New York-headquartered Reservoir Media has raised its financial outlook after recording another quarter of double-digit revenue growth, despite some headwinds to the music rights company’s bottom line.
In an earnings release on Tuesday (November 7), Reservoir reported revenue of USD $38.4 million for its fiscal Q2 2024, which corresponds to the third calendar quarter of 2023, ended September 30.
That revenue figure represents a 15% increase in revenue compared to the same period a year earlier. Stripping out acquisitions over the past year, the company saw a 10% YoY increase in organic revenue.
Music publishing
Reservoir’s revenue from music publishing came in at $25.9 million, up 8% YoY, while recorded music revenue jumped 22% YoY to $10.8 million.
Within the music publishing segment, revenue from performance rights jumped a whopping 47% YoY to $6.5 million, while revenue from mechanical rights jumped 25% YoY to $1.3 million.
However, the largest revenue source in Reservoir’s music publishing portfolio, digital rights, declined by 4% YoY (see below) due to a $2.1 million boost, recorded in the year-earlier quarter, related to the Copyright Royalty Board’s affirmed royalty rates for the 2018-2022 period.
Recorded Music
Within the recorded music segment, digital revenues jumped 15% YoY to $7.3 million, while physical rights jumped 122% YoY to $1.9 million. That was slightly offset by a 12% YoY decline in synch rights, to $0.9 million.
Reservoir attributed the strength in recorded music to its Chrysalis Music and Tommy Boy labels, which saw strong digital and physical revenue growth.
However, that massive increase in physical revenue led to a decrease in the recorded music OIBDA margin, from 54% a year ago to 51% in the latest quarter, due to higher costs associated with physical revenues.
The company’s adjusted EBITDA came in at $15.9 million, a 24% YoY jump. OIBDA rose 3% YoY to $12.4 million.
However, Reservoir’s operating income fell 6% YoY, to $6.1 million, which the company attributes to higher administrative expenses, including a $2.7-million write-off of recoupable legal fees.
That legal write-off also contributed to a steep 85% YoY decline in Reservoir’s net income, from $4.5 million in the year-ago period, or $0.07 per common share, to just $0.7 million in the latest quarter, or $0.01 per share.]
Besides the write-off, the company also attributed the net income decline to higher amortization and interest expenses.
Despite the profit squeeze, founder and CEO Golnar Khosrowshahi said the company was “pleased with our results in the second quarter as we delivered double-digit revenue and profitability growth while investing in our business by closing numerous deals that diversified and expanded our roster of artists”.
Added Khosrowshahi: “We advanced our strategy of adding award-winning songwriters and prominent catalogs to our portfolio to capitalize on the continued strong secular tailwinds in the music industry.”
Among Reservoir’s acquisitions over the past year was a deal to acquire the catalogs of four original members of 1970s R&B group The Spinners. The company also acquired the catalog of Latin music hitmaker Rudy Perez, and struck a global publishing deal with Joe Walsh of Eagles fame.
The company also signed a deal with De La Soul that brought the hip-hop trio’s music to streaming services for the first time; bought the rights to the catalog of Miami Sound Machine co-founder and lead songwriter Enrique “Kiki” Garcia; and signed a publishing deal with Armani White, the rapper behind the TikTok hit Billie Eilish.
“We will continue to pursue acquisitions in the US and across the globe, and we have the right team and strategy to close accretive deals enhancing the portfolio and building long term value for the business and our shareholders.”
Golnar Khosrowshahi, Reservoir Media
Reservoir also acquired the entire publishing catalog and future works of rock legend Dion; purchased the publishing and recorded music rights of Grammy-winning hip-hop producer and artist Mannie Fresh; bought the catalog of jazz icon Sonny Rollins, and launched a joint venture with American Idol producer 19 Entertainment to sign publishing deals with Idol contestants.
“Reservoir remains well positioned to benefit from the growth of the music industry, and we are confident in our ability to effectively deploy capital given our strong market position in both the US and emerging markets,” Khosrowshahi said.
“We are encouraged by the growing opportunities internationally and welcome recent additions of El Sawareekh and RE Media expanding our presence in the emerging markets. We will continue to pursue acquisitions in the US and across the globe, and we have the right team and strategy to close accretive deals enhancing the portfolio and building long term value for the business and our shareholders.”
Reservoir Chief Financial Officer Jim Heindlmeyer added: “Our consistent progress against our strategic growth plan demonstrates the resilience of our business model and ongoing tailwinds from the growing music industry. As a result, we are raising both our revenue and Adjusted EBITDA guidance for fiscal 2024.”
For fiscal year 2024, which ends March 31, 2024, the company is now issuing guidance of $133 million-$137 million, which would represent a roughly 10% increase over the $122.3 million in revenue it clocked in fiscal 2023.
The company expects adjusted EBITDA to come in at $50 million-$52 million, also a roughly 10% increase over the $46.3 million it recorded in fiscal 2023.Music Business Worldwide
