Warner Music Group Corp. today announced its third-quarter financial results for the period ended June 30, 2024.

“Our strong subscription streaming growth in Q3 was driven by the performance of our music and healthy industry trends,” said Robert Kyncl, CEO of Warner Music Group. “We’re nurturing the next generation of artists and songwriters, creating fresh impact for our iconic catalog, and working with our partners to increase the value of music. Our commitment to long-term artist development, combined with a flatter structure in recorded music, will enable us to super-serve talent and set WMG up for sustained future growth.”

“Our Q3 results were highlighted by strong margin expansion and operating cash flow growth, reflecting robust streaming performance and disciplined cost management,” said Bryan Castellani, CFO, Warner Music Group. “Looking ahead, we are focused on delivering a strong close to the year. The industry remains healthy and we continue to position ourselves for long-term success.”

TOTAL WMG

Revenue was down 0.6% (or up 0.6% in constant currency). Consistent with the prior quarter, Recorded Music digital revenue growth was unfavorably impacted by the termination of the distribution agreement with BMG (the “BMG Termination”), which resulted in $26 million less revenue compared to the prior-year quarter, and a renewal with one of the Company’s digital partners (the “Digital License Renewal”), which resulted in a $3 million unfavorable impact within Recorded Music streaming revenue compared to the prior year quarter. Music Publishing digital revenue growth was unfavorably impacted by a $7 million benefit in the prior-year quarter due to a ruling by the Copyright Royalty Board in Phonorecords III upholding higher percentage of revenue U.S. mechanical royalty rates (the “CRB Rate Benefit”). Excluding the BMG Termination, the Digital License Renewal, and the CRB Rate Benefit, total revenue was up 1.7% (or 3.1% in constant currency).

Digital revenue increased 4.7% (or 5.9% in constant currency) and streaming revenue increased 5.5% (or 6.7% in constant currency). Recorded Music streaming revenue increased 5.0% (or 6.4% in constant currency); however, adjusted for the impact of the BMG Termination of $25 million and the Digital License Renewal of $3 million, Recorded Music streaming revenue was up 8.7% (or 10.2% in constant currency). Music Publishing streaming revenue increased 7.9% (the same in constant currency); however, adjusted for the impact of the CRB Rate Benefit of $7 million, Music Publishing streaming revenue was up 12.3% (the same in constant currency). Revenue increases in the quarter were also driven by growth in Music Publishing performance and synchronization revenue, partially offset by lower Recorded Music physical, licensing and artist services and expanded-rights revenue and Music Publishing mechanical revenue.

Operating income increased 9.5% (or 11.9% in constant currency) from $189 million to $207 million primarily due to the factors affecting Adjusted OIBDA discussed below, as well as a $9 million decrease in amortization expense due to certain intangible assets becoming fully amortized, and a $1 million net gain on a divestiture of certain non-core owned and operated media properties in the quarter, partially offset by $5 million of incremental expenses related to transformation initiatives and other related costs, and higher non-cash stock-based compensation of $3 million.

Adjusted OIBDA increased 6.4% from $297 million to $316 million (or 7.8% in constant currency) and Adjusted OIBDA margin increased 1.3 percentage points to 20.3% from 19.0% in the prior-year quarter (the same in constant currency).

The increases in Adjusted OIBDA and Adjusted OIBDA margin were driven primarily by strong operating performance, savings from the March 2023 restructuring plan (the “2023 Restructuring Plan”) and savings from the Strategic Restructuring Plan, of which a portion has been reinvested in the Company’s business.

Net income increased 13.7% from $124 million to $141 million. The increase in net income was primarily due to the factors described above, a loss on extinguishment of debt in the prior-year quarter, and lower income tax expense primarily due to a benefit in the quarter related to foreign derived income and the impact of exchange rates on the Company’s Euro-denominated debt resulting in a higher gain in the quarter compared to the prior-year quarter, partially offset by an increase in unrealized losses related to certain investments and an increase in interest expense, net, primarily due to increased costs on the Company’s variable rate debt.

Basic and Diluted earnings per share were $0.27 for both the Class A and Class B shareholders due to the net income attributable to the Company in the quarter of $141 million.

As of June 30, 2024, the Company reported a cash balance of $607 million, total debt of $3.978 billion and net debt (defined as total debt, net of deferred financing costs, premiums and discounts, minus cash and equivalents) of $3.371 billion.

Cash provided by operating activities increased 29% to $188 million in the quarter compared to $146 million in the prior-year quarter. The increase was largely driven by strong operating performance and the timing of working capital. Capital expenditures decreased 15% to $28 million from $33 million in the prior-year quarter. Free Cash Flow, as defined below, increased 42% to $160 million from $113 million in the prior-year quarter, primarily due to the factors affecting cash provided by operating activities described above.

RECORDED MUSIC

Recorded Music revenue was down 2.4% (or 1.1% in constant currency) driven by decreases in artist services and expanded-rights, physical and licensing revenue, partially offset by growth in digital revenue. Excluding the impact from the BMG Termination of $26 million and the Digital License Renewal of $3 million, Recorded Music revenue decreased 0.2% (or increased 1.2% in constant currency). Digital revenue was up 4.3% (or 5.8% in constant currency) and streaming revenue was up 5.0% (or 6.4% in constant currency). Adjusted for the impact of the BMG Termination of $25 million and the Digital License Renewal of $3 million, Recorded Music streaming revenue was up 8.7% (or 10.2% in constant currency). Streaming revenue reflects growth in subscription revenue of 7.0% (or 8.5% in constant currency), partially offset by a decline in ad-supported revenue of 0.4% (or growth of 0.9% in constant currency). Adjusted for the impact of the BMG Termination of $24 million and the Digital License Renewal of $3 million, subscription revenue increased 12.1% (or 13.7% in constant currency). Licensing revenue decreased 2.2% (or 1.1% in constant currency), driven by the timing of copyright infringement settlements. Physical revenue decreased 4.8% (or 4.0% in constant currency), primarily driven by timing of releases and strong U.S. releases in the prior-year quarter. Artist services and expanded-rights revenue decreased 27.1% (or 26.0% in constant currency) primarily due to lower merchandising revenue, lower concert promotion revenue primarily related to Japan and France, and a decrease in revenue related to the exit of the Company’s owned and operated media properties announced as part of the Strategic Restructuring Plan. Major sellers included Dua Lipa, Benson Boone, Zach Bryan, Teddy Swims, and Twenty One Pilots.

Recorded Music operating income was $230 million, an increase from $207 million in the prior-year quarter, and operating margin was up 2.3 percentage points to 18.4% versus 16.1% in the prior-year quarter. The increase in operating income was primarily due to the factors affecting Adjusted OIBDA discussed below, as well as an $11 million decrease in amortization expense compared to the prior-year quarter due to certain intangible assets becoming fully amortized.

Adjusted OIBDA increased 6.4% to $281 million from $264 million (or 7.7% in constant currency) and Adjusted OIBDA margin increased 1.9 percentage points to 22.5% from 20.6% in the prior-year quarter (the same in constant currency). The increases in Adjusted OIBDA and Adjusted OIBDA margin were driven primarily by strong operating performance and savings from the 2023 Restructuring Plan and the Strategic Restructuring Plan, of which a portion has been reinvested in the Company’s business.

MUSIC PUBLISHING

Music Publishing revenue increased 7.8% (or 8.9% in constant currency). Excluding the impact from the CRB Rate Benefit of $7 million, Music Publishing revenue increased 10.5% (or increased 11.7% in constant currency). The increase was driven by growth in digital, performance and synchronization revenue. Digital revenue increased 6.6% (or 7.2% in constant currency) and streaming revenue increased 7.9% (the same in constant currency). Excluding the CRB Rate Benefit in the prior-year quarter, Music Publishing digital revenue increased 10.9% (or 11.5% in constant currency) and streaming revenue increased 12.3% (the same in constant currency), reflecting continued market growth, expansion of our publishing catalog and timing of payments. Performance revenue increased 30.0% (or 33.3% in constant currency) due to an increase in touring activity outside the U.S. and U.S. radio activity. Mechanical revenue decreased $3 million or 18.8% (the same in constant currency), primarily driven by lower physical sales. Synchronization revenue grew 2.4% (the same in constant currency), driven by higher international commercial licensing activity, partially offset by the timing of copyright infringement settlements in the U.S.

Music Publishing operating income increased to $53 million compared to $50 million in the prior-year quarter and operating margin decreased 0.3 percentage points to 17.4%. The increase in operating income was primarily driven by the same factors affecting Adjusted OIBDA discussed below.

Music Publishing Adjusted OIBDA increased 6.8% to $79 million (or 8.2% in constant currency) driven by higher revenue and Adjusted OIBDA margin increased 0.1 percentage point to 26.2% from 26.1% in the prior-year quarter (the same in constant currency).