Warner Music(US:WMG)2023-02-08 16:00Financial Performance - Total revenues decreased by $126 million, or 8%, to $1,488 million for the three months ended December 31, 2022, compared to $1,614 million for the same period in 2021 [121]. - Recorded Music revenues decreased by $147 million, or 11%, to $1,239 million for the three months ended December 31, 2022, from $1,386 million for the same period in 2021 [123]. - Digital revenues decreased by $67 million, including an unfavorable impact of foreign currency exchange rates of $37 million, for the three months ended December 31, 2022 [124]. - Streaming revenue decreased by $56 million, or 7%, to $780 million for the three months ended December 31, 2022, impacted by unfavorable foreign currency exchange rates of $35 million [124]. - Music Publishing revenues increased by $21 million, or 9%, to $250 million for the three months ended December 31, 2022, compared to $229 million for the same period in 2021 [125]. - U.S. Recorded Music revenues were $539 million for the three months ended December 31, 2022, down from $608 million in the same period in 2021 [123]. - International Recorded Music revenues were $700 million for the three months ended December 31, 2022, compared to $778 million for the same period in 2021 [123]. - Total digital revenues after intersegment eliminations decreased by $50 million, or 5%, to $952 million for the three months ended December 31, 2022 [122]. - Artist services and expanded-rights revenue decreased by $26 million due to lower direct-to-consumer merchandising revenue and advertising revenue [124]. - Licensing revenue increased by $8 million, driven by higher broadcast fees and synchronization revenue [124]. - U.S. revenue decreased by $51 million, or 7%, to $672 million, with U.S. Recorded Music revenue down by $69 million, or 11% [127]. - International revenue decreased by $75 million, or 8%, to $817 million, but increased by $9 million, or 1%, excluding the unfavorable impact of foreign currency exchange rates [128]. - Total cost of revenues decreased by $57 million, or 7%, to $761 million, with artist and repertoire costs down by $29 million, or 6% [129]. - Total selling, general and administrative expenses decreased by $57 million, or 11%, to $440 million, representing 30% of revenue [132]. - OIBDA increased by $29 million to $349 million, with an OIBDA margin increase to 23% from 20% [138]. - Operating income increased by $26 million to $265 million, attributed to lower revenues offset by reduced costs [141]. - Net income decreased by $64 million to $124 million, primarily due to lower pre-tax income [145]. - The company recorded a pre-tax gain of $41 million from the sale of certain sound recording rights [136]. - Amortization expense increased by $3 million, or 5%, to $63 million, mainly due to the acquisition of music-related assets [140]. - Recorded Music operating income increased by $7 million, or 3%, to $283 million for the three months ended December 31, 2022, compared to $276 million for the same period in 2021 [156]. - Music Publishing operating income increased by $17 million, or 53%, to $49 million for the three months ended December 31, 2022, compared to $32 million for the same period in 2021 [164]. - Recorded Music OIBDA increased by $7 million, or 2%, to $337 million for the three months ended December 31, 2022, compared to $330 million for the same period in 2021 [155]. - Music Publishing OIBDA increased by $18 million, or 33%, to $72 million for the three months ended December 31, 2022, compared to $54 million for the same period in 2021 [162]. Debt and Liquidity - At December 31, 2022, the company had $3.946 billion of debt and $720 million of cash and equivalents, resulting in net debt of $3.226 billion [168]. - Total long-term debt as of December 31, 2022, was $3,990 million, with a weighted-average interest rate reduced to 3.7% from 10.5% in 2011 [179][177]. - The company declared a cash dividend of $0.16 per share, totaling approximately $84 million paid to stockholders for the three months ended December 31, 2022 [183]. - The financial transformation initiative is expected to incur upfront costs of approximately $185 million, with anticipated annualized run-rate savings between $35 million and $40 million [176]. - The company’s S&P corporate credit rating improved from B in 2017 to BB+ in July 2021, indicating enhanced creditworthiness [177]. - As of December 31, 2022, the company had $300 million of commitments under the Revolving Credit Facility, with no loans outstanding [179]. - The company expects its primary sources of liquidity to be sufficient to support existing operations over the next twelve months [175]. - The company was in compliance with its covenants under its outstanding notes and credit facilities as of December 31, 2022 [184]. - The company believes that funds generated from operations and available cash will be sufficient to meet debt service and capital expenditure requirements for the foreseeable future [192]. - The company continues to evaluate opportunities for debt repayment, dividends, and equity repurchases based on market conditions and financial liquidity [192]. Market and Operational Strategy - Warner Music Group reported a significant increase in digital revenue, which is expected to continue driving growth in the music entertainment industry [110]. - The company has a catalog of over 1 million musical compositions, representing works by more than 100,000 songwriters and composers [104]. - Warner Music Group's Recorded Music business operates in over 70 countries, highlighting its extensive international reach [107]. - The company launched 300 Elektra Entertainment, combining the strengths of 300 Entertainment and Elektra Music Group, to enhance its market presence [106]. - The integration of digital content marketing into all business aspects is aimed at maximizing revenue streams from emerging technologies [110]. - Future growth is anticipated through the development of new distribution channels and formats in the digital music space [94]. - The company faces risks related to competition, digital piracy, and fluctuations in currency exchange rates that could impact its performance [96]. - The company is focused on reducing overhead expenditures and managing its cost structure to improve profitability [95]. Currency and Interest Rate Exposure - The company is exposed to foreign currency risk, with outstanding hedge contracts for the sale of $337 million and the purchase of $197 million of foreign currencies at fixed rates [195]. - A hypothetical 10% depreciation of the U.S. dollar against foreign currencies would decrease the fair value of foreign exchange forward contracts by $14 million [196]. - Interest rate swaps have been utilized to convert a portion of the $1.295 billion variable-rate debt to fixed rates, resulting in 88% of the company's debt effectively being at a fixed rate [197]. - Inflationary pressures have not materially affected the company's operations to date, but significant increases in costs could harm financial performance [199].