Reservoir Media, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended March 31, 2022. This is an annual filing, not a report for calendar 2021 Q4. Reservoir is an independent music company with Music Publishing and Recorded Music segments; the year includes its July 2021 public-company business combination and June 2021 Tommy Boy acquisition.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $107.8 million | $80.2 million |
| Operating income | $19.4 million | $18.3 million |
| Net income attributable to Reservoir | $13.1 million | $9.3 million |
| Diluted EPS | $0.22 | $0.21 |
| OIBDA (non-GAAP) | $38.4 million; 36% margin | $32.4 million; 40% margin |
| Adjusted EBITDA (non-GAAP) | $41.3 million | $31.9 million |
| Cash provided by operating activities | $12.5 million | $14.7 million |
Revenue grew 34%. Music Publishing contributed $77.1 million (71% of revenue), up 17%; Recorded Music contributed $29.5 million (27%), up 126%. Total cost of revenue was 41% of revenue in both years. Administration expense rose to 23% of revenue from 19%; management attributed the increase in part to public-company costs, share-based compensation and Tommy Boy-related platform costs. OIBDA margin declined despite higher OIBDA.
Cash used in investing was $196.8 million, primarily for music catalog acquisitions, including Tommy Boy; cash provided by financing was $196.5 million, reflecting business-combination/PIPE proceeds and borrowing. At March 31, 2022, cash was $17.8 million and borrowings under the senior credit facility were $275.6 million gross ($269.9 million net of deferred financing costs). The $350 million facility had $74.4 million of remaining availability and matures October 2024. The company reported a 5.7x leverage ratio against a maximum of 7.5x and stated it was in compliance with its financial covenants. Management said available cash, operating cash flows and facility availability should fund needs for at least the next 12 months.
Material changes and drivers
- Tommy Boy, acquired for approximately $100 million in June 2021, contributed $10.8 million of FY2022 Recorded Music revenue. Recorded Music growth also reflected streaming, physical and neighboring-rights revenue, plus a recovery in film and television synchronization activity.
- Publishing revenue growth reflected catalog acquisitions and existing-catalog performance, digital and synchronization activity, and Middle East rights-management revenue. Performance revenue declined 5%.
- Revenue increased 34% year over year, while operating income rose 6%; OIBDA increased 18%. Increased administration and acquisition-related costs weighed on margins.
- Operating cash flow fell 15%, chiefly because of increased working-capital use, particularly royalty advances. Royalty advances made during the year were $28.0 million, versus $14.5 million in FY2021.
- Interest expense increased 21% to $10.9 million as debt balances rose, partly offset by lower rates and refinancing effects. A $8.6 million non-cash gain on interest-rate swaps and a $0.3 million foreign-exchange gain contributed to reported net income.
Outlook, risks and unusual items
The filing gives no specific revenue, earnings or cash-flow guidance. Management described continued catalog acquisitions, songwriter and artist development, and expansion into digital licensing and emerging markets as strategic priorities. It cited streaming and other new music-access channels as industry growth drivers, but cautioned that actual results depend on market conditions and execution.
- Internal controls: Management concluded disclosure controls were not effective at year-end due to material weaknesses involving segregation of duties and qualified accounting personnel, and risk assessment/control design. Prior-period catalog-acquisition accounting errors were corrected; management characterized them as immaterial to previously reported statements. The auditor gave an unqualified opinion on the financial statements but did not express an opinion on internal-control effectiveness.
- COVID-19: The filing describes continuing uncertainty and potential effects on performance, synchronization, releases, physical products, collections and cash flows.
- Debt and rates: Variable-rate borrowings, covenant requirements, refinancing needs and the transition away from LIBOR create financing risks. Interest-rate swaps partly mitigate rate exposure.
- Business risks: Competition for artists and catalogs, reliance on a limited number of digital services, royalty-rate regulation, piracy, intellectual-property claims, cybersecurity, foreign exchange and acquisition integration could affect results.
- Legal matter: A copyright-catalog lien dispute was settled and dismissed with prejudice in January 2022; the company and its subsidiary did not pay the settlement. The company said other ordinary-course claims were not expected to have a material adverse effect, while noting outcomes are uncertain.
- Other items: In April 2022, the company signed a 130-month headquarters lease with an estimated $8.4 million commitment. No dividends were paid, and the company does not anticipate cash dividends in the foreseeable future.
Investor verification priorities
- Track remediation of the disclosed internal-control material weaknesses and review any subsequent restatements or control findings.
- Assess whether acquisition-led revenue growth translates into sustained operating income, OIBDA margin and operating cash flow after advances and integration costs.
- Verify debt paydown, interest costs, covenant headroom and refinancing plans ahead of the October 2024 facility maturity.
- Monitor catalog acquisition returns, Tommy Boy performance and any new acquisition commitments or related-party transactions.
- Review the treatment of the prior-period accounting corrections and the impact of royalty-rate decisions, digital-service terms and ongoing COVID-related uncertainty.