Moody's Corporation Reports Results for Fourth Quarter and Full-Year 2013

New York - 7 February 2014

  • 4Q13 revenue of $779.2 million up 3% from 4Q12 
  • 4Q13 reported EPS of $0.94 up 34% from 4Q12; non-GAAP EPS of $0.85 up 21% from 4Q12 
  • FY 2013 revenue of $2,972.5 million up 9% from FY 2012 
  • FY 2013 reported EPS of $3.60 up 18% from FY 2012; non-GAAP EPS of $3.65 up 22% from FY 2012 
  • Projected FY 2014 EPS of $3.90 to $4.00 
Moody’s Corporation (NYSE:MCO) today announced results for the fourth quarter and full-year 2013.

SUMMARY OF RESULTS FOR FOURTH QUARTER AND FULL-YEAR 2013

Moody’s reported revenue of $779.2 million for the three months ended December 31, 2013, up 3% from $754.2 million for the fourth quarter of 2012. Operating expenses for the fourth quarter of 2013 totaled $467.3 million, 5% lower than in the prior-year period. Operating income for the quarter was $311.9 million, a 20% increase from $260.2 million for the same period last year. Adjusted operating income, defined as operating income before depreciation and amortization, as well as a goodwill impairment charge in 2012, was $335.2 million, a 13% increase from $296.2 million last year. Reported diluted earnings per share of $0.94 for the fourth quarter of 2013 increased 34% from $0.70 in the fourth quarter of 2012. Excluding a legacy tax benefit of $0.09, non-GAAP diluted earnings per share for the fourth quarter of 2013 was $0.85, a 21% increase from the fourth quarter of 2012.

Moody’s Corporation revenue for full-year 2013 totaled $2,972.5 million, an increase of 9% from $2,730.3 million for 2012. Operating expenses for full-year 2013 totaled $1,737.9 million, 5% higher than a year ago. Operating income of $1,234.6 million increased 15% from $1,077.4 million in 2012. Adjusted operating income was $1,328.0 million for the year, 12% higher than 2012. Both operating income and adjusted operating income included a first quarter 2013 litigation settlement charge. The operating margin was 41.5% for full-year 2013, up 200 basis points from full-year 2012’s margin of 39.5 percent. Reported diluted earnings per share of $3.60 for full-year 2013 grew 18% from $3.05 in 2012. Excluding a litigation settlement charge of $0.14 in the first quarter of 2013 and a legacy tax benefit of $0.09 in the fourth quarter of 2013, as well as a legacy tax benefit of $0.06 in the third quarter of 2012, non-GAAP diluted earnings per share of $3.65 for the full-year 2013 grew 22% from $2.99 in 2012.

"Moody's delivered strong financial performance throughout 2013, including revenue growth in all lines of business, margin expansion and 18% reported EPS growth,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “While we anticipate variable market conditions in 2014, we nonetheless expect revenue growth across all areas of our business, as well as growth in earnings per share to $3.90 to $4.00.”

FOURTH QUARTER AND FULL-YEAR 2013 REVENUE

For Moody’s Corporation overall, global revenue of $779.2 million for the fourth quarter of 2013 increased 3% from the fourth quarter of 2012. U.S. revenue of $417.2 million and non-U.S. revenue of $362.0 million for the fourth quarter of 2013 both increased 3% from the fourth quarter of 2012. Revenue generated outside the U.S. represented 46% of Moody’s total revenue for the quarter, down slightly from 47% in the year-ago period.

Global revenue for Moody’s Investors Service (“MIS”) for the fourth quarter of 2013 was $522.8 million, up 1% from the prior-year period. The impact of foreign currency translation was negligible. U.S. revenue of $300.3 million for the fourth quarter of 2013 declined 2% from the fourth quarter of 2012. Outside the U.S., revenue of $222.5 million increased 5% from the year-ago period.

Within MIS, global corporate finance revenue of $242.6 million in the fourth quarter of 2013 decreased 1% from the prior-year period, reflecting a contraction in U.S. bond issuance against a strong prior year period, partially offset by growth of investment grade issuance in Asia and speculative grade issuance in Europe, as well as increased revenue from monitoring fees for outstanding ratings. Corporate finance revenue decreased 9% in the U.S. but increased 15% outside the U.S.

Global structured finance revenue totaled $108.8 million for the fourth quarter of 2013, an increase of 6% from a year earlier. U.S. structured finance revenue grew 15% from the year-ago period, primarily due to increased CMBS and REIT issuance as interest rates, credit spreads and risk appetite were favorable. Non-U.S. structured finance revenue declined 8% compared to the prior-year period.

Global financial institutions revenue of $88.9 million in the fourth quarter of 2013 increased 3% compared to the prior-year period, primarily reflecting increased revenue from asset management companies. U.S. financial institutions revenue was up 6%, while non-U.S. revenue grew 1 percent.

Global public, project and infrastructure finance revenue was $82.5 million for the fourth quarter of 2013, a decline of 3% from the fourth quarter of 2012. U.S. revenue was down 6% from the prior-year period, primarily due to declines in public finance and project finance, while non-U.S. revenue increased 1 percent.

Global revenue for Moody’s Analytics (“MA”) for the fourth quarter of 2013 was $256.4 million, up 9% from the fourth quarter of 2012. The impact of foreign currency translation was negligible. In the U.S., MA revenue of $116.9 million for the fourth quarter of 2013 increased 21% from the prior-year period. Outside the U.S., revenue of $139.5 million grew 1% as compared with the same quarter of 2012.

Within MA, revenue from research, data and analytics of $138.4 million increased by 9% from the prior-year period, reflecting higher customer retention and strong new sales of research products. Enterprise risk solutions revenue of $84.9 million was up 7% over the prior-year period, driven by strong growth in products and services that support bank stress testing activities. Revenue from professional services of $33.1 million was up 16% from the prior-year period, reflecting continued growth within Copal, as well as the acquisition of Amba Investment Services in December 2013.

For Moody’s Corporation overall, global revenue of $2,972.5 million for full-year 2013 was up 9% from 2012. The impact of foreign currency translation was negligible. U.S. revenue of $1,626.5 million grew 10%, while non-U.S. revenue of $1,346.0 million rose 7% from the prior-year period.

Revenue at Moody’s Investors Service totaled $2,059.4 million for full-year 2013, an increase of 9% from the prior-year period. U.S. revenue of $1,216.7 million grew 9%. Non-U.S. revenue of $842.7 million was up 9% from the prior year and represented 41% of MIS revenue, flat to 2012.

Moody’s Analytics revenue rose to $913.1 million for full-year 2013, up 8% from full-year 2012. U.S. revenue of $409.8 million increased 14 percent. Non-U.S. revenue of $503.3 million increased 4% and represented 55% of MA revenue, down slightly from 57% in 2012.

FOURTH QUARTER AND FULL-YEAR 2013 EXPENSES

Fourth quarter 2013 expenses for Moody’s Corporation were $467.3 million, a 5% decline from the prior-year period. The impact of foreign currency translation on expenses was negligible for the quarter. Operating income of $311.9 million for the quarter increased 20% from $260.2 million for the same period last year. Excluding the impact of foreign currency translation, operating income grew 17%. Moody’s reported operating margin for the fourth quarter of 2013 was 40.0%, up from 34.5% in the fourth quarter of 2012. Adjusted operating margin was 43.0% for the fourth quarter of 2013, up from 39.3% for the same period last year.

Full-year 2013 expenses for Moody’s Corporation of $1,737.9 million were 5% higher than the prior-year period. Excluding the impact of foreign currency translation, expenses grew 6 percent. Operating income of $1,234.6 million increased 15% from $1,077.4 million in 2012. Excluding the impact of foreign currency translation, operating income grew 14 percent. Moody’s reported operating margin for full-year 2013 was 41.5%, up from 39.5% in 2012. Adjusted operating margin was 44.7% for full-year 2013, up from 43.3% for the same period last year.

Moody’s effective tax rate was 30.6% for the fourth quarter of 2013, compared with 31.5% for the prior-year period. The decline in the effective tax rate was primarily due to lower U.S. taxes on foreign income. The annual effective tax rate for 2013 was 30.2% compared with 31.7% for 2012.

CAPITAL ALLOCATION AND LIQUIDITY

On December 17, 2013, Moody’s increased its quarterly dividend by 12% from $0.25 to $0.28 per share of Moody’s common stock. Over the course of 2013, Moody’s increased its annualized declared dividend by 40%, from $0.80 to $1.12 per share. During the fourth quarter of 2013, Moody’s repurchased 2.0 million shares at a total cost of $145.5 million and issued 0.9 million shares under employee stock-based compensation plans. For full-year 2013, Moody’s repurchased 14.2 million shares at a total cost of $893.1 million, or $62.90 per share, and issued 5.5 million shares under employee stock-based compensation plans. Outstanding shares as of December 31, 2013 totaled 214.0 million, a 4% decline from the prior-year period. As of December 31, 2013, Moody’s had $0.8 billion of share repurchase authority remaining under its current program. At year-end, Moody’s had $2.1 billion of outstanding debt and $1.0 billion of additional debt capacity available under its revolving credit facility. Total cash, cash equivalents and short term investments at year-end were $2.1 billion, an increase of $333.0 million from a year earlier, due in part to Moody’s August 2013 bond offering of $500 million of senior unsecured notes. Full-year 2013 free cash flow was $884.5 million, an increase of $106.4 million, or 14%, from a year ago.

ASSUMPTIONS AND OUTLOOK FOR FULL-YEAR 2014

Moody’s outlook for 2014 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.

For Moody’s overall, the Company expects full-year 2014 revenue to grow in the high-single-digit percent range. Full-year 2014 operating expenses are projected to increase in the mid-single-digit percent range. Full-year 2014 operating margin is projected to be between 42 and 43 percent and adjusted operating margin for the year is expected to be between 45 and 46 percent. The effective tax rate is expected to be approximately 33 percent due to various tax law changes. The Company expects diluted earnings per share for full-year 2014 of $3.90 to $4.00. Full-year 2014 share repurchases are expected to be approximately $1.0 billion, subject to available cash, market conditions and other ongoing capital allocation decisions. Capital expenditures are projected to be approximately $90 million, reflecting ongoing infrastructure maintenance, fit-out of additional floors at 7 World Trade Center and investments in our business for efficiency and growth. The Company expects approximately $100 million in depreciation and amortization expense. Growth in compliance and regulatory expense in 2014 is projected to be less than $5 million. Free cash flow is expected to be approximately $900 million.

For the global MIS business, revenue for full-year 2014 is expected to increase in the mid-single-digit percent range. Within the U.S., MIS revenue is expected to increase in the low-single-digit percent range, while non-U.S. revenue is expected to increase in the low-double-digit percent range. Corporate finance revenue is projected to grow in the high-single-digit percent range. Revenue from structured finance is expected to grow in the low-single-digit percent range. Financial institutions revenue is expected to grow in the mid-single-digit percent range. Public, project and infrastructure finance revenue is expected to increase in the high-single-digit percent range.

For MA, full-year 2014 revenue including the recent acquisition of Amba Investment Services is expected to increase in the low-teens percent range. Within the U.S., MA revenue is expected to increase in the high-single-digit percent range. Non-U.S. revenue is expected to increase in the high-teens percent range. Revenue from research, data and analytics is projected to grow in the high-single-digit percent range, while revenue for enterprise risk solutions is expected to grow in the low-teens percent range. Professional services revenue, including Amba Investment Services, is projected to grow in the mid-forties percent range. Excluding the acquisition of Amba Investment Services, organic revenue for professional services and MA is expected to grow in the low-double-digit and high-single-digit percent ranges, respectively.     

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