Universal Music Grp U/Adr

CEO of Universal Music Group, and Matt Ellis, Chief Financial Officer. They'll be joined during Q&A by Michael Nash, Chief Digital Officer, and Boyd Muir, Chief Operating Officer. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. As a reminder, this call is being recorded. Please also let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the Risk Factors section on UND's 2024 Annual Report which is available on the investor relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the investor relations page of UMG's website. Thank you. Solution, you may begin your conference.

Thank you. Hello and welcome to all of you for joining us today. I'm very pleased to report that for our third quarter, we once again continued to post strong financial results whilst also making significant advances on the implementation of our strategic plan. For the quarter, revenue grew 10% and adjusted EBITDA grew 12%, both in current currency. Matt will go into greater detail on the numbers later, but before he takes the mic, I will focus my remarks today on three strategic areas. First, how we continue to propel our new and established artists' careers to new heights, including how we extend the value of their IP by bringing our artists' music and stories into areas such as feature films. Our work with partners to develop commercial and creative opportunities for artists, songwriters, and fans, specifically in leveraging responsible gen AI technology. And third, our ever-growing presence in established and high-potential markets around the globe. I'll begin my remarks by highlighting just a few of the stunning successes our artists continue to rack up around the world. In the US, UMG had seven of the top 10 albums for the third quarter. With Morgan Wallen, I'm the problem at number one. And our publishing company had interest in seven of the top 10 albums. And of course, there's Taylor Swift. What Taylor has achieved with her 12th studio album is literally breathtaking. The biggest first week in music history now belongs to the life of a showgirl. Over 4 million US and 5.5 million global album equivalent sales. The album shattered a slew of other records as well. By debuting at number one on the US Billboard album chart, Taylor now has the most number one albums, 15, by any artist in the 21st century. as well as the most number one albums ever by a solo artist. I can't tell you how proud we are of her. The soundtrack for the animated film K-pop Demon Hunters on Republic continues its historic chart success. Twice hitting number one in the US, the lead single Golden has spent multiple weeks at number one around the world, including nine weeks in Australia and eight weeks in both the UK and the US. It is also the first soundtrack album in US history to have four of its singles in the top ten of the US 100, all at the same time. Sabrina Carpenter's Man's Best Friend also debuted at number one in the US, spent two weeks at number one in the UK, and hit number one in 13 other countries as well. It's her second number one album. And K-pop group Stray Kids' album Karma is their seventh number one album in the US, breaking the record for the most number one albums by a group on the Billboard 200 chart this century. I'm excited about the progress I'm seeing that's happening in the UK market as well. Olivia Dean secured the number one album spot and the number one single, a feat that made her the first British female solo artist to claim both top spots simultaneously since Adele did in 2021. And also in the UK, we're thrilled that Sam Fender was awarded the prestigious Mercury Music Prize for his third album, People Watching. That's the kind of artist development that we like. And Something which means a great deal to us as a global company is we're thrilled to see several of our Japanese artists now beginning to gain traction globally. As you know, Japan is the world's second largest music market, but there's been a misconception that opportunities for local talent outside of Japan are limited. Well, I'm extremely proud to report that UMG is shattering that misconception in several ways. For example, Babymetal, the group released its first album after signing with Capitol in the US in August. The album debuted at number nine on the Billboard 200, making them the first Japanese group ever, ever to reach the top 10 in the US in partnership with our Japanese company. Here's another example, the recent tour by superstar Ado in 33 cities across Asia, Europe, the U.S. and Latin America, attracting half a million fans, was also a historic first for a Japanese artist purely outside of Japan. And here's a third example of a Japanese artist gaining global traction. Fujii Kaze, he has enormous success with his third album, released in September by Republic Records, and next year he's set to perform at Coachella. This is quite a major development. I've also believed that we can break more local talent from Japan around the world. I'm really thrilled to see this progress, and it's really, I think, what sets us out and defines us as a creative company. Helping our artists reach new level success also means extending their IP in ways that deepen connections with their existing fan base, whilst introducing their music to a new generation of fans. One way we do this is through film. For example, the documentary produced by UMG's Polygram Entertainment, offering an intimate look at the life and legacy of Mexican-American artist Selena. The film was awarded the Sundance Film Festival earlier this year and was acquired by Netflix, who has recently announced its November release. Amazon MGM Studios has picked up Man on the Run, another Polygram Entertainment documentary, exploring Paul McCartney's creative rebirth after the Beatles' breakup. Man on the Run will be released in select theatres and then hit prime video globally in February next year. It will coincide with tour dates across North America this fall, as well as the release of his book, Wings, the story of a band on the run. I've seen it, and it's special, thoughtful, dramatic, and emotional. The last film I'll mention is Song Sung Blue from Focus Features. It stars Hugh Jackman and Kate Hudson as the Neil Diamond tribute band, Lightning and the Thunder. The film features performances from Neil Diamond's iconic songwriting catalogue and opens in the US theatres on Christmas Day. I'm not exaggerating when I say I could go on and on about many more of our other artists' stellar achievements and projects. But I'd like to shift gears and speak a bit about our strategic advances, starting with our work with partners to develop commercial and creative opportunities for our artists as well as their fans. First, I'm pleased to report that we have successfully concluded our third major streaming 2.0 agreement, this one with YouTube, covering both recorded music and music publishing. The agreement includes all aspects of YouTube's various music services and platforms, embodies our artist-centric principles, and drives greater monetization for artists and songwriters. And as part of our new YouTube deal, we've secured really important guardrails and protection for our artists and writers around Gen AI content. Which brings me to my second topic. We're seeing significant creative and commercial opportunities in Gen AI by technology, which is why UMG is playing a pioneering role in fostering its enormous potential in music. Our foundational belief is that artists, songwriters, music companies, and technology companies all working together will create a healthy and thriving commercial AI ecosystem in which all of us, including fans, can flourish. For several years now, we've been driving initiatives with our partners to put artists at the center of the conversation around GenAI. We struck artist-centric agreements, establishing foundations and parameters for innovation, new products, sorry, innovative new products that will unlock the power of this revolutionary technology. And both creatively and commercially, our portfolio of AI partnerships continues to expand. You will have seen I hope yesterday's announcement that we've reached an industry-first strategic agreement with Udeo, under which the companies settle copyright infringement litigation and will collaborate on an innovative new commercial music consumption interaction and hyper-personalization streaming product. The new platform, which is expected to launch in 2026, will be powered by cutting-edge generative AI technology. that will be ethically trained on authorized and licensed music and will provide further revenue opportunities for artists and songwriters and UMG. The new subscription service will transform the user engagement experience, creating a licensed and protected environment to customize, stream, share, and share music responsibly on the Udeo platform. We also entered into an agreement and then a strategic alliance with Stability AI to co-develop professional AI music creation tools for creators of video, images, and now music. The purpose of this agreement is to provide our artists and labels with an opportunity for direct feedback into the construction of a professional studio music product that uses AI to generate music ideas and demos. Excuse me. As we've said all along, artists should be at the center of the AI conversation, and this agreement aligns closely with that objective. These advancements are made with both global and regional partners. For example, just last month, Universal Music Japan announced an agreement with KDDI, a leading Japanese telecommunications company that will establish a collaboration to use Gen AI to develop new music experiences for fans and artists in that really important market. Even as we lead the way forward on creating commercial and creating opportunities with our new partners, we're also working closely with established partners on the AI front, which includes making sure that the safeguards are put in place to protect them and their work. Spotify recently announced critical steps they're taking to advance our artist-centric initiatives as they relate to AI. We look forward to the products that will be introduced through this partnership. As I said, at the time of their announcement, it's essential that we work with strategic partners such as Spotify to enable Gen-AI products with a thriving commercial landscape in which artists, songwriters, fans, music companies, and the technology companies can all flourish, as I've said. As we strike agreements with other companies, we will only consider AI products based on models that are trained responsibly. We're in discussions with numerous other like-minded companies whose products provide accurate attributes and tools which empower and compensate artists' products, both that protect music and enhance its monetization and the entire experience. Ensuring safeguards is also the reason we've partnered with Sound Patrol a company led by Stanford scientists. Sound Patrol deploys groundbreaking neural fingerprinting technologies for detecting copyright infringement in music, including in AI-generated works. Based on our experience with our AI partners and discussions underway with possible future partners, we can confidently say that AI has the potential to deliver creative tools that will connect our artists with their fans in groundbreaking ways and on a scale that we've never encountered. Further, I strongly believe that agentic AI will dynamically employ complex reasoning and adaptation. It has the power to revolutionize the manner in which fans interact with and discover music. Imagine interacting with your favorite music through a sophisticated, highly personalized chatbot. we envisage that exciting possibility on the horizon. We see the bottom line like this. As we successfully navigate the challenges and seize the opportunities presented by new AI products and others yet to come, we will be creating new and significant sources of future revenue for UMG and our entire ecosystem, artists and songwriters. Now, I'd like to move on to another area in which we've recently made meaningful progress, and that is the expansion of our presence in established and high-potential markets. In Japan, we recently increased the majority stake we bought earlier this year in A-Sketch, the Japanese label and artist management business, by acquiring from KDI its minority stake in the company. In August, we entered into a strategic partnership with Madoc Films, one of India's most prolific Hindi film production studios and its newly formed music label, Madak Music. Under this partnership, Universal Music India is now Madak Music's global strategic partner for future film tracks and other businesses and product offerings. The partnership deepens our presence in domestic film music, which is the largest music category in India. In Vietnam, Virgin Music Group formed a partnership with the Metup Company, Vietnam's leading digital entertainment and creator company. This innovative venture will focus on signing and servicing local talent and independent labels to help them grow their music both domestically and internationally. In Ghana, for example, Virgin Music Group took another step in its ongoing mission to invest in Africa's music and creative scene by announcing a global distribution partnership with Myprog, one of Ghana's longest serving creative media platforms. I'd also like to briefly mention a significant development for our business in China. Universal Music Greater China announced the appointment of Zhang Yidong, one of the most iconic producers in the Chinese music industry, to the role of Chief Music Advisor at Universal Music China. widely recognized as a visionary whose work had defined the sound of Mandarin pop for more than three decades. He's going to work along with UMG's worldwide infrastructure to introduce the next generation of Chinese artists to international audiences. We're extremely excited and committed about the moves that we've made in China, and we'll be investing and are investing in next generation local talent. I'd like to close with this. The third quarter, whilst obviously just a snapshot, marked another great quarter where we delivered strong financial growth, drove exceptional success for our artists and songwriters, shaped the future direction of our company with groundbreaking announcements, and continued to expand our global footprint. The consistency of our performance, combined with the continued execution of the strategic plan, demonstrates that with UMG's entrepreneurial energy, we'll continue to bring artistry and creativity of the world's most brilliant and beloved music makers that we have to every corner of the globe. And at the same time, leaning into distribution and business models for the future in new and innovative ways. So on that, thank you. And I'd like to hand over to Matt.

Thank you, Lucien. I'm pleased to have joined a great business and team at such an exciting and promising time, and I'm equally pleased to be presenting our results for the first time this quarter. Q3 was another quarter of solid revenue and adjusted EBITDA growth at UMG, as we continue to execute the strategy the company laid out a year ago at Capital Markets Day. On top of the continued strong, predictable subscription growth we saw once again this quarter, Our results also display our healthy breadth with multiple drivers of long-term growth, as our strong physical and merchandising revenues reflect the opportunity to directly serve superfans. All of the growth figures I will discuss today will be in constant currency. UMG's revenue for the quarter of €3.02 billion grew 10.2% euro per year, while adjusted EBITDA of €664 million grew 11.6%, with margin expanding 40 basis points to 22.0%. Recorded music revenue grew 8.3% in the quarter, with strong performances from the K-pop Demon Hunters soundtrack, Mrs. Green Apple, Taylor Swift, Sabrina Carpenter, and Morgan Wallen, among many others. Within recorded music, our well-diversified subscription revenue grew 8.7% for the quarter, This result was driven largely by growth in subscribers. Within the top 10 markets, there was double-digit subscription revenue growth in China, Brazil, and Mexico, and high single-digit growth in the U.S. And we saw double-digit or high single-digit revenue growth from four of our top five DSP partners. With healthy subscriber growth from a range of partners across both established and high potential markets, and the monetization benefits of our Streaming 2.0 initiative soon to follow, we remain encouraged by the trajectory of the subscription business. Turning to ad-supported streaming, revenue was largely flat against the prior year quarter. Growth continues to be challenged by the shift to short-form consumption, which is not yet adequately monetized. We plan to continue addressing this through our deal negotiations. Physical revenue was better than anticipated, up 23%, driven by strength in Japan, led by Mrs. Greenapple and Fujii Kaze, as well as initial shipments of Taylor Swift's latest album, The Life of a Showgirl. While physical revenue performance may be less predictable and have more seasonality than subscription revenue, it's important to note that over a longer time horizon, this is a growing business that reflects increasing demand by fans to own physical products connecting them with the artists they love. Moving on to music publishing, revenue grew 13.6% in the quarter, with digital revenue growing 17%, driven by the strength of streaming and subscription, particularly in the US, UK, and China. Performance income also grew 17%. Growth in both digital and performance revenue benefited from the inclusion of Chord and a major television studio business win in this year's results. In merchandising and other, revenue increased 15% driven by the strength in the US and UK. This was a result of very healthy growth in touring merch revenue, which was partially offset by a decline in D2C sales due to the timing of product releases. Our touring merch revenue strength this quarter was driven by The Weeknd, Morgan Wallen, Lady Gaga, and Nine Inch Nails, amongst others. Now, let me turn to adjusted EBITDA. As I mentioned at the beginning of my remarks, adjusted EBITDA of €664 million grew 12%, and adjusted EBITDA margin expanded by 40 basis points to 22.0%, helped by revenue growth, operating leverage, and cost savings from Phase 2 of our previously announced realignment plan. This was partially offset by the negative margin impact of the revenue mix, in particular, the strong physical sales and touring merch growth. We're very pleased with our results this quarter and excited by the momentum and opportunities that lie ahead. With improved streaming 2.0 monetization just ahead of us and fans looking to engage with their favorite artists in new, immersive ways, UMG is at the center of a healthy and growing industry. Thank you. Lucien, Boyd, Michael and I will now take your questions. Operator, please open the line for Q&A.