Warner Music (WMG) 23 Nov 202020 Q4 Earnings call transcript

Good morning and welcome to the Warner Music Group’s Fourth Quarter Earnings Call for the Period and Fiscal Year ended September 30, 2020. 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.

everyone. morning, Good Music earnings Warner fourth and quarter Welcome call. Group’s year-end conference XXXX to fiscal Both release website. earnings morning our press are filed XX-K available this we on our and the Form Steve On we President CFO, we our Levin, today's Eric will through our will you and have CEO, and take call who results Executive Cooper our take Vice and then questions. your

events reflect Music let this forward-looking made communication update statements any future that that Group All me Warner includes duty of you the financial remind comments, views statements Steve’s as Before and current performance. of to and about we statements. forward-looking are such today, disclaim

are believe expectations, reasonable basis and projections faith, good them. there expressed Our is we and for beliefs in

our during expectations, those be statements variety result actual in that expectations. beliefs and SEC plan can differ factors there to are and certain from However, our statements and projections other contained materially achieved. is from Form on can Form differ forward-looking forward-looking earnings should results call. that XX-K management’s or not because rely they risks, uncertainties a subject cause be no of to could that results in to Investors will to results We XX-Q, Information non-GAAP other cause release, the this materially our actual conference filings. concerning press present factors assurance

I’ll note over website. today please to And in Steve. results discussed that, turn our in presented currency, Also, release all and results on GAAP to reconciling otherwise our constant have these our schedules it noted. be We provided earnings press revenue with will posted unless comparisons that figures

today. so Thanks, much Kareem. thanks everyone Good for joining us morning, and

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Thank you, morning Steve, and good everyone.

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quarter. our those X% constant year revenue basis on grew streams, and basis compared reported revenue a you prior currency to XX% an exclude as If on the

the about was on For a our constant total as and basis. flat both full-year reported revenue currency

by full-year. quarter due adjusted contribution lower EBITDA with improving management In active margins an from XX% revenue, in expense that and adjusted $XXX realize performance expanded-rights This grew saw in forma our in compared from pro both to compensation XX.X%. we artist the million constant and X% approximately largely the growth a prior XX.X% $XXX impacts revenue streaming performance, in streams currency forma on The from from cost increase same basis fourth variable XX.X% to was from year. OIBDA and and a the XX% Excluding to higher revenue driven OIBDA initiatives QX, OIBDA both as reported Adjusted We certain transformation drove adjusted initiatives. to adjusted and improvement significant and million to to increased savings XX.X%. improving increased our addition pro of with that increase quarter. to expect margin our EBITDA the closed transactions higher margins in and was to factors services

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had cash our XX, due net conjunction secured two in cash $XXX notes September of X% music on As cash financing a and billion. X, this of we aggregate for a million. of million proceeds approximately we fund music million million of to balance tack the $X.X and $XXX of on The to of approximately senior consideration $XX used On related debt hand November were completed with acquisitions XXXX. assets of $XXX

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impacted COVID. areas certain by However, will be

release While to complicated ‘XX. there has said, created. back The new our our schedule through expect of without steady be music, growth it will continue lumpiness flow release and challenges to have always COVID situation schedule. objective we have weighted. be the strong to Even in recording is our a That half great COVID has the with streaming been logistical would

changes our today. So represents for XX% material which expectations streaming, revenue there of no about to our are total

expect on year. the back albums some We slippage blockbuster to our of the half

and should XX% and by well look impacted half starting forward overall, economies Physical in remain TV what bounce where you of pandemic to The expanded-rights XXXX, will permits our platforms is questions. XX% of has show see and it just expect production to We thank some We drive to open that public also but data September, as and film and in for of due through be now challenged continued in filming activity as latest our it's in film see fiscal midst business. is half should October places the joining call a delays. all grew to first touches that of under continuing back, to the ‘XX lives. versus In since re-imagine return We LA equity decline. for the that expect concerts the music reopen, the second from call weighted global and revenue normal. as performance today we'll we services our our to revenue, we but markets artist bars recover, to us

from question Our Stanley. [Operator Morgan Ben Swinburne Instructions] comes first with

Hey, granted and But, based good industry. Eric been driving seven morning has price guys. and about upward agree and offsetting talking One for Steve, pricing you've points for streaming, discounting to Steve talked up it's don't about what I'm markets. would Spotify on sort in prices looks see a you this, we're move prices share one for for please. of only like subscription starting years the to start that, the sure and that competitors key with is trend it

for on are Spotify's So have prices? any someone thoughts on And while raising obviously a I'm you quarter. implications bunch wondering, what of for a acquisitions the who's do Eric, in ask this as what competitive to start decision focused your the And as been completed I'll the expectations of a as broader guys industry you just set may then do its reaction? Eric,

and a if based the of modest color Thanks. more us what guys on you give acquired? I just impact. but there what's was substantial X-K, going little I bit on wonder revenue you EBITDA on impact, there think a could a

hey Ben. and Good holidays. Okay, morning, happy

Good morning.

and countries is bound be a news of by they're more the least of well that all, to to beginning think at that testing is going received first was news us. do this Spotify take pricing seriously So, number upward in we good

tier, these is players exercising to you offer strength prices I think number as Amazon there. see when ability and raise sure the grows it continue more that we as services subscription likely the more they that across raised a of their added that to verticals, and their high prices. def I'm know, substantial

They we'll subscribers I other and the the massive from And the on pure given to play, years created this during also think at have have any essentially playlists. look along. don't I opportunity to has other begin their routines catch Spotify see said obviously to eyeballs. their an Spotify up value services. follow is services, the market a as value of to with They of as the of we shift that ultimately the the test Spotify. IPO,

to I think that start follow. hopeful successful start. am be it give is services this a other very this and the opportunity will will a I I believe the

Great. and everyone. question second And the let by take Happy way, your me Ben, Thanksgiving,

were deals forward rights. domestic both On we publishing combination music music, the quarter recorded two catalog of this that a and and closed go

it X think or ones of of of I EBITDA bringing XX, assets us up and the assets revenue even is allows consolidate is part weighted of these in impact those your position less. a and of in though by were significant question these that partial a some so are assets, the to those had upside having where the we rights many we revenue

thank Thanks. you both. see, I

you, Ben. Yes. Thank

Our next Sachs. question Heath Goldman comes from with Terry

could streaming would little thanks. those, when the to? How licensing bit could you most the framework I spend song of of revenue consuming does sort you think earlier, models? of to the along a wise that you TikTok. way you it its on if nature, where point? music where I or either on category as the sort them X perhaps years we you we is so -- media of at in about areas, terms par you as there And some sense of on then, ago, that social completely sort us, would of of aggregate, way when that potentially the even there see put look think some or it's better in say, make a you it potential that it matures? new do the would terms more we opportunity mean, models like falling is just streaming about something particularly us compare least it where Great, at us number passive look monetization is, the people and have touched there Twitch of versus it just of choice maturity anything on And for it things the you a as sort spectrum that some users would time it at with of in your to if quantify see those, new, of in for consumed your wondering more opportunities give terms of hours this at was for tend

take Steve, do me want you that Steve? to

and Sure, if go ahead, anything then chime there's I'll in Eric I could add.

Fantastic.

So, Heath, really interesting question.

within that access First, fitness the it very first and way really be licensing full more even social of like question services with these is a much much accessing more situation. and like new a licenses, these full really obviously is catalog way we social updated array portfolio streaming of that streaming. a type streaming. Really, with the or to content case-by-case different. like -- and Whereas are more service, is licensing. or generally think can is constantly catalog plus really does like being I look is it of cases or think the But whether music music The it it's of service, vast more is new more like selected, look I use streaming it's by more the think a

a versus exactly role how basis with general, we can case-by-case Addressable What it monetizing, but to Market, that would evolve then it in structure it of the at relative business players. you is try you as is thing if evaluated value those the linear and negotiated to relatively services, penetration Quantifying look to market have with streaming and can makes TAM the streaming to is music clarifies a models exactly is. and could and different this streaming the is they're I with you to that do quantify these services, because social and way, the different is straightforward music addressable fitness simplification. little on challenging reflects the Total its for very it Smartphones, It monetization given first and a appropriate live the deal case and start overall assess track content the the the each be do what is Now, much directionally. is say in all gaming harder see and

home. to going many it's you can one used as other per social many One use fitness and person and individual a Instagram competition and get -- an Peloton they likely within may and With may have home, or TikTok in and or sister as have use to Facebook have homes home brother their you another. You're monetized can. and monetize, services, may and a

your really launching new in increase each that think say businesses, becomes these that these, which and years that, really when growing What multiple already our that can about revenue each we services $XX So use Market potential. from Addressable is and and already three continue business, billion Total enormous gaming to rapidly, $XXX ago, were is services growing is extremely million is fast. of fitness home all that music the time a billion business and streams $XXX nascent, $XX annually billion, billion now to and $XX we

early I just magnified the I there grow days and think, if its streaming, were would of I people I we rate growth was as discovering when of business very So what this -- the was we for would very, think be and portion say its growth But streaming, of with the and addressable see time fact this this accelerated market some that I very just, total it, we its by a do to services be in think to multiple because equating way per meaningful. a can't we quite could numbers better home. large numbers utilized is is apologize, ability it to high

at the are the When a increases this audiences our tremendous just where look we fellow not to game perspective, TikTok. of dares, at of utilization that And to a would creators. I trying we're times, And of supplement vice just our ability users that these the of track that produced you of the from for music, because music it from the particularly and are their continuing service, and a Heath, perspective utilizing the the the the creators utilization, at users, a way see effect viral. the audience safe them least TikTok viral has social with these with versa. and it's by way go all platform thought, not future. are creators contests, creators utilization service, these the it's And for multiplier foreseeable goes

thank you Great, both.

Thanks, Heath.

from comes Brian Credit next Our question with Suisse. Russo

Hi, the Steve for thanks two and questions. one publishing for business, got on then Eric. for taking I've the

purchase. and about you And Steve, for given of relationship Warner Taylor and sort catalog significant the of ensure of a could That's you how Swift artists? a friction IP, the one. recently just maintains Chappell you hoping positive between owners her that So the made was talk I around headlines her all with the

question The a capital is is, put work up being of publishing seeing catalogs. we're to buying lot that on second clearly

pace. EBITDA little a revenue it catalog, of rising So even maybe expecting bit what climate your right the last Warner a along more about and such to healthy grow total is roughly the or valuations? can you you right generate to make when improve next same that then year, Street talk to growth adjusted Eric, with attractive for And could bring now you the and less an value current acquisition, can returns in

Thanks. do you might So your that around EBITDA same a us the prevent is, adjusted next EBITDA that for from any growing as expectation Maybe you the for year? adjusted could revenue factors question pace reasonable is swing highlight think?

Brian for questions. the thanks, Okay,

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back and ongoing are the Shamrock, look and types Taylor of Swift, forth Taylor the at avoid. we and between look we situations Braun, when -- those to that Taylor we're and So

we we that administrate we're business the not platform but an a reasons amplify the organization Brian. and that success in a and reasons copyrights, of platform these transactions, that the their can of only that one One publishing do is have can that

a have -- full we We are service shop.

do a What organizations X,XX rights our with see me proactive innovative them XX investments, we is our we we for, are is into coming those we acquired, go their not on lyrics. artists in next of copyrights efforts. how looking arbitrage copyrights more organizations. sounds, like And, to to work trying these those where songwriting results by to new play, investment to to more it doing product, being opposed artists investments the to years. songs once and sit as optimize can to we these vault or to we go success to tunes that market camps, work and the with we fixed the looks So inviting with everything other to writers And create to into work capital new go syncs, that and substantial know income are a put work, we and these for work proactively it's match momentum ensure the business are artists we're frankly, writing in against letting

business. looking a Brian. So arbitrage not an operators our work different We're to with that We're on house, investment fixed investments. we're income artists that's in

sense. Makes

take growth. I'll question And on the ‘XX

guidance. give don't we know, you as Brian, So

but a generally, clearly as I'll So I'll answer try can. answer as I perhaps little and

manage growth growth. in So strong our first and manage business for business. drive to foremost, We our we

artist the be believe of for growth for parts really resuming business, metrics is don't that related QX we we're X%. Chappell touring are the in those still specifically, was performance opportunities he available in The performance immediately despite impacts on areas of publishing on revenues grew areas by to growth, showing them. and touring, capitalize affected sure are and year. and the the to as those that getting of the related those We strong are QX And could affected really on services, very next are with One, focus of COVID poised excluding COVID underlying and discussed there strong growth year the out revenue growth. Warner going to to we alone. next COVID areas artist driving growth what's in control services to call that make opportunities subside One of happen to when that

You saw ad supported streaming improve.

You saw physical of improve revenue and early signs sync we saw improving.

So these start ‘XX, opportunities to we're capitalize areas revenue when revenue improve. of already on those and we of seeing signs opportunities will of key improvement in regardless in

that continue limited market. resources COVID, driving it streams making drive to in and in bottom-line certain areas managing managing putting on we when there on drive best revenue -- in we areas and focused bottom-line very growth in just were Continuing did results where And like the were focused ‘XX. focusing other on impact do to our spend also can they'll growth, we're bottom-line the sure place by very it in drive were that actively. where are by into expect the where growing we costs, well, to the ‘XX, that at can, and performance We

In cost our initiatives, start in online addition to expanding ‘XX that, Brian. we over fiscal obviously have Thanks, will roll containment which time. to

thanks guys. Understood,

next with LightShed Greenfield question Partners. Rich comes from Our

of Hi, many others thanks was in dollars And Warner industry YouTube been can can roadmap there's many with for looking of And the for with if taking as Or seen the what revenue? the video give accomplished -- happens a time? at the a years out how notices. do in for be you a the Twitch over this I space, game surrounding going We've music and question. talk think us on lot takedown lot of what's ways of play game feels in what significant video How industry, it ago. well? the more could obviously but space? sort wondering does the broadly you

and So, add Eric, anything you you in I then want. can why don't start

ways is music or people on, obviously, you be when that which think believe One this I should licensed. actually touched utilizing are are So our at two we're the point that we is, looking there Rich. anyone music, else's

of this were much or you're looks So respects, they we But XX YouTube. than many organized better early in are world ago. gaming the years XX and the right, like not days

is broad will industry based and support the about be be the it licensing So, narrow, Twitch upon on use the it that music and will to is, conditions fact be of and use will terms cases cases. the those license growth use talking obviously the that matter cases of the support

So that's one avenue.

avenue with being partnering The as we productive, as more gaming are or second that companies. see

the real worlds of entertainment, beachfront sort right of Music artists are games, inside Warner Warner our opportunity or the immersive to are to concerts virtual sell holding Music sell events. It's creating, people to artists those speak, where bringing for for sort opportunity an an within on. create they're with opportunity that the Canvas artists goods. to goods. an inside it's And properties, has paint other arena are to to our It's So we of conjunction are a world providing avatars, broader

that. to at to So we you may want artists are for as Music in ahead. our and Warner Eric, looking multidimensional this, we're add opportunity years gaming looking a for the

start a Roblox love see of what Stephen, will the get look part two, answer. you're into dig before will on start we Roblox, talking as flavor just But, of just public, some we people you at going you to move I’d When to about?

crossed gaming continue and speak fingers in these attract the games expand Rich. players and these offerings and to you to hold games at their have will, because Well, to so to to worlds universe their that continue their

static. gamers to and like is we and opportunity bring that stay world's good would our their game, millions they absent them just into like be them some music can't to artists. the an which with these type the because people some stay Warner And upon of attract events flavor greatest of gives and good Music the artists events, partnering of us main static, music, millions for can't greatest world's for without of they add So

answer our the value we you in create in for game we artists. is and of the way participating create Music. the participation to So expect game, Warner We should create for future a companies yes, more and value the the in that world see for value gaming for

that stream so recently just that, of working agree is that's this event on our And on Ava more everything more and we're fully. to a had a platform button just already live with work, robust vital Steve said a Max put area at and Roblox, one artists, actively with

it. answer. both the you Thank I detailed appreciate for

Thanks, Rich.

question comes next from Jessica BOA Securities. Reif Our Ehrlich with

good morning. have you, right, All I different three thank questions.

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the and the the of global Thanks take in the So couple Eric, I'll between. your can questions, for you take kind and marketing Jessica.

that universal our is Our to the every to the we've planet be said historically, language and the ambition be ambition in only planet. language on music music is able speaking is, on

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views. we have So

that a I'll turn your We tool to now. Jessica it but with Eric hopefully seen are Spotify it turn to over and to experimenting And answered over that, with how question be. I'll it the that remains will Marquee, be and valuable --

music locally. market. language, it often [indiscernible] markets, world say, advantage for and happens be margin candy, does And similar that hit general, it when couple our asking goes and piece business scale home And I or every and is local are would local is less and virtually is are really versus can there of in amount reap every in do release International its called marketing a artist One, country sure There's the about our globally, dominantly a of think there it thing we - each break local local locally to it in the music. about business, needs other then post try piece Anglo the this take that business, different. I'll domestic are globally market that pie. margins. you're I their in One of kind very on businesses of music more, the can be Anglo it where although music producing and business, goes goes quickly. each repertoire we of make the marketing, when initial we're and everything and music, different to the benefits of that marketing marketed significant do whereas overseas, and we marketing, There always countries global, [indiscernible] music to around local

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be impact. promotion, than have For us Group bottom-line to margin financially, businesses within and affects our obviously services. specifically, Those we businesses. revenue larger and concert there's Warner -- merch artist Those a lower have Music tend tour how businesses it

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you. Thank

Truist Matthew last question with Thornton our And Instructions] [Operator from Securities. comes

taking live or live good this to if rise Steve could. I'm two given think Thanks Eric, Hi, I'm here your business, and the as accelerate, there reach points re-accelerate on opportunity two here and when hear to just second, And Maybe here DSPs your of to question. you're clarification. back as if curious then you for everybody. the relates Steve, publishing I it during point an come live we merchandising for out maybe COVID, coming just your of to there. thoughts a to thoughts the morning, for touring opportunity given into performance is clarifications leaning streaming how COVID of latest then one at really your to the Eric, of the music side? curious for

by lines but First, includes the COVID, that's impacted I still think growth talked revenue X% you not advertisers. about in

line it. adjusted ‘XX we sure to just that to process. Thanks, I otherwise assume you're of fiscal got guys. results. it and looking little correctly. what ways appreciate and we So IPO the that view it OIBDA, largely maybe like I paraphrase a I sure advertising more kind there, to articulated for I'm go all out like consistent. of a it's then your still but we commentary curious, just want in on you make adjusted have It do revenue heard that is fully second that or coming your largely in sounds recovered means EBITDA, with some right, sounds of weighted, make half kind Guys

in we couple so to see be ways. of just Great, crystal clear a live Matt,

people's habits. First begun there's months a continuing number the changed of probability has last a reasonable and of X, all, has X, we this very think and X COVID that assault

live is the in so about Because concerts, be streaming, live concerts, forth. VR the at talk going for foreseeable that so think way to for live home. own or vaccines, to successful point new about to sort least, invest believe is. distribution VR is live be, in concerts, difficult ongoing to at entertainment of se, to going on personal any streaming, at to time, thinking based of and return yourself how live there into When will thinking market are going some change view the the packing people per My that be there's it these comes potential upon stadiums determine there success and support are of touring arenas. of not with but to only is we touring, to is this of live talk we going we to even the when and and our So the habits, for marketplace very about the continue announcement continue the for be an vaccines, future. that intent And we

XXXX, ‘XX, it's there's But that there think we to what the the XXXX, know. not used our to our what is them it to plays I'm support concern changing, are are whether a for But old I and out, in trends, that know, intent to XXXX. all about and going much How people's different I the I going normal, our it's the is whichever returning differed that smart or society later mass is I identify all how to as believe is way habits the think know and look out. to this in whether that to music normal of do and ensure some normal enough we highly summer, to ‘XX, these were with uncertain. this than do do artists, wind it's is new new I blows, play

good last They're me to and let we them. and sure take things moment questions, you tackle just a make thank Matthews Great, clarify. two so for

on if meant X%, revenue that are music the the was just publishing, that X%, that on COVID, still double-digit close affected that's is areas excluding rest COVID. them still X% you're affected materially of services, two growth represent artist performance most math. business by numbers But be the out to right. QX of to showing QX, the that point, recorded and and we in you In In So growth. which revenue are that to your clarify were music, by growth, areas pull quoted,

still So in then think is licensing there. and

Chappell once As think TV we what we it to and a our said it opportunities, expect of we licensing pre-COVID significant a remarks, we production XX% think only has half first Warner is fraction sync second what up still come in in of the and 'XX. to prepared fiscal COVID, and opportunity half be in was was of of so in in out rebound 'XX the of down film was

piece underlying you a second in So wanted if we'll growing, you there's significant to business areas right. 'XX the upside, two within how covered are year. could the towards impacted but then the give still the see right, you're the algebraic of we But was X%. so ups. of That second simple the half pull call out areas the just much it is the weighting was And most there's on metric

that the internal we expectations streams, our our is Matt. schedule, it of business that Thank which at that our of are revenue of for. based targeting that timing we somewhat second release saying COVID, we can the We are IPO year time what be by and something you, weighted will for the is on full strive and the still are impacted full year, half believe timing more But correct.

Go ahead.

back was for turn to going And you guys over comments. to closing it I

make closing to want you comments did Steve? Steve,

Sure. I want to very brief. this get

out I'm and not that Thanksgiving the of sane. busy join today we has safe, time taking all and what that I to hope a hope for us a stay everyone wonderful thanks sure I but everyone and safe you're Just schedules only

few happy Thanks, So, in holidays. we'll you talk everybody a and months. to

your this participation. today's you and presentation. thank concludes We Ladies gentlemen, for

disconnect wonderful Speakers, have day. standby. all may You and a please