Moody's Corp Q4 2024 Earnings Call Transcript

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

Question: Manav Patnaik - Barclays - Analyst : I just wanted to ask you about the medium-term guide. I just wanted to confirm if those were organic numbers, particularly on the MA side, and just maybe just some of the moving pieces in there. It sounds like, Noemie, from your last comment, maybe there's less M&A than what you initially thought. Is that correct?

Question: Ashish Sabadra - RBC Capital Markets - Analyst : I just wanted to follow up on that midterm questions, particularly on margins. So the MIS margins are already at low 60%. So just wanted to better understand, is there not much room for margin expansion on -- with issuance just given the high incremental margins there? But also what does it imply for earnings growth in the midterm? Are we implying a much more modest earnings growth profile? Any color there will be helpful.

Question: Toni Kaplan - Morgan Stanley - Analyst : I wanted to ask about MA margins. Really great quarter and higher-than-expected guide. You talked about the efficiency plan, which was very helpful. Are you pulling back on investment at all? And just any additional color on simplification or the efficiency plan? And maybe embedded in the whole thing is sort of AI and if -- how you're thinking about investment there and cost savings from it.

Question: Alex Kramm - UBS - Analyst : Very quickly on the Ratings side, obviously laid out kind of some of the expectations, but maybe you can dig a little bit deeper for 2025, the puts and takes on the range. Where do you think some upside can come from, for example, M&A? And what do you see as the biggest risk for the outlook here?

Question: Scott Wurtzel - Wolfe Research LLC - Analyst : I wanted to go back to Moody's Analytics. I'm wondering if you can speak to just the sort of broader demand environment that you're seeing and how sales cycles are trending. I know if we go back a quarter or 2, maybe on the GenAI side, there were some longer sales cycles. So wondering if we can get an update on that and just demand more broadly.

Question: Owen Lau - Oppenheimer & Co Inc - Analyst : So again, MA, sorry for multiple questions here. But you expect your revenue to grow high single digit even though your ARR is expected to grow high single to low double-digit. Should we expect this dynamic -- there's still like, I don't know, maybe 2% or 3% gap between the two, like this dynamic to continue in the near to medium term? When and what does it take for revenue to actually accelerate to low double digit? And also, how much have you baked in some of the new initiatives, such as AI, MSCI partnership and other new product launch in your guidance?

Question: Owen Lau - Oppenheimer & Co Inc - Analyst : How book guidance have you baked in any AI and MSCI, all this into your guidance?

Question: Jeffrey Silber - BMO Capital Markets - Analyst : With all the discussion coming out of Washington, DC, I was wondering if you could talk a little bit about, first, your exposure to federal government as a customer, and then more broadly, in terms of some of the expected policy changes, what the impact on your business might be. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 4:30PM, MCO.N - Q4 2024 Moody's Corp Earnings Call

Question: David Motemaden - Evercore ISI - Analyst : I had a question just on the higher medium-term outlook for MIS revenue, the high single to low double-digit growth now versus mid- to high growth when you guys last updated these medium-term targets. Could you help me think through what's driving that uptick? Are there any big movements in the long-term building blocks that you've given in the past? Or is it just M&A coming back that's driving that? And maybe also if you could just talk about how we should think about the third-party private credit rating assessments contributing to that as well would be helpful.

Question: George Tong - The Goldman Sachs Group Inc - Analyst : With respect to the MA segment and your medium-term target of high single, low double-digit growth, how are you thinking about growth by subsegments, so Decision Solutions, Research & Insights and Data & Information? And what do you see as driving the differences in growth between those segments?

Question: Peter Christiansen - Citigroup - Analyst : Really nice execution here. I want to get back on the M&A -- MA side. You've had some really good speed to market on some new price, some enhancements. I was just talking -- I'd like to hear any color on your ability to to pass on value-based pricing across a number of good products and segments, subsegments there. And then lastly, just curious how you're thinking about head count for MIS and growth there potentially. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 4:30PM, MCO.N - Q4 2024 Moody's Corp Earnings Call

Question: Craig Huber - Huber Research Partners - Analyst : Rob or Mike, can you just talk further about private credit? I'm curious what -- if you're willing to give this, what percent of your Ratings revenue came from private credit last year? And how do you see the market growing here to add your Ratings growth rates for the coming years here? And then Noemie, if you could just throw in there, what was the incentive comp number in the fourth quarter and for the full year? And how did that

Question: Jeff Meuler - Robert W. Baird & Co - Analyst : The medium-term growth guidance, obviously really good. But as Rob said, a lot's updating for performance already achieved. I think mathematically, it implies lower growth in '26 and '27 relative to what I'd consider your longer-term structural growth, especially in MIS. Are there any specific call-outs there or should we just not read too much into that? I think Rob said there's kind of blue-sky assumptions for issuance in '25, but '25 MIS doesn't look overly inflated by any means relative to the long-term trend, and Mike sounded positive on structural growth. So if you could just help us reconcile what's implied for '26-'27.

Question: Andrew Steinerman - JPMorgan Chase & Co - Analyst : I just wanted to talk about the contribution of M&A in the quarter for both MA and MIS. And also going forward, is the Cape acquisition in the guide? I'm not sure if that closed.

Question: Russell Quelch - Redburn Atlantic - Analyst : In respect of ARR growth, with -- in KYC, sorry, there had been some expectations that, that would mature after the booms post the pandemic and the Ukraine and Gaza conflicts. Can you talk about what's driving a re-acceleration of growth in that area? And how sustainable it is in the high teens range? And then separately, MSCI said on its conference call, it was having further conversations with you about expanding your partnership, which is currently in ESG, into perhaps other areas, including private credit. Can you provide an update perhaps on that from your perspective? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 4:30PM, MCO.N - Q4 2024 Moody's Corp Earnings Call

Question: Shlomo Rosenbaum - Stifel Financial Corp - Analyst : So Rob, it seems like some of the early slowness that we saw in adoption in Research Assistant has to round, and it looks like things are really starting to pick up well there. I was wondering if you can update us on some of the other capabilities that you added, like the automated credit memo, the early warning system. What are you seeing over there in terms of traction? And do you expect a similar type of adoption path is what you're seeing for Research Assistant? Or do you think that those things could take a little bit longer because the customers might need to do a little bit more on their side in terms of process?

Question: Jason Haas - Wells Fargo & Company - Analyst : I wanted to follow up on the MIS revenue growth in 4Q. It looks like -- I was looking particularly at the MIS transaction revenue growth. It was up 29% in 4Q, but the issuance growth was up 42%. So just curious what drove that delta. It looks like it was maybe on the corporate find side, but yes, maybe you can help explain a little bit better why the revenue is weaker relative to issuance. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 4:30PM, MCO.N - Q4 2024 Moody's Corp Earnings Call