| |
|
| Prospectus
Supplement No. 6 |
Filed Pursuant to Rule
424(b)(3) |
| (to
prospectus dated July 28, 2021) |
Registration No. 333-257610 |
RESERVOIR MEDIA,
INC.
59,714,705 Shares
Common Stock
________________________________
This prospectus supplement is being filed to update and supplement
the information contained in the prospectus, dated July 28, 2021
(the “Prospectus”), related to the resale from time to time by the selling
stockholders named in the Prospectus or their permitted
transferees of up to
59,714,705 shares of common
stock, par value of $0.0001 per share (the “Common
Stock”), of Reservoir
Media, Inc., a Delaware corporation (formerly known as Roth
CH Acquisition II Co.) (“RMI”), issued pursuant to the terms of
(i) that certain agreement and plan of merger, dated as of
April 14, 2021 (the “Merger Agreement”), by and
among RMI, Roth CH II Merger Sub Corp. and Reservoir Holdings,
Inc., and (ii) those certain subscription agreements entered
into in connection with the Merger Agreement, with the
information contained in RMI’s Current Report on Form 8-K/A, which
was filed with the Securities and Exchange Commission (the
“SEC”) on August 16, 2021 (the “Current
Report”). Accordingly, RMI has attached the Current Report
to this prospectus supplement.
This prospectus supplement updates and supplements the information
in the Prospectus and is not complete without, and may not be
delivered or utilized except in combination with, the Prospectus,
including any amendments or supplements thereto. This prospectus
supplement should be read in conjunction with the Prospectus and,
if there is any inconsistency between the information in the
Prospectus and this prospectus supplement, you should rely on the
information in this prospectus supplement.
The Common Stock and RMI’s warrants are traded on The Nasdaq
Capital Market under the symbols “RSVR” and “RSVRW,” respectively.
On August 13, 2021, the closing price of the Common Stock was
$7.60, and the closing price of RMI’s warrants was $1.08.
RMI is an “emerging growth company” as defined under the federal
securities laws and, as such, has elected to comply with certain
reduced public company reporting requirements.
Investing in RMI’s
securities involves risks.
See “Risk Factors” beginning on page 11 of the Prospectus
and in any applicable prospectus supplement.
Neither the SEC nor any state securities commission has approved
or disapproved of the securities to be issued or sold under the
Prospectus or determined if the Prospectus or this prospectus
supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus supplement is August 16,
2021.
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 2)
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 16,
2021 (July 28, 2021)
Reservoir Media,
Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
001-39795 |
|
83-3584204 |
(State
or other jurisdiction
of incorporation) |
|
(Commission
File Number) |
|
(I.R.S.
Employer
Identification No.) |
|
75 Varick Street
9th Floor
New York, New York
|
|
|
10013 |
|
(Address
of principal executive offices) |
|
|
(Zip
Code) |
(212) 675-0541
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:
|
|
¨ |
Written
communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425) |
| |
|
|
| |
¨ |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12) |
| |
|
|
| |
¨ |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b)) |
| |
|
|
| |
¨ |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the
Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which
registered |
| Common
stock, $0.0001 par value per share |
|
RSVR |
|
The
Nasdaq Stock Market LLC |
|
Warrants,
each whole warrant exercisable for one share of common stock
at an exercise price of
$11.50 per share |
|
RSVRW |
|
The
Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933
(§230.405 of this chapter) or Rule 12b-2 of the Securities
Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company x
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act. ¨
INTRODUCTORY NOTE
On July 28, 2021, Reservoir Media, Inc. (formerly known
as Roth CH Acquisition II Co., a Delaware corporation,
“ROCC”), a Delaware corporation
(“RMI”), consummated its previously announced
acquisition of Reservoir Holdings, Inc., a Delaware
corporation (“Reservoir Holdings”), pursuant to the
agreement and plan of merger, dated as of April 14, 2021 (the
“Merger Agreement”), by and among ROCC, Roth CH II
Merger Sub Corp., a Delaware corporation and a wholly-owned
subsidiary of ROCC (“Merger Sub”), and Reservoir
Holdings. In connection with the consummation of the transactions
contemplated by the Merger Agreement, Merger Sub was merged with
and into Reservoir Holdings and, as a result, the separate
corporate existence of Merger Sub ceased and Reservoir Holdings
survived the merger as a wholly-owned subsidiary of ROCC (the
“Business Combination”). In addition, in connection
with the consummation of the Business Combination, “Roth CH
Acquisition II Co.” was renamed “Reservoir Media, Inc.”
On July 28, 2021, RMI filed (i) a Current Report on Form 8-K under
Items 1.01, 2.01, 2.03, 3.02, 3.03, 5.01, 5.02, 5.06 and 9.01 of
the Current Report on Form 8-K and (ii) a Current Report on Form
8-K/A under Items 5.03, 8.01 and 9.01 of the Current Report on Form
8-K, in each case, to report the consummation of the Business
Combination and related matters (together, the “Original
Report”). This Current Report on Form 8-K/A is being filed
to further amend the Original Report to provide (x) certain
historical unaudited financial information of Reservoir Holdings as
of June 30, 2021 and March 31, 2021 and for the three months ended
June 30, 2021 and June 30, 2020 under Item 9.01(a) of the Current
Report on Form 8-K and (y) management’s discussion and analysis of
financial condition and results of operations of Reservoir
Holdings, Inc. as of and for the three months ended June 30,
2021.
Capitalized terms used but not defined herein have the meanings
ascribed to such terms in the Original Report.
| Item 9.01. |
Financial Statement and
Exhibits. |
(a) Financial statements of businesses acquired.
The
condensed consolidated balance sheets as of June 30, 2021 and March
31, 2021 and the condensed consolidated statements of income, the
condensed consolidated statements of comprehensive income,
the condensed consolidated statements of shareholders’ equity and
the condensed consolidated statements of cash flows, in each case,
for the three months ended June 30, 2021 and June 30, 2020 of
Reservoir Holdings are filed as Exhibit 99.1 to this Current Report
on Form 8-K/A and are incorporated herein by reference.
(d) Exhibits.
|
Exhibit No.
|
|
Description
|
| 99.1 |
|
The
condensed consolidated balance sheets as of June 30, 2021 and March
31, 2021 and the condensed consolidated statements of income, the
condensed consolidated statements of comprehensive income, the
condensed consolidated statements of shareholders’ equity and the
condensed consolidated statements of cash flows, in each case, for
the three months ended June 30, 2021 and June 30, 2020 of Reservoir
Holdings, Inc. |
| 99.2 |
|
Management’s
discussion and analysis of financial condition and results of
operations of Reservoir Holdings, Inc. as of and for the three
months ended June 30, 2021. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
| |
RESERVOIR
MEDIA, INC. |
| |
|
| Date:
August 16, 2021 |
|
|
By: |
/s/ Golnar Khosrowshahi
|
| |
|
Name:
Golnar Khosrowshahi |
| |
|
Title: Chief
Executive Officer |
Exhibit 99.1
Reservoir Holdings, Inc. and Subsidiaries
Condensed Consolidated Financial Statements as of and for the Three
Months Ended June 30, 2021 and 2020 (Unaudited)
Reservoir Holdings, Inc. and Subsidiaries
June 30, 2021 and 2020
Table of contents
|
|
| Condensed consolidated
statements of income for the three months ended June
30, 2021 and 2020 (Unaudited) |
3 |
| |
|
| Condensed consolidated
statements of comprehensive income for the three months
ended June
30, 2021 and 2020 (Unaudited) |
4 |
| |
|
| Condensed
consolidated balance sheets as of June 30, 2021 (Unaudited) and
March 31, 2021 |
5 |
| |
|
| Condensed consolidated
statements of shareholders’ equity for the three months
ended June
30, 2021 and 2020 (Unaudited) |
6 |
| |
|
| Condensed consolidated
statements of cash flows for the three months ended
June
30, 2021 and 2020 (Unaudited) |
7 |
| |
|
| Notes
to the condensed consolidated financial statements
(Unaudited) |
8 |
Reservoir
Holdings, Inc. and Subsidiaries
Condensed
consolidated statements of income
(Expressed
in U.S. dollars)
(Unaudited)
| |
|
Three Months Ended June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
$ |
|
|
$ |
|
|
Revenues |
|
|
16,718,150 |
|
|
|
13,644,193 |
|
| Costs
and expenses: |
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
7,692,387 |
|
|
|
5,903,292 |
|
|
Amortization and depreciation |
|
|
4,079,245 |
|
|
|
3,429,868 |
|
|
Administration expenses |
|
|
4,664,830 |
|
|
|
3,004,634 |
|
|
Total costs and expenses |
|
|
16,436,462 |
|
|
|
12,337,794 |
|
| |
|
|
|
|
|
|
|
|
|
Operating income |
|
|
281,688 |
|
|
|
1,306,399 |
|
| |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2,779,052 |
) |
|
|
(2,207,696 |
) |
| Loss
on foreign exchange |
|
|
(18,321 |
) |
|
|
(115,927 |
) |
| Gain
(loss) on fair value of swaps |
|
|
547,488 |
|
|
|
(254,281 |
) |
|
Interest and other income |
|
|
68 |
|
|
|
4,778 |
|
| Loss
before income taxes |
|
|
(1,968,129 |
) |
|
|
(1,266,727 |
) |
|
Income tax benefit |
|
|
(510,646 |
) |
|
|
(321,923 |
) |
| Net
loss |
|
|
(1,457,483 |
) |
|
|
(944,804 |
) |
|
Net loss attributable to noncontrolling interests |
|
|
53,983 |
|
|
|
58,790 |
|
|
Net loss attributable to Reservoir Holdings, Inc. |
|
|
(1,403,500 |
) |
|
|
(886,014 |
) |
| |
|
|
|
|
|
|
|
|
| Loss
per common share (Note 13): |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
(9.64 |
) |
|
|
(6.23 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted
average common shares outstanding (Note 13): |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
145,560 |
|
|
|
142,161 |
|
See accompanying notes to the condensed consolidated financial
statements.
Reservoir
Holdings, Inc. and Subsidiaries
Condensed
consolidated statements of comprehensive income
(Expressed
in U.S. dollars)
(Unaudited)
| |
|
Three Months Ended June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
$ |
|
|
$ |
|
|
Net loss |
|
|
(1,457,483 |
) |
|
|
(944,804 |
) |
| Other
comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
215,142 |
|
|
|
1,974,652 |
|
| Total
comprehensive (loss) income |
|
|
(1,242,341 |
) |
|
|
1,029,848 |
|
|
Comprehensive loss attributable to noncontrolling interests |
|
|
53,983 |
|
|
|
58,790 |
|
|
Total comprehensive (loss) income attributable to Reservoir
Holdings, Inc. |
|
|
(1,188,358 |
) |
|
|
1,088,638 |
|
See accompanying notes to the condensed consolidated financial
statements.
Reservoir
Holdings, Inc. and Subsidiaries
Condensed
consolidated balance sheets
(Expressed
in U.S. dollars)
(Unaudited)
| |
|
June 30, 2021 |
|
|
March 31, 2021 |
|
| |
|
$ |
|
|
$ |
|
| Assets |
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
14,024,704 |
|
|
|
9,209,920 |
|
|
Accounts receivable |
|
|
13,989,896 |
|
|
|
15,813,384 |
|
|
Current portion of royalty advances |
|
|
13,245,315 |
|
|
|
12,840,855 |
|
|
Inventory and prepaid expenses |
|
|
3,789,098 |
|
|
|
1,406,379 |
|
|
Total current assets |
|
|
45,049,013 |
|
|
|
39,270,538 |
|
| |
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
500,591,041 |
|
|
|
393,238,010 |
|
|
Investment in equity affiliates |
|
|
2,089,094 |
|
|
|
1,591,179 |
|
|
Royalty advances, net of current portion |
|
|
32,205,385 |
|
|
|
28,741,225 |
|
|
Property, plant and equipment, net |
|
|
311,795 |
|
|
|
321,766 |
|
|
Other assets |
|
|
737,285 |
|
|
|
781,735 |
|
|
Total assets |
|
|
580,983,613 |
|
|
|
463,944,453 |
|
| |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
4,220,365 |
|
|
|
3,316,768 |
|
|
Royalties payable |
|
|
19,962,733 |
|
|
|
14,656,566 |
|
|
Accrued payroll |
|
|
809,175 |
|
|
|
1,634,852 |
|
|
Deferred revenue |
|
|
1,844,043 |
|
|
|
1,337,987 |
|
|
Other current liabilities |
|
|
7,322,215 |
|
|
|
2,615,488 |
|
|
Amounts due to related parties (Note 11) |
|
|
81,203,792 |
|
|
|
290,172 |
|
|
Current portion of loans and secured notes payable |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
Income taxes payable |
|
|
533,937 |
|
|
|
533,495 |
|
|
Total current liabilities |
|
|
116,896,260 |
|
|
|
25,385,328 |
|
| |
|
|
|
|
|
|
|
|
| Loans
and secured notes payable |
|
|
244,400,373 |
|
|
|
211,531,875 |
|
|
Deferred income taxes |
|
|
19,772,056 |
|
|
|
19,735,537 |
|
| Fair value of
swaps |
|
|
4,019,049 |
|
|
|
4,566,537 |
|
|
Other liabilities |
|
|
1,127,336 |
|
|
|
6,739,971 |
|
|
Total liabilities |
|
|
386,215,074 |
|
|
|
267,959,248 |
|
| |
|
|
|
|
|
|
|
|
|
Contingencies and commitments (Note 15) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
|
|
|
|
|
|
| Preferred
stock, $0.00001 par value 500,000 shares authorized; |
|
|
|
|
|
|
|
|
|
82,500 shares issued and outstanding at June 30,
2021 and March 31, 2021 |
|
|
81,632,500 |
|
|
|
81,632,500 |
|
| Common stock,
$0.00001 par value; 1,000,000 shares authorized, |
|
|
|
|
|
|
|
|
| 145,560
shares issued and outstanding at June 30, 2021; and March 31,
2021 |
|
|
1 |
|
|
|
1 |
|
|
Additional paid-in capital |
|
|
110,524,828 |
|
|
|
110,499,153 |
|
|
Retained earnings (accumulated deficit) |
|
|
(652,004 |
) |
|
|
751,496 |
|
|
Accumulated other comprehensive income (loss) |
|
|
2,311,500 |
|
|
|
2,096,358 |
|
|
Total Reservoir Holdings, Inc.
shareholders' equity |
|
|
193,816,825 |
|
|
|
194,979,508 |
|
|
Noncontrolling interest |
|
|
951,714 |
|
|
|
1,005,697 |
|
|
Total shareholders' equity |
|
|
194,768,539 |
|
|
|
195,985,205 |
|
|
Total liabilities and shareholders'
equity |
|
|
580,983,613 |
|
|
|
463,944,453 |
|
| |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
Reservoir
Holdings, Inc. and Subsidiaries
Condensed
consolidated statements of shareholders' equity
(Expressed
in U.S. dollars, except share amounts)
(Unaudited)
|
|
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Additional
Paid-In |
|
|
Retained
earnings (Accumulated |
|
|
Accumulated
other comprehensive |
|
|
Noncontrolling |
|
|
Shareholders' |
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
deficit) |
|
|
income
(loss) |
|
|
interest |
|
|
equity |
|
| |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Balance,
March 31, 2020 |
|
|
82,500 |
|
|
|
81,632,500 |
|
|
|
140,227 |
|
|
|
1 |
|
|
|
102,423,444 |
|
|
|
(9,537,465 |
) |
|
|
(4,385,615 |
) |
|
|
959,024 |
|
|
|
171,091,889 |
|
| Issuance
of common shares |
|
|
- |
|
|
|
- |
|
|
|
5,333 |
|
|
|
- |
|
|
|
7,973,010 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,973,010 |
|
|
Share-based
compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,674 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,674 |
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(886,014 |
) |
|
|
- |
|
|
|
(58,790 |
) |
|
|
(944,804 |
) |
|
Other
comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,974,652 |
|
|
|
- |
|
|
|
1,974,652 |
|
|
Balance,
June 30, 2020 |
|
|
82,500 |
|
|
|
81,632,500 |
|
|
|
145,560 |
|
|
|
1 |
|
|
|
110,422,128 |
|
|
|
(10,423,479 |
) |
|
|
(2,410,963 |
) |
|
|
900,234 |
|
|
|
180,120,421 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance,
March 31, 2021 |
|
|
82,500 |
|
|
|
81,632,500 |
|
|
|
145,560 |
|
|
|
1 |
|
|
|
110,499,153 |
|
|
|
751,496 |
|
|
|
2,096,358 |
|
|
|
1,005,697 |
|
|
|
195,985,205 |
|
|
Share-based
compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,675 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,675 |
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,403,500 |
) |
|
|
- |
|
|
|
(53,983 |
) |
|
|
(1,457,483 |
) |
|
Other
comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
215,142 |
|
|
|
- |
|
|
|
215,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2021 |
|
|
82,500 |
|
|
|
81,632,500 |
|
|
|
145,560 |
|
|
|
1 |
|
|
|
110,524,828 |
|
|
|
(652,004 |
) |
|
|
2,311,500 |
|
|
|
951,714 |
|
|
|
194,768,539 |
|
See accompanying notes to the condensed consolidated financial
statements.
Reservoir
Holdings, Inc. and Subsidiaries
Condensed
consolidated statements of cash flows
(Expressed
in U.S. dollars)
(Unaudited)
| |
|
Three Months Ended June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(1,457,483 |
) |
|
|
(944,804 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
4,047,966 |
|
|
|
3,373,978 |
|
|
Depreciation of property, plant and equipment |
|
|
31,279 |
|
|
|
55,890 |
|
|
Share-based compensation |
|
|
25,675 |
|
|
|
25,674 |
|
|
Non-cash interest charges |
|
|
218,498 |
|
|
|
183,777 |
|
|
(Gain) loss on fair value of derivative instruments |
|
|
(547,488 |
) |
|
|
254,281 |
|
|
Dividend from equity affiliates |
|
|
8,088 |
|
|
|
10,491 |
|
|
Deferred income tax |
|
|
36,519 |
|
|
|
405,136 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,823,488 |
|
|
|
875,791 |
|
|
Inventory and prepaid expenses |
|
|
(2,382,719 |
) |
|
|
(651,778 |
) |
|
Royalty advances |
|
|
(3,868,620 |
) |
|
|
(1,638,368 |
) |
|
Other assets |
|
|
- |
|
|
|
70,967 |
|
|
Accounts payable and accrued expenses |
|
|
5,891,735 |
|
|
|
5,572,390 |
|
|
Income tax payable |
|
|
442 |
|
|
|
(49,072 |
) |
|
Net cash provided by operating activities |
|
|
3,827,380 |
|
|
|
7,544,353 |
|
| |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of music catalogs |
|
|
(112,308,497 |
) |
|
|
(72,758,747 |
) |
|
Investment in equity affiliate |
|
|
(500,000 |
) |
|
|
- |
|
|
Decrease in deferred music composition acquisition costs |
|
|
44,450 |
|
|
|
- |
|
|
Purchase of property, plant and equipment |
|
|
(21,308 |
) |
|
|
(26,344 |
) |
|
Net cash used for investing activities |
|
|
(112,785,355 |
) |
|
|
(72,785,091 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Issuance of common shares, net of issuance costs |
|
|
- |
|
|
|
7,973,010 |
|
|
Proceeds from secured line of credit |
|
|
32,900,000 |
|
|
|
11,000,000 |
|
|
Repayments of secured loans |
|
|
(250,000 |
) |
|
|
(250,000 |
) |
|
Deferred financing costs paid |
|
|
- |
|
|
|
(325,968 |
) |
|
Draw on related party loans |
|
|
80,913,620 |
|
|
|
175,055 |
|
|
Net cash provided by financing activities |
|
|
113,563,620 |
|
|
|
18,572,097 |
|
| |
|
|
|
|
|
|
|
|
|
Foreign exchange impact on cash |
|
|
209,139 |
|
|
|
1,997,236 |
|
| |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
4,814,784 |
|
|
|
(44,671,405 |
) |
|
Cash and cash equivalents beginning of period |
|
|
9,209,920 |
|
|
|
58,240,123 |
|
|
Cash and cash equivalents end of period |
|
|
14,024,704 |
|
|
|
13,568,718 |
|
See accompanying notes to the condensed consolidated financial
statements.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
|
1. |
Description of business |
Reservoir Holdings, Inc. (the “Company”) was incorporated on
April 23, 2019 under the laws of Delaware for the sole purpose of
serving as the holding company of Reservoir Media Management, Inc.
(“RMM”). RMM commenced operations on April 27, 2007 and the
activities of RMM are organized into two operating segments: Music
Publishing and Recorded Music. Operations of the Music Publishing
segment involve the acquisition of interests in music catalogs from
which royalties are earned as well as signing songwriters to
exclusive agreements which give the Company an interest in the
future delivery of songs. The publishing catalog includes ownership
or control rights to more than 130,000 musical compositions that
span across historic pieces, motion picture scores and current
award-winning hits. Operations of the Recorded Music segment
involve the acquisition of sound recording catalogs as well as the
discovery and development of recording artists and the marketing,
distribution, sale and licensing of the music catalog. The Recorded
Music operations are primarily conducted through the Chrysalis
Records platform and include the ownership of over 36,000 sound
recordings.
The Company’s operations are concentrated primarily in the U.S. and
UK and, to a lesser degree, United Arab Emirates.
As discussed in Note 17, on July 28, 2021, the Company consummated
its previously announced business combination through which it
became a wholly-owned subsidiary of a publicly-traded entity listed
on the Nasdaq Stock Market LLC.
COVID-19 Pandemic
In March 2020, the World Health Organization characterized the
coronavirus (“COVID-19”) as a pandemic, and the President of the
United States declared the COVID-19 outbreak a national emergency.
The rapid spread of COVID-19 and the continuously evolving
responses to combat it have had a negative impact on the global
economy.
The Company has evaluated and continues to evaluate the potential
impact of the COVID-19 pandemic on its consolidated financial
statements. Government-imposed restrictions and general behavioral
changes in response to the pandemic adversely affected the
Company’s results of operations for the three months ended June 30,
2021 and 2020. This included performance revenue generated from
retail, restaurants, bars, gyms and live shows, synchronization
revenue, and the release schedule of physical product. Even as
government restrictions are lifted and consumer behavior starts to
return to pre-pandemic norms, it is unclear for how long and to
what extent the Company’s operations will continue to be
affected.
Although the Company has not made material changes to any estimates
or judgments that impact its consolidated financial statements as a
result of COVID-19, the extent to which the COVID-19 pandemic may
impact the Company will depend on future developments, which are
highly uncertain and cannot be predicted. Future developments could
negatively affect the Company’s operating results, including
reductions in revenue and cash flow and could impact the Company’s
impairment assessments of accounts receivable or intangible assets,
which may be material to our consolidated financial statements.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
Paycheck Protection Program Loan
During the three months ended June 30, 2020, the Company borrowed
$616,847 under the Paycheck Protection Program (“PPP”) (the “PPP
Loan”). The PPP, established as part of the Coronavirus Aid, Relief
and Economic Security Act (“CARES Act”), provided for loans to
qualifying businesses for amounts up to 2.5 times of the average
monthly payroll expenses of the qualifying business. The loans and
accrued interest are forgivable after as long as the borrower uses
the loan proceeds for eligible purposes, including payroll,
benefits, rent and utilities, and maintains its payroll levels. In
accordance with the terms of the program, the Company applied for
and received confirmation of loan forgiveness for the entire amount
borrowed under the PPP.
The Company accounted for the PPP Loan as an in-substance
government grant because it expected to meet the PPP Loan
eligibility criteria and concluded that the loan represented, in
substance, a grant that was expected to be forgiven. Proceeds from
the PPP Loan were initially recognized as a deferred income
liability and presented as an operating activity within the
Company’s consolidated statement of cash flows. Subsequently, the
Company reduced this liability and recognized a reduction in
payroll expenses on a systematic basis over the period in which the
related costs for which the PPP Loan was intended were incurred. No
interest for the PPP Loan was recognized in the Company’s financial
statements.
The accompanying condensed consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries and have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission (the
“SEC”) for interim financial information. Certain information and
note disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”) have been condensed or omitted
pursuant to such rules and regulations. Therefore, these condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes included in
the Company’s audited financial statements as of and for the fiscal
years ended March 31, 2021 and 2020.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
The condensed consolidated balance sheet as of March 31, 2021,
included herein, was derived from the audited financial statements
as of that date, but does not include all disclosures, including
certain notes required by GAAP, on an annual reporting basis.
In the opinion of management, the accompanying condensed
consolidated financial statements reflect all normal recurring
adjustments necessary to present fairly the financial position,
results of operations and cash flows for the interim periods. The
results for the three months ended June 30 are not necessarily
indicative of the results to be expected for any subsequent
quarter, the fiscal year ending March 31, 2022, or any other
period.
|
3. |
Recent accounting
pronouncements |
Accounting Standards Not Yet Adopted
As an ‘‘emerging growth company’’ (‘‘EGC’’), the Jumpstart Our
Business Startups Act (‘‘JOBS Act’’) allows the Company to delay
adoption of new or revised accounting pronouncements applicable to
public companies until such pronouncements are made applicable to
private companies. The Company has elected to use this extended
transition period under the JOBS Act. The adoption dates discussed
below reflect this election.
In February 2016, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") 2016-02, Leases: (Topic
842) (“ASU 2016-02”), which establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease
liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or
operating, with classification affecting the pattern of expense
recognition in the consolidated statements of income. For public
entities, this guidance was effective for annual reporting periods
beginning after December 15, 2018, including interim periods within
that annual reporting period. Under the guidance of ASU 2020-05,
the new standard is effective for the Company April 1, 2022 and
interim periods within the fiscal year beginning April 1, 2023. A
modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into
after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients
available. The Company has not yet completed an analysis of the
impact of the new lease guidance. Under current accounting guidance
for leases, the Company does not recognize an asset or liability
created by operating leases where the Company is the lessee.
Therefore, the Company expects an increase to its assets and
liabilities on the Company’s consolidated balance sheet as a result
of recognizing assets and liabilities for operating leases where
the Company is the lessee on the date of initial application of the
new guidance. However, the Company cannot currently quantify this
increase or the impact, if any, on its consolidated statements of
income. The Company does not expect the adoption of this new
guidance will have a material impact on the amount or timing of the
Company’s cash flows or liquidity.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments –
Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which replaces the incurred loss impairment
methodology in current US GAAP, with a methodology that reflects
expected credit losses. Subsequent to ASU 2016-13, the FASB has
issued several related ASUs amending the original ASU. The updates
are intended to provide financial statement users with more
decision-useful information about the expected credit losses on
financial instruments and other commitments to extend credit held
by a reporting entity at each reporting date. For public entities,
this guidance was effective for annual reporting periods beginning
after December 15, 2019, including interim periods within that
annual reporting period. For the Company, this update is effective
April 1, 2023, including interim periods within that fiscal year,
with early adoption permitted for annual periods beginning after
December 15, 2018. The Company has not yet evaluated the effect
that this ASU will have on the Company’s consolidated financial
statements.
In April 2020, the FASB issued ASU No. 2020-04, Reference Rate
Reform (Topic 848) (“ASU 2020-04”), which provides optional
guidance for a limited period of time to ease the potential burden
in accounting for (or recognizing the effects of) reference rate
reform on financial reporting; particularly as it relates to the
risk of cessation of LIBOR. The amendments in this ASU apply only
to contracts, hedging relationships, and other transactions that
reference LIBOR or another reference rate expected to be
discontinued because of reference rate reform. The expedients and
exceptions provided by this ASU do not apply to contract
modifications made and hedging relationships entered into or
evaluated after December 31, 2022, except for hedging relationships
existing as of December 31, 2022, that an entity has elected
certain optional expedients for and that are retained through the
end of the hedging relationship. The Company has not yet evaluated
the effect that this ASU will have on the Company’s consolidated
financial statements.
For our operating segments, Music
Publishing and Recorded Music, the Company accounts for a contract
when it has legally enforceable rights and obligations and
collectability of consideration is probable. The Company identifies
the performance obligations and determines the transaction price
associated with the contract. Revenue is recognized when, or as,
control of the promised services or goods is transferred to the
Company’s customers, and in an amount that reflects the
consideration the Company is contractually due in exchange for
those services or goods. Certain of the Company’s arrangements
include licenses of intellectual property with consideration in the
form of sales- and usage-based royalties. Royalty revenue is
recognized when the subsequent sale or usage occurs using the best
estimates available of the amounts that will be received by the
Company. The Company recognized revenue of $82,148 and $1,185,300
from performance obligations satisfied in previous periods for the
three months ended June 30, 2021 and 2020, respectively.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
Disaggregation of Revenue
The Company’s revenue consists of
the following categories during the three months ended June
30:
| |
|
2021 |
|
|
2020 |
|
| |
|
$ |
|
|
$ |
|
|
Revenue by Type |
|
|
|
|
|
|
|
|
|
Performance |
|
|
2,662,756 |
|
|
|
3,102,412 |
|
|
Digital |
|
|
6,647,432 |
|
|
|
5,905,888 |
|
|
Mechanical |
|
|
409,948 |
|
|
|
388,352 |
|
|
Synchronization |
|
|
1,951,838 |
|
|
|
1,543,353 |
|
|
Other |
|
|
593,496 |
|
|
|
401,537 |
|
| Total
Music Publishing |
|
|
12,265,470 |
|
|
|
11,341,542 |
|
|
Digital |
|
|
2,821,369 |
|
|
|
1,722,590 |
|
|
Physical |
|
|
969,019 |
|
|
|
192,349 |
|
|
Synchronization |
|
|
107,998 |
|
|
|
65,113 |
|
|
Neighboring rights |
|
|
333,231 |
|
|
|
203,884 |
|
| Total
Recorded Music |
|
|
4,231,617 |
|
|
|
2,183,936 |
|
|
Other revenue |
|
|
221,063 |
|
|
|
118,715 |
|
|
Total revenue |
|
|
16,718,150 |
|
|
|
13,644,193 |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
$ |
|
|
$ |
|
|
Revenue by Geographical Location |
|
|
|
|
|
|
|
|
|
United States Music Publishing |
|
|
6,854,023 |
|
|
|
6,894,711 |
|
|
United States Recorded Music |
|
|
1,582,849 |
|
|
|
658,251 |
|
|
United States other revenue |
|
|
221,063 |
|
|
|
118,715 |
|
| Total
United States |
|
|
8,657,935 |
|
|
|
7,671,677 |
|
|
International Music Publishing |
|
|
5,411,447 |
|
|
|
4,446,831 |
|
|
International Recorded Music |
|
|
2,648,768 |
|
|
|
1,525,685 |
|
|
Total international |
|
|
8,060,215 |
|
|
|
5,972,516 |
|
|
Total revenue |
|
|
16,718,150 |
|
|
|
13,644,193 |
|
Only the United States represented 10% or more of the Company’s
total revenues in the three months ended June 30, 2021 and
2020.
The following table reflects the change in deferred revenue during
the three months ended June 30:
| |
|
2021 |
|
|
2020 |
|
| |
|
$ |
|
|
$ |
|
|
Balance at beginning of period |
|
|
1,337,987 |
|
|
|
473,022 |
|
| Cash
received during period |
|
|
898,661 |
|
|
|
4,628,779 |
|
|
Revenue recognized during period |
|
|
(392,605 |
) |
|
|
(2,279,677 |
) |
|
Balance at end of period |
|
|
1,844,043 |
|
|
|
2,822,124 |
|
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
In
the ordinary course of business, the Company regularly acquires
music catalogs (publishing and recorded), which are typically
accounted for as asset acquisitions. During the three months ended
June 30, 2021 and 2020, the Company completed such acquisitions
totaling $111,155,618 and $70,096,954, respectively, inclusive of
deferred acquisition payments. Significant acquisition
transactions, all of which have been accounted for as asset
acquisitions, completed during the three months ended June 30, 2021
and 2020 included the following:
On June 2, 2021, the Company acquired U.S. based record label and
music publishing company Tommy Boy Music, LLC (“Tommy Boy”) for
approximately $100 million. Two of the Company’s board members were
also board members of Tommy Boy and had an equity interest in both
companies. The acquisition of Tommy Boy was accounted for as an
asset acquisition as a result of the significant concentration of
the fair value of gross assets acquired in a recorded music catalog
intangible asset (weighted average useful life of 30 years).
On April 13, 2020, the Company acquired all of the copyrights to
the musical compositions owned by Shapiro, Bernstein & Co.,
Inc. (“SBI”), one of the oldest music publishers in the United
States. The transaction was accounted for as an asset acquisition
as a result of the significant concentration of the fair value of
gross assets acquired in a publishing catalog intangible asset
(weighted average useful life of 30 years).
Intangible assets subject to
amortization consist of the following at June 30, 2021 and March
31, 2021:
| |
|
June 30, 2021 |
|
|
March 31, 2021 |
|
| |
|
$ |
|
|
$ |
|
|
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
Music catalogs (publishing and recorded) |
|
|
569,076,831 |
|
|
|
457,662,303 |
|
|
Artist management contracts |
|
|
999,220 |
|
|
|
995,464 |
|
| Gross
intangible assets |
|
|
570,076,051 |
|
|
|
458,657,767 |
|
|
Accumulated amortization |
|
|
(69,485,010 |
) |
|
|
(65,419,757 |
) |
|
Intangible assets, net |
|
|
500,591,041 |
|
|
|
393,238,010 |
|
Amortization expense totaled $4,047,966 and $3,373,978 in the three
months ended June 30, 2021 and 2020, respectively.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
The Company made royalty advances totaling $6,258,299 and
$3,718,678 during the three months ended June 30, 2021 and 2020,
respectively, recoupable from the writer’s share of future
royalties otherwise payable, in varying amounts. Advances expected
to be recouped within the next 12 months are classified as current
assets, with the remainder classified as noncurrent assets.
| |
|
Three Months Ended June 30, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
$ |
|
|
$ |
|
|
Balance at beginning of period |
|
|
41,582,080 |
|
|
|
40,263,439 |
|
| Additions |
|
|
6,258,299 |
|
|
|
3,718,678 |
|
|
Recoupments |
|
|
(2,389,679 |
) |
|
|
(2,080,310 |
) |
|
Balance at end of period |
|
|
45,450,700 |
|
|
|
41,901,807 |
|
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
|
8. |
Loans and secured notes
payable |
Long-term debt consists of the following:
| |
|
June 30, 2021 |
|
|
March 31, 2021 |
|
| |
|
$ |
|
|
$ |
|
|
Secured loan bearing interest at LIBOR plus a spread |
|
|
18,250,000 |
|
|
|
18,500,000 |
|
|
Secured line of credit bearing interest at LIBOR plus a spread |
|
|
229,990,848 |
|
|
|
197,090,848 |
|
|
Debt issuance costs, net |
|
|
(2,840,475 |
) |
|
|
(3,058,973 |
) |
| |
|
|
245,400,373 |
|
|
|
212,531,875 |
|
|
Less: short term portion of secured loan |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
| |
|
|
244,400,373 |
|
|
|
211,531,875 |
|
Credit Facilities
On December 19, 2014, RMM entered into a credit agreement (the
“Credit Agreement”) governing the Company’s secured term loan (the
"secured loan") and secured revolving credit facility (the "secured
line of credit” and together with the secured loan, the "Credit
Facilities"). The Credit Facilities were subsequently amended
multiple times and were refinanced in July 2021. See Note 17.
Prior to the refinancing, the principal amount of the term loan
amortized in quarterly instalments equal to $250,000 through June
30, 2024, with the balance due in full by October 16, 2024, subject
to certain prepayment conditions as defined in the loan agreements.
Repayment of the line of credit was due in full by October 16,
2024, subject to certain conditions. The Credit Facilities also
included an incremental commitment amount (the “accordion feature”)
that is not to exceed a $50,000,000 increase to the revolving
credit facility. At June 30, 2021, the secured line of credit had a
borrowing capacity of $230,000,000.
Borrowings under the Credit Facilities are secured by all the
Company’s assets. The interest rate applicable to borrowings under
the Credit Facilities is 1M LIBOR plus 2.50%.
Capitalized debt issuance costs are amortized over the term of the
Credit Agreement into interest expense using the effective interest
method.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
Interest rate swaps
As of March 31, 2019, the Company had entered into two interest
rate swaps, both of which expire on March 10, 2022, one with a
notional amount of $40,228,152 and one for $59,325,388. Under the
terms of the interest rate swaps, the Company pays a fixed rate of
2.812% and 2.972% respectively, to the counterparty and receives a
floating interest from the counter party based on LIBOR with
reference to notional amounts adjusted to match the original
scheduled principal repayments pursuant to the indenture agreement.
The notional amount of the interest rate swaps is $97,345,585 at
June 30, 2021 and $97,533,496 at March 31, 2021.
In October 2019 and January 2020, the Company added two additional
interest rate swaps in the amounts of $8,875,000 and $88,098,862,
respectively. These swaps have an effective date of March 10, 2022
which coincides with the expiration of the previous two swaps, and
the Company will pay a fixed rate of 1.602% and 1.492%,
respectively, and receives a floating interest from the
counterparty based on LIBOR with reference to notional amounts
adjusted to match the original scheduled principal repayments
pursuant to the indenture agreement.
The income tax benefit for the three months ended June 30, 2021 and
2020 was $510,646 (25.9% effective tax rate) and $321,923 (25.4%
effective tax rate), respectively. The effective tax rates during
these periods reflects the amount and mix of income from multiple
tax jurisdictions.
|
10. |
Supplementary cash flow
information |
Summary of interest paid and income taxes paid for the three months
ended June 30 comprised the following:
| |
|
2021 |
|
|
2020 |
|
| |
|
$ |
|
|
$ |
|
|
Interest paid |
|
|
2,214,072 |
|
|
|
2,023,919 |
|
| Income
taxes paid |
|
|
- |
|
|
|
26,187 |
|
|
11. |
Amounts due to / (from) related
parties |
The Company has various shared services agreements with its
majority shareholder and other affiliated entities under the
control of its majority shareholder. These agreements cover
services such as IT support and re-billed services of staff who
perform services across multiple entities.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
The acquisition of Tommy Boy was financed using cash on hand and
borrowings from related parties (the “Tommy Boy Related Party
Notes”), which were outstanding at June 30, 2021 as indicated in
the table below. The Tommy Boy Related Party Notes bear interest of
4.66% per year and are payable upon the earlier of the closing of
the business combination with Roth CH II Acquisition Co. or
December 21, 2021. The Tommy Boy Related Party Notes and accrued
interest were paid upon the closing of the business combination
with Roth CH II Acquisition Co. on July 28, 2021, as discussed in
Note 17.
| |
|
June 30, 2021 |
|
|
March 31, 2021 |
|
| |
|
$ |
|
|
$ |
|
| Due to
(from) Wesbild Holdings Ltd., parent company of Wesbild Inc. |
|
|
|
|
|
|
|
|
|
Unsecured, bears no interest, |
|
|
|
|
|
|
|
|
|
with no specific terms of repayment |
|
|
149,603 |
|
|
|
83,480 |
|
| Sub-total |
|
|
149,603 |
|
|
|
83,480 |
|
| |
|
|
|
|
|
|
|
|
| Due to
(from) DRI Capital Inc., a subsidiary of Wesbild Holdings Ltd. |
|
|
|
|
|
|
|
|
|
Unsecured, bears no interest, |
|
|
|
|
|
|
|
|
|
with no specific terms of repayment |
|
|
147,817 |
|
|
|
81,738 |
|
| Due to
Reservoir Media Management (Canada) Inc., |
|
|
|
|
|
|
|
|
|
a subsidiary of Wesbild Holdings Ltd. |
|
|
|
|
|
|
|
|
|
Unsecured, bears no interest, |
|
|
|
|
|
|
|
|
|
with no specific terms of repayment |
|
|
268,423 |
|
|
|
124,954 |
|
| Sub-total |
|
|
416,240 |
|
|
|
206,692 |
|
| |
|
|
|
|
|
|
|
|
| Tommy
Boy Related Party Notes: |
|
|
|
|
|
|
|
|
| Due to
Wesbild Holdings Ltd., parent company of Wesbild Inc. |
|
|
38,000,000 |
|
|
|
- |
|
| Due to
ER TB, LLC, controlled by shareholder of the Company |
|
|
28,870,155 |
|
|
|
- |
|
|
Due to BTCSJC Trust, controlled by shareholder of the Company |
|
|
13,767,794 |
|
|
|
- |
|
| Sub-total |
|
|
80,637,949 |
|
|
|
- |
|
| |
|
|
81,203,792 |
|
|
|
290,172 |
|
Issuance of common shares
During the first quarter of fiscal 2021, the Company issued 5,333
shares of common stock for aggregate consideration of $8,000,009 to
existing shareholders to fund further acquisitions. The Company
incurred $27,000 of issuance costs in connection with the issuance
of this common stock, which the Company accounted for as a
reduction in the proceeds from the common stock.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
|
13. |
Earnings (loss) per share |
The following table summarizes the basic and diluted loss per share
calculation for the three months ended June 30:
| |
|
2021 |
|
|
2020 |
|
|
Basic and diluted loss per common share |
|
|
|
|
|
|
|
|
|
Net loss attributable to Reservoir Holdings, Inc. |
|
$ |
(1,403,500 |
) |
|
$ |
(886,014 |
) |
|
Basic and diluted weighted average common shares outstanding |
|
|
145,560 |
|
|
|
142,161 |
|
|
Basic and diluted loss per common share |
|
$ |
(9.64 |
) |
|
$ |
(6.23 |
) |
The Company’s Preferred Shares are participating securities but are
excluded from the loss per share calculation as they do not have an
obligation to share or fund in the Company’s net losses and their
inclusion would be anti-dilutive. Additionally, because of their
anti-dilutive effect, 7,624 common share equivalents comprised of
stock options have been excluded from the diluted earnings per
share calculation for the three months ended June 30, 2021 and
2020.
|
14. |
Financial instruments |
The Company is exposed to the following risk related to its
financial instruments:
Credit risk arises from the possibility that the Company’s debtors
may be unable to fulfill their financial obligations. Revenues
earned from publishing and distribution companies are concentrated
in the music and entertainment industry. The Company monitors its
exposure to credit risk on a regular basis.
The Company is exposed to market risk from changes in interest
rates on its secured loan. As described in Note 8, the Company
entered into interest rate swap agreements to partially reduce its
exposure to fluctuations in interest rates on its secured
loans.
The fair value of the outstanding interest rate swaps was a
$4,019,049 liability at June 30, 2021 and a $4,566,537 liability at
March 31, 2021. Fair value is determined using Level 2 inputs,
which are based on quoted prices and market observable data of
similar instruments. The change in the unrealized fair value of the
swaps of $547,488 during the three months ended June 30, 2021 was
recorded as a gain on changes in fair value of derivative
instruments. The change in the unrealized fair value of the swaps
of $254,281 during the three months ended June 30, 2020 was
recorded as a loss on changes in fair value of derivative
instruments.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
|
(c) |
Foreign exchange risk |
The company is exposed to foreign exchange risk in fluctuations of
currency rates on its revenue from royalties, writer’s fee and its
subsidiaries’ operations.
|
(d) |
Financial instruments |
Financial instruments not described elsewhere include cash,
restricted cash, accounts receivable, accounts payable, accrued
liabilities, secured loans payable and borrowing under its line of
credit. The carrying values of these instruments at June 30, 2021
do not differ materially from their respective fair values due to
the immediate or short-term duration of these items or their
bearing market related rates of interest.
The fair value of amounts due from and owed to related parties are
impracticable to determine due to the related party nature of such
amounts and the lack of readily determinable secondary market.
|
15. |
Contingencies and commitments |
On September 8, 2020, an action was filed in the United States
District Court for the Southern District of New York against a
consolidated subsidiary of the Company and certain prior owners
(“Prior Owners”) of certain music copyrights acquired by the
Company. The legal action asserts that in 2000, the plaintiff
entered into certain engagement letters (the “Engagement Letters”)
with certain of the Prior Owners, which purportedly gave the
plaintiff, among other things, an exclusive right to broker any
future sale by the Prior Owners of the music copyrights acquired by
the Company as well as a commission fee. Based on the Engagement
Letters’ alleged grant of a security interest in such music
copyrights, the plaintiff filed financing statements and various
notices of liens, in the amount of $2,651,125, in the United States
Copyright Office between 2000 and 2018. The plaintiff alleges,
among other things, that the Prior Owners breached the Engagement
Letters by consummating a purchase agreement with a consolidated
subsidiary of the Company in 2018 without involving the plaintiff;
that a consolidated subsidiary of the Company tortiously interfered
with the Engagement Letters; and that the Plaintiff is permitted to
foreclose on the lien, including foreclosing on those music
copyrights acquired by a consolidated subsidiary of the Company
under the 2018 purchase agreement. The Company determined a loss
resulting from the action is not reasonably possible. The Company
believes all claims and threatened claims against the consolidated
subsidiary of the Company in this legal action are without merit
and intends to defend vigorously against them. The Company also
believes it has obtained appropriate indemnifications from the
Prior Owners in relation to the claims in this legal action.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
In addition to the foregoing, the Company is subject to claims and
contingencies in the normal course of business. To the extent the
Company cannot predict the outcome of the claims and contingencies
or estimate the amount of any loss that may result, no provision
for any contingent liabilities has been made in the consolidated
financial statements. The Company believes that losses resulting
from these matters, if any, would not have a material adverse
effect on the financial position, results of operations or cash
flows of the Company. All such matters which the Company concludes
are probable to result in a loss and for which management can
reasonably estimate the amount of such loss have been accrued for
within the accompanying consolidated financial statements.
The Company’s business is organized in two reportable segments:
Music Publishing and Recorded Music. The Company identified its
Chief Executive Officer as its Chief Operating Decision Maker
(“CODM”). The Company’s CODM evaluates financial performance of its
segments based on several factors, of which the primary financial
measure is operating income before depreciation and amortization
(“OIBDA”). While each segment incurs direct administration expenses
reflected in segment income, all corporate-level administration
expenses, such as executive management, are included in the Music
Publishing segment and are not allocated between segments.
The accounting policies of the Company’s business segments are
consistent with the Company's policies for the consolidated
financial statements. The Company does not have sales between
segments.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
The following tables present Total revenue and a reconciliation of
OIBDA to operating income by segment for the three months ended
June 30, 2021 and 2020:
| |
|
Music
Publishing |
|
|
Recorded
Music |
|
|
Other |
|
|
Consolidated |
|
| For the Three
Months Ended June 30, 2021: |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Total revenue |
|
|
12,265,470 |
|
|
|
4,231,617 |
|
|
|
221,063 |
|
|
|
16,718,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of OIBDA to operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(316,020 |
) |
|
|
537,883 |
|
|
|
59,825 |
|
|
|
281,688 |
|
|
Amortization and depreciation |
|
|
3,184,336 |
|
|
|
869,853 |
|
|
|
25,056 |
|
|
|
4,079,245 |
|
|
OIBDA |
|
|
2,868,316 |
|
|
|
1,407,736 |
|
|
|
84,881 |
|
|
|
4,360,933 |
|
| |
|
Music
Publishing |
|
|
Recorded
Music |
|
|
Other |
|
|
Consolidated |
|
| For the Three
Months Ended June 30, 2020: |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Total revenue |
|
|
11,341,542 |
|
|
|
2,183,936 |
|
|
|
118,715 |
|
|
|
13,644,193 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of OIBDA to operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
1,039,565 |
|
|
|
270,706 |
|
|
|
(3,872 |
) |
|
|
1,306,399 |
|
|
Amortization and depreciation |
|
|
2,886,047 |
|
|
|
543,821 |
|
|
|
- |
|
|
|
3,429,868 |
|
|
OIBDA |
|
|
3,925,612 |
|
|
|
814,527 |
|
|
|
(3,872 |
) |
|
|
4,736,267 |
|
On
July 28, 2021 (the “Closing Date”), the Company consummated its
previously announced business combination (the “Business
Combination”) by and among Roth CH Acquisition II Co., a Delaware
corporation (“ROCC”), Roth CH II Merger Sub Corp., a Delaware
corporation and a wholly-owned subsidiary of ROCC (“Merger Sub”)
and the Company pursuant to the agreement and plan of merger, dated
as of April 14, 2021 (the “Merger Agreement”). Upon the
completion of the Business Combination and other transactions
contemplated by the Merger Agreement (the “Transactions”), Roth CH
Acquisition II Co. was renamed “Reservoir Media, Inc.” (“RMI”) and
the Company became a wholly-owned subsidiary of RMI, whose common
stock and warrants are listed on the Nasdaq Stock Market LLC
(“NASDAQ”) under the ticker symbols “RSVR” and “RSVRW,”
respectively. The Business Combination will be accounted for as a
reverse recapitalization, with the Company determined to be the
accounting acquirer.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
Immediately prior to the consummation of the Business Combination,
each Preferred Share of the Company that was issued and outstanding
was automatically converted into a number of shares of common
stock, par value $0.00001 per share, of the Company at the
then-effective conversion rate as calculated pursuant to the
Company’s second amended and restated certificate of incorporation
(the “Preferred Share Conversion”).
Each share of the Company’s common stock (including the common
stock resulting from the Preferred Share Conversion) that was
issued and outstanding immediately prior to the consummation of the
Business Combination was canceled and converted into the right to
receive 196.06562028646 shares of common stock (the “Exchange
Ratio”), par value $0.0001 per share, of RMI (the “RMI Common
Stock”). Additionally, each option to acquire a share of the
Company’s common stock that was outstanding immediately prior to
the consummation of the Business Combination became fully vested in
accordance with the original terms of the awards and was converted
into an option to purchase shares of RMI Common Stock (such option,
an “RMI Exchanged Option”), with the number of shares of RMI Common
Stock subject to the options and exercise price of each RMI
Exchanged Option adjusted commensurately with the Exchange
Ratio.
In connection with the Business Combination, ROCC entered into
subscription agreements with certain accredited investors (the
“PIPE Investors”) whereby it issued 15,000,000 shares of ROCC
Common Stock at a purchase price of $10.00 per share for an
aggregate purchase price of $150.0 million (the “PIPE Investment”).
ROCC consummated the PIPE Investment immediately prior to the
consummation of the Transaction and incurred fees in connection
with the closing of the PIPE Investment in the amount of
approximately $5.8 million, which will be accounted for as a
reduction in proceeds.
A portion of the proceeds from the Business Combination and PIPE
Investment were used to pay transaction fees and expenses, pay
approximately $81,300,000 to retire the Tommy Boy Related Party
Notes and related accrued interest, repay the secured loan
outstanding in an amount of $18,250,000 and make a payment totaling
$36,750,000 on the secured line of credit.
Debt Refinancing
In connection with the consummation of the Business Combination,
RMM completed a refinancing of its Credit Facilities (the “Debt
Refinancing”), pursuant to that certain Fourth Amended and Restated
Credit Agreement, dated as of July 28, 2021 (the “RMM Credit
Agreement”). The RMM Credit Agreement provides RMM with a senior
secured revolving credit facility in the amount of $248,750,000
(the “Senior Credit Facility”).
The Senior Credit Facility has a scheduled maturity date of October
16, 2024. Borrowings under the RMM Credit Agreement bear interest
at a rate equal to either the sum of a base rate plus a margin of
1.25% or the sum of a LIBO rate plus a margin of 2.25%. The Company
is also required to pay an unused fee in respect of unused
commitments under the RMM Credit Facility, if any, at a rate of
0.25% per annum. Substantially all tangible and intangible assets
of RMI, the Company, RMM and the other subsidiary guarantors are
pledged as collateral to secure the obligations of RMM under the
RMM Credit Agreement.
Reservoir Holdings, Inc. and Subsidiaries
Notes to the condensed consolidated financial statements
June 30, 2021 and 2020
(Expressed in U.S. dollars)
(Unaudited)
The RMM Credit Agreement contains customary covenants limiting the
ability of RMI, the Company, RMM and certain of its subsidiaries
to, among other things, incur debt or liens, merge or consolidate
with others, make investments, make cash dividends, redeem or
repurchase capital stock, dispose of assets, enter into
transactions with affiliates or enter into certain restrictive
agreements. In addition, RMI, on a consolidated basis with its
subsidiaries, must comply with financial covenants requiring RMI to
maintain (i) a total leverage ratio of no greater than 6.00:1.00 as
of the end of each fiscal quarter, (ii) a fixed charge coverage
ratio of not less than 1.25:1.00 for each four fiscal quarter
period and (iii) a consolidated senior debt to library value ratio
of 0.55, subject to certain adjustments. If RMM does not comply
with the covenants in the RMM Credit Agreement, the lenders may,
subject to customary cure rights, require the immediate payment of
all amounts outstanding under the Senior Credit Facility.
|
(b) |
Subsequent events have been evaluated through August 16, 2021,
which is the date these financial statements were available for
issuance. |
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF RESERVOIR HOLDINGS,
INC.
The following discussion and analysis of Reservoir Holdings,
Inc.’s financial condition and results of operations should be read
in conjunction with Reservoir Holdings, Inc.’s condensed
consolidated financial statements, including the accompanying notes
thereto. Certain statements contained in the discussion and
analysis set forth below include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and are intended to be covered by the safe harbor created
thereby. Reservoir Holdings, Inc. has based these forward-looking
statements on management’s current expectations, projections and
forecasts about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions
about Reservoir Holdings, Inc. that may cause its actual business,
financial condition, results of operations, performance and/or
achievements to be materially different from any future business,
financial condition, results of operations, performance and/or
achievements expressed or implied by these forward-looking
statements. Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those described under
“Risk Factors” and “Cautionary Note Regarding Forward-Looking
Statements” in Reservoir Media, Inc.’s Registration Statement on
Form S-1 (file no. 333-257610) (the “Registration
Statement”) and Reservoir Media, Inc.’s other filings with the
Securities and Exchange Commission. The words “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intends,”
“may,” “might,” “plan,” “possible,” “potential,” “predict,”
“project,” “target,” “goal,” “shall,” “should,” “will,” “would” and
similar expressions may identify forward-looking statements, but
the absence of these words does not mean that a statement is not
forward-looking. In addition, any statements that refer to
expectations, projections, forecasts or other characterizations of
future events or circumstances, including any underlying
assumptions, are forward-looking statements.
Unless the context otherwise requires, the terms “we,”
“us,” “our” and “Reservoir” refer collectively
to Reservoir Holdings, Inc. and its consolidated
subsidiaries.
Introduction
Reservoir was incorporated on April 23, 2019 under the laws of the
State of Delaware for the sole purpose of serving as the holding
company of Reservoir Media Management, Inc. (“Reservoir Media
Management”). The activities of Reservoir are generally
organized into two operating segments: Music Publishing and
Recorded Music. Operations of the Music Publishing segment involve
the acquisition of interests in music catalogs from which royalties
are earned as well as signing songwriters to exclusive agreements
which give Reservoir an interest in the future delivery of songs.
Operations of the Recorded Music segment involve the acquisition of
sound recording catalogs as well as the discovery and development
of recording artists and the marketing, distribution, sale and
licensing of the music catalogs. Reservoir is a holding company
that conducts substantially all of its business operations through
Reservoir Media Management and Reservoir Media Management Inc.’s
subsidiaries.
This management’s discussion and analysis of financial condition
and results of operations is provided as a supplement to the
condensed consolidated financial statements, including the
accompanying notes thereto, as of June 30, 2021 and for the three
months ended June 30, 2021 and June 30, 2020 to help provide an
understanding of our financial condition and results of operations.
This management’s discussion and analysis of financial condition
and results of operations is organized as follows:
|
• |
Business overview. This section provides a
general description of our business, as well as a discussion of
factors that we believe are important in understanding our results
of operations and comparability and in anticipating future
trends. |
|
• |
Results of operations. This section provides an
analysis of our results of operations for the three months ended
June 30, 2021 and June 30, 2020. This analysis is presented on both
a consolidated and segment basis. |
|
• |
Liquidity and capital resources. This section
provides an analysis of our cash flows for the three months ended
June 30, 2021 and June 30, 2020, as well as a discussion of our
liquidity and capital resources as of June 30, 2021. The discussion
of our liquidity and capital resources includes recent debt
financings and a summary of the key debt covenant compliance
measures under our debt agreements. |
|
• |
Critical accounting policies. This section
identifies those accounting policies that are considered important
to Reservoir’s results of operations and financial condition,
require significant judgement and/or involve significant management
estimates. Reservoir’s significant accounting policies, including
those considered to be critical accounting policies, are summarized
in Note 2 to Reservoir’s consolidated financial statements for the
year ended March 31, 2021 included in the Registration
Statement. |
Use of OIBDA
We evaluate our operating performance based on several factors,
including our primary financial measure of operating income (loss)
before non-cash depreciation of tangible assets and non-cash
amortization of intangible assets (“OIBDA”). We
consider OIBDA to be an important indicator of the operational
strengths and performance of our businesses and believe this
non-GAAP measure provides useful information to investors because
it removes the significant impact of amortization from our results
of operations. However, a limitation of the use of OIBDA as a
performance measure is that it does not reflect the periodic costs
of certain capitalized tangible and intangible assets used in
generating revenues in our businesses and other non-operating
income (loss). Accordingly, OIBDA should be considered in addition
to, not as a substitute for, operating income (loss), net income
(loss) attributable to Reservoir and other measures of financial
performance reported in accordance with GAAP. In addition, our
definition of OIBDA may differ from similarly titled measures used
by other companies. A reconciliation of consolidated OIBDA to
operating income (loss) and net income (loss) attributable to
Reservoir is provided in “—Results of Operations.”
Business Overview and Recent Developments
We are an independent music company operating in music publishing
and recorded music. We represent over 130,000 copyrights in our
publishing business and over 36,000 master recordings in our
recorded music business. Both of our business areas are populated
with hit songs dating back to the early 1900s representing an array
of artists across genre and geography. We classify our business
into two fundamental operations: Music Publishing and Recorded
Music. A brief description of each of those operations is presented
below.
Components of Our Results of Operations
Music Publishing Operations
Music Publishing is an intellectual property business focused on
generating revenue from uses of the musical composition itself. In
return for promoting, placing, marketing and administering the
creative output of a songwriter or engaging in those activities for
other rightsholders, our Music Publishing business garners a share
of the revenues generated from use of the musical compositions.
The operations of our Music Publishing business are conducted
principally through Reservoir Media Management, our global music
publishing company headquartered in New York City, with operations
in multiple countries through various subsidiaries, affiliates and
non-affiliated licensees and sub-publishers. We own or control
rights to more than 130,000 musical compositions, including
numerous pop hits, American standards, folk songs and motion
picture and theatrical compositions. Assembled over many years, our
current award-winning active songwriters exceed 100, while the
catalog includes over 5,000 clients representing a diverse range of
genres, including pop, rock, jazz, classical, country, R&B,
hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul,
Broadway, techno, alternative and gospel.
Music Publishing revenues are derived from five main sources:
|
• |
Performance: the rightsholder receives
revenues if the musical composition is performed publicly through
broadcast of music on television, radio and cable and in retail
locations (e.g., bars and restaurants), live performance at
a concert or other venue (e.g., arena concerts and
nightclubs), and performance of music in staged theatrical
productions; |
|
• |
Digital: the rightsholder receives
revenues with respect to musical compositions embodied in
recordings distributed in streaming services, download services and
other digital music services; |
|
• |
Mechanical: the rightsholder receives
revenues with respect to musical compositions embodied in
recordings sold in any machine readable format or configuration
such as streaming, downloads, vinyl, CDs and DVDs; |
|
• |
Synchronization: the rightsholder receives
revenues for the right to use the musical composition in
combination with visual images such as in films or television
programs, television commercials and video games as well as from
other uses such as YouTube and other digital media platforms such
as TikTok and Peloton; and |
|
• |
Other: the rightsholder receives revenues
for use in sheet music and other uses. |
The principal costs associated with our Music Publishing business
are as follows:
|
• |
Writer royalties and other publishing costs: the
artist and repertoire (“A&R”) costs associated
with (i) paying royalties to songwriters, co-publishers and other
copyright holders in connection with income generated from the uses
of their works and (ii) signing and developing songwriters;
and |
|
• |
Administration expenses: the costs associated
with general overhead, and other administrative expenses, as well
as selling and marketing. |
Recorded Music Operations
Our Recorded Music business consists of three primary areas of
sound recording ownership. First is the active marketing,
promotion, distribution, sale and licensing of newly created
frontline sound recordings from Current Artists that we own and
control. This is a new area of focus for Reservoir and does not yet
produce significant revenue. The second is the active marketing,
promotion, distribution, sale and license of previously recorded
and subsequently acquired Catalog recordings. The third is
acquisition of full or partial interests in existing record labels,
sound recording catalogs or income rights to a royalty stream
associated with an established recording artist or producer
contract in connection with existing sound recordings. Acquisition
of these income participation interests are typically in connection
with recordings that are owned, controlled, and marketed by other
record labels.
Our Current Artist and Catalog recorded music businesses are both
primarily handled by our Chrysalis Records label based in London
and our Tommy Boy record label based in New York City. In the
United States, we also manage some select Catalog recorded music
under our Philly Groove Records and Reservoir Records labels. We
also own income participation interests in recordings by The Isley
Brothers, The Commodores, Wisin and Yandel, and an interest in the
Loud Records catalog containing recordings by the Wu Tang Clan. Our
core Catalog includes recordings under the Chrysalis Records label
by artists such as Sinéad O’Connor, The Specials, Generation X and
The Waterboys, as well as recordings under the Tommy Boy record
label by artists such as Coolio, House of Pain, Naughty By Nature,
Everlast and Digital Underground.
Our Current Artist and Catalog recorded music distribution is
handled by a network of distribution partners. Chrysalis Records
Catalog releases are distributed through AWAL while our Chrysalis
Records Current Artist releases are distributed through PIAS. Tommy
Boy Music Catalog releases are distributed via our membership with
MERLIN, AMPED and other partners. MERLIN is one of the top global
digital rights agencies in the world negotiating licenses on behalf
of many independent record labels, distributors, and other music
rights holders.
Through our distribution network, our music is being sold in
physical retail outlets as well as in physical form to online
physical retailers, such as amazon.com, and distributed in digital
form to an expanding universe of digital partners, including
streaming services such as Amazon, Apple, Deezer, SoundCloud,
Spotify, Tencent Music Entertainment Group and YouTube, radio
services such as iHeart Radio and SiriusXM, and download services.
We also license music digitally to fitness platforms such as Apple
Fitness+, Equinox, Hydrow and Peloton and social media outlets such
as Facebook, Instagram, TikTok and Triller.
Recorded Music revenues are derived from four main sources:
|
• |
Digital: the rightsholder receives revenues with
respect to streaming and download services; |
|
• |
Physical: the rightsholder receives revenues with
respect to sales of physical products such as vinyl, CDs and
DVDs; |
|
• |
Synchronization: the rightsholder receives
royalties or fees for the right to use sound recordings in
combination with visual images such as in films or television
programs, television commercials and video games; and |
|
• |
Neighboring Rights: the rightsholder also
receives royalties if sound recordings are performed publicly
through broadcast of music on television, radio, and cable, and in
public spaces such as shops, workplaces, restaurants, bars and
clubs. |
The principal costs associated with our Recorded Music business are
as follows:
|
• |
Artist royalties and other recorded costs: the
A&R costs associated with (i) paying royalties to recording
artists, producers, songwriters, other copyright holders and trade
unions, (ii) signing and developing recording artists and (iii)
creating master recordings in the studio; and product costs to
manufacture, package and distribute products to wholesale and
retail distribution outlets; and |
|
• |
Administration expenses: the costs associated
with general overhead and other administrative expenses as well as
the costs associated with the promotion and marketing of recording
artists and music, including costs to produce music videos for
promotional purposes and artist tour support. |
Business Combination
On April 14, 2021, Reservoir entered into an agreement and plan of
merger with Roth CH Acquisition II Co., a Delaware corporation
(“ROCC”), a publicly traded special purpose
acquisition company with $115.0 million in the trust account, and
Roth CH II Merger Sub Corp., a Delaware corporation and a
wholly-owned subsidiary of ROCC (“Merger Sub”),
pursuant to which Merger Sub merged with and into Reservoir, with
Reservoir surviving as a wholly-owned subsidiary of ROCC and the
securityholders of Reservoir becoming securityholders of ROCC and
“Roth CH Acquisition II Co.” was renamed “Reservoir Media, Inc.”
(the “Business Combination”). The Business
Combination was funded by a combination of ROCC’s cash held in the
trust account (after any redemptions by its public stockholders in
connection with consummation of the Business Combination), a full
equity roll-over from the former stockholders of Reservoir and
proceeds from the private investment in public equity transaction
in the amount of $150.0 million that closed concurrently with the
consummation of the Business Combination. The Business Combination
was approved by the ROCC’s stockholders on July 27, 2021 and was
consummated on July 28, 2021. The Business Combination is accounted
for as a reverse recapitalization, with Reservoir determined to be
the accounting acquirer.
COVID-19 Pandemic
In January 2020, a new strain of coronavirus, COVID-19, was
identified in Wuhan, China. On March 11, 2020, the World Health
Organization declared a global pandemic. The global pandemic and
governmental responses thereto have disrupted physical and
manufacturing supply chains and required the closures of physical
retailers. Additionally, stay-at-home orders, limited indoor and
outdoor gatherings and other restrictions have negatively affected
our business in other ways, such as, making it impossible to hold
live concert tours, delaying the release of new recordings and
disrupting the production and release of motion pictures and
television programs. However, the disruption from the COVID-19
pandemic may have accelerated growth of other revenue streams such
as fitness and interactive gaming (including augmented reality and
virtual reality).
Factors Affecting Results of Operations and
Comparability
Throughout Reservoir’s history, we have constantly acquired new
assets and subsidiaries and signed new writers and more recently
new recording artists. These investing activities have had the
largest impact on our growth over time. Reservoir has also invested
in its operations to create a platform for the Music Publishing and
Recorded Music segments to scale and grow. The most significant
acquisitions of size during the three months ended June 30, 2021
and June 31, 2020 were as follows:
|
• |
On April 13, 2020, we acquired, through an asset purchase
agreement, all of the music assets of three entities doing business
as Shapiro, Bernstein & Co., a century old United States music
publishing company, which included a diverse catalog of primarily
music publishing rights and some ancillary rights. The investment
also included the acquisition, through a share purchase agreement,
of Shapiro, Bernstein & Co. Limited, a UK company, which
enabled us to take advantage of an at-source network of collections
across Europe. |
|
• |
On June 29, 2020, we acquired, through an asset purchase
agreement, all of the music publishing assets of the estate of Bob
Crewe, which included writer share and publisher share of his
diverse music catalog. |
|
• |
On June 2, 2021, we acquired, through a membership interest
purchase agreement, Tommy Boy Music, LLC ("Tommy
Boy"), a 40-year-old record label, which included a diverse
catalog of primarily recorded music rights and some music
publishing rights. |
Results of Operations for the Three Months Ended June 30, 2021
vs. Three Months Ended June 30, 2020
Income Statement
Our income statement was composed of the following amounts (in
thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
| Revenues |
|
|
16,718 |
|
|
|
13,644 |
|
|
|
3,074 |
|
|
|
23 |
% |
| Costs and
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of
revenue |
|
|
7,692 |
|
|
|
5,903 |
|
|
|
1,789 |
|
|
|
30 |
% |
|
Amortization and depreciation |
|
|
4,079 |
|
|
|
3,430 |
|
|
|
649 |
|
|
|
19 |
% |
|
Administration expenses |
|
|
4,665 |
|
|
|
3,005 |
|
|
|
1,660 |
|
|
|
55 |
% |
|
Total costs and expenses |
|
|
16,436 |
|
|
|
12,338 |
|
|
|
4,098 |
|
|
|
33 |
% |
| Operating Income |
|
|
282 |
|
|
|
1,306 |
|
|
|
(1,024 |
) |
|
|
(78 |
)% |
| Interest expense |
|
|
(2,779 |
) |
|
|
(2,208 |
) |
|
|
(571 |
) |
|
|
26 |
% |
| (Loss) Gain on
foreign exchange |
|
|
(18 |
) |
|
|
(116 |
) |
|
|
98 |
|
|
|
(84 |
)% |
| Gain (Loss) on fair
value of swaps |
|
|
547 |
|
|
|
(254 |
) |
|
|
801 |
|
|
|
(315 |
)% |
|
Interest and other income |
|
|
- |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
(100 |
)% |
| Income before income
taxes |
|
|
(1,968 |
) |
|
|
(1,267 |
) |
|
|
(701 |
) |
|
|
55 |
% |
|
Income tax expense |
|
|
(511 |
) |
|
|
(322 |
) |
|
|
(189 |
) |
|
|
59 |
% |
| Net income |
|
|
(1,457 |
) |
|
|
(945 |
) |
|
|
(512 |
) |
|
|
54 |
% |
|
Net loss attributable to noncontrolling interests |
|
|
54 |
|
|
|
59 |
|
|
|
(5 |
) |
|
|
(8 |
)% |
|
Net income attributable to Reservoir Holdings, Inc. |
|
|
(1,404 |
) |
|
|
(886 |
) |
|
|
(518 |
) |
|
|
58 |
% |
Revenues
Our revenues were composed of the following amounts (in
thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
Revenue by Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance |
|
$ |
2,663 |
|
|
$ |
3,102 |
|
|
$ |
(439 |
) |
|
|
(14 |
)% |
| Digital |
|
|
6,647 |
|
|
|
5,906 |
|
|
|
741 |
|
|
|
13 |
% |
| Mechanical |
|
|
410 |
|
|
|
388 |
|
|
|
22 |
|
|
|
6 |
% |
|
Synchronization |
|
|
1,952 |
|
|
|
1,543 |
|
|
|
409 |
|
|
|
27 |
% |
|
Other |
|
|
593 |
|
|
|
402 |
|
|
|
191 |
|
|
|
48 |
% |
| Total Music
Publishing |
|
|
12,265 |
|
|
|
11,342 |
|
|
|
923 |
|
|
|
8 |
% |
| Digital |
|
|
2,821 |
|
|
|
1,723 |
|
|
|
1,098 |
|
|
|
64 |
% |
| Physical |
|
|
969 |
|
|
|
192 |
|
|
|
777 |
|
|
|
405 |
% |
|
Synchronization |
|
|
108 |
|
|
|
65 |
|
|
|
43 |
|
|
|
66 |
% |
|
Neighboring rights |
|
|
333 |
|
|
|
204 |
|
|
|
129 |
|
|
|
63 |
% |
|
Total Recorded Music |
|
|
4,232 |
|
|
|
2,184 |
|
|
|
2,048 |
|
|
|
94 |
% |
|
Other revenue |
|
|
221 |
|
|
|
119 |
|
|
|
102 |
|
|
|
86 |
% |
| Total
Revenue |
|
$ |
16,718 |
|
|
$ |
13,644 |
|
|
$ |
3,074 |
|
|
|
23 |
% |
|
Revenue by Geographical Location |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S.
Music Publishing |
|
$ |
6,854 |
|
|
$ |
6,895 |
|
|
$ |
(41 |
) |
|
|
(1 |
)% |
| U.S.
Recorded Music |
|
|
1,583 |
|
|
|
658 |
|
|
|
925 |
|
|
|
141 |
% |
|
U.S. Other Revenue |
|
|
221 |
|
|
|
119 |
|
|
|
102 |
|
|
|
86 |
% |
| Total U.S. |
|
|
8,659 |
|
|
|
7,672 |
|
|
|
987 |
|
|
|
13 |
% |
|
International Music Publishing |
|
|
5,411 |
|
|
|
4,447 |
|
|
|
964 |
|
|
|
22 |
% |
|
International Recorded Music |
|
|
2,649 |
|
|
|
1,526 |
|
|
|
1,123 |
|
|
|
74 |
% |
| Total
International |
|
|
8,060 |
|
|
|
5,973 |
|
|
|
2,087 |
|
|
|
35 |
% |
|
Total Revenue |
|
$ |
16,718 |
|
|
$ |
13,644 |
|
|
$ |
3,074 |
|
|
|
23 |
% |
Total Revenues
Total revenues increased by $3,074 thousand, or 23%, to $16,718
thousand for the three months ended June 30, 2021 from $13,644
thousand for the three months ended June 30, 2020. Music Publishing
revenues represented 73% and 83% of total revenues for the three
months ended June 30, 2021 and June 30, 2020, respectively.
Recorded Music revenues represented 25% and 16% of total revenues
for the three months ended June 30, 2021 and June 30, 2020,
respectively. U.S. and international revenues represented 52% and
48%, respectively, of total revenues for the three months ended
June 30, 2021, and 56% and 44%, respectively, of total revenues for
the three months ended June 30, 2020.
Total digital revenues increased by $1,839 thousand, or 24%, to
$9,468 thousand for the three months ended June 30, 2021 from
$7,629 thousand for the three months ended June 30, 2020. Total
digital revenues represented 57% and 56% of consolidated revenues
for the three months ended June 30, 2021 and June 30, 2020,
respectively. The increase in digital revenue as a percentage of
consolidated revenue is due to the continued growth in revenue at
the music streaming services.
Music Publishing revenues increased by $923 thousand, or 8%, to
$12,265 thousand for the three months ended June 30, 2021 from
$11,342 thousand for the three months ended June 30, 2020. U.S.
Music Publishing revenues were $6,854 thousand, or 56% of
consolidated Music Publishing revenues for the three months ended
June 30, 2021, and $6,895 thousand, or 61% of consolidated Music
Publishing revenues for the three months ended June 30, 2020.
International Music Publishing revenues were $5,411 thousand, or
44% of consolidated Music Publishing revenues for the three months
ended June 30, 2021, and $4,447 thousand, or 39% of consolidated
Music Publishing revenues for the three months ended June 30,
2020.
The overall increase in Music Publishing revenue was mainly driven
by acquisitions of catalogs and revenue from the existing catalog,
which led to an increase in digital revenue of $741 thousand or
13%, mechanical revenue of $22 thousand or 6%, synchronization
revenue of $409 thousand, or 27%, and other revenue of $191
thousand, or 48%. These
increases were partially offset by a decrease in performance
revenue of $439 thousand, or 14%, which can be attributed to
declines in performance revenue across the industry due to the
impact of the COVID-19 pandemic. The increase in digital revenue
partially reflects the continued shift to streaming services for
music consumption, while the increase in mechanical,
synchronization, and other revenue reflects the results of the
acquisitions and existing catalog.
Recorded Music revenues increased by $2,048 thousand, or 94%, to
$4,232 thousand for the three months ended June 30, 2021 from
$2,184 thousand for the three months ended June 30, 2020. U.S.
Recorded Music revenues were $1,583 thousand and $658 thousand, or
37% and 30% of consolidated Recorded Music revenues for the three
months ended June 30, 2021 and June30, 2020, respectively.
International Recorded Music revenues were $2,649 thousand and
$1,526 thousand, or 63% and 70% of consolidated Recorded Music
revenues for the three months ended June 30, 2021 and June 30,
2020, respectively.
The overall increase in Recorded Music revenue was driven in part
by the acquisition of Tommy Boy in June of 2021, which contributed
$875 thousand and $0 thousand to Recorded Music revenue to the
three months ended June 30, 2021 and June 30, 2020, respectively.
Digital revenue increased by $1,098 thousand primarily due to the
acquisition of Tommy Boy and due to the continued growth at music
streaming services. Physical revenue increased by $777 thousand
primarily due to an increase in physical sales at Chrysalis
Records. Synchronization revenue increased by $43 thousand.
Neighboring rights revenue increased by $129 thousand primarily due
to the acquisition of Tommy Boy.
Revenue by Geographical Location
U.S. revenue increased by $987 thousand, or 13%, to $8,659 thousand
for the three months ended June 30, 2021 from $7,672 thousand for
the three months ended June 30, 2020. U.S. Music Publishing revenue
decreased by $41 thousand, or 1%, for the three months ended June
30, 2021 as compared to the three months ended June 30, 2020. U.S.
Recorded Music revenue increased by $925 thousand, or 141%, for the
three months ended June 30, 2021 as compared to the three months
ended June 30, 2020. This was primarily driven by the acquisition
of Tommy Boy.
International revenue increased by $2,087 thousand, or 35%, to
$8,060 thousand for the three months ended June 30, 2021 from
$5,973 thousand for the three months ended June 30, 2020.
International Music Publishing revenue increased $964 thousand, or
22%, for the three months ended June 30, 2021 as compared to the
three months ended June 30, 2020. This was primarily driven by
acquisitions of catalogs, signings of writers and increases in
digital revenue, primarily due to growth in streaming.
International Recorded Music revenue increased $1,123 thousand for
the three months ended June 30, 2021 as compared to the three
months ended June 30, 2020 primarily due to the acquisition of
Tommy Boy, the continued growth of music streaming services and a
strong physical release schedule.
Cost of revenues
Our cost of revenues was composed of the following amounts (in
thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
| Writer
royalties and other publishing costs |
|
$ |
6,019 |
|
|
$ |
5,246 |
|
|
$ |
773 |
|
|
|
15 |
% |
|
Artist royalties and other recorded costs |
|
|
1,673 |
|
|
|
658 |
|
|
|
1,015 |
|
|
|
154 |
% |
| Total
cost of revenues |
|
$ |
7,692 |
|
|
$ |
5,903 |
|
|
$ |
1,789 |
|
|
|
30 |
% |
Our cost of revenues increased by $1,789 thousand, or 30%, to
$7,692 thousand for the three months ended June 30, 2021 from
$5,903 thousand for the three months ended June 30, 2020. Cost of
revenues as a percentage of revenues increased to 46% for the three
months ended June 30, 2021 from 43% for the three months ended June
30, 2020.
Writer royalties and other publishing costs increased by $773
thousand, or 15%, to $6,019 thousand for the three months ended
June 30, 2021 from $5,246 thousand for the three months ended June
30, 2020. Writer royalties and other publishing costs as a
percentage of music publishing revenues increased to 49% for the
three months ended June 30, 2021 from 46% for the three months
ended June 30, 2020. The decrease in margins was due to the change
in the mix of earnings by type and songwriting clients with their
specific contractual royalty rates being applied to the
revenues.
Artist royalties and other recorded music costs increased by $1,015
thousand, or 154%, to $1,673 thousand for the three months ended
June 30, 2021 from $658 thousand for the three months ended June
30, 2020. This increase was due partly to the acquisition of Tommy
Boy as well as costs associated with the increased physical revenue
during the three months ended June 30, 2021. Artist royalties and
other recorded music costs as a percentage of recorded music
revenues increased to 40% for the three months ended June 30, 2021
from 30% for the three months ended June 30, 2020. This was partly
driven by the higher costs as a percentage of revenue on the
increased physical revenue for the three months ended June 30, 2021
as well as higher costs for distributed product during the three
months ended June 30, 2021 as compared to the three months ended
June 30, 2020.
Administration expenses
Our administration expenses are composed of the following amounts
(in thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
Administration expenses |
|
$ |
4,665 |
|
|
$ |
3,005 |
|
|
$ |
1,660 |
|
|
|
55 |
% |
| Total administration
expenses |
|
$ |
4,665 |
|
|
$ |
3,005 |
|
|
$ |
1,660 |
|
|
|
55 |
% |
Total administration expenses increased by $1,660 thousand, or 55%,
to $4,665 thousand for the three months ended June 30, 2021 from
$3,005 thousand for the three months ended June 30, 2020. Expressed
as a percentage of revenues, administration expenses increased to
28% for the three months ended June 30, 2021 from 22% for the three
months ended June 30, 2020. Administration expenses preparing for
being a public company along with increased costs related to
acquisitions were the primary drivers of this increase. In
addition, the benefit of a forgiven PPP Loan (as defined below) of
$617 thousand was recorded for the three months ended June 30,
2020, while no such benefit was recorded for the three months ended
June 30, 2021. Adjusting for the impact of the one-time benefit of
the PPP Loan forgiveness for the three months ended June 30, 2020,
administrative expenses increased by $1,043 thousand, or 29%. This
increase was in line with management’s expectations of
approximately $4,000 thousand of annual incremental administrative
expenses related to being a public company as well as anticipated
incremental administrative expenses associated with
acquisitions.
Interest expense
Our interest expense increased by $571 thousand, or 26%, to $2,779
thousand for the three months ended June 30, 2021 from $2,208
thousand for the three months ended June 30, 2020. This was
primarily driven by increased debt balances due to use of funds in
catalog and business acquisitions and writer signings, partially
offset by a decline in LIBOR rates as well as lower interest rates
as a result of refinancing transactions, the impact of which was in
turn partially offset by interest rate swap hedges.
Loss on foreign exchange
Loss on foreign exchange decreased by $98 thousand to a loss of $18
thousand for the three months ended June 30, 2021 from a loss of
$116 thousand for the three months ended June 30, 2020. This change
was due to fluctuations in the two foreign currencies we are
directly exposed to, namely GBP and EUR.
Gain (loss) on fair value of swaps
Gain (loss) on fair value of swaps increased by $801 thousand to a
gain of $547 thousand for the three months ended June 30, 2021 from
a loss of $254 thousand for the three months ended June 30, 2020.
This change was due to a rising forward yield curve for LIBOR and
the marking to market of our interest rate swap hedges.
Interest and other income
Our interest and other income decreased by $5 thousand, or 100%, to
$0 thousand for the three months ended June 30, 2021 from $5
thousand for the three months ended June 30, 2020. This was
primarily driven by a decline in cash on hand on average throughout
the three months ended June 30, 2021 and lower interest rates.
Loss before income taxes
Our loss before income taxes increased by $701 thousand, or 55%, to
$1,968 thousand for the three months ended June 30, 2021 from a
loss before income taxes of $1,267 thousand for the three months
ended June 30, 2020 as a result of the factors described above.
Income tax benefit
Our income tax benefit increased by $189 thousand, or 59%, to $511
thousand for the three months ended June 30, 2021 from a benefit of
$322 thousand for the three months ended June 30, 2020. The
increase in income tax benefit is related to the higher pre-tax
loss in the three months ended June 30, 2021 as compared to the
three months ended June 30, 2020.
Net loss
Our net loss increased by $512 thousand, or 54%, to $1,457 thousand
for the three months ended June 30, 2021 from a loss of $945
thousand for the three months ended June 30, 2020 as a result of
the factors described above.
Noncontrolling interest
There was $54 thousand of loss attributable to noncontrolling
interests for the three months ended June 30, 2021. There was $59
thousand of loss attributable to noncontrolling interests for the
three months ended June 30, 2020.
Reconciliation of Operating Income to OIBDA
We use OIBDA as our primary measure of financial performance. The
following table reconciles operating income to OIBDA (in
thousands):
| |
|
For
the Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June
30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$
Change |
|
|
%
Change |
|
| Operating
income |
|
$ |
282 |
|
|
$ |
1,306 |
|
|
$ |
(1,024 |
) |
|
|
(78 |
)% |
| Amortization
expense |
|
|
4,048 |
|
|
|
3,374 |
|
|
|
674 |
|
|
|
20 |
% |
| Depreciation
expense |
|
|
31 |
|
|
|
56 |
|
|
|
(25 |
) |
|
|
(45 |
)% |
| OIBDA |
|
$ |
4,361 |
|
|
$ |
4,736 |
|
|
$ |
(375 |
) |
|
|
(8 |
)% |
OIBDA
Our OIBDA decreased by $375 thousand, or 8%, to $4,361 thousand for
the three months ended June 30, 2021 as compared to $4,736 thousand
for the three months ended June 30, 2020 primarily as a result of
an increase in revenue of $3,074 thousand, partially offset by an
increase in cost of revenue of $1,789 thousand and an increase in
administration expenses of $1,660 thousand. Expressed as a
percentage of total revenue, OIBDA margin decreased to 26% for the
three months ended June 30, 2021 from 35% for the three months
ended June 30, 2020. Adjusting for the impact of the one-time
benefit of the PPP Loan forgiveness of $617 thousand for the three
months ended June 30, 2020 (as described in the administrative
expense section above), OIBDA for the three months ended June 30,
2020 would have been $4,119 thousand. When excluding the impact of
the one-time benefit of the PPP Loan forgiveness for the three
months ended June 30, 2020, OIBDA for the three months ended June
30, 2021 increased by $242 thousand, or 6%, even with the increased
costs for the three months ended June 30, 2021 associated with
preparing to be a public company.
The following table details revenues, total costs and expenses and
operating income for the trailing twelve months ended June 30,
2021. The table further reconciles operating income to OIBDA for
each period included in the calculation of the trailing twelve
months:
| |
|
Year Ended March
31, 2021 |
|
|
Less: Three Months
Ended June 30,
2020 |
|
|
Plus: Three Months
Ended June 30,
2021 |
|
|
Trailing Twelve
Months Ended June
30, 2021 |
|
| Revenues |
|
$ |
81,778 |
|
|
$ |
13,644 |
|
|
$ |
16,718 |
|
|
$ |
84,852 |
|
| Cost of revenue |
|
|
(32,992 |
) |
|
|
(5,903 |
) |
|
|
(7,692 |
) |
|
|
(34,781 |
) |
| Amortization and
depreciation |
|
|
(14,129 |
) |
|
|
(3,430 |
) |
|
|
(4,079 |
) |
|
|
(14,778 |
) |
|
Administration expenses |
|
|
(14,986 |
) |
|
|
(3,005 |
) |
|
|
(4,665 |
) |
|
|
(16,646 |
) |
| Total costs and
expenses |
|
$ |
(62,107 |
) |
|
$ |
(12,338 |
) |
|
$ |
(16,436 |
) |
|
$ |
(66,205 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
$ |
19,671 |
|
|
$ |
1,306 |
|
|
$ |
282 |
|
|
$ |
18,647 |
|
| Amortization
expense |
|
|
13,906 |
|
|
|
3,374 |
|
|
|
4,048 |
|
|
|
14,580 |
|
|
Depreciation expense |
|
|
222 |
|
|
|
56 |
|
|
|
31 |
|
|
|
197 |
|
| OIBDA |
|
$ |
33,799 |
|
|
$ |
4,736 |
|
|
$ |
4,361 |
|
|
$ |
33,424 |
|
Depreciation expense
Our depreciation expense decreased by $25 thousand, or 45%, to $31
thousand for the three months ended June 30, 2021 from $56 thousand
for the three months ended June 30, 2020, primarily due to the full
depreciation of some prior capital expenditures.
Amortization expense
Amortization expense increased by $674 thousand, or 20%, to $4,048
thousand for the three months ended June 30, 2021 from $3,374
thousand for the three months ended June 30, 2020, primarily due to
the acquisition of additional music catalogs and music company
purchases.
Business Segment Results
Revenues, operating income and OIBDA by business segment were as
follows (in thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
Music Publishing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
12,265 |
|
|
$ |
11,342 |
|
|
$ |
923 |
|
|
|
8 |
% |
| Operating income |
|
|
(316 |
) |
|
|
1,040 |
|
|
|
(1,356 |
) |
|
|
(130 |
)% |
| OIBDA |
|
|
2,868 |
|
|
|
3,926 |
|
|
|
(1,058 |
) |
|
|
(27 |
)% |
|
Recorded Music |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
|
4,232 |
|
|
|
2,184 |
|
|
|
2,048 |
|
|
|
94 |
% |
| Operating income |
|
|
538 |
|
|
|
271 |
|
|
|
267 |
|
|
|
99 |
% |
| OIBDA |
|
|
1,408 |
|
|
|
815 |
|
|
|
593 |
|
|
|
73 |
% |
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
|
221 |
|
|
|
119 |
|
|
|
102 |
|
|
|
86 |
% |
| Operating income |
|
|
60 |
|
|
|
(4 |
) |
|
|
64 |
|
|
|
NM |
|
| OIBDA |
|
|
84 |
|
|
|
(4 |
) |
|
|
88 |
|
|
|
NM |
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
|
16,718 |
|
|
|
13,644 |
|
|
|
3,074 |
|
|
|
23 |
% |
| Operating income |
|
|
282 |
|
|
|
1,306 |
|
|
|
(1,024 |
) |
|
|
(78 |
)% |
| OIBDA |
|
|
4,361 |
|
|
|
4,736 |
|
|
|
(375 |
) |
|
|
(8 |
)% |
Music Publishing
Revenues
Music Publishing revenues increased by $923 thousand, or 8%, to
$12,265 thousand for the three months ended June 30, 2021 from
$11,342 thousand for the three months ended June 30, 2020. The
increase was primarily attributed to the increase in digital
revenue of $741 thousand from $5,906 thousand to $6,647 thousand,
or 13%. Additionally, Mechanical, Synchronization, and Other
revenues increased by 6%, 27%, and 48%, respectively. The increase
was partially offset by a decline in Performance by 14%.
The overall increase in Music Publishing revenue was mainly driven
by reasons described in the “—Total Revenues” and
“—Revenue by Geographical Location” sections.
Cost of revenues
Music Publishing cost of revenues was composed of the following
amounts (in thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
Writer royalties and other publishing costs |
|
$ |
6,019 |
|
|
$ |
5,246 |
|
|
$ |
773 |
|
|
|
15 |
% |
| Total
cost of revenues |
|
$ |
6,019 |
|
|
$ |
5,246 |
|
|
$ |
773 |
|
|
|
15 |
% |
Music Publishing cost of revenues increased by $773 thousand, or
15%, to $6,019 thousand for the three months ended June 30, 2021
from $5,246 thousand for the three months ended June 30, 2020. This
increase is due primarily to acquisitions of catalogs and writer
signings. Expressed as a percentage of Music Publishing revenue,
Music Publishing cost of revenues increased to 49% for the three
months ended June 30, 2021 from 46% for the three months ended June
30, 2020. The decrease in margins is due to the change in the mix
of earnings by type and songwriting clients with their specific
contractual royalty rates being applied to the revenues.
Administration expenses
Music Publishing administration expenses were comprised of the
following amounts (in thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
Administration expenses |
|
$ |
3,378 |
|
|
$ |
2,170 |
|
|
$ |
1,208 |
|
|
|
56 |
% |
| Total administration
expenses |
|
$ |
3,378 |
|
|
$ |
2,170 |
|
|
$ |
1,208 |
|
|
|
56 |
% |
Music Publishing administration expenses increased by $1,208
thousand, or 56%, to $3,378 thousand for the three months ended
June 30, 2021 as compared to $2,170 thousand for the three months
ended June 30, 2020. This was partly due to new administration
expenses preparing for being a public company along with increased
costs related to acquisitions. Additionally, the administration
expenses for the three months ended June 30, 2020 included a
benefit of approximately $617 thousand for a forgiven PPP Loan
while no such benefit was recorded for the three months ended June
30, 2021. Expressed as a percentage of Music Publishing revenues,
Music Publishing administration expenses increased to 28% for the
three months ended June 30, 2021 from 19% for the three months
ended June 30, 2020. Adjusting for the impact of the one-time
benefit of the PPP Loan forgiveness for the three months ended June
30, 2020, administrative expenses increased by $591 thousand, or
21%.
Operating income and OIBDA
Music Publishing OIBDA includes the following amounts (in
thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
| Operating
income |
|
$ |
(316 |
) |
|
$ |
1,040 |
|
|
$ |
(1,356 |
) |
|
|
(130 |
)% |
|
Depreciation and amortization |
|
|
3,184 |
|
|
|
2,886 |
|
|
|
298 |
|
|
|
10 |
% |
| OIBDA |
|
$ |
2,868 |
|
|
$ |
3,926 |
|
|
$ |
(1,058 |
) |
|
|
(27 |
)% |
Music Publishing OIBDA decreased by $1,058 thousand, or 27%, to
$2,868 thousand for the three months ended June 30, 2021 from
$3,926 thousand for the three months ended June 30, 2020. Expressed
as a percentage of Music Publishing revenues, Music Publishing
OIBDA margin decreased to 23% for the three months ended June 30,
2021 from 35% for the three months ended June 30, 2020. The
decrease in Music Publishing OIBDA was primarily attributed to
higher Music Publishing revenues, partially offset by higher cost
of revenues as a percentage of revenue, and more than fully offset
by higher administration expenses as a percentage of revenue.
Adjusting for the impact of the one-time benefit of the PPP Loan
forgiveness for the three months ended June 30, 2020, Music
Publishing OIBDA decreased by $441 thousand, or 13%, from the three
months ended June 30, 2020 to the three months ended June 30,
2021.
Music Publishing operating income decreased by $1,356 thousand, or
130%, to a loss of $316 thousand for the three months ended June
30, 2021 from a gain of $1,040 thousand for the three months ended
June 30, 2020 due to the factors that led to the decrease in Music
Publishing OIBDA noted above.
Recorded Music
Revenues
Recorded Music revenues increased by $2,048 thousand, or 94%, to
$4,232 thousand for the three months ended June 30, 2021 from
$2,184 thousand for the three months ended June 30, 2020. The
increase was attributed to the increase in digital revenue from
$1,723 thousand to $2,821 thousand, or 64%. Additionally, Physical,
Synchronization, and Neighboring Rights revenues increased by 405%,
66%, and 63%, respectively.
The overall increase in Recorded Music revenue was driven reasons
described in the “—Total Revenues” and “—Revenue by
Geographical Location” sections.
Cost of revenues
Recorded Music cost of revenues was composed of the following
amounts (in thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
Artist royalties and other recorded music costs |
|
$ |
1,673 |
|
|
$ |
658 |
|
|
$ |
1,015 |
|
|
|
154 |
% |
| Total
cost of revenues |
|
$ |
1,673 |
|
|
$ |
658 |
|
|
$ |
1,015 |
|
|
|
154 |
% |
Recorded Music cost of revenues increased by $1,015 thousand, or
154%, to $1,673 thousand for the three months ended June 30, 2021
from $658 thousand for the three months ended June 30, 2020.
Expressed as a percentage of Recorded Music revenue, cost of
revenues increased to 40% for the three months ended June 30, 2021
from 30% for the three months ended June 30, 2020. This was partly
driven by the higher costs as a percentage of revenue on the
increased physical revenue for the three months ended June 30, 2021
as well as higher costs for distributed product in the three months
ended June 30, 2021 as compared to the three months ended June 30,
2020.
Administration expenses
Recorded Music administration expenses were composed of the
following amounts (in thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
Administration expenses |
|
$ |
1,151 |
|
|
$ |
711 |
|
|
$ |
440 |
|
|
|
62 |
% |
| Total
administration expenses |
|
$ |
1,151 |
|
|
$ |
711 |
|
|
$ |
440 |
|
|
|
62 |
% |
Recorded Music administration expenses increased to $1,151 thousand
for the three months ended June 30, 2021 from $711 thousand for the
three months ended June 30, 2020. The increase in administration
expenses was primarily due to increases in at Chrysalis Records and
the integration of Tommy Boy. Expressed as a percentage of Recorded
Music revenue, Recorded Music administration expense decreased to
27% for the three months ended June 30, 2021 from 33% for the three
months ended June 30, 2020.
Operating income and OIBDA
Recorded Music OIBDA included the following amounts (in
thousands):
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
| Operating
income |
|
$ |
538 |
|
|
$ |
271 |
|
|
$ |
267 |
|
|
|
99 |
% |
|
Depreciation and amortization |
|
|
870 |
|
|
|
544 |
|
|
|
326 |
|
|
|
60 |
% |
| OIBDA |
|
$ |
1,408 |
|
|
$ |
815 |
|
|
$ |
593 |
|
|
|
73 |
% |
Recorded Music OIBDA increased by $593 thousand, or 73%, to $1,408
thousand for the three months ended June 30, 2021 from $815
thousand for the three months ended June 30, 2020 as a result of
the acquisition of Tommy Boy and increases from Chrysalis Records.
Expressed as a percentage of Recorded Music revenues, Recorded
Music OIBDA margin decreased to 33% for the three months ended June
30, 2021 from 37% for the three months ended June 30, 2020.
Recorded Music operating income increased by $267 thousand to $538
thousand for the three months ended June 30, 2021 from $271
thousand for the three months ended June 30, 2020 due to the
factors that led to the increase in Recorded Music OIBDA noted
above.
Liquidity and Capital Resources
Capital Resources
As of June 30, 2021, we had $326,038 thousand of debt (net of
$2,840 thousand of deferred financing costs), $14,025 thousand of
cash and equivalents and net debt of $312,014 thousand (defined as
total debt, less cash and equivalents and deferred financing
costs).
We used a portion of the proceeds from the Business Combination and
PIPE Investment to repay $80,600 thousand of debt (amounts to
related parties) associated with the Tommy Boy acquisition and
$55,000 thousand of debt under the New Credit Facility.
Cash Flows
The following table summarizes our historical cash flows (in
thousands).
| |
|
For the
Three Months
Ended |
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
2021 vs. 2020 |
|
| |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
Cash
provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
activities |
|
$ |
3,827 |
|
|
$ |
7,544 |
|
|
$ |
(3,717 |
) |
|
|
(49 |
)% |
| Investing
activities |
|
|
(112,785 |
) |
|
|
(72,785 |
) |
|
|
(40,000 |
) |
|
|
55 |
% |
| Financing
activities |
|
|
113,564 |
|
|
|
18,572 |
|
|
|
94,992 |
|
|
|
511 |
% |
Operating Activities
Cash provided by operating activities was $3,827 thousand for the
three months ended June 30, 2021 compared to $7,544 thousand for
the three months ended June 30, 2020. The primary driver of the
$3,717 thousand decrease in cash provided by operating activities
during the three months ended June 30, 2021 as compared to the
three months ended June 30, 2020 were increases in administration
expenses around preparing for being a public company, as well as
increases in cash used for advances and inventory purchases.
Investing Activities
Cash used in investing activities was $112,785 thousand for the
three months ended June 30, 2021 compared to $72,785 thousand for
the three months ended June 30, 2020. The increase in cash used in
investing activities was primarily due to increased acquisitions of
music catalogs.
Financing Activities
Cash provided by financing activities was $113,564 thousand for the
three months ended June 30, 2021 compared to cash provided by
financing activities of $18,572 thousand for the three months ended
June 30, 2021. The increased cash provided by financing activities
was related to increased borrowing under the secured line of credit
and an increase in related party loans to fund the Tommy Boy
acquisition in the quarter ended June 30, 2021 partially offset by
the proceeds from common stock issuance in the fiscal quarter ended
June 30, 2020.
Liquidity
Our primary sources of liquidity are the cash flows generated from
our subsidiaries’ operations, available cash and equivalents and
funds available for drawing under our secured line of credit and
loans. These sources of liquidity are needed to fund our debt
service requirements, working capital requirements, capital
expenditure requirements, strategic acquisitions and investments,
retirement of or refinancing of our outstanding debt, privately
negotiated purchases or otherwise, we may elect to pay or make in
the future.
During the three months ended June 30, 2020, we borrowed $617
thousand (the “PPP Loan”) under the Paycheck
Protection Program (the “PPP”). The PPP, established
as part of the Coronavirus Aid, Relief and Economic Security Act of
2020, as amended (the “CARES Act”), provided for
loans to qualifying businesses for amounts up to 2.5 times of the
average monthly payroll expenses of the qualifying business. The
loans and accrued interest are forgivable after as long as the
borrower uses the loan proceeds for eligible purposes, including
payroll, benefits, rent and utilities, and maintains its payroll
levels. In accordance with the terms of the program, we applied for
and received confirmation of loan forgiveness for the entire amount
borrowed under the PPP.
We believe that our primary sources of liquidity will be sufficient
to support our existing operations over the next twelve months.
Existing Debt as of June 30, 2021
As of June 30, 2021, our outstanding debt was as follows (in
thousand):
|
Term Loan |
|
$ |
18,250 |
|
|
Revolving Credit |
|
|
229,991 |
|
|
Amounts due to related parties |
|
|
80,638 |
|
| Total
outstanding debt |
|
$ |
328,879 |
|
Reservoir uses cash generated from operations to pay current
interest and principal obligation on the Prior Credit Facility (as
defined below). Reservoir expects to continue to refinance and
extend maturity on the Credit Facility for the foreseeable
future.
Debt Capital Structure
Since 2014, Reservoir Media Management has been the borrower under
a revolving credit and term loan agreement (the “Prior Credit
Facility”) with SunTrust Bank (Truist Bank) as the
administrative agent and lead arranger. The Prior Credit Facility
has been amended and restated a number of times since 2014,
generally leading to extensions on maturity dates (maturity date as
of June 30, 2021 is October 16, 2024), increases in the facility
size ($250,000 thousand as of June 30, 2021) and reductions in
interest rates (LIBOR plus 2.5% as of June 30, 2021).
On May 26, 2021, Reservoir entered into a Loan Agreement with
Wesbild Holdings Ltd to borrow $38,000 thousand, at an interest
rate of 4.66%, to finance the acquisition of Tommy Boy. On June 2,
2021, Reservoir entered into a Seller Loan Agreement with BTCSJC
Music LLC and ER TB LLC, which are entities controlled by related
parties, to borrow an aggregate amount of $42,638 thousand, at an
interest rate of 4.66%, to finance the acquisition of Tommy Boy.
These borrowings are included in amounts due to related
parties.
On July 28, 2021, in connection with the consummation of the
Business Combination, Reservoir Media Management amended and
restated the Prior Credit Facility by entering the Fourth Amended
and Restated Credit Agreement with Truist Bank (the “New
Credit Facility”), providing for credit facilities in an
aggregate amount of up to $248,750 thousand. The maturity of the
New Credit Facility remained October 16, 2024, while interest rates
were reduced to LIBOR plus 2.25%.
Subject to market conditions, we expect to continue to take
opportunistic steps to extend our maturity dates and reduce related
interest expense. From time to time, we may incur additional
indebtedness for, among other things, working capital,
repurchasing, redeeming or tendering for existing indebtedness and
acquisitions or other strategic transactions.
Certain terms of the New Credit Facility are described below.
Guarantees and Security
The obligations under the New Credit Facility are guaranteed by
Reservoir, RMI and subsidiaries of Reservoir Media Management. All
obligations of Reservoir, Reservoir Media Management and each
guarantor under the New Credit Facility are secured by
substantially all the assets of Reservoir, Reservoir Media
Management and such subsidiary guarantor.
Covenants, Representations and Warranties
The New Credit Facility contains customary representations and
warranties and customary affirmative and negative covenants. The
negative covenants contained in the New Credit Facility limit the
ability of RMI and its subsidiaries to, among other things, incur
additional indebtedness or issue certain preferred shares; pay
dividends, redeem stock or make other distributions; repurchase,
prepay or redeem subordinated indebtedness; make investments;
create restrictions on the ability of its subsidiaries to pay
dividends to it or make other intercompany transfers; create liens;
transfer or sell assets; consolidate, merge, sell or otherwise
dispose of all or substantially all of its assets; and enter into
certain transactions with its affiliates.
Events of Default
Events of default under the New Credit Facility include, as
applicable, nonpayment of principal when due, nonpayment of
interest or other amounts, inaccuracy of representations or
warranties in any material respect, violation of covenants, certain
bankruptcy or insolvency events, certain ERISA events and certain
material judgments, in each case, subject to customary thresholds,
notice and grace period provisions.
Interest Rate Swaps
As of June 30, 2021, Reservoir Media Management had entered into
four interest rate swaps. Two of these swaps expire on March 10,
2022, one with a notional amount of $57,634 thousand and one with a
notional amount $39,712 thousand. Under the terms of the interest
rate swaps, Reservoir Media Management pays a fixed rate of 2.8%
and 3.0% respectively, to the counterparty and receives a floating
interest from the counter party based on LIBOR with reference to
notional amounts adjusted to match the original scheduled principal
repayments pursuant to the New Credit Facility.
As of June 30, 2021, the two additional interest rate swaps, which
were entered into during the year ended March 31, 2020, had
notional amounts of $8,875 thousand and $88,099 thousand. These
swaps have an effective date of March 10, 2022 which coincides with
the expiration of the previous two swaps, and Reservoir Media
Management will pay a fixed rate of 1.6% and 1.5%, respectively,
and receive a floating interest rate from the counter party based
on LIBOR with reference to notional amounts adjusted to match the
original scheduled principal repayments pursuant to the New Credit
Facility.
Covenant Compliance
The New Credit Facility contains a leverage ratio that is tied to
Adjusted EBITDA, which is defined under the New Credit Facility.
Reservoir Media Management’s ability to borrow funds under the New
Credit Facility may depend upon its ability to meet the leverage
ratio test at the end of a fiscal quarter to the extent it has
outstanding debt. This leverage ratio carries a maximum of
6.0x.
The New Credit Facility contains a loan-to-value ratio that is tied
to the library value, which is defined under the New Credit
Facility. Reservoir Media Management’s ability to borrow funds
under the New Credit Facility may depend upon its ability to meet
the loan-to-value ratio at the end of a fiscal quarter to the
extent it has outstanding debt. This loan-to-value ratio carries a
maximum of 0.55x. This loan-to-value ratio is further subject to a
valuation variance test, which is defined under the New Credit
Facility, and which may further limit its borrowing ability.
The New Credit Facility contains a fixed charge coverage ratio that
is tied to in the ability to service outstanding debt, which is
defined in the New Credit Facility. Reservoir Media Management’s
ability to borrow funds under the New Credit Facility may depend
upon its ability to meet the fixed charge coverage test at the end
of a fiscal quarter to the extent it has outstanding debt. This
fixed charge coverage ratio carries a minimum of 1.25x.
Non-compliance with the leverage ratio, loan to value ratio, or the
fixed charge coverage ratio could result in the inability to use
the New Credit Facility, which could have a material adverse effect
on Reservoir’s business, cash flows, financial condition and
results of operations.
The New Credit Facility requires that the leverage ratio,
loan-to-value ratio and fixed charge coverage ratio be calculated
for the most recent four fiscal quarters. The New Credit Facility
requires that the leverage ratio, loan-to-value ratio and fixed
charge coverage ratio be calculated on a pro forma basis for
certain transactions including acquisitions as if such transactions
had occurred on the first date of the measurement period and may
include expected cost savings and synergies resulting from or
related to any such transaction. There can be no assurances that
any such cost savings or synergies will be achieved in full.
Dividends
Reservoir Media Management’s ability to pay dividends is restricted
by covenants in the New Credit Facility. For the three months ended
June 30, 2021 and June 30, 2020, Reservoir Media Management did not
pay any dividends to stockholders.
Summary
Management believes that funds generated from our operations and
borrowings under the New Credit Facility and available cash and
equivalents will be sufficient to fund our debt service
requirements, working capital requirements and capital expenditure
requirements for the foreseeable future. We also have additional
borrowing capacity under the New Credit Facility. However, our
ability to continue to fund these items and to reduce debt may be
affected by general economic, financial, competitive, legislative
and regulatory factors, as well as other industry-specific factors
such as the ability to control music piracy and the continued
transition from physical to digital formats in the recorded music
and music publishing industries. It could also be affected by the
severity and duration of natural or man-made disasters, including
pandemics such as the COVID-19 pandemic. We and our affiliates
continue to evaluate opportunities to, from time to time, depending
on market conditions and prices, contractual restrictions, our
financial liquidity and other factors, seek to pay dividends or
prepay outstanding debt or repurchase or retire Reservoir’s
outstanding debt, privately negotiated purchases or otherwise. The
amounts involved in any such transactions, individually or in the
aggregate, may be material and may be funded from available cash or
from additional borrowings or equity raises. In addition, from time
to time, depending on market conditions and prices, contractual
restrictions, our financial liquidity, and other factors, we may
seek to refinance the New Credit Facility with existing cash and/or
with funds provided from additional borrowings.
Contractual and Other Obligations
As of June 30, 2021, there have been no material changes,
outside the ordinary course of business, in our contractual
obligations since March 31, 2021. See “RHI’s Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Contractual and Other Obligations” in the
Registration Statement for information regarding our contractual
obligations.
Critical Accounting Policies
We believe that the following accounting policies involve a high
degree of judgment and complexity. Accordingly, these are the
policies we believe are the most critical to aid in fully
understanding and evaluating our consolidated financial condition
and results of our operations. See Note 2 to Reservoir’s
consolidated financial statements for the years ended March 31,
2021 and 2020 included in the Registration Statement for a
description of our other significant accounting policies. The
preparation of our condensed consolidated financial statements in
conformity with GAAP requires us to make estimates and judgments
that affect the amounts reported in those condensed consolidated
financial statements and the accompanying notes thereto. The future
effects of the COVID-19 pandemic on our results of
operations, cash flows and financial position are unclear. However,
we believe we have used reasonable estimates and assumptions in
preparing the condensed consolidated financial statements. Although
we believe that the estimates we use are reasonable, due to the
inherent uncertainty involved in making those estimates, actual
results reported in future periods could differ from those
estimates.
Revenue and Cost Recognition
As required by Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification
(“ASC”) Topic 606, Revenue from Contracts with
Customers (“ASC 606”), Reservoir recognizes revenue
when, or as, control of the promised services or goods is
transferred to its customers and in an amount that reflects the
consideration Reservoir is contractually due in exchange for those
services or goods.
Music Publishing
Music Publishing revenues are earned from the receipt of royalties
relating to the licensing of rights in musical compositions and the
sale of published sheet music and songbooks. The receipt of
royalties principally relates to amounts earned from the public
performance of musical compositions, the mechanical reproduction of
musical compositions on recorded media including digital formats
and the use of musical compositions in synchronization with visual
images. Music publishing royalties, except for synchronization
royalties, generally are recognized when the sale or usage occurs.
The most common form of consideration for publishing contracts is
sales- and usage-based royalties. The collecting societies submit
usage reports, typically with payment for royalties due, often on a
quarterly or biannual reporting period, in arrears. Royalties are
recognized as the sale or usage occurs based upon usage reports
and, when these reports are not available, royalties are estimated
based on historical data, such as recent royalties reported,
company-specific information with respect to changes in repertoire,
industry information and other relevant trends. Synchronization
revenue is typically recognized as revenue when control of the
license is transferred to the customer in accordance with ASC
606.
Recorded Music
Revenues from the sale or license of Recorded Music products
through digital distribution channels are typically recognized when
the sale or usage occurs based on usage reports received from the
customer. Digital licensing contracts are generally long-term with
consideration in the form of sales- and usage-based royalties that
are typically received monthly. For certain licenses where the
consideration is fixed and the intellectual property being licensed
is static, revenue is recognized at the point in time when control
of the licensed content is transferred to the customer. Revenues
from the sale of physical Recorded Music products are recognized
upon delivery, which occurs once the product has been shipped and
control has been transferred.
Accounting for Royalty Costs and Royalty Advances
Reservoir incurs royalty costs that are payable to our recording
artists and songwriters generated from the sale or license of our
music publishing copyrights and recorded music catalogue. Royalties
are calculated using negotiated rates in accordance with recording
artist and songwriter contracts. Calculations are based on revenue
earned or user/usage measures or a combination of these. There are
instances where such data is not available to be processed and
royalty cost calculations may be complex or involve judgments about
significant volumes of data to be processed and analyzed.
In many instances, Reservoir commits to pay our recording artists
and songwriters royalties in advance of future sales. Reservoir
accounts for these advances under the related guidance in FASB ASC
Topic 928, “Entertainment—Music” (“ASC 928”).
Under ASC 928, Reservoir capitalizes as assets certain advances,
which it believes are recoverable from future royalties to be
earned by the recording artist or songwriter, when paid.
Recoverability is assessed upon initial commitment of the advance
based upon Reservoir’s forecast of anticipated revenue from the
sale of future and existing albums or musical compositions. In
determining whether the advance is recoverable, Reservoir evaluates
the current and past popularity of the recording artist or
songwriter, the sales history of the recording artist or
songwriter, the initial or expected commercial acceptability of the
product, the current and past popularity of the genre of music that
the product is designed to appeal to, and other relevant factors.
Advances vary in both amount and expected life based on the
underlying recording artist or songwriter. To the extent that a
portion of an outstanding advance is no longer deemed recoverable,
that amount will be expensed in the period the determination is
made.
Acquisitions and Business Combinations
In conjunction with each acquisition transaction, Reservoir
assesses whether the transaction should follow accounting guidance
applicable to an asset acquisition or a business combination. This
assessment requires an evaluation of whether the fair value of the
gross assets acquired is concentrated in a single identifiable
asset or group of similar identifiable assets, resulting in an
asset acquisition or, if not, resulting in a business combination.
If treated as an asset acquisition, the asset is recorded in
accordance with Reservoir’s intangible asset policy and related
acquisition costs are capitalized as part of the asset.
In a business combination, Reservoir recognizes identifiable assets
acquired, liabilities assumed, and non-controlling interests at
their fair values at the acquisition date. Any consideration paid
in excess of the net fair value of the identifiable assets and
liabilities acquired in a business combination is recorded to
goodwill and acquisition-related costs are expensed as
incurred.
Intangible Assets
Intangible assets consist primarily of music catalogs (publishing
and recorded). Intangible assets are recorded at fair value in a
business combination and relative fair value in an asset
acquisition. Intangible assets are amortized over their expected
useful lives using the straight-line method.
Reservoir periodically reviews the carrying value of its
amortizable intangible assets, whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable or that the lives assigned may no longer be
appropriate. To the extent the estimated future cash inflows
attributable to the asset, less estimated future cash outflows, are
less than the carrying amount, an impairment loss is recognized in
an amount equal to the difference between the carrying value of
such asset and its fair value. If it is determined that events and
circumstances warrant a revision to the remaining period of
amortization, an asset’s remaining useful life would be changed,
and the remaining carrying amount of the asset would be amortized
prospectively over that revised remaining useful life.
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