Warner Music Group Corp. today announced its first-quarter
financial results for the period ended December 31, 2020.
"Despite the impact of COVID, we generated the
highest quarterly revenue in our 17-year history as a standalone
company, growing 4% compared to the prior-year period, which was
unaffected by COVID," said Steve Cooper, CEO, Warner Music Group.
"The strong double-digit growth in our digital revenue and
direct-to-consumer business more than offset the continued
disruption to our performance, merchandising, and physical revenue.
We have some fantastic new music from amazing artists and
songwriters on the way, and we continue to grow our investment in a
new generation of talent, as well as inventing bold and memorable
ways to impact global culture."
“We are extremely proud of our first-quarter
results, which were highlighted by significant growth over a number
of key metrics when compared to a previous record-breaking
quarter," added Eric Levin, Executive Vice President and CFO,
Warner Music Group. "While certain areas of our business remain
challenged due to COVID, our core streaming business remains strong
and our direct-to-consumer destinations and emerging streaming
platforms have bolstered our performance. We are well-positioned
for long-term growth.”
Total WMG
Total WMG
Summary Results |
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,335 |
|
|
$ |
1,256 |
|
|
6 |
% |
Recorded Music revenue |
1,161 |
|
|
1,084 |
|
|
7 |
% |
Music Publishing revenue |
175 |
|
|
173 |
|
|
1 |
% |
Digital revenue |
825 |
|
|
706 |
|
|
17 |
% |
Operating income |
196 |
|
|
165 |
|
|
19 |
% |
Adjusted operating
income(1) |
211 |
|
|
169 |
|
|
25 |
% |
OIBDA(1) |
267 |
|
|
236 |
|
|
13 |
% |
Adjusted OIBDA(1) |
282 |
|
|
240 |
|
|
18 |
% |
Net income |
99 |
|
|
122 |
|
|
-19 |
% |
Adjusted net income(1) |
114 |
|
|
126 |
|
|
-10 |
% |
Net cash provided by operating
activities |
169 |
|
|
78 |
|
|
— |
% |
|
|
|
|
|
|
|
(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 December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
% Change |
|
For the Twelve Months Ended December 31, 2020 |
|
For the Twelve Months Ended December 31, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Adjusted EBITDA(1) |
$ |
297 |
|
|
$ |
249 |
|
|
19 |
% |
|
$ |
904 |
|
|
$ |
740 |
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
Revenue was up 6.3% (or up 3.8% in constant currency). Robust
digital revenue growth across Recorded Music and Music Publishing
was partially offset by a decline in Recorded Music physical and
artist services and expanded-rights 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 areas most affected by COVID, total
revenue would have increased 10.1% (or 8.1% in constant currency).
Recorded Music licensing revenue was flat. The increase in revenue
was primarily due to growth in streaming revenue, the Company’s
largest and fastest-growing source of revenue, a favorable impact
from exchange rates and strong physical releases and
direct-to-consumer merchandising revenue, partially offset by
COVID-related business disruption and the continued decline in
physical revenue due to the transition to streaming. Digital
revenue grew 16.9% (or 15.5% in constant currency), and represented
61.8% of total revenue, compared to 56.2% in the prior-year
quarter.
Operating income was $196 million compared to $165 million in
the prior-year quarter. OIBDA was $267 million, an increase from
$236 million in the prior-year quarter and OIBDA margin increased
1.2 percentage points to 20.0% from 18.8% 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 and the impact from specified
transactions that closed in the current quarter, partially offset
by higher non-cash stock-based compensation expense in the quarter
of $13 million.
Adjusted operating income, Adjusted OIBDA and Adjusted net
income exclude costs related to non-cash stock-based compensation
expense and restructuring and other transformation initiatives in
both the current and prior-year quarters. Adjusted EBITDA excludes
these items and includes expected savings resulting from
transformation initiatives and the pro forma impact of specified
transactions that 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 17.5% from $240 million to $282 million
and Adjusted OIBDA margin increased 2.0 percentage points to 21.1%
from 19.1% due to margin improvement associated with a shift to
higher-margin streaming revenue, cost-management efforts and the
pro forma impact of specified transactions that closed in the
current quarter. Adjusted operating income increased 24.9% from
$169 million to $211 million due to the same factors affecting
Adjusted OIBDA.
Adjusted EBITDA increased 19.3% from $249 million to $297
million with margins improving 2.4 percentage points from 19.8% to
22.2%. The increase was largely due to the same factors affecting
Adjusted OIBDA in addition to an increase in the pro forma impact
expected to be realized from transformation initiatives and
specified transactions that closed in the current quarter.
Net income was $99 million compared to $122 million in the
prior-year quarter. Adjusted net income was $114 million compared
to $126 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,
hedging activity, intercompany loans and higher income tax expense
in the current quarter compared to the prior-year quarter, which
included the release of $33 million of the Company's U.S. deferred
tax valuation allowance on foreign tax credits, 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 $0.18 and $0.19 for the
Class A and Class B shareholders, respectively, due to the net
income attributable to the Company in the current quarter of $98
million.
As of December 31, 2020, the Company reported a cash
balance of $566 million, total debt of $3.387 billion and net debt
(defined as total long-term debt, net of deferred financing
costs, minus cash and equivalents) of $2.821 billion.
Cash provided by operating activities was $169 million compared
to $78 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. Free
Cash Flow, as defined below, decreased to negative $174 million
from $46 million in the prior-year quarter largely due to an
increase in investment activity related to recorded music and music
publishing catalogs, which were partially offset by an increase in
operating cash flow.
Recorded Music
Recorded
Music Summary Results |
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,161 |
|
|
$ |
1,084 |
|
|
7 |
% |
Digital revenue |
727 |
|
|
633 |
|
|
15 |
% |
Operating income |
223 |
|
|
191 |
|
|
17 |
% |
Adjusted operating
income(1) |
229 |
|
|
188 |
|
|
22 |
% |
OIBDA(1) |
269 |
|
|
241 |
|
|
12 |
% |
Adjusted OIBDA(1) |
275 |
|
|
238 |
|
|
16 |
% |
|
|
|
|
|
|
|
(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 Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
For the Three Months Ended December 31, 2019 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
727 |
|
|
$ |
633 |
|
|
$ |
641 |
|
Physical |
174 |
|
|
184 |
|
|
191 |
|
Total Digital and Physical |
901 |
|
|
817 |
|
|
832 |
|
Artist services and expanded-rights |
180 |
|
|
188 |
|
|
198 |
|
Licensing |
80 |
|
|
79 |
|
|
81 |
|
Total Recorded
Music |
$ |
1,161 |
|
|
$ |
1,084 |
|
|
$ |
1,111 |
|
Recorded Music revenue was up 7.1% (or up 4.5% in constant
currency). The revenue increase was primarily due to the
continued growth in streaming revenue—which grew 17.5% over the
prior-year quarter and 8.3% over the prior quarter and favorable
exchange rates —which was partially offset by COVID-related
business disruption in the current quarter. Growth in digital
revenue was partially offset by declines in artist services and
expanded-rights revenue and physical revenue. Licensing revenue was
flat. 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, partially offset by increases in direct-to-consumer
revenue driven by a strong holiday season as COVID restrictions
limited brick-and-mortar shopping in Europe. The decline in
physical revenue reflects the continued shift to streaming and
COVID-related business disruption, partially offset by strong
physical releases in the quarter for Johnny Hallyday, Mariya
Takeuchi and Kim Hojoong. Major sellers included Dua Lipa, Ava Max,
Johnny Hallyday and Ed Sheeran.
Recorded Music operating income was $223 million, up from $191
million in the prior-year quarter and operating margin was up
1.6 percentage points to 19.2% versus 17.6% in the prior-year
quarter. OIBDA increased to $269 million from $241 million in the
prior-year quarter and OIBDA margin increased 1.0 percentage point
to 23.2%. Adjusted OIBDA was $275 million versus $238 million in
the prior-year quarter with Adjusted OIBDA margin up 1.7 percentage
points to 23.7%. The increases in operating income and OIBDA were
driven by increases in Adjusted OIBDA, partially offset by an
increase in non-cash stock-based compensation expense. The
increases in Adjusted OIBDA and Adjusted OIBDA margin were
primarily due to overall cost savings, revenue mix and impact from
specified transactions that closed in the current quarter.
Music Publishing
Music
Publishing Summary Results |
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
175 |
|
|
$ |
173 |
|
|
1 |
% |
Digital revenue |
99 |
|
|
73 |
|
|
36 |
% |
Operating income |
18 |
|
|
14 |
|
|
29 |
% |
Adjusted operating
income(1) |
19 |
|
|
15 |
|
|
27 |
% |
OIBDA(1) |
39 |
|
|
33 |
|
|
18 |
% |
Adjusted OIBDA(1) |
40 |
|
|
34 |
|
|
18 |
% |
|
|
|
|
|
|
|
(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 Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
For the Three Months Ended December 31, 2019 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Revenue by
Segment: |
|
|
|
|
|
Music Publishing |
|
|
|
|
|
Performance |
$ |
30 |
|
|
$ |
46 |
|
|
$ |
47 |
|
Digital |
99 |
|
|
73 |
|
|
73 |
|
Mechanical |
11 |
|
|
15 |
|
|
16 |
|
Synchronization |
33 |
|
|
36 |
|
|
37 |
|
Other |
2 |
|
|
3 |
|
|
3 |
|
Total Music
Publishing |
$ |
175 |
|
|
$ |
173 |
|
|
$ |
176 |
|
Music Publishing revenue increased 1.2% (or was down 0.6% in
constant currency). Digital revenue growth was partially offset by
declines in performance, mechanical and synchronization
revenue. Digital revenue increased 35.6% (also 35.6% in
constant currency) reflecting the continuing shift to streaming and
timing of new deals with digital service providers, and represented
56.6% of total Music Publishing revenue versus 42.2% in the
prior-year quarter. The decreases in performance revenue and
synchronization revenue were primarily due to COVID-related
business disruption. Mechanical revenue also decreased due to
COVID-related business disruption and the continuing shift to
streaming.
Music Publishing operating income was $18 million, up 28.6% from
$14 million in the prior-year quarter largely driven by revenue
mix, partially offset by increases in amortization. Operating
margin was 10.3%, up 2.2 percentage points from 8.1% in the
prior-year quarter. Music Publishing OIBDA increased
18.2% to $39 million, and Music Publishing OIBDA margin increased
3.2 percentage points to 22.3%, due to revenue mix. Adjusted OIBDA
increased 17.6% to $40 million and Adjusted OIBDA margin increased
to 22.9% due to the same factors affecting OIBDA.
Financial details for the quarter can be found in the Company’s
current Quarterly Report on Form 10-Q for the period ended
December 31, 2020, filed today with the Securities and
Exchange Commission.
This afternoon, management will be hosting a conference call to
discuss the results at 4:30 P.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 December 31, 2020 and December 31, 2019
relate to the periods ended December 25, 2020 and
December 27, 2019, respectively. For convenience purposes, the
Company continues to date its financial statements as of December
31.
Figure 1.
Warner Music Group Corp. - Consolidated Statements of Operations,
Three Months Ended December 31, 2020 versus December 31,
2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,335 |
|
|
|
$ |
1,256 |
|
|
|
6 |
% |
Cost and
expenses: |
|
|
|
|
|
Cost of revenue |
(686 |
) |
|
|
(665 |
) |
|
|
3 |
% |
Selling, general and
administrative expenses |
(401 |
) |
|
|
(379 |
) |
|
|
6 |
% |
Amortization expense |
(52 |
) |
|
|
(47 |
) |
|
|
11 |
% |
Total costs and
expenses |
$ |
(1,139 |
) |
|
|
$ |
(1,091 |
) |
|
|
4 |
% |
Operating
income |
$ |
196 |
|
|
|
$ |
165 |
|
|
|
19 |
% |
Interest expense, net |
(31 |
) |
|
|
(33 |
) |
|
|
-6 |
% |
Other expense, net |
(31 |
) |
|
|
(5 |
) |
|
|
— |
% |
Income before income
taxes |
$ |
134 |
|
|
|
$ |
127 |
|
|
|
6 |
% |
Income tax expense |
(35 |
) |
|
|
(5 |
) |
|
|
— |
% |
Net
income |
$ |
99 |
|
|
|
$ |
122 |
|
|
|
-19 |
% |
Less: Income attributable to
noncontrolling interest |
(1 |
) |
|
|
(2 |
) |
|
|
-50 |
% |
Net income
attributable to Warner Music Group Corp. |
$ |
98 |
|
|
|
$ |
120 |
|
|
|
-18 |
% |
|
|
|
|
|
|
Net income per share
attributable to common stockholders: |
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.18 |
|
|
|
$ |
— |
|
|
|
|
Class B – Basic and Diluted |
$ |
0.19 |
|
|
|
$ |
0.24 |
|
|
|
|
Figure 2.
Warner Music Group Corp. - Consolidated Balance Sheets at December
31, 2020 versus September 30, 2020 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
September 30, 2020 |
|
% Change |
|
(unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and equivalents |
$ |
566 |
|
|
|
$ |
553 |
|
|
|
2 |
% |
Accounts receivable, net |
884 |
|
|
|
771 |
|
|
|
15 |
% |
Inventories |
71 |
|
|
|
79 |
|
|
|
-10 |
% |
Royalty advances expected to be recouped within one year |
246 |
|
|
|
220 |
|
|
|
12 |
% |
Prepaid and other current assets |
61 |
|
|
|
55 |
|
|
|
11 |
% |
Total current
assets |
$ |
1,828 |
|
|
|
$ |
1,678 |
|
|
|
9 |
% |
Royalty advances expected to
be recouped after one year |
307 |
|
|
|
269 |
|
|
|
14 |
% |
Property, plant and equipment,
net |
334 |
|
|
|
331 |
|
|
|
1 |
% |
Operating lease right-of-use
assets, net |
275 |
|
|
|
273 |
|
|
|
1 |
% |
Goodwill |
1,851 |
|
|
|
1,831 |
|
|
|
1 |
% |
Intangible assets subject to
amortization, net |
1,968 |
|
|
|
1,653 |
|
|
|
19 |
% |
Intangible assets not subject
to amortization |
156 |
|
|
|
154 |
|
|
|
1 |
% |
Deferred tax assets, net |
62 |
|
|
|
68 |
|
|
|
-9 |
% |
Other assets |
162 |
|
|
|
153 |
|
|
|
6 |
% |
Total
assets |
$ |
6,943 |
|
|
|
$ |
6,410 |
|
|
|
8 |
% |
Liabilities and Equity
(Deficit) |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
214 |
|
|
|
$ |
264 |
|
|
|
-19 |
% |
Accrued royalties |
1,722 |
|
|
|
1,628 |
|
|
|
6 |
% |
Accrued liabilities |
414 |
|
|
|
382 |
|
|
|
8 |
% |
Accrued interest |
36 |
|
|
|
30 |
|
|
|
20 |
% |
Operating lease liabilities, current |
41 |
|
|
|
39 |
|
|
|
5 |
% |
Deferred revenue |
326 |
|
|
|
297 |
|
|
|
10 |
% |
Other current liabilities |
137 |
|
|
|
80 |
|
|
|
71 |
% |
Total current
liabilities |
$ |
2,890 |
|
|
|
$ |
2,720 |
|
|
|
6 |
% |
Long-term debt |
3,387 |
|
|
|
3,104 |
|
|
|
9 |
% |
Operating lease liabilities,
noncurrent |
298 |
|
|
|
299 |
|
|
|
— |
% |
Deferred tax liabilities,
net |
166 |
|
|
|
163 |
|
|
|
2 |
% |
Other noncurrent
liabilities |
169 |
|
|
|
169 |
|
|
|
— |
% |
Total
liabilities |
$ |
6,910 |
|
|
|
$ |
6,455 |
|
|
|
7 |
% |
Deficit: |
|
|
|
|
|
Class A common stock |
$ |
— |
|
|
|
$ |
— |
|
|
|
— |
% |
Class B common stock |
1 |
|
|
|
1 |
|
|
|
— |
% |
Additional paid-in
capital |
1,913 |
|
|
|
1,907 |
|
|
|
— |
% |
Accumulated deficit |
(1,713 |
) |
|
|
(1,749 |
) |
|
|
-2 |
% |
Accumulated other
comprehensive loss, net |
(185 |
) |
|
|
(222 |
) |
|
|
-17 |
% |
Total Warner Music
Group Corp. equity (deficit) |
$ |
16 |
|
|
|
$ |
(63 |
) |
|
|
— |
% |
Noncontrolling interest |
17 |
|
|
|
18 |
|
|
|
-6 |
% |
Total equity
(deficit) |
33 |
|
|
|
(45 |
) |
|
|
— |
% |
Total liabilities and
equity (deficit) |
$ |
6,943 |
|
|
|
$ |
6,410 |
|
|
|
8 |
% |
Figure 3.
Warner Music Group Corp. - Summarized Statements of Cash Flows,
Three Months Ended December 31, 2020 versus December 31,
2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
169 |
|
|
|
$ |
78 |
|
|
Net cash used in investing
activities |
(343 |
) |
|
|
(32 |
) |
|
Net cash provided by (used in)
financing activities |
178 |
|
|
|
(207 |
) |
|
Effect of foreign currency
exchange rates on cash and equivalents |
9 |
|
|
|
4 |
|
|
Net increase (decrease) in
cash and equivalents |
$ |
13 |
|
|
|
$ |
(157 |
) |
|
Figure 4.
Warner Music Group Corp. - Recorded Music Digital Revenue Summary,
Three Months Ended December 31, 2020 versus December 31,
2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
(unaudited) |
|
(unaudited) |
Streaming |
$ |
692 |
|
|
$ |
589 |
|
Downloads and Other
Digital |
35 |
|
|
44 |
|
Total Recorded Music
Digital Revenue |
$ |
727 |
|
|
$ |
633 |
|
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 Months Ended December 31, 2020 versus December 31,
2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Net income attributable to Warner Music Group
Corp. |
$ |
98 |
|
|
$ |
120 |
|
|
-18 |
% |
Income attributable to
noncontrolling interest |
1 |
|
|
2 |
|
|
-50 |
% |
Net
income |
$ |
99 |
|
|
$ |
122 |
|
|
-19 |
% |
Income tax expense |
35 |
|
|
5 |
|
|
— |
% |
Income including
income taxes |
$ |
134 |
|
|
$ |
127 |
|
|
6 |
% |
Other expense, net |
31 |
|
|
5 |
|
|
— |
% |
Interest expense, net |
31 |
|
|
33 |
|
|
-6 |
% |
Operating
income |
$ |
196 |
|
|
$ |
165 |
|
|
19 |
% |
Amortization expense |
52 |
|
|
47 |
|
|
11 |
% |
Depreciation expense |
19 |
|
|
24 |
|
|
-21 |
% |
OIBDA |
$ |
267 |
|
|
$ |
236 |
|
|
13 |
% |
Operating income
margin |
14.7 |
% |
|
13.1 |
% |
|
|
OIBDA
margin |
20.0 |
% |
|
18.8 |
% |
|
|
Figure 6.
Warner Music Group Corp. - Reconciliation of Segment Operating
Income to OIBDA, Three Months Ended December 31, 2020 versus
December 31, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Total WMG operating income – GAAP |
$ |
196 |
|
|
|
$ |
165 |
|
|
|
19 |
% |
Depreciation and amortization
expense |
(71 |
) |
|
|
(71 |
) |
|
|
— |
% |
Total WMG
OIBDA |
$ |
267 |
|
|
|
$ |
236 |
|
|
|
13 |
% |
Operating income
margin |
14.7 |
|
% |
|
13.1 |
|
% |
|
|
OIBDA
margin |
20.0 |
|
% |
|
18.8 |
|
% |
|
|
|
|
|
|
|
|
Recorded Music
operating income – GAAP |
$ |
223 |
|
|
|
$ |
191 |
|
|
|
17 |
% |
Depreciation and amortization
expense |
(46 |
) |
|
|
(50 |
) |
|
|
-8 |
% |
Recorded Music
OIBDA |
$ |
269 |
|
|
|
$ |
241 |
|
|
|
12 |
% |
Recorded Music
operating income margin |
19.2 |
|
% |
|
17.6 |
|
% |
|
|
Recorded Music OIBDA
margin |
23.2 |
|
% |
|
22.2 |
|
% |
|
|
|
|
|
|
|
|
Music Publishing
operating income – GAAP |
$ |
18 |
|
|
|
$ |
14 |
|
|
|
29 |
% |
Depreciation and amortization
expense |
(21 |
) |
|
|
(19 |
) |
|
|
11 |
% |
Music Publishing
OIBDA |
$ |
39 |
|
|
|
$ |
33 |
|
|
|
18 |
% |
Music Publishing
operating income margin |
10.3 |
|
% |
|
8.1 |
|
% |
|
|
Music Publishing OIBDA
margin |
22.3 |
|
% |
|
19.1 |
|
% |
|
|
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 Months Ended December 31, 2020 versus December 31,
2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 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 |
$ |
196 |
|
|
|
$ |
223 |
|
|
|
$ |
18 |
|
|
$ |
267 |
|
|
|
$ |
269 |
|
|
|
$ |
39 |
|
|
$ |
99 |
|
|
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
8 |
|
|
|
— |
|
|
|
1 |
|
|
8 |
|
|
|
— |
|
|
|
1 |
|
|
8 |
|
|
COVID-19 Related Costs |
1 |
|
|
|
1 |
|
|
|
— |
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
1 |
|
|
Non-Cash Stock-Based Compensation |
6 |
|
|
|
5 |
|
|
|
— |
|
|
6 |
|
|
|
5 |
|
|
|
— |
|
|
6 |
|
|
Adjusted Results |
$ |
211 |
|
|
|
$ |
229 |
|
|
|
$ |
19 |
|
|
$ |
282 |
|
|
|
$ |
275 |
|
|
|
$ |
40 |
|
|
$ |
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
15.8 |
|
% |
|
19.7 |
|
% |
|
10.9 |
% |
|
21.1 |
|
% |
|
23.7 |
|
% |
|
22.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 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 |
$ |
165 |
|
|
|
$ |
191 |
|
|
|
$ |
14 |
|
|
$ |
236 |
|
|
|
$ |
241 |
|
|
|
$ |
33 |
|
|
$ |
122 |
|
|
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
11 |
|
|
|
— |
|
|
|
1 |
|
|
11 |
|
|
|
— |
|
|
|
1 |
|
|
11 |
|
|
Non-Cash Stock-Based Compensation |
(7 |
) |
|
|
(3 |
) |
|
|
— |
|
|
(7 |
) |
|
|
(3 |
) |
|
|
— |
|
|
(7 |
) |
|
Adjusted Results |
$ |
169 |
|
|
|
$ |
188 |
|
|
|
$ |
15 |
|
|
$ |
240 |
|
|
|
$ |
238 |
|
|
|
$ |
34 |
|
|
$ |
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
13.5 |
|
% |
|
17.3 |
|
% |
|
8.7 |
% |
|
19.1 |
|
% |
|
22.0 |
|
% |
|
19.7 |
% |
|
|
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
Months Ended December 31, 2020 versus December 31, 2019 As Reported
and Constant Currency |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
For the Three Months Ended December 31, 2019 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
U.S. revenue |
|
|
|
|
|
Recorded Music |
$ |
481 |
|
|
|
$ |
453 |
|
|
|
$ |
453 |
|
|
Music Publishing |
91 |
|
|
|
81 |
|
|
|
81 |
|
|
International revenue |
|
|
|
|
|
Recorded Music |
680 |
|
|
|
631 |
|
|
|
658 |
|
|
Music Publishing |
84 |
|
|
|
92 |
|
|
|
95 |
|
|
Intersegment eliminations |
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
Total
Revenue |
$ |
1,335 |
|
|
|
$ |
1,256 |
|
|
|
$ |
1,286 |
|
|
|
|
|
|
|
|
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
727 |
|
|
|
$ |
633 |
|
|
|
$ |
641 |
|
|
Physical |
174 |
|
|
|
184 |
|
|
|
191 |
|
|
Total Digital and Physical |
901 |
|
|
|
817 |
|
|
|
832 |
|
|
Artist services and expanded-rights |
180 |
|
|
|
188 |
|
|
|
198 |
|
|
Licensing |
80 |
|
|
|
79 |
|
|
|
81 |
|
|
Total Recorded
Music |
1,161 |
|
|
|
1,084 |
|
|
|
1,111 |
|
|
Music Publishing |
|
|
|
|
|
Performance |
30 |
|
|
|
46 |
|
|
|
47 |
|
|
Digital |
99 |
|
|
|
73 |
|
|
|
73 |
|
|
Mechanical |
11 |
|
|
|
15 |
|
|
|
16 |
|
|
Synchronization |
33 |
|
|
|
36 |
|
|
|
37 |
|
|
Other |
2 |
|
|
|
3 |
|
|
|
3 |
|
|
Total Music
Publishing |
175 |
|
|
|
173 |
|
|
|
176 |
|
|
Intersegment eliminations |
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
Total
Revenue |
$ |
1,335 |
|
|
|
$ |
1,256 |
|
|
|
$ |
1,286 |
|
|
|
|
|
|
|
|
Total Digital
Revenue |
$ |
825 |
|
|
|
$ |
706 |
|
|
|
$ |
714 |
|
|
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
Months Ended December 31, 2020 versus December 31,
2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
169 |
|
|
|
$ |
78 |
|
Less: Capital
expenditures |
18 |
|
|
|
15 |
|
Less: Net cash paid for
investments |
325 |
|
|
|
17 |
|
|
|
|
|
Free Cash
Flow |
$ |
(174 |
) |
|
|
$ |
46 |
|
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 December 31, 2020
versus December 31, 2019 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2020 |
|
For the Three Months Ended December 31, 2019 |
|
For the Twelve Months Ended December 31, 2020 |
|
For the Twelve Months Ended December 31, 2019 |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Net Income (Loss) |
$ |
99 |
|
|
|
$ |
122 |
|
|
|
$ |
(493 |
) |
|
|
$ |
294 |
|
|
Income tax (benefit)
expense |
35 |
|
|
|
5 |
|
|
|
53 |
|
|
|
(36 |
) |
|
Interest expense, net |
31 |
|
|
|
33 |
|
|
|
125 |
|
|
|
140 |
|
|
Depreciation and
amortization |
71 |
|
|
|
71 |
|
|
|
261 |
|
|
|
271 |
|
|
Loss on extinguishment of debt
(a) |
— |
|
|
|
— |
|
|
|
34 |
|
|
|
4 |
|
|
Net gain on divestitures and
sale of securities (b) |
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(4 |
) |
|
Restructuring costs (c) |
3 |
|
|
|
5 |
|
|
|
20 |
|
|
|
26 |
|
|
Net hedging and foreign
exchange losses (gains) (d) |
48 |
|
|
|
5 |
|
|
|
104 |
|
|
|
(23 |
) |
|
Management fees (e) |
— |
|
|
|
3 |
|
|
|
17 |
|
|
|
11 |
|
|
Transaction costs (f) |
— |
|
|
|
— |
|
|
|
76 |
|
|
|
— |
|
|
Business optimization expenses
(g) |
8 |
|
|
|
10 |
|
|
|
37 |
|
|
|
28 |
|
|
Non-cash stock compensation
expense (h) |
6 |
|
|
|
(7 |
) |
|
|
621 |
|
|
|
30 |
|
|
Other non-cash charges
(i) |
(14 |
) |
|
|
1 |
|
|
|
(5 |
) |
|
|
(3 |
) |
|
Pro forma impact of cost
savings initiatives and specified transactions (j) |
10 |
|
|
|
1 |
|
|
|
55 |
|
|
|
2 |
|
|
Adjusted
EBITDA |
$ |
297 |
|
|
|
$ |
249 |
|
|
|
$ |
904 |
|
|
|
$ |
740 |
|
|
______________________________________
(a) |
For the twelve months ended December 31, 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 December 30, 2019, 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 from hedging
activities and unrealized losses (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
December 31, 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
$4 million for the twelve months ended December 31, 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 December 31, 2020. |
(g) |
Reflects costs associated with
our transformation initiatives and IT system updates, which
includes costs of $6 million and $27 million related to our finance
transformation for the three and twelve months ended December 31,
2020, respectively, as well as $10 million and $24 million for the
three and twelve months ended December 31, 2019, 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
December 31, 2020. 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 September 30, 2020, the impact of which would have been
approximately a $29 million increase in the previously reported
quarters included in the twelve months ended December 30, 2020
Adjusted EBITDA. |
Media Contact: |
Investor Contact: |
James
Steven |
Kareem Chin |
(212)
275-2213 |
|
James.Steven@wmg.com |
Investor.Relations@wmg.com |
Warner Music (NASDAQ:WMG)
Historical Stock Chart
From May 2024 to Jun 2024
Warner Music (NASDAQ:WMG)
Historical Stock Chart
From Jun 2023 to Jun 2024