MOODYS CORP /DE/ Q1 FY2025 earnings call

• Strong first quarter results with $1.9 billion revenue, up 8% y-o-y. Adjusted operating margin reached 51.7%, up 100 basis points. Adjusted diluted EPS grew 14% to $3.83.
• Ratings saw growth in Corporate Finance (especially investment grade issuers) and Structured Finance, with private credit as a tailwind. First time mandates were almost 200, up 20% y-o-y.
• MA's Decision Solutions had strong ARR growth: KYC up 12%, Insurance up 11%, Banking up 8%. AI initiatives in MA, including generative AI offerings like KYC AI agent and internal AI tools for efficiency.
• Partnership with MSCI to provide independent risk assessments for private credit investments, leveraging proprietary data and MSCI's private credit data.
• Integration of numerated Enable AI's frontend capabilities into CreditLens, supporting banks' digital lending workflows.

Ratings (MIS): Achieved record $1.9 billion in first quarter 2025 revenue, up 8% year-over-year. Structured Finance and Corporate Finance drove growth, with private credit as a tailwind. First time mandates were almost 200, an increase of 20% year-on-year. Analytics (MA): Quarterly revenue of $859 million, up 8%. Recurring revenue grew 9%. Decision Solutions (KYC, Insurance, Banking) had ARR growth: KYC up 12%, Insurance up 11%, Banking up 8%. Research and Insights ARR grew 7%, Data and Information ARR grew 6%.

• Revised full year 2025 guidance: MIS revenue expected to be flat to mid-single digit growth. MA revenue in high single digit range. Adjusted operating margin range 49% to 50%, expanding by about 100 to 200 basis points. Adjusted diluted EPS guidance range $13.25 to $14, representing 9% growth at midpoint.
• Anticipate high yield spreads will widen over next twelve months, default rates wider. Announced M&A growth expected at 15% y-o-y, down from prior 50% expectation.
• Maintain share repurchase guidance of at least $1.3 billion for 2025, with capital return representing approximately 80% of free cash flow ($2.3 billion to $2.5 billion for full year 2025).

• Market uncertainty due to fiscal and monetary policy news flows, economic data, and trade policy uncertainty impacting M&A and issuance. Tariffs leading to delay in issuance and dampening M&A expectations.
• Potential asset quality issues in private credit portfolios, as these are often highly leveraged.
• Sensitivity to Fed rate cuts and their impact on economic growth and issuance outlook.

Q: Can you walk us through your assumptions around what acquisitions were included in the prior guidance versus now? Specifically, was CAPE analytics factored into previous guidance? And how much do you expect it to contribute this year?

A: There's no change in our M&A assumptions with respect to our MA revenue guidance. That was already included before and it continues to be the case now.

Q: Just wanted to ask around the guidance for MIS again. Could you square the guidance for a decrease in issuance versus flat to increased revenue growth for 2025? Is there a positive mix effect here coming from somewhere?

A: You think about kind of the building blocks to go from issuance to revenue and we do have our annual pricing initiatives and we always talk about that being kind of 3% to 4% on average across the firm and that continues to be intact. There's actually a positive mix shift from what we believe will be a decrease in bank loan repricing activity as a percent of total, just given we really have minimal economics on repricing. As I said, we do still expect a modest improvement in M&A in the back half of the year and that typically is mix positive. And then if we think about recurring revenue that we think that will be up mid-single digits. And so that will also be supportive in terms of going from issuance volume to total rating revenue.