Moody's Corporation Reports Results for Fourth Quarter and Full Year 2021; Sets Full Year 2022 and Medium-Term Outlooks

• Moody's Corporation 4Q 2021 revenue of $1.5 billion, up 19% from 4Q 2020; FY 2021 revenue of $6.2 billion, up 16% from FY 2020
• 4Q 2021 diluted EPS of $2.28, up 37% from 4Q 2020 and adjusted diluted EPS¹ of $2.33, up 22%; FY 2021 diluted EPS of $11.78, up 25% from FY 2020 and adjusted diluted EPS¹ of $12.29, up 21%
• Projected FY 2022 diluted EPS of $11.50 to $12.00 and adjusted diluted EPS¹ of $12.40 to $12.90
• Introducing new medium-term guidance², including for revenue to grow by at least 10% on an average annualized basis

Moody's Corporation (NYSE: MCO) today announced results for the fourth quarter and full year 2021, provided its outlook for full year 2022 and introduced new medium-term guidance².

“Moody’s achieved record revenue in 2021 with Moody’s Investors Service and Moody’s Analytics both delivering mid-teens percent growth,” said Rob Fauber, President and Chief Executive Officer of Moody’s. “Throughout the year, we strategically invested in our business to help our customers make better decisions around a wider range of risks. These investments position us to further expand our suite of offerings and to create long-term, sustainable value for all our stakeholders. For 2022, that translates to forecasted revenue growth in the high-single-digit percent range and adjusted diluted EPS in the range of $12.40 to $12.90. As we scale our integrated risk assessment offerings, we’re also pleased to introduce new medium-term guidance, including our expectation for Moody’s revenue to grow by at least 10% on an average annualized basis and adjusted operating margin to be in the low-50s percent range.”

Moody's Corporation reported revenue of $1.5 billion for the three months ended December 31, 2021, up 19% from the prior-year period. Foreign currency translation unfavorably impacted Moody's revenue by 1%.

Moody's Investors Service (MIS) Fourth Quarter Revenue Up 19%

Revenue for MIS in the fourth quarter of 2021 was $871 million, up 19% from the prior-year period. Foreign currency translation unfavorably impacted MIS revenue by 1%.

Corporate finance revenue was $444 million, up 20%, largely driven by robust U.S. and EMEA leveraged loan activity as issuers continued to refinance existing debt and fund M&A transactions. Investment grade issuance further supported growth, which was partially offset by a decline in high yield bond supply.

Financial institutions revenue was $137 million, up 6%, primarily due to issuers continuing to take advantage of the attractive rate and spread environment, and bolstered by acquisition financing.

Public, project and infrastructure finance revenue was $118 million, down 2%. This was the result of increased non-U.S. infrastructure finance activity, offset by lower U.S. public finance and EMEA sub-sovereign supply as issuers’ financing needs had been largely addressed in prior quarters.

Structured finance revenue was $161 million, up 66%. Investors’ search for yield and sustained favorable market conditions, including historically tight spreads, drove growth in both new and refinanced collateralized loan obligation deals, as well as commercial and residential mortgage-backed security issuance.

Moody's Analytics (MA) Fourth Quarter Revenue Up 20%

Revenue for MA in the fourth quarter of 2021 was $668 million, up 20% from the prior-year period. Recurring revenue grew 22% and comprised 93% of total MA revenue, up from 91%. Organic MA revenue¹ and organic MA recurring revenue¹ were up 6% and 8%, respectively. Both organic figures excluded the impact of acquisitions completed in the prior twelve months. Foreign currency translation unfavorably impacted total MA revenue by 1%.

Research, Data and Analytics (RD&A) revenue was $454 million, up 12%. This increase was driven by robust demand for KYC and compliance offerings, as well as data solutions, and was further supported by strong renewal yields for subscription products. Organic RD&A revenue¹ was $446 million, up 10%, and excluded revenue from acquisitions completed in the prior twelve months.

Enterprise Risk Solutions (ERS) revenue was $214 million, up 42%. ERS recurring revenue comprised 89% of total ERS revenue, up from 81%. Organic ERS recurring revenue¹ grew 1% to $124 million, while organic ERS transaction revenue¹ declined 29% to $20 million due to the anticipated shift away from one-time sales. As a result, total organic ERS revenue¹, which excluded revenue from acquisitions completed in the prior twelve months, was $144 million, down 5%.

Fourth quarter 2021 operating expenses for Moody's Corporation totaled $1.0 billion, up 21% from the prior-year period. Operational and transaction-related costs associated with recent acquisitions contributed approximately 15 percentage points of growth. The intentional acceleration of investments in several high priority growth markets drove 9 percentage points of the total increase and higher incentive, commission and stock-based compensation accruals contributed 4 percentage points. Savings from ongoing expense efficiency initiatives lowered expense growth by 3 percentage points. Foreign currency translation favorably impacted operating expenses by 1%.

Operating income of $514 million was up 16% and adjusted operating income¹ of $589 million was up 11%, and excluded depreciation and amortization, as well as the prior-year period’s restructuring charges. Foreign currency translation unfavorably impacted operating income and adjusted operating income¹ by 2% each. Moody's operating margin was 33.4% and the adjusted operating margin¹ was 38.3%. The MIS adjusted operating margin was 53.6% and the MA adjusted operating margin was 14.9%.

Moody’s effective tax rate for the fourth quarter of 2021 was 17.2%, down from 21.5% in the prior-year period. This decrease was primarily due to the recognition of higher U.S. discrete tax benefits in the fourth quarter of 2021 compared to the prior-year period.

Moody’s Corporation reported revenue of $6.2 billion for full year 2021, up 16% from the prior-year period. Foreign currency translation favorably impacted Moody’s revenue by 2%.

MIS revenue totaled $3.8 billion, up 16%. Foreign currency translation favorably impacted MIS revenue by 1%.

MA revenue totaled $2.4 billion, up 16%. Organic MA revenue¹ and organic MA recurring revenue¹ were up 9% and 12%, respectively. Both organic figures excluded the impact of acquisitions completed in the prior twelve months. Foreign currency translation favorably impacted MA revenue by 2%.

Full year 2021 operating expenses for Moody’s Corporation totaled $3.4 billion, up 13% compared to the prior-year period, driven by strategic investments that enhance and broaden Moody’s capabilities to support future growth. Approximately 5 and 7 percentage points of this increase were mainly attributable to organic investments in product development and infrastructure, as well as operational and transaction-related costs associated with recent acquisitions, respectively. Ongoing expense efficiency initiatives reduced expenses by 4 percentage points, offsetting the 4 percentage points of expense growth from higher incentive, commission and stock-based compensation accruals. Foreign currency translation unfavorably impacted operating expenses by 1%.

Operating income of $2.8 billion was up 19% and adjusted operating income¹ of $3.1 billion was up 16%. Foreign currency translation favorably impacted Moody’s operating income and adjusted operating income¹ by 2% each. Moody’s operating margin was 45.7% and the adjusted operating margin¹ was 49.9%. The MIS adjusted operating margin was 62.2% and the MA adjusted operating margin was 26.0%.

The effective tax rate for full year 2021 was 19.6%, down from 20.3% in the prior-year period. This decrease was primarily due to tax benefits resulting from the resolution of uncertain tax positions, as well as higher U.S. discrete tax benefits in 2021 compared to the prior-year period.

Diluted EPS of $11.78 increased 25% and adjusted diluted EPS¹ of $12.29 grew 21%. Both full year diluted EPS and adjusted diluted EPS¹ included a $0.17 per share tax benefit related to employee share-based compensation, compared to a $0.31 per share tax benefit in full year 2020.

Capital Returned to Stockholders

During the fourth quarter of 2021, Moody's repurchased approximately 0.3 million shares at a total cost of $122 million, or an average cost of $389.78 per share, and issued 0.1 million shares as part of its employee stock-based compensation programs. Moody's returned $116 million to its stockholders via dividend payments during the fourth quarter of 2021.

For full year 2021, Moody’s repurchased 2.2 million shares at a total cost of $750 million, or an average cost of $336.58 per share, and issued net 0.8 million shares as part of its employee stock-based compensation programs. The net amount includes shares withheld for employee payroll taxes.

Moody’s returned $463 million to its stockholders via dividend payments during 2021. On February 7, 2022, the Board of Directors declared a regular quarterly dividend of $0.70 per share of MCO Common Stock, a 13% increase from the prior quarterly dividend of $0.62 per share. The dividend will be payable on March 18, 2022 to stockholders of record at the close of business on February 25, 2022.

In addition, Moody’s is announcing a $500 million accelerated share repurchase program expected to be completed in the first half of 2022.

Outstanding shares as of December 31, 2021 totaled 185.6 million, down 1% from December 31, 2020. As of December 31, 2021, Moody's had approximately $1.1 billion of share repurchase authority remaining. On February 7, 2022, the Board of Directors approved an additional $750 million of share repurchase authority for a total of approximately $1.7 billion remaining as of February 10, 2022.

Sources of Capital and Cash Flow Generation

At year-end, Moody's had $7.4 billion of outstanding debt and an undrawn $1.25 billion revolving credit facility. Total cash, cash equivalents and short-term investments at year-end were $1.9 billion, down from $2.7 billion on December 31, 2020.

Cash flow from operations for full year 2021 was $2.0 billion and free cash flow¹ was $1.9 billion.

Moody’s outlook for full year 2022 reflects assumptions about numerous factors that could affect its business, and is based on currently available information reviewed by management through and as of today’s date. These assumptions include, but are not limited to, the effects of interest rates, inflation, foreign currency exchange rates, capital markets’ liquidity and activity in different sectors of the debt markets, as well as the impact of COVID-19, including the responses to the pandemic by governments, regulators, businesses and individuals. This outlook also reflects assumptions about general economic conditions and GDP growth in the U.S. and Euro area, as well as the Company’s own operations, personnel and opportunistic M&A activity.

The outlook for full year 2022, as of February 10, 2022, incorporates various specific full year macroeconomic assumptions, including: (a) 2022 U.S. and Euro area GDPs to each expand by approximately 3.5% - 4.5%; (b) global benchmark rates to increase from historic lows; (c) U.S. high yield interest rate spreads to widen, moving slightly above the historical average of approximately 500 bps; (d) inflation rates to remain above central bank targets in many countries; (e) U.S. unemployment to fall to approximately 3.5%; and (f) the global high yield default rate to initially decline before gradually rising to approximately 2.4%.

Moody's ratings revenue guidance assumes that MIS's full year 2022 global rated issuance will decrease in the low-single-digit percent range.

While the duration and severity of the COVID-19 pandemic are unknown, 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 2022 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 $1.14 to €1.

Full year 2022 guidance assumes share repurchases of at least $1.5 billion, subject to available cash, market conditions, M&A opportunities and other ongoing capital allocation decisions.

Full year 2022 diluted EPS is projected to be $11.50 to $12.00. The Company expects full year 2022 adjusted diluted EPS¹ to be $12.40 to $12.90.

A full summary of Moody's full year 2022 guidance as of February 10, 2022, is included in Table 12 - 2022 Outlook at the end of this press release.

Moody's will hold a conference call to discuss fourth quarter and full year 2021 results, as well as its full year 2022 and medium-term outlooks on February 10, 2022, 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 3147599.

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 3:30 p.m. ET on March 11, 2022.

A replay of the teleconference will be available from 3:30 p.m. ET, February 10, 2022 until 3:30 p.m. ET, March 11, 2022. The replay can be accessed from within the U.S. and Canada by dialing +1-888-203-1112. Other callers can access the replay at +1-719-457-0820. The replay confirmation code is 3147599.

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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.

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 Moody’s own operations and personnel; future worldwide 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. 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.

The table below presents revenue 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.

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 revenue. 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 revenue and software maintenance revenue.

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 and the loss pursuant to the divestiture of MAKS are excluded as the frequency and magnitude of these items may vary widely across periods and 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.