Welcome to the Warner Music Group's Second Quarter 2014 Earnings Call for the period ended March 31, 2014. At the request of Warner Music Group, today's call is being recorded for replay purposes. [Operator Instructions] Now I would like to turn today's call over to Mr. James Steven, Senior Vice President, Communications and Marketing. You may begin.

Good morning, everyone. Welcome to Warner Music Group's Fiscal Second Quarter 2014 Conference Call. Both our earnings press release and the Form 10-Q we filed this morning are available on our website. Today, our CEO, Steve Cooper, will update you on our business performance and strategy; and our Executive Vice President and CFO, Brian Roberts, will discuss our financial condition and results, and then both of them will take your questions. Before Steve's comments, let me remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. 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 is a reasonable basis for them. However, there can be no assurance that the 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 those -- 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 earnings press release and Form 10-Q and other SEC filings. We plan to present certain non-GAAP results during this conference call. We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website. With that, let me turn it over to Steve Cooper.

Thanks, James. Good morning, everyone. Thanks for joining us today. I also want to extend a warm welcome to those of you who may be new to our calls. We're happy to have you join us. First, I want to say that we were very pleased to complete another successful refinancing last month, in which we swapped our 11.5% notes for meaningfully lower coupon debt. The refinancing will generate cash interest savings of approximately $30 million per year. Brian will discuss this in more detail shortly. As we've been mentioning on these calls for the last 6 months, as expected, we had a lighter release schedule in the second quarter. As a result, revenue declined 3%, and adjusted OIBDA declined 10%. Even so, we generated free cash flow of $82 million. At the quarter's end, our cash balance improved to $149 million. That was up from $129 million at the end of December. We remain strongly committed to delivering solid free cash flow in the quarters to come. Looking more broadly, there have been some notable Recorded Music industry developments. While it's still too early to assess the global industry trends for 2014, calendar 2013 data released in March by IFPI indicates top line stability in most major markets. Excluding Japan, which I'll address in a moment, industry revenue was virtually flat in '13. Including Japan, industry revenue was down 4%. Subscription revenue was up by 51%, driving 4% growth in global digital revenue. Europe saw digital revenue growth of 13%, helping that region post its first overall increase in 12 years. In fact, 5 of Europe's largest markets, France, Italy, Germany, the Netherlands and the U.K., all returned to growth. The U.S. recorded music market was stable for the fourth consecutive year, growing revenue by 0.8%, with strong demand…

Thank you, Steve, and good morning, everyone. As Steve mentioned earlier, we are pleased to complete a refinancing of the largest portion of our existing unsecured indebtedness on March 26th, which closed in early April. As part of that transaction, we repurchased or redeemed all $765 million of our 11.5% senior notes. To complete the refinancing, we issued $275 million in senior secured notes in 5.58%, and $660 million in senior notes at 6.75%, both due April 2022. We also extended the term of our $150 million revolver from 2017 to 2019. As a result of the refinancing, we will realize annual cash interest savings of approximately $30 million. It is worth noting that as part of the refinancing, we paid $85 million of tender/call premiums, $19 million consent fees and $3 million of accrued interest in connection with our retired debt. As Steve mentioned, and as we anticipated, our results for the quarter reflect the lighter release schedule. On a constant currency basis, including PLG, revenue declined 3%. Excluding PLG, which contributed $72 million of revenue, our constant currency revenue declined 13%. As we mentioned last quarter, our fiscal '14 release schedule is weighted to the second half, and we're beginning to see the fruits of -- as we head further into the third quarter. As we've discussed on prior calls from an OIBDA perspective, certain adjustments are necessary to make the year-over-year comparisons more meaningful. We've highlighted these in our press release, but let me walk you through them. In the quarter, we had $16 million in integration costs associated with the acquisition of PLG, including IT, supply chain and royalties integration costs, professional adviser fees, retention bonus and transitional employee costs, and $17 million in restructuring expenses, which were mostly employee-related in connection with the PLG integration.…

[Operator Instructions] The first question is from Aaron Watts from Deutsche Bank.

I guess the overarching theme here this quarter, just looking at the numbers here in your commentary, is that the light release say, it really just kind of influence the direction of all things. But I could just ask a couple of quick questions. On the cost saves, with PLG, the $70 million, how much of that -- of those savings are already kind of flowing through versus still on the comp?

The only thing that isn't flowing through materially in this year is the element related to our French operations. So we have a good piece of it already flowing through the results and there will be a piece that's yet to come, Aaron, which is exactly what we had said when we had acquired PLG that we get that, we do it over a 18- to 24-month period and get those savings in that same period. You can still see in some of the counts on covenant EBITDA that we still have some savings to come.

Okay, all right. And then, on the digital decline, in the quarter. I know this is a tough one, but as you think about that, how much of that decline was driven by the release slate? And maybe that the question really is, just as you continue to watch a shift from downloading to Streaming take place, how do you see that netting out for digital revenues?

Well, Aaron, on the -- the first part of the question, I think our digital decline was more pronounced than the industry declines because of our light release schedule in the first 2 quarters. With respect to the downloads versus Streaming, Streaming is growing rapidly and is compensating, frankly, for the decline in downloads. And we would expect that Streaming continues to show meaningful growth in the future and should, hopefully, continue to outstrip the decline in downloads. The Android world continues to have a higher and higher percentage of smart devices, whether it be phones or tablets. And we would expect that, that is going to accommodate the ongoing growth in Streaming. So we're very positive about that future trend. And are confident that as the Streaming services are both individually and the aggregate, really reach worldwide scale, that it will be a tremendous addition to our industry revenues.

Okay, that's helpful. I guess just carrying that along, I know we're early in the process, but and you said it was Streaming can be a complicated kind of arena for you, but just thinking about the different revenue streams that come in. So can you maybe just clarify, you're getting -- you get a piece of like subscriber fees that Spotify, for example, who collect a piece of advertising as well as kind of a cut every time a song is listened to? Is that the right way to think about the different inflows?

Typically, on these services, we get paid in several different ways. Our revenue streams come from either separate sources or the greater of source. And those sources are: 1, subscription revenue; 2, per play charges; or 3, ad revenue. And those revenue streams will vary service-to-service. Obviously, you have ad-based services, you have Subscription services and you have hybrids that offer both. But we will get paid from any or all of those sources, Aaron.

Do you need people to start paying or the subscriber fees to really ramp up for Streaming to be a big success? Or can advertising -- do you think drive the product?

Well, I think it's a, I think it's both. One, I think that we would love to see more subscribers and all of the indications are that hundreds of thousands of subscribers from the data we see, are being added every month. We also see growth in ad revenue and we're beginning to see, in some instances, more pronounced shift from non-digital advertising and into digital. And in fact, all the studies that we've seen indicate that they believe that the growth in digital ad revenues will continue to be meaningful for the foreseeable future. And that's, frankly, what we like to see. We like to see the growth coming from every revenue stream, and nothing in the data indicates that those expectations will not be met over time.

Okay, great. Last one for me and I really appreciate all your thoughts on this stuff. Just as we think about kind of your working capital and your cash flow, in a world that's shifting from $1.29 download to the Streaming world. Is there anything we need to keep in mind as we model in terms of recognition of revenues and working capital?

Well, our revenues get recognized on a cash basis.

Streaming world We wait til we collect.

Sorry, we wait till we collect in the Streaming world. I think that for, in all candor for modeling purposes, I think that Streaming revenue ends up having a longer recovery period for our investment, but it's more sustainable over time as compared to just the one-off sale. And what we've seen is, as our music contains certain Streaming levels. Out-of-the-box, it has a tendency to maintain those for longer periods, Aaron. So I don't know how that impacts your models, but I think that as we get more and more scale then Streaming, it will become much more of the dominant revenue stream for our industry in the future.

Great. Aaron, I think we've said before, that this shift from physical to digital actually is a working capital fuss for us. So and even the shift from downloads and the way we collect downloads, and Streaming in the way we collect that, that shift is not going to have a meaning working capital shift from what you've seen our business going through as we move from physical to digital.

[Operator Instructions] .

I guess that's it. Thanks, everyone. We'll will chat with you in August and have a wonderful summer. Bye-bye.

That concludes today's conference. Please disconnect at this time.