Warner Music Group Corp. today announced its first-quarter
financial results for the period ended December 31, 2023.
"These results reflect the impact of our chart-topping artists,
hit-making songwriters, iconic catalog, and laser focus on
execution by all our teams," said Robert Kyncl, CEO, Warner Music
Group. "As we deliver our plan to accelerate our growth, we are
becoming more efficient, increasing operating leverage, and freeing
up more funds to invest in music and tech, which in turn will drive
further sustainable growth."
"Our strong Q1 results reflect double-digit revenue and Adjusted
OIBDA growth, as well as robust operating cash flow conversion,"
said Bryan Castellani, CFO, Warner Music Group. "The strength and
resilience of our business was highlighted by an acceleration in
Recorded Music streaming growth and continued momentum in Music
Publishing, which saw its fifth consecutive quarter of increasing
revenue growth. With a healthy and growing music ecosystem as our
backdrop, we’re intensifying our focus on the highest-return
opportunities while creating efficiencies across our business.”
Total WMG
Total WMG
Summary Results |
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,748 |
|
$ |
1,488 |
|
17% |
Recorded Music revenue |
|
1,445 |
|
|
1,239 |
|
17% |
Music Publishing revenue |
|
304 |
|
|
250 |
|
22% |
Operating income |
|
354 |
|
|
265 |
|
34% |
Adjusted OIBDA(1) |
|
451 |
|
|
335 |
|
35% |
Net income |
|
193 |
|
|
124 |
|
56% |
Net cash provided by operating
activities |
|
293 |
|
|
209 |
|
40% |
Free Cash Flow |
|
264 |
|
|
188 |
|
40% |
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding this measure. |
|
Revenue was up 17.5% (or 15.9% in constant currency). As
disclosed previously, the quarter included $68 million from a
licensing agreement extension for an artist’s catalog (the
“Licensing Extension”) in Recorded Music licensing revenue and the
impact of the termination of the distribution agreement with BMG
(the “BMG Termination”) in Recorded Music digital revenue, which
resulted in $13 million less revenue compared to the prior-year
quarter. Additionally, the quarter included $27 million of
incremental revenue from a renewal with one of the Company’s
digital partners that resulted in upfront revenue recognition in
the quarter (the “Digital License Renewal”) in Recorded Music
streaming revenue. Excluding the Licensing Extension, the BMG
Termination and the Digital License Renewal, total revenue was up
12.1% (or 10.6% in constant currency).
Digital revenue increased 16.0% (or 15.1% in constant currency)
and streaming revenue increased 16.6% (or 15.9% in constant
currency). Recorded Music streaming revenue increased 13.7% (or
13.1% in constant currency), which includes $27 million from the
Digital License Renewal, partially offset by $12 million from the
BMG Termination. Adjusted for the Digital License Renewal and the
BMG Termination, Recorded Music streaming revenue was up 12.0% (or
11.4% in constant currency). Music Publishing streaming revenue
increased 32.2% (or 30.4% in constant currency). Revenue increases
in the quarter were also driven by growth in Recorded Music
licensing and physical revenue and Music Publishing performance
revenue, partially offset by a decline in Recorded Music artist
services and expanded-rights revenue.
Operating income increased 33.6% (or 32.1% in constant currency)
from $265 million to $354 million primarily due to the factors
affecting Adjusted OIBDA discussed below, as well as lower
amortization expenses due to certain intangible assets becoming
fully amortized, partially offset by a $24 million
quarter-over-quarter decrease in net gain on divestitures, higher
depreciation expenses due to capital spending and $7 million of
incremental expenses related to transformation initiatives and
other related costs.
Adjusted OIBDA increased 34.6% from $335 million to $451 million
(or 33.0% in constant currency) and Adjusted OIBDA margin increased
3.3 percentage points to 25.8% from 22.5% in the prior-year quarter
(the same in constant currency) primarily due to the $67 million
impact of the Licensing Extension and the $10 million impact of the
Digital License Renewal. The Adjusted OIBDA impact from the BMG
Termination was immaterial in the quarter. Excluding the impact
from the Licensing Extension and the Digital License Renewal,
Adjusted OIBDA increased 11.7% (or 10.4% in constant currency) and
Adjusted OIBDA margin decreased 0.1 percentage point from 22.7% to
22.6%, but remained flat on a constant currency basis primarily due
to strong operating performance and $12 million of savings from the
previously announced restructuring plan (the “Restructuring Plan”)
of which a portion has been reinvested in the Company’s business,
partially offset by $11 million of incremental investment in
technology in the quarter, and the unfavorable impact of exchange
rates.
Net income was $193 million compared to $124 million in the
prior-year quarter. The increase in net income was primarily due to
the factors described above, the impact of exchange rates on the
Company’s Euro-denominated debt resulting in a loss of $39 million
in the quarter compared to a loss of $68 million in the prior-year
quarter, partially offset by an increase in income tax expense due
to higher pre-tax income and an increase in interest expense
primarily due to increased costs on the Company’s variable rate
debt.
Basic and Diluted earnings per share were $0.30 for both the
Class A and Class B shareholders due to the net income attributable
to the Company in the quarter of $193 million.
As of December 31, 2023, the Company reported a cash
balance of $754 million, total debt of $4.004 billion and net debt
(defined as total debt, net of deferred financing costs, premiums
and discounts, minus cash and equivalents) of $3.250 billion.
Cash provided by operating activities increased 40% to $293
million from $209 million in the prior-year quarter. The increase
was largely a result of strong operating performance and other
movements within working capital. Capital expenditures increased
38% to $29 million from $21 million in the prior-year quarter,
mainly due to increased investment in technology. Free Cash Flow,
as defined below, increased 40% to $264 million from $188 million
in the prior-year quarter.
Recorded Music
Recorded
Music Summary Results |
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
For the ThreeMonths EndedDecember 31,2023 |
|
For the ThreeMonths EndedDecember 31,2022 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,445 |
|
$ |
1,239 |
|
17% |
Operating income |
|
374 |
|
|
283 |
|
32% |
Adjusted OIBDA(1) |
|
412 |
|
|
299 |
|
38% |
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding this measure. |
|
Recorded
Music Revenue |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
For the Three Months Ended December 31, 2022 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Digital |
$ |
908 |
|
$ |
803 |
|
$ |
808 |
Physical |
|
154 |
|
|
133 |
|
|
136 |
Total Digital and Physical |
|
1,062 |
|
|
936 |
|
|
944 |
Artist services and
expanded-rights |
|
204 |
|
|
206 |
|
|
212 |
Licensing |
|
179 |
|
|
97 |
|
|
99 |
Total Recorded
Music |
$ |
1,445 |
|
$ |
1,239 |
|
$ |
1,255 |
|
|
|
|
|
|
|
|
|
Recorded Music revenue was up 16.6% (or 15.1% in constant
currency) driven by growth in digital, licensing and physical
revenue. Excluding the Licensing Extension, the BMG Termination and
the Digital License Renewal, Recorded Music revenue increased 10.1%
(or 8.7% in constant currency). Digital revenue was up 13.1% (or
12.4% in constant currency) and streaming revenue was up 13.7% (or
13.1% in constant currency). Adjusted for the Digital License
Renewal ($27 million) and the impact of the BMG Termination ($12
million), Recorded Music streaming revenue was up 12.0% (or 11.4%
in constant currency). Streaming revenue reflects growth in
subscription of 15.2% (or 14.4% in constant currency) and growth in
ad-supported of 10.0% (the same in constant currency), which
includes the impact of the TikTok renewal executed in Q4 2023.
Adjusted for the Digital License Renewal and the BMG Termination,
subscription revenue increased 12.8% (or 12.0% in constant
currency). Licensing revenue increased 84.5% (or 80.8% in constant
currency), primarily due to $68 million from the Licensing
Extension and the timing of new licensing deals primarily in the
U.S. Physical revenue was up 15.8% (or 13.2% in constant currency)
primarily due to strong releases in the U.S., Japan and the UK.
Artist services and expanded-rights revenue decreased 1.0% (or 3.8%
in constant currency) primarily due to lower merchandising revenue,
partially offset by higher concert promotion revenue in France and
Japan. Major sellers included Zach Bryan, Ed Sheeran, Bruno Mars,
and the Barbie soundtrack album.
Recorded Music operating income was $374 million, up from $283
million in the prior-year quarter and operating margin was up 3.1
percentage points to 25.9% versus 22.8% in the prior-year quarter.
The increase in operating income was primarily due to the same
factors affecting Adjusted OIBDA discussed below, as well as lower
amortization expense due to certain intangible assets becoming
fully amortized, partially offset by a $24 million
quarter-over-quarter decrease in net gain on divestitures and
higher non-cash stock-based compensation expense in the quarter of
$5 million.
Adjusted OIBDA increased 37.8% from $299 million to $412 million
(or 36.4% in constant currency) with Adjusted OIBDA margin up 4.4
percentage points to 28.5% from 24.1% in the prior-year quarter
(the same in constant currency). The increases in Adjusted OIBDA
and Adjusted OIBDA margin were primarily driven by $67 million from
the Licensing Extension and $10 million from the Digital License
Renewal. Excluding the Licensing Extension and the Digital License
Renewal, Adjusted OIBDA increased 12.1% (or 11.0% in constant
currency) and Adjusted OIBDA margin increased 0.5 percentage points
to 24.8% from 24.3% in the prior-year quarter (the same in constant
currency) primarily due to strong operating performance and $12
million of savings from the Restructuring Plan of which a portion
has been reinvested in the Company’s business, partially offset by
revenue mix and the unfavorable impact of exchange rates.
Music Publishing
Music
Publishing Summary Results |
|
|
|
|
(dollars
in millions) |
|
|
|
|
|
For the ThreeMonths EndedDecember 31,2023 |
|
For the ThreeMonths EndedDecember 31,2022 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
304 |
|
$ |
250 |
|
22% |
Operating income |
|
63 |
|
|
49 |
|
29% |
Adjusted OIBDA(1) |
|
86 |
|
|
72 |
|
19% |
|
|
|
|
|
|
(1) See
"Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding this measure. |
|
Music
Publishing Revenue |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
For the Three Months Ended December 31, 2022 |
|
As reported |
|
As reported |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Performance |
$ |
51 |
|
$ |
45 |
|
$ |
46 |
Digital |
|
196 |
|
|
149 |
|
|
151 |
Mechanical |
|
15 |
|
|
14 |
|
|
15 |
Synchronization |
|
39 |
|
|
39 |
|
|
39 |
Other |
|
3 |
|
|
3 |
|
|
3 |
Total Music
Publishing |
$ |
304 |
|
$ |
250 |
|
$ |
254 |
Music Publishing revenue increased 21.6% (or 19.7% in constant
currency). The increase was driven by growth in digital and
performance revenue. Digital revenue increased 31.5% (or 29.8% in
constant currency) and streaming revenue increased 32.2% (or 30.4%
in constant currency), reflecting the continued growth in streaming
and the impact of digital deal renewals. Performance revenue
increased due to strong artist touring activity in Europe.
Mechanical revenue increased on an as-reported basis, but remained
flat in constant currency. Synchronization revenue was flat on both
an as-reported basis and in constant currency, primarily due to
lower commercial licensing activity in the U.S., offset by the
timing of legal settlements.
Music Publishing operating income was $63 million compared to
$49 million in the prior-year quarter and operating margin
increased 1.1 percentage points to 20.7%. The increase in operating
income was primarily driven by the same factors affecting Adjusted
OIBDA discussed below.
Music Publishing Adjusted OIBDA increased 19.4% to $86 million
(or 17.8% in constant currency) and Adjusted OIBDA margin decreased
0.5 percentage points to 28.3% from 28.8% in the prior-year quarter
(or decreased 0.4 percentage points to 28.3% from 28.7% in constant
currency). The increase in Adjusted OIBDA was primarily driven by
increased revenue, however the decrease in Adjusted OIBDA margin
was primarily due to 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
December 31, 2023, which will be filed tomorrow morning,
February 8, 2024, with the Securities and Exchange Commission.
Tomorrow morning, February 8, 2024, 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
TenThousand Projects, 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
Effective for the 2023 fiscal year, the Company’s fiscal year
was modified from a 52-53-week calendar, in which reporting periods
ended on the last Friday of the calendar quarter, to a reporting
calendar in which the reporting periods end on the last day of the
calendar quarter. The Company’s fiscal year now begins on October 1
and ends on September 30 each year.
Figure 1.
Warner Music Group Corp. - Condensed Consolidated Statements of
Operations, Three Months Ended December 31, 2023 versus December
31, 2022 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Revenue |
$ |
1,748 |
|
|
$ |
1,488 |
|
|
17% |
Cost and
expenses: |
|
|
|
|
|
Cost of revenue |
|
(880 |
) |
|
|
(761 |
) |
|
16% |
Selling, general and
administrative expenses |
|
(476 |
) |
|
|
(440 |
) |
|
8% |
Amortization expense |
|
(55 |
) |
|
|
(63 |
) |
|
-13% |
Total costs and
expenses |
$ |
(1,411 |
) |
|
$ |
(1,264 |
) |
|
12% |
Net gain on divestiture |
|
17 |
|
|
|
41 |
|
|
-59% |
Operating
income |
$ |
354 |
|
|
$ |
265 |
|
|
34% |
Interest expense, net |
|
(39 |
) |
|
|
(32 |
) |
|
22% |
Other expense, net |
|
(50 |
) |
|
|
(61 |
) |
|
-18% |
Income before income
taxes |
$ |
265 |
|
|
$ |
172 |
|
|
54% |
Income tax expense |
|
(72 |
) |
|
|
(48 |
) |
|
50% |
Net
income |
$ |
193 |
|
|
$ |
124 |
|
|
56% |
Less: Income attributable to
noncontrolling interest |
|
(34 |
) |
|
|
(2 |
) |
|
—% |
Net income
attributable to Warner Music Group Corp. |
$ |
159 |
|
|
$ |
122 |
|
|
30% |
|
|
|
|
|
|
Net income per share
attributable to common stockholders: |
|
|
|
|
|
Class A – Basic and Diluted |
$ |
0.30 |
|
|
$ |
0.23 |
|
|
|
Class B – Basic and Diluted |
$ |
0.30 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Figure 2.
Warner Music Group Corp. - Condensed Consolidated Balance Sheets at
December 31, 2023 versus September 30, 2023 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
September 30, 2023 |
|
% Change |
|
(unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and equivalents |
$ |
754 |
|
|
$ |
641 |
|
|
18 |
% |
Accounts receivable, net |
|
1,195 |
|
|
|
1,120 |
|
|
7 |
% |
Inventories |
|
106 |
|
|
|
126 |
|
|
-16 |
% |
Royalty advances expected to be recouped within one year |
|
453 |
|
|
|
413 |
|
|
10 |
% |
Prepaid and other current assets |
|
108 |
|
|
|
102 |
|
|
6 |
% |
Total current
assets |
$ |
2,616 |
|
|
$ |
2,402 |
|
|
9 |
% |
Royalty advances expected to
be recouped after one year |
|
755 |
|
|
|
688 |
|
|
10 |
% |
Property, plant and equipment,
net |
|
466 |
|
|
|
458 |
|
|
2 |
% |
Operating lease right-of-use
assets, net |
|
242 |
|
|
|
245 |
|
|
-1 |
% |
Goodwill |
|
2,015 |
|
|
|
1,993 |
|
|
1 |
% |
Intangible assets subject to
amortization, net |
|
2,390 |
|
|
|
2,353 |
|
|
2 |
% |
Intangible assets not subject
to amortization |
|
151 |
|
|
|
149 |
|
|
1 |
% |
Deferred tax assets, net |
|
31 |
|
|
|
32 |
|
|
-3 |
% |
Other assets |
|
325 |
|
|
|
225 |
|
|
44 |
% |
Total
assets |
$ |
8,991 |
|
|
$ |
8,545 |
|
|
5 |
% |
Liabilities and
Equity |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
246 |
|
|
$ |
300 |
|
|
-18 |
% |
Accrued royalties |
|
2,460 |
|
|
|
2,219 |
|
|
11 |
% |
Accrued liabilities |
|
538 |
|
|
|
533 |
|
|
1 |
% |
Accrued interest |
|
29 |
|
|
|
18 |
|
|
61 |
% |
Operating lease liabilities, current |
|
43 |
|
|
|
41 |
|
|
5 |
% |
Deferred revenue |
|
305 |
|
|
|
371 |
|
|
-18 |
% |
Other current liabilities |
|
124 |
|
|
|
57 |
|
|
— |
% |
Total current
liabilities |
$ |
3,745 |
|
|
$ |
3,539 |
|
|
6 |
% |
Long-term debt |
|
4,004 |
|
|
|
3,964 |
|
|
1 |
% |
Operating lease liabilities,
noncurrent |
|
249 |
|
|
|
255 |
|
|
-2 |
% |
Deferred tax liabilities,
net |
|
223 |
|
|
|
216 |
|
|
3 |
% |
Other noncurrent
liabilities |
|
154 |
|
|
|
141 |
|
|
9 |
% |
Total
liabilities |
$ |
8,375 |
|
|
$ |
8,115 |
|
|
3 |
% |
Equity: |
|
|
|
|
|
Class A common stock |
$ |
— |
|
|
$ |
— |
|
|
— |
% |
Class B common stock |
|
1 |
|
|
|
1 |
|
|
— |
% |
Additional paid-in
capital |
|
2,039 |
|
|
|
2,015 |
|
|
1 |
% |
Accumulated deficit |
|
(1,317 |
) |
|
|
(1,387 |
) |
|
-5 |
% |
Accumulated other
comprehensive loss, net |
|
(260 |
) |
|
|
(322 |
) |
|
-19 |
% |
Total Warner Music
Group Corp. equity |
$ |
463 |
|
|
$ |
307 |
|
|
51 |
% |
Noncontrolling interest |
|
153 |
|
|
|
123 |
|
|
24 |
% |
Total
equity |
|
616 |
|
|
|
430 |
|
|
43 |
% |
Total liabilities and
equity |
$ |
8,991 |
|
|
$ |
8,545 |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Figure 3.
Warner Music Group Corp. - Summarized Statements of Cash Flows,
Three Months Ended December 31, 2023 versus December 31,
2022 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
293 |
|
|
$ |
209 |
|
Net cash used in investing
activities |
|
(92 |
) |
|
|
(10 |
) |
Net cash used in financing
activities |
|
(93 |
) |
|
|
(70 |
) |
Effect of foreign currency
exchange rates on cash and equivalents |
|
5 |
|
|
|
7 |
|
Net increase in cash and
equivalents |
$ |
113 |
|
|
$ |
136 |
|
|
|
|
|
|
|
|
|
Figure 4.
Warner Music Group Corp. - Digital Revenue Summary, Three Months
Ended December 31, 2023 versus December 31, 2022 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Recorded
Music |
|
|
|
|
|
Subscription |
$ |
644 |
|
$ |
559 |
|
15% |
Ad-Supported |
|
243 |
|
|
221 |
|
10% |
Streaming |
$ |
887 |
|
$ |
780 |
|
14% |
Downloads and Other Digital |
|
21 |
|
|
23 |
|
-9% |
Total Recorded Music
Digital Revenue |
$ |
908 |
|
$ |
803 |
|
13% |
|
|
|
|
|
|
Music
Publishing |
|
|
|
|
|
Streaming |
$ |
193 |
|
$ |
146 |
|
32% |
Downloads and Other Digital |
|
3 |
|
|
3 |
|
—% |
Total Music Publishing
Digital Revenue |
$ |
196 |
|
$ |
149 |
|
32% |
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
Streaming |
$ |
1,080 |
|
$ |
926 |
|
17% |
Downloads and Other Digital |
|
24 |
|
|
26 |
|
-8% |
Intersegment Eliminations |
|
— |
|
|
— |
|
—% |
Total Digital
Revenue |
$ |
1,104 |
|
$ |
952 |
|
16% |
|
|
|
|
|
|
|
|
Supplemental Disclosures Regarding Non-GAAP Financial
Measures
We evaluate our operating performance based on several factors,
including the following non-GAAP financial measure:
Adjusted OIBDA
We evaluate our operating performance based on several factors,
including our primary financial measure of operating income (loss)
before non-cash depreciation of tangible assets and non-cash
amortization of intangible assets adjusted to exclude the impact of
non-cash stock-based compensation and other related expenses and
certain items that affect comparability including but not limited
to gains or losses on divestitures and expenses related to
restructuring and transformation initiatives (“Adjusted OIBDA”). We
consider Adjusted OIBDA to be an important indicator of the
operational strengths and performance of our businesses. However, a
limitation of the use of Adjusted OIBDA as a performance measure is
that it does not reflect the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues in our
businesses. Accordingly, Adjusted OIBDA should be considered in
addition to, not as a substitute for, operating income (loss), net
income (loss) attributable to Warner Music Group Corp. and other
measures of financial performance reported in accordance with
United States generally accepted accounting principles (“U.S.
GAAP”). In addition, our definition of Adjusted OIBDA may differ
from similarly titled measures used by other companies.
Figure 5.
Warner Music Group Corp. - Reconciliation of Net Income to Adjusted
OIBDA, Three Months Ended December 31, 2023 versus December 31,
2022 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Net income attributable to Warner Music Group
Corp. |
$ |
159 |
|
|
$ |
122 |
|
|
30% |
Income attributable to
noncontrolling interest |
|
34 |
|
|
|
2 |
|
|
—% |
Net
income |
$ |
193 |
|
|
$ |
124 |
|
|
56% |
Income tax expense |
|
72 |
|
|
|
48 |
|
|
50% |
Income including
income taxes |
$ |
265 |
|
|
$ |
172 |
|
|
54% |
Other expense, net |
|
50 |
|
|
|
61 |
|
|
-18% |
Interest expense, net |
|
39 |
|
|
|
32 |
|
|
22% |
Operating
income |
$ |
354 |
|
|
$ |
265 |
|
|
34% |
Amortization expense |
|
55 |
|
|
|
63 |
|
|
-13% |
Depreciation expense |
|
26 |
|
|
|
21 |
|
|
24% |
OIBDA |
$ |
435 |
|
|
$ |
349 |
|
|
25% |
Transformation initiatives and
other related costs |
|
19 |
|
|
|
12 |
|
|
58% |
Gain on divestitures |
|
(17 |
) |
|
|
(41 |
) |
|
-59% |
Non-cash stock-based
compensation and other related costs |
|
14 |
|
|
|
15 |
|
|
-7% |
Adjusted
OIBDA |
$ |
451 |
|
|
$ |
335 |
|
|
35% |
|
|
|
|
|
|
Operating income
margin |
|
20.3 |
% |
|
|
17.8 |
% |
|
|
Adjusted OIBDA
margin |
|
25.8 |
% |
|
|
22.5 |
% |
|
|
Figure 6.
Warner Music Group Corp. - Reconciliation of Segment Operating
Income to Adjusted OIBDA, Three Months Ended December 31, 2023
versus December 31, 2022 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
% Change |
|
(unaudited) |
|
(unaudited) |
|
|
Total WMG operating income – GAAP |
$ |
354 |
|
|
$ |
265 |
|
|
34% |
Depreciation and amortization
expense |
|
(81 |
) |
|
|
(84 |
) |
|
-4% |
Total WMG
OIBDA |
$ |
435 |
|
|
$ |
349 |
|
|
25% |
Transformation initiatives and
other related costs |
|
19 |
|
|
|
12 |
|
|
58% |
Gain on divestitures |
|
(17 |
) |
|
|
(41 |
) |
|
-59% |
Non-cash stock-based
compensation and other related costs |
|
14 |
|
|
|
15 |
|
|
-7% |
Total WMG Adjusted
OIBDA |
$ |
451 |
|
|
$ |
335 |
|
|
35% |
Total WMG Adjusted
OIBDA margin |
|
25.8 |
% |
|
|
22.5 |
% |
|
|
|
|
|
|
|
|
Recorded Music
operating income – GAAP |
$ |
374 |
|
|
$ |
283 |
|
|
32% |
Depreciation and amortization
expense |
|
(47 |
) |
|
|
(54 |
) |
|
-13% |
Recorded Music
OIBDA |
$ |
421 |
|
|
$ |
337 |
|
|
25% |
Gain on divestitures |
$ |
(17 |
) |
|
$ |
(41 |
) |
|
-59% |
Non-cash stock-based
compensation and other related costs |
$ |
8 |
|
|
$ |
3 |
|
|
—% |
Recorded Music
Adjusted OIBDA |
$ |
412 |
|
|
$ |
299 |
|
|
38% |
Recorded Music
Adjusted OIBDA margin |
|
28.5 |
% |
|
|
24.1 |
% |
|
|
|
|
|
|
|
|
Music Publishing
operating income – GAAP |
$ |
63 |
|
|
$ |
49 |
|
|
29% |
Depreciation and amortization
expense |
|
(22 |
) |
|
|
(23 |
) |
|
-4% |
Music Publishing
OIBDA |
$ |
85 |
|
|
$ |
72 |
|
|
18% |
Non-cash stock-based
compensation and other related costs |
$ |
1 |
|
|
$ |
— |
|
|
—% |
Music Publishing
Adjusted OIBDA |
$ |
86 |
|
|
$ |
72 |
|
|
19% |
Music Publishing
Adjusted OIBDA margin |
|
28.3 |
% |
|
|
28.8 |
% |
|
|
|
|
|
|
|
|
Constant Currency
As exchange rates are an important factor in understanding
period-to-period comparisons, we believe the presentation of
revenue and Adjusted OIBDA on a constant-currency basis in addition
to reported results helps improve the ability to understand our
operating results and evaluate our performance in comparison to
prior periods. Constant-currency information compares revenue and
Adjusted OIBDA between periods as if exchange rates had remained
constant period over period. We use revenue and Adjusted OIBDA on a
constant-currency basis as one measure to evaluate our performance.
We calculate constant-currency by calculating prior-year revenue
and Adjusted OIBDA using current-year foreign currency exchange
rates. Revenue and Adjusted OIBDA on a constant-currency basis
should be considered in addition to, not as a substitute for,
revenue and Adjusted OIBDA reported in accordance with U.S. GAAP.
Revenue and Adjusted OIBDA 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 7.
Warner Music Group Corp. - Revenue by Geography and Segment, Three
Months Ended December 31, 2023 versus December 31, 2022 As Reported
and Constant Currency |
|
|
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the ThreeMonths EndedDecember 31, 2023 |
|
For the ThreeMonths EndedDecember 31, 2022 |
|
For the ThreeMonths EndedDecember 31, 2022 |
|
% Change |
|
As reported |
|
As reported |
|
Constant |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
U.S. revenue |
|
|
|
|
|
|
|
Recorded Music |
$ |
627 |
|
|
$ |
539 |
|
|
$ |
539 |
|
|
16% |
Music Publishing |
|
172 |
|
|
|
133 |
|
|
|
133 |
|
|
29% |
International revenue |
|
|
|
|
|
|
|
Recorded Music |
|
818 |
|
|
|
700 |
|
|
|
716 |
|
|
14% |
Music Publishing |
|
132 |
|
|
|
117 |
|
|
|
121 |
|
|
9% |
Intersegment eliminations |
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
—% |
Total
Revenue |
$ |
1,748 |
|
|
$ |
1,488 |
|
|
$ |
1,508 |
|
|
16% |
|
|
|
|
|
|
|
|
Revenue by
Segment: |
|
|
|
|
|
|
|
Recorded Music |
|
|
|
|
|
|
|
Digital |
$ |
908 |
|
|
$ |
803 |
|
|
$ |
808 |
|
|
12% |
Physical |
|
154 |
|
|
|
133 |
|
|
|
136 |
|
|
13% |
Total Digital and Physical |
|
1,062 |
|
|
|
936 |
|
|
|
944 |
|
|
13% |
Artist services and expanded-rights |
|
204 |
|
|
|
206 |
|
|
|
212 |
|
|
(4)% |
Licensing |
|
179 |
|
|
|
97 |
|
|
|
99 |
|
|
81% |
Total Recorded
Music |
|
1,445 |
|
|
|
1,239 |
|
|
|
1,255 |
|
|
15% |
Music Publishing |
|
|
|
|
|
|
|
Performance |
|
51 |
|
|
|
45 |
|
|
|
46 |
|
|
11% |
Digital |
|
196 |
|
|
|
149 |
|
|
|
151 |
|
|
30% |
Mechanical |
|
15 |
|
|
|
14 |
|
|
|
15 |
|
|
—% |
Synchronization |
|
39 |
|
|
|
39 |
|
|
|
39 |
|
|
—% |
Other |
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
—% |
Total Music
Publishing |
|
304 |
|
|
|
250 |
|
|
|
254 |
|
|
20% |
Intersegment eliminations |
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
—% |
Total
Revenue |
$ |
1,748 |
|
|
$ |
1,488 |
|
|
$ |
1,508 |
|
|
16% |
|
|
|
|
|
|
|
|
Total Digital
Revenue |
$ |
1,104 |
|
|
$ |
952 |
|
|
$ |
959 |
|
|
15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Figure 8.
Warner Music Group Corp. - Adjusted OIBDA by Segment, Three Months
Ended December 31, 2023 versus December 31, 2022 As Reported and
Constant Currency |
|
|
(dollars in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
For the Three Months Ended December 31, 2022 |
|
Change % |
|
As reported |
|
As reported |
|
Constant |
|
Constant |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
Total WMG Adjusted OIBDA |
$ |
451 |
|
|
$ |
335 |
|
|
$ |
339 |
|
|
33.0% |
Adjusted OIBDA margin |
|
25.8 |
% |
|
|
22.5 |
% |
|
|
22.5 |
% |
|
|
|
|
|
|
|
|
|
|
Recorded Music Adjusted
OIBDA |
$ |
412 |
|
|
$ |
299 |
|
|
$ |
302 |
|
|
36.4% |
Recorded Music Adjusted OIBDA
margin |
|
28.5 |
% |
|
|
24.1 |
% |
|
|
24.1 |
% |
|
|
|
|
|
|
|
|
|
|
Music Publishing Adjusted
OIBDA |
$ |
86 |
|
|
$ |
72 |
|
|
$ |
73 |
|
|
17.8% |
Music Publishing Adjusted
OIBDA margin |
|
28.3 |
% |
|
|
28.8 |
% |
|
|
28.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Months Ended December 31, 2023 versus December 31,
2022 |
(dollars in
millions) |
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2023 |
|
For the Three Months Ended December 31, 2022 |
|
(unaudited) |
|
(unaudited) |
Net cash provided by operating activities |
$ |
293 |
|
$ |
209 |
Less: Capital
expenditures |
|
29 |
|
|
21 |
|
|
|
|
Free Cash
Flow |
$ |
264 |
|
$ |
188 |
|
|
|
|
|
|
______________________________________
Media Contact: |
Investor Contact: |
James
Steven |
Kareem Chin |
(212)
275-2213 |
|
James.Steven@wmg.com |
Investor.Relations@wmg.com |
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