Moody’s Corporation — Q1 2022 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2022. Moody’s operates Moody’s Investors Service (MIS), which provides credit ratings and related services, and Moody’s Analytics (MA), which provides data, research, and risk-management solutions. Amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $1.522 billion | $1.600 billion |
| Operating income / margin | $656 million / 43.1% | $853 million / 53.3% |
| Adjusted operating income / margin | $734 million / 48.2% | $914 million / 57.1% |
| Net income attributable to Moody’s | $498 million | $736 million |
| Diluted EPS | $2.68 | $3.90 |
| Adjusted diluted EPS | $2.89 | $4.06 |
| Operating cash flow / free cash flow | $470 million / $411 million | $676 million / $662 million |
- Revenue declined 5% year over year. MIS external revenue fell 20% to $827 million; MA external revenue rose 23% to $695 million, including $79 million of acquisition revenue. MA organic revenue grew 9%; MA annualized recurring revenue increased 25%, or 9% organically.
- Operating expenses rose 16% to $866 million, including higher acquisition-related operating costs and amortization. Adjusted operating margin fell 890 basis points.
- Cash and cash equivalents were $1.750 billion and short-term investments were $103 million at quarter-end. Total debt was $7.991 billion principal, with a $7.786 billion carrying value; $501 million was classified as current. The company issued $500 million of 3.75% senior notes due 2052 during the quarter.
- Current assets were $4.062 billion and current liabilities were $2.988 billion. The company reported approximately $1 billion of available commercial-paper capacity, backstopped by a $1.25 billion revolving facility; no facility borrowings were reported here.
Material changes versus the prior-year quarter
- MIS results weakened amid a 25% decline in rated issuance volumes. MIS transaction revenue fell $216 million; market volatility, geopolitical concerns, rising yields, inflation, and higher borrowing costs weighed on issuance. MIS adjusted operating income declined 30%.
- MA growth reflected acquisitions and continued demand for KYC, banking, company-data, and ratings-feed products. MA adjusted operating income increased 20%, but its adjusted margin eased to 32.1% from 32.9%, partly due to acquisition integration costs.
- Net interest expense increased to $53 million from $7 million. The prior-year period included a $40 million benefit from resolving tax-related interest accruals. The effective tax rate rose to 18.2% from 14.6%, largely because comparable tax benefits did not recur to the same extent.
- Operating cash flow declined $206 million and free cash flow declined $251 million. The company repurchased $560 million of treasury shares and paid $130 million of dividends in the quarter.
Outlook, commentary, risks, and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management expects positive operating cash flow over the next 12 months and believes available financial resources are sufficient for expected cash requirements.
- Moody’s suspended commercial operations in Russia, withdrew MIS ratings on Russian entities, and recorded a $12 million increase in its allowance for credit losses, primarily for Russian-domiciled customers. Management said wider market volatility adversely affected Q1 rated issuance and could not predict the conflict’s near- or long-term effects.
- Management said COVID-19 had not materially adversely affected results to date and was not expected to materially affect the near-term outlook, while noting longer-term uncertainty.
- Open risks include volatility in debt issuance and financial markets, regulation and litigation related to ratings, cybersecurity and operational disruption, acquisition integration, and currency exposure. ICRA-related proceedings and investigations in India could adversely affect future results and potentially lead to impairment of goodwill or intangible assets.
- The $500 million accelerated share repurchase was initiated in March; final settlement occurred in April, when Moody’s received an additional 0.3 million shares. The Board declared a $0.70 per-share dividend payable in June.
Important facts for investors to verify
- Whether debt issuance and MIS transaction revenue recover from Q1’s sharp decline, particularly in leveraged finance and corporate finance.
- How much of MA’s reported growth and recurring-revenue expansion is organic, and whether acquisition integration costs moderate.
- Debt maturities, refinancing needs, interest expense, and the effect of rising rates, including the $500 million note due in 2023.
- Developments in the Russia/Ukraine conflict, customer credit reserves, and any related revenue or compliance effects.
- Progress and potential financial exposure in ICRA matters, tax examinations, and other legal or regulatory proceedings.