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Warner Music Group Corp. Reports Results For Fiscal First Quarter Ended December 31, 2013
Warner Music Group Corp. announced its first-quarter financial results for the period ended December 31, 2013.
"There were a number of bright spots this quarter, including strong growth in steaming revenue for our recorded music business and solid performance from our music publishing business," said Stephen Cooper, Warner Music Group's CEO. "While we had a light release schedule this quarter, we are enthusiastic about our release schedule for the second half of the fiscal year."
"We maintained our Adjusted OIBDA margin for the overall business this quarter and expanded our Music Publishing OIBDA margin," added Brian Roberts, Warner Music Group's Executive Vice President and CFO. "Additionally, we remain on track with our PLG integration plans."
Total WMG Summary Results
For the quarter, revenue grew 6.0% (or 6.8% in constant currency), driven by the July 1, 2013 acquisition of Parlophone Label Group ("PLG"). Excluding PLG revenue, revenue declined 3.6% (or 2.9% in constant currency), due to a lighter release schedule than in the prior-year quarter. Including PLG, the growth in artist services and expanded rights revenue, Recorded Music licensing revenue, digital revenue and total Music Publishing revenue was partially offset by declines in physical Recorded Music revenue. Constant-currency revenue growth in the U.K., France, Italy, Spain and other parts of Europe, driven in part by the PLG acquisition, was partially offset by declines in the U.S., Canada, Japan and other parts of Asia. Digital revenue grew 8.2% (or 8.7% in constant currency), and digital revenue represented 33.9% of total revenue, compared to 33.2% in the prior-year quarter. Growth in digital revenue reflects the acquisition of PLG, as well as growth in worldwide revenue related to streaming services and international revenue related to download services.
Adjusted operating margin declined 1.4 percentage points to 5.2% from 6.6%. Adjusted OIBDA grew 7.1% and Adjusted OIBDA margin expanded 0.1 percentage points to 14.7% from 14.6%. The increase in Adjusted OIBDA reflects the acquisition of PLG as well as growth in Music Publishing OIBDA. Excluding PLG OIBDA, Adjusted OIBDA declined 10.7% and Adjusted OIBDA margin declined 1.1 percentage points to 13.5%. Operating income, Adjusted operating income, OIBDA and Adjusted OIBDA for the quarter included $1 million of severance charges (approximately $0.7 million in Recorded Music and $0.5 million in Corporate; not including those charges associated with the PLG acquisition) compared to $5 million of severance charges in the prior-year quarter (all in Recorded Music) (the "Quarterly Severance Charges").
Net loss attributed to Warner Music Group improved to $37 million compared to a loss of $80 million in the prior-year quarter. The prior-year quarter reflects the impact of an $83 million loss on the extinguishment of debt in connection with the company's November 2012 refinancing of certain indebtedness.
Adjusted operating income, Adjusted OIBDA and Adjusted net income (loss) exclude the impact of expenses relating to the integration of PLG. See below for calculations and reconciliations of OIBDA, Adjusted operating income, Adjusted OIBDA and Adjusted net income (loss).
As of December 31, 2013, the company reported a cash balance of $129 million, total long-term debt of $2.926 billion and net debt (total long-term debt, including the current portion, minus cash) of $2.797 billion.
Cash used in operating activities was $52 million compared to $10 million in the prior-year quarter. Typically, the first quarter of each fiscal year has negative operating cash flow due to cash needs associated with artist and repertoire ("A&R") investments and the seasonality of physical holiday collections. The increase in cash used in operating activities in the quarter primarily reflects the decline in OIBDA, which includes the impact of expenses relating to the integration of PLG, and an increase in receivables, partially offset by lower cash paid for interest. Free Cash Flow, defined below, was negative $78 million compared to negative $25 million in the prior-year quarter, reflecting the increase in cash used in operating activities, as well as an increase in capital expenditures and cash paid for investments.
Recorded Music Summary Results
Recorded Music revenue grew 5.2% (or 6.1% in constant currency), due to the acquisition of PLG. Excluding PLG, revenue declined 6.1% (or 5.2% in constant currency) due to the release schedule. Including PLG, artist services and expanded rights revenue, licensing revenue and digital revenue all grew, but were partially offset by a decline in physical revenue. Artist services and expanded rights revenue growth was driven by an increase in concert promotion revenue, primarily in Italy, France and Germany, as well as the acquisition of PLG. Licensing revenue growth was largely driven by the acquisition of PLG, as well as by new licensing deals and increased broadcast fees. Digital revenue growth of 8.0% (or 8.9% in constant currency) was driven by the acquisition of PLG and represented 37.0% of total Recorded Music revenue, compared to 36.1% in the prior-year quarter. Domestic Recorded Music digital revenue was $123 million, or 53.5% of total domestic Recorded Music revenue. Major sellers included James Blunt, Kobukuro, Bruno Mars, Michael Bublé and Muse.
Recorded Music Adjusted operating margin contracted 2.3 percentage points to 9.0% from 11.3% in the prior-year quarter. Recorded Music Adjusted OIBDA was up 5.3% while Recorded Music Adjusted OIBDA margin remained flat at 17.4%. Excluding PLG, Recorded Music Adjusted OIBDA declined 12.3% and Recorded Music Adjusted OIBDA margin declined 1.2 percentage points to 16.2% due to the release schedule as well as an increase in product costs associated with growth in artist services and expanded rights revenue. Operating income, Adjusted operating income, OIBDA and Adjusted OIBDA reflect the impact of the Quarterly Severance Charges.
Music Publishing Summary Results
Music Publishing revenue grew 10.3% on both an as-reported and constant-currency basis as digital, synchronization, performance and mechanical revenue all grew. Digital revenue grew 10.5% (or 5.0% in constant currency), due to growth in streaming revenue. Synchronization revenue was up 18.2% (or 23.8% in constant currency), reflecting growth in many segments in the U.S. including commercials, movies and videogames. Performance revenue was up 8.5% (or 10.9% in constant currency), and mechanical revenue grew 3.8% on both an as-reported and constant-currency basis, both driven by the timing of collection society distributions.
Music Publishing operating margin improved 2.5 percentage points to 1.6% from negative 0.9% in the prior-year quarter. Music Publishing OIBDA grew 18.8% to $19 million, while Music Publishing OIBDA margin expanded 1.0 percentage point to 14.8% from 13.8% due to revenue mix.