Welcome to Warner Music Group's Fourth Quarter and Fiscal Year-End Earnings Call for the period ended September 30, 2018. 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. [Operator Instructions] Now I would like to turn today's call over to your host, Lori Scherwin, Vice President Investor Relations. You may begin.

Thanks, and good morning, everyone. Welcome to Warner Music Group's Fiscal Fourth Quarter and Year-End September 30, 2018, Conference Call. Both our earnings press release and the Form 10-K we filed this morning are available on our website. Today, our CEO, Steve Cooper will update you on our business performance and strategy; our Executive Vice President and CFO, Eric Levin, will discuss our financial condition and results, and then, we'll 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 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 earnings press release, our Form 10-K 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. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. With that, let me turn it over to Steve.

Thanks, Lori. Good morning, everyone, and thanks for joining us. We've had a great year with revenue exceeding $4 billion for the first time in our 15-year history as a stand-alone company. From this position of strength, we continue to invest in our company's core business, and at the same time, we're expanding the range of services we offer to artists and songwriters. In fiscal '18, we grew total revenue by 9%, digital revenue by 19% and OIBDA by 1%, for which Eric will give you more details. As recently as 3 years ago, streaming represented less than 25% of our Recorded Music revenue. It's remarkable that for fiscal '18, streaming generated over half of our revenue and is now nearly 3x physical. Although from a smaller base, streaming is on a similar growth trajectory in publishing. Our business is thriving around the world, with Recorded Music revenue up 8.5% for the year and publishing up about 12%. Every region grew. The U.S. was up 11%; Latin America, 29%; Asia, 21%; and Europe, 1%. The music industry has emerged as one of the fastest-growing businesses in the global entertainment economy. Just by way of a few examples, Recorded Music trade revenues rose 10% in the U.S. during the first half of the calendar year. In Japan, physical volume was up 10% through September and digital revenue was up 13% through June. And for the first time ever, in Germany and France, which have both been predominantly physical markets, streaming became the largest source of revenue in the first half of calendar '18. We remain very focused on ways to turbocharge the industry's recent growth period. With over 200 million paying customers globally, subscription streaming now has a firm economic foundation. That being said, the 200 million subscribers represent only around…

Thank you, Steve, and good morning, everyone. Our 2018 results were strong. The fact that we ended the year with over $500 million in cash despite significant spend on A&R, marketing, CapEx and paying $925 million in dividends is evidence of the underlying health of our business. Steve talked mostly about the fiscal year, so I will focus my remarks on the fourth quarter. Revenue grew 15% in constant currency and 13% on an as-reported basis. For the quarter, our U.S. business grew 17% and International was up 12%. From an OIBDA perspective, certain adjustments are necessary to make the year-over-year comparisons more meaningful. The details are in our press release but in the quarter, we had $23 million of onetime expenses compared with a $1 million net benefit in the prior year quarter. The expenses in the quarter relate to restructuring costs, our Nashville shared service center move and our LA office consolidation. Adjusting for these factors, OIBDA increased 61% to $95 million. There are several additional items to note in understanding the quarter. First, variable compensation. As you may remember in the prior year's fourth quarter, we had an unusually high expense related to our deferred compensation plan. While we still had expense in this year's Q4, it was much lower, specifically, our variable comp expense was $33 million in the fourth quarter of '18 versus $57 million in the fourth quarter of '17, a difference of $24 million. During the second quarter, we accrued our estimated share of the sound exchange Sirius XM Radio under payment settlement, which benefited OIBDA by $11 million. Offsetting these 2 benefits were 2 additional items. First, we expensed the $7 million higher management fee to access as a result of higher covenant EBITDA; and second, A&R included a $4 million adjustment…

[Operator Instructions] Your first question comes from the line of Aaron Watts with Deutsche Bank.

One quick clarifier question for you, Eric. On the dividend that you're going to roll out in the near future, did I hear it correctly that you have some flexibility around the size of that dividend each quarter, and you can base it on opportunities to use that cash up elsewhere or the ups and downs in the business?

That's right, Aaron, I mean we expect to pay a predictable but modest amount the first 3 fiscal quarters of the year and the variability we'd adjust into the fourth quarter based on projected cash needs for M&A, organic or otherwise. So that's a correct interpretation there.

Okay. Got it. And then, Steve, maybe one for you. And you touched on this a little bit at the beginning of your comments, but how should we think about the growth of streaming or the trajectory of streaming growth going forward. I suppose at some point, we start to hit the law of large numbers, so the growth rate has to slow, but at the same time, you noted that you're only hitting around 3% of the worldwide pop in terms of who's paying for music these days. So is there still enough runway that we can think about streaming growth being in the double digits? Or do we need to temper that expectation?

I think you have to look at it in 2 different ways, Aaron, so let's start with subscribers or monthly active users. I think that, that will continue to grow in a very robust way. And if frankly -- if I could predict that more precisely, I would be not sitting here, I'd be sitting in front of my other crystal ball just watching the money come out of the ATM. In the developed countries, the Western markets, streaming and subscription has a very nice foothold, and we continue to believe there is growth there, but it will -- I believe, because of the adoption just mathematically by way of a rate slow down over time, and I would expect that over the next 5 to 10 years, we see something akin to saturation. In the emerging markets, they're just now being tapped, and I would expect to see very strong subscriber and/or monthly active user growth. That being said, as we move to those markets, the emerging markets, we would expect to see reduced economics just because of the economic status of those countries and the ability of their population to pay. So while we would expect a continued strong trajectory for the metrics around subscription and monthly active users, I think we can expect over time, a more modest trajectory by way of revenue growth and by way of what we referred to as ARPU, Aaron.

Yes. Okay. That's helpful. And then I guess the last question I had. Can you remind us how to think about the tenure of your -- some of your larger streaming distribution deals? And whether those deals are negotiated for specific geographies or globally? How much influence you have on some of the pricing because as you touched on ARPU been a concern? And if you think the next time these deals come up for renewal, should we think about that as an opportunity for Warner to improve the economics for Warner? Or might there be a little bit of pressure on the margin towards Warner when you, again, renegotiate those deals?

Well, I think that all of our deals are different. They -- as I sit here today, our deals include for some X set of geographies and for others, Y. I think that every time we enter into a renegotiation, it's an opportunity to create better, stronger partnerships on both sides of the coin, Aaron, with the understanding that we feel very strongly that music is valuable, and that it's always in the best interest of our artists and songwriters to negotiate deals that recognize that value. At the same time, we know that we have to support, in a thoughtful, well-balanced way, the growth of our streaming partners. That obviously leads to a give-and-take, a push-and-pull on both sides of the table, but through at least current history, we've been able to reach an amicable, thoughtful middle ground. And I expect that to continue.

[Operator Instructions] And we have no further questions at this time. I'll turn the call over to Steve Cooper for closing remarks.

Again, we want to thank everybody for their time and their ongoing interest in the Warner Music Group, and we wish all of you and your families a very healthy, happy, wonderful holiday season. And we'll talk to you in -- it's hard to believe I'm saying this, 2019. The year has gone very, very quickly. So merry, merry holidays, everybody.

And this concludes today's conference call. You may now disconnect.