Moody’s(MCO) - 2023 Q1 - Quarterly Report

Revenue and Financial Performance - Revenue for Q1 2023 was $1.47 billion, a decrease from$1.522 billion in Q1 2022[17] - Moody's Corporation reported a total revenue of $1.47 billion for the first quarter of 2023, compared to$1.522 billion in the same period in 2022[36] - Total revenue for Moody's Corporation in Q1 2023 was $1.47 billion, with 32$1,470 million, compared to $1,522 million in the same period in 2022[119] - Moody's total revenue for Q1 2023 was$1.47 billion, a 3% decrease compared to $1.522 billion in Q1 2022[135] - MCO revenue decreased by 3$1.470 billion in Q1 2023, with constant currency decline of 2% to $1.498 billion[211] Operating Income and Expenses - Operating income for Q1 2023 was$554 million, down from $656 million in Q1 2022[17] - Total expenses for Q1 2023 increased to$916 million from $866 million in Q1 2022[17] - Adjusted Operating Income for the three months ended March 31, 2023 was$656 million, compared to $734 million in the same period in 2022[119] - Operating margin decreased by 540 basis points to 37.7$501 million, compared to $498 million in Q1 2022[17] - Earnings per share (EPS) for Q1 2023 was$2.72 (diluted), slightly up from $2.68 in Q1 2022[17] - Net income for Q1 2023 was$501 million, slightly higher than the $498 million reported in Q1 2022[24] - The company's net income for the first quarter of 2023 was$501 million, with dividends of $0.77 per share and stock-based compensation of$140 million[30] - Diluted EPS increased by 1% to $2.72 in Q1 2023, compared to$2.68 in Q1 2022[135] - Adjusted Diluted EPS rose by 3% to $2.99 in Q1 2023, up from$2.89 in Q1 2022[135] - Diluted EPS increased by $0.04, and adjusted diluted EPS rose by$0.10, benefiting from a $0.75/share gain from tax matter resolutions, partially offset by lower operating income[149] Segment Performance - The MA segment generated$737 million in external revenue, with Decision Solutions contributing $354 million, Research and Insights$195 million, and Data and Information $188 million[36] - The MIS segment reported$733 million in external revenue, with Corporate Finance contributing $356 million, Structured Finance$99 million, Financial Institutions $142 million, and Public, Project and Infrastructure Finance$129 million[36] - Total external revenue for the MA segment increased by 6% year-over-year, from $695 million in Q1 2022 to$737 million in Q1 2023[36] - Decision Solutions segment revenue increased to $354 million in Q1 2023, up from$334 million in Q1 2022, with Recurring Revenue accounting for 88% of the total[43] - Corporate Finance segment revenue decreased to $356 million in Q1 2023 from$417 million in Q1 2022, with Transaction Revenue dropping from 70% to 65% of the total[43] - Total MIS revenue decreased to $733 million in Q1 2023 from$827 million in Q1 2022, with Transaction Revenue accounting for 59% of the total[43] - MIS external revenue declined by 11% to $733 million in Q1 2023, down from$827 million in Q1 2022[135] - MA external revenue increased by 6% to $737 million in Q1 2023, up from$695 million in Q1 2022[135] - Moody's Analytics (MA) revenue increased 6% to $740 million, with Decision Solutions (DS) revenue up 6$778 million, with Corporate Finance (CFG) revenue down 15% and Structured Finance (SFG) revenue down 31%[164] - MIS adjusted operating margin declined to 56.8%, down 180 BPS, primarily due to the 11% decrease in revenue[187] - MA revenue increased by 6% to $737 million in Q1 2023 compared to$695 million in Q1 2022[211] - Constant currency MA revenue grew by 9% to $755 million in Q1 2023[211] - Decision Solutions revenue rose by 6$354 million in Q1 2023, with constant currency growth of 8% to $361 million[211] - Research and Insights revenue increased by 7$195 million in Q1 2023, with constant currency growth of 8% to $198 million[211] - Data and Information revenue grew by 6$188 million in Q1 2023, with constant currency growth of 10% to $196 million[211] - Total MA ARR increased by 10$2.752 billion in Q1 2023 compared to $2.501 billion in Q1 2022[214] - Decision Solutions ARR grew by 11$1.234 billion in Q1 2023[214] - Research and Insights ARR increased by 9% to $770 million in Q1 2023[214] - Data and Information ARR rose by 9$748 million in Q1 2023[214] Cash Flow and Liquidity - Net cash provided by operating activities increased to $608 million in Q1 2023, compared to$470 million in Q1 2022[24] - Cash and cash equivalents increased to $2,119 million in Q1 2023 from$1,769 million in Q4 2022, reflecting a $350 million increase[22] - Net cash provided by operating activities increased by$138 million to $608 million in Q1 2023 compared to$470 million in Q1 2022, primarily due to higher incentive compensation payments in 2022[190][191] - Free Cash Flow rose by $124 million to$535 million in Q1 2023, up from $411 million in Q1 2022[190] - Net cash used in investing activities decreased by$98 million to $63 million in Q1 2023, reflecting lower acquisition-related payments compared to 2022[192] - Net cash used in financing activities decreased by$136 million to $216 million in Q1 2023, driven by lower treasury share repurchases and no long-term debt issuance in 2023[192] - The company's cash and cash equivalents totaled$2.2 billion as of March 31, 2023, with $1.7 billion located outside the U.S.[192] Debt and Financial Obligations - Long-term debt decreased to$6,963 million in Q1 2023 from $7,389 million in Q4 2022, reflecting debt repayment efforts[22] - Total debt carrying value as of March 31, 2023 was$7.462 billion, with a principal amount of $7.758 billion[104] - Current portion of long-term debt as of March 31, 2023 was$499 million, with total long-term debt at $6.963 billion[104] - The company's debt repayment schedule shows$500 million due in 2024, $700 million in 2025, and$6.015 billion thereafter[106] - Interest rate swaps reduced the carrying value of debt by $192 million as of March 31, 2023[104] - The company was in compliance with all debt covenants as of March 31, 2023, with no cross defaults reported[105] - Future interest payments and fees associated with the company's debt are expected to be$4.9 billion, with $334 million due in the next 12 months[194] - Purchase obligations totaled$244 million as of March 31, 2023, with $151 million expected to be paid in the next 12 months[196] - Operating lease payments totaled$490 million as of March 31, 2023, with $118 million due in the next 12 months[197] Shareholder Equity and Dividends - Total shareholders' equity increased to$2.891 billion as of March 31, 2023, up from $2.519 billion at the end of 2022[30] - Dividends paid in Q1 2023 totaled$141 million, up from $130 million in Q1 2022[24] - The company declared a quarterly dividend of$0.77 per share of common stock, payable on June 9, 2023[122] - The company approved a quarterly dividend of $0.77 per share and had$807 million remaining in share repurchase authority as of March 31, 2023[199] Comprehensive Income and Other Financial Metrics - Comprehensive income attributable to Moody's for Q1 2023 was $555 million, up from$437 million in Q1 2022[20] - Foreign currency translation adjustments resulted in a net gain of $107 million in Q1 2023, compared to a net loss of$107 million in Q1 2022[20] - Net losses on net investment hedges were $57 million in Q1 2023, compared to net gains of$47 million in Q1 2022[20] - Total other comprehensive income for Q1 2023 was $51 million, compared to a loss of$61 million in Q1 2022[20] - Foreign currency translation adjustments resulted in a loss of $736 million in Q1 2023, contributing to a total comprehensive loss of$643 million[101] - Total net gain in Accumulated Other Comprehensive Income (AOCL) as of March 31, 2023: $84 million (Net investment hedges:$128 million, Cash flow hedges: $(44) million)[75] Taxes and Tax Benefits - Moody's effective tax rate (ETR) decreased to 1.0$117 million from resolutions of uncertain tax positions[57] - Income taxes paid decreased to $66 million in Q1 2023 from$70 million in Q1 2022[57] - Effective tax rate (ETR) decreased by 1,720 BPS, reflecting a $113 million reduction in income tax provision due to the resolution of uncertain tax positions[148] Stock-Based Compensation and Share Repurchases - Stock-based compensation cost for Q1 2023 was$47 million, with a tax benefit of $10 million[53] - Unrecognized stock-based compensation expense at March 31, 2023 was$20 million for stock options and $354 million for unvested restricted stock[54] - Proceeds from stock option exercises increased to$7 million in Q1 2023 from $3 million in Q1 2022[55] - Aggregate intrinsic value of stock options exercised rose to$15 million in Q1 2023 from $4 million in Q1 2022[55] - Tax benefit realized upon exercise of stock options increased to$4 million in Q1 2023 from $1 million in Q1 2022[55] - Treasury stock repurchases amounted to$41 million in Q1 2023, significantly lower than the $560 million repurchased in Q1 2022[24] - The Company repurchased 1.5 million shares under the ASR program at a volume-weighted average price of$324.20 per share[60] Geographic Revenue Breakdown - Moody's Corporation's U.S. revenue for the first quarter of 2023 was $770 million, while non-U.S. revenue was$700 million[40] - The MA segment's U.S. revenue was $324 million, with EMEA contributing$278 million, Asia-Pacific $80 million, and Americas$55 million[41] - The MIS segment's U.S. revenue was $446 million, with EMEA contributing$173 million, Asia-Pacific $71 million, and Americas$43 million[41] - Revenue from the United States for the three months ended March 31, 2023 was $770 million, compared to$823 million in the same period in 2022[121] - Revenue from the EMEA region for the three months ended March 31, 2023 was $451 million, compared to$457 million in the same period in 2022[121] - U.S. revenue decreased by 6% to $770 million in Q1 2023, down from$823 million in Q1 2022[137] - Asia-Pacific revenue increased by 7% to $151 million in Q1 2023, up from$141 million in Q1 2022[137] Derivatives and Hedging Activities - Moody's Corporation modified the contractual terms of certain interest rate swaps and cross-currency swaps in the first quarter of 2023, replacing LIBOR/EURIBOR-based reference rates with SOFR/ESTR-based rates[34] - Total notional amount of swaps as of March 31, 2023: €2,903 million (Pay Fixed/Receive Fixed: €765 million at 3.67%, Pay Floating/Receive Floating: €2,138 million based on ESTR) and $3,050 million (Receive Fixed:$800 million at 5.25%, Receive Floating: $2,250 million based on SOFR)[71] - Cumulative gains/(losses) on net investment hedges as of March 31, 2023:$128 million (Cross currency swaps: $79 million, FX forwards:$29 million, Long-term debt: $20 million)[75] - Cumulative gains/(losses) on cash flow hedges as of March 31, 2023:$(44) million (Interest rate contracts: $(46) million, Cross currency swaps:$2 million)[75] - Notional amount of foreign exchange forwards as of March 31, 2023: $295 million (Sell USD for GBP),$15 million (Sell USD for JPY), $78 million (Sell USD for CAD),$52 million (Sell USD for SGD), $160 million (Sell USD for EUR),$23 million (Sell USD for INR), €25 million (Sell EUR for USD)[77] - Net losses on derivatives not designated as hedging instruments: $5 million (FX forwards)[78] - Total assets from derivatives designated as accounting hedges:$16 million (Cross-currency swaps: $12 million, FX forwards:$4 million)[80] - Total liabilities from derivatives designated as accounting hedges: $307 million (Cross-currency swaps:$115 million, Interest rate swaps: $192 million)[80] Restructuring and Cost Savings - The 2022-2023 Geolocation Restructuring Program is expected to result in annualized savings of$120 million to $140 million per year[84] - Restructuring charges recognized during Q1 2023 were$14 million, primarily related to employee termination costs[84] - Cumulative expense incurred through March 2023 for the 2022-2023 Geolocation Restructuring Program was $98 million for employee termination costs and$28 million for real estate related costs[86] Other Financial Metrics and Adjustments - Total current assets rose to $4,426 million in Q1 2023, up from$4,094 million in Q4 2022, driven by higher cash and accounts receivable[22] - Deferred revenue grew to $1,578 million in Q1 2023, up from$1,258 million in Q4 2022, indicating strong customer commitments[22] - Retained earnings increased to $13,979 million in Q1 2023 from$13,618 million in Q4 2022, reflecting net income accumulation[22] - Capital additions for Q1 2023 were $73 million, compared to$59 million in Q1 2022, indicating increased investment in property and equipment[24] - Interest expense, net for Q1 2023 was $48 million, down from$53 million in Q1 2022[17] - Basic weighted average shares outstanding decreased to 183.3 million in Q1 2023 from 185.1 million in Q1 2022[59] - Diluted weighted average shares outstanding decreased to 184.1 million in Q1 2023 from 186.1 million in Q1 2022[59] - Fair value of cash equivalents and short-term investments decreased to $729 million in Q1 2023 from$914 million in Q4 2022[62] - Contract value of Corporate-Owned Life Insurance (COLI) increased to $44 million in Q1 2023 from$40 million in Q4 2022[62] - Total acquired intangible assets, net decreased from $2,210 million in December 2022 to$2,177 million in March 2023[83] - Total fair value of assets decreased from $117 million in December 2022 to$99 million in March 2023, primarily due to a decrease in derivatives from $46 million to$16 million[88] - Total other current assets decreased from $583 million in December 2022 to$517 million in March 2023, with prepaid taxes decreasing from $235 million to$191 million[92] - Total accounts payable and accrued liabilities decreased from $1,011 million in December 2022 to$805 million in March 2023, with incentive compensation decreasing from $276 million to$88