Moody's Corporation

Company Overview

Business Model: Moody's Corporation is a global integrated risk assessment firm that provides data, insights, and innovative technologies to help customers develop a holistic view of their world and unlock opportunities. The Company operates through two reportable segments: Moody's Analytics (MA) and Moody's Investors Service (MIS). MA provides data, intelligence, and analytical tools, including fixed income and economic research, company and credit data, and cloud-based subscription solutions for banking, insurance, and Know Your Customer (KYC) workflows. MIS is a leading global provider of credit ratings, research, and risk analysis on a wide range of debt obligations and entities. Revenue is generated from subscription-based services in MA and primarily from rating fees paid by debt issuers in MIS, with a portion of MIS revenue also derived from non-ratings-related operations like financial instruments pricing services and Second Party Opinions.

Market Position: Moody's Corporation leverages its extensive experience in global markets and a diverse workforce across more than 40 countries. MIS has been a leading provider of credit ratings, research, and risk analysis for over 115 years, with its opinions valued by institutional investors globally, facilitating access to domestic and international debt capital. MA serves over 14,800 customers across 165+ countries, including corporates, commercial banks, asset managers, government entities, insurance companies, real estate entities, educational institutions, and securities dealers. The Company holds a strong position in credit risk assessment and is recognized for the depth and breadth of its analytical capabilities.

Recent Strategic Developments: Moody's Corporation is strategically focused on accelerating value creation in an era of exponential risk by investing in growth and scale. Key initiatives include:

• Gen AI Enablement: Early adoption and investment in Generative Artificial Intelligence (Gen AI) to evolve how insights on exponential risk are delivered to customers, both internally and through strategic partnerships.
• Integrated Solutions: Investment in integrated solutions to help customers manage multiple interconnected risks (e.g., supply chain failures, cyberattacks, geopolitical tensions, climate events).
• Market Expansion: Enhanced footprint in domestic markets through increasing its majority share in GCR (Africa affiliate) and expanding in Latin American markets through Moody's Local domestic rating business.
• Acquisitions: Acquired Numerated (commercial lending platforms) in November 2024, and controlling financial interests in GCR (domestic credit rating agency in Africa) and Praedicat (casualty insurance analytics) in July and September 2024, respectively.
• Sustainability Offerings: Launched a Net Zero Assessment framework to provide independent evaluations of carbon transition plans.
• Strategic and Operational Efficiency Restructuring Program: Approved in December 2024, this multi-year program aims to realign the business towards high-priority growth areas, consolidate functions for efficiency, and improve operating leverage, with expected annualized savings of $250 million to $300 million.

Geographic Footprint: Moody's Corporation operates across more than 40 countries with approximately 16,000 employees. As of December 31, 2024, the Company had 29 U.S. offices and 102 non-U.S. office locations.

• U.S. Revenue: $3,836 million (54.1% of total revenue).
• Non-U.S. Revenue: $3,252 million (45.9% of total revenue), with EMEA contributing $2,174 million, Asia-Pacific $629 million, and Americas (excluding U.S.) $449 million.
• Approximately 49% of Moody's Corporation's assets were located outside the U.S. as of December 31, 2024.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Operating Margin: 40.6% (up from 36.1% in 2023)
• Adjusted Operating Margin: 48.1% (up from 43.9% in 2023)

Investment in Growth:

• R&D Expenditure: Not explicitly stated as a separate line item, but "investments in technology and innovation" are noted as drivers of non-compensation expenses in both segments. Depreciation and amortization increased by $58 million (+16%) primarily due to amortization of internally developed software related to MA SaaS solutions.
• Capital Expenditures: $317 million (cash paid for capital additions), up from $271 million in 2023, reflecting development of SaaS-based solutions in MA and company-wide technology infrastructure.
• Strategic Investments: Acquisitions of Numerated, GCR, and Praedicat in 2024, contributing to higher cash paid for acquisitions ($218 million increase YoY).

Business Segment Analysis

Moody's Analytics (MA)

Financial Performance:

• Revenue: $3,295 million (+8% YoY)
• Operating and SG&A Expense: $2,101 million (+8% YoY)
• Adjusted Operating Income: $1,014 million (+8% YoY)
• Adjusted Operating Margin: 30.7% (up 20 BPS YoY)
• Depreciation and Amortization: $353 million (+18% YoY), primarily due to internally developed software for SaaS solutions.

Key Growth Drivers:

• Sustained demand for KYC, insurance offerings, and SaaS-based banking solutions.
• Ongoing strong retention for ratings data feeds and company data applications.
• Continued demand and sales growth for credit and economic research product offerings.
• Annualized Recurring Revenue (ARR) increased 9% across all lines of business.
• Strategic shift to subscription-based solutions.

Product Portfolio:

• Research & Insights (R&I): Provides models, scores, expert insights, and commentary, including credit research, credit models and analytics, economics data and models, and structured finance solutions.
• Data & Information (D&I): Offers vast data sets on companies and securities via data feeds and data applications products.
• Decision Solutions (DS): Provides subscription-based solutions supporting banking, insurance, and KYC workflows, utilizing components from R&I and D&I for risk assessment.

Market Dynamics:

• Growth influenced by customers' need to understand interconnected and emerging risks, including operational and reputational risks, digitization & Artificial Intelligence, evolving regulatory environment, fluctuations in credit and financial markets, climate change, and geopolitical risks.
• Competition from providers of software and analytic solutions, economic data, financial research and analysis, and commercial and financial data.

Sub-segment Breakdown:

• Decision Solutions (DS): $1,516 million revenue (+10% YoY). ARR grew 12%.
  • Banking: $551 million revenue (+6% YoY). ARR grew 9%, supported by strong customer retention and expansion of existing relationships to subscription-based banking offerings. Transaction revenue declined 10%.
  • Insurance: $598 million revenue (+9% YoY). ARR grew 12%, driven by improved customer retention and new sales for subscription-based catastrophe modeling tools. Transaction revenue declined 39%.
  • KYC: $367 million revenue (+18% YoY). ARR grew 17%, reflecting increased customer and supplier risk data usage and new customer sales.
• Research and Insights (R&I): $926 million revenue (+5% YoY). ARR grew 6%, attributable to sales growth for credit and economic research product offerings.
• Data and Information (D&I): $853 million revenue (+8% YoY). ARR grew 8%, mainly driven by continued strong demand for company ratings feeds and data applications.

Moody's Investors Service (MIS)

Financial Performance:

• Revenue: $3,793 million (+33% YoY)
• Operating and SG&A Expense: $1,579 million (+15% YoY)
• Adjusted Operating Income: $2,394 million (+44% YoY)
• Adjusted Operating Margin: 60.1% (up 560 BPS YoY)
• Depreciation and Amortization: $78 million (+4% YoY).

Key Growth Drivers:

• Favorable market conditions for issuers, including sustained tight credit spreads and declining interest rates, driving strong refinancing activity.
• Strong investor demand as yields remained high for a majority of the year.
• Economic expansion driving demand for debt capital and refinancing needs.
• Deepening participation in developing markets and meeting evolving risk assessment demands (e.g., Sustainable and Transition Finance, Private Credit, Digitalization of the financial sector, Cybersecurity).
• Expansion of ratings coverage and into emerging markets.

Product Portfolio:

• Publishes credit ratings and provides assessment services on debt obligations, programs, facilities, and issuing entities across corporate, financial institution, governmental, and structured finance sectors.
• Non-ratings-related operations include financial instruments pricing services in Asia-Pacific, Second Party Opinions, Net Zero Assessments, and ICRA non-ratings operations.

Market Dynamics:

• Growth is dependent on global fixed-income market activity, influenced by interest rates, business investment spending, corporate refinancing needs, M&A activity, issuer financial health, consumer borrowing levels, and securitization activity.
• Competition from other credit rating agencies, investment banks, brokerage firms, and in-house credit research capabilities.

Sub-segment Breakdown:

• Corporate Finance Group (CFG): $1,950 million revenue (+39% YoY).
  • Investment-grade: $488 million.
  • High-yield: $285 million.
  • Bank loans: $527 million.
  • Other accounts: $650 million.
  • Transaction revenue increased $528 million, driven by leveraged finance (bank loans and speculative-grade bonds) and investment-grade issuance, supported by strong refinancing activity, new mandates, tight credit spreads, declining interest rates, and M&A funding.
• Structured Finance Group (SFG): $518 million revenue (+28% YoY).
  • Asset-backed securities: $130 million.
  • RMBS: $98 million.
  • CMBS: $94 million.
  • Structured credit: $193 million.
  • Transaction revenue increased $102 million, mainly from higher Collateralized Loan Obligation (CLO) issuance (new deals and refinancing) and increased Commercial Mortgage-Backed Securities (CMBS) activity due to tightening credit spreads and declining interest rates.
• Financial Institutions Group (FIG): $727 million revenue (+33% YoY).
  • Banking: $450 million.
  • Insurance: $214 million.
  • Managed investments: $49 million.
  • Other accounts: $14 million.
  • Transaction revenue increased $164 million, primarily from issuance growth in the insurance and banking sectors, supported by a favorable issuance mix from infrequent issuer activity.
• Public, Project and Infrastructure Finance (PPIF): $564 million revenue (+18% YoY).
  • Public finance / sovereign: $240 million.
  • Project and infrastructure: $324 million.
  • Transaction revenue increased $83 million, mainly due to higher issuance from U.S. Public Finance issuers (state and local government, higher education), increased investment-grade infrastructure finance activity (U.S. and EMEA), and higher U.S. Project Finance activity.
• MIS Other: $34 million revenue (+13% YoY). Consists of financial instruments pricing services in Asia-Pacific, ICRA non-ratings revenue, and professional services.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $1,292 million in 2024 (2.9 million shares repurchased).
• Dividend Payments: $620 million in 2024 ($3.40 per share).
• Dividend Yield: Not explicitly stated, but the quarterly dividend was $0.85 per share for all quarters in 2024, and the Board approved a quarterly dividend of $0.94 per share payable March 14, 2025.
• Future Capital Return Commitments: Approximately $1.6 billion of share repurchase authority remained at December 31, 2024, with no established expiration date.

Balance Sheet Position:

• Cash and Equivalents: $2,408 million as of December 31, 2024.
• Total Debt: $7,428 million as of December 31, 2024.
• Net Cash Position: -$5,020 million (Total Debt - Cash and Equivalents).
• Credit Rating: Not explicitly disclosed in the provided text, but debt ratings are mentioned in the context of the 2024 Credit Facility.
• Debt Maturity Profile:
  • 2025: $700 million
  • 2026: $0 million
  • 2027: $518 million
  • 2028: $500 million
  • 2029: $400 million
  • Thereafter: $5,576 million
  • Total: $7,694 million (principal amount)

Cash Flow Generation:

• Operating Cash Flow: $2,838 million in 2024 (+31.9% YoY).
• Free Cash Flow: $2,521 million in 2024 (+34.1% YoY).
• Cash Conversion Metrics: Not explicitly detailed, but growth in operating income and changes in working capital contributed to increased operating cash flow.

Operational Excellence

Production & Service Model: Moody's Corporation's operations are supported by a global infrastructure across 29 U.S. offices and 102 non-U.S. office locations.

• MA: Delivers integrated solutions through cloud-based software tools, vast proprietary data, analytics, and domain expertise. Performance obligations for hosted research, data, and subscriptions are fulfilled ratably over the subscription period. Installed software subscriptions are bifurcated into software license and Post-Contract Customer Support (PCS) obligations, recognized at delivery and ratably over the contractual period, respectively. Professional services are recognized as performed.
• MIS: Publishes credit ratings and provides assessment services. Revenue for ratings is generally recognized when delivered to the issuer, while monitoring services are recognized ratably over the monitoring period.

Supply Chain Architecture: Key Suppliers & Partners:

• Third-Party Information Data Providers: Moody's Corporation licenses financial information (market and index data, financial statement data, research data, default data, security identifiers) and software development tools/libraries from third parties. Certain financial information is available from a limited number of sources, but the Company does not believe it is dependent on any one material data source.
• Cloud-based Service Providers: Increasingly relies on cloud-based service providers for essential services, which introduces cybersecurity risks.
• Technical Subject Matter Experts: Engages third-party experts to assist in managing cybersecurity risk management processes.

Facility Network:

• Manufacturing: Not applicable as the Company provides information and analytical services.
• Research & Development: R&D activities are integrated within MA and MIS segments, focusing on new product development, technology capabilities (including Gen AI), and enhancements to ratings quality and product extensions.
• Distribution: Products and services are primarily delivered electronically, relying on telecommunications, data centers, networks, and websites.

Operational Metrics:

• Capacity utilization, efficiency measures, and quality indicators are not explicitly disclosed in quantitative terms beyond the general mention of "optimizing efficiencies in its operations through its hybrid work program" and the "Strategic and Operational Efficiency Restructuring Program."

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: MA serves a broad customer base directly, including corporates, financial institutions, and government entities. MIS engages directly with issuers and investors for credit ratings and research.
• Digital Platforms: MA's cloud-based software tools and data applications are key digital distribution channels.
• Strategic Partnerships: Moody's Corporation invests in strategic partnerships to accelerate its ability to scale and grow businesses.

Customer Portfolio: Enterprise Customers:

• MA Customers: Over 14,800 customers globally, including:
  • Corporates and Professional Services: 6,700+
  • Commercial Banks: 2,600+
  • Asset Managers: 1,900+
  • Insurance Companies: 900+
  • Government Entities: 900+
  • Real Estate Entities: 800+
  • Educational Institutions: 600+
  • Securities Dealers and Investment Banks: 200+
• MIS Rated Organizations: Over 33,300 rated organizations and structured deals, including:
  • Non-Financial Corporates: 14,400+
  • U.S. Public Finance Issuers: 8,900+
  • Financial Institutions: 4,800+
  • Structured Finance Deals: 3,300+
  • Infrastructure & Project Finance Issuers: 1,000+
  • Sub-Sovereigns: 380+
  • Sovereigns: 140+
  • Supranational Institutions: 50
• Customer Concentration: No single customer accounted for 10% or more of accounts receivable at December 31, 2024 or 2023.

Geographic Revenue Distribution:

• U.S.: $3,836 million (54.1% of total revenue)
• EMEA: $2,174 million (30.7% of total revenue)
• Asia-Pacific: $629 million (8.9% of total revenue)
• Americas (excluding U.S.): $449 million (6.3% of total revenue)

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The markets for credit ratings, research, credit risk management services, business intelligence, and analytical services are highly competitive, characterized by rapid technological change (including Gen AI), evolving customer and investor demands, and changing regulatory requirements. The global fixed-income market activity and the increasing complexity of interconnected risks drive demand for Moody's Corporation's products.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• MA: Competes with providers of software and analytic solutions (Decision Solutions), economic data, financial research and analysis (Research & Insights), and commercial and financial data (Data & Information).
• MIS: Competes with other Credit Rating Agencies (CRAs) and with investment banks and brokerage firms that offer credit opinions and research. Many users also have in-house credit research capabilities.

Emerging Competitive Threats:

• New entrants, disruptive technologies (especially Gen AI offerings from others), and alternative solutions that may be deemed preferable, more cost-effective, or more valuable.
• Increased availability of free or inexpensive information online and through Gen AI may reduce demand for Moody's Corporation's products.
• Non-NRSROs evaluating debt risk for issuers or investors, and alternative financing sources (e.g., non-bank lenders) that do not require CRA-issued credit ratings.

Competitive Response Strategy:

• Invest with intent to grow and strengthen core business with a foundation of credibility, transparency, technology, data, and analytics.
• Invest in integrated solutions to allow customers to manage multiple risks.
• Invest to successfully scale in priority growth markets with highly differentiated products and services.
• Focus on new product development, strong customer retention, cross-selling, upgrades, and pricing opportunities.
• Continued SaaS transition and increased distribution capacity and productivity.
• Commitment to ratings quality, timely and insightful research, and engagement with issuers and investors.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• General Economic Conditions: Impact of significant government debt, deficit levels, inflation, and related monetary policy actions on worldwide credit markets and economic activity, including M&A. This affects the volume of debt and other securities issued, which directly impacts MIS revenue.
• Debt Capital Market Activity: Dependence on the volume of debt securities issued. Conditions reducing issuers' ability or willingness to issue debt (e.g., interest rate volatility, declining growth, currency devaluations, changes in laws) adversely affect fees.
• Disintermediation of Credit Markets: Issuers increasingly electing to issue securities without ratings or using non-traditional parties/alternative financing sources (e.g., non-bank lenders), reducing demand for traditional CRA ratings.
• Technology Disruption: Rapid technological change, including Gen AI, can lead to disruption by competitors, increased customer expectations for higher quality information on advanced timelines, and the development of alternative quantitative methodologies.
• Reputation and Credibility Concerns: Loss of credibility due to perceived conflicts of interest, performance of rated securities, timing/nature of rating changes, compliance failures, negative publicity, or criticism regarding sustainability strategies and climate-related risk incorporation.
• ESG Matters and Reporting: Failure to achieve or perceived failure to achieve sustainability goals, or criticism regarding the accuracy/completeness of ESG disclosures, could negatively impact business or reputation.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Third-Party Technology Dependency: Reliance on third-party software, data, hosted solutions, data centers, and cloud/network infrastructure. Risks include product quality reduction, service offering failures, obsolescence, incompatibility, data inaccuracy, or unavailability.
• Infrastructure Malfunctions or Failures: Disruptions in physical or technological infrastructure (Company-controlled or third-party) due to human error, capacity constraints, hardware failure, natural disasters, cyber-breaches, or other events, impairing product/service delivery.
• Acquisition Integration: Challenges in integrating operations, technologies, and employees of acquired businesses, including undisclosed liabilities, regulatory difficulties, failure to retain key personnel, and potential introduction of cybersecurity vulnerabilities.

Financial & Regulatory Risks

Market & Financial Risks:

• Foreign Exchange (FX) Risk: Exposure to changes in FX rates due to significant non-U.S. revenue (39%) and expenses (38%), and assets (49%) denominated in non-U.S. functional currencies.
• Interest Rate Risk: Exposure to interest rate fluctuations on outstanding fixed-rate debt, managed through interest rate swaps.
• Tax Matters: Subject to taxation in multiple jurisdictions, with future tax rates affected by changes in earnings composition, tax laws (e.g., OECD's GloBE/Pillar II), and audit outcomes.
• Litigation and Regulatory Proceedings: Exposure to litigation and government/regulatory proceedings, investigations, and inquiries (including competition market studies) related to ratings actions, business practices, and products. This includes increased scrutiny related to AI systems, operational resilience, data privacy, and climate-related risks.

Regulatory & Compliance Risks:

• Extensive Regulation: Subject to extensive and evolving regulation in the U.S. (SEC, state/local), EU (ESMA, EU AI Act, DORA, ESG Ratings Regulation), U.K. (FCA, HM Treasury), and other countries (Australia, Hong Kong, China).
• Increased Compliance Costs: Existing and proposed laws/regulations increase costs and legal risk, potentially impacting profitability and competitiveness.
• Data Privacy Laws: Subject to continuously evolving privacy, data protection, and data security laws (e.g., GDPR, CCPA, CPRA, China's Cyber Security Law), requiring changes to data processing practices and potentially leading to significant penalties for non-compliance.
• Cybersecurity and Protection of Confidential Information: Reliance on secure processing, storage, and transmission of confidential/sensitive information. Risks include cyber-attacks, data breaches, unauthorized access, and improper use of Material Non-Public Information (MNPI), leading to reputational harm, financial losses, and regulatory scrutiny.

Geopolitical & External Risks

Geopolitical Exposure:

• International Conditions: Impact of geopolitical events (e.g., Russia-Ukraine military conflict, Middle East military conflict) on global financial markets, economic conditions, and operations.
• Trade Relations: Restrictions on converting local currency to USD, costs of repatriating cash, and U.S. laws affecting overseas operations (export/import restrictions, tariffs, trade barriers, sanctions, embargoes, especially with China).
• Foreign Legal/Regulatory Standards: Differing and potentially conflicting legal, civil liability, compliance, and regulatory standards in foreign jurisdictions.
• Nationalization/Expropriation: Possibility of restrictive governmental actions in foreign countries.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas:

• Artificial Intelligence (AI) and Machine Learning (ML): Moody's Corporation has leveraged AI and ML for over a decade to serve its customer base.
• Generative Artificial Intelligence (Gen AI): Early adopter of Gen AI, with ongoing investments to evolve how insights on exponential risk are delivered to customers, internally and through strategic partnerships.
• SaaS-based Solutions: Significant investment in developing MA's SaaS-based solutions, reflected in increased amortization of internally developed software.
• Climate Data and Analysis: Expanded capabilities through the acquisition of RMS (climate and natural disaster risk modeling and analytics) and integration of these capabilities into existing offerings.

Innovation Pipeline:

• Development of new products, services, content, and technology capabilities to meet evolving customer demands.
• Launch of a Net Zero Assessment framework.

Intellectual Property Portfolio:

• Patent Strategy: Owns patents (granted, allowed, and pending) and relies on a combination of copyright, trademark, trade secret, patent, non-disclosure, and other contractual/technological safeguards.
• Licensing Programs: Provides access to its databases, SaaS and other software applications, credit risk models, assessments, research, and publications to customers under license agreements. Also licenses technology, data, and other IP rights from third parties.
• IP Litigation: Pursues instances of third-party infringement to protect its rights.

Technology Partnerships:

• Strategic partnerships are pursued to accelerate the ability to scale and grow Moody's Corporation's businesses, including those related to Gen AI enablement.

Leadership & Governance

Executive Leadership Team