Moody's Corporation · NYSE:MCO
Moody's — Q3 2017 Earnings Presentation
62 slides from Moody's's earnings presentation, Nov 13, 2017
Slide 1: 3Q 2017 Investor Presentation
3Q 2017 Investor Presentation November 13, 2017
Slide 2: Disclaimer
Disclaimer Certain statements contained in this document 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 document are made as of the d
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 November 13, 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 & Data » Training & Certification » Estimated Default Frequency » Advisory Services » Analyst Outreach Analyti
Slide 5: Financial Overview
1 Financial Overview
Slide 6: Overview of Moody's Corporation
Overview of Moody’s Corporation1 Independent provider of Research, data and software Leading global provider of credit rating opinions and for financial risk analysis and related information for over credit rating opinions, related professional services 100 years insight and tools for financial risk
Slide 7: Revenue is Diversified by Business, Geography and Type
Revenue is Diversified by Business, Geography and Type TTM 3Q17 Revenue by Business TTM 3Q17 Revenue by Geography MIS MA U.S. Non-U.S. Public, Project & MIS Other Infrastructure 1% Asia-Pacific Americas Financial 10% 11% 6% Research, Institutions Data & 10% Analytics 19% Structured EMEA Finance Ente
Slide 8: Financial Performance
Financial Performance $5.85 Revenue Adjusted Diluted EPS2 to $6.003 $6.00 $5.0 Low-teens % growth $5.00 $4.0 $ Billions $3.0 $4.00 $4.71 $4.94 $2.0 $4.31 $3.00 $3.74 $1.0 $3.08 $2.00 $0.0 1 2012 2013 2014 2015 2016 2017F 1 2012 2013 2014 2015 2016 2017F Operating Margin 5-year Average Free Cash Flow
Slide 9: Long-Term Growth Opportunities
Long-Term Growth Opportunities Three Levers to Achieve EPS Growth Note: Long-term growth opportunities presented on this slide are on average over time. 1 Assumes no material change in effective tax rate, foreign exchange rates, leverage profile and/or capital allocation policy. 2 Subject to market
Slide 10: Actively Managing Expense Base
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 Service Moody’s Analytics Moody’s Shared Services » Revised organizational structure » Higher margin product focus » Staffing shift to l
Slide 11: Disciplined Approach to Capital Allocation
Disciplined Approach to Capital Allocation Investing in Growth Opportunities Return of Capital Reinvestment Acquisitions Dividends Share Repurchases » Invest in existing businesses » Aligned with strategy » Payout ratio potential is 25% » FY 2017 share repurchase to support organic growth - 30% of n
Slide 12: 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 $2,500 3.5x 3.0x $5,000 $2,000 2.5x $4,000 $1,500 2.0x $ Millions $ Millions $3,000 $1,000 1.5x $2,000 1.0x $500 $1,000 0.5x $0 $0 0.0x 2012 2013 2014 2015 2016 3Q 2012 2013 2014 2015 2016 TTM
Slide 13: Full Year 2017 Guidance as of November 3, 2017
Full Year 2017 Guidance as of November 3, 2017 » Revenue: Increase in the low-teens % range » Operating Expense: Decrease in the 20% - 25% range » Adjusted Operating Expense1: Increase in the low-double-digit % range » Operating Margin: Approximately 43% » Adjusted Operating Margin1: Approximately 4
Slide 14: Drivers of FY 2017 Adjusted Diluted EPS Guidance Increase
Drivers of FY 2017 Adjusted Diluted EPS Guidance Increase 1 2 3 1 Legacy MCO Business Performance includes $0.04 from adoption of ASU 2016-09. 2 Bureau van Dijk Business Performance excludes amortization of acquisition-related intangibles and Acquisition-Related Expenses. Net impact of Bureau van Di
Slide 15: Capital Markets Overview
2 Capital Markets Overview
Slide 16: Historically, Rising Rates Have not had a Significant Impact on Moody's Revenue
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.S. Treasury Yield (R) $4,000 9% 7.8% 8% $3,500 +120bps 7% $3,000 6.5% $ Millions +100bps 6% $2,500 5.8% 5% $2,000 4.7% 3.3% +200bps
Slide 17: Potential Moderators to Rising Rates in the U.S.
Potential Moderators to Rising Rates in the U.S. 1) The gap between U.S. and international government bond yields 2) The impact of 10-year U.S. Treasury yields on mortgage rates 10-Year Government Bond Yields 10-Year U.S. Treasury vs. 30-Year Mortgage Yield U.S. Treasury 10-Year U.S. Treasury Yield
Slide 18: Debt Leverage up in North America, down in Europe; Interest Coverage Remains Steady
Debt Leverage up in North America, down in Europe; Interest Coverage Remains Steady Credit Metrics: North American Speculative Grade Companies 6.0x 4.9x 5.1x 5.2x 5.1x 4.8x Interest Coverage 4.5x 4.5x 4.4x 4.3x 4.6x 5.0x 4.2x 4.2x 4.2x 4.0x 3.0x 2.0x 1.0x 1.7x 1.6x 1.4x 1.3x 1.6x 1.9x 1.7x 1.7x 1.6x
Slide 19: Global Default Rates Remain Under Historic Average
Global Default Rates Remain Under Historic Average Default Rates for Corporate Rated Issuance1 Global U.S. Europe 6.0% 5.5% 5.0% 4.5% 4.3% global historic average1 4.0% 3.5% 3.0% 2.5% 2.3% 2.0% 1.9% 1.5% 1.3% 1.0% 2012 2013 2014 2015 2016 2017F 2018F » Global speculative-grade default rate at 2.8% a
Slide 20: North America and EMEA Non-Financial Corporates Have Significant Refunding Needs
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 $221 $220 2018 – 2021 CAGR $196 $199 $193 $ Billions $200 $162 Investment Grade Bonds: 4% $150 $122 $130 Speculative Grade Bonds: 42
Slide 21: Debt Refinancing and M&A are Most Frequently Stated Uses of Proceeds
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 Shareholder Payments 12% 9% 4% 18% 17% 18% 16% 17% 13% 11% 22% 20% 17% 5% 22% 5% 6% 7% 8% 8% 8% 7% 19% 25% 39% 31% 30% 31% 41% 41% 54% %
Slide 22: Disintermediation of Credit is an Ongoing Trend in the Global Capital Markets
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 Outstanding Bonds vs. Bank Loans Outstanding Bonds Loans Bonds Loans €7,000 $9,000 €6,000 $7,500 €5,000 48% $6,000 $ Billions € Billions €4
Slide 23: Disintermediation is a Key Driver of Moody's Global New Rating Mandates
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 +39% 854 # of New Mandates 800 771 738 781 561 400 0 2012 2013 2014 2015 2016 YTD 3Q YTD 3Q 2016 2017 » YTD 3Q 2017 new rating mandate count of ~780 ha
Slide 24: Rising Rates are Supporting Leveraged Loan Activity
Rising Rates are Supporting Leveraged Loan Activity Moody’s Rated Corporate Speculative-Grade Bank Loans1 $800 2009 – 2016 CAGR 27% +96% $600 $ Billions $400 $200 $0 2009 2010 2011 2012 2013 2014 2015 2016 3Q YTD 3Q YTD 2016 2017 U.S. Rated Non-U.S. Rated » Tightening leveraged loan (and CLO) spread
Slide 25: Moody's Investors Service
3 Moody’s Investors Service
Slide 26: Moody's Investors Service: A Leading Provider of Credit Ratings, Research and Risk Analysis
Moody’s Investors Service: A Leading Provider of Credit Ratings, Research and Risk Analysis Proven ratings Focus on research accuracy and deeply leadership experienced analysts Expanded sales and Improving the issuer / marketing activities in investor experience Commercial Group November 13, 2017 26
Slide 27: Illustrative Value of a Moody's Rating
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% = $21,500,000 Annual interest payments = $20,000,000 x 10 years Tenor x 10 years = $215,000,000 Lifetime interest expense = $200,000
Slide 28: Moody's Continues to Invest in Key International Markets
Moody’s Continues to Invest in Key International Markets Emerging Markets Rated Corporate Bond Issuance1 China » Successful joint venture with CCXI, leading domestic rating agency $350 » Cross border market rated via MIS Hong Kong office $300 » China recently announced it will allow $ Billions $250
Slide 29: Moody's Investors Service Financial Profile
Moody’s Investors Service Financial Profile TTM 3Q 2017 Revenue: $2.7 billion Recurring Transaction U.S. Non-U.S. » 28% recurring revenue MIS Other 1% Public, 38% Corporate Project, & 64% Finance Infrastructure » 37% recurring revenue 50% Finance 16% Financial 62% Institutions 36% 15% » 58% recurrin
Slide 30: Moody's Analytics
YAN Moody’s Analytics
Slide 31: Moody's Analytics Provides Essential Insight Serving Financial Markets
Moody’s Analytics Provides Essential Insight Serving Financial Markets Research Data & Analytics Credit research, data & ratings feeds Global private company data Economic research, data & models Structured finance analytics & data Enterprise Risk Solutions Credit risk & actuarial analytics Software
Slide 32: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile TTM 3Q 2017 Revenue: $1.3 billion » > 95% recurring revenue Recurring Transaction U.S. Non-U.S. » 95% retention rate 23% Research, Data 52% and Analytics 56% Enterprise Risk » 69% recurring revenue Solutions 33% 77% 48% Professional Services 11% » Combination of o
Slide 33: Moody's Analytics has Several Platforms for Growth
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% (~65% organic) $1,200 Professional Services 2016 Revenue: $147m $1,000 2008 – 2016 CAGR: +37% (~15% organic) $800 $ Millions Enterpr
Slide 34: Bureau van Dijk Acquisition
Bureau van Dijk Acquisition Bureau van Dijk aggregates, standardizes and distributes an extensive private company data set » €3 billion acquisition closed on August 10, 2017 Long History of Profitable Growth1 » Strong and consistent financial performance. Revenue Revenue EBITDA growth CAGR of 9.3%,
Slide 35: RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales
RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales Subscription Sales Growth (constant currency) Expansion of ratings coverage 6.5% 1H 2017 94.6% 9.0% 110.1% Production of insightful credit Retained Base Upgrades and Price New Sales Business Base analysis New customers i
Slide 36: 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 37: 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. $400 End User Third Par
Slide 38: 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 39: Conclusion
5 Conclusion
Slide 40: Why Invest in Moody's?
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, as well as cash flow conversion – 2012 – 2016 revenue CAGR of 7% – 2012 – 2016 adjusted diluted EPS1 CAGR of 13% – 2012 – 2016 free
Slide 41: Globally and locally acknowledged for award-winning tools to measure and manage risk
Globally and locally acknowledged for award-winning tools to measure and manage risk. 5 p 4 Moody's Investors Service Moody's Analytics ph Ali pl TE Sa —1e—, a i INSURANCE g 4 r AsiaRisk waters Fa a, AWARDS JI 3 Ast F FINTEC F rectrmotony Som —ae nl 5 a opie WINNER + piel Kings ‘got Multi-avvard win
Slide 42: Appendix
6 Appendix
Slide 43: Corporate Finance: Revenue and Issuance
Corporate Finance: Revenue and Issuance Revenue1: Mix by Quarter Issuance3: Mix by Quarter $400 $800 $350 $700 $77 $300 $104 $92 $85 $59 $600 $ Millions $25 $32 $ Billions $69 $206 $71 $250 $73 $500 $99 $160 $56 $48 $44 $63 $63 $8 $120 $47 $41 $51 $64 $200 $59 $400 $71 $123 $138 $33 $27 $30 $41 $103
Slide 44: 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% 27% 80% 80% 37% 66% 62% 62% 68% 68% 67% 66% 68% 62% 67% 72% 69% 60% 60% 40% 40% 74% 73% 74% 74% 73% 70% 69% 71% 70% 68%
Slide 45: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $140 $1 $1 $120 $1 $250 $0 $0 $1 $42 $46 $100 $0 $0 $30 $30 $42 $200 $32 $36 $1 $56 $29 $ Millions $27 $30 $24 $26 $41 $ Billions $80 $22 $32 $150 $28 $16 $14 $40 $12 $25 $33 $34 $38 $33 $30 $38 $27 $21 $18 $
Slide 46: 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% 34% 80% 80% 42% 40% 45% 39% 40% 43% 54% 64% 66% 69% 66% 65% 69% 68% 67% 65% 68% 70% 60% 60% 40% 40% 62% 64% 68% 62% 63% 66% 58% 60% 55% 61
Slide 47: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter $120 $3 $500 $5 $3 $4 $100 $2 $3 $3 $45 $2 $3 $3 $6 $5 $4 $4 $25 $400 $ Millions $3 $4 $4 $26 $ Billions $80 $4 $23 $24 $24 $30 $26 $29 $46 $26 $24 $23 $300 $38 $60 $28 $24 $19 $200 $419 $23 $40 $79 $369
Slide 48: 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% 40% 80% 52% 57% 63% 65% 65% 63% 61% 59% 65% 63% 60% 67% 60% 60% 40% 40% 59% 58% 60% 57% 58% 55% 57% 58% 57
Slide 49: 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 $0 $200 $100 $0 $0 $0 $ Millions $0 $ Billions $80 $57 $45 $150 $128 $49 $45 $51 $60 $66 $129 $37 $111 $45 $40 $48 $54 $60 $22 $100 $40 $60 $50 $114 $105 $55 $55 $54 $53
Slide 50: 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% 35% 42% 65% 63% 63% 65% 63% 64% 63% 58% 67% 67% 72% 67% 60% 60% 40% 40% 61% 60% 60% 59% 65% 63
Slide 51: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview $400 Revenue1: Mix by Quarter $1,400 Revenue1: Mix by Year $350 $38 $1,200 $37 $147 $ Millions $300 $38 $36 $36 $150 $ Millions $37 $38 $36 $113 $1,000 $168 $37 $250 Professional Services $119 $419 $122 $98 $102 $130 $96 $97 $800 $108 $374 $200 $92 $90 Enterpris
Slide 52: Moody's Corporate Speculative Grade Credit Cycle Gauge
Moody’s Corporate Speculative Grade Credit Cycle Gauge North America Europe Latest 1-Year Long-Term Record Latest 1-Year Long-Term Record Metric Ago Average 1 Worst Metric Ago Average 2 Worst Liquidity Stress Index 3.0% 7.1% 6.7% 20.8% 8.6% 12.4% 12.0% 18.5% B3-Neg / Lower 214 269 194 291 48 60 40 6
Slide 53: Revenue Growth by Quarter: MCO, MIS and MA
-20% -10% 0% 10% 20% 30% 40% 50% Q2'11 3% (2%) Q3'11 U.S. debt ceiling standoff Q4'11 16% 1% Q1'12 Fears Euro debt crisis may Q2'12 spread to Italy & Spain Q3'12 6% 19% Q4'12 Year-over-Year % Change Q1'13 Q2'13 Q3'13 MIS Q4'13 15% 1% Q1'14 Crimean crisis MA Q2'14 13% 5% 7% Q3'14 23% Q4'14 Oil prices
Slide 54: MIS Revenue vs. Rated Issuance
MIS Revenue vs. Rated Issuance1 Year-over-Year 2012-2016 YTD 3Q 2012 2013 2014 2015 2016 Percent Change CAGR 2017 Issuance 16% 0% 6% -6% 2% 3% 14% Revenue 20% 9% 9% 3% 2% 6% 16% 2 Global Non-Financial Bonds and HY Bank Loans (L) Global Financial Bonds (L) Global Structured Finance (L) U.S. Municipal
Slide 55: MIS's Recurring Revenue Provides Stability
MIS’s Recurring Revenue1 Provides Stability MIS Recurring Revenue Corporate Finance Structured Finance Financial Institutions Public, Project, & Infrastructure Finance MIS Other $1,000 $900 $800 $700 $ Millions $600 $500 $400 $300 $200 $100 $0 2012 2013 2014 2015 2016 TTM 3Q 2016 TTM 3Q 2017 As a %
Slide 56: Moody's Global Presence
Introduction | Financial Overview | Capital Markets Overview | Moody’s Investors Service | Moody’s Analytics | Conclusion | Appendix Moody’s Global Presence 2017 3,566 8,182 11,748 U.S. employees non-U.S. employees total employees1 3,417 2016 7,440 10,857 U.S. employees non-U.S. employees total empl
Slide 57: Bureau van Dijk: Accounting
Bureau van Dijk: Accounting Adjusted EBITDA Margin Reconciliation for FY 2016: IFRS to U.S. GAAP1 (in $ millions) IFRS Adjustments2 U.S. GAAP Revenue $ 285.7 (5.8) $ 279.9 Operating Expenses (excluding D&A) 141.2 14.4 155.6 Adjusted EBITDA $ 144.5 - $ 124.3 Adjusted EBITDA Margin 50.6% 44.4% Deferre
Slide 58: Reconciliation of Adjusted Financial Measures to GAAP
Reconciliation of Adjusted Financial Measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation TTM 3Q (in $ millions) 2012 2013 2014 2015 2016 20171 As Reported Operating Income $1,077.4 $1,234.6 $1,439.1 $1,473.4 $638.7 $873.2 Operating Margin 39.5% 41.5% 43.2% 42.3% 1
Slide 59: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Adjusted Operating Expense Reconciliation 2017F1 Operating Expense Guidance Decreased in the 20% to 25% range Impact of 2016 settlement and restructuring charges and 2017 Bureau van Dijk acquisition-related costs Adjus
Slide 60: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Adjusted EBITDA Reconciliation TTM ($ Millions) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3Q 20171 Net Income Attributable to Moody's $753.9 $701.5 $457.6 $402.0 $507.8 $571.4 $690.0 $804.5 $988.7 $941.3 $
Slide 61: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 62: November 13, 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