Pershing Square Holdings, Ltd.

Hello and welcome to the first quarter 2024 investor call for Pershing Square Capital Management. At this time, all callers are in listen-only mode. Today's call is being recorded. It is now my pleasure to turn the call over to your host, Mr. William Ackman, CEO and Portfolio Manager.

Thank you, operator. So welcome to our Q1 investor call. As usual, we distribute a legal disclaimer, which hopefully someone reads. And we're going to do our best to answer questions that we've received in advance, sort of in the context of the conference call, to the extent we don't get them during the call, or at least the beginning part of the call. We have extra time. We will address any unanswered questions separately. If we don't get to them then, please contact the IR team to follow up. I think relatively strong start to the year, Q1, plus really up through the present. Most significant events since our annual letter, which really covered a lot of the previous year and even the early part of the year history. As we have actually added, as you know, we sold our position in Lowe's, which freed up a fair amount of capital. We've reinvested those proceeds in now two new investments, that we are not yet prepared to discuss, but I think it sort of speaks to what has been a somewhat idea-rich environment for us, you know, in the context of markets which on a headline basis have performed very well, really driven by a handful of very, you know, sort of mega-cap tech companies principally, and sort of beneath the surface there's been sufficient volatility that I think has enabled businesses that we've tracked for some period of time to get to price levels that we find interesting. And to that end, two reasonably full-sized new investments in the portfolio that we look forward to discussing, perhaps by sometime next quarter. With that, why don't we just cover the events on a company-by-company basis. With that, maybe, Ryan, you can walk us through developments at Universal News. Sure. Thanks, Bill.

So Universal reported results earlier this month, and they continue their streak of reporting very good overall results. From perspective, their organic revenues grew about 8% this quarter, and the highlight was really the subscription and streaming business, which went up again about 12% consistent last quarter, which was a very good result. I think one of the more interesting data points, though, was they were able to expand margins very strongly. Part of that was due to the streaming business being the highest margin part of the business that performed better than everything else. At the same time, though, they're exhibiting very good cost control, which has been part of our thesis. And that allowed their EBITDA to grow at about 16% versus the prior year, which is just a very strong result. I think one of the things that's interesting, if you step back a little bit and look under the hood, though, is the results were actually in the business momentum. It's actually a little stronger than that. This quarter had very negligible results from TikTok as they were in the middle of trying to renegotiate a new deal after the prior one expired, which they did at the end of the quarter. but they did not really have the benefit of that revenue stream during the quarter, so the underlying momentum was a little stronger. And then secondly, as we've talked about on prior calls, the company announced a 250 million euro cost savings program to be implemented over the next several years, 75 of that this year. The first quarter did not actually incorporate that, so we actually expect a continued cost leverage and cost savings in the future quarter. So we didn't get the benefit of either of those things, which will be in future quarters, yet we still got a very strong result. Very good financial performance But I would also say, as we've talked about on prior calls, the company has done a very good job of really leading the industry on a lot of kind of the future things that will be very important, such as AI. So we've talked about they've developed an artist-centric model and really took the lead with Spotify for the industry in that and how that's been very beneficial to artists. But I think the TikTok deal, which they announced in conjunction with their earnings call at the beginning of the month, that's going to be a very big positive for the overall artist community and as a result for UMG as well. And clearly the deal that they've struck is going to allow them to better monetize their business with TikTok versus what it had been and help over time. We think a lot of these services will be better monetized as they get a little bit more advanced in their own ability to advertise the revenues. But most importantly, we really think this is about protecting the artists from AI. One of the dynamics that had happened on Spotify that was also happening on TikTok is you get a lot of fake artist AI that is flooding the system and not allowing true artist content to be able to take its appropriate share of the royalty pool. And the deal with TikTok, much like with Spotify, is helping remove some of those headwinds for artists. And in particular in TikTok, there had been a lot of AI that was coming on that was really taking advantage of the artist's intellectual property and creating something through AI, which really was misusing. the artist's IP, and they've also in this new agreement been able to solve that. So I think in multiple deals now we've seen partners of UMG where they've taken the lead to really protect their artists. We think it's going to be very foundational for the future growth and making sure that as we get into this new digital world, artists are protected, and we think both artists and ultimately UMG will benefit as well. We remain very pleased with the financial performance, but as well as strategically a lot of the deals that they're doing with their partners.