IDW MEDIA HOLDINGS, INC. The following information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the related notes thereto and our Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year endedOctober 31, 2022 , which was filed with theU.S. Securities and Exchange Commission ("SEC") onJanuary 19, 2023 (the "2022 Form 10-K"). As used below, unless the context otherwise requires, the terms "the Company," "we," "us," and "our" refer toIDW Media Holdings, Inc. , aDelaware corporation, and our subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words "believes," "anticipates," "expects," "plans," "intends," and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed in the 2022 Form 10-K. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with theSEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934. OVERVIEW
We were incorporated in the
In 2009, IDT Corporation, our former parent corporation, completed a tax-free spinoff of the Company through a pro rata distribution of our common stock
to IDT's stockholders.
Our principal businesses include:
?
content through its imprints IDW,
Editions; and
? IDW Entertainment ("IDWE") is a production company and studio thatdevelops, produces and distributes content based on IDWP's original,
copyrighted intellectual property ("IP"), published in the form of comic
books, graphic novels and any other forms of print publication, for a
variety of formats including film and television.
IDWP is an award-winning publisher of comic books, original graphic novels, and art books. Founded in 1999, IDWP has a long tradition of supporting original, powerful creator-driven titles. In 2002, IDWP published 30 Days of Night bySteve Niles and Ben Templesmith followed by other horror titles that helped kickstart a resurgence in horror-comic publishing across the industry. Since then, IDWP has significantly diversified its publications.Joe Hill and Gabriel Rodríguez's Locke & Key,Scott Snyder's Dark Spaces line,Stephen Graham Jones's Earthdivers,Beau Smith's Wynonna Earp ,Alan Robert's The Beauty of Horror adult coloring books, andDarwyn Cooke's graphic novel adaptations ofRichard Stark's Parker novels are just a few of the hundreds of award-winning titles published since IDWP's inception.
IDWE leverages IDWP original IP into television series, features, and other forms of media by developing and producing original content. IDWE maintains a development slate of properties based on IDWP properties for the adult series/features marketplace and the kids, family, and animation spaces.
COVID-19: Overview and Long Lasting Impacts
? IDWP: Issues primarily related to the COVID-19 pandemic continue to impact
international printing and shipping. Costs began to level off as of the
end of fiscal 2022 and the strain on the logistics network is easing, but
prices are still considerably higher than the pre-pandemic levels due
changing macro-economic conditions such as inflation.
? IDWE: Despite less impact from COVID-19 in recent periods, IDWE continues
its program to develop, package and pitch from its library, adapting to a
new marketplace that exists as a hybrid in office/remote model.
We qualified for certain tax credits under the Coronavirus Aid, Relief and
Economic Securities Act ("CARES Act"). During fiscal 2022, we recognized an
employee retention credit ("ERC") for qualified wages paid between January 1,
2021 and March 31, 2021 of $564,000 as an offset to payroll tax expenses within
selling, general and administrative expenses in our consolidated statements of
operations. To date we have received a total of $564,000 .
19
Business Description
IDW Publishing There are two primary sources of the content that IDWP develops, publishes, and exploits across a range of distribution channels:
? Original, creator-owned material that marks its debut to the consuming
public via IDWP's published products, inclusive of IDW Originals and Top
Shelf ("Creator Content"); and
? Third-Party content that has already been successfully exploited in other
media with partners such as
Trek), Hasbro (My Little Pony, Dungeons & Dragons), Sega (Sonic) and with
companies including DC Comics and Marvel on our Artist's Editions
("Licensed Content").
IDWP's largest product group is the publication of comic book and trade
paperback products. Its comics and graphic novels are primarily distributed
through three channels: (i) to comic book specialty stores (the "direct
market"); (ii) to traditional retail outlets, including bookstores and mass
market stores, on a returnable basis (the "book market"); and (iii) to E-book
distributors ("digital publishers"). IDWP's publications are widely available
digitally through popular distributors such as Comixology, Amazon, Apple iBooks,
Google Play, Hoopla, Overdrive, and via IDWP's own webstore at
idwpublishing.com. Through the direct market and book market, IDWP, including
its imprints sold over 3.9 million units in fiscal 2022 and is regularly
recognized as one of the nation's largest publishers in the comics & graphic
novels category.
IDWP's focus is to expand and market its library of titles, from both
creator-owned titles in our IDW and Top Shelf brands; and also, in partnership
with our top-of-class licensors under our IDW brand. IDWP works synergistically
with IDWE to develop new titles and to support existing titles.
IDWP is an award-winning publisher of comic books, original graphic novels, and
art books. Founded in 1999, IDWP has a long tradition of supporting original,
powerful creator-driven titles. In 2002, IDWP published 30 Days of Night by
Steve Niles and Ben Templesmith followed by other horror titles that helped
kickstart a resurgence in horror-comic publishing across the industry. Since
then, IDWP has significantly diversified its publications. Joe Hill and Gabriel
Rodríguez's Locke & Key, Jonathan Maberry's V Wars, Beau Smith's Wynonna Earp ,
Alan Robert's The Beauty of Horror adult coloring books, and Darwyn Cooke's
graphic novel adaptations of Richard Stark's Parker novels are just a few of the
hundreds of award-winning titles published since its inception.
IDWP owns Top Shelf Productions , an award-winning critically acclaimed publisher
of graphic novels. Top Shelf Productions is renowned for publishing works of
literary significance including the #1 New York Times and Washington
Post bestselling trilogy, March, by Congressman John Lewis, Andrew Aydin , and
Nate Powell . March is the only graphic novel to have won the National Book Award
and is one of the most taught graphic novels in schools. In July 2019 , Top Shelf
Productions released George Takei's graphic memoir, They Called Us Enemy, which
debuted at #2 on the New York Times Paperback Nonfiction Best Sellers list and
as a #1 bestseller on Amazon. Both titles are now perennial bestsellers and
considered two of the finest non-fiction graphic novels. Other iconic Top Shelf
Productions titles include Kim Dwinell's Surfside Girls, Jeff Lemire's Essex
County and The Underwater Welder, Hannah Templer's Cosmoknights, and Alan Moore
and Eddie Campbell's From Hell.
In addition to its core of creator-driven franchises, IDWP has also partnered
with the owners of major licensed brands to publish many successful licensed
titles, including Paramount Global's Teenage Mutant Ninja Turtles and Star Trek;
Hasbro's Dungeons & Dragons, and My Little Pony; Sega's Sonic The Hedgehog;and
Toho's Godzilla. These licensed titles bring with them diverse built-in audiences and build cache and retailer support for IDWP. With licensed franchises, IDWP's strategy is to focus not only on licenses that have eager, built-in fan followings, but also ongoing licensor support through other channels, such as toys, animation, and film. This strategy enables IDWP to expand its audience reach and to pursue sub-license opportunities with foreign publishers. IDWP also collaborates with other comic book publishers to co-publish certain titles, including Batman vs. Teenage Mutant Ninja Turtles and Locke & Key/The Sandman Universe: Hell & Gone (with DC Comics), Rick & Morty vs. Dungeons & Dragons (withOni Press, Inc. ) and Godzilla vs. Power Rangers (withBoom Studios ). 20 IDW Originals, launched inJuly 2022 , is a line of original comics and graphic novels from a diverse lineup of writers and artists creating content across all genres and for all age groups. IDW Originals works with top-tier talent including New York Times bestselling writers likeScott Snyder on Dark Spaces: Wildfire,Stephen Graham Jones on Earthdivers, andG. Willow Wilson on The Hunger and the Dusk, in addition to up-and-coming talent with the goal of creating the bestsellers of tomorrow. IDW Originals is also focused on creating IP that can be exploited across multiple media platforms. IDWP is also home to Artist's Editions, which publishes oversized deluxe hardcovers featuring scans of original art printed at the same size they were drawn with the distinctive creative nuances that make original art unique. Some of the standout Artist's Editions titles includeJim Lee's X-Men,Mike Mignola's Hellboy,Todd McFarlane's Spider-Man,David Mazzucchelli's Daredevil Born Again andDave Stevens' The Rocketeer. Many of IDWP's titles are available worldwide through foreign licensing with 642 titles available in approximately 62 territories in approximately 24 languages. In 2020, IDW launched a new initiative to release key titles as Spanish-language graphic novels in the North American market with the release of Spanish-language editions of They Called Us Enemy, Red Panda &Moon Bear , Locke & Key and Sonic the Hedgehog.
Penguin Random House ("PRH") serves as the exclusive worldwide distributor for all IDWP products other than periodical comic books for the book market channel and sinceJune 2022 , as the exclusive worldwide multi-year sales and distributor for IDWP's newly published and backlist comic book periodicals, trade collections, and graphic novels to the direct market comic shops.
Prior to
In 2014, IDWP launched IDW Games to develop and publish card, board, and tabletop games. Similar to IDWP's book content, IDW Games offered a mix of popular licensed titles such asDragon Ball Z and Batman the Animated Series, as well as creator developed strategic hobby games, such as Towers of Arkhanos and Tonari. IDW Games' products were sold to distributors worldwide and are available through retailers such as GameStop, Barnes & Noble, and Amazon, independent games, and comics stores, as well as the direct-to-consumer channel through its website and marketing campaigns. In calendar 2021, the Company wound down IDW Games and, going forward, IDW Games is only backfilling final orders and reproducing select existing products.
To further expand and build creator-owned properties beyond publishing, IDWP works with IDWE, as well as other outside partners, to bring creator-owned franchises to television and film through licensing arrangements.
To expand its business and compete with other industry participants, IDWP continues to focus on launching new creator-owned titles and partnering with established brands to bring fan-favorite properties to the comics market. IDWP is expanding the reach of existing and new products through the development of specialty, library, and education markets; increased direct-to-consumer initiatives; and broadening the reach of creator-driven series through licensing opportunities.
IDWP's revenues represented 99.8% and 63.6% of our consolidated revenues in the
three months ended
IDW Entertainment IDWE is a production company and studio that develops, produces and distributes content based on IDWP's original, copyrighted IP, published in the form of comic books, graphic novels and any other forms of print publication, for a variety of formats including film and television. IDWE was formed onSeptember 20, 2013 to leverage IDWP properties into television series, features, and other forms of media by developing and producing original content. IDWE maintains a development slate of properties based on IDWP properties for the adult series/features marketplace and the
kids, family, and animation spaces.
IDWE has developed and/or produced a number of series for television:
? Locke & Key premiered on Netflix on
the critically acclaimed graphic novels of the same name of Joe Hill and
Gabriel Rodriguez published by IDWP. Season two premieredOctober 22, 2021 , landing in the Top 10 on Netflix's global TV charts in over 81 countries, and season three premieredAugust 10, 2022 on Netflix. ? Surfside Girls is based on the Top Shelf graphic novel of the same name and premiered onAugust 19, 2022 on Apple TV+. All ten episodes of the live action kids' series premiered in over 80 countries worldwide on the Apple TV platform. 21
Some historical series include:
?
was created by
the IDWP comics of
co-producer and global distributor for the series.
? V Wars debuted on Netflix on
thriller stars
Entertainment. The series was based upon
book series of the same name. Some streaming rights reverted back to IDWE
in 2022; as a result, we will be exploring opportunities to monetize the
past season and potential opportunities to continue the story with a new
partner.
? October Faction premiered on Netflix on
show was based on the IDWP comics of Steve Niles and Damien Worm of the
same name and was adapted by showrunner Damian Kindler and starred Tamara
Taylor and J.C. MacKenzie . It was also produced by High Park
Entertainment .
IDWE recently announced a slate of six additional titles with closed development
deals with major studios, streamers, and distributors. As a part of these deals,
IDWE will work closely to develop these properties as narrative television
series, with the ultimate goal of securing a greenlight to production. These
titles include:
? Dark Spaces with
? Earthdivers with 20th
? Ballad for Sophie with
? The Delicacy with Warner Bros.
? Brutal Nature with leading
? A Radical Shift of Gravity with award winning film producerTodd Lieberman /Hidden Pictures and Lionsgate OnAugust 30, 2022 , we announced our first 360-development deal with writing teamMatt Silverstein andDave Jeser for the development and production of the sci-fi comedy "Family Time" into a television series and original comic book property simultaneously. OnNovember 30, 2022 , we announced six additional development deals with writing & producing talent, which included properties Bacchus, Dragon Puncher & Spoony, Korgi, Lodger, Relic of the Dragon and Satellite Falling. IDWE attached such talent asWill Davies (Lyle, Lyle, Crocodile),Holly Huckins (Recess, Angela Anaconda),Aury Wallington (Veronica Mars , Heroes,Gravity Falls ), Max &Adam Reid (Aeon Flux),Patricia Riggen ,Bryan Q. Miller (Shadowhunters),Will Pascoe (Orphan Black) andJude Weng (Finding Ohana).
On
Business Model
While in the past, IDWE focused on television development and financing
production opportunities, a broadening of our strategic goals has evolved to
focus on lower risk investments as well as developing IP for feature film and
podcast opportunities. As was the case with Surfside Girls, IDWE provided
co-studio services which enabled us to utilize our studio partners'
infrastructure to support the needs of productions while reducing our own risk.
We have also diversified our position by acting as non-writing executive
producers on current and future projects which allows us to secure fees for our
services while minimizing costs. With more varied opportunities for our
content/IP, we expect to grow our brand, expand the perception of IDWE, increase
revenue opportunities for the publishing side of the business and develop a more
robust entertainment footprint.
22
The path to greenlighting a project can take many routes, but the two most common include internal development and partnering with established studios and streamers. For internal development, IDWE partners with established television and film talent to develop pitches based on our IP, then takes those pitches to buyers. Buyers who want to partner on IDWE's pitches will enter into a deal to commission a pilot script or feature screenplay, which will be the determining factor of a series or feature film being greenlit. In the second scenario, IDWE may option what's called clean IP (projects without any attachments or development with talent) to a buyer/production partner and develop/package a series or feature. While this scenario may require more work between IDWE and the buyer to develop a concept for adaptation, the advantage is that IDWE is doing this in tandem with the buyer or platform - guaranteeing that what is developed is strategically what they are looking for.
IDWE's revenues represented 0.2% and 36.4% of our consolidated revenues in the
three months ended
Critical Accounting Policies
Our condensed consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles inthe United States ("U.S. GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management's most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, goodwill, valuation of long-lived assets including intangible assets with finite useful lives and ultimate revenues for television costs. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. See Note 1 to the consolidated financial statements included in our 2022 Form 10-K. Results of Operations We evaluate the performance of our operating business segments based primarily on (loss) income from operations. Accordingly, the income and expense line items below loss from operations are only included in our discussion of the consolidated results of operations. IDWP (in thousands) Change Three months ended January 31, 2023 2022 $ % Revenues$ 6,577 $ 7,531 $ (954 ) (12.7 )% Direct cost of revenues 3,533 3,714 (181 ) (4.9 )%
Selling, general and administrative 3,200 3,233 (33 )
(1.0 )% Depreciation and amortization 179 72 107 nm (Loss) income from operations$ (335 ) $ 512 $ (847 ) (165.4 )% nm-not meaningful
Revenues. Revenues decreased by$954,000 in the three months endedJanuary 31, 2023 , compared to the three months endedJanuary 31, 2022 , primarily due to a decrease in games revenue of$1,888,000 driven by fulfillment of the direct-to-consumer games campaign for Batman Adventures in the fiscal 2022 period, a decrease in direct market publishing revenue of$462,000 , and decreases in direct-to-consumer revenue and other licensing and royalty revenue, partially offset by an increase in retailer exclusive revenue of$551,000 predominately related to Sonic the Hedgehog, an increase in book market publishing revenue of$734,000 driven by strong Teenage Mutant Ninja Turtles: The Last Ronin hard cover sales, a decrease in sales returns and discounts on book sales of$90,000 , and an increase in digital sales of$52,000 . Sales returns improved compared to the prior period due to targeted incentives with accounts to reduce return rates and localization of inventory management at
Barnes & Noble.
23
EffectiveJanuary 1, 2023 , our licenses for Transformers and GI Joe titles have been terminated. While the cancellation of the licenses for Transformers and GI Joe are anticipated to decrease revenues by approximately$1.2 million in fiscal year 2023, IDWP plans to mitigate the loss of revenue by enhancing our other key licensed brands through new initiatives for Star Trek, Godzilla, Dungeons & Dragons, and My Little Pony and an expansion of Teenage Mutant Ninja Turtles: The Last Ronin. These efforts have begun to offset any material impacts and we expect to continue to substantially offset any material impact on our gross margin from the loss of the licensed titles. Direct cost of revenues. IDWP's direct cost of revenues decreased by$181,000 in the three months endedJanuary 31, 2023 , compared to the three months endedJanuary 31, 2022 , primarily due to a decrease in printing expenses and creative costs for IDW Games of$655,000 which corresponds to the decrease in revenue from games noted above and a decrease in royalty expenses of$209,000 , partially offset by an increase in publishing printing costs of$599,000 , and increases in publishing creative costs and digital and licensing costs. Royalty expense as a percentage of sales is dependent on product and title mix as different revenue streams and titles have different royalty rates.
Gross Margin. IDWP's gross margin for the three months ended
Selling, General and Administrative. IDWP's selling, general and administrative expenses decreased slightly by$33,000 in the three months endedJanuary 31, 2023 , compared to the three months endedJanuary 31, 2022 , primarily due to decreases in overhead allocations of$309,000 , shipping and direct-to-consumer costs of$212,000 , and occupancy expenses, severance, and consulting expenses, partially offset by increases in salaries and benefits of$297,000 , marketing expenses of$264,000 , and IT costs related to the Company's website for the focus on direct-to-consumer. As a percentage of IDWP's revenues, selling, general and administrative expenses in the three months endedJanuary 31, 2023 , was 48.7% compared to 42.9% in the three months endedJanuary 31, 2022 . IDWE (in thousands) Change
Three months ended
% Revenues$ 16 $ 4,318 $ (4,302 ) (99.6 )% Direct cost of revenues (85 ) 1,076 1,161 107.9 %
Selling, general and administrative 540 1,263 (723 )
(57.2 )% Depreciation and amortization 6 9 (3 ) nm (Loss) income from operations$ (445 ) $ 1,970 $ (2,415 ) (122.6 )% nm-not meaningful Revenues. IDWE revenues for the three months endedJanuary 31, 2023 decreased by$4,302,000 compared to the three months endedJanuary 31, 2022 . Revenues in three months endedJanuary 31, 2023 consisted of revenue from optioned projects and royalties of$16,000 . In the three months endedJanuary 31, 2022 , revenues consisted of revenue recognized due to the full delivery of Locke & Key season two of$4,200,000 and the French-Canadian license received for V Wars of$118,000 . Direct costs of revenues. Direct cost of revenues consists primarily of the amortization of production costs that were capitalized during the production of the television episodes and direct costs related to revenue recognized during related periods. Direct costs of revenues for the three months endedJanuary 31, 2023 increased by$1,161,000 compared to the three months endedJanuary 31, 2022 . The amortized television costs for the three months endedJanuary 31, 2023 , included cost recoupment fromWynonna Earp of$166,000 and tax credits for V Wars of$7,000 , offset by residuals of$88,000 . The amortized television costs for the three months endedJanuary 31, 2022 , included costs related to delivered episodes from Locke & Key season two of$999,000 and cost refinement from October Faction
and V Warsof$77,000 . 24 Gross Margin. IDWE's gross margin for the three months endedJanuary 31, 2023 was 631.3% compared to 75.1% for the three months year endedJanuary 31, 2022 . These gross margin figures are aligned with the explanations provided for revenues and direct costs of revenues. Selling, General and Administrative. Selling, general and administrative expenses decreased by$723,000 during the three months endedJanuary 31, 2023 , compared to the three months endedJanuary 31, 2022 . The decrease was driven by decreases in overhead allocation of$421,000 , salary and benefits of$217,000 , and travel expenses and non-cash compensation. IDWE did not recognize meaningful revenue in the three months endedJanuary 31, 2023 . As a percentage of IDWE's revenues, selling, general and administrative expenses in the three months endedJanuary 31, 2022 was 29.2%. IDWMH (in thousands) Change
Three months ended January 31, 2023 2022 $ % Selling, general and administrative$ 1,193 $ 496 $ 697
140.5 % Depreciation and amortization 17 2 15 nm Loss from operations$ (1,210 ) $ (498 ) $ (712 ) (143.0 )% nm-not meaningful Selling, General and Administrative. Selling, general and administrative expenses increased by$697,000 during the three months endedJanuary 31, 2023 , compared to the three months endedJanuary 31, 2022 . The increase was driven by decreases in overhead allocation to operating segments of$730,000 and increases in non-cash compensation of$140,000 and travel expenses and accounting expenses, offset by decreases in salary and benefits of$105,000 and in shareholder relation expenses, marketing expenses, consulting expenses and legal expenses.
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