Moody’s Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with fiscal 2020. Moody’s operates Moody’s Investors Service (MIS), a credit ratings and assessment business, and Moody’s Analytics (MA), a data, research, analytics and risk-solutions business. Figures below are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $6,218 | $5,371 | +16% |
| Operating income | $2,844 | $2,388 | +19% |
| Operating margin | 45.7% | 44.5% | +1.2 percentage points |
| Adjusted operating income (non-GAAP) | $3,101 | $2,667 | +16% |
| Adjusted operating margin (non-GAAP) | 49.9% | 49.7% | +0.2 percentage points |
| Net income attributable to Moody’s | $2,214 | $1,778 | +25% |
| Diluted EPS | $11.78 | $9.39 | +25% |
| Adjusted diluted EPS (non-GAAP) | $12.29 | $10.15 | +21% |
| Effective tax rate | 19.6% | 20.3% | Down 0.7 percentage points |
- Revenue mix: MIS external revenue was $3,812 million, up 16%; MA external revenue was $2,406 million, up 16%. MIS growth reflected strong debt issuance, especially leveraged finance, CLOs and CMBS. MA growth reflected KYC and compliance demand, subscriptions and acquisitions.
- Segment profitability: MIS adjusted operating income was $2,474 million, up 21%, and adjusted margin was 62.2%, up 2.5 percentage points. MA adjusted operating income was $627 million, up 2%, while its adjusted margin fell 3.4 percentage points to 26.0%, as expenses outpaced revenue growth.
- Cash flow: Operating cash flow was $2,005 million, down from $2,146 million. Free cash flow, a non-GAAP measure, was $1,866 million versus $2,043 million; capital additions were $139 million. Higher taxes paid and increased receivables weighed on operating cash flow.
- Balance sheet and liquidity: Cash and cash equivalents were $1,811 million and short-term investments $91 million at year-end, compared with $2,597 million and $99 million, respectively, in 2020. Total debt was $7,413 million, up from $6,422 million. The company had $1.25 billion available under its undrawn revolving facility and no commercial paper outstanding. It reported compliance with debt covenants.
- Other balance-sheet metrics: Total assets were $14,680 million; goodwill was $5,999 million and intangible assets were $2,467 million. Deferred revenue totaled $1,335 million. The funded U.S. pension plan was overfunded at year-end; management did not expect a material 2022 contribution.
Material changes and unusual items
- Revenue increased $847 million year over year, with growth in both segments. MIS transaction revenue rose substantially as issuers refinanced and funded M&A and structured-finance activity; MIS transaction revenue represented 69% of segment revenue, versus 66% in 2020.
- MA reported 16% revenue growth, but organic growth was 9%; acquisitions contributed $136 million of revenue. MA recurring revenue grew 19% reported and 12% organically. ERS recurring revenue increased 30% reported, while ERS transaction revenue declined 32% reported and 38% organically.
- Acquisitions included RMS for $1,927 million of total consideration, Cortera, RealXData, Bogard and PassFort. RMS contributed $81 million of revenue included in 2021 results. The RMS and PassFort purchase-price allocations were preliminary. Acquisition-related spending contributed to higher costs and the increase in goodwill and intangible assets.
- 2021 results included a $36 million non-cash gain from exchanging the VisibleRisk investment for BitSight shares. The effective tax rate benefited from $70 million of uncertain-tax-position resolutions; diluted EPS included a $0.54 benefit per share from resolutions of tax positions and related interest. Adjusted measures exclude specified items, including acquired-intangible amortization and the BitSight gain.
- The company issued $1.7 billion of notes and repaid $500 million of senior notes in 2021. Investing cash outflow increased to $2,619 million, chiefly reflecting $2,179 million of net cash paid for acquisitions and a $250 million BitSight investment.
Outlook, management commentary and risks
- Management described the long-term outlook for global fixed-income markets and financial information as favorable, citing demand for ratings, research, data, analytics and integrated risk solutions. The filing does not provide a clear numeric revenue or EPS guidance range. Management expected positive operating cash flow in 2022.
- Moody’s said COVID-19 had not materially adversely affected reported results to date and was not then expected to materially affect the near-term outlook, while emphasizing uncertainty over longer-term effects. MIS remains exposed to changes in debt issuance, interest rates, credit conditions and market volatility; MA faces subscription-renewal, customer-demand, competition and execution risks.
- Other highlighted risks include extensive and evolving regulation of ratings and financial services, litigation and regulatory investigations, cybersecurity and data privacy, foreign-exchange exposure, talent retention, acquisition integration, and potential impairment of goodwill or intangibles. About 94% of goodwill and intangible assets reside in MA.
- ICRA matters include an appealed Indian securities regulator fine and internal examinations concerning complaints and allegations involving former officials. The filing warns that unfavorable outcomes could affect ICRA’s results and potentially lead to impairment. Legal proceedings and contingencies are discussed in Note 21; the supplied filing text does not provide a clear aggregate quantified exposure.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. RMS was excluded from management’s and the auditor’s year-end internal-control assessment and was to be incorporated in the following year’s assessment.
Important facts for investors to verify
- Whether the strong MIS transaction-driven growth in 2021 is sustainable if issuance volumes normalize, and how recurring monitoring revenue performs.
- Whether MA can sustain organic and recurring growth while recovering its adjusted margin from 26.0%, particularly as it integrates RMS and other acquisitions.
- The acquisition integration progress, final RMS and PassFort purchase-price allocations, realized synergies, and potential goodwill or intangible impairment sensitivity.
- Cash conversion and liquidity: the causes of the operating cash-flow decline, subsequent receivables collections, acquisition-related funding needs, and debt maturities and interest costs.
- Resolution and potential financial impact of ICRA matters, tax audits and uncertain tax positions ($388 million at year-end), and other legal or regulatory proceedings.
- Assumptions underlying non-GAAP measures and tax-related EPS benefits; compare reported GAAP results with adjusted results when assessing performance.