Warner Music Group Corp. Reports Results For The Fiscal Second Quarter Ended March 31, 2012
Warner Music Group Corp. today announced its fiscal second quarter financial results for the period ended March 31, 2012.
“With growing digital and non-traditional revenue partially offsetting the impact of a light release schedule as compared to the prior-year quarter, this quarter’s results show the benefits of the company’s transformation,” said Stephen Cooper, Warner Music Group’s CEO. “We remain optimistic about the company’s performance over the course of the fiscal year as we continue to execute on our long-term strategy.”
“Through ongoing focus on cost management, we were able to increase OIBDA, expand OIBDA margins and generate significant free cash flow,” added Brian Roberts, Warner Music Group’s Executive Vice President and CFO.
Total WMG Summary Results
Lower revenue for the quarter as a result of the company’s light release schedule as compared to the prior-year quarter and continued physical revenue declines in the recorded music industry was partially offset by growth in Recorded Music digital and non-traditional revenue. Revenue growth in Japan and other parts of Asia, Italy and Canada was offset by weakness in the U.S. and most of Europe, including the U.K. and France. Digital revenue represented 37.4% of total revenue for the quarter, compared to 32.2% in the prior-year quarter. Increased Recorded Music digital revenue reflects international growth in downloads as well as global growth in subscription/streaming services.
Operating margin expanded 1.2 percentage points to 3.5% from 2.3%. OIBDA margin expanded 1.5 percentage points to 13.5% from 12.0%. Improvements in OIBDA and OIBDA margin reflect the company’s continued focus on cost management. Operating income and OIBDA for the quarter included $4 million of severance charges ($3 million in Recorded Music and $1 million in Music Publishing), compared to $7 million of severance charges in the prior-year quarter ($3 million in Recorded Music and $4 million in Music Publishing) (the “Quarterly Severance Charges”). (See Figures 4 and 5 below for calculations and reconciliations of OIBDA and OIBDA margin.)
Net loss included the impact of an increase in interest expense, to $56 million from $47 million, related to the July 2011 refinancing of certain existing indebtedness in connection with the acquisition of the company by Access Industries in 2011.
As of March 31, 2012, the company reported a cash balance of $272 million, total long-term debt of $2.212 billion and net debt (total long-term debt minus cash) of $1.940 billion.
Cash provided by operating activities was $121 million compared to $106 million in the prior-year quarter. Free Cash Flow was $103 million compared to $46 million in the prior-year quarter. The increase in Free Cash Flow reflects the increase in OIBDA, the timing of working capital requirements, the timing of artist and repertoire spend, a decrease in cash paid for severance and a decrease in cash paid for acquisitions. (See Figure 7 below for a calculation and reconciliation of Free Cash Flow.)
Recorded Music Summary Results
The company’s Recorded Music business experienced an increase in digital revenue, as international download revenue and global subscription/streaming revenue were both strong. Recorded Music digital revenue represented 44.1% of total Recorded Music revenue, the company’s largest percentage to date, compared to 37.1% in the prior-year quarter. Domestic Recorded Music digital revenue was $123 million, or 58.3% of total domestic Recorded Music revenue, the company’s largest percentage to date, compared to 48.0% in the prior-year quarter. The impact of a light release schedule and contracting demand for physical product more than offset the increase in digital revenue. Major sellers included Skrillex, The Black Keys, Bruno Mars, Ed Sheeran and FUN. FUN.’s “We Are Young” recently became the first track ever to log six weeks of 300,000 units or more in U.S. digital sales. Recorded Music non-traditional revenue grew due to an increase in merchandising and concert promotion revenue.
Recorded Music operating margin contracted 0.4 percentage points to 1.4% from 1.8% in the prior-year quarter. Recorded Music OIBDA margin contracted 0.3 percentage points to 9.5% from 9.8% in the prior-year quarter. The decline in OIBDA and OIBDA margin largely reflects negative operating leverage associated with the decline in revenue partially offset by ongoing cost-savings initiatives. Operating income and OIBDA reflect the impact of the Quarterly Severance Charges.
Music Publishing Summary
The company’s Music Publishing business experienced 3.2% growth in synchronization revenue, which reflects strength in the advertising market as well as a more proactive marketing approach for film and television. Performance revenue declined 6.0% partially due to a reduction in U.S. radio license fees, which is affecting the entire industry. Digital revenue declined 17.6% due to the timing of collections and a one-time settlement in the prior-year quarter. Mechanical revenue declined 5.9% reflecting the ongoing transition in the recorded music industry.
The company’s Music Publishing OIBDA and OIBDA margin increased largely as a result of the continued execution of a disciplined A&R investment and acquisition strategy focused on higher-margin assets, as well as improved operating efficiencies. Music Publishing operating margin expanded 5.5 percentage points to 28.1% from 22.6% in the prior-year quarter. Music Publishing OIBDA margin expanded 5.7 percentage points to 42.2% from 36.5%. In April, Warner/Chappell was jointly named the 2012 Publisher of the Year at the ASCAP Pop Music Awards. Warner/Chappell songwriters collected 19 “Most Played Song of the Year” awards, and the coveted “Song of the Year” award for Bruno Mars’ “Just the Way You Are.”
Source: Warner Music Group
