Reservoir Media Inc (RSVR) 2026 Q3 法說會逐字稿

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 year 2026 ended December 31, 2025, 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 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 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 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 laws. 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 US GAAP if we believe they are useful to investors of 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.

Thank you, Jackie. Good morning, everyone, and thank you for joining us today. We continue to execute our strategy in the third fiscal quarter with a sustained focus on deepening relationships with our top tier talent through new ventures, investing in the next generation of hit makers, and expanding our presence in emerging markets.

Organic growth was up 5% year over year, underscoring the strength and demand for our catalogue Music Publishing Revenue grew another 12% while recorded music revenue for the quarter was up 8% compared to the year ago period. Both Music Publishing and Recorded Music's revenue growth were driven by acquisitions, an increase in digital revenue, and continued growth of music streaming services.

Before reviewing our operational highlights, I want to congratulate the nominees and winners of music's highest honor, the Grammys, held on Sunday in Los Angeles.

Our roster contributed to 10 wins across multiple genres. Khris Riddick Tynes collaboration, Folded by Kehlani, won Best R&B Song and Best R&B Performance. Sarah Jarosz and her group I'm With Her took home Best Folk Album for Wild and Clear and Blue, and Best American Roots Song for Ancient Light. Joni Mitchell received the Best Historical Album Grammy, and Miles Davis' Miles '55: The Prestige Recordings won Best Album Notes.

Our songwriters Michael League, Steph Jones, Roberto Agosta, Mike Chapman, Simon Pilton, and Gian Marco also contributed to wins for Best Alternative Jazz Album, Best Contemporary Country Album, Best Dance Electronic Album, and Best Tropical Latin Album. Congratulations to all on a memorable night and an extraordinary year in music.

Turning to the quarter's highlights, Reservoir's portfolio is distinguished by its diversification, spanning iconic catalogue and genre-defining artists alongside new and emerging creators across global markets. This quarter reflected that balance. We announced the acquisition of the publishing and recorded music rights of yacht rock icon, Bertie Higgins, adding evergreen hits, including Key Largo, to our portfolio.

As noted last quarter, Reservoir acquired the Miles Davis catalogue in September. This January marks the official launch of his centennial year, and we are working closely with the estate and partners to honor his legacy through a global celebration with key integrated moments all year long, including the feature of Miles Davis' Blue in Green, as well as his artwork in a recent ad campaign for Lexus; the debut of celebratory centennial logos; numerous planned releases across the various label partners; a co-branded Miles Davis Centennial cigar from premium cigar and accessories company Ferio Tego; a deal between the estate's official global merchandizing and brand licensing partner Periscope and premium men's retailer John Varvatos; a centennial edition of Miles, the autobiography, several live performances, and festival appearances, and more.

This quarter was also marked by new partnerships with two music icons, R&B legend Gladys Knight and Hip-Hop Icon T.I. The agreement with Gladys Knight includes rights to her income streams across both publishing and master recording catalogue. The deal with T.I. will see Reservoir work with the acclaimed rap superstar across his entire publishing back catalogue and future works, as well as select recorded music interests including master recordings, artist royalties, and neighboring rights.

These agreements mark our [three team's] proven ability to structure and execute unique flexible deals with legendary talent and further build our portfolio of evergreen hits that are accretive to the portfolio as a whole. Alongside partnerships with established and legacy talent, investing in the next generation of hit makers remains central to our growth strategy. We welcomed critically acclaimed band Say She She with a global publishing deal covering past and future works. This female-led band is redefining discodelic soul and recently kicked off a North American tour.

We also added Allison Veltz Cruz, an in-demand songwriter in the popular country pop space with number one hits and credits for artists including Matt Stell, Tenille Arts, Jason Aldean, Luke Combs, and Lady A. Also joining the roster this quarter is Britten Newbill, whose pop and R&B songwriting and producing credits include hits by Cat Burns, Olivia Dean, Daya, Meghan Trainor, and more.

We also continue to invest in high growth emerging markets. We extended our publishing agreement with multi-platinum Indian hip hop artist Divine, now overseen through Reservoir's recently launched subsidiary PopIndia. Originally signed in 2020, this partnership, including our joint venture with DIVINE's umbrella company Gully Gang Entertainment, has helped cultivate new talent across India's hip hop ecosystem, and we are excited to continue supporting the genre's global growth.

Additionally, we entered into a joint venture with dance hall publisher Abood Music and Jamaican star, Cordel Skatta Burrell. Skatta's hit record Coolie Dance Rhythm exemplifies how enduring works can reach new audiences through inventive sampling. With uses in global hits by Pitbull, Lil Jon, Whitney Houston, Fatman Scoop, Nina Sky, 2025 Grammy nominated gold-selling global hit After Hours by Kehlani, and more, Coolie Dance reinforces the long-term value of culturally significant music.

Through the joint venture, Reservoir and Abood Music will acquire catalogue and sign and develop Jamaican creators aimed at further advancing the new generation of Jamaica's music scene.

Our emerging market strategy remains highly impactful with favorable acquisition multiples and streaming growth rates that continue to outpace both the US and Europe. Our performance this quarter is taking place against the backdrop of sustained growth in the global music economy.

As reported by music economist Will Page in December, the global value of music copyright reached an all-time high of $47.2 billion for the year prior. Streaming services continue to follow a relatively regular cadence of price increases which serve as additional tailwinds for general industry growth. We believe our focus on premium assets, long-term creator partnerships, and emerging markets positions us well to drive growth and maximize value creation for our songwriters, our artists, and shareholders over time.

I will now turn the call over to Jim to discuss our fiscal third-quarter financial performance. Jim.

Thank you, Golnar, and good morning, everyone. Our third-quarter results demonstrated another quarter of financial strength stemming from our ability to acquire quality catalogues and maintain substantial operating leverage. Our confidence to raise our fiscal 2026 guidance as we head into our fourth fiscal quarter is supported by our impressive roster of talent, and we are excited to continue to build upon a successful first three quarters of fiscal 2026.

Revenue for the third fiscal quarter was $45.6 million, a 5% year-over-year improvement on an organic basis and an 8% increase when including acquisitions. At a segment level, we posted a 12% increase in music publishing revenue and an 8% increase in recorded music revenue, both of which were largely driven by an increase in digital revenue due to the acquisition of additional music catalogues and continued growth at music streaming services.

Total cost increased 8% compared to the prior year's quarter due to a 3% increase in administration expenses, a 7% increase in cost of revenue, and a 16% increase in amortization and depreciation expenses. This led to an expansion of operating margins given our 8% revenue growth.

Turning to operating performance for the third fiscal quarter, OIBDA was $18.1 million, an increase of 11% year over year, and adjusted EBITDA was also up 11% year over year to $19.2 million. Both OIBDA and adjusted EBITDA benefited from revenue growth but was slightly offset by an increase in administrative expenses.

Interest expense was $6.6 million for the quarter, an increase of $800,000 from the prior year due to an increase in borrowings to support our M&A strategy, which was partially offset by a decrease in interest rates.

Net income for the third fiscal quarter was approximately $2.2 million compared to net income of $5.3 million in the third fiscal quarter of the prior year. The decrease in net income was primarily driven by a loss on fair value of swaps compared to a gain in the prior year period, as well as increased interest expense and a change in other income. This was all partially offset by an increase in operating income and a decrease in income tax expense. Earnings per share for the quarter were $0.03 compared to $0.08 in the year ago quarter. Our weighted average diluted outstanding share count during the quarter was $66 million.

Diving into our segment review for the quarter, Music Publishing Revenue increased 12% year over year to $30.1 million. This was mainly due to an increase in performance revenue driven by the strong results from hit songs and an increase in digital revenue due to the acquisition of additional catalogues and continued growth of music streaming services.

In our Recorded Music segment, revenue increased by 8% year over year to $12.9 million. Recorded Music revenue benefited from digital revenue growth driven by continued music streaming growth and the acquisition of catalogues and an increase in neighboring rights revenue. This growth was partially offset by a decrease in synchronization revenue due to the timing of licenses.

Now let's turn to our balance sheet. As of December 31, 2025, cash flows from operating activities increased by $5.1 million year over year to $38.2 million owing to an increase in OIBDA and cash provided by working capital.

We had total liquidity of $114.8 million consisting of $20.6 million of cash on hand and $94.2 million available under our revolver. We ended the quarter with total debt of $452.3 million which was net of $3.6 million of deferred financing costs, and thus we maintained $431.7 million of net debt. That compares to net debt of $366.7 million as of March 31, 2025.

With respect to our guidance range, we are increasing our full-year revenue guidance range of $167 million to $170 million to now reflect $170 million to $173 million, which at the midpoint implies growth of 8% versus fiscal 2025. Similarly, we're raising our adjusted EBITDA guidance range of $70 million to $72 million to now be $71.5 million to $73.5 million, which signals growth of more than 10% over the prior year at the midpoint of the range.

Looking at the fourth fiscal quarter of the year, we believe we are well positioned to achieve our increased full fiscal year guidance ranges. Remaining true to our proven capital deployment strategy continues to position Reservoir to provide long-term value as a partner of choice for worldwide talent, which, combined with our ability to grow the top line without an excess of additional cost, should allow us to continue our track record of growth in the coming quarter and fiscal year 2027.

With that, I'll now pass the call back to Golnar.

Thank you, Jim. As you've heard today, we continue to make progress toward our top-line goals while maintaining discipline across costs and the balance sheet. Reservoir remains a trusted partner for songwriters and artists around the globe, with a commitment to our creators and value enhancement. Our pipeline is strong and diversified with landmark transactions at attractive returns. We look forward to closing out the fiscal year in the coming weeks.

With that, we will now open the line for questions.

(Operator Instructions) Griffin Boss, B. Riley Securities.

So first off, given the step up in debt, I would say it appears to be another robust quarter for catalogue acquisition, and you mentioned several of the deals that occurred. Is there anything you could say about how the fourth quarter is shaping up for deal activity? Do you expect it to stay at what has been in an elevated clip the past two quarters?

Good morning, Griffin. Yes, we do. We are on track with continued M&A for this quarter and obviously things are subject to timing and timing shifts, but we anticipate to be continuing at the same [clip].

Okay, great. And Golnar, you did mention in your prepared remarks favorable acquisition multiple. So I guess the question is it safe to say that you're not seeing any material change generally to the weighted average multiples that you've paid historically?

That's correct, we are not.

Okay, great. And then, just last one for me and I'll pass it off. I'm just curious if there's anything that you'd like to say or comment on regarding the activist investors amended 13D filing last night. I think you've been engaged with that specific shareholder for quite a while now, so just curious if there's anything that you wanted to share about the nature of those discussions.

No, I don't have anything to add. I don't have any information to share. We're very much focused on continuing to grow the business and delivering value for all of our constituents.

(Operator Instructions) Richard Baldry, Roth Capital.

The fourth quarter implied revenues looks like down a little bit sequentially seasonally, and that is what happened last year, but I feel like third quarter had an unusually high other income line. And in prior years, fourth quarter has typically been seasonally pretty strong. Are there any callouts on unusual one-time events this time around, or do you think just typical conservatism?

Yeah. Hi, Rich. Last year, we did call out royalty recoveries related to an audit that we completed. There are actually two audits we completed last year, one in Q3, one in Q4. So those certainly impact the numbers last year. There's nothing unusual that we are expecting in Q4 this year, but we'll have that dynamic with respect to the comps year over year.

Okay. And the G&A number last quarter had been up pretty meaningfully year over year. This quarter it's almost flat year over year. How do we think about the trending on that and how to look at it on a go-forward basis?

Well, I think some of those ups and downs [and] G&A is driven by the small other segment that we have related to our management business, where, as that revenue goes up or down, the commissions that we pay to the actual managers is impacted and that sits in our G&A line. So that's driving some of those ups and downs that you see, but I think that what you're looking at for this quarter is -- and certainly when you look at it on a segment level it's really where we expect to be. We have normal inflationary pressures on our G&A, but other than that there's nothing that stands out there.

And then last thing would be if you look at the ROIs on deals and the pricing, is there a meaningful difference between international versus domestic? Will that sort of skew where you're looking for deals in the future? How do we think about those sorts of growth trends?

It's not a secret that we can acquire at more favorable multiples in the emerging markets or at least in some of the emerging markets. I wouldn't necessarily put Latin in that same category, given that that pricing is pretty mature and on par with Western markets. So from that point, I would say that given the expansion and the growth that is occurring and projected to continue in those emerging markets, we're looking at some equally more favorable returns on those investments as well.

Got it. And then maybe last one. From a very macro level, when you think about price increase at streamers and royalty rates agreements at the highest level, are there any tailwinds, headwinds we should be thinking about as we look out to '27? Thanks.

I think there's a bit of both. I think we have uncertainty around CRB and that process is underway. Obviously, that's not a process that is new to us, and we've gone through that before. We have tailwinds insofar as subscription number increases, tailwinds insofar as just the emerging markets expansion, people coming online, price increases across streaming platforms. So I would say there's a bit of both, but we continue to believe that on a net basis there are -- we are looking at tailwinds and continued growth in music.

We've reached the end of our question-and-answer session as there are no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Thank you, operator. We appreciate your support and interest in Reservoir, and we look forward to sharing our full fiscal year results with you later this spring. Thank you.