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Edited Transcript of IDWM earnings conference call or presentation 13-Jun-19 9:00pm GMT

Q2 2019 IDW Media Holdings Inc Earnings Call

STAFFORD Sep 11, 2019 (Thomson StreetEvents) -- Edited Transcript of IDW Media Holdings Inc earnings conference call or presentation Thursday, June 13, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Jonas

IDW Media Holdings, Inc. - Chief Strategy Officer

* Ezra Rosensaft

IDW Media Holdings, Inc. - CFO

* Howard S. Jonas

IDW Media Holdings, Inc. - CEO & Chairman of the Board

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Presentation

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Operator [1]

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Good afternoon. Welcome to IDW Media Holding Second Quarter Fiscal Year 2019 Earnings Call.

In today's presentation, IDW Media's management will discuss the company's financial and operational results for the 3-month period ending April 30, 2019.

During prepared remarks by IDW Media Holdings Chairman and Chief Executive Officer Howard Jonas; and Chief Financial Officer Ezra Rosensaft, (Operator Instructions). After the prepared remarks, David Jonas, and IDW's Media Holdings Chief Strategy Officer, will join the other members of management for Q&A. (Operator Instructions).

Any forward-looking statements made during this conference call either in 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 reports that IDW posts periodically on the OTC market.

IDW Media Holdings assumes no obligations 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 they forecast.

Please note that IDW Media Holdings earnings release is available on the Investor Relations page of the IDW Media Holdings corporate website.

I will now turn the conference over to Mr. Jonas.

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Howard S. Jonas, IDW Media Holdings, Inc. - CEO & Chairman of the Board [2]

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Thank you, operator, and welcome to the IDW Media Holdings second quarter fiscal 2019 conference call.

With me on the call today are David Jonas, our Chief Strategy Officer; and Ezra Rosensaft, our Chief Financial Officer. After my remarks, Ezra will summarize our financial results, and then the 3 of us will be happy to take your questions.

Earlier this month, IDW Media completed the successful offering to raise new capital from existing shareholders and new investors. We utilized the proceeds to further clean up our balance sheet. We reduced the amount. The company also made a $9 million and paid off all our long-term third party debt. We're using some of the additional proceeds to complete production of October Faction and V-Wars and to invest in the long-term growth of IDW businesses.

At IDW Publishing, we have a great team headed by Chris Ryall. IDW Publishing has a strong lineup of books and comics for release this summer. The latter includes new titles in the Transformers series. And for the first time in color, Stan Sakai's legendary Usagi Yojimbo series and fully covered graphic novel library.

In longer term, we are focused on stories that appeal to the vast majority of Americans and audiences worldwide for that matter who want redemptive stories, stories where good triumphs over evil, right defeats wrong, where strong families are the core of the narrative and where hard work, persistence and industriousness are rewarded.

Also in the publishing arena, we are very pleased to partner with IDW's founder, Ted Adams, and co-founder, Robbie Robbins, on their exciting new venture Clover Press.

At IDW Entertainment, a very capable new team headed by Lydia Antonini, expects to deliver initial seasons of October Faction and V-Wars to Netflix in the fourth quarter. These shows were produced under legacy agreements, and we don't expect them to be immediately profitable. However, we are working hard to improve their economics and have made good progress on them.

This past February, we started principal photography on Locke & Key. We are on track to deliver the first season to Netflix early next year. Locke & Key is being financed under production services agreement through which we receive a percentage of the production budget with limited risk. This is an example of the model we expect to use going forward, one that enables IDW Entertainment to minimize exposure to production cost, operate profitably and predictably and retain some upside potential. We expect that Locke & Key will contribute about $2.5 million to our bottom line in the first half of next year with the potential to significantly more through additional windows, seasons and merchandising.

Going forward, IDW Publishing and IDW Entertainment will work together to jointly evaluate and develop projects and maximize potential contributions across all channels. Our mission is to operate in a unified way: to build properties with strong characters and compelling stories; to develop them consistently and predictably with limited downside risk; and to engage with their fans, providing them with new ways to interact and express their passion.

We have already identified a robust pipeline of 15 potential projects and are developing pitches and scripts for streaming and traditional TV broadcast network as well as future film platforms.

The pipeline is solid and diverse, representing a targeted array of genres. In fact, we intend to have at least 4 shows on the air next year. We intend to add 2 shows every year. Given that we expect a cancellation on the pessimistic side of one show's season, that means by 2025, we will have 10 shows or movies on the air making us one of the biggest producers in the world.

At CTM, we are working on new initiatives to further leverage our travel expertise, connecting tourist attractions and services with vacationers. This is a huge market. With our deep relationship with advertisers and extensive distribution network, we're in a strong position to open new channels and create additional revenue streams. We are in the early stages of working on an important initiative for CTM Media, so stay tuned.

On a consolidated basis, the delivery of V-Wars and October Faction in the fourth quarter will help us to turn the corner on a P&L basis. During fiscal 2020, which begins November 1 of this year, we intend to achieve profitability not just on a consolidated basis but with each of our 3 divisions making a positive contribution while investing in long-term growth.

To wrap up, IDW Media is on a solid financial foundation with tremendous exciting opportunities ahead. Before the end of the year, we expect to deliver October Faction, V-Wars and more. That puts us on a path to begin operating profitably during fiscal 2020 while publishing and entertainment work seamlessly together to realize the potential of our IP library. We are also exploring opportunities for our CTM Media business.

Finally, we continue to review strategic options with our adviser, JPMorgan.

This concludes my remark. Now Ezra Rosensaft, IDW Media CFO, will discuss our financial results.

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Ezra Rosensaft, IDW Media Holdings, Inc. - CFO [3]

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Thank you, Howard, and thanks to everyone on the call for joining us. Our remarks today cover our financial results for the second quarter of our 2019 fiscal year, the 3 months ended April 30. I'll also discuss some of the trends that we anticipate will impact our results through the remainder of the year. Throughout my remarks, I will compare second quarter fiscal 2019 results to second quarter fiscal 2018 unless otherwise noted.

This quarter's results and this fiscal year's result thus far, reflect the impact of production agreements entered to finance production and television series at IDW Entertainment well before the current experienced management team took charge. As Howard discussed in his remarks, we are developing programs and implementing significant changes company-wide that we expect to drive top line growth and enhanced profitability in 2020 and beyond. These include financial rigor and discipline, enhanced financial controls, prudent fiscal management and better green line processes across IDW to achieve profitable franchise series.

Consolidated revenue in the first quarter decreased to $7.8 million from $8.7 million reflecting declines at IDW Publishing and license fees at IDW Entertainment.

Drilling down a bit, IDW Publishing revenue decreased to $3.7 million from $4.4 million in the year ago. Revenue in the year ago quarter benefited from a popular Legend of Korra board game, a licensed property from Viacom's Nickelodeon channel. Book publishing revenue, that is direct market such as comic book specialty shops and book markets such as Barnes & Noble, were essentially flat year-over-year as strong growth of digital sales offset weakness in sales for the book market.

Given the significant decline in sales announced by some of the industry leaders this year, this was a comparatively strong and stable performance. As an aside, based on conversations with distributors, both DC and Marvel experienced similar industry declines for the same time period. We expect that IDW Publishing will generate improved bottom line results in the second half of the year.

Traditionally, comic book sales pick up during Q3 and Q4 of our fiscal year. In addition, IDW Publishing expects to launch several popular new titles in the second half of the year to drive revenue growth. Finally, the IDW Publishing team is making operational changes to focus more tightly on market opportunities and higher-margin offerings including control franchises suited for development by IDW Entertainment.

Speaking of which, IDW Entertainment revenue decreased to $42,000 from $353,000 in the year ago quarter. The quarter's revenue was entirely generated by electronic sell-through of Wynonna Earp episodes. Domestic and foreign licensing revenues for seasons of Wynonna Earp and Dirk Gently generated most of the year ago's quarter's revenue.

Looking ahead, IDW Entertainment expects to realize approximately $27 million in revenue from the delivery of V-Wars and October Faction, both currently in post-production, slated for delivery in the fourth quarter of this year to Netflix worldwide. The licensing model under which these series were financed and produced required IDW Entertainment to bear production-related expenses, which we are actively reducing in post-production completion.

As has been previously noted in prior quarter's financials, we have benefited from Canadian tax credits and incentives as well.

Locke & Key, which is being produced under a production services agreement for which we provide production oversight for a percentage of the budget, will generate revenue and EBITDA flow-through of approximately $2.5 million as early as the second quarter of fiscal 2020, and will incur no significant production expenses. Under this model, the entire series have been cash flowed by our partner, Netflix.

CTM Media, our tourism and travel-information-focused business, increased slightly year-over-year to $4 million. The increase is driven by growth in Broadway show advertising, an expanded portfolio of advertising offerings such as increased sales of display signage as well as mobile van ramp.

Consolidated gross profit in the second quarter was $3.7 million compared to $4 million a year ago, primarily because of the revenue decrease at IDW Publishing, as mentioned.

The gross margin increased to 48% from 46% in the second quarter of 2018 as a result of the 100% margin flow-through on IDW Entertainment electronic sell-through derived revenue.

Our consolidated loss from operations was $3.6 million compared to $3.0 million a year ago. The decrease was driven by several factors primarily revenue at IDW Publishing, the timing of project delivery and revenue recognition at IDW Entertainment and our measured build-out of IDW Entertainment's capabilities and infrastructure.

Net loss for the quarter was $3.7 million or $0.61 per share compared to a net loss of $2.2 million a year earlier or $0.36 per share for income taxes of $18,000 compared to the year ago quarter when we recognize the benefit from income taxes of $852,000 due to the prior year change in the federal statutory corporate tax rate.

As Howard mentioned in his remarks, following the quarter close, we successfully completed our rights offering raising $23 million in capital. On a pro forma basis to reflect the rights offering and the subsequent repayment of outstanding obligations, we have a much cleaner and stronger balance sheet.

We have cash of approximately $12 million on hand, and our long-term debt of $21 million has been reduced to $9 million, all of which is due to Howard Jonas, our Chairman.

To conclude. Results for this quarter and for the remainder of the year reflect in part the impact of legacy decisions to finance the production of IDW Entertainment television and series. Looking forward, with the rights offering successfully completed, the company is on sound financial footing to deliver significant improvements in our results and return IDW to profitability in 2020.

And now we'll be happy to take your questions.

Operator, back to you for the Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from [Daryl Durant], private investor.

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Unidentified Participant, [2]

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There was a press release out on the 5th of March, talking about suggesting that the company's sale of intellectual property. I know you've had discussions with JPMorgan regarding maximizing shareholder value of some sort. Can you give us any color on any of those meetings?

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David Jonas, IDW Media Holdings, Inc. - Chief Strategy Officer [3]

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Sure. Thank you. This is David Jonas. Thank you for the question.

We did in fact come to JPMorgan, as we disclosed. I think we made -- we noted in the press release that this is the beginning of a process. There's certainly no guarantees of sale or anything in a certain time frame. In terms of the way those conversations are to date, we're still moving forward in that relationship with JPMorgan, evaluating our library, controlled and owned IP, and that's impacting decisions both at publishing and entertainment and our thinking going forward in terms of control or ownership of IP. So I'd say it's a work in progress but not yet ready to give any definite answers on what will be the result of that.

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Unidentified Participant, [4]

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Okay. I have one other question. You have 15 projects in development. Maybe I missed this in the conference call, but how many do you expect to be green lit?

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David Jonas, IDW Media Holdings, Inc. - Chief Strategy Officer [5]

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So the 15 that are in, I guess what we'd call active development, just -- there are -- let's call it, over 100 but probably hundreds of titles in the IP catalog that we plan to service. And those would primarily be creating a condensed version of each of those titles so that buyers, let's say, Netflix, Amazon, et cetera, would have a full catalog of available IP to work with IDW on.

Then there are -- of those hundreds, there are 15 that we will take into a more robust development cycle, pitches, scriptwriting, packaging, working together with executive producers, directors, acting, acting talent, et cetera. Of those 15, and I think my father mentioned in his comments the intention to try and get 2 per year. Obviously, it's no -- this is -- it's aspirational. It can -- if possible, next year, we could add to the 15. 10 might be picked up. It's possible 0 might be picked up. So we're making sure that the titles that we're taking around are timely for the marketplace and for the buyers and that they focus on different areas of the marketplace so that we are making sure to diversify our pitch.

So we're not taking out 15 zombie horror stories. Not to say that that's not an important genre for us, but that may be 1 out of the 15. We might focus on kids, young adults, grounded reality. So there are different focuses within what we're trying to pitch. I think it would probably be a little preemptive to put a number on it, how many we expect to get picked up. But we are confident in being a creative-focused, development-driven company. And I think it will -- we will do a good job on development and see positive results there.

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Operator [6]

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(Operator Instructions) As there are no more questions, this concludes our question-and-answer session and conference call.

Thanks for attending today's presentation. You may now disconnect.