The paragraph is an introduction to Moody's Corporation's First Quarter 2025 Earnings Call. The operator starts by informing participants that the call is being recorded and is in a listen-only mode. Shivani Kak, the Head of Investor Relations, then takes over, noting that the company's first-quarter results and revised outlook for 2025 have been released. The earnings press release and presentation are available on Moody's website. Non-GAAP figures will be presented during the call, with details available in the earnings press release. A Safe Harbor statement cautions about forward-looking statements, referencing risk factors in Moody's SEC filings, including the 2024 Annual Report. Shivani also notes that media may be listening in.

In the earnings call, Rob Fauber begins by discussing Moody's strong first-quarter performance and updating their 2025 guidance. He acknowledges the recent market volatility but emphasizes that Moody's has the experience and resources to navigate such conditions. Despite the challenging environment, Moody's achieved a record $1.9 billion in revenue for the first quarter, marking an 8% year-over-year increase. Both of Moody's businesses experienced revenue growth of 8%, and effective expense management led to an adjusted operating margin of 51.7%, up 100 basis points from the previous year. Additionally, adjusted diluted EPS grew by 14% to $3.83. The MIS segment also saw 8% revenue growth, driven by a 9% increase in issuance.

In the first quarter of 2025, MIS achieved record quarterly revenue of $1.1 billion, with an adjusted operating margin of 66%. Private credit substantially contributed to this growth, especially in structured finance, with significant increases in private credit-related deals compared to the previous year. Private credit-backed instruments and fund finance accounted for about two-thirds of the deal volume. Despite market uncertainties, their research engagement is significantly higher than usual. The company continues to focus on private credit, transition finance, and AI-driven investments, with significant investment demand in debt financing for digital infrastructure. Notably, data center debt issuance reached $4 billion in Q1 2025, indicating a growing scale in financing digital infrastructure. The company is actively exploring various data center financing structures.

The paragraph discusses the growth and developments in a company's financial and strategic operations. Early-stage financings are becoming more extensive and complex, driving future debt financing volumes. The company's MA division saw a 9% ARR growth, led by Decision Solutions with a 12% increase, and recurring revenue rose to 96% of MA's total revenue. The company is investing in product development and cost efficiency to enhance operating leverage, aiming for a 32-33% adjusted operating margin by 2025. Key business wins in the first quarter included a multimillion-dollar KYC deal with a major global bank, expanding their product usage, and becoming their global strategic data partner. Additionally, they secured their first Agentic AI sale in KYC with a large crypto trading platform, involving a multimillion-dollar contract for various solutions.

The paragraph discusses the company's AI strategy, emphasizing the integration of generative AI to drive growth, enhance customer experiences, and increase operational efficiency. It highlights successful AI applications in customer service, engineering, and sales within their MA segment. Notable AI offerings include an automated credit memo, early warning system, and KYC AI agent. These tools and GenAI navigators enhance customer support, improve decision-making, and optimize product use. Internally, AI has reduced the resources needed for customer service and accelerated the engineering process, with a new sales companion tool assisting relationship managers.

The paragraph discusses Moody's strategy to enhance efficiency and effectiveness within the firm, particularly in sales and management, by refining value propositions to streamline processes and accelerate buying decisions. Despite the uncertainty due to trade tensions affecting many businesses, Moody’s services remain relevant, prompting the company to adopt a conservative approach to financial guidance. They express confidence in long-term demand drivers, including the evolution of capital markets, digital transformation in financial services, the need for business transparency, financial impacts of extreme weather, and the potential of generative AI and proprietary data.

The paragraph discusses several strategic initiatives and partnerships aimed at enhancing risk assessments and solutions in the financial sector. It highlights a new partnership with MSCI to improve transparency in private credit markets through independent risk assessments. Additionally, it mentions the integration of numerated Enable AI's capabilities into the CreditLens lending solution to support banks in digitizing their workflows, which has seen significant growth. The acquisition of CAPE Analytics is also noted, enhancing catastrophe models to improve property risk assessment for insurers. Overall, the company feels optimistic about its long-term prospects due to these initiatives and confident in navigating short-term challenges.

In the first quarter, Moody's achieved record financial results with $1.9 billion in revenue, marking an 8% increase. The adjusted operating margin improved by 100 basis points, and adjusted diluted EPS rose by 14% to $3.83. Moody's Analytics reported $859 million in revenue, also up 8%, with Decision Solutions, including KYC, insurance, and banking solutions, showing significant growth. KYC ARR grew by 17% due to strong demand from banking and corporate customers, and European governments. The insurance sector saw 11% ARR growth driven by climate and specialty risk solutions, including a new deal for cyber risk models. Banking ARR increased by 8% as customers sought solutions for automating lending workflows.

Over the past year, there has been a 20% increase in new business related to lending solutions. The Research and Insights division has seen a 7% growth in ARR, largely due to overcoming prior attrition events. New business generation remains strong, with a 20% increase, and the Data and Information business grew ARR by 6%, though growth was affected by changes in ESG strategy and US Government contract attrition. Absent these issues, growth would have been 10%. The Ratings division achieved record quarterly revenue, driven by corporate and structured finance, with new mandates up 20% year-on-year. Moving forward, the company plans to reassess its assumptions based on various market factors, as global GDP forecasts are declining and central bank rate uncertainties persist. High yield spreads and default rates are expected to widen over the next year.

The paragraph discusses the outlook for mergers and acquisitions (M&A) and financial projections amid trade policy uncertainties. It notes a downward revision in expected M&A growth from 50% to 15% year-on-year due to these uncertainties. Q1 rated issuance met forecasts, but MIS rated issuance is projected to decrease slightly in 2025, with variability depending on activity levels in the months ahead. The company foresees flat to mid-single digit percentage revenue growth for MIS in 2025, and an adjusted operating margin of 61% to 62%. For MA, revenue growth is expected to be in the high single digits, while annual recurring revenue growth guidance has been slightly adjusted due to potential customer decision-making delays amid external uncertainties.

The paragraph discusses Moody's Analytics' expectations regarding US Government contract attrition and new business development. Despite unexpected attrition and increased renewal risk for existing contracts, the company maintains a strong business pipeline and highlights efficiency programs to support margin scaling. Moody's anticipates mid-single-digit revenue growth for 2025, with an adjusted operating margin increase of 100 to 200 basis points, reaching 49% to 50%. The adjusted diluted EPS is projected to grow by 9%, with specific expectations for revenue and expenses across quarters, acknowledging a stable revenue outlook and increasing expenses following historical trends.

The paragraph discusses the financial outlook and strategies of a company, highlighting its efficiency program, which is expected to partially offset salary and variable cost increases throughout the year. The company plans to maintain its share repurchase guidance of at least $1.3 billion for 2025, representing about 80% of its projected free cash flow of $2.3 to $2.5 billion for the year. The speaker expresses confidence in their strong financial position and thanks colleagues for achieving a record quarter. During a Q&A session, Alex Hess from JPMorgan inquires about acquisition assumptions in guidance, specifically regarding CAPE analytics. Noémie Heuland confirms there are no changes in M&A assumptions affecting their revenue guidance. Another question by Ashish Sabadra from RBC Capital Markets seeks clarification on issuance guidance adjustments amid uncertainty, originally expecting M&A volumes to rise by 50%, and any changes to refinancing volume assumptions.

The paragraph discusses the uncertainties and factors affecting corporate issuance and M&A activities for the rest of the year, as explained by Rob Fauber. Outside influences like tariffs and a headline-driven environment have created unpredictability, leading to delays in issuance and risk-averse market days. The pace and trajectory of rate cuts also contribute to the uncertainty. M&A activities got off to a modest start, leading to downward revisions in growth assumptions, though some growth is still expected. The maturity walls are seen as supportive of future issuance. George Tong from Goldman Sachs asks about the sensitivity of the Research and Insights, and Data and Information sub-segments of their MA business to current banking and asset manager trends, as well as potential catalysts for accelerated growth in those areas.

In the paragraph, Noémie Heuland discusses the growth and outlook for two segments: Research and Insight, and Data and Information. The growth for Research and Insight is primarily driven by the CreditView product suite, with anticipated low-end high single-digit growth for 2025. The company is closely monitoring CreditView renewals among asset managers but has ongoing discussions with banks about the efficiency benefits of Research Assistant and CreditView. For Data and Information, the segment experienced slower growth in the first quarter due to US Government attrition and an earlier ESG partnership. The outlook for the year expects high single-digit ARR growth, supported by investments in data quality, interoperability, corporate go-to-market strategies, and positive dialogue with corporate customers around Maxsights. Additionally, Russell Quelch from Redburn Atlantic inquires about the guidance for MIS, specifically about how a decrease in issuance aligns with flat to increased revenue growth for 2025, suggesting a potential positive mix effect.

The paragraph discusses the financial outlook and strategies of Moody's. Rob Fauber describes the company's revenue generation, highlighting 3% to 4% annual pricing initiatives and an expected decrease in bank loan repricing activity. He foresees a modest improvement in M&A activity, which should positively impact revenue mix, along with mid-single-digit growth in recurring revenue. Craig Huber asks about cost management, and Noémie Heuland responds by explaining the company's efficiency program, which includes cost-cutting measures in the Moody's Analytics (MA) division and corporate functions through technology and automation. She notes successful integration of acquired entities and projects a margin outlook of 49% to 50% for the year, up 100 to 200 basis points.

The paragraph discusses the company's financial performance and outlook. Improvements in the first quarter were mainly due to transactional revenue growth and an efficiency program, with more significant results expected later. The company expects the MA margin to increase to the mid-30s range by the fourth quarter. It also notes that the timing and level of incentive compensation accruals in MIS will affect margin comparisons in upcoming quarters. For 2025, incentive compensation is projected to be between $400 million and $425 million, with around $100 million per quarter after recording $109 million in the first quarter. In response to a question about the MIS outlook and potential impacts of Federal Reserve rate cuts and flat M&A activity, Rob Fauber explains that rate cuts could have mixed effects, as economic growth drives issuance, and tariffs are expected to reduce global GDP growth by about 1%.

The paragraph discusses the mixed effects of decelerating economic growth and potential Federal Reserve rate cuts, noting the negative impact on fundamental growth versus the benefits of lower rates. It highlights the potential effects on elements like maturity walls and issuance, considering M&A as one of many factors impacting these aspects. The conversation shifts to private credit, with Rob Fauber explaining how private credit markets have grown, especially in structured finance. In times of public market volatility, such as after the financial crisis, during COVID-19, and amid stress in the U.S. banking system in 2023, private credit has proven to be a resilient funding source. Manav Patnaik of Barclays seeks clarification on the balance between the positives of private credit expansion and current challenges in banking.

The paragraph discusses the challenges and opportunities in the private credit sector, particularly focusing on asset quality issues due to highly leveraged loans and direct lending. It highlights the increased presence of asset-backed finance from private credit sponsors and fund finance involving ratings on alternative asset managers, BDCs, and various fund finance instruments like subscription lines and NAV loans. Additionally, there is growing investor interest in obtaining independent views of credit risk for investments in private credit funds, which presents a potential revenue opportunity through credit scoring tools. The paragraph also mentions a recent collaboration with MSCI to address these investor needs.

In the paragraph, Jeff Silber from BMO Capital Markets asks about Moody’s Analytics (MA) and their slightly reduced annual recurring revenue (ARR) guidance, citing federal government exposure as a factor. Rob Fauber responds, explaining that federal government issues and ESG-related customer attrition, with some customers moving to MSCI, are affecting ARR. He states that while there are no current delays in sales cycles, banks seeking certainty may push sales decisions later in the year, as seen in 2023 with U.S. regional banks. The pipeline is strong, showing double-digit growth from the previous year, but the cautious guidance reflects the potential for sales cycle delays.

The paragraph discusses the impact of uncertainty on the company's revenue expectations, specifically for the ratings business. Rob Fauber addresses a question from Alex Kramm about seasonal patterns and projections for the second and third quarters. The company adjusted revenue expectations, anticipating a mid-single-digit decline in ratings revenue for the second quarter, a low single-digit decline in the third quarter, and mid-single-digit growth in the fourth quarter. Overall, they expect the year's ratings revenue to be flat to mid-single-digit growth. The uncertainty and a soft start to April have influenced these projections.

The paragraph features a discussion between Faiza Alwy from Deutsche Bank and Rob Fauber about managing margins and expenses in the context of potential issuance declines. Fauber explains that the company has traditional levers for managing costs, such as adjusting headcount, which have been effective over the years in response to cyclical market declines. He emphasizes that the current situation is viewed as cyclical rather than structural. Additionally, Fauber highlights the company's efforts to become more efficient and volume agnostic through advancements like AI tools and modern analytical applications for analysts, which help maintain strong controls and operational effectiveness.

The paragraph discusses the deployment of AI tools in a rating agency to improve efficiency while maintaining quality and regulatory compliance. It mentions a partnership with MSCI aimed at providing independent risk assessments in the private credit market. Although specific revenue models are not disclosed, the partnership is targeting the growing demand from investors, such as pension funds and insurance companies, for third-party credit assessments. MSCI's data-rich platform on private credit investments is highlighted as a valuable resource in serving both alternative asset managers and investors.

The paragraph discusses the growth and momentum in first-time mandates (FTMs) for the company, highlighting a 20% increase in FTMs in the first quarter compared to the previous year, with almost 200 new mandates. This growth is seen across most regions except Asia Pacific, and corporate finance is the largest source. There is also notable growth in mandates within the financial institutions group (FIG), particularly related to private credit, including business development companies (BDCs), asset managers, and private credit funds. About a third of FTMs in FIG are serving the private credit market, especially in the US and to a lesser extent in EMEA. Despite leveraging finance considerations, the company maintains its guidance due to a tailwind from the FIG franchise.

The paragraph features a discussion during an earnings call where Sean Kennedy from Mizuho asks Rob Fauber about the impact of tariffs and macroeconomic uncertainties on their Know Your Customer (KYC) solutions and corporate market penetration. Rob Fauber responds, acknowledging that tariffs might drive demand for their KYC and supply chain risk solutions. He mentions their corporate platform, Maxsight, which offers services beyond KYC, including supplier risk management. He notes the platform's traction, with 150 opportunities in the pipeline and active customer dialogue, particularly in logistics, healthcare, and TMT sectors. Additionally, the conversation shifts to a question from Joshua Dennerlein of Bank of America about expense management and margin strategies.

In the paragraph, Rob Fauber and Noémie Heuland discuss the outlook for revenues and margins compared to 2022. Fauber notes that in 2022, revenues declined significantly by around 30%, leading to compressed margins. However, he suggests that the current situation is different, with more tools available to maintain operating leverage within a certain range. Heuland adds that their operating margin guidance for MIS has been slightly adjusted to 61-62%, indicating a significant year-on-year increase. They plan to be cautious with discretionary spending while investing in technology to support analysts. Both emphasize that they're not expecting a repeat of the 2022 scenario and maintain a strong financial profile for the business. The operator then introduces a new question from another analyst.

Rob Fauber discusses the nature of the MA portfolio, characterizing it as acyclical rather than countercyclical, due to its consistent growth and resilience across varying economic conditions. He highlights the importance of the portfolio's components, such as software and data for banking and insurance sectors, which remain critical regardless of market fluctuations. In banking, these tools support essential activities like lending and stress testing, showing increased usage during market downturns. Similarly, the demand for research and insights grows in challenging environments. The insurance sector, dealing with risks from extreme weather, relies on tools that are unaffected by financial market changes. Furthermore, banks continue to prioritize KYC (Know Your Customer) efforts to enhance efficiency and effectiveness, indicating no reduction in investment despite economic shifts.

In the paragraph, the speaker discusses the importance of regulatory compliance and efficiency for banks. They highlight how banks aim to comply with regulations while improving efficiency, referencing the use of AI screening agents to enhance compliance efforts and reduce false positives. The speaker anticipates strong demand for such technology. The passage concludes with the operator ending the question and answer session and passing the call to Rob Fauber for closing remarks, indicating the end of Moody's Corporation's first-quarter 2025 earnings call. A reminder is given about the availability of further information and a replay on their Investor Resources website.

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