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

Good afternoon, again, to our European listeners. And good morning to the folk in North America. For those of you that I have not met in person, my name is Manav Patnaik. I'm Barclays' business and information services analyst. As much as I miss doing this event face-to-face at the moment, I'm delighted that at least we go ahead with this virtually. And we also have a record 14 from our coverage universe that are willing to participate. And I couldn't be happier than to continue with today's proceedings with Moody's. And with us, we have Mark Kaye, who is the CFO and who, I believe, is soon approaching his 2-year anniversary at Moody's as well. So Mark, thank you very much for returning and being with us here virtually as well.

Thanks, Manav, and of course, to you and Barclays, for hosting today. Maybe just turn out upfront that during the course of my remarks, I'm going to reference and display slides on Zoom from our first quarter 2020 Investor Presentation, which we published on May 6 at ir.moodys.com.

Yes, perfect. And just before we get started on that, just one logistical item for the listeners. We are not going to be doing any live Q&A. But if you do have any questions that come to mind, you can e-mail me. And if I catch them, I'll do my best to get them in.

So Mark, maybe just to start here, perhaps just a big picture question on how and when Moody's was prepared for this near-complete work-from-home situation that's been forced upon us on -- during this crisis. It's easy to think you just go home, log in your laptop, all is good. But on an enterprise level, I'm sure it's a much heavier lift.

Absolutely. And I'll put one of the slides to get started on this topic. So the company's employees have really done a phenomenal job of transitioning to work from home and this importantly includes our technology staff, who were proactive in upgrading our infrastructure and planning for remote work. The successful enactment of our business continuity plans has resulted in over 11,000 of our global workforce working from home. And we are regularly engaging with market participants via virtual meetings, such as this, and webcast to share our knowledge and opinions. MIS is also holding virtual rating committees and continue to produce research remotely. And as we mentioned earlier, MA itself has adapted to the current situation by holding substantially more virtual meetings, which has led to an increase in the total number of sales meetings, as you can see on this slide in the first quarter 2020 compared to '19. And then closer to the finance side, our team is able to complete the closing of the first quarter, while working from home, and we held our earnings call, were presented working remotely as well. So return-to-work planning is now underway, and we'll see where that goes.

And maybe just directly to your finance organization in terms of the downturn playbooks. Everyone plans for a downturn, but I don't think anyone planned for this kind of an event. So how quickly did you have to make those adjustments? Or what needed to change, if anything?

Sure. One of the things that we have been working and using over the last year internally is both Zoom as a capability and Slack as an enabler for a discussion. The finance organization, we felt, was very prepared to do a work from home. In fact, I would say we were surprised on the upside as to how efficiently and effectively we were able to transition.

And that effective transition that you talked about, does that mean work from home is the new norm? Does that mean you now have to start looking at how you can save real estate costs? And just kind of tied to that, T&E, self-adjust, but just some buckets where you think, structurally, things are going to change?

Sure. I do think that the fact that work from home has become such an effective and efficient means of work does mean that behavioral habits will change as part of our return-to-work scenarios. We are actively looking at both to make sure that the office itself is a safe environment for employees to work from. And also that employees themselves have the option, especially during this period, to continue to work from home given that it is an effective means. One thing that us, as the management team, are considering is what this means for the culture of our firm, and whether during this period we are, in fact, drawing down on some of that cultural capital that we've built up over time. And that's just something that we're going to have to monitor as the situation continues to progress.

Got it. That makes sense. Yes. That's a very interesting point. So maybe just -- you had your virtual IR day very early on when the COVID first restricted everyone. And then there was, obviously, unsurprisingly, a revision to the downside when you reported in a few weeks back. So maybe if you could just walk us through what the big changes were within that time period.

So between our investor update call on March 11 and our earnings call on March 30, the following events, I would say, adversely impacted our assumptions, which obviously underlie our 2020 guidance. During the call, the COVID-19 -- World Health Organization actually declared COVID-19 a pandemic. There was implementation of shelter-in-place policies across most of the U.S., Europe and Asia Pacific. And since that time, over 30 million Americans have filed for unemployment due to the shutdown of nonessential businesses and reduced staffing needs across many of the sectors. The VIX, at one point, also surged to over 80. We saw oil prices hit multi-decade lows. So a large number of negative underlying drivers. Partially offsetting, however, the impact of those events, you've seen the governments implement unprecedented fiscal and monetary easing actions. And there's been a wave of that capital or investment-grade capital raising for liquidity purposes over that period.

Got it. And just on the expense side, I mean, you talked about the current reduction in expenses being low single digits -- plus low single digits to minus mid-single digits. But can you just help with the breakdown there and how that compares to the downturn playbook?

Yes. So if I think about expenses, let me bring this up on page -- Slide 61 of the presentation. If we think about expenses, the key point here to think about is that incentive comp itself tends to flex based on our performance versus budgets that we set at the beginning of the year. So in some ways, to the extent our performance is weaker due to a greater downside scenario than what we presented on the call, this would potentially be a bucket of greater savings. As we mentioned back in April, we generally guide to around $50 million per quarter in incentive comp. We also mentioned on the call, we now expect the incentive comp accrual somewhere between $25 million and $35 million per quarter for the remainder of the year. And the incentive comp for the first quarter was $31 million. We'll continue implementing our savings strategies and expense discipline and expense control to manage our expenses. And to one of the questions that you asked earlier, certainly, we're actively looking at our real estate portfolio as continued options emerge there, given sort of changing employee habits and work environment.

Got it. And one of the -- before we go into some of the segments and stuff, some of the questions we've been getting, just to clarify in terms of your guidance, was the disconnect between free cash flow and your operating performance, both the actuals in 1Q as well as the 2020 guidance. I was just hoping you could just walk us through why those growth rates are different.

Sure. So I'll start first on the first quarter. There were a couple of the cash-related outflows that were unusually high during this period. But the first one is we made a contribution of $99 million to our funded pension plan. The intent was to fully fund the pension obligation and to limit the need for ongoing cash contributions going forward. We also accrued for incentive compensation during a calendar year, or we accrued for incentive compensation during the calendar year and we paid out during the first quarter of the succeeding year. So for example, the first quarter 2020 incentive compensation payout was $65 million higher than it was in the first quarter '19 as it pertained to our 2019 performance, which exceeded plan. By contrast, our first quarter '19 payout related to our 2018 performance, which was below plan. With regard to the full year, I'm going to turn to Slide 13 in the investor deck, incentive compensation was also affected here. We did revise our incentive compensation forecast downwards by approximately $100 million. But I'd just like to mention that will not enhance the 2020 free cash flow as it was paid out in the first quarter of 2021 -- it will be paid in the first quarter 2021. We also indicated in our first quarter '20 10-Q that we had $47 million unfavorable change to the fair value of a treasury rate lock in April. We entered the swap in January. And the purpose was to mitigate changes in cash flow attributable to changes in the 30-year treasury rate prior to the anticipated issuance of 30-year debt. And we are actually in the market today with a 30-year $300 million note offering. And just on that treasury rate lock itself, the rate fell significantly amidst the COVID-19 disruption, while market conditions back earlier this year didn't necessarily favorable -- favor issuance at that point.

Got it. Just one quick thing on the tax rate guidance. Does that -- we've heard a few companies talk about CARES being a potential benefit. Is there anything in that for you guys? Or is this just normal course of planning?

Sure. I think there are 2 elements to our tax rate planning. The first is the reduction in the rate itself, and the second is the timing of the payment amount. We don't necessarily anticipate any material reduction in the rate itself, but we do anticipate taking advantage of the delay in the payment in terms of the timing element and as it relates to the CARES Act. One further thing that we did see last week was a bipartisan bill that was introduced, just talking about tax credits for companies, especially in relation to employees who are not necessarily able to work their full hours or their full work week.

Got it. Okay, that's helpful. Kind of a similar question, could you just help bridge the margin guidance from the 47.4% in '19 to your 2020 guidance of 46% to 48%?

Sure. Well, we're pleased to be able to guide to a similar level of 2020 adjusted operating margin performance for the company as compared to 2019 despite our revenue guidance revision, from mid-single-digit growth to a mid-single-digit decline. We've taken a number of cost actions, including the 2018, 2019 restructuring program, which resulted in $60 million of run rate savings. In addition, on the April earnings call, I mentioned several other cost reductions to offset our lower top line guidance, such as decreased variable compensation, decreased T&E, given some of the social distancing restrictions and project reprioritization. I thought it also would be a good point, sort of just to emphasize, that we will continue to invest in key growth initiatives like ESG, China and technology enablement. And we'll partially fund this by the $30 million in expense efficiencies we had initially talked about during our February earnings call. And we're not assuming any material headcount reductions in our current plan, which really means that the company will remain well positioned for growth post COVID-19. And we've also factored into our margin guidance prior M&A activity. Just a quick reminder, the acquisitions we made last year, such as VE, Four Twenty Seven, ABS Suite, as well as with RDC this year, will be margin dilutive by approximately 70 basis points as we invest in them to build scale. And of course, there's that offset from the sale of Max, which was a lower-margin business for the company. And we estimated that was probably 50 basis points favorable to our 2020 adjusted operating margin.

Got it. And then just one more on the clarification. Just in the 1Q '20 interest expense line, the decline from $52 million to $40 million, and then I guess you put a debt raise as well. So how should we think about the interest expense line?

Sure. So if I look at Slide 57, the decline in the first quarter was primarily due to the $8 million higher benefits that we took from the interest element of the cross-currency swaps. So a quick reminder that the company enters into cross-currency swaps to mitigate the FX exposure related to a portion of euro net investments in certain foreign subsidiaries against changes in the euro-USD exchange rates. And you can see some of that benefit certainly coming through on this slide, where there's more than a 100 basis point differential between the weighted average coupon with hedges and the weighted average coupon without hedges.

Got it. Maybe if you can just shift into some of the segment details. So maybe just starting with MIS or the ratings piece of the business. Any updates or the latest thoughts on where issuance forecasts are trending?

Yes. I thought April was indeed encouraging with the continued investment-grade activity and some high-profile deals, in addition to increasing supply from the high-yield sector, albeit with the greater new issue concessions. We are noticing, as of the end of April, the issuance dollar amount is up but the number of issuers coming to market is down as, really, only those that can access the market are doing so and they're raising more money per issuance. Investment-grade issuance, they remain strong in April. Issuers do continue to search for liquidity, while building what I think of as fortress balance sheets amidst the COVID-19 concerns. The leveraged loan market itself still remains very soft. I'd also say much of the activity remains U.S.-centric, however, supply continues to improve in EMEA and Asia. And we've seen a number of deals close in recent weeks.

Can you just remind us what EMEA and Asia is as a mix of your ratings revenue?

Sure, I'll bring it up. So U.S. and non-U.S. typically are evenly split across MCO in total. We do tend to see more issuance typically come through on the U.S. side.

Got it. And you mentioned investment grade. Obviously, March was a record month, April was a record month. We'll see maybe May is another record month. There was some pickup in high-yield as well. Do you think those signs of stabilization are basically driven by the Fed's intervention? Or is there something else beneath the 2?

Yes. So we have seen the high-yield market begin to reopen, especially at the higher end of the spec-grade rating scale. However, I would say, we expect a more challenging environment for high-yield and loan issuers. For example, the markets have moved towards sort of the risk-off mode, focusing on that higher end, as I've mentioned a minute ago, as some industries themselves will be greatly impacted. Think about oil and gas. And then you could also assume that the cost of funding is likely to increase, assuming high-yield spreads will continue to grow in line with the expected rising defaults. I'd maybe add that we expect overall M&A activity to decline between 25% and 30%, in line with the decline in M&A activity that we've observed so far. And maybe we'll see some positive offset to that with some level of distressed M&A participation in the market.

Got it. And in areas like structured, and you mentioned, obviously, leveraged loan and so forth being weak at the moment, like what do we need to see that tick back up? Do we need Fed intervention at that level as well? Or how do you guys think about that?

Yes. In the April call, we did discuss the structured market to be negatively impacted in the 20% to 25% range across most sectors, certainly with CLOs being more adversely impacted and more aligned with our views of the leverage loan market, which is for issuance down approximately 40%. The decline in CLOs is really due to lower loan supply, in addition to wider spreads, with refinancing of the existing deals also drying up as spread tightening could encourage greater CLO issuance. I'd also say that leveraged loans are floating rate instruments. So the expectation for increasing benchmark rates could like -- could lead to an increase in supply of these loans, and that leveraged loans also make up a good amount of M&A transactions. As I mentioned a minute ago, should M&A pick up better than our assumption decline of 20% to 30%, this would then create a supply of leveraged loans. Just to finish up the structured market roundup. It's probably also worth noting on the consumer sectors, we are seeing slower recovery, which has curtailed creation of new mortgages, auto loans, to dampen the outlook, I'd say, for RMBS, ABS. And of course, as those sectors rebound, we'd expect more loans to be written, again, increasing the supply to include in those securitizations.

Got it. And then just maybe one more category in terms of public finance. Do you think -- obviously, a lot of the state budgets are going to have gaps and there's going to be funding needs. Do you think there's a strong level of activity there? Or how should we think about that side of the equation?

A decline in the expected issuance -- decline in issuance should be expected given most planned refunding. So this is taxable and nontaxable, or taxable and current, maybe, that no longer work, right? And that's because of the higher funding costs. I'd say that the higher-rated deals have sold decently, while lower-rated deals largely have not sold or are only selling with very high yields. The expansion of scope and duration of the Fed's municipal liquidity facility should also provide market stability, particularly given the broadening of scope to include smaller cities, counties, and include the fallen angels provision. I do think that additional Fed programs may help to normalize the market in the second quarter. A major infrastructure component is also possible. I'm trying to think now maybe to return to the BAB or Build America Bonds-type program that was used in 2010, something along those lines.

Got it. Just one of the aspects built into your guidance was the new mandate assumptions this year. It was about 600, I believe, and typically, it's been in the 900 to 1,000 range. So I was just curious, what is the typical profile of those new mandates? And which part of that category are you losing this year?

Yes. So our updated guidance projects first-time mandates at around 600 as new issuers themselves stop accessing the market until volatility subsides. As Rob mentioned on the earnings call, a good number of first-time mandates historically have come from that leveraged loan issuer bucket. And since we're expecting leveraged loan issuance decline around 40%, we expect lower activity in this space to have an adverse impact on the first-time mandates. For the first quarter 2020, global first-time mandates actually declined 12% versus prior year-to-date. And I'd say that was in all markets where we saw contractions in all markets, except for Asia. Then activity obviously started really well at the beginning of the year, but did begin to slow down towards the end of February on high market volatility and as the health crisis started to become more prominent across the globe.

Got it. And somewhat tied to that is just a question around the structuring of your contracts. You mentioned earlier the dollar volume and investment rate is higher but the number is lower. And so the question is more around -- you guys have been traditionally more transaction-oriented and frequent issue-oriented, at least, versus S&P. Is that an intentional decision, a legacy decision? How do you guys think about that?

Sure. So obviously, Manav, I don't really have visibility into S&P's contract terms, and we can't necessarily comment on their actions. But we believe that our current approach should allow us to benefit from the growth in the global debt capital markets over time. We do prefer to remain levered to that growth as, over time, the long -- or at least over time, over the long term, that is more economically attractive as a value proposition, even if this means accepting occasional interim volatility in our MIS revenue streams, which are more weighted towards relationship-based pricing. The nature of the contracts often depends on the type, frequency and, I would say, size of the transactions for a particular issuer. For example, larger issuers -- larger issues and/or large investment-grade issuers often on frequent issuer pricing programs. And I'd note that, however -- I'd note that, however, a substantial portion of our investment-grade customer base is also not. A smaller, less frequent issuers, typically high-yield, they tend to be more in a pay-as-you-go pricing program. And that I do -- we do anticipate that emerging markets are going to grow faster than developed markets over time and provide further support for the new mandate and recurring revenue growth. That's why we feel very comfortable with our weighting today.

Got it. And I'll get to the emerging markets question in a second. But just the recurring line item that you guys report on the ratings side, there's obviously the constant rating of all outstanding bonds in there. But what else is in that line item? And how should we think about the moving pieces on each of those?

You can see this on Slide 27 as well. So organic growth is a good place for me to start. And that's really being supported primarily by pricing initiatives, in addition to some monitored credit growth with, I'd say, minimal impact from foreign currency translation. The increase also includes revenue contribution from the Vigeo Eiris and Four Twenty Seven acquisitions. You can see that recurring revenue was 35% of total revenue in the first quarter 2020, which is down 39% in the prior year, given the strength of supply that we saw in the first quarter in 2020. In terms of the 2020 outlook, Rob also mentioned on the April earnings call that if we see a meaningful increase in defaults, we could have some attrition from rated issuers. But we don't necessarily think there will be a material impact to that recurring revenue line.

Got it. And just out of curiosity, when a company defaults, I mean, the debt just gets restructured or transferred hands. So it's still business for you guys, right?

That is correct.

Okay. And then -- so maybe while we're on the ratings opportunity, you talked about expecting emerging markets. Maybe first, see -- before we get to China, like what are the key emerging markets that you guys are positioned in and that we should be on the lookout for?

Yes. So you can see here on Slide #33, we are positioned across a number of emerging markets in Asia Pacific, Latin America and EMEA. You can see here the growth in the emerging market revenue from 2019 is around 14%. It' s quite substantial. And we do have a leading presence in South Korea and India and Asia Pacific. We've recently launched Moody's Local in Latin America, and that's created a domestic credit rating and research platform in Peru, Panama and Bolivia.

Got it. And so maybe then just moving on to China a little bit. Obviously, there's been a lot of hype since they opened up or want to open up. And I was just curious, where do you guys fall in that thought process today?

Sure. [Foreign Language] And if I put that one more time, it's really rather than necessarily looking at what's our preference, I think it's really best to look at this through the lens of what the priorities are for the Chinese policymakers in terms of what their thinking is and how we can best facilitate and support them in how they would like to open up the market. From Moody's perspective, we currently, obviously, have strong optionality in China. One option is continuing in our ownership position in our joint venture in CCXI. Obviously, we're very pleased with our position in CCXI. It has been a very successful business to date. The greatest likelihood is that we'll want to continue with our joint venture, and see what our partner would like to do as well as our combined future there. And I'd also probably worth noting that we've not been able to travel to China to meet in person with either policy officials or our joint venture partners at CCXI since the trade deal was signed. However, we continue to be in close communication with both.

Got it. And is it possible for you to have a dual strategy, which is own your minority stake and apply for your separate license? Or is it going to be a decision one way or the other?

Yes. I think that's something that we're still in close discussions with as it relates to the Chinese regulators. They're certainly aware, and they're interested in attracting foreign capital to their markets. And knowing that the international investors are interested in deploying capital into China, that those same investors are interested in hearing from Moody's, both about our ratings, about our risk and our related research. I think this certainly shows it can be a very beneficial relationship, both for the U.S. and China, especially following the signing of the U.S.-China phase 1 trade agreement.

Got it. And S&P has been in China now for well over a year, and they have maybe 6-plus ratings. So is the Chinese government really serious about this? Like what do you need to see that could really accelerate your plans here in China?

And you can see here, sort of on Slide #34, our participation in China obviously comes from both the cross-border and from the domestic market itself. The income attributable from this is -- from CCXI in 2019 was approximately $17 million so it is profitable, and we certainly are generating revenues. I think the most important thing is, again, that we take actions that are supportive of the areas that China is looking to move into. And we definitely don't want to be disruptive to the market. We want to be respectful and conscious of the way that the market is operating today to continue to ensure a smooth market growth to support their development interests and, at the same time, to be able to support China in helping to attract foreign capital to that market and to help that market to grow and succeed.

Got it. And then maybe just to round out the ratings discussion. The margins are obviously very impressive, touching 60%-plus in a couple of investor days ago. I think we have said there's really no ceiling to those margins. But just curious on how you can continue to drive efficiencies. What are the different initiatives in place that keep the margins pushing higher, basically?

So on Slide 59, you can see here that MIS has a strong margin growth in the first quarter, around 550 basis points, and that was driven primarily by strong revenue as well as productivity improvements and changes in the organizational structure. Our 2020 adjusted margin guidance is in the range of, that we gave back in April, 55% to 57%. We will continue our efforts on the continuation of productivity improvements across some of the support functions and real estate, technology and digital infrastructure, I'd say, as well as in-sourcing from the technology centers in order to drive further margin growth. We also want to make sure that we continue to invest in experienced analysts, which we consistently hear from issuers and investors has been critical to them. And a quick reminder, the lead senior analyst tenure is on average of 15 years at Moody's.

Wow, that's impressive. All right. Maybe just shifting to the analytics business real quick. In your updated guidance, I think it was low double digits before, now it's high single digits, which is still an impressive number, especially in this environment. But where was that incremental pressure that caused that slight reduction?

We expect revenue growth to be impacted by COVID-19 with regard to our ability to close on sales from the existing pipeline as well as the ability to generate new sales opportunities in the upcoming quarters. We are actively mitigating factors impacting our sales activities. For example, increasing virtual sales meetings and adapting to customer purchasing behavior by launching new product features and otherwise addressing what I think of as pertinent customer needs. With approximately 6-ish weeks of experience under these conditions, we've updated our sales outlook to incorporate the impacts of COVID-19 on our sales generation for the remainder of 2020. I'd say that we expect lower growth in both the RD&A and the ERS lines of business. However, the delays of CECL, Basel III, IFRS 17 has put a little bit of additional pressure on the underlying ERS growth rate.

Got it. And this delay in new sales that you talked about, just a general question we've been asking people, is that a factor? Or how much of it is a factor of you guys still getting fully prepared to make those sales and installations virtually versus your customers actually being prepared to do that virtually as well?

That's -- it's a great question, Manav. And I think the answer to that still bears a little bit of a wait and see. It's worth highlighting here that the revenue components that underlie MAs -- underlying recurring revenue are fairly robust. It's really only 10% of revenue that comes from new sales that occur in any particular calendar year. We did highlight on our current outlook that we do think social distancing, present -- preventing a face-to-face selling effort, will certainly slow that pace. And whether that's simply a delay in demand is something that's still to be seen. We also expect the sales cycles to take, on average, 9 -- to take longer than average, or longer than the historical 9- to 12-month average period. But we are seeing an increase in productivity quite tremendously, as I showed earlier, sort of up 400% in the number of those virtual meetings that we are having. And then at the same time, we are updating a number of our sales campaigns, both for current customers and for our new customers.

Got it. Maybe just on the growth areas in analytics because, clearly, the ratings business is the biggest contributor, clearly, to your profits. But a lot of the incremental investments and focus is on the analytics side. And the little triangular strategic chart that you have on ESG, CRE, KYC and so forth, can you just walk us through how that was created? Like what was the thought process behind why those areas?

Yes. As I -- we've spoken about earlier, we continue to invest in our businesses' key growth opportunities through the crisis. And given the current environment, we continue to invest in KYC. We've also put in place know-your-supplier tool aids for hospitals and other health care providers to identify and screen suppliers. And this is a really good example of how we've applied our KYC expertise and data to the supply chain itself. And maybe just a quick example here. There was an article in the New York Times -- there continues to be a number of articles in New York Times about sort of fraudulent or a bad actor involved in either masks or ventilators or other PPE schemes. And this particular case was articles from April 11. And you can see here an individual was named in the article, Christopher Parris. So we've put together a free ability for customers and hospital suppliers to be able to actually look at know-your-supplier data. And the beauty here is this is just incredibly, incredibly easy to use. You can either search by a company, which is powered by the BvD data, or you can have a look by person, where it's powered by some of the RDC acquisitions and data that we've done before. And you can clearly do a search of any individual here just to make sure that the person with whom you're likely to do business. You do the search under the New York Times individual, you'll notice the person having a number of risk events that we highlighted previously and that were clearly red flags to be able to watch out for. So we do have that capability. It is available free of charge at this point. And I encourage everybody on the call to look at it, the kys.moodysanalytics.com. And then just continuing now on to your question from a moment ago. The other areas that we are looking at today certainly include loan application portal, which helps banks review and approve applications from small business customers. We have a recent release in April and added 2 important capabilities related to curtailing internal watchlists and deeper dives into sanctioned entities and ownership. And then lastly, you can say that we continue to enhance our CRE platform. We have a rollout of new and improved website earlier this year. We have COVID topic site available to public integration with our Four Twenty Seven data. And that we've also been very active in ESG. We developed an ESG and climate-related hub that's probably also worth just showcasing on the call. I'll bring that up. You can take a look at moodys.com. There's a number of things that are very interesting here. Certainly, you can have a look at the coronavirus effects, pandemic, and this gives investors and issuers an impact and an understanding of sort of nonfinancial corporates' rating activities during the coronavirus as well as our summaries of impacts to various sectors. On the ESG side, you'll be able to see the portal that we've put in place to help track new ESG and climate hub products and services that we're offering as well as how we're thinking about solutions, themes insights, et cetera. So a lot of the work has gone into these growth initiatives. We certainly think that the feedback we get from investors and issuers has been very positive, and we'll continue to make progress in these areas.

Got it. Maybe if I can just touch on them real quickly, if I could start with the KYC side, the RDC acquisition. Relatively, I guess, medium to tuck-in-type deal for you. The valuation felt a little high but the synergies with BvD, the way you guys laid it out, also felt pretty compelling. So if you could just walk us through the rationale and the financials behind that?

Sure. You can see here on Slide 55, the combination of RDC's compliance data with Bureau van Dijk's capabilities actually positions Moody's to becoming a leader in the KYC space. BvD and RDC are recognized as category leaders in the new charges research report. The unique data sets and AI allow us to improve speed and effectiveness in identifying risk. And you could see that just from the example I gave. It's really simple for users of this information to under discern and to manipulate the information. KYC market itself, it represents over $900 million in annual spend, with approximately an 18% 5-year CAGR. And RDC is a world-leading, I'd say, curated proprietary database of probably 11 million profiles of risk-related individuals. RDC's individual focus and U.S. presence, I think, complements BvD's entity focus and the European presence itself.

Got it. And similarly, if I could just touch on ESG, it's obviously an extremely hot topic at the moment. We had -- we hosted an entire ESG day, and we had Jim Hempstead from your organization as well, talk of climate and so forth. But specific to the analytics business, you've had a bunch of acquisitions, some stakes in names like Vigeo Eiris and so forth. Is there a way to size what ESG is for you guys today? And how we should think about the growth rate there?

Yes. So there are 2 slides that we're taking a look here on ESG, Slides 35 and 36. I'd say that CRAs has a unique advantage as we are uniquely positioned with our customer base from both a private and public institution perspective. And that's because we have direct relationship with the companies, which facilitates better collection of data. Furthermore, we have created a unique portfolio of ESG assets that allow us to leverage across the business, including green ratings, such as the second-party opinion, green bond ratings as well as selling data and analytics to our customers in MA, where demand for ESG measurement tools and data is growing rapidly. On Earth Day, we did roll out our new ESG & Climate Risk club, that's at moodys.com/ESG. And this club site showcases our ESG & Climate Risk capabilities across both lines of business, the products provided by Four Twenty Seven, Vigeo Eiris and SynTao Green Finance. And those products alone are immensely powerful. But bringing these together, together with the company's world-class data and analytics within MA and MIS, has allowed us to enhance our core capabilities, which we believe will provide ultimately an unrivaled offering for our customers.

Got it. And I think we've about 5 minutes left. So I just want to squeeze in a few quick ones that I think are important. So firstly, on BvD, how much of RD&A is BvD? And more importantly, you guys have been showing some really amazing growth rates there, even the guidance suggests that some of those growth rates continue. Why is that? What's so special about BvD?

Yes. We've been very pleased with the success we've had with the BvD acquisition, which closed in August 2017. BvD growth this year has been good, very much in line with expectations when we set forth at the start of the year. Usage is very strong. And I would say that our lead for flagship product Orbis, and many of the know-your-customer activities, have grown in accordance with what we've expected. As we said on the March investor update call, we've accelerated BvD's operating performance post acquisition through 2019. Our revenue growth improved from 9% to 16%. Adjusted operating margins, excluding corporate overhead, improved from 44% to 52%. And we're on track to meet all of our financial return criteria. For example, that's the $45 million run rate synergy target we spoke about last year, and we're on track to achieve the $80 million target by 2021. In terms of underlying drivers, the market demand for BvD is also enabled by increasing use cases such as a credit risk, transfer pricing, know-your-customer capabilities. And I know we spent a little bit of time on KYC but, really, it does come down to our ability to curate internal watchlists and to drive even deeper insights into some of the sanctioned entities and ownerships data.

Got it. And just on the analytics business, so the margins, you're at 30% plus. I think BvD, RD&A, obviously a very high margin, getting -- selling Max helped as well. But how should we think about the progression of analytics margins over the next couple of years?

Yes. So I'll turn to Slide 39 here. So we've not provided specific long-term revenue guidance for MA, how will we expect ongoing strong top line growth supporting continued margin expansion. Despite the investments to fuel future growth, remarkably, MA's adjusted operating margins -- or remarkably, MA's adjusted operating margins have expanded by 490 basis points from 2016 to 2019. That's 22.9% to 27.8%. And as we continue to execute on MA strategic priorities, we do expect to see incremental gains to the MA margin over time. We are focused on continuous improvement, both from leveraging technology to increasing efficiencies and growth opportunities to drive the top line. And then factors that are contributing to the growth, I would call, for RD&A are: first, continued enhancements to data elements and analytics available in the data feeds and credit department, respectively; and second, the platform enhancements to Bureau van Dijk and our ability to have more targeted solutions, specifically in KYC; and third, within RD&A, the expansion of our CRE offerings, combining REITs with some of the other MA assets; on the ERS side, sales growth for loan origination platform and IFRS 17; and then, of course, the next-generation product for our asset and liability management solutions continuing at the same time to deemphasize, sort of, the historical onetime sales.

Got it. And maybe just last question to squeeze in here. On the call, you talked about, obviously, suspending buybacks, maintaining the dividend. But my question is more around could you see yourself pick up M&A here, just given the opportunities of your balance sheet?

Yes. Certainly, on the M&A side, we continue to be very active in looking at what's available in the market. We run a fairly disciplined process that we've spoken about previously. And the M&As really need to be able to tie back to the strategic why, and ultimately, looking for standards businesses, hard-to-get proprietary data and then how they will ultimately integrate back into the model. For M&A, separate from that strategic side, we are very disciplined around the financials that we apply to any M&A transaction. So certainly, continue to look, and I appreciate you asking that, Manav.

Yes. Got it. Well, I think we've just crossed our allocated time. So let's stop it there. Thank you so much, again, Mark, for being on this call virtually and I appreciate it.

Thank you very much, Manav. Appreciate the time today.

Take care. Bye.

Bye.