Release Date: April 22, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Moodys Corp (MCO, Financial) achieved a record $1.9 billion in first quarter 2025 revenue, marking an 8% year-over-year increase.
- The company reported an adjusted operating margin of 51.7%, up 100 basis points from the previous year.
- Adjusted diluted EPS grew by 14% to $3.83, showcasing the strength of the franchise.
- Private Credit was a significant contributor to growth, particularly in structured finance, with 143 Private Credit related deals in Q1 2025.
- Moody's Analytics saw ARR growth of 9%, led by Decision Solutions with a 12% increase, and recurring revenue now accounts for 96% of total MA revenue.
Negative Points
- The company has adjusted its guidance to account for a more conservative outlook due to market volatility and uncertainty.
- There is a noted slowdown in M&A activity, with expectations for 15% growth down from an initial 50% forecast.
- The Data & Information business experienced slower growth due to elevated attrition from US government contracts and adjustments to the ESG strategy.
- Moody's has widened and lowered its guidance range for the year, reflecting potential impacts from tariffs and trade tensions.
- The company anticipates MIS rated issuance to decrease in the low to high single-digit range for 2025, indicating a challenging issuance environment.
Q & A Highlights
Q: Can you walk us through your assumptions around what acquisitions were included in the prior guidance versus now? Specifically, was CAPE Analytics factored into previous guidance? And how much do you expect it to contribute this year?
A: There is no change in our M&A assumptions with respect to our MA revenue guidance, that was already included before and it continues to be the case now. - Noemie Heuland, Chief Financial Officer
Q: What were the key assumptions made in terms of M&A volume when you reduced the issuance guidance?
A: Tariffs have created uncertainty, impacting issuance. We initially expected M&A volumes to be up 50%, but now anticipate 15% growth, primarily back-end loaded. No changes were made to refinancing volume assumptions. - Robert Fauber, President, Chief Executive Officer, Director
Q: Can you discuss the sensitivity of Research & Insights and Data & Information subsegments to banking and asset manager trends?
A: Research & Insights growth is driven by our credit view product suite. We're expanding dialogues with banks beyond risk and regulation. Data & Information growth was slower due to US government attrition and ESG strategy adjustments. We expect high single-digit ARR growth, supported by investments in data quality and corporate go-to-market strategies. - Noemie Heuland, Chief Financial Officer
Q: Could you explain the guidance for a decrease in issuance versus flat to increased revenue growth for 2025?
A: We have annual pricing initiatives and a positive mix shift from decreased bank loan repricing activity. We expect modest M&A improvement and mid-single-digit growth in recurring revenue, supporting total rating revenue. - Robert Fauber, President, Chief Executive Officer, Director
Q: How might more Fed rate cuts or flat M&A impact your issuance outlook?
A: Rate cuts are a mixed bag; they could lead to decelerating economic growth, impacting issuance. For M&A, every 10% change could affect rating revenue by approximately $35 million. M&A is one of many assumptions affecting issuance. - Robert Fauber, President, Chief Executive Officer, Director
Q: How do you view the potential impact of Private Credit on your business, given current market conditions?
A: Private Credit can step in during public market volatility, but asset quality issues may arise. We're seeing growth in structured finance and fund finance related to Private Credit. Our partnership with MSCI aims to provide independent risk assessments for Private Credit investments. - Robert Fauber, President, Chief Executive Officer, Director
Q: Are there any other slowdowns or uncertainties in MA businesses beyond federal government exposure?
A: No significant slowdowns beyond federal government and ESG-related attrition. Our pipeline is robust, and we're not seeing delays in sales cycles. However, we acknowledge the possibility of sales cycles extending due to heightened uncertainty. - Robert Fauber, President, Chief Executive Officer, Director
Q: Could you provide more detail on the seasonal pattern for MIS revenue?
A: The biggest adjustment to revenues is in the second quarter, with mid-single-digit decline expected. Third quarter is expected to be down low single digits, and fourth quarter up mid-single digits, leading to flat to mid-single-digit revenue growth for the year. - Robert Fauber, President, Chief Executive Officer, Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
