Moody's Corp Q3 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Toni Kaplan - Morgan Stanley - Analyst : Thanks very much. I wanted to pick up on the Data & Information ARR slowdown from last quarter. I think, NoTmie, you mentioned the government contracts renewing at a lower value. Was this a reduction in number of products that were being purchased? Or was it pricing or something else? And maybe just what percentage of revenues related to government? Was this federal government? And are there any more renewals with government coming up? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 22, 2024 / 3:30PM, MCO.N - Q3 2024 Moody's Corp Earnings Call

Question: Toni Kaplan - Morgan Stanley - Analyst : Thanks.

Question: Ashish Sabadra - RBC Capital Markets - Analyst : Rob, thanks for flagging both the near and midterm secular and cyclical tailwinds for issuance. But it was also the -- as you mentioned, the second strongest issuance year. So what we want to understand is, can these near-term issuance tailwinds help offset the headwinds from tougher comps and the pull forward as well as the revenue tailwinds from the infrequent issuers? Or do we need to normalize before we can start to grow off those levels?

Question: Ashish Sabadra - RBC Capital Markets - Analyst : More 2025.

Question: Ashish Sabadra - RBC Capital Markets - Analyst : That's great color. Thanks.

Question: Scott Wurtzel - Wolfe Research LLC - Analyst : Good morning. Thanks for taking my questions. I wanted to stick on the topic of the issuance here. And Rob, maybe wondering if you can share just where we are with debt velocity right now? Obviously, I know it's a strong quarter for issuance but just on the balance of things, where we are with debt velocity and how you're thinking about that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 22, 2024 / 3:30PM, MCO.N - Q3 2024 Moody's Corp Earnings Call

Question: Scott Wurtzel - Wolfe Research LLC - Analyst : Great. Very helpful. Thank you.

Question: Andrew Nicholas - William Blair & Company - Analyst : Hi, good morning. I wanted to ask a question on Research & Insights. I think last quarter, you talked about your expectation that ARR growth would accelerate in the back half of the year. I think you cited the Research Assistant tool and some of the release of some private credit-oriented products supporting that. It doesn't look like we saw that in the third quarter. Just wondering if there's anything else to unpack in that line particularly and maybe that's an excuse to ask about the broader monetization of the GenAI related tools so far this year.

Question: Andrew Nicholas - William Blair & Company - Analyst : And Rob is that Research & Insights or MA as a whole, just to be clear?

Question: Andrew Nicholas - William Blair & Company - Analyst : Okay, understood. Thank you.

Question: Manav Patnaik - Barclays plc - Analyst : Thank you. Just to stick on MA. The revenue versus ARR growth keeps widening. So I was just hoping you could just help level set why that is today and then thinking about how that flows into 2025 would be helpful as well.

Question: Manav Patnaik - Barclays plc - Analyst : Thank you.

Question: Owen Lau - Oppenheimer & Co Inc - Analyst : Hi, good afternoon and thank you for taking my questions. I know we have touched on private credit in the past but the narrative of public private market convergence is expanding. And Rob, you talked about the Apollo Investor Day. And I think one idea they threw out was so-called standardized credit ratings. So could you please talk about how much appetite for investment-grade issuers to raise debt directly from PE firms and bypass the rating process done by Moody's, or the credit rating is so valuable that they will still need it?

Question: Owen Lau - Oppenheimer & Co Inc - Analyst : Thanks, Rob.

Question: Faiza Alwy - Deutsche Bank AG - Analyst : Yes, hi. Thank you so much. So I wanted to ask about Moody's Analytics again, just in context of your medium-term targets. I know you referred to them previously as aspirational. I'm curious if you have an update on that, just given that there has been a little bit of deceleration this year. Maybe if you could highlight what are some of the areas that you're most excited about? And if you expect an acceleration as we think about '25 and beyond?

Question: Faiza Alwy - Deutsche Bank AG - Analyst : Thanks, Rob.

Question: David Motemaden - Evercore ISI - Analyst : Thanks. Good afternoon. Rob, could you just give us an updated view on the pull forward that has taken place this year and in 3Q specifically? And if that's lowered your expectations for issuance growth at all in 2025?

Question: Craig Huber - Huber Research Partners - Analyst : Thank you. Can you just talk a little bit about the spread that you had between the 70% transaction revenue growth in ratings versus 51% global issuance in the quarter? And then maybe, NoTmie, just throw in there what the incentive comp was in the third quarter and the fourth quarter outlook.

Question: Craig Huber - Huber Research Partners - Analyst : Great. Thank you.

Question: George Tong - The Goldman Sachs Group Inc - Analyst : Hi, thanks. Good afternoon. I wanted to dive more into your ratings outlook. You mentioned on a net basis, the pull forward of IG and spec grade is exactly in line with historical averages in the forward maturities, one year out is about 15% higher. And yet your updated guide implies about mid-single-digit MIS revenue growth in 4Q, even though comps don't really get any tougher in the fourth quarter. So can you talk about what leads you to think 4Q issuance growth will moderate meaningfully? And to what extent do you think 4Q MIS growth will serve as a proxy for 2025 MIS growth?

Question: Shlomo Rosenbaum - Stifel Financial Corp - Analyst : Hi. Thank you very much. Rob, can you give us a little bit of an update on some of the progress for the various AI products? So you had like navigators, skills, assistants. Can you talk about where you are in both, in development and then also in kind of adoption? I know NoTmie talked about a little bit of a -- not as fast of an adoption because the clients are setting up their own frameworks. Maybe you could talk about, is there anything that leads you to believe that the pacing is going to be dramatically different from what you thought or the adoption will be very different from what you thought?

Question: Shlomo Rosenbaum - Stifel Financial Corp - Analyst : Thank you.

Question: Jeffrey Silber - BMO Capital Markets - Analyst : Thank you so much. In looking at your guidance for the year and if I try to back into the implied guidance for 4Q adjusted EPS, it looks like you're guiding to that to be flat to potentially down. Are you just being overly conservative? Or is there something specifically going on?

Question: Jeffrey Silber - BMO Capital Markets - Analyst : No, I was just going to ask if there's something specifically going on with margins in the fourth quarter we should focus on.

Question: Jeffrey Silber - BMO Capital Markets - Analyst : Fair enough. Thanks so much.

Question: Jason Haas - Wells Fargo & Company - Analyst : Hey, good afternoon and thanks for taking my question. Appreciate the comments earlier on MA ARR. It sounds like the Data & Information and Research & Insights is maybe not as strong as expected but there was no change to the full year guidance there. So I was curious if you're now expecting closer to the high single digits and the low double digits? And then if not, can you talk about what other areas have been coming in stronger than expected to offset that? And then maybe also any color on what would drive an acceleration from 3Q into 4Q?

Question: Jason Haas - Wells Fargo & Company - Analyst : Good to hear your thinking.

Question: Jeff Meuler - Robert W. Baird & Co - Analyst : Yes. Thank you. So this kind of runs counter to that last answer. But can you just comment on KYC ARR. In the quarter, 14% growth is great, but it decelerated from what your KYC business has historically done. I don't know if there was any holdback of customers waiting for the new product launches or just any comments on why KYC growth was a little softer for ARR in the quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 22, 2024 / 3:30PM, MCO.N - Q3 2024 Moody's Corp Earnings Call

Question: Jeff Meuler - Robert W. Baird & Co - Analyst : Thank you.

Question: Andrew Steinerman - JPMorgan Chase & Co - Analyst : Hi. Good morning. I wanted to ask about Praedicat. I think it was the only acquisition that Moody's has done with revenues closed in the last 12 months. Just tell me if I'm correct about that. And specifically about Praedicat, I'd like to know the dollar contribution both to revenues and ARR in the third quarter just reported and in the fourth quarter guide.

Question: Andrew Steinerman - JPMorgan Chase & Co - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 22, 2024 / 3:30PM, MCO.N - Q3 2024 Moody's Corp Earnings Call

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes. Thanks for squeezing me in. Rob, I wondered if you could be a bit more specific about the level of growth, you're seeing in private credit assessments and how much that's contributing to the revenue today. You mentioned being a leader, early leader perhaps in rating the BDCs. So I wondered what else you're doing to position yourself to capture this opportunity. You mentioned conversations with Apollo and Blackstone. I wonder if you could add a bit more flavor to those conversations, if that's leading to immediate revenue opportunities or if this is more stuff for the future?

Question: Russell Quelch - Redburn Atlantic - Analyst : Okay. Thanks.

Question: Alex Kramm - UBS - Analyst : Yes. Hey, hello, everyone. I know it's late in the call. So just a quick cleanup here. On MA margin, can you just talk about what you're expecting in the fourth quarter? I think, if I do my math right, I think margin is supposed to pick up in the 4Q. But generally speaking, from a seasonal perspective, costs go up after the 3Q and margin goes down. So I don't know if that's part of the incentive comp you talked about or anything else. And obviously, Praedicat is coming in as well, I think. So just maybe flesh out why this year may be a little bit different. And then sorry, related to that, you talked about investing a lot in MA earlier on the call. So just wondering if you have any updated thoughts on the margin expansion that you're looking at for that business in the next couple of years?