-studio model. Now most of these deals that were optioned are executive producing fees, you know, would be a little bit less than the Surfside deals, more kind of half a million one million kind of range in there, depending on, you know, the genre and what the show is going on behind it. Hopefully that answers your question.

Speaker 6

That's good. Thank you again, and good luck.

Operator (participant)

Our next question comes from the line of [Damian Galburn] Private Investor. Please proceed with your question.

Speaker 7

Hi. I have a question about expanding into retail. Like, can IDW start some more like getting more comics into like Target, Walmart? Like when the shows come out, partner with Netflix or Apple to say, "Hey, we have real-life comics related to what you're watching. Pick it up at your local comic store or order online." How about that?

Allan Grafman (CEO)

Damian, I'm so glad you asked that question because Brooke and her team have done work which shows that when TV shows like Surfside Girls and Locke & Key are aired, that it does drive more sales. Yes, there's a consistent effort and there has been a change in distributors. Brooke, could you please amplify on that, please.

Brooke Feinstein (CFO)

Sure, yes. We are using Penguin Random House to for our direct and non-direct markets now. We are not directly involved in, you know, if it's gonna be in Target and where exactly it's gonna go. We are kind of refining our direct-to-consumer approach and seeing if there are areas that we can put some of the comics in at certain times, and creating kinds of links on different releases to kind of go to our website to allow people that accessibility to buy that. Yeah, we're in the middle of kind of, you know, linking those more and ensuring that there is easier access when the shows premiere.

Allan Grafman (CEO)

If I may continue, Damian, one of the areas that we are expanding and investigating and expanding, it's the same thing, is the direct-to-consumer. Direct-to-consumer has a very, you know, much enhanced profit margins. Part of the challenge is getting viewers and viewership of the site where these periodicals and graphic novels are available. We are expanding the number of publications that will be available on a direct-to-consumer basis. In addition to what Brooke said with the change of distributor, in addition to shows driving more sales, we are also looking to expand the direct-to-consumer element.

Speaker 7

All right. No problem.

Operator (participant)

Again, as a reminder, if you have a question, you may please press star and then one. As there are no more questions, this concludes our question and answer session and conference call. I'll now hand the call back over to management for closing remarks.

Allan Grafman (CEO)

I wanna thank everyone that took time to join us. Very much looking forward to speaking with you and seeing and speaking with you at the fourth quarter call, which we'll all look forward to together. Thank you so very much.

Operator (participant)

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