Warner Music Group Corp.

Good morning, and welcome to Warner Music Group's fourth quarter earnings call for the period of fiscal year ended September 30th, 2022. At the request of Warner Music Group, today's call is being recorded for replay purposes, and if you object, you may disconnect at any time. Now, I would like to turn today's call over to your host, Mr. Kareem Chin, head of investor relations. You may begin.

Good morning, everyone. Welcome to Warner Music Group's fiscal fourth quarter and full year earnings conference call. Please note that our earnings press release, earnings snapshot, and the Form 10-K we filed this morning will be available on our website. On today's call, we have our CEO, Steve Cooper, and our CFO, Eric Levin, who will take you through our results, and then we will answer your questions. Before our prepared remarks, I would like to refer you to the second slide of the earnings snapshot to remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. We plan to present certain non-GAAP results during this conference call and in our earnings snapshot slides and have provided schedules reconciling these results to our GAAP results in our earnings press release. All of these materials are posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. All 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 reasonable basis for them. However, there can be no assurance 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 can cause actual results that differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements contained in our filings with the SEC. And with that, I'll turn it over to Steve.

Thanks, Kareem. Good morning, everyone, and thanks for joining us. As you may know, I'll be stepping down as CEO in January, so this is my last earnings call. I'll have more to say about our leadership transition later, but let's start by talking about what's happening today. It's no secret that we've been challenged on multiple fronts as we've navigated the tumultuous macro environment. This includes financial volatility, rising interest rates, inflation, declines in online advertising spend, and currency headwinds. In addition, we've been navigating the complexities created by the pandemic and dealing with the impact of the war in Ukraine. Despite all these challenges, I'm pleased to say that we've had a very successful quarter. Our total revenue in Q4 was 1.5 billion, representing year-over-year growth of 16%. Adjusted EBITDA also increased 16% to $276 million, with a margin of 18.4% compared to 17.2% in the prior year quarter. These results were driven by growth across all revenue lines, as well as the benefit from settling certain copyright infringement cases, as we discussed on our last earnings call. Recorded music revenue was $1.24 billion, an increase of 13%. Streaming revenue grew 10.4% when adjusted for the one-time impact of the DSP renewal we've been discussing since Q1. I'd like to remind everyone that Q4 was the final quarter impacted by this renewal. Q4's uptick in subscription streaming growth and the benefit from emerging streaming platform deal renewals more than offset the decline in ad-supported revenue. Artist services continued to recover in Q4, increasing by 33%, while licensing and physical were up by 38% and 6% respectively. Publishing had another impressive quarter with revenue of 254 million, reflecting exceptional growth of 32% plus. Digital and performance revenue stood out, growing 39 and 48% respectively. As I look back on the last two and a half years since going public, it's clear that we haven't, for a single day, operated in a normal environment. So it's gratifying to report that our businesses continue to shine during fiscal 22. Excuse me. For the full year, we delivered total revenue growth of 16% and adjusted orbiter growth of 18%. Excluding one-time items, adjusted orbiter grew 22%. We converted 65% of our adjusted OIDDA to operating cash flow for fiscal 22, well in excess of the expectation we discussed last quarter of 50 to 60%. As we look ahead, there's tremendous momentum in both the short and long term. I've consistently told you that streaming revenue would continue to have significant runway, that we would have price increases and ongoing subscriber growth, and that emerging platforms would continue to expand. We're now seeing all these come to fruition. Most significantly, Apple and Deezer recently announced price increases. Making these announcements in the current economic environment shows that music subscription services offer amazing value to consumers. Music remains undervalued, but we're optimistic that there will be other increases to come. We're also encouraged by reports of subscriber growth. Developed markets continue to grow in the double digits, while emerging markets are growing at higher percentages. With global smartphone penetration expected to increase meaningfully in the coming years, our conviction in streaming growth remains strong. Finally, the revenue growth curve of emerging streaming platforms continues to outpace more established formats. These new platforms are all heavily reliant on music, and as engagement continues to grow, we expect monetization to follow suit. In our recent deal with Meta, Our annualized revenue from this category reached $370 million this quarter. We look forward to the continued evolution of our deals as these platforms harness the power of user generated content, not just for music discovery, but for marketing and monetization. You've often heard me reference the four key pillars of our long-term strategy, music, globalization, innovation, and people. So I'd like to talk about how these pillars have shaped our culture over the last decade and how they continue to drive our results. Let's start with the music. What distinguishes the Warner Music Group is our ability to identify and sign original artists at the beginning of their careers and develop them into the world's most recognizable superstars. We discovered many of our biggest names like Ed Sheeran, Cardi B, Dua Lipa, Bruno Mars, and Anita when they were just starting out. Q4 exemplified the impact of our multi-pronged approach. We had great carryover success from our key artists like Ed, Dua, and Silk Sonic. Newly minted superstars Jack Harlow and Zach Bryan had multi-million selling albums released in And Lizzo's phenomenal singles were a precursor for her chart-topping album Special, released in Q4. We've also proved once again that music can come from anywhere and resonate everywhere. Not only do we develop Anglo blockbusters, but also superstars within their domestic regions. Local chart-toppers like Japan's Anyan and South Korea's Twice, and international superstars like France's David Guetta, Argentino's Paulo Londra, and Nigeria's Burna Boy. In addition, given the growing consumption of catalog music, we've placed even more emphasis on spotlighting our legendary artists. Recent highlights include great looks for Kate Bush, Fleetwood Mac, and Led Zeppelin. As we broaden and deepen our artists roster and prioritized a global approach to domestic music, our revenue composition has evolved. A decade ago, our top five artists generated over 15% of our recorded music physical and digital revenue. In 2022, they generated just over 5%. Our momentum will continue with a strong release slate in Q1, including new music from Paramore, Aya Nakamura, Cardi B, Peter Fox, Roddy Ricch, Joel Corey, and more. I should also mention our outstanding showing in the Grammy nominations announced last week. Recorded music picked up more than 80 nods, which included half of the Album of the Year contenders. Our top nominees were Electra's Brandi Carlile with seven, and six each for Atlantic's Lizzo and 300's Mary J. Blige. We also had three Best New Artist nominations for Anita, Omar Apollo, and Molly Tuttle. And Warner Chapel had a great showing highlighted by nominations for The Dream and Amy Allen in the brand new category of Songwriter of the Year. Warner Chapel is also performing very well, delivering on its strategy of diversifying revenue streams while providing wider opportunities for songwriters globally. Here are a few recent highlights. In the US, Daniel Cesar took home Song of the Year for Peaches at the 2022 BMI R&B and Hip Hop Awards. We signed pop sensation Lauren Spencer Smith and breakout punk rock band, The Linda Lindes. We renewed our deal with eight-time Grammy Award winner, Chris Stapleton, and we entered into a license renewal with China-based social platform, Kuaishou, for our catalogs across multiple Asia-packed countries. We constantly work to enhance the value of our songwriters' catalogs. Our teams proactively find needle-moving placements for their music, which distinguishes us from passive right holders. One recent example of this is the placement of George Michael's Freedom, covered by Warner superstar Dua Lipa in an Yves Saint Laurent campaign that launched in August. There's been a lot of debate over the value of major labels and publishers in a world where artists and songwriters have any number of distribution alternatives. While distribution has been democratized, talent never will be. Genuine talent is rare and difficult to find, but discovery is just the beginning. True long-term success requires significant resources, including financial investment, global infrastructure, creative expertise, and the skills to navigate the changing tech landscape. It's that combination, genuine talent backed by our considerable resources and skills, that builds careers for the long haul. Over and over again, artists and songwriters not only stay, but grow their relationships with us in this fiercely competitive market. That's when we know we're on the right track 10 years ago, we were an Anglo-centric company. Today, we're a truly global music entertainment company operating in over 70 countries. The key to our successful global expansion has been in identifying markets on the brink of ignition. We've customized for each new territory market and presence building strategies. A couple of examples from the past decade are the 2014 acquisition of Gold Typhoon in China, and the critical mass we built in MENA, the world's fastest growing market, through our investments in Conowhat, Ziti, and Rotana. We see Eastern Europe as a new and important growth area for music. Consumption in the region, which has a population of some 160 million people, grew 20% in 2021. Seizing on this opportunity, we've made moves to grow our presence. Examples include our recently announced investments in Grupa Step and Big Idea in Poland, Naskem Records in Serbia, and the launch of Out of Order, a new label that will elevate artists in Eastern Europe and other emerging markets. The expansion of our global footprint has been further complemented by entering into partnerships with more than 200 streaming services around the world. In the music entertainment business, new technologies and business innovations they've driven have often been met with fear rather than excitement. But today, we see tech as providing us with incredible opportunities to enhance the world of music. We've consistently been a first mover in investing across the digital landscape. Our early embrace of streaming made us the first major to report it as our largest source of recorded music revenue back in 2016. Around that time, we also began our revenue diversification efforts. Since then, we've partnered with nearly every major social platform, including Instagram, Facebook, Snap, Twitch, TikTok, and most recently, Pinterest. In many cases, we were the first major to do so. These deals are empowering our artists to scale their communities, encouraging fans to share unit generated content, and delivering significant incremental value. We were also the first major to aggressively pursue opportunities in the metaverse. While our work in Web3 space has accelerated over the last 12 months. Our efforts started back in 2019 when we invested in leading blockchain company Dapper Labs. Our partnerships with Roblox, Fortnite, and Wave have created innovative opportunities for virtual world building, concerts, and other forums. This has allowed us to work with artists like Twenty One Pilots, and Charlie XCX in pioneering new forms of fan engagement. Through our deal with Sandbox, we were the first major to plant a flag and build on virtual real estate. WMGLand, our current working title, is now live in the Sandbox, and Atlantic Sueco was the first artist to become part of the experience. I'm very proud of the progress we've made over the past 10 years. We've moved way beyond thinking in terms of singles, albums, and videos. We help artists create all forms of rich, immersive interactions with their music in both the real and virtual worlds. As I look out on the next 10 years, I believe we're at the doorstep of a new golden age of music. As the ecosystem becomes more complex and exciting new business models emerge, our role as the connective tissue between artists and fans will only become more prominent and more important. Finally, our people are the driving force that will always take our company to the next level. Last month, we announced that Julie Greenwald had been elevated to chair and CEO of the newly created Atlantic Music Group. Julie's been with the company for 18 years, and it's industry mavericks like her that are the backbone of our success. We've enhanced our focus around important areas like ESG and diversity. Last year, we hired a head of ESG and established an executive oversight committee. On February 1st of 22, We released our first annual ESG report detailing our commitment to sustainability, equity, and social impact. Our second annual report will be published this coming January. In 2020, we hired a global head of diversity, equity, and inclusion. We've since established global North Star commitments and launched our DEI Institute. And we created the $100 million Warner Music Group Blavatnik Family Foundation social justice fund that invests in organizations and advances community initiatives around the globe. To date, the fund has already committed over 24 million in grants. On November 1st, we published the Protect Black Art open letter in the New York Times and the Atlanta Journal Constitution. The letter urges legislators across the U.S. to end the racially discriminatory practice of treating rap lyrics as criminal confession. Signatories included companies such as Universal, Sony Music, Spotify and TikTok, organizations such as the ACLU, Color of Change, the Recording Academy and the RIAA, and artists such as Alicia Keys, Coldplay, Drake Megan Thee Stallion and Post Malone, among many others. I'm pleased to see us creating new opportunities in our local communities, using our resources to express our values and taking a stand on important issues. At the end of September, we announced that Robert Kinchel will become CEO during January 23 and then CEO on February 1st. As an entrepreneurial leader, Robert has an impressive track record of championing change at companies like YouTube and Netflix. He's a pioneer of the creator economy whose command of technology will enable us to unlock new opportunities for our company, our artists, and our songwriters. I have the utmost confidence that he'll build upon our strong foundation and bring us into a new era of how music lives in the world. With that, I'll turn it over to Eric.