IDW Media Holdings, Inc.
Q2 2023 Earnings Call Transcript

Published: 14 Jun 2023

Operator:

Greetings. Welcome to the IDW Media Holdings Inc. Second Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.
I will now turn the conference over to your host, David Jonas. You may begin.:
David Jonas:

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 10-Q and 10-K from past filings to incorporate the safe harbor statement.
So with that, I'll turn it over for question and answer. Thank you.:
Operator:

[Operator Instructions] Our first question comes from Jeff Silver with Corrado Financial Group.
Jeff Silver:

Yes, 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 cram down existing shareholders by raising money at an incredibly dilutive financing. And that you're in a unique position to 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 you have an entertainment division or had an entertainment division. Can you give us a little bit of an indication of whether or not you want to sell the IP or 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 the relationship with Penguin.:
And on the last call, predecessor mentioned, I think quarter are dozens of projects, a dozen projects that have been optioned and are in various stages of development. But basically, the overriding question is, what is the strategy for management going forward?:
David Jonas:

Thank you very much for the question. I will -- I'll ask you if you don't mind if I miss any other points of the questions, I apologize, because I didn't expect it to have 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 to the vision. I mean coming in, as you correctly said, cutting costs and creating those efficiencies was necessary. 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 that there's -- 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 a target goal that I have for the company for hopefully, the fourth quarter of this year and into the first quarter of next year to start seeing the effects of a more efficient operating cost structure and start to see profitability across the board. 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 to leverage our intellectual property to create value around it. So whether that be in the form of entertainment or taking other -- taking titles that have already had an entertainment life cycle and leveraging the success in the fan base of those titles to create additional revenue opportunities and fan engagement opportunities.:
I think those are more where we're looking towards, whether that's podcasting or doing a kickstart or a new kind of game or there's different medium where we'd be able to create additional value and engagement for fans. And then in addition to that, there is -- there are other distribution methods that we have not yet taken full advantage of or taking 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 IDW hasn't yet done, and that's something that we're looking at, which is a new way for us to take our back list of content and potentially also new content, but certainly for our back list and create another potential form of engagement for fans and maybe reach a diverse and maybe to date, unreached TAM 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 product in a way where we have better margins of the company when we're selling direct to consumer through our website, offering live to consumer engagement.:
So doing more events over the course of the year where we're directly engaging with fans, creating those unique fan engagement moments, whether it's book readings, partnering with comic stores going to conferences, working with creative partners, writers, creators are bringing the attention to our store partners, to our creator partners and also generating audio and video content that we can then utilize those spots for further marketing and to show that part of IDW's goal -- a big part of IDW's goal is to create that meaningful fan engagement to delight our fans.:
And I think those also had a beautiful nexus between fan engagement and value creation. So I think the more we engage our fans and give them the type of experience that they want and better user experiences, whether that's digitally or in person, hopefully the more likely those experiences have of generating value and creating long-term commitment to the franchise and to the brand.:
Beyond 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 licensed content where it's completely.:
We have a license to produce certain limited whether it's in print or digital print, but the license is fairly limited for things like Ninja Turtles and Sonic where we don't have the big upside if that becomes an entertainment franchise. We don't have the license for that. That's one type of 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 complete our own IP. That might be a differentiator going forward that would give us 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%, we will be and our partner of choice. I jokingly said to someone, I don't want to be the partner of choice. I want to be the partner you take your parents' home to me. And that's the way that I think about how we partner with our licensors, with our creators. Like I want them to feel a real sense of community and relationship when working with IDW collaboration alignment.:
So certainly, that should continue. And I think from the time I spent with a bunch of creators, there's been great reception. And like one creator has kind of said to me, "I feel like you're reading off my note sheet here because like you're saying all the things I was hoping to asking questions about. So you're answering everything without asking the question." So I hope we'll strive for excellence in that area.:
In terms of PRH, I think it's a great relationship to 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 with regard to IDW Entertainment, we have a bunch of shows -- 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 sideline. So I do hope those will pick up. But entertainment is something of a long sales cycle.:
Locke & Key, as an example, has been kicking around for, I don't know, maybe almost a decade until it found its place with Netflix. For instance, we have another show that went to pilot years ago, Brooklyn Animal Control, that it seems to be having a second life. It's a great title, great show. The pilot episode, I think, was pretty well produced years ago and just didn't take off. But now might be a time.:
So I'd say we 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 IDW originals, almost cinematic in its presentation, and I think is going to be a great driver for IDW Entertainment.:
That said, entertainment is not only a long sales cycle, it's also a long revenue cycle. So even if tomorrow, we got a green light on a title, which is unlikely during the writer 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 IDW Entertainment, but it's not as though we're abandoning it. 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 question, but if there's any part, I didn't, please feel welcome to follow up.:
Jeff Silver:

Yes. So that was very helpful. If I may, let me just try to triangulate a few things here. So previously, management mentioned that you would be publishing 1,400 SKUs in this fiscal year. And I was hoping maybe you could update us on that? And then as we think about achieving profitability in the fourth -- and into the first fiscal quarter, I mean, if I do a very simplistic, I'd say, arithmetic calculation. I think my recollection is recutting $4 million or so in cost 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&A.
And it's not certainly hard or impossible to see how you could break even on a cash flow basis. And I know that last quarter, I think the burn was something like $600,000. So -- but -- and in terms of -- and again, I'm just trying to bring some of this conversation together. You said you had $9.3 million in cash at the end of the first quarter, $5.6 million in cash in the most recent quarter. Maybe you can talk a little bit about whether the activity on the publishing side, meeting aside the Entertainment business is not going to contribute as you say, any time -- unlikely to contribute any time soon.:
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 maybe sort of provide even if it's a qualitative bridge as to how you then get to the profitability in the fourth and the first quarter or the fourth to the first quarter?:
David Jonas:

Sure. So in terms of -- I don't know that 1,400 SKUs is an entirely accurate number that may have been aspirational at the time at this point. I have to get back to you on the specific number. I think, feel confident saying over 1,000 SKUs, but I have to I want to follow up to be more specific at the 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 of a single issue comic. 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 covers for comics.:
So I'd say the real number in terms of like original titles is probably closer to 300, maybe 350 between Top Shelf, IDW Original, Artist Edition and IDW License Product. So -- but yes, I'd say probably above 1,000 when you're including the variant covers 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 collected edition.:
In terms of kind of how that ties into profitability after you factor in a more efficient cost structure I'm not exactly sure of the question. I mean I'm not sure how specific we want to get. I don't think we're going to dive 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 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 we'll be slightly up year-over-year. And so some of that growth in revenue is attributable to a larger SKU count. But I do think that, that's part of what will drive profitability.:
Jeff Silver:

I will -- I have a lot of other questions, but I'll step back into the queue and let other....
David Jonas:

And thank you for the thoughtful as in many cases, the question may be better than the answer, but I appreciate you taking the time to listen.
Operator:

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

Davidi, I wanted 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. And 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 here, do you think the company the company's balance sheet is appropriately positioned to, one, get you to profitability in the fourth quarter by the fourth quarter like you just said and then whatever expansion plans you're talking about?:
David Jonas:

Thank you 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 may 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 they have no money left in the bank.
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 holding stock is 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, what, 14 million shares outstanding and the stock is trading I don't know, a few thousand shares a day, maybe 10,000 shares, maybe a very busy day, maybe at 25,000 shares. It's just not reflective of a strong marketplace with the stock. So they -- I'm sure if somebody went out tomorrow and tried to sell their stock for $0.05, somebody is going to buy it. So I'm sure there are buyers for the stock. But I'd 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 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 $5.6 million 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 force. And so Q3 may have additional -- is likely going to have additional losses.:
Like there's somebody is factoring in the value of IDW stock based on like its cash position plus some minute premium and on some days, maybe even no premium. Is that a true reflection of the vault of IP? Is that a true reflection of the entertainment possibilities? Is that a reflection of our ability to grow direct-to-consumer and digital advertising and 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 a demonstration and on a somewhat consistent basis that we're actually delivering on our vision. I think for years, there's been a lot of vision, but not a whole lot by way of delivery. And I think that's what's caused in erosion and the value. And so I'd say whatever the value is today, I would -- I wouldn't get terribly confident that, that's reflective of the long-term value. I think it's reflective of where the market for IDW is today. But if we the company is able to demonstrate success over a consistent and growing basis, then I think that the value of IDW should grow concurrently.:
You can tell me if that answers your question. I hope it does.:
Keith Rosenbloom:

I think -- thank you. I think it's getting there. And I think....
David Jonas:

Okay. You can tell me if I need to -- if there's somewhere more you want me to go. I don't mean to be obtuse.
Keith Rosenbloom:

Absolutely not. Is there any issue, you've listed your inventory at $5 million. Your trade receivables of $6 million, 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?
David Jonas:

Good question. Let me take a beat. Andrew, do you want to step in on this question? I'm here with Andrew DeBaker, our SVP of Finance. Andrew, do you want to take a stab at that?
Andrew DeBaker:

Yes, absolutely, absolutely. So I'll take it 2 pieces, one at a time. As far as our accounts receivables, 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 and mirrors to that. The numbers are the numbers.
We historically have had a very low write-off percentage to the point where we don't even have an allowance or reserve for it. So our AR is solid. And I would say similar in 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 -- has value. So yes, I don't necessarily see -- I guess I don't see a concern there off hand.:
Keith Rosenbloom:

Great. Have you ever had a bad receivable from Penguin or any other current folks, do you have any bad receivables?
Andrew DeBaker:

Absolutely. Nothing major of note. It's very, very small. We're talking a couple of brands here and there, and it's mainly related to our foreign licensing business. So especially over the past couple of years with everything that's being 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 did quite go right and weren't able to pay us. But it's -- again, we're talking the single-digit thousands over the course of a year. So it's really nothing worth mentioning.
Keith Rosenbloom:

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?
Andrew DeBaker:

Yes. I mean I would say it's not my forte 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.
Operator:

[Operator Instructions] The next question comes from [ Paul Sonkin ] with -- he is a private investor.
Unknown Shareholder:

Shall I ask all my questions in one shot? Or should we go sequentially?
David Jonas:

Let's take them in one shot. After Jeff's first question, I decided to break out my pen and paper. So I'm ready to go.
Unknown Shareholder:

Okay. The first thing I just want to make a comment that I cannot express how appreciative I am that you are -- that you went 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 had a bunch of questions. I guess some of them are nitpicking not in any particular order. Have you done 382 study? And like how much your [ NOLs ]? And are they impaired? Do you have a [ Taxstone ] in place? Would you consider putting a Taxstone 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, what I think Keith was alluding to I mean, would you consider factoring your receivables instead of issuing equity, especially kind of when 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? How much of the general -- of the corporate overhead was onetime 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. 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.:
David Jonas:

Sure. Thank you for all the questions. I'll try to make sure I get all of them.
Unknown Shareholder:

Sorry if you weren't be able to write that quickly.
David Jonas:

No, no, no. You can help me afterwards. It probably wasn't, but I will explain and attend. 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 10-K. One, there's $8 million worth of NOLs that I'm not sure if this is what you're referring to as an impairment, but those NOLs have a shelf life going up until 2030. And then there's about $50 million of NOLs that as far as I understand, don't have any time horizon on them. So I think...
Unknown Shareholder:

I guess what I'm referring to is if you -- so if there is an ownership change of more than 50% in a rolling 3-year period, then NOLs become impaired.
David Jonas:

Okay. You're asking about ownership. Yes. So in terms of -- with the caveat that 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 have any impairment.
Unknown Shareholder:

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

That is a good question. I'm going to make you note to follow-up circle.
Unknown Shareholder:

And actually, the other thing is that there's a whole issue that if you trade on the pink sheets and you -- there are no like and 13Fs and no Ds or Gs, I guess the question would be is like 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.
David Jonas:

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 that I think that would have to be disclosed. In terms of -- but I'll look into the -- putting a tax on place, so a fair question, then I can pretty confidently say I don't think anyone's looked at it yet.
In terms of raising capital versus sort of leveraging assets. I'd say I'll leave that as something that we'll have to consider as we go forward. The 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 a term until we have a conversation about that.:
In terms of my personal time, I'd say, I can easily say 100% of my working time is dedicated to IDW if you're assuming a 40-hour work week. You're assuming a 60-hour work week, I'd say probably 100% is committed to IDW if you're assuming, I don't know, 90 or 50-hour work week. I'd probably spend a bit of time on a few other things. But IDW is my main focus.:
In terms of overhead, yes, I think most -- a bunch of -- most of the costs related to the reduction in force will be onetime costs. I mean some of those are severance payments that will go on for a certain period of time, I don't know whether it's 6 months, 12 months, and I look forward to the day when we don't have to carry the cost of severance for former executive officers. But most of those costs were onetime costs, and I think most of them should be recognized in the third quarter, although, like I said, some will get spread out over a longer period of time.:
Unknown Shareholder:

If it's possible like if it's not too much trouble to just like break out the onetime costs, that would be really helpful. Like either in your written comments or 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.
David Jonas:

Okay. I'm making a note of it. No promises, but I'm making a note. In terms of the write-down on goodwill or intangibles, Andrew, do you want to do you have anything to say about that?
Unknown Shareholder:

Is that just on a year-end or....
Andrew DeBaker:

Sorry, what was that?
Unknown Shareholder:

I said it may just be done at year-end, like well, I don't know when that test is.
Andrew DeBaker:

Yes, sure. Sure. So previously, we had reviewed it on a quarterly basis. So breaking out into 2 pieces. Our goodwill is really related to the acquisition of Top Shelf going back to what, 2014, I believe. And so we evaluate it on a quarterly basis. It really -- to be honest, it hasn't been an issue. Top Shelf continues to provide value. Two of the titles they call [indiscernible] and March continue to be among our top sellers every quarter. So that analysis is pretty easy every quarter. There's still extreme value in that.
In terms of our intangibles, most of our intangibles are related to -- well, 2 things really. One would be our licensing contracts, that all was amortized -- so let's see here. We amortize the entire $893,000 as of December of 2021. So net, it's 0 on the books. The rest of our intangibles relate to software. So both our website and our database that we are developing.:
As David mentioned, we recently switched 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 of the new website into service and start amortizing that over the course of a period of 3 years is our normal practice.:
David Jonas:

And then just on your last question, Paul, in terms of entertainment. I do think that there is the opportunity for entertainment to drive value. Like I said, I think it's a longer sales cycle and who will take it take time to get past the writer strike and then to get things greenlit, but that is a strong way in which we'll be able to drive sort of bottom line value for titles that have already been produced and then to kind of give them another life and another opportunity for fan engagement and hopefully to drive the meritorious cycle to hopefully sell more books and create additional fan engagement on the print side.
Operator:

[Operator Instructions] Okay. 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.
David Jonas:

First of all, thank you, everyone, for joining and for commenting what maybe a somewhat of an unusual structure to just go straight into Q&A. I wanted to particularly say thank you to Andrew DeBaker. This is Andrew's first public conference call, and I think he hit it out of the park. So thank you very much, Andrew. That was great.
Thank you, everybody, for joining. We look forward to continuing to keep you updated going back to Paul's comment to try and follow best practices to keep our shareholders informed and look forward to collaborating and sharing information on a timely basis. Thank you so much, and have a good evening. Bye.:
Operator:

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

IDW Media Holdings, Inc. Q2 2023 Earnings Call Transcript

Other IDW Media Holdings, Inc. earnings call transcripts:

IDW Media Holdings, Inc.
Q2 2023 Earnings Call Transcript