Slide 1: Second Quarter 2016 Earnings Call
Second Quarter 2016 Earnings Call July 22, 2016
Slide 2: Overview
Overview SALLI SCHWARTZ GLOBAL HEAD OF INVESTOR RELATIONS AND COMMUNICATIONS Second Quarter 2016 Earnings Call, July 22, 2016 2
Slide 3: Disclaimer
Disclaimer Certain statements contained in this presentation 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. Moody’s outlook for 2016 and other forward-looking statements in
Slide 4: Agenda
Agenda 1. Second Quarter and First Half 2016 Results Ray McDaniel, President and Chief Executive Officer 2. Financial and Operating Highlights Linda Huber, Executive Vice President and Chief Financial Officer 3. Current 2016 Outlook Ray McDaniel, President and Chief Executive Officer 4. Q&A Ray McDa
Slide 5: 1. Second Quarter 2016 Results
1. Second Quarter 2016 Results RAY MCDANIEL PRESIDENT AND CHIEF EXECUTIVE OFFICER Second Quarter 2016 Earnings Call, July 22, 2016 5
Slide 6: Second Quarter 2016 Results and Comparison to Second Quarter 2015
Second Quarter 2016 Results and Comparison to Second Quarter 2015 Moody’s Corporation » Revenue 1% to $929 million » Operating Expense 4% to $519 million » Operating Income 2% to $410 million • Foreign currency translation favorably impacted operating income by 1% » Adjusted Operating Income
Slide 7: Second Quarter 2016 Results and Comparison (continued)
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) Moody’s Corporation » Operating Margin • 44.2% » Adjusted Operating Margin • 47.5% » EPS 2% to $1.30 Second Quarter 2016 Earnings Call, July 22, 2016 7
Slide 8: First Half 2016 Performance and Comparison to First Half 2015
First Half 2016 Performance and Comparison to First Half 2015 Moody’s Corporation » Revenue 2% to $1.7 billion • Excluding the impact of foreign currency translation, revenue declined 1% – MIS 7% to $1.2 billion – MA 10% to $594 million » Operating Expense 4% to $1 billion • Excluding the im
Slide 9: First Half 2016 Performance (continued)
First Half 2016 Performance and Comparison to First Half 2015 (continued) Moody’s Corporation » Operating Margin • 40.9% » Adjusted Operating Margin • 44.4% » Effective Tax Rate • 32.1% » Reaffirming FY 2016 EPS guidance of $4.55 to $4.65; expecting to be toward the lower end of the range Second Qua
Slide 10: 2. Financial and Operating Highlights
2. Financial and Operating Highlights LINDA HUBER EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Second Quarter 2016 Earnings Call, July 22, 2016 10
Slide 11: Second Quarter 2016 Revenue Comparison
Second Quarter 2016 Results and Comparison to Second Quarter 2015 Moody’s Corporation Revenue » Total Global 1% to $929 million • Foreign currency translation negligible » US flat at $546 million » Non-US 3% to $383 million • 41% of total revenue » Recurring Revenue 6% to $467 million • 50% of
Slide 12: MIS Revenue
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) MIS Revenue » Total MIS 2% to $626 million 19% from Q1 2016 • Foreign currency translation negligible » US 3% to $399 million » Non-US flat at $227 million • 36% of total MIS revenue Second Quarter 2016 Earnings Call
Slide 13: MIS Revenue by Line of Business
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) MIS Revenue by Line of Business » Corporate Finance: $305 million – Global 5% – US 4% – Non-US 6% » Structured Finance: $112 million – Global 8% – US 16% – Non-US 14% Second Quarter 2016 Earnings Call, July 22,
Slide 14: MIS Revenue by Line of Business
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) MIS Revenue by Line of Business » Financial Institutions: $90 million – Global 1% – US 7% – Non-US 7% » Public, Project & Infrastructure Finance: $112 million – Global 12% – US 11% – Non-US 16% » MIS Other: $7
Slide 15: MA Revenue by Geography
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) MA Revenue by Geography » Total MA 9% to $303 million • Foreign currency translation unfavorably impacted MA revenue by 1% 6% excluding the March 2016 acquisition of GGY » US 10% to $147 million » Non-US 8% to $156
Slide 16: MA Revenue by Line of Business
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) MA Revenue by Line of Business » Research, Data and Analytics: $168 million – Global 7% • 55% of total MA revenue – US 7% – Non-US 7% Second Quarter 2016 Earnings Call, July 22, 2016 16
Slide 17: MA Revenue by Line of Business
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) MA Revenue by Line of Business » Enterprise Risk Solutions: $98 million – Global 17% – US 21% – Non-US 15% » ERS TTM* Revenue 11% » ERS TTM* Sales 6% *Trailing twelve months ended June 30, 2016. Second Quarter 20
Slide 18: MA Revenue by Line of Business
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) MA Revenue by Line of Business » Professional Services: $38 million – Global 2% – US flat – Non-US 3% Second Quarter 2016 Earnings Call, July 22, 2016 18
Slide 19: Second Quarter 2016 Expense and Margin
Second Quarter 2016 Results and Comparison to Second Quarter 2015 (continued) Moody’s Corporation » Operating Expense 4% to $519 million • Foreign currency translation favorably impacted expense by 2% » Operating Margin • 44.2% » Adjusted Operating Margin • 47.5% » Effective Tax Rate • 31.9% Secon
Slide 20: Second Quarter 2016 Capital Allocation
Second Quarter 2016 Capital Allocation » During 2Q 2016, Moody’s repurchased 2.3 million shares at a total cost of $223.8 million, or an average cost of $96.60 per share, and issued 249 thousand shares as part of its annual employee stock-based compensation plans » During 2Q 2016, Moody’s paid $71.5
Slide 21: First Half 2016 Capital Allocation
First Half 2016 Capital Allocation » During 1H 2016, Moody’s repurchased 5.2 million shares at a total cost of $485.9 million, or an average cost of $92.83 per share » During 1H 2016, Moody’s paid $143.6 million in dividends » As of June 30, 2016, shares outstanding totaled 192.3 million – 4% declin
Slide 22: Balance Sheet and Free Cash Flow
Balance Sheet and Free Cash Flow » As of June 30, 2016, Moody’s had: – $3.4 billion of outstanding debt – $1 billion of additional debt capacity available under its revolving credit facility – Total cash, cash equivalents and short-term investments of $2 billion » Approximately 78% held outside the
Slide 23: 3. Current 2016 Outlook
3. Current 2016 Outlook RAY MCDANIEL PRESIDENT AND CHIEF EXECUTIVE OFFICER Second Quarter 2016 Earnings Call, July 22, 2016 23
Slide 24: Changes to 2016 Outlook
Changes to 2016 Outlook » Our guidance assumes foreign currency translation at end-of-quarter exchange rates. Specifically, our forecast reflects exchange rates for the British pound (£) of $1.34 to £1 and for the euro (€) of $1.11 to €1. Changes to 2016 Full-Year Financial Outlook* MIS Current Guid
Slide 25: Highlights
Highlights » Korea Investors Service (KIS) • Acquired full ownership • Leading provider of domestic credit ratings in Korea • Long-standing and productive relationship since 2001 • No significant impact on 2016 EPS; funded from international cash on hand » MIS Voted “Best Credit Rating Agency” • 201
Slide 26: 4. Q&A Session
4. Q&A Session » Ray McDaniel President and Chief Executive Officer, Moody’s Corporation » Linda Huber Executive Vice President and Chief Financial Officer, Moody’s Corporation » Mark Almeida President, Moody’s Analytics » Rob Fauber President, Moody’s Investors Service Second Quarter 2016 Earnings
Slide 27: USD Market: Issuance Views
USD Market: Issuance Views Views on this page are from various investment banks and capital markets economists. Issuance views are for both financial and non- financial US dollar issuance and may not align with Moody’s revenue categorizations. Investment Grade Investment grade market has been resi
Slide 28: Euro Market: Issuance Views
Euro Market: Issuance Views Views on this page are from various investment banks and capital markets economists. Issuance views are for both financial and non- financial euro issuance and may not align with Moody’s revenue categorizations. Investment Grade Record low coupons as the ECB’s corporate
Slide 29: Investor Day 2016
Investor Day 2016 Second Quarter 2016 Earnings Call, July 22, 2016 29
Slide 30: Replay Details
Replay Details » Available from 3:30pm (Eastern Time) July 22, 2016 until 3:30pm (Eastern Time) August 20, 2016 » Telephone Details: – US +1-888-203-1112 – Non-US +1-719-457-0820 – Passcode 8452229 » Webcast Details: – Go to http://ir.moodys.com – Click on “Events & Presentations” – Click on the lin
Slide 31: Appendix
Appendix Second Quarter 2016 Earnings Call, July 22, 2016 31
Slide 32: Consolidated Statements of Operations (Unaudited)
Consolidated Statements of Operations (Unaudited) Second Quarter 2016 Earnings Call, July 22, 2016 32
Slide 33: Supplemental Revenue Information (Unaudited)
Supplemental Revenue Information (Unaudited) Second Quarter 2016 Earnings Call, July 22, 2016 33
Slide 34: Selected Consolidated Balance Sheet Data (Unaudited)
Selected Consolidated Balance Sheet Data (Unaudited) Second Quarter 2016 Earnings Call, July 22, 2016 34
Slide 35: Selected Consolidated Balance Sheet Data (continued)
Selected Consolidated Balance Sheet Data (continued) (Unaudited) Second Quarter 2016 Earnings Call, July 22, 2016 35
Slide 36: Non-operating (Expense) Income, Net
Non-operating (Expense) Income, Net Second Quarter 2016 Earnings Call, July 22, 2016 36
Slide 37: Financial Information by Segment
Financial Information by Segment The table below presents revenue, adjusted operating income and operating income by reportable segment. The Company defines adjusted operating income as operating income excluding depreciation and amortization. Second Quarter 2016 Earnings Call, July 22, 2016 37
Slide 38: Transaction and Relationship Revenue
Transaction and Relationship Revenue The tables below summarize the split between transaction and relationship revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while relationship revenue represen
Slide 39: Transaction and Relationship Revenue (continued)
Transaction and Relationship Revenue (continued) The tables below summarize the split between transaction and relationship revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while relationship reve
Slide 40: Non-GAAP Adjusted Operating Income and Adjusted Operating Margin
Non-GAAP Adjusted Operating Income and Adjusted Operating Margin The tables below reflect certain adjusted results that the SEC defines as "non-GAAP financial measures" as well as a reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Management believes that such no
Slide 41: 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 believes that free cash flow is a use
Slide 42: 2016 Outlook
2016 Outlook Moody’s outlook for 2016 is based on assumptions about many geopolitical conditions and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, merger and acquisition activity, consume
Slide 43: moodys.com
43 moodys.com Website: http://ir.moodys.com Email: ir@moodys.com
Slide 44: Second Quarter 2016 Earnings Call, July 22, 2016
© 2016 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, and affiliates (collectively, “MOODY’S”). All rights reserved. licensors and suppliers