Good day, and welcome, ladies and gentlemen, to the Moody's Corporation 4th Quarter Year End 2013 Earnings Conference Call. At this time, I would 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 up for question and answers following the presentation. I will now turn conference over to Salli Schwartz, Global Head of Investor Relations. Please go ahead.
Thank you. Good morning everyone and thanks for joining us on this teleconference to fiscal year 2019. I am Sallie Schwartz, Global Head of Investor Relations. Fiscal year. Moody's released its results for the Q4 and full year 2013 as well as our outlook for full year 2014 this morning.
Earnings press release and a presentation to accompany this teleconference are both available on our website at ir. Moodys.com. Quarter. Ray McDaniel, President and Chief Executive Officer of Moody's Corporation will lead this morning's conference call. Quarter.
Also making prepared remarks on the call this morning is Linda Huber, Chief Financial Officer of Moody's Corporation. Before we begin, I call your attention to the Safe Harbor year 2019, which can be found toward 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 quarter and fiscal year 2019. And the risk factors discussed in our annual report on Form 10 ks for the year ended December 31, 20 fiscal quarter.
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 quarter. 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.
Quarter. Thank you, Sally. Good morning and thank you
to everyone for joining today's call. I'll begin by summarizing Moody's Q4 and full year 2013 results. Linda will follow with additional financial detail and operating highlights. I'll conclude with comments on our outlook for 2014. And quarter.
After our prepared remarks, we'll respond to your questions. Moody's delivered strong financial performance throughout 2013, including revenue growth in all lines of business, margin expansion and EPS growth of 18%. 4th quarter revenue of $779,000,000 increased 3% over the 4th quarter of 2012 and reflected growth in Moody's Investor Service despite challenging year on year comparisons as as well as continued strong growth from all lines of business at Moody's Analytics. Operating expenses for the 4th quarter were 4.60 $7,000,000 a 5% decline from the Q4 of 2012. Operating income for the Q4 was 312 prior year period.
Adjusted operating income, which excludes depreciation and amortization as well as a goodwill impairment charge in the Q4 of 2012 was $335,000,000 up 13% from the same period last year. Quarter. Diluted earnings per share of $0.94 for the 4th quarter increased 34% from the prior year period. Quarter. Excluding the legacy tax benefit of $0.09 non GAAP diluted earnings per share for the Q4 of 2013 was $0.85 fiscal year 2020.
For full year 2013, Moody's revenue of $3,000,000,000 increased 9% from full year 2012. Revenue at Moody's Investor Service was $2,100,000,000 for 2013, an increase of 9% from last year. Moody's Analytics revenue of $913,000,000 was also 9% higher than the prior year. Year. Operating expenses for full year 2013 were $1,700,000,000 up 5% from 2012.
Year 2018. Operating income of $1,200,000,000 increased 15% from 2012. Full year 2013 adjusted operating income of $1,300,000,000 quarter increased 12% from the prior year. Reported diluted earnings per share of 3 point 15% from $3.05 in 2012. Excluding a litigation settlement charge of $0.14 in the Q1 of 2013 quarter.
And a legacy tax benefit of $0.09 in the Q4 of 2013 as well as a legacy tax benefit of $0.06 in the Q3 of 2012, year 2019. Non GAAP diluted earnings per share of $3.65 for the full year 2013 grew 22% from $2.99 2012. I'll now turn the call over to Linda to provide additional commentary on our financial results and other updates.
Thanks, Ray. I'll begin with revenue at the company level. As Ray mentioned, Moody's total revenue for the 4th quarter increased 3% to $779,000,000 The impact of foreign currency translation for the quarter was negligible. Quarter. 4th quarter U.
S. Revenue of $417,000,000 and non U. S. Revenue of $362,000,000 both increased 3% from the Q4 of 2012. Year.
Non U. S. Revenue represented 46% of Moody's total revenue compared to 47% in the year ago period. Quarter. Recurring revenue of $390,000,000 represented 50% of total revenue, up from 46% in the prior year period.
Looking now at each of our segments, starting with Moody's Investor Service. Total MIS revenue from the quarter was $523,000,000 quarter, up 1% from the prior year period. U. S. Revenue for MIS declined 2% to $300,000,000 over the prior year period.
Quarter. Revenue outside the U. S. Of $223,000,000 increased 5% and represented 43% of total ratings revenue, quarter, up from 41% in the prior year period. The impact of foreign currency translation for the quarter was negligible.
Moving on to the lines of business MIS. 1st, global corporate finance revenue in the 4th quarter declined 1% from the year ago period to $243,000,000 quarter. In the U. S, revenue was down 9% year over year reflecting contraction in U. S.
Bond issuance against the strong prior year period. Outside the U. S, revenue was up 15% year over year as a result of higher investment grade issuance in Asia and speculative grade issuance in Europe as well as increased revenue from monitoring fees for outstanding ratings. 2nd, global structured finance revenue for the 4th quarter was from $109,000,000 6% above the prior year period. In the U.
S. Revenue increased 15% year over year, primarily due to increased 6% against the prior year period, driven by declines in revenue of European RMBS and Asian CMBS. 3rd, Global Financial distributions revenue of $89,000,000 increased 3% from the same quarter of 2012, primarily reflecting increased revenue from Asset Management Company. U. S.
Revenue was up 6% and non U. S. Revenue was up 1% as compared to the Q4 of 20 12. 4th, global public project and infrastructure finance revenue declined 3% year over year to $83,000,000 quarter. Revenue was down 6% in the U.
S, primarily due to declines in public finance and project finance issuance, quarter, partially offset by increased issuance in infrastructure finance, while non U. S. Revenue increased 1%. Turning now to Moody's Analytics. Global revenue fiscal quarter MA of $256,000,000 was up 9% from the Q4 of 2012.
U. S. Revenue grew by 21% year over year to 117 $15,000,000 Non U. S. Revenue increased by 1% to $140,000,000 and represented 54% of total Moody's Analytics revenue, down from 59% in the Q4 last year.
The impact of foreign currency translation was negligible. And moving now to the lines of business for MA. 1st, quarter. Global Research Data and Analytics or RD and A revenue of $138,000,000 increased 9% from the prior year period and represented 54 fiscal research products. U.
S. Revenue was up 8% and non U. S. Revenue was up 10% as compared to the Q4 of 2012. Quarter.
2nd, Enterprise Risk Solutions or ERS, revenue of $85,000,000 grew 7% last year, driven by strong growth in products and services that support bank stress testing activities. Revenue was up 48% in the U. S, while non U. S. Revenue was down 10% against the prior year period.
As we have previously noted, ERS revenue remains subject quarterly volatility due to the variable nature of project timing and completion. On a trailing 12 month basis, revenue and sales for ERS have increased 8% 14% respectively. 3rd, global professional services revenue grew 16% to $33,000,000 quarter reflecting continued growth within Copal as well as the acquisition of Amba Investment Services in December 2013. U. S.
Revenue increased 54% year 2019 and non U. S. Revenue increased 6% year over year. Turning now to expenses. Moody's 4th quarter expenses were 4 $67,000,000 a decline of $27,000,000 or 5% compared to the Q4 of 2012.
This decline was primarily due to lower incentive compensation expense, lower legal accruals and the absence of goodwill impairment charge in the Q4 of 2013 as compared to the Q4 of 2012. The year over year reduction in expenses was partially offset by increased compensation expense due to additional headcount and year 2019 pension costs in 2013. The impact of foreign currency translation on operating expenses for the quarter was negligible. Moody's reported operating margin for the quarter quarter. We expanded 550 basis points year over year from 34.5% in the Q4 of 2012 to 40% in 2013.
Quarter. Adjusted operating margin was 43% for the quarter, up from 39.3% in the same period last year, an expansion of 3.70 basis quarter. Moody's effective tax rate for the quarter was 30.6% compared with 31.5% for the prior year period. The decline in the effective tax rate was quarter, primarily due to lower U. S.
Taxes on foreign income. And now I'll provide an update on capital allocation. Moody's increased its quarterly dividend on December 17th by 12% to $0.28 per share of common stock. During the Q4 of 2013, Moody's repurchased 2,000,000 shares at a total cost $146,000,000 and issued 900,000 shares under employee stock based compensation plans. For the full year 2013, Moody's repurchased 14,000,000 shares at a total cost of $893,000,000 or an average price of $62.90 per share and issued 5,500,000 shares under employee stock based compensation plans.
Outstanding shares as of December 31, 2013 totaled 2 $14,000,000 a 4% decline from the prior year period. As of December 31, 2013, Moody's had $784,000,000 share repurchase authority remaining under its current program. Also as of December 31, Moody's had $2,100,000,000 year end of outstanding debt and $1,000,000,000 of additional debt capacity available under its revolving credit facility. Total cash, cash equivalents and short term investments at quarter end were $2,100,000,000 an increase of $333,000,000 from a year earlier due in part to Moody's August 2013 bond offering of $500,000,000 senior unsecured notes. Full year 2013 free cash flow was $885,000,000 an increase of $106,000,000 or 14 fiscal year 2019 from a year ago.
Cash holdings maintained outside of the U. S. At the end of the Q4 were $1,200,000,000 59% of total cash holdings. And with that, I'll turn the call back over to Ray.
Thanks, Linda. I'll conclude this morning's prepared remarks by year. We're now discussing our full year guidance for 2014. Moody's outlook for 2014 is based on assumptions about many macroeconomic and capital market factors including interest rates, corporate profitability, business investment spending, mergers and acquisition activity, consumer borrowing and securitization and the amount of debt issued. Quarter.
There's an important degree of uncertainty surrounding these assumptions and the factual conditions differ Moody's results for the year may differ materially from the current outlook. Our guidance assumes foreign currency translation at end of quarter exchange rates. While we anticipate variable market conditions fiscal year 2019. We nonetheless expect revenue growth across all areas of our business. For Moody's overall, we expect full year 2014 revenue to grow in the high single digit percent range.
Full year 2014 operating expenses are projected to increase in the mid single digit percent range, Reflecting the full year impact of 2013 hires as well as investments in our business. These include product development initiatives, quarter, particularly in credit research and enterprise risk solutions where demand for our capabilities is particularly strong. We're also expanding our presence in important international quarter. Even including these investments, our full year 2014 operating margin is expected to expand 50 basis points to 150 basis points quarter to be between 42% 43%, up from 41.5% in 2013. Adjusted operating margin is expected quarter.
The effective tax rate is expected to increase to approximately 33 fiscal year 2019. The company expects diluted earnings per share for the full year 2014 of $3.90 to $4 quarter. We have endeavored to return capital to shareholders through a combination of dividends and share repurchases. Over the course of fiscal 2019. Moody's increased its annualized declared dividend by 40% from $0.80 to 1 $0.12 For 2014, we year 2020.
We expect share repurchases of approximately $1,000,000,000 subject to available cash, market conditions and other ongoing capital allocation decisions. Year 2019. Full year 2014 capital expenditures are projected to be approximately $90,000,000 reflecting ongoing infrastructure maintenance put out of additional floors at our World Trade Center headquarters and investments in our business for efficiency and growth. We expect approximately $100,000,000 in depreciation and amortization expense. Quarter.
Growth in compliance and regulatory expense is projected to be less than $5,000,000 Free cash flow is expected to be approximately $900,000,000 quarter. For the global MIS business, revenue for full year 2014 is expected to increase in the mid single digit percent range. Within the U. S, MIS revenue is expected to increase fiscal year 2019. While non U.
S. Revenue is expected to increase in the low double digit percent range. Corporate Finance and Public Project and Infrastructure fiscal year 2020. Revenue from structured finance is expected to grow in the low single digit percent range, quarter. Revenue from financial institutions is expected to grow in the mid single digit range.
For MA, full year 2014 revenue is expected quarter increase in the low teens percent range inclusive of our December 2013 acquisition of Amba Investment Services. On an organic basis, MA revenue is expected to quarter and fiscal year 2019. Within the U. S, MA revenue is expected to increase in the high single digit percent range. Fiscal year 2020.
Non U. S. Revenue is expected to increase in
the high teens percent range.
Revenue from research data and analytics is projected to grow in the high single digit percent range, quarter. While revenue for Enterprise Risk Solutions is projected to grow in the low teens percent range. Revenue for professional services is projected to grow in the mid 40% range, which includes the recent acquisition of Amba. Organically, professional services revenue is expected to increase in the low double digit percent range. Quarter.
This concludes our prepared remarks and joining us for the question and answer session is Michelle Madeline, the President and Chief Operating Officer of Moody's Investor Service and Mark Almeida, President of Moody's Analytics. We'd be pleased to take any questions you may have.
Thank you. Again that is star 1 for a question. And we will take our first question today from William Byrd with FBR. Please go ahead.
Ray, I was wondering if
you could talk about just how you see debt issuance developing in 2014 and what you view as some of the key swing categories as you think about your outlook? Thank you.
Sure. As I think you Can glean from our guidance, we do expect international activity particularly in the corporate sector to be stronger than growth in the U. S. Looking at I think market consensus. We would expect in the U.
S. To see modestly down volumes and issuance counts. Linda may wish to give some additional color on that. And it's really in terms of the variables here For corporate finance as we've talked about before, it's really a question of both interest rates and how that affects refinancing activity as well as if we do have a rising rate environment is that associated with business confidence and borrowing for non refinancing reasons, whether it be M and A or capital expenditure or share repurchase. Quarter.
So that would be a significant swing factor. And I would also say that as always fiscal year 2020. The amount of activity in the securitization markets and the question about whether there's going to be a recovery in European securitization off of what was a relatively quiet year last year would be the second area I'd look to as an important variable.
Quarter. Yes. Bill, it's Linda. I think we see unusual differences between U. S.
And non U. S. Trends in the issuance markets right now. Quarter. Let me go through within the U.
S. For this week, we see about $15,000,000,000 of issuance, but we would remind everyone we're still in blackout period at this point. January looks like about $100,000,000,000 of U. S. Investment grade issuance, which may be down 10% year over year.
And for the full year, most projections are at about $900,000,000,000 which is sort of flattish down 5% quarter again in the U. S. But we've seen very good fund flows into bond funds so far this year, dollars 9,000,000,000 has moved into bond funds. Quarter. And interestingly as the market has wobbled and there have been a resurgence of risk factors interest rates have come back in.
Quarter. As of this morning, the 10 years at 267, the 5 years at 147, and that is helpful in terms of issuance trends. Quarter. So we would expect that perhaps even beginning next week things will start to pick up. Thus far in the year we've seen investment grade year 2019.
We've seen very heavy issuance from Yankee issuers. In other words, issuers coming from outside the U. S. Fiscal year 2020. Pivelines and investment grade in U.
S. Right now would be characterized as light to average. Looking at high yield, quarter. We've seen about $10,000,000,000 this week. January looks to be at about $30,000,000,000 The year is projected about $300,000,000,000 Again in the U.
S. That's down a little bit from last year. But I'll ask Michel Madeline to comment as we move through this. Quarter. Again, it's a different story outside the U.
S. The issuance levels all in for high yield are at 5.91 this morning. Again, issuance levels under 6% are very helpful to the high yield market. And so we'll see what happens with M and A activity and so on, but high bonds are characterized as average. Quarter.
And leverage loans continue to be the very much the bright spot this week, dollars 15,000,000,000 of leverage loans, January year over year. The year's forecast is $400,000,000,000 which is down a bit, but we'll see how that plays is out. Leveraged loan market has started the year in great shape. Inflows have been very strong, dollars 460,000,000 for the week. The asset class has not seen a weekly outflow since June of 2012 as investors continue to look at floating rate papers the attractive place to be.
Quarter and the pipeline there is termed to be robust in leverage loans. So with all of that, it might be interesting for you to hear from Michel to hear his observations on the difference between U. S. And the international markets.
Thank you, Alida. Really, I think that's the main point we have in front of us is this contrast between the U. S. And non U. S.
U. S. What we have is a Obviously more challenging comparables because of what we've seen this year and an expectation of contraction of issuance Investment grade and also iron bonds. Internationally, what we see especially in Europe is the fact that We expect benefit from continuation of disintermediation and bringing new transaction as well as improving economic conditions. So again, both factors helping to generate additional fiscal year 2019.
So that might be more than what you wanted, but that's the story.
Well said, well spoken. And how do you expect expenses to phase in, in 2014?
Sure. As we said, expenses growing in mid single digits for 2014. And the reason for that though, we've got businesses which are year. We're very pleased with our business' performances in 2013 and the outlook for 2014. We think we have some good opportunities.
And so looking at expense growth in the mid single digits, quarter. For the Q1, I'll make this easy. I think what we'd look at on a GAAP basis is probably expenses in the Q1 somewhere around $450,000,000 And then we're looking at a ramp again over the course of the year probably $35,000,000 to $40,000,000 of increase by the time we get to the 4th quarter. So again modest increase in expenses over the course of the year with the 4th quarter being the highest quarter. Again with the traditional ramp that Moody's sees of $35,000,000 to $40,000,000 starting off of the base at around 4 $50,000,000 in the Q1, if things play out as we expect.
Thank you.
Our next question is from Peter Appert with Piper Jaffray. Please go ahead.
Thanks. Ray, the international numbers are particularly impressive, I think. Is it possible to break out the impact or quantify the impact of this whole disintermediation thesis versus Just secular growth or cyclical growth in the market. And then I'm wondering also related to that if you have any statistics you can share with us on number of new issuers you're seeing in the international markets.
Sure. The contribution from Disintermediation is again probably 2 to 3 points of revenue as we've talked about previously. Quarter. And that has been fairly steady over the last few years. We had a particularly strong year last year 4 new mandates.
And I think the number of new mandates was over 500 last year. So it was a strong year. We the trends that are influencing that, the deleveraging fiscal year. Pressure on financial institutions, particularly in Europe continues. I think that Also the interest of corporate borrowers to diversify their access to capital continues.
It looks like a powerful story and a long term story as opposed to a cyclical Story.
Peter, it's Linda. I think as we finished the 4th quarter, quarter. Our new mandates might have even been a bit higher than what Ray stated maybe around 800 new mandates. Quarter. But that has been winded our backs as we said and we're pleased with the international issuance pace also in Asia as well as in Europe.
How would that $800,000,000 compare with $12,000,000 Linda? Do you
know? Let me just clarify the numbers. We have net and quarter and gross numbers. And so we have to be clear about that. But I'm sorry your question Peter?
How whichever number it is how compared to the prior year?
It was up by several 100.
Okay.
Excellent. And then quarter. In terms of the stepped up pace of buyback activity, so if I'm calculating this right, If you do $1,000,000,000 of buyback and call it a couple of $100,000,000 of dividend payments that will Like we exceed the free cash flow. So should I read into this a willingness maybe to use a little bit more leverage not just near term but over the next several years in terms of maintaining a higher level of quarter. The question really is, is the $1,000,000,000 level a number we might expect on a continuing basis?
Well, fiscal year. That's going to be subject to a number of factors and ongoing review of how our financial performance is, what our other opportunities are for use of capital. I will say that I think we have the capacity to continue to repurchase at that rate absent Something unexpected. So there's certainly that potential.
Okay. Great. Thanks. And then last fiscal year. Pricing anything different in 2014 than what you've done in the last couple of years?
Peter, it's Linda. I don't think so. As we have guided in our previous discussions with investors on the four box growth chart, we've said pricing is 3% to 4% quarter of our growth and we continue to look at that for 2014.
Great. Thanks very much.
We'll go
to Patrick O'Shaughnessy with Raymond James.
Hey, good morning guys. So my first question is, obviously, we've had a pretty big upheaval in the emerging markets fiscal start 2014. Have you seen any of that have an impact on new issuers kind of coming to market or your conversations with companies that are based in emerging markets?
Yes. The turmoil in the emerging markets certainly has had an impact on short term pipelines and issuance levels. I don't think that that is going to remain a story for full year. And I would expect that we're going to see continue to see good activity in the Yankee market as Linda mentioned, quarter. But also with I think with the realization that interest rates in the U.
S. May not be moving quarter. As far as fast as people had feared will bring some more stability to the emerging market side of the equation.
Patrick, it's Linda. I think as I mentioned in the earlier remarks, the elevation in the VIX and various other things has fiscal year. U. S. Rates coming in about 30 basis points, which is attractive for issuers.
So we'll see how that is viewed. Quarter. But we thought that the markets might be waiting for some of this end of year data before issuers take another step, but we will see how
quarter.
Great. Thanks. And then second question from me. So I think there's been a number of articles these last few days about quarter. The Volcker Rule and its impact on CLOs and certainly looks like the CLO market has dried up a little bit.
But from your commentary, it sounds like the leverage loan market still remains pretty robust. Quarter. So can you just provide some commentary on your level of concern about how the Volcker rule is impacting CLOs and what the banks and Holden. How do you see things playing out there?
Yes. I mean, I think we have seen a market reaction both in quarter. In terms of pull forward of CLO activity and quite a bit of debate about how fiscal year. How the vocal rule will ultimately impact this market. I'm pretty optimistic that a resolution Continue to issue CLOs and to have the treatment of that economically work for them in terms of what's on balance sheet.
The commentary from policymakers and regulatory officials I think has recognized that challenge and they're Looking for a solution that's not going to be disruptive to the market.
All right. That's helpful. Thanks. And then last one for me. Quarter.
Just on your Q4 repurchases, you did about $145,000,000 to get to $893,000,000 for the year. Obviously came in a little bit below your $1,000,000,000 guidance. Was there something about the market conditions in the 4th quarter that slowed the pace? Or what was going on with that?
Sure. It's Linda. As we've talked about before, we put in place our repurchase grid shortly after we give the previous quarter's fiscal earnings. So we have to do that during the window period. And our stock price, we were very fortunate, had a rather dramatic fiscal year.
So we didn't get as much done as we wanted to, but we'll take another look as we move through this period and see how we do 2014.
All right. Great. Appreciate it. Thank you.
Next is Tim McHugh with William Blair and Company.
Yes, thanks. Just wanted to ask
a few about Moody's Analytics. Start with I guess the RD and A part. I know you said it was kind of High retention and strong new sales. But can you give us a little more color on what type of products are there new products? I guess what's driving the strong new sales right now?
Anything you've done or what's behind it just to know if it's sustainable?
Quarter. Sure. I'm going to turn this over to Mark Almeida. Yes. In the RV and A business, we've seen Good sales volume really across the product portfolio.
Demand continues to be very strong for the rating agency research and data, which are the biggest pieces of the business. So when they do well, the rDNA segment does well. Quarter. We've also seen good new sales production in the Economics business, particularly fiscal quarter. So I think that overall there's just been very good demand For what we're doing in the business.
We've done a bit of new product innovation and have introduced a couple of new ways of delivering in a packaged way. So that's helped as well. But the retention has really been quite strong. And given the size of the business quarter. That's very, very beneficial.
Okay, great. And then my only other question here what ERS, you gave fiscal year 2020. Sorry about U. S. Versus international revenue, I guess, which can be lumpy.
But if we looked at the bookings numbers or trailing sales numbers that you gave, quarter. Are you is there a similar distinction between U. S. Versus international performance? Or was that just the timing of revenue recognition for that business?
No. It's entirely a timing phenomenon there.
The sales production
is much more consistent from region to region. But the revenue results are It could be wildly different because they're driven by what projects get done and when they get completed. And so we just had Q4 last year, we had some very big projects outside the U. S. Getting done.
So as you said, purely a timing phenomenon.
Okay. And then I guess one more if I could too. I forgot I may have missed it, but can you tell us what the incentive comp was for the quarter?
Fiscal quarter. Sure. Let us dig that out. Incentive compensation for the quarter was quarter. $47,000,000 and that was down from about $60,000,000 in this quarter last year.
The actual change was 12 point 7. So while we had a good and strong 4th quarter, it was not as strong as last year's 4th quarter where we had to catch up a bit on our incentive compensation.
Okay. Thank you.
We'll go
to Doug Arthur with Evercore. Yes.
A couple you made a couple of comments about fiscal year 2020. Linda, is there any numbers you can give around that?
Sure. Happy to do that. We're looking at for 2013, we had a headcount increase of about 9% for the previous year and that excluded quarter. The acquisition that we had done with Amba. So looking to 2014, we're looking at sort of a similar rate fiscal year 2020.
But one of the things that we're noting is that about 80% of that increase is to the lines of business, in other words not the support function. We're making and the strong growth that we've seen.
Okay, great. And then just one follow-up on revenues. I think the press release implied that 40 roughly 43% of MIS revenues in the quarter were international. When you look Specifically at the corporate finance where international was particularly strong, is it a similar percent there or is it slightly quarter.
Sure. For the corporate finance line for Q4 of 2013, International was 39% of the total and U. S. Was 61% of the total for the Q4 of 2013.
And next is Edward Aderino with Benchmark.
Ed? Yes. My question has been answered.
Okay. Thank you.
Thanks Ed.
About 4 times.
Fiscal. And we'll now go to Manav Panayak with Barclays. Please go ahead.
Hey, good afternoon everybody. Just wanted to try and quarter. And the operating expense guidance that you gave by division and maybe more specifically I guess the SKU with the contribution of AMBA like how should we think about what the incremental expense contribution there would be on year
2019. Sure Manav. You may not be too happy with this answer, but I think We're going to stick with our mid single digits and you can probably infer from what I said regarding the head discount numbers that we're looking to have the stronger growth rates and expense be in the operating division lines, which we think is appropriate to drive the growth. But we'd rather not get into that level of detail if that's okay.
Okay. Fair enough. And then I guess in terms of the issuance pipeline etcetera that you guys see, I mean, I think last year You're taking a shot at sort of the initial quarterly phasing maybe of how that might play out. Do you care to take
I think the revenue pattern, which is going to relate quarter. The issuance pattern is going to be similar to what we saw in 2013 with relatively stronger quarters fiscal quarter. That is a typical pattern. It has not been consistently followed in recent years, but it has been a pattern we've seen historically and we are anticipating that 14 is going to look somewhat like 2013 in terms of that sawtooth. Okay.
And then last one for me. I guess you don't have any slide on any Q3 or any other update? Nothing to report there basically?
No. We are in process quarter being inspected and reviewed examined by regulators in different jurisdictions around the world. We've quarter. We've gone through significant effort to make sure that we are complying with new rules and regulations And those are largely complete, although not fully complete and we'll have to continue to develop some new compliance programs. But it's nothing that quarter.
I think is at the policy level at this point. It's really more about inspections, examinations and compliance.
Okay. Thanks a lot, guys.
And we'll go to Craig Huber with Huber Research Partners.
Yes. Hi. Quarter. I've got some housekeeping questions here. First, Linda, this 33% tax rate guidance for 20 14.
Can you just give us a little further update on why it's gone up roughly 150 basis points?
Sure, Craig. Quarter. We did extraordinarily well on the tax rate in 2013 and we had some things that we don't expect to repeat break our way. Predicting the effective tax rate is one of the hardest things that we do, because at this point year. The tax rate is difficult to forecast because we have some tax law changes quarter that are said to be happening and they are in flux.
So for example, there are 2 pieces in the U. S. That you might want to look up. Quarter. One is the extension of look through provisions and the second is R and D tax credits.
Both of those quarter at the present time are not expected to be extended in the U. S. Now that may change. That has changed in previous years. But quarter.
We're taking a conservative view and we're planning that those two factors will not be extended. So those things along with couple of other factors are causing us to ask you to look at an effective tax rate of 33% for 2014. We understand that's up from 2013 and we'll continue to work on it in our usual conservative manner. But that's what we're working with right now and we can only plan for the best that we know.
Then also I was just wondering your thoughts here Ray or Linda. As you know your main competitor S and P's Transaction revenues were down about 12% and the quarter years
were down about 5.5%.
Do you guys view that as just noise or is there some Market share you're picking up that you want to really highlight here?
We've had some improvements fiscal year 2020. In market share, for example, in European Structured Finance, but there I can only speak to our numbers. I wouldn't speak to our competitors. And Trying to look at this on a longer term basis though, I think we have to look at the mix Fisk, both geographically and by security type and areas where We are traditionally strong, are more active in certain quarters than in others and vice versa. Quarter.
So it does take some time to try and get through the noise. And so I would I'm cautious about predicting any long term trends out of this.
A couple more questions please. Could you just give us an update on the legal front particularly the CalPERS case please?
Not a lot to report on the Cowper's case. The matter quarter. It's still in the California court. We filed an appeal, court appeal seeking a reversal of the lower court decision, denying our motion to dismiss on this anti SLAPP quarter. And the briefing on the appeal was completed a few months ago and we don't know when the case will be argued or decided at this point.
My last question, Linda, can you just help break us break apart the revenues a little finer detail here within your ratings business like within quarter. For example, if you break out the percentages or dollars for high yield versus bank loans and also play the 3 large categories please.
Quarter. Yes. Sure, Craig. So what we're looking at here is Q4 of 2013 as compared to the Q4 of 2012. Quarter.
And I'll start with the corporate finance line as you asked for Craig. So investment grade, it was 23% of the total CFG line, which was about $243,000,000 The high yield portion of 20 fourteen's year. Revenue was 21% or $50,000,000 which is down from 24% in 2012. Bank loans were at 20%, which is the same as last year and other was 37%, up a bit from last year's 34 percent. Moving on to the other lines of business now turning to structured finance.
Asset backed securities, 25 percent of structured revenue line of about $109,000,000 for the Q4 of 2013. That was down a bit quarter from last year's 28%. RMBS was 19% of structured revenues for the 4th quarter that's flat to last year. Commercial Real Estate quarter. Finance was 32% up from last year's 28%.
We had spoken about that earlier. And structured credit, what's also known as derivatives was 24% of that total about flat to last year's 25%. Going on to Financial execution about $89,000,000 of revenue for the Q4 of 2013. And banking was about 71% of that total or about 64 $1,000,000 that was down a bit from last year's 73%. Insurance was 22% of the number flat to last year's 22% and managed investments was 6% of the total which was up a bit from last year's 5%.
Moving on last to Public Projects and Infrastructure. Total number for the quarter was about $83,000,000 Public Finance and Sovereign, 43% or $35,000,000 which was down from last year's 47%. Munis was about 5% of the total down a bit from last year's 6%. And project and infrastructure as we had noted at about $43,000,000 up to 52% of the total, down from last year's excuse me, up from last year's 47%.
Linda, if I could just ask Sorry, Linda, if I could just ask one follow-up there. Does the sovereign piece of that public finance and sovereign line, how insignificant right now I guess for the full year with
fiscal year. I think we've
We don't disclose the dollar figures, but it's small.
Yes. I think a few percent Craig is what we've said before. It's frankly not particularly material.
Okay. It hasn't changed. Okay. Thank you.
Thanks.
And we'll go to Alex Kramm with UBS.
Hey, hello. I was going to say good morning, but I guess it's Good afternoon, everybody. Real quick, I guess only a couple of follow ups. On the guidance, I think the one thing to dig in a little If you may, on the structured side, obviously, that's the lowest growth and you talked about a little bit. Is it just conservatism?
And fiscal year. And considering that that business has been so lumpy and so uncertain, I mean, there's been times when we thought there were green shoes and then markets like year. RMBS kind of collapsed again and maybe more recently it's like ABS has been a little bit more in demand. Like, can you just talk about what you're seeing out there? What we should be looking for?
And quarter. If there is a resurgence like where you expect it to come and what we should be looking for?
Well, I guess to answer the beginning part of your question, I hope our guidance is conservative on structure. And there are a lot of uncertainties. As we talked about earlier, fiscal year 2020. What is going to happen with the residential mortgage backed securities market and its pace of growth. The European market which has been very soft and whether that's going to experience a recovery in 2014.
There are some Good reasons to believe that each of these can break in a favorable way, but they remain uncertainties at this point. Quarter. And then I guess the last item I'd just point to is actually the economics of doing these transactions, which fiscal year 2020. So there is just fiscal year 2020. And economics question in terms of when it's attractive to issue these securities.
Yeah, Alex, it's Linda. I'd also continue to point out that as we said the greatest strength quarter. Seeing is in the commercial real estate line, which had moved up nicely in the 4th quarter and quarter. So those are the places where we've seen strength. As you've pointed out RMBS is for the Q4 was about flat from last year.
Quarter. And it would probably be fair if we asked Michel if he had anything further that he could add that Ray and I have not
2019. Not much. I think you covered pretty much. I think the other place where you see some potential improvement is ABS in Europe basically.
Fiscal quarter.
Okay. Great. And then maybe just lastly, just to come back on the tax rate and maybe it's not a fair question, but obviously thanks for I think about your guidance and you're looking at stronger growth next year or this year in fiscal year 2020. Outside of the U. S.
And I think about tax rate changes in the U. K. For example rates are going down and then in general rates seem to be lower outside of the U. S. Shouldn't conceptually that still be a helpful driver?
Or do you think you've exhausted all those
fiscal year. Well, Alex, we're going to continue to work hard on it and look region by region at what we can do. On the quarter. Again, we take a conservative approach to this. I spoke a little bit about some of the U.
S. Things that are pending, but for right now, we don't have an extension of previous provisions. In Europe, we do see some countervailing trends. There have been some changes quarter in the U. K, which have been had the result of moving things up a bit in terms of rates in the U.
K. So you might want to take a Fisket Bhat. But again, if we have progress on the tax line and if we have a change to the estimated tax rate, we will be happy to tell you about that in future quarter calls if we get that. But again, we understand that this is an important factor. If you look at the difference, it looks like it will cost us about $0.12 year end EPS.
And we're mindful that that is a change that's not helpful, but we'll continue to work at it as we
All right. I think that's it for me. Thank you.
Welcome.
And we'll now go to Hamzah Mazari with Credit Suisse.
Good afternoon. Thank you. Just a question Ray on how you're thinking about M and A and whether your pipeline going into 2014 is stronger versus 2013. It seems like there are a lot more assets out on the market. Maybe give us a sense of what your feel is there.
I think our internal pipeline would look similar in 2014 to 2013. We've talked about this quarter. We look at a lot of potential opportunities and we're very we think we're very rigorous in the assets that we actually choose to pursue. And I've said before quarter. I think the likelihood of doing something transformative is relatively low.
So we would be looking more for assets that have quarter. The kind of size and synergies that we've seen with our recent acquisitions quarter. Whether it's AMBA, Copel or going back a couple of years to some of the acquisitions we made in the Enterprise Risk Solutions business.
That's very helpful. Just a quick follow-up. I'll turn it over. Could you maybe compare your competitive positioning and exposure within the U. S.
Versus the European structured finance market.
Quarter. Sure. And I'll ask Michel to offer his views on this. Quarter. At a high level, we have a very good position in both markets.
There are areas where we have traditionally been stronger and that includes commercial mortgage backed securities, CLOs, the residential mortgage backed securities market in Europe. And so you can see year. Where we're strong and the markets are active, we obviously benefit from that. Conversely, European RMBS, which has been quite dormant, Especially in the U. K.
Is an area where if it were more active, I think the strength we have in that market would come and Help our top line certainly. Michel, did you want to
No, I mean, only point of that is cover bonds maybe. So we have
Great.
Thank you. Have a good weekend. Thank you. Appreciate it. Thank you.
Thanks.
And we'll now go to Andre Benjamin with Goldman Sachs.
Hi, good afternoon. First question, I mentioned in your current views on the opportunity to rate debt in Asia. How much of the international revenue did that account for in 2013? And do you have any view on where that could go based on either the macro or conversation that you're having with clients in the region.
Yes. Our Asian revenue I'll put out a number and my colleagues will correct me. I think it's about 13% of our total. Quarter. And it's an area of growth, but it's an area where disintermediation has been Lagging behind what we've seen in Europe and certainly the United States.
Quarter. So we've got good opportunities there. They are multiple types of opportunities though some of it on the rating side of the business and in the rating fiscal year. Some of it in domestic markets such as Korea, China, India. And quarter.
And obviously the cross border markets as large firms in those countries access the international fiscal bond markets. We also have good opportunities in Moody's Analytics in the Asian markets Both with research and in particular with our Enterprise Risk Solutions business. Do we have another
comment? Quarter. We've got for the overall corporation for the year raised right. We're looking at low double digit for international growth. Quarter.
And in terms of what we're seeing with the 2 businesses, I think we might invite Michelle and maybe Mark to speak a bit more about that if you'd
like to. Yes.
In Asia for us corporate finance is really where we see the biggest
quarter. In M. A, I would just I'd endorse what Ray said. It's a good market for us. And quarter.
In particular, the research business in Asia has picked up nicely since 2013, still relatively small year. But very healthy growth rate. So that's very good to see, very profitable business.
So Andre, I think In total, we're looking at 9% revenue growth for the company and we've just said low double digits. You might incur that Asia is growing a little bit more rapidly on the whole across the businesses than maybe we're seeing in some of the other regions. But again, I would caution it's coming off of a small number as Ray had said.
Thank quarter. And then any light that you'd be able to shed on what gives you confidence that the public project and infrastructure finance business is going to grow high single digits next year. I know we came off the 1st down quarter in some time. It's been pretty previously. Is it just the macro trends or is there something else specific that you're seeing in the pipeline?
What you have in that segment is really several businesses who have very different dynamics. You have U. S. Public finance where we actually expect to see a contraction of volumes this year. And this is offset by positive fiscal
2020. And Andre going from memory year. Oftentimes U. S. Municipalities have to get their budgets in order.
So I think traditionally we see that business stronger toward the middle of the year and in the Q1. So that's a trend we'll have to watch as well.
Thank you.
Fiscal.
And at this time, I'd like to turn the conference back to Ray McDaniel for any additional or closing remarks.
Okay. Thank you very much. I just want to mention that on Tuesday, September 30, we'll be hosting our Annual fiscal year. It will be at our headquarters here in Lower Manhattan. More information will be available on the Investor Relations website as we get closer to the event.
Fiscal
year end
2013 Earnings Conference Call. As a reminder, a replay of this call will be available after 3:30 pm Eastern Time on Moody's website. Quarter. Thank you and have a great day.