Q2 2025 Reservoir Media Inc Earnings Call
Speaker Change: Greetings and welcome to the Reservoir Media Q2 Fiscal Year 25 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: Should anyone require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jacqueline Marcus, Investor Relations. Thank you. You may begin.
Jacqueline Marcus: Thank you, Operator. Good morning, everyone. And thank you for participating in today's earnings conference call.
Speaker Change: Reservoir Media issued a press release with results for its second quarter of fiscal 2025, ended September 30, 2024, earlier this morning.
Speaker Change: With me on today's call are Golnar Khosrowshahi, Founder and Chief Executive Officer, and Jim Heindlmeyer, 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.
Speaker Change: 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, involve certain risks and uncertainties.
Speaker Change: Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them.
Speaker Change: However, there can be no assurance that our expectations, beliefs, and projections will result or be achieved.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: In addition to financial results presented in accordance with generally accepted accounting principles,
Speaker Change: 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.
Speaker Change: 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 Golnar.
Golnar Khosrowshahi: Thank you, Jackie. Good morning, everyone, and thank you for joining us today to discuss our results for the second quarter of fiscal year 2025.
Golnar Khosrowshahi: In a quarter marked by multiple headline investments to expand our roster, we posted revenue of $40.7 million, up 6%, compared to the year-ago period, and adjusted EBITDA of $17.6 million, up 11%, compared to the year-ago period.
Golnar Khosrowshahi: Our financial results were driven by strength in our music publishing business, with our margin expansion and good cost discipline supporting our overall growth in profitability. Jim will discuss our financial results in greater detail.
Golnar Khosrowshahi: This past quarter, Reservoir achieved several important milestones, including ushering in deals with talent who have defined popular culture for decades.
Golnar Khosrowshahi: In late September, we signed a deal with rap superstar and cultural icon Snoop Dogg and his record label, Death Row Records.
Golnar Khosrowshahi: Reservoir now publishes Snoop's entire catalogue of works and future releases domestically, in addition to the catalogue of Snoop-owned Death Row Records, the storied label founded over 30 years ago and home to hits by Snoop, Dr. Dre, and more.
Golnar Khosrowshahi: With Snoop coming off an eventful summer as a featured commentator for NBC's Paris Olympics, transitioning into his current position as judge on NBC's The Voice, and announcing new music on the way, this is an exciting time to be on Team Snoop.
Golnar Khosrowshahi: Grammy and Juno Award winning singer-songwriter Katie Lang is now also a Reservoir songwriter. She has been inducted into multiple Halls of Fame and was called the best singer of her generation by the late Tony Bennett.
Golnar Khosrowshahi: KD was also awarded Canada's highest civilian honor, the Order of Canada, for her contributions to the music industry and inspiring generations of young musicians.
Speaker Change: We also recently announced the acquisition of the producer rights of celebrated record producer Jack Douglas, whose works with Aerosmith and Cheap Trick, among others, are of the highest quality and caliber rock songs of the past 50 years.
Speaker Change: The addition of these legends to our roster reinforces our reputation as the partner of choice for some of the world's greatest musical talents.
Speaker Change: Further diversifying our portfolio, we acquired publishing rights to the catalogue of the late songwriter and composer Billy Strange, which includes Elvis Presley's A Little Less Conversation, Memories, and Clean Up Your Own Backyard.
Speaker Change: As evidenced by listenership trends and the increasing number of crossover hits moving up the charts, Reservoir's investment in country music songwriters and producers has been an important driver of our organic growth.
Speaker Change: We recently welcomed writer-producer Travis Heidelman to the Reservoir Family.
Speaker Change: Travis's collaboration, Austin, Bootstop Working by Dasha, was at the heart of a viral line dance trend on TikTok, generating over a million view creations on the platform with over 10 billion views.
Speaker Change: In September, in-demand country songwriter John Deaschus
Speaker Change: signed a publishing deal with us for his past and future works.
Speaker Change: which includes cuts with Miranda Lambert and three co-writes on Laini Wilson's hit album Whirlwind which debuted in the top ten on the Billboard 200 and at number three on Top Country Albums.
Speaker Change: Outside of country music, we signed a publishing deal with producer and songwriter Kez Kamara.
Speaker Change: has developed his craft under the guidance of the Black Eyed Peas and has worked with Timbaland, Skrillex, Tiesto, and Diplo, among others.
Speaker Change: We also announced the signing of producer, songwriter, and multi-instrumentalist Ben Stanko. Ben's co-writes span genres from rock artists like Avril Lavigne's to pop's 5 Second of Summer, to dance's Jonas Blue, and rap's NLE Choppa.
Speaker Change: We are proud of the icons and rising talent who call Reservoir their home and are confident our high quality assets will continue bolstering our organic growth in the coming years.
Speaker Change: Our strategy of investing in legendary and evergreen catalogues remains a critical component of our value enhancement and long-term growth strategy.
Speaker Change: These songs are uniquely poised for sync placements.
Speaker Change: For example, Harry Belafonte's Deo, the Banana Boat Song, is known by many for its featured use in the original film Beetlejuice, and the song was used in Tim Burton's sequel, Beetlejuice, Beetlejuice.
Speaker Change: Plus the film's trailers and an ad campaign with CarMax which generated a 530% increase in Spotify streams of Deo following the film's opening weekend.
Speaker Change: Our catalog also includes iconic, holiday-specific tracks that enjoy cyclical and fairly predictable success, such as Bobby Pickett and the Crip Kickers' Monster Mash.
Speaker Change: In addition to the reliable streams we see of this Halloween classic each October, Reservoir has brought value to the track as well, tripling its revenue since 2019.
Speaker Change: The song notably lends itself to user-generated content, and we have seen a steady increase on both YouTube and TikTok. The latter boasts 48 million creations using the song, with over 136 billion views.
Speaker Change: These records transcend generations, demonstrating the ongoing value enhancement proposition and longevity of our classic catalog cuts.
Speaker Change: A roster also continues to rack up accolades with chart-climbing successes. Sabrina Carpenter's hit, Espresso, co-written by Steph Jones, was recently dubbed the most-streamed new release of 2024 on Spotify and the third-fastest song to enter the platform's Billions Club.
Speaker Change: The song's ongoing success also contributed to Reservoir's appearance in the top 10 market share for the Hot 100 evaluation, according to Billboard's Publishers Quarterly for the second quarter 2024.
Speaker Change: These achievements are a testament to the strength of our portfolio and the ability to identify hit-making talent.
Speaker Change: As we look forward to the second half of fiscal 2025, our pipeline continues to remain strong with over $1 billion in transactions under consideration at attractive entry multiples.
Speaker Change: Our team has a proven methodology for not only attracting top talent, but also for identifying the potential ROI of an asset in both the near and long term.
Speaker Change: Having a portfolio that spans genres, eras, and geographies is both critical to our long-term success and puts us in a position of strength compared to trending listenership data.
Speaker Change: Notably, the RIAA recently published data acknowledging that the number of paying subscribers in the U.S. is rapidly reaching a saturation point.
Speaker Change: This is yet another important metric that proves our early and continued investment in emerging markets such as the Middle East and North Africa, and it is invaluable to our organic growth opportunities.
Speaker Change: With that, I'd like to turn the call over to Jim to discuss our second quarter financial performance in greater detail. Jim? With that, I'd like to turn the call over to Jim to discuss our second quarter financial performance in greater detail. Jim?
Jim Heindlmeyer: Thank you, Golnar, and good morning, everyone. Our second quarter results built on a strong first quarter, taking us above our previous expectations for fiscal year 2025 and giving us confidence in raising our guidance range.
Jim Heindlmeyer: The cash flows and financial strength of Reservoir are derived from the impressive roster of talent we boast, while we also remain disciplined on costs and our ability to expand profitability on higher revenues.
Jim Heindlmeyer: Revenue for the second fiscal quarter was $40.7 million, a 5% year-over-year improvement on an organic basis, and a 6% increase when including acquisitions.
Jim Heindlmeyer: Total cost decreased 5% compared to the prior year quarter, due to a 20% decrease in administration expenses, partially offset by a 3% increase in costs of revenue, which represents expanding gross margins given the 6% revenue growth.
Jim Heindlmeyer: and a 3% increase in amortization and depreciation expenses.
Jim Heindlmeyer: Turning to operating performance for the second quarter, AWBDA was 16.6 million, an increase of 34% year-over-year, and adjusted EBITDA was up 11%.
Jim Heindlmeyer: to $17.6 million compared to our Q2 in fiscal 2024. The increase in AWMDA benefited from the non-recurrence of the write-off of recoupable legal fees in the prior year quarter, while both metrics benefited from revenue growth and improved gross margins.
Jim Heindlmeyer: Interest expense was $5 million for the quarter, a decrease of $800,000 from the prior year. As a reminder, our interest expense in Q2 of fiscal 2024 included a one-time charge incurred in connection with the settlement of a royalty dispute.
Jim Heindlmeyer: Net income for the second quarter was approximately $200,000 compared to net income of $700,000 in the second quarter of fiscal 2024.
Jim Heindlmeyer: The decrease was due to a loss on the fair value of swaps during the quarter compared to a gain on fair value of swaps in the year-ago period, while being offset by improved gross margin.
Jim Heindlmeyer: Lower Interest Expense
Jim Heindlmeyer: the non-recurrence of the write-off of recoupable legal fees from the prior period, and an income tax benefit in the current period.
Jim Heindlmeyer: Earnings per share for the quarter were break-even compared to one cent in the year-ago quarter.
Jim Heindlmeyer: Our weighted average diluted outstanding share count during the quarter was 65.8 million.
Jim Heindlmeyer: Diving into our segment review for the quarter.
Jim Heindlmeyer: Music publishing had a 10% increase in revenue versus the prior year quarter at $28.6 million and was mainly driven by acquisitions of catalogs and revenue from the existing catalog, which benefited from price increases at multiple music streaming services and boosted digital revenue.
Jim Heindlmeyer: Synchronization revenue also contributed to revenue growth in the quarter due to the timing of licenses.
Jim Heindlmeyer: These factors were slightly offset by lower mechanical revenue and performance revenue as a result of the timing of chart-topping releases and broadcasts featuring our catalog.
Jim Heindlmeyer: In our recorded music segment, we had a 1% decline in revenue compared to the year-ago period to $10.7 million due to a decrease in physical revenue related to the successful release of multiple De La Soul albums in the prior year quarter.
Jim Heindlmeyer: Digital revenue was also down slightly from the prior year, primarily because of a spike in streaming following the death of Sinead O'Connor last July.
Jim Heindlmeyer: The decrease in physical revenue and digital revenue was partially offset by an increase in neighboring rights revenue which is an area where we have invested in more direct deals globally.
Jim Heindlmeyer: Turning to our balance sheet, as of September 30, 2024, cash provided by operating activities was $21.9 million, which was an improvement of $3 million compared to the prior year.
Jim Heindlmeyer: We had total liquidity of $142.3 million, consisting of $21.1 million of cash on hand and $121.2 million available under our revolver.
Jim Heindlmeyer: We ended the quarter with total debt of $324.5 million, which was net of $4.4 million of deferred financing costs.
Jim Heindlmeyer: and thus we maintained $303.4 million of net debt. That compares to net debt of $312.7 million as of March 31, 2024.
Jim Heindlmeyer: Relating to our guidance range, we are increasing and narrowing our revenue guidance range of $148 million to $152 million to now reflect $150 million to $153 million, which at the midpoint implies growth of almost 5% versus fiscal 2024.
Jim Heindlmeyer: Similarly, we are raising our adjusted EBITDA guidance range of $58 million to $61 million to now be $59 million to $62 million, which signals growth of almost 9% over the prior year at the midpoint of the range.
Jim Heindlmeyer: We will continue to monitor our forecast for the second half of the year and will provide any refinements to our guidance when it's prudent to do so.
Jim Heindlmeyer: Following a strong first half, we remained focused on maintaining our successful strategy of talent acquisition.
Jim Heindlmeyer: Value Creation, and Financial Excellence, which includes our continued cost controls and facilitating growth of the consistent operating cash flows that we believe will enable us to achieve our updated guidance for fiscal year 2025.
Jim Heindlmeyer: We will now open the line for questions.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Speaker Change: The first question is from Griffin Boss from B. Riley Securities. Please go ahead.
Griffin Boss: Hi, good morning. Thanks for taking my questions. I'll start off on publishing. So, margins, I believe, were a record high, at least since you've gone public. That's off a record high top line. And you also cited the nonrecurrence of the legal fee as well as just general improvement in margins. So, I want to focus on that last bit. Is that margin improvement that you noted sustainable? Or is it also a function of the strong sink revenue? Just curious about the mix there in the outlook looking forward.
Speaker Change: Yeah, hi Griffin, on the margins
Speaker Change: You know, those are going to vary slightly based on the revenue mix from quarter to quarter. It's also impacted by the types of deals that we close to the extent that...
Speaker Change: You know, we've acquired Ridershare and we're maintaining 100% of that revenue that can impact the margins positively. But we'll see some slight ups and downs from quarter to quarter. It's really based on the mix of the revenue types and the deals that we've closed.
Speaker Change: Okay, great, makes sense. Thanks, Jim. And then, shifting to the pipeline outlook, you obviously discussed the several publishing deals you completed over the past three months, which is great to see. Do you see that strong cadence of deals sustaining through the remainder of the fiscal year, or how is the pipeline looking after the past three months?
Speaker Change: Good morning, Griffin. I would say the pipeline is very strong and
Speaker Change: Given that we are now over halfway through the year, we have very good visibility into what that looks like as far as
Speaker Change: Our plans for the rest of the fiscal year, it continues to be comprised of attractive opportunities.
Speaker Change: where we are looking at investments with more than satisfactory return potential and value enhancement potential. So we're very excited about what the rest of the fiscal year holds as far as that pipeline goes.
Speaker Change: Okay, and then specifically on the catalog acquisition, are multiples trending in either direction up or down materially from the weighted average historical purchase multiple you've referenced in the past of slightly north of 15 times?
Speaker Change: better multiples, but I still continue to see a substantial number of transactions trading at high teen multiples, and I think...
Speaker Change: The
Speaker Change: look at opportunities where we're able to create more upside and so that we've benefited from that.
Speaker Change: So that's just based on what we are seeing.
Speaker Change: Okay, excellent. Great, Keller. Thanks for taking my questions and glad to see the continued progress. Thanks.
Speaker Change: Thank you very much.
Speaker Change: The next question is from Richard Baldry from Roth Capital. Please go ahead.
Richard Baldry: Thanks. Can you talk about some of the factors to win some of the headlines?
Richard Baldry: highly recognizable deals in the core like Snoop or Katie Lang. I think a lot of people just assume that they'd end up with larger competitors. So what do you think differentiated you in those and how repeatable is that?
Speaker Change: I think we have an extraordinarily high quality creative team and we have always been able to attract top tier talent and I think we will continue to be able to do that.
Speaker Change: on building and expanding because we believe that there continues to be value in those relationships.
Speaker Change: and the value is essentially, as we are seeing here, to have such high-quality talent join the roster.
Speaker Change: But that has been the focus of the creative team for years now and will continue to be so as we, you know, that's really the area where we invest significantly in our people and in the team building, especially as we see other parts of our business get more and more automated.
Speaker Change: And, you know, given some of the positives, you're talking about international opportunities.
Speaker Change: Can you talk a little bit about how different is sourcing deals there? Do you feel like you have the people in markets to sort of understand how those are working? It seems a bit different than here. So just any overall view into that process, maybe how it differs from domestic. Thanks.
Speaker Change: Sure, we really don't believe that you can go into a market, particularly any of those markets, and do business by proxy. And that's why we have a team on the ground, who have been on the ground there for years, who are local, who are based in Abu Dhabi, Dubai.
Speaker Change: Egypt, Morocco, and that's how we source.
Speaker Change: a lot of the deals that we do there and they are familiar with the region, speak the language, are familiar with the nuances around the different types of music from within the region. I spend probably...
Speaker Change: three weeks during every calendar year in the region as well and It's it's very much
Speaker Change: A relationship driven deal sourcing mechanism which is really not too dissimilar from what happens here, or I suppose in non-emerging markets.
Speaker Change: The key point being...
Speaker Change: being on the ground and continuing to develop and nurture those relationships, which I would say, again, is a constant for us.
Speaker Change: Great. Just sort of a mechanical question for Jim, maybe. You talk about the swaps charge, sort of the reason, I think it was a little larger than we're sort of used to. How does that play out across, you know, balance sheet, P&L, just so we know what to think about going forward?
Jim Heindlmeyer: Sure, so we, you know, obviously mark-to-market our swaps and, you know, we had some very attractive
Jim Heindlmeyer: swaps that were expiring as of
Jim Heindlmeyer: September 30. So you saw the fair value of those swaps coming down to, you know, coming down to zero at September 30 as they approach their maturity.
Jim Heindlmeyer: a little less volatility in the fair value of those swaps, again, depending on what happens with interest rates. But now that we have reached the maturity of that first batch of three swaps that expired September 30 with such favorable rates.
Speaker Change: Maybe the last one for me. There have been some increased pricing across sort of the streaming world. How much do you think that impact has already hit your revenue versus is ahead of you? Thanks.
Speaker Change: Those price increases, you know, come to us pretty quickly.
Speaker Change: You know when when prices go up the the streaming services
Speaker Change: account a month later, that cash gets to us three months after that.
Speaker Change: But we are, you know, as part of our accrual process, we're always evaluating what's in the pipeline, and we factor those price increases in. So it's pretty quick.
Speaker Change: Some of the international markets are going to be more delayed, you know, just because of the process of that cash making its way to us and the visibility that we have to it, but it's fairly quick.
Speaker Change: It may be one last and I'll squeeze in. Just leave it set a pretty substantial new high.
Speaker Change: intermittently. So just curious about the liquidity step up that you'll get in tandem with that EBITDA step up.
Speaker Change: Well, remember we have a revolver. It's a set facility. We do not have a leverage ratio in our revolver.
Speaker Change: So we have full access.
Speaker Change: to our revolver as we need it.
Speaker Change: We have incredibly supportive lenders, so to the extent that we needed to expand that facility, which we don't have any plans to right now.
Speaker Change: We would be able to go to them to the extent that there were.
Speaker Change: But at this point, we have full access to our revolver, and we're obviously very happy with our expanding EBITDA and our expanding EBITDA margins, but that's really not impacting our ability to access our revolver. It's independent of that.
Speaker Change: Great, thanks, congrats on a good quarter.
Speaker Change: Thank you.
Speaker Change: As a reminder, it is star 1 to ask a question.
Speaker Change: The next question is from Alex Furman from Craig Hallam. Please go ahead.
Alex Furman: Hey guys, thanks very much for taking my question. I think you'd said part of the reason that SYNC revenues were up...
Alex Furman: so much in the quarter was the timing of licenses. Can you give us a little sense of kind of how healthy the SYNC business is, excluding that sort of one-time item? And just generally speaking, where have you been seeing more demand on the SYNC side? Has it been more entertainment or advertising? I think you've mentioned in the past video games has been a source of strength there. I'm just curious what you are seeing in that area.
Speaker Change: Yeah, I, you know, just with respect to the strong performance in the quarter, you know, we reference timing because we don't always have control, or we frequently do not have control over the timing of those licenses. Opportunities come to us, and we execute on the opportunities that make the most sense to us. And we have seen really robust demand in this quarter. We had some great opportunities that came to us.
Speaker Change: But that's not necessarily indicative of a run rate. Sync is a bit of an up-and-down business, but we have an incredible team that focuses on Sync.
Speaker Change: And, you know, I don't want to downplay the impact that they have on driving this revenue. They do a great job of facilitating these opportunities and taking advantage of them as they come to us.
Speaker Change: Maybe in terms of the demand, and I'll turn it over to Golnar to address that. Good morning, Alex. As far as the demand goes, I think that there's still, not that I think, but this is the feedback we're getting.
Golnar Khosrowshahi: There continues to be a hangover on film and TV and that getting back up to pre-strike levels as far as licensing goes. If I look...
Golnar Khosrowshahi: at the quarter and the licenses that were issued. The significant ones continue to be driven by advertising licenses.
Golnar Khosrowshahi: Sprinkled in there with film and trailers. Trailers has always been a source of high placement things for us.
Golnar Khosrowshahi: We do see that continuing to improve, but it's pretty much the same theme that we saw in the last few quarters, which is that advertising is really driving our performance there.
Speaker Change: Okay, that's really helpful. Thanks, Golnar. Thanks, Jim.
Speaker Change: Thank you for watching. Bye. Bye.
Speaker Change: There are no further questions at this time. I would like to turn the floor back over to Golnar Khosrowshahi, Chief Executive Officer, for closing comments.
Golnar Khosrowshahi: Thank you, Operator, and thank you, everybody, for joining us this morning. The team and I are incredibly excited about the opportunities that lie ahead for Reservoir, and we look forward to sharing our progress with you early next year. Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: , , , , , , , , , , , , , ,
Speaker Change: [music]
Speaker Change: © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent.