Moody's Corporation · NYSE:MCO
Moody's — FY2019 Earnings Presentation
60 slides from Moody's's earnings presentation, Feb 27, 2020
Slide 1: 4Q & Full Year 2019 Investor Presentation
4Q & Full Year 2019 Investor Presentation FEBRUARY 2020
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 February 27, 2020 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 100 years and management customers’
Slide 6: Moody's Strategic Priorities
Moody’s Strategic Priorities Integrated Risk 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 ef
Slide 7: RDC Acquisition Provides Leadership Position in the KYC Market
RDC Acquisition Provides Leadership Position in the KYC Market » RDC’s data and decision tools combined with BvD’s » Expect combined sales to more than double by 20231 compliance products position MA to become a leading » The KYC space is a $900M market with ~18% 5-yr KYC solutions provider CAGR2 »
Slide 8: Drivers of Sustainable Corporate Value
Drivers of Sustainable Corporate Value Introduced Sustainability 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 indi
Slide 9: Stakeholder and Sustainability Initiatives
Stakeholder and Sustainability Initiatives Celebrating Demonstrated Success in 2019 STOCKHOLDERS CUSTOMERS EMPLOYEES COMMUNITIES 100% on the Corporate Joined the UN Global Compact Equality Index Verifiably (UNGC) initiative carbon neutral Investments in Vigeo Eiris, Four Twenty Seven and SynTao Gree
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: Financial Overview
2 Financial Overview
Slide 12: 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 13: Financial Performance
Financial Performance 1 Revenue1 Adjusted Diluted EPS3 $9.10 to $9.30 Mid - single-digit $8.00 $6.0 % growth $4.8 $7.00 $5.0 $4.4 $4.2 $6.00 $4.0 $3.5 $3.6 $2.0 $ Billions $1.4 $1.7 $8.29 $3.0 $1.2 $5.00 $1.2 $7.39 $2.0 $4.00 $6.07 $2.8 $2.7 $2.9 $4.71 $4.94 $1.0 $2.3 $2.4 $3.00 $0.0 $2.00 2015 2016
Slide 14: Moody's Corporation Financial Profile
Moody’s Corporation Financial Profile Full Year 2019 Revenue: $4.8 billion MIS Other 1% Recurring Transaction U.S. Non-U.S. PPIF RD&A 9% 44% 47% 26% MIS FIG MA 10% SFG ERS 9% 11% 56% 53% CFG PS 31% 3% Full Year 2020 Guidance as of February 12, 20201 Revenue • increase in the mid-single-digit % range
Slide 15: 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 16: Capital Markets Overview
3 Capital Markets Overview
Slide 17: Six Themes Will Shape Global Credit in 2020
Six Themes Will Shape Global Credit in 2020 February 27, 2020 17
Slide 18: 4Q 2019 Issuance Activity
4Q 2019 Issuance Activity Credit market sentiment improved during 2019 Factor Market Attribute 4Q18 Sentiment Shift 4Q19 Sentiment Phase one trade deal agreement U.S.-China trade dispute Heightened uncertainty Geopolitical in principle Key U.K. parliamentary vote U.K. elections provide clarity Brexi
Slide 19: 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 5.3x 5.2x 5.0x Interest Coverage 4.6x 4.6x 4.6x 4.6x 4.8x 5.0x 4.4x 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 2.8x
Slide 20: 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% 5.0 Weakening 14% 4.47x 4.5 12% 10% 4.0 4.
Slide 21: 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 22: 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 $800 » More than $2.3 trillion of non- $700 $677 $565 financial corporate debt $600 $490 maturing in North America $ Billions $500 342 $360 140 239
Slide 23: Refunding Needs Have Grown Strongly Over Time
Refunding Needs Have Grown Strongly Over Time Next Four Years North America and EMEA Total Refunding Needs1 as of: $3,466 $3,400 $3,100 $2,800 $2,500 $ Billions $2,200 $1,972 $1,900 $1,600 $1,300 $1,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 1. Amount reflects total maturities identified below
Slide 24: 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% 7% 22% 5% 6% 7% 8% 8% 8% 7% 19% 25% 39% 35% 31% 30%
Slide 25: 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 26: New Rating Mandates Provide Recurring Revenue Growth
New Rating Mandates Provide Recurring Revenue1 Growth Global New Rating Mandates2 1,200 1,044 1,046 864 800 - 900 # of New Mandates 771 738 800 400 0 3 2015 2016 2017 2018 2019 2020F EMEA United States Rest of World » Expect 800 - 900 new mandates in 20203 » MIS recurring revenue growth driven by in
Slide 27: Moody's Investors Service
4 Moody’s Investors Service
Slide 28: Moody's Investors Service Financial Profile
Moody’s Investors Service Financial Profile Full Year 2019 Revenue: $2.9 billion » 29% recurring revenue Recurring Transaction U.S. Non-U.S. MIS Other 1% Public, Corporate Project, & 40% Finance Infrastructure » 35% recurring revenue 52% Finance 63% 15% Financial Institutions 17% » 55% recurring rev
Slide 29: 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 30: 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 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 Global Credit Americas EMEA APAC Rating Agency 20191 » 29,600+ rated » 4,700+ rated » 2,200+ rated companies and companies and companies and #1 U.S. Credit Rating Agency structured deals structured deals structured deals 2012
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 and robust cross-border operations » South Korea: Full ownership of KIS subsidiary, $342M a leading provider of domestic credit ratings in South Korea » India: Majorit
Slide 34: Moody's in Greater China: 2019 Performance Update
Moody’s in Greater China: 2019 Performance Update 2019 Revenue and Attributable Income 2nd Largest Onshore Bond Market at $14 Trillion from China3 200 $176 Total debt securities outstanding 2012–20191 150 2012 2019 $ Millions 100 50 3% 40 50 30 20% -2% $17 20 0% 1% - 10 MIS Cross Border and Attribut
Slide 35: MIS ESG Opportunity: Driving Expansion Beyond Credit
MIS ESG Opportunity: Driving Expansion Beyond Credit Analysis Research Outreach » Moody’s forecasts global » In 2019, Moody’s published » ~400 media engagements green, social and 300+ research reports in 2019 sustainability bond focused on ESG risks and » Strategic relationships issuance to reach $4
Slide 36: Integrating Climate Analytics to Better Inform the Market
Integrating 427 Climate Analytics to Better Inform the Market + + » Research report on exposure to future heat stress for » REIS Network data partner U.S. counties ̵ Relative projections of future heat stress for each U.S. » Joint by-line article: the changing climate of credit risk county to demons
Slide 37: Moody's Analytics
5 Moody’s Analytics
Slide 38: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile Full Year 2019 Revenue: $2.0 billion » 99% recurring revenue Recurring Transaction U.S. Non-U.S. » ~ 97% retention rate1 15% Research, Data and Analytics 65% 58% » 77% recurring revenue 85% Enterprise Risk Solutions 27% 42% Professional Services 8% » Combination o
Slide 39: 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 2019 Revenue: $1,954m $2,000 2008 – 2019 CAGR: +12% (~60% organic) $1,800 Professional Services $1,600 2019 Revenue: $159m 2008 – 2019 CAGR: +27% $1,400 (~26% organic) $1,200 $ Millions Ent
Slide 40: 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) Full Year 2019 5.4% 110.6% 96.2% 9.0% Expansion of ratings coverage Retained Base Upgrades and Price New Sales Business Base Production of insightful credit Full Year 2018 an
Slide 41: Global Regulatory and Accounting Drivers for the ERS Business
Global Regulatory and Accounting Drivers for the ERS Business EMEA Incorporate ESG BoE/ PRA ST risks into supervisory process Revised SA HLA requirement Revised minimum operational risk capital requirements Revised Updated FRTB for MR standardized Leverage Ratio HLA CVA review approach CR requiremen
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 $50 $110 $84 $89 $121 $73 $68 $43 $300 $65 $72 $108 $78 $600 $ Millions $26 $25 $ Billions $78 $68 $57 $250 $58 $70 $57 $75 $59 $165 $210 $39 $111 $59 $100 $105 $162 $64 $19 $134 $200 $39 $28 $1
Slide 44: Corporate Finance: Revenue Diversification
Corporate Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 31% 32% 27% 31% 30% 29% 28% 31% 29% 80% 80% 68% 68% 65% 65% 68% 63% 66% 62% 65% 60% 60% 40% 40% 73% 69% 68% 69% 70% 71% 72% 69% 71% 20% 35% 35% 37% 34% 38% 35%
Slide 45: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $160 $1 $140 $350 $1 $120 $50 $1 $0 $300 $1 $1 $1 $1 $44 $100 $ Millions $43 $55 $47 $1 $250 $48 $49 $ Billions $41 $32 $49 $51 $40 $64 $57 $80 $35 $200 $41 $36 $36 $39 $46 $51 $38 $18 $25 $26 $27 $34 $60 $21
Slide 46: Structured Finance: Revenue Diversification
Structured Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 80% 80% 36% 38% 35% 36% 39% 43% 45% 43% 42% 67% 63% 62% 64% 64% 62% 63% 69% 69% 60% 60% 40% 40% 64% 62% 65% 64% 61% 57% 55% 57% 58% 20% 37% 38% 36% 36% 38% 37
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 $3 $120 $3 $10 $29 $6 $7 $6 $4 $7 $26 $6 $5 $400 $24 $ Millions $100 $28 $ Billions $30 $33 $3 $29 $31 $20 $18 $28 $38 $31 $34 $80 $6 $300 $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% 43% 43% 43% 44% 40% 42% 45% 42% 42% 80% 55% 51% 54% 55% 63% 63% 58% 59% 58% 60% 60% 40% 40% 57% 57% 57% 56% 60% 58% 55% 58% 58% 45% 49% 46% 45% 20% 20
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 $0 $120 $0 $0 $200 $0 $0 $ Millions $100 $0 $66 $ Billions $57 $0 $0 $0 $60 $150 $52 $62 $80 $56 $56 $75 $46 $54 $47 $67 $64 $49 $100 $57 $60 $39 $51 $57 $40 $127 $130 $62 $58 $65 $5
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% 34% 31% 33% 35% 80% 80% 40% 39% 41% 65% 62% 59% 65% 64% 61% 64% 63% 67% 60% 60% 40% 40% 63% 65% 66% 69% 67% 65% 60% 61% 59% 20% 35% 33
Slide 51: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview $600 Revenue1: Mix by Quarter $2,400 Revenue1: Mix by Year $500 $31 $2,000 $42 $43 $159 $ Millions $44 $42 $ Millions $40 $40 $149 $400 $38 $37 $133 $1,600 $159 $124 $122 $118 Professional Services $522 $143 $102 $110 $115 $149 $451 $300 Enterprise Risk Solution
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) MA Revenue Guidance MCO Revenue (L) 10-yr U.S. Treasury Yield (R) 1 $6,000 9% 7.8% +120bps 8% $5,000 +100bps 7% 6.5% $ Millions $4,000
Slide 53: Capital Management
Capital Management ($ Billions) TTM 4Q192 $6.0 2.5x Adjusted Operating Income3 $2.3 Interest Expense $0.2 Capital Expenditures $0.1 $5.0 Free Cash Flow3 $1.6 2.0x Debt $5.6 1.6x Cash, Cash Equivalents & ST Investments $1.9 $4.0 Net Debt $3.7 1.5x $ Billions Net Debt/Adjusted Operating Income1 1.6x $
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 Year Ended December 31, (in $ millions) 2015 2016 2017 2018 2019 Operating Income $1,490.7 $650.9 $1,820.8 $1,868 $1,998 Operating Margin 42.8% 18.1% 43.3% 42.0% 41.4% Add 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 2020F1 Projected Operating Margin - GAAP Approximately 44% Depreciation & Amortization Approximately 4.5% Projected Adjusted Operating Margin 48% - 49% Free Cash Flow Reconcilia
Slide 58: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Diluted EPS Reconciliation 2015 2016 2017 2018 2019 2020F1 Diluted EPS - GAAP $4.63 $1.36 $5.15 $6.74 $7.42 $8.60 - $8.80 Legacy Tax (0.03) - - - - - Impact of Litigation Settlement - $3.59 - - - - Captive insurance co
Slide 59: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 60: February 27, 2020
© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, affiliates (collectively, “MOODY’S”). All rights reserved. agents, repres