Warner Music Group Corp. Reports Results for the Third Quarter Ended June 30, 202103 August 2021 - Press release
- Total Revenue Grew 27% Propelled by Streaming Acceleration and Partial Recovery in Certain COVID-Impacted Areas
- Recorded Music Streaming Revenue Grew 27% Powered by Chart-Topping New Music
- Robust Growth in Revenue from Emerging Streaming Platforms
- Margin Expansion and High Operating Cash Flow Conversion Driven by Strong Operating Leverage
For the three months ended June 30, 2021:
- Total revenue grew 33% or 27% in constant currency
- Digital revenue grew 29% or 23% in constant currency
- Net income was $61 million versus net loss of $519 million in the prior-year quarter
- OIBDA was income of $241 million versus a loss of $371 million in the prior-year quarter
- Adjusted OIBDA increased 58% to $263 million versus $166 million in the prior-year quarter
- Adjusted EBITDA increased 49% to $282 million versus $189 million in the prior-year quarter
Warner Music Group Corp. today announced its third-quarter financial results for the period ended June 30, 2021.
“We’re proud of everything we’ve accomplished during our first year as a publicly traded company,” said Steve Cooper, CEO, Warner Music Group. “During a very challenging time, we’ve focused on investing in our core business and building an array of innovative growth opportunities. Outstanding releases from our artists and songwriters, coupled with imaginative execution by our operators, delivered excellent results in the third quarter. We’re looking forward to wrapping up our fiscal year with a slate of great new releases from established and emerging stars.”
“The third quarter was highlighted by impressive streaming numbers, recovery in several areas that had been negatively impacted by COVID, and strong operating leverage that drove margin expansion,” said Eric Levin, CFO, Warner Music Group. “We continue to create value through our wide-ranging services to artists and songwriters, to drive shareholder return through our disciplined allocation of capital, and to deliver long-term growth through our digital-first approach to business.”
Revenue was up 32.7% (or 26.5% in constant currency). The revenue increase in the quarter was driven by robust digital revenue growth of 28.9% (or 23.4% in constant currency) across Recorded Music and Music Publishing. Digital revenue represented 69.3% of total revenue in the quarter, compared to 71.3% in the prior-year quarter. Recorded Music physical revenue increased 154.9% (or 136.4% in constant currency) and Recorded Music licensing revenue and Music Publishing synchronization and mechanical revenue all had double-digit growth. Recorded Music artist services and expanded-rights revenue increased 7.3% on an as-reported basis (or 0.8% in constant currency). Music Publishing performance revenue was flat on an as-reported basis and decreased 3.6% in constant currency.
Operating income was $162 million compared to an operating loss of $433 million in the prior-year quarter. Net income was $61 million compared to a net loss of $519 million in the prior-year quarter. OIBDA was income of $241 million, up from a loss of $371 million in the prior-year quarter and OIBDA margin increased 54.7 percentage points to 18.0% from (36.7)% in the prior-year quarter. The increases in operating income, net income, OIBDA and OIBDA margin were primarily due to strong operating performance and lower non-cash stock-based compensation and other related expenses in the quarter of $426 million, as well as $86 million in one-time costs associated with the Company's IPO in the prior-year quarter.
Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude costs related to non-cash stock-based compensation and other related expenses and restructuring and other transformation initiatives in both the quarter and the prior-year quarter. In the prior-year quarter, costs associated with the Company's IPO are also excluded. Adjusted EBITDA excludes these items and includes expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions. See below for calculations and reconciliations of Adjusted operating income, Adjusted OIBDA, Adjusted net income and Adjusted EBITDA.
Adjusted OIBDA increased 58.4% from $166 million to $263 million and Adjusted OIBDA margin increased 3.2 percentage points to 19.6% from 16.4% due to strong operating performance and margin improvement associated with revenue mix. Adjusted operating income increased 76.9% from $104 million to $184 million due to the same factors affecting Adjusted OIBDA, partially offset by higher depreciation and amortization expenses due to recent acquisitions and capital spending.
Adjusted EBITDA increased 49.2% from $189 million to $282 million with Adjusted EBITDA margin improving 2.3 percentage points from 18.7% to 21.0%. The increase was largely due to the same factors affecting Adjusted OIBDA.
Adjusted net income was $83 million compared to $18 million in the prior-year quarter. Adjusted net income grew due to an increase in adjusted operating income and lower income tax expense in the quarter driven by timing of expense and the impact of the Company's IPO in the prior-year quarter, partially offset by unrealized losses on the mark-to-market of certain investments and a loss on extinguishment of debt.
Basic and Diluted earnings per share was $0.12 for both the Class A and Class B shareholders due to the net income attributable to the Company in the quarter of $61 million.
As of June 30, 2021, the Company reported a cash balance of $442 million, total debt of $3.367 billion and net debt (defined as total long-term debt, net of deferred financing costs, minus cash and equivalents) of $2.925 billion.
Cash provided by operating activities was $91 million compared to $123 million in the prior-year quarter. The change was largely a result of strong operating performance, more than offset by continued A&R investment and timing of working capital. Free Cash Flow, as defined below, decreased to negative $71 million from $87 million in the prior-year quarter largely due to an increase in investment activity as well as lower operating cash flow.
Recorded Music revenue was up 33.8% (or 27.6% in constant currency). The revenue increase was primarily due to digital revenue, which reflects the continuing growth in streaming, the Company’s largest source of revenue. Streaming revenue grew 32.6% (or 27.2% in constant currency) due to the strong performance of new and carryover releases, as well as accelerated revenue growth from emerging streaming platforms such as Facebook, TikTok and Peloton. Physical revenue grew 154.9% (or 136.4% in constant currency) primarily due to an increasing demand for vinyl products and increasing retail sales as businesses began to recover from COVID disruption. Artist services and expanded-rights revenue increased on an as-reported basis by 7.3% (or 0.8% in constant currency), reflecting an increase in direct-to-consumer merchandising revenue, partially offset by the impact of COVID disruption on concert touring and live events. Licensing revenue was up mainly due to higher broadcast fees and synchronization revenue as businesses began to recover from COVID disruption. Major sellers included Dua Lipa, Cardi B, Ed Sheeran, Ava Max and Masked Wolf.
Recorded Music operating income was $197 million, up from a loss of $160 million in the prior-year quarter and operating margin was up 35.7 percentage points to 17.1% versus (18.6)% in the prior-year quarter. OIBDA increased to income of $250 million from a loss of $119 million in the prior-year quarter and OIBDA margin increased 35.5 percentage points to 21.7%. Adjusted OIBDA was $254 million versus $167 million in the prior-year quarter with Adjusted OIBDA margin up 2.6 percentage points to 22.0%. The increases in operating income and OIBDA were driven by decreases in non-cash stock-based compensation and other related expenses associated with the Company's IPO in the prior-year quarter. The increases in Adjusted OIBDA and Adjusted OIBDA margin were primarily due to strong operating performance, revenue mix and the impact of recent acquisitions.
Music Publishing revenue increased 26.8% (or 21.2% in constant currency). The revenue increase was driven by growth in digital, synchronization and mechanical revenue. Digital revenue increased 25.6% (or 20.2% in constant currency) reflecting the continuing growth in streaming and timing of new deals with digital service providers, partially offset by a shift in the collection of writer's share of US digital performance income from certain digital service providers. This change has no impact on Music Publishing OIBDA, but results in a slight improvement to OIBDA margin. Digital revenue represented 59.8% of total Music Publishing revenue versus 60.4% in the prior-year quarter. Synchronization revenue increased due to growth in motion picture and commercial income. Mechanical revenue also increased as businesses began to recover from COVID disruption. Performance revenue was flat due to the ongoing COVID impact on bars, restaurants, concerts and live events, partially offset by the favorable impact of foreign currency exchange rates.
Music Publishing operating income was $21 million, up 50.0% from $14 million in the prior-year quarter largely driven by increased revenue, partially offset by higher employee costs and an increase in amortization expense. Operating margin was 11.1%, up 1.7 percentage points from 9.4% in the prior-year quarter. Music Publishing OIBDA increased 30.3% to $43 million and Music Publishing OIBDA margin increased 0.7 percentage points to 22.8%. Adjusted OIBDA increased 29.4% to $44 million and Adjusted OIBDA margin increased to 23.3% due to revenue mix, lower royalty expense due to a shift in the collection of certain writer's share income from certain digital service providers and restructuring in the prior-year quarter.
Financial details for the quarter can be found in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2021, filed today with the Securities and Exchange Commission.