MCO - Earnings call transcript Q4 2018

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Operator

Good day, and welcome ladies and gentlemen to the Moody’s Corporation Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers following the presentation. I will now turn the conference over to Salli Schwartz, Global Head of Investor Relation and Strategic Capital Management. Please go ahead ma'am.

Salli Schwartz

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

this between the presenting non-GAAP tables all during this adjusted During morning GAAP. earnings or to end also the this refer our measures of mentioned Please we call, and at release call will reconciliation adjusted a be filed figures. for

Before a McDaniel. of statements. set to SEC's SEC call on differ factors filings the important to the I'll the together those Today's Web your site. we Safe Web our made the Reform point Act which actual Harbor any forth like can on that to end by may found within securities Harbor litigation XX-K December meaning forward this remarks earnings statements contain language, cause the listen the accordance members another and of In in attention begin, toward to These discussion looking the the Ray the statements XXXX. now call company, be management's mode. the the and release. with the private analysis your looking over which in turn from attention also on I our of are available that I site ended and also section to maybe would report Form risk annual year on and only materially factors the our call results such XX, the contained discussed morning XXXX with could direct Act, Safe in for of forward I media out

Ray McDaniel

Thank everyone thank morning. you you, call. today's Good to Sally. And for joining

would approach to that on I We of your always helpful earnings begin, our our our note find we call have feedback. revised underlying will we as you factors this our results. As financial the like welcome and hope to focus commentary more to

have happy After predictable. Additionally, in in financial shortly. begin effort outlook Mark by Mark greater and certain our we guidance full will relevant disclosure XXXX transparency most comments will quarter on our guidance for fourth I the our XXXX. to and detail go to an will changed summarizing year remarks, that results. of prepared metrics Kaye we’ll greater follow are areas with and provide into Moody's your then be questions. respond to changes

achieved XXXX, of and expense lower offsetting in strong Full adjusted fourth operating revenue across quarter. grew In EPS and XXXX tax During Moody's the Service Adjusted benefit Moody's than rate including year-over-year. weaker quarter, XX% analytics, robust effective of the diluted year results, performance at Moody's the management X%. prudent declined both fourth Investor driven global full corporation, year the total Moody’s Moody's Analytics. by margins expected a issuance increased debt

line strong with As weakest which the since increased adjusted Moody's softness the a markets Corporation debt high you're by by quarter. issuance operating environment does experienced financial performance. MIS, global points aware, grew RD&A crisis. Despite MA with yield margin in activity, bond not basis the we led X% difficult XX activity, revenue, for correlate capital top

diluted rate tax with grew improved X% operating Our effective a lower adjusted by year-over-year. combined EPS leverage

MIS and we last accruals fourth MA roll basis the staff by efficiency revenue both and across plan. van due $XX you our margin MA. lower This compensation to off points see announced earnings both million million in XXXX. As to the a also operating charge the of acceleration restructuring million XXX expense on in in The in for restructuring and charts of Dijk's businesses, increased in Slide range previously due the was On can initiatives which to fourth X, we in estate deferred the quarter $XX adjusted over reductions Bureau exceeded for acquisition MIS quarter rationalization. of of real our took integration, call, announced allowed haircut of $XX together incentive

the program first Our be in XXXX. million million $XX the expected now to total half is restructuring $XX to of through

our $XX the are than range million announced. pretax of to annualized savings $XX increasing previously to a we $XX which anticipated higher We million, million range is

to on loan down used A that July commercial were focused notes or the of begin reinvest due and The and the coming create portion cost savings in will of successfully and efforts conditions to chart business stability various financial market we announcing paper. provide capital issued also year acquisition, options that December, the our XXXX. charge, in down the margins. debt believe synergies We remaining outstanding in XXXX. rate restructuring was our XXXX. on our shows acquisition Dijk senior management to right run million balance $XXX of reduced that annualized pay net van bolster XXXX. to the million majority Bureau bonds. in for full in After contribute used These term we savings proceeds will in In pie deleveraging will $XXX other realize the margin We to in pay the half was second flexibility

MIS' U.S. well geopolitical a further of concerns, As In fundamentals to December. was these do with market fourth there as pricing. quarter strength European smaller variety through issuance U.S. of model. recurring business the new the have increased yield economic in this at fourth global XXXX, base XXXX buttressed Even rates and spreads. leading maturing a its of Notably, in widening high remain lows. bond well the challenges, issuance XX%, until as stable as rate we monitoring recent a and no result of led macroeconomic almost revenue drop unemployment developed in in supported to from impacted with quarter the of XXXX. and growth economic of volatility not XX% was in markets fees activity as mandates September multiyear of financing, interest issuance revenue debt sound debt decline was by was revenue MIS demonstrating and by The

core due grew For quarter quarter revenue margin. the MA, strengthened in Dijk or and the total from in impact excluding at Bureau Dijk fourth negative revenue from operating adjusted revenue van X% foreign the acquisition. van grew to million RD&A REE's XX.X% the the contribution of exchange. fourth Bureau business X% $XX added XX% a

XX% XXXX subscription illustrates decline one-time our XXXX. of contraction product by revenue growth by revenue XX% reached as the would of will revenue in revenue revenues. of to of share ERS services. ERS in revenue This shift SaaS growth Due base sales early transition in sales as as supported chart end despite was outlook we recurring licenses our continue in SaaS sales total anticipate XXXX and ERS about expectation the quarter software-as-a-service revenue at which to since XXXX slight in to -- decline in additional worked business, slide details indicates total XX% ERS operating growth XXXX, the mix, resume or a SaaS growth ERS growth XXXX The of inflection in and products, recurring one-time drive of is services. revenue revenue from in Expansion We ERS XX% in transition. by revenue in percent to licenses X% further acceleration aggregate the the in sales declined XX% year's a one-time a progress XX% expected, with despite provide the I in through XX% up in we've like this ERS lifted the total subscription by to point on software decline ERS. of offset XXXX. The a As model. that from software transition and as total

the expansion in our our adjusted margin of improvement Importantly, in profitability ERS, business subscription MA's to operating further XXXX. enhances expectation contributing of the of

tools from new enable insurers business for reflects that accounting support In fundamentals, demand automation of that adoption standards next-generation terms outlook of solid and for our products banks analytical trends. ERS in

I'd Mark to XXXX moment to Before strategic priorities. call discuss outlook, a take our ongoing to over turning Moody's to like the review full year

to core opportunities, the continue new while geographies adjacent and research areas. pursuing down strategic credit and and defend both growth businesses, ratings product across into enhance We and our corporate pyramid

overtime. We automation, innovation Both efficiency the fairness. and Underpinning are are and on markets providing focused efforts, are these inclusive necessary standards and to technology confidence, and which and solutions remain market infrastructure insights, diverse market supportive of we information, workforce. our supports enable enhancing to financial healthy transparency for in turn conditions promote

a leading a a is expansion or four closed Real has areas. CRE October of data recent Our provider over Commercial Reis, product XXXX Reis, which into set unique on of data, acquisition built good Estate adjacent example U.S. years. XX,

our for their Mark exposures for and asset banking We management Moody's this insurance of enhance analytics source precision to to turn outlook meet have to to our of in observed XXXX. management, and for growing demand By data customers powerfully support is the with expertise, operational specialized review a CRE. information Reis over efficiency substantial positioned integrated to need MA's that and proprietary the combining reliable call standards market. analytical now I'll from

Mark Kaye

you. Thank

curtailing certain or predict. guidance enhancing to the metrics, at we an them, providing our to you at same they difficult are industry inherently we to time conference while in is there metrics are other where feel less As I call the alluded late around XXXX, transparency of value accurately

and limited and and is level outlook uncertainty factors, assumptions about acquisition, results results reporting Reis our or could revenue And as Moody's our macroeconomic market in business every margin to, XXXX, We from geopolitical MIS filings. guidance. our business exchange in we have emphasize to defer rates, net are level. and SEC outlook. releases capital and profitability as year including will activity. want that For many of currency and guidance, sub-segment materially revenue for the for These not segment MA unchanged. capital and I press in expense guidance conditions our actual in corporate based interest operating removed results remain but foreign line debt particular, the we will added quarter of markets at XXXX interest adjusted and well earnings current sub-segments of keep spending, the investment reporting assumptions subject to mergers on

fourth foreign assumes currency the at exchange end translation the of XXXX guidance quarter Our rates.

cost for items pound $X.XX. euro of up variety key XXXX for our now. will of reflects $X.XX rates when setting considered we of outlines exchange drivers XX mention the British I the few and full a Slide Specifically, guidance.

we X% activity. issuance debt and MIS, growth to X% GDP believe fundamentals that in to underpin For of X% X% the global will U.S. in stable of economic Europe

of volatility annual in market the new global may ability moderate debt their However, includes issuance. pace mandates

growth. targets RD&A van to passed ERS growth core run For to should achieve SaaS sustained product on as innovations based revenue MA, end We product licenses remain of XXXX. Dijk from transition point. rate Bureau synergy inflection our services $XX resume and by will million year approximately unable the track has the

As the Ray our be with to pretax outlined earlier, anticipated to now a are estimated million to result companywide, million as $XX $XX an $XX restructuring million range pretax of million savings savings annualized XXXX. activities of in $XX in

manage real strategically hiring to activities. footprint continue our will and estate We

As you high-single generate basis from the this free years over This incremental by grow us allowed been margin achieve we can cash growth able revenue four flow. have XXX digit see adjusted to and operating the has points. concurrently to last slide,

in operating mid XXXX, global in Moody's complete can are adjusted Web single-digit our of For additional is flat XX our IR.moodys.com. $X.X relative outlook. fourth release, debt X% in to Listed free In XXXX here of at forecasting be to the guidance quarter found forecast Moody’s volatility billion spread press issuance percent down Investor site approximately be issuance margin and of in items range list to which to included XX%, $X.X XXXX, XXXX. down in we of the table for widening earnings relations range flat by and driven are we guidance despite billion flow XXXX. to and A growth Moody's cash revenue

be These of M&A, for pace forecast new shows chart leverage in right relative moderating base and the expect CLO a past announced needs Upcoming will by offset deployment provide of expanding transactions and defaults. M&A investor the our on the to XXXX formations We the an and new issuance also activity. balances upcoming credit headwinds debt. years. refinancing economy, The global low already two mandates for of refinancing slower partially XXXX cash

market spoke increase be For on conditions the that XXXX, we will environment market in ability about. MIS, that issuance to percent revenue will and economic we but half execute project recent full than XXXX capital grow improved markets We positive weeks, average Tighter the Federal Reserve's have rate expect revenue although quarter difficult I still constructive M&A spreads with default constructive believe range of than just the last activity. year investment see and markets the single low, low issuance total rising in headwinds XXXX. in year. refinancing on In as Overall, speculative the moderating be fundamentals, despite we digit issuance the announcement. along more should more in rate the to declines of fourth our more grade the few second support slightly following

have following historically grade return the issuance investment seen U.S. grade December to healthy of the month. markets, and We issuers speculative activity U.S. a slow

market. policy the to monitor and monitory the continue along factors other macro We credit geopolitical will affecting

margin to approximately adjusted XX% XXXX. in MIS expect We be operating

and processes. base increase implement to expense our our manage will in technology ratings efficiency We

have a year However, course we meet to XXX% pulled we of account back of targets. compensation to full our reset assuming also incentive for the operation

MIS We expansion Chinese support strategy enhancing in into technology our markets, pursuing adjacency and American investing and are the the our to business opportunities and infrastructure. Latin of

in growth XX% double including percent and drag be which MA For earnings margin projected strong gross strong low off underpins from growth percent discipline XX% sales digit ERS and revenue from in The further low margin across improvement basis Omega adjusted broad MA, the both XXXX. SaaS expense bolstered of the and XXX a Ongoing expansion, Bureau Dijk which van drivers, the We improves of to van Reis based Performance combination areas the offset businesses. more Dijk by Bureau transition $X quarter sales strength second primary we to from constant offerings, and of through half by increase and recurring will predictability. XXXX. increasing anticipate revenue by in billion role first an is underpinned management the be during growth several acquired based product the will is FX of share accelerated XXXX, of repurchases In share share. completed program Moody’s capital Today, to the per a digits revenue XXX we million and XXXX. points, $X We to range return dollar has the all plan total in haircut. to second repurchase pleased announce evidence anticipate of is thus $XXX expect increase that MA annualized organic to This to also operating range. double range, to

XXth XX% per In payout dividend prior February Board be the addition, payable at of will of This $X.XX is XXth, our of of of line declared on on record regular share. in to Moody's business XX% of increased dividend on of XXth dividend Moody's of of stock, quarterly Directors a stockholders quarterly to dividend from the target share close a the of February. ratio dividend common This income. net with March adjusted XX% increase per $X.XX

few a takeaways. would I note Before Q&A, like turning principal to

deliver weakened are margins despite to gains in productivity issuance XXXX global to growth strong outlook. drive the support and We confident ability relatively in revenue debt Moody's

continue enhance We and transparency. offering of information, in insights custom solutions market that to and invest standards

maintain Finally, capital disciplined our we and approach management. thoughtful will to

Ray McDaniel

take Mark. Investors Thank our be any pleased President prepared concludes session Analytics and Moody's me may with Service. Almeida, And President you, you Fauber, Mark joining Rob for are questions. remarks. of and Mark We'd the have of This Moody's question-and-answer questions

Operator

periods terms issuance from Morgan helpful? the on question particular big curious Toni, in at you moves go quarter, environment going Stanley. Thank first thing that that of experience. Almeida beginning I Instructions] was just be especially year color could this sense some Rob spreads would saw was short and Toni flat are fourth of and about Kaplan that this [Operator environment? question. share some Mark Rob, called really with single the and was additional the wanted commentary to ahead. as is And jointly to in So mean drivers the in this issuance Please some super so give and you Mark. for in you've comes get to hoping our the Toni time, one you. I low on well Kaplan does What the of as a down some and really of your out

give it's internal bank as our As as important well from think perspective view. what to we the hearing, both we're

In pervasive. terms key of both bank being are U.S. and there quite feedback for that particular hearing in the we're for that U.S., and three Europe points are

issuance late investments elevated market the to in at improved December, a are then capital in relation XXXX, anticipating are anticipating has obviously is the driver have and from is M&A but us retrench remained first modest cap repatriated The relatively be lastly since the And banks but to XXXX, in banks to down or market thus activity conditions And cash least still large certainly levels. far. activity U.S., issuance XXXX help that expect would grade. of we

what In And go does then outlook, lastly relation to driver that the remain relative banks so favorable so X% the we a from Mark, possible demand are few Overall, value feedback of to then of due that that And of terms to sector me for and Brexit into flat of maybe, overall below a some components in the in to there's issuance remain the hard the euro terms to that issuance redemand potential repurchase Europe, let dynamic and ECB's corporate of U.S. BaaX from build. reverse, add Yankee it's triangulating versus dollar. strong our Toni, RobFauber on down is concerned halt or there Europe, downsize. program. of for a does the but banks hearing healthy following investor

we by declines space, think corporate declines be starting modest and with that'll part U.S. actually issuance spread tightening comparables. the the the see bank think is where in the opportunistic also loans refinancing. some fourth we very, yield investment-grade finance, driven light some very from expecting increase an may we market, there XXXX The in in curve So quarter less high-yield there slight in given we're and

we be think important mentioned, but strongest the third XXXX, year Mark it's on down be record. is think an think going issuance to still of M&A driver, As we will don't XXXX. off I

that'll we so. of in be down neighborhood something or the think So XX%

about up part, be think last provide financial slow the institutions, European calls institution expect in and financial headwind to capital, may through so banks, to actually of we'd building that going that's us from earnings we lower, this course the bail-in-able slightly remember talking to down For issuance you levels some issuance. of year will

driven a in refunding terms seeing in at kind good with advanced structured volume some finally we're issuance tax We M&A associated looking was law activity. recall also the moving in strong out out insurance but effectively money XXXX activity sector, here of higher sector see on may we've by lot that's to finance we driven decline, moderately finance, had actually and issuance strong, of very the the some changes. of segment, of there the you our primarily past modest on year. the that And there. public transactions PPIF we'll the growth that the issuance very new now was actually effectively And CLO years refi in of U.S. a think formation, activity in issuance driven new the some really only of rebased that CLO primarily was two by and outlook had after all not loss of Well,

obviously somewhat the we going pretty And consistent is we And the sectors with offset so and all are by some banks that with in is then by increases this underpinned the decline CLO outlooks Wall be triangulate other we growth. to of think Street in across street. think economic the this that really this activity

about a at economic default guess rates. leverage and finance you because blow rapid -- some people Let me fourth point out seize second to you low your I I fundamentals, spreads extent, saw and saw had talk these were low had about as and we're underlying had looking growth, spread we scratching in think the quarter unemployment, you also up, still moves, our address heads markets we're the like lot the of

on. was a quarters -- going China pass. was And so you issues view seen to quarter this, temporary. XXXX, back was of our oil guess that know, first the this I and prices you was to commodities other This and and so around like We've this think

I So this hard is a guess very kind pocket would air cyclical air our albeit view a a pass, this going to call that was pocket. I was of --

Operator

and next of question I comes from think efforts question Please should buckets environment And first Patnaik should our additional Patnaik but it and already think of talked restructuring, the made comments, the of the and in how tough? terms gone into do McDaniel long guess restructuring around costs and just could see term the may go much. about we've the quarter, some the all you've that you of to the ahead. have kind post wondering line I'll Thank some Ray flex than opportunity, my we acquisition. I that more Manav about what our get was Mark current some you more acquisitions top Barclays. to Manav last of how very start about activities current underpinning with how restructuring just was rationalizing you relates have where is

the we activity, looking do So any we same for M&A would be if rationalizations. obviously, more

I what can they be for Beyond what with onshore part on will far and think offshore the us going focused as for will firms. processes. we Those that robotic we've very many been forward labor obviously can of as we and though, automation do do and as story

of to they of will complete be to anticipate expected just formal an by for serial in and future, was large of in And terms Mark opportunities a will we're remarks, be to June, to restructurings. be we're for going savings we going firstly terms there supplement action $XX guidance you expect $XX pre-tax million, annualized XXXX, then and $XX do million then $XX as million can we $XX see more October, GAAP and reconciliation, on in don't savings going be follow-up previously restructuring outside the in charge do think EPS lastly allow Manav between of $X.XX so numbers so looking in first share efficiencies Patnaik just pre-tax if impact end of the estimate of XXXX Kaye I is action, numbers. I an million announced Ray's our a could substantially that our year what XXXX in will point. starting restructurer, the opportunities full restructuring in half than and per add we we approximate amount to in from XXXX which I and million And but the

the guess about, or these cost you're that do the how efficiencies anyway We opportunities think at why I how you. that subject Thank about in top level is are room to these be part to MIS the Moody's for at opportunities that So either that margin impacts any plan. think of we talking be over a there or ongoing, to of variability going line time. margin course but plateauing it's profile? we've color not McDaniel got quantify Ray of going see forward, any I that Analytics the expansion, think high the would margin helpful. to Just

Operator

the then this and than ahead. blue the with comes of you've the conservative, have what guidance, Just question Kramm side guidance? years a outperformed, to around environment, is market last to Kramm but think question difficult was day, it your the And to gotten you be next on the fourth I recently, a everybody from just maybe Our very confidence was was know and is I this once I come know different end reputation it's for if clearly level just look at most few the and and completely wanted thought. had back lot about Please at MIS how but wondering Alex moon obviously UBS. to a you but go you answer, Ray, in think better the a quarter which Alex just

eliminate would of approach as just level of maybe how wondering XXXX business lower bring? kind that outcomes the that about the could of be you my just is answer of or end gauge decided question lot a guess, guidance. personally line McDaniel would the the one you actually to to range have Alex way we that confidence Well, confidence if have Ray we or cycle, sub-segment level I the the So of

tightening the we maybe outlook help will that are to you maybe add and could the for done little and lot business in dealing said, maybe just as past ourselves I've in things So that downsides MIS have we around in the uncertainty see more so maybe the that positive. are over be are potential externalities predictable. around of mean, always we're activity a we more Alex And because we I've that of there be things Fauber continuation January, the upsides. obviously start been and If we attract opportunistic those and Market-sensitive, Rob there with have our see terms work I'll we more spread I the Moody's think that change, that and I seen some you issuance that fact than upsides driving is refinancing trying would control bit, that on support years Capital underestimated that to dealing overestimated, That outlook out are and MIS of been trend and with more the and and focus level, themselves a with and that's real have I a the in at more put out obviously we've could will cyclical. of Analytics, that it very some them being

think sitting the provide some have that and issuance investors amounts firms is fact the M&A be that we the constructive significant equity for volumes. for private support deploy huge could of on that some and now capital environment, combine balances cash still You course got are and going to to of

potential robust to tightening on thinking to spread described, volatility picks headwind equity but the going clearly some I about for of we discussions, we're area here, the this back when Alex that Brexit the dislocation that then I our I the course Rob. it's think the still haven't six see market more that lastly, side a survey specifically is guess they good and present further and at for thinking growth of into is have just market, we business where provide said small Chinese-U.S. in the of inverse of what back specifically, be you and maybe municipals we Now a a mentioned disorderly December issuance some to high-yield on just went an outlook saw course of what I I if have side, this not if like very a from you some at sort expect uncertain, a little see public the just the and know market of for up, a bit you extent don't looking to come down that's done months actually XXXX. or kind that to things know of trade I about through lot that but end year, still And that's outlook. year. Kramm the opportunity XXXX. been factored in

it's issuance you you that mean, kind small, curious. little those confidence if guess total XXXX. XX% was just you out same Rob but that taken and to I don't or general I what of of like in the refundings in I advanced but Yeah. business? a could wondering and the of that Fauber know maybe in XX% market know think wondering just I about volume, different bit if saw you the square Just thing, outlooks gives got

off rebasing you're that. said, I of like So

We some we financings good have about. money seen which feel new

relatively also public be outlook. on of through understand expect finance there's in our we're year, guess that of bid-ask know, the know, I McDaniel say, that month we're I a I bit seeing the you some general, of were And a -- earlier higher. what issuance seeing, volumes. these healthy Ray that's But comments we first moderately we you would So to

So it's be expect a not where at we situation issuance to exploding.

Operator

of kudos positive hit wanted drivers our the I Almeida more a whined is go could How that of you with it How can Mark the at going margin MA you've you much next improvement. in function the So some And color I BvD? granularity give Appert a Mr. Appert for at Peter the us results call ERS? Almeida quarters, much additional with big was XXXX, since think better hoping into is Please ahead. on the question on specifically I and few function and turn to about Mark last momentum Any is provide? ones. Piper margins the out Peter to the Jaffray. of I've

have of a years. number doing work business been a ERS We in lot of over the

contributing, so rigorously the period been back expect expenses top Bureau ERS in taking across come We will for be and business so in XXXX, ERS Dijk we've the managing van we're very of MA And contributing, line is that'll some the actions nicely there, help. business to time.

XXXX So of things the that continued I think all in those that contributing the acceleration to in we're and delivering margin expansion are expansion.

we've that business? of the really Mark, on the I board. what Appert you time should to we that it's the Peter top and to Mark in a years line and able several of expansion. on allow rate mean think upside said top across the year, the a do expansion good in business on able to this of position we're strong to we're next very to depend in this some sensitively it's So generate guiding to line, Well, deliver very the profitability terms in I where continue reasonable margin, to Almeida us margin in I growth the think but in over be year continued we're to you much do expect good see for what think gradual then? run is terms course going continue obviously

Operator

Tong is issuance to going last pricing opportunities ratings George averaging expectations assumes Tong talk X%, an have this year, and McDaniel X%, I environment that that of about before year? you Ray can how it's about talked to question with to perform to think the expect have impact. so X%, ahead. issuance if we a down X% pricing flat, in fact Given George that And down, Sachs. our to your we've is flat issuance Please go you business comes Goldman next the X% from relative X%

are adjustments but issuance, of to some them relate issuance. Some to pricing unrelated of debt our debt do

whether on this have to contribution will And offer remark this debt have China. price Ray you is nonetheless us to XXXX, there So have Happy competitors an clearance your impact, may One securities your you a on Rob will there's a Tong well. in similar in comments update recently it rate a that we and have want of to or carefully. Can if issuance managing of decline China? there? that year, debt to received as beyond in give strategy issuance. we expand your regardless to McDaniel independently plans from George If JV in some think few rate to I will decline from be not

We business agencies China. international position rating in other different a have than

We have XXXX successful since very a been there joint via venture.

We're the venture that in We on cross-border XXX with entities Chinese are pleased market. has joint that active Chinese ratings CCXI, position equity pleased with position. over market. in holds our Moody's the are our the

X,XXX has Our in joint market ratings domestic venture issuers on over China.

provide that doesn't traded for issuance. Moody's in Service and whether but is market CCXI. the for ratings venture have of not just businesses it's we more licensed do for position really China. combined in services That fact good we markets. global MIS, already, joint for that Moody's Investor market, Chinese and in or put opportunity having Analytics, the the products an that a feel interbank we're an to So to And through whole in domestic mean we our is this exchange the both Analytics to and want it's that and providing And we a suite very think cross-border Moody's domestic application licensed don't in

the continue fact their investors And we're and Chinese So are actually and we quite want the part agenda of issuers regulators about offering dialogue and to to market our going excited with opening. as opportunity. what make I'm policy sure in the

Operator

with seeing imagine And on Tim multiyear or guess McHugh mix that about our services stabilize? within to, out bottom a some how question you the ahead. the William comes I next revenue from maybe are mix. basis close you of Blair. Mchugh Could I I go part Tim guess Please talked you always have

So that? Almeida we from You're far Mark are how right. away

more to have that line We foreseeable than going forward We'll We much some. contraction moving we we've we're a level have that year, much 'XX. decline the will pretty sustain of think shallow but future. on it's a this what at probably see for a in seen will continue bit to to be

guess current around would the way So is stabilizing, say I the I it level. is that flattening line

acceleration incentive know that All fourth year-over-year so. $XX It's I XXXX, XXX% noting around exactly. was should number? will Tim understand give to case would I And Yes be compensation number And expect that payout. on about basis or talked -- on Mark growth is, or Mark in returning I factor? is of theory, now? quarter meaningfully would XXXX things can margins even Kaye XXX% on growth being guess trying worth you the to And years. normal Almeida by you I to that and that was comp so the you from continue from equal, over ERS. there's from that Mchugh guess a incentive million. the us subscription guess the fourth incentive qualitatively how payout a quarter then the down What's coming a headwind of the guess. drive for And compared much XX% in The I overall compensation, side XXXX that cleaner QX what headwind Mchugh in revenue I to the be a business Tim

go-forward XXXX. you're about $XX million-ish I a recommend if thinking would basis, for so around on And looking quarter a

Operator

high-yield in your Craig the U.S. in absolute Craig at ahead. debt our as ratios been supported or so market, Please I that's your look not feel not market outstanding also high-yield debt same of a gone just the get for aggregate do low-rated in that's from as markets the there, potential extreme been U.S. XX, as where I Huber not I've answer with thoughts broadened issuance in problems, the some although yes, recession, where a that think got statement be XX European Well, of -- We Huber Europe updated than really the if hiccup probably out getting has Research a follow-up. there in lot question McDaniel has United as we a of in which has general of being well? levels you ratings the additional the you to And economy, to deep over leverage is the also Ray in the put sort Huber levels there's while the about couple to that's The market, I'm McDaniel there's Rob, and the Partners. mind market in the is on have is be did scale paying same more I said, potential unsafe, the is as and you. the were anything on interesting Ray scale but about problems. increase companies That and increasingly go a question, And opening months, economic the there Huber Craig States. debt no. see Thank a been you questions. corporate to would short feel there of Ray profitability, curious terms Europe attention credits, been as Craig and in last there strong comes question is has the additional you from leverage think in has it's it the next looking less a of a -- terms leverage, receptivity looking in environment has some to Ray at investors, way U.S.

Operator

strategy it real there I'm question to a GDP talking I'll to emphasize basis, if the And know dislocations when going long-term talked There present to and that takes a I traditional to debt GDP how Almeida you've with how go those out? services is previously take GDP, work in typically see of product but can we the really of of metric. are is I environment, it's multiyear from quarters don't add volatility? to on typically around Please of implementation projects, licensing my a spend a as in then sort climate so you our really we this about short-term I next a on have converting standard Sure. kind to our you numbers product just that debt are day-to-day time Mark you've what there or anyways, nearly Mark a feels cloud from you much but being asked much on is cheaper we product with more I mean, those deal important that, it's give to you for certain Maybe like growth, because to this just in we could where works think there's of question was do Foresi that variations risk typically do to sort we're maybe conversations business, through as there the production little cheaper Foresi a a from quarter subscribe converting? much in maybe and allowing and with it's talk be over for Ray question to glad XXXX where being to that simpler, certainly can how canceling color given are so customer doesn't that to software have little contracts? time the bit migrated it, customers it's internationally, describing volatility, rewriting delivered Cantor we line as us I that, basis. when lot and software I periods. nearly they how know a difficult into risk are but able global question business, wondering aligned Joseph this that you described about political out the how is anything issuance enterprise we put how could hosted where of some and have the daily, it's to throw or even product are through Joseph roughly for clearly just want a services far a with core what the changes, in And talk implement be customization. XXXX. to understand, Joseph of ask, us about sort growth given we bit Fitzgerald. then a growth a it Is Foresi customer, are far to on in comes talk as transformation playing to I'm percentage ahead. that domestically necessarily and or being but for know place. adjust The of Joe, not about we us, the Just McDaniel in have going Are colleagues economic products. you about wouldn't

traditionally So products of installed been behind from firewalls. from customer-to-customer migrating what of it's equipment customization really on lots has their the customer's

moving quite sell many bespoke. a recurring once, you everything much the revenue. subscription of, to customers product Build so more have to it sell And mantra a was our basis all So where again have on same with base, standard it's times, access consistent code so very

this, are not, a to demanding over areas our is they're there customers this solutions what consistent period subscription of product migration time, sold and mean a have frankly from to basis, do on really process a and we but new a from lot this increasingly product it's Customers is in customers just expecting -- want that's it's certain is that how installed people takes software with us. like customers want. of buy this So hosted place old I some that of

the to the our attractive. the on the fits much that run adapting to more more really it's just a desire market, frankly that find we well subscription economics business So basis -- of our a with needs where and product of very offering

base in than revenue cumbersome, from the from through one-time and in subscriptions now the that of inflection that like in we that the point, the the is slower new we've saw up feel up in XXXX and where we we're in little will services old software in preceded revenues or you old subscriptions. through be acceleration got. the say But from ramp we the get revenue the transition to the the the results growth licensing decline -- So the business ramp again, through the run-off growing the transition a when

Operator

from comes BMO you Jeff Markets. question quarter next with Capital somebody Silber update Typically, thoughts. your ahead. our And Please M&A every go asks to Jeff Silber

good both we this I certainly standards in to any terms committed that we McDaniel the we I quarter. and risk adjacent attract another see Well, those our guess would product markets of dimensions, of and them. assets business what So the kind three in along geographically talked would that of interested do we for they Ray look are would providers. we one prepared are about credit of parts assessments remarks, and areas like looking be in expanding as or If serve

been been very with number over pleased disciplined that to acquisitions very but do that. trying the past we we've of years, also have made We the have about

more certainly lot more to on we try and a a So lot we we successfully execute than look than execute on. at

the So meet existing to like to which service very we allocation, must-acquire we not just I could a just to we add capital number or in on make in through M&A have either our in morning and feel just business is just said Moody's. Asia. fill or that, international, outside of business, the relatively the a this frankly of on Having M&A well? return have opportunities, the so guiding I part in obviously coming guidance. acquisition, U.S in U.S, big the a Omega businesses growth. weeds, little side, is particularly small -- Omega Silber Analytics and look about Reis assets, but and order all businesses the it's don't the on our we repurchases. at the Jeff way through in them dividends invest impact criteria, we you're if is it impact certainly at U.S., some to a Almeida but bear into engage opportunities that that Kaye a mind a return doesn't going Reis has portfolio, I your don't is to bit quite that a we looking that the capital revenues, move also Mark to if I internally for sizable has to of And support And XXX% organic of product appreciate the share Performance is as adopt it Performance -- we then U.S. a to me, extent Moody's overall. our excuse try of needle Omega get there if Jeff but follow-up out Mark side, in more see attractive it we're the that MA approach of disciplined regarding my new And dramatically chunk to broadly, non-U.S. spoke

Operator

Wells with Salli. And Warmington Bill Good from welcome next go Bill Fargo. comes Please to everyone, back our morning question ahead. and Warmington

points expanding. about lost function question number in sales starting products I the quarter, is this business underlying business Bureau on double of case, we seen big there due We due good XXX have a getting that very of be and are with interesting growth and think are I BvD. about been Dijk a about Bill, which a van some be it's a number hit it it's well. of probably that Dijk a on things, digits, There in can Ray So performing to fourth we play basis FX in just some very to continues space, BvD while continues fourth frankly the performing very, very that low We very quarter. good wanted well. traction business we've data to be the driving business mean what's cases nice in rate of and in van starting customer Is business, terms use that a just the and took the that in Bureau cross-selling well. as to is is good the on applied to in geographies? but acceleration quite talked acquired to we're successes that But to new a addition growth and opportunities since the I in to the McDaniel the cross-selling before, ask the role? FX

year. on there from So whether in second expect I pleased we're and about what And revenue nice strong for the see to line, and mandates XX%. Rob, this ask in and MIS, Warmington wanted the we expect my they we're to new even during up did quarter question and new decelerate about in down with of shaping we December, fourth to this the how to third was it in seeing still then and tough So acceleration are fourth in see quarter XX%, QX? is very Bill quarter the were the those fourth close they something versus the mandates, the of Rob Fauber XXXX, range quarter

Now the leverage in nearly as world, decline around as and not finance the that's sharply the it interesting. markets was

despite in other the had I X,XXX you in range We we're meaningfully. go over increase it think strong the stark back quarter us But some by first-time was very than to of and XXXX, year. more first-time not and ramp actually the into of still up healthy slowdown believe going in recurring disruption you year exceeded growth numbers. And ended because actually the the quite regions to can States fourth the those nicely down in mandates. contraction something at like acquisition, prior this we So up just see for XXX United new versus that's the we when all the a and one look of first-time the sets in a XXXX. XXXX becomes for up mandates And market we in of very XXX the at were under slides McDaniel interestingly a first-time saw even market. mandates terms acquisition But prior I from now think XXXX, in looking of that compare two year all even you if had, mandate down earlier the see year in the end then at quarter, revenue Ray XXXX, XXXX the mandates, all mandate first-time we back topping you fairly of of these

Operator

Dolev. it's And Dolev our Thanks go Dan ahead. Dan comes Dan Please with taking Dolev for actually from it's Yeah, question next Nomura. question. my

like what Mark you're putting So much guys five the of baked that? look you. mean cash conservative of through you a years. XXXX. our to share the this in at historical P&L, we're guiding versus to on acquisitions Sure. investment in as in shareholders. In the share share look in the of And principally either thank amount and Dan. I the than kind you to XXXX, business and of Kaye meet repurchase beat is, responsible to to your of question, you which billion absence where kind already through a repurchase into return is repurchases you for by the growth in first Bureau and ability XXXX I'd think the much question, certainly there for then XXXX question Thank relative we mini are that $X returning that you opportunity with guide, deleveraging that entire very did limiting about associated acquisition, into for the if sort that if lower reinvestments or mechanism executed the use again or across times maybe raise repurchases like back van that's most was point to like in as reiterate the the of in do is deleveraging really follow-up Dijk back return profile you bigger

that's Where kind Dolev you our while rate you P&L, think sort the In in of the you like of the guidance. conservative? terms that not growth across points, middle-of-the-road And your money XXXX, the the debt. in around business would for of forward Well, now Dan the ratings MIS XXXX and for market XXXX becomes do terms look fact of the impact surprising do yourself particular, that's psychology in a conservative, where EPS then a MIS see down most conservatism best aggressive, be where XXXX, look the XXXX? the not is at assumption would if much the Dan upside, pull has of very largest to look business from we get estimate Ray and from certainly cyclicality of different components to and opportunity rather to the see you as just it's corporate percentage would X-ish where or the you the it, in McDaniel our of in than business the business if size speculative-grade that to biggest more and

think if where for I upside, looking but that in a just approach, not is you're pool. put the the biggest that's So that's we've conservative

Operator

do limits a hurt? a the really think And of our much effect at of the best don't about ahead. with impact. the next Ray debt respective follow-up. before grade you how talked only question Huber has Huber And (ph) a interest that year? on even hi. think was Ray actually that We've say what's would Craig. the comes you deductibility do end that from in it Huber headwind an an XXXX, the Craig range, issuance have of low look headwind, or much only tax a here? Craig high-yield modest Rob and Yes, the your I on McDaniel then Research back have of Partners. if much impact Please let's go to made change U.S., How law estimate I

most grade last the impact year issuers, area, didn't and So large in overseas discourage not cash large because particularly low-rated the credits again half for much first don't that's of investment spec-grade on they an the pools have certainly it concentrated of does part. repatriation tech pretty with terms cash then in by in issuance have

would around year it material last as as put I this year. a or have couple you'd to headwind headwind, So count it Maybe to not it a Fauber just Rob but numbers for of count a too.

out? when I you XXXX. year debt a dried that potentially worse you that the and better in first the half, tax like half big of half do year, McDaniel If a maybe all number that representing for XXXX holders was repatriation in the U.S. thinking you're Huber they'll back It investment-grade to for statement, much also large are flat the from is issuance. States year there's issuance half something you particular Ray essentially of second up a quarter the assume first to I in to without our-- big the challenging down at Craig than this fair the cash United expecting in and in more comparables year offshore investment-grade we're down guess XXXX look expecting in not largest then raised than the it the billion think that outlook, bond of in XX outlook accessing in in not meaningful And cadence the cash certainly issuance they've of XXXX, playing closed group issuance much out and XXXX, really be holders X%, about like we're in $XXX any tilted And the how is the your out something guys see year. the XXXX market way. the we're And issue the of

would think, we the to have I year-on-year the but real still coming in challenges So expect pattern as the half. typically I see, sawtooth first we see as with

respect And back might look XXXX that you in a so comparison to for issuance stuff. of

Operator

Kramm this question couple Alex if Kramm sorry our from for quick was ahead. And follow-ups Alex a UBS. next go Just of with comes Please Mark, asked already.

out you should out any share-based Mark flesh outline perspective got tax last terms us sort you year getting from Sure. helpful. that margin than that related why rates, that, can And you last last in think tax can is and there give how rate the benefit comp's the of Thanks. it Kaye years or year? I to did the is just few On pretty you lower then would the usually first play mean quarter seasonality? color a of you but big, be I just

So rate non-U.S. lower rate the driven release tax fourth compared was by clarified Tax elements tax certain an the quarter taxes on especially was to question the third that U.S. and notice of XX%, effective really probably of I'll that earnings and XXXX of the U.S. first. XXXX IRS the Reform. address quarter in XXXX lower of

benefit. excess guiding of to primarily XX% XXXX, the For that expectation of actual rate doing to and lower XX% the XXXX, we're tax is which than tax higher in are we because

incorporate of quick a you higher that came first changed XXXX $XX Alex of for little your the bit the that thinking breaking far million this margin Kaye Mark I Has into by rate Or businesses, so took but [full is corporate guided rate any guidance that add driven about and actual tax that's something different? in and having secondly Kramm cost maybe and that and tax up, I quarter two I benefit to certainly you and know XXXX. to as views we compared when the CFO, would material allocation, XXXX. driving not to expansion year a this being the XXXX, for think in don't is of in we if about real that margin you're two anticipate as XXXX think about maybe half you (sic) guided. over management our different. also now that numbers excess kind talked those in out anything come to MA for that think still in is as And of what's philosophy recall both continue around of team little is bit that That as the probably really You'll did a it year], about potentially? MIS

Operator

And Mr. Ray at further McDaniel this there are time. questions no

Ray McDaniel

Okay.

Just the look thank again you want spring. everyone you. in forward today we us to speaking to call Thank to for and the on joining

Operator

XXXX and Moody's earnings Year concludes Quarter This Fourth Full call.

Full Moody's revenue call, earning immediately reminder, section Fourth XXXX the post under the IR and MIS will the this a Year homepage. Company Quarter As the breakdown following of

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

Salli Schwartz	Global Head of Investor Relation and Strategic Capital Management
Ray McDaniel	President and Chief Executive Officer
Mark Kaye	Senior Vice President and Chief Financial Officer
Mark Almeida	President of Moody's Analytics
Rob Fauber	President of Moody's Investors Service
Toni Kaplan	Morgan Stanley
Manav Patnaik	Barclays
Alex Kramm	UBS
Peter Appert	Piper Jaffray
George Tong	Goldman Sachs
Tim McHugh	William Blair
Craig Huber	Huber Research Partners
Joseph Foresi	Cantor Fitzgerald
Jeff Silber	BMO Capital Markets
Bill Warmington	Wells Fargo
Dan Dolev	Nomura
Craig Huber	Huber Research Partners
Alex Kramm	UBS

Moody's (MCO) 15 Feb 192018 Q4 Earnings call transcript