Moody's Corporation (MCO)

Q2 2012 Earnings Call

July 26, 2012 11:30 a.m. ET

Executives

Salli Schwartz - Global Head of Investor Relations

Raymond McDaniel - President and Chief Executive Officer

Linda Huber - Executive Vice President and Chief Financial Officer

Michel Madelain - President and Chief Operating Officer, Moody’s Investors Service

Mark Almeida - President, Moody’s Analytics

Analysts

Peter Appert - Piper Jaffray

Jennifer Huang - UBS

Craig Huber - Huber Research Partners

Douglas Arthur - Evercore Partners

Presentation

Operator

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Good day, and welcome ladies and gentlemen to the Moody’s Corporation Second Quarter 2012 Earnings Conference Call. At this time I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company we will open the conference up for question-and-answers following the presentation.

I will now turn the conference over to Salli Schwartz, Global Head of Investor Relations. Please go ahead.

Salli Schwartz

Thank you. Good morning everyone. And thanks for joining us on this teleconference to discuss Moody’s second quarter results for 2012. I am Salli Schwartz, Global Head of Investor Relations. Moody’s released its results for the second quarter of 2012 this morning. The earnings press release and a presentation to accompany this teleconference, are both available on our website at ir.moodys.com. Ray McDaniel, President and Chief Executive Officer of Moody’s Corporation will lead this morning’s conference call. Also making prepared remarks on the call this morning is, Linda Huber, Chief Financial Officer of Moody’s Corporation.

Before we begin, I call your attention to the Safe Harbor language, which can be found towards the end of our earnings release. Today’s remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the Act, I also direct your attention to the management’s discussion and analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2011, and in other SEC filings made by the company which are available on our website and on the Securities and Exchange Commission’s website. These, together with the Safe Harbor statements, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements.

I would also like to point out that members of the media may be on the call this morning in a listen-only mode. I’ll now turn the call over to Ray McDaniel.

Raymond McDaniel

Thank you, Salli. Good morning and thank you to everyone for joining today's call. I will begin by summarizing Moody’s second quarter 2012 results. Linda will follow with additional financial detail and operating highlights, and I will then speak to recent regulatory developments and finish our comments with our outlook for 2012. After our prepared remarks we will be happy to respond to your questions.

Second quarter revenue was $641 million, increased 6% over the prior year period, reflecting solid growth in public finance and structured finance, as well as continued strong results for Moody’s Analytics. Expenses for the second quarter were $362 million, an 8% increase from the second quarter of 2011. Operating income for the second quarter was $279 million, a 3% increase from the prior year period. Diluted earnings per share was $0.76 for the second quarter, decreased $0.06 from the prior year period which had included a $0.06 favorable tax impact related to a foreign tax ruling and a $0.03 legacy tax benefit.

While market conditions remain volatile, we are reaffirming our 2012 EPS guidance range of $2.62 to $2.72, and still expect to be towards the upper end of the range. Turning to the year-to-date performance, revenue for the first six months of 2012 was $1.3 billion, a 9% increase from the first half of 2011. Expenses were $740 million, up 12%, and operating income of $548 million, increased 5% from the prior year period.

Diluted earnings per share of $1.52 for the first half of 2012, increased $0.03 from the prior year period, which again had included a $0.06 favorable tax impact related to a foreign tax ruling a $0.03 legacy tax benefit. Revenue of Moody’s Investors Service for the first six months of 2012 was $894 million, an increase of 5% from a year ago. Moody’s Analytics revenue of $394 million was 19% higher than the prior year period.

I will now turn the call over to Linda to provide further commentary on or financial results and other updates.

Linda Huber

Thanks, Ray. I will begin with revenue at the company level. As Ray mentioned, Moody’s total revenue for the quarter increased 6% to $641 million. U.S. second quarter revenue increased 9% to $344 million, while revenue outside the U.S. grew 2% to $297 million and represented 46% of Moody’s total revenue, down slightly from 48% in the year ago period. Recurring revenue of $338 million represented 53% of the total, up from 51% in the prior year period.

And looking now at each of our businesses. Moody’s Investors Service revenue for the quarter was $441 million, about flat to prior year periods. Foreign currency translation unfavorably impacted MIS revenue by 3%. U.S. revenue for MIS increased 5% over the prior year period, while revenue outside the U.S. decreased 5% and represented 42% of total ratings revenue. Global Corporate Finance revenue in the second quarter declined 4% from the year ago period to $192 million. Revenue was down 4% year-over-year both inside and outside the U.S.

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