Executive Summary / Key Takeaways

• Moody's Corporation (MCO) is solidifying its position as an integrated risk assessment leader, leveraging its dual segments, Moody's Investors Service (MIS) and Moody's Analytics (MA), to capitalize on "deep currents" like private credit expansion, digital transformation, and AI adoption.
• The company delivered record Q3 2025 revenue of over $2 billion, an 11% year-over-year increase, with robust adjusted operating margin expansion to 52.9%, demonstrating significant operating leverage and earnings power.
• Strategic investments in proprietary data, AI-enabled solutions (e.g., Research Assistant, KYC AI agent), and targeted acquisitions (e.g., CAPE Analytics, Numerated) are enhancing competitive moats and driving recurring revenue growth, particularly in MA's Decision Solutions segment.
• Moody's is actively optimizing its operational efficiency through a restructuring program, aiming for $250 million to $300 million in annualized cost savings, which is expected to fuel further margin expansion and strategic investments.
• Despite macroeconomic uncertainties and geopolitical tensions, Moody's has raised its full-year 2025 guidance, projecting high single-digit revenue growth for MCO and adjusted diluted EPS in the range of $14.50 to $14.75, reflecting confidence in its resilient business model and strategic execution.

The Foundation of Risk Intelligence: A Century of Evolution

Moody's Corporation, tracing its roots back to 1900 as Dun and Bradstreet Company (DNB), has evolved into a global provider of integrated perspectives on risk, empowering organizations and investors worldwide. The company operates through two distinct yet synergistic segments: Moody's Investors Service (MIS) and Moody's Analytics (MA). This dual structure allows Moody's to offer a comprehensive suite of credit ratings, research, and advanced analytical tools, positioning it at the forefront of the financial services industry. The overarching strategy is to capitalize on transformative "deep currents" shaping global markets, including the expansion of private credit, accelerating digital transformation, the critical need for robust Know Your Customer (KYC) solutions, the escalating financial impact of extreme weather events, and the revolutionary potential of generative AI.

Moody's competitive landscape is primarily defined by other major credit rating agencies and financial data providers. In the credit ratings space, S&P Global (SPGI) stands as a direct and formidable competitor. While S&P Global offers a broader portfolio including market benchmarks, Moody's maintains a strong, often dominant, position in credit ratings, recognized for its specialized expertise and insightful research. This is evidenced by its consistent recognition as the "best rating agency" for an impressive thirteen consecutive years by Extell. In the analytics and data segments, competitors like Morningstar (MORN) and FactSet (FDS) offer investment research and data platforms. Moody's Analytics differentiates itself through its deep domain expertise across multiple risks—credit, market, financial crime, supply chain, catastrophe, and climate—and its integrated risk assessment solutions.

Moody's core technological differentiation lies in its vast, proprietary data estate and advanced analytical models, increasingly enhanced by AI capabilities. The company's Orbis database, for instance, is a massive, curated repository of company data, not merely web-scraped content, but aggregated, cleansed, and normalized from a global commercial ecosystem. This derived data, combined with unique datasets on politically exposed and risk-relevant individuals and AI-curated news, forms the "secret sauce" for its KYC solutions, providing customers with a 360-degree view of business relationships. In catastrophe modeling, the integration of CAPE Analytics' AI-powered geospatial intelligence with Moody's RMS models offers insurers an "incredibly high definition view of property risk," enabling more confident and precise underwriting. These technological advantages contribute significantly to Moody's competitive moat, driving higher accuracy in predictive modeling and faster decision-making for clients.

The company's R&D and new technological developments are heavily focused on generative AI. Moody's has deployed a foundational AI agent builder platform for internal workflow reimagination, an AI Studio factory for agentic product development, and AgenTic solutions to commercialize smart APIs and domain-specific agents. These initiatives aim to deliver tangible benefits, such as a 20% reduction in resources for customer support while improving response times, and ambitious targets for accelerating roadmap delivery in engineering. For investors, these technological differentiators translate into enhanced competitive positioning, improved operational efficiency, and new monetization opportunities across diverse customer segments, reinforcing long-term growth and profitability.

Moody's Investors Service: The Bedrock of Credit Markets

Moody's Investors Service (MIS) serves as the bedrock of the company's operations, publishing credit ratings and providing assessment services across a wide range of debt obligations globally. This segment's strength is particularly evident in times of market uncertainty, where its insights and analytical quality are highly valued by issuers and investors.

MIS delivered robust financial performance, with external revenue growing 6% year-over-year to $3,173 million for the nine months ended September 30, 2025. This was driven by strong growth across all lines of business, including Corporate Finance (5% growth to $1,652 million), Structured Finance (10% growth to $419 million), Financial Institutions (5% growth to $590 million), and Public, Project and Infrastructure Finance (8% growth to $486 million). The segment's adjusted operating margin expanded to 65.10% for the nine-month period, reflecting strong operating leverage.

A significant tailwind for MIS is the burgeoning private credit market. Private credit-related deals surged by almost 70% in Q3 2025, with revenue tied to private credit growing over 60% across multiple MIS business lines. This growth is not limited to direct lending but extends to fund finance and securitization, which are leading in deal counts and issuance volumes. Moody's is strategically positioned to provide critical transparency and insights in this evolving market, with private credit-related transactions accounting for nearly 25% of first-time mandates in Q2 2025. The company also plays a crucial role in financing digital infrastructure, rating a $1 billion data center securitization in Q3 2025 and the largest Asian corporate bond ever issued at almost $18 billion, largely for data center investment.

Looking ahead, the issuance pipeline for MIS remains robust. Refunding needs over the next four years are projected to exceed $5 trillion, representing a 10% compound annual growth rate from 2018 to 2025. Non-financial corporate refinancing walls in the U.S. and EMEA grew 6% over the upcoming four-year maturity horizon, with speculative-grade maturities rising 7%. For the full year 2025, MIS anticipates revenue growth in the high single-digit range, an upward revision from previous outlooks, with an adjusted operating margin projected to be between 63% and 64%. This outlook assumes continued momentum, even with typical seasonal slowdowns, and does not factor in significant market disruptions.

Moody's Analytics: Driving Innovation and Recurring Revenue

Moody's Analytics (MA) is the company's engine for data, intelligence, and analytical tools, designed to help businesses make faster and better decisions. MA's business model is characterized by its high proportion of recurring revenue, which stood at 96% of total MA revenue, and strong retention rates consistently in the low to mid-nineties range.

For the nine months ended September 30, 2025, MA's external revenue grew 9% year-over-year to $2,656 million, with an adjusted operating income of $858 million and an adjusted operating margin of 32.20%. Annualized Recurring Revenue (ARR) reached $3.4 billion as of Q3 2025, up 8% year-over-year.

Decision Solutions (DS) is consistently the fastest-growing part of MA, with revenue increasing 11% to $1,242 million for the nine-month period. Within DS, KYC revenue surged 19% to $321 million, driven by strong demand and customer retention for its compliance solutions. Insurance revenue grew 14% to $502 million, fueled by continued demand for subscription-based catastrophe modeling tools and contributions from the Praedicat and CAPE Analytics acquisitions. Banking revenue saw a 3% increase to $419 million, reflecting the expansion of cloud-hosted subscription-based offerings and revenue from the Numerated acquisition, despite a decline in transactional revenue due to a strategic shift towards cloud solutions. CreditLens, MA's flagship lending product, is a key contributor to Banking, growing ARR at a low to mid-teens pace.

Research and Insights (RI) revenue grew 8% to $737 million, supported by sales growth and improved retention from credit research product offerings. Data and Information (DI) revenue increased 7% to $677 million, driven by sustained demand for ratings data feeds and company data applications. The adjusted operating margin for MA expanded to 34.3% in Q3 2025, a 400 basis point improvement year-over-year, reflecting strong operating leverage and efficiency gains.

MA's strategic initiatives include a strong focus on fiscal climate risk and embedding AI more deeply into customer workflows. A notable example is a multiyear deal with an Asian regulatory agency to deliver physical climate risk data to 11 banks and insurers, marking a global first for a regulator purchasing Moody's Climate Solutions. The company is also seeing tangible momentum in AI adoption, signing over $3 million in new business with a Tier one U.S. Bank for solutions to automate credit memo creation and deploy early warning systems across real estate portfolios. Partnerships, such as with Salesforce (CRM) and Microsoft (MSFT), are crucial for extending MA's reach and deepening customer integration, with Microsoft using Moody's as its primary operational data provider for customer hierarchy and organization data management.

For the full year 2025, MA expects both revenue and ARR growth in the high single-digit percent range, with its adjusted operating margin projected to be approximately 33%. This margin expansion is expected to continue towards the mid-to-high 30s by 2027, driven by strategic investments, optimized vendor relationships, and the deployment of productivity tools.

Financial Strength and Capital Allocation

Moody's demonstrates a robust financial profile, consistently generating strong cash flows that support its strategic investments and shareholder returns. For the nine months ended September 30, 2025, net cash provided by operating activities was $2,043 million. While this represented a $121 million decrease year-over-year, primarily due to higher income tax and incentive compensation payments, it was partially offset by a $267 million growth in operating income. Net cash provided by investing activities saw a significant increase of $919 million, driven by a decrease in investment purchases and an increase in sales and maturities of investments.

The company's liquidity position remains strong, with aggregate cash and cash equivalents and short-term investments totaling $2.30 billion at September 30, 2025, of which approximately $1.70 billion was located outside the U.S.. Moody's actively manages its global cash flow to meet operational needs and repatriates a portion of its non-U.S. cash where earnings are not indefinitely reinvested.

Moody's is committed to returning value to shareholders. For 2025, the company anticipates free cash flow to be approximately $2.5 billion. Share repurchase guidance has been increased to at least $1.5 billion, putting the company on track to return over 85% of free cash flow to shareholders. An additional $4 billion in share repurchase authority was authorized on October 21, 2025. A quarterly dividend of $0.94 per share was declared on October 21, 2025.

The company's Strategic and Operational Efficiency Restructuring Program, approved in December 2024, is a key initiative to enhance profitability. This program is expected to incur $200 million to $250 million in restructuring charges over two years, primarily personnel-related, yielding annualized cost savings of $250 million to $300 million upon completion. These savings are crucial for strengthening operating margins and funding strategic growth areas.

Outlook and Risks

Moody's has updated its full-year 2025 guidance, reflecting strong Q3 performance and confidence in its strategic direction. The company now expects MCO revenue to grow in the high single-digit percent range, with an adjusted operating margin of approximately 51%. Adjusted diluted EPS is projected in the range of $14.50 to $14.75, implying roughly 17% growth at the midpoint year-over-year. This upward revision underscores the company's ability to drive growth and expand margins simultaneously.

Despite this optimistic outlook, several risks and uncertainties persist. Geopolitical events, such as military conflicts and trade tensions, can create volatility in world financial markets, impacting economic conditions and issuance volumes. U.S. and foreign government actions affecting international trade and economic policy, including changes in tariffs, can lead to uncertainty that causes customers to delay financing and investment decisions. The full impact of a prolonged government shutdown on market conditions is also difficult to predict.

Furthermore, while private credit is a significant growth driver, potential credit stress in this market, similar to higher speculative-grade default rates in public markets, could drive increased demand for credit insight and research. Regulatory scrutiny remains a perennial risk for credit rating agencies, potentially affecting operational flexibility and increasing compliance costs. Moody's acknowledges these risks and has adopted a conservative approach to guidance, accounting for a broad spectrum of plausible scenarios without anticipating a meaningful macroeconomic deterioration.

Conclusion

Moody's Corporation stands as a resilient and strategically agile enterprise, adept at transforming market shifts into growth opportunities. Its century-long history has culminated in a powerful dual-segment model, where the foundational strength of Moody's Investors Service is complemented by the innovative, recurring revenue streams of Moody's Analytics. The company's commitment to proprietary data, advanced analytics, and cutting-edge AI-enabled solutions, such as its Orbis database and integrated catastrophe models, provides a distinct competitive advantage against rivals like S&P Global, Morningstar, and FactSet. These technological differentiators are not merely features but fundamental drivers of efficiency, accuracy, and new monetization opportunities, reinforcing Moody's market leadership.

The strong financial performance in 2025, marked by record revenues, significant margin expansion, and robust cash flow generation, underscores the effectiveness of its strategic investments and disciplined execution. With a clear focus on "deep currents" like private credit, digital transformation, and AI, Moody's is well-positioned to sustain its growth trajectory. The company's proactive approach to operational efficiency through its restructuring program further enhances its earnings power, allowing for continued investment in high-growth areas while delivering attractive shareholder returns. As global markets continue to evolve, Moody's integrated risk assessment capabilities and technological leadership are expected to remain critical, solidifying its role as a serial compounder in the financial services industry.