Reservoir Media, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2023 (fiscal third quarter and year-to-date); filed February 7, 2024. Comparisons are with the corresponding 2022 periods. Reservoir is an independent music company with Music Publishing and Recorded Music segments, including rights to more than 150,000 compositions and more than 36,000 recordings.
Financial results
| Metric | Three months ended Dec. 31, 2023 | Nine months ended Dec. 31, 2023 |
|---|---|---|
| Revenue | $35.5 million, up 19% | $105.7 million, up 21% |
| Operating income | $6.5 million, up 42% | $15.8 million, up 27% |
| Net income (loss) attributable to Reservoir | $(3.0) million, versus $(4.4) million | $(2.2) million, versus $0.2 million income |
| Basic and diluted EPS | $(0.05), versus $(0.07) | $(0.03), versus approximately breakeven |
| OIBDA (non-GAAP) | $12.9 million, up 27%; 36% margin | $34.4 million, up 20%; 33% margin |
| Adjusted EBITDA (non-GAAP) | $13.7 million, up 25%; 39% margin | $39.7 million, up 27%; 38% margin |
| Cash provided by operating activities | Not provided for the quarter | $22.4 million, versus $26.2 million |
Revenue growth came from both segments: publishing revenue rose 15% for the quarter and year to date, while recorded music rose 32% and 30%, respectively. Digital growth reflected higher publishing royalty rates and streaming-service price increases. Recorded music also benefited from physical sales, notably De La Soul releases and release timing; synchronization revenue was affected by licensing timing and, year to date, Hollywood strikes.
Cost of revenue was 37% of revenue for the quarter and 39% year to date, compared with 39% and 41%. Recorded music physical sales boosted revenue but carried higher costs, contributing to lower recorded music OIBDA margin year to date (44% versus 48%). Administration expense rose 31% year to date, including a $2.7 million legal-fee write-off. Interest expense increased 50% year to date to $15.9 million, primarily from higher debt balances and SOFR, and included $0.6 million related to settlement of a royalty dispute.
Cash, debt and liquidity
- At December 31, 2023, cash and cash equivalents were $19.5 million. Current assets were $70.6 million and current liabilities were $56.2 million.
- Secured credit-facility borrowings were $347.8 million gross and $342.5 million net of unamortized financing costs. Remaining availability under the $450 million facility was $102.2 million. Facility maturity is December 2027.
- Year-to-date investing cash outflow was $47.2 million, including $46.8 million of music-catalog purchases; financing cash inflow was $29.6 million. Cash increased $4.6 million from March 31, 2023.
- The company reported compliance with its 1.10:1.00 minimum fixed-charge coverage covenant and 0.45:1.00 maximum senior debt-to-library-value covenant at quarter end. Debt is secured by substantially all relevant tangible and intangible assets. No dividends were paid; credit-facility covenants restrict dividends.
Outlook, risks and unusual items
- Management said available cash, operating cash flows and facility availability should support operations, debt service, working capital and capital needs for at least the next 12 months. It provided no specific revenue or earnings guidance.
- Management expects to pursue opportunistic maturity extensions and interest-cost reductions, subject to market conditions. It also noted exposure to interest rates, foreign exchange, music piracy, shifts from physical to digital formats, and broader economic and industry conditions.
- Interest-rate swap fair-value losses were $4.2 million for the quarter and $1.8 million year to date; these mark-to-market changes affected reported earnings. A $1.0 million equity-investment impairment was recorded year to date.
- A royalty dispute dating to 2017 was settled in October 2023. Reservoir paid accrued royalties and interest and relinquished recovery of historical legal fees, recording approximately $2.7 million of administration expense and $0.6 million of interest expense.
- Disclosure controls and procedures were deemed ineffective at December 31, 2023 because of previously reported material weaknesses in internal control over financial reporting. Remediation—including additional accounting personnel, process improvements and control testing—was ongoing; management nevertheless stated the interim financial statements were fairly stated in all material respects.
- The company reported no material change in risk factors, no off-balance-sheet arrangements, and no legal proceedings believed likely to have a material adverse effect. Results for the interim periods are not necessarily indicative of future periods.
Most important facts for investors to verify
- Whether revenue and segment growth—especially streaming and physical-sales contributions—continues, and how catalog acquisitions affect amortization and returns.
- Debt and interest-cost trends, swap performance, covenant headroom, and the availability and terms of future refinancing.
- Cash conversion: operating cash flow declined despite higher revenue, while catalog purchases continued to exceed operating cash flow.
- Progress and testing results for remediation of the material weaknesses, given the ineffective disclosure controls conclusion.
- Non-GAAP OIBDA and Adjusted EBITDA reconciliations and adjustments, including legal costs, swap marks and investment impairment; these measures are not substitutes for GAAP earnings or cash flow.