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spk02: Greetings. Welcome to the IDW Media Holdings Inc. second 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, David Jonas. You may begin.
spk06: 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 10K from past filings to incorporate the Dave Harper statement. So with that, I'll turn it over for question and answer. Thank you. Thank you.
spk02: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Jeff Silver with Corrado Financial Group. Please proceed.
spk03: Yeah, hello, David. First of all, thanks for hosting the call. You know, I understand and support what the company has done in terms of selection costs and delisting. I suspect that that was done so you wouldn't have to cram down existing shareholders by raising money at a and an incredibly deleted financing and that you're in a unique position to do this because you have essentially controlling shareholder. But I guess, you know, 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. You know, 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, quote unquote, there are dozens of projects, a dozen projects that have been optioned and are in various stages of development. But basically, the overriding question is, you know, what is the strategy for management going forward? Thanks.
spk06: 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 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 in terms of vision for the company going forward, so I'd say there's, you know, different stages to the 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 delusion, but it really was globally to protect the company and its cash flow, meaning 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, you know, 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 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. I think those are more where we're looking towards, whether that's podcasting or doing a Kickstarter, 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 are other distribution methods that we 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 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 our backlist of content and potentially also, you know, new content, but certainly for our backlist and create another potential form of engagement for fans and maybe reach a diverse and maybe, you know, to date unreached fan audience. I think if, you know, our IDW publishing website was just recently revamped and, you know, 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 as a 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, artists, 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. You know, so those, and I think those also, you know, we're at a beautiful nexus between fan engagement and value creation. And so 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, those experiences have of generating value. and creating, you know, long-term commitment to the franchise and to the brand. Beyond that, there's the possibility that we, you know, at some point might take a view towards creation of content where we have more ownership over the content. So, you know, something – you know, right now we basically have licensed content where it's completely – 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 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% we will be and are a 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 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. And I think from the time I've spent with a bunch of creators, there's been great reception. And, you know, like one creator had 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 ask you questions about. So you're answering everything without, you know, without us, without asking the questions. So I hope we'll, you know, I hope we'll strive for excellence in that area. In terms of PRH, I think it's a great relationship. It's a strong relationship. I'm 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 regards 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 writer's 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, you know, entertainment is, something of a long sales cycle. You know, Lock and Key, as an example, has been kicking around for, you know, I don't know, maybe almost a decade until it, you know, found its place with Netflix. You know, for instance, we have another show that, you know, went to pilot years ago, Brooklyn Animal Control, that, you know, seems to be having a second life. It's a great title, great show. You know, 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 more. 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, IDW 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's strike, it could be a year or more before we're recognize any revenue because generally um payment comes when the show is produced and delivered and obviously you know that could take a long period of time so i wouldn't expect any immediate um results from idw entertainment but it's not as though you know we're abandoning it it just will take time for those new prospects hopefully to come to market and when they do uh we'll hopefully be better positioned to um to create value surrounding the title from, you know, 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.
spk03: Yeah, no, 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 skews 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, if I do a very simplistic analysis, I'd say arithmetic calculation. I think my recollection is you're cutting $4 million or so in costs, you know, 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, you know, it's not, it's not, It's 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 burden was something like $600,000. So, but, you know, and in terms of, and again, I'm just trying to bring some of this conversation together. So you had $9.3 million in cash at the end of the first quarter. You had $5.6 million in cash the most recent quarter. Um, maybe you can talk a little bit about whether the, the activity on the publishing side, uh, leaving, leaving aside the entertainment business is not going to contribute, as you say, you know, anytime unlikely to contribute at any time soon. Um, maybe you can, uh, help us to understand some of the moving pieces, um, in terms of the skews, the cash at the end of the quarter and, um, you know, 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 or the first quarter.
spk06: Sure. So in terms of, I don't know that 1400 skews is a entirely accurate number that may have been aspirational at the time. At this point, I have to get back to you on a specific number. I think I'd feel confident saying over a thousand skews, but I have to, I'd want to follow up to be more specific as 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 going to be variant covers, which gets counted as a separate SKU, but it's really just the cover of a single issue comic. Many comics are going to have maybe three, four, five, sometimes even more than that variant covers where you have different artists doing different covers for a comic. So I'd say the real number in terms of original titles is probably closer to 300, maybe 350 between top shelf IDW originals, artist editions, and IDW licensed products. So, but yeah, 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 edition of, you know, a number of comics put together and released as a separate collected edition. In terms of kind of how that ties into profitability after you factor in 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 You know, I don't want to say take that to the bank because, you know, 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 forecasts, anticipate that we'll be slightly up year over year. And so some of that growth in revenue is attributable to a larger skew count. But, you know, I do think that that's part of what will drive profitability.
spk03: I have lots of other questions, but I'll step back into the queue and let other.
spk06: Thank you. Thank you for the thoughtful questions. As in many cases, the question may be better than the answer, but I appreciate you taking the time to listen. Thank you.
spk02: Okay. The next question is from Keith Rosenblum with Cruiser Capital. Please proceed.
spk07: 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 50 cents. 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. 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?
spk06: 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 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 we have no money left in the bank. 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, to take a different tack on liquidity, it's hard for me to know what the true value of a share of IDW Media holding stock is. 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 million shares outstanding and the stock is trading, I don't know, a few thousand shares a day, maybe 10,000 shares, maybe on a very busy day, maybe it's 25,000 shares. It's just not reflective of a of a strong marketplace for the stock. So, you know, I'd say, you know, I'm sure if somebody went out tomorrow and tried to sell their stock for, you know, five cents, somebody's going to buy it. So I'm sure, I'm sure there are buyers, uh, for the stock, but I, I'd have a hard time saying that the market is giving a proper reflection of value. I think it's giving a, um, you know, whether it's 50 cents, 45 cents, 35 cents, uh, you know, whatever, whatever the numbers are that, 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 5.6 million at the end of Q2 and we're being transparent that we're not expecting profitability for Q3. And, you know, there's some costs associated with the reduction in force. And, you know, so Q3 may have additional is likely going to have additional losses. Like, you know, so somebody is factoring in the value of IDW stock based on, you know, like it's cash position plus some, you know, minute premium. And on some days, maybe even no premium. You know, I like, is that a, is that a true reflection of the vault of IP? Is that a true reflection of, 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 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 that's what's caused an erosion in the value. And so I'd say whatever the value is today, 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 ID&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 IDW should grow concurrently. You can tell me if that answers your question. I hope it does. Thank you. I think it's getting there. You can tell me if there's somewhere more you want me to go. I don't mean to be obtuse.
spk07: Absolutely not. Is there any issue? You've listed your inventory at $5 million, your trade receivables at $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?
spk06: 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?
spk08: Yes, absolutely, absolutely. So I'll take it two pieces, one at a time. As far as our accounts receivable, so as we state in our financials, most of our AR is held at PRH. And those are, you know, that's true AR, right? There is 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, a 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, you know, what we are, we do have on the books is, you know, has value. So, yeah, I don't necessarily see, you know, I guess I don't see a concern there offhand.
spk07: Great. Have you ever had a bad receivable from, you know, Penguin or any other current folks? Do you have any bad receivables?
spk08: Yeah. Yeah, absolutely nothing, nothing major of note. It's very, very small. We're talking a couple grand 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 been going on. I mean, we also work with a few publishers in Russia and Ukraine and that part of the world. Right? So you so it's understandable, right? That we might have had a few. customers where things, you know, did quite go right and weren't able to pay us. But it's, you know, again, we're talking the single digit thousands over the course of a year. So it's really nothing worth mentioning.
spk07: 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.
spk08: yeah i mean i would say not my my forte this conversation but in terms of the strength of it the ar is is is rock solid right um the inventory you know with publishing it's it's maybe one could argue a little more subjective i mean um you know uh like i said we we follow gap and we do a rigorous you know write down process um but of course you know to be able to leverage that inventory for potential cash raise in the future. You know, I'm not quite sure that that would be as available to us as maybe they are.
spk04: Thank you.
spk02: Once again, if you have a question or a comment, please indicate so by pressing star one on your touchtone phone. The next question comes from Paul Sunken. He is a private investor. Paul, please proceed.
spk01: Hi. Should I ask all my questions in one shot, or should we go sequentially?
spk06: Let's take them all in one shot. After Jeff's first questions, I decided to break out my pen and paper, so I'm ready to go.
spk01: 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 pink, uh, 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, you know, I, I know it's, it's a pain, but I just wanted to express, uh, my appreciation. So I, I had a bunch of questions, um, I guess some of them are nitpicky, not in any particular order. Have you done a 382 study and like how much your NOLs and are they impaired? Do you have a tax pill in place? Would you consider putting a tax pill 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, 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 one time? Because I think you might have had some severance. I don't know if you broke that out. Um, with the stock trading is such a discount to its book value. Um, are you going to have to take a write down for the goodwill and other intangibles? Um, and then a more general question, uh, with, with content, like, again, I'm not an expert in this market at all. Um, but with Netflix and Disney saying that they're cutting back on content, like I can see where. you know, 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 know, you guys have more cost effective content. So just wondering if you comment on that.
spk06: Sure. Um, thank you for all the questions. I'll try to make sure I get to all of them.
spk01: Um, sorry if you weren't able to write that quickly.
spk06: No, no, no. I, uh, you'll, you'll, you'll tell me afterwards. I probably wasn't, but I'll, I'll at least feign an attempt. Um, 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 two 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.
spk01: Yeah, I guess what I'm referring to is if there's an ownership change of more than 50% in a rolling three-year period, then the NOLs become impaired.
spk06: Okay, you're asking about ownership. Yeah, so with the caveat that, yeah, 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.
spk01: So would you put a tax pill in place to protect those from a potential ownership change, which would be beyond your control?
spk06: Uh, that is a good question. I'm going to, I'm making a note to follow circle back.
spk01: And actually the other thing is that there's a whole issue that if you trade on the pink sheets and you don't, there are no like 13 F's and no, uh, D's or G's. I, I, 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? But I'm just kind of thinking out loud.
spk06: I think for insiders, there's still a requirement to file regarding any additional ownership. I think if it was within the family, which would be the only thing that would compromise at this point, would compromise the NOL, I think that would have to be disclosed. I'll look into the putting a tax code in place. It's a fair question. 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'll 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 would be a board decision. And, you know, I don't want to speak out of turn until we, you know, have a conversation about that. In terms of my personal time, I'd say, you know, I can easily say 100% of my working time is dedicated to IDW if you're assuming a 40-hour workweek. If you're assuming a 60-hour workweek, I'd say probably 100% is committed to IDW. If you're assuming, I don't know, a 90- or 150-hour workweek, I'd probably spend a bit of time on a few other things, but IDW is my main focus. In terms of overhead, yeah, I think most of the costs related to the reduction in force will be one-time 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 six months, 12 months. 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 one-time costs. And I think most of them should be recognized in the third quarter. Although, like I said, some will get spread out, uh, over a longer period of time.
spk01: Um, 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 or you had a nice table kind of breaking out the segments, you know, again, just like if I had a wishlist, that would be one thing.
spk06: Okay. I'll make you a note of it. Um, no promises, but I am making a note. Um, In terms of the write-down on goodwill or intangibles, Andrew, do you have anything to say about that?
spk01: Is that just done at year-ends? Sorry, what was that? Oh, I said it may just be done at year-ends. I don't know when that test is.
spk08: Yeah, sure. Sure. So previously we had reviewed it on a quarterly basis. So breaking out into two pieces, our goodwill is really related to the acquisition of Top Shelf going back to 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, you know, ride value. Two of their titles they called Ascendemy 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. In terms of our intangibles, most of our intangibles are related to, well, two things really. One would be our licensing contracts. That all was amortized, let's see here, We've amortized the entire $893,000 as of December of 2021. So net, you know, it's zero 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 switch to our new website. We're very excited that went live in the last two, three weeks here. And so we will see a write-off of some of the costs related to our previous website. You'll see that, you know, below the line in amortization. And then we will, you know, put the cost of the new website into service and start amortizing that over the course of a period of three years as our normal practice.
spk06: 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 it will take 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 sort of bottom line value for titles that have already been been produced and then to kind of give them a, another life and another opportunity for fan engagement and hopefully then to drive the meritorious cycle to, you know, hopefully sell more, more books and, you know, create additional fan engagement on the print side.
spk01: Okay. Thank you very much.
spk07: Thank you.
spk02: If there are any remaining questions, please indicate so by pressing star one on your touchtone phone. 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.
spk06: First of all, thank you, everyone, for joining and for accommodating what maybe is 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 headed 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, getting 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. Thank you.
spk02: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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