Financial Highlights
- Improved Streaming Growth Driven by Stronger Release Slate with Momentum Expected to Carry into Q4
- Robust Growth in Music Publishing Underpinned by Acceleration in Digital Revenue
- Adjusted OIBDA Growth and Margin Expansion Reinforce Confidence in High End of Full-Year Margin Guidance (100 basis points)
- Operating Cash Flow Conversion of 49% of Adjusted OIBDA with Expectation to Deliver 50% - 60% Conversion for Full Year
For the three months ended June 30, 2023
Total revenue increased 9% or 10% in constant currencyDigital revenue increased 9% or 10% in constant currencyNet income was $124 million versus $125 million in the prior-year quarterOIBDA increased 18% to $275 million versus $233 million in the prior-year quarter or 20% in constant currencyAdjusted OIBDA increased 16% to $297 million versus $255 million in the prior-year quarter or 18% in constant currencyCash from operating activities decreased 10% to $146 million from $163 million in the prior-year quarterNEW YORK, Aug. 08, 2023 (GLOBE NEWSWIRE) -- Warner Music Group Corp. today announced its third-quarter financial results for the period ended June 30, 2023.
βOur 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,β said Robert Kyncl, CEO, Warner Music Group. βWe 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.β
βIn 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,β said Eric Levin, CFO, Warner Music Group. βThe marketβs adoption of subscription price increases, combined with the ongoing evolution of our key partnerships, gives us tremendous optimism for the future of streaming growth.β
Total WMG
Total WMG Summary Results (dollars in millions) For the Three Months Ended June 30, 2023 For the Three Months Ended June 30, 2022 % Change For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 % Change (unaudited) (unaudited) (unaudited) (unaudited) Revenue$1,564 $1,432 9% $4,451 $4,422 1%Recorded Music revenue 1,282 1,189 8% 3,664 3,722 -2%Music Publishing revenue 283 245 16% 790 704 12%Digital revenue 1,027 944 9% 2,921 2,877 2%Operating income 189 146 29% 578 551 5%Adjusted operating income(1) 211 168 26% 665 627 6%OIBDA(1) 275 233 18% 831 808 3%Adjusted OIBDA(1) 297 255 16% 918 884 4%Net income 124 125 -1% 285 405 -30%Adjusted net income(1) 146 147 -1% 372 481 -23%Net cash provided by operating activities 146 163 -10% 349 336 4%Free Cash Flow 113 128 -12% 260 239 9% (1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.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 βCRB Rate Benefitβ). 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 βRestructuring Planβ) 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 Companyβs 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 Companyβs 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
Recorded Music Summary Results (dollars in millions) For the Three Months Ended June 30, 2023 For the Three Months Ended June 30, 2022 % Change For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 % Change (unaudited) (unaudited) (unaudited) (unaudited) Revenue$1,282 $1,189 8% $3,664 $3,722 -2%Digital revenue 846 801 6% 2,445 2,475 -1%Operating income 207 166 25% 641 631 2%Adjusted operating income(1) 210 173 21% 652 647 1%OIBDA(1) 261 224 17% 801 804 β%Adjusted OIBDA(1) 264 231 14% 812 820 -1% (1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.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
Music Publishing Summary Results (dollars in millions) For the Three Months Ended June 30, 2023 For the Three Months Ended June 30, 2022 % Change For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 % Change (unaudited) (unaudited) (unaudited) (unaudited) Revenue$283 $245 16% $790 $704 12%Digital revenue 182 144 26% 477 404 18%Operating income 50 33 52% 151 103 47%Adjusted operating income(1) 51 33 55% 153 104 47%OIBDA(1) 73 57 28% 220 172 28%Adjusted OIBDA(1) 74 57 30% 222 173 28% (1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.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 Companyβs current Quarterly Report on Form 10-Q for the period ended June 30, 2023, filed today with the Securities and Exchange Commission.
This morning, management will be hosting a conference call to discuss the results at 8:30 A.M. EST. The call will be webcast on www.wmg.com.
About Warner Music Group
With a legacy extending back over 200 years, Warner Music Group today is home to an unparalleled family of creative artists, songwriters, and companies that are moving culture across the globe. At the core of WMGβs Recorded Music division are four of the most iconic companies in history: Atlantic, Elektra, Parlophone and Warner Records. They are joined by renowned labels such as 300 Entertainment, Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Fueled by Ramen, Nonesuch, Reprise, Rhino, Roadrunner, Sire, Spinninβ Records, Warner Classics and Warner Music Nashville. Warner Chappell Music - which traces its origins back to the founding of Chappell & Company in 1811 - is one of the world's leading music publishers, with a catalog of more than one million copyrights spanning every musical genre from the standards of the Great American Songbook to the biggest hits of the 21st century.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
This communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. Words such as "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts" and variations of such words or similar expressions that predict or indicate future events or trends, or that do not relate to historical matters, identify forward-looking statements. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, we cannot assure you that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Please refer to our Form 10-K, Form 10-Qs and our other filings with the U.S. Securities and Exchange Commission concerning factors that could cause actual results to differ materially from those described in our forward-looking statements.
We maintain an Internet site at www.wmg.com. We use our website as a channel of distribution for material company information. Financial and other material information regarding Warner Music Group is routinely posted on and accessible at http://investors.wmg.com. In addition, you may automatically receive email alerts and other information about Warner Music Group by enrolling your email address through the βemail alertsβ section at http://investors.wmg.com. Our website and the information posted on it or connected to it shall not be deemed to be incorporated by reference into this communication.
Basis of Presentation
Effective for the 2023 fiscal year, the Companyβs fiscal year was modified from a 52-53-week calendar, in which reporting periods ended on the last Friday of the calendar quarter, to a reporting calendar in which the reporting periods end on the last day of the calendar quarter. The Companyβs fiscal year will begin on October 1 and end on September 30 of each year. Prior to the start of the 2023 fiscal year, the Company maintained a 52-53 week fiscal year ending on the last Friday in each reporting period. The fiscal year ended September 30, 2022 included 53 weeks, with the additional week falling in the fiscal quarter ended December 31, 2021. Accordingly, the results of operations for the nine months ended June 30, 2022 reflect 40 weeks, or 280 days, compared to 273 days for the nine months ended June 30, 2023.
Supplemental Disclosures Regarding Non-GAAP Financial Measures
We evaluate our operating performance based on several factors, including the following non-GAAP financial measures:
OIBDA
OIBDA reflects our operating income before non-cash depreciation of tangible assets and non-cash amortization of intangible assets. We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses and believe the presentation of OIBDA helps improve the ability to understand our operating performance and evaluate our performance in comparison to comparable periods. However, a limitation of the use of OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue in our businesses. Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) and other measures of financial performance reported in accordance with U.S. GAAP. In addition, OIBDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies.
Adjusted Operating Income (Loss), Adjusted OIBDA and Adjusted Net Income (Loss)
Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) is operating income (loss), OIBDA and net income (loss), respectively, adjusted to exclude the impact of certain items that affect comparability. Factors affecting period-to-period comparability of the unadjusted measures in the quarter included the items listed in Figure 7 below. We use Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) to evaluate our actual operating performance. We believe that the adjusted results provide relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies in our industry and allow investors to review performance in the same way as our management. Since these are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation of, or as a substitute for, operating income (loss), OIBDA and net income (loss) as indicators of operating performance, and they may not be comparable to similarly titled measures employed by other companies.
Figure 7. Warner Music Group Corp. - Reconciliation of Reported to Adjusted Results, Three and Nine Months Ended June 30, 2023 versus June 30, 2022(dollars in millions) For the Three Months Ended June 30, 2023 Total WMG Operating Income Recorded Music Operating Income Music Publishing Operating Income Total WMG OIBDA Recorded Music OIBDA Music Publishing OIBDA Net Income (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)Reported Results$189 $207 $50 $275 $261 $73 $124 Factors Affecting Comparability: Restructuring and Other Transformation Related Costs 13 β β 13 β β 13 Executive Transition Costs 1 β β 1 β β 1 Non-Cash Stock-Based Compensation and Other Related Costs 8 3 1 8 3 1 8 Adjusted Results$211 $210 $51 $297 $264 $74 $146 Adjusted Margin 13.5% 16.4% 18.0% 19.0% 20.6% 26.1% For the Three Months Ended June 30, 2022 Total WMG Operating Income Recorded Music Operating Income Music Publishing Operating Income Total WMG OIBDA Recorded Music OIBDA Music Publishing OIBDA Net Income (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)Reported Results$146 $166 $33 $233 $224 $57 $125 Factors Affecting Comparability: Restructuring and Other Transformation Related Costs 16 4 β 16 4 β 16 Non-Cash Stock-Based Compensation and Other Related Costs 6 3 β 6 3 β 6 Adjusted Results$168 $173 $33 $255 $231 $57 $147 Adjusted Margin 11.7% 14.6% 13.5% 17.8% 19.4% 23.3% For the Nine Months Ended June 30, 2023 Total WMG Operating Income Recorded Music Operating Income Music Publishing Operating Income Total WMG OIBDA Recorded Music OIBDA Music Publishing OIBDA Net Income (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)Reported Results$578 $641 $151 $831 $801 $220 $285 Factors Affecting Comparability: Restructuring and Other Transformation Related Costs 80 41 β 80 41 β 80 Executive Transition Costs 4 β β 4 β β 4 Gain on Divestiture (41) (41) β (41) (41) β (41)Non-Cash Stock-Based Compensation and Other Related Costs 44 11 2 44 11 2 44 Adjusted Results$665 $652 $153 $918 $812 $222 $372 Adjusted Margin 14.9% 17.8% 19.4% 20.6% 22.2% 28.1% For the Nine Months Ended June 30, 2022 Total WMG Operating Income Recorded Music Operating Income Music Publishing Operating Income Total WMG OIBDA Recorded Music OIBDA Music Publishing OIBDA Net Income (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)Reported Results$551 $631 $103 $808 $804 $172 $405 Factors Affecting Comparability: Restructuring and Other Transformation Related Costs 39 4 β 39 4 β 39 Non-Cash Stock-Based Compensation and Other Related Costs 37 12 1 37 12 1 37 Adjusted Results$627 $647 $104 $884 $820 $173 $481 Adjusted Margin 14.2% 17.4% 14.8% 20.0% 22.0% 24.6%Constant Currency
Because exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of revenue on a constant-currency basis in addition to reported revenue helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant-currency information compares results between periods as if exchange rates had remained constant period over period. We use results on a constant-currency basis as one measure to evaluate our performance. We calculate constant-currency results by applying current-year foreign currency exchange rates to prior-year results. However, a limitation of the use of the constant-currency results as a performance measure is that it does not reflect the impact of exchange rates on our revenue. These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. GAAP. Results on a constant-currency basis, as we present them, 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. GAAP.
Figure 8. Warner Music Group Corp. - Revenue by Geography and Segment, Three and Nine Months Ended June 30, 2023 versus June 30, 2022 As Reported and Constant Currency(dollars in millions) For the Three Months Ended June 30, 2023 For the Three Months Ended June 30, 2022 For the Three Months Ended June 30, 2022 As reported As reported Constant (unaudited) (unaudited) (unaudited)U.S. revenue Recorded Music$557 $515 $515 Music Publishing 147 137 137 International revenue Recorded Music 725 674 665 Music Publishing 136 108 107 Intersegment eliminations (1) (2) (1)Total Revenue$1,564 $1,432 $1,423 Revenue by Segment: Recorded Music Digital$846 $801 $792 Physical 126 123 123 Total Digital and Physical 972 924 915 Artist services and expanded-rights 218 190 191 Licensing 92 75 74 Total Recorded Music 1,282 1,189 1,180 Music Publishing Performance 40 45 44 Digital 182 144 143 Mechanical 16 10 11 Synchronization 41 41 41 Other 4 5 5 Total Music Publishing 283 245 244 Intersegment eliminations (1) (2) (1)Total Revenue$1,564 $1,432 $1,423 Total Digital Revenue$1,027 $944 $935 For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 For the Nine Months Ended June 30, 2022 As reported As reported Constant (unaudited) (unaudited) (unaudited)U.S. revenue Recorded Music$1,618 $1,641 $1,641 Music Publishing 415 369 369 International revenue Recorded Music 2,046 2,081 1,966 Music Publishing 375 335 318 Intersegment eliminations (3) (4) (3)Total Revenue$4,451 $4,422 $4,291 Revenue by Segment: Recorded Music Digital$2,445 $2,475 $2,409 Physical 377 440 421 Total Digital and Physical 2,822 2,915 2,830 Artist services and expanded-rights 555 563 543 Licensing 287 244 234 Total Recorded Music 3,664 3,722 3,607 Music Publishing Performance 130 119 114 Digital 477 404 396 Mechanical 46 37 36 Synchronization 126 133 130 Other 11 11 11 Total Music Publishing 790 704 687 Intersegment eliminations (3) (4) (3)Total Revenue$4,451 $4,422 $4,291 Total Digital Revenue$2,921 $2,877 $2,804Free Cash Flow
Our definition of Free Cash Flow is defined as cash flow provided by operating activities less capital expenditures. We use Free Cash Flow, among other measures, to evaluate our operating performance. Management believes Free Cash Flow provides investors with an important perspective on the cash available to fund our debt service requirements, ongoing working capital requirements, capital expenditure requirements, strategic acquisitions and investments, and any dividends, prepayments of debt or repurchases or retirement of our outstanding debt or notes in open market purchases, privately negotiated purchases, any repurchases of our common stock or otherwise. As a result, Free Cash Flow is a significant measure of our ability to generate long-term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of our operating performance. We believe the presentation of Free Cash Flow is relevant and useful for investors because it allows investors to view performance in a manner similar to the method management uses.
Free Cash Flow is not a measure of performance calculated in accordance with U.S. GAAP and therefore it should not be considered in isolation of, or as a substitute for, net income (loss) as an indicator of operating performance or cash flow provided by operating activities as a measure of liquidity. Free Cash Flow, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, Free Cash Flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Because Free Cash Flow deducts capital expenditures from βnet cash provided by operating activitiesβ (the most directly comparable U.S. GAAP financial measure), users of this information should consider the types of events and transactions that are not reflected. We provide below a reconciliation of Free Cash Flow to the most directly comparable amount reported under U.S. GAAP, which is βnet cash provided by operating activities.β
Figure 10. Warner Music Group Corp. - Calculation of Free Cash Flow, Three and Nine Months Ended June 30, 2023 versus June 30, 2022(dollars in millions) For the Three Months Ended June 30, 2023 For the Three Months Ended June 30, 2022 (unaudited) (unaudited)Net cash provided by operating activities$146 $163 Less: Capital expenditures 33 35 Free Cash Flow$113 $128 For the Nine Months Ended June 30, 2023 For the Nine Months Ended June 30, 2022 (unaudited) (unaudited)Net cash provided by operating activities$349 $336 Less: Capital expenditures 89 97 Free Cash Flow$260 $239Adjusted EBITDA
Adjusted EBITDA is equivalent to βEBITDAβ as defined in our Revolving Credit Facility and our 2020 indenture and substantially similar to βEBITDAβ as defined under our Senior Term Loan Facility, respectively. Adjusted EBITDA differs from the term βEBITDAβ as it is commonly used. The definition of Adjusted EBITDA, in addition to adjusting net income to exclude interest expense, income taxes, and depreciation and amortization, also adjusts net income by excluding items or expenses such as, among other items, (1) the amount of any restructuring charges or reserves; (2) any non-cash charges (including any impairment charges); (3) any net loss resulting from hedging currency exchange risks; (4) business optimization expenses (including consolidation initiatives, severance costs and other costs relating to initiatives aimed at profitability improvement); (5) transaction expenses; (6) equity-based compensation expense; and (7) certain extraordinary, unusual or non-recurring items. The definition of EBITDA under the Revolving Credit Facility also includes adjustments for the pro forma impact of certain projected cost savings, operating expense reductions and synergies and any quality of earnings analysis prepared by independent certified public accountants in connection with an acquisition, merger, consolidation or other investment.
Adjusted EBITDA is a key measure used by our management to understand and evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of those limitations include: (1) it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue for our business; (2) it does not reflect the significant interest expense or cash requirements necessary to service interest or principal payments on our indebtedness; and (3) it does not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments. In particular, this measure adds back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income; however, these are expenses that may recur, vary greatly and are difficult to predict. I
