Warner Music Group Corp. today announced its third-quarter financial results for the period ended June 30, 2023.

“Our Q3 results were driven by a wide diversity of music, and our strength came from many different territories, labels, and revenue lines. We succeeded with artists and songwriters across the spectrum of genres and generations, with both new releases and catalog projects,” said Robert Kyncl, CEO, Warner Music Group. “We expect our momentum to build, led by our extraordinary music and inventive campaigns, as well as improving macro and industry trends. We continue to invest in new creative talent, and evolve our expertise and resources, while collaborating with partners across the entertainment economy to drive long term success.”

“In the third quarter, we delivered solid growth across key metrics which give us increased confidence in our full-year margin and operating cash flow targets,” said Eric Levin, CFO, Warner Music Group. “The market’s adoption of subscription price increases, combined with the ongoing evolution of our key partnerships, gives us tremendous optimism for the future of streaming growth.”

Revenue was up 9.2% (or 9.9% in constant currency). Digital revenue increased 8.8% (or 9.8% in constant currency) and streaming revenue increased 9.5% (or 10.5% in constant currency). Recorded Music streaming revenue increased by 6.3% (or 7.3% in constant currency). Growth in Recorded Music streaming revenue increased due to a stronger release schedule and growth in ad-supported revenue recovered due to moderation in a market-related slowdown. Music Publishing streaming revenue increased by 27.1% (or 28.1% in constant currency), which includes a benefit in the quarter and the prior-year quarter of $7 million and $17 million, respectively, resulting from a ruling by the Copyright Royalty Board in Phonorecords III upholding higher percentage of revenue U.S. mechanical royalty rates (the “CRB Rate Benefit”). Revenue increases in the quarter were also driven by growth in Recorded Music artist services and expanded-rights, licensing and physical revenue and Music Publishing mechanical revenue. Music Publishing synchronization revenue remained flat on an as-reported basis and in constant currency. Music Publishing performance revenue was lower on an as-reported basis and in constant currency.

Operating income was $189 million compared to $146 million in the prior-year quarter. OIBDA was $275 million, compared to $233 million in the prior-year quarter, an increase of 18.0% (or 20.1% in constant currency), and OIBDA margin increased 1.3 percentage points to 17.6% from 16.3% in the prior-year quarter (or increased 1.5 percentage points to 17.6% from 16.1% in constant currency). The increases in operating income, OIBDA and OIBDA margin were primarily due to strong operating performance, lower variable marketing spend, savings from the previously announced restructuring plan (the “Restructuring Plan”) and the favorable impact of exchange rates, partially offset by revenue mix, incremental overhead in technology and the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior-year quarter related to an acquisition.

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude expenses related to restructuring and other transformation initiatives and non-cash stock-based compensation and other related expenses in both the quarter and the prior-year quarter. Adjusted EBITDA excludes the aforementioned items and includes expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions. See below for calculations and reconciliations of Adjusted operating income, Adjusted OIBDA, Adjusted net income and Adjusted EBITDA.

Adjusted OIBDA increased 16.5% from $255 million to $297 million (or 18.3% in constant currency) and Adjusted OIBDA margin increased 1.2 percentage points to 19.0% from 17.8% in the prior-year quarter (or increased 1.4 percentage points to 19.0% from 17.6% in constant currency) primarily due to the same factors affecting OIBDA. Adjusted operating income increased 25.6% from $168 million to $211 million due to the same factors affecting Adjusted OIBDA, as well as lower amortization expenses due to certain intangible assets becoming fully amortized, partially offset by higher depreciation expenses due to capital spending.

Net income was $124 million compared to $125 million in the prior-year quarter. Adjusted net income was $146 million compared to $147 million in the prior-year quarter. The changes in net income and Adjusted net income were primarily due to the unfavorable impact of exchange rates on the Company’s Euro-denominated debt, loss on extinguishment of debt, an increase in interest expense and income tax expense, partially offset by higher operating income, currency exchange gains on the Company’s intercompany loans and an increase in aggregate realized and unrealized gains related to certain investments.

Basic and Diluted earnings per share was $0.23 for both the Class A and Class B shareholders due to the net income attributable to the Company in the quarter of $124 million.

As of June 30, 2023, the Company reported a cash balance of $600 million, total debt of $3.988 billion and net debt (defined as total debt, net of deferred financing costs, premiums and discounts, minus cash and equivalents) of $3.388 billion.

Cash provided by operating activities decreased 10% to $146 million from $163 million in the prior-year quarter. The decrease was largely the result of higher cash taxes due to lower available foreign tax credits to shield U.S. taxable income coupled with higher forecasted taxable income and higher cash interest due to an increase in variable rate debt. Capital expenditures decreased 6% to $33 million from $35 million in the prior-year quarter, mainly due to lower expenditures on IT capabilities. Free Cash Flow, as defined below, decreased to $113 million from $128 million in the prior-year quarter.

Recorded Music revenue was up 7.8% (or 8.6% in constant currency). Digital revenue was up 5.6% (or 6.8% in constant currency). Streaming revenue was up 6.3% (or 7.3% in constant currency). Growth in streaming revenue increased due to a stronger release schedule and growth in ad-supported revenue recovered due to moderation in a market-related slowdown. Artist services and expanded-rights revenue increased 14.7% (or 14.1% in constant currency) primarily due to an increase in concert promotion and merchandising revenue. Licensing revenue increased 22.7% (or 24.3% in constant currency), with growth across synchronization, broadcast fees and other licensing. Physical revenue was up 2.4% (the same in constant currency) primarily due to stronger performance in the US. The quarter included successful releases from Ed Sheeran, Linkin Park and Melanie Martinez.

Recorded Music operating income was $207 million, up from $166 million in the prior-year quarter and operating margin was up 2.1 percentage points to 16.1% versus 14.0% in the prior-year quarter. OIBDA increased 16.5% to $261 million from $224 million in the prior-year quarter (or 18.1% in constant currency) and OIBDA margin increased 1.6 percentage points to 20.4% from 18.8% in the prior-year quarter (or increased 1.7 percentage points to 20.4% from 18.7% in constant currency). Adjusted OIBDA increased 14.3% from $231 million to $264 million (or 15.8% in constant currency) with Adjusted OIBDA margin up 1.2 percentage points to 20.6% from 19.4% in the prior-year quarter (or increased 1.3 percentage points to 20.6% from 19.3% in constant currency). The increases in OIBDA, Adjusted OIBDA, OIBDA margin and Adjusted OIBDA margin were primarily driven by strong operating performance, lower variable marketing spend, savings from the Restructuring Plan and the favorable impact of exchange rates, partially offset by revenue mix and the $10 million impact of the mark-to-market adjustment of an earn-out liability in the prior-year quarter related to an acquisition.

Music Publishing revenue increased 15.5% (or 16.0% in constant currency). The increase was driven by growth in digital and mechanical revenue. Digital revenue increased 26.4% (or 27.3% in constant currency) and streaming revenue increased 27.1% (or 28.1% in constant currency), reflecting the continued growth in streaming, the impact of digital deal renewals and a revenue true-up of $9 million, partially offset by a $10 million quarter-over-quarter decrease in the impact of the CRB Rate Benefit. Mechanical revenue increased driven by a higher share of physical sales and timing of distributions. Synchronization revenue remained flat on an as-reported basis and in constant currency, primarily due to lower commercial licensing activity, offset by copyright infringement settlements. Performance revenue decreased due to the timing of payments from collection societies.

Music Publishing operating income was $50 million compared to $33 million in the prior-year quarter and operating margin increased 4.2 percentage points to 17.7%. Music Publishing OIBDA increased 28.1% to $73 million (or 30.4% in constant currency) and OIBDA margin increased 2.5 percentage points to 25.8% from 23.3% in the prior-year quarter (or increased 2.8 percentage points to 25.8% from 23.0% in constant currency). Adjusted OIBDA increased 29.8% to $74 million (or 32.1% in constant currency) and Adjusted OIBDA margin increased 2.8 percentage points to 26.1% from 23.3% in the prior-year quarter (or increased 3.1 percentage points to 26.1% from 23.0% in constant currency). The increases in operating income, OIBDA and Adjusted OIBDA were primarily due to strong operating performance and the favorable impact of exchange rates, partially offset by revenue mix.

Financial details for the quarter can be found in the Company’s current Quarterly Report on Form 10-Q for the period ended June 30, 2023, filed today with the Securities and Exchange Commission.