Moody's Corporation

Good day, everyone, and welcome to the Moody's Corporation first 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. I will now turn the call over to Shivani Kok, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us today. I'm Shivani Kark, Head of Investor Relations. This morning, Moody's released its results for the first quarter 2025, as well as our revised outlook 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 ir.moody's.com. During this call, we will also be presenting non-gap 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 in U.S. 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 for the year ended December 31, 2024, 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 listener-only mode. Over to you, Rob.

Thanks, Shivani, and thank you very much, everybody, for joining today's call. This morning, I'm going to kick off with some high-level takeaways on Moody's first quarter performance and an update on our 2025 guidance. And then I'm going to share why we're confident in our market position and how we're strengthening the earnings power of the business. And after our prepared remarks, as always, Noemi and I will be glad to take your questions. So on to the results. I think it's Safe to say that the past few weeks have been more tumultuous than many have anticipated at the start of the year. And there's certainly a lot of noise in the environment with equity markets demonstrating much greater volatility in a headline-driven environment. And understandably, that's making it harder for many businesses to feel confident in making important investment decisions. But as you've heard me say before on these calls, it is times like these when our customers turn to us the most. And that's because we've got a vast reservoir of proprietary data and insights, mission-critical software solutions, and decades of experience in understanding credit impacts to countries, industries, and companies. And we've done this all over the world across all sorts of economic cycles and geopolitical events, and this time is no different. So amidst this backdrop, we delivered some very strong results in the first quarter. We achieved a record $1.9 billion in first quarter 25 revenue. That was up 8% year over year. In fact, both of our businesses grew revenue at 8%. And with some very disciplined expense management, Moody's adjusted operating margin reached 51.7%. That's up 100 basis points from the first quarter of last year. And adjusted diluted EPS grew 14% to $3.83%. And that really is the power of this franchise shining through. Now, turning to MIS, we delivered 8% revenue growth on issuance growth of 9%. And MIS achieved its highest ever quarterly revenue of $1.1 billion with an adjusted operating margin of 66%. And that was up 140 basis points. At this quarter, private credit was a meaningful contributor to growth, particularly in structured finance. In fact, in the first quarter of 25, we had 143 private credit-related deals. That's up from 69 in the first quarter of 24. Roughly a third of that volume came from private credit-backed ABS, CLOs, and RMBS structured finance issuance. And then BDCs and fund finance was almost another one-third. In fact, 20% of first quarter revenue growth in structured finance was attributable to private credit issuance. So you can see private credit emerging as a tailwind for a ratings business. And amidst all the recent market uncertainty, engagement levels for our research and webcasts are to rate two to three times the levels that we normally see in a more stable environment. In fact, last week's ratings webinar on tariffs attracted roughly 3,000 registrants across 89 countries. Now, zooming out, the deep currents that I talked about on the fourth quarter call remain intact. And for MIS, that includes private credit, transition finance, AI-driven infrastructure investment, and emerging and domestic debt markets. And these areas require significant investment in debt financing, and this hasn't changed despite the recent turbulence. In a recent report on private credit, our ratings team highlighted that that data center debt issuance in the asset-backed finance market reached $4 billion in the first quarter of 2025 alone versus the $8.4 billion issued for all of 2024. In the first quarter of 2025, we rated a $2 billion data center CMBS deal in the U.S., and that represents the larger scale we expect to see more frequently to finance digital infrastructure. We're actively evaluating several data center financing structures today across a number of teams and regions. And these financings are early stage, but they are increasing in both their scale and complexity, and they're a good example of a deep current that we expect will drive debt financing volumes for the foreseeable future. Now, switching to MA, ARR growth was 9 percent, again led by Decision Solutions, where ARR grew 12 percent. Recurring revenue increased another notch to 96 percent of total MA revenue. And we continue to make investments in product development, platform engineering, and sales capacity in our strategic growth areas. We're also executing on our ambitious cost efficiency program designed to significantly enhance MA's operating leverage over the coming years. And for 2025, we remain on track to deliver a full-year adjusted operating margin of between 32% to 33%. Now, underpinning the 9% ARR growth is a very strong first quarter in terms of new business execution. And I want to share... a couple sales wins from this past quarter that illustrate that. First was a multi-million dollar KYC deal with a major global bank to help them strengthen financial crime compliance. And we've grown this relationship by more than two times since 2020 by expanding the breadth and depth of our products being used across the bank, from credit rating feeds to economic data to early warning detection. And building on that, We were recently selected as a global strategic data partner for their KYC program based on the high quality of our interconnected data sets. And that's a very strong referential customer for other major global banks. The second was our first agentic AI sale in the KYC space with a major crypto trading platform that handles about a billion dollars a day in trading volume. In the first quarter, we signed a multi-million dollar contract across a suite of our solutions. and they're the first customer using Agent Review, which is our new KYC AI screening agent that helps onboard customers more accurately and quickly. And given all the manual labor in the KYC space, AI agents have a very compelling value proposition, and we're excited about this opportunity. So more broadly, let me provide a quick update on our AI strategy across MA. Our focus remains on harnessing the transformative potential of generative AI to drive growth, to enhance customer experiences, and achieve a more efficient operating model. On the commercial front, last quarter I talked about how customers who upgraded to Research Assistant contributed meaningfully to growth in the research and insights business in 2024. Beyond Research Assistant, we've introduced three unique generative AI offerings that highlight the power of integrating our proprietary data to accelerate decision-making for our banking and KYC customers. It's the automated credit memo, early warning system, and the KYC AI agent that I just talked about. Additionally, GenAI navigators, now embedded in over a dozen MA product lines, are enabling on-demand customer support and improving user experiences across our solutions. And these navigators are helping customers maximize the value of our products. We've also deployed generative AI internally across three of our most significant functional job families in MA, including customer service, engineering, and sales. For example, our customer service assistant has enabled a 20% reduction in resources for our support team while significantly improving response times, all without compromising the quality of customer interactions. In engineering, we're rolling out increasingly advanced AI tools to empower our software engineers, setting ambitious adoption targets to accelerate roadmap delivery and drive innovation. And we've recently launched a transformative internally built agentic tool that will act as a sales companion for relationship managers and their specific books of business. It's designed to act as a catalyst for tailoring our value propositions, for streamlining prospecting and meeting preparation and accelerating buying decisions. And as you might imagine, our sales and management teams are very excited about the prospects for productivity gains. So these are just a few tangible ways that we're driving greater efficiency and effectiveness in important areas across the firm. So anchoring this back to where I started my comments just a few minutes ago, Moody's value proposition is especially relevant in times of change and uncertainty, and we're doubling down on improving the earnings engine of our business and delivering strong results in the face of volatility. And while the services that Moody's provides are not directly impacted by tariffs announced to date, We do believe many businesses are being impacted by the uncertainty of impending trade tensions, and this uncertainty in turn leads to customers delaying financing and investment, and we've seen this in the first few weeks of April. As I think most of you would expect, we're taking a more conservative approach to guidance given the operating environment since we issued our initial guidance earlier this year. We've widened and lowered our guidance range to accommodate a broader range of potential outcomes at this point in the year, And Noemi is going to share more details in her prepared remarks, and I'm sure we'll address this further in Q&A. Now, looking beyond the near-term dynamics in the markets, we feel confident about the deep currents that are underpinning the demand for our solutions. First, the evolution of capital markets, including private credit. Second, the digital transformation and automation in financial services industries. Third, the imperative to know more about who you're doing business with. Fourth, the financial impact of extreme weather events. And fifth, the transformative power of generative AI and the tremendous unlock available from proprietary data. And I want to double-click on a few of these for just a moment. I've highlighted the growth coming from private credit. I'm particularly excited about the groundbreaking partnership with MSCI that we announced yesterday, where we're going to be providing independent risk assessments for private credit investments at scale. And this partnership brings together our world-leading credit scoring models with MSCI's very deep data on private credit investments, enabling investors to understand the credit profile of companies and individual loans. And together, we're serving a critical need for transparency and standards in the private credit market. To support banks in their drive to digitize and streamline their credit and lending workflows, We've integrated numerated and able AI's front-end capabilities into our flagship lending solution, Credit Lens. Credit Lens supports nearly 500 banks with nearly $27 trillion in assets. In fact, Credit Lens ARR, which represents over a third of the total banking line of business ARR, grew at 12% over the last 12 months, demonstrating our ability to innovate and enhance our scaled solutions and expand relationships within our core customer base. On the impact of extreme weather events, Aon reported that first quarter economic losses of $83 billion were well above the 21st century average of $61 billion. In January, we closed our acquisition of Cape Analytics, a leading provider of geospatial AI data and location intelligence for property underwriting. And now we're integrating Cape into our industry-leading catastrophe models. And this is going to give insurers an incredibly high-definition view of property risk allowing them to insure more confidently and with greater precision. So we feel good about the medium term given these deep currents, and we can and will manage through the short term. And we've got an experienced team and a strong portfolio that's built to weather storms and to provide insight when the market needs us most. With that, Noemi, over to you.