Welcome to Warner Music Group's Fourth Quarter and Fiscal Year and Earnings Call for the period ended September 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, everyone. Welcome to Warner Music Group's fiscal fourth quarter and year ended September 30, 2017 conference call. Both our earnings press release and the Form 10-K 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 or results 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, our 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 Cooper.

Good morning, everyone, and thanks for joining us. Today, we're reporting our fifth consecutive year of global revenue growth. And for the last 2 years, we're up double digits. Over that same 5-year period, our OIBDA has gone from $333 million to $473 million, and our margin has grown by 1.6 percentage points. Our year-end cash balance was $647 million, the highest level in our history as a standalone company. These results reflect the fact that we've been outperforming the industry in an environment where the music business is beginning to return to health. Turning to the numbers for 2017. We grew total revenue by 12%, digital revenue by 26% and we generated cash from operations of $535 million. Our OIBDA for the year declined 7%. This was due to increased A&R investment and a material step up in deferred compensation, tied to the increase in the value of our company. Although the decline in OIBDA is unfortunate, the underlying factors continue to reflect our ongoing success. Before we dive into the specifics, I want to touch on the industry picture. You may recall that worldwide Recorded Music revenue grew 3% in calendar '15 and 6% in calendar '16. While full year '17 performance won't be available for a few months, the early read is very encouraging. At 3 years into the recovery, 2017 is likely to show the strongest year-over-year growth in almost 20 years. As we've said before, paying music subscribers represent only about 2% of the worldwide population, so there is tremendous room for growth across different audiences and territories. However, growth shouldn't be taken for granted, and we must not get carried away after only 3 years of relatively good industry news. Our streaming revenue grew an amazing 51% this fiscal year. It's by far Recorded Music's largest revenue source, now 44% of the total, and it's on track to be publishing's biggest revenue source in the near term. As you may have read in the press, we recently signed new deals with some of the biggest companies in the subscription space. We're confident that we arrived at a balanced set of deal terms, which will help maintain our growth trajectory. These renewed partnerships should benefit the entire music ecosystem. That being said, we're not complacent or relying on a rising tide to lift our boats. In order to deliver long-term growth, it's essential that we balance short-term results with sustained investment for the future. Our belief in the value of music is underscored by the fact that during fiscal '17, our A&R expense was about $1.3 billion, that's more than a 1/3 of our global revenue. We're not simply investing more, but more wisely, in order to produce today's hits, support our current roster of artists and songwriters and develop the hit makers of tomorrow. At the same time, we continue to create partnerships and pursue acquisitions that will supplement our organic growth. For example, over this summer, we acquired Spinnin', one of the world's leading independent dance music companies. Headquartered in the Netherlands, Spinnin' is the home of successful Recorded Music, Music Publishing and Artist Management divisions. In October, ADA, our independent sales marketing and distribution network, expanded its relationship with BMG, the fourth-largest international music group, to include distribution of Broken Bow's roster, including artists such as Jason Aldean and Dustin Lynch. Just as we invest in the careers of our artists and songwriters, we're committed to the development of our people and their skills. Over the past year, we made moves all over the world to bring in fresh expertise as well as to offer new opportunities to our existing executive talent. Our CEO of Recorded Music, Max Lousada has made some really great hires, including Tom Corson and Aaron Bay-Schuck, as a new leadership team for Warner Bros. Records in the U.S. He's also brought in Rani Hancock as the President of the relaunched Sire records and promoted Mark Mitchell to Co-President of Parlophone. We've also appointed new managing directors at our Recorded Music companies in Thailand, the Philippines, Finland and Australia. At Warner/Chappell, Eric Mackay was promoted to oversee its global digital strategy, while Santiago Menéndez-Pidal was recently appointed to head our Spanish operations as part of our ongoing rejuvenation in Europe. Our investment across A&R, M&A and our executive team is paying off. In '17, our revenue again jumped double digits in both Recorded Music and Music Publishing, up 12% and 11% respectively. We grew worldwide with the U.S. up 17%, Latin America, 22%; Europe, 8%; and Asia, 7%. All over the world, 2017 was a great year for our artists. Once again, we showcased the diversity of our roster, including superstars like Ed Sheeran and Bruno Mars; developing artists such as Dua Lipa, Cardi B, Lil Uzi and Lil Pump. International names like Danny Ocean; and local talent such as Twice in Japan. Fiscal '18 is already off to a great start with a busy release schedule, including new music from Kelly Clarkson, Sia, Liam Gallagher and international talents like Pablo Alboran in Spain and Bausa in Germany. In Publishing, Jon Platt's leadership is taking Warner/Chappell and its songwriters to new heights. We're having an incredible run, capped by being named the #1 music publisher by Billboard in the U.S. during the most recent quarter. What makes this so impressive is that we are outperforming larger competitors and our success is driven by songwriters from all over the world: Kendrick Lamar, Skepta, [ Launis ], Justin Tranter, Julia Michaels, and Marteria. Warner/Chappell is punching above its weight and continues to be recognized as the home of the biggest and best songwriters in the world. During country music week in November, Warner/Chappell and its songwriters took home a company record 41 awards from the 3 major performing rights organizations, including Publisher of the Year at both ASCAP and SESAC. I should mention that this is the fifth consecutive year, we've won that honor at ASCAP. Last week, our artists and songwriters had yet another great showing with, multiple nominations for the 60th Annual Grammy Awards. Our talent was recognized up and down the roster with nods in over 50 categories spanning some 20 musical fields. Of note, Atlantic's Bruno Mars, who was also recently named Artist of the Year at the AMA's and Warner/Chappell's Jay-Z, both landed nominations in the top 3 categories. Atlantic was a standout, landing 27 nods in total and Warner/Chappell picked up 24. We wish all of our nominees the best of luck at the awards in January, which for the first time in 15 years, will be held in New York City. It feels great to share this fantastic performance with you. Our teams around the globe are doing an incredible job, and we're positioned for a bright future. Finally, I'd like to take a moment to pay tribute to Tom Petty, one of the most distinctive voices in rock music. Tom was an incredible songwriter, performer, guitarist and bandleader. We join with millions of fans around the world in mourning his passing. With that, I'll now turn the call over to Eric.

Thank you, Steve, and good morning, everyone. Our momentum is solid and sustainable. We are driving revenue growth and turning it into cash, ending the year with nearly $650 million on the balance sheet, the highest level in our history as a standalone company. This is even after stepped-up investments in A&R and M&A. While every year may not be as great as the one we've just had, we're confident in the long-term path of our business. Turning to our fiscal '17 results. Total revenue grew 8% for the quarter and 12% for the year. We recently completed the divestments to the independent label community related to our purchase of Parlophone Label Group. These assets had about a 3% impact on revenue growth for the quarter and 2% for the year. There will be continued modest impact of these sales into 2018, given the timing of deals. From an OIBDA perspective, certain adjustments are necessary to make the year-over-year comparisons more meaningful. The details are in our press release. But in the quarter, we had a net $1 million gain versus a $1 million loss in the prior year quarter. The adjustments relate to our PLG-related asset sales, our headquarter move in L.A. and the move of our U.S. shared service center to Nashville. For the quarter, adjusted OIBDA declined 52% to $59 million. The decline was largely driven by the higher deferred variable compensation expense, Steve referenced as well as investment in A&R, timing of marketing and the impact of revenue mix. While we've mentioned higher variable comp expense as a factor over the past few quarters, in light of our consistently strong performance, there was a material step up in the fourth quarter. This is attributable to our long-term incentive plan, the value of which is tied to the increase in the value of our company. For the year, adjusted OIBDA declined 3% to $486 million, and margin declined 1.8 percentage points to 13.6%, primarily due to higher variable comp expense and increased investment in A&R. In Recorded Music, fourth quarter revenue was up 9%, with digital revenue up 20%, driven by a 41% increase in streaming. Physical revenue declined 11%, licensing was down 1% and artist services and expanded rights revenue rose 3%. Recorded Music adjusted OIBDA declined 48% to $50 million, and Recorded Music adjusted OIBDA margin declined 6.5% from 13.8% in the prior year quarter. The decline relates to higher variable comp expense, increased investment in A&R and timing of marketing spend and the impact of revenue mix. For the quarter, Music Publishing revenue rose 3%, digital rose 6%, Performance rose 4%, with continued strength in the U.S., sync fell 4% and mechanical was flat. Music Publishing OIBDA declined 2% or $1 million to $55 million, and OIBDA margin declined 2.2 percentage points to 35.9%, driven by timing of legal settlements. Cash flow is a standout. Our operating cash flow in Q4 was $226 million, up from $135 million in the prior year quarter. For the year, operating cash flow was $535 million versus $342 million in the prior year. This was driven by increased revenue and ongoing working capital management. For the year, CapEx came in at $44 million. We spent less in 2017 than expected for the strategic build-out of our LA offices, but this will ramp-up in 2018. We continue to expect the build-out to result in incremental CapEx of about $50 million. As such, our estimated CapEx for 2018 is currently in the range of $90 million. Our new Nashville shared service center is up and running and on track to deliver net savings. Over the past year, we've taken several more steps to optimize our capital structure, including a bond deal, a series of refis, including the term loan rate repricing that launched last week. Through continued management of our capital structure, we've been able to reduce our cost of debt to 4.9% from 5.3% in 2016 and our annualized interest expense has come down by over $20 million this past year alone. PLG-related asset sales and sales of other non-core assets generated $73 million in cash in fiscal '17. We spent $139 million on investments and acquisitions this year, above recent levels, but rest assured, our commitment to ROI is unchanged. Importantly, given the health of our balance sheet, our acquisitions were funded entirely with cash. Our priorities for cash remain unchanged, with investment in the business, our artists and songwriters at the forefront. We'll also continue for looking to -- for ways to optimize our capital structure. After funding our growth, we will periodically consider cash dividends. In 2017, we paid out $84 million. We'll remain flexible, noting that given our strong cash position, we have ample room to grow our business and also issue dividends. I'm proud of our global teams for driving another strong year and look forward to updating you on our performance next year. With that, operator, please open the lines for questions.

[Operator Instructions] Your first question comes from the line of Aaron Watts with Deutsche Bank.

Just a couple of questions for me. I think, Steve, I heard you say with A&R being around 1/3 of global revenues, I'm curious if you think there is a normalized level we should think about going forward for A&R spend relative to sort of what we've seen historically in trends?

I think we're going to continue at least for the foreseeable, Aaron, to take an aggressive approach to A&R. Music is at the core of everything we do. And not only building our artists -- our existing artists' careers, requires ongoing A&R investment, but to find and build the careers of yet undiscovered artists also requires that investment. So I would expect to see our A&R spend to continue to be aggressive and continue to be a meaningful percentage of revenue.

Okay. And then, secondly, just curious, the latest themes you're seeing and differentiated trends in digital streaming, and people paying for it here in the U.S. versus Europe? And what you think that means vis-a-vis the sustainability of the growth you're currently seeing and where that can head?

Well, I think that, as both Eric and I mentioned, that when you look at the current population of subscribers, in fact, even when you look at the current population of subscribers plus free users, it's really a very, very small percentage of the global population. Europe's growth, in certain parts of Europe, will slow down because, particularly in the Nordics, there's a very, very high percentage of music attributable to streaming. The U.S. looks like it still has substantial growth. And the rest of the world is in the process of coming up to speed as smart devices proliferate. So I continue to believe that we're going to see meaningful double-digit growth for at least the near future. What we will see, Aaron, is as streaming penetrates more heavily into the developing and emerging economies, I think we should expect that the average revenue per user will decline, because the pricing that has prevailed in Europe, Canada, the United States won't hold for many parts of the world. And we've already seen examples of that.

And your next question comes from the line of Davis Herbert (sic) [Hebert] with Wells Fargo Securities.

You mentioned, Steve, you had recently renewed deals with streaming partners. I wonder if you could provide who those major streaming partners are? And how much runway we're looking at in terms of years until we see a new spate of renewals?

Well, our -- obviously, our major counterparties are Spotify, Apple, Google, YouTube, Amazon, Deezer and then dozens of smaller counterparties. Most of our deals, Davis, run 2 to 3 years. So on that basis, we will be back at the table in -- with most of our counterparties in '19 or '20.

Okay, that's helpful. And I know you touched on aggressively investing in A&R. And obviously, we've seen a sea change in how people are consuming music, your top line certainly shows that. How has A&R expenses changed in terms of, not necessarily amount, but the makeup? I mean how are you investing differently today than perhaps you did 4 or 5 years ago?

Well, we've -- from my perspective, we have, by far in a way, the best operators in the business. And what we've done over the last 4 or 5 years is combined their experience and their judgments with more and more mining of data. And so we are taking the combination of incredibly good operators, combined with mining data, to create wider and wider nets for finding artists. And in this world of consumption, our net always has to get wider, we have to find, discover and build more artists, not only consistently, but constantly throughout the year. So we have broadened our reach, we've deepened our reach, and we are building our rosters as we speak, Davis, and that's going to continue.

Okay, that's helpful. And on the Music Publishing side, it seemed to be a little bit of a step down in revenue growth for the quarter. And I never look at Warner on a quarter-to-quarter basis, I think, it's more reflective to look at it on a more of a 12-month basis, but I just didn't know if there was something happening in the Music Publishing business to say that we might see a slowdown in growth? Or should we expect things to kind of normalize in the next calendar -- I'm sorry fiscal year?

Thanks, Davis, this is Eric. No, you made the right point, even in your question, and so Music Publishing, which has a portion of revenue, which is released from societies, which can be processed in a somewhat uneven fashion, there will be these kind of quarterly waves. But you're right, over an annualized basis, I think you see a more consistent picture, and we absolutely expect the growth that we've seen in Publishing to continue to be solid. The streaming revenue, which in past years, we were saying was lagging in Publishing, because it often gets processed through societies with a lag of 1 to maybe -- 1 year to maybe 18 months, has been showing through really strongly this year, and we expect that to continue and Publishing revenue continue to have a solid growth trajectory.

Okay. And on that same note, just kind of looking at your revenue growth and the expenses -- the heavier expenses this quarter, I mean, would it be fair to say you would expect EBITDA growth over the next 12 months?

So we don't give forecast, but we certainly always shoot to drive our business for both top and bottom line growth. We feel very good about our release schedule this year. We feel very good about our continued cost management plans and so we absolutely continue to drive for growth, and that is absolutely what we expect to achieve.

Okay. And then last question from me. You have the 6.75% senior notes callable fairly high coupon. You pointed out your cost of capital is coming down meaningfully. Just wondering -- and you're also sitting on a lot of cash, and so I wonder if you could walk us through plans for the balance sheet for the near term?

Well, we don't have -- so you're right, the 6.75s are callable in the spring. We're aware of that and are currently evaluating what our steps are as we've shown over the past 2 years, we're continuing to look at ways to optimize our capital structure, and that's absolutely something we're evaluating. What I would say is, when you talking about our cash balance and use of cash, we continue to focus on the priorities that we've talked about in the past. And first and foremost for us, is investing in growth, whether it's organic investment or strategic M&A that has [indiscernible] . In the past quarter, we acquired, as Steve mentioned, Spinnin', which is a larger acquisition that we've done -- than we've done the past few years. We were able to do that with cash and still end the year with $647 million of cash on the balance sheet. We then go and look at optimizing our capital structure. We've done a series of refis to reduce our cost of capital. We'll continue to look opportunistically at ways to optimize our capital structure and we balance in with that, dividends. We issued $84 million of dividends this year and again still ended the year with significant cash. And I think there's room for a balance of those 3 going forward.

If you could return to the dividend, you said that -- what was that in the fiscal year?

In fiscal '17, we had $84 million of dividends.

[Operator Instructions] And we have no further questions at this time. I'll turn the call over to Steve Cooper for closing remarks.

So everyone, thanks again for joining us today. And all of us here at the Warner Music Group wish all of you a safe and wonderful holiday season. And we will, God it has come so quickly, I hate to say this, we'll chat with you in 2018. So everybody, have a wonderful holiday. I hope you all get some time off with your families and we'll talk to you soon. Bye-bye.

And this concludes today's conference call. You may now disconnect.