Moody's Corp (



Q3 2011 Earnings Call

October 27, 2011 11:30 am ET


Salli Schwartz - VP, IR

Ray McDaniel - Chairman and CEO

Linda Huber - CFO

Michel Madelain- President & CEO, Moody’s Investor Service

Mark Almeida - President, Moody’s Analytics


William Bird - Lazard

Michael Meltz - JPMorgan

George Tong - Piper Jaffray

Craig Huber - Access 342

Edward Atorino - Benchmark

Douglas Arthur - Evercore

Sloan Bohlen - Goldman Sachs



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Good day and welcome, ladies and gentlemen, to the Moody’s Corporation’s Third Quarter 2011 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 questions and answers following the presentation.

I will now turn the conference over to Salli Schwartz, Vice President, Investor Relations. Please go ahead ma’am.

Salli Schwartz

Thank you. Good morning everyone and thanks for joining us on this teleconference to discuss Moody’s third quarter results for 2011. I am Salli Schwartz, Global Head of Investor Relations.

Moody’s released its results for the third quarter of 2011 this morning. The earnings press release and a presentation to accompany this teleconference are both available on our website at

Ray McDaniel, Chairman 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 toward 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, 2010 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 statement 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 will now turn the call over to Ray McDaniel.

Ray McDaniel

Thank you, Salli. Good morning and thank you to everyone for joining today’s call. I’ll begin our remarks by summarizing Moody’s third quarter 2011 results. Linda will follow with additional financial detail and operating highlights. I will then speak to recent regulatory developments, comment briefly on one of our litigation matters and finish with an update of our outlook for 2011. After our prepared remarks, we’ll be happy to respond to your questions.

Third quarter revenue of $531 million increased 4% over the prior year, with strong performance by Moody’s Analytics offsetting a modest revenue decline at Moody’s Investors Service.

Operating income for the third quarter totaled $196 million, also 4% above the prior year period. Diluted earnings per share for the quarter of $0.57 increased 2% year-over-year and included a benefit of $0.03 from the favorable resolution of a state tax matter. While volatile market condition in US and Europe may continue, we are reaffirming our 2011 EPS guidance of $2.38 to $2.48 and we expect to beat the upper end of the range.

Turning to year-to-date performance, revenue for the first nine months of 2011 was $1.7 billion, a 17% increase from the first nine months of 2010. Expenses were $997 million, up 12% and operating income of $716 million increased 24% from the prior year period. Revenue at Moody’s Investor Service for the first nine months of 2011 was $1.2 billion, an increase of 18% from a year ago. Moody’s Analytics revenue was $512 million, 15% higher than the prior year period.

I will now turn the call over to Linda to provide further commentary on our 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 4% to $531 million. Excluding the favorable impact of foreign currency translation, revenue grew 1%. US third quarter revenue decreased 1% to $274 million while revenue outside the US grew 9% to $257 million and represented 48% of Moody’s total revenue, up from 46% in the year ago period. Recurring revenue of $314 million represented 59% of the total compared to 55% in the prior year period.

Looking now at each of our businesses, Moody’s Investor Service revenue for the quarter was $351 million, a 2% decrease year-over-year. Excluding the impact of foreign currency translation, revenue was down 5%. US revenue decreased 4% over the prior year period while outside the U.S. revenue increased 1% and represented 43% of total ratings revenue.

Global Corporate Finance revenue in the third quarter decreased a 11% from the year ago period to $129 million. Revenue was down 11% in the US, while outside the US revenue was lower by 10% year-over-year. The decline in global corporate finance revenue reflected weaker issuance primarily in speculative grade bonds in both the US and Europe.

Global Structured Finance revenue for the third quarter was $82 million, 17% above the prior year period. In the US, revenue increased 20% year-over-year primarily due to strength in commercial real estate. Most other areas of the US structured finance market remained weak including residential mortgage backed securities.

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