IDW Media Holdings, Inc. (NYSE:IDW) Q4 2021 Earnings Conference Call January 20, 2022 5:00 PM ET
Company Participants
John Nesbett – Founder and President, IMS Investor Relations
Ezra Rosensaft – Chief Executive Officer
Brooke Feinstein – Chief Financial Officer
Conference Call Participants
Eddie Reilly – EF Hutton
Walter Bellinger – Mayflower Capital
Operator
Good evening, and welcome to the IDW Media Holdings Fourth Quarter and Full Fiscal Year 2021 Earnings Call. In today’s presentation, Chief Executive Officer, Ezra Rosensaft; and Chief Financial Officer, Brooke Feinstein, will discuss IDW’s operational and financial results for the three and 12 months ended October 31, 2021. After the presentations, Mr. Rosensaft and Mrs. Feinstein will answer investor questions. During management’s prepared remarks, all participants will be in a listen-only mode. [Operator Instructions].
I will now turn the call over to John Nesbett of IMS Investor Relations.
John Nesbett
Good evening, everyone. I will now take a moment to read the safe harbor statement. Any forward-looking statements made during this 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 company’s SEC filings.
IDW assumes no obligation 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 that they forecast. Please note that the IDW earnings release is available on the Investor Relations page of the IDW Media Holdings corporate website.
I will now turn the call over to Ezra Rosensaft. Please go ahead, Ezra.
Ezra Rosensaft
Thank you, John, and thank you to everyone on the call for joining us. My remarks today will review the developments of our fiscal fourth quarter and full fiscal year 2021, which closed October 31, 2021. I will also provide our outlook and strategy for 2022. Brooke Feinstein will provide details around our financial results, and then I’ll be happy to take your questions.
To start, I’d like to express my wish that each and every one of you are staying safe and healthy as the COVID pandemic continues, and optimistic that things will settle down soon.
Before I get into the details of the fourth quarter and fiscal year, I want to take a moment to step back and look at the progress that the company has made over the past year and provide a refresher on the attractiveness of the economic model that we’ve established.
We have put in place new management across the company, particularly on the front line, so to speak, with new heads of publishing and entertainment. Our current team is absolutely extraordinary. We brought our debt down to zero. I’ve taken multiple steps to reduce costs and we raised capital to strengthen our balance sheet.
As discussed in prior calls, this has been a goal of ours for some time and we have now achieved the desired asset-light balance sheet. So we’ve done much of the heavy lifting to put in place the building blocks and enhance the economic model and are now in an exciting time, where we have our foot on the gas pedal and are beginning to see signs of what we can do as we pursue our refined strategy. And the strategy is relatively simple.
On the publishing side, we’re increasing our focus on original content. Our unique model enables us to build our library and do it profitably at the operating level. This part of the engine is picking up speed. We have 40-plus original titles currently moving through our pipeline, which is a significant increase from previous years.
With the engine cranked up, we’ll have more and better shots on goal as the IDW-owned intellectual property with all media rights moves through the pipeline to bring to market original movies or series on the entertainment side of the business on its development slate. And the ROI is exceptional when we make this happen.
Importantly, we can realize these returns as a low-risk model, which does not require us to lever the company whatsoever. Those days are over and encouragingly, we are seeing some progress. For example, we recently announced our deal with Apple+, Surfside girls, and the pipeline of opportunities that we are pitching on the entertainment side, the house has never been stronger.
As we begin moving through 2022, we believe we are a strong company with the right people, processes, content pipeline and balance sheet in place to provide a solid platform from which to continue accelerating our growth trajectory.
I want to provide some color on our fourth quarter results at IDW Entertainment, or IDWE, for short. All Season 2 of Locke & Key aired on Netflix on October 2021 and we had expected to see revenue related to Locke & Key in the fourth quarter. For accounting reasons, we won’t recognize that revenue until Q1 of 2022.
As you may remember, under GAAP, revenue recognition is tied to the timing of the delivery of episodes to the streamer or distributor. I can confirm that Locke & Key Season 2 hasn’t delivered and IDWE will recognize revenue of $4.2 million in Q1 2022, related to the delivery of the series.
Primarily as a result of the shift in timing, IDWE recorded nominal revenue for the fourth quarter. Net loss of IDWE improved to a loss of $1.5 million from a net loss of $2.0 million in the fourth quarter of last year. We’re excited about the franchises we’re bringing to market and the momentum we’re seeing on the entertainment side of our business.
As I just mentioned, during the fourth quarter, we announced our deal with Apple+ for 10 episodes of our original live action series, Surfside Girls, based on IDWE’s popular graphic novels, published via our Top Shelf in print. We remain focused on accelerating and expanding IDWE’s development pipeline with a focus on our original IP and our content pipeline is robust.
In addition to its series development strategy, IDWE has also established a renewed focus around leveraging capability to pursue opportunities in feature films and podcasts. Graphic novels have proven to be very successful as precursors to film vehicle and we believe we have the creators and content to appeal to a broad and growing audience.
I’m sure all listening today have a favorite podcast or two based on a favorite book, or featuring a favorite journalist. We think the podcast platform can provide an effective low-cost and low-risk setting for us to develop, test and measure the appeal of certain content and determine whether it translates to a successful feature film or TV vehicle, which brings me to IDW Publishing or IDWP.
IDWP had strong direct market sales in 4Q of 2021, though these were offset by decline in book market sales. We also faced a tough comparison as demand for Top Shelf titles during the fourth quarter of 2020 was exceptionally strong. As a result, IDWP revenue decreased to $6.9 million in 4Q 2021 from $7.7 million in 4Q 2020. Sequentially though, revenue in this segment showed a modest increase from $6.8 million in 3Q 2021.
Operating income decreased to $38,000 in the fourth quarter of 2021 from $491,000 in Q4. For full fiscal year 2021, IDWP benefited from surging direct market sales, led by Teenage Mutant Ninja Turtles: The Last Ronin title and supplemented by strong increases in game sales.
We’re making tremendous progress executing on our strategy to acquire high-quality original IP intellectual property and are working with premier creators of comic books and graphic novels. We are expanding and transforming our library to reach broader reader audience, and we’re excited by content we’re seeing in new genres such as young adult, middle grade, tweens, drama, comedy, as well as IDW staples, such as SciFi and thrillers, and soon, manga-inspired comics.
Looking ahead, as we move through 2022, we’ll be working on varied opportunities to efficiently and profitably bring unique content to our platform. We believe we are strongly positioned with more than 40 original titles moving to the publishing pipeline and through the IDWE development slate annually to benefit from the co-development of original content across both businesses.
We continue to aggressively pursue new creators and titles as we build the best-in-class content library that will serve as the foundation for our growth moving forward. We are energized about the opportunities and we’re seeing the marketplace and energize for an incredible year ahead.
Now I’ll turn the call over to Brooke Feinstein for a more detailed review of our fourth quarter and fiscal year 2021 results.
Brooke Feinstein
Thank you, Ezra. My remarks today will focus on our fourth quarter and full year fiscal 2021 results, except where I indicate otherwise. I’ll be comparing the fourth quarter fiscal 2021 results to the fourth quarter of fiscal 2020. And I’ll compare full year fiscal 2021 results to full year fiscal 2020.
Our financial progress over the past several years and our current strong balance sheet positions IDW for continued significant improvement in the year ahead. As Ezra mentioned, we accomplished a considerable amount in fiscal 2021, laying robust financial foundation for long-term success.
We raised additional capital with strong support from our current investors and utilized the proceeds to eliminate the remaining debt, enhance our liquidity and invest in growth initiatives, including ramps of original IP investment. At IDW Entertainment, we work through substantially all of our legacy production deals and are now poised to benefit from production finance models that provide predictable positive cash flows with limited downside risk.
Finally, in the fourth quarter of fiscal 2021, we enhanced our visibility in the investor community through our uplist to the New York Stock Exchange.
Now let’s look at our financial results. The fourth quarter consolidated revenue decreased to $7.1 million from $10.1 million. The decrease was driven by a decline in entertainment revenue, which fell to $225,000 from $2.4 million. Virtually all entertainment revenue in the year-ago quarter was recognized upon delivery of Wynonna Earp episodes.
Looking ahead, we will book Locke & Key Season 2 revenue in Q1 of 2022. Looking further down the road, we expect to deliver and recognize revenue from Locke & Key Season 3 and Surfside Girls Season 1 in the second half of calendar 2022, not necessarily in fiscal 2022.
Keep in mind though, that in this age of COVID, production can be delayed or shut down with little notice and therefore, delivery dates are difficult to forecast accurately. Publishing revenue decreased to $6.9 million in the fourth quarter from $7.7 million a year earlier, primarily because of exceptionally strong sales in the book market during the year-ago quarter led by Top Shelf titles, notably Congressman John Lewis’ March and George Takei’s They Called Us Enemy. The decrease in book market sales was partially offset by stronger direct market sales as comic shops and other retailers began to recover from the worst impacts of COVID-19. Revenue from digital games and licensing also declined.
In the first quarter of fiscal 2022, we expect our publishing results will get a boost when we realize approximately $2.2 million in game revenue from Batman Adventures, our best-selling games. However, this will be the last hurrah [ph] for licensed games as we are closing that line of business to sharpen our strategic focus on development of original franchises.
Setting aside Batman Adventures, our decision to exit from the licensed game business will tend to reduce publishing’s revenue in the remainder of fiscal 2022. We generated $1.5 million in licensed games revenue in fiscal 2020 and $1 million in fiscal 2021. The licensed games has a marginal – marginally negative impact on our bottom line results in both years.
For the full 2021 fiscal year, consolidated revenues decreased to $32.4 million from $38.2 million. The decrease was entirely a function of the decline in entertainment revenue, which declined to $7.1 million from $14.3 million. In fiscal 2020, entertainment recognized over $4 million in revenue from each of these three shows: Wynonna Earp, Locke & Key and October Faction.
In fiscal 2021, entertainment generated almost all of its revenue from a combination of the final episodes of Wynonna Earp and Canadian Revenue Agency production tax credits related to prior shows. Publishing revenue increased to $25.3 million in fiscal 2021 from $23.9 million in fiscal 2020, led by exceptionally strong direct market sales of Teenage Mutant Ninja Turtles: The Last Ronin title, partially offset by a decrease in book market revenue.
Moving further down the income statement, IDW Media Holdings consolidated loss from operations increased to $1.9 million in the fourth quarter compared to a $1.5 million a year earlier. IDW Entertainment fourth quarter loss narrowed to $1.5 million from $2 million. The legacy production financing deals that generated the majority of Entertainment’s revenue in the year-ago quarter incurred significant losses. As a result, Entertainment’s profitability improved in the fourth quarter of 2021, despite generating minimal revenue.
Income from operations at IDW Publishing decreased to $38,000 in the fourth quarter of 2021 from $491,000 in the year-ago quarter. The decrease resulted from the exceptionally strong sales of higher margin backlisted to book titles in the year-ago quarter, and in the fourth quarter of 2021, increased severance pay, partially offset by reduction in SG&A.
Corporate overhead generated the loss from operations of $443,000 in the fourth quarter compared to positive income from operations of $14,000 a year earlier on an increase in severance and compensation expenses.
For the full fiscal year, our consolidated loss from operations decreased to $8.7 million in 2021 from $9.3 million in 2020. At IDW Entertainment, the loss from operations in fiscal 2021 decreased to $6.7 million from $8.6 million in fiscal 2020, again, reflecting the impact from the legacy production financing deals that impacted our results in fiscal 2020 and to a lesser extent in fiscal 2021.
In addition, IDWE’s bottom line in fiscal 2021 benefited from the $3.3 million in production tax credits, as I mentioned earlier, partially offset by the $2.1 million impairment we announced in the first quarter from the implementation of a change in accounting treatment of certain episodic television production costs.
At IDWP, the loss from operations increased to $770,000 in fiscal 2021 from $103,000 in fiscal 2020, a gross profit decrease from the decline in sales of our backlisted book titles while compensation and marketing expenses increased.
The loss from operations from corporate overhead increased to $1.2 million in fiscal 2021 compared to a loss of $632,000 in the previous year on higher severance expense and compensation costs.
The fourth quarter’s net loss narrowed to $0.06 a share compared to $0.09 in the third quarter and $0.20 in the year-ago quarter, as our bottom line results continued to improve.
The full year net loss from continuing operations improved to $0.59 a share from $1.08 in the prior year. Including the impact of discontinued operations, the net loss improved to $0.51 per share in 2021 from a loss of $1.54 in fiscal 2020.
Turning now to our balance sheet. At October 31, we had no debt. Working capital, current assets less current liabilities totaled $19.5 million and we held $17.5 million in cash and cash equivalents.
To wrap up, our balance sheet is strong with ample liquidity. Our bottom line results from operations improved significantly in fiscal 2021 as we work through the remainder of the legacy production financing deals. With those impacts behind us, we are poised to benefit from several tailwinds in the year ahead.
We expect to recognize high-margin revenue from Locke & Key Season 2 in the first quarter and from Locke & Key Season 3 and Surfside Girls Season 1 in the second half of 2022 calendar year, provided that current production timeframes hold. IDW Publishing revenue will also get a nice boost in the first quarter from sales of Batman Adventures.
That concludes my remarks. Now, Ezra and I would be happy to take your questions.
Ezra Rosensaft
Thank you, Brooke. Now, as mentioned, we’d welcome your questions. Operator, back to you for Q&A.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Eddie Reilly with EF Hutton. Please proceed with your question.
Eddie Reilly
Hey, guys, thanks for taking my question. I see strong publishing revenues sequentially in the quarter. Should we expect Surfside Girls to have similar revenue and margins as Locke & Key? Is this going to be using the new derisked model?
Ezra Rosensaft
So – hi, Eddie, it’s Ezra. The short answer is yes. Going forward, in the derisked model, we do not put up capital, we do not put leverage. We – it’s a little bit hard to hear you, I’m not sure if you can go on mute while – so everyone can hear the response.
The derisked model means that we do not take on leveraging debt as people can see in historical financials, very simply the buyer or streamer or network cash flows to production. We take our production fee and license fee and we hire a tri-party to do the production services. So very simply put, you’re correct. That is the derisked business model that moves us away from where the company was when we talked about what the balance sheet used to be and now it’s asset-light.
Eddie Reilly
Awesome, awesome. Thanks. And could you give us some more insight into how strong the [indiscernible] pipeline is for the next year? Do you think you’re moving closer to your two-year targets or [indiscernible] one film for a year or so? And do you see the projection of $11 million in revenue obtainable sales for the year, that was projected in November?
Ezra Rosensaft
So I think I heard most of you question there. So I don’t want to get into particular projections of dollars on this call, for various reasons, but we do see an increase, we do see 2022 as being an excellent year in terms of really first focusing on root content, because content is king, as we all know, distribution is King Kong, we need our buyers, and ultimately flowing through to profitability.
I don’t want to get into particular guidance, we haven’t given yet in the past. We do look forward to doing that in future years, but things are looking positive. I’ll try to keep that neutral to avoid getting into hot water with counsel.
Eddie Reilly
Okay, great. And I apologies for the sound. [indiscernible] produce other income on $1.2 million in the quarter. Could you give us some color into what that was?
Brooke Feinstein
Yes, hi. That was for the PPP loan forgiveness. We also had another one earlier in the year. This is the second one.
Eddie Reilly
Okay, great. That’s it from me. Thank you, guys.
Operator
Our next question is from Walter Bellinger with Mayflower Capital. Please proceed with your question.
Walter Bellinger
Yes. Hey, guys, thanks for taking my questions. So a competitor of yours, Dark Horse, was recently acquired. Could you provide any color concerning how this might impact the industry and sort of how the acquisition might impact – I would look at your valuation?
Ezra Rosensaft
Great question, Walter. Thank you. So there’s a lot happening in the industry. What’s interesting about media entertainment is that, it’s on the one hand, something looked at as investments and also we’re all consumers of media. Pick your patient, podcast, streamer, it doesn’t matter.
So to the point, the acquisition really reflect the evolving landscape, and in particular, the dearth of original content. And given Dark Horse being purchased by a gaming company, their focus may shift, but it still remains and this is what’s crucial, a huge opportunity for original IP intellectual property. And the demand, by lots of streamers, as we all know, is going to soon outstrip the supply because there are just so many and Dark Horse being acquired is one of them.
From a valuation standpoint, it’s tough to say, since the purchase price was not made public, and I don’t want to speculate, you’ve been hearing things on the ground. But we believe the acquisition and other consolidation in the space makes us increasingly excited about the value of our IP. I don’t want to give conjecture as to what companies should be valued at. I’ll leave that to everyone at their discretion.
But just to give you a little more context, we don’t get into the particular size of our library. But what I can say is that 100-plus original IP, that is climbing very fast, as we talked about 40-plus annually, which drives the publishing pipeline through to the development slate, IDWP, IDWE.
And in the industry, many use the metric of $1 million per original title. And it’s very crude, because obviously it depends on the quality. You could have – Walking Dead, it’s obviously worth one more than 1 million per title, but that’s the rough ballpark. So if you use that, you can begin to calculate our enterprise value or what it truly should be at. I won’t speculate on why the price is what it is, given the history.
We’re looking forward. We have content. We add to that weekly. It takes time to put out a great graphic novel. This is not a periodicals business, but we have a lot of great content coming forward and we expect that to be realized in the valuation shortly in the near future. Whenever that may be, it will take over time, but certainly, valuation should increase, in my opinion.
Walter Bellinger
Okay, great. And then so obviously, nice job on the cost side of your business this quarter. Can you just help us understand approximately how much of your costs during the year is related to the one-time financing uplisting?
Brooke Feinstein
Yes, sure. So that would be approximately about $140,000 for kind of legal audit accounting and transfer agencies that we won’t see again.
Walter Bellinger
Okay. And then just one more question. Just – and just – I just want to be clear on this. The Locke & Key revenue that was expected in Q4 has already been booked in Q1?
Brooke Feinstein
That is correct. The cash is already in and it will be recorded and recognized in Q1.
Walter Bellinger
Great. Okay. Well, that’s it for me. Thanks for taking my questions, guys.
Ezra Rosensaft
Thanks. Wal.
Operator
[Operator Instructions] As there are no more questions, I would like to hand the call over to management for closing remarks.
Ezra Rosensaft
Thanks, Kyle, operator. Thanks, everyone, for joining and listening. Look forward to speaking with all of you in the future and have more positive news. Thanks, everyone, for coming and listening today.
Operator
Thank you for attending today’s presentation. You may now disconnect.
Be the first to comment