Slide 1: Second Quarter 2021 Earnings Call
Second Quarter 2021 Earnings Call July 28, 2021
Slide 2: Introduction
Introduction Shivani Kak Head of Investor Relations Moody’s | Better decisions Second Quarter 2021 - Earnings Call, July 2021 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 & 2Q 2021 Results
Overview & 2Q 2021 Results Rob Fauber President and Chief Executive Officer Moody’s | Better decisions Second Quarter 2021 - Earnings Call, July 2021 4
Slide 5: Executive Summary
Executive Summary » Strong quarterly financial results: MCO revenue of $1.6 billion, up 8%; adjusted diluted EPS1 of $3.22, up 15% » Continuation of favorable MIS and MA market conditions and drivers: – Robust leveraged finance issuance, opportunistic refinancing and increased M&A activity – Strong
Slide 6: 2Q 2021: Revenue Growth and Expense Discipline Drove Margin and EPS Expansion
2Q 2021: Revenue Growth and Expense Discipline Drove Significant Margin and EPS Expansion » MCO revenue increased 8%, including 4% growth from MIS and 15% growth from MA – MA organic constant currency growth1 of 8% » Adjusted operating income2 up 12%; adjusted operating margin2 of 55.4%, up 200 bps
Slide 7: Robust Leveraged Loan and Structured Finance Issuance Growth
Robust Leveraged Loan and Structured Finance Issuance Growth Historical MIS Rated Issuance1 – Second Quarters 2Q 2021 Year-Over-Year Issuance1 Growth -150% -50% 50% 150% 250% 2,000 Leveraged Loans 208% 1,500 ~$1,200 Structured Finance 203% $ Billions 1,000 High Yield Bonds 6% Financial Institutions
Slide 8: Favorable Issuance Mix Drove Revenue Growth
Favorable Issuance Mix Drove Revenue Growth Investment grade High-yield bonds 2Q20 2Q21 Larger number of infrequent high yield bond Leveraged loans Structured finance and leveraged loan issuers accessed the market in 2Q 2021 ISSUANCE (% CHANGE YoY) 250% 200% SF LL 150% IG 2020 100% HYB 2020 50% -50%
Slide 9: Constructive Go-Forward Market Conditions: Lower Defaults, Tighter Spreads, Accelerating M&A
Constructive Go-Forward Market Conditions: Lower Defaults, Tighter Spreads and Accelerating M&A U.S. HY Bond Spreads1,2 and U.S. Spec Grade Default Rate1,3 Global M&A Announced Transactions ($B)1,4,5 1,550 1,390 1,350 1,000 10% 1,221 1,188 900 9% 1,150 1,053 800 8% 959 944 950 700 7% Basis points (b
Slide 10: Strong MA Recurring Revenue Growth and Stable Retention Rates
Strong MA Recurring Revenue Growth and Stable Retention Rates MA Recurring Revenue1 Retention Rates1 ~92% of total MA revenue1 is recurring ~94% MA ~94% ~93% RD&A ERS » MA trailing twelve month recurring revenue grew in mid-teens percent range, now ~92% of total MA revenue, up from ~88%2 » Stable re
Slide 11: Best-in-Class KYC and Compliance Solutions Driving MA Growth
Best-in-Class KYC and Compliance Solutions Driving MA Growth KYC and Compliance AI reduces false positives TTM Organic Revenue1 and increases automation $152 ORBIS Entity and Ownership GRID Risk Profiles $120 Linkage Data Analyze corporate Identify all directors Politically exposed Adverse media: st
Slide 12: Insurance and Asset Management: Solid Momentum and Opportunity for Expansion
Insurance and Asset Management: Solid Momentum and Opportunity for Continued Expansion Insurance and Asset Management TTM Organic Revenue1 Orbis – ESG data $153 company information $127 Credit research & risk Comprehensive Economic assessment risk management & climate & analytics modelling & scenari
Slide 13: Innovations to Support Integrated Risk Assessment
Innovations to Support Integrated Risk Assessment ESG TCFD2 MIS Credit Human Score Predictor AI Review Impact Scores Trafficking Screening Tool » First-of-its-kind tool to » NLP3 machine learning » Thought-leading and » World’s leading dataset deliver ESG scores on tools to evaluate climate- innovat
Slide 14: Global, Holistic ESG and Climate Solutions that Benefit our Customers
Global, Holistic ESG and Climate Solutions that Benefit our Customers Sample customer case studies Leading Global European Leading Commercial Real AMERICAS Estate Investment EMEA Government APAC Regional Agency Bank and Services Firm » Integrated physical climate risk » Second Party Opinion for » Qu
Slide 15: Recognition of Corporate Leadership and Innovation in Risk Assessment
Recognition of Corporate Leadership and Innovation in Risk Assessment Climate Risk Solution of the Year Best Rating Agency Best AI Based Solution for Corporate, Financial Institution and Emerging Market Bonds Financial Services Best Credit Rating Agency #2 Global STORM50 #1 9 Securitization Rating A
Slide 16: 2Q 2021 Analysis & FY 2021 Outlook
2Q 2021 Analysis & FY 2021 Outlook Mark Kaye Chief Financial Officer Moody’s | Better decisions Second Quarter 2021 - Earnings Call, July 2021 16
Slide 17: MIS: Leveraged Finance and Structured Activity Support Growth
MIS: Leveraged Finance and Structured Activity Support Growth MIS Revenue Issuance2,3 YoY Change $980 $ Billions $938 $81 $140 73% $1,843 $1,548 $133 $130 (2%) $142 2Q20 2Q21 $ Millions $150 6% MIS Adjusted Operating Income and Margin 64.0% 66.3% $572 $550 (4%) $49 $6 $ Millions $623 $678 2Q20 2Q21
Slide 18: MA: Strong Revenue Growth and Margin Expansion
MA: Strong Revenue Growth and Margin Expansion MA Revenue MA Adjusted Operating Income and Margin YoY Change $573 $497 31.8% $138 5% 28.7% $131 $ Millions ($36) $ Millions $76 19% $435 $366 $183 $143 2Q20 2Q21 2Q20 MA Adjusted MA Revenue MA Expense 2Q21 MA Adjusted Operating Income Increase 2 Increa
Slide 19: FY 2021 Corporate-Level Guidance
FY 2021 Corporate-Level Guidance1,2 Revenue Increase in the low-double-digit Macro assumptions underpinning our guidance5 percent range Expenses Increase in the mid-single-digit 2021 GDP Benchmark interest rates percent range remain low; U.S. high yield Adjusted Operating Margin3 Approximately 51% s
Slide 20: Improvement in Issuance Outlook Driven by Leveraged Loans and Structured Finance
Improvement in Issuance Outlook1,2 Driven by Leveraged Loans and Structured Finance FY 2021 » Robust 2Q 2021 results increase full Increase in the low-single- Issuance Total Issuance 3 digit % range year outlook1, with total issuance2 Guidance1,2 expected to grow in the low-single-digit 1Q21F percen
Slide 21: FY 2021 Segment-Level Guidance
FY 2021 Segment-Level Guidance1,2 MIS Revenue1,2 MIS Adjusted Operating Margin1,2 MA Revenue1,2 MA Adjusted Operating Margin1,2 High-single-digit Approximately 61% Low-double-digit % increase 59.7% 30%-31% % increase 29.4% $3.3B $2.1B 2020 2021F 2020 2021F 2020 2021F 2020 2021F » Revenue guidance ra
Slide 22: Maintaining Expense Guidance; Controlled Growth Underpinned by Cost Efficiency
Maintaining Expense Guidance; Controlled Growth Underpinned by Cost Efficiency Initiatives » Improved revenue outlook increases incentive and stock compensation accruals; investments in strategic initiatives to accelerate in 2H 2021 » Ongoing effects of COVID-19 (e.g., delays to resumed customer tra
Slide 23: Key Takeaways
Key Takeaways » Constructive issuance environment supports MIS growth » Strong momentum in key growth areas of MA led by KYC and compliance, as well as insurance and asset management » Focused on delivering holistic ESG and Climate solutions » Expense discipline enabled operating leverage from impro
Slide 24: Questions and Answers
Questions and Answers Rob Fauber President and Chief Executive Officer Mark Kaye Chief Financial Officer
Slide 25: Moody's Attendance at Upcoming Conferences
Moody’s Attendance at Upcoming Conferences AUG UBS Financial Services Conference 10 » Michael West, MIS President SEP Deutsche Bank Technology Conference 09 » Mona Breed, Chief Information Officer SEP Barclays Global Financial Services Conference 15 » Mark Kaye, Chief Financial Officer Moody’s | Bet
Slide 26: Replay Details
Replay Details Available from 3:30pm (Eastern Time) July 28, 2021 until 3:30pm (Eastern Time) August 26, 2021 Telephone Details Webcast Details » U.S. & Canada +1-888-203-1112 » Go to ir.moodys.com » Non-U.S. & Canada +1-719-457-0820 » Click on “Events & Presentations” » Passcode 2201987 » Click on
Slide 27: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com
Slide 28: 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 ESG Environmental, Social and Governance FI
Slide 29: Financial Information by Segment
Financial Information 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) restructuring; and iii) a loss pursuant to the d
Slide 30: Financial Information by Segment (Continued)
Financial Information by Segment (Continued) 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) restructuring; and iii) a loss pursu
Slide 31: 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 32: 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 33: 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 Below is a reconciliation of MA's reported revenue and growth rates to its organic revenue and management deems this metric to be a useful measure which provides additional
Slide 34: Organic Constant Currency Revenue and Growth Measures – MA
Organic Constant Currency Revenue and Growth Measures – MA The Company presents organic constant currency revenue and organic constant currency revenue growth because management deems this metric to be a useful measure which provides additional perspective in assessing the revenue growth excluding t
Slide 35: Organic Revenue and Growth Measures – KYC and Compliance, and Insurance and Asset Management
Organic Revenue and Growth Measures – KYC and Compliance, and Insurance and Asset Management 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
Slide 36: Adjusted Net Income and Adjusted Diluted EPS Attributable to Moody's Common Shareholders
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 37: 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. Moody’s | Better decisions Second Quarter 2021 - Earn
Slide 38: Moody's | Better decisions
© 2021 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