Moody`s Corp (MCO) — Q2 2025 Earnings Call Transcript

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 the second quarter of 2025 and updated guidance for select metrics for full year 2025. 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-K 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 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 the call this morning in a listen-only mode.

Thanks, Shivani, and thanks, everybody, for joining today's call. I'm going to kick off with some high-level takeaways on the operating environment and Moody's second quarter performance. Then I'm going to share some progress updates on our strategic investments and opportunities. And later in the call, Noemie is going to provide some details on the second quarter performance and outlook for the second half of the year. And after we finish our prepared remarks, Noemie and I will be glad to take your questions. So on to the results. This past quarter, Moody's provided the insights and expertise that helped markets to make sense of a complex and rapidly changing global landscape. Second quarter Moody's revenue of $1.9 billion grew 4% year-over-year. That's an impressive accomplishment given the April issuance air pocket and a tough comparable to the second quarter of last year when revenue grew 22%. Now we remain focused on disciplined expense management, delivering an adjusted operating margin of 50.9%. That's up 130 basis points from a year ago. And together, this translated to adjusted diluted EPS of $3.56. That's up 9%, and that's actually 60% growth from the same quarter just three years ago. So it illustrates just how much the earnings power of our business continues to grow. On the back of our second quarter performance, we've narrowed our guidance ranges for rated issuance, MIS revenue and EPS. Now starting with MIS. We continue to invest in strengthening our position as the agency of choice for issuers and investors. And that pays dividends in times of uncertainty when markets turn to us for our insights and the quality of our analysts. Our Ratings franchise delivered $1 billion in revenue this quarter. That's just shy of a second quarter record, and it also marked our second consecutive quarter above the $1 billion revenue mark. And while April started off slowly with several days of no issuance, conditions improved meaningfully as we moved into May and June and markets stabilized, spreads narrowed back to pre-April levels and issuance picked up significantly, and that helped to offset the early softness. Both total revenue and transactional revenue growth were stronger than issuance growth. And this outperformance was partially helped by a favorable issuance mix and, to a lesser degree, the growth in products and services not tied to issuance such as certain private credit ratings. Now looking ahead to the second half of the year, we're cautiously optimistic. The four key credit themes that we identified at the start of the year remain relevant, and they could influence the balance of 2025 and beyond. And these include U.S. policy on trade, tax and immigration; geopolitical tensions in the Middle East; the fiscal economic and security impact of European defense spending; and potential shocks triggering a pullback in risk appetite. Now one of the deep currents driving demand in Moody's Ratings that we've discussed a good deal on recent calls is the continued growth and evolution of the private credit markets. And we've invested and engaged to become an important voice in this space, fulfilling a critical need for more transparency in insights. In the second quarter, we published a private credit webinar on the Moody's IR website, and it discusses the trends we're seeing in private credit and how Moody's is serving the market. We also hosted marquee credit conferences in both New York and London that drew nearly 1,000 people from across the entire private credit ecosystem. And these events demonstrate the tremendous convening power of the Moody's brand and also underscore how much interest there is in having us play an important role as the leading opinion provider on credit in this market. Now continuing the trend from the first quarter, private credit is an important driver of growth in Ratings. In fact, in the second quarter, private credit-related transactions accounted for nearly 25% of first-time mandates, and the number of private credit-related deals increased by 50% year-over-year. Revenue related to private credit grew 75% in the second quarter across multiple lines of business in MIS, albeit off of a relatively low base, and it was a contributor to how we delivered flat revenue growth amidst an issuance environment that was down 12%. Now private credit investment plays an increasingly important funding role in key sectors such as AI data center investment, transition finance, energy, infrastructure, and we are well positioned to address these growth opportunities. In fact, among others, we just rated a GBP 1.5 billion deal this quarter for a European utility company. That was the largest-ever private credit-related deal in the U.K. And as private credit grows, so too does the use of Ratings in this space as the biggest players in this market realize that a credible independent assessment of credit risk, be it a rating or a model-derived score from a trusted firm like Moody's provides additional transparency and comparability that broadens the investor base and provides a solid foundation as this market continues to scale. And in addition to how we're addressing this need in Ratings, this was also an important driver of our MA partnership with MSCI that we announced back in April. And this presents great opportunities for us to leverage the world's best commercial credit franchise with data, models, ratings and workflow to serve the emerging needs of a whole new group of investors and asset managers who now need enhanced credit underwriting and monitoring capabilities as they invest in this space.

Thank you, Rob, and hello, everyone. Thank you for joining us today. Indeed, we delivered strong results in the second quarter, and I'll walk you through the details and provide some additional color. Starting with MIS, revenue was flat versus the prior year or declining by 1% when adjusted for positive FX movement effects, surpassing $1 billion for the second consecutive quarter. The trends of transaction revenue against issuance growth implies a favorable issuance mix this quarter from Corporate Finance, Structured Finance and PPIF and the contribution of private credit. Recurring revenue increased by 7% year-on-year from pricing initiatives and portfolio growth. Now looking at our performance across asset classes. Corporate Finance transaction revenue declined 6% year-on-year as bank loans issuance slowed and M&A activity remained subdued. Notably, there was a significant decline in repricing activity, which contributed positively to the revenue mix. Investment-grade transaction revenue grew 18% on issuance growth of 16% as issuers took advantage of tight spreads, reflecting elevated demand for high-quality paper. As you probably have seen in the press, this was particularly pronounced in the TMT sector. High-yield transaction revenue was broadly in line with last year, with notably strong performance in EMEA. In Financial Institutions, transaction revenue declined 6% year-on-year, driven by lower infrequent issuer activity, primarily in the insurance sector. Structured Finance issuance declined by 25% in the second quarter as market volatility and wider spreads curtailed activity in April. Transaction revenue declined only 3%, helped by favorable mix, particularly from a slowdown in CLO refinancing and from higher average fees in other asset classes. Finally, Public, Project and Infrastructure Finance grew 3% in transaction revenue, driven primarily by U.S. Public Finance. Issuance was largely opportunistic to get ahead of any impending policy changes and market volatility. It's also worth noting that in the second quarter, our U.S. Public Finance group rated the highest quarterly issuance volume since 2007. First-time mandates were nearly 200 in the second quarter, which is very encouraging and keeps us on pace for our expectation of 700 to 800 for the full year in support of ongoing funding needs and the growth in private credit. In EMEA, first-time mandates were up year-over-year, driven by mandates in PPIF, which was supported by the increase in private credit. As private credit becomes a more prominent part of the market, it's important to note that some issuance activity is not captured in rated issuance figures reported by external data providers. Moving to margin. MIS delivered a 64.2% adjusted operating margin, expanding 100 basis points from last year. As a reminder, for modeling purposes, I'd like to say that the second quarter of 2024 included a one-time legal reserve related to a regulatory matter, impacting the underlying margin expansion dynamics year-over-year. Taking seasonality into account, we continue to expect between 61% and 62% adjusted operating margin for MIS for the full year.

Turning to Moody's Analytics. Our performance this quarter underscores the strategic role that MA plays in driving Moody's growth and earnings quality. And we delivered another strong quarter with 11% revenue growth and 12% growth in recurring revenue. ARR grew 8%, led by a 10% increase in Decision Solutions. And recurring revenue held steady at 96% of MA's total, reinforcing the strength and predictability of our business model. And while we continue to deliver steady growth, I think what really stood out this quarter was margin expansion. MA delivered an adjusted operating margin of 32.1%, and that's a 360 basis point improvement year-over-year. And that puts us solidly on track to deliver our full year margin guidance of 32% to 33%. Now our best-in-class solutions continue to earn industry recognition. And recently, Moody's was ranked #1 in the Chartis Quantitative Analytics 50 rankings for the third year in a row, winning 13 individual categories. And these third-party awards, they're important because they're an external validation of our ability to deliver innovative and industry-leading solutions that meet the evolving needs of our customers. And this recognition is also echoed in a strong engagement at our annual banking and insurance customer conferences. At our banking conference, we showcased our integrated suite of products, including the advancements in building a fully end-to-end loan origination solution, incorporating key elements from our Numerated acquisition. And this was a great validation of the addition of Numerated's front-end capabilities as well as the AI enablement across our platform. Our newly launched lending origination package that features Numerated was adopted by several renewing customers as of early July with an average contract value increase of nearly 15%. And notably, one of the largest Japanese banks cited the enhanced value proposition of the integrated offering as a key reason for their upgrade. And we're optimistic this adoption trend will accelerate as we enter a heavy renewal cycle in the second half of the year. Our insurance conference drew record attendance and showcased new model releases, enhanced underwriting capabilities and integrations with CAPE Analytics, which we acquired back in January. Feedback from customers was overwhelmingly positive, especially around the fit and value of CAPE's AI-enabled geospatial intelligence, data and risk analytics in strengthening our catastrophe models. And we're really encouraged by the early traction here. CAPE's ARR is more than 10% higher than when we closed the acquisition, and we expect that growth to accelerate further through year-end, making it a meaningful contributor to our broader Insurance portfolio. Beyond our insurance solutions line of business, we're seeing strong cross-sell into our insurance customer base. Several insurance customers adopted our Maxsight unified risk and KYC platform. That includes a large multinational insurer in APAC that selected Moody's to consolidate multiple screening systems into a single streamlined solution. And that not only simplifies their operations, but it also validates our synergy thesis from the RMS acquisition. And while we delivered a strong quarter from both a growth and margin standpoint, we're not standing still. We continue to innovate, invest and partner to capitalize on the deep currents driving demand for our solutions.

I want to provide transparency to help unpack the underlying drivers. Stepping back, Moody's Analytics continues to deliver high predictable high single-digit ARR growth now paired with strong and sustainable margin expansion. This combination of consistent top line performance and disciplined execution positions MA as a durable long-term growth engine for Moody's. Turning to the remainder of the year and our guidance. We are reaffirming our MA guidance metrics and updating our outlook for MIS issuance and revenue. These revisions primarily reflect better-than-expected second quarter performance and a weaker U.S. dollar. You can see the details on Slide 12. For M&A-related issuance, our view is largely unchanged. We continue to expect 15% growth in announced M&A and flat rated issuance. That said, we're monitoring the environment closely, as macroeconomic and geopolitical uncertainty trends tends to disproportionately affect this aspect of issuance. Keep in mind, M&A is only one of many factors impacting overall issuance volumes. Issuance finished the second quarter ahead of our earlier expectations, leading us to update the low end of our prior guidance range. That said, uncertainty remains around several macro drivers, including tariffs, central bank interest rate policy, inflation, the path of credit spreads and the trajectory of M&A activity for the remainder of the year. The low end of our issuance forecast accounts for potential short-lived issuance air pockets but does not anticipate a meaningful deterioration in the macroeconomic or geopolitical environment. On the revenue front, we now expect full year MIS revenue growth in the low to mid-single-digit percent range, and we believe there is more upside than downside at our midpoint. From a modeling perspective, taking the midpoint of our guidance range, we anticipate MIS revenue to decline in the low single digits year-over-year in Q3, followed by mid-single-digit growth in Q4. Our full year MIS adjusted operating margin guidance remains at 61% to 62%. For Moody's Analytics, we continue to expect both revenue and ARR growth in the high single-digit percent range, consistent with the outlook we showed in our Q1 call. We also reaffirm our full year adjusted operating margin guidance of 32% to 33%, with a steady ramp upwards from the 32% we reported this quarter, reflecting both seasonality of revenue and expenses as well as ongoing expense management efforts. At the MCO level, and excluding the impact from restructuring charges, we expect operating expense to ramp between $30 million to $45 million in the third quarter versus Q2, primarily related to our annual merit increases, followed by a gradual sequential increase in Q4. We anticipate approximately $100 million of incentive compensation for each of the remaining quarters of the year.

Finally, our efficiency program continues to deliver results. We have already executed on annualized savings of over $100 million, which are helping offset annual salary increases and variable costs as the year progresses. Now putting it all together, we continue to expect top line for MCO to grow in the mid-single-digit percent range with adjusted operating margin in the 49% to 50% range. Our updated adjusted diluted EPS guidance range now implies 10% growth at the midpoint versus last year. Echoing Rob's comments, we are executing well on our strategy from a position of financial strength. Looking forward, we are investing to capitalize on the secular demand drivers for our deep currents such as digital transformation, AI adoption, and the expansion of private markets that are driving multi-year investment cycles for our customers and in turn, generating demand from Moody's Ratings, data, analytics and workflow solutions. With that, I'd like to thank all of our colleagues for their contribution to yet another strong quarter from Moody's.

Operator, we're now happy to take any questions.

So a couple of moving pieces here on the Decision Solutions. I was just curious if you could provide some more color on the strategic termination and the account loss, which is weighing on the KYC and Insurance, particularly, and how do we think about those headwinds? But also, as we think about going into the back half of the year, you have easier comp from the federal contract as well as the Moody's-MSCI contract. So just puts and takes as we think about the Decision Solutions ARR going into the back half of the year.

First, I’d like to share some insights on the attrition we’ve experienced, which Noemie touched on. Last quarter, we mentioned some government-related attrition. Noemie highlighted that we made a strategic decision to terminate a distribution partnership in KYC, which contributes to our attrition figures, but we believe it serves our long-term business interests. We’ve also faced some ESG-related attrition that began in the first quarter and continued into the second. Additionally, as Noemie indicated, we had a one-time attrition event related to insurance from an M&A deal. Regarding the drivers of ARR growth for Decision Solutions for the remainder of the year, I’d point out a few key areas. Firstly, in Banking, you heard Noemie discuss lending. Our flagship lending product, CreditLens, is a significant contributor to our growth, with over half arising from our lending offerings. We are seeing ARR growth in the low to mid-teens, supported by a robust pipeline that is 15% greater than this time last year, bolstered by the addition of Numerated. We've enhanced our front-end capabilities and integrated them into the CreditLens platform to offer a more comprehensive solution, leading to remarkable growth. We are preparing for a renewal cycle where we can upgrade customers to this package, reinforcing lending as a strong driver in Banking. In Insurance, our pipeline is expanding, and we had a successful insurance conference. We have a major model launch in the second half of the year that is generating significant customer interest. Although CAPE is not included in our ARR figures, customer reception has been excellent, and its integration into the Intelligent Risk Platform will positively impact our ARR growth if considered this year. Lastly, in KYC, we’re seeing solid cross-selling into financial services customers, achieving over 20% ARR growth. We anticipate new sales to corporates will begin gaining traction in the fourth quarter after we enhance our Maxsight platform, complemented by a promising partnership with a third-party payment platform. Notably, without the attrition event, our ARR growth would be in the high teens range.

Yes. And the other thing I would add, Ashish, is on our pipeline build, we're building pipeline pretty nicely as we head into the second half. Our pipeline is up significantly year-on-year. I think our ability to execute and convert that pipeline is combined with still relative effect of tariffs and other macro factors in customers' decision-making process is really what's going to help us move towards the high end of that range.

I just wanted to ask a two-parter on MIS. I mean just wondering if you guys think was any potential pull forward of issuance during the quarter from the second half of the year as the macro environment kind of got a little bit more stable. And then just on the private credit side, there's been talk about how private credit can potentially perform better when public debt markets are a little shaky. Just wondering as public debt markets essentially got better as we move throughout the quarter, if you saw any changes in the performance of the private credit market as well?

I don’t believe there was any significant pull forward shift. Last year, as you might recall, we discussed the impact of the elections in the fourth quarter, with bankers advising issuers to advance their issuance to avoid potential market turbulence. That hasn’t been the case this year. At some point in this call, we’ll discuss our outlook for issuance for the coming year and how we have approached it, but I wouldn’t say it has been a prominent theme. Regarding private credit, I think it’s not a matter of one or the other; it’s both. We’ve observed healthy issuance activity in the public markets, and we continue to see that in the private credit markets, driven by strong demand. As mentioned in our prepared remarks, we experienced 75% growth in private credit revenues for the quarter. Several factors are propelling the ongoing growth of private credit. Many view private credit merely as direct lending and an alternative to public markets, but as we have discussed, private credit encompasses much more, including fund finance and securitization. Insurers are increasing their allocations to private credit, which in turn is driving higher demand for ratings. The importance of rated feeder funds is growing in private credit fundraising. Fund finance is also becoming a significant asset class within private credit, with various lenders now participating in that space. Additionally, growth in asset-backed finance, particularly with more illiquid assets on bank balance sheets, means private credit is a viable funding alternative. When reviewing the asset flows into private credit and the discussions around potential retail market and retirement funding, it indicates that substantial investor capital will continue to enter this market, highlighting the need for a steady supply.

Just wanted to focus on the operating margin expansion in the quarter. Were there any expenses maybe shifted from the second quarter to the back half of the year that drove that outperformance? And if so, roughly how much?

Yes, the answer is no. There is no significant shift of expenses from the second quarter to the following quarters. We made some adjustments to our incentive compensation funding, as is customary. The performance this quarter is primarily tied to our efforts, particularly in MA. We've increased our operating margin by 360 basis points compared to last year. We have prioritized our investments and are reviewing our portfolio to reallocate capital to support growth areas that Rob mentioned. We are optimizing our vendor relationships and being careful with discretionary spending like travel and entertainment, as well as other non-compensation related expenditures. Additionally, we are implementing productivity tools across the organization, which is very crucial. We have showcased several internally developed use cases that have improved employee efficiency, such as customer service and sales tools. We are enabling our employees to utilize GenAI Copilot from the outset, and it is being used on a daily basis. In fact, about 80% of our engineering teams are using these tools. Our product headcount has not significantly increased since last year, despite a lot of innovation. Therefore, it boils down to execution and a focus on spending, and we expect to continue enhancing our margin profiles, especially in MA, for the remainder of the year.

This is really a follow-on from Ashish's question earlier, where you talked mainly about KYC and Insurance ARR outlook. But I wonder what you're seeing in the banking sector. If I was being picky, this is the fourth consecutive quarter of decline in Banking ARR within Decision Solutions, and that's come at a time where you're rolling out new upgrades or new solutions and upgrades to existing as you articulated earlier. So can you give some color on what you're seeing in the banking sector, what conversations you're having with these clients? I'm just trying to get a sense of whether the growth can accelerate or reaccelerate here in this client segment and what the catalyst might be?

We are experiencing strong growth in our banking customer base. Within our Banking segment in Decision Solutions, we offer a range of products, including our lending suite and risk and finance solutions, as well as commercial real estate data from our legacy REIS acquisition. However, we've noticed a decline in lending growth over the past year, contributing to the 7% overall growth. Our primary focus is on lending, which is our largest product in this segment and is seeing positive growth. The combined ARR of lending and Numerated is expected to increase significantly, potentially reaching the high teens. We remain optimistic about lending while considering the overall portfolio we have.

Mix was a tailwind this quarter to MIS revenue growth. How do you think your updated guidance on debt issuance by category will impact mix in the second half of the year?

Let me briefly discuss the second half, focusing on the positive mix we have observed so far. Several trends are likely to continue. The most significant positive mix came from Structured Finance, particularly from issuance related to ABCP and covered bonds programs, which contributed nicely to our revenue even though we don't capture all of that issuance in our data. We noted a shift in bank loans from repricing to new loans, indicating a decrease in repricing activity. In our PPIF segment, there was a slowdown in sub-sovereign issuance, but this area has less favorable economics. As we look forward, we may see more infrequent issuers if the markets stay open, benefitting both investment grade and high yield segments, which could improve our mix. Additionally, we have observed strong activity in CMBS, and CMBS and CLO activity are expected to contribute positively to the mix too. Lastly, as mentioned, M&A activity has been relatively muted in the first half of the year. We have adjusted our M&A assumptions, and any increase in M&A would likely have a positive impact on our mix.

Rob, I wanted to ask you to go over some of the positive comments you had on the AI and GenAI, particularly just to clarify what you're talking about, the ARR being $200 million and growing 2x the size of other products. Like can you go over there and kind of give us a little bit more detail?

Yes, I'm glad you asked. So as I mentioned, the actual revenue from solely from what you think of as stand-alone AI products is still not material. So we wanted to step back and think about how do we think about the benefit that we're seeing from our AI engagement. And so we actually looked at our customers that had taken at least one, had purchased at least one, either upgrade or stand-alone AI offering. And so we think of those as the GenAI early adopters. And with those customers, we're oftentimes having very different discussions with them because those discussions may be at a much more senior level. We're engaged with partners like the hyperscalers with these customers. We're doing proofs of concept and all sorts of things with those early adopters, so very deep engagement. And when we looked at our relation, our overall, the total spend across MA from those relationships. So not just what they're paying us for AI, but all of the GenAI early adopters. The growth of those relationships has been basically double the growth that we see from the rest of our MA customers. And I guess in some ways, that's not surprising because like I said, this has led to a very different kind of engagement with those customers that allows us to then be able to talk about all sorts of other content sets and models and other capabilities that we can bring together for them. So that's what we were trying to get at.

I wanted to ask more about private credit. And specifically, how do you think about the contribution from private credit to MIS revenues? I know it's small, but certainly growing quite fast. And perhaps if you can talk about sort of where it's showing up because your recurring revenues in MIS have also been pretty strong. And I'm curious if some of that is showing up there. And then maybe how much of it is contributing to the mix on the Structured Finance side that you just talked about?

We discussed the 75% growth we experienced in the quarter, which is evident in various areas. Specifically, asset-backed finance is reflected in our Structured Finance ratings. Regarding BDCs, they are primarily involved in direct lending, and we have comprehensive coverage of public BDCs along with all related fund finance activities such as NAV lines, sub-lines, and rated feeders, which are all contributing to our FIG franchise. Additionally, we are seeing some private credit impacts within project finance. Investors focused on infrastructure and projects are looking for ratings from Moody's on deals that were unrated at issuance. Thus, private credit is beginning to influence areas like project finance as well. Notably, around a quarter of our first-time mandates in the second quarter were linked to private credit, indicating its contribution to growth across various lines in the rating agency.

I wanted to ask about the environment in MA. So ARR stepped down to 8%. But it seems like there are some sort of one-off things like the insurance client and you had mentioned the government in prior quarters. So just trying to understand like, is it these like one-off situations that are really driving that growth slower? Or is the underlying environment really not that good, and so that's really what the bulk is? And there are these sort of one-off things, but it's really the overall environment that has been getting worse. Just wanted to understand a little bit more clarity on that.

In general, the factors we discussed contributed to a decrease in attrition by about 1 percentage point, indicating they had an effect. When we look at specific segments, these factors can impact ARR growth in any given quarter due to the size of the businesses. Regarding the sales environment, we have observed a slight increase in the length of sales cycles, but we have also seen average deal sizes increase. This is due to a rise in the number of products being bundled together into solutions. Thus, while sales cycles are a bit longer, average deal sizes are slightly larger. As long as these trends continue together, we are comfortable with the situation. I wouldn't say there has been a significant deterioration in the overall market conditions.

I wanted to stick with private credit, if we could. Two-part question there. First, I think recently, Senator Warren has sent you a letter, Rob, on potential risks. Just curious how you're thinking about that given the rapid growth of this market? And then second, and maybe relatedly, can you talk to maybe the level of investment you've been making in that team, the size of that team, how aggressively you're hiring to support this effort now, understanding that it's still small in the whole scheme of things? But just interested in just how forward-leaning you want to be here.

Yes, I believe we have a crucial role as an independent evaluator of credit risk. This market indeed has some obscure aspects, and investors seek greater transparency and comparability. We believe we can significantly contribute in this area. Importantly, there is no specific team solely dedicated to this; instead, we are utilizing the strengths of our rating agency. Our private credit methodologies undergo our established, regulated methodology development process. The ratings are provided by analysts who assess both public and private credit, including teams focused on financial institutions, structured finance, project finance, and corporate sectors. This means we have highly experienced analysts and robust methodologies. The integrity and regulatory processes applied in public markets are equally relevant to our approach to private credit. As we observe increased activity, we may expand our fund finance team or add to other specialized teams in structured finance to manage this flow. So, we are indeed increasing headcount where necessary. Additionally, I want to mention that we have a dedicated analytical coordinator, a Global Head of Private Credit, to ensure consistency in our approach to various private credit elements and to assist in thematic thinking across the portfolio. This analytical leader coordinates efforts across rating teams, and we also have a dedicated commercial leader in our team who focuses on alternative asset managers.

I have a question regarding MA and its connection to AI. I've noticed that Research & Insights performed better than expected. Could you provide more details on what contributed to this performance? Is it primarily due to Research Assistant? Additionally, Rob, considering your earlier comments on AI, are you seeing an increase in AI adoption among your clients? It seems like there could be significant growth in this area.

Yes. If you look at the growth in Research & Insights ARR, there's a portion of that, that's definitely driven by Research Assistant. There are some new product launches as well. So we're pretty happy with the growth in Research & Insights. We also noted that the customers who have adopted Research Assistant have a higher NPS. They have a propensity to expand their relationship with us across the MA portfolio, as Rob alluded to. We've enhanced our platform relevancy, security. We've improved the precision of our search results. We include our earnings calls, news. We ensure they are more aligned with user inquiries. And so that's definitely contributed to expansion and growth in that line of business.

Yes. Regarding AI, it often depends on the customer tier. For example, with our largest customers, particularly banks, they want to integrate our data and specialized agents into their AI workflow platforms. For our Tier 2 and Tier 3 bank customers, we are incorporating AI capabilities into our CreditLens platform, enabling features like financial spreading, covenant monitoring, and credit memo writing. Thus, these customers can access AI through the platform. In some cases, there may be additional modules available for a fee because they provide significant value. In other cases, we integrate AI functionality directly into the platform, which has already resulted in improved customer satisfaction and increased usage, giving us the opportunity to adjust pricing at renewal based on the additional value provided.

Yes, yes. Late in the call here, but maybe I'll sneak in another private credit question since that seems to be a topic these days. So look, Rob, I see all the opportunities and good growth that you're talking about. You mentioned that people are overly focused on direct lending sometimes. But I do think that's the biggest area of fundraising in the last few years and a lot of dry powder. So just wondering what you're seeing on that side in particular because it seems like the deals are getting larger, they are more frequent, and I don't think you're really participating in ratings there. So just wondering if you're looking at that market and say, like, 'Hey, there's x percent of our business that on the Corporate Finance levered loan side that we may be missing out today.' So I'm just curious of what the number is today and how quickly you think you can maybe replace it with other private credit opportunities, if you're catching my drift.

Yes. Maybe a couple of ways I think about that, Alex. And is there a substitution from time to time where an issuer decided they do a large deal that would have otherwise been a public deal and that we would have rated and they do a private credit deal? Yes, that happens. But we also see that issuers go in and out of public and private credit markets. There's no question that the private credit markets are more expensive than the public markets. And so we've seen deals come back into the public markets. So in some ways, I think of that, Alex, as like there's an element of that, that's like another form of maturity wall because the rating opportunity may have been deferred in some cases but not lost. The other thing I would say, Alex, and this goes back to the MSCI partnership. I mean you remember how the Moody's business started. We were an investor-pay model, right? And so over time, investors valued ratings and the utility of ratings, and then we eventually switch to an issuer-pay model because there was an investor demand pull that supported that. I think what we're doing with MSCI is important, not just because of the immediate revenue opportunity, but it's the opportunity to have investors in the private credit space start to use Ratings, right? These will be model-implied ratings expressed on the rating scale. And over time, you can imagine as investors are saying, 'Okay, now I have a third-party independent view of credit that I can now discuss with the GP, ask perhaps why the rating is the same or different.' And so I think we're wanting to condition those investors to start to be able to use Ratings and value the comparability of those ratings between both private and public credit. And over time, I think we may see, Alex, that the GPs decide to say, 'Hey, we're going to go ahead and start to get these exposures rated or assessed by Moody's because the investors value that.' So that will take some time, but I think that's an opportunity as this market continues to mature.

Okay. With that, it's a wrap, and we look forward to talking to you on the next earnings call. Have a great day, everybody.

Thank you.