Q3 2024 Earnings Summary
- Moody's is expected to benefit from the significant growth in private credit markets, which are projected to reach up to $3 trillion by 2028. Moody's is well-positioned to provide independent third-party credit assessments for this expanding sector.
- Favorable issuance conditions are anticipated for 2025, driven by tight spreads, expectations of lower interest rates, and large refunding walls of nearly $5 trillion over the next 4 years, particularly in speculative-grade debt which is up 19%. These factors should support future growth in Moody's ratings business.
- Moody's Analytics has a strong new business pipeline, especially in areas like KYC where they've launched new products and are leveraging AI for screening agents. This positions MA for future growth, with maintained expectations of high single-digit revenue growth and ARR in the high single to low double digits.
- Moody's adjusted diluted EPS guidance for Q4 implies growth will be relatively flat to slightly down compared to the prior year, and down approximately 30% sequentially from Q3, indicating a potential slowdown in earnings momentum.
- MIS revenue and margins are expected to be lower in Q4 due to anticipated lower revenues, which could negatively impact overall profitability.
- The company recorded an increase in incentive compensation accruals by 54% in Q3 2024 compared to the prior year, with total incentive compensation expected to be approximately $490 million for the full year, potentially pressuring margins.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +23% | Primarily driven by robust issuance volumes within Moody’s Investors Service and steady recurring revenue in Moody’s Analytics. Market tailwinds (e.g., higher refinancing) and strong demand for analytical solutions boosted revenue across both segments. |
Moody’s Analytics (MA) | +7% | Continued appetite for data, analytics, and SaaS-based solutions supported growth, following several quarters of high retention and cross-selling. The company’s focus on product innovation (e.g., integrating AI-driven tools) further expanded customer adoption, building on prior-year momentum. |
Moody’s Investors Service | +32% | Elevated transactional revenue (up 56% in some prior quarters) carried forward, reflecting strong demand for new issuances and refinancing. Compared to last year, corporations took advantage of tighter spreads and improved debt markets, driving higher issuance volume in both investment-grade and speculative-grade segments. |
Corporate Finance | +49% | Benefited from surging leveraged loan and high-yield bond issuance, as well as sizable M&A-driven transactions in investment grade. This builds on the prior-year recovery in high-yield markets, which set a foundation for further growth in refinancing and opportunistic funding. |
United States Revenue | +30% | Issuances from corporate and infrastructure issuers remained strong, surpassing already elevated volumes in earlier quarters. High domestic investor demand and favorable spreads provided a supportive environment for rated debt, building on Q2 2023’s uptick in refinancing activity. |
Non-U.S. Revenue | +16% | Helped by cross-border deals, especially in EMEA, where tighter credit spreads and M&A-driven issuance also contributed. This follows the prior-year international expansion, with heightened uptake of Moody’s Analytics solutions and stronger global capital markets issuance. |
Net Income | +1,269% | The stark jump over last year was partly due to one-time expenses and lower prior-period income levels. Strong top-line expansion, coupled with improved operating leverage and disciplined cost controls, yielded significant net income gains relative to Q2 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
MIS Revenue Growth | FY 2024 | High-teens | High 20s | raised |
MIS Adjusted Operating Margin | FY 2024 | 58% to 59% | 59% to 60% | raised |
MA Revenue Growth | FY 2024 | High single-digit | High single-digit | no change |
MA Adjusted Operating Margin | FY 2024 | 30% to 31% | 30% to 31% | no change |
MA ARR Growth | FY 2024 | High single-digit to low double-digit | High single-digit to low double-digit | no change |
Moody's Corp Revenue Growth | FY 2024 | Low-teens | High-teens | raised |
Expenses | FY 2024 | High single-digit | 10% | raised |
Adjusted Operating Margin (Total) | FY 2024 | 46% to 47% | 47% to 48% | raised |
Free Cash Flow | FY 2024 | $2.0B to $2.2B | $2.3B | raised |
Adjusted Diluted EPS | FY 2024 | $11.00 to $11.40 | $11.90 to $12.10 | raised |
Global Issuance Growth | FY 2024 | no prior guidance | mid-30s percentage range with implied mid-single-digit decline in Q4 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
MIS Revenue Growth | Q3 2024 | High-teens percentage range | 32% year-over-year (982Vs. 743) | Surpassed |
MA Revenue Growth | Q3 2024 | High single-digit percentage range | 6.7% year-over-year (831Vs. 779) | Missed |
Moody’s Corp. Revenue Growth | Q3 2024 | Low-teens percentage range | 23.1% year-over-year (1,813Vs. 1,472) | Surpassed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent emphasis on Moody’s Ratings issuance volumes and transaction revenue | Emphasized strong issuance and transactional revenue in prior calls. • Q2 2024: 56% MIS transactional revenue growth, outpacing 47% issuance. • Q1 2024: 57% transactional revenue growth, pull-forward activity noted. • Q4 2023: Front-end-loaded issuance outlook for 2024. | Q3 2024: Record quarter with 70% transactional revenue growth, surpassing 51% issuance growth. Strong investment-grade deals (+137% revenue vs. +84% issuance). Bullish tone on issuance, with expected mid-single-digit decline in Q4, improved from mid-teens decline. | Consistent recurring focus; remains a key driver for overall performance and guidance. |
Recurring focus on Moody’s Analytics ARR and subscription-based growth | Maintained double-digit or high single-digit ARR growth in earlier quarters. • Q2 2024: 10% ARR growth, strong retention (94%). • Q1 2024: 10% ARR growth, transition from one-time to subscription revenue. • Q4 2023: 10% ARR growth for 2023, mid-90s retention, aiming for low double-digit growth in 2024. | Q3 2024: 9% ARR growth (down from 10%), with 95% recurring revenue. Deceleration attributed to tighter bank/asset-manager budgets. High retention (93%). | Still robust, though slightly slower growth. Continues to be a core strategic priority. |
Evolving sentiment around GenAI products, from initial optimism to slower-than-expected adoption | Previously optimistic about rapid GenAI uptake. • Q2 2024: Strong momentum, no mention of slowdown. • Q1 2024: Primarily optimistic outlook, recognized potential caution in highly regulated FIs. • Q4 2023: Enthusiastic reception; no references to slower adoption. | Q3 2024: Slower adoption among large FIs due to GenAI governance frameworks; smaller firms adopt quickly. Pipeline remains strong, with product satisfaction high. | Shift from early optimism to acknowledging slower uptake among large institutions. Still seen as a transformative technology. |
Deceleration in MA ARR growth after previously strong performance | Strong or improving ARR in prior calls. • Q2 2024: Maintained 10% growth but flagged headwinds in banking and asset management. • Q1 2024: Slight moderation in Research & Insights due to mature markets and retention pressures. • Q4 2023: Continued 10% ARR growth, no explicit mention of deceleration. | Q3 2024: MA ARR at 9% (down from 10%), due to attrition events, tight purchasing, some federal contracts renewing at lower values. | Mild slowdown driven by sector-specific budget constraints and contract renewals. |
Emergence of private credit market focus as a new growth driver | Growing interest in private credit noted in prior calls. • Q2 2024: Strategic collaboration with MSCI, focusing on private credit later in 2024. • Q1 2024: Dedicated private credit team and offerings (credit estimates for BDCs). • Q4 2023: Expanded coverage in CreditView and aligned teams for private credit deals. | Q3 2024: Rapidly expanding private credit (>$3T by 2028) viewed as major opportunity for Ratings and Analytics. Partnerships with Apollo/Blackstone. | New growth vector, with broadening demand for data and independent ratings in private credit. |
Large impact potential from refinancing walls and M&A recovery on future Ratings revenue | Recognized as future tailwinds in earlier calls. • Q2 2024: Indirect references through strong transactional revenue from refinancing and some M&A. • Q1 2024: Pull-forward of refinancings, potential M&A upside if sponsor-backed deals increase. • Q4 2023: Projected benefit from 10% rise in refinancing walls and a modest M&A pick-up. | Q3 2024: Emphasis on sizable $5T refinancing walls over next four years, rising speculative-grade maturities, and modest M&A rebound. | Positive, growing contributor to issuance volume and Ratings revenue. |
Increased strategic investments in GenAI suppressing near-term margin expansion | Mixed or no direct mention of margin suppression. • Q2 2024 & Q1 2024: No specific link between GenAI spend and margin hit. • Q4 2023: $60M extra spend in 2024 for GenAI. Expect MIS margin +200 bps, MA margins flat vs. 2023. | Q3 2024: Not explicitly stated that GenAI spend is delaying margins, though continuing GenAI investments remain a focus. | Not openly cited in Q3 as a margin drag; still a strategic investment priority. |
Shift in issuance outlook from uncertainty to more favorable conditions in later periods | Movement toward a constructive issuance landscape. • Q2 2024: Raised 2024 issuance growth outlook to 20-25%; second-half slowdown. • Q1 2024: Emphasis on pull-forward in H1, cautious on H2. • Q4 2023: Outlook hinged on rate cuts in mid-2024, lower execution risk in primary markets. | Q3 2024: CEO highlighted a more positive issuance outlook for 2025, citing retreating default rates, tighter spreads, and large maturity walls. | Gradual transition from uncertainty to optimism for issuance volumes, especially heading into 2025. |
Discontinued references to currency headwinds and RMS integration after early mentions | Both topics were mentioned in earlier calls, then not revisited. • Q1 2024: Currency discussed mostly for updated MA outlook; RMS synergy noted with ARR growth at low double digits. • Q4 2023: No new details on currency headwinds or RMS integration complexities. [No references found] | Q3 2024: No mention of currency or RMS integration challenges. [No references found] | Topics no longer prominent, suggesting issues resolved or deprioritized. |
Heightened caution about macroeconomic assumptions influencing revenue guidance | Cautious macro stance formed part of prior guidance commentary. • Q2 2024: Widened ARR range due to uncertain macro, tight purchasing patterns. • Q1 2024: Cited inflation, geopolitical tensions, election uncertainties. • Q4 2023: Depended on soft-landing scenario and rate cuts in mid-2024. | Q3 2024: No explicit remarks about macro assumptions altering revenue guidance. [No references found] | Less prominent in Q3, though prior quarters showed caution. |
Flat or declining EPS growth in Q3 2024 signaling potential earnings slowdown | Not identified as a concern in prior quarters. • Q2 2024: EPS guidance was raised. • Q1 2024: Strong Q1 EPS, no indication of Q3 slowdown. • Q4 2023: Projected 24% EPS growth for 2024 at midpoint. | Q3 2024: Management noted Q4 2024 EPS could be flat or slightly down YoY, mostly from seasonality and lower issuance. | New caution on near-term growth, largely seasonal rather than structural. |
Significance of product innovation (e.g., Research Assistant) for future growth | Maintained as a critical growth lever. • Q2 2024: One of the fastest-growing launches, fueling ARR acceleration. • Q1 2024: Expected to boost ARR in Research & Insights, high customer engagement. • Q4 2023: Validated by rapid early sales and broad enthusiasm for GenAI tools. | Q3 2024: Research Assistant drives pipeline growth, strong satisfaction. Slower adoption among large banks but robust among smaller players. | Ongoing priority as a differentiator, with some adoption challenges but strong potential. |
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Issuance Outlook for 2025
Q: Can issuance tailwinds offset tougher comps and pull-forward in 2025?
A: Moody's expects issuance tailwinds to outweigh headwinds in 2025, citing declining speculative-grade default rates, tight spreads near all-time lows, and anticipated lower interest rates creating a favorable environment for new issuance and refinancing. Significant "refunding walls" of nearly $5 trillion over the next four years, growth in speculative-grade maturities, and a modest pickup in M&A activity also support a positive outlook. However, macroeconomic factors, the upcoming election, and geopolitical events pose potential risks. -
Pull-Forward Impact on Future Issuance
Q: Has pull-forward lowered expectations for 2025 issuance growth?
A: Despite heavier pull-forward in speculative-grade issuance this year, overall pull-forward is in line with historical averages, and forward maturities one year out are 15% higher than last year. Moody's believes this represents a tailwind for near-term issuance rather than a headwind for 2025 growth. -
Private Credit Growth Opportunities
Q: How is Moody's capitalizing on private credit market growth?
A: Moody's sees significant opportunities in the expanding private credit market. Major players like Apollo and Blackstone consider credit rating agencies essential for independent assessments. Moody's is experiencing rapid growth in rating BDCs and fund finance instruments, contributing to their Financial Institutions Group (FIG) revenue. They are also seeing increased demand for ratings in asset-backed finance and project finance, as investors seek third-party risk assessments. Partnerships, such as with MSCI, aim to further leverage these opportunities ,. -
AI Product Adoption and Impact
Q: What is the progress and adoption rate of Moody's AI products?
A: Moody's has launched several AI-enabled products, including Research Assistant, Navigators, an AI Early Warning System focused on commercial real estate, and automated solutions for banking workflows. Adoption is strong among smaller firms, but larger institutions face longer sales cycles due to regulatory and risk compliance frameworks. While this delays adoption, customer interest remains high, and Moody's expects uptake to increase over time ,. -
Margin Expansion in Moody's Analytics
Q: What are the expectations for MA margin expansion in Q4 and beyond?
A: Moody's expects the adjusted operating margin in Moody's Analytics (MA) to increase in the fourth quarter, slightly exceeding the guided range due to seasonal revenue strength. For the full year, they are maintaining a margin target of 30% to 31%. Having completed most investments in areas like GenAI capabilities and platform development, the focus will shift to expanding margins by migrating customers from legacy platforms and disciplined management of discretionary spending, reaffirming commitment to medium-term margin targets. -
ARR Growth in Research & Insights
Q: Why didn't Research & Insights ARR growth accelerate as expected?
A: Research & Insights ARR grew 6% in Q3, lower than the prior 9% due to pressures in the banking sector and longer sales cycles for GenAI products among large financial institutions. While adoption is slower than anticipated, customer satisfaction remains high with new AI-enabled products, and a strong pipeline is expected to drive modest acceleration, though likely at the lower end of high single-digit growth. -
Debt Velocity Below Historical Averages
Q: Where does debt velocity stand, and what does it imply for future issuance?
A: Debt velocity remains below historical averages—approximately 12% compared to the typical 14%—due to the total stock of debt growing faster than issuance volume. This suggests room for increased issuance in the future, acting as a potential tailwind for Moody's business. -
Favorable Revenue Mix in Ratings
Q: What drove stronger transaction revenue relative to issuance growth?
A: A favorable revenue mix resulted from opportunistic issuance by infrequent investment-grade issuers, strong growth in leveraged finance—which is typically revenue mix friendly—and an uptick in first-time mandates that carry higher fees. Consistent pricing initiatives also contributed to stronger revenue relative to issuance volume. -
Impact of AI Adoption Delays
Q: Is AI product adoption pacing differently than expected?
A: Yes, adoption among larger financial institutions is slower due to their need to establish regulatory-compliant risk and control frameworks before deploying AI-enabled solutions. While this extends sales cycles, Moody's remains encouraged by elevated customer engagement and anticipates adoption will grow over time. -
Moody's Analytics Medium-Term Targets
Q: Any updates on MA's medium-term targets amid deceleration?
A: Moody's plans to update medium-term targets in the next earnings call. Growth strategies focus on expanding customer relationships in financial services through cross-selling and upselling, and targeting corporates with their extensive company databases for new use cases like trade credit and supplier risk. These initiatives aim to drive growth and achieve medium-term objectives despite current deceleration.
Research analysts covering MOODYS CORP /DE/.