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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2024-02-08 · 494 added, 195 removed, 458 unchanged (60% of the section changed)

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

You should read the following discussion of our results of operations and financial condition with the unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2023 (the “Quarterly Report”).

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

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• Results of operations.

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

This section provides an analysis of our results of operations for the three and six months ended March 31, 2024 and March 31, 2023.

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

• Financial condition and liquidity.

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

This section provides an analysis of our cash flows for the six months ended March 31, 2024 and March 31, 2023, as well as a discussion of our financial condition and liquidity as of March 31, 2024.

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.

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Our renowned family of iconic record labels, including Atlantic Records, Warner Records, Elektra Records and Parlophone Records, is home to many of the world’s most popular and influential recording artists.

In addition, Warner Chappell Music, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 100,000 songwriters and composers, with a global collection of more than one million musical compositions.

In addition, Warner Chappell Music, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 150,000 songwriters and composers, with a global collection of more than one and a half million musical compositions.

We classify our business interests into two fundamental operations:

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

Our business’ distribution operations also includes Alternative Distribution Alliance (“ADA”), which markets, distributes and sells the products of independent labels to retail and wholesale distributors;

Our business’ distribution operations also include Alternative Distribution Alliance (“ADA”), which markets, distributes and sells the products of independent labels to retail and wholesale distributors;

and various distribution centers and ventures operated internationally.

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The operations of our Music Publishing business are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles, with operations in over 70 countries through various subsidiaries, affiliates, and non-affiliated licensees and sub-publishers.

We own or control rights to more than one million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions.

We own or control rights to more than one and a half million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions.

Assembled over decades, our award-winning catalog includes over 150,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative and gospel.

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Recent Events and Factors Affecting Results of Operations and Comparability

Restructuring

Strategic Restructuring Plan

In February 2024, the Company announced a strategic restructuring plan (the “Strategic Restructuring Plan”) designed to free up additional funds to invest in music and accelerate the Company’s growth for the next decade.

Under the Strategic Restructuring Plan, the Company expects a reduction in headcount of approximately 10% of the Company’s overall headcount.

The Company expects to incur total non-recurring restructuring charges of approximately $135 million or approximately $80 million of total non-recurring after tax charges.

The expected pre-tax charges include approximately $85 million of severance costs and approximately $50 million of non-cash impairment charges primarily in connection with the disposal or winding down of the Company’s non-core owned and operated media properties including the Company’s in-house advertising sales function (the “O&O Media Properties”).

The majority of the Strategic Restructuring Plan is expected to be completed by the end of fiscal year 2025.

The cost savings under the Strategic Restructuring Plan will be achieved through a combination of the disposal or winding down of the O&O Media Properties, continuing to manage overhead, sharpening focus, expanding shared services, and implementing previously disclosed expected operational efficiencies made possible by the Company’s financial transformative initiative.

The Company expects allocating a majority of the costs savings to increase investment the Company’s core Recorded Music and Music Publishing businesses, new skill sets and tech capabilities.

For the three and six months ended March 31, 2024, total severance costs recorded in connection with the Strategic Restructuring Plan were $46 million, of which, $42 million was recognized in our Recorded Music segment and $4 million was recognized in Corporate.

Additionally, for the three and six months ended March 31, 2024, the Company recognized $50 million of impairment losses on unamortized intangible assets and other assets of which, $47 million was recognized in our Recorded Music segment and $3 million was recognized in Corporate.

Impairment charges recognized primarily relate to the winding down of the Company’s O&O Media Properties.

2023 Restructuring Plan

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

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

The headcount reductions generated pre-tax cost savings of approximately $12 million and $24 million for the three and six months ended March 31, 2024.

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”).

In September 2023, the Company terminated its distribution agreement with BMG as BMG began to bring digital distribution in-house and license directly with digital service partners 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.

During the three and six months ended March 31, 2024, in connection with the BMG Termination, the Company reported lower Recorded Music digital revenue of $22 million and $35 million, respectively, of which $20 million and $32 million was streaming revenue, respectively.

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

RESULTS OF OPERATIONS

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

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Consolidated Results

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For the Three Months Ended

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

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Total digital and physical

959 914 45 5 %

Artist services and expanded-rights 126 131 (5) -4 %

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Total revenues

$ 1,494 $ 1,399 $ 95 7 %

Revenue by Geographical Location

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Total international

817 743 74 10 %

Intersegment eliminations (1) (1) — — %

Total revenues

$ 1,494 $ 1,399 $ 95 7 %

Total Revenues

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.

Total revenues increased by $95 million, or 7%, to $1,494 million for the three months ended March 31, 2024 from $1,399 million for the three months ended March 31, 2023.

Consistent with prior quarter, revenue growth was unfavorably impacted by the BMG Termination in Recorded Music digital revenue which resulted in $22 million less revenue compared to the prior-year qu arter, and a $4 million unfavorable impact within Recorded Music streaming revenue due to the renewal with one of the Company’s digital partners (the “Digital License Renewal”), which resulted in upfront revenue recognition for the three months ended December 31, 2023.

Adjusted for these items, total revenues increased by 9%, which includes $2 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 80% and 20% of total revenue for the three months ended March 31, 2024, respectively, and 82% and 18% of total revenue for the three months ended March 31, 2023, respectively.

Prior to intersegment eliminations, U.S.

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.

and international revenues represented 45% and 55% of total revenues for the three months ended March 31, 2024 and 47% and 53% of total revenues for the three months ended March 31, 2023.

Total digital revenues after intersegment eliminations increased by $93 million, or 10%, to $1,035 million for the three months ended March 31, 2024 from $942 million for the three months ended March 31, 2023.

Total streaming revenue increased 11% driven by growth across Recorded Music and Music Publishing.

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 December 31, 2022 were composed of U.S.

Prior to intersegment eliminations, total digital revenues for the three months ended March 31, 2024 were composed of U.S.

revenues of $511 million and international revenues of $524 million, or 49% and 51% of total digital revenues, respectively.

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.

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

revenues of $473 million and international revenues of $469 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Recorded Music revenues increased by $46 million, or 4%, to $1,189 million for the three months ended March 31, 2024 from $1,143 million for the three months ended March 31, 2023.

The increase includes $3 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $508 million and $522 million, or 43% and 46% of consolidated Recorded Music revenues for each of the three months ended March 31, 2024 and March 31, 2023, respectively.

International Recorded Music revenues were $681 million and $621 million, or 57% and 54% of consolidated Recorded Music revenues for each of the three months ended March 31, 2024 and March 31, 2023, respectively.

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

Digital revenue increased by $52 million primarily due to growth in streaming revenue, partially offset by the unfavorable impact of foreign currency exchange rates of $4 million.

Revenue from streaming services increased by $55 million, or 7%, to $828 million for the three months ended March 31, 2024 from $773 million for the three months ended March 31, 2023.

The growth in streaming revenue is partially offset by the impacts of the BMG Termination of $20 million, the Digital License Renewal of $4 million, and the unfavorable impact of foreign currency exchange rates of $4 million.

Adjusted for the BMG Termination and the Digital License Renewal, streaming revenues increased 11%.

The quarter included carryover success from Zach Bryan, Jack Harlow, and Ed Sheeran.

Download and other digital revenues decreased by $3 million, or 13%, to $20 million for the three months ended March 31, 2024 from $23 million for the three months ended March 31, 2023 due to the unfavorable impact of the BMG Termination of $2 million and the continued shift to streaming services.

Licensing revenue increased by $6 million, primarily due to the timing of copyright infringement settlements and new licensing deals, and includes the favorable impact of foreign currency exchange rates of $1 million.

Physical revenue decreased by $7 million, primarily driven by the timing of releases.

Artist services and expanded-rights revenue decreased by $5 million due to lower merchandising revenue and the unfavorable impact of foreign currency exchange rates of $1 million, partially offset by higher concert promotion revenue.

Music Publishing revenues increased by $49 million, or 19%, to $306 million for the three months ended March 31, 2024 from $257 million for the three months ended March 31, 2023.

Music Publishing revenues were $170 million and $135 million, or 56% and 53% of consolidated Music Publishing revenues, for the three months ended March 31, 2024 and March 31, 2023, respectively.

International Music Publishing revenues were $136 million and $122 million, or 44% and 47% of consolidated Music Publishing revenues, for the three months ended March 31, 2024 and March 31, 2023, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $41 million, or 28%, performance revenue of $7 million, or 16%, and synchronization revenue of $2 million, or 4%.

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, continued investment in our publishing catalog and the favorable impact of foreign currency exchange rates of $1 million.

Revenue from streaming services grew by $43 million, or 30%, to $185 million for the three months ended March 31, 2024 from $142 million for the three months ended March 31, 2023.

Performance revenue increased due to strong artist touring activity in Europe, partially offset by the unfavorable impact of foreign currency exchange rates of $1 million.

Synchronization revenue increased by $2 million, primarily attributable to the timing of copyright infringement settlements and favorable impact of foreign currency exchange rates of $1 million.

Mechanical revenue decreased $1 million, primarily driven by lower physical sales.

Revenue by Geographical Location

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 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 $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.

revenue increased by $21 million, or 3%, to $678 million for the three months ended March 31, 2024 from $657 million for the three months ended March 31, 2023.

Recorded Music revenue decreased by $14 million, or 3%.

The decrease is driven by lower artist services and expanded-rights revenue of $16 million resulting from lower merchandising revenue, a decrease in licensing revenue of $3 million, and lower physical revenue of $2 million, partially offset by an increase in digital revenue of $7 million.

The increase in digital revenue is primarily driven by growth in U.S.

Recorded Music streaming revenue of $11 million, or 3%, partially offset by the unfavorable impact of the BMG Termination.

Download and other digital decreased by $4 million, primarily driven by the unfavorable impact of the BMG Termination.

The decrease in U.S.

Recorded Music physical revenue of $2 million is due to the timing of releases.

Music Publishing revenue increased by $35 million, or 26%, to $170 million for the three months ended March 31, 2024 from $135 million for the three months ended March 31, 2023.

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

Music Publishing digital revenue of $31 million due to the continued growth in streaming services and the impact of digital deal renewals.

Music Publishing streaming revenue increased by $32 million, or 39%.

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 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.

Music Publishing performance revenue increased by $3 million, synchronization revenue increased by $2 million driven by the timing of copyright infringement settlements, and mechanical revenue decreased by $1 million.

International revenue increased by $74 million, or 10%, to $817 million for the three months ended March 31, 2024 from $743 million for the three months ended March 31, 2023.

Excluding the unfavorable impact of foreign currency exchange rates of $2 million, International revenue increased by $76 million, or 10%.

International Recorded Music revenue increased by $60 million due to increases in digital revenue of $45 million, artist services and expanded-rights revenue of $11 million, licensing revenue of $9 million, partially offset by lower physical revenue of $5 million.

The increase in International Recorded Music digital revenue was driven by an increase in streaming revenue of $44 million, or 11%, which includes the unfavorable impact of the Digital License Renewal of $4 million and the unfavorable impact of foreign currency exchange rates of $4 million.

International Recorded Music physical revenue decreased by $5 million, primarily due to the timing of releases.

International Recorded Music artist services and expanded-rights revenue increased by $11 million due to higher concert promotion revenue, partially offset by lower direct-to-consumer merchandising revenue at EMP and the unfavorable impact of foreign currency exchange rates of $1 million.

International Recorded Music licensing revenue increased by $9 million, driven by the timing of copyright infringement settlements and the favorable impact of foreign currency exchange rates of $1 million.

International Music Publishing revenue increased from the prior-year quarter by $14 million, or 11%, to $136 million for the three months ended March 31, 2024 from $122 million for the three months ended March 31, 2023.

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

International Music Publishing streaming revenue increased by $11 million or 19%, which includes the favorable impact of foreign currency exchange rates of $1 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.

Performance revenue increased by $4 million driven by strong artist touring activity in Europe, and synchronization and mechanical revenues remained constant.

Cost of revenues

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For the Three Months Ended

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

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Total cost of revenues $ 791 $ 721 $ 70 10 %

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.

Artist and repertoire costs increased by $77 million, to $539 million for the three months ended March 31, 2024 from $462 million for the three months ended March 31, 2023.

Artist and repertoire costs as a percentage of revenue increased to 36% during the three months ended March 31, 2024 from 33% for the three months ended March 31, 2023, primarily driven by revenue mix.

Product costs decreased by $7 million, to $252 million for the three months ended March 31, 2024 from $259 million for the three months ended March 31, 2023.

Product costs as a percentage of revenue decreased to 17% for the three months ended March 31, 2024 from 19% for the three months ended March 31, 2023, primarily driven by lower third-party distributed label revenue.

Selling, general and administrative expenses

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For the Three Months Ended

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

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______________________________________

(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.

(1) Includes depreciation expense of $26 million and $22 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

Total selling, general and administrative expense decreased by $6 million, or 1%, to $446 million for the three months ended March 31, 2024 from $452 million for the three months ended March 31, 2023.

Expressed as a percentage of revenue, total selling, general and administrative expense decreased to 30% for the three months ended March 31, 2024 from 32% for the three months ended March 31, 2023.

General and administrative expense increased by $5 million to $258 million for the three months ended March 31, 2024 from $253 million for the three months ended March 31, 2023.

The increase in general and administrative expense was mainly due to incremental investment in technology of $6 million, expenses related to transformation initiatives and related costs of $5 million, partially offset by lower non-cash stock-based compensation and other related costs of $11 million, and savings from the 2023 Restructuring Plan.

Expressed as a percentage of revenue, general and administrative expense decreased to 17% for the three months ended March 31, 2024 from 18% for the three months ended March 31, 2023.

Selling and marketing expense decreased by $3 million, or 2%, to $169 million for the three months ended March 31, 2024 from $172 million for the three months ended March 31, 2023.

Expressed as a percentage of revenue, selling and marketing expense decreased to 11% for the three months ended March 31, 2024 from 12% for the three months ended March 31, 2023 due to lower variable marketing spend and savings from the 2023 Restructuring Plan.

Distribution expense decreased by $8 million to $19 million for the three months ended March 31, 2024 from $27 million for the three months ended March 31, 2023.

Expressed as a percentage of revenue, distribution expense decreased to 1% for the three months ended March 31, 2024 from 2% for the three months ended March 31, 2023 due to revenue mix.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

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For the Three Months Ended

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

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Income before income taxes 114 58 56 97 %

Other expense 50 61 (11) (18) %

Other (income) expense (37) 31 (68) — %

Interest expense, net 42 35 7 20 %

3 unchanged sentences

Depreciation expense 26 22 4 18 %

Restructuring and impairments 95 41 54 — %

Transformation initiatives and other related costs 19 14 5 36 %

Executive transition costs — 3 (3) — %

Net gain on divestitures (14) — (14) (100) %

(17) (41) 24 (59) %

Non-cash stock-based compensation and other related costs 10 21 (11) (52) %

14 15 (1) (7) %

Adjusted OIBDA $ 312 $ 286 $ 26 9 %

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.

Adjusted OIBDA increased by $26 million to $312 million for the three months ended March 31, 2024 as compared to $286 million for the three months ended March 31, 2023 primarily due to strong operating performance, $12 million savings from the 2023 Restructuring Plan, partially offset by the reinvestment of these savings in the Company’s business including $6 million of incremental investment in technology for the three months ended March 31, 2024.

Expressed as a percentage of total revenue, Adjusted OIBDA margin increased to 21% for the three months ended March 31, 2024 from 20% for the three months ended March 31, 2023 due to the factors noted above.

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.

Our non-cash stock-based compensation and other related costs decreased by $11 million to $10 million for the three months ended March 31, 2024 from $21 million for the three months ended March 31, 2023, primarily related to the separation agreement with our previous Chief Executive Officer in the prior year.

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.

Net gain on divestitures during the three months ended March 31, 2024 includes a pre-tax gain of $14 million in connection with the divestiture of certain publishing rights in the quarter.

Executive transition costs

Executive transition costs of $3 million during the three months ended March 31, 2023 consisted of severance costs associated with the departure of our previous Chief Executive Officer and Chief Financial Officer in the prior year.

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.

Our transformation initiatives and other related costs increased by $5 million to $19 million for the three months ended March 31, 2024 from $14 million for the three months ended March 31, 2023 due to an increase in costs associated with our finance transformation.

Restructuring and Impairments

Our restructuring and impairment charges increased to $95 million for the three months ended March 31, 2024, which includes severance costs of approximately $45 million, and approximately $50 million of non-cash impairment losses primarily related to the Strategic Restructuring Plan.

The three months ended March 31, 2023 includes $41 million of restructuring charges related to the 2023 Restructuring Plan.

Depreciation expense

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.

Our depreciation expense increased by $4 million to $26 million for the three months ended March 31, 2024 from $22 million for the three months ended March 31, 2023.

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

Amortization expense

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.

Our amortization expense decreased by $4 million, or 7%, to $57 million for the three months ended March 31, 2024 from $61 million for the three months ended March 31, 2023.

The decrease is driven by certain intangible assets becoming fully amortized.

Operating income

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.

Our operating income decreased by $5 million to $119 million for the three months ended March 31, 2024 from $124 million for the three months ended March 31, 2023.

In addition to the factors impacting Adjusted OIBDA described above, the decrease in operating income was driven by $95 million of restructuring and impairment charges for the three months ended March 31, 2024 primarily related to the Strategic Restructuring Plan, compared to $41 million of restructuring charges for the three months ended March 31, 2023.

The decrease was also driven by $5 million of incremental expenses related to transformation initiatives and other related costs, partially offset by lower non-cash stock-based compensation of $11 million and a $14 million net gain on a divestiture in the current quarter.

Interest expense, net

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.

Our interest expense, net, increased to $42 million for the three months ended March 31, 2024 from $35 million for the three months ended March 31, 2023 due to the maturity of the interest rate swaps and higher interest rates on variable rate debt.

Other (income) expense

Other income for the three months ended March 31, 2024 primarily includes foreign currency gains on our Euro-denominated debt of $21 million, currency exchange gains on our intercompany loans of $7 million, and unrealized gains on hedging activity of $5 million.

This compares to foreign currency losses on our Euro-denominated debt of $20 million, currency exchange losses on our intercompany loans of $13 million, partially offset by unrealized gains on hedging activity of $2 million for the three months ended March 31, 2023.

Income tax expense

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.

Our income tax expense decreased by $3 million to $18 million for the three months ended March 31, 2024 from $21 million for the three months ended March 31, 2023.

The decrease of $3 million in income tax expense is primarily due to the tax benefit from the winding down of the Company’s O&O Media Properties partially offset by an increase in tax expense due to higher pre-tax income and income earned outside of the U.S.

subject to higher tax rates and increase in withholding taxes in the current year.

Net income increased by $59 million to $96 million for the three months ended March 31, 2024 from $37 million for the three months ended March 31, 2023 as a result of the factors described above.

Noncontrolling interest

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.

Income attributable to noncontrolling interest decreased by $3 million compared to the three months ended March 31, 2023, driven by lower income from non-wholly-owned subsidiaries in the current period.

Business Segment Results

1 unchanged sentence

For the Three Months Ended

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

8 unchanged sentences

Adjusted OIBDA

86 72 14 19 %

Corporate expenses and eliminations

8 unchanged sentences

Recorded Music

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.

Recorded Music revenue increased by $46 million, or 4%, to $1,189 million for the three months ended March 31, 2024 from $1,143 million for the three months ended March 31, 2023.

Excluding the impact of the BMG Termination and the Digital License Renewal, Recorded Music revenue increased 6% for the three months ended March 31, 2024.

Recorded Music revenues were $508 million and $522 million, or 43% and 46% of consolidated Recorded Music revenues, for the three months ended March 31, 2024 and March 31, 2023, respectively.

International Recorded Music revenues were $681 million and $621 million, or 57% and 54% of consolidated Recorded Music revenues, for the three months ended March 31, 2024 and March 31, 2023, respectively.

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

Cost of revenues

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For the Three Months Ended

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 598 $ 568 $ 30 5 %

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.

Recorded Music cost of revenues increased by $30 million, or 5%, to $598 million for the three months ended March 31, 2024 from $568 million for the three months ended March 31, 2023.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs increased to 29% for the three months ended March 31, 2024 from 27% for the three months ended March 31, 2023, primarily driven by revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs decreased to 21% for the three months ended March 31, 2024 from 23% for the three months ended March 31, 2023, primarily due to revenue mix.

Selling, general and administrative expense

1 unchanged sentence

For the Three Months Ended

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

4 unchanged sentences

______________________________________

(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.

(1) Includes depreciation expense of $13 million for each of the three months ended March 31, 2024 and March 31, 2023.

Recorded Music selling, general and administrative expense decreased by $7 million, or 2%, to $337 million for the three months ended March 31, 2024 from $344 million for the three months ended March 31, 2023.

The increase in general and administrative expense was mainly driven by incremental investment in technology of $4 million.

The decrease in selling and marketing expense was primarily due to lower variable marketing spend and savings from the 2023 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 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.

Distribution expense decreased $8 million to $19 million for the three months ended March 31, 2024, from $27 million for the three months ended March 31, 2023, driven by revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 28% for the three months ended March 31, 2024 from 30% for the three months ended March 31, 2023.

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.

Recorded Music operating income decreased by $17 million to $134 million for the three months ended March 31, 2024 from $151 million for the three months ended March 31, 2023.

In addition to the factors impacting Adjusted OIBDA described below, the decrease in operating income was driven by $88 million of restructuring and impairment charges primarily due to the Company’s Strategic Restructuring Plan and exit of certain non-core owned and operated media properties, compared to $41 million of restructuring charges in the prior year, partially offset by lower amortization expenses due to certain intangible assets becoming fully amortized.

Recorded Music Adjusted OIBDA increased by $23 million to $272 million for the three months ended March 31, 2024 from $249 million for the three months ended March 31, 2023 primarily driven by strong operating performance, $12 million of savings from the 2023 Restructuring Plan of which a portion has been reinvested in the Company’s business, partially offset by the unfavorable impact of exchange rates.

Expressed as a percentage of Recorded Music revenue, Recorded Music Adjusted OIBDA margin increased to 23% for the three months ended March 31, 2024 from 22% for the three months ended March 31, 2023 due to the factors noted above.

Music Publishing

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.

Music Publishing revenues increased by $49 million, or 19%, to $306 million for the three months ended March 31, 2024 from $257 million for the three months ended March 31, 2023.

Music Publishing revenues were $170 million and $135 million, or 56% and 53% of consolidated Music Publishing revenues, for the three months ended March 31, 2024 and March 31, 2023, respectively.

The overall increase in Music Publishing revenue was driven by growth in digital, performance, and synchronization revenues, partially offset by lower mechanical 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

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

1 unchanged sentence

Total cost of revenues $ 195 $ 155 $ 40 26 %

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.

Music Publishing cost of revenues increased by $40 million, or 26%, to $195 million for the three months ended March 31, 2024 from $155 million for the three months ended March 31, 2023.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 64% for the three months ended March 31, 2024 from 60% for the three months ended March 31, 2023, primarily due to revenue mix.

Selling, general and administrative expense

1 unchanged sentence

For the Three Months Ended

December 31, 2023 vs.

March 31, 2024 vs.

2024 2023 $ Change % Change

3 unchanged sentences

______________________________________

(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.

(1) Includes depreciation expense of $1 million for each of the three months ended March 31, 2024 and March 31, 2023.

Music Publishing selling, general and administrative expense increased by $3 million, or 11%, to $31 million for the three months ended March 31, 2024 from $28 million for the three months ended March 31, 2023.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 10% for the three months ended March 31, 2024 from 11% for the three months ended March 31, 2023.

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.

Music Publishing operating income increased by $17 million to $69 million for the three months ended March 31, 2024 from $52 million for the three months ended March 31, 2023 primarily driven by a $14 million gain on a divestiture recognized during the three months ended March 31, 2024, as well as the same factors affecting Adjusted OIBDA discussed below.

Music Publishing Adjusted OIBDA increased by $6 million, or 8%, to $82 million for the three months ended March 31, 2024 from $76 million for the three months ended March 31, 2023 largely due to higher revenues.

Expressed as a percentage of Music Publishing revenue, Music Publishing Adjusted OIBDA margin decreased to 27% for the three months ended March 31, 2024 from 30% for the three months ended March 31, 2023, primarily due to revenue mix and the unfavorable impact of foreign currency exchange rates.

Corporate Expenses and Eliminations

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.

Our operating loss from corporate expenses and eliminations increased by $5 million for the three months ended March 31, 2024 to $84 million from $79 million for the three months ended March 31, 2023, primarily driven by $7 million of restructuring and impairment charges in connection with the Company’s Strategic Restructuring Plan, higher expenses related to transformation initiatives and related costs of $5 million, higher depreciation of $4 million, partially offset by lower non-cash stock-based compensation and other related expenses of $11 million.

Our Adjusted OIBDA loss from corporate expenses and eliminations increased by $3 million for the three months ended March 31, 2024 to $42 million from $39 million for the three months ended March 31, 2023, primarily due to the operating loss factors noted above.

RESULTS OF OPERATIONS

Six Months Ended March 31, 2024 Compared with Six Months Ended March 31, 2023

Consolidated Results

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

For the Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

Revenue by Type

Digital $ 1,756 $ 1,599 $ 157 10 %

Physical 265 251 14 6 %

Total digital and physical

2,021 1,850 171 9 %

Artist services and expanded-rights 330 337 (7) -2 %

Licensing 283 195 88 45 %

Total Recorded Music 2,634 2,382 252 11 %

Performance 103 90 13 14 %

Digital 383 295 88 30 %

Mechanical 30 30 — — %

Synchronization 87 85 2 2 %

Other 7 7 — — %

Total Music Publishing 610 507 103 20 %

Intersegment eliminations (2) (2) — — %

Total revenues

$ 3,242 $ 2,887 $ 355 12 %

Revenue by Geographical Location

Recorded Music $ 1,135 $ 1,061 $ 74 7 %

Music Publishing 342 268 74 28 %

1,477 1,329 148 11 %

International Recorded Music 1,499 1,321 178 13 %

International Music Publishing 268 239 29 12 %

Total international

1,767 1,560 207 13 %

Intersegment eliminations (2) (2) — — %

Total revenues

$ 3,242 $ 2,887 $ 355 12 %

Total Revenues

Total revenues increased by $355 million, or 12%, to $3,242 million for the six months ended March 31, 2024 from $2,887 million for the six months ended March 31, 2023.

The current year included $68 million from a licensing agreement extension for an artist’s catalog (the “Licensing Extension”) in Recorded Music licensing revenue.

In addition, revenue growth was unfavorably impacted by the termination of the distribution agreement with BMG (the “BMG Termination”) which resulted in $35 million of lower Recorded Music digital revenue, partially offset by $23 million incremental Recorded Music streaming revenue resulting from the renewal with one of the Company’s digital partners (the “Digital License Renewal”) in the six months ended March 31, 2024 compared to the prior year.

Adjusted for these items, total revenues increased by 10%.

The increase includes $18 million of favorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 81% and 19% of total revenues for the six months ended March 31, 2024, respectively, and 82% and 18% of total revenues for the six months ended March 31, 2023, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 46% and 54% for the six months ended March 31, 2024, respectively, and 46% and 54% for the six months ended March 31, 2023, respectively.

Total digital revenues after intersegment eliminations increased by $245 million, or 13%, to $2,139 million for the six months ended March 31, 2024 from $1,894 million for the six months ended March 31, 2023.

Total streaming revenue increased 14% driven by growth across Recorded Music and Music Publishing, including revenue from emerging streaming platforms.

Total digital revenues represented 66% of consolidated revenues for each of the six months ended March 31, 2024 and March 31, 2023.

Prior to intersegment eliminations, total digital revenues for the six months ended March 31, 2024 were composed of U.S.

revenues of $1,047 million and international revenues of $1,092 million, or 49% and 51% of total digital revenues, respectively.

Prior to intersegment

eliminations, total digital revenues for the six months ended March 31, 2023 were composed of U.S.

revenues of $957 million and international revenues of $937 million, or 51% and 49% of total digital revenues, respectively.

Recorded Music revenues increased by $252 million, or 11%, to $2,634 million for the six months ended March 31, 2024 from $2,382 million for the six months ended March 31, 2023.

The increase includes $13 million of favorable currency exchange fluctuations.

Recorded Music revenues were $1,135 million and $1,061 million, or 43% and 45% of consolidated Recorded Music revenues, for the six months ended March 31, 2024 and March 31, 2023, respectively.

International Recorded Music revenues were $1,499 million and $1,321 million, or 57% and 55% of consolidated Recorded Music revenues for the six months ended March 31, 2024 and March 31, 2023, 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 $157 million primarily due to growth in streaming revenue as a result of the continued growth in streaming services, including growth in emerging streaming platforms.

Revenue from streaming services grew by $162 million, or 10%, to $1,715 million for the six months ended March 31, 2024 from $1,553 million for the six months ended March 31, 2023.

Adjusted for the impacts of the BMG Termination and the Digital License Renewal, Recorded Music streaming revenue was up 11%.

Download and other digital revenues decreased by $5 million, or 11%, to $41 million for the six months ended March 31, 2024 from $46 million for the six months ended March 31, 2023 primarily due to the unfavorable impact of the BMG Termination of $3 million.

Licensing revenue increased by $88 million, or 45%, primarily driven by $68 million from the Licensing Extension, and physical revenue increased by $14 million, or 6%, driven by the timing of releases in the current year, and the favorable impact of foreign currency exchange rates of $4 million.

Artist services and expanded-rights revenue decreased by $7 million primarily due to lower merchandising revenue, partially offset by higher concert promotion revenue and the favorable impact of foreign currency exchange rates of $5 million.

Music Publishing revenues increased by $103 million, or 20%, to $610 million for the six months ended March 31, 2024 from $507 million for the six months ended March 31, 2023.

Music Publishing revenues were $342 million and $268 million, or 56% and 53% of consolidated Music Publishing revenues, for the six months ended March 31, 2024 and March 31, 2023, respectively.

International Music Publishing revenues were $268 million and $239 million, or 44% and 47% of Music Publishing revenues, for the six months ended March 31, 2024 and March 31, 2023, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $88 million, or 30%, performance revenue of $13 million, or 14%, and synchronization revenue of $2 million, or 2%.

Mechanical revenue remained constant.

The increase in digital revenue is primarily due to continued growth in streaming revenue, the impact of digital deal renewals and the favorable impact of foreign currency exchange rates of $3 million.

Revenue from streaming services grew by $90 million, or 31%, to $378 million for the six months ended March 31, 2024 from $288 million for the six months ended March 31, 2023.

The growth in performance revenue is primarily driven by strong artist touring activity in Europe, and the growth in synchronization revenue is attributable to the timing of copyright infringement settlements and a favorable impact of foreign currency exchange rates of $1 million.

Revenue by Geographical Location

revenue increased by $148 million, or 11%, to $1,477 million for the six months ended March 31, 2024 from $1,329 million for the six months ended March 31, 2023.

Recorded Music revenue increased by $74 million, or 7%, primarily driven by growth in licensing revenue of $78 million due to $68 million from the Licensing Extension.

Recorded Music growth was also attributable to growth in digital and physical revenues, partially offset by lower U.S.

Recorded Music artist services and expanded-rights revenue.

Recorded Music digital revenue grew by $22 million, or 3%, attributable to the continued growth in streaming services, partially offset by the impact of the BMG Termination.

Recorded Music streaming revenue increased by $28 million, or 4%, partially offset by a decrease in download and other digital revenue of $6 million.

U.S Recorded Music physical revenue increased by $4 million or 4% due to the success of new releases primarily in the first quarter of 2024.

Recorded Music artist services and expanded-rights revenue decreased by $30 million, primarily driven by lower merchandising revenue.

Music Publishing revenue increased by $74 million, or 28%, to $342 million for the six months ended March 31, 2024 from $268 million for the six months ended March 31, 2023.

Music Publishing digital revenue increased by $68 million, attributable to growth in streaming revenue and the impact of digital deal renewals.

Music Publishing streaming revenue increased by $68 million, or 39%.

The increase in U.S.

Music Publishing synchronization revenue of $2 million is primarily driven by the timing of copyright infringement settlements.

Music Publishing performance revenue increased by $5 million, partially offset by a decrease in U.S.

Music Publishing mechanical revenue of $2 million driven by a lower share of U.S.

physical revenue.

International revenue increased by $207 million, or 13%, to $1,767 million for the six months ended March 31, 2024 from $1,560 million for the six months ended March 31, 2023.

Excluding the favorable impact of foreign currency exchange rates, International revenue increased by $189 million, or 12%.

International Recorded Music revenue increased by $178 million primarily

due to increases in digital revenue of $135 million, artist services and expanded-rights revenue of $23 million, licensing revenue of $10 million, and physical revenue of $10 million.

International Recorded Music digital revenue increased by $135 million, or 17%, driven by growth in streaming revenue and the Digital License Renewal.

International Recorded Music artist services and expanded-rights revenue increased by $23 million, primarily due to an increase in concert promotion revenue in France and Japan, a favorable impact of foreign currency exchange rates of $5 million, partially offset by lower direct-to-consumer merchandising revenue at EMP.

International Recorded Music licensing revenue increased by $10 million which includes the impact of copyright infringement settlements and favorable foreign currency exchange rates of $3 million.

International Recorded Music physical revenue increased by $10 million, driven by strength of new releases primarily in Japan and the U.K., and a favorable impact of foreign currency exchange rates of $4 million.

International Music Publishing revenue increased by $29 million, or 12%, to $268 million for the six months ended March 31, 2024 from $239 million for the six months ended March 31, 2023.

This was primarily driven by the increase in digital revenue of $20 million, performance revenue of $8 million and mechanical revenue of $2 million.

International Music Publishing digital growth is primarily driven by streaming revenue growth of $22 million, or 19%.

International Music Publishing performance revenue increased due to strong artist touring activity in Europe, mechanical revenue increased by $2 million which includes a favorable impact of foreign currency exchange rates of $1 million, and synchronization revenue remained constant.

Cost of revenues

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

For the Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

Artist and repertoire costs $ 1,079 $ 926 $ 153 17 %

Product costs 592 556 36 6 %

Total cost of revenues $ 1,671 $ 1,482 $ 189 13 %

Artist and repertoire costs increased by $153 million, to $1,079 million for the six months ended March 31, 2024 from $926 million for the six months ended March 31, 2023.

Artist and repertoire costs as a percentage of revenue increased to 33% for the six months ended March 31, 2024 from 32% for the six months ended March 31, 2023, primarily due to revenue mix, timing of artist and repertoire investments, and the unfavorable impact of foreign currency change rates, partially offset by the impact of the Licensing Extension.

Product costs increased by $36 million, to $592 million for the six months ended March 31, 2024 from $556 million for the six months ended March 31, 2023.

Product costs as a percentage of revenue decreased to 18% for the six months ended March 31, 2024 from 19% for the six months ended March 31, 2023, primarily due to the impact of the Licensing Extension, partially offset by revenue mix.

Selling, general and administrative expenses

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

For the Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

General and administrative expense (1) $ 527 $ 474 $ 53 11 %

Selling and marketing expense 345 360 (15) -4 %

Distribution expense 50 58 (8) -14 %

Total selling, general and administrative expense $ 922 $ 892 $ 30 3 %

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(1) Includes depreciation expense of $52 million and $43 million for the six months ended March 31, 2024 and March 31, 2023, respectively.

Total selling, general and administrative expense increased by $30 million, or 3%, to $922 million for the six months ended March 31, 2024 from $892 million for the six months ended March 31, 2023.

Expressed as a percentage of revenue, total selling, general and administrative expense decreased to 28% for the six months ended March 31, 2024 from 31% for the six months ended March 31, 2023.

General and administrative expense increased by $53 million to $527 million for the six months ended March 31, 2024 from $474 million for the six months ended March 31, 2023.

The increase in general and administrative expense was driven by incremental investment in technology of $17 million, expenses related to transformation initiatives and related costs of $12 million, unfavorable

movements in foreign currency exchange rates of $5 million and higher depreciation expense related to IT assets of $9 million.

These expenses are partially offset by savings from the 2023 Restructuring Plan of which a portion has been reinvested into the business, and lower non-cash stock-based compensation expense of $12 million related to the separation agreement with our previous Chief Executive Officer in the prior year.

Expressed as a percentage of revenue, general and administrative expense remained constant at 16% for each of the six months ended March 31, 2024 and March 31, 2023.

Selling and marketing expense decreased by $15 million, or 4%, to $345 million for the six months ended March 31, 2024 from $360 million for the six months ended March 31, 2023.

Expressed as a percentage of revenue, selling and marketing expense decreased to 11% for the six months ended March 31, 2024, from 12% for the six months ended March 31, 2023 due to lower variable marketing spend and savings from the 2023 Restructuring Plan.

Distribution expense decreased to $50 million for the six months ended March 31, 2024 from $58 million for the six months ended March 31, 2023.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the six months ended March 31, 2024 and March 31, 2023.

Reconciliation of 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 Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

Net income attributable to Warner Music Group Corp.

$ 255 $ 156 $ 99 63 %

Income attributable to noncontrolling interest 34 5 29 — %

Net income 289 161 128 80 %

Income tax expense 90 69 21 30 %

Income before income taxes 379 230 149 65 %

Other expense 13 92 (79) -86 %

Interest expense, net 81 67 14 21 %

Operating income 473 389 84 22 %

Amortization expense 112 124 (12) -10 %

Depreciation expense 52 43 9 21 %

Restructuring and impairments 95 $ 41 54 — %

Transformation initiatives and other related costs 38 $ 26 12 46 %

Executive transition costs — $ 3 (3) -100 %

Net gain on divestitures (31) $ (41) 10 -24 %

Non-cash stock-based compensation and other related costs 24 $ 36 (12) -33 %

Adjusted OIBDA $ 763 $ 621 $ 142 23 %

Adjusted OIBDA

Adjusted OIBDA increased by $142 million to $763 million for the six months ended March 31, 2024 as compared to $621 million for the six months ended March 31, 2023 as a result of strong operating performance, the favorable impacts of the Licensing Extension of $67 million and the Digital License Renewal of $9 million and $24 million of savings from the 2023 Restructuring Plan, partially offset by the reinvestment of these savings in the Company’s business including $17 million of incremental investment in technology for the six months ended March 31, 2024.

Expressed as a percentage of total revenue, Adjusted OIBDA margin increased to 24% for the six months ended March 31, 2024 from 22% for the six months ended March 31, 2023.

Excluding the impact of the Licensing Extension and Digital License Renewal, Adjusted OIBDA margin was 22% for each of the six months ended March 31, 2024 and March 31, 2023.

Non-cash stock-based compensation and other related costs

Our non-cash stock-based compensation and other related costs decreased by $12 million to $24 million for the six months ended March 31, 2024 from $36 million for the six months ended March 31, 2023, primarily related to the separation agreement with our previous Chief Executive Officer in the prior year.

Net gain on divestitures

Net gain on divestitures decreased during the six months ended March 31, 2024, to a pre-tax gain of $ 31 million in connection with the divestiture of certain sound recording and publishing rights.

This compares to a pre-tax gain of $ 41 million in the six months ended March 31, 2023.

Executive transition costs

Executive transition costs were $3 million in the six months ended March 31, 2023, which consisted of severance costs associated with the departure of our previous Chief Executive Officer and Chief Financial Officer in the prior year.

Transformation initiatives and other related costs

Our transformation initiatives and other related costs increased by $12 million to $38 million for the six months ended March 31, 2024 from $26 million for the six months ended March 31, 2023 due to an increase in costs associated with our finance transformation and other related costs.

Restructuring and Impairments

Our restructuring and impairment charges increased by $54 million to $95 million for the six months ended March 31, 2024 from $41 million for the six months ended March 31, 2023.

The current year includes severance costs of approximately $45 million, and approximately $50 million of non-cash impairment losses primarily related to the Strategic Restructuring Plan.

The six months ended March 31, 2023 include $41 million of restructuring charges related to the 2023 Restructuring Plan.

Depreciation expense

Our depreciation expense increased by $9 million to $52 million for the six months ended March 31, 2024 from $43 million for the six months ended March 31, 2023.

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

Amortization expense

Our amortization expense decreased by $12 million, or 10%, to $112 million for the six months ended March 31, 2024 from $124 million for the six months ended March 31, 2023.

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

Operating income

Our operating income increased by $84 million to $473 million for the six months ended March 31, 2024 from $389 million for the six months ended March 31, 2023.

The increase in operating income was due to the factors that led to the increase in Adjusted OIBDA, partially offset by higher restructuring and impairment charges, an increase in depreciation and a decrease in net gain on divestitures as noted above.

Interest expense, net

Our interest expense, net, increased to $81 million for the six months ended March 31, 2024 from $67 million for the six months ended March 31, 2023 due to the maturity of the interest rate swaps and higher interest rates on variable rate debt.

Other expense

Other expense for the six months ended March 31, 2024 primarily includes foreign currency losses on our Euro-denominated debt of $19 million, currency exchange losses on our intercompany loans of $2 million.

This compares to foreign currency losses on our Euro-denominated debt of $88 million for the six months ended March 31, 2023.

Income tax expense

Our income tax expense increased by $21 million to $90 million for the six months ended March 31, 2024 from $69 million for the six months ended March 31, 2023.

The increase of $21 million in income tax expense is primarily due to the impact of higher pre-tax income in the current year, higher portion of the pre-tax income earned outside of the United States and taxed at rates higher than in the United States, and higher withholding taxes in the current year, partially offset by the impact from the winding down of the Company’s O&O Media Properties and noncontrolling interest.

Net income increased by $128 million to $289 million for the six months ended March 31, 2024 from $161 million for the six months ended March 31, 2023 as a result of the factors described above.

Noncontrolling interest

Income attributable to noncontrolling interest increased by $29 million to $34 million for the six months ended March 31, 2024 from $5 million for the six months ended March 31, 2023, largely driven by higher income from non-wholly-owned subsidiaries in the current year, primarily due to the impact of the Licensing Extension.

Business Segment Results

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

For the Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

Recorded Music

Revenues $ 2,634 $ 2,382 $ 252 11 %

Operating income 508 434 74 17 %

Adjusted OIBDA

684 548 136 25 %

Music Publishing

Revenues 610 507 103 20 %

Operating income 132 101 31 31 %

Adjusted OIBDA

168 148 20 14 %

Corporate expenses and eliminations

Revenue eliminations (2) (2) — — %

Operating loss (167) (146) (21) 14 %

Adjusted OIBDA loss

(89) (75) (14) 19 %

Revenues 3,242 2,887 355 12 %

Operating income 473 389 84 22 %

Adjusted OIBDA

763 621 142 23 %

Recorded Music

Recorded Music revenue increased by $252 million, or 11%, to $2,634 million for the six months ended March 31, 2024 from $2,382 million for the six months ended March 31, 2023.

Recorded Music revenues were $1,135 million and $1,061 million, or 43% and 45% of consolidated Recorded Music revenues, for the six months ended March 31, 2024 and March 31, 2023, respectively.

International Recorded Music revenues were $1,499 million and $1,321 million, or 57% and 55% of consolidated Recorded Music revenues, for the six months ended March 31, 2024 and March 31, 2023, respectively.

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

Cost of revenues

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

For the Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

Artist and repertoire costs $ 696 $ 620 $ 76 12 %

Product costs 592 556 36 6 %

Total cost of revenues $ 1,288 $ 1,176 $ 112 10 %

Recorded Music cost of revenues increased by $112 million, or 10%, to $1,288 million for the six months ended March 31, 2024 from $1,176 million for the six months ended March 31, 2023.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs remained constant at 26% for each of the six months ended March 31, 2024 and March 31, 2023.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs decreased to 22% for the six months ended March 31, 2024 from 23% for the six months ended March 31, 2023, primarily due to the impact of the Licensing Extension, partially offset by the unfavorable impact of foreign currency exchange rates.

Selling, general and administrative expense

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

For the Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

General and administrative expense (1) $ 318 $ 282 $ 36 13 %

Selling and marketing expense 333 352 (19) -5 %

Distribution expense 50 58 (8) -14 %

Total selling, general and administrative expense $ 701 $ 692 $ 9 1 %

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(1) Includes depreciation expense of $26 million for each of the six months ended March 31, 2024 and March 31, 2023.

Recorded Music selling, general and administrative expense increased by $9 million, or 1%, to $701 million for the six months ended March 31, 2024 from $692 million for the six months ended March 31, 2023.

The increase in general and administrative expense was primarily due to incremental investment in technology of $10 million, unfavorable movements in foreign currency exchange rates of $6 million and the impact of acquisitions, and higher non-cash stock-based compensation and other related expenses of $5 million, partially offset by savings from the 2023 Restructuring Plan.

The decrease in selling and marketing expense was primarily due to lower variable marketing spend and savings from the 2023 Restructuring Plan.

Distribution expense decreased by $8 million, or 14%, primarily due to revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 27% for the six months ended March 31, 2024 from 29% for the six months ended March 31, 2023.

Operating Income and Adjusted OIBDA

Recorded Music operating income increased by $74 million to $508 million for the six months ended March 31, 2024 from $434 million for the six months ended March 31, 2023 due to the factors that led to the increase in Recorded Music Adjusted OIBDA noted below, as well as lower amortization expense, partially offset by a $24 million year-over-year decrease in net gain on divestitures, $88 million of restructuring and non-cash impairment charges primarily related to the Strategic Restructuring Plan compared to $41 million of restructuring charges in the prior year, and higher non-cash stock-based compensation expense and other related costs of $5 million.

Recorded Music Adjusted OIBDA increased by $136 million, to $684 million for the six months ended March 31, 2024 from $548 million for the six months ended March 31, 2023, primarily driven by strong operating performance, $67 million from the Licensing Extension, $9 million year-over-year increase from the Digital License Renewal, and $24 million of savings from the 2023 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 26% for the six months ended March 31, 2024 from 23% for the six months ended March 31, 2023.

Excluding the impact from the Licensing Extension and Digital License Renewal, Recorded Music Adjusted OIBDA margin increased to 24% for the six months ended March 31, 2024 from 23% for the six months ended March 31, 2023.

Music Publishing

Music Publishing revenues increased by $103 million, or 20%, to $610 million for the six months ended March 31, 2024 from $507 million for the six months ended March 31, 2023.

Music Publishing revenues were $342 million and $268 million, or 56% and 53% of consolidated Music Publishing revenues, for the six months ended March 31, 2024 and March 31, 2023, respectively.

International Music Publishing revenues were $268 million and $239 million, or 44% and 47% of consolidated Music Publishing revenues, for the six months ended March 31, 2024 and March 31, 2023, respectively.

The overall increase in Music Publishing revenue was driven by growth across digital, performance and synchronization revenues, 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 Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

Artist and repertoire costs $ 386 $ 309 $ 77 25 %

Total cost of revenues $ 386 $ 309 $ 77 25 %

Music Publishing cost of revenues increased by $77 million, or 25%, to $386 million for the six months ended March 31, 2024 from $309 million for the six months ended March 31, 2023.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 63% for the six months ended March 31, 2024 from 61% for the six months ended March 31, 2023.

Selling, general and administrative expense

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

For the Six Months Ended

March 31, 2024 vs.

2024 2023 $ Change % Change

General and administrative expense (1) $ 60 $ 52 $ 8 15 %

Selling and marketing expense — 1 (1) -100 %

Total selling, general and administrative expense $ 60 $ 53 $ 7 13 %

______________________________________

(1) Includes depreciation expense of $2 million for each of the six months ended March 31, 2024 and March 31, 2023.

Music Publishing selling, general and administrative expense increased to $60 million for the six months ended March 31, 2024 from $53 million for the six months ended March 31, 2023.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense remained constant at 10% for each of the six months ended March 31, 2024 and March 31, 2023.

Operating Income and Adjusted OIBDA

Music Publishing operating income increased by $31 million to $132 million for the six months ended March 31, 2024 from $101 million operating income for the six months ended March 31, 2023 largely due to the factors that led to the increase in Music Publishing Adjusted OIBDA noted below, as well as a $14 million net gain on a divestiture recognized in the current year.

Music Publishing Adjusted OIBDA increased by $20 million, or 14%, to $168 million for the six months ended March 31, 2024 from $148 million for the six months ended March 31, 2023.

Expressed as a percentage of Music Publishing revenue, Music Publishing Adjusted OIBDA margin decreased to 28% for the six months ended March 31, 2024 from 29% for the six months ended March 31, 2023, primarily driven by revenue mix.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $21 million to $167 million for the six months ended March 31, 2024 from $146 million for the six months ended March 31, 2023, primarily due to higher expenses related to transformation initiatives and related costs of $12 million, incremental investment in technology of $6 million and higher depreciation expense of $9 million, partially offset by lower non-cash stock-based compensation and other related expenses of $18 million.

Our Adjusted OIBDA loss from corporate expenses and eliminations increased by $14 million to $89 million for the six months ended March 31, 2024 from $75 million for the six months ended March 31, 2023 primarily due to the operating loss factors noted above.

FINANCIAL CONDITION AND LIQUIDITY

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.

Financial Condition at March 31, 2024

At March 31, 2024, we had $3.984 billion of debt (which is net of $36 million of premiums, discounts and deferred financing costs), $587 million of cash and equivalents (net debt of $3.397 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $433 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 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

The financial data for the six months ended March 31, 2024 and March 31, 2023 are unaudited and have been derived from our condensed consolidated interim financial statements included elsewhere herein.

Six Months Ended

Cash provided by (used in):

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Operating Activities

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.

Cash provided by operating activities was $262 million for the six months ended March 31, 2024 as compared with cash provided by operating activities of $203 million for the six months ended March 31, 2023.

The $59 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 $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.

Cash used in investing activities was $125 million for the six months ended March 31, 2024 as compared with cash used in investing activities of $51 million for the six months ended March 31, 2023.

The $125 million of cash used in investing activities in the six months ended March 31, 2024 consisted of $17 million relating to investments and acquisitions of businesses, $82 million to acquire music-related assets, and $55 million relating to capital expenditures, partially offset by $17 million of proceeds from divestitures and $12 million of proceeds from the sale of investments.

The $51 million of cash used in investing activities in the six months ended March 31, 2023 consisted of $17 million relating to investments and acquisitions of businesses, $42 million to acquire music-related assets, and $56 million relating to capital expenditures, partially offset by $42 million of proceeds from divestitures and $22 million of proceeds from the sale of investments.

Financing Activities

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.

Cash used in financing activities was $190 million for the six months ended March 31, 2024 as compared with cash used in financing activities of $143 million for the six months ended March 31, 2023.

The $190 million of cash used in financing activities for the six months ended March 31, 2024 consisted of dividends paid of $178 million, distributions to noncontrolling interest holders of $5 million, taxes paid related to net share settlement of restricted stock units and common stock of $5 million and deferred financing costs paid of $2 million.

The $143 million of cash used in financing activities for the six months ended March 31, 2023 consisted of cash paid to settle deferred consideration related to a fiscal year 2022 acquisition of music publishing rights and music catalogs of $133 million, dividends paid of $167 million, deferred financing costs of $2 million and distributions to noncontrolling interest holders of $7 million, partially offset by proceeds from the incremental Senior Term Loan Facility of $147 million and proceeds from the Term Loan Mortgage of $19 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.

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.

We maintain our cash in various banks and other financial institutions around the world, and in some cases those cash deposits are in

excess of FDIC or other deposit insurance.

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

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

We are continuing our financial transformation initiative, launched in August 2019, to upgrade our information technology and finance infrastructure, including related systems and processes, for which we currently expect upfront costs to be approximately $250 million, which includes capital expenditures of approximately $105 million.

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

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

In 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.

Debt Capital Structure

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

For example, our S&P corporate credit rating improved from B in 2017 to BB+ in July 2021 with a stable outlook, and our Moody’s corporate family rating improved from B1 in 2016 to Ba2 in April 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.

In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 4.5% as of March 31, 2024.

Our nearest-term maturity date is in 2028.

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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):

Senior Term Loan Credit Agreement Amendment

On January 24, 2024, WMG Acquisition Corp.

(“Acquisition Corp.”), a subsidiary of Warner Music Group Corp., entered into an amendment (the “Senior Term Loan Credit Agreement Amendment”) to the credit agreement, dated November 1, 2012 (as amended by the amendments dated as of May 9, 2013, July 15, 2016, November 21, 2016, May 22, 2017, December 6, 2017, March 14, 2018, June 7, 2018, January 20, 2021, March 8, 2021, November 1, 2022, May 10, 2023, June 30, 2023 and December 29, 2023),

among Acquisition Corp., the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with JPMorgan Chase Bank N.A., as administrative agent, and the other financial institutions and lenders from time to time party thereto.

The Senior Term Loan Credit Agreement Amendment (among other changes) extends the maturity date of its outstanding term loans from January 20, 2028 to January 24, 2031 through the issuance of tranche I term loans and refinancing of the existing tranche G term loans.

The tranche I term loans shall bear interest at a rate equal to, at Acquisition Corp.’s election (i) the forward-looking term rate based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Term SOFR”) subject to a zero floor, plus 2.00% per annum or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) 0.50% in excess of the overnight federal funds rate and (z) one-month Term SOFR, plus 1.00% per annum, in each case, subject to a 1.00% floor, plus 1.00% per annum.

Existing Debt as of March 31, 2024

As of March 31, 2024, 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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______________________________________

(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.

(a) Reflects $350 million of commitments under the Revolving Credit Facility available at March 31, 2024, less letters of credit outstanding of approximately $2 million at March 31, 2024.

There were no loans outstanding under the Revolving Credit Facility at March 31, 2024.

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 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.

On February 12, 2024, 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 March 1, 2024.

The Company paid an aggregate of approximately $89 million and $178 million, or $0.17 and $0.34 per share, in cash dividends to stockholders and participating security holders for the three and six months ended March 31, 2024, respectively.

Covenant Compliance

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of December 31, 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 March 31, 2024.

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

GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended December 31, 2023, for the twelve months ended December 31, 2022 and for the three months ended December 31, 2023 and December 31, 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 December 31, 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 March 31, 2024, for the twelve months ended March 31, 2023 and for the three months ended March 31, 2024 and March 31, 2023.

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

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Twelve Months Ended

December 31, Three Months Ended

March 31, Three Months Ended

2024 2023 2024 2023

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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 December 31, 2023.

(c) Reflects severance costs and other restructuring related expenses, including those related to the Strategic Restructuring Plan and 2023 Restructuring Plan as well as the Executive Transition Costs in the prior year.

(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 $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.

(e) Reflects mainly transaction related costs.

(f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $19 million and $65 million related to our finance transformation and other transformation related costs for the three and twelve months ended March 31, 2024, respectively, as well as $14 million and $49 million for the three and twelve months ended March 31, 2023, respectively.

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

Senior Management Free Cash Flow Plan.

(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 December 31, 2023.

(i) Reflects expected savings resulting from transformation initiatives, including the Strategic Restructuring Plan and the March 2023 Restructuring Plan, and the pro forma impact of certain specified transactions for the three and twelve months ended March 31, 2024.

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 $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.

The pro forma impact of these specified transactions and initiatives resulted in a $74 million increase in the twelve months ended March 31, 2024 Adjusted EBITDA.

(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 December 31, 2023 not exceeding $250 million.

This is calculated net of cash and equivalents of the Company as of March 31, 2024 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 $140 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