IDW Media - Q4 2022

Executive Summary

• Q4 2022 delivered a sharp inflection: revenue rose 48% year over year to $10.5M and 36% sequentially, driven by delivery of Locke & Key Season 3; consolidated operating income was $0.3M and net income was $0.4M ($0.03 per share).
• Publishing softened on fewer title releases (IDWP revenue $5.7M vs $6.9M prior-year), while Entertainment surged (IDWE revenue $4.8M vs $0.2M prior-year).
• Balance sheet remained solid: cash $10.0M and working capital $18.5M at Oct 31, 2022; management reiterated a conservative, asset-light financing model and sufficient cash to execute 2023 strategy.
• Management highlighted a stronger development slate (seven to ~10 development agreements/options) but clarified none are yet greenlit; near-term catalysts hinge on converting options to production and monetizing broader IP across media formats.
• Wall Street consensus estimates via S&P Global were unavailable for IDWM this quarter; comparisons to estimates cannot be made.

What Went Well and What Went Wrong

What Went Well

• Entertainment execution: delivery of Locke & Key Season 3 drove IDWE revenue to $4.8M and segment operating income to $2.8M in Q4 (vs. $(1.5)M in Q4’21), materially improving consolidated profitability.
• Year-over-year improvement: consolidated revenue +11% for FY22, consolidated loss from operations narrowed to $(0.7)M from $(8.7)M; net loss narrowed to $(0.7)M from $(5.4)M.
• Strategic pipeline momentum and optionality: Management emphasized a stronger development slate (“seven development agreements in place” and “about 10 entertainment projects”), diversified partner roster (Universal, 20th Century, Hulu, Warner Bros, Cartoon Network, Lionsgate) and cross-genre coverage.

What Went Wrong

• Publishing pressure: IDWP revenue fell to $5.7M on fewer titles and tough comparison to TMNT The Last Ronin releases; IDWP posted a Q4 operating loss of $(1.6)M with higher SG&A share.
• SG&A elevated by one-time severance: CFO quantified ~$0.7M non-recurring SG&A in Q4, inflating period expenses and masking underlying leverage.
• Limited visibility on renewals/greenlights: Surfside Girls was not renewed “in its current form” and none of the ~10 projects were yet in production; near-term revenue cadence remains dependent on deliveries and timing.

Transcript

Operator (participant)

Greetings. Good evening, and welcome to the IDW Media Holdings Q4 and full year 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 the star key, then one on your touchtone phone. To withdraw your question, please press the star key then two. I will now turn the call over to Jen Belodeau of IMS Investor Relations.

Jen Belodeau (VP)

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 filing. 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.

Allan Grafman (CEO)

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 Q4 and full fiscal year 2022, which closed October 31st, 2022. Additionally, now with just about five months in the CEO seat, I'll provide some thoughts around our vision for IDW and our strategy moving forward. After my remarks, Brooke Grady, our CFO, will provide details around our financial results, and then we'll be happy to take your questions. Onto our results. Brooke will provide a deeper dive, but at a high level, we finished 2022 with strong Q4 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 fiscal 2022, we achieved consolidated revenue growth of 11%, which included delivery of seasons two and three of Locke & Key, as well as season one of Surfside Girls. We also made progress improving our full-year operating results and profitability as compared to fiscal year 2021. 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. 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 Rodríguez. 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. 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-form video. At its core, our strategy is fairly simple: continue to increase our industry recognition as the creative partner of choice so 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. 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, 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 five 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. 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 respected brand. 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 Grady, to go over our financials for the Q4 of 2022.

Brooke Grady (CFO)

Thank you, Allan. My remarks today will focus on the Q4 and full fiscal 2022 results, the three and 12-month periods ended October 31, 2022. Except where I indicate otherwise, I'll be comparing the Q4 of fiscal 2022 results to the Q4 of fiscal 2021, and I'll also be comparing full year fiscal 2022 results to full year fiscal 2021. IDW Media Holdings' Q4 consolidated revenue increased 48% to $10.5 million compared to $7.1 million a year ago. IDW's fiscal year 2022 revenue was $36.1 million compared to $32.4 million in fiscal 2021.

Publishing revenue for the Q4 of 2022 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 2022. Also reflected the strong comic release of Teenage Mutant Ninja Turtles: The Last Ronin number 4 in 2021. Publishing revenue for fiscal 2022 increased slightly to $25.8 million, primarily due to increased non-direct market revenue, an increase in games revenue related to Batman Adventures, an increase in retailer exclusive revenue related to Sonic the Hedgehog. In addition to strong book market sales for Teenage Mutant Ninja Turtles: 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 2021.

In the Q4 of 2022, IDW Entertainment reported revenue of $4.8 million, mainly related to the recognition of revenue for the delivery of season three of Locke & Key. For the full fiscal year 2022, IDW Entertainment reported revenue of $10.3 million, primarily driven by the delivery of seasons two and three of Locke & Key, as well as season one of Surfside Girls. Our consolidated income from operation was $300,000 in the Q4 of 2022, 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 from operations of $8.7 million in fiscal year 2021.

IDW Publishing's loss from operations in the Q4 of 2022 was $1.6 million, compared to breakeven in the prior year period. In fiscal 2022, IDW Publishing reported a loss from operations of $1.9 million, compared to a loss from operations of $800,000 in fiscal 2021. IDW Entertainment's Q4 income from operations was $2.8 million, compared to a loss from operations of $1.5 million in the Q4 of 2021. IDW Entertainment's income from operations for fiscal 2022 was $3.1 million, compared to an operating loss of $6.7 million in fiscal 2021. Consolidated net income in the Q4 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 2022, 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 2021. Turning to our balance sheet. At October 31st, 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?

Allan Grafman (CEO)

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

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 Edward Reilly with EF Hutton.

Edward Reilly (Research Analyst)

Hi, guys. Alan, you've been there for a few months now, as CEO. I'm just wondering if you could maybe expand a bit on your, on your top priorities, for 2023?

Allan Grafman (CEO)

Ed, delighted. We just reviewed this, and our priorities are really clear. We have a core focus of which consists of three. 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. At Media Holdings, we have some digital initiatives that we're working on that we will be bringing to bear this year. That's the core focus. There are some near-term opportunities.

They fall into five categories, which I can enumerate very briefly. First, other comic book companies have fallen into 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 in return for a share. We're being very careful with how we use our resources. A 4th category is in mobile and games. We have a conversation possibly using our intellectual property in games. A 5th category is short-form video. Those are near-term, which get 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.

Edward Reilly (Research Analyst)

Okay, thanks for that. On the 10 entertainment projects, are these optioned? Are these officially green-lit? I'm just wondering if you could maybe give us some indication of where some of these projects stand within the whole process.

Allan Grafman (CEO)

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've standardized it 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. 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 optioned. Optioned means a contract has been signed and modest money has 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 optioned. What we really need to do is cross the finish line or step on home base and put something into production. That is outside of our control, just to be clear, but we're really focused on that. Three categories to be clear. Negotiating, we don't talk about. Optioned, we do talk about, and we try to make clear what an option is. It's modest money.

The third category is put into production. That's significant. I hope that clarifies a really important topic for you, Ed.

Edward Reilly (Research Analyst)

Yep. Absolutely. Just wondering if you could maybe silo the 10 entertainment projects between options and green-lit. Those are category number two and three.

Allan Grafman (CEO)

I'm going 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. Brooke, you can jump in. There is a small production called Essex County. Brooke, has that been announced?

Brooke Grady (CFO)

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.

Allan Grafman (CEO)

So we-

Brooke Grady (CFO)

With the Canadian Broadcast.

Allan Grafman (CEO)

Thank you, Brooke. That's a small production. The positive is we control the IP. Someone felt important enough to option it and produce it. It could lead to great things, but at this time it's modest.

Edward Reilly (Research Analyst)

Okay. Gotcha. any indication about renewal, for Surfside Girls season two?

Allan Grafman (CEO)

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. 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.

Edward Reilly (Research Analyst)

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

Allan Grafman (CEO)

I'm sorry, Are you speaking about the publishing group?

Edward Reilly (Research Analyst)

Yes. Yep. Yes.

Allan Grafman (CEO)

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

Edward Reilly (Research Analyst)

Okay. Last one for me. In the Q4, looks like SG&A was up quite a bit. Brooke, just wondering what's driving that?

Brooke Grady (CFO)

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

Edward Reilly (Research Analyst)

Okay, great. Thank you guys.

Brooke Grady (CFO)

Yep.

Allan Grafman (CEO)

Thank you, Ed.

Operator (participant)

The next question comes from David Marsh with Singular Research.

David Marsh (Equity Research Analyst)

Hi. Thanks, guys. Congrats on the quarter. First, just to follow up on that last question. Brooke, could you quantify the non-recurring SG&A?

Brooke Grady (CFO)

I guess I could. It's about, you know, $700,000.

David Marsh (Equity Research Analyst)

Okay. Thank you. That's helpful. As we start 2023, I guess one question on the entertainment side, is there any residual revenue opportunity around Locke & Key, hitting any part of the fiscal year this year, or was all of that revenue realized in Q4?

Brooke Grady (CFO)

Yes. All of the revenue related to the prior seasons was all in this fiscal year. There are other opportunities that the entertainment team is currently exploring. That's kinda open.

David Marsh (Equity Research Analyst)

Okay. Thank you. That's helpful. I guess just on the 10 projects, Allan, obviously too early to, you know, pinpoint specific titles, but could you give us a sense, generally speaking, around genre that these titles fall in so that we have some idea of, you know, what to expect coming forward?

Allan Grafman (CEO)

I can try to answer that, David, by two metrics. First, we have agreements with a significant different diversified group of partners, including Universal, including Twentieth Century, including Hulu, including Warner Bros., including Cartoon Network, including Lionsgate. We're diversified. We're not tied to, we're not hamstrung. We have a diversified set of relationships. As it relates to genres, we are across all genres. Within the movie business, it's called four quadrants. We do have properties that range from animated for the Cartoon Network and children through tweens, teens, and adults. I would like to say that we have a wide enough portfolio of intellectual property and a diversified set of relationships that give us excellent opportunities. I hope that answers your question, David.

David Marsh (Equity Research Analyst)

Yeah, that's helpful. You mentioned that you were exploring some opportunities, perhaps, it sounds like perhaps, in mobile gaming. Did I hear that correctly? Could you talk, I mean, obviously, again, no titles, but could you talk a little bit broadly about, you know, what maybe some of the kinda low-hanging fruit might be there and, you know, timing perhaps if you have any on any possible, or releases into, you know, iTunes and, the Google Store and so forth?

Allan Grafman (CEO)

On timing, I can't, except to say it's not near term. Console games, I was in the console business before, and I've also been in the mobile business. Console games take a very long time. Mobile games do not. We are focused on opportunities that will put our intellectual property into games quickly, cheaply, and allow us to see if we can monetize it. Just to be clear, we do not invest our capital in these initiatives. We don't invest it really across podcasts, or mobile games. We may put a little bit of money into some explorations, in the future, including those categories. It's, we're in conversations and I could call them negotiations, David, but I'm not going to. I'm gonna call them conversations.

People have come to us, asked if we're interested. We've said yes, that's where we are. It's early days.

David Marsh (Equity Research Analyst)

Sure. Sure. That makes a lot of sense. Then I guess lastly from me, I mean, you guys end the year with $10 million in cash, which is pretty solid position. I mean, as you look forward, do you feel like that's sufficient liquidity to fund operations, you know, going forward for the next, you know, multiple years if need be, just given the pipeline that you see and, you know, the expense structure that you currently have?

Allan Grafman (CEO)

We have enough cash to execute our strategy in 2023. That being said, I don't wanna project beyond that. We're focused, and we're careful, and our strategy is to use what we're strong in and to partner with people who are stronger in other sectors, including cash. We're focused on conserving cash, executing our plan, and we're going to be able to do that for 2023.

David Marsh (Equity Research Analyst)

Sounds good. I'm sorry, just let me slip one more in. Do you have a number, projection for capital expenditures for this year?

Allan Grafman (CEO)

Brooke?

Brooke Grady (CFO)

What do you mean exactly by capital expenditures?

David Marsh (Equity Research Analyst)

Just anything that's gonna hit the investing line of the cash flow statement from a purchase of.

Brooke Grady (CFO)

Like, assets and stuff? I mean, we signed our two-.

David Marsh (Equity Research Analyst)

Yeah.

Brooke Grady (CFO)

new leases this year. You'll see those ROU assets on the balance sheet and basically the leasehold improvements and the private land equipment, all of that would have hit this year. I would say very minimal.

David Marsh (Equity Research Analyst)

Great. Hey, thanks so much, guys. Appreciate it. Good luck with moving things forward.

Allan Grafman (CEO)

Thank you.

Operator (participant)

As there are no more questions, this concludes our question and answer session. Thank you.

Allan Grafman (CEO)

Thank you all.

Operator (participant)

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