What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-21 compared with 2022-11-22 · 241 added, 246 removed, 764 unchanged (39% of the section changed)

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Our Recorded Music business also includes Rhino Entertainment, a division that specializes in marketing our recorded music catalog through compilations, reissuances of previously released music and video titles and releasing previously unreleased material from our vault.

We also conduct our Recorded Music business through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’ Records, Warner Classics and Warner Music Nashville.

Outside the United States, our Recorded Music business is conducted in more than 70 countries through various subsidiaries, affiliates and non-affiliated licensees.

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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.

This division includes a rebranded WEA commercial services and 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.

Our business’ distribution operations also includes ADA, which markets, distributes and sells the products of independent labels to retail and wholesale distributors;

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Fiscal Year End

The Company maintains a 52-53 week fiscal year ending on the last Friday in each reporting period.

The fiscal year ended September 30, 2022 includes 53 weeks, and both fiscal years ended September 30, 2021 and 2020 included 52 weeks.

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

Accordingly, the results of operations for the fiscal year ended September 30, 2022 reflect 53 weeks compared to 52 weeks for both fiscal years ended September 30, 2021 and 2020.

Starting with the 2023 fiscal year, the Company will transition to a reporting calendar in which the reporting periods end on the last day of the calendar quarter.

The Company’s fiscal year will begin on October 1 and end on September 30 of each year.

Prior to the start of the 2023 fiscal year, the Company maintained a 52-53 week fiscal year ending on the last Friday in each reporting period.

Starting with the 2023 fiscal year, the Company transitioned to a reporting calendar in which the reporting periods end on the last day of the calendar quarter.

Accordingly, the results of operations for the fiscal year ended September 30, 2023 reflect 365 days, compared to 371 days for the fiscal year ended September 30, 2022 and 364 days for the fiscal year ended September 30, 2021.

For the fiscal year ended September 30, 2022, the revenue benefit of the additional week was approximately $73 million, primarily reflected in Recorded Music streaming revenue.

Restructuring

In March 2023, the Company announced a restructuring plan (the “Restructuring Plan”) intended to drive the evolution of the Company and position the Company for long-term growth, primarily through headcount reductions.

Under the Restructuring Plan, the Company expects to reduce headcount by approximately 270 people, or approximately 4% of the Company’s overall headcount.

During the fiscal year ended September 30, 2023, the Company recognized restructuring charges of approximately $40 million for severance costs, all of which will be paid in cash.

All restructuring expenses were recorded in the Recorded Music segment.

The Restructuring Plan is substantially complete as of September 30, 2023, with related cash expenditures expected to be made by the end of fiscal 2024.

The headcount reductions generated pre-tax cost savings of approximately $19 million in fiscal year 2023 and the Company expects to generate pre-tax costs savings of approximately $50 million on an annualized run-rate basis in fiscal year 2024.

The Company anticipates investing a portion of the cost savings from the headcount reductions for targeted hires, to add new skill sets and for other initiatives intended to position the Company for long-term growth.

During the fiscal year ended September 30, 2023, in connection with the Restructuring Plan, the Company recognized $2 million of non-cash stock-based compensation related to the accelerated vesting of certain Restricted Stock Units (“RSUs”).

Executive Transition Costs

During the fiscal year ended September 30, 2023, the Company incurred costs associated with the departure of our Chief Executive Officer which occurred in January 2023 and our Chief Financial Officer which occurred in October 2023 (the “Executive Transition Costs”).

For the fiscal year ended September 30, 2023, the Executive Transition Costs were approximately $7 million, which mainly consisted of severance for our previous CEO and CFO.

Such costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

The departures of our CEO and CFO resulted in the recognition of $13 million of non-cash stock-based compensation expense for the fiscal year ended September 30, 2023, for RSUs and common stock as there is no remaining service required for vesting.

Such costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Russia-Ukraine Conflict

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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 an adverse effect on our results of operations.

COVID-19 Pandemic

On March 11, 2020, the COVID-19 outbreak (also referred to as “COVID”) was declared a global pandemic by the World Health Organization.

The global pandemic and governmental responses thereto disrupted physical and manufacturing supply chains and required the closures of physical retailers, resulting in declines in our physical revenue streams at the onset of the pandemic.

Additionally, stay-at-home orders, limited indoor and outdoor gatherings and other restrictions have negatively affected our business in other ways, such as, making it difficult to hold live concert tours, adversely impacting our concert promotion business and the sale of merchandise, delaying the release of new recordings and disrupting the production and release of motion pictures and television programs, which negatively affected licensing revenue in our Recorded Music business and synchronization revenue in our Music Publishing business.

However, the disruption from the COVID-19 pandemic, including the disruption caused by the Omicron variant, accelerated growth of other revenue streams such as fitness and interactive gaming (including augmented reality and virtual reality), which may continue to grow.

It is unclear how long the global pandemic will last due to the possibility of new variants and sub-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 the fiscal years ended September 30, 2022, 2021 and 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 the fiscal year ended September 30, 2022, costs recognized by the Company attributable to COVID were not significant.

For the fiscal year ended September 30, 2021, the Company recognized a one-time $3 million credit loss reserve reversal impacting OIBDA.

For the fiscal year ended September 30, 2020, the Company recognized one-time charges of $17 million impacting OIBDA and a total of $22 million impacting net income.

Initial Public Offering

On June 5, 2020, we completed an IPO of Class A Common Stock.

The sale of shares through the offering consisted entirely of secondary shares sold by Access.

As a result, we incurred one-time costs associated with the IPO of approximately $89 million for the fiscal year ended September 30, 2020, $60 million of which relates to the Management Agreement as defined below.

Following the IPO, our results of operations include expenses associated with being a public company, including auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.

Senior Management Free Cash Flow Plan

On June 5, 2020, we amended our Second Amended and Restated Senior Management Free Cash Flow Plan (the “Plan”), which pays annual bonuses to certain executives based on our free cash flow and offers participants the opportunity to share in the appreciation of the value of our common stock, to remove the cash-settlement feature of the awards issued previously under the Plan.

Our results of operations were adversely impacted by a non-cash stock-based compensation charge of $593 million for the fiscal year ended September 30, 2020, which reflects the mark-to-market adjustment through the modification date of the Plan for the change in value of our common stock upon consummation of the IPO.

Subsequent to the amendment, the awards issued under the Plan were converted from liability-classified to equity-classified and therefore are no longer adjusted for changes in the value of our common stock.

We continue to incur non-cash stock-based compensation expense for awards that were unvested as of the modification date of the Plan and for awards issued under the Omnibus Incentive Plan.

We incurred non-cash stock-based compensation expense and other related expenses of $42 million, $47 million and $608 million for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

The total expense of $608 million for fiscal 2020 includes the charge of $593 million as described above.

Management Agreement

Upon completion of the Merger, the Company and Holdings entered into a management agreement with Access, dated as of the Merger Closing Date (the “Management Agreement”), pursuant to which Access provided the Company and its subsidiaries with financial, investment banking, management, advisory and other services.

As a result of the completion of the IPO, the Management Agreement terminated in accordance with its terms and the Company paid to Access a one-time termination fee and a fee for transaction services in an aggregate amount of $60 million, which was recorded within selling, general and administrative expenses in the consolidated statements of operations for the fiscal year ended September 30, 2020.

As the Management Agreement was terminated in June 2020, the Company incurred no costs associated with the Management Agreement for the fiscal years ended September 30, 2022 and 2021.

Prior to the termination of the Management Agreement, the Company incurred costs associated with the Management Agreement of approximately $7 million for the fiscal year ended September 30, 2020, which was recorded within selling, general and administrative expenses in the accompanying consolidated statements of operations.

RESULTS OF OPERATIONS

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Total revenues increased by $118 million, or 2%, to $6,037 million for the fiscal year ended September 30, 2023 from $5,919 million for the fiscal year ended September 30, 2022.

The current fiscal year included an additional week, primarily reflected in Recorded Music streaming revenue and $38 million in Recorded Music and Music Publishing downloads and other digital revenue from the settlement of certain copyright infringement cases (the “Copyright Settlement”).

Additionally, the current fiscal year included the impact of a new deal with one of the Company’s digital partners affecting Recorded Music streaming revenue.

The prior fiscal year included an additional week, primarily reflected in Recorded Music streaming revenue, and $38 million in Recorded Music and Music Publishing downloads and other digital revenue from the settlement of certain copyright infringement cases (the “Copyright Settlement”).

The increase includes $111 million of unfavorable currency exchange fluctuations.

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Prior to intersegment eliminations, U.S.

and international revenues represented 46% and 54% of total revenues for each of the fiscal years ended September 30, 2023 and September 30, 2022, respectively.

Total digital revenues after intersegment eliminations increased by $123 million, or 3%, to $3,989 million for the fiscal year ended September 30, 2023 from $3,866 million for the fiscal year ended September 30, 2022, which includes $38 million in downloads and other digital revenue from the Copyright Settlement.

Total streaming revenue increased 5% driven by growth across Recorded Music and Music Publishing.

The growth in Music Publishing includes the impact in the year and the prior year of $24 million and $20 million, respectively, resulting from a ruling by the Copyright Royalty Board in Phonorecords III upholding higher percentage revenue of U.S.

mechanical royalty rates (the “CRB Rate Benefit”).

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2023 were composed of U.S.

revenues of $1,993 million and international revenues of $1,998 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2022 were composed of U.S.

revenues of $1,983 million and international revenues of $1,885 million, or 51% and 49% of total digital revenues, respectively.

Recorded Music revenues decreased by $11 million to $4,955 million for the fiscal year ended September 30, 2023 from $4,966 million for the fiscal year ended September 30, 2022.

The decrease includes $99 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $2,184 million and $2,231 million, or 44% and 45% of consolidated Recorded Music revenues, for the fiscal years ended September 30, 2023 and September 30, 2022, respectively.

International Recorded Music revenues were $2,771 million and $2,735 million, or 56% and 55% of consolidated Recorded Music revenues, for the fiscal years ended September 30, 2023 and September 30, 2022, respectively.

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

Physical revenue decreased by $56 million, or 10%, driven by an unfavorable impact of foreign currency exchange rates of $19 million and a lighter release schedule in the first half of the year.

Artist services and expanded-rights revenue decreased by $23 million due to an unfavorable impact of foreign currency exchange rates of $12 million, lower merchandising revenue, primarily direct-to-consumer merchandising revenue at EMP, and lower advertising revenue, partially offset by higher concert promotion revenue.

Licensing revenue increased by $51 million, which includes growth across broadcast fees, synchronization and other licensing revenue, partially offset by an unfavorable impact of foreign currency exchange rates of $8 million.

Digital revenue increased by $17 million, or 1%, which includes an unfavorable impact of foreign currency exchange rates of $60 million and $31 million in downloads and other digital revenue from the Copyright Settlement in the prior year.

Revenue from streaming services grew by $64 million, or 2%, to $3,223 million for the fiscal year ended September 30, 2023 from $3,159 million for the fiscal year ended September 30, 2022 and was impacted by unfavorable foreign currency exchange rates of $57 million, or 2%.

Streaming revenue reflects a lighter release schedule and the market-related slowdown in ad-supported revenue in the first half of the year, as well as the impact of an additional week in the prior year.

Adjusted for the impact of an additional week in the prior year, Recorded Music streaming revenue increased by 4%.

The current year included successful releases from Ed Sheeran, Zach Bryan, Dua Lipa and Bailey Zimmerman.

Downloads and other digital revenue decreased by $47 million, or 32%, to $99 million for the fiscal year ended September 30, 2023 from $146 million for the fiscal year ended September 30, 2022 due to the Copyright Settlement in the prior year and continued shift to streaming services.

Music Publishing revenues increased by $130 million, or 14%, to $1,088 million for the fiscal year ended September 30, 2023 from $958 million for the fiscal year ended September 30, 2022.

Music Publishing revenues were $582 million and $513 million, or 53% and 54% of consolidated Music Publishing revenues, for the fiscal year ended September 30, 2023 and September 30, 2022, respectively.

International Music Publishing revenues were $506 million and $445 million, or 47% and 46% of Music Publishing revenues, for the fiscal year ended September 30, 2023 and September 30, 2022, respectively.

The overall increase in Music Publishing revenue was driven by increases in digital revenue of $106 million, or 19%, performance revenue of $14 million and mechanical revenue of $13 million, partially offset by a decrease in synchronization revenue of $5 million.

The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services, the impact of digital deal renewals, which includes the Company’s TikTok renewal, a revenue true-up of $9 million and a $4 million year-over-year increase in the impact of the CRB Rate Benefit, partially offset by $7 million in downloads and other digital revenue from the Copyright Settlement in the prior year and an unfavorable impact of foreign currency exchanges rates of $5 million.

Revenue from streaming services grew by $117 million, or 22%, to $656 million for the fiscal year ended September 30, 2023 from $539 million for the fiscal year ended September 30, 2022.

Performance revenue increased primarily due to continued recovery from COVID disruption in the first half of the year, partially offset by an unfavorable impact of foreign currency exchange rates of $3 million.

Mechanical revenue increased from a higher share of physical sales and timing of distributions, partially offset by an unfavorable impact of foreign currency exchange rates of $2 million.

The decrease in synchronization revenue is attributable to lower commercial licensing activity and an unfavorable impact of foreign currency exchange rates of $2 million, partially offset by copyright infringement settlements.

Total revenues increased by $618 million, or 12%, to $5,919 million for the fiscal year ended September 30, 2022 from $5,301 million for the fiscal year ended September 30, 2021.

The 2022 fiscal year included an additional week, primarily reflected in

Recorded Music streaming revenue and $38 million in Recorded Music and Music Publishing downloads and other digital revenue from the Copyright Settlement.

Additionally, the 2022 fiscal year included the impact of a new deal with one of the Company’s digital partners affecting Recorded Music streaming revenue.

The increase includes $198 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 84% and 16% of total revenues for the fiscal year ended September 30, 2022, respectively, and 86% and 14% of total revenues for the fiscal year ended September 30, 2021, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 46% and 54% for the fiscal year ended September 30, 2022, respectively, and 45% and 55% for the fiscal year ended September 30, 2021, respectively.

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Recorded Music streaming revenue included the impact of a new deal with one of the Company’s digital partners.

The growth in Music Publishing includes a benefit of $20 million resulting from the July 1, 2022 remand ruling by the Copyright Royalty Board in Phonorecords III upholding higher percentage revenue of U.S.

mechanical royalty rates for 2018 to 2022 and reflects amounts expected to be paid (the “CRB Rate Benefit”).

The growth in Music Publishing includes the impact of $20 million resulting from the CRB Rate Benefit.

Total digital revenues represented 65% and 67% of consolidated revenues for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.

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

Digital revenue increased by $200 million, or 6%, as a result of the continued growth in streaming services, which was affected by market-related slowdown in ad-supported revenue, $31 million in downloads and other digital revenue from the Copyright Settlement, strength of releases including current year releases from Ed Sheeran and Silk Sonic as well as carryover success from Dua Lipa, Ed Sheeran and Bruno Mars.

Digital revenue increased by $200 million, or 6%, as a result of the continued growth in streaming services, which was affected by the market-related slowdown in ad-supported revenue, $31 million in downloads and other digital revenue from the Copyright Settlement, strength of releases including current year releases from Ed Sheeran and Silk Sonic as well as carryover success from Dua Lipa, Ed Sheeran and Bruno Mars.

Revenue from streaming services grew by $187 million, or 6%, to $3,159 million for the fiscal year ended September 30, 2022 from $2,972 million for the fiscal year ended September 30, 2021.

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The overall increase in Music Publishing revenue was driven by increases in digital revenue of $127 million, or 29%, performance revenue of $37 million, synchronization revenue of $28 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, the CRB Rate Benefit of $20 million, $7 million in downloads and other digital revenue from the Copyright Settlement 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.

The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services, the CRB Rate Benefit of $20 million, $7 million in downloads and other digital revenue from the Copyright Settlement and timing of new digital deals, partially offset by a shift in the collection of certain writers’ 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.

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Mechanical revenue increase was partially offset by an unfavorable impact of foreign currency exchange rates of $3 million.

Total revenues increased by $838 million, or 19%, to $5,301 million for the fiscal year ended September 30, 2021 from $4,463 million for the fiscal year ended September 30, 2020.

Prior to intersegment eliminations, Recorded Music revenues represented 86% and 85% of total revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

intersegment eliminations, Music Publishing revenues represented 14% and 15% of total revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 45% and 55% of total revenues for the fiscal year ended September 30, 2021 and 43% and 57% of total revenues for the fiscal year ended September 30, 2020, respectively.

Total digital revenues after intersegment eliminations increased by $636 million, or 22%, to $3,539 million for the fiscal year ended September 30, 2021 from $2,903 million for the fiscal year ended September 30, 2020.

Total digital revenues represented 67% and 65% of consolidated revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2021 were composed of U.S.

revenues of $1,769 million and international revenues of $1,772 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2020 were composed of U.S.

revenues of $1,479 million and international revenues of $1,426 million, or 51% and 49% of total digital revenues, respectively.

Recorded Music revenues increased by $734 million, or 19%, to $4,544 million for the fiscal year ended September 30, 2021 from $3,810 million for the fiscal year ended September 30, 2020.

Recorded Music revenues were $1,985 million and $1,609 million, or 44% and 42%, of consolidated Recorded Music revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

International Recorded Music revenues were $2,559 million and $2,201 million, or 56% and 58% of consolidated Recorded Music revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

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

Digital revenue increased by $537 million, or 21%, as a result of the continued growth in streaming services, including growth in emerging streaming platforms such as Facebook, TikTok and Peloton a well as strength of releases, which included new release from Cardi B, as well as carryover success from Dua Lipa, Ed Sheeran, Ava Max, the Hamilton original cast recording, Bruno Mars, Roddy Ricch, Tones and I and YoungBoy Never Broke Again.

Revenue from streaming services grew by $569 million or 24% to $2,972 million for the fiscal year ended September 30, 2021 from $2,403 million for the fiscal year ended September 30, 2020.

Streaming revenue growth was partially offset by a decline in downloads and other digital revenue of $32 million to $133 million for the fiscal year ended September 30, 2021 from $165 million for the fiscal year ended September 30, 2020 due to the continued shift to streaming services.

Physical revenue increased by $115 million primarily from higher sales due to an increased demand for vinyl products, continued recovery from COVID disruption, as well as the favorable impact of foreign currency exchange rates of $15 million.

Artist services and expanded-rights revenue increased by $74 million primarily due to higher direct-to-consumer merchandising revenue at EMP and the favorable impact of foreign currency exchanges rates of $26 million, partially offset by a decrease in touring activity resulting from COVID disruption.

Licensing revenue increased by $8 million primarily due to higher synchronization revenue as businesses continued to recover from COVID disruption and the favorable impact of foreign currency exchange rates of $9 million, partially offset by lower compilation revenue and other COVID-impacted licensing revenue.

Music Publishing revenues increased by $104 million, or 16%, to $761 million for the fiscal year ended September 30, 2021 from $657 million for the fiscal year ended September 30, 2020.

Music Publishing revenues were $378 million, or 50% of consolidated Music Publishing revenues for the fiscal year ended September 30, 2021, and $325 million, or 49% of consolidated Music Publishing revenues for the fiscal year ended September 30, 2020.

International Music Publishing revenues were $383 million, or 50% of consolidated Music Publishing revenues for the fiscal year ended September 30, 2021, and $332 million, or 51% of consolidated Music Publishing revenues for the fiscal year ended September 30, 2020.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $99 million or 29%, synchronization revenue of $25 million or 21% and mechanical revenue of $1 million, partially offset by decreases in performance revenue of $20 million or 14% and other revenue of $1 million.

The increase in digital revenue is primarily due to an increase in streaming revenue driven by the continued growth in streaming services, including emerging streaming platforms, and timing of new digital deals.

Digital revenue growth in the year was impacted by a favorable one-time settlement in the prior year, as well as a shift in the collection of writer’s share of U.S.

digital performance income from certain digital service providers.

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

The increase in synchronization revenue is attributable to higher motion picture and commercial income and a one-time licensing settlement.

Mechanical revenue is up slightly due to the favorable impact of foreign currency exchange rates.

The decrease in performance revenue is primarily driven by the impact of COVID disruption on bars, restaurants, concerts and live events, which have only partially recovered.

Revenue by Geographical Location

revenue increased by $22 million, or 1%, to $2,766 million for the fiscal year ended September 30, 2023 from $2,744 million for the fiscal year ended September 30, 2022.

Recorded Music revenue decreased by $47 million, or 2%.

The primary driver was the decrease of U.S.

Recorded Music digital revenue of $58 million, or 4%.

which includes the Copyright Settlement and the impact of an additional week in the prior year.

Recorded Music streaming revenue decreased by $19 million, or 1%, as a result of a lighter release schedule and the market-related slowdown in ad-supported revenue, as well as the impact of an additional week in the prior year.

Download and other digital revenue decreased by $39 million due to the Copyright Settlement in the prior year and continued shift to streaming services.

Decreases are also attributable to lower U.S.

Recorded Music physical revenue of $5 million due to a lighter release schedule.

Recorded Music artist services and expanded-rights revenue decreased by $2 million, primarily driven by lower advertising revenue, partially offset by higher merchandising and other artist services and expanded-rights revenue.

The increase in licensing revenue of $18 million is due to growth in synchronization and other licensing revenue.

Music Publishing revenue increased by $69 million, or 13%, to $582 million for the fiscal year ended September 30, 2023 from $513 million for the fiscal year ended September 30, 2022.

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

Music Publishing of $68 million in digital revenue due to the continued growth in streaming services, the impact of digital deal renewals, which includes the Company’s TikTok renewal, and a $4 million year-over-year increase in the impact of the CRB Rate Benefit, partially offset by $7 million of the Copyright Settlement in the prior year.

Music Publishing streaming revenue increased by $75 million, or 23%.

Performance and mechanical revenue both increased by $2 million.

The decrease in synchronization revenue of $4 million is due to lower commercial licensing activity, partially offset by copyright infringement settlements.

International revenue increased by $97 million, or 3%, to $3,277 million for the fiscal year ended September 30, 2023 from $3,180 million for the fiscal year ended September 30, 2022.

Excluding the unfavorable impact of foreign currency exchange rates, international revenue increased by $208 million, or 7%.

International Recorded Music revenue increased by $36 million, or 1%, primarily due to increases in digital revenue of $75 million and licensing revenue of $33 million, partially offset by decreases in physical revenue of $51 million and artist services and expanded-rights revenue of $21 million.

International Recorded Music digital revenue increased due to an $83 million, or 5%, increase in streaming revenue which includes the unfavorable impact of foreign currency exchange rates of $57 million.

Download and other digital revenues decreased by $8 million.

International Recorded Music licensing revenue increased by $33 million including growth in broadcast fees and other licensing revenue, partially offset by the unfavorable impact of foreign currency exchange rates of $8 million.

International Recorded Music physical revenue decreased by $51 million, driven by an unfavorable impact of foreign currency exchange rates of $19 million and a lighter release schedule.

International Recorded Music artist services and expanded-rights revenue decreased by $21 million due to the unfavorable impact of foreign currency exchange rates of $12 million and lower direct-to-consumer merchandising activity at EMP, partially offset by higher concert promotion revenue.

International Music Publishing revenue increased by $61 million, or 14%, to $506 million for the fiscal year ended September 30, 2023 from $445 million for the fiscal year ended September 30, 2022.

This was primarily driven by the increase in digital revenue of $38 million, performance revenue of $12 million and mechanical revenue of $11 million.

International Music Publishing streaming revenue increased by $42 million, or 19%, which includes a revenue true-up of $9 million, partially offset by an unfavorable impact of foreign currency exchange rates of $4 million.

Performance revenue increased driven by continued recovery from COVID disruption in the first half of the year.

Higher mechanical revenue is primarily driven by a higher share of physical sales and timing of distributions.

Synchronization revenue decreased by $1 million primarily due to an unfavorable impact of foreign currency exchange rates.

revenue increased by $381 million, or 16%, to $2,744 million for the fiscal year ended September 30, 2022 from $2,363 million for the fiscal year ended September 30, 2021.

Recorded Music revenue increased by $246 million, or 12%.

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Recorded Music streaming revenue increased by $99 million, or 7%.

Download and other digital increased by $19 million due to the Copyright Settlement, partially offset by continued shift to streaming services.

Download and other digital revenue increased by $19 million due to the Copyright Settlement, partially offset by the continued shift to streaming services.

Recorded Music artist services and expanded-rights revenue increased by $66 million, primarily driven by higher merchandising revenues.

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International Recorded Music digital revenue increased due to an $88 million, or 6%, increase in streaming services, which was partially offset by an unfavorable impact of foreign currency exchange rates of $88 million.

International Recorded Music licensing revenue increased by $12 million due to synchronization and other licensing revenue, partially offset by the unfavorable impact of foreign currency exchange rates.

International Recorded Music licensing revenue increased by $12 million due to higher synchronization and other licensing revenue, partially offset by the unfavorable impact of foreign currency exchange rates.

International Recorded Music physical revenue decreased by $20 million, primarily driven by an unfavorable impact of foreign currency exchange rates, which offset higher sales.

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Mechanical revenue remained constant due an unfavorable impact of foreign currency exchange rates, which offset higher sales.

revenue increased by $429 million, or 22%, to $2,363 million for the fiscal year ended September 30, 2021 from $1,934 million for the fiscal year ended September 30, 2020.

Recorded Music revenue increased by $376 million or 23%.

The primary driver was the increase in U.S.

Recorded Music digital revenue of $239 million, or 18%, driven by the continued growth in streaming services.

Streaming revenue increased by $255 million, or 21%, partially offset by $16 million of digital download and other digital declines.

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

Recorded Music physical revenue, which increased by $77 million from higher sales due to an increased demand for vinyl products and continued recovery from COVID disruption.

U.S artist services and expanded-rights revenue increased by $59 million driven by higher advertising and social platform revenues, as well as merchandising revenues and U.S licensing revenue increased by $1 million primarily due to higher synchronization revenue, partially offset by lower compilation revenue.

Music Publishing revenue increased by $53 million or 16%.

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

Music Publishing digital revenue of $51 million, or 27%, 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.

The increase in synchronization revenue of $11 million is due to higher motion picture and commercial income and a one-time licensing settlement.

Increases are partially offset by the decrease in performance revenue of $7 million due to the impact of COVID disruption and mechanical revenue of $2 million from the continuing shift to streaming services.

International revenue increased by $409 million, or 16%, to $2,942 million for the fiscal year ended September 30, 2021 from $2,533 million for the fiscal year ended September 30, 2020.

Excluding the favorable impact of foreign currency exchange rates, international revenue increased by $280 million or 11%.

International Recorded Music revenue increased $358 million primarily due

to an increase in digital revenue of $298 million, or 23%, physical revenue of $38 million, artist services and expanded-rights revenue of $15 million and licensing revenue of $7 million.

International Recorded Music digital revenue increased due to a $314 million, or

26%, increase in streaming services revenue, partially offset by a $16 million decline in downloads and other digital revenue.

The increase in international Recorded Music streaming revenue was due to the continued growth in streaming services internationally.

International Recorded Music physical revenue increased from higher sales due to an increased demand for vinyl products, continued recovery from COVID disruption, as well as the favorable impact of foreign currency exchange rates.

International Recorded Music artist services and expanded-rights revenue increased primarily due to the growth in EMP direct-to-consumer merchandise revenue and favorable impact of foreign currency exchanges rates, partially offset by the decrease in touring activity resulting from COVID disruption.

International Recorded Music licensing revenue increased due to higher synchronization revenue and favorable foreign currency exchange rates, partially offset by lower compilation revenue and other COVID-impacted licensing revenue.

International Music Publishing revenue increased by $51 million or 15%.

This was primarily driven by increases in International Music Publishing digital revenue of $48 million, or 32%, synchronization revenue of $14 million and mechanical revenue of $3 million, partially offset by decreases in performance revenue of $13 million and other revenue of $1 million.

The increase in digital revenue is primarily due to the increases in streaming revenue driven by the continued growth in streaming services, including emerging streaming platforms, and timing of new digital deals.

Digital revenue growth in the year was impacted by a favorable one-time settlement in the prior year.

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

The increase in mechanical revenue is a result of favorable foreign currency exchange rates.

The decline in performance revenue is due to the impact of COVID disruption.

Cost of revenues

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Our cost of revenues increased by $97 million, or 3%, to $3,177 million for the fiscal year ended September 30, 2023 from $3,080 million for the fiscal year ended September 30, 2022.

Expressed as a percentage of revenues, cost of revenues remained constant at 52% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Expressed as a percentage of revenues, cost of revenues increased to 53% for the fiscal year ended September 30, 2023 from 52% for the fiscal year ended September 30, 2022.

Artist and repertoire costs increased by $38 million, to $1,998 million for the fiscal year ended September 30, 2023 from $1,960 million for the fiscal year ended September 30, 2022.

Artist and repertoire costs as a percentage of revenue decreased to 33% for the fiscal year ended September 30, 2022 from 34% for the fiscal year ended September 30, 2021, primarily due to revenue mix and timing of artist and repertoire investments.

Artist and repertoire costs as a percentage of revenue remained constant at 33% for each of the fiscal years ended September 30, 2023 and September 30, 2022, primarily due to the favorable impact of foreign currency exchange rates, offset by revenue mix.

Product costs increased by $59 million, to $1,179 million for the fiscal year ended September 30, 2023 from $1,120 million for the fiscal year ended September 30, 2022.

Product costs as a percentage of revenue increased to 19% for the fiscal year ended September 30, 2022 from 18% for the fiscal year ended September 30, 2021 due to revenue mix, primarily increases in artist services and expanded-rights revenue.

Product costs as a percentage of revenue increased to 20% for the fiscal year ended September 30, 2023 from 19% for the fiscal year ended September 30, 2022 due to revenue mix from higher third-party distributed label revenue.

Our cost of revenues increased by $338 million, or 12%, to $3,080 million for the fiscal year ended September 30, 2022 from $2,742 million for the fiscal year ended September 30, 2021.

Expressed as a percentage of revenues, cost of revenues remained constant at 52% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Artist and repertoire costs increased by $220 million, or 14%, to $1,780 million for the fiscal year ended September 30, 2021 from $1,560 million for the fiscal year ended September 30, 2020.

Artist and repertoire costs as a percentage of revenues decreased to 34% for the fiscal year ended September 30, 2021 from 35% for the fiscal year ended September 30, 2020 due to revenue mix.

Product costs increased by $189 million, or 24%, to $962 million for the fiscal year ended September 30, 2021 from $773 million for the fiscal year ended September 30, 2020.

Product costs as a percentage of revenues increased to 18% for the fiscal year ended September 30, 2021 from 17% for the fiscal year ended September 30, 2020.

The overall increase as a percentage of revenues is due to revenue mix, primarily increases in physical and third party distributed label revenue.

Artist and repertoire costs increased by $180 million, to $1,960 million for the fiscal year ended September 30, 2022 from $1,780 million for the fiscal year ended September 30, 2021.

Product costs increased by $158 million, to $1,120 million for the fiscal year ended September 30, 2022 from $962 million for the fiscal year ended September 30, 2021.

Product costs as a percentage of revenue increased to 19% for the fiscal year ended

September 30, 2022 from 18% for the fiscal year ended September 30, 2021 due to revenue mix, primarily increases in artist services and expanded-rights revenue.

Selling, general and administrative expenses

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(1) Includes depreciation expense of $87 million, $76 million and $77 million for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively.

Total selling, general and administrative expense decreased by $36 million, or 2%, to $1,826 million for the fiscal year ended September 30, 2023 from $1,862 million for the fiscal year ended September 30, 2022.

Expressed as a percentage of revenue, total selling, general and administrative expense decreased to 30% for the fiscal year ended September 30, 2023 from 31% for the fiscal year ended September 30, 2022.

General and administrative expense increased by $52 million to $991 million for the fiscal year ended September 30, 2023 from $939 million for the fiscal year ended September 30, 2022.

The increase in general and administrative expense was mainly due to higher employee related costs, net of savings from the Restructuring Plan, which includes incremental non-cash stock-based compensation and other related expenses of $10 million, the Executive Transition Costs of $7 million, incremental investment in technology of $17 million, the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior year related to an acquisition, higher depreciation of $11 million, and expenses related to transformation initiatives of $7 million, partially offset by lower acquisition transaction costs, lower severance costs, the impact of an additional week in the prior year and favorable movements in foreign currency exchange rates of $14 million.

Expressed as a percentage of revenue, general and administrative expense remained constant at 16% for each of the fiscal years ended September 30, 2023 and September 30, 2022.

Selling and marketing expense decreased by $82 million, or 10%, to $710 million for the fiscal year ended September 30, 2023 from $792 million for the fiscal year ended September 30, 2022.

Expressed as a percentage of revenue, selling and marketing expense decreased to 12% for the fiscal year ended September 30, 2023 from 13% for the fiscal year ended September 30, 2022 due to lower variable marketing spend and savings from the Restructuring Plan.

Distribution expense was $125 million for the fiscal year ended September 30, 2023 and $131 million for the fiscal year ended September 30, 2022.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the fiscal years ended September 30, 2023 and September 30, 2022.

Total selling, general and administrative expense increased by $141 million, or 8%, to $1,862 million for the fiscal year ended September 30, 2022 from $1,721 million for the fiscal year ended September 30, 2021.

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Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Total selling, general and administrative expense decreased by $448 million, or 21%, to $1,721 million for the fiscal year ended September 30, 2021 from $2,169 million for the fiscal year ended September 30, 2020.

Expressed as a percentage of revenues, selling, general and administrative expenses decreased to 32% for the fiscal year ended September 30, 2021 from 49% for the fiscal year ended September 30, 2020.

This is primarily due to lower non-cash stock-based compensation and other related expenses of $560 million, the prior-year management agreement termination fee and IPO related expenses totaling $89 million.

Excluding non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, selling, general and administrative expense as a percentage of revenues decreased to 32% for the fiscal year ended September 30, 2021 from 33% for the fiscal year ended September 30, 2020.

General and administrative expenses decreased by $564 million, or 39%, to $870 million for the fiscal year ended September 30, 2021 from $1,434 million for the fiscal year ended September 30, 2020.

The decrease in general and administrative expense was primarily due to lower expense associated with non-cash stock-based compensation and other related expenses of $560 million, the prior-year management agreement termination fee and IPO related expenses totaling $89 million and credit loss reserve reversal, partially offset by increased employee related costs including restructuring.

Expressed as a percentage of revenue, general and administrative expense decreased to 16% for the fiscal year ended September 30, 2021 from 32% for the fiscal year ended September 30, 2020.

Excluding non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, general and administrative expense as a percentage of revenue decreased to 16% for the fiscal year ended September 30, 2021 from 17% for the fiscal year ended September 30, 2020.

Selling and marketing expense increased by $98 million, or 15%, to $738 million for the fiscal year ended September 30, 2021 from $640 million for the fiscal year ended September 30, 2020.

Expressed as a percentage of revenues, selling and marketing expense remained constant at 14% for each of the fiscal years ended September 30, 2021 and September 30, 2020.

Distribution expense increased by $18 million, or 19%, to $113 million for the fiscal year ended September 30, 2021 from $95 million for the fiscal year ended September 30, 2020.

Expressed as a percentage of revenues, distribution expense remained constant at 2% for each of the fiscal years ended September 30, 2021 and September 30, 2020.

Restructuring

For the fiscal year ended September 30, 2023, total restructuring costs were $40 million consisting of severance costs for the Restructuring Plan.

Net gain on divestiture

During the fiscal year ended September 30, 2023, the Company sold its interest in certain sound recording rights and recorded a pre-tax gain of $41 million, which was recorded as a net gain on divestiture in the accompanying consolidated statement of operations.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

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2023 2022 2021 $ Change % Change $ Change % Change

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

Net income attributable to Warner Music Group Corp.

$ 430 $ 551 $ 304 $ (121) -22 % $ 247 81 %

Income attributable to noncontrolling interest 9 4 3 5 — % 1 33 %

Net income (loss) 555 307 (470) 248 81 % 777 — %

Net income 439 555 307 (116) -21 % 248 81 %

Income tax expense 170 185 149 (15) -8 % 36 24 %

Income (loss) before income taxes 740 456 (447) 284 62 % 903 — %

Other (income) expense (151) 9 57 (160) — % (48) -84 %

Income before income taxes 609 740 456 (131) -18 % 284 62 %

Other expense (income) 36 (151) 9 187 — % (160) — %

Interest expense, net 141 125 122 16 13 % 3 3 %

Loss on extinguishment of debt 4 — 22 4 — % (22) -100 %

Operating income (loss) 714 609 (229) 105 17 % 838 — %

Operating income 790 714 609 76 11 % 105 17 %

Amortization expense 245 263 229 (18) -7 % 34 15 %

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OIBDA $ 1,122 $ 1,053 $ 915 $ 69 7 % $ 138 15 %

OIBDA increased by $69 million to $1,122 million for the fiscal year ended September 30, 2023 as compared to $1,053 million for the fiscal year ended September 30, 2022 as a result of higher revenues, lower selling, general and administrative expenses and $41 million of net gain on sale of the Company’s interest in certain sound recording rights, partially offset by costs related to the Restructuring Plan of $40 million and higher cost of revenues.

Expressed as a percentage of total revenue, OIBDA margin increased to 19% for the fiscal year ended September 30, 2023 from 18% for the fiscal year ended September 30, 2022 due to the factors that led to the increase in OIBDA noted above.

OIBDA increased by $138 million to $1,053 million for the fiscal year ended September 30, 2022 as compared to $915 million for the fiscal year ended September 30, 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 18% for the fiscal year ended September 30, 2022 from 17% for the fiscal year ended September 30, 2021 due to strong operating performance, partially offset by unfavorable foreign currency exchange rates.

Our OIBDA increased by $883 million to $915 million for the fiscal year ended September 30, 2021 as compared to $32 million for the fiscal year ended September 30, 2020 primarily as a result of higher revenues and lower expense associated with non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, partially offset by higher cost of revenues.

Expressed as a percentage of total revenue, OIBDA margin increased to 17% for the fiscal year ended September 30, 2021 from 1% for the fiscal year ended September 30, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, OIBDA margin as a percentage of revenue increased to 18% for the fiscal year ended September 30, 2021 from 16% for the fiscal year ended September 30, 2020 due to strong operating performance.

Depreciation expense

Our depreciation expense increased by $11 million to $87 million for the fiscal year ended September 30, 2023 from $76 million for the fiscal year ended September 30, 2022.

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

Our depreciation expense decreased by $1 million to $76 million for the fiscal year ended September 30, 2022 from $77 million for the fiscal year ended September 30, 2021.

Our depreciation expense increased by $6 million, or 8%, to $77 million for the fiscal year ended September 30, 2021 from $71 million for the fiscal year ended September 30, 2020, primarily due to an increase in IT capital spend and assets being placed into service, partially offset by a one-time charge of $10 million related to the Los Angeles headquarters relocation in the prior year.

Amortization expense

Our amortization expense decreased by $18 million, or 7%, to $245 million for the fiscal year ended September 30, 2023 from $263 million for the fiscal year ended September 30, 2022.

The decrease is primarily due to certain intangible assets becoming fully amortized.

Our amortization expense increased by $34 million, or 15%, to $263 million for the fiscal year ended September 30, 2022 from $229 million for the fiscal year ended September 30, 2021.

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

Amortization expense increased by $39 million, or 21%, to $229 million for the fiscal year ended September 30, 2021 from $190 million for the fiscal year ended September 30, 2020, primarily due to an increase in amortizable intangible assets primarily related to the acquisition of music-related assets.

Operating income (loss)

Operating income

Our operating income increased by $76 million to $790 million for the fiscal year ended September 30, 2023 from $714 million for the fiscal year ended September 30, 2022.

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

Our operating income increased by $105 million to $714 million for the fiscal year ended September 30, 2022 from $609 million for the fiscal year ended September 30, 2021.

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

Our operating income increased by $838 million to $609 million for the fiscal year ended September 30, 2021 from operating loss of $229 million for the fiscal year ended September 30, 2020.

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.

Loss on extinguishment of debt

We recorded a loss on extinguishment of debt in the amount of $4 million for the fiscal year ended September 30, 2023, which represents the remaining unamortized discount and deferred financing costs in connection with the redemption of Senior Term Loan Facility Tranche H loans.

There was no loss on extinguishment of debt for the fiscal year ended September 30, 2022.

We recorded a loss on extinguishment of debt in the amount of $22 million for the fiscal year ended September 30, 2021 which represents the premiums paid for early redemption and unamortized deferred financing costs in connection with the redemption of the 5.500% Senior Notes and the 3.625% Senior Secured Notes (as defined later in this Annual report).

We recorded a loss on extinguishment of debt in the amount of $22 million for the fiscal year ended September 30, 2021, which represents the premiums paid for early redemption and unamortized deferred financing costs in connection with the redemption of the 5.500% Senior Notes and the 3.625% Senior Secured Notes (as defined later in this Annual Report).

We recorded a loss on extinguishment of debt in the amount of $34 million for the fiscal year ended September 30, 2020, which represents the premiums paid for early redemption and unamortized deferred financing costs in connection with the redemption of the 4.125% Senior Secured Notes due 2024 (the “4.125% Senior Secured Notes”), the 4.875% Senior Secured Notes due 2024 (the “4.875% Senior Secured Notes”) and the 5.00% Senior Secured Notes due 2023 (the “5.00% Senior Secured Notes”) and the partial repayment of the Senior Term Loan Facility (as defined later in this Annual Report).

Please refer to Note 10 of our consolidated financial statements for further discussion.

There was no loss on extinguishment of debt for the fiscal year ended September 30, 2022.

We recorded a loss on extinguishment of debt in the amount of $22 million for the fiscal year ended September 30, 2021 which represents the premiums paid

for early redemption and unamortized deferred financing costs in connection with the redemption of the 5.500% Senior Notes and the 3.625% Senior Secured Notes (as defined later in this Annual Report).

Interest expense, net

Our interest expense, net, increased to $141 million for the fiscal year ended September 30, 2023 from $125 million for the fiscal year ended September 30, 2022 due to higher principal balance related to the issuance of incremental Senior Term Loan Facility and higher interest rates, partially offset by interest income.

Our interest expense, net, increased to $125 million for the fiscal year ended September 30, 2022 from $122 million for the fiscal year ended September 30, 2021 due to higher principal balance due to the issuance of senior secured notes to partially fund the acquisition of a business and music-related assets.

Our interest expense, net decreased by $5 million, or 4% to $122 million for the fiscal year ended September 30, 2021 from $127 million for the fiscal year ended September 30, 2020.

This was primarily driven by 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 expense (income)

Other expense for the fiscal year ended September 30, 2023 primarily includes foreign currency losses on our Euro-denominated debt of $61 million, partially offset by currency exchange gains on the Company’s intercompany loans of $24 million.

Other income for the fiscal year ended September 30, 2022 primarily includes foreign currency gains on our Euro-denominated debt of $151 million, currency exchange gains on our intercompany loans of $34 million and unrealized gains on hedging activity of $10 million, partially offset by aggregate realized and unrealized losses of $49 million related to equity investments.

Other expense for the fiscal year ended September 30, 2021 primarily includes foreign currency losses on our Euro-denominated debt of $5 million and unrealized loss of $4 million on the mark-to-market of equity investments.

Other expense decreased by $48 million to $9 million for the fiscal year ended September 30, 2021 from $57 million for the fiscal year ended September 30, 2020.

Other expense for the fiscal year ended September 30, 2020 primarily includes the non-cash unrealized loss on the remeasurement of our Euro-denominated debt of $56 million, $4 million loss on hedging activity and losses on investments of $7 million, partially offset by an unrealized gain of $9 million on the mark-to-market of an equity method investment.

Income tax expense

Our income tax expense decreased by $15 million to $170 million for the fiscal year ended September 30, 2023 from $185 million for the fiscal year ended September 30, 2022.

The decrease of $15 million in income tax expense is primarily due to the impact of lower pre-tax income in the current year and benefit of R&D credits.

These benefits were partially offset by an increase in unrecognized tax benefit related to uncertain tax positions, higher withholding taxes and higher portion of the pre-tax income being earned outside of the United States in the current year.

Our income tax expense increased by $36 million to $185 million for the fiscal year ended September 30, 2022 from $149 million for the fiscal year ended September 30, 2021.

The increase of $36 million in income tax expense is primarily due to the impact of higher pre-tax income in the current year, partially offset by the impact of a higher proportion of the pre-tax income being earned in the United States in the current year and the change in the UK statutory tax rate recognized in the prior year.

Our income tax expense increased by $126 million to $149 million for the fiscal year ended September 30, 2021 from $23 million for the fiscal year ended September 30, 2020.

The net increase of $126 million in income tax expense primarily relates to the higher pre-tax income in the current fiscal year as compared to pre-tax income before non-deductible executive compensation and transaction costs and release of valuation allowances of foreign tax credits for the fiscal year ended September 30, 2020.

Net income (loss)

Net income decreased by $116 million to $439 million for the fiscal year ended September 30, 2023 from $555 million for the fiscal year ended September 30, 2022 as a result of the factors described above.

Net income increased by $248 million to $555 million for the fiscal year ended September 30, 2022 from $307 million for the fiscal year ended September 30, 2021 as a result of the factors described above.

Our net income increased by $777 million to income of $307 million for the fiscal year ended September 30, 2021 from a loss of $470 million for the fiscal year ended September 30, 2020 as a result of the factors described above.

Noncontrolling interest

There was $9 million of income attributable to noncontrolling interest for the fiscal year ended September 30, 2023, an increase from $4 million of income attributable to noncontrolling interest for the fiscal year ended September 30, 2022, driven by higher income from non-wholly-owned subsidiaries in the current year.

There was $4 million of income attributable to noncontrolling interest for the fiscal year ended September 30, 2022 and $3 million of income attributable to noncontrolling interest for the fiscal year ended September 30, 2021.

There was $3 million of income attributable to noncontrolling interests for the fiscal year ended September 30, 2021.

There was $5 million of income attributable to noncontrolling interests for the fiscal year ended September 30, 2020.

Business Segment Results

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Revenues 6,037 5,919 5,301 118 2 % 618 12 %

Operating income (loss) 714 609 (229) 105 17 % 838 — %

Operating income 790 714 609 76 11 % 105 17 %

OIBDA 1,122 1,053 915 69 7 % 138 15 %

Recorded Music

Recorded Music revenue decreased by $11 million to $4,955 million for the fiscal year ended September 30, 2023 from $4,966 million for the fiscal year ended September 30, 2022.

International Recorded Music revenues were $2,771 million and $2,735 million, or 56% and 55% of consolidated Recorded Music revenues, for the fiscal year ended September 30, 2023 and September 30, 2022, respectively.

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

Recorded Music revenue increased by $422 million, or 9%, to $4,966 million for the fiscal year ended September 30, 2022 from $4,544 million for the fiscal year ended September 30, 2021.

2 unchanged sentences

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

Recorded Music revenues increased by $734 million, or 19%, to $4,544 million for the fiscal year ended September 30, 2021 from $3,810 million for the fiscal year ended September 30, 2020.

Recorded Music revenues were $1,985 million and $1,609 million, or 44% and 42%, of consolidated Recorded Music revenues, for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

International Recorded Music revenues were $2,559 million and $2,201 million, or 56% and 58% of consolidated Recorded Music revenues, for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

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

Cost of revenues

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Expressed as a percentage of Recorded Music revenue, cost of revenues remained constant at 50% for each of the fiscal years ended September 30, 2023 and September 30, 2022.

Artist and repertoire costs as a percentage of revenue decreased to 27% for the fiscal year ended September 30, 2022 from 28% for the fiscal year ended September 30, 2021.

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

Artist and repertoire costs as a percentage of revenue remained constant at 27% for each of the fiscal years ended September 30, 2023 and September 30, 2022, primarily due to the favorable impact of foreign currency exchange rates, offset by revenue mix.

Product costs as a percentage of revenue increased to 24% for the fiscal year ended September 30, 2023 from 23% for the fiscal year ended September 30, 2022.

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.

The overall increase as a percentage of revenue primarily relates to revenue mix due to higher third-party distributed label revenue.

Recorded Music cost of revenues increased by $212 million, or 9%, to $2,465 million for the fiscal year ended September 30, 2022 from $2,253 million for the fiscal year ended September 30, 2021.

1 unchanged sentence

Artist and repertoire costs as a percentage of revenue decreased to 27% for the fiscal year ended September 30, 2022 from 28% for the fiscal year ended September 30, 2021.

The decrease is primarily attributable to revenue mix.

Product costs as a percentage of revenues increased to 21% for the fiscal year ended September 30, 2021 from 20% for the fiscal year ended September 30, 2020.

The increase in product costs primarily relates to revenue mix due to higher physical and third party distributed label revenue.

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

Product costs as a percentage of revenue increased to 23% for the fiscal year ended September 30, 2022 from 21% for the fiscal year ended September 30, 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

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(1) Includes depreciation expense of $50 million, $51 million and $53 million for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively.

Recorded Music selling, general and administrative expense decreased by $105 million, or 7%, to $1,424 million for the fiscal year ended September 30, 2023 from $1,529 million for the fiscal year ended September 30, 2022.

The decrease in general and administrative expense was primarily due to the favorable movements in foreign currency exchange rates of $18 million, legal expenses for the Copyright Settlement in the prior year and lower severance costs, acquisition transaction costs and employee related costs, including savings from the Restructuring Plan, partially offset by the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior year related to an acquisition.

The decrease in selling and marketing expense was primarily due to lower variable marketing spend and savings from the Restructuring Plan.

The decrease in distribution expense was primarily due to lower physical and artist services and expanded-rights revenue.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 29% for the fiscal year ended September 30, 2023 from 31% for the fiscal year ended September 30, 2022.

Recorded Music selling, general and administrative expense increased by $121 million, or 9%, to $1,529 million for the fiscal year ended September 30, 2022 from $1,408 million for the fiscal year ended September 30, 2021.

3 unchanged sentences

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

Recorded Music selling, general and administrative expense decreased by $189 million, or 12%, to $1,408 million for the fiscal year ended September 30, 2021 from $1,597 million for the fiscal year ended September 30, 2020.

The decrease in general and administrative expense was primarily due to lower non-cash stock-based compensation and other related expenses of $367 million and credit loss reserve reversal, partially offset by increased employee related costs including restructuring.

The increase in selling and marketing expense was primarily due to increased variable marketing spend on higher revenues and new releases.

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 decreased to 31% for the fiscal year ended September 30, 2021 from 42% for the fiscal year ended September 30, 2020 primarily due to lower non-cash stock-based compensation and other related expenses of $367 million.

Excluding non-cash stock-based compensation and other related expenses, selling, general and administrative expense as a percentage of Recorded Music revenue decreased to 30% for the fiscal year ended September 30, 2021 from 32% for the fiscal year ended September 30, 2020.

Restructuring

For the fiscal year ended September 30, 2023, total restructuring costs were $40 million consisting of severance costs for the Restructuring Plan.

Net gain on divestiture

Operating income and OIBDA

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OIBDA $ 1,080 $ 1,023 $ 936 $ 57 6 % $ 87 9 %

Recorded Music OIBDA increased by $87 million, to $1,023 million for the fiscal year ended September 30, 2022 from $936 million for the fiscal year ended September 30, 2021 as a result of higher revenues, partially offset by higher costs of revenue and selling, general and administrative expenses.

Recorded Music operating income increased by $79 million to $875 million for the fiscal year ended September 30, 2023 from $796 million for the fiscal year ended September 30, 2022 as a result of lower selling, general and administrative expense, the net gain on sale of the Company’s interest in certain sound recording rights and a decrease in amortization due to certain intangible assets becoming fully amortized, partially offset by lower revenues, higher cost of revenues and costs related to the Restructuring Plan of $40 million.

Recorded Music OIBDA increased by $57 million, to $1,080 million for the fiscal year ended September 30, 2023 from $1,023 million for the fiscal year ended September 30, 2022 due to the factors that led to the increase in Recorded Music operating income noted above, partially offset by lower depreciation and amortization.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin increased to 22% for the fiscal year ended September 30, 2023 from 21% for the fiscal year ended September 30, 2022 due to the factors that led to the increase in OIBDA noted above.

Recorded Music operating income increased by $63 million to $796 million for the fiscal year ended September 30, 2022 from $733 million for the fiscal year ended September 30, 2021 as a result of higher revenues, partially offset by higher cost of revenues and selling, general and administrative expenses.

Recorded Music OIBDA increased by $87 million, to $1,023 million for the fiscal year ended September 30, 2022 from $936 million for the fiscal year ended September 30, 2021 due to the factors that led to the increase in Recorded Music operating income noted above and an increase in amortizable intangible assets related to the acquisition of music-related assets.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin remained constant at 21% for each of the fiscal years ended September 30, 2022 and September 30, 2021 due to strong operating performance, which was offset by revenue mix resulting from the growth of lower-margin revenue streams and an unfavorable impact of foreign currency exchange rates.

Recorded Music operating income increased by $63 million to $796 million for the fiscal year ended September 30, 2022 from $733 million for the fiscal year ended September 30, 2021 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Recorded Music OIBDA increased by $587 million to $936 million for the fiscal year ended September 30, 2021 from $349 million for the fiscal year ended September 30, 2020 primarily as a result of higher revenues and lower non-cash stock-based compensation and other related expenses of $367 million, partially offset by higher cost of revenues.

Expressed as a percentage of Recorded Music revenues, Recorded Music OIBDA margin increased to 21% for the fiscal year ended September 30, 2021 from 9% for the fiscal year ended September 30, 2020.

Excluding non-cash stock-based compensation and other related expenses, OIBDA as a percentage of Recorded Music revenue increased to 21% for the fiscal year ended September 30, 2021 from 19% for the fiscal year ended September 30, 2020 due to strong operating performance.

Recorded Music operating income increased by $558 million to $733 million for the fiscal year ended September 30, 2021 from $175 million for the fiscal year ended September 30, 2020 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Music Publishing

Music Publishing revenues increased by $130 million, or 14%, to $1,088 million for the fiscal year ended September 30, 2023 from $958 million for the fiscal year ended September 30, 2022.

Music Publishing revenues were $582 million and $513 million, or 53% and 54% of consolidated Music Publishing revenues, for the fiscal years ended September 30, 2023 and

September 30, 2022, respectively.

International Music Publishing revenues were $506 million and $445 million, or 47% and 46% of consolidated Music Publishing revenues, for the fiscal years ended September 30, 2023 and September 30, 2022, respectively.

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

Music Publishing revenues increased by $197 million, or 26%, to $958 million for the fiscal year ended September 30, 2022 from $761 million for the fiscal year ended September 30, 2021.

Music Publishing revenues were $513 million and $378 million, or 54% and 50% of consolidated Music Publishing revenues, for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.

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

Music Publishing revenues increased by $104 million, or 16%, to $761 million for the fiscal year ended September 30, 2021 from $657 million for the fiscal year ended September 30, 2020.

Music Publishing revenues were $378 million and $325 million, or 50% and 49%, of Music Publishing revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

International Music Publishing revenues were $383 million and $332 million, or 50% and 51%, of Music Publishing revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

The overall increase in Music Publishing revenue was mainly driven by digital, synchronization and mechanical revenue growth, partially offset by lower performance and other revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

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Music Publishing cost of revenues increased by $61 million, or 10%, to $681 million for the fiscal year ended September 30, 2023 from $620 million for the fiscal year ended September 30, 2022.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues remained constant at 65% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues decreased to 63% for the fiscal year ended September 30, 2023 from 65% for the fiscal year ended September 30, 2022, primarily attributable to the favorable impact of foreign currency exchange rates, partially offset by revenue mix.

Music Publishing cost of revenues increased by $127 million, or 26%, to $620 million for the fiscal year ended September 30, 2022 from $493 million for the fiscal year ended September 30, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 65% for the fiscal year ended September 30, 2021 from 64% for the fiscal year ended September 30, 2020, primarily attributable to revenue mix, partially offset by lower royalty expense due to a shift in the collection of writer’s share of U.S.

digital performance income from certain digital service providers.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues remained constant at 65% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Selling, general and administrative expense

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Music Publishing selling, general and administrative expense increased to $117 million for the fiscal year ended September 30, 2023 from $112 million for the fiscal year ended September 30, 2022.

The increase in general and administrative expense was primarily due to higher variable compensation expense related to strong operating performance, employee-related costs and legal expenses for the Copyright Settlement, partially offset by lower restructuring.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 12% for the fiscal year ended September 30, 2022 from 13% for the fiscal year ended September 30, 2021.

Music Publishing selling, general and administrative expense increased by $13 million, or 15%, to $100 million for the fiscal year ended September 30, 2021 as compared to $87 million for the fiscal year ended September 30, 2020.

The increase in general and administrative expense was primarily due to higher employee-related costs.

Expressed as a percentage of Music Publishing revenues, Music Publishing selling, general and administrative expense remained constant at 13% for each of the fiscal years ended September 30, 2021 and September 30, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 11% for the fiscal year ended September 30, 2023 from 12% for the fiscal year ended September 30, 2022.

Music Publishing selling, general and administrative expense increased to $112 million for the fiscal year ended September 30, 2022 from $100 million for the fiscal year ended September 30, 2021.

Operating income and OIBDA

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OIBDA $ 293 $ 231 $ 174 $ 62 27 % $ 57 33 %

Music Publishing OIBDA increased by $57 million, or 33%, to $231 million for the fiscal year ended September 30, 2022 from $174 million for the fiscal year ended September 30, 2021.

The increase was due to strong operating performance, partially offset by the unfavorable impact of foreign currency exchange rates.

Music Publishing operating income increased by $50 million to $139 million for the fiscal year ended September 30, 2022 from $89 million operating income for the fiscal year ended September 30, 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.

Music Publishing OIBDA increased by $17 million, or 11%, to $174 million for the fiscal year ended September 30, 2021 from $157 million for the fiscal year ended September 30, 2020.

Expressed as a percentage of Music Publishing revenues, Music Publishing OIBDA margin decreased to 23% for the fiscal year ended September 30, 2021 from 24% for the fiscal year ended September 30, 2020.

The decrease was primarily due to higher artist and repertoire costs, partially offset by lower royalty expense due to a shift in the collection of writer’s share of U.S.

digital performance income from certain digital service providers.

Music Publishing operating income increased by $8 million to $89 million for the fiscal year ended September 30, 2021 from $81 million for the fiscal year ended September 30, 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 operating income increased by $61 million to $200 million for the fiscal year ended September 30, 2023 from $139 million for the fiscal year ended September 30, 2022 as a result of higher revenues, partially offset by higher cost of revenues and selling, general and administrative expense.

Music Publishing OIBDA increased by $62 million, or 27%, to $293 million for the fiscal year ended September 30, 2023 from $231 million for the fiscal year ended September 30, 2022 largely due to the factors that led to the increase in Music Publishing operating income noted above.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin increased to 27% for the fiscal year ended September 30, 2023 from 24% for the fiscal year ended September 30, 2022 due to strong operating performance and the favorable impact of foreign currency exchange rates, partially offset by revenue mix.

Music Publishing operating income increased by $50 million to $139 million for the fiscal year ended September 30, 2022 from $89 million for the fiscal year ended September 30, 2021 as a result of higher revenues, partially offset by higher cost of revenues and selling, general and administrative expense.

Music Publishing OIBDA increased by $57 million, or 33%, to $231 million for the fiscal year ended September 30, 2022 from $174 million for the fiscal year ended September 30, 2021 largely due to the factors that led to the increase in Music Publishing OIBDA noted above and an increase in amortizable intangible assets related to the acquisition of music-related assets.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin increased to 24% for the fiscal year ended September 30, 2022 from 23% for the fiscal year ended September 30, 2021 due to strong operating performance, partially offset by the unfavorable impact of foreign currency exchange rates.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $64 million to $285 million for the fiscal year ended September 30, 2023 from $221 million for the fiscal year ended September 30, 2022, primarily due to incremental investment in technology of $12 million, higher depreciation of $14 million, recovery of legal expenses for the Copyright Settlement in the prior year of $13 million, higher non-cash stock-based compensation and other related expenses of $10 million, the Executive Transition Costs of $7 million and higher expenses related to transformation initiatives of $7 million, partially offset by the impact of an additional week in the prior year.

Our OIBDA loss from corporate expenses and eliminations increased by $50 million to $251 million for the fiscal year ended September 30, 2023 from $201 million for the fiscal year ended September 30, 2022 due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations increased by $8 million to $221 million for the fiscal year ended September 30, 2022 from $213 million for the fiscal year ended September 30, 2021, which primarily includes increased expenses related to transformation initiatives and employee related costs, including the impact of an additional week, partially offset by recovery of previously incurred legal expenses for the Copyright Settlement.

Our OIBDA loss from corporate expenses and eliminations increased by $6 million to $201 million for the fiscal year ended September 30, 2022 from $195 million for the fiscal year ended September 30, 2021 primarily due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations decreased by $272 million to $213 million for the fiscal year ended September 30, 2021 from $485 million for the fiscal year ended September 30, 2020 which primarily includes the decrease in non-cash stock-based compensation and other related expenses of $195 million, the prior-year management agreement termination fee and IPO related expenses totaling $89 million and decline in management fees of $7 million, partially offset by higher employee related costs, technology spend and public company related expenses.

Our OIBDA loss from corporate expenses and eliminations decreased by $279 million to $195 million for the fiscal year ended September 30, 2021 from $474 million for the fiscal year ended September 30, 2020, due to the operating loss factors noted above.

FINANCIAL CONDITION AND LIQUIDITY

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Cash provided by operating activities was $687 million for the fiscal year ended September 30, 2023 compared to $742 million for the fiscal year ended September 30, 2022 and $638 million for the fiscal year ended September 30, 2021.

The $104 million, or 16%, increase in cash provided by operating activities during the current year was primarily due to strong operating performance and timing of working capital.

The increase in results from operating activities for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020 reflected an increase in OIBDA offset by a decrease in non-cash equity compensation expense and continued A&R investment driving a use from working capital.

The $55 million, or 7%, decrease in cash provided by operating activities during the current year was primarily due to timing of working capital, higher cash interest payments due to higher debt balance and higher interest on variable rate debt and higher cash taxes due to lower available foreign tax credits to shield U.S.

taxable income coupled with higher forecasted taxable income.

The increase in cash provided by operating activities for the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021 was primarily due to strong operating performance and timing of working capital.

Investing Activities

Cash used in investing activities was $300 million for the fiscal year ended September 30, 2023 compared to $824 million for the fiscal year ended September 30, 2022 and $638 million for the fiscal year ended September 30, 2021.

Cash used in investing activities of $300 million for the fiscal year ended September 30, 2023 consisted of $126 million relating to investments and acquisitions of businesses, $114 million to acquire music-related assets, and $127 million relating to capital expenditures, partially offset by $45 million of proceeds from divestitures and $22 million of proceeds from the sale of investments.

Cash used in investing activities of $824 million for the fiscal year ended September 30, 2022 consisted of $509 million relating to investments and acquisitions of businesses, a portion of which was debt-financed, $191 million to acquire music-related assets, a portion of which was debt-financed, and $135 million relating to capital expenditures, partially offset by $11 million of proceeds from the sale of investments.

Cash used in investing activities of $638 million for the fiscal year ended September 30, 2021 consisted of $64 million relating to investments and acquisitions of businesses, $93 million relating to capital expenditures and $481 million to acquire music-related assets, a portion of which was debt-financed.

Cash used in investing activities of $219 million for the fiscal year ended September 30, 2020 consisted of $81 million related to an acquisition, net of cash and equivalents acquired, $13 million relating to other investments, $85 million relating to capital expenditures, including investment in transformation initiatives, and $40 million to acquire music publishing rights and music catalogs.

Financing Activities

Cash provided by financing activities was $188 million for the fiscal year ended September 30, 2022 compared to cash used in financing activities of $61 million for the fiscal year ended September 30, 2021 and cash used in financing activities of $316 million for the fiscal year ended September 30, 2020.

Cash used in financing activities was $325 million for the fiscal year ended September 30, 2023 compared to cash provided by financing activities of $188 million for the fiscal year ended September 30, 2022 and cash used in financing activities of $61 million for the fiscal year ended September 30, 2021.

The $325 million of cash used in financing activities for the fiscal year ended September 30, 2023 consisted of cash paid to settle deferred consideration related to prior year acquisitions of music publishing rights and music catalogs of $133 million, repayment of Senior Term Loan Facility Tranche H loans of $150 million, dividends paid of $340 million, deferred financing costs of $3 million, distributions to noncontrolling interest holders of $12 million, redemption of noncontrolling interest of $1 million and repayment of Term Loan Mortgage of $1 million, partially offset by proceeds from the Senior Term Loan Facility Tranche G loans of $149 million, proceeds from the Senior Term Loan Facility Tranche H loans of $147 million and proceeds from the Term Loan Mortgage of $19 million.

The $188 million of cash provided by financing activities for the fiscal year ended September 30, 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 $318 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 deferred and contingent consideration of $7 million, distributions to noncontrolling interest holders of $6 million and other for $5 million.

The $61 million of cash used in financing activities for the fiscal year ended September 30, 2021 consisted of the redemption of the outstanding aggregate principal amount of $325 million of the 5.500% Senior Notes due 2026, the redemption of the 3.625% Senior Secured Notes due 2026 of $524 million, dividends paid of $265 million, call premiums paid on early redemption of debt of $21 million, deferred financing costs of $12 million and distributions to noncontrolling interest holders of $7 million, partially offset by the proceeds from the issuance of the 3.000% Senior Secured Notes due 2031 of $244 million which was used to fund the acquisition of music-related assets, proceeds from the issuance of the 2.250% Senior Secured Notes due 2031 of $524 million, and proceeds from the increase supplement to the Senior Term Loan Facility of $325 million.

The $316 million of cash used in financing activities for the fiscal year ended September 30, 2020 consisted of the tender for and repayment of Acquisition Corp.’s 5.000% Senior Secured Notes due 2023 of $300 million, repayment of Acquisition Corp.’s 4.875% Senior Secured Notes due 2024 of $220 million, repayment of Acquisition Corp.’s 4.125% Senior Secured Notes due 2024 of $349 million, partial repayment of Acquisition Corp.’s Senior Term Loan Facility due 2023 of $506 million, call premiums paid on and redemption deposits for early redemption of the aforementioned Senior Secured Notes of $23 million, dividends paid of $344 million and distributions to noncontrolling interest holders of $7 million, partially offset by the proceeds from the issuance of Acquisition Corp.’s 3.875% Senior Secured Notes due 2030 of $535 million, proceeds from the issuance of Acquisition Corp.’s 2.750% Senior Secured Notes due 2028 of $365 million, and proceeds from the issuance of Acquisition Corp.’s 3.000% Senior Secured Notes due 2031 of $550 million.

Proceeds from issuance of Senior Secured Notes were offset by deferred financing costs paid of $17 million.

There were no drawdowns on the Revolving Credit Facility during the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021.

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These sources of liquidity are needed to fund our debt service requirements, working capital requirements, capital expenditure requirements, strategic acquisitions and investments, and dividends, prepayments of debt, repurchases or retirement of our outstanding debt or notes or repurchases of our outstanding equity securities in open market purchases, privately negotiated purchases or otherwise, we may elect to pay or make in the future.

We maintain our cash in various banks and other financial institutions around the world, and in some cases those cash deposits are in excess of FDIC or other deposit insurance.

In the event of a bank failure or receivership, we may not have access to those cash deposits in excess of the relevant deposit insurance, which could have an adverse effect on our liquidity and financial performance.

We believe that our primary sources of liquidity will be sufficient to support our existing operations over the next twelve months.

We are continuing our financial transformation initiative, launched in August 2019, to upgrade our information technology and finance infrastructure, including related systems and processes, for which we currently expect upfront costs to be approximately $235 million, which includes capital expenditures of approximately $100 million.

There has been a delay in the timing of the transformation initiative as a result of the disruption from COVID-19.

In addition, the size and scale of this global system implementation requires us to invest more time performing the rigorous system testing and data validation to ensure go-live readiness.

Annualized run-rate savings from the financial transformation initiative are expected to be between approximately $35 million and $40 million.

The timing of global deployment has been delayed as the size and scale of this global system implementation requires rigorous system testing and data validation to ensure go-live readiness.

To address these implementation requirements, we are deploying our new technology platform in a wave-based approach.

In 2023, we successfully launched certain components of our new technology platform in select territories in two successful waves in April and August and will continue to deploy the platform to remaining territories through fiscal year 2024 and into fiscal year 2025.

Annualized run-rate savings from the financial transformation initiative are expected to be between approximately $35 million and $40 million, once fully implemented and we expect to achieve benefits through the implementation of the platform including process and data standardization, improved security and compliance, operational efficiencies and enhanced productivity.

We expect that our primary sources of liquidity will be sufficient to fund these expenditures.

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Since Access acquired us in 2011, we have sought to extend the maturity dates on our outstanding indebtedness, reduce interest expense and improve our debt ratings.

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.

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 Ba2 in April 2023.

In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 4.1% as of September 30, 2023.

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From time to time, we may incur additional indebtedness for, among other things, working capital, repurchasing, redeeming or tendering for existing indebtedness and acquisitions or other strategic transactions.

3.750% Senior Secured Notes Offering

On November 24, 2021, Acquisition Corp.

issued and sold $540 million of 3.750% Senior Secured Notes due 2029 (the “Notes”).

Interest on the Notes will accrue at the rate of 3.750% per annum and will be payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022.

The proceeds of the issuance and sale of the aforementioned Notes were used to fund the acquisition of a business and music-related assets for aggregate cash consideration of $525 million.

Term Loan Mortgage Agreement

On January 27, 2023, Acquisition Corp., along with Warner Records Inc.

and Warner Music Inc., entered into an agreement with Truist Bank, which provides for a term loan of $19 million (“Term Loan Mortgage”) secured by the Company’s real estate properties in Nashville, Tennessee.

Interest on the Term Loan Mortgage will accrue at a rate of 30-day Secured Overnight Financing Rate (“SOFR”) plus the applicable margin of 1.40% subject to a zero floor.

Equal principal installments and interest are due monthly.

Revolving Credit Facility

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can access certain baskets in connection with Acquisition Corp.’s negative covenants, including those related to incurrence of indebtedness, restricted payments and covenant suspension.

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.

On March 23, 2023, Acquisition Corp.

entered into an amendment (the “Fourth Revolving Credit Agreement Amendment”) to the Revolving Credit Agreement among Acquisition Corp.

and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s revolving credit facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto.

The Fourth Revolving Credit Agreement Amendment provides for the replacement of LIBOR-based rates with a SOFR-based rate and other rates for alternate currencies, such as EURIBOR and SONIA.

We utilized the expedients set forth in FASB Topic 848, Reference Rate Reform (“ASC 848”) including those relating to derivative instruments used in hedging relationships.

This transition does not result in a financial impact to our consolidated financial statements.

Acquisition Corp.

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The Revolving Credit Agreement permits loans for general corporate purposes and may also be utilized to issue letters of credit.

Borrowings under the Revolving Credit Agreement bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in the borrowing currency in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Revolving LIBOR”) plus 1.875% per annum, or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) the overnight federal funds rate plus 0.5% and (z) the one-month Revolving LIBOR plus 1.00% per annum, plus, in each case, 0.875% per annum;

Borrowings under the Revolving Credit Agreement bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in the borrowing currency in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Revolving SOFR”) plus 1.875% per annum, or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) the overnight federal funds rate plus 0.5% and (z) the one-month Revolving SOFR plus 1.00% per annum, plus, in each case, 0.875% per annum;

provided that, for each of clauses (i) and (ii), the applicable margin with respect to such loans is subject to adjustment upon achievement of certain leverage ratios as set forth in a leverage-based pricing grid in the Revolving Credit Agreement.

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Voluntary reductions of the unutilized portion of the Commitments under the Revolving Credit Facility are permitted at any time in certain minimum principal amounts, without premium or penalty.

Voluntary prepayments of borrowings under the Revolving Credit Facility are permitted at any time in certain minimum principal amounts, subject to reimbursement of the lenders’ redeployment costs actually incurred in the case of a prepayment of LIBOR-based borrowings other than on the last day of the relevant interest period.

Voluntary prepayments of borrowings under the Revolving Credit Facility are permitted at any time in certain minimum principal amounts, subject to reimbursement of the lenders’ redeployment costs actually incurred in the case of a prepayment of SOFR-based borrowings other than on the last day of the relevant interest period.

Senior Term Loan Facility

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borrowed additional term loans in the amount of $150 million for an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of $1,295 million.

On May 10, 2023, Acquisition Corp.

entered into an amendment (the “Senior Term Loan Credit Agreement Amendment”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the guarantors party thereto and Credit Suisse AG, as administrative agent.

The Senior Term Loan Credit Agreement Amendment provides for the replacement of LIBOR-based rates with a SOFR-based rate.

We utilized the expedients set forth in ASC 848, including those relating to derivative instruments used in hedging relationships.

This transition does not result in a financial impact to our consolidated financial statements.

On June 30, 2023, Acquisition Corp.

entered into an increase supplement (the “Third Increase Supplement”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the guarantors party thereto, the lender party thereto and Credit Suisse AG, as administrative agent, pursuant to which Acquisition Corp.

has borrowed additional Tranche G term loans in an amount equal to $150 million, the proceeds of which have been used to prepay the Tranche H term loans in full (see “Senior Term Loan Facility Amendment”), for an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of $1,295 million.

The Company recorded a loss on extinguishment of debt of approximately $4 million for the fiscal year ended September 30, 2023, which represents the remaining unamortized discount and deferred financing costs of the Tranche H term loan.

Acquisition Corp.

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Interest Rates and Fees

Term loan borrowings under the Senior Term Loan Credit Agreement bear interest at a floating rate measured by reference to, at Acquisition Corp.’s option, either (i) an adjusted London inter-bank offered rate, LIBOR, not less than 0.00% per annum plus a borrowing margin of 2.125% per annum or (ii) an alternative base rate plus a borrowing margin of 1.125% per annum.

Term loan borrowings under the Senior Term Loan Credit Agreement bear interest at a floating rate measured by reference to, at Acquisition Corp.’s option, either (i) an adjusted scheduled overnight financing rate, SOFR, not less than 0.00% per annum plus a borrowing margin of 2.125% per annum or (ii) an alternative base rate plus a borrowing margin of 1.125% per annum.

The Senior Term Loan Facility is subject to mandatory prepayment and reduction in an amount equal to (a) 50% of excess cash flow (as defined in the Senior Term Loan Credit Agreement), with reductions to 25% and zero based upon achievement of a net senior secured leverage ratio of less than or equal to 4.50:1.00 or 4.00:1.00, respectively, (b) 100% of the net cash proceeds received from the incurrence of indebtedness by the Term Loan Borrower or any of its restricted subsidiaries (other than indebtedness permitted under the Senior Term Loan Facility) and (c) 100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property by the Term Loan Borrower and its restricted subsidiaries (including certain insurance and condemnation proceeds) in excess of $75 million and subject to the right of the Term Loan Borrower and its restricted subsidiaries to reinvest such proceeds within a specified period of time, and other exceptions.

Voluntary prepayments of borrowings under the Senior Term Loan Facility are permitted at any time, in minimum principal amounts of $1 million or a whole multiple of $500,000 in excess thereof, subject to reimbursement of the lenders’ redeployment costs actually incurred in the case of a prepayment of adjusted LIBOR borrowings other than on the last day of the relevant interest period.

Voluntary prepayments of borrowings under the Senior Term Loan Facility are permitted at any time, in minimum principal amounts of $1 million or a whole multiple of $500,000 in excess thereof, subject to reimbursement of the lenders’ redeployment costs actually incurred in the case of a prepayment of adjusted SOFR borrowings other than on the last day of the relevant interest period.

Secured Notes

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priced $540 million in aggregate principal amount of its 3.750% Senior Secured Notes due 2029 (the “3.750% Senior Secured Notes,” together with the 3.875% Senior Secured Notes, the 2.750% Senior Secured Notes, the 3.000% Senior Secured Notes and the 2.250% Senior Secured Notes, the “Secured Notes”).

We expect to issue the 3.750% Senior Secured Notes on November 24, 2021 under the Senior Secured Base Indenture, as supplemented by the Sixth Supplemental Indenture, dated as of November 24, 2021, among Acquisition Corp., the guarantors party thereto and the Trustee (the “3.750% Supplemental Indenture,” together with the Senior Secured Base Indenture, the 3.875% Supplemental Indenture, the 2.750% Supplemental Indenture, the 3.000% Supplemental Indenture and the 2.250% Supplemental Indenture, the “Secured Notes Indenture”).

We issued the 3.750% Senior Secured Notes on November 24, 2021 under the Senior Secured Base Indenture, as supplemented by the Sixth Supplemental Indenture, dated as of November 24, 2021, among Acquisition Corp., the guarantors party thereto and the Trustee (the “3.750% Supplemental Indenture,” together with the Senior Secured Base Indenture, the 3.875% Supplemental Indenture, the 2.750% Supplemental Indenture, the 3.000% Supplemental Indenture and the 2.250% Supplemental Indenture, the “Secured Notes Indenture”).

At any time on one or more occasions on or prior to the fifth business day following December 20, 2021 by giving notice at least five business days prior to such time, Acquisition Corp.

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At any time prior to December 1, 2024, the 3.750% Senior Secured Notes may be redeemed pursuant to a Make-Whole Redemption in accordance with the 3.750% Supplemental Indenture.

Additionally, at any time prior to December 1, 2024, the 3.750% Senior Secured Notes may be redeemed pursuant to an Equity Redemption at a redemption price equal to 103.750% of the principal amount of the 3.750% Senior Secured Notes redeemed, plus accrued and unpaid interest, subject to the same provisos as the 3.875% Senior Secured Notes Equity Redemption.

Additionally, at any time prior to December 1, 2024, the 3.750% Senior Secured Notes may be redeemed pursuant to an Equity Redemption at a redemption price equal to 103.750% of the principal

amount of the 3.750% Senior Secured Notes redeemed, plus accrued and unpaid interest, subject to the same provisos as the 3.875% Senior Secured Notes Equity Redemption.

On or after December 1, 2024, Acquisition Corp.

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3.000% Senior Secured Notes due 2031

Term Loan Mortgage

Total long-term debt, including the current portion $ 4,002

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The Company paid cash dividends to stockholders and participating security holders of $340 million, $318 million and $265 million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.

On November 10, 2022, the Company’s board of directors declared a cash dividend of $0.16 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 December 1, 2022 to stockholders of record as of the close of business on November 22, 2022.

Covenant Compliance

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The Revolving Credit Facility contains a springing leverage ratio that is tied to a ratio based on EBITDA, which is defined under the Revolving Credit Agreement.

Our ability to borrow funds under the Revolving Credit Facility may depend upon our ability to meet the leverage ratio test at the end of a fiscal quarter to the extent we have drawn a certain amount of revolving loans.

specified therein.

Our ability to borrow funds under the Revolving Credit Facility may depend upon our ability

to meet the leverage ratio test at the end of a fiscal quarter to the extent we have drawn a certain amount of revolving loans.

EBITDA as defined in the Revolving Credit Facility is based on Consolidated Net Income (as defined in the Revolving Credit Facility), both of which terms differ from the terms “EBITDA” and “net income” as they are commonly used.

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Accordingly, Adjusted EBITDA should be considered in addition to, not as a substitute for, net income (loss) and other measures of financial performance reported in accordance with U.S.

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

The following is a reconciliation of net income, 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 September 30, 2023, for the twelve months ended September 30, 2022 and for the three months ended September 30, 2023 and September 30, 2022.

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(d) Reflects unrealized losses (gains) due to foreign exchange on our Euro-denominated debt, losses (gains) from hedging activities and intercompany transactions.

(e) Reflects mainly transaction related costs and mark-to-market adjustments of an earn-out liability related to a transaction in 2021.

(e) Reflects mainly transaction related costs.

(f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $14 million and $48 million related to our finance transformation and other related costs for the three and twelve months ended September 30, 2023, respectively, as well as $9 million and $40 million for the three and twelve months ended September 30, 2022, respectively.

4 unchanged sentences

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 $14 million decrease in the twelve months ended September 30, 2022 Adjusted EBITDA, primarily driven by the shift in the timing of the financial transformation initiative.

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

of approximately $3.732 billion and the balance of current notes payable of approximately $125 million less cash of $250 million.

The pro forma impact of these specified transactions and initiatives resulted in a $2 million increase in the twelve months ended September 30, 2023 Adjusted EBITDA.

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

of approximately $3.964 billion and less cash of $250 million.

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

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Interest on Senior Term Loan Facility (1) 97 163 100 — 360

Term Loan Mortgage (1)

Interest on Term Loan Mortgage (1)

Operating leases (2) 56 104 98 104 362

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The following is a description of our firmly committed contractual obligations at September 30, 2023:

(1) Outstanding debt obligations consist of the Senior Term Loan Facility and the Senior Secured Notes.

(1) Outstanding debt obligations consist of the Senior Secured Notes, Senior Term Loan Facility and the Term Loan Mortgage.

These obligations have been presented based on the principal amounts due as of September 30, 2023.

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We believe such advances are recoverable through future royalties to be earned by the applicable recording artists and songwriters.

Accounting for Stock-Based Compensation

Stock-based compensation represents compensation payment for which the amounts are based on the fair market value of the Company’s common stock.

Prior to the Company’s IPO, the Company’s Second Amended and Restated Senior Management Free Cash Flow Plan (the “Plan”) was classified as a liability rather than equity under FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”) .

In February 2020, the Company filed a Form S-1 registration statement with the SEC in connection with

the IPO, which required a change in accounting policy during the three months ended March 31, 2020 from the intrinsic value method to fair value method in determining the basis of measurement of its stock-based compensation liability.

In determining fair value, the Company utilized an option pricing model for those awards with an option-like pay-off, which includes various inputs for volatility, term to exit, discount for lack of marketability, expected dividend yield and risk-free rates.

For awards with an equity-like pay-off, inputs for discount of lack of marketability and non-performance risk were considered.

The Company continued to use an income approach using a discounted cash flow model to determine its per-share value input within the model.

Upon completion of the IPO in June 2020, the Plan was amended to remove the cash-settlement feature on all future redemptions.

As a result, all awards previously issued under the Plan will require settlement in Class A Common Stock.

Under the provision of ASC 718, the Company determined the Plan was modified as of June 3, 2020, and as such, converted the awards from liability-classified to equity-classified.

Prior to conversion, the Company performed a final measurement of its stock-based compensation liability under the fair value method.

Subsequent to the amendment, the awards issued under the Plan will no longer be adjusted for changes in the value of the Company’s common stock.

Recent Accounting Pronouncements

1 unchanged sentence

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-K

Item 7. Management’s Discussion and Analysis