Earnings call transcript: Moody’s Q2 2025 beats forecasts, stock dips

Moody’s Corporation reported its second-quarter 2025 results, surpassing Wall Street expectations with an adjusted EPS of $3.56, beating the forecast of $3.38. Revenue also exceeded predictions, coming in at $1.9 billion compared to the anticipated $1.85 billion. According to InvestingPro data, the company maintains a perfect Piotroski Score of 9, indicating exceptional financial strength. Despite these positive results, Moody’s stock fell 2.01% in premarket trading, reflecting investor concerns over broader market conditions and potential headwinds in the financial sector. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value.

Key Takeaways

• Moody’s surpassed EPS and revenue forecasts for Q2 2025.
• The company’s stock declined by 2.01% in premarket trading.
• Moody’s Analytics saw robust growth, with an 11% increase in revenue.
• Efficiency programs delivered over $100 million in annual savings.
• Private credit market revenues grew by 75%.

Company Performance

Moody’s Corporation demonstrated strong performance in Q2 2025, with a 4% year-over-year increase in revenue. The company’s adjusted operating margin improved by 130 basis points to 50.9%. Moody’s Analytics was a significant growth driver, with an 11% increase in revenue, while Moody’s Investors Service experienced flat revenue compared to the previous year. The company’s strategic focus on AI and data analytics continues to strengthen its competitive position.

Financial Highlights

• Revenue: $1.9 billion, up 4% year-over-year
• Earnings per share: $3.56, up 9% from the previous year
• Adjusted operating margin: 50.9%, up 130 basis points
• Moody’s Analytics revenue growth: 11%

Earnings vs. Forecast

Moody’s reported an EPS of $3.56, exceeding the forecast of $3.38 by 5.33%. Revenue also surpassed expectations, with actual figures of $1.9 billion against a forecast of $1.85 billion, marking a 2.7% surprise. This performance reflects the company’s ability to leverage its analytics and AI capabilities effectively.

Market Reaction

Despite strong earnings, Moody’s stock fell 2.01% in premarket trading, closing at $489.09. The stock’s decline may be attributed to broader market uncertainties and investor caution regarding macroeconomic factors such as interest rates and inflation. The stock remains below its 52-week high of $531.93, indicating potential volatility in the financial sector.

Outlook & Guidance

Moody’s remains optimistic about future growth, projecting low to mid-single-digit revenue growth for Moody’s Investors Service and high single-digit growth for Moody’s Analytics. The company anticipates a full-year adjusted operating margin of 61-62% for MIS and 32-33% for MA. Adjusted diluted EPS is expected to grow by 10% at the midpoint.

Executive Commentary

CEO Rob Fauber highlighted the company’s strategic positioning, stating, "We’re positioning Moody’s to lead in an increasingly data-driven, AI-enabled world." He also emphasized the importance of private credit, noting, "Private credit’s become much broader than just direct lending."

Risks and Challenges

• Macroeconomic pressures such as inflation and interest rate volatility could impact revenue.
• Potential headwinds in the banking and insurance segments may affect growth.
• Market saturation in traditional credit rating services could limit expansion.
• Regulatory changes in the financial sector could pose compliance challenges.

Q&A

Analysts focused on the growth of the private credit market and Moody’s role in it. Questions also addressed the company’s GenAI adoption strategy and potential challenges in the banking and insurance sectors. Executives reassured investors of Moody’s strategic investments and partnerships to drive future growth.

Full transcript - Moody’s Corporation (MCO) Q2 2025:

Conference Operator: Day, everyone, and welcome to the Moody’s Corporation Second Quarter twenty twenty five Earnings Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of the company, we will open the conference up for questions and answers following the presentation. I will now turn the call over to Head of Investor Relations. Please go ahead.

Investor Relations Representative, Moody’s Corporation: Thank you. Good morning and thank you

Shivani Kark, Head of Investor Relations, Moody’s Corporation: for joining us today. I’m Shivani Kark,

Investor Relations Representative, Moody’s Corporation: Head of Investor Relations. This morning, Moody’s released its results for the 2025 and updated guidance for select metrics for full year 2025. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com. During this call, we will also be presenting non GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for reconciliations between all adjusted measures referenced during this call in U.

S. GAAP. I call your attention to the Safe Harbor language, which can be found towards the end of our earnings release. Today’s remarks may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the Act, I also direct your attention to the Management’s Discussion and Analysis section and the risk factors discussed in our annual report on Form 10 ks for the year ended 12/31/2024, and in other SEC filings made by the company, which are available on our website and on the SEC’s website.

These, together with the Safe Harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward looking statements. I would also like to point out that members of the media may be on the call this morning in a listen only mode. Rob?

Rob, Executive (likely CEO), Moody’s Corporation: Thanks, Shivani, and thanks everybody for joining today’s call. I’m going to kick off with some high level takeaways on the operating environment and Moody’s second quarter performance. Then I’m going to share some progress updates on our strategic investments and opportunities. And later in the call, Noemi is going provide some details on the second quarter performance and outlook for the second half of the year. And after we finish our prepared remarks, Noemi and I will be glad to take your questions.

So, on to the results. This past quarter, Moody’s provided the insights and expertise that helped markets to make sense of a complex and rapidly changing global landscape. Second quarter Moody’s revenue of $1,900,000,000 grew 4% year over year. That’s an impressive accomplishment given the April issuance air pocket and a tough comparable to the second quarter of last year when revenue grew 22%. Now we remain focused on disciplined expense management, delivering an adjusted operating margin of 50.9%.

That’s up 130 basis points from a year ago. And together, this translated to adjusted diluted EPS of $3.56 that’s up 9%. That’s actually 60% growth from the same quarter just three years ago. So it illustrates just how much the earnings power of our business continues to grow. On the back of our second quarter performance, we’ve narrowed our guidance ranges for rated issuance, MIS revenue and EPS.

Now, starting with MIS, we continue to invest in strengthening our position as the agency of choice for issuers and investors, and that pays dividends in times of uncertainty when markets turn to us for our insights and the quality of our analysts. Our ratings franchise delivered $1,000,000,000 in revenue this quarter, that’s just shy of a second quarter record. And it also marked our second consecutive quarter above the $1,000,000,000 revenue mark. And while April started off slowly with several days of no issuance, conditions improved meaningfully as we moved into May and June, and markets stabilized, spreads narrowed back to pre April levels, and issuance picked up significantly, and that helped to offset the early softness. Both total revenue and transactional revenue growth were stronger than issuance growth, and this outperformance was partially helped by a favorable issuance mix, and to a lesser degree, the growth in products and services not tied to issuance, such as certain private credit ratings.

Now looking ahead to the second half of the year, we’re cautiously optimistic. The four key credit themes that we identified at the start of the year remain relevant, and they could influence the balance of 2025 and beyond. And these include US policy on trade, tax and immigration, geopolitical tensions in The Middle East, the fiscal economic and security impact of European defense spending, and potential shocks triggering a pullback in risk appetite. Now, one of the deep currents driving demand in Moody’s ratings that we’ve discussed a good deal on recent calls is the continued growth and evolution of the private credit markets. And we’ve invested and engaged to become an important voice in this space, fulfilling a critical need for more transparency and insights.

In the second quarter, we published a private credit webinar on the Moody’s IR website, and it discusses the trends we’re seeing in private credit and how Moody’s is serving the market. We also hosted marquee credit conferences in both New York and London that drew nearly a thousand people from across the entire private credit ecosystem. And these events demonstrate the tremendous convening power of the Moody’s brand and also underscore how much interest there is in having us play an important role as the leading opinion provider on credit in this market. Now continuing the trend from the first quarter, private credit is an important driver of growth in ratings. In fact, in the second quarter, private credit related transactions accounted for nearly 25% of first time mandates, and the number of private credit related deals increased by 50% year over year.

Revenue related to private credit grew 75% in the second quarter across multiple lines of business and MIS, albeit off of a relatively low base, and it was a contributor to how we delivered flat revenue growth amidst an issuance environment that was down 12%. A private credit investment plays an increasingly important funding role in key sectors such as AI data center investment, transition finance, energy infrastructure. And we are well positioned to address these growth opportunities. In fact, among others, we just rated a 1,500,000,000.0 British pounds deal this quarter for a European utility company, that was the largest ever private credit related deal in The UK. And as private credit grows, so too does the use of ratings in this space, as the biggest players in this market realize that a credible independent assessment of credit risk, be it a rating or a model derived score, from a trusted firm like Moody’s provides additional transparency and comparability that broadens the investor base and provides a solid foundation as this market continues to scale.

And in addition to how we’re addressing this need in ratings, this was also an important driver of our MA partnership with MSCI that we announced back in April. And this presents great opportunities for us to leverage the world’s best commercial credit franchise with data, models, ratings and workflow to serve the emerging needs of a whole new group of investors and asset managers who now need enhanced credit underwriting and monitoring capabilities as they invest in this space. Drilling down into Moody’s analytics, our performance this quarter underscores the strategic role that MA plays in driving Moody’s growth and earnings quality. And we delivered another strong quarter with 11% revenue growth and 12% growth in recurring revenue. ARR grew 8%, led by a 10% increase in Decision Solutions.

And recurring revenue held steady at 96% of MA’s total, reinforcing the strength and predictability of our business model. And while we continue to deliver steady growth, I think what really stood out this quarter was margin expansion. MA delivered an adjusted operating margin of 32.1%, and that’s a three sixty basis point improvement year over year, And that puts us solidly on track to deliver our full year margin guidance of 32% to 33%. Now our best in class solutions continue to earn industry recognition. And recently, Moody’s was ranked number one in the chartest quantitative analytics 50 rankings for the third year in a row, winning 13 individual categories.

And these third party awards, they’re important because they’re an external validation of our ability to deliver innovative and industry leading solutions that meet the evolving needs of our customers. And this recognition is also echoed in a strong engagement at our annual banking and insurance customer conferences. At our banking conference, we showcased our integrated suite of products, including the advancements in building a fully end to end loan origination solution, incorporating key elements from our Numerated acquisition. And this was a great validation of the addition of Numerated’s front end capabilities, as well as the AI enablement across our platform. Our newly launched lending origination package that features numerated was adopted by several renewing customers as of early July, with an average contract value increase of nearly 15%.

And notably, one of the largest Japanese banks cited the enhanced value proposition of the integrated offering as a key reason for their upgrade. And we’re optimistic this adoption trend will accelerate as we enter a heavy renewal cycle in the second half of the year. Our insurance conference drew record attendance and showcased new model releases, enhanced underwriting capabilities, and integrations with Cape Analytics, which we acquired back in January. Feedback from customers was overwhelmingly positive, especially around the fit and value of Cape’s AI enabled geospatial intelligence, data and risk analytics in strengthening our catastrophe models. And we’re really encouraged by the early traction here.

CAPE’s ARR is more than 10% higher than when we closed the acquisition, and we expect that growth to accelerate further through year end, making it a meaningful contributor to our broader insurance portfolio. Beyond our insurance solutions line of business, we’re seeing strong cross sell into our insurance customer base. Several insurance customers adopted our MaxSite Unified Risk and KYC platform, that includes a large multinational insurer in APAC, that selected Moody’s to consolidate multiple screening systems into a single streamlined solution. And that not only simplifies their operations, but it also validates our synergy thesis from the RMS acquisition. And while we delivered a strong quarter from both a growth and margin standpoint, we’re not standing still.

We continue to innovate, invest and partner to capitalize on the deep currents driving demand for our solutions. And you’ve heard me talk about how we’re investing in the evolution of the markets. This quarter that included our partnership with MSCI to provide third party credit scores on thousands of private credit companies and loans that we discussed on the last call. And this past quarter we also made another investment in our domestic ratings franchise in Latin America, building on the really great momentum that we have across the region. We completed our acquisition of ICR Chile, which is a leading provider of domestic credit ratings in Chile, which in turn is the third largest domestic bond market in Latin America.

And we’re going to integrate this business into Moody’s Local. Activity in these markets remains very healthy with Moody’s Local new mandates year to date up more than 30% year over year, and that reinforces the importance of continuing to invest in our leading presence across the region and thought leadership in the debt markets of tomorrow. And we also announced several exciting partnerships with major technology and data players. We’re really excited about our data integration with SAP’s new Business Data Cloud. The first dashboard product is set to launch in Q4 with more to come.

That opens up a new distribution channel for our data to thousands of SAP customers. During the quarter, our new onboarding agent leveraging our massive company database that we call Orbis was featured during the keynote at Coupa’s annual Inspire Conference, which drew over 3,000 attendees. And our risk data suite is now available on the Databricks marketplace, that’s another important step in our growing partnership with Databricks, and significantly enhances the customer access and integration to our content, and offers new monetization opportunities. Now we know there’s growing interest in understanding the contribution of GenAI to our business. And while sales of our standalone GenAI solutions are not material yet, we wanted to provide a few meaningful indicators to demonstrate the progress and value that GenAI is already delivering.

First, at a high level, is the deployment of GenAI across our portfolio. So over the past year, we’ve accelerated the rollout of our GenAI capabilities. And by the end of the second quarter, approximately 40% of our products measured by ARR now include some form of GenAI enablement, whether offered as a standalone solution, as an upgrade, or embedded within the core product. A second way to look at progress is by looking at the growth of our total relationships with customers who have purchased or upgraded to standalone GenAI offerings from us. Their total spend across Moody’s Analytics measured by ARR is approaching 200,000,000.

And that is growing at about twice the rate of MA overall. So this cohort of Gen AI adopters shows stronger and deeper engagement, and that reinforces the broader impact of our Gen AI investments and innovation strategy. Now finally, I wanna share our milestone and our partnership with Microsoft. And we’re excited to share that Microsoft will use Moody’s as their primary operational data provider for customer hierarchy and organization data management. Moody’s data is helping power decision making across Microsoft’s operations and plays a significant role in facilitating Microsoft’s view of their customers.

And this partnership integrates Moody’s proprietary datasets into Microsoft’s supply chain, compliance, credit, and know your customer business functions. And the benefits from this partnership include enhanced risk management, AI innovation, and cost efficiencies. And we believe this collaboration underscores importance of data driven decision making and AI innovation in today’s rapidly evolving business landscape. So, some good execution this quarter, even with the choppy environment in April, and we’re confident in our strategy, building, buying, partnering to capitalize on the powerful growth drivers shaping our markets. From expanding our Gen AI capabilities to deepening our presence in high growth regions and forging strategic partnerships, we’re positioning Moody’s to lead in an increasingly data driven AI enabled world and to deliver long term sustainable value for our stakeholders.

With that, Noemi, over to you.

Shivani Kark, Head of Investor Relations, Moody’s Corporation: Thank you, Rob, and hello everyone. Thank you for joining us today. Indeed, delivered strong results in the second quarter, and I’ll walk you through the details and provide some additional color. Starting with MIS, revenue was flat versus the prior year or declining by 1% when adjusted for positive FX movement effects, surfacing $1,000,000,000 for the second consecutive quarter. The trends of transaction revenue against issuance growth implies a favorable issuance mix this quarter from Corporate Finance, Structured Finance and PPIF, and the contribution of Private Credit.

Recurring revenue increased by 7% year on year from pricing initiatives and portfolio growth. Now looking at our performance across asset classes, Corporate Finance transaction revenue declined 6% year on year, as bank loans issuance slowed and M and A activity remained subdued. Notably, there was a significant decline in repricing activity, which contributed positively to the revenue mix. Investment grade transaction revenue grew 18% on issuance growth of 16%, as issuers took advantage of tight spreads, reflecting elevated demand for high quality paper. As you probably have seen in the press, this was particularly pronounced in the TMT sector.

High yield transaction revenue was broadly in line with last year, with notably strong performance in EMEA. In Financial Institutions, transaction revenue declined 6% year on year, driven by lower infrequent issuer activity, primarily in the insurance sector. Structured finance issuance declined by 25% in the second quarter, as market volatility and wider spreads curtailed activity in April. Transaction revenue declined only 3%, helped by favorable mix, particularly from a slowdown in CLO refinancing and from higher average fees in other asset classes. Finally, public project and infrastructure finance grew 3% in transaction revenue, driven primarily by U.

S. Public finance. Issuance was largely opportunistic to get ahead of any impending policy changes and market volatility. It’s also worth noting that in the second quarter, our U. S.

Public finance group rated the highest quarterly issuance volume since 02/2007. First time mandates were nearly 200 in the second quarter, which is very encouraging and keeps us on pace for our expectation of 700 to 800 for the full year, in support of ongoing funding needs and the growth in private credit. In EMEA, first time mandates were up year over year driven by mandates in PPIF, which was supported by the increase in private credit. As private credit becomes a more prominent part of the market, it’s important to note that some issuance activity is not captured in rated issuance figures reported by external data providers. Moving to margin, MIS delivered 64.2% adjusted operating margin, expanding 100 basis points from last year.

As a reminder, for modeling purposes, I’d like to say that the second quarter twenty twenty four included a one time legal reserve related to a regulatory matter impacting the underlying margin expansion dynamics year over year. Taking seasonality into account, we continue to expect between 6162% adjusted operating margin for MIS for the full year. Turning to Moody’s Analytics, revenue grew 11% in the second quarter, and that includes about four percentage points of growth from M and A and FX. Recurring revenue grew 12%, with organic constant currency recurring revenue growth of 8%, in line with second quarter ARR growth. Decision Solutions, which includes banking, insurance and KYC, continues to deliver double digit growth.

KYC led the way with sustained strong demand for our data, analytics and workflows, serving customers across industries. KYC ARR grew 17% last quarter and moderated slightly to 15% this quarter. The primary driver of this deceleration was the strategic termination of a long standing redistribution partnership. We believe that this is in the best long term interest of preserving the value of our proprietary data. Outside of this specific event, KYC new business growth remains strong and we expect ARR growth to remain in the mid to high teens through the second half of the year.

In Banking, our portfolio of products, including our lending suite, risk and finance solutions, as well as data sales from the legacy RAISE acquisition, among several other smaller product lines, delivered a blended ARR growth of 7%. We are concentrating our investments on supporting customers across the entire lending workflow, from origination to approval and beyond. Our flagship lending product, Credit Lens, is proof of that success, with low teens ARR growth and mid teens new business growth, boosted by the ongoing integration of Numerator’s AI and data analytics capabilities, which you heard Rob touch on earlier. Insurance solutions delivered 9% AR growth, with a couple of dynamics to call out. An account loss, following a merger, dampened growth by about one percentage point, and we faced a tough comparable against record new business in the first half of last year.

That said, our new business pipeline is building nicely, growing at double digit pace, and we expect it will support at least high single digit growth rates as we head into the second half of the year. Regarding the low double digit growth with Scape Analytics that Rob mentioned, I want to call out that this is not captured in the Insurance Solutions ARR metric as we wait to lap the anniversary of our acquisitions before including them in the line of business and overall MA ARR. Turning to Research and Insights, we delivered ARR growth of 7%, supported by continued innovation in CreditView. This includes contributions from research assistant, as well as a modernized user experience with new features, scorecards and peer analytics. We’re also integrating real time news and additional data sets to deliver richer, more timely signals, driving growth through strong retention rates and pricing power.

Finally, data and information AR grew 6%. Following some outsized attrition from the US government in the first quarter, we remain focused on driving growth through strong retention and new business production. We’re also making meaningful progress on improving MA’s margin profile, And we’re doing this by prioritizing investments, optimizing vendor relationships, revisiting legacy org structures, and deploying productivity tools across the organization. As a result, annualized compensation expense declined by 4% from the beginning of the year through June. We expect this continued rigor and discipline to support further margin expansion in the 2025 and into 2026.

As there were several discrete factors influencing performance across our lines of business this quarter, I wanted to provide transparency to help unpack the underlying drivers. Stepping back, Moody’s Analytics continues to deliver high predictable, high single digit ARR growth, now paired with strong and sustainable margin expansion. This combination of consistent top line performance and disciplined execution positions MA as a durable long term growth engine for Moody’s. Turning to the remainder of the year and our guidance. We are reaffirming our MA guidance metrics and updating our outlook for MIS issuance and revenue.

These revisions primarily reflect better than expected second quarter performance and a weaker US dollar. You can see the details on slide 12. For M and A related issuance, our view is largely unchanged. We continue to expect 15% growth in announced M and A and flat rated issuance. That said, we are monitoring the environment closely, as macroeconomic and geopolitical uncertainty trends tend to disproportionately affect this aspect of issuance.

Keep in mind, M and A is only one of many factors impacting overall issuance volumes. Insurance finished the second quarter ahead of our earlier expectations, leading us to update the low end of our prior guidance range. That said, uncertainty remains around several macro drivers, including tariff, central bank interest rate policy, inflation, the path of credit spreads, and the trajectory of M and A activity for the remainder of the year. The low end of our issuance forecast accounts for potential short lived issuance air pocket, but does not anticipate a meaningful deterioration in the macroeconomic or geopolitical environment. On the revenue front, we now expect full year MIS revenue growth in the low to mid single digit percent range, and we believe there is more upside than downside at our midpoint.

From a modeling perspective, taking the midpoint of our guidance range, we anticipate MIS revenue to decline in the low single digits year over year in Q3, followed by mid single digit growth in Q4. Our full year MIS adjusted operating margin guidance remains at 61% to 62%. For Moody’s Analytics, we continue to expect both revenue and ARR growth in the high single digit percent range, consistent with the outlook we shared in our Q1 call. We also reaffirm our full year adjusted operating margin guidance of 32% to 33, with a steady ramp upwards from the 32% we reported this quarter, reflecting both seasonality of revenue and expenses, as well as ongoing expense management efforts. At the MCO level, and excluding the impact from restructuring charges, we expect operating expense to ramp between 30,000,000 to $45,000,000 in the third quarter versus Q2, primarily related to our annual merit increases, followed by a gradual sequential increase in Q4.

We anticipate approximately $100,000,000 of incentive compensation for each of the remaining quarters of the year. Finally, our efficiency program continues to deliver results. We have already executed on annualized savings of over $100,000,000 which are helping offset annual salary increases and variable costs as the year progresses. Now putting it all together, we continue to expect top line for MCO to grow in the mid single digit percent range, with adjusted operating margin in the 49% to 50% range. Our our updated adjusted diluted EPS guidance range now implies 10% growth at the midpoint versus last year.

Echoing Rob’s comments, we are executing well on our strategy from a position of financial strength. Looking forward, we are investing to capitalize on the secular demand drivers for our deep currents, such as digital transformation, AI adoption, and the expansion of private markets that are driving multi year investment cycles for our customers, and in turn, generating demand from ratings, data, analytics and workflow solutions. With that, I’d like to thank all of our colleagues for their contributions to yet another strong quarter for Moody’s. And operator, we’re now happy to take any questions.

Conference Operator: Thank you. We’ll ask that you please limit yourself to one question. The option to rejoin the queue will be unavailable. Our first question comes from Ashish Sabadhara from RBC. Please go ahead.

Your line is open.

Ashish Sabadhara, Analyst, RBC: Thank taking you my question. So a couple of moving pieces here on the decision solution. I was just curious if you could provide some more color strategic termination and the account loss, which is weighing on the KYC and insurance particularly and how do we think about those headwinds. But also, as we think about going into the back half of the year, have easier comp from the federal contract as well as the Moody’s MSCI contract. So just puts and takes as we think about the decision solutions ARR going into the back half of the year.

Thanks.

Rob, Executive (likely CEO), Moody’s Corporation: Hey, Ashish, it’s Rob. So first of all, just a little bit of color on some of the attrition and Noemi touched on it. We had indicated I think last quarter that there was some government related attrition. Know Amy mentioned that we had strategically terminated a distribution partnership in KYC. So I think that’s, it counts as attrition, but that’s a decision that we took because we thought it was in the long term interests of our business.

We’ve continued to have some ESG related attrition. We saw that in the first quarter, that continued into the second quarter. And as Nueme said, kind of a one off attrition event insurance related to an M and A deal. When we look at the drivers of ARR growth for the balance of the year in Decision Solutions, I’d say maybe three things. So let me start with banking.

You heard Noemi touch on lending. Credit Lens is our flagship lending product. And over half the growth that we have in banking is driven by our lending products, and credit lens ARR growth is in kind of the low to mid teens. And we’ve got a very nice pipeline that has been building. It’s 15% higher than it was this time last year.

As we talked about in our prepared remarks, that’s been supported by the addition of Numerated. So we basically brought in an enhanced set of front end capabilities. We’ve been integrating that into the Credit Lens platform and then going to market with a more comprehensive solution. And we’re seeing some very nice growth from that. And as I mentioned, we’re getting ready to go into a renewal cycle and we have the opportunity to upgrade customers into that package.

So we think lending is a good driver in banking. In insurance, the pipeline has been building. We had a great insurance conference. We’ve got a very important new model launch coming in the second half of the year that there’s a lot of customer demand around that. As we talked about, CAPE, while it’s not in the ARR numbers, we’ve gotten a great reception from customers and the integration of CAPE into the intelligent risk platform.

CAPE would be accretive to ARR growth if we included it in that this year. And then one last thing, just in KYC, we’ve got very strong cross sell continues into financial services customers. That’s north of 20% ARR growth. We expect new sales to corporates to really kind of start to ramp in the fourth quarter of the year after we make some enhancements to our MaxSite platform. And we’ve got some good momentum with a recently signed partnership from a third party payment platform.

And as Nomi said, excluding that attrition event, we’d be in the ARR growth would continue to be in the high teens rate.

Shivani Kark, Head of Investor Relations, Moody’s Corporation: Yeah, and the other thing I would add Ashish is on our pipeline build, we’re building pipeline pretty nicely as we head into the second half. Our pipeline is up significantly year on year. Think our ability to execute and convert that pipeline is combined with still relative effect of tariffs and other macro factors in customers decision making process, is really what’s gonna help us move towards the high end of that range. So we’re good pipeline built and heavily weighted in the back half, which is a pretty normal pattern for our business.

Conference Operator: Our next question comes from Scott Wirtzl from Wolfe Research. Please go ahead. Your line is open.

Scott Wirtzl, Analyst, Wolfe Research: Just wanted to ask a two parter on MIS. I mean, just wondering if you guys think there was any potential pull forward of issuance during the quarter from the second half of the year as the macro environment kind of got a little bit more stable? And then just on the private credit side, there’s been talk about how private credit can potentially perform better when public debt markets are a little shaky. Just wondering as like public debt markets potentially got better as we move throughout the quarter, if you saw any changes in the performance of the private credit market as well. Thanks.

Rob, Executive (likely CEO), Moody’s Corporation: Yeah, so first of all, hey Scott. I would say, I don’t think there was meaningful pull forward shift. Last year, you remember on the calls, we had this whole theme. We had the elections in the fourth quarter of the year, and the bankers were telling issuers that they should go ahead and pull issuance forward of the elections in case there was any turbulence in the markets. That hasn’t been the case this year.

We’ll probably talk about at some point on this call, kind of a year to go outlook for issuance, and we’ll talk a little bit about how we’ve approached that. But I wouldn’t say that’s been a meaningful theme. On private credit, I think it’s not necessarily a case of either or. Think what we’re seeing here is it’s both. We had some healthy performance issuance activity in the public markets, But we continue to see that in the private credit markets.

And there’s some real demand drivers for that. You heard the numbers that we talked about in our prepared remarks, 75% growth in private credit revenues for the quarter. But I would cite a few things that are driving this ongoing growth of private credit. I think a lot of people think about it as private credit as direct lending, and as an alternative to going to public markets. But as we’ve tried to talk about on this call, private credit’s become much broader than that.

So it’s not just direct lending, there’s fund finance, there’s securitization. And you’ve got a few things going on. You’ve got insurers continuing to increase allocations to private credit, and that’s also driving an increased demand for ratings. We’re seeing rated feeder funds becoming more important in the fundraising stage for private credit. Finance itself is becoming a more prominent asset class within private credit.

You’ve got a number of different lenders now in fund finance. And as I said, we’ve got the growth ABF, particularly where you’ve got, I would say more illiquid assets sitting on bank balance sheets and private credit is one alternative for funding those assets. If you just look at the asset flows into private credit, and we’ve seen the headlines about the potential for going into the retail markets and retirement and so on, that means that there’s going to be a lot of investor dollars continuing to come into this market, and that means they will need to be able to find supply.

Conference Operator: Our next question comes from Jeff Silber from BMO Capital Markets. Please go ahead, your line is open.

Jeff Silber, Analyst, BMO Capital Markets: Thank you so much. Just wanted to focus on the operating margin expansion in the quarter. Were there any expenses maybe shifted from the second quarter to the back half of the year that drove that outperformance? And if so, roughly how much? Thanks.

Shivani Kark, Head of Investor Relations, Moody’s Corporation: Yes, thanks. This is really so the answer is no. There is no real push for expenses from the second quarter to subsequent quarter. We made some adjustments to our incentive comp funding as we always do. But for the performance in the quarter is really related to our efforts around especially around MA.

As you saw, expanded our operating margin by three sixty basis points from last year. We had prioritization of investments. We’re looking at our portfolio and where we need to reallocate capital to support our growth areas that Rob touched on. We’re optimizing our vendors’ relationships. We’ve been very thoughtful with discretionary spends like T and E, other non comp related items.

And we’re also deploying productivity tools across the organization, which I think is very important point. We’ve highlighted several internally developed use cases that are making our employee more efficient in previous calls, customer services, sales tools. We’re enabling our employees to access GenAI Copilot very early on, and we’re using those on a day to day. As a matter of fact, if you look at our engineering groups, there have I think 80% of our population is using those tools, and our product headcount hasn’t grown materially since last year, even though we’re innovating a lot. So it’s really execution, focus on spend and you expect us to continue to improve those margin profiles, especially in MA throughout the rest of the year.

Conference Operator: Our next question comes from Russell Quelch from Rothschild and Co Redburn. Please go ahead. Your line is open.

Russell Quelch, Analyst, Rothschild and Co Redburn: Hi guys, thanks for having me on. This is really a follow on from Ashish’s question earlier, where you talked mainly about KYC and insurance ARR outlook, but I wonder what you’re seeing in the banking sector. If I was being picky, this is the fourth consecutive quarter of decline in banking ARR within decision solutions. And that’s come at a time where you’re rolling out new upgrades or new solutions and upgrades to existing as you articulated earlier. So can you give some color on what you’re seeing in the banking sector?

What conversations you’re having with these clients? I’m just trying to get a sense of whether the growth can accelerate or reaccelerate here in this client segment and what the catalyst might be.

Rob, Executive (likely CEO), Moody’s Corporation: Yeah, so a couple things. When we think about the banking customer base broadly, I would say we continue to have very good growth selling into the banking customer base. When we look at our banking segment within decision solutions, we’ve got a portfolio of products there. We’ve got, as I talked about, our lending suite, we’ve got risk and finance solutions. But we’ve also got, and I think Naomi called it out, we have the commercial real estate data that was what you might think of as the legacy Reese acquisition.

We have our lending business, growth of lending has actually been down over the last year or so. So all that contributes to that 7% growth. And that’s why we wanted to call out the real focus area for us is around lending. It’s our largest product within our banking segment. And as you heard me talk about Russell, it’s growing quite nicely.

In fact, when you look at the combined ARR of lending enumerated together, that ARR growth is gonna be in the, actually we think that’ll be up in the high teens. So again, we feel very good about lending, but you have to kind of think about the full portfolio of what we have. Sorry, think if I said lending, I might have said learning. I’m realizing, our learning business has been down. If I said lending, I misspoke.

Learning has been down. Think of that as our training business.

Conference Operator: Our next question comes from George Tong from Goldman Sachs. Please go ahead. Your line is open.

Scott Wirtzl, Analyst, Wolfe Research: Hi, thanks. Good morning. Mix was a tailwind this quarter to MIS revenue growth. How do you think your updated guidance on debt issuance by category will impact mix in the second half of the year?

Rob, Executive (likely CEO), Moody’s Corporation: Yes. So let me talk briefly about the second half, but maybe let me just talk what contributed to the positive mix that we saw so far. So I think some of those trends will continue. So the most notable positive mix for us was in structured finance. And there we had issuance that came out of ABCP and covered bonds programs.

We don’t capture all of that issuance in our issuance data, But we picked up some very nice revenue from that. There was a shift in the mix of in bank loans of repricing to actual new bank loans. So there was a shift towards really away from repricing activity, there’s lower repricing activity. And in our PPIF segment, we saw a slowdown in the issuance from sub sovereigns, but that’s where we have less favorable economics. As we kind of look out for the rest of the year, I think we may see more infrequent issuers if markets remain open, you would see that in both investment grade as well as high yield.

And that would potentially be favorable to mix. In structured finance, we have seen some real strength in CMBS. So CMBS and CLO activity would be positive to mix as well. The only other thing I would call out is, know Amy mentioned that M and A has been still pretty muted through the first half of the year. As you know, we changed our M and A assumption.

So that’ll be something that we’ll watch for, because if we see a pickup in M and A, that would certainly be mix positive.

Conference Operator: Our next question comes from Shlomo Rosenbaum from Stifel. Please go ahead, your line is open.

Jeff Silber, Analyst, BMO Capital Markets: Hi, thank you. Hey Rob, I wanted to ask you to go over some of the positive comments you had on the AI and Gen AI, particularly just to clarify what you’re talking about, about the ARR being 200,000,000 and growing two times the size of other products. Like, Can you go over the specifics over that so we get that clear? Was that $200,000,000 is some kind of products that have any aspect of AI? Just go over that and kind of give us a little bit more detail.

Rob, Executive (likely CEO), Moody’s Corporation: Yeah, I’m glad you asked. As I mentioned, the actual revenue solely from what you would think of as standalone AI products is still not material. So we wanted to step back and think about how do we think about the benefit that we’re seeing from our AI engagement. And so we actually looked at our customers that had taken at least one, had purchased at least one either upgrade or standalone AI offering. Right?

And so we think of those as the Gen AI early adopters. And with those customers, we’re oftentimes having very different discussions with them, because those discussions may be at a much more senior level. We’re engaged with partners like the hyperscalers with these customers. We’re doing proofs of concept and all sorts of things with those early adopters. So very deep engagement.

And when we looked at our relation our overall the total spend across MA from those relationships. So not just what they’re paying us for AI, but all of the Gen AI early adopters, the growth of those relationships has been basically double the growth that we see from the rest of our MA customers. And I guess in some ways that’s not surprising, because like I said, this has led to a very different kind of engagement with those customers that allows us to then be able to talk about all sorts of other content sets and models and other capabilities that we can bring together for them. So that’s what we were trying to get at.

Conference Operator: Our next question comes from Faiza Alwy from Deutsche Bank. Please go ahead. Your line is open.

Faiza Alwy, Analyst, Deutsche Bank: Hi. Thank you. Good morning. I wanted to ask more about private credit and specifically, sort of how do you think about the contribution from private credit to MIS revenues? I know it’s small, but certainly growing quite fast.

And and perhaps if you can talk about sort of where it’s showing up because, your recurring revenues in MIS have also been pretty strong. And I’m curious if some of that is showing up there. And then maybe how much of it is contributing to the mix on the structured finance side that you just talked about?

Rob, Executive (likely CEO), Moody’s Corporation: Yep, so we talked about the 75% growth that we saw in the quarter. And that’s showing up in a few different places. So the asset backed finance is showing up in our structured finance ratings. When you think about what we’re doing with BDCs, and obviously BDCs are effectively engaged in direct lending. And so we rate, we have very strong coverage of public BDCs, and all of the fund finance, so nav lines, sub lines, rated feeders, all of that kind of activity, that’s rolling through our FIG franchise.

We’ve even got some private credit rolling through project finance. We have investors who are investing in infrastructure and projects, who are investing in deals that were unrated at the time of issuance, and for them to invest in them, they actually want to get a rating from Moody’s on that. So even in project finance, we’re starting to see the impact of private credit. You can also see it in our first time mandate numbers. We talked about something like a quarter of our first time mandates for the second quarter were related to private credit.

So it’s rolling through several different lines in the rating agency, as well as contributing to our new mandate growth.

Conference Operator: Our next question comes from Toni Kaplan from Morgan Stanley. Please go ahead. Your line is open.

Toni Kaplan, Analyst, Morgan Stanley: Thanks so much. I wanted to ask about the environment in MA. So ARR stepped down to 8%, But it seems like there are some sort of one off things like the insurance client and you had mentioned the government, in prior quarters. So, you know, just trying to understand, like, is it these, like, one off situations that are really driving that growth slower, or is the underlying environment really not that good? And so that’s really what the bulk is.

And there are these sort of one off things, but it’s really the overall environment that has been getting worse. Just wanted to understand a little bit more clarity on that. Thanks.

Rob, Executive (likely CEO), Moody’s Corporation: Hey, Tony. So in general, these things we talked about contributed to attrition ticking down about one percentage point. So it does have an impact. And then when you go down to the sub segment level, these things, because of the size of the businesses, these events can actually have an impact on ARR growth in any given quarter. Just as it relates to the environment, maybe let me just talk a little bit about what we’re seeing from a kind of a sales perspective.

And I would say, we have seen a little bit of a lengthening in sales cycles, and there’s a but here, or an and maybe. And that is that we’ve also seen average deal sizes increase. And that’s because we’re seeing more products per sale, effectively as we pull these things together and bundle them into solutions. So a little bit longer sales cycles, slightly larger average deal sizes, and that’s something that as long as those two things are going together, we feel comfortable with that. I wouldn’t say there’s been a material deterioration in the end markets by any means.

Conference Operator: Our next question comes from Andrew Nicholas from William Blair. Please go ahead. Your line is open.

Investor Relations Representative, Moody’s Corporation0: Hi, good morning. I wanted to stick with private credit, we could. Two part question there. First, I think recently Senator Warren has sent you a letter, Rob, on potential risk. Just curious how you’re thinking about that given the rapid growth of this market.

And then second, and maybe relatedly, can you talk to maybe the level of investment you’ve been making in that team, the size of that team, how aggressively you’re hiring to support this effort now, understanding that it’s still small in the whole scheme of things, but just interested in just how forward leading you want to be here. Thank you.

Rob, Executive (likely CEO), Moody’s Corporation: Yeah, I would say, first of all, we have an important role to play as an independent assessor of credit risk. And this market obviously has elements of opacity to it, and there’s a desire from investors to have more transparency and more comparability as well. And so we think we have a very important role to play. One of the things I would stress is there’s not a team. And so think of this as we’re leveraging all of the strengths of the rating agency.

With all of the private credit methodologies go through our standard regulated industrial strength methodology development process. The ratings are issued by rating analysts who are rating both public and private credit. So these are people in our FIG team, in our structured finance team, in our project finance team, in our corporate team as well. So very experienced analysts, robust methodologies, all of the process integrity and regulation for the public markets is the same thing that’s being applied to how we’re approaching private credit in this case. And so, yes, in some cases where we’re seeing increased flow, we would be adding to the fund finance team, or maybe it’s to the esoterics team, or ABF team in structured finance, to make sure that we can handle the flow.

So that’s where we’ve been adding, I’d say adding the headcount. The last thing I’d say is we do have a dedicated analytical coordinator. So we have a global head of private credit who can kind of look across the franchise and make sure that we have consistency in how we’re thinking about approaching the various elements of private credit and be able to help us think thematically across the portfolio. So we do have a dedicated analytical leader who coordinates the activities across the rating teams, and then we have a dedicated commercial leader who sits in our commercial team and focuses on the alternative asset managers.

Conference Operator: Our next question comes from Owen Lau from Oppenheimer. Please go ahead. Your line is open.

Investor Relations Representative, Moody’s Corporation1: Hi, good morning. Thank you for taking my question. So I have a question about MA and somewhat related to AI. So when I look at your number, research and insight was better than expected. Could you please unpack a little bit more on the driver of this strength?

Is it mainly driven by research assistant? And then for Rob, given your earlier response to an AI question, do you start to see an acceleration of AI adoption in your client base? When it comes, sometimes it could come massively. Thanks.

Shivani Kark, Head of Investor Relations, Moody’s Corporation: Yeah, if you look at the growth in research and insights AR, there’s a portion of that that’s definitely driven by Research Assistant. There’s some new product launches as well. So, we’re pretty happy with the growth in Research and Insight. We also noted that the customers who’ve updated Research Assistant have a higher NPS. They have a propensity to expand their relationship with us across the MA portfolio, Rob alluded to.

We’ve enhanced our platform relevancy, security. We’ve improved the precision of our search results. We include in our earnings calls, news. We ensure they’re more aligned with user inquiries. And so that’s definitely contributed to expansion and growth in that line of business.

Rob, Executive (likely CEO), Moody’s Corporation: As it relates to AI, I’d say in some cases it depends on the customer tier. Let me just take banks, because that’s our largest customer base. The largest banks we’re working with, they’re wanting to pull our data, perhaps our own specialized agents into their internal AI workflow orchestration platforms that they’re building. Right? Our customers, then think of like our tier two and tier three bank customers.

I talked about our CreditLens platform as a great example. We’re just building AI capabilities and integrating that into the platform itself. And so there’s all sorts of AI enablement from spreading financials to monitoring covenants and writing credit memos and all of that. And so our customers there are getting access to AI through the platform. And in some cases there may be modules that we would charge for on an a la carte basis because they add so much value.

And in other cases we just embed that AI functionality into the platform and that enhances, we have already seen, leads to improved customer satisfaction and and increased usage. And that gives us an opportunity then at renewal time to price behind that additional value.

Conference Operator: Our next question comes from Alex Kramm from UBS. Please go ahead, your line is open.

Investor Relations Representative, Moody’s Corporation2: Yes, yes. Hello. I’m late in the call here, but maybe I’ll sneak in another private credit question since that seems to be a topic these days. So look, Rob, I see all the opportunities and good growth that you’re talking about. You mentioned that people are overly focused on direct lending sometimes.

But I do think that’s the biggest area of fundraising in the last few years and a lot of dry powder. So just wondering what you’re seeing on that side in particular because it seems like the deals are getting larger. They are more frequent, and I don’t think you’re really participating in ratings there. So just wondering if you’re looking at that market and say like, hey, there’s X percent of our business debt on the corporate finance, levered loan side that we may be missing out today. So I’m just curious of what the number is today and how quickly you think you can maybe replace that with other private credit opportunities, if you’re catching my drift.

Thanks.

Rob, Executive (likely CEO), Moody’s Corporation: Yes. Maybe a couple ways I think about that Alex. Is there substitution from time to time where an issuer decides they do a large deal that would have otherwise been a public deal and that we would have rated and they do a private credit deal? Yes, that happens. But we also see that issuers go in and out of public and private credit markets.

There’s no question that the private credit markets are more expensive than the public markets. And so we’ve seen deals come back into the public markets. So in some ways I think of that Alex, as like there’s an element of that that’s like another form of maturity wall, because the rating opportunity may have been deferred in some cases, but not lost. The other thing I would say Alex, and this goes back to the MSCI partnership. I mean you remember how the Moody’s business started.

We were an investor pay model, right? And so over time investors valued ratings and the utility of ratings. And then we eventually switched to an issuer pay model because there was an investor demand pull that supported that. I think what we’re doing with MSCI is important, not just because of the immediate revenue opportunity, but it’s the opportunity to have investors in the private credit space start to use ratings. These will be model implied ratings expressed on the rating scale.

And over time you can imagine as investors are saying, Okay, now I have a third party independent view of credit that I can now discuss with the GP, ask perhaps why the rating is the same or different. And so I think we’re wanting to condition those investors to start to be able to use ratings and value the comparability of those ratings between both private and public credit. And over time, I think we may see, Alex, that the GPs decide to say, hey, we’re gonna go ahead and start to get these exposures rated or assessed by Moody’s because the investors value that. So that will take some time, but I think that’s an opportunity as this market continues to mature.

Conference Operator: We are all out of time for questions today. This will conclude today’s Q and A session. I would like to turn the call back over to Rob for any closing remarks.

Rob, Executive (likely CEO), Moody’s Corporation: Okay, with that, it’s a wrap, and we look forward to talking to you on the next earnings call. Have a great day, everybody.

Shivani Kark, Head of Investor Relations, Moody’s Corporation: Thank you.

Conference Operator: This concludes Moody’s Corporation’s second quarter twenty twenty five earnings call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Investor Resources section of the Moody’s IR homepage. Additionally, a replay will be made available after the call on the Moody’s IR website. Thank you.

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