Q2 2025 Moody's Corp Earnings Call

Good day, everyone and welcome to the Moody's. Corporation second quarter 2025 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 questions and answers following the presentation.

Speaker Change: I will now turn the call over to shabati c******** of investor relations. Please go ahead

Speaker Change: Thank you. Good morning, and thank you for joining us today. I'm Shivani Cox head of investor relations this morning, Moody is released its results for the second quarter of 2025 an updated guidance for select metrics, for full year 2025 the earnings press release. And the presentation to accompany, this teleconference are both available on our website at ERM Moody's, cam.

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 file this morning for reconciliations between all adjusted measures reference during this call in US. Gaap

Speaker Change: 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 Rob.

Speaker Change: Thanks shavani and thanks everybody for joining today's call.

Speaker Change: I'm going to kick off with some high-level takeaways on the operating uh environment and Moody's second quarter performance. Uh then I'm going to share some progress updates on our strategic Investments and opportunities

Speaker Change: and later in the call,

Speaker Change: Uh, know Amy is going to provide some details on the second quarter performance and outlook for the second half of the year. And after we finish our prepared, remarks know, Amy and I will be glad to take your questions.

Speaker Change: so, on to the results,

Speaker Change: This past quarter Moody's, provided the insights, and expertise that helped markets to make sense of a complex and rapidly changing Global landscape.

Speaker Change: Second quarter Moody's, revenue of 1.9 billion dollars grew 4% year-over-year. That's an impressive accomplishment, given the April issuance air pocket and a tough comparable to the second quarter of last year when Revenue grew 22%.

Now we remain focused on disciplined expense management, delivering and adjusted operating margin of 50.9%. That's up 130 basis points from a year ago and together this translated to adjusted diluted EPS of $3.56. That's up 9% and that's actually 60% growth from the same quarter just 3 years ago. So it illustrates just how much the earnings power of our business continues to grow.

Speaker Change: On the back of our second quarter performance. We've narrowed our guidance ranges for rated issuance, Mis revenue, and eps.

Speaker Change: Now, starting with mis we continue to invest in our position as the agency of choice for issuers and investors and that pays dividends in times of uncertainty, when markets turn to us for our insights and the quality of our analysts.

Speaker Change: Our ratings franchise delivered, 1 billion dollars in Revenue. This quarter that's just shy of a second quarter record. And it also marked our second consecutive quarter above the 1 billion dollar Revenue mark.

Speaker Change: And while April started off slowly, with several days of, no issuance conditions, improved meaningfully, as we moved into May and June and markets stabilized. Spreads narrowed back to pre-approval levels and issuance picked up significantly. And that helped to offset the early softness.

Speaker Change: Uh, both total revenue and transactional. Revenue growth were stronger than issuance growth and this outperformance was partially helped by a favorable issuance mix and to a lesser degree.

Speaker Change: The growth in products and services is not tied to issuance such as certain private credit ratings.

Speaker Change: Now, looking ahead to the second half of the Year. We're cautiously optimistic.

Speaker Change: The 4 Key Credit themes that we identified at the start of the Year remain relevant, and they could influence the balance of 2025 and Beyond and these include US policy on trade tax and immigration.

Geopolitical tensions in the Middle East, the fiscal economic and security impact of European Defence spending.

Speaker Change: And potential shocks uh triggering a pullback in Risk appetite.

Speaker Change: Now, 1 of the deep currents, driving demand in Moody's, ratings that we've discussed a good deal on. Recent calls is the continued growth and evolution of the private credit markets and we've invested and engaged to become an important voice in this space. Fulfilling a critical need for more transparency and insights

In the second quarter we published a private credit webinar on the Moody's IR website and it discusses the trends we're seeing in private credit and how Moody's is serving the market.

Speaker Change: We also hosted Marquee credit conferences in both New York and London that Drew nearly a thousand people from across the entire private credit ecosystem.

Speaker Change: And these events demonstrate the tremendous, convening power of the Moody's brand, and also underscore how much interest there is in. Having us play an important role as the leading opinion provider on credit in this market.

Speaker Change: Now, continuing the trend from the first quarter, private credit is an important driver of growth and ratings. In fact, in the second quarter private credit related transactions, accounted for nearly 25% of first-time mandates and the number of private credit related deals increased by 50% year-over-year.

Speaker Change: Revenue related to private credit groups, 75% in the second quarter across multiple lines of business and Mis albeit off of a relatively low Bass.

Speaker Change: Issuance environment that was down 12%.

A private credit investment plays, an increasingly important funding role in key sectors such as AI data, uh, Center investment transition, Finance, energy infrastructure and we are well, positioned to address these growth opportunities. In fact, among others, we just rated a 1.5 billion British pounds deal. This quarter for a European utility company. How's the largest ever private credit related deal in the UK?

Speaker Change: And as private credit grows. So too does the use of ratings in this space as the biggest players in this market realize that a credible independent assessment of credit risk. Be it a rating or a model, derived score from a trusted firm like Moody's provides additional transparency and comparability that broadens, the investor base and provides a solid foundation. As this Market continues to scale.

And in addition to how we're addressing this need in ratings, this was also an important driver of our ma part-time.

Speaker Change: I'm throwing down in the Moody's Analytics.

Our performer performance, this quarter underscores the Strategic role that Ma plays in driving Moody's growth and and, and earnings quality. And we delivered another strong quarter with 11% Revenue growth and 12% growth in recurring Revenue.

Speaker Change: ARR grew 8% led by a 10% increase in decision Solutions, in recurring, Revenue helped steady at 96% of mas total reinforcing the strength and predictability of our business model.

Speaker Change: And while we continue to deliver steady growth, I think what really stood out this quarter was margin expansion.

Speaker Change: Ma delivered, an adjusted operating margin of 32.1%, and that's a 360 basis, point Improvement, year-over-year. And that puts us a solidly on track to deliver our full year. Margin guidance of 32 to 33%.

Speaker Change: Now, our best-in-class Solutions continue to earn industry recognition and recently Moody's was ranked number 1 in the chartist, quantitative analytics, 50 rankings for the third year in a row, winning 13 individual categories. And these third-party awards, they're important because they're an external validation of our ability to deliver Innovative and industry-leading solutions that meet the evolving needs of our customers.

Speaker Change: And this recognition is also echoed in a strong engagement at our annual Banking and insurance. Customer conferences, at our banking conference, we showcased our integrated Suite of products, including the advancements in building, a fully end-to-end loan origination solution, incorporating key elements from our numerated acquisition. And this was a great validation of the addition of numerated front-end capabilities as well as the AI enablement across our platform.

Speaker Change: Our newly launched lending origination package that features numerated was adopted by several renewing customers. As of early July, with an average contract value, increase of nearly 15% and notably 1 of the largest Japanese Banks cited. The enhanced value proposition of the integrated offering as a key reason for their upgrade and we're optimistic. This adoption Trend will accelerate as we enter a heavy renewal cycle in the second half of the year.

Speaker Change: Our insurance conference Drew record attendance.

Speaker Change: And showcased new model releases, enhanced underwriting capabilities and Integrations with cape analytics which we acquired back in January and feedback from customers. Was overwhelmingly positive especially around the fit and and value of cape's AI enabled geospatial intelligence data and risk analytics in our catastrophe models.

Speaker Change: And we're really encouraged by the early transaction. Uh traction here. Uh, cape's ARR is more than 10% higher than when we closed the acquisition and we expect that growth to accelerate further through year, end making it a meaningful contributor to our broader Insurance portfolio.

Speaker Change: Now, beyond our Insurance Solutions line of business, we're seeing strong cross, sell into our insurance customer base.

Speaker Change: Jesus, from the RMS acquisition.

Speaker Change: And while we delivered a strong quarter from both a growth and margin standpoint, we're not standing still. We continue to innovate invest and partner to capitalize on the deep currents, driving demand for our Solutions and you've heard me talk about how we're investing in the evolution of the markets. This quarter that included our partnership with msci to provide third-party. Uh, credit scores on thousands of of private Credit Credit, uh, companies and Loans, uh, that we discussed on the last call. And this past quarter, we also made another investment in our domestic ratings, franchise in Latin, America building on the really great momentum that we have across the region. We completed our acquisition of icr Chile, which is a leading provider of domestic credit ratings in Chile, which in turn is the third largest domestic bond market in Latin America and we're going to integrate this business into Moody's. Local.

Speaker Change: Activity in these markets, remains very healthy with Moody's, local new mandates year to date up more than 30% year-over-year and that reinforces the importance of continuing to invest in our leading, presence across the region and thought leadership in the debt markets of tomorrow.

Speaker Change: We also announced several exciting Partnerships with major technology and data players. We're really excited about our data integration with saps new business data Cloud. The first dashboard product is set to launch in Q4 with more to come and that opens up a new distribution channel for our data, the thousands of sap customers.

Speaker Change: during the quarter, our new, uh, onboarding agent leveraging our massive company data database that we call orbus was featured during the keynote at Koopas, annual Inspire conference, which Drew, uh, over 3,000 attendees

Speaker Change: And our risk data Suite is now available on the data bricks Marketplace. That's another important step in our growing partnership with data, bricks and significantly, enhances the customer access and integration to our content and offers new monetization opportunities.

Speaker Change: Now we know there's uh growing interest in uh understanding the contribution of gen AI to our business.

Speaker Change: And while sales of our Standalone, Genai Solutions are not material yet, we wanted to provide a few meaningful indicators to demonstrate the progress and value. That Genai is already delivering at first, at a high level is the deployment of Genai across our portfolio. So over the past year, we've accelerated the roll out of uh, of our Genai capabilities. And by the end of the second quarter, approximately 40% of our products measured by ARR. Now, includes some form of Genai enablement. Whether offered as a standalone Standalone solution,

Speaker Change: As an upgrade or embedded within the core product.

Speaker Change: A second way to look at progress is by looking at the growth of our total relationships with customers who have purchased or upgraded to Standalone Genai, offerings from us.

Speaker Change: Their total spend across Moody's Analytics measured by ARR is approaching 200 million. And

Speaker Change: That is growing at about twice, the rate of ma overall. So this cohort of Genai adopters shows stronger and deeper engagement and that reinforces the broader impact of our Genai investments in Innovation strategy.

Speaker Change: Now, finally I want to share our milestone in our partnership with Microsoft and we're excited to share that. Microsoft um will use Moody's as their primary operational data provider for customer hierarchy and organization data management. Moody's data is helping power decision-making across Microsoft's operations and plays a significant role in facilitating, Microsoft's view of their customers

Speaker Change: And this partnership integrates Moody's, proprietary data sets into Microsoft's supply chain, compliance credit and know, your customer business functions.

Speaker Change: And the benefits from this partnership. Include enhanced risk management AI Innovation and cost efficiencies and we believe this collaboration, underscores the importance of data-driven decision-making and AI innovation in today's rapidly evolving business landscape.

Amy: So some good execution, this quarter, even with the choppy environment in April and we're confident in our strategy building buying partnering to capitalize on the powerful growth drivers. Shaping our markets for an expanding our Genai capabilities, to deepening our presence in high growth regions and forging strategic Partnerships. We're positioning Moody's to lead and increasingly data-driven AI enabled world, and to deliver long-term sustainable value for our stakeholders, with that new Amy over to you.

Thank you Rob. And hello everyone.

Speaker Change: Some additional caller.

Speaker Change: Starting with mis Revenue was flat versus the prior year or declining by 1% when adjusted for positive FX movement effects.

Speaker Change: Surfacing 1 billion dollars for the second consecutive quarter.

Speaker Change: The trends of transaction Revenue against issuance growth. Implies a favorable issuance mix this quarter.

Speaker Change: From corporate finance, structured finance, and ppif and the contribution of private credit.

Speaker Change: Recurring Revenue increased by 7% year on Year from pricing initiatives, and portfolio growth.

Speaker Change: now, looking at our performance, across asset classes, Corporate Finance, transaction Revenue declined, 6% year on year as bank loans, issue and slowed and m&a activity remains subdued

Speaker Change: notably, there was a significant decline in repricing activity which contributed positively to the revenue mix.

Speaker Change: Investment grade, transaction Revenue, grew 18% on insurance growth of 16%.

Speaker Change: As issuers took advantage of tight, spreads reflecting elevated demand for high-quality paper.

Speaker Change: As you probably have seen in the press, this was particularly pronounced in the TMT sector.

Speaker Change: High yield transaction Revenue was broadly in line with last year with notably strong performance in AA.

Speaker Change: In financial institutions, transaction Revenue declined, 6% year on year.

Speaker Change: Driven by lower infrequent. Issuer activity, primarily in the insurance sector.

Speaker Change: Structured Finance issuance declined by 25% in the second quarter as Market volatility, and wider spreads, curtailed activity in April.

Speaker Change: Transaction Revenue declined, only 3% helped by favorable mix. Particularly from a Slowdown in clo refinancing and from higher average fees in other asset classes.

Speaker Change: Finally public project in infrastructure. Finance with 3%, in transaction Revenue.

Speaker Change: Driven primarily by us Public Finance.

Speaker Change: Issuance was largely opportunistic to get ahead of any impending, policy changes and Market volatility.

Speaker Change: It's also worth noting that in the second quarter. Our us Public Finance group, rated the highest quarterly issuance volume since 2007.

Speaker Change: First time Mondays we're nearly 200 in the second quarter which is very encouraging and keeps us on Pace for expectation of 700 to 800 for the 4 year, in support of ongoing funding needs and the growth in private credit.

Speaker Change: First time mandates were up, year-over-year driven by mandates in ppif, which was supported by the increase in private credit.

Speaker Change: As private credit becomes a more prominent part of the market. It's important to note that some issuance activity is not captured in rated issues figures reported by external data providers.

Speaker Change: Moving to margin. Mis delivered, 64.2% adjusted operating margin expanding, 100 basis points from last year.

Speaker Change: as a reminder for modeling purposes, I'd like to say that the second quarter of 2024 included, a 1-time, legal Reserve related, to a regulatory matter impacting, the underlying margin expansion, Dynamics, year-over-year,

Speaker Change: We continue to expect between 61% and 62% adjusted operating margin for Mis for the full year.

Turning to Moody's Analytics Revenue, grew 11% in the second quarter and that includes about 4 percentage points of growth from m&a and FX.

Speaker Change: Recurring Revenue, grew 12%, with Organic constant currency. Recurring Revenue growth of 8% in line with second quarter our growth.

Speaker Change: Decision Solutions which includes banking insurance and kyc.

Speaker Change: Continues to deliver double digit growth.

Speaker Change: Kyc, led the way with sustained, strong demand for our data analytics and workflows serving customers are cross Industries.

Speaker Change: Kyc are grew 17% last quarter and moderated slightly to 15% this quarter.

The primary driver of this deceleration was the Strategic termination of a long-standing redistribution partnership.

Speaker Change: Outside of this specific event kyc new business growth remains strong and we expect our growth to remain in the mid to high, teens through the second half of the year.

Speaker Change: In banking, our portfolio of products, including our Landing Suite, risk, and finance Solutions. As well as de data sales from the Legacy race acquisition among several other smaller product lines

Speaker Change: Have Blended our growth of 7%.

Speaker Change: We are concentrating our investments on supporting customers across the entire Landing workflow from origination to approval and Beyond.

Our Flagship Landing product. Credit Lance is proof of that success with low teens are growth and meetings. New business growth.

Boosted by the ongoing integration of numerators AI and data analytics capabilities, which you heard Rob touch on earlier.

Speaker Change: Insurance Solutions, delivered 9% our growth.

Speaker Change: With a couple of a Dynamics to call out.

Speaker Change: An account loss following a merger dampen growth by about a 1% percentage point, and we faced a tough comparable against record, new business in the first half of last year.

Speaker Change: That said, our new business pipeline is building. Nicely growing at Double Digit phase and we expect it will support at least High single digit growth rates as we head into the second half of the year.

Speaker Change: Regarding the low double digit growth. We keep analytics that Rob mentioned. I want to call out that this is not captured in the Insurance Solutions are metric. As we wait to land the anniversary of our Acquisitions before, including them in the line of business. And overall ma are

Speaker Change: Turning to research and insights, we delivered our growth of 7% supported by continued Innovation and Credit View. This includes contributions for research assistant, as well as a modernized user experience with new features, scorecards and peer Analytics.

We're also integrating real-time news and additional data sets, to deliver richer more timely signals, driving growth through strong, retention rates, and pricing power.

Speaker Change: Finally data and information are grew 6%.

Speaker Change: Following some outside nutrition from the US government in the first quarter. We remain focused on driving growth for strong retention and new business production.

Speaker Change: We also making meaningful progress on improving Mas margin profile.

And we're doing this by prioritizing Investments, optimizing vendor relationships, revisiting Legacy or structures and deploying productivity tools are the organization.

Speaker Change: As a result annualized compensation expense declined by 4% from the beginning of the year through June.

Speaker Change: We expect this continued rigor and discipline to support further margin expansion in the second half of 2025 and into 2026.

Speaker Change: So as there were several discrete factors influencing performance across all lines of business. This quarter, I wanted to provide transparency to help unpack the underlying drivers

Stepping back. We did analytics continues to deliver High predictable High. Single-digit. Our growth, now paired with strong and sustainable margin expansion.

Speaker Change: This combination of consistent Topline performance and discipline execution, positions ma as a durable. Long-term growth engine for Moody's.

Speaker Change: Turning to the remainder of the year and our guidance.

Speaker Change: We are reaffirming our ma guidance metrics and updating our outlook for Mis insurance and Revenue.

Speaker Change: These revisions primarily reflect better than expected, second, quarter performance and a weaker US dollar. You can see that the details on slide 12.

Speaker Change: For m&a related issuance of use largely unchanged, we continue to expect 15% growth in announced m&a and flat rated issuance.

Speaker Change: That said we're monitoring the environment closely as macroeconomic and geopolitical uncertainty, Trend tends to disproportionately affect this aspect of issuance.

Keep in mind, m&a is only 1 of many factors, impacting overall issuance volumes.

Insurance finished. The second quarter ahead of our earlier, expectations.

Leading us to update the low end of our prior guidance range.

Speaker Change: That said uncertainty remains around several micro drivers, including tariffs, Central Bank interest rate policy inflation. The path of credit spreads and the trajectory of m&a activity for the remainder of the year.

Speaker Change: The low end of our issuance forecast.

Speaker Change: Account for potential shortlived issuance air pocket, but does not anticipate a meaningful deterioration in the macroeconomic OR geopolitical environment.

Speaker Change: On the revenue front. We now expect 4 year, Mis Revenue growth in the low to mid single digit percent range.

Speaker Change: And we believe there is more upside than downside at our midpoint.

Speaker Change: From a modeling perspective, taking the midpoint of our guidance range. We anticipate Mis Revenue to decline in the low single digit year-over-year in Q3

Speaker Change: Followed by mid single digit growth in Q4.

Speaker Change: Our full year Mis adjusting operating margin guidance. Remains that 61 to 62%

Digit percent range consistent with the Outlook we shared in our q1 call.

Speaker Change: We also reaffirm our full year, adjusted operating margin guidance of 32 to 33% with a steady ramp upwards. From this 32%, we reported this quarter.

Speaker Change: Reflecting both seasonality of Revenue and expenses as well as ongoing expense management efforts.

At the MCO level and excluding the impact from restructuring charges. We expect operating expense to ramp between 30, to 45 million in the third quarter versus Q2.

Speaker Change: Primarily related to our annual Merit increases.

Speaker Change: Followed by a gradual sequential increase in Q4.

Speaker Change: We anticipate approximately 100 million of incentive compensation for each of. The remaining quarters of the year.

Speaker Change: Finally, our efficiency program continues to deliver results.

Speaker Change: We have already executed on annualized savings over a hundred million dollars which are helping offset annual salary increases and variable costs as the year progresses.

Now putting it all together, we continue to expect, Topline for MCO to grow in the mid single digit percent range.

Speaker Change: With adjusted operating margin in the 49 to 50% range.

Speaker Change: Are adjusted our data, adjusted diluted EPS guidance range. Now implies 10% growth at the midpoint versus last year.

Speaker Change: A growing RS, comments.

Speaker Change: Where executing well on our strategy from a position of financial Sprint?

Speaker Change: Looking forward, we are investing to capitalize on the secular demand drivers for deep currents.

Such as digital transformation.

Speaker Change: AI adoption and the expansion of private markets.

Speaker Change: That are driving multi-year investment cycles for our customers and in turn generating demand from with this ratings data.

Analytics, and workflow Solutions.

Speaker Change: With that, I'd like to thank all of our colleagues for their contributions to get another strong quarter for Moody's and operator. We're now happy to take any questions.

Thank you. If you would like to ask a question, please dial Star 1 on your telephone keypad.

Speaker Change: If you are on a speakerphone, please pick up your handset and make sure your mute function is turned off. So that your signal reaches our equipment,

We'll ask that. You, please limit yourself to 1 question the option to rejoin. The queue will be unavailable. Again, that is star 1 to ask a question.

Speaker Change: Our first question comes from Ashish sadara from RBC. Please go ahead. Your line is open.

Ashish Sadara: Movie thesis here on uh, the decision solution. I was just, uh, curious. If you could provide some more color on the Strategic termination, and, and the account loss, which is Weighing on the kyc and insurance particularly and how do we think about those headwinds. But also, as we think about going into the back half of the year, you you have easier uh, from the federal, uh, contract as well as the Moody's, uh, msci contract. Uh, so just puts and takes as we think about the decision Solutions are going into the back office of the year, thanks.

Ashish Sadara: Hey Ash, it's Rob. Um, so first of all, just to, you know, a little bit of color on

Rob: Some of the attrition and, and knowing me touched on it. You know, we had indicated, I think last quarter that there was some government related, uh, attrition. Um, we, you know, no Amy mentioned that we had strategically terminated a, uh, distribution partnership in kyc, you know, so that I think that's, that's it, it it counts as attrition. But, you know, that's, that's a decision that we took because we thought it was in the, you know, kind of the long-term interests.

Rob: Um, of our business. We've continued to have some ESG related attrition. Uh, we saw that in the first quarter that continued into the second quarter and has no, Amy said, you know, kind of a, a, a 1-off uh, attrition event and insurance related to an m&a deal. Um, when we look at, you know, the drivers of our growth for the balance of the year in decision Solutions. I I'd say maybe, uh, 3 things. So let me start with banking, you heard no. Amy touch on, uh, lending credit lends is our Flagship, uh, lending product. And, um,

Rob: Comprehensive, uh, solution. And, um, you know, we're seeing some very nice, uh, growth from that and as I mentioned, you know, we're getting ready to go into renewal cycle and we have the opportunity to uh, to to upgrade customers into that into that package. So we we think lending is a good driver in banking and insurance. Um, you know, the pipeline has been building. We had a great Insurance conference. We've got a very important new model launch coming in the second half of the year. That there's a lot of customer demand around that. And, you know, as we talked about Cape while, it's not in the ARR numbers. Um, we've gotten a great reception from customers and the integration of of Cape into the intelligent risk platform and and Cape would be a creative to ARR growth. If we included it in in that this year, and then 1 last thing, uh, just in case kyc, we've got very strong cross sell continues into Financial Services customers. That's north of 20%. Uh, ARR growth uh we expect new sales to corporates to really kind of

Rob: Start to ramp in the fourth quarter of the year. After we make some, uh, enhancements to our Max site, uh, platform. And we've got some good momentum with a recently signed, uh, partnership from a third-party payment platform and is, you know what I mean? You said, um, you know, excluding that attrition event, you know, we'd be in the, you know, our growth would be, you know, continue to be in the, in the High Teens rate. Yeah. And, and the other thing I would add I should is the on our pipeline build. We're uh, building pipeline pretty nicely, uh, as we

Rob: Heading into the second half. Our pipeline is up significantly uh, year on year. Uh I think our ability to execute and convert that pipeline is uh,

Rob: Uh, combined with, you know, still relative, uh, effect of tariffs, and, and other macro factors and customers decision. Uh, making process is really what's going to help us, uh, um, move towards the high end of that range. Uh, so we're good pipeline build, uh, and heavily weighted in the back half, um, which is, uh, pretty normal pattern for our business.

Scott Wortzel: Next question comes from Scott wortzel from Wolfe research. Please go ahead. Your line is open.

Scott Wortzel: Good morning, guys. And uh, thank you for taking my question. Just wanted to ask a, uh, a 2-part on Mis. I mean, um, just wondering if you guys think there was any potential pull forward of issuance during the quarter from the second half of the year as the macro environment, kind of got a little bit more stable and then just on the private credit side. Um, you know, there's been talk about how private credit can potentially perform better when public debt markets are a little shaky just wondering as like, you know, public debt markets potentially got better as we move throughout the quarter. If you saw any changes in the uh, performance of the private credit Market as well. Thanks.

Scott Wortzel: yeah, so first of all, hey Scott um

I would say I don't think there was meaningful, pull forward shift, you know, last year, you remember on the calls, we had this whole theme uh you know we had the elections in in the fourth quarter of the year and the bankers were telling in issuers that they should go ahead and pull issuance forward of of the elections in case, there was any turbulence in the markets

Scott Wortzel: you know, that hasn't been the case this year, um, you know, we'll probably talk about, uh, you know, at some point on this call, you know, kind of a year ago outlook for issuance and we'll, we'll talk a little bit about how we've approached that but I wouldn't say that's been a meaningful theme

Scott Wortzel: Um, on private credit. Um

Scott Wortzel: You know, I I think it's not necessarily a case of of of either or I mean I think what we're seeing here is it's it's both um, you know we had some healthy performance uh issuance activity in the public markets but we continue to see that in the private credit markets. Um and there's some real demand, you know, drivers for that. I mean you you heard the numbers that we that we talked about in our prepared, remarks and 75% growth uh in private credit uh revenues for the quarter but I would cite a couple of things that are a few things that are kind of driving this ongoing growth of private credit. And it's not, you know, I think a lot of people think about it as a private credit as direct lending and as a, you know, a a an alternative to going to public markets. But, as we've tried to talk about on this call, it, it private credits become much broader than that, right? So, it's not just direct lending. There's

Scott Wortzel: Fund Finance, their securitization. And you've got a few things going on. You've got insurers, continuing to increase allocations, uh, to private credit. Um, and that's also driving an increased demand for Ratings. Um, we're seeing rated feeder funds becoming, uh, more important in the fundraising stage for private credit, uh, fund, uh, Finance itself is becoming a more prominent asset class within private credit. You've got a number of different lenders now in funding Finance.

Scott Wortzel: Assets sitting on bank balance, sheets and private credit is is, is 1 alternative for funding those assets. So you know, if you just look at the the the asset flows into private credit and we've seen the headlines about the potential for going, you know, into the retail markets and retirement and so on, you know, that means that there's going to be a lot of investor dollars continuing to come into this market. And that means they will need to be able to find, uh, Supply.

Our next question comes from Jeff silver from beimo Capital markets. Please go ahead. Your line is open.

Jeff Silver: Thank you so much. Um, just wanted to focus on the operating margin expansion in the quarter. Were there any expenses maybe shifted from the second quarter to the back half of the year that drove that outperformance? And if so roughly, how much thanks?

Speaker Change: Yeah, thanks. Uh, this is really this. So the answer is no. There is no, uh, you know, real push for expenses from the second quarter to subsequent quarter. Uh, we made some adjustments to our, uh, incentive comp funding as we always do. Uh, um, but for the, the performance in in the quarter is really related to our efforts around, uh, especially around ma. As you saw, we we've expanded our operating margin by uh, 300, UH, 60 basis points. Uh, from last year, uh, we had, uh, prioritization of Investments. Uh, we're looking at our portfolio.

Speaker Change: And where we need to reallocate Capital to support our growth areas that Rob touched on. Uh, we're optimizing our vendors relationships. Uh, we've been very thoughtful with discretionary spans, like tene, uh other non-comp related item, and we're also deploying productivity tools across the organization, which I think is very important Point. Uh, We've highlighted several internally developed use cases that are making our employee more efficient in previous calls, customer services, uh, sales tools.

Speaker Change: Um, we're enabling our employees to access Genai. Co-pilot very early on. And we're using, uh, those on a day-to-day. As a matter of fact, you look at our engineering, uh, groups there have, uh, I think 80% of our populations using those, uh, those tools. Um, and uh, and our product headcount is uh, hasn't grown materially since last year, even though we're innovating a lot.

Speaker Change: Uh so it's really uh, execution uh focus on on spend and you expect us to uh continue to improve those margin. Uh profiles especially in the MMA throughout the rest of the year.

Speaker Change: Our next question comes from Russell quelch from Rothschild and Co Redbarn. Please go ahead. Your line is open

Russell Quelch: Yeah. Hi guys. Thanks for having me on. This is really a follow on from Ash's question earlier, where you talked? Mainly about kyc and insurance are outlook, but I wonder what you're seeing in the banking sector. Um, if I was being picky, this is the fourth consecutive quarter of decline in banking ARR, within decision Solutions. And that's come at a time where you're rolling out new upgrades or new Solutions and upgrades to existing as you articulated earlier. So can you give some color on what you're seeing in the banking sector? What conversations you're having with these clients? I'm just trying to get a sense of whether the growth can accelerate or re accelerate here and in this client segments and what the Catalyst might be.

Russell Quelch: Yeah, so, uh, a couple of things it, you know, when we think about the, the banking customer base broadly, you know, I would say we we continue to have a very good growth selling into the banking customer base. Uh, when we look at our banking, uh, segments, within decision Solutions, you know, we've got a, a portfolio of products there. We've got as I talked about, you know, our, our lending Suite, we've got risk and finance Solutions. Um, but we've also got, um, and I think, you know, Amy called it out, you know, we have the, the commercial real estate data that was what you might think of. As you know, the Legacy, you know, Reese acquisition. We have our lending business. Uh, lending the, the growth of lending is actually been down, uh, over the last, uh, year or so. Um, so all that contributes to that 7% growth. And that's

Russell Quelch: That's why we, you know, we wanted to kind of call out, you know, the, the real Focus area is for us, is around lending. It's our largest product within our banking segment. Um, and, you know, as you heard me talk about Russell, you know, it's growing quite nicely. In fact. Um, when you look at the combined ARR of lending enumerated together, you know, that our growth, you know, is going to be in the actually, you know, we think that'll be up in the High Teens. Um, so again, we feel very good about lending. Um, but you have to kind of think about the the the full portfolio of what we have.

Russell Quelch: Training business.

Our next question comes from George Tong from Goldman Sachs, please go ahead. Your line is open

George Tong: All right, thanks. Good morning.

George Tong: What was the Tailwind this quarter to Mis Revenue growth? How do you think your updated guidance on debt issuance by category will impact mix in the second half of the year?

George Tong: Yeah, so let me, let me talk about talk briefly about the second app, but maybe let me just talk, um, what contributed to the positive mix that we saw so far. So, I think some of those Trends, uh, will continue. Um, so, uh, most the most notable positive mix for us was in structured finance. And, um,

George Tong: there we had issuance that was, uh, came out of, uh, abcp and and covered bonds programs, and we don't capture all of that issuance in our issuance data. Um,

George Tong: uh, but we picked up some very nice revenue from that, um, there was a, a shift in the mix of, in bank loans, uh, of repricing to to actual new bank loans. Um, so there was a shift towards a really away from repricing activity. There's lower repricing activity.

George Tong: And in our, um, uh, ppif segment. Um, we saw a Slowdown in the, uh, issuance from Subs sovereigns. But, um, that's where we have, uh, less favorable, uh, economics. You know, as we, you know, as we kind of look out for the rest of the year, um, I think we may see more infrequent issuers if, uh, markets remain open and, and you would see that in both investment grade, uh, as well as high yield, um, and that, that would potentially be favorable to mix in structured Finance. Um, we, uh, have seen some real strength in cmbs so cmbs and Co activity would be, uh, would be positive to mix as well. Uh, the only other thing I would call out is, you know, no Amy mentioned that, you know, m&a has been still pretty muted through the first half of the year. Um, as you know, we changed our m&a, assumption. Um, so, you know, that'll be something that will watch for. Because if we see a pick up in m&a, that would

George Tong: certainly be mixed positive.

Speaker Change: Our next question. Comes from schlomo Rosen from stifel. Please go ahead. Your line is open.

Speaker Change: Hi, thank you. Hey Rob I want to ask you to go over some of the positive comments you had on the AI in gen AI, particularly just to clarify. What you're talking about is that the ARR being 200 million and growing 2 times the size of other products, like what could you go over the specifics over that. So we, we get that clear. Was that 200 million is some kind of products that have any aspect of AI, you know. Just just go over that and kind of give us a little bit more detail. Yeah, yeah. I'm, I'm glad you asked. Um, because as I I mentioned the, the actual revenue from solely from what you would think of a standalone, ai, ai products is still not Material. So we wanted to step back and think about, you know, how do we think about the, the, the benefit that we're seeing from our AI engagement? And so, we actually looked at our customers that had taken, at least 1

Speaker Change: had purchased at least 1, either upgrade or Standalone AI offering, right? And so we think of those as the Gen AI early adopters. And with those customers, we're often times having, uh, very different discussions with them, because those discussions may be at at a much, more senior level we're engaged with, um, with Partners like the hyperscalers, uh, with these customers, uh, we're doing proofs of concept and, and all sorts of

Speaker Change: Sorts of things with those early adopters. So very deep engagement. And when we looked at at our relation, our overall, the total spend across Ma

Speaker Change: from those relationships. So not just what they're paying us for AI, but

Speaker Change: All of the Gen AI early. Adopters the, the growth of those relationships has been basically double the growth that we see from the rest of our ma customers. And I, you know, I guess in some ways that's not surprising because like I said, this is led to a very different kind of Engagement with those customers um that allows us to then be able to talk about all sorts of other content sets and models and other capabilities that we can bring together for them. So that that's that's what we were trying to to get at.

Speaker Change: Line is open.

Speaker Change: Hi, thank you, good morning. Um, I wanted to ask more about private credit and you know, specifically sort of how do you think about the contribution from private credit to Mis revenues? I know it's small but certainly growing quite fast and and perhaps if you can talk about sort of where its showing up because you know your your recurring revenues and Mis have also been pretty strong and I'm curious if some of that is showing up there and then, you know, maybe how much of it is is contributing to the mix on on the structured Finance side that you just talked about.

Yep. So um, you know, we we talked about, you know, the 75% growth that that we saw on the quarter.

Speaker Change: And that's showing up in a few different places.

Speaker Change: Um, so the asset back Finance is showing up in our structured Finance. Uh, ratings,

Speaker Change: When you think about, um, what we're doing with bdcs and obviously, bdcs are effectively engaged in direct lending. And so, we rate, you know, we have very strong coverage of public bdcs and all of the fund Finance. So, navleen sub lines, uh, rated feeders. All of that kind of activity. Um, that's rolling through our fig franchise. Um, we've even got some private credit rolling through, uh, project Finance. We have investors who are investing in in

Speaker Change: Infrastructure and, uh, projects who, um, uh, are investing in, uh, uh, deals. That were unrated at the time of issuance. And for them to invest in them, they actually want to get a rating from Moody's on that. So even in in Project Finance, we're starting to see the impact of of private credit. You can also see it in our first time, uh, mandate numbers. You know, we we talked about um uh, something like a quarter of our first time mandate uh, for for the second quarter, we're related uh, to private credit. So it's it's it's rolling through uh, several different lines in the rating agency, as well as contributing to, you know, to our new mandate growth.

Speaker Change: Our next question comes from.

From Morgan Stanley.

Speaker Change: Head, your line is open.

Thanks so much.

Speaker Change: I wanted to ask about the environment in ma, um, so our step down to 8%. Um, but it seems like there are some sort of 1 off things like the insurance client, and you had mentioned the government, uh, in Prior quarters. So, you know, just trying to understand like, is it these, like, 1-off situations that are really driving that growth slower. Um, or is the underlying environment? Really not that good. And so that's really what the

Speaker Change: Book is and, you know, there are these sort of 1-off things but it's really the overall environment that has been getting worse. Just just wanted to understand a little bit more clarity on on that. Thanks.

Hey, Tony. Um, so you know in general these things we talked about contributed to attrition ticking down about 1 percentage point. So it, you know, it does have an impact. Um, and then, when you go down to the sub, segment level, you know, these things because of the size of the businesses, you know, these events, you know, can actually have, you know, an impact on our growth, in any given quarter. Um,

Speaker Change: just as, as it relates to the environment, um, you know,

Speaker Change: Maybe let me just talk a little bit about what we're seeing from a kind of a sales perspective. And I would say, you know, we we have seen a little bit of a of a lengthening and sales cycles, and there's a, there's a butt here or an ant Maybe

Speaker Change: and that is that we've also seen average deal sizes, increase and that's because we're seeing more products.

Speaker Change: Per sale effectively as we pull these things together and bundle them into Solutions. So a little bit longer sales Cycles, um uh slightly larger average, deal sizes. And you know that's something that as long as those 2 things are going together, you know, we we feel, you know, comfortable with that. Um, I wouldn't say there's been a material uh, deterioration

Speaker Change: Ation in the end markets, uh, By Any Means.

Andrew: Our next question comes from Andrew.

Your line is open.

Andrew: Sent you a letter Rob on, on potential risks. Just curious how you're thinking about that, given the rapid growth of this market and then second uh and maybe related to the. Can you talk to maybe the level of investment you've been making in that team, the size of that team, how how aggressively your your hiring to support this effort? Now understanding that it it's still small in the whole scheme of things but just uh interested in in just uh how forward leading you want to be here? Thank you.

Andrew: Yeah, I I would say, you know, first of all, you know, we we have an important role to play.

As an independent, uh, assessor of credit risk. Um, and you know this Market uh, is is obviously has elements of opacity, uh, to it. And, you know, there's a desire from investors to have more transparency and more comparability as well. And so, um, you know, we think we have a very important role to play. You know, 1 of the things I would stress is, you know, there's not a team. Um, and there's and so think of this as we're leveraging all of the strengths of the rating agency, right? With, you know all of the private credit. Methodologies go through our standard regulated industrial strength, methodology development process. Um, the ratings are uh issued by rating analysts who are rating, both public and

Andrew: Private credit, right? So these are people in our, in our fig team and our structured Finance team. Uh in our project Finance team in our corporate team as well. Um, uh, so very experienced analysts, robust methodologies. All of the, the process integrity and regulation for the public markets is, is the same thing that's being applied to how we're approaching, uh, private Credit in this case. And so yeah, we in some cases where we're seeing increased flow, um, we would be adding to the fund Finance team or, you know, maybe it's to the esoteric team or that you know, the the the ABF team in structured Finance uh, to make sure that we can handle the flow. But so that's where we've been adding, you know, I'd say adding the headcount

Andrew: We do have the, the last thing I'd say is we, we do have a, a dedicated, um, analytical coordinator. So we have a global head of of private credit who can kind of look across the franchise and make sure that we have consistency in how we're thinking about, uh, approaching the various elements of private credit and be able to, to help us think thematically across the portfolio. Um, so we do have a dedicated analytical leader who coordinates the activities across the rating teams and then we have a dedicated commercial leader who sits in our commercial team and focuses on the alternative asset managers.

Speaker Change: Our next question comes from Owen. Lao from Oppenheimer, please go ahead. Your line is open.

Hi, good morning, thank you for taking my question. So if a question about Ma and somewhat related to AI, uh, so when I look at your number research and insight uh was better than expected. Could you please unpack a little bit more on the driver of these strings? Is it mainly driven by research assistant and then for Rob given your earlier response to an AI question? Do you start to see an acceleration of AI adoption in your client base? So when it comes, I mean it it, sometimes it, it could come massively, thanks.

Speaker Change: Yeah, if you look at the growth in research, uh, and insights are, uh, there's a a portion of that, that's definitely driven by, uh, uh, research assistant. Uh, there's some, uh, new product launches as well. Uh, so we're pretty happy with the, the growth in, uh, in research and insight. Uh, we also noted that the customers who have updated research, assistant have a higher NPS. Uh, they have a propensity to expand their relationship with us across the ma portfolio as as Rob, alluded to, uh, We've enhanced our platform, uh, relevancy security. We've improved the Precision of our search results. Uh, we include that earnings calls news. Uh, we ensure there are more aligned with user inquiries.

Uh, and so that that's definitely contributed to uh expansion and and growth in in that line of business.

Speaker Change: Internal, uh, AI workflow orchestration platforms that they're building.

Speaker Change: Right. Um, our customers. So then think of like our tier 2 and tier 3 Bank customers? You know, I talked about our our, uh, our credit lens platform is a great example. You know, we're just building AI, uh, capabilities and integrating that into the platform itself. And and so there's all sorts of AI enablement from spreading financials to monitoring covenants and writing credit memos and and and all of that. And so our customers, there are getting access to AI through the platform.

Speaker Change: Um, and in some cases, um, there may be modules that we would charge for uh, on a ala carte basis because they add so much value and in other cases. Um, we just embed that AI functionality into the platform and that enhances, uh, we have already seen, uh, leads to improved customer satisfaction in improved, and increased usage, and that gives us an opportunity then at renewal time to price behind that, uh, additional value.

Speaker Change: Okay, I'm from UBS. Please go ahead. Your line is open.

Speaker Change: Yes. Yes, hello. Um, late in the call here but maybe I'll sneak in another private credit questions since, uh, that seems to be a topic, uh, these days. Um, so so look, Rob, I see all the opportunities and, and good growth that you're talking about you, you mentioned that people are overly focused on direct lending, sometimes

Speaker Change: Um but I do think that's the biggest area of fundraising in the last few years and a lot of dry powder. So just wondering what you're seeing on that site in particular because it seems like the deals are getting are getting larger. They are more frequent. And and I don't think you really participating in ratings there. So, just wondering if you're, if you're looking at that market and say like, hey there's X percent of all business that on the corporate finance leveraged loan side that we may be missing out today. So I'm just curious of of what the number is today and how quickly you think you can maybe replace that with other private credit opportunities if you catching my drift. Thank you. Yeah. So maybe a a couple ways I I think about that Alex and and you know, is there, uh, substitution from time to time where an issuer decides they do a, a large deal that would have otherwise been a public deal and that we would have rated and they do a private credit deal. Yes, that happens. Um, but we, uh, we also see that um, issuers, go in and out of public and private credit markets.

Speaker Change: There's no question that the private credit markets are more expensive than the public markets and so we've seen deals come back into uh, the public markets. So, in some ways I think of that Alex is like, there's an element of that that's like another form of maturity wall, because the issue the, the, the rating opportunity may have been deferred in some cases but not lost.

The other thing I would say, Alex, and this goes back to the the msci partnership. I mean, you remember how the Moody's business started, we were an investor pay model, right? And so over time investors, uh, valued ratings in the utility of ratings and then we eventually switched to an issue or pay model because there was an investor demand. Pull that supported that. Um, I think what we're doing with msci is important not just because of the immediate Revenue opportunity but it's the opportunity to have investors. In the private credit space start to use ratings, right? These will be model implied ratings. Expressed on the rating scale and over time, you can imagine, as investors are saying. Okay now I have a third-party independent view of credit that I can now discuss with the GP ask perhaps why the rating is the same or different. And so I think we're wanting

Speaker Change: To condition those investors to start to be able to use ratings and and and value the comparability of those ratings between both private and public credit. And over time, I think we may see Alex that the GPS decide to say, hey, we're going to go ahead and start to get, uh, these exposures rated or assessed by Moody's because the investors value that, so, you know, that will take some time but I think that's an opportunity as this Market continues to mature

Speaker Change: We are all out of time for questions.

Rob: Call back over to Rob for any closing remarks.

Okay with that. Uh, it's a wrap and we look forward to talking to you on the next earnings. Call. Have a great day, everybody. Thank you.

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. Thank you.

Rob: Please wait the conference will begin shortly.