Noemie Heuland
Chief Financial Officer and Senior Vice President at Moody's
Thank you, Robin. And hello, everyone, and thank you for joining us today. Starting with our Q4 results, we delivered a very strong finish, capping a year of remarkable financial performance in '24. You can see the highlights from our full-year results on Slide nine. But Q4 MCO revenues were nearly $1.7 billion, up 13% year-on-year and our adjusted diluted EPS was $2.69, $0.62, up 20% year-over-year. MIS delivered its second-highest Q4 revenue on record with growth across all business lines. The anticipated volatility around the US election didn't materialize and with spreads at their tightest levels in over a decade, particularly in spec grade and the robust demand environment continued throughout the quarter until the last days of December. MIS revenue in Q4 were $809 million, up 18% year-on-year. First, the growth was driven primarily by three key factors: first, healthy leveraged loan issuance activity, which was up 134 in Q4 however, with the mix weighted towards refinancing and repricing, transactional revenue for that asset class was up 27%. Second, the continued strength from infrequent issuers in the banking and insurance sectors; and third, strong performance from structured finance in particularly in US CLOs and CMBS, reflecting strong demand in a very favorable spread environment. MIS' 4th-quarter performance and corresponding higher incentive compensation translated into a 51.3% adjusted operating margin, which exceeded our implied guidance. Turning to MA, we also had a strong Q4 with revenue of $863 million, up 8% year-on-year. Recurring revenue, which accounts for 95% of total revenue in MA, grew 10% year-on-year, broadly in-line with the 9.4% growth in AR. As Rob said, Decision Solutions drove the performance with 12% growth year-on-year. We delivered strong growth across lines of businesses in Decision Solutions with banking, Insurance and KYC achieving ARR growth of 9%, 12% and 17% respectively. More specifically, KYC ARR grew 17% with strong demand from customer and supplier-rich data usage and sales from new customers. Insurance ARR grew 12%, driven by improved customer retention and strong demand for our cat model tools as extreme weather events are becoming more pervasive and impactful across industries. This is generating demand for our best-in-class risk modeling solutions with the IRP. And our Q4 -- Q1 2025 acquisition of Keep Analytics only builds on this, as Rob highlighted. Banking ARR grew 9%, reflecting strong customer retention and expansion of relationships with subscription-based offerings that are enabling customers' lending, risk management and finance workflows. The other two lines of businesses in MA includes our more established data and research franchises. Data and information grew ARR by 8%, driven by demand from within the corporate sector. Research and Insights grew AR by 6% with the attrition events from the asset manager space we discussed earlier in the year affecting the growth rate. That said, sales, meaning cross-sell, up-sell or upgrades grew meaningfully above ARR trends in-full year '24 and some of this was from upselling research assistance to our Credit View customers, which accounted for 25% of our overall research and insights ARR growth., we are encouraged by the customer engagement for Research Assistant, one of our Gen AI offerings and that's building a healthy pipeline for 2025 and has already reached more than 100 customers in Q4. MA adjusted operating margin of 33.8% increased 240 basis-points versus Q4 last year, leading to a full-year margin of 30.7%, which is towards the high-end of our annual guide. Thank you. Now turning to fiscal year '25 guidance. We expect MCO revenue growth in the high single-digit range with an adjusted operating margin expanding by about 200 basis-points to approximately 50%. And this is on the back of a fiscal year 2024 where we increased adjusted operating margin by 420 basis-points. Our adjusted diluted EPS guidance range is a range of $14 to $14.50. Now for MIS, we expect market conditions will remain constructive this year with tight spreads, declining high-yield default rates and an uptick in M&A activity. You'll see our issuance outlook for individual asset class on this slide, but all-in all, we're projecting MIS rated issuance growth to be in the low-single single-digit range for '25 with 700 to 800 first-time mine mandate. For MIS revenue, we expect growth in the mid to-high single-digit percent range for the year, benefiting from a positive issuance mix. We expect the revenue performance to translate into an adjusted operating margin of 62% to 63%, which at the midpoint represents about 250 basis-points of margin expansion year-over-year. For MA, we expect revenue growth in the high single-digit range with ARR growth in the high-single-digit to low double-digit range. We expect MA adjusted operating margin to be between 32% and 33%, which at the midpoint represents 180 basis-points of margin expansion year-over-year. Turning to what underpins MA and the expected MCO margin expansion. First, we took a hard look at our operating model and believe we have an opportunity to simplify our organizational structure. In our analytics business, we are for the most part through the integration of the businesses we've acquired over the recent years. We are also gradually reorienting our go-to-market from selling individual products to selling end-to-end solutions to our customers in the banking, insurance and corporate segments. This puts us in a position to combine resources in our customer-facing, marketing, product and data engineering functions and further consolidate our real-estate footprint. And also more broadly across the organization, we're starting to reap the benefit of the investments we made in automating our workflows, which translates into expected improvements in operating leverage. Thank you. So in connection with this, today, we are announcing an efficiency program to simplify the organization, allowing us to accelerate profitability expansion and redirect some investment capacity to strategic growth areas. First, we plan to incur between $200 million and $250 million in restructuring charges over the two-year duration of the plan, primarily in personnel-related costs for an expected total annualized cost-savings in the range of $250 million to $300 million upon completion of the plan. We accrued approximately $45 million already in the 4th-quarter and expect to record an additional charge in the range of $80 million to $100 million in-full year '25, primarily in Moody's Analytics and to a lesser extent within our corporate functions. I'd note that we have included the full-year '24 to full-year '25 operating expense bridge in the appendix of this presentation to assist with modeling questions. Thank you. And here's some color on how to think about the calendarization of top-line and margin. First, we expect MIS revenue in-full year '25 to follow a similar quarterly pattern to '24 with first-quarter revenue up in the mid-single-digit range from the first-quarter '24, ramping-up in the second-quarter before declining sequentially in our third and 4th-quarter., for MA, we expect our year-over-year total revenue growth to be consistent in the high single-digit percent range for the year with Q1 revenue being sequentially flat versus Q4 '24, a pattern that's consistent with the prior year. For operating expenses and excluding the impact from restructuring and asset advantagement charges, we expect expenses to follow a normal seasonal pattern. Sequentially, we anticipate expenses to increase by about $10 million from Q4 to-Q1. And then we anticipate operating expense to follow a typical seasonal pattern, but to remain relatively stable throughout the remainder of the year as savings associated from our efficiency program offset annual salary increase in variable costs associated with revenue. In terms of margin, we expect MIS to be in the mid-60s in the first-half before declining in the second-half in-line with revenue. And for MA, we expect approximately 30% in the first-quarter, sequentially improving in the second-half to achieve our full-year guidance of 32% to 33% as revenue ramps and as we start to see the savings from our efficiency plan in the second-half. In terms of how these different dynamics translate into adjusted diluted EPS, we expect this to follow the MIS revenue cadence. And more specifically for Q1, we expect adjusted diluted EPS to be at the high-end of the implied quarterly adjusted diluted EPS range of $3.50 to $3.60. So finally, looking beyond 2025, I'd like to talk about how we're tracking against our medium-term targets. It's been three years since we published those and with almost a year in the CFO seat, I'm using this as an opportunity to take stock on how our performance has stacked up. The headline is this, 2024 adjusted diluted EPS is up 46% from two years ago. And the midpoint of our full-year 2025 guidance implies an 18% adjusted diluted EPS CAGR through the first three years. Significantly above the low double-digit medium-term target growth rate. Now a lot of this outperformance has been driven by very good execution during a robust issuance environment with MIS revenue up 40.5% in the last two years and adjusted margin already exceeding 60% in 2024. We also have delivered strong organic growth in MA, reporting ARR growth consistently in the range of 9% to 10% over the last two years. As we look-forward, we expect the retention rate to remain in the low-to mid 90s percent range and to continue to grow our new business at low-to mid-teens percent pace, enabling us to sustain ARR growth in this 9% to 10% range in the coming years. Of note, what's most notably different now from what we envisioned when we initially published our medium-term guidance is that our recent M&A has been at a smaller-scale and focused on enriching our offerings to fuel durable growth in our strategic growth areas, including lending and casualty underwriting. First, on profitability, we've invested in Gen AI and process automation more broadly for internal efficiencies. We've invested in the build-out of the MA platform and our data interoperability, all of which are expected to generate increased operating leverage in the coming years., we expect that this coupled with our program to simplify our organizational structure will translate into M&A margin expansion in the mid to-high 30% range by 2027. Thank you. Now bringing this all together, for MTO MTO, we are increasing the range for our adjusted diluted EPS growth from the low double-digit percent growth to low-to mid-teens percent growth range, reflecting our ongoing efforts to improve the earnings power of our business. Thank you. To wrap-up, we believe the demand drivers and the execution of our strategy will deliver attractive and sustainable growth and profitability expansion across market cycles. We remain committed to executing on our capital allocation strategy and anticipate consistent strong free-cash flow returns to continue as we work to deliver on both our customers and shareholders. I'd like to thank all of our colleagues around the world for their remarkable contributions to another great year for Moody's. And with that, Rob, Mike and Steve and I will be happy to take your questions. Operator?
