Hipgnosis Songs Fund Reports 27% Half-Year Revenue Decline Following Earnings Delay

Hipgnosis songs fund
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Hipgnosis songs fund
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Photo Credit: Hipgnosis Songs Fund

After abruptly delaying the publication of its half-year earnings on Tuesday, Hipgnosis Songs Fund (HSF) has finally released its financials for April through September of 2023.

The publicly traded songs fund, which yesterday appointed a new auditor, posted the performance specifics this morning. As most know, it’s been a decidedly rough year for the company, which is grappling with a high-stakes lawsuit, a sagging share price, a maxed-out credit line, and ample investor criticism.

Bearing in mind the points, the just-released earnings report appears an appropriately underwhelming way for HSF to cap off 2023. According to the comparatively brass-tacks document, the business’s revenue fell from $86.39 million during the prior-year period to $63.20 million across April and September of 2023.

Net revenue, for its part, is said to have fallen to $53.98 million during the newer six-month window, down from $76.80 million due in large part to the “reversal” of the retroactive Phonorecords III payments HSF had for a while anticipated receiving. However, “underlying net revenue,” excluding the Phonorecords III accruals, rose 14.23 percent to nearly $66 million, per HSF.

Operating expenses swelled as well, to almost $118 million, owing to heightened loan interest ($23.05 million, with total debt of $674 million), another $26.5 million or so in recognized “bonus provisions” for six catalogs that achieved certain performance goals, and more, the document shows.

Meanwhile, HSF placed its half-year comprehensive income at a loss of $63.20 million, against a prior-year loss of $20.40 million. And operative net asset value per share declined 9.19 percent to about $1.74, factoring based upon the exchange rate included in the report; the valuation assigned to HSF’s song catalogs is (and has long been) well in excess of the company’s market cap.

HSF chalked up the operative NAV dip to the decrease in its Citrin Cooperman-calculated portfolio “fair value,” which, at $2.62 billion, itself resulted from a $155 million reduction between the aforementioned reversal of expected Phonorecords III retroactive income as well as a lower forecast for Phonorecords IV.

Also dragging down the fair value, HSF communicated, is a noteworthy $47.5 million reduction stemming from soon-to-be-exercisable copyright recaptures, primarily impacting catalogs “bought as part of the Kobalt Fund 1 acquisition.”

Lastly, HSF acknowledged $4.1 million worth of “reduced cash flow expectations” from “alternative platform licensing,” encompassing social media (including TikTok), gaming, and more. That said, the entity further pointed to a $24.3 million fair-value boost attributable to streaming price increases and more.

Beyond these core financials, other components of the earnings report align well with the far-from-ideal operational status of HSF.

For instance, HSF’s board believes (based on forecasts from its Blackstone-powered investment adviser, Hipgnosis Song Management) that HSF “should have sufficient headroom to operate within its banking covenants for at least the next 12 months,” according to the less-than-assuring text.

“However, this is qualified by the continuation of issues around financial reporting and controls,” spelled out board chair Robert Naylor. “For example, the Board were made aware on Friday 15 December 2023 of a drafting error in a contract, whereby the Company received notice of the exercise of a put option contained within an acquisition contract, which increased the estimated liability from $4 million to $25 million.”

Hipgnosis Song Management then attempted to remedy the sizable expense “by way of an amendment to the contract,” Naylor proceeded, with this investment adviser subsequently signaling to HSF’s board that “the potential liability” is actually “in the region of $7.5 million to $8.5 million.”