Q2 2023 Reservoir Media Inc Earnings Call

November 8, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Yeah.

Good day and thank you for standing by welcome to the reservoir second quarter fiscal 2023 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

Ask a question during that session you will need to press star one one on your phone please.

Please be advised that today's conference is being recorded and I would now like to hand, the conference over to your speaker today, Ms. Jackie Marcus of Investor Relations. Please go ahead.

With me on today's call are Golar closer to Shanghai, founder and Chief Executive Officer, and Jim <unk> 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 <unk> I'd like to note that today's discussion will contain forward looking statements that reflect the current views of breath warm yet about our business financial performance and future events and as such involve certain risks and 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 expectations beliefs and projections 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 or future events.

To the extent required by applicable law.

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

The nearest comparable GAAP measures are included in our earnings press release.

I would now like to turn the call over to Omar Omar.

Okay.

Thank you Jackie and good morning, everyone and thank you for joining us today with the first half of our fiscal year completed I'm encouraged by the strength and consistency across our business as we build a strong and diverse portfolio of award winning artist. While also further rig our value enhancement effort to more aggressively capitalize.

On our investments.

These efforts grew our topline by 10% during the second quarter.

Before I turn the call over to Jim to discuss our financial performance in more detail.

To share some insights on the industry trends, we are seeing and how we are positioned to navigate and benefit from these trends and a few of the notable deals we completed during the quarter.

While the broader economy is facing challenges the music industry as a whole remains healthy as we continue to see strong secular tailwind with content accelerated with Spotify, adding 7 million new subscribers. This past quarter alongside Apple music raising their monthly subscription fee.

Users are seeking greater access to contest with fewer commercial interruption, while also remaining sticky despite increased fee.

We put the value of music continues to be recognized the more people, who listen to our assets and the more money. They paid to do so directly benefits us on a purely organic topline basis.

When an artist and trusts us with their body of work. It is our primary objective to place their content in as many mediums as possible. While also ensuring these assets are being adequately and fairly monetize not only did we see the conclusion of the drawn out CRD III REIT structure during the quarter, but the.

Publishing industry and the DSP agreed in principle to a rate structure for CRB, four which will see the headline rates continue to increase over the period 2023 to 2027, reaching $15 three 5% in the final year.

This is a meaningful improvement over the prior rate and we extend our appreciation to the NFPA DNS AI demos and the copyright royalty board for this historic settlement to incrementally raise pay for artists and creators.

This progress is only one piece of unlocking the considerable inherent value in music for our shareholders.

Since our last earnings call. Our team has been busy adding several award winning creators across genres to further build our portfolio of assets.

Notably these additions included award winning singer songwriter trumpeter impacts are Louis Prima reservoir acquired the rights to both is publishing and recorded music catalogs, including his evergreen titles.

The acquisition of iconic Lebanese label and music publisher, what's the favorite.

This deal was done in conjunction with top Arabia building on our emerging market strategy by broadening our presence in the region.

Grammy nominated writer producer nearly signed a new publishing deal with reservoir for all future work. Nick has quickly found success in the industry co producing little Nasdaq's, and Jack Carloads Multiplatinum hit industry data.

We expanded our hip hop presence with a publishing deal for all past kit plus future works of rap icon kg of Naughty by nature.

This deal includes the platinum selling number one single hip hop array as well as number one single OTT. Our team has already had a working relationship with kg as we first started working together through the Tommy Boy acquisition.

Country singer songwriter brick Taylor signed a publishing deal for her full catalog and future work.

This deal executed as part of reservoirs joint venture with one riot built upon our active publishing roster of brighter performers and adds to our continually growing country music catalog.

Lastly, we expanded our frontline recorded music roster with the addition of the wandering Hearts <unk> Science Chrysalis Records, the wandering hearts or break out British folk Americana trio loud it for their intricate harmony.

We are pleased by the quality and volume of deals we executed in the past few months as we continue to make progress against our capital deployment goal of $100 million for strategic M&A in fiscal year 2023. We are also highly encouraged by our nearly $2 $1 billion pipeline of <unk>.

Inspective deals at various stages of development.

Any of our transactions come to us through existing relationships and because of our reputation in the industry as thoughtful stewards of our catalog and the artists we represent.

This inside track gives us better access to catalog that may not be more broadly offered to other music company.

We are continuously evaluating deals with prolific enduring artists, whose work could be accretive to our business and look forward to sharing more news with you in the coming weeks.

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 Omar and good morning, everyone.

Pleased with our second fiscal quarter results as we continue to make strategic acquisitions, keeping us on track to hit our capital deployment goals for.

For fiscal 2023, while concurrently driving our organic top line growth through our value enhancement initiatives now lets turn to our financial results for the quarter and.

To discuss our expectations and priorities for the second half of the fiscal year.

Revenue for the second fiscal quarter was $33 3 million, which represented a 10% increase from the second quarter of fiscal 2022 that included 6% growth organically, which was largely driven by digital revenue growth in both publishing and recorded music.

As a reminder, many of our larger international revenue streams pay on a semiannual basis and the quarters ending September and March.

We accrue for revenue based on usage. These two quarters are typically larger than the other two as those accruals are true up to the actual reported as a result, we saw significant sequential top line growth in the period.

Looking at operating expenses for the quarter, our overall cost of revenue increased 15% from the second quarter of fiscal 2022.

I would note that our depreciation and amortization cost increased year over year due to our continued catalog acquisitions.

Administrative expenses increased by 30% from the prior year due to ongoing costs of being a public company rising labor costs and higher retention bonuses.

Even with the elevated costs, we're experiencing during the period, we continue to believe that our operating leverage is an underlying strength to our financial performance as.

As we've previously mentioned our business is somewhat insulated from the broader macro economy, we felt the diversified business. It <unk> work that positions us well in all market landscapes, and we're confident in our long term ability to grow our top line at a faster pace than costs moving forward.

As we've mentioned on prior calls we evaluate our operating performance based on two metrics OIBDA and adjusted EBITDA. We believe these give the cleanest view of our progress as a business. Both of these metrics smooths the impact of the amortization from our operating results. So these metrics do not reflect periodic cost certain capitalized tangible.

And intangible assets used in generating revenues.

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

For Q2, but with a decreased 5% to $12 million, while adjusted EBITDA grew 1% to $12 8 million, both compared to the second fiscal quarter of 2020 to the.

The decline in OIBDA and slight growth in adjusted EBITDA were primarily driven by higher administrative expenses, including noncash share based compensation.

Our interest expense was approximately $3 5 million for the quarter compared to $2 7 million in the same period last year.

Net income for the second quarter of fiscal 2023 came in at $4 5 million. This resulted in diluted earnings per share for the quarter of <unk> compared to eight cents per share for the second quarter of fiscal 2022 Lastly.

Lastly, our weighted average diluted outstanding share count to $64 8 million.

Turning to our segment breakdown for the quarter, let's look at music publishing first.

Publishing generated revenue of $24 1 million in the second quarter, which was a 9% improvement from this time last year and largely driven by our zinc and digital revenue streams.

To drill down to a more granular level digital revenue within the publishing segment showed a 15% increase year over year to $13 2 million.

As <unk> mentioned the continued growth of streaming is a significant driver for our business.

Synchronization revenue in the publishing segment totaled $4 4 million, representing a 6% increase from the second quarter last year, showing with strong results from our revenue management team.

A recorded music segment delivered another quarter of strong results generated $8 9 million in revenue up 11% from the prior year quarter.

All revenue types within our recorded music segment delivered double digit or higher year over year growth, except for physical revenues as sales of vital MTB have come down based on a light release schedule in the current quarter.

Digital revenues of 35% increase which was again driven by the continued growth in consumption through music streaming services.

And rates and synchronization revenue posted 60% and 224% increases respectively.

The overall increase within the recorded music segment is also driven by ongoing value enhancement of the assets under the <unk> label, which we acquired in June 2021.

Let's move now to the balance sheet at quarter end, our credit facility was at roughly $282 6 million, we closed the quarter with total liquidity of $86 2 million comprised of $18 8 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 278 billion, which was net of $4 6 million of deferred financing costs and thus we maintained $259 2 million of net debt that.

That compares to net debt of $252 million as of March 31, 2022.

Our leverage ratio as of September 32022 was $5 seven using the trailing 12 months pro forma adjusted EBITDA of $47 3 million, which reflects the measurement per our credit agreement.

Lastly, I'd like to reiterate that over half of our outstanding debt is hedged at very attractive interest rate, which has and will over future limit our exposure to rising interest rates in the coming year.

Finally, I would like to make a brief comment about the recent CRB update during the quarter, we booked approximately $2 million related to the ruling to affirm the increase rates for the period 2018 to 2022.

This is a very complex calculation and we will continue to evaluate the impact over the next several quarters until the retroactive reporting has received and we will continue to provide updates as the situation evolves.

Moving to our outlook for fiscal 2023, our business is performing well and combined with bookings incremental revenue from the recent CRB ruling, we're increasing our revenue guidance range to $118 million to $122 million and our adjusted EBITDA guidance range to 45 million to $47 million for the <unk>.

Full fiscal year this represents growth of 11%.

The midpoint for both guidance metrics versus fiscal 2022.

As I mentioned earlier quarters, I think September and March.

Our fiscal Q2, and Q4 are our highest revenue quarters. This is due to the timing of large semiannual payments historically, our third fiscal quarter has been higher than our first quarter. So we've taken all together, we expect the second half to be more heavily weighted than the first half on both revenue and adjusted EBITDA.

As we finished the first half of fiscal 2023, we're excited about the future for reservoir.

We will continue to evaluate potential acquisitions to expand our portfolio of assets, which is considered in our full year guidance, while we evaluate business development opportunities, we're being diligent about controlling our costs. Both on revenue and overall operating expenses, we will continue to strengthen our balance sheet due to highly predictable and consistent cash.

Does that provide us with the resources and flexibility to invest in our business and our artists.

With that I'll now pass the call back to Omar.

Thank you Jim.

Looking ahead to the second half of the fiscal year, we remain confident in our ability to execute and feel that the company is positioned to meet its objective.

As Jim mentioned, we are raising our full fiscal year guidance on both revenue and adjusted EBITDA and we are on pace to hit our capital deployment targets for strategic M&A for the year.

Our core business has proven to be durable and is performing in line with our expectations with the resurgence of live performances and growing demand for digital streaming content, we see tremendous opportunity ahead.

Reservoir is a unique business that is positioned to be an industry leader through the relationships. We have built and the lives we touch through our artists work we.

We have a long term view of the business rooted in consistent performance and strong relationships and we will continue to take a thoughtful and disciplined approach to our strategic planning as we expand upon the strong foundation, we have built that reservoir.

We are pleased with our performance in the second quarter and first half of fiscal 2023, and we are confident in the durability of our business as we move through the second half of the year.

We will now open the lines for questions.

Thank you.

As a reminder to ask a question you will need to press star one one on your phone.

Please standby as we compile the Q&A roster.

One moment. Please first question.

First question will come from Richard Baldry of Roth. Your line is open.

Thanks.

Can you talk a little bit about the M&A pipeline sort of what youre seeing it in terms of COVID-19 challenges macro challenges interest rate changes.

Our more things coming to the table surfacing our people are pushing them off.

So we can get a better understanding for what youre seeing out there.

Hi, Rich how are you.

Good.

I think that we.

We just don't have enough information yet to see any significant changes in the pipeline that would be anything more than anecdotal the.

The volume is still there.

Given the interest in high quality assets.

There are still plenty of buyers that we haven't seen any kind of significant contraction on multiples that are related to macroeconomic factors that one would expect.

I think over time this will change.

But it's just that we don't have enough evidence beyond what is anecdotal I will say deal flow is robust. It is a mixture of publishing assets and recorded assets.

That mixture is pretty consistent.

But I cannot.

I wouldn't be able to point to an influx of sellers.

Nor in any kind of significant change in our.

Demand and price contraction.

Okay, and it looks like a larger segments had pretty strong growth. The one exception would be the physical side can you maybe remind us why the year ago was so strong because it certainly seems like the year ago was the outlier upside.

This quarter's performance is more in line with what we've seen in other quarters.

Yes.

Physical revenue is.

It is dependent on our release schedule in last year.

With some of the changes to record store day for example, which is a big driver of physical sales.

Those dates moved around a little bit because of Covid and we just had a strong release schedule last year relative to a more light release schedule. This year. We are looking forward to a record store days in our in our.

Third quarter of this year, and we expect the physical sales too.

To be strong as we move through the rest of the year.

Thanks and Alaska.

I know, it's a very complex process for both CRB, three and four but could you maybe walk us through a few of the milestones that we still have with the principal.

<unk> agreement for CRB four for example, I guess that will speed up a process with less appeals and things. So when would you sort of expect to see it begin to impact.

The topline revenues for either three or four.

Yes, well I think that with the CRB three we're already seeing although the DSP or not accounting.

To us yet under those rates, we have some clarity around the rates.

We are.

We are reflecting that to the best of our ability on an estimated basis.

At this time.

Certainly as we look forward to CRB, four which will start in calendar 2023, it's great that we have.

<unk>.

The agreement between the DSP.

The publishing industry on how they.

That rate structure will will move forward over that five year period, and we can avoid the drawn out.

Legal battle that we have in the CRB three.

I would expect that.

As we move to calendar 2023, the Dsp's will certainly.

To be in a position to account to music publishers based on those proposed rates.

Great. Thanks very helpful.

Thank you.

And again to ask a question you will need to press star one on your phone.

Please go to our next question.

Our next question will come from Alex Fuhrman of Craig Hallum. Your line is open.

Hey, guys. Thanks for taking my question and congratulations on a really strong quarter. Once again I was hoping to ask about streaming services given that this is such an important.

Chunk of business for you can you talk about how price increases in streaming services are going to impact your business I think we all saw the news from Apple music recently, and certainly seems to be the trend that customers are walking themselves up to more premium AD free type subscription.

<unk>.

If that trend were to continue how do you see that really hitting your results here as those prices go up.

Hi, Alex how are you.

Thank you very much so.

It's a pretty straightforward.

Conclusion here as far as the price increases go in that as that price increase is the total.

Pool increases and our share therefore increase.

And that's a pretty pretty linear.

Process. There. So we are quite pleased with Apple move and obviously the speculation in the not for me to speculate but.

So we're optimistic about price increases.

With other streaming platforms as well.

Okay. That's really helpful. Thank you and then it certainly seems like your business is performing really well and is well positioned to withstand a recession just based on your experience <unk> in the industry can you maybe just.

Just kind of help help enlighten us if we were to hit.

Significant recession, where might you feel.

Some of that impact is it is it may be a slowdown in advertisers' demand for your music for zinc purchase purposes.

Just wondering what you are looking out for there.

Yes.

Thank you.

You hit the nail on the head Thats exactly what were looking out for as you.

Look at the macro environment and the impact that it has on business in general.

As production comes back there's quite a lot of demand on the film's content side of the sink and so that does to help offset that a little bit but this is certainly not new territory for us to navigate and we are quite accustomed to the <unk> side of the business being cyclical.

Thank you.

Okay.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

Okay.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

[music].

Hum.

Okay.

[music].

Yes.

Sure.

Yes.

Okay.

Yes.

[music].

Yes.

[music].

Thank you.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

[music].

Yes.

[music].

Okay.

[music].

Okay.

Yes.

Thank you.

Yes.

[music].

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Okay.

[music].

Okay.

Yes.

Okay.

[music].

Sure.

Okay.

Sure.

Thank you.

Thanks.

Yes.

Okay.

Yes.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Thank you.

Great.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

[music].

Sure.

Okay.

[music].

Okay.

Good day and thank you for standing by welcome to the reservoir second quarter fiscal 2023 conference call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

To ask a question during that session you will need to press star one one on your phone.

Please be advised that today's conference is being recorded and I would now like to hand, the conference over to your speaker today, Ms. Jackie Marcus of Investor Relations. Please go ahead.

Thank you operator, good morning, everyone and thank you for participating in todays earnings Conference call Reservoir Media issued a press release with the results for its second quarter of fiscal year 2023 ended September 32022 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 at investors Dot reservoir Dash media Dot com.

With me on today's call are Golar closer to Shanghai, founder and Chief Executive Officer, and Jim <unk> 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 <unk> 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 involve certain risks and uncertainties.

To the extent required by applicable law.

In addition to financial results presented in accordance with generally accepted accounting principle, 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.

I would now like to turn the call over to Omar Omar.

Okay.

Thank you Jackie and good morning, everyone and thank you for joining us today with the first half of our fiscal year completed I am encouraged by the strength and consistency across our business as we build a strong and diverse portfolio of award winning artist while also furthering our value enhancement effort to more aggressively.

<unk> on our investments.

These efforts grew our topline by 10% during the second quarter.

Before I turn the call over to Jim to discuss our financial performance in more detail I'd like to share some insights on the industry trends, we are seeing and how we are positioned to navigate and benefit from these trends and a few of the notable deals we completed during the quarter.

While the broader economy is facing challenges the music industry as a whole remains healthy as we continue to see strong secular tailwind with content accelerating with Spotify, having 7 million new subscribers. This past quarter alongside Apple music raising their monthly subscription fee.

Users are seeking greater access to content with fewer commercial interruption, while also remaining sticky despite increased fee.

We put the value of music continues to be recognized the more people, who listen to our assets and the more money. They paid to do so directly benefits us on a purely organic topline basis.

When an artist entrust us with their body of work. It is our primary objective to place their content in as many mediums as possible. While also ensuring these assets are being adequately and fairly monetize not only did we see the conclusion of the drawn out CRD III REIT structure during the quarter, but the <unk>.

Over the prior rate and we extend our appreciation to the MTA DNS AI demos and the copyright royalty board for this historic settlement to incrementally raise pay for artists and creators.

This progress is only one piece of unlocking the considerable inherent value in music for our shareholders.

Since our last earnings call. Our team has been busy adding several award winning creators across genre to further build our portfolio of assets, notably these additions included award winning singer songwriter trumpeter impacts are really pretty map reservoir acquired the rights to vote is publishing and recorded music Cabot.

Including his evergreen titles.

The acquisition of iconic <unk> label and music publisher voice of the route.

This deal was done in conjunction with pop Arabia building on our emerging market strategy by broadening our presence in the region.

Grammy nominated writer producer, Nick Lee signed a new publishing deal with reservoir for all future work. Nick has quickly found success in the industry co producing little Nasdaq's, and Jack Harlow Multiplatinum hit industry Baby.

We expanded our hip hop presence with a publishing deal for all past kit plus future works of rock icon kg of Naughty by nature.

Country singer songwriter brick Taylor signed a publishing deal for her full catalog and future work.

This deal executed as part of reservoirs joint venture with one Ryan built upon our active publishing roster of brighter performer and add to our continually growing country music catalog.

Lastly, we expanded our frontline recorded music roster with the addition of the wandering Hearts. Thank you Chris Willis record the wandering Hearts, a breakout British folk Americana trio allowed it for their interest in harmony.

We are pleased by the quality and volume of deals that we executed in the past few months as we continue to make progress against our capital deployment goal of $100 million for.

For strategic M&A in fiscal year 2023.

We are also highly encouraged by our nearly $2 $1 billion pipeline of prospective deals at various stages of development.

Many of our transactions come to us through existing relationships and because of our reputation in the industry as thoughtful stewards of our catalog and the artists we represent.

And sidetrack gives us better access to catalog that may not be more broadly offered to other music company.

We are continuously evaluating deals with prolific enduring artists, whose work could be accretive to our business and look forward to sharing more news with you in the coming weeks.

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 Omar and good morning, everyone.

We are pleased with our second fiscal quarter results as we continued to make strategic acquisitions, keeping us on track to hit our capital deployment goals for M&A for fiscal 2023, while concurrently driving our organic topline growth through our value enhancement initiatives now lets turn to our financial results for the quarter and.

To discuss our expectations and priorities for the second half of the fiscal year.

As a reminder, many of our larger international revenue streams pay on a semiannual basis and the quarters ending September and March while we accrue for revenue based on usage. These two quarters are typically larger than the other two as those accruals are true up to the actual reporting as a result, we saw significant sequential.

<unk> line growth in the period.

Looking at operating expenses for the quarter, our overall cost of revenue increased 15% from the second quarter of fiscal 2022.

I would note that our depreciation and amortization cost increased year over year due to our continued catalog acquisitions.

Administrative expenses increased by 30% from the prior year due to ongoing costs of being a public company rising labor costs and higher retention bonuses.

Even with the elevated costs, we're experiencing during the period, we continue to believe that our operating leverage is an underlying strength to our financial performance as.

As we've previously mentioned our business is somewhat insulated from the broader macro economy.

We built a diversified business that reservoir, except positions us well in all market landscapes, and we're confident in our long term ability to grow our top line at a faster pace than costs moving forward.

As we've mentioned on prior calls we evaluate our operating performance based on two metrics OIBDA and adjusted EBITDA. We believe these give the cleanest view of our progress as a business. Both of these metrics moved the impact of the amortization from our operating results. So these metrics do not reflect periodic cost certain capitalized tangible.

And intangible assets used in generating revenues adjusted EBITDA removes the impact of other noncash or nonrecurring expenses such as stock based comp.

For Q2, <unk> decreased 5% to $12 million, while adjusted EBITDA grew 1% to $12 8 million, both compared to the second fiscal quarter of 2022.

The decline in OIBDA and slight growth in adjusted EBITDA were primarily driven by higher administrative expenses, including noncash share based compensation.

Our interest expense was approximately $3 5 million for the quarter compared to $2 7 million in the same period last year.

Lastly, our weighted average diluted outstanding share count to $64 8 million.

Turning to our segment breakdown for the quarter, let's look at music publishing first.

Publishing generated revenue of $24 1 million in the second quarter, which was a 9% improvement from this time last year and largely driven by our zinc and digital revenue streams to.

To drill down to a more granular level digital revenue within the publishing segment showed a 15% increase year over year to $13 2 million.

As I mentioned the continued growth of streaming is a significant driver for our business.

Synchronization revenue in the publishing segment totaled $4 4 million, representing a 6% increase from the second quarter last year, showing with strong results from our value enhancement team.

A recorded music segment delivered another quarter of strong results generated $8 9 million in revenue up 11% from the prior year quarter.

Digital revenues of 35% increase which was again driven by the continued growth in consumption through music streaming services.

Bring rates and synchronization revenue posted 60% and 224% increases respectively.

The overall increase within the recorded music segment was also driven by ongoing value enhancement of the assets under the <unk> label, which we acquired in June 2021.

Objectives.

In terms of total debt we ended the quarter at 278 billion, which was net of $4 6 million of deferred financing costs and thus we maintained $259 2 million of net debt.

That compares to net debt of $252 million as of March 31, 2022.

Our leverage ratio as of September 32022 was $5 seven using the trailing 12 months pro forma adjusted EBITDA of $47 3 million, which reflects the measurement per our credit agreement.

Lastly, I'd like to reiterate that over half of our outstanding debt is hedged at very attractive interest rate, which has and will in the future limit our exposure to rising interest rates in the coming year.

Finally, I'd like to make a brief comment about the recent CRB update during the quarter, we booked approximately $2 million related to the ruling to affirming increase rates for the period 2018 to 2022.

Full fiscal year this represents growth of 11%.

The midpoint for both guidance metrics versus fiscal 2022.

As I mentioned earlier the quarters I think September and March ending our fiscal Q2, and Q4 are our highest revenue quarters. This is due to the timing of large semiannual payments historically, our third fiscal quarter has been higher than our first quarter. So we've taken all together, we expect the second half to be more heavily weighted than the.

First half on both revenue and adjusted EBITDA.

As we finished the first half of fiscal 2023, we're excited about the future for reservoir, we will continue.

To evaluate potential acquisitions to expand our portfolio of assets, which is considered in our full year guidance, while we evaluate business development opportunities, we're being diligent about controlling our costs. Both on revenue and overall operating expenses, we will continue to strengthen our balance sheet due to highly predictable and consistent cash flows.

That provides us with the resources and flexibility to invest in our business and our artists.

With that I'll now pass the call back to Golar.

Thank you Jim.

Looking ahead to the second half of the fiscal year, we remain confident in our ability to execute and feel that the company is positioned to meet its objective.

As Jim mentioned, we are raising our full fiscal year guidance on both revenue and adjusted EBITDA and we are on pace to hit our capital deployment target for strategic M&A for the year.

Reservoir is a unique business that is positioned to be an industry leader through the relationships. We have built and the lives we touch through our hard work, we have a long term view of the business rooted in consistent performance and strong relationship and we will continue to take a thoughtful and disciplined.

One approach to our strategic planning as we expand upon the strong foundation, we have built that reservoir.

We are pleased with our performance in the second quarter and first half of fiscal 2023, and we are confident in the durability of our business as we move through the second half of the year with that we will now open the lines for questions.

Thank you.

As a reminder to ask a question you will need to press star one one on your phone.

Please standby as we compile the Q&A roster.

One moment, please while first question.

First question will come from Richard Baldry of Roth. Your line is open.

Thanks.

Can you talk a little bit about the M&A pipeline sort of what you are seeing it in terms of COVID-19 challenges macro challenges interest rate changes.

Our more things coming to the table surfacing, our peoples, who are pushing them off.

So we could get a better understanding for what youre seeing out there.

Hi, Rich how are you.

Good.

I think that.

We just don't have enough information yet to see any significant changes in the pipeline that would be anything more than anecdotal.

Volume is still there.

Given the interest in high quality assets.

There are still plenty of buyers that we haven't seen any kind of significant contraction on multiples that are related to macroeconomic factors that one would expect I think over time that will change, but it's just that we don't have enough evidence beyond what is anecdotal I will say deal flow.

Is robust it is a mixture of publishing assets and recorded assets in.

That mixture is pretty consistent.

But I cannot.

I wouldn't be able to point to an influx of sellers.

Nor in any kind of significant change in.

Demand and price contraction.

Okay.

A lot of your segments had pretty strong growth.

One exception would be the physical side can you maybe remind us why the year ago was so strong because it certainly seems like the year ago was the outlier upside this.

This quarter's performance is more in line with what we've seen in other quarters.

Yes.

Our physical revenue is.

It is dependent on our release schedule in last year with some of the changes to record store day for example, which is a big driver of physical sales those dates moved around a little bit because of Covid and we just had a strong release schedule last year relative to a more light release schedule.

This year, we are looking forward to a record store days in our in our.

Third quarter of this year, and we expect the physical sales too.

To be strong as we move through the rest of the year.

And in Alaska.

No. It's a very complex process for both CRB, three and four but could you maybe walk us through a few of the milestones that we still have.

But the principal agreement for CRB four for example, I guess that will speed up a process with less appeals and things. So when would you sort of expect to see it begin to impact.

The topline revenues for either three or four.

Yes, well I think that with CRB three we're already seeing it although the dsp's are not accounting.

To us yet under those rates, we have some clarity around the rates and we are.

We are reflecting that to the best of our ability on an estimated basis at this time.

Certainly as we look forward to CRB, four which will start in calendar 2023, it's great that we have.

<unk>.

The agreement between the DSP.

The publishing industry.

How that.

Rate structure will will move forward over that five year period, and we can avoid the drawn out.

Legal battle that we had in the CRB III.

I would expect that.

As we move to calendar 2023, the Dsp's will certainly.

I'd be in a position to account to music publishers based on those proposed rates.

Great. Thanks very helpful.

Thank you.

And again to ask a question you will need to press star one on your phone.

Please go to our next question.

Our next question will come from Alex Fuhrman of Craig Hallum. Your line is open.

Hey, guys. Thanks for taking my question and congratulations on a really strong quarter. Once again I was hoping to ask about streaming services given that this is such an important.

If that trend were to continue how do you see that really hitting your results here as those prices go up.

Hi, Alex how are you.

Thank you very much so.

It's a pretty straightforward.

Conclusion here as far as the price increases go in that and that price increase the total pool.

Pool increases and our share therefore increase.

And that's a pretty pretty linear.

Process. There. So we are quite pleased with Apple move and obviously the speculation not for me to speculate but.

So we're optimistic about price increases.

With other streaming platforms as well.

Just kind of help help enlighten us if we were to hit a significant recession, where might you feel.

Some of that impact is it is it may be a slowdown in.

<unk> demand for for your music for zinc purchased purposes. Just wondering what you are looking out for there.

Okay.

I think that that.

You hit the nail on the head Thats exactly what were looking out for as you.

Look at the macro environment and the impact that it has on business in general.

That's an area that one would see contraction with advertising budget.

Diminishing and so we are really keeping an eye on that.

Im sorry for the background noise.

We're keeping an eye on that but this is not a territory.

Sorry about that this is not a territory that we have now navigated through the floor.

And obviously volume of zinc helps offset that a little bit as far as licensing goes and maybe we're doing more micro licensing then.

Large ticket advertising licensing.

The good thing about the <unk> side of the business is that.

As production has come back there's quite a lot of demand on the film's content side of the zinc.

And so that does to help offset that a little bit but this is certainly not new territory for us to navigate and we are quite accustomed to the <unk> side of the business being cyclical.

And.

One that we are we are prepared to go through.

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

Thank you.

Okay.

Seeing no further questions in the queue.

I would now like to turn the conference back to Goldman.

Chassis.

Good luck.

Thank you operator, our performance in the second quarter is indicative of the strength of our team at reservoir and the quality of assets. We've assembled I. Thank you for joining us. This morning, we look forward to updating you on our progress in February .

Very sorry about the background noise.

Thank you.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Q2 2023 Reservoir Media Inc Earnings Call

Request a DemoDemo

RSVR

Reservoir Media

Earnings