Moody's Corporation · NYSE:MCO
Moody's — FY2018 Earnings Presentation
62 slides from Moody's's earnings presentation, Feb 28, 2019
Slide 1: 4Q & Full Year 2018 Investor Presentation
4Q & Full Year 2018 Investor Presentation February 28, 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. The forward-looking statements and other information in this re
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 28, 2019 3
Slide 4: Moody's Overview
1 Moody’s Overview
Slide 5: 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 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
Slide 6: Moody's Strategic Priorities
Moody’s Strategic Priorities Credit Pyramid Regional Expansion Domestic Ratings Private Co. Expansion Data / SME China Emerging Markets Business Adjacencies Commercial Real Estate ESG Cyber Risk Private Co. Data / SME Enhance technology infrastructure to enable automation, innovation and efficiency
Slide 7: 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 shareholders growt
Slide 8: Globally and locally acknowledged for award-winning tools to measure and manage risk
Globally and locally acknowledged for award-winning tools to measure and manage risk Moody's Investors Service Moody's Analytics GIFAa Best Credit Rating Agency Mexico: 2018 Market Leadership Award, Islamic Finance Intelligence & Ratings: 2016-2018 Best Islaric Finance Rating Agency: 2015 yn Aw, 3 e
Slide 9: Financial Overview
2 Financial Overview
Slide 10: 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 11: Financial Performance
Financial Performance Revenue Adjusted Diluted EPS2 $7.85 to $8.10 Mid-single-digit $8.00 % growth $5.0 $4.4 $7.00 $4.2 $4.0 $3.3 $3.5 $3.6 $6.00 $1.4 $1.7 $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 $3.00 $4.31 $0.0 $2.00 1 1 2014 2015 2016
Slide 12: 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 13: 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 14: 2019 Outlook
2019 Outlook Guidance as of February 15, 20191 Revenue Mid-single-digit % growth Operating Expenses Mid-single-digit % growth Operating Margin ~43% ~48% (Adjusted2) Interest Expense, net $200 - $225 million Effective Tax Rate 21% - 22% Diluted EPS $7.30 - $7.55 $7.85 - $8.10 (Adjusted2) Operating Ca
Slide 15: Capital Markets Overview
3 Capital Markets Overview
Slide 16: Six Main Themes Will Shape Global Credit in 2019 and Beyond
Six Main Themes Will Shape Global Credit in 2019 and Beyond FINANCIAL STABILITY Financial stability, a fundamental building block for the global economy and markets. GROWTH Economic growth, a core POLITICAL RISKS Heightened political risks will pose underpinning of credit the greatest source of unce
Slide 17: Debt Leverage Down in North America but up in Europe; Interest Coverage Slightly Increasing
Debt Leverage Down in North America but up in Europe; Interest Coverage Slightly Increasing Credit Metrics: North American Speculative Grade Companies 6.0x 5.1x 5.2x 5.4x 5.2x 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 3
Slide 18: 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- Covenant Quality Indicators2 Grade Corporate Rated Issuance1 U.S. Loans U.S. Bonds European Bonds Global U.S. Europe 16.0% 4.50 Weakening 14.0% 4.13x 12.0% 4.00 4.09x 10.0% 3.83x 3
Slide 19: Baa-Credit Concentration Grows, with Mitigating Factors
Baa-Credit Concentration Grows, with Mitigating Factors Rated Debt of Baa U.S. Nonfinancial Companies Has Almost Baa-rated Debt Now Accounts for More than One-third of The Tripled Since 2007 Total Rated Debt of U.S. Nonfinancial Companies 3.0x 40% $2,500 3.0x 2.4x $2,040 $2,000 30% $ Billions 2.0x $
Slide 20: 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 » Five-year debt maturities for $566 $600 U.S. non-financial $444 $500 266 investment-grade $ Billions $341 189 $400 $221 97 47 corporate
Slide 21: 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 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 1. Amount reflects total maturities identified below. Sou
Slide 22: 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% 18% 17% 18% 20% 16% 17% 11% 22% 17% 5% 6% 22% 5% 6% 7% 8% 8% 8% 7% 19% 25% 39% 31% 30% 31% 41% 48%
Slide 23: 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 24: 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 # of New Mandates 771 800 738 400 0 2014 2015 2016 2017 2018 2019F 3 » Expect ~900 new mandates in 20193 » MIS recurring revenue growth of 6% in 2018 primaril
Slide 25: Moody's Investors Service
4 Moody’s Investors Service
Slide 26: Moody's Investors Service Financial Profile
Moody’s Investors Service Financial Profile FY 2018 Revenue: $2.7 billion Recurring Transaction U.S. Non-U.S. » 31% recurring revenue MIS Other 1% Public, 40% Corporate Project, & 62% Finance Infrastructure » 39% recurring revenue 49% Finance 15% Financial 60% Institutions 38% 16% » 58% recurring re
Slide 27: 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 28: 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 29: 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 2012-20182 » 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 30: Continue to Invest in Key International Markets
Continue to Invest in Key International Markets Revenue in Emerging Markets China » Successful joint venture with CCXI, leading domestic rating agency $313M » CCXI provides almost 1,500 domestic Chinese ratings in the Interbank bond and exchange- traded markets; 39% coverage1 » Cross border market r
Slide 31: Moody's Investors Service ESG Initiatives
Moody’s Investors Service ESG Initiatives Three Primary Objectives 25 21 Analysis Number of GBAs 20 18 » 2019 global green bond issuance forecast of $200 15 10 billion, a projected increase of 20% over 20181 10 » Moody’s Green Bond Assessment (“GBA”) portfolio 5 is expected to save an estimated 2.6
Slide 32: Moody's Analytics
5 Moody’s Analytics
Slide 33: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile FY 2018 Revenue: $1.7 billion » 98% recurring revenue Recurring Transaction U.S. Non-U.S. » ~ 96% retention rate1 Research, Data and Analytics 16% 66% 59% » 77% recurring revenue Enterprise Risk Solutions 84% 25% 41% Professional Services 9% » Combination of one-o
Slide 34: 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 35: RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales
RD&A Segment RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales Subscription Sales Growth (constant currency) Full Year 2018 4.8% Expansion of ratings coverage 95.8% 9.1% 109.7% Production of insightful credit Retained Base Upgrades and Price New Sales Business Base anal
Slide 36: Bureau van Dijk Collects and Enhances Information to Deliver a Market Leading Global Dataset
RD&A Segment Bureau van Dijk Collects and Enhances Information to Deliver a Market Leading Global Dataset Diversified IP Network1 High Value Customer Solutions 300 Million Compliance and Financial Crime Private Companies Corporate Finance and M&A 74 Thousand Public Companies Corporate Credit Risk 21
Slide 37: Reis Accelerates MA's Entry into CRE Data & Analytics
RD&A Segment Reis Accelerates MA’s Entry into CRE Data & Analytics Developers Investors Brokers Service Providers Lenders Banks, insurers and asset Complex analysis, including Highly fragmented managers have substantial tenant credit quality, long-term ecosystem of information exposures to commercia
Slide 38: ERS Solutions Address Diverse Needs and Customers
ERS Segment ERS Solutions Address Diverse Needs and Customers Credit Risk & Actuarial Analytics Credit Assessment & Helps risk managers assess and manage current and future exposures Origination Automates financial spreading across all asset classes and credit scoring, decision making and monitoring
Slide 39: ERS Software-as-a-Service Transition Progressing
ERS Segment ERS Software-as-a-Service (“SaaS”) Transition Progressing Revenue and Percentage of Total Growth Drivers » Strong 2018 subscription sales drives 2019 recurring revenue $500 » New accounting standards prove to be good opportunity – CECL, IFRS17 are promising 77% $400 » Next generation pro
Slide 40: Global Regulatory and Accounting Drivers for the ERS Business
ERS Segment 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 R
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 $84 $350 $108 $60 $92 $85 $118 $72 $300 $104 $78 $44 $65 $600 $ Millions $ Billions $206 $250 $76 $70 $160 $59 $210 $39 $73 $63 $63 $58 $59 $48 $138 $165 $64 $64 $134 $200 $38 $21 $400 $123 $28 $41 $
Slide 43: 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% 27% 27% 31% 80% 80% 35% 37% 62% 62% 68% 68% 65% 65% 64% 62% 63% 64% 60% 60% 40% 40% 73% 73% 73% 73% 70% 69% 68% 65% 69% 63% 20% 38% 38% 35%
Slide 44: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $160 $1 $140 $1 $300 $1 $1 $1 $0 $120 $50 $1 $1 $250 $42 $55 $48 $49 $46 $43 $48 $100 $64 $ Millions $0 $42 $51 $ Billions $200 $32 $41 $36 $36 $27 $56 $51 $80 $26 $42 $26 $27 $46 $32 $14 $26 $40 $33 $33 $150
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% 36% 33% 35% 37% 35% 80% 80% 40% 64% 66% 69% 67% 69% 65% 66% 65% 64% 65% 60% 60% 40% 40% 62% 64% 62% 65% 64% 67% 65% 63% 65% 60% 20% 36% 34% 35
Slide 46: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter $140 $3 $500 $3 $3 $120 $3 $3 $45 $3 $6 $7 $6 $39 $5 $4 $6 $400 $24 $ Millions $100 $ Billions $3 $6 $5 $30 $33 $3 $25 $28 $38 $20 $80 $4 $23 $24 $6 $49 $300 $39 $23 $15 $19 $49 $60 $419 $4 $200 $411 $40
Slide 47: 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% 42% 37% 80% 45% 50% 44% 55% 56% 53% 53% 58% 65% 65% 63% 63% 72% 60% 60% 40% 40% 58% 60% 57% 57% 57% 58% 63% 55% 50% 56% 45% 44% 47
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 $0 $66 $ Billions $57 $0 $0 $150 $80 $49 $45 $51 $60 $56 $59 $68 $46 $54 $57 $75 $67 $50 $100 $57 $60 $39 $57 $40 $127 $62 $50 $95 $95 $54
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% 40% 37% 35% 36% 39% 39% 42% 42% 42% 63% 63% 62% 57% 57% 60% 60% 59% 65% 67% 60% 60% 40% 40% 60% 60% 63% 65% 64% 61% 61% 58% 58% 58
Slide 50: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview $500 Revenue1: Mix by Quarter $2,000 Revenue1: Mix by Year $40 $44 $1,800 $400 $37 $40 $159 $38 $1,600 $ Millions $119 $ Millions $38 $106 $113 $1,400 $143 $149 $437 $300 $37 $36 $100 Professional Services $1,200 $36 $113 $147 Enterprise Risk Solutions $150 $449
Slide 51: Revenue is Diversified by Business, Geography and Type
Revenue is Diversified by Business, Geography and Type FY18 Revenue by Business FY18 Revenue by Geography MIS MA U.S. Non-U.S. Public, Project & MIS Other 1% Asia-Pacific Americas Infrastructure Research, 11% 6% 9% Data & Financial Analytics Institutions 25% 10% Structured Enterprise Risk EMEA Finan
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 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 53: Strength in Business Model Supports 4Q18 Margin Expansion
Strength in Business Model Supports 4Q18 Margin Expansion Global Debt Issuance1 MIS Revenue MA Revenue $1.2 $1,209.0 $1,206.0 $1,203.0 $1,200.0 $1,197.0 $1,194.0 $1,191.0 $1,188.0 $1,185.0 $1,182.0 $1,179.0 $1,176.0 $800 $725 $1,173.0 $1,170.0 $1,167.0 $1,164.0 $1,161.0 $1,158.0 $1,155.0 $1,152.0 $1
Slide 54: Reduced Debt Following Bureau Van Dijk Acquisition
Reduced Debt Following Bureau Van Dijk Acquisition Approximate Use of Proceeds from Net Debt / Trailing $800 million 4Q18 Bond Issuance Twelve Month Adjusted Operating Income $4,500 $ 4,357 2.5x $4,000 $ 3,859 $100 2.2x 2.0x $3,500 $3,000 1.8x 1.5x $450 $250 $ Millions $2,500 $2,000 1.0x $1,500 $1,0
Slide 55: Moody's Global Presence
Moody’s Global Presence Americas Argentina Mexico Brazil Panama Canada Peru Costa Rica United States Europe, Middle East & Africa Austria Poland Belgium Portugal Cyprus Russia Czech Republic Saudi Arabia Denmark Slovakia France South Africa Germany Spain Ireland Sweden Israel Switzerland Italy UAE M
Slide 56: ESG Drives Sustained Value
ESG Drives Sustained Value Moody’s ESG Performance Earned it Inclusion in Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST)1 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 » D
Slide 57: CSR: Igniting Global Opportunity
CSR: Igniting Global Opportunity Sharing our Expertise for Greater Social Impact The Impact Genome Project Moody’s Future SolutionsTM, our pilot Our LGBTA ERG partnered with the simplifies social change reporting with pro bono volunteer program, had Golden Gate Business Association its standardized
Slide 58: 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 Operating Income $1,449.8 $1,490.7 $650.9 $1,820.8 $1,868.2 Operating Margin 43.5% 42.8% 18.1% 43.3% 42.1% Add Adjustment: Depreciati
Slide 59: 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 43% Projected impact from Depreciation & Amortization Approximately 4% Restructuring Approximately 1% Projected impact fro
Slide 60: 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 $7.30 - $7.55 Legacy Tax (0.03) (0.03) - - - - Impact of Litigation Settlement - - $3.59 - - - ICRA Gain (0.37
Slide 61: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 62: February 28, 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