Slide 1: Fourth Quarter and Full Year 2019 Earnings Call
Fourth Quarter and Full Year 2019 Earnings Call February 12, 2020
Slide 2: Overview
Overview Shivani Kak Head of Investor Relations Fourth Quarter and Full Year 2019 Earnings Call, February 12, 2020 2
Slide 3: 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 4: 4Q 2019 Overview and Strategy Discussion
4Q 2019 Overview and Strategy Discussion Ray McDaniel President and Chief Executive Officer Fourth Quarter and Full Year 2019 Earnings Call, February 12, 2020 4
Slide 5: Highlights
Highlights » MCO achieved 16% revenue growth in 4Q19 – MIS revenue rebounded from prior year market disruption – Organic double-digit growth in MA revenue for fourth consecutive quarter » 4Q19 adjusted operating margin of 45.3%, up 30 basis points » FY 2020 adjusted diluted EPS guidance of $9.10 to
Slide 6: FY 2019 Results Driven by Robust Performance Across Both Business Segments
FY 2019 Results Driven by Robust Performance Across Both Business Segments » 2019 MCO revenue increased 9%, driven by 13% growth in MA and 6% growth in MIS » Adjusted operating income up 8% » Adjusted diluted EPS up 12%, driven by strong business performance MCO Revenue MCO Adjusted Operating Income
Slide 7: 4Q 2019 Growth Led by MIS Revenue, with Cost Discipline Contributing to Margin Expansion
4Q 2019 Growth Led by MIS Revenue, with Cost Discipline Contributing to Margin Expansion » 4Q19 MCO revenue increased 16%, driven by 21% growth in MIS and 10% growth in MA » Adjusted operating income up 17%; adjusted operating margin up 30 bps » Adjusted diluted EPS of $2.00, up 23% MCO Revenue MCO
Slide 8: 4Q 2019 Issuance Activity
4Q 2019 Issuance Activity Credit market sentiment improved during 2019 Factor Market Attribute 4Q18 Sentiment Shift 4Q19 Sentiment Phase one trade deal agreement U.S.-China trade dispute Heightened uncertainty Geopolitical in principle Key U.K. parliamentary vote U.K. elections provide clarity Brexi
Slide 9: U.S. Public Finance Spotlight
U.S. Public Finance Spotlight Taxable issuance has become prominent in low-rate environment U.S. Public Finance Issuance ($Billions) 10 Year Treasury Yield (%) 3.5% U.S. Tax Cuts & Jobs Act Enacted $100 3.0% $93 $90 $80 $70 2.5% $60 $59 $60 $57 $55 $56 $51 $51 2.0% 1.5% $0 1.0% 1Q17 2Q17 3Q17 4Q17 1
Slide 10: Rating Performance Drives Investor Confidence
Rating Performance Drives Investor Confidence Ten-Year Default Rates by Rating for 2009-2018 Cohort: Ten-Year Cumulative 1993-2018 CLO 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 11: 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 Fourth Quarter and Full Year 2019 Earnings Call, February 12, 2020 11
Slide 12: RDC Acquisition Provides Leadership Position in the KYC Market
RDC Acquisition Provides » RDC’s data and decision Leadership Position in the tools combined with BvD’s compliance products KYC Market position MA to become a leading KYC solutions provider POLITICALLY-EXPOSED ADVERSE PERSONS » 2019 pro forma combined MEDIA RDC’s compliance product sales Proprietary
Slide 13: Greater China Spotlight
Greater China Spotlight » U.S.-China phase one bilateral » Moody’s Greater China trade agreement presence continues to – Positive for China and U.S. growth grow – Moody’s continues to foster – Revenue of $176M during constructive relationships and FY 2019, up 17%2 partnerships with issuers, 2019 Rev
Slide 14: 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 15: 4Q 2019 Results and FY 2020 Outlook
4Q 2019 Results and FY 2020 Outlook Mark Kaye Chief Financial Officer Fourth Quarter and Full Year 2019 Earnings Call, February 12, 2020 15
Slide 16: MIS Growth Amid Favorable Market Conditions
MIS Growth Amid Favorable Market Conditions Issuance1 $1,100.0 $1,013 YoY $ Billions MIS Revenue Change $900.0 $856 $720 $700.0 $700 $9 $595 $125 37% $500.0 $600 $5 4Q18 4Q19 $91 $115 32% $500 $87 MIS Adjusted Operating Income and Margin3 $ Millions $400 $109 (10%) 56.6% $121 $650 +80bps 56.7% 56.7%
Slide 17: MA Continues to Deliver Double-Digit Growth
MA Continues to Deliver Double-Digit Growth MA Revenue YoY MA Adjusted Operating Income and Margin2 $513 Change 30.0% $500 (30%) 27.2% -160bps $465 $31 $44 25.6% $200 $400 $149 20% $124 $48 ($43) $ Millions $ Millions $300 $100 $200 $297 $333 12% $127 $132 $100 $0 $0 10.0% 4Q18 1 4Q19 4Q18 MA MA Rev
Slide 18: Strong Operating Performance Underpinned by Disciplined Expense Management
Strong Operating Performance Underpinned by Disciplined Expense Management 820 4Q19 vs. 4Q18 770 +5% +1% +6% $729 720 $ Millions (5%) <(1%) +7% $684 670 620 570 4Q18 Total Operating Incentive Hiring, Salary Acquired and Restructuring Charge FX 4Q19 Total Operating Expenses Compensation Increases Div
Slide 19: 2020 Guidance Drivers
2020 Guidance Drivers » Stable economic fundamentals and GDP growth » Research and data feeds, along with BvD in developed regions driving RD&A revenue growth » Relatively tight credit spreads with low » ERS revenue benefitting from demand for IFRS benchmark rates to support elevated 17 products and
Slide 20: FY 2020 Corporate-Level Guidance
FY 2020 Corporate-Level Guidance1 Revenue Increase in the mid-single digit % range Expenses Increase in the low-single-digit % range Adjusted Operating Margin1,2 48% - 49% Interest Expense, Net $180 - $200 million Effective Tax Rate 20% - 22% Diluted EPS $8.60 - $8.80 Adjusted Diluted EPS1,2 $9.10 -
Slide 21: Expect to Return More than $1.7 Billion to Stockholders in 2020
Expect to Return More than $1.7 Billion to Stockholders in 20201 » Guiding to $1.3B of Share Repurchases and Shares Outstanding share repurchases and 230 $1,600 more than $400M of 210 1 191 191 191 $1,200dividends in 2020 188 190 $800 170 $1,300 » Free cash flow $991 $400 150 $739 approximately 100%
Slide 22: Expect 2020 Issuance and First Time Mandates to be Relatively Flat
Expect 2020 Issuance and First Time Mandates to be Relatively Flat1 Global Debt Issuance2 Global New Rating Mandates $4.6T ~$4.6T 1,200 1,044 1,046 864 800 - 900 # of New Mandates 800 738 400 2 0 2019 2020F 1 2016 2017 2018 2019 2020F EMEA United States Rest of World » 2020 issuance expected to be f
Slide 23: Expect MIS Revenue Growth and Margin Expansion
Expect MIS Revenue Growth and Margin Expansion1 Revenue Adjusted Operating Margin1 Mid-single-digit 58.0% 58% - 59% $3,200 % growth $3,000 $2.9B $2,800 $2,600 $2,400 $2,200 $2,000 1 1 2019 2020F 2019 2020F » Key drivers of MIS FY 2020 revenue outlook: ‒ Strong execution of strategy enables revenue g
Slide 24: Expect MA Revenue Growth from Core Products and Recent Acquisitions, with Margin Expansion
Expect MA Revenue Growth from Core Products and Recent Acquisitions, with Margin Expansion1 Revenue Adjusted Operating Margin1 35% High-single 34% $2,200 33% digit % growth 32% Approximately 30% $2,100 31% 30% 27.8% $2,000 $2.0B 29% 28% $1,900 27% 26% $1,800 25% $1,700 24% 23% $1,600 22% 21% $1,500
Slide 25: Key Takeaways
Key Takeaways » Moody’s is evolving into a more globally integrated risk assessment company to help our customers make better decisions » RDC acquisition strengthens foothold in $900M fast-growing KYC market with potential for upside » Strength of core businesses as well as disciplined investment an
Slide 26: Investor Day March 11, 2020
Investor Day March 11, 2020 Schedule 8:15am Program begins; Topics addressed: • Moody’s Investors Service • Moody’s Analytics • Corporate objectives and business spotlights • Financial strategy and capital allocation 1:00pm Program concludes Fourth Quarter and Full Year 2019 Earnings Call, February
Slide 27: Moody's Attendance at Upcoming Conferences
Moody’s Attendance at Upcoming Conferences » Raymond James Institutional Investors Conference ‒ Wednesday, March 4th ‒ Orlando, FL with Steve Tulenko » Barclays Americas Select Franchise Conference – Tuesday, May 12th – London, UK with Mark Kaye » Morgan Stanley 1x1 Business Services Conference – Th
Slide 28: Q&A
Q&A Ray McDaniel President and Chief Executive Officer Rob Fauber Chief Operating Officer Mark Kaye Chief Financial Officer Fourth Quarter and Full Year 2019 Earnings Call, February 12, 2020 28
Slide 29: Replay Details
Replay Details » Available from 3:30pm (Eastern Time) February 12, 2020 until 3:30pm (Eastern Time) March 12, 2020 » Telephone Details: – U.S. +1-888-203-1112 – Non-U.S. +1-719-457-0820 – Passcode 7297671 » Webcast Details: – Go to ir.moodys.com – Click on “Events & Presentations” – Click on the lin
Slide 30: Appendix
Investor Relations http://ir.moodys.com Appendix ir@moodys.com moodys.com
Slide 31: Glossary of Terms and Abbreviations
Glossary of Terms and Abbreviations TERM DEFINITION CFG Corporate finance group; an LOB of MIS ERS The Enterprise Risk Solutions LOB within MA, which offers risk management software solutions as well as related risk management advisory engagements services FIG Financial institutions group; an LOB of
Slide 32: Adjusted Operating Income and Adjusted Operating Margin by Segment
Adjusted Operating Income and Adjusted Operating Margin by Segment The table below presents revenue, operating income and adjusted operating income by reportable segment. The Company defines adjusted operating income as operating income excluding: i) restructuring; ii) depreciation and amortization;
Slide 33: Adjusted Operating Income and Adjusted Operating Margin
Adjusted Operating Income and Adjusted Operating Margin The Company presents Adjusted Operating Income and Adjusted Operating Margin because management deems these metrics to be useful measures to provide additional perspective on the operating performance of Moody’s. Adjusted Operating Income exclu
Slide 34: 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 deems capital expenditures essential
Slide 35: Organic Revenue and Growth Measures – MA, RD&A, ERS and PS
Organic Revenue and Growth Measures – MA, RD&A, ERS and PS The Company presents organic revenue and organic revenue growth because management deems this metric to be a useful measure which provides additional perspective in assessing the revenue growth excluding the inorganic revenue impacts from ce
Slide 36: Adjusted Net Income and Adjusted Diluted Earnings per Share
Adjusted Net Income and Adjusted Diluted Earnings per Share Attributable to Moody's Common Shareholders The Company presents Adjusted Net Income and Adjusted Diluted EPS because management deems these metrics to be useful measures to provide additional perspective on the operating performance of Moo
Slide 37: Adjusted Net Income and Adjusted Diluted Earnings per Share (continued)
Adjusted Net Income and Adjusted Diluted Earnings per Share Attributable to Moody's Common Shareholders (continued) Note: The tax impacts in the table above were calculated using tax rates in effect in the jurisdiction for which the item relates. Fourth Quarter and Full Year 2019 Earnings Call, Febr
Slide 38: moodys.com
Investor Relations http://ir.moodys.com ir@moodys.com moodys.com
Slide 39: Fourth Quarter and Full Year 2019 Earnings Call, February 12, 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