What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2022-02-08 · 455 added, 169 removed, 486 unchanged (56% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition with the unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2021 (the “Quarterly Report”).

“SAFE HARBOR” STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

70 unchanged sentences

• Results of operations.

This section provides an analysis of our results of operations for the three months ended December 31, 2021 and December 31, 2020.

This section provides an analysis of our results of operations for the three and six months ended March 31, 2022 and March 31, 2021.

This analysis is presented on both a consolidated and segment basis.

• Financial condition and liquidity.

This section provides an analysis of our cash flows for the three months ended December 31, 2021 and December 31, 2020, as well as a discussion of our financial condition and liquidity as of December 31, 2021.

This section provides an analysis of our cash flows for the six months ended March 31, 2022 and March 31, 2021, as well as a discussion of our financial condition and liquidity as of March 31, 2022.

The discussion of our financial condition and liquidity includes recent debt financings and a summary of the key debt covenant compliance measures under our debt agreements.

34 unchanged sentences

In certain smaller markets, we license the right to distribute and sell our music to non-affiliated third-party record labels.

Our Recorded Music business’ operations includes WMX, a next generation services division that connects artists with fans and amplifies brands in creative, immersive, and engaging ways.

Our Recorded Music business’ operations include WMX, a next generation services division that connects artists with fans and amplifies brands in creative, immersive, and engaging ways.

This division includes a rebranded WEA commercial services & marketing network (formerly Warner-Elektra-Atlantic Corporation, or WEA Corp.), which markets, distributes and sells music and video products to retailers and wholesale distributors, as well as acting as the Company’s media and creative content arm.

2 unchanged sentences

In addition to our music being sold in physical retail outlets, our music is also sold in physical form to online physical retailers, such as amazon.com, barnesandnoble.com and bestbuy.com, and distributed in digital form to an expanded universe of digital partners, including streaming services such as those of Amazon, Apple, Deezer, SoundCloud, Spotify, Tencent Music Entertainment Group and YouTube, radio services such as iHeart Radio and SiriusXM and other download services.

We have integrated the marketing of digital content into all aspects of our business, including A&R and distribution.

We have integrated the marketing of digital content into all aspects of our business, including artists and repertoire (“A&R”) and distribution.

Our business development executives work closely with A&R departments to ensure that while music is being produced, digital assets are also created with all distribution channels in mind, including streaming services, social networking sites, online portals and music-centered destinations.

51 unchanged sentences

the costs associated with selling and marketing, general overhead and other administrative expenses.

Factors Affecting Results of Operations and Comparability

Recent Events and Factors Affecting Results of Operations and Comparability

Fiscal Quarter End

1 unchanged sentence

The fiscal year ended September 30, 2022 includes 53 weeks, and the fiscal year ended September 30, 2021 included 52 weeks.

The additional week in fiscal year 2022 falls in the fiscal quarter ended December 31, 2021.

Accordingly, the results of operations for the three months ended December 31, 2021 reflect 14 weeks compared to 13 weeks for the three months ended December 31, 2020.

For the three months ended December 31, 2021, the revenue benefit of the additional week was approximately $73 million, primarily reflected in Recorded Music streaming revenue.

The additional week in fiscal year 2022 fell in the fiscal quarter ended December 31, 2021.

Accordingly, the results of operations for the six months ended March 31, 2022 reflect 27 weeks compared to 26 weeks for the six months ended March 31, 2021.

For the six months ended March 31, 2022, the revenue benefit of the additional week was approximately $73 million, primarily reflected in Recorded Music streaming revenue.

Russia-Ukraine Conflict

On February 24, 2022, the geopolitical situation in Eastern Europe intensified with Russia's invasion of Ukraine, and the sanctions and other measures imposed in response to this conflict have increased global economic and political uncertainty.

WMG operates both its Recorded Music and Music Publishing businesses within Russia and, on March 10, 2022, the Company announced a suspension of these operations in Russia.

While our operations in Russia do not constitute a material portion of our business, a significant escalation or expansion of the conflict's current scope, increased or sustained economic disruption, sanctions or countersanctions, further devaluation of the local currency or increased cyber-related disruptions could make it difficult to deliver our content, broaden inflationary costs, and have a material adverse effect on our results of operations.

COVID-19 Pandemic

4 unchanged sentences

It is unclear how long the global pandemic will last due to the possibility of new variants, increases in infection rates and renewed government action to slow the spread of the virus, and as such, it cannot be predicted to what extent the global pandemic will continue to impact the demand for our music and related services.

Our results of operations, cash flows and financial condition at and for both the three months ended December 31, 2021and 2020 were adversely affected by the global pandemic despite a partial recovery starting in fiscal year 2021 as businesses began to reopen and concerts and other live music resumed.

For both the three months ended December 31, 2021 and 2020, costs recognized by the Company attributable to COVID were not significant.

Our results of operations, cash flows and financial condition at and for both the three and six months ended March 31, 2022 and 2021 were adversely affected by the global pandemic despite a partial recovery starting in fiscal year 2021 as businesses began to reopen and concerts and other live music resumed.

For both the three and six months ended March 31, 2022 and 2021, costs recognized by the Company attributable to COVID were not significant.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2021 Compared with Three Months Ended December 31, 2020

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Consolidated Results

1 unchanged sentence

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

24 unchanged sentences

Total Revenues

Total revenues increased by $279 million, or 21%, to $1,614 million for the three months ended December 31, 2021 from $1,335 million for the three months ended December 31, 2020.

The quarter included an additional week, primarily reflected in Recorded Music streaming revenue.

Additionally, the quarter included the impact of a new deal with one of our digital partners impacting Recorded Music streaming revenue.

These items were partially offsetting and adjusting for these items, total revenue was up 18%.

Total revenues increased by $126 million, or 10%, to $1,376 million for the three months ended March 31, 2022 from $1,250 million for the three months ended March 31, 2021.

Consistent with the prior quarter, the quarter included the impact of a new deal with one of our digital partners affecting Recorded Music streaming revenue.

Adjusting for this item, total revenue was up 13%.

The increase includes $34 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 86% and 14% of total revenue for the three months ended December 31, 2021, respectively, and 87% and 13% of total revenue for the three months ended December 31, 2020, respectively.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 83% and 17% of total revenue for the three months ended March 31, 2022, respectively, and 85% and 15% of total revenue for the three months ended March 31, 2021, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 45% and 55% of total revenues for the three months ended December 31, 2021, respectively, and 43% and 57% of total revenues for the three months ended December 31, 2020, respectively.

Total digital revenues after intersegment eliminations increased by $177 million, or 21%, to $1,002 million for the three months ended December 31, 2021 from $825 million for the three months ended December 31, 2020.

and international revenues represented 46% and 54% of total revenues for the three months ended March 31, 2022, respectively, and 45% and 55% of total revenues for the three months ended March 31, 2021, respectively.

Total digital revenues after intersegment eliminations increased by $71 million, or 8%, to $931 million for the three months ended March 31, 2022 from $860 million for the three months ended March 31, 2021.

Total streaming revenue increased 9% driven by growth across Recorded Music and Music Publishing, including revenue from emerging streaming platforms.

Total digital revenues remained constant at 62% of consolidated revenues for each of the three months ended December 31, 2021 and December 31, 2020.

Prior to intersegment eliminations, total digital revenues for the three months ended December 31, 2021 were comprised of U.S.

revenues of $514 million and international revenues of $489 million, respectively, or 51% and 49% of total digital revenues, respectively.

Prior to intersegment eliminations, total digital revenues for the three months ended December 31, 2020 were comprised of U.S.

Total digital revenues represented 68% and 69% of consolidated revenues for the three months ended March 31, 2022 and March 31, 2021, respectively.

The decrease in digital revenues as a percentage of total revenue is due to the partial recovery of artist services and expanded-rights revenue, which was impacted by COVID in the prior-year quarter, as well as continued growth of licensing and synchronization revenue in the quarter.

Prior to intersegment eliminations, total digital revenues for the three months ended March 31, 2022 were comprised of U.S.

revenues of $457 million and international revenues of $474 million, respectively, or 49% and 51% of total digital revenues, respectively.

Recorded Music revenues increased by $225 million, or 19%, to $1,386 million for the three months ended December 31, 2021 from $1,161 million for the three months ended December 31, 2020.

Adjusted for the benefit of the additional week and the impact of the new deal with one of our digital partners, Recorded Music revenue was up 16%.

Prior to intersegment eliminations, total digital revenues for the three months ended March 31, 2021 were comprised of U.S.

revenues of $432 million and international revenues of $428 million, respectively, or 50% of total digital revenues for each of U.S.

and international revenues.

Recorded Music revenues increased by $88 million, or 8%, to $1,147 million for the three months ended March 31, 2022 from $1,059 million for the three months ended March 31, 2021.

Adjusted for the impact of the new deal with one of our digital partners, Recorded Music revenue was up 12%.

The increase includes $29 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $608 million and $481 million, or 44% and 41% of consolidated Recorded Music revenues, for the three months ended December 31, 2021 and December 31, 2020, respectively.

International Recorded Music revenues were $778 million and $680 million, or 56% and 59% of consolidated Recorded Music revenues, for the three months ended December 31, 2021 and December 31, 2020, respectively.

The overall increase in Recorded Music revenue was driven by increases in digital, artist services and expanded-rights, physical and licensing revenues.

Digital revenue increased by $143 million as a result of the continued growth in streaming services, including growth in emerging streaming platforms, strength of releases including a new release from Ed Sheeran as well as carryover success from Dua Lipa, Ed Sheeran, YoungBoy Never Broke Again and Ava Max.

Revenue from streaming services grew by $144 million, or 21%, to $836 million for the three months ended December 31, 2021 from $692 million for the three months ended December 31, 2020.

Adjusted for the benefit of the additional week and the impact of the new deal with one of our digital partners, Recorded Music streaming revenue was up 17%.

Streaming revenue growth was partially offset by a decline in download and other digital revenues of $1 million, or 3%, to $34 million for the three months ended December 31, 2021 from $35 million for the three months ended December 31, 2020 due to the continued shift to streaming services.

Recorded Music revenues were $518 million and $469 million, or 45% and 44% of consolidated Recorded Music revenues, for the three months ended March 31, 2022 and March 31, 2021, respectively.

International Recorded Music revenues were $629 million and $590 million, or 55% and 56% of consolidated Recorded Music revenues, for the three months ended March 31, 2022 and March 31, 2021, respectively.

The overall increase in Recorded Music revenue was driven by increases across all revenue types, including digital, artist services and expanded-rights, licensing and physical revenues.

Digital revenue increased by $48 million as a result of the continued growth in streaming services and strength of releases including current year release from Ed Sheeran and Silk Sonic as well as carryover success from Michael Bublé, Dua Lipa and Ed Sheeran.

Revenue from streaming services grew by $54 million, or 7%, to $776 million for the three months ended March 31, 2022 from $722 million for the three months ended March 31, 2021.

Adjusted for the impact of the new deal with one of our digital partners, Recorded Music streaming revenue was up 12%.

Streaming revenue growth was partially offset by an unfavorable impact of foreign currency exchange rates of $16 million, or 2%, and a decline in download and other digital revenues of $6 million, or 18%, to $28 million for the three months ended March 31, 2022 from $34 million for the three months ended March 31, 2021 due to the continued shift to streaming services.

Artist services and expanded-rights revenue increased by $23 million primarily due to higher merchandising revenue and touring activity, both of which were disrupted by COVID in the prior-year quarter, partially offset by an unfavorable impact of foreign currency exchange rates of $5 million.

Physical revenue increased by $21 million, or 12%, primarily from higher sales due to the success of new releases, an increased demand for vinyl products and COVID disruption in the prior-year quarter, partially offset by an unfavorable impact of foreign currency exchange rates of $3 million.

Licensing revenue increased by $9 million, mainly due to higher synchronization and other licensing revenue, as businesses continued to recover from COVID disruption.

Music Publishing revenues increased by $54 million, or 31%, to $229 million for the three months ended December 31, 2021 from $175 million for the three months ended December 31, 2020.

Music Publishing revenues were $115 million and $91 million, or 50% and 52% of consolidated Music Publishing revenues, for the three months ended December 31, 2021 and December 31, 2020, respectively.

International Music Publishing revenues were $114 million and $84 million, or 50% and 48% of consolidated Music Publishing revenues, for the three months ended December 31, 2021 and December 31, 2020, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $34 million, or 34%, synchronization revenue of $9 million, performance revenue of $8 million and mechanical revenue of $3 million.

Licensing revenue increased by $13 million, mainly due to higher synchronization revenue.

Physical revenue increased by $4 million, primarily from an increased demand for vinyl products, partially offset by an unfavorable impact of foreign currency exchange rates of $5 million.

Music Publishing revenues increased by $38 million, or 20%, to $230 million for the three months ended March 31, 2022 from $192 million for the three months ended March 31, 2021.

Music Publishing revenues were $117 million and $96 million, or 51% and 50% of consolidated Music Publishing revenues, for the three months ended March 31, 2022 and March 31, 2021, respectively.

International Music Publishing revenues were $113 million and $96 million, or 49% and 50% of consolidated Music Publishing revenues, for the three months ended March 31, 2022 and March 31, 2021, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases across all revenue types, specifically growth in digital revenue of $23 million, or 22%, synchronization revenue of $12 million, performance revenue of $1 million and mechanical revenue of $1 million.

The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services, including emerging streaming platforms, and timing of new digital deals, partially offset by a shift in the collection of certain writer’s share income from certain digital service providers.

This change has no impact on Music Publishing OIBDA, but results in a slight improvement to OIBDA margin.

Revenue from streaming services grew by $35 million, or 37%, to $129 million for the three months ended December 31, 2021 from $94 million for the three months ended December 31, 2020.

The increase in synchronization revenue is attributable to higher television, motion picture and commercial income and COVID disruption in the prior-year quarter.

Performance revenue increased as bars, restaurants, concerts and live events continued to recover from COVID disruption.

Mechanical revenue increased as businesses continued to recover from COVID disruption and from strong physical sales.

Revenue from streaming services grew by $20 million, or 20%, to $122 million for the three months ended March 31, 2022 from $102 million for the three months ended March 31, 2021.

The increase in synchronization revenue is attributable to higher commercial income.

Performance revenue increased as bars, restaurants, concerts and live events continued to recover from COVID disruption, partially offset by an unfavorable impact of foreign currency exchange rates of $2 million.

Mechanical revenue increased driven by strong physical sales.

Revenue by Geographical Location

revenue increased by $151 million, or 26%, to $723 million for the three months ended December 31, 2021 from $572 million for the three months ended December 31, 2020.

revenue increased by $70 million, or 12%, to $635 million for the three months ended March 31, 2022 from $565 million for the three months ended March 31, 2021.

Recorded Music revenue increased by $49 million, or 10%.

The primary driver was the increase of U.S.

Recorded Music digital revenue of $80 million, or 22%, driven by the continued growth in streaming services.

Recorded Music artist services and expanded-rights revenue of $20 million, driven by higher merchandising revenues.

Recorded Music digital revenue increased by $14 million, or 4%, driven by the continued growth in streaming services.

Recorded Music streaming revenue increased by $18 million, or 5%, partially offset by $4 million of download and other digital declines.

Recorded Music artist services and expanded-rights revenue increased $23 million primarily driven by higher merchandising and advertising revenues.

Increases are also attributable to the increase in U.S.

Recorded Music physical revenue of $23 million from higher sales due to the success of new releases, an increased demand for vinyl products and

COVID disruption in the prior-year quarter.

The increase in licensing revenue of $10 million is due to higher synchronization activity.

Music Publishing revenue increased by $24 million, or 26%, to $115 million for the three months ended December 31, 2021 from $91 million for the three months ended December 31, 2020.

Increases are also attributable to the increase in U.S.

Recorded Music physical revenue of $5 million from an increased demand for vinyl products.

Music Publishing revenue increased by $21 million, or 22%, to $117 million for the three months ended March 31, 2022 from $96 million for the three months ended March 31, 2021.

This was primarily driven by the increase in U.S.

Music Publishing of $16 million in digital revenue due to the continued growth in streaming services, including emerging streaming platforms, and timing of new digital deals, partially offset by a shift in the collection of writer’s share of U.S.

Music Publishing of $11 million in digital revenue due to the continued growth in streaming services, partially offset by a shift in the collection of writer’s share of U.S.

digital performance income from certain digital service providers.

Music Publishing streaming revenue increased by $11 million, or 19%.

The increase in synchronization revenue of $7 million is due to higher television, motion picture and commercial income and COVID disruption in the prior-year quarter.

Mechanical revenue increased by $1 million and performance revenue remained constant.

International revenue increased by $128 million, or 17%, to $892 million for the three months ended December 31, 2021 from $764 million for the three months ended December 31, 2020.

The increase in synchronization revenue of $7 million is due to higher commercial income.

Performance revenue increased by $2 million and mechanical revenue remained constant.

International revenue increased by $56 million, or 8%, to $742 million for the three months ended March 31, 2022 from $686 million for the three months ended March 31, 2021.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $90 million, or 14%.

International Recorded Music revenue increased by $39 million primarily due to increases in digital revenue of $34 million, artist services and expanded-rights revenue of $3 million and licensing revenue of $3 million, partially offset by the decrease in physical revenue of $1 million.

International Recorded Music digital revenue increased due to a $63 million, or 18%, increase in streaming revenue.

International Recorded Music artist services and expanded-rights revenue increased by $29 million reflecting an increase in concert promotion and merchandise revenue, both of which were disrupted by COVID in the prior-year quarter, partially offset by the unfavorable impact of foreign currency exchange rates of $6 million.

International Recorded Music licensing revenue increased by $8 million primarily due to other licensing revenue as businesses continued to recover from COVID disruption.

International Recorded Music digital revenue increased due to a $36 million, or 10%, increase in streaming revenue, which was partially offset by an unfavorable impact of foreign currency exchange rates of $16 million.

International Recorded Music artist services and expanded-rights revenue increased by $3 million reflecting an increase in concert promotion, which was disrupted by COVID in the prior-year quarter, partially offset by the unfavorable impact of foreign currency exchange rates of $5 million.

International Recorded Music licensing revenue increased by $3 million primarily due to synchronization revenue.

International Recorded Music physical revenue decreased by $1 million primarily driven by an unfavorable impact of foreign currency exchange rates.

International Music Publishing revenue increased from the prior-year quarter by $30 million, or 36%, to $114 million for the three months ended December 31, 2021 from $84 million for the three months ended December 31, 2020.

This was primarily driven by the increase in digital revenue of $18 million, performance revenue of $8 million, mechanical revenue of $2 million and synchronization revenue of $2 million.

International Music Publishing streaming revenue increased by $19 million, or 50%, partially offset by $1 million of download and other digital declines.

Performance revenue increased as businesses continued to recover from COVID disruption.

Mechanical revenue increased as businesses continued to recover from COVID disruption and from strong physical sales.

Higher synchronization revenue is primarily driven by higher motion picture and commercial income and COVID disruption in the prior-year quarter.

International Music Publishing revenue increased from the prior-year quarter by $17 million, or 18%, to $113 million for the three months ended March 31, 2022 from $96 million for the three months ended March 31, 2021.

This was primarily driven by the increase in digital revenue of $12 million, synchronization revenue of $5 million and mechanical revenue of $1 million, partially offset by the decrease in performance revenue of $1 million.

International Music Publishing streaming revenue increased by $9 million, or 20%, and download and other digital increased by $3 million.

Higher synchronization revenue is primarily driven by higher commercial income.

Mechanical revenue increased driven by strong physical sales.

Performance revenue decreased primarily driven by an unfavorable impact of foreign currency exchange rates, which offset continued recovery from COVID disruption.

Cost of revenues

1 unchanged sentence

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 697 $ 623 $ 74 12 %

Artist and repertoire costs increased by $68 million, to $493 million for the three months ended December 31, 2021 from $425 million for the three months ended December 31, 2020.

Artist and repertoire costs as a percentage of revenue decreased to 31% for the three months ended December 31, 2021 from 32% for the three months ended December 31, 2020, primarily due to timing of artist and repertoire investments.

Product costs increased by $64 million, to $325 million for the three months ended December 31, 2021 from $261 million for the three months ended December 31, 2020.

Product costs as a percentage of revenue remained constant at 20% for each of the three months ended December 31, 2021 and December 31, 2020.

Artist and repertoire costs increased by $29 million, to $448 million for the three months ended March 31, 2022 from $419 million for the three months ended March 31, 2021.

Artist and repertoire costs as a percentage of revenue decreased to 33% for the three months ended March 31, 2022 from 34% for the three months ended March 31, 2021, primarily due to revenue mix.

Product costs increased by $45 million, to $249 million for the three months ended March 31, 2022 from $204 million for the three months ended March 31, 2021.

Product costs as a percentage of revenue increased to 18% for the three months ended March 31, 2022 from 16% for the three months ended March 31, 2021.

The overall increase as a percentage of revenue is due to revenue mix, primarily increases in artist services and expanded rights revenue.

Selling, general and administrative expenses

1 unchanged sentence

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

4 unchanged sentences

______________________________________

(1) Includes depreciation expense of $21 million and $19 million for the three months ended December 31, 2021 and December 31, 2020, respectively.

Total selling, general and administrative expense increased by $96 million, or 24%, to $497 million for the three months ended December 31, 2021 from $401 million for the three months ended December 31, 2020.

Expressed as a percentage of revenue, selling, general and administrative expense increased to 31% for the three months ended December 31, 2021 from 30% for the three months ended December 31, 2020.

This is primarily due to higher non-cash stock-based compensation and other related expenses from a one-time equity grant and the timing of expense recognition for new annual equity grants in the quarter of $18 million.

General and administrative expense increased by $53 million to $242 million for the three months ended December 31, 2021 from $189 million for the three months ended December 31, 2020.

The increase in general and administrative expense was mainly due to higher non-cash stock-based compensation and other related expenses from a one-time equity grant and the timing of expense recognition for new annual equity grants in the quarter of $18 million, increased employee related costs, including the impact of the additional week, unfavorable movements in foreign currency exchange rates of $10 million and increased expenses related to transformation initiatives and acquisition transaction costs.

Expressed as a percentage of revenue, general and administrative expense increased to 15% for the three months ended December 31, 2021 from 14% for the three months ended December 31, 2020 due to the factors described above.

Selling and marketing expense increased by $36 million, or 20%, to $214 million for the three months ended December 31, 2021 from $178 million for the three months ended December 31, 2020.

Expressed as a percentage of revenue, selling and marketing expense remained constant at 13% for each of the three months ended December 31, 2021 and December 31, 2020.

Distribution expense was $41 million for the three months ended December 31, 2021 and $34 million the three months ended December 31, 2020.

Expressed as a percentage of revenue, distribution expense remained constant at 3% for each of the three months ended December 31, 2021 and December 31, 2020.

(1) Includes depreciation expense of $20 million and $19 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Total selling, general and administrative expense increased by $26 million, or 6%, to $444 million for the three months ended March 31, 2022 from $418 million for the three months ended March 31, 2021.

Expressed as a percentage of revenue, selling, general and administrative expense decreased to 32% for the three months ended March 31, 2022 from 33% for the three months ended March 31, 2021.

This is primarily due to lower non-cash stock-based compensation and other related expenses of $9 million, as a result of equity awards becoming fully vested.

General and administrative expense increased by $12 million to $229 million for the three months ended March 31, 2022 from $217 million for the three months ended March 31, 2021.

The increase in general and administrative expense was mainly due to increased employee related costs and increased expenses related to transformation initiatives and acquisition transaction costs, partially offset by lower non-cash stock-based compensation and other related expenses of $9 million, as a result of equity awards becoming fully vested.

Expressed as a percentage of revenue, general and administrative expense remained constant at 17% for each of the three months ended March 31, 2022 and March 31, 2021.

Selling and marketing expense increased by $13 million, or 7%, to $189 million for the three months ended March 31, 2022 from $176 million for the three months ended March 31, 2021.

Expressed as a percentage of revenue, selling and marketing expense remained constant at 14% for each of the three months ended March 31, 2022 and March 31, 2021.

Distribution expense was $26 million for the three months ended March 31, 2022 and $25 million for the three months ended March 31, 2021.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the three months ended March 31, 2022 and March 31, 2021.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

4 unchanged sentences

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

5 unchanged sentences

Income before income taxes 126 168 (42) -25 %

Other (income) expense (54) 31 (85) — %

Other expense (income) 8 (49) 57 — %

Interest expense, net 32 32 — — %

3 unchanged sentences

OIBDA $ 255 $ 228 $ 27 12 %

OIBDA increased by $53 million to $320 million for the three months ended December 31, 2021 as compared to $267 million for the three months ended December 31, 2020 as a result of higher revenues, partially offset by higher cost of revenues and selling, general and administrative expenses.

Expressed as a percentage of total revenue, OIBDA margin remained constant at 20% for each of the three months ended December 31, 2021 and December 31, 2020 due to strong operating performance, which was offset by growth of lower-margin COVID-impacted revenue streams and increase in non-cash stock-based compensation and other related expenses as described above.

OIBDA increased by $27 million to $255 million for the three months ended March 31, 2022 as compared to $228 million for the three months ended March 31, 2021 as a result of higher revenues, partially offset by higher cost of revenues and selling, general and administrative expenses.

Expressed as a percentage of total revenue, OIBDA margin increased to 19% for the three months ended March 31, 2022 from 18% for the three months ended March 31, 2021 due to strong operating performance and a decrease in non-cash stock-based compensation and other related expenses as described above, which was partially offset by growth of lower-margin revenue streams.

Depreciation expense

Our depreciation expense increased by $2 million, or 11%, to $21 million for the three months ended December 31, 2021 from $19 million for the three months ended December 31, 2020.

Our depreciation expense increased by $1 million, or 5%, to $20 million for the three months ended March 31, 2022 from $19 million for the three months ended March 31, 2021.

The increase is primarily due to an increase in IT capital spending and assets being placed into service.

Amortization expense

Our amortization expense increased by $8 million, or 15%, to $60 million for the three months ended December 31, 2021 from $52 million for the three months ended December 31, 2020.

Our amortization expense increased by $11 million, or 19%, to $69 million for the three months ended March 31, 2022 from $58 million for the three months ended March 31, 2021.

The increase is primarily due to an increase in amortizable intangible assets primarily related to the acquisition of music-related assets.

Operating income

Our operating income increased by $43 million to $239 million for the three months ended December 31, 2021 from $196 million for the three months ended December 31, 2020.

Our operating income increased by $15 million to $166 million for the three months ended March 31, 2022 from $151 million for the three months ended March 31, 2021.

The increase in operating income was due to the factors that led to the increase in OIBDA, partially offset by higher depreciation and amortization as noted above.

Interest expense, net

Our interest expense, net, decreased to $30 million for the three months ended December 31, 2021 from $31 million for the three months ended December 31, 2020 due to lower interest rates resulting from debt refinancing, partially offset by a higher principal balance due to the issuance of senior secured notes.

Other (income) expense

Other income for the three months ended December 31, 2021 primarily includes foreign currency gains on our Euro-denominated debt of $31 million, unrealized gains of $8 million on the mark-to-market of equity investments, currency exchange gains on our intercompany loans of $6 million and unrealized gains on hedging activity of $4 million.

This compares to foreign

currency loss on our Euro-denominated debt of $41 million, aggregate realized and unrealized losses on hedging activity of $5 million and currency exchange losses on our intercompany loans of $2 million, partially offset by an unrealized gain of $14 million on the mark-to-market of an equity investment for the three months ended December 31, 2020.

Our interest expense, net, remained constant at $32 million for each of the three months ended March 31, 2022 and March 31, 2021 due to lower interest rates resulting from debt refinancing, which was offset by a higher principal balance due to the issuance of senior secured notes to partially fund the acquisition of a business and music-related assets.

Other expense (income)

Other expense for the three months ended March 31, 2022 primarily includes aggregate realized and unrealized losses of $39 million on the mark-to-market of equity investments, partially offset by foreign currency gains on our Euro-denominated debt of $19 million and currency exchange gains on our intercompany loans of $11 million.

This compares to foreign currency gains on our Euro-

denominated debt of $33 million and unrealized gains of $18 million on the mark-to-market of equity investments, partially offset by currency exchange losses on our intercompany loans of $3 million for the three months ended March 31, 2021.

Income tax expense

Our income tax expense increased by $40 million to $75 million for the three months ended December 31, 2021 from $35 million for the three months ended December 31, 2020.

The change of $40 million in income tax expense is due to the impact of higher pre-tax income in the current-year quarter.

Net income increased by $89 million to $188 million for the three months ended December 31, 2021 from $99 million for the three months ended December 31, 2020 as a result of the factors described above.

Our income tax expense decreased by $17 million to $34 million for the three months ended March 31, 2022 from $51 million for the three months ended March 31, 2021.

The change of $17 million in income tax expense is primarily due to the impact of lower pre-tax income in the current-year quarter.

Net income decreased by $25 million to $92 million for the three months ended March 31, 2022 from $117 million for the three months ended March 31, 2021 as a result of the factors described above.

Noncontrolling interest

There was $1 million of income attributable to noncontrolling interest for each of the three months ended December 31, 2021 and December 31, 2020.

There was no income attributable to noncontrolling interest for each of the three months ended March 31, 2022 and March 31, 2021.

Business Segment Results

1 unchanged sentence

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

15 unchanged sentences

Recorded Music

Recorded Music revenue increased by $225 million, or 19%, to $1,386 million for the three months ended December 31, 2021 from $1,161 million for the three months ended December 31, 2020.

Adjusted for the benefit of the additional week and the impact of the new deal with one of our digital partners, Recorded Music revenue was up 16%.

Recorded Music revenues were $608 million and $481 million, or 44% and 41% of consolidated Recorded Music revenues, for the three months ended December 31, 2021 and December 31, 2020, respectively.

The overall increase in Recorded Music revenue was mainly driven by increases in digital, artist services and expanded-rights, physical and licensing revenues as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Recorded Music revenue increased by $88 million, or 8%, to $1,147 million for the three months ended March 31, 2022 from $1,059 million for the three months ended March 31, 2021.

Adjusted for the impact of the new deal with one of our digital partners, Recorded Music revenue was up 12%.

Recorded Music revenues were $518 million and $469 million, or 45% and 44% of consolidated Recorded Music revenues, for the three months ended March 31, 2022 and March 31, 2021, respectively.

The overall increase in Recorded Music revenue was mainly driven by increases in digital, artist services and expanded-rights, licensing and physical revenues as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

1 unchanged sentence

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 554 $ 499 $ 55 11 %

Recorded Music cost of revenues increased by $94 million, or 16%, to $668 million for the three months ended December 31, 2021 from $574 million for the three months ended December 31, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 25% for the three months ended December 31, 2021 from 27% for the three months ended December 31, 2020.

Recorded Music cost of revenues increased by $55 million, or 11%, to $554 million for the three months ended March 31, 2022 from $499 million for the three months ended March 31, 2021.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 27% for the three months ended March 31, 2022 from 28% for the three months ended March 31, 2021.

The decrease is primarily attributable to revenue mix and timing of artist and repertoire investments.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs increased to 23% for the three months ended December 31, 2021 from 22% for the three months ended December 31, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs increased to 22% for the three months ended March 31, 2022 from 19% for the three months ended March 31, 2021.

The overall increase as a percentage of revenue primarily relates to revenue mix due to an increase in lower-margin artist services and expanded-rights revenue.

2 unchanged sentences

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

4 unchanged sentences

______________________________________

(1) Includes depreciation expense of $14 million and $13 million for the three months ended December 31, 2021 and December 31, 2020, respectively.

Recorded Music selling, general and administrative expense increased by $71 million, or 21%, to $402 million for the three months ended December 31, 2021 from $331 million for the three months ended December 31, 2020.

The increase in general and administrative expense was primarily due to increased employee related costs, unfavorable movements in foreign currency exchange rates of $8 million and increased expenses related to acquisition transaction costs.

(1) Includes depreciation expense of $14 million and $13 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Recorded Music selling, general and administrative expense increased by $19 million, or 6%, to $357 million for the three months ended March 31, 2022 from $338 million for the three months ended March 31, 2021.

The increase in general and administrative expense was primarily due to increased employee related costs, partially offset by lower non-cash stock-based compensation and other related expenses of $4 million, as a result of equity awards becoming fully vested.

The increase in selling and marketing expense was primarily due to increased variable marketing spend on higher revenues and new releases, increased employee related costs and higher travel expenses as limited travel resumed.

The increase in distribution expense was primarily due to higher artist services and expanded-rights revenue.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense remained constant at 29% for each of the three months ended December 31, 2021 and December 31, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 31% for the three months ended March 31, 2022 from 32% for the three months ended March 31, 2021.

Operating Income and OIBDA

1 unchanged sentence

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

2 unchanged sentences

OIBDA $ 250 $ 235 $ 15 6 %

Recorded Music OIBDA increased by $61 million to $330 million for the three months ended December 31, 2021 from $269 million for the three months ended December 31, 2020 as a result of higher revenues, partially offset by higher costs of revenue and selling, general and administrative expenses.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin increased to 24% for the three months ended December 31, 2021 from 23% for the three months ended December 31, 2020 due to strong operating performance, partially offset by growth of lower-margin COVID-impacted revenue streams in the quarter.

Recorded Music operating income increased by $53 million to $276 million for the three months ended December 31, 2021 from $223 million for the three months ended December 31, 2020 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by higher depreciation from new assets placed into service and an increase in amortizable intangible assets related to the acquisition of music-related assets.

Recorded Music OIBDA increased by $15 million to $250 million for the three months ended March 31, 2022 from $235 million for the three months ended March 31, 2021 as a result of higher revenues, partially offset by higher costs of revenue and selling, general and administrative expenses.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin remained constant at 22% for each of the three months ended March 31, 2022 and March 31, 2021 due to strong operating

performance and a decrease in non-cash stock-based compensation and other related expenses as described above, which was offset by growth of lower-margin revenue streams.

Recorded Music operating income increased by $5 million to $189 million for the three months ended March 31, 2022 from $184 million for the three months ended March 31, 2021 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by higher depreciation from new assets placed into service and an increase in amortizable intangible assets related to the acquisition of music-related assets.

Music Publishing

Music Publishing revenues increased by $54 million, or 31%, to $229 million for the three months ended December 31, 2021 from $175 million for the three months ended December 31, 2020.

Music Publishing revenues increased by $38 million, or 20%, to $230 million for the three months ended March 31, 2022 from $192 million for the three months ended March 31, 2021.

Music Publishing revenues were $117 million and $96 million, or 51% and 50% of consolidated Music Publishing revenues, for the three months ended March 31, 2022 and March 31, 2021, respectively.

The overall increase in Music Publishing revenue was driven by growth across all revenue types, including digital, synchronization, performance and mechanical revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

2 unchanged sentences

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

1 unchanged sentence

Total cost of revenues $ 144 $ 125 $ 19 15 %

Music Publishing cost of revenues increased by $38 million, or 34%, to $151 million for the three months ended December 31, 2021 from $113 million for the three months ended December 31, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 66% for the three months ended December 31, 2021 from 65% for the three months ended December 31, 2020 primarily attributable to revenue mix .

Music Publishing cost of revenues increased by $19 million, or 15%, to $144 million for the three months ended March 31, 2022 from $125 million for the three months ended March 31, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues decreased to 63% for the three months ended March 31, 2022 from 65% for the three months ended March 31, 2021 primarily attributable to the impact from a recent acquisition and revenue mix .

Selling, general and administrative expense

1 unchanged sentence

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

3 unchanged sentences

______________________________________

(1) Includes depreciation expense of $2 million and $2 million for the three months ended December 31, 2021 and December 31, 2020, respectively.

Music Publishing selling, general and administrative expense increased by $1 million, or 4%, to $26 million for the three months ended December 31, 2021 from $25 million for the three months ended December 31, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 11% for the three months ended December 31, 2021 from 14% for the three months ended December 31, 2020.

(1) Includes depreciation expense of $1 million and $1 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Music Publishing selling, general and administrative expense increased by $1 million, or 4%, to $26 million for the three months ended March 31, 2022 from $25 million for the three months ended March 31, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 11% for the three months ended March 31, 2022 from 13% for the three months ended March 31, 2021.

Operating Income and OIBDA

1 unchanged sentence

For the Three Months Ended

December 31, 2021 vs.

March 31, 2022 vs.

2022 2021 $ Change % Change

2 unchanged sentences

OIBDA $ 61 $ 43 $ 18 42 %

Music Publishing OIBDA increased by $15 million, or 38%, to $54 million for the three months ended December 31, 2021 from $39 million for the three months ended December 31, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin increased to 24% for the three months ended December 31, 2021 from 22% for the three months ended December 31, 2020.

The increase was due to strong operating performance.

Music Publishing operating income increased by $14 million to $32 million for the three months ended December 31, 2021 from $18 million for the three months ended December 31, 2020 due to the factors that led to the increase in Music Publishing OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Music Publishing OIBDA increased by $18 million, or 42%, to $61 million for the three months ended March 31, 2022 from $43 million for the three months ended March 31, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin increased to 27% for the three months ended March 31, 2022 from 22% for the three months ended March 31, 2021.

The increase was due to the impact from a recent acquisition, revenue mix and strong operating performance.

Music Publishing operating income increased by $16 million to $38 million for the three months ended March 31, 2022 from $22 million for the three months ended March 31, 2021 due to the factors that led to the increase in Music Publishing OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $24 million for the three months ended December 31, 2021 to $69 million from $45 million for the three months ended December 31, 2020, which primarily includes the increase in non-cash stock-based compensation and other related expenses from a one-time equity grant and the timing of expense recognition for new annual equity grants in the quarter of $16 million, expenses related to transformation initiatives and the impact of the additional week in the current-year quarter.

Our OIBDA loss from corporate expenses and eliminations increased by $23 million for the three months ended December 31, 2021 to $64 million from $41 million for the three months ended December 31, 2020 due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations increased by $6 million for the three months ended March 31, 2022 to $61 million from $55 million for the three months ended March 31, 2021, which primarily includes the increase in expenses related to transformation initiatives, employee related costs and professional services, partially offset by lower non-cash stock-based compensation and other related expenses of $4 million, as a result of equity awards becoming fully vested.

Our OIBDA loss from corporate expenses and eliminations increased by $6 million for the three months ended March 31, 2022 to $56 million from $50 million for the three months ended March 31, 2021 due to the operating loss factors noted above.

RESULTS OF OPERATIONS

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

Consolidated Results

Our revenues were composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

Revenue by Type

Digital $ 1,674 $ 1,483 $ 191 13 %

Physical 317 292 25 9 %

Total Digital and Physical 1,991 1,775 216 12 %

Artist services and expanded-rights 373 298 75 25 %

Licensing 169 147 22 15 %

Total Recorded Music 2,533 2,220 313 14 %

Performance 74 65 9 14 %

Digital 260 203 57 28 %

Mechanical 27 23 4 17 %

Synchronization 92 71 21 30 %

Other 6 5 1 20 %

Total Music Publishing 459 367 92 25 %

Intersegment eliminations (2) (2) — — %

Total Revenues $ 2,990 $ 2,585 $ 405 16 %

Revenue by Geographical Location

Recorded Music $ 1,126 $ 950 $ 176 19 %

Music Publishing 232 187 45 24 %

1,358 1,137 221 19 %

International Recorded Music 1,407 1,270 137 11 %

International Music Publishing 227 180 47 26 %

Total International 1,634 1,450 184 13 %

Intersegment eliminations (2) (2) — — %

Total Revenues $ 2,990 $ 2,585 $ 405 16 %

Total Revenues

Total revenues increased by $405 million, or 16%, to $2,990 million for the six months ended March 31, 2022 from $2,585 million for the six months ended March 31, 2021.

Consistent with the prior quarter, the current period included an additional week, primarily reflected in Recorded Music streaming revenue.

Additionally, the current period included the impact of a new deal with one of our digital partners affecting Recorded Music streaming revenue.

These items were partially offsetting and, adjusting for these items, total revenue was up 15%.

The increase includes $50 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 85% and 15% of total revenues for the six months ended March 31, 2022, respectively, and 86% and 14% of total revenues for the six months ended March 31, 2021, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 45% and 55% for the six months ended March 31, 2022, respectively, and 44% and 56% for the six months ended March 31, 2021, respectively.

Total digital revenues after intersegment eliminations increased by $248 million, or 15%, to $1,933 million for the six months ended March 31, 2022 from $1,685 million for the six months ended March 31, 2021.

Total streaming revenue increased 16% driven by growth across Recorded Music and Music Publishing, including revenue from emerging streaming platforms.

Total digital revenues represented 65% of consolidated revenues for each of the six months ended March 31, 2022 and March 31, 2021.

Prior to intersegment eliminations, total digital revenues for the six months ended March 31, 2022 were comprised of U.S.

revenues of $971 million and international revenues of $963 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Prior to intersegment eliminations, total digital revenues for the six months ended March 31, 2021 were comprised of U.S.

revenues of $850 million and international revenues of $836 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Recorded Music revenues increased by $313 million, or 14%, to $2,533 million for the six months ended March 31, 2022 from $2,220 million for the six months ended March 31, 2021.

Adjusted for the benefit of the additional week and the impact of the new deal with one of our digital partners, Recorded Music revenue was up 14%.

The increase includes $44 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $1,126 million and $950 million, or 44% and 43% of consolidated Recorded Music revenues, for the six months ended March 31, 2022 and March 31, 2021, respectively.

International Recorded Music revenues were $1,407 million and $1,270 million, or 56% and 57% of consolidated Recorded Music revenues, for the six months ended March 31, 2022 and March 31, 2021, respectively.

The overall increase in Recorded Music revenue was driven by increases in digital, artist services and expanded-rights, physical and licensing revenues.

Digital revenue increased by $191 million as a result of the continued growth in streaming services, including growth in emerging streaming platforms, strength of releases including current year release from Ed Sheeran and Silk Sonic as well as carryover success from Dua Lipa, Ed Sheeran and Michael Bublé.

Revenue from streaming services grew by $198 million, or 14%, to $1,612 million for the six months ended March 31, 2022 from $1,414 million for the six months ended March 31, 2021.

Adjusted for the benefit of the additional week and the impact of the new deal with one of our digital partners, Recorded Music streaming revenue was up 15%.

Streaming revenue growth was partially offset by an unfavorable impact of foreign currency exchange rates of $22 million, or 2%, and a decline in download and other digital revenues of $7 million, or 10%, to $62 million for the six months ended March 31, 2022 from $69 million for the six months ended March 31, 2021 due to the continued shift to streaming services.

Artist services and expanded-rights revenue increased by $75 million primarily due to higher merchandising revenue and touring activity, both of which were disrupted by COVID in the prior year, partially offset by an unfavorable impact of foreign currency exchange rates of $11 million.

Physical revenue increased by $25 million, or 9%, primarily from higher sales due to the success of new releases, an increased demand for vinyl products and COVID disruption in the prior year, partially offset by an unfavorable impact of foreign currency exchange rates of $8 million.

Licensing revenue increased by $22 million, mainly due to higher synchronization and other licensing revenue, as businesses began to recover from the COVID disruption.

Music Publishing revenues increased by $92 million, or 25%, to $459 million for the six months ended March 31, 2022 from $367 million for the six months ended March 31, 2021.

Music Publishing revenues were $232 million and $187 million, or 51% and 51% of consolidated Music Publishing revenues, for the six months ended March 31, 2022 and March 31, 2021, respectively.

International Music Publishing revenues were $227 million and $180 million, or 49% and 49% of Music Publishing revenues, for the six months ended March 31, 2022 and March 31, 2021, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $57 million, or 28%, synchronization revenue of $21 million, performance revenue of $9 million and mechanical revenue of $4 million.

This change has no impact of Music Publishing OIBDA, but results in a slight improvement to OIBDA margin.

Revenue from streaming services grew by $55 million, or 28%, to $251 million for the six months ended March 31, 2022 from $196 million for the six months ended March 31, 2021.

The increase in synchronization revenue is attributable to higher television, motion picture and commercial income and COVID disruption in the prior year.

Performance revenue increased as bars, restaurants, concerts and live events continued to recover from COVID disruption.

Mechanical revenue increased as businesses continued to recover from COVID disruption and from strong physical sales.

Revenue by Geographical Location

revenue increased by $221 million, or 19%, to $1,358 million for the six months ended March 31, 2022 from $1,137 million for the six months ended March 31, 2021.

Recorded Music revenue increased by $176 million, or 19%.

The primary driver was the increase of U.S.

Recorded Music digital revenue of $94 million driven by the continued growth in streaming services.

Recorded Music streaming revenue increased by $99 million, or 14%, partially offset by $5 million of download and other digital declines.

Recorded Music artist services and expanded-rights revenue increased by $43 million primarily driven by higher merchandising and advertising revenues.

Increases are also attributable to the increase in U.S.

Recorded Music physical revenue of $28 million from higher sales due to the success of new releases, an increased demand for vinyl products and COVID disruption in the prior year.

The increase in licensing revenue of $11 million is due to higher synchronization activity.

Music Publishing revenue increased by $45 million, or 24%, to $232 million for the six months ended March 31, 2022 from $187 million for the six months ended March 31, 2021.

This was primarily driven by the increase in U.S.

Music Publishing of $27 million in digital revenue due to the continued growth in streaming services, including emerging streaming platforms, and timing of new digital deals, partially offset by a shift in the collection of writer’s share of U.S.

digital performance income from certain digital service providers.

Music Publishing streaming revenue increased by $27 million, or 24%.

The increase in synchronization revenue of $14 million is due to higher television, motion picture and commercial income and COVID disruption the in prior year.

Performance revenue increased by $2 million and mechanical revenue increased by $1 million.

International revenue increased by $184 million, or 13%, to $1,634 million for the six months ended March 31, 2022 from $1,450 million for the six months ended March 31, 2021.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $234 million, or 17%.

International Recorded Music revenue increased by $137 million primarily due to increases in digital revenue of $97 million, artist services and expanded-rights revenue of $32 million and licensing revenue of $11 million, partially offset by the decrease in physical revenue of $3 million.

International Recorded Music digital revenue increased due to a $99 million, or 14%, increase in streaming services, which was partially offset by an unfavorable impact of foreign currency exchange rates of $22 million.

International Recorded Music artist services and expanded-rights revenue increased by $32 million reflecting an increase in concert promotion and merchandise revenue, both of which were disrupted by COVID in the prior year, partially offset by the unfavorable impact of foreign currency exchange rates of $11 million.

International Recorded Music licensing revenue increased by $11 million due to other licensing revenue as businesses began to recover from the COVID disruption and synchronization revenue.

International Recorded Music physical revenue decreased by $3 million primarily driven by an unfavorable impact of foreign currency exchange rates.

International Music Publishing revenue increased by $47 million, or 26%, to $227 million for the six months ended March 31, 2022 from $180 million for the six months ended March 31, 2021.

This was primarily driven by the increase in digital revenue of $30 million, performance revenue of $7 million, synchronization revenue of $7 million and mechanical revenue of $3 million.

International Music Publishing streaming revenue increased by $28 million, or 34%.

Performance revenue increased as businesses continued to recover from COVID disruption.

Higher synchronization revenue is primarily driven by higher motion picture and commercial income and COVID disruption in the prior year.

Mechanical revenue increased as businesses continued to recover from COVID disruption and from strong physical sales.

Cost of revenues

Our cost of revenues was composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

Artist and repertoire costs $ 941 $ 844 $ 97 11 %

Product costs 574 465 109 23 %

Total cost of revenues $ 1,515 $ 1,309 $ 206 16 %

Artist and repertoire costs increased by $97 million, to $941 million for the six months ended March 31, 2022 from $844 million for the six months ended March 31, 2021.

Artist and repertoire costs as a percentage of revenue decreased to 31% for the six months ended March 31, 2022 from 33% for the six months ended March 31, 2021, primarily due to revenue mix and timing of artist and repertoire investments.

Product costs increased by $109 million, to $574 million for the six months ended March 31, 2022 from $465 million for the six months ended March 31, 2021.

Product costs as a percentage of revenue increased to 19% for the six months ended March 31, 2022 from 18% for the six months ended March 31, 2021 due to revenue mix, primarily increases in artist services and expanded rights revenue.

Selling, general and administrative expenses

Our selling, general and administrative expenses were composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

General and administrative expense (1) $ 471 $ 406 $ 65 16 %

Selling and marketing expense 403 354 49 14 %

Distribution expense 67 59 8 14 %

Total selling, general and administrative expense $ 941 $ 819 $ 122 15 %

______________________________________

(1) Includes depreciation expense of $41 million and $38 million for the six months ended March 31, 2022 and March 31, 2021, respectively.

Total selling, general and administrative expense increased by $122 million, or 15%, to $941 million for the six months ended March 31, 2022 from $819 million for the six months ended March 31, 2021.

Expressed as a percentage of revenue, selling, general and administrative expense decreased to 31% for the six months ended March 31, 2022 from 32% for the six months ended March 31, 2021.

General and administrative expense increased by $65 million to $471 million for the six months ended March 31, 2022 from $406 million for the six months ended March 31, 2021.

The increase in general and administrative expense was mainly due to increased employee related costs, including the impact of the additional week, higher non-cash stock-based compensation and other related expenses of $9 million from a one-time equity grant and the timing of expense recognition for new annual equity grants, unfavorable movements in foreign currency exchange rates of $7 million and increased expenses related to transformation initiatives and acquisition transaction costs.

Expressed as a percentage of revenue, general and administrative expense remained constant at 16% for each of the six months ended March 31, 2022 and March 31, 2021.

Selling and marketing expense increased by $49 million, or 14%, to $403 million for the six months ended March 31, 2022 from $354 million for the six months ended March 31, 2021.

Expressed as a percentage of revenue, selling and marketing expense decreased to 13% for the six months ended March 31, 2022 from 14% for the six months ended March 31, 2021.

Distribution expense was $67 million for the six months ended March 31, 2022 and $59 million for the six months ended March 31, 2021.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the six months ended March 31, 2022 and March 31, 2021.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

and Operating Income to Consolidated OIBDA

As previously described, we use OIBDA as our primary measure of financial performance.

The following table reconciles operating income to OIBDA, and further provides the components from net income attributable to Warner Music Group Corp.

to operating income for purposes of the discussion that follows (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

Net income attributable to Warner Music Group Corp.

$ 279 $ 215 $ 64 30 %

Income attributable to noncontrolling interest 1 1 — — %

Net income 280 216 64 30 %

Income tax expense 109 86 23 27 %

Income before income taxes 389 302 87 29 %

Other income (46) (18) (28) — %

Interest expense, net 62 63 (1) -2 %

Operating income 405 347 58 17 %

Amortization expense 129 110 19 17 %

Depreciation expense 41 38 3 8 %

OIBDA $ 575 $ 495 $ 80 16 %

OIBDA increased by $80 million to $575 million for the six months ended March 31, 2022 as compared to $495 million for the six months ended March 31, 2021 as a result of higher revenues, partially offset by higher cost of revenues and selling, general and administrative expenses.

Expressed as a percentage of total revenue, OIBDA margin remained constant at 19% for each of the six months ended March 31, 2022 and March 31, 2021 due to strong operating performance, which was offset by growth of lower-margin revenue streams.

Depreciation expense

Our depreciation expense increased by $3 million to $41 million for the six months ended March 31, 2022 from $38 million for the six months ended March 31, 2021.

This increase is primarily due to an increase in IT capital spending and assets being placed into service.

Amortization expense

Our amortization expense increased by $19 million, or 17%, to $129 million for the six months ended March 31, 2022 from $110 million for the six months ended March 31, 2021.

The increase is primarily due to an increase in amortizable intangible assets primarily related to the acquisition of music-related assets.

Operating income

Our operating income increased by $58 million to $405 million for the six months ended March 31, 2022 from $347 million for the six months ended March 31, 2021.

The increase in operating income was due to the factors that led to the increase in OIBDA, partially offset by higher depreciation and amortization as noted above.

Interest expense, net

Our interest expense, net, decreased to $62 million for the six months ended March 31, 2022 from $63 million for the six months ended March 31, 2021 due to lower interest rates resulting from debt refinancing, partially offset by a higher principal balance due to the issuance of senior secured notes to partially fund certain music asset acquisitions.

Other income for the six months ended March 31, 2022 primarily includes foreign currency gains on our Euro-denominated debt of $50 million, currency exchange gains on our intercompany loans of $17 million and unrealized gains on hedging activity of $5 million, partially offset by aggregate realized and unrealized losses of $31 million on the mark-to-market of equity investments.

This compares to unrealized gains of $32 million on the mark-to-market of equity investments, partially offset by foreign currency losses on our Euro-denominated debt of $8 million and currency exchange losses on our intercompany loans of $5 million for the six months ended March 31, 2021.

Income tax expense

Our income tax expense increased by $23 million to $109 million for the six months ended March 31, 2022 from $86 million for the six months ended March 31, 2021.

The change of $23 million in income tax expense is primarily due to the impact of higher pre-tax income in the current year.

Net income increased by $64 million to $280 million for the six months ended March 31, 2022 from $216 million for the six months ended March 31, 2021 as a result of the factors described above.

Noncontrolling interest

There was $1 million of income attributable to noncontrolling interest for each of the six months ended March 31, 2022 and March 31, 2021.

Business Segment Results

Revenues, operating income (loss) and OIBDA by business segment were as follows (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

Recorded Music

Revenues $ 2,533 $ 2,220 $ 313 14 %

Operating income 465 407 58 14 %

OIBDA 580 504 76 15 %

Music Publishing

Revenues 459 367 92 25 %

Operating income 70 40 30 75 %

OIBDA 115 82 33 40 %

Corporate expenses and eliminations

Revenue eliminations (2) (2) — — %

Operating loss (130) (100) (30) 30 %

OIBDA loss (120) (91) (29) 32 %

Revenues 2,990 2,585 405 16 %

Operating income 405 347 58 17 %

OIBDA 575 495 80 16 %

Recorded Music

Recorded Music revenue increased by $313 million, or 14%, to $2,533 million for the six months ended March 31, 2022 from $2,220 million for the six months ended March 31, 2021.

Adjusted for the benefit of the additional week and the impact of the new deal with one of our digital partners, Recorded Music revenue was up 14%.

Recorded Music revenues were $1,126 million and $950 million, or 44% and 43% of consolidated Recorded Music revenues, for the six months ended March 31, 2022 and March 31, 2021, respectively.

The overall increase in Recorded Music revenue was driven by increases in digital, artist services and expanded-rights, physical and licensing revenues, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

Recorded Music cost of revenues was composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

Artist and repertoire costs $ 648 $ 608 $ 40 7 %

Product costs 574 465 109 23 %

Total cost of revenues $ 1,222 $ 1,073 $ 149 14 %

Recorded Music cost of revenues increased by $149 million, or 14%, to $1,222 million for the six months ended March 31, 2022 from $1,073 million for the six months ended March 31, 2021.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 26% for the six months ended March 31, 2022 from 27% for the six months ended March 31, 2021.

The decrease is primarily attributable to revenue mix and timing of artist and repertoire investments.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs increased to 23% for the six months ended March 31, 2022 from 21% for the six months ended March 31, 2021.

The overall increase as a percentage of revenue primarily relates to revenue mix due to an increase in lower-margin artist services and expanded-rights revenue.

Selling, general and administrative expense

Recorded Music selling, general and administrative expenses were composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

General and administrative expense (1) $ 297 $ 263 $ 34 13 %

Selling and marketing expense 395 347 48 14 %

Distribution expense 67 59 8 14 %

Total selling, general and administrative expense $ 759 $ 669 $ 90 13 %

______________________________________

(1) Includes depreciation expense of $28 million and $26 million for the six months ended March 31, 2022 and March 31, 2021, respectively.

Recorded Music selling, general and administrative expense increased by $90 million, or 13%, to $759 million for the six months ended March 31, 2022 from $669 million for the six months ended March 31, 2021.

The increase in general and administrative expense was primarily due to increased employee related costs, the unfavorable movements in foreign currency exchange rates of $7 million and increased expenses related to acquisition transaction costs.

The increase in distribution expense was primarily due to higher artist services and expanded-rights revenue.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense remained constant at 30% for each of the six months ended March 31, 2022 and March 31, 2021.

Operating Income and OIBDA

Recorded Music OIBDA included the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

Operating income $ 465 $ 407 $ 58 14 %

Depreciation and amortization 115 97 18 19 %

OIBDA $ 580 $ 504 $ 76 15 %

Recorded Music OIBDA increased by $76 million, to $580 million for the six months ended March 31, 2022 from $504 million for the six months ended March 31, 2021 as a result of higher revenues, partially offset by higher costs of revenue and selling, general and administrative expenses.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin remained constant at 23% for each of the six months ended March 31, 2022 and March 31, 2021 due to strong operating performance, which was offset by growth of lower-margin revenue streams.

Recorded Music operating income increased by $58 million to $465 million for the six months ended March 31, 2022 from $407 million for the six months ended March 31, 2021 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by higher depreciation from new assets placed into service and an increase in amortizable intangible assets related to the acquisition of music-related assets.

Music Publishing

Music Publishing revenues increased by $92 million, or 25%, to $459 million for the six months ended March 31, 2022 from $367 million for the six months ended March 31, 2021.

Music Publishing revenues were $232 million and $187 million, or 51% and 51% of consolidated Music Publishing revenues, for the six months ended March 31, 2022 and March 31, 2021, respectively.

International Music Publishing revenues were $227 million and $180 million, or 49% and 49% of consolidated Music Publishing revenues, for the six months ended March 31, 2022 and March 31, 2021, respectively.

Cost of revenues

Music Publishing cost of revenues were composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

Artist and repertoire costs $ 295 $ 238 $ 57 24 %

Total cost of revenues $ 295 $ 238 $ 57 24 %

Music Publishing cost of revenues increased by $57 million, or 24%, to $295 million for the six months ended March 31, 2022 from $238 million for the six months ended March 31, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues decreased to 64% for the six months ended March 31, 2022 from 65% for the six months ended March 31, 2021, primarily attributable to revenue mix and the impact from a recent acquisition.

Selling, general and administrative expense

Music Publishing selling, general and administrative expenses were comprised of the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

General and administrative expense (1) $ 51 $ 49 $ 2 4 %

Selling and marketing expense 1 1 — — %

Total selling, general and administrative expense $ 52 $ 50 $ 2 4 %

______________________________________

(1) Includes depreciation expense of $3 million and $3 million for the six months ended March 31, 2022 and March 31, 2021, respectively.

Music Publishing selling, general and administrative expense increased to $52 million for the six months ended March 31, 2022 from $50 million for the six months ended March 31, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 11% for the six months ended March 31, 2022 from 14% for the six months ended March 31, 2021.

Operating Income and OIBDA

Music Publishing OIBDA included the following amounts (in millions):

For the Six Months Ended

March 31, 2022 vs.

2022 2021 $ Change % Change

Operating income $ 70 $ 40 $ 30 75 %

Depreciation and amortization 45 42 3 7 %

OIBDA $ 115 $ 82 $ 33 40 %

Music Publishing OIBDA increased by $33 million, or 40%, to $115 million for the six months ended March 31, 2022 from $82 million for the six months ended March 31, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin increased to 25% for the six months ended March 31, 2022 from 22% for the six months ended March 31, 2021.

The increase was due to revenue mix, the impact from a recent acquisition and strong operating performance.

Music Publishing operating income increased by $30 million to $70 million for the six months ended March 31, 2022 from $40 million operating income for the six months ended March 31, 2021 largely due to the factors that led to the increase in Music Publishing OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $30 million to $130 million for the six months ended March 31, 2022 from $100 million for the six months ended March 31, 2021 which primarily includes the increase in non-cash stock-based compensation and other related expenses of $12 million from a one-time equity grant and the timing of expense recognition for new annual equity grants, expenses related to transformation initiatives, employee related costs, including the impact of the additional week, and professional services.

Our OIBDA loss from corporate expenses and eliminations increased by $29 million to $120 million for the six months ended March 31, 2022 from $91 million for the six months ended March 31, 2021 due to the operating loss factors noted above.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition at December 31, 2021

At December 31, 2021, we had $3.846 billion of debt (which is net of $46 million of premiums, discounts and deferred financing costs), $450 million of cash and equivalents (net debt of $3.396 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $153 million of Warner Music Group Corp.

Financial Condition at March 31, 2022

At March 31, 2022, we had $3.829 billion of debt (which is net of $44 million of premiums, discounts and deferred financing costs), $385 million of cash and equivalents (net debt of $3.444 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $154 million of Warner Music Group Corp.

This compares to $3.346 billion of debt (which is net of $37 million of premiums, discounts and deferred financing costs), $499 million of cash and equivalents (net debt of $2.847 billion) and $31 million of Warner Music Group Corp.

1 unchanged sentence

The following table summarizes our historical cash flows (in millions).

The financial data for the three months ended December 31, 2021 and December 31, 2020 are unaudited and have been derived from our consolidated interim financial statements included elsewhere herein.

Three Months Ended

The financial data for the six months ended March 31, 2022 and March 31, 2021 are unaudited and have been derived from our consolidated interim financial statements included elsewhere herein.

Six Months Ended

Cash provided by (used in):

3 unchanged sentences

Operating Activities

Cash provided by operating activities was $129 million for the three months ended December 31, 2021 as compared with cash provided by operating activities of $169 million for the three months ended December 31, 2020.

The $40 million decrease in cash provided by operating activities was primarily due to continued A&R investment, the timing of digital advances and the seasonal increase in outstanding receivables, driving a use of cash from working capital, partially offset by an increase in OIBDA and a source of cash from the timing of royalty payments.

Cash provided by operating activities was $173 million for the six months ended March 31, 2022 as compared with cash provided by operating activities of $319 million for the six months ended March 31, 2021.

The $146 million decrease in cash provided by operating activities was primarily due to continued A&R investment and the timing of working capital, driving a use of cash from working capital, partially offset by an increase in OIBDA.

Investing Activities

Cash used in investing activities was $624 million for the three months ended December 31, 2021 as compared with cash used in investing activities of $343 million for the three months ended December 31, 2020.

The $624 million of cash used in investing activities in the three months ended December 31, 2021 consisted of $425 million relating to investments and acquisitions of businesses and $165 million to acquire music-related assets, a portion of which was debt-financed, and $34 million relating to capital expenditures.

The $343 million of cash used in investing activities in the three months ended December 31, 2020 consisted of $1 million relating to investments, $18 million relating to capital expenditures and $324 million to acquire music publishing rights and recorded music catalogs, a portion of which was debt-financed.

Cash used in investing activities was $649 million for the six months ended March 31, 2022 as compared with cash used in investing activities of $404 million for the six months ended March 31, 2021.

The $649 million of cash used in investing activities in the six months ended March 31, 2022 consisted of $429 million relating to investments and acquisitions of businesses, a portion of which was debt-financed, $169 million to acquire music-related assets, a portion of which was debt-financed and $62 million relating to capital expenditures, partially offset by $11 million of proceeds from the sale of investments.

The $404 million of cash used in investing activities in the six months ended March 31, 2021 consisted of $39 million relating to investments, $38 million relating to capital expenditures and $327 million to acquire music-related assets, a portion of which was debt-financed.

Financing Activities

Cash provided by financing activities was $448 million for the three months ended December 31, 2021 as compared with cash provided by financing activities of $178 million for the three months ended December 31, 2020.

The $448 million of cash provided by financing activities for the three months ended December 31, 2021 consisted of proceeds from debt issuance of $535 million, which was used to fund the acquisition of a business and music-related assets, partially offset by dividends paid of $78 million, deferred financing costs of $4 million, cash paid to settle contingent consideration of $4 million and distributions to noncontrolling interest holders of $1 million.

The $178 million of cash provided by financing activities for the three months ended December 31, 2020 consisted of proceeds from debt issuance of $244 million which was used to fund the acquisition of music publishing rights and recorded music catalogs, partially offset by dividends paid of $62 million, deferred financing costs of $3 million and distributions to noncontrolling interest holders of $1 million.

Cash provided by financing activities was $363 million for the six months ended March 31, 2022 as compared with cash provided by financing activities of $114 million for the six months ended March 31, 2021.

The $363 million of cash provided by financing activities for the six months ended March 31, 2022 consisted of proceeds from debt issuance of $535 million, which was used to fund the acquisition of a business and music-related assets, partially offset by dividends paid of $156 million, taxes paid related to net share settlement of restricted stock units of $6 million, deferred financing costs of $5 million, cash paid to settle contingent consideration of $4 million and distributions to noncontrolling interest holders of $1 million.

The $114 million of cash provided by financing activities for the six months ended March 31, 2021 consisted of proceeds from debt issuance of $244 million which was used to fund investments, partially offset by dividends paid of $125 million, deferred financing costs of $4 million and distributions to noncontrolling interest holders of $1 million.

Our primary sources of liquidity are the cash flows generated from our subsidiaries’ operations, available cash and equivalents and funds available for drawing under our Revolving Credit Facility.

8 unchanged sentences

For example, our S&P corporate credit rating improved from B in 2017 to BB+ in July 2021 with a stable outlook, and our Moody’s corporate family rating improved from B1 in 2016 to Ba3 in 2020.

In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 3.2% as of December 31, 2021.

In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 3.3% as of March 31, 2022.

Our nearest-term maturity date is in 2028.

24 unchanged sentences

Based on the Senior Secured Indebtedness to EBITDA Ratio

of 3.08x at December 31, 2021, the applicable margin for Eurodollar loans would be 1.625% instead of 1.875% and the applicable margin for ABR loans would be 0.625% instead of 0.875% in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement).

Existing Debt as of December 31, 2021

As of December 31, 2021, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):

of 3.06x at March 31, 2022, the applicable margin for Eurodollar loans would be 1.625% instead of 1.875% and the applicable margin for ABR loans would be 0.625% instead of 0.875% in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement).

Existing Debt as of March 31, 2022

As of March 31, 2022, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):

Revolving Credit Facility (a) $ —

9 unchanged sentences

______________________________________

(a) Reflects $300 million of commitments under the Revolving Credit Facility available at December 31, 2021, less letters of credit outstanding of approximately $7 million at December 31, 2021.

There were no loans outstanding under the Revolving Credit Facility at December 31, 2021.

(a) Reflects $300 million of commitments under the Revolving Credit Facility available at March 31, 2022, less letters of credit outstanding of approximately $7 million at March 31, 2022.

There were no loans outstanding under the Revolving Credit Facility at March 31, 2022.

For further discussion of our debt agreements, see “Liquidity” in the “Financial Condition and Liquidity” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

3 unchanged sentences

Therefore, there can be no assurance that the Company will pay any dividends to holders of the Company’s common stock, or as to the amount of any such dividends.

On November 9, 2021, the Company’s board of directors declared a cash dividend of $0.15 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid to stockholders on December 1, 2021.

The Company paid an aggregate of approximately $78 million, or $0.15 per share, in cash dividends to stockholders and participating security holders for the three months ended December 31, 2021.

On February 8, 2022, the Company’s board of directors declared a cash dividend of $0.15 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, payable on March 1, 2022 to stockholders of record as of the close of business on February 18, 2022.

The Company paid an aggregate of approximately $78 million and $156 million, or $0.15 and $0.30 per share, in cash dividends to stockholders and participating security holders for the three and six months ended March 31, 2022, respectively.

Covenant Compliance

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of December 31, 2021.

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of March 31, 2022.

On January 18, 2019, we delivered a notice to the trustee under the 2012 Secured Indenture and 2014 Unsecured Indenture changing the Fixed GAAP Date, as defined under the indentures, to October 1, 2018.

40 unchanged sentences

The following is a reconciliation of net income (loss), which is a U.S.

GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended December 31, 2021, for the twelve months ended December 31, 2020 and for the three months ended December 31, 2021 and December 31, 2020.

In addition, the reconciliation includes the calculation of the Senior Secured Indebtedness to Adjusted EBITDA ratio, which we refer to as the Leverage Ratio, under the Revolving Credit Agreement for the most recently ended four fiscal quarters, or the twelve months ended December 31, 2021.

GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended March 31, 2022, for the twelve months ended March 31, 2021 and for the three months ended March 31, 2022 and March 31, 2021.

The terms and related calculations are defined in the Revolving Credit Agreement.

2 unchanged sentences

Twelve Months Ended

December 31, Three Months Ended

March 31, Three Months Ended

2022 2021 2022 2021

4 unchanged sentences

Loss on extinguishment of debt (a) 22 34 — —

Net gain on divestitures and sale of securities (b) (3) (1) — —

Net losses (gains) on divestitures and sale of securities (b) 7 (1) 9 (1)

Restructuring costs (c) 28 21 1 3

11 unchanged sentences

(a) Reflects loss on extinguishment of debt, primarily including tender fees and unamortized deferred financing costs.

(b) Reflects net gain on sale of securities and divestitures.

(b) Reflects net losses (gains) on sale of securities and divestitures.

1 unchanged sentence

(e) Reflects management fees and related expenses paid to Access pursuant to the management agreement, which was terminated upon completion of the IPO in June 2020.

(f) Reflects mainly transaction and qualifying IPO costs.

(g) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $10 million and $37 million related to our finance transformation for the three and twelve months ended December 31, 2021, respectively, as well as $6 million and $27 million for the three and twelve months ended December 31, 2020, respectively.

(f) Reflects mainly transaction related costs and mark-to-market adjustments of an earn-out liability related to a transaction, in addition to qualifying IPO costs.

(g) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $10 million and $39 million related to our finance transformation for the three and twelve months ended March 31, 2022, respectively, as well as $8 million and $25 million for the three and twelve months ended March 31, 2021, respectively.

(h) Reflects non-cash stock-based compensation expense related to the Omnibus Incentive Plan and the Warner Music Group Corp.

1 unchanged sentence

(i) Reflects non-cash activity, including the unrealized losses (gains) on the mark-to-market of equity investments, investment losses (gains) and other non-cash impairments.

(j) Reflects expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions for the three and twelve months ended December 31, 2021.

(j) Reflects expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions for the three and twelve months ended March 31, 2022.

Certain of these cost savings initiatives and transactions impacted quarters prior to the quarter during which they were identified within the last twelve-month period.

The pro forma impact of these specified transactions and initiatives resulted in a $31 million increase in the twelve months ended December 31, 2021 Adjusted EBITDA.

The pro forma impact of these specified transactions and initiatives resulted in a $20 million increase in the twelve months ended March 31, 2022 Adjusted EBITDA.

(k) Reflects the balance of senior secured debt at Acquisition Corp.

1 unchanged sentence

(l) Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Adjusted EBITDA.

This is calculated net of cash and equivalents of the Company as of December 31, 2021 not exceeding $250 million.

If the outstanding aggregate principal amount of borrowings and drawings under letters of credit which have not been reimbursed under our Revolving Credit Facility is greater than $105 million at the end of a fiscal quarter, the maximum leverage ratio permitted under the Revolving Credit Facility is 5.00:1.00.

The Company’s Revolving Credit Facility does not

impose any “leverage ratio” maintenance requirement on the Company when the aggregate principal amount of borrowings and drawings under letters of credit, which have not been reimbursed under the Revolving Credit Facility, is less than or equal to $105 million at the end of a fiscal quarter.

This is calculated net of cash and equivalents of the Company as of March 31, 2022 not exceeding $250 million.

leverage ratio permitted under the Revolving Credit Facility is 5.00:1.00.

The Company’s Revolving Credit Facility does not impose any “leverage ratio” maintenance requirement on the Company when the aggregate principal amount of borrowings and drawings under letters of credit, which have not been reimbursed under the Revolving Credit Facility, is less than or equal to $105 million at the end of a fiscal quarter.

On May 4, 2021, certain covenants set forth in our Revolving Credit Facility were suspended, including the restriction on incurring certain additional indebtedness, based on the determination that the total indebtedness to EBITDA ratio is below the required threshold specified therein.

2 unchanged sentences

However, our ability to continue to fund these items and to reduce debt may be affected by general economic, financial, competitive, legislative and regulatory factors, as well as other industry-specific factors such as the ability to control music piracy and the continued transition from physical to digital formats in the recorded music and music publishing industries.

It could also be affected by the severity and duration of natural or man-made disasters, including pandemics such as COVID-19.

It could also be affected by the severity and duration of geopolitical conflicts or natural or man-made disasters, including pandemics such as COVID-19.

We and our affiliates continue to evaluate opportunities to, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to pay dividends or prepay outstanding debt or repurchase or retire Acquisition Corp.’s outstanding debt or debt securities or repurchase our outstanding equity securities in open market purchases, privately negotiated purchases or otherwise.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis