Warner Music Group Corp.

Welcome to Warner Music Group's first quarter earnings call for the period ended December 31st, 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 first quarter earnings conference call. Please note that our earnings press release, earnings snapshot, and the Form 10-Q we filed this morning will be available on our website. On today's call, we have our CEO, Robert Kinsel, and our CFO, Eric Levin, who will take you through our results, and then we will answer your questions. Before our prepared remarks, I'd 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 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's a 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 is contained in our filings with the SEC. And with that, I'll turn it over to Robert.

Thank you, Karim, and good morning, everyone. I'm pleased to be here speaking with all of you for my first earnings call at Warner Music Group. I've been on the job for five weeks, and I'm grateful to our board of directors and our employees, artists, and songwriters for giving me such a warm welcome. I would especially like to thank my predecessor, Steve Cooper, for everything he's done to position the company for long-term success and for all his insights as I've been getting up to speed. Thanks also to you, our valued shareholders, and everyone who follows the company for your continued support. So let's get into Q1 results. I am committed to maintaining straightforward and consistent communication with the investor community. So in that spirit, I want to immediately and clearly acknowledge that this was a tough quarter. Like most companies, WMG has been dealing with macroeconomic headwinds and the impact of currency exchange rates. It's important to note that last year's Q1 included an extra week of reporting. As a result, this quarter's comparisons need to be adjusted to provide an accurate picture, and I'll be discussing our results in that context. Eric will give you more detail, but here are the headlines. Total revenue in Q1 grew 2%, and adjusted OIDA increased 13%, with 210 basis points of margin improvement. Recorded music revenue was flat as the strength of our global performance was offset by a softer quarter in the U.S. We had a tough comparison with the prior quarter, which included releases from some of our superstar artists. We're expecting a stronger release schedule in the back half of the fiscal year, which will feature new music from Ed Sheeran, Cardi B, David Guetta, Aya Nakamura, and Bebe Rexha. Music publishing had another strong quarter with revenue growth of 14%. Our operating cash flow growth was healthy despite some of our revenue lines coming under pressure. This further underscores our disciplined fiscal management as we navigate this challenging business environment. I'd like to spend some time on this call proactively addressing two questions that have often been asked, specifically why I chose to go into the music business and why I joined the Warner Music Group after 12 years at YouTube and 7 years at Netflix. YouTube thrives at the intersection of creators and technology, which means that I had many options to choose from in planning my next chapter. I chose music. First and foremost, because everyone loves music, including me. It's embraced by 100% of the global population. In an increasingly digital world, music makes people feel. It brings them joy, hope, and comfort. Plus, in an increasingly divided world, music brings people together. That engagement is very powerful and valuable, and we expect the evolution of monetization models to reflect that. On top of that, music's global appeal is matched by its ubiquity. This industry has achieved something rare. It's built mutually beneficial, long-term partnerships with many of the world's biggest companies. Amazon, Apple, Google, Meta, Spotify, and Tencent among them. As successful as music has become, there is still meaningful upside ahead for three reasons. One, as technology opens up emerging economies, the industry's addressable market will continue to expand even further. Two, innovation is constantly creating new use cases for music, giving us the opportunity to diversify our revenue sources. Three, music is still undervalued, especially when compared to other forms of entertainment like video. I'd like to expand a bit on that last point. Since 2011, the subscription price of Netflix's standard service has roughly doubled. Data shows that almost 80% of U.S. households subscribe to at least three streaming video services. This means that the average household is spending more than four times per month on a combination of digital video services that isn't even a comprehensive offer. In contrast, the price of a music subscription has stayed the same since streaming was introduced over a decade ago. Most consumers subscribe to a single service that carries virtually all the music ever released. Against this backdrop, it's encouraging that we're seeing first steps in the right direction by Apple, Deezer, and Amazon. The other question I often get asked is why WMG? First and foremost, it's the artists and songwriters and powerful catalogs that are the lifeblood of this company, and it's such a pleasure to bring this creative work to fans around the world. The new generations of stars like Lizzo, Dua Lipa, and Aya Nakamura global superstars such as Ed Sheeran, Bruno Mars, Coldplay, and Neil Young, songwriters and composers like Lin-Manuel Miranda, Gamble & Huff, and John Williams, and legends such as John Coltrane, Led Zeppelin, Aretha Franklin, and Prince. Second, it's the people at WMG. This company has a consistent, decades-long history of finding and developing unique voices that change culture globally. In an increasingly complex and cluttered world, that originality is an essential ingredient of our success. Third is about size. WMG is big enough to drive meaningful change in the industry, but small enough to have plenty of room for growth. As just one example, the company has been taking a thoughtful approach to global expansion. WMG has made well-timed moves that leapfrog the competition in dynamic, fast-growing markets such as China and the Middle East. This approach has also delivered record-breaking global firsts with artists like Anita from Brazil, Paulo Londra from Argentina, King from India, and CK from Nigeria. I wanted to briefly address what we're doing to architect the next phase of growth. I am only five weeks in, but I've been very intentional about how we've gone about this. I made two significant appointments, both of which tell you something about our priorities going forward. I hired Tim Matusch, my former colleague at YouTube, as our new EVPO strategy and operations, which is a new role at WMG. Tim will be critical to facilitating our strategic vision and ensuring its operational execution. I also hired Ariel Bardin as our president of technology. Ariel's career includes 16 years at Google, where he built, launched, and led some of the company's most successful products, including YouTube's creator tools, memberships, and content ID. He will drive the development of the systems, infrastructure, and products needed to support our growth. As I said, I'm committed to clear and straightforward communication on our progress. I also want you to know I'm a big believer that actions speak louder than words and I'm laser focused on execution. Right now, I'm working with leaders across the company to develop our plans for the future. We're already exploring some exciting ideas and initiatives and we will provide you with updates as soon as appropriate. That said, many of the fundamentals will remain the same. The foundations of this company are very strong and the music industry is rich with opportunities. We will continue to invest in new artists and songwriters, our catalog, and our global expansion. At the same time, we plan to thoughtfully reallocate some resources to accelerate how we use technology and data to empower artists and songwriters, as well as drive greater efficiency in our business. As subscription revenue continues to grow, at Supported Recovers, and we explore the possibilities of new technologies and business models. It's essential we structure our deals smartly and strategically. I am approaching this next phase of growth with the unique benefit of having been on both sides of the table. I am proud that over the last five years at YouTube, we developed a very collaborative, mutually beneficial relationship with the music industry after years of rocky bumps. I plan on bringing the same approach to WMG and the industry so that our interests are aligned with our partners and that our artists and songwriters gain maximum participation and monetization. Now I'll pass it over to Eric, who will take you through our results, and then we'll answer your questions.