Warner Music Group Releases Q2 Fiscal Report, Revenue Uptick

Warner Music Group

WARNER MUSIC GROUP's Q2 fiscal report shows total revenue growing 4% (13% on a constant-currency basis), with recorded music revenue up 5% (15% on a constant-currency basis), with digital revenue up 1% (10% on a constant-currency basis). Net income was $19 million compared to a loss of $59 million in Q2 2014, with streaming revenue surpassing download income for the first time.

"We experienced significant revenue growth this quarter across key segments of our business – in particular recorded music, across the U.S. and international and across digital and physical – capping off a strong first half of our fiscal year" said WMG CEO STEPHEN COOPER. "Notably, in this quarter we saw continued growth in streaming revenue which surpassed download revenue for the first time in the history of our recorded music business. Our commitment to being at the forefront of industry change as well as our ongoing investment in artist development is the foundation of our continued success.”

“We are proud of our team’s ability to deliver a healthy financial performance,” added WMG EVP/CFO ERIC LEVIN. “We will continue to find opportunities for growth while carefully watching our costs.”

The company saw growth in all revenue streams of its recorded music business, other than artist services and expanded-rights revenue which declined 11.3% (or was flat on a constant-currency basis). With the exception of digital, all revenue streams of the company’s music publishing business declined on an as-reported basis (though on a constant-currency basis performance and synchronization were up and mechanical was flat). 

Constant-currency revenue growth was widespread across geographies with gains in the U.S., the U.K., EUROPE, LATIN AMERICA and CHINA, partially offset by declines in JAPAN.  Strong physical revenue growth was driven by albums from KID ROCK and LED ZEPPELIN and by albums from local artists in territories such as FRANCE, where revenue is still predominantly physical.

Digital revenue grew 0.7% (or 10.4% in constant currency), but due to the strength of physical revenue in the quarter, digital revenue represented 43.9% of total revenue, compared to 45.2% in the prior-year quarter.  Growth in digital revenue was driven by an increase in streaming revenue, which more than offset a decline in download revenue, expected to be a continuing trend.

Operating income was $44 million compared to an operating loss of $5 million in the prior-year quarter. OIBDA increased 64% to $121 million from $74 million in the prior-year quarter and OIBDA margin rose to 17.9% from 11.3% in the prior-year quarter.  Adjusted OIBDA increased 17% and Adjusted OIBDA margin increased 2.1 percentage points to 18.5% from 16.4%.  The increase in operating income and OIBDA is largely the result of revenue growth and lower PLG-related expenses.

As of MARCH 31st, WMG reported a cash balance of $218 million, total long-term debt of $2.995 billion and net debt (total long-term debt, including the current portion, minus cash) of $2.777 billion.

Cash provided by operating activities was $107 million compared to $131 million in the prior-year quarter.  This was largely driven by the timing of digital payments.  Free cash flow was $85 million compared to $82 million in the prior-year quarter, reflecting lower cash provided by operating activities more than offset by lower cash paid for investments and lower capital expenditures.

Recorded music revenue grew 5.4% (or 14.6% in constant currency), mainly driven by a stronger release schedule. Domestic recorded music digital revenue was $144 million or 61.0% of total domestic recorded music revenue, led by top sellers ED SHEERAN, MICHAEL BUBLE, LED ZEPPELIN and DAVID GUETTA.

Recorded music operating income was $35 million, up from an operating loss of $19 million in the prior-year quarter and operating margin was 6.2% up from negative 3.6% in the prior-year quarter.  Adjusted operating margin increased 4.1 percentage points to 6.7% from 2.6% in the prior-year quarter.
 
Music publishing revenue declined 4.1% (or rose 4.5% in constant currency).  Mechanical revenue declined 9.1% (or was flat on a constant-currency basis) given the ongoing industry shift towards digital. Digital revenue grew 4.3% (or was up 14.3% on a constant-currency basis) reflecting increases in streaming revenue.  Performance revenue declined 6.4% (or was up 2.3% on a constant-currency basis) and synchronization revenue was flat (or up 8% on a constant-currency basis). 

Music publishing operating margin declined 2.1 percentage points to 28.2% from 30.3% in the prior-year quarter, as a result of the as-reported revenue decline.  Music publishing OIBDA declined by $4 million or 7.3% to $51 million, while music publishing OIBDA margin declined 1.5 percentage points to 43.6% from 45.1% also as a result of the as-reported revenue decline.

Financial details for the quarter can be found in the company’s current Form 10-Q, for the period ended MARCH 31st, filed today with the SEC.

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