Moody’s Corporation (MCO)

Q2 2010 Earnings Call Transcript

July 29, 2010 11:30 am ET

Executives

Liz Zale – VP, IR

Ray McDaniel – Chairman and CEO

Linda Huber – EVP and CFO

Mark Almeida – President of Moody's Analytics

Analysts

Peter Appert – Piper Jaffray

Michael Meltz – JP Morgan

Sloan Bohlen – Goldman Sachs

Craig Huber – Access 342

William Bird – Banc of America/Merrill Lynch

Presentation

Operator

Good day and welcome, ladies and gentlemen, to the Moody's Corporation second quarter 2010 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 Liz Zale, Vice President of Investor Relations. Please go ahead.

Liz Zale

Thank you. Good morning, everyone and thanks for joining us on this teleconference to discuss Moody's results for the second quarter of 2010. I am Liz Zale, Vice President of Investor Relations.

Moody's released its results for the second quarter of 2010 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, 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, 2009; our Form 10-Q for the period ended March 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 should 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.

Ray McDaniel

Thanks, Liz. Good morning and thank you to everyone for joining today's call. I'll begin our remarks this morning by summarizing Moody's second quarter and year-to-date 2010 results. Linda will follow with additional financial detail and operating highlights. I'll then speak to recent developments in the legislative and regulatory area and finish with comments on Moody's outlook for 2010. After our prepared remarks we'd be happy to respond to your questions.

Moody’s results for the second quarter were strong given the greater volatility in debt capital markets as compared to the first quarter. Total revenue was $478 million, up 6% from the second quarter of 2009, was largely driven by the resurgence of US-based bank loan activity for refinancing and LBO transactions, plus growth across Moody’s Analytics.

Operating income for the second quarter was $191 million, an increase of 2% year-over-year. Diluted earnings per share for the quarter were $0.51, 11% above the $0.46 in the prior year period. Excluding legacy tax and restructuring items in both years, diluted EPS for the quarter of $0.49 grew by 14% year-over-year.

Turning to year-to-date performance, revenue for the first six months of 2010 was $954 million, 11% increase from the first half of 2009. Expenses were $567 million, up 8% from the prior year period, and operating income of $387 million increased 15%.

Revenue at Moody’s Investors Service in the first six months of 2010 was $664 million, an increase of 14% from the prior year period. Moody’s Analytics revenue of $290 million was 4% higher than the prior year period. We’re reaffirming our full-year 2010 EPS guidance of $1.75 to $1.85 based on the sound first-half performance, but we expect the uneven credit market conditions will persist during the second half.

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

Linda Huber

Thanks, Ray. I’ll begin with revenue at the corporate level. As Ray mentioned Moody’s total revenue for the quarter was up 6% year-over-year. The impact of foreign currency translation on revenue was negligible. For the second quarter, US revenue increased 10% to $262 million; while revenue outside the US increased 1% to $215 million, representing 45% of Moody’s total revenue. Recurring revenue of $284 million represented 59% of total revenue compared to 61% in the prior year period.

Looking at each of our businesses, Moody’s Investors Service revenue for the quarter was $329 million, a 6% increase year-over-year. US revenue was up 12% over the prior year period; outside the US revenue declined 2% and represented 41% of total ratings revenue.

Global corporate finance revenue in the second quarter increased 19% from a year ago to $128 million. Revenue grew 30% in the US, primarily driven by strong activity and high yield bank loans, which more than offset reduced issuance of investment grade bonds.

Outside the US, revenue increased 1% from the prior year period, with strong issuance in Asia and Latin America, mostly offset by limited activity in Europe and Canada. Global structured finance revenue for the second quarter was $73 million, 2% below the prior year period.

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