Moody`s Corp (MCO) — Q4 2024 Earnings Call Transcript

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 the fourth quarter and full year 2024, as well as our outlook for full year 2025 and updates to our medium-term guidance. 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 US 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-K for the year ended December 31, 2023, and in other SEC filings made by the company. These, together with the Safe Harbor statement, set forth important factors that could 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. I'll now turn the call over to Rob.

Thanks, Shivani, and thanks very much everybody for joining today's call. After our prepared remarks, Steve Talinko, the president of Moody's Analytics, and Mike West, president of Moody's Investor Service, are going to join Noémie and me for the Q&A portion of the call, and that's something that we've done for a few years now. Before I get into our results, I just want to acknowledge that it's been a difficult few weeks for many members of our team following the tragic loss of our dear friends and Moody's colleagues Chris Collins and Melissa McCandry in the Washington DC plane crash. They really were cherished members of our team and their loss leaves an immeasurable void and our thoughts are with their families during this incredibly difficult time. Now, on to our results. Moody's delivered a record year in 2024. We grew revenue by 20% to over $7 billion, with strong growth across both businesses. And through disciplined cost management, we expanded our adjusted operating margin by over 400 basis points, which translated into a 26% adjusted diluted EPS growth. All while executing on strategic investments across both of our businesses. So MIS finished the year on a real high note, with 18% total revenue growth, powered by 29% transactional revenue growth in the fourth quarter. Our ratings teams were really active, and it wasn't just in the fourth quarter, but throughout the year, delivering 33% revenue growth for ratings and over 500 basis points of adjusted operating margin expansion for the full year. Moody's Analytics also had a strong finish to the year, with 10% recurring revenue growth in the fourth quarter and 9% ARR growth. Decision solutions continue to lead the way with $1.4 billion in ARR growing at 12%. As we look to the future, we're continuing to invest to deliver market-leading growth and attractive shareholder returns. There are some very powerful deep currents that are driving demand across our business. And we've been making investments to ensure that we can capitalize on that demand. Thinking about the future as we enter the third year since we introduced our medium-term targets, today, Noémie and I are going to provide an update on our key metrics and what underpins our higher adjusted diluted EPS growth range. As we set out this time last year, 2024 was a year in which we really doubled down on our investments in order to help us capitalize on some big opportunities that are in front of us. We executed on those foundational investments that we called out on last year's fourth-quarter call, which included platforming and modernizing, new products, and also Gen AI. We focused on the accessibility of our data estate and enhancements to our risk and resilience posture. We continue to invest in the rating agency and our positioning as the agency of choice for investors and issuers. I have to say, I'm really proud that we were named the best rating agency an impressive thirteenth year in a row by Extell, formerly institutional investor. It's our experienced analysts, insightful research, and active market engagement that reinforce our leadership position in the market and allow us to capitalize on robust periods of issuance like this past year. We've also made investments to address the big shifts going on in the capital markets. The first of those is private credit. I'm not just talking about direct leveraged lending, which is a roughly $1.5 trillion market and growing, but also fund finance, infrastructure debt, and asset-backed finance, to name a few. With dedicated analytical and commercial focus on private credit, we made really good progress in this space this past year, rating nearly 400 private credit-related transactions in 2024. Similarly, we have a product suite to serve transition finance. We issued over 150 second-party opinions and more than 20 net-zero assessments in 2024, and we have a very strong pipeline there as well. We also have a coordinated commercial and analytical initiative focused on digital to ensure that we are the agency of choice in this space for the years to come. Our strong financial performance this year allowed us to accelerate the build-out of MIS's technology applications for analytical, commercial, and operational teams, driving improvements in operational efficiency and allowing us to be increasingly volume agnostic within a range of issuance and you can see this reflected in our 60% margins in 2024 and our guidance for 2025. We rated nearly $6.2 trillion of issuance in 2024, an increase of 42% compared to 2023. Mike West provided an interesting statistic that throughout last year, our ratings teams issued a press release related to a credit opinion on average every 20 minutes, without needing to meaningfully increase our analytical staffing levels. Importantly, we did this while maintaining the robust controls that the market and our regulators expect from us. As I have said, we're always looking for ways to invest inorganically in ratings because it's a great business. Remember, in mid-2024, we invested further in GCR, the leading domestic credit rating agency in Africa, taking our ownership up to almost 100%. In November, we expanded Moody's Local into six more countries across Central America. We're really pleased with the growth that we're seeing in Moody's Local revenues up 16% in 2024, and we signed several hundred first-time mandates. That's a great expansion of the rated portfolio across the region and bodes well for the future. As for Moody's Analytics, we've invested in our product cloud for our traditional customer base: banks and insurers. We've expanded our data coverage and workflow solutions to serve large corporates in in-demand third-party risk domains, including KYC, supplier risk, trade credit, transfer pricing, and master data management. Within the last six months, we made three important acquisitions to enhance our offerings in our banking and insurance businesses, adding valuable data and analytics to our risk operating system. These include Numerated, which extends our loan origination system for banks; CreditCat, which enhances our capabilities in casualty underwriting and analytics; and most recently, Tape Analytics, which enriches our insights on properties and will integrate with our catastrophe risk models. We've been collaborating with Numerated on joint offerings for some time, and that highlighted the great fit between our respective lending workflow solutions. There was an obvious industrial logic to this and we've had some encouraging responses from our customers, already yielding noteworthy wins with tier two and tier three banks in the fourth quarter, with our enhanced end-to-end commercial lending offering resonating well with customers. On the insurance side, we've discussed the foundational investments we've made in our cloud-based intelligent risk platform, which we've termed IRP. These investments are delivering meaningful ARR growth for our insurance business. In 2024, we grew the number of customers on their IRP by almost 20%, enabling insurers to reduce by as much as half the time required to model complex scenarios across billions of property locations. As our platform hosts state-of-the-art, sophisticated, high-definition models, our customers can better measure and quantify their financial exposure as well as monitor the evolving risks in their portfolios at scale. This is deepening our relationships with our customer base and expanding our strategic relationships with the largest global insurers, reinsurers, and brokers in the world. We've been ranked number one in the Chartis Risk Tech 100 for three consecutive years, providing market validation of our best-in-class solutions serving nearly 15,000 analytics customers. A lot to be proud of in 2024. While we had a strong year, I'm very excited about 2025 and beyond due to deep currents that are changing the way businesses and markets operate. Given the investments we've made over the last several years, we are well positioned to ride these currents, particularly in five areas: first, the ongoing expansion and evolution of the debt capital markets; second, digital transformation and automation across industries; third, the imperative for businesses to know more about who they are doing business with; fourth, the growing needs across industries to understand the financial impact of extreme weather events and a changing climate; and fifth, the transformative power of generative AI and the potential unlock for owners of proprietary data insights. Let me elaborate on the impact of extreme weather because this has been so much in the headlines recently. We previously spoke about the need to understand physical risk related to climate change. After hurricanes Celine and Milton and the LA wildfires, I don’t think anyone is questioning the need to be better equipped for this. We are at an inflection point. The insurability of assets—whether insurance is available and what the costs will be over time—has become a very important issue in property and financial markets. The increasing frequency and severity of extreme weather events combined with ongoing property development and inflation have made these events even more costly. The demand to better understand these risks, not just by insurers but by banks, investors, companies, and governments is rising, which is why we acquired Tape Analytics. Their AI-powered technology delivers address-level risk insights that complement our catastrophe models. These advanced models, combined with our extensive data on credit and economics and properties, mean that we are uniquely positioned to quantify the financial impacts of physical risks. We feel confident that these currents will serve as durable demand drivers for our business. Noémie will walk you through our full year 2025 guidance assumptions shortly. After delivering remarkable performance in 2024, we will provide an update on progress against our medium-term targets. The bottom line is we have fundamentally strengthened the earnings power of this business, supporting Moody's as a serial compounder in the years ahead. With that, Noémie, over to you.

Thank you, Rob, and hello, everyone, and thank you for joining us today. Starting with our Q4 results, we delivered a very strong finish capping a year of remarkable financial performance in 2024. You can see the highlights from our full year results on slide nine. In Q4, MCO revenues nearly reached $1.7 billion, up 13% year on year. Our adjusted diluted EPS was $2.69, up 20% year over year. MIS delivered its second-highest Q4 revenue on record with growth across all business lines. The anticipated volatility around the U.S. election didn't materialize, and with spreads at their tightest levels in over a decade, particularly in speculative grade, the robust demand environment continued throughout the quarter until the last days of December. MIS revenue in Q4 was $809 million, up 18% year on year. This growth was driven primarily by three key factors: first, healthy leveraged loan issuance activity, which was up 134% in Q4. However, with the mix weighted towards refinancing and repricing, transactional revenue for that asset class was up 27%. Second, we saw continued strength from infrequent issuers in the banking and insurance sectors, and third, strong performance from structured finance particularly in U.S. CLOs and CMBS, reflecting strong demand in a very favorable spread environment. MIS's fourth-quarter performance and corresponding higher incentive compensation translated into a 51.3% adjusted operating margin, which exceeded our implied guidance. Turning to MA, we also had a strong Q4 with revenue of $863 million, up 8% year on year. Recurring revenue, which accounts for 95% of total revenue, grew 10% year on year. Broadly in line with the 9.4% growth in ARR. Decision Solutions drove this performance with 12% growth year on year. We delivered strong growth across lines of businesses in Decision Solutions, with Banking, Insurance, and KYC achieving ARR growth of 9%, 12%, and 17% respectively. More specifically, KYC ARR grew 17%, driven by strong demand for customer and supplier risk data usage and sales from new customers. Insurance ARR grew 12%, fueled by improved customer retention and strong demand for our catastrophe model tool as extreme weather events become more pervasive and impactful across industries. This is generating demand for best-in-class risk modeling solutions with the IRP. Our Q4 Q1 2025 acquisition of Tape Analytics only builds on this, as Rob highlighted. Banking ARR grew 9%, reflecting strong customer retention and expansion of relationships that allow for improved lending risk management and finance workflows. The other two lines of businesses in MA include our more established data and research franchises. Data and information grew ARR by 8%, driven by demand from Orbis within the corporate sector. Research and insights grew ARR by 6%, affected by attrition events in the asset manager space discussed earlier this year. That said, sales growth—cross-sell, upsell, or upgrades—grew significantly above ARR trends in FY24, partly from upselling research assistance to our CreditGU customers, which accounted for 25% of our overall research and insights ARR growth. We are encouraged by the customer engagement for research assistance, one of our Gen AI offerings, which is building a healthy pipeline for 2025 and has already reached more than 100 customers in Q4. MA's adjusted operating margin of 33.8% increased 240 basis points compared to Q4 last year, leading to a full-year margin of 30.7%, which is towards the high end of our annual guidance. Now turning to fiscal year 2025 guidance, we expect MCO revenue growth in the high single-digit range with an adjusted operating margin expanding by about 200 basis points to approximately 50%. This comes after we increased adjusted operating margin by 420 basis points in 2024. Our adjusted diluted EPS guidance range is between $14 to $14.50. Regarding MIS, we expect market conditions to remain constructive this year, with tight spreads, declining high-yield default rates, and an uptick in M&A activity. You'll see our issued outlook for individual asset classes on this slide. All in all, we're projecting MIS rated issuance growth to be in the low single-digit range for 2025, with 700 to 800 first-time mandates. For MIS revenue, we expect growth in the mid to high single-digit percent range for the year, benefiting from a favorable issuance mix. We anticipate this revenue performance will translate into an adjusted operating margin of 62% to 63%, which at the midpoint represents about 250 basis points of margin expansion year over year. For MA, we expect revenue growth in the high single-digit range with ARR growth in the high single-digit to low double-digit range. We expect MA adjusted operating margin to be between 32% and 33%, which at the midpoint represents 180 basis points of margin expansion year over year. In terms of what underpins MA and DX expected MCO margin expansion, we took a hard look at our operating model and believe we have an opportunity to simplify our organizational structure. In our analytics business, we're mostly through the integration of the businesses we've acquired over recent years. We're also gradually reorienting our go-to-market strategy from selling individual products to selling end-to-end solutions to our customers in the banking, insurance, and corporate segments. This puts us in a position to combine resources in our customer-facing, marketing, product, and data engineering functions and further consolidate our real estate footprint. More broadly across the organization, we're starting to reap the benefits of the investments we've made in automating our workflows, resulting in expected improvements in operating leverage. In connection with this, we're announcing an efficiency program to simplify the organization, allowing us to accelerate profitability expansion and redirect some investment capacity to strategic growth areas. We plan to incur between $200 and $250 million in restructuring charges over the two-year duration of the plan, primarily in personnel-related costs, for an expected total annualized cost savings in the range of $250 million to $300 million upon completion of the plan. We accrued approximately $45 million already in the fourth quarter and expect to record an additional charge in the range of $80 million to $100 million in 2025, primarily in Moody's Analytics and to a lesser extent within our corporate functions. We have included a full year 2024 to 2025 operating expense bridge in the appendix of this presentation to assist with modeling questions. In terms of revenue calendarization for 2025, we expect MIS revenue in full year 2025 to follow a similar quarterly pattern to 2024, with first-quarter revenue expected to be up in the mid-single-digit range from the first quarter of 2024, ramping up in the second quarter before declining sequentially in the third and fourth quarters. For MA, we expect our year-over-year total revenue growth to be consistent in the high single-digit range throughout the year, with Q1 revenue being sequentially flat versus Q4 2024, a pattern consistent with the prior year. Excluding the impact from restructuring and asset abandonment charges, we anticipate expenses to increase by about $10 million from Q4 to Q1, followed by a typical seasonal pattern where expenses remain stable throughout the remainder of the year. In terms of margin, we expect MIS to be in the mid-sixties in the first half, before declining in the second half in line with revenue. For MA, we anticipate approximately 30% margin in the first quarter, with sequential improvement in the second half to achieve our full-year guidance of 32% to 33% as revenue ramps. Regarding adjusted diluted EPS, we expect this to follow the MIS revenue cadence and, specifically for Q1, anticipate adjusted diluted EPS to be at the high end of the implied quarterly adjusted diluted EPS range of $3.50 to $3.60. Lastly, looking beyond 2025, I'd like to talk about our medium-term targets. It's been three years since we published those, and with almost a year in the CFO seat, I’m using this opportunity to evaluate how our performance measures up. The headline is this: 2024 adjusted diluted EPS is up 46% from two years ago. The midpoint of our full-year 2025 guidance implies an 18% adjusted diluted EPS CAGR for the first three years, significantly above the low double-digit medium-term target growth rate. Much of this outperformance has been driven by solid execution during a robust issuance environment, with MIS revenue up 40.5% in the last two years and MIS adjusted margin exceeding 60% in 2024, alongside strong organic growth in MA, reporting ARR growth consistently in the 9% to 10% range over the last two years. We expect our retention rate to remain in the low to mid-nineties percent range and to continue to grow our new business at a low to mid-teens percent pace, enabling us to sustain ARR growth in this 9% to 10% range in the coming years. What's most notably different now from when we published our medium-term guidance is our recent M&A focus, which has been smaller scale and aimed at enhancing our offering to drive durable growth in strategic areas, including lending and casualty underwriting. We've also been investing in Gen AI and process automation for internal efficiencies, along with the build-out of our MA platform and our data interoperability, all expected to yield increased operating leverage in the coming years. We anticipate that the ongoing simplification of our organizational structure will lead to MA margin expansion in the mid to high thirty percent range by 2027. To summarize, we are increasing the range for adjusted diluted EPS growth from the low double-digit percent range to the low to mid-teens percent range, reflecting our ongoing effort to enhance the earnings power of our business. We believe the demand drivers and the execution of our strategy will yield attractive and sustainable growth and profitability expansion across market cycles. We remain committed to executing our capital allocation strategy and anticipate consistent strong free cash flow returns as we strive to deliver on both our customers' and shareholders' needs. I'd like to thank all of our colleagues around the world for their remarkable contributions to another great year for Moody's, and with that, Rob, Mike, Steve, and I will be happy to take your questions.

Thank you. I just wanted to ask you about the medium-term guidance. I just wanted to confirm if those were organic numbers, particularly on the MA side, and just maybe some of the moving pieces in there. It sounds like, Noémie, from your last comment, perhaps there's less M&A than what you initially thought. Is that correct?

We're in the third year of the medium-term target. As I said, I'm almost a year in the CFO seat, so it's a good time to take stock and evaluate how we're tracking. We're ahead on MCO revenue and adjusted diluted EPS metrics. MIS operating margin is already at 60%. We've seen strong organic growth in MA, consistently reporting growth in the 9% to 10% range over the last two years, as should be expected over the medium term. What's worth noting is that we had lower contribution from M&A than what we envisioned when initially publishing our medium-term targets. We had a different rates environment back then. All in all, we remain committed to delivering 9% to 10% ARR growth over the medium term, which will primarily be organic. We may pursue a bit of tuck-in acquisitions, but that's really what's driving the main change here.

Yeah. I wanted to follow up on that mid-term question, particularly on margin. The MIS margins are already at low 60%. So I wanted to better understand if there's not much room for margin expansion given the high incremental margins there. What does that imply for earnings growth in the mid-term? Are we implying a much more modest earnings growth profile? Any color would be helpful. Thanks.

Regarding the MIS margin for 2025, we had higher incentive compensation accruals in 2024 due to extraordinary performance. We rebaseline that at the beginning of each year, which provides a bit of tailwind for margins in 2025. We are continuing to make investments in our ratings business, as we mentioned, including workflows, the analytical tool that enhance our analysts' efficiency and ensuring they can focus on customer interactions, issuance, and research. We continue to invest in our risk and resiliency program, as we are regulated, and enhance our internal controls with automation to fuel growth over the long term, especially in private credit, sustainable finance, and more.

Thanks so much. I wanted to ask about MA margins. Really great quarter and higher than expected guidance. You talked about the efficiency plan, which was very helpful. Are you pulling back on investment at all? And just any additional color on simplification, or the efficiency plan, and any implications for AI? Additionally, how are you thinking about investments and cost savings from it? Thanks.

As mentioned earlier, in the last earnings call, we're mostly through our large investment cycles. We're redeploying capital internally and self-funding major investments around sales to target the corporate segment. We're making some investments there while continuing to invest in our platform and data estate. The efficiency is coming from integrated acquired entities. We’re shifting our go-to-market strategy to focus on end-to-end solutions, allowing us to simplify the organization. We have invested in Gen AI, which has resulted in notable efficiency gains in engineering and customer success. We're beginning to realize those benefits.

Everything you said there makes sense. The simplification theme is significant. We're concentrating on areas of perceived high demand among customers. Rob mentioned growth drivers moving forward, and we're investing in those areas while redeploying from less fast-growing segments. Gen AI is indeed enhancing internal productivity, especially in engineering and sales.

Yes. Good morning, everyone. On the rating side, I would like some deeper insight into your expectations for 2025, particularly on where you see upside opportunities such as M&A or potential risks to the outlook.

Sure, Alex. Thank you for the question. Allow me to provide insights into assumptions behind our outlook. Economic growth is expected to support broader market activity. Spreads are tight and may widen a bit later in the year but are projected to remain below historical levels. We anticipate continued strong investor demand. Refinancing and improved M&A activity are critical drivers for us. For refinancing volumes within leveraged loans, there is a wide range of forecasts from being substantially down to up in 2025. Our guidance suggests a mid-single-digit decline. M&A activity is anticipated to increase by around 50%, positively influencing revenue mix. If the increase were closer to 20% to 25%, we could see two to three percentage points of revenue growth. We have not factored in risk-off periods in our forecast, which anticipates more than $6 trillion of issuance. In summary, various assumptions contribute to our revenue guidance range, spanning mid to high single digits on low single-digit issuance growth.

Hey! Good morning, guys. Thank you for taking my question. I wanted to circle back to Moody's Analytics. Can you provide insights into the broader demand environment you're observing and how sales cycles are trending? Previously, there were reports of longer sales cycles in the Gen AI section. Any updates on this and broad demand trends?

I’ll take that. The sales cycle length has not changed materially over the last eighteen to twenty-four months. That's been a common inquiry and we've observed patterns consistent with the last couple of years. We're encouraged by our pipeline; our new business production has been strong in 2024 across segments. Retention has remained stable in 2024, showing slight improvement compared to 2023. Overall, our new business production is promising leading into 2025.

I'd like to add on new business growth, which has been encouraging in research and insights. We’re seeing more robust new business performance relative to ARR across all businesses, specifically with Gen AI-driven use cases like research assistant, which builds a strong outlook.

Hi, good afternoon. Thank you for taking my question. You expect revenue to grow in the high single digit, even though ARR is expected to grow in the high single to low double digits. Should this dynamic persist, when do you forecast revenue to accelerate to low double digits? Additionally, how much of your guidance incorporates new initiatives such as AI, MSCI partnership, and other product launches?

This can include M&A impacts, FX influences, and ARR captures a constant currency growth number. A clarification is that ARR should align with recurring revenue over a trailing twelve months period. In 2024, recurring revenue was at 9%, consistent with ARR. The gap largely stems from declining transactional revenue, which is a headwind. This trend should continue as we transition customers onto the platform. We expect it to narrow as we make that shift.

We integrate those elements into our plans. The sales pipeline is significant enough that they are contributors, but not substantial contributors overall. Research Assistant, for instance, has impacted research and insights sales positively. Twenty-five percent of research and insight ARR growth comes from customers using Research Assistant. The sales pipeline for Research Assistant is double total sales for fiscal 2024, reflecting promising momentum in workflow automation.

Thank you so much. With all the discussion coming out of Washington, DC, could you discuss your exposure to the federal government as a customer? Additionally, how might expected policy changes impact your business?

Regarding the overall impact, it's pretty small at the MCO level, constituting less than 1% of our consolidated revenue. Rob can elaborate on potential policy changes.

Taking a moment to zoom out, we’ve faced numerous challenges over the last five years, from the pandemic and GDP shocks to military conflicts. The global economy has proven resilient. Although there’s a multitude of executive orders and directives affecting various sectors, we'll see impacts based on tariff changes that might affect autos, retail, and other sectors like construction and fossil fuels. Overall, there may be a stronger economic environment, which benefits issuance generally, and we’ll focus on the credit impacts of these changes.

Hey, good morning. I’d like to inquire about the medium-term revenue growth outlook for MIS, which has shifted to high single to low double-digit from mid to high growth in your previous update. What’s driving this uptick? Were any significant shifts in the long-term building blocks previously discussed? Is this merely M&A recovery strategies playing a role? Could you also elaborate on expectations for third-party private credit assessments?

The key here is to anchor our analysis on the growth base year of 2022 for medium-term projections. We have two years of guidance and performance thus far, resulting in an outlook based on two years of achievements and future adjustments. The performance we’ve observed thus far has been strong. Mike, care to address some demand drivers for issuing that may shed light on sustainability in ratings growth?

As referenced earlier, we observe that private credit presents a significant tailwind. It's rapidly evolving across multiple asset classes. We must facilitate transparency regarding credit quality for originators and buyers, especially as buyers are sensitive to capital allocation regulations. We've organized our approach, focusing on leadership and engagement across distinct franchise areas.

Hi, thanks. Regarding the MA segment and its medium-term target of high single, low double-digit growth, how do you see growth evolving by subsegments? What distinguishes the growth drivers in these segments?

Thanks for the question, George. When looking at our core franchises, which have been around for decades, the data information and research insights businesses are showing strong growth, likely exceeding industry averages. ARR expectations sit in the high single digits, with continued investments in data quality and coverage and tools like our Gen AI products. The decision solutions unit is set for higher growth, specifically KYC and third-party risk management. That's a high growth area fueled by innovation that optimally leverages our data and analytics.

Thank you. Good afternoon. I'm pleased to be part of the call. Great execution here. I'd like to voice my interest in the M&A space. You've demonstrated speed to market with new products and enhancements. Can you share your perspective on your ability to establish value-based pricing across different product segments? Additionally, how is headcount looking for MIS as it grows?

I appreciate your joining us. Our value-based philosophy remains integral to our process. While inflation plays a role, providing customer value is paramount. MA has shown stable pricing contributions, around 7% in 2024, expected to continue in the future.

Regarding headcount for MIS, we’ve discussed earlier how part of our performance in the fourth quarter was driven by significant investments in automation and rating workflow to enhance analyst efficiency. While we'll continue investing in our talent pool, the growth pace may be slower compared to revenue growth due to our automation investments.

To further elaborate on Steve's point regarding the value proposition—many customers focus on efficiency, digitalization, and automation trends. For example, consider our CreditView offering with Gen AI enablement through our research assistant, which transforms the product's value proposition. This creates opportunities for labor leverage, fundamentally altering conversations we have with clients. The dynamics of sales cycles vary, and we find this a thrilling evolution of product capabilities.

Thank you. Rob or Mike, could you discuss private credit further? Could you share what percentage of your ratings revenue derived from private credit last year? How do you envision the market to grow and how that will contribute to your ratings growth rates in the coming years? Noémie, could you also include the incentive comp figures for Q4 and the full year?

While we don’t break down specifics like you've inquired, I can provide insights into the traction of private credit within our franchise. We rated nearly 400 private credit mandates across all ratings, including items like BDCs, sub-lines, closed-end funds, and others. This growth is significant year-over-year. Fund finance is growing; in 2024, 30% of our first-time mandates in FIG were private credit related, reflecting its increasing importance.

As Rob noted, we see private credit as a growing tailwind. Transparency around credit quality is vital for originators and buyers due to sensitivity over regulation and capital allocation. Our organization is structured to foster collaboration across franchises to ensure effectiveness in addressing this evolving market.

Thank you. While the medium-term guidance is upbeat, it appears to indicate lower growth expectations in 2026 and 2027. Rob mentioned forecasts for issuance being stronger in 2025, so please clarify if these trends impact medium-term growth expectations.

The key takeaway is that we aren’t downgrading our growth expectations for ratings. We are confident about the medium-term drivers of issuance. This may clarify the outlook; our guidance ranges reflect that we still feel optimistic about ratings growth, based on solid performance thus far.

Examining the big picture, our projections reflect the growth rates we’ve observed across MA segments. We focus on profitability, sparking margin expansion, reflective in adjusted diluted EPS metrics. This approach underpins our increased growth outlook.

Hi, Noémie. I'd like to inquire about contributions from M&A in the latest quarter for both MA and MIS, looking ahead at M&A's impact and particularly regarding the Cape acquisition.

The M&A impact on fiscal 2024 was small, contributing around 25 basis points of revenue growth for MA. For FY2025, our guidance reflects minor M&A tailwinds but includes FX headwinds, resulting in a net effect of being relatively insignificant.

Hi, thanks for having me on. For KYC, I'm curious about the expected growth trajectory given that earlier post-pandemic and Ukraine-related booms suggested maturity coming sooner. Can you share what's driving the reacceleration, and what sustainability do you foresee in high double digits? Additionally, MSCI made comments about expanding its partnership with you beyond ESG—what's your perspective on this?

We truly believe we offer a superior solution in KYC and third-party risk management. Recent investments enhanced our data, models, and software. Frequent feature releases foster solid growth expectations. Our offerings should continue thriving in this area.

We’re helping clients streamline labor requirements by offering analytics and cutting-edge technology, optimizing efficiency on the client side without replacing staff with our services. We’ve further strengthened relationships with top banks, validating the value derived from our comprehensive datasets. Our platform for various corporate use cases is also live and is aimed at supporting corporate growth.

Before we move to the next question, I want to return to Craig's inquiry regarding incentive compensation. For 2024, the total incentive comp was $507 million, with $133 million in Q4, and we're expecting about $420 to $440 million for 2025.

Hey, good afternoon. I wanted to follow up regarding MIS's Q4 revenue growth. I noticed that while MIS transaction revenue increased by 29%, issuance was up by 42%. Could you help clarify the delta there and whether it mainly stems from corporate finance?

Certainly. The main difference relates to bank loans. There was robust bank loan issuance, and by our definition, we include repricings as issuance volume. In Q4, 55% of bank loan volume came from repricings, the highest seen in a long time. The economic dynamics around repricings differ significantly for us. If you exclude bank loans from issuance and transaction revenues, we'd see lower delta figures. Notably, we also observe substantial repricing activity in January; strong volume, yet the repricing effect remains. Thanks, everybody, for your time and your questions. We look forward to talking to you in the first quarter. Goodbye.