Good day, everyone, and welcome to today's Reservoir Media Q1 Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded [Operator Instructions]. It is now my pleasure to turn the program over to Jackie Marcus, with Investor Relations.

Thank you, operator. Good morning, everyone, and thank you for participating in today's earnings conference call. Reservoir Media issued a press release with results for its first quarter of fiscal 2025 ended June 30, 2024, earlier this morning. If you did not receive a copy of our earnings press release, you may access it from the Investor Relations section of our website at investors.reservoir-media.com. With me on today's call are Golnar Khosrowshahi, Founder and Chief Executive Officer; and Jim Heindlmeyer, Chief Financial Officer. As a reminder, this call is being simultaneously webcast and will be recorded and archived on the Investor Relations section of our website. Before I turn the call over to Golnar and Jim, I'd like to note that today's discussion will contain forward-looking statements that reflect the current views of Reservoir Media about our business, financial performance and future events and, as such, involve certain risks and uncertainties. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs and projections will result or be achieved. Please refer to our earnings press release and our filings with the Securities and Exchange Commission for more information on the specific risks, uncertainties and other factors that could cause our actual results to differ materially from our expectations, beliefs and projections described in today's discussion. Any forward-looking statements that we make on this call or in our earnings press release are as of today, and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law. In addition to financial results presented in accordance with the generally accepted accounting principles, we plan to present during this call certain financial measures that do not conform to U.S. GAAP if we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trends. Reconciliations of these non-GAAP financial measures to the nearest comparable GAAP measures are included in our earnings press release. I would now like to turn the call over to Golnar.

Thank you, Jackie. Good morning, everyone, and thank you for joining us today to review our results for the first quarter of fiscal year 2025. Just a few days ago, we marked Reservoir's third anniversary of our listing on the NASDAQ. And this time, we have attracted an increasingly high caliber of talent and assets to the company, while also maintaining our reputation as a partner of choice for those creators who already call Reservoir home. We continue to represent music in all corners of the world and have grown our team into an ever more global, diverse and experienced group. And we have accomplished these foundations in concert with exceeding full year revenue and adjusted EBITDA guidance and posting year-over-year organic growth every quarter since our listing. These last three years are evidence that we not only set goals for ourselves, but we also consistently achieve them. Reservoir has only just started our journey as a public company, and we believe we have significant future value to drive for all of our stakeholders as we move forward. We're off to a good start in fiscal 2025 and remain on track to again hit our annual targets. For the first quarter, we posted total revenue of $34.3 million, which was up 8% when including our acquisition and up 6% on an organic basis when compared to the year ago period. At a segment level, we saw strength in our Music Publishing business, which helped us drive a 25% increase in our adjusted EBITDA. Music Publishing generated healthy top line growth particularly from digital and performance-based revenues, which benefited from price increases at multiple music streaming services, despite the reclassification of Spotify's primary subscription tier as a bundled service. We also saw a 17% gain in digital revenues for our Recorded…

Thank you, Golnar, and good morning, everyone. Our results this quarter were in line with our internal expectations and are a testament to the strong portfolio of assets we have at Reservoir. Revenue for the first fiscal quarter was $34.3 million, a 6% year-over-year improvement on an organic basis and an 8% increase when including acquisitions. This was led by the 15% growth in our Music Publishing segment, which offset the 7% decrease we had in Recorded Music. Turning to our operating expenses. The total cost of revenue decreased 1% compared to the prior year quarter, while our administration expenses and amortization and depreciation costs grew 6% and 5%, respectively, versus the prior year. Looking at operating performance for the first quarter. OIBDA was $11.3 million, an increase of 23% year-over-year, and adjusted EBITDA was up 25% to $12.6 million compared to our Q1 and fiscal 2024. The increase in OIBDA and adjusted EBITDA were due to effective cost management and efficiencies achieved on higher revenues for the quarter. Interest expense was $5.1 million for the quarter versus $4.7 million in the prior year, driven primarily by an increase in SOFR from the prior year quarter to the current year quarter. Net loss for the first quarter was approximately $500,000 compared to net income of $200,000 in the first quarter of fiscal 2024. The decrease was primarily due to a quarterly loss on the fair value of our interest rate hedges. This resulted in a diluted loss per share for the quarter of $0.01 compared to zero in the prior year quarter. Lastly, our weighted average diluted outstanding share count during the quarter was 65 million. Now let's dive into our segment review for the quarter. Music Publishing had a 15% increase in revenue versus the prior year quarter at…

Thank you, Jim. We are confident in the value of Reservoir's assets and the portfolio we have built. As the music industry continues to grow and build momentum, the M&A marketplace has remained strong, as evidenced by recent large-scale transactions ranging between approximately 16x to 18x multiples on NPS, NLS. We believe our track record and the quality of our portfolio reflects our long-term growth potential. We remain focused on building upon our momentum and increasing visibility to capture more value over the long term. We appreciate your continued support and look forward to sharing our progress with you. We will now open the line for questions.

[Operator Instructions] We'll take our first question from Griffin Boss with B. Riley Securities.

So I don't see the Q posted yet, so can you just give some more color, Jim, maybe on the magnitude of catalog purchases and addition to royalty advances in the quarter?

Yes, sure. Thanks for the question, Griffin. This was a relatively quiet quarter for us with respect to both catalog acquisitions and advances. Having said that, it's not indicative of our run rate for the year. We have a really robust pipeline, and we have a number of deals that we're very excited about that we'll be closing in the coming quarters.

Griffin, I would also add that there is a certain cyclicality to deal flow. And the cadence at which we deploy capital isn't always going to spread out evenly quarter-over-quarter or year-over-year.

Okay. Got it. That's super helpful. So just making sure I heard that right. So the pipeline still -- we still think about as $1 billion and, call it, 120-plus opportunities that you're looking at right now.

Yes, it's slightly over $1 billion. And as Jim said, there are a few opportunities that we are extremely excited about in the sort of near term.

Okay. Great. And then so jumping over. Obviously, you talked about the really strong growth in publishing, particularly in digital. And you mentioned the price increases from DSPs. Were there any other onetime items that contributed to the first quarter outperformance in digital? Or was that basically all attributable to the price increases?

Yes. There weren't any particular onetime things that we felt needed to be called out for this quarter. It was really business as usual. We benefited from those price increases and kind of nothing in particular to add beyond that with respect to onetime items.

Okay. Got it. And then last one for me, and I'll jump back in the queue. Can you just talk a bit more broadly about the growth characteristics you're seeing internationally versus the U.S. today and how you look at those going forward?

Can you say sort of in what sense -- in what sense of growth characteristics?

Yes. So just more broadly in the quarter how you saw growth internationally versus the United States and then going -- we'll call it through the rest of the year, how you're anticipating growth to play out internationally and domestically.

Yes. I think that we are – while we remain very optimistic about the opportunities internationally, but when we say internationally, that’s – it’s a pretty big territory that we’re covering, right? There are certainly mature markets in there where we continue to perform well, whether it’s in the U.K., Europe, those types of markets, but we also see a lot of opportunities, whether it’s with our sub-publishing partners throughout Southeast Asia and South Asia or the work that we’re doing through PopArabia to take advantage of opportunities in the Middle East and India, where, like I said, we remain very optimistic about where that’s heading. As we’ve said on prior calls, it remains a part of our business that is not the biggest part of our business, but the growth that we are anticipating there in the coming years, we think, will really ramp up.

We'll take our next question from Rich Baldry with ROTH Capital.

Is there any way to sort of put a bracket around the scope of the impact of the Spotify sort of bundling drag and where you think that stands in terms of the controversy being played out, either legally or settled or -- so we can get an idea of how much of a headwind that was?

Sure. With respect to the magnitude or the impact of this, we've talked on the last call about Billboard estimating it to be about $150 million annually to the industry. And I think we also mentioned on the last call that we estimated at somewhere between $1.2 million and $1.5 million to Reservoir on an annual basis, and that's something that we have built into our forecast. And while we are very opposed to what Spotify is doing, that's the situation right now, and that's what we have built into our forecast. And maybe I'll turn it over to Golnar for a little bit more color around it.

Yes. Rich, so I would add a couple of things. First of all, we can't really predict where this litigation will go and how long it will take, but we will fight the good fight, and we will advocate for our songwriters. But as Jim said, our forecasts and our budgets reflect the reality that we're living today. The other thing that we also haven't put in our forecast is the numbers around Spotify's Premium to your service, which is estimated to be somewhere in the ballpark of $5 more than the current service, with their estimates being pretty significant as far as how many people will convert to that product. So that's another thing we haven't forecast for. But I think, today, we have a very good handle of what the future looks like here as far as the impact goes. And the advocacy work and the ligation will continue. And what we are managing for on this end is that we don't want any surprises on this front nor do we want to make assumptions around litigation outcome, and that's something that I think that we are prepared for.

Okay. And when we look at specifically at the Recorded Music line, while the revenues were down, the profitability contribution was up pretty meaningfully. So can you talk about how often do you run or do you think you'll see one-off events? Like with De La Soul were, arguably, it actually might have been at least breakeven or maybe even cost a little bit of money as a sort of, I guess, a onetime promotional effort.

So I think we can't really predict how frequently that is. The recorded business is obviously -- and the frontline recorded business is a smaller part of our business. I would say that the De La Soul launch and activity around that was certainly an outlier event. I don't see us executing on a plan of similar scale and importance in sort of the next 1 or 2 quarters as that. So for a frontline recorded business of our size populated by our roster, it's not a frequent occurrence.

Great. And then as we look forward, you maintain guidance. But in terms of seasonality, is there anything that's changing there? You obviously had an unusual comparison because of De La Soul in one part of Q1. But if we look at the rest of the year, maybe our international trends changing any of the typical season, now we see either on the revenue or the OpEx. And on the OpEx side, I just note that it was obviously very flat from Q4 to Q1. How much do you think that, that trend continues? Or is there some meaningful investments you kind of see on the horizon?

Yes. So I think with respect to -- maybe I'll take it in reverse order and talk about the OpEx first. I think that we are really rightsized with respect to our infrastructure right now. So the run rate that you're seeing is really what I would -- where I would expect us to be. We obviously have inflationary pressures like every other business, so we will continue to see the impact of that. But there's nothing that I'm anticipating going forward that is meaningful in terms of the quarter-over-quarter cadence on OpEx. With respect to cyclicality on revenue, that's an area where I think, over the past handful of years, we have done a good job of improving our accrual process and really flattening our -- the spikes and valleys that we see quarter-to-quarter based on the timing of payments. There's still a little bit of that, that happens, with our September and March quarters probably being a little bit higher typically than our June and December quarters. But it's a little bit flatter than what we have seen if you go back kind of 3 years.

Right. And last for me. I've sort of ask this every quarter, but when you think about the external environment, can you just talk a little broadly about the M&A pipeline? Not necessarily absolute sizing, but bigger, smaller expectations changing at all with the macro kind of trending a bit sideways, it looks like, based on interest rates.

Sure. We’re very excited about the pipeline. I think it – at least, the immediate or the short-term deal pipeline, there’s the characteristics of deals that we are attracted to in off-market settings that we are able to execute on at good multiples, attractive returns, diversified assets – set of assets that we’re looking at, ranging from recorded to publishing to film score. Again, that’s in the short term. I think – as far as sizing goes, there’s certainly a few larger deals there. That’s not, as you know, really our sweet spot. So the short-term pipeline is looking at a number of transactions that are in the 7 to 8 figures. And then a few interesting opportunities on the publishing frontline roster as well that we are entertaining. But a pretty solid mix of assets. We don’t – we continue to see no material contraction on pricing, and we have found some opportunities that allow us to purchase at good entry multiples.

[Operator Instructions] We will take our next question from Alex Fuhrman with Craig-Hallum Capital Group.

Congratulations on another quarter of really solid, consistent results. I wanted to ask about the cost of revenue. That was actually down, it looks like, in dollars year-over-year, despite pretty healthy revenue growth, both organically and on the top line. Can you talk about what's been driving that? And then bigger picture, it looks like at least as a percentage of sales, cost of revenue has been coming down for a couple of years. Is that due to the mix of the type of assets you're managing? Can you just give us a little bit more color on what's been driving those trends and what we should expect to see the rest of the year?

Sure. Thanks, Alex. So on the cost of revenue, the biggest driver there is going to be the shift away from physical revenue on the recorded side. Obviously, that revenue carries a much higher cost of revenue than digital does. So that was the biggest driver of a 1% decrease in cost of revenue, while we had an 8% increase in overall revenue. I think if you look at the segments, which you’ll be able to do more when the Q is filed aftermarket today, but you’ll see it in the earnings release as well, we probably had, I think, a 2-point improvement on our publishing gross margin. And some of that does come down to the mix of the assets that we own. Potentially, we acquired assets that carry a higher margin, and that type – those types of acquisitions will improve our overall gross margin. But it was really pretty minor on the publishing side. And on the recorded side, it’s being driven by that shift in the physical revenue for the quarter.

I will now turn the program back over to Golnar Khosrowshahi for any additional closing remarks.

Thank you, operator. We finished the first fiscal quarter in a strong position and look forward to continuing that momentum over the course of the fiscal year. Thank you very much for joining us this morning.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.