Moody's Corporation Reports Results for Third Quarter 2021

• Moody's Corporation 3Q 2021 revenue of $1.5 billion, up 13% from 3Q 2020
• Moody's Investors Service revenue of $925 million, up 12%; Moody’s Analytics revenue of $601 million, up 13%
• 3Q 2021 diluted EPS of $2.53, up 2% from 3Q 2020; adjusted diluted EPS¹ of $2.69, flat compared to the prior-year period
• FY 2021 diluted EPS and adjusted diluted EPS¹ guidance ranges raised and narrowed to $11.65 to $11.85 and $12.15 to $12.35, respectively

Moody's Corporation (NYSE: MCO) today announced results for the third quarter of 2021 and updated its full year 2021 outlook.

"In the third quarter, Moody’s delivered impressive double-digit revenue growth and invested significantly in its capabilities and product development in order to better serve a number of high-growth markets,” said Rob Fauber, President and Chief Executive Officer of Moody’s. “As a result of our robust year-to-date performance, we now project Moody’s full year 2021 revenue to increase in the low-teens percent range and are raising and narrowing our full year adjusted diluted EPS guidance range to $12.15 to $12.35.”

THIRD QUARTER REVENUE UP 13%

Moody's Corporation reported revenue of $1.5 billion for the three months ended September 30, 2021, up 13% from the prior-year period. Foreign currency translation favorably impacted Moody's revenue by 1%.

Moody's Investors Service (MIS) Third Quarter Revenue Up 12%

Revenue for MIS in the third quarter of 2021 was $925 million, up 12% from the prior-year period. The impact of foreign currency translation was negligible.

Corporate finance revenue was $488 million, up 6%. This was driven by a surge in U.S. leveraged loans for both M&A transactions and increased refinancing activity, partially offset by a decline in global investment grade and high yield bond issuance compared to a strong prior-year period.

Financial institutions revenue was $153 million, up 14%, as bank and insurance issuers opportunistically secured low-cost funding given the attractive rate and spread environment.

Public, project and infrastructure finance revenue was $130 million, down 2%, due to lower supply from U.S. public finance issuers as their immediate financing needs had been largely addressed in prior periods.

Structured finance revenue was $143 million, up 63%. Ongoing favorable market conditions, including historically tight spreads, drove continued growth in collateralized loan obligation refinancing activity, as well as commercial and residential mortgage-backed security issuance.

Moody's Analytics (MA) Third Quarter Revenue Up 13%

Revenue for MA in the third quarter of 2021 was $601 million, up 13% from the prior-year period. Recurring revenue grew 18% and comprised 94% of total MA revenue, up from 90%. Organic MA revenue¹ was $573 million, up 8%, and excluded the impact of acquisitions completed in the prior twelve months. Foreign currency translation favorably impacted total MA revenue by 1%.

Research, Data and Analytics (RD&A) revenue was $445 million, up 15%. This increase was driven by continued new business demand for KYC and compliance solutions, as well as data feeds, and was further supported by strong renewal yields for our credit research products. Organic RD&A revenue¹ was $431 million, up 12%, and excluded revenue from the acquisitions of Acquire Media, Catylist and Cortera.

Enterprise Risk Solutions (ERS) revenue was $156 million, up 8%. Organic ERS recurring revenue¹ grew 13%, driven by our banking and insurance solutions, while ERS transaction revenue declined due to an expected decrease in one-time sales as the strategic focus remains on recurring revenue. As a result, organic ERS revenue¹, which excluded revenue from the acquisitions of ZM Financial Systems and RMS, was $142 million, down 2%.

THIRD QUARTER OPERATING EXPENSES AND OPERATING INCOME

Third quarter 2021 operating expenses for Moody's Corporation totaled $850 million, up 19% from the prior-year period. Approximately fifteen percentage points of this increase were attributable to operational and transaction-related costs associated with recent acquisitions, including RMS, as well as higher incentive and stock-based compensation accruals and a $16 million charitable contribution via The Moody’s Foundation. Organic strategic investments, as well as hiring and annual salary increases further elevated expenses by 7 percentage points, but were partially offset by ongoing efficiency initiatives. Foreign currency translation unfavorably impacted operating expenses by 1%.

Operating income of $676 million was up 5%. Adjusted operating income¹ of $737 million was up 2%, and excluded depreciation and amortization, as well as the prior-year period’s restructuring-related charges. The impact of foreign currency translation was negligible for both operating income and adjusted operating income¹. Moody's operating margin was 44.3% and the adjusted operating margin¹ was 48.3%. The MIS adjusted operating margin was 60.0% and the MA adjusted operating margin was 26.0%.

Moody’s effective tax rate for the third quarter of 2021 was 23.4%, up from 22.0%. This increase was primarily due to a tax benefit associated with a non-U.S. corporate reorganization in 2020 that did not recur in 2021.

YEAR-TO-DATE REVENUE UP 15%

Moody’s Corporation reported revenue of $4.7 billion for the first nine months of 2021, up 15% from the prior-year period. Foreign currency translation favorably impacted Moody’s revenue by 2%.

MIS revenue totaled $2.9 billion, up 15%. Foreign currency translation favorably impacted MIS revenue by 2%.

MA revenue totaled $1.7 billion, up 14%. Organic MA revenue¹ was $1.7 billion, up 10%, and excluded the impact of acquisitions completed in the prior twelve months. Foreign currency translation favorably impacted MA revenue by 3%.

YEAR-TO-DATE OPERATING EXPENSES UP 10%

Operating expenses for Moody’s Corporation in the first nine months of 2021 totaled $2.3 billion, up 10% compared to the prior-year period. Ongoing expense efficiency initiatives partially offset growth from higher incentive and stock-based compensation accruals, operating and transaction-related costs from recent acquisitions, The Moody’s Foundation contribution and organic strategic investments. Foreign currency translation unfavorably impacted operating expenses by 2%.

Operating income of $2.3 billion was up 20%. Adjusted operating income¹ of $2.5 billion was up 18%. Foreign currency translation favorably impacted Moody’s operating income and adjusted operating income¹ by 2% each. Moody’s operating margin was 49.8% and the adjusted operating margin¹ was 53.7%. The MIS adjusted operating margin was 64.8% and the MA adjusted operating margin was 30.2%.

The effective tax rate for the first nine months of 2021 was 20.2%, approximately flat compared to the prior-year period.

Diluted EPS of $9.51 was up 23%. Adjusted diluted EPS¹ of $9.96 was up 21%. Both year-to-date diluted EPS and adjusted diluted EPS¹ included a $0.15 per share tax benefit related to employee share-based compensation, compared to a $0.27 per share tax benefit in the prior-year period.

CAPITAL ALLOCATION AND LIQUIDITY

Capital Returned to Stockholders

During the third quarter of 2021, Moody's repurchased approximately 333 thousand shares at a total cost of $125 million, or an average cost of $374.70 per share, and issued net 54 thousand shares as part of its employee stock-based compensation programs. The net amount includes shares withheld for employee payroll taxes. Moody's returned $115 million to its stockholders via dividend payments during the third quarter of 2021.

Over the first nine months of 2021, Moody’s repurchased 1.9 million shares at a total cost of $628 million, or an average cost of $327.88 per share, and issued net 0.7 million shares as part of its employee stock-based compensation programs.

Moody’s returned $347 million to its stockholders via dividend payments during the first nine months of 2021. On October 26, 2021, the Board of Directors declared a regular quarterly dividend of $0.62 per share of MCO Common Stock. The dividend will be payable on December 14, 2021 to stockholders of record at the close of business on November 23, 2021.

Outstanding shares as of September 30, 2021 totaled 185.9 million, down 1% from September 30, 2020. As of September 30, 2021, Moody's had approximately $1.2 billion of share repurchase authority remaining.

Sources of Capital and Cash Flow Generation

At quarter-end, Moody's had $7.5 billion of outstanding debt and an undrawn $1.0 billion revolving credit facility. Total cash, cash equivalents and short-term investments at quarter-end were $2.3 billion, down from $2.7 billion on December 31, 2020.

Cash flow from operations for the first nine months of 2021 was $1.7 billion and free cash flow¹ was $1.6 billion.

ASSUMPTIONS AND OUTLOOK FOR FULL YEAR 2021

Moody’s updated outlook for 2021 reflects numerous assumptions about many factors that could affect its business based on information reviewed by management through and as of today’s date, including observations and assumptions regarding the impact of COVID-19, the responses to the pandemic by governments, regulators, businesses and individuals, as well as the effects on interest rates, inflation, foreign currency exchange rates, capital markets’ liquidity and activity in different sectors of the debt markets. The outlook also reflects assumptions about both general economic conditions and GDP growth in the U.S. and Euro area, as well as the company’s own operations and personnel.

The outlook as of October 28, 2021 incorporates various macroeconomic assumptions including: (a) full year 2021 U.S. and Euro area GDPs to expand by approximately 5.5% - 6.5% and 4.5% - 5.5%, respectively; (b) U.S. high yield interest rate spreads to slightly widen, but remain below the historical average of approximately 500 bps; (c) U.S. unemployment to remain below 5%; and (d) the global high yield default rate to fall below 2% by the end of 2021.

Moody's ratings revenue guidance assumes that MIS's full year 2021 global rated issuance will increase in the high-single-digit percent range.

While the duration and severity of the COVID-19 crisis are unknown, the company has operated effectively to date and Moody’s outlook assumes that the company continues to not experience any material negative impact on its ability to conduct its operations as a result of COVID-19. The implications of COVID-19, or other situations or developments, could affect these and many other factors that also could cause actual results to differ materially from Moody’s outlook.

These assumptions are subject to uncertainty, and actual full year 2021 results could differ materially from Moody’s current outlook. In addition, Moody’s guidance assumes foreign currency translation. Specifically, our forecast reflects exchange rates for the British pound (£) of $1.35 to £1 and for the euro (€) of $1.16 to €1 for the remainder of the year.

Full year 2021 guidance assumes share repurchases of approximately $750 million, subject to available cash, market conditions, M&A opportunities and other ongoing capital allocation decisions.

Full year 2021 diluted EPS is projected to be $11.65 to $11.85. The company expects full year 2021 adjusted diluted EPS¹ to be $12.15 to $12.35.

A full summary of Moody's guidance as of October 28, 2021, is included in Table 12 - 2021 Outlook at the end of this press release.

CONFERENCE CALL

Moody's will hold a conference call to discuss third quarter 2021 results, as well as its full year 2021 outlook on October 28, 2021, at 11:30 a.m. Eastern Time ("ET"). Individuals within the U.S. and Canada can access the call by dialing +1-877-400-0505. Other callers should dial +1-720-452-9084. Please dial in to the call by 11:20 a.m. ET. The passcode for the call is 4335083.

The teleconference will also be webcast with an accompanying slide presentation, which can be accessed through Moody's Investor Relations website, ir.moodys.com within "Events & Presentations". The webcast will be available until 4:00 p.m. ET on November 26, 2021.

A replay of the teleconference will be available from 4:00 p.m. ET, October 28, 2021 until 4:00 p.m. ET, November 26, 2021. The replay can be accessed from within the United States and Canada by dialing +1-888-203-1112. Other callers can access the replay at +1-719-457-0820. The replay confirmation code is 4335083.

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ABOUT MOODY'S CORPORATION

Moody’s (NYSE: MCO) is a global integrated risk assessment firm that empowers organizations to make better decisions. Its data, analytical solutions and insights help decision-makers identify opportunities and manage the risks of doing business with others. We believe that greater transparency, more informed decisions, and fair access to information open the door to shared progress. With over 13,000 employees in more than 40 countries, Moody’s combines international presence with local expertise and over a century of experience in financial markets. Learn more at moodys.com/about.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

Certain statements contained in this document are forward-looking statements and are based on future expectations, plans and prospects for Moody’s business and operations that involve a number of risks and uncertainties. The forward-looking statements in this document are made as of the date hereof, and Moody’s disclaims any duty to supplement, update or revise such statements on a going-forward basis, whether as a result of subsequent developments, changed expectations or otherwise. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Moody’s is identifying certain factors that could cause actual results to differ, perhaps materially, from those indicated by these forward-looking statements. Those factors, risks and uncertainties include, but are not limited to the impact of COVID-19 on volatility in the U.S. and world financial markets, on general economic conditions and GDP in the U.S. and worldwide, and on the Moody’s own operations and personnel; future world-wide credit market disruptions or economic slowdowns, which could affect the volume of debt and other securities issued in domestic and/or global capital markets; other matters that could affect the volume of debt and other securities issued in domestic and/or global capital markets, including regulation, credit quality concerns, changes in interest rates, inflation and other volatility in the financial markets such as that due to Brexit and uncertainty as companies transition away from LIBOR; the level of merger and acquisition activity in the U.S. and abroad; the uncertain effectiveness and possible collateral consequences of U.S. and foreign government actions affecting credit markets, international trade and economic policy, including those related to tariffs, tax agreements and trade barriers; concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings; the introduction of competing products or technologies by other companies; pricing pressure from competitors and/or customers; the level of success of new product development and global expansion; the impact of regulation as an NRSRO, the potential for new U.S., state and local legislation and regulations; the potential for increased competition and regulation in the EU and other foreign jurisdictions; exposure to litigation related to our rating opinions, as well as any other litigation, government and regulatory proceedings, investigations and inquiries to which Moody’s may be subject from time to time; provisions in U.S. legislation modifying the pleading standards and EU regulations modifying the liability standards, applicable to credit rating agencies in a manner adverse to credit rating agencies; provisions of EU regulations imposing additional procedural and substantive requirements on the pricing of services and the expansion of supervisory remit to include non-EU ratings used for regulatory purposes; the possible loss of key employees; failures or malfunctions of our operations and infrastructure; any vulnerabilities to cyber threats or other cybersecurity concerns; the outcome of any review by controlling tax authorities of Moody’s global tax planning initiatives; exposure to potential criminal sanctions or civil remedies if Moody’s fails to comply with foreign and U.S. laws and regulations that are applicable in the jurisdictions in which Moody’s operates, including data protection and privacy laws, sanctions laws, anti-corruption laws, and local laws prohibiting corrupt payments to government officials; the impact of mergers, acquisitions or other business combinations and the ability of Moody’s to successfully integrate acquired businesses; currency and foreign exchange volatility; the level of future cash flows; the levels of capital investments; and a decline in the demand for credit risk management tools by financial institutions. Other factors, risks and uncertainties relating to our acquisition of RMS could cause our actual results to differ, perhaps materially, from those indicated by these forward-looking statements, including risks relating to the integration of RMS’s operations, products and employees into Moody’s and the possibility that anticipated synergies and other benefits of the acquisition will not be realized in the amounts anticipated or will not be realized within the expected timeframe; risks that the acquisition could have an adverse effect on the business of RMS or its prospects, including, without limitation, on relationships with vendors, suppliers or customers; claims made, from time to time, by vendors, suppliers or customers; changes in the U.S., Europe (primarily the U.K.), Japan, India or global marketplaces that have an adverse effect on the business of RMS; and other factors, risks and uncertainties relating to the transaction as set forth under the caption “‘Safe Harbor’ Statement under the Private Securities Litigation Reform Act of 1995 ” in Moody’s report on Form 8-K filed on August 6, 2021, which are incorporated by reference herein. These factors, risks and uncertainties as well as other risks and uncertainties that could cause Moody’s actual results to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements are currently, or in the future could be, amplified by the COVID-19 outbreak, and are described in greater detail under “Risk Factors” in Part I, Item 1A of Moody’s annual report on Form 10-K for the year ended December 31, 2020, and in other filings made by Moody’s from time to time with the SEC or in materials incorporated herein or therein. Stockholders and investors are cautioned that the occurrence of any of these factors, risks and uncertainties may cause Moody’s actual results to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements, which could have a material and adverse effect on Moody’s business, results of operations and financial condition. New factors may emerge from time to time, and it is not possible for Moody’s to predict new factors, nor can Moody’s assess the potential effect of any new factors on it.

¹ Refer to tables at the end of this press release for a reconciliation to U.S. GAAP of all adjusted and organic measures.

Table 6 - Financial Information by Segment (Unaudited)

The table below presents revenue, operating income and adjusted operating income by reportable segment. The Company defines adjusted operating income as operating income excluding: i) depreciation and amortization; ii) restructuring; and iii) a loss pursuant to the divestiture of MAKS.

Table 7 - Transaction and Recurring Revenue (Unaudited)

The tables below summarize the split between transaction and recurring revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance and other one-time fees while recurring revenue represents the recurring monitoring of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. In MIS Other, transaction revenue represents revenue from professional services and recurring revenue represents subscription-based revenues. In the MA segment, transaction revenue represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and research and analytical engagements. Recurring revenue in MA represents subscription-based revenues and software maintenance revenue.

Table 8 - Adjusted Operating Income and Adjusted Operating Margin (Unaudited)

The Company presents Adjusted Operating Income and Adjusted Operating Margin because management deems these metrics to be useful measures to provide additional perspective on Moody’s operating performance. Adjusted Operating Income excludes the impact of: i) depreciation and amortization; ii) restructuring; and iii) a loss pursuant to the divestiture of MAKS. Depreciation and amortization are excluded because companies utilize productive assets of different estimated useful lives and use different methods of acquiring and depreciating productive assets. Restructuring charges are excluded as the frequency and magnitude of these charges may vary widely across periods and companies. The loss pursuant to the divestiture of MAKS is excluded as the frequency and magnitude of divestiture activity may vary widely from period to period and across companies.

Management believes that the exclusion of the aforementioned items, as detailed in the reconciliation below, allows for an additional perspective on the Company’s operating results from period to period and across companies. The Company defines Adjusted Operating Margin as Adjusted Operating Income divided by revenue.

Table 9 - Free Cash Flow (Unaudited)

The table below reflects a reconciliation of the Company's net cash flows from operating activities to free cash flow. The Company defines free cash flow as net cash provided by operating activities minus payments for capital additions. Management deems capital expenditures essential to the Company's product and service innovations and maintenance of Moody's operational capabilities. Accordingly, capital expenditures are deemed to be a recurring use of Moody's cash flow. Management believes that free cash flow is a useful metric in assessing the Company's cash flows to service debt, pay dividends and to fund acquisitions and share repurchases.

Table 10 - Organic Revenue and Growth Measures (Unaudited)

The Company presents the organic revenue and organic revenue growth (including organic recurring revenue and organic recurring revenue growth for the ERS LOB) because management deems these metrics to be useful measures to provide additional perspective in assessing revenue growth excluding the inorganic revenue impacts from certain acquisition activity. The following table details the period of operations excluded from each acquisition to determine organic revenue and organic growth rates.

Below is a reconciliation of MA's reported revenue and growth rates to its organic revenue and organic growth rates: