IDW Media Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 14, 2023

There are 3 speakers on the call.

Operator

Welcome to the IDW Media Holdings Inc. 2nd Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, David Jonas. You may begin.

Speaker 1

Thank you very much. Good afternoon, everybody. We'll get right into the question and answer. I just wanted to make sure that everyone is aware that any statements that we're making today will be subject To our forward looking statement disclosure, so please see our press release and our Form 10Q and 10 ks from past filings to incorporate the Safe Harbor statement. So with that, I'll turn it over for question and answer.

Speaker 1

Thank you.

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from Jeff Silber with Corrado Financial Group. Please proceed.

Speaker 2

Yes. Hello, David. Thanks. First of all, thanks for hosting the call. I understand and support what the company has done In terms of slashing costs and delisting, I suspect that that was done so you wouldn't have to Clam down existing shareholders by raising money at an incredibly dilutive financing.

Speaker 1

I know you're in a unique position to

Speaker 2

do this because you have essentially a controlling shareholder. But I guess maybe you can tell us now What the strategy is going forward? And where the direction is? I mean, you What are the capabilities of the company? You had a publishing division.

Speaker 2

You have an entertainment division or had an entertainment division. Can you give us a little bit of an indication whether or not you want to sell the IP as much of the IP as you can? Are you taking on new publishing projects? Management for a number of years has talked about Being a creative partner of choice, I wonder if you can still make that assertion Given the reduction in headcount, maybe you can talk a little bit about relationship with Penguin And the on the last call, predecessor mentioned, I think, there are dozens of projects, A dozen projects that have been optioned and are in various stages of development. But basically, the overall operating question is, What is the strategy for management going forward?

Speaker 2

Thanks.

Speaker 1

Thank you very much for the question. I will I'll ask you if you don't mind if I miss any of the points of the questions because I apologize. I didn't expect it Multiple parts, so I'll try to address all of them. But if I fail to touch on any point, please let me know and I'll be happy to circle back. In terms of vision for the company going forward, so I'd say there's different stages For the vision, I mean coming in, as you correctly said, cutting costs And creating those deficiencies was necessary.

Speaker 1

It wasn't just to protect shareholders from potential dilution, but it really was Globally to protect the company and its cash flow. I mean, even if it is possible In the future that we'll consider capital raising. But if we had not taken Decisive action when we did, I think there would have been a strong chance of insolvency and or taking on Capital in such a way where it would have been dilution to the point of absurdity, which at least If there's the need to raise capital now, hopefully it would be from somewhat more of a position of strength and not as dilutive. So that's sort of the first step. Next, I'd say, is focusing on getting the company to profitability and that's So a target goal that I have for the company for hopefully the Q4 of this year and into the Q1 of next year to start seeing the effects Of a more efficient operating cost structure and start to see profitability across the board.

Speaker 1

Beyond that, I think that there's a bunch of different ways to create meaningful value aside from just profitability. You had talked about selling IP. There's not any interest at this point in time for us to market our IP for sale. I'd say it's more the leverage our intellectual property to create value around it. So whether that be in the form of Entertainment or taking titles that have already had an entertainment lifecycle and Leveraging the success and the fan base of those titles to create additional revenue opportunities and fan engagement opportunities.

Speaker 1

I think those are more where we're looking towards, whether that's podcasting or doing a Kickstarter or a new kind of game or there's different medium where we'd be able to create additional value and engagement for fan. And then in addition to that, There are other distribution methods that you have not yet Taken full advantage of or taken advantage of at all, one might be Vertical digital reading, so scrolling kind of similar to like a TikTok scroll, but for reading comics, which is something that I think W hasn't yet done and that's something that we're looking at, which is a new way for us to take our backlist of content and Potentially also new content, but certainly for our backlist and create another potential form of engagement for fans and maybe reach A diverse and maybe to date unreached fan audience. I think our IDW Publishing website was just recently revamped and I'd say more current than it has been And utilizing that distribution methodology as a high value distribution channel for reaching customers and for Offering products in a way where we have better margins as a company when we're selling direct to consumer through our website, offering live to consumer engagement, We're also doing more events over the course of the year where we're directly engaging with fans, creating those Unique engagement moments, whether it's book reading, partnering with comic stores, going to conferences, working with Creative partners, writers, creators, artists, bringing the attention to our store partners, our Creative partners and also generating audio and video content that we can then utilize those thoughts Mark, for further marketing and to show that part of IDW's goal a big part of IDW's goal is to create That's meaningful fan engagement to delight our fans.

Speaker 1

And I think there's also we're at a beautiful nexus Between fan engagement and value creation, I think the more we engage our fans and give them the type of experiences that they want and Better user experiences, whether that's digitally or in person, hopefully the more likely those experience set of generating value and creating long term commitment to the franchise and to the brand. Yes. And that there's the possibility that we at some point might take a view towards creation of content Where we have more ownership over the content. So, something right now, we basically have license Content where it's completely we have a license to produce certainly limited, whether it's in print Digital print, but at the license, it's fairly limited for things like Ninja Turtles and Sonic where we don't have the Big upside is that becomes an entertainment franchise. We don't have the license for that.

Speaker 1

That's one that's a business line and the other is creator content where we partner with creators, we partner with artists and writers and we have an ownership stake that's joint with partners. In the future, we may Invest capital resources and human resources into owning and controlling completely our own IP. That might be a differentiator going forward that would give us the biggest upside for content creation. So those are kind of a few of the views in terms of being a partner of choice. I'd say 100%.

Speaker 1

We will be and are a partner of choice. I jokingly said to someone, I don't want to be the partner of choice. Want to be the partner you take your parents' home to meet. And that's the way that I think about how we partner with our licensors, with our Creators, I want them to feel a real sense of community and relationship when working with IDW collaboration alignment. So certainly that should continue.

Speaker 1

And I think from the time I spent with a bunch of creators, there has been great reception. And like one creator had kind of said to me, I feel like you're reading off my note sheet here because you're saying all the things I was Hoping to ask you questions about so you're answering everything without asking the questions. So I hope Yes. I hope we'll strive for excellence in that area. In terms of PRH, I think it's a great relationship.

Speaker 1

Really, it's a strong relationship. I actually just Coming back today from having a nice lunch with some of the leadership from PRH and they continue to be Excited about working with IDW. They're very engaged and they're giving us good guidance to make sure that we have The greatest likelihood for success in our marketing and sales efforts in partnership with PRH. And in regard to IBW Entertainment, we have a bunch of So, excuse me, a bunch of properties that are in development with different stages of development. Nothing has moved forward In part because of the rider strike that did put some prospects that felt more immediate A little bit on the slide one.

Speaker 1

So I do hope those will pick up. But entertainment is Something of a long sales cycle. Lockheed, as an example, has been kicking around for, No, maybe almost a decade until it found its place with Netflix. As for instance, they have another show that went Pilot years ago, Brooklyn Animal Control that seems to be having a second life. It's a great title, great The pilot episode, I think, was pretty well produced years ago and just didn't take off, but now might be a time.

Speaker 1

So I'd say you have a strong Library of IP, I think going forward that library is just going to get stronger and stronger as our editorial team Both at IDW Originals and at Top Shelf are producing just great content that's very relevant And especially in the case of IZW Originals, almost cinematic in its presentation. And I think it's going to be a great driver for IDW Entertainment. That said, IDW Entertainment is not only a long sales cycle, it's So, even if tomorrow we got a green light on the title, which is unlikely during the writers' strike, it could be A year or more before we recognize any revenue because generally payment comes when the show is produced and delivered. And obviously, that could take a long period of time. So I wouldn't expect any immediate results from IPW Entertainment, but it's not as We're abandoning it.

Speaker 1

It just will take time for those new prospects hopefully to come to market. And when they do, We'll hopefully be better positioned to create value surrounding the title from other sort of ancillary Revenue streams that we'd like to create that fan engagement on. I hope that answers at least some of your questions. But if there's any part I didn't, please feel welcome to a follow-up.

Speaker 2

Yes. And that's that was very helpful. If I may, let me just try to triangulate a few things here. So Previously, management mentioned that you'd be publishing 1400 SKUs in this fiscal year. And I was hoping maybe you could update us on that.

Speaker 2

And then as we think about Achieving profitability in the 4th and into the 1st fiscal quarter. I mean, if I do a very simplistic,

Speaker 1

I'd say

Speaker 2

arithmetic calculation. I think my recollection is you're cutting $4,000,000 of selling costs over on an annual basis. We could look at the margins, I'll call them the gross margins, which are essentially all on the publishing business. We can make some adjustments Accordingly to SG and A. And it's not certainly hard and impossible to see how you could Breakeven on a cash flow basis.

Speaker 2

I know that last quarter, I think the burden was something like $600,000 So but and in terms of and again, I'm just trying to bring some of this conversation together. So you had $9,300,000 in cash at the end of the first quarter, it's $5,600,000 in cash in the most recent quarter. Maybe you can talk a little

Speaker 1

bit about whether the On the

Speaker 2

publishing side, we mean the sales of the entertainment business is not going to contribute, as you say, anytime unlikely to contribute anytime Maybe you can help us to understand some of the moving pieces in terms of The SKUs, the cash at the end of the quarter and how And maybe sort of provide even if it's a qualitative bridge as to how you're going to get to the profitability in the Q1 or the Q1?

Speaker 1

Sure. So in terms of I don't know that 1400 SKUs is an entirely accurate number that may have been aspirational at the time at this I have to get back to you on a specific number. I think I feel confident saying over 1,000 SKUs, but I have No, I had one follow-up to be more specific about I've seen different numbers. But let's drill down a little bit. When we're talking about SKUs, we're not talking about Individual original titles, because a lot of those SKUs are A, are going to be Variant covers, which gets counted as a separate SKU, but it's really just the cover So, as a single issue comic.

Speaker 1

So, many comics are going to have maybe 3, 4, 5, sometimes even more than that variant covers where you have different artists doing Different coverage for a comic. So I'd say the real number in terms of like original titles is probably closer to $300,000,000 maybe $350,000,000 between top shelf, IDW original Artist editions and IDW licensed products. So but yes, I'd say probably Above 1,000 when you're including the variant coverage for those and the trade paperbacks, which are sort of the collected Addition of a number of comments put together and released as a separate collective addition. In terms of Kind of how that ties into profitability after you factor in more efficient cost structure, Not exactly sure of the question. I'm not sure how specific we want to get.

Speaker 1

I don't think we're going to Dives into specific variant covers and how much value we expect to generate. I'd say on the whole, Our forecast for revenue this year is slightly up from last year. And that's I don't want to say take that to the bank because we don't know that sales are going to necessarily deliver, but the sales forecast that we have At the moment, which I believe are fair forecast, anticipate that it will be slightly up year over year. And so some of that growth in revenue is attributable to a larger SKU count. I do think that that's part of what will drive profitability.

Speaker 2

I will add Lots of other questions, but I'll step back into the queue and let other

Speaker 1

I will say thank you. Thank you for Possible questions as in many cases, the question may be better than the answer, but I appreciate you taking the time to listen. Well, thank you.

Operator

Okay. The next question is from Keith Rosenbloom with Cruiser Capital. Please proceed.

Speaker 1

David, I want to echo the prior questioner's comments and just thank you guys for Doing what I think a majority owner should do and take control of the business if it's not moving in the direction that the shareholders need it to. My question revolves around how you perceive value. If I'm not mistaken, Just the level set, looking at your latest results. It looks like your working capital Is about $1.20 a share for a stock that's trading at $0.50 And Although there did seem to be a discussion about liquidity in the prior question, it seems like the company actually has ample liquidity If you can get the fixed costs under control or the margin profile under control. And I wanted to just get your perspective on that in terms of whatever Plans that you're articulating there, do you think the company's balance sheet is appropriately positioned To, 1, get you to profitability in the Q4 by the Q4, like you just said, And then whatever expansion plans you're talking about.

Speaker 1

Thank you, first of all, for the question, Keith. I do believe That the cash on hand and the balance sheet is sufficient to get us there. I will add the caveat That might change, but I don't foresee that changing. I talked earlier about possibly raising capital raising some capital. I think the last moment we'd want to raise capital would be when it's absolutely necessary and there's no money left in the bank.

Speaker 1

So that's why I did caveat that we might still raise some capital, but I think it would be more to give cushion and flexibility for us to Pursue those long term goals, not necessarily because we're on to our last dollar. In terms of value Of the stock, I mean, to take a different tack on liquidity, I mean, it's hard for me to know what the true value of a share of IDW Media And obviously, I can look at the OTC and look at the ticker and see what the bid ask is. But it's hard to Form an impression when there's 14,000,000 shares outstanding and the stock is trading, I don't know, 2,000 shares a day, maybe 10,000 shares, maybe in a very busy day, maybe at 25,000 shares. It's just not reflective Have a strong marketplace for the stock. So, I'm sure if somebody went out tomorrow and tried to sell their stock for signed spend, somebody is going to buy it.

Speaker 1

I'm sure there are buyers for the stock, but I have a hard time saying that the market is giving a Proper reflection of value. I think it's giving a whether it's $0.50 $0.45 $0.35 Whatever the numbers are that it's fluctuated at in the last little while, I don't perceive that as being A reflection of long term value as much as a reflection of years of disappointing results And sort of holding on to, I guess, the bottom and maybe that's about as close as it gets to the bottom. If We had $5,600,000 at the end of Q2 and we're kind of we're being transparent that we're Not expecting profitability for Q3 and there's some costs associated with the reduction in 4th. And So Q3 may have additional it's likely going to have additional losses. Like, there's somebody who's factoring in the value of IDW stock based on its cash position plus some minute premium and on some days maybe even no premium.

Speaker 1

Is that a true reflection of the Vault of IP? Is that a true reflection of the entertaining possibilities? Is that Our ability to grow direct to consumer and digital advertising and the growth in high value distribution channels, I don't think it reflects any of that. I think it just reflects something close to the bottom. And I think that in order for IDW Stock to have value, there needs to be demonstration and on a somewhat consistent basis that we're actually delivering On our vision, I think for years they've done a lot of vision, but not a whole lot by way of delivery.

Speaker 1

And I think that that's what's caused In the version of the value. And so I'd say whatever the value of today, I wouldn't get terribly Confident that that's reflective of the long term value. I mean it's reflective of where the market for item W is today. But if the company is able to demonstrate success over a consistent and growing basis, Then I think that the value of ITW should grow concurrently. You can tell me if that answers your question.

Speaker 1

I hope it does. I think it's thank you. I think it's getting there. And I think Okay. You can tell me if I need to if there's somewhere more you want me to go.

Speaker 1

I don't mean That would be our case. Absolutely not. Is there any issue you've listed your inventory at $5,000,000 your Trade receivables at $6,000,000 as an example. Obviously, you've got your other elements of current assets. But is there any reason to suspect that the company doesn't have those values, that those values are somehow Incorrect or you couldn't actually ever borrow against them if you ever wanted to?

Speaker 1

Good question. Let me think of the Andrew, do you want to On this question, I'm here with Andrew DeBaker, our SVP of Finance. Andrew, do you want to take a stab at that? Yes, absolutely. Absolutely.

Speaker 1

So I'll take it 2 pieces one at a time. As far as our accounts receivable, so as we stated in our financials, most of our AR is held at PRH. And those are that's true AR, right? There is no there's no smoke in the ears to that. The numbers are the numbers.

Speaker 1

We historically have had a very low write off percentage to the point we don't even have an allowance, a reserve for it. So RAR is solid. And I would say similar to our inventory. I mean, our inventory, we do a rather robust process of Analyzing our inventory, writing down our inventory, making sure that what we are we do have on the books is kind of value. So, yes, I don't necessarily see I guess, I don't see a concern there offhand.

Speaker 1

Great. Have you ever had a bad receivable from Penguin or any of the any of your other current Folks, do you have any bad news? Yes. Yes, absolutely. Nothing major of note.

Speaker 1

It's very, very small. We're talking a couple of grand here and there. It's mainly related to our foreign licensing business. So especially over the past couple of years with everything that's been going on, I mean, We also work with a few publishers in Russia and Ukraine in that part of the world, right? So it's understandable, right, that we might have had a few Customers where things didn't quite go right and weren't able to pay us.

Speaker 1

But it's again, we're talking the single digit 1,000 over the course of a year. So it's really nothing worth mentioning. Got it. So in other words, if the company did need some additional liquidity, you've got a pretty healthy Balance sheet to borrow against if you ever wanted to. Yes.

Speaker 1

I mean, I would say not my forte in this conversation, but in terms of the Strength of it, the AR is rock solid, right? The inventory with publishing, it's Maybe one could argue a little more subjective. I mean, like I said, we follow GAAP and we do a rigorous write down process, but of course, to be able to leverage that inventory for potential cash raise in the future, I'm not quite sure that that would be as available to us as maybe the AR. Thank you.

Operator

The next question comes from Paul Zunken with he is a private investor. Paul, please proceed. Hi. Should I ask all my questions in one shot or should we go sequentially?

Speaker 1

Let's take them all in one shot. After Jeff's First question is I decided to break out my pen and paper, so I'm ready to go.

Operator

Okay. The First thing, I just want to make a comment that I cannot express how appreciative I am that you are that you rent Tank current and that you're having conference calls and disclosing, I guess, a lot of other companies would have made different, Less shareholder friendly decisions. So I know it's a pain, but I just wanted to express My appreciation. So I had a bunch of questions. I guess some of them are nitpicking, not in any Have you done a 3802 study?

Operator

And like How much of your NOLs and are they impaired? Do you have a tax code in place? Would you consider putting a tax code in place To avoid the NOLs from becoming impaired, kind of what's adjacent to that question Is that if you issued equity, it might impair the NOLs. And I guess Piggybacking on Keith's, what I think Keith was alluding to, I mean, would you So factoring the receivables instead of issuing equity, especially, Conklin, you said that you don't feel as though The market is appreciating the actual value. Next thing is, I guess, are you spending 100% of your time with IDW or are there other things that you're doing?

Operator

How much of the General of the corporate overhead was one time because I think you might have had some severance. I don't know if you broke that out. With the stock trading at such a discount to its book value, are you going to have to take a write down for the goodwill and other intangibles. And then a more general question. With content, Like again, I'm not an expert in this market at all.

Operator

But with Netflix and Disney saying that they're cutting back on content, like I could see where If you just look at it at face value, that could be a negative for you, but then it could be a positive because you guys have more cost effective content. So just wondering if you could comment on that.

Speaker 1

Sure. Thank you for all the questions. I'm trying to make sure I get the whole event.

Operator

Sai, if you were to be able to write that quickly.

Speaker 1

No, no, no. Yes. You'll probably add to it, but I probably wasn't, but I'll at least explain and attempt. In terms of the NOLs, my understanding and We can take a deeper dive and get back to you. But my understanding is that the NOLs are broken into 2 categories and this is, I think, recognized in our most recent Okay.

Speaker 1

One, there's $8,000,000 worth of NOLs that I'm not sure if it's what you're referring So, with an impairment, but those NOLs have a shelf life going up till 2,030. And then there's about $50,000,000 of NOLs that, As far as I understand, don't have any time horizon on them. So I think that

Operator

I guess what I'm referring to is that if you get So if there is an ownership change of more than 50% in a rolling 3 year period, then the NOLs become impaired. So

Speaker 1

Okay. You're asking about ownership. Yes, so in terms of so with the caveat that, yes, if we did anything to potentially compromise The shareholder ownership structure, that could be an issue. But as they currently are constituted, there's no anticipation that the NOL should Has any impairment?

Operator

So would you put a tax pill in place to protect those from a potential ownership change, which would be beyond your control?

Speaker 1

That is a good question. I'm going to I'm making a note And

Operator

actually, the other thing is that there's a whole issue that if you trade on the pink sheets and there are no like 13 Fs and no Ds and Gs, I guess How would the IRS even know if there were an ownership change? How would you know if there were an ownership change? I'm just kind of thinking out loud.

Speaker 1

I think for insiders, there's still a requirement to file regarding any additional ownership. So I think it was within the family, which would be the only thing that would compromise at this point, would compromise the NOLs, but I think that would have to be disclosed. In terms of but I'll look into that putting a tax on place. It's a fair question. And I Pretty confidently said, I don't think anyone looked at it yet.

Speaker 1

In terms of raising capital versus sort of leveraging assets, I'd say I'll We said that as something that we'll have to consider as we go forward. There's a possibility that we're not going to have to raise any capital, but if We do so whether it's through equity or through leveraging our accounts receivable or so on. I'd say that probably will be A Board decision and I don't want to speak out of turn until we have a conversation about that. In terms of my personal time, I'd say, I I can easily say 100% of my working time is dedicated to IZW if you're assuming a 40 hour work week. If you're If you're assuming a 60 hour work week, I'd say probably 100% is committed to IDW.

Speaker 1

If you're assuming, I don't know, 90 or 150 hour work week, I'd probably spend a bit of time on a few other things, but ADW is my main focus. In terms of Overhead. Yes, I think most of the costs related to the reduction in force will be one time costs. And some of those are Seven payments that will go on for a certain period of time, I don't know whether it's 6 months, 12 months. I look forward to the day when you don't have to carry the cost of severance for former executive officers.

Speaker 1

But most of those costs were one time costs. And I think most of them should be recognized in the Q3, although like I said, some will get spread out over a longer period of time.

Operator

If it's possible like if it's not too much trouble to just like break out the one time costs, that would be really helpful. Like either in your written comments, you had a nice table kind of breaking up the segments. Again, just like If I had a wish list, that would be one thing.

Speaker 1

Okay. I'll make you a note of it. No promises, but I am making a note. In terms of the write down on goodwill or intangibles, Andrew, do you have anything to say about that?

Operator

Is that just done at year end or? Sorry, what was that? I said it may just be done at year end. Like, I don't know when that test is.

Speaker 1

Yes, sure. So previously, we had reviewed it on a quarterly basis. So Breaking up into 2 pieces. So our goodwill is really related to the acquisition of Top Shelf, going back to 2014, I believe. And so we've evaluated on a quarterly basis.

Speaker 1

It really, to be honest, hasn't been an issue. Top shelf continues to provide value. Two of their titles, they call Defenity in March, continue to be among our top 10 sellers every quarter. So That analysis, to be honest, is pretty easy every quarter. There's still extreme value in that.

Speaker 1

In terms of our intangibles, most of our intangibles are related 2 well, 2 things really. 1 would be our licensing contracts. That all was amortized let's see here. We amortized the entire $893,000 as of December of 2021. So net, it's You're on the books.

Speaker 1

The rest of our intangibles relate to software, so both our website and our database that we are developing. As David mentioned, we recently Switch to our new website. We're very excited that went live in the last 2, 3 weeks here. And so we will see a write off of some of the costs Related to our previous website, you'll see that below the line in amortization. And then we will put the cost And then just on your last question, Paul, in terms of entertainment.

Speaker 1

I do think that there is The opportunity for entertainment to drive value, I think it's a longer sales cycle. Renewable will take Okay. Time to get past the writer's strike and then to get things greenlit, but that is a strong way in which we'll be able to derive So the bottom line value for titles that have already been produced and then to kind of give them another life Another opportunity for fan engagement and hopefully then to drive the meritorious cycle to hopefully sell more books and create additional fan engagement on the print side.

Operator

Okay. It looks like we have no further questions in queue. We have reached the end of the question and answer session. And I will now turn the call over to David and Andrew for closing remarks.

Speaker 1

First of all, thank you everyone for joining and for Accommodating maybe somewhat of an unusual structure to just go straight into Q and A, I wanted to particularly say thank you to Andrew DeBaker. This is Andrew's first public conference call and I think he headed out of the park. So thank you very much, Andrew. That was great. Thank you everybody for joining.

Speaker 1

We look forward to continuing to keep you updated. Guys getting back to Paul's comments to try and follow best practices to I keep our shareholders informed and look forward to collaborating and sharing information on a timely basis. Thank you so much and happy to be with me.

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Earnings Conference Call
IDW Media Q2 2023
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