Moody’s Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the supplied filing does not provide a separate fourth-quarter results summary. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Moody’s operates two reportable segments: Moody’s Analytics (MA), providing data, research, analytics and workflow solutions, and Moody’s Investors Service (MIS), providing credit ratings and related services. MA’s subscription-oriented offerings provide a recurring revenue base; MIS revenue is more exposed to debt issuance activity.
Financial results and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $5.916 billion | $5.468 billion | +8% |
| Operating income | $2.137 billion | $1.883 billion | +13% |
| Operating margin | 36.1% | 34.4% | +170 bps |
| Adjusted operating income | $2.597 billion | $2.328 billion | +12% |
| Adjusted operating margin | 43.9% | 42.6% | +130 bps |
| Net income attributable to Moody’s | $1.607 billion | $1.374 billion | +17% |
| Diluted EPS | $8.73 | $7.44 | +17% |
| Adjusted diluted EPS | $9.90 | $8.57 | +16% |
| Net cash from operating activities | $2.151 billion | $1.474 billion | +$677 million |
| Free cash flow | $1.880 billion | $1.191 billion | +$689 million |
Revenue growth reflected increases in both segments: MA external revenue rose 10% to $3.056 billion, and MIS external revenue rose 6% to $2.860 billion. MA growth was broad-based across Decision Solutions (+11%), Research & Insights (+9%) and Data & Information (+11%). MA annualized recurring revenue increased 10% to $2.962 billion. MIS growth in corporate finance, financial institutions, and public/project/infrastructure finance was partly offset by a 12% decline in structured finance.
Net income benefited from a lower effective tax rate: 16.9%, compared with 21.9% in 2022. Favorable resolutions of uncertain tax positions reduced the 2023 tax provision by $120 million; management attributed approximately $0.76 per diluted share of the EPS increase to tax-matter resolutions, versus $0.12 per share in 2022. Adjusted measures are non-GAAP and exclude specified items, including restructuring and acquired-intangible amortization; they should be considered alongside, not instead of, GAAP results.
At year-end, cash and cash equivalents were $2.130 billion and short-term investments were $63 million; approximately $1.7 billion of the combined balance was held outside the U.S. Long-term debt had a $7.001 billion carrying value ($7.281 billion principal). Moody’s repaid $500 million of notes in 2023. Its $1.25 billion revolving credit facility was undrawn, and it reported compliance with debt covenants. Current assets were $4.341 billion and current liabilities $2.500 billion.
Cash used in financing was $1.584 billion, including $490 million of treasury-share repurchases and $564 million of dividends. The annual dividend was $3.08 per share. The Board later authorized an additional $1 billion of repurchase authority and declared a quarterly dividend of $0.85 per share, both in February 2024.
Material changes versus 2022
- Revenue recovered from the prior year, when capital-markets activity had been suppressed. MIS transaction revenue improved in corporate finance and several other businesses, while structured finance remained weaker.
- Operating expenses increased, including higher compensation and greater amortization of internally developed software, partly offset by disciplined non-compensation spending. Total GAAP expenses were $3.779 billion, up from $3.585 billion.
- Non-operating expense increased to $202 million from $123 million. Drivers included $81 million of higher realized losses on fixed-to-floating interest rate swaps and the absence of the prior-year $70 million debt-extinguishment gain; higher interest income partly offset these items.
- Operating cash flow and free cash flow improved substantially, reflecting higher earnings and favorable comparisons in taxes, incentive compensation payments and working capital.
Outlook, management commentary and risks
- Management described the long-term outlook for both segments as favorable and expects positive operating cash flow in 2024. It did not provide quantified 2024 revenue or EPS guidance in the supplied filing text.
- Management viewed suppressed rated-issuance volumes as predominantly transitory, but said it could not predict the severity or duration of macroeconomic and geopolitical uncertainty or its impact on future issuance.
- The 2022–2023 geolocation restructuring program was substantially complete. It is expected to generate annualized savings of $145–$165 million; $36 million of remaining cash outlays, substantially all expected in 2024, were disclosed. Savings are intended to support margins and strategic investments.
- Key business risks include interest-rate and capital-market volatility affecting debt issuance and MIS transaction revenue; competition, pricing pressure and disintermediation; regulation of credit ratings, ESG ratings and financial data; litigation and regulatory proceedings; cybersecurity, data privacy and reliance on third-party technology; foreign exchange exposure; and retaining skilled employees.
- MIS is responding to SEC requests in an investigation of compliance with record-preservation requirements for certain business communications sent through unapproved electronic messaging channels. The filing does not state a clear estimate of any potential loss or resolution.
- Moody’s has $5.956 billion of goodwill, with approximately 95% of goodwill and intangible assets residing in MA. Management reported no impairment indication in its July 2023 qualitative assessment. A significant impairment could nevertheless arise if business performance or valuation assumptions deteriorate.
- The company no longer conducts commercial operations in Russia and withdrew MIS ratings on Russian entities. Management said operations and net assets in Russia and Israel and surrounding areas were not material, while broader market impacts remain uncertain.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded internal controls were effective at year-end.
Important facts for investors to verify
- Whether MA’s 10% ARR growth and subscription demand continue, and whether that growth translates into revenue and operating leverage.
- Whether MIS issuance activity sustains its 2023 recovery, especially in corporate finance, and whether structured finance improves or remains pressured.
- The portion of 2023 EPS growth attributable to the $120 million tax benefit from uncertain-tax-position resolutions, and the sustainability of the reported 16.9% effective tax rate.
- Debt maturities, interest-rate swap exposure and cash available for debt service, repurchases and dividends; also monitor cash held outside the U.S.
- Developments in the SEC record-preservation investigation, tax audits and other legal or regulatory matters, including any newly quantifiable exposure.
- Delivery of restructuring savings, remaining 2024 cash costs, and performance assumptions supporting the carrying value of MA goodwill and acquired intangibles.