Reservoir Media, Inc. (NASDAQ:RSVR) Q3 2024 Earnings Call Transcript
Reservoir Media, Inc. (NASDAQ:RSVR) Q3 2024 Earnings Call Transcript February 7, 2024
Reservoir Media, Inc. misses on earnings expectations. Reported EPS is $-0.04571 EPS, expectations were $-0.02. RSVR isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Reservoir Media's financial results for the third quarter of fiscal year 2024 ended December 31, 2023. After this speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now 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?
Jackie Marcus: Thank you, operator. Good morning, everyone, and thank you for participating in today's earnings conference call. Reservoir Media issued a press release with results for its third quarter of fiscal 2024 ended December 31, 2023, 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.reservoir-media.com. 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. Before I turn the call over to Golnar and Jim, I'd like to take a note that today's discussion will contain forward-looking statements that reflect 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 them. However, there can be no assurance that our expectations, beliefs and projections will result or be achieved. Please refer to our earnings press release and our filings with the Securities and Exchange Commission for more information on the specific risks, uncertainties and other factors that could cause our actual results to differ materially from our expectations, beliefs and projections described in today's discussion. Any forward-looking statements that we make on the call or in our earnings press release are as of today, and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law.
In addition to 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 US 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 Golnar. Golnar?
Golnar Khosrowshahi: Thank you, Jackie. Good morning, everyone, and thank you for joining us today. Before diving into our performance in the third fiscal quarter, I want to take a moment to recognize our songwriters and artists who brought home Grammy Awards this past Sunday. Our roster earned an impressive 39 Grammy nominations across 28 categories and contributed to 10 wins, including Joni Mitchell's Best Folk Album, a sweep by Killer Mike across the 3 rap categories and best R&B song for Khris Riddick-Tynes collaboration Snooze by SZA. Their nominations and wins are a testament to the caliber of talent we represent at Reservoir. Beyond these accolades, another marker of success for our roster is seen by consumption and activity on the charts.
As reported by Billboard's publishers quarterly, Reservoir earned a hot 100 top 10 market share for the three quarters reported so far for calendar 2023. One of our top consumed songs, Snooze by SZA, co-written and co-produced by Khris Riddick-Tynes, was a hot 100 chart staple over the last year, generating over 0.5 billion on-demand audio streams alone. These achievements validate the talent and consistency of our roster and confirm the effectiveness of our team's strategy in signing and developing today's top hit-makers. Moving to our operational and financial performance in the third fiscal quarter, we continue to report strong growth numbers, underpinned by healthy organic growth mirroring that of the wider music industry. Luminate, the industry standard measurement platform for tracking music sales, streams, downloads and airplay, issued its year-end music report, which highlighted 34% year-over-year volume growth for total on-demand song streams globally in 2023.
This includes over 13% year-over-year volume growth in US catalog total album consumption as well as an 11% growth in current total album consumption. As hip-hop celebrated its 50th anniversary, the genre continued to lead all others in US consumption, contributing to over a quarter of all streaming consumption. Additionally, Luminate reported more than 20% annual growth in the on-demand audio streams of both Latin and country genres in the U.S. These figures are another strong endorsement of our efforts to further invest in these genres in the calendar year 2023. Included in these investments were the additions of rapper, Armani White, hip-hop producer, Mannie Fresh, and songwriter producer, Willy Will Yanez, country music producers and songwriters, Brent Maher, Rob Ragosta, Christian Stalnecker and Paul Cauthen, and influential Latin songwriter and producer, Rudy Perez, and Miami Sound Machine Co-Founder, Kiki Garcia.
Moreover, Luminate's report also suggests the potential for India to overtake the US as the country with the highest overall streaming volume globally. While India's streaming volume is currently just shy of the US's, the country saw the biggest year-over-year increase in total on-demand music streams of any nation with an increase of nearly 0.5 trillion streams, while the US volume increased by 184 billion. At that rate, we could see India surpass the US in 2024. What's more, Luminate reported that the Hindi language music market share has more than doubled from 2021 to 2023, up to nearly 8%, and also noted over 60% of both Gen Z and millennial listener groups listen to new music to experience new cultures and perspectives. We are excited by the implications of this data.
And as we enter 2024, we remain committed to investing accordingly in opportunities in this market and continuing to build relationships on the ground to support regional music and its exportation to consumers across the world. On the financial side, for the fiscal third quarter, we delivered top line growth of 19%, 14% of which was organic. We also expanded our margins in the quarter, resulting in adjusted EBITDA growth of 25% over the prior year. These financial results allowed us to once again beat our guidance for the quarter and, as Jim will discuss shortly, raise guidance for the remainder of the fiscal year. In addition, they demonstrate our ability to manage the business and deploy capital to further grow our portfolio. Along those lines, during the quarter, we continued to invest in our business with an emphasis on further diversifying our portfolio across various music genres.
Some of our recent deals include a new publishing deal with songwriter, producer, singer and multi-instrumentalist, Theo Katzman, best known as a founding member of American funk band, Vulfpeck. Theo has released four solo albums and collaborated with a wide range of artists across genres, including Kesha, Carly Rae Jepsen, Teddy Geiger and more. We also announced the co-signing of Australian singer-songwriter, Grentperez, to a worldwide publishing deal for his entire catalog and future works. This collaborative project with our Australian sub-publisher, Mushroom Music, sees our two companies come together on all creative and administrative aspects of Grentperez's career to take his music to new heights in the U.S., Australia and beyond. Lastly, in conjunction with PopArabia, we expanded our presence in the Middle East with a deal with In2Musica, the label, publisher and production house of Lebanese Superstar, Nancy Ajram.
The deal includes her entire catalog and future works. With a combined total of 90 million followers across social media, she was the most streamed female Arab artist on Spotify in 2022, achieving more than 100 million plays of her songs, solidifying her moniker as the Queen of Arab Pop. With respect to our pipeline of opportunities, we are actively evaluating multiple potential deals that will support our growth aspirations. Our pipeline sits roughly at $2 billion in total value for prospective deals, which I'd like to note does not include off-market opportunities that also remain strong. We remain a highly respected and regarded partner, and our proven reputation for being a strong steward for catalogs through our value-enhancement initiatives allows us to acquire some of the best assets on the market.
We look forward to closing out the fiscal fourth quarter in a position of strength with new artists joining our roster and achieving our full year financial guidance, which Jim will address shortly. With that, I'd like to turn the call over to Jim to discuss our third quarter numbers in greater detail. Jim?
Jim Heindlmeyer: Thank you, Golnar, and good morning, everyone. We're pleased to report another quarter of strong financial results, headlined by meaningful revenue growth in both of our business segments and our fifth consecutive quarter of double-digit adjusted EBITDA improvement. Our accomplishments in the quarter represent Reservoir's commitment to consistent growth on both top and bottom lines. Turning to our fiscal third quarter results. Revenue for the quarter was $35.5 million, which was a 19% increase versus the prior year quarter when including acquisitions. This was driven by growth in both business segments, highlighted by a 32% year-over-year increase in Recorded Music. Turning to our operating expenses for the quarter.
Our overall cost of revenue increased 13% versus the prior year quarter, driven by higher revenue for the quarter. Amortization and depreciation costs increased 14% year-over-year, driven by our continued catalog acquisitions. Company administration expenses increased 17% versus the prior year period, primarily due to higher compensation costs, increased marketing spend for Recorded Music and higher fees for artists and managers associated with the higher revenue in that segment. In the third quarter, OIBDA increased 27% year-over-year to $12.9 million. For those of you who are newer to our business model, OIBDA is a common non-GAAP KPI used in the music industry that stands for operating income before depreciation and amortization. Adjusted EBITDA increased 25% compared to the year to $13.7 million.
The increases in both OIBDA and adjusted EBITDA were driven by strong revenue growth or partially offset by higher administrative expenses. Interest expense was $5.4 million for the third quarter compared to $4.1 million in the same period last year. Net loss for the third quarter of fiscal 2024 was $2.9 million versus $4.1 million in the prior year quarter. This resulted in a net loss per share of $0.05. The decrease in net loss was driven by the higher revenue and improved gross margins, but was partially offset by a higher loss on the fair value of our interest rate swaps as well as higher administration expense, amortization expense and interest expense. Our weighted average diluted outstanding share count during the quarter was 64.8 million.
Let's turn to our performance by segment for the quarter, starting with Music Publishing. Music Publishing generated revenue of $23.1 million in the third quarter, an increase of 15% compared to the same period last year. This was driven by a 30% year-over-year gain in Digital revenue and a 9% improvement in Synchronization revenue, but was partially offset by a 3% decline in Performance revenue. In our Recorded Music segment, third quarter revenue was $10 million, representing an increase of 32% compared to the third quarter of fiscal 2023. All revenue types within our Recorded Music segment delivered double-digit percentage year-over-year increases, most notably led by Synchronization revenue, which increased 101% versus the prior year quarter.
Physical and Digital revenue increased by 51% and 26%, respectively, and Neighboring Rights revenue increased 16%. I want to highlight the notable sequential improvement in our Sync revenue for both segments. While we did see lumpiness in our performance due to the writer and actor strikes in calendar 2023, which caused delays in production schedules, we saw significant improvement in demand for our catalog within the advertising market. The current ad market is very promising. And although we have yet to work through the full impact of the strikes, we feel well positioned to capture synchronization growth opportunities across both our segments as production schedules return to normal. Now turning to our balance sheet. We closed the quarter with total available liquidity of $121.7 million comprised of $19.5 million of cash on hand and $102.2 million available under our revolver.
This gives us ample capital to continue to fund our strategic growth objectives. We ended the quarter with total debt of $342.5 million, which was net of $5.4 million of deferred financing costs, bringing net debt to $323 million. That compares to net debt of $296.6 million as of March 31, 2023. We've hedged nearly half of our debt at attractive interest rates, which reduced some of our exposure to higher interest rates in the calendar year. While more recently, interest rate increases have begun to level off, we expect our hedging strategy to continue to mitigate our interest expense in the 2024 calendar year. Finally, I'd like to touch on our outlook for the remainder of the 2024 fiscal year. We are raising our guidance for both revenue and adjusted EBITDA for the year to incorporate our strong third quarter results.
For revenue, we're raising our guidance from our prior range of $133 million to $137 million to a range of $140 million to $142 million. This represents 15% growth at the midpoint of our range. We now expect adjusted EBITDA for the year to be between $53 million and $55 million, which represents 16.5% year-over-year growth at the midpoint. Looking ahead, we remain focused on our strategy of prioritizing organic growth while making accretive acquisitions and will maintain a responsible capital deployment approach. We look forward to closing out the year within our updated guidance expectations for fiscal 2024. With that, I'll now pass the call back to Golnar for closing remarks.
Golnar Khosrowshahi: Thank you, Jim. As we look ahead, we remain committed to operating the business with rigor as we navigate a dynamic economic backdrop and as the music industry continues to grow. We are confident in our ability to achieve our financial targets, which have been raised and narrowed on both revenue and adjusted EBITDA. Our pipeline remains very active globally and across both business segments. With the support of consistent and predictable cash flows, we anticipate continuing to execute deals well within our expected return profile. With that, we will now open the line for questions.
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