10-QPeriod: Q3 FY2021

MOODYS CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2021

Filed October 29, 2021For Securities:MCO

Summary

Moody's Corporation reported strong financial results for the third quarter and first nine months of 2021, driven by robust performance in both its Moody's Investors Service (MIS) and Moody's Analytics (MA) segments. Total revenue increased by 13% for the quarter and 15% year-to-date, with notable growth in debt issuance ratings and analytics solutions. The company successfully completed the significant acquisition of RMS in September 2021, expanding its capabilities in climate and natural disaster risk modeling, which contributed to goodwill and intangible assets. While operating expenses increased due to acquisition costs, higher incentive compensation, and strategic investments, the company maintained strong operating margins, reflecting the underlying health of its core businesses. Diluted Earnings Per Share (EPS) saw a modest increase of 2% for the quarter and a significant 23% increase year-to-date, benefiting from strong operating performance and positive adjustments related to tax positions. The company also generated substantial free cash flow, underscoring its financial strength and ability to return capital to shareholders through dividends and share repurchases. Moody's outlook remains positive, supported by continued demand for its risk assessment and data analytics solutions.

Financial Highlights

55 data points
Beta

Revenue

$1.53B

74.2% Gross Margin

Net Income

$474.00M

31.1% Net Margin

EPS (Diluted)

$2.53

Total Assets

$14.41B

Cash & Equivalents

$2.24B

Free Cash Flow

$403.00M

Financial Statements
Beta
Revenue$1.53B
Cost of Revenue$394.00M
Gross Profit$1.13B
SG&A Expenses$395.00M
Operating Expenses$850.00M
Operating Income$676.00M
Net Income$474.00M
EPS (Basic)$2.55
EPS (Diluted)$2.53
Shares Outstanding (Basic)186.00M
Shares Outstanding (Diluted)187.30M

Key Highlights

  • 1Total revenue increased by 13% to $1.53 billion for Q3 2021 and by 15% to $4.68 billion for the nine months ended September 30, 2021.
  • 2Moody's Investors Service (MIS) revenue grew 12% year-over-year for the quarter, driven by strong performance in Structured Finance (SFG) and Financial Institutions Group (FIG).
  • 3Moody's Analytics (MA) revenue increased by 13% for the quarter, benefiting from growth in Research, Data and Analytics (RD&A) and Enterprise Risk Solutions (ERS), as well as inorganic growth from acquisitions.
  • 4The company completed the acquisition of RMS on September 15, 2021, for $1.94 billion, significantly expanding its insurance data and analytics capabilities.
  • 5Diluted EPS rose to $2.53 for Q3 2021, up from $2.47 in the prior year period, and increased to $9.51 for the nine months ended September 30, 2021, up from $7.73.
  • 6Free Cash Flow for the nine months ended September 30, 2021, was $1.63 billion, up from $1.41 billion in the prior year period.
  • 7Goodwill increased significantly due to acquisitions, with $1.39 billion added from RMS in the MA segment and $90 million in the MIS segment.

Frequently Asked Questions

Revenue growth was driven by strong performance across both MIS and MA segments. In MIS, growth was seen in Structured Finance (SFG) and Financial Institutions Group (FIG) due to increased CLO refinancing and securitization, CMBS activity, and favorable market conditions for banks and insurers. In MA, Research, Data and Analytics (RD&A) benefited from demand for KYC and compliance solutions and data feeds, while Enterprise Risk Solutions (ERS) saw growth in recurring revenue and inorganic contributions from acquisitions.

The acquisition of RMS on September 15, 2021, for $1.94 billion, significantly increased goodwill and intangible assets. The acquisition was funded by new debt and cash on hand. While the integration is expected to expand Moody's insurance data and analytics business, the acquisition-related costs, including $22 million in RMS acquisition costs, impacted operating expenses and margins in the third quarter.

Moody's generated strong free cash flow of $1.63 billion for the first nine months of 2021, an increase from the prior year. The company intends to continue using its strong cash flow to create shareholder value through investments in growth, targeted organic initiatives, inorganic acquisitions, dividends, and share repurchases. As of September 30, 2021, approximately $1.2 billion remained under its share repurchase authorization.

Moody's faces ongoing legal and tax proceedings, as well as regulatory investigations. While the company records liabilities when probable and estimable, uncertainties exist regarding the outcome and timing of resolution for many matters, particularly those related to ICRA's operations and tax audits. The company disclosed that it cannot predict the ultimate outcome or financial impact of these matters, which could affect future operating results.