Moody’s Corporation Reports Results for Third Quarter 2020

• Moody’s Corporation 3Q20 revenue of $1.4 billion, up 9% from 3Q19
• Moody’s Investors Service revenue of $825 million, up 11%; Moody’s Analytics revenue of $531 million, up 7%
• 3Q20 diluted EPS of $2.47, up 24% from 3Q19; adjusted diluted EPS of $2.69, up 25% ¹
• FY 2020 guidance range for diluted EPS raised to $9.30 to $9.50; adjusted diluted EPS guidance raised to $9.95 to $10.15

NEW YORK–(BUSINESS WIRE)–Moody’s Corporation (NYSE: MCO) today announced results for the third quarter of 2020, as well as updated its outlook for full year 2020.

“This quarter, customer demand for Moody’s services, insights and solutions continued to drive strong revenue growth across both Moody’s Investors Service and Moody’s Analytics. Moody’s Investors Service benefitted from a third consecutive record issuance quarter as fixed-rate issuers took advantage of historically low borrowing costs to refinance existing debt and strengthen liquidity positions. Moody’s Analytics top-line grew on increased sales of know-your-customer solutions, research and data feeds. As the results of the first nine months have continued to exceed our expectations, we are raising and narrowing our full year 2020 adjusted diluted EPS guidance range to $9.95 to $10.15, with the expectation for debt issuance to moderate in the final quarter,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “As previously announced, after leading Moody’s for more than 15 years as CEO, I will retire at the end of the year and hand the reins over to Rob Fauber. I extend my sincere gratitude to all of our employees – their dedication and hard work has positioned Moody’s for continued success. I am confident in Rob’s leadership of the company going forward given his impressive track record and deep understanding of our businesses.”

THIRD QUARTER REVENUE UP 9%

Moody’s Corporation reported revenue of $1.4 billion for the three months ended September 30, 2020, up 9% from the prior-year period. Foreign currency translation favorably impacted Moody’s revenue by 1%.

Moody’s Investors Service (MIS) Third Quarter Revenue Up 11%

Revenue for MIS for the third quarter of 2020 was $825 million, up 11% from the prior-year period. Foreign currency translation favorably impacted MIS revenue by 1%. The MIS adjusted operating margin was 64.2%.

Corporate finance revenue was $461 million, up 18% from the prior-year period. This was driven by both strong U.S. investment grade and U.S. speculative grade issuance due to favorable credit market conditions. Robust bond activity was partially offset by a decline in bank loans, similar to last quarter.

Financial institutions revenue was $134 million, up 12% from the prior-year period. This was largely driven by a favorable mix of infrequent U.S. bank issuers, specifically finance and securities companies seeking opportunistic funding.

Public, project and infrastructure finance revenue was $133 million, up 11% from the prior-year period. This was due to an increase in U.S. public finance activity amid a receptive market environment.

Structured finance revenue was $88 million, down 16% from the prior-year period, principally driven by a decline in U.S. and EMEA collateralized loan obligation (CLO) activity due to lack of new loan supply and wider spreads.

Moody’s Analytics (MA) Third Quarter Revenue Up 7%

Revenue for MA for the third quarter of 2020 was $531 million, up 7% from the prior-year period. Organic MA revenue¹ was $510 million, up 9% and excluded the impact of the divestiture of Moody’s Analytics Knowledge Services (MAKS) and acquisitions completed in the past twelve months. Foreign currency translation favorably impacted total MA revenue by 2%. The MA adjusted operating margin was 31.4%.

Research, Data and Analytics (RD&A) revenue was $386 million, up 22% from the prior-year period. Organic RD&A revenue¹ was $354 million, up 12% and excluded revenue from the reclassification of Moody’s Analytics Learning Solutions (MALS), as well as the acquisitions of Regulatory DataCorp and ABS Suite. This result reflected robust growth in know-your-customer (KYC) and compliance solutions, as well as new data feed sales and strong customer retention rates.

Enterprise Risk Solutions (ERS) revenue was $145 million, up 8% from the prior-year period. Organic ERS revenue¹ was $143 million, up 7% and excluded revenue from the acquisition of RiskFirst. The increase was led by subscriptions to credit assessment and loan origination solutions, as well as IFRS 17 and other insurance products.

THIRD QUARTER OPERATING EXPENSES AND OPERATING INCOME

Third quarter 2020 operating expenses for Moody’s Corporation totaled $714 million, up 3% from the prior-year period. This expense growth was limited by lower travel & entertainment costs and ongoing expense discipline, offset by higher incentive compensation expenses and a $23 million restructuring charge due to the exit of certain real estate leases. Foreign currency translation unfavorably impacted operating expenses by 1%.

Operating income of $642 million was up 17% from the third quarter of 2019. Adjusted operating income of $721 million was up 17% from the prior-year period, and excluded the restructuring charge, as well as depreciation and amortization. Foreign currency translation favorably impacted both operating income and adjusted operating income by 2%. Moody’s operating margin was 47.3% and the adjusted operating margin was 53.2%.

Moody’s effective tax rate for the third quarter of 2020 was 22.0%, down from 25.3% in the prior-year period. This decrease was primarily due to a tax benefit associated with a non-U.S. corporate reorganization.

YEAR-TO-DATE REVENUE UP 13%

Moody’s Corporation reported revenue of $4.1 billion for the first nine months of 2020, up 13% from the prior-year period. The impact of foreign currency translation was negligible.

MIS revenue totaled $2.6 billion, up 19% from the prior-year period. The impact of foreign currency translation was negligible. The MIS adjusted operating margin was 63.0%.

MA revenue totaled $1.5 billion, up 6% from the prior-year period. Organic MA revenue¹ was $1.5 billion, up 8% and excluded the impact of the divestiture of MAKS and acquisitions completed in the past twelve months. The impact of foreign currency translation was negligible. The MA adjusted operating margin was 29.8%.

YEAR-TO-DATE OPERATING EXPENSES UP 2%

Operating expenses for Moody’s Corporation in the first nine months of 2020 totaled $2.1 billion, up 2% from the prior-year period. Foreign currency translation favorably impacted Moody’s operating expenses by 1%.

Operating income of $1.9 billion was up 30% as compared to the first nine months of 2019. Adjusted operating income of $2.1 billion was up 23% from the prior-year period. The impact of foreign currency translation for both Moody’s operating income and adjusted operating income was negligible. Moody’s operating margin was 47.6% and the adjusted operating margin was 52.3%.

The effective tax rate for the first nine months of 2020 was 20.0%, down from the prior-year period effective tax rate of 21.4%.

Diluted EPS of $7.73 was up 40% from the first nine months of 2019. Adjusted diluted EPS of $8.24 was up 31%. Both year-to-date diluted EPS and adjusted diluted EPS included a $0.27 per share tax benefit related to employee share-based compensation, compared to a $0.22 per share tax benefit in the first nine months of 2019.

CAPITAL ALLOCATION AND LIQUIDITY

Capital Returned to Shareholders

During the third quarter of 2020, Moody’s did not repurchase any shares, and issued net 0.1 million shares as part of its employee stock-based compensation programs. The net amount includes shares withheld for employee payroll taxes. Moody’s returned $105 million to its shareholders via dividend payments during the third quarter of 2020.

Over the first nine months of 2020, Moody’s repurchased 1.1 million shares at a total cost of $253 million, or an average cost of $236.67 per share, and issued net 1.2 million shares as part of its employee stock-based compensation programs.

Moody’s returned $315 million to its shareholders via dividend payments during the first nine months of 2020 and on October 27, 2020, the Board of Directors declared a regular quarterly dividend of $0.56 per share of MCO Common Stock. The dividend will be payable on December 14, 2020 to stockholders of record at the close of business on November 23, 2020.

Outstanding shares as of September 30, 2020 totaled 187.8 million, down 1% from September 30, 2019. As of September 30, 2020, Moody’s had approximately $1.1 billion of share repurchase authority remaining. Moody’s expects to resume share repurchases in the fourth quarter of 2020.

Sources of Capital and Cash Flow Generation

At quarter-end, Moody’s had $6.4 billion of outstanding debt and an undrawn $1.0 billion revolving credit facility. Total cash, cash equivalents and short-term investments at quarter-end were $2.6 billion, up from $1.9 billion on December 31, 2019.

Cash flow from operations for the first nine months of 2020 was $1.5 billion and free cash flow was $1.4 billion.

ASSUMPTIONS AND OUTLOOK FOR FULL YEAR 2020

Moody’s updated outlook for 2020 reflects numerous assumptions about many factors that could affect its business based on information reviewed by management through and as of today’s date, including observations and assumptions regarding the impact of COVID-19, the responses to the pandemic by governments, regulators, businesses and individuals, as well as the effects on interest rates, foreign currency exchange rates, capital markets’ liquidity, and activity in different sectors of the debt markets. The outlook also reflects assumptions about both general economic conditions and GDP growth in the U.S. and Euro area, and the company’s own operations and personnel. The outlook as of October 29, 2020 incorporates numerous macroeconomic assumptions including: approximately 6% and 9% declines in full year 2020 U.S. and Euro area GDPs, respectively, U.S. high yield interest rate spreads of approximately 500 bps, U.S. unemployment of approximately 8% and the global high yield default rate rising to approximately 8% by the end of 2020.

Moody’s ratings revenue guidance assumes MIS’s full year global rated issuance increases in the high-teens percent range.

While the duration and severity of the COVID-19 crisis are unknown, the company has operated effectively to date and Moody’s outlook assumes that the company does not experience any material negative impact on its ability to conduct its operations as a result of COVID-19. The implications of COVID-19 or other situations or developments could affect these and many other factors that also could cause actual results to differ materially from Moody’s outlook.

These assumptions are subject to uncertainty, and actual full year results for 2020 could differ materially from Moody’s current outlook. In addition, Moody’s guidance assumes foreign currency translation at end-of-quarter exchange rates. Specifically, our forecast for the remainder of 2020 reflects exchange rates for the British pound (£) of $1.29 to £1 and for the euro (€) of $1.17 to €1.

The guidance assumes a previously announced restructuring program around the rationalization and exit of certain real estate leases estimated to result in total pre-tax charges of $25 to $35 million. Of this, $25 to $30 million is expected to be recorded in the second half of 2020, including the $23 million charge incurred in the third quarter of 2020. This program is expected to result in estimated annualized savings of $5 to $6 million.

Full year 2020 diluted EPS is expected to be $9.30 to $9.50. The company expects full year 2020 adjusted diluted EPS to be $9.95 to $10.15.

A full summary of Moody’s guidance as of October 29, 2020, is included in Table 12 – 2020 Outlook table at the end of this press release.

CONFERENCE CALL

Moody’s will hold a conference call to discuss third quarter 2020 results as well as its 2020 outlook on October 29, 2020, 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 into the call by 11:20 a.m. ET. The passcode for the call is 9286036.

The teleconference will also be webcast with an accompanying slide presentation which can be accessed through Moody’s Investor Relations website, ir.moodys.com under “Featured and Upcoming” within “Events & Presentations”. The webcast will be available until 3:30 p.m. ET on November 27, 2020.

A replay of the teleconference will be available from 3:30 p.m. ET, October 29, 2020 until 3:30 p.m. ET, November 27, 2020. 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 9286036.

ABOUT MOODY’S CORPORATION

Moody’s (NYSE: MCO) is a global integrated risk assessment firm that empowers organizations to make better decisions. Our data, analytical solutions and insights help decision-makers identify opportunities and manage the risks of doing business with others. We believe that greater transparency, more informed decisions, and fair access to information open the door to shared progress. With approximately 11,400 employees in more than 40 countries, Moody’s combines international presence with local expertise and over a century of experience in financial markets. Learn more at moodys.com/about.

“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 business and operations of Moody’s Corporation (the “Company”) that involve a number of risks and uncertainties. Such statements may include, among other words, “believe”, “expect”, “anticipate”, “intend”, “plan”, “will”, “predict”, “potential”, “continue”, “strategy”, “aspire”, “target”, “forecast”, “project”, “estimate”, “should”, “could”, “may” and similar expressions or words and variations thereof that convey the prospective nature of events or outcomes generally indicative of forward-looking statements. The forward-looking statements and other information in this release are made as of the date hereof 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, except as required by applicable law or regulation. 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, the impact of COVID-19 on volatility in the U.S. and world financial markets, on general economic conditions and GDP growth in the U.S. and worldwide, and on the Company’s own operations and personnel. Many other factors could cause actual results to differ from Moody’s outlook, including 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 Brexit and uncertainty as companies transition away from LIBOR; 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, including those related to tariffs and trade barriers; 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 Moody’s Investors Service’s rating opinions, as well as any other litigation, government and regulatory proceedings, investigations and inquiries to which the Company may be subject from time to time; provisions in the Dodd-Frank 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 currently, or in the future could be, amplified by the COVID-19 outbreak and 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, 2019, its quarterly report on Form 10-Q for the quarter ended March 31, 2020, 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 to GAAP of all adjusted and organic measures.

Contacts

SHIVANI KAK

Investor Relations
212.553.0298

shivani.kak@moodys.com

MICHAEL ADLER
Corporate Communications
212.553.4667

michael.adler@moodys.com

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