Q2 2022 Reservoir Media Inc Earnings Call

November 9, 2021

Good morning, everyone and thank you for participating in today's conference call to discuss reservoir Media's financial results for the second quarter of fiscal 2022 ended September 32021 at this time all participants are in a listen only mode. After the speaker presentation, there will be a question.

And answer session to ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

You require any further assistance. Please press star zero I would now like to turn the call over to MS. Jackie Marcus with the Alpha IR Group, who will review our agenda today in the company's forward looking statements Jackie.

Thank you operator, good morning, everyone and thank you for participating in todays earnings conference call.

For media issued an earnings press release with results for its second fiscal quarter of 2022.

September 30th 2021 earlier this morning.

You did not receive a copy of our earnings press release, you may access it from the Investor Relations section of our website.

Factors that reservoir Dash media dotcom.

With me on today's call are Goldmark close little Shahi, founder and Chief Executive Officer, and Jim Hines on Meyer Chief Financial Officer of Reservoir media.

As a reminder, this call is being simultaneously webcast and will be recorded and archived on the Investor Relations section of our website.

Before I turn the call over to Jim I'd like to note that today's discussion will contain forward looking statements that reflect the current views of reservoir media about our business financial performance and Steve.

And as such involve risks.

Uncertainties, our expectations beliefs and projections are expressed in good faith and we believe there is a reasonable basis for that however, there can be no assurance that our expectations beliefs and projections will result or be achieved.

Please refer to our earnings press release, and our filings with the Securities and Exchange Commission for more information on the specific risks uncertainties and other factors that could cause our actual results to differ materially from our expectation belief.

Projection described in today's discussion.

Any forward looking statements that we make on this call or in our earnings press release are as of today and we undertake no obligation to update these statements as a result of new information future events.

To the extent required by applicable law.

In addition to the financial results presented in accordance with generally accepted accounting principles. We plan to present during this call certain financial measures that do not conform to U S. GAAP. If we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trends.

Reconciliations of these non-GAAP financial measures to the nearest comparable GAAP measures are included in our earnings press release.

In terms of the structure of our call today Goldman I will start with a review of our business operation and the progress we are making as we execute against our key strategic priorities.

Jim will then walk through our financial review of the quarter and then go on and I will come back to wrap up our remarks with a few closing comments before we open the line for your questions.

And with that I'd like to turn the call over to Ghana, Ghana.

Thank you Jackie.

Everyone and thank you so much for taking the time to join us on the call today.

The past few months at reservoir has been filled with many important milestones for organization. The most noteworthy was the late July completion of our process to become the first publicly traded independent music company to list on any U S stock exchange.

Additional access to capital and more visible profile, we have as a public company allows us to expand and accelerate our growth strategy I am tremendously grateful to our unparalleled roster and team for their endless contributions to building. Our next chapter and look forward to all that we will achieve together.

For today's agenda I'd like to speak to shifts in the landscape and our place within it plus walk you through a high level recap of our execution and performance over the last few months following that our CFO, Jim handle Meyer will share some of the quarter's financial results in detail and we will conclude by answering your question.

Since our July listing you have likely read about the billions of dollars that are on the move in the music industry. This includes numerous iterations of financial investors backing those people and platforms that are dedicated to investing in music. This boom reflects a relatively recent reality and one day.

On a long standing core belief of our business so the.

Using industry is undergoing a constant evolution, where it is perpetually identifying novel access points, securing new listeners and generating unprecedented growth.

Data from the I S. P. I released in mid October backs. This claim revealing that listening hours have increased to $18 four hours per week and there was 51% growth in time spent listening to music on subscription audio streaming services.

But beyond these statistics, what is even more appealing to us is the consistent expansion and proliferation of these novel access points music is being monetized at an accelerating rate on these new platforms, all of which are accretive to our revenue streams.

For example in home fitness was an immaterial category for our business until February 2020, then we came to an agreement with peloton and set the precedent for music licensing with other platforms. The start of the pandemic and months later drove explosive sales growth and soaring usage of in home fitness equipment and ask.

And we believe the change in consumer behavior. In this area is here for the long term.

Shifting forward to today, we see even more opportunities for value enhancement for artist partners in video gaming and social media.

Roadblocks is leading the charge in the online gaming category in both over 40 million daily active users on their platform, where music enabled content thrives social media platforms like Tictoc and Twitch continue to captivate audiences with licensed content powered by music and looking ahead, we recognize the <unk>.

Implications of Wi Fi enabled cars Rolling off Assembly lines, the smart speaker industry doubling in size by 2025, and how tokens will reshape how we own buy and sell music and musical experiences we understand what all of this means for music and that is.

For people listening to more music more often and in more places.

Let's turn to our quarterly performance in the second fiscal quarter, we saw double digit growth across all our key performance metrics.

Our $34 million total revenue represented a 45% improvement over last year, which included 15% organic growth.

From a segment perspective, 73% of our revenue came from music publishing 26% from recorded music and 1% from other sources.

We saw revenue growth from multiple types with 207% annual growth from physical sales due to increased demand for vinyl and 170% annual growth from digital record itself and despite the addition of costs related to being a public company and other transaction costs, we posted strong operating performance.

<unk> as well with 49% growth in operating income and a 40% improvement in our adjusted EBITDA.

We remain steadfast in our commitment to grow the business and become the leader in the independent segment the tailwind as in the sector, coupled with our disciplined execution against our growth initiatives has put us in a strong position to meet this objective.

In support of this growth, we continue to invest in our people and to expand our team, which will ensure that our operations remain well positioned to identify integrate and service strategic M&A.

Over the past few months, we made significant investments to build our portfolio of assets across genres and geographies. In addition to continuing to support our roster in all of their accomplishments and for US. It all starts with the music and our roster of incredible song writers and artists.

Reservoir welcomed the legendary and iconic Joni Mitchell a career defining moment for me and continued evidence that reservoir is the trusted partner to and steward of legacy assets and artists.

Longtime client Jamie Harman won the coveted Ivor Novello song writer of the year Award recognizing his incredible achievements alongside the artist Celeste.

We continue to capture top 10 market share in the United States. According to Billboard and celebrated a nomination for publisher of the year, our music business worldwide Anr Awards.

Along with a slew of awards and recognitions. We also completed deals with the most awarded country music band of all time, Alabama and signed newcomer reveal hooks to the roster one of the writers behind Vts's record breaking single butter officially dubbed the song of the summer by Billboard.

With that I'd like to ask Jim to walk us through a few more specific details around our financial performance during the quarter Jim.

Thank you Donna and good morning, everyone I want to Echo <unk> comments as I'm incredibly pleased with our second quarter results, which came in line with our expectations, we executed on our strategic initiatives and delivered double digit year over year growth in revenue operating profit and adjusted EBITDA now lets look at our results in greater detail.

A minder all percentage change references that I make unless explicitly stated otherwise offer comparisons between Q2 fiscal 2022 in Q2 fiscal 2021.

As Gordon mentioned, our revenue in the second fiscal quarter exemplifies today is strong and growing demand for music and audio content.

Revenue in the second fiscal quarter was $30 4 million, an increase of 45% from the second quarter of fiscal 2021 that included 15% organic revenue growth driven by our value enhancement efforts. Our teams continue to leverage alternative revenue streams, and new streaming opportunities that drive organic expansion and greater value for the artist.

And creators who trust us with their life's work.

Additionally, those great topline performance numbers can be attributed to continued catalog acquisitions of 67% increase in digital revenues across both business segments and a growing presence in the international markets.

Now, let's drill down into our segments, starting with music publishing music publishing generated revenue of $22 1 billion in the quarter, which was a 26% improvement from this time last year. This increase was driven by strong performance in both our digital and synchronization sources.

Revenue refers to revenue for musical compositions and bodies and recordings distributed through streaming services download services and other digital music services, including new platform, such as peloton or roblox digital revenue in the music publishing segment totaled $11 6 million for the quarter, a 44% gain year over year synchronization.

Revenue refers to the right to use an artist musical compositions and combination with visual images, such as in films or TV programs where commercials.

During the quarter synchronization generated revenue of $4 1 million in the segment an increase of 48% from the second quarter of fiscal 2021.

Our strong results from these two revenue sources helped to offset some COVID-19 related challenges specifically seen with our performance revenue source.

A recorded music segment also delivered very strong results during the quarter producing $8 1 million in revenue. This was an uptick of 149% from the second quarter of fiscal 2021, and it was partly driven by the acquisition of Tommy Boy in June.

Tommy Boy contributed $3 6 million to the segment during Q2, which again shows that our team drove $1 3 million and organic growth in this segment.

In aggregate organic growth in Tommy Boy led to triple digit revenue growth in both recorded music digital and physical sources.

Digital posted revenue of $4 8 million for the quarter of 170% improvement year over year.

Physical refers to revenue generated from sales of physical products, such as final and Cds within physical we were able to take advantage of a strong global demand for vinyl products, which increased revenue to $2 5 million a staggering 207% increase from the second quarter of fiscal 2021. This increase in physical from the prior year can be.

Tribute to Covid recovery as Crystal has had a very robust release schedule compared to a very light release schedule during the second quarter in the prior year.

Looking at our operating expenses for the quarter, our cost of revenue saw a 47% increase from the second quarter of fiscal 2021. This was largely driven by the increased revenue, which led to higher rider royalties and other publishing costs as well as artist royalties and other recorded music costs due to the acquisition of Tommy Boy.

As well as expenses associated with increased physical revenue.

Amortization and depreciation expenses increased 24% in the aggregate from the second fiscal quarter of 2021 depreciation decreased due to the full depreciation of prior capital expenditures, while amortization grew due to the acquisition of additional music catalogs amortization expense is expected to grow as we execute our strategic.

<unk> and continue making catalog acquisitions.

Administration expenses saw a 58% spike year over year with costs related to acquisitions and costs associated with being a public company representing most of the increase.

As we continue to grow we expect these expenses as a percentage of revenue to continue to come down in the coming quarters.

We evaluate our operating performance based on two metrics.

And adjusted EBITDA, both of these metrics removes the impact of amortization from our operating results. So these metrics do not reflect periodic costs of certain capitalized tangible and intangible assets used in generating revenues.

Adjusted EBITDA removes the impact of certain other noncash or nonrecurring expenses, such as stock based comp for.

For the quarter OIBDA increased 38% year over year to $12 7 million, while adjusted EBITDA grew 40% to $12 9 million from the second fiscal quarter of 2021. These increases were primarily driven by higher revenues in both segments, which were partially offset by higher cost of revenues costs associated with the <unk> acquisition.

As well as costs associated with being a public company.

Our interest expense was $2 7 million for the second quarter compared to $2 2 million for the same period last year.

Net income for the second quarter of fiscal 2022 was $4 5 million, which was an increase of 61% from the prior year period. This resulted in diluted earnings per share for the quarter of eight cents compared to <unk> <unk> per share for the second quarter of fiscal 2021 Lastly, our weighted average diluted outstanding share count is $58 nine.

9 million.

In terms of our balance sheet notwithstanding the redemptions. It remains strong and is supported by the cash generating power of our business that strong organic operating cash flow combined with the prudent use of some additional leverage has allowed us to remain roughly on track with our original cadence of investments for the year with total liquidity of nearly 52 million.

Priced at $12 8 billion of cash on hand, and $39 $1 million available under our revolver. We have the flexibility we need to fund our strategic objectives in terms of total debt. We ended the quarter at $203 9 million, which was net of $5 7 million of deferred financing costs.

Thus, we maintained $191 1 million of net debt that compares to net debt of $203 3 million as of last fiscal year end.

I'd like to end my prepared remarks, with our outlook for fiscal 2022 today.

Today, we are providing our initial financial outlook range for fiscal 2022 for two of our most important kpis revenue and adjusted EBITDA.

For the full 2022 fiscal year, which will end March 31, 2022, we currently forecast $100 million to $104 million of revenue.

This compares to $81 8 million in actual revenue for fiscal 2021 or 25% growth at the midpoint of our range for adjusted EBITDA, we're projecting 37% to $40 million this year, which compares to $33 9 million in the prior fiscal year.

Looking at the midpoint that equates to 14% growth even with the additional costs related to being a public company included in fiscal 2022.

Organic growth and complementary acquisitions support our topline forecast and again, our balance sheet and cash generating power should provide the fuel we need to execute on near term opportunities and our M&A pipeline, we will make sure any capital activities. We consider are those that will maximize value as we move forward in.

In terms of the range, we provided for adjusted EBITDA that will be supported by our top line efforts strong cost controls and maybe slightly offset by higher wages as the cost of talent has certainly become more expensive as we've progressed the last few quarters.

I'll remind our investors that we maintain a healthy operating leverage model and when we acquire catalogs, we often don't need to add significant overhead to service those new revenue streams generally speaking, we may only need to add one additional royalty administrator for every 30000 copyrights we acquire.

Over the long term, we expect that this will lead to expanding margins at the adjusted EBITDA level with that I'll now pass the call back to Golar.

Thank you Jim before we take your questions I'd like to close with a few strategic thoughts and touch on a few aspects of the business that underscore our competitive advantage, our edge and our positioning for leadership within the evolving landscape of the industry.

We recognize the growth that has and will likely continue to come from the emerging markets and this was the original impetus behind our January 2020 acquisition of pop Arabia, which is based in Abu Dhabi.

Building upon that acquisition and an entirely new development. This quarter was the launch of ethanol are rights management entity and subsidiary of proper ABS dedicated to facilitating licensing and the UAE and more broadly in the middle East.

It is a first of its kind entity in the region addressing the need in the market for legitimate music licensing processes.

I look forward to watching proper avian estimates at local standards and music licensing. Furthermore, we continue to build on our emerging market strategy by adding new artists and music to the roster in these regions.

This included a direct investment in China's leading music rights and marketing services company our district.

As part of this investment we also formed a joint venture to sign and developed Chinese artists and songwriters plus acquire local music catalogs and a few years, we will bear witness to our history and pop Arabia, bringing homegrown stars to the global stage and playing a part in encouraging the movement of culture from east to West.

Another exciting recent investment is in the award winning podcast in audio Entertainment development team at audio App.

We sincerely believe that beyond music, we are more broadly in the business of listenership and are focused on strategies that enable us to have exposure to content all types of content that is occupying share of years.

We are already working with audio up to develop content that mines reservoirs deep catalog of music and the history and stories behind the music in the years to come I personally foresee a virtual library of podcasts that shares the stories of the likes of Billy Strayhorn, Hoagy Carmichael, John Denver, and Joni Mitchell with the.

Next generation of music lovers, both through the narrative and the notes.

We continue to enhance value by pitching and licensing music for Houston films TV shows video games and merchandise as I mentioned earlier this quarter's organic growth rate of 15% is right in line with our three year historical organic growth rate CAGR of 16% and has significantly outpaced the industry growth of seven.

Percent.

Along these lines I wanted to call out a particularly innovative license that arose this quarter, which converges merchandise in advertising in this case, we partnered with general Mills on a limited edition cereal called Monster Mash featuring pieces of all five of its monster cereals together for the first time.

This was scored by our classic Halloween song of the same name and illustrates the limitless value of our great copyrights.

Digital licensing and alternative revenue continue to lead the charge on accretive avenues through which people are consuming music.

Revenue from these sources covering gaming social media fitness platforms and more has grown at 44% year over year and it's not just the names you know peloton and Tic Toc roadblocks and Twitch, but also the future leaders in these spaces.

Great example is our recent license issued for our entire catalog to a platform called supernatural or virtual reality fitness platform. The time magazine named US one of the best inventions of 2020.

I would highlight that recognizing the value of music is a product differentiator amongst the fitness category is now front and center.

In fact supernatural says they have the best music in VR fitness.

And there's much more to come as this new and exciting landscape for music and Jake engagement continues to flourish. The ISP I note that this year's study paints, a rich and diverse picture of music engagement with the rapid emergence of short form video and in game experiences all driven by People's Love of music.

As we look toward the end of calendar 2021 and into next year. We are keenly focused on the following key areas, which we believe will position us to compete effectively and build long term value.

First we are poised to benefit from strong secular tailwind as more people listen to more music more often and in more places.

We will strive to further outpace industry growth and demonstrate substantial organic growth rates driven by value enhancement initiatives third we will continue to build scale through a proven track record of M&A, leveraging our reputation as a caretaker of legacy assets and the agility of our size affords us at present.

We are evaluating over $1 5 billion in transactions with leading artists and creators.

Finally, as Jim mentioned, we are working to drive operating leverage and further our cash flow generation to fund those deals in the future. We're focused on managing our overall operating expenses and extracting as much value as possible from our assets.

I would be remiss to not acknowledge the ongoing discussions in the United States between creators advocates for creators and the distribution channels.

We stand with our clients and with song writers and artists everywhere, we believe in our future where legislative action results not in contraction, but and continued expansion of earning power by those individuals who write and sing the soundtrack of our lives.

And I will leave you with this final song.

<unk> reported that 80% of people surveyed said that music helps with their emotional wellbeing during the pandemic.

Evidenced of music and its enduring ability to captivate listeners has never been more powerful we will now open the line for questions.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Richard Baldry of Roth Capital. Your line is open.

Thanks.

I'll start on sort of the only thing that it's Greg.

Obvious why but.

Performance categories.

And Covid shutdowns not performing as well it is down a bit.

What is the long term sort of a normalized level that could be contributing if we got back to sort of a full concert season and regular sort of movements outside of our lockdowns.

Yes.

Hey, Rich how are you this is Jim.

Well I think with what the performance revenue in particular, what we're really seeing here is still lagging.

The lagging effect primarily of the international markets.

Those.

Those markets report on a three to six months lag so really when we're comparing Q2 of this year to Q2 of last year.

We're seeing last year's numbers that include really pre pandemic levels in this year's number as well some of US things that we are on the way out and Theres certainly a lot of good progress in the international numbers are still reflective of.

Being in the midst of the pandemic. So we think that as we move forward over the next two to three quarters. The international side will really start to come back.

And we will we will get back to a level, where where performance is where we expect it to be which is really around.

20% of our overall revenue.

Okay.

And we think about international and maybe it's a it's obviously a few buckets, but.

What is the are there ways to think about revenue per large scale population or some thing that that tells us the potential of areas that are more new to this like the middle East for our maybe parts of Asia versus Europe, that's probably closer to the U S metrics and sort of how big it.

Driver can that be for a few years to come.

I would say that Theres a lot of there's a lot of factors that go into that.

Not just population size a lot of it has to do with.

The copyright laws and different regions and this really touches on one of the things that Golar mentioned with asthma. We think that there is a lot of potential in the middle East, but historically you have not seen much in the way of performance revenue coming out of a market like that because there hasnt been an entity to.

To license music.

Markets are oftentimes use music without.

Without.

Properly licensing and monetizing it and now we're able to do that through asthma, and I think that the subscription growth and a lot of those.

Those emerging market will also contribute to the to the growth of performance revenue.

And then the.

The organic growth, obviously been almost two X or over two <unk> the industry.

Talk about how sustainable you see that for some period of time, our extensible and sort of what are the incremental costs you need to support that organic growth not when you're adding wholesale new libraries, but simply growing organically through your synchronization etcetera.

It's on our rich how are you.

As far as organic growth goes we don't have any indicator that it's not sustainable.

Any growth is obviously driven by.

A lot of the initiatives that we undertake here and those are ones that we continue to staff and continue to power and continue to.

Execute on through our sync team et cetera. So we have a pretty good track record of that organic growth being consistent and we don't have an indication that.

That could change.

Okay, and then if we think about the factors that drive the capacity on the revolver.

They understand that you are buying highly visible recurring high margin revenue stream. So as you buy those sort of integrate them into the business as that revolver.

Some flex to grow over time.

One of the key tools to keep up the M&A effort.

Yes, I mean, we are we are fortunate to be in a position where we have a very.

<unk> long and strong relationship with our lenders they've always been supportive of us and its a group of lenders, who really do understand the.

The predictive and recurring nature of our revenues.

They are very supportive of us so we don't foresee any.

Issues with with capacity around our revolver or looking at options with our revolver as we move forward.

And sort of running down but could you maybe because you still are very new in the public markets August through the overall seasonality on the revenue side.

As you you've given a top line number but if there is some pretty distinct seasonality. So just remind us of that so that everyone's sort of calibrate sit together.

Yes.

I'd like to make the distinction between cyclical cyclicality versus seasonality of our revenue.

And the reality is that the September and March periods has been historically, our larger quarters, because we have a number of revenue sources, primarily on the international side, who pay US semiannually 90 days after the end of the June and December periods.

We're in the process of working with some of those international sell publishers to try and move them to more of a quarterly.

Quarterly accounting.

We're likely to have some success, there, but but we won't be moving everyone to that to that schedule.

So you can think about our second half of the year and the guidance that we provided in the context of.

Certainly the fourth quarter being more significant than the third quarter because of that cyclicality and the semiannual accounting is that come in in the March timeframe.

Thanks, and last one for me would be more broad picture, but you've been public for about a quarter now.

Touch slightly on it but maybe a little more color on how do you think that transforms your ability to.

Source deals have pipelines come to you.

Your visibility in the market et cetera, just so we kind of.

Get a gauge for the early impact and how that could build going forward. Thanks.

Sure I mean, it's it's certainly in lines milestone to be the first independent publicly traded vehicles in the United States and we recognize that and that we have seen other people are recognizing so theres certainly greater visibility that comes hand in hand with that.

And we are seeing interest in so far as how we construct deals and the potential we have there because we do now have a currency and that was one of our.

Interest in so far as going public, but we are seeing that that has traction within the seller market as well.

So those two things come together and it has given us greater.

Visibility within the marketplace.

And we hope to continue to build on that as you said, it's only been a quarter or so.

Hopefully that will continue to track and have momentum behind it.

Thanks, and congrats on a quarter.

Thank you very much Richard.

Again to ask a question. Please press star one on your Touchtone telephone again Thats Star one on your Touchtone telephone to ask a question.

To remove yourself from the queue press the pound key again Thats star one on your Touchtone telephone to ask a question.

Our next question comes from the line.

Pardon me. Our next question comes from the line of Alex Fuhrman of Craig Hallum Capital Group. Your line is open.

Great. Thanks, very much for taking my question and congratulations on a really strong quarter.

You asked about the M&A that youre seeing.

It looks like you guys have executed on a lot of M&A over the past year, but that the Tommy boy acquisition band out as having been a particularly large DLP can you talk about how that integration is going and as you look at your pipeline are there any other very large deal that youre seriously considering.

Sure. Thanks, Alex how are you.

As far as the Tommy Boy integration goes that's obviously been going on for a few months now and it is very much on track I would say its probably ahead of schedule.

And so far as staffing and services and just ingesting those copyrights et cetera.

There is an ingestion team in charge of that and we are very pleased with those results.

As I said, we are evaluating over one 5 billion of transactions right now.

But there.

As far as them.

Being in sort of confirmatory due diligence or an exclusivity.

We are not in exclusivity on a deal of a similar size presently.

But there are a few.

Large size deals in that in that deal pipeline that I mentioned.

Okay. That's really helpful. Thanks, and then I think you and Jim touched a little bit.

In the call about emerging markets.

Can you talk a little bit about how much.

Part of your business today are emerging markets and then in the context of that M&A pipeline.

The level of deals that Youre looking at.

How much could emerging market factor into that over the next few years.

So presently the emerging markets are contributing about 1% to our revenue and obviously that is not a significant number.

But we do see substantive pipeline in our deal flow.

Coming from the emerging markets and we are executing on those and.

We do see some great potential there obviously growing from that 1% that it currently is over the course of the next few years.

Okay. That's really helpful. Thank you very much.

Thank you at this time I would like to turn the call back over to <unk> our cost structure.

For closing remarks.

Thank you so much thanks to everyone for joining us today, and we look forward to continuing to keep you updated and.

Thanks again.

And this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

And answer session to ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to turn the call over to MS. Jackie markets with the Alpha IR Group, who will review our agenda today in the car.

These forward looking statements Jackie.

Thank you operator.

Morning, everyone and thank you for participating in todays earnings conference call.

Reservoir media issued an earnings press release with results for our second fiscal quarter of 2022 and at September 30th 2021 earlier this morning.

And you did not receive a copy of our earnings press release, you may access it from the Investor Relations section of our website at investors <unk> reservoir Dash media dotcom.

With me on today's call are goldmark torpedo Shahi, founder and Chief Executive Officer, and Jim <unk>, Chief Financial Officer of Reservoir media.

As a reminder, this call is being simultaneously webcast and will be recorded and archived on the Investor Relations section of our website.

Before I turn the call over to Golar and Jim I'd like to note that today's discussion will contain forward looking statements that reflect the current views of reservoir media about our business.

So performance and future events.

And as such involve risks.

Certainty our expectations beliefs and projections are expressed in good faith and we believe there is a reasonable basis for that.

However, there can be no assurance that our expectations beliefs, and projections will result or be achieved.

Except to the extent required by applicable law.

In addition to the financial results presented in accordance with generally accepted accounting principles.

We plan to present during this call certain financial measures that do not conform to U S. GAAP. If we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trends.

Reconciliations of these non-GAAP financial measures to the nearest comparable GAAP measures are included in our earnings press release.

In terms of the structure of our call today Golar will start with a review of our business operations and the progress we are making as we execute against our key strategic priority.

Jim will then walk through our financial review of the quarter, and then Golar will come back to wrap up our remarks with a few closing comments before we open the line for your questions.

And with that I'd like to turn the call over to Golar Golar.

Thank you Jackie.

Morning, everyone and thank you so much for taking the time to join us on the call today.

The past few months at reservoir has been filled with many important milestones for our organization. The most noteworthy was the late July completion of our process to become the first publicly traded independent music company to list on any U S stock exchange, the additional access to capital and more visible pro.

While we have as a public company allows us to expand and accelerate our growth strategy I am tremendously grateful to our unparalleled roster and team for their endless contributions to building. Our next chapter and look forward to all that we will achieve together.

For today's agenda I'd like to speak to shifts in the landscape and our place within it but let's walk you through a high level recap of our execution and performance over the last few months following that our CFO, Jim <unk> will share some of the quarter's financial results in detail and we will conclude by answering your questions.

Boom reflects a relatively recent reality and one based on our long standing core beliefs of our business.

The music industry is undergoing a constant evolution, where it is perpetually identifying novel access points, securing new listeners and generating unprecedented growth.

Data from the IFC are released in mid October backs. This claim revealing that listening hours have increased to $18 four hours per week and there was 51% growth in time spent listening to music on subscription audio streaming services.

For example in home fitness was an immaterial category for our business until February 2020, then we came to an agreement with peloton and set the precedent for music licensing with other platforms.

Sort of the pandemic and months later drove explosive sales growth and soaring usage of in home fitness equipment in Asps and we believe the change in consumer behavior. In this area is here for the long term.

Shifting forward to today, we see even more opportunities for value enhancement for artist partners in video gaming and social media.

Roadblocks is leading the charge in the online gaming category in both over 40 million daily active users on their platform, where music enabled content thrives social media platforms like tick talking Twitch continue to captivate audiences with licensed content powered by music and looking ahead, we recognize.

The implications of Wi Fi enabled cars Rolling off Assembly lines, the smart speaker industry doubling in size by 2025, and how tokens will reshape how we own buy and sell music and musical experiences.

Understand what all of this means for music and that is.

Or people listening to more music more often and in more places.

Let's turn to our quarterly performance in the second fiscal quarter, we saw double digit growth across all our key performance metrics are $34 million total revenue represented a 45% improvement over last year, which included 15% organic growth.

From a segment perspective, 73% of our revenue came from music publishing 26% from recorded music and 1% from other sources.

We saw revenue growth from multiple types with 207% annual growth from physical sales due to increased demand for vinyl and 170% annual growth from digital recorded sales and despite the addition of costs related to being a public company and other transaction costs, we posted strong operating performance.

<unk> as well with 49% growth in operating income and a 40% improvement in our adjusted EBITDA.

We remain steadfast in our commitment to grow the business and become the leader in the independent segment the tailwind as in the sector, coupled with our disciplined execution against our growth initiatives have put us in a strong position to meet this objective.

In support of this growth, we continue to invest in our people and expand our team, which will ensure that our operations remain well positioned to identify integrate and service strategic M&A.

Reservoir welcome the legendary and iconic Joni Mitchell a career defining moment for me and continued evidence that reservoir is the trusted partner to and steward of legacy assets and artists.

Longtime client Jamie Harman won the coveted Ivor Novello song writer of the year Award recognizing his incredible achievements alongside the artist Celeste.

We continue to capture top 10 market share in the United States. According to Billboard and celebrated a nomination for publisher of the year at music business worldwide Anr Awards.

Along with a slew of awards and recognitions. We also completed deals with the most awarded country music band of all time, Alabama and signed newcomer reveal hooks to the roster one of the writers behind Bts's record breaking single butter officially dubbed the song of the summer by Billboard.

With that I'd like to ask Jim to walk us through a few more specific details around our financial performance during the quarter Jim.

A minder all percentage change references that I make unless explicitly stated otherwise we'll offer comparisons between Q2 fiscal 2022 in Q2 fiscal 2021.

As Gordon mentioned, our revenue in the second fiscal quarter exemplifies today is strong and growing demand for music and audio content.

And creators who trust us with their life's work.

Digital revenue refers to revenue from musical compositions and bodies and recordings distributed through streaming services download services and other digital music services, including new platform, such as peloton Roblox digital revenue in the music publishing segment totaled $11 6 million for the quarter, a 44% gain year over year synchronization.

Revenue refers to the right to use an artist musical compositions and combination with visual images, such as in films or TV programs where commercials.

During the quarter synchronization generated revenue of $4 1 million in the segment an increase of 48% from the second quarter of fiscal 2021.

Our strong results from these two revenue sources helped to offset some COVID-19 related challenges specifically seen with our performance revenue source.

Tommy Boy contributed $3 6 million to the segment during Q2, which again shows that our team drove $1 3 million and organic growth in this segment.

In aggregate organic growth in Tommy Boy led to triple digit revenue growth in both recorded music digital and physical sources.

Digital posted revenue of $4 8 million for the quarter of 170% improvement year over year.

Attributed to Covid recovery as Crystal has had a very robust release schedule compared to a very light release schedule during the second quarter in the prior year.

As well as expenses associated with increased physical revenue.

<unk> and continue making catalog acquisitions.

Administration expenses are 58% spike year over year with costs related to acquisitions and costs associated with being a public company representing most of the increase.

As we continue to grow we expect these expenses as a percentage of revenue to continue to come down in the coming quarters.

We evaluate our operating performance based on two metrics and adjusted EBITDA. Both of these metrics remove the impact of amortization from our operating results. So these metrics do not reflect periodic costs of certain capitalized tangible and intangible assets used in generating revenues.

Adjusted EBITDA removes the impact of certain other noncash or nonrecurring expenses, such as stock based comp for.

As well as costs associated with being a public company.

Our interest expense was $2 7 million for the second quarter compared to $2 2 million for the same period last year.

Net income for the second quarter of fiscal 2022 was $4 5 million, which was an increase of 61% from the prior year period. This resulted in diluted earnings per share for the quarter of <unk> compared to <unk> <unk> per share for the second quarter of fiscal 2021 Lastly, our weighted average diluted outstanding share count is $58 95.

$9 million.

Prized of $12 8 million of cash on hand, and $39 $1 million available under our revolver. We have the flexibility we need to fund our strategic objectives in terms of total debt. We ended the quarter at $203 9 million, which was net of $5 7 million of deferred financing costs.

Thus, we maintained $191 1 million of net debt that compares to net debt of $203 3 million as of last fiscal year end.

I'd like to end my prepared remarks, with our outlook for fiscal 2022 today.

Today, we are providing our initial financial outlook range for fiscal 2022 for two of our most important kpis revenue and adjusted EBITDA.

For the full 2022 fiscal year, which will end March 31, 2022, we currently forecast $100 million to $104 million of revenue.

This compares to $81 8 million in actual revenue for fiscal 2021 or 25% growth at the midpoint of our range for adjusted EBITDA, we're projecting $37 million to $40 million this year, which compares to $33 9 million in the prior fiscal year.

Looking at the midpoint that equates to 14% growth even with the additional costs related to being a public company included in fiscal 2022.

In terms of the range, we've provided for adjusted EBITDA that will be supported by our top line efforts strong cost controls and maybe slightly offset by higher wages as the cost of talent has certainly become more expensive as we've progressed through the last few quarters.

Over the long term, we expect that this will lead to expanding margins at the adjusted EBITDA level with that I'll now pass the call back to Golar.

Building upon that acquisition and an entirely new development. This quarter was the launch of Aetna, a rights management entity and subsidiary of proper avs dedicated to facilitating licensing and the UAE and more broadly in the middle East asthma is a first of its kind entity in the region addressing the need.

The market for legitimate music licensing processes.

Look forward to watching proper avian estimates at local standards and music licensing. Furthermore, we continue to build on our emerging market strategy by adding new artists and music to the roster in these regions.

This included a direct investment in China's leading music rights and marketing services company <unk>.

As part of this investment we also formed a joint venture to sign and develop Chinese artists and songwriters plus acquire local music catalogs and a few years, we will bear witness to our history and pop Arabia, bringing homegrown stars to the global stage and playing a part in encouraging the movement of culture from east to West.

Another exciting recent investment is in the award winning podcast in audio Entertainment development team at audio up with.

We are already working with audio up to develop content that mines reservoirs deep catalog of music and the history and stories behind the music in the years to come I personally foresee a virtual library of podcast that shares the stories of the likes of Billy Strayhorn, Hoagy Carmichael, John Denver, and Joni Mitchell with the.

Next generation of music lovers, both through the narrative and the notes.

Percent.

Along these lines I wanted to call out a particularly innovative license that arose this quarter, which converges merchandizing advertising in this case, we partnered with general Mills on a limited edition cereal called Monster Mash featuring pieces of all five of its monster cereals together for the first time.

This was scored by our classic Halloween song of the same name and illustrates the limitless value of our great copyrights.

Digital licensing and alternative revenue continue to lead the charge on accretive avenues through which people are consuming music.

Great example is our recent license issued for our entire catalog to a platform called supernatural or virtual reality fitness platform. The time magazine named as one of the best inventions of 2020.

I would highlight that recognizing the value of music as a product differentiator amongst the fitness category is now front and center.

In fact supernatural says they have the best music and VR fitness.

And there's much more to come as this new and exciting landscape for music and Jay engagement continues to flourish.

I note that this year's study paints, a rich and diverse picture of music engagement with the rapid emergence of short form video and in game experiences all driven by People's Love of music.

As we look toward the end of calendar 2021 and into next year. We are keenly focused on the following key areas, which we believe will position us to compete effectively and build long term value.

First we are poised to benefit from strong secular tailwind as more people listen to more music more often and in more places.

We will strive to further outpaced industry growth and demonstrate substantial organic growth rates driven by value enhancement initiatives third we will continue to build scale through a proven track record of M&A, leveraging our reputation as a caretaker of legacy assets and the agility of our size affords us at present.

We are evaluating over $1 5 billion in transactions with leading artists and creators.

I would be remiss to not acknowledge the ongoing discussions in the United States between creators advocates for creators and the distribution channels.

And I will leave you with this final thought.

<unk> reported that 80% of people surveyed said that music helped with their emotional wellbeing during the pandemic.

Evidenced of music and its enduring ability to captivate listeners has never been more powerful we will now open the line for questions.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Richard Baldry of Roth Capital. Your line is open.

Thanks.

I'll start on sort of the only thing that Greg and it's obvious why but.

Performance categories.

And then what people in Covid shutdowns, not performing as well as down a bit.

What is the long term sort of a normalized level that could be contributing if we got back to sort of a full concert season and regular sort of movements outside of our lockdowns.

Yeah.

Hey, Rich how are you this is Jim.

Well I think with what the performance revenue in particular, what we're really seeing here is still the.

The lagging effect primarily of the international markets.

Those.

Those markets report on a three to six month lag so really when we're comparing Q2 of this year to Q2 of last year. We're seeing last year's numbers that include really pre pandemic levels in this year's number as well some of US things that we are on the way out and there is there are certainly a lot of good progress in the international.

The numbers are still reflective of.

Being in the midst of the pandemic. So we think that as we move forward over the next two to three quarters. The international side will really start to come back.

And we will we will get back to a level, where where performance is where we expect it to be which is really around.

20% of our overall revenue.

Okay.

And we think about international and maybe it's a it's obviously a few buckets, but.

What is the are there ways to think about revenue per large scale population or something that.

Tells us the potential of areas that are more new to this like the middle East.

Maybe parts of Asia versus Europe, that's probably closer to the U S metrics and sort of how big a driver can that be for for a few years to come.

I would say that Theres a lot of there's a lot of factors that go into that it's not just population size a lot of it has to do with.

To license music.

Those markets are often times used music without.

Without.

Properly licensing and monetizing it and now we're able to do that through asthma, and I think that the subscription growth and a lot of those.

Those emerging market will also contribute to the to the growth of performance revenue.

And then the.

The organic growth, obviously been almost to exar over two <unk> the industry.

Okay.

Until now rich how are you.

As far as organic growth goes we don't have any indicator that is not sustainable.

<unk> growth is obviously driven by.

A lot of the initiatives that we undertake here and those are ones that we continue to staff and continue to power and continue to.

Execute on through our sync team et cetera. So we have a pretty good track record of that organic growth being consistent and we don't have an indication that.

That could change.

Okay, and then thinking about the factors that drive the capacity on the revolver.

I assume.

Understand that you are buying highly visible recurring high margin revenue stream. So as you buy those sort of integrate them into the business as that revolver.

Some flex to grow over time.

Will that be one of the key tools to keep up the M&A effort.

Yes, I mean, we are we are fortunate to be in a position where we have.

A very long and.

And strong relationship with our lenders they've always been supportive of us and its a group of lenders, who really do understand the.

<unk>.

The predictive and recurring nature of our revenues and they are very supportive of us. So we don't foresee any.

Issues with with capacity around our revolver or looking at options with our revolver as we move forward.

And sort of running down but could you maybe because you still are very new in the public markets August through the overall seasonality on the revenue side.

As you you've given a top line number but if there is some pretty distinct seasonal so just remind us of that so that everyone's sort of calibrate sit together.

Yes, I'd like to make the distinction between cyclical cyclicality versus seasonality of our revenue.

And the reality is that the <unk>.

September and March periods has been historically.

Our larger quarters.

Because we have a number of revenue sources, primarily on the international side, who pay US Semiannually 90 days after the end of the June and December periods.

We're in the process of working with some of those international self publishers to try and move them to more of a.

Quarterly accounting.

We're likely to have some success, there, but but we won't be moving everyone to that to that schedule.

So you can think about our second half of the year the guidance that we provided in the context of.

Certainly the fourth quarter being more significant than the third quarter because of that cyclicality. The semiannual accounting set come in in the March timeframe.

Thanks, and last one for me would be more broad picture, but you've been public for about a quarter now.

Just slightly on it but maybe a little more color on how do you think that transforms your ability to.

Source deals have pipelines come to you.

And your visibility in the market et cetera, just so we kind of.

Get a gauge for the early impact and how that could build going forward. Thanks.

Sure.

It's certainly in lines milestone to.

To be the first independent publicly traded vehicles in the United States and we recognize that and that we have seen other people are recognizing so theres certainly greater visibility that comes hand in hand with that.

And we are seeing interest in so far as how we can structure deals and the potential we have there because we do now have a currency and that was one of our.

Interest in so far as going public, but we are seeing that that has traction.

Within the seller market as well.

So those two things come together and it has given us greater.

Visibility within the marketplace and.

And we hope to continue to build on that as you said, it's only been a quarter. So.

Hopefully that will continue to track and have momentum behind it.

Yeah.

Thanks, and congrats on a quarter.

Thank you very much Richard.

Again to ask a question. Please press star one on your Touchtone telephone again Thats Star one on your Touchtone telephone to ask a question.

To remove yourself from the queue press the pound key again star one on your Touchtone telephone to ask a question.

Our next question comes from the line.

Pardon me. Our next question comes from the line of Alex Fuhrman of Craig Hallum Capital Group. Your line is open.

Great. Thanks, very much for taking my question and congratulations on a really strong quarter.

Wanted to ask about the M&A that youre seeing.

It looks like you guys have executed on a lot of M&A over the past year, but that the Tommy boy acquisition band out as having been a particularly large ERP can you talk about how that integration is going and if you look at your pipeline are there any other very large deal that youre seriously considering.

Sure. Thanks, Alex how are you.

As far as the Tommy Boy integration goes that's obviously been going on for a few months now and it is very much on track I would say its probably ahead of schedule.

So far as staffing and services and just ingesting those copyrights et cetera.

There is an ingestion team in charge of that and we are very pleased with those results.

As I said, we are evaluating over one 5 billion of transactions right now.

But there.

As far as.

Thanks.

Being in sort of confirmatory due diligence or an exclusivity.

We are not in exclusivity on a deal of a similar size presently.

But there are a few.

Large size deals in that in that deal pipeline that I mentioned.

Okay. That's really helpful. Thanks, and then I think you and Jim touched a little bit.

During the call about emerging markets.

Can you talk a little bit about how much of a part of your business today are emerging markets and then in the context of that M&A pipeline.

The level of deals that Youre looking at.

How much good emerging markets factor into that over the next few years.

So presently the emerging markets are contributing about 1% to our revenue and obviously that is not a significant number.

But we do see substantive pipeline in our deal flow.

Coming from the emerging markets and we are executing on those and.

We do see some great potential there obviously growing from that 1% that it currently is over the course of the next few years.

Okay. That's really helpful. Thank you very much.

Thank you at this time I would like to turn the call back over to <unk> our cost structure.

For closing remarks.

Thank you so much thanks to everyone for joining us today, and we look forward to continuing to keep you updated and.

Thanks again.

And this concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2022 Reservoir Media Inc Earnings Call

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