New York-headquartered Reservoir Music is looking forward to a boost in its revenue from the recent price hike at Spotify, as well as the price hikes instituted over the past year by other streaming services.
On the company’s earnings call for Q1 of its 2024 fiscal year, Reservoir Chief Financial Officer Jim Heindlmeyer said he expects the company’s revenue to increase in proportion to the price hikes at the digital service providers (DSPs).
“We are certainly encouraged by the latest announcement from Spotify,” Heindlmeyer said on the call last Wednesday (August 2). “We had the price increase from Apple last year, Amazon earlier this year, and all of those price increases really will impact our revenue on a pretty linear basis.
“In other words, a 10% price increase at a streaming service will flow through to us at around a 10% rate to our pool of that money, and we are encouraged by that and looking forward to it starting to flow through our revenue in the coming months and quarters, with respect to Spotify.”
Spotify last month announced the first-ever price hike to its individual Premium subscription plan in the US, taking the monthly price from $9.99 to $10.99. The company also announced price hikes in more than 50 other markets.
Reservoir reported a 31% YoY increase in revenue for Q1 FY2024, which came in at USD $31.8 million. That was on the strength of a 37% YoY increase in revenue in its Recorded Music division, which brought in $10.4 million in the quarter, and a 26% YoY increase in revenues from Music Publishing, which came in at $20.8 million.
A significant part of the revenue jump came from the company’s continued acquisitions; stripping that out, revenue grew organically by 21% YoY in the quarter.
Among the company’s recent acquisitions were the rights to the catalogs of four of the original members of legendary R&B group The Spinners, as well as the catalog of Miami Sound Machine lead songwriter Kiki Garcia. Reservoir also acquired Tommy Boy Music (known for Coolio, Queen Latifah and De La Soul) last year in a $100-million deal.
According to a financial statement filed earlier this year, the company has spent over $695 million on catalog acquisitions to date.
The company clocked OIBDA (operating income before depreciation and amortization) of $9.2 million in its fiscal first quarter, a 38% YoY jump, while adjusted EBITDA came in at $10.1 million, up 36% YoY.
“We consistently see opportunities in the Middle East. We have a pretty healthy pipeline of deals to do there, and I don’t see that slowing down anytime soon.”
Golnar Khosrowshahi, Reservoir Media
Reservoir’s reported net debt also sparked some questions during the earnings call. Net debt stood at $313.5 million (defined as total debt, less cash and equivalents and deferred financing costs) at the end of Q1, up from $296.6 million at the end of the prior quarter. That debt is roughly six times the company’s projected EBITDA of $49 million to $52 million for FY2024.
Interest expenses jumped to $4.73 million in the quarter, up from $2.97 million in the same period a year earlier.
However, “almost half of our outstanding debt has a very attractive interest rate, which will limit our exposure to rising interest rates over the next year,” Heindlmeyer said.
Asked by Richard Baldry of Roth Capital Partners whether the recent pullback in lending among US banks was impacting the company’s outlook, Heindlmeyer said the company is “very comfortable” with its credit facility.
“We have very strong relationships with all of the banks in our syndicate,” he said. “The entire group has been very supportive of us, and we don’t have any reason to believe that won’t continue… We’re also in a very good position with respect to our current facility and availability that we have under that facility, even without any further expansion of it at this point.”
Heindlmeyer added that the company’s debt burden “may not be in an uncomfortable place for us to be, given the highly predictable cash flows we have in our business.”
Reservoir Founder and CEO Golnar Khosrowshahi noted that the company continues to be focused on further acquisitions.
“We consistently see opportunities in the Middle East. We have a pretty healthy pipeline of deals to do there, and I don’t see that slowing down anytime soon,” she said on the call.
During the company’s previous earnings call, Khosrowshahi declared that Reservoir’s intention is to become “the largest holder of Arabic music copyrights.”
On the latest call, she said Reservoir is still “a few quarters out, if not more” from seeing an impact to its earnings from the recent spate of acquisitions.
“But this is all investment based on anticipated future growth that really will mirror other emerging markets, as we have seen happen in the past,” she said.
Khosrowshahi reiterated that the company sees “about a $2 billion pipeline” in acquisitions, and that “we continue to see robust deals, and that’s a good position to be in.”Music Business Worldwide