Moody's Corporation

Good day and welcome, ladies and gentlemen, to the Moody's Corporation Third Quarter 2019 Earnings Conference Call. At this time, I would 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 questions and answers following the presentation. I will now turn the conference over to Sivanika, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's third quarter 2019 results, as well as our current outlook for full year 2019. I'm Shivani Kark, Head of Investor Relations. This morning, Moody's released its results for the third quarter of 2019, as well as an update to our current outlook for full year 2019. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moody's.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 Chief Financial Officer. During this call, we will also be presenting non-GAAP or adjusted figures. These 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's discussion and analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31st, 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 statements, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. 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, Shivani. Good morning, and thank you, everyone, for joining today's call. I'll begin by summarizing Moody's third quarter 2019 financial results and provide an update on the execution of our strategy. Mark Kay will then follow with further details on our third quarter results and comment 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 achieved substantial revenue growth with Moody's investor service attaining its second highest quarterly revenue result ever as well as continued strength in Moody's Analytics, which has now delivered double-digit growth in eight of the past nine quarters. Second, the adjusted operating margin of 49.5% was up 190 basis points as compared to the prior year period. Next, in light of stronger-than-anticipated top-line growth and disciplined expense management, we're raising our full-year adjusted diluted EPS guidance range to $8.05 to $8.20. And finally, since our last earnings call, we continue to execute on our long-term strategy of targeted investment in regional and product expansion opportunities. In addition, I am pleased that Moody's has bolstered its leadership in ESG engagement and disclosure. Moving on to third quarter 2019 results, robust performance across both business segments resulted in a 15% revenue increase for Moody's overall. driven by 16% growth in MIS and 13% growth in MA. Moody's adjusted operating income of $614 million was up 19% from the prior year period, and the adjusted operating margin of 49.5% was up 190 basis points. Adjusted diluted EPS grew 27%, driven by strong business performance. We continue to enhance our core ratings and analytics businesses, while pursuing strategic growth opportunities both down the corporate credit pyramid and across into new geographies and adjacent product areas. I'd like to take a few minutes to review several key initiatives Moody's has undertaken in the last few months in line with our strategic priorities. I'll first speak to our enhanced regional presence in China and Latin America. Starting with China, we forecast the domestic ratings market to generate industry-wide revenue of approximately $270 million in 2019, and for our joint venture, CCXI, to have market share in the low 40s percent range, up from the high 30s during 2018. With CCXI, we are well positioned with 30% ownership stake in China's largest domestic rating agency, which has approximately 1,700 rated customers, including approximately 40 new public ratings year-to-date. In addition, earlier this week, we announced that we acquired a minority stake in Cintao Green Finance. Cintao obtains data from more than 1,200 publicly listed companies in China to provide environmental data and analytics, green bond verification, and green finance solutions to Chinese banks, institutional investors, corporate and policy research organizations. The CINTAO investment complements our recent acquisitions of majority stakes in Vigio Iris and 427 and advances our global commitment to establishing transparent standards for evaluating ESG risks. Moving to Latin America, last month we launched Moody's Local. Subject to regulatory approvals, this new platform will provide domestic ratings and research for financial institutions, corporates, local governments, and other sectors in Peru, Panama, and Bolivia. From this foundation, we look forward to further expanding our presence in domestic markets across the region. To learn more about Moody's Local, please visit moodyslocal.com. Shifting to our expansion down the credit pyramid and into business adjacencies, in the third quarter, we added new product capabilities to further enhance our portfolio. First, at Bureau Van Dyke, we launched Compliance Catalyst 2, an enhanced platform to streamline customer identity analysis facilitating compliance with Know Your Customer, anti-money laundering, anti-bribery, and related rules and regulations. Excuse me. Second, earlier this month, we acquired ABS Suite, a software platform used by issuers and trustees to administer and report on asset-backed and mortgage-backed securities programs. This acquisition strengthens MA's leading position in securitized markets, serving issuers, dealers, and investors with data analytics and operational tools. Third, MIS's public finance rating group used data and analytics from 427 to analyze U.S. local government heat stress exposure and credit risk. This demonstrates our ability to integrate ESG data into credit analysis and research. Finally, our acquisition of Risk First, which closed in July, provides MA with the award-winning FARO platform, a leading solution for asset managers and pension plan sponsors, supporting more than 3,000 plans and more than $1.4 trillion in assets. Risk First offers extensive, unique data and advanced analytics for management of long-dated assets and liabilities. These new capabilities demonstrate our ability and commitment to enhancing the relevance of Moody's brand to an ever-expanding range of analytical disciplines, stimulating the growth prospects of our business. Issue impactivity increased after four consecutive quarters of decline and was a key driver of our third quarter operating performance. Central bank actions and falling benchmark rates created issuer-friendly market conditions, overcoming continued geopolitical uncertainty and bearish global growth forecasts. Strong corporate fixed-rate bond issuance, driven by opportunistic and M&A-related financing, aided MIS in delivering robust growth in the third quarter. Corporate finance was a significant driver of MIS's year-over-year performance, so I'd like to spend another minute on U.S. investment-grade and high-yield bond issuance as well as bank loan issuance in the third quarter. Due to the flattening of the yield curve in the third quarter, fixed income market issuance was strong across all asset classes. Relatively lower financing costs drove increases in investment grade and high-yield bond issuance by 45% and more than 100%, respectively. Issuance of floating rate loans, which had a slightly higher year-over-year financing cost, increased by 21%, reversing a string of year-over-year declines in the prior four quarters. In light of a delayed Brexit, it is important to reiterate that since the UK referendum in June 2016, Moody's has taken steps to ensure that we have appropriate operational capacity both in the EU27 and the UK. We have also adjusted our processes to conduct credit rating activities effectively and without interruption, irrespective of the outcome of the Brexit process. In short, we are prepared for the delayed scenario, And in the event of a no-deal Brexit, MIS is ready to carry out operations in the EU27 and the UK. I'd like to review a few recent initiatives that underscore our commitment to a sustainable future. First, I am proud to announce that Moody's has published its inaugural Sustainability Accounting Standards Board Index on moody's.com slash CSR, which includes information consistent with SASB's objectives. Second, senior management participated in multiple UN Global Compact events related to ESG during UN General Assembly Week. MIS, in partnership with the Climate Bond Initiative, also hosted a briefing during Climate Week New York City on pace and cost of carbon transition and the financial tools deployed to facilitate it. Third, MIS is hosting an ESG conference in London next week, together with Visual Iris and 427, where key industry figures will share their insights on important ESG themes and the impact on global credit markets. Finally, Moody's announced Pathway to Prosperity, a collaboration between our affiliate Finnegraph and America's Small Business Development Center. Pathway to Prosperity is a financial empowerment initiative dedicated to helping entrepreneurs overcome the challenges of growing a small business. I'll now turn the call over to Mark Kay to provide further details on our third quarter performance and our updated outlook for 2019.