Good day, and thank you for standing by. Welcome to the Reservoir Second Quarter Fiscal 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Ms. Jacqueline Marcus of investor relations. Please go ahead.

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 second quarter of fiscal year 2023 ended September 30, 2022, 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 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. Golnar?

Thank you, Jackie. Good morning, everyone, and thank you for joining us today. With the first half of our fiscal year completed, I am encouraged by the strength and consistency across our business as we build a strong and diverse portfolio of award-winning artists while also furthering our value enhancement efforts to more aggressively capitalize on our investments. These efforts grew our top line by 10% during the second quarter. Before I turn the call over to Jim to discuss our financial performance in more detail, I'd like to share some insights on the industry trends we are seeing and how we are positioned to navigate and benefit from these trends and a few of the notable deals we completed during the quarter. While the broader economy is facing challenges, the music industry as a whole remains healthy as we continue to see strong secular tailwinds with better content accelerating. With Spotify adding 7 million new subscribers this past quarter, alongside Apple Music raising their monthly subscription fees, users are seeking greater access to content with fewer commercial interruptions while also remaining sticky despite increased fees. So simply put, the value of music continues to be recognized. The more people who listen to our assets and the more money they pay to do so directly benefits us on a purely organic top line basis. When an artist entrust us with their body of work, it is our primary objective to place their content in as many mediums as possible while also ensuring these assets are being adequately and fairly monetized. Not only did we see the conclusion of the drawn-out CRB 3 rate structure during the quarter, but the publishing industry and the DSC agreed in principle to a rate structure for CRB 4, which will see the headline rates…

Thank you, Golnar, and good morning, everyone. We are pleased with our second fiscal quarter results as we continue to make strategic acquisitions, keeping us on track to our capital deployment goals for M&A for fiscal 2023, while concurrently driving our organic top line growth through our value enhancement initiatives. Now let's turn to our financial results for the quarter and discuss our expectations and priorities for the second half of the fiscal year. Revenue for the second fiscal quarter was $33.3 million, which represented a 10% increase from the second quarter of fiscal 2022. That included 6% growth organically, which was largely driven by digital revenue growth in both Publishing and Recorded Music. As a reminder, many of our larger international revenue streams pay on a semiannual basis in the quarters ending September and March. While we approved for revenue based on usage, these 2 quarters are typically larger than the other 2 as those accruals are trued up to the actual reporting. As a result, we saw significant sequential top line growth in the period. Looking at operating expenses for the quarter, our overall cost of revenue increased 15% from the second quarter of fiscal 2022. I would note that our depreciation and amortization costs increased year-over-year due to our continued catalog acquisitions. Company administration expenses increased by 30% from the prior year due to ongoing costs of being a public company, rising labor costs and higher retention bonuses. Even with the elevated costs we're experiencing during the period, we continue to believe that our operating leverage is an underlying strength to our financial performance. As we've previously mentioned, our business is somewhat insulated from the broader macro economy. We built a diversified business at reservoir that positions us well in all market landscapes, and we're confident in…

Thank you, Jim. Looking ahead to the second half of the fiscal year, we remain confident in our ability to execute and feel that the company is positioned to meet its objectives. As Jim mentioned, we are raising our full fiscal year guidance on both revenue and adjusted EBITDA, and we are on pace to hit our capital deployment target for strategic M&A for the year. Our core business has proven to be durable and is performing in line with our expectations, with the resurgence of live performances and growing demand for digital streaming content, we see tremendous opportunity ahead. Reservoir is a unique business that is positioned to be an industry leader through the relationships we have built and the lives we touch through our. We have a long-term view of the business, rooted and consistent performance and strong relationships, and we will continue to take a thoughtful and disciplined approach to our strategic planning as we expand upon the strong foundation we have built at reservoir. We are pleased with our performance in the second quarter and first half of fiscal 2023, and we are confident in the durability of our business as we move through the second half of the year. With that, we will now open the line for questions.

[Operator Instructions] Our first question will come from Richard Baldry of ROTH.

Can you talk a little bit about the M&A pipeline, sort of what you're seeing in terms of COVID challenges, macro challenges, interest rate changes, sort of are more things coming to the table surfacing? Are people start pushing them off so we could get a better understanding of what you're seeing out there.

Richard, I think that we just don't have enough information yet to see any significant changes in the pipeline that would be anything more than anecdotal. The volume is still there. Given the interest in high-quality assets, there are still plenty of buyers, so we haven't seen any kind of significant contraction on multiples that are related to macroeconomic factors that one would expect. I think over time, this will change, but it's just that we don't have enough evidence beyond what is anecdotal. I will say Dealflo is robust. It is a mixture of publishing assets and reported assets and that mixture is pretty consistent. But I wouldn't be able to point to an influx of sellers nor in any kind of significant change in demand and price contraction.

Okay. And it looks like a lot of your segments had pretty strong growth. The one exception would be the physical side. Can you maybe remind us why the year ago was so strong because it certainly seems like the year ago was the outlier upside that this quarter's performance is more in line with what we've seen in other quarters.

Yes. Our physical revenue is -- it is dependent on our release schedule. And last year, with some of the changes to record store Day, for example, which is a big driver of physical sales. Those dates moved around a little bit because of COVID. And we just had a strong release schedule last year relative to a more like release schedule this year. We are looking forward to record store days in our third quarter this year, and we expect the physical sales to be strong as we move through the rest of the year.

And lastly, I know it's a very complex process for both CRB 3 and 4. But could you maybe walk us through a few of the milestones that we still have with a principal agreement for CRB 4, for example, I guess, that will speed up a process with less appeals and things. So when would you sort of expect to see it begin to impact the top line revenues for either 3 and/or 4?

Yes. Well, I think that with CRB 3, we're already seeing it, although the DSPs are not accounting to us yet under those rates, we have some clarity around the rates, and we are reflecting that to the best of our ability on an estimated basis at this time. Certainly, as we look forward to CRB 4, which will start in calendar 2023, it's great that we have the agreement between the DSPs and the publishing industry on how that rate structure will move forward over that 5-year period, and we can avoid the drawn-out legal battle that we had in CRB 3. And I would expect that as we move to calendar 2023, the DSPs will certainly be in a position to account to music publishers based on those proposed rates.

[Operator Instructions] Our next question will come from Alex Fuhrman of Craig-Hallum.

I was hoping to ask about streaming services, given that this is such an important chunk of business for you, can you talk about how price increases in streaming services are going to impact your business? I think we all saw the news from Apple Music recently and certainly seems to be the trend that customers are walking themselves up to more premium ad-free type subscriptions. If that trend were to continue, how do you see that really hitting your results here as those prices go up?

Alex, how are you? It's a pretty straightforward conclusion here as far as the price increases go in that as that price increase is the total pool increases and our share, therefore, increases. And that's a pretty linear process there. So we are quite pleased with Apple's move and obviously, it's a speculation and not for me to speculate, but we're optimistic about price increases with other streaming platforms as well.

And then it certainly seems like your business is performing really well and is well positioned to withstand a recession. Just based on your experience, Golnar in the industry, can you maybe just kind of help enlighten us if we were to hit a significant recession, where might you feel some of that impact? Is it maybe a slowdown in advertisers' demand for your music for sync purchase purposes? Just wondering what you're looking out for there.

I think that you hit the nail on the head. That's exactly what we're looking out for as you look at the macro environment and the impact that it has on business in general, that's an area that one would see contraction with advertising budget, diminishing. And so we are really keeping an eye on that. I'm sorry for the background noise. We're keeping an eye on that, but this is not a territory -- sorry about that. This is not a territory that we have not navigated through before. And obviously, volume of zinc helps offset that a little bit as far as licensing goes and maybe we're doing more micro licensing than large-ticket advertising licensing. The good thing about the thing side of the business is that as production has come back, there's quite a lot of demand on the film content side of zinc. And so that does help offset that a little bit. But this is certainly not new territory for us to navigate, and we are quite accustomed to the sink side of the business being cyclical and one that we are prepared to go through.

[Operator Instructions] I am seeing no further questions in the queue. I would now like to turn the conference back to Golnar Khosrowshahi for final remarks.

Thank you, operator. Our performance in the second quarter is indicative of both the strength of our team at reservoir and the quality of assets we've assembled. I thank you for joining us this morning. We look forward to updating you on our progress in February. And I'm very sorry about the background noise. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.