December 7, 2021

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Reservoir Shares Finances Before Going Public

For the Reservoir shareholders, there is a 180-day lock-up period for half of its 44.3 million shares; and a 360-day lock-up period for the other half of their shares. If the deal closes, Roth Acquisition II’s ROCC ticker will convert to RSVR on the NASDAQ stock exchange.

Reservoir’s $64 million in revenue for 2020 represented 42% growth from the year prior and its $11.5 million net income increased more than threefold. (The company posted $3.8 million in net income on $45 million in revenue for the year ending 2019.)

For 2020, music publishing generated 84% or $54 million of Reservoir’s total revenue. That catalog includes titles by the Isley Brothers, John Denver, Sheryl Crow, Migos, 2 Chainz, Young Thug and Ali Tamposi.

Master recording royalties and other income streams generated the other $9 million for a 26,000 song-catalog, which includes titles by Sinead O’Connor, the Commodores, Generation X, The Delfonics and Liz Phair.

Reservoir reported $29.1 million in EBITDA (earnings before interest, taxes, depreciation and amortization) for 2020 — almost double the $16.4 million in EBITDA it posted for 2019. Operating EBITDA came in at $24.2 million in 2020, up from $18.3 million in 2019.

Gross profit hit $36 million in 2020, with the profit margin slipping slightly to 56.3% from 60.5% in 2019 on $26 million in gross profit.

Looking ahead, the company estimates that it generated $80 million in revenue for the just-completed fiscal year ending March 31, 2021. That will include $8.4 million net income, a 27% drop from 2020 that’s likely due to the company taking on an additional estimated $3.7 million in expenses associated with being a publicly-traded company. As part of its 2021 estimates, Reservoir projects $47 million gross profit, which translates into a 58.8% profit margin; while EBITDA will come in at $32.2 million.

Calculating a three-year revenue and gross profit average for the years 2019, 2020 and the 2021 estimate, Reservoir averaged $36.3 million in net publisher/label share, on revenues of $63 million.

Putting that NLS average against Reservoir’s $788 million enterprise value, the Reservoir merger valuation works out to a nearly 21.7 times NPS/NLS multiple.

On a going forward basis for 2022, Reservoir projects revenue of $108 million with gross profit of $60 million, which translates into a 13.1 NPS/NLS times multiple.

In looking at 2021’s estimated publishing revenue mix, the company reported that digital accounted for 54%, performance 24%, synchronization 15% and other 7%. It also broke it out by genre, reporting pop was 24%, R&B was 15%, hip-hop 14%, film & TV production music 14%, country 13%, rock 9%, jazz 4%, electronic 3% and other 4%.

By geography, the catalog’s revenue breaks out to 59% North America, 34% Europe and 8% other; while by age, the 2010s and 2020s tallied 37%, the 2000s at 25%, the 1990s at 9%, the 1980s at 3%, the 1970s at 8%, the 1960s at 9%, the 1950s at 3%, the 1930s at 3% and other at 2%. (Percentages do not add up to 100% due to rounding.)

Reservoir also said that 98% of its revenue comes from owned catalog, while 2% comes from songs where it serves as administrator. For its owned catalog, it reported that it will have publishing ownership control of 96% of the catalog for more than 10 years; and of that, 76% is for the life of copyright.

The company reports that when the merger deal closes, it expects to have about $290 million in debt and $245 million in cash, which will give it net debt of almost $45 million. The debt will consist of about $180 million drawn down from its $248.8 million revolving credit facility — Truist Bank, formerly Sun Trust, is the lead bank in the syndication of that facility — and another $100 million or so in debt for undisclosed pipeline acquisitions that are expected to close soon.

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