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Edited Transcript of IDWM.PK earnings conference call or presentation 15-Jun-20 9:00pm GMT

Q2 2020 IDW Media Holdings Inc Earnings Call

STAFFORD Aug 7, 2020 (Thomson StreetEvents) -- Edited Transcript of IDW Media Holdings Inc earnings conference call or presentation Monday, June 15, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ezra Rosensaft

IDW Media Holdings, Inc. - CFO

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Conference Call Participants

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* Casey Barni

- Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to IDW Holdings Second Quarter Fiscal Year 2020 Earnings Call. In today's presentation, IDW's Chief Financial Officer, Ezra Rosensaft, will discuss the company's financial and operational results for the 3 months ended April 30, 2020. After his presentation, he will be joined by IDW's interim Chief Executive Officer, Marc Knoller, to answer investor questions. (Operator Instructions)

Any forward-looking statements made during the 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 reports that IDW posts periodically in the OTC market.

IDW assumes no obligation either to update any forward-looking statements 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 the IDW 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. Rosensaft.

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Ezra Rosensaft, IDW Media Holdings, Inc. - CFO [2]

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Thank you, operator, and thanks to everyone on the call for joining us this afternoon. I hope you and your loved ones are all well and beginning to enjoy the summer weather. I'm joined today by Marc Knoller, our interim CEO; and the long-time CEO of CTM Media. After my remarks, Marc and I will be happy to take your questions.

My remarks cover our results for the second quarter of our 2020 fiscal year, the 3 months ended April 30, 2020. Throughout, I will compare second quarter fiscal 2020 results, including the impact of the COVID-19 pandemic, to the second quarter fiscal 2019 results. I'll also touch upon our outlook for the second half of fiscal 2020 and fiscal 2021.

Operationally, the quarter was highlighted by Netflix's decision to renew Locke & Key for a second season and by the substantial impact of the COVID-19 pandemic on our operations and financial results.

The Locke & Key season 2 writers' rooms continued in virtual form despite COVID-19, but production was postponed and will not begin until the relevant public health restrictions are lifted, appropriate safety measures have been taken and the various skills compliance are in place. Everyone here is extremely excited about season 2, and we are optimistic that the series will become a classic that will build on its already substantial global fan base.

Unfortunately, Netflix decided not to renew V Wars and October Faction, to our extreme disappointment. The cancellation of those series resulted in a write-off of $285,000 this quarter, the remaining carrying value of those 2 series on our books. COVID-19's impact on the company has been significant. We provide a fulsome discussion of them in the earnings release and our financials and I will pick up some of these as we work our way through the financial results.

Consolidated revenue for the quarter increased by $3.7 million or 48% to $11.6 million. At IDW Publishing, or IDWP for short, revenue increased by $941,000 or 25% to $4.7 million. The pandemic could have had a catastrophic impact on the division. IDWP's direct comic market, its largest channel, closed after many comic shops shut their doors and our distributor, Diamond Comic Distributors, announced they would suspend operations in late March.

In response, IDWP suspended issuing new comic titles and pivoted its operations. It ramped up sales of backlisted titles through non-direct sellers such as Amazon and through its website, aided by strong demand for Locke & Key titles and Beauty of Horror adult coloring books.

IDWP also increased sales of games, books and digital offerings, the latter sold through ComiXology, Amazon Digital, library, education and other digital distributors. Digital sales increased to approximately 25% of IDWP's revenue this quarter from less than 1/5 in the year ago quarter.

Looking to our fiscal third quarter, Diamond resumed operations on May 20, and we began to issue new comic titles on a limited basis thereafter. Direct market sales have begun to rebound although they remain below the pre-pandemic levels.

We are building on our forward momentum with the release of some wonderful new titles in the third quarter: Sleeping Beauties by the legendary Stephen King and his son, Owen King; Tiananmen 1989: Our Shattered Hopes, a compelling firsthand account of that tragedy; and a Spanish-language version of George Takei's best-selling graphic autobiography, They Called Us Enemy.

IDW Entertainment, or IWE for short, turned in a strong second quarter. Revenue increased to $4.6 million from just $43,000 in the year ago quarter. The increase reflected $4 million in the door from Netflix for Locke & Key episodes and the $0.5 million from Dirk Gently residual worldwide exhibition.

Looking ahead at IDWE, we plan to buy back certain contractual rights for Wynonna Earp seasons 1 and 2 later this year. We will then be able to provide Cineflix with a complete 4-season Wynonna Earp international distribution rights packages to generate top and bottom line growth in the fiscal years ahead.

Before COVID-19 struck, we had planned to complete production of Wynonna Earp season 4 and deliver all 12 episodes in the second half of this year. We did complete episodes 1 through 6, but the schedule, fulfilling and production for the remaining 6 episodes have been pushed back. We will provide you with a revised schedule when we report third quarter results in September, if not sooner.

Also, as I mentioned, filming of Locke & Key season 2 has been suspended. We hope to be able to restart under appropriate conditions and deliver all 12 episodes in 2021. Over the longer term, we continue to build our holistic approach to franchise development that we call IDW 360. IDW 360 will enhance franchise monetization through games, merchandising and other high-margin, fandom-driven revenue streams that drive meaningful profit. We expect these diverse revenue sources will become an increasingly important part of our results in the coming years.

At IDWE, IDW 360 revenue supplement the upside potential from any further renewals of Locke & Key and Wynonna Earp, not to mention the deals that the IDWE team are pitching from the development slate.

CTM revenue decreased by $1.7 million or 43% to $2.2 million. CTM suspended operations in March as most clients closed and travel and tourism came to a halt. As a result, CTM furloughed approximately 90% of its workforce. CTM has since resumed operations in both the U.S.A. and Canada on a limited basis.

Just after the quarter closed, CTM and a related subsidiary received $1.8 million in Paycheck Protection Program, now well-known as PPP loans, and additional loans in a smaller scale from an analogous Canadian program. Our consolidated loss from operations decreased $3.3 million to $299,000 in the second quarter. I consider this a remarkable accomplishment in the face of COVID-19.

IDW Publishing's loss from operations narrowed by $985,000 to $646,000 in the second quarter. The IDWP team did an amazing job pivoting their business to focus on digital offerings and indirect channel sales after the direct market closed. Their bottom line improvement was also bolstered by strong demand for backlisted comics including Locke & Key titles.

The balance of the consolidated improvement were substantially the result of the high-margin revenues from Locke & Key at IDWE. IDWE contributed income from operations of $2.2 million compared to a loss of operations of $744,000 in the year ago quarter. IDWE's positive contribution this quarter is indicative of its potential as we continue to rightsize the economics of IDWE's new deals, with the active projects in various stages of development.

CTM's loss from operations widened by $370,000 to $1.6 million, reflecting the suspension of operations in March, the resulting credits given to customer accounts through the end of April and an increase in bad debt expense. CTM's management deserves a lot of credit for taking prompt action to reduce their expenses. The determination certainly paid off. The improved results at IDWE and IDWP drove a reduction in the consolidated loss per share from $0.61 in the second quarter of 2019 to just $0.04 in the second quarter of 2020.

Turning to our balance sheet. We continued to pay down our debt and increased our levels of cash and working capital. We were greatly aided by the closing of a private placement of our Class B common stock this quarter, raising $12.3 million in capital, inclusive of a $4 million debt-to-equity conversion by our Chairman, Howard Jonas.

Our balance sheet liquidity was also enhanced by the receipt of $1.2 million in PPP loans for our IDW Media businesses just before the quarter closed. We expect to achieve near full forgiveness of this loan under the terms of the CARES Act.

Because the additional $1.8 million in PPP plus Canadian loans to CTM were received just after the quarter closed, they are not reflected on the April 30 balance sheet. At April 30, IDW's cash balance increased to $15.9 million from $4.6 million at January 31, and related party debt decreased to $5.0 million from $9.0 million, reflecting Howard Jonas's $4 million debt-to-equity conversion as we continue to solidify our balance sheet.

Finally, we are working toward the reregistration and uplisting of our stock to a national exchange. These moves will increase our visibility in the market and help participants understand and access the enormous upside potential of IDW.

In summary, the renewal of Locke & Key for season 2 was great news, and the IDWE team is working on other initiatives that will contribute to our profitability in 2021 and beyond. The COVID-19 pandemic, though, impacted every division. IDWE was forced to push back production schedules for Wynonna Earp season 4 and Locke & Key season 2, which in turn will delay delivery in cash receipts.

IDWP shut down its direct channel and suspended new comic issues but was able to compensate by expanding digital, games and non-direct channel sales. CTM reacted quickly to suspend its operations altogether for the last month of the quarter.

Across the board, we did an excellent job preparing for and adapting to the pandemic, and as a result, delivered a strong quarter financially despite the COVID-19-related headwinds. Now Marc and I would be happy to take your questions. Operator, back to you for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) As there are no questions, this does conclude our question-and-answer session as well as our conference call. You may -- I do apologize, it looks like we do have 1 question that came through. Our first question comes from the line of [Casey Barni].

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Casey Barni, - Analyst [2]

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I was wondering about the licensing and merchandising plans for the different properties.

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

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Sure. So this is Ezra speaking. We are planning, of course, on licensing and merchandising across our properties. Wynonna Earp has a large fan base, now in our fourth season, which will be airing shortly. Locke & Key, which has been renewed, has already a built-in fan base. And to date, we have not monetized and licensed to the level which we now plan to scale up to do so accordingly. That represents upside in the near future. Great question. Thank you, Casey.

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Operator [4]

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(Operator Instructions) As there are no more questions, this does conclude our question-and-answer session and our conference call. Thank you for attending today's presentation. You may now disconnect.