Executive Summary / Key Takeaways

• Strategic Catalog Accumulation Drives Growth: Reservoir Media's core investment thesis centers on its disciplined, relationship-driven acquisition strategy of high-quality music publishing and recorded music catalogs, exemplified by recent additions like Miles Davis and Lastrada Entertainment, which consistently fuel revenue expansion and enhance long-term value.
• Robust Financial Performance and Outlook: The company demonstrated strong financial results in Q2 Fiscal 2026, with total revenue up 12% year-over-year (7% organic) and Adjusted EBITDA increasing 10%. Management has raised its Fiscal Year 2026 guidance, projecting revenue of $167 million to $170 million and Adjusted EBITDA of $70 million to $72 million, signaling continued growth.
• Global Diversification and New Monetization Avenues: Reservoir is actively expanding its international footprint in high-growth emerging markets like India and the MENA region, leveraging a "boots on the ground" approach. Investments in new verticals, such as immersive entertainment through Lightroom, unlock innovative monetization opportunities for its intellectual property.
• Competitive Agility and Operational Leverage: As an independent player, Reservoir leverages its agility to secure off-market deals and apply proprietary catalog management systems, driving efficiency and value enhancement. This focused approach allows for competitive margins and effective integration of new assets.
• Prudent Capital Deployment and Liquidity: With a robust M&A pipeline exceeding $1 billion and an expanded $550 million credit facility, Reservoir is well-positioned to continue its strategic capital deployment. The company maintains healthy liquidity, with $152.1 million available as of September 30, 2025, to fund future growth.

The Independent Beat: Reservoir Media's Strategic Cadence in a Dynamic Industry

Reservoir Media, Inc. (NASDAQ:RSVR), an independent music company founded in 2007, has carved out a significant niche in the global music industry through its dual focus on Music Publishing and Recorded Music. The company's overarching strategy is built on leveraging a diverse, high-quality catalog and scaling through a balanced mix of catalog development, strategic signings, and global diversification. This approach has shaped its journey from a privately held entity to a publicly traded company on Nasdaq in July 2021, marking a pivotal moment in its expansion.

The music industry continues to demonstrate remarkable resilience, weathering broader macroeconomic headwinds as consumers consistently value music in their daily lives. Key market drivers include the ongoing growth in streaming subscriptions, anticipated price increases from digital service providers (DSPs), and the increasing dominance of catalog music, which represented over 73% of all on-demand audio streams in the United States by the end of 2024. Emerging markets, particularly in regions like India and the Middle East and North Africa (MENA), present substantial growth opportunities due to rising internet connectivity and increasing listenership, with India's music industry alone projected to grow at a 13% CAGR through 2027.

In this competitive landscape, Reservoir Media positions itself as an agile, relationship-driven player, differentiating from major labels like Warner Music Group (WMG), Sony Music Entertainment (SONY), and Universal Music Group (UMG). While these larger competitors benefit from immense scale, extensive global distribution networks, and deeper technological integration, Reservoir excels in securing off-market deals and fostering strong, personalized relationships with artists and estates. This allows Reservoir to target specialized catalogs and emerging talent, often leading to more favorable acquisition terms and higher returns on specific deals, as it largely avoids competitive auction processes.

Reservoir's competitive advantages are rooted in its operational execution and strategic focus. Its proprietary catalog management systems are central to its efficiency, enabling superior tracking and licensing of its vast intellectual property. These systems provide tangible benefits by maximizing revenue from existing assets and improving capital efficiency, which is crucial for maintaining competitive gross margins. While direct quantitative comparisons with the R&D budgets of tech-integrated giants like Sony are challenging, Reservoir's internal systems allow for a more targeted and efficient approach to catalog monetization. The company's investment in Lightroom, a London-based immersive entertainment company, further exemplifies its innovative approach to technology. This strategic move diversifies Reservoir's portfolio into a high-growth vertical, projected to reach $473 billion by 2030, and unlocks new monetization avenues for its IP by developing immersive experiences around music. This allows Reservoir to tap into the growing "superfan" market, which now accounts for 20% of paid streaming subscribers in the U.S.

Orchestrating Value: A History of Strategic Acquisitions and Operational Excellence

Reservoir's history is a testament to its strategic vision. Early acquisitions, such as Chrysalis Records in 2019 and Tommy Boy Records in 2021, were instrumental in diversifying the business and building a robust recorded music infrastructure. Fiscal year 2025 (ended March 31, 2025) marked a period of significant capital deployment, with over $115 million invested in acquisitions and advances. Notable additions included Lastrada Entertainment's publishing catalog of over 5,600 compositions, recognized for its pioneering role in sampled music and syncs, and the UK dance and electronic label New State, with its catalog of over 13,000 tracks. The company also expanded its global footprint with the acquisition of Egyptian star Omar Kamal's catalog in March 2025 and the subsequent launch of PopIndia in Mumbai in April 2025, aiming to capitalize on the region's immense growth potential.

The first quarter of fiscal year 2026 (ended June 30, 2025) saw continued strategic expansion. The investment in Lightroom diversified the company into immersive entertainment, creating new opportunities to monetize its IP. The acquisition of master rights from independent label Fool's Gold Records further strengthened the Recorded Music segment. Reservoir also demonstrated its commitment to client retention by extending publishing deals with Grammy Award-winning songwriter-producer Khris Riddick-Tynes and music icon Joni Mitchell. These moves underscore Reservoir's reputation as a trusted partner for creators and estates.

Financial Performance: A Resilient Beat

Reservoir Media delivered strong financial results for the second quarter of fiscal year 2026 (ended September 30, 2025), building on a solid performance in the first quarter and fiscal year 2025. Total revenues for Q2 FY26 increased by 12% year-over-year to $45.44 million, driven by 7% organic growth and 5% from acquisitions. This growth was notably led by a 21% increase in the Recorded Music segment and an 8% increase in Music Publishing.

Operating performance also saw significant gains, with OIBDA increasing 10% year-over-year to $18.2 million and Adjusted EBITDA rising 10% to $19.4 million. These improvements were primarily attributed to increased revenue and gross margin, partially offset by higher administration expenses. Net income for the quarter was $2.2 million, a substantial increase from $152,000 in the prior year, largely due to a decrease in loss on fair value of swaps and higher operating income.

Breaking down segment performance, Music Publishing revenue of $30.87 million saw an 8% increase, fueled by a 47% surge in performance revenue from hit songs, a 51% rise in mechanical revenue from physical sales and new catalog acquisitions, and a 3% increase in digital revenue from acquisitions and streaming growth. Recorded Music revenue grew 21% to $12.98 million, primarily driven by a 20% increase in digital revenue due to catalog acquisitions and continued growth at music streaming services, alongside a 106% increase in synchronization revenue from licensing timing. The company's cost of revenue increased 11% to $16.53 million, maintaining a consistent 36% of revenues, while administration expenses rose 15% to $10.66 million, reflecting investments in the business and inflationary pressures.

For the six months ended September 30, 2025, total revenues reached $82.60 million, a 10% increase year-over-year. Music Publishing revenues were $55.81 million (up 6%), and Recorded Music revenues were $23.43 million (up 15%). Operating income for the six-month period increased 7% to $16.13 million, and net income was $1.56 million, compared to a net loss of $301,188 in the prior year.

Liquidity remains robust, with total available liquidity of $152.1 million as of September 30, 2025, comprising $27.9 million in cash and $124.2 million available under its $550 million revolving credit facility. The company's total debt stood at $421.8 million (net of deferred financing costs), resulting in a net debt of $393.9 million. Reservoir is in compliance with all financial covenants under its Senior Credit Facility, which matures in December 2027. The company has $215 million in interest rate swaps outstanding, hedging a portion of its debt through the facility's maturity.

Strategic Initiatives: Expanding the Global Harmony

Reservoir's strategic initiatives are designed to unlock further value from its diverse portfolio. A landmark acquisition in September 2025 was the publishing catalog, recorded music rights, and name and likeness rights of iconic innovator Miles Davis. This acquisition is poised for significant value enhancement, particularly with the planned centennial celebrations of Davis's birth in 2026, which include a feature film, a live symphonic show, an international tour, reissues, and co-branded collaborations. This move not only expands Reservoir's catalog but also reinforces its reputation as a trusted steward of legendary artists' legacies.

Further global expansion is a key pillar of Reservoir's strategy. The company recently announced new deals in the MENA region with PopArabia, securing its first Iraqi and Kuwaiti catalogs from HFM Production and Essa Almarzoug, and welcoming Moroccan artist 88 Young. This "boots on the ground" approach in emerging markets has proven highly effective and replicable, leading to better opportunities, higher ROIs, and less competition compared to more saturated Western markets.

The company continues to identify and cultivate new talent, adding platinum-selling songwriter Emily Reid, Grammy-nominated Dave Pittenger, and 1960s teen idol Bobby Vinton to its roster. These additions, alongside the contributions of active songwriters like Khris Riddick-Tynes to chart-topping hits, underscore Reservoir's commitment to both evergreen classics and the future of music. Furthermore, Reservoir is actively pursuing innovative monetization strategies, such as granting MIRAMAX an option for the classic hit "Monster Mash" to be adapted into a feature-length animated film, demonstrating its ability to generate new revenue streams from its extensive catalog.

Outlook and Risks: Maintaining the Rhythm

For fiscal year 2026, Reservoir Media has raised and narrowed its guidance, now expecting revenue in the range of $167 million to $170 million, which at the midpoint implies 6% growth over fiscal 2025. Adjusted EBITDA guidance has also been increased and narrowed to $70 million to $72 million, signaling 8% growth at the midpoint. Management attributes this positive outlook to the quality of its portfolio, ongoing value enhancement efforts, and a sound capital deployment strategy.

Management's guidance incorporates a prudent approach, as it does not explicitly project for the recurrence of major "hit songs" or "audit recoveries" that have positively impacted past performance, even though the company consistently strives to outperform. This inherent conservatism provides a buffer against unforeseen market fluctuations. The company anticipates deploying its projected free cash flow, estimated at around $50 million for fiscal 2026, towards ongoing M&A and writer signings, further fueling its growth trajectory.

Despite the optimistic outlook, investors should consider certain risks. A material weakness in internal controls related to the third-party Recorded Music royalty system remains unremediated as of September 30, 2025. While the company is actively implementing remediation steps, the ongoing evaluation means full effectiveness is yet to be confirmed. Additionally, while Reservoir is currently compliant with its debt covenants, non-compliance could lead to immediate payment requirements, posing a material adverse effect. The music industry also faces broader risks such as music piracy and the continued transition from physical to digital formats, although Reservoir's digital revenue growth indicates effective adaptation to these trends.

Conclusion

Reservoir Media stands as a compelling investment opportunity, characterized by its strategic prowess in catalog acquisition, robust financial performance, and proactive global expansion. The company's ability to consistently identify and integrate high-value music assets, coupled with its "boots on the ground" approach in emerging markets, underpins a strong growth narrative. Its proprietary catalog management systems and innovative ventures into immersive entertainment highlight a forward-thinking approach to technology and monetization.

With a strong M&A pipeline and ample liquidity, Reservoir is well-positioned to continue its disciplined capital deployment, driving both top-line expansion and bottom-line improvement. While risks such as internal control weaknesses and industry-specific challenges warrant attention, Reservoir's proven strategy of leveraging a diverse catalog and fostering deep relationships with creators positions it for sustained long-term value creation in the evolving global music landscape.