IDW Media Holdings, Inc.

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 conference over to Mr. Rosensaft.

Thank you, operator, and thanks to everyone on the call for joining us. Before beginning, I'd like to take a moment and acknowledge all those who have lost friends and family or who have otherwise suffered as a result of the pandemic.

I hope everyone listening this evening is staying safe and healthy as we globally begin to heal. Our remarks today cover the first quarter of our fiscal year 2021, the 3 months ended January 31, 2021.

I'm very pleased that my colleague, Karina Fedasz, IDW Media Holdings' new Chief Financial Officer, will be joining us for her first earnings call as CFO.

Karina was promoted to the CFO role at IDW after doing a terrific job as a senior consultant for 18 months, working with finance and operations. And as you are about to find out, she is extremely capable and well spoken.

She first joined IDW in 2019 from Mocean, a leading entertainment marketing firm in L.A., where she held the CFO position. On our call today, I will briefly cover strategic and operational developments, and then Karina will provide a deeper dive on our financial results.

Following Karina's presentation, we will be happy to take your questions. Although we continue to work through the financial impact of legacy deals, which we believe will finally be in the rearview mirror, the new IDW is rapidly taking shape.

We have announced 2 significant operational initiatives to lead the company through the next phase of its growth. To execute on each one, we have recruited amazing teams of industry veterans and asked them to work across publishing and entertainment to realistically add value by amplifying the synergies between print, merchandise and screen and additional items such as podcast and mobile and so on and so forth.

In September 2020, Nachie Marsham was appointed as our publisher after a highly successful career at both Disney and DC. One of his key missions is to expand publishing's creative leadership and making a more significant foray into genres beyond horror and sci-fi, which has been a focus since IDW's inception.

Within weeks of his arrival, our publishing and entertainment units collaborated to launch a coordinated initiative to acquire and develop original IP for the kids, family and young adults or YA market.

The market is underserved, targets a primary audience for comics and graphic novels and has broad appeal to many of the streaming services. To jump start the initiative, we hired a rising star in the industry, Jeff Brustrom as IDW Entertainment VP for Kids, Family and Animation.

Jeff like Nachie came to use from Disney. He was joined by Daniel Kendrick, Director of Animation; and Erika Turner, Senior VP, Original Content at IDW Publishing.

The 3 lead and integrated 1 IDW approach to address this critical market with their trademark creativity and passion. Just this week, we took another giant step forward announcing an initiative focused on the acquisition and development of original IP.

Currently, a significant majority of the IP we developed is like going back to legacy and historical deals.

Our goal is to bring more emphasis to original IP as we create more and more and ensure a robust original IP pipeline. Jonny Gutman joined our team to manage creative development and production strategy for original scripted content as Vice President of Series at IDW Entertainment.

Jonny was previously the Senior Director of Longform premium content at Funny Or Die, who'll be collaborating closely with the other original team leaders. Mark Doyle who is named IDW Publishing Editorial Director of Originals, will lead the effort to acquire and develop original materials for comic books and graphic novels.

And finally, Cassie Conaway, IDW Entertainment's new Director of Development will help round out the slate of drama and comedy programming. Unless anyone be overly concerned about hire, hire, hire, we are carefully reshuffling the deck as natural attrition occurs.

Both our initiative to the kids, family and YA markets and our original initiatives, bring resources, talent and structure together to pursue IDW opportunities in an integrated, holistic approach as mentioned across the publishing and entertainment sides of our business as well as exploring untapped new media opportunities, including, as mentioned, podcast, mobile gaming and more.

The value of these synergies [ are known or more ] apparent than with Locke & Key. The fandom was originally built through their maiden comics by Joe Hill and Gabe Rodríguez that we began to publish almost 10 years ago, a little over.

Over 1 million copies in more than 10 years, the success of those comics enable us to expand to the small screen in a big way. Even after just 1 season, Locke & Key's success on Netflix has created a halo effect that has driven strong sales of our backlist Locke & Key titles.

This year, we will do more to feed the enormous fandom that the Netflix series has inspired and intend to offer a full slate of Locke & Key comics and hardcover collections.

Hell & Gone #1 scheduled for release next month. I firmly believe my own personal opinion, being a fan of Comics that Locke & Key Sandman crossover will be a perennial excellent seller.

The publishing initiative will dovetail with the release of season 2 of the Netflix series later this year.

As you all have been following, Netflix has green lit more than just one. Our efforts to accelerate the acquisition of quality original content that can be developed across publishing and entertainment is already informing our 2021 development project.

Our top shelf imprint has 2 wonderful original set for release this year with international roots, a wonderful tale from the British Isles, the delicacy by James Albon and a powerful coming-of-age story from Mexico, Onion Skin by Edgar Camacho in which we recently invested to expand our publishing and media rights.

Original IP will take the leading role in the new IDW. However, licensed IP will continue to be an important source of cash.

That is why we are prioritizing renewal of some key franchise agreements, including Teenage Mutant Ninja Turtles from Hasbro and Star Trek from ViacomCBS, just to name a couple.

In addition to thinking holistically about content acquisition and development, we are looking at new channels. COVID-19 has dramatically changed how people find and buy content and consume, accelerating the move to digital, and we believe that those changes are largely permanent from the upcoming overhaul of our website to a greater focus on digital sales and developing more digital content to seize the opportunity.

Although digital content only accounts for about 10% of publishing revenue today, we are working to drive that to 20% or more over the next 24 months.

Turning now to IDW Entertainment. As we discussed in the previous quarter, Netflix has ordered Seasons 2 and 3 of Locke & Key reflecting their confidence in the series after a very successful a Season 1.

It is not often that a streaming service gives their nod for 2 successive seasons after a first. IDW Entertainment continued discussions on multiple properties in development slate.

As always though, as previously mentioned, the buyers, streaming services, for example or even traditional networks, guard their prerogatives and drive the timing and nature of announcements. Stay tuned.

The COVID freeze on production is beginning to fall, and the competition for content is still red hot. Now here's Karina to review our first quarter financial results.

Karina?

Thank you, Ezra. It's a great honor to be here.

I want to start by thanking you and the Board for the opportunity to serve as IDW's Chief Financial Officer. I'm proud to be part of an organization with such a distinguished publishing and entertainment legacy, and I'm excited by the abundant opportunities the company is pursuing.

My remarks today cover the first quarter of our 2021 fiscal year, the 3 months ended January 31, 2021. Throughout, I will compare first quarter fiscal 2021 results to first quarter fiscal 2020 results to remove from considerations the seasonal impact captured by sequential comparisons.

After my remarks, Ezra and I would be happy to take your questions. Consolidated revenue was $8.4 million in the first quarter, a decrease from $10.3 million, driven primarily by the recognition of October Faction revenue in the prior year quarter.

IDW Publishing's revenue decreased to $5.6 million from $6.3 million, predominantly on a reduction in revenue from games sales.

The Last Ronin, which went into its third printing in February and has already sold over 270,000 copies, making it IDWP's all-time best seller.

Digital sales, though still a small proportion of total publishing sales increased 68% compared to the year ago quarter. We believe that digital offerings are another promising growth avenue and are investing in new tools, including a sales-focused website to drive further digital expansion.

At IDW Entertainment, revenue decreased to $2.8 million from $4 million. All revenue was generated through delivery of 5 additional episodes of Wynonna Earp Season 4.

In the year ago quarter, nearly all the revenue was generated through delivery of certain October Faction episodes. IDW's consolidated loss from continuing operations decreased to $5.1 million from $5.8 million.

The improvement was led by IDW Entertainment, which reduced its loss from operations to $4.6 million from $5.6 million.

The losses this quarter reflected both the economics of financing production of Wynonna Earp and an impairment of $2.1 million, resulting from a recently adopted change in the GAAP accounting treatment of certain capitalized television assets.

IDW Publishing loss from operations increased to $373,000 compared to income from operations of $92,000 in the year ago quarter. The loss reflected the downturn in-game revenue as well as higher personnel expenses.

CTM Media, our travel and tourism information businesses, was reported as a discontinued operation this quarter and that presentation has been reflected in all prior periods presented.

CTM's loss from discontinued operations was $1.1 million, approximately the same as in the year ago quarter. The sale of CTM closed on February 15.

Our basic and diluted loss per share decreased substantially to $0.62 per share from $0.92 in the year ago quarter. Discontinued operations contributed $0.11 and $0.14, respectively.

From a cash generation perspective, this quarter was also significantly stronger. Net cash provided by operating activities was $886,000 compared to net cash used in operating activities of $2.8 million in the year ago quarter.

Our balance sheet continues to be sufficiently robust to support our operations. As of January 31, we had $8.7 million in cash and $13.3 million in working capital.

Looking ahead to the remainder of this fiscal year, we will work through the remaining impacts of legacy IDW Entertainment finance deals and later this calendar year, we expect to book gains from Locke & Key Season 2 on delivery of the season's episodes.

Any additional IDWE deals announced in the coming months would likely not impact our financials until fiscal 2022.

IDW Publishing was again cash flow positive. Nevertheless, as Ezra discussed, we are investing across several critical initiatives essential to long-term growth.

These include our initiative to expand our presence in the young adults and family space and to transition from predominantly licensed content to favor original content with development rights across media. All in all, we are driving towards profitable operations while investing judiciously in initiatives to power longer-term growth.

Now, Ezra and I would be delighted to take your questions.

I just want to thank you for all your hard work. It's nice to see to clean up and great progress on the publishing side around costs.

I was just curious, what does the pipeline look like on entertainment outside the Locke & Key?

Bill, it's Ezra. Great question.

So we have a number of items in various stages of commission development. It's in the teens.

I don't want to give a specific number and they vary from scripts and pitches all the way to early stage. So even though production's been slowed down, I think at one point, every actor and actress in the industry was home on Zoom like the rest of us.

We've been busy working on the IP that we have available with us and working on commission development. So somewhere in the teens at various stages ready to go.

Some are in the animated form and some will be live-action once that resumes full speed.

That's great. And just a follow-up on entertainment and cost there.

Are we through kind of the losses from historical contracts, and we're now in a clean place? Or is there still a little bit more to come?

Yes. I believe -- and this has been a focus.

As you know, I've discussed on prior calls, we are finally through, I believe, 99.9%. Our accounting folks might check me on that, but I've looked at it quite extensively with them, the legacy cleanup, the old shows, the only thing remaining, which will be noted, of course, in the balance sheet, you'll see receivables and bank loans payable is related to the Canadian tax credit.

We are carrying the full amount just as the bank loans are structured. And we will -- so once the bank loans are fully paid off and the credits come back to us.

And right now, the Canadian revenue agency is reviewing that. Once that comes back, hopefully, in the next quarter, we will receive cash as has always been contemplated, not the full $20 million because we're carrying the full bank loan.

So roughly speaking, 10% of that would come to IDW in the form of cash, which is, of course, great news.

Other than that, all legacy will be cleaned up. And that would not reflect a particularly large loss at all.

That would just be really a clean-up of the balance sheet.

That's great. And just 1 more question on Locke & Key, are there any [indiscernible] outside of kind of domestic Netflix that you can sell into?

Or this does become a multiyear run, what is the optionality longer-term on rights?

It's a great question. So Locke & Key, as we know we're very thankful, has been renewed for at least 2 more seasons.

Netflix has rights and they broadcast that in almost 200 countries and territories. So they really have the first dibs, the way the model works since [indiscernible] on asset-light balance sheet.

They are taking the lion's share of the financing because, as you can see, we don't have that on our balance sheet.

And for that, they have the global rights. We do retain certain merchandise, other related rights, but the lion's share of the revenue net to us for not financing it comes from the Netflix fees.

We could look to some upside for some merchandise and maybe a game, which we are looking into, which could be highly profitable, right? You can come across a game that would do very well on either the iPhone or Android.

So TBD on some potential upside we're looking into.

Got it. And 1 more just quick housekeeping question.

What kind of net proceeds do you expect to see on this quarter's balance sheet from the CTM sale?

Great question. So we are finalizing that accounting.

As you know, our Chairman, and this was noted in a subsequent event, our Chairman essentially purchased or really swapped the debt out, which we're very thankful for the reduction in debt that when I first took over as CFO, was tremendous at IDW. So we may see a gain.

It's discussed in the subsequent event that may be a gain or loss.

I believe we may see a gain after that all shakes out. The transaction took place in mid-February, so that's our Q2.

And I would expect, hopefully, positive news. I don't want to talk to speculate on the future, but I would hope positive.

Great. Well, thanks for all your hard work and good luck this year on all the new shows.

Thank you, Bill, and thank you for your continued investment. Much appreciate it.