Moody's Corporation Reports Results for Second Quarter 2013
Moody's Corporation Reports Results for Second Quarter 2013
- 2Q13 revenue up 18% from 2Q12 to $756.0 million
- 2Q13 operating income of $350.8 million up 26% from 2Q12; adjusted operating income up 24% to $373.9 million
- 2Q13 reported EPS up 32% from 2Q12 to $1.00
- Annualized dividend increased 25% to $1.00 per share; FY 2013 total share repurchases now anticipated to reach $1 billion
- FY 2013 non-GAAP EPS guidance range remains $3.49 to $3.59
SUMMARY OF RESULTS FOR SECOND QUARTER 2013
Moody's reported revenue of $756.0 million for the three months ended June 30, 2013, up 18% from $640.8 million for the second quarter of 2012. Operating expenses for the second quarter of 2013 totaled $405.2 million, a 12% increase from the prior-year period. Operating income for the quarter was $350.8 million, a 26% increase from $278.5 million for the same period last year. Adjusted operating income, defined as operating income before depreciation and amortization, was $373.9 million, a 24% increase from $300.6 million last year. Diluted earnings per share of $1.00 increased 32% from $0.76 in the second quarter of 2012.
"Moody's results for the second quarter reflected continued strong operating performance across the Company," said Raymond McDaniel, President and Chief Executive Officer of Moody's. "We are pleased to announce we have increased our annualized dividend to $1.00 per share. We also now anticipate total 2013 share repurchases of approximately $1 billion. Our EPS guidance range for 2013 remains $3.49 to $3.59."
SECOND QUARTER REVENUE
For Moody's Corporation overall, global revenue of $756.0 million for the second quarter of 2013 was up 18% from the second quarter of 2012. U.S. revenue of $408.4 million and non-U.S. revenue of $347.6 million for the second quarter of 2013 both increased 18% from the second quarter of 2012. Revenue generated outside the U.S. represented 46% of Moody's total revenue for the quarter, flat compared to the year-ago period.
Global revenue for Moody's Investors Service ("MIS") for the second quarter of 2013 was $537.3 million, up 22% from the prior-year period. U.S. revenue of $313.2 million for the second quarter of 2013 increased 21% from the second quarter of 2012. Revenue generated outside the U.S. of $224.1 million increased 22% from the year-ago period. The impact of foreign currency translation on MIS revenue was negligible.
Within MIS, global corporate finance revenue of $262.9 million in the second quarter of 2013 increased 37% from the prior-year period, reflecting strong global issuance in investment grade and high yield bonds, as well as in bank loans. Corporate finance revenue increased 28% in the U.S. and 52% outside the U.S.
Global structured finance revenue totaled $97.2 million for the second quarter of 2013, reflecting a 7% increase from a year earlier. U.S. structured finance revenue grew 29% from the year-ago period, primarily due to strength in issuance of commercial mortgage-backed securities. Non-U.S. structured finance revenue declined 17%, mostly reflecting weaker issuance volumes in European residential mortgage-backed and asset-backed securities.
Global financial institutions revenue of $84.5 million in the second quarter of 2013 increased 9% compared to the prior-year period. U.S. financial institutions revenue was up 9%, primarily reflecting stronger banking activity, while non-U.S. revenue grew 8%, driven by increased bond issuance by insurance companies.
Global public, project and infrastructure finance revenue was $92.7 million for the second quarter of 2013, an increase of 14% from the second quarter of 2012. U.S. and non-U.S. revenues were up 8% and 31%, respectively, from the prior-year period, primarily due to gains in project and infrastructure finance globally.
Global revenue for Moody's Analytics ("MA") for the second quarter of 2013 was $218.7 million, up 10% from the second quarter of 2012. In the U.S., MA revenue of $95.2 million for the second quarter of 2013 increased 8% from the prior-year period. Outside the U.S., revenue of $123.5 million grew 11% as compared with the same quarter of 2012. The impact of foreign currency translation on MA revenue was negligible.
Revenue from research, data and analytics of $130.3 million increased 7% from the prior-year period, reflecting strong customer retention and solid growth from MA's research offerings. Enterprise risk solutions revenue of $60.2 million was up 17% over the prior-year period driven by strong growth in products and services that support regulatory and compliance activities at banks and insurance companies. Revenue from professional services of $28.2 million was up 7% from the prior-year period, reflecting solid growth in revenue from Copal Partners, partially offset by softness in the training and certification business.
SECOND QUARTER OPERATING EXPENSES, OPERATING INCOME, AND EFFECTIVE TAX RATE
Second quarter 2013 operating expenses for Moody's Corporation were $405.2 million, 12% more than the prior-year period, in part due to increased headcount, annual compensation increases and higher technology expenses. Operating income of $350.8 million for the quarter increased 26% from $278.5 million for the same period last year. The impact of foreign currency translation on operating expenses and operating income for the quarter was negligible. Moody's reported operating margin for the second quarter of 2013 of 46.4%, which was up from 43.5% in the second quarter of 2012. Adjusted operating margin of 49.5% for the second quarter of 2013 was up from 46.9% for the same period last year.
Moody's effective tax rate was 32.2% for the second quarter of 2013, compared with 33.6% for the prior-year period.
Moody's Corporation revenue for the first six months of 2013 totaled $1,487.8 million, an increase of 16% from $1,287.6 million for the same period of 2012. The impact of foreign currency translation on revenue for the first six months was negligible. Revenue at MIS totaled $1,058.5 million for the first six months of 2013, an increase of 18% from the same period in 2012. MA revenue rose 9% from the first six months of 2012 to $429.3 million.
Expenses for the first six months of 2013 totaled $856.6 million, 16% higher than a year ago, and included costs associated with the first quarter 2013 litigation settlement. The impact of foreign currency translation on expenses for the first half was negligible. Year-to-date operating income of $631.2 million grew 15% from $547.5 million for the same period of 2012. Diluted earnings per share of $1.83 for the first six months of 2013, which includes the litigation settlement charge of $0.14, increased 20% from $1.52 in the first six months of 2012. Excluding the litigation settlement charge, diluted earnings per share of $1.97 for the first six months of 2013 grew 30% from $1.52 for the same period in 2012.
CAPITAL ALLOCATION AND LIQUIDITY
During the second quarter of 2013, Moody's repurchased 4.1 million shares at a total cost of $259.1 million, and issued 1.7 million shares under employee stock-based compensation plans. Outstanding shares as of June 30, 2013 totaled 220.4 million, reflecting a 1% decline from a year earlier. As of June 30, 2013, Moody's had $1.3 billion of share repurchase authority remaining under its current programs. At quarter-end, Moody's had $1.6 billion of outstanding debt and $1.0 billion of additional debt capacity available under its revolving credit facility. Total cash and cash equivalents at quarter-end were $1.6 billion, an increase of $808.9 million from a year earlier. Free cash flow for the first six months of 2013 of $351.0 million increased $137.4 million from the same period a year ago.
ASSUMPTIONS AND OUTLOOK FOR FULL-YEAR 2013
Moody's outlook for 2013 is based on assumptions about many macroeconomic and capital market factors, including interest rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and securitization, and the amount of debt issued. There is an important degree of uncertainty surrounding these assumptions and, if actual conditions differ, Moody's results for the year may differ materially from the current outlook. Our guidance assumes foreign currency translation at end-of-quarter exchange rates.
Moody's full-year 2013 non-GAAP EPS guidance range, which excludes the impact of the litigation settlement charge, remains $3.49 to $3.59. For Moody's overall, the Company still expects full-year 2013 revenue to grow in the high-single-digit percent range. Full-year 2013 operating expenses are still projected to increase in the mid-single-digit percent range. Full-year 2013 operating margin is still projected to be 41 to 42 percent and adjusted operating margin for the year is still expected to be 44 to 45 percent. Guidance ranges for operating expenses, operating margin and adjusted operating margin all include the first quarter litigation settlement charge. The effective tax rate is still expected to be approximately 32 percent. Moody's has raised its annualized dividend to $1.00 per share, a 25% increase from the prior $0.80. Full-year 2013 total share repurchases are now expected to be approximately $1 billion, subject to available cash, market conditions and other ongoing capital allocation decisions. Capital expenditures are still projected to be approximately $50 million. The Company still expects approximately $100 million in depreciation and amortization expense. Free cash flow is still expected to be approximately $850 million.
Certain components of 2013 revenue guidance have been modified to reflect the Company's current view of business conditions. For the global MIS business, revenue for full-year 2013 is still expected to increase in the high-single-digit percent range. Both U.S. and non-U.S. MIS revenue are also now expected to increase in the high-single-digit percent range. Corporate finance revenue is now projected to grow in the low-teens percent range. Revenue from structured finance is now expected to decrease in the low-single-digit percent range, while revenue from financial institutions is still expected to grow in the low-single-digit percent range. Public, project and infrastructure finance revenue is still expected to increase in the low-double-digit percent range.
For MA, full-year 2013 revenue is still expected to increase in the high-single-digit percent range. Within the U.S., MA revenue is now expected to increase in the low-double-digit percent range. Non-U.S. revenue is now expected to increase in the mid-single-digit percent range. Revenue from research, data and analytics is still projected to grow in the high-single-digit percent range, while revenue for enterprise risk solutions is still expected to grow in the low-double-digit percent range. Professional services revenue is still expected to grow in the high-single-digit percent range.
A conference call to discuss second quarter 2013 results will be held this morning, July 24, 2013, at 11:30 a.m. Eastern Time. Individuals within the U.S. and Canada can access the call by dialing 1-877-400-0505. Other callers should dial +1-719-234-7477. Please dial into the call by 11:20 a.m. Eastern Time. The passcode for the call is "Moody's Corporation."
The teleconference will be webcast with a slide presentation and can be accessed on Moody's Investor Relations website, http://ir.moodys.com, until 3:30 p.m. Eastern Time, August 23, 2013.
A replay of the teleconference will be available from 3:30 p.m. Eastern Time, July 24, 2013 until 3:30 p.m. Eastern Time, August 23, 2013. The replay can be accessed from within the United States and Canada by dialing 1-888-203-1112. Other callers can access the replay at +1-719-457-0820. The replay confirmation code is 4094394.
ABOUT MOODY'S CORPORATION
Moody's is an essential component of the global capital markets, providing credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets. Moody's Corporation (NYS: MCO) is the parent company of Moody's Investors Service, which provides credit ratings and research covering debt instruments and securities, and Moody's Analytics, which offers leading-edge software, advisory services and research for credit and economic analysis and financial risk management. The Corporation, which reported revenue of $2.7 billion in 2012, employs approximately 7,000 people worldwide and maintains a presence in 29 countries. Further information is available at www.moodys.com.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this release are forward-looking statements and are based on future expectations, plans and prospects for Moody's business and operations that involve a number of risks and uncertainties. Moody's outlook for 2013 and other forward-looking statements in this release are made as of July 24, 2013, and the Company disclaims any duty to supplement, update or revise such statements on a going-forward basis, whether as a result of subsequent developments, changed expectations or otherwise. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying certain factors that could cause actual results to differ, perhaps materially, from those indicated by these forward-looking statements. Those factors, risks and uncertainties include, but are not limited to, the current world-wide credit market disruptions and economic slowdown, which is affecting and could continue to affect the volume of debt and other securities issued in domestic and/or global capital markets; other matters that could affect the volume of debt and other securities issued in domestic and/or global capital markets, including credit quality concerns, changes in interest rates and other volatility in the financial markets; the uncertain effectiveness and possible collateral consequences of U.S. and foreign government initiatives to respond to the economic slowdown; concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent agency ratings; the introduction of competing products or technologies by other companies; pricing pressure from competitors and/or customers; the impact of regulation as an NRSRO, the potential for new U.S., state and local legislation and regulations, including provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act and anticipated regulations resulting from the law; the potential for increased competition and regulation in the EU and other foreign jurisdictions; exposure to litigation related to our rating opinions, as well as any other litigation to which the Company may be subject from time to time; provisions in the Dodd-Frank Act legislation modifying the pleading standards, and EU regulations modifying the liability standards, applicable to credit rating agencies in a manner adverse to rating agencies; provisions of EU regulations imposing additional procedural and substantive requirements on the pricing of services; the possible loss of key employees; failures or malfunctions of our operations and infrastructure; any vulnerabilities to cyber threats or other cybersecurity concerns; the outcome of any review by controlling tax authorities of the Company's global tax planning initiatives; the outcome of those legacy tax matters and legal contingencies that relate to the Company, its predecessors and their affiliated companies for which Moody's has assumed portions of the financial responsibility; the ability of the Company to successfully integrate acquired businesses; currency and foreign exchange volatility; a decline in the demand for credit risk management tools by financial institutions; and other risk factors as discussed in the Company's annual report on Form 10-K for the year ended December 31, 2012 and in other filings made by the Company from time to time with the Securities and Exchange Commission.
|Consolidated Statements of Operations (Unaudited)|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Amounts in millions, except per share amounts|
|Selling, general and administrative||185.0||159.6||412.0||328.4|
|Depreciation and amortization||23.1||22.1||46.7||45.6|
|Non-operating (expense) income, net|
|Interest (expense) income, net||(21.7||)||(16.6||)||(43.7||)||(26.9||)|
|Other non-operating (expense) income, net||7.7||2.7||16.5||2.6|
|Total non-operating (expense) income, net||(14.0||)||(13.9||)||(27.2||)||(24.3||)|
|Income before provision for income taxes||336.8||264.6||604.0||523.2|
|Provision for income taxes||108.4||88.9||184.5||172.0|
|Less: net income attributable to noncontrolling interests||2.9||3.2||5.6||5.2|
|Net income attributable to Moody's Corporation||$||225.5||$||172.5||$||413.9||$||346.0|
|Earnings per share attributable to Moody's common shareholders|
|Weighted average number of shares outstanding|
|Supplemental Revenue Information (Unaudited)|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Amounts in millions||2013||2012||2013||2012|
|Moody's Investors Service|
|Public, Project and Infrastructure Finance||92.7||81.2||176.1||160.3|
|Total MIS revenue||537.3||441.2||1,058.5||893.9|
|Research, Data and Analytics||130.3||121.8||259.9||241.6|
|Enterprise Risk Solutions||60.2||51.5||113.2||99.6|
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