10-QPeriod: Q1 FY2023

MOODYS CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2023

Filed April 26, 2023For Securities:MCO

Summary

Moody's Corporation (MCO) reported $1.47 billion in revenue for the first quarter of 2023, a slight decrease of 3% compared to $1.52 billion in the prior year period. This dip was primarily driven by an 11% decline in Moody's Investors Service (MIS) revenue, largely due to lower issuance volumes amid macroeconomic uncertainties. However, Moody's Analytics (MA) segment showed resilience with a 6% revenue increase, driven by consistent demand for its solutions. Despite the revenue dip, net income attributable to Moody's common shareholders saw a marginal increase to $501 million ($2.72 per diluted share) from $498 million ($2.68 per diluted share) in the prior year. This was significantly boosted by a substantial reduction in the effective tax rate to 1.0% from 18.2%, attributed to the resolution of uncertain tax positions. Operating expenses also increased, largely due to higher incentive compensation accruals and investments in MA, which impacted operating margins.

Financial Highlights

55 data points
Beta

Revenue

$1.47B

70.9% Gross Margin

Net Income

$501.00M

34.1% Net Margin

EPS (Diluted)

$2.72

Total Assets

$14.72B

Cash & Equivalents

$2.12B

Free Cash Flow

$535.00M

Financial Statements
Beta
Revenue$1.47B
Cost of Revenue$428.00M
Gross Profit$1.04B
SG&A Expenses$386.00M
Operating Expenses$916.00M
Operating Income$554.00M
Net Income$501.00M
EPS (Basic)$2.73
EPS (Diluted)$2.72
Shares Outstanding (Basic)183.30M
Shares Outstanding (Diluted)184.10M

Key Highlights

  • 1Total revenue decreased by 3% to $1.47 billion, primarily due to an 11% decline in Moody's Investors Service (MIS) revenue, driven by lower rated issuance volumes amidst economic uncertainty.
  • 2Moody's Analytics (MA) revenue grew by 6% to $737 million, demonstrating continued demand for its data, research, and decision solutions.
  • 3Net income attributable to Moody's common shareholders increased slightly to $501 million from $498 million year-over-year.
  • 4Diluted EPS rose to $2.72 from $2.68, largely aided by a significant decrease in the effective tax rate.
  • 5The effective tax rate (ETR) dropped dramatically to 1.0% from 18.2% due to tax benefits from resolving uncertain tax positions.
  • 6Operating expenses increased by 6% to $916 million, with higher incentive compensation and investments in MA impacting margins.
  • 7The company generated $608 million in net cash from operating activities, an increase of $138 million year-over-year.

Frequently Asked Questions

The primary driver of the revenue decline was an 11% decrease in Moody's Investors Service (MIS) revenue. This was mainly due to a 13% drop in rated issuance volumes across various lines of business, influenced by ongoing macroeconomic uncertainties, inflation, rising interest rates, and recent banking sector stress.

Total operating and SG&A expenses increased by 3% to $814 million. This increase was driven by higher incentive compensation accruals, investments in the Moody's Analytics (MA) segment to support growth, and annual salary increases. The company also incurred $14 million in restructuring charges related to its 2022-2023 Geolocation Restructuring Program. While expenses increased, favorable foreign currency translation rates and cost management initiatives in MIS provided some offset.

The significant decrease in the effective tax rate (ETR) from 18.2% to 1.0% had a substantial positive impact on net income. This reduction was primarily due to tax benefits recognized from the resolution of uncertain tax positions in various U.S. and non-U.S. jurisdictions, amounting to approximately $117 million. This benefit helped to offset lower operating income and contributed to the slight increase in net income and diluted EPS.

The Moody's Analytics (MA) segment showed strong performance with external revenue increasing by 6% to $737 million. This growth was consistent across all its lines of business: Decision Solutions, Research & Insights, and Data & Information. Annual Recurring Revenue (ARR) for MA grew by 10%, indicating sustained demand for its risk management and data solutions, despite an unfavorable impact from foreign currency translation rates.