Moody’s(US:MCO)2021-10-28 16:00PART I. FINANCIAL INFORMATION Financial Statements This section presents Moody's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021, and 2020, including statements of operations, balance sheets, cash flows, and detailed notes Consolidated Financial Statements The consolidated financial statements show significant revenue and net income growth for the nine months ended September 30, 2021, with total assets increasing to $14.4 billion, largely due to acquisitions Consolidated Statements of Operations Highlights (in millions, except EPS) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,526 | $1,356 | $4,679 | $4,081 | | Operating Income | $676 | $642 | $2,330 | $1,944 | | Net Income | $474 | $467 | $1,787 | $1,463 | | Diluted EPS | $2.53 | $2.47 | $9.51 | $7.73 | Consolidated Balance Sheet Highlights (in millions) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $4,255 | $4,509 | | Goodwill | $5,898 | $4,556 | | Total Assets | $14,414 | $12,409 | | Total Liabilities | $11,795 | $10,646 | | Total Shareholders' Equity | $2,619 | $1,763 | Consolidated Statements of Cash Flows Highlights (in millions) | Metric | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,706 | $1,488 | | Net cash used in investing activities | $(2,161) | $(853) | | Net cash provided by financing activities | $135 | $3 | Notes to Condensed Consolidated Financial Statements These notes detail key accounting policies and financial data, highlighting significant revenue increases, the $1.9 billion RMS acquisition, and the company's debt structure and segment performance - The company realigned its MA reporting units for goodwill impairment testing in Q2 2021 from five units to two, following a strategic reorganization, with a quantitative assessment as of July 31, 2021, not resulting in any impairment8182 - On September 15, 2021, the company acquired RMS, a global provider of climate and natural disaster risk modeling, for a total consideration of $1.936 billion, expanding its insurance data and analytics business117118 - On October 26, 2021, the Board approved a quarterly dividend of $0.62 per share, and on October 13, 2021, Moody's completed a $250 million minority investment in BitSight213 Revenue by Segment (in millions) | Segment | Q3 2021 Revenue | Q3 2020 Revenue | YTD 2021 Revenue | YTD 2020 Revenue | | :--- | :--- | :--- | :--- | :--- | | MIS | $925 | $825 | $2,941 | $2,557 | | MA | $601 | $531 | $1,738 | $1,524 | | Total | $1,526 | $1,356 | $4,679 | $4,081 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 and YTD 2021 financial results, highlighting 13% Q3 and 15% YTD revenue growth driven by MIS and MA segments, increased operating expenses due to acquisitions, and strong liquidity Q3 2021 vs Q3 2020 Performance Summary | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,526M | $1,356M | 13% | | Operating Margin | 44.3% | 47.3% | (300 bps) | | Adjusted Operating Margin | 48.3% | 53.2% | (490 bps) | | Diluted EPS | $2.53 | $2.47 | 2% | | Adjusted Diluted EPS | $2.69 | $2.69 | 0% | YTD 2021 vs YTD 2020 Performance Summary | Metric | YTD 2021 | YTD 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $4,679M | $4,081M | 15% | | Operating Margin | 49.8% | 47.6% | 220 bps | | Adjusted Operating Margin | 53.7% | 52.3% | 140 bps | | Diluted EPS | $9.51 | $7.73 | 23% | | Adjusted Diluted EPS | $9.96 | $8.24 | 21% | - The COVID-19 pandemic has not had a material adverse impact on reported results to date and is not expected to in the near-term, but longer-term impacts remain uncertain217 Results of Operations Q3 2021 revenue increased 13% to $1.5 billion, driven by MIS and MA growth, while operating and SG&A expenses rose 24% due to acquisitions and compensation, impacting Q3 margins - MIS Q3 revenue grew 12% to $925 million, driven by a 63% surge in Structured Finance (SFG) and a 6% rise in Corporate Finance (CFG), primarily from strong U.S. bank loan and CLO activity230246254 - MA Q3 revenue increased 13% to $601 million (8% organic growth), led by a 15% rise in RD&A from strong demand for KYC solutions and data feeds, while ERS organic revenue declined 2% due to a strategic shift230271278 - Q3 operating and SG&A expenses rose 24% to $789 million, driven by inorganic growth from acquisitions, including $22 million in RMS transaction costs, higher incentive compensation, and strategic technology investments231 - For the nine months ended Sep 30, 2021, MIS revenue grew 15% to $2.9 billion, and MA revenue grew 14% to $1.7 billion, with the total operating margin expanding by 220 basis points to 49.8%280281 Liquidity and Capital Resources The company maintains strong liquidity, with operating cash flow of $1.7 billion for the first nine months of 2021, while cash used in investing activities significantly increased to $2.2 billion due to acquisitions Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Flow | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities | $1,706 | $1,488 | | Investing Activities | $(2,161) | $(853) | | Financing Activities | $135 | $3 | - The increase in cash used for investing activities was primarily due to $1.3 billion more in cash paid for acquisitions in 2021 compared to 2020330 - As of September 30, 2021, approximately $1.2 billion remained under the share repurchase authorizations337 Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes to its market risk during the first nine months of 2021, referring to its 2020 Form 10-K for further discussion - There have been no material changes to the Company's market risk during the first nine months of 2021367 Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2021, noting a new ERP system implementation automated certain controls without materially affecting overall internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021368 - In Q3 2021, the company completed the second phase of a new ERP system implementation, automating certain controls without materially changing the overall internal control environment369 PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 18, 'Contingencies,' in the financial statements for information regarding various legal and regulatory proceedings incidental to the business - Information regarding legal proceedings is provided in Note 18, 'Contingencies,' of the financial statements372 Risk Factors The company reports no material changes from the significant risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes from the risk factors disclosed in the company's 2020 Form 10-K373 Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, Moody's repurchased 340,807 shares at an average price of $374.70, with approximately $1.203 billion remaining under the share repurchase program as of September 30, 2021 Share Repurchases for Q3 2021 | Month | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | July | 283,386 | $374.04 | 277,547 | | August | 56,345 | $377.98 | 55,636 | | September | 1,076 | — | — | | Total | 340,807 | $374.70 | 333,183 | - As of September 30, 2021, approximately $1.203 billion of share repurchase authority remained available375 Exhibits This section lists exhibits filed with the Form 10-Q, including agreements for the RMS acquisition, supplemental indentures for new debt, and CEO/CFO certifications - Exhibits filed include the Purchase Agreement for the RMS acquisition, supplemental indentures for new senior notes due 2031 and 2041, and CEO/CFO certifications377