Moody's Corporation

Hey, everyone, and welcome to the Moody's Corporation First Quarter 2022 Earnings Conference Call. At this time, I would like to inform you that this call 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 and good morning. Thank you all for joining us to discuss Moody's first quarter 2022 results and our revised outlook for full year 2022. I'm Shivani Karp, Head of Investor Relations. This morning, Moody's released its results for the first quarter of 2022, as well as our revised outlook for full year 2022. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moody's.com. Rob Fowler, 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 a 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 discussion and analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31st, 2021, and in other SEC filings made by the company. which are available on our website and on the SBC's website. These, together with the safe harbour statement, 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 Fowler.

Thanks, Shivani. Good morning, and thanks, everybody, for joining today's call. I'll begin by providing a general update on the business, including our first quarter 2022 results. And following my commentary, Mark Kay will provide some further details on our first quarter 2022 performance, as well as our revised 2022 outlook. And after our prepared remarks, as always, Mark and I will be happy to take questions. Against a backdrop of geopolitical turbulence and volatile markets, Moody's first quarter revenue was $1.5 billion, and that's down 5% from the prior year period. With the decline in issuance in the first quarter and our expectation for continued subdued levels of opportunistic issuance for the balance of the year, we've updated our full year 2022 guidance, and we now project Moody's revenue to be approximately flat relative to the prior year. We've also lowered our adjusted diluted EPS guidance to be in the range of $10.75 to $11.25. MA continued to be a strong source of consistent growth while market disruptions impacted issuance activity. As investments to meet customer demand for our mission-critical suite of tools and solutions drove revenue growth of 23%. Recurring revenue is core to this growth, which is why we're introducing a new reporting metric, annualized recurring revenue, or ARR. We expect this new metric to provide greater transparency into the growth trajectory of MA's recurring revenue. The temporary impact of market uncertainty on our financial performance does not change our expectations for the medium term. Time and time again, in periods of uncertainty like these, markets and organizations look to Moody's for expertise and insights, increasing the demand for our integrated risk assessment offerings. And so, we remain confident in the fundamental drivers of our growth. Moody's revenue was down just 5% from a year ago, reflecting the diversity and resilience of our business portfolio. And while MIS revenue decreased 20%, MA revenue was up 23%, or 9% on an organic basis, driven by strong customer demand for our solutions. Adjusted operating income fell 20% to $734 million. Adjusted diluted EPS was $2.89, a decrease of 29% year-on-year. And Mark will provide some additional details on our financials shortly. Now, turning to MIS. The issuance factors we highlighted during our fourth quarter earnings call really remain unchanged as elevated inflation and a prospect of additional interest rate increases combined with the impact of the Ukraine conflict are contributing to uncertainty and volatility. And these factors have adversely affected debt capital markets activity, including opportunistic refinancing and M&A transactions, particularly in the leveraged finance markets. And as we've said over the years, periods of market disruption need to be put into historical context. And I would argue that this period is no different. And this chart illustrates our rated issuance over the last decade with the gray bars representing periods of market volatility. And it shows that activity typically rebounds after periods of market disruption and has grown steadily over time. And though there's uncertainty as to how long the current disruption will last, We believe that the market will eventually reset amidst higher interest rates and will eventually resume issuance growth supported by economic expansion and substantial financing maturity walls. The medium-term drivers of debt issuance in our business remain strong. And as we've said in the past, issuance is a function of several macroeconomic factors, the most significant of which is economic expansion. Looking ahead, we do expect global GDP growth for the remainder of the year, albeit at a modest pace. The underpinnings of the economy remain sound, and consumer and corporate balance sheets remain healthy, and U.S. unemployment remains at near historical lows. While several rounds of interest rate increases are expected this year as the Fed addresses inflation, rates will remain low by historical standards. Volatility in the credit markets has been reflected in spread fluctuations. Those spreads also remain well below the 10-year average. And taken as a whole, the cost of borrowing remains historically low. In addition to these factors, there's a healthy stock of debt which needs to be refinanced, more than $4 trillion over the next four years. And we expect a continued buildup in our first-time mandates will drive growth in our recurring revenue as demonstrated over the last two years. Now, pivoting to Moody's Analytics, We're driving robust growth across the breadth of our products and solutions. In the first quarter, revenue was up 23%, supported by organic revenue growth of 9% and a 96% customer retention rate. We're now including annualized recurring revenue, or ARR, in our reporting to give an indication of our revenue expectations for the future. Organic ARR was up 9% for the first quarter, demonstrating the strength of our recurring revenue across the business. Again, Mark will provide some additional details on ARR shortly. I'd like to take a moment to share a story that illustrates how offerings across our three reporting lines in NMA come together to provide value for our customers. As a result of the acquisition of Bureau Van Dyke in 2017, we had a modest relationship with a large multinational insurance underwriter that was using our ORBIS database to support sales and marketing activities. Following the acquisition, we had a series of discussions with this and other customers about ways to address a wider range of their needs, which in this case included their process for underwriting trade credit insurance. We were able to package our Orbis data, our credit research and credit scorecards, combined with our AI-enabled spreading offering to provide a set of integrated solutions that transformed their workflow. helping them to eliminate 70% of their manual tasks in their trade credit underwriting process, and increasing their efficiency and enhancing their effectiveness. This upsell results in approximately 300% increase in annual customer revenue, And today we're having discussions with them about further expanding our relationship to serve additional use cases and solutions, including integrating ESG into their underwriting processes. And I think it's just a great example of our ability to expand our customer relationships by bringing together the full capabilities across Moody's Analytics. As you know, helping the market make sense of the risks and opportunities posed by ESG and climate change is a priority for us. And we're increasingly delivering solutions that help companies incorporate these critical factors into their decision-making. And that's an important reason for our acquisition of RMS last year. In addition to building a business serving the insurance industry, RMS brings scaled world-class weather and climate data and analytics, which we're bringing to a much broader customer audience. Inclusive of revenue from RMS's climate-related offerings, Our combined revenue for our ESG and climate solutions was approximately $170 million in 2021. We expect this revenue to grow in a low double-digit percent range this year. We also expect our climate revenues, which today are predominantly from RMS, to accelerate as we continue to integrate its best-in-class models to meet our customers' growing needs. And going forward, we'll update you on this revenue number as it provides, I think, a good sense of our scale and impact in this area. Our growth is supported by a number of key innovations and award-winning product launches. Last month, we launched ESG360, which is a powerful platform that delivers decision-relevant ESG data and insights to portfolio managers. We're also launching new climate change models in the U.S. and Asia that'll help address the growing need for climate change analytics, including supporting increasing regulatory demands. We're proud to have received recognition from customers for our ESG and climate-related products and services, including being named ESG Opinion Provider of the Year by the International Financing Review. I'm excited about the opportunities ahead as we continue to play a meaningful role in helping companies decode risk and unlock opportunity. And speaking of decoding risk, our customers turn to us even more in times of stress and uncertainty, and we saw that during the throes of the pandemic. And as you can see on this slide, the relevance of our offerings has probably never been higher. with significant readership of our research and usage of our solutions. Our research reports have been read over 200,000 times, while KYC screenings are up 70% year-over-year as our customers have a critical need to better understand and monitor their own customers and suppliers amidst geopolitical conflict and sanctions. With that, I will now turn the call over to Mark to provide further details on Moody's first quarter results, as well as an update to our outlook for 2022. Thank you, Rob.