Slide 1: Second Quarter 2020 Earnings Call
Second Quarter 2020 Earnings Call July 30, 2020
Slide 2: Introduction
Introduction Shivani Kak Head of Investor Relations Second Quarter 2020 - Earnings Call, July 2020 2
Slide 3: Disclaimer
Disclaimer Certain statements contained in this release are forward-looking statements and are based on future expectations, plans and prospects for the business and operations of Moody’s Corporation (the “Company”) that involve a number of risks and uncertainties. Such statements may include, among
Slide 4: Overview and 2Q 2020 Results
Overview and 2Q 2020 Results Ray McDaniel President and Chief Executive Officer Second Quarter 2020 - Earnings Call, July 2020 4
Slide 5: Executive Summary
Executive Summary » Strong 2Q 2020 results: revenue growth of 18%; adjusted diluted EPS of $2.81, up 36%1 » Steadfast in our commitment to corporate social responsibility and sustainability stewardship » Fiscal and monetary stimulus mitigating fundamental risks due to COVID-19 » Innovations and enha
Slide 6: Corporate Social Responsibility Commitment
Corporate Social Responsibility Commitment Environmental Sustainability Program Enhancements1 Employees Communities Customers and Policymakers Carbon Neutrality » Employee safety and wellbeing » Over $10M of in-kind » Increased engagement with » Committed to remaining remains our primary priority co
Slide 7: 2Q 2020: Strong Revenue Growth with Margin Expansion
2Q 2020: Strong Revenue Growth with Margin Expansion » MCO revenue increased 18%, driven by 27% growth from MIS and 5% growth from MA – MA organic growth of 6%1 » Adjusted operating income up 28%; adjusted operating margin up 410 bps2 » Adjusted diluted EPS of $2.81, up 36%2 MCO Revenue MCO Adjusted
Slide 8: 2Q 2020 Credit Market Update
2Q 2020 Credit Market Update COVID-19 disrupts real economy, credit markets buoyed by stimulus Real Economy Credit Markets COVID-19 Pandemic Investment Grade Bonds » New cases of COVID-19 increased in the U.S., while declining in Europe and parts of Asia » Record 2Q 2020 issuance volumes1 » Optimism
Slide 9: Liquidity and Refinancing Prominent Drivers of Issuance, M&A Declined
Liquidity and Refinancing Prominent Drivers of Issuance in 1H 2020, While M&A Declined Uses of Funds from USD Investment Grade Bonds1 2Q 2020 Investment Grade Issuance Drivers: Debt Refinancing M&A Capital Spending Shareholder Payments Working Capital 100% Liquidity / working capital 10% 10% 7% 4% 3
Slide 10: Record 2Q 2020 Issuance, Mix Shift
Record 2Q 2020 Issuance, Mix Shift Investment grade bond High yield bond Bank loan CFG transactional revenue growth Y/Y Issuance volume growth Y/Y $660 85% 65% 41% 37% 37% 36% 40% $358 25% -3% $278 $264 -7% $256 $210 -12% $186 $170 $171 -12% $138 $135 $135 $114 $113 $119 $101 $103 $103 1Q19 2Q19 3Q1
Slide 11: Managing Ratings in Turbulent Times
Managing Ratings in Turbulent Times Transparency and relevance of credit ratings through the cycle Order sectors by degree Order issuers by Reassess all Reassess ratings Monitor credit profiles Coordinate Take account of of exposure vulnerability ratings in the most of the most associated with all o
Slide 12: MA Sales Outlook Resilient Amid COVID-19 Disruption
MA Sales Outlook Resilient Amid COVID-19 Disruption Retention remains strong Current Outlook Prior Outlook Existing contractual No change obligations being met 94.6% 94.1% by MA and Customers 2012 2Q 20201 Renewal yield3 outlook better Renewal yield3 Stable YTD 2020 ACTUALS than prior expectations m
Slide 13: Continued Innovation Driving Value Through New Products and Solutions
Continued Innovation Driving Value Through New Products and Solutions ESG & Climate Offerings - Partnered with Euronext on the new Euronext CECL - Impairment Analytics Insurers’ Capital Monitoring ESG80 index powered by Vigeo Eiris (VE) data » New capabilities were added to » Launched SolvencyWatch,
Slide 14: 2Q 2020 Results and FY 2020 Outlook
2Q 2020 Results and FY 2020 Outlook Mark Kaye Chief Financial Officer Second Quarter 2020 - Earnings Call, July 2020 14
Slide 15: MIS: Robust IG Issuance Drove Results
MIS: Robust IG Issuance Drove Results Issuance1 MIS Revenue YoY Change $2,000.0 $938 $ Billions $1,500.0 $1,000 $10 $1,000.0 $900 23% 1,785 $739 $133 $500.0 1,168 $800 $700 $6 $142 14% $0.0 $108 2Q19 2Q20 $81 (28%) $ Millions $600 $125 MIS Adjusted Operating Income and Margin $500 $112 +390bps 64.0%
Slide 16: MA: Organic Constant Currency Revenue Growth of 8%
MA: Organic Constant Currency Revenue Growth of 8% MA Revenue1 YoY MA Adjusted Operating Income and Margin $497 Change $200 28.2% +50bps 28.7% $500 $475 $43 $131 $400 12% $21 ($13) $117 $ Millions $ Millions $300 $100 $200 $135 $143 $366 16% $315 $100 $0 $0 15.0% 2Q19 2Q20 2Q19 MA MA Revenue MA Expe
Slide 17: Macro Assumptions Underpinning Our Outlook
Macro Assumptions Underpinning Our Outlook Base Case Developments since April 30th Expect continuing economic recovery in 2H 2020 ACCELERATE Continued global fiscal support and monetary stimulus actions 2020 GDP Benchmark interest rates remain low; high-yield Surge of investment grade capital spread
Slide 18: FY 2020 Corporate-Level Guidance
FY 2020 Corporate-Level Guidance1 Revenue Increase in the low-single-digit % range Expenses Approximately flat Adjusted Operating Margin2 48% - 49% Interest Expense, Net $180 - $200 million Effective Tax Rate 19.5% - 21.5% Diluted EPS $8.15 - $8.55 Adjusted Diluted EPS2 $8.80 - $9.20 Free Cash Flow2
Slide 19: MIS Guidance: Strong 1H 2020 Driving Improved Outlook
MIS Guidance: Strong 1H 2020 Driving Improved Outlook1 Revenue Adjusted Operating Margin1 FY 2020 Issuance Guidance1 Low-single-digit $3,000 % increase 58.0% Approximately 58% Investment Grade +50% $2.9B $2,800 High Yield Bonds +5% $2,600 Bank Loans -20% $2,400 $2,200 Structured -40% $2,000 $1,800 T
Slide 20: MA Guidance: Top-line Growth and Margin Improvement Remain on Track
MA Guidance1: Top-line Growth and Margin Improvement Remain on Track Revenue Adjusted Operating Margin1 Mid-single-digit Approximately 30% % increase $2.0B 27.8% 1 1 2019 2020F 2019 2020F Key drivers of MA FY 2020 outlook1 » Strong recurring revenue mitigates COVID-19 impact » RD&A growth driven by
Slide 21: Capital Allocation Strategy
Capital Allocation Strategy Capital allocation levers Prudent approach in uncertain times INVESTING IN GROWTH OPPORTUNITIES Reinvestment Capital allocation goals Acquisitions RETURN OF CAPITAL Dividends Share repurchase Considerations around share repurchase program COVID-19 uncertainty Anchored aro
Slide 22: Key Takeaways
Key Takeaways » Committed to supporting key stakeholders and sustainability stewardship » Increased relevance of Moody’s products and services in times of economic uncertainty » Robust 2Q 2020 performance and improved full year 2020 outlook » Upward revenue revision coupled with flat expense growth
Slide 23: Questions and Answers
Questions and Answers Ray McDaniel President and Chief Executive Officer Rob Fauber Chief Operating Officer Mark Kaye Chief Financial Officer
Slide 24: Replay Details
Replay Details Available from 3:30pm (Eastern Time) July 30, 2020 until 3:30pm (Eastern Time) August 28, 2020 Telephone Details Webcast Details » U.S. +1-888-203-1112 » Go to ir.moodys.com » Non-U.S. +1-719-457-0820 » Click on “Events & Presentations” » Passcode 7108503 » Click on the link for “2Q 2
Slide 25: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com
Slide 26: Glossary of Terms and Abbreviations
Glossary of Terms and Abbreviations TERM DEFINITION CFG Corporate finance group; an LOB of MIS ERS The Enterprise Risk Solutions LOB within MA, which offers risk management software solutions as well as related risk management advisory engagements services FIG Financial institutions group; an LOB of
Slide 27: Adjusted Operating Income and Adjusted Operating Margin by Segment
Adjusted Operating Income and Adjusted Operating Margin by Segment The table below presents revenue, operating income and adjusted operating income by reportable segment. The Company defines adjusted operating income as operating income excluding: i) depreciation and amortization; ii) a loss pursuan
Slide 28: Adjusted Operating Income and Adjusted Operating Margin
Adjusted Operating Income and Adjusted Operating Margin The Company presents Adjusted Operating Income and Adjusted Operating Margin because management deems these metrics to be useful measures to provide additional perspective on the operating performance of Moody’s. Adjusted Operating Income exclu
Slide 29: 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
Slide 30: Organic Revenue and Growth Measures – MA, RD&A and ERS
Organic Revenue and Growth Measures – MA, RD&A and ERS The Company presents organic revenue and organic revenue growth because management deems this metric to be a useful measure which provides additional perspective in assessing the revenue growth excluding the inorganic revenue impacts from certai
Slide 31: Adjusted Net Income and Adjusted Diluted EPS
Adjusted Net Income and Adjusted Diluted Earnings per Share Attributable to Moody's Common Shareholders The Company presents Adjusted Net Income and Adjusted Diluted EPS because management deems these metrics to be useful measures to provide additional perspective on the operating performance of Moo
Slide 32: Adjusted Net Income and Adjusted Diluted EPS (continued)
Adjusted Net Income and Adjusted Diluted Earnings per Share Attributable to Moody's Common Shareholders (continued) Note: The tax impacts in the table above were calculated using tax rates in effect in the jurisdiction for which the item relates. Second Quarter 2020 - Earnings Call, July 2020 32
Slide 33: Second Quarter 2020 - Earnings Call, July 2020
© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liabilit