Moody's Corporation

Good day and welcome, ladies and gentlemen, to the Moody's Corporation second quarter 2019 earnings conference call. At this time, I'd like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers following the presentation. I would now like to turn the conference over to Sally Schwartz, Global Head of Investor Relations and Strategic Capital Management. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's second quarter 2019 results as well as our current outlook for full year 2019. I am Sally Schwartz, Global Head of Investor Relations and Strategic Capital Management. This morning, Moody's released its results for the second quarter of 2019 as well as an update to our current outlook for full year 2019. The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moody.com. Ray McDaniel, Moody's President and Chief Executive Officer, will lead this morning's conference call. Also making prepared remarks on the call this morning is Mark Kay, Moody's Senior Vice President and Chief Financial Officer. During this call, we also will be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for reconciliation between all adjusted measures mentioned during this call and GAAP. Before we begin, I call your attention to the safe harbor language, which can be found toward the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the Act, I also direct your attention to the management discussion and analysis section and the risk factors discussed in our annual report on Form 10-K for the year end of December 31, 2018, and in other SEC filings made by the company, which are available on our website and on the SEC's website. These, together with the Safe Harbor Statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statement. I would also like to point out that members of the media may be on the call this morning in a listen-only mode. I'll now turn the call over to Ray McDaniel.

Thanks, Sally. Good morning and thank you everyone for joining today's call. I'll begin by summarizing Moody's second quarter 2019 financial results and providing an update on the execution of our strategy. Mark Kay will then follow with further details on our second quarter results and comments on our revised outlook for 2019. After our prepared remarks, we'll be happy to respond to your questions. I'd like to start by providing select highlights for the quarter. First, Moody's second quarter performance reflected continued double-digit growth in Moody's analytics, with strong contributions from all lines of business. Recurring revenue in MA represented 84% of total MA revenue for the trailing 12 months ended June 30, 2019. Excluding the impact of foreign currency translation, Moody's investor service revenue in the second quarter was in line with the record prior year period, and the issuance environment is constructive as we move into the back half of the year. Next, the charges related to our restructuring program are largely complete, and we are increasing our anticipated annual run rate savings by more than $10 million to approximately $60 million. And finally, since our last earnings call, We have continued to execute on our long-term strategy in a disciplined manner through targeted acquisitions of businesses that extend our assessment and analytical solution capabilities, as well as the planned divestiture of Moody's Analytics Knowledge Services, or MAX. In addition, I'm pleased that Moody's has further strengthened its leadership in ESG engagement and disclosure. Moving on to second quarter 2019 results, Double-digit MA revenue growth and MIS's resilience, despite subdued issuance activity, resulted in a 3% revenue increase for Moody's Corporation. Moody's adjusted operating income of $599 million was up 2% from the prior year period. Adjusted diluted EPS grew by 1%, aided by a 2% reduction in diluted share count from the prior year period as a result of our share repurchase programs. In the second quarter, issuance activity was mixed. Falling benchmark rates, tighter spreads, and economic fundamentals supported strong issuance conditions. However, declining global growth forecasts, continued geopolitical uncertainty, and lower M&A and investment activity kept some issuers on the sidelines. A resurgence in corporate fixed rate issuance helped partially offset weakness in floating rate bank loans. Overall, however, global issuance activity fell for the fourth consecutive quarter. The banks have indicated that U.S. investment grade and leveraged finance issuance pipelines are moderate, but CLO activity remains weak. Nonetheless, the relatively easier year over year comparable gives us confidence that MIS will deliver growth in the back half of the year. Since the first quarter earnings call, we have announced several transactions that enable us to further align our portfolio of offerings with our strategic priorities. Moody's delivers trusted insights and standards that allow market participants to make informed decisions, contributing to market transparency and fairness. Our resolve to bring clarity and efficiency to markets has led us to execute these transactions as we increase our focus on providing risk assessments and analytical solutions. Before I turn the call over to Mark, I'll take a minute to review our recent strategic transactions with you. First, with our majority acquisition of 427, a provider of data and analytics on physical climate risks, we will significantly bolster our capabilities to integrate environmental and climate risk factors into economic modeling and credit ratings. Second, Our acquisition of Risk First extends Moody's reach into the buy side with market-leading solutions for portfolio management and risk analytics, delivered on a software-as-a-service, or SaaS, platform. Third, our newly established joint venture with Team 8 combines Moody's experience in developing methodologies and global standards with Team 8's expertise in cybersecurity technologies. And finally, our planned divestiture of MAX reflects MA's increasing strategic focus on providing scalable data, financial intelligence, and analytical tools, rather than bespoke service-oriented engagements. These transactions are included in our updated full-year 2019 guidance. We expect they will have a diluted impact of approximately five cents to adjusted diluted EPS. I will now turn the call over to Mark Kay to provide further details on our second quarter performance and review our updated outlook for 2019.