Moody's Corporation MCO
Q4 2011 Earnings Call Transcript

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Transcript Call Date 02/08/2012

Operator: Good day, ladies and gentlemen, and welcome to Moody's Corporation Fourth Quarter and Fiscal Year End 2011 Earnings Conference Call. At this time, I'd 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 for questions-and-answers following the presentation.

I'll now like to turn the conference over to Salli Schwartz, Global Head of Investor Relations. Please go ahead.

Salli Schwartz - Global Head of IR: Thank you. Good morning everyone and thanks for joining us on this teleconference to discuss Moody's results for 2011. I'm Salli Schwartz, Global Head of Investor Relations. Moody's released its results for the fourth quarter and full year of 2011 this morning.

The earnings press release and our presentation to the company's 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'd call your attention to the Safe Harbor language, which can be found towards 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 statements 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'll now turn the call over to Ray McDaniel.

Raymond W. McDaniel Jr. - Chairman and CEO: Thank you, Salli. Good morning and thank you everyone for joining today's call. I'll begin by summarizing Moody's fourth quarter and full year 2011 results. Linda will follow with additional financial detail and operating highlights, and I will then speak to recent regulatory developments, and finish with comments on our outlook for 2011. After our prepared remarks, we will be happy to respond to your questions.

Fourth quarter revenue of $567 million was flat as compared to the fourth quarter of 2010 with strong performance by Moody's Analytics and global structured finance offsetting a decline from a strong prior year period in corporate finance.

Operating income for the fourth quarter totaled $172 million, a 12% decrease from the prior-year period. Diluted earnings per share for the quarter of $0.43 decreased 2% year-over-year.

For full year 2011, Moody's revenue of $2.3 billion was a 12% increase from full year 2010. Foreign currency translation favorably impacted Moody's Investors Service revenue by $28 million and was negligible for Moody's Analytics. Operating income of $888 million increased 15% from a year-ago and included a $4 million favorable impact from foreign currency translation.

Transcript Call Date 02/08/2012

Operator: Peter Appert, Piper Jaffray.

Peter Appert - Piper Jaffray: So, Linda, I was hoping you could give us a little more color on the drivers of cost growth, why the acceleration in the fourth quarter?

Linda S. Huber - EVP and CFO: Sure, Peter. Happy to talk about that. I think first though we should note that 2011 was a year of record revenue for Moody's and we're back above our 2007 high. So, we think we should get that into the mix, Peter. Let me talk a little bit about fourth quarter 2011 as compared to fourth quarter of 2010. In fourth quarter of 2010, we put up $0.58 and the number is $0.43 for the fourth quarter of '11. The main bridge that gets you there is just a difference in the tax rate. We had an abnormally low tax rate in fourth quarter of 2010. As we had said earlier, the tax rate for 2010 was about 19% and we're running about 37% for the fourth quarter of '11. So, basically, we have a doubling of the effective tax rate for the quarter. That change gets you about $0.12 and then the remainder of the $0.03 to get to the bridge. We have some deal costs from this acquisition that we have done in the fourth quarter, we have some other expenses including sales tax matter and contribution to our foundation. Then we've got some other things in terms of bringing some IT costs and other systems online. So the main driver and the difference for the fourth quarter of '11 is really the tax rate and there is not much more to it than that.

Peter Appert - Piper Jaffray: I guess, I was focused, Linda, on the operating expenses, which were up about 7.5% year-to-year versus 3.4% growth in the…?

Linda S. Huber - EVP and CFO: Let me try to do that bridge for you also, Peter. For the fourth quarter of 2010, expenses were $367.7 million and then they were $395 million for the fourth quarter of '11. So we are looking at about $28 million increase over that period. Basically it's, as I mentioned, about a third, a third, a third in terms of deal costs. The two deals that we did in the fourth quarter were expensive to get done. We had a success fee in the Copal deal, which is unusual for us to pay. So, take $9 million-ish on deal costs and other things related to those acquisitions. Another third of it, another chunk of it would be as I said another tax matter, which was also around sales tax and the donation to our foundation, the sort of two costs in the other category. Then thirdly, we have these systems we are bringing online and some consulting fees, mainly to get rid of the Dodd-Frank. So basically those are the three components of the $28 million of expense difference between this year's fourth quarter and last year's fourth quarter.

Peter Appert - Piper Jaffray: Could you just what we are on the expenses, tell me what the incentive comp accrual was in the fourth quarter?

Linda S. Huber - EVP and CFO: Incentive comp accrual was actually down from last year, and as we have said, last year's fourth quarter, we finished very strong in the fourth quarter last year at $42.8 million. This year it was only $30.3 million. That was still up sequentially, above from the third quarter's $25 million, but more even over the quarters of 2011.

Peter Appert - Piper Jaffray: I guess the really the important issue, Linda, is just I'm interested in your perspective on what we could anticipate in terms of long-term margin? You're guiding to flat margin next year. Are you basically retreating on your expectation that perhaps we could get back to low 40% margins?

Executives

Salli Schwartz : Global Head of IR
Raymond W. McDaniel Jr. : Chairman and CEO
Mark E. Almeida : President of Moody's Analytics
Linda S. Huber : EVP and CFO

Analysts

Douglas Arthur : Evercore Partners
Michael Meltz : JPMorgan
Edward Atorino : The Benchmark Company
Craig Huber : Access 342
William Bird : Lazard Capital
Peter Appert : Piper Jaffray

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Moody's Corporation MCOQ4 2011 Earnings Call Transcript

Moody's Corporation MCO
Q4 2011 Earnings Call Transcript