Moody's Corporation

Good day, everyone, and welcome to the Moody's Corporation First Quarter 2021 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 up the conference for questions and answers following the presentation. I will now turn the conference 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 first quarter 2021 results and our revised outlook for full year 2021. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the first quarter of 2021, as well as our outlook for full year 2021. The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moody's.com. Rob Fowber, 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 will 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, 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 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 will now turn the call over to Rob Falber.

Thanks, Shivani. Good morning, everybody, and thanks for joining today's call. I'm going to begin by providing a general update on the business, including Moody's first quarter 2021 financial results. And following my commentary, Mark Kay will provide some further details on our first quarter 2021 performance, as well as our revised 2021 outlook. And after our prepared remarks, we'll be happy to take any questions. Moody's delivered strong financial results in the first quarter of 2021, revenue growth of 24%, an increase in adjusted diluted EPS of 49%, supported by strong performance from both Moody's Investor Service and Moody's Analytics. Improving economic fundamentals and increased M&A activity drove robust issuance in the first quarter, particularly in the leveraged loan and high-yield bond markets. MIS generated over a billion dollars in revenue. That was up 30% over the prior year period. AMA's best-in-class subscription-based products and solutions drove revenue growth of 14% in the quarter. And amidst this growth, we're reinvesting back into our business by introducing new offerings and integrating our recent acquisitions. As a result of our strong performance in the quarter, we've updated our full-year 2021 guidance, and we now project Moody's revenue to increase in the high single-digit percent range. Additionally, we've raised and narrowed our adjusted diluted EPS guidance to to be in the range of $11 to $11.30. Now, turning to first quarter results, this is the first time that MIS's revenue has exceeded $1 billion in a single quarter, while MA has delivered its 53rd consecutive quarter of growth. Moody's adjusted operating income rose 41% to $914 million, and the adjusted operating margin expanded 680 basis points to 57.1%. adjusted diluted eps was four dollars and six cents again up 49 now we could not have accomplished these great results without the hard work and dedication of our employees across the world so on behalf of the entire management team i'd like to express our appreciation and say thank you i would also like to acknowledge the continued challenges faced by many of our employees across the globe due to ongoing pandemic conditions, and especially our colleagues in India. Now, turning back to the first quarter, issuance volumes reached their highest level in over a decade. While all sectors were active, leveraged finance was really the busiest of all asset classes, with leveraged loans and high-yield bond issuance increasing by 94% and 85%, respectively. Now, typically, it's unusual for both leveraged loans and high-yield bonds to experience this amount of growth in the same quarter. The issuers tend to favor one type of debt type over the other, depending on their outlook. But attractive refinancing opportunities, as well as improving M&A activity, supported both fixed and floating rate issuance this quarter. And additionally, CLO market rebounded from a quiet 2020 as issuers refinanced their existing securitizations to take advantage of tighter spreads. Now, the strength in the leveraged finance issuance in the first quarter stemmed primarily from an improving outlook for corporate defaults. In January, the global speculative grade default rate was expected to end the year at just under 5%. And by early April, this outlook had improved to approximately 3% to 4%. That was due to a more positive economic backdrop. And these lower default expectations led to tighter credit spreads and keeping the overall cost of borrowing low despite an increase in benchmark rates. And this created an attractive environment for opportunistic refinancing and M&A-driven issuance. We're often asked about what informs our longer-term views of issuance. And we've shown a version of this graph on the slide before. In fact, I think I showed it our 2018 investor day. And as you can see, the data shows that historically GDP is one of the best predictive indicators of issuance over the longer term. And while this relationship may not hold in any one year, there is a clear correlation that issuance tracks GDP growth over time. And we expect this to remain true going forward. Now, that makes intuitive sense as healthy economies promote business growth and capital investment and also provides a positive backdrop for our business over the medium term. Focusing on 2021, we still expect overall issuance to decline, albeit modestly, from 2020's pandemic-related surge, and it will still be above the prior five-year average. Investment-grade issuance, which grew the most in 2020, is expected to face the toughest comparable. However, with GDP expanding, segments of the debt market most sensitive to improvements in the economy, like leveraged loans and structured finance, are expected to show corresponding strength. And Mark will provide some further details on our issuance forecast by asset class later in the call. Now, moving to MA, we're driving robust organic growth across multiple products and solutions. Credit research and data feeds delivered low double-digit growth, driven by continued demand for ratings data feeds, coupled with strong retention rates. KYC and compliance is growing in line with our mid-20% expectations, and that's led by our compliance catalyst and supply chain solutions. And we're continuing to grow in insurance and asset management. In addition to our IFRS 17 offerings, We're expanding our footprint with the buy side, benefiting from the enhanced solution suite that we obtained as part of our risk-first acquisition in 2019. In keeping with the theme of collaborating and modernizing and innovating that I discussed on the fourth quarter earnings call, I want to highlight a few recent examples that speak to how we're meeting our customers' evolving needs. Starting with ESG and climate, we're integrating ESG across all aspects of the business. In the first quarter, we launched a tool that provides climate-adjusted credit scores for approximately 37,000 public companies. In addition, building on our partnership with Euronext, our data powered the launch of their CAC 40 ESG index. In MIS, our analysts are enhancing our ESG analysis with the launch of ESG scores and tools, and that includes our proprietary ESG credit impact score that identifies the impact of ESG factors on a credit rating. And our first batch of scores now cover the entire rated sovereign universe. On prior earnings calls, we've discussed how we're integrating artificial intelligence and machine learning and natural language processing into our products to make them better and faster. One example is QuickSpread. It's our automated financial spreading tool that's now used by scores of banks around the globe. This tool has helped customers substantially reduce both the time and cost of spent spreading financial statements, and it's won multiple awards, including Best AI Technology Initiative at the 2020 American Financial Technology Awards. Another area where we're using innovative technology is sentiment analysis and scoring capabilities. Our customers tell us they need our help with early warning indicators that filter the signal from the noise. We're delivering monitoring tools that analyze news stories to understand sentiment across thousands of media outlets, and we're seeing increased interest in this use case across our customer base. Our acquisition of Acquire Media has further enhanced our efforts in this space, and we'll touch on that more in a moment. In addition to innovating for our customers, we're modernizing our own technology infrastructure to deliver greater operational efficiency and agility. Just last week, we were proud to be recognized with an honorable mention in the Red Hat Innovation Awards for the open source platform and agile process that we implemented within the rating agency. Now, turning to our recent acquisitions, we're making some good progress integrating and leveraging the capabilities that we acquired to enhance our offerings. For example, we integrated information and screening capabilities into our KYC solutions, specifically with our flagship private company database known as Orbis. We're giving customers curated information on individuals and companies in one place and dramatically improving their ability to make better KYC decisions and saving countless hours in the process. And as I mentioned a few moments ago, the AcquireMedia acquisition has accelerated our ability to generate scores that interpret the sentiment implied in news stories. We've already integrated the content from AcquireMedia into multiple products. That's improving our customers' ability to put facts into context, to focus their monitoring efforts and consider risks in a more holistic way. In commercial real estate, we've combined Reese and Catalyst to create Moody's Commercial Real Estate Solutions. We're developing new tools that bring together curated data and world-class analytics to support commercial real estate professionals with more integrated lending and investing solutions which are on track to launch this summer. And finally, We're pairing ZM Financial's asset and liability management solutions and loan pricing tools with MA's existing CISL capital planning and balance sheet software to help customers understand risks and opportunities across their treasury, accounting, and financial planning departments. And with that, I'll now turn the call over to Mark to provide further details on Moody's first quarter results, as well as an update on our outlook for 2021. Thank you, Rob.