Moody's Corporation · NYSE:MCO
Moody's — Q3 2019 Earnings Presentation
60 slides from Moody's's earnings presentation, Nov 4, 2019
Slide 1: 3Q 2019 Investor Presentation
3Q 2019 Investor Presentation November 4, 2019
Slide 2: 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. Such statements may include, among other words, “believe”, “exp
Slide 3: Table of Contents
Table of Contents 1. Moody’s Overview 2. Financial Overview 3. Capital Markets Overview 4. Moody’s Investors Service (MIS) 5. Moody’s Analytics (MA) 6. Appendix November 4, 2019 3
Slide 4: Moody's Overview
1 Moody’s Overview
Slide 5: Company Overview
Company Overview Leading global provider of Independent provider of credit rating opinions, Provides financial credit rating opinions and insight and tools for intelligence and analytical related information for over financial risk measurement tools supporting our clients’ 100 years and management g
Slide 6: Moody's Strategic Core
Moody’s Strategic Core Mission Vision Purpose Trusted insights and Informed decisions that Clarity, knowledge standards promote progress and fairness November 4, 2019 6
Slide 7: Moody's Strategic Priorities
Moody’s Strategic Priorities Credit Pyramid Regional Expansion Private Co. Latin Asia- Data / SME EMEA America Pacific Emerging Markets Business Adjacencies Private Co. Data / SME Commercial Real Estate ESG Cyber Risk Enhance technology infrastructure to enable automation, innovation and efficiency
Slide 8: Enhancing Regional Presence…
Enhancing Regional Presence… China Latin America » CCXI maintains its leadership » Launched Moody’s Local, a new platform that position in the domestic ratings market, provides domestic ratings and research in with 1,700 rated customers and ~40% Peru, Panama and Bolivia1 issuance coverage » We are c
Slide 9: … and Adding New Product Capabilities
… and Adding New Product Capabilities » Complete rebuild of popular risk platform » Software platform used by issuers and trustees for administering and reporting on » Streamlines know-your-customer, anti-money asset-backed and mortgage-backed securities laundering, and anti-bribery and corruption p
Slide 10: Why Invest in Moody's?
Why Invest in Moody’s? We strive to be the world’s We have had strong most respected authority revenue and earnings serving risk-sensitive growth, as well as cash financial markets flow conversion We are committed to We will selectively returning capital to invest in strategic our stockholders growt
Slide 11: ESG Drives Sustained Corporate Value
ESG Drives Sustained Corporate Value Introduced ESG Disclosures in our Public Filings E N V I R O N M E N TA L GOVERNANCE » Measurement of carbon » Professional integrity emissions and identification » Systematic risk management of opportunities to reduce » Diverse Board membership indirect GHG emis
Slide 12: Furthering our Commitment to a Sustainable Future
Furthering our Commitment to a Sustainable Future » Highlighting sections of the 2018 CSR Report and Moody’s other public disclosures that include information consistent with SASB’s objectives » Our inaugural SASB Index is now available at moodys.com/csr » Senior management participated in UN Global
Slide 13: Financial Overview
2 Financial Overview
Slide 14: 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 marke
Slide 15: Financial Performance
Financial Performance Revenue Adjusted Diluted EPS2 $8.05 to $8.20 $8.00 $6.0 High-single-digit % growth $7.00 $5.0 $4.4 $4.2 $6.00 $4.0 $3.3 $3.5 $3.6 $ Billions $1.4 $1.7 $3.0 $1.2 $5.00 $1.1 $1.2 $7.39 $2.0 $4.00 $6.07 $2.8 $2.7 $4.71 $4.94 $1.0 $2.3 $2.3 $2.4 $3.00 $4.31 $0.0 $2.00 1 1 2014 2015
Slide 16: Moody's Corporation Financial Profile
Moody’s Corporation Financial Profile 3Q 2019 TTM Revenue: $4.7 billion MIS Other 1% Recurring Transaction U.S. Non-U.S. PPIF RD&A 9% 27% MIS 43% 47% FIG MA 9% ERS SFG 11% 9% 57% 53% CFG PS 31% 3% Full Year 2019 Guidance as of October 30, 20191 Revenue • increase in the high-single-digit % range Ope
Slide 17: Disciplined Approach to Capital Allocation
Disciplined Approach to Capital Allocation Investing in Growth Opportunities Return of Capital Reinvestment Acquisitions Dividends Share Repurchase Invest in existing Evaluate carefully to Grow dividend in line Follow reinvestment, businesses to make sure aligned with earnings; target dividends and
Slide 18: Capital Markets Overview
3 Capital Markets Overview
Slide 19: Q3 Issuance Activity
Q3 Issuance Activity Receptive Market Conditions Overcame Geopolitical and Macro Headwinds United States Rest of World » Trade disputes » Trade disputes Geopolitical » Political turmoil » Brexit uncertainty Headwinds » Hong Kong protests » 2.0%, down 30 bps » China: 5.7%, down 30 bps Negative 2020 »
Slide 20: Debt Leverage and Interest Coverage Remain Stable
Debt Leverage and Interest Coverage Remain Stable in North America and Europe Credit Metrics: North American Speculative Grade Companies 6.0x 5.1x 5.2x 5.4x 5.2x 5.2x 5.0x Interest Coverage 4.6x 4.6x 4.7x 4.5x 4.6x 4.8x 5.0x 4.3x 4.4x 4.0x 3.0x 2.9x 3.0x 3.1x 3.0x 3.0x 3.0x 2.9x 3.0x 3.0x 2.8x 2.9x
Slide 21: Global Default Rates Remain Under Historic Average
Global Default Rates Remain Under Historic Average; Continue to Monitor Covenant Quality Default Rates for Speculative- Speculative-Grade Covenant Grade Corporate Rated Issuance1 Quality Indicators Global U.S. Europe U.S. Loans U.S. Bonds European Bonds 16.0% 5.00 Weakening 14.0% 4.51x 4.50 12.0% 10
Slide 22: Baa-Credit Concentration Has Grown, with Mitigating Factors
Baa-Credit Concentration Has Grown, with Mitigating Factors Rated Debt of Baa U.S. Nonfinancial Companies Has 2018 Baa-rated Debt Accounted for More than One-third of Almost Tripled Since 2007 The Total Rated Debt of U.S. Nonfinancial Companies 3.0x 40% $2,500 3.0x 2.4x $2,040 $2,000 30% $ Billions
Slide 23: 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 $700 $624 » Four-year debt maturities for $600 $566 North America non-financial $500 $444 266 investment-grade corporates $ Billions 189 $400 $341
Slide 24: Refunding Needs Have Grown Strongly Over Time
Refunding Needs Have Grown Strongly Over Time Next Four Years U.S. and EMEA Total Refunding Needs1 as of: $3,100 $2,948 $2,800 $2,500 $2,200 $ Billions $1,972 $1,900 $1,600 $1,300 $1,000 2012 2013 2014 2015 2016 2017 2018 2019 1. Amount reflects total maturities identified below. Source: Moody’s Inv
Slide 25: 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% 9% 18% 17% 18% 16% 17% 13% 14% 11% 22% 20% 5% 8% 22% 17% 5% 6% 7% 8% 8% 6% 7% 8% 19% 25% 39% 37% 31% 30% 3
Slide 26: Disintermediation of Credit is an Ongoing Trend
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 50% $6,000 $ Billions € Billions €4
Slide 27: New Rating Mandates Provide Recurring Revenue Growth
New Rating Mandates Provide Recurring Revenue1 Growth Global New Rating Mandates2 EMEA United States Rest of World 1,200 1,044 1,046 990 ~900 771 # of New Mandates 800 738 400 691 0 3 2014 2015 2016 2017 2018 2019F » In 3Q19, Moody’s new rating mandates increased by 232; in line with 3Q18 » Expect ~
Slide 28: Moody's Investors Service
4 Moody’s Investors Service
Slide 29: Moody's Investors Service Financial Profile
Moody’s Investors Service Financial Profile 3Q 2019 TTM Revenue: $2.8 billion Recurring Transaction U.S. Non-U.S. » 31% recurring revenue MIS Other 1% Public, 40% Corporate Project, & 62% Finance Infrastructure » 37% recurring revenue 52% Finance 15% Financial 60% Institutions 38% 16% » 58% recurrin
Slide 30: The Benefits of a Moody's Rating
The Benefits of a Moody’s Rating WIDER ACCESS TO CAPITAL INCREASED MARKET STABILITY Investors seek our opinions and TANGIBLE particularly value the TRANSPARENCY AND FINANCING BENEFITS knowledge of our CREDIT COMPARISON analysts and the depth of our research RESPONSIVE TO INVESTOR PLANNING & BUDGETIN
Slide 31: Rating Performance Drives Investor Confidence
Rating Performance Drives Investor Confidence Ten-Year Default Rates by Rating for 2009- Ten-Year Cumulative 1993-2018 CLO 2018 Cohort: Non-Financial Corporates1 Impairments2 9% 100% 8% 8% 88% 90% 87% 7% 80% 6% 5% 70% 63% 60% 5% 50% 44% 4% 40% 32% 3% 2% 30% 26% 19% 2% 20% 16% 1% 10% 6% 7% 2% 0% 0% 0
Slide 32: 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 33: Broad Coverage Serves Global Needs
Broad Coverage Serves Global Needs ~15 Years Lead/Senior Analyst tenure #1 U.S. Credit Americas EMEA APAC Rating Agency 2012-20181 » 30,400+ rated » 4,700+ rated » 2,100+ rated companies and companies and companies and structured deals structured deals structured deals » $34+ trillion total » $21+ t
Slide 34: Continue to Invest in Key International Markets
Continue to Invest in Key International Markets Revenue in Emerging Markets Asia Pacific » China: - Successful joint venture with CCXI, leading rating agency in China’s ~$270M domestic $313M single-rating bond market1 - ~$310M cross-border multi-rating bond market rated from MIS Hong Kong office1 »
Slide 35: MIS ESG Opportunity: Driving Expansion Beyond Credit
MIS ESG Opportunity: Driving Expansion Beyond Credit Analysis Research Outreach » Moody’s forecasts global » In 2018, Moody’s published » Organized or participated green bond issuance to 200+ research reports at 100+ global ESG events exceed $200 billion in focused on ESG risks and in 2018, attracti
Slide 36: Moody's Analytics
5 Moody’s Analytics
Slide 37: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile 3Q 2019 TTM Revenue: $1.9 billion » 99% recurring revenue Recurring Transaction U.S. Non-U.S. » ~ 96% retention rate1 16% Research, Data and Analytics 65% 58% » 78% recurring revenue Enterprise Risk 84% Solutions 26% 42% Professional Services 9% » Combination of o
Slide 38: Moody's Analytics has Several Platforms for Growth
Moody’s Analytics has Several Platforms for Growth Revenue More Than Tripled Since Inception Moody’s Analytics 2018 Revenue: $1,730m $2,000 2008 – 2018 CAGR: +12% (~55% organic) $1,800 Professional Services $1,600 2018 Revenue: $159m 2008 – 2018 CAGR: +30% $1,400 (~18% organic) $1,200 $ Millions Ent
Slide 39: RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing
RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales Subscription Sales Growth (constant currency) 1H 2019 5.7% 111.3% 96.2% 9.4% Expansion of ratings coverage Retained Base Upgrades and Price New Sales Business Base Production of insightful credit Full Year 2018 analysis
Slide 40: ERS: Driving Growth via Recurring Revenue
ERS: Driving Growth via Recurring Revenue ERS Revenue1: Recurring vs. Non-recurring Recurring Revenue CAGR2 = 16% 100% $400 78% 80% % Recurring $300 61% $ Millions 60% $200 40% $100 20% $0 3 0% 2015 2016 2017 2018 TTM 3Q19 One-Time Recurring % Recurring » ERS recurring revenue has grown by $160 mill
Slide 41: Global Regulatory and Accounting Drivers for the ERS Business
Global Regulatory and Accounting Drivers for the ERS Business EMEA Revised Concentration Updated & Large Exposures Leverage Ratio CVA review Restrictions use Revised SA internal models for operational risk CR RWA Revised SA Revised minimum approach CR capital requirements Revised G-SIB Restrictions
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 $84 $89 $110 $121 $85 $73 $72 $300 $78 $44 $65 $26 $43 $600 $ Millions $25 $ Billions $78 $68 $57 $250 $58 $70 $57 $59 $165 $210 $39 $111 $63 $59 $138 $100 $105 $64 $19 $134 $200 $39 $28 $105 $9
Slide 44: Corporate Finance: Revenue Diversification
Corporate Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 30% 31% 32% 27% 27% 27% 31% 30% 29% 28% 80% 80% 35% 38% 62% 68% 68% 65% 66% 65% 63% 64% 65% 68% 63% 66% 60% 60% 40% 40% 73% 73% 73% 70% 69% 68% 69% 70% 71% 72%
Slide 45: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $160 $1 $140 $300 $1 $1 $120 $50 $1 $0 $1 $1 $250 $48 $49 $49 $100 $46 $1 $64 $ Millions $43 $55 $48 $1 $ Billions $41 $200 $41 $36 $36 $39 $51 $40 $51 $38 $80 $35 $42 $26 $27 $34 $46 $26 $38 $21 $18 $150 $34
Slide 46: Structured Finance: Revenue Diversification
Structured Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 38% 36% 38% 35% 37% 33% 36% 37% 36% 80% 80% 43% 39% 45% 66% 67% 63% 63% 62% 63% 63% 62% 64% 64% 69% 69% 60% 60% 40% 40% 62% 64% 62% 65% 63% 67% 64% 63% 64% 61
Slide 47: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter $140 $3 $3 $3 $500 $3 $3 $3 $29 $120 $3 $10 $4 $6 $7 $6 $4 $7 $26 $6 $400 $24 $ Millions $100 $28 $ Billions $5 $30 $33 $3 $29 $31 $20 $28 $38 $24 $18 $80 $6 $300 $39 $27 $15 $49 $60 $200 $411 $4 $396 $40
Slide 48: Financial Institutions: Revenue Diversification
Financial Institutions: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 80% 40% 43% 43% 43% 42% 37% 40% 42% 80% 45% 50% 44% 45% 51% 55% 56% 53% 53% 58% 59% 54% 65% 63% 63% 72% 60% 60% 40% 40% 60% 57% 57% 57% 58% 63% 60% 58% 55
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 $140 $120 $0 $0 $200 $0 $0 $0 $ Millions $100 $0 $66 $ Billions $57 $0 $0 $0 $62 $150 $80 $60 $56 $56 $86 $46 $54 $47 $75 $67 $71 $50 $100 $57 $57 $60 $39 $57 $40 $127 $62 $58 $50 $95 $49
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% 37% 35% 36% 34% 31% 80% 80% 42% 40% 42% 39% 42% 39% 41% 63% 62% 57% 57% 60% 60% 59% 61% 65% 67% 65% 64% 60% 60% 40% 40% 63% 65% 64% 66% 69% 58
Slide 51: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview $600 Revenue1: Mix by Quarter $2,000 Revenue1: Mix by Year $500 $159 $42 $43 $1,600 $ Millions $44 $42 $ Millions $40 $40 $400 $38 $37 $133 Professional Services $149 $451 $124 $122 $118 $38 $143 $110 $115 $1,200 $147 $300 $102 Enterprise Risk Solutions $150 $44
Slide 52: Historically, Moody's Revenue and Interest Rates Have Not Been Strongly Correlated
Historically, Moody’s Revenue and Interest Rates Have Not Been Strongly Correlated MCO Revenue and Interest Rates MIS Revenue (L) MIS Revenue Guidance MA Revenue (L) 1 MA Revenue Guidance MCO Revenue (L) 10-yr U.S. Treasury Yield (R) $6,000 9% 7.8% +120bps 8% $5,000 +100bps 7% 6.5% $ Millions $4,000
Slide 53: Capital Management
Capital Management ($ Billions) TTM 3Q192 $6.0 2.5x Adjusted Operating Income3 $2.2 Interest Expense $0.2 Capital Expenditures $0.1 $5.0 Free Cash Flow3 $1.5 2.0x 1.8x Debt $5.2 Cash, Cash Equivalents & ST Investments $1.3 $4.0 Net Debt $4.0 1.5x $ Billions Net Debt/Adjusted Operating Income1 1.8x $
Slide 54: Technology: Innovating with Purpose
Technology: Innovating with Purpose Next Gen Tech is a Defining Element of our Culture, Setting Stage for Growth » Incorporating alternative » NLP based early warning and data sources to augment monitoring tools for MIS SME credit scoring accuracy analysts and MA customers » QuantCube pilot program
Slide 55: Moody's Global Presence
Moody’s Global Presence Americas Argentina Mexico Brazil Panama Canada Peru Chile United States Costa Rica Europe, Middle East & Africa Austria Poland Belgium Portugal Cyprus Russia Czech Republic Saudi Arabia Denmark Slovak Republic France South Africa Germany Spain Israel Sri Lanka Italy Sweden Li
Slide 56: Reconciliation of Adjusted Financial Measures to GAAP
Reconciliation of Adjusted Financial Measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation1 (in $ millions) 2014 2015 2016 2017 2018 TTM 3Q19 Operating Income $1,449.8 $1,490.7 $650.9 $1,820.8 $1,868.2 $1,870.6 Operating Margin 43.5% 42.8% 18.1% 43.3% 42.1% 40.2% Ad
Slide 57: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Operating Margin Guidance Reconciliation 2019F1 Projected Operating Margin - GAAP Approximately 42% Depreciation & Amortization Approximately 4.2% Restructuring Approximately 1.2% Captive insurance company settlement A
Slide 58: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Diluted EPS Reconciliation 2014 2015 2016 2017 2018 2019F1 Diluted EPS - GAAP $4.61 $4.63 $1.36 $5.15 $6.74 $7.20 - $7.35 Legacy Tax (0.03) (0.03) - - - - Impact of Litigation Settlement - - $3.59 - - - Captive insuran
Slide 59: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 60: November 4, 2019
© 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