Moody's Corporation · NYSE:MCO
Moody's — Q2 2020 Earnings Presentation
67 slides from Moody's's earnings presentation, Aug 11, 2020
Slide 1: 2Q 2020 Investor Presentation
2Q 2020 Investor Presentation August 11, 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 business and operations of Moody’s Corporation (the “Company”) that involve a number of risks and uncertainties. Such statements may include, among
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 2Q 2020 Investor Presentation - August 11, 2020 3
Slide 4: Moody's Overview
1 Moody’s Overview
Slide 5: Company Overview
Company Overview Leading global provider of credit Independent provider of rating opinions, insight and tools Provides financial intelligence credit rating opinions and for financial risk measurement and analytical tools related information for over and management supporting our customers’ 100 years
Slide 6: Moody's Priorities for Strategic Growth
Moody’s Priorities for Strategic Growth Enhance technology infrastructure to enable automation, innovation and efficiency Foster employee engagement and creative solutions through our diverse workforce and inclusive environment Global Integrated Risk Assessments Moody’s Core Strengths Expand into Ne
Slide 7: Enhanced ESG Solutions
Enhanced ESG Solutions Index Partnerships Second Party Opinions (SPOs) » Partnered with Euronext on a new » VE launched an enhanced SPO ESG index powered by Vigeo Eiris’ service for sustainable bonds (VE) data: the Euronext ESG80 ESG Integration featuring an updated impact » Agreements to provide ES
Slide 8: Financial Overview
2 Financial Overview
Slide 9: Moody's Corporation Financial Profile
Moody’s Corporation Financial Profile 2Q 2020 TTM Revenue: $5.2 billion MIS Other 1% Recurring Transaction U.S. Non-U.S. PPIF 9% RD&A1 45% 45% FIG MIS 28% 10% MA SFG 7% ERS 55% 55% CFG 11% 34% Full Year 2020 Guidance as of July 30, 20202 Revenue » Increase in the low-single-digit % range Effective T
Slide 10: Long-Term Growth Opportunities
Long-Term Growth Opportunities Three Levers to Achieve EPS Growth REVENUE High Single Digit % Growth Range1 Issuance Volume & Mix Coverage Moody’s Analytics Pricing Initiatives ADJ. OPERATING MARGIN High-40s % Range1 Cost Discipline Process Re-Engineering Technology Enablement Investing for future g
Slide 11: Macro Assumptions Underpinning Our Outlook
Macro Assumptions Underpinning Our Outlook1 Base Case Developments since April 30th Expect continuing economic recovery in 2H 2020 ACCELERATE Continued global fiscal support and monetary stimulus actions 2020 GDP Benchmark interest rates remain low; high-yield Surge of investment grade capital -6% U
Slide 12: Financial Performance
Financial Performance1 Revenue1 Adjusted Diluted EPS3 $ Billions $ Per Share MIS Revenue MA Revenue $10.00 $8.80 - $9.20 $6.0 Low-single-digit % $9.00 $4.8 growth $8.00 $5.0 $4.2 $4.4 $3.5 $3.6 $7.00 $4.0 $2.0 $1.4 $1.7 $6.00 $3.0 $1.2 $1.2 $5.00 $8.29 $2.0 $7.39 $2.9 $4.00 $6.07 $2.3 $2.4 $2.8 $2.7
Slide 13: Capital Allocation Strategy
Capital Allocation Strategy Capital allocation levers Prudent approach in uncertain times INVESTING IN GROWTH OPPORTUNITIES Reinvestment Capital allocation goals Acquisitions RETURN OF CAPITAL Dividends Share repurchase Considerations around share repurchase program COVID-19 uncertainty Anchored aro
Slide 14: Capital Markets Overview
3 Capital Markets Overview
Slide 15: 2Q 2020 Credit Market Update
2Q 2020 Credit Market Update COVID-19 disrupts real economy, credit markets buoyed by stimulus Real Economy Credit Markets COVID-19 Pandemic Investment Grade Bonds » New cases of COVID-19 increased in the U.S., while declining in Europe and parts of Asia » Record 2Q 2020 issuance volumes1 » Optimism
Slide 16: Record 2Q 2020 Issuance, Mix Shift
Record 2Q 2020 Issuance, Mix Shift Investment grade bond High yield bond Bank loan CFG transactional revenue growth Y/Y Issuance volume growth Y/Y $660 85% 65% 41% 37% 37% 36% 40% $358 25% -3% $278 $264 -7% $256 $210 -12% $186 $170 $171 -12% $138 $135 $135 $114 $113 $119 $101 $103 $103 1Q19 2Q19 3Q1
Slide 17: Refunding Needs Have Grown Steadily Over Time
Refunding Needs Have Grown Steadily 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 18: Liquidity and Refinancing Prominent Drivers of Issuance in 1H 2020
Liquidity and Refinancing Prominent Drivers of Issuance in 1H 2020, While M&A Declined Uses of Funds from USD High Yield Bonds and Bank Loans1 Debt Refinancing M&A Capital Spending Shareholder Payments Liquidity / Working Capital 100% 5% 9% 8% 8% 8% 15% 16% 17% 13% 15% 13% 5% 5% 5% 7% 80% 6% 7% 4% 3
Slide 19: Debt Leverage and Interest Coverage in North America and Europe
Debt Leverage and Interest Coverage in North America and Europe Credit Metrics: North American Speculative Grade Companies Debt / EBITDA EBITDA / Interest Expense 5.7x Interest Coverage 6.0x 5.1x 5.3x 5.4x 5.3x 5.4x 4.8x 4.8x 5.1x 5.0x 4.6x 4.6x 4.5x 4.4x 4.5x 4.6x 4.0x 3.0x 2.9x 2.9x 3.1x 3.0x 2.9x
Slide 20: Default Rate Forecast Rises in Wake of Unprecedented Turmoil
Default Rate Forecast Rises in Wake of Unprecedented Turmoil Default Rates for Speculative-Grade Speculative-Grade Covenant Quality Indicators2 Corporate Rated Issuance1 Global U.S. Europe U.S. Loans U.S. Bonds European Bonds Weakening 16% 5.0 14% 4.54x 12% 4.5 12% 4.23x 10% 4.1% global 9% 4.0 3.91x
Slide 21: Disintermediation of Credit is an Ongoing Trend
Disintermediation of Credit is an Ongoing Trend in the Global Capital Markets European Non-Financial Corporate Bonds vs. U.S. Non-Financial Corporate Bonds vs. Bank Loans Outstanding Bank Loans Outstanding Bonds Loans Bonds Loans €7,000 $9,000 €6,000 $7,500 50% €5,000 74% $6,000 4 4 $ Billions € Bil
Slide 22: Moody's Investors Service
4 Moody’s Investors Service
Slide 23: Moody's Investors Service Financial Profile
Moody’s Investors Service Financial Profile 2Q 2020 TTM Revenue: $3.2 billion » 25% recurring revenue Recurring U.S. » 32% recurring revenue Transaction Non-U.S. MIS Other 1% 38% Corporate Public, Project, Finance & Infrastructure 66% 56% Finance 15% Financial 62% Institutions 16% 34% Structured » 5
Slide 24: MIS Guidance: Strong 1H 2020 Driving Improved Outlook
MIS Guidance: Strong 1H 2020 Driving Improved Outlook1 Revenue Adjusted Operating Margin1 FY 2020 Issuance Guidance1 Low-single-digit $3,000 % increase 58.0% Approximately 58% Investment Grade +50% $2.9B $2,800 High Yield Bonds +5% $2,600 Bank Loans -20% $2,400 $2,200 Structured -40% $2,000 $1,800 T
Slide 25: The Benefits of a Moody's Rating
The Benefits of a Moody’s Rating Investors seek our opinions and particularly value the knowledge of our analysts and the depth of our research. Wider access Tangible Planning Transparency, Responsive to to capital financing benefits and budgeting credit comparison investor demand and market stabili
Slide 26: Managing Ratings in Turbulent Times
Managing Ratings in Turbulent Times Transparency and relevance of credit ratings through the cycle Order sectors by degree Order issuers by Reassess all Reassess ratings Monitor credit profiles Coordinate Take account of of exposure vulnerability ratings in the most of the most associated with all o
Slide 27: 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 28: 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 companies and » 4,700+ rated companies and » 2,200+ rated companies and structured deals structured deals structured deals #1 U.S. Credit Rating Agency » $3
Slide 29: Strongly Positioned in Emerging Markets
Strongly Positioned in Emerging Markets Emerging Markets - Domestic TAM MIS Emerging Markets Revenue1 Others MIS Affiliate (majority) MIS Affiliate (minority) South Africa Moody’s Local $342M Argentina Brazil National Scale Ratings Other Emerging Markets Mexico Peru China Egypt Chile Israel $700 M S
Slide 30: Moody's in Greater China
Moody’s in Greater China 2nd Largest Onshore Bond Market at $15 Trillion 2019 Revenue and Attributable Income from China2 Total debt securities outstanding 2012–20191 MIS Cross Border Revenue Total MA Revenue Attributable Income from CCXI 2012 2019 200 $176 50 3% 40 150 $ Millions 30 100 20% -2% 20
Slide 31: Moody's ESG: Driving Standards Beyond Credit
Moody’s ESG: Driving Standards Beyond Credit Market Trends Key Stats2 OUTREACH » Moody’s forecasts global green, social » Over 500 media engagements and sustainability bond issuance to be 38,000+ 5,000+ in 1H 2020 driven by Moody’s Events and $275 to $325 billion in 20201 Credit ratings ESG assessme
Slide 32: Moody's Analytics
5 Moody’s Analytics
Slide 33: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile 2Q 2020 TTM Revenue: $2.0 billion » 97% recurring revenue2 » ~ 95% retention rate3 Recurring Transaction U.S. Non-U.S. 12% Research, Data and Analytics1 57% 72% 88% Enterprise Risk 43% Solutions 28% » 77% recurring revenue » 92% retention rate 1. Includes trailing
Slide 34: Diverse Product Solutions
Diverse Product Solutions Continuous improvement of content and user experience provides tools for customer to make better decisions, faster Integrated Experience: Ease of Use Enhanced Content & Coverage: More Value 1,290+ 2,800+ Asset Managers Commercial Banks Onboard customers Compliance modules C
Slide 35: Moody's Analytics has Several Platforms for Growth
Moody’s Analytics has Several Platforms for Growth Revenue Has More Than Tripled Since Inception $2,000 Moody’s Analytics 2019 Revenue: $1,954m $1,800 2008 – 2019 CAGR: +12% (~60% organic) $1,600 $1,400 Enterprise Risk Solutions 2019 Revenue: $522m $1,200 2008 – 2019 CAGR: +14% $ Millions (~68% orga
Slide 36: MA Guidance: Top-line Growth and Margin Improvement Remain on Track
MA Guidance1: Top-line Growth and Margin Improvement Remain on Track Revenue Adjusted Operating Margin1 Mid-single-digit Approximately 30% % increase $2.0B 27.8% 1 2019 2020F 2019 2020F 1 Key drivers of MA FY 2020 outlook1 » Strong recurring revenue mitigates COVID-19 impact » RD&A growth driven by
Slide 37: MA Sales Outlook Resilient Amid COVID-19 Disruption
MA Sales Outlook1 Resilient Amid COVID-19 Disruption Retention remains strong Current Outlook Prior Outlook Existing contractual No change obligations being met 94.6% 94.1% by MA and customers 2012 2Q 20202 Renewal yield4 outlook better Renewal yield4 Stable YTD 2020 ACTUALS than prior expectations
Slide 38: 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) First Half 95.6% 8.2% 4.7% 108.5% Expansion of ratings coverage 2020 Retained Base Upgrades and Price New Sales Business Base Production of insightful credit analysis Full Ye
Slide 39: ERS Empowers Customers' Success With Analytics
ERS Empowers Customers’ Success With Analytics Technology with a purpose – Enabling better, faster decisions Our business solutions Our customers Accounting Balance sheet Insurers management Impairments, IFRS-17 Portfolio, valuation & ALM Banks Corporates Customers Credit decisioning & RegTech lendi
Slide 40: ERS: Recurring 80% of Revenue with Mid-teens CAGR
ERS: Recurring 80% of Revenue with Mid-teens CAGR ERS Revenue: Recurring1 vs. Non-recurring » ERS recurring revenue has grown by approximately Recurring Revenue CAGR2 = 16% $200 million since 2015 $500 100% » Emphasis on subscription products supports scalability, drives operating leverage and margi
Slide 41: Global Regulatory and Accounting Drivers for the ERS Business
Global Regulatory and Accounting Drivers for the ERS Business EMEA Revised SA FRTB* CVA review* operational risk* Incorporate ESG risks into BoE/ PRA Revised SA Updated Leverage supervisory process ST market risk* Ratio* Revised minimum HLA requirement capital requirements Revised for MR* Revised G-
Slide 42: Bureau van Dijk Collects and Enhances Information to Deliver High Value Solutions
Bureau van Dijk Collects and Enhances Information to Deliver High Value Solutions… High Value Customer Solutions KYC, compliance and financial crime Corporate finance and M&A Conduct on-boarding and anti-money laundering research with Find targets/sellers, perform M&A/deal analysis and conduct due e
Slide 43: For a Diverse Client Base and Broad Range of Use Cases
… for a Diverse Client Base and Broad Range of Use Cases BvD Customer Mix by industry1 Use Case Growth Rates 38% Growth of Compliance Government 45% 12% Use Case YoY Growth (2019 vs. 2018) 40% Avg Growth of Other Financial and Compliance Education, Use Cases Institutions, 35% 29% 22% 30% 25% Profess
Slide 44: BvD + RDC Makes Us a Leading Global Player in KYC
BvD + RDC Makes Us a Leading Global Player in KYC Improved accuracy and streamlined decisions » Bureau van Dijk accelerating growth with Moody’s. BvD post acquisition BvD revenue growth1 of ~16% and adjusted operating margin2 of ~52% » BvD + RDC creates a leading provider of data for compliance-rela
Slide 45: Appendix
6 Appendix
Slide 46: Corporate Finance: Revenue and Issuance
Corporate Finance: Revenue and Issuance Revenue1: Mix by Quarter Issuance3: Mix by Quarter Global Non-Financial Investment-Grade Bonds Global Non-Financial Speculative-Grade Bonds Other 2 Investment Grade Speculative Grade Bank Loans U.S. Speculative-Grade Bank Loans Non-U.S. Speculative-Grade Bank
Slide 47: Corporate Finance: Revenue Diversification
Corporate Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction Non - U.S. U.S. Transaction Recurring 100% 100% 80% 27% 25% 20% 35% 31% 30% 29% 28% 31% 29% 80% 38% 65% 63% 64% 65% 68% 63% 66% 62% 65% 69% 72% 60% 60% 40% 40% 73% 75% 8
Slide 48: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter ABS RMBS CMBS Structured Credit Other ABS RMBS CMBS Structured Credit $160 $350 $140 $300 $1 $44 $120 $0 $250 $1 $ Millions $1 $49 $49 $ Billions $1 $1 $100 $55 $47 $1 $64 $57 $41 $32 $1 $200 $36 $39 $51 $51
Slide 49: Structured Finance: Revenue Diversification
Structured Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction Non - U.S. U.S. Transaction Recurring 100% 100% 80% 56% 80% 33% 36% 37% 36% 39% 63% 62% 63% 63% 61% 64% 64% 62% 63% 64% 44% 45% 43% 42% 48% 57% 60% 60% 40% 40% 67% 64%
Slide 50: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter Banking Insurance Managed Investments Other Global Speculative Grade Financial Corporate Bonds Global Investment Grade Financial Corporate Bonds $160 $2 $140 $500 $3 $3 $3 $8 $29 $3 $3 $3 $3 $120 $10 $7 $
Slide 51: Financial Institutions: Revenue Diversification
Financial Institutions: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction Non - U.S. U.S. Transaction Recurring 100% 100% 80% 37% 44% 40% 42% 42% 42% 45% 50% 45% 48% 49% 80% 53% 53% 51% 52% 46% 58% 59% 54% 58% 55% 60% 72% 60% 40% 40% 63%
Slide 52: Public, Project and Infrastructure: Revenue and Issuance
Public, Project and Infrastructure: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter Public Finance and Sovereign Project & Infrastructure Finance Other Long-Term Rated U.S. Muni Bonds Rated Global Project & Infrastructure Finance Bonds $150 $250 $200 $ Billions $ Millions $10
Slide 53: Public, Project and Infrastructure: Revenue Diversification
Public, Project and Infrastructure: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction Non - U.S. U.S. Transaction Recurring 100% 100% 34% 31% 33% 35% 28% 80% 80% 36% 39% 42% 39% 41% 37% 57% 60% 60% 59% 61% 63% 62% 65% 64% 64% 65% 60% 60%
Slide 54: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview Professional Services Enterprise Risk Solutions Research, Data and Analytics Revenue1: Distribution by Line of Business Revenue1: Mix by Year Revenue1: Mix by Quarter $2,400 $600 100% 6% 9% 9% 9% 9% 9% 9% 9% 8% $2,000 $500 $31 28% 26% $159 $43 80% 29% $44 $42 $4
Slide 55: 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 7% 6.5% +100bps $ Millions $4,000
Slide 56: Proactive Capital and Liquidity Management
Proactive Capital and Liquidity Management Bond portfolio WAC1 Balanced maturity schedule5,6 900 $ in millions $500 million 40 year maturity 5.0% 4.7% 800 bond issued at 2.55% on 4.3% 4.3% 700 August 4th, 2020 4.5% 3.9% 600 4.0% 3.5% 3.3% 500 3.5% 4.2% 3.9% 4.0% 3.4% 400 842 3.4% 250 3.0% 3.4% 330 7
Slide 57: 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 TAL G O V E R N AN C E » Measurement of carbon emissions and » Professional integrity identification of opportunities to reduce indirect » Systematic risk management GHG emissions »
Slide 58: Ongoing Corporate Social Responsibility Commitment
Ongoing Corporate Social Responsibility Commitment Environmental Sustainability Program Enhancements1 Employees Communities Customers and Policymakers Carbon Neutrality » Employee safety and wellbeing » Over $10M of in-kind » Increased engagement with » Committed to remaining remains our primary pri
Slide 59: Technology: Innovating with Purpose
Technology: Innovating with Purpose Next Gen Tech is a Defining Element of our Culture, Setting Stage for Growth » Incorporating alternative data sources to augment » NLP based early warning and monitoring tools for SME credit scoring accuracy MIS analysts and MA customers » QuantCube pilot program
Slide 60: MIS: Robust IG Issuance Drove Results
MIS: Robust IG Issuance Drove Results Issuance1 MIS Revenue YoY Change $2,000.0 $938 $ Billions $1,500.0 $1,000 $10 $1,000.0 $900 23% 1,785 $739 $133 $500.0 1,168 $800 $700 $6 $142 14% $0.0 $108 2Q19 2Q20 $600 $81 (28%) $ Millions $125 MIS Adjusted Operating Income and Margin $500 $112 +390bps 64.0%
Slide 61: MA: Strong Organic Revenue Growth and Margin Expansion
MA: Strong Organic Revenue Growth and Margin Expansion MA Revenue1 YoY MA Adjusted Operating Income and Margin $497 Change $200 28.2% +50bps 28.7% $500 $475 $43 $131 $400 12% $21 ($13) $117 $ Millions $ Millions $300 $100 $200 $135 $143 $366 16% $315 $100 $0 $0 15.0% 2Q19 2Q20 2Q19 MA MA Revenue MA
Slide 62: 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 Sweden Italy Switzerland
Slide 63: Reconciliation of Adjusted Financial Measures to GAAP
Reconciliation of Adjusted Financial Measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation1 TTM (in $ millions) 2015 2016 2017 2018 2019 2Q 2020 Moody's Corporation Net Debt Reconciliation Operating Income $1,491 $651 $1,821 $1,868 $1,998 $2,355 Operating Margin 42.
Slide 64: 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 43% - 44% Depreciation & Amortization Approximately 4.5% Restructuring Approximately 0.5% Loss pursuant to the divestiture of MAKS Negli
Slide 65: 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 $8.15 - $8.55 Legacy Tax (0.03) - - - - - Impact of Litigation Settlement - $3.59 - - - - Captive insurance co
Slide 66: moodys.com
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 67: 2Q 2020 Investor Presentation - August 11, 2020
© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liabilit