Moody's Corporation · NYSE:MCO
Moody's — Q2 2019 Earnings Presentation
59 slides from Moody's's earnings presentation, Aug 6, 2019
Slide 1: 2Q 2019 Investor Presentation
2Q 2019 Investor Presentation August 6, 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 August 6, 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 August 6, 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: Recent Transactions Provide Enhancements to Analytical and Risk Measurement Capabilities
Recent Transactions Provide Enhancements to Analytical and Risk Measurement Capabilities Risk » Provider of data, intelligence, and analysis related to physical Assessments climate risks Four Twenty Seven Analytical » Fintech company providing risk analytics solutions for asset Solutions owners, pen
Slide 9: 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 10: 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 11: Expanding CSR / ESG Engagement
Expanding CSR / ESG Engagement Demonstrating our Commitment to a Sustainable Future » Joined the United Nations Global Compact (UNGC) initiative » UNGC is the world's largest corporate sustainability initiative » Joined the PRI as a Service Provider and a call to companies to align signatory strateg
Slide 12: Financial Overview
2 Financial Overview
Slide 13: 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 14: Financial Performance
Financial Performance Revenue Adjusted Diluted EPS2 $7.95 to $8.15 Mid-single-digit % growth $8.00 $5.0 $4.4 $4.2 $7.00 $4.0 $3.3 $3.5 $3.6 $1.4 $1.7 $6.00 $3.0 $ Billions $1.1 $1.2 $1.2 $5.00 $7.39 $2.0 $4.00 $6.07 $2.3 $2.4 $2.8 $2.7 $4.71 $4.94 $1.0 $2.3 $4.31 $3.00 $0.0 $2.00 1 1 2014 2015 2016
Slide 15: Moody's Corporation Financial Profile
Moody’s Corporation Financial Profile 2Q 2019 TTM Revenue: $4.5 billion MIS Other 1% Recurring Transaction U.S. Non-U.S. PPIF RD&A 9% 26% MIS 42% 48% FIG MA 10% ERS SFG 11% 58% 10% 52% CFG PS 30% 3% Full Year 2019 Guidance as of July 31, 20191 Revenue • increase in the mid-single-digit % range Opera
Slide 16: 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 17: 2019 Guidance Drivers
2019 Guidance Drivers1 MIS MA » Stable economic fundamentals and » Product enhancements driving GDP growth in developed regions customer upgrades and new sales in RD&A, supporting growth across » Market disruption to start the year, multiple business lines followed by spread tightening and issuance
Slide 18: Capital Markets Overview
3 Capital Markets Overview
Slide 19: Q2 Issuance Activity: Receptive Market Conditions Tempered by Cautious Sentiment
Q2 Issuance Activity: Receptive Market Conditions Tempered by Cautious Sentiment Strong Issuance Conditions » Falling 10Y benchmark rates: U.S. to multiyear lows, Mixed Issuance Activity Germany reverts back to Issuance1 declines for sub-zero » Ongoing Macro and fourth consecutive quarter: » Fed and
Slide 20: Debt Leverage and Interest Coverage Remain Stable in North America and Europe
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 5.1x 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 2.9x 3.0x
Slide 21: Global Default Rates Remain Under Historic Average; Continue to Monitor Covenant Quality
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% 4.50x 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 9% 4% 12% 13% 14% 13% 18% 17% 18% 20% 16% 17% 11% 22% 17% 5% 6% 9% 22% 5% 6% 7% 8% 8% 8% 7% 19% 25% 39% 31% 30% 35%
Slide 26: 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 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 800 738 400 459 0 3 2014 2015 2016 2017 2018 2019F » In 2Q19, Moody’s new rating mandates increased to 252, up 22% from 1Q19 » Expect ~9
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 2Q 2019 TTM Revenue: $2.6 billion Recurring Transaction U.S. Non-U.S. » 32% recurring revenue MIS Other 1% Public, 40% Corporate Project, & 61% Finance Infrastructure » 39% recurring revenue 51% Finance 15% Financial 60% Institutions 39% 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: 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 32: 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 33: 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 $313M rating agency in China’s ~$260M domestic single-rating bond market - ~$260M cross-border multi-rating bond market rated from MIS Hong Kong office » So
Slide 34: 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 of 200+ research reports at 100+ global ESG events $200 billion in 2019, a focused on ESG risks and in 2018, attract
Slide 35: Moody's Analytics
5 Moody’s Analytics
Slide 36: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile 2Q 2019 TTM Revenue: $1.8 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 37: 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 38: 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) 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 39: ERS: Driving Growth via Recurring Revenue
ERS: Driving Growth via Recurring Revenue ERS Revenue1: Recurring vs. Non-recurring 100% Recurring Revenue CAGR2 = 16% $400 78% 80% 61% % Recurring $300 $ Millions 60% $200 40% $100 20% $0 3 0% 2015 2016 2017 2018 TTM 2Q19 One-Time Recurring % Recurring » ERS recurring revenue has grown by approxima
Slide 40: 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 41: Appendix
6 Appendix
Slide 42: Corporate Finance: Revenue and Issuance
Corporate Finance: Revenue and Issuance Revenue1: Mix by Quarter Issuance3: Mix by Quarter $400 $800 $350 $84 $110 $121 $60 $92 $85 $73 $72 $300 $78 $44 $65 $26 $600 $ Millions $25 $ Billions $78 $70 $68 $59 $250 $58 $59 $57 $160 $165 $210 $39 $63 $63 $64 $138 $100 $105 $200 $39 $19 $134 $28 $96 $40
Slide 43: 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% 80% 80% 35% 38% 62% 68% 68% 65% 66% 65% 63% 64% 65% 68% 63% 60% 60% 40% 40% 73% 73% 73% 70% 69% 68% 65% 69% 70% 71% 62% 20%
Slide 44: 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 $1 $50 $1 $0 $1 $1 $250 $48 $49 $100 $46 $64 $ Millions $42 $43 $55 $48 $1 $ Billions $41 $200 $32 $41 $36 $36 $51 $51 $80 $35 $26 $42 $26 $27 $46 $26 $38 $21 $18 $150 $34 $73 $70
Slide 45: 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% 66% 67% 63% 63% 62% 63% 63% 62% 64% 69% 69% 60% 60% 40% 40% 62% 64% 62% 65% 63% 67% 64% 63% 64% 61% 57% 20
Slide 46: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter $140 $3 $3 $500 $3 $3 $3 $29 $120 $3 $10 $3 $4 $6 $7 $6 $4 $26 $6 $400 $24 $ Millions $100 $28 $ Billions $6 $5 $30 $33 $3 $29 $20 $28 $38 $23 $24 $49 $18 $80 $6 $300 $39 $15 $49 $60 $200 $411 $4 $396 $40
Slide 47: 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% 51% 55% 56% 53% 53% 58% 59% 65% 63% 63% 72% 60% 60% 40% 40% 60% 57% 57% 57% 58% 63% 60% 58% 55% 50% 56
Slide 48: 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 $200 $0 $0 $0 $0 $ Millions $100 $0 $66 $ Billions $57 $0 $0 $0 $150 $80 $51 $60 $56 $56 $68 $46 $54 $47 $75 $67 $50 $100 $57 $61 $60 $39 $49 $57 $40 $127 $62 $50 $95 $53 $49
Slide 49: 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% 40% 37% 35% 36% 39% 39% 34% 42% 42% 42% 41% 63% 62% 57% 57% 60% 60% 59% 65% 67% 65% 64% 60% 60% 40% 40% 60% 63% 65% 64% 61% 61% 66% 58
Slide 50: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview $500 Revenue1: Mix by Quarter $2,000 Revenue1: Mix by Year $44 $42 $42 $40 $40 $400 $38 $37 $1,600 $159 $ Millions $122 $118 $ Millions $38 $124 $143 $110 $115 $149 $451 $300 $36 $102 Professional Services $1,200 $113 $147 Enterprise Risk Solutions $150 $449 $97
Slide 51: 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 1 MIS Revenue (L) MA Revenue (L) MCO Revenue (L) 10-yr U.S. Treasury Yield (R) $5,000 9% $4,500 7.8% 8% +120bps $4,000 7% 6.5% $ Millions +100bps $3,500 6% $3,000 5.8% 5% $2,500 4.7% +20
Slide 52: Capital Management
Capital Management ($ Billions) TTM 2Q192 $6.0 2.5x Adjusted Operating Income3 $2.1 Interest Expense $0.2 Capital Expenditures $0.1 $5.0 Free Cash Flow3 $1.3 1.9x 2.0x Debt $5.4 Cash, Cash Equivalents & ST Investments $1.3 $4.0 Net Debt $4.1 1.5x $ Billions Net Debt/Adjusted Operating Income1 1.9x $
Slide 53: 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 54: 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 55: 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 2Q19 Operating Income $1,449.8 $1,490.7 $650.9 $1,820.8 $1,868.2 $1,788.6 Operating Margin 43.5% 42.8% 18.1% 43.3% 42.1% 39.8% Ad
Slide 56: 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% Projected impact from Depreciation & Amortization Approximately 4.5% Restructuring Approximately 1.5% Impairment pursu
Slide 57: 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 $7.15 - $7.35 Legacy Tax (0.03) (0.03) - - - - Impact of Litigation Settlement - - $3.59 - - - ICRA Gain (0.37
Slide 58: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 59: August 6, 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