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spk10: Good morning, everyone, and thank you for participating in today's conference call to discuss Reservoir Media's financial results for the third quarter of fiscal year 2023, ended December 31st, 2022. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I now turn the call over to Ms. Jackie Marcus with the Alpha IR Group who will review our agenda today and the company's forward-looking statements. Jackie?
spk13: Thank you, Operator. 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 2023, ended December 31st, 2022, 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 Kozroshahi, founder and chief executive officer, and Jim Heindelmeyer, 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 Gulnar 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. 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 law. 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 U.S. GAAP if we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trend. 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 Gulnar. Gulnar?
spk17: Thank you, Jackie. Good morning, everyone, and thank you for joining us today. Through the first three quarters of the fiscal year, we are very pleased with the performance of our business as we continue to report strong growth numbers fueled by healthy organic growth. as well as the continued execution of deals across musical genres. Since we last spoke in November, we've had some exciting developments at Reservoir, such as announcing that Della Soul's highly anticipated renowned back catalog is officially coming to streaming platforms globally for the first time ever on March 3rd, with two singles already released in January and February, and expanding our roster and presence in the Middle East and India. These examples really underscore the breadth and scope of our business and the kinds of value-building opportunities we are uniquely positioned to pursue as we grow. I want to take a moment to acknowledge our roster of songwriters, artists, and partners whose talent was on full display at the Grammy Awards this past Sunday, where our roster contributed to an impressive 30 nominations, including record, song, and album of the year, taking home seven awards, including Best Contemporary Instrumental Album for Snarky Puppy's Empire Central, Best Immersive Audio Album for Stuart Copeland and Ricky Kedge's Divine Tides, and Best Rock Album for Ozzy Osbourne's Patient No. 9, featuring 11 co-writes by Reservoir songwriter Ali Tamposi. We could not be prouder of these tremendous talents. For the third quarter, on the financial side, we delivered top-line growth of 16%, of which 7% was organic. As a result of the improvement to the top line, we enhanced our margin profile as both OIBDA and adjusted EBITDA margins expanded versus the prior year. On balance, we did experience some pressures on net income as a result of one-time non-cash tax and debt extinguishment charges which Jim will discuss as part of his deeper financial discussion. We are also raising guidance for the second consecutive quarter, reflecting the strength and momentum of our business as we close out our fiscal year. Before turning to that, I'd like to take a few minutes to discuss what trends we're seeing in the music industry and how we are poised to benefit from these opportunities. It is without question that music is an integral part of our daily lives, With the historic growth from digital consumption and record-setting revenues from live performance, our team is hard at work ensuring our artists' and creators' work is licensed and monetized across all mediums. Our unique value enhancement offerings allow us to attract some of the world's most prolific and iconic artists, which ultimately improves the durability of our business. As I mentioned on our last call, we have been closely following the recent Copyright Royalty Board, or CRB4, settlement. The CRB officially accepted the proposed settlement on December 30th, 2022. While the CRB4 settlement occurred in August of 2022, this official acceptance puts a stamp on the negotiation and legal process between the parties. This marks a critical moment for the music industry, with the headline digital streaming royalty rate increasing to 15.15% for 2023 and incrementally increasing to 15.35% through 2027, which will be the highest royalty rate in history. We commend all parties involved with special thanks to the NMPA and their CEO, David Israelite, for leading the charge and making this possible. The official acceptance of the rate increase is a testament to the progressive work being done within the industry to ensure fair compensation for songwriters and publishers. Turning to our business, our team has been busy adding award-winning creators across genres to our portfolio. I'd like to walk you through some of the notable additions this quarter. As I mentioned, we couldn't be more excited to be bringing the legendary Grammy-winning hip-hop trio Della Soul's back catalog to streaming platforms everywhere starting March 3rd. The first two singles, The Magic Number and I Know, were released in January and February this year respectively, distributed by Reservoir-owned Chrysalis Records. We are honored to partner with Della Soul on this long-awaited release and are looking forward to consumers having ease of access to their music through streaming services, as well as cultivating a whole new audience of De La Soul listeners. We also signed a new publishing deal for all future works with award-winning songwriter and producer Leroy Clampett. Leroy has been part of many successful projects, including co-writing Justin Bieber's hit song, Company. He is one of the most in-demand pop writer producers, and we are delighted to be his publishing home. We are also thrilled that Rock and Roll, and Grammy Hall of Fame inductee Dion signed a new publishing deal with Reservoir for his entire catalog, as well as all future works. Dion has been topping the charts for decades with hits such as Run Around Sue, The Wanderer, and Ruby Baby. Dion is a rock and roll pioneer, and we are honored to work with him. On the international front, Maltese rock band Red Electric joined the roster this quarter, Recognized as one of Malta's biggest bands, securing three number one singles in 2022, they are primed to now take their music to the wider world. We also expanded our roster and presence in India with the acquisition of the publishing catalogs and future works for Indian rappers MCL Top and D'Evil, along with producer Suna Beats. These signings built upon our established partnership with Indian rap superstar Divine Scully Gang. We look forward to further growing and partnering with these artists across the globe. We continue to be highly active and forward-looking as we invest time and resources into growing and diversifying our roster of artists. Our pipeline is robust at nearly $2.3 billion in total value for prospective deals. Over the years, we have implemented a rigorous process for analyzing transactions and we will continue to take a disciplined approach to assessing opportunities in the market to ensure that the capital that we deploy meets our internal requirements for ROI and is accretive to our margin profile. With that, I'd like to turn the call over to Jim to discuss our financial results for the quarter in greater detail.
spk11: Thank you, Gulmar, and good morning, everyone. Our third fiscal quarter financial results demonstrate the durability of our business model as we achieved double-digit top-line growth for the sixth consecutive quarter since becoming public, despite facing broader economic headwinds. We were particularly pleased with our organic growth this quarter, as our team continues to find opportunities to extract value from the marketplace to better serve our roster of artists. As Omar mentioned, our margin profile improved during the quarter, as we expanded both AWBDA and adjusted EBITDA on an absolute dollar basis, as well as on a margin basis. While we're happy with our continued strength in the top line and operating margins, we did experience pressure on the bottom line due to elevated costs during the quarter, which I'll walk through momentarily. As it relates to business development activity, we executed on many deals during the quarter, some of which Golnar touched on in her remarks that further diversify and insulate our portfolio. Now turning to our financials. In the third fiscal quarter, we recorded $29.9 million in revenues. which represented a 16% increase from the third quarter of fiscal 2022, inclusive of acquisitions. Of the 16% top line growth, 7% of that was organic. The primary driver of the revenue increase year over year was our music publishing segment. While it's a smaller portion of our revenue segmentation, I'd also like to note that our management business saw significant increase during the quarter, which was primarily due to strong touring and merchandise revenue with a resurgence in live performances versus the same period last year. Looking at operating expenses, our overall cost of revenue increased 3% from the third quarter of fiscal 2022. Additionally, our depreciation and amortization costs increased year over year due to our continued catalog acquisitions. Company administration expenses increased by 19% from the prior year, mainly driven by increases in administrative expenses related to our growing management business and to a lesser extent, increases in the music publishing segment. Despite elevated operating costs in the period, we were able to report significant growth for both AWBDA and adjusted EBITDA. For the third quarter, AWBDA increased 33% to $10.1 million, while adjusted EBITDA grew 24% to $10.9 million, both compared to the third fiscal quarter of 2022. As we said before, the inherent operating leverage is built into our business and is further demonstrated by the fact that revenues have generally outpaced operating costs during our time as a public company, and we expect this to continue over the long term. Our interest expense was approximately $4.1 million for the quarter, compared to $2.5 million in the same period last year. The increase was a result of higher debt related to acquiring assets and an increase in LIBOR. Net loss for the third quarter of fiscal 2023 came in at $4.1 million, This resulted in diluted loss per share for the quarter of $0.07 compared to earnings of $0.02 per share for the third quarter of fiscal 2022. The loss during the quarter was primarily due to a one-time non-cash loss on early extinguishment of debt related to our amended credit facility. We also had a one-time non-cash tax expense related to the estimated impact on deferred tax liabilities due to the higher UK tax rate that will become effective in April 2023. Lastly, our weighted average diluted outstanding share count is $64.4 million. Turning to our segment breakdown for the quarter, let's look at music publishing first. Music publishing generated revenue of $20.2 million in the third fiscal quarter, which was a 14% improvement from this time last year, and was largely driven by our digital, performance, and sync revenue streams. Within the segment, digital revenue grew 29% year-over-year to 10.7 million and represented more than half of the music publishing revenue in the quarter. Performance and sync revenue streams recorded 28% and 51% top-line growth, respectively. The increase in music publishing revenue was partially offset by declines in other music publishing revenue because the same period last year included revenues attributed to the Dubai Expo event. Our recorded music segment moderately grew by 1% during the quarter to $7.6 million, with improvement from digital and neighboring rights revenues, which grew 17% and 43%, respectively. Strong performance in digital revenue came from our recent acquisitions of recorded music catalogs and a growing demand for streaming services. For context on the quarter, the declines in physical and sync revenues, which are more susceptible to quarter-over-quarter fluctuations, nearly offset the growth in digital and neighboring rights. Before diving into the balance sheet, I'd like to highlight that in December, we amended our credit agreement, which expanded our facility and favorably modified the terms of the agreement. This shows the strong relationships that we have with our banking partners and the value of our predictable and recurring revenue streams. Let's move now to the balance sheet. At quarter end, our credit facility was at roughly $298.8 million. close the quarter with total liquidity of $168.2 million comprised of $17 million of cash on hand and $151.2 million available under our revolver, which gives us the capital to fund our strategic objectives. In terms of total debt, we ended the quarter at $292.2 million, which was net of $6.7 million of deferred financing costs, and thus we maintain $275.2 million of net debt That compares to net debt of 252 million as of March 31, 2022. Lastly, I'd like to reiterate that over half of our outstanding debt is hedged at a very attractive interest rate, which has, and will in the future, limit our exposure to rising interest rates in the coming year. Moving to our outlook for fiscal 2023, we are increasing our revenue guidance range to 120 to 122 million and our adjusted EBITDA guidance range to 46 million to 47 million for the full fiscal year. This represents growth of 12% on revenue and 13% on adjusted EBITDA at the midpoint for both guidance metrics versus fiscal 2022. Before I close, I'd like to take a minute to talk through the timing of payments and the effect that has on quarterly revenue. As discussed on previous calls, many of our larger international revenue streams pay on a semiannual basis in the quarters ending September and March. As a result, our second and fourth quarters have historically been higher than the first and third quarters, with Q4 typically being our highest revenue-producing quarter. Over the past 18 months, we have been working to improve the accrual process for these semiannual sources, and we've made great progress in this area. Going forward, we expect the quarters to have less significant volatility related to the timing of payments but we may have softer quarterly comps in Q4. Having said that, our strong growth remains clear in our fiscal year over year numbers. As we enter the last quarter of fiscal 2023, we're pleased with our progress and excited about the future for reservoir and remain focused on achieving our strategic objectives. We will continue to evaluate potential acquisitions to expand our portfolio of assets, which is considered in our full year guidance. As shown this quarter, We have a durable business that is growing steadily on the top line and margins are improving. We feel that we are in a healthy position with our capital structure with the newly amended and extended credit facility, and we remain optimistic for what the future holds. With that, I'll now pass the call back to Goma.
spk17: Thank you, Jim. As we head into the fourth quarter, we are encouraged by what we have seen from our business thus far. While the macroeconomic landscape has presented some challenges, We have stayed disciplined and focused on our operations and strategic goals, which allows us to effectively navigate through times of uncertainty. We will continue to benefit from the overall momentum in and evolution of the music industry and build out our roster through selectively deploying capital for deals that strategically fit our business model. In closing, we are approaching the last quarter of the fiscal year with confidence as we are well positioned to finish the year strong and continue to achieve our financial targets. With that, we will now open the line for questions.
spk10: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
spk05: Our first question comes from Richard Baldry from Ross.
spk10: Your line is open.
spk08: Thanks, and congrats on the quarter.
spk07: I'm curious if you could talk about how the rising interest rate environment has impacted either the deal pipeline overall or the competitive landscape where you look at that deal pipeline. So I'm curious if private equities are changing how they're reacting in the space most particularly. Thanks.
spk17: Hi, Rich, how are you?
spk07: Good.
spk17: So as far as the first part goes, the pipeline remains robust. I believe that we reported on a pipeline of 2.1 billion last quarter, and right now we have a pipeline of about 2.3. So we're not really seeing any change there. We're also seeing deals of significant size. close, and most recently being the Justin Bieber catalog. Any contraction on pricing evidence is anecdotal, and we don't have sort of consistent data on that front, although one's got to believe that the cost of capital will declare some type of contraction there, and certainly we be patient with that. But I would say today there remains to be significant capital in this industry, significant interest, and several players who continue to be acquisitive.
spk07: Thanks. Can you talk a little bit about maybe just generally the factors you think that contribute to the De La Soul partnership? It seems like that would be one where you'd be going up against people with pretty meaningfully larger resources to win. So why do you think that came your direction?
spk17: So that came about as a result of the Tommy Boy acquisition, which was completed about 18 months ago. And that was a part of that catalog. And we always had the intention of... achieving this goal of bringing their music to streaming platforms, and we had worked on that for about a year and a half. So happy to be here.
spk07: Right. Then, just from a broad perspective, with the settlements achieved with the CRBs, when do you think that starts to flow into the P&L? I don't think it hits all at once. I think it sort of flows in over a period of time. You're talking about sort of the impact you see on that. Thanks.
spk11: Yeah, hi, Rich. So on the CRB, there's really two components, right? So we talked last quarter about the impact of the CRB3 rates. And remember, those are the rates that are applicable to 2018 to 2022. And we made an accrual for the estimated impact of those increasing rates. We expect that that piece will be settled sometime next summer. The DSBs have six months from the time that those rates are published in the Federal Register to do their calculations of the retroactive true-ups. And we expect that that will hit, like I said, next summer. And we will adjust our estimates once we have real clarity around those final figures. Then we move to the CRB4 settlement. And as Goldmar mentioned, we were very pleased that people came together and the CRB affirmed that settlement, which relates to rates for the period 2023 to 2027. And we expect that those rates will be reflected in the reporting that we start to receive in April for the January earnings period. And obviously that will be reflected in our ongoing earnings on a quarterly basis. starting this quarter. Great. Thanks.
spk05: Thank you. One moment for our next question. Our next question comes from the line of Dan Day from B. Reilly.
spk09: Your line is open.
spk02: Yeah. Morning, guys. Appreciate you taking the questions. Just first for me on the admin expense line, you talked about that being elevated in the quarter, maybe just some more detail around that. Looks like it's annualizing around $30 million a year or so for fiscal 23. Is that the right number for that line moving forward? Obviously, there's sort of wage inflation stuff that would drive it up, but Just going forward, are there any hiring initiatives or anything along those lines that might cause that to have a step change up or down? Just curious on that.
spk11: Yeah, I think that number is really a pretty decent number for you to use on an annualized basis. Obviously, for the quarter, one of the things that we called out that led to that 19% increase in total administrative expenses is on our expanding artist management business, where we were very happy with the results that we were able to achieve in the quarter. You saw significant growth on the top line, and that led to some increases in the administrative expenses for that business. I would say, putting that aside, we had very modest increases in the rest of the business.
spk02: Got it. And maybe just along that vein, I mean, the other revenue, which I think is, you know, this artist management revenue that you're referring to, like this was like a million a year total in the past couple of years, and it was over $2 million and a quarter. Just wondering, like, how sustainable or sticky that is. Like, is this an $8, $10 million a year revenue line, and it was just depressed because of, you know, no live performances during the pandemic, or? Was there something in the quarter that it was unusually high?
spk11: Well, I think that you should not look at the quarter and assume that that is the run rate on a quarterly basis going forward, but certainly what we're seeing in this quarter is the monetization of the return to touring that has been happening over the past six, nine months, and especially relative to the period last year. It takes a little while for that to catch up and to flow through to us, but we are seeing very healthy touring and merch revenue for the artists that we represent, and we're very happy to be seeing that in that segment of our business, which remains a fairly small part of our business, but it's an area that we're very happy to see that level of growth happening.
spk02: Great. And last one for me, and I'll turn it over. So it seems pretty likely based on some of the commentary coming out of the guys from Spotify that we're probably going to get a U.S. rate hike at some point in 2023. Just wondering internally if you've done any work to quantify the potential impact on digital streaming revenue for you based on the magnitude of any rate hikes there. If so, if there's anything you can share, it would be appreciated. Thanks.
spk16: That is the work that we do.
spk17: We can't really comment, obviously, on what the future holds as far as a domestic rate hike. The way we think about this is that it's essentially and our share of that increases. But at this time, we don't have numbers that we would disclose around any kind of assumptions around a domestic rate hike.
spk18: All right, guys. Thanks for answering the questions, and best of luck.
spk14: Thank you.
spk10: Thanks, Dan. Thank you. And once again, that's star 1-1 for questions, star 1-1. One moment for our next question. Our next question comes from the line of Alex Furman from Craig Halem. Your line is open.
spk04: Hi, everyone. Thanks for taking my question, and congratulations on another strong quarter. It seems like you're making a lot of investments in emerging markets in addition to Pop Arabia, you know, more recently some bigger investments in India. Can you talk a little bit more about how big an opportunity India is both in terms of content creation from Indian artists and then as well as actual consumption of media within India?
spk17: Hi, Alex. How are you? So, I think that from a volume standpoint, it's certainly that we are making investments in the emerging markets. I wouldn't think about these investments as being as significant as others that you know about from a dollar standpoint. And obviously, we're very interested in continuing those investments through Pop Arabia and growing the business there. Based on really what the forecasted growth in these emerging markets is, and I don't have sort of isolated numbers around India in front of me, but we are looking at growth that is predicted north of 40%. The only markets that actually share that kind of predicted growth are the Latin American and Middle Eastern markets. So we are very keen on continuing to invest in existing content in this region, as well as investing in our roster, building on the JV we have with Divine Scully Gang, and just really having access to content in this region, which could position us as being a very significant rights holder within the next 18 months or so.
spk04: Okay, that's very helpful, Golnar. Thank you. And then just as a housekeeping, with the CRB4 settlement and the new rates set to take effect here in 2023, should we think about that as being effectively the royalty rate that is baked into your Q4 guidance for the first three months of 2023?
spk11: Yes, certainly. These rates take effect January 1, so for our fourth quarter, our revenue related to U.S. digital streaming on the mechanical side will be reflective of those rates. So, yeah, that aspect of it is baked into our numbers.
spk03: Okay. Thanks very much, Jim.
spk10: Thank you. And I'm not showing any further questions in the queue. I'd like to turn the call back over to Golnar Khosrowshahi for any closing remarks.
spk17: Thank you, Operator. Our performance in the third quarter is indicative of both the strength of our team at Reservoir and the quality of assets that we have assembled. I thank you so much for joining us this morning. We look forward to updating you on our progress on our next call. Thank you.
spk10: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
spk12: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. you you Thank you. Thank you. Thank you.
spk10: Good morning, everyone, and thank you for participating in today's conference call to discuss Reservoir Media's financial results for the third quarter of fiscal year 2023, ended December 31st, 2022. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I now turn the call over to Ms. Jackie Marcus with the Alpha IR Group who will review our agenda today and accompanies forward-looking statements. Jackie?
spk13: Thank you, Operator. 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 2023, ended December 31st, 2022, 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 Heindelmeyer, 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 Gulnar 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. 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 law. 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 U.S. GAAP if we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trend. 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 Gulnar. Gulnar?
spk17: Thank you, Jackie. Good morning, everyone, and thank you for joining us today. Through the first three quarters of the fiscal year, we are very pleased with the performance of our business as we continue to report strong growth numbers fueled by healthy organic growth. as well as the continued execution of deals across musical genres. Since we last spoke in November, we've had some exciting developments at Reservoir, such as announcing that Della Soul's highly anticipated renowned back catalog is officially coming to streaming platforms globally for the first time ever on March 3rd, with two singles already released in January and February, and expanding our roster and presence in the Middle East and India. These examples really underscore the breadth and scope of our business and the kinds of value-building opportunities we are uniquely positioned to pursue as we grow. I want to take a moment to acknowledge our roster of songwriters, artists, and partners whose talent was on full display at the Grammy Awards this past Sunday, where our roster contributed to an impressive 30 nominations, including record, song, and album of the year, taking home seven awards, including Best Contemporary Instrumental Album for Snarky Puppy's Empire Central, Best Immersive Audio Album for Stuart Copeland and Ricky Kedge's Divine Tides, and Best Rock Album for Ozzy Osbourne's Patient No. 9, featuring 11 co-writes by Reservoir songwriter Ali Tamposi. We could not be prouder of these tremendous talents. For the third quarter, on the financial side, we delivered top-line growth of 16%, of which 7% was organic. As a result of the improvement to the top line, we enhanced our margin profile as both OIBDA and adjusted EBITDA margins expanded versus the prior year. On balance, we did experience some pressures on net income as a result of one-time non-cash tax and debt extinguishment charges which Jim will discuss as part of his deeper financial discussion. We are also raising guidance for the second consecutive quarter, reflecting the strength and momentum of our business as we close out our fiscal year. Before turning to that, I'd like to take a few minutes to discuss what trends we're seeing in the music industry and how we are poised to benefit from these opportunities. It is without question that music is an integral part of our daily lives, With the historic growth from digital consumption and record-setting revenues from live performance, our team is hard at work ensuring our artists' and creators' work is licensed and monetized across all mediums. Our unique value enhancement offerings allow us to attract some of the world's most prolific and iconic artists, which ultimately improves the durability of our business. As I mentioned on our last call, we have been closely following the recent Copyright Royalty Board, or CRB4, settlement. The CRB officially accepted the proposed settlement on December 30th, 2022. While the CRB4 settlement occurred in August of 2022, this official acceptance puts a stamp on the negotiation and legal process between the parties. This marks a critical moment for the music industry, with the headline digital streaming royalty rate increasing to 15.15% for 2023 and incrementally increasing to 15.35% through 2027, which will be the highest royalty rate in history. We commend all parties involved with special thanks to the NMPA and their CEO, David Israelite, for leading the charge and making this possible. The official acceptance of the rate increase is a testament to the progressive work being done within the industry to ensure fair compensation for songwriters and publishers. Turning to our business, our team has been busy adding award-winning creators across genres to our portfolio. I'd like to walk you through some of the notable additions this quarter. As I mentioned, we couldn't be more excited to be bringing the legendary Grammy-winning hip-hop trio De La Soul's back catalog to streaming platforms everywhere starting March 3rd. The first two singles, The Magic Number and I Know, were released in January and February this year respectively, distributed by Reservoir-owned Chrysalis Records. We are honored to partner with De La Soul on this long-awaited release and are looking forward to consumers having ease of access to their music through streaming services, as well as cultivating a whole new audience of De La Soul listeners. We also signed a new publishing deal for all future works with award-winning songwriter and producer Leroy Clampett. Leroy has been part of many successful projects, including co-writing Justin Bieber's hit song, Company. He is one of the most in-demand pop writer producers, and we are delighted to be his publishing home. We are also thrilled that Rock and Roll and Grammy Hall of Fame inductee Dion signed a new publishing deal with Reservoir for his entire catalog as well as all future works. Dion has been topping the charts for decades with hits such as Run Around Sue, The Wanderer, and Ruby Baby. Dion is a rock and roll pioneer and we are honored to work with him. On the international front, Maltese rock band Red Electric joined the roster this quarter. Recognized as one of Malta's biggest bands, securing three number one singles in 2022, they are primed to now take their music to the wider world. We also expanded our roster and presence in India with the acquisition of the publishing catalogs and future works for Indian rappers MCL Top and D'Evil, along with producer Stunna Beats. These signings built upon our established partnership with Indian rap superstar Divine Scully Gang. We look forward to further growing and partnering with these artists across the globe. We continue to be highly active and forward-looking as we invest time and resources into growing and diversifying our roster of artists. Our pipeline is robust at nearly $2.3 billion in total value for prospective deals. Over the years, we have implemented a rigorous process for analyzing transactions and we will continue to take a disciplined approach to assessing opportunities in the market to ensure that the capital that we deploy meets our internal requirements for ROI and is accretive to our margin profile. With that, I'd like to turn the call over to Jim to discuss our financial results for the quarter in greater detail.
spk11: Thank you, Gulmar, and good morning, everyone. Our third fiscal quarter financial results demonstrate the durability of our business model as we achieved double-digit top-line growth for the sixth consecutive quarter since becoming public, despite facing broader economic headwinds. We were particularly pleased with our organic growth this quarter, as our team continues to find opportunities to extract value from the marketplace to better serve our roster of artists. As Govar mentioned, our margin profile improved during the quarter, as we expanded both AWIBDA and adjusted EBITDA on an absolute dollar basis, as well as on a margin basis. While we're happy with our continued strength in the top line and operating margins, we did experience pressure on the bottom line due to elevated costs during the quarter, which I'll walk through momentarily. As it relates to business development activity, we executed on many deals during the quarter, some of which Golnar touched on in her remarks, that further diversify and insulate our portfolio. Now turning to our financials. In the third fiscal quarter, we recorded $29.9 million in revenues. which represented a 16% increase from the third quarter of fiscal 2022, inclusive of acquisitions. Of the 16% top line growth, 7% of that was organic. The primary driver of the revenue increase year over year was our music publishing segment. While it's a smaller portion of our revenue segmentation, I'd also like to note that our management business saw significant increase during the quarter, which was primarily due to strong touring and merchandise revenue with the resurgence in live performances versus the same period last year. Looking at operating expenses, our overall cost of revenue increased 3% from the third quarter of fiscal 2022. Additionally, our depreciation and amortization costs increased year over year due to our continued catalog acquisitions. Company administration expenses increased by 19% from the prior year, mainly driven by increases in administrative expenses related to our growing management business and to a lesser extent, increases in the music publishing segment. Despite elevated operating costs in the period, we were able to report significant growth for both Awibda and Adjusted EBITDA. For the third quarter, Awibda increased 33% to 10.1 million, while Adjusted EBITDA grew 24% to 10.9 million, both compared to the third fiscal quarter of 2022. As we said before, the inherent operating leverage is built into our business and is further demonstrated by the fact that revenues have generally outpaced operating costs during our time as a public company, and we expect this to continue over the long term. Our interest expense was approximately $4.1 million for the quarter compared to $2.5 million in the same period last year. The increase was a result of higher debt related to acquiring assets and an increase in LIBOR. Net loss for the third quarter of fiscal 2023 came in at $4.1 million, This resulted in diluted loss per share for the quarter of $0.07 compared to earnings of $0.02 per share for the third quarter of fiscal 2022. The loss during the quarter was primarily due to a one-time non-cash loss on early extinguishment of debt related to our amended credit facility. We also had a one-time non-cash tax expense related to the estimated impact on deferred tax liabilities due to the higher UK tax rate that will become effective in April 2023. Lastly, our weighted average diluted outstanding share count is $64.4 million. Turning to our segment breakdown for the quarter, let's look at music publishing first. Music publishing generated revenue of $20.2 million in the third fiscal quarter, which was a 14% improvement from this time last year, and was largely driven by our digital, performance, and sync revenue streams. Within the segment, digital revenue grew 29% year-over-year to $10.7 million and represented more than half of the music publishing revenue in the quarter. Performance and sync revenue streams recorded 28% and 51% top-line growth, respectively. The increase in music publishing revenue was partially offset by declines in other music publishing revenue because the same period last year included revenues attributed to the Dubai Expo event. Our recorded music segment moderately grew by 1% during the quarter to $7.6 million, with improvement from digital and neighboring rights revenues, which grew 17% and 43%, respectively. Strong performance in digital revenue came from our recent acquisitions of recorded music catalogs and a growing demand for streaming services. For context on the quarter, the declines in physical and sync revenues, which are more susceptible to quarter-over-quarter fluctuations, nearly offset the growth in digital and neighboring rights. Before diving into the balance sheet, I'd like to highlight that in December, we amended our credit agreement, which expanded our facility and favorably modified the terms of the agreement. This shows the strong relationships that we have with our banking partners and the value of our predictable and recurring revenue streams. Let's move now to the balance sheet. At quarter end, our credit facility was at roughly $298.8 million. close the quarter with total liquidity of $168.2 million comprised of $17 million of cash on hand and $151.2 million available under our revolver, which gives us the capital to fund our strategic objectives. In terms of total debt, we ended the quarter at $292.2 million, which was net of $6.7 million of deferred financing costs, and thus we maintain $275.2 million of net debt That compares to net debt of 252 million as of March 31, 2022. Lastly, I'd like to reiterate that over half of our outstanding debt is hedged at a very attractive interest rate, which has, and will in the future, limit our exposure to rising interest rates in the coming year. Moving to our outlook for fiscal 2023, we are increasing our revenue guidance range to 120 to 122 million and our adjusted EBITDA guidance range to 46 million to 47 million for the full fiscal year. This represents growth of 12% on revenue and 13% on adjusted EBITDA at the midpoint for both guidance metrics versus fiscal 2022. Before I close, I'd like to take a minute to talk through the timing of payments and the effect that has on quarterly revenue. As discussed on previous calls, many of our larger international revenue streams pay on a semiannual basis in the quarters ending September and March. As a result, our second and fourth quarters have historically been higher than the first and third quarters, with Q4 typically being our highest revenue-producing quarter. Over the past 18 months, we have been working to improve the accrual process for these semiannual sources, and we've made great progress in this area. Going forward, we expect the quarters to have less significant volatility related to the timing of payments but we may have softer quarterly comps in Q4. Having said that, our strong growth remains clear in our fiscal year over year numbers. As we enter the last quarter of fiscal 2023, we're pleased with our progress and excited about the future for reservoir and remain focused on achieving our strategic objectives. We will continue to evaluate potential acquisitions to expand our portfolio of assets, which is considered in our full year guidance. As shown this quarter, We have a durable business that is growing steadily on the top line and margins are improving. We feel that we are in a healthy position with our capital structure with the newly amended and extended credit facility and we remain optimistic for what the future holds. With that, I'll now pass the call back to Goma.
spk17: Thank you, Jim. As we head into the fourth quarter, we are encouraged by what we have seen from our business thus far. While the macroeconomic landscape has presented some challenges, We have stayed disciplined and focused on our operations and strategic goals, which allows us to effectively navigate through times of uncertainty. We will continue to benefit from the overall momentum in and evolution of the music industry and build out our roster through selectively deploying capital for deals that strategically fit our business model. In closing, we are approaching the last quarter of the fiscal year with confidence as we are well positioned to finish the year strong and continue to achieve our financial targets. With that, we will now open the line for questions.
spk10: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
spk05: Our first question comes from Richard Baldry from Ross.
spk10: Your line is open.
spk08: Thanks, and congrats on the quarter.
spk07: I'm curious if you could talk about how the rising interest rate environment has impacted either the deal pipeline overall or the competitive landscape where you look at that deal pipeline. So I'm curious if private equities are changing how they're reacting in the space most particularly. Thanks.
spk17: Hi, Rich, how are you?
spk09: Good.
spk17: So as far as the first part goes, the pipeline remains robust. I believe that we reported on a pipeline of 2.1 billion last quarter, and right now we have a pipeline of about 2.3. So we're not really seeing any change there. We're also seeing deals of significant size. close, and most recently being the Justin Bieber catalog. Any contraction on pricing evidence is anecdotal, and we don't have sort of consistent data on that front, although one's got to believe that the cost of capital will declare some type of contraction there, and certainly we be patient with that. But I would say today there remains to be significant capital in this industry, significant interest, and several players who continue to be acquisitive.
spk07: Thanks. Can you talk a little bit about maybe just generally the factors you think that contributed to the De La Soul partnership? It seems like that would be one where you'd be going up against people with pretty meaningfully larger resources to win. So why do you think that came your direction?
spk17: So that came about as a result of the Tommy Boy acquisition, which was completed about 18 months ago. And that was a part of that catalog. And we always had the intention of... achieving this goal of bringing their music to streaming platforms, and we had worked on that for about a year and a half. So happy to be here.
spk07: Right. Then just from a broad perspective, with the settlements achieved with the CRBs, when do you think that starts to flow into the P&L? I don't think it hits all at once. I think it sort of flows in over a period of time. Are you talking about sort of the impact you see on that? Thanks.
spk11: Yeah. Hi, Rich. So on the CRB, there's really two components, right? So we talked last quarter about the impact of the CRB3 rates. And remember, those are the rates that are applicable to 2018 to 2022. And we made an accrual for the estimated impact of those increasing rates. We expect that that piece will be settled sometime next summer. The DSBs have six months from the time that those rates are published in the Federal Register to do their calculations of the retroactive true-ups. And we expect that that will hit, like I said, next summer. And we will adjust our estimates once we have real clarity around those final figures. Then we move to the CRB4 settlement. And as Goldmer mentioned, we were very pleased that people came together and the CRB affirmed that settlement, which relates to rates for the period 2023 to 2027. And we expect that those rates will be reflected in the reporting that we start to receive in April for the January earnings period. And obviously that will be reflected in our ongoing earnings on a quarterly basis. starting this quarter. Great. Thanks.
spk05: Thank you. One moment for our next question.
spk09: Our next question comes from the line of Dan Day from B. Reilly. Your line is open.
spk02: Yeah. Morning, guys. Appreciate you taking the questions. Just first for me on the admin expense line, you talked about that being elevated in the quarter, maybe just some more detail around that. Looks like it's annualizing around $30 million a year or so for fiscal 23. Is that the right number for that line moving forward? Obviously, there's sort of wage inflation stuff that would drive it up, but Just going forward, are there any hiring initiatives or anything along those lines that might cause that to have a step change up or down? Just curious on that.
spk11: Yeah, I think that number is really a pretty decent number for you to use on an annualized basis. Obviously, for the quarter, one of the things that we called out that led to that 19% increase in total administrative expenses is on our expanding artist management business, where we were very happy with the results that we were able to achieve in the quarter. You saw significant growth on the top line, and that led to some increases in the administrative expenses for that business. I would say, putting that aside, we have very modest increases in the rest of the business.
spk02: Got it. And maybe just along that vein, I mean, the other revenue, which I think is, you know, this artist management revenue that you're referring to, like, this was, like, a million a year total in the past couple of years, and it was over $2 million and a quarter. Just wondering, like, how sustainable or sticky that is. Like, is this an $8, $10 million a year revenue line, and it was just depressed because of, you know, no live performances during the pandemic, or... Was there something in the quarter that it was unusually high?
spk11: Well, I think that you should not look at the quarter and assume that that is the run rate on a quarterly basis going forward, but certainly what we're seeing in this quarter is the monetization of the return to touring that has been happening over the past six, nine months, and especially relative to the period last year. It takes a little while for that to catch up and to flow through to us, but we are seeing very healthy touring and merch revenue for the artists that we represent, and we're very happy to be seeing that in that segment of our business, which remains a fairly small part of our business, but it's an area that we're very happy to see that level of growth happening.
spk02: Great. And last one for me, and I'll turn it over. So it seems pretty likely based on some of the commentary coming out of the guys from Spotify that we're probably going to get a U.S. rate hike at some point in 2023. Just wondering internally if you've done any work to quantify the potential impact on digital streaming revenue for you based on the magnitude of any rate hikes there. If so, if there's anything you can share, it would be appreciated. Thanks.
spk17: That is the work that we do. We can't really comment, obviously, on what the future holds as far as a domestic rate hike. The way we think about this is that it's essentially
spk05: and our share of that increases.
spk17: But at this time, we don't have numbers that we would disclose around any kind of assumptions around a domestic rate hike.
spk18: All right, guys. Thanks for answering the questions, and best of luck.
spk14: Thank you.
spk10: Thanks, Dan. Thank you. And once again, that's star 11 for questions, star 11. One moment for our next question. Our next question comes from the line of Alex Furman from Craig Halem. Your line is open.
spk04: Hi, everyone. Thanks for taking my question and congratulations on another strong quarter. It seems like you're making a lot of investments in emerging markets in addition to Pop Arabia, you know, more recently some bigger investments in India. Can you talk a little bit more about how big an opportunity India is both in terms of content creation from Indian artists and then as well as actual consumption of media within India?
spk17: Hi, Alex. How are you? So, I think that from a volume standpoint, it's certainly that we are making investments in the emerging markets. I wouldn't think about these investments as being as significant as others that you know about from a dollar standpoint. and obviously we're very interested in continuing those investments through Pop Arabia and growing the business there. Based on really what the forecasted growth in these emerging markets is, and I don't have sort of isolated numbers around India in front of me, but we are looking at growth that is predicted north of 40%. The only markets that actually share that kind of predicted growth are the Latin American markets, and Middle Eastern markets. So we are very keen on continuing to invest in existing content in this region, as well as investing in our roster, building on the JV we have with Divine Scully Gang, and just really having access to content in this region, which could position us as being a very significant rights holder within the next 18 months or so.
spk04: Okay, that's very helpful, Gonar. Thank you. And then just as a housekeeping, with the CRB4 settlement and the new rates set to take effect here in 2023, I mean, should we think about that as being effectively the royalty rate that is baked into your Q4 guidance for the first three months of 2023?
spk11: Yes, certainly. These rates take effect January 1, so for our fourth quarter, our revenue related to U.S. digital streaming on the mechanical side will be reflective of those rates. So, yeah, that aspect of it is baked into our numbers.
spk03: Okay. Thanks very much, Jim.
spk10: Thank you. And I'm not showing any further questions in the queue. I'd like to turn the call back over to Golnar Khosrowshahi for any closing remarks.
spk17: Thank you, Operator. Our performance in the third quarter is indicative of both the strength of our team at Reservoir and the quality of assets that we have assembled. I thank you so much for joining us this morning. We look forward to updating you on our progress on our next call. Thank you.
spk10: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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