Operator: Welcome to Warner Music Group's Second Quarter Earnings Call for the period ended March 31, 2024. 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. Now I would like to turn the call over to your host, Mr. Kareem Chin. Head of Investor Relations. Please, you may begin.

Kareem Chin: Good morning, everyone, and welcome to Warner Music Group's Fiscal Second Quarter Earnings Conference Call. Please note that our earnings press release, earnings snapshot and Form 10-Q are available on our website. On today's call, we have our CEO, Robert Kyncl; and our CFO, Bryan Castellani, who will take you through our results, and then we will answer your questions.

Before our prepared remarks, I'd like to refer you to the second slide of the earnings snapshot to remind you that this communication involves forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. We plan to present certain non-GAAP results during this conference call and in our earnings snapshot slides and have provided schedules reconciling these results to our GAAP results in our earnings press release. All of these materials are posted on our website.

Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency, unless otherwise noted. Our references to normalized revenue and adjusted OIBDA are adjusted for items that impact comparability. The details of these can be found in our filings. 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 filings with the SEC. And with that, I'll turn it over to Robert.

Robert Kyncl: Thanks, Kareem. Good morning, everyone, and thank you for joining us. I am pleased with everything our global team is doing to deliver for our artists and songwriters and drive our business forward.

In Q2, total revenue increased 7% with Recorded Music and Music Publishing increasing 4% and 19%, respectively. On a normalized basis, total revenue grew 9% with Recorded Music up 7%. The Recorded Music streaming revenue increased 11%, led by subscription streaming growth of 13.5%. This was driven by stronger music performance as well as subscriber growth and subscription price increases.

Total adjusted OIBDA increased 9% or 10% on a normalized basis. In Recorded Music, we continue to break new artists, build global careers and mine our extraordinary catalog. This quarter, we saw massive hits from artists across different genres in all stages of development, exactly the kind of mix we want. Benson Boone and Teddy Swims are standout audit development stories of the year. They are also both signed to Warner Records as recording artists as well as to Warner Chappell as songwriters.

During the quarter, Benson Boone reached #1 on Spotify global chart, while Teddy Swims and Megan Thee Stallion individually hit #1 on the U.S. Hot 100chart. Benson, Megan and Teddy all spend weeks in the Hot 100 top 10, alongside carryover hits from Jack Harlow and Zach Bryan. Around the world, we also had #1 from Myke Towers, Green Day, Jolie and [Blast].

We also continue to attract outstanding global talent with recent signings, including India-based Superstar, Nora Fatehi, top Ukrainian rock band, Okean Elzy and legendary multi-Grammy winning icon, Angélique Kidjo. It's encouraging to see our audits creating bodies of work with real staying power.

These new releases are our catalog of the future. Here are some great examples of how our so-called shallow catalog is contributing to revenue growth. Ed Sheeran's Divide released in 2017 and Dua Lipa's Future Nostalgia released in 2020 are both in our top earning albums for the quarter. Deep catalog releases that are more than 10 years old, also remains an important growth area with meaningful untapped opportunity.

When we market catalog with the same ingenuity as new releases, they often have a significant impact. For example, at this year's Grammys, our recording artists, Tracy Chapman and Joni Mitchell both performed classic songs that saw a big boost in weekly audio streams of over 180%, respectively.

Our Music Publishing division, Warner Chappell, continues to perform extremely well. Our songwriters contributed to a range of recent hits from Benson Boone's Beautiful Things, Teddy Swims' Lose Control and Jack Harlow's Lovin' On Me to Ariana Grande's We Can't Be Friends and Kanye West and Ty Dolla $ign's Carnival. Top-tier songwriters continue to recognize Warner Chappell's momentum. Recent signings include 5 Grammy nominee Coco Jones and Dua Lipa, who joins other superstars such as Cardi B, Zach Bryan, Madonna and Led Zeppelin, who are represented by our company for both recorded music and music publishing.

As reported in music and copyright, we outpaced our peers in 2023, growing our global market share in Music Publishing. Simply said, we've executed well on expanding our [song guiding] roster, strengthening our services and finding innovative ways for songs to get heard. Impressively, this growth has largely been achieved organically, not through acquisitions at frothy multiples. Further evidence of our success in identifying world-class songwriters early.

A great example is the phenomenal success of British Singer-Songwriter Raye. She signed to Warner Chappell 9 years ago. In March, she matched records for the most nominations and wins in a single year at the Brit Awards. In addition to her solo work, she's written hit songs for the likes of Beyonce, Rihanna and John Legend.

Earlier this year, I laid out three strategic priorities: grow engagement with our music, increase the value of our music and evolve how we work together. We continue to make important progress on all these fronts. First, growing engagement with our music. This is primarily driven by signing and serving ever broadening spectrum of artists and songwriters. Identifying and investing in territories where local music is gaining global appeal and helping our talent break through the noise in a cluttered and fiercely competitive environment.

Unusual for a company of our scale, most of our biggest stars are homegrown talent who have been with us since the earliest days of their careers. Bruno Mars, Ed Sheeran, Cardi B and Dua Lipa among others. We're building on this legacy by nurturing original artists into the next generation of superstars. A great example is Warner Records who are the hottest label in the U.S. right now due to their focus on genuine talent and long-term artist development.

In an industry where it's harder than ever to cut through, Warner Records has bucked the trend with success stories like Zach Bryan, Benson Boone and Teddy Swims, and their hot streak shows no sign of slowing down.

Last September, we announced a joint venture with 10K projects, founded by Elliott Grainge. 10K operates as a stand-alone U.S. label, opening up a whole new channel through which we can bring quality talent to market. From the get-go, this has been a success -- this has been successful for Warner Music Group both commercially and creatively. 10K continues to deliver incredible hits with Artemas' latest single, I Like The Way You Kiss Me going #1 on Spotify global chart.

As I've mentioned before, we continue to fuel our growth organically and via partnerships and acquisitions. As part of our mission to be a destination for artists and songwriters at every stage of development, we're expanding our lower touch services that many independent artists, labels and songwriters rely on. It's just one recent example. Last month, Warner Chappell partnered with BandLab the social music creation platform. We'll work together to identify and sign emerging songwriters, providing them with access to our comprehensive suite of offerings. We have a clear plan to develop this area of our ecosystem across the company, and we're building solutions in-house, while staying vigilant about our M&A opportunities, which could accelerate our capabilities.

At the same time, we're expanding our presence in dynamic recorded music markets. We've seen impressive results this past year. In Argentina, the fastest-growing market in 2023, we doubled our year-over-year revenue organically. In Sub-Saharan Africa, the fastest-growing region in 2022 and 2023, we were the only major music company to grow share last year. In India, already the 14th largest market [in climbing pass], we were again the only major to grow share, in 2023. We continue to find ways to turbocharge our growth and strengthen our global platform for local talent.

Last month, we launched Warner Music South Asia to address a region with 400 million people across Bangladesh, Nepal, Pakistan and Sri Lanka. Turning to our next strategic priority, growing the value of our music.

There are two aspects to achieving this, growing the pie and growing our participation in the pie. Over the past year, there have been some initial steps in the right direction to growing the pie, including the first price increases at all major DSPs. We will continue to advocate for further increases, as well as more sophisticated price optimization, especially as DSPs improve their offerings to bring in more subscribers.

We've also seen encouraging early signs in the evolution of royalty models, but are aligning economics with premium content, thus growing our participation in the pie. It's important to note that these shifts to more artist-centric models take time to fully implement, and we don't expect immediate impact on our results. We're making every effort to build alignment with our partners, and it's the best way to ensure that the value that music provides to these platforms is properly recognized.

Another area where we see great potential to grow the value of music is AI. And like I said before, there are three constituents which play critical roles in the evolution of AI, platforms, models and governments. The concepts of control, monetization, attribution and prominence are the core of our discussions with all parties in order to protect artists, songwriters and right holders.

Last Tuesday, I testified on the promise and perils of generative AI before the U.S. Senate Judiciary Subcommittee on intellectual property, voicing the shared concerns of the creative community. I urge Congress to act this year and pass a federal law that addresses deep fakes. My central message was that the use of people's likeness and voice requires consent and must be subject to free market negotiations. We should not abide by the appropriation of people's identities and the theft of artist livelihoods.

I'll briefly highlight one amazing example of the power of AI when done right. Since 2013, Randy Travis had aphasia, a condition that limits its ability to speak and sing. Last week, the Legendary Grammy award-winning country music Hall of Famer was able to release new music for the first time in over a decade, thanks to AI. We played his new song, where that came from on our pre-call hold music, and you should add it to your playlist right now.

Moving on to my third priority, evolving how we work. On our last earnings call, we announced a restructuring plan, which will enable us to increase our investment in music, technology and new skill sets. We are on track, although the full savings will not be realized until the end of fiscal '25, the majority of the changes have already been implemented. This includes centralizing certain functions and exiting our owned and operated media businesses. Since we last spoke, we have sold the entertainment of websites, UPROXX and HipHopDX.

We're allowing a strong foundation to accelerate our progress and yield greater value over time. As part of this, we continue to develop our tech capabilities. I'll give you a few examples of some of our projects. We've made improvements to our royalty systems and the tools used to identify unclaimed revenue. We've overhauled our global supply chain, unlocking our ability to scale our third-party distribution business, and we've transformed our proprietary tools that identify fan trends, while building new ways to engage with superfans.

Our second half includes eagerly anticipated music from Dua Lipa, who dropped her new album Radical Optimism last Friday. And we're excited about our new releases from Twenty One Pilots, Sia, [Gaana], Megan Thee Stallion, David Guetta, Fred Again, Charlie Puth and Maria Bechara. This is an exciting and transformative period for our company and for the music industry. We're looking forward to building incredible careers and creating dynamic new opportunities in the months and years ahead. And with that, I'll turn it over to Bryan.

Bryan Castellani: Thank you, Robert, and good morning, everyone. Before I get into details of our Q2 results, I want to remind everyone that growth rate comparisons will be in constant currency.

The items affecting recorded music streaming revenue, comparability, include the BMG digital revenue roll-off, which was $22 million unfavorable in the quarter. Additionally, the renewal with one of our international digital partners that resulted in upfront incremental revenue recognition of $27 million last quarter, resulted in an unfavorable impact of $4 million this quarter and will have a similar impact in Q3 and Q4. Details relating to these items can be found in our earnings press release.

In Q2, total revenue grew 7% and adjusted OIBDA increased 9% with a margin of 20.9% and an increase of 40 basis points over the prior year quarter. On a normalized basis, total revenue grew 9%, and adjusted OIBDA increased 10%.

Recorded Music revenue grew 4% and 7% on a normalized basis. Streaming revenue grew 11% on a comparable basis with subscription streaming growth accelerating to 13.5%, while ad supported revenue increased 5%. The improvement in subscription growth was driven by stronger DSP sub performance, along with price increases, partially offset by a deceleration in ad supported revenue, driven by platform mix.

Physical revenue decreased 7%, driven by the timing of releases. Artist services and expanded rights revenue decreased 3% due to lower merchandising revenue, partially offset by higher concert promotion revenue in France and Japan. Licensing revenue grew 5%, primarily due to the timing of legal settlements. Recorded music adjusted OIBDA increased 9% with a margin of 22.9%, an increase of 110 basis points. On a normalized basis, adjusted OIBDA increased 10%.

Music Publishing continues to deliver impressive results with revenue growth of 19%, driven by streaming and performance revenue. Digital and streaming revenue increased by 27% and 29%, respectively, reflecting the continued growth in streaming and the impact of digital deal renewals. We also benefited from the continued investment in and expansion of our publishing catalog.

Performance revenue increased by 18% due to strong artist touring activity in Europe, while sync revenue increased 2%, driven by timing of legal settlements. Mechanical revenue decreased 6% due to lower physical sales. Music Publishing adjusted OIBDA grew 8% with a margin of 26.8%, a decrease of 270 basis points due to revenue mix.

Turning to CapEx, we saw a $9 million decrease from the prior year quarter to $26 million due to the timing of tech investment. Operating cash flow decreased to a use of $31 million from a use of $6 million in the prior year quarter, due to increased ANR investment and timing of working capital items. Free cash flow decreased to a use of $57 million from a use of $41 million in the prior year quarter. Our goal continues to be to deliver operating cash flow conversion of 50% to 60% over a multiyear period, which we expect to achieve for full year 2024.

As of March 31, we had a cash balance of $587 million, total debt of $4 billion and net debt of $3.4 billion. Our weighted average cost of debt was 4.5% and our nearest maturity date remains 2028. In February, we announced a plan to deliver $200 million of annualized run rate cost savings by the end of fiscal 2025. The plan is proceeding according to schedule. We achieved modest cost savings in the quarter, the majority of which were reinvested into tech.

Regarding BMG, we estimate the revenue impact to be in the range of $25 million to $30 million in both Q3 and Q4, eventually rolling off completely in fiscal 2025. As a reminder, BMG's physical distribution will roll off in fiscal 2025. As we look ahead, Q3 is off to a solid start. As Robert mentioned, we are excited about our upcoming releases. The momentum in music in the business is strong, and we continue to position ourselves for long-term success, including to deliver on our goals of healthy top line growth, margin expansion and strong cash flow conversion on a consistent basis. Thank you to everyone for joining us today. We'll now open the call for questions.

Operator: [Operator Instructions] Our first question comes from the line of Benjamin Black of Deutsche Bank.

Benjamin Black: I have two. So Robert, last quarter, you're obviously contemplating a bid, formal bid for [Believe]. You've obviously since withdrawn your interest. So I'd be curious to hear sort of why that deal fell apart. And also it would be good to hear sort of where strategic M&A fits into your capital allocation hierarchy right now?

And then secondly, there appears to be quite a few developments on the pricing front. Spotify is currently in the early innings of introducing a tiered structure, with what at least appears to us, to be a potential surcharge for audio books. So I guess the question is, will Warner potentially benefit from that incremental surcharge? Or is it more of a carve-out? And relatedly, with their bundled offering, by your knowledge, at least qualify for lower mechanical rates as dictated by the CRB in the U.S.?

Robert Kyncl: All right. Thank you. So on Believe. As I've mentioned on, I think, several earnings calls, we have a clear strategy in expanding our offerings to serve more audits across wider array of their careers. And obviously, we are building against that. So we have our team working really hard, building all the right features that we need.

But as any other steward of our business, we always look at ways to accelerate and because all of this work takes time. And anytime there's an option in the market that allows us to accelerate our road maps we will look at it. We pursue that with belief. This was a very unique situation because the timing was out of our control, the public nature of it with part of our control, and the extremely short time frame for diligence was out of our control.

So obviously, played out publicly. We decided to -- not to pursue it for a variety of reasons, that I really can't go into. And -- but our strategy is to continue to look for opportunities that can augment our built strategy, and we continue to do that.

On pricing and evolution of evolution of pricing and especially as it relates to bundling. So first, what I would say is that bundling is generally good for subscription business because it achieves two things. One, it tends to lower subscriber acquisition cost and it tends to lower churn rate. So for platforms, it becomes a strong growth driver. And we've obviously had 50 years of very healthy television market through bundling, and if you look at many different sectors, you can see that.

The job of wholesalers like the music companies like ourselves is to ensure that the sanctity of our pricing across the different services, whether individual subscriptions, stand-alone subscriptions or bundled offerings are in line with each other. So you can expect us to pursue that strategy.

As it relates to what you were referring to, the CRB, which is a U.S. specific issue. I don't see it as something that will persist in the long term. I believe in sort of global solutions. We're in a global business, all of us and sort of individual carve-outs in any markets. I don't think play out well amongst parties that are tied at the hip and partners for the future. So I have a confident point of view on that.

Bryan Castellani: And Ben, it's Bryan. And just to echo what Robert said on the capital allocation hierarchy, there's really no change there as we've articulated before, and we've walked you through our cascade. We continue to see plenty of runway on organic investment, which you continue to see in our artist signings and ANR investment as well as we continue to expand our publishing and catalog rights. Last year, we acquired 10K, which was a smaller inorganic acquisition. And of course, we also continue to return capital via the dividend to shareholders.

As Robert said, it's our job to survey the market. And if there's inorganic opportunities that will accelerate our initiatives, we'll take those. But I think we've always demonstrated to be good stewards financially, and we will continue to do that. And I think our interest in Believe was well founded in looking through our capital allocation hierarchy, if it could accelerate it. But again, the unique nature of it led to the outcome. But no change there on capital allocation.

Operator: Our next question comes from the line of Ben Swinburne of Morgan Stanley.

Unknown Analyst: This is Cameron on for Ben. You guys have previously described this year as a second half weighted year from a release slate perspective. Is that still your expectation as we look through the remainder of the year? And does that translate into accelerating organic streaming growth over the next couple of quarters?

And then another one, if I can. What, to the extent you can share with us, drove the [indiscernible] sale and add an emerging platform organic growth from last quarter to this quarter? I know you called out platform mix, but anything in addition to that, that you could provide would be helpful.

Robert Kyncl: All right. I'll take the first, and Bryan will take the second. Thank you, Ben. So we remain excited about our new music. We have lots of great content coming from the likes of Dua Lipa. She just released her album. Twenty One Pilots, Sia, Gaana and so on and on and on. At the same time, we're also having a great real-time success, which is amazing to see with Teddy Swim, Benson Boone and Artemas.

So that's -- so we've been doing well on new music. The one thing that you should keep in mind is that we've now seen the full impact of the Spotify price increases in our results. And in the second half, we'll be lapping last year's price increases with the other DSPs, namely Apple and YouTube. So -- but we're continually encouraged by the subscriber growth as well.

Bryan Castellani: Cameron, it's Bryan. Just to maybe break down the quarter a bit, and the overall Recorded Music streaming of 11% on a normalized basis. Within that, I would say 2 or 3 pieces accelerated. You saw subscription at 13.5% versus 12% in the prior quarter. And then while ad supported and emerging combined decelerated, we did see growth and accelerating trend there in the traditional ad supported. Emerging can have some lumpiness based on deal timing, content delivery as well as mix of platforms.

But again, the underlying strength there in the core subscription streaming and the traditional ad supported and overall, I think you got to look at emerging, while there may be some lumpiness, we still believe it's a growing category. And so it -- over the long term, we expect it to continue to grow.

Operator: Our next question comes from the line of Batya Levi of UBS.

Batya Levi: Can you talk a little bit more about the initiatives to monetize super [fans]? I think you had plans launch an app. How are you approaching the partnership with DSPs versus going direct in that initiative?

Bryan Castellani: Sure. Thank you. Yes. So we've been working on i,. and it's well progressed, but nothing new to announce on that. On partnership with DSPs, the way we think about this partnerships versus doing it ourselves. The one, I think, unique insight with music is that unlike other forms of creation, it's incredibly ubiquitous. If you're an artist, you want your content to be distributed as widely as possible across as many touch points.

And therefore, it's very hard to optimize for any individual platform, and try to anchor a superfans relationship in one place because your superfans are across many, many different platforms, which means I think we're naturally set up to be the right place to do this and do it cross-platform. And then we can always partner with the DSPs, but through the offering that we have. But I just think it's the absolutely ubiquitous nature of music. And finding super fans across all of those, but you can't optimize for any single place, any single platform. Therefore, it has to be a controlled solution.

Operator: Our next question comes from the line of Kutgun Maral of Evercore ISI.

Our next question comes from the line of Michael Morris of Guggenheim Securities.

Michael Morris: I had two topics, if I can. The first I wanted to follow up on the question about pricing changes at Spotify, in particular. As you see the pricing changes that they have announced right now and the structure of those price changes, do you expect to participate in the incremental revenue that's being generated from the new pricing plans? Or do you see it as all specifically earmarked for their audio book product, that is part of a pool that you don't participate in?

And also, do you think that this change by Spotify is sort of representative of another leg of the cycle of pricing, Robert, that you've spoken about in the past is helping to close that gap between the intrinsic value of music and the current price point?

And then second, I wanted to ask about the lower touch services that you referenced developing. How do you -- I don't know if you could expand on this a little bit, but how do you ensure that this creates a pipeline to sort of deeper artist relationships that you can progress on, as opposed to offering a service that just kind of sustainably meets artist needs in kind of a less revenue or less profit-generating manner?

Robert Kyncl: Okay. So on the first one. So first, what I would say is that we had 15 years of no price action by anyone, including myself, and [when I was on YouTube]. And so it is amazing to see that, a, we have price increases, that we actually can, on an earnings call, say words like we're now lapping 1 year anniversary of a price increase. I mean I just want to make sure it doesn't go unnoticed, because it has not existed for 15 years. So amazing, and now it's happening.

Two, I think as services are growing and thinking through their pricing strategies. Obviously, this indicates that they're thinking about it super hard. They're coming with all kinds of different solutions, and bundled solutions are part of that suite. So I think all of that is a good news.

The -- what -- as I mentioned before, I think we, the music companies have to make sure that the sanctity of our pricing is upheld correctly and that, that pricing also keeps on moving up all the time, as [I'm talking about] all the time. But the appropriate steps -- but it doesn't mean that there wouldn't be higher-priced bundled offerings that are allocated for those additional content providers. But that also benefits us because now there is a bundled offering.

Now there is a single offering. And as long as we price it correctly, ourselves, we will benefit. So I think all of this is the right direction, right things that our partners are focused on. There may be bumps in the road along the way, obviously, right, it's playing out with the CRB thing. But this is good news, in my opinion, to push forward.

On the second question, the lower touch, lower touch services. I think it's important to realize that there are artists who are getting started. At many different stages of their career, somebody has no following and [ over ] somebody has a big one. And it's important for us to effectively widen the net in which we can work with artists and find great talent. So it's really -- it's basically about the deal flow, if you really put it in business terms.

And I think the thing that we're focused on is to make sure that we don't simply just follow the model where we have more shops in the goal, but the same sort of -- I'm going to mix two sports analogies, but same batting average. But -- but then we also actually are making money from the shots on the goal, that we actually run the business more profitably across these offerings. And so I think that's what your question was getting at. And that is exactly the intent.

We want to make sure that we're building things in a way that it's technology dependent, that is providing operating leverage and then not only we get more shots on the goal, but also improve our outs overall and have a profitable relationship and mutually beneficial relationship with all of the artists in the system.

Operator: Our next question comes from the line of David Karnovsky of JPMorgan.

David Karnovsky: Robert, you noted in the quarter, the contribution from shallow and deep catalog results. Maybe a follow-up on this. [Absent] an artist, putting out a new album, what are some tools you have to kind of drive increased engagement with your older content? And then separately, looking at Universal and TikTok's announcement, there's a lot of lip service paid to potential protections around AI and then also co-development of tools to enable creativity. I just wanted to follow up here. Does this agreement anything incremental for WMG and kind of your ability to make the imports front?

Robert Kyncl: I ask you to repeat the first question, I couldn't really capture it.

David Karnovsky: Sure. It was just a follow-up on your comments around shallow and deep catalog and what tools you have in your disposal, absent an artist putting out a new album to drive more engagement with older content.

Robert Kyncl: All right. So on the first one, this has actually been an area of focus for us for quite some time. And the best way to think about this is that, obviously, catalog is a tremendous wealth that we have. It's a -- it's something that continues to grow, pay dividends. And it's just an incredible resource for us. And -- the -- when you think about where a vast majority of the revenue is coming from, it's digital distribution.

Therefore, if we want to increase the performance of catalog, we have to make sure that we optimize all of our titles, across all of our main DSPs. And now this sounds very, very simple said that way. But when you think about the size and scale of our catalog, it's a very, very difficult task. And it's one that you can't only do with people because the number of SKUs is simply too high.

So we have a project on this across our technology team and our business team to basically move down through the entire catalog and make sure it's properly optimized for streaming in on every single large DSP. So it's a very sort of methodical approach. And all of this augments our marketing campaigns against catalog, which we have done in the past, which we continue to do, and we're applying more and more frontline like focus on catalog titles, and that's also yielding results. So it's kind of like a 2-pronged approach, one, which is very, very scaled. And then the other one, which is very high touch where we select what we push.

On the second part on UMG [ pick dock], obviously, I have no details about their business. So I can't really comment on it at all other than what I can say is that I'm pleased that they reached an agreement. And as I said, that the Morgan Stanley conference, I think, on stage with Ben Swinburne. And I think Lucian also said the same thing recently, which is this category is still very much in the early stage of evolution. And we need to stay vigilant to make sure that it's driving accretive growth to our companies.

Operator: Our next question comes from the line of Stephen Laszczyk of Goldman Sachs.

Stephen Laszczyk: Bryan, on margins, I was curious if there's any help you could give us on the expected pace of margin expansion this year, just as we see some of the cost efficiencies to flow through the income statement and how that's comparing versus the rate at which you can reinvest. Any help there would be great. And then maybe just on the market for music rights. Would be curious if you could give us an update on what you're seeing in that market. It feels like there was hope at the bid ask will get closer as rates came down, but that appears that might not be the case at this point. Just curious what you're hearing on that front.

Bryan Castellani: Stephen, thanks, Bryan. On margin, and as we say, we remain focused on our three goals of healthy top line, margin expansion, cash flow conversion. We did call out and reiterate the cash flow conversion this quarter, just knowing that Q2 is seasonally a timing -- a quarter where with timing of receivables and payments and deal timing that we do have low cash conversion. And on margin, again, we're -- as we look out over the year, and I think you got to look at that over the course of the year, rather than quarter-to-quarter. There will be lumpiness in margin, again, based on timing slate deals, as well as just internal efficiencies. So we remain focused on it. We don't guide quarter-to-quarter, but I think you can look over the long term and now we're focused on it.

Robert Kyncl: And then -- and on the content rights market, -- as we -- I think, first, the second question was around capital allocation and M&A, et cetera, and Bryan answered and saying, look, we're looking at lots of different content rights, as well as technology solutions that augment our built in-house road map. And on the content rights piece, there's a lot of opportunities, the pipelines of deals that we're maintaining ARPU significant. It is more than we can even afford today.

And therefore, we're very diligent about what we go after and the returns that we can yield from that and it's all around the world. So there are a lot of different opportunities, and we expect those to continue and perhaps even increase, because there have been many buyers in the past who may need to make changes in their portfolios.

Bryan Castellani: Yes. And Stephen, I would just add to that. I mean there's a bit of a double-edged sword there in terms of higher rates, making it more rigorous. I think you're also seeing a maturation or rationalization across buyers in the market, but also that the interest and the pricing, just speaks to the value of music, and I think it's just an attractive space. And so as Robert said, we still see runway there and our ability to invest.

Robert Kyncl: Okay. So I think that's it for -- with all the questions. I really appreciate your time. Thank you for all your questions. And please do you not forget to go to your favorite DSP and listen to Randy Travis and his song, where that came from which was generated with AI, with Randy's permission with his producer, from his entire life, and it's just a wonderful collaboration an example of what is possible with AI. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.