Moody's Corporation · NYSE:MCO
Moody's — Q2 2017 Earnings Presentation
58 slides from Moody's's earnings presentation, Jul 31, 2017
Slide 1: 2Q 2017 Investor Presentation
2Q 2017 Investor Presentation July 31, 2017
Slide 2: Disclaimer
Disclaimer Certain statements contained in this release 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 release are made as of the dat
Slide 3: Table of Contents
Table of Contents 1. Financial Overview 2. Capital Markets Overview 3. Moody’s Investors Service (MIS) 4. Moody’s Analytics (MA) 5. Conclusion 6. Appendix July 31, 2017 3
Slide 4: Moody's Mission: To be the World's Most Respected Authority Serving Risk-Sensitive Financial Markets
Moody’s Mission: To be the World’s Most Respected Authority Serving Risk-Sensitive Financial Markets Risk Risk Risk Understanding Measurement Management » Methodologies » Ratings » Research » Training & Certification » Estimated Default Frequency (from both MIS & MA) » Analyst Outreach Analytics (ED
Slide 5: Financial Overview
1 Financial Overview
Slide 6: Overview of Moody's Corporation
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Overview of Moody’s Corporation1 Independent provider of Research, data and software Leading global provider of credit rating opinions and for financial risk analysis
Slide 7: Revenue is Diversified by Business, Geography and Type
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Revenue is Diversified by Business, Geography and Type TTM 2Q17 Revenue by Business TTM 2Q17 Revenue by Geography MIS MA U.S. Non-U.S. Public, Project & MIS Other Infr
Slide 8: Financial Performance
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Financial Performance Revenue Adjusted Diluted EPS2 $5.35 to High-single- $6.00 $5.503 $5.0 digit % growth $5.00 $4.0 $ Billions $3.0 $4.00 $2.0 $4.60 $4.81 $3.00 $4.2
Slide 9: Long-Term Growth Opportunities
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Long-Term Growth Opportunities Three Levers to Achieve EPS Growth Note: Long-term growth opportunities presented on this slide are on average over time and do not incl
Slide 10: Actively Managing Expense Base
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Actively Managing Expense Base Expense and best practice initiatives to drive operating margin to the mid-40s % range over the next several years Moody’s Investors Ser
Slide 11: Disciplined Approach to Capital Allocation
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Disciplined Approach to Capital Allocation Investing in Growth Opportunities Return of Capital Reinvestment Acquisitions Dividends Share Repurchases » Invest in existi
Slide 12: Moody's to Acquire Bureau van Dijk for €3.0 Billion
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s to Acquire Bureau van Dijk for €3.0 Billion Bureau van Dijk aggregates, standardizes and distributes one of the world’s most extensive private company data set
Slide 13: Moody's Plan is to Maintain a Solid Investment Grade Rating
Moody’s Plan is to Maintain a Solid Investment Grade Rating Debt Outstanding Debt / Adjusted EBITDA $6,000 $2,000 $2,000 3.0x $5,000 2.5x $1,500 $1,500 $4,000 2.0x $1,000 $ Millions $ Millions $ Millions $3,000 $1,000 1.5x $500 $2,000 1.0x $500 $0 0.5x $1,000 $0 -$500 $0 0.0x 2012 2013 2014 2015 201
Slide 14: Full Year 2017 Guidance as of July 21, 2017
Full Year 2017 Guidance as of July 21, 2017 » Revenue: Increase in the high-single-digit % range » Operating Expense: Decrease in the 25% - 30% range » Adjusted Operating Expense1: Increase in the mid-single-digit % range » Operating Margin: Approximately 43% » Adjusted Operating Margin1: Approximat
Slide 15: Capital Markets Overview
2 Capital Markets Overview
Slide 16: Historically, Rising Rates Have not had a Significant Impact on Moody's Revenue
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Historically, Rising Rates Have not had a Significant Impact on Moody’s Revenue MCO Revenue and Interest Rates 1 MIS Revenue (L) MA Revenue (L) MCO Revenue (L) 10-yr U
Slide 17: Debt Leverage up in North America and Europe; Interest Coverage Remains Reasonable
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Debt Leverage up in North America and Europe; Interest Coverage Remains Reasonable Credit Metrics: North American Speculative Grade Companies 6.0x 4.9x 5.1x 5.2x 5.1x
Slide 18: Global Default Rates Remain Under Historic Average
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Global Default Rates Remain Under Historic Average Corporate Default Rate Forecast by Industry1 Default Rates for Corporate Rated Issuance3 Global U.S. Europe Industry
Slide 19: North America and EMEA Non-Financial Corporates Have Significant Refunding Needs
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix North America and EMEA Non-Financial Corporates Have Significant Refunding Needs1 Debt Maturities: North America Moody’s-Rated Corporate Bonds and Loans $300 $260 $250
Slide 20: Debt Refinancing and M&A are Most Frequently Stated Uses of Proceeds
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Debt Refinancing and M&A are Most Frequently Stated Uses of Proceeds Uses of Funds from USD High Yield Bonds and Bank Loans1 Debt Refinancing M&A Capital Spending Shar
Slide 21: Disintermediation of Credit is an Ongoing Trend in the Global Capital Markets
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Disintermediation of Credit is an Ongoing Trend in the Global Capital Markets European Non-Financial Corporate U.S. Non-Financial Corporate Bonds vs. Bank Loans Outsta
Slide 22: Rising Rates are Supporting Leveraged Loan Activity
Rising Rates are Supporting Leveraged Loan Activity Moody’s Rated Corporate Speculative-Grade Bank Loans1 $600 2009 – 2016 CAGR 27% $400 $ Billions +144% $200 $0 2009 2010 2011 2012 2013 2014 2015 2016 1H 2016 1H 2017 U.S. Rated Non-U.S. Rated » Tightening spreads have contributed to very strong 1H
Slide 23: Disintermediation is a Key Driver of Moody's Global New Rating Mandates
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Disintermediation is a Key Driver of Moody’s Global New Rating Mandates Global New Rating Mandates1 EMEA United States Rest of World 1,200 1,026 990 854 # of New Manda
Slide 24: Moody's Investors Service
3 Moody’s Investors Service
Slide 25: Moody's Investors Service: A Leading Provider of Credit Ratings, Research and Risk Analysis
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Investors Service: A Leading Provider of Credit Ratings, Research and Risk Analysis Proven ratings Focus on research accuracy and deeply leadership experienced
Slide 26: Illustrative Value of a Moody's Rating
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Illustrative Value of a Moody’s Rating Example: 10 year $500 million corporate bond Unrated Rated by Moody’s $500,000,000 Bond $500,000,000 x 4.3% Interest rate x 4.0%
Slide 27: Moody's Continues to Invest in Key International Markets
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Continues to Invest in Key International Markets Emerging Markets Rated Corporate Bond Issuance1 China » Successful joint venture with CCXI, leading domestic r
Slide 28: Moody's Investors Service Financial Profile
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Investors Service Financial Profile TTM 2Q 2017 Revenue: $2.6 billion Recurring Transaction U.S. Non-U.S. » 28% recurring revenue MIS Other 1% Public, 38% Corp
Slide 29: Moody's Analytics
YAN Moody’s Analytics
Slide 30: Moody's Analytics Provides Essential Insight Serving Financial Markets
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Analytics Provides Essential Insight Serving Financial Markets Research Data & Analytics MIS research & data MIS ratings feeds Economic research, data & models
Slide 31: Moody's Analytics Financial Profile
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Analytics Financial Profile TTM 2Q 2017 Revenue: $1.3 billion » > 95% recurring revenue Recurring Transaction U.S. Non-U.S. » 95% retention rate 24% Research,
Slide 32: Moody's Analytics has Several Platforms for Growth
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Analytics has Several Platforms for Growth Added ~$700 Million in Revenue Since Inception Moody’s Analytics 2016 Revenue: $1,233m $1,400 2008 – 2016 CAGR: +11%
Slide 33: RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales Subscription Sales Growth (constant currency) Expansion of ratings coverage 6.5% 1H 201
Slide 34: ERS Solutions Address Diverse Needs and Customers
ERS Solutions Address Diverse Needs and Customers Credit Risk & Actuarial Analytics Credit Assessment & Helps risk managers assess and manage current and future exposures Origination across all asset classes Automates financial spreading and credit scoring, decision Accounting Calculation & making a
Slide 35: ERS Business and Technology Drivers Shifting Mix to Higher Margin Product Sales
ERS Business and Technology Drivers Shifting Mix to Higher Margin Product Sales ERS: TTM Revenue Business Drivers Services Products 1 End user objectives are shifting to efficiency and business growth, while regulatory and accounting requirements continue to drive investment. $350 End User Third Par
Slide 36: Professional Services: Extending the Brand Into New Markets and Deepening Customer Relationships
Professional Services: Extending the Brand Into New Markets and Deepening Customer Relationships Knowledge Process Certificates, Designations Financial Services Outsourcing & Accreditations Training » Leading provider of research, » Exclusive provider of licensing » Artificial Intelligence-powered a
Slide 37: Conclusion
5 Conclusion
Slide 38: Why Invest in Moody's?
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Why Invest in Moody’s? » We strive to be the world’s most respected authority serving risk-sensitive financial markets » We have had strong revenue and earnings growth
Slide 39: Moody's Awards
Moody's Awards Moody’s is the proud recipient of over 20 awards from publications around the world. Spanning both Moody's Investors Service and Moody's Analytics, this recognition helps expand Moody's position as a leader in the global capital markets and reflects the hard work and contributions of
Slide 40: Appendix
6 Appendix
Slide 41: Corporate Finance: Revenue and Issuance
Corporate Finance: Revenue and Issuance Revenue1: Mix by Quarter Issuance3: Mix by Quarter $350 $800 $300 $104 $92 $77 $67 $700 $69 $71 $600 $ Millions $250 $25 $32 $ Billions $73 $63 $206 $59 $61 $48 $44 $41 $64 $200 $51 $500 $109 $8 $99 $47 $59 $120 $33 $27 $30 $41 $160 $400 $71 $103 $123 $85 $99
Slide 42: Corporate Finance: Revenue Diversification
Corporate Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 26% 27% 30% 31% 29% 30% 32% 32% 26% 26% 80% 80% 37% 66% 62% 62% 68% 68% 67% 66% 68% 62% 72% 69% 60% 60% 40% 40% 74% 73% 74% 74% 70% 69% 71% 70% 68% 68% 63% 20%
Slide 43: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $140 $1 $120 $1 $1 $250 $0 $0 $1 $42 $100 $41 $0 $0 $30 $30 $42 $200 $32 $36 $1 $56 $29 $ Millions $27 $44 $30 $24 $26 $ Billions $80 $22 $32 $150 $28 $16 $14 $40 $32 $12 $25 $33 $32 $38 $33 $30 $27 $21 $18 $
Slide 44: Structured Finance: Revenue Diversification
Structured Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 38% 36% 32% 38% 37% 80% 80% 42% 40% 45% 39% 40% 43% 54% 64% 66% 69% 66% 65% 69% 68% 67% 65% 68% 60% 60% 40% 40% 62% 64% 68% 62% 63% 58% 60% 55% 61% 60% 57% 20
Slide 45: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter $120 $3 $500 $5 $3 $100 $2 $3 $3 $45 $2 $2 $3 $3 $6 $4 $4 $25 $400 $ Millions $5 $3 $4 $4 $26 $ Billions $80 $4 $23 $21 $24 $30 $26 $29 $26 $24 $23 $300 $42 $38 $60 $28 $24 $41 $19 $200 $416 $40 $79 $369
Slide 46: Financial Institutions: Revenue Diversification
Financial Institutions: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 80% 41% 42% 40% 43% 42% 45% 43% 42% 43% 45% 43% 80% 52% 57% 63% 65% 65% 63% 61% 59% 65% 63% 67% 60% 60% 40% 40% 59% 58% 60% 57% 58% 55% 57% 58% 57% 55% 57
Slide 47: Public, Project and Infrastructure: Revenue and Issuance
Public, Project and Infrastructure: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $250 $120 $0 $0 $0 $0 $200 $100 $0 $0 $0 $0 $ Millions $0 $ Billions $80 $57 $45 $150 $128 $46 $49 $45 $51 $66 $37 $111 $45 $40 $48 $54 $60 $22 $100 $40 $60 $50 $107 $114 $105 $54 $55 $55 $54
Slide 48: Public, Project and Infrastructure: Revenue Diversification
Public, Project and Infrastructure: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 80% 80% 39% 40% 40% 41% 35% 37% 38% 37% 40% 36% 42% 65% 63% 63% 65% 67% 67% 63% 67% 64% 63% 72% 60% 60% 40% 40% 61% 60% 60% 59% 65% 63% 62% 63
Slide 49: Moody's Analytics: Financial Overview
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Analytics: Financial Overview $400 Revenue1: Mix by Quarter $1,400 Revenue1: Mix by Year $350 $1,200 $37 $147 $ Millions $300 $38 $36 $36 $150 $ Millions $37 $
Slide 50: Moody's Corporate Speculative Grade Credit Cycle Gauge
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Corporate Speculative Grade Credit Cycle Gauge North America Europe Latest 1-Year Long-Term Record Latest 1-Year Long-Term Record 1 2 Metric Ago Average Worst
Slide 51: Revenue Growth by Quarter: MCO, MIS and MA
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Revenue Growth by Quarter: MCO, MIS and MA Year-over-Year % Change MIS MA MCO 50% Oil prices crash Euro / Greece standoff Global macro concerns Crimean crisis Fears Eu
Slide 52: MIS Revenue vs. Rated Issuance
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix MIS Revenue vs. Rated Issuance1 Year-over-Year 2012-2016 2012 2013 2014 2015 2016 1H 2017 Percent Change CAGR Issuance 16% 0% 6% -6% 2% 3% 15% Revenue 20% 9% 9% 3% 2%
Slide 53: Moody's Global Presence
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Global Presence 2017 3,404 7,214 10,618 U.S. employees non-U.S. employees total employees1 3,442 2016 7,372 10,814 U.S. employees non-U.S. employees total empl
Slide 54: Reconciliation of Adjusted Financial Measures to GAAP
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Reconciliation of Adjusted Financial Measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation TTM 2Q (in $ millions) 2012 2013 2014 2015
Slide 55: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Adjusted Operating Expense Reconciliation 2017F1 Operating Expense Guidance Decreased
Slide 56: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation EBITDA Reconciliation TTM ($ Millions) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2
Slide 57: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 58: July 31, 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