Reservoir Media, Inc. (RSVR, RSVRW Q4 FY2025 earnings call

• Reservoir's fiscal 2025 performance exceeded guidance with 10% top-line annual revenue growth, 18% improvement in adjusted EBITDA, and over $115 million towards acquisitions and advances.
• Strategic off-market M&A continued to drive growth, including signings with Snoop Dogg and k.d. lang, and acquisitions like Lastrada Entertainment, New State, etc.
• Recorded music segment showed continued growth in Q4 and full fiscal year, with operational leverage for organic growth and value enhancement.
• Focus on organic growth with marketing portfolio and securing high ROI opportunities, including Super Bowl sync placements in Q4.
• International expansion with PopArabia in the Middle East and launch of PopIndia in Mumbai, focusing on signing regional talent and acquiring catalogs.

For the fourth quarter, Music Publishing generated revenue of $27.9 million, a 6% increase including acquisitions. Recorded Music segment generated $12 million in revenue, a 7% increase versus the prior year quarter. For the full fiscal year 2025, Music Publishing segment revenue rose 12% compared to the prior year, driven by price increases and catalog expansion through M&A. Recorded Music revenues increased 4% compared to fiscal 2024, attributable to continued user growth and price increases of multiple streaming services as well as royalty recoveries, partially offset by a decrease in physical sales.

• Fiscal 2026 revenue expected to be in the range of $164 million to $169 million.
• Fiscal 2026 adjusted EBITDA expected to be in the range of $68 million to $72 million.
• Maintaining a strong pipeline of potential acquisitions and having the financial position to execute on high ROI transactions.
• Expecting organic growth from existing catalog, but being conservative around projecting hits like previous years.

Q: Adding the India operation brings sort of the question to are you seeing markedly better ROIs in international geographies or is it still pretty one-off deals that are driving where you're making your investments?

A: Golnar Khosrowshahi: We certainly see better opportunities and along with volume in the emerging markets and that does definitely lead to better ROIs and less competition. So we see that in India as well as in the Middle East.

Q: This year the seasonality sort of changed a little bit with third quarter above fourth quarter and there's some one-time impacts in that. How do you look at sort of revenue seasonality in 2026? Does it sort of get back to your regular cadence most likely?

A: Jim Heindlmeyer: Yes. I think that we're obviously always evaluating our accruals and trying to do the best job we can there. We do have some of those one-off type items, but I would expect that we probably get back a little bit to the second and fourth quarter potentially being slightly higher than the first and third quarters just based on the timing of certain things. But we're doing our best with the accruals to try and reflect revenue accurately by quarter in the quarter that it's earned.

Q: Interest rates have been a little bit volatile lately. Could you talk a little bit about sort of where you're hedged and what your strategy is on that in the sort of near to intermediate term?

A: Jim Heindlmeyer: Yes. So we're still sitting at $150 million hedged, which is where we've been for a while and as our debt has ticked up a little bit with our ongoing M&A activity, we are constantly evaluating whether we should put on an additional hedge, we'll continue to do that. And obviously with some of the volatility right now, it's -- we haven't seen compelling data to pull the trigger on that yet, but it's something that we constantly evaluate.

Q: Last from me, sir, you talked lightly on, you thought the pipeline looked good. Can you talk a little bit more about sort of how much capital you're targeting to deploy in 2026? So is there any sort of expected split between the publishing side versus the recorded side? Or again, will that be sort of on an as come deal basis?

A: Golnar Khosrowshahi: We generally have to be opportunistic around deal flow. So while we may have desires around how much recorded or publishing assets we want to acquire, that's not really how it always shakes out, because we have to be opportunistic and we're at the whim of what is in front of us and what we have a high likelihood to execute on. And then I'll let Jim answer on how the free cash flow goes into our modeling there.

A: Jim Heindlmeyer: Yes, and on that part, Rich, you can look at our Investor deck, see where we project our free cash flow to be, which is around $50 million as we move into fiscal 2026. And typically what we are looking at with respect to guidance is an assumption around deploying that free cash flow to ongoing M&A, writer signings as we have in the past. It is again something that we constantly evaluate what's the best use of our capital deployment, but that's generally how we look at it.

Q: Your capital deployment this year seemed to be a little more heavily weighted in the second half and the revenue sort of reflects sort of a step-up there because of that. If I take that second half and run rate it, it looks pretty close to where your revenues for 2026 would be. So you talk about sort of what factors go into that 2026 guide, if it's more conservatism or are there some one-time impacts on the second half 2025 that we have to keep in mind as we're modeling the year out?

A: Jim Heindlmeyer: Yes. So on our end, one of the difficult things with guidance in this business is, we have been fortunate or I'll say our creative team has done a very good job of signing good writers and we've had hits. So when you have a hit like Espresso, over the past year and that generates a significant amount of revenue, we are not necessarily going to project another hit like that in fiscal 2026. We have been fortunate, like I said, to have hits year after year. But it's not something that we've build into our guide. So sometimes those types of things will impact what seems like conservatism in our guide. And I know it makes your job a little bit more difficult, but that's just probably one of the factors that goes into it that you should be aware of.

Q: Just wanted to jump back on the capital deployed. I just want to make sure that I heard that correctly? When you mentioned $150 million number, was that for the year or was that for the fourth quarter? And I'm sure we'll see it in the 10-K, but maybe talk about how much of that was allocated to Lastrada in the fourth quarter?

A: Golnar Khosrowshahi: Sure. Good morning. It was $115 million and it was for the year. 1-1-5.

Q: In terms of the PopIndia initiative there, could you just help us handicap how India stacks up to other regions? You mentioned the 13% expected taker growth through 2027 for that region, but maybe if you could just dig into how that stacks up to other regions like the US and maybe if you could talk a little bit more about monetization in that region, particularly on the digital side, how that compares to a market like the US?

A: Golnar Khosrowshahi: Sure. I mean, the market like the US and Western Europe, for example, are advanced and just don't have the same saturation as far as the DSPS go. And the subscription numbers and the growth on that is not as significant as what is happening in the emerging markets just because of the population and the number of people and that opportunity that exists to get people converted to becoming paying subscribers. As far as the growth rates go, it varies country by country. But the growth rate in India is pretty significant given both the size of the population and the opportunity for just the number of people to become streamers of music. So the monetization in the regions works similarly to other regions. There are differences in how performance royalties are modified -- monetized, and again, that varies country by country. And so we just anticipate that there is a future across the Middle East in India where there is going to be significant growth on a subscription basis, where there's going to be significant growth in listenership and number of subscribers and where there's going to be convention around the monetization of public performance.

Q: I just -- is that an organic growth rate that we should expect for the current catalog, call it mid-single-digit going forward? It seems conservative given the amount of additions you had coming into fiscal 2026?

A: Jim Heindlmeyer: Again, there's a -- there's a couple things that are difficult for -- to compare from year-to-year, right? So I touched on the fact that -- we've had hits in the past year, and while we hope to expect to continue to have quality music, continued hits, we don't project for that. We're not going to project that this writer is going to write another number one song that's going to perform in this way. We're going to be a little bit more conservative around that kind of stuff. So that goes against us a little bit in our guide. We obviously evaluate that as we move through the year and we will update our guidance when we get to Q2. We had a couple of things that we called out in Q3 and you'll see it in the 10-K around audit recoveries and revenue that that generated in fiscal 2025. We don't project for that kind of stuff in the coming year. So those types of things, one can call it conservatism or just being prudent with respect to how we project and guide for the coming fiscal year. But those are some of the types of things that will make that comp look a little bit more conservative than maybe it is. We have consistently outperformed in our time as a public company and we look forward to continuing to do that. And we'll update our guidance as we move through the year and have better information.