Slide 1: 1Q 2018 Investor Presentation
1Q 2018 Investor Presentation May 10, 2018
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. Financial Overview 2. Capital Markets Overview 3. Moody’s Investors Service (MIS) 4. Moody’s Analytics (MA) 5. Conclusion 6. Appendix May 10, 2018 3
Slide 4: 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 » Defend and enhance our core Risk ratings & research businesses Management Credit Risk – Ratings: predictive, predictable and Curated Data & Technology Advisory Services Measurement transparent Stre
Slide 5: Financial Overview
1 Financial Overview
Slide 6: Overview of Moody's Corporation
Overview of Moody’s Corporation Independent provider of Leading global provider of Provides financial credit rating opinions and credit rating opinions, intelligence and analytical related information for over insight and tools for tools supporting our clients’ 100 years financial risk growth, effic
Slide 7: Financial Performance
Financial Performance Revenue Adjusted Diluted EPS2 $7.65 to $7.853 Low-double-digit $8.00 $5.0 % growth $7.00 $4.0 $6.00 $ Billions $3.0 $5.00 $2.0 $4.00 $6.07 $4.71 $4.94 $3.00 $4.31 $1.0 $3.74 $2.00 $0.0 1 2013 2014 2015 2016 2017 2018F 1 2013 2014 2015 2016 2017 2018F Operating Margin4 5-year Av
Slide 8: 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 market
Slide 9: 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 10: De-leveraging in 2018 to Maintain Current BBB+ Credit Rating
De-leveraging in 2018 to Maintain Current BBB+ Credit Rating 1 Debt Outstanding (L) Gross Debt/Adj. Operating Income (R) $6,000 3.0x $5,000 2.5x $4,000 2.0x $ Millions $3,000 1.5x $2,000 1.0x $1,000 0.5x $0 0.0x 2010 2011 2012 2013 2014 2015 2016 2017 2018E » Current long-term credit ratings from S&
Slide 11: 2018 Outlook
2018 Outlook Guidance as of April 27, 20181 Revenue Low-double-digit % growth Operating Expenses Low-double-digit % growth Operating Margin 43% - 44% ~48% (Adjusted2) Effective Tax Rate 22% - 23% EPS $7.20 - $7.40 $7.65 - $7.85 (Adjusted2) Free Cash Flow2 ~$1.6 billion 1 See press release titled “Mo
Slide 12: Capital Markets Overview
2 Capital Markets Overview
Slide 13: Historically, Rising Rates Have not had a Significant Impact on Moody's Revenue
Historically, Rising Rates Have not had a Significant Impact on Moody’s Revenue MCO Revenue and Interest Rates 1 MIS Revenue (L) MA Revenue (L) MCO Revenue (L) 10-yr U.S. Treasury Yield (R) $4,500 9% $4,000 7.8% 8% +120bps $3,500 7% 6.5% $ Millions +100bps $3,000 6% 5.8% $2,500 5% +200bps 4.7% 3.3%
Slide 14: Debt Leverage Down in North America, Stable in Europe; Interest Coverage Steady
Debt Leverage Down in North America, Stable in Europe; Interest Coverage Remains Steady Credit Metrics: North American Speculative Grade Companies 6.0x 4.9x 5.1x 5.2x 5.0x 4.8x Interest Coverage 4.5x 4.5x 4.4x 4.3x 4.6x 5.0x 4.2x 4.2x 4.2x 4.0x 3.0x 2.0x 1.0x 1.7x 1.6x 1.4x 1.3x 1.6x 1.9x 1.7x 1.7x
Slide 15: Global Default Rates Remain Under Historic Average
Global Default Rates Remain Under Historic Average Default Rates for Corporate Rated Issuance1 Global U.S. Europe 6.0% 5.0% 4.3% global historic average1 4.0% 3.0% 2.0% 1.7% 1.4% 1.0% 1.0% 0.0% 2012 2013 2014 2015 2016 2017 2018 2019F » Global speculative-grade default rate at 3.2% as of March 31, 2
Slide 16: 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 $300 $226 $225 $239 $223 $250 $206 2018 – 2022 CAGR $181 $ Billions $200 $175 $180 Investment Grade Bonds: 8% $150 $121 Speculative Grade Bonds: 60
Slide 17: 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% 15% 18% 17% 18% 20% 16% 17% 11% 22% 17% 5% 6% 22% 5% 6% 7% 8% 8% 8% 7% 19% 25% 39% 31% 30% 43% 31% 41%
Slide 18: 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 49% $6,000 $ Billions € Billions €4
Slide 19: Robust Growth of New Rating Mandates
Robust Growth of New Rating Mandates Global New Rating Mandates1 EMEA United States Rest of World 1,200 1,026 1,044 990 854 # of New Mandates 800 771 738 +39% 400 296 213 0 2012 2013 2014 2015 2016 2017 1Q17 1Q18 » In 1Q 2018, Moody’s new rating mandates increased to 296, up 13% from 261 in 4Q 2017
Slide 20: New Rating Mandates Provide Recurring Revenue
New Rating Mandates Provide Recurring Revenue1 Growth MIS Recurring Revenue Corporate Finance Structured Finance Financial Institutions Public, Project, & Infrastructure Finance $1,200 MIS Other $1,000 $800 $ Millions $600 $400 $200 $0 2013 2014 2015 2016 2017 1Q17 1Q18 As a % of MIS 38% 39% 39% 39%
Slide 21: Moody's Investors Service
3 Moody’s Investors Service
Slide 22: Moody's Investors Service Financial Profile
Moody’s Investors Service Financial Profile TTM 1Q 2018 Revenue: $2.8 billion Recurring Transaction U.S. Non-U.S. » 28% recurring revenue MIS Other 1% Public, 39% Corporate Project, & Finance Infrastructure » 36% recurring revenue 65% 50% Finance 15% Financial 61% Institutions 35% 15% » 56% recurrin
Slide 23: Broad Coverage Serves Global Needs
Broad Coverage Serves Global Needs $72+ trillion of Total Rated Debt 4,700 Rated Non-Financial Corporates 4,100 Rated Financial Institutions 138 Rated Sovereigns 47 Rated Supranational Institutions Americas EMEA APAC 450 Rated Sub-Sovereigns » 32,500 rated » 4,600 rated » 2,000 rated 17,700 companie
Slide 24: Rating Performance Drives Investor Confidence
Rating Performance Drives Investor Confidence Three-Year Cumulative Default Rates of Fundamental Rated Universe1 60% ~15 Years Lead/Senior Analyst 50% tenure 40% 30% 20% #1 U.S. Credit Rating Agency 10% 2012-20172 0% » We remain focused on analytical expertise and the continuous refinement of our cr
Slide 25: 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 26: 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 » CCXI provides >1,000 domestic Chinese ratings; 34% coverage in 20172 » Cross border market rated via MIS Hong Kong office » China recently announce
Slide 27: New Non-Credit Assessments Meet Market Needs
New Non-Credit Assessments Meet Market Needs Green Bond Assessment Other » ~$250 billion green bond » Servicer Quality issuance volume Assessments in forecasted for 20181 LATAM » 34 green bond » Private Monitored assessments assigned Rating extension as of April 2018 globally » Private Rating for ES
Slide 28: Further Operationalizing Enabling Technologies
Further Operationalizing Enabling Technologies We focus on three core …and incorporate new technologies into activities in MIS… our current processes Robotic Process Reading & Automation Extracting Machine Learning, x MIS Focus Analyzing Artificial Intelligence x x Areas & Big Data Publishing & Natu
Slide 29: Moody's Analytics
YAN Moody’s Analytics
Slide 30: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile TTM 1Q 2018 Revenue: $1.5 billion » > 97% recurring revenue Recurring Transaction U.S. Non-U.S. » 96% retention rate1 20% Research, Data and Analytics 57% 60% » 70% recurring revenue Enterprise Risk Solutions 80% 30% 43% Professional Services 10% » Combination of
Slide 31: Moody's Analytics has Several Platforms for Growth
Moody’s Analytics has Several Platforms for Growth Revenue More Than Doubled Since Inception Moody’s Analytics 2017 Revenue: $1,430m $1,600 2008 – 2017 CAGR: +11% (~62% organic) $1,400 Professional Services 2017 Revenue: $149m $1,200 2008 – 2017 CAGR: +32% (~15% organic) $1,000 $ Millions Enterprise
Slide 32: Bureau van Dijk Acquisition
Bureau van Dijk Acquisition Bureau van Dijk aggregates, standardizes and distributes an extensive private company data set » €3 billion acquisition closed on August 10, 2017 Long History of Profitable Growth2 » Bureau van Dijk is a leading aggregator and distributor of private company business intel
Slide 33: Bureau van Dijk Collects and Enhances Information to Deliver a Market Leading Global Dataset
Bureau van Dijk Collects and Enhances Information to Deliver a Market Leading Global Dataset Diversified IP Network1 High Value Customer Solutions 280 Million Compliance and Financial Crime Private Companies Corporate Finance and M&A 67 Thousand Public Companies 170 Million Credit Risk Director Cont
Slide 34: RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales
RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales Subscription Sales Growth (constant currency) Full Year 2017 Expansion of ratings coverage 5.7% 109.4% 95.5% 8.2% Production of insightful credit Retained Base Upgrades and Price New Sales Business Base analysis New cust
Slide 35: ERS Solutions Address Diverse Needs and Customers
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 Accounting
Slide 36: ERS Renewable Products Drive Growth
ERS Renewable Products Drive Growth TTM Revenue Prior to 2016: Growth from installed software Renewable1 Total » One-time projects – installed software & services $500 » Bespoke projects accelerated development of IP $450 » 61% of revenue from renewable products in 2015 $400 2016+: SaaS & subscripti
Slide 37: Conclusion
5 Conclusion
Slide 38: Why Invest in Moody's?
Why Invest in Moody’s? » We strive to be the world’s most respected authority serving risk-sensitive financial markets » We have had strong revenue and earnings growth, as well as cash flow conversion – 2013 – 2017 revenue CAGR of 9% – 2013 – 2017 adjusted diluted EPS1 CAGR of 15% – 2013 – 2017 free
Slide 39: 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 MENAIR 5 MENAIR warts eCreditjiux INSURANCE Reinet Sheeler RiskTech CLO Census 2017 AWARDS 2017 Managem its 2017 Awards mice, Bestrating agency wiiWeo magement Awa
Slide 40: Appendix
6 Appendix
Slide 41: Corporate Finance: Revenue and Issuance
Corporate Finance: Revenue and Issuance Revenue1: Mix by Quarter Issuance3: Mix by Quarter $400 $1,000 $350 $108 $300 $104 $92 $85 $800 $84 $78 $ Millions $ Billions $69 $60 $71 $250 $73 $58 $39 $44 $41 $63 $63 $64 $600 $25 $206 $67 $51 $64 $59 $200 $59 $48 $160 $30 $41 $8 $99 $120 $138 $165 $79 $81
Slide 42: Corporate Finance: Revenue Diversification
Corporate Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 27% 30% 31% 32% 26% 26% 27% 30% 27% 27% 80% 80% 62% 62% 68% 68% 62% 67% 63% 65% 65% 69% 60% 60% 40% 40% 73% 74% 74% 73% 73% 73% 70% 69% 68% 70% 20% 38% 38% 38%
Slide 43: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $1 $140 $1 $1 $1 $300 $120 $1 $50 $1 $42 $43 $250 $100 $0 $46 $48 $30 $0 $42 $ Millions $1 $29 $ Billions $27 $200 $32 $41 $36 $80 $22 $56 $42 $46 $12 $24 $26 $26 $40 $33 $16 $14 $60 $33 $33 $30 $38 $150 $33
Slide 44: Structured Finance: Revenue Diversification
Structured Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 36% 34% 30% 35% 36% 80% 80% 40% 38% 38% 43% 37% 64% 66% 69% 67% 65% 68% 70% 69% 65% 71% 60% 60% 40% 40% 64% 66% 70% 65% 64% 60% 62% 62% 57% 63% 20% 36% 34% 35
Slide 45: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter $140 $500 $3 $3 $120 $3 $45 $3 $4 $6 $39 $3 $5 $6 $400 $ Millions $100 $3 $26 $3 $ Billions $3 $6 $5 $30 $4 $4 $25 $28 $29 $80 $4 $4 $23 $24 $300 $38 $47 $26 $39 $30 $24 $23 $49 $19 $60 $200 $419 $409 $36
Slide 46: 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% 45% 43% 40% 43% 43% 42% 80% 52% 57% 52% 55% 56% 65% 65% 63% 63% 60% 60% 60% 40% 40% 58% 60% 57% 57% 55% 57% 60% 57% 57% 58% 48% 43% 48
Slide 47: 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 $0 $ Millions $100 $66 $ Billions $0 $150 $72 $0 $57 $0 $80 $57 $45 $60 $50 $68 $49 $45 $51 $59 $75 $37 $46 $57 $100 $26 $60 $54 $40 $114 $127 $50 $94 $105 $
Slide 48: Public, Project and Infrastructure: Revenue Diversification
Public, Project and Infrastructure: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 37% 36% 35% 32% 35% 80% 80% 40% 42% 40% 40% 42% 63% 63% 63% 58% 62% 62% 57% 65% 67% 64% 60% 60% 40% 40% 63% 64% 65% 68% 65% 60% 58% 60% 60% 58
Slide 49: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview $500 Revenue1: Mix by Quarter $1,600 Revenue1: Mix by Year $450 $40 $1,400 $149 $400 $38 $ Millions $1,200 $ Millions $350 $38 $147 $37 $143 $100 Professional Services $150 $449 $300 $36 $36 $1,000 $168 $37 $38 $36 $113 Enterprise Risk Solutions $119 $419 $250 $
Slide 50: Revenue is Diversified by Business, Geography and Type
Revenue is Diversified by Business, Geography and Type TTM 1Q18 Revenue by Business TTM 1Q18 Revenue by Geography MIS MA U.S. Non-U.S. Public, Project & MIS Other Infrastructure 1% Asia-Pacific Americas 10% Research, 11% 6% Financial Institutions Data & 10% Analytics 21% Structured EMEA Finance Ente
Slide 51: Moody's Corporate Speculative Grade Credit Cycle
Moody’s Corporate Speculative Grade Credit Cycle Gauge North America Europe Long- Long- Latest 1-Year Term Record Latest 1-Year Term Record 1 2 Metric Ago Average Worst Metric Ago Average Worst Liquidity Stress Index 2.8% 5.3% 6.6% 20.8% 6.5% 9.9% 11.6% 18.5% B3-Neg / Lower 190 243 195 291 40 57 41
Slide 52: 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 53: Corporate Social Responsibility: Opening the Door to a Better Future
Corporate Social Responsibility: Opening the Door to a Better Future Three Focus Areas, All Supported by Our Colleagues Empowering people with Activating an Environmentally Helping Young People Reach financial knowledge Sustainable Future Their Potential Changing the lives of people all over Develop
Slide 54: Reconciliation of Adjusted Financial Measures to GAAP
Reconciliation of Adjusted Financial Measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation1 (in $ millions) 2013 2014 2015 2016 2017 TTM 1Q18 Operating Income $1,248.0 $1,449.8 $1,490.7 $650.9 $1,820.8 $1,864.9 Operating Margin 42.0% 43.5% 42.8% 18.1% 43.3% 42.8% Ad
Slide 55: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Diluted EPS Reconciliation 2013 2014 2015 2016 2017 2018F1 Diluted EPS - GAAP $3.60 $4.61 $4.63 $1.36 $5.15 $7.20 - $7.40 Legacy Tax (0.09) (0.03) (0.03) - - - Impact of Litigation Settlement 0.14 - - $3.59 - - ICRA Ga
Slide 56: Investor Relations
Investor Relations ir.moodys.com ir@moodys.com moodys.com
Slide 57: May 10, 2018
© 2018 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