穆迪 (MCO) 2024 Q3 法說會逐字稿

Yes, good day, everyone, and welcome to the Moody's Corporation Third Quarter 2024 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 question and answers following the presentation. I will now turn the call over to to Giovanni Carriere, Head of Investor Relations. Please go ahead. Thank you. Good morning, and thank you for joining us today and Shivani (unk), Head of Investor Relations. This morning, Moody's released its results for the third quarter 2024, as well as our revised outlook for select metrics. The full year 2020 for the earnings press release and the presentation to accompany this teleconference are both available on our website at ir dot 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 or adjusted measures referenced during this call in the U.S. GAAP, I call your attention to the Safe Harbor language which can be found towards the end of our earnings release today. 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 K for the year ended December 31st, two, 23, 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'd also like to point out that members of the media may be on the call this morning in a listen-only mode. I'll now turn the call over to Rob. Thanks, Ron, and good morning or good afternoon. Thanks, everybody, for joining today's call. I'm really looking forward to discussing our third-quarter results with you. And we again delivered some impressive results with a 23% increase in revenue and adjusted operating margin of approximately 48% and 32% growth in adjusted diluted EPS and one of the key driver fibers. These great results was our rating business with a remarkable 41% increase in revenue versus the prior year period. September was a particularly strong month for issuance that included a new record for weekly investment grade activity with over 85 billion issued across 61 deals in the first week of September, strengthen first time in and frequently issuers drove transactional revenue, up 70% for the quarter, and that outpaced global rated issuance growth of 51%. And this growth, combined with ongoing cost discipline, delivered over 600 basis points and adjusted operating margin expansion compared to last year. Not. So this year has obviously been a very strong issuance on record, and I missed that strength. We see both cyclical and secular tailwinds there going to drive future growth, and that includes refunding walls, M&A and other market trends that give us confidence in the medium term outlook for our ratings business in MA, we delivered 7% overall revenue growth and 9% growth for both ARR and recurring revenue, both of which exclude one-time revenue that we're intentionally deemphasizing year to date. Customer retention is at 93%, and our adjusted operating margin for the quarter was in line with our expectations at 30.3%. And our Decision Solutions line of business and that is banking, insurance and K. I see that continues to lead MA with almost 1.4 billion of ARR, and that's growing at 12%. And last month, we marked the third anniversary of our RMS acquisition. So let's spend a few minutes on today's call, recapping our progress and performance there. When I finish, I will turn it over to new aiming to provide more color on numbers, including raises to several of our full year guidance metrics, including our outlook for adjusted diluted EPS. But before I move to the MIS., I do want to take a moment to acknowledge our third consecutive number one ranking in the charters. Richtek 100 were number one and 12 category. And that's a testament to the breadth and depth our solutions to the strength of our competitive positioning and the trust that our customers place in us. So a big shout out to all my colleagues who contributed to this fantastic recognition. Now moving to ratings. As I mentioned, we feel really good about the durable drivers of MIS. growth as we look into the future. And those are both cyclical coal and structural. So looking at the market drivers, as you all know very well, the refunding walls are a key source of built-in growth. And last week, our analytical teams published our analytical report on the the nonfinancial corporate refi walls in both the US and Omega. And that data shows in 11% growth in the upcoming four year maturity walls, which amount to almost 5 trillion, and that represents a record high. Now the majority of this growth is actually coming from spec grade issuers where for the first time forward maturity walls exceeded 2 trillion, and that's up 19% from our last study. That's particularly true for the U.S. market, where Ford maturities are up 17% and spec grade refi walls are up approximately 27% for the upcoming for years, and that bodes very well for future issuance. And as I think many of you know, spec grade is obviously a positive to our revenue mix. Now for any of you that wanted to dive deeper, and I'm sure there are many on this call checkout before reports that we've made available on our website at Moodys.com or contact our IR team. Now another significant historical driver of ratings revenue growth is M&A activity in recent years has been well below historical levels, as you can see on this chart, but we don't see that subdued level is sustainable given the need for private equity sponsors to both exit as well as deploy huge amounts of capital along with a more benign rate environment and improved macroeconomic conditions. Now a lot with these market factors there also some structural trends that we believe will drive both credit supply and the need for independent third party ratings and assessments. The first is private credit. That's been a consistent theme on our recent calls, and this sector is experiencing some significant growth. We expect that to continue. Last week, we published estimates that private credit assets under management will reach up to $3 trillion by 2028. And as this market grows, the need for transparency, data and rigorous independent credit assessment is likely to become more important than ever. And as Apollo highlighted in their recent investor day rate agencies have an important role to play in this ecosystem. I completely agree with that. And we're gearing up to ensure that we meet the needs of this market. Now the second is sustainable and Trent transition finance. And to put this opportunity into context, currently countries and companies that have net zero commitments that cover something like 93% of global GDP and our analysts estimate that in order to meet these targets, global clean energy investment needs are going to rise by 2.5 times by 2030 to around $4.5 trillion annually. So that means huge amounts of debt capital is going to be raised, and there's going to be increasing demand to understand how these investments are translating to organizations progress on their decarbonization efforts. So we're investing to provide the insights, the analysis and the products to meet this demand. Not third growth driver is Amir urging in domestic debt markets. And many of you have heard me say before that domestic debt market issuers are the cross border issuers of tomorrow. And while smaller than developed economies, emerging market countries typically average higher economic growth rates than more developed markets. So we've been investing to build out our footprint and market leadership across Asia, Africa and Latin America so that we are poised to capitalize on this growth. Finally work positioning our ratings business for a world of digital finance, and that includes blockchain and tokenization. And while the issuance volumes are relatively modest at present, there are a number of public and private sector initiatives and pilots in this space. And we want our ratings to play just as important, a role in a digital issuance world as they do in today's analog world. So as I I said a number of factors that give us confidence about our growth, both in the near term and over the medium term for MIS. Now, as I mentioned earlier, we've just hit the third anniversary of our RMS acquisition. So I thought it made sense to take stock of our progress on today's call. And some of you may remember the financial profile of RMS before we acquired it, low single digit revenue growth, EBITDA margins in the high 10s, and it was also early in its second cloud platform launch. And our investment thesis at the time was twofold. First, we thought there was much more that we could do for the insurance industry as we expanded our TAM to the property and casualty sector. And second, we believe that RMS's really rich climate and cat modeling capabilities would be increasingly important to a wide range of finance and risk applications and also for a broader range of customers. We also thought that Moody's represented a natural home for RMS after years of ownership by DMGT. So three years later, have we done well. First, RMS is now fully integrated into our Insurance Solutions business. Growth has improved significantly over the last three years and now is growing in line with the mid 10s ARR growth of our broader insurance business. Also now operating at MA, like margins since we acquired RMS, we've also grown the number of customers on the cloud-based intelligent risk platform fivefold to over 250. And these customers are using our next generation of high definition models, enabling them to get more granular insights, leveraging that power of cloud computing and also offering a great upsell pathway and competitive differentiator. Now as part of Moody's, RMS is also expanding the ways that it partners with the insurance industry that includes last year's partnership with NASDAQ, where we're hosting third party and in-house models on the IRP, our creation of a cyber industry steering group with the largest players in the cyber insurance market to develop tools to help them market grow and our recent collaboration with Lloyd's to build a greenhouse gas emission platform for the Lloyd's insurance market. three years later, together with Moody's, RMS has solidified its blue chip customer base with all 10 of the top 10 global reinsurance brokers, nine of the top 10 commercial lines insurers and 28 of the top 30 global reinsurers. That really is market validation of RMS as the gold standard in the industry, we continue to invest to extend the solutions that we deliver for the insurance sector and beyond. And in early September, we announced the acquisition of predicate to expand into casualty analytics, and that's an area of growing interest for insurers. And as I've talked about in past calls, we've leveraged RMS's platform, technology and engineering teams across all of Moody's Analytics, and we've integrated their climate capabilities into solutions for banks and corporates. So we feel really good about the progress with RMS. And earlier this year, we merged RMS in our legacy life business into a broader Moody's Insurance Solutions unit. So I I feel even more cash confident about how this positions us for the future, both across the insurance industry, but also with respect to our ability to serve the needs of organizations to better understand physical risks from extreme weather and a changing climate. With that, I'm going to hand it over to Amy to provide more details on our numbers. Thank you, Rob, and good morning, everyone. Q3 was a record quarter, the highest third quarter revenue performance in recent history, with strong growth across revenue and profitability metrics, driving 32% adjusted diluted EPS growth and free cash flow conversion rate of over 100% of net income. We delivered 23% increase compared to last year, with Moody's rating growing transactional revenue by 70%, well above the 51% growth in global issuance that truly demonstrate the impressive strength of our ratings franchise. We executed very well across all sectors with the most notable contribution from corporate finance investment grade transaction revenue growth of 137% exceeded 84% growth in issuance, and that was driven by sustained levels of infrequent issuers activity as well as Bart jumbo deals over the summer. In addition, the leveraged finance transaction revenue grew 67%. That's approximately 80 million, supported by the favorable spread environment. Collectively, these are the largest third quarter for corporate finance revenue on record. The level of infrequent issuance activity, which was the strongest in over a decade, also drove a favorable revenue mix and see where Transaction revenue grew 77%, well above issuance growth of 18%. Turning to Moody's Analytics. Revenue grew 7%, including one point of growth and FX recurring revenue, which did now 95% of the segment. Revenue grew 9%, which was in line with our ARR growth, as Rob mentioned earlier, are yet to date, retention rate is 93%, illustrating the stickiness of our solution, consistent with recent quarters of revenue, growth was driven by recurring revenue indecision solutions, which is over 40% of our total revenue, which, as Rob said, delivered 12% year on year, a our growth. Let me provide some color on each of the main businesses in this segment. Banking revenue grew 3%. What's happening here is we have the effect of two opposite dynamics. On the one hand, we had double digit decline in loan margin, transactional revenue and flat growth in on-premise sales year over year. On the other hand, we continue to invest in our banking platform and focus our sales efforts to drive recurring revenue growth, which was 10% in Q. three, align with a our growth and align with the first half of 24, we observed similar trends in our insurance business. Revenue grew 7%, driven by recurring revenue growth of 11%, and our insurance AR. grew 13%. Kyc delivered 19% recurring revenue growth. We've continued to deliver higher levels of growth from the non-financial corporate and government sectors. And we're actively investing to scale and sustained level of growth as we extend our capability to deliver integrated solutions for a number of key customer workflows, including compliance, supply chain and trade credit. Outside of Decision Solutions, our research and insights and data and information businesses grew reported revenue by 6% and 7% respectively, which is broadly in line with a growth data and inflammation. Ar growth was a bit lower this quarter at 8% as a couple of large federal government contracts, which contributed to higher growth in 2023, where renewed at lower values this quarter. Overall, it was an exceptionally strong quarter. NIS. revenue performance translated into a 320 basis point improvement in the total company, adjusted operating margin of 32% growth in adjusted diluted EPS and over 100% of net income to free cash flow conversion. And year to date, MIS. achieved 59.6% adjusted operating margin, and that includes the adjustments to reflect the impact of increased incentive compensation accruals for MA delivered 30.3% adjusted operating margin, a sequential improvement of 180 beds from Q2 with a record third quarter and continued strength in the market. We are updating guidance to a full year ratings revenue underpinned by revised global issuance growth assumptions for the full year across all asset classes. As you can see on this slide, we expect issuance will continue to be supported by opportunistic activity in the fourth quarter as issuers take advantage of lower rates, high spreads and strong investor demand. We also expect sustained levels of activity within first-time mandates, which we forecast will revert close to pre-pandemic levels. Our revised guidance of mid 30s percentage range. Issuance growth for the full year now implied and Neil and mid-single digit decline in global issuance for the fourth quarter, which is an improvement from an expected decline in the mid 10s back in July. Now with that backdrop, we are raising our guidance for MIS revenue growth to high 20s percentage range, which at the higher end of the range would translate into an increase in Q4 ratings revenue expectation versus prior guidance, we are raising MIS adjusted operating margin range of 59% to 60%, up 100 basis points from prior guidance. The upward revision to our guidance range accounts for the adjustment to our incentive compensation as well. What's including the full year range is approximately 50 basis points of headwind from the settlement of a regulatory matter, which we recorded and disclosed in Q2. For MA. We're maintaining our guidance across all metrics. Taking all this into consideration, we are now expecting Moody's revenue to grow in the high 10s percentage range, expenses to increase by approximately 10% and adjusted operating margin in the range of 47% to 48%. Consistent with last year. The revised expense outlook primarily reflects increases to incentive compensation, the majority of which will be an MIS. as a result of the upward revisions to the full year ratings revenue outlook, sir, now to $11.90 to $12.10 and $0.8 increase at the mid-point point and a growth of approximately 20%, 21% versus the prior year. Before we go into Q&A, I want to say I'm very proud of our team's performance this quarter. And Robin, I cannot thank our colleagues enough for their hard work and dedication. That concludes our prepared remarks. And operator, we're ready to open the line for Q&A. Thank you. If you would like to ask a question, please dial star one on your telephone keypad. If you were on a speakerphone, please pickup your handset and make sure your mute function is turned off to allow your signal reaches our equipment. We will ask that you please limit yourself to one question. You will have a chance to rejoin the queue for follow-up. Again, that is star. I wanted to ask a question. Our first question comes from Toni Kaplan with Morgan Stanley. Please go ahead. Thanks very much. And I wanted to pick up on that data and information, a slowdown from last quarter. I think you mentioned the government contracts renewing at a lower value with a reduction in number of products that were being purchased, or was it pricing or something out? And maybe what percentage of revenues related to government or the U.S. federal government? And are there anymore renewals with government coming up? Thanks. Yes, thanks. We actually have this is something we've kind of signaled in the last earnings call where we had some large federal government contracts up for renewal in the second half of the year. So what you saw here in decision in data and inflammation, we had a lower renewal with one of our large federal government contract that's associated pretty much with their ad spending patterns. As you know, we're in an election year, so they're on looking at their overall contract stays. And and we expect to see on some renewals being a little bit more challenged this year. But we've accounted for those in the third quarter, and we don't expect any largest one affecting the remainder of the year. In addition to that in data and inflammation, that the thing that affected a bit the ARR growth this quarter is the transition of some of our customers on into the MSCI. And we also signaled that earlier in July when we when we were in this call, some of our customers are transitioning and sourcing their sustainability content directly, fermented guy. So that's effective at the pipeline and existing renewals and those customers as well. Thanks. Your next question comes from the line of Ashish Sabadra from RBC Capital Markets. Your line is equivalent to sugar. So the what we want to understand that can be near term issuance team and help offset headwinds from tougher comps and the pull forward as well as the revenue tailwind from the infrequent issue or do you need to normalize before we can start to grow at those levels? This use. Are we talking about for Q2? Are you talking are you starting to look towards 2025 more 2025 banks aren't? So maybe what I what I'll do here is just kind of tackle early very early too early thoughts on 2025 and maybe what some of the headwinds and tailwinds might be some. And I guess I have to do the health warning of we're not introducing guidance for fiscal 25 yet. We'll do that on the on the next earnings call. So I'll just talk about kind of what we know now. Certainly, we don't know exactly how the the year is going to finish up. But I would say that I think the balance of tailwinds than headwinds for issuance for next year probably in favor of the tailwinds. So, um, we all know that this has been a huge issuance here. Yes, there has been some pull forward. I imagine we'll talk about that later on the call. This is probably you heard me say probably going to be the second biggest year for issuance on record. So it does create some tough comps for sure. And how the year end, it finishes up, definitely factors into that. But I would say that we've got some very constructive issuance conditions, absent, of course, exogenous events that can create uncertainty and volatility, but but that should support issuance. So let's take through what those are. The first spec grade default rate is actually we've been declining and we expect that to decline further into next year. That means that spread should remain tight. They are very, very tight right now. Spreads or near their all-time lows. The expectation of lower interest rates and combine that with tight spreads. That's going to give a very, I think, favorable environment for new issuance and also for some refi than we've got the refunding walls that, you know, I talked about the nearly 5 trillion over the next four years, but in particular, the real strength around and growth in the spec grade maturity walls. M&a has picked up, I would say, kind of modestly this year versus the last two years, but I certainly would expect that recovered a recovery to continue into 2025. I mentioned that there's just there's a more and more of a need for of dry powder to work and that that is going to happen at some point. And then we've got some of those medium term tailwinds. And again, I'm sure I'll get asked about private credit and and transition finance. Both of those are going to be, I think, catalyst for demand for ratings and credit assessment, but also for issuance of debt as we as we transition to a clean in our energy economy. Now thinking about the headwinds of for a moment, I would say the market is still very data dependent. So you've got macroeconomic factors, whether it's jobs or inflation or or growth that could signal either a harder landing or softer landing or higher for longer that could impact issuance. And we've seen a little bit about throughout the year, um, it's we've got an election coming up in a few weeks. And you know, we'll see what that means for the antitrust environment and whether that is favorable and not favorable for M&A and of course, geopolitical events, um, we basically got two wars going on around the world. You think of third event would be the global economy has been surprisingly resilient so far. But I think that could really be tested if there was something another shoe to drop. And when I talk to companies, they all say that geopolitical events are kind of at the top of their risk register. So hopefully that gives you a sense. But like I said, on balance, I think modestly skewed to the positive from where we sit right now in terms of issuance for the year. That's great color. Thanks. Your next question comes from the line of Scott Anderson from Wolfe Research. Your line is open. Good morning. Thanks for taking my questions. I wanted to stick on the topic of issuance here. And Rob, maybe wondering if you could share just where we are with that philosophy right now. Obviously, I know it's a strong quarter for issuance, but just on the balance of things where we are with Jet velocity and how you're thinking about that. Yes. So obviously, that velocity has generally been improving just given the strength of the the issuance environment. And so it's interesting if you actually go back and look at it kind of take a historical look at issuance. So this year we're going to be it's probably just under 6 trillion. And if you go back to, say, 2012, and I know a taker is not a perfect thing to do. And as you know, in this situation, but you'd have a taker of something like 3.5% in terms of the growth of issuance from 2012. I understand it's not linear but growing a little bit more than and then GDP growth. But if you look at the stock for total stock of nonfinancial corporate debt outstanding, that's grown by something more like 7% over that period of time. So, um, you know, it's interesting that the debt that means, therefore, that debt velocity has been below kind of the historical averages just because there's so much more debt outstanding. And so we've gotten close to that closer to that historical average we look at that is about 14%. And we look at the nonfinancial corporate that other people looked at looking at different ways. We're still underneath that probably something like 12% for fiscal 24. But I think that indicates just where we are with that lost is still below historical historical averages to may actually indicates that that's actually a tailwind when you think about the potential for issuance growth in the future. Great. Very helpful. Thank you. Your next question comes from the line of Andrew Nicholas from William Blair. Your line is open. Hi, good morning. And I wanted to ask a question on research and insights. I think last quarter you talked about your expectation that our growth would accelerate in the back half of the year. I think you cited the research assistant tooling and some of the release of some private credit oriented products supporting that doesn't look like we saw it in the third quarter. Just wondering if there's anything else to unpack in that line, particularly early in may be that that's an excuse to ask about the broader monetization of the Gen-i related tools so far this year. Thank you. Yes, I'm happy to take that. So research and insight for the third quarter grew 6% AR., which is aligned with the first half of it's also a little lower than the 9% we saw prior to the attrition events that we've talked about in previous calls, our so they can continues to be a bit of pressure in use by the stress in the broader banking sector. But as you said, we're investing in research assistant. We have a strong pipeline and research assistant as we are entering the largest quarter of the year. We also have very interesting usage stats and customer satisfaction scores for research assistant that are very encouraging. Actually, the satisfaction NPS score for CreditView users who are using research assistant significantly higher than the trades, the users who aren't using it. So that thing that's a very strong driver for pipeline growth. We continue to see a little bit longer than a sales cycle that we had expected entering the year with a we have very rapid adoption with the early adopters in those smaller asset management players. But when it comes to large financial institutions, you know, the adoption of Gen Y II. capabilities has maybe been a little slower that we had expected at the beginning of the year, simply because they're going through their own Gen-i utilization framework and governance. So to your point, there's a lot of pipeline, and we're working very hard to close that in the fourth quarter. And I think on the overall M&A and our outlook for the full year, we also have some interesting pipeline growth, KYC, which we expect will contribute to continued growth in the fourth quarter and beyond. No. I mean, I think you know, we had expected some acceleration in the second half of the year, um, I think we still expect to continue to see some modest acceleration, but we'll probably see a are are in the lower end of high single digit growth rather than our previous expectation of at the higher end of high single digit growth for the fourth quarter, just based on some of the things that new and just talk about and Rob research and insights or M&A as a whole, just to be clear. Well, I was specifically referring to research and insights in that case. Okay, understood. Thank you. Your next question comes from the line of Manav Patnaik from Barclays. Your line is open. Thank you. Just to stick on AMI, the revenue with our growth keeps widening. So I was just hoping you could just help level set in a way that is today. And then thinking about how that flows into 2025 would be helpful as well. Yes. So on the revenue enough, we have focused on recurring revenue. As you look at recurring revenue for decision solutions, research and insights and data in inflammation, it's very close moving closely to the ARR growth. So let me unpack a little bit. The revenue growth dynamic 43 and the different commission bonus that at a revenue grew 7% on a reported basis in Q3. Our recurring revenue, which is 95% of the total revenue in the quarter grew 9%, which is very much in line with the pace of a are what's going on there as you have our training and other services revenue that's declining that are declining double digit. And our revenue for multiyear on-prem software remained stable but fluctuates throughout the year based on timing of renewals. So there's a couple of dynamics that I want to call out that are beyond the 9% growth in recurring revenue that should help tie that back to the ARR growth in the longer term profile of the business, I should have banking, our recurring revenue banking and insurance and KYC workflows. What we call Decision Solutions grew 13% in the third quarter, and that's pretty much in line with what the what we saw in the first half of the year. That's 19% growth in our KYC solution. And banking and insurance grew about 10% and 11% recurring, which is again very much aligned with AR. On the research and insight again, we saw that's about 30% of our business with our recurring revenue growth of 6% in the third quarter. That's actually improved slightly from the 4% we signed the first half. We've talked about some of the attrition events and some of the pressure in with research with asset managers and banks previously. So that's been a bit of a headwind to growth in this businesses this year. But the again, the recurring revenue growth is very much in line with ARR. And on data and inflammation revenue, we grew 7% in the third quarter. I talked about the effects of some of the renewals with our government federal government contract. That's now behind us and we have very significant prospects in the pipeline that should get that growth rate a little bit higher up in the upcoming quarters. So hopefully that gives you a sense of the revenue growth dynamics in the third quarter. It's again very much probably in your mind with with the first half on except for decision solution where we had a bit of a tough comp in the large renewals of the government contracts that renew that lease rate this year. And no, I mean, maybe I mean, you touched on it just that there's the transactional one-time revenue and recurring revenue. And actually for fiscal 23, actually that onetime revenue actually grew in this year. Obviously, we're seeing a decline. So that would contribute to Thank you. Your next question comes from the line of Owen Lau from Oppenheimer. Your line is open. Hi, good afternoon and thank you for taking my questions. I know we have touch on private credit in the past, but the narrative of public private market convergence, it's expanding. And Rob, you talked about Apollo investigate and I think one idea the two well was so-called standardized credit ratings. So could you please talk about how much appetite for investment grade issuers to a step directly from DPE. firm and bypassed awaiting process done by Moody's or the credit rating, it's so valuable that they were still needed? Thanks. Yes. oh and Thanks, Tom. So I've had a lot of engagement with many of the most senior players in this market over the last and I'll call it over the course of this year. And while I think maybe two years ago, we kind of talked about this defensively, there's a real opportunity here in a real need. There's a real need for independent third party credit assessment, whether it's through ratings or other tools. And it's interesting because when we engage with the big players like the Apollo's and the Blackstone's one of the things that we hear and again, I referenced, if you look at their investor day, they talk about credit rating agencies being an important part of the ecosystem because we have the ability to provide the data, the analytics and though the ratings that and that will help people understand the comparability of whether it's public or private credit. And as they are looking at the growth of that market. And if you start to think about private credit, not just as leveraged direct lending, but you start to think about oh and you mentioned investment grade in many cases, Asset Backed Finance, the numbers are much bigger than the 3 trillion that I talked about. But there is going to be, I believe, a need for us ratings and third party, but credit assessment. And so we have a great dialogue actually with many of the largest players in the market about ways that we can serve those needs. So for instance, Owen, we've got some we've got real a lot of growth in our ratings of BDCs and credit estimates for the exposures in the BDCs. I think we probably have the leading coverage of BDCs in the market that's contributing to the growth in our FIG franchise. We've got a growing pipeline of fund finance ratings, whether it's feeder funds, credit linked notes, it's sub lines, all of that. There's a lot of demand for that and a lot of demand for rating. So again, you're going to see that come through the state line in ratings and then all the asset finance because remember on whereas a lot of that going to a lot of that is going and sitting on insurance balance sheets and those insurers are right rating sensitive. So as this market grows, I think ratings are going to play a really key role. And I think you're going to sell actually a lot of that revenue come through to the ratings business. So hopefully, that gives you a sense of why we feel optimistic about this. And though in the last thing I would say is, look, the key for us is to make sure we understand where's the flow coming from, right? Do we have the methodologies in place, rigorous methodology so that we can write this stuff? Do we have the people right? The resources to be able to do this and play that role in the market. Thanks. Ofer Takata, Rob. Your next question comes from the line of Faiza Alwy from Deutsche Bank. Your line is open. Yes, hi. Thank you so much. So I wanted to ask about Moody's Analytics again. Just in context of your medium-term targets. I know you referred to them previously as aspirational. I'm curious if you have an update on that at Qwest, given that there has been a little bit of deceleration this year, maybe if you could highlight what are some areas that you're most excited about and if you expect an acceleration as we think about 25 and beyond? Yes. Hey, thanks. Great question. So I think absent a real catalyst, you know, we would update those medium-term targets annually. And so I think we'd be prepared to talk about the targets in the February earnings call. But maybe just to give you a sense of, you know, we've talked about those targets serving as kind of our North Star to drive innovation product development. Let me maybe talk to you about where I think the big opportunities are that we're going after to be able to achieve those medium-term targets. So I would say it's a it's really around kind of a land and expand strategy. So if you think about we've got relationships with several thousand banks probably close to 1,008 tours, we have a really good customer footprint in financial services and we have an opportunity to do more for those customers. So that is really and expand strategy and financial services. You know, if you look at the number of products and solutions that many of the customers take, there's still a big opportunity for us to do more for them. We've actually provided that some of that data on on prior calls, we've done the spotlight on insurance and banking. And then with with corporates, it's really a land strategy. And so I think no, I mean, just touched on it briefly, but we've got one of the world's largest databases back on queue companies. And that then supports a range of interconnected use cases, including things like trade credit, customer onboarding and monitoring and supplier risk. And so we see a pretty big opportunity to go after that. And that means probably a lot more new logos in the corporate space and a lot more cross-sell and upsell in the on the financial services space. So again, we've still got some things to do to be able to better enable the cross sell and to be able to we know we talked about earlier this year about the investments we're making in building out that platform to serve corporates. But those are the things we're doing to trying to trying to get after those medium-term targets. Thanks, Rob. Your next question comes from the line of David Motemaden from Evercore ISI. Your line is open. Thanks. Good afternoon. Rob, could you just give us an updated view on the pull forward that has taken place this year and in 3Q specifically, and if that's lowered your expectations for issuance growth at all in 2025? Yes, hey, first of all, and welcome to the call. It's good to have you got to have you on. So it's actually interesting when you look at pull forward, it's a little bit of a of a tale of two cities between investment grade and spec grade. And if you get a chance to dig into those refunding studies that we published, you'll see a lot of this in there. But if you look at it investment grade, so 2025 investment grade maturities actually grown by about 9%. The very high there, 18% higher then the one year forward maturities were last year. So you're starting the year, the maturities are both. And that's that's pretty typical, right. If you're an investment grade issuer, you generally have market access throughout market cycles at grade issuers are more sensitive to risk on risk off and market a market window does. So you'll see more pull forward typically from spec grade issuers who don't want to get to a quarter before their maturity. I will say that when we look at the data, it does look like there has been a bit more pull forward in spec grade. Then would we what would be typical then and then kind of historical averages this year? That's not surprising. I think we had had been seeing that, but it's also interesting. Again, if you look at just the maturities one year forward, right now, they're about the same level as they were this time last year. And so the other thing I would say is if you actually go to drill down into the US, so some of these some of these refi walls are a little bit more back-end loaded, particularly around spec grade, but about 25% to 30% of spec rate loan and bond maturities in 2028 actually issued in 23 and 24 when rates were elevated. So that I mean that tells us if we have a declining rate environment going forward, we may actually start to see some pull forward from the very elevated maturity walls in a little bit out in the future. So when you actually combine investment grade and spec grade maturities. So as I said, we've had less pull-forward investment grade, more pull forward and spec rigs, actually the on an aggregate basis, the pull forward the one year, the pull-forward from one year forward maturity walls, almost exactly in line with historical averages. And the forward maturities, one year out our 15% higher than this time last year. So I think net net, despite the fact that we've had to have your spec grade pull forward this year, actually think this is still in a tailwind for us in the near term. Your next question comes from the line of Craig Huber from Huber Research Partners. Your line is open. Thank you, Tom. Can you just talk a little bit about the spread that you had between the 70% transaction revenue growth in ratings versus 51% global issuance in the quarter? And then maybe no, Amy, just filling it with the incentive comp points in Q3 and Q4 outlook. Thank you. Yes, Craig. So we had a favorable mix of we certainly know Jamie talked about we had very strong investment grade issuance, but there was a lot of opportunistic issuance. So, you know, if you think about investment grade issuers, we have two kinds of commercial constructs. We have frequent issuers and we have infrequent issuers just tapping the market. But then we had a very strong leverage finance growth. Leveraged Finance is typically a revenue mix friendly. That was certainly the case. And then of course, we also have we had a real pickup in first-time mandates. And so they have oftentimes there's fees associated with onboarding first-time issuers on. And we had the minute you kind of our consistent pricing initiatives, which all contributed to favorable revenue mix relative to issuance. And then on the incentive compensation for the third quarter of 2024, we actually recorded an adjustment to the accruals to reflect the updated our full-year revenue outlook in A minus. Specifically for the incentive compensation accruals were about 100 million and in the third quarter, which is higher than prior year by 54%. Just for the full year, we expect incentive compensation overall to be approximately 419 million, and that translates into about $120 million for the fourth quarter. Great. Thank you. Your next question comes from the line of George Tong from Goldman Sachs. Your line is open. Hi, thanks. Good afternoon. I wanted to dive more into your ratings outlook. You mentioned on a net basis, the pull forward of IG and spec grade is exactly in line with historical averages in the fourth maturities, one year out is above 15% higher and get your updated guide implies about mid single digit MIS revenue growth in 4Q, even though comps don't really get tougher in the fourth quarter. So can you talk about what leads you to think 4Q issuance growth will moderate meaningfully? And to what extent do you think for QMIS. growth will serve as a proxy for 2025 minus growth? Hey, George. So, you know, we've talked about in each of the earnings calls this year that we believe that issuance is going to decline in the fourth quarter versus the prior year quarter. Because there's been intra year pull forward. So that's with in the calendar year. And that's just banks telling issuers pay in the event. There's any election volatility. Why don't you just get ahead of that? Um. And so we're also looking at the strength of the issuance to date. So we actually have lifted our outlook for Q4 issuance. So we versus our prior forecast. So we now expect the fourth quarter issuance to decline in something like the mid single digit range and it was mid 10s percent decline in our prior guidance was actually lifted the view for the fourth quarter. And that lift, combined with the beat in the third quarter led us to up our full year issuance outlook to mid 30s. And then you triangulate that, um, you know, to revenue where we're looking at something like low single digit percent growth in revenue over the prior year quarter. Peter, and that's just again, what contributes to that favorable issuance mix. Some of the things I just talked about with Craig's question from 2025, I think could be at a different ballgame. Again, there's just been a lot of we believe, calendar year pull forward, and I think you are going to know loaded or would put. Your next question comes from the line of Shlomo Rosenbaum from Stifel. Your line is open. Hi, thank you very much. Rob, can you give us a little bit of an update on some of the progress for the various AI. products, so you had like Navigator skills assistance. Can you talk about where you are in both in development and then also in kind of adoption? I know when we talked about a little bit of us, not as fast as in adoption because the clients were sitting at their own frameworks. Maybe you could talk about is there anything that leads you to believe that the the pace is going to be dramatically different from what you thought or the adoption will be very different from what you thought? Fish Loma? Thanks for the question. So on let me just kind of tick these off here. So we talked a little bit about research assistant, which was our first product in the market. So I'm not going to spend too much time on that. Since then. We've rolled out a suite of what we call Navigator. So this is, I think of a I enablement of the existing products are allowing you to kind of get the most out of the products. We've rolled that out across a number of products, and that's going to be helpful to both. Um, you well know, Amy mentioned some of the things that have come number satisfaction, it's going to be helpful to retention. It's going to be helpful to our ability to price behind those enhancements. We've also started to roll out other AI. enabled products. Research assistant was the first and second was in a I early warning system leveraging on a number of guests on that's focused primarily on banks. And then we've started early in the year. We did have a very small like Aqua higher, a company called able AI., and that brought over a small engineering team that was working on a I enablement for banking workflow. And so when we brought them over that, then accelerated our product roadmap for banking. And so we've rolled out an automated credit memo from offering and automated covenants. So you're going to see more and more AI. enablement of our banking workflow of our insurance workflow. That's one of the benefits of having the IRP as well as insurance, very easy to, um, you know, to do the AI. enablement. So I was just in terms of adoption, you know, it's a mic bag, um, we talked a little bit about it. You've got in some cases, you're smaller firms, asset managers and others are able to adapt more quickly when it when it comes to the the big banks, they've all got, you know, risk frameworks and regulators and other things that they have to make sure before they're deploying these AI. enabled solutions that they've got of a risk and control framework that's going to pass regulatory muster. So while those conversations, these are very encouraging because we've elevated the dialogue we're having having at many of our customers, they're taking longer. So hopefully that gives you a sense. Thank you. Your next question comes from the line of Jeff Silber from BMO Capital Markets. Your line is open. Thank you so much. In looking at your guidance for the year, and if I tried to back into the implied guidance for 4Q adjusted EPS on it looks like you're guiding to that to be flat to potentially down. Are you being overly conservative or is there something specifically going on? Thanks. We're guiding for we've updated the adjusted diluted EPS guidance range based on the updated Q4 implied outlook. And so if you'd just to give you numbers, we're raising our adjusted diluted EPS guidance range and we're narrowing it to for the full year to $11.90 to $1.10. And that's still 21% at the midpoint, which is driven by MIS. performance. So what we've done here is we flowed through the Q three beat through our full year guide, and we've increased our ratings revenue outlook for Q4 versus the prior forecast at the high end. So the midpoint of our updated guidance now implies Q4. This growth will be relatively flat to slightly down into Q4 versus the prior period and down approximately 30% sequentially from Q3, which is aligned with what we've seen that the top line fine by us. Then I guess as to the sorry, go ahead. So it's not just going to ask if there's something specifically going on with margins in the fourth quarter, we should publish a 5%. So for the fourth quarter margin, as I said earlier in my prepared remarks, we've accounted for the incentive compensation adjustments in the third quarter to reflect the updated Q4, the updated the top line outlook. So that's already been accounted for. As you look at the margin for the Q4, we that's really the effect of the incentive compensation, but there's nothing else that that we should. Yes. I mean the MIs margin, I mean, I think primarily it's just enough revenues are going to be lower than we'd expect that margin to to be a bit lower. And so as I said, let's watch kind of a starting around the second week of November and see what's going on for issuance. And that will give you a sense of how to think about our guidance. Fair enough. Thanks so much. Your next question comes from the line of Jason Haas from Wells Fargo. Your line is open. Hey, good afternoon and thanks for taking my question. Appreciate the comments. Earlier on NAARR., it sounds like the data and information and research and insight is maybe not as strong as expected, but there is no change to the full year guidance there. So I'm curious on if you're now expecting closer to the high single digit, low double digits. Then if not, can you talk about what other areas have been coming in, stronger than expected to offset that? And then maybe also any color on what would drive an acceleration from 3Q into 4Q? Yes, in the quarter was 9%. It was a bit lower than our recent sustained performance of 10%. That was affected by some of the factors we've highlighted on last quarter's call. Stepping back and looking at our performance to date, we've had more attrition events in the first quarter. As we said, we had a bit of a lower sales than expected with our banks and asset manager customer segment as they continue to face tight purchasing pattern. And we also had a couple of headwinds from the other factors we've talked about in the last call that customer transitioning to MSCI for sustainability solutions and in large federal government contracts that renewed at a lower value in Q3. We also want to acknowledge that the new business growth has been a little bit more back-end loaded than we initially thought of 55, 50% more pipeline entering the fourth quarter this year than a year ago. Looking out to the remainder of the year, we're maintaining our outlook on the high single digit on revenue growth and they are of high single to low double digit with a midpoint are still in the higher end of the high single digit. That's the guidance for the full year. And we have, as I said, a strong new business pipeline going into the fourth quarter. We had a very large book of renewal for the month as of December, which we expect renew at 93% plus rate in line with what you've seen year to date. So again, the good pipeline creation that we saw in the third quarter, which was driven by a, I think, an increase of 35% in meeting activity. A lot of those in person that's ramped significantly up from a year ago. And so as we're heading into the fourth quarter, which is our busiest month of the year, our biggest quarter of the year on new business pipeline is very healthy. And we have a good mix of large deals in our KYC and data in inflammation. Businesses also have a large volume of new business and renewals, which is what underpins our outlook. Yes, maybe just to double click and by the way, welcome to the call, Jason, have you on just to double-click on may be an area where there are plenty that you know that that we're encouraged by. As Louis said, we've got a very nice pipeline relative to this time last year. But in KYC., we've got a really good set of product launches. So we've got a new digital investigations product that we've just launched in September. We've got a lot of customer engagement around that. We've got our identity verification offering, which is got a really nice and growing pipeline. And also there's a really interesting emerging opportunity here to lever, Jay, I to build screening agents. And if you think about how much of what is going on around KYC diligence is done by armies of people, oftentimes offshore centers. There's a real opportunity to leverage our both our data as well as a I to be able to not only be more efficient and actually be even more effective and have a great year, a great audit trail for the regulator. So some very interesting stuff there. I think in our product, recent product pipeline around KYC that, you know, leads us to continue to be very optimistic around that business. Good to hear your thinking. So. Our next question comes from the line of Jeff Meuler from Baird. Your line is open. Yes. Thank you. So this kind of run counter to that last answer, but can you just comment on KYCARR. in the quarter, 40% growth is great, but it decelerated from much or KYC business has historically done. I don't know if there was any holdback of customers waiting for the new product launches or just any comments on wide KYC growth was a little soft yet or are in the quarter? The KYC, our growth was at 14% in the third quarter. That was lower than the 19% we saw in Q3 last year. In Q3 last year, we had a large transactions with the federal government. As I said earlier, some of those renewed at a little bit lower rate. So that's what explains the lower number for the third quarter. Having said that, we have a strong pipeline, as Rob said, heading into the fourth quarter. So we expect this to be more of an air pocket than a new run rate. Thank you. Your next question comes from the line of Andrew Steinerman from JPMorgan. Your line is open. Hi now aiming I wanted to ask about product that I think it was the only acquisition that Moody's has done with revenues closed in the last 12 months. Just tell me if I'm correct about that specifically about product cat, I'd like to know the dollar contribution both to revenues and are in the third quarter just reported and in the fourth quarter guide. Andrew, it's it's Rob. We did maybe you're talking about M&A. We did acquire the remaining interest in GCR., which is the African rating agency. And that closed in the very beginning of the quarter and that that that had revenues and operating income, I guess I would say it's just this is immaterial to our overall our overall financial results. And I know you're looking for an organic number, I might steer you to ARR. So I would say first of all, credit card is not in our third quarter results. And if you look at our ARR is inorganic number. So that would give you a sense of excluding acquisitions. Okay. Thank you. The one other since we're on the topic of credits out, I mean, it was a it was a really nice bolt-on for us to move into the casualty space. Rms very, very strong in the property space. And this allowed us to move into the casualty space. And we announced that acquisition right before a huge industry conference in May in Europe that I went to. And we did, you know, literally north of 100 customer meetings and there were some very strong interest in, you know, in credit cards capabilities and really understanding emerging in long tailed casualty in mass tort risks. In fact, I think it's something you're going to be able to use across not only analytics, but also even though it will help inform some of our work and rating. So we're really excited to have a product out as part of the Moody's family. Thank you. Your next question comes from the line of Russell calling from Redburn. Atlantic. Your line is open. Yes, thanks for squeezing me in. Rob, I wondered if you could be a bit more specific about the levels of growth you're seeing in private credit assessments and how much that's contributing to the revenue today. And you mentioned being in the early data parts in the rates in the PDC. I wondered what else should be ManTech's those conversations are not seeing to immediate revenue opportunities or if this is both stuff for the future? Yes. So Russell, thanks for the question. I actually, I would say we're going to see revenue. So we are already seeing revenue from private credit flowing through the rating agency and analytics that's already happening. So in terms of the conversation with 19 and the other day, and I said a I have is a fantastic job opportunity for us. So as private credit, but private credit is going to manifest itself in the financials faster than AI. is going to because of some of the dynamics I just talked about in terms of adoption curves. So we've got some work to do to start to break out for you all and give you a better sense of how we're capturing private credit revenue coming through both the rating agency and the analytics business. And you know, we know we we in some ways kind of owe that to you all. But what I would say is, again, back to a few my comments earlier were already seeing it come through FIG rating. Thanks. And that is through the ratings of BDCs and fund finance instruments. And while those numbers are small relative to things like what we're doing, the total revenues that we're getting from rating insurance and banking issuance, it's growing quite fast, in fact, in many cases, growing faster. So what we're doing with BDCs that's growing faster than, for instance, our revenue line for banking, right? So you're going to see it and you're already seeing. And in fact, we're already seeing it in structured finance and the rating of asset backed Asset Backed Finance. And we talked a little bit about that earlier, and there's quite a pipeline for that. We're starting to see it in our even in our project finance area where there's more and more demand for private ratings that for them, loans that investors are investing in and actually want a third party, you know, it's a third party view of risk. And so it's interesting as you think about what's going on with the banks in this kind of originate to distribute model that they're more and more moving to that, they're all saying, hey, look, in order to distribute this credit to a wider broader range of potential investors, including everything from insurers, pension funds, high-net worth you name it. We need a third party assessment of credit risk. In some case, in many cases, that's a rating for the instruments that I talked about. But there's also demand from the investors who say, hey, look, I'm invested in these private credit funds, and I want to have more visibility into the credit risk in these funds. And I want that to come from an independent source, so rather than from the GP themselves, right? So we are seeing demand for that. And in fact, when we announced our partnership with MSCINESG., we said that we're working to explore opportunities to leverage their distribution into the LP and GP community and to be able to provide unique solutions around private credit. In fact, we just had a fantastic meeting with the teams, and we're working to do do exactly that. So I think, again, I know that we need to do probably a little better job of helping you understand how that's starting to materialize across both parts of our business, but we're already seeing that come in both P & L's. Okay. Thanks. Your next question comes from the line of Alex Kramm from UBS. Your line is open. Yes. Hey, hello, everyone. I know it's late in the call. So just a quick cleanup here on on MA margin. Can you just talk about Finke? I'll do my math right. I think margin supposed to tick up in the 4Q, but generally speaking, from a seasonal perspective, on costs go up after the 3Q margin goes down. So I don't know if that's part of the incentive comp you talked about or anything else and obviously predicated coming in as well. I think. So just maybe flesh out why this year maybe a little bit different. And I'm sorry, related to that, you talked about investing a lot in MA early on the calls. I'm just wondering if you have any updated thoughts on the margin expansion that you're looking at for that business in the next couple of years. Thanks. Yes, thanks for the gain on the queue for question. And this is the seasonality of revenues on driven. So as you know, our fourth quarter in MA is the largest quarter in terms of revenue. So given the typical CHF in the fourth quarter, we expect the adjusted operating margin and a tick-up in the fourth quarter or just slightly above the range of our guide. There's a little bit of headwinds from Predica, but as Ron said, not materially affecting the guide and we're maintaining our 31% margin for the full year. So that for Q4, now looking at in the outer years, as Rob said, we'll update you later in February. But where we've been investing, we've invested in our G&A, I capabilities not platforming in our new product development. I'd say we're mostly through that investment side will and will be really focusing on expanding and the margin and continuing to migrate some of those customers from the legacy platforms into the banking and IRP. And that will drive margin expansion in the long run will also mean, you know, making sure we're very disciplined in the management of discretionary spend. Actually you saw that material rising in the expansion in operating margin and they in the fall in the third quarter, despite the fact that revenue kind of remain consistent with the second quarter. And so that's that's really what I can say about the MA margin and still reiterating our guidance range for the full year. Yes. So the reason now to underscore underscore that we're definitely committed to the medium term targets for margin for MA. I'm also reflecting on one thing I said earlier about some positive mix on on leverage finance and I lumped bank loans and high-yield together. And that's actually I think because of all the the refi and reset activity we had going on on the refi with loans that wasn't a favorable mix, but high yield was sorry, just going to make sure that was that is clear. But on balance, we had a favorable mix from from our corporate finance issuance. And that concludes our question and answer session. I will now turn the call back over to Robin Nuomi for some final closing remarks. All right. Well, thank you, everybody, for the questions. And we look forward to talking you are talking with you on the fourth quarter earnings call until then Take care. This concludes Moody's Corporation Third Quarter 2024 earnings call. As a reminder, immediately following this call, the company will post the MIS. revenue break down under the Investor Resources section of the Moody's IR homepage. Additionally, a replay will be made available after the call on the movie, our IR website. Thank you.