NEW YORK, Nov. 23, 2020 (GLOBE NEWSWIRE) -- Warner Music Group Corp. today announced its fourth-quarter and full-year financial results for the periods ended September 30, 2020.

“We’re proud of everything we’ve accomplished in the past year, despite the challenging conditions that the world has faced. We’re essentially flat against a record-breaking prior year and, during the quarter, we grew 11% on an as-reported basis, excluding the revenue streams most impacted by COVID,” said Steve Cooper, CEO, Warner Music Group. “We’ve had huge successes from global megastars and local hitmakers, breakout sensations and long-time legends. Our streaming growth has stayed strong, and we’ve also seen an acceleration in a whole spectrum of emerging revenue streams such as social media, gaming, and in-home fitness. In this increasingly complex environment, where music is woven into every aspect of our lives, our creative expertise and global reach are more valuable than ever.”

“Our results are underpinned by the continued momentum we are seeing in streaming and the operating leverage driven by our digital transformation and business optimization initiatives,” added Eric Levin, Executive Vice President and CFO, Warner Music Group. “As we look toward the future, we are confident in our long-term growth prospects, particularly as the areas of our business that have been most impacted by COVID return to normal.”

Fourth-Quarter Results

Revenue was up 0.2% (or down 1.1% in constant currency). Robust digital revenue growth across Recorded Music and Music Publishing was partially offset by a decline in Recorded Music artist services and expanded-rights and licensing revenue and in Music Publishing performance, mechanical and synchronization revenue, which reflects the impact from COVID. Excluding artist services and expanded-rights revenue in Recorded Music and performance revenue in Music Publishing, the revenue segments most affected by COVID, total revenue would have increased 10.5% (or 9.4% in constant currency). Recorded Music physical revenue was flat, despite the impact from COVID, as a result of strong physical releases in the US and Japan. The slight increase in revenue was primarily due to growth in streaming revenue, the Company’s largest and fastest-growing source of revenue, and favorable impact from exchange rates, partially offset by COVID-related business disruption. Digital revenue grew 15.4% (or 14.6% in constant currency), and represented 69.1% of total revenue, compared to 60.0% in the prior-year quarter.

Operating income was $88 million compared to $29 million in the prior-year quarter. OIBDA was $155 million, an increase from $95 million in the prior-year quarter and OIBDA margin increased 5.3 percentage points to 13.8% from 8.5% in the prior-year quarter. The increase in operating income, OIBDA and OIBDA margin was primarily due to higher-margin streaming revenue constituting a larger proportion of total revenue, lower non-cash stock-based compensation expense of $14 million, lower variable compensation expense and cost-management efforts.

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude one-time costs related to the Company’s IPO, non-cash stock-based compensation expense, COVID-related expenses, the Company's Los Angeles office consolidation and restructuring and other transformation initiatives in the current quarter and costs related to the Company's Los Angeles office consolidation, non-cash stock-based compensation expense and restructuring and other transformation initiatives in the prior-year quarter. Adjusted EBITDA excludes these items and includes expected savings resulting from transformation initiatives and pro forma impact of specified transactions closed in the current quarter. See below for calculations and reconciliations of Adjusted operating income, Adjusted OIBDA, Adjusted net income, and Adjusted EBITDA.

Adjusted OIBDA increased 34.9% from $129 million to $174 million and Adjusted OIBDA margin increased 4.0 percentage points to 15.5% from 11.5% due to margin improvement associated with higher streaming revenue, cost-management efforts and lower variable compensation expense. Adjusted operating income increased 69.8% from $63 million to $107 million due to the same factors affecting Adjusted OIBDA.

Adjusted EBITDA increased 33.1% from $133 million to $177 million with margins improving 3.9 percentage points from 11.8% to 15.7%. 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 transactions.

Net income was $1 million compared to $91 million in the prior-year quarter. Adjusted net income was $20 million compared to $125 million in the prior-year quarter. The decrease in net income and Adjusted net income was due to the unfavorable impact of exchange rates on the Company’s external euro-denominated debt and intercompany loans, a loss on extinguishment of debt of $34 million due to recent refinancing activity and higher income tax benefit in the prior-year quarter due to the release of $59 million of the Company's U.S. deferred tax valuation allowance on foreign tax credit carryforwards, which was partially offset by higher operating income, lower interest expense due to refinancing activity and gains on investments.

Basic and Diluted earnings per share was $0.00 for both the Class A and Class B shareholders due to the net loss attributable to the Company in the current quarter of $1 million.

As of September 30, 2020, the Company reported a cash balance of $553 million, total debt of $3.104 billion and net debt (defined as total long-term debt, net of deferred financing costs, minus cash and equivalents) of $2.551 billion.

Cash provided by operating activities was $176 million compared to $151 million in the prior-year quarter. The change was largely a result of the timing of working capital primarily due to timing of payments from certain digital service providers. Free Cash Flow, as defined below, decreased to $44 million from $115 million in the prior-year quarter largely due to an increase in capital expenditures to support transformation initiatives and to increased investment activity, which was partially offset by an increase in operating cash flow.

Full-Year Results

Total revenue decreased 0.3% (or increased 0.4% in constant currency). Robust digital revenue growth in Recorded Music and Music Publishing was more than offset by declines in Recorded Music artist services and expanded-rights, physical and licensing revenue and in Music Publishing performance and mechanical revenue, which reflects the impact of COVID. Excluding artist services and expanded-rights revenue in Recorded Music and performance revenue in Music Publishing, the revenue segments most affected by COVID, total revenue would have increased 3.6% (or 4.4% in constant currency). Music Publishing synchronization revenue was flat, despite the impact from COVID, as a result of increased deal activity in China and the UK. US revenue declined by 1.1% and international revenue rose 0.2% (or 1.4% in constant currency). Prior to intersegment eliminations, US and international revenue represented 43.3% and 56.7% of total revenue, respectively, compared to 43.6% and 56.4% of total revenue, respectively, in the prior year. Digital revenue grew 11.2% (or 12.2% in constant currency), and represented 65.0% of total revenue, compared to 58.3% in the prior year.

Operating loss was $229 million, compared to operating income of $356 million in the prior year and operating margin was (5.1)% down from 8.0% in the prior year. OIBDA was $32 million, down 94.9% from $625 million in the prior year and OIBDA margin decreased 13.3 percentage points to 0.7% from 14.0% in the prior year. Net loss was $470 million compared to net income of $258 million in the prior year. The decrease in net income, operating income, OIBDA and OIBDA margin was primarily due to higher non-cash stock-based compensation expense of $559 million related to the Company’s long-term incentive plan reflecting changes in the value of the Company’s common stock, as well as $89 million in one-time costs associated with the Company’s IPO.

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude one-time costs related to the Company’s IPO, non-cash stock-based compensation expense, COVID-related expenses, the Company's Los Angeles office consolidation and restructuring and other transformation initiatives in the current year and non-cash stock-based compensation expense, the Company's Los Angeles office consolidation and restructuring and other transformation initiatives, including relocation of the Company’s U.S. shared service center to Nashville in the prior year. Adjusted EBITDA excludes these items and includes expected savings resulting from transformation initiatives and pro forma impact of specified transactions closed in the current year. See below for calculations and reconciliations of Adjusted operating income, Adjusted OIBDA, Adjusted net income, and Adjusted EBITDA.

Adjusted OIBDA increased 10.8% from $713 million to $790 million and Adjusted OIBDA margin increased 1.8 percentage points from 15.9% to 17.7% due to margin improvement associated with an increase in higher-margin streaming revenue and decreases in lower-margin physical revenue and artist services and expanded-rights revenue, as well as lower operating costs. Adjusted operating income increased 19.1% from $444 million to $529 million in the year due to the same factors affecting Adjusted OIBDA.

Adjusted EBITDA increased 13.6% from $737 million to $837 million. 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 transactions.

Net loss was $470 million compared to income of $258 million in the prior year. Adjusted net income was $288 million compared to $346 million in the prior year. The decrease in net income and Adjusted net income was primarily due to the unfavorable impact of exchange rates on the Company’s external euro-denominated debt and intercompany loans, a loss on extinguishment of debt of $34 million due to recent refinancing activity and an increase in income tax expense due to a higher release of a U.S. deferred tax valuation allowance in the prior year, which was partially offset by lower interest expense due to refinancing activity.

Net debt (defined as total long-term debt, net of deferred financing costs, minus cash and equivalents) at the end of the current year was $2.551 billion compared to $2.355 billion at the end of the prior year.

Basic and Diluted earnings per share was a loss of $0.82 for the Class A and $0.95 for the Class B shareholders. The loss was due to the same factors affecting net loss.

Cash provided by operating activities was $463 million compared to $400 million in the prior year due to timing of royalty payments and lower spending due to COVID. Free Cash Flow was $244 million, compared to $24 million in the prior year, reflecting the acquisition of EMP for $183 million. Capital expenditures were $85 million for the current year as compared to $104 million in the prior year driven by spend related to the Company's Los Angeles office consolidation.

Recorded Music revenue was up 0.5% (or down 0.8% in constant currency). The revenue increase was primarily due to the continued growth in streaming revenue—which grew 16.2% over the prior-year quarter and 8.5% over the prior quarter—which was partially offset by COVID-related business disruption and exchange rates in the current quarter. Physical revenue was flat. Growth in digital revenue was partially offset by declines in artist services and expanded-rights revenue and licensing revenue. Digital revenue growth reflects the continuing shift to streaming, the Company’s largest and fastest-growing source of revenue. The decline in artist services and expanded-rights revenue was due to tour postponements and cancellations and lower tour merchandise revenue resulting from COVID-related business disruption. The decline in licensing revenue reflects a decrease in broadcast fees and synchronization revenue from lower advertising, television and film deal activity due to the impact of COVID. Physical revenue reflects the continued shift to streaming, which was partially offset by strong releases in the quarter. Major sellers included Dua Lipa, Roddy Ricch,Tones and I, Aimyon and Cardi B.

Recorded Music operating income was $108 million, up from $57 million in the prior-year quarter and operating margin was up 5.3 percentage points to 11.3% versus 6.0% in the prior-year quarter. OIBDA increased to $151 million from $101 million in the prior-year quarter and OIBDA margin increased 5.2 percentage points to 15.8%. Adjusted OIBDA was $161 million versus $119 million in the prior-year quarter with Adjusted OIBDA margin up 4.3 percentage points to 16.8%. The increases in operating income and OIBDA were driven by lower non-cash stock-based compensation expense and an increase in Adjusted OIBDA. The increases in Adjusted OIBDA and Adjusted OIBDA margin were primarily due to overall cost savings and revenue mix.

Recorded Music revenue declined 0.8% (or 0.2% in constant currency). Declines in physical, artist services and expanded-rights and licensing revenue were partially offset by an increase in digital revenue. The decline in physical revenue was largely driven by the overall market decline, timing of releases and the impact of COVID. Artist services and expanded-rights revenue decreased due to the impact of COVID, which resulted in tour postponements and cancellations and decreased tour merchandising revenue. Lower licensing revenue was primarily related to COVID, which resulted in lower broadcast fees and lower synchronization revenue due to a decrease in advertising, television and film deal activity which was partially offset by one-time legal settlements. Digital revenue growth reflects the continuing shift to streaming and timing of releases, which were partially offset by a decrease in download revenue. Recorded Music digital revenue grew 9.6% (or 10.6% in constant currency) and represented 67.4% of total Recorded Music revenue versus 61.0% in the prior year. US Recorded Music digital revenue was $1.292 billion, or 80.3% of total US Recorded Music revenue, versus 74.2% in the prior year. Major sellers included Dua Lipa, Roddy Ricch,Tones and I, Aimyon and Cardi B.

Recorded Music operating income was $175 million down from $439 million in the prior year. Recorded Music OIBDA decreased 44.0% to $349 million and OIBDA margin declined 7.0 percentage points to 9.2%. Recorded Music Adjusted OIBDA improved 12.2% to $756 million and Recorded Music Adjusted OIBDA margin increased 2.2 percentage points to 19.8%. The decreases in operating income and OIBDA were driven by higher non-cash stock-based compensation expense of $359 million and an increase in Adjusted OIBDA. The increases in Adjusted OIBDA and Adjusted OIBDA margin were primarily due to overall cost savings and revenue mix.

Music Publishing revenue decreased 2.3% (or 3.4% in constant currency). Growth in digital revenue was more than offset by declines in performance, synchronization and mechanical revenue. Digital revenue growth reflects the continuing shift to streaming and timing of deals with digital service providers. The decrease in synchronization revenue relates to decreases in advertising spend and licensing activity resulting from COVID-related business disruption. The decrease in mechanical revenue is due to COVID-related business disruption and the continuing shift to streaming. The decrease in performance revenue was primarily driven by COVID-related business disruption.

Music Publishing operating income was $23 million compared to $25 million in the prior-year quarter. Operating margin decreased 0.9 percentage points to 13.6%. Music Publishing OIBDA decreased by $1 million or 2.3% to $43 million, and OIBDA margin was flat. Adjusted OIBDA decreased by $1 million and Adjusted OIBDA margin was flat.

Music Publishing revenue increased 2.2% (or was up 3.1% in constant currency). Digital revenue growth was partially offset by declines in performance and mechanical revenue. Music Publishing digital revenue increased 24.4% (or 24.8% in constant currency) reflecting the continuing shift to streaming, and represented 51.3% of total Music Publishing revenue versus 42.1% in the prior year. The decreases in Music Publishing performance revenue and mechanical revenue were primarily due to COVID-related business disruption and the timing of distributions. Synchronization revenue was flat due to increased deal activity in China and the UK offset by COVID-related business disruption.

Music Publishing operating income was $81 million, down 12.0% from $92 million in the prior year driven largely by higher artists and repertoire (“A&R”) spend, and increased overhead due to employee-related costs and restructuring. Operating margin was 12.3%, down 2.0 percentage points from 14.3% in the prior year. Music Publishing OIBDA decreased 5.4% to $157 million, and Music Publishing OIBDA margin declined 1.9 percentage points to 23.9%, due to the same factors which impacted operating income and operating margin. Adjusted OIBDA decreased 3.6% to $160 million and Music Publishing Adjusted OIBDA margin declined to 24.4% due to higher A&R spend and employee-related costs, which were partially offset by revenue mix.

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.