The paragraph is an introduction to Moody's Corporation's Third Quarter 2024 Earnings Call. The operator announces the call is being recorded and is in a listen-only mode, with a Q&A session to follow the presentation. Shivani Kak, the Head of Investor Relations, then informs participants that Moody's has released its third-quarter results and revised outlook for 2024. The earnings press release and presentation are available on Moody's website. She notes that non-GAAP figures will be discussed, with reconciliations provided in the press release. A Safe Harbor statement is mentioned concerning forward-looking statements, and attention is directed to risk factors in Moody's SEC filings. The call may include members of the media in a listen-only mode. Rob is then introduced to continue the call.

In the paragraph, Rob Fauber discusses the company's strong third-quarter results, highlighting a 23% increase in revenue and significant growth in adjusted operating margin and EPS. The ratings business notably contributed with a 41% revenue increase, driven by record issuance activity, particularly in September. Transactional revenue surged by 70%, outpacing global issuance growth. Fauber notes that this issuance environment is among the strongest on record, supported by factors like refunding walls and M&A, which are expected to sustain future growth. Additionally, the company experienced 7% revenue growth in its MA segment, with strong customer retention and a 30.3% adjusted operating margin. Decision Solutions, covering banking, insurance, and KYC, leads MA with $1.4 billion ARR, growing at 12%. The paragraph concludes by noting the third anniversary of the RMS acquisition.

The paragraph discusses the company's recent achievements and future growth prospects. It highlights their third consecutive top ranking in the Chartis RiskTech100, attributing this success to the quality of their solutions and customer trust. The speaker then transitions to discuss the growth potential for their MIS segment, driven by both cyclical and structural market factors, notably the increase in nonfinancial corporate refinancing (refi) maturities in the US and EMEA regions. The data suggests an 11% growth in these maturities over the next four years, totaling nearly $5 trillion, with significant contributions from speculative-grade issuers. This growth is expected to boost future issuance and positively impact revenue. The speaker encourages listeners to explore four detailed reports available on their website for more in-depth information.

The paragraph discusses three key drivers of growth in ratings revenue: mergers and acquisitions (M&A), private credit, and sustainable finance. Although recent M&A activity has been low, it is expected to rise due to private equity needs and improving economic conditions. Private credit is growing, with assets projected to reach $3 trillion by 2028, increasing the need for transparency and independent assessment. Sustainable finance, driven by global net zero commitments, will require substantial investment, estimated to rise to $4.5 trillion annually by 2030, necessitating increased debt capital and insights into decarbonization efforts. Lastly, the growth of emerging and domestic debt markets is identified as another potential driver.

The paragraph discusses the strategic growth initiatives of a company, emphasizing its investments in emerging markets across Asia, Africa, and Latin America to capitalize on higher growth rates compared to developed economies. The company is also adapting its Ratings business for the digital finance era, including blockchain and tokenization. The text reflects confidence in growth for Moody's Investors Service (MIS) in the short and medium term. It also reviews the progress following the acquisition of RMS three years ago, highlighting the integration of RMS into their Insurance Solutions business. The acquisition aimed to enhance services for the insurance industry and leverage RMS's climate and catastrophe modeling capabilities across various finance and risk applications.

Over the past three years, RMS, now part of Moody's, has experienced significant growth and operates with increased efficiency, aligning with Moody's broader insurance business goals. Since Moody's acquisition, RMS has expanded its customer base and partnerships, leveraging cloud-based high-definition models for deeper insights and competitive advantages in the insurance industry. Notable collaborations include partnerships with NASDAQ, leading figures in cyber insurance, and Lloyd's for a greenhouse gas emission platform. RMS is recognized as an industry leader, serving top global reinsurance brokers and insurers. Moody's continues to invest in expanding its insurance sector solutions, recently acquiring Praedicat to enhance its casualty analytics offerings. RMS's technological capabilities have been integrated into other areas of Moody's, reflecting substantial progress, and it has been merged with Moody's Life business into a comprehensive Insurance Solutions unit.

The paragraph highlights Moody's record-breaking third-quarter financial performance. The company achieved $1.8 billion in revenue, marking a 23% increase from the previous year, and a 32% growth in adjusted diluted EPS, with a cash flow conversion rate exceeding 100% of net income. Moody's Ratings saw significant growth, especially in corporate finance, driven by strong transaction revenue and large deals. Transaction revenue growth outpaced issuance growth, particularly in corporate finance and financial institutions groups. Moody's Analytics also showed solid performance with a 7% increase in revenue, bolstered by high retention rates and substantial recurring revenue.

The paragraph discusses the company's recent financial performance, highlighting revenue growth driven by recurring revenue in its Decision Solutions segment, which accounts for over 40% of total revenue. Banking revenue grew by 3% due to a shift towards recurring revenue, while insurance revenue increased by 7%, supported by an 11% growth in recurring revenue. KYC reported a 19% growth in recurring revenue, driven by non-financial corporate and government sectors. The company is investing to sustain growth by enhancing its solutions for compliance and supply chain workflows. Additionally, the research and insights and data information businesses saw revenue increases of 6% and 7%, respectively, despite some lower government contract renewals. Overall, the strong quarter resulted in improved operating margin, significant growth in adjusted EPS, and high net income to free cash flow conversion.

The article discusses Moody's financial performance and updated guidance. MIS achieved a 59.6% adjusted operating margin, while MA improved to 30.3%. Moody's has revised its full-year issuance growth guidance to a mid-30s percentage range, predicting a smaller decline in Q4 issuance than previously expected. Consequently, they are raising their MIS revenue growth guidance to a high 20s percentage range and adjusting the operating margin to 59%-60%, considering incentive compensation adjustments and a regulatory settlement headwind. Overall, Moody's expects revenue growth in the high teens, a 10% expense increase, and an adjusted operating margin of 47%-48%.

The revised expense outlook largely reflects increased incentive compensation, primarily in MIS due to an improved full-year ratings revenue forecast. The company has updated its free cash flow guidance to approximately $2.3 billion and raised the adjusted diluted EPS guidance range to $11.90 - $12.10, a midpoint increase of $0.80 and a 21% growth compared to the previous year. The speaker expresses pride in the team's performance and transitions to a Q&A session. During the Q&A, Toni Kaplan asks about a slowdown in data and information ARR and government contract renewals. Noémie Heuland explains that a large federal government contract was renewed at a lower value due to spending patterns, influenced by the election year.

The paragraph discusses expectations regarding contract renewals and the impact on ARR (Annual Recurring Revenue) growth due to some customers transitioning to sourcing sustainability content directly from MSCI. Ashish Sabadra from RBC Capital Markets asks about the potential for near-term issuance tailwinds to offset headwinds from tougher comparisons and revenue from infrequent issuers, looking ahead to 2025. Rob Fauber acknowledges the query but notes it is too early to provide specific guidance for 2025. He mentions that more detailed guidance will be given in the next earnings call, as they currently do not know exactly how the year will conclude.

The paragraph discusses the outlook for bond issuance in the upcoming year, suggesting that favorable conditions outweigh challenges. It highlights declining speculative-grade default rates, which are expected to continue decreasing, leading to tight spreads. Lower interest rates, combined with these tight spreads, create a favorable environment for new issuances and refinancing. Additionally, there's a significant amount of debt maturing, with nearly $5 trillion due over the next four years, particularly within speculative-grade maturities. Mergers and acquisitions (M&A) activity has shown modest growth and is expected to recover further by 2025. The paragraph also mentions the importance of private credit and transition finance as catalysts for increased demand for ratings, credit assessment, and new debt issuance in the transition to a cleaner energy economy.

The paragraph discusses the current market conditions, highlighting its reliance on macroeconomic factors such as jobs, inflation, and growth, which could signal different economic scenarios. It mentions the upcoming election's potential impact on the antitrust environment and M&A, as well as the influence of geopolitical events, noting that two wars are ongoing. The global economy has shown resilience, but another significant event could test it. Companies view geopolitical events as a major risk. While there are challenges, the outlook for issuance this year is slightly positive. There's a dialogue between Ashish Sabadra and Rob Fauber, where Fauber notes improving debt velocity due to a strong issuance environment, predicting issuance will be just under $6 trillion for the year.

The paragraph discusses the growth of nonfinancial corporate debt issuance from 2012, noting that the compound annual growth rate (CAGR) is about 3.5%, which is slightly higher than GDP growth. However, the total stock of nonfinancial corporate debt has grown by approximately 7% during the same period, indicating that debt velocity is below historical averages due to the high amount of debt outstanding. The debt velocity is close to, but still under, the historical average of 14%, likely around 12% expected for fiscal '24. The speaker views this lower debt velocity as a potential positive for future issuance growth. Additionally, Andrew Nicholas from William Blair asks about ARR growth in research and insight, which was expected to accelerate due to tools like the research assistant and private credit products, but noted it was steady at 6% in the third quarter, consistent with earlier in the year.

The paragraph discusses the current state and outlook of a company's growth and adoption of its products. It notes that the attrition rate is slightly lower than before, but pressures from the broader banking sector persist. The company has observed high customer satisfaction scores, particularly for its research assistant feature, which is driving pipeline growth. However, sales cycles, especially with large financial institutions, are longer than expected due to these institutions refining their governance of generative AI (Gen AI) capabilities. There is strong adoption among early adopters and smaller asset managers. The company is working to close deals in the fourth quarter and sees potential in its Know Your Customer (KYC) pipeline. Despite these challenges, they anticipate modest acceleration in growth, with Annual Recurring Revenue (ARR) expected at the lower end of the high single-digit growth range.

In the paragraph, Andrew Nicholas asks for clarification about whether Rob Fauber's previous comments referred to Research and Insights or Moody's Analytics (MA) as a whole. Rob confirms he was specifically talking about Research and Insights. Manav Patnaik from Barclays inquires about the widening gap between revenue and Annual Recurring Revenue (ARR) growth in the context of MA. Shivani Kak explains that while recurring revenue closely follows ARR growth, the overall revenue growth appears lower due to the decline in training and other services revenue and stable multiyear on-prem software revenue. She highlights that recurring revenue for Decision Solutions, particularly in banking, insurance, and KYC workflows, shows strong growth that aligns with ARR, with banking and insurance recurring revenues growing by 13% and KYC solutions experiencing a 19% growth. Additionally, Research and Insights account for about 30% of their business.

The paragraph discusses the company's financial performance in the third quarter, highlighting a 6% growth in recurring revenue, which is an improvement from the 4% growth seen in the first half of the year. Despite challenges in the asset management and banking sectors, the recurring revenue growth aligns with the Annual Recurring Revenue (ARR). The Data & Information revenue grew by 7% in the third quarter, aided by the completion of large government contract renewals. These results are generally consistent with the first half of the year, except for Decision Solutions, which faced challenges due to tough comparisons with previous large government contract renewals. Rob Fauber and Noémie mention the distinction between recurring and one-time revenue, noting that while one-time revenue grew in fiscal 2023, it has declined this year, affecting the revenue dynamics. The paragraph concludes with Owen Lau from Oppenheimer asking about the convergence of public and private markets and mentioning standardized credit ratings discussed during Apollo's Investor Day.

The paragraph discusses the ongoing need for independent third-party credit assessments despite some investment-grade issuers potentially bypassing traditional rating processes. Rob Fauber explains that there remains a strong demand for these assessments from major players in the market, such as Apollo and Blackstone, as they recognize the value of credit rating agencies in providing important data, analytics, and ratings. These services help in understanding and comparing both public and private credit. As the market for private credit grows, especially with asset-backed finance, there is an increased need for credit ratings and third-party assessments. Moody's, in particular, is seeing growth in its ratings services for Business Development Companies (BDCs) and is exploring ways to meet the needs of the market's largest players, contributing to its Financial Institutions Group (FIG) franchise growth.

The paragraph discusses the growing demand for fund finance ratings and asset-backed finance ratings, particularly from insurance companies that are sensitive to ratings. The speaker expresses optimism about the revenue potential from these ratings and emphasizes the importance of understanding the flow of demand, having rigorous methodologies, and the necessary resources. Owen Lau thanks Rob Fauber for his insights, and Faiza Alwy from Deutsche Bank inquires about the medium-term targets for Moody's Analytics, noting a deceleration this year. Rob Fauber suggests they might update these targets at the February earnings call, barring any major developments.

The paragraph discusses a company's strategy to achieve medium-term targets by focusing on two main areas: expanding existing relationships in the financial services sector and acquiring new clients in the corporate sector. In financial services, the company aims to enhance offerings to their current customer base, which includes thousands of banks and nearly 1,000 insurers, by increasing cross-sell and upsell opportunities. For corporates, they are focusing on acquiring new clients by leveraging one of the world's largest company databases to support various use cases such as trade credit, customer onboarding, monitoring, and supplier risk. The company acknowledges ongoing efforts to improve platform capabilities to better serve these markets.

In the paragraph, Rob Fauber discusses the phenomenon of "pull forward" in financial markets, specifically focusing on investment-grade and speculative-grade issuers. He notes a 9% growth in investment-grade maturities for 2025, with these starting the year at a higher level than the previous year. In speculative-grade, there has been significant pull forward, which is typical as these issuers are more sensitive to market conditions. However, the current year has seen more pull forward than usual in spec-grade, bringing one-year forward maturities to similar levels as the previous year. Additionally, a significant portion of speculative-grade loan and bond maturities for 2028 were issued during 2023 and 2024, when interest rates were high.

The paragraph discusses the financial environment related to investment-grade and speculative-grade maturities, noting that despite a heavier pull forward in speculative-grade this year, it's still seen as a positive factor in the near term. It transitions to a question from Craig Huber regarding the spread between 70% transaction revenue growth in ratings and 51% global issuance in a specific quarter. In response, Rob Fauber explains that the company experienced favorable mix due to strong investment-grade and opportunistic issuance, particularly from infrequent issuers and leveraged finance, which is revenue advantageous. There was also an increase in first-time mandate activity.

In the paragraph, Noémie Heuland and Rob Fauber discuss financial updates related to their company's incentive compensation and revenue outlooks. They report a higher incentive compensation accrual for the third quarter of 2024, totaling $150 million, which is a 54% increase compared to the previous year. For the full year, they expect total incentive compensation to be around $490 million, with $120 million allocated for the fourth quarter. George Tong from Goldman Sachs inquires about the company's ratings outlook and potential implications for 4Q issuance growth, questioning why the company expects 4Q issuance growth to moderate significantly despite historical trends and typical end-of-year dynamics. Rob Fauber explains that while there has been strong issuance earlier in the year, there is an expectation of a decline in the fourth quarter due to intra-year pull forward, influenced by suggestions from banks to issuers to preempt potential election-related market volatility. Nonetheless, their outlook for Q4 issuance has slightly improved.

In this segment of the article, the speaker discusses updates on financial forecasts and the progress of AI products. They indicate that fourth-quarter issuance is now expected to decline by mid-single digits, an improvement from the previously anticipated mid-teens decline. This positive adjustment, along with strong third-quarter performance, has led to an increased full-year issuance outlook in the mid-30s. Revenue growth is projected to be low single-digits compared to the prior year quarter, attributed to a favorable issuance mix. For 2025, there's potential for optimism if issuance doesn't slow down by early November. In terms of AI products, Rob Fauber responds to Shlomo Rosenbaum's inquiry by providing updates on the development and adoption of AI capabilities, specifically mentioning research assistant as their initial market product, but doesn't elaborate on its specifics.

The paragraph discusses the rollout of a suite called Navigator, which involves AI enhancements to existing products to improve customer satisfaction, retention, and pricing. It highlights the introduction of AI-enabled products like a research assistant and an early warning system focused on commercial real estate and banking. The acquisition of Able AI facilitated advancements in banking workflow products such as automated credit memos and covenants. The adoption of AI is mixed, with smaller firms able to implement it faster, while larger banks face delays due to regulatory risk and control frameworks, although conversations with these banks are progressing.

In the Q&A segment of a financial earnings call, Jeff Silber from BMO Capital Markets questions the guidance for the fourth quarter's adjusted EPS, noting it appears flat to potentially down. Noémie Heuland explains that the company has updated its full-year adjusted diluted EPS guidance to $11.90-$12.10, reflecting a 21% midpoint increase driven by MIS performance. This update includes passing through the Q3 beat and raising the Q4 ratings revenue outlook. The guidance implies Q4 EPS growth will be flat to slightly down compared to the prior period and approximately 30% down sequentially from Q3, consistent with expected top line performance for MIS. Discussions on Q4 margins indicate that incentive compensation adjustments have been accounted for in Q3, with the expectation that lower revenues will also result in lower margins for MIS.

In the paragraph, Jason Haas from Wells Fargo asks about the company's expected growth, particularly in the Data and Information and Research and Insights sectors. Noémie Heuland responds, noting that ARR growth in the third quarter was 9%, slightly below the usual 10% due to several challenges, including increased attrition in the first quarter, lower-than-expected sales in the banking and asset management sectors, and some customers transitioning to MSCI for sustainability solutions. Additionally, large federal government contracts renewed at lower values in Q3. Despite these challenges, the company sees potential for acceleration in Q4 with a 50% increase in their pipeline compared to the previous year.

The paragraph discusses the company's positive outlook for the remainder of the year, projecting high single-digit revenue growth and strong performance in annual recurring revenue (ARR), driven by a robust new business pipeline and a large volume of renewals expected at a 93%+ rate. The company experienced a significant increase in meeting activities, notably in-person, leading to a healthy pipeline as they enter the fourth quarter, which is their busiest period. They have a good mix of large deals and new business in their KYC (Know Your Customer) and Data and Information sectors. Additionally, the company is optimistic about new product launches, including a digital investigations product and an entity verification offering, and sees potential in leveraging AI for screening agents.

The paragraph is an excerpt from an earnings call or financial discussion where Jason Haas, Jeff Meuler, and Andrew Steinerman ask questions about the performance and strategy of a company's Know Your Customer (KYC) business. It discusses KYC's annual recurring revenue (ARR) growth, noting a slowdown to 14% in the recent quarter compared to 19% the previous year due to large government contracts renewing at lower rates. However, the company remains optimistic due to a strong product pipeline. Additionally, Andrew Steinerman inquires about Praedicat, an acquisition made by Moody's, noting it might be the only revenue-generating acquisition in the past year.

In the conversation, Andrew Steinerman asks about the financial contributions of Praedicat to revenues and annual recurring revenue (ARR) in the third and fourth quarters. Rob Fauber responds by stating that Praedicat is not included in the third quarter results and suggests looking at ARR for organic numbers. He highlights that Praedicat was acquired to enhance their capabilities in the casualty space, complementing their strengths in the property space. Fauber mentions significant interest in Praedicat's capabilities during an industry conference and expresses excitement about integrating Praedicat into Moody's operations. Russell Quelch then asks about growth in private credit assessments, seeking details on its contribution to revenue.

Rob Fauber discusses the company's current and future revenue opportunities from private credit, particularly through ratings and analytics. He highlights ongoing conversations with firms like Apollo and Blackstone as part of this strategy. Fauber emphasizes that revenue from private credit is already being realized, especially through Financial Institutions Group (FIG) ratings, despite being relatively small compared to traditional revenue sources like banking and insurance. He notes that the growth rate of revenue from business development companies (BDCs) and fund finance instruments is outpacing other segments, indicating a promising pipeline for structured finance and asset-backed finance ratings. Additionally, Fauber mentions that private credit is expected to impact financial performance sooner than AI due to differences in adoption rates.

The paragraph discusses the growing demand for private credit ratings, driven by investors seeking independent risk assessments for their investments. Banks are increasingly adopting an originate-to-distribute model, which requires third-party credit risk assessments to attract a broader range of investors, such as insurers and pension funds. This demand extends to private credit funds, where investors prefer independent evaluations over assessments from the general partners. The company is actively exploring opportunities to provide these solutions, including a partnership with MSCI and ESG. They acknowledge the need to better communicate how these efforts are impacting their business performance, and there is a brief mention of a question about MA margin expectations for the fourth quarter.

The paragraph discusses the seasonal impact on costs and margins, noting that the fourth quarter typically brings increased revenue in MA (Market Analysis), leading to a slight uptick in adjusted operating margin. There are minor headwinds from Praedicat, but they do not significantly affect the annual margin guidance of 30% to 31%. Looking ahead, the company plans to focus on margin expansion by leveraging investments in GenAI, platforming, and new product development. They are also migrating customers from legacy platforms to new ones, which is expected to drive future margin growth. Additionally, disciplined management of discretionary spending has helped improve operating margins, as seen in the third quarter. The company reiterates its full-year margin guidance.

The paragraph discusses a commitment to medium-term margin targets for leveraged finance, specifically distinguishing between bank loans and high yield. It clarifies that while the mix of refinancing activities with bank loans was not favorable, high yield was beneficial. Overall, the corporate finance issuance mix was positive. The paragraph ends with the closing of Moody's Corporation's third quarter 2024 earnings call, with a note that relevant materials and a replay will be available on the company's investor relations website.

This summary was generated with AI and may contain some inaccuracies.