Welcome to Warner Music Group's Third Quarter 2015 Earnings Call for the period ended June 30, 2015. 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, Communications and Marketing. Sir, you may begin. Thank you.

Good morning, everyone. Welcome to Warner Music Group's Fiscal Third Quarter 2015 Conference Call. Both our earnings press release and 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 conditions and results, and then both of them 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 and Form 10-Q and other SEC filings. We plan to present certain non-GAAP results during this conference call. We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency, unless otherwise noted. With that, let me turn it over to Steve Cooper.

Good morning, everyone. Thanks for joining us today. The third quarter was a busy and exciting one, ongoing growth in our streaming revenue, a wide array of our great music from our artists and songwriters and first-class execution by our teams around the world all contributed to a successful 3 months. Total revenue declined slightly by 0.7%. Total digital revenue grew 4% and OIBDA increased 52% to $100 million due in large part to significantly lower PLG and headquarters move-related costs in the quarter. Eric will go into more detail on our OIBDA performance later in this call. It's important to note that our revenues were nearly flat despite the tough comparison against the third quarter of 2014, our strongest quarter of last year where our revenue grew nearly 17% year-over-year. I'm pleased that for fiscal year-to-date, revenue is up 6% and OIBDA is up 39%. With 3 quarters of the year now behind us, we're confident that we are on track to grow again this year. I'd like to provide some context for our results and explain how they are being driven by our strategic priorities. First, we are committed to delivering a strong, consistent flow of recorded music releases. Our 17% revenue growth in last year's third quarter could be attributed in large part to a handful of big global albums. This quarter, roughly comparable revenue was driven by a broader mix of music across many different genres and from both established and emerging artists. Having a more efficiently managed release schedule is one of our key priorities especially in the streaming age. Second, we are focused on delivering sustained growth on a truly global basis, not just in the U.S. and U.K. and not just with Anglo-American repertoire. Since our acquisition of Parlophone, we've been aggressively investing in local A&R as well as supplementing our organic investment with sensible acquisitions of local Recorded Music assets. This includes the recently closed Polskie Nagrania deal in Poland, last year's Gold Typhoon acquisition and the Tencent Partnership in China and the 2013 launch of Warner Music South Africa. On top of this, we are seeing outstanding performance from our international operators. Our solid international results were aided by growth in emerging markets such as China and Latin America, which both saw double-digit revenue increases. In addition, for the first time in 2 years, we saw growth in Japan. This was fueled by early signs of industry improvement, the success of the Furious 7 Soundtrack and the release of Superfly's fifth studio album. Third, we are leading the industry's digital transformation and spearheading a shift to streaming models. As a direct result of our approach, last quarter we were the first major to report our recorded music revenue from streaming had outgrown our revenue from downloads. This quarter, we saw the gap widen as streaming revenue grew 26%. There's little doubt that streaming is currently on a trajectory to become our largest revenue source. Recent recorded music sales in consumption data around the world only underscores this point. In many key territories, streaming has driven encouraging improvements in market trends during the first half of calendar '15. Notably, in the U.S., Nielsen reports that music consumption, which is units sold plus units streamed, rose 14.2%, thanks to over 70% growth in streaming and a slower rate of decline in downloads. The U.K. saw a 4% increase in consumption with streaming up nearly 80% while the decline slowed in both downloads and physical. Germany, which is still a predominantly physical market, saw a 4% increase in consumer spend due in part to over 80% growth in streaming, and Japan has began to show signs of stabilization. In the first quarter of the calendar year, industry revenue from digital was up 5% due to growth in downloads and streaming. As I've said before, we believe that streaming, especially subscription streaming, has the power to propel our industry's growth. As such, we remain highly focused on receiving fair value for us and our artists and songwriters, and we are committed to working with our partners to improve monetization. While we should not expect the pace of industry growth to be entirely predictable, there are plenty of reasons to be optimistic. Not the least among them, Apple recently expanded its music offering with a subscription service, a global Internet radio destination called Beats 1 and a promotional platform called Connect. The fact that the world's biggest retailer of downloads has launched a subscription service is clearly a milestone for the music business. It not only highlights how important streaming is to our industry, it reasserts music's tremendous value to technology companies and ultimately to our consumers. While we are watching the Apple music launch very carefully, we believe this is an opportunity to grow our revenue from Apple, grow our revenue from streaming and grow digital revenue overall. The heightened competition among streaming services is also positive. We're hopeful that it will encourage more aggressive marketing, bolder experimentation and faster innovation. With that in mind, in the past few months, it's been great to see that the news of streaming services fine-tuning their consumer offerings. Specifically, Spotify has enhanced its platform with videos and podcasts, Google Play launched digital radio stations in the U.S. as part of an effort to drive conversion to its subscription tier, SoundCloud confirmed that it will add a subscription service later this year, and Rdio launched a new select tier giving listeners limited access to on-demand music for $3.99 a month. In addition, we're now seeing big-name brands backing streaming in the form of partnerships. These deals are part of the substantial effort to bring an understanding of the benefits of the subscription streaming to a broad range of customers. For example, this fall, Starbucks and Spotify will launch a multiyear partnership to promote Spotify to Starbucks' 10 million loyalty members across 7,000 U.S. stores. Nike's running app is adding a new feature called Pace Stations, with specifically generated Spotify playlists, and Ticketmaster has joined forces with Tidal to offer users exclusive ticket promotions. Now turning to our third quarter results by segment. In Recorded Music, total revenue declined 0.7%, digital revenue rose 5% and OIBDA revenue rose 41%. As I noted earlier, despite a modest revenue decline, I'm very, very pleased with our performance. We've scored 12 #1 albums in the U.S. over the latest 12 months, which compares to only 2 in the preceding 12 months. This quarter alone, we saw the first U.S. #1s from Muse and twenty one pilots, as well as the second U.S. #1 for Wale. In addition, the Furious 7 Soundtrack spent 2 weeks at #1 and spawned one of the biggest hits of the year, See You Again. This track from Wiz Khalifa and Charlie Puth was #1 on the Billboard Hot 100 for 12 weeks, tying for the longest-running #1 rap single ever in the U.S. Outside the U.S., we saw several of our local stars have hits in their home countries and beyond. Blur's eighth studio album, The Magic Whip, was their sixth #1 in the U.K. Ligabue's new live album documenting his Monovision Tour hit the top spot in Italy. Mans Zelmerlow went straight to #1 in Sweden with his sixth studio album, Perfectly Damaged. Mans also won the Eurovision song contest with the lead single Heroes. And Lindemann's Skills for Pills (sic) [Skills in Pills] went #1 in both Germany and Finland, also hitting the top 10 in a half a dozen other European countries. At the same time, our global superstars continue to build their careers. For example, Ed Sheeran, who's enjoying massive ongoing success with his second album, x, more than a year after its release. His hit single, Thinking Out Loud, became the first track in history to spend a whole year inside the UK's Top 40 while his album has spent 13 nonconsecutive weeks at #1. David Guetta became third artist to hit 2 billion streams on Spotify and was celebrated as the service's most followed artist. And Josh Groban's seventh album, Stages, was his 6th to reach the top 5 in the U.S. and his first #1 in the U.K. and New Zealand. Importantly, there is more to come. There are recent releases from established stars such as Meek Mill and Jill Scott, both of which debuted #1 on the U.S. charts. There is also new music coming from Adam Lambert, Duran Duran, Rudimental and Foals, as well as emerging talents such as Jess Glynne and Kaya Stewart, alongside reissues from legends such as Led Zeppelin and Phil Collins. Now turning to Music Publishing. In the third quarter, total revenue declined 0.8%; digital revenue fell 11.5% and OIBDA fell 17%. Much of the decline in digital was due to timing, which include some onetime payments in the prior year quarter. Our year-to-date music revenue was flat with digital up 4%. For the full year, we are optimistic that we will grow. With that said, we are pleased that the industry continues to recognize the strength of our A&R activity. This quarter, our songwriters took home 14 Most Performed Song awards in the ASCAP Pop Awards in April. Katy Perry and Paramore's Hayley Williams led the pack with 3 and 2 wins, respectively. Timbaland and Jay-Z shared the title of Songwriter of the Year at the ASCAP Rhythm & Soul Awards in June and Beyoncé took home top hip-hop R&B song for Drunk In Love. Our writers also won top honors at the Academy of Country Music Awards, including Song Of The Year for Nicole Galyon and Producer of the Year, Jay Joyce. In addition, our writers celebrated multiple wins at the Drama Desk Awards, including Best in Musical for Lin-Manuel Miranda's smash hit, Hamilton. The original cast recording will be released by Atlantic Records this fall. At the same time, Warner/Chappell continues to expand its universe of talent. Recent signing includes Eric Paslay, who has penned #1 singles for Jake Owen, Rascal Flatts, and the Eli Young Band, while his own debut album produced 3 top 20 singles; and MNEK, a Grammy-nominated songwriter, producer and recording artist who has cowritten songs for Madonna, Rudimental and Clean Bandit. In June, we also welcomed Dave Haywood, Charles Kelley and Hillary Scott, otherwise known as Grammy Award-winning band Lady Antebellum. I'm delighted to say that for Dave and Charles, this marks a return to Warner/Chappell. The group has cowritten most of their own hits and has penned songs for other country stars such as Blake Shelton, Hunter Hayes and Miranda Lambert. These are exciting times for Warner Music, and we are excelling at what we do best: signing and developing extraordinary artists and songwriters while continuing to market and promote our unparalleled music catalog. I'm very pleased with everything we've achieved thus far this year, and I'm looking forward to continued momentum in 2016 and beyond. With that, I'll now turn the call over to Eric.

Thank you, Steve, and good morning, everyone. Our third quarter results are encouraging, especially against the backdrop of our industry's ongoing transformation. Excellent new releases, robust carryover sales and strong streaming growth meant that total revenue declined just 0.7% despite a tough comparison with the prior year quarter. Foreign exchange was also a significant factor in the quarter with total revenue down 10% on an as-reported basis. From an OIBDA perspective, certain adjustments are necessary to make meaningful year-over-year comparisons more meaningful. We have highlighted these in our press release, but let me walk you through them. In the quarter, we had $1 million in PLG-related expenses, which is down significantly from $33 million in the prior year quarter. There were no costs related to our headquarters move versus a $10 million expense in the prior year quarter and $2 million in expense related to other cost savings initiatives versus none in the prior year quarter. Backing these items out, we saw a 5.5% decline in adjusted OIBDA to $103 million, impacted by the as-reported revenue decline. However, adjusted OIBDA margin improved by 0.7 percentage points to 14.5%, driven by revenue mix and ongoing cost containment initiatives. We still expect our cost containment program to yield $20 million in ongoing savings this fiscal year with $15 million realized to date and all actions now fully implemented. In Recorded Music, revenue declined modestly by 0.7%. The largest contributors to revenue this quarter were new releases from Muse, Josh Groban and Superfly, as well as carryover activity from the Furious 7 Soundtrack and Ed Sheeran's x. Physical revenue declined 12%, in part driven by the comparison to the prior year release schedule, which included physical-centric albums from Coldplay and Linkin Park. Digital revenue remains a highlight, rising 5%, reflecting strong growth in streaming revenue, which more than offset declines in download revenue. Recorded Music licensing revenue was $65 million, up 16%, benefiting from higher sync activity as well as the first-time inclusion of broadcast fees from PLG repertoire in certain European territories. Artist Services and Expanded Rights revenue declined 6% with growth in U.S. Expanded Rights revenue offset by declines in international artist services revenue due to the timing of European concert tours. Recorded Music adjusted OIBDA declined 1.9% to $102 million, again, driven by the as-reported revenue decline. Adjusted OIBDA margin rose 1.3 percentage points to 17.2%, driven by revenue mix and cost containment initiatives. Music Publishing revenue declined 0.8%. Mechanical revenue declined 11%, reflecting the ongoing erosion of physical sales. Digital revenue declined 12%, which, as Steve mentioned, was due to onetime payments in the prior year quarter. The year-to-date picture is more positive with digital revenue of 4%. Performance revenue rose 7%, driven by the timing of collection-sided distributions. Synchronization revenue was flat. OIBDA was down $4 million or 17% to $20 million and OIBDA margin was down 1.2 percentage points to 16.3% due to the as-reported revenue decline and timing of A&R investments. The company's operating cash flow was a use of $24 million, driven by timing of working capital and cash interest payments and compares to a use of $38 million in the prior year quarter. CapEx came in at $12 million for the quarter, $4 million lower than in the prior year period. This was driven by reduced costs related to our headquarters move and a lower rate of IT investment versus the prior year quarter. We continue to expect CapEx to be lower for the whole fiscal year. As of June 30, 2015, our cash balance was $168 million and we had 0 balance on the revolver. I'd like to make 2 notes on cash before I close. First, as you may have seen, WMG, Sony, Universal and ABKCO recently reached a settlement with SiriusXM radio related to the use of pre-'72 sound recordings. As part of this important deal, SiriusXM has paid $210 million to the plaintiffs. We hope that other radio services take note of this agreement and follow SiriusXM's example. While the process of allocating the settlement is underway, it could take some time and there is a possibility that the cash will not hit our books this fiscal year. We will be treating our allocation of the settlement proceeds like any other payment from SiriusXM with the artist share being distributed through SoundExchange. Second, we remain focused on bringing down our leverage ratio. Along those lines, our senior holdco notes become callable this October. We are aware this -- that this has been a focus of our investors for some time. We will continue to carefully evaluate all options for use of cash. This includes debt paydown and reinvesting in our business. If and when there is something to announce, we will update you accordingly. I am pleased with the progress we are making, both in our creative mission and commercial performance. We will continue to take a balanced global approach to delivering revenue, free cash flow and OIBDA growth, and I have every confidence that we will deliver healthy full year results. With that, operator, please open the line for questions.

We have one question from the line of Mr. Aaron Watts of Deutsche Bank.

One quick question, Steve, and I think you touched on some of the releases you're looking forward to. Generally speaking, though, in terms of the cadence for the rest of the calendar year, would you -- how would you compare what you see on the release slate horizon for the next several months versus last year to close out the year?

Well, I think we got a very nice schedule for the fourth quarter, not only with our Anglo-American repertoire but globally. And we always look to the first quarter of our fiscal year as a, historically, a quarter where we want a very robust release schedule, Aaron, and that continues to be one of our operating strategies.

Okay. And curious, overnight saw that Apple talked about having 11 million people signed up for their music service. I'm just curious how that number might compare to what you were expecting and any thoughts on whether the conversion rate for Apple could potentially be better than what we have seen elsewhere?

Well, we didn't -- or I didn't have any particular expectation for Apple by way of numbers. I think that all of us at Warner thought it was a great step forward for streaming that Apple was getting into the streaming business. They have enormous consumer reach globally. They have, I guess, 800 million credit cards on file and to have more than 1% of those try this within a matter of a couple of weeks I think is very good momentum. We're waiting to see, obviously, what the conversion rate is after the free trials. And our expectation is that, with Apple, we would expect to see a nice conversion rate. But I don't want to speculate as to what we would hope that would be, Aaron, because I know 2 things for sure: I'll either be high or low, but I won't be right on target.

Fair enough. One quick housekeeping question. I know you mentioned the payment coming from Sirius. Have you quantified that, at least publicly, what your portion of the settlement will be?

Aaron, it's Eric. It's -- there's a process that is just beginning now where we have to work with the other plaintiffs on a methodology for distribution. So that process is starting, it will take some time. We're certainly expect to get our fair share, but that's a process that is undergoing as we speak.

Okay. And 2 more if I could. Again, I appreciate you taking this. These are a little bit bigger picture. But there's been a lot of momentum for you on the publishing side of the house, a lot of good things happening there. Can you talk about whether some of the changes being implemented or moves that have been made in new leadership, has that given you any better synergies with artists on the recorded side? I know those 2 entities haven't necessarily been tied in the past, but can you speak to how some of the changes on publishing are impacting your ability to attract artists on the recording [indiscernible]?

Sure. Well, first of all, just to be crystal clear between Cameron Strang and Jon Platt and our other colleagues at Warner/Chappell, I think we've got the best leadership in the Music Publishing business. What we see is that there are synergies when we attract and sign great songwriters. They oftentimes also become great performing artists and that's happened historically and it continues to happen. We also, as I think we've mentioned, over the last couple of years, Aaron, we run the Warner Music Group as one company. And so we do whatever we can to create synergies between our Publishing side of the business and our Recorded Music side of the business, including bringing our songwriters together with our recording artists. It's been something that we have done historically and that we will continue to do in the future. So the answer is yes. We do see synergies. We see both current and ongoing opportunities to bring both sides of the house together on a regular basis to create great music. And we see on a regular basis the evolution of our songwriters into great performing artists and it's working beautifully.

It's good to hear. Last question for me. And I get this question sometimes from investors, too, but as we think about areas that are still a little bit heavier weighted to physical consumption, how does streaming, the advent of streaming, make a digital transition in those areas more smooth and perhaps what we experienced here if just what you're seeing in another geographies and how you think that plays out as ultimately physical does get phased out?

Well, let's not shoot physical quite so quickly. If we look at our business around the world, both physical and its digital analog downloads still represents, despite the growth of streaming, an enormous amount of business and there are both markets, as well as collectors, that I believe will continue to give us a very long tail albeit declining with respect to physical and I think to a certain extent downloads. There are still people that prefer to own as opposed to rent, so to speak. What we do see is that streaming is taking hold with a little more predictability around its growth rate in any number of physically-oriented markets such as Japan, Germany -- some of the other -- those are the two that are -- that occur to me off the top of my head. And while that growth is becoming more predictable, physical in many respects and downloads are still holding their own. So what I expect is an ongoing adoption of streaming, but an adoption that has a less steep growth slope, if you will, Aaron, in those sort of the markets. In the meantime, while it is still a small but growing part of our business, just to get it said, our vinyl business is up some 50-odd-percent this year. And we continue to see and expect very good future growth in that particular niche.

And our next question is from the line of David Farber of Crédit Suisse.

I had a couple follow-up questions. First, I just wanted to ask you guys housekeeping-related, do you have sort of EBITDA for the quarter, FX-neutral for us? I know you gave us revenue, but I wasn't sure what was the flow through in that. So do you have that just offhand?

It's not a number we publicly report. Our OIBDA is obviously up 52% and on an as-reported basis. But with strengthening of the U.S. dollar, particularly euro, obviously there is some impact on as-reported results. That said, even in a dollar -- even in the quarter where the dollar strengthened significantly against other currencies, the impact of OIBDA wasn't material. Much of our expenses are in local markets where our revenue occurs so we have a natural hedge. And the OIBDA impact is not that material.

Okay, that makes -- that's helpful. Just -- there continues to be a lot of moving pieces, I think, in some of the terrestrial radio on sort of the royalty side of the house. So I was just curious, maybe an update if you guys envision any scenarios where you think terrestrial radio will start paying royalties in any way, shape or form; if there is anything on the regulatory side that you see that could help us think about in the quarter. And then I have a couple of follow-ups.

Well, in the Fair Pay, Fair Play Act (sic) [Fair Play, Fair Pay Act], there is -- there are provisions for the payment of terrestrial royalties, David. So I guess while we are hopeful, the fact of the matter is that we -- the recorded side of the business has been pursuing us for a long time. And while it's nice to see that it's come up again, we'll have to see how the act or the proposed act plays out and what traction it does or doesn't get, frankly. Look, the good news so is that we're beginning to see a real stabilization of the revenue curve in the industry and growth in other areas. So that while we would always welcome additional monetization, the good news is that with the growth in streaming, with the kind of flattening of the curve in the download, decline in physical, the business looks like it's stabilizing.

Okay. And then, just finally, I was a bit surprised to see the OIBDA and covenant EBITDA have sort of a continued gap. I was curious sort of when you'll think you'll see that -- those numbers sort of shift. So specifically sort of seeing the LTM or reported adjusted OIBDA compared with the covenant EBITDA, when do you think those numbers will start looking more of the same? And when do you think that will get reflected more in the income statement versus sort of a pro forma adjustment? That would be helpful.

Well, obviously, the pro forma EBITDA reflects add-backs that are largely onetime or noncash items, such as severance, restructuring from PLG, integration and are presented in a pro forma basis as if the add-backs are realized on an LTM basis. As PLG flows through, that portion will start to come off and you will see that start to close the gap, as you said. Note that, as we look at programs such as -- discrete programs such as cost containment, the cost related to that will be in. And so those things are things that we continue to evaluate going forward. But other than that, you will see the PLG part start to wash through.

Okay, thank you. As of this moment, we don't have questions in queue.

Great. Thanks for your time today, everyone. I hope you all enjoy what's left of this summer, and we'll talk to you again soon. Bye-bye.

And that concludes today's conference. Thank you all for participating. You may now all disconnect.