Moody's Corporation 2026 Q3 Earnings Call

Please go ahead. Thank you, and thank you for joining us today.

I am Shivani Kak, Head of Investor Relations at Moody's. This morning, we reported our third quarter 2026 results. The press release and today's presentation are posted at ir.moodys.com. We will reference non-GAAP or adjusted measures. Please see the tables in our earnings release for reconciliations to U.S. GAAP. Today's remarks may include forward-looking statements under the Private Securities Litigation Reform Act of 1995. Please see the safe harbor language in our earnings release and the risk factors and MD&A in our most recent Form 10-K and other SEC filings available on our website and the SEC's website. These factors could cause actual results to differ materially from those expressed or implied. Members of the media may be listening in a listen-only basis. With that, I will turn it over to Rob.

Thanks, Shivani. Hello, everybody. Thanks for joining us today. Moody's delivered another quarter of strong profitability and earnings growth with disciplined execution and healthy cash generation amidst an increasingly complex operating environment. I want to start with a few key takeaways. First, Moody's topped $2 billion in revenue for the third straight quarter, and we built on a record quarter from last year. Overall rated issuance declined 2%, yet we delivered adjusted operating margin of 52.6% and adjusted diluted EPS growth of 6%. I think this really illustrates the resilience of the Moody's franchise and our ability to perform across a range of market environments, even as market conditions became more uneven during the quarter. Second, the investment agenda is intact, and I acknowledge that issuance can be volatile from quarter to quarter.

Amidst a mixed backdrop, MIS delivered its second strongest third quarter on record. Financing activity tied to AI infrastructure remained very strong in the quarter, while on the other hand, leverage finance activity moderated against a strong prior year comp and more selective issuance environment. MIS delivered an adjusted operating margin of 64.4%. I think that is proof of our disciplined cost management preserving the operating leverage in the business. In MA, ARR grew approximately 8%. That was in line with our high single-digit outlook, driven by healthy retention and strong recurring revenue growth. We continue to see some encouraging momentum across several growth areas. That includes lending, insurance, KYC, private credit, and AI-enabled solutions. We expanded MA's adjusted operating margin by 100 basis points versus last year to 35.3%, and we are on track to achieve our full year target.

Finally, the quarter reinforced the measured approach that we've been taking to guidance throughout the year. Following a very strong second quarter, you will all recall we chose not to raise guidance in July, recognizing challenging issuance comps and some question marks about the global macro environment in the second half of the year. As the third quarter unfolded, strength in some markets was offset by softness in others. To that end, we are reaffirming our full year guidance metrics, and we will talk about the puts and takes to that guidance later in the call. Let me move to ratings. While issuance activity moderated during the quarter, my broader view of the funding deep currents has not changed. For several years now, we have discussed this very significant capital investment requirements across the global economy.

That is across AI infrastructure and data centers, power generation and transmission, renewable energy and carbon transition, defense and security, transportation infrastructure. The world continues to require substantial amounts of investment capital, and those long-term funding requirements are creating durable opportunities for debt financing and capital formation. We continue to see evidence of that in many parts of the market, particularly in sectors tied to AI infrastructure and power investment, where issuance increased approximately fourfold from the third quarter of last year. Meanwhile, certain markets, most notably leveraged finance, were softer than the very strong issuance levels of a year ago, and overall issuance reflected that dynamic. But the broader forces driving global capital needs remain in place. That said, our results reflect much more than just AI-related transaction, and I want to spotlight a couple examples.

First, in private credit, the number of rated deals grew by more than 40% year-over-year, and market innovation continues. A good example of that is a deal called AMAP VI. That is a broadly diversified, actively managed multi-asset credit vehicle from Apollo. That deal allocates across five evergreen strategies, and we rated billions of dollars of debt out of this vehicle, showcasing our analytical depth in complex private credit-related structures. Second, in emerging markets, we are acquiring a minority stake in PhilRatings. That is our sixth domestic credit rating agency affiliate in Asia Pac. It gives us a leading position in the Philippines, where more than $100 billion of infrastructure investment is planned by 2030. Southeast Asia's domestic bonds outstanding are more than twice the size of cross-border holdings and growing. This investment enhances our very strong position in domestic debt markets around the world.

As markets evolve, our analytical frameworks are evolving with them. Our new cross-sector digital infrastructure methodological framework integrates corporate and project finance analytical approaches to assess an asset class characterized by distinct business models, financing structures, and credit profiles. This is critical to how Moody's ensures analytical rigor and consistency across AI infrastructure build-outs. Taken together, these deep currents are translating into strong growth in new rating relationships. First-time mandates increased 40% in the third quarter. That is the highest quarterly total in five years. This is notable because it really demonstrates the continued importance, relevance, and value of a Moody's rating in a rapidly changing world. This leads me to our annual refinancing study, which highlights the sheer magnitude of debt coming due over the next several years.

That outstanding debt must ultimately be refinanced, and that creates substantial and highly visible foundation for future issuance activity. While markets will inevitably experience periods of volatility, this refinancing cycle remains an important structural driver of long-term transaction volumes. Over the next four years, refinancing needs across the U.S. and EMEA top $5 trillion for the second straight year. While there is a modest decline from last year, it reflects a combination of FX and maturity extensions, primarily in leveraged finance. However, investment-grade maturities grew about 5% with the U.S. leading the way at approximately 11% growth. Pull forward activity generally stayed within historical norms. Recent issuance also carries tenors longer than four years. The strength of the last several years will show up beyond the standard four-year window.

In fact, the U.S. five-year view provides additional useful context, and refinancing needs grew approximately 4% to about $3.5 trillion. The former peak maturity year in 2028, that is now 2031. Reach out to our investor relations team if you are interested in a copy of these reports. As you have likely heard me say, but I want to say it again, analytical rigor, robust methodologies, and ratings quality are and will remain our North Star. Moody's ratings are the benchmark standard for pricing credit risk, and we hold the line on ratings integrity, even on marquee transactions. We have seen several recent transactions priced closer to our assessment when our rating diverges from the market or is not present, reinforcing the credibility of our methodologies and analytical approach with investors. For Moody's ratings, I think the through line is clear.

Markets will ebb and flow, but the multi-year funding needs are intact, and Moody's is the agency of choice for issuers and investors alike. All right. Now let me turn to Moody's Analytics. We delivered another solid quarter driven by continued momentum across several of our core growth areas. That includes lending, insurance, KYC, private markets, and AI-enabled solutions. We were pleased to be named number one in the Chartis RiskTech100 for the fifth consecutive year, with a record 18 category wins across credit, insurance, data, and AI. While I get that awards are not the objective, we do view this as valuable external validation of the strength of our capabilities. I want to spotlight a few of our fastest-growing areas, and I am going to start with insurance, where ARR grew 10% this past quarter.

Christina and I recently attended Rendez-vous in Europe, and our conversations increasingly centered on how Moody's can help address the industry's biggest challenges, including reducing the protection gap, bringing more alternative capital into the market, and delivering better real-time insights and productivity to the industry. This led to some great discussions about our new offerings in casualty, in CAT bonds, in our AI-enabled Intelligent Risk Platform, and more. The fastest growth areas in insurance this past quarter were CAT risk and casualty solutions. In CAT modeling, we continue to drive adoption of our IRP, our high-definition model suite, and our Risk Data Lake. All of which offer the ability to deliver upsell with existing customers, as well as bring in new customers to the platform. A great example of this is with a top-three U.S. auto and property insurer.

They wanted to unify their hurricane, earthquake, and wildfire risk workflows into a single environment. They adopted our IRP, which integrates third-party and in-house models, along with our high-definition models, including wildfire, allowing us to more than double the ARR with this customer. Perhaps more importantly, it represents further adoption by one of the leading primary insurers, paving the way for greater penetration into the primary market beyond reinsurers and brokers. Another great win in the quarter was with a top-tier global reinsurance broker who signed a new five-year agreement that included adoption of our full global model suite. That drove nearly 14% ARR growth with this customer and demonstrated the opportunities for substantial growth with existing customers through broader adoption of our platform capabilities and our models.