Moody’s(MCO) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Financial Highlights Summary Financials and Management Commentary Moody's Corporation reported a 4% increase in revenue to $1.9 billion for the second quarter of 2025, driven by an 11% growth in Moody's Analytics (MA), while Moody's Investors Service (MIS) revenue remained flat. Adjusted Diluted EPS grew 9% to $3.56. Citing these results, the company narrowed its full-year 2025 Adjusted Diluted EPS guidance to a range of $13.50 to $14.00 Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Change (YoY) | | :--- | :--- | :--- | | MCO Revenue | $1.9 billion | ⇑ 4% | | MA Revenue | $888 million | ⇑ 11% | | MIS Revenue | $1.0 billion | 0% | | MCO Diluted EPS | $3.21 | ⇑ 6% | | MCO Adjusted Diluted EPS | $3.56 | ⇑ 9% | - The company is updating its expectations for MIS issuance and revenue growth and has narrowed its full-year adjusted diluted EPS guidance by $0.25 to a new range of $13.50 to $14.00[3] - Management highlighted strong recurring revenue growth and cost discipline as key drivers of performance, enabling innovation and investment in the business[1] Detailed Financial Performance Revenue Analysis Overall revenue for Moody's Corporation (MCO) grew 4% in Q2 and 6% YTD, with a favorable 2% impact from foreign currency in the quarter. Growth was led by Moody's Analytics (MA), which saw an 11% revenue increase, while Moody's Investors Service (MIS) revenue was flat due to a favorable mix offsetting lower issuance volumes Moody's Corporation (MCO) Revenue MCO's total revenue reached $1.9 billion in Q2 2025, a 4% increase year-over-year, aided by a 2% favorable impact from foreign currency translation. Year-to-date revenue increased by 6% to $3.8 billion MCO Revenue Performance | Period | Revenue | Change (YoY) | Foreign Currency Impact | | :--- | :--- | :--- | :--- | | Q2 2025 | $1.9 billion | ⇑ 4% | Favorable 2% | | YTD 2025 | $3.8 billion | ⇑ 6% | Immaterial | Moody's Analytics (MA) Revenue MA revenue grew 11% to $888 million in Q2 2025, driven by strong performance across all lines of business, particularly Decision Solutions which grew 13%. Recurring revenue, which constitutes 96% of MA's total, increased by 12%. Annualized Recurring Revenue (ARR) grew 8% year-over-year to $3.3 billion - Q2 revenue growth was led by Decision Solutions (up 13%), Research and Insights (up 10%), and Data & Information (up 8%). Within Decision Solutions, KYC revenue was a standout performer, increasing 22%[20] - Recurring revenue grew 12% on a reported basis and 8% on an organic constant currency basis, representing 96% of total MA revenue[20] MA Annualized Recurring Revenue (ARR) Growth (as of June 30, 2025) | Segment | YoY Growth | | :--- | :--- | | Total MA ARR | 8% | | Decision Solutions | 10% | | - Banking | 7% | | - Insurance | 9% | | - KYC | 15% | | Research & Insights | 7% | | Data & Information | 6% | Moody's Investors Service (MIS) Revenue MIS revenue was flat year-over-year at just over $1.0 billion for Q2 2025, as a favorable revenue mix offset a 12% decline in market issuance. Growth in Structured Finance and Public, Project and Infrastructure Finance was offset by declines in Corporate Finance (due to lower bank loan activity) and Financial Institutions (due to high prior-year comparatives) - Corporate Finance revenue declined due to subdued M&A and lower bank loan activity, partially offset by growth in Investment Grade bonds[32] - Financial Institutions revenue fell due to lower infrequent Insurance issuance compared to a record prior-year period[32] - Structured Finance revenue grew across most asset classes, while Public, Project and Infrastructure Finance growth was driven by U.S. Public Finance[32] Operating Expenses and Margin MCO's operating expenses increased by 4% in Q2, primarily due to restructuring charges and acquisitions. Despite this, disciplined cost management led to margin expansion, with the consolidated adjusted operating margin rising to 51.3% for the first half of 2025. Both MA and MIS segments saw significant improvements in their adjusted operating margins MCO Operating Expenses In Q2 2025, operating expenses grew 4% year-over-year, a figure that includes a 2% impact from restructuring charges and another 2% from recent acquisitions. Excluding these items, operating growth was 2%, as efficiency gains partially offset investments in the business Drivers of Operating Expense Growth | Period | Total Growth | Restructuring Impact | Acquisition Impact | Operating Growth | | :--- | :--- | :--- | :--- | :--- | | Q2 2025 | 4% | 2% | 2% | 2% | | YTD 2025 | 6% | 3% | 2% | 3% | Operating Margin and Adjusted Operating Margin MCO's adjusted operating margin expanded by 130 basis points to 50.9% in YTD 2025. MA's adjusted operating margin saw a significant increase of 360 basis points to 32.1% in Q2, while MIS's margin rose 100 basis points to 64.2%, reflecting strong revenue performance and cost discipline Operating Margin Performance (YTD 2025 vs YTD 2024) | Metric | YTD 2025 | YTD 2024 | Change | | :--- | :--- | :--- | :--- | | MCO Adjusted Op. Margin | 50.9% | 49.6% | ⇑ 130 bps | | MA Adjusted Op. Margin | 31.1% | 29.1% | ⇑ 200 bps | | MIS Adjusted Op. Margin | 65.1% | 63.9% | ⇑ 120 bps | Earnings Per Share (EPS) Healthy revenue growth and margin expansion drove a 6% increase in Diluted EPS to $3.21 and a 9% increase in Adjusted Diluted EPS to $3.56 for Q2 2025. The effective tax rate for the quarter was 25.0%, up from 23.1% in the prior-year period EPS Performance | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Diluted EPS | $3.21 | $3.02 | ⇑ 6% | | Adjusted Diluted EPS | $3.56 | $3.28 | ⇑ 9% | - The Q2 Effective Tax Rate (ETR) was 25.0%, higher than the 23.1% in Q2 2024, primarily due to higher non-U.S. and state income taxes and a decrease in excess tax benefits from stock-based compensation[43] Capital Allocation and Liquidity Capital Returned to Shareholders & Free Cash Flow For the first six months of 2025, Moody's generated $1.14 billion in free cash flow. The company increased its quarterly dividend by 11% to $0.94 per share and repurchased 0.6 million shares during the second quarter. As of June 30, 2025, Moody's had $7.0 billion in outstanding debt and $0.9 billion remaining in its share repurchase authorization - YTD free cash flow was $1,140 million, a decrease from $1,290 million in the prior-year period, primarily due to higher tax and incentive compensation payments[49][83] - The Board declared a quarterly dividend of $0.94 per share, an 11% increase from the prior year[49] - During Q2, Moody's repurchased 0.6 million shares and had approximately $0.9 billion of share repurchase authority remaining as of June 30, 2025[49] 2025 Outlook and Assumptions Full Year 2025 Outlook Moody's updated its full-year 2025 outlook, narrowing the Adjusted Diluted EPS guidance range to $13.50 - $14.00. The company also revised its forecast for MIS revenue growth to the low-single-digit to mid-single-digit percent range. Macroeconomic assumptions were updated, including an increased forecast for U.S. and Euro area GDP growth and a lower expected U.S. inflation rate Updated Full Year 2025 Guidance (as of July 23, 2025) | Metric | Current Guidance | Previous Guidance | | :--- | :--- | :--- | | Adjusted Diluted EPS | $13.50 to $14.00 | $13.25 to $14.00 | | Diluted EPS | $12.25 to $12.75 | $12.00 to $12.75 | | MIS Revenue Growth | Low-single to mid-single-digit % | Flat to mid-single-digit % | Updated Macroeconomic Assumptions | Forecasted Item | Current Assumption | Previous Assumption | | :--- | :--- | :--- | | U.S. GDP Growth | 0.5% - 1.5% | 0.0% - 1.0% | | Euro area GDP Growth | 0.5% - 1.5% | 0.0% - 1.0% | | U.S. Inflation Rate | 2.5% - 3.5% | 3.5% - 4.5% | | Global MIS Rated Issuance | Decrease in low-to-mid-single-digit % | Decrease in low-to-high-single-digit % | Appendix: Financial Tables Table 1: Consolidated Statements of Operations This table presents the company's revenues, expenses, operating income, net income, and earnings per share for the three and six months ended June 30, 2025, compared to the same periods in 2024 Consolidated Statements of Operations (Six Months Ended June 30) | Amounts in millions, except per share | 2025 | 2024 | | :--- | :--- | :--- | | Revenue | $3,822 | $3,603 | | Operating income | $1,664 | $1,576 | | Net income attributable to Moody's | $1,203 | $1,129 | | Diluted EPS | $6.66 | $6.16 | Table 2: Condensed Consolidated Balance Sheet Data This table provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity as of June 30, 2025, compared to December 31, 2024 Balance Sheet Highlights (in millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $15,487 | $15,505 | | Cash and cash equivalents | $2,174 | $2,408 | | Total Liabilities | $11,379 | $11,778 | | Long-term debt | $6,967 | $6,731 | | Total Shareholders' Equity | $4,108 | $3,727 | Table 3: Condensed Consolidated Statements of Cash Flows This table details the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025, and 2024 Cash Flow Summary (Six Months Ended June 30, in millions) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,300 | $1,461 | | Net cash provided by (used in) investing activities | $98 | $(191) | | Net cash used in financing activities | $(1,780) | $(731) | | (Decrease) increase in cash | $(234) | $505 | Table 5: Financial Information by Segment This table breaks down revenue, adjusted operating income, and adjusted operating margin for the two main business segments, Moody's Analytics (MA) and Moody's Investors Service (MIS), for the three and six-month periods Segment Performance (Six Months Ended June 30, 2025, in millions) | Segment | Total Revenue | Adjusted Operating Income | Adjusted Operating Margin | | :--- | :--- | :--- | :--- | | Moody's Analytics (MA) | $1,753 | $545 | 31.1% | | Moody's Investors Service (MIS) | $2,174 | $1,415 | 65.1% | Table 6: Transaction and Recurring Revenue This table provides a detailed breakdown of revenue into transaction-based and recurring sources for each business line within the MA and MIS segments Revenue Mix (Six Months Ended June 30, 2025) | Segment | Transaction Revenue % | Recurring Revenue % | | :--- | :--- | :--- | | Moody's Corporation | 38% | 62% | | Moody's Analytics (MA) | 4% | 96% | | Moody's Investors Service (MIS) | 67% | 33% | Non-GAAP Reconciliations This section includes several tables (7, 8, 9, 11, and 12) that reconcile non-GAAP financial measures such as Adjusted Operating Income, Free Cash Flow, Organic Constant Currency Revenue, and Adjusted Diluted EPS to their most directly comparable U.S. GAAP measures. It also defines and details the calculation for the Key Performance Metric of Annualized Recurring Revenue (ARR) in Table 10 - Table 7 reconciles Operating Income to Adjusted Operating Income by excluding depreciation & amortization, restructuring, and asset abandonment charges[78][80] - Table 8 reconciles Net Cash from Operating Activities to Free Cash Flow by subtracting capital additions[81][82][83] - Table 11 reconciles Net Income and Diluted EPS to Adjusted Net Income and Adjusted Diluted EPS by excluding amortization of acquired intangibles, restructuring, and asset abandonment charges[92][93][94]