Moody’s Corporation Reports Results for Fourth Quarter and Full Year 2018; Sets Outlook for Full Year 2019

  • 4Q18 revenue of $1.1 billion down 9% from 4Q17; FY 2018 revenue of
    $4.4 billion up 6% from FY 2017
  • 4Q18 diluted EPS of $1.29 up from $0.13 in 4Q17; 4Q18 adjusted diluted
    EPS of $1.63 up 8% from $1.511
  • FY 2018 diluted EPS of $6.74 up 31% from FY 2017; FY 2018 adjusted
    diluted EPS of $7.39 up 22% from FY 20171
  • Announcing a quarterly dividend of $0.50 per share, up 14% from
    Moody’s prior quarterly dividend of $0.44 per share, and a $500
    million accelerated share repurchase program
  • Projected FY 2019 diluted EPS of $7.30 to $7.55; adjusted diluted EPS
    of $7.85 to $8.10

NEW YORK–(BUSINESS WIRE)–Moody’s Corporation (NYSE:MCO) today announced results for the fourth
quarter and full year 2018, as well as provided its outlook for full
year 2019.

Moody’s Corporation achieved strong results for full year 2018, driven
by robust performance at Moody’s Analytics, prudent expense management
and the benefit of a lower effective tax rate, despite weaker than
expected global debt issuance in the fourth quarter,” said Raymond
McDaniel, President and Chief Executive Officer of Moody’s. “For 2019,
we remain focused on strong execution across the business and project
revenue growth in the mid-single-digit percent range, diluted EPS in the
range of $7.30 to $7.55 and adjusted diluted EPS in the range of $7.85
to $8.10, with strength in Moody’s Analytics offsetting expectations for
flat to down issuance in global debt.”

FOURTH QUARTER HIGHLIGHTS

Moody’s Corporation reported revenue of $1.1 billion for the three
months ended December 31, 2018, down 9% from the fourth quarter of 2017.

Operating expenses totaled $683.5 million, down 2% from the prior-year
period. Operating income was $376.6 million, down 19% from the fourth
quarter of 2017. Adjusted operating income, which excluded depreciation
and amortization, a restructuring charge, and non-recurring expenses
associated with the Bureau van Dijk acquisition (“Acquisition-Related
Expenses”) was $477.8 million, down 8% from the prior-year period.
Operating margin for the fourth quarter was 35.5% and the adjusted
operating margin was 45.1%.

Diluted EPS of $1.29 was up from $0.13 in the fourth quarter of 2017.
Adjusted diluted EPS of $1.63 was up 8%. Fourth quarter 2018 adjusted
diluted EPS primarily excluded $0.19 per share related to a
restructuring charge. Fourth quarter 2017 adjusted diluted EPS primarily
excluded a $1.26 per share net charge due to the impacts of tax reform
in the U.S. and Europe. Additional adjustments for fourth quarter 2018
and fourth quarter 2017 are included in Table 12 at the end of this
press release.

MCO FOURTH QUARTER REVENUE DOWN 9%

Moody’s Corporation reported revenue of $1.1 billion for the three
months ended December 31, 2018, down 9% from the prior-year period.

U.S. revenue was $546.9 million, down 11%, and non-U.S. revenue was
$513.2 million, down 7%. Revenue generated outside the U.S. constituted
48% of total revenue, up from 47% in the prior-year period. Foreign
currency translation unfavorably impacted Moody’s revenue by 1%.

Moody’s Investors Service (MIS) Fourth Quarter
Revenue Down 18%

Revenue for MIS for the fourth quarter of 2018 was $595.4 million, down
18% from the prior-year period as market conditions increasingly
suppressed global debt issuance activity. U.S. revenue was $349.9
million, down 21%, and non-U.S. revenue was $245.5 million, down 14%.
Foreign currency translation unfavorably impacted MIS revenue by 1%.

Corporate finance revenue was $282.7 million, down 15% from the
prior-year period. This result reflected a decline in issuance activity
across all asset classes, with particular weakness in U.S. and EMEA
speculative grade bonds. U.S. and non-U.S. corporate finance revenues
were down 15% and 16%, respectively.

Structured finance revenue was $129.8 million, down 12% from the
prior-year period. This result primarily reflected lower U.S. commercial
real estate issuance. U.S. structured finance revenue was down 20%,
while non-U.S. structured finance revenue was up 6%.

Financial institutions revenue was $87.3 million, down 27% from the
prior-year period. This result was driven primarily by a decrease in
global banking and U.S. insurance issuance. Revenue in the prior-year
period was elevated due to issuance from infrequent banking issuers.
U.S. and non-U.S. financial institutions revenues were down 38% and 18%,
respectively.

Public, project and infrastructure finance revenue was $90.8 million,
down 24% from the prior-year period. This result was primarily driven by
reduced U.S. public finance and U.S. and EMEA infrastructure finance
issuance. U.S. and non-U.S. public, project and infrastructure finance
revenues were down 25% and 21%, respectively.

Moody’s Analytics (MA) Fourth Quarter Revenue
Up 5%

Revenue for MA for the fourth quarter of 2018 was $464.7 million, up 5%
from the fourth quarter of 2017. U.S. revenue was $197.0 million, up
13%, and non-U.S. revenue was $267.7 million, approximately flat to the
prior-year period. Foreign currency translation unfavorably impacted MA
revenue by 2%. Organic MA revenue for the fourth quarter of 2018, which
excluded the recent acquisitions of Reis and Omega Performance, was
$453.4 million, up 3% from the prior-year period.

Research, data and analytics (RD&A) revenue was $302.4 million, up 17%
from the prior-year period. U.S. and non-U.S. RD&A revenues were up 17%
and 18%, respectively. Organic RD&A revenue, which excluded Reis
revenue, was $294.1 million, up 14%, driven by results at Bureau van
Dijk and strength in sales of credit research and ratings data feeds.

Enterprise risk solutions (ERS) revenue was $118.8 million, down 17%
from the prior-year period. As expected, ERS results reflected the shift
in product mix away from one-time software licenses and services
projects to subscriptions sold under a software-as-a-service model. The
decline in license and services revenues outpaced the growth in revenue
from subscriptions that will be recognized ratably over time. U.S. and
non-U.S. ERS revenues were down 1% and 24%, respectively.

Professional services (PS) revenue was $43.5 million, up 9% from the
prior-year period. U.S. professional services revenue was up 31%, while
non-U.S. revenue was down 3%. Organic professional services revenue,
which excluded Omega Performance revenue, was $40.5 million, up 1% from
the prior-year period.

FOURTH QUARTER OPERATING EXPENSES AND INCOME

Fourth quarter 2018 operating expenses for Moody’s Corporation totaled
$683.5 million, down 2% from the prior-year period. This result
primarily reflected lower accruals for 2018 incentive compensation,
partially offset by a restructuring charge of $48.7 million. Foreign
currency translation favorably impacted operating expenses by 2%.

Operating income of $376.6 million, which included the restructuring
charge, was down 19% from the fourth quarter of 2017. Adjusted operating
income of $477.8 million was down 8% from the prior-year period. Foreign
currency translation unfavorably impacted operating income and adjusted
operating income each by 1%. Moody’s operating margin in the fourth
quarter of 2018 was 35.5% and its adjusted operating margin was 45.1%.

FULL YEAR REVENUE UP 6%

Moody’s Corporation reported record revenue of $4.4 billion for full
year 2018, up 6% from 2017. U.S. revenue was $2.3 billion, down 1%,
while non-U.S. revenue was $2.1 billion, up 14% from the prior-year
period. Foreign currency translation favorably impacted Moody’s revenue
by 1%.

MIS revenue totaled $2.7 billion for full year 2018, down 2% from the
prior-year period compared to a 10% decline in global debt issuance.
U.S. revenue was $1.6 billion, down 5%. Non-U.S. revenue was $1.1
billion, up 2%, and represented 40% of MIS revenue, up from 39% in the
prior-year period. Foreign currency translation favorably impacted MIS
revenue by 1%.

MA revenue totaled $1.7 billion for full year 2018, up 21% from the
prior-year period. U.S. revenue was $710.4 million, up 10%. Non-U.S.
revenue was $1.0 billion, up 30%, and represented 59% of MA revenue, up
from 55% in 2017. There was no material impact from foreign currency
translation on MA revenue. Organic MA revenue for full year 2018, which
excluded revenue from Reis and Omega Performance and included Bureau van
Dijk revenue as of August 11, 2018, was $1.5 billion, up 7% from the
prior-year period.

FULL YEAR OPERATING EXPENSES AND INCOME

Full year 2018 operating expenses for Moody’s Corporation totaled $2.6
billion, up 8% from the prior-year period. This result was driven by the
inclusion of Bureau van Dijk operating expenses, a restructuring charge
and incremental compensation related to salary adjustments and hiring,
partially offset by lower accruals for 2018 incentive compensation
awards. There was no material impact from foreign currency translation.

Operating income was $1.9 billion, up 3% from full year 2017. Adjusted
operating income was $2.1 billion, up 6% from the prior-year period.
Foreign currency translation favorably impacted operating income and
adjusted operating income each by 1%. Moody’s operating margin for full
year 2018 was 42.1% and its adjusted operating margin was 47.7%.

The effective tax rate for full year 2018 was 21.0%, down from 43.6% in
the prior-year period. The decline in the tax rate primarily reflected a
lower U.S. statutory tax rate in 2018 and the impact of U.S. tax reform
in 2017.

Full year 2018 diluted EPS of $6.74 was up 31% compared to full year
2017. Adjusted diluted EPS of $7.39 was up 22% from full year 2017. Full
year 2018 adjusted diluted EPS primarily excluded $0.43 per share
related to the amortization of all acquisition-related intangible assets
as well as Acquisition-Related Expenses. Full year 2017 adjusted diluted
EPS primarily excluded a $1.27 per share net charge related to the
impacts of tax reform in the U.S. and Europe. Additional adjustments for
full year 2018 and full year 2017 are included in Table 12 at the end of
this press release. Both full year 2018 diluted EPS and adjusted diluted
EPS included a $0.20 per share tax benefit related to the adoption of
accounting standard update ASU 2016-09, “Improvements to Employee
Share-Based Payment Accounting.”

2018 CAPITAL ALLOCATION AND LIQUIDITY

Approximately $540 Million Returned to
Shareholders in 2018

During the fourth quarter of 2018, Moody’s repurchased 0.3 million
shares at a total cost of $55.4 million, or an average cost of $153.20
per share, and issued a net 57 thousand shares as part of its employee
stock-based compensation plans. The net amount includes shares withheld
for employee payroll taxes. Moody’s returned $84.3 million to its
shareholders via dividend payments during the fourth quarter of 2018.

For full year 2018, Moody’s repurchased 1.2 million shares at a total
cost of $202.6 million, or an average cost of $163.93 per share, and
issued a net 1.5 million shares as part of its employee stock-based
compensation plans. Moody’s also returned $337.2 million to its
shareholders via dividend payments during 2018.

Today, Moody’s is announcing a quarterly dividend of $0.50 per share of
Moody’s common stock, a 14% increase from the prior quarterly dividend
of $0.44 per share. This dividend will be payable on March 18, 2019 to
stockholders of record at the close of business on February 25, 2019.

In addition, Moody’s is announcing a $500 million accelerated share
repurchase program expected to be complete during the second quarter of
2019.

Outstanding shares as of December 31, 2018 totaled 191.3 million,
approximately flat to December 31, 2017. As of December 31, 2018,
Moody’s had approximately $1.3 billion of share repurchase authority
remaining.

Sources of Capital and Cash Flow Generation

At year-end, Moody’s had $5.7 billion of outstanding debt and
approximately $1.0 billion of additional borrowing capacity under its
revolving credit facility. Total cash, cash equivalents and short-term
investments at year-end were $1.8 billion, up from $1.2 billion on
December 31, 2017. On January 3, 2019, Moody’s repaid its $450 million
2014 Senior Notes with proceeds from its December 2018 bond offering.
After this repayment, Moody’s had $5.3 billion of outstanding debt and
total cash, cash equivalents and short-term investments of $1.4 billion.

Cash flow from operations in 2018 was $1.5 billion, an increase from
$754.6 million in 2017. Free cash flow in 2018 was $1.4 billion, an
increase from $664.0 million in 2017. These increases in cash flow were
primarily due to payments the Company made in the first quarter of 2017
pursuant to its 2016 settlement with the Department of Justice and
various states attorneys general.

ASSUMPTIONS AND OUTLOOK FOR FULL YEAR 2019

Moody’s outlook for 2019 is based on assumptions about many geopolitical
conditions and macroeconomic and capital market factors, including
interest rates, foreign currency exchange rates, corporate profitability
and business investment spending, mergers and acquisitions, consumer
borrowing and securitization, and the level of debt capital markets
activity. These assumptions are subject to uncertainty, and results for
the year could differ materially from our current outlook. Our guidance
assumes foreign currency translation at end-of-quarter exchange rates.
Specifically, our forecast reflects exchange rates for the British pound
(£) of $1.27 to £1 and for the euro (€) of $1.14 to €1.

Full year 2019 diluted EPS is expected to be $7.30 to $7.55. The Company
expects full year 2019 adjusted diluted EPS to be $7.85 to $8.10.

Please see Table 13 – 2019 Outlook for a complete view of Moody’s 2019
guidance.

CONFERENCE CALL

Moody’s will hold a conference call to discuss fourth quarter and full
year 2018 results as well as its 2019 outlook on February 15, 2019, at
11:30 a.m. Eastern Time (“ET”). Individuals within the U.S. and Canada
can access the call by dialing +1-877-400-0505. Other callers should
dial +1-720-452-9084. Please dial in to the call by 11:20 a.m. ET. The
passcode for the call is 2571998.

The teleconference will also be webcast with an accompanying slide
presentation which can be accessed through Moody’s Investor Relations
website, http://ir.moodys.com
under “Featured & Upcoming Events and Presentations”. The webcast will
be available until 3:30 p.m. ET on March 16, 2019.

A replay of the teleconference will be available from 3:30 p.m. ET,
February 15, 2019 until 3:30 p.m. ET, March 16, 2019. The replay can be
accessed from within the United States and Canada by dialing
+1-888-203-1112. Other callers can access the replay at +1-719-457-0820.
The replay confirmation code is 2571998.

*****

ABOUT MOODY’S CORPORATION

Moody’s is an essential component of the global capital markets,
providing credit ratings, research, tools and analysis that contribute
to transparent and integrated financial markets. Moody’s Corporation
(NYSE: MCO) is the parent company of Moody’s Investors Service, which
provides credit ratings and research covering debt instruments and
securities, and Moody’s Analytics, which offers leading-edge software,
advisory services and research for credit and economic analysis and
financial risk management. The corporation, which reported revenue of
$4.4 billion in 2018, employs approximately 13,100 people worldwide and
maintains a presence in 42 countries. Further information is available
at https://www.moodys.com/.

“Safe Harbor” Statement under the Private
Securities Litigation Reform Act of 1995

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 release are made as of the date hereof (except where noted
otherwise), and the Company undertakes no obligation (nor does it
intend) to publicly supplement, update or revise such statements on a
going-forward basis, whether as a result of subsequent developments,
changed expectations or otherwise. In connection with the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995, the
Company is identifying examples of factors, risks and uncertainties that
could cause actual results to differ, perhaps materially, from those
indicated by these forward-looking statements. Those factors, risks and
uncertainties include, but are not limited to, credit market disruptions
or economic slowdowns, which could affect the volume of debt and other
securities issued in domestic and/or global capital markets; other
matters that could affect the volume of debt and other securities issued
in domestic and/or global capital markets, including regulation, credit
quality concerns, changes in interest rates and other volatility in the
financial markets such as that due to the U.K.’s planned withdrawal from
the EU; the level of merger and acquisition activity in the U.S. and
abroad; the uncertain effectiveness and possible collateral consequences
of U.S. and foreign government actions affecting credit markets,
international trade and economic policy; concerns in the marketplace
affecting our credibility or otherwise affecting market perceptions of
the integrity or utility of independent credit agency ratings; the
introduction of competing products or technologies by other companies;
pricing pressure from competitors and/or customers; the level of success
of new product development and global expansion; the impact of
regulation as an NRSRO, the potential for new U.S., state and local
legislation and regulations, including provisions in the Dodd-Frank Wall
Street Reform and Consumer Protection Act (“Dodd-Frank”) and regulations
resulting from Dodd-Frank; the potential for increased competition and
regulation in the EU and other foreign jurisdictions; exposure to
litigation related to our rating opinions, as well as any other
litigation, government and regulatory proceedings, investigations and
inquires to which the Company may be subject from time to time;
provisions in the Dodd-Frank Act legislation modifying the pleading
standards, and EU regulations modifying the liability standards,
applicable to credit rating agencies in a manner adverse to credit
rating agencies; provisions of EU regulations imposing additional
procedural and substantive requirements on the pricing of services and
the expansion of supervisory remit to include non-EU ratings used for
regulatory purposes; the possible loss of key employees; failures or
malfunctions of our operations and infrastructure; any vulnerabilities
to cyber threats or other cybersecurity concerns; the outcome of any
review by controlling tax authorities of the Company’s global tax
planning initiatives; exposure to potential criminal sanctions or civil
remedies if the Company fails to comply with foreign and U.S. laws and
regulations that are applicable in the jurisdictions in which the
Company operates, including data protection and privacy laws, sanctions
laws, anti-corruption laws, and local laws prohibiting corrupt payments
to government officials; the impact of mergers, acquisitions or other
business combinations and the ability of the Company to successfully
integrate such acquired businesses; currency and foreign exchange
volatility; the level of future cash flows; the levels of capital
investments; and a decline in the demand for credit risk management
tools by financial institutions. These factors, risks and uncertainties
as well as other risks and uncertainties that could cause Moody’s actual
results to differ materially from those contemplated, expressed,
projected, anticipated or implied in the forward-looking statements are
described in greater detail under “Risk Factors” in Part I, Item 1A of
the Company’s annual report on Form 10-K for the year ended December 31,
2017, and in other filings made by the Company from time to time with
the SEC or in materials incorporated herein or therein. Stockholders and
investors are cautioned that the occurrence of any of these factors,
risks and uncertainties may cause the Company’s actual results to differ
materially from those contemplated, expressed, projected, anticipated or
implied in the forward-looking statements, which could have a material
and adverse effect on the Company’s business, results of operations and
financial condition. New factors may emerge from time to time, and it is
not possible for the Company to predict new factors, nor can the Company
assess the potential effect of any new factors on it.

__________________________
1 Refer to tables at the end
of this press release for a reconciliation between all adjusted and
organic measures mentioned throughout this press release and GAAP.

 
 

Table 1 – Consolidated Statements of Operations (Unaudited)

       
Three Months Ended Year Ended
December 31, December 31,
 
2018 2017 2018 2017
Amounts in millions, except per share amounts                        
 
Revenue   $ 1,060.1   $ 1,165.5   $ 4,442.7   $ 4,204.1  
 
Expenses:
Operating 304.1 340.9 1,245.5 1,216.6
Selling, general and administrative 278.2 303.4 1,080.1 985.9
Restructuring 48.7 48.7
Depreciation and amortization 48.3 49.9 191.9 158.3
Acquisition-related expenses   4.2     5.8     8.3     22.5  
Total expenses 683.5 700.0 2,574.5 2,383.3
                   
Operating income     376.6     465.5     1,868.2     1,820.8  
Non-operating (expense) income, net
Interest expense, net (55.5 ) (58.3 ) (216.0 ) (208.5 )
Other non-operating income, net 0.5 0.5 18.8 3.7
Purchase price hedge gain 111.1
CCXI gain               59.7  
Total non-operating expense, net   (55.0 )   (57.8 )   (197.2 )   (34.0 )
Income before provision for income taxes 321.6 407.7 1,671.0 1,786.8
Provision for income taxes   68.9     379.2     351.6     779.1  
Net income 252.7 28.5 1,319.4 1,007.7
Less: net income attributable to noncontrolling interests     2.4       3.0     9.8     7.1  
Net income attributable to Moody’s Corporation $ 250.3     $ 25.5   $ 1,309.6     $ 1,000.6  
                         
 
                         
Earnings per share attributable to Moody’s common shareholders
Basic $ 1.31 $ 0.13 $ 6.84 $ 5.24
Diluted   $ 1.29     $ 0.13     $ 6.74     $ 5.15  
 
Weighted average number of shares outstanding
Basic 191.4 191.0 191.6 191.1
Diluted     194.0       194.4       194.4       194.2  
 
 
Table 2 – Supplemental Revenue Information (Unaudited)
     
Three Months Ended Year Ended
December 31, December 31,
 
Amounts in millions 2018 2017 2018 2017
                         
 
Moody’s Investors Service
Corporate Finance $ 282.7 $ 333.9 $ 1,334.1 $ 1,392.7
Structured Finance 129.8 147.8 526.5 495.5
Financial Institutions 87.3 119.0 441.7 435.8
Public, Project and Infrastructure Finance 90.8 119.3 391.1 431.3
MIS Other 4.8 4.7 19.0 18.5
Intersegment royalty   32.0     29.7     124.0     111.7  
Sub-total MIS 627.4 754.4 2,836.4 2,885.5
Eliminations   (32.0 )   (29.7 )   (124.0 )   (111.7 )
Total MIS revenue   595.4     724.7     2,712.4     2,773.8  
 
Moody’s Analytics
Research, Data and Analytics 302.4 258.0 1,134.1 832.7
Enterprise Risk Solutions 118.8 142.8 437.4 448.6
Professional Services 43.5 40.0 158.8 149.0
Intersegment revenue   2.3     4.4     12.3     16.0  
Sub-total MA 467.0 445.2 1,742.6 1,446.3
Eliminations   (2.3 )   (4.4 )   (12.3 )   (16.0 )
Total MA revenue   464.7     440.8     1,730.3     1,430.3  
 
Total Moody’s Corporation revenue $ 1,060.1   $ 1,165.5   $ 4,442.7   $ 4,204.1  
 
                       
Moody’s Corporation revenue by geographic area
 
United States $ 546.9 $ 614.4 $ 2,329.6 $ 2,348.4
International   513.2     551.1     2,113.1     1,855.7  
 
$ 1,060.1   $ 1,165.5   $ 4,442.7   $ 4,204.1  
                       
 
     
Table 3 – Selected Consolidated Balance Sheet Data (Unaudited)
 
December 31, December 31,
2018 2017
Amounts in millions
 
Cash and cash equivalents (1) $ 1,685.0 $ 1,071.5
Short-term investments 132.5 111.8
Total current assets (1) 3,386.9 2,580.6
Non-current assets 6,139.3 6,013.6
Total assets (1) 9,526.2 8,594.2
Total current liabilities (1)(2) 2,098.5 2,063.3
Total debt (1)(3) 5,676.0 5,540.5
Other long-term liabilities 1,545.1 1,534.7
Total shareholders’ equity (deficit) 656.5 (114.9)
 

Total liabilities and shareholders’ equity (deficit) (1)

9,526.2 8,594.2
 
Actual number of shares outstanding 191.3 191.0
 

Contacts

Salli Schwartz
Investor Relations
212.553.4862
[email protected]

Michael Adler
Corporate Communications
212.553.4667
[email protected]

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