Q1 2024 Reservoir Media Inc Earnings Call
Good morning, everyone and thank you for participating in today's conference call to discuss our reservoir Media's financial results for the first quarter of fiscal 'twenty 'twenty four ended June 30th 2023.
After the Speakers' presentation, there'll be a question and answer session to.
To ask a question during the session you will need to press star one on your telephone.
You will then hear an automated message advising your hand is raised.
Your question. Please press star one again.
I'd like to turn the call over to MS. Jackie Marcus with the Alpha IR Group, who will review our agenda today and the company's forward looking statements Jackie.
Yeah.
Thank you Justin good morning, everyone and thank you for participating in todays earnings Conference call Reservoir Media issued a press release with the results for its first quarter of fiscal 2024 ended June 30th 2023 earlier this morning.
If you did not receive a copy of our earnings press release, you may access it from our Investor Relations section of our website at investors <unk> reservoir Dash media Dot com.
With me on today's call are Goldman.
Saturn, Chief Executive Officer, and Jim Hydro Mayer 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 Golar, 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 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 future events, 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.
I would now like to turn the call over to gold bar.
Thank you Jackie and good morning, everyone and thank you for joining us today to review our results for the first quarter of fiscal 2024.
We are off to an exceptional start to the year as we delivered strong growth across both our music publishing and recorded music businesses.
Our continued execution strong secular tailwind in the industry and momentum in digital from streaming services as well as the impact of increased CR before rates drove top line growth of 31% during the quarter.
In addition to this revenue growth, we saw adjusted EBITDA margin expansion of over 100 basis points versus the prior year period.
This financial performance also reflects our strategy of expanding our roster of creators across genres and geographies.
We remain disciplined in our approach to capital deployment, and we will continue to pursue business development opportunities that enhance our roster and are accretive to margins.
Before turning the call over to Jim to further discuss our first quarter results I'd like to talk through some of the drivers of the results in more detail.
The strong results, we achieved in digital reflect increasing demand trends for streaming music globally.
We saw evidence of and Spotify is higher than expected subscriber numbers reported last week.
Another reason for our success in digital during the quarter was the adoption of the new CRB four rates starting in calendar 2023, where the headline rate of 15.15%.
Meaningful increase from the CRB to rates, which applied during the first quarter of last year.
Because of this we have been able to recognize higher revenue associated with mechanical royalties from digital sources.
As a note when comparing year over year results the benefit of the increased CR before rate will be less significant in coming quarters. As we recorded revenue using the affirms CRB three rates starting in Q2 of fiscal 2023.
Nonetheless, as we have said before these increases are a step in the right direction of recognizing the value our artist spring to these platforms.
We remain confident about the growth trajectory of the global music industry and how reservoir is positioned to capitalize on it we believe that one factor behind our success to date is the exceptional team we have built over the last 16 years.
We have shown the companies with more diversity have just started up really better success reservoir is proud to be meaningfully differentiated from many of our peer companies for a representation of female employees at every level.
As disclosed in our ESG report, which we released last week, almost 40% of senior management at reservoir identifiers female. Moreover, we employ 48% of staff overall, who identify as female comparison the national rate of 35, 3% reported in the 2021 study conducted by <unk>.
The U S C annenberg inclusion initiatives.
Another key takeaway from our ESG report that I wanted to highlight is our employee retention rate with 100% retention at the senior management level and 87% retention overall in the U S as fast fiscal year.
Our experienced team, 43% of which have been working in the music industry for over 16 years Fortifies, a culture that meaningfully differentiates us from our competitors.
That culture, and the cohesion of our team allows us to deliver exceptional creative services and value enhancement opportunities across our roster and catalog, resulting in our strong organic growth.
As a result, when creators Schuster called reservoir their home. They also stay with the company mirroring our high employee retention rates.
If you have not yet I encourage you to take a look at the ESG report, our second since becoming a public company.
The principles of ESG have been embedded in our culture since inception, and we understand and care about the influence and impact that our employees and roster of creators have on communities around the world.
Shifting to the progress we have made against our business development strategy through the first quarter I wanted to highlight some of the notable talent and catalogs that have recently joined the company just a few of these include <unk>.
Legendary R&D and pop vocal group the spinners reservoir required the catalogs are four of the founding members of the spinners, including Master royalty streams for Henry Fambro and the late Billy Henderson purpose, Jackson and Bobby Smith, our teams efficient diligence efforts enabled us to execute this deal.
Across four rights holder simultaneously and bring these valuable catalogs to reservoir.
We continue our roster expansion in the middle East with the catalog acquisition and go forward joint venture with Saudi Arabia, and hip hop label matrix.
This deal was done in conjunction with our partner pop Arabia, and further builds on our emerging market strategy and boost our presence in the region.
Multi platinum writer producer Willie Williams has signed a new publishing deal with reservoir for his entire catalog and future works Willie has collaborated with the likes of Eminem Daddy Yankee Kendrick Lamar Dominic's like and killer, Mike. He has a massive talent and we couldnt be more excited to work together.
Consistent with our strategy and approach we have more business development opportunities that we look forward to executing and sharing with you in the coming quarters with that I'd like to turn the call over to Jim to discuss our first quarter numbers in greater detail Jim.
Thank you Omar and good morning, everyone. Our financial results in the first fiscal quarter demonstrate the strength of our business model and inherent levers embedded in the business to achieve growth. We are pleased with the strong revenue growth year over year for both of our segments, but we are particularly encouraged by our operating leverage in the quarter.
And adjusted EBITDA margin expansion is a testament to the operating leverage that is built into our business.
Looking ahead, we expect revenue to outpace operating cost as this has generally been the case during our time as a publicly traded company.
Turning to our quarterly results revenue for the first fiscal quarter was $31 8 million or 31% increase versus the prior year quarter in terms of the components. Our topline results in the first quarter were driven by the strong growth in both segments highlighted by a 37% increase in recorded music year over year.
Looking at our operating expenses for the quarter, our overall cost of revenue increased 35% versus the prior year quarter, our amortization and depreciation costs increased 13% year over year due to our continued catalog acquisitions company administration expenses saw a 20% increase versus the prior year.
From an operating performance perspective in the first quarter OIBDA increased 38% year over year to $9 2 million, while adjusted EBITDA of $10 1 million increased 36% versus the prior year.
The increase.
And adjusted EBITDA was largely driven by strong revenue growth and was partially offset by higher administrative expenses.
Interest expense was $4 7 million for the quarter compared to $3 million in the same period last year.
Net income for the first quarter of fiscal 2024 came in at approximately 165000 versus 17000 in the first quarter of fiscal 2023. This resulted in diluted earnings per share for the quarter of zero.
Lastly, our weighted average diluted outstanding share count during the quarter was $65 million.
Turning to our segment breakdown for the quarter, let's look at music publishing first music publishing generated revenue of $20 8 million for the first quarter, which represents a 26% increase from the same period last year due to strong growth in digital and performance revenues.
Synchronization revenue in the publishing segment totaled $3 million, resulting in an 8% decrease from the first quarter of last year.
Chemical revenue within publishing segment posted a 9% increase year over year to 600000.
This strong increase in digital revenue in the publishing segment was largely driven by the higher CRB four headline rate of 51, 5% in the first quarter of this year versus the much lower effective rate under CRB too from last year.
This increased rate as having a material impact on our results for the quarter, but as Golar mentioned, we expect the year over year comparison to be muted in the coming quarters. Since we started accruing under the affirms CRB three rates in Q2 of the prior fiscal year.
A recorded music segment continued to deliver strong results in the first quarter generating $10 4 million in revenue, representing an increase of 37% versus the prior year quarter. All revenue types within our recorded music segment, excluding synchronization delivered year over year increases.
Both in the recorded music segment from the first quarter was largely driven by strong physical revenue, which increased 176% versus the prior year.
Digital in neighboring rates revenue increased 23% and 25% respectively.
Decline in synchronization with in recorded music is really a timing issue I think licenses are not uniform from one quarter to the next.
Let's move onto our balance sheet at quarter end, our credit facility was at roughly $331 8 million, we closed the quarter with total liquidity of $135 million comprised of $12 $3 million of cash on hand, and $118 2 million available under our revolver, which gives us the capital to fund our.
T J objectives in terms of total debt. We ended the quarter at $325 8 million, which was net of $6 million of deferred financing costs and thus, we maintain $313 5 million of net debt that.
That compares to net debt of $296 6 million as of March 31, 2023, Lastly, I'll note that almost half of our outstanding debt is hedged at very attractive interest rate, which will limit our exposure to rising interest rates in the coming year.
Let's shift gears to our outlook for fiscal 2024, we are maintaining our previously stated revenue guidance range of $127 million to $132 million, which represents a 6% increase versus fiscal 2023 at the midpoint. We are also maintaining our adjusted EBITDA guidance range of $49 million.
$52 million, which implies 9% growth at the midpoint.
I want to note that we continue to make progress on mitigating the cyclicality from our semiannual payments in fiscal 2024, I would also note that our quarterly spread of revenue relative to the prior year may be affected by the CRB three accrual that we made in Q2 of fiscal 2023, whereas we don't expect to make any true up for the final resolution.
Of that retroactive adjustment until Q4 of 2024 at the earliest.
Throughout fiscal 2024, we will continue to execute upon margin accretive deals, while staying prudent with our capital deployment strategy, our financial profile remains strong and our business continues to deliver highly predictable cash flows we have a clear plan to achieve our provided top line and profitability guidance ranges with room for <unk>.
Tightening as we progress through the year, we look forward to updating you on our progress at the end of the first half of fiscal 2024.
With that I'll now pass the call back to Golar.
Thank you Jim as you can see from our first quarter results, we are progressing nicely toward our financial targets for the fiscal year, we have expanded and enhanced our roster, which continues to add the scale and diversification and will ultimately insulate our business to perform well through market cycles.
Demand trends, we are seeing across streaming platforms for the consumption of music digitally remains encouraging and we are well positioned to continue to benefit.
As we look toward the remainder of fiscal 2024, we will continue to take a disciplined approach to capital deployment, which will drive not only top line growth, but also margin expansion.
We are excited for the future of reservoir. We appreciate your continued support and we look forward to sharing our continued progress with you with that we will now open the line for questions.
And thank you.
One moment please.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Please standby, we compile the Q&A roster.
And one moment for our first question.
And our first question comes from Alex Fuhrman from Craig Hallum Capital Group. Your line is now open.
Great. Thanks, very much for taking my question it looks like a really strong flow through to earnings that we saw in the first quarter.
Strong strong performance across the board anything in particular, that's really been helping to drive the margin performance and then as we as we look out over the next couple of years.
Can you talk about how some of the price increases that were starting to see from streaming services, how that could impact your revenue and your margins looking out over the next few years.
Sure how are you doing Alex Jim.
So with respect to the flow through to our adjusted EBITDA margin expansion that we're seeing there.
Thing that we anticipated we have over the last couple of years.
<unk> talked about the operating leverage that is.
Present in our business, it's been a little bit hard to see in the past couple of years as we've had public company cost in one period not in.
The prior year period, Thats being compared so I think that as we move forward and as we see in this quarter.
We expect.
That margin expansion.
And we expect to continue to see that margin expansion as we move forward.
With respect to the second part of your question around the price increases we are certainly encouraged by the latest announcement from Spotify.
<unk>.
We have the price increase from Apple last year Amazon earlier, this year and all of those those price increases really will will impact our revenue on a pretty linear basis in other words, a 10% price increase.
Streaming service will flow through to us at around a 10% increase to our pool of that money and we are encouraged by that.
Looking forward to it starting to flow through our revenue.
In the coming months and quarters with respect to Spotify.
Yeah.
Great that's really helpful. Thanks, Jim.
And then just more broadly in terms of emerging markets.
Looks like another investment year in the quarter in the Middle East, where where you already have a pretty meaningful presence do you see a lot of continued opportunity for M&A in the middle East and in emerging markets more broadly and when could emerging markets really start to more significantly drive earnings growth.
Hi, Alex this golar.
We consistently see opportunities in the middle East, we have a pretty healthy pipeline of deals to do there and I don't see that slowing down anytime soon.
So I would say that thats really the deal pipeline there is as robust.
The sort of macro deal pipeline that we have.
I think that were certainly a few quarters out if not more to see meaningful.
Results there as far as our own numbers go but this is all investment based on anticipated future growth that really will mirror other emerging markets as we have seen happen in the past so.
Being a content owner and well positioned to take advantage of this growth is the strategy that we have deployed and one that we believe will materialize.
Materialise positively.
And thank you.
One moment our next question.
And our next question comes from Richard Baldry from Roth. Your line is now open.
Thanks.
I Wonder how you dig a little bit more than just seasonality because Q1 was far above where we would've expected results to be and you're holding guidance intact, so and I understand the tougher comparisons but.
If we look back historically, there's been more true ups to accruals in Q2, Q4 that tends to seasonally strengthen them pretty meaningfully from Q1s and threes.
Is anything changing in there that does smooth that out that leaves you holding here or do you think just being incrementally conservative to start the year.
Sure how are you doing rich so I would say that with respect to our cyclicality of earnings we've touched on this in our last.
<unk> earnings calls about how we have been refining our accruals to.
Have the effect of smoothing those earnings a little bit so that the spikes that you mentioned in Q2 and Q4 are not as significant.
Valleys in Q1, and Q3 are not as as low.
I think that what we're seeing now in the first quarter is the result of a lot of those improvements that we have made in that process, we still expect to see.
Jumps in Q2, and Q4 as we true up those accruals to those significant semiannual payments that come in in the September and March period.
But I think that with respect to.
A very strong Q1.
And the fact that we are holding guidance, where we previously announced.
It's really reflective of our view of being a bit conservative wanting to see where the first half of the year falls out before we really revisit guidance for the year, we're thrilled with our results in Q1.
And we kind of look forward to to updating everyone further and revisiting guidance when we get to our September quarter.
Okay.
To the extent you have seen any changes on the funding environment with your adjusted EBITDA scaling past our expectations already.
Do you still feel good about the availability of incremental credit we're hearing in the broader market of course some of the banks are pulling back on what they are willing to lend in terms of your own relationships do you have any concerns there are still feel that your executions keeping people willing to sit at the table and increase your availabilities.
Yes, we're very comfortable with where we are with our credit facility, we have very strong relationships with with all of the banks and our syndicate.
Especially true as to leads that syndicate.
They have been the entire group has been very supportive of us.
We don't have any reason to believe that won't continue but having said all of that we're also.
And a very good position with respect to our current facility and availability that we have under that facility even without any further expansion of it at this point. So we feel very good about where we are with respect to our access to capital.
Maybe tie on to that.
How do you feel about the M&A pipeline overall too.
Yes every quarter, but.
With things getting macro looking like it's getting a little darker out there have you seen any changes in.
People's expectations.
Mount of deals in the pipeline that you are able to look at.
Just any color on that thanks.
Sure It is.
<unk> been pretty consistent and I'd say, we'd have about a $2 billion pipeline, which is give or take around where we have been in the past quarters that we've reported.
We are not really seating.
On traction on pricing and I think thats, just because there are high quality assets on the market.
With the pretty compelling data around future growth and a lot of capital and so that's not really.
Helping.
Reduced prices significantly.
We continue to execute on a lot of off market transactions as we have in the past.
And our relationship certainly help us do that but we are we continue to see very robust deal flow. So.
That's a good position to be in.
And thank you and if you would like to ask a question that is star one one again, if you would like to ask a question that is star one one and one moment our next question.
And our next question is from Dan Day with B Riley Securities. Your line is now open.
Questions just to go back to the impressive growth on the digital music publishing revenue.
I appreciate it.
Impacts with the step up from CRB two to four I think I understand that I think I understand.
Price hikes for the DSP is just anything outside of the DSD is.
Some of these kind of emerging digital channels that are starting to be material are making an impact on growth yet or is that still kind of future upside youre thinking about.
Well I think that we have a number of other partners on the digital front that are meaningful I mean that includes peloton includes Youtube.
There is a number of partners that we have there and we continue to see strong results from all of them.
We're encouraged by those relationships that.
We haven't.
Our digital licensing team is always looking at new opportunities there as well.
Can't say that there is a particular.
Kind of new entrants in the last quarter that was that was meaningful but we see strong results across the board from all of our existing partners.
Zinc side I know a lot of it.
Is it related to kind of use of copyrights and films. So just any issues with the pipeline there with the writers and actors strikes.
<unk> been making for the next couple of quarters.
Brian .
We're not seeing.
That impact yet the strike effect film production and the associated music licensing that goes hand in hand with that.
We don't have an estimate yet on that impact we're not in a position to have really have a view on when the strike will end.
What we do know is that the advertising placement business right now remains strong and we're able to pivot our team to mine those relationships as well as expanding our reach into other areas.
The trailer business continues to remain strong, but it's certainly something that we have our ion and depending on it when the strike and.
The impact will vary based on that.
Just any is there a hard target.
You have that maybe you wouldn't want to exceed on that net debt to EBITDA, whether it's on a trailing basis.
These forward basis.
I mean, you're over six times on a trailing basis.
Unreasonable for a business with steady but just.
Wondering how high you'd be willing to ratchet up that net debt.
No.
Yes, it's an area, where we are very focused.
Tom.
We will actively look to manage that.
That leverage ratio, even though its not part of our debt covenant any longer it's an important metric that we look at for the business and its something that that we will continue to manage we.
Are aware that while kind of a six times leverage ratio.
May not be an uncomfortable place for us to be given our <unk>.
Recurring cash flows or the highly predictable cash flows that we have in our business.
We are well aware of.
The perception of the public market of a leverage ratio that's at that level and it's something that we will continue to manage as we move forward.
And thank you.
And I am showing no further questions I would now like to go ahead and turn the call back over to <unk> for closing remarks.
Thank you operator, our performance in the first quarter is indicative of the strength of our team at reservoir and the quality of the assets that we have assembled thank you for joining us. This morning, and we look forward to updating you on our progress on our next call. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
[music].
Okay.