- 3Q16 revenue of $917.1 million up 10%
from 3Q15
- 3Q16 operating income of $397.5 million
up 14% from 3Q15
- 3Q16 GAAP EPS of $1.31 up 15% from
3Q15; non-GAAP EPS of $1.34 up 21%
- FY 2016 GAAP EPS guidance range is now
$4.76 to $4.86; non-GAAP EPS guidance range is now $4.62 to
$4.72
Moody’s Corporation (NYSE:MCO) today announced results for the
third quarter of 2016 and provided its current outlook for full
year 2016.
"Moody’s revenue increased 10% in the third quarter primarily as
a result of record third quarter revenue for Moody’s Investors
Service, driven by higher leveraged finance issuance and US public
finance activity, as well as solid growth from Moody’s Analytics,”
said Raymond McDaniel, President and Chief Executive Officer of
Moody’s. “In light of the strong third quarter performance, coupled
with continued expense management, we are increasing our full year
2016 GAAP EPS guidance range to $4.76 to $4.86 and our non-GAAP EPS
guidance range to $4.62 to $4.72.”
THIRD QUARTER 2016
HIGHLIGHTS
Moody’s Corporation reported revenue of $917.1 million for the
three months ended September 30, 2016, up 10% from the same period
of 2015.
Operating expense, which includes an $8.4 million restructuring
charge associated with cost management initiatives, totaled $519.6
million, up 7%. Operating income was $397.5 million, up 14% from
the prior-year period. Adjusted operating income (operating income
before depreciation, amortization and the restructuring charge) was
$438.6 million, up 16%. Operating margin for the third quarter of
2016 was 43.3% and adjusted operating margin was 47.8%.
GAAP EPS of $1.31 was up 15% from the third quarter of 2015;
non-GAAP EPS of $1.34 was up 21%. Third quarter 2016 non-GAAP EPS
excludes a $0.03 impact from the restructuring charge. Third
quarter 2015 non-GAAP EPS excludes a $0.03 benefit from a legacy
tax matter.
MCO THIRD QUARTER 2016 REVENUE UP
10%
Moody’s Corporation reported global revenue of $917.1 million
for the third quarter of 2016, up 10% from the third quarter of
2015.
US revenue was $545.7 million, up 13%, and non-US revenue was
$371.4 million, up 5%. Revenue generated outside the US constituted
40% of total revenue, down from 42% in the prior-year period.
Foreign currency translation unfavorably impacted Moody’s revenue
by 1%.
MIS Third Quarter Revenue Up
12%
Moody’s Investors Service (MIS) reported record third quarter
global revenue in 2016 of $612.3 million, up 12% from the
prior-year period. MIS’s US revenue was $391.3 million, up 11%, and
its non-US revenue was $221.0 million, up 13%. The impact of
foreign currency translation on MIS revenue was negligible.
Global corporate finance revenue was $299.6 million, up 21% from
the prior-year period. This result primarily reflected higher
levels of bank loan and speculative grade bond issuance as strong
investor demand and tighter credit spreads drove debt refinancing
activity. US and non-US corporate finance revenues were up 16% and
32%, respectively.
Global structured finance revenue was $104.2 million, down 7%
from the third quarter of 2015. Reduced US CMBS and CLO activity
was only partially offset by increased US RMBS and REIT activity.
US and non-US structured finance revenues were down 9% and 4%,
respectively.
Global financial institutions revenue was $95.8 million, up 7%
compared to the prior-year period as a result of increased Asian
banking issuance. US and non-US financial institutions revenues
were up 2% and 11%, respectively.
Global public, project and infrastructure finance revenue was
$105.2 million, up 16% over the prior-year period primarily driven
by strong US public finance issuance. US public, project and
infrastructure finance revenue was up 29%, while non-US revenue was
down 8%.
MA Third Quarter Revenue Up
6%
Global revenue for Moody’s Analytics (MA) for the third quarter
of 2016 was $304.8 million, up 6% from the third quarter of 2015.
MA’s US revenue was $154.4 million, up 19%, while its non-US
revenue was $150.4 million, down 4%. Foreign currency translation
unfavorably impacted MA revenue by 3%.
Global research, data and analytics (RD&A) revenue of $167.7
million was up 6% from the prior-year period driven by strength in
sales of credit research and ratings data feeds. US RD&A
revenue was up 14%, while non-US revenue was down 4%. Foreign
currency translation unfavorably impacted RD&A revenue by
3%.
Global enterprise risk solutions (ERS) revenue of $101.5 million
was up 10% from the third quarter of 2015 primarily due to the
March 2016 acquisition of GGY as well as growth in the credit
assessment and stress testing product lines. US ERS revenue was up
39%, while non-US revenue was down 3%. Foreign currency translation
unfavorably impacted ERS revenue by 4%.
Global professional services revenue of $35.6 million was down
3% from the prior-year period. US professional services revenue was
up 6%, while non-US revenue was down 7%.
THIRD QUARTER 2016 EXPENSE UP
7%
Third quarter 2016 expense for Moody’s Corporation was $519.6
million, up 7% from the prior-year period. The increase was
primarily attributable to additional headcount in MA to support
business growth and from the March acquisition of GGY, the
restructuring charge and increased incentive compensation across
the Company. Foreign currency translation favorably impacted
expense by 2%.
Operating income was $397.5 million, up 14%. The impact of
foreign currency translation was negligible. Adjusted operating
income of $438.6 million was up 16% from the prior-year period. The
operating margin was 43.3%, up from 41.9%. The adjusted operating
margin was 47.8%, up from 45.3%.
Moody’s effective tax rate was 30.5% for third quarter of 2016,
compared with 32.0% for the prior-year period.
YEAR-TO-DATE 2016 REVENUE UP
2%
For Moody’s Corporation overall, global revenue was $2.7 billion
for the first nine months of 2016, up 2% from 2015. US revenue was
$1.6 billion, up 3%, while non-US revenue was $1.1 billion, flat to
the prior-year period. Foreign currency translation unfavorably
impacted Moody’s revenue by 1%.
Year-to-Date MIS Revenue Down
1%
MIS revenue totaled $1.8 billion for the first nine months of
2016, down 1% from the prior-year period. US revenue of $1.1
billion was also down 1%. Non-US revenue was $636.7 million, down
3%, and represented 36% of MIS revenue, down from 37% in the first
nine months of 2015.
Year-to-Date MA Revenue Up
8%
MA revenue totaled $899.1 million for the first nine months of
2016, up 8% from the prior-year period. US revenue of $445.3
million was up 14%. Non-US revenue was $453.8 million, up 4%, and
represented 50% of MA revenue, down from 53% in the first nine
months of 2015.
YEAR-TO-DATE 2016 EXPENSE UP
5%
Expense for Moody’s Corporation in the first nine months of 2016
was $1.6 billion, up 5% from the prior-year period. Foreign
currency translation favorably impacted expense by 2%.
Operating income was $1.1 billion, down 2% from the first nine
months of 2015. The impact of foreign currency translation was
negligible. Adjusted operating income of $1.2 billion was down 1%
from the prior-year period. Moody’s reported operating margin was
41.8% and its adjusted operating margin was 45.7%.
The effective tax rate for the first nine months of 2016 was
31.5%, down from 31.7% in the prior-year period.
GAAP EPS of $3.55 for the first nine months of 2016 was
essentially flat to the same period in 2015. Non-GAAP EPS of $3.59
for the first nine months of 2016 grew 2% from the same period in
2015. Year-to-date 2016 non-GAAP EPS excludes a $0.04 impact from
the restructuring charge. Year-to-date 2015 non-GAAP EPS excludes a
$0.03 benefit from a legacy tax matter in the third quarter of that
year.
LITIGATION UPDATE
Following the global credit crisis of 2008, Moody’s has
periodically received subpoenas and inquiries from various
governmental authorities, including the US Department of Justice
(DOJ) and states attorneys general. In a letter dated September 29,
2016, the DOJ stated that it is preparing a civil complaint to be
filed against Moody’s and MIS in the US District Court for the
District of New Jersey alleging certain violations of the Financial
Institutions Reform, Recovery, and Enforcement Act in connection
with the ratings MIS assigned to residential mortgage-backed
securities and collateralized debt obligations in the period
leading up to the 2008 financial crisis. The DOJ also stated that
its investigation remains ongoing and may expand to include
additional theories. A number of states attorneys general have
indicated that they also expect to pursue similar claims under
state law, which claims may include additional periods, theories,
asset classes or activities. The Company is continuing to respond
to the DOJ’s and states’ subpoenas and inquiries.
2016 CAPITAL ALLOCATION AND
LIQUIDITY
$263.9 Million Returned to Shareholders
in Third Quarter
During the third quarter of 2016, Moody’s repurchased 1.9
million shares at a total cost of $193.0 million, or an average
cost of $103.00 per share, and issued 0.8 million shares as part of
its employee stock-based compensation plans. Additionally, Moody’s
returned $70.9 million to its shareholders via dividend payments
during the third quarter of 2016.
Over the first nine months of 2016, Moody’s repurchased 7.1
million shares at a total cost of $678.9 million, or an average
cost of $95.51 per share, and issued 2.7 million shares as part of
its employee stock-based compensation plans. Additionally, Moody’s
returned $214.5 million to its shareholders via dividend payments
during the first nine months of 2016.
Outstanding shares as of September 30, 2016 totaled 191.2
million, down 3% from September 30, 2015. As of September 30, 2016,
Moody’s had $0.8 billion of share repurchase authority
remaining.
At quarter-end, Moody’s had $3.4 billion of outstanding debt and
$1.0 billion of additional borrowing capacity under its commercial
paper program which is backstopped by an undrawn $1.0 billion
revolving credit facility. Total cash, cash equivalents and
short-term investments at quarter-end were $2.1 billion, up $116.6
million from September 30, 2015. Free cash flow in the first nine
months of 2016 was $771.8 million, down 7% from the first nine
months of 2015, primarily due to lower net income.
ASSUMPTIONS AND OUTLOOK FOR FULL YEAR
2016
Moody’s outlook for 2016 is based on assumptions about many
geopolitical conditions and 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
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 (£) of $1.30
to £1 and for the euro (€) of $1.12 to €1. Post-third quarter
movements in foreign exchange rates have had no meaningful impact
on the full year 2016 outlook.
MCO Full Year 2016
Outlook
Moody’s full year 2016 revenue is still expected to increase in
the low-single-digit percent range.
Operating expense is still expected to increase in the
mid-single-digit percent range.
Moody’s still projects an operating margin of approximately 41%
and an adjusted operating margin of approximately 45%. The
effective tax rate is still expected to be 31% to 31.5%.
Full year 2016 GAAP EPS is now expected to be $4.76 to $4.86,
which includes an anticipated non-cash foreign exchange gain of
$0.18 related to a subsidiary reorganization, offset in part by a
$0.04 restructuring charge associated with cost management
initiatives. Excluding these items, the Company expects full year
2016 non-GAAP EPS of $4.62 to $4.72. The Company expects to record
the foreign exchange gain in its fourth quarter results.
Free cash flow is still expected to be approximately $1 billion.
Moody’s now expects share repurchases to be approximately $750
million, subject to available cash, market conditions and other
ongoing capital allocation decisions. Capital expenditures are now
expected to be approximately $120 million. Depreciation and
amortization expense is still expected to be approximately $130
million.
MIS Full Year 2016
Outlook
For MIS, Moody’s now expects 2016 revenue to be approximately
flat. US revenue is still expected to be approximately flat, while
non-US revenue is now also expected to be approximately flat.
Corporate finance revenue is now expected to be approximately
flat. Structured finance revenue is now expected to decrease in the
mid-single-digit percent range. Financial institutions revenue is
now expected to increase in the low-single-digit percent range.
Public, project and infrastructure finance revenue is still
expected to increase approximately 10%.
MA Full Year 2016
Outlook
For MA, 2016 revenue is still expected to increase in the
mid-single-digit percent range. US revenue is still expected to
increase in the low-double-digit percent range, while non-US
revenue is still expected to increase in the low-single-digit
percent range.
Research, data and analytics revenue and enterprise risk
solutions revenue are each still expected to increase in the
high-single-digit percent range. Professional services revenue is
still expected to decrease in the low-single-digit percent
range.
CONFERENCE CALL
Moody’s will hold a conference call to discuss its third quarter
2016 results and its updated 2016 outlook on October 21, 2016, at
11:30 a.m. Eastern Time. Individuals within the US and Canada can
access the call by dialing +1-877-400-0505. Other callers should
dial +1-719-234-7477. Please dial into the call by 11:20 a.m.
Eastern Time. The passcode for the call is “Moody’s
Corporation.”
The teleconference will also be webcast with an accompanying
slide presentation which can be accessed through Moody's Investor
Relations website, http://ir.moodys.com under “Events and
Presentations”. The webcast will be available until 3:30 p.m.
Eastern Time on November 19, 2016.
A replay of the teleconference will be available from 3:30 p.m.
Eastern Time, October 21, 2016 until 3:30 p.m. Eastern Time,
November 19, 2016. The replay can be accessed from within the
United States and Canada by dialing +1-888-203-1112. Other callers
can access the replay at +1-719-457-0820. The replay confirmation
code is 1743691.
*****
ABOUT MOODY'S
CORPORATION
Moody's is an essential component of the global capital markets,
providing credit ratings, research, tools and analysis that
contribute to transparent and integrated financial markets. Moody’s
Corporation (NYSE: MCO) is the parent company of Moody's Investors
Service, which provides credit ratings and research covering debt
instruments and securities, and Moody's Analytics, which offers
leading-edge software, advisory services and research for credit
and economic analysis and financial risk management. The
corporation, which reported revenue of $3.5 billion in 2015,
employs approximately 10,900 people worldwide and maintains a
presence in 36 countries. Further information is available at
www.moodys.com.
“Safe Harbor” Statement under the
Private Securities Litigation Reform Act of 1995
Certain statements contained in this release are forward-looking
statements and are based on future expectations, plans and
prospects for Moody’s business and operations that involve a number
of risks and uncertainties. Moody’s outlook for 2016 and other
forward-looking statements in this release are made as of October
21, 2016, and the Company disclaims any duty to supplement, update
or revise such statements on a going-forward basis, whether as a
result of subsequent developments, changed expectations or
otherwise. In connection with the “safe harbor” provisions of the
Private Securities Litigation Reform Act of 1995, the Company is
identifying certain factors that could cause actual results to
differ, perhaps materially, from those indicated by these
forward-looking statements. Those factors, risks and uncertainties
include, but are not limited to, the current world-wide credit
market disruptions and economic slowdown, which is affecting and
could continue to affect the volume of debt and other securities
issued in domestic and/or global capital markets; other matters
that could affect the volume of debt and other securities issued in
domestic and/or global capital markets, including credit quality
concerns, changes in interest rates and other volatility in the
financial markets; the level of merger and acquisition activity in
the US and abroad; the uncertain effectiveness and possible
collateral consequences of US and foreign government initiatives to
respond to the current world-wide credit market disruptions and
economic slowdown; concerns in the marketplace affecting Moody’s
credibility or otherwise affecting market perceptions of the
integrity or utility of independent credit agency ratings; the
introduction of competing products or technologies by other
companies; pricing pressure from competitors and/or customers; the
level of success of new product development and global expansion;
the impact of regulation as an NRSRO, the potential for new US,
state and local legislation and regulations, including provisions
in the Financial Reform Act and regulations resulting from that
Act; the potential for increased competition and regulation in the
EU and other foreign jurisdictions; exposure to litigation related
to Moody’s rating opinions, as well as any other litigation,
government and regulatory proceedings, investigations and inquiries
to which the Company may be subject from time to time; provisions
in the Financial Reform Act legislation modifying the pleading
standards, and EU regulations modifying the liability standards,
applicable to credit rating agencies in a manner adverse to credit
rating agencies; provisions of EU regulations imposing additional
procedural and substantive requirements on the pricing of services;
the possible loss of key employees; failures or malfunctions of
Moody’s operations and infrastructure; any vulnerabilities to cyber
threats or other cybersecurity concerns; the outcome of any review
by controlling tax authorities of the Company’s global tax planning
initiatives; the outcome of those Legacy Tax Matters and legal
contingencies that relate to the Company, its predecessors and
their affiliated companies for which Moody’s has assumed portions
of the financial responsibility; exposure to potential criminal
sanctions or civil remedies if the Company fails to comply with
foreign and US laws and regulations that are applicable in the
jurisdictions in which the Company operates, including sanctions
laws, anti-corruption laws and local laws prohibiting corrupt
payments to government officials; the impact of mergers,
acquisitions or other business combinations and the ability of the
Company to successfully integrate acquired businesses; currency and
foreign exchange volatility; the level of future cash flows; the
levels of capital investments; and a decline in the demand for
credit risk management tools by financial institutions; and other
risk factors as discussed in the Company’s annual report on Form
10-K for the year ended December 31, 2015 and in other filings made
by the Company from time to time with the Securities and Exchange
Commission.
Table 1 - Consolidated Statements of Operations
(Unaudited) Three Months
Ended Nine Months Ended September 30,
September 30, 2016 2015 2016
2015 Amounts in millions, except per share amounts
Revenue $ 917.1
$ 834.9 $ 2,662.1
$ 2,618.6 Expenses: Operating
253.2 236.1 761.3 724.4 Selling, general and administrative 225.3
220.8 683.2 669.1 Restructuring 8.4 - 12.0 - Depreciation and
amortization 32.7 28.3 93.8
84.8
Total expenses 519.6
485.2 1,550.3 1,478.3
Operating
income 397.5 349.7
1,111.8 1,140.3
Non-operating (expense) income, net Interest expense, net
(35.4 ) (25.8 ) (103.8 ) (87.0 ) Other non-operating income, net
6.9 19.7 15.5 14.0
Total non-operating expense, net (28.5 ) (6.1
) (88.3 ) (73.0 )
Income before provision for
income taxes 369.0 343.6 1,023.5
1,067.3 Provision for income taxes 112.4
109.8 322.2 338.1
Net
income 256.6 233.8 701.3 729.2 Less: net income
attributable to noncontrolling interests 1.3
2.2 6.1 5.8
Net
income attributable to Moody's Corporation $
255.3 $ 231.6 $
695.2 $ 723.4
Earnings
per share attributable to Moody's common shareholders Basic $
1.33 $ 1.16 $ 3.60 $ 3.60 Diluted $ 1.31 $
1.14 $ 3.55 $ 3.54
Weighted average number of shares outstanding Basic 191.7
199.4 193.3 201.1 Diluted 194.3
202.5 196.0 204.5
Table 2 - Supplemental Revenue Information
(Unaudited) Three Months
Ended Nine Months Ended September 30,
September 30, Amounts in millions
2016
2015 2016 2015
Moody's Investors Service Corporate Finance $ 299.6 $
248.3 $ 844.7 $ 866.6 Structured Finance 104.2 112.5 306.3 335.0
Financial Institutions 95.8 89.5 280.4 273.7 Public, Project and
Infrastructure Finance 105.2 90.6 309.0 291.2 MIS Other 7.5 7.2
22.6 23.1 Intersegment royalty 25.3 23.5
73.9 69.5 Sub-total MIS 637.6
571.6 1,836.9 1,859.1 Eliminations (25.3 ) (23.5 )
(73.9 ) (69.5 ) Total MIS revenue 612.3
548.1 1,763.0 1,789.6
Moody's Analytics Research, Data and Analytics 167.7
157.9 500.9 465.0 Enterprise Risk Solutions 101.5 92.2 288.5 252.5
Professional Services 35.6 36.7 109.7 111.5 Intersegment revenue
4.2 3.3 9.8 9.7
Sub-total MA 309.0 290.1 908.9 838.7 Eliminations
(4.2 ) (3.3 ) (9.8 ) (9.7 ) Total MA revenue
304.8 286.8 899.1
829.0
Total Moody's Corporation revenue
$ 917.1 $ 834.9 $
2,662.1 $ 2,618.6
Moody's Corporation revenue by geographic
area United States $ 545.7 $ 482.1 $ 1,571.6 $ 1,527.8
International 371.4 352.8
1,090.5 1,090.8
$
917.1 $ 834.9 $
2,662.1 $ 2,618.6
Table 3 - Selected Consolidated Balance Sheet Data
(Unaudited) September 30, December
31, 2016 2015* Amounts in millions Cash
and cash equivalents $ 1,746.1 $ 1,757.4 Short-term investments
311.8 474.8 Total current assets 3,016.9 3,243.1 Non-current assets
2,002.4 1,859.9 Total assets 5,019.3 5,103.0 Total current
liabilities** 1,402.5 1,218.5 Total debt ** 3,418.1 3,380.6 Other
long-term liabilities 856.5 836.9 Total shareholders' (deficit)
(357.9 ) (333.0 ) Total liabilities and shareholders' (deficit)
5,019.3 5,103.0 Actual number of shares outstanding 191.2
196.1
*In the first quarter of 2016, the Company adopted a new
accounting update on a retrospective basis which requires debt
issuance costs to be presented as a reduction of debt rather than
as an asset. Accordingly, the Company reclassified debt issuance
costs, which were previously included in non-current assets, as a
reduction of total debt.
** Includes $299.9 million of debt classified as a current
liability as it matures in September 2017.
Table 4 - Selected Consolidated
Balance Sheet Data (Unaudited) Continued Total
debt consists of the following:
September 30, 2016
PrincipalAmount
Fair Value ofInterest
RateSwap (1)
Unamortized(Discount)Premium
UnamortizedDebt
IssuanceCost (2)
CarryingValue
Notes Payable: 6.06% Series 2007-1 Notes due 2017
$
300.0 $ - $ - $
(0.1 ) $ 299.9 5.50% 2010 Senior Notes,
due 2020
500.0 20.0 (1.4 ) (1.7
) 516.9 4.50% 2012 Senior Notes, due 2022
500.0 - (2.5 ) (2.2 )
495.3 4.875% 2013 Senior Notes, due 2024
500.0
- (2.1 ) (2.8 ) 495.1
2.75% 2014 Senior Notes (5-Year), due 2019
450.0 8.0
(0.5 ) (1.9 ) 455.6 5.25% 2014
Senior Notes (30-Year), due 2044
600.0 - 3.3
(6.0 ) 597.3 1.75% 2015 Senior Notes, due 2027
561.9 - -
(3.9 ) 558.0 Total debt
$
3,411.9 $ 28.0 $ (3.2 )
$ (18.6 ) $ 3,418.1
Current portion
(299.9 ) Total long-term debt
$ 3,118.2 December 31, 2015
PrincipalAmount
Fair Value ofInterest
RateSwap (1)
Unamortized(Discount)Premium
UnamortizedDebt
IssuanceCost (2)
CarryingValue
Notes Payable: 6.06% Series 2007-1 Notes due 2017 $ 300.0 $ - $ - $
(0.2 ) $ 299.8 5.50% 2010 Senior Notes, due 2020 500.0 9.4 (1.6 )
(2.0 ) 505.8 4.50% 2012 Senior Notes, due 2022 500.0 - (2.8 ) (2.5
) 494.7 4.875% 2013 Senior Notes, due 2024 500.0 - (2.3 ) (3.1 )
494.6 2.75% 2014 Senior Notes (5-Year), due 2019 450.0 2.3 (0.5 )
(2.4 ) 449.4 5.25% 2014 Senior Notes (30-Year), due 2044 600.0 -
3.4 (6.2 ) 597.2 1.75% 2015 Senior Notes, due 2027 543.1
- - (4.0 ) 539.1 Total
debt $ 3,393.1 $ 11.7 $ (3.8 ) $ (20.4 ) $ 3,380.6
(1)
Reflects interest rate swaps on the 2010
Senior Notes and the 2014 Senior Notes (5-Year).
(2)
Pursuant to a new accounting update,
unamortized debt issuance costs are presented as a reduction to the
carrying value of the debt.
Table 5 - Non-operating (expense) income, net
Three Months Ended Nine Months
Ended September 30, September 30,
2016 2015 2016 2015 Amounts in millions
Interest: Expense on borrowings
$ (35.6
) $ (29.8 )
$ (105.6 ) $ (88.8 ) Income
2.5 2.8
8.2 7.0 Legacy Tax benefit
0.2 0.7
0.2 0.7 Expense on UTPs and other tax related liabilities
(2.5 ) 0.4
(7.0 ) (6.3 ) Interest
Capitalized
- 0.1
0.4 0.4
Total interest expense,
net $ (35.4 ) $ (25.8 )
$
(103.8 ) $ (87.0 )
Other non-operating (expense)
income, net: FX gain/(loss)
$ 4.3 $ 9.7
$
9.1 $ (2.5 ) Legacy Tax benefit
1.6 6.4
1.6
6.4 Joint venture income
2.3 3.5
7.2 8.8 Other
(1.3 ) 0.1
(2.4 )
1.3
Other non-operating (expense) income, net
6.9 19.7
15.5
14.0
Total non-operating (expense) income,
net $ (28.5 ) $ (6.1 )
$
(88.3 ) $ (73.0 )
Table 6 - Financial Information by
Segment:
The table below presents revenue, adjusted operating income and
operating income by reportable segment. The Company defines
adjusted operating income as operating income excluding
depreciation and amortization and restructuring.
Three
Months Ended September 30, 2016 2015 MIS
MA Eliminations Consolidated MIS
MA Eliminations Consolidated Revenue
$
637.6 $ 309.0 $ (29.5 )
$ 917.1 $ 571.6 $ 290.1 $ (26.8 ) $
834.9
Operating, selling, general and administrative expense
272.8 235.2 (29.5
) 478.5 268.1
215.6 (26.8 )
456.9
Adjusted operating income
364.8
73.8 - 438.6
303.5 74.5 -
378.0
Restructuring
7.6 0.8 - 8.4 - -
-
- Depreciation and amortization
19.1
13.6 - 32.7
16.9 11.4 -
28.3
Operating income
$ 338.1 $
59.4 $ - $ 397.5
$ 286.6 $ 63.1 $ - $
349.7
Adjusted operating margin
57.2 % 23.9
% 47.8 % 53.1 % 25.7
% 45.3 % Operating margin
53.0 %
19.2 % 43.3 % 50.1 %
21.8 % 41.9 % Nine
Months Ended September 30, 2016 2015 MIS
MA Eliminations Consolidated MIS
MA Eliminations Consolidated Revenue
$
1,836.9 $ 908.9 $ (83.7 )
$ 2,662.1 $ 1,859.1 $ 838.7 $ (79.2 ) $ 2,618.6
Operating, selling, general and administrative expense
830.1 698.1 (83.7
) 1,444.5 836.4
636.3 (79.2 ) 1,393.5 Adjusted
operating income
1,006.8 210.8
- 1,217.6
1,022.7 202.4 - 1,225.1
Restructuring
10.2 1.8 - 12.0 -
- - - Depreciation and amortization
54.8
39.0 - 93.8
48.7 36.1 -
84.8 Operating income
$ 941.8 $
170.0 $ - $
1,111.8 $ 974.0 $ 166.3 $ - $
1,140.3 Adjusted operating margin
54.8 %
23.2 % 45.7 % 55.0 %
24.1 % 46.8 % Operating margin
51.3 % 18.7 % 41.8 %
52.4 % 19.8 % 43.5 %
Table 7 - Transaction and Relationship
Revenue
The tables below summarize the split between transaction and
relationship revenue. In the MIS segment, excluding MIS Other,
transaction revenue represents the initial rating of a new debt
issuance as well as other one-time fees while relationship revenue
represents the recurring monitoring of a rated debt obligation
and/or entities that issue such obligations, as well as revenue
from programs such as commercial paper, medium-term notes and shelf
registrations. In MIS Other, transaction revenue represents revenue
from professional services and outsourcing engagements and
relationship revenue represents subscription based revenues. In the
MA segment, relationship revenue represents subscription-based
revenues and software maintenance revenue. Transaction revenue in
MA represents software license fees and revenue from risk
management advisory projects, training and certification services,
and outsourced research and analytical engagements.
Three Months Ended September 30, 2016
2015 Transaction Relationship Total
Transaction Relationship Total Corporate Finance
$211.2 $88.4 $299.6 $161.6 $86.7 $248.3 70 % 30 % 100 % 65 % 35 %
100 % Structured Finance $62.8 $41.4 $104.2 $69.8 $42.7 $112.5 60 %
40 % 100 % 62 % 38 % 100 % Financial Institutions $39.4 $56.4 $95.8
$30.9 $58.6 $89.5 41 % 59 % 100 % 35 % 65 % 100 % Public, Project
and Infrastructure Finance $66.7 $38.5 $105.2 $51.0 $39.6 $90.6 63
% 37 % 100 % 56 % 44 % 100 % MIS Other $2.6 $4.9 $7.5 $3.0 $4.2
$7.2 35 % 65 % 100 % 42 % 58 % 100 %
Total MIS $382.7
$229.6 $612.3 $316.3 $231.8 $548.1
63 %
37 % 100 % 58 % 42 % 100 %
Moody's
Analytics $74.6 $230.2 $304.8 $71.5 $215.3
$286.8
24 % 76 % 100 % 25
% 75 % 100 %
Total Moody's Corporation $457.3
$459.8 $917.1 $387.8 $447.1 $834.9
50 %
50 % 100 % 46 % 54 % 100 %
Nine Months Ended September 30, 2016
2015 Transaction Relationship Total Transaction Relationship
Total Corporate Finance $577.8 $266.9 $844.7 $608.0 $258.6 $866.6
68 % 32 % 100 % 70 % 30 % 100 % Structured Finance $180.6 $125.7
$306.3 $211.9 $123.1 $335.0 59 % 41 % 100 % 63 % 37 % 100 %
Financial Institutions $106.2 $174.2 $280.4 $101.4 $172.3 $273.7 38
% 62 % 100 % 37 % 63 % 100 % Public, Project and Infrastructure
Finance $193.7 $115.3 $309.0 $178.1 $113.1 $291.2 63 % 37 % 100 %
61 % 39 % 100 % MIS Other $8.2 $14.4 $22.6 $10.4 $12.7 $23.1 36 %
64 % 100 % 45 % 55 % 100 %
Total MIS $1,066.5
$696.5 $1,763.0 $1,109.8 $679.8 $1,789.6
60
% 40 % 100 % 62 % 38 % 100 %
Moody's Analytics $216.7 $682.4 $899.1
$199.2 $629.8 $829.0
24 % 76 %
100 % 24 % 76 % 100 %
Total Moody's
Corporation $1,283.2 $1,378.9 $2,662.1
$1,309.0 $1,309.6 $2,618.6
48 % 52 %
100 % 50 % 50 % 100 %
Non-GAAP Financial Measures:
The tables below reflect certain adjusted results that the SEC
defines as "non-GAAP financial measures" as well as a
reconciliation of each non-GAAP measure to its most directly
comparable GAAP measure. Management believes that such non-GAAP
financial measures, when read in conjunction with the Company's
reported results, can provide useful supplemental information for
investors analyzing period-to-period comparisons of the Company's
performance, facilitate comparisons to competitors' operating
results and to provide greater transparency to investors of
supplemental information used by management in its financial and
operational decision-making. These non-GAAP measures, as defined by
the Company, are not necessarily comparable to similarly defined
measures of other companies. Furthermore, these non-GAAP measures
should not be viewed in isolation or used as a substitute for other
GAAP measures in assessing the operating performance or cash flows
of the Company.
Table 8 - Adjusted Operating Income and
Adjusted Operating Margin:
The table below reflects a reconciliation of the Company’s
operating income to adjusted operating income. The Company defines
adjusted operating income as operating income excluding
depreciation and amortization and restructuring charges. The
Company utilizes adjusted operating income because management deems
this metric to be a useful measure for assessing the operating
performance of Moody’s, measuring the Company's ability to service
debt, fund capital expenditures, and expand its business. Adjusted
operating income excludes depreciation and amortization because
companies utilize productive assets of different ages and use
different methods of both acquiring and depreciating productive
assets. Adjusted Operating Income also excludes restructuring
charges as the frequency and magnitude of these charges may vary
widely across periods and companies. Management believes that the
exclusion of these items, detailed in the reconciliation below,
allows for a more meaningful comparison of the Company’s results
from period to period and across companies. The Company defines
adjusted operating margin as adjusted operating income divided by
revenue.
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
(amounts in millions)
2016 2015 2016
2015 Operating income $
397.5 $ 349.7 $
1,111.8 $ 1,140.3 Restructuring
8.4 -
12.0 -
Depreciation & amortization
32.7
28.3
93.8 84.8
Adjusted operating income $
438.6 $ 378.0
$
1,217.6 $ 1,225.1
Operating
margin 43.3 % 41.9 %
41.8 % 43.5 %
Adjusted operating margin 47.8 % 45.3 %
45.7 % 46.8 %
Projected for the YearEnding
December 31,2016
Operating margin guidance Approximately 41% Depreciation and
amortization Approximately 4% Restructuring
Negligible impact
Adjusted operating margin guidance Approximately 45%
Table 9 - Free Cash Flow
The table below reflects a reconciliation of the Company’s net
cash flows from operating activities to free cash flow. The Company
defines free cash flow as net cash provided by operating activities
minus payments for capital additions. Management believes that free
cash flow is a useful metric in assessing the Company’s cash flows
to service debt, pay dividends and to fund acquisitions and share
repurchases. Management deems capital expenditures essential to the
Company’s product and service innovations and maintenance of
Moody’s operational capabilities. Accordingly, capital expenditures
are deemed to be a recurring use of Moody’s cash flow.
Nine Months EndedSeptember
30,
(amounts in millions)
2016 2015 Net cash flows
from operating activities $
856.6 $ 893.5 Capital
additions
(84.8 ) (65.9 )
Free cash
flow $
771.8 $ 827.6
Net cash used in
investing activities $
(2.4 ) $ (81.5 )
Net
cash used in financing activities $
(882.6 ) $
(512.5 )
Projected for the Year
EndingDecember 31, 2016
Net cash flows from operating activities guidance Approximately
$1.1 billion Capital additions guidance (Approximately $120
million) Free cash flow guidance Approximately $1.0 billion
Table 10 - Non-GAAP diluted earnings per
share attributable to Moody's common shareholders:
The Company presents this non-GAAP measure to exclude
restructuring charges in 2016 and a Legacy Tax benefit in the third
quarter of 2015 to allow for a more meaningful comparison of
Moody’s diluted earnings per share from period to period. Below is
a reconciliation of these measures to their most directly
comparable U.S. GAAP amount:
(amounts in millions)
Three Months Ended September
30,
Nine Months Ended September 30, 2016
2015 2016 2015 Diluted EPS -
GAAP $ 1.31 $ 1.14 $ 3.55 $ 3.54 Restructuring 0.03 - 0.04 -
Legacy Tax - (0.03) - (0.03)
Diluted
EPS - Non-GAAP $ 1.34 $ 1.11 $ 3.59 $ 3.51
Projected for the Year Ending
December 31, 2016
Diluted EPS attributable to Moody's common shareholders -
GAAP Guidance $ 4.76 - 4.86 FX gain due to subsidiary
reorganization (0.18) Restructuring 0.04
Diluted EPS
attributable to Moody's common shareholders - Non-GAAP Guidance
$ 4.62 - 4.72
Table 11 - 2016 Outlook
Moody’s outlook for 2016 is based on assumptions about many
geopolitical conditions and macroeconomic and capital market
factors, including interest rates, foreign currency exchange rates,
corporate profitability and business investment spending, merger
and acquisition activity, 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. Moody’s guidance assumes
foreign currency translation at end-of-quarter exchange rates.
Specifically, our forecast reflects exchange rates for the British
pound (£) of $1.30 to £1 and for the euro (€) of $1.12 to €1.
Post-third quarter movements in foreign exchange rates had no
meaningful impact on the full year 2016 outlook.
Full-year 2016 Moody's
Corporation guidance MOODY'S CORPORATION
Current guidance as of October 21, 2016
Last publicly disclosed guidance
onSeptember 28, 2016
Revenue increase in the low-single-digit percent range
NC Operating expenses increase in the mid-single-digit
percent range NC Depreciation & amortization Approximately $130
million NC Operating margin Approximately 41% NC Adjusted operating
margin Approximately 45% NC Effective tax rate 31% - 31.5% NC GAAP
EPS $4.76 to $4.86 $4.70 to $4.80 Non-GAAP EPS $4.62 to $4.72 $4.55
to $4.65 Capital expenditures Approximately $120 million
Approximately $125 million Free cash flow Approximately $1 billion
NC Share repurchases1 Approximately $750 million
Approximately $1 billion
Full-year 2016 revenue guidance MIS Current
guidance as of October 21, 2016
Last publicly disclosed guidance
onSeptember 28, 2016
MIS global Approximately flat decrease in the low-single-digit
percent range MIS U.S. Approximately flat NC MIS Non-U.S.
Approximately flat decrease in the low-single-digit percent range
CFG Approximately flat decrease in the low-single-digit percent
range SFG decrease in the mid-single-digit percent range decrease
in the high-single-digit percent range FIG increase in the
low-single-digit percent range increase in the mid-single-digit
percent range PPIF increase approximately 10% NC
MA MA global increase in the
mid-single-digit percent range NC MA U.S. increase in the
low-double-digit percent range NC MA Non-U.S. increase in the
low-single-digit percent range NC RD&A increase in the
high-single-digit percent range NC ERS increase in the
high-single-digit percent range NC PS decrease in the
low-single-digit percent range NC
NC- There is no
difference between the Company's current guidance range and the
last publicly disclosed guidance range for this item. 1
Subject to available cash, market conditions and other ongoing
capital allocation decisions
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161021005227/en/
Salli SchwartzGlobal Head of Investor Relations
andCommunications212.553.4862sallilyn.schwartz@moodys.comorMichael
AdlerSenior Vice PresidentCorporate
Communications212.553.4667michael.adler@moodys.com
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