Warner Music Group Corp. today announced its third-quarter
financial results for the period ended June 30, 2022.
“We delivered solid double-digit growth on a constant-currency
basis, even against the backdrop of a slowdown in the advertising
market and some one-time items affecting year-over-year
comparisons,” said Steve Cooper, CEO, Warner Music Group. “In June,
we saw the beginning of a new wave of amazing releases and we’re
looking forward to a strong end to our fiscal year. Long term, we
have the scale to best capitalize on trends in artist development,
and the agility and resources to continue to propel the
globalization and diversification of our business.”
“Our third-quarter results reflect the inherent resilience of
our business that comes from our diverse portfolio of revenue
streams,” said Eric Levin, CFO, Warner Music Group. “With
significant runway ahead in our core streaming business and new
growth vectors constantly emerging, we are incredibly bullish on
our growth potential for many years to come.”
Total
WMG |
|
Total WMG
Summary Results |
(dollars
in millions) |
|
For the Three Months Ended June 30, 2022 |
|
For the Three Months Ended June 30, 2021 |
|
% Change |
|
For the Nine Months Ended June 30, 2022 |
|
For the Nine Months Ended June 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,432 |
|
$ |
1,340 |
|
7 |
% |
|
$ |
4,422 |
|
$ |
3,925 |
|
13 |
% |
Recorded Music revenue |
|
1,189 |
|
|
1,152 |
|
3 |
% |
|
|
3,722 |
|
|
3,372 |
|
10 |
% |
Music Publishing revenue |
|
245 |
|
|
189 |
|
30 |
% |
|
|
704 |
|
|
556 |
|
27 |
% |
Digital revenue |
|
944 |
|
|
928 |
|
2 |
% |
|
|
2,877 |
|
|
2,613 |
|
10 |
% |
Operating income |
|
146 |
|
|
162 |
|
-10 |
% |
|
|
551 |
|
|
509 |
|
8 |
% |
Adjusted operating
income(1) |
|
168 |
|
|
184 |
|
-9 |
% |
|
|
627 |
|
|
573 |
|
9 |
% |
OIBDA(1) |
|
233 |
|
|
241 |
|
-3 |
% |
|
|
808 |
|
|
736 |
|
10 |
% |
Adjusted OIBDA(1) |
|
255 |
|
|
263 |
|
-3 |
% |
|
|
884 |
|
|
800 |
|
11 |
% |
Net income |
|
125 |
|
|
61 |
|
— |
% |
|
|
405 |
|
|
277 |
|
46 |
% |
Adjusted net income(1) |
|
147 |
|
|
83 |
|
77 |
% |
|
|
481 |
|
|
341 |
|
41 |
% |
Net cash provided by operating
activities |
|
163 |
|
|
91 |
|
79 |
% |
|
|
336 |
|
|
410 |
|
-18 |
% |
Free Cash Flow |
|
128 |
|
|
71 |
|
80 |
% |
|
|
239 |
|
|
352 |
|
-32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 30, 2022 |
|
For the Three Months Ended June 30, 2021 |
|
% Change |
|
For the Twelve Months Ended June 30, 2022 |
|
For the Twelve Months Ended June 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Adjusted EBITDA(1) |
$ |
263 |
|
$ |
282 |
|
-7 |
% |
|
$ |
1,184 |
|
$ |
1,039 |
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures. |
|
Revenue was up 6.9% (or 12.1% in constant currency). Growth in
the quarter was unfavorably impacted by foreign currency exchange
rates as the U.S. dollar strengthened. Revenue growth was driven by
continued recovery of Recorded Music artist services and
expanded-rights revenue, which was impacted by COVID in the
prior-year quarter and increased 42.9% (or 55.7% in constant
currency) in the quarter, as well as continued growth in Music
Publishing performance revenue. Consistent with the prior two
quarters, the quarter included the impact of a new deal with one of
the Company’s digital partners affecting Recorded Music streaming
revenue. Digital revenue increased 1.7% (or 5.7% in constant
currency). Total streaming revenue increased 2.7% (or 6.5% in
constant currency) primarily driven by growth in Music Publishing
streaming revenue of 29.6% (or 34.6% in constant currency), which
includes a benefit of $17 million resulting from a July 1 remand
ruling by the Copyright Royalty Board in Phonorecords III upholding
higher percentage of revenue U.S. mechanical royalty rates for 2018
to 2022 and reflects amounts expected to be paid (the “CRB Rate
Benefit”). Recorded Music streaming revenue decreased by 1.0% (or
increased by 2.7% in constant currency) primarily due to the impact
of a new deal with one of the Company’s digital partners,
consistent with the prior two quarters, and an $11 million catch-up
payment from one of the Company’s digital partners that benefited
the prior-year quarter (the “Catch-Up Payment”), partially offset
by continued growth in streaming, which was affected by
market-related slowdown in ad-supported revenue. Digital revenue
represented 65.9% of total revenue in the quarter, compared to
69.3% in the prior-year quarter. The decrease in digital revenue as
a percentage of total revenue is due to the growth of artist
services and expanded-rights revenue and performance revenue.
Revenue increases in the quarter were also driven by growth in
Recorded Music licensing revenue and Music Publishing
synchronization revenue. Recorded Music physical revenue was lower
on an as-reported basis, but higher in constant currency. Music
Publishing mechanical revenue was lower on both an as-reported
basis and in constant currency, primarily due to the unfavorable
impact of exchange rates.
Operating income was $146 million compared to $162 million in
the prior-year quarter. OIBDA was $233 million, compared to $241
million in the prior-year quarter, a decrease of 3.3% (or an
increase of 2.6% in constant currency), and OIBDA margin decreased
1.7 percentage points to 16.3% from 18.0% in the prior-year
quarter. The decreases in operating income, OIBDA and OIBDA margin
were primarily as a result of revenue mix due to the growth of
lower-margin artist services and expanded-rights revenue and the
unfavorable impact of exchange rates, partially offset by the
impact of the mark-to-market adjustment of an earn-out liability
related to an acquisition.
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. 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 decreased 3.0% from $263 million to $255 million
(or increased 2.4% in constant currency) and Adjusted OIBDA margin
decreased 1.8 percentage points to 17.8% from 19.6% in the
prior-year quarter. The decrease in Adjusted OIBDA and Adjusted
OIBDA margin was primarily due to the same factors affecting OIBDA.
Adjusted operating income decreased 8.7% from $184 million to $168
million due to the same factors affecting Adjusted OIBDA and higher
amortization expenses due to recent acquisitions and capital
spending.
Adjusted EBITDA decreased 6.7% from $282 million to $263 million
with margins decreasing 2.6 percentage points from 21.0% to 18.4%
largely due to the same factors affecting Adjusted OIBDA and the
impact of the mark-to-market adjustment of an earn-out liability
related to an acquisition which is excluded from Adjusted
EBITDA.
Net income was $125 million compared to $61 million in the
prior-year quarter. Adjusted net income was $147 million compared
to $83 million in the prior-year quarter. The increase in net
income and Adjusted net income was primarily due to the favorable
impact of exchange rates on the Company’s Euro-denominated debt and
a loss on extinguishment of debt in the prior-year quarter, which
offset lower operating income.
Basic and Diluted earnings per share was $0.24 for both the
Class A and Class B shareholders due to the net income attributable
to the Company in the quarter of $125 million.
As of June 30, 2022, the Company reported a cash balance of
$345 million, total debt of $3.785 billion and net debt (defined as
total debt, net of deferred financing costs, premiums and
discounts, minus cash and equivalents) of $3.440 billion.
Cash provided by operating activities increased 79% to $163
million from $91 million in the prior-year quarter. The change was
largely a result of timing of A&R investment, partially offset
by other movements within working capital. Capital expenditures
increased to $35 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, increased 80% to $128
million from $71 million in the prior-year quarter.
Recorded
Music |
|
Recorded
Music Summary Results |
(dollars
in millions) |
|
For the Three Months Ended June 30, 2022 |
|
For the Three Months Ended June 30, 2021 |
|
% Change |
|
For the Nine Months Ended June 30, 2022 |
|
For the Nine Months Ended June 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,189 |
|
$ |
1,152 |
|
3 |
% |
|
$ |
3,722 |
|
$ |
3,372 |
|
10 |
% |
Digital revenue |
|
801 |
|
|
815 |
|
-2 |
% |
|
|
2,475 |
|
|
2,298 |
|
8 |
% |
Operating income |
|
166 |
|
|
197 |
|
-16 |
% |
|
|
631 |
|
|
604 |
|
4 |
% |
Adjusted operating
income(1) |
|
173 |
|
|
201 |
|
-14 |
% |
|
|
647 |
|
|
621 |
|
4 |
% |
OIBDA(1) |
|
224 |
|
|
250 |
|
-10 |
% |
|
|
804 |
|
|
754 |
|
7 |
% |
Adjusted OIBDA(1) |
|
231 |
|
|
254 |
|
-9 |
% |
|
|
820 |
|
|
771 |
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2022 |
|
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2022 |
|
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Digital |
$ |
801 |
|
$ |
815 |
|
$ |
784 |
|
$ |
2,475 |
|
$ |
2,298 |
|
$ |
2,245 |
Physical |
|
123 |
|
|
130 |
|
|
121 |
|
|
440 |
|
|
422 |
|
|
405 |
Total Digital and Physical |
|
924 |
|
|
945 |
|
|
905 |
|
|
2,915 |
|
|
2,720 |
|
|
2,650 |
Artist services and
expanded-rights |
|
190 |
|
|
133 |
|
|
122 |
|
|
563 |
|
|
431 |
|
|
409 |
Licensing |
|
75 |
|
|
74 |
|
|
69 |
|
|
244 |
|
|
221 |
|
|
213 |
Total Recorded
Music |
$ |
1,189 |
|
$ |
1,152 |
|
$ |
1,096 |
|
$ |
3,722 |
|
$ |
3,372 |
|
$ |
3,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Music revenue was up 3.2% (or 8.5% in constant
currency) due to artist services and expanded-rights revenue growth
of 42.9% (or 55.7% in constant currency), reflecting an increase in
concert promotion revenue, which was disrupted by COVID in the
prior-year quarter. Licensing revenue increased 1.4% (or 8.7% in
constant currency), mainly due to higher synchronization and other
activity, partially offset by the unfavorable impact of exchange
rates. Digital revenue was down 1.7% (or up 2.2% in constant
currency) and streaming revenue was down 1.0% (or up 2.7% in
constant currency). Adjusted for the impact of the new deal with
one of the Company’s digital partners and the Catch-Up Payment,
Recorded Music streaming revenue was up 5.0% (or 9.2% in constant
currency). Streaming revenue reflects continued growth, which was
affected by market-related slowdown in ad-supported revenue.
Digital revenue represented 67.4% of total Recorded Music revenue
versus 70.7% in the prior-year quarter. The decrease in digital
revenue as a percentage of total Recorded Music revenue is due to
the continued recovery of artist services and expanded-rights
revenue, which was impacted by COVID in the prior-year quarter.
Physical revenue was down 5.4% (or up 1.7% in constant currency)
primarily due to the unfavorable impact of exchange rates, which
offset higher sales due to the success of new releases in Asia.
Major sellers included Ed Sheeran, Dua Lipa, Tatsuro Yamashita,
GOT7, Jack Harlow and Gunna.
Recorded Music operating income was $166 million, down from $197
million in the prior-year quarter and operating margin was down 3.1
percentage points to 14.0% versus 17.1% in the prior-year quarter.
OIBDA decreased 10.4% to $224 million from $250 million (or 5.5% in
constant currency) in the prior-year quarter and OIBDA margin
decreased 2.9 percentage points to 18.8%. Adjusted OIBDA decreased
9.1% from $254 million to $231 million (or 4.1% in constant
currency) with Adjusted OIBDA margin down 2.6 percentage points to
19.4%. The decreases in OIBDA, Adjusted OIBDA, operating margin,
OIBDA margin and Adjusted OIBDA margin were primarily due to
revenue mix resulting from the growth of lower-margin artist
services and expanded rights revenue and the unfavorable impact of
exchange rates, partially offset by the impact of the
mark-to-market adjustment of an earn-out liability related to an
acquisition.
Music
Publishing |
|
Music
Publishing Summary Results |
(dollars
in millions) |
|
For the Three Months Ended June 30, 2022 |
|
For the Three Months Ended June 30, 2021 |
|
% Change |
|
For the Nine Months Ended June 30, 2022 |
|
For the Nine Months Ended June 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
245 |
|
$ |
189 |
|
30 |
% |
|
$ |
704 |
|
$ |
556 |
|
27 |
% |
Digital revenue |
|
144 |
|
|
113 |
|
27 |
% |
|
|
404 |
|
|
316 |
|
28 |
% |
Operating income |
|
33 |
|
|
21 |
|
57 |
% |
|
|
103 |
|
|
61 |
|
69 |
% |
Adjusted operating
income(1) |
|
33 |
|
|
22 |
|
50 |
% |
|
|
104 |
|
|
66 |
|
58 |
% |
OIBDA(1) |
|
57 |
|
|
43 |
|
33 |
% |
|
|
172 |
|
|
125 |
|
38 |
% |
Adjusted OIBDA(1) |
|
57 |
|
|
44 |
|
30 |
% |
|
|
173 |
|
|
130 |
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2022 |
|
For the Three Months Ended June 30, 2021 |
|
For the Three Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2022 |
|
For the Nine Months Ended June 30, 2021 |
|
For the Nine Months Ended June 30, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Performance |
$ |
45 |
|
$ |
27 |
|
$ |
25 |
|
$ |
119 |
|
$ |
92 |
|
$ |
88 |
Digital |
|
144 |
|
|
113 |
|
|
109 |
|
|
404 |
|
|
316 |
|
|
309 |
Mechanical |
|
10 |
|
|
13 |
|
|
11 |
|
|
37 |
|
|
36 |
|
|
34 |
Synchronization |
|
41 |
|
|
34 |
|
|
34 |
|
|
133 |
|
|
105 |
|
|
105 |
Other |
|
5 |
|
|
2 |
|
|
3 |
|
|
11 |
|
|
7 |
|
|
7 |
Total Music
Publishing |
$ |
245 |
|
$ |
189 |
|
$ |
182 |
|
$ |
704 |
|
$ |
556 |
|
$ |
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Music Publishing revenue increased 29.6% (or 34.6% in constant
currency). The revenue increase was driven by growth in digital,
performance and synchronization revenue, partially offset by a
decline in mechanical revenue. Digital revenue increased 27.4% (or
32.1% in constant currency) and streaming revenue increased 29.6%
(or 34.6% in constant currency), reflecting the continued growth in
streaming, the CRB Rate Benefit and timing of new digital deals.
Adjusted for the CRB Rate Benefit, streaming revenue increased
13.9% (or 18.3% in constant currency). Digital revenue represented
58.8% of total Music Publishing revenue versus 59.8% in the
prior-year quarter. The slight decrease in digital revenue as a
percentage of total Music Publishing revenue is due to an increase
in performance revenue as bars, restaurants, concerts and live
events continued to recover from COVID disruption. Synchronization
revenue increased due to higher television and commercial licensing
activity. Mechanical revenue decreased primarily due to the
unfavorable impact of exchange rates.
Music Publishing operating income was $33 million compared to
$21 million in the prior-year quarter, largely driven by increased
revenue. Operating margin increased 2.4 percentage points to 13.5%.
Music Publishing OIBDA increased 32.6% to $57 million (or 35.7% in
constant currency) and OIBDA margin increased 0.5 percentage points
to 23.3%. Adjusted OIBDA increased 29.5% to $57 million (or 32.6%
in constant currency) and Adjusted OIBDA margin remained constant
at 23.3%. The increase in operating income, OIBDA and Adjusted
OIBDA were primarily due to strong operating performance, partially
offset by revenue mix and the unfavorable impact of exchange
rates.
Financial details for the quarter can be found in the Company’s
current Quarterly Report on Form 10-Q for the period ended
June 30, 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 nine months ended
June 30, 2022 reflect 40 weeks compared to 39 weeks for the
nine months ended June 30, 2021. All references to
June 30, 2022 and June 30, 2021 relate to the periods
ended July 1, 2022 and June 25, 2021, respectively, and
both periods include 13 weeks. For convenience purposes, the
Company continues to date its third-quarter financial statements as
of June 30.
Figure 1.
Warner Music Group Corp. - Consolidated Statements of Operations,
Three and Nine Months Ended June 30, 2022 versus June 30,
2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
For the Three Months EndedJune 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,432 |
|
|
$ |
1,340 |
|
|
7 |
% |
Cost and
expenses: |
|
|
|
|
|
Cost of revenue |
|
(766 |
) |
|
|
(681 |
) |
|
12 |
% |
Selling, general and
administrative expenses |
|
(451 |
) |
|
|
(437 |
) |
|
3 |
% |
Amortization expense |
|
(69 |
) |
|
|
(60 |
) |
|
15 |
% |
Total costs and
expenses |
$ |
(1,286 |
) |
|
$ |
(1,178 |
) |
|
9 |
% |
Operating
income |
$ |
146 |
|
|
$ |
162 |
|
|
-10 |
% |
Loss on extinguishment of
debt |
|
— |
|
|
|
(12 |
) |
|
-100 |
% |
Interest expense, net |
|
(32 |
) |
|
|
(30 |
) |
|
7 |
% |
Other income (expense),
net |
|
50 |
|
|
|
(18 |
) |
|
— |
% |
Income before income
taxes |
$ |
164 |
|
|
$ |
102 |
|
|
61 |
% |
Income tax expense |
|
(39 |
) |
|
|
(41 |
) |
|
-5 |
% |
Net
income |
$ |
125 |
|
|
$ |
61 |
|
|
— |
% |
Less: Income attributable to
noncontrolling interest |
|
(1 |
) |
|
|
— |
|
|
— |
% |
Net income
attributable to Warner Music Group Corp. |
$ |
124 |
|
|
$ |
61 |
|
|
— |
% |
|
|
|
|
|
|
Net income per share
attributable to common stockholders: |
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.24 |
|
|
$ |
0.12 |
|
|
|
Class B – Basic and Diluted |
$ |
0.24 |
|
|
$ |
0.12 |
|
|
|
|
For the Nine Months EndedJune 30, 2022 |
|
For the Nine Months EndedJune 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
4,422 |
|
|
$ |
3,925 |
|
|
13 |
% |
Cost and
expenses: |
|
|
|
|
|
Cost of revenue |
|
(2,281 |
) |
|
|
(1,990 |
) |
|
15 |
% |
Selling, general and
administrative expenses |
|
(1,392 |
) |
|
|
(1,256 |
) |
|
11 |
% |
Amortization expense |
|
(198 |
) |
|
|
(170 |
) |
|
16 |
% |
Total costs and
expenses |
$ |
(3,871 |
) |
|
$ |
(3,416 |
) |
|
13 |
% |
Operating
income |
$ |
551 |
|
|
$ |
509 |
|
|
8 |
% |
Loss on extinguishment of
debt |
|
— |
|
|
|
(12 |
) |
|
-100 |
% |
Interest expense, net |
|
(94 |
) |
|
|
(93 |
) |
|
1 |
% |
Other income, net |
|
96 |
|
|
|
— |
|
|
— |
% |
Income before income
taxes |
$ |
553 |
|
|
$ |
404 |
|
|
37 |
% |
Income tax expense |
|
(148 |
) |
|
|
(127 |
) |
|
17 |
% |
Net
income |
$ |
405 |
|
|
$ |
277 |
|
|
46 |
% |
Less: Income attributable to
noncontrolling interest |
|
(2 |
) |
|
|
(1 |
) |
|
100 |
% |
Net income
attributable to Warner Music Group Corp. |
$ |
403 |
|
|
$ |
276 |
|
|
46 |
% |
|
|
|
|
|
|
Net income per share
attributable to common stockholders: |
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.77 |
|
|
$ |
0.53 |
|
|
|
Class B – Basic and Diluted |
$ |
0.77 |
|
|
$ |
0.53 |
|
|
|
Figure 2.
Warner Music Group Corp. - Consolidated Balance Sheets at June 30,
2022 versus September 30, 2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
June 30, 2022 |
|
September 30, 2021 |
|
% Change |
|
(unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and equivalents |
$ |
345 |
|
|
$ |
499 |
|
|
-31 |
% |
Accounts receivable, net |
|
970 |
|
|
|
839 |
|
|
16 |
% |
Inventories |
|
93 |
|
|
|
99 |
|
|
-6 |
% |
Royalty advances expected to be recouped within one year |
|
409 |
|
|
|
373 |
|
|
10 |
% |
Prepaid and other current assets |
|
84 |
|
|
|
86 |
|
|
-2 |
% |
Total current
assets |
$ |
1,901 |
|
|
$ |
1,896 |
|
|
— |
% |
Royalty advances expected to
be recouped after one year |
|
500 |
|
|
|
457 |
|
|
9 |
% |
Property, plant and equipment,
net |
|
403 |
|
|
|
364 |
|
|
11 |
% |
Operating lease right-of-use
assets, net |
|
239 |
|
|
|
268 |
|
|
-11 |
% |
Goodwill |
|
1,932 |
|
|
|
1,830 |
|
|
6 |
% |
Intangible assets subject to
amortization, net |
|
2,345 |
|
|
|
2,017 |
|
|
16 |
% |
Intangible assets not subject
to amortization |
|
149 |
|
|
|
154 |
|
|
-3 |
% |
Deferred tax assets, net |
|
22 |
|
|
|
31 |
|
|
-29 |
% |
Other assets |
|
208 |
|
|
|
194 |
|
|
7 |
% |
Total
assets |
$ |
7,699 |
|
|
$ |
7,211 |
|
|
7 |
% |
Liabilities and
Equity |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
265 |
|
|
$ |
302 |
|
|
-12 |
% |
Accrued royalties |
|
1,971 |
|
|
|
1,880 |
|
|
5 |
% |
Accrued liabilities |
|
395 |
|
|
|
461 |
|
|
-14 |
% |
Accrued interest |
|
29 |
|
|
|
14 |
|
|
— |
% |
Operating lease liabilities, current |
|
39 |
|
|
|
43 |
|
|
-9 |
% |
Deferred revenue |
|
197 |
|
|
|
348 |
|
|
-43 |
% |
Other current liabilities |
|
227 |
|
|
|
102 |
|
|
— |
% |
Total current
liabilities |
$ |
3,123 |
|
|
$ |
3,150 |
|
|
-1 |
% |
Long-term debt |
|
3,785 |
|
|
|
3,346 |
|
|
13 |
% |
Operating lease liabilities,
noncurrent |
|
255 |
|
|
|
287 |
|
|
-11 |
% |
Deferred tax liabilities,
net |
|
241 |
|
|
|
207 |
|
|
16 |
% |
Other noncurrent
liabilities |
|
123 |
|
|
|
175 |
|
|
-30 |
% |
Total
liabilities |
$ |
7,527 |
|
|
$ |
7,165 |
|
|
5 |
% |
Equity: |
|
|
|
|
|
Class A common stock |
$ |
— |
|
|
$ |
— |
|
|
— |
% |
Class B common stock |
|
1 |
|
|
|
1 |
|
|
— |
% |
Additional paid-in
capital |
|
1,975 |
|
|
|
1,942 |
|
|
2 |
% |
Accumulated deficit |
|
(1,542 |
) |
|
|
(1,710 |
) |
|
-10 |
% |
Accumulated other
comprehensive loss, net |
|
(278 |
) |
|
|
(202 |
) |
|
38 |
% |
Total Warner Music
Group Corp. equity |
$ |
156 |
|
|
$ |
31 |
|
|
— |
% |
Noncontrolling interest |
|
16 |
|
|
|
15 |
|
|
7 |
% |
Total
equity |
|
172 |
|
|
|
46 |
|
|
— |
% |
Total liabilities and
equity |
$ |
7,699 |
|
|
$ |
7,211 |
|
|
7 |
% |
Figure 3.
Warner Music Group Corp. - Summarized Statements of Cash Flows,
Three and Nine Months Ended June 30, 2022 versus June 30,
2021 |
(dollars
in millions) |
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
For the Three Months EndedJune 30, 2021 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
163 |
|
|
$ |
91 |
|
Net cash used in investing
activities |
|
(114 |
) |
|
|
(162 |
) |
Net cash used in financing
activities |
|
(83 |
) |
|
|
(79 |
) |
Effect of foreign currency
exchange rates on cash and equivalents |
|
(6 |
) |
|
|
4 |
|
Net decrease in cash and
equivalents |
$ |
(40 |
) |
|
$ |
(146 |
) |
|
|
|
|
|
For the Nine Months EndedJune 30, 2022 |
|
For the Nine Months EndedJune 30, 2021 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating
activities |
$ |
336 |
|
|
$ |
410 |
|
Net cash used in investing
activities |
|
(763 |
) |
|
|
(566 |
) |
Net cash provided by financing
activities |
|
280 |
|
|
|
35 |
|
Effect of foreign currency
exchange rates on cash and equivalents |
|
(7 |
) |
|
|
10 |
|
Net decrease in cash and
equivalents |
$ |
(154 |
) |
|
$ |
(111 |
) |
Figure 4.
Warner Music Group Corp. - Digital Revenue Summary, Three and Nine
Months Ended June 30, 2022 versus June 30, 2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
For the Three Months EndedJune 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Recorded
Music |
|
|
|
|
|
Streaming |
$ |
773 |
|
|
$ |
781 |
|
|
-1 |
% |
Downloads and Other Digital |
|
28 |
|
|
|
34 |
|
|
-18 |
% |
Total Recorded Music
Digital Revenue |
$ |
801 |
|
|
$ |
815 |
|
|
-2 |
% |
|
|
|
|
|
|
Music
Publishing |
|
|
|
|
|
Streaming |
$ |
140 |
|
|
$ |
108 |
|
|
30 |
% |
Downloads and Other Digital |
|
4 |
|
|
|
5 |
|
|
-20 |
% |
Total Music Publishing
Digital Revenue |
$ |
144 |
|
|
$ |
113 |
|
|
27 |
% |
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
Streaming |
$ |
913 |
|
|
$ |
889 |
|
|
3 |
% |
Downloads and Other Digital |
|
32 |
|
|
|
39 |
|
|
-18 |
% |
Intersegment Eliminations |
|
(1 |
) |
|
|
— |
|
|
— |
% |
Total Digital
Revenue |
$ |
944 |
|
|
$ |
928 |
|
|
2 |
% |
|
|
|
|
|
|
|
For the Nine Months EndedJune 30, 2022 |
|
For the Nine Months EndedJune 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Recorded
Music |
|
|
|
|
|
Streaming |
$ |
2,385 |
|
|
$ |
2,195 |
|
|
9 |
% |
Downloads and Other Digital |
|
90 |
|
|
|
103 |
|
|
-13 |
% |
Total Recorded Music
Digital Revenue |
$ |
2,475 |
|
|
$ |
2,298 |
|
|
8 |
% |
|
|
|
|
|
|
Music
Publishing |
|
|
|
|
|
Streaming |
$ |
391 |
|
|
$ |
304 |
|
|
29 |
% |
Downloads and Other Digital |
|
13 |
|
|
|
12 |
|
|
8 |
% |
Total Music Publishing
Digital Revenue |
$ |
404 |
|
|
$ |
316 |
|
|
28 |
% |
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
Streaming |
$ |
2,776 |
|
|
$ |
2,499 |
|
|
11 |
% |
Downloads and Other Digital |
|
103 |
|
|
|
115 |
|
|
-10 |
% |
Intersegment Eliminations |
|
(2 |
) |
|
|
(1 |
) |
|
100 |
% |
Total Digital
Revenue |
$ |
2,877 |
|
|
$ |
2,613 |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures Regarding Non-GAAP Financial
Measures
We evaluate our operating performance based on several factors,
including the following non-GAAP financial measures:
OIBDA
OIBDA reflects our operating income before non-cash depreciation
of tangible assets and non-cash amortization of intangible assets.
We consider OIBDA to be an important indicator of the operational
strengths and performance of our businesses, and believe the
presentation of OIBDA helps improve the ability to understand our
operating performance and evaluate our performance in comparison to
comparable periods. However, a limitation of the use of OIBDA as a
performance measure is that it does not reflect the periodic costs
of certain capitalized tangible and intangible assets used in
generating revenue in our businesses. Accordingly, OIBDA should be
considered in addition to, not as a substitute for, operating
income (loss), net income (loss) and other measures of financial
performance reported in accordance with U.S. GAAP. In addition,
OIBDA, as we calculate it, may not be comparable to similarly
titled measures employed by other companies.
Figure 5.
Warner Music Group Corp. - Reconciliation of Net Income to OIBDA,
Three and Nine Months Ended June 30, 2022 versus June 30,
2021 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
For the Three Months EndedJune 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Net income attributable to Warner Music Group
Corp. |
$ |
124 |
|
|
$ |
61 |
|
|
— |
% |
Income attributable to
noncontrolling interest |
|
1 |
|
|
|
— |
|
|
— |
% |
Net
income |
$ |
125 |
|
|
$ |
61 |
|
|
— |
% |
Income tax expense |
|
39 |
|
|
|
41 |
|
|
-5 |
% |
Income including
income taxes |
$ |
164 |
|
|
$ |
102 |
|
|
61 |
% |
Other (income) expense,
net |
|
(50 |
) |
|
|
18 |
|
|
— |
% |
Interest expense, net |
|
32 |
|
|
|
30 |
|
|
7 |
% |
Loss on extinguishment of
debt |
|
— |
|
|
|
12 |
|
|
-100 |
% |
Operating
income |
$ |
146 |
|
|
$ |
162 |
|
|
-10 |
% |
Amortization expense |
|
69 |
|
|
|
60 |
|
|
15 |
% |
Depreciation expense |
|
18 |
|
|
|
19 |
|
|
-5 |
% |
OIBDA |
$ |
233 |
|
|
$ |
241 |
|
|
-3 |
% |
Operating income
margin |
|
10.2 |
% |
|
|
12.1 |
% |
|
|
OIBDA
margin |
|
16.3 |
% |
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
For the Nine Months EndedJune 30, 2022 |
|
For the Nine Months EndedJune 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Net income
attributable to Warner Music Group Corp. |
$ |
403 |
|
|
$ |
276 |
|
|
46 |
% |
Income attributable to
noncontrolling interest |
|
2 |
|
|
|
1 |
|
|
100 |
% |
Net
income |
$ |
405 |
|
|
$ |
277 |
|
|
46 |
% |
Income tax expense |
|
148 |
|
|
|
127 |
|
|
17 |
% |
Income including
income taxes |
$ |
553 |
|
|
$ |
404 |
|
|
37 |
% |
Other income, net |
|
(96 |
) |
|
|
— |
|
|
— |
% |
Interest expense, net |
|
94 |
|
|
|
93 |
|
|
1 |
% |
Loss on extinguishment of
debt |
|
— |
|
|
|
12 |
|
|
-100 |
% |
Operating
income |
$ |
551 |
|
|
$ |
509 |
|
|
8 |
% |
Amortization expense |
|
198 |
|
|
|
170 |
|
|
16 |
% |
Depreciation expense |
|
59 |
|
|
|
57 |
|
|
4 |
% |
OIBDA |
$ |
808 |
|
|
$ |
736 |
|
|
10 |
% |
Operating income
margin |
|
12.5 |
% |
|
|
13.0 |
% |
|
|
OIBDA
margin |
|
18.3 |
% |
|
|
18.8 |
% |
|
|
Figure 6.
Warner Music Group Corp. - Reconciliation of Segment Operating
Income to OIBDA, Three and Nine Months Ended June 30, 2022 versus
June 30, 2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
For the Three Months EndedJune 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Total WMG operating income – GAAP |
$ |
146 |
|
|
$ |
162 |
|
|
-10 |
% |
Depreciation and amortization
expense |
|
(87 |
) |
|
|
(79 |
) |
|
10 |
% |
Total WMG
OIBDA |
$ |
233 |
|
|
$ |
241 |
|
|
-3 |
% |
Operating income
margin |
|
10.2 |
% |
|
|
12.1 |
% |
|
|
OIBDA
margin |
|
16.3 |
% |
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
Recorded Music
operating income – GAAP |
$ |
166 |
|
|
$ |
197 |
|
|
-16 |
% |
Depreciation and amortization
expense |
|
(58 |
) |
|
|
(53 |
) |
|
9 |
% |
Recorded Music
OIBDA |
$ |
224 |
|
|
$ |
250 |
|
|
-10 |
% |
Recorded Music
operating income margin |
|
14.0 |
% |
|
|
17.1 |
% |
|
|
Recorded Music OIBDA
margin |
|
18.8 |
% |
|
|
21.7 |
% |
|
|
|
|
|
|
|
|
Music Publishing
operating income – GAAP |
$ |
33 |
|
|
$ |
21 |
|
|
57 |
% |
Depreciation and amortization
expense |
|
(24 |
) |
|
|
(22 |
) |
|
9 |
% |
Music Publishing
OIBDA |
$ |
57 |
|
|
$ |
43 |
|
|
33 |
% |
Music Publishing
operating income margin |
|
13.5 |
% |
|
|
11.1 |
% |
|
|
Music Publishing OIBDA
margin |
|
23.3 |
% |
|
|
22.8 |
% |
|
|
|
|
|
|
|
|
|
For the Nine Months EndedJune 30, 2022 |
|
For the Nine Months EndedJune 30, 2021 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Total WMG operating
income – GAAP |
$ |
551 |
|
|
$ |
509 |
|
|
8 |
% |
Depreciation and amortization
expense |
|
(257 |
) |
|
|
(227 |
) |
|
13 |
% |
Total WMG
OIBDA |
$ |
808 |
|
|
$ |
736 |
|
|
10 |
% |
Operating income
margin |
|
12.5 |
% |
|
|
13.0 |
% |
|
|
OIBDA
margin |
|
18.3 |
% |
|
|
18.8 |
% |
|
|
|
|
|
|
|
|
Recorded Music
operating income – GAAP |
$ |
631 |
|
|
$ |
604 |
|
|
4 |
% |
Depreciation and amortization
expense |
|
(173 |
) |
|
|
(150 |
) |
|
15 |
% |
Recorded Music
OIBDA |
$ |
804 |
|
|
$ |
754 |
|
|
7 |
% |
Recorded Music
operating income margin |
|
17.0 |
% |
|
|
17.9 |
% |
|
|
Recorded Music OIBDA
margin |
|
21.6 |
% |
|
|
22.4 |
% |
|
|
|
|
|
|
|
|
Music Publishing
operating income – GAAP |
$ |
103 |
|
|
$ |
61 |
|
|
69 |
% |
Depreciation and amortization
expense |
|
(69 |
) |
|
|
(64 |
) |
|
8 |
% |
Music Publishing
OIBDA |
$ |
172 |
|
|
$ |
125 |
|
|
38 |
% |
Music Publishing
operating income margin |
|
14.6 |
% |
|
|
11.0 |
% |
|
|
Music Publishing OIBDA
margin |
|
24.4 |
% |
|
|
22.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
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, 2022 versus June 30,
2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
$ |
146 |
|
|
$ |
166 |
|
|
$ |
33 |
|
|
$ |
233 |
|
|
$ |
224 |
|
|
$ |
57 |
|
|
$ |
125 |
|
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
|
16 |
|
|
|
4 |
|
|
|
— |
|
|
|
16 |
|
|
|
4 |
|
|
|
— |
|
|
|
16 |
|
Non-Cash Stock-Based Compensation and Other Related Costs |
|
6 |
|
|
|
3 |
|
|
|
— |
|
|
|
6 |
|
|
|
3 |
|
|
|
— |
|
|
|
6 |
|
Adjusted Results |
$ |
168 |
|
|
$ |
173 |
|
|
$ |
33 |
|
|
$ |
255 |
|
|
$ |
231 |
|
|
$ |
57 |
|
|
$ |
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
|
11.7 |
% |
|
|
14.6 |
% |
|
|
13.5 |
% |
|
|
17.8 |
% |
|
|
19.4 |
% |
|
|
23.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months EndedJune 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 Nine Months EndedJune 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
$ |
551 |
|
|
$ |
631 |
|
|
$ |
103 |
|
|
$ |
808 |
|
|
$ |
804 |
|
|
$ |
172 |
|
|
$ |
405 |
Factors Affecting
Comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Other Transformation Related Costs |
|
39 |
|
|
|
4 |
|
|
|
— |
|
|
|
39 |
|
|
|
4 |
|
|
|
— |
|
|
|
39 |
COVID-19 Related Costs |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
Non-Cash Stock-Based Compensation and Other Related Costs |
|
37 |
|
|
|
12 |
|
|
|
1 |
|
|
|
37 |
|
|
|
12 |
|
|
|
1 |
|
|
|
37 |
Adjusted Results |
$ |
627 |
|
|
$ |
647 |
|
|
$ |
104 |
|
|
$ |
884 |
|
|
$ |
820 |
|
|
$ |
173 |
|
|
$ |
481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Margin |
|
14.2 |
% |
|
|
17.4 |
% |
|
|
14.8 |
% |
|
|
20.0 |
% |
|
|
22.0 |
% |
|
|
24.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months EndedJune 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency
Because exchange rates are an important factor in understanding
period-to-period comparisons, we believe the presentation of
revenue and OIBDA on a constant-currency basis in addition to
reported revenue and OIBDA 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 and OIBDA.
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, 2022 versus June 30, 2021 As
Reported and Constant Currency |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
For the Three Months EndedJune 30, 2021 |
|
For the Three Months EndedJune 30, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
U.S. revenue |
|
|
|
|
|
Recorded Music |
$ |
515 |
|
|
$ |
504 |
|
|
$ |
504 |
|
Music Publishing |
|
137 |
|
|
|
90 |
|
|
|
90 |
|
International revenue |
|
|
|
|
|
Recorded Music |
|
674 |
|
|
|
648 |
|
|
|
592 |
|
Music Publishing |
|
108 |
|
|
|
99 |
|
|
|
92 |
|
Intersegment eliminations |
|
(2 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Total
Revenue |
$ |
1,432 |
|
|
$ |
1,340 |
|
|
$ |
1,277 |
|
|
|
|
|
|
|
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
801 |
|
|
$ |
815 |
|
|
$ |
784 |
|
Physical |
|
123 |
|
|
|
130 |
|
|
|
121 |
|
Total Digital and Physical |
|
924 |
|
|
|
945 |
|
|
|
905 |
|
Artist services and expanded-rights |
|
190 |
|
|
|
133 |
|
|
|
122 |
|
Licensing |
|
75 |
|
|
|
74 |
|
|
|
69 |
|
Total Recorded
Music |
|
1,189 |
|
|
|
1,152 |
|
|
|
1,096 |
|
Music Publishing |
|
|
|
|
|
Performance |
|
45 |
|
|
|
27 |
|
|
|
25 |
|
Digital |
|
144 |
|
|
|
113 |
|
|
|
109 |
|
Mechanical |
|
10 |
|
|
|
13 |
|
|
|
11 |
|
Synchronization |
|
41 |
|
|
|
34 |
|
|
|
34 |
|
Other |
|
5 |
|
|
|
2 |
|
|
|
3 |
|
Total Music
Publishing |
|
245 |
|
|
|
189 |
|
|
|
182 |
|
Intersegment eliminations |
|
(2 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Total
Revenue |
$ |
1,432 |
|
|
$ |
1,340 |
|
|
$ |
1,277 |
|
|
|
|
|
|
|
Total Digital
Revenue |
$ |
944 |
|
|
$ |
928 |
|
|
$ |
893 |
|
|
For the Nine Months EndedJune 30, 2022 |
|
For the Nine Months EndedJune 30, 2021 |
|
For the Nine Months EndedJune 30, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
U.S. revenue |
|
|
|
|
|
Recorded Music |
$ |
1,641 |
|
|
$ |
1,454 |
|
|
$ |
1,454 |
|
Music Publishing |
|
369 |
|
|
|
277 |
|
|
|
277 |
|
International revenue |
|
|
|
|
|
Recorded Music |
|
2,081 |
|
|
|
1,918 |
|
|
|
1,818 |
|
Music Publishing |
|
335 |
|
|
|
279 |
|
|
|
266 |
|
Intersegment eliminations |
|
(4 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
Total
Revenue |
$ |
4,422 |
|
|
$ |
3,925 |
|
|
$ |
3,812 |
|
|
|
|
|
|
|
Revenue by
Segment: |
|
|
|
|
|
Recorded Music |
|
|
|
|
|
Digital |
$ |
2,475 |
|
|
$ |
2,298 |
|
|
$ |
2,245 |
|
Physical |
|
440 |
|
|
|
422 |
|
|
|
405 |
|
Total Digital and Physical |
|
2,915 |
|
|
|
2,720 |
|
|
|
2,650 |
|
Artist services and expanded-rights |
|
563 |
|
|
|
431 |
|
|
|
409 |
|
Licensing |
|
244 |
|
|
|
221 |
|
|
|
213 |
|
Total Recorded
Music |
|
3,722 |
|
|
|
3,372 |
|
|
|
3,272 |
|
Music Publishing |
|
|
|
|
|
Performance |
|
119 |
|
|
|
92 |
|
|
|
88 |
|
Digital |
|
404 |
|
|
|
316 |
|
|
|
309 |
|
Mechanical |
|
37 |
|
|
|
36 |
|
|
|
34 |
|
Synchronization |
|
133 |
|
|
|
105 |
|
|
|
105 |
|
Other |
|
11 |
|
|
|
7 |
|
|
|
7 |
|
Total Music
Publishing |
|
704 |
|
|
|
556 |
|
|
|
543 |
|
Intersegment eliminations |
|
(4 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
Total
Revenue |
$ |
4,422 |
|
|
$ |
3,925 |
|
|
$ |
3,812 |
|
|
|
|
|
|
|
Total Digital
Revenue |
$ |
2,877 |
|
|
$ |
2,613 |
|
|
$ |
2,553 |
|
Figure 9.
Warner Music Group Corp. - OIBDA and Adjusted OIBDA by Segment,
Three and Nine Months Ended June 30, 2022 versus June 30, 2021 As
Reported and Constant Currency |
(dollars
in millions) |
|
|
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
For the Three Months EndedJune 30, 2021 |
|
For the Three Months EndedJune 30, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Total WMG OIBDA |
$ |
233 |
|
|
$ |
241 |
|
|
$ |
227 |
|
OIBDA margin |
|
16.3 |
% |
|
|
18.0 |
% |
|
|
17.8 |
% |
Total WMG Adjusted OIBDA |
$ |
255 |
|
|
$ |
263 |
|
|
$ |
249 |
|
Adjusted OIBDA margin |
|
17.8 |
% |
|
|
19.6 |
% |
|
|
19.5 |
% |
|
|
|
|
|
|
Recorded Music OIBDA |
$ |
224 |
|
|
$ |
250 |
|
|
$ |
237 |
|
Recorded Music OIBDA
margin |
|
18.8 |
% |
|
|
21.7 |
% |
|
|
21.6 |
% |
Recorded Music Adjusted
OIBDA |
$ |
231 |
|
|
$ |
254 |
|
|
$ |
241 |
|
Recorded Music Adjusted OIBDA
margin |
|
19.4 |
% |
|
|
22.0 |
% |
|
|
22.0 |
% |
|
|
|
|
|
|
Music Publishing OIBDA |
$ |
57 |
|
|
$ |
43 |
|
|
$ |
42 |
|
Music Publishing OIBDA
margin |
|
23.3 |
% |
|
|
22.8 |
% |
|
|
23.1 |
% |
Music Publishing Adjusted
OIBDA |
$ |
57 |
|
|
$ |
44 |
|
|
$ |
43 |
|
Music Publishing Adjusted
OIBDA margin |
|
23.3 |
% |
|
|
23.3 |
% |
|
|
23.6 |
% |
|
|
|
|
|
|
|
For the Nine Months EndedJune 30, 2022 |
|
For the Nine Months EndedJune 30, 2021 |
|
For the Nine Months EndedJune 30, 2021 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Total WMG OIBDA |
$ |
808 |
|
|
$ |
736 |
|
|
$ |
710 |
|
OIBDA margin |
|
18.3 |
% |
|
|
18.8 |
% |
|
|
18.6 |
% |
Total WMG Adjusted OIBDA |
$ |
884 |
|
|
$ |
800 |
|
|
$ |
774 |
|
Adjusted OIBDA margin |
|
20.0 |
% |
|
|
20.4 |
% |
|
|
20.3 |
% |
|
|
|
|
|
|
Recorded Music OIBDA |
$ |
804 |
|
|
$ |
754 |
|
|
$ |
730 |
|
Recorded Music OIBDA
margin |
|
21.6 |
% |
|
|
22.4 |
% |
|
|
22.3 |
% |
Recorded Music Adjusted
OIBDA |
$ |
820 |
|
|
$ |
771 |
|
|
$ |
747 |
|
Recorded Music Adjusted OIBDA
margin |
|
22.0 |
% |
|
|
22.9 |
% |
|
|
22.8 |
% |
|
|
|
|
|
|
Music Publishing OIBDA |
$ |
172 |
|
|
$ |
125 |
|
|
$ |
122 |
|
Music Publishing OIBDA
margin |
|
24.4 |
% |
|
|
22.5 |
% |
|
|
22.5 |
% |
Music Publishing Adjusted
OIBDA |
$ |
173 |
|
|
$ |
130 |
|
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 10.
Warner Music Group Corp. - Calculation of Free Cash Flow, Three and
Nine Months Ended June 30, 2022 versus June 30, 2021 |
(dollars
in millions) |
|
|
|
|
|
For the Three Months EndedJune 30, 2022 |
|
For the Three Months EndedJune 30, 2021 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
163 |
|
$ |
91 |
Less: Capital
expenditures |
|
35 |
|
|
20 |
|
|
|
|
Free Cash
Flow |
$ |
128 |
|
$ |
71 |
|
|
|
|
|
For the Nine Months EndedJune 30, 2022 |
|
For the Nine Months EndedJune 30, 2021 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by
operating activities |
$ |
336 |
|
$ |
410 |
Less: Capital
expenditures |
|
97 |
|
|
58 |
|
|
|
|
Free Cash
Flow |
$ |
239 |
|
$ |
352 |
|
|
|
|
|
|
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
11. Warner Music Group Corp. - Reconciliation of Net Income to
Adjusted EBITDA, Three and Twelve Months Ended June 30, 2022 versus
June 30, 2021 |
(dollars
in millions) |
|
|
|
|
|
|
|
|
|
For the Three Months EndedJune 30,
2022 |
|
For the Three Months EndedJune 30,
2021 |
|
For the Twelve Months EndedJune 30,
2022 |
|
For the Twelve Months EndedJune 30,
2021 |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Net Income (Loss) |
$ |
125 |
|
|
$ |
61 |
|
|
$ |
435 |
|
|
$ |
278 |
|
Income tax expense |
|
39 |
|
|
|
41 |
|
|
|
170 |
|
|
|
106 |
|
Interest expense, net |
|
32 |
|
|
|
30 |
|
|
|
123 |
|
|
|
122 |
|
Depreciation and
amortization |
|
87 |
|
|
|
79 |
|
|
|
336 |
|
|
|
294 |
|
Loss on extinguishment of debt
(a) |
|
— |
|
|
|
12 |
|
|
|
10 |
|
|
|
46 |
|
Net losses (gains) on
divestitures and sale of securities (b) |
|
— |
|
|
|
(2 |
) |
|
|
9 |
|
|
|
(3 |
) |
Restructuring costs (c) |
|
6 |
|
|
|
5 |
|
|
|
29 |
|
|
|
20 |
|
Net hedging and foreign
exchange (gains) losses (d) |
|
(55 |
) |
|
|
15 |
|
|
|
(148 |
) |
|
|
82 |
|
Transaction costs (e) |
|
1 |
|
|
|
2 |
|
|
|
8 |
|
|
|
4 |
|
Business optimization expenses
(f) |
|
16 |
|
|
|
12 |
|
|
|
55 |
|
|
|
36 |
|
Non-cash stock-based
compensation expense (g) |
|
5 |
|
|
|
12 |
|
|
|
46 |
|
|
|
41 |
|
Other non-cash charges
(h) |
|
(4 |
) |
|
|
5 |
|
|
|
47 |
|
|
|
(34 |
) |
Pro forma impact of cost
savings initiatives and specified transactions (i) |
|
11 |
|
|
|
10 |
|
|
|
64 |
|
|
|
47 |
|
Adjusted
EBITDA |
$ |
263 |
|
|
$ |
282 |
|
|
$ |
1,184 |
|
|
$ |
1,039 |
|
______________________________________ |
(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 mainly transaction
related costs. |
(f) |
|
Reflects costs associated with
our transformation initiatives and IT system updates, which
includes costs of $11 million and $41 million related to our
finance transformation and other related costs for the three and
twelve months ended June 30, 2022, respectively, as well as $9
million and $28 million for the three and twelve months ended June
30, 2021, respectively. |
(g) |
|
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. |
(h) |
|
Reflects non-cash activity, including the unrealized losses
(gains) on the mark-to-market of equity investments, investment
losses (gains), mark-to-market adjustments of an earn-out liability
and other non-cash impairments. |
(i) |
|
Reflects expected savings resulting from transformation
initiatives and the pro forma impact of certain specified
transactions for the three and twelve months ended June 30,
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 $13 million increase in the twelve months ended June 30,
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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