Reservoir Media, Inc. Q2 FY2025 earnings call

• Signed significant deals with artists like Snoop Dogg, k.d. lang, and Jack Douglas, expanding the roster. • Acquired publishing rights to Billy Strange's catalog and welcomed new songwriters/producers such as Travis Heidelman and Kes Kamara. • Highlighted successful sync placements, e.g., Harry Belafonte's 'Day-O' and Bobby Pickett's 'Monster Mash' driving revenue growth. • Noted a strong pipeline with over $1 billion in transactions under consideration at attractive entry multiples.

Music Publishing segment experienced a 10% revenue increase to $28.6 million, accounting for approximately 70.3% of the total revenue. This growth was driven by catalog acquisitions and revenue from existing catalogs, including benefits from price increases at music streaming services. Recorded Music segment saw a 1% revenue decline to $10.7 million, making up around 26.3% of total revenue. The decline was mainly due to the prior-year release of De La Soul's catalog in physical and digital formats.

• Raised revenue guidance range from $148 million - $152 million to $150 million - $153 million. • Adjusted EBITDA guidance range was increased from $58 million - $61 million to $59 million - $62 million, reflecting confidence in continued growth.

• Forward-looking statements involve risks and uncertainties that could cause actual results to differ from expectations. • Risks related to market fluctuations in streaming revenue, sync placement performance, and changes in interest rates affecting financial instruments.

Q: Hi, good morning. Thanks for taking my question. 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 non-recurrence 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 Sync revenue? Just curious about the mix there and the outlook looking forward.

A: Yes. Hi, Griffin. On the margins, 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 we have some deals come in that are, where we've acquired writer share 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.

Q: Okay. Great. Makes sense. And then shifting to the pipeline outlook. You obviously discussed the several publishing deals you completed over the past 3 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 3 months?

A: Good morning, Griffin. I would say the pipeline is very strong, and given that we are now over halfway through the year, we have very good visibility into what that looks like as far as our plans for the rest of the fiscal year. It continues to be comprised of attractive opportunities 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.

Q: Thanks. Can you talk about some of the factors to win some of the sort of headline highly recognizable deals you did in the quarter like Snoop or k.d. lang? I think a lot of people assume that they'd end up with larger competitors. So sort of what do you think differentiated you in those? And how repeatable is that?

A: 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. It is a very high-touch person-to-person creative service team that we have focused on building and expanding because we believe that there continues to be value in those relationships. And the value is essentially as we are seeing here to have such high-quality talent join the roster. But that has been the focus of the creative team for years now and will continue to be so as we -- 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.

Q: Given some of the positives you're talking about international opportunities, 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? Sort of it seems a bit different than here. So just any overall view into that process and maybe how it differs from domestic?

A: 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, Egypt, Morocco. And that's how we source 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 three weeks during every calendar year in the region as well. And it's very much a relationship-driven deal sourcing mechanism, which is really not too dissimilar from what happens here, or I suppose, in non-emerging markets. The key point being, being on the ground and continuing to develop and nurture those relationships, which I would say, again, is a constant for us.

Q: 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 balance sheet P&L just so we know what to think about going forward?

A: Sure. So we obviously mark-to-market our swaps, and we had some very attractive swaps that were expiring as of September 30. So you saw the fair value of those swaps coming down to 0 at September 30 as they approach their maturity. Going forward, we continue to have $150 million hedged. You can see that detail in our filings. But I would expect 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 those -- that first batch of 3 swaps that expired September 30 with such favorable rates.

Q: There has 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?

A: Those price increases come to us pretty quickly. When prices go up, the streaming services account a month later, that cash gets to us 3 months after that. But we are -- 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. Some of the international markets are going to be more delayed 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.

Q: Your adjusted EBITDA set a pretty substantial new high. When you look at that and with your lenders, do you sort of accordion that access higher sort of on a steady-state basis? Do you wait to stair-step your availabilities sort of intermittently? Sort of just curious about the liquidity step-up that you'll get in tandem with that EBITDA step-up.

A: Well, remember, we have a revolver. It's a set facility. We do not have a leverage ratio in our revolver. So we have full access to our revolver as we need it. 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, we would be able to go to them to the extent that there was a need to. 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.

Q: Hey, guys. Thanks very much for taking my question. I think you had said part of the reason that Sync revenues were up 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 onetime 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 have been a source of strength there. Just curious what you are seeing in that area.

A: Yes. Just with respect to the strong performance in the quarter, we referenced timing because we don't always have control. 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. 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. And 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. Maybe in terms of the demand, and I'll turn it over to Golnar to address that.

Q: As far as the demand goes, I think that there's still -- not that I think that this is the feedback we're getting, 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 at the quarter and the licenses that were issued, the significant ones continue to be driven by advertising licenses and sprinkled in there with film and trailers. Trailers has always been a source of high-placement syncs for us. 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.