Warner Music Group Corp.

Welcome to Warner Music Group's second quarter earnings call for the period ended March 31, 2026. 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 afternoon and welcome to Warner Music Group's fiscal second quarter earnings call. Please note that our earnings press release, earnings snapshot, and form 10Q are available on our website. On today's call, we have our CEO, Robert Kinsel, and our CFO, Armin Zerza, who will take you through our results and then answer your questions. Before our prepared remarks, I'd like to remind you that this communication involves 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, including metrics that are adjusted for notable items during this conference call and in our earnings materials, 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 as 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 these risk factors is contained in our filings with the SEC. And with that, I'll turn it over to Robert.

Hello, everyone, and thank you for joining us today. Our strong Q2 results prove that our strategy is working. With a 12% increase in total revenue, a 24% increase in adjusted OIBDA, and over 200 basis points of margin expansion, we are demonstrating the benefits of our transformation. This growth is underpinned by an increase in recorded music subscription streaming revenue of 15% on an adjusted basis. This was bolstered by the combination of broad-based strong execution by our operating units and by the successful implementation of contractual PSM increases that began in the quarter. We continue to make progress on our three strategic pillars, growing our market share, increasing the value of music, and becoming more efficient and effective. And we use AI to help us achieve all three of these, which I'll touch on throughout my remarks. Starting with market share growth, which remains a primary objective, we're driving gains through developing new talent and delivering consistent creative success with emerging and established artists and songwriters across multiple geographies. Improved monetization of our catalog and increased focus on distribution. Our execution across all of these has delivered strong year-over-year share growth in our fiscal Q2. Overall, U.S. streaming share grew 1.1 percentage points, and U.S. new release share grew 2.7 percentage points. Our creative success is evident in recent high-profile wins, including Bruno Mars dominating four Billboard charts simultaneously, Pink Pantheress securing her first Global 200 No. 1, and Don Tolliver scoring his first No. 1 album. Like Bruno, many of our current superstars are homegrown. Dua Lipa, Charli XCX, and many more. And you can go back decades in our history to artists' discoveries like Led Zeppelin, Grateful Dead, Madonna, Prince, and many others who have launched and sustained highly successful careers at our labels. Flash forward to today, We continue to introduce the world to breakout chart-topping stars like Pink Pantheres, Sombra, Billa K, The Marias, and Alex Warren. These are just a few of the many examples of our outstanding track record in artist development. We've successfully transferred this capability around the world. We've delivered a string of number ones from local artists in Italy, Poland, Sweden, France, Spain, and Mexico. Our rising Mexican star Junior Ache, for example, just launched at number one on both the Spotify Global and US Top Album debut charts. Turning to catalog, which represents about 65% of our recorded music streaming revenue, we've delivered growth across shallow and deep vintages. Our always-on marketing approach, reimagined for today's younger generation, is yielding results. as we find new ways to continuously revitalize our timeless repertoire. In addition, we have great success introducing iconic artists to younger audiences through new releases. Madonna is just one great example. She became a Warner artist more than four decades ago, and we're about to release her 14th studio album, Confessions II. As a result of our catalog marketing campaign leading into the new album, we've seen her weekly streams increase 24% versus baseline, with under 28-year-old fans accounting for 35% of her Spotify streams. Her new duet, Bring Your Love with Sabrina Carpenter, arrived last Friday and is Madonna's highest-charting track yet on Spotify and fueled her biggest-ever streaming day on the platform. Additionally, our catalog is home to over one million tracks from more than 70,000 artists. AI tools that we've developed make it possible for us to stimulate engagement with this vast treasure trove of content quickly and cost-effectively through the use of motion art, visualizers, lyric videos, and many more. At the same time, we're using our proprietary model to determine where our marketing activities should be focused. Our ability to create these assets quickly and inexpensively, combined with our focused marketing activities, enables better and deeper monetization of our catalog, ultimately amplifying our market share growth. Enhancing our distribution offerings through strategic partnerships and investments is an important driver of our market share growth strategy. Our recent deal with TwoStreams, a leading independent force in the Musica Mexicana space, And our acquisition of Revelator, which Armin will discuss in more detail, not only enhance our capabilities, but also help us establish a powerful pipeline of emerging talent and catalog, while creating new pathways into our global ecosystem. Our publishing business grew 10% this quarter, continuing its strong momentum. From our songwriters Mac and Scott Dittrich contributing to Bad Bunny's number one song on the Billboard Hot 100, to our deals with Grammy winner Lebe, R&B hit maker and Grammy-winning producer Dre Harris, and chart-topping singer-songwriter Ernest, Warner Chappell's Hot Street continues. We've also expanded our global presence by launching publishing operations in India. A brand new way for us to drive share is through long-form programming. Last quarter, we announced a multi-year first-look deal with Netflix to produce documentaries. And today, we announced a multi-year first look deal with Paramount to produce theatrical live action and animated feature films. I'd like to give big thanks to our partners at Unigram and at William Morris Endeavor, who helped us structure both partnerships, and I look forward to our continued collaboration. These agreements represent new and exciting ways to tell amazing stories about the lives, music, and legacies of our most popular artists and songwriters. In doing so, we're introducing them to new fans all around the world, building their brands, and expanding engagement with their music. Moving to our next pillar of growing the value of music. When I joined the company, I identified the need to increase the value of music. Today, we're doing this in a number of ways. These include BSM increases, deals with emerging AI platforms like Suno, and premium tier offerings with traditional DSPs that feature AI. We've made meaningful progress in several of these areas. First, after more than a decade of volume-driven growth, we're now seeing DSM increases, which contributed to our mid-teen subscription streaming growth in the quarter. These increases provide greater certainty around our economics, irrespective of retail pricing. Beyond traditional streaming, AI represents an important step towards enhancing the value of music. There has been a lot of discussion about whether AI will have an accretive or dilutive impact on our industry. Numerous DSPs have reported that the ever-growing volume of AI music being uploaded is seeing very limited engagement and therefore has minimal dilutive impact. And of course, we're closely aligned with our DSP partners to ensure that contractual protections are in place to prevent or limit dilution. We've taken a leadership role in creating new monetization frameworks with emerging AI companies, and our pragmatic experimental approach will deliver new revenue streams. Our partnership with Suno serves as a proof point for AI and incremental value creation. Soon as 2 million subscribers are paying an average of $12.50 per month, clear evidence of the willingness of superfans to pay more for interactivity. Not only are we building an ongoing consumption-based revenue model that enables us to scale as our partners do, we're also ensuring that AI models respect copyright, name, image, likeness, and voice to protect our artists and songwriters. Implementing clearly drawn boundaries is enabling us to harness AI technology for licensed models that ensure fair compensation to artists and songwriters. In fact, we were just named one of Time Magazine's 100 most influential companies for our leadership through this AI era. Additionally, we're actively engaged with our traditional DSP partners to launch new AI-powered premium tiers that will benefit our artists and songwriters by allowing fans to engage more deeply with our music. We continue to believe that our industry-leading and thoughtful approach to AI will drive one of the biggest incremental value creation opportunities for our industry and look forward to sharing updates on future initiatives. Turning to becoming more efficient and effective. Our ongoing journey to become more efficient is unlocking our ability to invest more in our core business. This drives our market share growth, which translates into improved top and bottom line acceleration and cash generation, and ultimately, shareholder value. We're not shying away from making tough decisions and doing the difficult foundational work necessary to drive a step change in our operational effectiveness. Our strategic reorganization and focused investments in tech, as well as the successful rollout of our financial transformation program, have enabled the profitable growth that is reflected in our results. For the second consecutive quarter, we have now delivered margin expansion above our full-year target of 150 to 200 basis points, further proof that our strategy is working. We're excited about our release schedule, which includes new music in Q3 from Charli XCX, Lizzo, Alex Warren, Sombra, Tiesto, Teddy Swims, Kehlani, and many more. In summary, our momentum is strong, our strategy is working, and there's a lot of runway. We're driving successful results by focusing on our three strategic pillars. growing market share, increasing the value of music, and becoming more efficient and effective while using AI to power all three. The building blocks are in place to deliver on our growth targets, and we've established a growth culture to continue our momentum and to accelerate long-term value creation for our artists, songwriters, and shareholders. Before I hand it over to Armen, I want to share that starting tomorrow, in addition to continuing to serve as our CFO, he will also serve as our COO. His expanded remit will now include corporate development, central marketing, business and market intelligence, and WMX. And I wanted to thank Armen for the impact he has had on the organization and business in a short period of time. And I look forward to continue partnering with him to deliver operational excellence, growth, and value creation. Congrats, Armen. Over to you.