10-QPeriod: Q2 FY2020

MOODYS CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 31, 2020For Securities:MCO

Summary

Moody's Corporation (MCO) reported a strong second quarter and first half of 2020, demonstrating resilience and growth amidst the challenging economic environment brought on by the COVID-19 pandemic. The company's total revenue increased by 18% year-over-year for the quarter and 16% for the first half, driven by robust performance in both its Moody's Investors Service (MIS) and Moody's Analytics (MA) segments. The MIS segment saw a significant 27% increase in external revenue for the quarter, primarily fueled by a surge in corporate debt issuance, as companies sought to bolster liquidity. The MA segment also reported growth, with a 5% increase in external revenue for the quarter, supported by demand for its know-your-customer, compliance, research, and data solutions. Profitability improved considerably, with Diluted EPS rising 66% for the quarter and 48% for the first half. The company maintained strong liquidity, with a significant increase in cash provided by operating activities and a proactive approach to debt management. Moody's also highlighted its ongoing commitment to adapting to the evolving market conditions, including expense management and strategic investments in technology.

Financial Highlights

54 data points
Beta

Revenue

$1.44B

74.8% Gross Margin

Net Income

$509.00M

35.5% Net Margin

EPS (Diluted)

$2.69

Total Assets

$11.30B

Cash & Equivalents

$2.10B

Free Cash Flow

$591.00M

Financial Statements
Beta
Revenue$1.44B
Cost of Revenue$362.00M
Gross Profit$1.07B
SG&A Expenses$307.00M
Operating Expenses$725.00M
Operating Income$710.00M
Net Income$509.00M
EPS (Basic)$2.71
EPS (Diluted)$2.69
Shares Outstanding (Basic)187.70M
Shares Outstanding (Diluted)189.00M

Key Highlights

  • 1Total revenue increased significantly by 18% year-over-year for Q2 2020 to $1.435 billion and by 16% for the first half of 2020 to $2.725 billion.
  • 2Moody's Investors Service (MIS) revenue surged by 27% in Q2 2020, driven by strong corporate debt issuance amidst market uncertainty.
  • 3Moody's Analytics (MA) revenue grew by 5% in Q2 2020, supported by demand for compliance, research, and data solutions.
  • 4Diluted Earnings Per Share (EPS) saw substantial growth, increasing by 66% to $2.69 in Q2 2020 and by 48% to $5.27 for the first half of 2020.
  • 5The company reported strong operating income growth, with a 47% increase in Q2 2020, leading to improved operating margins.
  • 6Moody's maintained strong liquidity, with net cash provided by operating activities increasing by $222 million for the first half of 2020.
  • 7The company proactively managed its debt, issuing new long-term notes in H1 2020 to bolster liquidity.

Frequently Asked Questions

Despite the economic uncertainties caused by the COVID-19 pandemic, Moody's demonstrated strong financial performance. Revenue increased significantly in both MIS and MA segments. The company noted that while market volatility impacted certain sectors, corporate issuers increased debt issuance to bolster liquidity, which benefited MIS. Moody's also proactively managed liquidity and expenses in response to the pandemic.

The significant 27% growth in MIS external revenue was primarily driven by a substantial increase in corporate debt issuance, encompassing both investment-grade and speculative-grade debt. This surge was attributed to companies taking advantage of low borrowing costs and seeking to strengthen their balance sheets amidst the uncertainties surrounding the COVID-19 crisis.

Moody's reported a 9% increase in total operating and SG&A expenses for the quarter. However, strong revenue growth outpaced expense increases, leading to a significant expansion in operating margin to 49.5% from 39.8% in the prior year. The company also benefited from lower restructuring charges compared to the previous year.

Moody's is closely monitoring the impact of COVID-19. While the company experienced strong results in Q2, it acknowledges uncertainties regarding the duration and severity of the crisis. Potential impacts include continued volatility in issuance for MIS and reduced discretionary spending affecting MA. The company remains committed to disciplined cost management and strategic investments.