Moody's Corporation · NYSE:MCO

Moody's — Q1 2017 Earnings Presentation

43 slides from Moody's's earnings presentation, May 5, 2017

1. Slide 1: First Quarter 2017 Earnings Call

   First Quarter 2017 Earnings Call May 5, 2017

2. Slide 2: Overview

   Overview SALLI SCHWARTZ GLOBAL HEAD OF INVESTOR RELATIONS AND COMMUNICATIONS First Quarter 2017 Earnings Call, May 5, 2017 2

3. Slide 3: Disclaimer

   Disclaimer Certain statements contained in this presentation are forward-looking statements and are based on future expectations, plans and prospects for Moody’s business and operations that involve a number of risks and uncertainties. The forward-looking statements in this presentation are made as

4. Slide 4: Agenda

   Agenda 1. First Quarter 2017 Results Ray McDaniel, President and Chief Executive Officer 2. Financial and Operating Highlights Linda Huber, Executive Vice President and Chief Financial Officer 3. Updated 2017 Outlook Ray McDaniel, President and Chief Executive Officer 4. Q&A Ray McDaniel, President

5. Slide 5: 1. First Quarter 2017 Results

   1. First Quarter 2017 Results RAY MCDANIEL PRESIDENT AND CHIEF EXECUTIVE OFFICER First Quarter 2017 Earnings Call, May 5, 2017 5

6. Slide 6: First Quarter 2017 Results and Comparison to First Quarter 2016

   First Quarter 2017 Results and Comparison to First Quarter 2016 Moody’s Corporation » Revenue  19% to $975 million » Operating Expense  4% to $532 million » Operating Income  46% to $443 million » Adjusted Operating Income1  42% to $476 million 1 Adjusted operating income is defined as operating

7. Slide 7: First Quarter 2017 Results and Comparison to First Quarter 2016

   First Quarter 2017 Results and Comparison to First Quarter 2016 Moody’s Corporation » Operating Margin • 45.5% » Adjusted Operating Margin1 • 48.8% » EPS  91% to $1.78 » Adjusted EPS2  58% to $1.47 » Expect FY 2017 EPS in the range of $5.46 - $5.61 » Excluding the CCXI gain, expect FY 2017 adjuste

8. Slide 8: 2. Financial and Operating Highlights

   2. Financial and Operating Highlights LINDA HUBER EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER First Quarter 2017 Earnings Call, May 5, 2017 8

9. Slide 9: Moody's Corporation Revenue

   First Quarter 2017 Results and Comparison to First Quarter 2016 Moody’s Corporation Revenue » Total Global  19% to $975 million » U.S.  20% to $578 million » Non-U.S.  18% to $397 million • 41% of total revenue » Total Global • Impact of foreign currency translation on Moody’s revenue was negligi

10. Slide 10: MIS Revenue

    First Quarter 2017 Results and Comparison to First Quarter 2016 (continued) MIS Revenue » Total MIS  27% to $668 million » U.S.  26% to $423 million » Non-U.S.  30% to $246 million • 37% of total MIS revenue » Total MIS • The impact of foreign currency translation on MIS revenue was negligible Fi

11. Slide 11: MIS Revenue by Line of Business

    First Quarter 2017 Results and Comparison to First Quarter 2016 (continued) MIS Revenue by Line of Business » Corporate Finance: $353 million – Global  47% – U.S.  41% – Non-U.S.  61% » Structured Finance: $100 million – Global  11% – U.S.  8% – Non-U.S.  15% First Quarter 2017 Earnings Call,

12. Slide 12: MIS Revenue by Line of Business (continued)

    First Quarter 2017 Results and Comparison to First Quarter 2016 (continued) MIS Revenue by Line of Business » Financial Institutions: $112 million – Global  18% – U.S.  26% – Non-U.S.  13% » Public, Project & Infrastructure Finance: $98 million – Global  7% – U.S.  3% – Non-U.S.  15% » MIS Oth

13. Slide 13: MA Revenue by Geography

    First Quarter 2017 Results and Comparison to First Quarter 2016 (continued) MA Revenue by Geography » Total MA  5% to $307 million » U.S.  8% to $155 million » Non-U.S.  3% to $152 million • 49% of total MA revenue » Total MA • Foreign currency translation unfavorably impacted MA revenue by 1% »

14. Slide 14: MA Revenue by Line of Business

    First Quarter 2017 Results and Comparison to First Quarter 2016 (continued) MA Revenue by Line of Business » Research, Data and Analytics: $175 million – Global  6% • 57% of total MA revenue – U.S.  5% – Non-U.S.  8% First Quarter 2017 Earnings Call, May 5, 2017 14

15. Slide 15: MA Revenue by Line of Business: Enterprise Risk Solutions

    First Quarter 2017 Results and Comparison to First Quarter 2016 (continued) MA Revenue by Line of Business » Enterprise Risk Solutions: $96 million – Global  7% – U.S.  14% – Non-U.S.  3% » ERS TTM1 Revenue  10% » ERS TTM1 Sales  16% » ERS TTM1 Product Sales  25% » ERS TTM1 Service Sales  8%

16. Slide 16: MA Revenue by Line of Business: Professional Services

    First Quarter 2017 Results and Comparison to First Quarter 2016 (continued) MA Revenue by Line of Business » Professional Services: $36 million – Global  2% – U.S.  9% – Non-U.S.  8% First Quarter 2017 Earnings Call, May 5, 2017 16

17. Slide 17: Operating Expense and Margin

    First Quarter 2017 Results and Comparison to First Quarter 2016 (continued) Moody’s Corporation » Operating Expense  4% to $532 million • Foreign currency translation favorably impacted operating expense by 1% » Operating Margin  820 bps to 45.5% » Adjusted Operating Margin1  790 bps to 48.8% 1 A

18. Slide 18: First Quarter 2017 Capital Allocation

    First Quarter 2017 Capital Allocation » During 1Q 2017, Moody’s repurchased approximately 0.5 million shares at a total cost of $55 million, or an average cost of $112.24 per share » During 1Q 2017, Moody’s issued 1.5 million shares as part of its annual employee stock-based compensation plans » Dur

19. Slide 19: First Quarter 2017 Debt Financing

    First Quarter 2017 Debt Financing » On February 27, 2017, Moody’s issued $800 million of notes: – $500 million in 2.75% senior unsecured notes due 2021 – $300 million in floating rate senior unsecured notes due 2018 » During 1Q 2017, Moody’s repaid its outstanding $300 million in Series 2007-1 Notes

20. Slide 20: Balance Sheet and Free Cash Flow

    Balance Sheet and Free Cash Flow » As of March 31, 2017, Moody’s had: – $4.1 billion of outstanding debt – Approximately $800 million of additional borrowing capacity under its commercial paper program which is backstopped by an undrawn $1 billion dollar revolving credit facility – Total cash, cash

21. Slide 21: 3. Updated 2017 Outlook

    3. Updated 2017 Outlook RAY MCDANIEL PRESIDENT AND CHIEF EXECUTIVE OFFICER First Quarter 2017 Earnings Call, May 5, 2017 21

22. Slide 22: Updated 2017 Financial Outlook

    Updated 2017 Financial Outlook1 Our outlook assumes foreign currency translation at end-of-year exchange rates. Specifically, our forecast reflects exchange rates for British pound of $1.25 to £1 pound and for the euro of $1.07 to €1 euro. » EPS2 • $5.46 - $5.61 » Adjusted EPS2,3 • $5.15 - $5.30 » A

23. Slide 23: 4. Q&A Session

    4. Q&A Session » Ray McDaniel President and Chief Executive Officer, Moody’s Corporation » Linda Huber Executive Vice President and Chief Financial Officer, Moody’s Corporation » Mark Almeida President, Moody’s Analytics » Rob Fauber President, Moody’s Investors Service First Quarter 2017 Earnings C

24. Slide 24: USD Market: Issuance Views From Investment Banks

    USD Market: Issuance Views From Investment Banks Views on this page are from various investment banks. Issuance views are for both financial and non-financial US dollar issuance and may not align with Moody’s revenue categorizations. YTD 2017 FY 2017E Investment Grade Bonds ~$450 billion Flat to Dow

25. Slide 25: Euro Market: Issuance Views From Investment Banks

    Euro Market: Issuance Views From Investment Banks Views on this page are from various investment banks. Issuance views are for both financial and non-financial euro issuance and may not align with Moody’s revenue categorizations. Investment Grade » Both the euro and sterling markets remain resilient

26. Slide 26: Moody's Investor Day 2018

    Moody’s Investor Day 2018 Moody’s Corporation is holding its annual Investor Day in late-February / early- March 2018 in New York City. The event, which will be webcast live, will feature presentations from management and showcase important aspects of the Company’s business. Additional details to fo

27. Slide 27: Replay Details

    Replay Details » Available from 3:30pm (Eastern Time) May 5, 2017 until 3:30pm (Eastern Time) June 3, 2017 » Telephone Details: – US +1-888-203-1112 – Non-US +1-719-457-0820 – Passcode 3261676 » Webcast Details: – Go to http://ir.moodys.com – Click on “Events & Presentations” – Click on the link for

28. Slide 28: Appendix

    Appendix First Quarter 2017 Earnings Call, May 5, 2017 28

29. Slide 29: Consolidated Statements of Operations (Unaudited)

    Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2017 2016 Am ounts in m illions, except per share am ounts Revenue $ 975.2 $ 816.1 Expenses: Operating 277.4 249.2 Selling, general and adm inis trative 221.9 232.9 Depreciation and am ortization 32.5 29.9 Total expenses

30. Slide 30: Supplemental Revenue Information (Unaudited)

    Supplemental Revenue Information (Unaudited) Three Months Ended March 31, Am ounts in m illions 2017 2016 Moody's Investors Service Corporate Finance $ 352.8 $ 240.3 Structured Finance 100.2 90.6 Financial Ins titutions 112.3 94.9 Public, Project and Infras tructure Finance 98.1 91.5 MIS Other 4.8 7

31. Slide 31: Selected Consolidated Balance Sheet Data (Unaudited)

    Selected Consolidated Balance Sheet Data (Unaudited) March 31, December 31, 2017 2016 Amounts in millions Cash and cash equivalents $ 2,129.6 $ 2,051.5 Short-term investments 132.8 173.4 Total current assets 3,485.5 3,253.1 Non-current assets 1,950.4 2,074.2 Total assets 5,435.9 5,327.3 (1,2) Total

32. Slide 32: Selected Consolidated Balance Sheet Data (continued)

    Selected Consolidated Balance Sheet Data (continued) (Unaudited) Total debt consists of the following: March 31, 2017 Fair Value of Unamortized Unamortized Principal Interest Rate (Discount) Debt Issuance Carrying Amount S wap Premium Costs Value Notes Payable: 5.50% 2010 Senior Notes, due 2020 $ 50

33. Slide 33: Non-operating (Expense) Income, Net

    Non-operating (Expense) Income, Net Three Months Ended March 31, 2017 2016 Amounts in millions Interest expense, net: Expense on borrowings (1) $ (44.7) $ (34.6) Income 4.1 2.9 UTPs and other tax related liabilities (2.1) (2.8) Interest capitalized 0.3 0.4 Total interest expense, net $ (42.4) $ (34.

34. Slide 34: Financial Information by Segment

    Financial Information by Segment The table below presents revenue, adjusted operating income and operating income by reportable segment. The Company defines adjusted operating income as operating income excluding depreciation and amortization. Three Months Ended March 31, 2017 2016 MIS MA Elim inati

35. Slide 35: Transaction and Relationship Revenue

    Transaction and Relationship Revenue The tables below summarize the split between transaction and relationship revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while relationship revenue represen

36. Slide 36: Adjusted Financial Measures

    Adjusted Financial Measures The tables below reflect certain adjusted results that the SEC defines as "non-GAAP financial measures" as well as a reconciliation of each adjusted measure to its most directly comparable GAAP measure. Management believes that such adjusted financial measures, when read

37. Slide 37: Free Cash Flow

    Free Cash Flow The table below reflects a reconciliation of the Company’s net cash flows from operating activities to free cash flow. The Company defines free cash flow as net cash provided by operating activities minus payments for capital additions. Management deems capital expenditures essential

38. Slide 38: Adjusted Net Income and Earnings Per Share

    Adjusted Net Income and Earnings Per Share Attributable to Moody's Common Shareholders The Company presents this adjusted measure to exclude the CCXI Gain as the frequency and magnitude of similar transactions may vary widely across periods. This measure allows for an additional perspective when com

39. Slide 39: 2017 Outlook

    2017 Outlook Moody’s outlook for 2017 is based on assumptions about many macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and securitizati

40. Slide 40: 2017 Outlook (continued)

    2017 Outlook (continued) Moody’s outlook for 2017 is based on assumptions about many macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and

41. Slide 41: 2017 Outlook (continued)

    2017 Outlook (continued) The following are reconciliations of the Company's adjusted forward looking measures to their comparable GAAP measure: Year Ended December 31, 2017 Operating margin guidance Approximately 43% Depreciation and amortization Approximately 3% Adjusted operating margin guidance A

42. Slide 42: moodys.com

    42 moodys.com Website: http://ir.moodys.com Email: ir@moodys.com

43. Slide 43: First Quarter 2017 Earnings Call, May 5, 2017

    © 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, and affiliates (collectively, “MOODY’S”). All rights reserved. licensors and suppliers

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