MCO - Earnings call transcript Q3 2018

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Operator

Good day, and welcome ladies and gentlemen, to the Moody's Corporation Third Quarter 2018 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions]. I will now turn the conference over to Steve Maire, Global Head of Investor Relations and Communications. Please go ahead.

Stephen Maire

you. Thank year and third us well quarter current for everyone, to this as for outlook Moody's' discuss XXXX full thanks morning, on joining teleconference our Good XXXX. results, as Head I am Investor and Communications. of Steve Relations Global Maire, the released well XXXX, current for for our XXXX. quarter full of This morning, year results third Moody's outlook its as as ir.moodys.com. earnings available on both press teleconference this are release The website and at accompany the presentation to our Ray President call. this Chief morning's Officer, Executive lead McDaniel, will Moody's' and conference this call Vice the is on Mark Financial Senior remarks prepared making Moody's morning President Officer. Kaye, Also Chief and

During company, harbor the to ended to listen-only of call statements. forth out this Act, Act the section filed These, the earnings the together was XX, by would In the of I our non-GAAP Please in adjusted mentioned McDaniel. the attention XXXX, Management's I to on website. will discussed turn measures found Ray risk all I of statements, differ on statements earnings media accordance call, other that to call. call table also we call Discussion safe and may your of be also the adjusted in any actual to the now that are like in the your GAAP presenting cause release remarks this such will forward-looking and year filings on before organic from toward safe materially could Litigation and morning a to factors harbor attention point morning our results also refer we those this this which with that the Reform over the of set mode. begin, end be Private press or during for be our for members and at a website contain Securities made And the within December to Today's contained language, SEC's I forward-looking the end factors the release. Form and of Analysis figures. our available with annual XXXX. can important direct may XX-K the the meaning report SEC on in which reconciliation

Raymond McDaniel

Good you to everyone Steve. and today's morning you, call. Thank joining thank for

highlights. of comments we Senior then to the additional flat In from third third will financial Mark Analytics, quarter was Mark XXXX million This welcome $X.X remarks, period. of Kaye XXXX debt at billion offset X% third income X%. $XXX Vice up am Officer. Moody's totaled operating income by I Before begin, XX on year-to-date Kaye the XXXX. the partially X% quarter Moody's for level in reflected Moody's decline corporate the Service prior as result of Investors up record slowed versus issuance non-financial was strong growth a period. was year Adjusted up quarter quarter XXXX. third million, for $XXX approximately the million, prior the expenses of the of conclude Mark August his Operating year will operating to summarizing respond $XXX Operating from financial by for pleased as revenue I'll After quarter, XXXX. Chief third to and and with happy earnings our with follow current results. we'll questions. Moody's details to I President first on joined outlook call. begin Financial Moody's your prepared third quarter and to be our

related the up per to diluted $X.XX X% quarter EPS intangible $X.XX operating third per of operating acquired the immaterial adjusted quarter for the EPS of XX.X% $X.XX, excluded an XX%, share Foreign down XXXX. income had amortization impact operating from assets. margin share, diluted for Adjusted and was margin was was operating XX.X%. the adjusted on income. Moody's translation was quarter and and currency The

currency foreign adjusted van Dijk $X.XX gain amortization Bureau expenses XXXX quarter the and share of with acquired acquisition. hedge $X.XX per acquisition-related assets per excluded associated intangible Third diluted and related EPS to share a

revenue Turning up U.S. up was to revenue prior up Moody's the from performance. X%; XXXX year was first record XX% billion, a revenue XX%. for year-to-date the and $X.X $X.X the nine period. of non-U.S. was $X.X billion, billion, months

Foreign Service up currency from revenue was Moody's X%; $XXX revenue by revenue prior was non-U.S. year and translation period. up $X.X the impacted million, of X%. X%. favorably up billion billion, U.S. $X.X Investors Moody's revenue X% was

$X.X X% X%. U.S. Moody's and Foreign period. a currency prior favorably million was impacted from $XXX was of revenue of up MIS translation up non-U.S. was increase XX%. million XX% billion, Analytics by year revenue revenue revenue the $XXX

Foreign MA months the translation which as XXXX period. nine MA favorably revenue was months XX, from $X.X expenses operating related included Bureau of first lower Bureau Moody's the up were primarily August incremental hiring, inclusion year awards. compensation the XXXX of by by Dijk the expenses year Dijk for incentive nine billion, period. revenue impacted from van billion, XXXX, well Organic currency revenue prior first adjustments as was X%. van operating up driven $X.X X% for prior by the This for to Corporation accruals compensation salary of growth offset and XX% partially as of

XXXX. billion, of XX% XX%. nine billion $X.X Foreign first unfavorably operating expenses currency Operating months of impacted $X.X from income by X%. translation Adjusted income up up was was the

favorably quarter, tax net statute Primarily and settlement. a in and from effective period. position first to The expiration U.S. the tax Moody's impacted and due of million. restructuring million prior to to each. income related to to $XX primarily which and benefits management for $X.XX. intend full for limitations to and we $XX in fourth EPS activities, $X.XX range down to rate debt quarter to we tax an our expectation diluted and was EPS audit operating operating XX%, into a of operating first of XXXX was half the range adjusted adjusted X% million, translation the $X.XX XX% its Foreign of of The fourth XX.X%. nine $XX are due adjusted of a our months charge year lighter through to uncertain In statutory $XX decline by reducing undertake was response, for currency cost the margin margin continued was lower aggregate to year rate operating income XX.X%, issuance charge a XXXX million outlook $X.XX result of will diluted

million million operating and this updates. the Mark now result commentary $XX over savings $XX to I'll in to $XX expect call We annualized thereafter. further savings $XX million to turn of to other financial the of XXXX, million aggregate results provide and to our on in

Mark Kaye

company quarter reviewing begin Ray. by at Thanks, I'll third the XXXX revenue level.

was XX% The U.S. revenue total Moody's XX% of of up of for was foreign revenue revenue X%. Moody's $XXX total revenue. Recurring down up impact million revenue Moody's currency translation was million represented XX% third Non-U.S. on quarter $X.X As $XXX billion, was XX% the $XXX negligible. revenue million total represented of of mentioned, and revenue. and was of Ray X%. up

Looking on X% now revenue at Investors to down total down revenue starting was $XXX of currency X%. was quarter of translation each MIS $XXX Moody's million. represented The $XXX Total U.S. the impact of businesses, million, Non-U.S. with revenue. Service. million for and revenue MIS XX% was of negligible. our foreign revenue MIS decreased XX%

business for lines MIS. Moving to of the

issuance revenues third for high-yield finance activity. investment U.S. and revenue was grade finance U.S. in bond and down the million, corporate decline result XX% This and XX%. non-U.S. respectively. were $XXX primarily global the corporate X%, quarter First, down reflected

structured revenue Second, revenue the in structured revenue CMBS XX%. was and This U.S. issuance, by X%. EMEA reflected up new finance $XXX finance formation totaled U.S. U.S. partially down result lower X% million, offset non-U.S. down while rated CLO was

infrastructure million of revenue infrastructure U.S. reflected U.S. sector. was decline while $XX X%, revenue by infrastructure financing million institutions XX%, down was finance revenue institutions Third, activity, non-U.S. primarily and and financial XX%, was up X% revenue was driven and project from and X%. insurance Fourth, non-U.S. issuance. strong down issuance financial finance and and $XXX in revenues project up public, down global M&A-related XX% project the public, U.S. of in were a respectively. primarily finance

million to revenue of up of XX% $XXX Moody's $XXX represented XX%. X%. and for revenue. Turning XX% Total now U.S. was MA Analytics. was Non-U.S. million of up of $XXX MA million revenue revenue was up total

unfavorable Organic of the revenue XXXX, as included up the revenue X% of translation MA period. Dijk for van $XXX August year XX third from of currency revenue impact which point. an MA on percentage prior had Bureau million, X quarter Foreign was

Moving of now lines business to the for MA.

feed. Organic revenue and RD&A XX, and strength was sales First, and XX%, $XXX million, research, data million which as of XX%, up revenue, analytics, included research August X% of RD&A was or of rating and in Dijk driven by Bureau credit revenue U.S. RD&A, respectively. revenues XX%. data up up were van $XXX non-U.S.

timing were year Trailing the standard, prior was XXX, subscription respectively. and by subscription-based of risk enterprise million, versus At sales in revenue business for license XXXX, X%, down inclusive X% licenses prior origination revenue solutions, of Second, revenue under loan reflected to product. flat and new U.S. the solution ASC This the in strong decline revenue $XXX approximately the accounting the software revenue transitions ERS, as was the recognition to result or of ERS revenue revenue X%. X% onetime sales X% the XX-month was down of increased XX-month sales, non-U.S. offset growth XX%. period and up end were up and fees, service ERS of trailing while third the year while quarter perpetual period.

revenue onetime ERS down revenue was subscriptions was period, month XX same X%. the XX% and from up During

on Professional to Moving Services.

Third X%, up million up services was quarter and of X%. U.S. revenues non-U.S. respectively. professional were XX% revenue $XX and

operating approximately of for as hiring, the salary operating incentive inclusion period. incremental Moody's compensation Turning to and expenses. now related as to adjustments third year award. by van million, Dijk accruals compensation prior $XXX flat lower offset reflected were operating to This expenses the XXXX result well Bureau expenses quarter

by translation XXX currency X, company accounting the the Foreign ASC using revenue operating the impacted modified favorably retrospective On XXXX, new approach. expenses adopted January standard X%.

impact to the the revenue adoption expect immaterial the year of to for full continue XXXX. of and Corporation We Moody's expenses to be

XX.X% XX.X% statutory reflected lower was decline As rate. and in the Moody's Ray U.S. was effective margin was XX.X%, quarter The from prior the the down for mentioned, XX.X%. rate tax year Moody's adjusted operating tax operating margin primarily a period.

liability, tax quarter million. non-U.S. related an decrease matters, rate transition $XX tax included approximately a tax in positions third uncertain to XXXX being each offset related to increase The effective the tax by

provide capital I'll on update Now an allocation.

or payments on share. shares compensation employee payable close during stockholders the on an issued the $XXX of $XXX.XX of of the Moody's payments business X.X a shares quarter The million of its cost to a will million million, million for quarterly net cost at September third XXXX. flat at of average December shares net Moody's as of of stock. record common shares its via first declared amount shares cost also $XX of average XXXX. XXXX, part nine dividend part payroll of approximately also And repurchased XXX,XXX at during shares Moody's approximately includes plan. to a XXX,XXX its shareholders Outstanding dividend XX, totaled third a per million million total as to as total November withheld XXX,XXX be $X.XX repurchased the This Moody's share, of shareholders XXXX. Directors dividend dividend quarter an XX, of of of $XXX.X ago. on $XXX.XX returned via taxes. to cost Board its $XXX XXXX, per share plan. of regular Year-to-date, months of compensation or stock-based year employee and the XX, issued per employee October Moody's $XX XXXX, returned approximately a approximately During stock-based Moody's XX,

As quarter-end, million XX, Moody's debt remaining. million of quarter-end had of facility. U.S. were $XXX Moody's revolving September cash down approximately repurchase outstanding additional Total its XXXX, $X approximately XXXX, credit investments At and X% $XXX held billion approximately XX, $X.X of borrowing authority under share with of at equivalents of and the cash, approximately XX% since capacity billion, outside had December short-term

million an flow largely of acquisition. As with the in an to billion, year cash the pursuant its XX for million $X in made XXXX, over Department months net the the van first months and cash debt XXXX These Cash from prior the first the with management's operations billion, months in was in payments $XXX General. of company flow Bureau operating first nine ratio back down trailing of to nine from December was from September This commitment the due XXXX. XXXX reflected were XX, Free And month XXXX. adjusted of period. increases for State first the X.Xx, XX, income to to Justice $X.X $XXX will XXXX to of XXXX, nine increase turn as of quarter was Ray. various I settlement Dijk of call increase Attorneys of that, from the X.Xx post Moody's of flow delever execution

Raymond McDaniel

highlights some van to Mark. like and I'd Thanks, activities. synergy Dijk on integration with progress Bureau our provide

over is to acquisition, line our and We Dijk the to The third forecast, year are the well. on at van business and for respectively. Bureau a continues quarter in perform adjusted track meet direct into while the just and XX.X%, business the historical XXXX performance operating with revenue growth XX% year-to-date was margin

with Bureau van distribution particularly results. were demand year-to-date, customers and Bureau synergies more realizing of product reflects On pleased we're the an Dijk's quarter. drive basis, the Dijk third that more are XX% FX-neutral we very to acceleration sales markets. growth We strong data up and with van strong Dijk's XX% in This for Bureau van sales as

is subject exchange market debt from capital and corporate guidance could discuss foreign revenue of and list guidance to borrowing is including and which outlook. business factors, of issued. at XXXX XX year are current we of rates, outlook website found the now certain growth and spending, third year can Table ir.moodys.com. quarter our included Importantly, XXXX. conditions press materially area and release, on amount rates, A results Moody's into our I'll success consumer in assumptions components better uncertainty for us currency for Moody's based our mergers and full at XXXX. Moody's as earnings profitability for These investment on about our complete Relations XXXX be the acquisitions, for securitization Investor many differ of move and macroeconomic this assumptions geopolitical interest positions

of outlook end assumes exchange rates. quarter Our currency translation at foreign

charge Specifically, full $X.XX, amortization Moody's intangibles year acquisition-related The reflects $X.XX. to all £X; €X. to to to pound euro, to the the diluted the for expected acquisition-related the of be $X.XX $X.XX $X.XX now including our XXXX British rates forecast $X.XX approximately exchange for of of restructuring $X.XX $X.XX of $X.XX. to EPS and and expenses expects of of

EPS be diluted adjusted items, $X.XX. these to expected Excluding $X.XX to is now

Before leading consumers, analytics CRE, on announced a week, acquire merger for we a risk analytics tender programs, We're estate global to efficiency group relates And analysis provider acquisition and enhance This Performance updates leading to head global definitive August customers, newly-formed serving and I to U.S. evaluating MIS's initiatives. XX, and market Chief the to our and will large Omega October capabilities to XX all proficiency a a new to the of managed real capital XX, to commenced of to as acquisitions, analytics Moody's commercial Reis, provide as lending. offer a And share. MA local achieve and small excited stock business Moody's we a this few in supports technology that The XXX as our work training shares to October group a banks and commercial offer of XX, of fund the August develop cyber Q&A, have the of earlier Omega of successfully MA it risk. tender tank our CRE market, in infrastructure completed very of XX. investments technology The turning Mona by leverage financial offer On in Moody's agreement corporate and Reis from cyber over in ranging to synergies Performance that welcome credit standard analytics and Breed to and leading Omega cybersecurity like enhance a provider together worldwide joined lending we operational Ms. enhance investment acquisition Breed XX, credit as bringing online real Derek and commercial on will development Performance, data appointed cyber Vadala data suite flows. as would TeamX, Officer. a provider a to for become October September recent risk will $XX on solutions. Reis we issued institutions colleagues an comprehensive announced leading at acquisition announced and and and acquire U.S. data estate, initiative. closing On on the incubator a or we per CRE investments. think On capabilities identified. Reis credit outstanding positioning contributes common Information of opportunities and solutions, further MIS. and we were our MA's

Finally, we challenges their the recently list growing announced program Tomorrow, partners our of small businesses owners expanding of and to enterprises. our selection of of help the for overcome inaugural Reshape global

For information questions CSR joining pleased on me are Mark session issued prepared for Moody's XX October And our of may question-and-answer Almeida, We'd Mark concludes be Analytics; we programs have. any of to or please Rob see more press partners the Moody's remarks. Service. the you Investors on and President take moodys.com/csr. selected, visit release and Fauber, President and This the

Operator

[Operator Instructions].

from Our first comes Vincent question Hung Autonomous. with

Vincent Hung

hear you me? Can

Raymond McDaniel

Yes.

Vincent Hung

million $XX to it million the coming the is that? cost and from around where what's timing On of $XX savings,

Mark Kaye

for thank question. the you Vince,

infrastructure We our management distinct review X for to identify and opportunities primarily have separate a areas. activities careful from expense The undertaken of cost efficiency. come will

the in $XX on First, meeting $XX annualized million $XX certain pretax our million real half is emphasis million in $XX net anticipate a reducing, complete, of benefit eliminating benefit streamlining basis the exiting, XXXX standalone property; pretax estate XXXX charge will that once result with of the an and to the $XX million. million to million We $XX that million between fourth targeted in $XX restructuring on $XX million and of additional to for the first of an and estimated subleasing second, and/or quarter expectations. headcount in a regulatory and redundancies, operations, XXXX reduction and

Vincent Hung

about is that? just anything it. there do And long you else can we beyond term to when Got follow think expenses, up,

Mark Kaye

at address to of technology respect the is to with and actually undertaking automation costs. The Yes. a moment business initiatives number

are As right having adds been we India. said in focusing jobs have before, at right the half the our over of people location. center we And first doing headcount on XXXX, in support the since right our

have specifically MIS working We locations, opened now the and related Rica hub to with other our Costa business. in

programs, additional MIS, and We we to around analytics specifically ratings gains around in that system are also can the in simplification our investing major staff. add workflow believe process MTN provide and the efficiency system

Operator

take our Patnaik from question Manav we'll next with And Barclays.

Manav Patnaik

hoping temporary. Just and your confident and bit explain a the could about to you it's be comments, in something? you that fourth elaborate slowdown Ray, was of just talked just in that you start temporary think the and quarter I on I why maybe the And expect Rob only that you not maybe are

Raymond McDaniel

And we I'll but Sure. I headwinds invite and number I to think his Rob are thoughts a don't offer well. looking at temporary, said as of tailwinds.

spending, before, those probably spreads tight which a But is central were strength. the in news with to the encourages rising a before, a than rates, underlying to don't XXXX else relating why story. rate obviously, was I If growth. to business that, as environment. look of difficult maintenance the a going is stronger beyond rise, a That is think interpret if to rates Rob, we but anything we think, interest extent a And as expansion, again, unrelated we be of rise The stagflation That, to point, condition is at comments activity. slowdown. just short business experiencing little but economic is with strong in rates going might in reason, news the we associated be temporary the would -- more to which about bad business that's bad some doesn't marketplace to Rising because be please. market, that, said so determining are more rising you of don't and add story merger of case for environment know not we a acquisition and as economy, What especially there's like are rate I've this I overall core to talked strong again a situation. predict. themselves. a going environment that the important is the investment into we're my experiencing

Robert Fauber

it, covers No, Ray. I that think

Manav Patnaik

room fresh cost thinking actions, obviously, driven was slowdown to was by, how versus from welcome it you much just the out in expect your this of Mark, but quarter end, here? of the call, there's fourth eyes that and a of of to be And terms more taken set in the how the much

Mark Kaye

be Manav, part a very team. you, of management thank and Moody's the certainly, pleased to

was restructuring can a by I think really factors, primary combination program I driven the really three of and think ones. the of

environment expected First is continuation end. the issuance of through soft the relatively year

estate allows efficiency, operations from continued recent an us is let's geographic it to our to to of real the focus that for including I about third, then our And a spoke specifically earlier. opportunity our say, acquisitions. give Secondly some synergies sourcing include greater some of rationalize on optimizing rebalancing global footprint,

Raymond McDaniel

it's add great was that, while the the to to in of set Yes. that we completion this some fresh also -- geographic on part And get rebalancing two and eyes company's expectations. of importantly response I'd regulatory just are always timing the operations, acquisitions the a to of doing, related in recent

Operator

Alex from question next our take we'll Kramm with And UBS.

Alexander Kramm

kind okay growth but question, just, first the terms next on calling XXXX overall, is of I guidance they the your as guess following for environment issuance their laid call outlook, for initial down I X%. Manav's of of X% competitor, a this know outlook, year, corporates So not S&P, out in in up fell

in you is may your outlook. still So little the seeing comment guys being repatriation going own outlook that called could that on to terms bit these that different. weigh on a out be the if of or anything you're is curious something that particular, In

be for So really will much business. maybe your would impact some how helpful, an color of be that there

Raymond McDaniel

on XXXX thoughts Rob some offering know call. let on the full have to outlook Rob this, Sure. not and I'll does and perspectives right, you're be I going on But this a we're for comment environment.

Robert Fauber

Ray. Thanks, right. Yes,

GDP we growth give the forecast end with for I get Street. able can economic like it. from and in we're where U.S. a you be to growth, how of close the then of range. we still X.X% to seeing trend we and year for But bottom economies At quarter. to have X.X%, feel up overall, for ends the issuance U.S. at today GDP next So up third also the X% what looking major year that's the Europe saw see little we'd the triangulate where our expectations to to the in X% both mean we're to

to we see I'd telegraphed. well We year. got line on space. supply that contain lot well in So and bank we in we've translates issuance jumbo rates they and the do see on pretty as have in which the a that always M&A rates Ray And geopolitical not think securitization. corporate relatively, think default that's maybe is growth. sharp to to that just third now you year, if M&A the a conditions that, are going and the some rates, say seeing spec-grade the with as And loan seeing and and continued albeit And the next investor activity issuance. I modest modest rate market in would combination market, gradual of decline. U.S. next loan And we're that further in can of increases. quarter. then with is that opportunistic into say a particularly of issuers, think sustainability see all, demand, think, some XXXX, economic high the outlook strong LBO-driven driver seen all liquid bank tightening. We're that's talks rebound going going about after a moving continuing that then to a key to that's that's outlook cases remain that got, default both spreads that we've waived I risks, should may and also we in are low balance expect pretty some also to again, now yield We've constructive I and a key of healthy touching supply into here, roughly a continue I'd -- we're spreads gradual And acknowledge against, think We've I with M&A. and some at look volatility in

favorable that be to Maybe I going think we a economic forward. just the or view remains is back securitization that, trend expect in support growth supporting going It's of and terms of think, some competitive provide see but growth again, to the in for do sentiment there mandates, first-time some will I market, consumer highly that's to our on steady. markets. continue revenues

So up of tighten and we that it warnings health more a able on next on to call. that, lot talk will be the about

Alexander Kramm

great one more, topic. quickly And color. That's on the think, same just I

some As the third people XX% aggressive pretty that year, I the, guidance like quarter, this ramp look if for updated morning in maybe guidance I you're your the think will corporate remainder something to think so. soft. very guidance quarter, I historical thinking fourth in I'm you're the or a your It implied still the I for at of area. But side, the called know quarter by fairly for I was be fourth a the big ramp guess, if correct standards, and big assuming

real go the that quick could more here? So maybe just commenting terms on wrong near-term still what assumptions, in of

Robert Fauber

Yes.

Raymond McDaniel

expect comment because where MIS potentially it's to Rob you would side volatility. the ask to going on more I'm certainly Yes,

Robert Fauber

Yes.

So for seen we year saw growth. except pattern slowdown. year. that This that last sequential typical typically you growth. from of remember, typical 'XX, that's I XQ expecting certainly more resumption quarter can year-to-date would see we have XQ every terms of year, say are you summer saw where some are in to and sequential Last we the that show sawtooth growth, that we

is sawtooth be issuance again, think we're backdrop the good. to pattern. will that that got we technical We've And back up XQ think So 'XX 'XX. on XQ

a active. to XQ M&A not But opportunistic improvement XQ point that pipelines first of is are we're active, in also And want comp, tough the our saw we issuance think half third look quarter. from I to last be up for hit generally opportunistic out inquiries to the going the is, would same issuance but XQ see thing market the and I I outlook. in of XQ levels XXXX, XQ versus will some comp that note to to 'XX, healthy, tough 'XX. is degree And loan our need of we a the looking in XQ pick certainly,

forward You from some benefited and up growth. of XX% might we we issuance revenue remember to PMG, in put pull some close U.S. late something that we jumbo saw investment-grade

and an from up XQ of to our of into guide. of deceleration rate, we pick XQ, kind that how year-to-date a So got but revenue acceleration, a growth that's

Operator

question next Morgan with our Stanley. from And comes Kaplan Toni

Toni Kaplan

to I ask Also wanted on MIS.

an an it more companies less a sheet? the would that since also rates. the do when impact weakness paying of reform's if think it's you more issuance, of about, be phenomena repatriation right aspect, cash more on when less do know would it because it of think issue on and do and you attribute you in you short-term have And think the little balance is I as, But about you reform? issuance, Or tax terms it tax therefore, recent of temporarily. do ongoing maybe as bit see attribute you tax so, so there's part to this impact to a of about just now, In so of could part

rates. think you driving in addition So I about is what to the to just wanted weakness recent talk

Raymond McDaniel

Yes.

speculative-grade associated business, corporations a corporate certainly sector, debt large our of coming part we with technology offshore repatriation, area repatriation, weight market, really think would discussed the in where as of were headwind. that of I year somewhat of in on it the large a is known the not especially an being out dollars tech But coming the large of And -- I was earlier of terms that have in sector. companies. large repatriation headwind the that, And cash. amounts place concentrated a that more the out

I XXXX. spec environment rate bonds rising rate bonds So having what in to with we've that in tax more favored have cash grade to bank than that relates of anything of That amounts large again a being the being overseas seen to slowdown companies have do terms think in over and loans repatriated be rather be said, will can reform. repatriated spec the cash

be a or phenomenon temporary with expect to associated I So XXXX. that very don't one-off only

Toni Kaplan

up was held the to line top well. assume what pull I in them. ratings, you guess, one Great. margins comp weakness I MIS of And in the of were just despite some quarter? incentive able probably and levers the the

think helpful was number quarter. during that XQ. what And comp be it'd also, for last quarter, wouldn't the I So the to that incentive hear have

if comp, XQ helpful. and So that'd could incentive be give XQ you

Mark Kaye

Toni. Morning,

The incentive number $XX.X XXXX second comp million. was quarter

million. The number third is quarter $XX.X

the terms within quarter-over-quarter, increase of basis like to the The on however, incentive and months XX In look see control ongoing cost there of due to compensation the you'll increase basis. at basis the MIS a margins, and trailing approximately points. XX margins do is the is is points, normalization MIS. we difference measures And approximately really XXX

Operator

next our And Foresi Cantor question Joseph with comes from Fitzgerald.

Joseph Foresi

think you was flexibility you to the prolonged do much what Do you profitability protect be how in would company's issuance slowdown. I expect response scenario? to wondering there? that have And

Raymond McDaniel

of what and a to terms of at. In number protects things environment, model business a look the performance in business there's negative

we where going maintenance at the of rating waiting very On And are on new Pricing business revenue look MIS. monitoring XXXX, to a particular basis. that we Moody's picked fees going-forward of forward has in providing versus transaction recurring revenue. translate revenue revenue The to course, sensitive up capital recurring opportunities mandates XXXX, side, not is have in benefit growth value. steady and which and a heavy Analytics, a into which market the

is I what's modulate whether otherwise. of technology-related that income. we put compensation incentive expenses investments investments, some concerned, that they're the investment of there think to opportunities different with the But company would happening for to want our a important against. As flex are there are we do formulaic are or that responds very variety We can in pace and operating far and also the revenue as those underscore

variations for as resilient. to we're even cyclical going short-term is pull invest so model to other business these continue to conditions, market we make in sure that the And on levers

Operator

And question Piper our Jaffray. we'll Peter next from with Appert take

Peter Appert

terms Almeida. a one, So Number momentum, impressive in very question the the growth. BvD revenue in Mark quarterly for of here acceleration

on color business, in more and what's the on then So that sustainability profitability terms get any just of give hoping ERS advance, color driving I'll the And I in that. was my us follow-up, in there. improving of and just you progress

Mark Almeida

and pleased very very what's BvD BvD, sources, happening performing We're Peter. described, is the of We're a good business. Ray Yes, well. number Sure, from with as in demand seeing very, of the momentum sell customer We're Analytics to number use BvD product. as BvD cases product in base. begin some a cross we the to very traditional for the also solid very building Moody's

quite performing good start strong the will sales production in manifest like we're that and in sales side So with quarters. itself on revenue we to well very coming doing feel the very well, particularly van growth And Bureau Dijk.

describing you. In very I are quite that say going and are been going things as -- things as well So ERS, we would for we've expected we've much there.

transition As going to first X% X% months that transition, ERS And being business sales in the on month quarters that's first for the has quarter that last are X%. trailing revenue were through a is as ERS important business fourth and this He at, of up the ago. is Mark in shared expect. look and the that basis, down of a this of profound trailing understand quarter year. on guidance ERS. you in the pick growth to flat would grown We But up had know, is pretty XX imply thing headed, would we'd We flat. full couple details the year, is imply because, a a points about total minutes our going ERS in where the going be really that to this half last down important XX were In sales two is couple that ERS. to mentioned much our year in of year business the guidance of year, full rather

is we're evolving and that that and where so selling to is a business the business, I beginning Software-as-a-Service the traditional turn from suggests what we're a on to project true think that software licensing And business subscription. make things

I flow in generally. So margin direction, MA had starting the We MA in through past right is and drive the is that very performance see going more I to that quarter. much better you're in ERS. to think to business think And this expansion profitability moving the good margin

That's on of MA ERS but good businesses. And flowing have We BvD result business the a legacy the that's continue the a also high-margin initiative. it's expansion the in months margin we're good work that XX result to largely of trailing doing an through, basis.

Operator

BMO Capital Markets. next our take We'll from question Silber Jeff with

Jeffrey Silber

If I can develop incremental margins? at And you the and clients at helpful. ratings the order be you that I for, look that may rank your where look them would MIS types business of do get most if you

Raymond McDaniel

relationships would certainly the establish we very the would stable are mandates of new business. that expect I Yes. that That because be revenue highest source mean, very attractive margin time. they said, new not a being rating over is

capacity. New analytical support customers, new rating capacity relationships require analytical and additional

that, that terms I we that because you opportunity issuance. where the a cost that base established of relationship to can installed our decides us off for want have that incremental So the additional markets, that? debt understand we entity to the And an the follows is and of workforce have to municipality. company Rob, or in are we already you think earning anything the revenue profitable add reenter

Robert Fauber

Yes.

maybe you balance companies. to a then that's activity, -- thing we when basis, sector of versus already these it think But on I first-time rating the about, think might complexity. you refi I tie so right, other The think mandates were

that be more like -- things So tend analytical to we to leverage tends CLOs, think where in there's CMBS. economics, complexity, finance, the reflected

Jeffrey Silber

great. And then a numbers of just Okay, quick couple questions.

does in guidance the and know If your full for expense impact you interest share count the include the embedded just let us of year? your guidance And Reis?

Mark Kaye

then the Omega. that. provide guidance don't does we adjusted consistent share EPS guidance earlier impact for of expectation of an around and And or in XXXX, include that Reis the terms repurchase terms with release. interest impact would be the The in of The $X.XX, expense,

Operator

Our next question comes from Craig Huber with Huber Research Partners.

Craig Huber

questions. of couple A

year, some factors out sort your positive just walk next issuance headwind year, on you this that as of to what Ray, year business. of more follow-up. us the And one, next you're preliminary a with basis, side have less a of of the be through first you may ratings debt versus year can think The next dealing I

Raymond McDaniel

growth, than Yes, a that change to GDP we unexpected is important. the fact, sure. overly aggressive. that rate environment I anything keep in be spreads our which beneficial rates, continued interest expected low, tying more and tight, as -- And is decreasing is important. certainly, for in gradual default expectation would Again, should also, think will said, mean, also we've or

an really, debt supportive is -- and to XXXX expected? M&A policy to expansion the to So business that be I with is issuance that are have of going going actions it's a expectation, think that And investment we affect be, question environment it's expansion. going are of business to

Robert Fauber

out out a we've We believe to. volatility region. This we Then some slow of China. maybe saw, greater China But saw backlog issuance big add a of one pretty issuance down. that we of with to the XXXX, of area there's lot the year, of seen

So XXXX. back I the potential there's some in to come think upside market that see into

Raymond McDaniel

some are expansion the and side. certainly there's think are help of it, people our as manner, those budget resolved Europe business in in well, there's if, a if worried about Italian going And situation, if the rather I about confidence on looking a to things the BREXIT, in particular, relatively as whether that BREXIT benign European less more hard terms than upside benign with of and for in

Craig Huber

your when -- sort China? you on China, view And also how us rate over then license best on thoughts could might just long-term? get the in the your with for this And there, domestic of you update opportunity in you market

Raymond McDaniel

Yes. We obviously. very positively, do it

process. have We in application a license

that investment which also We like well-established optionality in rating a the have market. in agency is from domestic our we Chinese CCXI, the

traditional the ratings it's that international attract China, bond renminbi, So international look -- domestic capital might as issuers, market and market, it's it's Panda for looking the non-Chinese offered that that's we come both market, in cross-border in we at MIS. as terms Analytics, by are Moody's opportunities MA alongside can well do the and product from that what China, services of as for the and the

all a Chinese China, together and when package, our in move is challenge experience in way. carefully. it comes the The exactly has So in process, that positive it been in a and authorities very deliberately a very

And to the little bit a timing so is trying predict difficult.

Operator

question from Wells And Bill we'll with Warmington take Fargo. our next

William Warmington

they're XQ? whether doing? up about XQ And new question is are into ask the So to mandates in holding and how you first for

Robert Fauber

Yes. is this Rob. Bill,

take me one. that Let

the, So for that year. north track the overall year. But second quarter we're last be finance so last might very in And leverage first-time signed we kind I'd still we're quarter expecting first-time the that X,XXX. we of year in through in mandates 'XX, the a remember, markets, that's down a so over fairly quarter, the above for from slowdown But say year, it's for again typical. I of from now XXX mandates over in in they still, strong issuance also on little decelerated that's just third quarter. yes, bit you third down like we're were with mean, mandates of actually, -- September, it's X,XXX year's and something full first-time to XXX it's are the March tandem

the pretty more so to I a on case. pricing that favorable conditions, approval China, approval. strong haven't gone very market. question, we are Chinese particularly number just of touched a in answer Craig's unpublished volatility robust that there's mandates, in have in got Others a also deals the on my gotten So so backlog to given some you've waiting go-to-market, market, into the regulatory hasn't

noting just mandate now worth of has first-time the year. the growth that's out been U.S. the strongest things is for other The

we might a you States, out had and have there. remember, growth very mixed good United Now but pipeline we've seen very of last year, we a growth strong the

Raymond McDaniel

and in I'd QX, numbers QX we did not seeing are as anticipate. just that we're going add, that the And into expected,

outlook, As do behaving XXXX. third XXXX everyone quarter second third from quarter the the knows quarter I of think our like we not anticipate of

drove a not affected we've an it performance normalized back last cetera. performance that affected to Just new very quarter, issuance, just market XXXX. typical mandates, unusual et in It unusual year only profile that

William Warmington

Mark, now. question make have distinction I Kaye. to for Mark a that's then a And and

internal At play data you Moody's using to some to AI, saying than talked the Does more goes. of machine introducing ago, couple at implement you this as So does more your bank, chance goals weeks it Marks about the more a a announced lot automation processes a of today? that? How into give learning, breakfast German restructuring science. a of

Mark Kaye

to itself. automated we're Well, finance That's digital of difference We they and October and did team path in how and more I to finance time the with that business the Board and meeting, some approaches. of here. what about on the do are our how interacts about our trying introducing encouraging continue certainly talking function implement spend supportive think with we

do business. restructuring, this back expand the I an into On to the view be able and margins capacity, opportunity create reinvest to for as both to us to

it's investment value over think, to my the also the add I level from keep perspective, important at a sustainable, long but term. to that's

Operator

question Tim from McHugh next We'll take William our with Blair.

Timothy McHugh

from I solutions about and X Just related regulatory is X to a lot you going the I growth where the the for more the from kind what seeing guess, products guess, came I noticed can from ago talk growth to loan versus ask the years on of of is coming I where client? you're ERS. shifted the side. has, at origination And guess, description ERS? all side of the

Raymond McDaniel

Yes, Tim. has a amount. It fair shifted

efficiently, Lots got the a demand your process but to increasingly end banks of in decision and whether make has been was be got speaking or streamline and see talked That rules be compete, That's we've banks, the to are strictly being of that. a Basel it new able post so and X, stress bit this not corporate driven X, -- to been important. these becoming coming We've in X being trying has we were product crisis Europe. replaced go trying of testing their business. small from lending where midsized regulatory-driven, to processes, well. a to investing U.S. applied demand we've demand and regulation, are competitive -- accounting bring years, regulatory-driven quite And in about of of that who standards. the banks lot protocols, looking loan a to lending automate we it's And in regulated decision the There you demand. but was -- to efficiency more had by is very looking particularly banks that's market. faster origination by a also decisions doing to who able make if back think whether more before, decisions quite to credit from lot I

a effect X here well space. called well largely focusing institutions. outside got our dealing our of been CECL taking business quite That XXXX. largely again, -- lot U.S. States. the we're doing a for that to And now IFRS smaller driving number lot we're we've GAAP That's that variant we've that's For very a in in is space. in plays of of United with demand IFRS you've there the a solutions And And in and years that on of X done strengths

ERS to should are present. one other again, those companies. accounting-driven requirement driving demand insurance things solutions the that are at area issue The an our is principal So into related for called IFRS note, lot coming years. over analytical a a There's in also well plays for developed our next and capabilities, solution couple a I effect is of XX, That to of the we've very interest that seeing and which are it.

are those principal product, for demand currently. the So ERS of the sources

Timothy McHugh

guess, Are if subscriptions you at clients other, what licenses? understand of the I X and do see guess, retaining, are? or you're declining or I you on Or trying part drop growing the underlying Just dynamics type regulatory the legacy to those?

Raymond McDaniel

larger Basel relaxed have exist with regulations some -- still institutions to institutions. U.S. again, we and of And subject whether Those the still those they've they're comply still that smaller are or regulations, has for work those and been stress-testing by institutions though rules, large, even financial in need the most of institutions No. with been done to the those those rules,

with in demand. So the a it regulation. is, flow regulation attrition associated regulation way product see of versus of question. flow a change the the of stock customer just or the seeing new the say don't is It's driving I really less guess, I'd attrition new we volume We're same. stock

Timothy McHugh

on I'm you're to around, there's number that it sales a BvD? growth it's some on bounce just when number address trying the Okay. And I been? than sales. XX% to then new how understand of that the number the And and has how steady closing been can a rather Just because volatile? is outside comparing merger. quarter just guess, BvD, you, disruption growth recognizing revenue guess, it's since I year-ago the for rate sales guess norm the a maybe so, of I Or Can if that?

Mark Almeida

more I it. that underlying number, think said, those reflection we the is And we But then But I reflected are XX% good frankly, so a had there. rates, meaningfully a had of is XX% that's performing Ray about you the the don't at the As number have operational XX% we in in QX. constant the from a that stronger and both are, those he The QX, good talked of that rate, FX of issues growth where the growth business noise of when cited. in some XX%'s year-to-date acquired But useful first from sales sales currency any we again, again, quarter. bit the performance was some -- frankly, XX% number, catch-up business. than think

to sustain about optimistic are and we feel we being able So good that, that. very about

Operator

Our Shlomo comes from with question next Rosenbaum Stifel.

Shlomo Rosenbaum

the down up was gross $X I the bit just you're business, want BvD million to RD&A It Where like revenue. the from? that $XX when business, sequential on like a And focus in seems -- coming from is it's BvD million sequentially. seems something from deferred you guidance that little expecting coming the if for actually it business. revenue, that over ramp over a

that kind If put you context? in can of

Mark Almeida

start Yes, that top there and start flowing to the it'll business, is first, talked and in through strong as in underlying that acceleration about, that's just growth sure. to mean I the discussed, we we've BvD sales growth going hitting the P&L, line.

And quarter we good contributing to strong that's fourth a certainly so that expect.

math correctly, think I done you've Shlomo. the

in And quarter. quarter of the the million mentioned have haircut results in this away, you Reis in The $XX other the don't to to the haircut there you've keep was it, is, problem got this thing in need coming next year. going fourth that also quarter. last you've mind got you fourth We year

put strong those way, want of characterize to Reis then addition what as got in the things, it business. that the the in in reversal rest would solid of coming, you've to BvD, underlying very growth performance haircut and I the So you if three

Shlomo Rosenbaum

would just refis. ask terms numbers Got pacing towards the the kind well? that you're in it. the And 'XX Are yesterday to seeing they commentary. more S&P you meaningful looking that of second that guys I the as they thought wall be that in of as on want half the refi issuance then, of noted in look at

Raymond McDaniel

look out, going through at increasing they sequentially year refi each Yes. When we the walls multiyear, actually, XXXX. are

drive this back are and are it can further. Financial assessing or further of up XXXX half ends where the forward certainly XXXX, rates of a next get importance where to growing refi So is in pushed going that and psychology Officers get pulled refinancing obviously, to lot the in up issuance being, about terms spreads are going Treasurers making of think, expectations tick because refinancing the a to year, that's refinancing I the go, and reasonable being Chief year. predictions go, and and back wall the may That the I issuance, company closer later are that of that think to XXXX to expectation, in said, in

quarters be a refinanced look at it predicting challenge. difficult over wall, few to is or So there's -- has may next years, what quarter a that more what exactly the is happen if you high very

Operator

our question take with UBS. from Kramm Alex next We'll

Alexander Kramm

are that anything And lot this the for in hearing anything know look a when years, delevering the little it for there like, stolen that we used maybe be money else? few depth not you companies example, well, when meaning, but Are just comes it a that to? refi got was next the coming may have as Or money I repatriation on we is now so mode. a much, that just about ask not due, you is this going you refi when refi-ing bit in of synthetic that may are that think that that refi issuers hey, be may from little digging in actually bit. wall there But to more wall deeper, may different?

So from than anything look different the that be will make previous may different wall in -- that years?

Raymond McDaniel

an on that basis on we important basis, talk the the is a mean, we are in thing opportunistic walls, more talking think steady mind international about when talked we've of refinances refinancing refinancing history sector a a those more have speculative-grade cash, companies on grade have year regular of and investment basis. to of as U.S. and companies, that overseas investment grade, much spec year U.S. I on The refinancing sector. lot refinancing And a both out aren't largely about year. The speculative-grade, regular before. about and comes grade I keep opportunistic

going think I be don't an that's So important factor. to

across to reasonably have across low. certainly deciding that the think the speculative to to wish universe speculative-grade deleverage the companies is could But the You universe, deleverage. ability they delever I desire grade and again,

central of case. where decline, can but I yes, think I may don't that's refinancing circumstances So think the

Shlomo Rosenbaum

great. right, And real for is. the last BvD one, question, Mark, Follow-up the quick that All Almeida, on on growth the there.

soft X%. was I numbers year-over-year, if to well. like but I growth that as X%, maybe think I think correct, quarter-over-quarter, X%, get decided, are someone pretty my

on anything we're sales anything than forward? other customer growth of on the sort growth, high weigh So back and to growth in translate is may any that of single, going you the now else can or actually like through just some this real low even there Or that revenue double-digit disruption, think the else going into loss growth circle here.

Mark Almeida

the very well. business guess, feel no. We performing is Alex, answer, short the I Yes. is

growth. it than our momentum which manifest we're We're solid executing in will As on performing synergies, said, revenue good, sales was building better production, in I pre-acquisition.

we going the So good on we positive. all very feel view very there. about numbers, And what's

Operator

with take And Joseph our question Fitzgerald. Cantor next we'll Foresi from

Joseph Foresi

they are slowdown? how is BvD tied Hi, market? some spending But estate in sensitive to an Reis phone the earlier. real How economic and issues discretionary

Raymond McDaniel

steady be much like first. we of had Bureau Except such believe for business. irrespective if true as seems in at Bureau to that the conditions, I growth Moody's They speak don't correlation appear van to example. either in positive extreme to side between XXXX, or all van much Analytics of We Well, of Analytics, macroeconomic very very never performance And do the have I'll situations, Dijk be well. as Moody's side generally not of macro -- see, It really. seen business, negative the would very, of the conditions. be our we're we and on Dijk

when their If They crisis. we as well, you performance look of the in company, acquired they course, average, of spectacularly, of the but performed depths would historically, we say. even I financial certainly at above did, the performed, not

that, we is see frankly, business, business. So the -- our don't Reis kind owned we experience mean, typical of for it. only we've it so a two Bureau The not susceptible normal that have range I much Dijk than much conditions, within of cycles. that weeks van are similarly But particularly sensitivity impressions macro less don't in with we're now, to

Mark Almeida

particular, Joe, be assessing, Reis a risk in is for And a the data more business I we're may which analytics, in the would that looking commercial collecting with in environment. assessing and distressed just demand real more at business in actually our add, estate sector,

to new would through one sort but looking would be we're and this, need time some I things the we'll Reis, that be for. to of So

Operator

our final from with Huber Research Huber take And we'll Craig Partners. question

Craig Huber

of your of or just the lock give sense in of of these might for and sense kind more these that follow-up. year. market here? in low out here, or in Just clients act do spec some you example, few I a bond to the deployed over of Rob, took high-yield me lock U.S. any rate starting of all had get get strategy amount massive in thinking the them think in on, waves, here? a Ray loans from next Were rates, just last bank are any a Is you out a that or any years. think more

Raymond McDaniel

on itself. And to also a going the certainly for, over based back itself and in curve to yield looking watching converts obviously, are we we whether fixed-rate that, debt something see longer-term floating it's yield curve in be is, paper at the spreads mean, rate attractive to be I Yes. rate. fixed looking at how would

So it's a agree. good area to to, attention pay I

Operator

back conference question-and-answer additional And McDaniel that remarks. I any does hand our now would conclude or like for closing our to Ray over session. to

Raymond McDaniel

to to Thanks. speaking look call today, New you we the forward to wanted the thank joining in Year. everyone for Just again and

Operator

This Earnings Call. Quarter concludes Moody's Third XXXX

reminder, As under will Earnings post immediately the a the the IR section revenue homepage. following of this Moody's Quarter MIS call, breakdown Third company XXXX the

replay this you. will a Additionally, of website. X:XX after on Time Eastern Moody's p.m. IR be available call Thank

Moody's (MCO) 26 Oct 182018 Q3 Earnings call transcript