Moody’s Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023. Moody’s operates Moody’s Analytics (MA), which provides data, research and analytical solutions, and Moody’s Investors Service (MIS), which provides credit ratings and related services.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1.786 billion | $1.470 billion | +21% |
| Operating income | $801 million | $554 million | +45% |
| Operating margin | 44.8% | 37.7% | +710 bps |
| Adjusted operating income | $906 million | $656 million | +38% |
| Adjusted operating margin | 50.7% | 44.6% | +610 bps |
| Net income attributable to Moody’s | $577 million | $501 million | +15% |
| Diluted EPS | $3.15 | $2.72 | +16% |
| Adjusted diluted EPS | $3.37 | $2.99 | +13% |
| Net cash from operating activities | $775 million | $608 million | +$167 million |
| Free cash flow | $697 million | $535 million | +$162 million |
MA external revenue was $799 million, up 8%; MIS external revenue was $987 million, up 35%. MIS growth was driven by stronger rated issuance across its lines of business, particularly corporate finance. MA growth reflected demand for KYC, banking and insurance solutions, as well as ratings data and company information. MA annualized recurring revenue increased 10% to $3.059 billion.
Operating and SG&A expenses together rose 8% to $880 million, below revenue growth. The effective tax rate was 23.3%, compared with 1.0% in Q1 2023. The prior-year rate included $113 million in tax benefits from resolutions of uncertain tax positions; management notes this benefit did not recur.
Balance sheet and liquidity
- Cash and cash equivalents were $2.476 billion and short-term investments were $58 million at March 31, 2024, a combined $2.534 billion. Approximately $1.9 billion of cash and short-term investments was held outside the U.S.
- Total debt had a $6.944 billion carrying value ($7.250 billion principal); $685 million was classified as current. Debt carrying value was $7.001 billion at year-end 2023.
- Current assets were $4.806 billion and current liabilities were $3.382 billion. Deferred revenue totaled $1.673 billion, including $1.612 billion current.
- Operating cash flow increased year over year, partly reflecting operating income growth; working-capital movements also affected cash flows. Capital additions were $78 million.
- The company reported compliance with debt covenants and approximately $1 billion of available capacity under its commercial paper program, backed by a $1.25 billion credit facility.
Material changes, outlook and risks
- Revenue gains were strongest in MIS: corporate finance revenue rose 49%, financial institutions 37%, structured finance 15%, and public, project and infrastructure finance 9%. MIS adjusted operating margin increased to 64.6% from 56.8%. MA adjusted operating margin rose to 29.7% from 28.9%.
- Management attributed MIS issuance strength to opportunistic refinancing, tight credit spreads and strong investor demand, and cautioned that uncertainty could affect issuance later in the year. The filing provides no numerical full-year revenue or EPS guidance.
- Management expects positive operating cash flow over the next 12 months and believes available resources can meet cash requirements. The company returned $155 million through dividends and spent $120 million on treasury shares in Q1; about $1.2 billion of share repurchase authority remained at quarter-end. A quarterly dividend of $0.85 per share was approved after quarter-end.
- Macroeconomic and geopolitical uncertainties include inflation, higher interest rates, capital-market volatility and the Russia-Ukraine and Israel-region conflicts. These may affect debt issuance and MIS revenue. Moody’s no longer conducts commercial operations in Russia.
- MIS is responding to SEC requests concerning compliance with record-preservation requirements for certain business communications. The filing does not quantify a potential loss or outcome. The company is also subject to tax audits and other legal, regulatory and governmental proceedings.
- The 2022–2023 geolocation restructuring program was substantially completed in 2023. Q1 2024 restructuring expense was $5 million; the remaining $24 million liability was expected to be paid substantially in 2024. Estimated annualized program savings are $145–$165 million.
- The 2023 tax benefit materially affects year-over-year comparisons of GAAP net income and EPS. Adjusted measures exclude specified items and are non-GAAP measures.
Important facts for investors to verify
- Whether elevated MIS issuance volumes and the associated transaction-revenue growth are sustained, given management’s stated market uncertainties.
- How revenue growth, headcount and technology investment affect expenses and segment margins in subsequent quarters.
- The resolution and potential financial or regulatory consequences of the SEC record-preservation inquiry and ongoing tax audits.
- Cash generation, debt maturities and the use of remaining share repurchase authority, alongside dividends and other investment needs.
- Whether MA recurring-revenue and ARR growth continue; ARR is a supplemental, non-GAAP performance metric.