Q3 2024 Moody's Corp Earnings Call
Good day, everyone and welcome to the Moody's Corporation third 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. At the request of the company. We will open the conference up for question and answers. Following the presentation I will now turn the call over.
Two <unk> head of Investor Relations. Please go ahead.
Shivani Kak: Thank you good morning, and thank you for joining us today I'm sure Bonnie talk head of Investor Relations. This morning, Moody's released its results for the third quarter 2024, as well as our revised outlook metrics for full year 2020 for the earnings press release and the presentation to accompany this teleconference are both avail.
Shivani Kak: On our website at IR Moodys Dot com.
Shivani Kak: 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 and U S. GAAP.
Shivani Kak: 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 in accordance with the Act I also direct your attention to the management's discussion and analysis section and the risk factor.
Shivani Kak: As discussed in our annual report on Form 10-K for the year.
It 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. These together with the Safe Harbor statement set forth important factors that could cause actual results to.
Shivani Kak: Differ materially from those contained in any such forward looking statements.
Speaker Change: I'd also like to point out that members of media may be on the call. This morning in a listen only mode I'll now turn the call over to Rob.
Rob: Thanks, Giovanni and good morning, or good afternoon, and thanks, everybody for joining today's call I'm really looking forward to discussing our third quarter results with you and we again delivered some impressive results with a 23% increase in revenue and adjusted operating margin of approximately 48% and 32% growth in <unk>.
Speaker Change: The diluted EPS.
Speaker Change: And one of the key drivers of these great results was our rating business with a remarkable 41% increase in revenue versus the prior year period.
Speaker Change: September was a particularly strong month for issuance included a new record for weekly investment great activity with over 85 billion issued across 61 deals in the first week of September.
Speaker Change: Strength in first time, and infrequent issuers drove transactional revenue up 70% for the quarter and that outpaced global rated issuance growth of 51% and this growth combined with ongoing cost discipline delivered over 600 basis points and adjusted operating margin expansion compared to last year.
Speaker Change: Well so far this.
Speaker Change: This year has obviously been a very strong issuance environment in fact, it's likely to be the second strongest on record.
Speaker Change: And amidst that strength, we see both cyclical and secular tailwind, they're going to drive future growth and that includes refunding walls, M&A and other market trends that give us confidence in our medium term outlook for our ratings business.
Speaker Change: In EMEA, we delivered 7% overall revenue growth and 9% growth for both <unk> and recurring revenue both of which exclude one time revenue that we're intentionally deemphasizing year.
Speaker Change: Year to date customer retention is at 93% and our adjusted operating margin for the quarter was in line with our expectations at 33%.
Speaker Change: Now our decision solutions line of business and that is banking insurance and cable I see that continues to lead him a with almost $1 4 billion of who they are and that's growing at 12% and last month. We marked the third anniversary of our RMS acquisition. So let's spend a few minutes on todays call recapping, our progress and performance there.
Speaker Change: When I finish I'll turn it over to Nuomi to provide more color on our numbers, including raises to several of our full year guidance metrics, including our outlook for adjusted diluted EPS, but before I moved to M. I S. I do want to take a moment to acknowledge our third consecutive number one ranking in the charter risk Tech 100, we're number one.
Speaker Change: And 12 categories and Thats, a testament to the breadth and depth of our solutions to the strength of our competitive positioning and to the trust that our customers place in us So a big shout out to all my colleagues who contributed to this fantastic recognition.
Speaker Change: Now moving to ratings.
Speaker Change: As I mentioned, we feel really good about the durable drivers of M. I ask growth as we look into the future and those are both cyclical and structural so looking at the market drivers as you all know very well the refunding walls are a key source of built in growth and last week, our analytical teams publish their analytical report on that.
Speaker Change: Nonfinancial corporate refi was in both the U S and EMEA.
Speaker Change: And that data shows an 11% growth in the upcoming four year maturity walls, which amount to almost five trillion dollars and that represents a record high now the majority of this growth is actually coming from spec grade issuers, where for the first time forward maturity walls exceeded two trillion dollars and that's up 19% from our last step.
Speaker Change: Yeah.
Speaker Change: That's particularly true for the U S market, where forward maturities are up 17% and spec grade refi walls are up approximately 27% for the upcoming four years and that bodes very well for future issuance and as I think many of you know spec rate is obviously a positive to our revenue mix.
Speaker Change: Now for any of you don't want to dive deeper and I'm sure. There are many on this call.
Speaker Change: Check out the four reports that we've made available on our website at Moodys dot com or contact our IR team.
Speaker Change: Now another significantly historical driver of ratings revenue growth is M&A and activity in recent years has been well below historical levels. As you can see on this chart, but we don't see that subdued level is sustainable given the needs for private equity sponsors to both exit as well as deploy huge amounts of capital along with a.
More benign rate environment and improved macroeconomic conditions.
Speaker Change: Now along with these market factors. There are also some structural trends that we believe will drive both credit supply and the need for independent third party ratings and assessments.
Speaker Change: The first is private credit that's been a consistent theme on our recent calls and this sector is experiencing some significant growth we expect that to continue.
Speaker Change: Last week, we published estimates that private credit assets under management will reach up to three trillion dollars by 2028.
Speaker Change: And as this market grows the need for transparency data and rigorous independent credit assessment is likely to become more important than ever and as Apollo highlighted in our recent investor day rating agencies have an important role to play in this ecosystem.
Speaker Change: I completely agree with that and we're gearing up to ensure that we meet the needs of this market now.
Speaker Change: The second is sustainable and transitioned finance and to put this opportunity into context currently countries and companies that have net zero commitments that cover something like 93% of global GDP.
Speaker Change: And our analysts estimate that in order to meet these targets global clean energy investment needs are going to rise by two and a half times by 2030 to around $4 five trillion dollars annually.
Speaker Change: So that means huge amounts of that capital is going to be raised and theres going to be increasing demand to understand how these investments are translating to organizations progress on their de carbonization efforts. So we're investing to provide the insights the analysis and the products to meet this demand.
Speaker Change: Our third growth driver is emerging in domestic debt markets.
Speaker Change: As many of you have heard me say before that domestic debt market issuers are the cross border issuers up tomorrow, and while smaller than developed economies emerging market countries typically average higher economic growth rates than more developed markets.
Speaker Change: We've been investing to build out our footprint and market leadership across Asia Africa, and Latin America. So that we are poised to capitalize on this growth.
Speaker Change: Finally, we're positioning our ratings business for a world of digital finance and that includes blockchain and <unk>.
Speaker Change: And while the issuance volumes are relatively modest at present, there are a number of public and private sector initiatives in pilots in this space and we want our ratings to play just as important our role in a digital issuance world as they do in todays analog world. So.
As I said, a number of factors that give us confidence about our growth both in the near term and over the medium term for M. I S.
Speaker Change: Now as I mentioned earlier, we've just hit the third anniversary of our RMS acquisition. So I thought it made sense to take stock of our progress on today's call.
Speaker Change: And some of you may remember the financial profile of RMS before we acquired it.
Low single digit revenue growth EBITDA margins in the high teens and it was also early in its second cloud platform launch and our investment thesis at the time was two fold.
Speaker Change: First we thought there was much more that we can do for the insurance industry as we expanded our Tam to the property and casualty sector.
Speaker Change: And second we believe that RMS is really rich climate in cat modeling capabilities would be increasingly important to a wide range of finance and risk applications and also for a broader range of customers.
Speaker Change: We also thought that Moody's represented a natural home for RMS after years of ownership by DMG T. So three years later, how have we done.
Well first RMS is now fully integrated into our insurance solutions business. Its growth has improved significantly over the last three years and now is growing in line with the mid teens <unk> growth of our broader insurance business. It's also now operating at M. A like margins.
Speaker Change: Since we acquired RMS We've also grown the number of customers on the cloud based intelligent risk platform five fold Joe.
Speaker Change: 250, and these customers are using our next generation of high definition models.
Speaker Change: Enabling them to get more granular insights leveraging the power of cloud computing and also offering a great upsell pathway and competitive differentiator now.
Speaker Change: Now as part of Moody's RMS has also expanded the ways that it partners with the insurance industry that includes last year's partnership with NASDAQ, where we're hosting third party and in house models on the ERP.
Speaker Change: Our creation of a cyber industry steering group with the largest players in the cyber insurance market to develop tools to help this market grow.
And our recent collaboration with Lloyd's to build a greenhouse gas emission platform. So the Lloyd's insurance market.
Speaker Change: Three years later together with Moody's RMS has solidified its blue chip customer base with all 10 of the top 10 global reinsurance brokers nine of the top 10 commercial lines insurers and 28 of the top 30 global reinsurers that really is market validation of RMS as the gold standard.
Speaker Change: In the industry.
Speaker Change: We continue to invest to extend the solutions that we deliver for the insurance sector and beyond and in early September we announced the acquisition of product cat to expand into casualty analytics and that's an area of growing interest for insurers and as I've talked about in past calls, we've leveraged rms's platform technology and engineering teams across all.
Speaker Change: All of Moody's analytics, and we've integrated their climate capabilities into solutions for banks and corporates.
Speaker Change: So we feel really good about the progress with RMS and earlier this year, we merged RMS in our legacy life.
Speaker Change: This into a broader Moody's insurance solutions unit.
Speaker Change: I feel even more confident about how this positions us for the future both across the insurance industry, but also with respect to our ability to serve the needs of organizations to better understand physical risks from extreme weather and a changing climate.
Speaker Change: With that I'm going to hand, it over to Amy to provide more details on our numbers. Thank you, Rob and good morning, everyone Q.
Amy: Q3 was a record quarter, the highest third quarter revenue performance in <unk> history.
Amy: With strong growth across revenue and profitability metrics driving 32% adjusted diluted EPS growth and a free cash flow conversion rate of over 100% of net income.
Amy: We delivered $1 $8 billion of revenue and 23% increase compared to last year with Moody's ratings growing transactional revenue by 70% well above the 51% growth in global issuance.
Amy: And that truly demonstrates the impressive strength of our ratings franchise.
We executed very well across all sectors with the most notable contribution from corporate finance.
Amy: Investment grade transaction revenue growth of 137%.
Amy: Exceeded 84% growth in issuance and that was driven by sustained levels of infrequent issuer activity as well as large jumbo deals over the summer.
Amy: In addition.
Amy: Leverage finance transaction revenue grew 67%, that's approximately $80 million supported by the favorable spread environment.
Amy: Collectively these drove the largest third quarter for corporate finance revenue on record.
The level of infrequent issuers activity, which was the strongest in over a decade.
Also drove a favorable revenue mix and fee.
Amy: Transaction revenue grew 77% well above issuance growth of 18%.
Amy: Turning to Moody's analytics revenue grew 7%, including one point of growth from FX.
Amy: Carrying revenue, which is now 95% of the segment revenue grew 9%, which was in line with our AUR growth.
Amy: As Rob mentioned earlier, our year to date retention rate is 93% illustrating the stickiness of our solution.
Amy: Consistent with recent quarters revenue growth was driven by record revenue in decision solutions, which is over 40% of our total revenue, which as Rob said delivered 12% year on year growth.
Amy: So let me provide some color on each of the main businesses in this segment.
Amy: Banking revenue grew 3%.
What's happening here is we have the effect of two opposite dynamics on the one hand, we had double digit decline in low margin transactional revenue and flat growth in on Prem sales year over year.
Amy: On the other hand, we continue to invest in our banking platform and focus our sales efforts to drive recurring revenue growth, which was 10% in Q3.
Amy: Line with <unk> growth and in line with the first half of 'twenty four.
Amy: We observed similar trends in our insurance business, where revenue grew 7% driven by recurring revenue growth of 11% and our insurance.
Amy: 13%.
K Y C delivered 19% recurring revenue growth with.
Amy: We've continued to deliver higher levels of growth from the non financial corporate and government sectors.
Amy: And we are actively investing to scale and sustain this level of growth as we expand our capabilities to deliver integrated solutions for a number of key customer workflows, including compliance supply chain and trade credit.
Amy: Outside of decision solutions, our research and insights and data and information businesses grew reported revenue by six 7%, respectively, which is broadly in line with our growth.
Amy: Data and information a our growth was a bit lower this quarter at 8% as a couple of large federal government contracts, which contributed to higher growth in 2023 were renewed at a lower values this quarter.
Amy: Overall, it was an exceptionally strong quarter.
Amy: Revenue performance translated into a 320 basis points improvement in the total company adjusted operating margin.
Amy: At 32% growth in adjusted diluted EPS.
Amy: Over 100% of net income to free cash flow conversion year to date.
Amy: And MS achieved 59, 6% adjusted operating margin and that includes the adjustments to reflect the impact of increased incentive compensation accruals.
Amy: Well EMEA delivered 33% adjusted operating margin a sequential improvement of 180 bps from Q2.
Amy: Okay.
Speaker Change: With a record third quarter and continued strength in the market, where data and guidance to our full year ratings revenue underpinned by revised global issuance growth assumptions for the full year across all asset classes as you can see on this slide.
We expect issuance will continue to be supported by opportunistic activity in the fourth quarter as issuers take advantage of lower rates tight spreads and strong investor demand.
Speaker Change: We also expect sustained levels of activity within first time mandates, which we forecast will revert closer to pre pandemic levels.
Speaker Change: Our revised guidance of mid <unk> percentage range issuance growth for the full year now implied and Neil and mid single digit decline in global issuance for the fourth quarter, which is an improvement from an expected decline in the mid teens back in July.
Speaker Change: Now with that backdrop, we are raising our guidance for <unk> revenue growth to high 20 percentage range, which at the higher end of the range would translate into an increase in Q4 ratings revenue expectation versus prior guidance.
We are raising <unk> adjusted operating margin to a range of 59% to 60% up 100 basis points from prior guidance.
Speaker Change: The upward revision to our guidance range accounts for the adjustment to our incentive compensation.
Speaker Change: As well what's included in the full year range is approximately 50 basis points of headwind from the settlement of a regulatory matter, which we recorded and disclosed in Q2.
Speaker Change: For MAA, we're maintaining our guidance across all metrics.
Speaker Change: Taking all this into consideration we are now expecting Moody's revenue to grow in the high teens percentage range.
Speaker Change: Expenses to increase by approximately 10%.
Speaker Change: And adjusted operating margin in the range of 47% to 48%.
Speaker Change: Consistent with last year, the revised expense outlook, primarily reflects increases to incentive compensation.
Speaker Change: Majority of which will be an M. I S. As a result of the upward revisions to the full year ratings revenue outlook.
We are also updating our free cash flow guidance to approximately $2 $3 billion.
Speaker Change: And in addition, we are increasing and narrowing our adjusted diluted EPS guidance range to $11 90 to $12.10, an 80% increase at the midpoint.
Speaker Change: A growth of approximately 20% 21% versus the prior year.
Speaker Change: Before we go into Q&A.
Speaker Change: I want to say I'm very proud of our team's performance this quarter and Robyn I cannot thank our colleagues enough for their hard work and dedication.
Speaker Change: That concludes our prepared remarks and operator, please open the lines for Q&A.
Speaker Change: Thank you if you would like to ask a question. Please dial star one on your telephone keypad, if you're on a speakerphone. Please pick up your handset and make sure. Your mute function is turned off so that your signal reaches every equipment. We will ask that you. Please limit yourself to one question you will have a chance to rejoin the queue for a follow up again that is star one to <unk>.
Ask a question.
Speaker Change: Our first question comes from Toni Kaplan with Morgan Stanley. Please go ahead.
Toni Kaplan: Thanks, so much I wanted to pick up on.
Speaker Change: The data and information.
Toni Kaplan: Our slow down from last quarter.
Speaker Change: Joanna you mentioned the government contracts renewing at a lower value.
Speaker Change: Was this a reduction in number of products that were being purchased or was it pricing or something else and maybe just.
Speaker Change: What percentage of revenues related to government federal government and are there any more renewals with government coming up thanks.
Speaker Change: Yeah. Thanks.
Speaker Change: Actually this is something we've kind of signaled in the last earnings call, where we had some large federal government contracts up for renewal in the second half of the year.
Speaker Change: So what you saw here in decision in data in inflammation, we had a lower renewal with one of our large federal government contracts.
Speaker Change: That's associated pretty much was there.
Speaker Change: Spending patterns as you know we're in an election year.
Speaker Change: So they are you know looking at their overall contract stays and and we expect to see.
Speaker Change: Some renewals being a little bit more challenged this year, but we've accounted for those in the third quarter and we don't expect any largest one affecting the remainder of the year in.
Speaker Change: In addition to that in our data and information that the thing that affected a bit the AOR growth this quarter.
Speaker Change: Is the transition of some of our customers into the MSCI and we also signaled that earlier in July when we are when we were on this call.
Speaker Change: Some of our customers are transitioning and sourcing their sustainability content directly from Sci. So that's affected a bit of pipeline in the existing renewals of those customers as well.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Ashish to Badger from RBC capital markets. Your line is open.
Ashish Badger: Thanks for taking my question and Rob Thanks for flagging, both the near and midterm secular and cyclical <unk> instant issuance.
Speaker Change: It was also the as you mentioned the second strongest issuance here so.
Ashish Badger: What we wanted to understand is can be near term issuance tailwind to help offset the headwinds from tougher comps and the pull forward.
Ashish Badger: As well as the revenue tailwind from the infrequent issuers or do we need to normalize before we can start to grow off those levels.
Ashish Badger: Thanks.
Toni Kaplan: Ashish are we talking about <unk> or are you talking are you starting to look towards 2025.
Ashish Badger: More 2025.
Thanks.
Speaker Change: Alright, so maybe what I, what I'll do here Ashish is just.
Speaker Change: Kind of tackle early very early too early thoughts on 2025.
Speaker Change: Maybe what some of the headwinds and tailwind.
Speaker Change: Might be.
Speaker Change: And I guess I have to do the health warning of we're not introducing guidance for fiscal 'twenty five yet we'll do that on the on the next earnings call. So I'll just talk about kind of what we know now.
Speaker Change: Certainly we don't know exactly how the year is going to finish up.
Speaker Change: But I would say that I think.
Speaker Change: The balance of tailwind or headwinds for issuance for next year is probably in favor of the tailwind.
Speaker Change: So.
We all know that this has been a huge issuance here, yes. There has been some pull forward I imagine we'll talk about that later on the call.
Speaker Change: This is probably.
Speaker Change: Let me say probably going to be the second biggest year for issuance on record. So it does create some tough comps.
Speaker Change: For sure and how the year end.
It finishes up it definitely factors into that but I would say that we've got some very constructive issuance conditions.
Speaker Change: Absent of course, exogenous events that can create uncertainty and volatility, but but that should support issuance. So let's tick through what those are first the.
Speaker Change: Spec grade default rate has actually been declining and we expect that to decline further into next year that means that spreads should remain tight they are very very tight right now spreads are near their all time lows.
Speaker Change: Our expectation of lower interest rates.
Speaker Change: And combine that with tight spreads that's going to give.
Speaker Change: Barry I think favorable environment for <unk>.
Speaker Change: New issuance and also for some refi.
Speaker Change: And then we've got the refunding walls that I talked about the nearly five trillion.
Speaker Change: Over the next four years, but in particular, the real strength around and growth in the spec grade maturity walls.
Speaker Change: M&A has picked up I would say kind of modestly this year versus the last two years, but.
Speaker Change: I certainly would expect that recovered recovery to continue into 2025, I mentioned that there's just there's more and more of a need for both sponsors to exit but also sponsors to put a lot of dry powder to work and that that is going to happen.
Speaker Change: At some point.
Speaker Change: And then we've got some of those medium term tailwind and again I'm sure I'll get asked about private credit and and transitioned finance both of those are going to be I think catalyst for demand for ratings and credit assessment, but also for <unk>.
Speaker Change: Issuance of debt as we as we transition to a cleaner energy economy now thinking about the headwinds for a moment I would say the market is still very data dependent so you've got macroeconomic factors, whether it's jobs or inflation or.
Speaker Change: Our gross that could signal either a harder landing a softer landing are higher for longer.
Speaker Change: That could impact issuance and we've seen a little bit of that throughout the year.
Speaker Change: It's we've got an election coming up in a few weeks in.
Speaker Change: We'll see what that means for the antitrust environment and whether that is favorable and not favorable for M&A and then of course geopolitical events.
We basically got two wars going on around the World I think a third event would be.
Speaker Change: The global economy has been surprisingly resilient, so far but I think that can really be tested if there was something another shoe to drop and when I talk to companies. They all say that geopolitical.
Speaker Change: Events are kind of at the top of their risk Register so.
Hopefully that gives you a sense, but like I said on balance I think modestly skewed to the positive from where we sit right now in terms of issuance for the year.
Speaker Change: That's great. Thanks.
Speaker Change: Your next question comes from the line of Scott Wurtzel from Wolfe Research. Your line is open.
Scott Wurtzel: Hey, good morning, Thanks for taking my questions I wanted to stick on the <unk>.
Topic of issuance here and Rob maybe wondering if you can share just where we are with that philosophy right. Now obviously I know it was a strong quarter for issuance, but just on the balance of things, where we are with that velocity and how youre thinking about that thanks.
Speaker Change: Yes, so obviously that velocity has generally been improving just given the strength of the AR.
Scott Wurtzel: The issuance environment.
Speaker Change:
Speaker Change: And.
Speaker Change: So it's interesting if you actually go back and look at kind.
Speaker Change: Kind of take a historical look.
Speaker Change: At issuance. So this year, we're gonna be.
Speaker Change: It's probably just under six trillion and if you go back to say 2012, and I know a CAGR is not a perfect thing to do and as you know in this situation but.
Speaker Change: You'd have a CAGR of something like three 5% in terms of the growth of issuance from 2012, I understand it's not linear but growing a little bit more than than GDP growth.
Speaker Change: But if you look at the stock the total stock of Nonfinancial corporate debt outstanding that's grown by <unk>.
Speaker Change: Something more like 7% over that period of time.
Speaker Change: So.
Speaker Change: It's interesting.
Speaker Change: That means therefore that that velocity has been below kind of the historical averages just because there's so much more debt outstanding and so we've gotten close to that closer to that historical average.
Speaker Change: We look at that is about 14% when we look at nonfinancial corporate that other people look at looking at different ways, we're still underneath that probably something like 12% for fiscal 'twenty four but I think that indicates just where we are with that velocity is still below historical.
Speaker Change: Historical averages to me actually indicates that.
Speaker Change: Actually a tailwind when you think about the.
Speaker Change: The potential for issuance growth in the future.
Speaker Change: Yes.
Speaker Change: Great very helpful. Thank you.
Speaker Change: Your next question comes from the line of Andrew Nicholas from William Blair. Your line is open.
Andrew Nicholas: Hi, Good morning, I wanted to ask a question on research and insight I think last quarter you talked about.
Andrew Nicholas: Your expectation that our growth would accelerate in the back half of the year I think you cited the research assistant tool.
Andrew Nicholas: And some of the releases of some private credit oriented products supporting that.
Andrew Nicholas: It doesn't look like we saw that in the third quarter.
Andrew Nicholas: Wondering if there's anything else to unpack in that line, particularly and maybe that that's an excuse to ask about the broader monetization.
Andrew Nicholas: The Gen II related tools, so far this year. Thank you.
Speaker Change: Yeah, I'm happy to take that so.
Speaker Change: Research and insight for the third quarter grew 6%, which is in line with the first half.
Speaker Change: It's also a little lower than the 9% we saw prior to the attrition events that we've talked about in the previous calls.
Speaker Change: So there continues to be a bit of pressure and used by the stress in the broader banking sector, but as he said we're investing in are in research assistant we have a strong pipeline and research assistant as we are entering the largest quarter of the year.
Speaker Change: We also have very interesting usage stats and customer satisfaction scores for our research assistant that are very encouraging actually the satisfaction NPS score for credit view users, who are using research assistant significantly higher than the crazy users who aren't using it so that I think thats, a very strong driver for pipe.
Speaker Change: Line growth.
Speaker Change: We continue to see a little bit longer sales cycle that we had expected entering the year with our we have very rapid adoption with the early adopters and they're smaller asset management players, but when it comes to large financial institutions. The adoption of Ginnie I capabilities has maybe been a little slower than we had expected at the beginning of the year seem to be good.
Speaker Change: They're going through their own journey, I utilization framework and governance.
Speaker Change: So to your point, there's a lot of pipeline and we're working very hard to close that in the fourth quarter and I think on the overall MAA in a our outlook for the full year. We also have some interesting pipeline growth in <unk>, which we expect will contribute to continued growth in the fourth quarter and beyond.
Speaker Change: Amy I think you know we had expected some acceleration in the second half of the year.
Speaker Change: I think we still expect to continue to see some modest acceleration, but we'll probably say.
In the lower end of high single digit growth rather than our previous expectation of at the higher end of high single digit growth for the fourth quarter just based on some of the things that knowing you just talked about.
Speaker Change: Yes.
Speaker Change: And Robyn.
Speaker Change: Research and insights or MAA as a whole just to be clear.
Speaker Change: Well I was specifically referring to research and insights in that case, okay understood. Thank you.
Speaker Change: Your next question comes from the line of Matt out of Panic from Barclays. Your line is open.
Speaker Change: Thank you just to stick on Ami.
Speaker Change: The revenue with <unk> ER growth keeps widening so I was just hoping you could just help level set.
Matt: Why that is today and then thinking about how that flows into 2025 would be helpful as well.
Speaker Change: Yes, so on the revenue enough we have focused on recurring revenue as you look at recurring revenue for decision solutions research and insights and data and information its very close moving closely to the AAR growth. So let me unpack a little bit the revenue growth dynamic for Q3 and the different components of it.
Speaker Change: Our revenue grew 7% on a reported basis in Q3 recurring revenue, which is 95% of the total revenue in the quarter grew 9%, which is very much in line with the pace of a R.
Speaker Change: Its going on there as you have our training and other services revenue that's declining that are declining double digit.
Speaker Change: Revenue for multi year upfront software remains stable, but fluctuate throughout the year based on timing of renewals.
So there's a couple of dynamics that I want to call out that are behind the 9% growth in recurring revenue that should help tie that back to the a our growth in the longer term profile of the business.
If you look at banking, our recurring revenue, our banking and insurance and <unk> workflows.
Speaker Change: We call decision solution grew 13% in the third quarter.
Speaker Change: And that's pretty much aligned with our with the what we signed the first half of the year. This 19% growth in our <unk> solution and banking and insurance grew about 10, and 11% recurring which is again very much in line with a R.
Speaker Change: On the research and insight again, we thought that's about 30% of our business. We saw recurring revenue growth of 6% in the third quarter that has actually improved slightly from the 4%. We signed the first half we've talked about some of the attrition events at some of the pressure in with research with our asset managers and banks previously so that's been a bit of a headwind to growth in this business.
Speaker Change: This year, but again the recurring revenue growth is very much in line with AAR and on data and information revenue grew 7% in the third quarter I talked about the effects of some of the renewables with our government federal government contracts, that's now behind us.
Speaker Change: And we have very significant prospects in the pipeline that should get that growth rate little bit higher up in the upcoming quarters. So hopefully that gives you a sense of the revenue growth dynamics in the third quarter. It's again very much broadly aligned with our with the first half.
Speaker Change: Except for a decision solution, where we had a bit of a tough comp in the large renewals of the government contracts that renewed at a lower rate this year.
Speaker Change: Maybe I mean, you touched on it just to.
Speaker Change: There is the transactional onetime revenue in the recurring revenue and actually for fiscal 'twenty three actually that onetime revenue actually grew in this year. Obviously, we're seeing a decline so that would contribute to manav. Some of what you might think of as a little bit of a widening.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Owen Lau from Oppenheimer. Your line is open.
Speaker Change: Hi, good.
Good afternoon, and thank you for taking my question.
Owen Lau: And I know, we have touch on private credit in the past, but the narrative of a public private market convergence is expanding and Rob you talked about the Apollo Investor Day, and I think one <unk> two well was so called standardized credit ratings. So could you. Please talk about how much.
Owen Lau: Appetite for investment grade issuers to raise debt directly from these PE firms and bypass the waiting process done by Moody's or the credit rating is so valuable that video is still needed.
Speaker Change: Yeah Owen thanks.
Owen Lau: So.
Speaker Change: I've had a lot of engagement with many of the most senior players in this market over the last I'll call. It.
Owen Lau: Over the course of this year.
Speaker Change: And.
Speaker Change: While I think maybe two years ago, we kind of talked about this defensively.
Speaker Change: There is a real opportunity here.
Here and a real need there is a real need for independent third party.
Speaker Change: <unk> assessment, whether it's through ratings or other tools and it's interesting because when we engage with.
The big players.
Like the Apollo and the Blackstone's one of the things that we hear and again I referenced if you look at their Investor day, They talk about credit rating agencies being an important part of the ecosystem because.
Speaker Change: We have the ability to provide the data.
Speaker Change: The analytics and the ratings.
Speaker Change: That will help people understand the comparability of whether it's public or private credit.
Speaker Change: And.
Speaker Change: As they are you know looking at the growth of that market and if you start to think about private credit not just as leveraged direct lending, but you start to think about Owen you mentioned investment grade.
In many cases asset backed finance the numbers are much bigger than the three Chilean that I talked about.
But there is going to be.
Speaker Change: I believe our need for ratings and third party.
Speaker Change: Our credit assessment and so.
Speaker Change: We have a great dialogue actually with many of the largest players.
Speaker Change: In the market about ways that we can serve those needs. So for instance, Owen.
Speaker Change: We've got.
Speaker Change: We've got a lot of growth in our ratings of Bdcs and credit estimates for the exposures in the Bdcs I think we probably have the leading coverage of bdcs in the market that's contributing to the growth.
Speaker Change: And our Fig franchise, we've got.
Speaker Change: Our growing pipeline of fund finance ratings, whether it's feeder funds credit linked notes sub lines all of that there's a lot of demand for that and a lot of demand for ratings. So again youre going to see that come through the Fig line in ratings and then all of the asset backed finance, because remember Owen, whereas a lot of that.
Two a lot of that is going and sitting on insurance balance sheets and those insurers are rating sensitive.
Speaker Change: As this market grows.
Speaker Change: I think ratings are going to play a really key role and I think youre going to see actually a lot of that revenue come through the ratings business. So hopefully that gives you a sense of why we feel optimistic about this oh and the last thing I would say is look the key for US is to make sure we understand where's the flow coming from <unk>.
Speaker Change: Do we have the methodologies in place rigorous methodology. So that we can write this stuff do we have the people the resources to be able to do this and play that role in the market.
Speaker Change: Thanks also to Colorado.
Yep.
Your next question comes from the line of Faiza <unk> from Deutsche Bank. Your line is open.
Speaker Change: Yes, hi, thank you so much so I wanted to ask about Moody's analytics again, just in context of your Midi.
Speaker Change: Medium term targets I know you referred to them previously as aspirational.
Speaker Change: I'm curious if.
Speaker Change: So you have an update on that just given that there has been a little bit of deceleration.
Speaker Change: This year, maybe if you could highlight what are some of the areas that you're most excited about and if you expect an acceleration as we think about 25 and beyond.
Yeah, Hey, Thanks, Great question, So I think.
Speaker Change: Absent a real catalyst.
Speaker Change: We would update those.
Speaker Change: Liam term targets annually and so I think we'd be prepared to talk about the targets.
Speaker Change: In the February.
Speaker Change: February earnings call, but maybe just to give you a sense of.
Speaker Change: We've talked about those targets, serving as kind of our north star to drive innovation and product development.
Speaker Change: Let me maybe talk to you about where I think the big opportunities are that we're going after to be able to achieve those medium term targets. So I would say, it's a it's really around kind of a land and expand strategy. So if you think about it.
Speaker Change: And we've got relationships with several thousand banks, probably close to 1000 insurers, we have a really good customer footprint in financial services, and we have an opportunity to do more for those customers. So that is really and expand strategy in financial services. If you look at the number of products and solutions.
Speaker Change: Many of the customers take there is still a big opportunity for us to do more for them. We've actually provided that some of that data on on prior calls when we've done the spotlight on insurance and banking and then with with corporates, it's really inexpensive or really a land strategy and so I think nuomi just touched on it.
Speaker Change: <unk>, but.
Speaker Change: We've got one of the world's largest databases.
Speaker Change: Companies and that then supports a range of interconnected use cases, including things like trade credit.
Speaker Change: Customer onboarding and monitoring and supplier risk and so we see a pretty big opportunity to go after that and that means probably a lot more new logos in the corporate space and a lot more cross sell and upsell in the.
In the financial services space, So again.
Speaker Change: Still got some things to do to be able to better enable the cross sell and to be able to weave.
Speaker Change: We talked about earlier this year about the investments, we're making in building out that platform to serve corporates, but.
Speaker Change: Those are the things we're doing to try to try to get after those medium term targets.
Thanks, Rob.
Speaker Change: Your next question comes from the line of David Mcmahon from Evercore ISI. Your line is open.
David Mcmahon: Hey, Thanks, Good afternoon, Rob could you just give us an updated view on the pull forward that has taken place this year.
David Mcmahon: And in <unk>, specifically and if that's lowered your expectations for issuance growth at all in 2025.
Speaker Change: Yeah, Hey, first of all welcome to the call. It's good to have you good to have you on.
Speaker Change: So it's actually interesting when you look at pull forward, it's a little bit of a.
Speaker Change: Of a tale of two cities between investment grade and spec grade and if you get a chance to dig into those.
Speaker Change: Refunding studies that we published Youll see a lot of it is in there but.
If you look at investment grade, So 2025 investment grade maturities actually grown by about 9% there. They are high they are 18% higher.
Speaker Change: Then the one year forward maturities, where last year. So starting the year the maturities are actually higher than they were last year, but we've seen a good bit of pull forward in spec grade and if you think about it that's that's pretty typical right. If you're an investment grade issuer you generally have.
Speaker Change: Market access throughout market cycles spec grade issuers are more sensitive to risk on risk off and end market market windows. So youll see more pull forward typically from spec rate issuers, who don't want to get to a quarter before.
Speaker Change: Their maturity.
Speaker Change: I will say that when we look at the data. It does look like there has been a bit more pull forward in spec grade than wood.
Speaker Change: What would be typical than kind of historical averages. This year, that's not surprising I think we had you know had been seeing that.
Speaker Change: But it's also interesting again, if you look at just the maturities one year forward.
Speaker Change: Right now they are about the same level as they were.
Speaker Change: This time last year.
Speaker Change: And so the other thing I would say is if you actually go to the drill down into the U S.
Speaker Change: Some of these some of these refi walls are a little bit more back end loaded particularly around.
Speaker Change: Spec grade.
Speaker Change: But about 25% to 30% are spec grade loan and bond maturities in 2028 were actually issued in 'twenty three 'twenty four when rates were elevated so I mean that tells us if we have a declining rate environment.
Speaker Change: Moving forward, we may actually start to see some pull forward from those very elevated maturity walls.
Speaker Change: A little bit out in the future.
Speaker Change: So.
Speaker Change: When you actually combine investment grade and spec grade maturities.
So as I said, we've had less pull forward investment grade more pull forward in spec grade.
Speaker Change: Actually the on an aggregate basis, the pull forward the one year the pull forward from one year forward maturity walls is almost exactly in line with historical averages and the forward maturities one year out are 15% higher than this time last year. So I.
Speaker Change: I think net net despite the fact that we've had to have your spec grade pull forward. This year I actually think this is still a tailwind for us in the near term.
Speaker Change: Your next question comes from the line of Craig Huber from Huber Research Partners. Your line is open.
Speaker Change: Thank you.
Speaker Change: Can you just talk a little bit about the spread that you had between.
Craig Huber: 70% transaction revenue growth in ratings versus 51% global issuance in the quarter and then maybe know Amy just throw in there with the incentive comp in the third quarter fourth quarter outlook. Thank you.
Yes, Craig.
Speaker Change: So we had a favorable mix, we certainly talked about we had very strong investment grade issuance, but there was a lot of opportunistic issuance.
Speaker Change: So if you think about investment grade issuers, we have two kinds of of commercial constructs. We have frequent issuers and we have infrequent issuers, we saw a lot of volume coming from infrequent issuers just tapping.
Speaker Change: Tapping the market than we had very strong leveraged finance growth.
Speaker Change: Leveraged finance is typically revenue mix friendly.
Speaker Change: That was certainly the case and then of course, we also have.
Speaker Change: We had a real pickup in first time mandates and so they have oftentimes there's.
Speaker Change: Fees associated with Onboarding first time issuers.
Speaker Change: And we had the benefit.
Speaker Change: Our consistent pricing initiatives, which all contributed to favorable.
Speaker Change: Revenue mix relative to issuance.
Speaker Change: And then on the incentive compensation for the third quarter of 2024, we actually recorded an adjustment to the accruals to reflect the updated.
Speaker Change: Our revenue outlook in Ms. Specifically so.
Speaker Change: So the incentive compensation accruals were about $100 million in the third quarter, which is higher than prior year by 54%.
Speaker Change: For the full year, we expect incentive compensation overall to be approximately $419 million.
Speaker Change: And that translates into about $120 million for the fourth quarter.
Great. Thank you.
Speaker Change: Your next question comes from the line of George Tong from Goldman Sachs. Your line is open.
George Tong: Hi, Thanks, Good afternoon, I wanted to dive more into your ratings outlook you mentioned on a net basis the pull forward of IAG and spec grade is exactly in line with historical averages in the Ford maturities one year out is about 15% higher and get your updated guide implies about mid single digit mis revenue growth in <unk>.
Q, even though comps don't really get any tougher in the fourth quarter. So can you talk about what leads you to think <unk> issuance growth will moderate meaningfully and to what extent do you think <unk> growth will serve as a proxy for 2025 minus growth.
George Tong: Okay.
Speaker Change: Hey, George.
Speaker Change: So.
We've I think talked about in each of the earnings calls this year.
Speaker Change: That we believe that issuance is going to decline in the fourth quarter versus the prior year quarter.
Speaker Change: Because.
Speaker Change: Theres been intra year pull forward. So that's within the calendar year and Thats, just banks, telling issuers hey in.
Speaker Change: In the event there is any election.
Volatility why don't you just get ahead of that.
Speaker Change: And so.
Speaker Change: We're also looking at the strength of the issuance to date. So we are actually have lifted our outlook for Q4 issuance. So we versus our prior forecast. So we now expect the fourth quarter issuance to decline in something like the mid single digit range and it was mid teens percent decline in our prior.
Speaker Change: Our guidance, so we've actually lifted the.
Speaker Change: The view for the fourth quarter.
Operator: And, you know, that lift combined with the beat in the third quarter led us to our four-year issuance outlook to mid-30s, and then, you know, you triangulate that, you know, to revenue, where we're looking at something like low single digit percent growth and revenue over the prior year quarter, and, you know, that's just, again, what contributes to that, favorable issuance mix, you know, some of the things I just talked about with, with Craig's question, 2000-25, I think, could be a different ballgame.
Speaker Change: And that lift combined with the beat in the third quarter led us to up our full year.
Speaker Change: Issuance outlook to mid thirties, and then you triangulate that.
Speaker Change: Revenue, where we're looking at something like low single digit percent growth in revenue over the prior year quarter.
Speaker Change: And that's just again, what contributes to that favorable issuance mix.
Speaker Change: Some of the things I, just talked about with Craigs.
Speaker Change: Question two.
Speaker Change: 2025, I think could be a different ballgame again theres just been a lot of we believe.
Operator: Again, there's just been a lot of, we believe, calendar year, Paul Fullford, and I think you are going to know, in early November, if we don't see a slowdown in issuance, then there would potentially be some upsides for our guidance.
Speaker Change: Calendar year pull forward.
Speaker Change: And I think you are going to know.
Speaker Change: In early November if we don't see a slowdown in issuance.
Then there would potentially be some upside to our guidance.
Operator: Got it. Very helpful. Thank you.
Speaker Change: Got it very helpful. Thank you.
Operator: You're next question. It comes from the line of slow-mo Rosenbaum from Stiefel.
Speaker Change: Your next question comes from the line of Shlomo Rosenbaum from Stifel. Your line is open.
Operator: Your line is open.
Operator: Hi. Thank you very much.
Hi, Thank you very much Rob can you give us a little bit of an update on some of the progress for the various AI products. So you had to like navigators skills assistance can you talk about.
Robert Fauber: Rob, can you give us a little bit of an update on some of the progress for the various AI products, so you had to, like, navigate or skills assistance. Can you talk about where you are in both in development, and then also in kind of adoption. I know that when we talked about a little bit of a, you know, not as fast of an adoption because the clients were sitting up their own frameworks.
Speaker Change: Where you are in both in development and then also in in kind of adoption I know <unk> talked about.
Speaker Change: A little bit of a not as fast of an adoption because the clients are setting up their own frameworks. Maybe you could talk about is there anything to add.
Robert Fauber: Maybe you could talk about, is there anything that, you know, leads you to believe that the pacing is going to be dramatically different from what you thought, or the adoption will be very different from what you thought.
Speaker Change: Leads you to believe that the the pacing is going to be dramatically different from what you thought or the adoption will be very different from what you thought.
Robert Fauber: Thanks one more. Thanks for the question. So, you know, let me just kind of tick these off here.
Speaker Change: Hey, Shlomo Thanks for the question so.
Speaker Change: Let me just kind of kick these off here. So we talked a little bit about research assistant which was our first product in the market, so I'm not going to spend too much.
Robert Fauber: So, you know, we talked a little bit about Research Assistant, which was our first product in the market, so I'm not going to spend too much time on that. Since then, we've rolled out a suite of what we call Navigator, so this is, you know, think of AI enablement of the existing products allowing you to kind of get the most out of the products. We've rolled that out across a number of products, and that's going to be helpful to both. You know, well, know, I mean, mentioned some of the things, you know, customer satisfaction. It's going to be helpful to retention.
Speaker Change: Jim on that.
Speaker Change: Since then we've rolled out a suite of what we call navigators. So this is think of AI enablement of the existing products are allowing you to kind of get the most out of the products.
Speaker Change: We've rolled that out across a number of products and that's going to be helpful to both.
No Amy mentioned some of the things you know customer satisfaction.
Speaker Change: Is going to be helpful to retention, it's going to be helpful to our ability to.
Robert Fauber: It's going to be helpful to our ability to, you know, to price behind those enhancements. We've also started to roll out other AI enable products. A research assistant was the first. The second was an AI early warning system leveraging, you know, a number of our different data sets. We started with the focus on commercial real estate. We've got a very nice pipeline for that. That's focused primarily on banks.
Speaker Change: Yes, it's a price behind those enhancements, we've also started to rollout.
Other AI enabled products so research assistant once the first.
Speaker Change: And the second was an AI early warning system leveraging.
Speaker Change: A number of our different datasets, we started with a focus on commercial real estate, we've got a very nice pipeline for that.
That's focused primarily on banks and then we started early in the year, we did a very small like aqua hire.
Robert Scott Fauber: And then we started early in the year; we did a very small, like, aqua hire of a company called Able AI. And that brought over a small engineering team that was working on AI enablement for banking workflow. And so when we brought them over, that then accelerated our product roadmap for banking. And so we've rolled out an automated credit memo offering an automated covenant. So you're going to see more and more AI enablement of our banking workflow, of our insurance workflow. That's one of the benefits of, you know, having the IRP as well and insurance very easy to.
Speaker Change: Of a company called able AI and that brought over a small engineering team.
Speaker Change: That was working on AI enablement for banking workflow and so when we brought them over that then accelerated our product roadmap for banking and so we've rolled out an automated credit memo.
Speaker Change: Offering an automated covenants, so youre going to see more and more.
Speaker Change: AI enablement of our banking workflow of our insurance workflow, that's one of the benefits of having the IOP as well in insurance very easy to.
Speaker Change: To do the AI enabled minutes so just.
Speaker Change: In terms of adoption.
Speaker Change: Mixed bag.
Speaker Change: And we talked a little bit about it.
Speaker Change: You've got in some cases, youre smaller firms asset managers and others are able to adopt more quickly.
Speaker Change: When it when it comes to the big banks, they've all got.
Speaker Change: No.
Speaker Change: Risk frameworks and regulators and other things that they have to make sure before they're deploying these AI enabled solutions that they've got a our risk and control framework, that's going to pass regulatory muster so.
Speaker Change: While those conversations are very encouraging because we've elevated the dialogue, we're having having at many of our customers they are taking longer.
Speaker Change: So hopefully that gives you a sense.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Jeff Silber from BMO capital markets. Your line is open.
Jeff Silber: Thank you so much and looking at your guidance for the year and if I try to back into the implied guidance for <unk> adjusted EPS, It looks like youre guiding to that to be flat to potentially down.
Jeff Silber: Are you just being overly conservative or is there something specifically going on.
[laughter].
So we're guiding for we've updated the adjusted diluted EPS guidance range based on the updated Q4 implied outlook.
Speaker Change: So just to give you numbers, we are raising our adjusted diluted EPS guidance range and we're narrowing it to for the full year to $11 90 to $12.10 and that's still 21% at the midpoint, which is driven by <unk> performance. So what we've done here is we've flowed through the Q3 beat throughout full year guide and we've increased our ratings revenue.
Speaker Change: Outlook for Q4 versus the prior forecast into high end. So the midpoint of our updated guidance now implies Q4, EPS growth will be relatively flat to slightly down into Q4 versus the prior period and down approximately 30% sequentially from Q3, which is aligned with what we see in the top line.
Speaker Change: Yes.
Speaker Change: Sorry go ahead.
Speaker Change: No I was just going to ask if there is something specifically going on with margins in the fourth quarter, we should we should focus on.
Speaker Change: So for the fourth quarter margin as I said earlier in my prepared remarks, we've accounted for the incentive compensation adjustments in the third quarter to reflect the updated Q4.
Speaker Change: To reflect the updated topline outlook.
Speaker Change: So that's already been accounted for.
Speaker Change: If you look at the margin for the Q4.
Speaker Change: It's really the effect of the incentive compensation, but there's nothing else that.
Speaker Change: Yeah, I mean, the EMS margin I mean, I think primarily it's just you know revenues are going to be lower that we would expect that margin to be.
Speaker Change: A bit lower and so as I said, let's watch kind of AR.
Speaker Change: Starting around the second week of November and see what's going on in tissue and some that'll give you a sense of how to think about our guidance.
Alright fair enough. Thanks, so much.
Your next question comes from the line of Jason Haas from Wells Fargo. Your line is open.
Jason Haas: Hey, good afternoon. Thanks for taking my question I appreciate the comments earlier on <unk>. It sounds like the data information and research and insights is maybe not as strong as expected, but there was no change to the full year guidance. There. So I was curious.
Jason Haas: If youre now expecting closer to the high single digits low double digits and then if not can you talk about what other areas have been coming in stronger than expected to offset that and then.
Jason Haas: Maybe also any color on what would drive an acceleration from <unk> into <unk>.
Operator: Yeah, so on AR growth in the third quarter was 9%; it was a bit lower than our recent sustained performance of 10%. That was affected by some of the factors we've highlighted on the last quarter's call.
Speaker Change: Yeah. So.
Speaker Change: On a our growth in the third quarter was 9% it was a bit lower than our recent sustained performance of 10% that was affected by some of the factors we've highlighted on last quarter's call.
Operator: Stepping back and looking at our performance today, we've had more attrition events in the first quarter, as we said. We had a bit of a lower sales than expected with our banks and asset manager customer segment as they continue to face tight purchasing pattern. And we also had a couple of headwinds from the other factors we've talked about in the last call: that's a customer transitioning to MSCI for sustained ability solution and large federal government contracts that renewed at a lower value in Q3.
Stepping back and looking at our performance to date, we've had more attrition events in the first quarter. As we said we had a bit of a lower sales than expected with our banks and asset manager customer segment as they continue to face tight purchasing pattern.
<unk> also had a couple of headwinds from the other factors we've talked about in the last call. That's a customer transitioning to MSCI for sustainability solution in large federal government contracts that renewed at a lower value in Q3.
Operator: We also want to acknowledge that the new business growth has been a little bit more back and loaded than we initially thought was 55%, 50% more pipeline entering the fourth quarter this year than a year ago. Looking out to the remainder of the year, we're maintaining our outlook of a high single-digit revenue growth in the AR of high single to low double digits, with a midpoint still in the higher end of the high single digit. That's the guidance for the fourth year, and we have, as I said, a strong new business pipeline going into the fourth quarter.
We also want to acknowledge that the new business growth has been a little bit more backend loaded that we initially thought was 50, 550% more pipeline entering the fourth quarter of this year than a year ago.
Speaker Change: Looking out to the remainder of the year, we're maintaining our outlook of a high single digit.
Speaker Change: Revenue growth of high single to low double digits with a mid point still in the higher end up to high single digit.
Speaker Change: That's the guidance for the full year and we have as I said, a strong new business pipeline going into the fourth quarter. We have a very large book of renewals for the month of December which we expect to renew at 93% plus rate in light with what you've seen year to date. So again the good pipeline creation that we saw in the third quarter, which was driven by I think an increase of 35% and meeting activities.
Operator: We have a very large book of renewals for the month of December, which we expect to renew at 93% plus rate in light we were using here today. So again, the good pipeline creation that we saw in the third quarter, which was driven by I think an increase of 35% in meeting activity, a lot of those in person. That's very significantly up from a year ago. And so, as we're heading into the fourth quarter, which is our busiest month of the year. Our busiest quarter of the year on new business pipeline is very healthy. We have a good mix of large few deals in our KYC and data in information businesses, and we also have a large volume of new business and renewals, which is what underpins our book.
Speaker Change: One of those in person.
Speaker Change: Significantly up from a year ago, and so as we're heading into the fourth quarter, which is our busiest months of the year.
Speaker Change: Previous quarter of the year, our new business pipeline is very healthy we have a good mix of large deals in our <unk> and data and information businesses and we also have a large volume of new business and renewals, which is what underpins our outlook, yeah, maybe just to double click.
Operator: Yeah, and maybe just a double click. And by the way, welcome to the call, Jason; it's good to have you on. Just a double click on maybe an area where, and they're plenty that, you know, that we're encouraged by. As knowing me said, we've got a very nice pipeline relative to this time last year. But in KYC, we've got a really good set of product launches. So we've got a new digital investigations product that we've just launched in September. We've got a lot of customer engagement around that. We've got our entity verification offering, which is got a really nice, you know, and growing pipeline.
Speaker Change: By the way welcome to the call.
Speaker Change: Jason.
It's good to have you on just to double click on maybe an area, where there are plenty of that.
Speaker Change: We're encouraged by is Nuomi side, we've got a very nice pipeline relative to this time last year, but.
Speaker Change: <unk> see.
Speaker Change: We've got a really good set of product launches. So we've got a new digital investigations.
Speaker Change: Product that we've just launched in September and we've got a lot of customer.
Speaker Change: Engagement around that we've got our entity verification offering which has got a really nice and.
Speaker Change: And growing pipeline and also there is a really interesting emerging opportunity here.
Robert Fauber: And also there's a really interesting emerging opportunity here to leverage AI to build screening agents. And if you think about how much of what is going on around KYC diligence is done by armies of people, oftentimes in offshore centers. There's a real opportunity to leverage our both our data as well as AI to be able to not only be more efficient, but actually be even more effective and have a great, you know, a great, you know audit trail for the regulators. So some very interesting stuff there, I think, in our product, you know, recent product pipeline around KYC that, you know, leads us to continue to be, you know, very, you know, optimistic around that business.
Speaker Change: To leverage AI to build screening agents and if you think about how much of what is going on around cable I see diligence is done by armies of people.
Speaker Change: Oftentimes in offshore centers.
Speaker Change: There is a real opportunity to leverage our both our our data as well as AI to be able to not only be more efficient, but actually be even more effective and have a great.
Speaker Change: A great audit trail for the regulators. So some very interesting stuff there I think in our our product.
Recent product pipeline around cable I see that.
Speaker Change: Okay.
Speaker Change: Leads us to continue to be very optimistic around that business.
Operator: Good to hear. Thank you.
Great to hear thank you.
Jeffrey Meuler: Your next question comes from a line of Jeff Moiler from Beard. Your line is open.
Speaker Change: Your next question comes from the line of Jeff <unk> from Baird. Your line is open.
Jeffrey P. Meuler: Yeah. Thank you.
Jeff <unk>: Yes. Thank you. So this kind of runs counter to that last answer but.
Robert Fauber: So this kind of runs counter to that last answer, but can you just comment on KYC ARR in the quarter? 14% growth is great, but it accelerated from what your KYC business has historically done. I don't know if there was any holdback of customers waiting for the new product launches or just any comments on why KYC growth was a little software ARR in the quarter. The KYCR growth was 14% in the third quarter, that was lower than the 19% we saw in Q3 last year. Q3 last year, we had large transactions with federal government. As I said earlier, some of those renewed at a little bit lower rate.
Jeff Silber: Can you just comment on K y C. IRR in the quarter, a 40% growth is great, but it decelerated for much of <unk> business has historically done.
Jeff Silber: I don't know if there was any hold back of customers waiting for the new product launches or just any comments on why <unk> growth was a little soft.
Jeff Silber: In the quarter.
Speaker Change: <unk> growth was up 14% in the third quarter that was lower than the 19%. We saw in Q3 last year Q3 last year, we had a large transactions with the federal government as I said earlier.
Jeff Silber: Some of those renewed.
Jeff Silber: Little bit lower rate. So that's what explains the lower number for the third quarter, having said that we have a strong pipeline as Rob said heading into the fourth quarter. So we expect this to be more of an air pocket.
Robert Scott Fauber: So that's what explained the lower number for the third quarter.
Robert Fauber: Having said that, we have a strong pipeline, as Rob said, heading into the fourth quarter, so we expect this to be more of an air pocket than a new run rate.
Jeff Silber: New run rate.
Andrew Steinerman: So thank you. Your next question comes from the line of Andrew's statement from JP Morgan; your line is open.
Speaker Change: Got it thank you.
Speaker Change: Your next question comes from the line of Andrew Steinman from Jpmorgan. Your line is open.
Andrew Charles Steinerman: Hi, Noemi. I wanted to ask about predicate. I think it was the only acquisition that Moody's has done with revenues closed in the last 12 months.
Hi, Amy I wanted to ask about product Cat I think it was the only acquisition that Moody's has done with revenues closed in the last 12 months just tell me if I'm correct about that.
Andrew Steinerman: Just tell me if I'm correct about that, and specifically about Predicate, I'd like to know the dollar contribution, both to revenues and ARR, in the third quarter just reported, and in the fourth quarter died.
Speaker Change: <unk>, a bad product cat I'd like to know the dollar contribution both to revenues and <unk> or are in the third quarter, just reported and in the fourth quarter Guide.
Robert Scott Fauber: Andrew, it's Rob. We did, maybe you're talking about MA; we did acquire the remaining interest in GCR, which is the African rating agency. And that closed in the very beginning of the quarter, and that had revenues and operating income.
Speaker Change: Andrew.
Speaker Change: Rob.
Speaker Change: Did maybe youre talking about M&A, we did acquire the remaining interest in <unk>, which is the African rating agency and that closed in the very beginning.
Speaker Change: The quarter.
Speaker Change: And that.
Speaker Change: That had revenues and.
Speaker Change: And operating income.
Robert Fauber: I guess I would say, you know, it's just, this is immaterial to our overall, you know, our overall financial result. And I know you're looking for an organic number. I might steer you to ARR.
Speaker Change: I guess I would say, it's just this is immaterial to our overall.
Speaker Change: Our overall financial results.
Speaker Change: And I know Youre looking for an organic number I might steer you to <unk>. So I would say first of all credit card is not in our third quarter results.
Robert Fauber: So I would say, first of all, predicate is not in our third quarter results. And if you look at ARR, ARR is an organic number, so that'll give you a sense of excluding acquisitions.
Speaker Change: And if you look at <unk> is inorganic number so that'll give you a sense of excluding acquisitions.
Robert Fauber: Okay, thank you. Yeah, the one other, since we're on the topic of predicate, I mean, it was a really nice bolt-on for us to move into the casualty space, ARR mass, you know, very, very strong in the property space, and this allowed us to move into the casualty space.
Speaker Change: Okay. Thank you.
Speaker Change: The one other since we're on the topic of credit John I mean, it was a it was a really nice bolt on for us to to move into the casualty space Rms.
Very very strong in the property space and this allowed us to move into the casualty space and we announced that acquisition right before a huge industry conference in.
Robert Fauber: And we announced that acquisition right before a huge industry conference in Europe that I went to, and we did, you know, literally north of a hundred customer meetings, and there were some very strong interest in, you know, in predicate capabilities and really understanding emerging and long-tailed. Casually in mass tort risks. In fact, I think it's something we're going to be able to use across. You know, not only analytics, but also even it will help inform, you know, some of our work in rating. So we're really excited about, you know, how to get us as part of the Moody's family.
Speaker Change: In Europe that I went to and we did literally north of 100 customer meetings and there were some very strong interest in.
In <unk> capabilities, and really understanding emerging and long tailed.
Speaker Change: Casualty and mass tort risks in fact, I think it's something we're going to be able to use across.
Speaker Change: Not only analytics, but also even in Italy.
It will help inform.
Some of our work in ratings. So we're really excited to have.
Predicate as part of the Moodys family.
Speaker Change: Thank you.
Operator: Thank you.
Speaker Change: Okay.
Russell Quelch: Your next question comes from a line of Russell quotes from Redburn Atlantic; your line is open.
Speaker Change: Your next question comes from the line of Russell quotes from Redburn Atlantic Your line is open.
Russell Quelch: Yeah, thanks for squeezing me in.
Speaker Change: Yeah. Thanks for squeezing me in Rob.
Robert Scott Fauber: Rob, I wondered if you could be a bit more specific about the levels of growth you're seeing in private credit assessments and how much that's contributing to the revenue today.
Russell quotes: I wondered if you could be a bit more specific about the levels of growth youre seeing in private credit assessments and how much that's contributing to the revenue today.
Robert Fauber: You mentioned being a leader early leader, perhaps in the bit rating the BDCs. I wondered what else you're doing to position yourself to capture this opportunity. You mentioned conversations with Apollo and Blackstone and wonder if you could add a bit more flavor to those conversations, if that's leading to immediate revenue opportunities or if this is more stuff for the future. Coles, Roger.
Russell quotes: You mentioned being a leader early data, perhaps in the rates and the Bdcs I wondered what else you're doing to position yourself to capture this opportunity you mentioned conversations with Apollo Blackstone and I wondered if you cut out a bit more flavor today's conversations if that's leading to immediate revenue opportunities or if this is most stuff for the future.
Speaker Change: Yes, so russell thanks for the question I actually I would say, we're going to see revenue. So we are already seeing revenue from private credit flowing through the rating agency and analytics, that's already happening. So essentially I had a conversation with 19, the other day and I said.
Speaker Change: AI is a fantastic opportunity for us so as private credit, but private credit is going to manifest itself in the financials faster than AI is going to because of some of the dynamics I just talked about in terms of adoption curves.
Speaker Change: So.
Speaker Change: We've got some work to do to start to break out for you all and give you a better sense of how we're capturing private credit revenue coming through both the rating agency and the analytics business in <unk>.
Speaker Change: We know we we in some ways kind of owe that to you all but what I would say is again back to a few of my comments earlier, we're already seeing it come through Fig ratings.
Speaker Change: And that is through the ratings of Bdcs and fund finance instruments and while those numbers are small relative to things like what we're doing the total revenues that were getting from rating insurance and banking issuance, it's growing quite fast in fact in many cases growing faster so what we're doing with BDC.
Speaker Change: That's growing faster than for instance, our revenue line for banking.
Speaker Change: Right, so youre going to see it and you're already seeing it in Fig, where.
Speaker Change: We're already seeing it in structured finance in the rating of.
Speaker Change: Asset backed.
Speaker Change: Asset backed finance and.
Speaker Change: We talked a little bit about that earlier and theres quite a pipeline.
Speaker Change: For that.
Speaker Change: We're starting to see it in or even in our.
Speaker Change: Project Finance area, where there's more and more demand for <unk>.
Speaker Change: Ratings for.
Speaker Change: Loans that investors are investing in and they actually want a third party.
Speaker Change: A third party view of risk and so it's interesting as you think about what's going on with the banks in this kind of originate to distribute model that they are more and more moving to.
Speaker Change: Yeah.
Speaker Change: They're all saying Hey look in order to distribute this credit to a wider broader range of potential investors, including everything from insurers pension funds.
Speaker Change: High net worth you name it we need a third party.
Speaker Change: Assessment of credit risk in some in many cases, that's a rating for the instruments that I talked about but there's also demand from the investors, who say hey look.
I'm invested in these private credit funds and I want to have more visibility into the credit risk in these funds and I want that to come from an independent source rather than from the GP themselves. So we are seeing demand for that.
In fact when.
Speaker Change: When we announced our partnership with MSCI on ESG, We said that we're working to explore opportunities to leverage their distribution into the LP and GP community.
Speaker Change: And to be able to provide.
Speaker Change: Solutions around private credit in fact, we just had a fantastic meeting with the teams and we're working to do.
Exactly that so I think.
Again, I know that we need to do a probably a little better job of helping you understand how that's starting to.
Speaker Change: Materialize across both parts of our business.
Speaker Change: But we're already seeing that.
Speaker Change: In both P&l's.
Speaker Change: Got you okay. Thanks.
Operator: Okay, thanks.
Alexander Kramm: Your next question comes from the line of Alex Kramm from UBS.
Speaker Change: Your next question comes from the line of Alex Kramm from UBS. Your line is open.
Alexander Kramm: Your line is open. Yes, hey, hello, everyone. I know it's late in the call, so just a quick cleanup here on MA margin.
Alex Kramm: Yes, Hey, Hello, everyone.
Alex Kramm: It's late in the call.
Alex Kramm: So just a quick clean up here.
Alex Kramm: On MAA margin can you just talk about what you're expecting in the fourth quarter I think.
Operator: Can you just talk about what you're expecting in the fourth quarter? I think if I do my math right, I think margin is supposed to take up in the fourth view, but generally speaking, from a seasonal perspective, cost go up after the three queue and margin goes down. So I don't know if that's part of the incentive computer talked about or anything else, and obviously predicate is coming in as well, I think. So just maybe flesh out why this you may be a little bit different.
Alex Kramm: If I do my math right I think margins as opposed to pick up in the fourth Q, but generally speaking from a seasonal perspective.
Speaker Change: Costs go up after the <unk> and.
Speaker Change: And margin goes down so I don't know if thats part of the incentive comp you talked about or anything else and obviously predicate is coming in as well I think so just maybe flush out why this year, maybe a little bit different and it's already related to that you talked about investing a lot.
Operator: And then, sorry, related to that. You talked about investing a lot in MA early on. The calls are just wondering if you have any updated thoughts on the margin expansion that you're looking at for that business in the next couple of years. Thanks.
Speaker Change: MAA early on the call. So just wondering if you have any updated thoughts on the margin expansion that you're looking at for that business in the next couple of years. Thanks.
Operator: Yeah, thanks for the to get on the queue for question. This is a seasonality of revenue driven. So, as you know, our fourth quarter in MA is the largest quarter in terms of revenue. So given the typical strength in the fourth quarter, we expect the adjusted operating margin in MA to take up in the fourth quarter. Just slightly above the range of our guide. There's a little bit of headwinds from predicate, but as Rob said, not maturity affecting the guide, and we're maintaining our 30 to 30 percent margin for the four year.
Speaker Change: Yeah. Thanks for the to get on the Q4 question. This is the seasonality of revenues driven so as you know our fourth quarter in EMEA is the largest quarter in terms of revenues.
So given the typical strength in the fourth quarter, we expect the adjusted operating margin in EMEA to tick up in the fourth quarter.
Speaker Change: Just slightly above the range of our guide.
Speaker Change: There's a little bit of headwinds from Freddie get but as Rob said not materially affecting the guide and we're maintaining a 31%.
Speaker Change: Percent.
Speaker Change: Our margin for the full year. So that's for Q4 now looking out in the outer years as Rob said, we will update you later in February, but where we've been investing we've invested in our gen. AI capabilities platforming, you know new product development I would say, we mostly through that investment cycle.
Operator: So that's four queue for now looking out in the outer years as Rob said, we'll update you later in February, but we're we've been investing. We've invested in our GAI capabilities, not platforming in our new product development. I think we mostly through that investment cycle and we'll be really focusing on expanding the margin and continuing to migrate some of those customers from the legacy platforms into the banking and RRP. That will drive our margin expansion in the long run. And we also, you know, making sure we're very disciplined in the management of discretionary spend. Actually, you saw that materializing in the expansion and operating margin in MA in the fourth in the third quarter, despite the fact that Rob and you kind of remained consistent with the second quarter.
Speaker Change: We'll be really focusing on expanding the margin and continuing to migrate some of those customers from the legacy platforms into the banking in our ERP and <unk>.
Speaker Change: That will drive our margin expansion in the long run.
Speaker Change: Also.
Speaker Change: Making sure we're very disciplined in the management of discretionary spend actually you saw that materializing in the expansion in operating margin in EMEA in the fourth in the third quarter. Despite the fact that revenue kind of remained consistent with the second quarter.
Operator: So that's that's really what I can say about the MA margin and still reiterating our guidance range for the four year.
Speaker Change: So that's really what I can say about the MA margin and still reiterating our guidance range for the full year.
Robert Fauber: Yeah, so to underscore that we're definitely committed to the medium-term targets for margin for MA. I'm also reflecting on one thing I said earlier about positive mix on leverage finance, and I lumped bank loans and high yield together in that. Actually, I think because of all the refined reset activity we had going on, all the refi with loans. That wasn't a favorable mix, but high yield was, so I just want to make sure that was clear. But on balance, we had a favorable mix from our corporate finance issuance.
Speaker Change: So to underscore underscore that we're we're definitely committed to the medium term targets for margin for.
Speaker Change: MAA.
Speaker Change: I am also reflecting on one thing I said earlier about positive mix on.
Speaker Change: On leveraged finance I lumped bank loans and high yield together and that actually I think because of all the the refi and reset activity, we had going on all the refi with loans that wasn't a favorable mix, but high yield was so just want to make sure that that was clear.
Speaker Change: On balance we had a favorable mix from from our corporate finance.
Speaker Change: Issuance.
Operator: And that concludes our question and answer session. I will now come to call back over to Rob and know I'm a for some final closing remarks. All right, well, thank you everybody for the questions, and we look forward to talking to you on the fourth quarter. And he's called until then. Take care.
And that concludes our question and answer session I will now turn the call back over to Robyn Nuomi for some final closing remarks.
Robyn Nuomi: Alright, well. Thank you everybody for the questions and we look forward to talking to you talking with you on our fourth quarter earnings call until then take care.
Operator: This concludes Moody's Corporation, 3rd quarter, 2024 earnings call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Investor Resources section of the Moody's IR homepage. Additionally, a replay will be made available after the call on the Moody's IR website.
This concludes Moody's Corporation third quarter 2024 earnings call as a reminder, immediately following this call. The company will post the mis revenue breakdown under the Investor resources section of the Moody's IR homepage. Additionally, a replay will be made available after the call on the Moody's IR.
Operator: Thank you.
Robyn Nuomi: Our website. Thank you.
Operator: Please wait; the conference will begin shortly. Thank you.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yeah.
Yes.
Speaker Change: [music].
Speaker Change: No.
Speaker Change: Yeah.
[music].
Speaker Change: No.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yes.
Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.