Moody's Corporation · NYSE:MCO
Moody's — Q3 2019 Earnings Presentation
37 slides from Moody's's earnings presentation, Oct 30, 2019
Slide 1: Third Quarter 2019 Earnings Call
Third Quarter 2019 Earnings Call October 30, 2019
Slide 2: Overview
Overview Shivani Kak Head of Investor Relations Third Quarter 2019 Earnings Call, October 30, 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. Such statements may include, among other words, “believe”, “exp
Slide 4: 3Q 2019 Overview and Strategy Discussion
3Q 2019 Overview and Strategy Discussion Ray McDaniel President and Chief Executive Officer Third Quarter 2019 Earnings Call, October 30, 2019 4
Slide 5: 3Q19 Highlights
3Q19 Highlights » MCO achieved substantial revenue growth » Second highest quarterly MIS revenue result » Continued double-digit growth in MA revenue » Adjusted operating margin of 49.5%, up 190 basis points » Raising adjusted diluted 2019 EPS1 guidance on stronger than anticipated top-line growth a
Slide 6: Strong MCO Results Driven by Robust Performance Across Both Business Segments
Strong MCO Results Driven by Robust Performance Across Both Business Segments » 3Q19 MCO revenue increased 15%, driven by 16% growth in MIS and 13% growth in MA » Adjusted operating income up 19%; adjusted operating margin up 190 basis points » Adjusted diluted EPS up 27%, driven by strong business
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 Third Quarter 2019 Earnings Call, October 30, 2019 7
Slide 8: Enhancing Regional Presence…
Enhancing Regional Presence… China Latin America » CCXI maintains its leadership » Launched Moody’s Local, a new platform position in the domestic ratings that provides domestic ratings and market, with 1,700 rated customers research in Peru, Panama and Bolivia1 and ~40% 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 » Streamlines know-your-customer, anti- on asset-backed and mortgage-backed money laundering, and anti-bribery and securities programs co
Slide 10: 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 11: CFG Issuance Spotlight: Significant Driver of MIS 3Q19 Performance
CFG Issuance Spotlight: Significant Driver of MIS 3Q19 Performance Issuance ($Billions) Yield (%) U.S. IG Bonds U.S. HY Bonds U.S. Bank Loans $200 Issuance 8.0%$200 8.0% $200 8.0% 45% Y/Y Issuance $172 21% Y/Y 7.0% $153 7.0% 7.0% $142 6.0% $123 $114 6.0% 6.0% $105 $107 $102 $100 $100 5.0%$100 $100 $
Slide 12: Brexit Readiness Strategy
Brexit Readiness Strategy Actions Taken Since June 2016 UK Referendum » Rebalancing of portfolios and staff between the UK and EU27 essentially complete » Expansion of offices in Frankfurt, Paris, Madrid, Milan and Stockholm » Establishment of EU27 services hub in Vilnius » Systems, policies and pro
Slide 13: Furthering our Commitment to a Sustainable Future
Furthering our Commitment to a Sustainable Future » Inaugural SASB Index now available at moodys.com/csr » Senior management participated in UN Global Compact events related to ESG » MIS, in partnership with the Climate Bond Initiative, hosted a briefing on carbon transition » Hosting ESG Conference
Slide 14: 3Q 2019 Results and FY 2019 Outlook
3Q 2019 Results and FY 2019 Outlook Mark Kaye Chief Financial Officer Third Quarter 2019 Earnings Call, October 30, 2019 14
Slide 15: MIS Returns to Growth
MIS Returns to Growth Issuance1 $1.2 $1.1 $1.1 $ Trillions MIS Revenue YoY $1.1 Change $747 $1.0 $800 $1.0 $645 $9 $0.9 $700 $120 21% $5 3Q18 3Q19 $600 $99 1% $121 MIS Adjusted Operating Income and Margin3 $500 $ Millions $119 (8%) 60.0% $105 +250bps 60.0% $400 57.5% $114 $500 $ Millions $300 $(26)
Slide 16: Continued MA Growth and Margin Improvement
Continued MA Growth and Margin Improvement MA Revenue YoY MA Adjusted Operating Income and Margin2 Change $300 $500 $494 +80bps 29.4% $436 $43 7% $400 $40 28.6% $133 16% $200 $115 $ Millions $ Millions $300 $(37) $58 $200 $100 $280 $318 13% $125 $146 $100 $0 $0 25.0% 3Q18 1 3Q19 3Q18 MA MA Revenue M
Slide 17: ERS Spotlight: Driving Growth via Recurring Revenue
ERS Spotlight: 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
Slide 18: Strong Operating Performance Underpinned by Disciplined Expense Management
Strong Operating Performance Underpinned by Disciplined Expense Management 710 +3% +<1% 3Q19 vs. 3Q18 $692 690 +3% -2% +13% 670 +4% $ Millions 650 +4% 630 $614 610 590 570 3Q18 Total Hiring, Merit Incentive Acquired Captive insurance MAKS Impairment FX 3Q19 Total Operating and Other Compensation Com
Slide 19: Updated FY19 Guidance
Updated FY19 Guidance1,2 Revenue Increase in high-single-digit % range Total Expenses3 Increase in high-single-digit % range Operating Margin Approximately 42% Adjusted Operating Margin Approximately 48% Interest Expense, Net Approximately $195 million Effective Tax Rate 21.5% - 22.5% Diluted EPS $7
Slide 20: Total MIS Revenue Guidance Increased on Supportive Market Conditions
Total MIS Revenue Guidance Increased on Supportive Market Conditions Revenue Adjusted Operating Margin1 Mid-single digit % Approximately 58% growth 58.4% $3,000 $2.7B $2,800 $2,600 $2,400 Low-single-digit $2,200 $2,000 % growth $1,800 $1,600 $1,400 $1,200 $1,000 Mid-single-digit $800 $600 % growth $
Slide 21: MA Revenue Growth and Adjusted Operating Margin Expansion On Track
MA Revenue Growth and Adjusted Operating Margin Expansion On Track Revenue Adjusted Operating Margin1 31% 28% - 29% Low-double-digit 30% 29% 28% 26.4% % growth 27% 26% 25% $1.7B 24% 23% 22% 21% 20% High-single 19% 18% 17% digit % growth 16% 15% 14% 13% 12% 11% 10% 9% 8% Mid-teens % 7% 6% growth 5% 4
Slide 22: Key Takeaways
Key Takeaways » Core business continues to grow » Product innovation and moves into business adjacencies enhance relevance and growth prospects » Upwardly revising adjusted diluted EPS1 guidance on stronger than anticipated top-line growth and disciplined expense management 1. Refer to Table 12 – “2
Slide 23: Incoming Presidents of Moody's Analytics and Moody's Investors Service
Incoming Presidents of Moody’s Analytics and Moody’s Investors Service Stephen Tulenko Michael West President of Moody’s Analytics President of Moody’s Investors Service Joined in 1990 Joined in 1998 Third Quarter 2019 Earnings Call, October 30, 2019 23
Slide 24: Moody's Attendance at Upcoming Conferences
Moody’s Attendance at Upcoming Conferences » J.P. Morgan Ultimate Services Investor Conference ‒ Wednesday, November 13 ‒ NYC » BMO Capital Markets Growth Conference – Tuesday, December 3 – Boston » Goldman Sachs Financial Services Conference – Tuesday, December 10 – NYC » Barclays Global Technology
Slide 25: Investor Day March 11, 2020
Investor Day March 11, 2020 Third Quarter 2019 Earnings Call, October 30, 2019 25
Slide 26: Q&A
Q&A Ray McDaniel President and Chief Executive Officer Mark Kaye Chief Financial Officer Mark Almeida President, Moody’s Analytics1 Rob Fauber Chief Operating Officer2 1. Effective until October 31, 2019. 2. Effective from November 1, 2019. Third Quarter 2019 Earnings Call, October 30, 2019 26
Slide 27: Replay Details
Replay Details » Available from 3:30pm (Eastern Time) October 30, 2019 until 3:30pm (Eastern Time) November 28, 2019 » Telephone Details: – U.S. +1-888-203-1112 – Non-U.S. +1-719-457-0820 – Passcode 2733003 » Webcast Details: – Go to ir.moodys.com – Click on “Events & Presentations” – Click on the l
Slide 28: Appendix
Investor Relations http://ir.moodys.com Appendix ir@moodys.com moodys.com
Slide 29: 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 30: Adjusted Operating Income and Adjusted Operating Margin by Segment
Adjusted Operating Income and Adjusted Operating Margin 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;
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, ERS and PS
Organic Revenue and Growth Measures – MA, RD&A, ERS and PS The Company presents the organic revenue and growth for the MA segment, the RD&A LOB, the ERS LOB and the PS LOB because management deems this metric to be a useful measure which provides additional perspective in assessing the revenue growt
Slide 34: 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 these metrics to be useful measures to provide additional perspective on the operating performance of Moo
Slide 35: 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. Third Quarter 2019 Earnings Call, October 30, 2019 35
Slide 36: moodys.com
Investor Relations http://ir.moodys.com ir@moodys.com moodys.com
Slide 37: Third Quarter 2019 Earnings Call, October 30, 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