Warner Music Group Corp. Reports Results for Fiscal Fourth Quarter and Full Year Ended September 30, 2020

·28 min read

Financial Highlights:

  • Continued Momentum in Streaming Highlighted by Sequential Improvement in Revenue Growth

  • Delivered Double-Digit Digital Revenue Growth for the Quarter and Full Year with Digital Revenue Contribution Increasing to 65% of Total Revenue

  • Executed Significant Deals with Key Digital Partners in 2020 and Increased Revenue Contribution from Emerging Platforms, Unlocking New Value-Creation Opportunities

  • Achieved Strong Year-Over-Year Growth and Margin Expansion in Adjusted OIBDA and Adjusted EBITDA

For the three months ended September 30, 2020

  • Total revenue was up 0.2% or down 1.1% in constant currency

  • Net income was $1 million versus $91 million in the prior-year quarter

  • OIBDA increased 63% to $155 million versus $95 million in the prior-year quarter

  • Adjusted OIBDA increased 35% to $174 million versus $129 million in the prior-year quarter

  • Adjusted EBITDA increased 33% to $177 million versus $133 million in the prior-year quarter

For the twelve months ended September 30, 2020

  • Total revenue was down 0.3% or up 0.4% in constant currency

  • Net loss was $470 million versus net income of $258 million in the prior year

  • OIBDA was $32 million versus $625 million in the prior year

  • Adjusted OIBDA increased 11% to $790 million versus $713 million in the prior year

  • Adjusted EBITDA increased 14% to $837 million versus $737 million in the prior year

NEW YORK, Nov. 23, 2020 (GLOBE NEWSWIRE) -- Warner Music Group Corp. today announced its fourth-quarter and full-year financial results for the periods ended September 30, 2020.

Were proud of everything weve accomplished in the past year, despite the challenging conditions that the world has faced. Were essentially flat against a record-breaking prior year and, during the quarter, we grew 11% on an as-reported basis, excluding the revenue streams most impacted by COVID, said Steve Cooper, CEO, Warner Music Group. Weve had huge successes from global megastars and local hitmakers, breakout sensations and long-time legends. Our streaming growth has stayed strong, and weve also seen an acceleration in a whole spectrum of emerging revenue streams such as social media, gaming, and in-home fitness. In this increasingly complex environment, where music is woven into every aspect of our lives, our creative expertise and global reach are more valuable than ever.

Our results are underpinned by the continued momentum we are seeing in streaming and the operating leverage driven by our digital transformation and business optimization initiatives, added Eric Levin, Executive Vice President and CFO, Warner Music Group. As we look toward the future, we are confident in our long-term growth prospects, particularly as the areas of our business that have been most impacted by COVID return to normal.


Total WMG

Total WMG Summary Results

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

For the Three
Months Ended
September 30,
2020

 

For the Three
Months Ended
September 30,
2019

 

% Change

 

For the Twelve
Months Ended
September 30,
2020

 

For the Twelve
Months Ended
September 30,
2019

 

% Change

 

(unaudited)

 

(unaudited)

 

 

 

(audited)

 

(audited)

 

 

Revenue

$

1,126

 

$

1,124

 

%

 

$

4,463

 

 

$

4,475

 

%

Recorded Music revenue

958

 

953

 

1

%

 

3,810

 

 

3,840

 

-1

%

Music Publishing revenue

169

 

173

 

-2

%

 

657

 

 

643

 

2

%

Digital revenue

778

 

674

 

15

%

 

2,903

 

 

2,610

 

11

%

Operating income (loss)

88

 

29

 

%

 

(229

)

 

356

 

%

Adjusted operating income (1)

107

 

63

 

70

%

 

529

 

 

444

 

19

%

OIBDA (1)

155

 

95

 

63

%

 

32

 

 

625

 

-95

%

Adjusted OIBDA (1)

174

 

129

 

35

%

 

790

 

 

713

 

11

%

Net income (loss)

1

 

91

 

-99

%

 

(470

)

 

258

 

%

Adjusted net income (1)

20

 

125

 

-84

%

 

288

 

 

346

 

-17

%

Net cash provided by operating activities

176

 

151

 

17

%

 

463

 

 

400

 

16

%

Adjusted EBITDA (1)

177

 

133

 

33

%

 

837

 

 

737

 

14

%

 

 

 

 

 

 

 

 

 

 

 

 

(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.


Fourth-Quarter Results

Revenue was up 0.2% (or down 1.1% in constant currency). Robust digital revenue growth across Recorded Music and Music Publishing was partially offset by a decline in Recorded Music artist services and expanded-rights and licensing revenue and in Music Publishing performance, mechanical and synchronization revenue, which reflects the impact from COVID. Excluding artist services and expanded-rights revenue in Recorded Music and performance revenue in Music Publishing, the revenue segments most affected by COVID, total revenue would have increased 10.5% (or 9.4% in constant currency). Recorded Music physical revenue was flat, despite the impact from COVID, as a result of strong physical releases in the US and Japan. The slight increase in revenue was primarily due to growth in streaming revenue, the Companys largest and fastest-growing source of revenue, and favorable impact from exchange rates, partially offset by COVID-related business disruption. Digital revenue grew 15.4% (or 14.6% in constant currency), and represented 69.1% of total revenue, compared to 60.0% in the prior-year quarter.

Operating income was $88 million compared to $29 million in the prior-year quarter. OIBDA was $155 million, an increase from $95 million in the prior-year quarter and OIBDA margin increased 5.3 percentage points to 13.8% from 8.5% in the prior-year quarter. The increase in operating income, OIBDA and OIBDA margin was primarily due to higher-margin streaming revenue constituting a larger proportion of total revenue, lower non-cash stock-based compensation expense of $14 million, lower variable compensation expense and cost-management efforts.

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude one-time costs related to the Companys IPO, non-cash stock-based compensation expense, COVID-related expenses, the Company's Los Angeles office consolidation and restructuring and other transformation initiatives in the current quarter and costs related to the Company's Los Angeles office consolidation, non-cash stock-based compensation expense and restructuring and other transformation initiatives in the prior-year quarter. Adjusted EBITDA excludes these items and includes expected savings resulting from transformation initiatives and pro forma impact of specified transactions closed in the current quarter. See below for calculations and reconciliations of Adjusted operating income, Adjusted OIBDA, Adjusted net income, and Adjusted EBITDA.

Adjusted OIBDA increased 34.9% from $129 million to $174 million and Adjusted OIBDA margin increased 4.0 percentage points to 15.5% from 11.5% due to margin improvement associated with higher streaming revenue, cost-management efforts and lower variable compensation expense. Adjusted operating income increased 69.8% from $63 million to $107 million due to the same factors affecting Adjusted OIBDA.

Adjusted EBITDA increased 33.1% from $133 million to $177 million with margins improving 3.9 percentage points from 11.8% to 15.7%. The increase was largely due to the same factors affecting Adjusted OIBDA in addition to higher pro forma savings expected to be realized from certain cost-savings initiatives and transactions.

Net income was $1 million compared to $91 million in the prior-year quarter. Adjusted net income was $20 million compared to $125 million in the prior-year quarter. The decrease in net income and Adjusted net income was due to the unfavorable impact of exchange rates on the Companys external euro-denominated debt and intercompany loans, a loss on extinguishment of debt of $34 million due to recent refinancing activity and higher income tax benefit in the prior-year quarter due to the release of $59 million of the Company's U.S. deferred tax valuation allowance on foreign tax credit carryforwards, which was partially offset by higher operating income, lower interest expense due to refinancing activity and gains on investments.

Basic and Diluted earnings per share was $0.00 for both the Class A and Class B shareholders due to the net loss attributable to the Company in the current quarter of $1 million.

As of September 30, 2020, the Company reported a cash balance of $553 million, total debt of $3.104 billion and net debt (defined as total long-term debt, net of deferred financing costs, minus cash and equivalents) of $2.551 billion.

Cash provided by operating activities was $176 million compared to $151 million in the prior-year quarter. The change was largely a result of the timing of working capital primarily due to timing of payments from certain digital service providers. Free Cash Flow, as defined below, decreased to $44 million from $115 million in the prior-year quarter largely due to an increase in capital expenditures to support transformation initiatives and to increased investment activity, which was partially offset by an increase in operating cash flow.

Full-Year Results

Total revenue decreased 0.3% (or increased 0.4% in constant currency). Robust digital revenue growth in Recorded Music and Music Publishing was more than offset by declines in Recorded Music artist services and expanded-rights, physical and licensing revenue and in Music Publishing performance and mechanical revenue, which reflects the impact of COVID. Excluding artist services and expanded-rights revenue in Recorded Music and performance revenue in Music Publishing, the revenue segments most affected by COVID, total revenue would have increased 3.6% (or 4.4% in constant currency). Music Publishing synchronization revenue was flat, despite the impact from COVID, as a result of increased deal activity in China and the UK. US revenue declined by 1.1% and international revenue rose 0.2% (or 1.4% in constant currency). Prior to intersegment eliminations, US and international revenue represented 43.3% and 56.7% of total revenue, respectively, compared to 43.6% and 56.4% of total revenue, respectively, in the prior year. Digital revenue grew 11.2% (or 12.2% in constant currency), and represented 65.0% of total revenue, compared to 58.3% in the prior year.

Operating loss was $229 million, compared to operating income of $356 million in the prior year and operating margin was (5.1)% down from 8.0% in the prior year. OIBDA was $32 million, down 94.9% from $625 million in the prior year and OIBDA margin decreased 13.3 percentage points to 0.7% from 14.0% in the prior year. Net loss was $470 million compared to net income of $258 million in the prior year. The decrease in net income, operating income, OIBDA and OIBDA margin was primarily due to higher non-cash stock-based compensation expense of $559 million related to the Companys long-term incentive plan reflecting changes in the value of the Companys common stock, as well as $89 million in one-time costs associated with the Companys IPO.

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude one-time costs related to the Companys IPO, non-cash stock-based compensation expense, COVID-related expenses, the Company's Los Angeles office consolidation and restructuring and other transformation initiatives in the current year and non-cash stock-based compensation expense, the Company's Los Angeles office consolidation and restructuring and other transformation initiatives, including relocation of the Companys U.S. shared service center to Nashville in the prior year. Adjusted EBITDA excludes these items and includes expected savings resulting from transformation initiatives and pro forma impact of specified transactions closed in the current year. See below for calculations and reconciliations of Adjusted operating income, Adjusted OIBDA, Adjusted net income, and Adjusted EBITDA. 

Adjusted OIBDA increased 10.8% from $713 million to $790 million and Adjusted OIBDA margin increased 1.8 percentage points from 15.9% to 17.7% due to margin improvement associated with an increase in higher-margin streaming revenue and decreases in lower-margin physical revenue and artist services and expanded-rights revenue, as well as lower operating costs. Adjusted operating income increased 19.1% from $444 million to $529 million in the year due to the same factors affecting Adjusted OIBDA.

Adjusted EBITDA increased 13.6% from $737 million to $837 million. The increase was largely due to the same factors affecting Adjusted OIBDA in addition to higher pro forma savings expected to be realized from certain cost-savings initiatives and transactions.

Net loss was $470 million compared to income of $258 million in the prior year. Adjusted net income was $288 million compared to $346 million in the prior year. The decrease in net income and Adjusted net income was primarily due to the unfavorable impact of exchange rates on the Companys external euro-denominated debt and intercompany loans, a loss on extinguishment of debt of $34 million due to recent refinancing activity and an increase in income tax expense due to a higher release of a U.S. deferred tax valuation allowance in the prior year, which was partially offset by lower interest expense due to refinancing activity.

Net debt (defined as total long-term debt, net of deferred financing costs, minus cash and equivalents) at the end of the current year was $2.551 billion compared to $2.355 billion at the end of the prior year.

Basic and Diluted earnings per share was a loss of $0.82 for the Class A and $0.95 for the Class B shareholders. The loss was due to the same factors affecting net loss.

Cash provided by operating activities was $463 million compared to $400 million in the prior year due to timing of royalty payments and lower spending due to COVID. Free Cash Flow was $244 million, compared to $24 million in the prior year, reflecting the acquisition of EMP for $183 million. Capital expenditures were $85 million for the current year as compared to $104 million in the prior year driven by spend related to the Company's Los Angeles office consolidation.


Recorded Music

Recorded Music Summary Results

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

For the Three
Months Ended
September 30,
2020

 

For the Three
Months Ended
September 30,
2019

 

% Change

 

For the Twelve
Months Ended
September 30,
2020

 

For the Twelve
Months Ended
September 30,
2019

 

% Change

 

(unaudited)

 

(unaudited)

 

 

 

(unaudited)

 

(unaudited)

 

 

Revenue

$

958

 

$

953

 

1

%

 

$

3,810

 

$

3,840

 

-1

%

Digital revenue

679

 

599

 

13

%

 

2,568

 

2,343

 

10

%

Operating income

108

 

57

 

89

%

 

175

 

439

 

-60

%

Adjusted operating income (1)

118

 

75

 

57

%

 

582

 

490

 

19

%

OIBDA (1)

151

 

101

 

50

%

 

349

 

623

 

-44

%

Adjusted OIBDA (1)

161

 

119

 

35

%

 

756

 

674

 

12

%

 

 

 

 

 

 

 

 

 

 

 

 

(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.


Fourth-Quarter Results

Recorded Music Revenue

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30, 2020

 

For the Three Months Ended
September 30, 2019

 

For the Three Months Ended
September 30, 2019

 

As reported

 

As reported

 

Constant

 

(unaudited)

 

(unaudited)

 

(unaudited)

Revenue by Segment:

 

 

 

 

 

Recorded Music

 

 

 

 

 

Digital

$

679

 

$

599

 

$

602

Physical

105

 

103

 

106

Total Digital and Physical

784

 

702

 

708

Artist services and expanded-rights

98

 

171

 

177

Licensing

76

 

80

 

81

Total Recorded Music

$

958

 

$

953

 

$

966


Recorded Music revenue was up 0.5% (or down 0.8% in constant currency). The revenue increase was primarily due to the continued growth in streaming revenuewhich grew 16.2% over the prior-year quarter and 8.5% over the prior quarterwhich was partially offset by COVID-related business disruption and exchange rates in the current quarter. Physical revenue was flat. Growth in digital revenue was partially offset by declines in artist services and expanded-rights revenue and licensing revenue. Digital revenue growth reflects the continuing shift to streaming, the Companys largest and fastest-growing source of revenue. The decline in artist services and expanded-rights revenue was due to tour postponements and cancellations and lower tour merchandise revenue resulting from COVID-related business disruption. The decline in licensing revenue reflects a decrease in broadcast fees and synchronization revenue from lower advertising, television and film deal activity due to the impact of COVID. Physical revenue reflects the continued shift to streaming, which was partially offset by strong releases in the quarter. Major sellers included Dua Lipa, Roddy Ricch,Tones and I, Aimyon and Cardi B.

Recorded Music operating income was $108 million, up from $57 million in the prior-year quarter and operating margin was up 5.3 percentage points to 11.3% versus 6.0% in the prior-year quarter. OIBDA increased to $151 million from $101 million in the prior-year quarter and OIBDA margin increased 5.2 percentage points to 15.8%. Adjusted OIBDA was $161 million versus $119 million in the prior-year quarter with Adjusted OIBDA margin up 4.3 percentage points to 16.8%. The increases in operating income and OIBDA were driven by lower non-cash stock-based compensation expense and an increase in Adjusted OIBDA. The increases in Adjusted OIBDA and Adjusted OIBDA margin were primarily due to overall cost savings and revenue mix.


Full-Year Results

Recorded Music Revenue

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

For the Twelve Months Ended
September 30, 2020

 

For the Twelve Months Ended
September 30, 2019

 

For the Twelve Months Ended
September 30, 2019

 

As reported

 

As reported

 

Constant

 

(audited)

 

(audited)

 

(unaudited)

Revenue by Segment:

 

 

 

 

 

Recorded Music

 

 

 

 

 

Digital

$

2,568

 

$

2,343

 

$

2,321

Physical

434

 

559

 

558

Total Digital and Physical

3,002

 

2,902

 

2,879

Artist services and expanded-rights

525

 

629

 

631

Licensing

283

 

309

 

307

Total Recorded Music

$

3,810

 

$

3,840

 

$

3,817


Recorded Music revenue declined 0.8% (or 0.2% in constant currency). Declines in physical, artist services and expanded-rights and licensing revenue were partially offset by an increase in digital revenue. The decline in physical revenue was largely driven by the overall market decline, timing of releases and the impact of COVID. Artist services and expanded-rights revenue decreased due to the impact of COVID, which resulted in tour postponements and cancellations and decreased tour merchandising revenue. Lower licensing revenue was primarily related to COVID, which resulted in lower broadcast fees and lower synchronization revenue due to a decrease in advertising, television and film deal activity which was partially offset by one-time legal settlements. Digital revenue growth reflects the continuing shift to streaming and timing of releases, which were partially offset by a decrease in download revenue. Recorded Music digital revenue grew 9.6% (or 10.6% in constant currency) and represented 67.4% of total Recorded Music revenue versus 61.0% in the prior year. US Recorded Music digital revenue was $1.292 billion, or 80.3% of total US Recorded Music revenue, versus 74.2% in the prior year. Major sellers included Dua Lipa, Roddy Ricch,Tones and I, Aimyon and Cardi B.

Recorded Music operating income was $175 million down from $439 million in the prior year. Recorded Music OIBDA decreased 44.0% to $349 million and OIBDA margin declined 7.0 percentage points to 9.2%. Recorded Music Adjusted OIBDA improved 12.2% to $756 million and Recorded Music Adjusted OIBDA margin increased 2.2 percentage points to 19.8%. The decreases in operating income and OIBDA were driven by higher non-cash stock-based compensation expense of $359 million and an increase in Adjusted OIBDA. The increases in Adjusted OIBDA and Adjusted OIBDA margin were primarily due to overall cost savings and revenue mix.


Music Publishing

Music Publishing Summary Results

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

For the Three
Months Ended
September 30,
2020

 

For the Three
Months Ended
September 30,
2019

 

% Change

 

For the Twelve
Months Ended
September 30,
2020

 

For the Twelve
Months Ended
September 30,
2019

 

% Change

 

(unaudited)

 

(unaudited)

 

 

 

(unaudited)

 

(unaudited)

 

 

Revenue

$

169

 

$

173

 

-2

%

 

$

657

 

$

643

 

2

%

Digital revenue

100

 

76

 

32

%

 

337

 

271

 

24

%

Operating income

23

 

25

 

-8

%

 

81

 

92

 

-12

%

Adjusted operating income (1)

23

 

25

 

-8

%

 

84

 

92

 

-9

%

OIBDA (1)

43

 

44

 

-2

%

 

157

 

166

 

-5

%

Adjusted OIBDA (1)

43

 

44

 

-2

%

 

160

 

166

 

-4

%

 

 

 

 

 

 

 

 

 

 

 

 

(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.


Fourth-Quarter Results

Music Publishing Revenue

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30, 2020

 

For the Three Months Ended
September 30, 2019

 

For the Three Months Ended
September 30, 2019

 

As reported

 

As reported

 

Constant

 

(unaudited)

 

(unaudited)

 

(unaudited)

Revenue by Segment:

 

 

 

 

 

Music Publishing

 

 

 

 

 

Performance

$

28

 

$

48

 

$

48

Digital

100

 

76

 

78

Mechanical

10

 

14

 

14

Synchronization

27

 

31

 

31

Other

4

 

4

 

4

Total Music Publishing

$

169

 

$

173

 

$

175


Music Publishing revenue decreased 2.3% (or 3.4% in constant currency). Growth in digital revenue was more than offset by declines in performance, synchronization and mechanical revenue. Digital revenue growth reflects the continuing shift to streaming and timing of deals with digital service providers. The decrease in synchronization revenue relates to decreases in advertising spend and licensing activity resulting from COVID-related business disruption. The decrease in mechanical revenue is due to COVID-related business disruption and the continuing shift to streaming. The decrease in performance revenue was primarily driven by COVID-related business disruption.

Music Publishing operating income was $23 million compared to $25 million in the prior-year quarter. Operating margin decreased 0.9 percentage points to 13.6%. Music Publishing OIBDA decreased by $1 million or 2.3% to $43 million, and OIBDA margin was flat. Adjusted OIBDA decreased by $1 million and Adjusted OIBDA margin was flat.


Full-Year Results

Music Publishing Revenue

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

For the Twelve Months Ended
September 30, 2020

 

For the Twelve Months Ended
September 30, 2019

 

For the Twelve Months Ended
September 30, 2019

 

As reported

 

As reported

 

Constant

 

(audited)

 

(audited)

 

(unaudited)

Revenue by Segment:

 

 

 

 

 

Music Publishing

 

 

 

 

 

Performance

$

142

 

$

183

 

$

179

Digital

337

 

271

 

270

Mechanical

48

 

55

 

55

Synchronization

119

 

120

 

119

Other

11

 

14

 

14

Total Music Publishing

$

657

 

$

643

 

$

637


Music Publishing revenue increased 2.2% (or was up 3.1% in constant currency). Digital revenue growth was partially offset by declines in performance and mechanical revenue. Music Publishing digital revenue increased 24.4% (or 24.8% in constant currency) reflecting the continuing shift to streaming, and represented 51.3% of total Music Publishing revenue versus 42.1% in the prior year. The decreases in Music Publishing performance revenue and mechanical revenue were primarily due to COVID-related business disruption and the timing of distributions. Synchronization revenue was flat due to increased deal activity in China and the UK offset by COVID-related business disruption.

Music Publishing operating income was $81 million, down 12.0% from $92 million in the prior year driven largely by higher artists and repertoire (A&R) spend, and increased overhead due to employee-related costs and restructuring. Operating margin was 12.3%, down 2.0 percentage points from 14.3% in the prior year. Music Publishing OIBDA decreased 5.4% to $157 million, and Music Publishing OIBDA margin declined 1.9 percentage points to 23.9%, due to the same factors which impacted operating income and operating margin. Adjusted OIBDA decreased 3.6% to $160 million and Music Publishing Adjusted OIBDA margin declined to 24.4% due to higher A&R spend and employee-related costs, which were partially offset by revenue mix.

Financial details for the fiscal year can be found in the Companys Annual Report on Form 10-K for the period ended September 30, 2020, 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

With a legacy extending back over 200 years, Warner Music Group today is home to an unparalleled family of creative artists, songwriters, and companies that are moving culture across the globe. At the core of WMGs Recorded Music division are four of the most iconic companies in history: Atlantic, Elektra, Parlophone, and Warner Records. They are joined by renowned labels such as Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Fueled by Ramen, Nonesuch, Reprise, Rhino, Roadrunner, Sire, Spinnin Records, Warner Classics, and Warner Music Nashville. Warner Chappell Music - which traces its origins back to the founding of Chappell & Company in 1811 - is one of the world's leading music publishers, with a catalog of more than one million copyrights spanning every musical genre, from the standards of the Great American Songbook to the biggest hits of the 21st century.

"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995

This communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. Words such as "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts" and variations of such words or similar expressions that predict or indicate future events or trends, or that do not relate to historical matters, identify forward-looking statements. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Please refer to our Form 10-K, Form 10-Qs and our other filings with the U.S. Securities and Exchange Commission concerning factors that could cause actual results to differ materially from those described in our forward-looking statements.

We maintain an Internet site at www.wmg.com . We use our website as a channel of distribution for material company information. Financial and other material information regarding Warner Music Group is routinely posted on and accessible at http://investors.wmg.com . In addition, you may automatically receive email alerts and other information about Warner Music Group by enrolling your email address through the email alerts section at http://investors.wmg.com . Our website and the information posted on it or connected to it shall not be deemed to be incorporated by reference into this communication.

Basis of Presentation

The Company maintains a 52-53 week fiscal year ending on the last Friday in each reporting period. As such, all references to September 30, 2020 and September 30, 2019 relate to the periods ended September 25, 2020 and September 27, 2019, respectively. For convenience purposes, the Company continues to date its financial statements as of September 30.


Figure 1. Warner Music Group Corp. - Consolidated Statements of Operations, Three and Twelve Months Ended September 30, 2020 versus September 30, 2019

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30, 2020

 

For the Three Months Ended
September 30, 2019

 

% Change

 

(unaudited)

 

(unaudited)

 

 

Revenue

$

1,126

 

 

 

$

1,124

 

 

 

%

Cost and expenses:

 

 

 

 

 

Cost of revenue

(606

)

 

 

(639

)

 

 

-5

%

Selling, general and administrative expenses

(383

)

 

 

(408

)

 

 

-6

%

Amortization expense

(49

)

 

 

(48

)

 

 

2

%

Total costs and expenses

$

(1,038

)

 

 

$

(1,095

)

 

 

-5

%

Operating income

$

88

 

 

 

$

29

 

 

 

%

Loss on extinguishment of debt

(34

)

 

 

 

 

 

%

Interest expense, net

(29

)

 

 

(34

)

 

 

-15

%

Other (expense) income, net

(45

)

 

 

19

 

 

 

%

(Loss) income before income taxes

$

(20

)

 

 

$

14

 

 

 

%

Income tax benefit

21

 

 

 

77

 

 

 

-73

%

Net income

$

1

 

 

 

$

91

 

 

 

-99

%

Less: Income attributable to noncontrolling interest

(2

)

 

 

(1

)

 

 

100

%

Net (loss) income attributable to Warner Music Group Corp.

$

(1

)

 

 

$

90

 

 

 

%

 

 

 

 

 

 

Net (loss) income per share attributable to common stockholders:

 

 

 

 

 

Class A Basic and Diluted

$

0.00

 

 

 

$

 

 

 

 

Class B Basic and Diluted

$

0.00

 

 

 

$

0.18

 

 

 

 


 

For the Twelve Months Ended
September 30, 2020

 

For the Twelve Months Ended
September 30, 2019

 

% Change

 

(audited)

 

(audited)

 

 

Revenue

$

4,463

 

 

 

$

4,475

 

 

 

%

Cost and expenses:

 

 

 

 

 

Cost of revenue

(2,333

)

 

 

(2,401

)

 

 

-3

%

Selling, general and administrative expenses

(2,169

)

 

 

(1,510

)

 

 

44

%

Amortization expense

(190

)

 

 

(208

)

 

 

-9

%

Total costs and expenses

$

(4,692

)

 

 

$

(4,119

)

 

 

14

%

Operating (loss) income

$

(229

)

 

 

$

356

 

 

 

%

Loss on extinguishment of debt

(34

)

 

 

(7

)

 

 

%

Interest expense, net

(127

)

 

 

(142

)

 

 

-11

%

Other (expense) income, net

(57

)

 

 

60

 

 

 

%

(Loss) income before income taxes

$

(447

)

 

 

$

267

 

 

 

%

Income tax expense

(23

)

 

 

(9

)

 

 

%

Net (loss) income

$

(470

)

 

 

$

258

 

 

 

%

Less: Income attributable to noncontrolling interest

(5

)

 

 

(2

)

 

 

%

Net (loss) income attributable to Warner Music Group Corp.

$

(475

)

 

 

$

256

 

 

 

%

 

 

 

 

 

 

Net (loss) income per share attributable to common stockholders:

 

 

 

 

 

Class A Basic and Diluted

$

(0.82

)

 

 

$

 

 

 

 

Class B Basic and Diluted

$

(0.95

)

 

 

$

0.51

 

 

 

 



Figure 2. Warner Music Group Corp. - Consolidated Balance Sheets at September 30, 2020 versus September 30, 2019

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

September 30,
2020

 

September 30,
2019

 

% Change

 

(audited)

 

(audited)

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and equivalents

$

553

 

 

 

$

619

 

 

 

-11

%

Accounts receivable, net

771

 

 

 

775

 

 

 

-1

%

Inventories

79

 

 

 

74

 

 

 

7

%

Royalty advances expected to be recouped within one year

220

 

 

 

170

 

 

 

29

%

Prepaid and other current assets

55

 

 

 

53

 

 

 

4

%

Total current assets

$

1,678

 

 

 

$

1,691

 

 

 

-1

%

Royalty advances expected to be recouped after one year

269

 

 

 

208

 

 

 

29

%

Property, plant and equipment, net

331

 

 

 

300

 

 

 

10

%

Operating lease right-of-use assets, net

273

 

 

 

 

 

 

%

Goodwill

1,831

 

 

 

1,761

 

 

 

4

%

Intangible assets subject to amortization, net

1,653

 

 

 

1,723

 

 

 

-4

%

Intangible assets not subject to amortization

154

 

 

 

151

 

 

 

2

%

Deferred tax assets, net

68

 

 

 

38

 

 

 

79

%

Other assets

153

 

 

 

145

 

 

 

6

%

Total assets

$

6,410

 

 

 

$

6,017

 

 

 

7

%

Liabilities and Deficit

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

264

 

 

 

$

260

 

 

 

2

%

Accrued royalties

1,628

 

 

 

1,567

 

 

 

4

%

Accrued liabilities

382

 

 

 

492

 

 

 

-22

%

Accrued interest

30

 

 

 

34

 

 

 

-12

%

Operating lease liabilities, current

39

 

 

 

 

 

 

%

Deferred revenue

297

 

 

 

180

 

 

 

65

%

Other current liabilities

80

 

 

 

286

 

 

 

-72

%

Total current liabilities

$

2,720

 

 

 

$

2,819

 

 

 

-4

%

Long-term debt

3,104

 

 

 

2,974

 

 

 

4

%

Operating lease liabilities, noncurrent

299

 

 

 

 

 

 

%

Deferred tax liabilities, net

163

 

 

 

172

 

 

 

-5

%

Other noncurrent liabilities

169

 

 

 

321

 

 

 

-47

%

Total liabilities

$

6,455

 

 

 

$

6,286

 

 

 

3

%

Deficit:

 

 

 

 

 

Class A common stock

$

 

 

 

$

 

 

 

%

Class B common stock

1

 

 

 

1

 

 

 

%

Additional paid-in capital

1,907

 

 

 

1,127

 

 

 

69

%

Accumulated deficit

(1,749

)

 

 

(1,177

)

 

 

49

%

Accumulated other comprehensive loss, net

(222

)

 

 

(240

)

 

 

-8

%

Total Warner Music Group Corp. deficit

$

(63

)

 

 

$

(289

)

 

 

-78

%

Noncontrolling interest

18

 

 

 

20

 

 

 

-10

%

Total deficit

(45

)

 

 

(269

)

 

 

-83

%

Total liabilities and deficit

$

6,410

 

 

 

$

6,017

 

 

 

7

%



Figure 3. Warner Music Group Corp. - Summarized Statements of Cash Flows, Three and Twelve Months Ended September 30, 2020 versus September 30, 2019

(dollars in millions)

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30, 2020

 

For the Three Months Ended
September 30, 2019

 

(unaudited)

 

(unaudited)

Net cash provided by operating activities

$

176

 

 

$

151

 

Net cash used in investing activities

(132

)

 

(36

)

Net cash used in financing activities

(28

)

 

(31

)

Effect of foreign currency exchange rates on cash and equivalents

5

 

 

(6

)

Net increase in cash and equivalents

$

21

 

 

$

78

 

 

 

 

 

 

For the Twelve Months Ended
September 30, 2020

 

For the Twelve Months Ended
September 30, 2019

 

(audited)

 

(audited)

Net cash provided by operating activities

$

463

 

 

$

400

 

Net cash used in investing activities

(219

)

 

(376

)

Net cash (used in) provided by financing activities

(316

)

 

88

 

Effect of foreign currency exchange rates on cash and equivalents

6

 

 

(7

)

Net (decrease) increase in cash and equivalents

$

(66

)

 

$

105

 



Figure 4. Warner Music Group Corp. - Recorded Music Digital Revenue Summary, Three and Twelve Months Ended September 30, 2020 versus September 30, 2019

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30, 2020

 

For the Three Months Ended
September 30, 2019

 

% Change

 

(unaudited)

 

(unaudited)

 

 

Streaming

$

639

 

 

$

550

 

 

16

%

Downloads and Other Digital

40

 

 

49

 

 

-18

%

Total Recorded Music Digital Revenue

$

679

 

 

$

599

 

 

13

%

 

 

 

 

 

 

 

For the Twelve Months Ended
September 30, 2020

 

For the Twelve Months Ended
September 30, 2019

 

% Change

 

(unaudited)

 

(unaudited)

 

 

Streaming

$

2,403

 

 

$

2,129

 

 

13

%

Downloads and Other Digital

165

 

 

214

 

 

-23

%

Total Recorded Music Digital Revenue

$

2,568

 

 

$

2,343

 

 

10

%


Supplemental Disclosures Regarding Non-GAAP Financial Measures

We evaluate our operating performance based on several factors, including the following non-GAAP financial measures:

OIBDA

OIBDA reflects our operating income before non-cash depreciation of tangible assets and non-cash amortization of intangible assets. We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses, and believe the presentation of OIBDA helps improve the ability to understand our operating performance and evaluate our performance in comparison to comparable periods. However, a limitation of the use of OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue in our businesses. Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) and other measures of financial performance reported in accordance with U.S. GAAP. In addition, OIBDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies.


Figure 5. Warner Music Group Corp. - Reconciliation of Net Income to OIBDA, Three and Twelve Months Ended September 30, 2020 versus September 30, 2019

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30, 2020

 

For the Three Months Ended
September 30, 2019

 

% Change

 

(unaudited)

 

(unaudited)

 

 

Net (loss) income attributable to Warner Music Group Corp.

$

(1

)

 

 

$

90

 

 

 

%

Income attributable to noncontrolling interest

2

 

 

 

1

 

 

 

100

%

Net income

$

1

 

 

 

$

91

 

 

 

-99

%

Income tax benefit

(21

)

 

 

(77

)

 

 

-73

%

Income including income taxes

$

(20

)

 

 

$

14

 

 

 

%

Other expense (income), net

45

 

 

 

(19

)

 

 

%

Interest expense, net

29

 

 

 

34

 

 

 

-15

%

Loss on extinguishment of debt

34

 

 

 

 

 

 

%

Operating income

$

88

 

 

 

$

29

 

 

 

%

Amortization expense

49

 

 

 

48

 

 

 

2

%

Depreciation expense

18

 

 

 

18

 

 

 

%

OIBDA

$

155

 

 

 

$

95

 

 

 

63

%

Operating income margin

7.8

 

%

 

2.6

 

%

 

 

OIBDA margin

13.8

 

%

 

8.5

 

%

 

 

 

 

 

 

 

 

 

For the Twelve Months Ended
September 30, 2020

 

For the Twelve Months Ended
September 30, 2019

 

% Change

 

(unaudited)

 

(unaudited)

 

 

Net (loss) income attributable to Warner Music Group Corp.

$

(475

)

 

 

$

256

 

 

 

%

Income attributable to noncontrolling interest

5

 

 

 

2

 

 

 

%

Net (loss) income

$

(470

)

 

 

$

258

 

 

 

%

Income tax expense

23

 

 

 

9

 

 

 

%

Income including income taxes

$

(447

)

 

 

$

267

 

 

 

%

Other expense (income), net

57

 

 

 

(60

)

 

 

%

Interest expense, net

127

 

 

 

142

 

 

 

-11

%

Loss on extinguishment of debt

34

 

 

 

7 —%Operating (loss) income$(229) $356 %Amortization expense190 208 -9%Depreciation expense71 61 16%OIBDA$32 $625 -95%Operating income margin-5.1 % 8.0 % OIBDA margin 0.7 % 14.0 %


Figure 6. Warner Music Group Corp. - Reconciliation of Segment Operating Income to OIBDA, Three and Twelve Months Ended September 30, 2020 versus September 30, 2019

(dollars in millions)

For the Three Months Ended
September 30, 2020

For the Three Months Ended
September 30, 2019

% Change

(unaudited)

(unaudited)

Total WMG operating income – GAAP

$

88

$

29

%

Depreciation and amortization expense

(67

)

(66

)

2

%

Total WMG OIBDA

$

155

$

95

63

%

Operating income margin

7.8

%

2.6

%

OIBDA margin

13.8

%

8.5

%

Recorded Music operating income – GAAP

$

108

$

57

89

%

Depreciation and amortization expense

(43

)

(44

)

-2

%

Recorded Music OIBDA

$

151

$

101

50

%

Recorded Music operating income margin

11.3

%

6.0

%

Recorded Music OIBDA margin

15.8

%

10.6

%

Music Publishing operating income – GAAP

$

23

$

25

-8

%

Depreciation and amortization expense

(20

)

(19

)

5

%

Music Publishing OIBDA

$

43

$

44

-2

%

Music Publishing operating income margin

13.6

%

14.5

%

Music Publishing OIBDA margin

25.4

%

25.4

%

For the Twelve Months Ended
September 30, 2020

For the Twelve Months Ended
September 30, 2019

% Change

(unaudited)

(unaudited)

Total WMG operating (loss) income – GAAP

$

(229

)

$

356

%

Depreciation and amortization expense

(261

)

(269

)

-3

%

Total WMG OIBDA

$

32

$

625

-95

%

Operating (loss) income margin

-5.1

%

8.0

%

OIBDA margin

0.7

%

14.0

%

Recorded Music operating income – GAAP

$

175

$

439

-60

%

Depreciation and amortization expense

(174

)

(184

)

-5

%

Recorded Music OIBDA

$

349

$

623

-44

%

Recorded Music operating income margin

4.6

%

11.4

%

Recorded Music OIBDA margin

9.2

%

16.2

%

Music Publishing operating income – GAAP

$

81

$

92

-12

%

Depreciation and amortization expense

(76

)

(74

)

3

%

Music Publishing OIBDA

$

157

$

166

-5

%

Music Publishing operating income margin

12.3

%

14.3

%

Music Publishing OIBDA margin

23.9

%

25.8

%


Adjusted Operating Income (Loss), Adjusted OIBDA and Adjusted Net Income (Loss)

Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) is operating income (loss), OIBDA and net income (loss), respectively, adjusted to exclude the impact of certain items that affect comparability. Factors affecting period-to-period comparability of the unadjusted measures in the quarter included the items listed in Figure 7 below. We use Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) to evaluate our actual operating performance. We believe that the adjusted results provide relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies in our industry and allow investors to review performance in the same way as our management. Since these are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation of, or as a substitute for, operating income (loss), OIBDA and net income (loss) attributable to Warner Music Group Corp. as indicators of operating performance, and they may not be comparable to similarly titled measures employed by other companies.


Figure 7. Warner Music Group Corp. - Reconciliation of Reported to Adjusted Results, Three and Twelve Months Ended September 30, 2020 versus September 30, 2019

(dollars in millions)

For the Three Months Ended
September 30, 2020

Total WMG Operating Income

Recorded Music Operating Income

Music Publishing Operating Income

Total WMG OIBDA

Recorded Music OIBDA

Music Publishing OIBDA

Net Income

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reported Results

$

88

$

108

$

23

$

155

$

151

$

43

$

1

Factors Affecting Comparability:

Restructuring and Other Transformation Related Costs

7

1

7

1

7

IPO Related Costs

(1

)

(1

)

(1

)

COVID-19 Related Costs

4

4

4

L.A. Office Consolidation

1

1

1

1

1

Non-Cash Stock-Based Compensation

8

8

8

8

8

Adjusted Results

$

107

$

118

$

23

$

174

$

161

$

43

$

20

Adjusted Margin

9.5

%

12.3

%

13.6

%

15.5

%

16.8

%

25.4

%

For the Three Months Ended
September 30, 2019

Total WMG Operating Income

Recorded Music Operating Income

Music Publishing Operating Income

Total WMG OIBDA

Recorded Music OIBDA

Music Publishing OIBDA

Net Income

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reported Results

$

29

$

57

$

25

$

95

$

101

$

44

$

91

Factors Affecting Comparability:

Restructuring and Other Transformation Related Costs

10

2

10

2

10

L.A. Office Consolidation

2

2

2

2

2

Non-Cash Stock-Based Compensation

22

14

22

14

22

Adjusted Results

$

63

$

75

$

25

$

129

$

119

$

44

$

125

Adjusted Margin

5.6

%

7.9

%

14.5

%

11.5

%

12.5

%

25.4

%



For the Twelve Months Ended
September 30, 2020

Total WMG Operating (Loss) Income

Recorded Music Operating Income

Music Publishing Operating Income

Total WMG OIBDA

Recorded Music OIBDA

Music Publishing OIBDA

Net (Loss) Income

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reported Results

$

(229

)

$

175

$

81

$

32

$

349

$

157

$

(470

)

Factors Affecting Comparability:

Restructuring and Other Transformation Related Costs

42

1

3

42

1

3

42

IPO Related Costs

89

89

89

COVID-19 Related Costs

17

13

17

13

17

L.A. Office Consolidation

2

2

2

2

2

Non-Cash Stock-Based Compensation

608

391

608

391

608

Adjusted Results

$

529

$

582

$

84

$

790

$

756

$

160

$

288

Adjusted Margin

11.9

%

15.3

%

12.8

%

17.7

%

19.8

%

24.4

%

For the Twelve Months Ended
September 30, 2019

Total WMG Operating Income

Recorded Music Operating Income

Music Publishing Operating Income

Total WMG OIBDA

Recorded Music OIBDA

Music Publishing OIBDA

Net Income

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reported Results

$

356

$

439

$

92

$

625

$

623

$

166

$

258

Factors Affecting Comparability:

Restructuring and Other Transformation Related Costs

27

8

27

8

27

L.A. Office Consolidation

11

11

11

11

11

Nashville Shared Service Costs

1

1

1

Non-Cash Stock-Based Compensation

49

32

49

32

49

Adjusted Results

$

444

$

490

$

92

$

713

$

674

$

166

$

346

Adjusted Margin

9.9

%

12.8

%

14.3

%

15.9

%

17.6

%

25.8

%


Constant Currency

Because exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of revenue on a constant-currency basis in addition to reported revenue helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant-currency information compares results between periods as if exchange rates had remained constant period over period. We use results on a constant-currency basis as one measure to evaluate our performance. We calculate constant-currency results by applying current-year foreign currency exchange rates to prior-year results. However, a limitation of the use of the constant-currency results as a performance measure is that it does not reflect the impact of exchange rates on our revenue. These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. GAAP. Results on a constant-currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with U.S. GAAP.


Figure 8. Warner Music Group Corp. - Revenue by Geography and Segment, Three and Twelve Months Ended September 30, 2020 versus September 30, 2019 As Reported and Constant Currency

(dollars in millions)

For the Three Months Ended
September 30, 2020

For the Three Months Ended
September 30, 2019

For the Three Months Ended
September 30, 2019

As reported

As reported

Constant

(unaudited)

(unaudited)

(unaudited)

U.S. revenue

Recorded Music

$

418

$

420

$

420

Music Publishing

83

81

81

International revenue

Recorded Music

540

533

546

Music Publishing

86

92

94

Intersegment eliminations

(1

)

(2

)

(2

)

Total Revenue

$

1,126

$

1,124

$

1,139

Revenue by Segment:

Recorded Music

Digital

$

679

$

599

$

602

Physical

105

103

106

Total Digital and Physical

784

702

708

Artist services and expanded-rights

98

171

177

Licensing

76

80

81

Total Recorded Music

958

953

966

Music Publishing

Performance

28

48

48

Digital

100

76

78

Mechanical

10

14

14

Synchronization

27

31

31

Other

4

4

4

Total Music Publishing

169

173

175

Intersegment eliminations

(1

)

(2

)

(2

)

Total Revenue

$

1,126

$

1,124

$

1,139

Total Digital Revenue

$

778

$

674

$

679



For the Twelve Months Ended
September 30, 2020

For the Twelve Months Ended
September 30, 2019

For the Twelve Months Ended
September 30, 2019

As reported

As reported

Constant

(audited)

(audited)

(unaudited)

U.S. revenue

Recorded Music

$

1,609

$

1,656

$

1,656

Music Publishing

325

300

300

International revenue

Recorded Music

2,201

2,184

2,161

Music Publishing

332

343

337

Intersegment eliminations

(4

)

(8

)

(8

)

Total Revenue

$

4,463

$

4,475

$

4,446

Revenue by Segment:

Recorded Music

Digital

$

2,568

$

2,343

$

2,321

Physical

434

559

558

Total Digital and Physical

3,002

2,902

2,879

Artist services and expanded-rights

525

629

631

Licensing

283

309

307

Total Recorded Music

3,810

3,840

3,817

Music Publishing

Performance

142

183

179

Digital

337

271

270

Mechanical

48

55

55

Synchronization

119

120

119

Other

11

14

14

Total Music Publishing

657

643

637

Intersegment eliminations

(4

)

(8

)

(8

)

Total Revenue

$

4,463

$

4,475

$

4,446

Total Digital Revenue

$

2,903

$

2,610

$

2,587


Free Cash Flow

Free Cash Flow reflects our cash flow provided by operating activities less capital expenditures and cash paid or received for investments. We use Free Cash Flow, among other measures, to evaluate our operating performance. Management believes Free Cash Flow provides investors with an important perspective on the cash available to fund our debt service requirements, ongoing working capital requirements, capital expenditure requirements, strategic acquisitions and investments, and any dividends, prepayments of debt or repurchases or retirement of our outstanding debt or notes in open market purchases, privately negotiated purchases or otherwise. As a result, Free Cash Flow is a significant measure of our ability to generate long-term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of our operating performance. We believe the presentation of Free Cash Flow is relevant and useful for investors because it allows investors to view performance in a manner similar to the method management uses.

Because Free Cash Flow is not a measure of performance calculated in accordance with U.S. GAAP, Free Cash Flow should not be considered in isolation of, or as a substitute for, net income (loss) as an indicator of operating performance or cash flow provided by operating activities as a measure of liquidity. Free Cash Flow, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, Free Cash Flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Because Free Cash Flow deducts capital expenditures and cash paid or received for investments from “net cash provided by operating activities” (the most directly comparable U.S. GAAP financial measure), users of this information should consider the types of events and transactions that are not reflected. We provide below a reconciliation of Free Cash Flow to the most directly comparable amount reported under U.S. GAAP, which is “net cash provided by operating activities.”


Figure 9. Warner Music Group Corp. - Calculation of Free Cash Flow, Three and Twelve Months Ended September 30, 2020 versus September 30, 2019

(dollars in millions)

For the Three Months Ended
September 30, 2020

For the Three Months Ended
September 30, 2019

(unaudited)

(unaudited)

Net cash provided by operating activities

$

176

$

151

Less: Capital expenditures

37

22

Less: Net cash paid for investments

95

14

Free Cash Flow

$

44

$

115

For the Twelve Months Ended
September 30, 2020

For the Twelve Months Ended
September 30, 2019

(unaudited)

(unaudited)

Net cash provided by operating activities

$

463