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Item 2. Management’s Discussion and Analysis

2025-02-06 compared with 2024-08-07 · 220 added, 550 removed, 416 unchanged (65% of the section changed)

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

You should read the following discussion of our results of operations and financial condition with the unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024 (the “Quarterly Report”).

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

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• our dependence on a limited number of digital music services for the online distribution and marketing of our music and their ability to significantly influence the pricing structure for online music stores;

• the ability to further develop a successful business model applicable to a digital environment and to enter into artist services and expanded-rights deals with recording artists in order to broaden our revenue streams in growing segments of the music entertainment business;

• the popular demand for particular recording artists and/or songwriters and music and the timely delivery to us of music by major recording artists and/or songwriters;

• risks related to the effects of natural or man-made disasters, including pandemics;

• risks related to the effects of climate change and natural or man-made disasters;

• the diversity and quality of our recording artists, songwriters and releases;

• trends, developments or other events in some foreign countries in which we operate;

• trends, developments or other events in the United States and in some foreign countries in which we operate;

• risks associated with our non-U.S.

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• threats to our business associated with digital piracy, including organized industrial piracy;

• risks associated with the development and use of artificial intelligence;

• an impairment in the carrying value of goodwill or other intangible and long-lived assets;

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• the fact that we have engaged in substantial restructuring activities in the past, and may need to implement further restructurings in the future and our restructuring efforts may not be successful or generate expected cost savings;

• our ability to maintain the security of information relating to our customers, employees and vendors and our music;

• our and our service providers’ ability to maintain the security of information relating to our customers, employees and vendors and our music;

• risks related to evolving laws and regulations concerning data privacy which might result in increased regulation and different industry standards;

• legislation limiting the terms by which an individual can be bound under a “personal services” contract;

• new legislation that affects the terms of our contracts with recording artists and songwriters;

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• any delays and difficulties in satisfying obligations incident to being a public company;

• the impact of our substantial leverage on our ability to raise additional capital to fund our operations, on our ability to react to changes in the economy or our industry and on our ability to meet our obligations under our indebtedness;

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All forward-looking statements made in this Quarterly Report are qualified by these cautionary statements.

Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation,

other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.

Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.

Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

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• Results of operations.

This section provides an analysis of our results of operations for the three and nine months ended June 30, 2024 and June 30, 2023.

This section provides an analysis of our results of operations for the three months ended December 31, 2024 and December 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 nine months ended June 30, 2024 and June 30, 2023, as well as a discussion of our financial condition and liquidity as of June 30, 2024.

This section provides an analysis of our cash flows for the three months ended December 31, 2024 and December 31, 2023, as well as a discussion of our financial condition and liquidity as of December 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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We calculate constant-currency by calculating prior-year revenue and Adjusted OIBDA using current-year foreign currency exchange rates.

We generally refer to such amounts calculated on a constant-currency basis as “excluding the impact of foreign currency exchange rates.” Revenue and Adjusted OIBDA

on a constant-currency basis should be considered in addition to, not as a substitute for, revenue and Adjusted OIBDA reported in accordance with U.S.

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

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

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

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

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

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

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

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• Performance :

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

concert or other venue ( e.g.

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

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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.

In 2024, the Company announced the Strategic Restructuring Plan to free up additional funds to invest in music and accelerate the Company’s growth for the next decade.

The Company expects to incur total non-recurring restructuring charges of approximately $230 million or approximately $150 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 expected pre-tax charges include approximately $154 million of severance and other termination costs, along with approximately $76 million of non-cash impairment charges recorded to date.

The majority of severance payments and other termination costs are expected to be paid by the end of fiscal year 2026.

The cost savings under the Strategic Restructuring Plan will be achieved through a combination of the disposal or winding down of non-core operations, 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 in the Company’s core Recorded Music and Music Publishing businesses, new skill sets and tech capabilities.

For the three months ended June 30, 2024, total severance costs recorded in connection with the Strategic Restructuring Plan were $1 million, all of which was recognized in our Recorded Music segment.

For the nine months ended June 30, 2024, total severance costs recorded in connection with the Strategic Restructuring Plan were $47 million, of which, $43 million was recognized in our Recorded Music segment and $4 million was recognized in Corporate.

The below table sets forth the activity for the nine months ended June 30, 2024 in the restructuring accrual associated with the Strategic Restructuring Plan included within accrued liabilities in the accompanying condensed consolidated balance sheets.

Additionally, for the nine months ended June 30, 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.

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

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

All restructuring costs were recorded in the Recorded Music segment in the prior year.

For the three months ended December 31, 2024, total severance costs recorded in connection with the Strategic Restructuring Plan were $1 million, of which $2 million of expense was recognized in our Recorded Music segment while there was a $1 million benefit recognized at Corporate associated with a change in estimate for costs previously recorded.

Additionally, for the three months ended December 31, 2024, the Company recognized $26 million of impairment losses which were recognized in our Recorded Music segment.

Impairment charges recognized during the period primarily relate to the write-off of certain long-form audiovisual production assets and lease termination costs related to office closures.

BMG Termination

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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 rolled off in fiscal 2025.

During the three and nine months ended June 30, 2024, in connection with the BMG Termination, the Company reported lower Recorded Music digital revenue of $26 million and $61 million, respectively, of which $25 million and $57 million was streaming revenue, respectively.

The impact to Recorded Music’s Adjusted OIBDA was immaterial for the three and nine months ended June 30, 2024.

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 rolled off by the end of the fiscal year.

During the three months ended December 31, 2024, in connection with the BMG Termination, the Company reported lower Recorded Music streaming revenue of $16 million and lower physical revenue of $16 million.

The impact to Recorded Music’s Adjusted OIBDA was immaterial for the three months ended December 31, 2024.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2024 Compared with Three Months Ended June 30, 2023

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

Consolidated Results

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For the Three Months Ended

June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

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Total Revenues

Total revenues decreased by $10 million, or 1%, to $1,554 million for the three months ended June 30, 2024 from $1,564 million for the three months ended June 30, 2023.

Consistent with prior quarter, revenue growth was unfavorably impacted by the BMG Termination in Recorded Music digital revenue, which resu lted in $26 million less revenue compared to the prior-year quarter, and a $3 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.

Music Publishing digital revenue growth was also unfavorably impacted by a $7 million benefit in the prior-year quarter due to a ruling by the Copyright Royalty Board in Phonorecords III upholding higher percentage of revenue U.S.

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

Adjusted for these items, total revenues increased by 2%, which includes $20 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 June 30, 2024, respectively, and 82% and 18% of total revenue for the three months ended June 30, 2023, respectively.

Total revenues decreased by $82 million, or 5%, to $1,666 million for the three months ended December 31, 2024 from $1,748 million for the three months ended December 31, 2023.

Revenue growth was unfavorably impacted by the BMG Termination, which resulted in $32 million lower Recorded Music revenue compared to the three months ended December 31, 2023, of which $16 million was in streaming revenue and $16 million was in physical revenue.

The prior-year quarter also included $75 million from a licensing agreement extension for an artist’s catalog (the “Licensing Extension”) in Recorded Music licensing revenue and $30 million of Recorded Music streaming revenue from a deal 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.

Excluding these items, total revenues increased by 3%, which includes $19 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 81% and 19% of total revenue for the three months ended December 31, 2024, respectively, and 83% and 17% of total revenue for the three months ended December 31, 2023, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 44% and 56% of total revenues for the three months ended June 30, 2024 and 45% and 55% of total revenues for the three months ended June 30, 2023.

Total digital revenues after intersegment eliminations increased by $48 million, or 5%, to $1,075 million for the three months ended June 30, 2024 from $1,027 million for the three months ended June 30, 2023.

Excluding the BMG Termination, the Digital License Renewal, and the CRB Rate Benefit, total digital revenues increased 8%, Total streaming revenue increased 6% driven by growth across Recorded Music and Music Publishing.

Prior to intersegment eliminations, total digital revenues for the three months ended June 30, 2024 were composed of U.S.

and international revenues represented 42% and 58% of total revenues for the three months ended December 31, 2024 and 46% and 54% of total revenues for the three months ended December 31, 2023.

Total digital revenues after intersegment eliminations decreased by $22 million, or 2%, to $1,082 million for the three months ended December 31, 2024 from $1,104 million for the three months ended December 31, 2023.

Excluding the BMG Termination and the Digital License Renewal, total digital revenues increased 2%.

Total streaming revenue decreased 2% driven by Recorded Music, partially offset by growth in Music Publishing.

Total streaming revenue includes $14 million of unfavorable currency exchange fluctuations.

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

revenues of $508 million and international revenues of $572 million, or 47% and 53% of total digital revenues, respectively.

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

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

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

Recorded Music revenues decreased by $31 million, or 2%, to $1,251 million for the three months ended June 30, 2024 from $1,282 million for the three months ended June 30, 2023.

Recorded Music revenues decreased by $100 million, or 7%, to $1,345 million for the three months ended December 31, 2024 from $1,445 million for the three months ended December 31, 2023.

The decrease includes $16 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $517 million and $557 million, or 41% and 43% of consolidated Recorded Music revenues for each of the three months ended June 30, 2024 and June 30, 2023, respectively.

International Recorded Music revenues were $734 million and $725 million, or 59% and 57% of consolidated Recorded Music revenues for each of the three months ended June 30, 2024 and June 30, 2023, respectively.

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

Digital revenue increased by $36 million primarily due to growth in streaming revenue, partially offset by the unfavorable impact of foreign currency exchange rates of $12 million.

Revenue from streaming services increased by $41 million, or 5%, to $863 million for the three months ended June 30, 2024 from $822 million for the three months ended June 30, 2023.

The growth in streaming revenue is partially offset by the impacts of the BMG Termination of $25 million, the Digital License Renewal of $3 million, and the unfavorable impact of foreign currency exchange rates of $11 million.

Adjusted for the BMG Termination and the Digital License Renewal, streaming revenues increased 9%.

The quarter reflects success from new album releases from Benson Boone and Dua Lipa, as well as carryover success from Zach Bryan and Teddy Swims.

Download and other digital revenues decreased by $5 million, or 21%, to $19 million for the three months ended June 30, 2024 from $24 million for the three months ended June 30, 2023 due to the unfavorable impact of the BMG Termination of $1 million compared to the prior-year quarter, the unfavorable impact of foreign currency exchange rates of $1 million, and the continued shift to streaming services.

Artist services and expanded-rights revenue decreased by $59 million or 27% due to lower merchandising and concert promotion revenue, a decrease in revenue related to the exit of the Company’s O&O Media Properties announced as part of the Strategic Restructuring Plan, and the unfavorable impact of foreign currency exchange rates of $3 million.

Licensing revenue decreased by $2 million, or 2%, primarily driven by the timing of copyright infringement settlements and the unfavorable impact of foreign currency exchange rates of $1 million.

Physical revenue decreased by $6 million, or 5%, primarily driven by timing of releases and strong U.S.

releases in the prior-year quarter, and the unfavorable impact of foreign currency exchange rates of $1 million.

Music Publishing revenues increased by $22 million, or 8%, to $305 million for the three months ended June 30, 2024 from $283 million for the three months ended June 30, 2023.

Music Publishing revenues were $161 million and $147 million, or 53% and 52% of consolidated Music Publishing revenues, for the three months ended June 30, 2024 and June 30, 2023, respectively.

International Music Publishing revenues were $144 million and $136 million, or 47% and 48% of consolidated Music Publishing revenues, for the three months ended June 30, 2024 and June 30, 2023, respectively.

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

Digital revenue grew by $12 million, or 7%, primarily due to higher streaming revenue driven by the impact of digital deal renewals and continued investment in our publishing catalog, partially offset by the CRB Rate Benefit in the prior-year quarter of $7 million, and the unfavorable impact of foreign currency exchange rates of $1 million.

Revenue from streaming services grew by $14 million, or 8%, to $192 million for the three months ended June 30, 2024 from $178 million for the three months ended June 30, 2023.

Excluding the CRB Rate Benefit of $7 million in the prior-year quarter, revenue from streaming services grew 12%.

Performance revenue increased by $12 million, or 30%, driven by an increase in touring activity outside the U.S.

radio activity, partially offset by the unfavorable impact of foreign currency exchange rates of $1 million.

Synchronization revenue increased by $1 million, or 2%, primarily attributable to higher international commercial licensing activity, partially offset by the timing of copyright infringement settlements in the U.S.

Mechanical revenue decreased by $3 million, or 19%, primarily driven by lower physical sales.

Excluding the impacts of the Licensing Extension of $75 million, the BMG Termination of $32 million, and the Digital License Renewal of $30 million, Recorded Music revenue increased 3%.

Recorded Music revenues were $532 million and $627 million, or 40% and 43% of consolidated Recorded Music revenues for each of the three months ended December 31, 2024 and December 31, 2023, respectively.

International Recorded Music revenues were $813 million and $818 million, or 60% and 57% of consolidated Recorded Music revenues for each of the three months ended December 31, 2024 and December 31, 2023, respectively.

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

Digital revenue decreased by $35 million, or 4%, which includes an unfavorable impact of currency exchange fluctuations of $13 million.

Revenue from streaming services decreased by $33 million, or 4%, to $854 million for the three months ended December 31, 2024 from $887 million for the three months ended December 31, 2023.

The decrease in streaming revenue reflects the unfavorable impact of the Digital License Renewal of $30 million, the BMG Termination of $16 million, and the unfavorable impact of foreign currency exchange rates of $13 million.

Excluding the BMG Termination and the Digital License Renewal, streaming revenue increased 2%, driven by the impact of price increases in the prior year, the timing of deal renewals, and content delivery with certain emerging streaming platforms in the prior-year quarter.

The quarter reflects carryover success from Benson Boone, Teddy Swims, Charli XCX, and Zach Bryan.

Download and other digital revenues decreased by $2 million, or 10%, to $19 million for the three months ended December 31, 2024 from $21 million for the three months ended December 31, 2023 due to the continued shift to streaming services.

Licensing revenue decreased by $69 million, or 39%, primarily driven by the impact of the Licensing Extension in the prior-year quarter of $75 million.

Artist services and expanded-rights revenue decreased by $8 million, or 4%, due to lower concert promotion revenue, lower direct-to-consumer merchandising revenue at EMP, a decrease in revenue related to the exit of the Company’s non-core owned and operated media properties in connection with the Strategic Restructuring Plan, and an unfavorable impact of foreign currency exchange rates of $2 million.

Physical revenue increased by $12 million, or 8%, which includes the unfavorable impact of the BMG Termination of $16 million.

Excluding the BMG Termination, physical revenue increased 20%, primarily driven by success of new releases from Linkin Park, Mariya Takeuchi, ROSÉ, and MISAMO, partially offset by an unfavorable impact of foreign currency exchange rates of $1 million.

Music Publishing revenues increased by $19 million, or 6%, to $323 million for the three months ended December 31, 2024 from $304 million for the three months ended December 31, 2023.

Music Publishing revenues were $173 million and $172 million, or 54% and 57% of consolidated Music Publishing revenues, for the three months ended December 31, 2024 and December 31, 2023, respectively.

International Music Publishing revenues were $150 million and $132 million, or 46% and 43% of consolidated Music Publishing revenues, for the three months ended December 31, 2024 and December 31, 2023, respectively.

The overall increase in Music Publishing revenue was driven by increases in digital, performance, and other publishing revenues, partially offset by a decrease in mechanical revenue.

Synchronization revenue was flat compared to the prior year.

Digital revenue increased by $11 million, or 6%, primarily due to higher streaming revenue, partially offset by a decrease in downloads and other digital revenue.

Revenue from streaming services grew by $12 million, or 6%, to $205 million for the three months ended December 31, 2024 from $193 million for the three months ended December 31, 2023, reflecting continued market growth, partially offset by an unfavorable impact of foreign currency exchange rates of $1 million.

Performance revenue increased by $5 million, or 10%, driven by higher touring revenue outside of the U.S.

radio growth, partially offset by an unfavorable impact of foreign currency exchange rates of $1 million.

Mechanical revenue decreased by $1 million.

Revenue by Geographical Location

revenue decreased by $26 million, or 4%, to $678 million for the three months ended June 30, 2024 from $704 million for the three months ended June 30, 2023.

revenue decreased by $94 million, or 12%, to $705 million for the three months ended December 31, 2024 from $799 million for the three months ended December 31, 2023.

Recorded Music revenue decreased by $95 million, or 15%.

The decrease is driven by lower revenue across artist services and expanded-rights of $19 million, digital revenue of $12 million, licensing revenue of $5 million, and physical revenue of $4 million.

The decrease in artist services and expanded-rights revenue is driven by lower merchandising revenue and a decrease in revenue related to the exit of the Company’s O&O Media Properties announced as part of the Strategic Restructuring Plan .

The decrease in U.S.

Recorded Music digital revenue reflects lower streaming revenue of $9 million, or 2%, and lower download and other digital revenue of $3 million, or 23%, primarily attributable to the unfavorable impact of the BMG Termination compared to the prior-year quarter.

The decrease in U.S.

Recorded Music licensing revenue of $5 million is driven by timing of copyright infringement settlements in the prior-year quarter, and the decrease in physical revenue of $4 million is driven by the timing of releases following strong U.S.

releases in the prior-year quarter.

Music Publishing revenue increased by $14 million, or 10%, to $161 million for the three months ended June 30, 2024 from $147 million for the three months ended June 30, 2023.

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

Music Publishing digital revenue of $10 million due to the continued growth in streaming services, resulting in streaming growth of $9 million, or 9%.

The increase in streaming revenue reflects the continued market growth, expansion of our publishing catalog and timing of payments, partially offset by the CRB Rate Benefit of $7 million in the prior-year quarter.

Music Publishing performance revenue increased by $7 million due to an increase U.S.

radio activity, mechanical revenue increased by $1 million due to timing of collections, partially offset by a decrease in synchronization revenue of $3 million driven by the timing of copyright infringement settlements.

International revenue increased by $17 million, or 2%, to $878 million for the three months ended June 30, 2024 from $861 million for the three months ended June 30, 2023.

The primary driver was the decrease in licensing revenue of $76 million, attributable to $75 million from the Licensing Extension in the prior-year quarter.

Recorded Music digital revenue decreased by $28 million, or 7%, which reflects lower streaming revenue of $26 million, or 7%, and lower download and other digital revenue of $2 million, or 18%.

The decrease in streaming revenue is largely attributable to the unfavorable impact of the BMG Termination compared to the prior-year quarter.

This was partially offset by increases in U.S.

Recorded Music physical revenue of $8 million, or 13%, and artist services and expanded-rights of $1 million, or 2%.

The increase in physical revenue is driven by strong releases in the current quarter as well as catalog and carryover success.

The increase in U.S.

Recorded Music artist services and expanded-rights revenue is driven by higher merchandising revenue, partially offset by a decrease in revenue related to the exit of the Company’s non-core owned and operated media properties in the prior year in connection with the Strategic Restructuring Plan .

Music Publishing revenue increased by $1 million, or 1%, to $173 million for the three months ended December 31, 2024 from $172 million for the three months ended December 31, 2023.

Music Publishing digital revenue remained constant, attributable to streaming growth of $1 million, or 1%, offset by a decrease in download and other digital revenue of $1 million.

Music Publishing streaming revenue reflects the continued market growth and the timing of payments.

Music Publishing performance revenue increased by $1 million, or 6%, due to an increase in U.S.

radio activity.

Music Publishing synchronization revenue and mechanical revenue remained constant for the three months ended December 31, 2024 compared to the three months ended December 31, 2023.

International revenue increased by $13 million, or 1%, to $963 million for the three months ended December 31, 2024 from $950 million for the three months ended December 31, 2023.

Excluding the unfavorable impact of foreign currency exchange rates of $18 million, International revenue increased by $31 million, or 3%.

International Recorded Music revenue increased by $9 million due to increases in digital revenue of $48 million and licensing revenue of $3 million, partially offset by decreases in artist services and expanded-rights revenue of $40 million and physical revenue of $2 million.

The increase in International Recorded Music digital revenue was driven by an increase in streaming revenue of $50 million, or 12%, partially offset by the unfavorable impact of the Digital License Renewal of $3 million in the prior-year quarter and the unfavorable impact of foreign currency exchange rates of $11 million.

International Recorded Music licensing revenue increased by $3 million, driven by the timing of copyright infringement settlements, partially offset by the unfavorable impact of foreign currency exchange rates of $1 million.

International Recorded Music artist services and expanded-rights revenue decreased by $40 million due to lower direct-to-consumer merchandising revenue at EMP, lower concert promotion revenue primarily in Japan and France, and the unfavorable impact of foreign currency exchange rates of $3 million.

International Recorded Music physical revenue decreased by $2 million, primarily due to the timing of releases.

International Music Publishing revenue increased from the prior-year quarter by $8 million, or 6%, to $144 million for the three months ended June 30, 2024 from $136 million for the three months ended June 30, 2023.

International Music Publishing revenue growth was largely driven by increases in performance revenue of $5 million due to strong artist touring activity in Europe, synchronization revenue of $4 million, digital revenue of $2 million, other revenue of $1 million, partially offset by a decrease in mechanical revenue of $4 million.

The growth in International Music Publishing digital revenue includes streaming revenue growth of $5 million or 7%, partially offset by a decrease in download and other digital revenue of $3 million.

International Recorded Music revenue decreased by $5 million, or 1%, driven by decreases in artist services and expanded-rights revenue and digital revenues, partially offset by increases in licensing and physical revenues.

International Recorded Music artist services and expanded-rights revenue decreased by $9 million due to lower direct-to-consumer merchandising revenue at EMP, lower concert promotion revenue primarily in France, and the unfavorable impact of foreign currency exchange rates of $2 million.

International Recorded Music digital revenue decreased by $7 million, attributable to lower streaming revenue of $7 million, or 1%, which reflects the unfavorable impact of the BMG Termination and the Digital License Renewal in the prior-year quarter, and an unfavorable impact of foreign currency exchange rates of $13 million.

International Recorded Music licensing revenue increased by $7 million driven by higher broadcast revenue and the impact of settlements, and physical revenue increased by $4 million driven by strong releases primarily in Japan, partially offset by an unfavorable impact of foreign currency exchange rates of $1 million.

International Music Publishing revenue increased from the prior-year quarter by $18 million, or 14%, to $150 million for the three months ended December 31, 2024 from $132 million for the three months ended December 31, 2023.

International Music Publishing revenue growth was driven by increases in digital revenue of $11 million due to growth in streaming, performance revenue of $4 million due to higher touring revenue, and other revenue of $4 million.

This was partially offset by a decrease in mechanical revenue of $1 million.

International Music Publishing synchronization revenue remained constant for the three months ended December 31, 2024 compared to the three months ended December 31, 2023.

Cost of revenues

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For the Three Months Ended

June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

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Total cost of revenues $ 894 $ 880 $ 14 2 %

Artist and repertoire costs increased by $18 million, to $548 million for the three months ended June 30, 2024 from $530 million for the three months ended June 30, 2023.

Artist and repertoire costs as a percentage of revenue increased to 35% during the three months ended June 30, 2024 from 34% for the three months ended June 30, 2023, primarily driven by revenue mix.

Product costs decreased by $38 million, to $282 million for the three months ended June 30, 2024 from $320 million for the three months ended June 30, 2023.

Product costs as a percentage of revenue decreased to 18% for the three months ended June 30, 2024 from 20% for the three months ended June 30, 2023, primarily driven by revenue mix due to the BMG Termination and lower artist services and expanded-rights and third-party distributed label revenue.

Artist and repertoire costs increased by $34 million, to $574 million for the three months ended December 31, 2024 from $540 million for the three months ended December 31, 2023.

Artist and repertoire costs as a percentage of revenue increased to 34% during the three months ended December 31, 2024 from 31% for the three months ended December 31, 2023, primarily driven by revenue mix compared to the three months ended December 31, 2023, which included items with upfront revenue recognition without associated artist and repertoire costs, and unfavorable movements in currency exchange rates.

Product costs decreased by $20 million, to $320 million for the three months ended December 31, 2024 from $340 million for the three months ended December 31, 2023.

Product costs as a percentage of revenue remained constant at 19% for each of the three months ended December 31, 2024 and December 31, 2023.

Selling, general and administrative expenses

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For the Three Months Ended

June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

4 unchanged sentences

______________________________________

(1) Includes depreciation expense of $25 million and $22 million for the three months ended June 30, 2024 and June 30, 2023, respectively.

Total selling, general and administrative expense increased by $1 million, to $462 million for the three months ended June 30, 2024 from $461 million for the three months ended June 30, 2023.

Expressed as a percentage of revenue, total selling, general and administrative expense increased to 30% for the three months ended June 30, 2024 from 29% for the three months ended June 30, 2023.

General and administrative expense increased by $20 million to $264 million for the three months ended June 30, 2024 from $244 million for the three months ended June 30, 2023.

The increase in general and administrative expense was largely due to incremental expenses related to transformation initiatives and related costs of $5 million, higher depreciation expense driven by assets placed in service of $3 million, the unfavorable movements in foreign currency exchange rates of $3 million, higher non-cash stock-based compensation and other related costs of $3 million, partially offset by savings from the 2023 Restructuring Plan and the Strategic Restructuring Plan.

Expressed as a percentage of revenue, general and administrative expense increased to 17% for the three months ended June 30, 2024 from 16% for the three months ended June 30, 2023.

Selling and marketing expense decreased by $12 million, or 6%, to $173 million for the three months ended June 30, 2024 from $185 million for the three months ended June 30, 2023.

Expressed as a percentage of revenue, selling and marketing expense decreased to 11% for the three months ended June 30, 2024 from 12% for the three months ended June 30, 2023 due to lower variable marketing spend and savings from the 2023 Restructuring Plan.

Distribution expense decreased by $7 million to $25 million for the three months ended June 30, 2024 from $32 million for the three months ended June 30, 2023.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the three months ended June 30, 2024 and the three months ended June 30, 2023.

(1) Includes depreciation expense of $29 million and $26 million for the three months ended December 31, 2024 and December 31, 2023, respectively.

Total selling, general and administrative expense decreased by $2 million, to $474 million for the three months ended December 31, 2024 from $476 million for the three months ended December 31, 2023.

Expressed as a percentage of revenue, total selling, general and administrative expense increased to 28% for the three months ended December 31, 2024 from 27% for the three months ended December 31, 2023 due to the factors noted below.

General and administrative expense increased by $15 million to $284 million for the three months ended December 31, 2024 from $269 million for the three months ended December 31, 2023.

The increase in general and administrative expense was largely due to the unfavorable movements in foreign currency exchange rates of approximately $11 million, higher depreciation expense driven by assets placed into service of $3 million, higher non-cash stock-based compensation costs of $5 million, partially offset by savings from the Strategic Restructuring Plan, of which a portion has been reinvested in the Company’s business.

Expressed as a percentage of revenue, general and administrative expense increased to 17% for the three months ended December 31, 2024 from 15% for the three months ended December 31, 2023 largely driven by unfavorable movements in foreign currency exchange rates.

Selling and marketing expense decreased by $18 million, or 10%, to $158 million for the three months ended December 31, 2024 from $176 million for the three months ended December 31, 2023.

Expressed as a percentage of revenue, selling and marketing expense decreased to 9% for the three months ended December 31, 2024 from 10% for the three months ended December 31, 2023 due to lower variable marketing spend and savings from the Strategic Restructuring Plan, of which a portion has been reinvested in the Company’s business.

Distribution expense increased by $1 million to $32 million for the three months ended December 31, 2024 from $31 million for the three months ended December 31, 2023.

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

Reconciliation of Net Income Attributable to Warner Music Group Corp.

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For the Three Months Ended

June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

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Income before income taxes 330 265 65 25 %

Other income (4) (20) 16 (80) %

Other (income) expense (153) 50 (203) — %

Interest expense, net 37 39 (2) (5) %

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

Operating income 214 354 (140) (40) %

2 unchanged sentences

Restructuring and impairments 27 — 27 — %

Transformation initiatives and other related costs 18 13 5 38 %

Executive transition costs — 1 (1) — %

Transformation initiative costs 17 19 (2) (11) %

Net gain on divestitures — (17) 17 — %

2 unchanged sentences

Adjusted OIBDA

Adjusted OIBDA increased by $19 million to $316 million for the three months ended June 30, 2024 as compared to $297 million for the three months ended June 30, 2023 primarily due to strong operating performance, savings from the Strategic Restructuring Plan and savings from the 2023 Restructuring Plan, partially offset by the reinvestment of these savings in the Company’s business.

Expressed as a percentage of total revenue, Adjusted OIBDA margin increased to 20% for the three months ended June 30, 2024 from 19% for the three months ended June 30, 2023 due to the factors noted above.

Adjusted OIBDA decreased by $88 million to $363 million for the three months ended December 31, 2024 from $451 million for the three months ended December 31, 2023.

Expressed as a percentage of total revenue, Adjusted OIBDA margin decreased to 22% for the three months ended December 31, 2024 from 26% for the three months ended December 31, 2023.

The decreases in Adjusted OIBDA and Adjusted OIBDA margin are driven by the $74 million impact of the Licensing Extension in the prior-year quarter and the $12 million impact of the Digital License Renewal in the prior-year quarter, as well as revenue mix, unfavorable movements in currency exchange rates of approximately $36 million compared to the prior-year quarter, partially offset by savings from the Strategic Restructuring Plan, a portion of which has been reinvested in the Company’s business.

Non-cash stock-based compensation and other related costs

Our non-cash stock-based compensation and other related costs increased by $3 million to $11 million for the three months ended June 30, 2024 from $8 million for the three months ended June 30, 2023, primarily related to issuance of additional restricted stock units and market-based performance stock units.

Our non-cash stock-based compensation and other related costs increased by $5 million to $19 million for the three months ended December 31, 2024 from $14 million for the three months ended December 31, 2023, primarily related to issuance of additional restricted stock units and market-based performance stock units.

Net gain on divestitures

Net gain on divestitures during the three months ended June 30, 2024 includes a pre-tax gain of $1 million in connection with the divestiture of certain media properties in connection with the Strategic Restructuring Plan.

Executive transition costs

Executive transition costs of $1 million during the three months ended June 30, 2023, which include costs associated with the departure of our previous Chief Financial Officer in the prior year.

Transformation initiatives and other related costs

Our transformation initiatives and other related costs increased by $5 million to $18 million for the three months ended June 30, 2024 from $13 million for the three months ended June 30, 2023 due to an increase in costs associated with our finance transformation.

There was no net gain on divestitures during the three months ended December 31, 2024.

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

Transformation initiative costs

Our transformation initiative costs decreased by $2 million to $17 million for the three months ended December 31, 2024 from $19 million for the three months ended December 31, 2023.

Restructuring and Impairments

Our restructuring and impairment charges increased to $1 million for the three months ended June 30, 2024 related to the Strategic Restructuring Plan.

There were no restructuring and impairment charges for the three months ended June 30, 2023.

Our restructuring and impairment charges increased to $27 million for the three months ended December 31, 2024, which includes severance costs related to the Strategic Restructuring Plan and impairment losses related to the write-off of certain long-form

audiovisual production assets as well as lease termination costs for office closures in connection with the Strategic Restructuring Plan.

There were no restructuring and impairment charges for the three months ended December 31, 2023.

Depreciation expense

Our depreciation expense increased by $3 million to $25 million for the three months ended June 30, 2024 from $22 million for the three months ended June 30, 2023.

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

Our depreciation expense increased by $3 million to $29 million for the three months ended December 31, 2024 from $26 million for the three months ended December 31, 2023.

The increase is primarily due to technology assets being placed into service.

Amortization expense

Our amortization expense decreased by $9 million, or 14%, to $55 million for the three months ended June 30, 2024 from $64 million for the three months ended June 30, 2023.

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

Our amortization expense increased by $2 million, or 4%, to $57 million for the three months ended December 31, 2024 from $55 million for the three months ended December 31, 2023.

The increase is driven by incremental amortization related to acquisitions of music-related assets, partially offset by certain intangible assets becoming fully amortized.

Operating income

Our operating income increased by $18 million to $207 million for the three months ended June 30, 2024 from $189 million for the three months ended June 30, 2023.

In addition to the factors impacting Adjusted OIBDA described above, the increase in operating income was driven by lower amortization expense of $9 million and $1 million net gain on a divestiture in the current quarter, offset by $5 million of incremental expenses related to transformation initiatives and other related costs, higher non-cash stock-based compensation of $3 million, and $1 million of restructuring charges for the three months ended June 30, 2024 related to the Strategic Restructuring Plan.

Loss on extinguishment of debt

There was no loss on extinguishment of debt for the three months ended June 30, 2024.

For the three months ended June 30, 2023, we recorded a loss on extinguishment of debt of $4 million, which represents the remaining unamortized discount and deferred financing costs in connection with the redemption of Senior Term Loan Facility Tranche H loans.

Our operating income decreased by $140 million to $214 million for the three months ended December 31, 2024 from $354 million for the three months ended December 31, 2023.

In addition to the factors impacting Adjusted OIBDA described above, the decrease in operating income was driven by $27 million of restructuring and impairment charges for the three months ended December 31, 2024 related to the Strategic Restructuring Plan, $17 million net gain on a divestiture in the prior-year quarter, higher amortization expenses of $2 million, and higher non-cash stock-based compensation and other related costs of $5 million.

Interest expense, net

Our interest expense, net, increased to $40 million for the three months ended June 30, 2024 from $38 million for the three months ended June 30, 2023 due to the maturity of the interest rate swaps and higher interest rates on variable rate debt.

Other income for the three months ended June 30, 2024 primarily includes foreign currency gains on our Euro-denominated debt of $7 million, currency exchange losses on our intercompany loans of $5 million, and unrealized gains on hedging activity of $1 million.

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

Our interest expense, net, decreased to $37 million for the three months ended December 31, 2024 from $39 million for the three months ended December 31, 2023 due to lower interest rates on variable rate debt.

Other (income) expense

Other income for the three months ended December 31, 2024 primarily includes foreign currency gains on our Euro-denominated debt of $61 million, currency exchange gains on our intercompany loans of $46 million, realized gains on the sale of an investment of $29 million, and realized and unrealized gains on hedging activity of $15 million.

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

Income tax expense

Our income tax expense decreased by $13 million to $30 million for the three months ended June 30, 2024 from $43 million for the three months ended June 30, 2023.

The decrease of $13 million in income tax expense is primarily due to a current period benefit from the updated allowable costs for reported foreign derived intangible income.

Net income increased by $17 million to $141 million for the three months ended June 30, 2024 from $124 million for the three months ended June 30, 2023 as a result of the factors described above.

Our income tax expense increased by $17 million to $89 million for the three months ended December 31, 2024 from $72 million for the three months ended December 31, 2023.

The increase of $17 million in income tax expense is primarily due to the impact of higher pre-tax income in the current year, higher U.S.

state and local taxes, and higher portion of the pre-tax income earned outside of the United States and taxed at rates higher than in the United States.

Net income increased by $48 million to $241 million for the three months ended December 31, 2024 from $193 million for the three months ended December 31, 2023 as a result of the factors described above.

Noncontrolling interest

Income attributable to noncontrolling interest was $2 million for each of the three months ended June 30, 2024 and the three months ended June 30, 2023.

Income attributable to noncontrolling interest decreased by $29 million to $5 million for the three months ended December 31, 2024 from $34 million for the three months ended December 31, 2023.

The decrease is due to lower income from non-wholly-owned subsidiaries, primarily due to the impact of the Licensing Extension in the prior-year quarter.

Business Segment Results

1 unchanged sentence

For the Three Months Ended

June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

8 unchanged sentences

Adjusted OIBDA

83 86 (3) -3 %

Corporate expenses and eliminations

8 unchanged sentences

Recorded Music

Recorded Music revenue decreased by $31 million, or 2%, to $1,251 million for the three months ended June 30, 2024 from $1,282 million for the three months ended June 30, 2023.

Excluding the impacts of the BMG Termination of $26 million, the Digital License Renewal of $3 million, and the unfavorable foreign currency rates of $17 million, Recorded Music revenue increased by 1% for the three months ended June 30, 2024.

Recorded Music revenues were $517 million and $557 million, or 41% and 43% of consolidated Recorded Music revenues, for the three months ended June 30, 2024 and June 30, 2023, respectively.

International Recorded Music revenues were $734 million and $725 million, or 59% and 57% of consolidated Recorded Music revenues, for the three months ended June 30, 2024 and June 30, 2023, respectively.

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

Recorded Music revenue decreased by $100 million, or 7%, to $1,345 million for the three months ended December 31, 2024 from $1,445 million for the three months ended December 31, 2023.

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

Cost of revenues

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June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 686 $ 690 $ (4) -1 %

Recorded Music cost of revenues decreased by $33 million, or 5%, to $636 million for the three months ended June 30, 2024 from $669 million for the three months ended June 30, 2023.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs increased to 28% for the three months ended June 30, 2024 from 27% for the three months ended June 30, 2023, primarily driven by revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs

decreased to 23% for the three months ended June 30, 2024 from 25% for the three months ended June 30, 2023, primarily due to revenue mix due to lower artist services and expanded-rights and third-party distributed label revenue resulting from the BMG Termination.

Recorded Music cost of revenues decreased by $4 million, or 1%, to $686 million for the three months ended December 31, 2024 from $690 million for the three months ended December 31, 2023.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs increased to 27% for the three months ended December 31, 2024 from 24% for the three months ended December 31, 2023, primarily driven by revenue mix and the unfavorable movements in currency exchange rates.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs remained constant at 24% for each of the three months ended December 31, 2024 and December 31, 2023.

Selling, general and administrative expense

1 unchanged sentence

For the Three Months Ended

June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

4 unchanged sentences

______________________________________

(1) Includes depreciation expense of $13 million for each of the three months ended June 30, 2024 and June 30, 2023.

Recorded Music selling, general and administrative expense decreased by $12 million, or 3%, to $353 million for the three months ended June 30, 2024 from $365 million for the three months ended June 30, 2023.

The increase in general and administrative expense was mainly driven by unfavorable movements in foreign currency exchange rates of $3 million, the impact of acquisitions and higher non-cash stock-based compensation and other related costs of $3 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.

The decrease in distribution expense was primarily driven by revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense remained constant at 28% for each of the three months ended June 30, 2024 and the three months ended June 30, 2023.

(1) Includes depreciation expense of $15 million for the three months ended December 31, 2024 and $13 million for the three months ended December 31, 2023.

Recorded Music selling, general and administrative expense decreased by $1 million, to $363 million for the three months ended December 31, 2024 from $364 million for the three months ended December 31, 2023.

The increase in general and administrative expense was mainly driven by unfavorable movements in foreign currency exchange rates of approximately $11 million, higher non-cash stock-based compensation and other related costs of $4 million, and the impact of acquisitions of $1 million.

The decrease in selling and marketing expense was primarily due to lower variable marketing spend and savings from the Strategic Restructuring Plan, a portion of which has been reinvested into the Company’s business.

The increase in distribution expense was primarily driven by revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense increased to 27% for the three months ended December 31, 2024 from 25% for the three months ended December 31, 2023.

Operating Income and Adjusted OIBDA

Recorded Music operating income increased by $23 million to $230 million for the three months ended June 30, 2024 from $207 million for the three months ended June 30, 2023.

In addition to the factors impacting Adjusted OIBDA described below, the increase in operating income was driven by a decrease in amortization expense of $11 million due to certain intangible assets becoming fully amortized, partially offset by $2 million of restructuring and impairment charges primarily due to the Company’s Strategic Restructuring Plan and exit of certain non-core O&O Media Properties.

Recorded Music Adjusted OIBDA increased by $17 million to $281 million for the three months ended June 30, 2024 from $264 million for the three months ended June 30, 2023 driven by increased savings from the 2023 Restructuring Plan and savings from the Strategic Restructuring Plan, of which a portion has been reinvested in the Company’s business, partially offset by the unfavorable impact of foreign exchange rates.

Expressed as a percentage of Recorded Music revenue, Recorded Music Adjusted OIBDA margin increased to 22% for the three months ended June 30, 2024 from 21% for the three months ended June 30, 2023 due to the factors noted above.

Recorded Music operating income decreased by $136 million to $238 million for the three months ended December 31, 2024 from $374 million for the three months ended December 31, 2023.

In addition to the factors impacting Adjusted OIBDA described below, the decrease in operating income was driven by $28 million of restructuring and impairment charges which includes severance costs related to the Strategic Restructuring Plan and impairment losses related to the write-off of certain long-form audiovisual production assets and lease termination costs for office closures in connection with the Strategic Restructuring Plan in the current quarter.

The decrease is also driven by higher depreciation expenses of $2 million due to technology assets being placed into service, partially offset by lower amortization expenses of $4 million due to certain intangible assets becoming fully amortized.

Recorded Music Adjusted OIBDA decreased by $89 million to $323 million for the three months ended December 31, 2024 from $412 million for the three months ended December 31, 2023 largely driven by the impact of the Licensing Extension of $74 million in the prior-year quarter, the Digital License Renewal of $12 million in the prior-year quarter, and the impact of unfavorable movements in currency exchange rates of approximately $27 million compared to the prior-year quarter, partially offset by savings from the Strategic Restructuring Plan, of which a portion has been reinvested in the Company’s business.

Expressed as a percentage of Recorded Music revenue, Recorded Music Adjusted OIBDA margin decreased to 24% for the three months ended December 31, 2024 from 29% for the three months ended December 31, 2023 due to the factors noted above.

Music Publishing

Music Publishing revenues increased by $22 million, or 8%, to $305 million for the three months ended June 30, 2024 from $283 million for the three months ended June 30, 2023.

Music Publishing revenues were $161 million and $147 million, or 53% and 52% of consolidated Music Publishing revenues, for the three months ended June 30, 2024 and June 30, 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.

Music Publishing revenues increased by $19 million, or 6%, to $323 million for the three months ended December 31, 2024 from $304 million for the three months ended December 31, 2023.

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

June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

1 unchanged sentence

Total cost of revenues $ 210 $ 191 $ 19 10 %

Music Publishing cost of revenues increased by $14 million, or 8%, to $196 million for the three months ended June 30, 2024 from $182 million for the three months ended June 30, 2023.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues remained constant at 64% for each of the three months ended June 30, 2024 and June 30, 2023.

Music Publishing cost of revenues increased by $19 million, or 10%, to $210 million for the three months ended December 31, 2024 from $191 million for the three months ended December 31, 2023.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 65% for the three months ended December 31, 2024 from 63% for the three months ended December 31, 2023, largely due to revenue mix and unfavorable movements in currency exchange rates.

Selling, general and administrative expense

1 unchanged sentence

For the Three Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

General and administrative expense (1) $ 30 $ 27 $ 3 11 %

Selling and marketing expense 1 1 — — %

Total selling, general and administrative expense $ 31 $ 28 $ 3 11 %

______________________________________

(1) Includes no depreciation expense for each of the three months ended June 30, 2024 and June 30, 2023.

Music Publishing selling, general and administrative expense increased by $3 million, or 11%, to $31 million for the three months ended June 30, 2024 from $28 million for the three months ended June 30, 2023.

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 June 30, 2024 and June 30, 2023.

Operating Income and Adjusted OIBDA

Music Publishing operating income increased by $3 million to $53 million for the three months ended June 30, 2024 from $50 million for the three months ended June 30, 2023, driven by the same factors affecting Adjusted OIBDA discussed below, partially offset by higher amortization expense of $2 million

Music Publishing Adjusted OIBDA increased by $5 million, or 7%, to $79 million for the three months ended June 30, 2024 from $74 million for the three months ended June 30, 2023 largely due to higher revenues.

Expressed as a percentage of Music Publishing revenue, Music Publishing Adjusted OIBDA margin remained constant at 26% for each of the three months ended June 30, 2024 and June 30, 2023.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $8 million for the three months ended June 30, 2024 to $76 million from $68 million for the three months ended June 30, 2023, primarily driven by higher expenses related to transformation initiatives and related costs of $5 million, and an increase in depreciation expense of $3 million.

Our Adjusted OIBDA loss from corporate expenses and eliminations increased by $3 million for the three months ended June 30, 2024 to $44 million from $41 million for the three months ended June 30, 2023, primarily due to the operating loss factors noted above.

RESULTS OF OPERATIONS

Nine Months Ended June 30, 2024 Compared with Nine Months Ended June 30, 2023

Consolidated Results

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

For the Nine Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

Revenue by Type

Digital $ 2,638 $ 2,445 $ 193 8 %

Physical 385 377 8 2 %

Total digital and physical

3,023 2,822 201 7 %

Artist services and expanded-rights 489 555 (66) -12 %

Licensing 373 287 86 30 %

Total Recorded Music 3,885 3,664 221 6 %

Performance 155 130 25 19 %

Digital 577 477 100 21 %

Mechanical 43 46 (3) -7 %

Synchronization 129 126 3 2 %

Other 11 11 — — %

Total Music Publishing 915 790 125 16 %

Intersegment eliminations (4) (3) (1) 33 %

Total revenues

$ 4,796 $ 4,451 $ 345 8 %

Revenue by Geographical Location

Recorded Music $ 1,652 $ 1,618 $ 34 2 %

Music Publishing 503 415 88 21 %

2,155 2,033 122 6 %

International Recorded Music 2,233 2,046 187 9 %

International Music Publishing 412 375 37 10 %

Total international

2,645 2,421 224 9 %

Intersegment eliminations (4) (3) (1) 33 %

Total revenues

$ 4,796 $ 4,451 $ 345 8 %

Total Revenues

Total revenues increased by $345 million, or 8%, to $4,796 million for the nine months ended June 30, 2024 from $4,451 million for the nine months ended June 30, 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 BMG Termination which resulted in $61 million of lower Recorded Music digital revenue, partially offset by $20 million incremental Recorded Music streaming revenue resulting from the Digital License Renewal in the nine months ended June 30, 2024 compared to the prior year.

Music Publishing digital revenue growth was also impacted by $7 million in the prior year due to the CRB Rate Benefit.

Adjusted for these items, total revenues increased by 7%, which includes $2 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 81% and 19% of total revenues for the nine months ended June 30, 2024, respectively, and 82% and 18% of total revenues for the nine months ended June 30, 2023, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 45% and 55% for the nine months ended June 30, 2024, respectively, and 46% and 54% for the nine months ended June 30, 2023, respectively.

Total digital revenues after intersegment eliminations increased by $293 million, or 10%, to $3,214 million for the nine months ended June 30, 2024 from $2,921 million for the nine months ended June 30, 2023.

Excluding the BMG Termination, the Digital License Renewal and the CRB Rate Benefit in the prior year, total digital revenues increased 12%.

Total streaming revenue increased 11% driven by growth across Recorded Music and Music Publishing, including revenue from emerging streaming platforms.

Total digital revenues represented 67% of consolidated revenues for the nine months ended June 30, 2024, from 66% for the nine months ended June 30, 2023.

Prior to intersegment eliminations, total digital revenues for the nine months ended June 30, 2024 were

composed of U.S.

revenues of $1,551 million and international revenues of $1,664 million, or 48% and 52% of total digital revenues, respectively.

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

revenues of $1,463 million and international revenues of $1,459 million, or 50% and 50% of total digital revenues, respectively.

Recorded Music revenues increased by $221 million, or 6%, to $3,885 million for the nine months ended June 30, 2024 from $3,664 million for the nine months ended June 30, 2023.

The increase includes $4 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $1,652 million and $1,618 million, or 43% and 44% of consolidated Recorded Music revenues, for the nine months ended June 30, 2024 and June 30, 2023, respectively.

International Recorded Music revenues were $2,233 million and $2,046 million, or 57% and 56% of consolidated Recorded Music revenues for the nine months ended June 30, 2024 and June 30, 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 $193 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 $203 million, or 9%, to $2,578 million for the nine months ended June 30, 2024 from $2,375 million for the nine months ended June 30, 2023.

Adjusted for the impacts of the BMG Termination and the Digital License Renewal, Recorded Music streaming revenue was up 10%.

Download and other digital revenues decreased by $10 million, or 14%, to $60 million for the nine months ended June 30, 2024 from $70 million for the nine months ended June 30, 2023 primarily due to the unfavorable impact of the BMG Termination of $4 million compared to the prior year.

Licensing revenue increased by $86 million, or 30%, primarily driven by $68 million from the Licensing Extension, and physical revenue increased by $8 million, or 2%, driven by growth in international and the favorable impact of foreign currency exchange rates of $3 million.

Artist services and expanded-rights revenue decreased by $66 million primarily due to lower merchandising revenue, partially offset by higher concert promotion revenue primarily in France.

Music Publishing revenues increased by $125 million, or 16%, to $915 million for the nine months ended June 30, 2024 from $790 million for the nine months ended June 30, 2023.

Music Publishing revenues were $503 million and $415 million, or 55% and 53% of consolidated Music Publishing revenues, for the nine months ended June 30, 2024 and June 30, 2023, respectively.

International Music Publishing revenues were $412 million and $375 million, or 45% and 47% of Music Publishing revenues, for the nine months ended June 30, 2024 and June 30, 2023, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $100 million, or 21%, performance revenue of $25 million, or 19%, and synchronization revenue of $3 million, or 2%, partially offset by a decrease in mechanical revenue of $3 million or 7% due to lower physical sales.

The increase in digital revenue was primarily driven by continued growth in streaming revenue.

Revenue from streaming services grew by $104 million, or 22%, to $570 million for the nine months ended June 30, 2024 from $466 million for the nine months ended June 30, 2023, which includes the impact of the CRB Rate Benefit of $7 million in the prior year.

Excluding the impact of the CRB Rate Benefit, Music Publishing revenue from streaming services grew 24%, reflecting the continued market growth, expansion of our publishing catalog and timing of payments.

The growth in performance revenue is primarily driven by an increase in international touring activity and U.S.

radio activity, and the growth in synchronization revenue is attributable to the timing of copyright infringement settlements and the favorable impact of foreign currency exchange rates of $1 million.

Revenue by Geographical Location

revenue increased by $122 million, or 6%, to $2,155 million for the nine months ended June 30, 2024 from $2,033 million for the nine months ended June 30, 2023.

Recorded Music revenue increased by $34 million, or 2%, primarily driven by growth in licensing revenue of $73 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 $10 million, or 1%, attributable to the continued growth in streaming services, partially offset by the impact of the BMG Termination.

Recorded Music streaming revenue increased by $19 million, or 2%, partially offset by a decrease in download and other digital revenue of $9 million due to the impact of the BMG Termination.

U.S Recorded Music physical revenue remained constant compared to prior year.

Recorded Music artist services and expanded-rights revenue decreased by $49 million, due to lower merchandising revenue and a decrease in revenue related to the exit of the Company’s O&O Media Properties announced as part of the Strategic Restructuring Plan.

Music Publishing revenue increased by $88 million, or 21%, to $503 million for the nine months ended June 30, 2024 from $415 million for the nine months ended June 30, 2023.

Music Publishing digital revenue increased by $78 million, attributable to growth in streaming revenue and the impact of digital deal renewals.

Music Publishing streaming revenue increased by $77 million, or 28%.

The decrease in U.S.

Music Publishing synchronization revenue of $1 million is primarily driven by the timing of copyright infringement settlements.

Music Publishing performance revenue increased by $12 million, partially offset by a decrease in U.S.

Music Publishing mechanical revenue of $1 million driven by a lower share of U.S.

physical revenue.

International revenue increased by $224 million, or 9%, to $2,645 million for the nine months ended June 30, 2024 from $2,421 million for the nine months ended June 30, 2023.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $226 million, or 9%.

International Recorded Music revenue increased by $187 million primarily due to increases in digital revenue of $183 million, licensing revenue of $13 million, physical revenue of $8 million, partially offset by lower artist services and expanded-rights revenue of $17 million.

International Recorded Music digital revenue increased by $183 million, or 15%, driven by growth in streaming revenue and the Digital License Renewal.

International Recorded Music artist services and expanded-rights revenue decreased by $17 million, primarily due to lower direct-to-consumer merchandising revenue at EMP.

International Recorded Music licensing revenue increased by $13 million which includes the impact of copyright infringement settlements and favorable foreign currency exchange rates of $2 million.

International Recorded Music physical revenue increased by $8 million, driven by strength of new releases primarily in Japan, and a favorable impact of foreign currency exchange rates of $3 million.

International Music Publishing revenue increased by $37 million, or 10%, to $412 million for the nine months ended June 30, 2024 from $375 million for the nine months ended June 30, 2023.

This was primarily driven by the increase in digital revenue of $22 million, performance revenue of $13 million, and synchronization of $4 million, partially offset by lower mechanical revenue of $2 million.

International Music Publishing digital growth is primarily driven by streaming revenue growth of $27 million, or 14%.

International Music Publishing performance revenue increased due to strong artist touring activity in Europe, and mechanical revenue decreased by $2 million, primarily driven by lower physical sales.

Cost of revenues

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

For the Nine Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

Artist and repertoire costs $ 1,627 $ 1,456 $ 171 12 %

Product costs 874 876 (2) — %

Total cost of revenues $ 2,501 $ 2,332 $ 169 7 %

Artist and repertoire costs increased by $171 million, to $1,627 million for the nine months ended June 30, 2024 from $1,456 million for the nine months ended June 30, 2023.

Artist and repertoire costs as a percentage of revenue increased to 34% for the nine months ended June 30, 2024 from 33% for the nine months ended June 30, 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 decreased by $2 million, to $874 million for the nine months ended June 30, 2024 from $876 million for the nine months ended June 30, 2023.

Product costs as a percentage of revenue decreased to 18% for the nine months ended June 30, 2024 from 20% for the nine months ended June 30, 2023, primarily due to the impact of the Licensing Extension, revenue mix and the BMG Termination.

Selling, general and administrative expenses

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

For the Nine Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

General and administrative expense (1) $ 791 $ 718 $ 73 10 %

Selling and marketing expense 518 545 (27) -5 %

Distribution expense 75 90 (15) -17 %

Total selling, general and administrative expense $ 1,384 $ 1,353 $ 31 2 %

______________________________________

(1) Includes depreciation expense of $77 million and $65 million for the nine months ended June 30, 2024 and June 30, 2023, respectively.

Total selling, general and administrative expense increased by $31 million, or 2%, to $1,384 million for the nine months ended June 30, 2024 from $1,353 million for the nine months ended June 30, 2023.

Expressed as a percentage of revenue, total selling, general and administrative expense decreased to 29% for the nine months ended June 30, 2024 from 30% for the nine months ended June 30, 2023.

General and administrative expense increased by $73 million to $791 million for the nine months ended June 30, 2024 from $718 million for the nine months ended June 30, 2023.

The increase in general and administrative expense was driven by incremental investment in technology of $18 million, higher expenses related to transformation initiatives and related costs of $17 million, higher depreciation expense related to IT assets of $12 million, the impact of acquisitions and unfavorable movements in foreign currency exchange rates of $8 million.

These expenses are partially offset by savings from the 2023 Restructuring Plan and Strategic Restructuring Plan, of which a portion has been reinvested into the business, and lower non-cash stock-based compensation expense of $9 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 nine months ended June 30, 2024 and June 30, 2023.

Selling and marketing expense decreased by $27 million, or 5%, to $518 million for the nine months ended June 30, 2024 from $545 million for the nine months ended June 30, 2023.

Expressed as a percentage of revenue, selling and marketing expense decreased to 11% for the nine months ended June 30, 2024, from 12% for the nine months ended June 30, 2023 due to lower variable marketing spend and savings from the 2023 Restructuring Plan.

Distribution expense decreased to $75 million for the nine months ended June 30, 2024 from $90 million for the nine months ended June 30, 2023.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the nine months ended June 30, 2024 and June 30, 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 Nine Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

Net income attributable to Warner Music Group Corp.

$ 394 $ 278 $ 116 42 %

Income attributable to noncontrolling interest 36 7 29 — %

Net income 430 285 145 51 %

Income tax expense 120 112 8 7 %

Income before income taxes 550 397 153 39 %

Other expense 9 72 (63) -88 %

Interest expense, net 121 105 16 15 %

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

Operating income 680 578 102 18 %

Amortization expense 167 188 (21) -11 %

Depreciation expense 77 65 12 18 %

Restructuring and impairments 96 41 55 — %

Transformation initiatives and other related costs 56 39 17 44 %

Executive transition costs — 4 (4) -100 %

Net gain on divestitures (32) (41) 9 -22 %

Non-cash stock-based compensation and other related costs 35 44 (9) -20 %

Adjusted OIBDA $ 1,079 $ 918 $ 161 18 %

Adjusted OIBDA

Adjusted OIBDA increased by $161 million to $1,079 million for the nine months ended June 30, 2024 as compared to $918 million for the nine months ended June 30, 2023 as a result of strong operating performance, the favorable impacts of the Licensing Extension of $67 million and the Digital License Renewal of $7 million, savings from the 2023 Restructuring Plan and savings from the Strategic Restructuring Plan, partially offset by the reinvestment of these savings in the Company’s business including $18 million of incremental investment in technology for the nine months ended June 30, 2024, and the unfavorable impact of the CRB Rate Benefit of $2 million.

Expressed as a percentage of total revenue, Adjusted OIBDA margin increased to 23% for the nine months ended June 30, 2024 from 21% for the nine months ended June 30, 2023, mainly due to the impact from the Licensing Extension and Digital License Renewal.

Non-cash stock-based compensation and other related costs

Our non-cash stock-based compensation and other related costs decreased by $9 million to $35 million for the nine months ended June 30, 2024 from $44 million for the nine months ended June 30, 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 nine months ended June 30, 2024, to a pre-tax gain of $ 32 million in connection with the divestiture of certain sound recording and publishing rights, including a divestiture of certain non-core O&O Media Properties in the current quarter.

This compares to a pre-tax gain of $ 41 million in the nine months ended June 30, 2023.

Executive transition costs

Executive transition costs were $4 million in the nine months ended June 30, 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 $17 million to $56 million for the nine months ended June 30, 2024 from $39 million for the nine months ended June 30, 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 $55 million to $96 million for the nine months ended June 30, 2024 from $41 million for the nine months ended June 30, 2023.

The current year includes severance costs of approximately $46 million, and approximately $50 million of non-cash impairment losses primarily related to the Strategic Restructuring Plan.

The nine months ended June 30, 2023 include $41 million of restructuring charges related to the 2023 Restructuring Plan.

Depreciation expense

Our depreciation expense increased by $12 million to $77 million for the nine months ended June 30, 2024 from $65 million for the nine months ended June 30, 2023.

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

Amortization expense

Our amortization expense decreased by $21 million, or 11%, to $167 million for the nine months ended June 30, 2024 from $188 million for the nine months ended June 30, 2023.

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

Operating income

Our operating income increased by $102 million to $680 million for the nine months ended June 30, 2024 from $578 million for the nine months ended June 30, 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.

Loss on extinguishment of debt

There was no loss on extinguishment of debt for the nine months ended June 30, 2024.

For the nine months ended June 30, 2023, we recorded a loss on extinguishment of debt of approximately $4 million, which represents the remaining unamortized discount and deferred financing costs in connection with the redemption of Senior Term Loan Facility Tranche H loans.

Interest expense, net

Our interest expense, net, increased to $121 million for the nine months ended June 30, 2024 from $105 million for the nine months ended June 30, 2023 due to the maturity of the interest rate swaps and higher interest rates on variable rate debt.

Other expense

Other expense for the nine months ended June 30, 2024 primarily includes foreign currency losses on our Euro-denominated debt of $11 million, currency exchange losses on our intercompany loans of $7 million, partially offset by income earned on equity method investments of $7 million.

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

Income tax expense

Our income tax expense increased by $8 million to $120 million for the nine months ended June 30, 2024 from $112 million for the nine months ended June 30, 2023.

The increase of $8 million in income tax expense is primarily due to the impact of higher pre-tax income in the current year and higher portion of the pre-tax income earned outside of the United States and taxed at rates higher than in the United States, partially offset by the impact from the winding down of the Company’s O&O Media Properties and updated allowable costs for reported foreign derived intangible income.

Net income increased by $145 million to $430 million for the nine months ended June 30, 2024 from $285 million for the nine months ended June 30, 2023 as a result of the factors described above.

Noncontrolling interest

Income attributable to noncontrolling interest increased by $29 million to $36 million for the nine months ended June 30, 2024 from $7 million for the nine months ended June 30, 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 Nine Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

Recorded Music

Revenues $ 3,885 $ 3,664 $ 221 6 %

Operating income 739 641 98 15 %

Adjusted OIBDA

965 812 153 19 %

Music Publishing

Revenues $ 915 $ 790 $ 125 16 %

Operating income 185 151 34 23 %

Adjusted OIBDA

247 222 25 11 %

Corporate expenses and eliminations

Revenue eliminations $ (4) $ (3) $ (1) 33 %

Operating loss (244) (214) (30) 14 %

Adjusted OIBDA loss

(133) (116) (17) 15 %

Revenues $ 4,796 $ 4,451 $ 345 8 %

Operating income 680 578 102 18 %

Adjusted OIBDA

1,079 918 161 18 %

Recorded Music

Recorded Music revenue increased by $221 million, or 6%, to $3,885 million for the nine months ended June 30, 2024 from $3,664 million for the nine months ended June 30, 2023.

Recorded Music revenues were $1,652 million and $1,618 million, or 43% and 44% of consolidated Recorded Music revenues, for the nine months ended June 30, 2024 and June 30, 2023, respectively.

International Recorded Music revenues were $2,233 million and $2,046 million, or 57% and 56% of consolidated Recorded Music revenues, for the nine months ended June 30, 2024 and June 30, 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 Nine Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

Artist and repertoire costs $ 1,050 $ 969 $ 81 8 %

Product costs 874 876 (2) — %

Total cost of revenues $ 1,924 $ 1,845 $ 79 4 %

Recorded Music cost of revenues increased by $79 million, or 4%, to $1,924 million for the nine months ended June 30, 2024 from $1,845 million for the nine months ended June 30, 2023.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs increased to 27% for the nine months ended June 30, 2024, from 26% for the nine months ended June 30, 2023.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs decreased to 22% for the nine months ended June 30, 2024 from 24% for the nine months ended June 30, 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 Nine Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

General and administrative expense (1) $ 479 $ 434 $ 45 10 %

Selling and marketing expense 500 533 (33) -6 %

Distribution expense 75 90 (15) -17 %

Total selling, general and administrative expense $ 1,054 $ 1,057 $ (3) — %

______________________________________

(1) Includes depreciation expense of $39 million for each of the nine months ended June 30, 2024 and June 30, 2023.

Recorded Music selling, general and administrative expense decreased by $3 million, to $1,054 million for the nine months ended June 30, 2024 from $1,057 million for the nine months ended June 30, 2023.

The decrease in general and administrative expense was primarily due to incremental investment in technology, unfavorable movements in foreign currency exchange rates of $9 million, the impact of acquisitions, and higher non-cash stock-based compensation and other related expenses of $8 million, partially offset by savings from the 2023 Restructuring Plan and the Strategic Restructuring Plan.

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

The decrease in distribution expense was 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 nine months ended June 30, 2024 from 29% for the nine months ended June 30, 2023.

Operating Income and Adjusted OIBDA

Recorded Music operating income increased by $98 million to $739 million for the nine months ended June 30, 2024 from $641 million for the nine months ended June 30, 2023 due to the factors that led to the increase in Recorded Music Adjusted OIBDA noted below, as well as lower amortization expense of $25 million, partially offset by a $24 million year-over-year decrease in net gain on divestitures, $89 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 $8 million.

Recorded Music Adjusted OIBDA increased by $153 million, to $965 million for the nine months ended June 30, 2024 from $812 million for the nine months ended June 30, 2023, primarily driven by strong operating performance, $67 million from the Licensing Extension, $7 million year-over-year increase from the Digital License Renewal, increased savings from the 2023 Restructuring Plan and savings from the Strategic 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 25% for the nine months ended June 30, 2024 from 22% for the nine months ended June 30, 2023, mainly due to the impact from the Licensing Extension and Digital License Renewal.

Music Publishing

Music Publishing revenues increased by $125 million, or 16%, to $915 million for the nine months ended June 30, 2024 from $790 million for the nine months ended June 30, 2023.

Music Publishing revenues were $503 million and $415 million, or 55% and 53% of consolidated Music Publishing revenues, for the nine months ended June 30, 2024 and June 30, 2023, respectively.

International Music Publishing revenues were $412 million and $375 million, or 45% and 47% of consolidated Music Publishing revenues, for the nine months ended June 30, 2024 and June 30, 2023, respectively.

The overall increase in Music Publishing revenue was driven by growth across 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

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

For the Nine Months Ended

June 30, 2024 vs.

2024 2023 $ Change % Change

Artist and repertoire costs $ 582 $ 491 $ 91 19 %

Total cost of revenues $ 582 $ 491 $ 91 19 %

Music Publishing cost of revenues increased by $91 million, or 19%, to $582 million for the nine months ended June 30, 2024 from $491 million for the nine months ended June 30, 2023, which includes the unfavorable impact of foreign currency exchange rates of $2 million.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 64% for the nine months ended June 30, 2024 from 62% for the nine months ended June 30, 2023.

Selling, general and administrative expense

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

For the Nine Months Ended

June 30, 2024 vs.

December 31, 2024 vs.

2024 2023 $ Change % Change

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______________________________________

(1) Includes depreciation expense of $2 million for each of the nine months ended June 30, 2024 and June 30, 2023.

Music Publishing selling, general and administrative expense increased to $91 million for the nine months ended June 30, 2024 from $81 million for the nine months ended June 30, 2023.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense remained constant at 10% for each of the nine months ended June 30, 2024 and June 30, 2023.

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

Music Publishing selling, general and administrative expense increased by $3 million, or 10%, to $32 million for the three months ended December 31, 2024 from $29 million for the three months ended December 31, 2023.

Operating Income and Adjusted OIBDA

Music Publishing operating income increased by $34 million to $185 million for the nine months ended June 30, 2024 from $151 million operating income for the nine months ended June 30, 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 $25 million, or 11%, to $247 million for the nine months ended June 30, 2024 from $222 million for the nine months ended June 30, 2023.

Expressed as a percentage of Music Publishing revenue, Music

Publishing Adjusted OIBDA margin decreased to 27% for the nine months ended June 30, 2024 from 28% for the nine months ended June 30, 2023, primarily driven by revenue mix.

Music Publishing operating income decreased by $8 million to $55 million for the three months ended December 31, 2024 from $63 million for the three months ended December 31, 2023, driven by the same factors affecting Adjusted OIBDA discussed below, as well as an increase in amortization expense of $5 million.

Music Publishing Adjusted OIBDA decreased by $3 million, or 3%, to $83 million for the three months ended December 31, 2024 from $86 million for the three months ended December 31, 2023 due to revenue mix and the impact of unfavorable movements in foreign currency exchange rates of approximately $9 million.

Expressed as a percentage of Music Publishing revenue, Music Publishing Adjusted OIBDA margin decreased to 26% for the three months ended December 31, 2024 from 28% for the three months ended December 31, 2023 due to revenue mix and the unfavorable movements in currency exchange rates.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $30 million to $244 million for the nine months ended June 30, 2024 from $214 million for the nine months ended June 30, 2023, primarily due to higher expenses related to transformation initiatives and related costs of $17 million, higher depreciation expense of $12 million, restructuring and impairment charges associated with the Strategic Restructuring Plan of $7 million and incremental investment in technology of $6 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 $17 million to $133 million for the nine months ended June 30, 2024 from $116 million for the nine months ended June 30, 2023 primarily due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations decreased by $4 million for the three months ended December 31, 2024 to $79 million from $83 million for the three months ended December 31, 2023, driven by lower expenses related to transformation initiatives of $2 million.

Our Adjusted OIBDA loss from corporate expenses and eliminations decreased by $4 million for the three months ended December 31, 2024 to $43 million from $47 million for the three months ended December 31, 2023, primarily due to the operating loss factors noted above.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition at June 30, 2024

At June 30, 2024, we had $3.978 billion of debt (which is net of $35 million of premiums, discounts and deferred financing costs), $607 million of cash and equivalents (net debt of $3.371 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $483 million of Warner Music Group Corp.

Financial Condition at December 31, 2024

At December 31, 2024, we had $3.955 billion of debt (which is net of $32 million of premiums, discounts and deferred financing costs), $802 million of cash and equivalents (net debt of $3.153 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $545 million of Warner Music Group Corp.

This compares to $4.014 billion of debt (which is net of $34 million of premiums, discounts and deferred financing costs), $694 million of cash and equivalents (net debt of $3.320 billion) and $518 million of Warner Music Group Corp.

1 unchanged sentence

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

The financial data for the nine months ended June 30, 2024 and June 30, 2023 are unaudited and have been derived from our condensed consolidated interim financial statements included elsewhere herein.

Nine Months Ended

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

Three Months Ended

Cash provided by (used in):

3 unchanged sentences

Operating Activities

Cash provided by operating activities was $450 million for the nine months ended June 30, 2024 as compared with cash provided by operating activities of $349 million for the nine months ended June 30, 2023.

The $101 million increase in cash provided by operating activities was largely a result of strong operating performance and other movements within working capital.

Cash provided by operating activities was $332 million for the three months ended December 31, 2024 as compared with cash provided by operating activities of $293 million for the three months ended December 31, 2023.

The $39 million increase in cash provided by operating activities was largely a result of movement in deferred revenue due to timing of digital advances and other movements within working capital.

Investing Activities

Cash used in investing activities was $201 million for the nine months ended June 30, 2024 as compared with cash used in investing activities of $104 million for the nine months ended June 30, 2023.

The $201 million of cash used in investing activities in the nine months ended June 30, 2024 consisted of $26 million relating to investments and acquisitions of businesses, $123 million to acquire music-related assets and $83 million relating to capital expenditures, partially offset by $19 million of proceeds from divestitures and $12 million of proceeds from the sale of investments.

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

Cash used in investing activities was $81 million for the three months ended December 31, 2024 as compared with cash used in investing activities of $92 million for the three months ended December 31, 2023.

The $81 million of cash used in investing activities in the three months ended December 31, 2024 consisted of $40 million relating to investments and acquisitions of businesses, $41 million to acquire music-related assets and $36 million relating to capital expenditures, partially offset by $36 million of proceeds from the sale of investments.

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.

Financing Activities

Cash used in financing activities was $280 million for the nine months ended June 30, 2024 as compared with cash used in financing activities of $233 million for the nine months ended June 30, 2023.

The $280 million of cash used in financing activities for the nine months ended June 30, 2024 consisted of dividends paid of $267 million, distributions to noncontrolling interest holders of $6 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 $233 million of cash used in financing activities for the nine months ended June 30, 2023 consisted of cash paid to settle deferred consideration related to a fiscal year 2022 acquisition of music publishing rights and music catalogs of $133 million, dividends paid of $251 million, deferred financing costs of $3 million and distributions to noncontrolling interest holders of $11 million, partially offset by proceeds from the incremental Senior Term Loan Facility of $146 million and proceeds from the Term Loan Mortgage of $19 million.

Cash used in financing activities was $127 million for the three months ended December 31, 2024 as compared with cash used in financing activities of $93 million for the three months ended December 31, 2023.

The $127 million of cash used in financing activities for the three months ended December 31, 2024 consisted of dividends paid of $94 million, payment of deferred consideration of $17 million, distributions to noncontrolling interest holders of $7 million, taxes paid related to net share settlement of restricted stock units and common stock of $2 million, common stock repurchased and retired of $2 million and other financing activity of $5 million.

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.

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.

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

For example, our S&P corporate credit rating improved from B in 2017 to BB+ in July 2021 with a stable outlook, and our Moody’s corporate family rating improved from B1 in 2016 to Ba2 in April 2023 with a positive outlook updated in April 2024.

In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 4.5% as of June 30, 2024.

For example, our S&P corporate credit rating improved from B in 2017 to BBB- in August 2024 with a stable outlook, and our Moody’s corporate family rating improved from B1 in 2016 to Ba2 in April 2023 with a positive outlook updated in April 2024.

In September 2024, Fitch assigned us a BBB- long-term credit rating with a stable outlook.

In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 4.2% as of December 31, 2024.

Our nearest-term maturity date is in 2028.

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

Revolving Credit Agreement Amendment

On November 30, 2023, Acquisition Corp.

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

The Revolving Credit Agreement Amendment (among other changes):

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

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

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

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

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

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

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

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

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

delivers a collateral suspension reversion notice to the Administrative Agent.

December 2023 Senior Term Loan Credit Agreement Amendment

On December 29, 2023, Acquisition Corp.

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

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

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

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 June 30, 2024

As of June 30, 2024, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):

Repurchase Program

On November 14, 2024, the Company’s board of directors authorized a new $100 million share repurchase program (the “Share Repurchase Program”), which is intended to offset dilution from the Omnibus Incentive Plan.

The $100 million share repurchase authorization does not obligate the Company to purchase any shares and the Share Repurchase Program does not have a fixed expiration date.

The Company repurchased and retired 60,383 shares for $2 million during the three months ended December 31, 2024.

Existing Debt as of December 31, 2024

As of December 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 June 30, 2024, less letters of credit outstanding of approximately $2 million at June 30, 2024.

There were no loans outstanding under the Revolving Credit Facility at June 30, 2024.

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

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

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The Company intends to pay quarterly cash dividends to holders of its Class A Common Stock and Class B Common Stock.

The declaration of each dividend will continue to be at the discretion of the Company’s board of directors and will depend on the Company’s financial condition, earnings, liquidity and capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by Delaware law, general business conditions and any other factors that the Company’s board of directors deems relevant in making such a determination.

board of directors deems relevant in making such a determination.

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

On May 13, 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 June 3, 2024.

The Company paid an aggregate of approximately $89 million and $267 million, or $0.17 and $0.51 per share, in cash dividends to stockholders and participating security holders for the three and nine months ended June 30, 2024, respectively.

On November 8, 2024, the Company’s board of directors declared a cash dividend of $0.18 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 3, 2024.

The Company paid an aggregate of approximately $94 million, or $0.18 per share, in cash dividends to stockholders and participating security holders for the three months ended December 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 June 30, 2024.

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, 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 June 30, 2024, for the twelve months ended June 30, 2023 and for the three months ended June 30, 2024 and June 30, 2023.

In addition, the reconciliation includes the calculation of the Senior Secured Indebtedness to Adjusted EBITDA ratio, which we refer to as the Leverage Ratio, under the Revolving Credit Agreement for the most recently ended four fiscal quarters, or the twelve months ended June 30, 2024.

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, 2024, for the twelve months ended December 31, 2023 and for the three months ended December 31, 2024 and December 31, 2023.

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

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Twelve Months Ended

June 30, Three Months Ended

December 31, Three Months Ended

2024 2023 2024 2023

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

Net gains on divestitures and sale of securities (b) (42) (42) (1) —

Restructuring costs (c) 61 60 2 1

Net foreign exchange losses (gains) (d)

Net gains on divestitures and sale of securities

(47) (25) (29) (24)

Transaction costs (e) 8 — 2 —

Business optimization expenses (f) 98 55 27 15

Non-cash stock-based compensation expense (g) 35 46 10 7

Other non-cash charges (h) 56 12 1 (5)

Pro forma impact of cost savings initiatives and specified transactions (i) 113 57 22 10

Restructuring costs (b)

Net foreign exchange losses (gains) (c)

(103) 36 (123) 54

Transaction costs

Business optimization expenses (d)

Non-cash stock-based compensation expense (e)

Other non-cash charges (f)

Pro forma impact of cost savings initiatives and specified transactions (g)

Adjusted EBITDA $ 1,519 $ 1,416 $ 383 $ 461

Senior Secured Indebtedness (j) $ 3,739

Leverage Ratio (k) 2.41x

Senior Secured Indebtedness (h)

Leverage Ratio (i)

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

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

(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.

(f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $18 million and $70 million related to our finance transformation and other transformation related costs for the three and twelve months ended June 30, 2024, respectively, as well as $13 million and $50 million for the three and twelve months ended June 30, 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) and $50 million of non-cash impairment losses resulting from the Strategic Restructuring Plan in the current year.

(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 June 30, 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 $49 million increase in the twelve months ended June 30, 2024 Adjusted EBITDA.

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

(b) 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.

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

(d) Reflects costs associated with our transformation initiatives and technology system updates, which includes costs of $17 million and $74 million related to our finance transformation for the three and twelve months ended December 31, 2024, respectively, as well as $19 million and $56 million for the three and twelve months ended December 31, 2023, respectively.

(e) Reflects non-cash stock-based compensation expense related to the Omnibus Incentive Plan.

(f) Reflects non-cash activity, including the unrealized losses (gains) on the mark-to-market adjustment of equity investments, investment losses (gains) and $26 million of non-cash impairment losses resulting from the Strategic Restructuring Plan in the current year.

(g) Reflects expected savings resulting from transformation initiatives, including the Strategic Restructuring Plan and the 2023 Restructuring Plan, and the pro forma impact of certain specified transactions for the three and twelve months ended December 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 $37 million increase in the twelve months ended December 31, 2024 Adjusted EBITDA.

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

of approximately $3.955 billion less cash of $750 million.

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

This is calculated net of cash and equivalents of the Company as of June 30, 2024 not exceeding $250 million.

(i) 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, 2024 not exceeding $750 million in accordance with the Sixth Revolving Credit Agreement Amendment.

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