Moody's Corporation

Good day, everyone, and welcome to the Moody's Corporation fourth quarter and full year 2020 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 call over to Shivani Kak, head of investor relations. Please go ahead.

Thank you. Good morning and thank you for joining us to discuss Moody's fourth quarter 2020 results and our outlook for full year 2021. I'm Shivani Kark, Head of Investor Relations. This morning, Moody's released its results for the fourth quarter of 2020, as well as our outlook for full year 2021. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moody's.com. Rob Falber, 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. Please refer to the tables at the end of our earnings press release filed this morning for reconciliation between all adjusted measures referenced during this call and GAAP. I call your attention to the safe harbour language, which can be found towards 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, 2019, our quarterly report on Form 10Q for the quarter ended March 31st, 2020, 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 harbour 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 will now turn the call over to Rob Falba.

Rob Falba Thanks, Shivani. Good morning, and thanks to everybody for joining today's call. I'm going to begin by summarizing Moody's full year 2020 financial results, and then I'll provide an update on our strategic direction. And following my commentary, Mark Kay will provide further details in our fourth quarter 2020 results, as well as our outlook for 2021. After our prepared remarks, we'll be happy to respond to any of your questions. First, on behalf of the entire Moody's management team, I'd like to extend my appreciation to our employees for their steadfast dedication and resilience. And your remarkable adaptability and commitment to providing our customers with world-class service and supporting each other is key to our continued success. And we're really proud of your accomplishments. Thank you. Our employees helped Moody's achieve record financial results in 2020. with revenue growth of 11% and an increase in adjusted diluted EPS of 22%. Against a backdrop of heightened credit market activity, Moody's investor service generated $3.3 billion in revenue. That was up 15% from the prior year. Moody's analytics also performed well, with revenue totaling $2.1 billion, up 6%, and demonstrating the strong value of our products and solutions during these unprecedented times. For 2021, We project Moody's revenue to increase in the mid-single-digit percent range. It's driven by our expectation that strong growth from MA and a favorable issuance mix for MIS will offset an expected decline in global debt activity. Moody's 2021 adjusted diluted EPS is forecast to be in the range of $10.30 to $10.70. In 2021 and beyond, We're going to continue to deliver solutions to meet our customers' evolving needs by integrating and leveraging our data and analytic capabilities and investing in innovation. And in addition, recent acquisitions combined with organic investments position us well for the future and reinforce our long-term growth opportunity. Finally, we continue to emphasize our role as responsible stewards of our stockholders' capital. While investing in the business remains our top priority, we'll seek to return approximately $2 billion to our stockholders this year in the form of dividends and share repurchases. Turning to full-year results, Moody's revenue grew an impressive 11%, with record revenues from both MIS and MA that increased 15% and 6%, respectively. On an organic, constant currency basis, MA revenue increased 8%. Moody's adjusted operating income rose 16% to $2.7 billion, and the adjusted operating margin expanded 230 basis points to 49.7%. Adjusted diluted EPS was $10.15, up 22%. Together, we achieved many milestones in 2020. For the first time, revenue at MIS and MA surpassed $3 billion and $2 billion, respectively. with MIS having rated more than $5.5 trillion in global issuance. We also made significant progress in delivering for our stakeholders. During 2020, we made an $11 million contribution to the Moody's Foundation. That was to support the work to empower people with the financial knowledge, resources, and confidence they need to create a better future and to reach their potential for themselves, their communities, and the environment. The events of the past year have also underscored the importance of a strong commitment to diversity and inclusion, both internally and externally. In this past year, we launched a number of initiatives to further support diversity and inclusion, both across our company as well as within the communities we operate, including $2 million in commitments to support equal justice and educational opportunities. On the environmental front, we furthered our sustainability leadership by enhancing our disclosures and establishing clear commitments to environmental sustainability. And as a result, Moody's was recognized by CDP with an A score for addressing climate change. In 2020, amidst the pandemic, we continued to invest in our business and position the company for ongoing growth. In addition to a range of product launches, we also acquired or invested in companies that complement and enhance our products and solutions and expand our market reach. And in September, we restructured our ESG assets under a single unit. This aligns our efforts across the firm, it strengthens our thought leadership in the ESG space, and it better positions us to meet the needs of the market. Turning to MIS, credit market activity reached record levels in 2020. especially for non-financial corporate issuance, which grew over 16% from its previous high in 2017 and was 34% above its prior five-year average. Both investment-grade and speculative-grade debt benefited from a favorable environment as issuers fortified their balance sheets and opportunistically refinanced debt. However, leveraged loan volumes remained modest for most of the year despite an uptick in and M&A activity in the fourth quarter. And Mark's going to provide some details on MIS's 2021 issuance expectations when he discusses our guidance. Now, pivoting to M&A, we continue to see significant growth in recurring revenue, which now comprises over 90% of its total. This has been driven by our strategic focus on building our subscription-based business with mission-critical products and services that are embedded in the customer workflows that support strong customer retention rates. And as a result, MA's margin has grown 480 basis points over the past three years. This expansion is inclusive of the organic and inorganic investments that we've made in the business. And before I turn it over to Mark, I thought I'd provide some thoughts about the opportunity in front of us. And to do that, I think it's helpful to reflect on our journey as a company over the last 15 years, in which we've expanded our capabilities in order to meet the evolving needs of our customers. Back in 2007, we formed Moody's Analytics. That was the first step in broadening beyond the rating agency. It was the development of software and analytics businesses. From 2017 to 2020, we built out some very substantial data and analytics capabilities, starting with the acquisition of Bureau Van Dyke, one of the world's largest company databases. And then we complemented that by adding depth across people, properties, ESG, and climate, just to name a few. And this strategy is positioned as well to serve a wide range of risk assessment markets where we can integrate data and analytics and deliver insights all enabled by technology. Looking forward, organizations face a complex interlinked world of risks and stakeholders. COVID has accelerated the digitization of manual processes across the financial sector, and it's highlighted the importance of resilience and scenario planning. Organizations are managing a variety of risks that just weren't on the radar screen years ago, ranging from ESG to climate to cyber to financial crime. They're seeking a more holistic 360-degree view of risk, of who they're connecting to and who they're doing business with. To do this, companies are increasingly incorporating alternative data sets into their core risk processes, and they're looking for insights amidst the proliferation of data. There are a variety of stakeholders influencing companies to better identify and manage these risks. It includes regulators, customers, employees. And there's some significant financial and reputational impacts for not managing these risks effectively. And with this as a backdrop, customers are looking for trusted partners who have the scale, the rigor, the capabilities to help them make better decisions about a wider range of risks. As CEO, I'm focused on three key areas to meet these market needs and to realize the full potential we have as an integrated risk assessment business. First, sharpening our understanding of how our customers' needs are evolving and delivering solutions that can draw on the breadth and depth of our capabilities. Second, investing with intent to grow and scale, deepening and extending our presence in expanding risk assessment markets, as we've done successfully with Know Your Customer. And third, collaborating, modernizing, and innovating with a focus on technology interoperability and data access that allows us to maximize our data analytic and technology capabilities on behalf of our customers. And of course, this is all underpinned by supporting and developing our people so that we have the skills and the engagement needed to drive the business forward. For the last year, we've referred to Moody's as an integrated risk assessment business. Today, we serve a wide range of risk assessment use cases in end markets, collectively worth north of $35 billion. Our largest risk assessment business, of course, is the rating agency. It serves fixed income issuers and investors. And as Moody's has evolved, we now help customers with everything from customer onboarding to commercial lending to sustainable investing and a number of other areas, as you can see around this circle. And what's been a winning formula for us over the years has been combining our data, analytics, and insights with our deep domain expertise and technology enablement to provide solutions for customers to identify, measure, and manage risk. We're not just a data company or a software company, but a company that has a unique combination of strengths and assets, as well as a deeply trusted brand. We continue to invest in our people and these data sets and analytic capabilities as they're all increasingly important across a growing number of risk assessment use cases and markets. And that's what we mean by an integrated risk assessment business. Now, earlier this week, we announced our intention to acquire a company called Corterra. We're excited about the valuable assets that they're going to add to the Moody's portfolio, including a world-class database on private companies in North America and one of the most comprehensive databases of commercial credit information featuring data and analytics on over 36 million companies. We plan to integrate Corterra's data into our offerings to better serve several markets, including commercial lending, customer onboarding, supply chain management. And by combining the data from Corterra with Moody's proprietary analytics, We look forward to helping our shared customer base make better decisions about their business relationships. Corteira builds on several acquisitions we've made over the past few years, beginning with the Bureau Van Dyke business in 2017 and followed more recently by RDC and Acquire Media this past year. They form a comprehensive suite of reference and entity data and AI technology to serve a range of use cases, including, among other things, KYC and compliance. In 2020, Moody's Analytics generated approximately $525 million in annual sales of these solutions, and we expect them to produce high teens growth in 2021. The Know Your Customer and Compliance use case, in particular, is generating over $200 million in annual sales and is projected to grow by over 25% in 2021, continuing to be our fastest-growing risk assessment market. I'm now going to turn the call over to Mark to provide further details of Moody's fourth quarter results as well as our outlook for 2021. Thank you, Rob.