Q1 2020 Earnings Call

April 30, 2020

[music].

Yeah currently on hold for the Moody's Corporation first quarter 2020, earning.

Often.

At this time, we are assigned to this audience and plans to be underway in approximately.

Three minutes, we appreciate your patience and please remain on the line.

[music].

You are currently on hold for the movies.

Corporation first quarter 2020 earnings call.

At this time, we are found in today's audience and plans to be underway shortly.

And approximately one minute. We appreciate your patience and please remain on the line.

[music].

Good day, and welcome ladies and gentlemen to the Moody's Corporation first quarter 2020 earnings Conference call.

At this time I would like to inform you that this conference is being recorded.

All participants aren't going to listen only mode.

At the request of the company, we will open the conference up for question and answers.

Following the presentation.

I'll now turn the conference over to.

Bonnie Cox head of Investor Relations. Please go ahead.

Thank you.

Good morning, everyone and thanks for joining us on this teleconference to discuss Moody's such quarter Twentytwenty resolved as one of the outlooks and 40 at Twentytwenty I'm Shibani cops head of Investor Relations. This morning, Moody's released its results for the first quarter Twentytwenty, because one of the outlook for full year Twentytwenty <unk> earnings press release.

Some patients to accompany this teleconference I bikes available on our website at <unk> Dot Moodys Dot com.

Right Mcdaniel, Moody's President and Chief Executive Officer will lead this morning's come from school.

When making prepared remarks mckool. This morning, if Mccain Moody's Chief Financial Officer.

During this call we will also be presenting non-GAAP.

<unk> adjusted figures please refer to the tables at the end the call Onyx Press release filed this morning for reconciliation between Wanna, Josh Smashes mentioned during the school and gap.

Before we begin I called your attention to the Safe Harbor language, which can be found to be into <unk> earnings release. Today's remarks may contain forward looking statements within the meaning that the private Securities Litigation Reform Act 1990 fives in accordance with the X. I also direct your attention to the management's discussion and analysis section and the risk factors.

Disgusting <unk> annual report on form 10-K pretty good ended December 31st 2019, and then all the FCC filings made by the company, which are available on our website and on the Fccs website piece together with the Safe Harbor statement set forth important factors that could cause actual results to differ maturities from Dave.

Contained in any such forward looking statements.

I'd like to point out, but nonetheless, it the media maybe on the call. This morning, the mission I mean.

I'll now turn the corner, which way Mcdaniel.

Thanks, Giovanni Good morning, Thank you everyone for joining todays slightly delayed call, we apologize for that to why.

I'll begin by providing a general update on the business.

Coating Murray's first quarter 2020 financial results, Mark Hey, will then comment on our outlook for 20 point.

After our prepared remarks, we'll be happy to respond to your questions.

Much of today's call will be focused on the affected the code that 19 pandemic has had on the economy and our business along with Moody's preparedness and response.

I'd like to start by saying, how incredibly proud I am the dedication and hard work of our employees across the globe.

They made it possible for Moody's to continue operating spectacularly, demonstrating the resilience of what they are demonstrating that the resilience of our business was with our people.

This importantly includes our technology staff were proactive in upgrading our infrastructure and planning for remote work.

Amidst these turbulent times, we remain confident in Moody's long term growth fundamentals.

As our expertise is increasing relied upon in this environment. Our mission has become even more critical to provide trusted insights and standards that helps decision makers act with confidence.

We have maintained a healthy balance sheet, an ample liquidity, which will help us manage through this period of uncertainty.

Well, we've had a strong first quarter, it's robust growth in both revenue and earnings we expect the implications of cope with my team to be more pronounced throughout the second half of the year.

The management team, we prepare rigorously for a multitude of contingencies.

After careful consideration.

Wander around the base case scenario with relatively wide ranging outcomes.

Reflected in our full year 2020, adjusted diluted EPS guidance, which we have lowered and widen to a range of $7, an 80 cents to $8 in 40 cents.

He material change, where previously communicated Cogs and he will discuss the changes to our assumptions that drive this updated outlook.

As everyone is aware the Cobiz Nike virus, it's taken a significant toll globally.

Because required heroic efforts from the health community to treat millions of patients we would like to express our sincere gratitude for these frontline professionals.

The pandemic continues the health and safety of our more than 11000 employees remains Moody's top priority.

Like other organizations, we have transitioned to remote work, we continue to monitor the situation on a local level.

And our future working arrangements with the guidance from the relevant authorities such as consideration sporadically testing and contact tracing.

Likewise, we're taking steps to ensure we can provide a safe work environment.

In response to the pandemic, we've made our researchers insights accessible to the public at large by creating a micro sites have moodys dot com slashed, rather wireless which contains a wide range of content related to covert 19 and its impacts on the markets.

In addition, we are regularly engaging with market participants by virtual meetings and webcast to share or knowledge and opinions.

Also supporting our local communities, including providing our employees with virtual opportunities to volunteer and the recently announced $1 million program of charitable donations and other supporting measures addressing both the immediate and long term impacts of the pandemic.

This follows an initial dump and initial donation in January to aid in medical movies in China.

The program include global local grants that are a mixture of humanitarian and other aid to address the impact to covert 19 on small businesses and education systems.

I'd encourage you to learn more about these and other key corporate social responsibility initiatives in our CSR report published earlier this week and better micro site Moodys Dot com Slash CSR.

Lastly, we are lending our expertise to governments and policymakers to help mitigate the crane or viruses impact and plan for recovery.

Our information and analysis has been critical for example, and helping to inform stimulus programs and the allocation of fiscal support.

Community these commitments to our stakeholders exemplify Moody's purpose to bring clarity knowledge and fairness to an interconnected world.

We continue to proactively engage with their customers in order to provide unique insights specifically relevant to this time of stress.

One example is I mentioned is our coated 19 micro site, which aggregates content from across our businesses and includes over 1000 published reports that have been visited more than 120000 times, we've seen a 120% increase in usage on our website and over 35000 people participate.

It incorrectly virus related online events that we give organized.

During this crisis, we are investing in our customers and communities by enhancing existing products and developing new offerings.

For instance, we built out our microeconomic scenario, our macroeconomic scenarios to reflect the potential impact implications of the Corona virus outbreak in January.

I need some areas have help hundreds of banking customers projected impacted desires on their businesses.

[laughter] Moody's analytics also recently announced its know your supplier portal.

This innovative tool eight hospitals and other health care providers identifying screen suppliers.

First thing medical and personal protective equipment for broke one staff remains a critical challenge and Unfortunately also invites fraud and scams.

Finally, and they enhance its credit Decisioning solutions to help lenders underwriting loans on the first day. The pay cheque protection program is made available to banks and borrowers under the cares Act.

In addition to our coded 19 response, we also remaining focused on key growth initiatives, ensuring that when we emerged from the situation to a new normal Moody's will be strongly position for continued growth.

I'd like to update you on three of those initiatives, where we've been investing in these areas recently and our strategy is beginning to coalesce into unique and powerful customer solutions customer solutions.

First know your customer Kyi see what we recently acquired regulatory Datacore, our DC in order to create a leading global player in this space.

I have a compelling and hard to replicate suite of solutions, bringing together decades of experience in customer and supplier screening proprietary databases and they are capabilities to improve speed and effectiveness in identifying risks.

We are well underway and the integration process and the recently launched know your supplier for a little bit I mentioned earlier demonstrates this.

We've also continued to add new features to our compliance product compliance catalyst, including the ability for customers to create their own listed entities with whom they do not want to transact has what was enabling compliance with U.S. OPEC and do you sanctions regulations regarding entities that are majority owned by a sanctioned company.

Andrew.

We remain excited about the growth prospects and tell you I see as our customers will be searching for new tools and solutions to improve their efficiency in this crucial function.

Another area of focus for US is yes tree, we're embedding a cross which we're embedding a cross Moody's.

Last week to commemorate Earth day rolled out our new U.S.G. and climate risk hub Moodys Dot com slash, Yes G.

The fact showcases our U.S.G. and climate risk capabilities across both lines of business.

The products provided by for 27 video Iris infant, how green finance alone our immensely powerful but when we bring together these companies world class data and analytics with that my ass and they core competencies, we unrivaled offering for our customers.

Finally, we continue to enhance RCR replatform. The first two real estate market like many other areas. It's under intense pressure right now and many of our customers are trying to think through the impact to their investment portfolios.

We continue to build on our proprietary Rhys database recently launched recently launching a new web site for the dedicated cobot 19 topic page.

With the recent network paired with our tools and <unk> expertise in the U.S.G. structured credit and risk. We can provide a comprehensive solution with a wide range of use cases to help our customers.

So we remain focused on creating long term growth.

Optimistic about our prospects for these markets.

Before reviewing our first quarter results I thought it would be helpful. We provide a recap of how cope with 19 affected the credit markets.

The virus has had a starkly negative impact on the global economy, resulting in widespread rising unemployment and recessionary conditions in response governments have undertaken unprecedented global monetary easing efforts in fiscal actions.

Well well you've seen market disruption. We've also observe somewhat of a dichotomy between the impact of these macro shocks on the real economy and the functioning of the credit markets.

For instance investment grade companies have responded to economic uncertainty by bolstering their cash balances and capital positions with record levels of bond issuance in March and April.

On the other hand, we've observed subset substantial spread widening in speculative grade issuance markets and leveraged finance activity curtailed as the contagion intensified.

The high yield bond market has begun to reopen especially at the higher end to the speculative grade rating scale, while the leverage loan market has been slower to recover.

Nevertheless, the banking system has remained stable well I'm for a wave of borrowings under revolving credit facilities by corporates seeking liquidity.

We have seen similar trends outside the corporate sector in that higher rated names, notably financial institutions have retained access to the credit markets and use that access to bolster liquidity.

We've seen a slowdown in structured finance activity, notably in see yellows that spreads widened during march given underlying credit concerns.

You asked public fads. There's also active early in the first quarter, yet issuing slowed as funding rates escalated.

As credit markets increasingly read throughs severe economic stresses and focus more on post virus underlying fundamentals. We expected. This dichotomy with the real economy may continue until companies and financial institutions have completed their balance sheet and liquidity strengthening initiatives.

I'd like to further highlight the progression of corporate issuance over the course of the first quarter.

As you can see leveraged finance was relatively active early in the quarter given tight spreads in healthy investor demand.

However, issuance tapered as high yield spread significantly widened in March to exceed 1000 basis points levels not seen since 2000 or not.

The simultaneous surgeon investment grade activity drew a contrast as march issuance more than doubled from the prior year period.

These diverging trends in form our issuance outlook, which mark will elaborate on shortly.

Moving to the first quarter 2020 results Moody's exhibited strong performance as both business segments contributed to a 13% revenue increase overall from the prior year period.

19% growth from M.I.S., and 5% growth from that May.

And they grew 9% organically, excluding acquisitions and divestitures.

Moody's adjusted operating income of $649 million was up 25% from the prior year period.

Aided by ongoing cost discipline, the adjusted operating margin expanded by 490 basis points to 50.3%.

Adjusted diluted EPS of two hours in 73 cents by 32%.

I'll now turn the call over to Mark K to provide further details on our revised outlook for 2020.

Thank you Ray.

I'll begin by discussing how the rapidly evolving events at the last several weeks have affected Moody's outlook for 2020.

Since selling days to call on March 11, 19 was to play the pandemic by the World Health organization meetings. The implementation of Shelton. Please policies across most of the U.S. Europe and Asia Pacific.

With the shutdown of nonessential businesses and reduce stopping needs across many sectors over 30 million Americans, if not falling unemployment.

This economic disruption has materially impacted the normal functioning of markets and added extreme points. So far the big surge to over 80 oil prices hit multi decade lows.

Yield spreads widen to over 1000 basis points.

On the other had as Ray mentioned governments implemented unprecedented fiscal support monetary easing actions, hoping to allow credit markets to function degree better than what's implied by developments and the underlying economy.

Wait, but it affected these indicators we have selected revise downward our 2020 base case assumptions to reflect to more adverse operating environment.

Specifically, our base case scenario assumes that economic activity will remain relatively weak into the third possibly fourth quarter.

We talked to you assume twentytwenty U.S. European GDP declined, 5.7% and 6.5% respectively. The U.S. full year unemployment rate to be approximately 10% benchmark rates to stay low with high yield spreads remaining in excess of 700 basis points and high yield default rates to be between 11 and 16%.

All of these figures and assumptions on materially more negative than what we anticipated in mid March.

We continue to closely monitor both the macroeconomic backdrop and the credit markets and what they don't assumptions as we gain increasing insight into the impact to cope with my team.

Moody's outlook for 2020 is based on assumptions about mean geopolitical conditions and macroeconomic and capital market factors. These include but are not limited to the impact of the corporate banking pandemic the responses to the pandemic by governments businesses and individuals as well its disruptions in the energy markets be picked up interest rates topical.

Liquidity and activity in different sectors or predict markets.

Oh assumptions also include interest and foreign exchange rates corporate profitability in business investments pending mergers and acquisitions and the level of debt capital markets activity.

These assumptions on the subject to uncertainty and results for the year could differ materially from a current outlook.

Our guidance assume foreign currency translation that end of quarter exchange rates, a full cost reflects U.S. exchange rates for the British pound $1.22 cents, that's where the euro $1.10 cents, we anticipate that both Moody's revenue operating expenses will decline in the mid single digit precinct range.

The full year 2020, adjusted operating margin is full cost to be in the range of 46% to 48%, we're targeting <unk> interest expense to be between 180 in $200 million.

So your effective tax rate is anticipated to be in the range banking, 0.5% to 21.5%.

Yes, and adjusted diluted EPS, Oh cost to be in the range of $7.25 to seven dogs, and 85 cents and $7, an 80 cents to $8.40 respectively.

Free cash flow is expected to be in the range of $1.2 billion to $1.4 billion.

First of all guidance, please refer to tables, well <unk> earnings release.

For him I guess, we anticipate total revenue to decline to be high single digit percent range and for issuance to decline in the low double digit percent range with an estimated 600 new mandates.

Yes, its internal full cost colds would basement, great shipments to increase 10%, but the 20% decline in high yield any 40% decline and plans.

We assume that liquidity driven issuance will continue however, fewer M&A financings will reach east hurdle rates. It issuance. Additionally, we expect there to be lower proportion of infrequent issue activity, leading to a less favorable mix in issuance.

The stable recurring revenue base, along with cost discipline will provide dallas to the margin for these Tom would you provide written strikers.

The highest adjusted operating margins for cost to be in the range of 55% to 57%.

We remain confident today Myos is long term fundamentals despite code that 19 related headwinds.

As the cross on the slide show at the start of the year Am ice rated nonfinancial corporates head over four trillion dollars of refinancing needs in the following four to five years.

This provides a future big issuance. The recent searching investment grade issuance is likely steepened last few years at these charts and resulted in new maturities pick up the time periods. We showed here.

Furthermore, as I previously indicated speaking to great default rates are likely to increase these refinancing amounts may be reduced well be type here in the late as a result.

Aside from refinancing we expected emanate will at some point reemerge as a prominent use of proceeds for debt capital markets activity.

So anything we forecast total revenue to grow in the mid single digit percent range due to the business is strong recurring revenue base robust organic performance and the contribution from recent acquisitions. This growth reflects the all sitting in pet mess divestiture.

The strong expense discipline, we still expect began so expect that may adjusted operating margins expanded the 200 basis points in 2020 to approximately 30%.

I think just noted it means ability to continued growth on a reported and organic basis. During 2020 is enabled by tight recurring revenue base with only around 10% of an ace 2020 ready you anticipated to be derived from new sales.

However, since disruption from 'cause it Nike related social distancing guidelines, we have curtailed in person sales meetings.

As a result prudently included the impact to renewed yields and new sales development in our whole cost.

I'd like to highlighted here that it has had a stable history of strong retention rates between 90, 496% since 2000 and.

And its track record of retaining customers spans multiple products incidences.

Research Ers, and BBD, who had retention rates about 2% to higher in 2019.

As such we expected it may will provide overall stability on the beach in mitigating the revenue impacts associated with 19 in 2000 ton.

During this period amazed increasing emphasis on proactive customer support while focusing on custom is evolving needs through innovation.

You got propositions and enhanced product features.

It may have adapted to the turn situation by holding substantially Mobikwik team, which is they turn increasing the total number of sales meetings compared to the prior period.

The effectiveness of these virtual meetings has yet to be fully determined and as such we anticipate that the sales cycle may extend beyond the typical average of nine to 12 months.

I'd like to provide additional color I'll try and to reduce expenses in the mid single digit percent range in 2020.

In recent years, we've been actively managing our expense base, how guidance includes $60 million benefit related to restructuring plan completed in mid 2019.

We also see $30 million and additional cost savings from increased utilization of low cost locations M&A synergies and improved process efficiencies through technology.

As you can see on the bottom chalk the guidance we provided during the Investor I think Colin box you haven't what's fun increasing expenses in the low single digit percent range rather than decrease in the mid single digit percent range that we now have seen.

The incremental savings from our prior guidance substantially due to lower incentive compensation and reduced expanding.

Marketing and travel and entertainment costs, obviously participation of investment and project spends.

I'd also note that we expect to continue investing in key areas such as E. S gene cable I see China, enabling technologies to support future growth opportunities. We've developed talk basement plans on a contingency basis. It takes our assumptions on the impact to cope with my team very significantly.

I also want to make it clear that's supporting all stakeholders through 19 through the height granted insights analytics and data.

No employee base remains a high priority.

As such we have not factored in material headcount reductions into our expense guidance.

Moody's remains focused on practically managing expenses preserving strong liquidity.

The the ended the first quarter, we have $2.2 billion of cash and short term investments and maintained an undrawn 1 billion dollar revolving credit facility.

In March we issued $700 million, a five year notes, which demonstrated in based a competency Moody's and I'll capacity to access the capital markets even into given times.

Our maturity schedule smoke items on a weighted average coupon silver percentage point lower than it would otherwise it without the benefit a lot hedging programs.

We continue to be anchored around a triple b plus rating and get to the company appropriately bookies bridge to provide financial flexibility and capital efficiency.

And finally, while we have confidence in the resilience of the business and the strength of off balance sheet, given the uncertainty around extinction duration 19 with temporarily suspended share repurchases in favor of prioritizing liquidity management.

Before turning the corner that country I would like to emphasize a few key takeaways.

Ladies continues to operate effectively demonstrating the resilience.

The impact of cooked 19 wheel highly engaged with our key stakeholders, who look to be insights and expertise we provide especially during times of stress. We are actively adapting to meet the parents circumstances innovating new products leveraging technologies to stay connected.

Just a strong balance sheet disciplined expense management position us well for sustainable long term growth.

I'll now turn the call back over to right.

Thank you Mark a this concludes our prepared remarks I'm joining marketing me in a virtual format for the question answer session.

Rob Fauber, our Chief operating officer.

And special guests, Steve to link all and Mike West the presidents of M&A and Am I asked respectively, we'd be pleased to take your questions.

Thank you.

Ladies and gentlemen, if he would like to ask the question. Please dial star one your telephone keypad, if you're using a speakerphone. Please pick up your handset and make sure. Jim you function is turned off so that your signal reaches our equipment.

We will ask that you. Please limit your questions you yourself one question with a brief follow up.

You are then welcome to rejoin the queue for any additional questions. You may have again that is star one to ask a question and I first question comes from Alex Kramm would you be US. Please go ahead.

Hey, Hello, everyone. I think you gave a lot of guidance on the on the updated forecast already but just maybe a little bit more color on the M.I.S. side seems like high yields and leveraged loans are the biggest culprits year. So maybe you can just flushes out little bit more I mean high yield as you noted yourself spreads have already Titan.

In the months have started very well so just wondering where that's conservative doesn't come from and then on the levers on site any any reasons why that could be different or or any more color you could provide there. Thank you.

Alex Thanks, very much directly your question I think.

We'll do carry similar to what we've done in the past, where I'll talk a little bit about the issuance strikers that we're hearing from some of the banks and then I'm going to turn it over to Rob to follow up with our internal you point.

I wanted to get it it's probably worth noting that he general many of the banks, we spoke with having your updated the official issuance full cost, especially for high yield considering ongoing market volatility.

Starting with you at investment grade banks have seen as strongly to start the year with record market share issuance volumes. Many of the initial issuance were towards the higher end at the investment grade spectrum, but access to the market was brought more we simply as a result at that stage actions to improve liquidity, which is also lead to narrower spreads issued on balance showed a CLIA person.

For a longer dated bonds at partially due to the temporary disruption at the French into the crude but March that a majority of issuance was motivated by each was looking to create additional liquidity and fortify the balance sheet, considering the uncertain environment that would spread tightening and still low benchmark rates. There are favorable conditions from opportunistic investments later in the year.

M&A driven issuance is expected to be considerably lower than 2019% estimating more than a 60% decline M&A driven refinancings.

The upcoming election cycle close it creates volatility in terms of outlook, what we heard from the banks they are calling for waste investment grade issuance to be down 5%.

5%.

One note that important keep in mind for comparative purposes is the banks use of investment grade issuance.

Inclusive of financials.

After getting booked at solid start to you. The banks also noted that you would suspect looks great issuance cancer hoped for most of March as spreads widened about 1000 basis points.

The first two months, because obviously demonstrated by the year to date issue and still be <unk>.

There was this time last year, but the fixed and floating rate assets.

And then that more recently they have been some positive signs with strong six straight issuance a month to date April the with the preference will be higher in but the speculative grade.

Markets.

The leverage loan market is seeing some indications opening as well.

But with a handful of transaction back in April.

Turning to Europe had the dynamics so much of the U.S. and basement, great lakes pronounced that with the Cds corporate to stick to purchase program and it's certainly there right now this morning.

Overall, the banks insult estimate your take European denomination basement, great issuance volume is up about 30%.

With the last week of box, especially busy.

And finally on getting off to a strong start in a two year in January and February European high yield market had seen significant dislocation as a result to cope with 19, having been effectively shut the loss in take weeks. That's yet the banks are optimistic that conditions could improve in the near future and that's the reason you see be niches to improve liquid.

<unk> European investment grade market could didn't have a corresponding be beneficial impact to be at the high yield market, but they have solid pipeline waiting for conditions to stabilize and I suppose that to take more encouraging to me high yield bond issuance has recently resumed.

During the first issuance since the market was shutdown GCP impacted the virus and with that I'll turn it over to a rough to update you on myos itself issuance expectations.

Great. Thanks, Mark.

Thanks for the question I know, there's a good bit of interest.

Around our overall issuance outlook, so I want to give a.

Fulsome answer and continue to build on on what Mark talked about.

As we said overall, we're looking at a low double digit decline and global rated issuance for investment grade you heard Mark talk about we're looking for something in the range of up 10% for the reasons that more excited.

Which is really issuers have been but really hitting the market bolstering liquidity and balance sheets.

We think we're going to see a continuation of that activity and good market actress.

Oh for investment grade issuers.

We should also see some improvement and some of the non U.S. reagents, and we certainly seem that so far in April.

Although not completely or the same degree that we've seen in the U.S.

Your question, specifically, Alex was around leverage finance and I think that that you you honed in on an area.

There the T. had one for corporate insurance really isn't and optimizing the leverage finance sector.

And certainly we're we're starting to see some signs of improvement.

After the market was effectively shut for much of March.

But that said I think we're going to see a challenging environment for leveraged finance throughout much of the year. There are few reasons for that.

One tremendous trees like oil and gas transportation reach out leisure.

We were expecting to see an uptick in default.

Through the balance for the year, particularly at the lower end of the rating scale.

That means we're going to see some attrition in terms of number of issuers.

And our forecasts have considered the default outlooks for for those there's a highest risk sectors.

Economic uncertainty in rising defaults are going to keep spreads elevated for those factors and that's going away on issuance.

But as well as M&A activity, which we think is gonna be slow given the economic concerns that mark talked about.

And really leverage loan issuance as you heard mark talked about being down we think something in the range of twice, what we're going to see high yield.

[music].

There's a couple of reasons for why we think that leverage loan issuance is gonna contract more than high yield up first the rating distribution of leverage on issuers are skewed more heavily to the low end of spec grade.

So that means we should see more default.

Higher spreads and reduced market access for lever joint ventures.

Second.

The current stress that we're seeing the CLL market is going to dampen the investor bid for leverage loans.

And third.

The fact that we've got benchmark rates that are expected to remain very very low for considerably longer is going to again skew the investor preference towards high yield bonds, rather then floating rate.

Average loans.

I think we'll continue to see issuance.

In the high yield bond space.

Certainly from the BA.

Area and you know really the fall on Angels and the more resilient sectors.

So happy that we're happy to go into some of the other sectors, but let me let me pause there.

Now that this is great I'll I'll have a quick follow up and.

A little bit more I guess medium term I think I think initially this view heading into this crisis was okay, there's going to be a recession and and you will see massive ski leveraging coming out of as we've probably seen another recessions for short periods of time, but I think there's also a narrative feel where most people say like well wait a minute.

No. There's all this stimulus as a lot of debts from governments, but eventually some of that that is already today finding itself on on the corporate balance sheets corporate debt and at the same time municipals are going to be struggling and we'll have to raise more and more debt. So if they are actually a narrow this year that when all said has done there's going to be more debt.

In the world and more business for you to do and rage, and more refinancing happening down the line versus versus maybe the the easy to jump conclusion that there was going to de leveraging and there's going to be less to do in the next few years any any comments.

Yeah, Alex its right.

There are.

Obviously, many narratives given the uncertainty that we have but I think.

There is a higher probability to the narrative that you just explain that is generally being assigned to.

To that story line in the market today.

I think coming out of this.

With the banks, having gone into the situation in a much better shape than they were in during the financial crisis the ability to supply.

Liquidity to allow M&A activity to move forward, there will probably be distressed M&A or coming out of this the demands on the municipal sector to raise capital and.

And a range of of.

Reasons for having a debt in the market both both opportunistically and out of need I think is closer to a central case scenario as I said that I think it people are generally giving credit for today.

Okay very helpful. Thank you.

And our next question comes from Michael Cho with JP Morgan. Please go ahead.

Thanks, Good afternoon, I'm going to switch gears, a little bit and focus on Moody's analytics.

For second as just hoping to get a little bit more color on the changes or.

Got it and maybe you can talk through various nuances to think about pressure on renewals.

Maybe coming how pricing plays into that dynamic.

Yeah sure Hi. This is this is rob and I'm going out Steve to give a little bit of color on there on the renewals in the second.

You know as as you see now we expect growth for the full year to being up mid single digit range.

And that implies a bit of a reduction.

Which includes about 1% from unfavorable FX movements.

There's a little bit greater impact to the ers business due to some of the onetime nature of sales. Then then we expect to see and be research data and analytics segment.

But we do think that run your growth is going to be impacted by our ability to close on sales from our existing pipeline.

As was the ability just to generate new sales opportunities in the upcoming quarters and mark touched on that but.

Well I'd say, we're also actively mitigating those factors.

In a couple ways first the impact of social distant thing, we're really ramping up these virtual sales meetings. So we're keeping our sales team is very engaged with our customers and second.

The issue around customer purchase, but purchasing behaviors, we're adapting our sales campaigns to launch new product features and address very immediate customer needs. So within their call. It six weeks of experience that we had under these conditions, we've updated our sales outlook to incorporate the impact.

First of all of this.

On our sales generation for the remainder of 2020.

And like I said, we think love a little bit lower growth in our DNA in your rough.

In general.

Steve you want to add to that and just in terms of the renewals.

Thanks, very much I would say that I'm pleased to my experience.

And in renewing.

Our accounts over the years, maybe the leading indicator the most powerful indicator of a renewal problem is a lack of usage.

And I would say we have exactly the opposite going on here our usage levels are as high as they've ever been in fact.

We're showing 20 and 30% more usage this year than we saw at the same time last year, so quarter on quarter Q1 usage of our products and I mean across the board credit you reduce the beauty products that year as product usage is up 20 or 30% across the board. So.

Demand for what we do is very strong.

And I would say, we're confident we'll renew most everybody. According to schedule. There are some big macro economic factors that could affect the renewal yield and thats, what weve tried to.

Acknowledged in some of the slides we presented earlier.

A few of our counts me they faced troubles and we wanted to acknowledge that so we see a little bit of an impact on renewal yield but.

It's probably measured in a point or two.

But not much more than that.

And the comedy macro economy would be the biggest driver not a lack of usage.

Great. Thank you.

Just on the cost side more broadly for Oh, I mean, you bucket of costs or efficiencies.

You can think about as more permanent in nature.

Actions that you're taking a look cheap.

And I am I saw you made a cold water on projects and investments can you give a little bit more color on what type of projects investments are getting we prioritized.

Now thanks.

Mike cast smart Karen Thanks, very much the question and good morning, maybe I'll start a little bit more broadly and then I'll never in on or at questions. I think there's two pieces here.

Benches as a result, obviously code that 19 taken numbered actions to put in place additional.

<unk> cost savings the sites from those that arose from our 2018 2019 restructuring program or the previously stated that 30 million in mid 2020, a cost efficiencies you mentioned a couple of those and it's probably prepared remarks, either due to reducing certain expenses.

How many patients social distancing.

So for example, moving that meeting formats to be more virtual was any person that obviously saves a travel costs and secondly, we haven't delegated number about spending plans and really gotten three week prioritization process.

With some of the initiatives that are more and infrastructural back and being delayed fly keep it really making sure that we focus on the business and our customers as a priority during this time.

Also revised down with some of the operating metrics and environments. For example, I seem to comp has come down but equally important between.

30 million efficiencies that we started the year with we continue to invest in kyi see in that.

He and his team and in China, and that's really important because we want to make sure. During this period you ticket bondage at the opportunity to continue that investment cycle and then maybe one at a loss could comment that added during the March 11 fan base today with that give them botching waterfall.

Look about a number of the attributes they were all that's important just to point out that we will continue that organic investments.

Which that's contributed 50 basis point reduction in op margin guidance. This year. So we are continuing to invest.

And our next question comes from Bill Warmington with Wells Fargo. Please go ahead.

Good afternoon, everyone.

So Oh I've asked this question on the.

First question on the and I asked side any takeaways from.

The.

Chinese market in terms of an early read on potential recovery.

The U.S. markets.

Oh.

No. It obviously the at a macro level there has been a substantial slowing.

Of GDP growth in China, similar to the decline that that we're seeing now Ah coming up in the U.S. numbers.

Orders of magnitude have been similar.

In terms of the percent a change and present change for I think what we might consider the consensus outlook. So in that respect yeah, we might.

We might see that that the expectations for recovery, we would follow fairly closely behind China, having gone into this little later, but again I think at a macro level, there or expectations for a decent a rebound.

And in GDP in 2021, possibly in late 2020.

And I think that would impact both economies.

That being said there are elements of how the Chinese have handled.

The pandemic and how they're thinking about returning to a quote normal.

Economy from a working standpoint.

Then in the U.S. and we're just going to have to see how some of the different approaches end up impacting the two economies because because we have not taken identical.

Approaches either to the shutdowns.

Handling the shutdowns or the Reopenings at this point, so TV I think is the fair stance or bill.

And so my follow up question I wanted to ask about BBB.

Had been showing some very nice low double digit.

So teens type growth previously.

There.

Some people would think of that business is having some counter cyclical characteristics as well I wanted to know how that was doing or whether you were seeing that kind of cyclicality.

Uh huh.

Sure you ticket.

Yeah why don't you go ahead, Steve occurred shirt, so high Bill Yeah, I wouldn't very you know counter cyclical or maybe they cyclical or words that we've used over there over the years. The BBD growth. This year has been.

Good very much in line with expectations that we fit when we set forth at the beginning of year.

Usage is very strong and then I would say Oh, our lead quite ship product Orbitz and many of the know your customer activities have grown.

In accordance with what we had expected so going very well despite the simple problem. It's hard to go few customers right now.

Okay, I'll add one more.

Let's start it would add one more comment there which have internally we've found.

A lot of the projects, we're doing with customers.

The availability of the BBB Orbitz product Greenville doing a data has been very helpful. Because a lot of the questions people are asking.

Right now in terms of size and scale of opportunity size and scale of risk BBB database has been very useful.

And our next question comes from Andrew Nicholas.

William Blair. Please go ahead.

Hi, good morning, Thanks for taking my questions.

First one just on relation based relationship based revenue what am I guess, obviously was strong again this quarter and that strength appeared to be pretty broad based I was hoping you could speak to the different puts and takes to that revenue in the current environment and whether there's any reason to expect a moderate.

Nation in that line going forward.

Hey, it's Rob.

Yes. So we had we had very good recurring revenue growth and then my Ass. That's been supported by a couple of things one are kind of standard type initiatives and Chuck into kind of ongoing monitored credit growth from.

First on mandate.

Minimal impact from from FX also includes the little bit of revenue contribution now from.

Oh, yes, GE and climate businesses.

I wouldn't expect it.

Significant change in that line, obviously, if we see.

A meaningful increase in defaults, we could have a.

And attrition from they did issuers, but I don't think there will be a material difference.

Great. Thank you and then just one other quick one.

In terms of the renewal process and M&A there anything you could say about the typical timing of those renewals at least how how those timings are kind of spread across the year and whether or not.

Renewals in the back half the year would potentially be be better than in the second quarter.

For some of the social distancing reasons and rationale that you outlined.

Sure, It's Steve I would say personal we don't see any.

Obviously indications of real troubles in the second quarter.

And.

And then I'll say, we do have a little bit of seasonality in terms of renewal base.

There is a big proportion or a larger proportion of renewal do they come due in December and January those are two biggest months.

Relatively well spread throughout the year, but December January are definitely the two biggest bumps proportionately and therefore.

Good where to.

You know diminishing effect later on in the year would be good news worse.

And our next question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Thank you.

Hoping you could talk about your expectation for structured for the remainder of the year I know you talked about filos, but any color on the other products and I guess any potential offsets on the fed actions so far.

Hey, Tony.

It's Rob Thanks for the question.

Yes, we think securitization broadly is going to be negatively impacted it's probably in a range of 20% to 25% across most asset classes imagine notes yellow page, we think there's going to be more impacted.

Q1 2020 Earnings Call

Request a DemoDemo

MCO

Moodys

Earnings