Warner Music (WMG) 9 Aug 222022 Q3 Earnings call transcript

Welcome to Warner Music Group’s Quarterly Earnings Call for the period ended June 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.

everyone. morning, Good Music Warner third earnings quarter Welcome Group’s call. conference to fiscal on release, our this and available that note earnings morning website. earnings be filed Please we press snapshot XX-Q the will our Form Eric we we have through Steve our take On today’s your Levin, and questions. our will then call, who results, answer Cooper; CEO, and CFO, will our you

includes reflect present to Before events slide in and financial of second release. certain current and these performance. you to non-GAAP snapshot results remind that earnings Warner about our during We have our call you press the plan Music in conference prepared that remarks, to future I’d like schedules earnings reconciling forward-looking this to of results views communication this earnings the slides to provided results snapshot statements refer our GAAP our Group the

on these noted. duty as will all and comparisons any to figures materials and are of we statements. of constant update All unless website. in posted that note are disclaim Also, made revenue forward-looking statements presented currency, today please discussed today our such be All otherwise

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

management’s However, uncertainties over that, that from with Information and statements expectations. other result filings not there rely is it factors those And in a of statements risks, our could forward-looking differ be SEC. because actual the contained from to materially variety actual expectations, the turn concerning no to differ on to with in results they cause results achieved. factors Investors beliefs to materially Steve. I’ll our that can can and will forward-looking be projections assurance or should are cause subject that

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

positive these WMG’s times, future. about so reaffirming to we’re like by Given start why turbulent I’d

revenue our fee and pandemic many there’s for and an long runway, sector industries. resilient Streaming, source continue and humanity. proved, subscriber has than more music essential substantial other the subscription will growth need increases. the make has is largest a for This need to headroom music As both

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beyond, our this In fiscal These all from prior in of addition, comparisons. renewal but the include year-over-year and the the our year by were that items affect benefit several related one affect another with partners. quarters of our previously quarter four the disclosed reported digital payment onetime results of deal partners, catch-up impacted year, to digital not which

reconcile to reported is help underlying you goal always, results to performance. As our

go into our more committed in normalized making Eric sure We’re that understood shortly. about items numbers these the future. are to more clearly detail will

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Thanks. everyone. Thank morning, Steven. you, Good

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was was Our timing in the COVID, with growth of successful By new and more streaming by prior QX, year recovering by muted, due was environment, line releases. releases. subscription quarter and comparison, ad challenging to and platforms, XX double revenue some macro market. the streaming streaming and supported in ad new driven growth the performance revenue supported low digits deals driven streaming shifts especially outsize emerging in in streaming from grew Normalized with deceleration revenue that our

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were annualized cash to prior quarter. $XXX the Free year year flow expected increased of largely from investment. Operating to financial very XX% by in million million $XXX to driven once XX% XX a timing quarter. in to fully million was free flow million $XX the million transformation from XX increased increase the prior Operating is A&R The of run strong. growth implemented. rate As in million savings cash reminder, QX our flow cash $XX deliver and

expect well that timing of will to in working be capital. flow the generation deals QX cash as strong by favorable We driven

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nearest XXXX. Our X.X% debt weighted is our average and date of is maturity cost

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at these artist royalties an $XX the favorable OIBDA that proceeds netting of songwriter litigation after We have estimated expenses, expect from least consolidated to settlements will and million. and impact

We macro always are rapidly adapt we’ll as the have. closely monitoring and environment changing we

artists fourth to have quarter streaming conviction with will off opportunities and strong releases We deals aggressively music’s market and and new even resilience with a is songwriters full pursue during our platforms. start The and performing dislocations. well new emerging for new

are lie on for trajectory we upward We advantage ourselves ahead. opportunities that joining an positioning open take the growth are you for questions. and Thank to And call will of for now our the call today.

First comes question with [Indiscernible] Instructions] [Operator from JPMorgan.

is line open. Your

expectations quarter ad taking for outlook of into supported about thanks just your we that It’s of and comparability question. Perhaps the ESP to for or on schedule. item you deal, call based for for wide scope into that underlying the concern growth hear any Hi, industry good kind release you other update deals given the as the the you. perhaps on slowdown confidence that Can and go affect us XQ XXXX kind Thank next growth new slowing and will time one macro? XXXX. the in

you much. Yes. Sebastiana thank so

don’t thank the have, so we time. disclosed we So Sebastiana you one much.

forward don’t resilience is comparison. to do look the will items, quarter that meaningful, anniversary have that of don’t the that we the last ‘XX. very in fundamentally, we though we effectiveness challenging are we fiscal strategy. we music the Warner environment, confident quarters next we DSP the will the of XXXX there’s onetime when we, So disclosed But the Music we challenging renewal We of for are, even four of have been macro that see anything that has affect a creating and comparisons

We for strong look that The forward a quarter are schedule happening streaming OIBDA in plus back continuing them revenue, of XX providing services music and in it QX we what’s stellar release double obviously Artists to artists and to subscription despite throughout recovery sync part Sync a is year for further to releases has pre-COVID, going continues performance recorded and to delivers fiscal this growth forward where ‘XX. which environment. looking their Their growth Warner relationship. added through. to full We and streaming low was allowed is every grow. now macro as revenue to margin but services grow digits, growth percent. of have strong been shine been always Chappell has see value provides has like areas our guns. the and

feel really we music this our positioning a about challenging good want continued that about really underlying sell seen I feel resilience good we impact to we’ve and the quarter on our it’s model, business for supported. ad short the So growth. environment, of don’t

everything continue can them revenue line But make we to this sure quarter. ad had each we to can. We we And revenue do as both as of to support challenges growth. and FX supported continue best we’ll manage

is continuing strong ad And Fortunately, of is a revenue streaming revenue. in our our of the larger mode. growth is portion supported minority of our therefore revenue, and a contained portion

gives questions your that you you thank a hopefully So And for Sebastiana. summary.

artist but be maybe should Any follow program the of about XXXX into as quick the perhaps up recovering update OIBDA fiscal margins With there. implemented? outlined kind should how particularly one low thinking transformation you’ve growth. still contributes margin, service financial to or gets And obviously, on we

Thank that. you for

COVID the of for pre-COVID. or fully recover, it effect in services one have is much was because years didn’t if two artist we to now how was put hiatus So started service artists it year. the quite recover been saying, an of first one is know basically that past the downward. margins back of couple over exactly levels it But things it didn’t recover services when know frankly, would that and it recovered Artist two years we on when was we’ve for years, on the because so, to revenue

where of XXXX, in What recovered but fully in does really margin, a got to is this for ‘XX will create pressure fully baked put then it’s comparisons downward very, margin ‘XX. we’ve time. short services XXXX compared in artist period So very

expect in our the artist margin with be to we fully are more denominator. So get numerator favorable back as comparisons the have going both on we and that growth recovered to services trajectory,

growth financial other margin efficiency. are fundamental program the initiatives about our place that high place costs, have our margin good very growing that managing revenue streams, including technology in feel to drive transformation, we So digital we in

our So feel trajectory. very margin we growth good about

on financial in launch track fiscal program remains Our transformation to ‘XX.

and We to complete I the it’s expect standards and and the tied benefits fully meeting very that say of rolled to roll to essentially out always the us management rollout perfectly. will that to reporting, complete. until ‘XX start allow financial specific transformation ‘XX statutory our is in detailed

to And and that every ‘XX. to program launch T. point. the fully close to we’re very are we work cross And But do every there to we expect there. at working I get dot is We diligently till crossed

moment for Bank. Benjamin our next Black One with question. Deutsche

open. Your Bank line is Deutsche Black line is your with Benjamin open.

Hey, of two for my music catch-up really Thanks After guys, you. so a seen streaming growth. after thank the adjusting and payments, deals recorded follow-ups we’ve the the decelerating quarters new few question. line for taking on

the And growth side how simply You’ve here weeks quarter. subscriber difficult on Spotify the or underlying seeing two question rate advertising is lapping going softening just seen thinking the mentioned we’re third comps. So last good should about into growth, a be and really we modest forward? slowing and

for specific? the the on specific, the year you in how Now of it Is for the some advertising you Thank as thinking Is Can are elaborate softness example? region that of XXXX? platform And you’re mentioning seeing? about you’re of well. you. growth tenure balance it

sure. So

that. jump in on me Let

for thanks the So question.

growth environment. of very strong quite seen in streaming being we is time. And showed and double still see as XX% and impact on are but churn for still emerging ARPU see price I’d an that In markets first term, market macro research that over think we has really term, XXs are The remains digits forecasts price Spotify to a it sign We slowdown. remains and real about online still distributors proven real that is of I show opportunity say front very the improved increases see subscription despite have who starting subscription opportunity done per that that in growth in single price tremendous have subscriber thing are streaming excited that percent supported the enormous So strong an to Long and it. are mid very have digits. even increases, studies, short low. Amazon are ad streaming. subscription We’ve growth. growth forms available see market coming Developed or roughly upside Emerging opportunities. penetrated with we aggregate. think, the did also growing markets for into the doesn’t We potential XXs in both subscriber markets the penetrated that

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look growth navigating growth as we the excited vectors. continue the music but we’re streaming. think of So short term the real tough macros, In us still streaming resilience gives opportunities in the about we’re to forward and

for color. you the Thank Fantastic.

next comes Instructions] Our [Operator with Matthew question Thornton from Truist.

is open. line Your

housekeeping could. items Hey, Maybe morning, if question Steve and good and one Eric. two I

is do level, you quarter adjusted do And next in think Again, years? cash quarter around Thanks, language the there it a progression And that higher portion, the flow housekeeping about next there worth years. the streaming guys. the you think you how XX% margin but items, I How recorded this have years? of deals. was the progressing was there next earn I over quantify Eric, to about bounced the to little bit, adjustment couple think can bit talked around then of new music of about free if couple guess couple the timing that. conversion I kind well? the an you that in secondly, First, you It the that think anything as over quantifying just some of see as was an out liability margin a benefited

notes and really three Those reading fast. questions

Okay.

three things. So

So free cash flow. adjusted OIBDA

So challenging A&R generally and spend vary We reasonable larger free conversion to quarter the a activity XX%, time, future waterfall has based is is excess think XX% A the of cash drive one XX%. every fair comment that’s redeploying I in. XX% it look. timing The to adjusted a our would has different. will look I on of encourage We been business comfortable really waterfall to make cash. better growth. and our will think for we range how example, place to operating flow operate our be a the period at into thing OIBDA of year-to-year, to place quarter-to-quarter. deploy there on to been look to deal though, at first to a period, been And we’ve that at is that’s the stop going

We market our have grown share.

growth. free XX%,, drive waterfall conversion cash XX% to But call flow call of to is the year and the beyond several it deals operating our cash And use at ways our we driving look a in accretive operating five the our with fundamentally then period. that. one business back drive with over line we rate. we But are years, you by do OIBDA a that with in it If flow redeploying past

question. Second

made towards the business an of achieved. had the investment we out earn million acquisition in metrics that was an So if and were had accrued certain part about XX

our and The one the earn Given forecast closed will we in be Meta market, reversed deal of $XX the is that on emerging quantify QX. of of we QX expect be the a out were QX we deals. emerging still the longer new streaming accrual process and million timing because here revenue bump individual our driving We deals we in do that, achieved deal, in QX because don’t streaming deals. timing and in results. called ad slowdown to will which the positive in have in We our out no revenue reflected a of supported the streaming of that

have do number give but positive you, Matthew. we I So can’t that to Thank you expect impact. a

[Operator Morris Instructions] with Michael comes question Our from next Guggenheim.

Your line open. is

Eric. Good guys. Thank Maybe one you for morning.

Just following streaming up the on to a trend. music bit digging recorded in

quarter. sort sort back Can which of by come bigger in third how rate Steve, the How in late bit much the dated going announced was the the quarter, was there on What will then bit release teens schedule X%, And you do from growth appreciate question And driven quarter the Why there. CEO helpful. fiscal the picture quarter? late You the with talked looked Can talk much second you the quarter that just kind the guys your maybe color a give on a of just was thoughts in and you you Would the respect expect timing? us for fourth looking long for? that are that timing? bit slippage and transition, the little transition? to or timing. release of about fiscal kind a in size rate release that second of album we as about impact advertising sequential which the a and portion to of the export slowdown of that at mid XX% quarter

so for questions. Michael, and So thank start you, the I’ll

a other slipped substantive little We on QX. I has was who from feeling have release focus certainly schedule. Lizzo, there about nicely. see out QX. QX number international album to in QX. and schedule, one the special releases And will set up on Panic coming album at overall, artists an QX accelerator as the talked So has about really coming very we the we B for good out and Paulo a we are is think a Disco, already that do QX few the significant being bit Cardi several versus that reasons release hit QX an Londra

QX In QX. approximately will positive. we that streaming a of deals, schedule, addition bring into release Meta mentioned the that were in legal of And strong to there several also XX several emerging close OBIDA including a will be million settlements

quarter. in part was the of market. have we the remainder series On impacting the news a slowdown the will positive QX there’s of supported throughout already And that So delivered. of be results ad that the

But performance And part great results area rate they’re grow which marketing revenue, campaigns. of continues largest double the the digits. largest our at of revenue of is the distributors, look again, maximize to slowed and is our could job our we’re down see of subscription You subscriptions, of the lion’s with releases our that and streaming the solidly which thrilled to our in of share some that the affects business. that

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next for One Thank our question. you. moment

from question comes Our Kutgun Maral with next RBC.

open. is line Your

the questions. Good morning, and taking thanks for

into supported you wanted apologize But I a you advertising and Eric, think platform overall and divergent on you trends as platforms mix across three of was platform but you’re growth and the year across over revenue the And much Emerging Thanks. First, that because emerging revenue? ad just recorded line? maybe or were fiscal to accelerate how can asked timing emerging cycle the new earlier buckets a revenue I had to of just the we in a teens. kind of of revenue Meta renewals could subscription, digital renewals. the mid either confirm with your XX. update help on deal lull emerging us as color emerging decelerated platforms, Are quarter? said streaming lastly, platform I given earlier more high growth forward you of music, that the if last entering get is I missed And in about about the well. it, bit little activity move the

Thanks Kutgun.

is roughly So the and the components XX streaming, XX, ad XX, support subscriber mix ballpark, emerging teens on rough high of the XX. in

in emerging and subscriber ad high, XX. call roughly very pie. it the things and the and as digital bigger to teens XX% relatively the rest compared But supported are some dogs those like There radio like cats So there the is of being high think that. are small

have two We you meaningful on meaningful There’s Your the a a emerging a you forward. deals. renewals of the that had to becomes a three when roughly obviously, those year We talk relatively renewal deals, a meaningful have QX, that. usually Obviously, there, few when ago, is other the renewed. few to were part Meta scaled year the streaming actually question in deals are are slew reflected going individual components of of and stated do a that our timing ‘XX one. specifically that, We don’t results. trending and as to it renewals in components growth Kutgun become

the and are the interactive excite monetize to that connect NFTs What in renewals, experimented that sustainable But communities So We we look potential. just at really with Web-X And artists rich, develop is vectors and growth. models is develop. the being business and that it’s will ‘XX. see dynamic fans and that also that huge about ways something and next results. and exciting in I come platforms year’s be new having that there will fans, say will it’s up like deep, with is about as some areas build products of in deals ability also communities not

growth see as that model area We’re for over roadblocks next the working new all the best this nods monetize out others in the and with that or talked so that we’ve we’ve done in world partners is very different year in music will class and with an and closely when towards several with we that years. that over deals an NFTs up a show of a partners past developing series eye with about of can building

stay would get I to tuned as look our and So forward to marketplace news and yield the we experiments exciting having results.

One question. moment our next before

with Thornton comes Our next from Truist. question Matthew

Your line is open.

just busy to a Eric. think to growth right I put didn’t be morning. fine second The here. way I this. think Must get a question about in streaming point a on

You X.X% extra guys items. to reported constant DSP currency

Russia headwind. some have You

you those that some healthy in I Steve. want whether You about slippage you bridge then three ad how and Is think talked to pressure. it one that the make double of supported tougher most that you small. then sure and had deal about activity items the slight have kind interest higher probably it’s pronounced digit maybe do rates into correctly that up macro you growth? understanding this commentary for Steve bridge I’m

So again continue a remaining our to expect discipline active. I with focal to would as point be our activity quite

you. Thank

with Ben Morgan next Our Swinburne comes from Stanley. question

open. is line Your

Hello this you me? is Ben. Can hear

you can We hear Ben.

didn’t Hey, like last minutes. I hear guys. the eight

was help hearing apologize. think I I One, to nothing. But revenue, anyway, margin. be quarter couple as relates also fourth the a to in So repetitive. Eric but anyway this things. could us currency about

thinking be similar the about. think on there’s should I front a currency mismatch and on revenue OpEx we

conversion. know just I back it that really Thank of over I flow a start revenue but as we the think You mentioned talked more make said lot your growth? idea part could I different your stock streaming. all a think consumption nine ‘XX on of you. in this more you’re Or company. seeing over is But that two, the out Is or business streaming bucket in then to on there’s revenue emerging out the and the that. think that your us to we’re I music, time, And you have about it But zone. And of to is know that play of already call? in attraction XX% lot based to you still which what’s year strong I be do going there for QX, months. to you be that obviously, does year, do XX%, emerging overall? you don’t the you early deals. don’t next any, too to then your look this drives visibility that more consumption growth? cash

Thanks, Ben.

on currency, So a few things.

So I question. think looking your which QX is

headwind a I it’s going from to there’s difference still in indicates QX. be and much similar going think QX QX nothing that have to

amount dollars, strengthening world. pretty to our international flow to convert The that’s repertoire margin some local repertoires, we around but in As dollar. of costs impact fair through our are A of continues organically. the sent a

that we on a against there. nine will cash So but our that U.S. there against have hedge OIBDA the on affecting dollar impact flow hedged an currency we flows against, do that business necessarily there’s as negative through is doesn’t currencies we major do margin I a the a cash work when well. say operating most impact basis, benefit and get

continue we’ll expensive. becomes our a that on manage less improvement roughly when year impact. also is a of currency being there’s of Two to in operations, significant investments to impact ‘XX, the negative XX% more the So notes and we amount we obviously, on have we one. is half see That’s of billion A&R, worth working a that impact hedge And XX% to significant more spent and favorable Euro the year. a the there’s the first currency dollars a half of of favorable the conversion and in flow second half the moderate on capital second

deep fiscal in there, our investments. look part We opportunities at ‘XX. look in at can cash of our evaluating we growth and how and conversion as evaluate but we achieve And goals cash the the at do are now into generation look and modeling also we

at do deals ‘XX, ways. cash that would looking coming I now. those In is categories of favorable to There web-X really that is say continued what QX. the range very that hit licenses, variety conversion we The more different consumption which It of new a which feels in licenses. at end we growing already other and and are with fairly on growing working models when metaverses monetizing. up We in music as the of have way, QX growth very, and experimentation, a basis. have hundreds we’re online. number conversion, are coming which the cash regular the new fiscal not streaming. see other tip area and music we’ve and all content like all we’ll developing adding categories of about of usage, time we’re platforms product We deal new digital an in talked impacts that and integration that forms require consumption, blended way QX. Meta On that is a we growing products are as evolving of ubiquitous just as this talk about right So with the in capital is low expect talked of do driving in about consumer really measured a the but now clear also the emerging in that discussed We’ve in

products we expect those product growing. So products said. revenue linear to expect emerging of And timing necessarily development won’t be develop on It’s we streaming to new renewals, new of It of be tied of to that platforms. the and thoughtful continue innovative see consumption and we’ve be partner continue as both that to early integrate being with these early can companies, building over up their time. ways music being fans. we in helping adopter, them in And to leaning some turn an

excited continued opportunities And we’re years and see so really growth we come. And the there. about for expect to years to

questions further showing time. this to Cooper not remarks. I’ll turn Steve any any I’m And call for over at closing the

We and Day. appreciate I a this talk interest of Again, very thanks, everyone joining safe support bye. We’ll soon. hope a for everybody summer wrap has you wonderful up your well to Labor Stay to in Warner ongoing us. Music. Bye, everyone.

presentation. and Ladies gentlemen, today’s concludes this

have disconnect now You wonderful may and day. a