Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Moodys Corp (MCO, Financial) delivered a record year in 2024 with a 20% revenue growth, surpassing $7 billion.
• The company achieved a 26% increase in adjusted diluted EPS, driven by strategic investments and disciplined cost management.
• Moody's Analytics reported strong performance with 10% recurring revenue growth in Q4 and 9% ARR growth.
• The company expanded its adjusted operating margin by over 400 basis points, reflecting improved operational efficiency.
• Moody's was named the best rating agency for the 13th consecutive year by Extel, highlighting its leadership in the market.

Negative Points

• The tragic loss of two Moody's colleagues in a plane crash was acknowledged, impacting the team emotionally.
• Despite strong issuance, transactional revenue growth was lower due to a high percentage of bank loan repricings.
• The company anticipates incurring $200 million to $250 million in restructuring charges over the next two years.
• There is a potential risk of economic and policy changes impacting certain sectors, such as autos and fossil fuels.
• The medium-term growth guidance implies lower growth in 2026 and 2027 compared to the longer-term structural growth.

Q & A Highlights

Q: Can you confirm if the medium-term guidance numbers for Moody's Analytics (MA) are organic, and is there less M&A than initially expected? A: Yes, the medium-term targets are primarily organic. We have seen strong organic growth in MA, consistently reporting 9% to 10% growth over the last two years. The contribution from M&A has been lower than initially envisioned due to a different rate environment. We remain committed to delivering 9% to 10% ARR growth, mostly organically, with some potential for small tuck-in acquisitions.

Q: With MIS margins already in the low 60%, is there room for further margin expansion, and what does this imply for earnings growth in the medium term? A: For 2025, we expect some tailwind in margins due to rebaselined incentive compensation. We continue to invest in our Ratings business, focusing on efficiency and growth areas like private credit and sustainable finance. These investments will support long-term growth, and we expect continued margin expansion.

Q: Regarding MA margins, are you pulling back on investments, and how does AI factor into your efficiency plan? A: We are mostly through our large investment cycles and are now redeploying capital internally. We continue to invest in our platform and data estate. The efficiency plan involves simplifying the organization and leveraging GenAI for efficiency gains in engineering and customer success. This allows us to focus on high-demand areas and improve productivity.

Q: Can you provide more details on the Ratings side for 2025, including potential upside and risks? A: Economic growth is expected to support market activity, with tight spreads and strong investor demand. Key drivers include refinancing and improved M&A activity. We assume a 50% increase in M&A for 2025, which is favorable for revenue mix. Risks include potential widening of spreads and any unforeseen risk-off periods.

Q: How is the demand environment for Moody's Analytics, and are sales cycles changing? A: Sales cycles have not changed materially over the last 18 to 24 months. We are encouraged by a strong pipeline and new business production in 2024. Retention rates have been strong, and we expect continued growth in 2025.

Q: With MA revenue expected to grow in the high single digits, how does this align with ARR growth, and what role do new initiatives play? A: ARR growth is expected to be high single to low double-digit, with some M&A and FX impacts. The gap between ARR and revenue growth is due to declining transactional revenue. New initiatives like AI and partnerships are incorporated into our plans, contributing to growth but not yet major contributors.

Q: What is Moody's exposure to the federal government as a customer, and how might policy changes impact the business? A: Our exposure to the federal government is less than 1% of consolidated revenue. Policy changes could impact certain sectors, but the global economy's resilience through recent challenges suggests a stable environment for issuance.

Q: What is driving the higher medium-term outlook for MIS revenue, and how does private credit factor into this? A: The updated outlook reflects strong performance and demand drivers like private credit, sustainable finance, and digital infrastructure. Private credit is a growing area, with significant traction in mandates and a dedicated focus on engaging with market participants.

Q: How are you thinking about growth by subsegments within MA, and what drives differences in growth? A: Core franchises like Data & Information and Research & Insights are expected to continue solid growth in the high single digits. Decision Solutions, driven by innovation and customer demand, is expected to grow at a higher rate, leveraging data, analytics, and software to solve customer problems.

Q: Can you discuss the contribution of M&A in the quarter for both MA and MIS, and is the Cape acquisition included in the guidance? A: M&A contributed about 25 basis points to MA's revenue growth in 2024. For 2025, M&A provides a slight tailwind, offset by FX headwinds, resulting in a net neutral impact on guidance. The Cape acquisition is included in the guidance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.