Moody’s reported a 21% revenue growth in Q1 2024, with adjusted diluted EPS of $3.37.
MIS (Moody’s Investor Service) saw a 35% revenue increase, with transactional revenue up 57%, and leveraged finance markets revenue up 144% from the prior year.
MA (Moody’s Analytics) achieved 10% ARR growth, marking 6 consecutive quarters of double-digit ARR growth.
Strategic Investments and Future Growth
Moody’s is investing in platforming, product innovation, and GenAI enablement to drive future growth.
The company expects to return over $1.6 billion to stockholders through share repurchases and dividends in 2024.
Operational and Financial Metrics
MIS adjusted operating margin reached 64.6% in Q1 2024.
MA reported 65 consecutive quarters of revenue growth and maintained a 94% retention rate.
Moody’s Analytics’ ARR reached $3.1 billion, a 10% increase from the previous year.
Guidance and Outlook for 2024
Moody’s updated its guidance metrics for 2024, maintaining high single-digit to low double-digit revenue growth for MIS.
Moody’s Analytics revenue is expected to increase in the high single-digit percent range, with ARR growth in the low double-digit range.
Adjusted operating margin for MIS is raised to a range of 56% to 58%.
Adjusted diluted EPS range for the year is narrowed to $10.40 to $11.
Executive Insights
Robert Fauber highlighted the strength of Moody’s business model and its ability to capitalize on robust issuance periods.
Noemie Heuland expressed enthusiasm for joining Moody’s, citing the company’s strong financial profile and growth prospects.
Question and Answer
Market Trends and Performance
Market Trends and Customer Pressures in MA
Moody’s Analytics (MA) saw strong demand for data solutions and KYC, with 13% and 24% growth, respectively, offsetting slower Research & Insight growth.
The company observed some pressure in retention rates from banks and asset managers, particularly in the research business, but overall retention remains strong at 94%.
The sales pipeline is healthy, with no elongation of sales cycles, driven by digitization, automation, and the GenAI platform’s regulatory risk capabilities.
End-Market Exposures and Customer Demand Drivers
While cost pressures exist for financial institutions, there are also significant drivers of demand, such as digitization, automation, and risk management.
GenAI technology adoption is expected to accelerate, particularly for labor substitution and efficiency gains.
Customers are increasingly focused on obtaining a 360-degree view of their business relationships, driving investment in data and analytics solutions.
Issuance and M&A Activity Outlook
Moody’s revised its MIS guidance to the higher end of the range, reflecting a bias towards upside in issuance.
The company anticipates potential upside from stronger economic growth, M&A activity, and sponsor-backed transactions.
Downside risks include inflation, Fed actions, geopolitical tensions, and election uncertainties, leading to a more measured approach to the issuance outlook.
Refinancing and M&A Trends
Issuers are addressing upcoming maturities, with some potential pull-forward from 2025 and beyond in the second half of the year.
The significant amount of pandemic-era leveraged loan issuance provides a solid underpinning for future issuance, with a large portion maturing in 2027 and beyond.
Moody’s expects a modest recovery in M&A activity in 2024, with encouraging signs from strategic and sponsor-backed deals, as well as a pickup in rating assessment services.
AI Framework and Monetization Strategies
AI Framework and Customer Engagement
Moody’s has developed a framework for AI innovation, focusing on delivering GenAI-enabled workflow software, providing navigators for customer assistance, and offering APIs for integration.
The company is building a partner ecosystem to expand the reach of its AI solutions and cater to customer needs.
Different monetization strategies are being considered, including pricing models based on subscription, consumption, and value-added services.
Customer Trust and Partnership
Customers are seeking trusted partners with strong data integrity and analytics capabilities for AI solutions.
Moody’s reputation and history of building a robust framework for AI solutions differentiate it in the market and contribute to customer trust.
Margin Performance and Outlook
Margin Performance and Reinvestment
Moody’s has increased the MIS adjusted operating margin guidance by 50 bps for the full year while maintaining the MA margin due to revenue headwinds.
The company is mindful of spending, investing strategically, and building efficiencies into the system, leading to a stable outlook at the consolidated level.
Impact of FX and Research & Insights Growth
FX Impact and Revenue Guidance
The update in MA revenue outlook is primarily driven by FX, with a slight impact from sales seasonality.
No material impact from FX was observed in the first quarter.
ARR growth in Research & Insights is expected to accelerate in the back half of the year, driven by new CreditView enhancements and increased sales pipeline.
RMS Performance and Cross-Sell Synergies
RMS Growth and Cross-Sell Synergies
Core RMS ARR is now growing in line with MA ARR, driven by the acceleration of customer migrations to the Intelligent Risk Platform and improved sales execution.
The company is experiencing both inbound and outbound cross-sell synergies, with examples including the use of RMS IP by other Moody’s customers and the integration of KYC solutions with RMS master data.
Issuance Outlook and Multiyear Recovery
Issuance Forecast and Multiyear Recovery
Moody’s has held the issuance forecast range and expects a mid-single-digit decline in issuance for the remainder of the year, with a more significant decline in the fourth quarter.
The company believes it is in the midst of a multiyear issuance recovery, supported by debt velocity trends and the deferral of private credit issuance to the public markets.
Capital Allocation and Balance Sheet
Capital Allocation and Share Buyback
Moody’s maintains its approach to capital allocation, with a focus on share buybacks and deleveraging.
The pace of share buybacks in the first quarter is in line with planned cadence, and the company expects to catch up in the second quarter and second half to meet targets.
Margin Seasonality and Cloud Migration
Margin Seasonality and Cloud Migration
Moody’s does not anticipate a significant impact on MA revenue growth during the migration to cloud-based solutions.
Margin expectations for MIS and MA are based on the anticipated revenue cadence throughout the year.
Company Cost Ramp and Incentive Compensation
Company Cost Ramp and Incentive Compensation
The company expects expenses to gradually increase throughout the year, reflecting strategic investments, merit increases, and variable costs aligned with business growth.
Incentive compensation is expected to average $100 million for the second and third quarters and slightly increase in the fourth quarter.
Private Credit Exposure and Definition
Private Credit Exposure and Definition
Moody’s serves a significant portion of the private credit market through its relationships with alternative asset managers, including those operating in both public and private markets.
The company has a dedicated private credit team and offers specific products and services tailored to the private credit space.
While private credit exposure is currently smaller, it is growing rapidly and is considered a significant opportunity.
KYC Growth Drivers and ARR Trends
KYC Growth Drivers and ARR Trends
The strong growth in KYC is driven by a broadening demand for KYC solutions beyond traditional know-your-customer requirements, encompassing supplier due diligence and broader risk management needs.
Product innovation, including shell company identification and entity verification APIs, has contributed to the strong growth.
While ARR growth has been healthy, the company does not provide specific guidance on the relationship between ARR and revenue growth in this segment.
