Moody's Corporation (MCO)
Credit Suisse Global Services Conference
March 12, 2012 4:00 p.m. ET
Raymond McDaniel - Chairman and Chief Executive Officer
Salli Schwartz - Global Head of Investor Relations
Georgios Mihalos - Credit Suisse
Georgios Mihalos - Credit Suisse
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Okay. I think we're ready to begin. My name again is Georgios Mihalos. I'm part of the data processing and IT services team here at Credit Suisse. Our next presenting Company is Moody's Corp., and representing the company is Raymond McDaniel, Chairman and CEO. And I do also want to point out that right in the front row is also Salli Schwartz, the Global Head of Investor Relations. And without further adieu I will turn it over to Raymond.
Okay. Thank you very much. Pleasure to be here and I appreciate the introduction. I don't have too much time so I'm going to jump right into this. And I will probably have to either offer some very abbreviated comments on a couple of slides or skip over a few slides. So if you have any areas of particular interest that I don't get to, make sure to catch me in the breakout session.
Okay, our disclaimer language. I'll quickly provide a corporate overview, financial profile, and then drill down a little bit into our two operating companies, Moody’s Investors Service and Moody’s Analytics. Before concluding with some comments about the macro environment and our current outlook. Starting with the corporate overview. Moody’s is comprised of two operating companies, Moody’s Investor Service and Moody’s Analytics.
The Moody’s Investor Service part of our business is the rating agency, that’s what most people are familiar with. Comprises about 69% of our 2011 revenue with Moody’s Analytics being the 31% contributor with overall 2011 revenue having reached a record last year at $2.28 billion. Moody’s has robust operating opportunities. And just briefly to summarize, our overall business targets are to achieve long-term revenue growth in the double-digit percent range. And long-term operating margin of 40% plus.
We see the principal opportunities in the business being debt associated and rating of debt associated with the growth in fixes income markets alongside GDP growth globally, disintermediation of financial institutions, the penetration of the potential client base for our Moody’s Analytics business. This is still a very fragmented sector of the financial markets for the products and services that we offer and presents opportunities to place those products. And to do so particularly in connection with expansion of bank and insurance regulatory requirements and then pricings that are aligned with areas where we can bring additional value.
This is a quick cut of the Moody’s business by -- Moody’s revenue by line of business in the upper left hand panel, and by geography in the upper right hand panel. You can see that the business is diversified both by our business lines and by our U.S. and international businesses. And then in the bottom left hand panel you can see the 2011 revenue by type split into transaction and recurring revenue. With Moody’s Investors Service having majority of its revenue derived from transactions and Moody’s Analytics, a majority of its revenue derived from recurring bases, subscription based revenue principally which provides an overall balance for the Moody’s corporate revenue picture.
Turning now to the financial overview. We had very strong performance in 2011. In the top panel here you see our fourth quarter 2011 performance, and then in the bottom panel our full year performance. And as you can see we had growth for the full year of 2011 in all lines of business at both Moody’s Investors Service and Moody’s Analytics. So a good year with double-digit growth outside the U.S. and high single-digit growth inside the U.S., double-digit growth overall.
We have -- let me back up as long as we are -- there we go. That’s what I was just talking about. The bottom panel showing the positive growth for all the lines of business at Moody’s Investors Service and Moody’s Analytics. Okay, I think this is an interesting slide. It shows our historical revenues and it shows the growth and then the fall off associated with the financial crisis before we resumed a double-digit growth rate. And you can see the two color coded bars, one for 2007, the second for 2011. And it shows how we have, as I mentioned, reached a record level of revenue in 2011 but at a very different margin then we had back in 2007. Rather than being in the mid-50s we were 39% margin last year.
This is due to a couple of factors. First of all, the shift in the mix of the business. That blue bar is the structured finance line and you can see how large that was in 2007 compared to 2011. The yellow bar being the corporate finance business and how that has grown in 2011. And then the brown bar at the top being the Moody’s Analytics business and how that has grown. So what we see is a shift away from structured finance and towards corporate finance within the ratings agency and then the growth of the Moody’s Analytics business.
The reason for the lower margins are that the rating agency itself is operating at lower margins than it did back then. Compliance and regulatory requirements being among the reasons. And then we have a larger contribution from the Moody’s Analytics business, which while being a business that we are very much focused on growing and believe is a very strong business, does not operate at the margins that the rating agency does.