MOODYS CORP DE
For the period ended Mar 31, 2024. Filed May 2, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed May 2, 2024
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Item 2. Results of Operations
RESULTS OF OPERATIONS
The following footnotes are applicable throughout the discussion of the Company's results of operations:
(1) Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric.
(2) Refer to the section entitled "Key Performance Metrics" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric.
Three months ended March 31, 2024 compared with three months ended March 31, 2023
Executive Summary
The following table provides an executive summary of key operating results for the quarter ended March 31, 2024. Following this executive summary is a more detailed discussion of the Company’s operating results as well as a discussion of the operating results of the Company’s reportable segments.
| Three Months Ended March 31, | |||||
|---|---|---|---|---|---|
| Financial measure: · 2024 · 2023 · % Change Favorable(Unfavorable) · Insight and Key Drivers of Change Compared to Prior Year | |||||
| Moody's total revenue | $1,786 | $1,470 | 21% | — reflects strong growth in both segments | |
| MA external revenue | $799 | $737 | 8% | — sustained demand for KYC solutions, as well as continued growth from SaaS-based banking and insurance offerings; and — ongoing strong retention for ratings data feeds and company data applications | |
| MIS external revenue | $987 | $733 | 35% | — reflects growth across all LOBs, as opportunistic issuers took advantage of tight credit spreads and strong investor demand ahead of potential macroeconomic and geopolitical-related volatility later in the year | |
| Total operating and SG&A expenses | $880 | $814 | (8%) | — higher salaries and benefits reflecting an increase in headcount and annual salary increases within both segments; and— higher incentive and stock-based compensation aligned with headcount growth and projected financial and operating performance | |
| Depreciation and amortization | $100 | $88 | (14%) | — higher amortization of internally developed software, primarily related to the development of MA SaaS solutions | |
| Restructuring | $5 | $14 | 64% | — relates to the Company's 2022 - 2023 Geolocation Restructuring Program, more fully discussed in Note 9 to the consolidated financial statements | |
| Total non-operating (expense) income, net | $(49) | $(48) | (2 %) | In line with the prior year with key offsetting drivers being:— a net decrease of $23 million in foreign exchange losses recorded during the year mainly attributable to an immaterial out-of-period adjustment relating to the 2022 fiscal year recorded in the first quarter of 2023, mostly offset by:— higher tax-related interest expense of $22 million due to a reduction in tax-related interest accruals in the prior year related to the favorable resolution of tax matters | |
| Operating margin | 44.8% | 37.7% | 710 | BPS | — operating margin and Adjusted Operating Margin(1) expansion reflects strong revenue growth outpacing operating and SG&A expense growth |
| Adjusted Operating Margin(1) | 50.7% | 44.6% | 610 | BPS | |
| ETR | 23.3% | 1.0% | (2,230 | BPS) | — higher ETR primarily reflects tax benefits recognized in the first quarter of 2023, which resulted from the resolutions of UTPs in various U.S. and non-U.S. tax jurisdictions |
| Diluted EPS | $3.15 | $2.72 | 16% | — increase reflects growth in operating income/Adjusted Operating Income(1), partially offset by:— a $0.75 per share benefit in the prior year resulting from the resolutions of tax matters in the first quarter of 2023 | |
| Adjusted Diluted EPS(1) | $3.37 | $2.99 | 13% | ||
Moody's Corporation
| Three Months Ended March 31, · % Change Favorable(Unfavorable) | |||
|---|---|---|---|
| 2024 · 2023 | |||
| Revenue: | |||
| United States | $969 | $763 | 27% |
| Non-U.S.: | |||
| EMEA | 542 | 460 | 18% |
| Asia-Pacific | 155 | 149 | 4% |
| Americas | 120 | 98 | 22% |
| Total Non-U.S. | 817 | 707 | 16% |
| Total | 1,786 | 1,470 | 21% |
| Expenses: | |||
| Operating | 467 | 428 | (9%) |
| SG&A | 413 | 386 | (7%) |
| Depreciation and amortization | 100 | 88 | (14%) |
| Restructuring | 5 | 14 | 64% |
| Total | 985 | 916 | (8%) |
| Operating income | $801 | $554 | 45% |
| Adjusted Operating Income(1) | $906 | $656 | 38% |
| Interest expense, net | $(62) | $(48) | (29%) |
| Other non-operating income, net | 13 | — | NM |
| Non-operating (expense) income, net | $(49) | $(48) | (2%) |
| Net income attributable to Moody's | $577 | $501 | 15% |
| Diluted weighted average shares outstanding | 183.4 | 184.1 | —% |
| Diluted EPS attributable to Moody's common shareholders | $3.15 | $2.72 | 16% |
| Adjusted Diluted EPS(1) | $3.37 | $2.99 | 13% |
| Operating margin | 44.8% | 37.7% | |
| Adjusted Operating Margin(1) | 50.7% | 44.6% | |
| ETR | 23.3% | 1.0% | |
The table below shows Moody’s global staffing by geographic area:
| March 31, · Change | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023(a) | % | ||||
| MA | U.S. | 2,983 | 2,876 | 4% | ||
| Non-U.S. | 4,922 | 4,621 | 7% | |||
| Total | 7,905 | 7,497 | 5% | |||
| MIS | U.S. | 1,512 | 1,462 | 3% | ||
| Non-U.S. | 4,083 | 3,690 | 11% | |||
| Total | 5,595 | 5,152 | 9% | |||
| MSS | U.S. | 725 | 708 | 2% | ||
| Non-U.S. | 1,214 | 1,061 | 14% | |||
| Total | 1,939 | 1,769 | 10% | |||
| Total MCO | U.S. | 5,220 | 5,046 | 3% | ||
| Non-U.S. | 10,219 | 9,372 | 9% | |||
| Total | 15,439 | 14,418 | 7% | |||
(a) Certain reclassifications have been made to 2023 amounts to reflect certain departmental reorganizations and M&A integrations
GLOBAL REVENUE
Three months ended March 31,
| Global revenue ⇑ $316 million | U.S. Revenue ⇑ $206 million | Non-U.S. Revenue ⇑ $110 million |
|---|
The increase in global revenue reflects growth in both MA and MIS, both in the U.S. and internationally. Refer to the section entitled “Segment Results” of this MD&A for a more comprehensive discussion of the Company’s segment revenue.
First Quarter Operating Expense ⇑ $39 million
| Compensation expenses of $346 million increased $34 million reflecting: | Non-compensation expenses of $121 million increased $5 million: |
|---|---|
| — higher salaries and benefits that reflects hiring and salary increases, primarily in MA, to support continued growth in the business; and | — the increase is mostly attributable to operating growth, including investments to support technology, innovation and product development; partially offset by: |
| — higher incentive and stock-based compensation aligned with headcount growth and projected financial and operating performance | — disciplined expense management |
First Quarter SG&A Expense ⇑ $27 million
| Compensation expenses of $262 million increased $16 million reflecting: | Non-compensation expenses of $151 million increased $11 million: |
|---|---|
| — higher salaries and benefits reflecting an increase in headcount and annual salary increases; and | — increase reflects costs to support operating growth; partially offset by |
| — higher incentive and stock-based compensation aligned with headcount growth and projected financial and operating performance | — disciplined expense management |
Depreciation and amortization
The increase is driven by amortization of internally developed software, which is primarily related to the development of MA SaaS solutions.
Restructuring
The amounts in both periods reflect charges/adjustments related to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 9 to the consolidated financial statements.
| Operating margin 44.8%, ⇑ 710 BPS | Adjusted Operating Margin(1) 50.7%, ⇑ 610 BPS |
|---|
Operating margin and Adjusted Operating Margin(1) expansion reflects strong revenue growth partially offset by an increase in operating and SG&A expenses.
| Interest Expense, net ⇑ $14 million | Other non-operating income ⇑ $13 million |
|---|
| Increase in expense is primarily due to: | Increase in income is primarily due to: |
|---|---|
| — a $22 million reduction in tax-related interest reflecting the favorable resolution of tax matters in the prior year; partially offset by | — a $23 million net decrease in foreign currency losses mainly attributable to an immaterial out-of-period adjustment relating to the 2022 fiscal year recorded in the first quarter of 2023; partially offset by |
| — higher interest income of $12 million reflecting higher cash balances and interest yields | — a benefit of $9 million in the prior year related to the favorable resolution of various tax matters |
ETR ⇑ 2,230 BPS
The increase in the ETR primarily reflects $113 million in tax benefits recognized in the first quarter of 2023, which resulted from the resolutions of UTPs in various U.S. and non-U.S. tax jurisdictions.
| Diluted EPS ⇑ $0.43 | Adjusted Diluted EPS(1) ⇑ $0.38 |
|---|
Both diluted EPS and Adjusted Diluted EPS(1)growth is mostly attributable to higher operating income and Adjusted Operating Income(1), the components of which are more fully described above. This was partially offset by a $0.75 per share benefit in the prior year related to the resolution of tax matters in the first quarter of 2023.
Segment Results
Moody’s Analytics
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
| Three Months Ended March 31, · % Change Favorable(Unfavorable) | |||
|---|---|---|---|
| 2024 · 2023 | |||
| Revenue: | |||
| Decision Solutions (DS) | $365 | $334 | 9% |
| Research and Insights (R&I) | 222 | 215 | 3% |
| Data and Information (D&I) | 212 | 188 | 13% |
| Total external revenue | 799 | 737 | 8% |
| Intersegment revenue | 3 | 3 | —% |
| Total MA revenue | 802 | 740 | 8% |
| Expenses: | |||
| Operating and SG&A (external) | 517 | 481 | (7%) |
| Operating and SG&A (intersegment) | 47 | 45 | (4%) |
| Total operating and SG&A | 564 | 526 | (7%) |
| Adjusted Operating Income | $238 | $214 | 11% |
| Adjusted Operating Margin | 29.7% | 28.9% | |
| Depreciation and amortization | 82 | 70 | (17%) |
| Restructuring | 2 | 8 | 75% |
MOODY'S ANALYTICS REVENUE
Three months ended March 31,
| MA: Global revenue ⇑ $62 million | U.S. Revenue ⇑ $20 million | Non-U.S. Revenue ⇑ $42 million |
|---|
The 8% increase in global MA revenue reflects growth both in the U.S. (6%) and internationally (10%).
–ARR(2)increased 10% reflecting growth across all LOBs.
DECISION SOLUTIONS REVENUE
Three months ended March 31,
| DS: Global revenue ⇑ $31 million | U.S. Revenue ⇑ $6 million | Non-U.S. Revenue ⇑ $25 million |
|---|
Global DS revenue for the three months ended March 31, 2024 and 2023 was comprised as follows:
Global DS revenue grew 9% compared to the first quarter of 2023 and reflects increases in the U.S. (5%) and internationally (12%).
The most notable drivers of the growth reflect:
–sustained demand for KYC solutions reflecting increased customer and supplier risk data usage, which drove ARR(2) growth of 18% for these solutions;
–higher demand for subscription-based actuarial and catastrophe models supported insurance growth which resulted in ARR(2) growth of 10%; and
–growth across Moody's SaaS-based banking solutions which enable customers' lending, risk management and finance workflows, resulting in ARR(2) growth of 9%.
The aforementioned factors contributed to overall ARR(2)growth for DS of 12%.
RESEARCH AND INSIGHTS REVENUE
Three months ended March 31,
| R&I: Global revenue ⇑ $7 million | U.S. Revenue ⇑ $4 million | Non-U.S. Revenue ⇑ $3 million |
|---|
Global R&I revenue increased 3% compared to the first quarter of 2023 and reflects growth in both the U.S. (3%) and internationally (3%). This increase was mainly driven by sales growth from the CreditView product offering, which contributed to R&I ARR(2) growth of 6%.
DATA AND INFORMATION REVENUE
Three months ended March 31,
| D&I: Global revenue ⇑ $24 million | U.S. Revenue ⇑ $10 million | Non-U.S. Revenue ⇑ $14 million |
|---|
Global D&I revenue increased 13% compared to the first quarter of 2023 and reflects growth in both the U.S. (15%) and internationally (12%), mainly driven by improved customer retention, coupled with continued growth in new sales and higher price realization, supported by strong demand for company data and ratings feeds.
The aforementioned revenue growth factors also contributed to ARR(2)growth of 11% for D&I.
MA: First Quarter Operating and SG&A Expense ⇑ $36 million
| Compensation expenses of $337 million increased $31 million: | Non-compensation expenses of $180 million increased $5 million: |
|---|---|
| — the growth in salaries and benefits reflects higher headcount and annual salary increases to support business growth; and | — the modest increase is mostly attributable to costs to support operating growth, including investments to support technology, innovation and product development |
| — the increase in incentive and stock-based compensation is driven by higher headcount and projected financial and operating performance | |
MA: Adjusted Operating Margin 29.7% ⇑ 80 BPS
The Adjusted Operating Margin expansion for MA is primarily due to the 8% increase in global MA revenue, mostly offset by increases in operating and SG&A expenses of 7%.
Depreciation and amortization
The increase in depreciation and amortization expense primarily reflects higher amortization of internally developed software relating to the development of SaaS-based solutions.
Restructuring
The amounts in both periods reflect charges/adjustments related to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 9 to the consolidated financial statements.
Moody’s Investors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
| Three Months Ended March 31, · % Change Favorable(Unfavorable) | |||
|---|---|---|---|
| 2024 · 2023 | |||
| Revenue: | |||
| Corporate finance (CFG) | $529 | $356 | 49% |
| Structured finance (SFG) | 114 | 99 | 15% |
| Financial institutions (FIG) | 195 | 142 | 37% |
| Public, project and infrastructure finance (PPIF) | 141 | 129 | 9% |
| Total ratings revenue | 979 | 726 | 35% |
| MIS Other | 8 | 7 | 14% |
| Total external revenue | 987 | 733 | 35% |
| Intersegment revenue | 47 | 45 | 4% |
| Total MIS revenue | 1,034 | 778 | 33% |
| Expenses: | |||
| Operating and SG&A (external) | 363 | 333 | (9%) |
| Operating and SG&A (intersegment) | 3 | 3 | —% |
| Total operating and SG&A | 366 | 336 | (9%) |
| Adjusted Operating Income | $668 | $442 | 51% |
| Adjusted Operating Margin | 64.6% | 56.8% | |
| Depreciation and amortization | 18 | 18 | —% |
| Restructuring | 3 | 6 | 50% |
The following chart presents changes in rated issuance volumes compared to the first quarter of 2023. To the extent that changes in rated issuance volumes had a material impact to MIS's revenue compared to the prior year, those impacts are discussed below.
MOODY'S INVESTORS SERVICE REVENUE
Three months ended March 31,
| MIS: Global revenue ⇑ $254 million | U.S. Revenue ⇑ $186 million | Non-U.S. Revenue ⇑ $68 million |
|---|
The increase in global MIS revenue reflects strong growth across all ratings LOBs.
CFG REVENUE
Three months ended March 31,
| CFG: Global revenue ⇑ $173 million | U.S. Revenue ⇑ $126 million | Non-U.S. Revenue ⇑ $47 million |
|---|
Global CFG revenue for the three months ended March 31, 2024 and 2023 was comprised as follows:
- Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.
The increase in CFG revenue of 49% reflects growth in both the U.S. (51%) and internationally (43%).
Transaction revenue increased $169 million compared to the same period in the prior year, with the most notable drivers of the growth reflecting:
–higher rated issuance volumes in leveraged finance (speculative-grade bonds and bank loans) reflecting opportunistic refinancing activity that was supported by tightening credit spreads; and
–higher investment grade rated issuance activity supported by several large M&A-related deals.
SFG REVENUE
Three months ended March 31,
2024---------------------------------------------------------------------------2023
| SFG: Global revenue ⇑ $15 million | U.S. Revenue ⇑ $15 million | Non-U.S. Revenue was in line with prior year |
|---|
Global SFG revenue for the three months ended March 31, 2024 and 2023 was comprised as follows:
The increase in SFG of 15% reflects growth in the U.S. (25%), with international revenue remaining in line with the prior year.
Transaction revenue increased $14 million compared to the first quarter of 2023, mainly attributable to increased issuance activity from the ABS and Structured Credit asset classes, reflecting tightening credit spreads and strong investor demand, including from first time issuers.
FIG REVENUE
Three months ended March 31,
| FIG: Global revenue ⇑ $53 million | U.S. Revenue ⇑ $35 million | Non-U.S. Revenue ⇑ $18 million |
|---|
Global FIG revenue for the three months ended March 31, 2024 and 2023 was comprised as follows:
The increase in FIG revenue of 37% reflects revenue growth in both the U.S. (56%) and internationally (23%).
Transaction revenue increased $52 million compared to the first quarter of 2023, mainly due to growth in the insurance and banking sectors, which was attributable to improved issuance volumes coupled with a favorable issuance mix from infrequent issuer activity.
PPIF REVENUE
Three months ended March 31,
| PPIF: Global revenue ⇑ $12 million | U.S. Revenue ⇑ $10 million | Non-U.S. Revenue ⇑ 2 million |
|---|
Global PPIF revenue for the three months ended March 31, 2024 and 2023 was comprised as follows:
The increase in PPIF revenue of 9% reflects growth in both the U.S. (13%) and internationally (4%).
Transaction revenue increased $10 million compared to the first quarter of 2023 primarily due to increased issuance from U.S. Public Finance issuers, reflecting refunding activity in the healthcare and higher education sectors.
MIS: First Quarter Operating and SG&A Expense ⇑ $30 million
| Compensation expenses of $272 million increased $18 million: | Non-compensation expenses of $91 million increased $12 million: |
|---|---|
| — the growth in salaries and benefits reflects higher headcount and annual salary increases; and | — the increase is mostly attributable to costs to support operating growth, including investments to support technology and innovation |
| — the increase in incentive and stock-based compensation is driven by higher headcount and projected financial and operating performance | |
MIS: Adjusted Operating Margin 64.6% ⇑ 780 BPS
The MIS Adjusted Operating Margin expansion primarily reflects the aforementioned 35% increase in revenue.
Restructuring
The amounts in both periods reflect charges/adjustments related to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 9 to the consolidated financial statements.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.