Q1 2023 Reservoir Media Inc Earnings Call
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to reservoirs first quarter fiscal 2023 conference call 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'll need to press star one one on your telephone please be advised that today's conference may be recorded I would not like to hand a conference over to your speaker today Alex Buckmeltter investor relations
Please go ahead.
Thank you operator. Good morning everyone and thank you for participating in today's earnings conference call. Reservoir Media issued an earnings press release with results for its first quarter fiscal year 2023 and the June 30th 2022 earlier this morning. If you did not receive a copy of our earnings press release, you may access it from the investor relation section of our website at investors.reservoir-media.com.
With me on today's call, our gonar-cos-Rasahi, founder and chief executive officer, and Jim Heindel-Mire, chief financial officer.
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 Golnar 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, financial performance, and future events, and as such, it involves certain risks and uncertainties.
Our expectations, beliefs and projections are expressed in good faith, and we believe they're the reasonable basis for them. 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 expectations, and projections described in today's discussion. The Securities and Exchange Commission will be in the next slide. Please refer to our last slide. Please refer to our last slide. Please refer to our last slide. Please refer to our last slide.
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 or future events except to the extent required by applicable law.
In addition to 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 US gap if we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trends. Reconciliation of these non- GAAP financial measures to the nearest comparable GAAP measures are included in our earnings press release. I would now like to turn the call over to Golnar. Golnar.
Thank you, Alec. Good morning, everyone, and thank you for joining us today. I'm extremely excited to be here today to discuss our fiscal key, one, 2020, three results.
We started fiscal 2023 very strong, carrying over the positive momentum we had last year. And that puts us on track to achieve our objectives for the year.
During the quarter, we remained focused on our goal of building and optimizing our already diversified portfolio through organic growth and strategic M&A. 2008 start.
This execution against our growth strategy coupled with continued tailwinds from a healthy music industry drove an impressive quarter for the company. Notably, we exceeded our internal expectations with 46% top line growth during the quarter of which 14% was organic.
We also expanded our core profitability as measured by OIBDA and adjusted EBITDA at 56% and 73% respectively, showing the power and operating leverage potential of our business models.
Before I turn the call over to Jim to discuss our financial performance in more detail, I'd like to share a high level view of the industry trends that we are seeing.
how reservoirs positioned within to benefit from these trends and share some notable deal highlights.
Even with a cloudy macroeconomic environment, we continue to see strong, secular growth in the music industry. Having worked in this industry for most of my career, I want to offer that this has proven to be a very consistent business across a variety of economic cycles. With a variety of economic cycles.
In addition to that resilience, the world is still in the relatively early stages of the streaming era, which includes not just growth in traditional consumption, but a lot of innovation leading to a proliferation of novel access points.
We are seeing expanded opportunities emerge day after day, including new ways to consume music through video gaming social media platforms, recession or not.
And we are inspired and energized by all the new ways for creators to express their art as these platforms provide opportunities for artists to flourish and see their work reach wider audiences.
As the music industry grows and evolves, we are well positioned to directly benefit and we anticipate consistent, organic growth and the benefits of scale and operating leverage as our portfolio increases in quality, in size and in diversity.
This overall health of the music industry coupled with our team's ability to drive value for a roster is what makes us excited about our future and confident in our position as an industry leader and our ability to achieve the financial targets we have set.
As previously stated, we are positioned to directly benefit from the industry tailwinds we see, but our growth does not stop there.
Since our last earnings call, we have made several strategic investment and advanced on our capital deployment strategy. Our capital deployment strategy.
Our focus on quality and diversification has led us to build a dynamic catalog and roster of artists and creators.
A few of these recent additions include three time Grammy-winning singer-songwriter, musician and producer Ben Harper who joined the Crystalist Records roster. This deal builds upon our growing frontline recorded music business and adds to our roster of active recording art.
We also expanded our robust hip-hop presence via a deal with multi-planted and producer, Marlon Williams, professionally known as Marley Marl.
This deal includes the iconic and two-time platinum album, Mama Said Not See Out, along with the Grammy winning title track performed by Raff Icon, L.L. Cooldry.
Best New Artist Grammy nominee and Americana Music Honors and Awards winner Margot Price signed a worldwide publishing deal with reservoir, via our joint venture with One Riot. This deal adds to our growing country music catalog and builds upon our active publishing roster of writer performers.
More recently, we closed the deal with Rock and Roll Hall of Fame member Matt Soren, best known for being the drummer of Guns and Roses, Velvet Revolver, and the cult. For rights to his publishing and recorded music catalogs, along with publishing rights to his future work, this deal expands our Rock and Roll genre footprint, and we are proud to represent this Rock legend.
We are very pleased with the caliber and range of the deals we have been making, and we remain committed to scaling the business through a creative eminence activity with the goal of partnering with the best artists in the world.
Through our efficient, inquisitive approach, we expect to improve not only our top line, but also our margin profile. With that, I'd like to turn the call over to Jim to discuss our financial results for the quarter in greater detail.
Thank you, Golnar, and good morning, everyone. As Golnar mentioned, we're off to a strong start in Fiscal 2023 as we surpass our internal expectations for the quarter on revenue and adjusted EBITDA while continuing to utilize the significant cash generating power of our business to deploy capital towards strategic M&A and further diversifying our roster with the creative, catalog, and futures deals.
Now let's touch on our financial results for the first quarter and our expectations and priorities for the remainder of the year.
Revenue for the first fiscal quarter was 24.3 million, which represented a 46% increase from the first quarter of fiscal 2022. That included 14% growth organically, which was largely driven by the hard work of our value and enhancement teams.
Our improvement on the top line in Q1 was driven by double digit growth across both of our segments, which included 80% year-over-year growth in our recorded music segment.
Looking at operating expenses for the quarter, our overall cost of revenue saw a 30% increase from the first quarter of fiscal 2022.
As noted on the last couple calls, our depreciation and amortization costs increased year over year due to our continued catalog acquisitions.
Company administration expenses saw an increase of 63% from the prior year due to non-cash stock-based compensation related to our public listing, and the ongoing costs of being a public company that we did not have in Q1 last year.
Note that this will be the last quarter where the comparable year ago period does not have costs associated with being a public company. Going forward, these costs will be embedded in the prior year period, making our year over year operating expenses more comparable.
We believe there's inherent operating leverage in our business that will be exhibited throughout the year as our operating expenses become more like the prior year period.
Due to the infrastructure that we have in place at Reservoir, we're able to acquire catalogs and expand our roster with little additional overhead as it relates to driving value enhancement efforts and making our deal execution economically efficient. Over time, this will lead to margin expansion at the adjusted EBITDA level. We have the adjusted EBITDA level.
As I stated on the last three calls, we evaluate our operating performance based on two metrics, AWIBDA and Adjusted EVITA. We believe these give the cleanest view of our progress as a business.
Both of these metrics remove the impact of amortization from our operating results. So as a reminder, these metrics do not reflect periodic costs of certain capitalized, tangible, and intangible assets used in generating revenues.
Justin Evita removes the impact of other non-cash for non-recurring expenses such as stock-based comm. For Q1, a WIBDA increased 56% year over year to 6.7 million while adjusted evita grew 73% to 7.4 million, both as compared to the first fiscal quarter of 2022. These increases were primarily driven by double digit revenue growth from both segments and were partially offset once again. And were partially offset once again.
by expenses related to being a public company that did not exist in the prior year period.
Our interest expense was approximately 3 million for the quarter compared to 2.8 million in the same period last year.
Net income for the first quarter of fiscal 2023 came in at 76,000. This resulted in diluted earnings per share for the quarter of break even, compared to negative five cents per share for the first quarter of fiscal 2022. Lastly, our weighted average diluted outstanding share count is 64.8 million.
Turning to our segment breakdown for the quarter, let's look at music publishing first.
Music Publishing generated revenue of $16.4 million in the first quarter, which was a 35% improvement from this time last year.
Primary drivers for the increase within the publishing segment was our SYNC and Digital Revenue streams. Synchronization revenue in the publishing segment totaled $3.3 million, representing a 70% increase from the first quarter last year, showing the benefit reservoir we see from the value enhancement efforts we provide.
Digital revenue within the publishing segment showed a 28% increase year over year to 8.5 million. This was primarily due to the continued growth of streaming and alternative revenue sources.
Our recorded music segment continued to deliver strong results in the quarter, generating $7.6 million in revenue, which is up 80% from the prior year quarter. All revenue types within our recorded music segment delivered solid results. Digital revenue saw a 62% increase, and that was driven by the continued growth and consumption of music streaming services. Neighboring rights, while one of the smaller segments experienced rapid growth on the recorded side, as it posted a 109% increase in the first quarter.
The overall increase within the recorded music segment was also driven by the Tommy Boy acquisition in June of last year.
Let's move on to our balance sheet.
At quarter end, our credit facility was at roughly $282.6 million.
We close the quarter with total liquidity of 80 million comprised of 12.6 million of cash on hand and 67.4 million available under our revolver which gives us the capital to fund our strategic objectives.
In terms of total debt, we ended the quarter at $277.4 million, which was net of $5.2 million of deferred financing costs.
and thus we maintain 264.9 million of net debt.
That compares to net debt of 252 million as of March 31, 2022.
Our leverage ratio as of June 30, 2022 was 5.7 using the Trailing 12 Month Proforma Adjusted EBITDA of 48.6 million, which reflects the measurement for our credit agreement.
Lastly, I'd like to reiterate that over half of our outstanding debt is hedged at a very attractive interest rate, which will limit our exposure to rising interest rates in the coming year.
Now let's turn to our outlet for fiscal 2023.
We are reiterating our fiscal 2023 guidance for both revenue and adjusted EBITDA. We still expect revenue to be in the range of 116 million to 121 million and adjusted EBITDA to be in the range of 44 million to 47 million. At the midpoints, that's 10% growth compared to fiscal 2022. Shifting gears, I want to comment on the recent decision by the US Copyright Royalty Board or CRB to uphold its previous ruling and raise songwriters and music.
or DSPs like Spotify, Google, and Pandora to pay music publishers like Reservoir revenues that were withheld while the DSPs appealed the ruling. I'd like to reinforce that our current outlook for fiscal 2023 does not account for any retroactive payments that we expect to realize relating to the CRB 3 ruling.
We remain focused on achieving our capital deployment target of 100 million and making progress on our financial objectives for fiscal 2023. We continue to evaluate potential acquisitions to expand our portfolio of assets, which is considered on our full year guidance.
We're being diligent about controlling our costs, both on revenue and overall operating expenses. We will continue to strengthen our balance sheet, supported by producing highly predictable and consistent cash flows that provide us with the flexibility to invest in our business. We will continue to strengthen our balance sheet, supported by producing highly predictable and consistent cash flows. We will continue to strengthen our balance sheet, supported by producing highly predictable and consistent cash flows. We will continue to strengthen our balance sheet, supported by producing highly predictable and consistent cash flows. We will continue to strengthen our balance sheet, supported by producing highly predictable and consistent cash flows. We will continue to strengthen our balance sheet, supported by producing highly predictable and consistent cash flows. We will continue to strengthen our balance sheet,
Despite macro uncertainties, we're confident in our resilient business model and our ability to perform against our strategic initiative.
I look forward to providing another update when we wrap up the first half of fiscal 2023. With that, I'll now pass the call back to Gilmer.
Thank you, Jim. As we look forward, our business is ideally positioned to benefit from long-term secular growth in the music industry.
Our organic growth remains strong, and we will continue to add to our roster through Discipline and Strategic MNA. Our financial and operational performance continue to show stability and resilience, and as Jim mentioned, we are reiterating our financial outlook for the year.
Despite rising interest rates and market uncertainty, we are maintaining our expectations for the fiscal year because we are confident in our durable business model and our ability to execute on our pipeline of potential deals including off-market deals.
Stated on the last call, with our friendly debt covenants and the predictable cash flows our business generates, we have the ability to deploy the capital required to meet our fiscal 2023 strategic investment target.
We will continue to focus on optimizing the operations of our existing business while executing on our inorganic growth strategy by pursuing high quality deals with significant upside.
We are building reservoir for the long term and remain extremely confident about our positioning and our strategy.
We also will continue to be disciplined in our approach to achieve sustainable growth and margin improvement.
As previously stated, the music industry continues to grow, and our roster has appreciated in value with the industry and with the innovation we bring to enhance it.
To conclude, we remain focused on continuing to create value for our roster of artists as well as our shareholders.
Overall, we are very pleased with a strong start to the year and we are very excited for what the future holds at Reservoir. With that, we will now open the line for questions.
Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by the Compala Q&A roster.
Our first question comes from Richard Baldry with Ross. You may proceed.
Thanks, congrats on a great quarter. I'm sort of curious, can you talk a little bit more about the CRB decision in terms of are there any other appeal avenues for the service providers to keep trying to fight that or have those essentially all been exhausted? So we kind of understand the certainty around that and maybe any timing to kind of move forward with the retroactive payments. Thanks.
Sure, how you doing, Rich, this is Jim. So the CRB process, it still has various procedural pieces to get through. There may be one point where either of the parties can file some additional motions, although I think that's more to do with procedure than going back into an appeal. It is kind of where we fall out with that.
With respect to timing, our expectation is that over the coming months, the CRB will finalize what they need to do in terms of a final determination that's reviewed by the parties, it's ultimately submitted to the US Copyright Office and will eventually be published to the federal register, which is when the rates will become effective. And from that point, the services will have six months to...
complete their analysis of the retroactive adjustments. So we're expecting in terms of timing for payment to really be mid to late 2023. To really be mid to late 2023.
Great.
And the minor thing is that that still affects.
or years old decision making. So you maybe talk about what the drivers are on the next sort of rate setting, whether you feel that whether the timing outlook or the drivers behind them, does it still look like those rates can go higher over the long term with the next rate setting?
Hi, Rach. How are you? It's Colnard. So, as far as CRV4 goes, that process is underway, and we're really not in a position to...
sort of define what those rates will be. Hopefully they will move upwards, but at this point it is the, we don't have any information to provide. The following content video might be ShandColor because of an anomaly.
So, and switching gears, sort of curious in the deal pipeline, you know, MacRill, I know you're insulated in terms of your current business of short.
curious whether the
So massive disturbances in the macro world are changing what pipelines expectations from deal terms or if the deal pipeline is also as insulated as the revenue streams are. Thanks.
I think it might be still a little too early for us to tell. The deal flow is robust.
Perhaps expectations may change. I think the macroeconomic issues affect everybody in so far as cost of capital goes. And perhaps we will see some impact there over the course of the next few months on deal flow, on how transactions trade, at what multiples, et cetera. There's not enough movement and data as yet to...
quantify any kind of impact there. I will say that I suppose the part that has shown the most insulation thus far is the deal flow and that remains quite robust. And that remains quite robust.
I will say that I suppose the part that has shown the most insulation thus far is the deal flow and that remains quite robust.
Thanks. Last for me would be, you know, the organic growth has continued to be very strong. I know you're proactive sync efforts are a lot of that, but also the growth in the digital end market. You kind of revisit how much or how little incremental internal investments you need to support that. A lot of companies without organic growth would have to be adding a lot internally to keep up.
Maybe talk about how little you need to do to keep up that type of growth. Thanks.
Sure, so on that front, I'd say over the last quarter or two, we have added a couple of resources on our synchronization team, and that's already paying dividends, but to your point, it's really pretty minimal in terms of...
incremental cost that we add or incremental resources that we add to be able to achieve those results. It's something that we are always evaluating and we want to be prudent about adding resources both to take advantage of the opportunities that are in front of us but also with the night towards controlling our costs. So the synchronization team is certainly an area that we constantly focus on for that.
And also, I would say on our digital licensing, we are always looking to make sure that we are properly resourced there to take advantage of the licensing opportunities in front of us, whether it's new alternative revenue sources or existing platforms that may require more focus.
Similar to the synchronization side, we do not need to add significant resources there. We are well placed to be able to handle what's in front of us and still achieve good organic growth on that front.
Great, thanks and congrats again on the quarter.
Thank you.
Thank you. One moment for questions.
Our next question comes from Alex Furman with Craig Holland. You may proceed.
Great, thanks guys for taking my question and congratulations on another very strong and very consistent quarter. I wanted to ask about the guidance a little bit. It seems like you just grew something like 14% organically in the first quarter. And I know obviously that's a small quarter seasonally for you, usually the June quarter, but coming off of 20% growth organically in the quarter before it. And that you're going to be. And that you're.
we've seen over the last couple of quarters, is it inevitable that that will kind of slow down into sort of the low to mid teens over the next couple of years? If you could just help us size that up a little bit, that would be helpful.
Sure.
So we've articulated in the past that a lot of times we achieve significant value enhancement and you know putting that into the bucket of organic growth in the first 12 to 24 months that we acquire assets. We get them up to a what we consider to be more of a proper run rate and then we're going to see a little bit lower growth on those assets as we move forward.
As our base of our catalog gets bigger and our ongoing acquisitions are potentially a smaller piece of the pie as we move forward, you may see some of that inching down of our overall organic growth, again to your point as we get bigger and acquisitions are a smaller piece of that. And then there's also certainly the little bit of the seasonality that might be playing into into some of those for the first quarter, as you pointed out, Q1 is typically R.
our lightest quarter. I think that we are seeing that change a little bit. As you know, we're always looking to refine our process around accruals to be more accurate, to be more comprehensive in those so that we can accurately reflect quarter to quarter what the revenue is without regard to payment timing. We're always going to have the issue around large payments that are maybe on a semi-annual basis that come in in subterm.
in terms of M&A and other development, how much of your incremental spend do you think we should expect to see in emerging markets over the next few years?
The thing about the emerging markets is that
We could do sort of high volume deals, but at significantly lower price tags, then what we do in Europe potentially in North America, etc.
On a percentage basis, I don't see us really shifting capital allocation on an absolute dollar amount in the emerging markets from what we have done previously.
that still results in significant transactions and capital deployment in from a deal standpoint in that region. Latest example being Muhammad Ramadan and 100 copies and a few others. So I don't really see that shifting in so far as how we're allocating the capital.
Read that's really helpful. Thanks, GoNAR. Thank you.
Thank you.
Thank you, one moment for questions.
No.
Our next question goes from Mark Riddick with Sudoti, you may proceed.
Thank you, morning.
Hey Mark.
So I was a piggyback a little bit on the last. Good morning.
Hey Mark.
So I wanted to piggyback a little bit on the last commentary around international opportunities and the development I was wondering if there's any historical precedent or way to look at the possibility of seeing acceleration or slow down given macro concerns and particularly around the currency such that you're seeing there. Or does it seem to be a steady space? Certainly your numbers would in.
there, but it's still a very small part of our business. It's not really going to, you know, any of those things aren't going to move the needle significantly on our overall business, but it's certainly an area that we are excited to to take advantage of the opportunities that are there and we expect that those opportunities will continue in those markets.
Okay, great. And then I was wanting to spend a little bit of time, and I know a few days ago that you had the opportunity to really share your ESG report, your first as a publicly traded company. I was wondering if you could maybe touch a little bit on some of those, some of the highlights there and some of the things that folks maybe haven't had a chance to see or talk about as of yet. I'm sure you could have a chance to see or talk about as of yet.
Sure. The first highlight was getting the report out. So that in and of itself was quite an undertaking. We, you know, I think the highlights
On that report, certainly have to do with our people, our outlook and sort of...
How we approach D.I., how we approach our management team, the appointment of so many women in this organization in leadership positions across every functional area. We've learned a lot along the way about our business. And in the context of ESG, we run a business that has basically all of its assets in digital form.
We do very little physical business. We don't run a business that has inventory management, et cetera. So there are components of ESG that are extremely relevant and some that may be more relevant to other businesses really don't concern us. It has a- Okay.
It's also underscored to us the areas that we need to learn more about. One of those is just, for example, the carbon footprint and that's something we need, an area we need to do more work on and learn more about. So a great learning experience for us as we have gone through to put the report together. And again, I would say the highlight was just getting it out in a way that was the...
accurate and that we were very pleased with. Congratulations and it was certainly a good read. Thank you very much. Thank you. Turn it over. Thank you.
Thank you very much. Thank you. Thank you. Thanks, Merr. Thank you very much, and thank you. Thank you. Turn it over. Thank you. Thank you.
Thank you.
I am not showing any further questions at this time. I would now like to turn the call back over to management for any closing remarks.
Thank you, operator. Our performance in the first quarter is indicative of both the strengths of our team at Reservoir and the quality of assets that we have assembled. I thank you for joining us this morning. We look forward to updating you on our progress later in the fall. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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