Welcome to Warner Music Group's third quarter earnings call for the period ended June 30, 2017. 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. You may begin sir.

Good morning. Welcome to Warner Music Group's fiscal third quarter ended June 30, 2017 conference call. Both our earnings press release and the Form 10-Q we filed this morning are available on our website. Today, our CEO, Steve Cooper, will update you on our business performance and strategy. Our Executive Vice President and CFO, Eric Levin will discuss our financial condition and results and then we will take your questions. Before Steve's comments, let me remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that can cause actual results that differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our earnings press release on Form 10-Q and Form 10-K and other SEC filings. We plan to present certain non-GAAP results during this conference call. We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. With that, I'll turn it over to Steve. Stephen F. Cooper: Good morning everyone, thanks for joining us today. I'm pleased to say that our strong momentum continues. We've now had 8 consecutive quarters of revenue growth, the last 7 of which were up double-digits. Our growth is a testament to our artist and songwriters who are creating great music that resonates with fans around the world and to our operators who are executing brilliantly. Specifically in the third quarter, we grew total revenue by 16% and digital revenue by 33%. OIBDA declined 4% although as Eric will discuss later, it was up 9% on an adjusted basis. Revenue growth was widespread across all of our divisions and territories. All of our metrics indicate that we are clearly outperforming the industry. Recorded music revenue rose 16%, Publishing was up 15%. U.S. revenue jumped 22%, International was up 11%. This quarter's streaming revenue rose over 60% in Recorded music and over 80% in Publishing and as such remains our largest and fastest growing source of revenue. A t the same time, the recorded music industry as a whole is on track for its third consecutive year of growth. I often get asked whether or not these trends can continue. Simply put, we at Warner are confident they will. While our growth may be uneven from quarter-to-quarter, we believe the trend line will be positive and sustainable for the foreseeable future. As we see that the industry is still in the early stages of its recovery. In 2016, the Recorded music industry was only half as big as it was in the year 2000. There remains an enormous amount of uncapped potential for subscription streaming to achieve global scale. Paying subscribers currently represent less than 2% of the worldwide population and just over 5% of smartphone users. To maintain or potentially accelerate the rate of growth, we must work with digital services to create greater differentiation between subscription and ad supported models. That being said, we must also find new ways for consumers to discover the benefits of subscription streaming. A big step in that direction from our perspective is voice activated technology, which we believe, will make the mainstream adoption of streaming even easier, whether you are 3 or 93, you can simply ask for the latest Ed Sheeran song, and you're good to go. With all that in mind, you may have seen recent media coverage about our negotiations with some of our most important streaming partners. Some of these talks are ongoing and we're not going to comment on the specifics, but I do want to make some general points about our approach. We draw a great dealer strength from our independent ownership structure. It enables such to play the long game and focus on value creation for our stakeholders. Said differently, we only agree to terms that are net positive for our recording artists and songwriters. At the same time, we want to stimulate a healthy and competitive ecosystem, finding these balances help to sustain our momentum and grow the value of music. Beyond streaming, we also continue to explore new business models. Anywhere there is music consumption, we will endeavor to unlock fair compensation for recording artists and songwriters. As an example, over the past 2 years, we've entered into partnerships that allow us to experiment with new opportunities such as virtual reality, high-resolution audio and mobile messaging. Most recently, we acquired certain assets from Songkick, the concert discovery app, which will strengthen our e-commerce activities with the global music community of 15 million fans a month. We are also focused on expanding our repertoire sources. In June, we announced a new division called Arts Music, which covers a spectrum of genres outside the pop mainstream, including classical, musical theatre and jazz. As part of this, we formed a joint venture with Sh-K-Boom Records, the Grammy Award winning label, founded by Kurt Deutsch. Simultaneously, Kurt became our man on Broadway as Warner/Chappell's new Senior Vice President of Theatrical & Catalog Development. Above all, our continued success is predicated upon discovering talented recording artist and song writers and helping them build long and rewarding careers. I'm pleased to say our commitment to delivering a consistent flow of great new music is paying off. This quarter, our top sellers included superstars such as Gorillaz, breakout artists like Clean Bandit and local names such as the Japanese girl Twice, and the German punk band [indiscernible]. In addition, we had strong carryover sales from global phenomenon Bruno Mars, Coldplay and Ed Sheeran. We also have some tremendous music on the way. Just last week, we welcome the incredibly talented, 8-time Grammy nominee Sia into the Atlantic Records and Warner Music Group family. We can't wait to share her forthcoming Christmas album with millions of fans around the world. At Warner/Chappell, Jon Platt and his team are redefining the role of a modern music publisher, providing creative partnerships in commercial services to the world's best songwriters and hit makers, including [indiscernible] Lil Uzi and the producers behind the mega-hit Despacito. This unique approaches earned Warner/Chappell this year's most prestigious industry accolades. In May, we were named Music Publisher Of The Year at the BMI Pop Awards, while Justin Tranter and Ross Golan were crowned Songwriters of the Year. A week later, Warner/Chappell's Skepta became the first grime rapper to be named Songwriter of the Year at the Ivor Novello Awards in London. As always, our people are the decisive factor in our growth and we're constantly looking for ways to enhance our executive talent. Last month, we relaunched the iconic Sire Records brand, now in its 50th year of the existence. Sire, which is part of the Warner Brothers records family, will be run by our A&R Executive Rani Hancock with its co-founder Seymour Stein as chairman. This is our last earnings call before Max Lousada begins his new role as Head of Recorded Music on October 1. Over the last 3 years, Max has transformed our U.K. labels, enjoying record breaking success with artists such as Ed Sheeran, Coldplay, Clean Bandit, [indiscernible] and Gorillaz. With Max and Jon Platt spearheading our global operations, we're looking forward to the positive impact they will have on our business. As the industry grows, we would be disappointed if all we did was grow with the very same pace. As I've said before, our goal is to beat market trends. One of the metrics that helps us measure our performance is market share. As expected in 2016, we were once again the only major to show increases in both Recorded Music and Music Publishing. According to music and copyright data, in Recorded Music, we rose from 17.3% to 18.1% in combined worldwide physical and digital sales. In Music Publishing, Warner/Chappell grew from 11.4% to 12%. In fact, there are many metrics of success in our business, chart positions, revenue, profit and cash flow. I'm pleased to say we've been delivering on these across the board. We aren't taking industry growth for granted. Instead, we're taking the necessary steps to control our future. Ultimately, our ability to sustain our success and continue to outperform the industry, will be driven by our own strategies and their execution. Before turning the call over to Eric, I wanted to honor the memory of Linkin Park Chester Bennington. Chester was a hugely gifted artist and performer, and the outpouring of grief and love that has followed his untimely passing shows how much he and his music meant to millions of people around the world. Our thoughts and prayers are with his family, his friends and his band mates. Now over to Eric.

Thank you Steve and good morning. I'm very pleased with our results as we continue to deliver strong growth and demonstrate fiscal discipline. In the quarter, total revenue growth of 16% came on top of 15% in the prior year quarter. Currency had a 3-point impact, so as reported revenue grew 13%. As we've indicated in recent calls, PLG-related asset sales are moderately impacting our growth rate. Our results are also being affected by the sales of certain non-core assets, such as some of our European concert promotion businesses. The aggregate impact of these in Q3 was about 2% of revenue. We are nearing the end of the PLG-related asset sales and continue to expect those sales to have a modest impact on growth for the full fiscal year. From an OIBDA prospective, certain adjustments are necessary to make the year-over-year comparison more meaningful. The details are in our press release, but in the quarter we had $6 million of nonrecurring expenses versus the prior year quarter when we had a gain of $9 million. The adjustments in the quarter related to PLG-related asset sales and to cost from the move of our shared service center to Nashville, which is now operating and on track to deliver net savings over the next few years. Adjusted OIBDA, which excludes nonrecurring expenses rose 9% to $121 million. Adjusted OIBDA margin declined 0.5 percentage points to 13.2% due to higher variable comp expense and higher A&R investment. As we indicated last quarter, our variable comp could continue to increase along with our operating performance and cash flow. As I mentioned last quarter, we reversed a portion of our U.S. deferred tax asset valuation allowance, which resulted in this quarter in a $128 million one-time tax benefit to earnings. This was triggered by having cumulative net income as compared to prior years of losses and is a sign of our upward trajectory and profitability. There is no associated cash impact. Recorded Music revenue was up 16%. Digital revenue increased 31% driven by 61% growth in streaming, which more than compensated for a 30% decline in downloads. Our physical revenue this quarter was down 6%. Licensing revenue rose 10%, driven by increased sync activity. Artist services and expanded rights revenue rose 3%, driven by higher merchandising and ticketing revenue in the U.S. Recorded Music adjusted OIBDA was up 14% to $125 million and Recorded Music adjusted OIBDA margin was flat 16.2% as benefits of revenue growth were offset by higher variable compensation and higher A&R expense. Music Publishing revenue rose 15%. Digital grew 56%, benefiting from streaming. Performance revenue rose 4%, which was due to continued A&R successes, notably in the U.S. Mechanical revenue was down 5% and sync was flat. Music Publishing OIBDA was flat at $23million, but was up modestly excluding a one-time gain in the prior year quarter. Margin declined 1.9 percentage points to 15.3% driven by revenue mix. We had operating cash flow of $83million, up from $35 million in the prior year quarter. This was primarily driven by working capital management. CapEx came in at $11 million, a bit higher than the prior year quarter. We continue to expect one-time expenditures related to build-out of our LA offices in the range of $40 million to $50 million net of landlord [ contributions. However, we expect majority of these cost to be incurred in fiscal '18. Our cash balance was $567 million as of June, this compares favorably to a balance of $359 million at the end of fiscal '16 and $345 million at the end of the prior year quarter. In May, we refinanced our term loan, securing a more favorable rate of LIBOR plus 250 [ with no floor, down from LIBOR plus 275 [ with a 1% floor. We'll remain opportunistic with regard to further optimizing our capital structure. Given our strong performance, confidence in the outlook and ample cash on the balance sheet, our board recently approved a special $30 million dividend, which was paid on July 31. We will continue to periodically evaluate additional dividends to be funded out of cash, but given our other priorities for use of cash, we don't plan to declare a regular periodic dividend. I'm proud of our team for delivering such strong growth particularly against difficult comparisons in the prior year quarter. What's even more impressive is that they've done it so many quarters in a row, fiscal '17 will be another strong year. With that operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of David Farber with Credit Suisse.

I had a number of questions. In your prepared remarks you discussed some of this, but perhaps wanted to hear more. I guess intra-quarter [ there was some news around Spotify in this new licensing deal. I was hoping, given -- you don't want to go into specifics you could maybe update us a little bit more on how you're feeling about the licensing deals? Any expectations we may have and just some thoughts around that? And then I have some follow-up questions. Thanks. Stephen F. Cooper: Well, it's Steve. David, as you indicated we can't go into specifics, that being said we've had very productive discussions with all of our partners whose deals have either a expired or are going to expire in the near term. And pretty confident that between what they've requested in between what we've requested, will get to an amicable meeting of the minds in a relatively near term horizon. And I think that, we'll end up with a very, very balanced, well thought out commercial relationship as we move forward.

I understand the sensitive nature of it. The business overall continued to perform quite well, that's -- the Publishing side performed a bit better than we had expected. I guess I was curious what are some of the bigger -- biggest drivers that drove this 59% constant currency growth. If you could walk us through that a little bit more that would be helpful and then I just had one final and that's it? Thanks. Stephen F. Cooper: So on Publishing growth, I think there's a few things to note. So one, and I think the thing I would point to first, so Jon Platt and the management team that's currently leading Publishing has been in place for close to 2 years now. Their strategy of being incredible and our leaders and partners in the industry helping develop apps [ helping to find composers and songwriters, partner them with the right recording artists and other composers, creates a real hit-making capability, which has been driving up our market share and we think that's meaningful significant and worthy of note. The second piece is also the industry is growing and we know in some cases -- in publishing especially where they get paid through Performance Rights Organizations streaming revenue comes through with a lag. So some of the growth that we were seeing in Recorded Music accelerate last year, you see really coming through in Publishing this year. Between those two factors, I think it's a really positive environment for growth in Publishing.

And then you mentioned in [indiscernible] you ended the quarter with a high cash balance and then you paid $30 million, [ specially ] I see that. But even that said, it's still pretty high. So if you could share with us just again updated thoughts on where you'd like to put the cash, perhaps if there's anything you're looking at? And how you think about that given the pretty delevered balance sheet that would be helpful? And then, that's it from me. Thanks. Stephen F. Cooper: We actually look at -- what we believe is the best use for our excess cash, David. The first we -- is, how do we reinvest that cash in the business, whether it's organic or through M&A to continue to drive profitable, emphasis on profitable growth. That generally is our first priority. Our second priority is to evaluate if we don't have those opportunities, how we should continue to manage down our debt. And then our third priority, once we've [indiscernible] with one and two is returning capital to our shareholders to the extent we don't have better alternative uses. Our shareholders frankly prefer us to focus on #1 and that's what we continue to do.

Is there anything specific that you can share with us in terms of growing the business that you are looking at currently? Stephen F. Cooper: We're always looking. We have a number of irons in the fire, but -- as my dad used to tell me, don't count to chickens before they're hatched. So we can't go into any specifics. It wouldn't be in our best interest and collaterally in your best interest.

Your next question comes from the line of Aaron Watts of Deutsche Bank.

Nice growth in Recorded Music, I was just curious if there was anything one-time in nature, lumpy that was providing a boost in licensing or sync or artist services that we perhaps shouldn't extrapolate to the September or December quarters? Stephen F. Cooper: No, I don't think there was anything off note that was one-time, that would cause a lumpiness there. Look, those businesses based on artist concert tours and things like that have a flow to them, that's not necessarily completely consistent year-to-year, but there was nothing significant or one-time in those areas.

And you highlighted the improvement in working capital, any levers or drivers you can point out that helped fuel that movement?

Again nothing specific, it's our standard process. I think we spoke last year, that last year we really installed a very aggressive working capital management program globally across the company and I think that is really allowing us to manage all the tools to make sure we're maximizing our cash flow within our operating means. So nothing specific, nothing one big lever that was pulled this quarter, ordinary course using our kind of best practices.

And last one for me, a little bit bigger picture maybe for Steve. You talked about the low penetration rate today of page streaming on a worldwide basis. Maybe you could just give us some thoughts, specifically on the U.S. and worldwide on where you think that penetration can go to realistically over the next 3 or 5 years as a percentage of population or mobile penetration, just however, we should be thinking about the real opportunities there?

Well, I think that, we start with the premise that Music is something that is universally embraced by virtually everybody on the planet. Sometimes the emphasis is on Anglo, sometimes local language, but music from our perspective has been around from the dawn of time and will continue to be consumed by people in every walk of life on every part of the planet, so that's kind of our underlying assumption. With that being said, technology, whether it be tethered to a computer, whether it be tablets and mobile devices have begun to make music more available and make it more consumable than any time in our history. If you look at the Nordics, you see climbing double-digit penetration. When you look at the United States, I think it's now in low double-digits, it's that way and much of Western Europe. And we're beginning to see the consumption of music grow in emerging markets. I think that, over the long haul to expect meaningful double-digit penetration globally, obviously with different economic models, is not an unrealistic expectation Aaron. I don't know if you saw the Wall Street Journal article this morning on the changes in India, but consumption is exploding. It's taking a somewhat different shape, it's mostly in video form as opposed to texting or e-mail, but that includes the ongoing consumption of music. So I think while the models will be different. You know, I see micro-payment models in parts of the world, I see in emerging economies, whether it's micro payments or smaller subscription rates, we do see that coming and I think that we will continue to see positive growth from a macro basis for the foreseeable future.

[Operator Instructions]. Your next question comes from the line of Lisa Yang with Goldman Sachs.

I have a few questions please. Firstly, is your impressive streaming growth of 59%, we also saw Sony reporting 25 for the last quarter. So just wondering, I mean -- or do you continue to just gain significant market share or is there anything kind of maybe more specific to explain the lower growth rate? Secondly is on your comments around the higher variable compensation. Just wondering, is it related to certain contracts, so maybe that this is step-up in terms of the variable payments to for instance artists or is it more related to industry and streaming where you're just seeing -- you just have to pay a higher variable fees to artist? And lastly is on the emerging markets and the changes that you just talked about, I'm just wondering if you can give us a bit more color on the label [indiscernible] differential you're seeing there. If you look at the IFPI numbers, 2016 looks like the global branded all placed around kind of 45, so just wondering if you can just give us a bit of [ savings ] as where we are in the emphasis behind that number? Thank you.

Okay. Well, I'll tackle the first two and then ask you to clarify the third. But our streaming growth obviously, I wouldn't compare it. You'll have to talk to Sony about their results. But our streaming results continue the solid strength. We've been delivering 50% growth, most of last year and this year on a percentage basis. This continues those strong trends. That's part of our strategy of continuing to deliver high volumes of great music around the world. We're well aware of the genres and types of music that perform extremely well on streaming. And I think this is a result of our successful execution of our strategy from our operators throughout the world. Stephen F. Cooper: Yes, Lisa. I also think that we made it a point to embrace technology and determine how we can utilize technology to grow music and this is how we pursued stream. We saw this as a technology that held a number of years ago, great promise for the future. And made a day, point inside of our organization to understand it, understand how to best utilize for the growth of our business and we do that, not only with streaming but other technologies that we're looking at.

On your second question Lisa, on the variable comp, so we have a long-term [indiscernible] plan for certain executives in the company. It has a deferred payout that starts towards the end of 2018. It's a multi-year program like many companies have and is directly tied to the company's cash flow and performance. And so that is as a company performs better those costs increase. And you had a third question Lisa, would you mind that just repeating and clarifying, so I get that clearly?

Yes, sorry about that. I was just wondering, if you look at the [indiscernible] paid streaming user in emerging market versus developed world, if you could, maybe give us a sense of -- what's the magnitude of difference between the two. And do the labels also get smaller cut of the overall payments in [indiscernible] I think on the average above 60%, just wondering if in emerging markets that count is much lower?

So I wouldn't comment on terms of deals and talk about cuts in different markets and things like that. I can't talk about -- we can talk about kind of streaming development in emerging markets, which I think was the first portion of your question. Obviously, different markets around the world have very different dynamics. There are markets like Japan and Germany and France, that still have large physical businesses, although streaming is growing rapidly. There are markets like the Nordics that are already dominantly streaming, although there is still growth in streaming. When we focus on emerging markets, you have many different dynamics in subsets, but if I were to generalize, in many of those markets you didn't have a strong historical physical business, in some case you didn't have a strong download business. You may have had a more instances of piracy or a bigger piracy problem. In general in those markets streaming represents a really attractive solution that's gaining real traction. That is bringing people into the legitimate paying ecosystem and helping those markets grow from an industry standpoint quite substantially. As Steve mentioned a few minutes ago, in some of those markets where the economy isn't that strong as fully developed Western markets or fully developed economies, not just Western markets, you may have a lower subscription model of price or other easier price points for people to get into the streaming business and become streaming consumers. But the growth rates are just still quite rapid and developing quite attractively. So we're very optimistic about emerging markets throughout the world and how subscription is getting traction and really helping those markets grow their Recorded Music revenue both in the immediate term, but especially in the long-term.

And we have no further questions at this time. I'll turn the call over to Steve Cooper for closing remarks. Stephen F. Cooper: Thanks for your time everyone. I hope you all have a great time for the balance of the summer and a great Labor Day, and we'll talk to you in a few months. Bye-bye.

This concludes today's conference call. You may now disconnect.