Q3 2025 Reservoir Media Inc Earnings Call
Greetings and welcome to reservoir media third quarter fiscal year 2025 earnings conference call at.
At this time all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Minded. This conference is being recorded I would now like to turn the conference over to your host Jackie Marcus. Thank you you may begin.
Yes.
Speaker Change: Thank you operator, good morning, everyone and thank you for participating in todays earnings conference call.
Speaker Change: Reservoir media issued a press release with the results for its third quarter of fiscal 2025 ended December 31st 'twenty 'twenty. Four earlier. This morning, if you did not receive a copy of our earnings press release, you may access it from the Investor Relations section of our website at investors <unk> Reservoir Bash media dotcom.
Speaker Change: With me on today's call are Goldmark, Kosmos Shahi, founder and Chief Executive Officer, and Jim Hydro Mayer Chief Financial Officer.
Speaker Change: As a reminder, this call is being simultaneously webcast and will be recorded and archived on the Investor Relations section of our website.
Before I turn the call over to Golar and Jim I'd like to note that today's discussion will contain forward looking statements that reflect the current views of reservoir media about our business 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 that.
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. 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.
Golar: I would now like to turn the call over to Golar.
Golar: Thank you Jackie and good morning, everyone and thank you for joining us today to discuss our results for the third quarter of fiscal year 'twenty to 'twenty five.
Golar: I'm pleased to share that reservoir posted another strong quarter across both the top and bottom lines. Our total revenue of $42 3 million represented a 19% improvement over this time last year, driven by a 16% improvement in music publishing revenue and a 20.
Golar: Her sent improvement in recorded music revenue.
Golar: The caliber of our roster the demand demand for their content and our ability to capture the usage of that content has accelerated our growth further our commitment to cost containment and closely managing our business operations led to an adjusted EBITDA of $17 3 million.
Golar: Representing a 26% improvement from the year ago quarter, Jim will discuss our financial results in greater detail later in the call.
Golar: Looking back on the first three quarters of the fiscal year, we have continued to focus on growing and diversifying our portfolio of music and our roster of creators. We've done this by consistently executing on off market deals brought in through our extensive relationships across the industry.
Golar: These relationships remain an important differentiator for the company.
Golar: And a key contributor to our successful execution of M&A.
Golar: Year to date, we have deployed over $70 million of cross catalog acquisitions, and we have also added to our active frontline roster with notable talent such as Snoop dog and Kt Lim.
Golar: We expect to remain active in the market through you're at.
Golar: Last quarter, we announced the acquisition of the rights to the catalog of Grammy Award, winning legendary South African composer Lebeau hang Meraki professionally known as Love O N.
Golar: <unk> is best known as the voice and spirit of the Lion King and he wrote and performed the opening of the legendary songs circle of life. Among other contributions to the sound tracks and scores of the franchise in.
Golar: In addition to the highly successful stage musical of the Lion King and various films Lebon worst with Lin Manuel Miranda and composing music for the recently released feature film Mufasa. The Lion King the film has grossed over $653 million worldwide to date.
Golar: We also recently announced the acquisition of the publishing catalog of less Shraddha Entertainment. The catalog includes over 5600 compositions dating from the 19 sixties to today with chart topping and Grammy Award, winning titles and Evergreen hits, such as Jim Crow.
Golar: Bad Bad Leroy Brown and time in a bottle love will keep us together by captain and chenille more bounce to the ounce by Zap and the whispers and the beat goes on among many others frequent and innovative sampling of the catalog over the years resulted in newer mega hits, such as multi platinum.
Golar: Number one, California love by two pox Grammy winning six times platinum number one we belong together by Mariah Carey will Smith's culturally defining Miami and many more.
Golar: Reservoirs creative and synchronization teams are already building on this successful strategy.
Golar: We are pleased to continue growing our catalog with great music from the past 60 years, especially as illuminates yearend report shows catalog streams in the United States continue to Eclipse current music representing over 73% of all on demand audio streams.
Golar: Also this past quarter, we have continued to cultivate the active roster.
Golar: This includes an extension of our deal with global Hitmaker sure Bond Kazan, Chevron first became a member of the reservoir family in 2020, two and its co written and co produced multiple worldwide dance hits from 2020 Threes can't forget you by James Carter and open box featuring <unk>.
Golar: Blunt to mantra latest solo single by Jenny a member of K pop supergroup Black Pink.
Golar: With over 244 million streams on Spotify mantra is a commercial success storming the charts around the world and reaching number two on the Billboard Global Excluding U S chart and number three Billboard Global 200.
Speaker Change: I kept song writers on the roster contributed to the company's position on Billboards publishers quarterly for Q3 of the calendar year reservoir took the sixth largest market share of top radio airplay and the eighth largest share of the Hot 100 reservoir talent also contributed to four songs on the Billboard Hot.
Speaker Change: 100, yearend chart, including Jeff Jones, a smash hit co right espresso by Sabrina Carpenter and number seven.
Speaker Change: And this past weekend the industry presented its highest honors the 2025 Grammy Awards.
Speaker Change: Reservoir celebrated six wins across our roster Blue Raincoat management client Arlo parts co wrote yeah, Yeah off Beyonce is album of the year and country album of the year Winter Cowboy Carter.
Speaker Change: Jeff Jones contributed to three awards for her Sabrina Carpenter co right Espresso best pop vocal performance best remixed recording and best pop vocal album and.
Speaker Change: Chris Brown, 11, which features collaborations by Georgia, Lukas and Breeland took home best RMB album.
Speaker Change: Congratulations to all on a memorable night and an extraordinary year in music with that I'd like to turn the call over to Jim to discuss our third quarter financial performance in greater detail Jim.
Jim: Thank you Darla and good morning, everyone.
Jim: Our third quarter results somebody's, another robust quarter exceeding our internal expectations for the period.
Jim: Giving us confidence to raise our fiscal 2025 guidance range as we head into Q4.
Jim: The success of our affiliated roster of talent and the work of the reservoir team has allowed us to succeed for gradually further aided by our focus on keeping our notable operating leverage through cost controls on our higher revenues.
Jim: Revenue for the third fiscal quarter was $42 3 million or 16% year over year improvement on an organic basis, and a 19% increase when including acquisitions. This was led by a 16% increase in music publishing revenues and a 20% increase in recorded music revenue that was mainly driven by price increase.
Jim: Is it multiple music streaming services, a royalty recoveries related to underreported usage from a specific music catalog and <unk>.
Jim: Acquisitions of catalogs.
Jim: Total cost increased 13% compared to the prior year quarter due to a 17% increase in administration expenses are 14% increase in cost of revenue and a 6% increase in amortization and depreciation expenses.
Jim: This support is expanding gross margins given our 19% revenue growth.
Jim: Turning to operating performance for the third quarter.
Jim: <unk> was $16 3 million, an increase of 26% year over year and adjusted EBITDA was also up 26% year over year to $17 3 million.
Jim: Both the winter and adjusted EBITDA benefited from revenue growth and improved gross margin.
Jim: Interest expense was $5 8 million for the quarter, an increase of 405000 from the prior year due to an increase in borrowings to support our M&A strategy and the effective interest rates.
Jim: Net income for the third quarter was approximately $5 3 million compared to a net loss of $2 9 million in the third quarter of fiscal 2024.
Jim: The increase was attributable to improved gross margin and a gain on fair value of swaps during the quarter compared to a loss on fair value of swaps in the year ago period.
This increase was partially offset by a higher income tax expense.
Jim: Earnings per share for the quarter was eight cents compared to a loss of five cents in the year ago quarter.
Jim: Our weighted average diluted outstanding share count during the quarter was 66 million.
Jim: Diving into our segment review for the quarter music publishing revenue increased 16% year over year to $26 9 million. This was mainly driven by revenue growth from the existing catalog, which benefited from price increases up multiple music streaming services, resulting in an increase within publishing digital revenue of 12.
Jim: Per zone.
Jim: Mechanical royalties also contributed to revenue growth largely due to the strength of physical sales and the acquisition of new catalogs.
Jim: In our recorded music segment revenue increased by 20% year over year to 12 million stemming from our royalty recoveries related to underreported usage overdose of catalog.
Jim: Quarter music revenue also benefited from continued music streaming growth and price increases are multiple music streaming services.
Jim: The revenue growth and digital physical and synchronization was partially offset by a modest decline in neighbouring rights revenue.
Jim: Now, let's turn to our balance sheet.
Jim: As of December 31, 2024 cash provided by operating activities increased by $10 7 million year over year to $33 1 million, owing to an increase in earnings and royalty advance recruitment.
Jim: We had total liquidity of $92 million, consisting of $17 8 million of cash on hand.
Jim: $74 $2 million available under our revolver.
Jim: We ended the quarter with total debt of $371 8 million, which was net of $4 million of deferred financing costs and thus we maintained $354 million of net debt.
That compares to net debt of $312 7 million as of March 31, 2024.
Jim: Relating to our guidance range, we are increasing our full year revenue guidance range of $150 million to 153 million to now reflect $155 million to $158 million, which at the midpoint implies growth of 8% versus fiscal 2024.
Jim: Similarly, we are raising our adjusted EBITDA guidance range of 59 million to $62 million to now be 61, 5 million to $64 5 million, which signals growth of more than 13% over the prior year at the midpoint of the range.
Jim: Looking ahead to the fourth fiscal quarter, we are well positioned to end the full fiscal year in line with our guidance our capital deployment strategy continues to drive long term value for reservoir as we've affiliate ourselves with some of the most successful and promising talent across the globe, which combined with our efforts internally at the company.
Jim: Continued to facilitate robust growth of operating cash flows as we look forward to the fourth quarter of 2025 in fiscal year 2026 as a whole.
Jim: Well now open the line for questions.
Speaker Change: At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the Q.
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.
Griffin Boss: Our first question comes from Griffin boss with B Riley Securities. Please proceed with your question.
Griffin Boss: Hi, good morning, and thanks for taking my questions great to see the progress I'll just start out on Opex real quick.
Griffin Boss: The outsized administration or administrative expenses were there any onetime items included in that or can we look at this as kind of a structurally higher level given the larger catalog after what.
Griffin Boss: What seemed to be material M&A spend in the third quarter.
Griffin Boss: Yes, the one thing that I would note in our operating expense is the.
Griffin Boss: Is the.
Griffin Boss: The component of operating expense related to our management revenue.
Griffin Boss: We obviously compensate our artist managers and as that revenue increases.
Griffin Boss: The compensation to those managers increases so that's probably the most significant variable that probably caused that opex to be higher during the quarter.
Griffin Boss: On the positive side is being driven by higher revenue.
Griffin Boss: So that's probably an important component to note.
Griffin Boss: Yeah.
Griffin Boss: Okay Super helpful. Thanks, Jim and then just on the same lines regarding the catalog acquisitions and signings is there any update you can provide on the pipeline I know you mentioned that there's a lot of this was off market, but just given the significant.
Speaker Change: A significant draw on the facility curious if your pipeline or outlook for future M&A opportunities has changed at all.
Speaker Change: Good morning, no. It has not our the pipeline remains robust and we continue to be excited about the opportunities that are before us.
Speaker Change: We continue to have that populated with a more off market deals and are that the strategy that we've been able to execute on successfully for many years now.
Speaker Change: Okay, great. Thanks for that and then one more if I could squeeze it in quickly just more broadly I'm curious, obviously theres been a lot of talk about the Spotify Universal deal.
Speaker Change: To the extent you can you can discuss it as it relates to reservoir just curious if that was surprising to see this direct deal get done between the two parties and whether.
Speaker Change: Whether or not you have any insights as it relates to reservoir or the industry in general going forward.
Speaker Change: We don't have any insight as it relates to us specifically.
Speaker Change: But I'm generally optimistic about the terms of that deal and how it could potentially translate across the industry.
Speaker Change: Okay fair enough. Thanks for taking my questions I appreciate it thank.
Boss: Thank you very much Griffin.
Speaker Change: Our next question comes from Richard Baldry with Roth Capital Partners. Please proceed with your question.
Richard Baldry: Thanks, and congrats on the great quarter.
Richard Baldry: Sort of curious that the guidance implies controlled down and what's usually your strongest quarter. So can you just talk a little bit about some of the one time impacts in Q2.
Richard Baldry: The royalty recovery that I guess aren't repeatable and how much maybe you think that's just conservatism.
Richard Baldry: Oh, Hi, rich thanks for the question and I think that.
Richard Baldry: Certainly we're always looking at items.
Richard Baldry: The impact the comparability of quarter to quarter and from time to time, we do have items that are a little bit more onetime in nature, although something like a royalty recovery.
Richard Baldry: <unk> will likely lead to higher ongoing royalties as we resolve something that that should have been.
Richard Baldry: Always resolved in our favor, but as we resolve it will result in potentially higher earnings on that catalog going forward. So that's the positive part there.
Richard Baldry: You know I think the other piece of your question is we always build in.
I think an appropriate level of conservatism to our to our guidance I don't think that we are necessarily overly conservative but.
Richard Baldry: There is a component of that that probably affects it.
Richard Baldry: Okay.
Richard Baldry: Thanks.
Speaker Change: Can you talk about the factors that drive the neighboring rights issues. It seems like what's you know pricing increasing in other things of that sort of was girl with those so just help me understand what impacts that on a quarter to quarter basis, a little better.
Richard Baldry: Neighbouring rights is.
Richard Baldry: You can think of think about it similar to the performance revenue on the publishing side.
Richard Baldry: It's <unk>.
Richard Baldry: Really public performance on the recorded music side of things and Thats going to be a little bit more.
Richard Baldry: Impacted by the <unk>.
Richard Baldry: It could be the timing of.
Richard Baldry: Timing of hits will certainly impact neighboring rights.
Richard Baldry: It's also a component of our revenue that does lend itself to periodically.
Richard Baldry: Retroactive cleanups from the sources that pay us neighboring rights revenue that can create a little bit of lumpiness quarter to quarter in that revenue stream, but broadly we're very happy with where we are with neighboring rights we have done.
Richard Baldry: <unk> done a few more direct deals in that area and we're very optimistic about where we are with maximizing our or our revenue in that area.
Richard Baldry: Thanks.
Richard Baldry: We seem to be going into sort of a sideways rate environment. How do you think about hedging as you're deploying capital now.
Richard Baldry: It's sort of hard to guess, where our rates may be headed and maybe talk about how much of your debt.
Richard Baldry: That's hedged and how for how long and.
Richard Baldry: To give us a sort of a backdrop of lab.
Speaker Change: Sure you know we have typically.
Speaker Change: Taken an approach of hedging not quite 50% of our outstanding debt.
Speaker Change: With the uptick in M&A this past quarter, our debts, obviously increased a bit and we are still sitting at a $150 million.
Speaker Change: Hedged so again under 50% right now.
Speaker Change: Our view, we constantly evaluate whether it makes sense to.
Speaker Change: To put on a further hedge.
Speaker Change: Yeah.
Speaker Change: And that's something that we will continue to do we havent pulled the trigger on that.
Speaker Change: Recently, but we're currently sitting there with that 150 million hedged through the current maturity of our facility, which is in December of 2027.
Speaker Change: So it goes out quite a bit from where we are right now.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: For me it's been.
Speaker Change: A replay of some things, but can you talk a little bit about sort of the deal pipeline any changes to that is maybe give any sort of macro backdrops are.
Speaker Change: Anything to discuss there thanks.
Speaker Change: Good morning.
Speaker Change: There's really nothing new to discuss on that front, we see a very good mix of deals before us which are.
Speaker Change: Are comprised of high quality assets, both on a recorded and publishing signed and we don't really see much of a change in volume or seller appetite to transact.
Speaker Change: So were generally quite optimistic about the pipeline.
Speaker Change: Alright. Thanks.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Speaker Change: Our next question comes from Alex Furman with Craig Hallum Capital Group. Please proceed with your question.
Alex Furman: Hey, guys. Thanks, very much for taking my question and congratulations on all of your recent award.
Alex Furman: I wanted to ask about the organic revenue growth, 16%, that's a really big number I know, obviously revenues can fluctuate quarter to quarter, but I was particularly interested a golar in what you said on the call that that you've been doing a better job at it.
Speaker Change: Sounds like if I'm, if I'm hearing you correctly, both reservoir and the industry.
Speaker Change: Defying revenues that you're owed as well as collecting them.
Speaker Change: That being causing growth across the industry to accelerate a little bit can you talk a little bit more about that please.
Alex Furman: Yeah, Hey, Alex.
Speaker Change: So I think with respect to the organic growth for the quarter.
Speaker Change: We certainly had a positive impact from the.
Speaker Change: The royalty recovery.
Speaker Change: As a result of of a royalty audit that we have been conducting for years and we do that from time to time.
Speaker Change: And to the extent that.
Speaker Change: We are able to recover money that.
Speaker Change: Was it has been owed to us and it will obviously increase our our ongoing revenue for the catalogs.
Speaker Change: We work on there.
Speaker Change: It's a really positive thing and we certainly benefited from that this quarter and I think more broadly.
Speaker Change: We continue to benefit from the work that our.
Speaker Change: Sink and marketing teams do with our catalog as well as the <unk>.
More broad industry impacts that are leading to.
Organic revenue.
Speaker Change: Okay. That's really helpful. Thank you very much.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: We have reached the end of the question and answer session I'd now like to turn the call back over to golf clubs were shy for closing comments.
Speaker Change: Thank you operator, and thanks, everyone for joining us this morning, as we enter the final quarter of our fiscal year reservoir remains well positioned to achieve the goals. We have stated time and again to continue to build scale and grow our business through thoughtful capital deployment. We look forward to returning in a few months to provide an overview of the fiscal year. Thank you.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.