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Moody'S Corporation Reports Results For Third Quarter 2015

The following excerpt is from the company's SEC filing.

3Q15 revenue up 2% from 3Q14 to $834.9 million; up 7% on a constant currency basis

3Q15 operating income flat compared to 3Q14 at $349.7 million; up 5% on a constant currency basis

3Q15 EPS up 14% from 3Q14 to $1.14

Reaffirming FY 2015 EPS guidance of $4.55 to $4.65, which now includes a $0.03 benefit from a legacy tax matter

NEW YORK--(BUSINESS WIRE)--October 30, 2015--Moody’s Corporation (NYSE:MCO) today announced results for the third quarter of 2015.

THIRD QUARTER 2015 HIGHLIGHTS

Moody’s C orporation reported revenue of $834.9 million for the three months ended September 30, 2015, up 2% from $816.1 million for the same period of 2014.

Operating expenses totaled $485.2 million, up 4% from $466.4 million, and operating income was $349.7 million, flat versus the third quarter of 2014. Adjusted operating income (operating income before depreciation and amortization) was $378.0 million, up 1% from the prior year period. Operating margin for the third quarter of 2015 was 41.9% and adjusted operating margin was 45.3%.

Both GAAP EPS of $1.14 and non-GAAP EPS of $1.11 were up 14% from the third quarter of 2014. Non-GAAP EPS excludes a $0.03 benefit from a legacy tax matter in the third quarters of both 2015 and 2014.

“Despite uneven capital markets activity and foreign exchange headwinds, Moody’s achieved revenue growth in the third quarter,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “We are reaffirming FY 2015 EPS guidance of $4.55 to $4.65, which now includes a $0.03 benefit from a legacy tax matter.”

MCO THIRD QUARTER 2015 REVENUE UP 2%

Moody’s Corporation reported global revenue of $834.9 million for the third quarter of 2015, up 2% from the third quarter of 2014, or up 7% on a constant currency basis. US revenue was $482.1 million, up 7% from $449.1 million, while non-US revenue was $352.8 million, down 4% from $367.0 million. Revenue generated outside the US constituted 42% of total revenue, versus 45% in the year-ago period.

MIS Third Quarter Revenue Flat

Global revenue for Moody’s Investors Service (MIS) for the third quarter of 2015 was $548.1 million, flat versus the prior year period, but up 5% on a constant currency basis. US revenue was $352.5 million, up 7%, while non-US revenue was $195.6 million, down 10%.

Global corporate finance revenue was $248.3 million, down 5% from the prior year period, or down 1% on a constant currency basis. This result reflected lower levels of global speculative-grade issuance, partially offset by strong US investment-grade issuance primarily from increased M&A activity. US corporate finance revenue increased 5%, while non-US revenue decreased 22%.

Global structured finance revenue totaled $112.5 million, up 10% from the prior year period, or up 15% on a constant currency basis. Growth was primarily the result of strength in US commercial real estate finance as well as an increase in structured credit monitoring revenue. Structured finance US revenue was up 12% and non-US revenue was up 6%.

Global financial institutions revenue was $89.5 million, down 3% from the prior year period, but up 4% on a constant currency basis. US financial institutions revenue was up 8%, while non-US revenue was down 10%.

Global public, project and infrastructure finance revenue was $90.6 million, up 2% over the prior year period, or up 7% on a constant currency basis. US public, project and infrastructure finance revenue was up 2%, while non-US revenue was up 4%.

MA Third Quarter Revenue Up 6%

Global revenue for Moody’s Analytics (MA) for the third quarter of 2015 was $286.8 million, up 6% from the third quarter of 2014, or up 11% on a constant currency basis. MA’s US revenue was $129.6 million, up 8%, and its non-US revenue was $157.2 million, up 5%.

Global revenue from research, data and analytics (RD&A) was $157.9 million, up 10% from the prior year period, or up 15% on a constant currency basis. Growth was mainly due to strong performance in the credit research and content licensing businesses as well as the October 2014 acquisition of Lewtan Technologies. US RD&A revenue was up 16%, while non-US revenue was up 3%.

Global enterprise risk solutions (ERS) revenue of $92.2 million was up 14% from the prior year period, or up 18% on a constant currency basis, primarily from strong project delivery in the regulatory solutions and loan originations verticals. US ERS revenue was up 7%, while non-US revenue was up 17%.

Global revenue from professional services of $36.7 million was down 19% from the prior year period, or down 14% on a constant currency basis. This result reflected the impact of exiting certain Copal Amba product lines in late 2014 as well as lower net new business at Copal Amba. US professional services revenue was down 28%, while non-US revenue was down 13%.

THIRD QUARTER 2015 EXPENSE UP 4%

Third quarter 2015 expense for Moody’s Corporation was $485.2 million, up 4% from the prior year period. This increase was primarily due to incremental costs from 2014 and 2015 acquisitions, additional compensation expense for merit increases and hiring as well as investments in technology. Foreign currency translation favorably impacted expense by 4%.

Operating income was $349.7 million, flat versus the prior year period, but up 5% on a constant currency basis. Adjusted operating income of $378.0 million increased 1% from the prior year period. Moody’s operating margin was 41.9%, down from 42.9%, and its adjusted operating margin was 45.3%, down from 45.7%.

Moody’s effective tax rate was 32.0% for the third quarter of 2015, compared with 33.5% for the prior year period. The year-over-year decline was largely due to reduced state and local taxes resulting from changes in New York State and City tax laws.

MCO YEAR-TO-DATE 2015 REVENUE UP 7%

For Moody’s Corporation overall, global revenue was $2.6 billion for the first nine months of 2015, up 7% from the same period last year, or up 11% on a constant currency basis. US revenue was $1.5 billion, up 14%, while non-US revenue was $1.1 billion, down 3%.

MIS Year-to-Date Revenue Up 5%

Revenue at MIS totaled $1.8 billion for the first nine months of 2015, up 5% from the prior year period, or up 10% on a constant currency basis. US revenue was $1.1 billion, up 14%. Non-US revenue was $653.6 million, down 7%, and represented 37% of MIS revenue, down from 41% in 2014.

MA Year-to-Date Revenue Up 10%

MA revenue totaled $829.0 million for the first nine months of 2015, up 10% from the prior year period, or up 15% on a constant currency basis. US revenue of $391.8 million increased 16%. Non-US revenue was $437.2 million, up 5%, and constituted 53% of MA revenue, down from 55% in the first nine months of 2014.

YEAR-TO-DATE 2015 EXPENSE UP 9% AND NON-GAAP EPS UP 14%

Expense for Moody’s Corporation for the first nine months of 2015 was $1.5 billion, up 9% from the prior year. Foreign currency translation favorably impacted expense by 4%.

Operating income was $1.1 billion, up 4% from the same period of 2014, or up 10% on a constant currency basis. Adjusted operating income of $1.2 billion increased 5% from the prior year period. Moody’s operating margin was 43.5%, down from 44.5%, and its adjusted operating margin was 46.8%, down from 47.3%.

The effective tax rate for the first nine months of 2015 was 31.7%, down from 32.0% in the prior year period.

GAAP EPS of $3.54 for the first nine months of 2015 increased 2% from $3.48 for the same period in 2014. Non-GAAP EPS of $3.51 for the first nine months of 2015 grew 14% from $3.09 for the same period in 2014. Non-GAAP EPS excludes a $0.03 benefit from a legacy tax matter in both the year-to-date 2015 and 2014 periods. Year-to-date 2014 non-GAAP EPS also excludes a $0.36 gain resulting from Moody’s acquisition of a controlling interest in ICRA Ltd. in the second quarter of 2014.

2015 CAPITAL ALLOCATION AND LIQUIDITY

2.9 Million Shares Repurchased in Third Quarter

During the third quarter of 2015, Moody’s repurchased 2.9 million shares at a total cost of $304.9 million, or an average cost of $105.03 per share, and issued 0.3 million shares as part of its employee stock-based compensation plans. In the first nine months of 2015, Moody’s repurchased 8.9 million shares at a total cost of $905.6 million, or an average cost of $101.37 per share.

Outstanding shares as of September 30, 2015, totaled 197.7 million, down 5% from the prior year. As of September 30, 2015, Moody’s had $0.7 billion of share repurchase authority remaining.

Year-to-Date Free Cash Flow up 27%

At quarter-end, Moody’s had $3.1 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 quarter-end were $1.9 billion, up $263.7 million from December 31, 2014. Free cash flow in the first nine months of 2015 was $827.6 million, up 27% from the first nine months of 2014, primarily due to changes in working capital.

ASSUMPTIONS AND OUTLOOK FOR FULL YEAR 2015

Moody’s outlook for 2015 is based on assumptions about many macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, mergers and acquisitions, consumer borrowing and securitization, and the amount of debt issued. These assumptions are subject to some degree of uncertainty, and results for the year could differ materially from our current outlook. Our guidance assumes foreign currency translation at end-of-quarter exchange rates. Specifically, our forecast reflects exchange rates for the British pound (£) and the euro (€) of $1.52 to £1 and $1.12 to €1, respectively.

Certain components of Moody’s 2015 guidance have been modified to reflect the Company’s current view of business conditions:

Global MIS revenue for full year 2015 is still expected to increase in the mid-single-digit percent range. However, non-US revenue is now expected to decline in the mid-single-digit percent range. Within MIS, corporate finance revenue is...


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