• Warner Music Group Corp. Reports Results for Fiscal Second Quarter Ended March 31, 2023

    المصدر: Nasdaq GlobeNewswire / 09 مايو 2023 06:30:01   America/Chicago

    Financial Highlights

    • Underlying Growth in Recorded Music Streaming Revenue Despite a Challenged Macroeconomic Environment
    • Continued Momentum in Music Publishing Drives Double-Digit Revenue Growth
    • Adjusted OIBDA Growth and Margin Improvement Underpinned by Financial Discipline
    • Cost Savings to be Reinvested in Tech-Focused Initiatives and Expertise to Drive Long-Term Growth

    For the three months ended March 31, 2023

    • Total revenue increased 2% or 5% in constant currency
    • Digital revenue increased 1% or 4% in constant currency
    • Net income was $37 million versus $92 million in the prior-year quarter
    • OIBDA decreased 19% to $207 million versus $255 million in the prior-year quarter or 16% in constant currency
    • Adjusted OIBDA increased 4% to $286 million versus $274 million in the prior-year quarter or 8% in constant currency
    • Cash from operating activities decreased 114% to a use of $6 million versus a source of $44 million in the prior-year quarter

    NEW YORK, May 09, 2023 (GLOBE NEWSWIRE) -- Warner Music Group Corp. today announced its second-quarter financial results for the period ended March 31, 2023.

    “With continued momentum in music publishing, and a more robust schedule that includes the return of worldwide superstars and new artists breaking globally, we are optimistic about the second half of the year,” said Robert Kyncl, CEO, Warner Music Group. “As the music ecosystem continues to morph, and the use cases multiply, it only increases conviction in our tech-enabled strategy. In a highly proactive, fiscally responsible way, we're investing in the artists, songwriters, team, and technology that will deliver continued growth and long-term success.”

    “While macroeconomic, currency, and release slate headwinds continued to impact our revenue this quarter, our fiscal discipline enabled us to deliver solid Adjusted OIBDA growth and margin expansion,” said Eric Levin, CFO, Warner Music Group. “As we look to the future, we'll combine A&R and marketing excellence with tech innovation to achieve greater efficiency, scale, and growth.”

    Total WMG

    Total WMG Summary Results          
    (dollars in millions)          
     For the Three
    Months Ended
    March 31, 2023    		 For the Three
    Months Ended
    March 31, 2022    		 % Change For the Six
    Months Ended
    March 31, 2023    		 For the Six
    Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)   (unaudited) (unaudited)  
    Revenue$1,399  $1,376 2% $2,887 $2,990 -3%
    Recorded Music revenue 1,143   1,147 —%  2,382  2,533 -6%
    Music Publishing revenue 257   230 12%  507  459 10%
    Digital revenue 942   931 1%  1,894  1,933 -2%
    Operating income 124   166 -25%  389  405 -4%
    Adjusted operating income(1) 203   185 10%  454  459 -1%
    OIBDA(1) 207   255 -19%  556  575 -3%
    Adjusted OIBDA(1) 286   274 4%  621  629 -1%
    Net income 37   92 -60%  161  280 -43%
    Adjusted net income(1) 116   111 5%  226  334 -32%
    Net cash (used for) provided by operating activities (6)  44 —%  203  173 17%
    Free Cash Flow (41)  16 —%  147  111 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
    March 31, 2023    		 For the Three
    Months Ended
    March 31, 2022    		 % Change For the Twelve
    Months Ended
    March 31, 2023    		 For the Twelve
    Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)   (unaudited) (unaudited)  
    Adjusted EBITDA(1)$308 $282 9% $1,235 $1,210 2%
                
    (1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.
     

    Revenue was up 1.7% (or 4.6% in constant currency). Consistent with the prior quarter, revenue growth was unfavorably impacted by foreign currency exchange rates. Digital revenue increased 1.2% (or 3.7% in constant currency) and streaming revenue increased 1.9% (or 4.5% in constant currency) primarily driven by growth in Music Publishing streaming revenue of 16.4% (or 18.3% in constant currency). Recorded Music streaming revenue decreased by 0.4% (or increased by 2.2% in constant currency) as a result of a lighter release schedule and the impact of exchange rates, as well as a market-related slowdown in ad-supported revenue. Recorded Music licensing revenue and Music Publishing performance and mechanical revenue all had double-digit growth. Recorded Music physical revenue decreased on an as-reported basis but increased in constant currency. Recorded Music artist services and expanded-rights revenue and Music Publishing synchronization revenue were lower on an as-reported basis and in constant currency.

    Operating income was $124 million compared to $166 million in the prior-year quarter. OIBDA was $207 million, compared to $255 million in the prior-year quarter, a decrease of 18.8% (or 15.9% in constant currency), and OIBDA margin decreased 3.7 percentage points to 14.8% from 18.5% in the prior-year quarter (or decreased 3.6 percentage points to 14.8% from 18.4% in constant currency). The decreases in operating income, OIBDA and OIBDA margin were primarily due to $41 million in severance costs related to the restructuring plan announced in the quarter (the “Restructuring Plan”), non-cash stock-based compensation and other related expenses primarily related to the departure of our previous CEO, and other costs associated with the departure of our previous CEO and planned departure of our CFO (the “Executive Transition Costs”).

    Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude expenses related to restructuring and other transformation initiatives and non-cash stock-based compensation and other related expenses in both the quarter and the prior-year quarter. In the quarter, the Executive Transition Costs are also excluded from these measures. Adjusted EBITDA excludes the aforementioned items and includes expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions. See below for calculations and reconciliations of Adjusted operating income, Adjusted OIBDA, Adjusted net income and Adjusted EBITDA.

    Adjusted OIBDA increased 4.4% from $274 million to $286 million (or 7.9% in constant currency) and Adjusted OIBDA margin increased 0.5 percentage points to 20.4% from 19.9% in the prior-year quarter (or increased 0.6 percentage points to 20.4% from 19.8% in constant currency) primarily due to higher revenue and lower variable marketing spend, partially offset by revenue mix. Adjusted operating income increased 9.7% from $185 million to $203 million due to the same factors affecting Adjusted OIBDA, as well as lower amortization expenses due to certain intangible assets becoming fully amortized. Adjusted EBITDA increased, largely due to the same factors affecting Adjusted OIBDA and higher pro forma savings from certain cost-savings initiatives and the Restructuring Plan.

    Net income was $37 million compared to $92 million in the prior-year quarter. Adjusted net income was $116 million compared to $111 million in the prior-year quarter. The decrease in net income and the increase in Adjusted net income were primarily due to the factors described above and the unfavorable impact of exchange rates on the Company’s Euro-denominated debt and intercompany loans, partially offset by a decrease in aggregate realized and unrealized losses related to certain investments and a decrease in income tax expense due to lower pre-tax income.

    Basic and Diluted earnings per share was $0.06 for both the Class A and Class B shareholders due to the net income attributable to the Company in the quarter of $37 million.

    As of March 31, 2023, the Company reported a cash balance of $601 million, total debt of $3.986 billion and net debt (defined as total debt, net of deferred financing costs, premiums and discounts, minus cash and equivalents) of $3.385 billion.

    Cash from operating activities decreased 114% to a use of $6 million from a source of $44 million in the prior-year quarter. The decrease was largely a result of higher income and withholding tax payments primarily due to higher estimated U.S. taxable income, the utilization of certain remaining tax credits in the prior-year quarter, and other movements in working capital. Capital expenditures increased 25% to $35 million from $28 million in the prior-year quarter, mainly due to investments in IT capabilities. Free Cash Flow, as defined below, decreased to a use of $41 million from a source of $16 million in the prior-year quarter.

    Recorded Music

    Recorded Music Summary Results          
    (dollars in millions)          
     For the Three
    Months Ended
    March 31, 2023    		 For the Three
    Months Ended
    March 31, 2022    		 % Change For the Six
    Months Ended
    March 31, 2023    		 For the Six
    Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)   (unaudited) (unaudited)  
    Revenue$1,143 $1,147 —% $2,382 $2,533 -6%
    Digital revenue 796  804 -1%  1,599  1,674 -4%
    Operating income 151  189 -20%  434  465 -7%
    Adjusted operating income(1) 197  192 3%  442  474 -7%
    OIBDA(1) 203  250 -19%  540  580 -7%
    Adjusted OIBDA(1) 249  253 -2%  548  589 -7%
                
    (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
    March 31, 2023    		 For the Three
    Months Ended
    March 31, 2022    		 For the Three
    Months Ended
    March 31, 2022    		 For the Six
    Months Ended
    March 31, 2023    		 For the Six
    Months Ended
    March 31, 2022    		 For the Six
    Months Ended
    March 31, 2022
     As reported As reported Constant As reported As reported Constant
     (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
    Digital$796 $804 $784 $1,599 $1,674 $1,617
    Physical 118  122  117  251  317  298
    Total Digital and Physical 914  926  901  1,850  1,991  1,915
    Artist services and expanded-rights 131  141  137  337  373  352
    Licensing 98  80  77  195  169  160
    Total Recorded Music$1,143 $1,147 $1,115 $2,382 $2,533 $2,427
     

    Recorded Music revenue was down 0.3% (or up 2.5% in constant currency). Digital revenue was down 1.0% (or up 1.5% in constant currency). Streaming revenue was down 0.4% (or up 2.2% in constant currency). Streaming revenue reflects a lighter release schedule and a market-related slowdown in ad-supported revenue. Licensing revenue increased 22.5% (or 27.3% in constant currency), including growth in brand income and a licensing settlement. Physical revenue was down 3.3% (or up 0.9% in constant currency) primarily due to the unfavorable impact of exchange rates, which offset strong performance in the United States. Artist services and expanded-rights revenue decreased 7.1% (or 4.4% in constant currency) primarily due to lower merchandising and advertising revenue, partially offset by an increase in concert promotion revenue. Major sellers included Michael Bublé, Ed Sheeran, Linkin Park, Zach Bryan and Dua Lipa.

    Recorded Music operating income was $151 million, down from $189 million in the prior-year quarter and operating margin was down 3.3 percentage points to 13.2% versus 16.5% in the prior-year quarter. OIBDA decreased 18.8% to $203 million from $250 million in the prior-year quarter (or 15.8% in constant currency) and OIBDA margin decreased 4.0 percentage points to 17.8% from 21.8% in the prior-year quarter (or decreased 3.8 percentage points to 17.8% from 21.6% in constant currency). Adjusted OIBDA decreased 1.6% from $253 million to $249 million (or increased 2.0% in constant currency) with Adjusted OIBDA margin down 0.3 percentage points to 21.8% from 22.1% in the prior-year quarter (or down 0.1 percentage point to 21.8% from 21.9% in constant currency). The decreases in operating income, OIBDA, operating margin and OIBDA margin were primarily due to the Restructuring Plan. The decreases in Adjusted OIBDA and Adjusted OIBDA margin were primarily driven by revenue mix, partially offset by lower variable marketing spend.

    Music Publishing

    Music Publishing Summary Results          
    (dollars in millions)          
     For the Three
    Months Ended
    March 31, 2023    		 For the Three
    Months Ended
    March 31, 2022    		 % Change For the Six
    Months Ended
    March 31, 2023    		 For the Six
    Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)   (unaudited) (unaudited)  
    Revenue$257 $230 12% $507 $459 10%
    Digital revenue 146  127 15%  295  260 13%
    Operating income 52  38 37%  101  70 44%
    Adjusted operating income(1) 53  38 39%  102  71 44%
    OIBDA(1) 75  61 23%  147  115 28%
    Adjusted OIBDA(1) 76  61 25%  148  116 28%
                
    (1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.
     


    Music Publishing Revenue      
    (dollars in millions)          
                
     For the Three
    Months Ended
    March 31, 2023    		 For the Three
    Months Ended
    March 31, 2022    		 For the Three
    Months Ended
    March 31, 2022    		 For the Six
    Months Ended
    March 31, 2023    		 For the Six
    Months Ended
    March 31, 2022    		 For the Six
    Months Ended
    March 31, 2022
     As reported As reported Constant As reported As reported Constant
     (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
    Performance$45 $36 $35 $90 $74 $70
    Digital 146  127  124  295  260  253
    Mechanical 16  13  13  30  27  25
    Synchronization 46  50  48  85  92  89
    Other 4  4  4  7  6  6
    Total Music Publishing$257 $230 $224 $507 $459 $443
     

    Music Publishing revenue increased 11.7% (or 14.7% in constant currency). The increase was driven by growth in digital, performance and mechanical revenue. Digital revenue increased 15.0% (or 17.7% in constant currency) and streaming revenue increased 16.4% (or 18.3% in constant currency), reflecting the continued growth in streaming and the impact of digital deal renewals. Performance revenue increased due to the timing of payments from collection societies and continued recovery from COVID disruption. Mechanical revenue increased driven by strong share of physical sales. Synchronization revenue was lower on an as-reported basis and in constant currency, primarily due to lower commercial licensing activity in the United States, partially offset by copyright infringement settlements.

    Music Publishing operating income was $52 million compared to $38 million in the prior-year quarter and operating margin increased 3.7 percentage points to 20.2%. Music Publishing OIBDA increased 23.0% to $75 million (the same in constant currency) and OIBDA margin increased 2.7 percentage points to 29.2% from 26.5% in the prior-year quarter (or increased 2.0 percentage points to 29.2% from 27.2% in constant currency). Adjusted OIBDA increased 24.6% to $76 million (the same in constant currency) and Adjusted OIBDA margin increased 3.1 percentage points to 29.6% from 26.5% in the prior-year quarter (or increased 2.4 percentage points to 29.6% from 27.2% in constant currency). The increases in operating income, OIBDA and Adjusted OIBDA were primarily due to strong operating performance.

    Financial details for the quarter can be found in the Company’s current Quarterly Report on Form 10-Q for the period ended March 31, 2023, 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

    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 will begin on October 1 and end on September 30 of each year. Prior to the start of the 2023 fiscal year, the Company maintained a 52-53 week fiscal year ending on the last Friday in each reporting period. The fiscal year ended September 30, 2022 included 53 weeks, with the additional week falling in the fiscal quarter ended December 31, 2021. Accordingly, the results of operations for the three months ended December 31, 2021 reflect 14 weeks, or 98 days, compared to 92 days for the three months ended December 31, 2022.

     
    Figure 1. Warner Music Group Corp. - Condensed Consolidated Statements of Operations, Three and Six Months Ended March 31, 2023 versus March 31, 2022
    (dollars in millions)     
          
     For the Three Months Ended
    March 31, 2023    		 For the Three Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)  
    Revenue$1,399  $1,376  2%
    Costs and expenses:     
    Cost of revenue (721)  (697) 3%
    Selling, general and administrative expenses (452)  (444) 2%
    Restructuring (41)  —  —%
    Amortization expense (61)  (69) -12%
    Total costs and expenses$(1,275) $(1,210) 5%
    Operating income$124  $166  -25%
    Interest expense, net (35)  (32) 9%
    Other expense, net (31)  (8) —%
    Income before income taxes$58  $126  -54%
    Income tax expense (21)  (34) -38%
    Net income$37  $92  -60%
    Less: Income attributable to noncontrolling interest (3)  —  —%
    Net income attributable to Warner Music Group Corp.$34  $92  -63%
          
    Net income per share attributable to common stockholders:     
    Class A – Basic and Diluted$0.06  $0.18   
    Class B – Basic and Diluted$0.06  $0.18   
          
     For the Six Months Ended
    March 31, 2023    		 For the Six Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)  
    Revenue$2,887  $2,990  -3%
    Costs and expenses:     
    Cost of revenue (1,482)  (1,515) -2%
    Selling, general and administrative expenses (892)  (941) -5%
    Restructuring (41)  —  —%
    Amortization expense (124)  (129) -4%
    Total costs and expenses$(2,539) $(2,585) -2%
    Net gain on divestiture 41   —  —%
    Operating income$389  $405  -4%
    Interest expense, net (67)  (62) 8%
    Other (expense) income, net (92)  46  —%
    Income before income taxes$230  $389  -41%
    Income tax expense (69)  (109) -37%
    Net income$161  $280  -43%
    Less: Income attributable to noncontrolling interest (5)  (1) —%
    Net income attributable to Warner Music Group Corp.$156  $279  -44%
          
    Net income per share attributable to common stockholders:     
    Class A – Basic and Diluted$0.30  $0.53   
    Class B – Basic and Diluted$0.30  $0.53   
     


    Figure 2. Warner Music Group Corp. - Condensed Consolidated Balance Sheets at March 31, 2023 versus September 30, 2022
    (dollars in millions)     
          
     March 31, 2023 September 30, 2022 % Change
     (unaudited)    
    Assets     
    Current assets:     
    Cash and equivalents$601  $584  3%
    Accounts receivable, net 1,017   984  3%
    Inventories 114   108  6%
    Royalty advances expected to be recouped within one year 371   372  —%
    Prepaid and other current assets 109   91  20%
    Total current assets$2,212  $2,139  3%
    Royalty advances expected to be recouped after one year 557   503  11%
    Property, plant and equipment, net 440   415  6%
    Operating lease right-of-use assets, net 233   226  3%
    Goodwill 1,960   1,920  2%
    Intangible assets subject to amortization, net 2,232   2,239  —%
    Intangible assets not subject to amortization 150   145  3%
    Deferred tax assets, net 28   29  -3%
    Other assets 198   212  -7%
    Total assets$8,010  $7,828  2%
    Liabilities and Equity     
    Current liabilities:     
    Accounts payable$282  $268  5%
    Accrued royalties 2,057   1,918  7%
    Accrued liabilities 411   457  -10%
    Accrued interest 17   17  —%
    Operating lease liabilities, current 41   40  3%
    Deferred revenue 311   423  -26%
    Other current liabilities 68   245  -72%
    Total current liabilities$3,187  $3,368  -5%
    Long-term debt 3,986   3,732  7%
    Operating lease liabilities, noncurrent 247   241  2%
    Deferred tax liabilities, net 220   220  —%
    Other noncurrent liabilities 104   99  5%
    Total liabilities$7,744  $7,660  1%
    Equity:     
    Class A common stock$—  $—  —%
    Class B common stock 1   1  —%
    Additional paid-in capital 2,000   1,975  1%
    Accumulated deficit (1,488)  (1,477) 1%
    Accumulated other comprehensive loss, net (261)  (347) -25%
    Total Warner Music Group Corp. equity$252  $152  66%
    Noncontrolling interest 14   16  -13%
    Total equity 266   168  58%
    Total liabilities and equity$8,010  $7,828  2%
     


    Figure 3. Warner Music Group Corp. - Summarized Statements of Cash Flows, Three and Six Months Ended March 31, 2023 versus March 31, 2022
    (dollars in millions)   
        
     For the Three Months Ended
    March 31, 2023    		 For the Three Months Ended
    March 31, 2022
     (unaudited) (unaudited)
    Net cash (used in) provided by operating activities$(6) $44 
    Net cash used in investing activities (41)  (25)
    Net cash used in financing activities (73)  (85)
    Effect of foreign currency exchange rates on cash and equivalents 1   1 
    Net decrease in cash and equivalents$(119) $(65)
        
     For the Six Months Ended
    March 31, 2023    		 For the Six Months Ended
    March 31, 2022
     (unaudited) (unaudited)
    Net cash provided by operating activities$203  $173 
    Net cash used in investing activities (51)  (649)
    Net cash (used in) provided by financing activities (143)  363 
    Effect of foreign currency exchange rates on cash and equivalents 8   (1)
    Net increase (decrease) in cash and equivalents$17  $(114)
     


    Figure 4. Warner Music Group Corp. - Digital Revenue Summary, Three and Six Months Ended March 31, 2023 versus March 31, 2022
    (dollars in millions)     
          
     For the Three Months Ended
    March 31, 2023    		 For the Three Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)  
    Recorded Music     
    Streaming$773 $776  —%
    Downloads and Other Digital 23  28  -18%
    Total Recorded Music Digital Revenue$796 $804  -1%
          
    Music Publishing     
    Streaming$142 $122  16%
    Downloads and Other Digital 4  5  -20%
    Total Music Publishing Digital Revenue$146 $127  15%
          
    Consolidated     
    Streaming$915 $898  2%
    Downloads and Other Digital 27  33  -18%
    Intersegment Eliminations —  —  —%
    Total Digital Revenue$942 $931  1%
          
     For the Six Months Ended
    March 31, 2023    		 For the Six Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)  
    Recorded Music     
    Streaming$1,553 $1,612  -4%
    Downloads and Other Digital 46  62  -26%
    Total Recorded Music Digital Revenue$1,599 $1,674  -4%
          
    Music Publishing     
    Streaming$288 $251  15%
    Downloads and Other Digital 7  9  -22%
    Total Music Publishing Digital Revenue$295 $260  13%
          
    Consolidated     
    Streaming$1,841 $1,863  -1%
    Downloads and Other Digital 53  71  -25%
    Intersegment Eliminations —  (1) -100%
    Total Digital Revenue$1,894 $1,933  -2%
     

    Supplemental Disclosures Regarding Non-GAAP Financial Measures

    We evaluate our operating performance based on several factors, including the following non-GAAP financial measures:

    OIBDA

    OIBDA reflects our operating income before non-cash depreciation of tangible assets and non-cash amortization of intangible assets. We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses and believe the presentation of OIBDA helps improve the ability to understand our operating performance and evaluate our performance in comparison to comparable periods. However, a limitation of the use of OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue in our businesses. Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) and other measures of financial performance reported in accordance with U.S. GAAP. In addition, OIBDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies.

     
    Figure 5. Warner Music Group Corp. - Reconciliation of Net Income to OIBDA, Three and Six Months Ended March 31, 2023 versus March 31, 2022
    (dollars in millions)     
          
     For the Three Months Ended
    March 31, 2023    		 For the Three Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)  
    Net income attributable to Warner Music Group Corp.$34  $92  -63%
    Income attributable to noncontrolling interest 3   —  —%
    Net income$37  $92  -60%
    Income tax expense 21   34  -38%
    Income including income taxes$58  $126  -54%
    Other expense, net 31   8  —%
    Interest expense, net 35   32  9%
    Operating income$124  $166  -25%
    Amortization expense 61   69  -12%
    Depreciation expense 22   20  10%
    OIBDA$207  $255  -19%
    Operating income margin 8.9%  12.1%  
    OIBDA margin 14.8%  18.5%  
          
     For the Six Months Ended
    March 31, 2023    		 For the Six Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)  
    Net income attributable to Warner Music Group Corp.$156  $279  -44%
    Income attributable to noncontrolling interest 5   1  —%
    Net income$161  $280  -43%
    Income tax expense 69   109  -37%
    Income including income taxes$230  $389  -41%
    Other expense (income), net 92   (46) —%
    Interest expense, net 67   62  8%
    Operating income$389  $405  -4%
    Amortization expense 124   129  -4%
    Depreciation expense 43   41  5%
    OIBDA$556  $575  -3%
    Operating income margin 13.5%  13.5%  
    OIBDA margin  19.3%  19.2%  
              


    Figure 6. Warner Music Group Corp. - Reconciliation of Segment Operating Income to OIBDA, Three and Six Months Ended March 31, 2023 versus March 31, 2022
    (dollars in millions)     
          
     For the Three Months Ended
    March 31, 2023    		 For the Three Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)  
    Total WMG operating income – GAAP$124  $166  -25%
    Depreciation and amortization expense (83)  (89) -7%
    Total WMG OIBDA$207  $255  -19%
    Operating income margin 8.9%  12.1%  
    OIBDA margin  14.8%  18.5%  
          
    Recorded Music operating income – GAAP$151  $189  -20%
    Depreciation and amortization expense (52)  (61) -15%
    Recorded Music OIBDA$203  $250  -19%
    Recorded Music operating income margin 13.2%  16.5%  
    Recorded Music OIBDA margin  17.8%  21.8%  
          
    Music Publishing operating income – GAAP$52  $38  37%
    Depreciation and amortization expense (23)  (23) —%
    Music Publishing OIBDA$75  $61  23%
    Music Publishing operating income margin 20.2%  16.5%  
    Music Publishing OIBDA margin  29.2%  26.5%  
          
     For the Six Months Ended
    March 31, 2023    		 For the Six Months Ended
    March 31, 2022    		 % Change
     (unaudited) (unaudited)  
    Total WMG operating income – GAAP$389  $405  -4%
    Depreciation and amortization expense (167)  (170) -2%
    Total WMG OIBDA$556  $575  -3%
    Operating income margin 13.5%  13.5%  
    OIBDA margin  19.3%  19.2%  
          
    Recorded Music operating income – GAAP$434  $465  -7%
    Depreciation and amortization expense (106)  (115) -8%
    Recorded Music OIBDA$540  $580  -7%
    Recorded Music operating income margin 18.2%  18.4%  
    Recorded Music OIBDA margin  22.7%  22.9%  
          
    Music Publishing operating income – GAAP$101  $70  44%
    Depreciation and amortization expense (46)  (45) 2%
    Music Publishing OIBDA$147  $115  28%
    Music Publishing operating income margin 19.9%  15.3%  
    Music Publishing OIBDA margin  29.0%  25.1%  
              

    Adjusted Operating Income (Loss), Adjusted OIBDA and Adjusted Net Income (Loss)

    Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) is operating income (loss), OIBDA and net income (loss), respectively, adjusted to exclude the impact of certain items that affect comparability. Factors affecting period-to-period comparability of the unadjusted measures in the quarter included the items listed in Figure 7 below. We use Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) to evaluate our actual operating performance. We believe that the adjusted results provide relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies in our industry and allow investors to review performance in the same way as our management. Since these are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation of, or as a substitute for, operating income (loss), OIBDA and net income (loss) as indicators of operating performance, and they may not be comparable to similarly titled measures employed by other companies.

     
    Figure 7. Warner Music Group Corp. - Reconciliation of Reported to Adjusted Results, Three and Six Months Ended March 31, 2023 versus March 31, 2022
    (dollars in millions)             
                  
    For the Three Months Ended March 31, 2023             
     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$124  $151  $52  $207  $203  $75  $37 
    Factors Affecting Comparability:             
    Restructuring and Other Transformation Related Costs 55   41   —   55   41   —   55 
    Executive Transition Costs 3   —   —   3   —   —   3 
    Non-Cash Stock-Based Compensation and Other Related Costs 21   5   1   21   5   1   21 
    Adjusted Results$203  $197  $53  $286  $249  $76  $116 
                  
    Adjusted Margin 14.5%  17.2%  20.6%  20.4%  21.8%  29.6%  
                  
    For the Three Months Ended March 31, 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$166  $189  $38  $255  $250  $61  $92 
    Factors Affecting Comparability:             
    Restructuring and Other Transformation Related Costs 12   —   —   12   —   —   12 
    Non-Cash Stock-Based Compensation and Other Related Costs 7   3   —   7   3   —   7 
    Adjusted Results$185  $192  $38  $274  $253  $61  $111 
                  
    Adjusted Margin 13.4%  16.7%  16.5%  19.9%  22.1%  26.5%  
                  
    For the Six Months Ended
    March 31, 2023    		             
     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$389  $434  $101  $556  $540  $147  $161 
    Factors Affecting Comparability:             
    Restructuring and Other Transformation Related Costs 67   41   —   67   41   —   67 
    Executive Transition Costs 3   —   —   3   —   —   3 
    Gain on Divestiture (41)  (41)  —   (41)  (41)  —   (41)
    Non-Cash Stock-Based Compensation and Other Related Costs 36   8   1   36   8   1   36 
    Adjusted Results$454  $442  $102  $621  $548  $148  $226 
                  
    Adjusted Margin 15.7%  18.6%  20.1%  21.5%  23.0%  29.2%  
                  
    For the Six Months Ended March 31, 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$405  $465  $70  $575  $580  $115  $280 
    Factors Affecting Comparability:             
    Restructuring and Other Transformation Related Costs 23   —   —   23   —   —   23 
    Non-Cash Stock-Based Compensation and Other Related Costs 31   9   1   31   9   1   31 
    Adjusted Results$459  $474  $71  $629  $589  $116  $334 
                  
    Adjusted Margin 15.4%  18.7%  15.5%  21.0%  23.3%  25.3%  
                              

    Constant Currency

    Because exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of revenue on a constant-currency basis in addition to reported revenue helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant-currency information compares results between periods as if exchange rates had remained constant period over period. We use results on a constant-currency basis as one measure to evaluate our performance. We calculate constant-currency results by applying current-year foreign currency exchange rates to prior-year results. However, a limitation of the use of the constant-currency results as a performance measure is that it does not reflect the impact of exchange rates on our revenue. These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. GAAP. Results on a constant-currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with U.S. GAAP.

     
    Figure 8. Warner Music Group Corp. - Revenue by Geography and Segment, Three and Six Months Ended March 31, 2023 versus March 31, 2022 As Reported and Constant Currency
    (dollars in millions)     
          
     For the Three Months Ended
    March 31, 2023    		 For the Three Months Ended
    March 31, 2022    		 For the Three Months Ended
    March 31, 2022
     As reported As reported Constant
     (unaudited) (unaudited) (unaudited)
    U.S. revenue     
    Recorded Music$522  $518  $518 
    Music Publishing 135   117   117 
    International revenue     
    Recorded Music 621   629   597 
    Music Publishing 122   113   107 
    Intersegment eliminations (1)  (1)  (1)
    Total Revenue$1,399  $1,376  $1,338 
          
    Revenue by Segment:     
    Recorded Music     
    Digital$796  $804  $784 
    Physical 118   122   117 
    Total Digital and Physical 914   926   901 
    Artist services and expanded-rights 131   141   137 
    Licensing 98   80   77 
    Total Recorded Music 1,143   1,147   1,115 
    Music Publishing     
    Performance 45   36   35 
    Digital 146   127   124 
    Mechanical 16   13   13 
    Synchronization 46   50   48 
    Other 4   4   4 
    Total Music Publishing 257   230   224 
    Intersegment eliminations (1)  (1)  (1)
    Total Revenue$1,399  $1,376  $1,338 
          
    Total Digital Revenue$942  $931  $908 
          
     For the Six Months Ended
    March 31, 2023    		 For the Six Months Ended
    March 31, 2022    		 For the Six Months Ended
    March 31, 2022
     As reported As reported Constant
     (unaudited) (unaudited) (unaudited)
    U.S. revenue     
    Recorded Music$1,061  $1,126  $1,126 
    Music Publishing 268   232   232 
    International revenue     
    Recorded Music 1,321   1,407   1,301 
    Music Publishing 239   227   211 
    Intersegment eliminations (2)  (2)  (2)
    Total Revenue$2,887  $2,990  $2,868 
          
    Revenue by Segment:     
    Recorded Music     
    Digital$1,599  $1,674  $1,617 
    Physical 251   317   298 
    Total Digital and Physical 1,850   1,991   1,915 
    Artist services and expanded-rights 337   373   352 
    Licensing 195   169   160 
    Total Recorded Music 2,382   2,533   2,427 
    Music Publishing     
    Performance 90   74   70 
    Digital 295   260   253 
    Mechanical 30   27   25 
    Synchronization 85   92   89 
    Other 7   6   6 
    Total Music Publishing 507   459   443 
    Intersegment eliminations (2)  (2)  (2)
    Total Revenue$2,887  $2,990  $2,868 
          
    Total Digital Revenue$1,894  $1,933  $1,869 
     


    Figure 9. Warner Music Group Corp. - OIBDA and Adjusted OIBDA by Segment, Three and Six Months Ended March 31, 2023 versus March 31, 2022 As Reported and Constant Currency
    (dollars in millions)     
          
     For the Three Months Ended
    March 31, 2023    		 For the Three Months Ended
    March 31, 2022    		 For the Three Months Ended
    March 31, 2022
     As reported As reported Constant
     (unaudited) (unaudited) (unaudited)
    Total WMG OIBDA$207  $255  $246 
    OIBDA margin 14.8%  18.5%  18.4%
    Total WMG Adjusted OIBDA$286  $274  $265 
    Adjusted OIBDA margin 20.4%  19.9%  19.8%
          
    Recorded Music OIBDA$203  $250  $241 
    Recorded Music OIBDA margin 17.8%  21.8%  21.6%
    Recorded Music Adjusted OIBDA$249  $253  $244 
    Recorded Music Adjusted OIBDA margin 21.8%  22.1%  21.9%
          
    Music Publishing OIBDA$75  $61  $61 
    Music Publishing OIBDA margin 29.2%  26.5%  27.2%
    Music Publishing Adjusted OIBDA$76  $61  $61 
    Music Publishing Adjusted OIBDA margin 29.6%  26.5%  27.2%
          
     For the Six Months Ended
    March 31, 2023    		 For the Six Months Ended
    March 31, 2022    		 For the Six Months Ended
    March 31, 2022
     As reported As reported Constant
     (unaudited) (unaudited) (unaudited)
    Total WMG OIBDA$556  $575  $546 
    OIBDA margin 19.3%  19.2%  19.0%
    Total WMG Adjusted OIBDA$621  $629  $600 
    Adjusted OIBDA margin 21.5%  21.0%  20.9%
          
    Recorded Music OIBDA$540  $580  $553 
    Recorded Music OIBDA margin 22.7%  22.9%  22.8%
    Recorded Music Adjusted OIBDA$548  $589  $562 
    Recorded Music Adjusted OIBDA margin 23.0%  23.3%  23.2%
          
    Music Publishing OIBDA$147  $115  $113 
    Music Publishing OIBDA margin 29.0%  25.1%  25.5%
    Music Publishing Adjusted OIBDA$148  $116  $114 
    Music Publishing Adjusted OIBDA margin 29.2%  25.3%  25.7%
                

    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 10. Warner Music Group Corp. - Calculation of Free Cash Flow, Three and Six Months Ended March 31, 2023 versus March 31, 2022
    (dollars in millions)   
        
     For the Three Months Ended
    March 31, 2023    		 For the Three Months Ended
    March 31, 2022
     (unaudited) (unaudited)
    Net cash (used in) provided by operating activities$(6) $44
    Less: Capital expenditures 35   28
        
    Free Cash Flow$(41) $16
        
     For the Six Months Ended
    March 31, 2023    		 For the Six Months Ended
    March 31, 2022
     (unaudited) (unaudited)
    Net cash provided by operating activities$203  $173
    Less: Capital expenditures 56   62
        
    Free Cash Flow$147  $111
     

    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 March 31, 2023 versus March 31, 2022
    (dollars in millions)       
            
     For the Three
    Months Ended
    March 31, 2023    		 For the Three
    Months Ended
    March 31, 2022    		 For the Twelve
    Months Ended
    March 31, 2023    		 For the Twelve
    Months Ended
    March 31, 2022
     (unaudited) (unaudited) (unaudited) (unaudited)
    Net Income$37  $92  $436  $371 
    Income tax expense 21   34   145   172 
    Interest expense, net 35   32   130   121 
    Depreciation and amortization 83   89   336   328 
    Loss on extinguishment of debt (a) —   —   —   22 
    Net (gains) losses on divestitures and sale of securities (b) (1)  9   (42)  7 
    Restructuring costs (c) 45   1   65   28 
    Net hedging and foreign exchange losses (gains) (d) 31   (32)  (30)  (78)
    Transaction costs (e) —   2   1   14 
    Business optimization expenses (f) 14   13   56   51 
    Non-cash stock-based compensation expense (g) 21   6   44   53 
    Other non-cash charges (h) 4   25   13   51 
    Pro forma impact of cost savings initiatives and specified transactions (i) 18   11   81   70 
    Adjusted EBITDA$308  $282  $1,235  $1,210 
                    

    (a) Reflects loss on extinguishment of debt, primarily including tender fees and unamortized deferred financing costs.
    (b) Reflects net gains on sale of securities and divestitures.
    (c) Reflects severance costs and other restructuring related expenses, including those related to the Restructuring Plan as well as the Executive Transition Costs in the current quarter.
    (d) Reflects unrealized (gains) losses due to foreign exchange on our Euro-denominated debt, losses (gains) from hedging activities and intercompany transactions.
    (e) Reflects mainly transaction related costs and mark-to-market adjustments of an earn-out liability related to a transaction in 2021.
    (f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $12 million and $42 million related to our finance transformation and other related costs for the three and twelve months ended March 31, 2023, respectively, as well as $10 million and $39 million for the three and twelve months ended March 31, 2022, 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 adjustment of equity investments, investment losses (gains), mark-to-market adjustments of an earn-out liability in 2022 and other non-cash impairments.
    (i) Reflects expected savings resulting from transformation initiatives, including the Restructuring Plan, and the pro forma impact of certain specified transactions for the three and twelve months ended March 31, 2023. 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 $38 million increase in the twelve months ended March 31, 2023 Adjusted EBITDA.

    Media Contact:Investor Contact:
    James StevenKareem Chin
    (212) 275-2213 
    James.Steven@wmg.comInvestor.Relations@wmg.com

     


    Primary Logo

شارك على،