Warner Music Group Corp. (WMG) Q2 2026 Earnings Call Transcript

Welcome to Warner Music Group's second quarter earnings call for the period ended March 31, 2026. 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 today's call over to your host, Mr. Kareem Chin, Head of Investor Relations. You may begin.

Good afternoon, and welcome to Warner Music Group's fiscal second quarter earnings 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 Kinsel, and our CFO, Armin Zerza, who will take you through our results and then answer your questions. Before our prepared remarks, I'd like 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, including metrics that are adjusted for notable items during this conference call and in our earnings materials and have provided schedules reconciling these results to our gap 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. 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's 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 as 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 these risk factors is contained in our filings with the SEC. And with that, I'll turn it over to Robert.

Hello everyone and thank you for joining us today. Our strong Q2 results prove that our strategy is working. With a 12% increase in total revenue, a 24% increase in adjusted OIPDA and over 200 basis points of margin expansion, we are demonstrating the benefits of our transformation. This growth is underpinned by an increase in recorded music subscription streaming revenue of 15 percent on an adjusted basis. This was bolstered by the combination of broad-based strong execution by our operating units and by the successful implementation of contractual PSM increases that began in the quarter. We continue to make progress on our three strategic pillars, growing our market share, increasing the value of music, and becoming more efficient and effective. And we use AI to help us achieve all three of these, which I'll touch on throughout my remarks. Starting with market share growth, which remains a primary objective, we're driving gains through developing new talent and delivering consistent creative success with emerging and established artists and songwriters across multiple geographies. Improved monetization of our catalog blog, and increased focus on distribution. Our execution across all of these has delivered strong year-over-year share growth in our fiscal Q2. Overall, U.S. streaming share grew 1.1 percentage points, and U.S. new release share grew 2.7 percentage points. Our creative success is evident in recent high-profile wins, including Bruno Mars dominating four Billboard charts simultaneously pink panther is securing her first global 200 number one and don tolliver scoring his first number one album like bruno many of our current superstars are homegrown dualipa charlie xcx and many more and you can go back decades in our history to artist discoveries like led zeppelin Grateful Dead, Madonna, Prince, and many others who have launched and sustained highly successful careers at our labels. Flash forward to today, we continue to introduce the world to breakout chart-topping stars like Pink Pantheris, Sombra, Villa Kay, The Marias, and Alex Warren. These are just a few of the many examples of our outstanding track record in artist development. We've successfully transferred this capability around the world. We've delivered a string of number ones from local artists in Italy, Poland, Sweden, France, Spain, and Mexico. Our rising Mexican star junior Ajay, for example, just launched at number one on both the Spotify global and US top album debut charts. Turning to catalog, which represents about 65% of our recorded music streaming revenue we've delivered growth across shallow and deep vintages our always-on marketing approach reimagined for today's younger generation is yielding results as we find new ways to continuously revitalize our timeless repertoire in addition we have great success introducing iconic artists to younger audiences through new releases madonna is just one great example she became a warner artist more than four decades ago and we're about to release her 14th studio album confessions 2. as a result of our catalog marketing campaign leading into the new album we've seen her weekly streams increase 24 versus baseline with under 28 year old fans accounting for 35 of her spotify streams her new duet bring your love with sabrina carpenter arrived last Friday and is Madonna's highest charting track yet on Spotify and fueled her biggest ever streaming day on the platform. Additionally, our catalog is home to over 1 million tracks from more than 70,000 artists. AI tools that we've developed make it possible for us to stimulate engagement with this vast treasure trove of content quickly and cost-effectively through the use of motion art, visualizers, lyric videos, and many more. At the same time, we're using our proprietary model to determine where our marketing activities should be focused. Our ability to create these assets quickly and inexpensively combined with our focused marketing activities enables better and deeper monetization of our catalog, ultimately amplifying our market share growth. Enhancing our distribution offerings through strategic partnerships and investments is an important driver of our market share growth strategy. Our recent deal with TwoStreams, a leading independent force in the Musica Mexicana space, and our acquisition of Revelator, which Arme will discuss in more detail, not only enhance our capabilities, but also help us establish a powerful pipeline of emerging talent and catalog while creating new pathways into our global ecosystem. Our publishing business grew 10% this quarter, continuing its strong momentum. From our songwriters Mac and Scott Dittrich, contributing to Bad Bunny's number one song on the Billboard Hot 100, to our deals with Grammy winner Lebe, R&B hitmaker and Grammy-winning producer Dre Harris, and chart-topping singer-songwriter Ernest, Warner Chappell's Hot Street continues. We've also expanded our global presence by launching publishing operations in India. A brand new way for us to drive share is through long-form programming. Last quarter, we announced a multi-year first-look deal with Netflix to produce documentaries. And today, we announced a multi-year first-look deal with Paramount to produce theatrical live-action and animated feature films. I'd like to give big thanks to our partners at Unigram and at William Morris Endeavor, who helped us structure both partnerships and I look forward to our continued collaboration. These agreements represent new and exciting ways to tell amazing stories about the lives, music and legacies of our most popular artists and songwriters. In doing so, we're introducing them to new fans all around the world, building their brands and expanding engagement with their music. Moving to our next pillar of growing the value of music. When I joined the company, I identified the need to increase the value of music. Today, we're doing this in a number of ways. These include BSM increases, deals with emerging AI platforms like Suno, and premium tier offerings with traditional DSPs that feature AI. We've made meaningful progress in several of these areas. First, after more than a decade of volume-driven growth, we're now seeing BSM increases, which contributed to our mid-teen subscription streaming growth in the quarter. These increases provide greater certainty around our economics, irrespective of retail pricing. Beyond traditional streaming, AI represents an important step towards enhancing the value of music. There has been a lot of discussion about whether AI will have an accretive or pollutive impact on our industry. Numerous DSPs have reported that the ever-growing volume of AI music being uploaded is seeing very limited engagement and therefore has minimal dilutive impact. And of course, we're closely aligned with our DSP partners to ensure that contractual protections are in place to prevent or limit dilution. We've taken the leadership role in creating new monetization frameworks with emerging AI companies and our pragmatic experimental approach will deliver new revenue streams. Our partnership with Suno serves as a proof point for AI and incremental value creation. Suno's 2 million subscribers are paying an average of $12.50 per month, clear evidence of the willingness of superfans to pay more for interactivity. Not only are we building an ongoing consumption-based revenue model that enables us to scale as our partners do, we're also ensuring that AI models respect copyright, name, image, likeness, and voice to protect our artists and songwriters. Implementing clearly drawn boundaries is enabling us to harness AI technology for licensed models that ensure fair compensation to artists and songwriters. In fact, we were just named one of Time Magazine's 100 most influential companies for our leadership through this AI era. Additionally, we're actively engaged with our traditional DSP partners to launch new AI-powered premium tiers that will benefit our artists and songwriters by allowing fans to engage more deeply with their music. We continue to believe that our industry-leading and thoughtful approach to AI will drive one of the biggest incremental value creation opportunities for our industry and look forward to sharing updates on future initiatives. Turning to becoming more efficient and effective. Our ongoing journey to become more efficient is unlocking our ability to invest more in our core business. This drives our market share growth, which translates into improved top and bottom line acceleration and cash generation, and ultimately, shareholder value. We're not shying away from making tough decisions and doing the difficult foundational work necessary to drive a step change in our operational effectiveness. Our strategic reorganization and focused investments in tech, as well as the successful rollout of our financial transformation program, have enabled the profitable growth that is reflected in our results. For the second consecutive quarter, we have now delivered margin expansion above our full-year target of 150 to 200 basis points, further proof that our strategy is working. We're excited about our release schedule, which includes new music in Q3 from Charlie XCX, Lizzo, Alex Warren, Samba, Tiesto, Teddy Swims, Kehlani, and many more. In summary, our momentum is strong, our strategy is working, and there's a lot of runway. We're driving successful results by focusing on our three strategic pillars, growing market share, increasing the value of music and becoming more efficient and effective while using AI to power all three. The building blocks are in place to deliver on our growth targets and we've established a growth culture to continue our momentum and to accelerate long-term value creation for our artists, songwriters and shareholders.

Before I hand it over to Armin, I want to share that starting tomorrow, in addition to continuing to serve as our CFO, he will also serve as our COO. His expanded remit will now include corporate development, central marketing, business and market intelligence, and WMX. And I wanted to thank Armin for the impact he has had on the organization and business in a short period of time. and I look forward to continue partnering with him to deliver operational excellence, growth, and value creation. Congrats, Armin. Over to you.

Thank you, Robert. In my new expanded role, I look forward to partnering with you and the team to continue driving top and bottom line growth while strengthening our operational, commercial, and financial excellence at the company. I also wanted to start by thanking our teams for delivering an exceptional second quarter and first half of the fiscal year. We are seeing incredibly strong business momentum. Our second quarter was highlighted by acceleration in revenue growth, robust margin expansion, and strong cash generation. This is the fourth consecutive quarter where we have delivered growth in line with or above our sustainable growth model led this quarter by a step change in growth in subscription streaming revenue total revenue grew 12 percent in the quarter reflecting double-digit increases across both recorded music and music publishing recorded music revenue grew 13 percent led by subscription streaming which accelerated to 15 growth on an adjusted basis ad supported streaming also strong grew 11% on an adjusted basis. Both subscription and ad supported streaming benefited from healthy market growth and global market share gains. Subscription streaming also saw the benefit of PSM increases. Physical revenue increased 18%, driven by strong releases in the quarter as Robert discussed. Artists services and expanded rights revenue increased 33%, driven by concert promotion revenue primarily in France, as well as higher merchandising revenue. Music publishing revenue grew 10%, that by 16% streaming growth. Total company adjusted EUPTA growth was 24% and margin expanded by 230 basis points, ahead of the high end of our full year target for the second quarter in a row, reflecting strong operating leverage, cost subscription streaming growth, and cost savings delivery. In an ongoing effort to provide greater transparency and visibility around our performance we'll be disclosing adjusted net income and adjusted eps moving forward in the second quarter adjusted net income increased 41 percent and adjusted eps of 44 cents increased 38 percent we generated operating cash flow growth of 83 percent in the second quarter and through the first half of the year our conversion ratio is at 66 percent of adjusted EUPTA. As of March 31st, we had a cash balance of $741 million, total debt of $4.7 billion, and net debt of $4 billion. In summary, our strategy is working, and our teams are executing with excellence. Looking forward, we are well positioned to continue delivering on a sustainable growth model, which is anchored in high single-digit total revenue growth, double-digit adjusted eupter and adjusted eps growth and 50 to 60 percent operating cash flow conversion as a percentage of adjusted eupter as robert mentioned we'll achieve this by focusing on our three strategic pillars to drive future growth which i will discuss in more detail first on growing our market share our priority remains investing into our core business organically and inorganically Kelly to accelerate shareholder value creation. We do this by focusing on our investments on first, the most valuable repertoire markets with the highest growth potential globally. Second, high margin accretive catalogs, also leveraging our joint venture with Bain. And third, distribution capabilities, which enable us to serve the independent artists community profitably. We have made significant progress against each of these areas. On organic investments, we are growing market share broadly across DSPs, labels and regions, with the exception of APAC, where we just recently appointed a new leader. On inorganic investments, following the upsizing for a joint venture with Bain, I'm pleased to share that the joint venture has deployed $650 million to acquire a number of heavyweight catalogs, which have an attractive return profile. We continue to maintain a strong pipeline of potential opportunities and look forward to sharing more updates in the future. On distribution, we have signed an agreement to acquire cutting-edge independent digital music platform, Revelator, and move that aligns with our approach to pursue Bolton acquisitions that elevate our distribution offering. With cloud-based tools that streamline operations and financial reporting for artists and labels and distributors, revelate that we provide powerful infrastructure to help us better serve the critically important independent community. This will be an accelerate for profitable distribution revenue growth and market share expansion. Importantly, across our portfolio of organic and inorganic investment, we have now institutionalized a globally coordinated deal evaluation and investment process. This process involves our creative, commercial and operating teams and allows us to look across our entire global portfolio of global potential investments to target the largest and highest ROI opportunities. This disciplined approach to capital location has enabled us to generate returns of approximately 20% on these investments. Finally, in addition to driving enhanced shareholder value through our investments. We continue to return capital to shareholders through a quarterly dividend and the optimistic share buyback program. Second, we see increasing the value of music as critical to growing our company. We are pursuing innovative partnerships with traditional DSPs and emerging AI platforms through several avenues including first, PSM increases on existing tiers, Second, licensing agreements with innovative emerging AI platforms. And third, collaborating with scaled DSP partners on AI-centric premium tiers. In Quota 2, we began to see the impact of these PSM increases, which contributed 3 percentage points to a subscription streaming growth of 15% on an adjusted basis. Additional PSM increases across other DSPs will roll in throughout the balance of the fiscal year, providing further support for this important metric. In addition to driving value through existing streaming tiers, we see AI as an important driver of future growth as we partner with both AI platforms and existing DSPs on higher APU offerings. Our recent licensing deals with leading AI platforms, including Suno, which is currently generating 300 million dollars in analyzed revenue and has announced that it is planning to launch its fully licensed offering later this year will begin to contribute materially so subscription streaming revenue growth starting in fiscal 2027. at the same time we are actively engaged with our largest dsp partners around ai-centric offerings that will support higher price premium tiers enhancing consumer experience and value creation for our industry. Third, turning to becoming more efficient and effective, we are focused on, first, our ongoing cost savings program, second, driving profitable growth with a priority on cost streaming growth, and third, operating leverage. I do want to spend some time today on our organizational redesign and related cost savings initiatives. They're not only delivering on schedule, but at the same time accelerating growth, which is a testimony to our team's execution excellence around the world. Based on this, we now expect to achieve the high end of our 150 to 200 basis points margin expansion target in fiscal 26. The success of this reorganization has made identifying and driving cost efficiency a part of our organization's DNA. We will share more details about our ongoing cost savings initiatives in the coming quarters. But at a high level, the implementation of our global, regional, local organization model and ongoing transition to a more standardized data architecture and operating processes enables us to leverage AI more effectively across the company for process automation and better real-time decision making. This, in turn, has been freeing up more resources to focus on valued work, ultimately leading to incremental growth at lower cost. As an example, we have started on this journey with our finance teams, leveraging our financial transformation initiative to use AI tools for advanced real-time forecasting and reporting, which has significantly accelerated decision-making. Again, based on the progress we have seen here, we plan to use new AI-driven tools more to further streamline finance and other functions. These tools, in combination with our relentless focus on profitable growth, will contribute to our margin targets of mid-20s in the short term and high-20s over the longer term, further improving cash flow productivity. In closing, successful execution across our three strategic pillars, namely growing market share, increasing the value of music, and becoming more efficient and effective, has enabled us to accelerate profitable growth, creating a flywheel effect that frees up more capital to invest at attractive returns, driving better results, and enhanced shareholder value creation. At the same time, we are leading the industry in AI initiatives, which we believe will be a material contributor to our top and bottom line growth starting in fiscal 27. All of this, combined with highly disciplined capital allocation and return thresholds, as well as rigorous cost and cash management, gives us confidence in our ability to continue delivering against our sustainable growth model in fiscal year 26 and beyond. We remain excited about the prospect of creating significant shareholder value and look forward to providing updates on our progress. With that, we'll take your questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Your first question comes from Peter Cipino with Wolf Research. Your line is open.

Hi, good afternoon. An important piece of your conference call, your prepared remarks, was your successful market share developments. And looking back at the last year, you've had several quarters of improved market share. And so I wanted to ask you if you could expand on your prepared remarks about what you're doing differently and how much of that feels sustainable versus the result of things, you know, smart decisions done in the past that might not be part of a repeatable process.

Thank you, Peter. So before I answer your question, I want to take a small pause and recognize where our company is today. um after years of doing hard unsexy foundational work after making tough organizational decisions and redesigns and just doing lots of really tough difficult decisions while growing the business we have now hit our stride uh you can see it you said it yourself fourth consecutive quarter of growth uh printing solid numbers i would say the numbers today are far more than solid amazing and it feels really good to be at warner today because none of this is short term this is a result of long proactive work and our team is amazing our infrastructure is getting stronger and stronger we buy when we need to but we do it prudently so we're not overspending and we're having amazing creative success we're firing on all cylinders and it is amazing to be able to say that and it's amazing to have the team that we have that underpins all of this you know our gains are not in one region or one country on one sales channel it's broad-based you know other than APAC as Armin mentioned that is amazing to be able to say and you know value is contributing to growth in addition to volume that is amazing to be able to say you know all the things that we set out to do we're doing and they're showing up in our numbers and they're showing up in our creativity our discipline capital allocation is yielding results strong leadership is yielding results and we feel incredibly confident about the present and about the future so looking forward we're really confident about our prospects because of three things one we have a very strong pipeline management and what that means is we're looking at new release catalog artist deals acquisitions partnerships all of that holistically and when we do that we deploy resources to the best possible roi opportunities we have a very focused catalog optimization program in flight and it is yielding results catalog is 65 of our revenue therefore very important it deserves all the attention that it gets and uh and we have a within that we have a new always-on marketing approach reimagined for today's young people. We are introducing iconic artists to younger generations through new releases, and we've developed AI tools that help us manage not only a small sliver of top few hundred titles in our catalog, but the entire thing through the use of AI. And we also have developed a model that helps us prioritize all this work so it is amazing to be able to drive gains this way and three we have a very disciplined focused and strong focus on distribution it's been a meaningful contributor to our growth we continue to build features we acquired revelator to accelerate in that area and we've had a lot of success signing new partnerships so all of this makes us confident about the future and why we'll continue to grow and and gain share your next question comes from benjamin black with deutsche

bank your line is open great good afternoon thank you for taking my question i have one for armin please um could you deconstruct your subscription streaming growth performance you know how much did um psm increases market share and sort of the fact that you had a a somewhat easier converse in the prior year contribute and then and then looking ahead you know how should we think about um the growth rate there for the for the rest of the year thank you hey ben um well first i want to start with where robert started and say a big thank you to the team for

the progress we've been making and a consistent growth we're now delivering top and bottom line it's incredible to see the broad list progress not just on growth but also on margin and cash so thank you again to our team around the world uh to your question then um if i deconstructed 15 growth first uh if you if you look at subscriber growth around the world you think that's around six to seven percent uh pricing this quarter as i mentioned was contributing to about three percentage points of growth. Then we think market share was about 3% percentage points of growth. You mentioned their lower base last year. We also think that's worth about two to three points. So if you take that out, we probably delivered about 12 to 13% growth on apples to apples basis. We are very excited about the growth that we have been delivering as Robert and I mentioned, but we think there's many more opportunities going forward to continue to deliver growth for the company because remember this is really just based on subscriber growth and pricing one there's more pricing to come over the course of the year as we mentioned before two there's really no contribution from mna in our numbers and as you know we have just deployed 650 million dollars from our bane turned venture and that will come to fruition over time Two, as Robert mentioned, we have been acquiring a distribution capability to a company called Revelator that will start to show up later this calendar year. And then last but not least, we've done several deals with AI companies and in the process of doing deals with DSPs to grow our business profitably, not just in DSPs and higher tiers, but also with new AI companies. So really excited about the opportunity going forward and very confident that we can continue to deliver numbers that are consistent and are higher with our sustainable growth model.

Great. Thank you, and congratulations on the expanded role.

Your next question comes from Jason Bazinet with Citi. Your line is open.

I just have three AI questions for Robert. First, you mentioned in your prepared remarks um your agreement sort of limit dilutive impact from ai generated music but have you seen any so far um second is there any update you give us on when you think suno might launch their license offering and then third any color you can give us on when you think um traditional dsps um you know might take advantage of the agreements with you to to offer um consumers the ability to create their own songs off of your IP. Thanks.

Thank you. So obviously we're prudent in all of our negotiations and we're building protections into those. But to answer your question directly, no we have not seen dilution. We've been expanding our share consistently for the last four quarters uh and uh so we have not been affected by it um also if you you know i'll just use public data from these are an apple uh if you if you look at it you know when these are 75 000 ai generated tracks uploaded every day which makes makes up roughly 44 percent of daily uploads but really it results in one to three percent of streams and uh even much much smaller fraction of royalties like tiny and uh and 85 of those streams are actually deemed fraudulent so uh no no impact and on apple it's less than a half a percent of uh listening so sorry just two public stacks uh stats that i can quote that exist out there so we feel good good about that and uh and in general we think that um you know consumers will like offerings that blend creation and consumption which is why our DSP partners are looking into it and we're talking to them about creating that. And we love that future because it increases engagement with content, with artists and songwriters, and it drives ARPU. So it's a positive development for us. So we're excited about it, nothing new to announce, but we're working on it with our partners.

Very neat.

Your next question comes from Kanim Venkateswar with Barclays. your line is open.

Thank you. So, Armin, maybe one for you. Can you provide a bridge on how you will achieve your longer-term margin targets and efficiency plans? And how much did savings versus operating leverage, you know, contribute to margin performance in Q2? And then maybe longer term, I mean, some of those market share gains you guys have had over the course of recent quarters, can the cattle how much can catalog deals help you make this structural and sustain this over time because you know in the industry market shares tend to be means reverting over longer time periods so can you actually sustain this over time thanks yeah hi kanan uh let me start with margin so on the margin side we're obviously very happy with the progress fiscal year to date we're delivering ahead of our targets and we're now confident to increase our projection for the year to the high end of our target in terms of drivers the first one is really focus on

profitable growth i've said this many times it's really important for us to ensure that we grow each of our businesses in a highly profitable way and you see that in the streaming growth that we're delivering across the company. The second one is a continuous ongoing focus on cost savings. And I mentioned this in my prepared remarks. There's really a culture of productivity now in a company that we're all excited about, not just for the purpose of productivity, but also to be able to reinvest into growth and accelerate shareholder value creation, as I mentioned. And the third one is we are very disciplined in making sure that we don't add people when we grow all the time that we drive you know operating leverage that will continue in the next years to come not just next year in addition to that you know we have additional drivers that we are leveraging one you mentioned our catalog business you know catalog is not just about acquisitions you know robert talked about that it's 65 of our business and we are now growing share on our catalog business without any acquisitions and that's really critical to understand you know this is a business which can grow for years to come at very very high above average margins that's part of our profitable growth strategy the second big area we are focused on is how do we innovate and create new business models and drive pricing up you know Robert has been championing pricing for the industry for many years it's finally happening and frankly has also been championing you know us leaning forward on ai and we we believe that starting next year we'll see material benefits from that not just on our growth but also on our margin so i'm very confident that our margin targets are achievable frankly our margins in our industry were way too low you know when i started here it wasn't a low 20s you know as you can see fiscally today to be around 24 so we're getting towards the short-term mid-20s target I'm very confident we can get to the high-20s target in the medium to long term. On your question on catalog, frankly, M&A is a very small contributor overall. What's more important for us over the long term is that we find new and innovative ways to grow catalog, one of the larger ones that we are growing now. But also, as Robert mentioned on the long term, we're not just leveraging human manpower, but also AI to make sure we identify the opportunities and then support them. So, Ned, we're really confident about the prospects that we have for our entire business.

Thank you. The next question comes from Kutgen Marel with Evercore ISI. Your line is open.

Good afternoon, and thanks for taking the questions. Maybe for Armin, congrats on the expanded remit.

I wanted to see if you could talk about your approach to capital deployment um you know what has enabled you to deliver returns in line with your targets and what processes have you implemented since joining a year ago thank you well thank you cut gun um in in simple terms we are driving productivity in everything we do okay and we're using the same approach to capital allocation and how do we do that it's really focused on three things one making sure we have a clear strategy and a clear growth model we call it sgm or sustainable growth model two ensuring that we manage our portfolio tightly tightly as a company and then three creating a culture where people feel proud about spending less including on enr deals or mna deals let me talk about each of them on the strategy side our priority is very simple invest in our core music business organically and inorganically and ensure that we are focused on the largest repertoire markets around the world where we see the biggest growth potential and as we do that also ensure we look at the biggest and most profitable and most realistic opportunities that's number one number two on portfolio and portfolio management we are very focused on not just one individual deal we are much more focused on ensuring that we optimize our portfolio overall. The benefit of that is like using investor. You're not investing in just one company, investing a portfolio of companies. The benefit of that is one, the outcome of our investment is much more predictable. So we actually know pretty well what the impact on top-line growth is, bottom-line growth and cash conversion. Therefore, we can much more predictably invest and double down on our growth strategy. The second important outcome for us is that as we look at our portfolio of deals versus not just individual deals, we can actually work with our operating and creative teams to ensure that we look at how do we optimize our portfolio and don't just chase one expensive deal. Now, the third component that I mentioned is all about culture and operations, you know, being proud about spending less and ensuring we deliver better returns. we're now working with our creative commercial and operating teams to ensure that we review our portfolio basically every other week now and have a view of somewhere between 12 to 36 months to ensure they understand and develop a culture of how do we ensure that we spend less money to ensure that we live with the growth and that culture really is perpetually penetrating the entire company that we approach these days and we are very confident with the outcome As I mentioned in the prepared remarks, we're now delivering returns that are about 20 percent across our portfolio.

That's very helpful.

Your next question comes from Ian Moore with Bernstein. Your line is open.

Hi. Maybe for Armin, can you detail the expected annualized revenue and adjusted EBITDA contributions you expect for the catalogs you've acquired through the BainJV and maybe any return targets for those assets?

Yeah, we generally don't disclose specifics around those deals since we have confidential ID agreements in place. But what I can say is we are very, very happy with our partner and the progress we are making. As I mentioned in my prepared remarks, we have deployed about $650 million of the 1.65 billion of GB capacity that we have. Those investments are very focused on iconic high margin catalogs. And importantly, those catalogs where we see growth potential, because it's important for us to ensure that we deliver above average returns. The return thresholds are very much the same that I just discussed on A&R investments, so we make them part of our overall portfolio analysis. And those returns are very attractive for us and our shareholders. And then finally, what's also important for us is not just to acquire those catalogs, but it's actually equally, if not more important, to ensure that we have a dedicated team in place that can grow those catalogs and you know robert did something that i think was brilliant he actually appointed a global catalog leader with kevin gore who's been growing our catalog share um over the last 12 months and that's excellent to see because those are high margin businesses that we love to grow thanks your next question comes from doug krews with td cowen Your line is open.

Hey, thank you. One for Robert. I get questions from clients sometimes about the attractiveness of distribution businesses, given that at least notionally they're lower margin. Can you talk a bit about how your distribution business fits into your overall business strategy in terms of economic value creation and maybe address how Revelator and Two Streams deals fit into that strategy?

Thank you. So first, I think Armin mentioned the importance of portfolio management, and it doesn't mean just portfolio of deals, but also portfolio of deal types. So we're very focused on this two-dimensional portfolio management. And obviously, distribution within that second dimension of the deal types plays a significant role. It's a large part of the industry, and we've been investing into it on the technology side. We've been investing into it on the talent side. We've appointed about a year ago Alejandro Ducat to run ADA, our distribution arm, and Alejandro has actually two jobs, ADA and Latin America, and a Latin American market is very distribution-heavy market. so he's cut his teeth on that and he's managed to run that territory on the margin which is the same as our companies and so he's the right person for the job and he's already a year into it he's has proven it so you know it takes talent technology partnerships you know the whole village to really deliver this and but what really underpins it is our holistic portfolio management and making sure that we're driving growth and distribution while also achieving our margin objectives which are obviously important and um and we you know armin has outlined those both on the short term as well as longer term um we also focus on acquisitions but we're very prudent in the way we deploy capital in those um one of those is revelator obviously, which is technology and capability acquisition. And the other one was TwoStream that we mentioned earlier, which is focused on the Mexican music and has a very significant position there. So overall, we're very happy with our progress here. We have great momentum, very strong growth rate, and it fits into our margin profile as discussed with you.

Perfect. Thank you.

Your next question comes from Mike Morris with Guggenheim Securities. Your line is open.

Thank you. Good afternoon, guys. I wanted to ask you first about the comment about the strong ad environment that you noted and showed up in your numbers. I'm curious if you can expand on that because there's certainly been some inconsistency and growth across the industry and with the Middle East conflict. Are you seeing strength from any particular partners or geographies? And I'd love to hear any outlook for the sustainability there. And then second, if I could, Armin, congratulations on the expanded role. I'd like to direct the question to Robert, though. Robert, how do you see Armin further contributing to the business success with this new role? And also, how do you make sure that the financial function, which he has been instrumental in strengthening, remains strong?

So let me take the ad question, Mike. um so so it's different across partner there are some partners that have very very strong ad revenue growth that's the comment around the market and we are growing share in that partners obviously we're seeing even stronger growth there are some partners that are not doing well yet in ads although there's a strategic intent to improve that and i'm sure you know who i'm talking about and we actually make a very confident that that specific partner will do that so we actually hopeful that you know they can contribute more to our ads growth in the future to continue to accelerate it but also growing sharing that in our platform and then last but not least you know so let's come more on a dsp side we feel very good about the future prospects on the social platform side you know as you know we did a new deal with one of our partners and that's also contributing to add growth so a lot of that is structural and we also believe that one of our partners will do a much better job in the future and therefore we're also confident this will become a bigger contributor to our growth in the future and it's really important because we have billions of consumers that we serve around the world so with that i'm going to hand it over to robert to talk about my work plan for the next one well actually i love this because i can do Armin's 360 review in front of everybody in a fully transparent manner.

So this is fun. So first, Michael, by the way, great question. You should know I don't make decisions suddenly. So this is something that actually has kind of been in practice. So this is nothing new. It's just a title change that's reflecting how we've been operating. You know, Armin has added responsibilities along the way over the last 12 months one by one uh we don't make any change didn't make an announcement nothing it's just kind of you know like things have to work and uh you know now uh we've hit our stride uh we feel really strong about what it is that we do here how we got here and more importantly uh prospects for the future and we really feel like we need to double down on operational excellence across the company and simplification, which then leads to a lot of automation through AI, which allows us to deliver more for artists and songwriters with the same team and grow our business rapidly. So having a strong alignment between our financials, our budget management, forecasting, it's It's just very, very closely tied to the operation of the company. And a role like that makes sense. So it's just reflective of how we've been already operating, so just making it official. That's it. Appreciate it.

That is all the time we have for questions. I'll turn the call to Robert Kinsel for closing remarks.

All right. So in closing, again, it feels great to be at Warner. It feels great to work hard for years and now have consistent delivery and accelerating. And it feels great to have confidence about the future. And as you guys know, I don't say this lightly, this is truly a work of a lot of people around the company. These are not isolated incidents. It's systemic, and we have a growth-oriented culture in the company, very entrepreneurial, but at the same time mindful that we need to deliver on our margin expansion, at the same time have a profitable growth, and that we have to innovate, innovate, innovate for the sake of our artists and songwriters and shareholders. So with that, thank you for your confidence, thank you for your time, and we'll see you This concludes today's conference call.

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