Warner Music Group Corp. today announced its second-quarter
financial results for the period ended March 31, 2022.
“Warner Music Group’s unique combination of scale and agility
gives us, our artists, and our songwriters an edge in music’s
ever-expanding universe of opportunity. We continue to build our
unparalleled artist development expertise, our differentiated
approach to global expansion, and our ground-breaking commitment to
innovation at the intersection of music, gaming, social and
fitness,” said Steve Cooper, CEO, Warner Music Group. “We’re
equally excited about the amazing new releases we have lined up for
the rest of the year, and the possibilities on the horizon.”
“The underlying health and resilience of our business is
reflected in the diversified revenue growth that we delivered in
the second quarter,” said Eric Levin, CFO, Warner Music Group.
“While our core business continues to flourish, new growth vectors
are constantly emerging. We look forward to driving value for
our shareholders and are well-positioned to capitalize on the
robust trends taking place in our industry.”
Total WMG
Total WMG
Summary Results |
(dollars
in millions) |
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
% Change |
|
For the Six Months Ended March 31, 2022 |
|
For the Six Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,376 |
|
$ |
1,250 |
|
10 |
% |
|
$ |
2,990 |
|
$ |
2,585 |
|
16 |
% |
Recorded Music revenue |
|
1,147 |
|
|
1,059 |
|
8 |
% |
|
|
2,533 |
|
|
2,220 |
|
14 |
% |
Music Publishing revenue |
|
230 |
|
|
192 |
|
20 |
% |
|
|
459 |
|
|
367 |
|
25 |
% |
Digital revenue |
|
931 |
|
|
860 |
|
8 |
% |
|
|
1,933 |
|
|
1,685 |
|
15 |
% |
Operating income |
|
166 |
|
|
151 |
|
10 |
% |
|
|
405 |
|
|
347 |
|
17 |
% |
Adjusted operating
income(1) |
|
185 |
|
|
178 |
|
4 |
% |
|
|
459 |
|
|
389 |
|
18 |
% |
OIBDA(1) |
|
255 |
|
|
228 |
|
12 |
% |
|
|
575 |
|
|
495 |
|
16 |
% |
Adjusted OIBDA(1) |
|
274 |
|
|
255 |
|
7 |
% |
|
|
629 |
|
|
537 |
|
17 |
% |
Net income |
|
92 |
|
|
117 |
|
-21 |
% |
|
|
280 |
|
|
216 |
|
30 |
% |
Adjusted net income(1) |
|
111 |
|
|
144 |
|
-23 |
% |
|
|
334 |
|
|
258 |
|
29 |
% |
Net cash provided by operating
activities |
|
44 |
|
|
150 |
|
-71 |
% |
|
|
173 |
|
|
319 |
|
-46 |
% |
Free Cash Flow |
|
16 |
|
|
130 |
|
-88 |
% |
|
|
111 |
|
|
281 |
|
-60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
% Change |
|
For the Twelve Months Ended March 31, 2022 |
|
For the Twelve Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Adjusted EBITDA(1) |
$ |
282 |
|
$ |
268 |
|
5 |
% |
|
$ |
1,210 |
|
$ |
943 |
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
Revenue was up 10.1% (or 13.2% in constant currency) driven by
digital revenue growth of 8.3% (or 10.8% in constant currency)
across Recorded Music and Music Publishing. Consistent with the
prior quarter, the quarter included the impact of a new deal with
one of our digital partners affecting Recorded Music streaming
revenue. Adjusting for this item, total revenue was up 12.9% (or
16.1% in constant currency). Total streaming revenue increased 9.0%
(or 11.6% in constant currency) driven by growth across Recorded
Music and Music Publishing, including revenue from emerging
streaming platforms. Digital revenue represented 67.7% of total
revenue in the quarter, compared to 68.8% in the prior-year
quarter. The decrease in digital revenue as a percentage of total
revenue is due to the partial recovery of artist services and
expanded-rights revenue, which was impacted by COVID in the
prior-year quarter and increased 19.5% (or 24.8% in constant
currency) in the quarter, as well as the continued growth in
Recorded Music licensing and Music Publishing synchronization
revenue. Revenue increases in the quarter were also driven by
growth in Recorded Music physical revenue and Music Publishing
performance and mechanical revenue.
Operating income was $166 million compared to $151 million in
the prior-year quarter. OIBDA was $255 million, an increase from
$228 million in the prior-year quarter, and OIBDA margin increased
0.3 percentage points to 18.5% from 18.2% in the prior-year
quarter. The increases in operating income and OIBDA were primarily
due to increased revenue. The increase in OIBDA margin was
primarily due to strong operating performance and lower non-cash
stock-based compensation and other related expenses as a result of
equity awards becoming fully vested, partially offset by growth of
lower-margin revenue streams.
Adjusted operating income, Adjusted OIBDA and Adjusted net
income exclude non-cash stock-based compensation and other related
expenses and expenses related to restructuring and other
transformation initiatives in both the quarter and the prior-year
quarter. In the prior-year quarter, COVID-related expenses 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 7.5% from $255 million to $274 million
and Adjusted OIBDA margin decreased 0.5 percentage points to 19.9%
from 20.4% in the prior-year quarter. The increase in Adjusted
OIBDA was primarily due to increased revenue and strong operating
performance. The decrease in Adjusted OIBDA margin was primarily
due to revenue mix and growth of lower-margin revenue streams.
Adjusted operating income increased 3.9% from $178 million to $185
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 5.2% from $268 million to $282 million
with margins decreasing 0.9 percentage points from 21.4% to 20.5%
largely due to the same factors affecting Adjusted OIBDA.
Net income was $92 million compared to $117 million in the
prior-year quarter. Adjusted net income was $111 million compared
to $144 million in the prior-year quarter. The decrease in net
income and Adjusted net income was primarily due to aggregate
realized and unrealized losses on the mark-to-market of certain
investments, partially offset by higher operating income and lower
income tax expense due to lower pre-tax income.
Basic and Diluted earnings per share was $0.18 for both the
Class A and Class B shareholders due to the net income attributable
to the Company in the quarter of $92 million.
As of March 31, 2022, the Company reported a cash balance
of $385 million, total debt of $3.829 billion and net debt (defined
as total debt, net of deferred financing costs, premiums and
discounts, minus cash and equivalents) of $3.444 billion.
Cash provided by operating activities decreased 71% to $44
million from $150 million in the prior-year quarter. The change was
largely a result of strong operating performance, which was more
than offset by timing of royalty payments and other movements
within working capital. Capital expenditures increased to $28
million in the quarter as compared to $20 million in the prior-year
quarter, mainly due to investments in IT infrastructure and
facilities, including the EMP fulfillment center expansion. Free
Cash Flow, as defined below, decreased 88% to $16 million from $130
million in the prior-year quarter.
Recorded Music
Recorded
Music Summary Results |
(dollars
in millions) |
|
For the ThreeMonths EndedMarch 31, 2022 |
|
For the ThreeMonths EndedMarch 31, 2021 |
|
% Change |
|
For the SixMonths EndedMarch 31, 2022 |
|
For the SixMonths EndedMarch 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,147 |
|
$ |
1,059 |
|
8 |
% |
|
$ |
2,533 |
|
$ |
2,220 |
|
14 |
% |
Digital revenue |
|
804 |
|
|
756 |
|
6 |
% |
|
|
1,674 |
|
|
1,483 |
|
13 |
% |
Operating income |
|
189 |
|
|
184 |
|
3 |
% |
|
|
465 |
|
|
407 |
|
14 |
% |
Adjusted operating
income(1) |
|
192 |
|
|
191 |
|
1 |
% |
|
|
474 |
|
|
420 |
|
13 |
% |
OIBDA(1) |
|
250 |
|
|
235 |
|
6 |
% |
|
|
580 |
|
|
504 |
|
15 |
% |
Adjusted OIBDA(1) |
|
253 |
|
|
242 |
|
5 |
% |
|
|
589 |
|
|
517 |
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(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 ThreeMonths EndedMarch 31, 2022 |
|
For the ThreeMonths EndedMarch 31, 2021 |
|
For the ThreeMonths EndedMarch 31, 2021 |
|
For the SixMonths EndedMarch 31, 2022 |
|
For the SixMonths EndedMarch 31, 2021 |
|
For the SixMonths EndedMarch 31, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Digital |
$ |
804 |
|
$ |
756 |
|
$ |
739 |
|
$ |
1,674 |
|
$ |
1,483 |
|
$ |
1,461 |
Physical |
|
122 |
|
|
118 |
|
|
113 |
|
|
317 |
|
|
292 |
|
|
284 |
Total Digital and Physical |
|
926 |
|
|
874 |
|
|
852 |
|
|
1,991 |
|
|
1,775 |
|
|
1,745 |
Artist services and
expanded-rights |
|
141 |
|
|
118 |
|
|
113 |
|
|
373 |
|
|
298 |
|
|
287 |
Licensing |
|
80 |
|
|
67 |
|
|
65 |
|
|
169 |
|
|
147 |
|
|
144 |
Total Recorded
Music |
$ |
1,147 |
|
$ |
1,059 |
|
$ |
1,030 |
|
$ |
2,533 |
|
$ |
2,220 |
|
$ |
2,176 |
Recorded Music revenue was up 8.3% (or 11.4% in constant
currency) due to growth across all revenue lines, including
increases in digital revenue which reflect the continued growth in
streaming, the Company’s largest source of revenue. Adjusted for
the impact of the new deal with one of our digital partners, as
noted above, Recorded Music revenue was up 11.6% (or 14.8% in
constant currency). Digital revenue grew 6.3% (or 8.8% in constant
currency) due to the strong performance of new and carryover
releases, as well as revenue growth from emerging streaming
platforms. Streaming revenue grew 7.5% (or 9.9% in constant
currency). Adjusted for the impact of the new deal with one of our
digital partners, Recorded Music streaming revenue was up 12.3% (or
15.0% in constant currency). Digital revenue represented 70.1% of
total Recorded Music revenue versus 71.4% in the prior-year
quarter. The decrease in digital revenue as a percentage of total
Recorded Music revenue is due to the partial recovery of artist
services and expanded-rights revenue, which was impacted by COVID,
as well as the continued growth of licensing revenue. Artist
services and expanded-rights revenue increased 19.5% (or 24.8% in
constant currency), reflecting an increase in merchandising and
concert promotion revenue, both of which were disrupted by COVID in
the prior-year quarter. Licensing revenue increased 19.4% (or 23.1%
in constant currency), mainly due to higher synchronization
activity. Physical revenue grew 3.4% (or 8.0% in constant currency)
primarily due to an increasing demand for vinyl. Major sellers
included Ed Sheeran, Michael Bublé, Dua Lipa and Red Hot Chili
Peppers.
Recorded Music operating income was $189 million, up from $184
million in the prior-year quarter, and operating margin was down
0.9 percentage points to 16.5% versus 17.4% in the prior-year
quarter. OIBDA increased to $250 million from $235 million in the
prior-year quarter and OIBDA margin decreased 0.4 percentage points
to 21.8%. Adjusted OIBDA was $253 million versus $242 million in
the prior-year quarter with Adjusted OIBDA margin down 0.8
percentage points to 22.1%. The increases in OIBDA and Adjusted
OIBDA were driven by increased revenue and strong operating
performance. The decreases in operating margin, OIBDA margin and
Adjusted OIBDA margin were primarily due to growth of lower-margin
revenue streams in the quarter, partially offset by strong
operating performance.
Music Publishing
Music
Publishing Summary Results |
(dollars
in millions) |
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
% Change |
|
For the Six Months Ended March 31, 2022 |
|
For the Six Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
230 |
|
$ |
192 |
|
20 |
% |
|
$ |
459 |
|
$ |
367 |
|
25 |
% |
Digital revenue |
|
127 |
|
|
104 |
|
22 |
% |
|
|
260 |
|
|
203 |
|
28 |
% |
Operating income |
|
38 |
|
|
22 |
|
73 |
% |
|
|
70 |
|
|
40 |
|
75 |
% |
Adjusted operating
income(1) |
|
38 |
|
|
25 |
|
52 |
% |
|
|
71 |
|
|
44 |
|
61 |
% |
OIBDA(1) |
|
61 |
|
|
43 |
|
42 |
% |
|
|
115 |
|
|
82 |
|
40 |
% |
Adjusted OIBDA(1) |
|
61 |
|
|
46 |
|
33 |
% |
|
|
116 |
|
|
86 |
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(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 March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
For the Three Months Ended March 31, 2021 |
|
For the Six Months Ended March 31, 2022 |
|
For the Six Months Ended March 31, 2021 |
|
For the Six Months Ended March 31, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Performance |
$ |
36 |
|
$ |
35 |
|
$ |
33 |
|
$ |
74 |
|
$ |
65 |
|
$ |
63 |
Digital |
|
127 |
|
|
104 |
|
|
101 |
|
|
260 |
|
|
203 |
|
|
200 |
Mechanical |
|
13 |
|
|
12 |
|
|
12 |
|
|
27 |
|
|
23 |
|
|
23 |
Synchronization |
|
50 |
|
|
38 |
|
|
39 |
|
|
92 |
|
|
71 |
|
|
71 |
Other |
|
4 |
|
|
3 |
|
|
2 |
|
|
6 |
|
|
5 |
|
|
4 |
Total Music
Publishing |
$ |
230 |
|
$ |
192 |
|
$ |
187 |
|
$ |
459 |
|
$ |
367 |
|
$ |
361 |
Music Publishing revenue increased 19.8% (or 23.0% in constant
currency). The revenue increase was driven by growth across all
revenue lines. Digital revenue increased 22.1% (or 25.7% in
constant currency) reflecting the continued growth in streaming,
including emerging streaming platforms, and timing of new digital
deals. Digital revenue growth in the quarter was impacted by a
shift in the collection of writer’s share of U.S. 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. Streaming revenue increased
19.6% (or 23.2% in constant currency). Digital revenue represented
55.2% of total Music Publishing revenue versus 54.2% in the
prior-year quarter. Synchronization revenue increased due to higher
commercial licensing activity. Performance revenue increased as
bars, restaurants, concerts and live events continued to recover
from COVID disruption. Mechanical revenue increased, driven by
strong physical sales.
Music Publishing operating income was $38 million compared to
$22 million in the prior-year quarter, largely driven by increased
revenue. Operating margin increased 5.0 percentage points to 16.5%.
Music Publishing OIBDA increased 41.9% to $61 million and OIBDA
margin increased 4.1 percentage points to 26.5%. Adjusted OIBDA
increased 32.6% to $61 million and Adjusted OIBDA margin increased
2.5 percentage points to 26.5%. The increases in OIBDA margin and
Adjusted OIBDA margin were primarily due to the impact from a
recent acquisition, revenue mix and strong operating
performance.
Financial details for the quarter can be found in the Company’s
current Quarterly Report on Form 10-Q for the period ended
March 31, 2022, 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 300
Entertainment, 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. The fiscal year ended
September 30, 2022 includes 53 weeks, and the fiscal year ended
September 30, 2021 included 52 weeks. The additional week in fiscal
year 2022 fell in the fiscal quarter ended December 31, 2021.
Accordingly, the results of operations for the six months ended
March 31, 2022 reflect 27 weeks compared to 26 weeks for the
six months ended March 31, 2021. All references to
March 31, 2022 and March 31, 2021 relate to the periods
ended April 1, 2022 and March 26, 2021, respectively. For
convenience purposes, the Company continues to date its financial
statements as of March 31.
Figure
1. Warner Music Group Corp. - Consolidated Statements of
Operations, Three and Six Months Ended March 31, 2022 versus March
31, 2021 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,376 |
|
|
$ |
1,250 |
|
|
10 |
% |
Cost and
expenses: |
|
|
|
|
|
Cost of revenue |
|
(697 |
) |
|
|
(623 |
) |
|
12 |
% |
Selling, general and
administrative expenses |
|
(444 |
) |
|
|
(418 |
) |
|
6 |
% |
Amortization expense |
|
(69 |
) |
|
|
(58 |
) |
|
19 |
% |
Total costs and
expenses |
$ |
(1,210 |
) |
|
$ |
(1,099 |
) |
|
10 |
% |
Operating
income |
$ |
166 |
|
|
$ |
151 |
|
|
10 |
% |
Interest expense, net |
|
(32 |
) |
|
|
(32 |
) |
|
— |
% |
Other (expense) income,
net |
|
(8 |
) |
|
|
49 |
|
|
— |
% |
Income before income
taxes |
$ |
126 |
|
|
$ |
168 |
|
|
-25 |
% |
Income tax expense |
|
(34 |
) |
|
|
(51 |
) |
|
-33 |
% |
Net
income |
$ |
92 |
|
|
$ |
117 |
|
|
-21 |
% |
Less: Income attributable to
noncontrolling interest |
|
— |
|
|
|
— |
|
|
— |
% |
Net income
attributable to Warner Music Group Corp. |
$ |
92 |
|
|
$ |
117 |
|
|
-21 |
% |
|
|
|
|
|
|
Net income per share
attributable to common stockholders: |
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.18 |
|
|
$ |
0.23 |
|
|
|
Class B – Basic and Diluted |
$ |
0.18 |
|
|
$ |
0.22 |
|
|
|
|
For the Six Months Ended March 31, 2022 |
|
For the Six Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
2,990 |
|
|
$ |
2,585 |
|
|
16 |
% |
Cost and
expenses: |
|
|
|
|
|
Cost of revenue |
|
(1,515 |
) |
|
|
(1,309 |
) |
|
16 |
% |
Selling, general and
administrative expenses |
|
(941 |
) |
|
|
(819 |
) |
|
15 |
% |
Amortization expense |
|
(129 |
) |
|
|
(110 |
) |
|
17 |
% |
Total costs and
expenses |
$ |
(2,585 |
) |
|
$ |
(2,238 |
) |
|
16 |
% |
Operating
income |
$ |
405 |
|
|
$ |
347 |
|
|
17 |
% |
Interest expense, net |
|
(62 |
) |
|
|
(63 |
) |
|
-2 |
% |
Other income, net |
|
46 |
|
|
|
18 |
|
|
— |
% |
Income before income
taxes |
$ |
389 |
|
|
$ |
302 |
|
|
29 |
% |
Income tax expense |
|
(109 |
) |
|
|
(86 |
) |
|
27 |
% |
Net
income |
$ |
280 |
|
|
$ |
216 |
|
|
30 |
% |
Less: Income attributable to
noncontrolling interest |
|
(1 |
) |
|
|
(1 |
) |
|
— |
% |
Net income
attributable to Warner Music Group Corp. |
$ |
279 |
|
|
$ |
215 |
|
|
30 |
% |
|
|
|
|
|
|
Net income per share
attributable to common stockholders: |
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.53 |
|
|
$ |
0.41 |
|
|
|
Class B – Basic and Diluted |
$ |
0.53 |
|
|
$ |
0.41 |
|
|
|
Figure
2. Warner Music Group Corp. - Consolidated Balance Sheets at
March 31, 2022 versus September 30, 2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
March 31, 2022 |
|
September 30, 2021 |
|
% Change |
|
(unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and equivalents |
$ |
385 |
|
|
$ |
499 |
|
|
-23 |
% |
Accounts receivable, net |
|
914 |
|
|
|
839 |
|
|
9 |
% |
Inventories |
|
94 |
|
|
|
99 |
|
|
-5 |
% |
Royalty advances expected to be recouped within one year |
|
437 |
|
|
|
373 |
|
|
17 |
% |
Prepaid and other current assets |
|
82 |
|
|
|
86 |
|
|
-5 |
% |
Total current
assets |
$ |
1,912 |
|
|
$ |
1,896 |
|
|
1 |
% |
Royalty advances expected to
be recouped after one year |
|
534 |
|
|
|
457 |
|
|
17 |
% |
Property, plant and equipment,
net |
|
386 |
|
|
|
364 |
|
|
6 |
% |
Operating lease right-of-use
assets, net |
|
253 |
|
|
|
268 |
|
|
-6 |
% |
Goodwill |
|
1,922 |
|
|
|
1,830 |
|
|
5 |
% |
Intangible assets subject to
amortization, net |
|
2,411 |
|
|
|
2,017 |
|
|
20 |
% |
Intangible assets not subject
to amortization |
|
152 |
|
|
|
154 |
|
|
-1 |
% |
Deferred tax assets, net |
|
22 |
|
|
|
31 |
|
|
-29 |
% |
Other assets |
|
189 |
|
|
|
194 |
|
|
-3 |
% |
Total
assets |
$ |
7,781 |
|
|
$ |
7,211 |
|
|
8 |
% |
Liabilities and
Equity |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
320 |
|
|
$ |
302 |
|
|
6 |
% |
Accrued royalties |
|
1,908 |
|
|
|
1,880 |
|
|
1 |
% |
Accrued liabilities |
|
371 |
|
|
|
461 |
|
|
-20 |
% |
Accrued interest |
|
18 |
|
|
|
14 |
|
|
29 |
% |
Operating lease liabilities, current |
|
40 |
|
|
|
43 |
|
|
-7 |
% |
Deferred revenue |
|
239 |
|
|
|
348 |
|
|
-31 |
% |
Other current liabilities |
|
235 |
|
|
|
102 |
|
|
— |
% |
Total current
liabilities |
$ |
3,131 |
|
|
$ |
3,150 |
|
|
-1 |
% |
Long-term debt |
|
3,829 |
|
|
|
3,346 |
|
|
14 |
% |
Operating lease liabilities,
noncurrent |
|
269 |
|
|
|
287 |
|
|
-6 |
% |
Deferred tax liabilities,
net |
|
236 |
|
|
|
207 |
|
|
14 |
% |
Other noncurrent
liabilities |
|
143 |
|
|
|
175 |
|
|
-18 |
% |
Total
liabilities |
$ |
7,608 |
|
|
$ |
7,165 |
|
|
6 |
% |
Equity: |
|
|
|
|
|
Class A common stock |
$ |
— |
|
|
$ |
— |
|
|
— |
% |
Class B common stock |
|
1 |
|
|
|
1 |
|
|
— |
% |
Additional paid-in
capital |
|
1,971 |
|
|
|
1,942 |
|
|
1 |
% |
Accumulated deficit |
|
(1,587 |
) |
|
|
(1,710 |
) |
|
-7 |
% |
Accumulated other
comprehensive loss, net |
|
(231 |
) |
|
|
(202 |
) |
|
14 |
% |
Total Warner Music
Group Corp. equity |
$ |
154 |
|
|
$ |
31 |
|
|
— |
% |
Noncontrolling interest |
|
19 |
|
|
|
15 |
|
|
27 |
% |
Total
equity |
|
173 |
|
|
|
46 |
|
|
— |
% |
Total liabilities and
equity |
$ |
7,781 |
|
|
$ |
7,211 |
|
|
8 |
% |
Figure
3. Warner Music Group Corp. - Summarized Statements of Cash
Flows, Three and Six Months Ended March 31, 2022 versus March 31,
2021 |
(dollars
in millions) |
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
44 |
|
|
$ |
150 |
|
Net cash used in investing
activities |
|
(25 |
) |
|
|
(61 |
) |
Net cash used in financing
activities |
|
(85 |
) |
|
|
(64 |
) |
Effect of foreign currency
exchange rates on cash and equivalents |
|
1 |
|
|
|
(3 |
) |
Net (decrease) increase in
cash and equivalents |
$ |
(65 |
) |
|
$ |
22 |
|
|
|
|
|
|
For the Six Months Ended March 31, 2022 |
|
For the Six Months Ended March 31, 2021 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating
activities |
$ |
173 |
|
|
$ |
319 |
|
Net cash used in investing
activities |
|
(649 |
) |
|
|
(404 |
) |
Net cash provided by financing
activities |
|
363 |
|
|
|
114 |
|
Effect of foreign currency
exchange rates on cash and equivalents |
|
(1 |
) |
|
|
6 |
|
Net (decrease) increase in
cash and equivalents |
$ |
(114 |
) |
|
$ |
35 |
|
Figure
4. Warner Music Group Corp. - Digital Revenue Summary, Three
and Six Months Ended March 31, 2022 versus March 31,
2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Recorded
Music |
|
|
|
|
|
Streaming |
$ |
776 |
|
|
$ |
722 |
|
|
7 |
% |
Downloads and Other Digital |
|
28 |
|
|
|
34 |
|
|
-18 |
% |
Total Recorded Music
Digital Revenue |
$ |
804 |
|
|
$ |
756 |
|
|
6 |
% |
|
|
|
|
|
|
Music
Publishing |
|
|
|
|
|
Streaming |
$ |
122 |
|
|
$ |
102 |
|
|
20 |
% |
Downloads and Other Digital |
|
5 |
|
|
|
2 |
|
|
— |
% |
Total Music Publishing
Digital Revenue |
$ |
127 |
|
|
$ |
104 |
|
|
22 |
% |
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
Streaming |
$ |
898 |
|
|
$ |
824 |
|
|
9 |
% |
Downloads and Other Digital |
|
33 |
|
|
|
36 |
|
|
-8 |
% |
Intersegment Eliminations |
|
— |
|
|
|
— |
|
|
— |
% |
Total Digital
Revenue |
$ |
931 |
|
|
$ |
860 |
|
|
8 |
% |
|
|
|
|
|
|
|
For the Six Months Ended March 31, 2022 |
|
For the Six Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Recorded
Music |
|
|
|
|
|
Streaming |
$ |
1,612 |
|
|
$ |
1,414 |
|
|
14 |
% |
Downloads and Other Digital |
|
62 |
|
|
|
69 |
|
|
-10 |
% |
Total Recorded Music
Digital Revenue |
$ |
1,674 |
|
|
$ |
1,483 |
|
|
13 |
% |
|
|
|
|
|
|
Music
Publishing |
|
|
|
|
|
Streaming |
$ |
251 |
|
|
$ |
196 |
|
|
28 |
% |
Downloads and Other Digital |
|
9 |
|
|
|
7 |
|
|
29 |
% |
Total Music Publishing
Digital Revenue |
$ |
260 |
|
|
$ |
203 |
|
|
28 |
% |
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
Streaming |
$ |
1,863 |
|
|
$ |
1,610 |
|
|
16 |
% |
Downloads and Other Digital |
|
71 |
|
|
|
76 |
|
|
-7 |
% |
Intersegment Eliminations |
|
(1 |
) |
|
|
(1 |
) |
|
— |
% |
Total Digital
Revenue |
$ |
1,933 |
|
|
$ |
1,685 |
|
|
15 |
% |
Supplemental Disclosures Regarding Non-GAAP Financial
Measures
We evaluate our operating performance based on several factors,
including the following non-GAAP financial measures:
OIBDA
OIBDA reflects our operating income before non-cash depreciation
of tangible assets and non-cash amortization of intangible assets.
We consider OIBDA to be an important indicator of the operational
strengths and performance of our businesses, and believe the
presentation of OIBDA helps improve the ability to understand our
operating performance and evaluate our performance in comparison to
comparable periods. However, a limitation of the use of OIBDA as a
performance measure is that it does not reflect the periodic costs
of certain capitalized tangible and intangible assets used in
generating revenue in our businesses. Accordingly, OIBDA should be
considered in addition to, not as a substitute for, operating
income (loss), net income (loss) and other measures of financial
performance reported in accordance with U.S. GAAP. In addition,
OIBDA, as we calculate it, may not be comparable to similarly
titled measures employed by other companies.
Figure
5. Warner Music Group Corp. - Reconciliation of Net Income to
OIBDA, Three and Six Months Ended March 31, 2022 versus March 31,
2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Net income attributable to Warner Music Group
Corp. |
$ |
92 |
|
|
$ |
117 |
|
|
-21 |
% |
Income attributable to
noncontrolling interest |
|
— |
|
|
|
— |
|
|
— |
% |
Net
income |
$ |
92 |
|
|
$ |
117 |
|
|
-21 |
% |
Income tax expense |
|
34 |
|
|
|
51 |
|
|
-33 |
% |
Income including
income taxes |
$ |
126 |
|
|
$ |
168 |
|
|
-25 |
% |
Other expense (income),
net |
|
8 |
|
|
|
(49 |
) |
|
— |
% |
Interest expense, net |
|
32 |
|
|
|
32 |
|
|
— |
% |
Operating
income |
$ |
166 |
|
|
$ |
151 |
|
|
10 |
% |
Amortization expense |
|
69 |
|
|
|
58 |
|
|
19 |
% |
Depreciation expense |
|
20 |
|
|
|
19 |
|
|
5 |
% |
OIBDA |
$ |
255 |
|
|
$ |
228 |
|
|
12 |
% |
Operating income
margin |
|
12.1 |
% |
|
|
12.1 |
% |
|
|
OIBDA
margin |
|
18.5 |
% |
|
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
For the Six Months Ended March 31, 2022 |
|
For the Six Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Net income
attributable to Warner Music Group Corp. |
$ |
279 |
|
|
$ |
215 |
|
|
30 |
% |
Income attributable to
noncontrolling interest |
|
1 |
|
|
|
1 |
|
|
— |
% |
Net
income |
$ |
280 |
|
|
$ |
216 |
|
|
30 |
% |
Income tax expense |
|
109 |
|
|
|
86 |
|
|
27 |
% |
Income including
income taxes |
$ |
389 |
|
|
$ |
302 |
|
|
29 |
% |
Other income, net |
|
(46 |
) |
|
|
(18 |
) |
|
— |
% |
Interest expense, net |
|
62 |
|
|
|
63 |
|
|
-2 |
% |
Operating
income |
$ |
405 |
|
|
$ |
347 |
|
|
17 |
% |
Amortization expense |
|
129 |
|
|
|
110 |
|
|
17 |
% |
Depreciation expense |
|
41 |
|
|
|
38 |
|
|
8 |
% |
OIBDA |
$ |
575 |
|
|
$ |
495 |
|
|
16 |
% |
Operating income
margin |
|
13.5 |
% |
|
|
13.4 |
% |
|
|
OIBDA
margin |
|
19.2 |
% |
|
|
19.1 |
% |
|
|
Figure
6. Warner Music Group Corp. - Reconciliation of Segment
Operating Income to OIBDA, Three and Six Months Ended March 31,
2022 versus March 31, 2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Total WMG operating income – GAAP |
$ |
166 |
|
|
$ |
151 |
|
|
10 |
% |
Depreciation and amortization
expense |
|
(89 |
) |
|
|
(77 |
) |
|
16 |
% |
Total WMG
OIBDA |
$ |
255 |
|
|
$ |
228 |
|
|
12 |
% |
Operating income
margin |
|
12.1 |
% |
|
|
12.1 |
% |
|
|
OIBDA
margin |
|
18.5 |
% |
|
|
18.2 |
% |
|
|
|
|
|
|
|
|
Recorded Music
operating income – GAAP |
$ |
189 |
|
|
$ |
184 |
|
|
3 |
% |
Depreciation and amortization
expense |
|
(61 |
) |
|
|
(51 |
) |
|
20 |
% |
Recorded Music
OIBDA |
$ |
250 |
|
|
$ |
235 |
|
|
6 |
% |
Recorded Music
operating income margin |
|
16.5 |
% |
|
|
17.4 |
% |
|
|
Recorded Music OIBDA
margin |
|
21.8 |
% |
|
|
22.2 |
% |
|
|
|
|
|
|
|
|
Music Publishing
operating income – GAAP |
$ |
38 |
|
|
$ |
22 |
|
|
73 |
% |
Depreciation and amortization
expense |
|
(23 |
) |
|
|
(21 |
) |
|
10 |
% |
Music Publishing
OIBDA |
$ |
61 |
|
|
$ |
43 |
|
|
42 |
% |
Music Publishing
operating income margin |
|
16.5 |
% |
|
|
11.5 |
% |
|
|
Music Publishing OIBDA
margin |
|
26.5 |
% |
|
|
22.4 |
% |
|
|
|
|
|
|
|
|
|
For the Six MonthsEnded March 31, 2022 |
|
For the Six MonthsEnded March 31, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Total WMG operating
income – GAAP |
$ |
405 |
|
|
$ |
347 |
|
|
17 |
% |
Depreciation and amortization
expense |
|
(170 |
) |
|
|
(148 |
) |
|
15 |
% |
Total WMG
OIBDA |
$ |
575 |
|
|
$ |
495 |
|
|
16 |
% |
Operating income
margin |
|
13.5 |
% |
|
|
13.4 |
% |
|
|
OIBDA
margin |
|
19.2 |
% |
|
|
19.1 |
% |
|
|
|
|
|
|
|
|
Recorded Music
operating income – GAAP |
$ |
465 |
|
|
$ |
407 |
|
|
14 |
% |
Depreciation and amortization
expense |
|
(115 |
) |
|
|
(97 |
) |
|
19 |
% |
Recorded Music
OIBDA |
$ |
580 |
|
|
$ |
504 |
|
|
15 |
% |
Recorded Music
operating income margin |
|
18.4 |
% |
|
|
18.3 |
% |
|
|
Recorded Music OIBDA
margin |
|
22.9 |
% |
|
|
22.7 |
% |
|
|
|
|
|
|
|
|
Music Publishing
operating income – GAAP |
$ |
70 |
|
|
$ |
40 |
|
|
75 |
% |
Depreciation and amortization
expense |
|
(45 |
) |
|
|
(42 |
) |
|
7 |
% |
Music Publishing
OIBDA |
$ |
115 |
|
|
$ |
82 |
|
|
40 |
% |
Music Publishing
operating income margin |
|
15.3 |
% |
|
|
10.9 |
% |
|
|
Music Publishing OIBDA
margin |
|
25.1 |
% |
|
|
22.3 |
% |
|
|
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 Six Months Ended March 31, 2022 versus
March 31, 2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMGOperatingIncome |
|
RecordedMusicOperatingIncome |
|
MusicPublishingOperatingIncome |
|
Total WMGOIBDA |
|
RecordedMusicOIBDA |
|
MusicPublishingOIBDA |
|
Net Income |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Reported Results |
$ |
166 |
|
|
$ |
189 |
|
|
$ |
38 |
|
|
$ |
255 |
|
|
$ |
250 |
|
|
$ |
61 |
|
|
$ |
92 |
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
Non-Cash Stock-Based Compensation and Other Related Costs |
|
7 |
|
|
|
3 |
|
|
|
— |
|
|
|
7 |
|
|
|
3 |
|
|
|
— |
|
|
|
7 |
Adjusted Results |
$ |
185 |
|
|
$ |
192 |
|
|
$ |
38 |
|
|
$ |
274 |
|
|
$ |
253 |
|
|
$ |
61 |
|
|
$ |
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
|
13.4 |
% |
|
|
16.7 |
% |
|
|
16.5 |
% |
|
|
19.9 |
% |
|
|
22.1 |
% |
|
|
26.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMGOperatingIncome |
|
RecordedMusicOperatingIncome |
|
MusicPublishingOperatingIncome |
|
Total WMGOIBDA |
|
RecordedMusicOIBDA |
|
MusicPublishingOIBDA |
|
Net Income |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Reported Results |
$ |
151 |
|
|
$ |
184 |
|
|
$ |
22 |
|
|
$ |
228 |
|
|
$ |
235 |
|
|
$ |
43 |
|
|
$ |
117 |
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
|
10 |
|
|
|
— |
|
|
|
2 |
|
|
|
10 |
|
|
|
— |
|
|
|
2 |
|
|
|
10 |
COVID-19 Related Costs |
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
Non-Cash Stock-Based Compensation and Other Related Costs |
|
16 |
|
|
|
7 |
|
|
|
1 |
|
|
|
16 |
|
|
|
7 |
|
|
|
1 |
|
|
|
16 |
Adjusted Results |
$ |
178 |
|
|
$ |
191 |
|
|
$ |
25 |
|
|
$ |
255 |
|
|
$ |
242 |
|
|
$ |
46 |
|
|
$ |
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
|
14.2 |
% |
|
|
18.0 |
% |
|
|
13.0 |
% |
|
|
20.4 |
% |
|
|
22.9 |
% |
|
|
24.0 |
% |
|
|
For the Six Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMGOperatingIncome |
|
RecordedMusicOperatingIncome |
|
MusicPublishingOperatingIncome |
|
Total WMGOIBDA |
|
RecordedMusicOIBDA |
|
MusicPublishingOIBDA |
|
Net Income |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Reported Results |
$ |
405 |
|
|
$ |
465 |
|
|
$ |
70 |
|
|
$ |
575 |
|
|
$ |
580 |
|
|
$ |
115 |
|
|
$ |
280 |
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
COVID-19 Related Costs |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
Non-Cash Stock-Based Compensation and Other Related Costs |
|
31 |
|
|
|
9 |
|
|
|
1 |
|
|
|
31 |
|
|
|
9 |
|
|
|
1 |
|
|
|
31 |
Adjusted Results |
$ |
459 |
|
|
$ |
474 |
|
|
$ |
71 |
|
|
$ |
629 |
|
|
$ |
589 |
|
|
$ |
116 |
|
|
$ |
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
|
15.4 |
% |
|
|
18.7 |
% |
|
|
15.5 |
% |
|
|
21.0 |
% |
|
|
23.3 |
% |
|
|
25.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WMGOperatingIncome |
|
RecordedMusicOperatingIncome |
|
MusicPublishingOperatingIncome |
|
Total WMGOIBDA |
|
RecordedMusicOIBDA |
|
MusicPublishingOIBDA |
|
Net Income |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Reported Results |
$ |
347 |
|
|
$ |
407 |
|
|
$ |
40 |
|
|
$ |
495 |
|
|
$ |
504 |
|
|
$ |
82 |
|
|
$ |
216 |
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
|
18 |
|
|
|
— |
|
|
|
3 |
|
|
|
18 |
|
|
|
— |
|
|
|
3 |
|
|
|
18 |
COVID-19 Related Costs |
|
2 |
|
|
|
1 |
|
|
|
— |
|
|
|
2 |
|
|
|
1 |
|
|
|
— |
|
|
|
2 |
Non-Cash Stock-Based Compensation and Other Related Costs |
|
22 |
|
|
|
12 |
|
|
|
1 |
|
|
|
22 |
|
|
|
12 |
|
|
|
1 |
|
|
|
22 |
Adjusted Results |
$ |
389 |
|
|
$ |
420 |
|
|
$ |
44 |
|
|
$ |
537 |
|
|
$ |
517 |
|
|
$ |
86 |
|
|
$ |
258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
|
15.0 |
% |
|
|
18.9 |
% |
|
|
12.0 |
% |
|
|
20.8 |
% |
|
|
23.3 |
% |
|
|
23.4 |
% |
|
|
Constant Currency
Because exchange rates are an important factor in understanding
period-to-period comparisons, we believe the presentation of
revenue on a constant-currency basis in addition to reported
revenue helps improve the ability to understand our operating
results and evaluate our performance in comparison to prior
periods. Constant-currency information compares results between
periods as if exchange rates had remained constant period over
period. We use results on a constant-currency basis as one measure
to evaluate our performance. We calculate constant-currency results
by applying current-year foreign currency exchange rates to
prior-year results. However, a limitation of the use of the
constant-currency results as a performance measure is that it does
not reflect the impact of exchange rates on our revenue. These
results should be considered in addition to, not as a substitute
for, results reported in accordance with U.S. GAAP. Results on a
constant-currency basis, as we present them, may not be comparable
to similarly titled measures used by other companies and are not a
measure of performance presented in accordance with U.S. GAAP.
Figure
8. Warner Music Group Corp. - Revenue by Geography and
Segment, Three and Six Months Ended March 31, 2022 versus March 31,
2021 As Reported and Constant Currency |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
For the Three Months Ended March 31, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
U.S. revenue |
|
|
|
|
|
Recorded Music |
$ |
518 |
|
|
$ |
469 |
|
|
$ |
469 |
|
Music Publishing |
|
117 |
|
|
|
96 |
|
|
|
96 |
|
International revenue |
|
|
|
|
|
Recorded Music |
|
629 |
|
|
|
590 |
|
|
|
561 |
|
Music Publishing |
|
113 |
|
|
|
96 |
|
|
|
91 |
|
Intersegment eliminations |
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Total
Revenue |
$ |
1,376 |
|
|
$ |
1,250 |
|
|
$ |
1,216 |
|
|
|
|
|
|
|
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
804 |
|
|
$ |
756 |
|
|
$ |
739 |
|
Physical |
|
122 |
|
|
|
118 |
|
|
|
113 |
|
Total Digital and Physical |
|
926 |
|
|
|
874 |
|
|
|
852 |
|
Artist services and expanded-rights |
|
141 |
|
|
|
118 |
|
|
|
113 |
|
Licensing |
|
80 |
|
|
|
67 |
|
|
|
65 |
|
Total Recorded
Music |
|
1,147 |
|
|
|
1,059 |
|
|
|
1,030 |
|
Music Publishing |
|
|
|
|
|
Performance |
|
36 |
|
|
|
35 |
|
|
|
33 |
|
Digital |
|
127 |
|
|
|
104 |
|
|
|
101 |
|
Mechanical |
|
13 |
|
|
|
12 |
|
|
|
12 |
|
Synchronization |
|
50 |
|
|
|
38 |
|
|
|
39 |
|
Other |
|
4 |
|
|
|
3 |
|
|
|
2 |
|
Total Music
Publishing |
|
230 |
|
|
|
192 |
|
|
|
187 |
|
Intersegment eliminations |
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Total
Revenue |
$ |
1,376 |
|
|
$ |
1,250 |
|
|
$ |
1,216 |
|
|
|
|
|
|
|
Total Digital
Revenue |
$ |
931 |
|
|
$ |
860 |
|
|
$ |
840 |
|
|
For the Six MonthsEnded March 31, 2022 |
|
For the Six MonthsEnded March 31, 2021 |
|
For the Six MonthsEnded March 31, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
U.S. revenue |
|
|
|
|
|
Recorded Music |
$ |
1,126 |
|
|
$ |
950 |
|
|
$ |
950 |
|
Music Publishing |
|
232 |
|
|
|
187 |
|
|
|
187 |
|
International revenue |
|
|
|
|
|
Recorded Music |
|
1,407 |
|
|
|
1,270 |
|
|
|
1,226 |
|
Music Publishing |
|
227 |
|
|
|
180 |
|
|
|
174 |
|
Intersegment eliminations |
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Total
Revenue |
$ |
2,990 |
|
|
$ |
2,585 |
|
|
$ |
2,535 |
|
|
|
|
|
|
|
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
1,674 |
|
|
$ |
1,483 |
|
|
$ |
1,461 |
|
Physical |
|
317 |
|
|
|
292 |
|
|
|
284 |
|
Total Digital and Physical |
|
1,991 |
|
|
|
1,775 |
|
|
|
1,745 |
|
Artist services and expanded-rights |
|
373 |
|
|
|
298 |
|
|
|
287 |
|
Licensing |
|
169 |
|
|
|
147 |
|
|
|
144 |
|
Total Recorded
Music |
|
2,533 |
|
|
|
2,220 |
|
|
|
2,176 |
|
Music Publishing |
|
|
|
|
|
Performance |
|
74 |
|
|
|
65 |
|
|
|
63 |
|
Digital |
|
260 |
|
|
|
203 |
|
|
|
200 |
|
Mechanical |
|
27 |
|
|
|
23 |
|
|
|
23 |
|
Synchronization |
|
92 |
|
|
|
71 |
|
|
|
71 |
|
Other |
|
6 |
|
|
|
5 |
|
|
|
4 |
|
Total Music
Publishing |
|
459 |
|
|
|
367 |
|
|
|
361 |
|
Intersegment eliminations |
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Total
Revenue |
$ |
2,990 |
|
|
$ |
2,585 |
|
|
$ |
2,535 |
|
|
|
|
|
|
|
Total Digital
Revenue |
$ |
1,933 |
|
|
$ |
1,685 |
|
|
$ |
1,660 |
|
Free Cash Flow
Our definition of Free Cash Flow is defined as cash flow
provided by operating activities less capital expenditures. 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, any repurchases of our
common stock 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.
Free Cash Flow is not a measure of performance calculated in
accordance with U.S. GAAP and therefore it 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 from “net cash
provided by operating activities” (the most directly comparable
U.S. GAAP financial measure), users of this information should
consider the types of events and transactions that are not
reflected. We provide below a reconciliation of Free Cash Flow to
the most directly comparable amount reported under U.S. GAAP, which
is “net cash provided by operating activities.”
Figure
9. Warner Music Group Corp. - Calculation of Free Cash Flow,
Three and Six Months Ended March 31, 2022 versus March 31,
2021 |
(dollars
in millions) |
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
For the Three Months Ended March 31, 2021 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
44 |
|
$ |
150 |
Less: Capital
expenditures |
|
28 |
|
|
20 |
|
|
|
|
Free Cash
Flow |
$ |
16 |
|
$ |
130 |
|
|
|
|
|
For the Six Months Ended March 31, 2022 |
|
For the Six Months Ended March 31, 2021 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by
operating activities |
$ |
173 |
|
$ |
319 |
Less: Capital
expenditures |
|
62 |
|
|
38 |
|
|
|
|
Free Cash
Flow |
$ |
111 |
|
$ |
281 |
Adjusted EBITDA
Adjusted EBITDA is equivalent to “EBITDA” as defined in our
Revolving Credit Facility and our 2020 indenture and substantially
similar to “EBITDA” as defined under our Senior Term Loan Facility,
respectively. Adjusted EBITDA differs from the term “EBITDA” as it
is commonly used. The definition of Adjusted EBITDA, in addition to
adjusting net income to exclude interest expense, income taxes, and
depreciation and amortization, also adjusts net income by excluding
items or expenses such as, among other items, (1) the amount of any
restructuring charges or reserves; (2) any non-cash charges
(including any impairment charges); (3) any net loss resulting from
hedging currency exchange risks; (4) the amount of management,
monitoring, consulting and advisory fees paid to Access under the
Management Agreement or otherwise; (5) business optimization
expenses (including consolidation initiatives, severance costs and
other costs relating to initiatives aimed at profitability
improvement); (6) transaction expenses; (7) equity-based
compensation expense; and (8) certain extraordinary, unusual or
non-recurring items. The definition of EBITDA under the Revolving
Credit Facility also includes adjustments for the pro forma impact
of certain projected cost savings, operating expense reductions and
synergies and any quality of earnings analysis prepared by
independent certified public accountants in connection with an
acquisition, merger, consolidation or other investment.
Adjusted EBITDA is a key measure used by our management to
understand and evaluate our operating performance, generate future
operating plans and make strategic decisions regarding the
allocation of capital. Adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation or as
a substitute for analysis of our results as reported under U.S.
GAAP. Some of those limitations include: (1) it does not reflect
the periodic costs of certain capitalized tangible and intangible
assets used in generating revenue for our business; (2) it does not
reflect the significant interest expense or cash requirements
necessary to service interest or principal payments on our
indebtedness; and (3) it does not reflect every cash expenditure,
future requirements for capital expenditures or contractual
commitments. In particular, this measure adds back certain
non-cash, extraordinary, unusual or non-recurring charges that are
deducted in calculating net income; however, these are expenses
that may recur, vary greatly and are difficult to predict. In
addition, Adjusted EBITDA is not the same as net income or cash
flow provided by operating activities as those terms are defined by
U.S. GAAP and does not necessarily indicate whether cash flows will
be sufficient to fund cash needs. Accordingly, Adjusted EBITDA
should be considered in addition to, not as a substitute for, net
income (loss) and other measures of financial performance reported
in accordance with U.S. GAAP.
Figure
10. Warner Music Group Corp. - Reconciliation of Net Income
to Adjusted EBITDA, Three and Twelve Months Ended March 31, 2022
versus March 31, 2021 |
(dollars
in
millions) |
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
2022 |
|
For the Three Months Ended March 31,
2021 |
|
For the Twelve Months Ended March 31,
2022 |
|
For the Twelve Months Ended March 31,
2021 |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Net Income (Loss) |
$ |
92 |
|
|
$ |
117 |
|
|
$ |
371 |
|
|
$ |
(302 |
) |
Income tax expense |
|
34 |
|
|
|
51 |
|
|
|
172 |
|
|
|
116 |
|
Interest expense, net |
|
32 |
|
|
|
32 |
|
|
|
121 |
|
|
|
124 |
|
Depreciation and
amortization |
|
89 |
|
|
|
77 |
|
|
|
328 |
|
|
|
277 |
|
Loss on extinguishment of debt
(a) |
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
34 |
|
Net losses (gains) on
divestitures and sale of securities (b) |
|
9 |
|
|
|
(1 |
) |
|
|
7 |
|
|
|
(1 |
) |
Restructuring costs (c) |
|
1 |
|
|
|
3 |
|
|
|
28 |
|
|
|
21 |
|
Net hedging and foreign
exchange (gains) losses (d) |
|
(32 |
) |
|
|
(32 |
) |
|
|
(78 |
) |
|
|
82 |
|
Management fees (e) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
Transaction costs (f) |
|
(5 |
) |
|
|
3 |
|
|
|
9 |
|
|
|
75 |
|
Business optimization expenses
(g) |
|
13 |
|
|
|
10 |
|
|
|
51 |
|
|
|
34 |
|
Non-cash stock-based
compensation expense (h) |
|
6 |
|
|
|
15 |
|
|
|
53 |
|
|
|
469 |
|
Other non-cash charges
(i) |
|
32 |
|
|
|
(16 |
) |
|
|
56 |
|
|
|
(48 |
) |
Pro forma impact of cost
savings initiatives and specified transactions (j) |
|
11 |
|
|
|
9 |
|
|
|
70 |
|
|
|
48 |
|
Adjusted
EBITDA |
$ |
282 |
|
|
$ |
268 |
|
|
$ |
1,210 |
|
|
$ |
943 |
|
|
|
|
(a) |
Reflects loss on extinguishment of debt, primarily including tender
fees and unamortized deferred financing costs. |
(b) |
Reflects net losses (gains) on sale of securities and
divestitures. |
(c) |
Reflects severance costs and other restructuring related
expenses. |
(d) |
Reflects unrealized losses (gains) due to foreign exchange on our
Euro-denominated debt, losses (gains) from hedging activities 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 transaction related costs and mark-to-market
adjustments of an earn-out liability related to a transaction, in
addition to qualifying IPO costs. |
(g) |
Reflects costs associated with our transformation initiatives and
IT system updates, which includes costs of $10 million and $39
million related to our finance transformation for the three and
twelve months ended March 31, 2022, respectively, as well as
$8 million and $25 million for the three and twelve months ended
March 31, 2021, respectively. |
(h) |
Reflects non-cash stock-based compensation expense related to the
Omnibus Incentive Plan and the Warner Music Group Corp. Senior
Management Free Cash Flow Plan. |
(i) |
Reflects non-cash activity, including the unrealized losses (gains)
on the mark-to-market of equity investments, investment losses
(gains) and other non-cash impairments. |
(j) |
Reflects expected savings resulting from transformation initiatives
and the pro forma impact of certain specified transactions for the
three and twelve months ended March 31, 2022. 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 $20 million increase in
the twelve months ended March 31, 2022 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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