WMG Reports Third-Quarter Revenues Rise 14.2%
August 4, 2016 at 5:22 AM (PT)
WARNER MUSIC GROUP has reported its third-quarter financial results for the period ended JUNE 30th, 2016. The highlights:
- Total revenue grew 14.2%, up 15.0% on a constant-currency basis
- Digital revenue grew 21.3%, up 22.5% on a constant-currency basis
- OIBDA was $120 million versus $100 million in the prior-year quarter
- Net loss was $7 million versus net loss of $43 million in the prior-year quarter
“Five years after ACCESS INDUSTRIES’ acquisition of WARNER MUSIC GROUP, the company is growing revenue, OIBDA and market share,” said CEO STEPHEN COOPER. “Our results underscore this momentum, driven by exceptional music from our artists and songwriters, our expanded global reach and strong leadership from our team around the world. With our recorded music streaming revenue now approaching double the size of our download revenue, and still growing fast, we are on course for another excellent year.”
“Our cash flow has been strong,” added EVP/CFO ERIC LEVIN. “As a result, we have continued to make strides optimizing our capital structure, paying down $175 million in debt so far this year and successfully refinancing a portion of our term loan.”
Revenue grew 14.2% (or 15.0% in constant currency). Growth in Recorded Music digital revenue, physical revenue and artist services and expanded-rights revenue as well as growth in Music Publishing digital revenue, performance revenue and synchronization revenue were partially offset by declines in Recorded Music licensing revenue, which were primarily related to exchange rates, and declines in Music Publishing mechanical revenue which reflect a continuing shift to digital. Revenue grew in the U.S., Europe, Asia and Latin America. Digital revenue grew 21.3% (or 22.5% in constant currency), and represented 47.0% of total revenue, compared to 44.2% in the prior-year quarter.
Operating income was $45 million compared to $23 million in the prior-year quarter. OIBDA increased 20.0% to $120 million from $100 million in the prior-year quarter and OIBDA margin rose 0.7% to 14.8% from 14.1% in the prior-year quarter. The increase in operating income, OIBDA and OIBDA margin is the result of the increase in revenue as well as a $9 million gain on certain asset sales. Adjusted OIBDA rose 7.8% and Adjusted OIBDA margin declined 0.8% to 13.7% from 14.5% as a result of revenue mix.
Net loss was $7 million compared to net loss of $43 million in the prior-year quarter. The improvement is attributable to an increase in OIBDA as well as a gain on asset sales and a currency-related gain on the company’s Euro-denominated debt.
Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude certain gains on asset sales and the impact of PLG-related expenses and expenses related to cost-savings initiatives in the prior-year quarter. As of JUNE 30th, 2016, the company reported a cash balance of $345 million, total debt of $2.908 billion and net debt (total long-term debt, including the current portion, minus cash) of $2.563 billion. There was no balance outstanding on the company’s revolver during the quarter. Subsequent to the quarter end, on JULY 1st, 2016, the company redeemed $100 million of its 13.75% notes with cash.
Cash provided by operating activities was $35 million compared to a use of $24 million in the prior-year quarter. The change is largely a result of improved OIBDA and the benefit of working capital management. Free Cash Flow, defined below, was $31 million compared to negative $44 million in the prior-year quarter, reflecting the improvement in cash provided by operating activities, proceeds from asset sales, and lower capital expenditures versus the prior-year quarter.
Recorded Music revenue grew 14.9% (or 15.4% in constant currency). Growth in digital revenue, physical revenue and artist services and expanded-rights revenue was partially offset by a decline in licensing revenue, which was primarily related to exchange rates. Digital growth reflects a continuing shift to streaming revenue. The increase in physical revenue was driven by a number of physically-centric releases and strong catalog sales. The improvement in artist services and expanded-rights revenue was due to the timing of concert tours. Recorded Music revenue saw strength around the globe. Major sellers included RENAUD, TWENTY ONE PILOTS, RED HOT CHILI PEPPERS and COLDPLAY. Sales from catalog artists were also strong.
Recorded Music operating income was $64 million up from $43 million in the prior-year quarter and operating margin was up 2.1% to 9.4% versus 7.3% in the prior-year quarter. Adjusted operating margin rose 0.5% points to 8.1% from 7.6% in the prior-year quarter. OIBDA rose to $119 million from $100 million in the prior-year quarter and OIBDA margin rose 0.6% points to 17.5% driven by revenue growth and a gain on asset sales. Adjusted OIBDA was $110 million versus $102 million in the prior-year quarter with Adjusted OIBDA margin down 1.0 percentage point to 16.2%. The improvement in Adjusted OIBDA was driven by revenue growth and the decline in Adjusted OIBDA margin was driven by revenue mix.
Music Publishing revenue rose 8.9% (or 10.7% in constant currency). Growth in digital revenue, performance revenue and synchronization revenue was partially offset by a decline in mechanical revenue.
Music Publishing operating income was $6 million compared with $3 million in the prior-year quarter and operating margin rose 2.1% to 4.5%. The increase in operating income and operating margin was due to revenue growth and a gain on asset sale. Music Publishing OIBDA rose by $3 million or 15.0% to $23 million, while Music Publishing OIBDA margin rose 0.9% to 17.2% from 16.3%, due to the same factors that impacted operating income.