Warner Music Group Corp. Q2 FY2025 earnings call

• Strategy focus: Three priorities - grow market share, grow the value of music, and become more efficient.
• Recorded Music: New signings and returning superstars performing well, e.g., Teddy Swims, Benson Boone, Rose, Bruno Mars; strong chart presence on Spotify and Billboard.
• Music Publishing: Warner Chappell swept billboards publishers quarterly, Daniel Blumberg won an Oscar, and new signings like Diplo and Yandel; strong performance in streaming, performance, sync, and mechanical revenue.
• Technology: Beta launch of WMG Pulse app offering real-time insights; investment in digital supply chain, financial transformation, and data infrastructure.

Total revenue increased 1% in Q2. Recorded Music revenue grew 1%, with subscription streaming growing 3%. Music Publishing total revenue increased 3%. Recorded Music adjusted OIBDA increased 1% with a margin of 23% (an increase of 10 basis points). Music Publishing adjusted OIBDA increased 5% with a margin of 27.4% (an uptick of 50 basis points). Q2 operating cash flow increased to $69 million from a use of $31 million in the prior year quarter. Free cash flow increased to $33 million from a use of $57 million in the prior year quarter.

• Expect challenges experienced this quarter to persist for the remainder of the fiscal year, resulting in lower subscription streaming growth than previously expected.
• Plan to have more news about M&A investment plans in the near future.
• Will provide updates on business and capital allocation priorities on the next earnings call.

• Market share pressure in China.
• Lighter release schedule and tough year-over-year comparisons in subscription streaming.
• Soft ad environment.
• Potential impact of AI and regulatory changes related to music rights.

Q: Michael Morris of Guggenheim Securities asked about confidence in Warner Music's positioning and subscription streaming growth for the year.

A: Robert Kyncl mentioned the strategy of growing market share, value of music, and efficiency, with early signs of success in chart shares and tech products, and expected similar trends as in Q2 for the balance of the year.

Q: Benjamin Black with Deutsche Bank asked about global market share strategy and China impact.

A: Robert Kyncl talked about developing markets and ongoing work with partners, and expected the same trend from China to continue for the balance of the year.

Q: Kutgun Maral with Evercore ISI asked about timing of flow-through of DSP renewals.

A: Robert Kyncl said most clear way to say it is there's still more work to do on agreements.

Q: Batya Levi with UBS asked about what changed versus original expectation for high single-digit subscription growth and about the release slate.

A: Robert Kyncl and Bryan Castellani discussed tough comps, ad market, release schedule, etc.

Q: Kiscada Hastings on for David Karnovsky asked about label management philosophies.

A: Robert Kyncl said there are different approaches but shared insights among label executives.

Q: Stephen Laszczyk with Goldman Sachs asked about A&R investments and margin outlook.

A: Robert Kyncl talked about repertoire lens and Bryan Castellani discussed margin factors like revenue mix, reinvestment in tech, and A&R spending.