Reservoir Media earned $11.5 million in net income on $64 million in revenue in the fiscal year ended March 31, 2020, according to financial details in an investor presentation for the company’s plans to become publicly traded later this year.
The reverse merger with Roth Acquisition II, a special purpose acquisition company (SPAC), was announced April 14. According to these documents, filed with the U.S. Securities and Exchange Commission on April 15, Roth Acquisition II shareholders would hold 15.5% of Reservoir under the deal.
Reservoir’s current shareholders will retain 59.9% of the company’s 74 million shares after the merger. The anchor equity institutional investors, including Caledonia — who made private investment in public equity (PIPE) deals — will receive 20.3% of the company’s shares. And Roth CH Acquisition II sponsors Roth Capital and Craig-Hallum will receive 3.2%.
For the Reservoir shareholders, there is a 180-day lock-up period for half of its 44.3 million shares; and a 360-day lock-up period for the other half of their shares. If the deal closes, Roth Acquisition II’s ROCC ticker will convert to RSVR on the NASDAQ stock exchange.
Reservoir’s $64 million in revenue for 2020 represented 42% growth from the year prior and its $11.5 million net income increased more than threefold. (The company posted $3.8 million in net income on $45 million in revenue for the year ending 2019.)
For 2020, music publishing generated 84% or $54 million of Reservoir’s total revenue. That catalog includes titles by the Isley Brothers, John Denver, Sheryl Crow, Migos, 2 Chainz, Young Thug and Ali Tamposi.
Master recording royalties and other income streams generated the other $9 million for a 26,000 song-catalog, which includes titles by Sinead O’Connor, the Commodores, Generation X, The Delfonics and Liz Phair.
Reservoir reported $29.1 million in EBITDA (earnings before interest, taxes, depreciation and amortization) for 2020 — almost double the $16.4 million in EBITDA it posted for 2019. Operating EBITDA came in at $24.2 million in 2020, up from $18.3 million in 2019.
Gross profit hit $36 million in 2020, with the profit margin slipping slightly to 56.3% from 60.5% in 2019 on $26 million in gross profit.
Looking ahead, the company estimates that it generated $80 million in revenue for the just-completed fiscal year ending March 31, 2021. That will include $8.4 million net income, a 27% drop from 2020 that’s likely due to the company taking on an additional estimated $3.7 million in expenses associated with being a publicly-traded company. As part of its 2021 estimates, Reservoir projects $47 million gross profit, which translates into a 58.8% profit margin; while EBITDA will come in at $32.2 million.
Calculating a three-year revenue and gross profit average for the years 2019, 2020 and the 2021 estimate, Reservoir averaged $36.3 million in net publisher/label share, on revenues of $63 million.
Putting that NLS average against Reservoir’s $788 million enterprise value, the Reservoir merger valuation works out to a nearly 21.7 times NPS/NLS multiple.
On a going forward basis for 2022, Reservoir projects revenue of $108 million with gross profit of $60 million, which translates into a 13.1 NPS/NLS times multiple.
In looking at 2021’s estimated publishing revenue mix, the company reported that digital accounted for 54%, performance 24%, synchronization 15% and other 7%. It also broke it out by genre, reporting pop was 24%, R&B was 15%, hip-hop 14%, film & TV production music 14%, country 13%, rock 9%, jazz 4%, electronic 3% and other 4%.
By geography, the catalog’s revenue breaks out to 59% North America, 34% Europe and 8% other; while by age, the 2010s and 2020s tallied 37%, the 2000s at 25%, the 1990s at 9%, the 1980s at 3%, the 1970s at 8%, the 1960s at 9%, the 1950s at 3%, the 1930s at 3% and other at 2%. (Percentages do not add up to 100% due to rounding.)
Reservoir also said that 98% of its revenue comes from owned catalog, while 2% comes from songs where it serves as administrator. For its owned catalog, it reported that it will have publishing ownership control of 96% of the catalog for more than 10 years; and of that, 76% is for the life of copyright.
The company reports that when the merger deal closes, it expects to have about $290 million in debt and $245 million in cash, which will give it net debt of almost $45 million. The debt will consist of about $180 million drawn down from its $248.8 million revolving credit facility — Truist Bank, formerly Sun Trust, is the lead bank in the syndication of that facility — and another $100 million or so in debt for undisclosed pipeline acquisitions that are expected to close soon.