Photograph Credit score: Hipgnosis Songs Fund
After abruptly delaying the publication of its half-year earnings on Tuesday, Hipgnosis Songs Fund (HSF) has lastly launched its financials for April via September of 2023.
The publicly traded songs fund, which yesterday appointed a brand new auditor, posted the efficiency specifics this morning. As most know, it’s been a decidedly tough yr for the corporate, which is grappling with a high-stakes lawsuit, a sagging share worth, a maxed-out credit score line, and ample investor criticism.
Making an allowance for the factors, the just-released earnings report seems an appropriately underwhelming manner for HSF to cap off 2023. In response to the comparatively brass-tacks doc, the enterprise’s income fell from $86.39 million through the prior-year interval to $63.20 million throughout April and September of 2023.
Web income, for its half, is alleged to have fallen to $53.98 million through the newer six-month window, down from $76.80 million due largely to the “reversal” of the retroactive Phonorecords III funds HSF had for some time anticipated receiving. Nonetheless, “underlying internet income,” excluding the Phonorecords III accruals, rose 14.23 p.c to almost $66 million, per HSF.
Working bills swelled as properly, to virtually $118 million, owing to heightened mortgage curiosity ($23.05 million, with complete debt of $674 million), one other $26.5 million or so in acknowledged “bonus provisions” for six catalogs that achieved sure efficiency targets, and extra, the doc exhibits.
In the meantime, HSF positioned its half-year complete earnings at a lack of $63.20 million, in opposition to a prior-year lack of $20.40 million. And operative internet asset worth per share declined 9.19 p.c to about $1.74, factoring based mostly upon the alternate price included within the report; the valuation assigned to HSF’s music catalogs is (and has lengthy been) properly in extra of the corporate’s market cap.
HSF chalked up the operative NAV dip to the lower in its Citrin Cooperman-calculated portfolio “honest worth,” which, at $2.62 billion, itself resulted from a $155 million discount between the aforementioned reversal of anticipated Phonorecords III retroactive earnings in addition to a decrease forecast for Phonorecords IV.
Additionally dragging down the honest worth, HSF communicated, is a noteworthy $47.5 million discount stemming from soon-to-be-exercisable copyright recaptures, primarily impacting catalogs “purchased as a part of the Kobalt Fund 1 acquisition.”
Lastly, HSF acknowledged $4.1 million value of “diminished money movement expectations” from “various platform licensing,” encompassing social media (together with TikTok), gaming, and extra. That mentioned, the entity additional pointed to a $24.3 million fair-value enhance attributable to streaming worth will increase and extra.
Past these core financials, different elements of the earnings report align properly with the far-from-ideal operational standing of HSF.
As an example, HSF’s board believes (based mostly on forecasts from its Blackstone-powered funding adviser, Hipgnosis Tune Administration) that HSF “ought to have enough headroom to function inside its banking covenants for not less than the following 12 months,” in keeping with the less-than-assuring textual content.
“Nonetheless, that is certified by the continuation of points round monetary reporting and controls,” spelled out board chair Robert Naylor. “For instance, the Board have been made conscious on Friday 15 December 2023 of a drafting error in a contract, whereby the Firm obtained discover of the train of a put choice contained inside an acquisition contract, which elevated the estimated legal responsibility from $4 million to $25 million.”
Hipgnosis Tune Administration then tried to treatment the sizable expense “by means of an modification to the contract,” Naylor proceeded, with this funding adviser subsequently signaling to HSF’s board that “the potential legal responsibility” is definitely “within the area of $7.5 million to $8.5 million.”