Total Digital Revenue Grows to $184 Million; Digital Revenue Represents 35% of U.S. Recorded Music Revenue
February 09, 2010: 06:30 AM ET
Warner Music Group Corp. (NYSE: WMG)
-- Total revenue of $918 million increased 3% from the prior-year
quarter, and declined 2% on a constant-currency basis. --
Digital revenue was $184 million, or 20% of total revenue,
flat sequentially from the fourth quarter of fiscal 2009,
and up 8% from $171 million in the prior-year quarter.
On a constant-currency basis, digital revenue grew 4%
sequentially and was up 5% from the prior-year quarter.
-- Operating income grew 15% to $47 million compared to $41 million
in the prior-year quarter. -- Operating income before depreciation
and amortization (OIBDA) was up 5% to $112 million from $107 million
in the prior-year quarter. -- Net loss was ($0.11) per diluted
share compared to net income of $0.15 per diluted share in the
prior-year quarter. The prior-year quarter included a gain of
$0.24 per diluted share related to the sale of the company's
investment in Front Line Management.
Warner Music Group Corp. (NYSE: WMG) today announced its first-quarter financial results for the period ended December 31, 2009.
"We are pleased to have delivered stable revenue and OIBDA in our core Recorded Music and Music Publishing businesses despite ongoing recorded music industry pressures and macroeconomic headwinds," said Edgar Bronfman, Jr., Warner Music Group's Chairman and CEO. "Our goals remain focused on delivering strong returns on A&R investments while we develop new business models, diversify our revenue mix and fortify our digital leadership position."
"As our stable margins show, we carefully manage our costs and regularly work to adjust our business in order to minimize the impact of a transitioning recorded music market," Steven Macri, Warner Music Group's Executive Vice President and CFO, added. "Similar to last year, we expect our release schedule in fiscal year 2010 to be back-end weighted."
For the quarter, revenue grew 3.5% to $918 million from $887 million in the prior-year quarter, and declined 2.0% on a constant-currency basis. This performance primarily reflected strong international results, while U.S. results were tempered by continued general economic pressures and the transition from physical sales to digital sales in the recorded music industry. International revenue rose 12.1%, or 2.4% on a constant-currency basis, while domestic revenue declined 8.8%. Revenue growth in the U.K., France and Italy was partially offset by weakness in the U.S., Japan and parts of Europe. Digital revenue of $184 million grew 7.6% over the prior-year quarter, or 4.5% on a constant-currency basis. Digital revenue was unchanged sequentially from the fourth quarter of fiscal 2009, but grew 4.0% on a constant-currency basis, and represented 20.0% of total revenue for the quarter.
Operating income grew 14.6% to $47 million from $41 million in the prior-year quarter and operating margin was up 0.5 percentage points to 5.1%. OIBDA increased 4.7% to $112 million from $107 million in the prior-year quarter and OIBDA margin increased 0.1 percentage points to 12.2%, primarily as a result of continued cost-management efforts (see below for calculations and reconciliations of OIBDA and OIBDA margin).
Net loss was $17 million, or ($0.11) per diluted share, for the quarter, compared with net income of $23 million, or $0.15 per diluted share, in the prior-year quarter. The prior-year quarter included a gain of $36 million, or $0.24 per diluted share, related to the sale of the company's investment in Front Line Management.
As of December 31, 2009, the company reported a cash balance of $339 million, total long-term debt of $1.94 billion and net debt (total long-term debt minus cash) of $1.61 billion. This compares to net debt of $1.56 billion at September 30, 2009.
Net cash used in operating activities was $42 million compared to net cash provided by operating activities of $43 million in the prior-year quarter. The decline in operating cash flow primarily related to the variable timing of the company's working capital requirements, which included a decrease in cash associated with the company's European concert promotion business. In addition, the decline reflects an expected increase in cash paid for interest. Following the May 2009 refinancing, all of the company's cash interest payments are now made semi-annually in the first and third quarters of the fiscal year. As a result, cash interest amounted to $81 million in the quarter, compared to $45 million in the prior-year quarter. The company previously made quarterly interest payments under its senior secured credit facility, which was retired in May 2009.
Free Cash Flow (defined as cash flow from operations less capital expenditures and cash paid or received for investments) was negative $44 million, compared to positive $160 million in the comparable fiscal 2009 quarter, which included $123 million from the sale of the company's Front Line Management stake. Unlevered After-Tax Cash Flow (defined as Free Cash Flow excluding cash interest paid) was $37 million, compared to $205 million in the comparable fiscal 2009 quarter, which, as described above, included $123 million from the sale of the company's Front Line Management stake (see below for calculations and reconciliations of Free Cash Flow and Unlevered After-Tax Cash Flow).
Below is the business segment discussion for the quarter.
Recorded Music
Revenue from the company's Recorded Music business increased 3.4% from the prior-year quarter to $783 million, and fell 2.2% on a constant-currency basis. The decline in constant-currency revenue reflected weakness in the U.S., Japan and parts of Europe, partially offset by strength in the U.K., France and Italy.
International Recorded Music revenue climbed 12.7% from the prior-year quarter to $498 million, and grew 2.5% on a constant-currency basis, while domestic Recorded Music revenue fell 9.5% from the prior-year quarter to $285 million. Both local and international artists fueled growth in international Recorded Music revenue. As the company continues to diversify its revenue, the company grew its worldwide non-traditional revenue and also saw strong international digital download growth. Contracting demand for physical product and difficult economic conditions negatively impacted global physical revenue and international licensing revenue. Major sellers in the quarter included Michael Bublé, Enya and Muse as well as soundtrack albums from several motion pictures.
Recorded Music digital revenue of $172 million grew 10.3% over the prior-year quarter, or 7.5% on a constant-currency basis, and represented 22.0% of total Recorded Music revenue, compared with 20.6% in the prior-year quarter. Domestic Recorded Music digital revenue amounted to $99 million, or 34.7% of total domestic Recorded Music revenue, compared with 31.4% in the prior-year quarter. Year-over-year digital revenue growth was driven by continued strength in international download revenue.
Recorded Music operating income grew 15.3% to $68 million, resulting in an operating margin of 8.7%, up 0.9 percentage points from 7.8% in the prior-year quarter. Recorded Music OIBDA rose 5.6% to $113 million for the quarter. Recorded Music OIBDA margin expanded 0.3 percentage points from the prior-year quarter to 14.4% as a result of ongoing cost-management efforts as well as changes in product mix.
Music Publishing
Music Publishing revenue increased 4.4% from the prior-year quarter to $141 million, and was flat on a constant-currency basis. International Music Publishing revenue grew 9.2%, or 2.2% on a constant-currency basis, while domestic Music Publishing revenue fell 4.2% from the prior-year quarter to $46 million.
Due to the timing of cash collections, digital revenue from Music Publishing was unchanged from the prior-year quarter at $15 million on both an as reported and constant-currency basis, representing 10.6% of total Music Publishing revenue. Synchronization revenue grew 13.6%, performance revenue increased 2.0% and mechanical revenue advanced 2.2%. On a constant-currency basis, an 8.7% increase in synchronization revenue was offset by declines in mechanical revenue of 4.1% and performance revenue of 2.0%. Growth in synchronization revenue reflected a pickup in film and television production licensing activity.
Music Publishing operating income of $4 million fell $2 million from the prior-year quarter, resulting in an operating margin of 2.8%, down 1.6 percentage points from the prior-year quarter. Music Publishing OIBDA held steady at $22 million and Music Publishing OIBDA margin contracted slightly to 15.6% from 16.3% in the prior-year quarter.
Financial details for the quarter and fiscal year can be found in the company's current Form 10-Q, filed today with the Securities and Exchange Commission.
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
Warner Music Group became the only stand-alone music company to be publicly traded in the United States in May 2005. With its broad roster of new stars and legendary artists, Warner Music Group is home to a collection of the best-known record labels in the music industry including Asylum, Atlantic, Cordless, East West, Elektra, Nonesuch, Reprise, Rhino, Roadrunner, Rykodisc, Sire, Warner Bros. and Word. Warner Music International, a leading company in national and international repertoire, operates through numerous international affiliates and licensees in more than 50 countries. Warner Music Group also includes Warner/Chappell Music, one of the world's leading music publishers, with a catalog of more than one million copyrights worldwide.