Moody’s(MCO)2022-07-26 19:37Financial Data and Key Metrics Changes - Moody's revenue declined approximately 11% in Q2 2022, with adjusted diluted earnings per share down 31% to $2.22 compared to the prior year [11][12][17] - The company anticipates full year 2022 revenue to decline in the high single-digit percent range, with adjusted earnings per share projected between $9.20 and $9.70 [17][51] Business Line Data and Key Metrics Changes - The Ratings business (MIS) generated revenue of $706 million, significantly impacted by a 32% decline in global rated issuance and a 40% drop in transaction revenue [11][12] - The Moody's Analytics (MA) business saw revenue growth of 18%, with organic annual recurring revenue (ARR) growing by 9% [13][14] - MA revenue growth was negatively impacted by 5 percentage points due to foreign exchange [14] Market Data and Key Metrics Changes - Global rated issuance was down 32% for the quarter, reflecting a challenging market environment [12] - The company expects issuance to decline approximately 30% for the year, with a low 20% decrease in full year 2022 revenue for MIS [16] Company Strategy and Development Direction - Moody's is focusing on integrated risk assessment offerings and plans to continue investing in product development and sales to support organic ARR growth [21][22] - The company has introduced a Geolocation Restructuring Program aimed at generating $40 million to $60 million in annualized savings [18][19] Management's Comments on Operating Environment and Future Outlook - Management noted that the current market disruption is expected to persist for the remainder of the year, with ongoing geopolitical tensions and rising interest rates contributing to market volatility [15][19] - The company remains confident in the fundamental drivers of issuance and expects a medium-term recovery as capital markets adjust to higher interest rates [20][22] Other Important Information - The company has revised its guidance for MA's revenue growth outlook to the mid-teens percent range due to the impact of foreign exchange [16] - Moody's is committed to returning approximately $1.5 billion to stockholders, reflecting a conservative approach to capital management in light of current economic conditions [87][88] Q&A Session Summary Question: How much conservatism is baked into the issuance guidance? - Management indicated that the issuance outlook reflects historical averages and is based on current market conditions, which are expected to remain steady [24][28] Question: What are the latest views on medium-term MIS margins? - Management maintains that medium- to long-term business fundamentals for MIS remain intact, with expectations for adjusted operating margins to stabilize in the low 60% range [29][30] Question: What could trigger re-engagement in the issuance market? - Key factors include economic growth, inflation control by the Fed, and resolution of geopolitical tensions, which would enhance market confidence [34][35] Question: What is the outlook for Decision Solutions organic revenue growth? - Management expects similar performance in Q3 as seen in Q2, with potential acceleration in Q4 [84] Question: How does the current economic environment impact M&A appetite? - The company remains disciplined in its approach to M&A, focusing on integrating recent acquisitions while preserving financial flexibility [89][92]