Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Moody's Corporation (MCO, Financial) reported a 22% revenue growth for Q2 2024.
- Adjusted operating margin reached nearly 50%, showing strong profitability.
- Annualized recurring revenue (ARR) grew by 10%, marking the seventh consecutive quarter of double-digit ARR growth.
- The company raised its guidance for share repurchases from $1 billion to $1.3 billion.
- Moody's Corporation (MCO) continues to innovate, launching new products and expanding partnerships, including collaborations with MSCI, Zillow, and Google.
Negative Points
- There is potential uncertainty in the buying environment for the second half of the year, leading to a wider ARR guidance range.
- The company expects a more muted issuance in Q4 2024 due to election-related turbulence and earlier issuance guidance by banks.
- Tight purchasing patterns in the banking and asset management sectors are putting pressure on upsell, pricing, and retention.
- The transition to integrating MSCI's ESG scores and data may impact the sales pipeline and retention in the near term.
- Transactional revenue in the MA segment is expected to trend downwards in the second half of the year as the focus shifts to renewable sales.
Q & A Highlights
Q: Issuance continued to be strong in the second quarter, and you raised the guidance for MIS. Could you please give us an updated view on your pull forward expectation? Do you now expect less impact on pull forward than you had expected a few months ago?
A: Robert Fauber, President and Chief Executive Officer: We have seen both types of pull forward this year: planned financing within a given calendar year and pull forward from forward maturities. We expect the fourth quarter to be more muted in terms of issuance due to election-related turbulence. Pull forward from 2025 is within historical ranges, and 2026 pull forward is lower as issuers wait for rates to come down. This does not change our outlook for next year.
Q: You mentioned a more muted issuance outlook due to geopolitical and macro uncertainty. How do you think about the interplay of these dynamics with potential rate cuts?
A: Robert Fauber, President and Chief Executive Officer: Our outlook for the balance of the year is not particularly dependent on interest rates. We took the strong first half issuance into our outlook and upped our issuance outlook for the third quarter. If there are rate cuts, they will likely be a catalyst for 2025 issuance.
Q: You reiterated expectations for research and insights to accelerate in the second half. Can you update us on the drivers for this acceleration?
A: Robert Fauber, President and Chief Executive Officer: ARR growth in research and insights is driven by innovations like Research Assistant and coverage expansion. We have doubled the number of customers for Research Assistant since Q1, increased average deal sizes, and seen higher usage and customer satisfaction.
Q: Can you provide more details on the MSCI partnership, particularly the timeline and impact on the private credit side?
A: Robert Fauber, President and Chief Executive Officer: The ESG integration with MSCI will take through the end of the year. We are excited about leveraging our credit scoring capabilities and MSCI's distribution for private credit. This partnership will impact our sales pipeline in the near term but is expected to be positive in the medium term.
Q: Can you update us on the strategic investments, particularly around GenAI and other new products?
A: Noémie Heuland, Chief Financial Officer: We are on track with our investment plans. We have rolled out GenAI tools, expanded our use of Copilot, and made a small acquisition to enhance our banking solutions. We are also investing in platform engineering to improve user experience and efficiency.
Q: Can you give an update on revenues from AI-related products and their trajectory?
A: Robert Fauber, President and Chief Executive Officer: Research Assistant is one of our fastest-growing products, but it is not yet material in the grand scheme. We have several other AI solutions in private preview mode and are extending partnerships with Microsoft and Google to open new monetization pathways.
Q: Can you elaborate on the tighter purchasing patterns you mentioned and how they are impacting your business?
A: Robert Fauber, President and Chief Executive Officer: We see cost pressures from the banking and asset management sectors, impacting upsells, pricing, and retention. However, we have a healthy sales pipeline and strong demand for our products, with the highest volume of sales meetings post-pandemic.
Q: How should we think about the impact of the MSCI partnership on ARR and revenue growth?
A: Robert Fauber, President and Chief Executive Officer: The ESG scores and data are a small part of our overall business. The partnership will impact our sales pipeline and retention in the near term but is expected to be positive in the medium term. We anticipate building the pipeline back in 2025.
Q: Can you provide more details on the government contracts and their impact on ARR?
A: Robert Fauber, President and Chief Executive Officer: Government contracts are our smallest customer segment but have been growing. We are being prudent about potential risks due to a bumpier environment in the fourth quarter, which could impact renewals. However, this is factored into our revised guidance.
Q: Beyond GenAI, what are the other factors driving the assumed acceleration in MA's medium-term framework?
A: Robert Fauber, President and Chief Executive Officer: Our land and expand strategy is key. We see significant cross-sell opportunities with banks and insurance companies and are investing in product development for corporates around interconnected use cases like sales and marketing optimization, customer onboarding, and supplier risk.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
