Good morning, and welcome to Warner Music Group’s fourth quarter earnings call for the period and fiscal year ended September 30, 2022. 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 morning, everyone. Welcome to Warner Music Group’s fiscal fourth quarter and full year earnings conference call. Please note that our earnings press release, earnings snapshot, and the Form 10-Q we filed this morning will be available on our website. On today’s call, we have our CEO, Steve Cooper; and our CFO, Eric Levin, who will take you through our results, and then we will answer your questions. Before our prepared remarks, I’d like to refer you to the second slide of the earnings snapshot to remind you that this communication includes 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 during this conference call and in our earnings snapshot slides, 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 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 to 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 filings with the SEC. And with that, I’ll turn it over to Steve.

Thanks, Kareem. Good morning, everyone, and thanks for joining us. As you may know, I'll be stepping down as CEO in January, so this is my last earnings call. I'll have more to say about our leadership transition later, but let's start by talking about what's happening today. It's no secret that we've been challenged on multiple fronts as we navigated the tumultuous macro environment. This includes financial volatility, rising interest rates, inflation, declines in online advertising spend, and currency headwinds. In addition, we've been navigating the complexities created by the pandemic and dealing with the impact of the war in Ukraine. Despite all these challenges, I'm pleased to say that we've had a very successful quarter. Our total revenue in Q4 was $1.5 billion, representing year-over-year growth of 16%. Adjusted EBITDA also increased 16% to $276 million, with a margin of 18.4% compared to 17.2% in the prior year quarter. These results were driven by growth across all revenue lines, as well as the benefit from settling certain copyright infringement cases, as we discussed on our last earnings call. Recorded music revenue was $1.24 billion, an increase of 13%. Streaming revenue grew 10.4% when adjusted for the one-time impact of the DSP renewal we've been discussing since Q1. I'd like to remind everyone that Q4 was the final quarter impacted by this renewal. Q4’s uptick in subscription streaming growth, and the benefit from emerging streaming platform deal renewals, more than offset the decline in ad-supported revenue. Artist services continued to recover in Q4, increasing by 33%, while licensing and physical were up by 38% and 6%, respectively. Publishing had another impressive quarter, with revenue of $254 million, reflecting exceptional growth of 32% plus. Digital and performance revenue stood out, growing 39% and 48%, respectively. As I look back on…

Thank you, Steve, and good morning, everyone. Against a backdrop of currency fluctuations, the weak ad market, inflation, and war, our 2022 results truly highlight the resilience and diversified nature of our business. Despite the many macro challenges, we delivered double-digit growth for Q4 and the full year across a number of key metrics, including, total revenue on a constant currency basis, adjusted OIBDA, and operating cash flow, which, as Steve mentioned, exceeded our full year expectations. Let me provide some detail on our results in Q4. Total revenue grew 16%, reflecting growth across recorded music and music publishing. I want to note that our revenue includes the benefit from settling certain copyright infringement cases, as we discussed on our last earnings call. The $38 million impact is reflected in downloads and other digital revenue. Adjusted OIBDA increased 32.5%, with a margin of 17.7%, compared to 15.5% in the prior year quarter. These increases were primarily due to strong operating performance, as well as $29 million from the copyright settlement. Adjusted OIBDA and margin growth were impacted by foreign exchange rates, as well as two one-time items. These were the copyright settlement I just mentioned, and the impact of a DSP renewal we've been discussing since our earnings call since Q1. Excluding these items, constant currency adjusted OIBDA grew 33%, and margin would have increased 200 basis points. Adjusted EBITDA increased 16.5%, with margins increasing from 17.2% to 18.4%. You can find our adjusted EBITDA reconciliation in our earnings press release. Recorded music revenue grew 13.1%. Streaming revenue increased 5%, reflecting continued growth in subscription streaming, and a recent deal with Meta, partially offset by the market-related slowdown in ad-supported revenue, and the impact of the DSP renewal. Adjusting for the DSP renewal, which had a $38 million impact in…

[Operator Instructions] Our first question comes from the line of Benjamin Swinburne with Morgan Stanley. Your line is no open.

Thank you. Good morning. A couple of questions. Maybe just to start with, Steve, stepping back, you've been there and watched the industry go from declining to growing during your tenure as CEO. When you step back and think about your time at Warner Music, what's been the biggest change for the industry, the company, the one you think will have the biggest impact as we all look forward over the next five to 10 years?

Well, thanks for the question, Ben. Happy Thanksgiving. I think the easy answer is streaming, but at least what I believe at Warner, it's really been for us a shift in our mindset, and that shift has been driven by our evolution from an Anglo-American music company to a global music entertainment platform, from thinking about our business in terms of rigid formats, to really moving to offering fans access to unlimited, ubiquitous music in every way, shape, and form in the real land and the virtual worlds. We moved from a narrow set of artists deals to expanding our definitions of artists and partnerships and offering much broader suites of services. And the mind shift has really been built on a foundation of running Warner as one company and one team with a common set of goals. And I think that, at least for us, that as the ecosystem becomes more and more complex, that by having that mind shift, and by working as one team, that that connected tissue that we provide between artists and fans, and what we do to move the value of music to its appropriate place, will just become more and more apparent as time goes by. And I'm happy to say that with my colleagues, I played a part in creating that mind shift, and I'm very confident that we will continue to embrace, adapt and adopt, adapt and adopt, as the world of music continues to evolve.

Thank you, Steven. All the best in the next chapter for you. Eric, could you just help us think about the emerging streaming opportunity in fiscal ‘23? Obviously, you're always at work trying to get music valued appropriately, but I think it's potentially a busy year for you in terms of contract renewals. And in particular, given what's happening with YouTube and ad-supported streaming, TikTok is one of kind of paramount import for your business because they seem to be taking share from YouTube and others. So, could you just help frame sort of the year ahead on the emerging streaming front of what we should be focused on, on our end?

Sure. So, thanks, Ben, and nice hearing from you. So, again, don't want to get into specific deals, but broadly the category. So, you're right, Ben. So, in fiscal ‘21, we had a series of deals that we did or renewed. And generally, we do deals in two to three-year cycles. So, ‘23, we would expect to be the start of that process. Broadly, that category consists of more and more licenses, with growing consumption. We see that category as a growing category for the long, long term to come. Each deal and each contract will be negotiated individually. Some of the companies within that category have been highly successful and scaled, and others have had more challenges. So, each deal will meet where that partner is, but it’s our objective deal by deal to get the full and appropriate value of music, and we'll be negotiating for each deal assertively to make sure each deal is valued properly. The other thing to note is that these deals, as we've talked about in the past, are generally fixed-fee deals. It’s our objective over time to move these deals to or towards being variable. We know that's not going to all happen in one renegotiation across the board, but we'll be working towards that end. And obviously, as deals move variable, the growth curve would be smoother and in line with monetization and consumption growth, whereas with fixed--fee deals, it's more of a stair step and you try to capture the expected growth in the platform within a fixed-fee over that period of time. So, we'll be working each negotiation and seeing what we can accomplish there. And the last thing I would say is Web3. Web3 is an emerging category that we're actively driving in market experiments. Steve talked about the experiment we're doing in the Sandbox now with others in flight. We see that as an area that over time is quite promising, and we think is going to be a contributor to the long-term growth of our new digital revenue. Hope that helps, Ben.

Yes, absolutely. Thanks, everybody.

Thank you. Our next question comes from the line of Jason Bazinet with Citi. Your line is now open.

I just had one quick question regarding your calendar year, or your reporting schedule for next year, because I think you guys are shifting from that sort of 53-week that happens every four years, to something more normalized. So, can you just help us as we think about modeling ‘23 and beyond, where we'll see sort of the greatest distortion? Is it in the fourth quarter of next year? Is that the right answer, and then everything gets smooth after that?

Jason, thank you. Good - I'm glad you hit on that. Good question. It's an important one. So, yes, we've now shifted to calendar quarters. And so, we'll see the main real impact in fiscal Q1 of ‘23. We disclosed that in fiscal Q1 of ‘22, we had kind of that extra week. As there's a 53rd week, you get an extra week in one quarter. That was in Q1 of ’22. So, that will be a comparative item in Q1. But the rest of - for the following quarters in Q - I'm sorry, in fiscal ‘23, we'll expect a consistent year and year comparison with the same number of weeks. But in Q1, we will have that to address, and we disclosed that last year, and we'll continue to make sure we're careful about that when we report Q1 results.

Okay, thank you very much.

Thank you. Our next question comes from the line of Kutgun Maral with RBC Capital Markets. Your line is now open.

Good morning, and thanks for taking the questions. Two, if I could. So, first, Steve, congratulations again on a long and successful run at WMG. If I could follow up on the question earlier and maybe ask it a bit differently. As you reflect back on the last two and a half years following the IPO, are there any parts of the story that you feel remain misunderstood, or at least underappreciated by investors? And second, for Eric, on recorded music streaming revenue, the 10.4% underlying growth was particularly strong, and it certainly seems to be ahead of your peers. I'm not expecting multiyear guidance, and I know the ad-supported piece remains uncertain, but can you help frame the puts and takes for 2023 a bit, and maybe update us on your longer-term expectations, specifically around the subscription front? You had very attractive low teens growth in the fourth quarter. Is that a good benchmark heading into ‘23? Could it be higher given Apple Music, or are there offsets we should be mindful of? Thanks.

All right. So, Eric, I'll go first, and thanks for the question. I do think that our business is to a certain degree, misunderstood, and it's misunderstood in the following context. When you look at the results we produce over the longer term, call it for argument’s sake, a year, versus the shorter term, our march for the last, I don't know, nine or 10 years, has been steadily northward bound, both by way of the topline and by way of the bottom line. And my expectation would be that that steady march North will continue for the foreseeable future. That being said, I think that many investors evaluate us on a quarter to quarter to quarter basis. And as I believe many of our investors have seen, that quarters can be impacted by any number of extraneous items. But as those extraneous items, whether it be shifts and release schedules, getting a deal done a quarter late versus a quarter early, what we have done, both by bolstering our investments in recorded music, by bolstering our investments in publishing and with publishing now having lagged by way of the growth of digital revenue, is now leading by way of that growth through the focus that we've put on diversification over the last four or five or six years. Diversification, both geographically, that is local language, with emerging platforms, emerging markets, that I think that all of these quarter-to-quarter blips have a tendency to be ironed out over an extended period of time. Again, call it a year, and that the really observant investors will see that despite those blips, that year-to-year, year-to-year, year-to-year, that march North continues. And it's continued this year despite choppiness in a couple of quarters. So, I think it's - valuing us or evaluating us as a quarterly business, is somewhat misguided. And I think evaluating us on an annual basis or a rolling 12-month basis is, at least from my perspective, a far better way of looking at how we are doing, the health of our company, and the trends we're setting. So, hopefully, that answers your question.

Good. I fully agree with Steve on that. So, Kutgun, thank you for both your questions. I'll answer your second one on streaming. So, let me break that into two pieces, kind of 2022 and then forward-looking. So, in 2022, on an adjusted basis, meaning looking at the underlying trends of streaming, Q4 grew 10% and the full year grew 13%. Very strong streaming results in a challenging macro market. In Q4, we saw subscription streaming grow low teens, a very strong result. Ad-supported though is significantly affected by the macro environment. Ad-supported declined and declined in the high single digits this quarter. As we look forward, we think there's a lot to be really quite positive and optimistic about. I will point towards Goldman's Music in the Air forecast, just because it gives an interesting and we think useful template to look at. They see subscribers doubling, or quite frankly, more than doubling over the next seven to eight years. It's driven by a couple of components, and each of the components I'll try and address and paint what we think is the picture. Developed markets, which are round, which are penetrated in the 30% now, we've seen market studies and forecasts that predict that increasing to 50s or even 60% penetrations as you look forward five, six, seven years. We think we are seeing consistent growth in developed markets today, and we think there's a lot of runway to be looking forward to. What is now really additive to that is, we've seen price increases just in the past quarter from Apple, Deezer. Others have talked publicly about considering price increases. We think the environment for price increases has changed, and we are optimistic about continued pricing increases going forward, and that is additive, especially in developed markets.…

Thank you. Our next question comes from the line of Stephen Laszczyk with Goldman Sachs. Your line is now open.

Thank you. Good morning. Steve, congratulations on your retirement from Warner. Maybe two questions if I could. First, on market share, you had some notable releases, album releases in the back half of the fiscal year. Could you maybe talk a little bit more about how those impacted market share in the quarter? And then looking forward, how the release slate is shaping up relative to other major labels as we head into 2030. And then a follow up to Ben’s question on emerging, maybe for Eric. The labels are in the process of negotiating with ByteDance owners and looking to expand its regular service. It'd be great to get your latest thoughts on the opportunity you see to improve monetization of ByteDance at a holistic level, whether that's on the TikTok side of the house or with the expansion of ByteDance itself. Thank you.

Okay. So, while I can’t talk about our release slate in specifics, we did touch upon those albums that we know have either dropped or will drop in the first quarter. But what I will say is that our diversification, our geographic diversification, and our focus over the last decade in growing, not only our Anglo, but our non-Anglo business, has provided us with a tremendous amount of what I would call release resiliency, that we have local, regional, and global superstars bubbling up from many, many, many different parts of the world. And because of - because we've created both a geographic, read domestic music, local language portfolio, along with our Anglo portfolio, Stephen, it gives us a tremendous amount of resiliency by way of quarter in, quarter out, year in, year out momentum, where we have become less and less dependent upon any particular artist, and less and less dependent upon blockbusters, because this portfolio is consistently hitting singles, doubles, triples, and home runs. So, that's kind of on the slate point. On market share, market share moves around a bit, often driven by the strength or more strength or less strength in release schedules. One of the things I would point out though is that while there are various reports on share moving to labels or artists that aren't affiliated with Warner or Sony or Universal, the fact of the matter is, when you continue to look at listening and the listening behavior of people that immerse their selves in music, that we continue to be one of the truly dominant global forces in music when it comes both to share, and as importantly, to hours of listening. So, while you will see small movements, the fact that listening continues to be dominated by Warner, Sony, and Universal, shows, in my view, the fact that - and I mentioned this in my opening remarks, that while access and distribution has become democratized, talent isn't and never will be. Frankly, if talent was democratized, I'd be celebrating my entry into the NBA Hall of Fame. And the fact of the matter is that we seek out real genuine talent, that complemented and supplemented by our resources, our creativity, our skills, create a very meaningful probability that that artist, whether it be on a local, regional, or global level, will be able to be successful. And it's those artists at the local, regional, and global level that are driven by only a few companies in the world, one of which is us, that end up dominating listening hours and the ears of the music-consuming public. Hopefully, that addresses your question, Steven.

And I'll take the second question. So, on your question on ByteDance, Stephen, so just I'll start by couching a little bit, just that we don't talk to individual deals, but I can certainly talk to our approach, which I think will be helpful. First is, we work with each partner, each platform. And one of our first goals is to help them - and determine how we can work together to help them expand their products, their services, their reach that's positive to consumption, it's positive to competition, all of which we are - we think are favorable to the music industry and Warner. The second piece is, we take each negotiation and we look at the established growth trends and the projected growth trends of that platform and business, and we negotiate each deal to get what we think is full value for music out of that platform. As platforms evolve and there's more information about how they've achieved over the past several years and more clarity into their product and expansion plans for the go-forward term, we will build all of that into our negotiation and attempt to get the best economics that we can out of that deal. Obviously, as I said before, we also seek to move our emerging streaming deals from fixed to variable deals as best as we can. That requires they have the systems. That requires that we're able to resolve the negotiation in a favorable variable form. But these are all things that come into the equation and we work hard to make sure each deal for every single partner is right-sized and structured to help them succeed, to fully value music, and continue to build and expand our partnership. Hope that helps, Stephen.

Got it. Thank you very much.

Thank you. Our last question comes from the line of Vijay Jayant with Evercore ISI. Your line is no open.

Thanks. This is Ashton for Vijay. I just had a quick question on some of these DSP price increases. Is there sort of any dynamics with the price increases in sort of changes in payment terms versus what you were getting before the price increase? Or is that a negotiation that comes up when DSPs increased price?

Ashton, I think - sorry, it was a little faded, but I think your question is about price increases and how that affects our economics, if I have that right. And so, what we have said and will continue to remind folks is that our - certainly our major DSP partners are generally all on similar economic terms in a very tight band, and are generally variable deals. So, as price increases roll through the market, we generally expect to share in the upside that that generates. So, as the average ARPU per consumer increases, that's positive and favorable for our economics. What I would say is that each affiliate is a complex mix of how they generate their revenue. They operate across both developed and emerging markets. Subscribers are growing in both developed and emerging markets. Each affiliate has a different mix for what their growth is, the different percentage from developed and emerging markets. ARPUs are different in developed markets and lower in emerging markets. But price increases obviously raise the whole boat and are favorable for us and the industry. And we're thrilled to see that price increases are starting to roll through. It's something we've been advocating for years and years, and it's really nice to see that distributors are starting to recognize that as well. Thank you, Ashton.

Thank you. This concludes the question-and-answer session. I would now like to hand the conference back over to Steve Cooper for closing remarks.

Thank you. Just a couple last points. I want to thank my Warner colleagues, our artists, songwriters, partners, board of directors, and shareholders, for allowing me to lead the company over the last 11 years. It's honestly been just an enormous amount of fun, incredibly interesting, and one of the greatest experiences of my working life, and I'm really honored to have been a small part of the incredible Warner Music Group journey. Number two, thanks again for joining us today, and I hope that everyone has a very happy Thanksgiving, and a wonderful holiday season. So, goodbye for now.

This concludes today’s conference call. Thank you for participating. You may now disconnect.