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Item 2. Management’s Discussion and Analysis

2024-02-08 compared with 2023-08-08 · 251 added, 560 removed, 402 unchanged (67% of the section changed)

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

You should read the following discussion of our results of operations and financial condition with the unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Quarterly Report”).

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

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• the dual class structure of our common stock and Access’s existing ownership of our Class B Common Stock have the effect of concentrating control over our management and affairs and over matters requiring stockholder approval with Access;

• the fact that we maintain certain cash deposits in excess of FDIC insurance limits, which could have an adverse effect on liquidity and financial performance in the event of a bank failure or receivership;

• the fact that we maintain certain cash deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits, which could have an adverse effect on liquidity and financial performance in the event of a bank failure or receivership;

• risks related to other factors discussed under “Risk Factors” of this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

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• Results of operations.

This section provides an analysis of our results of operations for the three and nine months ended June 30, 2023 and June 30, 2022.

This section provides an analysis of our results of operations for the three months ended December 31, 2023 and December 31, 2022.

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

• Financial condition and liquidity.

This section provides an analysis of our cash flows for the nine months ended June 30, 2023 and June 30, 2022, as well as a discussion of our financial condition and liquidity as of June 30, 2023.

This section provides an analysis of our cash flows for the three months ended December 31, 2023 and December 31, 2022, as well as a discussion of our financial condition and liquidity as of December 31, 2023.

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

We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses.

However, a limitation of the use of OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses.

Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) attributable to Warner Music Group Corp.

Use of Adjusted OIBDA

We evaluate our operating performance based on several factors, including our primary financial measure of operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets adjusted to exclude the impact of non-cash stock-based compensation and other related expenses and certain items that affect comparability including but not limited to gains or losses on divestitures and expenses related to restructuring and transformation initiatives (“Adjusted OIBDA”).

We consider Adjusted OIBDA to be an important indicator of the operational strengths and performance of our businesses.

However, a limitation of the use of Adjusted OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses.

Accordingly, Adjusted OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) attributable to Warner Music Group Corp.

and other measures of financial performance reported in accordance with United States generally accepted accounting principles (“U.S.

In addition, our definition of OIBDA may differ from similarly titled measures used by other companies.

A reconciliation of consolidated OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp.

In addition, our definition of Adjusted OIBDA may differ from similarly titled measures used by other companies.

A reconciliation of consolidated Adjusted OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp.

is provided in our “Results of Operations.”

Use of Constant Currency

As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue and OIBDA on a constant-currency basis in addition to reported results helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods.

Constant-currency information compares revenue and OIBDA between periods as if exchange rates had remained constant period over period.

We use revenue on a constant-currency basis as one measure to evaluate our performance.

We calculate constant currency by calculating prior-year revenue using current-year foreign currency exchange rates.

We generally refer to such amounts calculated on a constant-currency basis as “excluding the impact of foreign currency exchange rates.” This revenue should be considered in addition to, not as a substitute for, revenue reported in accordance with U.S.

Revenue on a constant-currency basis, as we present it, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with U.S.

As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue and Adjusted OIBDA on a constant-currency basis in addition to reported results helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods.

Constant-currency information compares revenue and Adjusted OIBDA between periods as if exchange rates had remained constant period over period.

We use revenue and Adjusted OIBDA on a constant-currency basis as one measure to evaluate our performance.

We calculate constant-currency by calculating prior-year revenue and Adjusted OIBDA using current-year foreign currency exchange rates.

We generally refer to such amounts calculated on a constant-currency basis as “excluding the impact of foreign currency exchange rates.” Revenue and Adjusted OIBDA on a constant-currency basis should be considered in addition to, not as a substitute for, revenue and Adjusted OIBDA reported in

accordance with U.S.

Revenue and Adjusted OIBDA on a constant-currency basis, as we present it, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with U.S.

BUSINESS OVERVIEW

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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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Under these agreements, we provide services to and participate in recording artists’ activities outside the traditional recorded music business such as touring, merchandising and sponsorships.

We have built and acquired artist services capabilities and platforms for marketing and distributing this broader set of

music-related rights and participating more widely in the monetization of the artist brands we help create.

We have built and acquired artist services capabilities and platforms for marketing and distributing this broader set of music-related rights and participating more widely in the monetization of the artist brands we help create.

We believe that entering into expanded-rights deals and enhancing our artist services capabilities in areas such as merchandising, VIP ticketing, fan clubs, concert promotion and management has permitted us to diversify revenue streams and capitalize on other revenue opportunities.

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• Performance :

the rightsholder receives revenues if the musical composition is performed publicly through broadcast of music on television, radio and cable and in retail locations (e.g., bars and restaurants), live performance at a concert or other venue ( e.g.

concert or other venue ( e.g.

, arena concerts and nightclubs), and performance of music in staged theatrical productions;

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Recent Events and Factors Affecting Results of Operations and Comparability

Fiscal Quarter End

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.

The fiscal year ended September 30, 2022 included 53 weeks, with the additional week falling in the fiscal quarter ended December 31, 2021.

Accordingly, the results of operations for the nine months ended June 30, 2022 reflect 40 weeks, or 280 days, compared to 273 days for the nine months ended June 30, 2023.

For the nine months ended June 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.

The Company expects to incur total non-recurring restructuring charges of approximately $41 million for severance costs, all of which is expected to be paid in cash.

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

The Company expects the headcount reductions to generate pre-tax cost savings of approximately $19 million in fiscal year 2023 and $48 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 in an amount to be determined for targeted hires, to add new skill sets and for other initiatives intended to position the Company for long-term growth.

There were no restructuring costs incurred in the three months ended June 30, 2023.

Total restructuring costs were $41 million for the nine months ended June 30, 2023, consisting of severance costs.

All restructuring costs were recorded in the Recorded Music segment.

During the nine months ended June 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 RSUs.

Executive Transition Costs

During the three and nine months ended June 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 is expected to occur by the end of calendar 2023 (the “Executive Transition Costs”).

For the three and nine months ended June 30, 2023, the Executive Transition Costs were approximately $1 million and $4 million, respectively, which consisted of severance for our previous CEO and our departing CFO.

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

The aforementioned departures of our CEO and CFO resulted in the recognition of $1 million and $13 million of non-cash stock-based compensation expense for the three and nine months ended June 30, 2023, respectively, 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 condensed consolidated statements of operations.

Russia-Ukraine Conflict

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

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

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

The headcount reductions generated pre-tax cost savings of approximately $12 million for the three months ended December 31, 2023.

BMG Termination

In September 2023, the Company announced its distribution agreement with BMG will be terminated as BMG will begin to bring digital distribution in-house and license directly with digital service partners beginning in fiscal 2024 (the “BMG Termination”).

Alternative Distribution Alliance (“ADA”), which is part of our Recorded Music business, had previously been distributing BMG’s recorded music catalog and revenues are reported within our Recorded Music segment.

The shift to direct deals by BMG will be a phased in-sourcing of distribution during the current fiscal year and we expect BMG to be largely rolled off by October 2024.

During the quarter ended December 31, 2023, in connection with the BMG Termination, the Company reported lower Recorded Music digital revenue of $13 million compared to the prior-year quarter, of which $12 million was streaming revenue.

The impact to Recorded Music’s Adjusted OIBDA was immaterial in the quarter.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022

Three Months Ended December 31, 2023 Compared with Three Months Ended December 31, 2022

Consolidated Results

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For the Three Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

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Total Revenues

Total revenues increased by $132 million, or 9%, to $1,564 million for the three months ended June 30, 2023 from $1,432 million for the three months ended June 30, 2022.

The increase includes $9 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 82% and 18% of total revenue for the three months ended June 30, 2023, respectively, and 83% and 17% of total revenue for the three months ended June 30, 2022, respectively.

Total revenues increased by $260 million, or 17%, to $1,748 million for the three months ended December 31, 2023 from $1,488 million for the three months ended December 31, 2022.

The quarter included $68 million from a licensing agreement extension for an artist’s catalog (the “Licensing Extension”) in Recorded Music licensing revenue and $27 million from a new deal with one of the Company’s digital partners (the “Digital License Renewal”) in Recorded Music streaming revenue.

Additionally, the quarter included the impact of the termination of the distribution agreement with BMG (the “BMG Termination”) which resulted in $13 million of lower Recorded Music digital revenue in the three months ended December 31, 2023 compared to the prior-year quarter.

Adjusted for these items, total revenues increased by 12%.

The increase includes $20 million of favorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 83% and 17% of total revenue for the three months ended December 31, 2023, respectively, and 83% and 17% of total revenue for the three months ended December 31, 2022, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 45% and 55% of total revenues for each of the three months ended June 30, 2023 and June 30, 2022, respectively.

Total digital revenues after intersegment eliminations increased by $83 million, or 9%, to $1,027 million for the three months ended June 30, 2023 from $944 million for the three months ended June 30, 2022.

and international revenues represented 46% and 54% of total revenues for the three months ended December 31, 2023 and 45% and 55% of total revenues for the three months ended December 31, 2022.

Total digital revenues after intersegment eliminations increased by $152 million, or 16%, to $1,104 million for the three months ended December 31, 2023 from $952 million for the three months ended December 31, 2022.

Total streaming revenue increased 17% driven by growth across Recorded Music and Music Publishing.

The growth in Music Publishing includes a benefit in the quarter and the prior-year quarter of $7 million and $17 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 three months ended June 30, 2023 were composed of U.S.

Prior to intersegment eliminations, total digital revenues for the three months ended December 31, 2023 were composed of U.S.

revenues of $536 million and international revenues of $568 million, or 49% and 51% of total digital revenues, respectively.

Prior to intersegment eliminations, total digital revenues for the three months ended June 30, 2022 were composed of U.S.

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

revenues of $484 million and international revenues of $468 million, or 51% and 49% of total digital revenues, respectively.

Recorded Music revenues increased by $93 million to $1,282 million for the three months ended June 30, 2023 from $1,189 million for the three months ended June 30, 2022.

The increase included $9 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $557 million and $515 million, or 43% of consolidated Recorded Music revenues for each of the three months ended June 30, 2023 and June 30, 2022, respectively.

International Recorded Music revenues were $725 million and $674 million, or 57% of consolidated Recorded Music revenues for each of the three months ended June 30, 2023 and June 30, 2022, respectively.

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 $45 million, which included an unfavorable impact of foreign currency exchange rates of $9 million.

Revenue from streaming services increased by $49 million, or 6%, to $822 million for the three months ended June 30, 2023 from $773 million for the three months ended June 30, 2022 and was impacted by unfavorable foreign currency exchange rates of $7 million, or 1%.

Growth in streaming revenue increased due to a stronger release schedule and growth in ad-supported revenue recovered due to moderation in a market-related slowdown.

The quarter included success from Ed Sheeran, PinkPantheress, Bailey Zimmerman and Dua Lipa.

Download and other digital revenues decreased by $4 million, or 14%, to $24 million for the three months ended June 30, 2023 from $28 million for the three months ended June 30, 2022 due to the continued shift to streaming services.

Artist services and expanded-rights revenue increased by $28 million due to higher concert promotion and merchandising revenue and a favorable impact of foreign currency exchange rates of $1 million.

Licensing revenue increased by $17 million, with growth across synchronization, broadcast fees and other licensing revenue, partially offset by an unfavorable impact of foreign currency exchange rates of $1 million.

Physical revenue increased by $3 million primarily due to stronger performance in the United States.

Music Publishing revenues increased by $38 million, or 16%, to $283 million for the three months ended June 30, 2023 from $245 million for the three months ended June 30, 2022.

Music Publishing revenues were $147 million and $137 million, or 52% and 56% of consolidated Music Publishing revenues, for the three months ended June 30, 2023 and June 30, 2022, respectively.

International Music Publishing revenues were $136 million and $108 million, or 48% and 44% of consolidated Music Publishing revenues, for the three months ended June 30, 2023 and June 30, 2022, respectively.

The overall increase in Music Publishing revenue was driven by increases in digital revenue of $38 million, or 26%, and mechanical revenue of $6 million, partially offset by decreases in performance 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 and a revenue true-up of $9 million, partially offset by a $10 million quarter-over-quarter decrease in the impact of the CRB Rate Benefit and an unfavorable impact of foreign currency exchange rates of $1 million.

Revenue from streaming services grew by $38 million, or 27%, to $178 million for the three months ended June 30, 2023 from $140 million for the three months ended June 30, 2022.

Mechanical revenue increased from a higher share of physical sales and timing of distributions.

Performance revenue decreased due to the timing of payments from collection societies and an unfavorable impact of foreign currency exchange rates of $1 million.

Synchronization revenue remained flat primarily due to lower commercial licensing activity, offset by copyright infringement settlements.

Recorded Music revenues increased by $206 million, or 17%, to $1,445 million for the three months ended December 31, 2023 from $1,239 million for the three months ended December 31, 2022.

The increase includes $16 million of favorable currency exchange fluctuations.

Recorded Music revenues were $627 million and $539 million, or 43% and 44% of consolidated Recorded Music revenues for each of the three months ended December 31, 2023 and December 31, 2022, respectively.

International Recorded Music revenues were $818 million and $700 million, or 57% and 56% of consolidated Recorded Music revenues for each of the three months ended December 31, 2023 and December 31, 2022, respectively.

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

Digital revenue increased by $105 million, which includes the favorable impact of foreign currency exchange rates of $5 million.

Revenue from streaming services increased by $107 million, or 14%, to $887 million for the three months ended December 31, 2023 from $780 million for the three months ended December 31, 2022, which includes the favorable impact of foreign currency exchange rates of $4 million, or 1%.

Streaming revenue includes $27 million from the Digital License Renewal, partially offset by the impact of the BMG Termination of $12 million.

Adjusted for these items, streaming revenues increased 12%.

The quarter included carryover success from Ed Sheeran, Dua Lipa and Zach Bryan.

Download and other digital revenues decreased by $2 million, or 9%, to $21 million for the three months ended December 31, 2023 from $23 million for the three months ended December 31, 2022 due to the continued shift to streaming services.

Licensing revenue increased by $82 million, primarily due to $68 million from the Licensing Extension, the timing of new licensing deals primarily in the United States, and the favorable impact of foreign currency exchange rates of $2 million.

Physical revenue increased by $21 million, driven by the favorable impact of foreign currency exchange rates of $3 million and stronger performances in the United States, Japan and the UK.

Artist services and expanded-rights revenue decreased by $2 million due to lower merchandising revenue, partially offset by higher concert promotion revenue and the favorable impact of foreign currency exchange rates of $6 million.

Music Publishing revenues increased by $54 million, or 22%, to $304 million for the three months ended December 31, 2023 from $250 million for the three months ended December 31, 2022.

Music Publishing revenues were $172 million and $133 million, or 57% and 53% of consolidated Music Publishing revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively.

International Music Publishing revenues were $132 million and $117 million, or 43% and 47% of consolidated Music Publishing revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $47 million, or 32%, and performance revenue of $6 million, or 13%.

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, and the favorable impact of foreign currency exchange rates of $2 million.

Revenue from streaming services grew by $47 million, or 32%, to $193 million for the three months ended December 31, 2023 from $146 million for the three months ended December 31, 2022.

Performance revenue increased due to strong live performance in Europe and the favorable impact of foreign currency exchange rates of $1 million.

Synchronization revenue remained constant, attributable to lower commercial licensing activity in the United States, partially offset by the timing of legal settlements.

Mechanical revenue increased due to the favorable impact of foreign currency exchange rates of $1 million.

Revenue by Geographical Location

revenue increased by $52 million, or 8%, to $704 million for the three months ended June 30, 2023 from $652 million for the three months ended June 30, 2022.

revenue increased by $127 million, or 19%, to $799 million for the three months ended December 31, 2023 from $672 million for the three months ended December 31, 2022.

Recorded Music revenue increased by $88 million, or 16%.

The primary driver was the increase of U.S.

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

Recorded Music licensing revenue increased by $8 million, primarily from synchronization revenue.

Digital revenue increased by $7 million, or 2%, due to higher streaming revenue of $9 million, or 2%, partially offset by download and other digital decrease of $2 million.

Growth in ad-supported revenue recovered due to moderation in a market-related slowdown.

The primary driver was the increase in licensing revenue of $81 million, primarily due to $68 million from the Licensing Extension.

Recorded Music digital revenue increased by $15 million, or 4%.

Recorded Music streaming revenue increased by $17 million, or 4%, as a result of a stronger release schedule.

Download and other digital decreased by $2 million.

Increases are also attributable to higher U.S.

Recorded Music physical revenue of $4 million due to the success of strong U.S.

physical releases.

Music Publishing revenue increased by $10 million, or 7%, to $147 million for the three months ended June 30, 2023 from $137 million for the three months ended June 30, 2022.

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

Music Publishing digital revenue of $13 million due to the continued growth in streaming services and the impact of digital deal renewals, partially offset by a $10 million quarter-over-quarter decrease in the impact of the CRB Rate Benefit.

Recorded Music physical revenue of $6 million due to growth in vinyl sales.

Recorded Music artist services and expanded-rights revenue decreased by $14 million primarily driven by lower advertising and merchandising revenue.

Music Publishing revenue increased by $39 million, or 29%, to $172 million for the three months ended December 31, 2023 from $133 million for the three months ended December 31, 2022.

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

Music Publishing digital revenue of $37 million due to the continued growth in streaming services and the impact of digital deal renewals.

Music Publishing streaming revenue increased by $36 million, or 40%.

Mechanical and synchronization revenue each increased by $1 million.

Performance revenue decreased by $6 million driven by the timing of payments from collection societies.

International revenue increased by $79 million to $861 million for the three months ended June 30, 2023 from $782 million for the three months ended June 30, 2022.

Excluding the unfavorable impact of foreign currency exchange rates of $10 million, International revenue increased by $89 million, or 12%.

International Recorded Music revenue increased by $51 million primarily due to increases in digital revenue of $38 million, licensing revenue of $9 million and artist services and expanded-rights revenue of $5 million, partially offset by a decrease in physical revenue of $1 million.

International Recorded Music digital revenue increased due to a $40 million, or 10%, increase in streaming revenue which included an unfavorable impact of foreign currency exchange rates of $7 million.

International Recorded Music licensing revenue increased by $9 million, primarily due to higher broadcast fees and other licensing revenue, partially offset by an unfavorable impact of foreign currency exchange rates.

Performance revenue increased by $2 million.

Synchronization revenue remained constant, and Mechanical revenue decreased by $1 million.

International revenue increased by $133 million, or 16%, to $950 million for the three months ended December 31, 2023 from $817 million for the three months ended December 31, 2022.

Excluding the favorable impact of foreign currency exchange rates of $20 million, International revenue increased by $113 million, or 14%.

International Recorded Music revenue increased by $118 million due to increases in digital revenue of $90 million, physical revenue of $15 million, artist services and expanded-rights revenue of $12 million and licensing revenue of $1 million.

International Recorded Music digital revenue increased due to a $90 million, or 23%, increase in streaming revenue, which includes $27 million from the Digital License Renewal and the favorable impact of foreign currency exchange rates of $4 million.

International Recorded Music physical revenue increased by $15 million, primarily driven by stronger performances in Japan and the UK and the favorable impact of foreign currency exchange rates.

International Recorded Music artist services and expanded-rights revenue increased by $12 million due to higher concert promotion revenue and the favorable impact of foreign currency exchange rates of $6 million, partially offset by lower direct-to-consumer merchandising revenue at EMP.

International Recorded Music physical revenue decreased by $1 million against higher sales in the prior-year quarter from the success of new releases in Asia.

International Music Publishing revenue increased from the prior-year quarter by $28 million, or 26%, to $136 million for the three months ended June 30, 2023 from $108 million for the three months ended June 30, 2022.

This was driven by the increase in digital revenue of $25 million, mechanical revenue of $5 million and performance revenue of $1 million, partially offset by a decrease in synchronization revenue of $1 million.

International Music Publishing streaming revenue increased by $24 million, or 47%, which includes a revenue true-up of $9 million and download and other digital revenue increased by $1 million.

Mechanical revenue increased from a higher share of physical sales and timing of distributions.

Performance revenue increase was driven by continued growth from bars, restaurants, concerts and live events, partially offset by an unfavorable impact of foreign currency exchange rates.

Lower synchronization revenue is primarily due to lower commercial licensing activity.

International Recorded Music licensing revenue increased by $1 million primarily due to higher broadcast fees and the favorable impact of foreign currency exchange rates.

International Music Publishing revenue increased from the prior-year quarter by $15 million, or 13%, to $132 million for the three months ended December 31, 2023 from $117 million for the three months ended December 31, 2022.

This was primarily driven by the increase in digital revenue of $10 million, performance revenue of $4 million and mechanical revenue of $2 million.

International Music Publishing streaming revenue increased by $11 million or 20%, which includes the favorable impact of foreign currency exchange rates of $2 million, while download and other digital decreased by $1 million.

Performance revenue increased driven by strong live performance in Europe.

Mechanical revenue increased primarily due to the favorable impact of foreign currency exchange rates of $1 million.

Synchronization revenue remained constant.

Cost of revenues

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For the Three Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

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Total cost of revenues $ 880 $ 761 $ 119 16 %

Artist and repertoire costs increased by $44 million, to $530 million for the three months ended June 30, 2023 from $486 million for the three months ended June 30, 2022.

Artist and repertoire costs as a percentage of revenue remained constant at 34% for each of the three months ended June 30, 2023 and June 30, 2022 due to the favorable impact of foreign currency exchange rates, offset by revenue mix.

Product costs increased by $40 million, to $320 million for the three months ended June 30, 2023 from $280 million for the three months ended June 30, 2022.

Product costs as a percentage of revenue remained constant at 20% for each of the three months ended June 30, 2023 and June 30, 2022.

Artist and repertoire costs increased by $76 million, to $540 million for the three months ended December 31, 2023 from $464 million for the three months ended December 31, 2022.

Artist and repertoire costs as a percentage of revenue remained constant at 31% for each of the three months ended December 31, 2023 and December 31, 2022, primarily due to the impact of the Licensing Extension, offset by revenue mix and the unfavorable impact of foreign currency exchange rates.

Product costs increased by $43 million, to $340 million for the three months ended December 31, 2023 from $297 million for the three months ended December 31, 2022.

Product costs as a percentage of revenue decreased to 19% for the three months ended December 31, 2023 from 20% for the three months ended December 31, 2022, primarily due to the impact of the Licensing Extension, offset by revenue mix from higher third-party distributed label revenue.

Selling, general and administrative expenses

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For the Three Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

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______________________________________

(1) Includes depreciation expense of $22 million and $18 million for the three months ended June 30, 2023 and June 30, 2022, respectively.

Total selling, general and administrative expense increased by $10 million, or 2%, to $461 million for the three months ended June 30, 2023 from $451 million for the three months ended June 30, 2022.

Expressed as a percentage of revenue, total selling, general and administrative expense decreased to 29% for the three months ended June 30, 2023 from 31% for the three months ended June 30, 2022.

General and administrative expense increased by $19 million to $244 million for the three months ended June 30, 2023 from $225 million for the three months ended June 30, 2022.

The increase in general and administrative expense was mainly due to increased employee related costs, net of savings from the Restructuring Plan, which includes incremental overhead in technology and higher non-cash stock-based compensation and other related expenses of $2 million, the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior-year quarter related to an acquisition and higher depreciation, partially offset by lower professional services and severance expenses.

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

Selling and marketing expense decreased by $13 million, or 7%, to $185 million for the three months ended June 30, 2023 from $198 million for the three months ended June 30, 2022 primarily due to lower variable marketing spend and savings from the Restructuring Plan.

Expressed as a percentage of revenue, selling and marketing expense decreased to 12% for the three months ended June 30, 2023 from 14% for the three months ended June 30, 2022.

Distribution expense was $32 million for the three months ended June 30, 2023 and $28 million for the three months ended June 30, 2022.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the three months ended June 30, 2023 and June 30, 2022.

(1) Includes depreciation expense of $26 million and $21 million for the three months ended December 31, 2023 and December 31, 2022, respectively.

Total selling, general and administrative expense increased by $36 million, or 8%, to $476 million for the three months ended December 31, 2023 from $440 million for the three months ended December 31, 2022.

Expressed as a percentage of revenue, total selling, general and administrative expense decreased to 27% for the three months ended December 31, 2023 from 30% for the three months ended December 31, 2022.

General and administrative expense increased by $48 million to $269 million for the three months ended December 31, 2023 from $221 million for the three months ended December 31, 2022.

The increase in general and administrative expense was mainly due to higher employee related costs, net of savings from the Restructuring Plan, incremental investment in technology of $11 million and expenses related to transformation initiatives of $7 million, the unfavorable movements in foreign currency exchange rates of $5 million.

Expressed as a percentage of revenue, general and administrative expense remained constant at 15% for each of the three months ended December 31, 2023 and December 31, 2022.

Selling and marketing expense decreased by $12 million, or 6%, to $176 million for the three months ended December 31, 2023 from $188 million for the three months ended December 31, 2022.

Expressed as a percentage of revenue, selling and marketing expense decreased to 10% for the three months ended December 31, 2023 from 13% for the three months ended December 31, 2022 due to lower variable marketing spend and savings from the Restructuring Plan.

Distribution expense remained constant at $31 million for the three months ended December 31, 2023 and the three months ended December 31, 2022.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the three months ended December 31, 2023 and December 31, 2022.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

and Operating Income to Consolidated OIBDA

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

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

and Operating Income to Consolidated Adjusted OIBDA

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

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

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

For the Three Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

5 unchanged sentences

Income before income taxes 265 172 93 54 %

Other income (20) (50) 30 -60 %

Other expense 50 61 (11) (18) %

Interest expense, net 39 32 7 22 %

3 unchanged sentences

Depreciation expense 26 21 5 24 %

OIBDA $ 275 $ 233 $ 42 18 %

OIBDA increased by $42 million to $275 million for the three months ended June 30, 2023 as compared to $233 million for the three months ended June 30, 2022 as a result of higher revenues offset by higher cost of revenues and selling, general and administrative expense.

Expressed as a percentage of total revenue, OIBDA margin increased to 18% for the three months ended June 30, 2023 from 16% for the three months ended June 30, 2022 primarily due to strong operating performance, lower variable marketing spend, savings from the Restructuring Plan and the favorable impact of foreign currency exchange rates, partially offset by revenue mix, incremental overhead in technology and the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior-year quarter related to an acquisition.

Transformation initiatives and other related costs

Net gain on divestitures

(17) (41) 24 (59) %

Non-cash stock-based compensation and other related costs

14 15 (1) (7) %

Adjusted OIBDA $ 451 $ 335 $ 116 35 %

Adjusted OIBDA

Adjusted OIBDA increased by $116 million to $451 million for the three months ended December 31, 2023 as compared to $335 million for the three months ended December 31, 2022 primarily due to strong operating performance, savings from the Restructuring Plan, the impact of the Licensing Extension of $67 million and the Digital License Renewal of $10 million, partially offset by revenue mix, the incremental investment in technology of $11 million, and the unfavorable impact of foreign currency exchange rates.

Expressed as a percentage of total revenue, Adjusted OIBDA margin increased to 26% for the three months ended December 31, 2023 from 23% for the three months ended December 31, 2022 due to the factors noted above.

Excluding the impact of the Licensing Extension and Digital License Renewal, Adjusted OIBDA margin was 23% for the three months ended December 31, 2023.

Non-cash stock based compensation and other related costs

Our non-cash stock based compensation and other related costs decreased by $1 million to $14 million for the three months ended December 31, 2023 from $15 million for the three months ended December 31, 2022.

Net gain on divestitures

Net gain on divestitures decreased during the three months ended December 31, 2023, to a pre-tax gain of $17 million in connection with the divestiture of certain sound recording rights in the quarter.

This compares to a pre-tax gain of $41 million in the three months ended December 31, 2022.

Transformation initiatives and other related costs

Our transformation initiatives and other related costs increased by $7 million to $19 million for the three months ended December 31, 2023 from $12 million for the three months ended December 31, 2022 due to an increase in costs associated with our finance transformation.

Depreciation expense

Our depreciation expense increased by $4 million to $22 million for the three months ended June 30, 2023 from $18 million for the three months ended June 30, 2022 primarily due to an increase in IT capital spend and assets being placed into service.

Our depreciation expense increased by $5 million to $26 million for the three months ended December 31, 2023 from $21 million for the three months ended December 31, 2022.

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

Amortization expense

Our amortization expense decreased by $5 million, or 7%, to $64 million for the three months ended June 30, 2023 from $69 million for the three months ended June 30, 2022.

Our amortization expense decreased by $8 million, or 13%, to $55 million for the three months ended December 31, 2023 from $63 million for the three months ended December 31, 2022.

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

Operating income

Our operating income increased by $43 million to $189 million for the three months ended June 30, 2023 from $146 million for the three months ended June 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.

Loss on extinguishment of debt

We recorded a loss on extinguishment of debt in the amount of $4 million for the three months ended June 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 three months ended June 30, 2022.

Our operating income increased by $89 million to $354 million for the three months ended December 31, 2023 from $265 million for the three months ended December 31, 2022.

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

Interest expense, net

Our interest expense, net, increased to $38 million for the three months ended June 30, 2023 from $32 million for the three months ended June 30, 2022 due to a higher principal balance from the issuance of the incremental Senior Term Loan Facility and higher interest rates on variable rate debt, partially offset by interest income.

Other income for the three months ended June 30, 2023 primarily includes foreign currency gains on our Euro-denominated debt of $2 million, currency exchange gains on the Company’s intercompany loans of $11 million and aggregate realized and unrealized gains of $5 million on the mark-to-market of equity investments.

This compares to foreign currency gains on our Euro-denominated debt of $46 million and currency exchange gains on the Company’s intercompany loans of $5 million for the three months ended June 30, 2022.

Our interest expense, net, increased to $39 million for the three months ended December 31, 2023 from $32 million for the three months ended December 31, 2022 due to a higher principal balance related to the issuance of incremental Senior Term Loan Facility and higher interest rates on variable rate debt, partially offset by higher interest income.

Other expense

Other expense for the three months ended December 31, 2023 primarily includes foreign currency losses on our Euro-denominated debt of $39 million, currency exchange losses on our intercompany loans of $9 million, and unrealized losses on hedging activity of $6 million.

This compares to foreign currency losses on our Euro-denominated debt of $68 million and unrealized losses on hedging activity of $8 million, partially offset by currency exchange gains on our intercompany loans of $15 million for the three months ended December 31, 2022.

Income tax expense

Our income tax expense increased by $4 million to $43 million for the three months ended June 30, 2023 from $39 million for the three months ended June 30, 2022.

The increase of $4 million in income tax expense is primarily due to the impact of higher foreign withholding taxes, an increase in unrecognized tax benefit related to uncertain tax positions and an increase in non-deductible executive compensation under IRC Section 162(m) in the current-year quarter.

These charges were partially offset by the benefit of R&D credits and release of U.S.

state valuation allowance recognized in the current-year quarter.

Net income decreased by $1 million to $124 million for the three months ended June 30, 2023 from $125 million for the three months ended June 30, 2022 as a result of the factors described above.

Our income tax expense increased by $24 million to $72 million for the three months ended December 31, 2023 from $48 million for the three months ended December 31, 2022.

The increase of $24 million in income tax expense is primarily due to the impact of increase in pre-tax income, higher portion of the pre-tax income earned outside of the United States and taxed at rates higher than in the United States, increase in unrecognized tax benefit related to uncertain tax positions, and higher withholding taxes in the current year.

Net income increased by $69 million to $193 million for the three months ended December 31, 2023 from $124 million for the three months ended December 31, 2022 as a result of the factors described above.

Noncontrolling interest

There was $2 million of income attributable to noncontrolling interest for the three months ended June 30, 2023 and $1 million of income attributable to noncontrolling interest for the three months ended June 30, 2022.

Income attributable to noncontrolling interest increased by $32 million to $34 million for the three months ended December 31, 2023, from $2 million for the three months ended December 31, 2022, largely driven by higher income from non-wholly-owned subsidiaries in the current period, primarily due to the impact of the Licensing Extension.

Business Segment Results

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

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

For the Three Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

2 unchanged sentences

Operating income 374 283 91 32 %

OIBDA 261 224 37 17 %

Adjusted OIBDA

412 299 113 38 %

Music Publishing

1 unchanged sentence

Operating income 63 49 14 29 %

OIBDA 73 57 16 28 %

Adjusted OIBDA

86 72 14 19 %

Corporate expenses and eliminations

1 unchanged sentence

Operating loss (83) (67) (16) 24 %

OIBDA loss (59) (48) (11) 23 %

Adjusted OIBDA loss

(47) (36) (11) 31 %

Revenues 1,748 1,488 260 17 %

Operating income 354 265 89 34 %

OIBDA 275 233 42 18 %

Adjusted OIBDA

451 335 116 35 %

Recorded Music

Recorded Music revenue increased by $93 million to $1,282 million for the three months ended June 30, 2023 from $1,189 million for the three months ended June 30, 2022.

Recorded Music revenues were $557 million and $515 million, or 43% of consolidated Recorded Music revenues, for each of the three months ended June 30, 2023 and June 30, 2022, respectively.

International Recorded Music revenues were $725 million and $674 million, or 57% of consolidated Recorded Music revenues, for each of the three months ended June 30, 2023 and June 30, 2022, respectively.

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

Recorded Music revenue increased by $206 million, or 17%, to $1,445 million for the three months ended December 31, 2023 from $1,239 million for the three months ended December 31, 2022.

Excluding the impact of the Licensing Extension, the BMG Termination and the Digital License Renewal, Recorded Music revenue increased 10% for the three months ended December 31, 2023.

Recorded Music revenues were $627 million and $539 million, or 43% and 44% of consolidated Recorded Music revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively.

International Recorded Music revenues were $818 million and $700 million, or 57% and 56% of consolidated Recorded Music revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively.

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

Cost of revenues

1 unchanged sentence

For the Three Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 690 $ 608 $ 82 13 %

Recorded Music cost of revenues increased by $63 million, or 10%, to $669 million for the three months ended June 30, 2023 from $606 million for the three months ended June 30, 2022.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs remained constant at 27% for each of the three months ended June 30, 2023 and June 30, 2022, due to the favorable impact of foreign currency exchange rates, offset by revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs increased to 25% for the three months ended June 30, 2023 from 24% for the three months ended June 30, 2022.

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

Recorded Music cost of revenues increased by $82 million, or 13%, to $690 million for the three months ended December 31, 2023 from $608 million for the three months ended December 31, 2022.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 24% for the three months ended December 31, 2023 from 25% for the three

months ended December 31, 2022, primarily due to the impact of the Licensing Extension, offset by revenue mix and the unfavorable impact of foreign currency exchange rates.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs remained constant at 24% for the three months ended December 31, 2023 and the three months ended December 31, 2022, primarily due to the impact of the Licensing Extension, offset by revenue mix from higher third-party distributed label revenue.

Selling, general and administrative expense

1 unchanged sentence

For the Three Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

4 unchanged sentences

______________________________________

(1) Includes depreciation expense of $13 million and $12 million for the three months ended June 30, 2023 and June 30, 2022, respectively.

Recorded Music selling, general and administrative expense decreased by $6 million, or 2%, to $365 million for the three months ended June 30, 2023 from $371 million for the three months ended June 30, 2022.

The increase in general and administrative expense was mainly due to increased employee related costs, net of savings from the Restructuring Plan, and the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior-year quarter related to an acquisition, partially offset by the favorable movements in foreign currency exchanges rates of $4 million, lower severance and professional services expenses.

(1) Includes depreciation expense of $13 million and $13 million for the three months ended December 31, 2023 and December 31, 2022, respectively.

Recorded Music selling, general and administrative expense increased by $16 million, or 5%, to $364 million for the three months ended December 31, 2023 from $348 million for the three months ended December 31, 2022.

The increase in general and administrative expense was primarily due to the unfavorable movements in foreign currency exchange rates of $5 million, higher employee related costs, higher non-cash stock-based compensation expense and other related expenses of $5 million, incremental investment in technology of $6 million, partially offset by savings from the Restructuring Plan.

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

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 28% for the three months ended June 30, 2023 from 31% for the three months ended June 30, 2022.

Operating Income and OIBDA

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

For the Three Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Operating income $ 207 $ 166 $ 41 25 %

Depreciation and amortization 54 58 (4) -7 %

OIBDA $ 261 $ 224 $ 37 17 %

Recorded Music operating income increased by $41 million to $207 million for the three months ended June 30, 2023 from $166 million for the three months ended June 30, 2022 as a result of higher revenues, lower selling, general and administrative expense and a decrease in amortizable intangible assets, partially offset by higher cost of revenue.

Recorded Music OIBDA increased by $37 million to $261 million for the three months ended June 30, 2023 from $224 million for the three months ended June 30, 2022 due to the factors that led to the increase in Recorded Music operating income noted above.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin increased to 20% for the three months ended June 30, 2023 from 19% for the three months ended June 30, 2022 primarily due to stronger operating performance, lower variable marketing spend, savings from the Restructuring Plan and the favorable impact of foreign currency exchange rates, partially offset by revenue mix resulting from higher artist services and expanded-rights and third-party distributed label revenue and the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior-year quarter related to an acquisition.

Distribution expense remained constant at $31 million for the three months ended December 31, 2023 and the three months ended December 31, 2022.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 25% for the three months ended December 31, 2023 from 28% for the three months ended December 31, 2022.

Net gain on divestitures

This compares to a pre-tax gain of $41 million in the three months ended December 31, 2022.

Operating Income and Adjusted OIBDA

Recorded Music operating income increased by $91 million to $374 million for the three months ended December 31, 2023 from $283 million for the three months ended December 31, 2022 due to the same factors affecting Adjusted OIBDA discussed below as well as lower amortization expense due to certain intangible assets becoming fully amortized, partially offset by a $24 million quarter-over-quarter decrease in net gain on divestitures and higher non-cash stock-based compensation expense in the quarter of $5 million.

Recorded Music Adjusted OIBDA increased by $113 million to $412 million for the three months ended December 31, 2023 from $299 million for the three months ended December 31, 2022 primarily driven by $67 million from the Licensing Extension and $10 million from the Digital License Renewal, strong operating performance and $12 million of savings from the Restructuring Plan of which a portion has been reinvested in the Company’s business, partially offset by revenue mix and the unfavorable impact of exchange rates.

Expressed as a percentage of Recorded Music revenue, Recorded Music Adjusted OIBDA margin increased to 29% for the three months ended December 31, 2023 from 24% for the three months ended December 31, 2022 due to the factors noted above.

Excluding the impact from the Digital License Renewal and Licensing Extension, Recorded Music Adjusted OIBDA margin increased to 25% for the three months ended December 31, 2023.

Music Publishing

Music Publishing revenues increased by $38 million, or 16%, to $283 million for the three months ended June 30, 2023 from $245 million for the three months ended June 30, 2022.

Music Publishing revenues were $147 million and $137 million, or 52% and 56% of consolidated Music Publishing revenues, for the three months ended June 30, 2023 and June 30, 2022, respectively.

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

Music Publishing revenues increased by $54 million, or 22%, to $304 million for the three months ended December 31, 2023 from $250 million for the three months ended December 31, 2022.

Music Publishing revenues were $172 million and $133 million, or 57% and 53% of consolidated Music Publishing revenues, for the three months ended December 31, 2023 and

December 31, 2022, respectively.

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

Cost of revenues

1 unchanged sentence

For the Three Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

1 unchanged sentence

Total cost of revenues $ 191 $ 154 $ 37 24 %

Music Publishing cost of revenues increased by $20 million, or 12%, to $182 million for the three months ended June 30, 2023 from $162 million for the three months ended June 30, 2022.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues decreased to 64% for the three months ended June 30, 2023 from 66% for the three months ended June 30, 2022, primarily due to the favorable impact of foreign currency exchange rates, partially offset by revenue mix.

Music Publishing cost of revenues increased by $37 million, or 24%, to $191 million for the three months ended December 31, 2023 from $154 million for the three months ended December 31, 2022.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 63% for the three months ended December 31, 2023 from 62% for the three months ended December 31, 2022, primarily attributable to the unfavorable impact of foreign currency exchange rates.

Selling, general and administrative expense

1 unchanged sentence

For the Three Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

General and administrative expense (1) $ 27 $ 27 $ — — %

Selling and marketing expense 1 — 1 — %

Total selling, general and administrative expense $ 28 $ 27 $ 1 4 %

______________________________________

(1) Includes no depreciation expense for the three months ended June 30, 2023 and $1 million of depreciation expense for the three months ended June 30, 2022.

Music Publishing selling, general and administrative expense increased by $1 million, or 4%, to $28 million for the three months ended June 30, 2023 from $27 million for the three months ended June 30, 2022.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 10% for the three months ended June 30, 2023 from 11% for the three months ended June 30, 2022.

Operating Income and OIBDA

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

For the Three Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Operating income $ 50 $ 33 $ 17 52 %

Depreciation and amortization 23 24 (1) -4 %

OIBDA $ 73 $ 57 $ 16 28 %

Music Publishing operating income increased by $17 million to $50 million for the three months ended June 30, 2023 from $33 million for the three months ended June 30, 2022, as a result of higher revenue, partially offset by higher cost of revenue.

Music Publishing OIBDA increased by $16 million, or 28%, to $73 million for the three months ended June 30, 2023 from $57 million for the three months ended June 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 26% for the three months ended June 30, 2023 from 23% for the three months ended June 30, 2022 primarily due to strong operating performance and the favorable impact of foreign currency exchange rates, partially offset by revenue mix.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $15 million for the three months ended June 30, 2023 to $68 million from $53 million for the three months ended June 30, 2022, primarily due to higher employee related costs including incremental overhead in technology, higher non-cash stock-based compensation and other related expenses of $1 million, the Executive Transition Costs of $1 million and an increase in depreciation.

Our OIBDA loss from corporate expenses and eliminations increased by $11 million for the three months ended June 30, 2023 to $59 million from $48 million for the three months ended June 30, 2022, primarily due to the operating loss factors noted above.

RESULTS OF OPERATIONS

Nine Months Ended June 30, 2023 Compared with Nine Months Ended June 30, 2022

Consolidated Results

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Revenue by Type

Digital $ 2,445 $ 2,475 $ (30) -1 %

Physical 377 440 (63) -14 %

Total Digital and Physical 2,822 2,915 (93) -3 %

Artist services and expanded-rights 555 563 (8) -1 %

Licensing 287 244 43 18 %

Total Recorded Music 3,664 3,722 (58) -2 %

Performance 130 119 11 9 %

Digital 477 404 73 18 %

Mechanical 46 37 9 24 %

Synchronization 126 133 (7) -5 %

Other 11 11 — — %

Total Music Publishing 790 704 86 12 %

Intersegment eliminations (3) (4) 1 -25 %

Total Revenues $ 4,451 $ 4,422 $ 29 1 %

Revenue by Geographical Location

Recorded Music $ 1,618 $ 1,641 $ (23) -1 %

Music Publishing 415 369 46 12 %

2,033 2,010 23 1 %

International Recorded Music 2,046 2,081 (35) -2 %

International Music Publishing 375 335 40 12 %

Total International 2,421 2,416 5 — %

Intersegment eliminations (3) (4) 1 -25 %

Total Revenues $ 4,451 $ 4,422 $ 29 1 %

Total Revenues

Total revenues increased by $29 million, or 1%, to $4,451 million for the nine months ended June 30, 2023 from $4,422 million for the nine months ended June 30, 2022.

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

The increase included $131 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 82% and 18% of total revenues for the nine months ended June 30, 2023, respectively, and 84% and 16% of total revenues for the nine months ended June 30, 2022, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 46% and 54% for the nine months ended June 30, 2023, respectively, and 45% and 55% for the nine months ended June 30, 2022, respectively.

Total digital revenues after intersegment eliminations increased by $44 million, or 2%, to $2,921 million for the nine months ended June 30, 2023 from $2,877 million for the nine months ended June 30, 2022.

Total streaming revenue increased 2% with growth in Music Publishing of 19%, partially offset by a decline in Recorded Music streaming revenue of $10 million which included $62 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, total digital revenues for the nine months ended June 30, 2023 were composed of U.S.

revenues of $1,463 million and international revenues of $1,459 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Prior to intersegment eliminations, total digital revenues for the nine months ended June 30, 2022 were composed of U.S.

revenues of $1,457 million and international revenues of $1,422 million, or 51% and 49% of total digital revenues, respectively.

Recorded Music revenues decreased by $58 million, or 2%, to $3,664 million for the nine months ended June 30, 2023 from $3,722 million for the nine months ended June 30, 2022.

The decrease includes $115 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $1,618 million and $1,641 million, or 44% of consolidated Recorded Music revenues, for each of the nine months ended June 30, 2023 and June 30, 2022, respectively.

International Recorded Music revenues were $2,046 million and $2,081 million, or 56% of consolidated Recorded Music revenues, for each the nine months ended June 30, 2023 and June 30, 2022, respectively.

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

Physical revenue decreased by $63 million, or 14%, driven by an unfavorable impact of foreign currency exchange rates of $19 million and a lighter release schedule.

Digital revenue decreased by $30 million, or 1%, which includes an unfavorable impact of foreign currency exchange rates of $66 million.

Revenue from streaming services decreased by $10 million to $2,375 million for the nine months ended June 30, 2023 from $2,385 million for the nine months ended June 30, 2022 and was impacted by unfavorable foreign currency exchange rates of $62 million, or 3%.

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

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

Download and other digital revenues decreased by $20 million, or 22%, to $70 million for the nine months ended June 30, 2023 from $90 million for the nine months ended June 30, 2022 due to the continued shift to streaming services.

Artist services and expanded-rights revenue decreased by $8 million due to an unfavorable impact of foreign currency exchange rates of $20 million, lower merchandising revenue, primarily direct-to-consumer merchandising revenue at EMP, and lower advertising revenue, partially offset by higher concert promotion.

Licensing revenue increased by $43 million, which includes a licensing settlement and growth in brand income, synchronization and broadcast fees revenue, partially offset by an unfavorable impact of foreign currency exchange rates of $10 million.

Music Publishing revenues increased by $86 million, or 12%, to $790 million for the nine months ended June 30, 2023 from $704 million for the nine months ended June 30, 2022.

Music Publishing revenues were $415 million and $369 million, or 53% and 52% of consolidated Music Publishing revenues, for the nine months ended June 30, 2023 and June 30, 2022, respectively.

International Music Publishing revenues were $375 million and $335 million, or 47% and 48% of Music Publishing revenues, for the nine months ended June 30, 2023 and June 30, 2022, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $73 million, or 18%, performance revenue of $11 million and mechanical revenue of $9 million, partially offset by a decrease in synchronization revenue of $7 million.

Revenue from streaming services grew by $75 million, or 19%, to $466 million for the nine months ended June 30, 2023 from $391 million for the nine months ended June 30, 2022.

Performance revenue increased primarily due to continued recovery from COVID disruption, partially offset by an unfavorable impact of foreign currency exchange rates of $5 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 $1 million.

The decrease in synchronization revenue is attributable to lower commercial licensing activity and an unfavorable impact of foreign currency exchange rates of $3 million, partially offset by copyright infringement settlements.

Revenue by Geographical Location

revenue increased by $23 million, or 1%, to $2,033 million for the nine months ended June 30, 2023 from $2,010 million for the nine months ended June 30, 2022.

Recorded Music revenue decreased by $23 million, or 1%.

The primary driver was the decrease of U.S.

Recorded Music digital revenue of $40 million, or 3%.

Recorded Music streaming revenue decreased by $32 million, or 3%, as a result of a lighter release schedule and the impact of the additional week in the prior year, as well as a market-related slowdown in ad-supported revenue.

Download and other digital revenues decreased by $8 million.

Decreases are also attributable to lower U.S.

Recorded Music physical revenue of $13 million due to a lighter release schedule.

The increase in licensing revenue of $23 million includes a licensing settlement and higher synchronization revenue.

Recorded Music artist services and expanded-rights revenue increased by $7 million primarily driven by higher merchandising revenues.

Music Publishing revenue increased by $46 million, or 12%, to $415 million for the nine months ended June 30, 2023 from $369 million for the nine months ended June 30, 2022.

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

Music Publishing of $46 million in digital revenue due to the continued growth in streaming services and the impact of digital deal renewals, partially offset by a $10 million quarter-over-quarter decrease in the impact of the CRB Rate Benefit.

Music Publishing streaming revenue increased by $46 million, or 20%.

Performance revenue increased by $3 million driven by continued recovery from COVID disruption.

Mechanical revenue increased by $2 million.

The decrease in synchronization revenue of $6 million is due to lower commercial licensing activity, partially offset by copyright infringement settlements.

International revenue increased by $5 million to $2,421 million for the nine months ended June 30, 2023 from $2,416 million for the nine months ended June 30, 2022.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $137 million, or 6%.

International Recorded Music revenue decreased by $35 million due to decreases in physical revenue of $50 million and artist services and expanded-rights revenue of $15 million, partially offset by increases in licensing revenue of $20 million and digital revenue of $10 million.

International Recorded Music physical revenue decreased by $50 million, primarily driven by an unfavorable impact of foreign currency exchange rates and a lighter release schedule.

International Recorded Music artist services and expanded-rights revenue decreased by $15 million due to the unfavorable impact of foreign currency exchange rates of $20 million and lower direct-to-consumer merchandising revenue at EMP, partially offset by higher concert promotion revenue.

International Recorded Music digital revenue increased due to a $22 million, or 2%, increase in streaming revenue which includes unfavorable impact of foreign currency exchange rates of $62 million.

Download and other digital revenues decreased by $12 million.

International Recorded Music licensing revenue increased by $20 million, including growth in brand income and broadcast fees revenue, partially offset by the unfavorable impact of foreign currency exchange rates.

International Music Publishing revenue increased by $40 million, or 12%, to $375 million for the nine months ended June 30, 2023 from $335 million for the nine months ended June 30, 2022.

This was primarily driven by the increase in digital revenue of $27 million, performance revenue of $8 million and mechanical revenue of $7 million.

International Music Publishing streaming revenue increased by $29 million, or 18%, which includes a revenue true-up of $9 million, partially offset by an unfavorable impact of foreign currency exchange rates of $7 million.

Download and other digital revenue decreased by $2 million.

Performance revenue increased driven by continued recovery from COVID disruption.

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, which offset higher television licensing activity.

Cost of revenues

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Artist and repertoire costs $ 1,456 $ 1,427 $ 29 2 %

Product costs 876 854 22 3 %

Total cost of revenues $ 2,332 $ 2,281 $ 51 2 %

Artist and repertoire costs increased by $29 million, to $1,456 million for the nine months ended June 30, 2023 from $1,427 million for the nine months ended June 30, 2022.

Artist and repertoire costs as a percentage of revenue increased to 33% for the nine months ended June 30, 2023 from 32% for the nine months ended June 30, 2022, primarily due to revenue mix and the timing of artist and repertoire investments, partially offset by the favorable impact of foreign currency exchange rates.

Product costs increased by $22 million, to $876 million for the nine months ended June 30, 2023 from $854 million for the nine months ended June 30, 2022.

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

Selling, general and administrative expenses

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

General and administrative expense (1) $ 718 $ 696 $ 22 3 %

Selling and marketing expense 545 601 (56) -9 %

Distribution expense 90 95 (5) -5 %

Total selling, general and administrative expense $ 1,353 $ 1,392 $ (39) -3 %

______________________________________

(1) Includes depreciation expense of $65 million and $59 million for the nine months ended June 30, 2023 and June 30, 2022, respectively.

Total selling, general and administrative expense decreased by $39 million, or 3%, to $1,353 million for the nine months ended June 30, 2023 from $1,392 million for the nine months ended June 30, 2022.

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

General and administrative expense increased by $22 million to $718 million for the nine months ended June 30, 2023 from $696 million for the nine months ended June 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 non-cash stock-based compensation and other related expenses of $7 million, the Executive Transition Costs of $4 million, incremental overhead in technology, 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 and expenses related to transformation initiatives, partially offset by higher acquisition transaction costs, the impact of the additional week in the prior year, lower severance costs and favorable movements in foreign currency exchange rates of $12 million.

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

Selling and marketing expense decreased by $56 million, or 9%, to $545 million for the nine months ended June 30, 2023 from $601 million for the nine months ended June 30, 2022.

Expressed as a percentage of revenue, selling and marketing expense decreased to 12% for the nine months ended June 30, 2023 from 14% for the nine months ended June 30, 2022 due to lower variable marketing spend and savings from the Restructuring Plan.

Distribution expense was $90 million for the nine months ended June 30, 2023 and $95 million for the nine months ended June 30, 2022.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the nine months ended June 30, 2023 and June 30, 2022.

Restructuring

For the nine months ended June 30, 2023, total restructuring costs were $41 million consisting of severance costs for the Restructuring Plan.

Net gain on divestiture

During the nine months ended June 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 condensed consolidated statement of operations.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

and Operating Income to Consolidated OIBDA

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

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

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Net income attributable to Warner Music Group Corp.

$ 278 $ 403 $ (125) -31 %

Income attributable to noncontrolling interest 7 2 5 — %

Net income 285 405 (120) -30 %

Income tax expense 112 148 (36) -24 %

Income before income taxes 397 553 (156) -28 %

Other expense (income) 72 (96) 168 — %

Interest expense, net 105 94 11 12 %

Loss on extinguishment of debt 4 — 4 — %

Operating income 578 551 27 5 %

Amortization expense 188 198 (10) -5 %

Depreciation expense 65 59 6 10 %

OIBDA $ 831 $ 808 $ 23 3 %

OIBDA increased by $23 million to $831 million for the nine months ended June 30, 2023 as compared to $808 million for the nine months ended June 30, 2022 as a result of higher revenues, lower selling, general and administrative expense and the net gain on sale of the Company’s interest in certain sound recording rights, partially offset by the Restructuring Plan costs of $41 million and higher cost of revenues.

Expressed as a percentage of total revenue, OIBDA margin increased to 19% for the nine months ended

June 30, 2023 from 18% for the nine months ended June 30, 2022 due to the net gain on sale of the Company's interest in certain sound recording rights, lower variable marketing spend and favorable impact of foreign currency exchange rates, partially offset by the Restructuring Plan costs, the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior year related to an acquisition and the impact of revenue mix.

Depreciation expense

Our depreciation expense increased by $6 million to $65 million for the nine months ended June 30, 2023 from $59 million for the nine months ended June 30, 2022.

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

Amortization expense

Our amortization expense decreased by $10 million, or 5%, to $188 million for the nine months ended June 30, 2023 from $198 million for the nine months ended June 30, 2022.

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

Operating income

Our operating income increased by $27 million to $578 million for the nine months ended June 30, 2023 from $551 million for the nine months ended June 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.

Loss on extinguishment of debt

We recorded a loss on extinguishment of debt in the amount of $4 million for the nine months ended June 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 nine months ended June 30, 2022.

Interest expense, net

Our interest expense, net, increased to $105 million for the nine months ended June 30, 2023 from $94 million for the nine months ended June 30, 2022 due to a higher principal balance due to the issuance of the incremental Senior Term Loan Facility and higher interest rates, partially offset by interest income.

Other expense (income)

Other expense for the nine months ended June 30, 2023 primarily includes foreign currency losses on our Euro-denominated debt of $86 million, partially offset by currency exchange gains on the Company’s intercompany loans of $14 million.

This compares to foreign currency gains on our Euro-denominated debt of $96 million, currency exchange gains on the Company’s intercompany loans of $23 million and unrealized gains on foreign currency forward exchange contracts of $9 million, partially offset by aggregate realized and unrealized losses of $37 million on the mark-to-market of equity investments for the nine months ended June 30, 2022.

Income tax expense

Our income tax expense decreased by $36 million to $112 million for the nine months ended June 30, 2023 from $148 million for the nine months ended June 30, 2022.

The decrease of $36 million in income tax expense is primarily due to the impact of lower pre-tax income in the current year, benefit of R&D credits, and release of U.S.

state valuation allowance recognized in the current year.

These benefits were partially offset by an increase in unrecognized tax benefit related to uncertain tax positions and higher withholding taxes in the current year.

Net income decreased by $120 million to $285 million for the nine months ended June 30, 2023 from $405 million for the nine months ended June 30, 2022 as a result of the factors described above.

Noncontrolling interest

There was $7 million of income attributable to noncontrolling interest for the nine months ended June 30, 2023 and $2 million of income attributable to noncontrolling interest for the nine months ended June 30, 2022.

Business Segment Results

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Recorded Music

Revenues $ 3,664 $ 3,722 $ (58) -2 %

Operating income 641 631 10 2 %

OIBDA 801 804 (3) — %

Music Publishing

Revenues 790 704 86 12 %

Operating income 151 103 48 47 %

OIBDA 220 172 48 28 %

Corporate expenses and eliminations

Revenue eliminations (3) (4) 1 -25 %

Operating loss (214) (183) (31) 17 %

OIBDA loss (190) (168) (22) 13 %

Revenues 4,451 4,422 29 1 %

Operating income 578 551 27 5 %

OIBDA 831 808 23 3 %

Recorded Music

Recorded Music revenue decreased by $58 million, or 2%, to $3,664 million for the nine months ended June 30, 2023 from $3,722 million for the nine months ended June 30, 2022.

Recorded Music revenues were $1,618 million and $1,641 million, or 44% of consolidated Recorded Music revenues, for each of the nine months ended June 30, 2023 and June 30, 2022, respectively.

International Recorded Music revenues were $2,046 million and $2,081 million, or 56% of consolidated Recorded Music revenues, for each of the nine months ended June 30, 2023 and June 30, 2022, respectively.

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

Cost of revenues

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Artist and repertoire costs $ 969 $ 974 $ (5) -1 %

Product costs 876 854 22 3 %

Total cost of revenues $ 1,845 $ 1,828 $ 17 1 %

Recorded Music cost of revenues increased by $17 million, or 1%, to $1,845 million for the nine months ended June 30, 2023 from $1,828 million for the nine months ended June 30, 2022.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs remained constant at 26% for each of the nine months ended June 30, 2023 and June 30, 2022, due to the favorable impact of foreign currency exchange rates, offset by revenue mix and the timing of artist and repertoire investments.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs increased to 24% for the nine months ended June 30, 2023 from 23% for the nine months ended June 30, 2022.

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

Selling, general and administrative expense

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

General and administrative expense (1) $ 434 $ 446 $ (12) -3 %

Selling and marketing expense 533 589 (56) -10 %

Distribution expense 90 95 (5) -5 %

Total selling, general and administrative expense $ 1,057 $ 1,130 $ (73) -6 %

______________________________________

(1) Includes depreciation expense of $39 million and $40 million for the nine months ended June 30, 2023 and June 30, 2022, respectively.

Recorded Music selling, general and administrative expense decreased by $73 million, or 6%, to $1,057 million for the nine months ended June 30, 2023 from $1,130 million for the nine months ended June 30, 2022.

The decrease in general and administrative expense was primarily due to the favorable movements in foreign currency exchange rates of $15 million and lower severance costs, expenses related to 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, partially offset by rising costs.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 29% for the nine months ended June 30, 2023 from 30% for the nine months ended June 30, 2022.

Restructuring

For the nine months ended June 30, 2023, total restructuring costs were $41 million consisting of severance costs for the Restructuring Plan.

Net gain on divestiture

Operating Income and OIBDA

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Operating income $ 641 $ 631 $ 10 2 %

Depreciation and amortization 160 173 (13) -8 %

OIBDA $ 801 $ 804 $ (3) — %

Recorded Music operating income increased by $10 million to $641 million for the nine months ended June 30, 2023 from $631 million for the nine months ended June 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 costs of revenue and the Restructuring Plan costs of $41 million.

Recorded Music OIBDA decreased by $3 million, to $801 million for the nine months ended June 30, 2023 from $804 million for the nine months ended June 30, 2022 due to the factors that led to the increase in Recorded Music operating income noted above, offset by lower depreciation and amortization.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin remained constant at 22% for each of the nine months ended June 30, 2023 and June 30, 2022 due to the net gain on sale of the Company’s interest in certain sound recording rights, lower variable marketing spend and favorable impact of foreign currency exchange rates, partially offset by the Restructuring Plan costs and the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior year related to an acquisition and the impact of revenue mix.

Music Publishing

Music Publishing revenues increased by $86 million, or 12%, to $790 million for the nine months ended June 30, 2023 from $704 million for the nine months ended June 30, 2022.

Music Publishing revenues were $415 million and $369 million, or 53% and 52% of consolidated Music Publishing revenues, for the nine months ended June 30, 2023 and June 30, 2022, respectively.

International Music Publishing revenues were $375 million and $335 million, or 47% and 48% of consolidated Music Publishing revenues, for the nine months ended June 30, 2023 and June 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.

Cost of revenues

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Artist and repertoire costs $ 491 $ 457 $ 34 7 %

Total cost of revenues $ 491 $ 457 $ 34 7 %

Music Publishing cost of revenues increased by $34 million, or 7%, to $491 million for the nine months ended June 30, 2023 from $457 million for the nine months ended June 30, 2022.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues decreased to 62% for the nine months ended June 30, 2023 from 65% for the nine months ended June 30, 2022, primarily attributable to the favorable impact of foreign currency exchange rates, partially offset by revenue mix.

Selling, general and administrative expense

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

For the Nine Months Ended

June 30, 2023 vs.

December 31, 2023 vs.

2023 2022 $ Change % Change

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______________________________________

(1) Includes depreciation expense of $2 million and $4 million for the nine months ended June 30, 2023 and June 30, 2022, respectively.

Music Publishing selling, general and administrative expense increased to $81 million for the nine months ended June 30, 2023 from $79 million for the nine months ended June 30, 2022.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 10% for the nine months ended June 30, 2023 from 11% for the nine months ended June 30, 2022.

Operating Income and OIBDA

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

For the Nine Months Ended

June 30, 2023 vs.

2023 2022 $ Change % Change

Operating income $ 151 $ 103 $ 48 47 %

Depreciation and amortization 69 69 — — %

OIBDA $ 220 $ 172 $ 48 28 %

Music Publishing operating income increased by $48 million to $151 million for the nine months ended June 30, 2023 from $103 million for the nine months ended June 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 $48 million, or 28%, to $220 million for the nine months ended June 30, 2023 from $172 million for the nine months ended June 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 28% for the nine months ended June 30, 2023 from 24% for the nine months ended June 30, 2022 due to strong operating performance and the favorable impact of foreign currency exchange rates.

(1) Includes depreciation expense of $1 million for each of the three months ended December 31, 2023 and December 31, 2022.

Music Publishing selling, general and administrative expense increased by $4 million, or 16%, to $29 million for the three months ended December 31, 2023 from $25 million for the three months ended December 31, 2022.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense remained constant at 10% for each of the three months ended December 31, 2023 and December 31, 2022.

Operating Income and Adjusted OIBDA

Music Publishing operating income increased by $14 million to $63 million for the three months ended December 31, 2023 from $49 million for the three months ended December 31, 2022 primarily driven by the same factors affecting Adjusted OIBDA discussed below.

Music Publishing Adjusted OIBDA increased by $14 million, or 19%, to $86 million for the three months ended December 31, 2023 from $72 million for the three months ended December 31, 2022 largely due to higher revenues.

Expressed as a percentage of Music Publishing revenue, Music Publishing Adjusted OIBDA margin decreased to 28% for the three months ended December 31, 2023 from 29% for the three months ended December 31, 2022, primarily due to the unfavorable impact of foreign currency exchange rates.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $31 million to $214 million for the nine months ended June 30, 2023 from $183 million for the nine months ended June 30, 2022, primarily due to higher employee related costs including non-cash stock-based compensation and other related expenses of $7 million, the Executive Transition Costs of $4 million and incremental overhead in technology, higher depreciation and expenses related to transformation initiatives, partially offset by the impact of the additional week in the prior year.

Our OIBDA loss from corporate expenses and eliminations increased by $22 million to $190 million for the nine months ended June 30, 2023 from $168 million for the nine months ended June 30, 2022 due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations increased by $16 million for the three months ended December 31, 2023 to $83 million from $67 million for the three months ended December 31, 2022, primarily due to incremental investment in technology of $4 million, higher expenses related to transformation initiatives of $7 million, higher depreciation of $5 million, partially offset by lower non-cash stock-based compensation and other related expenses of $7 million.

Our Adjusted OIBDA loss from corporate expenses and eliminations increased by $11 million for the three months ended December 31, 2023 to $47 million from $36 million for the three months ended December 31, 2022, primarily due to the operating loss factors noted above.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition at June 30, 2023

At June 30, 2023, we had $3.988 billion of debt (which is net of $40 million of premiums, discounts and deferred financing costs), $600 million of cash and equivalents (net debt of $3.388 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $281 million of Warner Music Group Corp.

Financial Condition at December 31, 2023

At December 31, 2023, we had $4.004 billion of debt (which is net of $37 million of premiums, discounts and deferred financing costs), $754 million of cash and equivalents (net debt of $3.250 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $463 million of Warner Music Group Corp.

This compares to $3.964 billion of debt (which is net of $38 million of premiums, discounts and deferred financing costs), $641 million of cash and equivalents (net debt of $3.323 billion) and $307 million of Warner Music Group Corp.

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

The financial data for the nine months ended June 30, 2023 and June 30, 2022 are unaudited and have been derived from our condensed consolidated interim financial statements included elsewhere herein.

Nine Months Ended

The financial data for the three months ended December 31, 2023 and December 31, 2022 are unaudited and have been derived from our condensed consolidated interim financial statements included elsewhere herein.

Three Months Ended

Cash provided by (used in):

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Operating Activities

Cash provided by operating activities was $349 million for the nine months ended June 30, 2023 as compared with cash provided by operating activities of $336 million for the nine months ended June 30, 2022.

The $13 million increase in cash provided by operating activities was primarily due to timing of working capital partially offset by higher cash taxes due to lower available foreign tax credits to shield U.S.

taxable income coupled with higher forecasted taxable income.

Cash provided by operating activities was $293 million for the three months ended December 31, 2023 as compared with cash provided by operating activities of $209 million for the three months ended December 31, 2022.

The $84 million increase in cash provided by operating activities was largely a result of strong operating performance and other movements within working capital.

Investing Activities

Cash used in investing activities was $104 million for the nine months ended June 30, 2023 as compared with cash used in investing activities of $763 million for the nine months ended June 30, 2022.

The $104 million of cash used in investing activities in the nine months ended June 30, 2023 consisted of $26 million relating to investments and acquisitions of businesses, $53 million to acquire music-related assets, and $89 million relating to capital expenditures, partially offset by $42 million of proceeds from divestitures and $22 million of proceeds from the sale of investments.

The $763 million of cash used in investing activities in the nine months ended June 30, 2022 consisted of $499 million relating to investments and acquisitions of businesses, a portion of which was debt-financed, $178 million to acquire music-related assets, a portion of which was debt-financed, and $97 million relating to capital expenditures, partially offset by $11 million of proceeds from the sale of investments.

Cash used in investing activities was $92 million for the three months ended December 31, 2023 as compared with cash used in investing activities of $10 million for the three months ended December 31, 2022.

The $92 million of cash used in investing activities in the three months ended December 31, 2023 consisted of $17 million relating to investments and acquisitions of businesses, $59 million to acquire music-related assets, and $29 million relating to capital expenditures, partially offset by $4 million of proceeds from divestitures and $9 million of proceeds from the sale of investments.

The $10 million of cash used in investing activities in the three months ended December 31, 2022 consisted of $8 million relating to investments and acquisitions of businesses and $33 million to acquire music-related assets, a portion of which was debt-financed, and $21 million relating to capital expenditures, partially offset by $42 million of proceeds from divestitures and $10 million of proceeds from the sale of investments.

Financing Activities

Cash used in financing activities was $233 million for the nine months ended June 30, 2023 as compared with cash provided by financing activities of $280 million for the nine months ended June 30, 2022.

The $233 million of cash used in financing activities for the nine months ended June 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 $251 million, deferred financing costs of $3 million and distributions to noncontrolling interest holders of $11 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 $280 million of cash provided by financing activities for the nine months ended June 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 $235 million, taxes paid related to net share settlement of restricted stock units of $6 million, deferred financing costs of $5 million, cash paid to settle contingent consideration of $4 million and distributions to noncontrolling interest holders of $5 million.

Cash used in financing activities was $93 million for the three months ended December 31, 2023 as compared with cash used in financing activities of $70 million for the three months ended December 31, 2022.

The $93 million of cash used in financing activities for the three months ended December 31, 2023 consisted of dividends paid of $89 million and distributions to noncontrolling interest holders of $4 million.

The $70 million of cash used in financing activities for the three months ended December 31, 2022 consisted of cash paid to settle deferred consideration related to a fiscal year 2022 acquisition of music publishing rights of $125 million, dividends paid of $84 million, deferred financing costs of $2 million and distributions to noncontrolling interest holders of $6 million, partially offset by proceeds from the incremental Senior Term Loan Facility of $147 million.

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

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.

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.

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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.

In April 2023, we successfully launched certain components of our new technology platform in select territories.

The Company will continue to deploy our new technology platform to remaining territories in a wave-based approach with additional territories expected to implement during fiscal year 2023, 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.

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

In fiscal years 2023 and 2024, we successfully launched certain components of our new technology platform in select territories in three waves in April 2023, August 2023 and October 2023.

We will continue to deploy the platform to remaining territories through the remainder of 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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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 June 30, 2023.

In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 4.6% as of December 31, 2023.

Our nearest-term maturity date is in 2028.

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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.

Senior Term Loan Facility Amendment

On November 1, 2022, Acquisition Corp.

entered into a Seventh Incremental Commitment Amendment (the “Seventh Incremental Commitment Amendment”), with Credit Suisse AG, New York Branch, as Tranche H term lender, and Credit Suisse AG, as administrative agent, and acknowledged by the guarantors party thereto and WMG Holdings Corp., to the Senior Term Loan Credit Agreement, pursuant to which Acquisition Corp.

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.

The Seventh Incremental Commitment Amendment was entered into to fund certain deferred payment obligations owing in respect of certain prior acquisitions, to pay fees and expenses relating thereto and for general corporate purposes.

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 SOFR plus the applicable margin of 1.40% subject to a zero floor.

Equal principal installments and interest are due monthly.

Revolving Credit Agreement Amendment

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 ASC Topic 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.

May 2023 Senior Term Loan Credit Agreement Amendment

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 Topic 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.

June 2023 Senior Term Loan Credit Agreement Amendment

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 three and nine months ended June 30, 2023, which represents the remaining unamortized discount and deferred financing costs of the Tranche H term loan.

Existing Debt as of June 30, 2023

As of June 30, 2023, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):

On November 30, 2023, Acquisition Corp.

entered into an amendment (the “Revolving Credit Agreement Amendment”) to the revolving credit agreement, dated January 31, 2018, as amended, among Acquisition Corp., the several banks and other financial institutions party thereto and Credit Suisse AG, Cayman Islands Branch, as predecessor administrative agent, governing Acquisition Corp.’s revolving credit facility (the “Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, and the other financial institutions and lenders from time to time party thereto.

The Revolving Credit Agreement Amendment (among other changes):

(i) increases the commitments under the Revolving Credit Facility from an aggregate principal amount of $300 million to an aggregate principal amount of $350 million, (ii) extended the final maturity date of the Revolving Credit Facility from April 3, 2025 to November 30, 2028, (iii) appointed JPMorgan Chase Bank, N.A.

as administrative agent in the place of Credit Suisse AG, Cayman Islands Branch, (iv) modified the existing springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant by increasing the springing threshold from $105,000,000 to $140,000,000, and (v) included provisions that allow Acquisition Corp.

to terminate the security interests securing the obligations under the Revolving Credit Facility upon the satisfaction of the Collateral Suspension Conditions (as defined below) and, in the event that the security interests are so terminated, the existing springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant (which is calculated net of up to $250 million of cash and cash equivalents held by Acquisition Corp.

and its restricted subsidiaries) shall automatically be replaced with a new financial maintenance covenant prohibiting Acquisition Corp.

from permitting the Total Indebtedness to EBITDA Ratio to be greater than 3.60:1.00 (calculated net of all cash and cash equivalents held by Acquisition Corp.

and its restricted subsidiaries) as of the end of any fiscal quarter.

In the event that the security interests securing the obligations under the Facility are reinstated as a result of the occurrence of a Collateral Suspension Reversion Date (as defined below), the Total Indebtedness to EBITDA Ratio financial maintenance covenant shall revert back to a springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant set at 5.00:1.00.

For purposes of the Revolving Credit Agreement Amendment, (i) “Collateral Suspension Conditions” means conditions that are satisfied if (x) the investment grade condition has been satisfied and (y) the aggregate outstanding principal amount of senior secured indebtedness incurred by Acquisition Corp.

and its restricted subsidiaries is not in excess of $500,000,000 and (ii) “Collateral Suspension Reversion Date” means, the earlier of (x) the date on which the Collateral Suspension Conditions cease to be satisfied or (y) the date on which Acquisition Corp.

delivers a collateral suspension reversion notice to the Administrative Agent.

December 2023 Senior Term Loan Credit Agreement Amendment

On December 29, 2023, Acquisition Corp.

entered into an amendment (the “Thirteenth Amendment”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the other loan parties, Holdings, each lender party hereto, Credit Suisse AG, Cayman Islands Branch as the resigning administrative agent, and JPMorgan Chase Bank, N.A, as the successor administrative agent.

The Thirteenth Amendment appointed JPMorgan Chase Bank, N.A.

as administrative agent in the place of Credit Suisse AG, Cayman Islands Branch.

Existing Debt as of December 31, 2023

As of December 31, 2023, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):

Revolving Credit Facility (a) $ —

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3.000% Senior Secured Notes due 2031 800

Term Loan Mortgage 19

Mortgage Term Loan due 2033 18

Total long-term debt, including the current portion $ 4,041

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______________________________________

(a) Reflects $300 million of commitments under the Revolving Credit Facility available at June 30, 2023, less letters of credit outstanding of approximately $4 million at June 30, 2023.

There were no loans outstanding under the Revolving Credit Facility at June 30, 2023.

(a) Reflects $350 million of commitments under the Revolving Credit Facility available at December 31, 2023, less letters of credit outstanding of approximately $4 million at December 31, 2023.

There were no loans outstanding under the Revolving Credit Facility at December 31, 2023.

For further discussion of our debt agreements, see “Liquidity” in the “Financial Condition and Liquidity” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

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

On May 10, 2023, 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, which was paid to stockholders on June 1, 2023.

The Company paid an aggregate of approximately $84 million and $251 million, or $0.16 and

$0.48 per share, in cash dividends to stockholders and participating security holders for the three and nine months ended June 30, 2023, respectively.

On November 9, 2023, the Company’s board of directors declared a cash dividend of $0.17 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid to stockholders on December 1, 2023.

The Company paid an aggregate of approximately $89 million, or $0.17 per share, in cash dividends to stockholders and participating security holders for the three months ended December 31, 2023.

Covenant Compliance

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of June 30, 2023.

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of December 31, 2023.

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

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(2) any non-cash charges (including any impairment charges);

(3) any net loss resulting from interest rate swap transactions or foreign currency forward exchange transactions;

(3) any net loss resulting from hedging currency exchange risks;

(4) the amount of management, monitoring, consulting and advisory fees paid to Access;

(5) business optimization expenses (including consolidation initiatives, severance costs and other costs relating to initiatives aimed at profitability improvement);

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

GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended June 30, 2023, for the twelve months ended June 30, 2022 and for the three months ended June 30, 2023 and June 30, 2022.

In addition, the reconciliation includes the calculation of the Senior Secured Indebtedness to Adjusted EBITDA ratio, which we refer to as the Leverage Ratio, under the Revolving Credit Agreement for the most recently ended four fiscal quarters, or the twelve months ended June 30, 2023.

GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended December 31, 2023, for the twelve months ended December 31, 2022 and for the three months ended December 31, 2023 and December 31, 2022.

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

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Twelve Months Ended

June 30, Three Months Ended

December 31, Three Months Ended

2023 2022 2023 2022

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Loss on extinguishment of debt (a) 4 — — —

Net (gains) losses on divestitures and sale of securities (b) (42) 9 — —

Net gains on divestitures and sale of securities (b) (25) (32) (24) (41)

Restructuring costs (c) 59 21 4 3

Net foreign exchange (gains) losses (d) 13 (148) (12) (55)

Net foreign exchange losses (gains) (d)

36 (93) 54 61

Transaction costs (e) 3 3 — —

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

(c) Reflects severance costs and other restructuring related expenses, including those related to the Restructuring Plan as well as the Executive Transition Costs in the twelve months ended June 30, 2023.

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

(d) Reflects unrealized losses (gains) due to foreign exchange on our Euro-denominated debt, losses (gains) from foreign currency forward exchange contracts 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.

(f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $12 million and $43 million related to our finance transformation and other related costs for the three and twelve months ended June 30, 2023, respectively, as well as $11 million and $41 million for the three and twelve months ended June 30, 2022, respectively.

(f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $19 million and $56 million related to our finance transformation and other transformation related costs for the three and twelve months ended December 31, 2023, respectively, as well as $10 million and $41 million for the three and twelve months ended December 31, 2022, respectively.

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

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(h) Reflects non-cash activity, including the unrealized losses (gains) on the mark-to-market adjustment of equity investments, investment losses (gains), mark-to-market adjustments of an earn-out liability in 2022 and other non-cash impairments.

(i) Reflects expected savings resulting from transformation initiatives, including the Restructuring Plan, and the pro forma impact of certain specified transactions for the three and twelve months ended June 30, 2023.

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 $15 million increase in the twelve months ended June 30, 2023 Adjusted EBITDA.

The pro forma impact of these specified transactions and initiatives resulted in a $4 million decrease in the twelve months ended December 31, 2023 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.

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

This is calculated net of cash and equivalents of the Company as of June 30, 2023 not exceeding $250 million.

This is calculated net of cash and equivalents of the Company as of December 31, 2023 not exceeding $250 million.

If the outstanding aggregate principal amount of borrowings and drawings under letters of credit which have not been reimbursed under our Revolving Credit Facility is greater than $140 million at the end of a fiscal quarter, the maximum leverage ratio permitted under the Revolving Credit Facility is 5.00:1.00.

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

The Company’s Revolving Credit Facility does not

impose any “leverage ratio” maintenance requirement on the Company when the aggregate principal amount of borrowings and drawings under letters of credit, which have not been reimbursed under the Revolving Credit Facility, is less than or equal to $140 million at the end of a fiscal quarter.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis