Executive Summary / Key Takeaways

• Moody's delivered a strong first quarter in 2025, with both its Ratings (MIS) and Analytics (MA) segments achieving 8% revenue growth, demonstrating resilience despite increasing market uncertainty.
• The company is strategically positioned to capitalize on powerful long-term market trends, including the growth of private credit, the imperative for digital transformation and enhanced risk assessment, and the transformative potential of generative AI.
• Moody's is actively leveraging its proprietary data assets and investing in differentiated AI-powered technologies, such as Research Assistant and new workflow automation tools, to enhance product value, drive internal efficiency, and strengthen its competitive moat.
• While near-term guidance for 2025 has been adjusted downwards due to heightened market volatility and specific headwinds like U.S. government contract timing, management remains confident in the underlying earnings power of the business and its ability to deliver mid-single-digit revenue growth and margin expansion.
• A multi-year efficiency program is underway, targeting significant annualized cost savings to improve operating leverage and fund strategic investments, reinforcing the company's commitment to sustainable profitability growth.

A Foundation Built on Risk and Insight

Moody's Corporation stands as a global leader in integrated risk assessment, a position forged over a century of evolution from its origins as a provider of financial statistics. Today, the company operates through two primary segments: Moody's Investors Service (MIS), renowned for its credit ratings and assessments, and Moody's Analytics (MA), which offers a suite of data, software, and analytical tools designed to help organizations understand and manage a spectrum of risks, from credit and market risk to financial crime, supply chain, and climate-related exposures. This dual structure allows Moody's to serve a diverse global clientele, including financial institutions, corporations, and governments, providing mission-critical perspectives in an increasingly complex world.

The company's strategic journey has seen it adapt to significant market shifts and regulatory changes. While maintaining its core strength in credit ratings, particularly its position as the agency of choice for investors and issuers, Moody's has strategically diversified its offerings, notably expanding its footprint in domestic rating markets across emerging economies and building out its comprehensive analytics capabilities through both organic development and targeted acquisitions. This evolution underscores a commitment to providing more holistic risk solutions, moving beyond traditional credit assessment to address interconnected global challenges.

The broader industry landscape is shaped by several powerful trends that serve as durable demand drivers for Moody's services. The ongoing expansion and evolution of debt capital markets, including the rapid growth of private credit (projected to reach $3 trillion in assets under management by 2028), necessitate increased transparency and independent risk assessment. The accelerating pace of digital transformation and automation across industries drives demand for sophisticated data and workflow solutions. Furthermore, the growing imperative for businesses to understand and manage third-party risks (Know Your Customer, supplier risk) and the increasing financial impact of extreme weather events and climate change are creating new, significant market opportunities. These macro forces provide a fertile ground for Moody's integrated risk solutions.

In this competitive arena, Moody's faces formidable rivals like S&P Global (SPGI) and Fitch Ratings in the core credit ratings market, and a broader set of players including Morningstar (MORN) and various fintechs in the analytics space. While S&P Global holds a slightly larger share of the global credit ratings market, Moody's differentiates itself through its integrated approach, combining ratings expertise with deep analytics capabilities. In analytics, competition spans from large data providers to niche software firms. Moody's leverages its extensive proprietary data, particularly the Orbis database covering over half a billion public and private companies, and its domain expertise to carve out a distinct position, focusing on enterprise-level, workflow-embedded solutions.

Technological Edge and Innovation

A critical differentiator for Moody's lies in its investment in and application of technology, particularly its embrace of generative AI (GenAI) and advanced data platforms. The company's core technological strength is rooted in its vast reservoir of proprietary data, including the expansive Orbis database, and its sophisticated analytical engines and models. These assets are increasingly being integrated into cloud-based platforms and enhanced with AI capabilities to deliver tangible benefits to customers and internal operations.

Moody's is actively developing and deploying GenAI-powered tools across its MA segment. The Research Assistant, embedded within CreditView, is a prime example, enabling users to process information and gain insights more rapidly. While specific, overall time-saving percentages across all users are not provided, management highlights significantly higher customer satisfaction and increased platform usage among Research Assistant users, indicating improved efficiency and value capture. New AI-enabled products like the Automated Credit Memo aim to save bankers hours of work by automating the assembly of credit memos, leveraging internal and external data. The Early Warning System, initially focused on commercial real estate, uses GenAI to monitor news and data, alerting customers to potential risks affecting their portfolios and allowing rapid querying of Moody's data to understand impacts. These tools offer a clear advantage by accelerating workflows and enhancing decision-making speed and accuracy.

Beyond specific products, Moody's is embedding GenAI Navigators across over a dozen MA product lines to improve user experience and provide on-demand support, helping customers maximize the value of their subscriptions. Internally, GenAI is being deployed to drive efficiency, with a customer service assistant enabling a stated 20% reduction in resources while improving response times. AI tools for software engineers aim to accelerate roadmap delivery, and an internally built agentic tool serves as a sales companion to enhance productivity.

The company's R&D efforts are focused on leveraging these technologies to create integrated, workflow-centric solutions, particularly in high-growth areas like KYC, insurance, and banking. The acquisition of CAPE Analytics in early 2025 adds geospatial AI data to enhance catastrophe models, providing insurers with a more granular view of property risk. The Numerated acquisition bolsters commercial lending platforms with AI-powered frontend capabilities, integrating with Moody's CreditLens solution, which already supports nearly 500 banks and has seen its ARR grow by 12% over the past year. These investments aim to solidify Moody's competitive moat by offering superior, more efficient tools compared to rivals who may lack the same depth of proprietary data or integrated AI capabilities. While competitors like S&P Global are also investing in AI, Moody's focus on embedding AI directly into specific risk workflows and leveraging its unique data sets provides a differentiated approach.

For investors, this technological push is significant. It underpins the strategy to drive durable ARR growth in MA, improve customer retention by enhancing product stickiness and value, and expand operating margins by increasing internal efficiency. The ability to offer faster, more insightful, and more automated solutions directly translates into a stronger value proposition that can support pricing power and market share gains, particularly in the competitive analytics space.

Performance and Outlook

Moody's delivered a robust performance in the first quarter of 2025, showcasing the strength of its diversified business model. Consolidated revenue reached $1.92 billion, an 8% increase compared to the first quarter of 2024 ($1.79 billion). This growth was achieved alongside disciplined expense management, resulting in an adjusted operating margin of 51.7%, a 100 basis point expansion from 50.7% in the prior year period. Adjusted diluted EPS grew by 14% to $3.83, up from $3.37 in Q1 2024, reflecting the operating leverage inherent in the business.

The Moody's Investors Service (MIS) segment was a key driver of this performance, reporting its highest ever quarterly revenue of $1.07 billion, an 8% increase year-over-year. This growth outpaced the 9% increase in rated issuance volumes, benefiting from a favorable issuance mix, including strong U.S. investment-grade activity, contributions from infrequent issuers, and increased structured finance volumes, particularly in CLOs and CMBS. Private credit emerged as a notable tailwind, contributing significantly to growth in structured finance and driving a 20% increase in first-time mandates in the FIG segment, many of which were private credit-related. The segment's adjusted operating margin expanded by 140 basis points to 66.0%, demonstrating strong profitability during a period of increased activity.

The Moody's Analytics (MA) segment also contributed solid growth, with external revenue reaching $859 million, an 8% increase from Q1 2024. Recurring revenue, which constitutes 96% of MA's total revenue, grew by 9%, aligning with the segment's ARR growth. Decision Solutions, the fastest-growing part of MA, saw ARR increase by 12%, driven by strong performance in KYC (17% ARR growth), Insurance (11% ARR growth), and Banking (8% ARR growth). This growth was supported by demand for KYC solutions, catastrophe and actuarial models, and subscription-based banking offerings. While Research & Insights ARR grew 7% and Data & Information ARR grew 6%, the latter was impacted by an adjustment to the ESG strategy and attrition in U.S. government contracts. MA's adjusted operating margin was 30.0%, a slight expansion from 29.7% in the prior year, reflecting revenue growth outpacing operating expenses.

Looking ahead, Moody's has updated its full-year 2025 guidance, adopting a more conservative stance due to increased market uncertainty observed since the quarter ended. The company now expects full-year MCO revenue growth in the mid-single digit range, with an adjusted operating margin expanding by 100 to 200 basis points to a range of 49% to 50%. Adjusted diluted EPS guidance is set between $13.25 and $14, representing 9% growth at the midpoint.

For MIS, rated issuance is now projected to decrease in the low to high single digit range for the full year, leading to an expected revenue growth range of flat to a mid-single digit percent increase. The adjusted operating margin for MIS is guided to be between 61% and 62%. Management anticipates a deviation from the normal seasonal pattern, with Q2 revenue and margin potentially below historical trends due to a muted April issuance environment.

MA revenue growth guidance is reiterated in the high single digit percent range, but the high end of the ARR growth guidance has been adjusted, with full-year ARR growth now expected in the high single digit percent range. This adjustment reflects potential delays in customer decision-making due to the uncertain environment and higher-than-expected attrition with the U.S. Government in the Data & Information segment. Despite this, the segment's adjusted operating margin is expected to be between 32% and 33%.

The company maintains its share repurchase guidance of at least $1.3 billion for 2025 and expects free cash flow between $2.3 billion and $2.5 billion, representing approximately 80% of free cash flow returned to shareholders.

Risks and Challenges

Despite a strong start to the year and a clear strategic vision, Moody's faces several risks and challenges that could impact its performance and outlook. The most immediate concern highlighted by management is the increased market uncertainty and volatility, potentially exacerbated by geopolitical events and trade tensions. This environment can lead to businesses delaying financing and investment decisions, directly impacting debt issuance volumes, which remain a significant driver of MIS revenue. The anticipation of widening high yield spreads and higher default rates also presents a potential headwind.

In the MA segment, while the pipeline remains robust, the fluidity of the external environment could lead to delays in customer purchasing decisions, particularly among banking and asset management clients who continue to face cost pressures. Higher-than-expected attrition with the U.S. Government also poses a specific challenge to ARR growth in the Data & Information segment.

From a competitive standpoint, while Moody's possesses strong moats, rivals like S&P Global continue to invest in technology and scale, potentially increasing pressure on pricing and market share in both ratings and analytics. The ability of emerging fintechs and AI firms to offer alternative data and analytical tools, potentially at lower costs, could also introduce competitive dynamics that impact Moody's margins, particularly in certain data services.

Regulatory scrutiny remains a constant factor for credit rating agencies, and potential new legislation or investigations could impose restrictions or costs. Furthermore, the successful integration of recent acquisitions and the ability to realize expected synergies and drive growth from these new capabilities is crucial.

Moody's mitigates these risks through its diversified business model, which provides resilience during cyclical downturns in specific markets. The company's focus on disciplined expense management, including the ongoing efficiency program, aims to enhance operating leverage and maintain profitability even in softer revenue environments. Strategic investments in technology and high-growth areas are designed to capture long-term demand and strengthen competitive positioning. The company's strong balance sheet and consistent free cash flow generation provide financial flexibility to navigate challenging periods, fund strategic initiatives, and continue returning capital to shareholders.

Conclusion

Moody's Corporation delivered a compelling first quarter in 2025, demonstrating the strength and resilience of its integrated risk assessment franchise. Despite a backdrop of increasing market uncertainty and volatility, both the MIS and MA segments achieved solid revenue growth, supported by favorable market dynamics in the quarter and the sticky, mission-critical nature of its solutions.

The company's strategic focus on capitalizing on powerful long-term trends like private credit growth, digital transformation, and the application of generative AI positions it well for future expansion. Investments in proprietary data, AI-powered tools, and strategic acquisitions are enhancing its competitive advantages and driving efficiency. While management has prudently adjusted the full-year guidance to reflect potential near-term headwinds and market flux, the underlying narrative remains one of a business with strong earnings power, committed to profitability expansion through operational efficiency and targeted investments. For investors, Moody's represents a high-quality business with durable competitive moats, poised to benefit from the increasing global demand for sophisticated risk insights and analytics, even as it navigates the inherent volatility of the markets it serves.