Q2 2024 Moody's Corp Earnings Call
Operator: shortly. Good day everyone, and welcome to the Moody's Corporation 2nd Quarter 2024 Earnings 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.
Speaker Change: Good day everyone and welcome to the Moody's Corporation 2nd Quarter 2024 Earnings 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.
Operator: At the request of the company, we will open the conference up for questions and answers following the presentation. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.
Speaker Change: At the request of the company, we will open the conference up for questions and answers following the presentation. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead. Thank you.
Shivani Kak: Thank you and good afternoon, and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the second quarter of 2024, as well as our revised outlook for select metrics for full year 2024. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com. During this call, we will also be presenting non-GAAP or adjusted figures.
Speaker Change: Thank you and good afternoon and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations.
Speaker Change: This morning, Moody's released its results for the second quarter 2024, as well as our revised outlook for select metrics for full year 2024. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com.
Speaker Change: During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for reconciliations between all adjusted measures referenced during this call in U.S. GAAP.
Shivani Kak: Please refer to the tables at the end of our earnings press release filed this morning for reconciliations between all adjusted measures referenced during this call in U.S. GAAP. I call your attention to the Faith Harbour 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, 2023, and in other SEC filings made by the company, which are available on our website and on the SEC's website.
Speaker Change: I 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.
Speaker Change: in accordance with the Act.
Speaker Change: I also direct your attention to the Management's Discussion and Analysis section
Speaker Change: and the risk factors discussed in our annual report on Form 10-K .
Speaker Change: for the year ended December 31st, 2023, and in other SEC filings made by the company, which are available on our website and on the SEC's website.
Shivani Kak: These, together with the Safe Harbor Statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statement. 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 Rob. Thanks, Shivani.
Speaker Change: These, together with the Safe Harbor Statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements.
Speaker Change: 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 Rob.
Rob: Good afternoon, and thank everybody for joining today's call. I'm looking forward to talking about this quarter, 22% revenue growth, an adjusted operating margin of almost 50%, and 43% adjusted diluted EPS growth. That's great stuff.
Rob: Thanks Shivani. Good afternoon and thanks everybody for joining today's call.
Rob: I'm looking forward to talking about this quarter. We had 22% revenue growth, an adjusted operating margin of almost 50%, and 43% adjusted diluted EPS growth.
Rob: And as I've said, as I have said before, and I'm very proud to say it again, MIS is one of the world's great businesses. And when issuance activity ramps up, like it did in the first half of this year, and you maintain such a strong position with investors and issuers like we do, as well as our ongoing disciplined approach to cost, we generate a tremendous amount of operating leverage. And for the second quarter, MIS delivered 36% revenue growth and a 63.2% adjusted operating margin, up 730 basis points from the second quarter of last year.
Speaker Change: That's great stuff. And as I've said, as I have said before, and I'm very proud to say it again, MIS is one of the world's great businesses. And when issuance activity ramps up...
Speaker Change: Like it did in the first half of this year, and you maintain such a strong position with investors and issuers like we do, as well as our ongoing disciplined approach to costs,
Speaker Change: We generate a tremendous amount of operating leverage.
Speaker Change: And for the second quarter, MIS delivered 36% revenue growth and a 63.2% adjusted operating margin, up 730 basis points from the second quarter of last year.
Rob: And following another consecutive quarter of robust performance, we're again raising our guidance for both revenue growth and margin. On the MA side, we delivered a seventh consecutive quarter of 10% ARR growth with 94% retention. ARR growth continues to be led by Decision Solutions, which grew by 13% this quarter. That said, and while we see a strong pipeline for the second half of the year, we are widening our ARR guidance to account for the potential for a bit more uncertainty in the buying environment in the second half, and Noemie will expand more on our thinking around this later, and I'm sure we'll discuss it in Q&A.
Speaker Change: And following another consecutive quarter of robust performance, we're again raising our guidance for both revenue growth and margin.
Speaker Change: On the MA side, we delivered a 7th consecutive quarter of 10% ARR growth with a 94% retention rate.
Speaker Change: ARR growth continues to be led by Decision Solutions, which grew by 13% this quarter.
Speaker Change: That said, and while we see a strong pipeline for the second half of the year, we are widening our ARR guidance to account for the potential for a bit more uncertainty in the buying environment in the second half. Noemie will expand more on our thinking around this later, and I'm sure we'll discuss it in Q&A.
Rob: In addition to the MIS guidance increase, we're also increasing several of our Moody's Corporation metrics, including increasing our expectation for share repurchases for the year from $1 billion to $1.3 billion and raising and narrowing our adjusted diluted EPS guidance to a range of $11 to $11.40.
Noemie: In addition to the MIS guidance raised, we're also increasing several of our Moody's
Noemie: Corporation metrics, including upping our expectation for share repurchases for the year from $1 billion to $1.3 billion, and raising and narrowing our adjusted diluted EPS guidance to a range of $11 to $11.40.
Rob: And we continue to innovate and invest, launching new products, expanding coverage, extending our partnerships, all to spur growth and position Moody's for long-term sustainable success. Now, speaking of growth, MIS has truly established itself as the agency of choice, and that allows us to really capitalize on a market environment like we experienced this past quarter. For the first half of the year, we grew transaction revenue by 56 percent.
Noemie: And we continue to innovate and invest, launching new products, expanding coverage, extending our partnerships, all to spur growth and position Moody's for long-term sustainable success.
Noemie: Now, speaking of growth, MIS has truly established itself as the agency of choice, and that allows
Noemie: To really capitalize on a market environment like we experienced this past quarter. For the first half of the year, we grew transaction revenue by 56%. That outpaced issuance growth of 43%.
Rob: That outpaced issuance growth of 43 percent. And that was particularly evident in our corporate finance and financial institutions rating groups, which both delivered transactional revenue growth rates north of 65%. And when considering recurring revenue, overall total revenue grew by 35%. And the investments we're making to streamline and automate our workflows enabled us to meet the surge in issuance, and that's double-digit growth across all asset types, while maintaining discipline around expenses.
Noemie: And that was particularly evident in our corporate finance and financial institutions rating groups, which both delivered transactional revenue growth rates north of 65%. And when considering recurring revenue, overall total revenue grew by 35%.
Noemie: And the investments we're making to streamline and automate our workflows enabled us to meet the surge in issuance, and that's double-digit growth across all asset types.
Rob: And even considering these investments, we're delivering adjusted operating margin up 760 basis points through the first half of the year. Now moving to MA, we had a strong first half, generating 8% revenue growth and, as I mentioned earlier, the 7th consecutive quarter of double-digit ARR growth. We continue to focus on high-growth SaaS and subscription products, which are delivering mid-90s retention rates and now represent 95% of total revenue. And taking a deeper dive into MA, the businesses within Decision Solutions continue to deliver very good growth.
Noemie: While maintaining discipline around expenses, and even considering these investments, we're delivering adjusted operating margin up 760 basis points through the first half of the year.
Noemie: Now, moving to MA, we had a strong first half, generating 8% revenue growth, and as I mentioned earlier, the seventh consecutive quarter of double-digit ARR growth.
Noemie: We continue to focus on high-growth SaaS and subscription products, which are delivering mid-90s retention rates and now represent 95% of total revenue.
Noemie: And taking a deeper dive into MA, the businesses within Decision Solutions continue to deliver very good growth, and that includes KYC, which is delivering new and innovative features and functionality, and remains the fastest growing business with ARR growth at 18% as of the end of the quarter.
Rob: And that includes KYC, which is delivering new and innovative features and functionality and remains the fastest growing business with ARR growth at 18% as of the end of the quarter. Insurance ARR growth was 6% at this time last year.
Noemie: Insurance ARR growth was 6% at this time last year to now 14%.
Rob: It's now 14%, and Banking delivered 9% ARR growth, and for its purely SaaS offerings, a mid-teens ARR growth rate. Meanwhile, data and information delivered its fourth consecutive quarter of double-digit ARR growth. And Research and Insight's AR growth remains at 6%, but we continue to expect the growth rate will improve in the second half of the year with the expectation of a high single-digit percent growth range by year-end, and that's benefiting from the momentum with Research Assistant and our unrated company's coverage expansion in CreditView. So how are we achieving all this?
Noemie: and Banking delivered 9% ARR growth, and for its purely SaaS offerings, a mid-teens ARR growth rate. Meanwhile, Data & Information delivered its fourth consecutive quarter of double-digit ARR growth.
Noemie: and Research and Insights AR growth remains at 6%.
Noemie: We continue to expect the growth rate will improve in the second half of the year with the expectation of high single-digit percent growth range by year-end, and that's benefiting from the momentum with Research Assistant and our unrated company's coverage expansion in CreditView.
Rob: I mean, pretty simply, we're delivering mission-critical solutions tapping into our risk operating system with massive data sets and analytic engines, all helping our customers navigate an increasingly complex and interconnected environment. Now, last quarter, I gave you a glimpse into our Gen AI product roadmap, and I'm excited to share that we launched two new skills this past quarter. The first of those is an automated credit memo, which saves bankers hours of work by assembling a credit memo using the bank's in-house content, Moody's content, and third-party content.
Noemie: So how are we achieving all this?
Noemie: I mean, pretty simply, we're delivering mission-critical solutions, tapping into our risk operating system with massive data sets and analytic engines, all helping our customers navigate an increasingly complex and interconnected environment.
Speaker Change: Now, last quarter, I gave you a glimpse into our Gen AI product roadmap, and I'm excited to share that we launched two new skills this past quarter, and the first of those
Speaker Change: is an automated credit memo which saves bankers hours of work by assembling a credit memo leveraging the bank's in-house content, Moody's content, and third-party content.
Rob: Second is our early warning system, which is a cutting-edge Gen AI-powered solution that's initially focused on commercial real estate that we launched last week. This solution monitors breaking news, alerting our customers, which includes lenders, insurers, and asset managers, to risks that could affect their portfolios, and allows them to query a broad range of Moody's data and models to quickly understand the potential impact of a given event. We've got a number of institutions using both of these solutions in private preview mode, and we're receiving some very encouraging feedback.
Speaker Change: Second is our Early Warning System, which is a cutting-edge, Gen AI-powered solution that's initially focused on commercial real estate that we launched last week. And this solution monitors breaking news. It alerts our customers, and that includes lenders, insurers, and asset managers.
Speaker Change: The risks that could affect their portfolio and allowing them to query a broad range of Moody's data and models to quickly understand the potential impact of
Speaker Change: We've got a number of institutions using both of these solutions in private preview mode, and we're receiving some very encouraging feedback, and they're both great examples of more ways that we are unlocking the power of our data, our analytics, our insights, leveraging Gen AI.
Rob: And they're both great examples of more ways that we are unlocking the power of our data, our analytics, our insights, and leveraging Gen AI. In KYC, regulation continues to drive demand for new and targeted solutions, and this past quarter, we launched our sanctioned security screening tool, which allows asset managers to look through the ownership hierarchies of their holdings to the ultimate parent and flag those that are sanctioned. We have also launched the European Sanctions product.
Speaker Change: In KYC, regulation continues to drive demand for new and targeted solutions, and this past quarter we launched our Sanctioned Security Screening Tool, which allows asset managers to look through the ownership hierarchies of their holdings to the ultimate parent and flag those that are sanctioned.
Rob: That was something that we actually launched in under a month, and it will help our banking customers manage new European reporting requirements on certain types of money transfers. And both of these solutions provide critical, timely, and trusted data to our customers, helping them avoid potential reputational or regulatory issues. And they're great examples of how we're broadening the use cases we serve, leveraging our massive company, people, and news data sets. Now, these products wouldn't be possible without the investments we've been making in our Orbis database, which we believe is the world's best curated database of public and private companies. We've more than doubled the number of entities we cover since we first acquired Bureau Van Dyke.
Speaker Change: We also launched the European Sanctions product. That was something that we actually launched
Speaker Change: In under a month, and it will help our banking customers manage new European reporting requirements on certain types of money transfers.
Speaker Change: And both of these solutions provide critical, timely, and trusted data to our customers, helping them avoid potential reputational or regulatory issues. And they're great examples of how we're broadening the use cases we serve, leveraging our massive company, people, and news data sets.
Speaker Change: Now, these products wouldn't be possible without the investments we've been making in our Orbis database, which we believe is the world's best curated database of public and private companies.
Speaker Change: We've more than doubled the number of entities we cover since we first acquired Bureau Van Dyke.
Rob: We added more than 20 million companies this year alone. In this past quarter, we reached a pretty incredible milestone with over half a billion companies in our Orbiz database. And this massive coverage is a great source of competitive advantage for us. Now, turning to our ratings business, I always say that if there's an opportunity to invest in one of the world's great businesses, we'll do it. And that's why I'm thrilled to announce that in early July, we completed our acquisition of GCR. It's the leading African domestic credit rating agency covering 25 countries across the region. And GCR really is a fantastic franchise.
Speaker Change: We added more than 20 million companies this year alone. And this past quarter we reached a pretty incredible milestone with over half a billion companies in our Orbiz database. And this massive coverage is a great source of competitive advantage for us.
Speaker Change: Now, turning to our ratings business, I always say that if there's an opportunity to invest in one of the world's great businesses, we're going to do it.
Speaker Change: And that's why I'm thrilled to announce that in early July , we completed our acquisition of GCR. That's the leading African domestic credit rating agency covering 25 countries across the region.
Rob: They've got a very impressive management team, and this investment continues to reinforce our leadership in domestic rating markets around the world. We've got a 30% stake in the leading rating agency in China. We have very strong positions across Asia, in India, Korea, Malaysia, and most recently, Vietnam.
Speaker Change: and GCR really is a fantastic franchise. They've got a very impressive management team and this investment continues to reinforce our leadership in domestic rating markets around the world.
Speaker Change: We've got a 30% stake in the leading rating agency in China.
Speaker Change: We've got very strong positions across Asia, in India, in Korea, Malaysia, and most recently, Vietnam. We've been enjoying great success with our Moody's Local Strategy across Latin America, and now we've established a leadership position across the African continent.
Rob: We've been enjoying great success with our Moody's Local Strategy across Latin America, and now we've established a leadership position across the African continent. We have also achieved an important milestone in our sustainable finance franchise in ratings this quarter when we delivered our 200th second party opinion in MIS, and we've got a healthy pipeline for the rest of the year. With the more recent launch of our net zero assessment, we now have, I think, a very compelling set of offerings to support sustainable and transition finance, and those are clear growth areas for the foreseeable future.
Speaker Change: Now, we've also achieved an important milestone in our sustainable finance franchise in ratings this quarter when we delivered our 200th second-party opinion in MIS, and we've got a healthy pipeline for the rest of the year.
Speaker Change: With the more recent launch of our net zero assessment, we now have, I think, a very compelling set of offerings to support sustainable and transition finance, and those are clear growth areas for the foreseeable future.
Rob: Now you may recall back on the third quarter call last year, I talked about how we'd established a framework for third party partnerships, really to drive the ubiquity of our content in more and more platforms where people are making decisions about risk, investment and opportunity. And this past quarter, we had some exciting announcements on that front. First is our strategic collaboration with MSCI around ESG and private credit, and we really are excited to offer our customers MSCI's market leading ESG scores and data through a range of our solutions, and MSCI will leverage Moody's Orbis database to extend its private company ESG coverage, and together we're going to explore solutions that will leverage our company data and credit scoring models and MSCI's distribution and expertise with the global investment community to provide greater insight into the private credit market.
Speaker Change: You may recall back on the third quarter call last year, I talked about how we'd established a framework for third party partnerships.
Speaker Change: Really to drive the ubiquity of our content in more and more platforms where people are making decisions about risk, investment, and opportunity. And this past quarter we had some exciting announcements on that front.
Speaker Change: First is our strategic collaboration with MSCI around ESG and private credit.
Speaker Change: And we really are excited to offer our customers MSCI's market-leading ESG scores and data through a range of our solutions.
Speaker Change: and MSCI will leverage Moody's Orbis database.
Speaker Change: to extend its private company ESG coverage. And together, we're going to explore solutions that will leverage our company data and credit scoring models and MSCI's distribution and expertise with the global investment community to provide greater insight into the private credit markets.
Rob: And just to be clear, our collaboration does not impact our ESG work and ratings, nor does it affect our very extensive climate and transition capabilities across the firm. Now, second, in June, we announced a new collaboration with Zillow that further enhances the insights available to both Moody's and Zillow customers. And starting this month, we're adding Zillow's extensive rental property data to Moody's CRE data platform. In exchange, Zillow will gain access to Moody's CRE market analyses, and that will help their customers make confident decisions about their multifamily property.
Speaker Change: And just to be clear, our collaboration does not impact our ESG work and ratings, nor does it affect our very extensive climate and transition capabilities across the firm.
Speaker Change: Second, in June , we announced a new collaboration with Zillow.
Speaker Change: that further enhances the insights available to both Moody's and Zillow customers.
Speaker Change: And starting this month, we're adding Zillow's extensive rental property data into Moody's CRE data platform, and in exchange, Zillow will gain access to Moody's CRE market analyses, and that will help their customers make confident decisions around their multifamily properties.
Rob: We're also deepening our relationship with Google. Last month, Google announced that it had tapped Moody's to be one of four foundational data providers that will serve as grounding agents for its Enterprise Vertex AI platform. And this grounding opportunity is particularly exciting as it dramatically expands the audience for our content and further establishes Moody's as a trusted data source. And finally, back in May, we announced a first-of-its-kind enterprise risk management dashboard in collaboration with Diligent. And they're a leading governance, risk, and compliance SaaS company.
Speaker Change: We're also deepening our relationship with Google.
Speaker Change: Last month they announced that they have tapped Moody's to be one of four foundational data providers.
Speaker Change: that will serve as grounding agents for their Enterprise Vertex AI platform.
Speaker Change: And this grounding opportunity is particularly exciting as it dramatically expands the audience for our content and further establishes Moody's as a trusted data source.
Speaker Change: And finally, back in May, we announced a first-of-its-kind enterprise risk management dashboard in collaboration with Diligent, and they're a leading governance, risk, and compliance SaaS company, and that's going to be offered as a separate module to their more than 700,000 board and leadership users, again, broadening the audience.
Rob: And that's going to be offered as a separate module to their more than 700,000 board and leadership users, again, broadening the audience for our content. So these kinds of partnerships are expanding the reach and mindshare of our data sets and analytics to thousands of key decision-makers, while enhancing the offerings of our partners and ultimately in the service of helping us accelerate long-term growth. So on that note, let me hand it over to Noemie to talk more about our financial performance for the quarter. Thank you, Rob. And good afternoon, everyone.
Speaker Change: These kinds of partnerships are expanding the reach and mindshare of our datasets and analytics to thousands of key decision makers.
Speaker Change: while enhancing the offerings of our partners and ultimately in the service of helping us accelerate long-term growth. So on that note, let me hand it over to Noemie to talk more about our financial performance for the quarter. Yeah, thank you, Rob, and good afternoon, everyone.
Noemie: Building on the momentum from the first quarter, I'm very pleased to share that we delivered a very strong performance in Q2. Our revenue was $1.8 billion, up 22% year-on-year, and our adjusted operating margin of nearly 50% improved by 590 basis points, illustrating our strong operating leverage. Turning to segment performance,
Noemie: Building on the momentum from the first quarter, I'm very pleased to share that we delivered a very strong performance in Q2.
Noemie: Our revenue was $1.8 billion, up 22% year-on-year, and our adjusted operating margin of nearly 50% improved by 590 basis points, illustrating our strong operating leverage.
Noemie: Moody's Analytics revenue grew 7% or 8% on a constant currency basis. Recurring revenue, which represents 95% of our revenue in this segment, was up 9% year-on-year. And the adjusted operating margin was 28.5%, up 50 basis points from the second quarter last year. Annualized recurring revenue, or ARR, was $3.1 billion, up $292 million, or 10% year-on-year. Our largest line of business, Decision Solutions, grew ARR by 13% with 150 Bips Sequential Growth Acceleration from Q1.
Noemie: Turning to segment performance, Moody's Analytics revenue grew 7% or 8% on a constant currency basis.
Noemie: Recurring revenue, which represents 95% of our revenue in this segment, was up 9% year-on-year.
Noemie: And the adjusted operating margin was 28.5%, up 50 basis points from the second quarter last year.
Noemie: Annualized Recovering Revenue, or ARR, was $3.1 billion, up $292 million, or 10% year-on-year.
Noemie: Our largest line of business, Decision Solutions, grew ARR by 13% with 150 BIP sequential growth acceleration from Q1.
Noemie: Growth in this line of business was enabled by mid and high-teens growth from insurance and KYC, where we continue to see strong customer demand for a best-in-class workflow solution. Data and Information AR, Group 10% With low-teens growth in our corporate and government sectors, while our research and insight business grew revenue at 6%, a similar trend to what we've seen in recent quarters when we observed some modest uptick in credit due attrition from banks and asset managers, as we previously called out. Our overall retention rate remains high, around 94%, which is evidence of the stickiness of our solution.
Noemie: Growth in this line of business was enabled by mid and high-teens growth from insurance and KYC, where we continue to see strong customer demands for a best-in-class workflow solution.
Noemie: Data and Information AR grew 10% with low-teens growth in our corporate and government sectors.
Noemie: While our research and insights business grew AR at 6%, a similar trend to what we've seen in recent quarters, when we observed some modest uptick in credit view attrition from banks and asset managers as we previously called out.
Noemie: Our overall retention rate remains high, around 94%, which is evidence of the stickiness of our solutions.
Noemie: I do want to note that while this quarter marked the seventh quarter of double-digit ARR growth, we expect some moderation in our growth rate for this metric in certain areas of our business in the second half, which I will address when I talk about guidance. Switching to MIS, revenue was the second highest on record, growing 36% and topping $1 billion. Transactional revenue grew 56%, outpacing issuance growth of 47%, and represented close to 70% of total revenue for the quarter.
Noemie: I do want to note that while this quarter marked the seventh quarter of double-digit ARR growth, we expect some moderation in our growth rate for this metric in certain areas of our business in the second half, which I will address when I talk about guidance.
Noemie: Switching to MIS.
Noemie: Revenue was the second highest on record, growing 36% and topping $1 billion.
Noemie: Transactional revenue grew 56%, outpacing issuance growth of 47%.
Noemie: and represented close to 70% of the total revenue for the quarter NMIs.
Noemie: We saw a positive mix from our investment grade subsegment with transaction revenue increasing 28% versus a 10% rise in issuance, partially due to a combination of refinancing activity and several large M&A-related, Our Financial Institutions Ratings Group saw a record level of revenue from insurance customers, primarily due to a favorable mix in infrequent issues. Resulting in a 58% overall increase in transaction revenue against a 17% increase in share price. Now, tight expense controls and our increased focus on automation, coupled with the strong levels of issuance activity, enabled us to deliver an adjusted operating margin of 63.2%.
Noemie: We saw a positive mix from our investment grade subsegment, with transaction revenue increasing 28% versus a 10% rise in issuance, partially due to a combination of refinancing activity and several large M&A related deals.
Noemie: And our Financial Institutions Ratings Group saw a record level of revenue from insurance customers.
Noemie: primarily due to a favorable mix in infrequent issuers.
Noemie: Resulting in a 58% overall increase in transaction revenue against a 17% increase in insurance.
Noemie: Now, tight expense controls and our increased focus on automation, coupled with the strong levels of issuance activity, enabled us to deliver an adjusted operating margin of 63.2%.
Noemie: As Rob mentioned up front, we are updating our guidance for a number of metrics, so I'll start with the biggest change, which is the improved rated issuance output. Given the very strong start of the year and a slightly improved expectation for the second half, albeit with a notable slowdown from the first half, we're now forecasting issuance growth to be in the 20 to 25% range and revenue growth to be in the high teens percent.
Noemie: As Rob mentioned up front, we are updating our guidance for a number of metrics, so I'll start with the biggest change, which is the improved rated issuance outlook.
Rob: Given the very strong start of the year and a slightly improved expectation for the second half, albeit with a notable slowdown from the first half, we're now forecasting issuance growth to be in the 20 to 25% range and revenue growth to be in the high teens percentage range.
Noemie: Looking out at the rest of the year, we now expect second half issuance to be roughly in line with the second half of 2023, and we continue to expect Q4 issuance to be down in the mid-teens range versus prior year Q4, very consistent with our prior guidance. So what's changed here really is we've taken the second quarter beat into our issuance numbers, and our outlook for Q3 is now a bit higher than it was. We've provided some additional color on this slide for the various asset classes, and we'd be happy to talk about more of this in the Q&A.
Rob: Looking out at the rest of the year, we now expect second half issuance to be roughly in line with the second half of 2023, and we continue to expect Q4 issuance to be down in the mid-teens range versus prior year Q4, very consistent with our prior guide.
Rob: So what's changed here really is we've taken the second quarter beat into our issuance numbers and our outlook for Q3 is now a bit higher than it was previously.
Rob: We've provided some additional color on this slide for the various asset classes, and we'd be happy to talk about more of this in the Q&A.
Noemie: Given this level of growth, we're raising guidance across revenue and profitability metrics in our ratings business. I'd like to take a moment to provide some high-level context behind our thinking. As we've consistently stated, we expect the first half of the year to be busier than the second half, and this view remains unchanged. From a macroeconomic standpoint, we have a positive outlook for the remainder of the year and expect global GDP to be between 2% and 3% for the full year. Our June default report, which was just published last week, is signaling that global default rates peaked in April and will continue to decline gradually in the coming 12 months.
Rob: Given this level of growth, we're raising guidance across revenue and profitability metrics in our ratings business.
Rob: I'd like to take a moment to provide some high-level context behind our thinking.
Rob: As we've consistently stated, we expect the first half of the year to be busier than the second half, and this view remains unchanged.
Rob: From a macroeconomic standpoint, we have a positive outlook for the remainder of the year and expect global GDP to be between 2 and 3% for the full year.
Rob: Our June default report, which was just published last week, is signaling that global default rates peaked in April and will continue to decline gradually in the coming 12 months.
Noemie: And we are also relatively agnostic to the timing and number of rate cuts expected later this year. Now, with that context in mind, we are raising our guidance for MIS revenue growth to be in the high teens percent range. And we now expect four-year MIS adjusted operating margin to be in the range of 58% to 69%. For MA, we're maintaining our guidance of high single-digit growth for revenue and a 30% to 31% margin.
Rob: And we are also relatively agnostic to the timing and number of rate cuts expected later this year.
Speaker Change: Now, with that context in mind, we are raising our guidance for MIS revenue growth to be in the high teens percentage range, and we now expect full year MIS adjusted operating margin to be in the range of 58 to 59 percent.
Speaker Change: For MA, we're maintaining our guidance of high single-digit growth for revenue and a 30 to 31 percent margin.
Noemie: However, we're adjusting our expectations for year-end revenue to a wider range, of High Single-Digit to Low Double-Digit Percent Growth. Our current midpoint estimate for revenue growth is at the upper end of the high single-digits. However, taking into account a couple of strategic changes and more uncertainties that we usually have at mid-year, we decided to make this update and provide you with some additional color on the factors that are First, the partnership we announced with MSCI represents a commitment to our customers as well as a strategic shift in our offering. This change may impact our year-end renewals and reduce the sales pipeline for this line of business.
Speaker Change: However, we're adjusting our expectations for year-end AR to a wider range of high single-digit to low double-digit percent growth.
Speaker Change: Our current midpoint estimate for AR growth is at the upper end of the high single-digit range.
Speaker Change: But taking into account a couple of strategic changes and more uncertainties that we usually have at mid-year, we decided to make this update and provide you with some additional color on the factors that are notable.
Speaker Change: First, the partnership we announced with MSCI represents a commitment to our customers as well as a strategy shift in our offering.
Speaker Change: This change may impact our year-end renewals and reduce the sales pipeline for this line of business.
Noemie: Second, while we were optimistic that tight purchasing patterns, particularly in banks and asset managers, would have improved over the course of this year, we continue to see very tight conditions in those customers. This trend is most impactful on our banking, KYC, and research and insight lines of business. And third, as we look toward the U.S. elections in the fall, we'd be remiss if we didn't note that the timing of certain upcoming renewals with U.S. government agencies could be impacting. On a positive note, we also have several newly launched products, Research Assistant, which continues to be enhanced and has been gaining traction at higher price points, along with the new products Rob highlighted earlier.
Speaker Change: Second, while we were optimistic that tight purchasing patterns, particularly in banks and asset managers, would have improved over the course of this year, we continue to see very tight conditions in those customer sectors.
Speaker Change: This trend is most impactful on our banking, KYC, and research and insight line of businesses.
Speaker Change: And third, as we look toward the U.S. elections in the fall, we'd be remiss if we didn't note that the timing of certain upcoming renewals with U.S. government agencies could be impacted.
Speaker Change: On a positive note, we also have several newly launched products, Research Assistant, which continues to be enhanced and has been gaining traction at higher price points.
Noemie: And these are all expected to be able to build pipelines and close deals as we head into the back half of the year. So, all in all, our pipeline is strong. We're continuing to invest and innovate to drive durable, double-digit growth in the years to come. Now, bringing all this together, we now expect Moody's revenue to grow in the low teens percent range. Expenses to Grow in the High Single-Digit Range and an adjusted operating margin in the range of 46 to 47 percent.
Speaker Change: along with the new products Rob highlighted earlier and these are all expected to be able to build pipelines and close deals as we head into the back half of the year.
Speaker Change: So, all in all, our pipeline is strong. We're continuing to invest and innovate to drive durable double-digit growth in the years to come.
Speaker Change: Now, bringing all this together, we now expect Moody's revenue to grow in the low teens percent range.
Speaker Change: Expenses to Grow in the High Single-Digit Range, and an Adjusted Operating Margin in the Range of 46 to 47%.
Noemie: This expense guidance update of a high single-digit percent increase primarily reflects increases to incentive comps and an additional charge related to asset abandonment, which we will take over the second half of the year, related to the shift in our strategy to source ESG data and scores from MSCI. That's a non-cash charge.
Speaker Change: This expense guidance update of a high single-digit percent increase
Speaker Change: Primarily reflects increases to incentive comp, and the additional charge related to asset abandonment, which we will take over the second half of the year, related to the shift in our strategy to source ESG data and scores from MSCI. That's a non-cash charge.
Noemie: From a capital allocation perspective, I'm happy to share that we are increasing our free cash flow guidance to a range of $2 billion to $2.2 billion and are also raising our guidance for share repurchases by $300 million to approximately $1.3 billion. In doing so, we plan to return around 90% of our free cash flow to our stockholders in the form of buybacks and dividends for the full year 2020. And finally, as Rob mentioned earlier, we are increasing our adjusted diluted EPS guidance range to $11 to $11.40, a $0.50 increase at the midpoint.
Speaker Change: From a capital allocation perspective, I'm happy to share that we are increasing our free cash flow guidance to a range of $2 billion to $2.2 billion and are also raising our guidance for share repurchases by $300 million to approximately $1.3 billion.
Speaker Change: In doing so, we plan to return around 90% of our free cash flow to our stockholders in the form of buybacks and dividends for the full year 2024.
Speaker Change: And finally, as Rob mentioned earlier, we are increasing our adjusted diluted EPS guidance range to $11 to $11.40, a $0.50 increase at the midpoint. And that represents about 13% growth versus last year.
Speaker Change: So I'll just wrap up by congratulating my colleagues on a very strong first half and I'm very excited for what it looks to be a very strong year.
Noemie: And that represents about 13% growth versus last year. So I'll just wrap up by congratulating my colleagues on a very strong first half, and I'm very excited for what it looks to be a very, And that concludes our prepared remarks. Operator, can we open the call up for questions? Thank you. If you would like to ask a question, please dial star 1 on your telephone keypad. If you are on a speakerphone, please pick up your handset and make sure that your mute function is turned off so that your signal reaches our equipment. We will ask that you please limit yourself to one question. The option to rejoin the queue will be unavailable.
Speaker Change: And that concludes our prepared remarks. Operator, can we open the call box for questions, please?
Speaker Change: Thank you. If you would like to ask a question, please dial star 1 on your telephone keypad. If you are on a speakerphone, please pick up your handset and make sure that your mute function is turned off so that your signal reaches our equipment.
Speaker Change: We will ask that you please limit yourself to one question. The option to rejoin the queue will be unavailable. Again, that is star 1 to ask a question. And our first question will come from the line of Owen Lau with Oppenheimer & Company. Please go ahead.
Operator: Again, that is Star 1 to ask a question. And our first question will come from the line of Owen Lau with Oppenheimer & Company. Please go ahead.
Owen Lau: Good afternoon, and thank you for taking my question. So I do want to go back to issue. You have provided a lot of good information already. But again, like issuance, it will continue to be strong in the second quarter. You raised the guidance for MIS, but could you please give us an updated view on your pull-forward expectation? And do you now expect less impact on pull-forward than you had expected maybe a few months ago? Can you maybe elaborate a little bit more on that? Hey Owen, great question. I'd say there are two kinds of pull forward.
Owen Lau: Good afternoon and thank you for taking my questions.
Speaker Change: So, I do want to go back to issuance, you have provided a lot of good information already, but again, like, issuance continues to be strong in the second quarter,
Speaker Change: You raised the guidance for MIS.
Owen Lau: But could you please give us an updated view on your pull-forward expectation, and do you now expect, like, less impact on pull-forward than you had expected maybe a few months ago? Can you maybe elaborate a little bit more on that? Thanks a lot.
Rob: The first is the pull forward of planned financing within a given calendar year. And the second is the pull forward from forward maturities. And I would say that we have seen both this year.
Owen Lau: Hey Owen, great question.
Speaker Change: I'd say there's two kinds of pull forward. The first is pull forward of planned financing within
Owen Lau: a given calendar year. And the second is the pull forward from forward maturities. And I would say that we have seen both
Owen Lau: this year. As I think Noemie was touching on,
Rob: As I think Noemie was touching on a bit, you know, in terms of what we think in the second half, we think that the fourth quarter, in particular, I think it's going to be November and December, is going to be much more muted in terms of issuance. And that's due, in part, because a lot of the issuers have been guided by the banks to issue earlier in the year, while the market conditions are favorable Second, we've seen some pull forward from future years that from, you know, the forward maturities, that's mostly 2025 and mostly spec grade. And I'll give you maybe just a little bit of context around that.
Speaker Change: A bit, you know, in terms of what we think in the second half, we think that the fourth quarter in particular, I think it's going to be November and December is going to be much more muted.
Speaker Change: in terms of issuance.
Speaker Change: And that's due in part because a lot of the issuers have been guided by the banks to issue earlier in the year while the market conditions are favorable and to avoid any kind of, you know, election-related turbulence in the fourth quarter.
Speaker Change: Second, we've seen some pull forward from future years that from, you know, the forward maturities, that's mostly 2025 and mostly spec grade. And I'll give you maybe just a little bit of context around that.
Rob: If you go back something like a decade, Owen, it's pretty common, actually, to see pull-forward from spec-grade maturities in the immediate year prior to maturity. And if you think about it, it makes sense because spec-grade issuers don't want to wait until the last month or two and risk not having market access due to a risk-off period in the market. That's much less true with investment-grade issuers, who generally always have market access. So we've certainly seen some pull-forward from 2025. I'd say a meaningful amount of pull-forward.
Speaker Change: If you go back something like a decade, Owen, it's...
Owen Lau: It's pretty common, actually, to see pull-forward from spec-grade maturities in the immediate year prior to maturity, and if you think about it, it makes sense because
Owen Lau: Speck-grade issuers don't want to wait.
Owen Lau: [inaudible]
Owen Lau: That's much less true with investment grade issuers.
Owen Lau: who generally always have market access.
Owen Lau: We've certainly seen some pull-forward from 2025, I'd say a meaningful amount of pull-forward, but it's also within the ranges that we have seen in prior years for pull-forward from the year, immediate year prior for spec-grade.
Rob: But it's also within the ranges that we have seen in prior years for pull-forward from the immediate year prior for spec-grade. The 2026 pull-forward is actually a bit lower than some of the ranges that we have typically seen, and I think that's probably because issuers want to see rates come down before they pull forward those maturities, right? I would also just note that 2025 speculative grade maturities at the time of issuance were the highest on record, so there's just a lot of speculative debt that's got to get refinanced that's contributing to the refi volume.
Owen Lau: 2026 pull forward is actually a bit lower.
Owen Lau: Then some of the ranges that we have typically seen, and I think that's probably because issuers want to see rates come down before they pull forward those maturities, right?
Owen Lau: I would also just note that 2025 spec-grade maturities at the time of issuance were the highest on record, so there's just a lot of spec-grade debt that's got to get refinanced, that's contributing to the refi volume, so I think, Owen, I think my takeaway is that, yes, there's pull forward,
Rob: So I think, Owen, my takeaway is that, yes, there's pull forward. The pull forward from future years appears to be in these historical ranges that we've seen, and I don't think at this point it changes how we would feel about next year. God, it's super helpful. Thanks a lot.
Owen Lau: The pull forward from future years appears to be in these historical ranges that we've seen, and I don't think at this point it changes how we would feel about next year.
Owen Lau: Got it. Super helpful. Thanks a lot, Rob.
Andrew Owen Nicholas: Our next question comes from the line of Andrew Nicholas with William Blair. Please go ahead. Hi, thank you for taking my questions. I want to kind of follow up on that pull forward question a little bit more. And you hit on a little bit, Rob, at the end, but it sounds like you're expecting a little bit more muted issuance around kind of geopolitical and maybe macro uncertainty and factors of that sort.
Speaker Change: Our next question comes from the line of Andrew Nicholas with William Blair. Please go ahead.
Andrew Owen Nicholas: Hi. Thank you for taking my questions. I want to kind of follow up on that pull-forward question a little bit more. And you hit on it a little bit, Rob, at the end, but it sounds like you're expecting a little bit more muted issuance around geopolitical and maybe macro uncertainty and factors of that sort. But it doesn't sound like you're quite yet baking in any benefit from rate cuts.
Andrew Owen Nicholas: But it doesn't sound like you're quite yet baking in any benefit from rate cuts. Just kind of wondering how you think about the interplay of those two dynamics, both at the end of this year and maybe even at the start of next. Thank you.
Andrew Owen Nicholas: I'm just kind of wondering how you think about the interplay of those two dynamics, both at the end of this year and maybe even to start next. Thank you.
Rob: I mean, if you think about how, you know, how we're thinking about the balance of the year, I'd say how we think about it is not particularly dependent on what's going to happen with interest rates. Noemie talked a bit about that, but now I'm just focusing on the balance of the year here for a moment. You know, we basically took the very strong first half of issuance into our outlook, and we believe based on the strength of conditions through the first half of the year, we actually increased our issuance outlook for the third quarter. And we remained pretty cautious, as I said, about the fourth quarter. So I would expect if there are rate cuts, given what I think has gone on in the fourth quarter, and I think largely there's been this in-year Our next question comes from Toni Kaplan with Morgan Stanley. Please go ahead. Hey, this is Greg Parrish on behalf of Toni.
Speaker Change: Yeah, so I think that's probably right. I mean, if you think about how, you know, how we're thinking about the balance of the year, I'd say, you know, how we're thinking about it's not particularly dependent on what's going to happen
Speaker Change: with interest rates. You know, Noemie talked a bit about, you know, now I'm just focusing on the balance of the year here for a moment.
Noemie: We basically took the very strong first half of issuance into our outlook. We believe, based on the strength of conditions through the first half of the year, we actually then upped.
Speaker Change: are issuing its outlook for the third quarter, and we remained pretty cautious, as I said, about the fourth quarter.
Speaker Change: So I would expect if there are rate cuts, given what I think has gone on the fourth quarter, and I think largely there's been this in-year pull forward, if we see rate cuts, that's probably going to be a catalyst for 2025 issuance would be my guess.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Toni Kaplan with Morgan Stanley . Please go ahead.
Toni Michele Kaplan: Thanks for taking our question. Maybe just move to MA for a moment. So you reiterated your expectations for research and insights. [inaudible] Yeah, so in Research and Insights, ARR growth of 6%. That's in line with what we saw in the first quarter. We talked about some modest retention pressures with our CreditView offering on the last call, some of which came from some of the banking consolidation. That was expected.
Greg Parrish: Hey, this is Greg Parrish on for Toni. Thanks for taking our question. Maybe just to move to MA for a moment. So you reiterated your expectations for Research and Insights to accelerate in second half towards
Speaker Change: High Single Digits
Speaker Change: Maybe just update us on the drivers there, because, I mean, you lowered ARR partially because of RNI, but you still expect that to accelerate.
Speaker Change: Maybe just help us reconcile that. And it sounds like the environment's not improving as fast as you thought, so just kind of wanted to better understand. And then maybe kind of update us again this quarter on why you expect it to accelerate. Thanks.
Speaker Change: Yeah, so...
Speaker Change: In Research and Insights, ARR growth of 6%, that's in line with what we saw in the first quarter.
Speaker Change: We, I think on the last call, we talked about some modest retention pressures with our CreditView offering, some of which came from some of the banking consolidation. That was expected. We had anticipated that.
Rob: We had anticipated that. You know, I think Noemie mentioned that, you know, both the banking and asset management sectors are experiencing, as she said, tight conditions, cost pressures. That puts some pressure on, you know, upsell, pricing, retention, those kinds of things. But it's also why we've really been focused on innovating and investing in that, you know, in our offerings, particularly Research Assistant. And I, you know, we talked about last quarter, and I think this continues to be true, part of what is going to drive the pickup in ARR growth in research and insights is the research assistant and our coverage expansion, and maybe just a double click on research assistant for a moment because you know that's a part of this, we've got some good, very encouraging data points. We've got a very strong pipeline for research assistant. We have Specifically, since the first quarter, we've doubled the number of customers for research assistant, and we've seen average deal sizes increase by 2X.
Speaker Change: You know, I think Noemie mentioned that, you know, both the banking and asset management sectors, you know, are experiencing
Noemie: She said tight conditions, you know, cost pressures, that puts some pressure on, you know, upsell, pricing, retention, those kinds of things, but it's also why we've really been focused on innovating and investing in
Noemie: In that, you know, in our offerings, in particular, research assistant, and I, you know, we talked about last quarter, and I think this continues to be true, part of what is going to drive
Noemie: The pickup in AR growth and research.
Noemie: and Insights is the research assistant and our coverage expansion and maybe just a double click on research assistant for a moment because you know that's a that's a part of this you know we've got some good you know very encouraging data points
Speaker Change: We've got a very strong pipeline for research assistant, we have some good sales momentum in the past couple of months, specifically, since the first quarter, we've doubled the number of customers for research assistant, we've seen average deal sizes increase by 2x,
Rob: We've experienced some shorter sales cycles, and usage is up, and customer satisfaction is up among research assistant users. So all that is encouraging and leading me to believe that we're moving in the right direction, and that's going to continue to support the pickup of growth in that line. Yeah, the other thing I would add, Rob, is that the retention rate for MA in general, and research and insight is remaining very solid, around 94%. Our next question will come from Manav Patnaik with Barclays. Please go ahead.
Speaker Change: We've experienced some shorter sales cycles.
Speaker Change: and Usage is Up and Customer Satisfaction is Up with Research Assistant Users.
Speaker Change: All that is encouraging and leading me to believe that we're moving in the right direction, and that's going to continue to support the pickup of growth in that line. Yeah, the other thing I would add, Rob, is on the retention rate for MA in general and research and insight is remaining very solid around 94%.
Speaker Change: Our next question will come from the line of Manav Patnaik with Barclays. Please go ahead.
Manav Shiv Patnaik: Thank you. Rob, I just wanted to double-click, I guess, on the MSCI partnership. Just some timeline. I think the ESG piece is self-explanatory.
Manav Shiv Patnaik: Thank you. Rob, I just wanted to double-click, I guess, on the MSCI partnership, just some timeline. I think the ESG piece is self-explanatory.
Manav Shiv Patnaik: Timeline and sample of what you envision on the private credit side and if I could just you know follow up Naomi on the ESG side just the you know the size of that ESG business you currently have and if you could just help us appreciate like if
Speaker Change: MSCI sells 10 million, let's say, how much does that impact you? I think you referred to maybe seeing some negative optics from that.
Rob: Just some timeline and a sample of what you envision on the private credit side. And if I could just follow up, Noemie, on the ESG side, just the size of that ESG business you currently have, and if you could just help us appreciate, like, if MSCI sells $10 million, let's say, how much does that impact you? Yeah, Manav, I'll start and then hand it to Noemie.
Speaker Change: Yeah, Manav, I'll start and then hand it to Noemie.
Rob: Yeah, I have to say, we are really excited about this MSCI partnership. I do think it's a win-win for our customers because the MSCI ESG scores and data really are considered a market standard, and we're going to be able to provide that content to our banking, insurance, and corporate customers. And they're, you know, as I think you know, they're going to be leveraging Orbis to expand their coverage. So it's a great partnership, a real spirit of partnership with MSCI.
Speaker Change: Yeah, I have to say, we are really excited about this MSCI partnership because I do think it's a win-win for our customers because the MSCI ESG scores and data really are considered a market standard and we're going to be able to provide
Speaker Change: That content through to our banking, insurance, and corporate customers.
Speaker Change: And they're, you know, as I think you know, they're going to be leveraging Orbis to expand their coverage. So it's a great partnership.
Rob: In terms of timing, you know, there's a good bit of work to do to transition to integrate the content and transition it into our solutions. I'd say, you know, that work has begun in earnest, Manav, but it's probably going to take through the end of the year to be able to do that. Meanwhile, I think, you know, we've already got some very good ideas about what we can do in terms of private credit.
Speaker Change: A real spirit of partnership with MSCI. In terms of timing, there's a good bit of work to do to transition, to integrate the content and transition it into our solutions. I'd say that work has begun in earnest, Manav, but it's probably going to take
Speaker Change: through the end of the year to be able to do that. Meanwhile, I think we've already got some very good ideas around what we can do in terms of private credit. And if you think about
Rob: And if you think about, you know, our credit scoring capabilities, as well as, you know, their expertise and distribution around the global investment community, there's a clear need for, and desire to have a third-party assessment of credit risk in the private credit space. So we've got some good ideas there, and I think. The initial focus right now is going to be around the ESG integration into our solutions. I would say, you know, when we come back from the summer, probably, you know, sometime in September, we're going to roll up our sleeves around private credit and start to get to work there.
Speaker Change: [inaudible]
Speaker Change: The initial focus right now is going to be around the ESG integration into our solutions.
Speaker Change: I would say, you know, when we come back from the summer, probably, you know, sometime in September , we're going to roll up our sleeves around
Noemie: I don't have a timeline on when we might actually get something to market, Manav, but I would say the ESG stuff came together pretty quickly. And given the market need, you know, I think we'll work quickly here as well. Yeah, on the relative side of the ESG in our MA business, it's pretty small, you know; it's a small part of our overall ESG and climate business. It's going to affect the pipeline for the remainder of the year, which is factored into our revised guidance for AR, but it's not a material swing to our overall business for MA. Okay. Our next question comes from the line of Scott Wurtzel with Wolf Research. Please go ahead.
Speaker Change: the private credit and start to get to work there. I don't have a timeline on when we might actually get something to market, Manav, but I would say the ESG stuff came together pretty quickly and given the market need, I think we'll work quickly here as well.
Speaker Change: Yeah, on the relative side of the ESG in our MA business, it's pretty small, you know, it's a small part of our overall ESG and climate business.
Speaker Change: It's going to affect a little bit the pipeline for the remainder of the year, which is factored into our revised guidance for AR, but it's not a material swing to our overall business remedy.
Speaker Change: Okay, thank you.
Speaker Change: Our next question comes from the line of Scott Wurtzel with Wolf Research. Please go ahead.
Scott Darren Wurtzel: Hey, good afternoon, guys. And thank you for taking my question here. Just wanted to go back to the strategic investments that we've talked about over the course of this year. And can you just update us on sort of where we are in that investment cycle? I mean, it seems like you are making progress on sort of the gen AI-related product side, but we'd love to kind of hear where we are in this investment cycle. And specifically on maybe some of the other new products around private credit, digital finance, transition finance, just kind of where we are. Yeah, maybe I'll take that. And I'll let Rob expand on that as well.
Scott Darren Wurtzel: Hey, good afternoon guys and thank you for taking my question here. Just wanted to go back to, you know, the strategic investments that we've talked about over the course of this year and can you just update us on sort of where we are in that investment cycle? I mean, it seems like you are making progress on sort of the Gen AI related product side, but we'd love to kind of hear where we are in this investment cycle and specifically on maybe some of the other, you know, new products around private credit, digital finance, transition finance, just kind of where we are now.
Noemie: But we remain on track with what we've communicated initially earlier in the year. Let me give you a bit of color on where we've deployed investment so far. So, let me start with Gen AI.
Scott Darren Wurtzel: Yeah, maybe I'll take that and I'll let Rob expand as well. But we remain on track with what we've communicated initially earlier in the year. Let me give you a bit of color on where we've deployed investment so far. So let me start with Gen AI.
Scott Darren Wurtzel: You heard last quarter we've established a framework around our Gen AI development. We have a set of Gen AI tools that will be rolled out across our products this year.
Scott Darren Wurtzel: In banking, we made a small acquisition earlier this year to accelerate the build of our banking assistance.
Noemie: As you heard last quarter, we've established a framework around our Gen AI development; we have a set of Gen AI tools that will be rolled out across our products this year. In banking, we made a small acquisition earlier this year to accelerate the build of our banking assistant. And the enablement of end-to-end lending workflow, it was a company called Able AI that really helped automate the commercial loan documentation process and fill some gaps for us in jobs to be done across the lending value chain.
Speaker Change: And the enablement of end-to-end lending workflow. It was a company called Able.ai that really helped automated the commercial loan documentation process and filling some gaps for us in jobs to be done across the lending value chain. So that's an example of where we've invested.
Noemie: So that's an example of where we've invested. Internally, we're expanding our use of copilot and other Gen AI capabilities. We've completed our RCSA framework and ratings, and we're rolling out a ratings copilot environment. Obviously, we've talked with our regulators, and we have very tight controls around that, and Rob can expand on that as well. We've rolled out a lot of Copilot and Gen AI tools internally across the business. Everybody's using them.
Speaker Change: Internally, we've expanded our use of co-pilot and other Gen AI capabilities. We've completed our RCSA framework and ratings, and we're rolling out a ratings co-pilot environment. Obviously, we've talked with our regulators, and we have very tight controls around that, and Rob can expand on that as well.
Noemie: We have very strong uptake in usage and a lot of exciting things when we look at our internal hackathons, for example, that we just conducted. So that's Gen-AI. On the product development side, we're bringing together our data and analytics here into a workflow platform for corporates to support the use of different use cases around sales and marketing optimization, customer onboarding and monitoring, trade credit, and supplier risk. Those are areas that are really important for our customers, and we hear a lot of strong feedback, and we're trying to launch additional products later in the year on that platform.
Rob: We've rolled out a lot of co-pilot and Gen AI tools internally across the business, everybody's using it, we have very strong uptake in usage and a lot of exciting things when we look at our internal hackathons, for example, that we just conducted.
Rob: So that's for Gen AI. On the product development area, we're bringing together our data and analytics here into a workflow platform. That's for corporates to support the use of different use cases around
Rob: Sales and Marketing Optimization, Customer Onboarding and Monitoring, Trade Credit, Supplier Risk, those are areas that are really important for our customers and we hear a lot of strong feedback and we're on track to launch additional products later in the year on that platform.
Noemie: And last, on the technology platforming, which was the third area of investment in MA, we have a platform engineering and architecture roadmap to build on single sign-on, entitlements, and other functionalities to drive a better user experience, which helps retention, but also helps drive further growth in our business. That gives us more insight into customer behavior across our platform, which helps us build use cases that resonate and address the needs of those customers. And that also reaps some efficiencies across our engineering teams as well. For MIS, we continue to deploy applications on our platform.
Rob: And last, on the technology platforming, which was the third area of investment in MA, we have a platform engineering and architecture roadmap to build on single sign-on, entitlements,
Rob: [inaudible]
Rob: And that also reaps some efficiencies across our engineering teams as well.
Rob: For MIS, we continue to deploy applications on our platform. We have the first team on our full ratings lifecycle automation, and we're scaling that to a number of other teams throughout the year.
Noemie: We have the first team on our full ratings lifecycle automation, and we're scaling that to a number of other teams throughout the year. And that's going to be really helpful in enhancing regulatory compliance. That will also allow us to process issuance volumes more efficiently, and you saw that already in our ability to deliver increased margin in MIS. So in general, we're doing well, we're tracking very well against the investment plan we communicated to you earlier this year. I think that, I think you nailed it. I don't have anything to add, Noemie.
Rob: And that's going to be really helpful in enhancing regulatory compliance that will also allow us to process more efficiently issuance volumes. And you saw that already in our ability to deliver increased margin in MIS.
Rob: In general, we're doing well. We're tracking very well against the investment plan we communicated to you earlier this year.
Rob: I think you nailed it. I don't have anything to add, Noemie.
Rob: Our next question will come from the line of Alex Kramm with UBS. Please go ahead. Yes, hey, hello, everyone.
Speaker Change: Our next question will come from the line of Alex Kramm with UBS. Please go ahead.
Alexander Kramm: I think I'm going to take the other side of that question just now and stay on the AI topic. Sounds like you continue to do a lot. A couple of new products you mentioned today, which sound very sensible, and it seems like there's decent demand. So can you give us an update on, you know, revenues that you're seeing so far, the trajectory and how that may have changed, and when you expect to really have a material contribution here? Yeah, Alex. It's Rob.
Alexander Kramm: Yes, hey, hello everyone. I think I'm going to take the other side of that question just now and stay on the AI topic.
Alexander Kramm: Sounds like you continue to do a lot. A couple new products you mentioned today, which sound very sensible and seems like there's decent demand. So can you give us an update on revenues that you're seeing so far, the trajectory, and how that may have changed, and when you expect...
Speaker Change: to really have a material contribution here. Thanks.
Rob: So, um, I think, you know, I gave you some data points around Research Assistant. This is one of, if not the fastest growing products that we've ever launched. But, you know, it's starting from scratch, and we've got a huge revenue base. So it's not material in the grand scheme of Moody's analytics. But, you know, there are some really encouraging things about it.
Rob: Like I said, we've doubled the number of customers, deal sizes are going up, but I think very importantly is, you know, usage and customer satisfaction is up. And that gives us a lot of confidence that we're going to be able to monetize that over time, and not just in Research Assistant. So it's no longer a one-trick pony. It's not just Research Assistant, right?
Speaker Change: You know, I think, you know, I gave you some data points around Research Assistant, you know, this is one of, if not the fastest growing products that we've ever launched. But, you know, it's starting from scratch and we've got a
Speaker Change: a huge revenue base. So it's not material in the grand scheme of
Speaker Change: Moody's Analytics, but you know there's some really encouraging...
Speaker Change: Things about it. Like I said, you know the we've doubled the number of customers deal sizes are going up
Rob: We've now launched several other solutions, and that's going to go on through the back half of the year and into next year. So there's going to be more and more products that will be leveraging AI coming into our solution suite. Like I said, we've already got a number of customers on private preview mode for both automated credit memo and early warning.
Speaker Change: But I think very importantly is, you know, usage and customer satisfaction is up and that gives us a lot of confidence that we're going to be able to monetize that over time and not just in research assistant. So it's no longer a one trick pony. It's not just research assistant, right? We've now launched several other solutions and that's going to go on through the back half of the year and into next year. So there's going to be
Speaker Change: More and more product that will be leveraging AI coming into our solution suite. Like I said, we've already got a number of customers on private preview mode for both automated credit memo and early warning.
Rob: I would also say, Alex, that we're also working on extending our partnerships with folks like Microsoft and Google, in particular. And that's important because I think those are gonna open up some new monetization pathways for us with our content embedded into their solutions, their co-pilot solutions, their AI solutions. So that is in the process. So it's still not material, but we definitely see some things that are quite encouraging. That makes sense, thank you. Our next question comes from the line of Jeffrey Silber with BMO Capital Markets. Please go ahead. Thanks so much.
Speaker Change: I would also say, Alex,
Speaker Change: that
Speaker Change: We're also working on extending our partnerships with folks like Microsoft and Google in particular, and that's important because I think those are going to open up some new monetization pathways for us.
Speaker Change: with our content embedded into their solutions, their co-pilot solutions, their AI solutions. So that is in process. So it's still not material, but we definitely see some things that are quite encouraging.
Speaker Change: Makes sense. Thank you.
Speaker Change: Our next question comes from the line of Jeffrey Silber with BMO Capital Markets. Please go ahead.
Jeffrey Marc Silber: You talked a little bit about, [inaudible] Yeah, I guess I would say in general, and Noemie, you know, talked about this, we see some cost pressures coming from the banking and asset management sector. And, you know, just to put a finer, you know, kind of a finer point on it, I ran the sales team at one point in the rating agency. You know, you have real conversations with your customers, with procurement departments; you've got to make sure you're really able to articulate the value proposition of your solutions.
Jeffrey Marc Silber: Thanks so much. You talked a little bit about, I guess, the tighter purchasing pattern that you've been seeing. You gave a little color. I was just wondering if you could drill down a little bit more. Maybe you can give some examples of what we're talking about. Thanks.
Jeffrey Marc Silber: Yeah.
Jeffrey Marc Silber: I mean, I guess I would say in general, and Noemie...
Speaker Change: You know, talked about this, you know, we see some cost pressures coming from the banking and asset management sector and, you know, just to put a finer, you know, kind of a finer point on it, I ran the sales team at, you know, at one point in the rating agency,
Speaker Change: You know, you have real conversations with your customers, with procurement departments, you've got to make sure you're really able to articulate the value proposition
Jeffrey Marc Silber: That might mean that customers, you might see that again in terms of pressure, in terms of what we would think of as upsells or perhaps around annual price increases. You know, I talked about, we've mentioned, we've seen a little bit of pressure on the retention rates in credit view. So, you know, that gives you, hopefully, gives you a little bit of a flavor.
Speaker Change: of your solutions. That might mean that customers, you might see that again in terms of pressure, in terms of what we would think of as upsells or perhaps around annual price increases.
Speaker Change: You know, I talked about, you know, we've mentioned, we've seen a little bit of pressure on
Speaker Change: The Retention Rates in Credit View.
Rob: I guess maybe the other thing I might just touch on, though, is also the sales pipeline. So that gives you a little bit of the sales environment in certain customer segments. But, you know, we've got a very healthy sales pipeline. There is very strong demand for our products. You're seeing that from the ARR growth that we put up through the second quarter. And in some cases, some of our Gen AI offerings, we're actually seeing shorter sales cycles with some of the early adopters.
Speaker Change: That hopefully gives you a little bit of a flavor. I guess maybe the other thing I might just touch on, though, is also maybe the sales pipeline. So that gives you a little bit of the sales environment in certain customer segments.
Speaker Change: But you know, we've got a very healthy sales pipeline. There is very strong demand for our products. You're seeing that from the AR growth that we put up through the second quarter.
Speaker Change: And in some cases, some of our Gen AI offerings, we're actually seeing shorter sales cycles with some of the early adopters. The other thing I'd say is...
Rob: The other thing I'd say is one of the drivers of pipeline growth is sales meeting activity. The more meetings you do with customers, the more likely you are to build a pipeline. And that's been true for a long time.
Speaker Change: One of the drivers of pipeline growth is sales meeting activity.
Speaker Change: The more meetings you do with customers, the more likely you are to build pipeline, and that's been true for a long time. This quarter, we saw the highest volume of sales meetings post-pandemic and face-to-face engagements.
Rob: This quarter, we saw the highest volume of sales meetings post-pandemic, and face-to-face engagements were something like 40 percent of that activity. So that gives me a lot of confidence that customers want to engage with us around our solutions. You know, so hopefully that gives you a little bit of a flavor for what we're dealing with out there. Yeah, the other thing I would add is we're also having, we've elevated the, We've had a lot of discussion with the C-suite at our banks and traditional customer base, and we're a lot more plugged in to their overall digital transformation initiatives now.
Speaker Change: You know, so hopefully that gives you a little bit of a flavor for what we're dealing with out there.
Speaker Change: Yeah, and the other thing I would add is we're also having, we've elevated the
Speaker Change: The discussion with the C-suite at our...
Speaker Change: Thanks and traditional customer base and we're like a lot more plugged in into their overall digital transformation initiative now
Rob: Now, the flip side of it is, as I'm sure you know, we are also working with them to help them build their framework around gen-AI adoption, and that's going to take some time because they also have to abide by regulations, they have a lot of risk considerations to take into account, and that also plays a role in the dynamic that you see with our gen-AI product. And I just was curious, has it gotten any worse over the last three months, better, stayed the same... is that it? The environment hasn't gotten any worse or better.
Speaker Change: Now the flip side of it is, as I'm sure you know, we have also working with them to help them build their framework around gen-AI adoption, and that's going to take some time because they also have to abide by regulations, they have a lot of
Speaker Change: Risk considerations to take into account and that also plays a role in the dynamic that you see with our with our GNI products.
Speaker Change: And I just was curious, has it gotten any worse over the last three months, better, stayed the same?
Speaker Change: The environment, has it gotten any worse, better, or stayed the same over the last three months?
Rob: I think it's probably pretty consistent with what we've seen for the balance of the year. Alright, fair enough. Thanks so much.
Speaker Change: I think it's probably pretty consistent with what we've seen for the balance of the year.
Speaker Change: Alright, fair enough. Thanks so much. Yeah.
Andrew Charles Steinerman: Our next question comes from the line of Andrew Steinerman with J.P. Morgan. Please go ahead. Hi, this is Andrew from JP Morgan. I wanted to understand better the organic constant currency revenue growth of the data information subsegment, which decelerated to 8% in the second quarter year over year. It just strikes me as odd because, as you know, the ARR of this subsegment has consistently been double-digit, and they just don't understand why there's variation between the organic revenue growth and the organic ARR of data information because I thought it was essentially a fixed subscription. Andrew, this is a very good question, and you're right.
Speaker Change: Our next question comes from the line of Andrew Steinerman with the J.P. Morgan. Please go ahead.
Speaker Change: Hi, this is Andrew, JP Moore again. I wanted to understand better the organic constancy currency revenue growth of the data information subsegment which decelerated to 8% in the second quarter year-over-year. It had been double-digit in the first quarter year-over-year. It just strikes me as odd because as you know the ARR of this subsegment has consistently been double-digit and they just don't
Speaker Change: Understand why there's variation between the Organic Revenue Growth and the Organic ARR of data information because I thought it was essentially fixed subscription.
Noemie: On a sequential basis, the growth was down from I think 12 to 8 this quarter. There is, in fact, a little bit of impact from the mix-of-product nature of the contracts that does create a little bit of variability in the quarterly revenue numbers. 12% in the first quarter is probably a little higher than typical. 8% is probably a little lower than typical.
Speaker Change: Andrew this is a very good question and you're right on a sequential basis the growth was down from I think 12 to 8 this quarter
Speaker Change: There is, in fact, a little bit of impact from mix-of-product nature of the contracts that does create a little bit of variability in the quarter-to-quarter revenue numbers.
Speaker Change: 12% in the first quarter is probably a little higher than typical. 8% is probably a little lower than typical. You look at the first half,
Noemie: You look at the first half growth of roughly 10%. I think that's pretty reflective of the business performance. I also think, Andrew, that's what you can expect for the full year as well as ARR growth. So it's a good question, but I think that hopefully that gives you a sense. Sure thing. Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.
Speaker Change: Growth of roughly 10% I think that's pretty reflective of the business performance and I also think Andrew that's what you can expect for the full year as well as ARR growth.
Andrew: So it's a good question, but I think that hopefully that gives you a sense.
Shwetang: Xue Teng. Thank you.
Speaker Change: Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.
Ashish Sabadra: Hi, thanks for taking my question. As we, you've mentioned a few headwinds to the ARR as we get into the back half of the year, how should we think about those headwinds for revenues? And just given the MA revenue growth has been relatively muted, and comps get harder in the back half of the year, as we think about that high single-digit revenue growth guidance, is it fair to assume towards the lower end versus the higher end of that high single-digit? Yeah, let me take that. As I said in my prepared remarks, the second quarter revenue growth was 7% and 8% at constant currency. It was similar to what we saw in the first quarter.
Ashish Sabadra: Hi, thanks for taking my question. So as we, you've mentioned a few headwinds to the ARR as we get into the back half of the year, how should we think about those headwinds for revenues?
Noemie: But if you take recurring revenue, which is 95% of our revenue in MA, it grew by 9% for the second quarter, similar to what it was in Q1. That's very helpful. The next question comes from the line of George Tom Goldman Sachs. Please go ahead. Hi, thanks. Good morning.
Speaker Change: Yeah, let me take that. As I said in my prepared remarks, the second quarter revenue growth was 7% and 8% at constant currency. It was similar to what we saw in the first quarter. But if you take recurring revenue, which is 95% of our revenue in MA,
Speaker Change: It grew by 9% for the second quarter, similar to what it was in Q1.
Speaker Change: We expect similar growth rates for recurring revenue throughout the year. Transactional revenue was down in the second quarter, and will continue to trend downwards in the second half of the year. We're shifting our focus to renewable sales, as you know.
Speaker Change: So what that means, the best way to think about the guide in the second half of the year, we expect MA to grow in the third quarter to be more or less aligned with the growth that we saw in the second quarter before ticking back up in the higher end of high single digit growth in the fourth quarter. So that's what's behind our guidance.
Speaker Change: That's very helpful, Karan. Thank you. Thanks.
Speaker Change: Our next question comes from the line of George Tong Goldman Sachs. Please go ahead.
George Tom: Within MIS, you mentioned you saw a pull forward from both within the year and also from, 5, you also mentioned that your outlook, 25 issuance hasn't really changed. I just wanted to reconcile those statements. Has your outlook for issuance come down in any future period because of the pull forward of, George, no, I don't think so, because the way I tend to think about this is... We went back and looked, for instance, I mentioned we looked at spec grade forward maturities and what kind of pull forward we see on a year-to-year basis, and what we're seeing this year is pretty consistent with kind of a historical range over the last decade, so that tells me that, I don't think that, given what's going on this year, would then have a material impact the way I might think about the growth profile and issuance profile on a go-forward basis because I don't see this as anomalous pull forward. What's going on on the end calendar, obviously, you know, we talked about that with our outlook. I do think there's in-calendar pull-forward.
Keen Fai Tong: Hi, thanks, good morning. Within MIS, you mentioned you saw a pull forward from both within the year and also from 2025. You also mentioned that your outlook for 2025 issuance hasn't really changed and just wanted to reconcile those statements. Has your outlook for issuance come down in any future period because of the pull forward effect?
Keen Fai Tong: George, no I don't think so because the way I tend to think about this is
Keen Fai Tong: Bye-bye.
Speaker Change: We went back and looked, for instance, I mentioned we looked at spec grade forward maturities and what kind of pull forward we see on a year-to-year basis, and what we're seeing this year is pretty consistent with kind of a historical range over the last decade, so that tells me that
Speaker Change: I don't think that, given what's going on this year...
Speaker Change: would then have a material impact the way I might think about the growth profile and issuance profile on a go-forward basis, because I don't see this as anomalous pull-forward. What's going on in the in calendar, obviously, you know, we talked about that with our outlook.
Speaker Change: I do think there's in-calendar pull-forward. There is 2025 pull-forward, but I don't think that is unusual pull-forward at this point.
Rob: There is 2025 pull-forward, but I don't think that is an unusual pull-forward at this point. Got it, that's helpful. Thank you. Our next question comes from the line, Craig Huber with Huber Research. Please go ahead.
Speaker Change: Got it. That's helpful. Thank you.
Speaker Change: Our next question comes from Alana Craig Huber with Huber Research. Please go ahead.
Craig Anthony Huber: Thank you. Rob, could you just touch on the commercial real estate market in the U.S. here, all the problems in recent years here? to the banking sector here, how concerned are you in your and then my housekeeping question for Noemie is, what's the incentive comp in the quarter? Yes, so Craig, commercial real estate is obviously an area that we've got a keen focus on with our analytical teams. And, you know, we've got a lot of touch points into the commercial real estate space across ratings; we've also got a lot of data and analytic tools across the entire company around commercial real estate.
Speaker Change: Thank you. Rob, could you just touch on the commercial real estate market in the U.S. here, all the problems in recent years here that...
Speaker Change: might be compounding here, what it may mean to the banking sector here. How concerned are you and your analysts about that? And then my housekeeping question for Noemie is, what's the incentive comp in the quarter versus a year ago?
Craig Anthony Huber: You know, I think, generally, this, you know, the concerns around commercial real estate are probably most you after the call, you know, really making sure we understand the commercial real estate exposure of our rated banks and how to think about, you know, stress scenarios around that. So I would I would say there's a lot of focus on it.
Speaker Change: Thank you.
Speaker Change: Yes, so, Craig, commercial real estate is obviously an area that we've got a keen focus on with our analytical teams.
Speaker Change: We've got a lot of touch points into the commercial real estate space across ratings. We've also got a lot of data and analytic tools across the entire company around commercial real estate.
Craig Anthony Huber: You know, I think...
Speaker Change: Generally, the concerns around commercial real estate are probably most focused on office, and it's a certain type of office, too. Type A, Class A office is held up pretty well, so I do think the type of
Speaker Change: [inaudible]
Speaker Change: And then we also think about this from a, you know, banking perspective and our teams actually put out some really interesting research. I'm happy to share it with you after the call. You know, really making sure we understand the commercial real estate exposure of our rated banks.
Rob: Interestingly, Craig, the CMBS issuance market this quarter actually showed some signs of life. We're actually, you know, it's on a small base, but just given the fact that, you know, we've got it at this point, what looks like a soft landing, there is some new investor interest in the CMBS space, which I actually think is quite interesting and tells you something about investor sentiment. Yeah, and on your question about incentive comp, we made an adjustment in the second quarter to reflect the accrual in relation to the top line performance that we saw. We recorded about $117 million in the second quarter, and for the remainder of the year, we expect the quarterly expenses to be about $110 million per quarter.
Speaker Change: and how to think about you know stress scenarios around that. So I would I would say there's a lot of focus
Speaker Change: Interestingly, Craig, the CMBS issuance market
Speaker Change: This quarter...
Craig Anthony Huber: actually showed some signs of life. We're actually, you know, it's on a small base, but just given the fact that, you know, we've got it at this point what looks like a soft landing.
Speaker Change: There is some new investor interest in the CMBS space, which I actually think is quite interesting and tells you something about investor sentiment.
Speaker Change: Yeah, and on your question about incentive comp, we've made an adjustment in the second quarter to reflect the accrual in relation to the top-line performance that we saw. We recorded about $117 million in the second quarter, and for the remainder of the year, we expect the quarterly expense to be about $110 million per quarter.
Noemie: And one other thing I might add, Craig. I talked about it in my remarks, this early warning system, but but it is the initial offering, which is focused specifically on commercial real estate. And this really synthesizes a broad range of our content and our models to allow you to understand, you know, an event happens in the market, and you want to start to sensitize and understand the potential impact of that event, use our models, use our data, and be able to get a sense of the impact in a fraction of the time that you might otherwise. Great Thanks a lot.
Speaker Change: Hey, one other thing I might add to, Craig, I mean, I talked about it in my remarks, this early warning system, but it is the initial offering is focused specifically on commercial real estate.
Speaker Change: and this...
Speaker Change: really synthesizes a broad range of our content and our, and our models to allow you to understand, you know, an event happens in the market, and you want to start to sensitize and understand the potential impact of that event, call our models, call our data, and be able to get a sense of the impact.
Speaker Change: In a fraction of the time that you might otherwise and so you can imagine based on that There's there's some very good interest from folks in the market who want to use Tools like that to be able to figure out where do they need to actually focus scarce resources
Speaker Change: Great. Thanks a lot.
Rob: Thank you. Yeah. Our next question comes from the line of Shlomo Rosenbaum with Stiefel.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Shlomo Rosenbaum with Stiefel. Please go ahead.
Shlomo H. Rosenbaum: Please go ahead. Hi, thank you very much for taking my question. I just want to probe a little bit more on the ARR widening of the range because of this MSCI deal. Can you explain again? There's a change in strategy, so therefore, some of the sales in the pipeline may not materialize this year, as you're thinking of switching over to some of the MSCI products. Is that correct?
Shlomo H. Rosenbaum: Hi, thank you very much for taking my question. I just want to probe a little bit more in the ARR widening of the range because of this MSCI deal. Can you explain again
Rob: And then, how should we think about it on the flip side, in terms of you selling stuff through Orbis? Trying to understand, is this a little bit of a slowdown, but things should pick up in 2025 when the links are kind of set up technologically between the two companies, or is this something just kind of a slowdown, and then we get back to what was before? What, just if you could give a little more color on Yeah, so maybe I'll first start by just kind of reiterating what Noemie said.
Speaker Change: There's a change in strategy, so therefore...
Speaker Change: Some of the sales in the pipeline may not materialize this year as you're thinking of switching over to some of the MSCI products. Is that correct? And then how should we think about it on the flip side in terms of you selling stuff through Orbis? And I'm trying to understand, is this a little bit of a slowdown, but then things should pop more in 2025 when the links are kind of set up technologically between the two companies? Is this something just kind of a slowdown and then we get back to what was before? Just if you can give a little more color on this.
Rob: The scores and data are actually a pretty small part of our overall, what we call the ESG and climate business. I know we defined that a couple years ago, so it's really kind of a fraction of that. But you're exactly right.
Speaker Change: Yeah, so maybe I'll first start by just kind of reiterating what Noemie said, the scores and data are actually a pretty small part of our overall, what we call the ESG and climate
Speaker Change: I know we defined that a couple years ago, so it's really kind of a fraction of that. But you're exactly right. I think that's what's going to happen is as we transition, you know, you can imagine, we have a sales pipeline of our own content threaded through our solutions, and so now we're going to be, you know, integrating in the MSCI content. We've got to be able to go out and talk to our customers, we've got to be able to integrate that. That is going to impact our sales pipeline in the near term.
Rob: I think that's what's going to happen is as we transition, you know, you can imagine we have a sales pipeline of our own content threaded through our solutions. And so now we're going to be, you know, integrating the MSCI content; we've got to be able to go out and talk to our customers, we've got to be able to integrate that, and that is going to impact our sales pipeline in the near term.
Speaker Change: And, you know, it could also impact...
Speaker Change: You know, some of the retention in the near term.
Speaker Change: But I think in the medium term, you know, having...
Speaker Change: You know, the opportunity to offer, you know, what is, you know, clearly, you know, best in class ESG content through to our customers through our solutions, I think will, is going to be a positive for us, and we'll be able to kind of
Rob: And, you know, it could also impact, you know, some retention in the near term. But I think in the medium term, having, you know, the opportunity to offer, you know, what is, you know, clearly, you know, best in class ESG content to our customers through our solutions, I think will, is going to be a positive for us. And we'll be able to kind of, you know, start to build the pipeline back; I would expect that will be a 2025 event. But again, remember, ESG scoring and data is a pretty small business for us. I think going the other way, the Orbis, going back to them.
Speaker Change: start to build the pipeline back. I would expect that will be a 2025 event. But again, remember.
Speaker Change: ESG scoring and data, purely scoring and data, that's a pretty small business for us.
Speaker Change: I think going the other way, the Orbis, going back to them.
Rob: Yeah, so, you know, it's going to start with MSCI using Orbis for ESG scores. And, you know, that's a place where there's good demand from our customers. And, you know, I think, like, like, sometimes, like, many partnerships, you start with one thing, and you continue to build into other opportunities. And I think there will be other opportunities for MSCI to be able to leverage our Orbis database beyond simply ESG and climate.
Speaker Change: Yeah, so, you know, it's going to start with MSCI using Orbis for ESG scores and, you know,
Speaker Change: That's a place where...
Speaker Change: There's good demand from our customers and I think like many partnerships, you start with one thing and you continue to build into other opportunities and I think there will be other opportunities for MSCI to be able to leverage our Orbis database beyond simply ESG and climate.
Rob: And, and so you know, I think that's something we'll see probably in a 2025 event, and private credit is going to be one of those places. Thank you. Our next question comes from the line of Faiza Alwy with Deutsche Bank. Please go ahead.
Speaker Change: Again, I think that's something we'll see in probably a 2025 event, and private credit is going to be one of those places.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Faiza Alwy with Deutsche Bank. Please go ahead.
Faiza Alwy: Yes, hi, thank you. So I had a similar question, but on the government side, because I think you mentioned that one consideration in terms of thinking about ARR is some of these government contracts that may be up for renewal later in the year. So, just curious if you can remind us how big the government business might be. Is all of it up for renewal? And is it really, again, sort of a timing factor? Or how should we think about the risk in a different administration?
Faiza Alwy: Yes, hi, thank you. So I had a similar question, but on the government side, because I think you mentioned that one consideration
Faiza Alwy: In terms of thinking about ARR is some of these government contracts that may be up for renewal later in the year. So just curious if you can remind us how big the government business might be. Is all of it up for
Rob: And I assume that this is mostly the KYC business, but any further color is appreciated. Yeah, so we don't disclose revenues by customer segment, but it's, you know, it's our smallest customer segment. But that said, it's been growing quite nicely. Over the last year or two, there's been a lot of demand for, you know, as you said, the Orbis data supporting, governments really want to understand more, you know, about entities that they're engaging with. Obviously, I think we were just, you know, I don't want to overrotate on this. I think we were just trying to be prudent. And, you know, we've got a few of these bigger contracts. And these are these are one-year contracts.
Faiza Alwy: Renewal. And is it really, again, sort of a timing factor? Or how should we think about the risk in a, you know, different administration? And I assume that this is mostly the KYC business, but any further color is appreciated.
Speaker Change: Yeah, so it's, you know, we don't disclose around revenues by customer segment, but it's, you know, it's our smallest customer segment. But that said, it's been growing quite nicely.
Speaker Change: Over the last year or two. There's a lot of demand for, as you said, the Orbis data's supporting.
Speaker Change: Governments really want to understand more.
Speaker Change: you know, about entities that they're engaging with, obviously, I think we were just, you know, I don't want to over rotate on this. I think we were just trying to be prudent and, you know, we've got a few of these bigger contracts.
Rob: And, you know, you hear us talking about, you know, a little bit the potential for a little bit bumpier environment in the fourth quarter. And so we just wanted to acknowledge that there might be some risk that, you know, some of that could slip into the following year. Yeah, and if you take each of those different factors individually, they're not significant in and of themselves.
Speaker Change: These are one-year contracts, and you know, you hear us talking about
Speaker Change: The potential for a little bit bumpier environment in the fourth quarter.
Speaker Change: wanted to acknowledge that there might be some risk that.
Speaker Change: You know, some of that could slip into, you know, the following year. Yeah, and if you take each of those different factors individually, they're not significant in and of themselves. It's just a combination of all those things that made us want to widen the range a bit. But as I said,
Noemie: It's just a combination of all those things that made us want to widen the range of it. But as I said, the midpoint of our current guidance range is in the upper end of that high single-digit percent range. So I just want to put that into perspective. Again, we're talking, you know, a narrow range around that.
Speaker Change: The midpoint of our current guidance range is in the upper end of that high single-digit percent range. So I just want to put that into perspective again. We're talking, you know, a narrow range around that ballpark. Yeah, and the renewals, it's probably mostly in our data and information business.
Noemie: Yeah, and the renewals are probably mostly in our data and information business. Great, thank you. Our next question comes from the line of Jeffrey Meuler with Baird. Please go ahead. Yeah, thank you.
Speaker Change: I would say.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from the line of Jeffrey Meuler with Baird. Please go ahead.
Jeffrey P. Meuler: Beyond the Gen AI product launches and scaling that revenue, what are the other call-outs that go into the assumed acceleration in MA in the median term framework? And I ask because KYC is doing really well, insurance has already accelerated to a great growth rate, and R&I is assumed to have good growth this year. So, just because of how diverse the business is, it seems hard to bank on all of the end markets doing well at once. So what are the other self-help books?
Jeffrey Moeller: Yeah, thank you. Beyond the Gen AI product launches and scaling that revenue, what are the other call-outs that go into the assumed acceleration in MA in the medium-term framework? And I ask because KYC is doing really well, insurance,
Speaker Change: already accelerated to a great growth rate and R&I is assumed to have good growth in this year.
Speaker Change: Just with how diverse the business is, it seems hard to bank on all of the end markets doing well at once. So what are the other self-help factors? Thank you.
Rob: Yeah, I would say, in a nutshell, it's probably... our land and expand strategy. So we believe there remains a fairly significant cross-sell opportunity into banks and insurance companies. You know, we've been focused on that for some time, but we actually think there is more upside to that. There are some things that we're doing, some of the things that Noemie talked about, some of the investments we're making are designed to help us with that expand cross-sell opportunity with banks and insurance companies. She talked about some of the platform engineering and being able to better understand customer usage across all of your product suites and so on. So that's one.
Speaker Change: Yeah, I would say, in a nutshell, it's probably...
Speaker Change: Our land and expand strategy. So we believe there remains a fairly significant cross-sell opportunity into banks and insurance companies.
Speaker Change: You know, we've been focused on that for some time, but we actually think there is more upside to that. There's some things that we're doing, some of the things that Noemie talked about, some of the investments we're making are designed.
Noemie: to help us with that expand cross-sell opportunity with banks, insurance companies. She talked about some of the platform engineering and being able to better understand customer usage.
Speaker Change: across all of your products, we'd and so on. So that's one. And then second is an expand opportunity with corporates. And you heard us talk a little bit about on this call going after a set of interconnected
Rob: And then second, there is an expanding opportunity with corporates, and you heard us talk a little bit about on this call going after a set of interconnected use cases around sales and marketing optimization, customer onboarding and monitoring, supplier risk, trade credit, you know, all of that. And so, you know, we've had some really nice sales wins with big multinational companies around some or all of those use cases, which has given us confidence to further invest in product development around all of that, to really industrialize our offering and go after that opportunity, you know, at some scale.
Speaker Change: use cases around
Speaker Change: Sales & Marketing Optimization, Customer Onboarding & Monitoring, Supplier Risk, Trade Credit,
Speaker Change: You know, all of that. And so there's a, you know, we've had some really nice.
Speaker Change: Sales wins with big multinational companies.
Speaker Change: around some or all of those use cases, which has given us confidence to...
Speaker Change: Further invest in product development around all of that, to really industrialize our offering and go after that opportunity at some scale.
Speaker Change: It's expanding the revenue that we're generating from banking and insurance customers, and it's landing with these, you know, kind of big corporates around a collection of use cases, and that gives us, you know, confidence around the ability to continue to, you know, drive and accelerate growth.
Rob: So it's expanding the revenue that we're generating from banking insurance customers, and it's landing with these, you know, kind of big corporates around a collection of use cases. And that gives us, you know, confidence around the ability to continue to, you know, drive and accelerate growth. Thank you. Our next question comes from the line of Russell Quelch with Redburn Atlantic. Please go ahead. Yeah, hi guys. Thank you for having me on
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Russell Quelch with Redburn Atlantic. Please go ahead.
Russell Quelch: We touched on the benefits of migrating to the SAS platform in RMS. We've talked about that a lot. The 14% ARR growth in insurance is a great number. Give us a forecast for the upcoming very active weather season in the U.S. Do you anticipate that it's going to be a tailwind for RMS in the back end of the year? Have you baked that into guidance? And, in fact, are you now in a better position to monetize these periods of increased usage of data given you've migrated to the SAS platform? This is an interesting question, Russell.
Russell Quelch: Hi guys, thank you for having me on.
Speaker Change #100: You touched on the benefits of migrating to the SAP platform in RMS. We've talked about that a lot. The 14% ARR growth in insurance is a great number.
Speaker Change #101: Give us a forecast for the upcoming very active weather season in the US. Do you anticipate that's going to be a tailwind for RMS in the back end of the year? Have you baked that into guidance? And in fact, are you now in a better position to monetize these periods of...
Speaker Change #100: [inaudible]
Rob: I'm processing it at the moment here. I think, I think I would say that, while we may have a very active extreme weather season coming up, particularly with, you know, North American [inaudible] Hurricanes, I don't think that's going to translate into an immediate. revenue or AR bump, but I would say that thematically, the increased severity and frequency of extreme weather events and an increasing focus on understanding the impact of a changing climate and what kind of financial consequences that have, That is a theme that is driving more and more interest in our solutions, and it's going beyond simply the insurance market. I mean, in some cases, extreme weather, actually extreme weather events, can put pressure on our insurance customers. You've seen that in Florida.
Speaker Change #100: This is an interesting question, Russell. I'm processing it at the moment here. I think
Speaker Change #100: Hurricanes
Speaker Change #102: I don't think that's going to translate into an immediate
Speaker Change #100: Revenue or AR bump, but I would say that thematically,
Speaker Change #100: The increased severity and frequency of extreme weather events and an increasing focus on understanding the impact of a changing climate and what kind of financial consequences that has
Speaker Change #100: That is a theme that is driving more and more interest in our solutions.
Speaker Change #100: And it's going beyond simply the insurance market. I mean, in some cases, extreme weather, actually, extreme weather events can put pressure on our insurance customers. You've seen that in Florida. But in general, I would say there's a, there's, with insurers, there's an understanding that you need
Rob: But in general, I would say there's a there's with insurers, there's an understanding that you need, better and better data and models. And by the way, that's why, You know, there's interest in our cloud-based SaaS offering because you're able to leverage a lot more compute capacity, which can run these high-definition models that are actually better than the current generation of models. But then you're seeing banks and other organizations who are also wanting to be able to understand all of this because, for instance, banks have clearly realized that, They can actually have weather and climate risk, so as they're underwriting a commercial loan, wanting to understand the risk of the collateral they're taking, that's now, you know, that's now become something banks are quite focused on, so I would say it's driving more and more interest in our climate and weather and catastrophe modeling capabilities, but I wouldn't tie it to a seasonal set of events.
Speaker Change #100: better and better data and models. And by the way, that's why
Speaker Change #100: You know, there's interest in our cloud-based SaaS offering because you're able to leverage a lot more compute capacity, which can run these high-definition models that are actually better than the current generation of models.
Speaker Change #100: But then you're seeing banks and other organizations who are also wanting to be able to understand all of this because, for instance, banks have clearly realized that
Speaker Change #100: They can actually have weather and climate risks, so as they're underwriting a commercial loan, wanting to understand the risk of the collateral they're taking.
Speaker Change #100: That's now, you know, that's now become something banks are quite focused on, so.
Speaker Change #100: I would say it's driving more and more interest in our climate and weather and catastrophe modeling capabilities, but I wouldn't tie it to a seasonal set of events.
Rob: Yeah, and just to make a final point on the platform, I think one of the competitive differentiators for us with the risk insurance platform is that it's open to third-party models as well that can enrich the The algorithm that gives it more, that makes it even more powerful for customers, and that's really where we differentiate ourselves. Yeah, and look, you know, back to when we bought RMS, I remember, I still very clearly remember that call.
Speaker Change #100: The algorithm that makes it even more powerful for customers, and that's really where we differentiate ourselves.
Rob: And I remember saying, you know, we got into that we made that acquisition for two reasons, one to get into the insurance segment at scale, and I feel great about that. But second, because we wanted to take those really world-class capabilities that RMS had and thread those through our solutions to a broader set of customers. And that is very much playing out.
Speaker Change #100: Yeah, and look, you know, back to when we bought RMS, I remember, I still very clearly remember that.
Speaker Change #100: [inaudible]
Rob: And I'm very glad that we own one of the world's premier climate and weather modeling platforms because I think there will only be more and more demand for that in the years ahead. All right, nice one. And our next question comes from the line of Heather Balsky with Bank of America. Please go ahead. Hi, thank you very much. I want to ask about the MA. I know you've gotten a lot of questions today about AR for guidance, but it's taking. It looks a little bit different than you originally thought in any way.
Speaker Change #100: You know, our solutions to a broader set of customers, and that is very much playing out, and I'm very glad that we own one of the world's premier climate and weather modeling platforms, because I think there's only going to be more and more demand for that in the years ahead.
Speaker Change #103: Alright, nice answer. Thanks guys.
Speaker Change #104: And our next question comes from the line of Heather Balsky with Bank of America. Please go ahead.
Heather Nicole Balsky: Hi, thank you very much for taking my question. I want to ask about MA. I know you've gotten a lot of questions today about AR and your guidance, but taking a
Speaker Change #106: I guess, zooming out and you think about the growth algorithm you laid out at your, you know, back in your investor day, there's been a little bit more time, you know, we're in a probably a tougher environment than expected. You know, have you rethought the targets that you laid out? Do you think the algorithm maybe looks a little bit different than you originally thought in any way? Thanks.
Heather Nicole Balsky: Hey Heather, um... Yeah, look, first of all, I have to kind of remind all of us that this quarter, we did achieve our highest ARR growth rate. You know, that, you know, that we've had, you know, 10, 10, a little bit over 10% decision solutions is now growing at a pace consistent with these medium-term targets, AR growth of 13%. So actually, you know, there's some, there's some, there's a lot to feel good about.
Heather Nicole Balsky: Hey, Heather.
Speaker Change #107: Yeah, look, first of all, I mean, I have to kind of remind all of us, you know, this quarter we did achieve our highest ARR growth rate.
Rob: There isn't a change to our medium term outlook. We continue to view the medium term, medium term targets, As a North Star that really drives innovation and investments, and I would expect, you know, that we'll, we'll talk about the medium term targets, annually, absence, some sort of material catalyst, to revisit them within the year and there just hasn't been I know there's been nothing that would lead me to believe I need to have a call and you know talk about this in the middle of the year so like I said we've got very strong growth in our SaaS businesses we talked about the pressure on banks and asset managers and Heather you're right that's a little bit different than the environment when we put those medium-term targets in place but you know we're continuing to invest we feel good about the innovations the product development the sales engagement the partnership strategies all designed to accelerate growth so you know we'll revisit this topic in February.
Speaker Change #107: You know, that we've had, you know, a little bit over 10%.
Speaker Change #107: Decision Solutions is now growing.
Speaker Change #107: at a pace consistent with these medium-term targets, ARR growth of 13%. So actually, you know, there's a lot to feel good about. There isn't a change to our medium-term outlook. We continue to view the medium-term targets.
Speaker Change #107: As a North Star that really drives innovation and investments, and I would expect, you know, that we'll talk about the medium-term targets.
Speaker Change #107: Annually, Absinthe, some sort of material catalyst.
Speaker Change #107: to revisit them within the year.
Speaker Change #107: And there just hasn't been. There's been nothing that would lead me to believe I need to have a call and, you know, talk about this in the middle of the year.
Speaker Change #107: Like I said, we've got very strong growth in our SaaS businesses.
Speaker Change #107: We talked about the pressure on banks and asset managers.
Speaker Change #107: and Heather, you're right, that's a little bit different than the environment when we put those medium-term targets
Speaker Change #107: in place.
Speaker Change #107: But, you know, we're continuing to invest, we feel good about the innovations, the product development, the sales engagement, the partnership strategies, all designed to accelerate growth. So, you know, we'll revisit this topic in February .
Rob: Great, thank you very much. I will now hand the call back to Rob for any closing remarks. Okay, thanks everybody for the questions. I hope everyone has a wonderful summer, and we look forward to talking with you again in October. Take care. This concludes Moody's Corporation's second quarter 2024 earnings call. As a reminder, immediately following this call, the company will post the MIS Revenue Breakdown under the Investor Resource section of the Moody's IR homepage. Additionally, a replay will be made available after the call on the Moody's IR website. Thank you. You may now disconnect. Please wait. The conference is starting soon.
Heather Nicole Balsky: Great, thank you very much.
Heather Nicole Balsky: I will now hand the call back to Rob for any closing remarks.
Rob: Okay, thanks everybody for the questions. I hope everyone has a wonderful summer and we look forward to talking with you again in October . Take care.
Speaker Change #108: This concludes Moody's Corporation's second quarter 2024 earnings call. As a reminder, immediately following this call, the company will post the MIS Revenue Breakdown under the Investor Resource section of the Moody's IR homepage. Additionally, a replay will be made available after the call on the Moody's IR website. Thank you. You may now disconnect.