Moody's Corporation · NYSE:MCO
Moody's — Q1 2019 Earnings Presentation
63 slides from Moody's's earnings presentation, May 8, 2019
Slide 1: 1Q 2019 Investor Presentation
1Q 2019 Investor Presentation May 8, 2019
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. Moody’s Overview 2. Financial Overview 3. Capital Markets Overview 4. Moody’s Investors Service (MIS) 5. Moody’s Analytics (MA) 6. Appendix May 8, 2019 3
Slide 4: Moody's Overview
1 Moody’s Overview
Slide 5: 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 Leading global provider of Independent provider of credit rating opinions, Provides financial credit rating opinions and insight and tools for intelligence and analytical related information for over
Slide 6: Moody's Strategic Priorities
Moody’s Strategic Priorities Credit 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 Enhance technology infrastructure to enable automation, innovation and efficiency
Slide 7: Why Invest in Moody's?
Why Invest in Moody’s? We strive to be the world’s We have had strong most respected authority revenue and earnings serving risk-sensitive growth, as well as cash financial markets flow conversion We are committed to We will selectively returning capital to invest in strategic our shareholders growt
Slide 8: Globally and locally acknowledged for award-winning tools
Globally and locally acknowledged for award-winning tools to measure and manage risk. Moody's Investors Service Moody's Analytics Best Credit Rating Agency Mexico: 2018 Market Leadership Award, Islamic Finance Intelligence & Ratings: 2016-2018 Best Islamic Finance Rating Agency: 2015 oo, ‘gPS8Er, 41
Slide 9: ESG Drives Sustained Corporate Value
ESG Drives Sustained Corporate Value Introduced ESG Disclosures in our Public Filings E N V I R O N M E N TA L GOVERNANCE » Measurement of carbon » Professional integrity emissions and identification » Systematic risk management of opportunities to reduce » Diverse Board membership indirect GHG emis
Slide 10: Financial Overview
2 Financial Overview
Slide 11: 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 marke
Slide 12: Financial Performance
Financial Performance Revenue Adjusted Diluted EPS2 $7.85 to $8.10 Mid-single-digit $8.00 % growth $5.0 $4.4 $7.00 $4.2 $4.0 $3.3 $3.5 $3.6 $6.00 $1.4 $1.7 $3.0 $ Billions $1.1 $1.2 $1.2 $5.00 $7.39 $2.0 $4.00 $6.07 $2.3 $2.4 $2.8 $2.7 $4.71 $4.94 $1.0 $2.3 $3.00 $4.31 $0.0 $2.00 1 1 2014 2015 2016
Slide 13: Moody's Corporation Financial Profile
Moody’s Corporation Financial Profile 1Q 2019 TTM Revenue: $4.5 billion MIS Other 1% Recurring Transaction U.S. Non-U.S. PPIF RD&A 9% 43% 47% 26% MIS FIG 10% MA ERS SFG 11% 10% 57% 53% CFG PS 30% 3% Full Year 2019 Revenue Guidance as of April 24, 20191 Revenue • increase in the mid-single-digit % ra
Slide 14: Disciplined Approach to Capital Allocation
Disciplined Approach to Capital Allocation… Investing in Growth Opportunities Return of Capital Reinvestment Acquisitions Dividends Share Repurchase Invest in existing Evaluate carefully to Grow dividend in line Follow reinvestment, businesses to make sure aligned with earnings; target dividends and
Slide 15: ...and Capital Management
…and Capital Management ($ Billions) TTM 1Q192 $6.0 2.5x Adjusted Operating Income3 $2.1 Interest Expense $0.2 Capital Expenditures $0.1 $5.0 2.0x Free Cash Flow3 $1.3 2.0x Debt $5.5 Cash, Cash Equivalents & ST Investments $1.3 $4.0 Net Debt $4.2 1.5x $ Billions Net Debt/Adjusted Operating Income1 2
Slide 16: 2019 Guidance Drivers
2019 Guidance Drivers1 MIS MA » Stable economic fundamentals and » Product enhancements driving GDP growth in developed regions customer upgrades and new sales in RD&A, supporting growth across » Market disruption to start the year, multiple business lines followed by spread tightening and issuance
Slide 17: Capital Markets Overview
3 Capital Markets Overview
Slide 18: Six Main Themes Will Shape Global Credit in 2019 and Beyond
Six Main Themes Will Shape Global Credit in 2019 and Beyond FINANCIAL STABILITY Financial stability, a fundamental building block for the global economy and markets. GROWTH Economic growth, a core POLITICAL RISKS Heightened political risks will pose underpinning of credit the greatest source of unce
Slide 19: Debt Leverage and Interest Coverage Remain Stable
Debt Leverage and Interest Coverage Remain Stable in North America and Europe Credit Metrics: North American Speculative Grade Companies 6.0x 5.1x 5.2x 5.4x 5.2x 5.2x 5.0x Interest Coverage 4.6x 4.6x 4.7x 4.5x 4.6x 4.8x 5.0x 4.3x 4.4x 4.0x 3.0x 2.9x 3.0x 3.1x 3.0x 3.0x 3.0x 2.9x 3.0x 3.0x 3.1x 3.0x
Slide 20: Global Default Rates Remain Under Historic Average
Global Default Rates Remain Under Historic Average; Continue to Monitor Covenant Quality Default Rates for Speculative- Speculative-Grade Covenant Grade Corporate Rated Issuance1 Quality Indicators Global U.S. Europe U.S. Loans U.S. Bonds European Bonds 16.0% 5.00 Weakening 14.0% 4.50 4.45x 12.0% 10
Slide 21: Non-Financial Corporate Issuance: Shift Towards Fixed Rate
Non-Financial Corporate Issuance: Market Preference Shifts Towards Fixed Rate Instruments 2 Issuance ($ Billions)1 Yield % U.S. IG Bonds U.S. HY Bonds U.S. Bank Loans 00 Issuance 8.0% 8.0% 200,000 200 8.0% 19% Y/Y 00 $173 180,000 $173 $154 $160 00 7.0% 160,000 7.0% 7.0% $145 150 00 140,000 Issuance
Slide 22: North America and EMEA Non-Financial Corporates Refunding Needs
North America and EMEA Non-Financial Corporates Have Significant Refunding Needs1 Debt Maturities: North America Moody’s-Rated Corporate Bonds and Loans $700 $624 » Five-year debt maturities for $566 $600 U.S. non-financial $444 $500 266 investment-grade $ Billions $341 189 $400 $221 97 47 corporate
Slide 23: Refunding Needs Have Grown Strongly Over Time
Refunding Needs Have Grown Strongly Over Time Next Four Years U.S. and EMEA Total Refunding Needs1 as of: $3,100 $2,948 $2,800 $2,500 $2,200 $ Billions $1,972 $1,900 $1,600 $1,300 $1,000 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 1. Amount reflects total maturities identified below. Sou
Slide 24: Debt Refinancing and M&A Most Frequent 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% 14% 10% 18% 17% 18% 20% 16% 17% 11% 22% 17% 5% 6% 7% 22% 5% 6% 7% 8% 8% 8% 7% 19% 25% 39% 37% 31% 30%
Slide 25: Disintermediation of Credit is an Ongoing Trend
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 50% $6,000 $ Billions € Billions €4
Slide 26: New Rating Mandates Provide Recurring Revenue Growth
New Rating Mandates Provide Recurring Revenue1 Growth Global New Rating Mandates2 EMEA United States Rest of World 1,200 1,044 1,046 990 ~900 # of New Mandates 771 800 738 400 0 2014 2015 2016 2017 2018 2019F 3 » Expect ~900 new mandates in 20193 » MIS recurring revenue growth of 4% for the trailing
Slide 27: Moody's Investors Service
4 Moody’s Investors Service
Slide 28: Moody's Investors Service Financial Profile
Moody’s Investors Service Financial Profile 1Q 2019 TTM Revenue: $2.7 billion Recurring Transaction U.S. Non-U.S. » 32% recurring revenue MIS Other 1% Public, 40% Corporate Project, & 61% Finance Infrastructure » 39% recurring revenue 51% Finance 15% Financial 60% Institutions 39% 16% » 58% recurrin
Slide 29: The Benefits of a Moody's Rating
The Benefits of a Moody’s Rating WIDER ACCESS TO CAPITAL INCREASED MARKET STABILITY Investors seek our opinions and TANGIBLE particularly value the TRANSPARENCY AND FINANCING BENEFITS knowledge of our CREDIT COMPARISON analysts and the depth of our research RESPONSIVE TO INVESTOR PLANNING & BUDGETIN
Slide 30: 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 31: Broad Coverage Serves Global Needs
Broad Coverage Serves Global Needs ~15 Years Lead/Senior Analyst tenure #1 U.S. Credit Americas EMEA APAC Rating Agency 2012-20181 » 30,400+ rated » 4,700+ rated » 2,100+ rated companies and companies and companies and structured deals structured deals structured deals » $34+ trillion total » $21+ t
Slide 32: Continue to Invest in Key International Markets
Continue to Invest in Key International Markets Revenue in Emerging Markets Asia Pacific » China: - Successful joint venture with CCXI, leading $313M domestic rating agency - Cross border market rated via MIS Hong Kong office » South Korea: Full ownership of KIS subsidiary, a leading provider of dom
Slide 33: Moody's Investors Service ESG Initiatives
Moody’s Investors Service ESG Initiatives Total Combined Three Primary Objectives Annual Moody’s Assessments Assessments 3 Analysis 210 205 200 195 190 185 ~ 200 180 175 170 » 2019 global green bond issuance forecast of $200 25 165 160 155 21 150 145 140 billion, a projected increase of 20% over 201
Slide 34: Acquired a Majority Stake in Vigeo Eiris
Acquired a Majority Stake in Vigeo Eiris, a Global Leader in ESG Research, Data and Assessments E S G D ATA & Collects ESG data and scores on RESEARCH over 4,500+ companies and provides 150+ Green Bond Assessments ESG INDICES Partners to provide ESG indices supporting index funds, ETFs and structure
Slide 35: Moody's Analytics
5 Moody’s Analytics
Slide 36: Moody's Analytics Financial Profile
Moody’s Analytics Financial Profile 1Q 2019 TTM Revenue: $1.8 billion » 99% recurring revenue Recurring Transaction U.S. Non-U.S. » ~ 96% retention rate1 Research, Data and Analytics 16% 65% 58% » 78% recurring revenue Enterprise Risk Solutions 84% 26% 42% Professional Services 9% » Combination of o
Slide 37: Moody's Analytics has Several Platforms for Growth
Moody’s Analytics has Several Platforms for Growth Revenue More Than Tripled Since Inception Moody’s Analytics 2018 Revenue: $1,730m $2,000 2008 – 2018 CAGR: +12% (~55% organic) $1,800 Professional Services $1,600 2018 Revenue: $159m 2008 – 2018 CAGR: +30% $1,400 (~18% organic) $1,200 $ Millions Ent
Slide 38: RD&A: Subscription Growth Drivers
RD&A: Subscription Growth Driven by Retention, Upgrades and Pricing & New Sales Subscription Sales Growth (constant currency) Full Year 2018 4.8% Expansion of ratings coverage 95.8% 9.1% 109.7% Production of insightful credit Retained Base Upgrades and Price New Sales Business Base analysis New cust
Slide 39: ERS: Driving Growth via Recurring Revenue
ERS: Driving Growth via Recurring Revenue ERS Revenue1: Recurring vs. Non-recurring 100% Recurring Revenue CAGR2 = 16% $400 78% 80% 61% % Recurring $300 $ Millions 60% $200 40% $100 20% $0 3 0% 2015 2016 2017 2018 TTM 1Q19 One-Time Recurring % Recurring » ERS recurring revenue has grown by over $100
Slide 40: Global Regulatory and Accounting Drivers for the ERS Business
Global Regulatory and Accounting Drivers for the ERS Business EMEA Revised Concentration Updated & Large Exposures Leverage Ratio CVA review Restrictions use Revised SA internal models for operational risk CR RWA Revised SA Revised minimum approach CR capital requirements Revised G-SIB Restrictions
Slide 41: Bureau van Dijk Delivers a Market Leading Global Dataset
RD&A Line of Business Bureau van Dijk Collects and Enhances Information to Deliver a Market Leading Global Dataset Diversified IP Network May 20171 Today2 » Generated $327M of revenue 220 Million 310 Million in 2018 at a 45% direct Private Companies Private Companies adjusted operating margin3 65 Th
Slide 42: Reis Accelerates MA's Entry into CRE Data & Analytics
RD&A Line of Business Reis Accelerates MA’s Entry into CRE Data & Analytics Developers Investors Brokers Service Providers Lenders Banks, insurers and asset Complex analysis, including Highly fragmented managers have substantial tenant credit quality, long-term ecosystem of information exposures to
Slide 43: Appendix
6 Appendix
Slide 44: Corporate Finance: Revenue and Issuance
Corporate Finance: Revenue and Issuance Revenue1: Mix by Quarter Issuance3: Mix by Quarter $400 $800 $84 $350 $110 $121 $60 $92 $85 $73 $72 $300 $104 $78 $44 $65 $26 $600 $ Millions $ Billions $78 $206 $250 $58 $70 $57 $160 $59 $165 $210 $39 $63 $63 $59 $138 $100 $64 $64 $19 $134 $200 $39 $123 $28 $
Slide 45: Corporate Finance: Revenue Diversification
Corporate Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 30% 31% 32% 27% 27% 27% 31% 30% 80% 80% 35% 38% 62% 68% 68% 65% 66% 65% 63% 64% 65% 68% 60% 60% 40% 40% 73% 73% 73% 70% 69% 68% 65% 69% 70% 62% 20% 38% 35% 34%
Slide 46: Structured Finance: Revenue and Issuance
Structured Finance: Revenue and Issuance Issuance2: Mix by Quarter Revenue1: Mix by Quarter $160 $1 $140 $300 $1 $1 $120 $1 $50 $0 $1 $1 $250 $48 $49 $100 $46 $64 $ Millions $0 $42 $43 $55 $48 $1 $ Billions $200 $32 $41 $36 $36 $27 $51 $51 $80 $35 $26 $42 $26 $27 $46 $14 $26 $38 $21 $18 $150 $34 $73
Slide 47: Structured Finance: Revenue Diversification
Structured Finance: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 38% 36% 38% 35% 37% 33% 36% 37% 36% 80% 80% 43% 66% 67% 63% 63% 62% 63% 63% 62% 69% 69% 60% 60% 40% 40% 62% 64% 62% 65% 63% 67% 64% 63% 64% 57% 20% 34% 37% 37
Slide 48: Financial Institutions: Revenue and Issuance
Financial Institutions: Revenue and Issuance Revenue1: Mix by Quarter Issuance2: Mix by Quarter $140 $3 $500 $3 $3 $3 $29 $120 $3 $3 $45 $3 $4 $6 $7 $6 $4 $26 $5 $6 $400 $24 $ Millions $100 $ Billions $6 $5 $30 $33 $3 $29 $20 $25 $28 $38 $80 $23 $24 $6 $49 $300 $39 $15 $49 $60 $419 $200 $411 $4 $396
Slide 49: Financial Institutions: Revenue Diversification
Financial Institutions: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 80% 40% 43% 43% 43% 42% 37% 40% 80% 45% 50% 44% 55% 56% 53% 53% 58% 59% 65% 63% 63% 72% 60% 60% 40% 40% 60% 57% 57% 57% 58% 63% 60% 55% 50% 56% 45% 44% 47
Slide 50: 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 $ Millions $100 $0 $0 $66 $ Billions $57 $0 $0 $0 $150 $80 $45 $51 $60 $56 $68 $46 $54 $47 $57 $75 $67 $50 $100 $57 $60 $39 $54 $57 $40 $127 $62 $50 $95 $53 $53
Slide 51: Public, Project and Infrastructure: Revenue Diversification
Public, Project and Infrastructure: Revenue Diversification Revenue1: Distribution by Geography Revenue1: Distribution by Recurring vs. Transaction 100% 100% 80% 80% 40% 37% 35% 36% 39% 39% 41% 42% 42% 42% 63% 62% 57% 57% 60% 60% 59% 65% 67% 65% 60% 60% 40% 40% 60% 63% 65% 64% 61% 61% 59% 58% 58% 58
Slide 52: Moody's Analytics: Financial Overview
Moody’s Analytics: Financial Overview $500 Revenue1: Mix by Quarter $2,000 Revenue1: Mix by Year $44 $42 $40 $40 $400 $38 $37 $1,600 $159 $ Millions $122 $ Millions $38 $124 $143 $110 $115 $149 $451 $300 $36 $102 Professional Services $1,200 $36 $113 $147 Enterprise Risk Solutions $150 $449 $97 $168
Slide 53: Moody's Revenue and Interest Rates Not Strongly Correlated
Historically, Moody’s Revenue and Interest Rates Have Not Been Strongly Correlated MCO Revenue and Interest Rates 1 MIS Revenue (L) MA Revenue (L) MCO Revenue (L) 10-yr U.S. Treasury Yield (R) $5,000 9% $4,500 7.8% 8% +120bps $4,000 7% 6.5% $ Millions +100bps $3,500 6% $3,000 5.8% 5% $2,500 4.7% +20
Slide 54: Baa-Credit Concentration Grows, with Mitigating Factors
Baa-Credit Concentration Grows, with Mitigating Factors Rated Debt of Baa U.S. Nonfinancial Companies Has Almost 2018 Baa-rated Debt Accounted for More than One-third of The Tripled Since 2007 Total Rated Debt of U.S. Nonfinancial Companies 3.0x 40% $2,500 3.0x 2.4x $2,040 $2,000 30% $ Billions 2.0x
Slide 55: Business Model Resilient to Issuance Headwinds
Business Model Resilient to Issuance Headwinds $1,500.0 $1,497.0 $1,494.0 MCO Revenue Global Debt Issuance1 MIS Revenue MA Revenue $1,491.0 $1,488.0 $1,485.0 $1,482.0 $1,479.0 $1,476.0 $1,473.0 $1,470.0 $1,467.0 $1,464.0 $1,461.0 $1,458.0 $1,455.0 $1,452.0 $1,449.0 $1,446.0 $1,443.0 $1,440.0 $1,437.
Slide 56: Technology: Innovating with Purpose
Technology: Innovating with Purpose Next Gen Tech is a Defining Element of our Culture, Setting Stage for Growth » Incorporating alternative » NLP based early warning and data sources to augment monitoring tools for MIS SME credit scoring accuracy analysts and MA customers » QuantCube pilot program
Slide 57: 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 Israel Sweden Italy Switzerland Lithuania UAE
Slide 58: CSR: Igniting Global Opportunity
CSR: Igniting Global Opportunity Newly Published 2018 CSR Report Details Accomplishments Empowering people with financial knowledge Exposing the financial roots of modern slavery In 2018, Bureau van Dijk, a Moody’s Analytics company, lent its Orbis database and technology to Liberty Shared, a nonpro
Slide 59: Reconciliation of Adjusted Financial Measures to GAAP
Reconciliation of Adjusted Financial Measures to GAAP Adjusted Operating Income and Adjusted Operating Margin Reconciliation1 (in $ millions) 2014 2015 2016 2017 2018 TTM 1Q19 Operating Income $1,449.8 $1,490.7 $650.9 $1,820.8 $1,868.2 $1,839.1 Operating Margin 43.5% 42.8% 18.1% 43.3% 42.1% 41.3% Ad
Slide 60: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Operating Margin Guidance Reconciliation 2019F1 Projected Operating Margin - GAAP Approximately 43% Projected impact from Depreciation & Amortization Approximately 4% Restructuring Approximately 1% Projected impact fro
Slide 61: Reconciliation of Adjusted Financial Measures to GAAP (cont.)
Reconciliation of Adjusted Financial Measures to GAAP (cont.) Moody's Corporation Diluted EPS Reconciliation 2014 2015 2016 2017 2018 2019F1 Diluted EPS - GAAP $4.61 $4.63 $1.36 $5.15 $6.74 $7.30 - $7.55 Legacy Tax (0.03) (0.03) - - - - Impact of Litigation Settlement - - $3.59 - - - ICRA Gain (0.37
Slide 62: Investor Relations
Investor Relations ir.moodys.com [email protected] moodys.com
Slide 63: May 8, 2019
© 2019 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