10-QPeriod: Q2 FY2005

MOODYS CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2005

Filed July 29, 2005For Securities:MCO

Summary

Moody's Corporation reported strong financial performance for the second quarter and first six months of 2005, demonstrating significant year-over-year growth in both revenue and net income. Revenue increased by 24.9% to $446.8 million for the quarter and by 21.6% to $837.3 million for the six-month period, driven primarily by robust performance in global structured finance and European financial institutions. Net income saw a substantial rise of 40.5% to $145.4 million for the quarter and 27.6% to $264.1 million for the six months. This growth was accompanied by an improvement in operating margin. The company also highlighted strong cash flow generation from operations, supporting its share repurchase program and dividend payments. Despite some ongoing legal and tax contingencies, management expressed confidence in the company's financial position and outlook for continued growth.

Key Highlights

  • 1Revenue increased by 24.9% to $446.8 million in Q2 2005 and by 21.6% to $837.3 million for the first six months of 2005 compared to the prior year periods.
  • 2Net income grew significantly, up 40.5% to $145.4 million for Q2 2005 and 27.6% to $264.1 million for the first six months of 2005.
  • 3Diluted EPS rose to $0.47 for Q2 2005 and $0.86 for the first six months of 2005, up from $0.34 and $0.68 respectively in the prior year.
  • 4Operating income increased by 26.7% to $252.8 million for Q2 2005 and by 21.7% to $465.3 million for the first six months of 2005.
  • 5Cash flow from operating activities showed strong growth, increasing to $345.6 million for the first six months of 2005 from $233.2 million in the prior year.
  • 6The company provided an updated full-year 2005 revenue growth outlook of 13% to 16%, an increase from previous guidance.
  • 7Moody's KMV segment experienced a slight revenue decline of 2.2% in Q2 2005 but a 4.7% increase for the first six months, indicating mixed performance in its quantitative credit assessment services.

Frequently Asked Questions

Moody's reported strong growth in the second quarter and first six months of 2005. Revenue increased significantly year-over-year, driven by strong performance in areas like global structured finance and European financial institutions. Net income and earnings per share also showed substantial increases, indicating healthy profitability and operational efficiency. The company also generated robust cash flow from its operations.

The primary drivers of revenue growth include strong issuance volumes in global structured finance (particularly residential and commercial mortgage-backed securities and CDOs), increased activity in European financial institutions, and growth in research services. Price increases and new rating relationships also contributed to the positive performance across various segments.

Yes, Moody's faces several legacy legal and tax contingencies stemming from its prior affiliation with The Dun & Bradstreet Corporation. While management believes the ultimate outcome will not materially adversely affect the company's financial position, operations, or cash flows, there are ongoing investigations by the New York Attorney General's Office and significant legacy tax matters with potential exposure. Investors should monitor these developments as they could have an impact.

Moody's revised its full-year 2005 outlook to reflect stronger-than-anticipated performance. The company now expects overall revenue growth in the 13% to 16% range, an increase from previous guidance. Earnings per share growth is projected to be between 17% and 21%. This optimistic outlook is tempered by planned investments and higher stock-based compensation expenses.