Warner Music Group Corp. today announced its fourth-quarter and
full-year financial results for the periods ended
September 30, 2020.
“We’re proud of everything we’ve accomplished in the past year,
despite the challenging conditions that the world has faced. We’re
essentially flat against a record-breaking prior year and, during
the quarter, we grew 11% on an as-reported basis, excluding the
revenue streams most impacted by COVID,” said Steve Cooper, CEO,
Warner Music Group. “We’ve had huge successes from global megastars
and local hitmakers, breakout sensations and long-time legends. Our
streaming growth has stayed strong, and we’ve also seen an
acceleration in a whole spectrum of emerging revenue streams such
as social media, gaming, and in-home fitness. In this increasingly
complex environment, where music is woven into every aspect of our
lives, our creative expertise and global reach are more valuable
than ever.”
“Our results are underpinned by the continued momentum we are
seeing in streaming and the operating leverage driven by our
digital transformation and business optimization initiatives,”
added Eric Levin, Executive Vice President and CFO, Warner Music
Group. “As we look toward the future, we are confident in our
long-term growth prospects, particularly as the areas of our
business that have been most impacted by COVID return to
normal.”
Total WMG
Total WMG
Summary Results |
|
|
|
|
|
|
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
% Change |
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(audited) |
|
(audited) |
|
|
Revenue |
$ |
1,126 |
|
$ |
1,124 |
|
— |
% |
|
$ |
4,463 |
|
|
$ |
4,475 |
|
— |
% |
Recorded Music revenue |
958 |
|
953 |
|
1 |
% |
|
3,810 |
|
|
3,840 |
|
-1 |
% |
Music Publishing revenue |
169 |
|
173 |
|
-2 |
% |
|
657 |
|
|
643 |
|
2 |
% |
Digital revenue |
778 |
|
674 |
|
15 |
% |
|
2,903 |
|
|
2,610 |
|
11 |
% |
Operating income (loss) |
88 |
|
29 |
|
— |
% |
|
(229 |
) |
|
356 |
|
— |
% |
Adjusted operating
income(1) |
107 |
|
63 |
|
70 |
% |
|
529 |
|
|
444 |
|
19 |
% |
OIBDA(1) |
155 |
|
95 |
|
63 |
% |
|
32 |
|
|
625 |
|
-95 |
% |
Adjusted OIBDA(1) |
174 |
|
129 |
|
35 |
% |
|
790 |
|
|
713 |
|
11 |
% |
Net income (loss) |
1 |
|
91 |
|
-99 |
% |
|
(470 |
) |
|
258 |
|
— |
% |
Adjusted net income(1) |
20 |
|
125 |
|
-84 |
% |
|
288 |
|
|
346 |
|
-17 |
% |
Net cash provided by operating
activities |
176 |
|
151 |
|
17 |
% |
|
463 |
|
|
400 |
|
16 |
% |
Adjusted EBITDA(1) |
177 |
|
133 |
|
33 |
% |
|
837 |
|
|
737 |
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
Fourth-Quarter Results
Revenue was up 0.2% (or down 1.1% in constant currency). Robust
digital revenue growth across Recorded Music and Music Publishing
was partially offset by a decline in Recorded Music artist services
and expanded-rights and licensing revenue and in Music Publishing
performance, mechanical and synchronization revenue, which reflects
the impact from COVID. Excluding artist services and
expanded-rights revenue in Recorded Music and performance revenue
in Music Publishing, the revenue segments most affected by COVID,
total revenue would have increased 10.5% (or 9.4% in constant
currency). Recorded Music physical revenue was flat, despite the
impact from COVID, as a result of strong physical releases in the
US and Japan. The slight increase in revenue was primarily due to
growth in streaming revenue, the Company’s largest and
fastest-growing source of revenue, and favorable impact from
exchange rates, partially offset by COVID-related business
disruption. Digital revenue grew 15.4% (or 14.6% in constant
currency), and represented 69.1% of total revenue, compared to
60.0% in the prior-year quarter.
Operating income was $88 million compared to $29 million in the
prior-year quarter. OIBDA was $155 million, an increase from $95
million in the prior-year quarter and OIBDA margin increased 5.3
percentage points to 13.8% from 8.5% in the prior-year quarter. The
increase in operating income, OIBDA and OIBDA margin was primarily
due to higher-margin streaming revenue constituting a larger
proportion of total revenue, lower non-cash stock-based
compensation expense of $14 million, lower variable compensation
expense and cost-management efforts.
Adjusted operating income, Adjusted OIBDA and Adjusted net
income exclude one-time costs related to the Company’s IPO,
non-cash stock-based compensation expense, COVID-related expenses,
the Company's Los Angeles office consolidation and restructuring
and other transformation initiatives in the current quarter and
costs related to the Company's Los Angeles office consolidation,
non-cash stock-based compensation expense and restructuring and
other transformation initiatives in the prior-year quarter.
Adjusted EBITDA excludes these items and includes expected savings
resulting from transformation initiatives and pro forma impact of
specified transactions closed in the current quarter. See below for
calculations and reconciliations of Adjusted operating income,
Adjusted OIBDA, Adjusted net income, and Adjusted EBITDA.
Adjusted OIBDA increased 34.9% from $129 million to $174 million
and Adjusted OIBDA margin increased 4.0 percentage points to 15.5%
from 11.5% due to margin improvement associated with higher
streaming revenue, cost-management efforts and lower variable
compensation expense. Adjusted operating income increased 69.8%
from $63 million to $107 million due to the same factors affecting
Adjusted OIBDA.
Adjusted EBITDA increased 33.1% from $133 million to $177
million with margins improving 3.9 percentage points from 11.8% to
15.7%. The increase was largely due to the same factors affecting
Adjusted OIBDA in addition to higher pro forma savings expected to
be realized from certain cost-savings initiatives and
transactions.
Net income was $1 million compared to $91 million in the
prior-year quarter. Adjusted net income was $20 million compared to
$125 million in the prior-year quarter. The decrease in net income
and Adjusted net income was due to the unfavorable impact of
exchange rates on the Company’s external euro-denominated debt and
intercompany loans, a loss on extinguishment of debt of $34 million
due to recent refinancing activity and higher income tax benefit in
the prior-year quarter due to the release of $59 million of the
Company's U.S. deferred tax valuation allowance on foreign tax
credit carryforwards, which was partially offset by higher
operating income, lower interest expense due to refinancing
activity and gains on investments.
Basic and Diluted earnings per share was $0.00 for both the
Class A and Class B shareholders due to the net loss attributable
to the Company in the current quarter of $1 million.
As of September 30, 2020, the Company reported a cash
balance of $553 million, total debt of $3.104 billion and net debt
(defined as total long-term debt, net of deferred financing costs,
minus cash and equivalents) of $2.551 billion.
Cash provided by operating activities was $176 million compared
to $151 million in the prior-year quarter. The change was largely a
result of the timing of working capital primarily due to timing of
payments from certain digital service providers. Free Cash Flow, as
defined below, decreased to $44 million from $115 million in the
prior-year quarter largely due to an increase in capital
expenditures to support transformation initiatives and to increased
investment activity, which was partially offset by an increase in
operating cash flow.
Full-Year Results
Total revenue decreased 0.3% (or increased 0.4% in constant
currency). Robust digital revenue growth in Recorded Music and
Music Publishing was more than offset by declines in Recorded Music
artist services and expanded-rights, physical and licensing revenue
and in Music Publishing performance and mechanical revenue, which
reflects the impact of COVID. Excluding artist services and
expanded-rights revenue in Recorded Music and performance revenue
in Music Publishing, the revenue segments most affected by COVID,
total revenue would have increased 3.6% (or 4.4% in constant
currency). Music Publishing synchronization revenue was flat,
despite the impact from COVID, as a result of increased deal
activity in China and the UK. US revenue declined by 1.1% and
international revenue rose 0.2% (or 1.4% in constant currency).
Prior to intersegment eliminations, US and international revenue
represented 43.3% and 56.7% of total revenue, respectively,
compared to 43.6% and 56.4% of total revenue, respectively, in the
prior year. Digital revenue grew 11.2% (or 12.2% in constant
currency), and represented 65.0% of total revenue, compared to
58.3% in the prior year.
Operating loss was $229 million, compared to operating income of
$356 million in the prior year and operating margin was (5.1)% down
from 8.0% in the prior year. OIBDA was $32 million, down 94.9% from
$625 million in the prior year and OIBDA margin decreased 13.3
percentage points to 0.7% from 14.0% in the prior year. Net loss
was $470 million compared to net income of $258 million in the
prior year. The decrease in net income, operating income, OIBDA and
OIBDA margin was primarily due to higher non-cash stock-based
compensation expense of $559 million related to the Company’s
long-term incentive plan reflecting changes in the value of the
Company’s common stock, as well as $89 million in one-time costs
associated with the Company’s IPO.
Adjusted operating income, Adjusted OIBDA and Adjusted net
income exclude one-time costs related to the Company’s IPO,
non-cash stock-based compensation expense, COVID-related expenses,
the Company's Los Angeles office consolidation and restructuring
and other transformation initiatives in the current year and
non-cash stock-based compensation expense, the Company's Los
Angeles office consolidation and restructuring and other
transformation initiatives, including relocation of the Company’s
U.S. shared service center to Nashville in the prior year. Adjusted
EBITDA excludes these items and includes expected savings resulting
from transformation initiatives and pro forma impact of specified
transactions closed in the current year. See below for calculations
and reconciliations of Adjusted operating income, Adjusted OIBDA,
Adjusted net income, and Adjusted EBITDA.
Adjusted OIBDA increased 10.8% from $713 million to $790 million
and Adjusted OIBDA margin increased 1.8 percentage points from
15.9% to 17.7% due to margin improvement associated with an
increase in higher-margin streaming revenue and decreases in
lower-margin physical revenue and artist services and
expanded-rights revenue, as well as lower operating costs. Adjusted
operating income increased 19.1% from $444 million to $529 million
in the year due to the same factors affecting Adjusted OIBDA.
Adjusted EBITDA increased 13.6% from $737 million to $837
million. The increase was largely due to the same factors affecting
Adjusted OIBDA in addition to higher pro forma savings expected to
be realized from certain cost-savings initiatives and
transactions.
Net loss was $470 million compared to income of $258 million in
the prior year. Adjusted net income was $288 million compared to
$346 million in the prior year. The decrease in net income and
Adjusted net income was primarily due to the unfavorable impact of
exchange rates on the Company’s external euro-denominated debt and
intercompany loans, a loss on extinguishment of debt of $34 million
due to recent refinancing activity and an increase in income tax
expense due to a higher release of a U.S. deferred tax valuation
allowance in the prior year, which was partially offset by lower
interest expense due to refinancing activity.
Net debt (defined as total long-term debt, net of deferred
financing costs, minus cash and equivalents) at the end of the
current year was $2.551 billion compared to $2.355 billion at the
end of the prior year.
Basic and Diluted earnings per share was a loss of $0.82 for the
Class A and $0.95 for the Class B shareholders. The loss was due to
the same factors affecting net loss.
Cash provided by operating activities was $463 million compared
to $400 million in the prior year due to timing of royalty payments
and lower spending due to COVID. Free Cash Flow was $244 million,
compared to $24 million in the prior year, reflecting the
acquisition of EMP for $183 million. Capital expenditures were
$85 million for the current year as compared to $104 million in the
prior year driven by spend related to the Company's Los Angeles
office consolidation.
Recorded Music
Recorded
Music Summary Results |
|
|
|
|
|
|
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
% Change |
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
958 |
|
$ |
953 |
|
1 |
% |
|
$ |
3,810 |
|
$ |
3,840 |
|
-1 |
% |
Digital revenue |
679 |
|
599 |
|
13 |
% |
|
2,568 |
|
2,343 |
|
10 |
% |
Operating income |
108 |
|
57 |
|
89 |
% |
|
175 |
|
439 |
|
-60 |
% |
Adjusted operating
income(1) |
118 |
|
75 |
|
57 |
% |
|
582 |
|
490 |
|
19 |
% |
OIBDA(1) |
151 |
|
101 |
|
50 |
% |
|
349 |
|
623 |
|
-44 |
% |
Adjusted OIBDA(1) |
161 |
|
119 |
|
35 |
% |
|
756 |
|
674 |
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
Fourth-Quarter Results
Recorded
Music Revenue |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
For the Three Months Ended September 30, 2019 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
679 |
|
$ |
599 |
|
$ |
602 |
Physical |
105 |
|
103 |
|
106 |
Total Digital and Physical |
784 |
|
702 |
|
708 |
Artist services and expanded-rights |
98 |
|
171 |
|
177 |
Licensing |
76 |
|
80 |
|
81 |
Total Recorded
Music |
$ |
958 |
|
$ |
953 |
|
$ |
966 |
Recorded Music revenue was up 0.5% (or down 0.8% in constant
currency). The revenue increase was primarily due to the continued
growth in streaming revenue—which grew 16.2% over the prior-year
quarter and 8.5% over the prior quarter—which was partially offset
by COVID-related business disruption and exchange rates in the
current quarter. Physical revenue was flat. Growth in digital
revenue was partially offset by declines in artist services and
expanded-rights revenue and licensing revenue. Digital revenue
growth reflects the continuing shift to streaming, the Company’s
largest and fastest-growing source of revenue. The decline in
artist services and expanded-rights revenue was due to tour
postponements and cancellations and lower tour merchandise revenue
resulting from COVID-related business disruption. The decline in
licensing revenue reflects a decrease in broadcast fees and
synchronization revenue from lower advertising, television and film
deal activity due to the impact of COVID. Physical revenue reflects
the continued shift to streaming, which was partially offset by
strong releases in the quarter. Major sellers included Dua Lipa,
Roddy Ricch,Tones and I, Aimyon and Cardi B.
Recorded Music operating income was $108 million, up from $57
million in the prior-year quarter and operating margin was up
5.3 percentage points to 11.3% versus 6.0% in the prior-year
quarter. OIBDA increased to $151 million from $101 million in the
prior-year quarter and OIBDA margin increased 5.2 percentage points
to 15.8%. Adjusted OIBDA was $161 million versus $119 million in
the prior-year quarter with Adjusted OIBDA margin up 4.3 percentage
points to 16.8%. The increases in operating income and OIBDA were
driven by lower non-cash stock-based compensation expense and an
increase in Adjusted OIBDA. The increases in Adjusted OIBDA and
Adjusted OIBDA margin were primarily due to overall cost savings
and revenue mix.
Full-Year Results
Recorded
Music Revenue |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
For the Twelve Months Ended September 30,
2019 |
|
As reported |
|
As reported |
|
Constant |
|
(audited) |
|
(audited) |
|
(unaudited) |
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
2,568 |
|
$ |
2,343 |
|
$ |
2,321 |
Physical |
434 |
|
559 |
|
558 |
Total Digital and Physical |
3,002 |
|
2,902 |
|
2,879 |
Artist services and expanded-rights |
525 |
|
629 |
|
631 |
Licensing |
283 |
|
309 |
|
307 |
Total Recorded
Music |
$ |
3,810 |
|
$ |
3,840 |
|
$ |
3,817 |
Recorded Music revenue declined 0.8% (or 0.2% in constant
currency). Declines in physical, artist services and
expanded-rights and licensing revenue were partially offset by
an increase in digital revenue. The decline in physical revenue was
largely driven by the overall market decline, timing of releases
and the impact of COVID. Artist services and expanded-rights
revenue decreased due to the impact of COVID, which resulted in
tour postponements and cancellations and decreased tour
merchandising revenue. Lower licensing revenue was primarily
related to COVID, which resulted in lower broadcast fees and lower
synchronization revenue due to a decrease in advertising,
television and film deal activity which was partially offset by
one-time legal settlements. Digital revenue growth reflects the
continuing shift to streaming and timing of releases, which were
partially offset by a decrease in download revenue. Recorded Music
digital revenue grew 9.6% (or 10.6% in constant currency) and
represented 67.4% of total Recorded Music revenue versus 61.0% in
the prior year. US Recorded Music digital revenue was $1.292
billion, or 80.3% of total US Recorded Music revenue, versus 74.2%
in the prior year. Major sellers included Dua Lipa, Roddy
Ricch,Tones and I, Aimyon and Cardi B.
Recorded Music operating income was $175 million down from $439
million in the prior year. Recorded Music OIBDA decreased 44.0% to
$349 million and OIBDA margin declined 7.0 percentage points to
9.2%. Recorded Music Adjusted OIBDA improved 12.2% to $756 million
and Recorded Music Adjusted OIBDA margin increased 2.2 percentage
points to 19.8%. The decreases in operating income and OIBDA were
driven by higher non-cash stock-based compensation expense of $359
million and an increase in Adjusted OIBDA. The increases in
Adjusted OIBDA and Adjusted OIBDA margin were primarily due to
overall cost savings and revenue mix.
Music Publishing
Music
Publishing Summary Results |
|
|
|
|
|
|
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
% Change |
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
169 |
|
$ |
173 |
|
-2 |
% |
|
$ |
657 |
|
$ |
643 |
|
2 |
% |
Digital revenue |
100 |
|
76 |
|
32 |
% |
|
337 |
|
271 |
|
24 |
% |
Operating income |
23 |
|
25 |
|
-8 |
% |
|
81 |
|
92 |
|
-12 |
% |
Adjusted operating
income(1) |
23 |
|
25 |
|
-8 |
% |
|
84 |
|
92 |
|
-9 |
% |
OIBDA(1) |
43 |
|
44 |
|
-2 |
% |
|
157 |
|
166 |
|
-5 |
% |
Adjusted OIBDA(1) |
43 |
|
44 |
|
-2 |
% |
|
160 |
|
166 |
|
-4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
Fourth-Quarter Results
Music
Publishing Revenue |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
For the Three Months Ended September 30, 2019 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Revenue by
Segment: |
|
|
|
|
|
Music Publishing |
|
|
|
|
|
Performance |
$ |
28 |
|
$ |
48 |
|
$ |
48 |
Digital |
100 |
|
76 |
|
78 |
Mechanical |
10 |
|
14 |
|
14 |
Synchronization |
27 |
|
31 |
|
31 |
Other |
4 |
|
4 |
|
4 |
Total Music
Publishing |
$ |
169 |
|
$ |
173 |
|
$ |
175 |
Music Publishing revenue decreased 2.3% (or 3.4% in constant
currency). Growth in digital revenue was more than offset by
declines in performance, synchronization and mechanical revenue.
Digital revenue growth reflects the continuing shift to streaming
and timing of deals with digital service providers. The decrease in
synchronization revenue relates to decreases in advertising spend
and licensing activity resulting from COVID-related business
disruption. The decrease in mechanical revenue is due to
COVID-related business disruption and the continuing shift to
streaming. The decrease in performance revenue was primarily driven
by COVID-related business disruption.
Music Publishing operating income was $23 million compared to
$25 million in the prior-year quarter. Operating margin decreased
0.9 percentage points to 13.6%. Music Publishing OIBDA decreased by
$1 million or 2.3% to $43 million, and OIBDA margin was flat.
Adjusted OIBDA decreased by $1 million and Adjusted OIBDA margin
was flat.
Full-Year Results
Music
Publishing Revenue |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
For the Twelve Months Ended September 30,
2019 |
|
As reported |
|
As reported |
|
Constant |
|
(audited) |
|
(audited) |
|
(unaudited) |
Revenue by
Segment: |
|
|
|
|
|
Music Publishing |
|
|
|
|
|
Performance |
$ |
142 |
|
$ |
183 |
|
$ |
179 |
Digital |
337 |
|
271 |
|
270 |
Mechanical |
48 |
|
55 |
|
55 |
Synchronization |
119 |
|
120 |
|
119 |
Other |
11 |
|
14 |
|
14 |
Total Music
Publishing |
$ |
657 |
|
$ |
643 |
|
$ |
637 |
Music Publishing revenue increased 2.2% (or was up 3.1% in
constant currency). Digital revenue growth was partially offset by
declines in performance and mechanical revenue. Music Publishing
digital revenue increased 24.4% (or 24.8% in constant currency)
reflecting the continuing shift to streaming, and represented 51.3%
of total Music Publishing revenue versus 42.1% in the prior year.
The decreases in Music Publishing performance revenue and
mechanical revenue were primarily due to COVID-related business
disruption and the timing of distributions. Synchronization revenue
was flat due to increased deal activity in China and the UK offset
by COVID-related business disruption.
Music Publishing operating income was $81 million, down 12.0%
from $92 million in the prior year driven largely by higher artists
and repertoire (“A&R”) spend, and increased overhead due to
employee-related costs and restructuring. Operating margin was
12.3%, down 2.0 percentage points from 14.3% in the prior year.
Music Publishing OIBDA decreased 5.4% to $157 million, and Music
Publishing OIBDA margin declined 1.9 percentage points to 23.9%,
due to the same factors which impacted operating income and
operating margin. Adjusted OIBDA decreased 3.6% to $160 million and
Music Publishing Adjusted OIBDA margin declined to 24.4% due to
higher A&R spend and employee-related costs, which were
partially offset by revenue mix.
Financial details for the fiscal year can be found in the
Company’s Annual Report on Form 10-K for the period ended
September 30, 2020, 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
September 30, 2020 and September 30, 2019 relate to the
periods ended September 25, 2020 and September 27, 2019,
respectively. For convenience purposes, the Company continues to
date its financial statements as of September 30.
Figure 1.
Warner Music Group Corp. - Consolidated Statements of Operations,
Three and Twelve Months Ended September 30, 2020 versus September
30, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,126 |
|
|
|
$ |
1,124 |
|
|
|
— |
% |
Cost and
expenses: |
|
|
|
|
|
Cost of revenue |
(606 |
) |
|
|
(639 |
) |
|
|
-5 |
% |
Selling, general and
administrative expenses |
(383 |
) |
|
|
(408 |
) |
|
|
-6 |
% |
Amortization expense |
(49 |
) |
|
|
(48 |
) |
|
|
2 |
% |
Total costs and
expenses |
$ |
(1,038 |
) |
|
|
$ |
(1,095 |
) |
|
|
-5 |
% |
Operating
income |
$ |
88 |
|
|
|
$ |
29 |
|
|
|
— |
% |
Loss on extinguishment of
debt |
(34 |
) |
|
|
— |
|
|
|
— |
% |
Interest expense, net |
(29 |
) |
|
|
(34 |
) |
|
|
-15 |
% |
Other (expense) income,
net |
(45 |
) |
|
|
19 |
|
|
|
— |
% |
(Loss) income before
income taxes |
$ |
(20 |
) |
|
|
$ |
14 |
|
|
|
— |
% |
Income tax benefit |
21 |
|
|
|
77 |
|
|
|
-73 |
% |
Net
income |
$ |
1 |
|
|
|
$ |
91 |
|
|
|
-99 |
% |
Less: Income attributable to
noncontrolling interest |
(2 |
) |
|
|
(1 |
) |
|
|
100 |
% |
Net (loss) income
attributable to Warner Music Group Corp. |
$ |
(1 |
) |
|
|
$ |
90 |
|
|
|
— |
% |
|
|
|
|
|
|
Net (loss) income per
share attributable to common stockholders: |
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.00 |
|
|
|
$ |
— |
|
|
|
|
Class B – Basic and Diluted |
$ |
0.00 |
|
|
|
$ |
0.18 |
|
|
|
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
% Change |
|
(audited) |
|
(audited) |
|
|
Revenue |
$ |
4,463 |
|
|
|
$ |
4,475 |
|
|
|
— |
% |
Cost and
expenses: |
|
|
|
|
|
Cost of revenue |
(2,333 |
) |
|
|
(2,401 |
) |
|
|
-3 |
% |
Selling, general and
administrative expenses |
(2,169 |
) |
|
|
(1,510 |
) |
|
|
44 |
% |
Amortization expense |
(190 |
) |
|
|
(208 |
) |
|
|
-9 |
% |
Total costs and
expenses |
$ |
(4,692 |
) |
|
|
$ |
(4,119 |
) |
|
|
14 |
% |
Operating (loss)
income |
$ |
(229 |
) |
|
|
$ |
356 |
|
|
|
— |
% |
Loss on extinguishment of
debt |
(34 |
) |
|
|
(7 |
) |
|
|
— |
% |
Interest expense, net |
(127 |
) |
|
|
(142 |
) |
|
|
-11 |
% |
Other (expense) income,
net |
(57 |
) |
|
|
60 |
|
|
|
— |
% |
(Loss) income before
income taxes |
$ |
(447 |
) |
|
|
$ |
267 |
|
|
|
— |
% |
Income tax expense |
(23 |
) |
|
|
(9 |
) |
|
|
— |
% |
Net (loss)
income |
$ |
(470 |
) |
|
|
$ |
258 |
|
|
|
— |
% |
Less: Income attributable to
noncontrolling interest |
(5 |
) |
|
|
(2 |
) |
|
|
— |
% |
Net (loss) income
attributable to Warner Music Group Corp. |
$ |
(475 |
) |
|
|
$ |
256 |
|
|
|
— |
% |
|
|
|
|
|
|
Net (loss) income per
share attributable to common stockholders: |
|
|
|
|
|
Class A – Basic and Diluted |
$ |
(0.82 |
) |
|
|
$ |
— |
|
|
|
|
Class B – Basic and Diluted |
$ |
(0.95 |
) |
|
|
$ |
0.51 |
|
|
|
|
Figure 2.
Warner Music Group Corp. - Consolidated Balance Sheets at September
30, 2020 versus September 30, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
September 30, 2019 |
|
% Change |
|
(audited) |
|
(audited) |
|
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and equivalents |
$ |
553 |
|
|
|
$ |
619 |
|
|
|
-11 |
% |
Accounts receivable, net |
771 |
|
|
|
775 |
|
|
|
-1 |
% |
Inventories |
79 |
|
|
|
74 |
|
|
|
7 |
% |
Royalty advances expected to be recouped within one year |
220 |
|
|
|
170 |
|
|
|
29 |
% |
Prepaid and other current assets |
55 |
|
|
|
53 |
|
|
|
4 |
% |
Total current
assets |
$ |
1,678 |
|
|
|
$ |
1,691 |
|
|
|
-1 |
% |
Royalty advances expected to
be recouped after one year |
269 |
|
|
|
208 |
|
|
|
29 |
% |
Property, plant and equipment,
net |
331 |
|
|
|
300 |
|
|
|
10 |
% |
Operating lease right-of-use
assets, net |
273 |
|
|
|
— |
|
|
|
— |
% |
Goodwill |
1,831 |
|
|
|
1,761 |
|
|
|
4 |
% |
Intangible assets subject to
amortization, net |
1,653 |
|
|
|
1,723 |
|
|
|
-4 |
% |
Intangible assets not subject
to amortization |
154 |
|
|
|
151 |
|
|
|
2 |
% |
Deferred tax assets, net |
68 |
|
|
|
38 |
|
|
|
79 |
% |
Other assets |
153 |
|
|
|
145 |
|
|
|
6 |
% |
Total
assets |
$ |
6,410 |
|
|
|
$ |
6,017 |
|
|
|
7 |
% |
Liabilities and
Deficit |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
264 |
|
|
|
$ |
260 |
|
|
|
2 |
% |
Accrued royalties |
1,628 |
|
|
|
1,567 |
|
|
|
4 |
% |
Accrued liabilities |
382 |
|
|
|
492 |
|
|
|
-22 |
% |
Accrued interest |
30 |
|
|
|
34 |
|
|
|
-12 |
% |
Operating lease liabilities, current |
39 |
|
|
|
— |
|
|
|
— |
% |
Deferred revenue |
297 |
|
|
|
180 |
|
|
|
65 |
% |
Other current liabilities |
80 |
|
|
|
286 |
|
|
|
-72 |
% |
Total current
liabilities |
$ |
2,720 |
|
|
|
$ |
2,819 |
|
|
|
-4 |
% |
Long-term debt |
3,104 |
|
|
|
2,974 |
|
|
|
4 |
% |
Operating lease liabilities,
noncurrent |
299 |
|
|
|
— |
|
|
|
— |
% |
Deferred tax liabilities,
net |
163 |
|
|
|
172 |
|
|
|
-5 |
% |
Other noncurrent
liabilities |
169 |
|
|
|
321 |
|
|
|
-47 |
% |
Total
liabilities |
$ |
6,455 |
|
|
|
$ |
6,286 |
|
|
|
3 |
% |
Deficit: |
|
|
|
|
|
Class A common stock |
$ |
— |
|
|
|
$ |
— |
|
|
|
— |
% |
Class B common stock |
1 |
|
|
|
1 |
|
|
|
— |
% |
Additional paid-in
capital |
1,907 |
|
|
|
1,127 |
|
|
|
69 |
% |
Accumulated deficit |
(1,749 |
) |
|
|
(1,177 |
) |
|
|
49 |
% |
Accumulated other
comprehensive loss, net |
(222 |
) |
|
|
(240 |
) |
|
|
-8 |
% |
Total Warner Music
Group Corp. deficit |
$ |
(63 |
) |
|
|
$ |
(289 |
) |
|
|
-78 |
% |
Noncontrolling interest |
18 |
|
|
|
20 |
|
|
|
-10 |
% |
Total
deficit |
(45 |
) |
|
|
(269 |
) |
|
|
-83 |
% |
Total liabilities and
deficit |
$ |
6,410 |
|
|
|
$ |
6,017 |
|
|
|
7 |
% |
Figure 3.
Warner Music Group Corp. - Summarized Statements of Cash Flows,
Three and Twelve Months Ended September 30, 2020 versus September
30, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
176 |
|
|
$ |
151 |
|
Net cash used in investing
activities |
(132 |
) |
|
(36 |
) |
Net cash used in financing
activities |
(28 |
) |
|
(31 |
) |
Effect of foreign currency
exchange rates on cash and equivalents |
5 |
|
|
(6 |
) |
Net increase in cash and
equivalents |
$ |
21 |
|
|
$ |
78 |
|
|
|
|
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
(audited) |
|
(audited) |
Net cash provided by operating
activities |
$ |
463 |
|
|
$ |
400 |
|
Net cash used in investing
activities |
(219 |
) |
|
(376 |
) |
Net cash (used in) provided by
financing activities |
(316 |
) |
|
88 |
|
Effect of foreign currency
exchange rates on cash and equivalents |
6 |
|
|
(7 |
) |
Net (decrease) increase in
cash and equivalents |
$ |
(66 |
) |
|
$ |
105 |
|
Figure 4.
Warner Music Group Corp. - Recorded Music Digital Revenue Summary,
Three and Twelve Months Ended September 30, 2020 versus September
30, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Streaming |
$ |
639 |
|
|
$ |
550 |
|
|
16 |
% |
Downloads and Other
Digital |
40 |
|
|
49 |
|
|
-18 |
% |
Total Recorded Music
Digital Revenue |
$ |
679 |
|
|
$ |
599 |
|
|
13 |
% |
|
|
|
|
|
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Streaming |
$ |
2,403 |
|
|
$ |
2,129 |
|
|
13 |
% |
Downloads and Other
Digital |
165 |
|
|
214 |
|
|
-23 |
% |
Total Recorded Music
Digital Revenue |
$ |
2,568 |
|
|
$ |
2,343 |
|
|
10 |
% |
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 Twelve Months Ended September 30, 2020 versus September
30, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Net (loss) income attributable to Warner Music Group
Corp. |
$ |
(1 |
) |
|
|
$ |
90 |
|
|
|
— |
% |
Income attributable to
noncontrolling interest |
2 |
|
|
|
1 |
|
|
|
100 |
% |
Net
income |
$ |
1 |
|
|
|
$ |
91 |
|
|
|
-99 |
% |
Income tax benefit |
(21 |
) |
|
|
(77 |
) |
|
|
-73 |
% |
Income including
income taxes |
$ |
(20 |
) |
|
|
$ |
14 |
|
|
|
— |
% |
Other expense (income),
net |
45 |
|
|
|
(19 |
) |
|
|
— |
% |
Interest expense, net |
29 |
|
|
|
34 |
|
|
|
-15 |
% |
Loss on extinguishment of
debt |
34 |
|
|
|
— |
|
|
|
— |
% |
Operating
income |
$ |
88 |
|
|
|
$ |
29 |
|
|
|
— |
% |
Amortization expense |
49 |
|
|
|
48 |
|
|
|
2 |
% |
Depreciation expense |
18 |
|
|
|
18 |
|
|
|
— |
% |
OIBDA |
$ |
155 |
|
|
|
$ |
95 |
|
|
|
63 |
% |
Operating income
margin |
7.8 |
|
% |
|
2.6 |
|
% |
|
|
OIBDA
margin |
13.8 |
|
% |
|
8.5 |
|
% |
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Net (loss) income
attributable to Warner Music Group Corp. |
$ |
(475 |
) |
|
|
$ |
256 |
|
|
|
— |
% |
Income attributable to
noncontrolling interest |
5 |
|
|
|
2 |
|
|
|
— |
% |
Net (loss)
income |
$ |
(470 |
) |
|
|
$ |
258 |
|
|
|
— |
% |
Income tax expense |
23 |
|
|
|
9 |
|
|
|
— |
% |
Income including
income taxes |
$ |
(447 |
) |
|
|
$ |
267 |
|
|
|
— |
% |
Other expense (income),
net |
57 |
|
|
|
(60 |
) |
|
|
— |
% |
Interest expense, net |
127 |
|
|
|
142 |
|
|
|
-11 |
% |
Loss on extinguishment of
debt |
34 |
|
|
|
7 |
|
|
|
— |
% |
Operating (loss)
income |
$ |
(229 |
) |
|
|
$ |
356 |
|
|
|
— |
% |
Amortization expense |
190 |
|
|
|
208 |
|
|
|
-9 |
% |
Depreciation expense |
71 |
|
|
|
61 |
|
|
|
16 |
% |
OIBDA |
$ |
32 |
|
|
|
$ |
625 |
|
|
|
-95 |
% |
Operating income
margin |
-5.1 |
|
% |
|
8.0 |
|
% |
|
|
OIBDA
margin |
0.7 |
|
% |
|
14.0 |
|
% |
|
|
Figure 6.
Warner Music Group Corp. - Reconciliation of Segment Operating
Income to OIBDA, Three and Twelve Months Ended September 30, 2020
versus September 30, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Total WMG operating income – GAAP |
$ |
88 |
|
|
|
$ |
29 |
|
|
|
— |
% |
Depreciation and amortization
expense |
(67 |
) |
|
|
(66 |
) |
|
|
2 |
% |
Total WMG
OIBDA |
$ |
155 |
|
|
|
$ |
95 |
|
|
|
63 |
% |
Operating income
margin |
7.8 |
|
% |
|
2.6 |
|
% |
|
|
OIBDA
margin |
13.8 |
|
% |
|
8.5 |
|
% |
|
|
|
|
|
|
|
|
Recorded Music
operating income – GAAP |
$ |
108 |
|
|
|
$ |
57 |
|
|
|
89 |
% |
Depreciation and amortization
expense |
(43 |
) |
|
|
(44 |
) |
|
|
-2 |
% |
Recorded Music
OIBDA |
$ |
151 |
|
|
|
$ |
101 |
|
|
|
50 |
% |
Recorded Music
operating income margin |
11.3 |
|
% |
|
6.0 |
|
% |
|
|
Recorded Music OIBDA
margin |
15.8 |
|
% |
|
10.6 |
|
% |
|
|
|
|
|
|
|
|
Music Publishing
operating income – GAAP |
$ |
23 |
|
|
|
$ |
25 |
|
|
|
-8 |
% |
Depreciation and amortization
expense |
(20 |
) |
|
|
(19 |
) |
|
|
5 |
% |
Music Publishing
OIBDA |
$ |
43 |
|
|
|
$ |
44 |
|
|
|
-2 |
% |
Music Publishing
operating income margin |
13.6 |
|
% |
|
14.5 |
|
% |
|
|
Music Publishing OIBDA
margin |
25.4 |
|
% |
|
25.4 |
|
% |
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Total WMG operating
(loss) income – GAAP |
$ |
(229 |
) |
|
|
$ |
356 |
|
|
|
— |
% |
Depreciation and amortization
expense |
(261 |
) |
|
|
(269 |
) |
|
|
-3 |
% |
Total WMG
OIBDA |
$ |
32 |
|
|
|
$ |
625 |
|
|
|
-95 |
% |
Operating (loss)
income margin |
-5.1 |
|
% |
|
8.0 |
|
% |
|
|
OIBDA
margin |
0.7 |
|
% |
|
14.0 |
|
% |
|
|
|
|
|
|
|
|
Recorded Music
operating income – GAAP |
$ |
175 |
|
|
|
$ |
439 |
|
|
|
-60 |
% |
Depreciation and amortization
expense |
(174 |
) |
|
|
(184 |
) |
|
|
-5 |
% |
Recorded Music
OIBDA |
$ |
349 |
|
|
|
$ |
623 |
|
|
|
-44 |
% |
Recorded Music
operating income margin |
4.6 |
|
% |
|
11.4 |
|
% |
|
|
Recorded Music OIBDA
margin |
9.2 |
|
% |
|
16.2 |
|
% |
|
|
|
|
|
|
|
|
Music Publishing
operating income – GAAP |
$ |
81 |
|
|
|
$ |
92 |
|
|
|
-12 |
% |
Depreciation and amortization
expense |
(76 |
) |
|
|
(74 |
) |
|
|
3 |
% |
Music Publishing
OIBDA |
$ |
157 |
|
|
|
$ |
166 |
|
|
|
-5 |
% |
Music Publishing
operating income margin |
12.3 |
|
% |
|
14.3 |
|
% |
|
|
Music Publishing OIBDA
margin |
23.9 |
|
% |
|
25.8 |
|
% |
|
|
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 Twelve Months Ended September 30, 2020 versus
September 30, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 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 |
$ |
88 |
|
|
|
$ |
108 |
|
|
$ |
23 |
|
|
$ |
155 |
|
|
|
$ |
151 |
|
|
$ |
43 |
|
|
$ |
1 |
|
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
7 |
|
|
|
1 |
|
|
— |
|
|
7 |
|
|
|
1 |
|
|
— |
|
|
7 |
|
IPO Related Costs |
(1 |
) |
|
|
— |
|
|
— |
|
|
(1 |
) |
|
|
— |
|
|
— |
|
|
(1 |
) |
COVID-19 Related Costs |
4 |
|
|
|
— |
|
|
— |
|
|
4 |
|
|
|
— |
|
|
— |
|
|
4 |
|
L.A. Office Consolidation |
1 |
|
|
|
1 |
|
|
— |
|
|
1 |
|
|
|
1 |
|
|
— |
|
|
1 |
|
Non-Cash Stock-Based Compensation |
8 |
|
|
|
8 |
|
|
— |
|
|
8 |
|
|
|
8 |
|
|
— |
|
|
8 |
|
Adjusted Results |
$ |
107 |
|
|
|
$ |
118 |
|
|
$ |
23 |
|
|
$ |
174 |
|
|
|
$ |
161 |
|
|
$ |
43 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
9.5 |
|
% |
|
12.3 |
% |
|
13.6 |
% |
|
15.5 |
|
% |
|
16.8 |
% |
|
25.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
$ |
29 |
|
|
|
$ |
57 |
|
|
$ |
25 |
|
|
$ |
95 |
|
|
|
$ |
101 |
|
|
$ |
44 |
|
|
$ |
91 |
|
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
10 |
|
|
|
2 |
|
|
— |
|
|
10 |
|
|
|
2 |
|
|
— |
|
|
10 |
|
L.A. Office Consolidation |
2 |
|
|
|
2 |
|
|
— |
|
|
2 |
|
|
|
2 |
|
|
— |
|
|
2 |
|
Non-Cash Stock-Based Compensation |
22 |
|
|
|
14 |
|
|
— |
|
|
22 |
|
|
|
14 |
|
|
— |
|
|
22 |
|
Adjusted Results |
$ |
63 |
|
|
|
$ |
75 |
|
|
$ |
25 |
|
|
$ |
129 |
|
|
|
$ |
119 |
|
|
$ |
44 |
|
|
$ |
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
5.6 |
|
% |
|
7.9 |
% |
|
14.5 |
% |
|
11.5 |
|
% |
|
12.5 |
% |
|
25.4 |
% |
|
|
For the Twelve Months Ended September 30,
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 |
$ |
(229 |
) |
|
|
$ |
175 |
|
|
$ |
81 |
|
|
$ |
32 |
|
|
$ |
349 |
|
|
$ |
157 |
|
|
$ |
(470 |
) |
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
42 |
|
|
|
1 |
|
|
3 |
|
|
42 |
|
|
1 |
|
|
3 |
|
|
42 |
|
IPO Related Costs |
89 |
|
|
|
— |
|
|
— |
|
|
89 |
|
|
— |
|
|
— |
|
|
89 |
|
COVID-19 Related Costs |
17 |
|
|
|
13 |
|
|
— |
|
|
17 |
|
|
13 |
|
|
— |
|
|
17 |
|
L.A. Office Consolidation |
2 |
|
|
|
2 |
|
|
— |
|
|
2 |
|
|
2 |
|
|
— |
|
|
2 |
|
Non-Cash Stock-Based Compensation |
608 |
|
|
|
391 |
|
|
— |
|
|
608 |
|
|
391 |
|
|
— |
|
|
608 |
|
Adjusted Results |
$ |
529 |
|
|
|
$ |
582 |
|
|
$ |
84 |
|
|
$ |
790 |
|
|
$ |
756 |
|
|
$ |
160 |
|
|
$ |
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
11.9 |
|
% |
|
15.3 |
% |
|
12.8 |
% |
|
17.7 |
% |
|
19.8 |
% |
|
24.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended September 30,
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
$ |
356 |
|
|
|
$ |
439 |
|
|
$ |
92 |
|
|
$ |
625 |
|
|
$ |
623 |
|
|
$ |
166 |
|
|
$ |
258 |
|
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
27 |
|
|
|
8 |
|
|
— |
|
|
27 |
|
|
8 |
|
|
— |
|
|
27 |
|
L.A. Office Consolidation |
11 |
|
|
|
11 |
|
|
— |
|
|
11 |
|
|
11 |
|
|
— |
|
|
11 |
|
Nashville Shared Service Costs |
1 |
|
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
Non-Cash Stock-Based Compensation |
49 |
|
|
|
32 |
|
|
— |
|
|
49 |
|
|
32 |
|
|
— |
|
|
49 |
|
Adjusted Results |
$ |
444 |
|
|
|
$ |
490 |
|
|
$ |
92 |
|
|
$ |
713 |
|
|
$ |
674 |
|
|
$ |
166 |
|
|
$ |
346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
9.9 |
|
% |
|
12.8 |
% |
|
14.3 |
% |
|
15.9 |
% |
|
17.6 |
% |
|
25.8 |
% |
|
|
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 Twelve Months Ended September 30, 2020 versus September 30,
2019 As Reported and Constant Currency |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
For the Three Months Ended September 30, 2019 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
U.S. revenue |
|
|
|
|
|
Recorded Music |
$ |
418 |
|
|
$ |
420 |
|
|
$ |
420 |
|
Music Publishing |
83 |
|
|
81 |
|
|
81 |
|
International revenue |
|
|
|
|
|
Recorded Music |
540 |
|
|
533 |
|
|
546 |
|
Music Publishing |
86 |
|
|
92 |
|
|
94 |
|
Intersegment eliminations |
(1 |
) |
|
(2 |
) |
|
(2 |
) |
Total
Revenue |
$ |
1,126 |
|
|
$ |
1,124 |
|
|
$ |
1,139 |
|
|
|
|
|
|
|
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
679 |
|
|
$ |
599 |
|
|
$ |
602 |
|
Physical |
105 |
|
|
103 |
|
|
106 |
|
Total Digital and Physical |
784 |
|
|
702 |
|
|
708 |
|
Artist services and expanded-rights |
98 |
|
|
171 |
|
|
177 |
|
Licensing |
76 |
|
|
80 |
|
|
81 |
|
Total Recorded
Music |
958 |
|
|
953 |
|
|
966 |
|
Music Publishing |
|
|
|
|
|
Performance |
28 |
|
|
48 |
|
|
48 |
|
Digital |
100 |
|
|
76 |
|
|
78 |
|
Mechanical |
10 |
|
|
14 |
|
|
14 |
|
Synchronization |
27 |
|
|
31 |
|
|
31 |
|
Other |
4 |
|
|
4 |
|
|
4 |
|
Total Music
Publishing |
169 |
|
|
173 |
|
|
175 |
|
Intersegment eliminations |
(1 |
) |
|
(2 |
) |
|
(2 |
) |
Total
Revenue |
$ |
1,126 |
|
|
$ |
1,124 |
|
|
$ |
1,139 |
|
|
|
|
|
|
|
Total Digital
Revenue |
$ |
778 |
|
|
$ |
674 |
|
|
$ |
679 |
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
For the Twelve Months Ended September 30,
2019 |
|
As reported |
|
As reported |
|
Constant |
|
(audited) |
|
(audited) |
|
(unaudited) |
U.S. revenue |
|
|
|
|
|
Recorded Music |
$ |
1,609 |
|
|
$ |
1,656 |
|
|
$ |
1,656 |
|
Music Publishing |
325 |
|
|
300 |
|
|
300 |
|
International revenue |
|
|
|
|
|
Recorded Music |
2,201 |
|
|
2,184 |
|
|
2,161 |
|
Music Publishing |
332 |
|
|
343 |
|
|
337 |
|
Intersegment eliminations |
(4 |
) |
|
(8 |
) |
|
(8 |
) |
Total
Revenue |
$ |
4,463 |
|
|
$ |
4,475 |
|
|
$ |
4,446 |
|
|
|
|
|
|
|
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
2,568 |
|
|
$ |
2,343 |
|
|
$ |
2,321 |
|
Physical |
434 |
|
|
559 |
|
|
558 |
|
Total Digital and Physical |
3,002 |
|
|
2,902 |
|
|
2,879 |
|
Artist services and expanded-rights |
525 |
|
|
629 |
|
|
631 |
|
Licensing |
283 |
|
|
309 |
|
|
307 |
|
Total Recorded
Music |
3,810 |
|
|
3,840 |
|
|
3,817 |
|
Music Publishing |
|
|
|
|
|
Performance |
142 |
|
|
183 |
|
|
179 |
|
Digital |
337 |
|
|
271 |
|
|
270 |
|
Mechanical |
48 |
|
|
55 |
|
|
55 |
|
Synchronization |
119 |
|
|
120 |
|
|
119 |
|
Other |
11 |
|
|
14 |
|
|
14 |
|
Total Music
Publishing |
657 |
|
|
643 |
|
|
637 |
|
Intersegment eliminations |
(4 |
) |
|
(8 |
) |
|
(8 |
) |
Total
Revenue |
$ |
4,463 |
|
|
$ |
4,475 |
|
|
$ |
4,446 |
|
|
|
|
|
|
|
Total Digital
Revenue |
$ |
2,903 |
|
|
$ |
2,610 |
|
|
$ |
2,587 |
|
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
Twelve Months Ended September 30, 2020 versus September 30,
2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
176 |
|
|
$ |
151 |
|
Less: Capital
expenditures |
37 |
|
|
22 |
|
Less: Net cash paid for
investments |
95 |
|
|
14 |
|
|
|
|
|
Free Cash
Flow |
$ |
44 |
|
|
$ |
115 |
|
|
|
|
|
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by
operating activities |
$ |
463 |
|
|
$ |
400 |
|
Less: Capital
expenditures |
85 |
|
|
104 |
|
Less: Net cash paid for
investments |
134 |
|
|
272 |
|
|
|
|
|
Free Cash
Flow |
$ |
244 |
|
|
$ |
24 |
|
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 September 30, 2020
versus September 30, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020 |
|
For the Three Months Ended September 30, 2019 |
|
For the Twelve Months Ended September 30,
2020 |
|
For the Twelve Months Ended September 30,
2019 |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Net Income (Loss) |
$ |
1 |
|
|
$ |
91 |
|
|
$ |
(470 |
) |
|
$ |
258 |
|
Income tax (benefit)
expense |
(21 |
) |
|
(77 |
) |
|
23 |
|
|
9 |
|
Interest expense, net |
29 |
|
|
34 |
|
|
127 |
|
|
142 |
|
Depreciation and
amortization |
67 |
|
|
66 |
|
|
261 |
|
|
269 |
|
Loss on extinguishment of debt
(a) |
34 |
|
|
— |
|
|
34 |
|
|
7 |
|
Net gain on divestitures and
sale of securities (b) |
— |
|
|
(1 |
) |
|
(1 |
) |
|
(4 |
) |
Restructuring costs (c) |
9 |
|
|
9 |
|
|
22 |
|
|
27 |
|
Net hedging and foreign
exchange losses (gains) (d) |
51 |
|
|
(27 |
) |
|
61 |
|
|
(38 |
) |
Management fees (e) |
(3 |
) |
|
2 |
|
|
20 |
|
|
11 |
|
Transaction costs (f) |
(1 |
) |
|
— |
|
|
76 |
|
|
3 |
|
Business optimization expenses
(g) |
6 |
|
|
9 |
|
|
39 |
|
|
22 |
|
Non-cash stock-based
compensation expense (h) |
8 |
|
|
22 |
|
|
608 |
|
|
49 |
|
Other non-cash charges
(i) |
(6 |
) |
|
5 |
|
|
10 |
|
|
(19 |
) |
Pro forma impact of cost
savings initiatives and specified transactions (j) |
3 |
|
|
— |
|
|
27 |
|
|
1 |
|
Adjusted
EBITDA |
$ |
177 |
|
|
$ |
133 |
|
|
$ |
837 |
|
|
$ |
737 |
|
______________________________________
(a) |
For the three and twelve months ended September 30, 2020, 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 September 30, 2019, reflects
net loss incurred on the early extinguishment of our debt incurred
as part of the October 2018 partial redemption of our 4.125%
Secured Notes, the October 2018 open market purchase of our 4.875%
Senior Secured Notes, the November 2018 partial redemption of our
5.625% Secured Notes and 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 (gains) losses from
hedging activities and unrealized (gains) losses 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
September 30, 2020, amounts include a one-time fee of $13 million
related to termination of the management agreement with Access.
Prior to termination of the management agreement, the annual fee
was equal to the greater of a base amount, equal to approximately
$7 million for the twelve months ended September 30, 2020, 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 qualifying IPO costs of $76 million for the twelve months
ended September 30, 2020. |
(g) |
Reflects costs associated with
our transformation initiatives and IT system updates, which
includes costs of $5 million and $30 million related to our finance
transformation for the three and twelve months ended September 30,
2020, respectively, as well as $8 million and $18 million for the
three and twelve months ended September 30, 2019,
respectively. |
(h) |
Reflects non-cash stock-based
compensation expense mainly related to the Warner Music Group Corp.
Senior Management Free Cash Flow 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
September 30, 2020 and September 30, 2019. Certain of these costs
savings initiatives and transactions were identified in the current
quarter and as a result the proforma impact was not included in the
three and twelve months ended June 30, 2020. The impact of which
would have been approximately a $7 million increase in the twelve
months ended June 30, 2020 Adjusted EBITDA. In addition, the three
and twelve months ended September 30, 2019 also excluded certain
proforma items identified within the current fiscal year, the
impact of which would have been an approximately $9 million
increase in the three and twelve months ended September 30, 2019
Adjusted EBITDA. |
Media Contacts: |
Investor Contact: |
James
Steven |
Kareem Chin |
(212)
275-2213 |
|
James.Steven@wmg.com |
Investor.Relations@wmg.com |
|
|
Sard
Verbinnen & Co |
|
WMG-SVC@SARDVERB.com |
|
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