Moody's Corporation · NYSE:MCO
Moody's — FY2017 Earnings Presentation
56 slides from Moody's's earnings presentation, Mar 6, 2018
Slide 1: 4Q and Full Year 2017 Investor Presentation
4Q and Full Year 2017 Investor Presentation March 6, 2018
Slide 2: Disclaimer
Disclaimer Certain statements contained in this document are forward-looking statements and are based on future expectations, plans and prospects for Moody’s business and operations that involve a number of risks and uncertainties. The forward-looking statements in this document are made as of the d
Slide 3: Table of Contents
Table of Contents 1. Financial Overview 2. Capital Markets Overview 3. Moody’s Investors Service (MIS) 4. Moody’s Analytics (MA) 5. Conclusion 6. Appendix March 6, 2018 3
Slide 4: Moody's Mission: To be the World's Most Respected Authority
Moody’s Mission: To be the World’s Most Respected Authority Serving Risk-Sensitive Financial Markets » Defend and enhance our core Risk ratings & research businesses Management Credit Risk – Ratings: predictive, predictable and Curated Data & Technology Advisory Services Measurement transparent Stre
Slide 5: Financial Overview
1 Financial Overview
Slide 6: Overview of Moody's Corporation
Overview of Moody’s Corporation Independent provider of Research, data and software credit rating opinions and Leading global provider of for financial risk analysis and related information for over credit rating opinions, related professional services 100 years insight and tools for financial risk
Slide 7: Revenue is Diversified by Business, Geography and Type
Revenue is Diversified by Business, Geography and Type Revenue by Business Revenue by Geography MIS MA U.S. Non-U.S. Public, Project & MIS Other Infrastructure 1% Asia-Pacific Americas 10% Research, 11% 6% Financial Institutions Data & 10% Analytics 20% Structured EMEA Finance Enterprise Risk Soluti
Slide 8: Financial Performance
Financial Performance Revenue Adjusted Diluted EPS2 $7.65 to $7.853 Low-double-digit $8.00 $5.0 % growth $7.00 $4.0 $6.00 $ Billions $3.0 $5.00 $2.0 $4.00 $6.07 $4.71 $4.94 $3.00 $4.31 $1.0 $3.74 $2.00 $0.0 1 2013 2014 2015 2016 2017 2018F 1 2013 2014 2015 2016 2017 2018F Operating Margin 5-year Ave
Slide 9: 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 market
Slide 10: Actively Managing the Expense Base
Actively Managing the Expense Base Technology Organization Enabling technology to support operational Reducing organizational layers and optimizing efficiencies manager span of control Infrastructure Staffing Mix Shifting staff from high-cost to lower-cost Managing real estate and IT expense growth
Slide 11: 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 12: De-leveraging in 2018 to Maintain Current BBB+ Credit Rating
De-leveraging in 2018 to Maintain Current BBB+ Credit Rating 1 Debt Outstanding (L) Gross Debt/Adj. Operating Income (R) $6,000 3.0x $5,000 2.5x $4,000 2.0x $ Millions $3,000 1.5x $2,000 1.0x $1,000 0.5x $0 0.0x 2010 2011 2012 2013 2014 2015 2016 2017 2018E » Current long-term credit ratings from S&
Slide 13: 2018 Outlook
2018 Outlook Guidance as of February 9, 20181 Revenue Low-double digit % growth Operating Expenses Low-double-digit % growth Operating Margin 43% - 44% ~48% (Adjusted2) Effective Tax Rate 22% - 23% EPS $7.20 - $7.40 $7.65 - $7.85 (Adjusted2) Free Cash Flow2 ~$1.6 billion 1 See press release titled “
Slide 14: Capital Markets Overview
2 Capital Markets Overview
Slide 15: Historically, Rising Rates Have not had a Significant Impact on Moody's Revenue
Historically, Rising Rates Have not had a Significant Impact on Moody’s Revenue MCO Revenue and Interest Rates 1 MIS Revenue (L) MA Revenue (L) MCO Revenue (L) 10-yr U.S. Treasury Yield (R) $4,500 9% $4,000 7.8% 8% +120bps $3,500 7% 6.5% $ Millions +100bps $3,000 6% 5.8% $2,500 5% +200bps 4.7% 3.3%
Slide 16: Debt Leverage Down in North America, Stable in Europe
Debt Leverage Down in North America, Stable in Europe; Interest Coverage Remains Steady Credit Metrics: North American Speculative Grade Companies 6.0x 4.9x 5.1x 5.2x 5.0x 4.8x Interest Coverage 4.5x 4.5x 4.4x 4.3x 4.6x 5.0x 4.2x 4.2x 4.2x 4.0x 3.0x 2.0x 1.0x 1.7x 1.6x 1.4x 1.3x 1.6x 1.9x 1.7x 1.7x
Slide 17: Global Default Rates Remain Under Historic Average
Global Default Rates Remain Under Historic Average Default Rates for Corporate Rated Issuance1 Global U.S. Europe 6.0% 5.5% 5.0% 4.5% 4.3% global historic average1 4.0% 3.5% 3.0% 2.5% 2.4% 2.0% 1.9% 1.5% 1.2% 1.0% 2012 2013 2014 2015 2016 2017 2018F » Global speculative-grade default rate at 2.9% as
Slide 18: 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 $300 $226 $225 $239 $223 $250 $206 2018 – 2022 CAGR $181 $ Billions $200 $175 $180 Investment Grade Bonds: 8% $150 $121 Speculative Grade Bonds: 60
Slide 19: 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% 18% 17% 18% 20% 16% 17% 11% 22% 17% 5% 22% 5% 6% 7% 8% 8% 8% 7% 19% 25% 39% 31% 30% 31% 41% 41% % of M
Slide 20: 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 48% $6,000 $ Billions € Billions €4
Slide 21: Growth of New Mandates Driven by Asia
Growth of New Mandates Driven by Asia Global New Rating Mandates1 1,200 1,044 2015 – 2017 CAGR ~1,000 1,000 China: 32% 772 738 800 Rest of Asia: 32% Latin America: 24% 600 EMEA: 16% US + Canada: 6% 400 Total: 16% 200 0 2015 2016 2017 2018E US + Canada EMEA China Rest of Asia Latin America 1 Rated by
Slide 22: Moody's Investors Service
3 Moody’s Investors Service
Slide 23: Moody's Investors Service: A Leading Provider of Credit Ratings
Moody’s Investors Service: A Leading Provider of Credit Ratings, Research and Risk Analysis Proven ratings Focus on research accuracy and deeply leadership experienced analysts Expanded sales and Analytical and marketing activities in commercial outreach Commercial Group March 6, 2018 23
Slide 24: 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 25: Investing in Emerging Markets Growth
Investing in Emerging Markets Growth Revenue in emerging markets MIS affiliate revenue in 2017 $313M MERIS1 Equilibrium2 KIS CCXI KIS Pricing ~$150M $81M Midroog ICRA 2007 2017 Emerging Asia Latin America Middle East Wholly-owned Majority-owned CEE/CIS Africa Minority-owned 2013 2014 2015 2016 2017
Slide 26: Moody's Investors Service Financial Profile
Moody’s Investors Service Financial Profile FY 2017 Revenue: $2.8 billion Recurring Transaction U.S. Non-U.S. » 27% recurring revenue MIS Other 1% Public, 39% Corporate Project, & Finance Infrastructure » 35% recurring revenue 65% 50% Finance 15% Financial 61% Institutions 35% 16% » 55% recurring re
Slide 27: Moody's Analytics
VAN Moody’s Analytics
Slide 28: Moody's Analytics Provides Essential Insight
Moody’s Analytics Provides Essential Insight Serving Financial Markets Research Data & Analytics Credit research, data & ratings feeds Global private company data Economic research, data & models Structured finance analytics & data Enterprise Risk Solutions Credit risk & actuarial analytics Software
Slide 29: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile FY 2017 Revenue: $1.4 billion » > 95% recurring revenue Recurring Transaction U.S. Non-U.S. » 96% retention rate1 22% Research, Data and Analytics 55% 58% » 69% recurring revenue Enterprise Risk Solutions 78% 31% 45% Professional Services 11% » Combination of one-
Slide 30: Moody's Analytics has Several Platforms for Growth
Moody’s Analytics has Several Platforms for Growth Added ~$900 Million in Revenue Since Inception Moody’s Analytics 2017 Revenue: $1,430m $1,600 2008 – 2017 CAGR: +11% (~62% organic) $1,400 Professional Services 2017 Revenue: $149m $1,200 2008 – 2017 CAGR: +32% (~15% organic) $1,000 $ Millions Enter
Slide 31: Bureau van Dijk Acquisition
Bureau van Dijk Acquisition Bureau van Dijk aggregates, standardizes and distributes an extensive private company data set » €3 billion acquisition closed on August 10, 2017 Long History of Profitable Growth2 » Bureau van Dijk is a leading aggregator and distributor of private company business intel
Slide 32: 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) Full Year 2017 Expansion of ratings coverage 5.7% 109.4% 95.5% 8.2% Production of insightful credit Retained Base Upgrades and Price New Sales Business Base analysis New cust
Slide 33: ERS Solutions Address Diverse Needs and Customers
ERS Solutions Address Diverse Needs and Customers Credit Risk & Actuarial Analytics Credit Assessment & Helps risk managers assess and manage current and future exposures Origination across all asset classes Automates financial spreading and credit scoring, decision Accounting Calculation & making a
Slide 34: ERS Business and Technology Drivers Shifting Mix to Higher Margin Product Sales
ERS Business and Technology Drivers Shifting Mix to Higher Margin Product Sales ERS: TTM Revenue Business Drivers Services Products 1 End user objectives are shifting to efficiency and business growth, while regulatory and accounting requirements continue to drive investment. $400 End User Third Par
Slide 35: Professional Services: Extending the Brand Into New Markets
Professional Services: Extending the Brand Into New Markets and Deepening Customer Relationships Knowledge Process Certificates, Designations Financial Services Outsourcing & Accreditations Training » Leading provider of research, » Exclusive provider of licensing » Artificial Intelligence-powered a
Slide 36: Conclusion
5 Conclusion
Slide 37: Why Invest in Moody's?
Why Invest in Moody’s? » We strive to be the world’s most respected authority serving risk-sensitive financial markets » We have had strong revenue and earnings growth, as well as cash flow conversion – 2013 – 2017 revenue CAGR of 9% – 2013 – 2017 adjusted diluted EPS1 CAGR of 15% – 2013 – 2017 free
Slide 38: Globally and locally acknowledged for award-winning tools
Globally and locally acknowledged for award-winning tools to measure and manage risk , . , : Moody's Investors Service Moody's Analytics MENAIR 5 MENAIR warts eCreditjiux INSURANCE Reinet Sheeler RiskTech CLO Census 2017 AWARDS 2017 Managem its 2017 Awards mice, Bestrating agency wiiWeo magement Awa
Slide 39: Appendix
6 Appendix
Slide 40: Corporate Finance: Revenue and Issuance
Corporate Finance: Revenue and Issuance Revenue1: Mix by Quarter Issuance3: Mix by Quarter $400 $800 $77 $350 $59 $300 $104 $92 $85 $56 $78 $600 $ Millions $25 $32 $ Billions $69 $206 $71 $93 $250 $73 $99 $160 $138 $44 $63 $63 $64 $8 $120 $47 $41 $51 $64 $134 $200 $27 $59 $400 $71 $103 $123 $101 $30
Slide 41: Corporate Finance: Revenue Diversification
Corporate Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 27% 30% 31% 32% 27% 80% 80% 62% 62% 68% 68% 65% 60% 60% 40% 40% 73% 73% 70% 69% 68% 20% 38% 38% 35% 20% 32% 32% 0% 0% FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 F
Slide 42: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $1 $140 $1 $1 $300 $120 $1 $50 $0 $1 $42 $46 $250 $48 $100 $0 $0 $30 $30 $42 $ Millions $1 $29 $ Billions $27 $200 $32 $41 $80 $22 $30 $56 $42 $46 $12 $24 $26 $40 $16 $14 $38 $33 $33 $30 $38 $150 $28 $33 $34
Slide 43: Structured Finance: Revenue Diversification
Structured Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 80% 80% 40% 38% 36% 38% 35% 64% 66% 69% 67% 69% 60% 60% 40% 40% 60% 62% 64% 62% 65% 20% 36% 34% 20% 31% 33% 31% 0% 0% FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15
Slide 44: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter $140 $500 $3 $120 $3 $45 $3 $4 $6 $3 $5 $400 $ Millions $100 $2 $3 $26 $3 $ Billions $3 $6 $5 $30 $4 $4 $4 $25 $29 $80 $4 $4 $23 $24 $300 $38 $47 $26 $24 $39 $24 $30 $24 $23 $49 $19 $60 $200 $419 $369 $40
Slide 45: Financial Institutions: Revenue Diversification
Financial Institutions: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 80% 42% 40% 43% 43% 43% 80% 55% 65% 65% 63% 63% 60% 60% 40% 40% 58% 60% 57% 57% 57% 20% 20% 45% 35% 35% 37% 37% 0% 0% FY13 FY14 FY15 FY16 FY17 FY13 FY14 F
Slide 46: Public, Project and Infrastructure: Revenue and Issuance
Public, Project and Infrastructure: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $200 $140 $180 $120 $0 $160 $0 $72 $66 $0 $0 $0 $140 $0 $ Millions $100 $50 $68 $ Billions $0 $120 $59 $0 $57 $75 $0 $57 $45 $26 $57 $80 $49 $51 $60 $100 $37 $45 $40 $80 $60 $60 $114 $119 $40
Slide 47: 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% 40% 37% 35% 42% 63% 63% 65% 67% 62% 60% 60% 40% 40% 60% 60% 63% 65% 58% 20% 37% 37% 35% 33% 38% 20% 0% 0% FY13 FY14 FY15 FY16 FY17
Slide 48: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview $500 Revenue1: Mix by Quarter $1,600 Revenue1: Mix by Year $450 $40 $1,400 $149 $400 $ Millions $1,200 $ Millions $350 $38 $147 $37 $143 Professional Services $150 $449 $300 $38 $36 $36 $1,000 $168 $37 $38 $36 $113 Enterprise Risk Solutions $119 $419 $250 $800 $
Slide 49: Moody's Corporate Speculative Grade Credit Cycle Gauge
Moody’s Corporate Speculative Grade Credit Cycle Gauge North America Europe Latest 1-Year Long-Term Record Latest 1-Year Long-Term Record 1 2 Metric Ago Average Worst Metric Ago Average Worst Liquidity Stress Index 2.7% 6.2% 6.6% 20.8% 7.8% 12.1% 11.8% 18.5% B3-Neg / Lower 204 252 195 291 43 60 41 6
Slide 50: Revenue Growth by Quarter: MCO, MIS and MA
-20% -10% 0% 10% 30% 40% 50% 20% Q2'11 3% (2%) Q3'11 U.S. debt ceiling standoff Q4'11 16% Q1'12 19% 1% Fears Euro debt crisis may Q2'12 spread to Italy & Spain Q3'12 6% Q4'12 Year-over-Year % Change Q1'13 Q2'13 Q3'13 MIS Q4'13 15% 5% Q1'14 Crimean crisis Q2'14 1% MA Q3'14 23% 7% 13% Q4'14 Oil prices
Slide 51: MIS's Recurring Revenue Provides Stability
MIS’s Recurring Revenue1 Provides Stability MIS Recurring Revenue Corporate Finance Structured Finance Financial Institutions Public, Project, & Infrastructure Finance MIS Other $1,200 $1,000 $800 $ Millions $600 $400 $200 $0 2013 2014 2015 2016 2017 As a % of MIS 38% 39% 39% 39% 35% revenue » Drive
Slide 52: Moody's Global Presence
Moody’s Global Presence 2017 3,591 8,305 11,896 U.S. employees non-U.S. employees total employees1 3,387 2016 7,230 10,617 U.S. employees non-U.S. employees total employees2 1 As of December 31, 2017. 2 As of December 31, 2016. March 6, 2018 52
Slide 53: Reconciliation of Adjusted Financial Measures to GAAP
Reconciliation of Adjusted Financial Measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation (in $ millions) 2012 2013 2014 2015 2016 20171 As Reported Operating Income $1,077.4 $1,234.6 $1,439.1 $1,473.4 $638.7 $1,809.1 Operating Margin 39.5% 41.5% 43.2% 42.3% 17.7%
Slide 54: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Diluted EPS Reconciliation 2013 2014 2015 2016 2017 2018F1 Diluted EPS - GAAP $3.60 $4.61 $4.63 $1.36 $5.15 $7.20 - $7.40 Legacy Tax (0.09) (0.03) (0.03) - - - Impact of Litigation Settlement 0.14 - - $3.59 - - ICRA Ga
Slide 55: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 56: March 6, 2018
© 2018 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