Earnings Document

Rob Fauber, Moody's President, and Chief Executive Officer, will provide an overview of our results, key business highlights and outlook, after which he'll be joined by Mark Kaye, Moody's Chief Financial Officer, to answer your questions. I will now tuthe call over to Rob.

Rob Fauber:

Thanks, Shivani. Good afternoon and thanks to everybody for joining today's call.

As we typically do, I am going to touch on a few takeaways from our first quarter results and provide some insights into what is supporting our growth outlook. This quarter, I'm also going to drill down a little bit on our Decision Solutions line of business in MA, as that is a very important growth area for us, and then Mark and I will be happy to take your questions.

While the first quarter experienced market turbulence from the stress in the U.S. banking sector - and as is frequently the case - this heightened market uncertainty drove some strong demand for both our insights and our risk assessment offerings, and we saw some very strong upticks in usage this quarter.

We're also continuing to unlock the potential of MA and its great assets and businesses and those include: one of the world's premier credit and economics research businesses; a data & information business that includes the one of the world's largest database on companies; and our award-winning Decision Solutions businesses serving KYC, banking, and insurance workflows.

Together, MA delivered 10 percent ARR growth as we continue to enhance and extend our mission-critical data, analytics, and workflow solutions.

While MIS revenue declined 11 percent from a pretty robust first quarter of 2022, as we talked about on prior earnings calls, the anticipated rate of revenue decline did indeed moderate from what we experienced in the third and fourth quarters of last year, as MIS really capitalized on strong investment grade issuance in the first quarter.

Improvement in issuance activity, combined with our decisive expense actions that we took last quarter, together enabled us to deliver more operating leverage as reflected by the meaningful increase in MIS's operating (sic) [adjusted operating] margin to almost 57 percent. Notably, the adjusted operating margin for the first quarter is up approximately 500 bps over the margin for full year 2022.

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At the same time, we are maintaining financial flexibility while funding strategic investments in things like product development, sales and go-to-market initiatives, modecloud-based workflow platforms, data interoperability and accessibility, and AI innovation all to position us for the future.

Now, let me move to some of the results.

There are a few key things I want to highlight amongst the performance numbers you see on the screen. First, MA revenue grew 6 percent, or 9 percent on a constant currency basis. ARR grew 10 percent and we had solid growth across the board in Data & Information, Research & Insights and Decision Solutions, and I'll touch on that in a little bit more detail in a few minutes.

As I mentioned just a couple of minutes ago, MIS revenue was down versus a challenging Q1 2022 comparable before issuance volumes decelerated through the balance of last year. Corporate Finance accounted for most of the decline this quarter, particularly in bank loans, and that was followed by Structured Finance as we saw some deals delayed amidst the market volatility in the quarter.

Despite overall revenues down 3 percent in the quarter, our overall adjusted operating margin was 44.6 percent, and that was up approximately 200 bps versus our full year 2022 margin, again reflecting the benefit of those cost efficiency initiatives. And adjusted diluted earnings per share was $2.99, and that includes $0.75 of aggregate benefits from the resolution of several outstanding tax matters.

I mentioned earlier the upticks in usage that we experienced across several products in the first quarter.

On the screen you can get a sense for that. During the recent stress in the banking sector, traffic to our flagship website, moodys.com, was up approximately 20 percent from the prior year period. That is important for a few reasons. First, as you have heard me say before, we have the most experienced analytical teams in the industry and that is why we have been recognized as the Best Credit Rating Agency by Institutional Investor Magazine, 11 years in a row.

That experience allows us to be the industry thought leader, which is even more important in times of stress and uncertainty like we experienced in the first quarter. That thought leadership also drives increased demand for our insights, for our research, and for access to our analysts. And together that all supports our value proposition - and our growth opportunity - for both ratings and research.

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Demand for our solutions during times of stress and uncertainty goes beyond ratings and research and you can see it across a range of MA offerings. During the peak period of banking stress last month, usage of our cloud-based Asset and Liability Management solution, which enables banks to model and manage their maturity, interest rate and liquidity risk, rose nearly 50 percent. As we are witnessing unprecedented deposit flows moving across banks, the use of our Screening and Risk Monitoring KYC solutions grew by almost 30 percent.

We've also more than doubled the number of in-person customer sales meetings over the last year, and that has been supported by investments to expand the size of our sales team by almost 20 percent since the beginning of 2022 and you have heard us talk about that on these calls. Together, the increased usage and the sales engagement give us confidence in our full year low double-digit ARR growth outlook for MA.

This past quarter, MA delivered 10 percent ARR growth, which as I mentioned, was consistent and strong across all lines of business.

I'll start with Data & Information, That includes Orbis - one of the world's largest databases on companies - plus our ratings and news feeds and 300 million ESG scores - that grew ARR at around 9 percent. In addition to the very strong standalone demand for the private company data in Orbis, it's the integration of this data across MA's offerings that is helping to drive growth in other lines of business. This includes the integration of Orbis company data into our CreditLens lending solution for banks, and the integration of our ESG scores into insurance and banking underwriting and portfolio solutions.

Moving to Research & Insights, which includes our leading credit and economic research business and a growing suite of predictive analytics, also grew ARR by 9 percent this quarter. We are seeing strong and sustained demand for our economic data, research, and models particularly amidst the stress in, and around, the banking sector. This includes our new EDF-X platform, which combines our award-winning risk models with Orbis to analyze credit risk for any company in the world. We recently completed the integration of EDF-X alongside CreditView into the moodys.com gateway - which provides direct access to a growing suite of Moody's products, and enhances our customers' experience and enables further cross-selling opportunities.

Finally, Decision Solutions - which includes our businesses serving KYC, Insurance, and Banking workflows - grew ARR by 11 percent. Given this is our fastest growing

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segment, I want to provide just a little bit more visibility into these offerings and what is driving growth.

These are three great businesses, because they support mission-critical workflows across financial institutions, and the virtuous cycle of data network effects and the high switching costs translate into industry-leading retention rates, which are typically in the low-to-mid-90s.

We have discussed our KYC business on earnings calls before. This business supports customer onboarding, perpetual KYC monitoring, and sanctions screening on customers, suppliers and other third parties. Strong growth in this area has been driven by our ability to cover all aspects of KYC and anti-money laundering activity, bringing together our vast datasets on companies and people, plus AI-enabled risk intelligence, and cloud-based workflow orchestration, that is delivered through our new PassFort Lifecycle platform.

Moving on to Insurance, the addition of RMS has now given us a considerable business serving underwriting, risk and capital management, and regulatory reporting workflows at insurers and reinsurers. Like banks, insurance companies are moving towards greater automation and digitization, as well as the integration of more third party data and analytics to enhance their risk management processes. The RMS Intelligent Risk Platform is a cutting-edgecloud-based platform that supports a growing range of workflow and data and modeling capabilities for insurers. The latest product launched on this platform is our new Climate on Demand solution, that integrates RMS's climate and physical risk models with our extensive Orbis and commercial property datasets to provide a sophisticated on- demand financial quantification of physical risk, that enables a holistic view into a company's exposure to extreme weather events and climate change through its customers, suppliers and properties. Not only will this be useful for insurance underwriting, but we are seeing robust demand for this beyond the insurance sector including with banks, corporates, governmental entities and professional services as we expected when we announced the deal two years ago.

Third is our business serving Banking workflows, which are quite similar to those served in Insurance. They include lending, risk management incorporating credit, portfolio, and asset-liability management risk, and finance and planning which includes things like impairment accounting and regulatory capital reporting. Our most significant recent product launch in this space, and one that is contributing to our double-digit ARR growth in Banking, was CreditLens for Commercial Real Estate, which you heard me talk about on prior calls. That integrates our market

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