Operating expense in first-quarter 2015 totaled $494.3 million, a 14% increase from $434.2 million. Operating income was $371.3 million, up 12% from $333.0 million. Adjusted operating income (operating income before depreciation and amortization) was $399.9 million, up 12% from $356.1 million. Operating margin for first-quarter 2015 was 42.9%, and adjusted operating margin was 46.2%. GAAP EPS of $1.11 was up 11% from first-quarter 2014 GAAP EPS of $1.00.
“Moody’s first-quarter 2015 revenue increased 13% year over year, reflecting double-digit growth from both Moody’s Investors Service and Moody’s Analytics,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “We are reaffirming our full-year 2015 earnings per share guidance of $4.55 to $4.65 despite our expectations for uneven global growth as well as the strength of the U.S. dollar at current exchange rates.”
MIS First-Quarter Revenue Up 14%
Global revenue for Moody’s Investors Service (MIS) for first-quarter 2015 was $602.3 million, up 14% from the prior-year period. Foreign currency translation unfavorably impacted MIS revenue by 5%. U.S. revenue was $371.5 million, up 18%, while non-U.S. revenue was $230.8 million, up 8%. Excluding the 2014 consolidation of ICRA Ltd., MIS revenue grew 12% year-over-year.
Global corporate finance revenue was $298.7 million in first-quarter 2015, up 13% from the prior-year period, reflecting increased investment-grade issuance from heightened M&A activity, as well as strong investor demand for high-yield bonds. Partially offsetting these gains was a contraction in bank loan issuance. Corporate finance U.S. revenue increased 13%, while non-U.S. revenue increased 14%.
Global structured finance revenue totaled $101.3 million for first-quarter 2015, up 6% from a year earlier, primarily the result of strong U.S. commercial real estate issuance. Structured finance U.S. revenue was up 13%, while non-U.S. revenue was down 6%.
Global financial institutions revenue was $93.8 million, up 10% compared to the prior-year period, primarily due to increased revenue from U.S. finance companies and insurers. Partially offsetting the increase was a decrease in revenue from global managed investment issuers, which experienced elevated activity in the prior year. Financial institutions U.S. and non-U.S. revenue was up 19% and 4%, respectively.
Global public, project and infrastructure finance revenue was $100.7 million, up 25% resulting from increases in U.S. municipal financing activity and global municipal infrastructure issuance. Public, project and infrastructure finance U.S. revenue was up 37%, while non-U.S. revenue was up 7%.
MA First-Quarter Revenue Up 11%
Global revenue for Moody’s Analytics (MA) for first-quarter 2015 was $263.3 million, up 11% from first-quarter 2014. Foreign currency translation unfavorably impacted MA revenue by 5%. MA’s U.S. revenue was $128.3 million, up 17%, and its non-U.S. revenue was $135.0 million, up 5%. Excluding the 2014 acquisitions of Lewtan Technologies and WebEquity Solutions, MA revenue grew 7% year-over-year.
Global revenue from research, data and analytics (RD&A) was $149.6 million, up 9% from the prior-year period. Growth was driven by strong sales of credit research and licensing of ratings data, higher customer retention rates, and the acquisition of Lewtan Technologies in October 2014. RD&A U.S. revenue was up 13%, while non-U.S. revenue was up 3%.
Global enterprise risk solutions (ERS) revenue of $77.1 million was up 29% from first-quarter 2014, resulting from strong project delivery across all product offerings, as well as the acquisition of WebEquity in July 2014. ERS U.S. revenue was up 41%, while non-U.S. revenue was up 22%.
Global revenue from professional services of $36.6 million was down 10% from the prior-year period, primarily due to the year-over-year effect of exiting certain Copal Amba product lines in late 2014. Professional services U.S. revenue was down 4%, while non-U.S. revenue was down 13%.
First-quarter 2015 expense for Moody’s Corporation was $494.3 million, up 14% from the prior-year period, primarily due to increased headcount and added operating expense from 2014 acquisitions. Foreign currency translation favorably impacted expense by 4%.
Operating income was $371.3 million, up 12% from $333.0 million. Adjusted operating income of $399.9 million also increased 12% from the prior-year period. Foreign currency translation unfavorably impacted operating income by 7%. The operating margin was 42.9%, down from 43.4%. The adjusted operating margin was 46.2%, down from 46.4%.
Moody’s effective tax rate was 32.9% for first-quarter 2015, compared with 28.9% for the prior-year period, which included a benefit from the resolution of a foreign tax audit.
2015 CAPITAL ALLOCATION AND LIQUIDITY
3.8 Million Shares Repurchased in First Quarter
During first-quarter 2015, Moody’s repurchased 3.8 million shares at a total cost of $365.8 million, or an average cost of $95.20 per share, and issued 2.3 million shares as part of its annual employee stock-based compensation plans. Outstanding shares as of March 31, 2015 totaled 202.2 million, down 5% from the prior year. As of March 31, 2015, Moody’s had $1.2 billion of share repurchase authority remaining.
€500 Million Issued on March 9, 2015
On March 9, 2015, Moody’s issued €500 million of 12-year senior unsecured notes at 1.75%, hedging the Company’s euro net assets. 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 $2.0 billion, down $49.5 million from a year earlier. Free cash flow in first-quarter 2015 was $242.8 million, up 54% from first-quarter 2014 due to the increase in net income and 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. Guidance assumes foreign currency translation at end-of-quarter exchange rates.
Moody’s full-year 2015 GAAP EPS guidance remains in the range of $4.55 to $4.65, although certain components of Moody’s 2015 revenue 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, U.S. revenue is now expected to increase in the high-single-digit percent range and non-U.S. revenue is now expected to increase in the low-single-digit percent range. Within MIS, structured finance revenue and financial institutions revenue are now each expected to increase in the low-single-digit percent range.
Global MA revenue for full-year 2015 is still expected to increase in the mid-single-digit percent range. However, U.S. revenue is now expected to increase in the low-double-digit percent range and non-U.S. revenue is now expected to increase in the low-single-digit percent range. Within MA, professional services revenue is now expected to decrease in the low-single-digit percent range.