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Moody’s(MCO) - 2024 Q3 - Earnings Call Transcript
MCOMoody’s(MCO)2024-10-22 17:10
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Financial Data and Key Metrics Changes - Moody's reported a 23% increase in revenue for Q3 2024, reaching 1.8billion,withadjustedoperatingmarginatapproximately481.8 billion, with adjusted operating margin at approximately 48% and adjusted diluted EPS growth of 32% [5][18] - The ratings business experienced a remarkable 41% increase in revenue compared to the prior year, driven by strong issuance activity [5][6] - Free cash flow conversion rate exceeded 100% of net income, indicating strong cash generation [18] Business Line Data and Key Metrics Changes - Moody's Analytics (MA) achieved 7% overall revenue growth, with 9% growth in annual recurring revenue (ARR) [6][19] - Decision Solutions, which includes banking, insurance, and KYC, reported 12% ARR growth, contributing significantly to MA's performance [6][20] - The ratings segment saw transactional revenue growth of 70%, significantly outpacing global rated issuance growth of 51% [5][18] Market Data and Key Metrics Changes - The issuance environment in September set a new record with over 85 billion issued across 61 deals in the first week [5] - Spec-grade refi walls exceeded 2trillion,up192 trillion, up 19% from the previous study, indicating strong future issuance potential [9] - The upcoming four-year maturity walls are projected to grow by 11%, amounting to nearly 5 trillion, which is a record high [8][9] Company Strategy and Development Direction - Moody's is focusing on expanding its footprint in emerging and domestic debt markets, particularly in Asia, Africa, and Latin America [13] - The company is investing in sustainable finance and transition finance, anticipating a rise in global clean energy investments to around 4.5trillionannuallyby2030[12]−TheintegrationofRMSintoMoody′sInsuranceSolutionsisexpectedtoenhanceserviceofferingsandmarketpositionintheinsurancesector[15][17]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedconfidenceinthedurabledriversofgrowthfortheratingsbusiness,citingbothcyclicalandstructuraltrends[8][10]−Theoutlookforissuanceremainspositive,supportedbydecliningspec−gradedefaultratesandexpectationsoflowerinterestrates[34][35]−Managementacknowledgedpotentialheadwindsfrommacroeconomicfactorsandgeopoliticaleventsbutremainsoptimisticabouttheoverallissuanceenvironment[34][35]OtherImportantInformation−ThecompanyraiseditsguidanceforMISrevenuegrowthtothehigh20spercentagerangeandadjustedoperatingmarginto594.5 trillion annually by 2030 [12] - The integration of RMS into Moody's Insurance Solutions is expected to enhance service offerings and market position in the insurance sector [15][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the durable drivers of growth for the ratings business, citing both cyclical and structural trends [8][10] - The outlook for issuance remains positive, supported by declining spec-grade default rates and expectations of lower interest rates [34][35] - Management acknowledged potential headwinds from macroeconomic factors and geopolitical events but remains optimistic about the overall issuance environment [34][35] Other Important Information - The company raised its guidance for MIS revenue growth to the high 20s percentage range and adjusted operating margin to 59% to 60% [24][25] - The incentive compensation accruals for Q3 were approximately 150 million, reflecting a 54% increase year-over-year [65] Q&A Session Summary Question: Data and information ARR slowdown - Management indicated that the slowdown was due to lower renewal values from federal government contracts and customer transitions to MSCI [27][28] Question: Near and midterm issuance tailwinds - Management believes that the balance of tailwinds to headwinds for issuance in 2025 is likely favorable, with several supportive factors in place [32][34] Question: Debt velocity - Debt velocity has been improving, with current levels still below historical averages, indicating potential for future issuance growth [37] Question: Research and insights ARR growth - Management noted that ARR growth in research and insights was impacted by stress in the banking sector, but they expect a strong pipeline moving forward [40][41] Question: Moody's Analytics medium-term targets - Management plans to update medium-term targets in February, focusing on expanding relationships with banks and insurers [54][56] Question: Pull forward impact on issuance growth - Management noted that while there has been a pull forward in spec-grade issuance, overall maturity levels remain favorable for future growth [58][61] Question: Ratings outlook and revenue growth - Management expects a decline in fourth-quarter issuance compared to the prior year due to intra-year pull forward but has lifted the outlook for Q4 issuance [67]