MCO - NYSE

Good day, everyone, and welcome to the Moody's Corporation third quarter 2025 Earnings Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the conclusion of the prepared remarks, we will open the conference up for Q&A. As a reminder, the call will last one hour. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead. Thank you. Good morning, and thank you for joining us today.

I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for 2025 and updated guidance for select metrics. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com. During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for reconciliations between all adjusted measures referenced during this call in U.S. GAAP. I call your attention to the safe harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the management's discussion and analysis section and the risk factors discussed in our annual report on Form 10-Ks for the year ended December 31, 2024, and in other SEC filings made by the company which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to point out that members of the media may be on call this morning in a listen-only mode. Rob, over to you.

Thanks, Shivani, and thanks everybody for joining today's call. This morning, I'm going to start with the highlights from Moody's strong third quarter results, and I'm going to provide some insights from our latest refunding wall studies as well as some examples of how we're winning in the deep currents that we're operating in. But let me give you the punch line. We delivered record quarterly revenue, we're raising our full-year guidance across almost all metrics, and we continue to drive significant innovation throughout the firm all at the same time. Now following our prepared remarks, Noemie and I, as always, will be glad to take your questions. So with that, let's get to the results. We finished the third quarter on a high note. Markets closed with the busiest September on record, and Moody's notched a new record of our own. We exceeded $2 billion in quarterly revenue for the first time ever in our history, that was up 11% from the third quarter of last year. Moody's adjusted operating margin was almost 53% in the third quarter, up over 500 basis points from a year ago demonstrating the tremendous operating leverage that we've created in our business. We delivered adjusted diluted EPS of $3.92 in the third quarter, which was up 22% from last year. And that's particularly impressive given the tough comp in 2024 when we posted 32% year-over-year growth on top of the 31% growth in 2023. And just to put this in perspective, we've more than doubled adjusted diluted EPS from the same quarter just three years ago. Consistently strengthening the earnings power of the firm year after year after year. And all of this while investing to harness the immense opportunities and the deep currents that we've talked about over the past several years. Now on to the highlights for our ratings business. MIS delivered 12% revenue growth for the quarter and surpassed $1 billion of quarterly revenue for the third consecutive quarter, setting an all-time record. Our position as the agency of choice enabled us to capitalize on a healthy issuance environment and record tight spreads. And the strategic investments we've made in technology, analytical tools, and talent are equipping us to meet surges in issuance volume and capital markets innovation. Now looking forward, the issuance pipeline is robust. Demand is solid with spreads hovering around near record lows. And the refi walls continue to build. Additionally, demand for debt financing remains strong in areas that we've consistently spotlighted over the past year or two. That includes private credit, AI-powered data center expansion, infrastructure development, and transition finance. And you can see this coming through in some of the marquee deals that we rated in the quarter. First, we were the sole rating agency on the first of its kind emerging market CLO in APAC for the International Finance Corporation, which is a member of the World Bank Group. And that was a very innovative financing vehicle for frontier markets. Second, our corporate ABS team rated a more than $1 billion data center securitization, also the first transaction of its kind. Which is backed by three high-quality newly constructed data centers and their related leases. And third, we rated the largest Asian corporate bond ever issued at almost $18 billion with much of the proceeds being used for data center investment. And all of these are notable examples of deep currents driving demand for debt financing. And while those deep currents are driving new issuance, refunding needs continue to grow as well. Our most recently published refunding study shows that refunding needs over the next four years are projected to surpass $5 trillion, which represents a compound annual growth rate of 10% from 2018 to 2025. That number is approximately double the dollar volume seen in 2018 and this gives us some real confidence in the medium-term growth trajectory for MIS. Now there's typically a lot of interest in these reports, on this call, so let me just share a few key findings with you. First, non-financial corporate refinancing walls in both the US and EMEA grew 6% over the upcoming four-year maturity horizon. Overall, investment-grade maturities are up 5%, while spec-grade maturities are up 7%. And notably, within spec-grade, US bond maturities have increased by more than 20% and in EMEA, spec-grade bonds and loans each rose by approximately 20%. And all of this points to a favorable backdrop for future issuance and the mix is especially encouraging. Given that spec-rate issuance tends to be more accretive to our revenue profile. So for those of you interested in exploring the full reports, they're available on moodys.com. Or through our investor relations team. Now beyond the refunding walls, we remain well-positioned to meet the evolving market needs in private credit. And that's a theme that we've consistently highlighted on prior calls. Private credit continues to be a growth driver for ratings. In the third quarter, the number of private credit-related deals grew almost 70%. Notably, direct lending remains the smallest portion of our private credit-related activity, while fund finance and securitization are leading the way in both deal counts and issuance volumes. Revenue tied to private credit grew over 60% in the third quarter across multiple MIS business lines, albeit off a relatively small, but expanding base. We're also seeing a growing number of private deals returning to the public debt markets for refinance. And according to Bloomberg's left Fin Insights, issuers are realizing material savings. On average, something like 200 basis points, but in some cases, as much as 400 basis points. When compared to private market rates. And as I've mentioned before, this dynamic effectively acts as a deferred maturity wall as we see unrated private direct lending deals refi into the rated BSL market. And as this market continues to grow, we continue to invest in experienced analytical teams and methodological rigor to ensure ratings quality. Now turning to Moody's Analytics. We delivered strong results again this quarter. Revenue growth was 9% year over year, including 11% in Decision Solutions. ARR is now nearly $3.4 billion, which is up 8% versus last year. And we're delivering margin improvement ahead of our plans just earlier this year. Our cross-MA initiatives are yielding results, delivering a 34.3% adjusted operating margin up 400 basis points versus last year, and as a result, we're increasing our full-year margin outlook for MA to approximately 33% and we believe this puts us solidly on track to meet our medium-term margin commitments. Now we're continuing to invest in scalable solutions across high-growth end markets, while at the same time simplifying the product suite and optimizing our organizational structure. So one example of that simplification in the third quarter, we entered into a definitive agreement to sell our Learning Solutions business to Fitch. We had a good run with our learning business, but we felt it no longer fit the profile of where we're seeking to invest in scalable recurring revenue businesses. In parallel with these portfolio simplification efforts, we remain very focused on the deep currents driving demand for our analytics offerings. And in MA, that includes an increasing focus on fiscal climate risk, and enhancing and expanding our solutions to help customers embed AI more deeply into their workflows. On a recent trip to Asia where we celebrated forty years of Moody's in the region, I heard firsthand about two customers who are investing in our physical risk solutions to understand the impact of extreme weather events and both of these are outside of the insurance sector. First, one of the largest banks in Japan and for that matter, the world, is using the RMS models that are traditionally used by our property and casualty insurance customers to understand physical climate risk across lending and portfolio management. Second, we recently won a multiyear deal with an Asian regulatory agency to deliver physical climate risk data to 11 banks and insurers. And this marks the first time globally that a regulator has purchased Moody's Climate Solutions on behalf of its financial sector. And this initiative enables the integration of physical risk analytics into regulatory reporting, and core business functions and also establishes a precedent for further regional adoption and collaboration. Now on AI, you've heard me talk before about the very encouraging engagement that we have with a number of large banks who are interested in leveraging our data and models their internal AI-enabled workflows. And while these discussions have taken time to move through banks' risk governance frameworks, we're now seeing some tangible momentum. In the third quarter, we signed over $3 million in new business with a Tier one U.S. Bank, which included solutions to automate credit memo creation and to deploy early warning systems across its real estate portfolios. These solutions are driving meaningful efficiency gains for our customers, are accelerating time to decision, and delivering a competitive edge. And this is a powerful example of how Moody's is uniquely positioned to bring together proprietary data advanced analytics, software and now GenAI capabilities and agents into our customers' mission-critical workflows. Now these Agenza capabilities are just one part of a broader investment strategy, one that's focused on unlocking the full potential of our data and analytics estate. And we're not only investing in how we build intelligent AI-powered workflows, but also in how we package and deliver our proprietary data and analytics, embedding that directly into our customers' internal systems and our partners' platforms. As we've discussed on recent calls, partnerships are an important part of this strategy. And we're embedding our data into partner ecosystems extending our reach while preserving the depth of our domain expertise. And this approach not only scales our impact, it also deepens customer integration, improves retention, and it will help to continue to drive durable growth across our portfolio. So a prime example this quarter is our partnership with Salesforce, where we continue to see strong growth from our integrated suite of connectors, includes company firmographic data news and other content. And this supports third-party risk management and compliance monitoring among other functions. Bringing Moody's unique data and intelligence directly into Salesforce workflows. With great success. We're now expanding our partnership to make available our proprietary GenAI-ready data and analytics within Salesforce's AgentForce 360, and in addition, Moody's will make available on agent exchange our new agentic AI sales tool, that I think I've talked about on prior earnings calls, and that elevates sales teams by automating lead prioritization and delivering predictive insights. Leveraging our data. And this is one part of our broader AI strategy. So zooming out, there are a few dimensions to that AI strategy. The first is our foundational AI agent builder platform that all of our employees can use to reimagine workflows and increase productivity. As we've highlighted before, we're delivering efficiencies in engineering and customer support, and we're now setting our sights on sales, product development and a variety of corporate functions as well as ratings workflows. The second dimension is our AI Studio factory, which is a platform designed for agentic product development. And the third is our recently announced AgenTic solutions, enabling us to commercialize smart APIs, MCP servers, and domain-specific agents that leverage our vast proprietary data and content estate and deep subject matter expertise. So switching gears, we also continue to invest in growing our ratings footprint in emerging markets. And this past quarter, we signed a definitive agreement to acquire majority interest in MIRAS, the leading ratings agency in Egypt. And this transaction will deepen Moody's presence in The Middle East and Africa giving us a very strong first-mover advantage across all of the region's domestic debt markets. And you've heard me say this before, these are generational investments. As emerging markets, including China, are expected to account for more than 60% of global GDP by 2029. And to that end, of the approximately $30 trillion of debt outstanding in those markets, only about 10% is cross-border. That means that the remaining 90% is issued locally, and rated locally. And that's why these domestic market investments are so important. So before I hand it over to Noemie for more details on the numbers, a few key takeaways. This past quarter, we delivered strong growth, significant operating leverage, and we have good momentum heading into next year. And of course, just a quick shout-out to all of my teammates for the fantastic work this quarter helping deliver one of the strongest quarters in Moody's history. Noemie, over to you. Thanks, Rob, and hello, everyone.

Q3 was outstanding. We showcased the full force of our earnings power. We are lifting both our top and bottom line guidance. And we're proving we can invest for growth and expand margins at the same time. Let's dive right in. Starting with MIS, revenue grew 12%. A very strong result, especially given the typical softness in Q3. All Ratings lines of business contributed to the growth, supported by the constructive issuance environment. The largest increase came from leveraged finance activity, followed by financial institutions driven by heightened issuance from infrequent issuers including fund finance and BDCs. Issuance totaled nearly $1.8 billion marking the highest third quarter on record. This reflects a combination of factors we've previously discussed, including historically tight spreads, strong investor demand, and the announced rate cut near quarter end as well as a pickup in M&A activity. MIS transaction revenue rose 14% slightly trailing the 15% growth in issuance due to high volume of repricing activity this quarter. As noted before, simpler and less complex bank loan repricings typically yield lower revenue and are less favorable from a mix perspective. MIS recurring revenue increased 8% year over year, reflecting the impact on ongoing pricing initiatives portfolio expansion and sustained monitoring fees. Foreign exchange contributed to a favorable 1% uplift consistent with the benefits seen in the second quarter. Now some color on Q3 transactional revenue by asset class. Corporate Finance transaction revenue increased by 13% supported by a 29% rise in bank loan revenue compared to 58% issuance growth. This issuance surge was largely driven by repricing activity which rebounded following subdued levels in Q2. Spec grade revenue rose 43% marking the strongest quarter for rated issuance since 2021. This was fueled by positive investor sentiment and robust market access for these issuers. Investment grade revenue declined 176% drop in issuance. Despite the decline, overall activity remained solid supported by several large M&A transactions. Notably, Q3 of last year was the second highest third quarter on record for investment grade. Driven by significant yield volume in the energy, oil and gas sector, creating a bit of a challenging comp base. In Financial Institutions, transactional revenue grew 34%, significantly above the 3% issuance growth. This was driven by the strongest volumes in a decade from frequent issuers within the banking sector. Public, Project, and Infrastructure finance transactional revenue remained relatively flat reflecting weaker activity in Project Finance and Sovereign. However, this was partially offset by strong performance in U.S. Public finance especially within the Regional and Muni space. Structured Finance transaction revenue rose 10%, supported by strong activity in CLOs especially new deals driven by growth in leveraged loan formation. This was complemented by improving activity in U.S. RMBS, underpinned by sustained investor demand and healthy deal flow. As Rob mentioned, private credit continues to be an important driver of MIS revenue growth, mainly from fund finance and business development companies or BDC activities. First-time mandates reached 200 in Q3, that's up 5% year over year. Growth was strong across both North America and LatAm, putting us on track to reach $700 million to $750 million for the full year. This momentum was partially driven by private credit-related mandates across financial institutions structured finance, and private investor requested ratings in PPIF. As a reminder though, with the growth in private credit, some issuance activity will not be captured in rated issuance figures, reported by external data providers. Now turning to margins, MIS delivered an adjusted operating margin of 65.2%, which is an expansion of 560 basis points year over year. And as a result, we are raising our full-year guidance to a range of 63% to 64%. Looking forward, and as shown on this slide, we are updating our issuance outlook by asset class. Our forecast for the remainder of 2025 assumes continued momentum from the quarter, even as we approach the typical and expected normal seasonal slowdown towards year-end. We expect issuance growth to be mid-single digit for the full year, with notable updates in investment grade, leveraged loan and high yield bond issuance bolstered by improving M&A activity. As previously noted, we expect spreads to remain near historic lows, despite some modest widening. Investor demand remained strong and size of renewed M&A momentum are emerging. That's actually reflected in the uptick in our Rating Assessment Service or RAS business, which often serves as a leading indicator for M&A. In fact, Q3 marked record quarterly revenue for RAS, this reinforces our expectation that M&A will be a positive contributor as we head into 2026. In the near term, we're raising our estimate of M&A issuance to a range of 15% to 20% for the full year 2025. Now translating this to revenue, we now anticipate full-year MIS revenue growth in the high single-digit range, and that's an upward revision from our previous outlook. Overall, we remain optimistic about issuance activity, but it's important to note that our guidance doesn't factor in a significant disruption like the one we've experienced earlier this year. Risks remain with ongoing tariff and trade negotiations, and the full impact of a prolonged government shutdown on market conditions is difficult to predict. That said, we believe we've accounted for the broad spectrum of the most plausible scenarios in our updated guidance. Turning to Moody's Analytics. This business continues to deliver an impressive financial profile. 93% recurring revenue, a 93% retention rate, and consistent growth at scale. Reported revenue grew 9% year over year, while recurring revenue grew 11% or 8% on an organic constant currency basis. As we've talked about a lot in recent years, we've been actively reshaping the revenue mix by downsizing lower margin services, and increasingly leveraging implementation partners across regions. As a result, transactional revenue continues to decline, down 19% this quarter. ARR growth of 8% is consistent with last quarter, you'll notice some quarter-to-quarter movement in individual line of business growth rates. Often driven by large new business wins or large attrition events. Across the portfolio, though, retention rates consistently hold in the low to mid-ninety range, and that supports high single-digit AR growth. Now let me double click into each of the lines of businesses to give you a clearer view of the underlying dynamics. First, Decision Solutions, which includes our banking, insurance and KYC delivered double-digit AR growth this quarter at 10%. KYC continues to be the fastest growing part of Decision Solutions, with sustained growth in the low to high teens over the last several quarters. This quarter, we reported 16% AR growth and I want to highlight two recent sales in the tech sector that illustrate the appetite for our KYC solutions beyond financial service customers. First, a large technology company signed a major deal to integrate Moody's Orbitz data into its denied party screening system. Helping block transactions with entities in countries of concern. This deal positions Moody's as a trusted provider of critical data for regulatory compliance, and showcases our ability to address complex challenges with innovative solutions. Second, a global social media platform is using Moody's to strengthen fraud detection and business verification across its ecosystem. Our data helps uncover hidden ownership structures, circular directorships, and brand inconsistencies streamlining investigations, reducing minor review, and accelerating decision making. Insurance delivered 8% AR growth this quarter and there are a few dynamics worth noting, given the diversity in the end markets we serve. First, growth in our Life business remains strong and has been bolstered recently by customers adopting more sophisticated models and increased usage. On the Property and Casualty side, 2024 was a standout year for both new business and retention, with several large cross-sell wins and retention rates in the high 90s, presenting a bit of a tougher comp. In our banking line of business, which includes our lending suite, as well as risk regulatory and finance solutions, we delivered ARR growth of 7% in Q3. Reported revenue was flat in the third quarter versus last year, influenced by the revenue accounting for multiyear sales of on-premise solutions. With risk, regulatory and finance solutions growing at mid-single digit, the headline growth rate masks the strength of our lending business, including Credit Lens, which continues to grow AR at a low to mid-teens pace and is the largest revenue contributor. We're investing to expand our offering into a more comprehensive solution that spans the full lending workflow. This approach is resonating with our core customer base. Mid-tier banks, and is increasingly enabling us to cross an upsell across our solution set. Next, turning to Research and Insights, we delivered AR growth of 8%, and that's an improvement as we lapped last year's attrition events. Growth was further supported by strong upsell execution fueled by our ongoing investments in CreditView, including research assistance and our suite of organic adjunctive solutions. Finally, Data and Information ARR grew 7%, and continues to be affected by cancellations from earlier this year. On the positive side, we still see strong pricing power, sustained demand for ratings data feeds and strong Orbis new business volume. Moving on to margin, We delivered ahead of our initial plan so far this year with a 400 basis points improvement in Q3, and we now expect approximately 33% for the full year. This represents over 300 basis points of year-over-year margin expansion before absorbing a headwind of about 100 basis points from the three M&A deals within the last year. But let me be clear, we're not stopping there. This progress is rooted in programs designed to maximize investments in strategic growth areas, and realize a more efficient organization footprint. We remain focused on expanding margins towards our medium-term commitment of mid to high 30s over the next two years. To get there, we are prioritizing and redeploying R&D spend across our portfolio, redesigning enterprise processes with GenAI, deploying productivity tools, and optimizing vendor relationships. We remain confident in Moody's Analytics' high quality, predictable ARR growth our ability to deliver sustained margin expansion strengthening the earnings durability. Now, to help with modeling, I'll walk through a few additional details behind our updated outlook assumptions. You can see the MIS and MA guidance updates here on slide 13. We now expect MCO revenue to grow in the high single-digit percent range. We are reaffirming our operating expense guidance which supports an adjusted operating margin of about 51% highlighting the strong operating leverage of our business. At the MCO level and excluding restructuring charges, we anticipate operating expenses to increase by $10 million to $20 million quarter over quarter consistent with expectations we shared in the second quarter. We also expect incentive compensation to be approximately $100 million in line with Q3. As demonstrated by our margin performance, particularly in MA, our efficiency program continues to deliver meaningful improvements. We have already executed over $100 million of annualized savings, helping offset annual salary increases and variable costs. We're updating our adjusted diluted EPS guidance range of $14.5 to $14.75 which implies roughly 17% growth at the midpoint versus last year. One modeling note on our tax rate. In October, a statute of limitations expired related to certain pre-acquisition tax exposures Moody's assumed in a prior year M&A transaction. This will result in a one-time approximate 200 basis point favorable impact on our full-year 2025 effective tax rate. Please note, this benefit will be fully offset by the release of the indemnification asset so there will be no impact to net income or EPS. Turning to cash flow, we now anticipate our free cash flow to be approximately $2.5 billion and we are increasing our share repurchase guidance to at least $1.5 billion. That puts us on track to return over 85% free cash flow to our shareholders this year. To wrap it up, this quarter's results reflect the strength of our strategy and execution. We are approaching transformative shifts in technology from a position of financial strength, allowing us to invest in innovation while continuing to expand margins and grow revenue as seen again in Q3. And with that, operator, we're now happy to take any questions.

Thank you. Star one on your telephone keypad. If you are on the speaker phone, please pick up your handset and make sure your mute function is turned off so that your signal reaches our equipment. We ask that you please limit yourself to one question. The option to rejoin the queue will be unavailable. Again, that is star one to ask a question. Our first question will come from the line of Mona McNayat with Barclays. Please go ahead.

Good morning. This is Brendan on for Manav. Just wanted to ask, oh, just to get your guys' thoughts on just pros and cons of AI in your analytics business? It sounds like you had some recent wins, but just curious how you're thinking about seat-based exposure, whether or not it's explicitly tied to your contract or not, and just and just what you're hearing from your key financial services customers. On the topic.

Yeah. Hey, Brendan. So first of all, we've really never had, you know, kinda seat-based exposure. That's generally not the way the contracts have been structured. So, you know, AI is not gonna be any different. I would say maybe just to kinda zoom out in terms of how we're thinking about it and going about it. First of all, we're embedding AI into a bunch of our own workflow solutions and software, obviously, we've done that with research assistant. We now have something like 20 different standalone or AI-enabled applications. So we're that that gives us an opportunity to monetize there. But we also just launched what we call agentic solutions. So we've got smart APIs and MCP servers, and think about that as, like, tools that are built on top of Moody's data. You know, this huge data estate that we talk about all the time. And they can power LLMs and third-party agents with that Moody's data. And then we, we have been building a suite of highly specialized workflow agents. We've got more than 50 domain-specific agents already today. That leverage our proprietary data and subject matter expertise. And support all that automation and can be embedded into customers' internal workflows. I gave one example of that. On the call. So and I think what you're seeing from us is you know, we have this massive content estate. AI is really an unlock and we're trying to meet our customers where they are. Whether they need to have access to that content through our own workflow and supported by AI, whether they want it on partners platforms, or whether they want it embedded into their own internal AI workflow or orchestration. So everything we're doing is to try to meet our customers where they are.

Our next question comes from the line of Peter Knutson with Evercore. Please go ahead.

Hi. Thanks so much for taking my question. I'm just wondering if you could help me think about what extent, if any, did third quarter's record issuance reflect pull forward activity? And then within that as well, what you guys are assuming for CLO activity maybe in 4Q, but more broadly in 2026? Since that was such a large driver of that upside?

Yeah. I can start with the kind of the pull forward. I would say, you know, and I we've talked about this before that there's a lot more pull forward that goes on in spec grade than there is investment grade. Understandably, right, because investment grade issuers tend to always have market access, and that's less true for spec grade issuers. So we tend to see pull forward more in spec rate. I would say the pull forward that we've seen in 2025 is pretty consistent with what we've seen over the last, call it, four years. So it's in line with that. Very little pull forward from investment grade. As we've talked about, we've got some pretty healthy maturity walls going forward.

Our next question comes from the line of Jason Haas with Wells Fargo. Please go ahead.

I wanted to focus on the KYC business. Can you talk about what data sets were within that business are proprietary? And are you seeing the longer tail of competitors there stronger by being able to integrate AI. That's a concern that we've been hearing, so I was hoping you could you could weigh in on that. Thank you.

Yeah. So there there's a few datasets that really go together for our KYC solutions. The first is Orbis, which is our massive company database. And I think it's we think of that as derived data, first of all. It's accessed through a global commercial ecosystem where we've got the right to use and aggregate the data, and then we cleanse it and we normalize it. And that really enhances the value of all that data. So it's not as easy as just going out and web scraping that content. That's first of all. And the second dataset that we have is around politically exposed people and risk relevant people. That's a fairly unique dataset that we have. That was originally that that was actually part of our RDC business that we purchased years ago that was formed by a consortium of banks after nine-eleven. Who wanted to combat, terrorist financing. And so that business grew out of that. And then the third is our AI curated news. And then I think part of the secret sauce is that we then link that together, and we have really the world's best beneficial ownership in a hierarchy data. And that really gives our customers a 360-degree view of who they're doing business with. That I think is relatively unique in the marketplace.

Our next question comes from the line of Andrew Steinerman with JPMorgan. Please go ahead.

Hi, Rob. If you saw, there's a Wall Street Journal article from October 15 that wrote up the Moody's report on refi walls. And the way they portrayed it, was for US companies that there was a decline in refi walls Again, I don't know if you saw the article. It caught my eye. But, obviously, that's framed a lot differently than slide six. Where you're seeing a really favorable environment for refi walls And if you could try to square the difference that would be helpful and, you know, mention something about The US refi walls.

Yeah. Andrew, I think that article was citing US spec grade which was down, call it, five to 6%. That's right. Yeah. That's right. So it was really a subset of the of the broader maturities. And, you know, I think I might point out, you know, a couple things that there there's actually as we kinda look farther out, there's actually a significant portion of maturities that are actually a good bit farther than four years out. And that's because of the basically the steepening of the yield curve you know, the last, know, call it year or so. So we've actually seen average tenors shortening. We've seen issuance less than seven years being more attractive than issuance out past, you know, kinda seven to ten years. We've seen average tenors shorten up. And all of that ultimately is going to be, I think, positive. As we think about the stock of what needs to get refinanced over you know, not only the four-year walls that we quote, but even beyond.

Our next question comes from the line of Toni Kaplan with Morgan Stanley. Please go ahead.

Thanks so much. Rob, usually during the third quarter, you talk about your early thoughts into 2026 for issuance and just in light of that, you know, refi wall is still healthy, but maybe less of a tailwind next year and M&A, though, could provide a nice uplift. And then wanted to also get your thoughts on the data infrastructure financing and if that's gonna be a meaningful driver in '26 and how you think about that opportunity overall. Thanks.

Yeah. Thanks, Toni. So you know, it's as always, in October, it's a little too early for us to actually give guidance for next year, but we can kind of tell you how we're thinking about next year. And I would say that and you've heard me use this, you know, kind of framework in years past. Right now, I think there are more tailwinds than there are headwinds going into 2026. So we're thinking it's going to be a pretty constructive issuance environment into 2026. And let me talk about let me start with the tailwinds because we think they're they're more tailwinds. So first of all, we've we've got spreads at at at very tight ranges right now. We have Fed easing, so we have the potential for lowering benchmark rates. You touched on M&A. We've certainly seen the M&A environment really pick up in the third quarter. You heard Noemie talk about our RAS pipeline is very robust. We're hearing very positive commentary from the bank about the M&A discussions and pipelines that they have. So 2026 may be the year that we really see not just M&A, but sponsor-backed M&A come back into the market We've talked about what a positive that will be. We do have the potential for further resolution in some of these geopolitical conflicts that I think could provide a little bit more market confidence. You know, kind of a mixed sentiment really around economic growth, a slowdown, the current thinking is that we're not looking at a recession while there's been a little bit we think the current levels of growth across the G20 are generally sustainable into next year. You mentioned the refi walls And we do think that the default rates will continue to decline. They're a little bit above historical averages at the moment, but we look for that to continue to decline. So all that feels pretty good. And just in terms of what the headwinds could be, I mentioned economic growth. And obviously, we're looking at things like job growth and consumer confidence and spending to get a sense of whether there could be actually you know, a further deceleration of economic growth. Obviously, we've got some headline risk around global trade dynamics, particularly with The US China that creates volatility in the markets. That's usually a negative for issuance. It can create some risk-off environments. It can widen out spreads. So in general, Toni, feeling pretty good about it. And you asked the last thing you asked about data centers. That's why we talk about these deep currents. You're seeing tens and hundreds of billions of dollars going into infrastructure investment and particularly around digital infrastructure and data centers. And we're having a lot of dialogue all around the world, and we expect that to continue into 2026. So that'll that'll be a deep current that continues.

Our next question will come from the line of Alex Kramm with UBS. Please go ahead.

Yes. Hi. Good morning, everyone. Just coming back to Moody's Analytics. A lot of things going on there. It seems that things are maybe tracking a little bit slower than your expectations at the beginning of the year. Correct please, me if I'm wrong. And I know I know you you mentioned a couple of things, but but maybe just talk about relative to expectations at the beginning of the year, what maybe are the things that the surprised you negatively and how we should be thinking about those items as we get into 2020? Thanks. Thank you.

Yes. Maybe, Alex, I'll start, and then Rob can add if needed. So if I look at the top line for the third quarter in MA, we were right on our expectations in Q3. You may recall earlier in the year, we took slightly down our guidance for the full year because of some attrition in 8%, very in line with with the second quarter. We have a strong pipeline for the fourth quarter growing nicely, very strong coverage. So pretty heavy weighted in December. I think there's a very strong focus on execution. The way we look at the portfolio, I know there's a few puts and takes in each of the different lines. But overall, we're managing to a high single-digit growth. We're investing in our lending, underwriting, KYC for corporate. We had a few very nice wins in the third quarter. So that balances out to a high single-digit growth, and we're pretty confident with the outlook for the full year. And we'll talk about next year bit more color in February, but we're delivering as expected.

Our next question comes from the line of Scott Wurtzel with Wolfe Research. Please go ahead.

Hey, good morning, guys, and thank you for taking my question. Just wanted to ask one on private credit. You know, we're starting to hear more you know, see more headlines, hear more concerns about just the health of private credit. I'm wondering if you can talk about you know, how you see that potentially impacting your growth there. Like, I think there's potentially a school of thought that if there is more concern around the health there, there could be more demand for understanding of risk and ratings. There could also be more debt as you said, moving from public or private to public markets. Just wondering if you can kind of, tease out some of the potential ramifications of that. Thanks.

Yes, Scott, it's Rob. I think you started to nail it there. You know, we've been talking for a number of these calls about you know, how important it is to have a rigorous you know, third-party independent assessment of credit risk in the private credit market. And that was the driver behind what we did with MSCI and you know, it's interesting. I mentioned on the in my prepared remarks, we don't have a lot of rating exposure in the direct lending market. Right? And that's, again, one of the reasons that we partnered with MSCI to be able to provide investors with that third-party view. And I mentioned that so I'd say two things. You know, whenever you start to see a little bit of credit stress in the market, and I talked about at least in the public markets, the spec rate default rate is higher than historical averages. So you can imagine that there's some similar, you know, stress in the private credit market, that drives more demand for credit insight and research. We see that with the usage of our website and all sorts of things, the engagement that we have with investors. So I would say that's true. And then second, you're right. I mean, we're now seeing a little bit of a flow back into the public markets because at the end of the day, those coupons that you can get in the public markets are typically represent a fairly substantial savings versus, you know, funding in the private market. So, you know, I think we could see an ebb and flow between the private and public markets. But I think we're pretty well positioned to serve the needs of investors and issuers, whether it's you know, in the private market or the public market. And that's what we've really been working on over the last you know, call it two years.

Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please go ahead.

Thanks so much. I just wanted to shift back to the MA discussion we talked about a bit earlier. Noemie, I think you said that you're managing MA growth top line to high single digits If I remember correctly, before you came, there was an Investor Day. I think the medium-term guidance for that business was low to mid-teens. Has that changed? Or should we be looking more medium-term MA growth the high single digits? Thanks.

Yes. We've updated our medium-term outlook for MA earlier this year in February. So we're looking at a high single-digit growth for AR and revenue. That said, there's different dynamics within the portfolio. We are obviously having printing more higher growth rates in areas where we're strategically investing. And that was also the logic behind the restructuring program and looking at our organizational footprint. The way we deploy our engineering teams, the way we deploy our product groups, our sellers to the areas where we think we can generate higher growth. But overall, the growth rate is expected to be high single-digit. And we've also expanded margin quite significantly We've updated that also in February, and we are now going very well on track to meet those commitments. As a matter of fact, we've increased our full-year guidance for MA margin to approximately 33% So that's another thing we've also updated along the top line.

Yeah. And I would just say, you know, we talked to a lot of investors, and you know, over the over the years, and we had heard about this idea of the kind of the sweet spot being kind of high single-digit growth and getting some further margin expansion. And so that's what you see reflected in the medium-term targets, and that's where what you see us executing on.

Our next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead.

Great, thank you. Rob, I want to ask you, there's a school of thought out there with investors for the last year plus that AI on a net basis is bad for your company. And for other information services stocks. So I wanna give you a chance to just talk about that, about the moats around your businesses, both on the rating side as well as MA. You could fight that off any new potential entrants out there. And then secondly, just wanted to quickly ask, what in your mind was better about debt issuance so far this year versus your original expectations coming into the year? Thank you.

All right. So first on the AI is bad for our business. I'd love to double click with you on that. I just don't see that. You know? And I've been pretty consistent about it. You think about we have a massive, mostly proprietary data and analytics estate. And remember, what anchors that, Craig, is it starts with the ratings agency. We're producing unique proprietary rating content and research every single day. That is our largest content set. And then I talked about Orbis and how it's not just aggregating publicly available company data. This is a complex curated web of information providers where you have to have the rights to this data. And then we're aggregating it and normalizing it and creating value. You know, even where we've got workflow software. Right? Let's so let's talk about you know, let's talk about our insurance franchise. Yes, we're delivering our solutions through software, but at the core of what we do in insurance, are, I would say, you know, mission-critical models. Right? It's the access actuarial models. And it's the RMS physical risk and catastrophe models. That is really, really unique IP. That's delivered through software. And so, Craig, I actually think about in some ways, we have a lot of this content that has been effectively trapped in our workflow software. Right? If you wanted to get access to our cat models, you had to be a subscriber to our software. And you're a cap modeler. Guess what? Now we have the ability to democratize that access to this content. To commingle the access and get unique insights. So it makes it much easier to access our content, in many more channels as you heard me talk about, that's gonna open up new ways for us to monetize the content on different platforms with different customer segments. Where there's different value that they derive out of our content. And it's also gonna allow us to have unique insights as this content is commingled. So I feel very good about AI. And that's why, Craig, we've been really trying to be so front-footed on this. From back in 2022 is because we believe that this ultimately is an unlock. And you know, we've talked about this on these calls. It takes a little bit of time, we're working with the regulated financial industries But we are seeing some good signs of traction. Your second question was you know, what is driving you know, the issuance? I'd say, look. In the first four months of the year, obviously, April, we had a lot of in the market with the tariffs. That was, in a way, kind of a lost month. Right? And, you know, we hadn't factored that into the guidance at the time. But you've seen, I think, and you see it with the equity markets. The markets have gotten much more comfortable with the current environment. You've seen I said default rates are a little bit above average, but still fairly close to the long-term average. So spreads are tight. You've got and you've got a real pickup in M&A activity. And you remember back in February, we had talked about our M&A assumptions and that this would be back half loaded. And so I think we are starting to see that M&A volume and activity that's supporting issuance and business investment that we had been thinking we would see back in the that call in February. It's just that we hadn't anticipated the volatility in the first half of the year. Yeah. And to that point, we if you look at our Q4 implied guidance for MIS, that's pretty consistent with what we had at the beginning of the year. We've always had a pretty strong fourth quarter with low teens MIS transaction revenue growth, and that's been pretty consistent throughout the year.

Our next question will come from the line of Russell Quelch with Rothschild and Co Redburn. Please go ahead.

Hi, guys. Thanks for having me on. Noemie, you cut out some headwinds around slowing retention and sales driving that slowdown in insurance ARR. I wonder if you can elaborate on that a little bit more, given insurance has been a strong pillar of MA growth over the last twelve months. Wondering how you're thinking about insurance growth into 2026, given the slowdown in premium growth in the underlying P&C market and normalization in storm activity.

Yeah. Insurance, we have few dynamics going on in the third quarter, and that translates into the full-year outlook that I talked about. We have actual data and models, so access is running very nicely. We have high double-digit growth. We continue to see customers switching to a higher definition. Models, and that's been really driving growth this quarter. The RMS and the RRP migration, we had a lot of significant transactions in 2024 and early 2025. There's bit of pull forward of pipeline. So now there's a digestion going on with our customers. We're going after the largest the remaining pool of customers who haven't yet moved to the platform. So that's one driver. So we have a lot of pipeline there that we expect will drive growth of that business in long term. There's just a it's not so much of a headwind in fact, it's just more like tough comparison from 2024 where we had a lot of those customers migrating into the RMS platform and we still have a lot of pipeline with the remainder as we head into 2026. Yeah. Russell, I would also I mean, I spent a lot of time, with our insurance customers, and I feel pretty bullish about what we can do in that industry. You've got insurers who I would say are behind the banks in terms of their adoption of digital platforms know Amy talked about moving to the cloud. But, but also just sophisticated third-party data and analytics. And so there's a lot of interest from insurers in thinking about how they can leverage a lot of our content to get signal value to help them understand risk. And you've seen us broaden from really a property focus with our cat business and obviously we have a have a life business as well. But in the P&C business, we've moved into casualty. There's a lot of interest from insurers to have a more data-driven approach to thinking about casualty risk, and that's what we did when we acquired Predicate. We've pulled together a cyber working group, across the industry. I think there's still a lot of opportunity for that market to grow in terms of GWP and so do the insurers. But they need to have models and data that they can be very confident in to help that market grow. So, I feel very good about it. Over, you know, let's call it the medium term.

Our next question comes from the line of Sean Kennedy with Mizuho. Please go ahead.

Thanks for taking my question and nice results. I had a follow-up on Moody's Analytics. So I believe last quarter, you mentioned that sales cycles were lengthening a bit. I wanted to ask if anything has changed there as we got further away from the spring. Also, how's the general demand environment for banking? Thank you.

Yes. So I'll with the demand environment for banks. It's actually pretty good. We're having some very good discussions and wins, frankly, with our banking customers. I talked about that one kind of marquee deal, but actually we're seeing very good engagement and growth from our biggest banking customers. For the reasons that I talked about. And so I'd say I'm not sure there's much of a change from the last quarter in terms of how we talked about kind of sales cycles. I think we talked about you know, there was a little bit of a lengthening in the sales cycles, know, over the, you know, call it last year. But there was also an expansion of the size and the complexity and number of products that we're pulling together as solutions for our customers as well. So, you know, to me, when I look at those together, you know, I feel fairly comfortable, you know, when those things are moving in tandem. And I would say the last thing I would say, spend a lot of time with our customers. There's a lot of focus right now on growth. And that, at the end of the day, and we get asked about is it regulatory drivers that drive the growth of your solutions, There's nothing better than being able to talk to your customers about how you can drive growth. And that ultimately means that there's a more positive sentiment across the customers as they're thinking about you know, the future and investing in their business.

Our final question will come from the line of Jeff Meuler with Baird. Please go ahead.

Yes. Thank you. Rob, you had a couple of callouts on climate solution wins outside of PNC Insurance. That was one of the thesis points of the RMS acquisition. Is the message behind the message that you feel like you're at an inflection point where you expect that to really start taking off, or are you just kind of conveying some large ones that you had in the quarter? And then just to be clear, does that revenue when you sell climate solutions outside of insurance does that get reported within insurance or elsewhere? Thank you. I guess, you know, one of the reasons I brought it up is, you know, that was as you as you noted, that was one of the theses that we had when we bought RMS was that this content the this the models and the data to help institutions really understand the physical risk of extreme events was gonna be important beyond just the insurance business over time. And so we you know, I've been trying to give some examples of where we've had some wins of banks who are taking these solutions. Would say that that started with the biggest, most sophisticated banks who are who are who are using the RMS models. We've been thinking about how do we take some of that content and package it differently so that we can make it more useful and available to a broader segment of banks over time. But, you know, you can you know, we hear from banks as they're underwriting loans that they're interested in understanding physical risk of the collateral they're taking. We hear from corporates. They're interested in understanding the physical risk of locations across their supply chain and across their own physical footprint. We're engaging with governments who want to understand vulnerability of communities to various extreme events. And of course, we're starting to hear that from investors as well. So you know, there's some product development work as we start to see the demand from these other sectors to be able to package the content in a way that's useful for those different customer segments. So I'd say it's still relatively early, but I am giving examples of demand outside of insurance. Yep. And we're gonna continue to lean in on the last point on two point, On your question about where that the revenue goes, goes into the insurance line within Decision Solution. And then the other thing I'd add is we when we acquired RMS, we had revenue synergy targets that we've published, and we are well on track to achieve those.

And that will conclude our question and answer session. I will turn the call back to Rob for any closing remarks.

Okay. That's a wrap everybody, for joining. We'll talk to you next quarter. Bye. Bye.