Moody's Corporation

Good day, everyone, and welcome to the Moody's Corporation First 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 questions and answers following the presentation. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.

Thank you. Good morning and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations This morning, Moody's released its results for the first quarter 2024, as well as our revised outlook for select metrics for full year 2024. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moody's.com. 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 reconciliation between all adjusted measures referenced during this call in US GAAP. 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 factors discussed in our annual report on Form 10-K the year ended December 31st, 2023, and in other SEC filings made by the company, which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to point out that members of the media may be on the call this morning in a listen-only mode. I'll now turn the call over to Rob.

Thanks, Shivani. Good morning and thanks everybody for joining today's call. Before I touch on a few key takeaways from our first quarter results, I'm going to start by saying how excited I am to be joined today by Noemi Olon, who officially joined Moody's on April 1st. And as I mentioned on our last earnings call, Noemi brings almost 25 years of global financial and accounting leadership experience at some very large public companies with a real depth of experience in technology and software as a service. And we're really fortunate to have her as our Chief Financial Officer. And I look forward to all of you getting to know her in the coming weeks and months. So with that, let me turn to our first quarter results. We delivered an impressive 21% revenue growth, capitalizing on a strong issuance environment and continued demand for our leading risk assessment solutions. We delivered strong top line performance and margin expansion in both businesses, and that translated to adjusted diluted EPS of $3.37 for the quarter. Now starting with MIS, obviously a great quarter. And over the last several years, you all have heard me talk about the investments that we've been making in analytical talent and technology enablement to ensure that We are the agency of choice for investors and issuers, and in turn position us to capitalize on more robust issuance periods. In the first quarter, we did exactly that, and we showed the tremendous operating leverage in our business, with the second highest quarterly revenue on record, up 35% year-over-year, and an adjusted operating margin of 64.6%. Meanwhile, MA reported another quarter of 10% ARR growth, growing across all lines of business, including double-digit ARR growth in both decision solutions and data and information. And during the quarter, we executed on our strategic investment roadmap across platforming, product innovation, and Gen AI enablement. And this quarter highlights the unique strength of our business model. We're tracking to our medium-term EPS target of low double-digit growth while we are funding this investment program that will drive future growth, all while we expect to return over $1.6 billion to stockholders this year through share repurchases and dividends. That is the power of the Moody's compounding machine. We're also updating a few of our guidance metrics, and Noemi will give some details on that a little bit later in the call. So we've got our eye on the ball, we're looking ahead, and we are focused on our mission to be the leading source of insights on exponential risk. So with that, let's dive in a little bit more on the financial performance of our businesses this quarter and our latest expectations for the full year. And as I've said before, MIS really is one of the world's great business franchises. It's widely recognized as best in the industry with strong global coverage in cross-border and domestic debt markets. And it has a growing range of offerings to support growth areas like private credit and transition finance. And maintaining that leadership position really is critical in order to capitalize on the resurgence and opportunistic issuance that we experienced during the first quarter. And that's what played out during the quarter. MIS delivered, as I said, growth of 35% in the quarter, including 57% growth in transactional revenue. And a key driver of this growth in the quarter was was the leveraged finance markets, a real strength for MIS, where revenue was up 144% versus the prior year quarter. That's quite a growth number. And as I explained a few quarters ago, we established a dedicated private credit team in MIS, and that's starting to pay dividends as we're better positioned to service the continued growth of the private credit markets, as well as a wave of deals refinancing from the private credit markets into public markets. And while it's early, we're encouraged by interest in our transition finance offerings, and that includes our second-party opinions and our new net zero assessment. And we already have several major issuers like Electricity de France that have published our net zero assessment. And with discipline around expenses, MIS delivered an adjusted operating margin of almost 65%. again demonstrating the tremendous operating leverage in this business now while the first quarter issuance was very robust it is still early in the year and and there are some uncertainties so we're a bit cautious in regards to changes to our full year outlook at this point in the year issuance in the first quarter benefited from pull forward given the favorable market environment and questions about the back end of the year in regards to upcoming U.S. elections, ongoing tensions in the Middle East, and uncertainty around U.S. inflation and central bank rate cuts. So consequently, we have not changed our full year issuance and revenue growth guidance targets. However, our updated outlook now centers on the upper end of both ranges, and there are some things that we're watching to determine if we've got some upside to our current outlook. The global economy has certainly demonstrated resilience, and that's also going to be reflected in declining high yield default rates, which are now projected to range between 3% to 3.5% by year end. And we see some strong investor demand for riskier assets that's kept spreads tight. Notably, we're starting to see M&A activity pick up. Private equity funds are actively seeking exits and looking to deploy huge pulls of capital. So Again, there's some things that we're keeping a close eye on, and I'm sure we're going to discuss that a little bit further in the Q&A. So now turning to Moody's Analytics. As we've seen over the years, MA continues to be a very consistent growth engine for us, achieving 65 consecutive quarters of revenue growth and now six consecutive quarters of double-digit ARR growth. Our retention rate has held steady at 94% for the last two years, and yet again for the first quarter of 2024. That's a real testament to the stickiness of our solutions. As we look across our reported lines of business in MA, we can see our land and expand strategy in action. So starting with KYC, which I think you can see on the bottom far left of the webcast slide, about a quarter of our 18% ARR growth in the first quarter is from new customer acquisition. So a lot of new logos adopting our solutions in this space. On the other end of the spectrum, about 90% of our insurance ARR growth of 10% is from really strong execution of our cross-sell strategy across our existing customer base. Clearly, RMS is an important contributor to that, and it continues to deliver against the targets that we set back in 2021. I think a number of you will remember that at the time of the acquisition, RMS was growing at a low single digit pace. And it's moved up very nicely as we've made progress on migrating customers to our SaaS platform and really activating our cross-selling strategies. And that includes things like climate models to banks and conversely selling data and analytics and other Moody's solutions to the RMS customer base. So when we take all of this into account, In 2024, the ARR for RMS, including synergies, is expected to grow at a low double-digit pace. Now, switching gears a little bit. Last year at this time, we were just starting to mobilize around Gen AI. In fact, we hadn't even deployed our internal co-pilot or announced our partnership with Microsoft at that point. It is interesting to look back because what a difference a year makes. And we now have a framework for our suite of GenAI-enabled solutions that we're rolling out during 2024. It's no longer going to be just about research assistance. So we've categorized our capabilities into three primary buckets that we call navigators, skills, and assistance. And really each of these capabilities deliver increasing levels of value to our customers and are going to have some distinct economics. So navigators leverage an AI-powered natural language user interface to help our customers really get the most out of our products. And I would expect that almost all of our solutions will have some form of AI navigator or chat, what you might think of as a chat bot. And these will be table stakes, I think, for both our offerings as well as competitor offerings, I would assume in the relatively near future. Then we've got skills. Those are specialized Gen AI capabilities that connect to Moody's data and content and analytics. And we're designing these skills to deliver automation and provide the tools to drive productivity and insight for our customers. And that includes things like the planned release of what we call our quick memo, which is our automated credit memo, and our quick alert, which is our surveillance and early warning system. And then we're going to have a set of assistants for a number of our major customer personas, which are going to be a combination of skills and prompt engineering that are most relevant to their jobs to be done. So this go-to-market framework, I think, is going to address the needs of our customers as they move up the spectrum of Gen AI adoption in their daily work processes. And while it is still too early to quantify, we now have a pipeline that is coming to market in the coming weeks and months. And we expect that to help drive our value proposition and retention rates and open up opportunities to serve new users. So on that note, I am very happy to hand it over to Noemi to provide a little more color on our results.