Welcome to Warner Music Group's First Quarter Earnings Call for the period ended December 31, 2019. 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, Mr. James Steven, Executive Vice President and Chief Communications Officer. You may begin.

Good morning. Welcome to Warner Music Group's fiscal first quarter ended December 31, 2019, 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; our Executive Vice President and CFO, Eric Levin, will discuss our financial condition and results; and then we 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 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-Q and 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, I'll turn it over to Steve.

Thanks, James. Happy New Year, everyone, and thanks for joining us. My comments today will be briefer than usual since we spoke 2 months ago. Our Q1 results were very strong. We achieved the highest revenue in our 16-year history as a stand-alone company. We're especially pleased with this, considering the tough comparison with our results in the prior year quarter. Specifically, we grew total revenue by 5%, digital revenue by 14% and OIBDA by 10%. Our results reflect the benefit of both our own execution and industry performance. Recorded Music continues to expand in both established and emerging markets. For calendar '19, consumption in the U.S. rose 15%, with streaming up 29%. In the U.K., album equivalent sales grew 7.5%, with streaming up 26%. All indications are that other major territories, particularly in Europe, will show strong performance figures when released over the coming weeks. But as we've said many times, we're not satisfied with merely keeping pace with the industry. We're determined to take advantage of our unique position. We are the planet's only pure-play global music entertainment company. We have the worldwide scale necessary to flourish in the streaming environment. We also have the agility and nimbleness required to capitalize on new opportunities and business models. The combination of our creative expertise and expanding global footprint, innovation mindset and financial discipline makes us very confident about our long-term growth prospects. Above all, our results this quarter are further evidence that our investment in a consistent flow of great music is paying off. Our top sellers reflected new talent, including Lizzo and Tones and I; hip-hop stars, such as Cardi B and Young Thug; legends, like Rod Stewart and Prince; and superstars, including Coldplay and Ed Sheeran, who was named Artist of the Decade by the U.K.'s Official…

Thank you, Steve. Good morning, everyone. Our first quarter results are very healthy, particularly in the context of a very strong prior year quarter. Revenue rose 5% in constant currency and 4% on an as-reported basis. 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 $11 million of onetime expenses related to our financial system upgrade and restructuring and publishing associated with management changes. Q1 adjusted OIBDA rose 10% to $247 million, and adjusted OIBDA margin rose 1.1 percentage points to 19.7% driven by revenue growth and lower variable compensation expense. Variable compensation associated with our long-term incentive plan was a benefit of $2 million compared with an expense of $17 million in the prior year quarter due to the impact of dividends paid. Based on the valuation at quarter end, we expect the cash payout associated with the plan to be in the range of $250 million to $300 million spread mostly over fiscal '20 and fiscal '21. That said, we are in the process of evaluating what impact the Tencent investment in Universal could have on the current valuation and the resulting impacts to variable comp expense and future cash payouts. In Recorded Music, first quarter revenue was up 5%. On a segment basis, digital revenue grew 13% driven by a 19% increase in streaming. Physical revenue declined 19% due to industry trends and timing of releases. Licensing declined 1% due to timing of payments. Artist service and expanded rights revenue grew 14% driven by touring and advertising revenue. Recorded Music adjusted OIBDA rose 12% to $241 million driven by revenue growth and lower variable compensation expense. Adjusted OIBDA margin rose 1.5 percentage points to 22.2%. Q1 Music Publishing…

[Operator Instructions] We do have a question from the line of David Farber from Crédit Suisse.

I have a couple of questions. The way -- the business is obviously performing as you've talked about for a couple of quarters. But I wanted to touch base on just 2 items. The first on what you mentioned in the prepared remarks around Cox and some of the other cable operators. Can you kind of just give us a high-level sense for what the back and forth is around the $1 billion? Sort of just walk us through what's happening there because I think that would be helpful. And then I have a follow-up.

I can...

Yes, go ahead.

Yes. So well, I would say that that's a jury ruling or judgment, which we're very pleased with. We do fully expect the likelihood of an appeal, and that process will move forward. We'll continue to pursue that case and the other ISP cases rigorously. But it could take time to go through the appeals process and the discussions that, that could bring up. So although we're pleased, we do expect a favorable outcome. We'll pursue rigorously. We realize we have to be patient given the judicial process.

Right. But what's the crux of the back and forth? Yes.

Just to elaborate for a minute on Eric's response. The case was really the basis of a disregard for the DMCA and disregarding takedown and policing of their network for people that were pirating our intellectual property as well as Sony's and Universal. And there really is no back and forth. There were repeated requests to police and takedown, which were ignored. And it's similar in the other cases where, as I mentioned, we are determined to preserve the value of music, and we don't believe piracy is okay. I mean, that's really the back and the forth.

Right. I just didn't know if there were particular way that users you felt like were pirating via Cox or some of the other providers.

Using things like BitTorrent, David.

Right. Okay. And then the other one that we get asked from time to time is just the fitness industry and sort of how that's evolving over time in terms of people using music and obviously your content. Do you have any thoughts there? And then I did want to touch upon some of the dot-coms that you mentioned as well. And that's it.

Well, David, what I would say on fitness is fitness is one of a series of emerging opportunities that we think there's, what we'll call, traditional streaming, the services that people use to access the full library of music, which is wonderful. But there's also these emerging digital opportunities. Fitness is one. Various short-form social media forms are another and so on. As digital proliferates with new types of consumer services and products, these represent new growing areas where music will be consumed and areas of potential solid and incremental growth for us to license music. The various fitness services are services we do license our music to. We do monetize the platforms. We're thrilled they utilize our music. We look forward to more types of experimentation in new companies in addition to the big ones that we know of now emerging. And we'll continue to speak with them and license our music. David, did you have a follow-up?

Yes. My follow-up is just you touched upon it briefly, but I want to make sure I understand. On the valuation, so we're understanding, to the extent you think there's going to be, it sounded like somewhere between $250 million and $300 million of outflows over the next 2 years related to the valuation of the business, but just maybe help us with that.

No, that's right. So the long-term incentive plan we have in place has a payout mechanism over the next -- this and the next fiscal year. Our current valuation is in the range that we described in that you just $250 million to $300 million. We also noted that with the Tencent Universal transaction, we will evaluate what impact that has going forward. And that is -- I think that's the summary.

I'll now turn the call back to Steve Cooper for closing remarks.

Okay. Well, this is Eric. Steve may be having a challenge with technology, but we thank everyone for joining the call. We look forward to speaking to everyone next quarter. And we hope everyone has a good rest of the winter, and we will speak to everyone soon. Thank you so much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.