Slide 1: Fourth Quarter and Full Year 2018 Earnings Call
Fourth Quarter and Full Year 2018 Earnings Call February 15, 2019
Slide 2: Overview
Overview Salli Schwartz Global Head of Investor Relations and Strategic Capital Management Fourth Quarter and Full Year 2018 Earnings Call, February 15, 2019 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 Company’s business and operations that involve a number of risks and uncertainties. The forward-looking statements and other information in this re
Slide 4: FY and 4Q 2018 Results
FY and 4Q 2018 Results Ray McDaniel President and Chief Executive Officer Fourth Quarter and Full Year 2018 Earnings Call, February 15, 2019 4
Slide 5: Delivered Strong FY18 Operating Results, Despite Challenging 4Q18
Delivered Strong FY18 Operating Results, Despite Challenging 4Q18 » FY18 MCO revenue increased 6%, including MA revenue up 21% and MIS revenue down 2% » MCO, MIS and MA adjusted operating margins all increased in FY18 » GAAP diluted EPS increased by 31% year-over-year » Adjusted diluted EPS was up 2
Slide 6: 4Q18 Revenue Down on Issuance Decline; Margin Still Expanded
4Q18 Revenue Down on Issuance Decline; Margin Still Expanded MCO Revenue MCO Adjusted Operating Income MCO Adjusted Diluted and Margin1 EPS1 $1,223.8 $1,221.3 $1,218.9 $1,216.4 $1,214.0 $1,211.5 $1,209.1 $1,206.6 $1,204.2 $1,201.7 $1,199.3 $1,196.9 $1,194.4 $1,192.0 $ 1,166 $600 $2.00 46.0% $1,189.5
Slide 7: MIS and MA Margins Both Expanded 150+bps in 4Q18
MIS and MA Margins Both Expanded 150+bps in 4Q18 MIS Adjusted Operating Income1 MA Adjusted Operating Income1 $500 58.0% 55.8% $300 +170bps 56.0% 27.3% 54.1% +190bps 54.0% $400 52.0% 25.4% $ Millions $200 $ Millions $ (127) 50.0% 48.0% $ 69 $ 22 $ (7) $300 $ 408 $ 350 46.0% $100 44.0% $ 128 $ 113 42
Slide 8: Restructuring Plan Ahead of Schedule; Increasing Expected Annual Run-Rate Savings by $10 Million
Restructuring Plan Ahead of Schedule; Increasing Expected Annual Run-Rate Savings by $10 Million » 4Q18 restructuring charge exceeded previously announced range – Acceleration of staffing optimization and acquisition integration – Real estate rationalization including M&A synergies » Total restructu
Slide 9: Reduced Debt Following Bureau Van Dijk Acquisition
Reduced Debt Following Bureau Van Dijk Acquisition Approximate Use of Proceeds from Net Debt / Trailing $800 million 4Q18 Bond Issuance Twelve Month Adjusted Operating $4,500 $ 4,357 Income 2.5x $4,000 $ 3,859 $100 2.2x 2.0x $3,500 $3,000 1.8x 1.5x $450 $250 $ Millions $2,500 $2,000 1.0x $1,500 $1,0
Slide 10: Geopolitical and Macro Headwinds Disrupted Credit Markets in 4Q18
Geopolitical and Macro Headwinds Disrupted Credit Markets in 4Q18 » U.S.-China trade dispute continues to cause market uncertainty » Brexit: UK departure path and timing Geopolitical » Washington gridlock: Lead-up to year-end government shutdown » Political turmoil in France » Rate volatility: U.S.
Slide 11: MIS Revenue Declined Less Than Issuance
MIS Revenue Declined Less Than Issuance Global Debt Issuance1 MIS Revenue $1.2 $800 $725 $1,209.0 $1,206.0 $1,203.0 $1,200.0 $1,197.0 $1,194.0 $1,191.0 $1,188.0 $1,185.0 $1,182.0 $1,179.0 $1,176.0 $1,173.0 $1,170.0 $1,167.0 $1,164.0 $1,161.0 $1,158.0 $1,155.0 $1,152.0 $1,149.0 $1,146.0 $1,143.0 $1,1
Slide 12: MA 4Q18 Revenue Growth Supported by Strong RD&A Performance
MA 4Q18 Revenue Growth Supported by Strong RD&A Performance MA Revenue » RD&A revenue growth of 17% on YoY $500 Change Bureau van Dijk, strength in core $465 business and contribution from Reis $441 $44 9% $40 $400 $119 (17%) » Bureau van Dijk contributed $90 $143 million of revenue in the quarter a
Slide 13: Enterprise Risk Solutions: SaaS Transition
Enterprise Risk Solutions: SaaS Transition Growth Drivers Revenue and Percentage of Total » Strong 2018 subscription sales drives 2019 recurring revenue $500 » New accounting standards prove to be good opportunity $400 77% – CECL, IFRS17 are promising » Next generation products $ Millions $300 68% –
Slide 14: Moody's Strategic Priorities
Moody’s Strategic Priorities Credit Pyramid Regional Expansion Domestic Ratings Private Co. Expansion Data / SME China Emerging Markets Business Adjacencies Commercial Real Estate ESG Cyber Risk Private Co. Data / SME Enhance technology infrastructure to enable automation, innovation and efficiency
Slide 15: Reis Accelerates MA's Entry into CRE Data & Analytics
Reis Accelerates MA’s Entry into CRE Data & Analytics Developers Investors Brokers Service Providers Lenders Banks, insurers and asset Complex analysis, including Highly fragmented managers have substantial tenant credit quality, long-term ecosystem of information exposures to commercial real foreca
Slide 16: FY 2019 Outlook
FY 2019 Outlook Mark Kaye Senior Vice President and Chief Financial Officer Fourth Quarter and Full Year 2018 Earnings Call, February 15, 2019 16
Slide 17: Revised Guidance Disclosure to Emphasize Relevance and Predictability
Revised Guidance Disclosure to Emphasize Relevance and Predictability Objectives: » Enable more visibility around drivers of cash flow » Increase transparency around profitability expectations within MIS and MA » Emphasize areas of guidance shown to be more predictable In comparison to 2018, guidanc
Slide 18: 2019 Guidance Drivers
2019 Guidance Drivers MIS MA » Stable economic fundamentals » Product enhancements driving and GDP growth in developed customer upgrades and new sales regions in RD&A, supporting growth across » Market disruption to start the year, multiple business lines Step followed by spread 01 tightening and »
Slide 19: Strong Track Record of Growth Over the Long-term
Strong Track Record of Growth Over the Long-term Mid-single Revenue $5,000 digit % growth $4,500 $4,443 $4,204 $ Millions $4,000 $3,485 $3,604 $3,500 $3,000 2015 2016 2017 2018 2019F Adjusted 49.0% Operating Margin1 Approximately 48% 48.0% 47.6% 47.7% 47.0% 46.0% 46.0% 45.9% 45.0% 2015 2016 2017 201
Slide 20: FY19 Corporate-Level Guidance: Additional Items
FY19 Corporate-Level Guidance: Additional Items1 MCO Expenses Increase in the mid-single-digit % range Interest Expense, Net $200 - $225 million Effective Tax Rate 21% - 22% Diluted EPS $7.30 - $7.55 Adjusted Diluted EPS1 $7.85 - $8.10 1 Refer to Table 13 – “2019 Outlook” in the press release for a
Slide 21: Expect Slight Decline in FY19 Issuance
Expect Slight Decline in FY19 Issuance Global Debt Issuance1 Global New Rating Mandates ~$4.6T ~$4.4T - ~$4.6T 1,200 1,044 1,046 ~900 # of New Mandates 800 738 400 0 2018 2019F 2016 2017 2018 2019F EMEA United States Rest of World » 2019 issuance expected to be flat to down 5% compared to 2018 – Mod
Slide 22: Expect MIS Revenue to Increase in the Low-Single Digit Percent Range in FY19
Expect MIS Revenue to Increase in the Low-Single Digit Percent Range in FY19 Low-single digit $2.8B $2.7B % growth $2.3B $2.4B Approximately Flat Low-single digit % growth 2015 2016 2017 2018 2019F U.S. Non-U.S. » Strength of business model and execution enables modest revenue growth despite issuanc
Slide 23: Expect MIS Adjusted Operating Margin to be Approximately 58% in 2019
Expect MIS Adjusted Operating Margin to be Approximately 58% in 2019 58.4% Approximately 58% 57.1% 55.2% 54.3% 2015 2016 2017 2018 2019F » Cost management efforts enable margin stability in less active issuance environment – Selective hiring weighted towards low cost locations – Leveraging technolog
Slide 24: Expect MA Revenue to Increase in the Low-Double-Digit Percent Range in FY19
Expect MA Revenue to Increase in the Low-Double- Digit Percent Range in FY19 Low-double-digit % growth $1.7B $1.4B High-single digit % $1.2B $1.2B growth Mid-teens % growth 2015 2016 2017 2018 2019F U.S. Non-U.S. » Strong sales growth in 2H18 underpins strong MA growth outlook in FY19 » Broad-based
Slide 25: Expect MA Adjusted Operating Margin to Increase 250-350bps
Expect MA Adjusted Operating Margin to Increase 250 - 350bps to the 29% - 30% Range 29% - 30% 26.4% 24.5% 24.6% 23.3% 2015 2016 2017 2018 2019F » Strong sales growth at Bureau Van Dijk » ERS transition to more SaaS-based offerings increases recurring revenue and predictability » Margin further bolst
Slide 26: Expect to Return Capital Through $1 Billion in Share Repurchases and Increased Dividend
Expect to Return Capital Through $1 Billion in Share Repurchases and Increased Dividend Share Repurchases and Shares Outstanding 230 » Announcing $500M $1,200 210 196 191 191 191 accelerated share $800 190 repurchase $1,098 170 $1,000 » Expected to close $400 $739 150 during 2Q19 $200 $203 130 $0 20
Slide 27: Key Takeaways
Key Takeaways » Moody’s will deliver revenue growth and margin stability in 2019 despite bond issuance outlook ‒ Deepen Moody’s role in serving risk-sensitive markets by expanding down the credit pyramid ‒ Selectively expand in adjacent and / or emerging risk areas ‒ Grounded in technology-enabled p
Slide 28: Q&A
Q&A Ray McDaniel President and Chief Executive Officer Mark Kaye Senior Vice President and Chief Financial Officer Mark Almeida President, Moody’s Analytics Rob Fauber President, Moody’s Investors Service Fourth Quarter and Full Year 2018 Earnings Call, February 15, 2019 28
Slide 29: Replay Details
Replay Details » Available from 3:30pm (Eastern Time) February 15, 2019 until 3:30pm (Eastern Time) March 16, 2019 » Telephone Details: – U.S. +1-888-203-1112 – Non-U.S. +1-719-457-0820 – Passcode 2571998 » Webcast Details: – Go to ir.moodys.com – Click on “Events & Presentations” – Click on the lin
Slide 30: Appendix
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Slide 31: 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 32: Adjusted Operating Income and Adjusted Operating Margin by Segment
Adjusted Operating Income and Adjusted Operating Margin 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, restructuring and Acqu
Slide 33: Bureau van Dijk Stand-alone Performance
Bureau van Dijk Stand-alone Performance Three Months Ended Year Ended Amounts in millions December 31, 2018 (1) December 31, 2018 (1) Revenue $ 89.5 $ 326.7 (2) Direct expenses 64.1 251.9 Operating income 25.4 74.8 Depreciation and amortization 17.7 73.3 Adjusted operating income(3) $ 43.1 $ 148.1 O
Slide 34: Adjusted Operating Income and Adjusted Operating Margin
Adjusted Operating Income and Adjusted Operating Margin The Company presents Adjusted Operating Income because management deems this metric to be a useful measure of assessing the operating performance of Moody’s. Adjusted Operating Income excludes depreciation and amortization, restructuring, and A
Slide 35: 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 36: Organic Revenue and Growth Measures - MA
Organic Revenue and Growth Measures - MA The Company presents the organic revenue and growth for the MA segment, the RD&A LOB and the PS LOB because management deems this metric to be a useful measure which provides additional perspective in assessing the revenue growth of the Company's MA segment,
Slide 37: Organic Revenue and Growth Measures – RD&A and PS
Organic Revenue and Growth Measures – RD&A and PS The Company presents the organic revenue and growth for the MA segment, the RD&A LOB and the PS LOB because management deems this metric to be a useful measure which provides additional perspective in assessing the revenue growth of the Company's MA
Slide 38: Adjusted Net Income and Adjusted Diluted Earnings per Share
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 this metric to be a useful measure to provide additional perspective on the operating performance of Mood
Slide 39: Adjusted Net Income and Adjusted Diluted Earnings per Share (continued)
Adjusted Net Income and Adjusted Diluted Earnings per Share Attributable to Moody's Common Shareholders (continued) The Company presents Adjusted Net Income and Adjusted Diluted EPS because management deems this metric to be a useful measure to provide additional perspective on the operating perform
Slide 40: Investor Relations
Investor Relations http://ir.moodys.com ir@moodys.com moodys.com
Slide 41: Moody's legal notices
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, affiliates (collectively, “MOODY’S”). All rights reserved. licensors and suppliers