Warner Music(WMG) - 2025 Q3 - Quarterly Report

markdown [PART I. FINANCIAL INFORMATION](index=4&type=section&id=Part%20I.%20Financial%20Information) This section presents unaudited consolidated financial statements and management's analysis of financial condition and operations [ITEM 1. FINANCIAL STATEMENTS (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents unaudited consolidated financial statements, including balance sheets, income, cash flow, equity, and notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents condensed consolidated balance sheets, detailing changes in assets, liabilities, and equity Condensed Consolidated Balance Sheets (Millions) | Metric | June 30, 2025 (Millions) | September 30, 2024 (Millions) | Change (Millions) | % Change | | :-------------------------------- | :----------------------- | :---------------------------- | :---------------- | :------- | | Cash and equivalents | $527 | $694 | $(167) | -24.1% | | Total current assets | $2,678 | $2,643 | $35 | 1.3% | | Total assets | $9,777 | $9,155 | $622 | 6.8% | | Total current liabilities | $4,050 | $3,897 | $153 | 3.9% | | Total liabilities | $8,965 | $8,480 | $485 | 5.7% | | Total equity | $812 | $675 | $137 | 20.3% | - **Total assets increased by $622 million, or 6.8%**, primarily driven by increases in royalty advances, intangible assets subject to amortization, and goodwill[9](index=9&type=chunk) - **Total equity increased by $137 million, or 20.3%**, largely due to an increase in additional paid-in capital and noncontrolling interest, partially offset by an accumulated deficit[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents condensed consolidated statements of operations, detailing revenue, expenses, and net income/loss Condensed Consolidated Statements of Operations Table | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | Change (Millions) | % Change | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------- | :------- | | Revenue | $1,689 | $1,554 | $135 | 8.7% | | Total costs and expenses | $(1,520) | $(1,348) | $(172) | 12.8% | | Operating income | $169 | $207 | $(38) | -18.4% | | Net (loss) income | $(16) | $141 | $(157) | -111.3% | | Net (loss) income attributable to WMG Corp. | $(16) | $139 | $(155) | -111.5% | | Class A – Basic and Diluted EPS | $(0.03) | $0.27 | $(0.30) | -111.1% | | Class B – Basic and Diluted EPS | $(0.03) | $0.27 | $(0.30) | -111.1% | Condensed Consolidated Statements of Operations Table | Metric | Nine Months Ended June 30, 2025 (Millions) | Nine Months Ended June 30, 2024 (Millions) | Change (Millions) | % Change | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :---------------- | :------- | | Revenue | $4,839 | $4,796 | $43 | 0.9% | | Total costs and expenses | $(4,288) | $(4,148) | $(140) | 3.4% | | Operating income | $551 | $680 | $(129) | -19.0% | | Net income | $261 | $430 | $(169) | -39.3% | | Net income attributable to WMG Corp. | $256 | $394 | $(138) | -35.0% | | Class A – Basic and Diluted EPS | $0.49 | $0.75 | $(0.26) | -34.7% | | Class B – Basic and Diluted EPS | $0.49 | $0.75 | $(0.26) | -34.7% | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents condensed consolidated statements of comprehensive income, including net income and other gains/losses Condensed Consolidated Statements of Comprehensive Income Table | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | Change (Millions) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------- | | Net (loss) income | $(16) | $141 | $(157) | | Foreign currency adjustment | $118 | $(10) | $128 | | Other comprehensive income (loss), net of tax | $118 | $(10) | $128 | | Total comprehensive income | $102 | $131 | $(29) | | Comprehensive income attributable to WMG Corp. | $102 | $129 | $(27) | Condensed Consolidated Statements of Comprehensive Income Table | Metric | Nine Months Ended June 30, 2025 (Millions) | Nine Months Ended June 30, 2024 (Millions) | Change (Millions) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :---------------- | | Net income | $261 | $430 | $(169) | | Foreign currency adjustment | $73 | $13 | $60 | | Other comprehensive income (loss), net of tax | $73 | $11 | $62 | | Total comprehensive income | $334 | $441 | $(107) | | Comprehensive income attributable to WMG Corp. | $329 | $405 | $(76) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents condensed consolidated statements of cash flows, detailing operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Table | Metric | Nine Months Ended June 30, 2025 (Millions) | Nine Months Ended June 30, 2024 (Millions) | Change (Millions) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :---------------- | | Net cash provided by operating activities | $447 | $450 | $(3) | | Net cash used in investing activities | $(273) | $(201) | $(72) | | Net cash used in financing activities | $(344) | $(280) | $(64) | | Net decrease in cash and equivalents | $(167) | $(34) | $(133) | | Cash and equivalents at end of period | $527 | $607 | $(80) | - **Cash used in investing activities increased by $72 million**, primarily due to higher acquisitions of music publishing rights and music catalogs ($152M vs $123M) and capital expenditures ($111M vs $83M)[17](index=17&type=chunk) - **Cash used in financing activities increased by $64 million**, mainly driven by higher dividends paid ($283M vs $267M) and payment of deferred consideration ($23M vs $0)[17](index=17&type=chunk) [Condensed Consolidated Statements of Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) This section presents condensed consolidated statements of equity, detailing changes in total equity and accumulated deficit Condensed Consolidated Statements of Equity Table | Metric | June 30, 2025 (Millions) | September 30, 2024 (Millions) | Change (Millions) | | :-------------------------------- | :----------------------- | :---------------------------- | :---------------- | | Total Warner Music Group Corp. equity | $589 | $518 | $71 | | Noncontrolling interest | $223 | $157 | $66 | | Total equity | $812 | $675 | $137 | - **Total equity increased by $137 million** from September 30, 2024, to June 30, 2025, primarily due to **net income** and other comprehensive income, partially offset by dividends paid and an increase in accumulated deficit[19](index=19&type=chunk) - **Accumulated deficit increased from $(1,313) million at September 30, 2024, to $(1,340) million at June 30, 2025**, reflecting the **net loss** for the three months ended June 30, 2025, and dividends[19](index=19&type=chunk)[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides details on notes to condensed consolidated financial statements [1. Description of Business](index=12&type=section&id=1.%20Description%20of%20Business) Warner Music Group operates as a major music entertainment company with Recorded Music and Music Publishing - The Company's business is primarily divided into two segments: **Recorded Music** and **Music Publishing**[24](index=24&type=chunk) - **Recorded Music** involves discovering, developing, marketing, promoting, distributing, selling, and licensing music by recording artists[25](index=25&type=chunk) - **Music Publishing** is an intellectual property business focused on generating revenue from the use of musical compositions, sharing revenues with songwriters or other rightsholders[26](index=26&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines significant accounting policies, including interim financial statements, consolidation, and new pronouncements - Interim financial statements are prepared in accordance with **U.S. GAAP** for interim financial information and Form 10-Q instructions[27](index=27&type=chunk) - The Company consolidates entities where it has a controlling voting interest or is the primary beneficiary of a **Variable Interest Entity (VIE)**[29](index=29&type=chunk)[30](index=30&type=chunk) - The Company uses the estimated annual effective tax rate method for interim tax provisions and recognizes **Global Intangible Low-Taxed Income (GILTI)** tax in the period it occurs[32](index=32&type=chunk)[33](index=33&type=chunk) - New accounting pronouncements (**ASU 2023-07**, **ASU 2023-09**, **ASU 2024-03**) related to segment reporting, income tax disclosures, and expense disaggregation are being evaluated for their potential impact on consolidated financial statements[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) [3. Earnings per Share](index=14&type=section&id=3.%20Earnings%20per%20Share) The Company calculates earnings per share using the two-class method, reporting a net loss for the three months - The Company uses the **two-class method** for EPS calculation, with no dilutive effect from potential common shares for the periods presented[37](index=37&type=chunk) Earnings per Share Table | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Net (loss) income attributable to WMG Corp. | $(16) million | $139 million | | Basic and Diluted EPS (Class A & B) | $(0.03) | $0.27 | Earnings per Share Table | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------ | :------------------------------ | | Net income attributable to WMG Corp. | $256 million | $394 million | | Basic and Diluted EPS (Class A & B) | $0.49 | $0.75 | [4. Revenue Recognition](index=16&type=section&id=4.%20Revenue%20Recognition) Revenue is disaggregated by type and geographical location, with total revenues increasing by **9% to $1,689 million** Revenue Recognition Table | Revenue Type | 3 Months Ended June 30, 2025 (Millions) | 3 Months Ended June 30, 2024 (Millions) | % Change | | :-------------------------- | :-------------------------------------- | :-------------------------------------- | :------- | | Digital | $929 | $882 | 5% | | Physical | $119 | $120 | -1% | | Artist services & expanded-rights | $195 | $159 | 23% | | Licensing | $111 | $90 | 23% | | Total Recorded Music | $1,354 | $1,251 | 8% | | Total Music Publishing | $336 | $305 | 10% | | Total revenues | $1,689 | $1,554 | 9% | Revenue Recognition Table | Geographical Location | 3 Months Ended June 30, 2025 (Millions) | 3 Months Ended June 30, 2024 (Millions) | % Change | | :-------------------------- | :-------------------------------------- | :-------------------------------------- | :------- | | Total U.S. | $722 | $678 | 6% | | Total International | $968 | $878 | 10% | | Total revenues | $1,689 | $1,554 | 9% | - **Deferred revenue increased by $845 million** during the nine months ended June 30, 2025, related to cash received for fixed fees and minimum guarantees in advance of performance[44](index=44&type=chunk) Remaining Performance Obligations Table | Remaining Performance Obligations | Total (Millions) | | :-------------------------------- | :--------------- | | Rest of FY25 | $422 | | FY26 | $647 | | FY27 | $171 | | Thereafter | $169 | | **Total** | **$1,409** | [5. Comprehensive Income](index=17&type=section&id=5.%20Comprehensive%20Income) Comprehensive income includes net income and other gains/losses, with accumulated other comprehensive loss improving - Components of other comprehensive income primarily include foreign currency translation gains/losses and minimum pension liabilities[47](index=47&type=chunk) Comprehensive Income Table | Metric | September 30, 2024 (Millions) | June 30, 2025 (Millions) | | :-------------------------------- | :---------------------------- | :----------------------- | | Foreign Currency Translation Loss | $(244) | $(171) | | Minimum Pension Liability Adjustment | $(3) | $(3) | | Accumulated Other Comprehensive Loss, net | $(247) | $(174) | - A **$73 million other comprehensive income** was recognized for the nine months ended June 30, 2025, primarily from foreign currency adjustments[48](index=48&type=chunk) [6. Goodwill and Intangible Assets](index=17&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased to **$2,064 million**, and net intangible assets increased to **$2,918 million** due to acquisitions Goodwill and Intangible Assets Table | Segment | September 30, 2024 (Millions) | June 30, 2025 (Millions) | Change (Millions) | | :---------------- | :---------------------------- | :----------------------- | :---------------- | | Recorded Music | $1,557 | $1,600 | $43 | | Music Publishing | $464 | $464 | $0 | | Total Goodwill | $2,021 | $2,064 | $43 | Goodwill and Intangible Assets Table | Intangible Asset Type | September 30, 2024 (Millions) | June 30, 2025 (Millions) | Change (Millions) | | :-------------------------------- | :---------------------------- | :----------------------- | :---------------- | | Recorded music catalog | $1,616 | $1,780 | $164 | | Music publishing copyrights | $2,227 | $2,677 | $450 | | Total net intangible assets | $2,511 | $2,918 | $407 | - The acquisition of Tempo Music Holdings, LLC, for **$76 million**, resulted in the recognition of **$351 million** in music publishing copyrights and **$87 million** in recorded music catalogs[53](index=53&type=chunk) - Impairment of trademarks and other intangible assets totaled **$29 million** within the Recorded Music segment[52](index=52&type=chunk) [7. Debt](index=19&type=section&id=7.%20Debt) **Total long-term debt, net, increased to $4,363 million**, primarily due to Tempo Asset-Based Notes, with a lower interest rate Debt Table | Debt Instrument | June 30, 2025 (Millions) | September 30, 2024 (Millions) | | :--------------------------------------- | :----------------------- | :---------------------------- | | Senior Term Loan Facility due 2031 | $1,295 | $1,295 | | Total Acquisition Corp. long-term debt, net | $4,061 | $4,014 | | Tempo Asset-Based Notes due 2050, net | $302 | — | | Total long-term debt, including current portion, net | $4,363 | $4,014 | - The Company acquired **$311 million of Tempo Asset-Based Notes** due 2050, secured only by Tempo's music rights and nonrecourse to the Company[53](index=53&type=chunk)[55](index=55&type=chunk)[61](index=61&type=chunk) - A new Beethoven Credit Facility was established, providing up to **$500 million** in commitment amounts, secured by the borrowers' assets[63](index=63&type=chunk) - The **weighted-average interest rate of the Company's total debt decreased to 4.1%** at June 30, 2025, from **4.3%** at September 30, 2024[77](index=77&type=chunk) [8. Restructuring and Impairments](index=21&type=section&id=8.%20Restructuring%20and%20Impairments) The 2024 Strategic Restructuring Plan is nearing completion, incurring **$7 million** in costs and **$32 million** in impairment losses - The **2024 Strategic Restructuring Plan** is nearing completion, with remaining cash payments expected by the end of fiscal year 2026[78](index=78&type=chunk) - For the nine months ended June 30, 2025, the plan resulted in **$7 million** in severance and contract termination costs and **$32 million** in impairment losses, mainly in the Recorded Music segment[79](index=79&type=chunk)[80](index=80&type=chunk) - A separate pre-tax impairment charge of **$70 million** was recognized for long-lived assets associated with non-core e-tailer operations in the Recorded Music segment[84](index=84&type=chunk) Restructuring Accrual Activity (Nine Months Ended June 30, 2025) Table | Restructuring Accrual Activity (Nine Months Ended June 30, 2025) | Amount (Millions) | | :------------------------------------------------ | :---------------- | | Balance at September 30, 2024 | $104 | | Restructuring charges | $7 | | Cash payments | $(68) | | Balance at June 30, 2025 | $43 | [9. Commitments and Contingencies](index=23&type=section&id=9.%20Commitments%20and%20Contingencies) The Company is involved in routine legal claims, with management believing no material adverse effect on financials - The Company is subject to various claims and legal proceedings in the ordinary course of business[85](index=85&type=chunk) - Management does not believe that the resolution of pending matters will have a **material adverse effect** on financial condition, cash flows, or results of operations[85](index=85&type=chunk) - Litigation is subject to inherent uncertainties and can result in adverse impacts due to defense costs, diversion of resources, and negative publicity[85](index=85&type=chunk) [10. Equity](index=23&type=section&id=10.%20Equity) The Company recognized non-cash stock-based compensation, acquired TenThousand Projects equity, and authorized a share repurchase Equity Table | Metric | 3 Months Ended June 30, 2025 (Millions) | 9 Months Ended June 30, 2025 (Millions) | | :----------------------------------- | :-------------------------------------- | :-------------------------------------- | | Non-cash stock-based compensation expense | $16 | $43 | - The Company issued **869,009** and **2,607,027 shares of Class A Common Stock** for the three and nine months ended June 30, 2025, respectively, under the Senior Management Free Cash Flow Plan[89](index=89&type=chunk) - On August 5, 2025, the Company **acquired the remaining 49% equity interest in TenThousand Projects Holdings LLC for $165 million**, comprising **$40 million cash and $125 million in Class A Common Stock**[90](index=90&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - A **$100 million share repurchase program was authorized** on November 14, 2024, with approximately **$97 million remaining available** as of June 30, 2025[91](index=91&type=chunk)[268](index=268&type=chunk) Equity Table | Period | Shares Repurchased | Amount (Millions) | | :---------------- | :----------------- | :---------------- | | 3 Months Ended June 30, 2025 | 20,000 | $1 | | 9 Months Ended June 30, 2025 | 80,383 | $3 | [11. Income Taxes](index=24&type=section&id=11.%20Income%20Taxes) Income tax expense was **$5 million** and **$123 million** for the three and nine months, impacted by pre-tax loss and foreign income Income Taxes Table | Metric | 3 Months Ended June 30, 2025 (Millions) | 3 Months Ended June 30, 2024 (Millions) | | :---------------- | :-------------------------------------- | :-------------------------------------- | | Income tax expense | $5 | $30 | Income Taxes Table | Metric | 9 Months Ended June 30, 2025 (Millions) | 9 Months Ended June 30, 2024 (Millions) | | :---------------- | :-------------------------------------- | :-------------------------------------- | | Income tax expense | $123 | $120 | - The **income tax expense for the three months ended June 30, 2025, was lower** than the statutory rate primarily due to a pre-tax loss and a tax benefit from an impairment charge[93](index=93&type=chunk) - The **income tax expense for the nine months ended June 30, 2025, was higher** than the statutory rate due to foreign income taxed at higher rates, non-deductible executive compensation, and the net impact of GILTI and FDII[93](index=93&type=chunk) - The Company estimates an **immaterial impact from OECD BEPS Pillar 2 rules** and is evaluating the potential impact of the One Big Beautiful Bill Act[97](index=97&type=chunk)[98](index=98&type=chunk) [12. Derivative Financial Instruments](index=25&type=section&id=12.%20Derivative%20Financial%20Instruments) The Company uses foreign currency forward exchange contracts to manage risk, reporting realized gains and unrealized losses - The Company uses foreign currency forward exchange contracts to manage foreign currency exchange rate risk[99](index=99&type=chunk) - As of June 30, 2025, **outstanding contracts included the sale of $197 million and purchase of $124 million of foreign currencies**[100](index=100&type=chunk) Derivative Financial Instruments Table | Metric (Nine Months Ended June 30, 2025) | Amount (Millions) | | :--------------------------------------- | :---------------- | | Realized pre-tax gains | $7 | | Unrealized pre-tax losses | $(5) | [13. Segment Information](index=25&type=section&id=13.%20Segment%20Information) The Company's business is segmented into Recorded Music and Music Publishing, with performance evaluated by **Adjusted OIBDA** - The Company's reportable segments are **Recorded Music** and **Music Publishing**[103](index=103&type=chunk) - **Adjusted OIBDA** is the primary financial measure for evaluating segment performance, excluding non-cash depreciation, amortization, stock-based compensation, and certain non-comparable items[103](index=103&type=chunk) Segment (3 Months Ended June 30) Table | Segment (3 Months Ended June 30) | 2025 (Millions) | 2024 (Millions) | % Change | | :-------------------------------- | :-------------- | :-------------- | :------- | | Recorded Music Revenues | $1,354 | $1,251 | 8% | | Recorded Music Adjusted OIBDA | $321 | $281 | 14% | | Music Publishing Revenues | $336 | $305 | 10% | | Music Publishing Adjusted OIBDA | $96 | $79 | 22% | Segment (9 Months Ended June 30) Table | Segment (9 Months Ended June 30) | 2025 (Millions) | 2024 (Millions) | % Change | | :-------------------------------- | :-------------- | :-------------- | :------- | | Recorded Music Revenues | $3,874 | $3,885 | -0% | | Recorded Music Adjusted OIBDA | $914 | $965 | -5% | | Music Publishing Revenues | $969 | $915 | 6% | | Music Publishing Adjusted OIBDA | $264 | $247 | 7% | [14. Additional Financial Information](index=27&type=section&id=14.%20Additional%20Financial%20Information) This section details cash flow disclosures, including interest and tax payments, investment gains, and dividend declarations Cash Flow Item Table | Cash Flow Item | 3 Months Ended June 30, 2025 (Millions) | 3 Months Ended June 30, 2024 (Millions) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Interest payments | $43 | $35 | | Income and withholding taxes, net | $50 | $33 | Cash Flow Item Table | Cash Flow Item | 9 Months Ended June 30, 2025 (Millions) | 9 Months Ended June 30, 2024 (Millions) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Interest payments | $114 | $125 | | Income and withholding taxes, net | $151 | $105 | - The Company recognized a **pre-tax realized net gain of $29 million** from the sale of an investment for the nine months ended June 30, 2025[110](index=110&type=chunk) - Dividends of **$0.18 per share** were paid on June 3, 2025, totaling **$94 million** for the three months and **$283 million** for the nine months ended June 30, 2025[113](index=113&type=chunk) - A **cash dividend of $0.19 per share** was declared on August 7, 2025, payable on September 3, 2025[114](index=114&type=chunk) [15. Fair Value Measurements](index=28&type=section&id=15.%20Fair%20Value%20Measurements) The Company measures financial instruments at fair value, including foreign currency contracts and equity investments Fair Value Measurements Table | Financial Instrument | June 30, 2025 (Millions) | September 30, 2024 (Millions) | | :--------------------------------------- | :----------------------- | :---------------------------- | | Foreign currency forward exchange contracts (net) | $(5) | — | | Equity investments with readily determinable fair value | $9 | $9 | | Fair value of total debt | $4,217 | $3,836 | - The fair value of foreign currency forward exchange contracts is based on dealer quotes of market forward rates (Level 2 measurement)[116](index=116&type=chunk) - Equity investments with readily determinable fair value are measured based on quoted prices in active markets (Level 1 measurement)[117](index=117&type=chunk) - The fair value of the Company's debt instruments is determined using quoted market prices from less active markets or for instruments with identical terms and maturities (Level 2 measurement)[120](index=120&type=chunk) [16. Subsequent Events](index=29&type=section&id=16.%20Subsequent%20Events) A new **2025 Restructuring Plan** aims for **$300 million** in annualized cost savings by fiscal year 2027 - The **2025 Restructuring Plan**, announced July 1, 2025, aims for approximately **$300 million in annualized pre-tax cost savings** by the end of fiscal year 2027[122](index=122&type=chunk) - The majority of the cost savings from the **2025 Restructuring Plan** are expected to be accretive to **Adjusted OIBDA**[122](index=122&type=chunk) - No charges related to the **2025 Restructuring Plan** were recognized in the current reporting period[122](index=122&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the Company's financial condition and results of operations, including segment performance and liquidity [SAFE HARBOR STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995](index=30&type=section&id=SAFE%20HARBOR%20STATEMENT%20UNDER%20PRIVATE%20SECURITIES%20LITIGATION%20REFORM%20ACT%20OF%201995) This statement outlines forward-looking statements and associated risks, disclaiming any obligation to update them - The report contains forward-looking statements subject to known and unknown risks and uncertainties beyond the Company's control[125](index=125&type=chunk) - Actual performance and outcomes may differ materially from expectations due to factors such as market competition, artist retention, streaming growth, digital service provider dependence, climate change, and intellectual property risks[125](index=125&type=chunk) - The Company does not undertake to update or revise any forward-looking statements unless required by law[126](index=126&type=chunk) [INTRODUCTION](index=32&type=section&id=INTRODUCTION) This section introduces the Company's business, key segments, and primary financial performance metrics - **Warner Music Group Corp.** is a major music entertainment company operating primarily through its subsidiaries, WMG Holdings Corp. and WMG Acquisition Corp[130](index=130&type=chunk)[131](index=131&type=chunk) - **Adjusted OIBDA** is used as a primary financial measure to evaluate operating performance, excluding non-cash depreciation, amortization, stock-based compensation, and certain non-comparable items[132](index=132&type=chunk) - Constant-currency presentation is used to compare revenue and **Adjusted OIBDA** between periods, adjusting for foreign exchange rate fluctuations[133](index=133&type=chunk) [BUSINESS OVERVIEW](index=33&type=section&id=BUSINESS%20OVERVIEW) This section provides an overview of the Company's Recorded Music and Music Publishing segments and revenue diversification - The Company operates through two fundamental segments: **Recorded Music** and **Music Publishing**[136](index=136&type=chunk) - **Recorded Music** involves artist discovery, development, marketing, distribution, sale, and licensing, with major labels like Atlantic Records and Warner Records, and a next-generation services division, WMX[137](index=137&type=chunk)[138](index=138&type=chunk)[140](index=140&type=chunk) - **Music Publishing**, primarily through Warner Chappell Music, focuses on generating revenue from musical compositions, owning or controlling rights to over **1.5 million** compositions by **180,000+** songwriters[144](index=144&type=chunk)[145](index=145&type=chunk) - Revenue diversification includes expanded-rights deals with artists for touring, merchandising, and sponsorships, and digital distribution through streaming services and online platforms[142](index=142&type=chunk)[143](index=143&type=chunk) [Recent Events and Factors Affecting Results of Operations and Comparability](index=36&type=section&id=Recent%20Events%20and%20Factors%20Affecting%20Results%20of%20Operations%20and%20Comparability) This section details recent events and factors impacting the Company's results of operations and comparability - The **2024 Strategic Restructuring Plan** is substantially complete, aiming to free up funds for music investment and accelerate growth through non-core operation disposal, overhead management, and operational efficiencies[148](index=148&type=chunk)[149](index=149&type=chunk) - For the nine months ended June 30, 2025, the **2024 plan incurred $7 million** in severance and contract termination costs and **$32 million** in impairment losses, primarily in the Recorded Music segment[150](index=150&type=chunk) - A pre-tax impairment charge of **$70 million** was recognized for long-lived assets related to non-core e-tailer operations in the Recorded Music segment for the three and nine months ended June 30, 2025[151](index=151&type=chunk) - The Company terminated its distribution agreement with BMG in September 2023, leading to a phased in-sourcing of distribution and an expected **$14 million** and **$64 million less Recorded Music revenue** for the three and nine months ended June 30, 2025, respectively[152](index=152&type=chunk)[158](index=158&type=chunk)[205](index=205&type=chunk) [Three Months Ended June 30, 2025 Compared with Three Months Ended June 30, 2024](index=37&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20Compared%20with%20Three%20Months%20Ended%20June%2030%2C%202024) For the three months, revenues increased, but operating income and net income decreased due to charges and foreign currency losses [Consolidated Results](index=37&type=section&id=Consolidated%20Results%20%283%20Months%29) Consolidated revenues increased, but operating income and net income decreased due to impairment and foreign currency losses Consolidated Revenue by Type (3 Months Ended June 30) | Revenue Type | 2025 (Millions) | 2024 (Millions) | $ Change | % Change | | :-------------------------- | :-------------- | :-------------- | :------- | :------- | | Digital | $929 | $882 | $47 | 5% | | Physical | $119 | $120 | $(1) | -1% | | Artist services & expanded-rights | $195 | $159 | $36 | 23% | | Licensing | $111 | $90 | $21 | 23% | | Total Recorded Music | $1,354 | $1,251 | 8% | | Total Music Publishing | $336 | $305 | 10% | | Total revenues | $1,689 | $1,554 | 9% | Consolidated Financial Performance (3 Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | $ Change | % Change | | :--------------------------------------- | :-------------- | :-------------- | :------- | :------- | | Operating income | $169 | $207 | $(38) | -18% | | Interest expense, net | $43 | $40 | $3 | 8% | | Other (expense) income | $(137) | $4 | $(141) | -3525% | | Income tax expense | $5 | $30 | $(25) | -83% | | Net (loss) income attributable to WMG Corp. | $(16) | $139 | $(155) | -112% | | Adjusted OIBDA | $373 | $316 | $57 | 18% | - **Restructuring and impairment charges increased significantly to $69 million** (from **$1 million**), including a **$70 million** impairment for non-core e-tailer operations[177](index=177&type=chunk) - **Other expense increased to $137 million**, primarily due to **$70 million** in foreign currency losses on Euro-denominated debt and **$63 million** in currency exchange losses on intercompany loans[182](index=182&type=chunk) [Business Segment Results](index=43&type=section&id=Business%20Segment%20Results%20%283%20Months%29) Recorded Music and Music Publishing segments showed revenue growth, but Recorded Music operating income declined due to charges Segment Performance (3 Months Ended June 30) | Segment | Metric | 2025 (Millions) | 2024 (Millions) | $ Change | % Change | | :---------------- | :---------------- | :-------------- | :-------------- | :------- | :------- | | Recorded Music | Revenues | $1,354 | $1,251 | $103 | 8% | | | Operating income | $201 | $230 | $(29) | -13% | | | Adjusted OIBDA | $321 | $281 | $40 | 14% | | Music Publishing | Revenues | $336 | $305 | $31 | 10% | | | Operating income | $60 | $53 | $7 | 13% | | | Adjusted OIBDA | $96 | $79 | $17 | 22% | - **Recorded Music revenue growth** was driven by digital (up **$47M, 5%**), artist services and expanded-rights (up **$36M, 23%**), and licensing (up **$21M, 23%**), partially offset by a slight decrease in physical revenue[158](index=158&type=chunk) - **Music Publishing revenue growth** was driven by digital (up **$10M, 5%**), performance (up **$6M, 12%**), synchronization (up **$12M, 29%**), and mechanical (up **$3M, 23%**) revenues[160](index=160&type=chunk) - **Recorded Music operating income decreased** due to a **$67 million** increase in restructuring and impairment charges, including a **$70 million** impairment for non-core e-tailer operations[191](index=191&type=chunk) [Nine Months Ended June 30, 2025 Compared with Nine Months Ended June 30, 2024](index=47&type=section&id=Nine%20Months%20Ended%20June%2030%2C%202025%20Compared%20with%20Nine%20Months%20Ended%20June%2030%2C%202024) For the nine months, revenues marginally increased, but operating and net income decreased due to various charges and lower licensing [Consolidated Results](index=47&type=section&id=Consolidated%20Results%20%289%20Months%29) Consolidated revenues marginally increased, but operating and net income decreased due to various charges and lower licensing Consolidated Revenue by Type (9 Months Ended June 30) | Revenue Type | 2025 (Millions) | 2024 (Millions) | $ Change | % Change | | :-------------------------- | :-------------- | :-------------- | :------- | :------- | | Digital | $2,643 | $2,638 | $5 | 0% | | Physical | $397 | $385 | $12 | 3% | | Artist services & expanded-rights | $508 | $489 | $19 | 4% | | Licensing | $326 | $373 | $(47) | -13% | | Total Recorded Music | $3,874 | $3,885 | $(11) | 0% | | Total Music Publishing | $969 | $915 | $54 | 6% | | Total revenues | $4,839 | $4,796 | $43 | 1% | Consolidated Financial Performance (9 Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | $ Change | % Change | | :--------------------------------------- | :-------------- | :-------------- | :------- | :------- | | Operating income | $551 | $680 | $(129) | -19% | | Interest expense, net | $119 | $121 | $(2) | -2% | | Other expense | $48 | $9 | $39 | 433% | | Income tax expense | $123 | $120 | $3 | 3% | | Net income attributable to WMG Corp. | $256 | $394 | $(138) | -35% | | Adjusted OIBDA | $1,039 | $1,079 | $(40) | -4% | - **Recorded Music licensing revenue decreased by $47 million**, primarily due to a **$75 million** Licensing Extension in the prior year[209](index=209&type=chunk) - **Restructuring and impairment charges increased by $13 million to $109 million**, including a **$70 million** impairment for non-core e-tailer operations[229](index=229&type=chunk) [Business Segment Results](index=54&type=section&id=Business%20Segment%20Results%20%289%20Months%29) Recorded Music revenues slightly decreased with lower operating income, while Music Publishing revenues and OIBDA grew Segment Performance (9 Months Ended June 30) | Segment | Metric | 2025 (Millions) | 2024 (Millions) | $ Change | % Change | | :---------------- | :---------------- | :-------------- | :-------------- | :------- | :------- | | Recorded Music | Revenues | $3,874 | $3,885 | $(11) | 0% | | | Operating income | $642 | $739 | $(97) | -13% | | | Adjusted OIBDA | $914 | $965 | $(51) | -5% | | Music Publishing | Revenues | $969 | $915 | $54 | 6% | | | Operating income | $167 | $185 | $(18) | -10% | | | Adjusted OIBDA | $264 | $247 | $17 | 7% | - **Recorded Music revenue decrease** was driven by lower licensing revenue, partially offset by increases in artist services and physical revenues[240](index=240&type=chunk) - **Music Publishing revenue increase** was driven by growth across digital (up **$22M, 4%**), performance (up **$12M, 8%**), synchronization (up **$13M, 10%**), mechanical (up **$3M, 7%**), and other publishing revenues[211](index=211&type=chunk) - **Recorded Music operating income decreased** due to a **$17 million** net gain on divestitures in the prior year and higher restructuring and non-cash impairment charges (**$110 million** vs **$89 million**)[244](index=244&type=chunk) [FINANCIAL CONDITION AND LIQUIDITY](index=59&type=section&id=FINANCIAL%20CONDITION%20AND%20LIQUIDITY) The Company's net debt increased to **$3.836 billion**, with stable operating cash flow but increased investing and financing uses [Financial Condition at June 30, 2025](index=59&type=section&id=Financial%20Condition%20at%20June%2030%2C%202025) The Company reported **total debt of $4.363 billion** and **cash of $527 million**, resulting in a **net debt of $3.836 billion** Financial Condition at June 30, 2025 Table | Metric | June 30, 2025 (Millions) | September 30, 2024 (Millions) | | :--------------------------------------- | :----------------------- | :---------------------------- | | Total debt (net of premiums, discounts, DFCs) | $4,363 | $4,014 | | Cash and equivalents | $527 | $694 | | Net debt | $3,836 | $3,320 | | Total Warner Music Group Corp. equity | $589 | $518 | [Cash Flows](index=59&type=section&id=Cash%20Flows) Cash provided by operating activities was **$447 million**, with increased cash used in investing and financing activities Cash Flows Table | Cash Flow Activity (Nine Months Ended June 30) | 2025 (Millions) | 2024 (Millions) | | :--------------------------------------------- | :-------------- | :-------------- | | Operating activities | $447 | $450 | | Investing activities | $(273) | $(201) | | Financing activities | $(344) | $(280) | - The **$72 million increase in cash used in investing activities** was due to **$152 million** for music-related assets and **$111 million** for capital expenditures[263](index=263&type=chunk) - The **$64 million increase in cash used in financing activities** was primarily from **$283 million** in dividends paid and **$23 million** in deferred consideration[264](index=264&type=chunk) [Liquidity](index=59&type=section&id=Liquidity) The Company's primary liquidity sources are cash flows from operations, available cash, and the Revolving Credit Facility - Primary sources of liquidity include **cash flows from operations**, **available cash and equivalents**, and funds from the **Revolving Credit Facility**[265](index=265&type=chunk) - Management believes current liquidity sources are sufficient to support existing operations for the next twelve months[266](index=266&type=chunk) - Cash deposits in excess of FDIC or other deposit insurance limits pose a risk to liquidity and financial performance in the event of bank failure[265](index=265&type=chunk) [Debt Capital Structure](index=60&type=section&id=Debt%20Capital%20Structure) The Company actively manages its debt capital structure, improving credit ratings and reducing weighted-average interest rates - The Company has focused on extending debt maturity dates and reducing interest expense[267](index=267&type=chunk) - **Credit ratings have improved**: S&P corporate credit rating to **BBB- (stable)** in August 2024, and Moody's corporate family rating to **Ba1 (positive)** in March 2025[267](index=267&type=chunk) - The **weighted-average interest rate on outstanding indebtedness decreased to 4.1%** at June 30, 2025, from **10.5%** in 2011[267](index=267&type=chunk) - The **nearest-term debt maturity date is in 2028**[267](index=267&type=chunk) [Repurchase Program](index=60&type=section&id=Repurchase%20Program) A **$100 million share repurchase program** was authorized to offset dilution, with **$97 million remaining available** - A **$100 million share repurchase program was authorized** on November 14, 2024, to offset dilution[268](index=268&type=chunk) - As of June 30, 2025, **$97 million of the authorization remained available**[268](index=268&type=chunk) Repurchase Program Table | Period | Shares Repurchased | Amount (Millions) | | :---------------- | :----------------- | :---------------- | | 3 Months Ended June 30, 2025 | 20,000 | $1 | | 9 Months Ended June 30, 2025 | 80,383 | $3 | [Existing Debt as of June 30, 2025](index=60&type=section&id=Existing%20Debt%20as%20of%20June%2030%2C%202025) The Company's **total long-term debt, net, was $4,363 million**, including Acquisition Corp. and Tempo Asset-Based Notes Existing Debt as of June 30, 2025 Table | Debt Instrument | Amount (Millions) | | :--------------------------------------- | :-------------- | | Senior Term Loan Facility due 2031 | $1,295 | | 2.750% Senior Secured Notes due 2028 | $381 | | 3.750% Senior Secured Notes due 2029 | $540 | | 3.875% Senior Secured Notes due 2030 | $535 | | 2.250% Senior Secured Notes due 2031 | $522 | | 3.000% Senior Secured Notes due 2031 | $800 | | Mortgage Term Loan due 2033 | $17 | | Total Acquisition Corp. long-term debt, net | $4,061 | | Tempo Asset-Based Notes due 2050, net | $302 | | Total long-term debt, including current portion, net | $4,363 | - The **Revolving Credit Facility has $350 million in commitments** with no outstanding loans as of June 30, 2025[270](index=270&type=chunk) - **Tempo Asset-Based Notes are secured only by Tempo's music rights and are nonrecourse** to the Company and its other subsidiaries[271](index=271&type=chunk) [Dividends](index=61&type=section&id=Dividends) The Company intends to pay quarterly cash dividends, subject to board discretion and potential covenant restrictions - The Company intends to pay quarterly cash dividends, subject to board discretion and financial factors[274](index=274&type=chunk) - Dividend payments may be restricted if Acquisition Corp.'s **Total Indebtedness to EBITDA Ratio exceeds 3.50:1.00** and term loans do not achieve an investment grade rating[273](index=273&type=chunk) Dividends Table | Dividend Declaration | Per Share Amount | | :------------------- | :--------------- | | May 16, 2025 | $0.18 | | August 7, 2025 | $0.19 | [Covenant Compliance](index=61&type=section&id=Covenant%20Compliance) The Company was in compliance with all debt covenants, using **Adjusted EBITDA** for calculations with specific adjustments - The Company **was in compliance** with all debt covenants as of June 30, 2025[277](index=277&type=chunk) - The **Revolving Credit Facility's springing leverage ratio is currently suspended** but would be reinstated if aggregate borrowings exceed **$140 million**[279](index=279&type=chunk)[284](index=284&type=chunk) - **Adjusted EBITDA**, a non-GAAP measure, is used for covenant calculations and includes adjustments for restructuring costs, non-cash charges, foreign exchange, business optimization, and pro forma impacts of cost savings[279](index=279&type=chunk)[282](index=282&type=chunk) Covenant Compliance Table | Metric (Twelve Months Ended June 30, 2025) | Amount (Millions) | | :----------------------------------------- | :---------------- | | Net Income (loss) | $309 | | Adjusted EBITDA | $1,719 | | Senior Secured Indebtedness | $3,551 | | Leverage Ratio | 2.07x | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to market risks from foreign currency and interest rates, managed through derivatives and debt structure - The Company is exposed to market risks from foreign currency exchange rates and interest rates[288](index=288&type=chunk) - Foreign currency risk is managed using forward exchange contracts; at June 30, 2025, contracts for **$197 million** in sales and **$124 million** in purchases were outstanding[289](index=289&type=chunk) - A hypothetical **10%** depreciation of the U.S. dollar would decrease the fair value of foreign exchange forward contracts by **$7 million**[290](index=290&type=chunk) - At June 30, 2025, **70%** of the Company's **$4.401 billion** principal debt was at a fixed rate[291](index=291&type=chunk) - A **25 basis point** increase/decrease in interest rates would decrease/increase the fair value of fixed-rate debt by approximately **$31 million/$32 million**[292](index=292&type=chunk) - **Inflation has not had a material effect** on the Company's business, financial condition, or results of operations to date[293](index=293&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=66&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were effective, and ERP implementation is updating internal controls over financial reporting - The Company's **disclosure controls and procedures were effective as of June 30, 2025**, ensuring timely and accurate information disclosure[300](index=300&type=chunk)[301](index=301&type=chunk) - The Company is undergoing a **multi-year implementation to upgrade its information technology and finance infrastructure, including a new ERP system**[298](index=298&type=chunk) - The **core financials component of the new technology platform has been launched** for the Music Publishing segment and various Recorded Music territories[298](index=298&type=chunk) - **Internal controls over financial reporting have been updated** in connection with the ERP implementation, with further changes anticipated as the rollout continues[299](index=299&type=chunk) [PART II. OTHER INFORMATION](index=69&type=section&id=Part%20II.%20Other%20Information) This section covers legal proceedings, risk factors, equity sales, and other miscellaneous information [ITEM 1. LEGAL PROCEEDINGS](index=69&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in routine legal claims, with management believing no material adverse effect on financials - The Company is involved in claims and legal proceedings arising in the ordinary course of business[304](index=304&type=chunk) - Management does not believe that the resolution of pending matters will have a **material adverse effect** on financial condition, cash flows, or results of operations[304](index=304&type=chunk) - Litigation is subject to inherent uncertainties and can result in adverse impacts due to defense costs, diversion of resources, and negative publicity[304](index=304&type=chunk) [ITEM 1A. RISK FACTORS](index=69&type=section&id=Item%201A.%20Risk%20Factors) **No material changes** to the risk factors previously discussed in the Annual Report on Form 10-K - **No material changes to the risk factors discussed in the Annual Report on Form 10-K** for the fiscal year ended September 30, 2024[305](index=305&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company's **$100 million share repurchase program** had **$97 million remaining** as of June 30, 2025 Unregistered Sales of Equity Securities and Use of Proceeds Table | Period | Shares Repurchased | Average Price Paid per Share | Dollar Value Remaining (Millions) | | :--------- | :----------------- | :--------------------------- | :-------------------------------- | | April 2025 | 20,000 | $29.50 | $97 | | May 2025 | — | — | $97 | | June 2025 | — | — | $97 | - The **$100 million share repurchase program**, authorized on November 14, 2024, had approximately **$97 million remaining available** as of June 30, 2025[306](index=306&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=69&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the reporting period - **Not applicable**[307](index=307&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the reporting period - **Not applicable**[308](index=308&type=chunk) [ITEM 5. OTHER INFORMATION](index=69&type=section&id=Item%205.%20Other%20Information) Warner Music Inc. **acquired the remaining 49% equity interest in TenThousand Projects Holdings LLC for $165 million** post-period - On August 5, 2025, **Warner Music Inc. acquired the remaining 49% equity interest in TenThousand Projects Holdings LLC**[309](index=309&type=chunk) - The **aggregate consideration for the acquisition was $165 million**, comprising **$40 million cash and $125 million in Class A Common Stock**[310](index=310&type=chunk) - The **Class A Common Stock issued is subject to lock-up periods**, with the first installment's shares locked until March 1, 2026, and the second installment's shares locked until the second anniversary of the closing date[311](index=311&type=chunk) [ITEM 6. EXHIBITS](index=71&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various agreements and certifications - **Exhibits include various agreements (separation, employment, JV, credit), certifications (CEO, CFO), and XBRL documents**[314](index=314&type=chunk) - Agreements and documents are not intended to provide factual information beyond their terms; representations and warranties are specific to the context of the agreement[313](index=313&type=chunk) [SIGNATURES](index=72&type=section&id=Signatures) The report was duly signed on August 7, 2025, by the Chief Executive Officer and Chief Financial Officer - The report was signed on August 7, 2025[318](index=318&type=chunk) - Signatories include Robert Kyncl, Chief Executive Officer, and Armin Zerza, Chief Financial Officer and Principal Accounting Officer[318](index=318&type=chunk)