Q4 2020 Moody's Corp Earnings Call
Please standby.
Good day, everyone and welcome to the Moody's Corporation fourth quarter and full year 'twenty 'twenty earnings Conference call.
At this time I would like to importantly that this conference is being recorded and that all participants are in a listen only mode.
At the request of the company, we will open the conference up for questions and answers following the presentation.
I will now turn the call over to Giovanni Cox head of Investor Relations. Please go ahead.
Thank you good morning, and thank you for joining us to discuss Moody's fourth quarter 2020 results and our outlook for full year 2021.
Johnny come up head of Investor Relations. This morning, Moody's released its results for the fourth quarter of 2020 as well as our outlook for full year 2021. The earnings press release the presentation to accompany this teleconference are both available on our website at O I at Moody's Book Club.
Rob Fauber, Moody's President and Chief Executive Officer will lead this morning's conference call also making prepared remarks on the call. This morning is Mark Kaye, Moody's Chief Financial Officer.
During this COVID-19.
Presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for reconciliation between all adjusted measures referenced during the school in GAAP.
I call your attention to the Safe Harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 in accordance with the Act I also direct your attention to the management discussion and analysis section.
And the risk factors discussed in our annual report on form 10-K for the year ended December 31st 2019, our quarterly report from form 10-Q for the quarter ended March 31st 2020, and in other SEC filings made by the company, which are available on our website and on the SEC's website. These.
Together with the Safe Harbor statements set forth important factors that could cause actual results to differ materially from those contained in any such forward looking statements.
I would also like to point out that members of the media may be on the call. This morning in a listen only mode.
I will now turn the call over to upsell book.
Thanks, Giovanni good morning, and thanks to everybody for joining today's call.
John by summarizing Moody's full year 2020 financial results and then I'll provide an update on our strategic direction and following my commentary Mark Kaye will provide further details on our fourth quarter 2020 results as well as our outlook for 2021.
After our prepared remarks.
Be happy to respond to any of your questions.
First on behalf of the entire Moody's management team I'd like to extend my appreciation to our employees for their steadfast dedication and resilience.
Youre remarkable adaptability and commitment to providing our customers with world class service and supporting each other is key to our continued success and we're really proud of your accomplishments. Thank you.
Our employees helps Moody's achieved record financial results in 2020.
With revenue growth of 11% and an increase in adjusted diluted EPS, 22%.
Against the backdrop of heightened credit market activity, Moody's Investor service generated $3 $3 billion in revenue that was up 15% from the prior year.
Moody's analytics also performed well with revenue totaling $2 1 billion up 6% and demonstrating the strong value of our products and solutions.
During these unprecedented times.
For 2021, we project Moody's revenue to increase in the mid single digit percent range.
Driven by our expectation of strong growth from M&A and a favorable issuance mix for them I ask will offset an unexpected decline in global debt activity.
Moody's 2021, adjusted diluted EPS is forecast to be in the range from $10 30.
The $10 70 sites.
In 'twenty 'twenty, one and beyond.
We're going to continue to deliver solutions to meet our customers' evolving needs by integrating and leveraging our data and analytic capabilities and investing in innovation.
In addition, recent acquisitions combined with organic investments position us well for the future and reinforce our long term growth opportunity.
Finally, we continue to emphasize our role as a responsible stewards of our stockholders' capital.
While investing in the business remains our top priority, we will seek to return approximately $2 billion to our stockholders. This year in the form of dividends and share repurchases.
Turning to full year results Moody's revenue grew an impressive 11% with record revenues from both <unk> and MAA that increased 15% and 6% respectively.
On an organic constant currency basis, EMEA revenue increased 8%.
Moody's adjusted operating income rose, 16% to $2 $7 billion and the adjusted operating margin expanded 230 basis points to 49, 7%.
Adjusted diluted EPS was $10 15.
<unk> 22 per cent.
Together, we achieved many milestones in 2020 for the first time revenue what am I as an M a surpassed $3 billion and $2 billion respectively.
With us having rated more than five five trillion in global issuance.
We also made significant progress in delivering for our stakeholders.
During 2020, we made an $11 million contribution to the Moody's Foundation.
That was to support the work to empower people with the financial knowledge resources and confidence they need to create a better future and to reach their potential for themselves their communities.
And the environment.
The events over the past year have also underscored the importance of.
With a strong commitment to diversity and inclusion.
Both internally and externally.
And this past year, we launched a number of initiatives to further support diversity and inclusion.
Both across our company as well as within the communities, we operate including $2 million in commitments to support equal justice and educational opportunities.
On the environmental front, we furthered our sustainability leadership by enhancing our disclosures and establishing a clear commitment to environmental sustainability.
And as a result, Moody's was recognized by CDP with an H score for addressing climate change.
In 2020 amidst the pandemic, we continue to invest in our business and position the company for ongoing growth.
In addition to a range of product launches, we also acquired or invested in companies.
The complement and enhance our products and solutions and expand our market reach.
And in September we restructured our ESG assets under a single unit.
This aligns our efforts across the firm it strengthens our thought leadership in the ESG space and it better positions us to meet the needs of the market.
Turning to M I S.
Private market activity reached record levels in 2020.
And especially for non financial corporate issuance, which grew over 16% from its previous high in 2017.
It was 34% above its prior five year average.
Both investment grade and speculative grade debt benefited from a favorable environment as issuers fortified their balance sheets and opportunistically refinanced debt. However.
However, leverage loan volumes remain modest for most of the year. Despite an uptick in M&A activity in the fourth quarter and Mark is going to provide some details on <unk> 2021 issuance expectations.
When he discusses our guidance.
Now pivoting to M&A.
We continue to see significant growth in recurring revenue, which now comprises over 90% of its total this has been driven by our strategic focus on building our subscription based business with mission critical products and services that are embedded into customer workflows that support strong customer retention rates.
As a result.
Margin has grown 480 basis points over the past three years. This expansion is inclusive of the organic and inorganic investments that we've made in the business.
And before I turn it over to Mark <unk>.
Thought I'd provide some thoughts about the opportunity in front of us.
And to do that I think it's helpful to reflect on our journey as a company over the last 15 years.
And which we've expanded our capabilities in order to meet the evolving needs of our customers.
Back in 2007, we formed Moody's analytics was the first step in broadening beyond the rating agency.
The development of software and analytics businesses.
From 2017 to 2020, we built out some very substantial data and analytics capabilities, starting with the acquisition of Bureau van Dijk, one of the world's largest company databases.
And then we complement that by adding depth across people properties ESG and climate just to name a few.
And this strategy has positioned us well to serve a wide range of risk assessment markets, where we can integrate data and analytics and deliver insights all enabled by technology.
Looking forward.
Organizations face a complex interlinked world of risks and stakeholders Covid.
Covid has accelerated the digitization of manual processes across the financial sector and it has highlighted the importance of resilience and scenario planning organizations are managing a variety of risks, but just weren't on our radar screen years ago, ranging from ESG to climate to Ciber to financial crime Theyre.
We're seeking a more holistic 360 degree view of risk.
Who they're connecting to and who they're doing business with.
To do this companies are increasingly incorporating alternative datasets into their core risk processes and theyre looking for insights amidst the proliferation of data.
There are a variety of stakeholders influencing companies to better identify and manage these risks includes regulators customers employees.
And there are some significant financial and reputational impacts for not managing these risk effectively.
With this as a backdrop customers are looking for trusted partners, who have the scale the rigor the capabilities to help them make better decisions about a wider range of risks.
As CEO I'm focused on three key areas to meet these market needs and to realize the full potential we have as an integrated risk assessment business.
Sharpening our understanding of how our customers needs are evolving and delivering solutions that can draw on the breadth and depth of our capabilities.
Second investing with intent to grow and scale deepening and extending our presence and expanding risk assessment markets as we've done successfully with know your customer.
And third cash.
<unk> modernizing and innovating with a focus on technology interoperability and data access that allows us to maximize our data analytics and technology capabilities on behalf of our customers.
Of course, this is all underpinned by supporting and developing our people. So that we have the skills and the engagement needed to drive the business forward.
For the last year.
We've referred to Moody's as an integrated risk assessment business today, we serve a wide range of risk assessment use cases in end markets collectively worth north of $35 billion.
Our largest risk assessment business of course is the rating agency service fixed income issuers and investors.
Moody's has evolved we now help customers with everything from customer Onboarding.
Lending to sustainable investing in a number of other areas as you can see around the circle.
And what's been a winning formula for us over the years has been combining our data analytics and insights with our deep domain expertise and technology enablement to provide solutions for customers to identify measure and manage risk.
We're not just a data company or a software company, but a company that has a unique combination of strengths and assets.
As well as a deeply trusted brand.
Continue to invest in our people and these datasets and analytics capabilities as they are all increasingly important across a growing number of risk assessment use cases and markets and that's what we mean by an integrated risk assessment business.
Now earlier this week, we announced our intention to acquire a company called Portera.
We're excited about the valuable assets that theyre going to add to the Moody's portfolio, including a world class database on private companies in North America, and one of the most comprehensive database of commercial credit information featuring data and analytics on over 36 million companies.
Turning to integrate <unk> data into our offerings to better serve several markets, including commercial lending customer onboarding supply chain management.
And by combining the data from Portera with Moody's proprietary analytics, we look.
Look forward to helping our shared customer base make better decisions about their business relationships.
Core tower builds on several acquisitions, we've made over the past few years, beginning with the Bureau van Dijk business in 2017, and followed more recently by our D C and acquire media this past year.
Together they form a comprehensive suite of referenced an entity data and AI technology to serve a range of use cases, including among other things K Y C and compliance.
In 2020, Moody's analytics generated approximately $525 million in annual sales of these solutions and we expect them to produce high teens growth in 2021.
The know your customer and compliance use case in particular is generating over $200 million in annual sales and is projected to grow by over 25% in 2021, continuing to be our fastest growing risk assessment market.
I'm now going to turn the call over to Mark to provide further details and Moody's fourth quarter results as well as our outlook for 2020 Mark.
Thank you Rob.
In the fourth quarter, Moody's total revenue increased 5% with M. A N M. I S contributing eight per cent and two percentage growth respectively.
Moody's adjusted operating income of $531 million was down 5% from the prior year period.
Solid revenue growth in the quarter was outpaced by increased operating expenses, including nonrecurring items, such as severance and incentive compensation.
This resulted in a 410 basis point decline in the adjusted operating margin.
Fourth quarter adjusted diluted EPS was $1 91.
5%.
For M. I S fourth quarter 2020 revenue benefited from favorable issuance mix across all lines of business, increasing by 2% against the 3% aggregate decline in global Maa's rated issuance.
Institutions with the largest contributor in the fourth quarter growing 12% double the 6% increase in issuance. This was driven by infrequent U S. Bank issue is taking advantage of the low rate environment.
Corporate finance revenue grew 2% despite a 9% decline in issuance. This was primarily the result of strong contributions from both U S leveraged loans and speculative grade bond issuance continue to opportunistically refinance debt and support M&A deals.
Revenue from public project and infrastructure finance declined 3% against a 12% decrease in U S. Public finance activity as many issue is addressed refunding needs earlier in the year to avoid potential election related volatility.
In structured finance revenue decreased 11% compared to 31 per cent decrease in issuance.
This is primarily due to lower C&I activity, despite signs of improvements in CLO.
In the fourth quarter first time mandates grew 32%.
Full year, we received approximately 700 new mandates.
Ice expense included nonrecurring costs, such as severance related to business efficiency initiatives and incentive compensation accruals associated with strong full year performance.
Consequently expense growth outweighed revenue expansion for the quarter.
<unk> in an adjusted operating margin of 48, 3%.
On a full year basis am I used as adjusted operating margin expanded 170 basis points to 59, 7%.
Moving to the fourth quarter revenue grew 8% or 5% organic basis continued robust demand from <unk> compliance solutions drove a 21% increase in rdna revenue, 11% net organic basis. This is further supported by sustained customer retention rates in the mid nineties per cent.
Range and strong sales of research subscriptions and data feeds in.
E. R S low double digit recurring revenue growth driven by strong demand for insurance products was offset by an expected decline in comparable year over year onetime software licensing fees and implementation services, resulting in an overall growth rate of 1%.
First the E. R. S subscription products the acquisition of our D C as well as the divestiture of Max in 2019, all contributed to a five percentage point increase.
Recurring revenue now comprising 91% of its total up.
Up from 86 per cent in the prior year period.
In the fourth quarter Ma's adjusted operating margin increased 280 basis points benefiting from lower year over year incentive compensation accruals from.
The full year Ma's adjusted operating margin increased 160 basis points supported by growth in recurring revenue as well as expense efficiency initiatives.
Turning now to Moody's full year 'twenty 'twenty one guidance.
Maybe the outlook for 2021 is based on assumptions regarding many geopolitical conditions macroeconomic and capital market factors.
These include but are not limited to the impact of the COVID-19 pandemic responses by governments regulators businesses and individuals as well as the interest rates foreign currency exchange rates capital markets liquidity and activity in different sectors of that market.
The outlook also reflects assumptions regarding general economic conditions, the company zone operations and personnel and additional items as detailed in the earnings release.
Our full year 2021 guidance is underpinned by the following assumptions.
2021 U S. GDP will rise approximately 45% in U S and Euro area GDP will increase in the range of approximately $3 545 per cent.
U S unemployment rate will gradually decline to between five and 6% by year end and benchmark interest rates will remain low with high yield spreads falling below approximately 450 basis points.
Finally, the global high yield default rates are expected to decline below 5% by year end.
Our guidance assumes foreign currency translation at end of quarter exchange rates, specifically, our forecast for 2021 reflects U S exchange rates for the British pound $1 57 and.
And $1 22 for the Europe.
These assumptions are subject to uncertainty and results from the year could differ materially from our current public.
In 2021, we project net Moody's revenue will increase in the mid single digit percent range, given our approximately flat revenue outlook for M. I S.
And the expectation of low double digit growth in M. A.
Operating expenses are projected to increase in the mid single digit per cent range as savings generated from our cost efficiency programs are reinvested in key strategic initiatives I'll provide more detail on this shortly.
After expanding Moody's adjusted operating margin in 2020 by 230 basis points to 49, 7%.
We are projecting 2020 one's margin to remain in the range of 49% to 50 per cent.
We estimate net interest expense to be in the range of $190 million to $210 million. The full year 2021 effective tax rate is anticipated to be between 20 and 22 per cent.
Diluted EPS and adjusted diluted EPS are forecast to be in the range of $9 76 to $10 and tensions and $10 30 to $10.70 respectively free.
Free cash flow is expected to be in the range of $1 90 to $2 $1 billion and we plan to return approximately one $5 billion through share repurchases subject to available cash market conditions and other ongoing capital allocation.
Additionally, today, we announced an 11% increase in our quarterly dividend, bringing the total expected capital returned to stockholders in 2021 to approximately $2.
For a full list of our guidance. Please refer to table 12 of.
This release.
So am I S. We estimate that revenue will be approximately flat year over year with global rated issuance projected to decline in the high single digits per cent range.
Forecast full year investment grade and high yield activity will decline approximately <unk> 30 per cent.
5% respectively.
In contrast, we anticipate leverage loan issuance to grow by approximately 10% supported by increased M&A activity.
<unk> finance issuance is expected to grow in the 15 to 20 per cent range due to increased as inflammation and loan volumes contributing to larger pipelines from the CLO creation.
In 2021, we expect 700 to 751st time mandates with the strongest contribution from leveraged finance activity.
First time mandates contribute both to the current year's transaction revenue base and to recurring monitoring fees.
Adjusted operating margin will remain stable at approximately 60 per cent.
Disciplined cost management is enabling ongoing investment back into the rating agency enhancing our offerings and delivering greater value to our customers.
For EMEA, we project 2021 revenue to increase in the low double digit per cent range supported by high single digit constant dollar organic growth.
As well as recent M&A activity and favorable moving from foreign exchange rates.
Robust customer demand for K y C and compliance solutions, including contributions from the recent court Terra our ECM quiet media acquisitions support future rdna revenue growth.
This expansion is further reinforced by strong retention rates of our research and data from products.
But we anticipate recurring revenue to continue growing at a double digit rate.
As we deemphasize onetime sales, we expect that transaction based revenue will decline, 20% to 30% year over year.
He made an adjusted operating margin is projected to be approximately 30% in 2021.
Outlook assumes continued positive.
Margin expansion of approximately 50 to 100 basis points inclusive of ongoing organic and inorganic investments in the business.
Last quarter, we highlighted $80 million to $100 million of cost savings from our expense management initiatives that we would be reinvesting back into the business in 2021.
In addition to the <unk> compliance opportunities our focus is on investing to meet our customers' evolving needs ESG in commercial real estate.
We're also strengthening our presence in emerging markets, including China and Latin America.
Furthermore, we continue to invest in our it infrastructure and product development.
Over the long term these investments will reduce costs promote interoperability and accelerate decision making.
Before turning the call back over to Rob I would like to highlight a few key takeaways.
Following a record year that validated our strategic direction, we're pleased to provide a robust outlook for 2021 day.
This is driven by high demand for our data analytics and insights and reaffirms our long term growth opportunities.
Our capital allocation priorities remain unchanged and we prioritize attractive opportunity to invest in our business.
Before returning capital to stockholders from dividends and share repurchases.
Finally, we believe that Moody's long term sustainability is best and by meeting the needs of all of our stakeholders.
Actively supporting our employees customers and communities, we are able to demonstrate our commitment to sustainable stewardship.
Create enduring value for all stockholders.
And with that let me turn the call back over to Robyn.
Thanks, Mark This concludes our prepared remarks, and Mark and I will be pleased to take your questions.
Later.
Thank you if you'd like to ask a question simply press.
The Star key followed by the digit one on your telephone keypad.
Also if youre using a speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Okay.
Okay.
And as a reminder, its star one if you'd like to ask a question and then.
Alex Kramm with UBS. Please go ahead.
Okay.
And.
Well hear from children's Socal.
Hi can you hear me all right.
Yeah, we share count.
Okay great.
Thank you for taking my question. The first question I wanted to ask was about margins and specifically the margin outlook for 2021 thinking about <unk>.
<unk>, saying operating leverage from the top line with reinvestment I. Appreciate the color that you guys gave in that and the extra investment that you're making emerging markets taken from a cost savings generally you guys have done great with margin expansion over time and yet here, we are a year coming out where margins are going to be a little bit mark constrained. So how do you think about.
That balance of driving margin expansion using topline growth that you will have in 'twenty and 'twenty, one, especially in EMEA.
Coupled with the need for continued growth in our reinvestment program.
Thank you very much for the question. This is mark here.
We are constantly pushing to increase margin.
While ensuring to your point that we are balancing that against the need to invest in the business to maintain and accelerate our top.
Topline growth.
As we noted in the prepared remarks, there are a number of exciting investment opportunities that we've identified for 2021.
And we're going to take advantage of those while preserving the margin at.
At approximately $49 50 per cent for the year. After having you know and you spoke about this expanded the margin by 230 basis points.
In 2020, I give a little bit more color in terms of how that's broken down that might also be helpful. And if we think about creation of margin in 2021 through operating leverage that's probably 50 to 100 basis points Mexican income from things like scalable scalable revenue growth.
Little bit of a benefit from the reset of our incentive compensation accrual.
If I think about the creation of additional margin from savings and efficiency, that's probably between 140, and maybe 180 basis points due to the positive and that's going to come from things like our restructuring program, which we can speak about later in the call increased automation use of utilization of lower cost locations procurement efficiencies real estate efficiencies et cetera.
And those positive margin creations are going to be offset by organic investments that we're going to be making back into the business and we spoke last quarter about that 80 to 100 million that we're going to be reinvesting into key strategic areas, which we can talk about further Nicole if you would like and then around 50 to 100 basis points from some of the recent M&A acquisitions that we have.
And then of course, there's that element in terms of business mix, where EMA is forecast to grow faster than <unk> in 2021, and that's probably a headwind of around 25 basis points. So if you put that all together you get a sense of how we're managing the portfolio of businesses to ensure continued margin expansion, while we investing for growth in the future.
And we'll hear from Alex Hamilton UBS.
Can you hear me now.
Hello, Yes, Alex we can yeah, Okay, I don't know what happened earlier.
Anyways, maybe just starting off on M. I S and sorry, if I missed the last question, but can you can you perhaps attack.
The Delta between your issuance forecast and then also Oh, you get to the flat revenue forecasts.
They're interested in you know the recurring revenue given the solid.
Solid issuance that we had last year and then also obviously pricing and mix any comments that would be helpful. As well. Thank you.
Yes, Alex.
So maybe let me talk to you a little bit about the 2021 issuance outlook.
Now as I said back in October we are we still think issuance is going to be down modestly year over year, and we're guiding to being down in the high single digit per cent range.
I would say you know, while we expect some very robust instruments activity to continue we've got some favorable market conditions.
The challenges that the year over year growth.
We've got some very tough comparables after two very strong issuance years between.
Last year on a year before so our outlook assumes that.
These constructive market conditions continue largely ended for 2021 widespread distribution of a vaccine and improving economic growth certainly we're seeing continued recovery in M&A activity and we're seeing a lot of now sponsor driven activity.
And sustained central bank support and.
And potentially another round of stimulus and all that I think will be underpinned by a continued low rate environment, that's going to be supporting us of refinancing.
That means we're I think we're going to see growth in some areas like we have a rating assessment service that.
Supports M&A activity leverage finance various parts of structured finance and so on so Alex maybe let me take it by sector and then you can get a sense from you can you can do your own compare and contrast.
But for investment grade, we're looking at something like a 30% decline.
Moderating after what we all know is an extraordinary.
Issuance year last year in particular U S corporate investment grade issuance was up almost 80% in 2020 I was just a very tough comparable.
That said our outlook for 2021 investment grade would still be one of the strongest years on record.
And we think issuers are going to are going to continue to come to market driven by refinancing and amidst all that.
I said kind of ongoing low rates tight spreads and M&A activity.
Leverage finance.
We think that high yield bonds will remain elevated.
Relative to recent years, you can see we're estimating a very modest decline of 5%.
I think high yield activity outside the U S should improve after a relatively slower year in comparison to the U S.
And I think we'll see that investor demand should remain quite strong in the ongoing search for yield.
Thinking about <unk>.
Average loans, we actually think we're going to see some growth there.
Coming off of obviously more subdued activity in 2020, but also being driven by M&A.
M&A and LBO activity, that's going to help support.
Issuance.
When you think about structured finance.
We see that improving somewhere in the range of 15% to 20% and you know it's a it's a mixed bag as you as you think about the different components of structured finance.
ABS growth, we think will be supported by asset classes like auto loans, where we're seeing some good activity, maybe a little bit more muted in places like credit cards and student loans, we'll see some growth in RMB.
I think we'll see some modest growth in <unk>.
The market for whole asset Securitizations, even though you've got some parts of the commercial real estate market like hotels and retail that are experiencing some distress.
And then.
As you know as we think about cielo as we also look at what's going on with the leveraged loan market. So we think there'll be some growth in <unk>.
Just that stronger leveraged loan supply.
And tightening spreads in the CLO market.
So and maybe just one other thing I would add just in public finance.
Very strong you're generally from public finance, so we'd expect that to remain.
Elevated but at levels consistent with with last year.
And as you would care to talk.
Talk about the recurring vessels transaction on pricing as a from a question sorry.
Yes, sorry so.
From a recurring revenue standpoint, I think we'll be looking at probably.
Something in the low to mid single digits.
We've gotten some questions about just kind of thinking about our how we characterize recurring revenue versus versus others and I think if we included our rating assessment service in excess issuance fees and issuer rating fees, we'd be looking at something like a mid single digit.
Recurring revenue growth.
And I think in general when you look at it on a full year basis pretty pretty comparable outlook for recurring revenue.
Okay, and then secondarily if that's okay. A quick one just on <unk> I mean definitely some headlines in December on China, which is obviously an important topic for a lot of people. So can you just flush out how you're feeling around that that JV considering that they essentially out of the market.
Moms and now really highlighted that maybe the market is ready for four four different rating agency.
Arrangement over there that's the right word thank you.
Yes, maybe just to touch on that you know obviously <unk>.
<unk> had to pay.
License expense suspension that was a three month suspension coming at the end of December.
And they are taking a number of actions to address that I guess as I think about the China strategy.
More broadly we've got the myths cross border rating business, we've got the MA business in China really no impact to that.
In terms of the domestic rating market I mean, obviously, it's unfortunate that.
But that <unk> had this issue, but they do remain the leading domestic credit rating agency in China and I think.
You know early signs from the by the administration.
I will lead us to think that U S policy towards China is likely to soften meaningfully so I think for US looking at this you know the environment from majority owned U S firms I think an important sectors like credit ratings I think will remain challenging.
To be truly successful over the long term. So we're going to continue to collaborate with <unk> like we have been on things like commercial engagement.
And I guess I would also say Alex that you have given some of the challenges we've seen in the domestic credit rating industry.
We're also thinking about how we can capitalize on the demand for things like Green finance and <unk>.
Insights into small businesses and know your customer solution. So.
Now thinking beyond <unk> right.
2000 and in October we.
We set up a new dedicated product development group.
Based in Shenzhen to develop data and analytics.
And other offerings for China's domestic.
Risk markets in November we acquired a minority stake in a company called Mio Tech and thereof.
Kind of a cutting edge provider of alternative data and insights serving the ESG and <unk> markets in greater China and then the last thing I'd say is you know given the importance of sustainability and Green finance in China.
You'd also made an investment in a company called <unk> Green Finance and we're very excited about about that and helping to support the growth of that market.
Alright very helpful. Thank you.
Toni Kaplan of Morgan Stanley.
Thank you.
Rob maybe you could help us understand your thoughts around M&A. What did you say you're more open to large deals or would you continue to stick to small or medium tuck ins and what would be the most attractive for you in an M&A target and what return thresholds do you look for.
Yes, Tony.
Thanks for the questions. So I would say our M&A criteria remain very consistent and we've talked about that over the years.
What we're really looking for are things that are going to advance our strategy.
Sure.
Laid that out in my prepared remarks and.
<unk> is an interesting example, right because there is there is a company, where we were able to acquire <unk>.
Data that we thought was very valuable.
Ross multiple.
Customer segments and risk assessment use cases.
So that's very attractive another good example, Tony would be what we do with climate right. We bought $4 27, a couple of years ago, but that climate data is now being used in the rating agency and it is being integrated into a wide range of risk offerings across M&A. In addition to the stand alone 427 offerings.
So those kinds of of of opportunities are very interesting to us where we can acquire data and analytic capabilities that have relevance across.
A range of risk assessment use cases, and so that's what you've been seeing us do with some of these acquisitions, we've done in commercial real estate and and and more recently core Tara and I would just say that.
When you've got very strong industrial logic like that it helps us meet the kinds of returns return criteria that we have had.
For years.
That's great and then you've mentioned in the past share ESG revenue was about $15 million to $20 million can you just update us on where that stands now and how fast it's growing and then what particular areas of focus within ESG are you looking at in 'twenty, one relative to <unk>.
Our initiatives were and what where do you see cash and most opportunity there.
Yeah.
Tony Yes. Good morning, this is mark.
2020, our ESG revenue was approximately $17 million.
We're looking to grow that by around 25% in 2021 really force discrete sales of three discrete sales to external clients external clients.
The interesting piece about the ESG revenue for 2021 is a problem. In addition to that looking at another $5 million to $10 million.
For revenue that will be.
Through.
Ms using their data and analytics to inform.
ESG data and analytics to better inform ratings and enrich the research that we produce.
And through M&A, where we can continue to pilot from developing new products, including distributing ESG through credit view and credit edge and some of our platforms. There are a lot of exciting developments that we have going into 2021 in terms of how we're thinking about our ESG products than it is for example include integrating our climate.
ESG content into credit view.
Updating this is something that just did a physical risk scores for over 5000 listed companies and Thats leveraging of course bvd data in our methodology.
Of course, increasing our coverage around the transition risk and then finally of course, incorporating ESG within credit and having ESG issue a profile of schools ESG credit impact frameworks, and so theres a lot of opportunity that we're capitalizing on this space. So it's not just about E isolated ESG business, but how it integrates more holistically.
Cross Mcf.
Thank you.
Survivor of Deutsche Bank.
Thanks for taking my question, Rob Thanks for providing the color on the integrated risk assessment market and your focus from the cave ICM compliance obviously very high growth areas. I was just wondering as you think about your growth going forward and they're just simple.
Compliance either other use cases or geographies that you think are pretty attractive from a cost perspective.
She is first of all welcome to the call. It's great to have you and just to clarify.
Are you talking about kind of our portfolio more broadly is that right.
Right and how do you think about growing that business outside of even the <unk> compliance.
Yeah, Yeah, so maybe.
Maybe a couple of things I would say.
Uh huh.
First I'm going to talk about kind of the broad portfolio of our DNA in MA because that's where we obviously, where we have that business today.
There is a portfolio of content. There you know obviously the K y C. In financial crime solutions is one and we see some very strong growth rates behind that.
There's also just a lot of demand for data and analytics on private companies that's to support.
Integrating that data into commercial lending decisions our supply chain management decisions are transfer pricing is another place where we're seeing some growth.
And then we've also got in in that broader portfolio within within Rdna, you know a lot of credit research data tools.
That are also increasingly incorporating content led as Mark said like ESG and climate and cyber where.
Building out our commercial real estate content, because we've got a lot of demand there from our core customer base around it.
Analytics and workflow tools for lenders and investors and we're also seeing some good demand for our economics content, you think about that is being used to support.
Scenario analysis and market planning and stress testing.
That's very helpful color.
Maybe a quick question on the organic growth and M&A.
And it gives us the high single digit growth if you could help parse the growth from our DNA.
Growth in yard hasn't been obviously, Mark you talked about some of the headwinds from shift to the subscription model, but any incremental color that you could provide on individual pieces day that'd be helpful. Thanks.
Absolutely I think forward to 2021 and Pacifically in terms of value growth here, you'll see the majority of growth is likely to be driven through our rdna statement.
Rob spoke earlier, we spoke and part of the prepared remarks around E. R. S from the ongoing transition of that business towards.
More of a recurring revenue basis, and that will offset some of the decline in onetime sales in the ERP space. So if youre thinking about attributing some of that low double digit guidance, but the majority will come through our DNA in 2021, and then we'll see a smaller growth, but still growth within net urs over the year.
That's very helpful. Thanks, Mark.
And from Nicholas with William Blair.
Hi, good morning.
I was hoping you could provide a bit more detail on the different strategic investments you outlined on slide 23.
Maybe some examples of investments youre, making that you're particularly excited about and then also wondering is there any single initiative there that's outsized relative to the others in terms of both investment spend in <unk>.
Total opportunity.
We certainly feel very positive about some of the areas that we're investing net to $80 million to $100 million of cost efficiencies into them just.
Just to give you a sense, maybe just start on the commercial real estate side, both growth through our at risk business and any integration.
Obviously, you have some of the datasets that we're producing in many of our adjacencies into that those commercial real estate products. So I think just simply enough to get <unk> and compliance it's about that further integration of the acquired media art.
D C easy karyotype data sets and that really didn't begin to allow us to create synergistic opportunities and then of course on the ESG side here.
Beginning to build through as we spoke a few minutes ago.
Is that to Tony's question.
The creation of new products and opportunities that give a holistic integrated risk team out to the market, Yeah, and maybe let me add to that Mark just specifically focusing on.
Ky seeing compliance and the company and reference data because we've made a lot of investment there and we're continuing to make investments there both organic and inorganic and where were now three plus years out from the Bureau van Dijk acquisition.
You remember that puzzle page there on the webcast and we're now thinking about this business more holistically inside of <unk> and.
Collectively our company and reference data business is growing sales of something like the high teens. So that suite of data products is performing very well and we're continuing to look at opportunities to.
To complement that Orbis data.
And you've seen us do that with RTC, that's where we got all the people data acquire media with all of the adverse media in the quarter acquisition, giving us even more data on private companies and commercial credit. So we're continuing to invest in building out what we think of as the world's most useful and usable.
Database on companies and let me give you. An example of the kind of thing. We've done recently this is one of our organic.
Investments part of the integration of <unk>.
Euro Vandyken RTC, we just completed our first commercial release, where we're bringing together the orbis database and all of its corporate hierarchy data.
With all of the data on people risk profiles, and RTC and Thats all in one simple interface and screening tool and that is very powerful it creates a lot of efficiency for our customers. We think it's one of a kind in the market that was really the promise of the acquisition of already said it was the <unk>.
Put all that in one place for our customers and we've had some immediate customer traction with us.
Great. That's helpful. And then maybe a follow up to that two IC discussion. Obviously, it's it's among the faster growing opportunity that Moody's from a margin perspective as that becomes a bigger part of M&A is that accretive to the long term margins for that business or.
Or pretty consistent with the segment as a whole.
And so absolutely so as we think about longer term, yeah, K Y C opportunity continues to be very attractive for us.
Both from a revenue and a margin perspective, we're not necessarily as focused on margins in the very near term as we build out and integrate that business with a very focused on ensuring that margin protocol approach, it's something like the bvd margin profile over the medium term and that really gives you a sense of sort of how we're balancing that revenue growth versus margin pressure.
Over the next 12 to 18 months, but overall, yes, big scale business and a generally its attractive margin profile.
Great. Thanks, Paul.
Yeah.
Manav Patnaik of Barclays.
Thank you I just wanted to focus on Cortez from my first question I was hoping you could give us a little bit more on how big that assets.
You know what it's grown.
We have already partnered with them I believe and tied to that I also just wanted to see how much of the GAAP is that so.
<unk> from <unk>.
Yes.
Net BBB book, Pat I suppose.
Yes, manav good good to hear from you.
Mark do you I think the acquisition of <unk>, it's not a big acquisition, but it's but it's important it's an important next step in enhancing this data business that I've been talking about particularly in the U S and Canadian market.
They are already an important data contributor to our Orbis database, we've we've known core tariff for years in fact.
We worked with them on the know your supplier portal that we rolled out last year during the height of Covid. So we have a really good working relationship with them.
And as I said there.
Already contained their data is already contained in Orbitz database, but by owning portera. We now unlock the the access to that really their full suite of reference and trade credit data as I said from $36 million companies with.
With something like a trillion and a half data points. It's just an enormous amount of data that we think is going to have real relevance across the Moody's franchise and a key part of that.
Is there.
There are contributory accounts receivable network and that gives us great insights on to on the company spending and commercial credit and you asked about growth I mean, frankly, mark I think they've really been focused on building out this data asset rather than really focusing on growth. They have a very small sales force. So the data is.
Moving to enhance our offerings as I said in multiple end markets and then of course, we're going to enhance their offerings. We've got a lot of great proprietary credit and company data and analytics.
We've got a global sales force a big sales force in the United States to better serve the.
<unk> core market and our share of customers.
Okay got it and then you know.
This.
So little data has been putting together all the cross Moody's analytics as I can probably back.
And I was just wondering hi.
<unk>.
Good day.
Analytics.
Yeah.
The way I might think about it manav is.
You know, we've got an enormous content engine right and as I said.
As youre getting a sense.
This company and reference data with that we've talked about kind of a puzzle piece. That's a big part of it now we've got other content engines right. The rating agency is producing an enormous amount of content, we've got commercial real estate capabilities.
And then we have I think of it as kind of several ways to distribute that one of them is through E. R. S. Right Urs is is effectively.
Software that is being used in embedded into customer workflows from banks all across the world and it gives us an opportunity I always think of it as kind of a risk as a service.
Maybe that's the term im going to coin on this call.
But there as.
We're we're putting a lot of that content that you can imagine the data analytics.
We're putting that content through those software as a service solutions right. We're also leveraging that content in our research business and then we're looking for other ways to be able to distribute that content, whether it's through API is whether it's through.
Partnerships with with with third parties.
Just a big content factory and I think of.
The software as a service business the <unk> business as one of the platforms for distributing that content and the other thing I'd say about <unk> of our assets.
It's deeply embedded into very important workflows at these financial institutions. So it is very sticky once it's installed.
Okay. Thanks, a lot Rob.
George Tong of Goldman Sachs has our next question.
Hi, Thanks, Good morning, I wanted to delve deeper into your operating margin expectations by segment Holistically, you're expecting margins to be relatively flat this year.
Assuming any margins continue to increase how are you thinking about margins and the sustainability.
Net issuance levels begin to normalize.
George Jay Good morning. This is mark maybe I'll step back for a minute and I'll talk a little bit about our fourth quarter, and then I'll talk a little about expectations for 2021 after that.
I think very aware based on our press release this morning with the quarter margins for both Mis and MA themselves were down and if I look at <unk>. In total is it really the primary driver for that fourth quarter expenses grew by 16%, but see.
Primary drivers of that pull that 11 of the 16%, but really attributable to what I think of is unlikely to reoccur factor. So five percentage points of that 16 was restructuring and severance expenses.
Our efficiency programs.
Three percentage points of that would relate to sort of incentive stock and commissions on strong sales performance and then around three percentage points of that would relate really television M&A impact as we continue to invest for growth. The underlying core expense base day. It was really salaries salary increases in hiring and that was probably only 2% so very consistent.
<unk> very disciplined very control.
Now if we step back from Q4, when we look at 2021 as a whole we feel very comfortable in terms of maintaining.
Our operating expense base to be supportive of the revenue that we're able to achieve in 2021 and that's what the latest is confident in guiding towards that approximately 60% for that mis margin outlook for 2021.
Okay.
Got it that's helpful.
And then switching gears, if we look at it.
<unk> expectations, you are looking for high yield issuance to be down about mid single digits off of difficult comps. You also cited some factors that could be very conducive to highest high yield issuance will default rates are low spreads.
Moving macro environment M&A activity et cetera, So how would you.
Handicapped the potential upside or downside versus your base case expectations for high yield.
Yes, George I might even I might even kind of broaden the lens out and just kind of talk about the puts and takes overall too to issuance and then maybe also touch on just kind of what we're seeing in the market right now and in leveraged finance.
But I think.
In terms of upside if we see.
You know a faster than expected health recovery.
Adding to our faster than expected economic recovery I think that could provide some upside.
We could see some things coming out of the buying administration that may be supportive of issuance, whether it's around infrastructure or public finance.
M&A is a wildcard we've expected M&A activity to pick up to what looks more like.
Levels that we've seen in 2018 2019, but it's possible that we could see.
M&A activity go beyond that that would and that would provide some upside also to the specifically the leveraged finance market right.
Leveraged finance leveraged loans.
<unk> activity sponsor activity.
It would be very positive to the leveraged finance market.
You know from maybe from.
From.
What could be a headwind.
You've got a lot of companies that have a lot of liquidity so.
We have to see what the companies are going to do with all of that liquidity, where theyre going to use that to pay down debt, where theyre going to use that to make acquisitions.
Investing in their business.
And of course, if we see things drag out in terms of.
Health and economic recovery.
I think we will probably lead to some downside in issuance interestingly.
And Mark and I were talking about this the other day.
If we see things get worse with Covid I don't think we expect to see another surge in liquidity driven financing like we saw in the second quarter of last year, because you still got companies that still have very healthy cash positions.
Very helpful. Thank you.
Owen Lau of Oppenheimer.
Good afternoon, and thank you for taking my questions John.
I want to quickly go back to the.
<unk> guidance up.
Mid single digit could you. Please talk about your assumption in terms of the T and E. Marketing do you also include for example, additional share friends and.
And incentive or any charges related to relax day or reorganization what are the key drivers of these expense corporate thank you.
Yeah.
Oh, and then get off and good afternoon.
Think about cash.
Attribution in 2020 actual expenses to 2021 net outlook of mid single digit growth is probably let's call. It four primary categories.
The first category is really that savings and efficiency the $80 million to $100 million that we anticipate and trading and that's probably three to three five per cent of that expense base and the whole point of those savings and efficiencies.
It's going to enable us to self fund meaning.
Many of the opportunities that we see in 2021 as well as to be able to enhance our technology infrastructure to better enable automation innovation and efficiency.
Net investment base that it is going to go to is probably also going to consume somewhere between three and three and a half since you could almost be the savings and efficiencies and the reinvestment back into the business businesses washing itself out at.
Can you probably got around 2% to 2.5%.
Expenses related to that incremental.
On M&A activity.
And that's going to be a big driver of that sort of guidance towards mid single digit growth.
We've got a little bit of ethics in terms of headwinds at dollars depreciated.
<unk> expected to depreciate over 'twenty 'twenty, one visit by 2020 and Thats, probably another two to two five per cent and then of course, we don't we don't expect to have sort of that same degree of restructuring and impairment charges. So that will give you a sort of sense of the breakdown in terms of our thinking and coming up with that to mid single digit guidance.
One specific question on <unk> expenses, and we certainly have modeled an increase.
<unk> expenses as we move through the year.
We're probably going to return to a more normalized level by the time, we get to that third maybe fourth quarter, but it's still going to be lower than those historical levels that we would've experienced at pre pandemic as we become more efficient and more effective in communicating with our customers.
Work force.
That's very helpful. Mark So my follow up.
Thank you for the color on slide 15, I think it's very helpful.
Could you. Please talk about maybe the pace of the integration in terms of these offerings. How long do you expect you can 40 realize the synergy of these fault great assets and drive additional growth and penetration in shop, just a sum of its parts. Thank you.
Yes, I guess I might start by.
Just going back to Bureau, van Dijk, and we've put some synergy targets out into the market at the time of the acquisition and we effectively achieved us. So we feel very good about the integration.
Your van Dyke into the business than than RTC is the other kind of big asset RTC has performed.
Very well in line with our expectations since we acquired it in the example, I gave to you.
Earlier on the call that integration of Rbc's grid database into the Orbis database to create a one stop shop.
Is it.
Into the what we call compliance catalyst.
Is a great example of one of the most important things that we wanted to achieve with the RTC integration was getting all of that content that's relevant for our customers in one easy place for them to use.
Our integration of already see that's a big milestone for us. So we feel very good about about that and we.
We just bought acquired media back back in October.
So we've got we actually stood up what we call an integration management office as we've we've had a number of these bolt on acquisitions and we wanted to make sure that we're able to get out of the business value.
As quickly as we can and get get these corporate integrations done as quickly as we can to achieve to realize really the full potential of what we're acquiring.
Got it thank you very much.
Jeff Silber of BMO capital markets.
Thanks, So much you might have answered this earlier I just wanted to get a little bit of clarification I think Tony you had asked about your M&A strategy, what do we expect going forward most of the acquisitions would be in EMEA area close to him I assets or anything that might look attractive to you.
Yeah, I mean, historically that has been the case there just arent that many.
<unk> scaled opportunities to build out the rating business now you did see us making investment.
Last year.
Malaysian rating agency.
And that was important for us because it's one of the largest sukuk Islamic finance.
Markets in the world and so that was a.
We thought that that was an important opportunity to kind of augment the global rating capabilities and around Islamic finance, but.
As you look kind of look around the globe. There just arent that many sizable domestic markets and we're in we're in them. We are in India. We're in we're in China. The other thing I might say is.
I think we highlighted in the webcast deck.
We have been building out our platform in Latin America, we call. It Moody's local and that's basically think of that as kind of a pan regional approach to domestic markets in Latin America. So that we can.
Provide local locally tailored products with local analysts to meet local market needs and we've been getting some good traction with that but again I just.
These these.
These are just arent that many sizable opportunities and then you look over at MAA and you look at the size of these addressable markets that I talked about and the growth rates.
And the nature of demand from our customers. So I think you'll you'll see that trends continue that we'll make.
Regionally focused investments in the rating agency and then we will continue to build out our presence in these risk assessment markets in EMEA.
Okay. That's helpful and then a quick question for Mark.
Looking at your <unk> revenue.
Our revenue guidance can you scope out what the impact of acquisitions it would be in 2021 day.
Sure.
Get off to a good afternoon team I think about mis.
Ms for 2021.
We are looking at.
Organic growth as we do.
Organic growth.
With our overall outlook of approximately.
For the year.
Acquisitions would be relatively immaterial to our overall.
The outlook for 2021.
Forgive me I did a day I'm sorry about that.
Alright, Jeff I had assumed that I wasn't 100% sure if I should.
Ignoring that gives you gives you a lot of weight.
No no no problem at all.
And in terms of the.
M&A on net.
We're looking at around two to three percentage points of growth from the inorganic acquisitions that we've completed over the last several months.
Fantastic. Thanks again.
Yeah.
Craig Huber from Huber Research partners has our next question.
Thank you Mark I, just wanted to get a little more clarity if I could on the costs for the fourth quarter.
How about what was the incentive comp there. Please what was it for the full year and more importantly can you.
Quantify force how much of a cost in the fourth quarter would you.
Do you think are nonrecurring I know you guys call out there's $30 million restructuring charge.
No.
Asia Pac at press release, but what else is in there that can quantify its total nonrecurring.
I have a follow up good. Thank good afternoon, Greg Let me start with the 2020 full year incentive compensation number that was approximately $246 million it's Gary.
With the 2019 numbers youll recall of that $2 37.
I think for 2021 and the incentive compensation is expected to be between $50 million to $60 million per quarter, It's a little higher than what we had in 2020 really as we bring on and aligned our incentive compensation plans of those inorganic acquisitions.
Each of our business I thought it might also be helpful to touch on the expense ramp that we anticipate in 2021 and I'm addressing your question and from Q1 to Q4.
Book to guide to between 45 and $55 million.
Primarily driven by selective growth and some of the investments additional salaries and benefits and increasing team to some extent.
Really and there are really other costs that support.
Our overriding revenue growth line.
The expense numbers from the fourth quarter just to Closeouts completeness for your question.
Restructuring and severance was probably the biggest one there that was around 36 ish million.
And then really that incentive compensation stock and commission and that was above our normal run rate. That's probably another 23 ish and those are the ones that I would suggest to adjust down.
Thank you for that day.
Rob if I could just ask you with the new Bond administration here.
Outlook seems to be with a higher corporate tax rates potentially perhaps forget increase regulations out there. So can you maybe just touch on that to be too patient reversal of the prior administration, what that potentially could mean for debt issuance. Once we get to that stage and also without regulations on the rating agencies in general They can book your thoughts on that will that change and to.
Impact of ESG per perhaps favorably thank you.
Yeah, Craig happy to do that.
In regards to a potential increase in corporate taxes I don't think it's the first priority by the administration I mean I think.
The Covid recovery and then the economic recovery of really the near term focus. So we may see discussions in the back half of this year for potentially something in 2022.
And.
In terms of how it could impact issuance, maybe we will roll the clock back to when there were all these questions about what would happen from a decrease in corporate tax rates and remember all the concern about the reduction of the value of the tax shield.
And was that going to reduce negatively impact a debt issuance and our answer at the time was well, it's certainly a factor, but its just one factor that drives that assurance and.
I guess I would say kind of looking the other way you know that.
In theory, the tax shield is going to be increased but.
It could also be limiting to some extent the free cash flow of issuers, but I think in general I would expect this to be pretty modest I mean, we're talking about a 28% rate that is still lower than where the tax rate was before any of this change that I think I would just look at things like that.
The pandemic economic growth.
No.
Low rates for longer geopolitical factors, I think theyre going to be more impactful than what.
It looks like a relatively modest change in.
In the corporate tax rate.
You mentioned ESG certainly that the by the administration is very focused on climate change they've already announced the incentive to rejoin the Paris agreement.
One of their top priorities I think what we're going to see is more ESG disclosures for one in the United States.
There is a real desire to just get more comparability consistency availability verifiability, if that's even a word.
And a desire to kind of harmonize around.
A framework and I think ultimately that.
That'll be good for the market that'll be good for us.
As a provider of ESG data.
Data and analytics I think we're very well positioned to.
To capitalize on the increased focus on ESG.
Great. Thank you.
Hi.
Next we'll hear from Kevin Mcveigh of credit Suisse.
Great. Thanks.
To follow up on the ESG.
Just any thoughts as to the restructuring.
Business reported restructuring.
Net estimates.
Moody's.
Kevin This is mark here just confirming.
Just because the audio broke up a little bit there, you're specifically asking about the restructuring programs that we're putting in place or something.
Yes, Mark.
Okay.
Kevin.
In late December.
We approved a new restructuring program.
Net that we estimate is going to result in annualized savings of somewhere between 25 and $30 million per year, and that's going to program Pacifically relates TV strategic reorganization within MA reportable segment.
We also put in place just as a reminder, in July a separate restructuring program primarily in response to the COVID-19 pandemic and that was around the rationalization and the exit of certain real estate leases. So if I put those two together total restructuring charges in 2020 were around $50 million.
We expect net those 2020 actions are going to generate a little bit more than maybe $30 million in run rate savings.
If I broaden the lens just for a second and I step back and I think in total since mid 2018.
And including our expectations for 2021, our rationalization and efficiency initiatives will have created <unk>.
Most of $180 million.
In run rate savings and we've probably rough rough order of magnitude invested about 50% of that towards <unk>.
Expanding the margin from you certainly saw the benefit of that in 2020 and about 50% of that.
Reinvesting back into the business.
For future growth.
Okay Super helpful and then.
<unk> issued its outlook.
Does that factor in any of the day one launching in relative.
It seemed a bit now.
Joel.
Yes.
Sure.
Energy overall.
And any benefit from this day.
Sure.
Okay.
Good day.
Yes.
Book to GDP in issuance.
As you saw from.
Okay.
Yes, I think in general we have an assumption that there will be a stimulus package I don't think we've necessarily tried to quantify the size of it and our assumptions around issuance, but if there were no stimulus package that would be a negative to our outlook.
And I think in terms of things like infrastructure.
I think that was sufficiently uncertain enough for us as we were thinking about our outlook that we hadn't incorporated specifically or explicitly some sort of infrastructure package and what the upside. So if there were a meaningful infrastructure package.
Bill I think that could provide some upside I think you'd see that in our <unk> segment ratings.
Thank you so much.
Shlomo Rosenbaum of Stifel.
Alright, Thank you for taking my questions.
The whole net a little bit on that quote share acquisition.
Just.
Rob Fletcher.
Slides focusing on banks in providing similar information for your scores and stuff like that that the trade credit is actually pretty interesting and we've been kind of a perennial thorn in the side of Dnb is that something that you guys are planning to pursue further.
To be more in the trade credit area.
Can you elaborate on kind of the strategy and they are part of that business.
Yeah. So maybe I'll go back to your right that trade credit data is really interesting valuable data.
As part of the appeal of that acquisition and as we said I think youre going to see us thread that through our offerings ranging from no your customer we've got a.
Supply chain procurement catalyst that support supply chain risk management, it'll be useful there you can imagine us.
We're thinking about integrating that into our commercial lending solution. So a number of ways that we see monetizing that trade credit content and I mentioned earlier.
We also we have a lot of content right, obviously through not only orbis, but all of our our credit.
Capabilities and so we think there are some opportunities to enhance their core offering we have a big sales force here in the United States and better serve their core market.
Okay. So is that a yeah, we could be more heavy in the trade credit areas, but the way to understand besides obviously enhancing the other part of your business.
It's a.
There are multiple ways to win here would be my answer.
Okay and then just Mark is this it's called share a part of your guidance as well in terms of the growth or net.
So, but we have incorporated that into our guidance for 2021, and maybe if I just step back and I think about both acquired media.
The <unk> financial Corp, Terra and catalyst just in aggregate this might be helpful.
Relative adjusted EPS impact for our 2021 guidance is relatively small, it's probably around 5% or so.
The margin impact as we spoke a little bit earlier on the call is a bit more impactful we see around at 130 ish basis points impact to the EMEA adjusted margin and around 60 basis points negative impact obviously to the MTO adjusted margin so that might give some color in terms of those recent acquisitions and how they can be.
Our guidance for the year.
Fully incorporate at Texas Force.
Great. Thank you.
As a reminder, if you'd like to ask a question or make a comment.
One at this time.
And we will now hear from Simon.
The Atlantic equities.
Hi, guys. Thanks for taking my questions.
I was wondering if we could cycle back to.
So what you're building it within.
Our DNA and.
And really I'm interested in how competitive the environment is for acquiring.
These sort of little these data assets that you're hoping to continue doing.
Because obviously it has not gone unnoticed.
As a very.
Desirable parts of the market and so I'm just wondering how you think about a competitive environment and how how and why Moody's should win and sort.
Sort of getting the assets I E.
Yes, great.
Great Great question.
It's a very competitive market.
A frothy market you see the valuations are quite expensive.
And we have always had a very disciplined approach to M&A, which I think.
Puts a real premium.
On.
The industrial logic of these acquisitions right because.
We want to make sure that we are the natural owner for these assets and that.
The industrial logic gives us.
Ways to really.
Enhanced and monetize what we're buying.
Go back to core Terra is a good example, right I talked about the value of the data putting it through multiple.
Our product offerings.
We viewed when we looked at core Tara and I think they felt the same way. They felt we were the natural owner for that business.
I feel the same way about RTC.
<unk>.
Ah.
That's because when you think about what's going on with our customers and are back to some of my prepared remarks.
Our customers have huge pain points around understanding the risk of who their onboarding as customers and monitoring those and and it has historically been a fragmented.
Manual.
We will approach and so the real promise of RBC was to be able to put all that together for our customers and then that then allows us to be competitive.
And in a process, where there is other there are other parties that are looking at these assets that you've seen other certainly other companies are investing in anti financial crime and know your customer because it is very high growth space.
Tractive place to be.
So.
Sure.
That industrial logic allows us to be.
Not only be the.
The ultimate owner, but also to meet our acquisition criteria at the same time.
Accounts.
And then just following up on.
E R S.
I just want to make sure I understand this right.
That's fantastic growth in the recurring revenue line, but youre, one youre effectively winding down the sort of one time transactional side of that business. So I just wanted to make sure I understood sort of how.
I guess, how long that sort of wind down should last and.
And when we should start to see that really strong growth from the recurring side.
Flow through.
Optically.
Through the through the total revenue line, yes, you've got it exactly you got it exactly right Mark touched on it earlier we've got.
Low double digit recurring revenue growth that is the focus for US is building up the recurring revenue the subscription part of the business.
And as.
As you saw in the fourth quarter that was almost fully offset by that decline in onetime sales now we have talked about one time sales being soft.
Back in 2020.
We also had a very tough comp from onetime sales, but but the reality is I'm not sure I'd say winding down, but I would say deemphasizing there are some customers who still.
Only want it.
<unk> through a license solution in that case, we're probably going to sell it to them, but our real focus is on <unk>.
Recurring revenue. So we are kind of pushing through right now where youre seeing the overall top line is a little bit soft relative to what it's been historically, but that recurring revenue line is very strong and Simon maybe you could give me also just a little bit of insight into what is driving that.
Low double digit revenue growth for recurring revenue there are really three main things I would cite one is <unk>.
Insurers.
Seeking our help in getting compliant you've heard us talking about <unk> 17 regular regulatory requirements that stuff is very computationally demanding and some of you may remember, we bought a company called Gee Gee why a few years ago and net G. G Y products suite, along with our own internal product development is really.
Set us up nicely to capture the demand there. So we're not only just adding new customers, but where we're building new modules, we're adding analytics capabilities and we're deepening our penetration with the existing insurance customer base. So that's a great story.
We've got ongoing demand from U S financial institutions to comply with the credit loss reporting requirements and then third.
You've heard us talk about credit lens right, our commercial lending application in the past.
Again, we're deepening our penetration with our existing <unk>.
Bank customers, we're adding modules and capabilities.
That they need this is another land and expand story and a great example, that we launched an automated spreading tool called quick spread that came out of our accelerator. It was really a employee driven innovation.
That worked its way through the accelerator and Thats now.
We're selling that alongside credit lens and it's in use at over 40 global banks. So that's what's driving the demand and as you said, we're going to continue to have some headwinds I don't know exactly how long that's going to be I would imagine it's.
The next the next couple of years.
Is that is that as that one timeline continues to decline.
Okay. That's really helpful. Thank you very much.
And once again star one if you'd like to ask a question or make a comment well pause for a moment.
And it appears there are no further questions at this time I would like to turn the call over to our presenters for any closing or additional comments.
Yes, I guess I would just say thank you for joining today's call I Hope you all.
Our well and we look forward to speaking with you again in the spring. Thank you very much.
And this does conclude Moody's fourth quarter and full year 2020 earnings call. As a reminder, immediately following this call the company will post a day.
S revenue breakdown under the fourth quarter and full year 2020 earnings section of the Moody's IR homepage. Additionally, a replay of this call will be available after 330 P. M. Eastern time today on Moody's IR website.
Thank you you may now disconnect.
Yeah.
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Okay.
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