The paragraph is the introduction to the Moody's Corporation Fourth Quarter and Full Year 2024 Earnings Call. The operator announces that the call is being recorded and participants are in listen-only mode, with a Q&A session following the presentation. Shivani Kak, Head of Investor Relations, thanks participants and informs them that the results for the fourth quarter, full year 2024, and the 2025 outlook were released and are available on their website. She mentions that non-GAAP figures will be presented and that reconciliations are available in the earnings press release. She also highlights the Safe Harbor language concerning forward-looking statements and directs attention to risk factors in their annual report and SEC filings. The call will now be led by Rob.

The paragraph features a speech by Rob Fauber, expressing condolences for the loss of two Moody's colleagues before discussing the company's financial performance in 2024. Moody's experienced a record year, with a 20% revenue increase to over $7 billion and significant growth across both of its businesses, Moody's Investor Service (MIS) and Moody's Analytics. MIS achieved 18% total revenue growth and Moody's Analytics saw strong recurring revenue growth. The company emphasized disciplined cost management and strategic investments, leading to increased operating margins and EPS growth. Looking ahead, Moody's plans to continue investing for market-leading growth and shareholder returns, driven by strong demand across its businesses.

The paragraph outlines the company's recent investments and strategic initiatives to capitalize on rising demand and future opportunities. It highlights their ongoing focus on foundational investments, including platform modernization, new products like Gen AI, and improvements in data accessibility and risk management. The company is proud of its recognition as the best rating agency for the thirteenth consecutive year and emphasizes its leadership role in the market. It specifically mentions investments in private credit markets, highlighting significant progress with nearly 400 private credit-related transactions in 2024, and also points to their product suite for transition finance.

In 2024, the agency issued over 150 second-party opinions and conducted more than 20 net-zero assessments, reflecting a strong pipeline and focus on digital initiatives. Their strong financial performance facilitated technology investments, improving operational efficiency and contributing to 60% margins. The agency rated nearly $6.2 trillion of issuance, a 42% increase from 2023, while maintaining efficient staffing and robust controls. They continued investing in the ratings business, increasing ownership of Africa's leading agency, GCR, and expanding Moody's Local into six Central American countries. Moody's Local revenues grew by 16% with several hundred new mandates, indicating successful expansion and positive future prospects.

The paragraph discusses the company's efforts to enhance its product offerings and expand its customer base in the banking and insurance sectors. It highlights investments in product cloud solutions, data coverage, and workflow services for large corporates in third-party risk areas like KYC and trade credit. The company also made three acquisitions—Numerated, CreditCat, and Tape Analytics—to bolster its offerings in lending, casualty underwriting, and property insights. These efforts have led to successful collaborations and customer wins, particularly with smaller banks. Additionally, their cloud-based intelligent risk platform (IRP) is driving significant growth in the insurance business by increasing the customer base and enabling faster scenario modeling for insurers.

The paragraph highlights Moody's achievements and future focus areas. It emphasizes the success of their advanced platform in helping customers manage financial risks and enhancing relationships with major global insurers and brokers. Notably, Moody's was ranked first in the Chartis Risk Tech 100 for the third year, validating their solutions for 15,000 analytics customers. Looking ahead, they are well-positioned to capitalize on five key trends: the growth of debt capital markets, digital transformation, the need for better business partner insights, understanding the financial impacts of extreme weather, and the transformative potential of generative AI. The acquisition of RMS is mentioned as a crucial step in addressing climate change-related risks.

The paragraph discusses the growing importance of understanding insurability of assets due to increasing extreme weather events and associated costs. It highlights the acquisition of Tape Analytics to enhance risk insights, positioning the company as a leader in quantifying financial impacts of physical risks. The discussion emphasizes sustained demand for these services, supporting the company's long-term growth. The speaker transitions to Noémie, who will discuss 2025 guidance and reflect on strong 2024 performance.

In the fourth quarter, MCO reported revenues of nearly $1.7 billion, a 13% increase from the previous year, and an adjusted diluted EPS of $2.69, a 20% rise. MIS achieved its second-highest Q4 revenue on record at $809 million, up 18%, driven by healthy leveraged loan issuance, strong performance from banking and insurance sectors, and structured finance. This led to a 51.3% adjusted operating margin, exceeding expectations. Meanwhile, MA's Q4 revenue was $863 million, an 8% increase, with 95% from recurring revenue, driven by Decision Solutions' strong growth, particularly in Banking, Insurance, and KYC services, due to increasing demand for risk data and tools to address extreme weather events.

The paragraph discusses the company's growth and performance in various sectors. The Banking ARR increased by 9% due to strong customer retention and enhancement in finance workflows. Data and Information, driven by Orbis demand, grew ARR by 8%, while Research and Insights grew 6%, despite earlier impacts from asset manager space attrition. Sales, particularly cross-sell and upsell activities, outpaced ARR trends, with research assistance contributing significantly to growth. The MA adjusted operating margin improved to 33.8% in Q4 and 30.7% for the year. Looking ahead to fiscal year 2025, the company expects high single-digit MCO revenue growth, an adjusted operating margin increase to around 50%, and EPS guidance between $14 and $14.50. Additionally, MIS anticipates favorable market conditions with steady spreads and increased M&A activity.

The paragraph discusses the projected financial performance of MIS and MA for 2025, expecting low single-digit growth in MIS issuance and mid to high single-digit revenue growth, leading to a significant margin expansion. For MA, high single-digit revenue and ARR growth are expected, with a margin expansion aided by simplifying operations, integrating acquired businesses, and shifting to selling end-to-end solutions. The company plans to streamline its organizational structure and improve efficiency through automation, launching an efficiency program to enhance profitability and invest in strategic growth areas.

The company plans to incur $200-$250 million in restructuring charges over two years, aiming for $250-$300 million in annualized cost savings. Approximately $45 million has been accrued, with an additional $80-$100 million expected in 2025, mainly affecting Moody's Analytics and corporate functions. A full-year 2024 to 2025 operating expense bridge is provided for modeling. In 2025, MIS revenue is anticipated to mirror 2024's pattern, with growth starting mid-single-digit in Q1, peaking in Q2, and declining later. MA revenue should grow in the high single-digit range consistently throughout the year. Operating expenses will follow a seasonal pattern but stay stable overall, with efficiency savings offsetting salary and variable cost increases. MIS margins are expected to be in the mid-sixties in H1, declining in H2.

The paragraph outlines the company's financial performance and future expectations. It anticipates an MA growth of around 30% in Q1, improving to 32%-33% for the full year, as efficiency savings kick in. Adjusted diluted EPS for Q1 is expected at the high end of $3.50-$3.60. By 2024, EPS will have risen 46% from two years ago, with a projected 18% CAGR for EPS by 2025, surpassing medium-term targets due to strong execution and a favorable issuance environment. MIS revenue and margins have significantly increased, and MA has shown consistent ARR growth of 9%-10% over the past two years, a trend expected to continue. The company's recent M&A activity has been small-scale, focused on enhancing offerings in strategic areas for sustained growth. Retention rates are expected to remain in the low to mid-nineties, with new business growth projected in the low to mid-teens.

The paragraph outlines Moody's investment in Gen AI, process automation, and the MA platform to enhance internal efficiencies and data interoperability, aiming for MA margin expansion to the mid to high thirty percent range by 2027. The company is adjusting its guidance for adjusted diluted EPS growth from low double-digit to low to mid-teens percent, reflecting efforts to improve business earnings power. Moody's anticipates sustainable growth and profitability across market cycles, with a focus on capital allocation and strong free cash flow returns. The company acknowledges its colleagues' contributions and is ready to take questions. Monifin Nayak from Barclays inquires about the medium-term guidance, specifically if the numbers on the MA side are organic and requests clarification on the moving parts involved.

The paragraph features a discussion involving Noémie Heuland about the company's medium-term targets and performance metrics. Heuland indicates that, although there was lower contribution from mergers and acquisitions (M&A) than initially anticipated due to different rate environments, the company is ahead in MCO revenue and adjusted diluted EPS, with a significant increase in MIS operating margin. They have achieved strong organic growth in MA, consistently reporting 9% to 10% growth over the past two years, and expect this trend to continue. They are committed to achieving 9% to 10% annual recurring revenue growth, primarily organically, with potential for some smaller tuck-in acquisitions. In response to a question about margins and earnings growth, Heuland explains that MIS margins are already high and marginal expansion might be limited due to high incremental margins with issuance. However, extraordinary performance in 2024 led to higher incentive compensation accruals, which will provide some margin tailwind for 2025.

The paragraph discusses a business's ongoing investments and efficiency strategies. It highlights continued investments in their ratings business, including workflows, analytical tools, risk, and resiliency programs to enhance internal controls. The company is also focusing on long-term growth in areas like private credit and sustainable finance. In response to a question from Toni Kaplan of Morgan Stanley, Noémie Heuland speaks about maintaining high margins by redeploying capital internally, being mostly past major investment cycles, and funding key investments, particularly targeting the corporate segment and integrated acquired entities. Heuland notes their shift towards offering end-to-end solutions, with efficiencies arising from these integrations.

The paragraph discusses a company's strategy of organizational simplification and investment in Generative AI to gain efficiency in engineering and customer service. Steve Talinko emphasizes focusing on high-demand areas and reallocating resources from slower-growing sectors. The Generative AI investments have resulted in noticeable productivity improvements. In response to a question from Alex Kramm about future growth and risks, Rob Fauber highlights the expectations for economic growth to support market activity, acknowledging that while spreads are currently tight, they might widen slightly by 2025.

The paragraph discusses financial projections and assumptions for the year, focusing on investor demand, refinancing, and M&A activity. It outlines expectations for refinancing volumes of leveraged loans in 2025, predicting a mid-single-digit decline. M&A activity is expected to increase by about 50%, positively affecting revenue mix. A smaller M&A increase of 20-25% could result in 2-3% revenue growth. The forecast assumes favorable market conditions with over $6 trillion in issuance and anticipates revenue growth in the mid to high single digits on low single-digit issuance growth. Additionally, during a Q&A session, Scott Wurtzel from Wolfe Research questions about demand trends and sales cycles in Moody's Analytics, particularly concerning Gen AI.

In the paragraph, Rob Fauber discusses the stability and positive performance of their sales cycle, indicating no significant changes over the past 18-24 months. He notes strong new business production and retention rates for 2024 compared to 2023, with a solid pipeline for 2025. Noémie Heuland adds that new business growth, especially in research and insights, has been faster than their ARR, driven by promising use cases like Gen AI. In response to a question from Owen Lau, Fauber addresses the anticipated revenue growth, which is expected to be in the high single digits, slightly lagging behind ARR's high single to low double-digit growth. Lau queries about the revenue gap, the prospects for accelerating growth to low double digits, and the impact of new initiatives such as AI and partnerships on their guidance.

In this paragraph, Noémie Heuland discusses the company's revenue and clarifies that ARR (Annual Recurring Revenue) represents organic constant currency growth. She mentions that the recurring revenue trend over the past twelve months is consistent, with a 9% increase in 2024, though transactional revenue is declining, particularly outside the US in banking and insurance sectors. This decline is expected to narrow as customers transition to the platform. Owen Lau inquires about the impact of AI and MSCI on guidance, to which Rob Fauber responds that these are included in plans but are not major contributors. He notes the significant impact of the Research Assistant product on sales, contributing to 25% of growth in research and insight ARR, with a strong sales pipeline for future growth opportunities in workflow automation.

The paragraph discusses the minimal impact of federal government policy changes on the company's revenue, with less than 1% coming from government activity. It provides a broader context of the challenges faced globally in the past five years, including the pandemic, economic shocks, and military conflicts. Despite these challenges, the global economy has shown resilience. Future government policies, such as tariffs and executive orders, may affect various sectors like autos, retail, agriculture, and construction. Overall, a stronger economic environment could positively influence business issuance.

The paragraph centers around a discussion on the medium-term revenue outlook for MIS, which is now projected to grow from high single to low double digits, an increase from previous mid to high growth projections. David Motemaden from Evercore ISI inquires about what is driving this uptick and whether it results from changes in long-term building blocks or a resurgence in M&A. Rob Fauber explains that the growth outlook is still based on the 2022 baseline and reflects achieved performance, guidance for the third year, and expectations for 2027. Mike West adds that the anticipated resurgence in M&A, after a period of low activity and pent-up demand, contributes to this growth durability and potential in ratings.

The paragraph discusses shifts in the financial landscape, focusing on the growing importance of private credit markets, such as direct lending, securitization, and fund finance, away from traditional banking systems. It highlights investment opportunities and challenges in areas like sustainable and transition finance, which are significant due to clean energy commitments covering 93% of global GDP, requiring investments to multiply by 2030. Additionally, digitalization and digital infrastructure represent substantial markets needing long-term financing. The paragraph then transitions to a question from George Tong of Goldman Sachs concerning growth targets in various segments of the MA sector, such as decision solutions, research and insights, and data and information, and what drives growth differences among these segments. Steve Talinko responds, noting the longstanding nature of these core franchises within the business.

The paragraph discusses a company's strong growth and future potential, highlighting its solid performance and reliable annual recurring revenue (ARR) growth, particularly in the decision solutions unit. This unit is noted for high growth due to innovations in KYC and third-party risk management. The company is investing in data quality, coverage, and tools like generative AI, aiming for high single-digit growth in established core franchises. The focus is on leveraging data, analytics, and software to assist customers. Peter Christiansen from Citigroup then shifts the discussion to mergers and acquisitions (M&A), inquiring about the company's ability to implement value-based pricing and queries about headcount growth within the MIS segment.

The paragraph is a discussion among Steve Talinko, Noémie Heuland, and Rob Fauber about the company's value-based philosophy and its focus on customer value rather than inflation. Steve mentions that the contributions from upgrades and pricing in the MA segment are stable and expected to continue, with a benchmark contribution of around 7% in 2024. Noémie discusses the staffing strategy for MIS, highlighting investments in automation and rating workflow to improve analyst efficiency and mentioning that growth in staffing will be slower than revenue growth due to these automation investments. Rob adds that many customers are prioritizing efficiency, digitization, and automation, exemplified by the evolving value proposition of their CreditView offering, which includes a research assistant and is now aligned with these priorities.

The paragraph discusses the integration of CreditView with Gen AI, emphasizing how it can change labor leverage models, particularly for investment and research teams. Peter Christiansen appreciates the narrative, and the conversation shifts to a question from Craig Huber about private credit and its contribution to ratings revenue. Rob Fauber explains that while exact figures aren't disclosed, private credit is gaining traction, with nearly 400 mandates across various ratings areas, indicating significant growth. He notes that areas like Fund Finance are expanding and are expected to continue growing. The paragraph ends with a mention of Noémie, who is asked about changes in incentive compensation for the fourth quarter and the full year.

The paragraph discusses the importance of private credit in the financial institutions group (FIG) and highlights its rapid growth within asset classes. While currently modest as part of the total base, it's viewed as a significant growth area. Mike West emphasizes the need for transparency and independent assessment of credit quality both for originators and buyers, particularly due to regulatory and capital allocation concerns. The organization is structured with dedicated teams to engage with various stakeholders in this evolving market, leveraging experience and methodologies across business lines. West expresses confidence in addressing private credit's developments heading into 2025 and beyond.

The paragraph discusses a conversation about the medium-term growth guidance for a company, with concerns about potentially lower growth in 2026 and 2027 compared to long-term expectations, particularly in the MIS (Management Information Systems) area. Rob Fauber and Noémie Heuland address these concerns by expressing confidence in the medium-term drivers of issuance and emphasizing that their growth assumptions for ratings are not being downgraded. They highlight the observed growth rates across different business segments, including mature franchises and faster-growing businesses. Additionally, there's a focus on increased profitability in the MA (Management Accounting) sector, contributing to an increase in adjusted diluted EPS (Earnings Per Share). The conversation concludes with a transition to the next question from Andrew Steinerman of JPMorgan.

In the paragraph, Noémie Heuland and Andrew Steinerman discuss the minimal impact of mergers and acquisitions (M&A) on revenue growth for the fiscal year 2024, specifically the Cape acquisition. They clarify that the M&A activities provide a slight tailwind for 2025 but are offset by foreign exchange headwinds, making the overall effect not material to the guidance. Russell Quelch then asks about the reacceleration of growth in Annual Recurring Revenue (ARR) for Know Your Customer (KYC) services post-pandemic and conflict-driven spikes, expressing interest in its sustainability. He also inquires about Moody's potential expansion of partnership with MSCI beyond ESG to areas like private credit. Steve Talinko responds by highlighting their superior KYC and third-party risk management offerings, emphasizing ongoing product enhancements in data and decision-making tools.

The paragraph discusses the company's strategic investments and their positive impact on growth, particularly through software, data, and AI solutions that enhance efficiency and reduce the need for manual labor. Rob Fauber highlights successful expansions with major banks, endorsing the value of their Orbis dataset and analytics. Additionally, a new platform has been launched to target large corporations, supporting growth in the KYC segment. Noémie Heuland briefly touches on incentive compensation, mentioning a total of $507 million for 2024, with projections of $420 to $440 million for 2025. The text concludes with a transition to the next question from an operator.

In the paragraph, Shlomo Rosenbaum inquires about the progress of new capabilities like the automated credit memo and early warning system. Rob Fauber responds by noting that adoption of their research assistant has improved and highlights the integration of generative AI into various products, enhancing customer satisfaction and usage. He mentions these AI features are not sold separately but add to the overall value and retention of their offerings. Fauber also acknowledges that while new a la carte products show promise, particularly in banking, their sales cycles can be lengthy. Steve is invited to contribute additional insights.

Steve Talinko discusses how big institutions are increasingly viewing AI tools as transformational, with a focus on improving workflows and potentially replacing knowledge-based outsourcing. He notes that the adoption and confidence in these tools are growing, as evidenced by institutions exploring business cases for their use. Shlomo Rosenbaum thanks him, and Jason Haas from Wells Fargo asks about the discrepancy between MIS transaction revenue growth and issuance growth in Q4. Rob Fauber explains that the difference is due to robust bank loan issuance, particularly repricings, which accounted for 55% of the bank loan volume in the fourth quarter.

The paragraph discusses the financial impact of removing bank loans from issuance and transaction revenues for the company. Without bank loans, the company would have seen mid-teens percent growth in issuance and 30% growth in transaction revenue. The speaker notes significant repricing activity in January, which was linked to strong loan volume. The operator then transitions to Rob Fauber's closing remarks, thanking participants and noting future engagement in the first quarter. The operator concludes by providing information about where to access the Moody's Corporation earnings call summary and replay.

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