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    MCO
    Earnings call· Dec 2024(Q4 FY24)

    MOODYS CORP /DE/ MCO

    Feb 13, 2025 Source

    Executive summary

    Moody's Q4 FY24 — Record Year with Strong Revenue Growth and Margin Expansion

    Moody's delivered a record Q4 and full year 2024, driven by strong revenue growth across both its Ratings and Analytics segments and significant adjusted operating margin expansion. The company is strategically investing in technology, GenAI, and acquisitions to capitalize on market shifts like private credit and climate risk, while also implementing an efficiency program to simplify its organizational structure and accelerate profitability. This positions Moody's for sustained growth and increased earnings power, reflected in an updated medium-term adjusted diluted EPS growth target.

    Highlights

    5

    • Moody's delivered a record year in 2024, growing revenue by 20% to over $7 billion.

    • Adjusted operating margin expanded by over 400 basis points for the full year 2024, translating into 26% adjusted diluted EPS growth.

    • Moody's Investors Service (MIS) revenue grew 18% in Q4 FY24, powered by 29% transactional revenue growth.

    • Moody's Analytics (MA) recurring revenue grew 10% in Q4 FY24 and 9% ARR growth, with Decision Solutions ARR growing 12% to $1.4 billion.

    • The company increased its medium-term adjusted diluted EPS growth range from low double-digit to low to mid-teens percent, reflecting strengthened earnings power.

    Concerns

    4

    • Moody's plans to incur $200 million to $250 million in restructuring charges over a two-year period, with $45 million accrued in Q4 FY24 and an additional $80 million to $100 million expected in FY25.

    • Research & Insights ARR growth of 6% was affected by attrition events from the asset manager space earlier in the year.

    • Transactional revenue in Moody's Analytics is declining and provides a headwind, expected to continue in the foreseeable future.

    • MIS Q4 transactional revenue growth of 29% was weaker than issuance growth of 42% due to a mix weighted towards repricings in bank loans, which have lower economics.

    Guidance & targets

    18
    CategoryTargetConfidence
    MCO Revenue Growth
    high single-digit range
    high materiality
    High
    MCO Adjusted Operating Margin
    approximately 50%
    high materiality
    High
    MCO Adjusted Diluted EPS
    $14 to $14.50
    high materiality
    High
    MIS-Rated Issuance Growth
    low single-digit range
    medium materiality
    High
    MIS Revenue Growth
    mid- to high single-digit percent range
    high materiality
    High
    MIS Adjusted Operating Margin
    62% to 63%
    high materiality
    High
    MA Revenue Growth
    high single-digit range
    high materiality
    High
    MA ARR Growth
    high single-digit to low double-digit range
    high materiality
    High
    MA Adjusted Operating Margin
    32% and 33%
    high materiality
    High
    MA Margin Expansion
    mid- to high 30% range
    high materiality
    High
    MCO Adjusted Diluted EPS Growth
    low to mid-teens percent growth range
    high materiality
    High
    MA ARR Growth
    9% to 10% range
    high materiality
    High
    MA Retention Rate
    low to mid-90s percent range
    medium materiality
    High
    MA New Business Growth
    low to mid-teens percent pace
    medium materiality
    High
    MCO Adjusted Diluted EPS
    high end of the implied quarterly adjusted diluted EPS range of $3.50 to $3.60
    medium materiality
    High
    MIS Revenue Growth
    mid-single-digit range
    medium materiality
    High
    MA Revenue Growth
    consistent in the high single-digit percent range
    medium materiality
    High
    MA Adjusted Operating Margin
    approximately 30%
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Moody's Investors Service (MIS)
    Second highest Q4 revenue on record, driven by healthy leveraged loan issuance (up 134% in Q4, 27% transactional revenue growth), strength from infrequent issuers, and strong performance in structured finance (U.S. CLOs and CMBS).
    Transactional revenue growth: 29% (Q4)Full year 2024 adjusted operating margin: 60%
    		$809 million18%—51.3% adjusted operating margin
    Moody's Analytics (MA)
    Strong Q4 performance, with recurring revenue accounting for 95% of total MA revenue. Decision Solutions drove performance with 12% growth year-on-year. Full year margin was towards the high end of annual guide.
    Recurring revenue growth: 10% (Q4)ARR growth: 9.4% (Q4)Full year 2024 adjusted operating margin: 30.7%
    		$863 million8%—33.8% adjusted operating margin
    Decision Solutions (within MA)
    Led MA performance. KYC growth driven by strong demand for customer and supplier risk data. Insurance growth from improved retention and demand for cat model tools. Banking growth from strong customer retention and expansion of subscription-based offerings.
    ARR: $1.4 billionKYC ARR growth: 17%Insurance ARR growth: 12%Banking ARR growth: 9%
    		—12%——
    Data & Information (within MA)
    Driven by demand from Orbis within the corporate sector.
    ARR growth: 8%
    		————
    Research & Insights (within MA)
    Growth rate affected by attrition events from the asset manager space earlier in the year. Sales (cross-sell, upsell, upgrades) grew meaningfully above ARR trends in FY24, with Research Assistant accounting for 25% of overall ARR growth.
    ARR growth: 6%
    		————

    Operational metrics

    29
    Total Revenue
    $7 billionup 20% YoY
    Full Year 2024

    Moody's delivered a record year in 2024.

    Adjusted Operating Margin Expansion
    over 400
    Full Year 2024

    Through disciplined cost management.

    Adjusted Diluted EPS Growth
    26%
    Full Year 2024

    All while executing on strategic investments.

    Issuance Volume Rated
    $6.2 trillionincrease of 42% compared to 2023
    Full Year 2024

    Rated by Moody's.

    Private Credit-Related Transactions Rated
    nearly 400
    2024

    Across all of Ratings, including BDCs, sublines, closed-end funds, fund finance, asset-backed finance, middle-market CLOs, private ratings for investors.

    First-Time Mandates (FIG, Private Credit Related)
    30%
    2024

    Of first-time mandates in Financial Institutions Group (FIG) were private credit related.

    Credit Opinion Press Releases Issued
    every 20 minutes
    throughout last year

    Without needing to meaningfully increase analytical staffing levels.

    First-Time Mandates
    700 to 800
    Full Year 2025

    Projected for full year 2025.

    Recurring Revenue as % of Total Revenue
    95%
    Q4 FY24

    In Moody's Analytics.

    Research Assistant Contribution to R&I ARR Growth
    25%
    Full Year 2024

    From upselling Research Assistant to CreditView customers.

    Research Assistant Customers
    more than 100
    Q4 FY24

    Reached by Research Assistant.

    Adjusted Diluted EPS CAGR
    18%significantly above low double-digit medium-term target
    3 years

    Midpoint of FY25 guidance implies this CAGR.

    Revenue Growth
    40.5%
    2 years

    Driven by robust issuance environment.

    ARR Growth
    9% to 10%consistently
    2 years

    Strong organic growth.

    Restructuring Charges (Total)
    $200 million to $250 million
    2-year duration

    Planned for an efficiency program to simplify the organization.

    Restructuring Charges Accrued
    $45 million
    Q4 FY24

    Accrued in connection with the efficiency program.

    Restructuring Charges Expected
    $80 million to $100 million
    Full Year 2025

    Expected additional charge for the efficiency program.

    Annualized Cost Savings
    $250 million to $300 million
    Upon completion of plan

    Expected from the efficiency program.

    Total Revenue
    nearly $1.7 billionup 13% year-on-year
    Q4 FY24

    Consolidated revenue for Q4.

    Adjusted Diluted EPS
    $2.62up 20% year-over-year
    Q4 FY24

    Consolidated adjusted diluted EPS for Q4.

    Adjusted Operating Margin
    51.3%
    Q4 FY24

    Exceeded implied guidance.

    Adjusted Operating Margin
    33.8%increased 240 basis points versus Q4 last year
    Q4 FY24

    For Moody's Analytics.

    Adjusted Operating Margin
    30.7%
    Full Year 2024

    Towards the high end of annual guide.

    Operating Expense Increase (Sequential)
    about $10 millionfrom Q4 to Q1
    Q1 FY25

    Expected, excluding impact from restructuring and asset abandonment charges.

    Incentive Compensation
    $507 million
    Full Year 2024

    Total incentive compensation for 2024.

    Incentive Compensation
    $133 million
    Q4 FY24

    Incentive compensation for Q4 2024.

    Incentive Compensation
    around $420 million to $440 million
    Full Year 2025

    Projected for 2025.

    M&A Revenue Contribution
    25
    Full Year 2024

    Revenue growth contribution from M&A for MA.

    Bank Loan Repricing as % of Volume
    55%highest in any quarter for a long time
    Q4 FY24

    Of bank loan volume in Q4 was repricings, which have much different economics for the company.

    Product announcements

    3
    ProductTypeDetails
    Research Assistantupdate
    Navigatorsupdate
    Platform for Corporates (KYC/Supplier Risk)launch

    Deals & partnerships

    5
    GCR (Global Credit Ratings)Increased ownership in GCR, the leading domestic credit rating agency in Africa.

    In mid-2024, Moody's invested further in GCR, taking ownership up to almost 100%.

    Moody's LocalExpanded Moody's Local into 6 more countries across Central America.

    Expansion in November into 6 more countries across Central America.

    NumeratedAcquisition to extend loan origination system for banks.

    One of three important acquisitions made within the last 6 months to enhance offerings in banking and insurance businesses.

    PraedicatAcquisition to add capabilities in casualty underwriting and analytics.

    One of three important acquisitions made within the last 6 months to enhance offerings in banking and insurance businesses.

    CAPE AnalyticsAcquisition to enrich insights on properties and integrate with cat risk models.

    Acquired in January, enriches insights on properties and integrates with cat risk models. AI-powered technology delivers address-level risk insights.

    Risks & headwinds

    3
    Transactional revenue decline in MAforeseeable future

    going down and provides a bit of a headwind

    Mitigation: Expects to narrow as customers migrate to platforms.

    Impact of U.S. election policy changes

    pretty small, less than 1% of consolidated revenue at MCO level

    Mitigation: Company will anchor on credit impacts and is putting out research; broader economic environment could be stronger, offsetting sector-specific impacts.

    Lower economics from bank loan repricingsQ4 FY24, also seen in January

    55% of bank loan volume in Q4 was repricings, highest in a long time

    Mitigation: Acknowledged as a factor affecting transactional revenue growth relative to issuance volume.

    What to watch in Q1 FY25

    5

    MIS Revenue Cadence

    Q1 FY25
    CurrentQ4 FY24 revenue up 18% YoY
    TargetQ1 FY25 revenue up mid-single-digit range, ramping up in Q2, then declining sequentially in Q3 and Q4

    Why it matters

    To verify the expected quarterly pattern of MIS revenue, which influences overall MCO EPS cadence.

    We expect MIS revenue in full year '25 to follow a similar quarterly pattern to '24, with first quarter revenue up in the mid-single-digit range from the first quarter '24, ramping up in the second quarter before declining sequentially in our third and fourth quarter.

    Q&A highlights

    6

    Clarification on whether medium-term MA numbers are organic and if less M&A was assumed than initially planned.

    Confirmed MA ARR growth of 9-10% is mostly organic, with lower M&A contribution than initially envisioned due to a different rate environment. The company is tracking ahead on overall MCO revenue and EPS metrics.

    “we're committed to deliver 9% to 10% ARR growth, as I said, over the medium term. And that's mostly organic. We may do a bit of tuck-in, but that's really what's driving the main change here.”

    asked by Manav Patnaik · answered by Noemie Heuland

    2 min read7 chapters

    Detailed Narrative

    01

    Strategic Investments and Market Positioning

    Moody's has made foundational investments in platform modernization, new products, and GenAI to capitalize on market demand. These efforts include enhancing data accessibility and risk posture, and strengthening its position as a leading rating agency, evidenced by being named Best Rating Agency for the 13th consecutive year by Extel. The company's analytical research and market engagement reinforce its leadership, enabling it to capitalize on robust issuance periods.

    02

    Addressing Capital Market Shifts

    The company is actively addressing significant shifts in capital markets, including the growth of private credit, transition finance, and digital infrastructure. In 2024, Moody's rated nearly 400 private credit-related transactions and issued over 150 second-party opinions and 20 net-zero assessments. These initiatives ensure Moody's remains the agency of choice in evolving market segments.

    03

    Moody's Analytics Product Enhancements and Acquisitions

    Moody's Analytics has invested in enhancing product platforms and go-to-market strategies, expanding data coverage and workflow solutions for traditional and corporate customers. Recent acquisitions like Numerated (loan origination), Praedicat (casualty underwriting), and CAPE Analytics (property insights, cat risk models) are strengthening its offerings. The Intelligent Risk Platform (IRP) saw nearly 20% customer growth in 2024, enabling insurers to model complex scenarios more efficiently.

    04

    Impact of Extreme Weather and Climate Risk

    Moody's highlights the increasing demand to understand the financial impact of extreme weather events and climate change, noting an inflection point where insurability of assets is a critical issue. The acquisition of CAPE Analytics, which provides AI-powered address-level risk insights, complements Moody's catastrophe models and positions the company as an authoritative voice in quantifying physical risk.

    05

    Efficiency Program and Organizational Simplification

    Moody's is implementing an efficiency program to simplify its organizational structure, particularly within Moody's Analytics, following the integration of recent acquisitions. This program aims to accelerate profitability expansion and redirect investments to strategic growth areas, with expected restructuring charges of $200 million to $250 million over two years, leading to annualized cost savings of $250 million to $300 million.

    06

    GenAI and Automation Driving Productivity

    The company is leveraging GenAI and process automation for internal efficiencies, leading to productivity gains in engineering and customer success. These investments are expected to generate increased operating leverage and contribute to MA margin expansion. Research Assistant, a GenAI offering, has already reached over 100 customers in Q4, contributing 25% of Research & Insights ARR growth.

    07

    Medium-Term Outlook and Earnings Power

    Moody's is updating its medium-term adjusted diluted EPS growth range from low double-digit to low to mid-teens percent, reflecting strengthened earnings power. This outperformance is attributed to strong execution in a robust issuance environment, significant MIS margin expansion, and consistent MA ARR growth of 9% to 10% over the past two years, driven by organic growth and strategic tuck-in acquisitions.

    AI-generated summary of the company’s earnings call. Not investment advice.