Moody's Corporation

Welcome to the Moody's Corporation Third 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 conclusion of the prepared remarks, we will open the conference up for Q&A. And as a reminder, the call will last one hour. 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 third quarter of 2025 and updated guidance for select metrics. 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 31st, 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 statement. 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, over to you.

Thanks, Shivani, and thanks, everybody, for joining today's call. This morning, I'm going to start with the highlights from Moody's strong third quarter results, and I'm going to provide some insights from our latest refunding wall studies, as well as some examples of how we're winning in the deep currents that we're operating in. But let me give you the punchline. We delivered record quarterly revenue. We're raising our full year guidance across almost all metrics, and we continue to drive significant innovation throughout the firm all at the same time. Now, following our prepared remarks, Noemi and I, as always, will be glad to take your questions. So with that, let's get to the results. We finished the third quarter on a high note. Markets closed with the busiest September on record, and Moody's notched a new record of our own. We exceeded $2 billion in quarterly revenue for the first time ever in our history, and that was up 11% from the third quarter of last year. Moody's adjusted operating margin was almost 53% in the third quarter. up over 500 basis points from a year ago, demonstrating the tremendous operating leverage that we've created in our business. We delivered adjusted diluted EPS of $3.92 in the third quarter. That was up 22% from last year. And that's particularly impressive given the tough comp in the third quarter of 2024 when we posted 32% year-over-year growth on top of the 31% growth in the third quarter of 2023. And just to put this in perspective, We've more than doubled adjusted diluted EPS from the same quarter just three years ago, consistently strengthening the earnings power of the firm year after year after year. And all of this while investing to harness the immense opportunities and the deep currents that we've talked about over the past several years. Now, on to the highlights for our ratings business. MIS delivered 12% revenue growth for the quarter and surpassed a billion dollars of quarterly revenue for the third consecutive quarter, setting an all-time record. Our position as the agency of choice enabled us to capitalize on a healthy issuance environment and record tight spreads. And the strategic investments we've made in technology, analytical tools, and talent are equipping us to meet surges in issuance volume and capital markets innovation. Now, looking forward, The issuance pipeline is robust. Demand is solid, with spreads hovering around near record lows, and the refi walls continue to build. Additionally, demand for debt financing remains strong in areas that we've consistently spotlighted over the past year or two. That includes private credit, AI-powered data center expansion, infrastructure development, and transition finance. And you can see this coming through in some of the marquee deals that we rated in the quarter. First, we were the sole rating agency on the first of its kind emerging market CLO and APAC for the International Finance Corporation, which is a member of the World Bank Group. And that was a very innovative financing vehicle for frontier markets. Second, our corporate ABS team rated a more than billion dollar data center securitization, also the first transaction of its kind, which is backed by three high quality newly constructed data centers and their related leases. And third, we rated the largest Asian corporate bond ever issued at almost $18 billion, with much of the proceeds being used for data center investment. And all of these are notable examples of deep currents driving demand for debt financing. And while those deep currents are driving new issuance, refunding needs continue to grow as well. Our most recently published refunding study shows that refunding needs over the next four years are projected to surpass $5 trillion in That represents a compound annual growth rate of 10% from 2018 to 2025. That number is approximately double the dollar volume seen in 2018, and this gives us some real confidence in the medium-term growth trajectory for MIS. Now, there's typically a lot of interest in these reports on this call, so let me just share a few key findings with you. First, non-financial corporate refinancing walls in both the U.S. and EMEA grew 6% over the upcoming four-year maturity horizon. Overall, investment-grade maturities are up 5%, while spec-grade maturities are up 7%. And notably, within spec-grade, U.S. bond maturities have increased by more than 20%, and in EMEA, spec-grade bonds and loans each rose by approximately 20%. And all of this points to a favorable backdrop for future issuance, and the mix is especially encouraging. given that spec rate issuance tends to be more accretive to our revenue profile. So for those of you interested in exploring the full reports, they're available on Moody's.com or through our investor relations team. Now, beyond the refunding walls, we remain well positioned to meet the evolving market needs in private credit. And that's a theme that we've consistently highlighted on prior calls. Private credit continues to be a growth driver for ratings. In the third quarter, the number of private credit-related deals grew almost 70%. Notably, direct lending remains the smallest portion of our private credit-related activity, while fund finance and securitization are leading the way in both deal counts and issuance volumes. Revenue tied to private credit grew over 60% in the third quarter across multiple MIS business lines, albeit off a relatively small but expanding base. We're also seeing a growing number of private deals returning to the public debt markets for refinancing. And according to Bloomberg's left-fin insights, issuers are realizing material savings, on average, something like 200 basis points, but in some cases, as much as 400 basis points when compared to private market rates. And as I've mentioned before, this dynamic effectively acts as a deferred maturity wall as we see unrated private direct lending deals refi into the rated BSL markets. And as this market continues to grow, we continue to invest in experienced analytical teams and methodological rigor to ensure ratings quality. Now, turning to Moody's Analytics, we delivered strong results again this quarter. Revenue growth was 9% year over year, including 11% in decision solutions. ARR is now nearly $3.4 billion. That's up 8% versus last year. And we're delivering margin improvement ahead of our plans just earlier this year. Our cross-MA initiatives are yielding results, delivering a 34.3% adjusted operating margin, up 400 basis points versus last year. And as a result, we're increasing our full-year margin outlook for MA to approximately 33%. And we believe this puts us solidly on track to meet our medium-term margin commitments. Now, we're continuing to invest in scalable solutions across high-growth end markets, while at the same time simplifying the product suite and optimizing our organizational structure. So one example of that simplification. In the third quarter, we entered into a definitive agreement to sell our learning solutions business to Fitch. We had a good run with our learning business, but we felt it no longer fit the profile of where we're seeking to invest in scalable recurring revenue businesses. In parallel with these portfolio simplification efforts, we remain very focused on the deep currents driving demand for our analytics offerings. And in MA, that includes an increasing focus on physical climate risk and enhancing and expanding our solutions to help customers embed AI more deeply into their workflows. On a recent trip to Asia, where we celebrated 40 years of Moody's in the region, I heard firsthand about two customers who are investing in our physical risk solutions to understand the impact of extreme weather events. And both of these are outside of the insurance sector. First, one of the largest banks in Japan, and for that matter, the world, is using the RMS models that are traditionally used by our property and casualty insurance customers to understand physical climate risk across lending and portfolio management. Second, we recently won a multi-year deal with an Asian regulatory agency to deliver physical climate risk data to 11 banks and insurers. And this marks the first time globally that a regulator has purchased Moody's Climate Solutions on behalf of its financial sector. And this initiative enables the integration of physical risk analytics into regulatory reporting and core business functions, and also establishes a precedent for further regional adoption and collaboration. Now on AI, you've heard me talk before about the very encouraging engagement that we have with a number of large banks who are interested in leveraging our data and models in their internal AI-enabled workflows. And while these discussions have taken time to move through banks' risk governance frameworks, we're now seeing some tangible momentum. In the third quarter, we signed over $3 million in new business with a Tier 1 U.S. bank, which included solutions to automate credit memo creation and to deploy early warning systems across its real estate portfolios. These solutions are driving meaningful efficiency gains for our customers, they're accelerating time to decision, and delivering a competitive edge. And this is a powerful example of how Moody's is uniquely positioned to bring together proprietary data, advanced analytics, software, and now Gen AI capabilities and agents into our customers' mission-critical workflows. Now, these agentic capabilities are just one part of a broader investment strategy, one that's focused on unlocking the full potential of our data and analytics estates. And we're not only investing in how we build intelligent AI-powered workflows, but also in how we package and deliver our proprietary data and analytics, embedding that directly into our customers' internal systems and our partners' platforms. As we've discussed on recent calls, partnerships are an important part of this strategy, and we're embedding our data into partner ecosystems, extending our reach while preserving the depth of our domain expertise. And this approach not only scales our impact, it also deepens customer integration, improves retention, and it will help to continue to drive durable growth across our portfolio. So a prime example this quarter is our partnership with Salesforce, where we continue to see strong growth from our integrated suite of connectors that includes company firmographic data, news, and other content. And this supports third-party risk management and compliance monitoring, among other functions. bringing Moody's unique data and intelligence directly into Salesforce workflows with great success. We're now expanding our partnership to make available our proprietary GenAI ready data and analytics within Salesforce's AgentForce 360. And in addition, Moody's will make available on agent exchange our new agentic AI sales tool that I think I've talked about on prior earnings calls. And that elevates sales teams by automating lead prioritization and delivering predictive insights. leveraging our data. And this is one part of our broader AI strategy. So zooming out, there are a few dimensions to that AI strategy. The first is our foundational AI agent builder platform that all of our employees can use to reimagine workflows and increase productivity. As we've highlighted before, we're delivering efficiencies in engineering and customer support, and we're now setting our sights on sales, product development, and a variety of corporate functions as well as ratings workflows. The second dimension is our AI studio factory, which is a platform designed for agentic product development. And the third is our recently announced agentic solutions, enabling us to commercialize smart APIs, MCP servers, and domain specific agents that leverage our vast proprietary data and content estate and deep subject matter expertise. So switching gears, We also continue to invest in growing our ratings footprint in emerging markets. And this past quarter, we signed a definitive agreement to acquire a majority interest in Meris, the leading ratings agency in Egypt. And this transaction will deepen Moody's presence in the Middle East and Africa, giving us a very strong first mover advantage across all of the region's domestic debt markets. And these, and you've heard me say this before, these are generational investments. as emerging markets, including China, are expected to account for more than 60% of global GDP by 2029. And to that end, of the approximately $30 trillion of debt outstanding in those markets, only about 10% is cross-border. That means that the remaining 90% is issued locally and rated locally. And that's why these domestic market investments are so important. So before I hand it over to Noemi for more details on the numbers, a few key takeaways. This past quarter, we delivered strong growth, significant operating leverage, and we have good momentum heading into next year. And of course, just a quick shout out to all of my teammates for the fantastic work this quarter helping deliver one of the strongest quarters in Moody's history. Noemi, over to you.