Moody’s(US:MCO)2021-04-28 19:20Financial Data and Key Metrics Changes - Moody's reported a revenue growth of 24% in Q1 2021, with adjusted diluted EPS increasing by 49% to $4.06 [8][9] - Adjusted operating income rose 41% to $914 million, and the adjusted operating margin expanded by 680 basis points to 57.1% [9][20] - The company updated its full-year 2021 guidance, projecting revenue to increase in the high single-digit percent range and adjusted diluted EPS to be in the range of $11 to $11.30 [8][24] Business Line Data and Key Metrics Changes - Moody's Investor Service (MIS) generated over $1 billion in revenue, up 30% year-over-year, marking the first time MIS revenue exceeded $1 billion in a single quarter [8][19] - Moody's Analytics (MA) revenue grew by 14%, with subscription-based products driving this growth [8][20] - MIS's adjusted operating margin expanded to 67.7%, while MA's adjusted operating margin increased to 32.9% [20][24] Market Data and Key Metrics Changes - Issuance volumes reached their highest level in over a decade, with leveraged loans and high-yield bond issuance increasing by 94% and 85%, respectively [10][11] - The global speculative-grade default rate is expected to decline to approximately 3% to 4% by year-end, improving the outlook for corporate defaults [11][23] - Investment-grade issuance is expected to decline by approximately 30% for the full year, while high-yield bonds and leveraged loans are projected to be flat and up 55%, respectively [25][26] Company Strategy and Development Direction - The company is focused on innovation and integrating new features into its products to meet evolving customer needs, particularly in areas like ESG and climate [13][15] - Moody's is making strategic investments in KYC, commercial real estate, and ESG, aiming to enhance its risk assessment capabilities [44][45] - The company is also integrating recent acquisitions to improve its offerings and customer solutions [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic backdrop, which supports business growth and capital investment, while acknowledging potential challenges such as a third wave of infections [11][68] - The company anticipates a modest decline in issuance in the second half of 2021, as many issuers are expected to fulfill their funding needs earlier in the year [25][49] - Management highlighted the importance of economic growth as a key driver for the business over the medium and long term [78] Other Important Information - The company is maintaining its expense growth expectations in the mid-single-digit percent range while focusing on cost efficiency initiatives [24][29] - Moody's free cash flow forecast is expected to be between $2.1 billion and $2.2 billion, with share repurchases anticipated at approximately $1.5 billion [25] Q&A Session Summary Question: Insights on the full-year guidance raise - Management noted that the full-year adjusted EPS guidance was increased to approximately $11.15, reflecting strong operating performance from MIS [34] Question: Clarification on MIS margins - Management explained that the guidance for MIS margins is approximately 61%, with expectations for lower margins in the latter part of the year due to tough comparables and issuance activity [36] Question: Opportunities in insurance and commercial real estate - Management discussed the growth in the insurance business driven by IFRS 17 compliance and the integration of data analytics in commercial real estate solutions [40][41] Question: Update on M&A opportunities - Management emphasized a focus on acquiring assets that enhance risk assessment capabilities and meet evolving customer needs [44][45] Question: Clarification on issuance outlook - Management acknowledged that Q2 2020 had a surge in issuance, making it a tough comparable, and expects a modest decline in issuance in Q2 and Q3 [49][50] Question: Discussion on refinancing pull-forward activity - Management indicated that many borrowers pulled forward their 2021 funding plans to take advantage of favorable rates, impacting the issuance outlook [75]