Moody's Q1 Earnings Call Highlights

Key Points

• Moody’s reported a “strong start” to 2026 with both MIS and MA revenue up 8%, adjusted operating margin expanding 150 bps to 53.2%, adjusted diluted EPS of $4.33 (+13%), and $1.7 billion returned to shareholders including nearly $1.5 billion of buybacks as repurchase guidance was raised to about $2.5 billion.
• Moody’s Analytics is shifting to a subscription-first model with recurring revenue representing 98% of MA revenue and ARR at $3.6 billion (+8% YoY), while transactional revenue fell 54% due to a divestiture and strategic pullback and is expected to continue declining through 2026–27.
• Moody’s Investors Service delivered a record quarter with rated issuance topping $2 trillion and MIS margin at 66.7%, and the firm is expanding AI and digital finance initiatives—integrating content into enterprise AI platforms (ChatGPT Enterprise, Claude, AWS, Microsoft Copilot) and publishing a stablecoin rating methodology while rating a Bitcoin-backed bond.

Moody's NYSE: MCO reported what CEO Rob Fauber called a “strong start to the year” in the first quarter of 2026, citing revenue growth across both major segments, margin expansion, and continued demand for ratings and analytics products despite geopolitical volatility.

First-quarter performance and capital return

Fauber said both Moody’s Investors Service (MIS) and Moody’s Analytics (MA) grew revenue by 8% in the quarter. He added that disciplined cost management helped drive 150 basis points of adjusted operating margin expansion to 53.2%, contributing to adjusted diluted EPS of $4.33, up 13%.

The company returned $1.7 billion to shareholders through buybacks and dividends during the quarter. CFO Noémie Heuland said Moody’s repurchased nearly $1.5 billion of shares in Q1 and raised full-year share repurchase guidance by $500 million to about $2.5 billion. Free cash flow was $844 million, up 26% year-over-year, and Heuland said the company remains on track to return about 110% of free cash flow to shareholders by year-end.

Moody’s Analytics emphasizes recurring growth as transactional revenue falls

Heuland said MA revenue increased 8% as reported, or 6% on an organic constant currency basis. MA’s revenue mix continued shifting toward subscription-based offerings, with recurring revenue representing 98% of MA revenue in the quarter. Recurring revenue grew 11% as reported, or 7% on an organic constant currency basis.

Transactional revenue declined 54% year-over-year, which management attributed to the learning divestiture and a deliberate shift away from transactional activity. Addressing questions about the low level of MA transactional revenue, Heuland said the decline reflects divestiture impacts and a move to have partners perform some services and integration work that previously generated transactional revenue. She said transactional revenue declines are expected to continue through 2026 and 2027, while organic recurring growth is now “much aligned” with ARR, aside from potential quarter-to-quarter lumpiness tied to software revenue recognition timing.

Annual recurring revenue (ARR) ended the quarter at $3.6 billion, up 8% year-over-year. Fauber said ARR came in stronger than he had suggested might occur at a prior conference due to “good sales execution through the balance of March,” while Heuland noted “some swing deals” that closed late in the quarter.

Heuland highlighted growth trends within MA:

• Decision Solutions represented about 44% of MA ARR and delivered 10% ARR growth.
• KYC grew 13% ARR, driven by deeper penetration within existing banking customers and expansion beyond financial services.
• Banking ARR grew 10%, supported by lending solutions growing in the “high teens.”
• Insurance ARR grew 7%, supported by high-definition models and cloud delivery through the Intelligent Risk Platform.
• Research and Insights ARR grew 7% year-over-year, driven by CreditView (now “Moody’s View”) and EDF-X.
• Data and Information ARR grew 6% year-over-year, supported by “high-value agreements.”

Retention improved, with quarterly retention at 96%, up 200 basis points year-over-year. Trailing 12-month retention was 95%, up one percentage point from Q4 2025. MA adjusted operating margin was 32.5%, up 250 basis points year-over-year. Heuland reiterated confidence in MA margin expansion, with a 34%–35% full-year target and a “mid to high 30s” target by the end of 2027.

MIS posts record quarter as rated issuance tops $2 trillion

Heuland said MIS delivered the “strongest quarter on record,” with rated issuance surpassing $2 trillion for the first time in Q1. Fauber attributed issuance activity to “long-term funding needs” tied to infrastructure, technology, private credit, the energy transition, and emerging markets. He described these as multi-year drivers that may be affected by timing due to volatility, but not eliminated.

Transactional revenue in MIS grew 8% year-over-year, ahead of the 6% increase in rated issuance, while recurring revenue grew 9% on growth in monitored credits, new mandates, and pricing. First-time mandates rose 20% year-over-year, which Heuland called a leading indicator for future recurring revenue.

Within MIS, Heuland described performance by category:

• Investment grade: revenue rose 33% year-over-year, driven by a record first quarter and the second highest quarter ever for issuance. She cited jumbo transactions from hyperscalers and other technology issuers and noted issuance from the top five hyperscalers year to date exceeded full-year 2025 levels.
• Speculative grade: revenue rose 31% year-over-year, with investor appetite holding up for most of the quarter despite volatility.
• Bank loans: revenue declined as activity moderated in March after a strong start to the year.
• M&A-related issuance: was the highest in a number of years, which management viewed as encouraging for the rest of 2026.
• Public, project, and infrastructure finance: grew 8%, led by infrastructure finance’s “second strongest quarter of the past decade.”
• Structured finance: was slightly lower year-over-year, as large EMEA ABS and RMBS deals were offset by softer U.S. CMBS and CLO activity, particularly refinancings.

MIS adjusted operating margin was 66.7%. Management said workflow automation and newer AI capabilities helped Moody’s handle record issuance volumes while expanding margins. In response to an analyst question on operating leverage, Heuland said technology investments have automated steps leading up to ratings committees, and AI is being applied to areas such as “financial statement spreading” and “data gathering,” while maintaining human judgment and controls. Fauber said AI enablement accelerated in the back half of last year and is expected to support both efficiency and insight for analysts.

AI distribution partnerships and digital finance initiatives

Fauber emphasized efforts to embed Moody’s intelligence in customer workflows, including partnerships that allow licensed Moody’s content to be accessed within enterprise AI environments. He said Model Context Protocol integrations enable Moody’s content to be used within tools such as ChatGPT Enterprise and Claude, and he highlighted availability through the AWS Marketplace and a dedicated Moody’s agent in Microsoft 365 Copilot.

Asked about monetization and customer adoption of these channels, Fauber said it is “early days,” with “a number of large financial institutions” trialing Moody’s “agent-ready data” either through MCP integrations or directly into their internal AI orchestration platforms. He said broader access across divisions such as corporate and investment banking could “uplevel the commercial model” by requiring licensing arrangements that cover wider enterprise usage.

Fauber also discussed Moody’s push into digital finance, noting that the company published what he described as the first rating agency methodology for stablecoins, and said the firm has “a number of deals in the pipeline.” He also said Moody’s is live on the Canton Network and rated an inaugural Bitcoin-backed bond during the quarter.

Guidance maintained; MA divestiture and volatility remain swing factors

Heuland said Moody’s full-year guidance remains unchanged for revenue, adjusted operating margin, and adjusted diluted EPS. The base case assumes market turbulence is “largely contained to April,” with issuance recovering through Q2 and Q3 amid refinancing needs, a healthy M&A pipeline, and sustained demand for high-quality investment-grade issuance, including AI-related financing.

For Q2, Heuland said the company expects MIS revenue growth in the low- to mid-teens percentage range and adjusted diluted EPS of about $4.15 to $4.30. If volatility persists beyond April, she said Moody’s would expect full-year MIS revenue growth to moderate to the mid-single-digit range and adjusted diluted EPS to trend toward the low end of the guidance range.

On MA, Heuland said Moody’s expects to close the sale of its regulatory solutions business on April 30 and has excluded its contribution from reported revenue guidance, pushing MA toward the lower end of its mid-single-digit revenue growth range. She said this does not change expectations for ARR or organic constant currency recurring revenue growth, which remain in the high single-digit range.

Fauber, responding to questions about issuance timing, said the company did not see abnormal pull-forward activity in Q1. He added that banks have indicated some Q1 deals were deferred into Q2 and that there is optimism for issuance to return in May and June, while acknowledging ongoing “risk on and off windows.” In a separate exchange, he said hyperscaler issuance should be viewed similarly to other frequent investment-grade issuer activity, where pricing programs can affect revenue mix compared with speculative-grade issuance.

Moody’s also announced a leadership change: Fauber said Christina Kosmowski will become Moody’s Analytics CEO in June, and he thanked Andy Frepp for serving as interim president.

About Moody's NYSE: MCO

Moody's Corporation is a global provider of credit ratings, research, data and analytics that support financial decision-making and transparency in capital markets. The company traces its origins to the early 20th century when financial analyst John Moody began publishing credit information; today Moody's is headquartered in New York and serves a broad set of market participants including investors, issuers, financial institutions, corporations, governments and regulators.

Moody's operates primarily through two complementary businesses.

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