Moody's Corporation · NYSE:MCO
Moody's — Q2 2022 Earnings Presentation
39 slides from Moody's's earnings presentation, Jul 26, 2022
Slide 1: Second Quarter 2022 Earnings Call
Second Quarter 2022 Earnings Call July 26, 2022
Slide 2: Introduction
Introduction Shivani Kak Head of Investor Relations Second Quarter 2022 - Earnings Call 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 Moody’s business and operations that involve a number of risks and uncertainties. Such statements involve estimates, projections, goals, forecasts, ass
Slide 4: 2Q 2022 Highlights
2Q 2022 Highlights Rob Fauber President and Chief Executive Officer Second Quarter 2022 - Earnings Call 4
Slide 5: Key Takeaways
Key Takeaways 1 2Q 2022 financial results: MCO revenue of $1.4B; Adjusted Diluted EPS of $2.221 2 MIS business fundamentals remain firmly intact despite short-term cyclical volatility 3 MA delivered strong growth with revenue up 18% on heightened customer demand 4 Organic Annualized Recurring Revenu
Slide 6: Questions and Answers
Questions and Answers Rob Fauber President and Chief Executive Officer Mark Kaye Chief Financial Officer
Slide 7: Supplemental Information
Supplemental Information
Slide 8: MCO: Financial Results Reflect Cyclical Volatility in the Debt Issuance Markets
MCO: Financial Results Reflect Cyclical Volatility in Performance Outlook the Debt Issuance Markets Investment Thesis Capital Allocation » MCO revenue contracted 11% from 2Q21, which was the highest second quarter on record – MA revenue growth of 18%; organic constant currency1 (organic C$) growth o
Slide 9: MIS: Significantly Lower Issuance Amid Market Uncertainty
MIS: Significantly Lower Issuance Amid Performance Outlook Market Uncertainty Investment Thesis Capital Allocation MIS Revenue Issuance2 $980 (32%) $ Billions (28%) $130 YoY $1,595 $150 $706 Change $1,083 $140 $122 (6%) $ Millions 2Q21 2Q22 $128 (15%) $123 (12%) MIS Adjusted Operating Margin3 $550 1
Slide 10: MA: Delivering Exceptional Value in Uncertain Times
Performance MA: Delivering Exceptional Value in Uncertain Times Outlook Investment Thesis Capital Allocation MA Revenue MA Adjusted Operating Margin1 $675 YoY 0.5% 18% Change $573 $312 41% (2.0%) $222 $ Millions 31.8% $175 $185 6% 30.3% $176 $178 1% 2Q21 2Q22 2Q21 MA Adjusted Underlying Margin Acqui
Slide 11: MCO: Updated Assumptions
Performance MCO: Updated Assumptions Outlook Investment Thesis Capital Allocation Macroeconomic Assumptions Underpinning 2022 Outlook1 GDP Credit Inflation & Default Growth2 Spreads Unemployment Rates 1.5% - 2.5% United States Benchmark rates to continue to Global inflation levels to remain Global h
Slide 12: MCO: Updated Full Year Guidance
Performance MCO: Updated Full Year Guidance Outlook Investment Thesis Capital Allocation Full Year 2022 Financial Outlook as of July 26, 20221 Decline in the high-single-digit percent Revenue Diluted EPS $8.10 - $8.60 range Increase in the high-single-digit Expenses Adjusted Diluted EPS2 $9.20 - $9.
Slide 13: MIS: Market Volatility Impacts Expectations for the Year
Performance MIS: Market Volatility Impacts Expectations for the Year Outlook Investment Thesis Capital Allocation Revenue1 Adjusted Operating Margin1 $3.8B 62.2% Decrease in the 54% to 55% low-twenties percent range 2021 2022F 2021 2022F » Cyclical market volatility expected through year-end, with i
Slide 14: MIS: Issuance is Projected to Remain Subdued
Performance MIS: Issuance is Projected to Remain Subdued Outlook Investment Thesis Capital Allocation FY 2022 Issuance Guidance1,2 Revenue ($B) As of July 26, 2022 As of May 2, 2022 Pandemic-driven issuance Total Issuance (~30%) Macroeconomic volatility & Investment Grade (~25%) geopolitical concern
Slide 15: MA: Expansion Continues, Supported by High Recurring Revenue
MA: Expansion Continues, Supported by High Performance Outlook Recurring Revenue Investment Thesis Capital Allocation Revenue1 Organic ARR1,2 Adjusted Operating Margin1 Increase in the Increase in the mid-teens low-double-digit percent range percent range $2.5B ~29.0% $2.4B 26.0% 2021 2022F 4Q21 4Q2
Slide 16: MCO: Increase in Risk Awareness Drives Product Demand
MCO: Increase in Risk Awareness Drives Product Performance Outlook Demand Investment Thesis Capital Allocation Year-over-Year Growth in Usage 11% 12% 20% Orbis1 CreditView2 CreditLens3 » Moody’s unparalleled insights and global analysis remain an integral element of customer risk decisions » Elevate
Slide 17: MIS: The Stock of U.S. Debt Has Grown Throughout Varied Economic Conditions
MIS: The Stock of U.S. Debt1 Has Grown Throughout Performance Outlook Varied Economic Conditions Investment Thesis Capital Allocation Total Debt Outstanding ($T) Y/Y Change (%) Average Rate of Change (%) $14 16.0% $12 14.0% 12.0% $10 10.0% $8 8.0% $6 6.0% $4 4.0% $2 2.0% $0 0.0% 1990 1992 1994 1996
Slide 18: MIS: All-in Financing Costs Remain Below Historical Highs
MIS: All-in Financing Costs Remain Below Performance Outlook Historical Highs Investment Thesis Capital Allocation U.S. High Yield Spreads1 (bps) Spread Average 2,000 1,500 U.S. high yield spreads have widened, but remain low 1,000 relative to prior highs 500 0 Jun-94 Jun-96 Jun-98 Jun-00 Jun-02 Jun
Slide 19: MIS: Medium-term Refunding Needs Support Issuance Fundamentals
MIS: Medium-term Refunding Needs1 Support Performance Outlook Issuance Fundamentals Investment Thesis Capital Allocation Debt Maturities: U.S. Non-Financial Corporate Bonds and Loans ($B)2 719 524 308 Speculative Grade Bank Loans 387 266 151 Speculative Grade Bonds » Refinancing needs totaling 249 1
Slide 20: MA: Stable and Profitable Growth Drivers
Performance MA: Stable and Profitable Growth Drivers Outlook Investment Thesis Capital Allocation GROWTH STRATEGIC DEEP MARKET DRIVERS Organic INVESTMENTS CURRENTS Need for holistic approach High Customer Retention Rates2 ARR1 New Product Development to address emerging and integrated risks 95% 9% G
Slide 21: MA: Generates Strong Recurring Revenue
Performance MA: Generates Strong Recurring Revenue Outlook Investment Thesis Capital Allocation TTM Recurring and Transaction Revenue1 Organic ARR2 Growth Outpaced Organic C$3 Revenue 9% 8% 93% 92% 88% 84% 2Q22 2Q22 Organic C$ Organic 2Q19 2Q20 2Q21 2Q22 Revenue Growth ARR Growth Recurring Transacti
Slide 22: MA: Track Record of Successful M&A Delivery
Performance MA: Track Record of Successful M&A Delivery Outlook Investment Thesis Capital Allocation Capabilities Ann’t Pre- Post- Target Performance Acquired Date Acquisition Acquisition Growth1 Growth2 ON TRACK Climate & Natural Disaster Risk Aug Incremental $150M LSD% HSD - LDD% Projecting MSD sa
Slide 23: Expense Management at MCO: Investing Prudently Through the Cycle
Expense Management at MCO: Performance Outlook Investing Prudently Through the Cycle Investment Thesis Capital Allocation 2Q 2021 vs. 2Q 2022 ~4% 2022 - 2023 Geolocation ~4% 16% ~12% Restructuring Program (~4%) » Accelerates initiatives related $0.9B to the utilization of lower cost $0.8B locations
Slide 24: Strategic Capital and Liquidity Management
Performance Strategic Capital and Liquidity Management Outlook Investment Thesis Capital Allocation Bond Portfolio WAC1 5.0% 4.7% 4.3% 4.3% » Strong liquidity with $1.7B in cash and 4.5% 3.9% 4.0% 3.5% short-term investments, and an undrawn 4.2% 3.3% 3.3% 3.5% 3.9% 4.0% 3.1% 3.2% $1.25B revolving cr
Slide 25: Replay Details
Replay Details Available from 4:00PM (Eastern Time) July 26, 2022, until 4:00PM (Eastern Time) August 24, 2022. Telephone Details Webcast Details » U.S. & Canada +1-888-203-1112 » Go to ir.moodys.com » Non-U.S. & Canada +1-719-457-0820 » Click on “Events & Presentations” » Passcode 8161371 » Click o
Slide 26: Moody's Attendance at Upcoming Conferences
Moody’s Attendance at Upcoming Conferences AUG UBS Financial Services One-on-One Virtual Conference 11 » Dave Platt, Chief Strategy Officer SEP Barclays Global Financial Services Conference 13 » Steve Tulenko, MA President SEP UBS FinTech One-on-One Virtual Conference 15 » Steve Tulenko, MA Presiden
Slide 27: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com
Slide 28: Appendix
Appendix
Slide 29: Glossary of Terms and Abbreviations
Glossary of Terms and Abbreviations TERM DEFINITION CFG Corporate finance group; an LOB of MIS CRE Commercial Real Estate D&I The Data & Information LOB within MA; which provides vast data sets on companies and securities via data feeds and data applications products The Decision Solutions LOB withi
Slide 30: Annualized Recurring Revenue (ARR)
Annualized Recurring Revenue (ARR) The Company presents Annualized Recurring Revenue (“ARR”) and Organic ARR for its MA business as supplemental performance metrics to provide additional insight on the estimated value of MA's recurring revenue contracts at a given point in time. The Company uses the
Slide 31: Financial Information by Segment
Financial Information by Segment The table below presents revenue and Adjusted Operating Income by reportable segment. The Company defines Adjusted Operating Income as operating income excluding: i) depreciation and amortization; and ii) restructuring. Second Quarter 2022 - Earnings Call 31
Slide 32: Financial Information by Segment (Continued)
Financial Information by Segment (Continued) The table below presents revenue and Adjusted Operating Income by reportable segment. The Company defines Adjusted Operating Income as operating income excluding: i) depreciation and amortization; and ii) restructuring. Second Quarter 2022 - Earnings Call
Slide 33: Organic Constant Currency Revenue Growth (Decline) – MA
Organic Constant Currency Revenue Growth (Decline)/Constant Currency Revenue Growth (Decline) – MA Beginning in the second quarter of 2022, the Company began presenting organic constant currency revenue growth (decline) and constant currency revenue growth (decline) as its non- GAAP measure of reven
Slide 34: 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 Moody’s operating performance. Adjusted Operating Income excludes the
Slide 35: Free Cash Flow
Free Cash Flow The table below reflects a reconciliation of the Company's net cash flow 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 t
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 Moody’s operating performance. A
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) The Company presents Adjusted Net Income and Adjusted Diluted EPS because management deems these metrics to be useful measures to provide additional perspective on Moody’s operating pe
Slide 38: Net Debt to Adjusted Operating Income Ratio
Net Debt to Adjusted Operating Income Ratio The Company presents non-GAAP Net Debt to Adjusted Operating Income because management deems this metric to be a useful measure to provide additional perspective on Moody’s: i) ability to meet its financial obligations; ii) access to liquidity; and iii) ca
Slide 39: Second Quarter 2022 - Earnings Call
© 2022 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