Welcome to Warner Music Group's Second Quarter Earnings Call for the Period Ended March 31, 2019. 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'd like to turn today's call over to your host, Mr. James Steven, Executive Vice President and Chief Communications Officer. You may begin.

Good morning, everyone. Welcome to Warner Music Group's fiscal second quarter ended March 31, 2019, conference call. Both our earnings press release and the Form 10-Q we filed this morning are available on our website. Today, our CFO, 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, our 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, let me turn it over to Steve Cooper.

Good morning, everyone, and thanks for joining us. I'm pleased to say our second quarter results reflected our continuing positive momentum. Specifically, we grew total revenue by 18%, digital revenue by 25% and OIBDA by 26%. Once again, we drew our strength from a diverse range of music. Among our Recorded Music bestsellers were K-Pop girl group, Twice; the global sensation of The Greatest Showman soundtrack; rock band, Panic! at the Disco; electronic pop band, Clean Bandit and hit pop stars, such as Meek Mill and Cardi B. On the publishing side of our business, Warner/Chappell songwriters are contributing to many of today's biggest global hits, including Swae Lee and Carter Lang for Post Malone Sunflower, Taylor Parks for Panic! At The Disco's High Hopes, Tay Keith for Travis Scott's Sicko Mode and Rico Love for City Girls Twerk to name just a few. We continue to attract a wide variety of new and established songwriting talent from Argentinian Trapstar, Echo to the Dutch rapper Boef and from legendary theatrical composer, Stephen Schwartz to country singer Ashley Malone. Our ability to nurture artists and songwriters at all stages of their careers was reflected in our strong showing during the awards season. At the Grammys, all of our labels shined with big wins for Elektra's Brandi Carlile, Warner Brothers, Dua Lipa, Atlantic's Cardi B and Warner Music Nashville's Dan + Shay. At the Brits, the 2 biggest British artists in the world right now, Warner Brother's Dua Lipa and Atlantic's Ed Sheeran were recognized for a phenomenal, phenomenal 2018. At Warner/Chappell, Kacey Musgraves picked up 4 Grammys, including Album of the Year and Ludwig Göransson collected best song and recorded year owners for co-writing Childish Gambinos, This Is America. Ludwig also took home the Oscar for Best Original Score for Black Panther. Although we are always striving to outperform our competition, we're not having success in a vacuum. The global recorded music industry grew revenue by 10% in 2018 according to IFPI. Subscription streaming rose 33% with the number of paying customers up 45% to $255 million. Even with these strong trends, there's still plenty of room for user growth. Paid streaming penetration remains low. It's about 3% of the global population and 7% of smart device users. In the Nordex, arguably the most mature streaming region, less than 50% of mobile internet users are currently paying for streaming. And in the U.S. and U.K., two of the largest recorded music markets in the world, the penetration level is only half of that at around 25%. Other significant markets are beginning to catch on. For example, 2018 marked the first year in which streaming was the largest source of revenue in both Germany and France. Developing markets continue to offer huge untapped opportunities. There are more possibilities for talent from anywhere to burst onto the stage everywhere, as well as for established superstars to connect with new fans around the world. We continue to believe that voice-activated technology will be a powerful driver of streaming growth across different age groups and around the world. As just one example, Amazon recently took the step of launching an ad-supported tier for its music subscription service via its Echo devices. This adds an easy-to-use feature that will potentially help convert millions of Amazon customers to music subscribers. We remain committed to expanding our global footprint. Just last month, we unveiled a new office in Peru where revenue growth is outpacing the Latin American region as a whole. In March, we announced a licensing deal with Boomplay, Africa's largest digital music service and a partnership with Chocolate City, one of Nigeria's leading record labels. We have also strengthened our presence in Turkey by launching a collaboration with the influential media company, the Dogan Group. With a lot of growth coming from emerging markets, we acknowledge that increases in revenue will not always keep pace with rising paid subscribers and free user numbers. That being said, we're going to continue to push back against the devaluation of our artists and songwriters music from freemium models, mismanaged family plans and another customer acquisition strategies employed by streaming platforms at the expense of creators and content producers. To unlock the full potential of the global music business, we need to work closely with our distributors to achieve the right balance in meeting consumer demand and appropriately compensating the creative community. Recent public policy developments have also been helpful in working towards that goal. Following the enactment of the Music Modernization Act in the U.S. last October, we welcome the recent approval by the European Parliament and the European Council of the copyright directive. This ground-breaking legislation clarifies that user-uploaded content platforms can no longer exploit safe harbors and will be liable for copyright infringement if they do not take down and keep down unlicensed music. The copyright directive should improve monetization and reduce the administrative burden that is currently imposed upon rights holders. Before I hand it over to Eric, I wanted to highlight some organizational moves that we made this last quarter. We further strengthened our already best-in-class operating team by bringing in highly respected music executive, Guy Moot, as Co-Chair and CEO of Warner/Chappell. We have hired widely respected music entrepreneur, Scott Cohen, as Chief Innovation Officer for Recorded Music, and we've promoted one of our young leaders, Eliah Seton, to President of Independent Music & Creator Services. Secondly, I'm pleased to say that our spectacular downtown LA office is now open for business. Our teams across Recorded Music and Publishing are now collaborating at one cutting-edge destination, complete with recordings studios, live performance spaces and artist launches. Finally, I want to pay tribute to Nipsey Hussle who was a brilliant creative soul and an exceptional human being. Our deepest condolences go out to his family, his friends and his fans around the world. Nipsey was at the height of his powers and he left us far too soon. I'll now turn the call over to Eric.

Thank you, Steve, and good morning, everyone. The second quarter was strong with reported revenue growth of 13% or 18% in constant currency. There are a few factors impacting the numbers that I'd like to call out on a constant currency basis. First, the net impact of M&A, which was about 3 percentage points. The revenue increase includes $51 million related to the acquisition of EMP, which was partially offset by a $24 million decrease related to concert promotion divestitures. Second, the impact of adopting the new revenue recognition standard, ASC 606, which increased revenue by $10 million or about 1 percentage point of revenue growth on a consolidated basis. As a reminder, the impact of 606 is expected to be immaterial for the full year. Third, we booked revenue of $18 million related to our license with Sirius XM for pre-1972 sound recordings, representing another 2 percentage points of growth. Adjusting for these items, our total Q2 revenue would still have been strong, up close to the 12% in constant currency. From an OIBDA perspective, certain adjustments are also necessary to make the year-over-year comparisons more meaningful. The details are in our press release. But in the quarter, we had $8 million of onetime expenses related to restructuring and our LA office consolidation down from $29 million in the prior year quarter related to restructuring, the LA office and our national shared service center. Q2 adjusted OIBDA rose 10% to $199 million. The improvement was driven by revenue growth, $11 million lower expense related to our variable compensation plan and a $9 million increase related to Sirius XM pre-72 license, offset by a $4 million decrease related to the implementation of ASC 606. Adjusted OIBDA margin declined 0.5 percentage points to 18.3%, due primarily to the impact of ASC 606 in publishing. Our Recorded Music second quarter revenue was up 22% with digital revenue up 26% driven by a 34% increase in streaming. In the quarter, streaming revenue was nearly 10x that of downloads and over 4x as large as physical. Physical revenue declined 8% due to industry trends and a tough comparison with the physical-centric, The Greatest Showman soundtrack in the prior year quarter. Licensing declined 4% with 13% adjusting for ASC 606 due to timing of payments. Artist services and expanded rights revenue more than doubled. Adjusting for the impact of M&A, it was still up 51% due to higher merchandise and concert promotion revenue in international markets. Recorded Music adjusted OIBDA grew 21% to $185 million driven by revenue growth, lower variable compensation expense and the pre -- and the SIRIUS XM pre-72 license. Adjusted OIBDA margin improved 0.4 percentage points to 19.8%. Q2 Music Publishing revenue declined 6% or 7% adjusting for the adoption of 606. Digital revenue rose 18% or 15% adjusting for 606. Performance declined 18% or 20% adjusting for 606 due to lower market share and lost administration rights, which have a lower margin. Mechanical, which only relates to physical sales, declined 35% or 30% adjusting for 606, due largely to the shift to digital. Sing declined 9% or 6% adjusting for 606 due to lower activity. Music Publishing OIBDA declined 22% or down 2% adjusting for 606. Margin declined 4.8 percentage points to 29.7%, but was up 3.3 percentage points to 37.8% adjusting for 606 due to revenue mix. Operating cash flow in Q2 was $7 million versus a de minimis amount in the prior year quarter. The change was largely due to the impact of 606 on working capital as well as timing of payments. CapEx was $33 million, up from $13 million in the prior year quarter. The increase was driven by spend related to the build-out of our new LA office. We continue to believe that an appropriate run rate CapEx spend for our business is in the $50 million range but full year '19 spend could be about $100 million related to our LA office. We are currently evaluating enhancements to our IT financial infrastructure, which should result in cost savings in the mid to long term, but would create incremental expense in the near term. We ended the quarter with $470 million of cash. Investing in our business remains our top priority for cash uses. We have more than ample funds to do that while still being able to issue dividends. In early April, we paid a regular quarterly dividend of $31.25 million. Post quarter end, we financed our 5.625% dollar notes with an additional EUR 195 million, up 3.625% euro notes, which will save us about $4 million in annualized interest expense. The 3.625% notes were issued on April 30, and we issued a call for a redemption of the 5.625% notes on May 16. Following the redemption of the notes, our blended cost of debt will be 4.6%. I'm pleased with our Q2 performance and optimistic that the full year will also be strong. With that, operator, please open the line for questions.

[Operator Instructions]

Operator, I guess we have no questions. So thanks, everybody, for joining us. I hope you have a wonderful spring and summer, and we'll talk to you soon. Thanks so much.

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