Warner Music Group Corp. today announced its second-quarter
financial results for the period ended March 31, 2021.
“Following a strong first quarter, I’m happy to
report that our momentum continued in Q2, and our business is
stronger than ever. Despite the ongoing pandemic, we generated
double-digit revenue growth in both Recorded Music and Music
Publishing,” said Steve Cooper, CEO, Warner Music Group. “Our
success was driven by chart-topping new releases from our
incredible artists and songwriters, as well as bold and imaginative
execution from our world-class operators. We’re excited about the
rest of year, as we have a fantastic slate of new music coming from
established superstars and emerging talent.”
“In the second quarter, the continued strength of our core
streaming business was bolstered by impressive growth in revenue
from emerging streaming platforms, which drove healthy margins and
free cash flow,” added Eric Levin, Executive Vice President and
CFO, Warner Music Group. “We look forward to delivering long-term
value as we continue to invest in culture-shifting talent,
innovative technology, and dynamic new partnerships.”
Total WMG
| Total WMG
Summary Results |
|
|
|
|
|
|
|
|
|
|
| (dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
| |
For the Three Months Ended March 31, 2021 |
|
For the Three Months Ended March 31, 2020 |
|
% Change |
|
For the Six Months Ended March 31, 2021 |
|
For the Six Months Ended March 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
1,250 |
|
|
$ |
1,071 |
|
|
17 |
% |
|
$ |
2,585 |
|
|
$ |
2,327 |
|
|
11 |
% |
| Recorded Music revenue |
1,059 |
|
|
907 |
|
|
17 |
% |
|
2,220 |
|
|
1,991 |
|
|
12 |
% |
| Music Publishing revenue |
192 |
|
|
166 |
|
|
16 |
% |
|
367 |
|
|
339 |
|
|
8 |
% |
| Digital revenue |
860 |
|
|
699 |
|
|
23 |
% |
|
1,685 |
|
|
1,405 |
|
|
20 |
% |
| Operating income (loss) |
151 |
|
|
(49 |
) |
|
— |
% |
|
347 |
|
|
116 |
|
|
— |
% |
| Adjusted operating
income(1) |
178 |
|
|
149 |
|
|
19 |
% |
|
389 |
|
|
318 |
|
|
22 |
% |
| OIBDA(1) |
228 |
|
|
12 |
|
|
— |
% |
|
495 |
|
|
248 |
|
|
100 |
% |
| Adjusted OIBDA(1) |
255 |
|
|
210 |
|
|
21 |
% |
|
537 |
|
|
450 |
|
|
19 |
% |
| Net income (loss) |
117 |
|
|
(74 |
) |
|
— |
% |
|
216 |
|
|
48 |
|
|
— |
% |
| Adjusted net income(1) |
144 |
|
|
124 |
|
|
16 |
% |
|
258 |
|
|
250 |
|
|
3 |
% |
| Net cash provided by operating
activities |
150 |
|
|
86 |
|
|
74 |
% |
|
319 |
|
|
164 |
|
|
95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) See
“Supplemental Disclosures Regarding Non-GAAP Financial Measures” at
the end of this release for details regarding these measures. |
| |
For the Three Months Ended March 31, 2021 |
|
For the Three Months Ended March 31, 2020 |
|
% Change |
|
For the Twelve Months Ended March 31, 2021 |
|
For the Twelve Months Ended March 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Adjusted EBITDA(1) |
$ |
268 |
|
|
$ |
214 |
|
|
25 |
% |
|
$ |
943 |
|
|
$ |
755 |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) See
“Supplemental Disclosures Regarding Non-GAAP Financial Measures” at
the end of this release for details regarding these measures. |
Revenue was up 16.7% (or 12.8% in constant currency). Revenue
increases in the quarter were driven by robust digital revenue
growth across Recorded Music and Music Publishing, strong Recorded
Music physical revenue performance, and an increase in Music
Publishing synchronization revenue, which were partially offset by
a decline in Recorded Music licensing revenue and Music Publishing
performance and mechanical revenue. Recorded Music artist services
and expanded-rights revenue increased 2.6% on an as-reported basis
and decreased 3.3% in constant currency. Excluding artist services
and expanded-rights revenue in Recorded Music and performance
revenue in Music Publishing, the areas most affected by COVID,
total revenue would have increased 19.9% (or 16.3% in constant
currency). Digital revenue grew 23.0% (or 19.8% in constant
currency), and represented 68.8% of total revenue, compared to
65.3% in the prior-year quarter.
Operating income was $151 million compared to an operating loss
of $49 million in the prior-year quarter. Net income was $117
million compared to a net loss of $74 million in the prior-year
quarter. OIBDA was $228 million, an increase from $12 million in
the prior-year quarter and OIBDA margin increased 17.1 percentage
points to 18.2% from 1.1% in the prior-year quarter. The increase
in operating income, net income, OIBDA and OIBDA margin was
primarily due to strong operating performance, lower non-cash
stock-based compensation and other related expenses in the quarter
of $151 million and continued cost-management efforts.
Adjusted operating income, Adjusted OIBDA and Adjusted net
income exclude costs related to non-cash stock-based compensation
and other related expenses and restructuring and other
transformation initiatives in both the quarter and the prior-year
quarter. In the prior-year quarter, costs related to COVID and the
Company’s IPO are also excluded. Adjusted EBITDA excludes these
items and includes expected savings resulting from transformation
initiatives and the pro forma impact of specified transactions. See
below for calculations and reconciliations of Adjusted operating
income, Adjusted OIBDA, Adjusted net income and Adjusted
EBITDA.
Adjusted OIBDA increased 21.4% from $210 million to $255 million
and Adjusted OIBDA margin increased 0.8 percentage points to 20.4%
from 19.6% due to strong operating performance and margin
improvement associated with revenue mix and continued
cost-management efforts. Adjusted operating income increased 19.5%
from $149 million to $178 million due to the same factors affecting
Adjusted OIBDA, partially offset by higher depreciation and
amortization expenses due to recent acquisitions and capital
spending.
Adjusted EBITDA increased 25.2% from $214 million to $268
million with Adjusted EBITDA margins improving 1.4 percentage
points from 20.0% to 21.4%. The increase was largely due to the
same factors affecting Adjusted OIBDA.
Adjusted net income was $144 million compared to $124 million in
the prior-year quarter. Adjusted net income grew due to increases
in adjusted operating income, the favorable impact of exchange
rates on the Company’s external Euro-denominated debt and non-cash
gains on certain investments and hedging activity, partially offset
by higher income tax expense in the quarter compared to the
prior-year quarter.
Basic and Diluted earnings per share were $0.23 and $0.22 for
the Class A and Class B shareholders, respectively, due to the net
income attributable to the Company in the quarter of $117
million.
As of March 31, 2021, the Company reported a cash balance
of $588 million, total debt of $3.354 billion and net debt (defined
as total long-term debt, net of deferred financing costs, minus
cash and equivalents) of $2.766 billion.
Cash provided by operating activities was $150 million compared
to $86 million in the prior-year quarter. The change was largely a
result of strong operating performance, timing of working capital,
including payments from certain digital service providers and
timing of royalty payments. Free Cash Flow, as defined below,
increased to $89 million from $67 million in the prior-year quarter
largely due to an increase in operating cash flow, partially offset
by increases in investment activity and capital spending.
Recorded Music
| Recorded
Music Summary Results |
|
|
|
|
|
|
|
|
|
|
| (dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
| |
For the Three Months Ended March 31, 2021 |
|
For the Three Months Ended March 31, 2020 |
|
% Change |
|
For the Six Months Ended March 31, 2021 |
|
For the Six Months Ended March 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
1,059 |
|
|
$ |
907 |
|
|
17 |
% |
|
$ |
2,220 |
|
|
$ |
1,991 |
|
|
12 |
% |
| Digital revenue |
756 |
|
|
626 |
|
|
21 |
% |
|
1,483 |
|
|
1,259 |
|
|
18 |
% |
| Operating income |
184 |
|
|
36 |
|
|
— |
% |
|
407 |
|
|
227 |
|
|
79 |
% |
| Adjusted operating
income(1) |
191 |
|
|
150 |
|
|
27 |
% |
|
420 |
|
|
338 |
|
|
24 |
% |
| OIBDA(1) |
235 |
|
|
76 |
|
|
— |
% |
|
504 |
|
|
317 |
|
|
59 |
% |
| Adjusted OIBDA(1) |
242 |
|
|
190 |
|
|
27 |
% |
|
517 |
|
|
428 |
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) See
“Supplemental Disclosures Regarding Non-GAAP Financial Measures” at
the end of this release for details regarding these measures. |
| Recorded
Music Revenue |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
|
For the Three Months EndedMarch 31, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Revenue by
Segment: |
|
|
|
|
|
| Recorded Music |
|
|
|
|
|
|
Digital |
$ |
756 |
|
|
$ |
626 |
|
|
$ |
641 |
|
|
Physical |
118 |
|
|
94 |
|
|
99 |
|
|
Total Digital and Physical |
874 |
|
|
720 |
|
|
740 |
|
|
Artist services and expanded-rights |
118 |
|
|
115 |
|
|
122 |
|
|
Licensing |
67 |
|
|
72 |
|
|
76 |
|
| Total Recorded
Music |
$ |
1,059 |
|
|
$ |
907 |
|
|
$ |
938 |
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
|
For the Six Months EndedMarch 31, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Revenue by
Segment: |
|
|
|
|
|
| Recorded Music |
|
|
|
|
|
|
Digital |
$ |
1,483 |
|
|
$ |
1,259 |
|
|
$ |
1,282 |
|
|
Physical |
292 |
|
|
278 |
|
|
290 |
|
|
Total Digital and Physical |
1,775 |
|
|
1,537 |
|
|
1,572 |
|
|
Artist services and expanded-rights |
298 |
|
|
303 |
|
|
320 |
|
|
Licensing |
147 |
|
|
151 |
|
|
157 |
|
| Total Recorded
Music |
$ |
2,220 |
|
|
$ |
1,991 |
|
|
$ |
2,049 |
|
Recorded Music revenue was up 16.8% (or 12.9% in constant
currency). The revenue increase was primarily due to the
continuing growth in streaming revenue—which grew 23.2% (or 20.3%
in constant currency) over the prior-year quarter— reflecting
accelerated revenue growth in emerging streaming platforms such as
Facebook, TikTok, and Peloton. The increase in digital revenue
reflects continuing growth in streaming, the Company’s largest and
fastest-growing source of revenue. Physical revenue also grew,
increasing 25.5% (or 19.2% in constant currency) primarily due to
an increasing demand for vinyl products as well as success from new
releases including The Yellow Monkey in Japan, Neil Young and
Fleetwood Mac. Artist services and expanded-rights revenue
increased on an as-reported basis by 2.6% and decreased 3.3% in
constant currency, reflecting the impact of COVID on concert
touring and live events, partially offset by an increase in
direct-to-consumer merchandising revenue. Licensing revenue was
down mainly due to lower broadcast fees resulting from COVID,
partially offset by higher synchronization activity. Major sellers
included Dua Lipa, Michael Bublé, Ed Sheeran, Ava Max and The
Yellow Monkey.
Recorded Music operating income was $184 million, up from $36
million in the prior-year quarter and operating margin was up
13.4 percentage points to 17.4% versus 4.0% in the prior-year
quarter. OIBDA increased to $235 million from $76 million in the
prior-year quarter and OIBDA margin increased 13.8 percentage
points to 22.2%. Adjusted OIBDA was $242 million versus $190
million in the prior-year quarter with Adjusted OIBDA margin up 2.0
percentage points to 22.9%. The increases in operating income and
OIBDA were driven by increases in Adjusted OIBDA and a decrease in
non-cash stock-based compensation and other related expenses. The
increases in Adjusted OIBDA and Adjusted OIBDA margin were
primarily due to strong operating performance, overall cost
savings, revenue mix and impact from recent acquisitions.
Music Publishing
| Music
Publishing Summary Results |
|
|
|
|
|
|
|
|
|
|
| (dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
| |
For the Three Months Ended March 31, 2021 |
|
For the Three Months Ended March 31, 2020 |
|
% Change |
|
For the Six Months Ended March 31, 2021 |
|
For the Six Months Ended March 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
192 |
|
|
$ |
166 |
|
|
16 |
% |
|
$ |
367 |
|
|
$ |
339 |
|
|
8 |
% |
| Digital revenue |
104 |
|
|
74 |
|
|
41 |
% |
|
203 |
|
|
147 |
|
|
38 |
% |
| Operating income |
22 |
|
|
30 |
|
|
-27 |
% |
|
40 |
|
|
44 |
|
|
-9 |
% |
| Adjusted operating
income(1) |
25 |
|
|
31 |
|
|
-19 |
% |
|
44 |
|
|
46 |
|
|
-4 |
% |
| OIBDA(1) |
43 |
|
|
48 |
|
|
-10 |
% |
|
82 |
|
|
81 |
|
|
1 |
% |
| Adjusted OIBDA(1) |
46 |
|
|
49 |
|
|
-6 |
% |
|
86 |
|
|
83 |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) See
“Supplemental Disclosures Regarding Non-GAAP Financial Measures” at
the end of this release for details regarding these measures. |
| Music
Publishing Revenue |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
|
For the Three Months EndedMarch 31, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Revenue by
Segment: |
|
|
|
|
|
| Music Publishing |
|
|
|
|
|
|
Performance |
$ |
35 |
|
|
$ |
41 |
|
|
$ |
43 |
|
|
Digital |
104 |
|
|
74 |
|
|
78 |
|
|
Mechanical |
12 |
|
|
15 |
|
|
15 |
|
|
Synchronization |
38 |
|
|
34 |
|
|
34 |
|
|
Other |
3 |
|
|
2 |
|
|
2 |
|
| Total Music
Publishing |
$ |
192 |
|
|
$ |
166 |
|
|
$ |
172 |
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
|
For the Six Months EndedMarch 31, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Revenue by
Segment: |
|
|
|
|
|
| Music Publishing |
|
|
|
|
|
|
Performance |
$ |
65 |
|
|
$ |
87 |
|
|
$ |
90 |
|
|
Digital |
203 |
|
|
147 |
|
|
151 |
|
|
Mechanical |
23 |
|
|
30 |
|
|
31 |
|
|
Synchronization |
71 |
|
|
70 |
|
|
71 |
|
|
Other |
5 |
|
|
5 |
|
|
5 |
|
| Total Music
Publishing |
$ |
367 |
|
|
$ |
339 |
|
|
$ |
348 |
|
Music Publishing revenue increased 15.7% (or 11.6% in constant
currency). Digital and synchronization revenue growth was partially
offset by declines in performance and mechanical
revenue. Digital revenue increased 40.5% (or 33.3% in constant
currency) reflecting the continuing growth in streaming and timing
of new deals with digital service providers. Digital revenue
represented 54.2% of total Music Publishing revenue versus 44.6% in
the prior-year quarter. Synchronization revenue increased due to
growth in motion picture and commercial income. The decrease in
performance revenue was primarily due to COVID. Mechanical revenue
also decreased due to the continuing shift to streaming.
Music Publishing operating income was $22 million, down 26.7%
from $30 million in the prior-year quarter largely driven by
revenue mix, higher employee costs and increases in amortization.
Operating margin was 11.5%, down 6.6 percentage points from 18.1%
in the prior-year quarter. Music Publishing OIBDA decreased
10.4% to $43 million, and Music Publishing OIBDA margin decreased
6.5 percentage points to 22.4%. Adjusted OIBDA decreased 6.1% to
$46 million and Adjusted OIBDA margin decreased to 24.0% due to
revenue mix and timing of a non-recurring benefit in the prior-year
quarter.
Financial details for the quarter can be found in the Company’s
Quarterly Report on Form 10-Q for the period ended March 31,
2021, filed today with the Securities and Exchange Commission.
This morning, management will be hosting a conference call to
discuss the results at 8:30 A.M. EST. The call will be webcast on
www.wmg.com.
About Warner Music Group
With a legacy extending back over 200 years, Warner Music Group
today is home to an unparalleled family of creative artists,
songwriters, and companies that are moving culture across the
globe. At the core of WMG’s Recorded Music division are four of the
most iconic companies in history: Atlantic, Elektra, Parlophone and
Warner Records. They are joined by renowned labels such as Asylum,
Big Beat, Canvasback, East West, Erato, FFRR, Fueled by Ramen,
Nonesuch, Reprise, Rhino, Roadrunner, Sire, Spinnin’ Records,
Warner Classics and Warner Music Nashville. Warner Chappell Music -
which traces its origins back to the founding of Chappell &
Company in 1811 - is one of the world’s leading music publishers,
with a catalog of more than one million copyrights spanning every
musical genre from the standards of the Great American Songbook to
the biggest hits of the 21st century.
“Safe Harbor” Statement under Private Securities
Litigation Reform Act of 1995
This communication includes forward-looking statements that
reflect the current views of Warner Music Group about future events
and financial performance. Words such as “estimates,” “expects,”
“anticipates,” “projects,” “plans,” “intends,” “believes,”
“forecasts” and variations of such words or similar expressions
that predict or indicate future events or trends, or that do not
relate to historical matters, identify forward-looking
statements. All forward-looking statements are made as of
today, and we disclaim any duty to update such statements. Our
expectations, beliefs and projections are expressed in good faith
and we believe there is a reasonable basis for them. However, we
cannot assure you that management’s expectations, beliefs and
projections will result or be achieved. Investors should not rely
on forward-looking statements because they are subject to a variety
of risks, uncertainties, and other factors that could cause actual
results to differ materially from our expectations. Please
refer to our Form 10-K, Form 10-Qs and our other filings with the
U.S. Securities and Exchange Commission concerning factors that
could cause actual results to differ materially from those
described in our forward-looking statements.
We maintain an Internet site at www.wmg.com. We
use our website as a channel of distribution for material company
information. Financial and other material information regarding
Warner Music Group is routinely posted on and accessible at
http://investors.wmg.com. In addition, you may automatically
receive email alerts and other information about Warner Music Group
by enrolling your email address through the “email alerts” section
at http://investors.wmg.com. Our website and the information
posted on it or connected to it shall not be deemed to be
incorporated by reference into this communication.
Basis of Presentation
The Company maintains a 52-53 week fiscal year ending on the
last Friday in each reporting period. As such, all references
to March 31, 2021 and March 31, 2020 relate to the
periods ended March 26, 2021 and March 27, 2020,
respectively. For convenience purposes, the Company continues to
date its financial statements as of March 31.
| Figure 1.
Warner Music Group Corp. - Consolidated Statements of Operations,
Three and Six Months Ended March 31, 2021 versus March 31,
2020 |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
1,250 |
|
|
$ |
1,071 |
|
|
17 |
% |
| Cost and
expenses: |
|
|
|
|
|
| Cost of revenue |
(623 |
) |
|
(535 |
) |
|
16 |
% |
| Selling, general and
administrative expenses |
(418 |
) |
|
(538 |
) |
|
-22 |
% |
| Amortization expense |
(58 |
) |
|
(47 |
) |
|
23 |
% |
| Total costs and
expenses |
$ |
(1,099 |
) |
|
$ |
(1,120 |
) |
|
-2 |
% |
| Operating income
(loss) |
$ |
151 |
|
|
$ |
(49 |
) |
|
— |
% |
| Interest expense, net |
(32 |
) |
|
(33 |
) |
|
-3 |
% |
| Other income (expense),
net |
49 |
|
|
(4 |
) |
|
— |
% |
| Income (loss) before
income taxes |
$ |
168 |
|
|
$ |
(86 |
) |
|
— |
% |
| Income tax (expense)
benefit |
(51 |
) |
|
12 |
|
|
— |
% |
| Net income
(loss) |
$ |
117 |
|
|
$ |
(74 |
) |
|
— |
% |
| Less: Income attributable to
noncontrolling interest |
— |
|
|
— |
|
|
— |
% |
| Net income (loss)
attributable to Warner Music Group Corp. |
$ |
117 |
|
|
$ |
(74 |
) |
|
— |
% |
| |
|
|
|
|
|
| Net income (loss) per
share attributable to common stockholders: |
|
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.23 |
|
|
$ |
— |
|
|
|
|
Class B – Basic and Diluted |
$ |
0.22 |
|
|
$ |
(0.15 |
) |
|
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
2,585 |
|
|
$ |
2,327 |
|
|
11 |
% |
| Cost and
expenses: |
|
|
|
|
|
| Cost of revenue |
(1,309 |
) |
|
(1,200 |
) |
|
9 |
% |
| Selling, general and
administrative expenses |
(819 |
) |
|
(917 |
) |
|
-11 |
% |
| Amortization expense |
(110 |
) |
|
(94 |
) |
|
17 |
% |
| Total costs and
expenses |
$ |
(2,238 |
) |
|
$ |
(2,211 |
) |
|
1 |
% |
| Operating
income |
$ |
347 |
|
|
$ |
116 |
|
|
— |
% |
| Interest expense, net |
(63 |
) |
|
(66 |
) |
|
-5 |
% |
| Other income (expense),
net |
18 |
|
|
(9 |
) |
|
— |
% |
| Income before income
taxes |
$ |
302 |
|
|
$ |
41 |
|
|
— |
% |
| Income tax (expense)
benefit |
(86 |
) |
|
7 |
|
|
— |
% |
| Net
income |
$ |
216 |
|
|
$ |
48 |
|
|
— |
% |
| Less: Income attributable to
noncontrolling interest |
(1 |
) |
|
(2 |
) |
|
-50 |
% |
| Net income
attributable to Warner Music Group Corp. |
$ |
215 |
|
|
$ |
46 |
|
|
— |
% |
| |
|
|
|
|
|
| Net income per share
attributable to common stockholders: |
|
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.41 |
|
|
$ |
— |
|
|
|
|
Class B – Basic and Diluted |
$ |
0.41 |
|
|
$ |
0.09 |
|
|
|
| Figure 2.
Warner Music Group Corp. - Consolidated Balance Sheets at March 31,
2021 versus September 30, 2020 |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
March 31, 2021 |
|
September 30, 2020 |
|
% Change |
| |
(unaudited) |
|
|
|
|
| Assets |
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
Cash and equivalents |
$ |
588 |
|
|
$ |
553 |
|
|
6 |
% |
|
Accounts receivable, net |
783 |
|
|
771 |
|
|
2 |
% |
|
Inventories |
79 |
|
|
79 |
|
|
— |
% |
|
Royalty advances expected to be recouped within one year |
246 |
|
|
220 |
|
|
12 |
% |
|
Prepaid and other current assets |
60 |
|
|
55 |
|
|
9 |
% |
| Total current
assets |
$ |
1,756 |
|
|
$ |
1,678 |
|
|
5 |
% |
| Royalty advances expected to
be recouped after one year |
301 |
|
|
269 |
|
|
12 |
% |
| Property, plant and equipment,
net |
339 |
|
|
331 |
|
|
2 |
% |
| Operating lease right-of-use
assets, net |
267 |
|
|
273 |
|
|
-2 |
% |
| Goodwill |
1,842 |
|
|
1,831 |
|
|
1 |
% |
| Intangible assets subject to
amortization, net |
1,927 |
|
|
1,653 |
|
|
17 |
% |
| Intangible assets not subject
to amortization |
154 |
|
|
154 |
|
|
— |
% |
| Deferred tax assets, net |
42 |
|
|
68 |
|
|
-38 |
% |
| Other assets |
202 |
|
|
153 |
|
|
32 |
% |
| Total
assets |
$ |
6,830 |
|
|
$ |
6,410 |
|
|
7 |
% |
| Liabilities and Equity
(Deficit) |
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
Accounts payable |
$ |
235 |
|
|
$ |
264 |
|
|
-11 |
% |
|
Accrued royalties |
1,752 |
|
|
1,628 |
|
|
8 |
% |
|
Accrued liabilities |
315 |
|
|
382 |
|
|
-18 |
% |
|
Accrued interest |
30 |
|
|
30 |
|
|
— |
% |
|
Operating lease liabilities, current |
42 |
|
|
39 |
|
|
8 |
% |
|
Deferred revenue |
298 |
|
|
297 |
|
|
— |
% |
|
Other current liabilities |
112 |
|
|
80 |
|
|
40 |
% |
| Total current
liabilities |
$ |
2,784 |
|
|
$ |
2,720 |
|
|
2 |
% |
| Long-term debt |
3,354 |
|
|
3,104 |
|
|
8 |
% |
| Operating lease liabilities,
noncurrent |
288 |
|
|
299 |
|
|
-4 |
% |
| Deferred tax liabilities,
net |
162 |
|
|
163 |
|
|
-1 |
% |
| Other noncurrent
liabilities |
169 |
|
|
169 |
|
|
— |
% |
| Total
liabilities |
$ |
6,757 |
|
|
$ |
6,455 |
|
|
5 |
% |
| Equity (deficit): |
|
|
|
|
|
| Class A common stock |
$ |
— |
|
|
$ |
— |
|
|
— |
% |
| Class B common stock |
1 |
|
|
1 |
|
|
— |
% |
| Additional paid-in
capital |
1,924 |
|
|
1,907 |
|
|
1 |
% |
| Accumulated deficit |
(1,659 |
) |
|
(1,749 |
) |
|
-5 |
% |
| Accumulated other
comprehensive loss, net |
(209 |
) |
|
(222 |
) |
|
-6 |
% |
| Total Warner Music
Group Corp. equity (deficit) |
$ |
57 |
|
|
$ |
(63 |
) |
|
— |
% |
| Noncontrolling interest |
16 |
|
|
18 |
|
|
-11 |
% |
| Total equity
(deficit) |
73 |
|
|
(45 |
) |
|
— |
% |
| Total liabilities and
equity (deficit) |
$ |
6,830 |
|
|
$ |
6,410 |
|
|
7 |
% |
| Figure 3.
Warner Music Group Corp. - Summarized Statements of Cash Flows,
Three and Six Months Ended March 31, 2021 versus March 31,
2020 |
| (dollars in
millions) |
|
|
|
| |
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
| |
(unaudited) |
|
(unaudited) |
|
Net cash provided by operating activities |
$ |
150 |
|
|
$ |
86 |
|
| Net cash used in investing
activities |
(61 |
) |
|
(19 |
) |
| Net cash used in financing
activities |
(64 |
) |
|
(38 |
) |
| Effect of foreign currency
exchange rates on cash and equivalents |
(3 |
) |
|
(7 |
) |
| Net increase in cash and
equivalents |
$ |
22 |
|
|
$ |
22 |
|
| |
|
|
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
| |
(unaudited) |
|
(unaudited) |
| Net cash provided by operating
activities |
$ |
319 |
|
|
$ |
164 |
|
| Net cash used in investing
activities |
(404 |
) |
|
(51 |
) |
| Net cash provided by (used in)
financing activities |
114 |
|
|
(245 |
) |
| Effect of foreign currency
exchange rates on cash and equivalents |
6 |
|
|
(3 |
) |
| Net increase (decrease) in
cash and equivalents |
$ |
35 |
|
|
$ |
(135 |
) |
| Figure 4.
Warner Music Group Corp. - Recorded Music Digital Revenue Summary,
Three and Six Months Ended March 31, 2021 versus March 31,
2020 |
| (dollars in
millions) |
|
|
|
| |
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
| |
(unaudited) |
|
(unaudited) |
|
Streaming |
$ |
722 |
|
|
$ |
586 |
|
| Downloads and Other
Digital |
34 |
|
|
40 |
|
| Total Recorded Music
Digital Revenue |
$ |
756 |
|
|
$ |
626 |
|
| |
|
|
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
| |
(unaudited) |
|
(unaudited) |
| Streaming |
$ |
1,414 |
|
|
$ |
1,175 |
|
| Downloads and Other
Digital |
69 |
|
|
84 |
|
| Total Recorded Music
Digital Revenue |
$ |
1,483 |
|
|
$ |
1,259 |
|
Supplemental Disclosures Regarding Non-GAAP Financial
Measures
We evaluate our operating performance based on several factors,
including the following non-GAAP financial measures:
OIBDA
OIBDA reflects our operating income before non-cash depreciation
of tangible assets and non-cash amortization of intangible assets.
We consider OIBDA to be an important indicator of the operational
strengths and performance of our businesses, and believe the
presentation of OIBDA helps improve the ability to understand our
operating performance and evaluate our performance in comparison to
comparable periods. 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 revenue in our businesses. Accordingly, OIBDA should be
considered in addition to, not as a substitute for, operating
income (loss), net income (loss) and other measures of financial
performance reported in accordance with U.S. GAAP. In addition,
OIBDA, as we calculate it, may not be comparable to similarly
titled measures employed by other companies.
| Figure 5.
Warner Music Group Corp. - Reconciliation of Net Income to OIBDA,
Three and Six Months Ended March 31, 2021 versus March 31,
2020 |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
Net income (loss) attributable to Warner Music Group
Corp. |
$ |
117 |
|
|
$ |
(74 |
) |
|
— |
% |
| Income attributable to
noncontrolling interest |
— |
|
|
— |
|
|
— |
% |
| Net income
(loss) |
$ |
117 |
|
|
$ |
(74 |
) |
|
— |
% |
| Income tax expense
(benefit) |
51 |
|
|
(12 |
) |
|
— |
% |
| Income including
income taxes |
$ |
168 |
|
|
$ |
(86 |
) |
|
— |
% |
| Other (income) expense,
net |
(49 |
) |
|
4 |
|
|
— |
% |
| Interest expense, net |
32 |
|
|
33 |
|
|
-3 |
% |
| Operating income
(loss) |
$ |
151 |
|
|
$ |
(49 |
) |
|
— |
% |
| Amortization expense |
58 |
|
|
47 |
|
|
23 |
% |
| Depreciation expense |
19 |
|
|
14 |
|
|
36 |
% |
| OIBDA |
$ |
228 |
|
|
$ |
12 |
|
|
— |
% |
| Operating income
margin |
12.1 |
% |
|
-4.6 |
% |
|
|
| OIBDA
margin |
18.2 |
% |
|
1.1 |
% |
|
|
| |
|
|
|
|
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
| Net income
attributable to Warner Music Group Corp. |
$ |
215 |
|
|
$ |
46 |
|
|
— |
% |
| Income attributable to
noncontrolling interest |
1 |
|
|
2 |
|
|
-50 |
% |
| Net
income |
$ |
216 |
|
|
$ |
48 |
|
|
— |
% |
| Income tax expense
(benefit) |
86 |
|
|
(7 |
) |
|
— |
% |
| Income including
income taxes |
$ |
302 |
|
|
$ |
41 |
|
|
— |
% |
| Other (income) expense,
net |
(18 |
) |
|
9 |
|
|
— |
% |
| Interest expense, net |
63 |
|
|
66 |
|
|
-5 |
% |
| Operating
income |
$ |
347 |
|
|
$ |
116 |
|
|
— |
% |
| Amortization expense |
110 |
|
|
94 |
|
|
17 |
% |
| Depreciation expense |
38 |
|
|
38 |
|
|
— |
% |
| OIBDA |
$ |
495 |
|
|
$ |
248 |
|
|
100 |
% |
| Operating income
margin |
13.4 |
% |
|
5.0 |
% |
|
|
| OIBDA
margin |
19.1 |
% |
|
10.7 |
% |
|
|
| Figure 6.
Warner Music Group Corp. - Reconciliation of Segment Operating
Income to OIBDA, Three and Six Months Ended March 31, 2021 versus
March 31, 2020 |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
Total WMG operating income (loss) – GAAP |
$ |
151 |
|
|
$ |
(49 |
) |
|
— |
% |
| Depreciation and amortization
expense |
(77 |
) |
|
(61 |
) |
|
26 |
% |
| Total WMG
OIBDA |
$ |
228 |
|
|
$ |
12 |
|
|
— |
% |
| Operating income
(loss) margin |
12.1 |
% |
|
-4.6 |
% |
|
|
| OIBDA
margin |
18.2 |
% |
|
1.1 |
% |
|
|
| |
|
|
|
|
|
| Recorded Music
operating income – GAAP |
$ |
184 |
|
|
$ |
36 |
|
|
— |
% |
| Depreciation and amortization
expense |
(51 |
) |
|
(40 |
) |
|
28 |
% |
| Recorded Music
OIBDA |
$ |
235 |
|
|
$ |
76 |
|
|
— |
% |
| Recorded Music
operating income margin |
17.4 |
% |
|
4.0 |
% |
|
|
| Recorded Music OIBDA
margin |
22.2 |
% |
|
8.4 |
% |
|
|
| |
|
|
|
|
|
| Music Publishing
operating income – GAAP |
$ |
22 |
|
|
$ |
30 |
|
|
-27 |
% |
| Depreciation and amortization
expense |
(21 |
) |
|
(18 |
) |
|
17 |
% |
| Music Publishing
OIBDA |
$ |
43 |
|
|
$ |
48 |
|
|
-10 |
% |
| Music Publishing
operating income margin |
11.5 |
% |
|
18.1 |
% |
|
|
| Music Publishing OIBDA
margin |
22.4 |
% |
|
28.9 |
% |
|
|
| |
|
|
|
|
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
| Total WMG operating
income – GAAP |
$ |
347 |
|
|
$ |
116 |
|
|
— |
% |
| Depreciation and amortization
expense |
(148 |
) |
|
(132 |
) |
|
12 |
% |
| Total WMG
OIBDA |
$ |
495 |
|
|
$ |
248 |
|
|
100 |
% |
| Operating income
margin |
13.4 |
% |
|
5.0 |
% |
|
|
| OIBDA
margin |
19.1 |
% |
|
10.7 |
% |
|
|
| |
|
|
|
|
|
| Recorded Music
operating income – GAAP |
$ |
407 |
|
|
$ |
227 |
|
|
79 |
% |
| Depreciation and amortization
expense |
(97 |
) |
|
(90 |
) |
|
8 |
% |
| Recorded Music
OIBDA |
$ |
504 |
|
|
$ |
317 |
|
|
59 |
% |
| Recorded Music
operating income margin |
18.3 |
% |
|
11.4 |
% |
|
|
| Recorded Music OIBDA
margin |
22.7 |
% |
|
15.9 |
% |
|
|
| |
|
|
|
|
|
| Music Publishing
operating income – GAAP |
$ |
40 |
|
|
$ |
44 |
|
|
-9 |
% |
| Depreciation and amortization
expense |
(42 |
) |
|
(37 |
) |
|
14 |
% |
| Music Publishing
OIBDA |
$ |
82 |
|
|
$ |
81 |
|
|
1 |
% |
| Music Publishing
operating income margin |
10.9 |
% |
|
13.0 |
% |
|
|
| Music Publishing OIBDA
margin |
22.3 |
% |
|
23.9 |
% |
|
|
Adjusted Operating Income (Loss), Adjusted OIBDA and
Adjusted Net Income (Loss)
Adjusted operating income (loss), Adjusted OIBDA and Adjusted
net income (loss) is operating income (loss), OIBDA and net income
(loss), respectively, adjusted to exclude the impact of certain
items that affect comparability. Factors
affecting period-to-period comparability of the unadjusted
measures in the quarter included the items listed in Figure 7
below. We use Adjusted operating income (loss), Adjusted OIBDA
and Adjusted net income (loss) to evaluate our actual operating
performance. We believe that the adjusted results provide
relevant and useful information for investors because they clarify
our actual operating performance, make it easier to compare
our results with those of other companies in our industry and allow
investors to review performance in the same way as our
management. Since these are not measures of performance
calculated in accordance with U.S. GAAP, they should not be
considered in isolation of, or as a substitute for, operating
income (loss), OIBDA and net income (loss) attributable to Warner
Music Group Corp. as indicators of operating performance, and they
may not be comparable to similarly titled measures employed by
other companies.
| Figure 7.
Warner Music Group Corp. - Reconciliation of Reported to Adjusted
Results, Three and Six Months Ended March 31, 2021 versus March 31,
2020 |
| (dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMG Operating Income |
|
Recorded Music Operating Income |
|
Music Publishing Operating Income |
|
Total WMG OIBDA |
|
Recorded Music OIBDA |
|
Music Publishing OIBDA |
|
Net Income |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
Reported Results |
$ |
151 |
|
|
$ |
184 |
|
|
$ |
22 |
|
|
$ |
228 |
|
|
$ |
235 |
|
|
$ |
43 |
|
|
$ |
117 |
|
| Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
10 |
|
|
— |
|
|
2 |
|
|
10 |
|
|
— |
|
|
2 |
|
|
10 |
|
|
COVID-19 Related Costs |
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
Non-Cash Stock-Based Compensation and Other Related Costs |
16 |
|
|
7 |
|
|
1 |
|
|
16 |
|
|
7 |
|
|
1 |
|
|
16 |
|
| Adjusted Results |
$ |
178 |
|
|
$ |
191 |
|
|
$ |
25 |
|
|
$ |
255 |
|
|
$ |
242 |
|
|
$ |
46 |
|
|
$ |
144 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Margin |
14.2 |
% |
|
18.0 |
% |
|
13.0 |
% |
|
20.4 |
% |
|
22.9 |
% |
|
24.0 |
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMG Operating (Loss) Income |
|
Recorded Music Operating Income |
|
Music Publishing Operating Income |
|
Total WMG OIBDA |
|
Recorded Music OIBDA |
|
Music Publishing OIBDA |
|
Net (Loss) Income |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Reported Results |
$ |
(49 |
) |
|
$ |
36 |
|
|
$ |
30 |
|
|
$ |
12 |
|
|
$ |
76 |
|
|
$ |
48 |
|
|
$ |
(74 |
) |
| Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
14 |
|
|
— |
|
|
1 |
|
|
14 |
|
|
— |
|
|
1 |
|
|
14 |
|
|
IPO Related Costs |
4 |
|
|
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
— |
|
|
4 |
|
|
COVID-19 Related Costs |
13 |
|
|
13 |
|
|
— |
|
|
13 |
|
|
13 |
|
|
— |
|
|
13 |
|
|
Non-Cash Stock-Based Compensation and Other Related Costs |
167 |
|
|
101 |
|
|
— |
|
|
167 |
|
|
101 |
|
|
— |
|
|
167 |
|
| Adjusted Results |
$ |
149 |
|
|
$ |
150 |
|
|
$ |
31 |
|
|
$ |
210 |
|
|
$ |
190 |
|
|
$ |
49 |
|
|
$ |
124 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Margin |
13.9 |
% |
|
16.5 |
% |
|
18.7 |
% |
|
19.6 |
% |
|
20.9 |
% |
|
29.5 |
% |
|
|
|
For the Six Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMG Operating Income |
|
Recorded Music Operating Income |
|
Music Publishing Operating Income |
|
Total WMG OIBDA |
|
Recorded Music OIBDA |
|
Music Publishing OIBDA |
|
Net Income |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
Reported Results |
$ |
347 |
|
|
$ |
407 |
|
|
$ |
40 |
|
|
$ |
495 |
|
|
$ |
504 |
|
|
$ |
82 |
|
|
$ |
216 |
|
| Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
18 |
|
|
— |
|
|
3 |
|
|
18 |
|
|
— |
|
|
3 |
|
|
18 |
|
|
COVID-19 Related Costs |
2 |
|
|
1 |
|
|
— |
|
|
2 |
|
|
1 |
|
|
— |
|
|
2 |
|
|
Non-Cash Stock-Based Compensation and Other Related Costs |
22 |
|
|
12 |
|
|
1 |
|
|
22 |
|
|
12 |
|
|
1 |
|
|
22 |
|
| Adjusted Results |
$ |
389 |
|
|
$ |
420 |
|
|
$ |
44 |
|
|
$ |
537 |
|
|
$ |
517 |
|
|
$ |
86 |
|
|
$ |
258 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Margin |
15.0 |
% |
|
18.9 |
% |
|
12.0 |
% |
|
20.8 |
% |
|
23.3 |
% |
|
23.4 |
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMG Operating Income |
|
Recorded Music Operating Income |
|
Music Publishing Operating Income |
|
Total WMG OIBDA |
|
Recorded Music OIBDA |
|
Music Publishing OIBDA |
|
Net Income |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Reported Results |
$ |
116 |
|
|
$ |
227 |
|
|
$ |
44 |
|
|
$ |
248 |
|
|
$ |
317 |
|
|
$ |
81 |
|
|
$ |
48 |
|
| Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
25 |
|
|
— |
|
|
2 |
|
|
25 |
|
|
— |
|
|
2 |
|
|
25 |
|
|
IPO Related Costs |
4 |
|
|
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
— |
|
|
4 |
|
|
COVID-19 Related Costs |
13 |
|
|
13 |
|
|
— |
|
|
13 |
|
|
13 |
|
|
— |
|
|
13 |
|
|
Non-Cash Stock-Based Compensation and Other Related Costs |
160 |
|
|
98 |
|
|
— |
|
|
160 |
|
|
98 |
|
|
— |
|
|
160 |
|
| Adjusted Results |
$ |
318 |
|
|
$ |
338 |
|
|
$ |
46 |
|
|
$ |
450 |
|
|
$ |
428 |
|
|
$ |
83 |
|
|
$ |
250 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Margin |
13.7 |
% |
|
17.0 |
% |
|
13.6 |
% |
|
19.3 |
% |
|
21.5 |
% |
|
24.5 |
% |
|
|
Constant Currency
Because exchange rates are an important factor in understanding
period-to-period comparisons, we believe the presentation of
revenue on a constant-currency basis in addition to reported
revenue helps improve the ability to understand our operating
results and evaluate our performance in comparison to prior
periods. Constant-currency information compares results
between periods as if exchange rates had remained constant period
over period. We use results on a constant-currency basis as
one measure to evaluate our performance. We calculate
constant-currency results by applying current-year foreign currency
exchange rates to prior-year results. However, a limitation of
the use of the constant-currency results as a performance
measure is that it does not reflect the impact of exchange rates on
our revenue. These results should be considered in addition
to, not as a substitute for, results reported in accordance with
U.S. GAAP. Results on a constant-currency basis, as we present
them, may not be comparable to similarly titled measures used by
other companies and are not a measure of performance presented in
accordance with U.S. GAAP.
| Figure 8.
Warner Music Group Corp. - Revenue by Geography and Segment, Three
and Six Months Ended March 31, 2021 versus March 31, 2020 As
Reported and Constant Currency |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
|
For the Three Months EndedMarch 31, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| U.S. revenue |
|
|
|
|
|
|
Recorded Music |
$ |
469 |
|
|
$ |
380 |
|
|
$ |
380 |
|
|
Music Publishing |
96 |
|
|
87 |
|
|
87 |
|
| International revenue |
|
|
|
|
|
|
Recorded Music |
590 |
|
|
527 |
|
|
558 |
|
|
Music Publishing |
96 |
|
|
79 |
|
|
85 |
|
| Intersegment eliminations |
(1 |
) |
|
(2 |
) |
|
(2 |
) |
| Total
Revenue |
$ |
1,250 |
|
|
$ |
1,071 |
|
|
$ |
1,108 |
|
| |
|
|
|
|
|
| Revenue by
Segment: |
|
|
|
|
|
| Recorded Music |
|
|
|
|
|
|
Digital |
$ |
756 |
|
|
$ |
626 |
|
|
$ |
641 |
|
|
Physical |
118 |
|
|
94 |
|
|
99 |
|
|
Total Digital and Physical |
874 |
|
|
720 |
|
|
740 |
|
|
Artist services and expanded-rights |
118 |
|
|
115 |
|
|
122 |
|
|
Licensing |
67 |
|
|
72 |
|
|
76 |
|
| Total Recorded
Music |
1,059 |
|
|
907 |
|
|
938 |
|
| Music Publishing |
|
|
|
|
|
|
Performance |
35 |
|
|
41 |
|
|
43 |
|
|
Digital |
104 |
|
|
74 |
|
|
78 |
|
|
Mechanical |
12 |
|
|
15 |
|
|
15 |
|
|
Synchronization |
38 |
|
|
34 |
|
|
34 |
|
|
Other |
3 |
|
|
2 |
|
|
2 |
|
| Total Music
Publishing |
192 |
|
|
166 |
|
|
172 |
|
| Intersegment eliminations |
(1 |
) |
|
(2 |
) |
|
(2 |
) |
| Total
Revenue |
$ |
1,250 |
|
|
$ |
1,071 |
|
|
$ |
1,108 |
|
| |
|
|
|
|
|
| Total Digital
Revenue |
$ |
860 |
|
|
$ |
699 |
|
|
$ |
718 |
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
|
For the Six Months EndedMarch 31, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| U.S. revenue |
|
|
|
|
|
|
Recorded Music |
$ |
950 |
|
|
$ |
833 |
|
|
$ |
833 |
|
|
Music Publishing |
187 |
|
|
168 |
|
|
168 |
|
| International revenue |
|
|
|
|
|
|
Recorded Music |
1,270 |
|
|
1,158 |
|
|
1,216 |
|
|
Music Publishing |
180 |
|
|
171 |
|
|
180 |
|
| Intersegment eliminations |
(2 |
) |
|
(3 |
) |
|
(3 |
) |
| Total
Revenue |
$ |
2,585 |
|
|
$ |
2,327 |
|
|
$ |
2,394 |
|
| |
|
|
|
|
|
| Revenue by
Segment: |
|
|
|
|
|
| Recorded Music |
|
|
|
|
|
|
Digital |
$ |
1,483 |
|
|
$ |
1,259 |
|
|
$ |
1,282 |
|
|
Physical |
292 |
|
|
278 |
|
|
290 |
|
|
Total Digital and Physical |
1,775 |
|
|
1,537 |
|
|
1,572 |
|
|
Artist services and expanded-rights |
298 |
|
|
303 |
|
|
320 |
|
|
Licensing |
147 |
|
|
151 |
|
|
157 |
|
| Total Recorded
Music |
2,220 |
|
|
1,991 |
|
|
2,049 |
|
| Music Publishing |
|
|
|
|
|
|
Performance |
65 |
|
|
87 |
|
|
90 |
|
|
Digital |
203 |
|
|
147 |
|
|
151 |
|
|
Mechanical |
23 |
|
|
30 |
|
|
31 |
|
|
Synchronization |
71 |
|
|
70 |
|
|
71 |
|
|
Other |
5 |
|
|
5 |
|
|
5 |
|
| Total Music
Publishing |
367 |
|
|
339 |
|
|
348 |
|
| Intersegment eliminations |
(2 |
) |
|
(3 |
) |
|
(3 |
) |
| Total
Revenue |
$ |
2,585 |
|
|
$ |
2,327 |
|
|
$ |
2,394 |
|
| |
|
|
|
|
|
| Total Digital
Revenue |
$ |
1,685 |
|
|
$ |
1,405 |
|
|
$ |
1,432 |
|
Free Cash Flow
Free Cash Flow reflects our cash flow provided by operating
activities less capital expenditures and cash paid or received for
investments. We use Free Cash Flow, among other measures, to
evaluate our operating performance. Management believes Free
Cash Flow provides investors with an important perspective on the
cash available to fund our debt service requirements, ongoing
working capital requirements, capital expenditure requirements,
strategic acquisitions and investments, and any dividends,
prepayments of debt or repurchases or retirement of our outstanding
debt or notes in open market purchases, privately negotiated
purchases or otherwise. As a result, Free Cash Flow is a
significant measure of our ability to generate long-term
value. It is useful for investors to know whether this ability
is being enhanced or degraded as a result of our operating
performance. We believe the presentation of Free Cash Flow is
relevant and useful for investors because it allows investors to
view performance in a manner similar to the method management
uses.
Because Free Cash Flow is not a measure of performance
calculated in accordance with U.S. GAAP, Free Cash Flow should not
be considered in isolation of, or as a substitute for, net income
(loss) as an indicator of operating performance or cash flow
provided by operating activities as a measure of
liquidity. Free Cash Flow, as we calculate it, may not be
comparable to similarly titled measures employed by other
companies. In addition, Free Cash Flow does not necessarily
represent funds available for discretionary use and is not
necessarily a measure of our ability to fund our cash
needs. Because Free Cash Flow deducts capital expenditures and
cash paid or received for investments from “net cash provided by
operating activities” (the most directly comparable U.S. GAAP
financial measure), users of this information should consider the
types of events and transactions that are not reflected. We
provide below a reconciliation of Free Cash Flow to the most
directly comparable amount reported under U.S. GAAP, which is “net
cash provided by operating activities.”
| Figure 9.
Warner Music Group Corp. - Calculation of Free Cash Flow, Three and
Six Months Ended March 31, 2021 versus March 31, 2020 |
| (dollars in
millions) |
|
|
|
| |
|
|
|
| |
For the Three Months EndedMarch 31, 2021 |
|
For the Three Months EndedMarch 31, 2020 |
| |
(unaudited) |
|
(unaudited) |
|
Net cash provided by operating activities |
$ |
150 |
|
|
$ |
86 |
|
| Less: Capital
expenditures |
20 |
|
|
13 |
|
| Less: Net cash paid for
investments |
41 |
|
|
6 |
|
| |
|
|
|
| Free Cash
Flow |
$ |
89 |
|
|
$ |
67 |
|
| |
|
|
|
| |
For the Six Months EndedMarch 31, 2021 |
|
For the Six Months EndedMarch 31, 2020 |
| |
(unaudited) |
|
(unaudited) |
| Net cash provided by
operating activities |
$ |
319 |
|
|
$ |
164 |
|
| Less: Capital
expenditures |
38 |
|
|
28 |
|
| Less: Net cash paid for
investments |
366 |
|
|
23 |
|
| |
|
|
|
| Free Cash
Flow |
$ |
(85 |
) |
|
$ |
113 |
|
Adjusted EBITDA
Adjusted EBITDA is equivalent to “EBITDA” as defined in our
Revolving Credit Facility and our 2020 indenture and substantially
similar to “Consolidated EBITDA” as defined under our 2012 and 2014
indentures and “EBITDA” as defined under our Senior Term Loan
Facility, respectively. Adjusted EBITDA differs from the term
“EBITDA” as it is commonly used. The definition of Adjusted EBITDA,
in addition to adjusting net income to exclude interest expense,
income taxes, and depreciation and amortization, also adjusts net
income by excluding items or expenses such as, among other items,
(1) the amount of any restructuring charges or reserves; (2) any
non-cash charges (including any impairment charges); (3) any net
loss resulting from hedging currency exchange risks; (4) the amount
of management, monitoring, consulting and advisory fees paid to
Access under the Management Agreement or otherwise; (5) business
optimization expenses (including consolidation initiatives,
severance costs and other costs relating to initiatives aimed at
profitability improvement); (6) transaction expenses; (7)
equity-based compensation expense; and (8) certain extraordinary,
unusual or non-recurring items. The definition of EBITDA under the
Revolving Credit Facility also includes adjustments for the pro
forma impact of certain projected cost savings, operating expense
reductions and synergies and any quality of earnings analysis
prepared by independent certified public accountants in connection
with an acquisition, merger, consolidation or other investment.
Adjusted EBITDA is a key measure used by our management to
understand and evaluate our operating performance, generate future
operating plans and make strategic decisions regarding the
allocation of capital. Adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation or as
a substitute for analysis of our results as reported under U.S.
GAAP. Some of those limitations include: (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, this measure adds back certain
non-cash, extraordinary, 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
U.S. GAAP and does not necessarily indicate whether cash flows will
be sufficient to fund cash needs. Accordingly, Adjusted EBITDA
should be considered in addition to, not as a substitute for, net
income (loss) and other measures of financial performance reported
in accordance with U.S. GAAP.
| Figure
10. Warner Music Group Corp. - Reconciliation of Net Income to
Adjusted EBITDA, Three and Twelve Months Ended March 31, 2021
versus March 31, 2020 |
| (dollars in
millions) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
For the Three Months Ended March 31,
2021 |
|
For the Three Months Ended March 31,
2020 |
|
For the Twelve Months Ended March 31,
2021 |
|
For the Twelve Months Ended March 31,
2020 |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
Net Income (Loss) |
$ |
117 |
|
|
$ |
(74 |
) |
|
$ |
(302 |
) |
|
$ |
153 |
|
| Income tax expense
(benefit) |
51 |
|
|
(12 |
) |
|
116 |
|
|
(97 |
) |
| Interest expense, net |
32 |
|
|
33 |
|
|
124 |
|
|
137 |
|
| Depreciation and
amortization |
77 |
|
|
61 |
|
|
277 |
|
|
264 |
|
| Loss on extinguishment of debt
(a) |
— |
|
|
— |
|
|
34 |
|
|
4 |
|
| Net gain on divestitures and
sale of securities (b) |
(1 |
) |
|
(1 |
) |
|
(1 |
) |
|
(2 |
) |
| Restructuring costs (c) |
3 |
|
|
2 |
|
|
21 |
|
|
25 |
|
| Net hedging and foreign
exchange (gains) losses (d) |
(32 |
) |
|
(10 |
) |
|
82 |
|
|
(18 |
) |
| Management fees (e) |
— |
|
|
3 |
|
|
14 |
|
|
11 |
|
| Transaction costs (f) |
3 |
|
|
4 |
|
|
75 |
|
|
4 |
|
| Business optimization expenses
(g) |
10 |
|
|
13 |
|
|
34 |
|
|
37 |
|
| Non-cash stock compensation
expense (h) |
15 |
|
|
167 |
|
|
469 |
|
|
196 |
|
| Other non-cash charges
(i) |
(16 |
) |
|
27 |
|
|
(48 |
) |
|
39 |
|
| Pro forma impact of cost
savings initiatives and specified transactions (j) |
9 |
|
|
1 |
|
|
48 |
|
|
2 |
|
| Adjusted
EBITDA |
$ |
268 |
|
|
$ |
214 |
|
|
$ |
943 |
|
|
$ |
755 |
|
______________________________________(a) For the
twelve months ended March 31, 2021, reflects a net loss incurred on
the early extinguishment of our debt incurred as part of the June
2020 redemption of our 4.125% Senior Secured Notes and 4.875%
Senior Secured Notes, the June 2020 tender for and the August 2020
redemption of the 5.000% Senior Secured Notes and the August 2020
partial repayment of the Senior Term Loan Facility. For the twelve
months ended March 31, 2020, reflects a net loss incurred on the
early extinguishment of our debt incurred as part of the May 2019
redemption of the remaining 5.625% Secured Notes.(b)
Reflects net gain on sale of securities and
divestitures.(c) Reflects severance costs and other
restructuring related expenses.(d) Reflects losses
(gains) from hedging activities and unrealized losses (gains) due
to foreign exchange on our Euro-denominated debt and intercompany
transactions.(e) Reflects management fees and related
expenses paid to Access. For the twelve months ended March 31,
2021, amounts mainly include a one-time fee of $13 million related
to termination of the management agreement with Access upon
completion of the IPO in June 2020. Prior to termination of the
management agreement, the annual fee was equal to the greater of a
base amount and 1.5% of EBITDA (as defined in the indenture
governing the redeemed Holdings 13.75% Senior Notes due 2019) of
the Company for the applicable fiscal year, plus expenses.(f)
Reflects transaction costs, including Senior Term Loan Credit
Agreement Amendment fees of $3 million and qualifying IPO costs of
$72 million for the twelve months ended March 31, 2021.(g)
Reflects costs associated with our transformation initiatives
and IT system updates, which includes costs of $8 million and $25
million related to our finance transformation for the three and
twelve months ended March 31, 2021, respectively, as well as $10
million and $31 million for the three and twelve months ended March
31, 2020, respectively.(h) Reflects non-cash
stock-based compensation expense related to the Warner Music Group
Corp. Senior Management Free Cash Flow Plan and the Omnibus
Incentive Plan.(i) Reflects non-cash activity,
including the unrealized losses (gains) on the mark-to-market of an
equity method investment, investment losses (gains) and other
non-cash impairments.(j) Reflects expected savings
resulting from transformation initiatives and pro forma impact of
specified transactions for the three and twelve months ended March
31, 2021. Certain of these cost savings initiatives and
transactions impacted quarters prior to the quarter during which
they were identified within the last twelve-month period. The pro
forma impact of these specified transactions and initiatives
resulted in a $24 million increase in the twelve months ended March
31, 2021 Adjusted EBITDA.
|
Media Contact: |
Investor Contact: |
| James
Steven |
Kareem Chin |
| (212)
275-2213 |
|
| James.Steven@wmg.com |
Investor.Relations@wmg.com |
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