Moody's Corporation

Good day everyone and welcome to the Moody's Corporation second quarter 2026 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. This call is scheduled to last approximately one hour. I will now turn the call over to Shivani Kak, Head of Investor Relations. Shivani, please go ahead.

Thank you. Hello and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations at Moody's. This morning we reported our second quarter results. The press release and today's presentations are posted at ir.moody's.com. We'll reference non-GAAP or adjusted measures. Please see the tables in our earnings release for reconciliations to US GAAP. Today's remarks may include forward-looking statements under the Private Securities Litigation Reform Act of 1995. We see the safe harbor language in our earnings release and the risk factors in MD&A in our most recent Form 10-K and other SEC filings available on our website and the SEC's website. These factors could cause actual results to differ materially from those expressed or implied. Members of the media may be listening in an a listen-only basis. With that, I'll turn it over to Rob.

Thanks, Shivani, and hello, everybody. Thanks for joining us today. I have the dreaded summer cold, so I pardon if my voice sounds a little bit gravelly today, but today's earnings are certainly making me feel much better. One quick update before we get to the results. In late June, we welcomed Christina Kosmowski as CEO of Moody's Analytics, and Christina brings Three decades of experience scaling technology and analytics businesses. And I have to tell you, just five weeks in, she's already moving with the pace and focus that MA's next chapter demands. And we're thrilled to have her, and I look forward to all of you connecting with her soon. So turning to our results, Moody delivered a standout second quarter with strong performance across the board. And at the enterprise level, we achieved 15% revenue growth. We grew adjusted operating income by 25%, expanded adjusted operating margin by 440 basis points to 55.3%, and we grew adjusted diluted EPS by 31% to $4.68. And that's a great progression from the top line to the bottom line. And I think what's most encouraging is not just the strength of the quarter, but how broad-based it was. In Moody's Investor Service, Transaction revenue grew 34%, and we rated more than $2 trillion of debt for the second consecutive quarter. And that reflects both the rebound in market activity as well as the enduring value of Moody's ratings in large, complex financing markets like we've got right now. MIS also delivered adjusted operating margin of 68.3%. That was up 410 basis points from last year. Moody's Analytics also continued to perform very well. ARR reached approximately $3.7 billion. That was up nearly 9% from the prior year, with trailing 12-month retention remaining strong at 95%. MA also expanded adjusted operating margin, in this case by 150 basis points to 33.6%. And these results reflect the continuing demand for our decision-grade intelligence to help customers manage risk to improve productivity and to make better decisions. And taken together, I really think this was a quarter that demonstrated the power of the Moody's model, a franchise that's capable of capitalizing on strong issuance activity, durable recurring revenue growth and analytics, and disciplined execution across the company. Now we're raising select full year 2026 guidance metrics, including our rated issuance expectations and capital return guidance, and by narrowing our adjusted diluted EPS range, we're increasing the midpoint of our range to $16.75. I know we'll talk about this more in the Q&A. More broadly, we continue to believe that the trends shaping our business reinforce our long-term opportunity. Capital markets are evolving, risks are becoming more interconnected and AI is transforming workflows across industries. And in that environment, customers are increasingly turning to Moody's intelligence, our ratings, analytics, and insights to make consequential decisions with greater confidence. And that's creating meaningful opportunities across our business, which we're translating into powerful operating leverage and earning strength. So now let me turn to Moody's Investor Service. This past quarter, ratings delivered 25% revenue growth with broad-based strength across all asset classes. And global issuance was powered by the multiple funding deep currents that we've been highlighting over the last few years. And reflecting this, we upgraded our issuance growth outlook to mid single-digit percent growth for the full year. And this quarter really showcased a real breadth of funding drivers. That included refinancing, AI-related investment, private credit, digital finance, energy transition, and emerging markets. And our comprehensive global coverage and our very deep targeted sector expertise really allowed us to capitalize on these drivers. So I want to give you a few examples from the quarter to really bring this to life for you. So starting with AI and data center financing, and obviously that's a topic that's dominating the headlines, but it is only one of several powerful drivers that's supporting issuance growth. So Beacon Point, D.C. is a very good example of the large data center transactions that we're rating across the U.S. That was a roughly $4 billion financing for a 350 megawatt hyperscale campus developed by Hut 8. And I think more importantly, it illustrates how AI is becoming one of the largest capital formation stories in the global economy. It's creating financing needs that extend well beyond data centers into power and infrastructure and other sectors and supporting what we believe is a sustained pipeline of issuance activity. In fact, hyperscalers have already exceeded our 2026 forecast for issuance and issued more debt this year than in the last three years combined. And the opportunity extends well beyond hyperscalers to construction, power, hardware, chips and the broader infrastructure required to support AI at scale. Hyperscaler CapEx alone is expected to approach $800 billion in 2026 and grow meaningfully again in 2027. And even excluding AI data center and hyperscaler activity, issuance still grew double digits year to date. In the second quarter of the issuances over $5 billion, approximately 20% were tied to AI related investment in supporting infrastructure. That means that the other 80% was very well diversified across a range of sectors. Now, private credit is another important tailwind with more than 40% growth in private credit-related transactions, including structured finance mandates versus the second quarter of last year, and more than 110 new first-time mandates this quarter as investors and issuers demand more analytical rigor, transparency, and independent insight. In digital finance, our leadership and trust earned Moody's Ratings the distinction as best digital asset ratings and analytics provider this quarter. And we're the first rating agency to deliver ratings on chain. And now we extended our token integration engine to Solana through Alpha Ledger, embedding our ratings directly into tokenized fixed income assets on a leading public blockchain. We've been building on our Canton deployment. This reinforces our network agnostic design. bringing our independent credit insights to where the markets transact. And we've rated double digit digital issuances globally this year. And while it is early, we're encouraged by the green shoots as we have more transactions in the pipeline than we have rated year to date. We also recently rated BlackRock's tokenized money market fund. That's the world's largest at $2.6 billion market cap. And it's a cornerstone of the tokenized liquidity stack as a stable coin reserve and on-chain cash entry point. We're also a critical rating partner to innovative transactions in the emerging markets. And this quarter, we rated a second emerging market CLO from the International Finance Corporation. That's similar to the one that we called out on our third quarter 2025 call. And we were, again, the sole agency on this unique transaction, which securitized corporate loans to borrowers in emerging markets. And it's helping the IFC and other multilateral development banks broaden access to institutional capital and mobilize more private sector investment. I'm also happy to share that we marked our reentry into the insurance-linked securities market in the second quarter. And we served as both credit rating agency and modeling agent on a 100 million euro flood risk cap bond in the quarter. and this really I think exemplifies our one Moody strategy in action combining ratings and catastrophe modeling expertise to play a critical role in addressing the insurance protection gap which we recently estimated at $375 billion and by some estimates could be as high as a trillion dollars and like the other areas that I spotlighted we are building pipeline here as well and in Africa where we own the largest rating agency on the continent We were pleased to celebrate 30 years in the region this quarter, so a shout out to all of our colleagues there who are playing an important role in Africa developing the growing debt capital markets. And taken together, these examples really reinforce I think the same point, which is Moody's plays a critical role in global capital formation and we continue to be exceptionally well positioned to monetize the massive funding deep currents around the world. Now, turning to analytics, ARR grew nearly 9% reflecting strong second quarter execution, and we're maintaining our high single digit ARR growth outlook for the year. And we're embedding trusted decision grade intelligence directly into high stakes customer workflows. That's lending, underwriting, compliance, and more. And that's really our sweet spot at the intersection of Speed and Trust and Explainability and Auditability. And during the second quarter, we made further progress in broadening how customers access Moody's intelligence and how deeply it's woven into their mission-critical day-to-day workflows. So with Amazon, we brought Moody's connected intelligence directly into Amazon Quick, giving AWS customers access to our ratings and research and curated data on hundreds of millions of public and private entities without requiring users to leave Amazon's AI experience. This quarter, we announced our sunset timeline for our on-prem modeling solutions and insurance, which means we plan for our remaining customers to migrate to our cloud-based intelligent risk platform over the next several years. And to further support this migration, we partnered with AWS to add the IRP to our AWS Marketplace catalog, and that enables our migrating customers to count their IRP spend towards their AWS cloud commit. With Microsoft, we launched our first AI skill on Microsoft 365 co-pilot co-work, and that enables agents to apply Moody's analytical frameworks and subject matter expertise, not just retrieve content. And joint go-to-market activity is building momentum with more than 20 engagements globally and initial customer trials underway. We now also have more than 100 MCP and smart API connections being used and trialed by our customers, which is an encouraging signal of demand for our trusted intelligence delivered through AI platforms. And together, these integrations let customers spend less time questioning output and more time acting on it while giving the industry the intelligence infrastructure to accelerate enterprise adoption. Now our massive company data state now covers more than 630 million entities, and our proprietary ownership linkages remain one of the most heavily used data sets in KYC and across the company. And that data advantage is translating into growth in KYC and compliance use cases, helping customers reduce unnecessary screening alerts. And to that end, our AI-powered screening solutions are helping drive and approximately 50% reduction in costly and time-consuming false positive alerts. And our customers are making high-stakes decisions that have little to no margin for error, which is why good enough data is not good enough for these kinds of use cases. Now, a recent competitive win in EMEA shows our strategy at work. And we had a global Fortune 500 home appliance maker where we displaced an established incumbent. And it wasn't just with one point solution for credit decisioning, but we brought together our company data, our credit models, and our intelligence screening for broader third-party risk management. But back in June, I attended Exceedance, which is our flagship insurance event, and it drew a record attendance of more than 600 leaders across the property and casualty insurance sector. And we announced further enhancements to our cloud-based intelligent risk platform including our risk data lake, more high definition models and new agentic AI capabilities, plus the extension of our casualty solutions. And I've got to say, I came away feeling very encouraged by our position and opportunity with the global insurance industry. So I want to share a few recent proof points. So first, our new capabilities enabled us to grow ARR by nearly 60% with a top three U.S. auto and property insurer. And this win reflects strong demand for our geospatial AI integration into property underwriting and broader adoption across personal and business lines along with continued volume growth. And this is a particularly important win because it's going to be a lighthouse customer that will support further expansion into the primary carrier market where historically we've had less penetration. Second, we expanded our relationship with one of the top insurers and reinsurers in the Lloyd's of London market. And we deepened our penetration into their workflows, including data preparation, pricing, and regulatory reporting, enabling us to grow ARR by 12% off of a multi-million dollar base. And third, in APAC, we more than doubled ARR with one of the world's largest life insurance and financial services groups. And this insurer now uses our credit value at risk framework as part of their investment and risk decisioning. It's supported by our credit models and economic scenarios, and it's a great example of how we're helping leading insurers connect credit, macroeconomic, and portfolio risk intelligence across their institutions. Now, turning to banking. I also recently joined more than 400 customers at our annual banking summit, and one message really came through clearly, and that's that banks are under pressure to make better decisions faster, but many remain constrained by fragmented data, disconnected systems, and increasingly complex risk environments. And I think the conversations were really less about AI itself and more about how AI can actually deliver outcomes and improve lending and strengthen risk management and streamline compliance. And ultimately, as I hear from our banking customers all the time, help them operate more effectively and more efficiently. That's exactly where we're focused and it continues to create some attractive opportunities across our banking franchise. And again, I want to give a couple examples from the quarter here. So first, with a top three Southeast Asian bank, we moved from proof of concept to production on an enterprise grade AI enabled early warning solution spanning wholesale and commercial banking across 19 countries. And what won the deal was governed explainable workflow orchestration, combining our proprietary data, analytics, and AI-driven narratives so that their bankers can spot and investigate counterparty risks earlier and with greater confidence. The result? 20% ARR growth with an already very important customer. Second, we expanded with a major regional bank in the Northwestern U.S., turning a two-bank merger integration into a meaningful growth opportunity. and through sustained executive engagement, we cleared implementation hurdles, replaced legacy tools and helped the combined institution modernize credit risk assessment at scale. And rather than becoming a cost synergy, we became a growth partner, lifting ARR by 8% with a clear path to broader AI enabled workflow adoption. So some great examples from ratings and analytics from the quarter, all contributing to exceptional second quarter results and further positioning us to capitalize on the opportunities ahead. So with that, Noemi, let me turn it over to you.