# Reservoir Media, Inc. (RSVR) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Reservoir Media, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1824403/000141057822001889/rsvr-20220331x10k.htm
Accession: 0001410578-22-001889
Filing date: 2022-06-21
Report date: 2022-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/RSVR/
All MD&A years: /company/RSVR/mda/
Next year: /company/RSVR/mda/fy2023/ (FY 2023)

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of Reservoir Media, Inc.’s financial condition and results of operations should be read in conjunction with Reservoir Media, Inc.’s consolidated financial statements, including the accompanying notes thereto contained elsewhere in this Annual Report on Form 10-K (this “Annual Report”). Certain statements contained in the discussion and analysis set forth below include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “Reservoir” refer collectively to Reservoir Media, Inc. and its consolidated subsidiaries.

As disclosed in Note 19, “Correction of Prior Period Errors” to our consolidated financial statements, the Company’s consolidated financial statements as of and for the fiscal year ended March 31, 2021, have been revised to give effect to the correction of certain accounting errors identified during the current fiscal year-end financial reporting process. As a result, the Management’s Discussion and Analysis of the Company’s Financial Condition and Results of Operations set forth below has been revised to give effect to the correction of these errors.

Introduction

We are a holding company that conducts substantially all of our business operations through Reservoir Media Management, Inc. (“RMM”) and RMM’s subsidiaries. Our activities 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 gives us 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.

39

Table of Contents

This management’s discussion and analysis of financial condition and results of operations is organized as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Business Overview\u2013\u2013This 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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Results of Operations\u2013\u2013This section provides an analysis of our consolidated and operating segment results of operations for the fiscal years ended March 31, 2022 and March 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Liquidity and Capital Resources\u2013\u2013This section provides an analysis of our cash flows for the fiscal years ended March 31, 2022 and March 31, 2021, as well as a discussion of our liquidity and capital resources as of March 31, 2022. 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 agreement."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Critical Accounting Policies\u2013\u2013This section identifies those accounting policies that are considered important to our results of operations and financial condition, require significant judgement and/or involve significant management estimates. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 2, \u201cSignificant Accounting Policies\u201d to our consolidated financial statements as of March 31, 2022 and for the fiscal years ended March 31, 2022 and 2021."]]
[[/GREPCENT_TABLE]]

Our fiscal year ends on March 31. Unless otherwise noted, all references to Fiscal 2022 represent the fiscal year ended March 31, 2022 and all references to Fiscal 2021 represent the fiscal year ended March 31, 2021.

Business Overview

We are an independent music company operating in music publishing and recorded music. We represent over 140,000 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. Consistent with how we classify and operate our business, our company is organized in two operating and reportable segments: Music Publishing and Recorded Music. A brief description of each segment’s operations is presented below.

Music Publishing Segment

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 RMM, 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 140,000 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:

[[GREPCENT_TABLE]]
[["","\u25cf","Performance\u2013\u2013the 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;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Digital\u2013\u2013the rightsholder receives revenues with respect to musical compositions embodied in recordings distributed in streaming services, download services and other digital music services;"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Mechanical\u2013\u2013the rightsholder receives revenues with respect to musical compositions embodied in recordings sold in any machine-readable format or configuration such as vinyl, CDs and DVDs;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Synchronization\u2013\u2013the 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; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Other\u2013\u2013the rightsholder receives revenues for use in sheet music and other uses."]]
[[/GREPCENT_TABLE]]

The principal costs associated with our Music Publishing business are as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Writer Royalties and Other Publishing Costs\u2013\u2013the artist and repertoire (\u201cA&R\u201d) 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"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Administration Expenses\u2013\u2013the costs associated with general overhead, and other administrative expenses, as well as selling and marketing."]]
[[/GREPCENT_TABLE]]

Recorded Music Segment

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 us 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, Alabama and Travis Tritt, 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 De La Soul, Coolio, House of Pain, Naughty By Nature and Queen Latifah.

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.

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, Snapchat, TikTok and Triller.

Recorded Music revenues are derived from four main sources:

[[GREPCENT_TABLE]]
[["","\u25cf","Digital\u2013\u2013the rightsholder receives revenues with respect to streaming and download services;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Physical\u2013\u2013the rightsholder receives revenues with respect to sales of physical products such as vinyl, CDs and DVDs;"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Synchronization\u2013\u2013the 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"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Neighboring Rights\u2013\u2013the 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."]]
[[/GREPCENT_TABLE]]

The principal costs associated with our Recorded Music business are as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Artist Royalties and Other Recorded Costs\u2013\u2013the 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"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Administration Expenses\u2013\u2013the 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."]]
[[/GREPCENT_TABLE]]

Business Combination

On July 28, 2021 (the “Closing Date”), we consummated the 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 Reservoir Holdings, Inc., a Delaware corporation (“RHI”). On the Closing Date, Merger Sub merged with and into RHI, with RHI surviving as a wholly-owned subsidiary of ROCC (the “Business Combination”). In connection with the consummation of the Business Combination, “Roth CH Acquisition II Co.” was renamed “Reservoir Media, Inc.” effective as of the Closing Date. Our common stock, $0.0001 par value per share (the “Common Stock”) and warrants are traded on The Nasdaq Stock Market LLC (“NASDAQ”) under the ticker symbols “RSVR” and “RSVRW,” respectively.

The Business Combination was accounted for as a reverse capitalization. Under this method of accounting, ROCC was treated as the “acquired” company for accounting purposes, and the Business Combination was accounted as the equivalent of RHI issuing stock for the net assets of ROCC, accompanied by a recapitalization. RHI is deemed to be the accounting predecessor of the combined business and the successor SEC registrant, meaning that RHI’s financial statements for previous periods will be disclosed in future periodic reports filed with the SEC. See Note 3, “Business Combination and PIPE Investment” to the accompanying consolidated financial statements for additional information with respect to the Business Combination and related transactions.

COVID-19 Pandemic

In January 2020, a new strain of coronavirus, COVID-19, was identified in Wuhan, China. In March 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 our 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. We have also invested in our operations to create a platform for the Music Publishing and Recorded Music segments to scale and grow. The most significant acquisitions of size during Fiscal 2022 and Fiscal 2021 were as follows:

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[[GREPCENT_TABLE]]
[["","\u25cf","On June 2, 2021, we acquired, through a membership interest purchase agreement, Tommy Boy Music, LLC (\u201cTommy Boy\u201d), a 40-year-old record label, which included a diverse catalog of primarily recorded music rights and some music publishing rights (the \u201cTommy Boy Acquisition\u201d)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","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 U.S. 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 U.K. company, which enabled us to take advantage of its at-source network of collections across Europe."]]
[[/GREPCENT_TABLE]]

Use of Non-GAAP Financial Measures

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”). However, this Management’s Discussion and Analysis of Financial Condition and Results of Operations also contains certain non-GAAP financial measures to assist readers in understanding our performance. Non-GAAP financial measures either exclude or include amounts that are not reflected in the most directly comparable measure calculated and presented in accordance with GAAP. Where non-GAAP financial measures are used, we have provided the most directly comparable measures calculated and presented in accordance with U.S. GAAP, a reconciliation to GAAP measures and a discussion of the reasons why management believes this information is useful to it and may be useful to investors.

Results of Operations

Income Statement

Our income statement was composed of the following amounts (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Fiscal 2022","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","vs. Fiscal 2021","\u200b"],["\u200b","","Fiscal","","Fiscal","","\u200b","\u200b","","\u200b","\u200b"],["\u200b","","2022","","2021","","$ Change","","% Change","\u200b"],["Revenues","\u200b","$","107,840","\u200b","$","80,246","\u200b","$","27,595","","34","%"],["Costs and expenses:","\u200b","","","\u200b","","","\u200b","","","","","\u200b"],["Cost of revenue","\u200b","","44,186","\u200b","","32,854","\u200b","","11,331","","34","%"],["Amortization and depreciation","\u200b","","19,022","\u200b","","14,077","\u200b","","4,945","","35","%"],["Administration expenses","\u200b","","25,279","\u200b","","14,986","\u200b","","10,293","","69","%"],["Total costs and expenses","\u200b","","88,487","\u200b","","61,918","\u200b","","26,569","","43","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating income","\u200b","","19,353","\u200b","","18,328","\u200b","","1,025","","6","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense","\u200b","","(10,871)","\u200b","","(8,972)","\u200b","","(1,899)","","21","%"],["Gain (loss) on foreign exchange","\u200b","","331","\u200b","","(911)","\u200b","","1,241","","(136)","%"],["Gain on fair value of swaps","\u200b","","8,558","\u200b","","2,988","\u200b","","5,570","","186","%"],["Interest and other income","\u200b","","11","\u200b","","13","\u200b","","(3)","","(21)","%"],["Income before income taxes","\u200b","","17,382","\u200b","","11,446","\u200b","","5,935","","52","%"],["Income tax expense","\u200b","","4,253","\u200b","","2,147","\u200b","","2,107","","98","%"],["Net income","\u200b","","13,128","\u200b","","9,300","\u200b","","3,829","","41","%"],["Net income attributable to noncontrolling interests","\u200b","","(52)","\u200b","","(47)","\u200b","","(5)","","11","%"],["Net income attributable to Reservoir Media, Inc.","\u200b","$","13,077","\u200b","$","9,253","\u200b","$","3,824","","41","%"]]
[[/GREPCENT_TABLE]]

​

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Revenues

Our revenues were composed of the following amounts (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Fiscal 2022"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","vs. Fiscal 2021"],["\u200b","","Fiscal","","Fiscal","","\u200b","\u200b","","\u200b"],["\u200b","","2022","","2021","","$ Change","","% Change"],["Revenue by Type","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Performance","","$","15,557","","$","16,319","\u200b","$","(762)","","(5)","%"],["Digital","","\u200b","37,419","","\u200b","34,842","\u200b","","2,576","","7","%"],["Mechanical","","\u200b","3,189","","\u200b","2,998","\u200b","","191","","6","%"],["Synchronization","","\u200b","13,185","","\u200b","9,322","\u200b","","3,863","","41","%"],["Other","","\u200b","7,721","","\u200b","2,592","\u200b","","5,129","","198","%"],["Total Music Publishing","","\u200b","77,071","","\u200b","66,074","\u200b","","10,997","","17","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Digital","","\u200b","18,381","","\u200b","7,271","\u200b","","11,110","","153","%"],["Physical","","\u200b","6,366","","\u200b","3,855","\u200b","","2,511","","65","%"],["Synchronization","","\u200b","2,633","","\u200b","452","\u200b","","2,182","","483","%"],["Neighboring rights","","\u200b","2,131","","\u200b","1,501","\u200b","","629","","42","%"],["Total Recorded Music","","\u200b","29,511","","\u200b","13,079","\u200b","","16,432","","126","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other revenue","","\u200b","1,259","","\u200b","1,092","\u200b","","166","","15","%"],["Total Revenue","","$","107,840","","$","80,246","\u200b","$","27,595","","34","%"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Fiscal 2022"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","vs. Fiscal 2021"],["\u200b","","Fiscal","","Fiscal","","\u200b","\u200b","","\u200b"],["\u200b","","2022","","2021","","$ Change","","% Change"],["Revenue by Geographical Location","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. Music Publishing","","$","39,765","","$","34,008","\u200b","$","5,757","","17","%"],["U.S. Recorded Music","","\u200b","16,014","","\u200b","4,600","\u200b","\u200b","11,415","","248","%"],["U.S. Other Revenue","","\u200b","1,259","","\u200b","1,092","\u200b","\u200b","166","","15","%"],["Total U.S.","","\u200b","57,038","","\u200b","39,699","\u200b","\u200b","17,338","","44","%"],["International Music Publishing","","\u200b","37,306","","\u200b","32,067","\u200b","\u200b","5,239","","16","%"],["International Recorded Music","","\u200b","13,497","","\u200b","8,480","\u200b","\u200b","5,017","","59","%"],["Total International","","\u200b","50,803","","\u200b","40,546","\u200b","\u200b","10,256","","25","%"],["Total Revenue","","$","107,840","","$","80,246","\u200b","$","27,595","","34","%"]]
[[/GREPCENT_TABLE]]

​

Revenues

Total revenues increased by $27,595 thousand, or 34%, during Fiscal 2022 compared to Fiscal 2021, driven by a 17% increase in Music Publishing revenue and a 126% increase in Recorded Music revenue. Music Publishing revenues represented 71% and 82% of total revenues for Fiscal 2022 and Fiscal 2021, respectively. Recorded Music revenues represented 27% and 16% of total revenues for Fiscal 2022 and Fiscal 2021, respectively. U.S. and international revenues represented 53% and 47%, respectively of total revenues for Fiscal 2022. U.S. and international revenues represented 49% and 51%, respectively of total revenues Fiscal 2021. The shift in mix between Music Publishing and Recorded Music and the shift in geographic mix are both primarily attributable to the Tommy Boy Acquisition.

Total digital revenues increased by $13,686 thousand, or 32%, during Fiscal 2022 compared to Fiscal 2021. Total digital revenues represented 52% of consolidated revenues for Fiscal 2022 and Fiscal 2021.

Music Publishing revenues increased by $10,997 thousand, or 17%, during Fiscal 2022 compared to Fiscal 2021. This increase in Music Publishing revenue was mainly driven by acquisitions of catalogs and revenue from the existing catalog, which led to increases

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in synchronization revenue, mechanical revenue and digital revenue. Additionally, other revenues increased, driven primarily by the launch of a rights management subsidiary in the Middle East. These increases were partially offset by a decrease in performance revenue.

On a geographic basis, U.S. Music Publishing revenues represented 52% of total Music Publishing revenues for Fiscal 2022 compared to 51% for Fiscal 2021. International Music Publishing revenues represented 48% of total Music Publishing revenues for Fiscal 2022 compared to 49% for Fiscal 2021.

Recorded Music revenues increased by $16,432 thousand, or 126%, during Fiscal 2022 compared Fiscal 2021. This increase in Recorded Music revenue was driven in part by the acquisition of Tommy Boy in June 2021, which contributed $10,799 thousand to Recorded Music revenue during Fiscal 2022. Digital revenue increased by $11,110 thousand primarily due to the acquisition of Tommy Boy and due to the continued growth at music streaming services. Increases in physical revenue and neighboring rights revenue were also primarily due to the acquisition of Tommy Boy. The $2,182 thousand increase in synchronization revenue was primarily due to the acquisition of Tommy Boy and the recovery in the film and television industry from the impacts of the COVID-19 pandemic.

On a geographic basis, U.S. Recorded Music revenues represented 54% of total Recorded Music revenues for Fiscal 2022 compared to 35% for Fiscal 2021. International Recorded Music revenues represented 46% of total Recorded Music revenues for Fiscal 2022 compared to 65% for Fiscal 2021. This shift in Recorded Music geographic mix was driven primarily by the acquisition of Tommy Boy.

Cost of Revenues

Our cost of revenues was composed of the following amounts (in thousands):

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

Cost of revenues increased by $11,332 thousand, or 34%, during Fiscal 2022 compared Fiscal 2021. Cost of revenues as a percentage of revenues was 41% for Fiscal 2022 and Fiscal 2021, reflecting a small margin decrease for Music Publishing, as described below, which was offset by an increase in the relative weight of Recorded Music as a percentage of total revenue and an increase in Other revenue.

Writer royalties and other publishing costs for the Music Publishing segment increased by $6,484 thousand, or 22%, during Fiscal 2022 compared Fiscal 2021. Writer royalties and other publishing costs as a percentage of Music Publishing revenues increased to 46% for Fiscal 2022 from 44% for Fiscal 2021. 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 for the Recorded Music segment increased by $4,848 thousand, or 125%, during Fiscal 2022 compared to Fiscal 2021. This increase was due primarily to increased revenue from the acquisition of Tommy Boy. Artist royalties and other recorded music costs as a percentage of Recorded Music revenues was 30% for Fiscal 2022 and Fiscal 2021.

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Amortization and Depreciation

Our amortization and depreciation expenses are composed of the following amounts (in thousands):

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

Amortization and depreciation expense increased by $4,945 thousand, or 35%, during Fiscal 2022 compared to Fiscal 2021, driven by increases in both the Music Publishing and Recorded Music segments. Music Publishing amortization and depreciation expense increased by $2,020, or 17%, during Fiscal 2022 compared to Fiscal 2021, primarily due to the acquisition of additional music catalogs. Recorded Music amortization and depreciation increased by $2,933, or 132%, during Fiscal 2022 compared to Fiscal 2021, primarily due to Tommy Boy.

Administration Expenses

Our administration expenses are composed of the following amounts (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Fiscal 2022"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","vs. Fiscal 2021"],["\u200b","","Fiscal","","Fiscal","","\u200b","\u200b","","\u200b"],["\u200b","","2022","","2021","","$ Change","","% Change"],["Music Publishing administration expenses","\u200b","$","17,096","\u200b","$","10,055","\u200b","$","7,041","","70","%"],["Recorded Music administration expenses","\u200b","","7,259","\u200b","","4,207","\u200b","","3,052","","73","%"],["Other administration expenses","\u200b","","924","\u200b","","724","\u200b","","200","","28","%"],["Total administration expenses","\u200b","$","25,279","\u200b","$","14,986","\u200b","$","10,293","","69","%"]]
[[/GREPCENT_TABLE]]

​

Total administration expenses increased by $10,293 thousand, or 69%, during Fiscal 2022 compared to Fiscal 2021, reflecting increases in both the Music Publishing and Recorded Music segments. Expressed as a percentage of revenues, administration expenses increased to 23% for Fiscal 2022 from 19% for Fiscal 2021, due to administration expenses associated with being a public company, an increase in share-based compensation expense and increased costs related to establishing a U.S. Recorded Music platform due to the acquisition of Tommy Boy.

Music Publishing administration expenses increased by $7,041 thousand, or 70%, during Fiscal 2022 compared to Fiscal 2021. Expressed as a percentage of revenues, Music Publishing administration expenses increased to 22% for Fiscal 2022 from 15% for Fiscal 2021, driven primarily by new administration expenses associated with being a public company and increased costs related to acquisitions.

Recorded Music administration expenses increased by $3,052 thousand, or 73%, during Fiscal 2022 compared to Fiscal 2021, primarily due to increases at Chrysalis Records and the acquisition of Tommy Boy. Expressed as a percentage of revenue, Recorded Music administration expenses decreased to 25% for Fiscal 2022 from 32% for Fiscal 2021, primarily due to taking advantage of operating leverage on the Recorded Music platform, partially offset by new administration expenses associated with being a public company.

46

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Interest Expense

Interest expense increased by $1,899 thousand, or 21%, during Fiscal 2022 compared to Fiscal 2021. This increase was primarily driven by increased debt balances due to use of funds in catalog and business acquisitions and writer signings, partially offset by lower interest rates due to a decline in LIBOR rates as well as the result of refinancing transactions, the impact of which was in turn partially offset by interest rate swap hedges. Our credit agreement provides for the transition from LIBOR as the index rate to SOFR once LIBOR is discontinued. We do not expect a negative impact on interest expense as a result of the transition..

Gain (Loss) on Foreign Exchange

Gain on foreign exchange was $331 thousand for Fiscal 2022 compared to a loss on foreign exchange of $911 thousand for Fiscal 2021. This change was due to fluctuations in the two foreign currencies we are directly exposed to, namely British pound sterling and euro.

Gain on Fair Value of Swaps

Gain on fair value of swaps increased by $5,570 thousand during Fiscal 2022 compared to Fiscal 2021. This change was due to a rising forward yield curve for LIBOR and the marking to market of our interest rate swap hedges.

Income Tax Expense

Income tax expense increased by $2,107 thousand, or 98%, during Fiscal 2022 compared to Fiscal 2021. The effective income tax rate during Fiscal 2022 was 24.5% compared to 18.8% during Fiscal 2021. The increase in the effective income tax rate was driven primarily by changes in the mix of income from multiple tax jurisdictions.

Net Income

Net income increased by $3,829 thousand, or 41%, during Fiscal 2022 compared to Fiscal 2021, driven primarily by a $5,570 increase in gain on fair value of swaps, a $1,241 thousand increase in gain on foreign exchange and a $1,025 thousand increase in operating income as a result of company growth, partially offset by costs of being a public company. These factors were partially offset by a $1,899 thousand increase in interest expense and $2,107 increase in income tax expense.

Non-GAAP Reconciliations

We use certain financial information, such as OIBDA, OIBDA Margin, EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA, which are non-GAAP financial measures, which means they have not been prepared in accordance with U.S. GAAP. Reservoir’s management uses these non-GAAP financial measures to evaluate our operations, measure its performance and make strategic decisions. We believe that the use of these non-GAAP financial measures provides useful information to investors and others in understanding our results of operations and trends in the same manner as our management and in evaluating our financial measures as compared to the financial measures of other similar companies, many of which present similar non-GAAP financial measures. However, these non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by our management about which items are excluded or included in determining these non-GAAP financial measures and, therefore, should not be considered as a substitute for net income, operating income or any other operating performance measures calculated in accordance with GAAP. Using such non-GAAP financial measures in isolation to analyze our business would have material limitations because the calculations are based on the subjective determination of our management regarding the nature and classification of events and circumstances. In addition, although other companies in our industry may report measures titled OIBDA, OIBDA margin and Adjusted EBITDA, or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate such non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, such non-GAAP financial measures should be considered alongside other financial performance measures and other financial results presented in accordance with GAAP. Reconciliations of OIBDA to operating income and EBITDA and Adjusted EBITDA to net income are provided below.

47

Table of Contents

We consider operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets (“OIBDA”) to be an important indicator of the operational strengths and performance of our businesses and believe this non-GAAP financial measure provides useful information to investors because it removes the significant impact of amortization from our results of operations and represents our measure of segment income. 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, net income attributable to us 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. OIBDA Margin is defined as OIBDA as a percentage of revenue.

EBITDA is defined as earnings (net income or loss) before net interest expense, income tax (benefit) expense, non-cash depreciation of tangible assets and non-cash amortization of intangible assets and is used by management to measure operating performance of the business. Adjusted EBITDA is defined as EBITDA further adjusted to exclude items or expenses such as, among others, (1) any non-cash charges (including any impairment charges), (2) any net gain or loss on foreign exchange, (3) any net gain or loss resulting from interest rate swaps, (4) equity-based compensation expense and (5) certain unusual or non-recurring items. Adjusted EBITDA is a key measure used by our management to understand and evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. However, certain limitations on the use of Adjusted EBITDA include, among others, (1) it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue for our business, (2) it does not reflect the significant interest expense or cash requirements necessary to service interest or principal payments on our indebtedness and (3) it does not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments. In particular, Adjusted EBITDA measure adds back certain non-cash, unusual or non-recurring charges that are deducted in calculating net income; however, these are expenses that may recur, vary greatly and are difficult to predict. In addition, Adjusted EBITDA is not the same as net income or cash flow provided by operating activities as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.

Pro Forma Adjusted EBITDA is defined as Adjusted EBITDA plus the pro forma EBITDA of assets acquired in the previous four quarters representing the earnings of those assets for the portion of the prior four quarters before the Company’s acquisition of such assets. This is the measurement defined in the Company’s credit agreement. The Company believes that including the supplemental adjustments that are made to calculate Pro Forma Adjusted EBITDA provides additional information to investors about the Company’s ability to comply with its financial covenants as well as providing meaningful information about the historic earnings of acquired assets. Pro Forma Adjusted EBITDA is not defined by GAAP. Pro Forma Adjusted EBITDA is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to net income determined in accordance with GAAP or operating cash flows determined in accordance with GAAP. Additionally, Pro Forma Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense (because the Company uses capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue), working capital needs, tax payments (because the payment of taxes is part of our operations, it is a necessary element of our costs and ability to operate), non-recurring expenses and capital expenditures.

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):

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

48

Table of Contents

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Music Publishing"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Fiscal 2022"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","vs. Fiscal 2021"],["\u200b","","Fiscal","","Fiscal","","\u200b","\u200b","","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","$ Change","\u200b","% Change"],["Operating income","\u200b","$","10,731","\u200b","$","15,279","\u200b","$","(4,548)","","(30)","%"],["Amortization and depreciation expenses","\u200b","","13,769","\u200b","","11,749","\u200b","","2,020","","17","%"],["OIBDA","\u200b","$","24,500","\u200b","$","27,028","\u200b","$","(2,528)","","(9)","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["OIBDA Margin","\u200b","","32","%","","41","%","","","","","\u200b"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Recorded Music"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Fiscal 2022"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","vs. Fiscal 2021"],["\u200b","","Fiscal","","Fiscal","","\u200b","\u200b","","\u200b"],["\u200b","\u200b","2022","\u200b","2021","\u200b","$ Change","\u200b","% Change"],["Operating income","\u200b","$","8,386","\u200b","$","2,787","\u200b","$","5,599","","201","%"],["Amortization and depreciation expenses","\u200b","","5,155","\u200b","","2,222","\u200b","","2,933","","132","%"],["OIBDA","\u200b","$","13,541","\u200b","$","5,009","\u200b","$","8,532","","170","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["OIBDA Margin","\u200b","","46","%","","38","%","","","","","\u200b"]]
[[/GREPCENT_TABLE]]

​

OIBDA

Consolidated OIBDA increased by $5,970 thousand, or 18%, during Fiscal 2022 compared to Fiscal 2021, driven by a 170% increase in Recorded Music OIBDA, partially offset by a 9% decrease in Music Publishing OIBDA. Expressed as a percentage of revenue, OIBDA Margin decreased to 36% for Fiscal 2022 from 40% for Fiscal 2021, primarily because of increased overhead associated with being a public company and increased costs related to acquisitions.

Music Publishing OIBDA decreased $2,528 thousand, or 9%, during Fiscal 2022 compared to Fiscal 2021. Expressed as a percentage of revenue, Music Publishing OIBDA Margin decreased to 32% in Fiscal 2022 from 41% in Fiscal 2021. The decreases in Music Publishing OIBDA and OIBDA Margin reflect increases in administration expenses associated with being a public company and writers’ royalties and other publishing costs as a percentage of revenue, partially offset by revenue growth.

Recorded Music OIBDA increased $8,532 thousand, or 170% during Fiscal 2022 compared to Fiscal 2021. Expressed as a percentage of revenue, Recorded Music OIBDA Margin increased to 46% during Fiscal 2022 from 38% in Fiscal 2021. These increases reflect increases at Chrysalis Records and the acquisition of Tommy Boy and improved operating leverage on the Recorded Music platform as a result of growth.

49

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Reconciliation of Net Income to EBITDA and Adjusted EBITDA

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[[/GREPCENT_TABLE]]

​

NM - Not meaningful

[[GREPCENT_TABLE]]
[["(a)","Reflects the loss or (gain) on foreign exchange fluctuations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","Reflects the non-cash gain on the mark-to-market of interest rate swaps."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(c)","Reflects non-cash stock-based compensation expense related to the Reservoir Media, Inc. 2021 Omnibus Incentive Plan."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(d)","Reflects loan forgiveness for the entire amount borrowed under the Paycheck Protection Program."]]
[[/GREPCENT_TABLE]]

Consolidated Adjusted EBITDA increased by $9,373 thousand, or 29%, during Fiscal 2022 compared to Fiscal 2021, driven primarily by an increase in revenue, partially offset by increases in cost of revenue and administration expenses, including administration expenses associated with being a public company.

Liquidity and Capital Resources

Capital Resources

As of March 31, 2022, we had $269,856 thousand of debt (net of $5,790 thousand of deferred financing costs) and $17,814 thousand of cash and equivalents.

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 Senior Credit Facility.

Cash Flows

The following table summarizes our historical cash flows (in thousands).

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

50

Table of Contents

Operating Activities

Cash provided by operating activities was $12,479 thousand for Fiscal 2022 compared to $14,715 thousand for Fiscal 2021. The primary driver of the $2,236 thousand decrease in cash provided by operating activities during Fiscal 2022 as compared to Fiscal 2021 was an increase in cash used for working capital, primarily used for royalty advances (net of recoupments), partially offset by higher earnings.

Investing Activities

Cash used in investing activities was $196,823 thousand for Fiscal 2022 compared to $118,614 thousand for Fiscal 2021. The increase in cash used in investing activities was primarily due to increased acquisitions of music catalogs, including Tommy Boy.

Financing Activities

Cash provided by financing activities was $196,534 thousand for Fiscal 2022 compared to $47,220 thousand for Fiscal 2021. The increased cash provided by financing activities in Fiscal 2022 reflects the proceeds from the Business Combination and PIPE Investment and an increase in net borrowings used for investing activities, primarily acquisitions of catalogs, partially offset by the payment of financing costs.

Liquidity

Our primary sources of liquidity are the cash flows generated from our subsidiaries’ operations, available cash and cash equivalents and funds available for drawing under our Senior Credit Facility (as described below). These sources of liquidity are needed to fund our debt service requirements, working capital requirements, strategic acquisitions and investments, capital expenditures and other investing and financing activities we may elect to make in the future.

During the Fiscal 2021, 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 PPP, 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 March 31, 2022

As of March 31, 2022, our outstanding debt consisted of $275,646 thousand borrowed under the Senior Credit Facility. As of March 31, 2022, remaining borrowing availability under the Senior Credit Facility was $74,354 thousand.

We use cash generated from operations to service outstanding debt, consisting primarily of interest payments through maturity, and we expect to continue to refinance and extend maturity on the Senior Credit Facility for the foreseeable future.

Debt Capital Structure

Since 2014, RMM 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 of maturity dates and increases in the facility size.

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On July 28, 2021, in connection with the consummation of the Business Combination, RMM amended and restated the Prior Credit Facility by entering the Fourth Amended and Restated Credit Agreement (the “RMM Credit Agreement”), providing RMM with a senior secured credit facility in an aggregate amount of $248,750 thousand. On December 7, 2021, RMM entered into an amendment (the “First Amendment”) to the RMM Credit Agreement. The First Amendment amended the RMM Credit Agreement to increase RMM’s senior secured revolving credit facility from $248,750 thousand to an aggregate amount of $350,000 thousand (the “Senior Credit Facility”). The Senior Credit Facility matures on October 16, 2024, and Borrowings under the Senior Credit Facility 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%. RMM is also required to pay an unused fee in respect of unused commitments under the Senior Credit Facility, if any, at a rate of 0.25% per annum.

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 Senior Credit Facility are described below.

Guarantees and Security

The obligations under the Senior Credit Facility are guaranteed by us, RHI and subsidiaries of RMM. Substantially all of our, RHI’s, RMM’s and other subsidiary guarantors’ tangible and intangible assets are pledged as collateral to secure the obligations of RMM under the Senior Credit Facility, including accounts receivable, cash and cash equivalents, deposit accounts, securities accounts, commodities accounts, inventory and certain intercompany debt owing to us or our subsidiaries.

Covenants, Representations and Warranties

The Senior Credit Facility contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants contained in the Senior Credit Facility limit the ability our, RHI’s, RMM’s and certain of its subsidiaries ability 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.

Events of Default

The Senior Credit Facility includes customary events of default, including 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.

Covenant Compliance

The Senior Credit Facility contains financial covenants that requires us, on a consolidated basis with our subsidiaries, to maintain, (i) a total leverage ratio of no greater than 7.50:1.00 (net of up to $20,000 thousand of certain cash balances) 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 no greater than 0.475:1.00, subject to certain adjustments. RMM’s ability to borrow funds under the Senior 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.

The leverage ratio test is based on trailing twelve month (“TTM”) Pro Forma Adjusted EBITDA, which is defined in the Senior Credit Facility as Adjusted EBITDA plus the pro forma EBITDA of assets acquired in the previous four quarters representing the earnings of those assets for the portion of the prior four quarters before the Company’s acquisition of such assets. As of March 31, 2022

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the Company’s leverage ratio was 5.7x. The calculations of Pro forma Adjusted EBITDA in accordance with the Senior Credit Facility is as follows for the trailing twelve months ended March 31, 2022:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b"],["Net income","","$","13,128"],["Income tax expense","\u200b","","4,253"],["Interest expense","\u200b","","10,871"],["Amortization and depreciation","\u200b","","19,022"],["EBITDA","\u200b","","47,274"],["(Gain) loss on foreign exchange (a)","\u200b","","(331)"],["Gain on fair value of swaps (b)","\u200b","","(8,558)"],["Non-cash share-based compensation (c)","\u200b","","2,891"],["Interest and other income","\u200b","","(11)"],["Adjusted EBITDA","\u200b","","41,265"],["Pro forma EBITDA on acquisitions (d)","\u200b","","7,085"],["Pro forma Adjusted EBITDA","\u200b","$","48,350"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(a)","Reflects the loss or (gain) on foreign exchange fluctuations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(b)","Reflects the non-cash gain on the mark-to-market of interest rate swaps."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(c)","Reflects non-cash stock-based compensation expense related to the Reservoir Media, Inc. 2021 Omnibus Incentive Plan."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(d)","Reflects the pro forma EBITDA on acquisitions for the portion of the prior twelve months that are not included in the Company\u2019s financial results."]]
[[/GREPCENT_TABLE]]

Non-compliance with the leverage ratio, fixed charge coverage ratio and consolidated senior debt to library value ratio could result in the lenders, subject to customary cure rights, requiring the immediate payment of all amounts outstanding under the Senior Credit Facility, which could have a material adverse effect on our business, cash flows, financial condition and results of operations. As of March 31, 2022, we were in compliance with each of the financial covenants under the Senior Credit Facility.

Interest Rate Swaps

At March 31, 2022, RMM had the following interest rate swaps outstanding, under which it pays a fixed rate and receives a floating interest payment from the counterparty based on LIBOR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Notional","","\u200b","","\u200b"],["\u200b","\u200b","Amount at","\u200b","Pay Fixed","\u200b","\u200b"],["Effective Date","\u200b","March 31, 2022","\u200b","Rate","\u200b","Maturity"],["March 10, 2022","\u200b","$","8,750,000","","1.602","%","September 2024"],["March 10, 2022","\u200b","$","88,039,137","","1.492","%","September 2024"],["December 31, 2021","\u200b","$","53,210,863","","1.042","%","September 2024"]]
[[/GREPCENT_TABLE]]

​

On March 10, 2022, two previous interest rate swaps expired with original notional amounts of $40,228,152 and $59,325,388. Through the expiration date of these previous interest rate swaps, RMM paid fixed rates of 2.812% and 2.972%, respectively, to the counterparty and received a floating interest payment from the counterparty based on LIBOR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement.

Dividends

Our ability to pay dividends is restricted by covenants in the Senior Credit Facility. We did not pay any dividends to stockholders during Fiscal 2022.

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Summary

Management believes that funds generated from our operations, borrowings under the Senior 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. 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 our outstanding debt. 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 Senior Credit Facility with existing cash and/or with funds provided from additional borrowings.

Contractual and Other Obligations

Firm Commitments

The following table summarizes Reservoir Media Management’s aggregate contractual obligations as of March 31, 2022, and the estimated timing and effect that such obligations are expected to have on liquidity and cash flow in future periods.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Less Than 1","","\u200b","\u200b","","\u200b","\u200b","","After 5","","\u200b","\u200b"],["Firm Commitments and Outstanding Debt","\u200b","Year","\u200b","2-3 Years","\u200b","4-5 Years","\u200b","Years","\u200b","Total"],["\u200b","","\u200b","(in thousands)"],["Revolving Credit","\u200b","$","\u2014","","$","275,646","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","275,646"],["Interest on Revolving Credit(1)","\u200b","","8,958","","\u200b","13,842","\u200b","","\u2014","\u200b","","\u2014","\u200b","","22,800"],["Operating leases(2)","\u200b","","759","","\u200b","1,084","\u200b","","646","\u200b","","\u2014","\u200b","","2,489"],["Artist, songwriter and co-publisher commitments(3)","\u200b","","2,913","","\u200b","1,250","\u200b","","\u2014","\u200b","","\u2014","\u200b","","4,163"],["Asset acquisition and share purchase acquisition commitments(4)","\u200b","","12,273","","\u200b","426","\u200b","","426","\u200b","","160","\u200b","","1,012"],["Total firm commitments and outstanding debt","\u200b","$","24,903","\u200b","$","292,248","\u200b","$","1,072","\u200b","$","160","\u200b","$","306,110"]]
[[/GREPCENT_TABLE]]

​

The following is a description of our firmly committed contractual obligations as of March 31, 2022:

[[GREPCENT_TABLE]]
[["","(1)","Interest obligations under the Credit Facility are presented in consideration of 1.0% as a substitute for LIBOR, plus 2.25%. These obligations have been presented based on the principal amounts due as of March 31, 2022. Amounts do not include any unamortized deferred financing costs."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Operating lease obligations primarily relate to the minimum lease rental obligations for our real estate in various locations around the world. Operating lease obligations exclude a total commitment of approximately $8.4 million for a new corporate headquarter office entered into in April 2022 (See Note 20 Subsequent Event to our Consolidated Financial Statements), which is payable monthly with escalating rental payments over the 130-month lease term. The lease term is estimated to commence during the Company\u2019s third or fourth quarter of the fiscal year ending March 31, 2023."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(3)","The Company routinely enters into long-term commitments with recording artists and songwriters for the future delivery of music. Such commitments generally become due only upon delivery or release and Reservoir\u2019s acceptance of albums from the artists or future musical compositions by songwriters and publishers. Based on contractual obligations, and management\u2019s estimate of aggregate firm commitments to such talent approximates $4,163 thousand as of March 31, 2022. The aggregate firm commitments expected for the next twelve-month period based on contractual obligations and expected release schedule approximates $2,913 thousand as of March 31, 2022. Because the timing of payment, and even whether payment occurs, is dependent upon the timing of delivery of albums and musical compositions, the timing and amount of payment of these commitments as presented in the above summary can vary significantly."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","(4)","The Company routinely enters into asset acquisition agreements and less often share purchase agreements, which can have deferred minimum funding commitments and other related obligations, which are reflected in the table above."]]
[[/GREPCENT_TABLE]]

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 the Company’s consolidated financial statements for the fiscal years ended March 31, 2022 and 2021, contained in Part II, Item 8 of this Form 10-K for a description of our other significant accounting policies. The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and related 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 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

Revenues

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.

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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. Reservoir regularly updates the recoverability assessment as additional data is available. 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 assets are recorded on a relative fair value basis in accordance with Reservoir’s accounting policies 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.

Off-Balance Sheet Arrangements

As of March 31, 2022, we had no off-balance sheet arrangements.

New Accounting Pronouncements

See Note 2, “Significant Accounting Policies” to the accompanying consolidated financial statements for the fiscal years ended March 31, 2022 and 2021, contained in Part II, Item 8 of this Form 10-K.

​

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