Warner Music Group Corp. Reports Results for Fiscal Fourth Quarter

NEW YORK, Nov. 15, 2021 (GLOBE NEWSWIRE) — Warner Music Group Corp. today announced its fourth-quarter and full-year financial results for the periods ended September 30, 2021.

“Music is essential to billions of people across the globe. But now, more than ever, great talent needs help to cut through the noise. By delivering for new artists and songwriters, returning superstars, and global legends, we’ve also delivered outstanding results in 2021,” said Steve Cooper, CEO, Warner Music Group. “Looking to 2022, we’re excited to release incredible new music from the world’s hottest artists and most influential songwriters. We’re also planning innovative moves and collaborations that will strengthen our leadership position across a vast universe of opportunities, in both the digital and physical worlds.”

“Our strong fourth-quarter results put an exclamation point on an outstanding year,” said Lou Dickler, Acting CFO, Warner Music Group. “Even as certain revenue was impacted by COVID, the strength and resilience of our music propelled us to double-digit revenue growth and margin expansion in 2021. As the possibilities for music continue to evolve, we remain focused on delivering shareholder value through our financially disciplined investment strategy and positioning ourselves for the next wave of growth.”

Total WMG

Total WMG Summary Results
(dollars in millions)
For the Three
Months Ended
September 30,
2021
For the Three
Months Ended
September 30,
2020
% Change For the Twelve
Months Ended
September 30,
2021
For the Twelve
Months Ended
September 30,
2020
% Change
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 1,376 $ 1,126 22 % $ 5,301 $ 4,463 19 %
Recorded Music revenue 1,172 958 22 % 4,544 3,810 19 %
Music Publishing revenue 205 169 21 % 761 657 16 %
Digital revenue 926 778 19 % 3,539 2,903 22 %
Operating income (loss) 100 88 14 % 609 (229 ) %
Adjusted operating income(1) 139 107 30 % 712 529 35 %
OIBDA(1) 179 155 15 % 915 32 %
Adjusted OIBDA(1) 218 174 25 % 1,018 790 29 %
Net income (loss) 30 1 % 307 (470 ) %
Adjusted net income(1) 69 20 % 410 288 42 %
Net cash provided by operating activities 228 176 30 % 638 463 38 %
Free Cash Flow 193 139 39 % 545 378 44 %
Adjusted EBITDA(1) 237 177 34 % 1,090 837 30 %
(1) See “Supplemental Disclosures Regarding Non-GAAP Financial Measures” at the end of this release for details regarding these measures.

Fourth-Quarter Results

Revenue was up 22.2% (or 20.8% in constant currency). The revenue increase in the quarter was driven by strong digital revenue growth of 19.0% (or 17.5% in constant currency) across Recorded Music and Music Publishing. Digital revenue represented 67.3% of total revenue in the quarter, compared to 69.1% in the prior-year quarter. The decrease in digital revenue as a percentage of total revenue is due to a partial recovery of certain COVID-impacted revenue streams in the quarter, including Recorded Music artist services and expanded-rights revenue which increased 71.4% (or 69.7% in constant currency). Recorded Music physical revenue and Music Publishing synchronization and mechanical revenue all had double-digit growth. Music Publishing performance revenue increased 7.1% (or 3.4% in constant currency). Recorded Music licensing revenue decreased 7.9% (or 9.1% in constant currency).

Operating income was $100 million compared to $88 million in the prior-year quarter. Net income was $30 million compared to $1 million in the prior-year quarter. OIBDA was $179 million, an increase from $155 million in the prior-year quarter, and OIBDA margin decreased 0.8 percentage points to 13.0% from 13.8% in the prior-year quarter. The increases in operating income, net income and OIBDA were primarily due to increased revenue. The decrease in OIBDA margin was primarily due to an increase in lower-margin artist services and expanded-rights revenue and an increase in expenses related to restructuring and other transformation initiatives.

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude non-cash stock-based compensation and other related expenses, COVID-related expenses and expenses related to restructuring and other transformation initiatives in both the quarter and the prior-year quarter. In the prior-year quarter, costs associated with the Company’s IPO and the Company’s Los Angeles office consolidation 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 25.3% from $174 million to $218 million and Adjusted OIBDA margin increased 0.3 percentage points to 15.8% from 15.5% due to strong operating performance. Adjusted operating income increased 29.9% from $107 million to $139 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 33.9% from $177 million to $237 million with margins improving 1.5 percentage points from 15.7% to 17.2%. The increase was largely due to the same factors affecting Adjusted OIBDA in addition to higher pro forma savings expected to be realized from certain cost-savings initiatives and the impact of certain specified transactions.

Adjusted net income was $69 million compared to $20 million in the prior-year quarter. Adjusted net income grew due to an increase in Adjusted operating income, the favorable impact of exchange rates on the Company’s external euro-denominated debt and intercompany loans and loss on extinguishment of debt on refinancing activity which was $24 million lower than the prior-year quarter, partially offset by unrealized losses on the mark-to-market of certain investments and an increase in income tax expense due to higher pre-tax income and higher withholding taxes.

Basic and Diluted earnings per share was $0.05 for both the Class A and Class B shareholders due to the net income attributable to the Company in the quarter of $30 million.

As of September 30, 2021, the Company reported a cash balance of $499 million, total debt of $3.346 billion and net debt (defined as total debt, net of deferred financing costs, premiums and discounts, minus cash and equivalents) of $2.847 billion.

Cash provided by operating activities increased 30% to $228 million from $176 million in the prior-year quarter. The change was largely a result of strong operating performance and the benefit from working capital. Capital expenditures were $35 million for the quarter as compared to $37 million in the prior-year quarter. Free Cash Flow, as defined below, increased 39% to $193 million from $139 million in the prior-year quarter.

Full-Year Results

Total revenue increased 18.8% (or 15.4% in constant currency). The revenue increase was driven by strong digital revenue growth of 21.9% (or 19.1% in constant currency) across Recorded Music and Music Publishing. Digital revenue represented 66.8% of total revenue, compared to 65.0% in the prior year. Recorded Music physical revenue increased 26.5% (or 22.3% in constant currency) and Recorded Music artist services and expanded-rights revenue and Music Publishing synchronization revenue also had double-digit growth. Recorded Music licensing revenue and Music Publishing mechanical revenue both increased on an as-reported basis and decreased in constant currency. Music Publishing performance revenue decreased 14.1% (or 17.0% in constant currency). U.S. revenue increased by 22.2% and international revenue rose 16.1% (or 10.5% in constant currency). Prior to intersegment eliminations, U.S. and international revenue represented 44.5% and 55.5% of total revenue, respectively, compared to 43.3% and 56.7% of total revenue, respectively, in the prior year.

Operating income was $609 million, compared to an operating loss of $229 million in the prior year and operating margin was 11.5%, up from (5.1)% in the prior year. Net income was $307 million compared to a net loss of $470 million in the prior year. OIBDA was $915 million, an increase from $32 million in the prior year and OIBDA margin increased 16.6 percentage points to 17.3% from 0.7% in the prior year. The increases in operating income, net income, OIBDA and OIBDA margin were primarily due to strong operating performance and non-cash stock-based compensation and other related expenses which were $560 million lower than the prior year, as well as $89 million in one-time costs associated with the Company’s IPO in the prior year.

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude non-cash stock-based compensation and other related expenses, COVID-related expenses and expenses related to restructuring and other transformation initiatives in both the year and the prior year. In the prior year, costs associated with the Company’s IPO and the Company’s Los Angeles office consolidation 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 28.9% from $790 million to $1,018 million and Adjusted OIBDA margin increased 1.5 percentage points from 17.7% to 19.2% due to strong operating performance. Adjusted operating income increased 34.6% from $529 million to $712 million in the year 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 30.2% from $837 million to $1,090 million with margins improving 1.8 percentage points from 18.8% to 20.6%. The increase was largely due to the same factors affecting Adjusted OIBDA in addition to higher pro forma savings expected to be realized from certain cost-savings initiatives and the impact of certain specified transactions.

Adjusted net income was $410 million compared to $288 million in the prior year. The increase in Adjusted net income was primarily due to higher Adjusted operating income, the favorable impact of exchange rates on the Company’s external euro-denominated debt, loss on extinguishment of debt on refinancing activity which was $12 million lower than the prior year and lower interest expense resulting from refinancing activity, partially offset by unrealized losses on the mark-to-market of certain investments and an increase in income tax expense due to higher pre-tax income and release of a valuation allowances of foreign tax credits for the prior year.

Net debt (defined as total debt, net of deferred financing costs, premiums and discounts, minus cash and equivalents) at the end of the year was $2.847 billion compared to $2.551 billion at the end of the prior year.

Basic and Diluted earnings per share was $0.58 for both the Class A and Class B shareholders due to the net income attributable to the Company in the year of $307 million.

Cash provided by operating activities increased 38% to $638 million from $463 million in the prior year due to strong operating performance, partially offset by continued A&R investment and timing of working capital. Capital expenditures were $93 million for the year as compared to $85 million in the prior year driven by spending related to transformation initiatives. Free Cash Flow, as defined below, increased 44% to $545 million from $378 million in the prior year.

Recorded Music

Recorded Music Summary Results
(dollars in millions)
For the Three
Months Ended
September 30,
2021
For the Three
Months Ended
September 30,
2020
% Change For the Twelve
Months Ended
September 30,
2021
For the Twelve
Months Ended
September 30,
2020
% Change
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 1,172 $ 958 22 % $ 4,544 $ 3,810 19 %
Digital revenue 807 679 19 % 3,105 2,568 21 %
Operating income 129 108 19 % 733 175 %
Adjusted operating income(1) 151 118 28 % 772 582 33 %
OIBDA(1) 182 151 21 % 936 349 %
Adjusted OIBDA(1) 204 161 27 % 975 756 29 %
(1) See “Supplemental Disclosures Regarding Non-GAAP Financial Measures” at the end of this release for details regarding these measures.

Fourth-Quarter Results

Recorded Music Revenue
(dollars in millions)
For the Three Months Ended
September 30, 2021
For the Three Months Ended
September 30, 2020
For the Three Months Ended
September 30, 2020
As reported As reported Constant
(unaudited) (unaudited) (unaudited)
Revenue by Segment:
Recorded Music
Digital $ 807 $ 679 $ 688
Physical 127 105 104
Total Digital and Physical 934 784 792
Artist services and expanded-rights 168 98 99
Licensing 70 76 77
Total Recorded Music $ 1,172 $ 958 $ 968

Recorded Music revenue was up 22.3% (or 21.1% in constant currency). The revenue increase was primarily due to increases in digital revenue, which reflects the continuing growth in streaming, the Company’s largest source of revenue. Digital revenue grew 18.9% (or 17.3% 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. Digital revenue represented 68.9% of total Recorded Music revenue versus 70.9% in the prior-year quarter. The decrease in digital revenue as a percentage of total Recorded Music revenue is due to the partial recovery of certain COVID-impacted revenue streams in the quarter. Artist services and expanded-rights revenue increased 71.4% (or 69.7% in constant currency), reflecting an increase in merchandising and concert promotion revenue, both of which were disrupted by COVID in the prior-year quarter. Physical revenue grew 21.0% (or 22.1% in constant currency) primarily due to an increasing demand for vinyl products and continued recovery from COVID disruption. Licensing revenue was down mainly due to one-time licensing settlements in the prior-year quarter, partially offset by higher synchronization revenue as businesses continued to recover from COVID disruption. Major sellers included Iron Maiden, Dua Lipa, Ed Sheeran, Masked Wolf and Ava Max.

Recorded Music operating income was $129 million, up from $108 million in the prior-year quarter and operating margin was down 0.3 percentage points to 11.0% versus 11.3% in the prior-year quarter. OIBDA increased to $182 million from $151 million in the prior-year quarter and OIBDA margin decreased 0.3 percentage points to 15.5%. Adjusted OIBDA was $204 million versus $161 million in the prior-year quarter with Adjusted OIBDA margin up 0.6 percentage points to 17.4%. The increases in operating income, OIBDA and Adjusted OIBDA were driven by increased revenue. The decreases in operating margin and OIBDA margin were primarily due to an increase in lower-margin artist services and expanded-rights revenue and an increase in expenses related to restructuring initiatives. The increase in Adjusted OIBDA margin was due to strong operating performance.

Full-Year Results

Recorded Music Revenue
(dollars in millions)
For the Twelve Months Ended
September 30, 2021
For the Twelve Months Ended
September 30, 2020
For the Twelve Months Ended
September 30, 2020
As reported As reported Constant
(unaudited) (unaudited) (unaudited)
Revenue by Segment:
Recorded Music
Digital $ 3,105 $ 2,568 $ 2,628
Physical 549 434 449
Total Digital and Physical 3,654 3,002 3,077
Artist services and expanded-rights 599 525 551
Licensing 291 283 292
Total Recorded Music $ 4,544 $ 3,810 $ 3,920

Recorded Music revenue increased 19.3% (or 15.9% in constant currency). The revenue increase was primarily due to increases in digital revenue, which reflects the continuing growth in streaming, the Company’s largest source of revenue. Digital revenue grew 20.9% (or 18.2% 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. Digital revenue represented 68.3% of total Recorded Music revenue versus 67.4% in the prior year. U.S. Recorded Music digital revenue was $1.531 billion, or 77.1% of total U.S. Recorded Music revenue, versus 80.3% in the prior year. Physical revenue grew 26.5% (or 22.3% in constant currency) primarily due to an increasing demand for vinyl products and continued recovery from COVID disruption. Artist services and expanded-rights revenue increased 14.1% (or 8.7% in constant currency) reflecting an increase in merchandising revenue, partially offset by the impact of COVID disruption on concert touring and live events. Licensing revenue was up 2.8% on an as-reported basis and down 0.3% in constant currency mainly due to higher synchronization revenue as businesses continued to partially recover from COVID disruption and the favorable impact of foreign currency exchange rates, partially offset by lower compilation revenue and other COVID-impacted licensing revenue. Major sellers included Dua Lipa, Ed Sheeran, Ava Max, Cardi B and the Hamilton original cast recording.

Recorded Music operating income was $733 million up from $175 million in the prior year and operating margin was up 11.5 percentage points to 16.1% versus 4.6% in the prior year. Recorded Music OIBDA increased to $936 million from $349 million and OIBDA margin increased 11.4 percentage points to 20.6%. Recorded Music Adjusted OIBDA improved 29.0% to $975 million and Recorded Music Adjusted OIBDA margin increased 1.7 percentage points to 21.5%. The increases in operating income and OIBDA were primarily driven by strong operating performance and non-cash stock-based compensation and other related expenses which were $367 million lower than the prior year. The increases in Adjusted OIBDA and Adjusted OIBDA margin were primarily due to strong operating performance.

Music Publishing

Music Publishing Summary Results
(dollars in millions)
For the Three
Months Ended
September 30,
2021
For the Three
Months Ended
September 30,
2020
% Change For the Twelve
Months Ended
September 30,
2021
For the Twelve
Months Ended
September 30,
2020
% Change
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 205 $ 169 21 % $ 761 $ 657 16 %
Digital revenue 120 100 20 % 436 337 29 %
Operating income 28 23 22 % 89 81 10 %
Adjusted operating income(1) 28 23 22 % 94 84 12 %
OIBDA(1) 49 43 14 % 174 157 11 %
Adjusted OIBDA(1) 49 43 14 % 179 160 12 %
(1) See “Supplemental Disclosures Regarding Non-GAAP Financial Measures” at the end of this release for details regarding these measures.

Fourth-Quarter Results

Music Publishing Revenue
(dollars in millions)
For the Three Months Ended
September 30, 2021
For the Three Months Ended
September 30, 2020
For the Three Months Ended
September 30, 2020
As reported As reported Constant
(unaudited) (unaudited) (unaudited)
Revenue by Segment:
Music Publishing
Performance $ 30 $ 28 $ 29
Digital 120 100 101
Mechanical 13 10 11
Synchronization 39 27 28
Other 3 4 3
Total Music Publishing $ 205 $ 169 $ 172

Music Publishing revenue increased 21.3% (or 19.2% in constant currency). The revenue increase was driven by growth in digital, synchronization, mechanical and performance revenue. Digital revenue increased 20.0% (or 18.8% in constant currency) reflecting the continuing growth in streaming, including emerging streaming platforms, and timing of new digital deals. Digital revenue growth in the quarter was impacted by a favorable one-time settlement in the prior-year quarter, as well as a shift in the collection of writer’s share of U.S. digital performance income from certain digital service providers. This change has no impact on Music Publishing OIBDA, but results in a slight improvement to OIBDA margin. Digital revenue represented 58.5% of total Music Publishing revenue versus 59.2% in the prior-year quarter. The decrease in digital revenue as a percentage of total Music Publishing revenue is due to partial recovery of certain COVID-impacted revenue streams in the quarter. Synchronization revenue increased due to higher motion picture and commercial income and a one-time licensing settlement. Mechanical revenue increased as businesses continued to recover from COVID disruption and from an increase in physical sales. Performance revenue increased as bars, restaurants, concerts and live events continued to recover from COVID disruption.

Music Publishing operating income was $28 million compared to $23 million in the prior-year quarter largely driven by increased revenue. Operating margin increased 0.1 percentage point to 13.7%. Music Publishing OIBDA and Adjusted OIBDA increased 14.0% to $49 million, and OIBDA margin and Adjusted OIBDA margin decreased 1.5 percentage points to 23.9%. The decreases in OIBDA margin and Adjusted OIBDA margin were primarily due to revenue mix.

Full-Year Results

Music Publishing Revenue
(dollars in millions)
For the Twelve Months Ended
September 30, 2021
For the Twelve Months Ended
September 30, 2020
For the Twelve Months Ended
September 30, 2020
As reported As reported Constant
(unaudited) (unaudited) (unaudited)
Revenue by Segment:
Music Publishing
Performance $ 122 $ 142 $ 147
Digital 436 337 346
Mechanical 49 48 52
Synchronization 144 119 121
Other 10 11 10
Total Music Publishing $ 761 $ 657 $ 676

Music Publishing revenue increased 15.8% (or 12.6% in constant currency). The revenue increase was driven by growth in digital, synchronization and mechanical revenue, partially offset by a decline in performance revenue. Music Publishing digital revenue increased 29.4% (or 26.0% in constant currency) reflecting the continuing growth in streaming, including emerging streaming platforms, and timing of new digital deals. Digital revenue growth in the year was impacted by a favorable one-time settlement in the prior year, as well as a shift in the collection of writer’s share of U.S. digital performance income from certain digital service providers. This change has no impact on Music Publishing OIBDA, but results in a slight improvement to OIBDA margin. Digital revenue represented 57.3% of total Music Publishing revenue versus 51.3% in the prior year. Synchronization revenue increased due to growth in motion picture and commercial income and a one-time licensing settlement. Mechanical revenue increased on an as-reported basis and decreased in constant currency. Performance revenue decreased driven by the ongoing COVID-related impact on bars, restaurants, concerts and live events.

Music Publishing operating income was $89 million, up 9.9% from $81 million in the prior year driven largely by increased revenue, partially offset by higher overhead due to employee-related costs and an increase in amortization expense. Operating margin was 11.7%, down 0.6 percentage points from 12.3% in the prior year. Music Publishing OIBDA increased 10.8% to $174 million, and Music Publishing OIBDA margin declined 1.0 percentage point to 22.9%. Adjusted OIBDA increased 11.9% to $179 million and Music Publishing Adjusted OIBDA margin declined to 23.5%. The decreases in OIBDA margin and Adjusted OIBDA margin were primarily due to revenue mix.

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 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.