Moody's Corporation (MCO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Moody's Corporation Annual Meeting of Stockholders. At this time, I would like to turn the conference over to Mr. Hank McKinnell, Chairman of Moody's Corporation. Thank you. Sir, please begin.

Good morning, again, everyone. We apologize for that bit of confusion, and thank you for persevering. I'm Hank McKinnell, Chairman of the Board of Directors of our corporation. And it's my pleasure to welcome all of you finally here to the 2020 Annual Meeting of Shareholders of Moody's Corporation. Thank you for -- again, thank you for persevering through our delay here. This format actually allows us to reach out to far more shareholders than would normally be the case given the numbers that are able to attend our meeting in person usually held in New York City. As in past years, we'll conduct the business portion of the meeting first. After the formal portion of the meeting is completed, our CEO and President, Ray McDaniel, will make a few comments and take questions from any shareholders. Unfortunately, you will have to enter your questions through the web portal. We are not able to take phone-only sign-ups for this meeting. We do ask that you limit your questions to those of general interest to other shareholders, and we'd like to confine that to one question at a time. If you would like to ask a question, please do so by following the instructions on the meeting website. It is now 10:32 Eastern Daylight Time on April 21, 2020. This meeting is officially called to order, and the polls are now open for voting. If you previously voted, you do not need to take any additional action. Your vote will be counted. If you previously voted and wish to change your vote, please do so before the closing of the polls, which will be in a few minutes here before the closing of this meeting, by using the voting buttons on the screen on the web portal. Once the polls are closed, we will announce the preliminary results of the voting. The agenda is posted on the screen. I will follow this agenda in conducting this meeting. The rules of procedures that we follow in the conduct of this annual meeting are also posted. We appreciate your cooperation with those rules. You will note that after the conclusion of the formal portion of the meeting, we will stay on the line on this connection to answer any questions any director may have any -- sorry, any shareholder may have. I would like to introduce the director nominees: Basil Anderson; Jorge Bermudez; Thérèse Esperdy; Vince Forlenza; Kathy Hill; Ray McDaniel; Leslie Seidman; Bruce Van Saun; and myself, Henry McKinnell. In addition to the director nominees, members of Moody's senior management are also with us here today. The individuals appointed by the Board of Directors to vote proxies at today's meeting include Ray McDaniel, our President and CEO; John Goggins, our General Counsel; and Mark Kaye, our Chief Financial Officer. Rob Fauber, our Chief Operating Officer, is also present as well as other members of senior management. KPMG, our independent accountants, are represented on this call by Mike Gaynor and Roger O'Donnell. They will be available for questions during the Q&A portion of the meeting. I will now ask the Secretary to file the affidavit of mailing of notice of this meeting with the minutes. Consistent with Delaware law, a list of the shareholders entitled to vote at this meeting is available for inspection through the website that you use to address this annual meeting. Chris Woods of Broadridge Financial Services has been appointed to serve as inspector of election for this meeting. His oath as inspector has been submitted to the meeting and will be appended to the minutes. The inspector of election has certified there is sufficient quorum for all business to be conducted at this meeting. We will present each item on the agenda in the order set forth in the proxy materials. Because we have not received notice in accordance with Moody's bylaws of any additional matters to be considered, no nominations or proposals may be introduced by shareholders at this meeting. We have 4 items to be voted upon by stockholders. The first item of business is the election of directors. The Board of Directors has nominated each person named in the proxy materials as directors to serve until next year's Annual Meeting of Stockholders. The second item of business is voting on the amendments to the company's restated Certificate of Incorporation to remove supermajority voting standards applicable to the following actions. This item is being presented as 3 separate proposals which address supermajority voting standards that apply to future amendments to certain provisions of the restated Certificate of Incorporation and the bylaws; secondly, to removing directors from office; and thirdly and finally, filling vacancies and newly created directorships at certain special meetings called pursuant to the Delaware General Corporation Law. The third item of business is the ratification of the Audit Committee's appointment of KPMG to act as the independent registered public accounting firm for the company for the year 2020. The fourth item of business is the advisory resolution approving executive compensation. The Board has approved each of the foregoing items for consideration of this meeting. The Board recommends that shareholders vote for each of the director nominees, for each of the proposals to amend the Certificate of Incorporation, for the ratification of KPMG as independent registered public accounting firm for the company and for the advisory resolution approving executive compensation, all for the reasons described in the proxy material. That completes the items to be voted on in this meeting. It is 10:37 a.m., and I declare the polls closed, and the inspector should proceed to count the votes. The next item on the agenda is the preliminary report as provided by the inspector of election. Any votes submitted before the polls closed but not reflected in the preliminary report will be reflected in the final report of this inspection -- of the inspector and will be reported to stockholders on a Form 8-K.

Thank you. The inspector of election has presented his preliminary report and has determined that each director nominated by the Board for election received the majority of the votes cast. The votes on each of the amendments to the company's restated Certificate of Incorporation to remove supermajority voting standards received the vote of the holders of at least 80% in voting power of all shares of the company entitled to vote. Ratification of the Audit Committee's appointment of KPMG as independent registered public accounting firm received the vote of a majority of the shares present and entitled to vote. And the advisory resolution approving executive compensation received the votes of a majority of the shares present and entitled to vote.

Thank you. Based on the preliminary report of the inspector of election, each person nominated as director has been elected, the amendments to the company's restated Certificate of Incorporation have been approved, and the appointment of KPMG has been ratified, and the advisory resolution on executive compensation has been approved. There being no further business matters to be raised at this meeting, I will now entertain a motion to adjourn this meeting.

I move that the meeting be adjourned.

I second that motion.

The meeting is now officially adjourned, and I will turn this meeting over to Ray McDaniel, our President and Chief Executive Officer.

Okay. Thank you, Hank, and good morning, everybody. I have to also apologize for the technical difficulties that we had causing the hour delay in our Annual General Meeting. And I apologize to all of you who had to listen to Muzak for 60 minutes. I am Moody's President and CEO as well as a member of the Board of Directors. My comments will primarily pertain to Moody's fiscal year 2019 achievements and performance, but I would be remiss if I did not address the current COVID-19 crisis and the steps our company is taking to respond internally for our customers and to helping global relief efforts. COVID-19 has caused unprecedented disruption to the health and economic security of people around the world. The health and safety of our employees is our top priority. Like many organizations, we have transitioned to remote work, which has been very effective in our case. Our global team remains engaged and productive in commenting on the credit and economic impact of the coronavirus. In recent weeks, Moody's has published more than 400 pieces on the economic and financial market effects of COVID-19. We have made our research and other materials available for free at a new site, moodys.com/coronavirus. And we have had over 100,000 visitors to this site since its inception. Moody's and our employees are committed to assisting organizations that are providing vital relief and recovery work in local communities during this time. We recently announced a $1 million program of charitable donations and other support addressing both the immediate and long-term impacts of the pandemic. That had followed an initial donation in January to aid in medical relief in China. I also want to briefly highlight some of the work that Moody's Analytics is doing to help in the global response. Bureau van Dijk, along with RDC which we acquired in January, are working with hospitals and national health organizations to help them source personal protective equipment from reputable suppliers. In the U.S., Moody's Analytics has made their small business loan application and lending portal available for free to help lenders expedite the processing of loans under the new U.S. CARES Act. On to Moody's results and operations. We achieved record 2019 revenue and earnings. Overall revenue grew 9% to $4.8 billion with adjusted operating margin of 47% and adjusted diluted EPS growth of 12%. Our core products and solutions continue to be recognized as industry-leading. Moody's investor service overcame geopolitical and macroeconomic headwinds that contributed to flat 2019 debt issuance as compared to prior year levels. Activity from normally infrequent market participants, along with the net benefit of new rating mandates, resulted in strong revenue growth of 6% to $2.9 billion. Moody's Analytics continued to advance as a leading provider of analytical tools and data, essential to solving customers' complex problems. With growth across all primary business lines, MA's total revenue rose a robust 13% to $2 billion. In 2019, Moody's stock -- Moody's took decisive steps in our evolution toward becoming a global integrated risk assessment firm, including by making strategic investments in ESG-related companies, Vigeo Eiris, Four Twenty Seven and SynTao Green Finance. We also formed a joint venture with the leading cybersecurity think tank, Team8. Additionally, MIS deepened its presence in Latin America by launching Moody's Local, a new approach to domestic credit ratings. And MA made a number of acquisitions, including the risk analytics solutions provider, RiskFirst, and the ABS Suite software platform with the goal of empowering its customers to make better, faster decisions. In order to continue to pursue and execute on cohesive and sustainable growth initiatives, Moody's announced a revised management structure that became effective in November, including the promotion of Rob Fauber to the new role of Chief Operating Officer. Succeeding Rob as President of Moody's Investor Service was Michael West, while Stephen Tulenko became President of Moody's Analytics. We also continued to expand our corporate social responsibility impact globally, for instance, by developing new partnerships and increasing our involvement with the UN Global Compact and the Sustainability Accounting Standards Board. Furthermore, we became carbon neutral for the first time in 2019. In closing, I would like to thank the many stakeholders in Moody's. This includes our stockholders, our talented global workforce, our customer base and the communities in which we operate. Only through the support of each can we fulfill our core mission of providing trusted insights and standards that help decision-makers act with confidence. Thank you very much. I'll now be happy to entertain any questions that you may have.

And we have a question that has come in with respect to our level of confidence with financial statements and numbers coming from Chinese companies. And I've talked about this in prior annual general meetings and understand the reason why the question comes up. And as I've said before, I think the quality financial information is not just a question that we ask about Chinese companies, it's really a question that we ask about companies around the world. And reporting and disclosure standards vary from one location to another. We are very attentive to assessing what we believe is the quality of the financial information that we are receiving in terms of making our assessments on credits. With respect to China specifically, we do most of our business with the very large Chinese companies who are active in the cross-border markets. And I think that the -- it's fair to say that the quality of information from those companies who are active in the U.S. and in the euro markets is probably -- it is, I think, more consistent and more complete than you would find with smaller domestic companies in at least some instances. As I said, though, it's a question that we're very attentive to in our credit analysis not just with respect to China, but with respect to all jurisdictions. So I appreciate that question. There was also a question that has come in with respect to accounting firms and the fact that the shareholder has observed that there's been some rotation of accounting firms and whether I have any reaction to that. I have not personally noted any increased velocity in the rotation of the use of auditors or accounting firms. But let me open this up to my Chief Financial Officer, Mark Kaye, who may have a little bit more color on this question.

Thank you, Ray. And likewise, I have not observed any change in rotation or in focus. I would simply also note that KPMG has served as our company's independent auditors since 2008, and they were reappointed at the conclusion of a competitive process that the Audit Committee conducted in 2019 to review the selection of the company's independent auditors.

Thank you, Mark. Are there other questions that any shareholders would like to submit? Okay. Not seeing any additional questions, I want to thank everyone for joining, and thank you for your patience with our delay. And we look forward to speaking with you at our earnings call at the end of April and obviously, again, at the next Annual General Meeting. Thank you very much, everybody.

Thank you all.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.