Warner Music Group Corp. today announced its third-quarter
financial results for the period ended June 30, 2021.
“We’re proud of everything we’ve accomplished during our first
year as a publicly traded company,” said Steve Cooper, CEO, Warner
Music Group. “During a very challenging time, we’ve focused on
investing in our core business and building an array of innovative
growth opportunities. Outstanding releases from our artists and
songwriters, coupled with imaginative execution by our operators,
delivered excellent results in the third quarter. We’re looking
forward to wrapping up our fiscal year with a slate of great new
releases from established and emerging stars.”
“The third quarter was highlighted by impressive streaming
numbers, recovery in several areas that had been negatively
impacted by COVID, and strong operating leverage that drove margin
expansion,” said Eric Levin, CFO, Warner Music Group. “We continue
to create value through our wide-ranging services to artists and
songwriters, to drive shareholder return through our disciplined
allocation of capital, and to deliver long-term growth through our
digital-first approach to business.”
Total WMG
| Total WMG
Summary Results |
|
|
|
|
|
|
|
|
|
|
| (dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
% Change |
|
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
1,340 |
|
|
$ |
1,010 |
|
|
|
33 |
% |
|
$ |
3,925 |
|
|
$ |
3,337 |
|
|
|
18 |
% |
| Recorded Music revenue |
1,152 |
|
|
861 |
|
|
|
34 |
% |
|
3,372 |
|
|
2,852 |
|
|
|
18 |
% |
| Music Publishing revenue |
189 |
|
|
149 |
|
|
|
27 |
% |
|
556 |
|
|
488 |
|
|
|
14 |
% |
| Digital revenue |
928 |
|
|
720 |
|
|
|
29 |
% |
|
2,613 |
|
|
2,125 |
|
|
|
23 |
% |
| Operating income (loss) |
162 |
|
|
(433 |
) |
|
|
— |
% |
|
509 |
|
|
(317 |
) |
|
|
— |
% |
| Adjusted operating
income(1) |
184 |
|
|
104 |
|
|
|
77 |
% |
|
573 |
|
|
422 |
|
|
|
36 |
% |
| OIBDA(1) |
241 |
|
|
(371 |
) |
|
|
— |
% |
|
736 |
|
|
(123 |
) |
|
|
— |
% |
| Adjusted OIBDA(1) |
263 |
|
|
166 |
|
|
|
58 |
% |
|
800 |
|
|
616 |
|
|
|
30 |
% |
| Net income (loss) |
61 |
|
|
(519 |
) |
|
|
— |
% |
|
277 |
|
|
(471 |
) |
|
|
— |
% |
| Adjusted net income(1) |
83 |
|
|
18 |
|
|
|
— |
% |
|
341 |
|
|
268 |
|
|
|
27 |
% |
| Net cash provided by operating
activities |
91 |
|
|
123 |
|
|
|
-26 |
% |
|
410 |
|
|
287 |
|
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
| |
For the Three Months EndedJune 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
% Change |
|
For the Twelve Months Ended June 30, 2021 |
|
For the Twelve Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Adjusted EBITDA(1) |
$ |
282 |
|
|
$ |
189 |
|
|
49 |
% |
|
$ |
1,039 |
|
|
$ |
785 |
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
Revenue was up 32.7% (or 26.5% in constant currency). The
revenue increase in the quarter was driven by robust digital
revenue growth of 28.9% (or 23.4% in constant currency) across
Recorded Music and Music Publishing. Digital revenue represented
69.3% of total revenue in the quarter, compared to 71.3% in the
prior-year quarter. Recorded Music physical revenue increased
154.9% (or 136.4% in constant currency) and Recorded Music
licensing revenue and Music Publishing synchronization and
mechanical revenue all had double-digit growth. Recorded Music
artist services and expanded-rights revenue increased 7.3% on an
as-reported basis (or 0.8% in constant currency). Music Publishing
performance revenue was flat on an as-reported basis and decreased
3.6% in constant currency.
Operating income was $162 million compared to an operating loss
of $433 million in the prior-year quarter. Net income was $61
million compared to a net loss of $519 million in the prior-year
quarter. OIBDA was income of $241 million, up from a loss of $371
million in the prior-year quarter and OIBDA margin increased 54.7
percentage points to 18.0% from (36.7)% in the prior-year quarter.
The increases in operating income, net income, OIBDA and OIBDA
margin were primarily due to strong operating performance and lower
non-cash stock-based compensation and other related expenses in the
quarter of $426 million, as well as $86 million in one-time costs
associated with the Company's IPO in the prior-year quarter.
Adjusted operating income, Adjusted OIBDA and Adjusted net
income exclude costs related to non-cash stock-based compensation
and other related expenses and restructuring and other
transformation initiatives in both the quarter and the prior-year
quarter. In the prior-year quarter, costs associated with the
Company's IPO are also excluded. Adjusted EBITDA excludes these
items and includes expected savings resulting from transformation
initiatives and the pro forma impact of certain specified
transactions. See below for calculations and reconciliations of
Adjusted operating income, Adjusted OIBDA, Adjusted net income and
Adjusted EBITDA.
Adjusted OIBDA increased 58.4% from $166 million to $263 million
and Adjusted OIBDA margin increased 3.2 percentage points to 19.6%
from 16.4% due to strong operating performance and margin
improvement associated with revenue mix. Adjusted operating income
increased 76.9% from $104 million to $184 million due to the same
factors affecting Adjusted OIBDA, partially offset by higher
depreciation and amortization expenses due to recent acquisitions
and capital spending.
Adjusted EBITDA increased 49.2% from $189 million to $282
million with Adjusted EBITDA margin improving 2.3 percentage points
from 18.7% to 21.0%. The increase was largely due to the same
factors affecting Adjusted OIBDA.
Adjusted net income was $83 million compared to $18 million in
the prior-year quarter. Adjusted net income grew due to an increase
in adjusted operating income and lower income tax expense in the
quarter driven by timing of expense and the impact of the Company's
IPO in the prior-year quarter, partially offset by unrealized
losses on the mark-to-market of certain investments and a loss on
extinguishment of debt.
Basic and Diluted earnings per share was $0.12 for both the
Class A and Class B shareholders due to the net income attributable
to the Company in the quarter of $61 million.
As of June 30, 2021, the Company reported a cash balance of
$442 million, total debt of $3.367 billion and net debt (defined as
total long-term debt, net of deferred financing costs, minus cash
and equivalents) of $2.925 billion.
Cash provided by operating activities was $91 million compared
to $123 million in the prior-year quarter. The change was largely a
result of strong operating performance, more than offset by
continued A&R investment and timing of working capital. Free
Cash Flow, as defined below, decreased to negative $71 million from
$87 million in the prior-year quarter largely due to an increase in
investment activity as well as lower operating cash flow.
Recorded Music
| Recorded
Music Summary Results |
|
|
|
|
|
|
|
|
|
|
| (dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
% Change |
|
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
1,152 |
|
|
$ |
861 |
|
|
|
34 |
% |
|
$ |
3,372 |
|
|
$ |
2,852 |
|
|
18 |
% |
| Digital revenue |
815 |
|
|
630 |
|
|
|
29 |
% |
|
2,298 |
|
|
1,889 |
|
|
22 |
% |
| Operating income |
197 |
|
|
(160 |
) |
|
|
— |
% |
|
604 |
|
|
67 |
|
|
— |
% |
|
Adjusted operating income(1) |
201 |
|
|
126 |
|
|
|
60 |
% |
|
621 |
|
|
464 |
|
|
34 |
% |
| OIBDA(1) |
250 |
|
|
(119 |
) |
|
|
— |
% |
|
754 |
|
|
198 |
|
|
— |
% |
| Adjusted OIBDA(1) |
254 |
|
|
167 |
|
|
|
52 |
% |
|
771 |
|
|
595 |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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 June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
For the Three Months Ended June 30, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Revenue by
Segment: |
|
|
|
|
|
| Recorded Music |
|
|
|
|
|
|
Digital |
$ |
815 |
|
|
$ |
630 |
|
|
$ |
658 |
|
|
Physical |
130 |
|
|
51 |
|
|
55 |
|
|
Total Digital and Physical |
945 |
|
|
681 |
|
|
713 |
|
|
Artist services and expanded-rights |
133 |
|
|
124 |
|
|
132 |
|
|
Licensing |
74 |
|
|
56 |
|
|
58 |
|
| Total Recorded
Music |
$ |
1,152 |
|
|
$ |
861 |
|
|
$ |
903 |
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
For the Nine Months Ended June 30, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Revenue by
Segment: |
|
|
|
|
|
| Recorded Music |
|
|
|
|
|
|
Digital |
$ |
2,298 |
|
|
$ |
1,889 |
|
|
$ |
1,940 |
|
|
Physical |
422 |
|
|
329 |
|
|
345 |
|
|
Total Digital and Physical |
2,720 |
|
|
2,218 |
|
|
2,285 |
|
|
Artist services and expanded-rights |
431 |
|
|
427 |
|
|
452 |
|
|
Licensing |
221 |
|
|
207 |
|
|
215 |
|
| Total Recorded
Music |
$ |
3,372 |
|
|
$ |
2,852 |
|
|
$ |
2,952 |
|
Recorded Music revenue was up 33.8% (or 27.6% in constant
currency). The revenue increase was primarily due to digital
revenue, which reflects the continuing growth in streaming, the
Company’s largest source of revenue. Streaming revenue grew 32.6%
(or 27.2% in constant currency) due to the strong performance of
new and carryover releases, as well as accelerated revenue growth
from emerging streaming platforms such as Facebook, TikTok and
Peloton. Physical revenue grew 154.9% (or 136.4% in constant
currency) primarily due to an increasing demand for vinyl products
and increasing retail sales as businesses began to recover from
COVID disruption. Artist services and expanded-rights revenue
increased on an as-reported basis by 7.3% (or 0.8% in constant
currency), reflecting an increase in direct-to-consumer
merchandising revenue, partially offset by the impact of COVID
disruption on concert touring and live events. Licensing revenue
was up mainly due to higher broadcast fees and synchronization
revenue as businesses began to recover from COVID disruption. Major
sellers included Dua Lipa, Cardi B, Ed Sheeran, Ava Max and Masked
Wolf.
Recorded Music operating income was $197 million, up from a loss
of $160 million in the prior-year quarter and operating margin
was up 35.7 percentage points to 17.1% versus (18.6)% in the
prior-year quarter. OIBDA increased to income of $250 million from
a loss of $119 million in the prior-year quarter and OIBDA margin
increased 35.5 percentage points to 21.7%. Adjusted OIBDA was $254
million versus $167 million in the prior-year quarter with Adjusted
OIBDA margin up 2.6 percentage points to 22.0%. The increases in
operating income and OIBDA were driven by decreases in non-cash
stock-based compensation and other related expenses associated with
the Company's IPO in the prior-year quarter. The increases in
Adjusted OIBDA and Adjusted OIBDA margin were primarily due to
strong operating performance, revenue mix and the impact of recent
acquisitions.
Music Publishing
| Music
Publishing Summary Results |
|
|
|
|
|
|
|
|
|
|
| (dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
% Change |
|
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
189 |
|
|
$ |
149 |
|
|
27 |
% |
|
$ |
556 |
|
|
$ |
488 |
|
|
14 |
% |
| Digital revenue |
113 |
|
|
90 |
|
|
26 |
% |
|
316 |
|
|
237 |
|
|
33 |
% |
| Operating income |
21 |
|
|
14 |
|
|
50 |
% |
|
61 |
|
|
58 |
|
|
5 |
% |
| Adjusted operating
income(1) |
22 |
|
|
15 |
|
|
47 |
% |
|
66 |
|
|
61 |
|
|
8 |
% |
| OIBDA(1) |
43 |
|
|
33 |
|
|
30 |
% |
|
125 |
|
|
114 |
|
|
10 |
% |
| Adjusted OIBDA(1) |
44 |
|
|
34 |
|
|
29 |
% |
|
130 |
|
|
117 |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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 June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
For the Three Months Ended June 30, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Revenue by
Segment: |
|
|
|
|
|
| Music Publishing |
|
|
|
|
|
|
Performance |
$ |
27 |
|
|
$ |
27 |
|
|
$ |
28 |
|
|
Digital |
113 |
|
|
90 |
|
|
94 |
|
|
Mechanical |
13 |
|
|
8 |
|
|
10 |
|
|
Synchronization |
34 |
|
|
22 |
|
|
22 |
|
|
Other |
2 |
|
|
2 |
|
|
2 |
|
| Total Music
Publishing |
$ |
189 |
|
|
$ |
149 |
|
|
$ |
156 |
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
For the Nine Months Ended June 30, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| Revenue by
Segment: |
|
|
|
|
|
| Music Publishing |
|
|
|
|
|
|
Performance |
$ |
92 |
|
|
$ |
114 |
|
|
$ |
118 |
|
|
Digital |
316 |
|
|
237 |
|
|
245 |
|
|
Mechanical |
36 |
|
|
38 |
|
|
41 |
|
|
Synchronization |
105 |
|
|
92 |
|
|
93 |
|
|
Other |
7 |
|
|
7 |
|
|
7 |
|
| Total Music
Publishing |
$ |
556 |
|
|
$ |
488 |
|
|
$ |
504 |
|
Music Publishing revenue increased 26.8% (or 21.2% in constant
currency). The revenue increase was driven by growth in digital,
synchronization and mechanical revenue. Digital revenue
increased 25.6% (or 20.2% in constant currency) reflecting the
continuing growth in streaming and timing of new deals with digital
service providers, partially offset by a shift in the collection of
writer's share of US digital performance income from certain
digital service providers. This change has no impact on Music
Publishing OIBDA, but results in a slight improvement to OIBDA
margin. Digital revenue represented 59.8% of total Music Publishing
revenue versus 60.4% in the prior-year quarter. Synchronization
revenue increased due to growth in motion picture and commercial
income. Mechanical revenue also increased as businesses began to
recover from COVID disruption. Performance revenue was flat due to
the ongoing COVID impact on bars, restaurants, concerts and live
events, partially offset by the favorable impact of foreign
currency exchange rates.
Music Publishing operating income was $21 million, up 50.0% from
$14 million in the prior-year quarter largely driven by increased
revenue, partially offset by higher employee costs and an increase
in amortization expense. Operating margin was 11.1%, up 1.7
percentage points from 9.4% in the prior-year quarter. Music
Publishing OIBDA increased 30.3% to $43 million and Music
Publishing OIBDA margin increased 0.7 percentage points to 22.8%.
Adjusted OIBDA increased 29.4% to $44 million and Adjusted OIBDA
margin increased to 23.3% due to revenue mix, lower royalty expense
due to a shift in the collection of certain writer's share income
from certain digital service providers and restructuring in the
prior-year quarter.
Financial details for the quarter can be found in the Company’s
Quarterly Report on Form 10-Q for the period ended June 30,
2021, filed today with the Securities and Exchange Commission.
This morning, management will be hosting a conference call to
discuss the results at 8:30 A.M. EST. The call will be webcast on
www.wmg.com.
About Warner Music Group
With a legacy extending back over 200 years, Warner Music Group
today is home to an unparalleled family of creative artists,
songwriters, and companies that are moving culture across the
globe. At the core of WMG's Recorded Music division are four of the
most iconic companies in history: Atlantic, Elektra, Parlophone and
Warner Records. They are joined by renowned labels such as Asylum,
Big Beat, Canvasback, East West, Erato, FFRR, Fueled by Ramen,
Nonesuch, Reprise, Rhino, Roadrunner, Sire, Spinnin’ Records,
Warner Classics and Warner Music Nashville. Warner Chappell Music -
which traces its origins back to the founding of Chappell &
Company in 1811 - is one of the world's leading music publishers,
with a catalog of more than one million copyrights spanning every
musical genre from the standards of the Great American Songbook to
the biggest hits of the 21st century.
"Safe Harbor" Statement under Private Securities
Litigation Reform Act of 1995
This communication includes forward-looking statements that
reflect the current views of Warner Music Group about future events
and financial performance. Words such as "estimates,"
"expects," "anticipates," "projects," "plans," "intends,"
"believes," "forecasts" and variations of such words or similar
expressions that predict or indicate future events or trends, or
that do not relate to historical matters, identify forward-looking
statements. All forward-looking statements are made as of
today, and we disclaim any duty to update such statements. Our
expectations, beliefs and projections are expressed in good faith
and we believe there is a reasonable basis for them. However, we
cannot assure you that management's expectations, beliefs and
projections will result or be achieved. Investors should not rely
on forward-looking statements because they are subject to a variety
of risks, uncertainties, and other factors that could cause actual
results to differ materially from our expectations. Please
refer to our Form 10-K, Form 10-Qs and our other filings with the
U.S. Securities and Exchange Commission concerning factors that
could cause actual results to differ materially from those
described in our forward-looking statements.
We maintain an Internet site at www.wmg.com. We use our website
as a channel of distribution for material company information.
Financial and other material information regarding Warner Music
Group is routinely posted on and accessible at
http://investors.wmg.com. In addition, you may automatically
receive email alerts and other information about Warner Music Group
by enrolling your email address through the “email alerts” section
at http://investors.wmg.com. Our website and the information posted
on it or connected to it shall not be deemed to be incorporated by
reference into this communication.
Basis of Presentation
The Company maintains a 52-53 week fiscal year ending on the
last Friday in each reporting period. As such, all references to
June 30, 2021 and June 30, 2020 relate to the periods
ended June 25, 2021 and June 26, 2020, respectively. For
convenience purposes, the Company continues to date its financial
statements as of June 30.
| Figure 1.
Warner Music Group Corp. - Consolidated Statements of Operations,
Three and Nine Months Ended June 30, 2021 versus June 30,
2020 |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
1,340 |
|
|
|
$ |
1,010 |
|
|
|
33 |
% |
| Cost and
expenses: |
|
|
|
|
|
| Cost of revenue |
(681 |
) |
|
|
(527 |
) |
|
|
29 |
% |
| Selling, general and
administrative expenses |
(437 |
) |
|
|
(869 |
) |
|
|
-50 |
% |
| Amortization expense |
(60 |
) |
|
|
(47 |
) |
|
|
28 |
% |
| Total costs and
expenses |
$ |
(1,178 |
) |
|
|
$ |
(1,443 |
) |
|
|
-18 |
% |
| Operating income
(loss) |
$ |
162 |
|
|
|
$ |
(433 |
) |
|
|
— |
% |
| Loss on extinguishment of
debt |
(12 |
) |
|
|
— |
|
|
|
— |
% |
| Interest expense, net |
(30 |
) |
|
|
(32 |
) |
|
|
-6 |
% |
| Other expense, net |
(18 |
) |
|
|
(3 |
) |
|
|
— |
% |
| Income (loss) before
income taxes |
$ |
102 |
|
|
|
$ |
(468 |
) |
|
|
— |
% |
| Income tax expense |
(41 |
) |
|
|
(51 |
) |
|
|
-20 |
% |
| Net income
(loss) |
$ |
61 |
|
|
|
$ |
(519 |
) |
|
|
— |
% |
| Less: Income attributable to
noncontrolling interest |
— |
|
|
|
(1 |
) |
|
|
-100 |
% |
| Net income (loss)
attributable to Warner Music Group Corp. |
$ |
61 |
|
|
|
$ |
(520 |
) |
|
|
— |
% |
| |
|
|
|
|
|
| Net income (loss) per
share attributable to common stockholders: |
|
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.12 |
|
|
|
$ |
(1.03 |
) |
|
|
|
|
Class B – Basic and Diluted |
$ |
0.12 |
|
|
|
$ |
(1.03 |
) |
|
|
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
$ |
3,925 |
|
|
|
$ |
3,337 |
|
|
|
18 |
% |
| Cost and
expenses: |
|
|
|
|
|
| Cost of revenue |
(1,990 |
) |
|
|
(1,727 |
) |
|
|
15 |
% |
| Selling, general and
administrative expenses |
(1,256 |
) |
|
|
(1,786 |
) |
|
|
-30 |
% |
| Amortization expense |
(170 |
) |
|
|
(141 |
) |
|
|
21 |
% |
| Total costs and
expenses |
$ |
(3,416 |
) |
|
|
$ |
(3,654 |
) |
|
|
-7 |
% |
| Operating income
(loss) |
$ |
509 |
|
|
|
$ |
(317 |
) |
|
|
— |
% |
| Loss on extinguishment of
debt |
(12 |
) |
|
|
— |
|
|
|
— |
% |
| Interest expense, net |
(93 |
) |
|
|
(98 |
) |
|
|
-5 |
% |
| Other (expense) income,
net |
— |
|
|
|
(12 |
) |
|
|
-100 |
% |
| Income (loss) before
income taxes |
$ |
404 |
|
|
|
$ |
(427 |
) |
|
|
— |
% |
| Income tax expense |
(127 |
) |
|
|
(44 |
) |
|
|
— |
% |
| Net income
(loss) |
$ |
277 |
|
|
|
$ |
(471 |
) |
|
|
— |
% |
| Less: Income attributable to
noncontrolling interest |
(1 |
) |
|
|
(3 |
) |
|
|
-67 |
% |
| Net income (loss)
attributable to Warner Music Group Corp. |
$ |
276 |
|
|
|
$ |
(474 |
) |
|
|
— |
% |
| |
|
|
|
|
|
| Net income (loss) per
share attributable to common stockholders: |
|
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.53 |
|
|
|
$ |
(1.09 |
) |
|
|
|
|
Class B – Basic and Diluted |
$ |
0.53 |
|
|
|
$ |
(0.94 |
) |
|
|
|
| Figure 2.
Warner Music Group Corp. - Consolidated Balance Sheets at June 30,
2021 versus September 30, 2020 |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
June 30, 2021 |
|
September 30, 2020 |
|
% Change |
| |
(unaudited) |
|
|
|
|
| Assets |
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
Cash and equivalents |
$ |
442 |
|
|
|
$ |
553 |
|
|
|
-20 |
% |
|
Accounts receivable, net |
834 |
|
|
|
771 |
|
|
|
8 |
% |
|
Inventories |
79 |
|
|
|
79 |
|
|
|
— |
% |
|
Royalty advances expected to be recouped within one year |
315 |
|
|
|
220 |
|
|
|
43 |
% |
|
Prepaid and other current assets |
64 |
|
|
|
55 |
|
|
|
16 |
% |
| Total current
assets |
$ |
1,734 |
|
|
|
$ |
1,678 |
|
|
|
3 |
% |
| Royalty advances expected to
be recouped after one year |
385 |
|
|
|
269 |
|
|
|
43 |
% |
| Property, plant and equipment,
net |
347 |
|
|
|
331 |
|
|
|
5 |
% |
| Operating lease right-of-use
assets, net |
273 |
|
|
|
273 |
|
|
|
— |
% |
| Goodwill |
1,836 |
|
|
|
1,831 |
|
|
|
— |
% |
| Intangible assets subject to
amortization, net |
2,061 |
|
|
|
1,653 |
|
|
|
25 |
% |
| Intangible assets not subject
to amortization |
156 |
|
|
|
154 |
|
|
|
1 |
% |
| Deferred tax assets, net |
35 |
|
|
|
68 |
|
|
|
-49 |
% |
| Other assets |
213 |
|
|
|
153 |
|
|
|
39 |
% |
| Total
assets |
$ |
7,040 |
|
|
|
$ |
6,410 |
|
|
|
10 |
% |
| Liabilities and Equity
(Deficit) |
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
Accounts payable |
$ |
226 |
|
|
|
$ |
264 |
|
|
|
-14 |
% |
|
Accrued royalties |
1,841 |
|
|
|
1,628 |
|
|
|
13 |
% |
|
Accrued liabilities |
385 |
|
|
|
382 |
|
|
|
1 |
% |
|
Accrued interest |
31 |
|
|
|
30 |
|
|
|
3 |
% |
|
Operating lease liabilities, current |
43 |
|
|
|
39 |
|
|
|
10 |
% |
|
Deferred revenue |
275 |
|
|
|
297 |
|
|
|
-7 |
% |
|
Other current liabilities |
101 |
|
|
|
80 |
|
|
|
26 |
% |
| Total current
liabilities |
$ |
2,902 |
|
|
|
$ |
2,720 |
|
|
|
7 |
% |
| Long-term debt |
3,367 |
|
|
|
3,104 |
|
|
|
8 |
% |
| Operating lease liabilities,
noncurrent |
293 |
|
|
|
299 |
|
|
|
-2 |
% |
| Deferred tax liabilities,
net |
211 |
|
|
|
163 |
|
|
|
29 |
% |
| Other noncurrent
liabilities |
172 |
|
|
|
169 |
|
|
|
2 |
% |
| Total
liabilities |
$ |
6,945 |
|
|
|
$ |
6,455 |
|
|
|
8 |
% |
| Equity (deficit): |
|
|
|
|
|
| Class A common stock |
$ |
— |
|
|
|
$ |
— |
|
|
|
— |
% |
| Class B common stock |
1 |
|
|
|
1 |
|
|
|
— |
% |
| Additional paid-in
capital |
1,934 |
|
|
|
1,907 |
|
|
|
1 |
% |
| Accumulated deficit |
(1,660 |
) |
|
|
(1,749 |
) |
|
|
-5 |
% |
| Accumulated other
comprehensive loss, net |
(194 |
) |
|
|
(222 |
) |
|
|
-13 |
% |
| Total Warner Music
Group Corp. equity (deficit) |
$ |
81 |
|
|
|
$ |
(63 |
) |
|
|
— |
% |
| Noncontrolling interest |
14 |
|
|
|
18 |
|
|
|
-22 |
% |
| Total equity
(deficit) |
95 |
|
|
|
(45 |
) |
|
|
— |
% |
| Total liabilities and
equity (deficit) |
$ |
7,040 |
|
|
|
$ |
6,410 |
|
|
|
10 |
% |
| Figure 3.
Warner Music Group Corp. - Summarized Statements of Cash Flows,
Three and Nine Months Ended June 30, 2021 versus June 30,
2020 |
| (dollars in
millions) |
|
|
|
| |
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
| |
(unaudited) |
|
(unaudited) |
|
Net cash provided by operating activities |
$ |
91 |
|
|
|
$ |
123 |
|
|
| Net cash used in investing
activities |
(162 |
) |
|
|
(36 |
) |
|
| Net cash used in financing
activities |
(79 |
) |
|
|
(43 |
) |
|
| Effect of foreign currency
exchange rates on cash and equivalents |
4 |
|
|
|
4 |
|
|
| Net (decrease) increase in
cash and equivalents |
$ |
(146 |
) |
|
|
$ |
48 |
|
|
| |
|
|
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
| |
(unaudited) |
|
(unaudited) |
| Net cash provided by operating
activities |
$ |
410 |
|
|
|
$ |
287 |
|
|
| Net cash used in investing
activities |
(566 |
) |
|
|
(87 |
) |
|
| Net cash provided by (used in)
financing activities |
35 |
|
|
|
(288 |
) |
|
| Effect of foreign currency
exchange rates on cash and equivalents |
10 |
|
|
|
1 |
|
|
| Net decrease in cash and
equivalents |
$ |
(111 |
) |
|
|
$ |
(87 |
) |
|
| Figure 4.
Warner Music Group Corp. - Recorded Music Digital Revenue Summary,
Three and Nine Months Ended June 30, 2021 versus June 30,
2020 |
| (dollars in
millions) |
|
|
|
| |
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
| |
(unaudited) |
|
(unaudited) |
|
Streaming |
$ |
781 |
|
|
$ |
589 |
|
| Downloads and Other
Digital |
34 |
|
|
41 |
|
| Total Recorded Music
Digital Revenue |
$ |
815 |
|
|
$ |
630 |
|
| |
|
|
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
| |
(unaudited) |
|
(unaudited) |
| Streaming |
$ |
2,195 |
|
|
$ |
1,764 |
|
| Downloads and Other
Digital |
103 |
|
|
125 |
|
| Total Recorded Music
Digital Revenue |
$ |
2,298 |
|
|
$ |
1,889 |
|
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 Nine Months Ended June 30, 2021 versus June 30,
2020 |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
Net income (loss) attributable to Warner Music Group
Corp. |
$ |
61 |
|
|
$ |
(520 |
) |
|
|
— |
% |
| Income attributable to
noncontrolling interest |
— |
|
|
1 |
|
|
|
-100 |
% |
| Net income
(loss) |
$ |
61 |
|
|
$ |
(519 |
) |
|
|
— |
% |
| Income tax expense |
41 |
|
|
51 |
|
|
|
-20 |
% |
| Income including
income taxes |
$ |
102 |
|
|
$ |
(468 |
) |
|
|
— |
% |
| Other expense, net |
18 |
|
|
3 |
|
|
|
— |
% |
| Interest expense, net |
30 |
|
|
32 |
|
|
|
-6 |
% |
| Loss on extinguishment of
debt |
12 |
|
|
— |
|
|
|
— |
% |
| Operating income
(loss) |
$ |
162 |
|
|
$ |
(433 |
) |
|
|
— |
% |
| Amortization expense |
60 |
|
|
47 |
|
|
|
28 |
% |
| Depreciation expense |
19 |
|
|
15 |
|
|
|
27 |
% |
| OIBDA |
$ |
241 |
|
|
$ |
(371 |
) |
|
|
— |
% |
| Operating income
margin |
12.1 |
% |
|
-42.9 |
|
% |
|
|
| OIBDA
margin |
18.0 |
% |
|
-36.7 |
|
% |
|
|
| |
|
|
|
|
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
| Net income (loss)
attributable to Warner Music Group Corp. |
$ |
276 |
|
|
$ |
(474 |
) |
|
|
— |
% |
| Income attributable to
noncontrolling interest |
1 |
|
|
3 |
|
|
|
-67 |
% |
| Net income
(loss) |
$ |
277 |
|
|
$ |
(471 |
) |
|
|
— |
% |
| Income tax expense |
127 |
|
|
44 |
|
|
|
— |
% |
| Income including
income taxes |
$ |
404 |
|
|
$ |
(427 |
) |
|
|
— |
% |
| Other expense, net |
— |
|
|
12 |
|
|
|
-100 |
% |
| Interest expense, net |
93 |
|
|
98 |
|
|
|
-5 |
% |
| Loss on extinguishment of
debt |
12 |
|
|
— |
|
|
|
— |
% |
| Operating income
(loss) |
$ |
509 |
|
|
$ |
(317 |
) |
|
|
— |
% |
| Amortization expense |
170 |
|
|
141 |
|
|
|
21 |
% |
| Depreciation expense |
57 |
|
|
53 |
|
|
|
8 |
% |
| OIBDA |
$ |
736 |
|
|
$ |
(123 |
) |
|
|
— |
% |
| Operating income
margin |
13.0 |
% |
|
-9.5 |
|
% |
|
|
| OIBDA
margin |
18.8 |
% |
|
-3.7 |
|
% |
|
|
| Figure 6.
Warner Music Group Corp. - Reconciliation of Segment Operating
Income to OIBDA, Three and Nine Months Ended June 30, 2021 versus
June 30, 2020 |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
|
Total WMG operating income (loss) – GAAP |
$ |
162 |
|
|
|
$ |
(433 |
) |
|
|
— |
% |
| Depreciation and amortization
expense |
(79 |
) |
|
|
(62 |
) |
|
|
27 |
% |
| Total WMG
OIBDA |
$ |
241 |
|
|
|
$ |
(371 |
) |
|
|
— |
% |
| Operating income
(loss) margin |
12.1 |
|
% |
|
-42.9 |
|
% |
|
|
| OIBDA
margin |
18.0 |
|
% |
|
-36.7 |
|
% |
|
|
| |
|
|
|
|
|
| Recorded Music
operating income (loss) – GAAP |
$ |
197 |
|
|
|
$ |
(160 |
) |
|
|
— |
% |
| Depreciation and amortization
expense |
(53 |
) |
|
|
(41 |
) |
|
|
29 |
% |
| Recorded Music
OIBDA |
$ |
250 |
|
|
|
$ |
(119 |
) |
|
|
— |
% |
| Recorded Music
operating income (loss) margin |
17.1 |
|
% |
|
-18.6 |
|
% |
|
|
| Recorded Music OIBDA
margin |
21.7 |
|
% |
|
-13.8 |
|
% |
|
|
| |
|
|
|
|
|
| Music Publishing
operating income – GAAP |
$ |
21 |
|
|
|
$ |
14 |
|
|
|
50 |
% |
| Depreciation and amortization
expense |
(22 |
) |
|
|
(19 |
) |
|
|
16 |
% |
| Music Publishing
OIBDA |
$ |
43 |
|
|
|
$ |
33 |
|
|
|
30 |
% |
| Music Publishing
operating income margin |
11.1 |
|
% |
|
9.4 |
|
% |
|
|
| Music Publishing OIBDA
margin |
22.8 |
|
% |
|
22.1 |
|
% |
|
|
| |
|
|
|
|
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
% Change |
| |
(unaudited) |
|
(unaudited) |
|
|
| Total WMG operating
income (loss) – GAAP |
$ |
509 |
|
|
|
$ |
(317 |
) |
|
|
— |
% |
| Depreciation and amortization
expense |
(227 |
) |
|
|
(194 |
) |
|
|
17 |
% |
| Total WMG
OIBDA |
$ |
736 |
|
|
|
$ |
(123 |
) |
|
|
— |
% |
| Operating income
(loss) margin |
13.0 |
|
% |
|
-9.5 |
|
% |
|
|
| OIBDA
margin |
18.8 |
|
% |
|
-3.7 |
|
% |
|
|
| |
|
|
|
|
|
| Recorded Music
operating income – GAAP |
$ |
604 |
|
|
|
$ |
67 |
|
|
|
— |
% |
| Depreciation and amortization
expense |
(150 |
) |
|
|
(131 |
) |
|
|
15 |
% |
| Recorded Music
OIBDA |
$ |
754 |
|
|
|
$ |
198 |
|
|
|
— |
% |
| Recorded Music
operating income margin |
17.9 |
|
% |
|
2.3 |
|
% |
|
|
| Recorded Music OIBDA
margin |
22.4 |
|
% |
|
6.9 |
|
% |
|
|
| |
|
|
|
|
|
| Music Publishing
operating income – GAAP |
$ |
61 |
|
|
|
$ |
58 |
|
|
|
5 |
% |
| Depreciation and amortization
expense |
(64 |
) |
|
|
(56 |
) |
|
|
14 |
% |
| Music Publishing
OIBDA |
$ |
125 |
|
|
|
$ |
114 |
|
|
|
10 |
% |
| Music Publishing
operating income margin |
11.0 |
|
% |
|
11.9 |
|
% |
|
|
| Music Publishing OIBDA
margin |
22.5 |
|
% |
|
23.4 |
|
% |
|
|
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) 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 Nine Months Ended June 30, 2021 versus June 30,
2020 |
| (dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMG Operating Income |
|
Recorded Music Operating Income |
|
Music Publishing Operating Income |
|
Total WMG OIBDA |
|
Recorded Music OIBDA |
|
Music Publishing OIBDA |
|
Net Income |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
Reported Results |
$ |
162 |
|
|
|
$ |
197 |
|
|
|
$ |
21 |
|
|
$ |
241 |
|
|
|
$ |
250 |
|
|
|
$ |
43 |
|
|
$ |
61 |
|
|
| Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
10 |
|
|
|
— |
|
|
|
— |
|
|
10 |
|
|
|
— |
|
|
|
— |
|
|
10 |
|
|
|
COVID-19 Related Costs |
(2 |
) |
|
|
(2 |
) |
|
|
— |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
— |
|
|
(2 |
) |
|
|
Non-Cash Stock-Based Compensation and Other Related Costs |
14 |
|
|
|
6 |
|
|
|
1 |
|
|
14 |
|
|
|
6 |
|
|
|
1 |
|
|
14 |
|
|
| Adjusted Results |
$ |
184 |
|
|
|
$ |
201 |
|
|
|
$ |
22 |
|
|
$ |
263 |
|
|
|
$ |
254 |
|
|
|
$ |
44 |
|
|
$ |
83 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Margin |
13.7 |
|
% |
|
17.4 |
|
% |
|
11.6 |
% |
|
19.6 |
|
% |
|
22.0 |
|
% |
|
23.3 |
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMG Operating (Loss) Income |
|
Recorded Music Operating (Loss) 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 |
$ |
(433 |
) |
|
|
$ |
(160 |
) |
|
|
$ |
14 |
|
|
$ |
(371 |
) |
|
|
$ |
(119 |
) |
|
|
$ |
33 |
|
|
$ |
(519 |
) |
|
| Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
10 |
|
|
|
— |
|
|
|
1 |
|
|
10 |
|
|
|
— |
|
|
|
1 |
|
|
10 |
|
|
|
IPO Related Costs |
86 |
|
|
|
— |
|
|
|
— |
|
|
86 |
|
|
|
— |
|
|
|
— |
|
|
86 |
|
|
|
L.A. Office Consolidation |
1 |
|
|
|
1 |
|
|
|
— |
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
1 |
|
|
|
Non-Cash Stock-Based Compensation and Other Related Costs |
440 |
|
|
|
285 |
|
|
|
— |
|
|
440 |
|
|
|
285 |
|
|
|
— |
|
|
440 |
|
|
| Adjusted Results |
$ |
104 |
|
|
|
$ |
126 |
|
|
|
$ |
15 |
|
|
$ |
166 |
|
|
|
$ |
167 |
|
|
|
$ |
34 |
|
|
$ |
18 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Margin |
10.3 |
|
% |
|
14.6 |
|
% |
|
10.1 |
% |
|
16.4 |
|
% |
|
19.4 |
|
% |
|
22.8 |
% |
|
|
|
For the Nine Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMG Operating Income |
|
Recorded Music Operating Income |
|
Music Publishing Operating Income |
|
Total WMG OIBDA |
|
Recorded Music OIBDA |
|
Music Publishing OIBDA |
|
Net Income |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
Reported Results |
$ |
509 |
|
|
|
$ |
604 |
|
|
|
$ |
61 |
|
|
$ |
736 |
|
|
|
$ |
754 |
|
|
|
$ |
125 |
|
|
$ |
277 |
|
|
| Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
28 |
|
|
|
— |
|
|
|
3 |
|
|
28 |
|
|
|
— |
|
|
|
3 |
|
|
28 |
|
|
|
COVID-19 Related Costs |
— |
|
|
|
(1 |
) |
|
|
— |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
— |
|
|
|
Non-Cash Stock-Based Compensation and Other Related Costs |
36 |
|
|
|
18 |
|
|
|
2 |
|
|
36 |
|
|
|
18 |
|
|
|
2 |
|
|
36 |
|
|
| Adjusted Results |
$ |
573 |
|
|
|
$ |
621 |
|
|
|
$ |
66 |
|
|
$ |
800 |
|
|
|
$ |
771 |
|
|
|
$ |
130 |
|
|
$ |
341 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Margin |
14.6 |
|
% |
|
18.4 |
|
% |
|
11.9 |
% |
|
20.4 |
|
% |
|
22.9 |
|
% |
|
23.4 |
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended June 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 |
$ |
(317 |
) |
|
|
$ |
67 |
|
|
|
$ |
58 |
|
|
$ |
(123 |
) |
|
|
$ |
198 |
|
|
|
$ |
114 |
|
|
$ |
(471 |
) |
|
| Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
35 |
|
|
|
— |
|
|
|
3 |
|
|
35 |
|
|
|
— |
|
|
|
3 |
|
|
35 |
|
|
|
IPO Related Costs |
90 |
|
|
|
— |
|
|
|
— |
|
|
90 |
|
|
|
— |
|
|
|
— |
|
|
90 |
|
|
|
COVID-19 Related Costs |
13 |
|
|
|
13 |
|
|
|
— |
|
|
13 |
|
|
|
13 |
|
|
|
— |
|
|
13 |
|
|
|
L.A. Office Consolidation |
1 |
|
|
|
1 |
|
|
|
— |
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
1 |
|
|
|
Non-Cash Stock-Based Compensation and Other Related Costs |
600 |
|
|
|
383 |
|
|
|
— |
|
|
600 |
|
|
|
383 |
|
|
|
— |
|
|
600 |
|
|
| Adjusted Results |
$ |
422 |
|
|
|
$ |
464 |
|
|
|
$ |
61 |
|
|
$ |
616 |
|
|
|
$ |
595 |
|
|
|
$ |
117 |
|
|
$ |
268 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Margin |
12.6 |
|
% |
|
16.3 |
|
% |
|
12.5 |
% |
|
18.5 |
|
% |
|
20.9 |
|
% |
|
24.0 |
% |
|
|
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 Nine Months Ended June 30, 2021 versus June 30, 2020 As
Reported and Constant Currency |
| (dollars in
millions) |
|
|
|
|
|
| |
|
|
|
|
|
| |
For the ThreeMonths Ended June 30,
2021 |
|
For the Three Months Ended June 30, 2020 |
|
For the Three Months Ended June 30, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| U.S. revenue |
|
|
|
|
|
|
Recorded Music |
$ |
504 |
|
|
|
$ |
358 |
|
|
$ |
358 |
|
|
Music Publishing |
90 |
|
|
|
74 |
|
|
74 |
|
| International revenue |
|
|
|
|
|
|
Recorded Music |
648 |
|
|
|
503 |
|
|
545 |
|
|
Music Publishing |
99 |
|
|
|
75 |
|
|
82 |
|
| Intersegment eliminations |
(1 |
) |
|
|
— |
|
|
— |
|
| Total
Revenue |
$ |
1,340 |
|
|
|
$ |
1,010 |
|
|
$ |
1,059 |
|
| |
|
|
|
|
|
| Revenue by
Segment: |
|
|
|
|
|
| Recorded Music |
|
|
|
|
|
|
Digital |
$ |
815 |
|
|
|
$ |
630 |
|
|
$ |
658 |
|
|
Physical |
130 |
|
|
|
51 |
|
|
55 |
|
|
Total Digital and Physical |
945 |
|
|
|
681 |
|
|
713 |
|
|
Artist services and expanded-rights |
133 |
|
|
|
124 |
|
|
132 |
|
|
Licensing |
74 |
|
|
|
56 |
|
|
58 |
|
| Total Recorded
Music |
1,152 |
|
|
|
861 |
|
|
903 |
|
| Music Publishing |
|
|
|
|
|
|
Performance |
27 |
|
|
|
27 |
|
|
28 |
|
|
Digital |
113 |
|
|
|
90 |
|
|
94 |
|
|
Mechanical |
13 |
|
|
|
8 |
|
|
10 |
|
|
Synchronization |
34 |
|
|
|
22 |
|
|
22 |
|
|
Other |
2 |
|
|
|
2 |
|
|
2 |
|
| Total Music
Publishing |
189 |
|
|
|
149 |
|
|
156 |
|
| Intersegment eliminations |
(1 |
) |
|
|
— |
|
|
— |
|
| Total
Revenue |
$ |
1,340 |
|
|
|
$ |
1,010 |
|
|
$ |
1,059 |
|
| |
|
|
|
|
|
| Total Digital
Revenue |
$ |
928 |
|
|
|
$ |
720 |
|
|
$ |
752 |
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
|
For the Nine Months Ended June 30, 2020 |
| |
As reported |
|
As reported |
|
Constant |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
| U.S. revenue |
|
|
|
|
|
|
Recorded Music |
$ |
1,454 |
|
|
|
$ |
1,191 |
|
|
$ |
1,191 |
|
|
Music Publishing |
277 |
|
|
|
242 |
|
|
242 |
|
| International revenue |
|
|
|
|
|
|
Recorded Music |
1,918 |
|
|
|
1,661 |
|
|
1,761 |
|
|
Music Publishing |
279 |
|
|
|
246 |
|
|
262 |
|
| Intersegment eliminations |
(3 |
) |
|
|
(3 |
) |
|
(3 |
) |
| Total
Revenue |
$ |
3,925 |
|
|
|
$ |
3,337 |
|
|
$ |
3,453 |
|
| |
|
|
|
|
|
| Revenue by
Segment: |
|
|
|
|
|
| Recorded Music |
|
|
|
|
|
|
Digital |
$ |
2,298 |
|
|
|
$ |
1,889 |
|
|
$ |
1,940 |
|
|
Physical |
422 |
|
|
|
329 |
|
|
345 |
|
|
Total Digital and Physical |
2,720 |
|
|
|
2,218 |
|
|
2,285 |
|
|
Artist services and expanded-rights |
431 |
|
|
|
427 |
|
|
452 |
|
|
Licensing |
221 |
|
|
|
207 |
|
|
215 |
|
| Total Recorded
Music |
3,372 |
|
|
|
2,852 |
|
|
2,952 |
|
| Music Publishing |
|
|
|
|
|
|
Performance |
92 |
|
|
|
114 |
|
|
118 |
|
|
Digital |
316 |
|
|
|
237 |
|
|
245 |
|
|
Mechanical |
36 |
|
|
|
38 |
|
|
41 |
|
|
Synchronization |
105 |
|
|
|
92 |
|
|
93 |
|
|
Other |
7 |
|
|
|
7 |
|
|
7 |
|
| Total Music
Publishing |
556 |
|
|
|
488 |
|
|
504 |
|
| Intersegment eliminations |
(3 |
) |
|
|
(3 |
) |
|
(3 |
) |
| Total
Revenue |
$ |
3,925 |
|
|
|
$ |
3,337 |
|
|
$ |
3,453 |
|
| |
|
|
|
|
|
| Total Digital
Revenue |
$ |
2,613 |
|
|
|
$ |
2,125 |
|
|
$ |
2,184 |
|
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
Nine Months Ended June 30, 2021 versus June 30, 2020 |
| (dollars in
millions) |
|
|
|
| |
|
|
|
| |
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2020 |
| |
(unaudited) |
|
(unaudited) |
|
Net cash provided by operating activities |
$ |
91 |
|
|
|
$ |
123 |
|
| Less: Capital
expenditures |
20 |
|
|
|
20 |
|
| Less: Net cash paid for
investments |
142 |
|
|
|
16 |
|
| |
|
|
|
| Free Cash
Flow |
$ |
(71 |
) |
|
|
$ |
87 |
|
| |
|
|
|
| |
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2020 |
| |
(unaudited) |
|
(unaudited) |
| Net cash provided by
operating activities |
$ |
410 |
|
|
|
$ |
287 |
|
| Less: Capital
expenditures |
58 |
|
|
|
48 |
|
| Less: Net cash paid for
investments |
508 |
|
|
|
39 |
|
| |
|
|
|
| Free Cash
Flow |
$ |
(156 |
) |
|
|
$ |
200 |
|
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 June 30, 2021 versus
June 30, 2020 |
| (dollars in
millions) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
For the Three Months Ended June 30,
2021 |
|
For the Three Months Ended June 30,
2020 |
|
For the Twelve Months Ended June 30,
2021 |
|
For the Twelve Months Ended June 30,
2020 |
| |
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
Net Income (Loss) |
$ |
61 |
|
|
|
$ |
(519 |
) |
|
|
$ |
278 |
|
|
|
$ |
(380 |
) |
|
| Income tax expense
(benefit) |
41 |
|
|
|
51 |
|
|
|
106 |
|
|
|
(33 |
) |
|
| Interest expense, net |
30 |
|
|
|
32 |
|
|
|
122 |
|
|
|
132 |
|
|
| Depreciation and
amortization |
79 |
|
|
|
62 |
|
|
|
294 |
|
|
|
260 |
|
|
| Loss on extinguishment of debt
(a) |
12 |
|
|
|
— |
|
|
|
46 |
|
|
|
— |
|
|
| Net gain on divestitures and
sale of securities (b) |
(2 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
(2 |
) |
|
| Restructuring costs (c) |
5 |
|
|
|
6 |
|
|
|
20 |
|
|
|
22 |
|
|
| Net hedging and foreign
exchange (gains) losses (d) |
15 |
|
|
|
15 |
|
|
|
82 |
|
|
|
(17 |
) |
|
| Management fees (e) |
— |
|
|
|
17 |
|
|
|
(3 |
) |
|
|
25 |
|
|
| Transaction costs (f) |
2 |
|
|
|
73 |
|
|
|
4 |
|
|
|
77 |
|
|
| Business optimization expenses
(g) |
12 |
|
|
|
10 |
|
|
|
36 |
|
|
|
42 |
|
|
| Non-cash stock compensation
expense (h) |
12 |
|
|
|
440 |
|
|
|
41 |
|
|
|
622 |
|
|
| Other non-cash charges
(i) |
5 |
|
|
|
(12 |
) |
|
|
(31 |
) |
|
|
21 |
|
|
| Pro forma impact of cost
savings initiatives and specified transactions (j) |
10 |
|
|
|
14 |
|
|
|
47 |
|
|
|
16 |
|
|
| Adjusted
EBITDA |
$ |
282 |
|
|
|
$ |
189 |
|
|
|
$ |
1,039 |
|
|
|
$ |
785 |
|
|
______________________________________(a) For
the three months ended June 30, 2021, reflects a net loss
incurred on the early extinguishment of our debt as part of the
April 2021 redemption of our 5.500% Senior Notes. The twelve months
ended June 30, 2021 also reflects a net loss incurred on the
early extinguishment of our debt as part of the redemption of our
4.125% Senior Secured Notes and 4.875% Senior Secured Notes, the
tender for and the redemption of the 5.000% Senior Secured Notes
and the partial repayment of the Senior Term Loan Facility, all of
which occurred in the fourth quarter of fiscal
2020.(b) Reflects net gain on
sale of securities and
divestitures.(c) Reflects
severance costs and other restructuring related
expenses.(d) Reflects losses
(gains) from hedging activities and unrealized losses (gains) due
to foreign exchange on our Euro-denominated debt and intercompany
transactions.(e) Reflects
management fees and related expenses paid to Access pursuant to the
management agreement which was terminated upon completion of the
IPO in June 2020.(f) Reflects
mainly integration, transaction and qualifying IPO
costs.(g) Reflects costs
associated with our transformation initiatives and IT system
updates, which includes costs of $9 million and $28 million related
to our finance transformation for the three and twelve months ended
June 30, 2021, respectively, as well as $6 million and $33
million for the three and twelve months ended June 30, 2020,
respectively.(h) Reflects
non-cash stock-based compensation expense related to the Warner
Music Group Corp. Senior Management Free Cash Flow Plan and the
Omnibus Incentive
Plan.(i) Reflects non-cash
activity, including the unrealized losses (gains) on the
mark-to-market of an equity method investment, investment losses
(gains) and other non-cash
impairments.(j) Reflects
expected savings resulting from transformation initiatives and pro
forma impact of specified transactions for the three and twelve
months ended June 30, 2021. Certain of these cost savings
initiatives and transactions impacted quarters prior to the quarter
during which they were identified within the last twelve-month
period. The pro forma impact of these specified transactions and
initiatives resulted in a $15 million increase in the twelve months
ended June 30, 2021 Adjusted EBITDA.
| Media Contact: |
Investor Contact: |
| James
Steven |
Kareem Chin |
| (212)
275-2213 |
|
| James.Steven@wmg.com |
Investor.Relations@wmg.com |
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