Q4 2024 Earnings Summary
- Moody's expects favorable market conditions to drive revenue growth in 2025, anticipating MIS revenue growth in the mid- to high single-digit percent range and an adjusted operating margin of 62% to 63%, which at the midpoint represents about 250 basis points of margin expansion year-over-year. This is underpinned by low single-digit MIS-rated issuance growth, supported by tight spreads, declining high-yield default rates, and an uptick in M&A activity.
- Moody's Analytics (MA) is experiencing strong demand, with new business production better across the board and pipeline going into 2025 very strong. Retention remained strong in 2024, slightly higher than in 2023, supporting expectations of MA revenue growth in the high single-digit range and ARR growth in the high single-digit to low double-digit range for 2025.
- Investments in automation and GenAI are improving operating efficiency, leading to margin expansion. MA adjusted operating margin is expected to be between 32% and 33% in 2025, which at the midpoint represents 180 basis points of margin expansion year-over-year. The company is starting to see benefits from the efficiency program, which will accelerate profitability expansion.
- Moody's guidance assumes a 50% increase in M&A activity for 2025 to drive revenue growth, which may be overly optimistic. If M&A increases by only 20% to 25%, it could reduce revenue growth by 2 to 3 percentage points, potentially leading to lower-than-expected earnings.
- The decline in transactional revenue in Moody's Analytics is creating a headwind for overall revenue growth. Despite expecting high single-digit ARR growth, the decrease in transactional revenue may continue in the near to medium term, affecting revenue acceleration.
- In Q4, 55% of bank loan volume was repricings, which generate lower fees compared to new issuances. This led to a situation where issuance growth was up 42%, but transaction revenue grew only 29%, indicating that higher issuance volumes may not proportionally boost revenues.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | 13% increase (from $1,480M to $1,672M) | Total revenue growth was driven by strong performance across multiple segments—particularly the dramatic improvement in Structured Finance (35% increase) and Financial Institutions (26% increase) which built on the previous period’s modest results, alongside steady growth in Moody’s Analytics. |
Moody's Analytics | Increase from $803M to $863M | Moody’s Analytics exhibited robust recurring revenue growth that stabilized its performance, reflecting organic demand in key sub-segments (e.g., Decision Solutions and compliance-related tools) and a smooth transition from last period’s revenue levels. |
Structured Finance | 35% increase (from $102M to $138M) | Structured Finance saw a dramatic jump driven by increased refinancing activity in U.S. CLOs and CMBS and tighter credit spreads, which built on the previous period’s lower issuance volumes. These favorable market conditions spurred a significant uplift in revenue. |
Financial Institutions | 26% increase (from $132M to $167M) | Financial Institutions revenue surged as opportunistic activity from infrequent issuers—especially in the banking and insurance sectors—intensified, building on a prior period that had seen gradual improvement in market conditions. |
U.S. Revenue | 15% increase (from $778M to $894M) | U.S. revenue growth reflects strong segment performance and a favorable market environment supporting robust credit ratings and issuance activities; this continued the positive momentum from the previous period. |
Operating Income | Increase from $498M to $561M | Operating income increased due to enhanced revenue growth combined with effective cost management and margin expansion, partly through improved expense control relative to the prior year’s results. |
Basic EPS | 17% increase (from $1.86 to $2.18) | Basic EPS benefited from a combination of higher revenue and improved operating income, translating into stronger profitability and reflecting both operational efficiency and a better revenue mix compared to the previous period. |
Interest Expense | Turned favorable from +$66M to –$52M | Interest expense improvements were realized through effective reductions in financing costs and net settlements on interest rate swaps, reversing the prior year’s positive expense to a negative figure, indicating significant improvements in debt management relative to the previous period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted Diluted EPS | FY 2025 | $11.90 to $12.10 | $14 to $14.50 | raised |
Revenue growth (Overall) | FY 2025 | High teens percentage range | High single‐digit range | lowered |
Adjusted Operating Margin (Overall) | FY 2025 | 47% to 48% | Around 50% with 200 basis points expansion | raised |
MIS Revenue growth | FY 2025 | High 20s percentage range | Mid‐ to high single‐digit range | lowered |
MIS Rated Issuance Growth | FY 2025 | no prior guidance | Low single‐digit range | no prior guidance |
MIS First-Time Mandates | FY 2025 | no prior guidance | 700 to 800 | no prior guidance |
MIS Adjusted Operating Margin | FY 2025 | 59% to 60% | 62% to 63% | raised |
MA Revenue growth | FY 2025 | Guidance maintained across all metrics | High single‐digit range | no change |
MA ARR Growth | FY 2025 | High single to low double digits | High single‐digit to low double‐digit range | no change |
MA Adjusted Operating Margin | FY 2025 | 30% to 31% | 32% to 33% | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted Diluted EPS | FY 2024 | $11.90 – $12.10 | $11.30 (Sum of Q1 2024: 3.16, Q2 2024: 3.03, Q3 2024: 2.94, Q4 2024: 2.17(GAAP Diluted EPS, used as proxy)) | Missed |
MCO Revenue Growth | FY 2024 | High teens percentage range | ~13% year-over-year in Q4 (from $1,48Million in Q4 2023 to $1,672Million in Q4 2024) | Missed |
MIS Revenue Growth | FY 2024 | High 20s percentage range | ~4% year-over-year in Q4 (from $778Million in Q4 2023 to $809Million in Q4 2024) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
MIS revenue growth | Q1 2024: 35% YoY growth. Q3 2024: 70% YoY. | Q4 2024: 18% YoY. | Recurring topic, continued YoY growth though lower rate. |
Issuance environment | Q1 2024: Robust environment, second highest quarter. Q3 2024: Second strongest year on record. | Q4 2024: Nearly $6.2 trillion issuance, up 42% vs. 2023. | Recurring topic, remains strong across periods. |
Moody's Analytics revenue growth | Q1 2024: 8% YoY. Q3 2024: 7% YoY. | Q4 2024: 8% YoY. | Recurring topic, stable YoY growth. |
MA pipeline | Q1 2024: Strong, no elongation of sales cycles. Q3 2024: Pipeline up 50% YoY. | Q4 2024: Pipeline remains very strong, GenAI offerings driving momentum. | Recurring topic, consistently positive outlook. |
M&A activity | Q1 2024: Seen as a wildcard but potential upside. Q3 2024: Subdued but rebound expected. | Q4 2024: Assuming 50% increase in M&A for 2025; positive contribution to revenue. | Recurring topic, sentiment improving for future growth. |
Automation and GenAI | Q1 2024: Major strategic focus, introduced GenAI framework. Q3 2024: Research Assistant, AI tools. | Q4 2024: Driving efficiency, integrated into multiple products. | Recurring topic, adoption and optimism increasing. |
KYC solutions | Q1 2024: 24% revenue growth. Q3 2024: ARR growth 14%, strong pipeline. | Q4 2024: 17% ARR growth, sustainable demand. | Recurring topic, continued strong performance. |
Private credit markets | Q1 2024: Potential tailwind, dedicated team. Q3 2024: 400 mandates, fast-growing revenue. | Q4 2024: 400 private credit mandates, increasing impact on growth. | Recurring topic, momentum building each quarter. |
Transactional revenue decline | Q1 2024: No decline mentioned, up 57%. Q3 2024: Some decline in certain MA areas. | Q4 2024: Impacted by repricings and customers staying on on-premise platforms. | Recurring topic in recent quarters, impacted by mix. |
Bank loan repricings | Q1 2024: No mention in Q1 2024. Q3 2024: Significant refi/reset activity. | Q4 2024: 55% of bank loan volume in Q4 were repricings. | Introduced in Q3, continuing focus in Q4. |
Margin expansion | Q1 2024: Strong expansions in MIS & MA. Q3 2024: Ongoing improvements. | Q4 2024: Further expansions anticipated into 2025. | Recurring topic, consistently positive outlook. |
Incentive compensation accruals | Q1 2024: $105M recorded in Q1, set cadence. Q3 2024: $150M in Q3, full-year $490M. | Q4 2024: $507M total for 2024, projected $420M-$440M for 2025. | Recurring topic, amounts adjusted with performance. |
Foreign exchange headwinds | Q1 2024: Cited as affecting MA guidance. | Q4 2024: Expected to offset some M&A tailwinds in 2025. | Recurring topic, briefly noted in Q4. |
Strategic investments and cost increases | Q1 2024: Investments in GenAI, platforming, balanced costs. Q3 2024: Spending on AI, KYC. | Q4 2024: Ongoing data, GenAI, private credit investments; offset by efficiency gains. | Recurring topic, consistent focus on growth vs. costs. |
Uncertainties in issuance (geopolitical tensions, inflation, elections) | Q1 2024: Maintaining cautious outlook. Q3 2024: Data-dependent, wars, elections. | Q4 2024: Remain a risk but no major slowdown observed. | Recurring topic, persistent yet manageable. |
Research & Insights ARR growth | Q1 2024: Expect acceleration, mid-high single digits. Q3 2024: 6% growth, slowed by larger deals. | Q4 2024: 6% growth, 25% from Research Assistant upsell. | Recurring topic, stable growth with GenAI boost. |
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MIS Revenue Growth Outlook
Q: What drives the higher medium-term MIS revenue growth outlook?
A: The company increased its medium-term outlook for MIS revenue growth to high single to low double-digit growth. This uptick is driven by expected increases in M&A activity, which the company assumes will rise by about 50% in 2025, favorably impacting revenue mix. Additionally, the growth of private credit is a significant tailwind, with nearly 400 private credit mandates across Ratings contributing to revenue growth. -
MA Margins and Efficiency Plan
Q: Are you pulling back on investment in MA, and how is AI impacting costs?
A: The company is not pulling back on investment but is redeploying capital internally and investing in areas with higher demand. They have integrated acquired entities and are simplifying their organization, leading to efficiency gains. Investments in Generative AI have delivered significant efficiency gains in engineering and customer success, contributing to higher margins. -
Ratings Outlook for 2025
Q: What are the key drivers and risks for the Ratings outlook in 2025?
A: The company expects economic growth to support broader market activity, with tight spreads and strong investor demand. Key drivers include refinancing and a projected 50% increase in M&A activity for 2025. They have not assumed any risk-off periods, and the guidance spans mid- to high single-digit revenue growth on low single-digit issuance growth. -
Private Credit Contribution
Q: How is private credit impacting Ratings revenue, and what's the growth outlook?
A: The company has nearly 400 private credit mandates across Ratings, including ratings on BDCs, sublines, closed-end funds, and middle-market CLOs, which have grown significantly over the past year. In 2024, 30% of first-time mandates in FIG were private credit related. Private credit is a growing area and a significant tailwind for future growth. -
KYC Growth and Sustainability
Q: What's driving the re-acceleration of growth in KYC, and is it sustainable?
A: The company has made investments in data, models, and software for KYC and third-party risk management, leading to high-teens ARR growth. They continue to release new features and products, and recent large expansions with major banks validate the value of their Orbis dataset. They view this growth as sustainable. -
Medium-Term Growth Guidance
Q: Does the medium-term guidance imply lower growth in 2026-2027?
A: The company emphasized that they are not downgrading their growth assumptions for Ratings. The updated guidance reflects performance already achieved and confidence in the medium-term drivers of issuance. -
MA Revenue vs. ARR Growth
Q: Why is MA revenue growth lagging ARR growth, and when might revenue accelerate?
A: The difference is due to declining transactional revenue, which provides a headwind. As customers migrate from on-premise platforms to the new platform, this gap is expected to narrow, and recurring revenue should align more closely with ARR growth. -
Sales Cycles and Demand in MA
Q: How are sales cycles and demand in MA, especially for GenAI products?
A: Sales cycles have remained consistent over the past 18 to 24 months. The company is encouraged by a strong pipeline, with new business production growing faster than ARR. Products like Research Assistant are gaining traction, boosting confidence in the outlook. -
Value-Based Pricing in MA
Q: Can you pass on value-based pricing across products in MA?
A: The company maintains a value-based pricing philosophy, with stable pricing contributions. Price and upgrade contributions accounted for approximately 7% in 2024, and this trend is expected to continue. -
Incentive Compensation Expenses
Q: How have incentive compensation expenses changed?
A: Incentive compensation totaled $507 million in 2024, with $133 million in Q4. For 2025, they project incentive compensation to be around $420 million to $440 million, providing a tailwind to margins.
Research analysts covering MOODYS CORP /DE/.