Moody's Corporation (MCO) Earnings Call Transcript & Summary

All right. I think we'll get started with our next session. On stage with me, we have Rob Fauber, CEO of Moody's Corporation. Welcome back to the conference, again, Rob. Thank you for taking the time to participate.

Thank you for having me.

Fantastic. Quick housekeeping, you can ask a question to Rob by the pigeonhole system. There should be a QR code that comes on the blue screen, not the one that's Perplexity but on the blue screen, and you can use that to send questions up here, and I'll try to get that to Rob towards the end of the Q&A.

So let's dig in, Rob. If we just talk of growth -- long-term growth of Moody's, if I look over the last 5 years, top line growth has been fairly nice at an 8% CAGR, but so is EPS, been around 8%. What do you see as the primary growth drivers for this company over the next 5 years? And as importantly, how do we get a bit more operating leverage on the bottom line?

Sure. Christian, first of all, thanks for having me, and I've obviously lost the battle of the socks. But as we all know, in the last 5 years, the base year that you pick to measure your growth rates really matters. So the 5 -- the last 5 years has been an interesting period. Over the last 2 years, actually, revenue has grown at 21% and -- excuse me, EPS is growing at 21% and revenues have grown at 14%. So you can see the operating leverage in the business the last 2 years. So first of all, I'd say around the growth drivers, there what I would say are several deep currents that are driving demand for our solutions and what we do. The first of that is secular debanking in private credit, and I imagine we'll get into that today. Second is the ongoing digital evolution of financial institutions, banks and insurers. Banks have been at this for a long time, insurers are farther behind. And now we have a whole wave of AI-enabled transformation. So that's going on. Third, there's almost every customer I talk to wants to better understand who they're doing business with. And that -- some people call that third-party risk management. A subset of that is KYC, but that idea of needing to know more about who you're doing business with. I would also say that understanding the physical risk of natural events and the assurability of physical assets has become front and center for financial markets and financial institutions. And lastly, just the unlock of -- from AI of the -- for owner of proprietary data. That, I think, is a big growth driver. In terms of the operating leverage, Christian, I would say 2 things. On the Ratings side of the business, we think about trying to manage our resources within a band of -- become increasingly volume-agnostic, right, within a band of issuance. And what that means is technology enabling our people to do a lot of what gets done in the rating agencies. So when we have surges of issuance, we don't just have to add more people. And you're seeing that. You saw that in 2024 and you saw the operating leverage come into the business. And in M&A, I'd say that's a business that we've built acquisitions over time, moving to a common technology platform. We're really leaning up and platforming that business, and you're seeing that come into the margin as well.

Okay. Let's double-click on what you talked about in terms of the competitive landscape and disruption. The financial services landscape is evolving. Fintechs are beginning to use -- leverage AI, alternative data and things like credit risk assessment. How is Moody's defending its market position against traditional players but, I would say, against some of the newer emerging fintechs?

Yes. So I still think at the heart of all this -- so yes, there's a lot of technology disruption. But as I said just a minute ago, the owners of proprietary data and analytics, I think, are actually going to be the beneficiaries of all of this, right? And so for just a minute, think about how we compete -- I'm going to take the insurance space for just a moment in terms of how do we compete in that space. Well, we have the best science, right? We own a company that invented catastrophe modeling. So we're the Cadillac of catastrophe models. In fact, many of our customers market the fact that they use our models as their currency of risk. That's a big deal. Second of all, we have really, really extensive and deep customer relationships across the entire industry. And that gives us tremendous insight into what -- where the industry is headed and what our customers need from us. And they are actually bringing forward ideas in terms of where they want to see us invest on behalf of the industry. And so when our customers are bringing us the ideas of where they want us to invest, that gives us the opportunity to, again, stay ahead of the game in terms of innovating and delivering for our customers.

Let's talk about -- Moody's is a global -- fairly global business both across your Ratings business and Analytics. Clearly, there's a lot of global tensions, talk about deglobalization. How do you think about that from a business risk perspective in how Moody's operates globally?

So we have a very global business. Roughly half of our revenues come from outside of the United States today. That's generally been true for quite a while. I would say, it's interesting, in the rating business, they're really 2 rating businesses. There's the global cross-border business, typically U.S. dollar issuance. These are the largest issuers in the world. And then we have the domestic issuance markets. These are local currency markets. And the biggest of those are places like China, Korea, India. Latin America has a very vibrant set of domestic local currency markets all across the continent. And we have a very strong presence in those domestic markets. And you see an ebb and flow from time to time between the global markets and the domestic markets. We do see issuers' issue in both. And we've invested pretty significantly in building out that global footprint in these domestic markets. In fact, last year, we acquired close to 100% of the largest domestic rating agency across the continent of Africa. That's like a generational investment for us. We've been building out our presence across all of the domestic markets in Latin America through a platform called Moody's Local. And so that, collectively, Christian, that's about 7,000 issuer relationships in the domestic/local part of our business. And I think of those, again, as many of those are the issuers of the future and gives us great exposure. On the MA side of the business, we are typically serving the largest financial institutions in any given country because they want global standards, right? They want to be using the standard for credit risk or for asset and liability management or for whatever kind of regulatory reporting. So we tend not to see a fractionalization of that market because the banks -- the biggest institutions want to use global standards.

You've talked about this a lot, integrated risk solutions, so looking at risk across credit, market, climate, et cetera. Can you just talk through your product strategy, how that's evolving to sort of meet this need?

Yes. So let me provide a little context with kind of the evolution of the MA business because I think that's going to help with the answer. You think about how MA started, it was basically the monetization of content coming from the rating agency. And over time, we realized we had an opportunity to sell more content to those customers, things like economics and structured finance models and other things. And we continued to build out that business over the years both organically and inorganically, right? In fact, we've done a number of acquisitions to build out our capabilities, both in terms of serving new customer segments like insurance, but also adding a variety of content sets. So you're talking about this idea of integrated risk or bringing it all together. I'll give you an example. We're one of the top players in lending software for banks. So this is commercial banks and relationship managers who are underwriting loans. And so think about -- really, the software for us is just a delivery chassis. And think about the content that get -- that we deliver through that. So we have data on 580 million companies. So every company that is being underwritten, we have the opportunity to populate a lot of that data for our banking customers. We have the premier scoring models in the world, and many banks use those credit scoring models in the -- in our lending software. We are now bringing forward KYC checks because what we're hearing from banks is -- they're saying, "Gosh, I want to understand right upfront when I'm originating a loan, whether this thing is going to get through compliance in 6 weeks," right? "I need to understand that." And most recently, and back to one of my deep currents, we have banks who are saying, "Gosh, I'm underwriting a 10-year loans secured by a piece of commercial real estate. And now I want to understand the physical risk of that asset because I understand that the insurance policy is a 1-year policy and I've got a 10-year loan. And so I want to understand much more about the physical risk of that asset that I'm taking as collateral." So all of that content is flowing through, in this case, our lending solution and providing us the opportunity to cross-sell and monetize much more of that content.

Let's double-click into the Ratings business. Obviously, the macro backdrop is it's volatile. We've gone from billions to Liberation Day and it feels like we're back up again here. Maybe just some context as to how you're thinking about sort of the global debt markets. Are trends evolving any better or worse than you thought on the earnings call?

Yes. So I would say, since April 2, we have seen volatility start to subside, right? Right after April 2, certainly, we saw kind of a move to a risk-off environment. But if you look at spreads, both investment-grade and spec-grade, spreads have come in essentially to pre-April 2 levels. We have seen issuance. Our RAS pipeline, which is our pipeline of rating assessment. So if you're thinking about an M&A deal, you might come to us in advance to understand what the impact would be to your credit profile. So we have good visibility into M&A. That pipeline has started to move again. So -- and we've seen fund flows back into fixed income funds. So I would say there's still a cautious tone, and we have -- we still obviously have some headwinds from elevated treasuries and still uncertainty around trade policy and other things. But there are some green shoots in terms of the market. The issuance market is getting their footing again.

So would you describe it as a little bit better than you thought in terms of the recovery since the earnings call or bottom line?

I think we had anticipated some improvement. If you look at our guidance, we basically said there was kind of a band of outcomes within the guidance, and I think we're within that band of outcomes.

Okay. All right. Let's talk about the competitive landscape on Ratings. I mean, typically, for most products in ratings, it's somewhat of a duopoly between yourselves and S&P. There are some products sort of -- like structured products where there are other players that have made the market a bit more competitive. And we have seen some, let's call it, lagging of revenues relative to peers. So I'm curious how you're thinking about the competitive landscape, particularly in structured products for Moody's going forward.

Yes. So let me start by just talking about generally how we think about our competitive positioning. And we have a phrase that we use at the firm, which is our goal is to be the agency of choice, right? So I don't think about issuers having to use us. We think about issuers and investors wanting to use us, wanting to use us because we have the best analysts, the most experienced analysts. Our ratings are predictive and predictable. We have thought-leading and timely research and we have very active engagement with the market, right? That's how we position the agency. And as a result, I know sometimes people are skeptical of these awards and all that stuff, but we were named Best Rating Agency by Institutional Investor 13 years in a row. Institutional investors understand that Moody's is the gold standard in ratings. Now Christian -- and as a result, we've maintained very, very strong and comprehensive coverage around the world. You mentioned structured finance. So structured finance, post financial crisis, it is a different competitive landscape really than the rest of, I'd say, kind of the ratings market. I'd say it's kind of an active 6 agency market. There's more agency rotation. And why is that? It's because it's transactional. When we have a relationship with an issuer, a fundamental issuer, corporate, we might have had a relationship with them for 30 years. But structured finance lends itself to a more transactional model. And I would say in structured finance, you see ebbs and flows, right? We have methodological changes the way we think about different assets over time. And sometimes, you will see issuance move to or away from you based on kind of your approach to the market. In this case, more recently, in the last couple of years, we've had a view around CLOs where issuance has moved away from us. But I think there's something very important here, which is you have to think about long term. And we have conviction around our methodological approaches. And sometimes that's going to cost us business. But that's the cost of having an opinion. And we've got to run the business for the long term. And I think our long-term shareholders really understand and can appreciate there are times where we take a stand on what we believe, and that's going to cost us some business. And I think in structured finance, that's -- you see some of that.

Okay. Maybe just talk about just the cyclicality of the business. Obviously, a great business, the Ratings business, from a growth and margin perspective. But revenue growth can be volatile, 1 year up 30%, another year down 30%. Any -- and Moody's has a bit more transactional bed to its business than your main peer. Any thoughts around trying to make the business less cyclical, more recurring in nature going forward?

So whenever we have a period where people think there's a slowdown in issuance, I get these questions. When there's a pickup in issuance, it's the exact opposite. I'd say a couple of things. First of all, we have an experienced team at Moody's, right? We -- you know that, Christian. And we have managed through all sorts of air pockets, market issues and turbulence, pandemics, wars, risk-off environments, you name it. Whether it's weeks, months, quarters, we have managed through that. And we know what the levers are that we can pull to manage expenses. I talked about how we're working on becoming increasingly volume-agnostic, right? And that's by technology enabling our people. Our incentive compensation programs are well aligned to preserve margin in periods of downturn. We -- as I said, we know the levers that we can pull. When it comes to thinking about the mix of transactional exposure versus recurring, right, because we charge basis points on issuing, we charge monitoring fees. And I would say that, generally, we feel that this approach has worked well for us in a growing market. I understand when we hit a downdraft that, that can work against us. But this is the operator in me speaking here for a moment: it's a big lift to go out to thousands and thousands of customers and start to change that commercial model with them. And then by the time you do that and we have a pickup in issuance, you're thinking, "Gosh, I wish I had more transactional exposure." So unless, Christian, we think that this is really a multiyear shift, we're going to stick with the approach that we've got.

Okay. Let's talk about private credit. I think at this point, we can safely say it's a tailwind for the rating agencies.

My messaging is working to Christian now.

It feels like it's accelerating for you guys, though. You're talking about seeing incremental private credit deals. Maybe help us -- remind us, what is the overall size of private credit today in Ratings? What exact products are resonating? What are the most meaningful growth opportunities going forward?

So the size of the market, the way people typically define it today is roughly $2 trillion. Just to put that in perspective, we rate about $75 trillion of mostly public debt, right? So you can get a sense of the scale. But obviously, when you listen to the big players in the market, they talk about that market going from $2 trillion to potentially numbers like $10 trillion or higher. And maybe let me just zoom out for just a second and just think about what's going on and then how we're monetizing that, what the opportunity is. A lot of this is assets that are sitting on bank balance sheets or are being originated by banks, right? And we know that post financial crisis, bank regulation led banks to start to exit leverage lending, right? So you've got assets coming off of bank balance sheets and into capital markets and investor markets. The way we monetize assets that are on bank balance sheets, typically, right, they're using our lending software and our credit scoring tools and other tools with a subscription model. But when those assets, those loans are coming off the balance sheet, whether in pools or individually, what we're finding is they're starting to get rated, scored, assessed. So that's a big opportunity for us, right? And I know there's a lot of focus from investors who say, "Oh, gosh, the direct lending market, a lot of that's not rated. So this is a net negative for rating agencies." And I really challenge that idea. Why? Because think of what's going on, we talked about in our first quarter earnings call, you can already see the growth in asset-backed finance from private credit sponsors coming into our Structured Finance Ratings business. 20% of growth in our first quarter Structured Finance business was from private credit. 30% of our first-time mandates in our financial institution rating line were related to private credit. That's all the fund finance, the sublines, NAV loans, rated feeders, BDCs, fund ratings, all of that. So we're monetizing a lot of that through the rating agency. And by the way, the economics on that is very similar or identical to what we get on the public side of the business. However, we've also got more of these assets that there's demand to score. So I may be providing other forms of credit assessment. It may not be a credit rating. I may not have the same economics. But now I'm earning a fee opportunity on assets that I otherwise wouldn't be touching. So net-net, I see that as a real positive for us.

Okay. Let's talk about MSCI and the partnership around private assets. Maybe talk through that partnership, why MSCI. And then any sort of revenue model you can give us a sense of there? And then more importantly, just longer term, how does that partnership evolve into the products, benchmark, indices, et cetera.

All right. So it's been very interesting once we announced this partnership. And MSCI are great partners. They have a great content set with their Burgiss platform. And you have to understand what we're bringing to the table here. Moody's has really the world's best credit models that are being used by hundreds or thousands of banks around the world. And that started with -- for many of you probably remember when we acquired KMV back in the early 2000s, and those were the public company EDFs and probabilities of default for public companies. We then built out -- a lot of people don't know this. We built out a contributory data consortium with banks, and they provide default data to us. And we use that to calibrate a set of private company credit models. So we have a full stack of public and private company credit models that are used by banks to manage their credit portfolios, like the gold standard at banks. So we start to have conversations with both investors who are saying, "Gosh, we'd like to have an understanding of a kind of a third-party view of the credit risk across the fund we're invested in because today, we're only getting that view from the GP themselves," right? So we needed a data set. And we connected with MSCI, who has the data from the fund reporting on their platform that allows us to calibrate our private credit models using this private credit cohort and be able to do it at the loan level, which is very important. That's one thing we heard from the investors. So now we have the ability with MSCI, and this is -- it was like a great example of co-development. Their data, our models produce something that otherwise we couldn't do and to be able to distribute across their platforms and our platforms. Now here's the very interesting about it. So yes, there's a revenue-sharing agreement, and we will monetize. It will be an à la carte offering when we make money from that. But what I think is particularly interesting is that we're now at a moment where the market realizes that private credit loans can and will be scored and mapped to an implied rating. And remember how the Ratings business started. We started with an investor pay model. We provided ratings to investors who found them valuable. And then over the years, we switched to an issuer pay model because there was a very strong investor demand pull for ratings that allowed us to go to issuers and say, "How would you like to pay for a rating?" And the investors were essentially demanding a Moody's rating. So here we have an opportunity to start to seed investor demand pull for ratings on private credit because now the investors, the LPs will be able to see what the credit profile is of the loans within the fund that they're invested in. You could imagine eventually creating fund-level scores and data consortiums and benchmarks and all sorts of other things around this. That may also ultimately lead to the GPs saying, "Well, we'd like to come to you and go ahead and get these loans or companies scored or rated," right, because they're already being done. So I think this is a very important moment for the private credit market. And the last thing I would say, Christian, is -- I've gotten some questions about, well, what's the reaction of the GPs to this that you're now providing transparency because frequently, I hear this idea that one of the benefits of private credit is being unrated. I don't think that's true. I think the biggest players in the market have realized if you're going to go from $2 trillion to $10 trillion, you're going to need more transparency and benchmarks and data to allow insurers and pension funds, and ultimately, retirement and individual retail, you're going to need to have third-party independent credit assessment if you're going to be able to scale this market.

Very interesting. On credit quality, that is a big critique or criticism of the private markets that haven't gone through a credit cycle yet, and that will be an issue for that market. How do you think about a credit cycle impact in Moody's business? Is that a catalyst? To your point, people need more information. Is it the opposite? I'd just love your thoughts on what you think a credit cycle in private credit will mean for Moody's.

I think a private -- a credit cycle in private credit is going to drive a lot more demand for independent credit assessment. In fact, it's really interesting. I think there's an analog on -- in the public markets, Christian. When markets are really, really frothy, sometimes we see issuers think, "Ah, maybe I can go to market without a rating," right? When there are times of credit stress, you never see that, right, never see that. And so in a way, when we see credit stress in the market, it actually reinforces the demand for our solutions and insights to really understand credit risk. It's in those frothy periods where people think, "Ah, there's no credit risk in the market." So I think if we go through a credit cycle, we're going to see a lot more demand -- we may see an acceleration of demand for third-party risk assessment private credit.

Good stuff. I think that's enough Ratings. Let's switch over to...

Always happy to talk about Ratings.

The Analytics business, really nice growth, at least in -- if you look at things like ARR, which has been growing in the 9% to 10% range for the last few years. It has decelerated somewhat, I would say, in the last few quarters. So maybe unpack kind of what you're hearing from different end markets, where you're seeing strength, where you're seeing weakness.

So I'd say still pretty strong demand drivers in general. We're probably talking about decimal points here. And in general, I talked about some of the deep currents, but I'll go to kind of what we see from our biggest customer bases, which are banks and insurers. Two areas in banks where we see real growth opportunity. First is in lending. And I talked about how we're bringing together our content sets and building out more of an end-to-end workflow platform for lending. And Christian, what we hear from banks more and more is it's about growth. It's about growing the balance sheet and building the loan book and enhancing the customer experience and being able to turn around loans faster. And all of that is leading many of our banking customers to want to digitize the end-to-end lending experience. So that's a big opportunity for us. That's why we invested in Numerated at the end of last year. And second is KYC. It's amazing what a big issue that is, what a pain point that is for banks. And now with the advent of our AI KYC screening agent, there's a real value prop there around changing the labor model for all of the manual in-house KYC screening and stuff that's costing banks billions and billions of dollars a year. So 2 great growth drivers. And in banking, well, you're going to see us continue to invest and try to drive scale in our business. And then with insurers, this idea of physical risk and insurability is leading insurers to want to get more and more sophisticated around how they're assessing risk. So what we did with CAPE was we brought together -- if you think about our cat models, the data we were lacking was the current condition of any given building. Well, guess what, now we have that. And we plugged that into the cat models to create an even more sophisticated view of the physical risk of any given property. Another area where our insurers have told us they really want help is around casualty and mass tort -- mass liability risk. And so we made an investment in a company called Praedicat to be able to bring that to our customers. So a couple of places, I think both -- in both of those big customer segments, where we see some very strong demand drivers.

Okay. Let's double-click on KYC. To your point, very strong growth there, high teens ARR growth. And I think you've launched a bunch of recent initiatives around AI to help expand that business. So maybe talk about how you think about the addressable opportunity there versus what you're doing today.

Yes. So I'd say there's a few things. One, there's still more of an opportunity to serve our existing banking customers and do more of the KYC process for them. I just mentioned, if you think about -- in many cases, the biggest spend at the banks is actually the labor that's doing all of the diligence screening. So there's a big opportunity for us to go after that with our banking customers. Beyond banking, we're using a lot of the same data sets to go after the corporate market. The corporate market now is doing its own form of Know Your Customer and sanctions checks and customer monitoring. So we've built out a platform for corporates that brings together multiple use cases and interconnected data sets, leveraging this massive company database that we have to help companies around sales and marketing optimization; trade credit extension; customer onboarding, aka KYC; and supplier risk management, all drawing on a common this massive company database and other data sets that we have. So that's another area of growth for us, leveraging a lot of the same data sets and analytic tools but going after a whole new customer segment. So that's really a land strategy, a new logo strategy. So those are 2 places, I'd say. More opportunity within the banks and new opportunity now with corporates.

Okay. Maybe just broadly on your Analytics business. Broadly speaking, analytics is a competitive industry. Obviously, Moody's does have some unique products. But I'd be curious if you've seen any areas where there are enhanced pricing pressures or anything that might cause sort of demand reduction from the end markets?

I would say, many of our customers are very price-sensitive, right? I mean, I think we all understand that. Banks, insurance companies, asset managers, very price-sensitive. And so it's really critical to make sure that we're delivering increased value to be able to support pricing. And we've been pretty consistent over a number of years in talking about, on average, 3% to 4% pricing opportunity across our portfolio of products and businesses that's both Ratings and MA. That's still true. You've heard us talk about on some of the earnings calls that asset management, in particular, has been a little bit softer for us. But in general, that pricing opportunity -- as long as we continue to deliver the value in our products, we feel that, that pricing opportunity is still there.

Okay. No way we can talk about -- we can be here and not talk about AI, particularly Moody's because you've been very vocal around leveraging AI, I think, most famously around Research Assistant. Just remind us again, what is the financial contribution today of AI products, however you want to cut that. Where do you see opportunities, particularly as we move into more of an agentic AI world?

Yes. So it's really interesting because the adoption curves of AI are very different across different customer segments and tiers of customers within those segments. So if I look at banks, which is our biggest customer base, at the big end of town, all of the banks are focused on internal AI workflow orchestration, thinking about moving to Agentic models and taking third-party content like ours and bringing that into the bank's own environment. Then you move to kind of Tier 2, 3 banks, regional and community banks, those are banks that have just moved on to software platforms -- cloud-based software platforms. And Agentic is, I think, a ways out for them. And I guess where we want to position ourselves, and it's a really interesting time, is we want to over time be agnostic to how our data and content is delivered, whether it's through software or it's through AI prompting or whether it's through agents. I think we're also going to have to think about the -- what the revenue model looks like over time as we move from software subscriptions to the consumption of our content through AI and through agents. So there's some real questions for us to think about. In terms of adoption, like I said, if we look at it on the overall revenues, I'd say that it's very, very modest. The adoption curves have been slow with the big banks, particularly for our first product, which is our Research Assistant. But when you start to look at growth and where we're getting new sales and those new sales also including the Research Assistant, that's where it starts to become more meaningful that our customers are saying, "Yes, we want to have AI-enabled research." And what you're going to see is across the entire product suite, there will be AI enablement of our solutions and applications just like everybody else is doing. That is going to be table stakes. And there will be some opportunities to have incremental AI modules that you can charge extra for. In this case, Research Assistant would be one of those. And I think that's the way we're going to see this. So you're going to see AI table stakes part of retention and overall pricing, and then you'll see à la carte opportunities as well.

Okay. Good stuff. MA has really been built in some ways by a lot of acquisitions: Bureau van Dijk; RMS; CAPE, you mentioned recently. How successful have you been so far in terms of integrating all these acquisitions into a single unified platform? Does that -- will that improve the ability to drive incremental revenue synergies across those platforms? Just curious on that.

So I harken back to the investor call we had after we bought RMS back in 2021. And that business was growing at very low single digits. And on that call, a lot of people were asking, basically, "Why did you do this? This is a low-growth business, heavily penetrated. Why are you getting into cat modeling?" And my answer was 2 things at the time: one, we believe that having world-class industrial strength capabilities around weather and extreme events is going to be critical for financial markets in the decades to come. That was the thesis; and two, that we thought we had a great cross-selling opportunity into the global insurance market. And 3 years later, and we talked about this on one of our earnings calls, that business is growing. That business is growing in line with the broader insurance business at, call it, lowish teens growth rate. And what we've done since then, Christian, is we took their Intelligent Risk Platform. That is now -- their cloud-based platform is now our platform for all of our insurance solutions. We've migrated all of our applications on to the Intelligent Risk Platform. Underpinning that is a risk data lake. We've grown the number of customers on the IRP fivefold since we made that acquisition. And we've accelerated growth and the cross-selling story is real. And what I think the most interesting thing is now about where we found ourselves is those 2 -- the 2 theses that we had are true. There is a lot of demand for understanding physical risk with our banking customers, our asset management customers, even the public sector. And the cross-sell story has been fantastic. And most recently, I kind of mentioned this, the acquisitions that we did recently with Praedicat and CAPE, these are customers bringing us the ideas. They're saying, "You are an industry platform. We want you to own these assets and integrate these applications and create capabilities for us in the industry." And that just -- in a way, it's like a virtuous cycle and just kind of reinforces our competitive positioning. So I feel very good about how we've performed with the shareholders' $2 billion in that case.

Okay. We've got a bunch of audience questions. A reminder, you can use the pigeonhole system to ask questions. First one is about MA margins. So you've outlined getting to mid-30s, medium-term target for MA. What's your longer-term margin target for MA? And what levers do you have to achieve them?

So I'd say in the near term, we have opened a restructuring program. Frankly, if you go back to -- I talked about the evolution of the business, and we've done a number of acquisitions and we've been building a common technology platform underpinning all of our MA applications. There's just some real efficiencies to be gained out of all that. And so the platforming and the idea of just a leaning up of the organization, you see that in both this year's margin target as well as our medium-term target. Over time, there will continue to be upside to that as we scale in the places where we believe we have the best competitive position, right to win and growth market dynamics. And the benefits of scale will provide some further operating leverage just given the subscription nature of the business. We're also, as I mentioned, starting to experiment with some other revenue models around an element of consumption-based pricing for certain of our content sets for certain kinds of use cases, which I hope will provide some further operating leverage as well.

Okay. Question on M&A and AI. So you mentioned conviction around the value of proprietary data vis-à-vis AI. Do any of the technological changes affect your appetite or direction as it relates to M&A or Analytics businesses?

That's a fantastic question. That is at the very heart of our -- every year, we get together with our Board once a year and we do a strategy for that discussion because I think of -- we now have 2 time horizons that we need to think about investing in. There's the business of today. And today, I have SaaS businesses, right, in banking and insurance primarily, where I want to continue to build scale and add customers. And so thinking about how do we invest in our market position in those businesses; at the same time, thinking hard about what's the future of B2B software. You start to hear this term linear software, right, this idea that -- because if you think about B2B software, it's basically trying to understand your workflow and then replicating that workflow in a series of -- in a set of software options in a piece of software. But I think we all understand that the Agentic future presents an opportunity to not have to operate in these software platforms. And so we're starting to think hard about, what are the adoption curves for our different customer segments that I talked about? Where do we want to make investments in businesses of today to continue to drive scale? Because there's some real position -- real benefits of that. And what are the no-regret investments to set us up for winning in an Agentic future? And that may be around data, that may be around businesses that have valuable data sets that may have different -- slightly different revenue models. We're still working on that. But thinking about the balance of investing in those 2 time horizons is really important. I don't want to be way out in front of our customers and have overinvested in a technology that customers aren't ready for. And I don't want to overinvest in the B2B software as we move to an Agentic world.

Okay. Fascinating. Another set of questions around private credit. So private credit is increasingly pushing into making itself more liquid via things like ETFs. Does Moody's see any incremental opportunity for doing higher levels of business as that may force Ratings?

Yes. So this is on the demand side. And you hear the biggest players in private credit talking about moving into retirement markets into retail. Retirement market is $10 trillion-plus, and you take up X percent share of that and the numbers start to get very big very quickly. But the regulators are going to be very focused on how that gets done and what kind of disclosure and transparency there is for individual investors. And I think we'll have an important role to play. When I'm with the biggest players in private credit, one of them said to me and my team that they understand that investors want to sign -- they use the word sign posts and that companies like Moody's, whether it's ratings or scores, right, these scores are very important because they are sign posts that investors are familiar with and allow for comparability across public and private. And at the end of the day, I don't really care whether something is public or private, right? Our job is to express an opinion on credit risk. And we've done that for public markets for over a century, and we have an opportunity to do the same thing for private markets as they scale.

Okay. Good stuff. Maybe a couple of questions on culture and your vision. Obviously, Moody's has a very long track record in the financial markets. But increasingly, you're talking about things like Agentic AI, transforming your B2B SaaS software sales and things like that. How do you attract and retain top talent in areas like data science and AI, software engineering as well as traditional credit analysis in a world where demand for those talent types is just increasing?

I'm biased because I've been the CEO for 5 years, but this is not your grandparents' Moody's anymore. And I hope those that are watching us understand that. And I'm going to go back to the pandemic because as hard as the pandemic was for everybody, there were a lot of silver linings for us. Because we realized that in 5 days, we could play a systemically important role in the world and continue doing what we're doing with a massive surge in volume, and we became much more nimble as an organization. And when we first started in early 2023 to really start to think that AI was going to be either a threat or opportunity, but it was real, I kind of called in the firm and said, "Look, we've developed this nimbleness. We now need to use it to jump head first into this opportunity." And you learn every single day as a leader, and I had a really valuable learning about the way that I communicated in 2023 as we moved into really going head first after AI. Because I think most people at the firm expected us to have a risk-first approach, right? We'll study this to death. But this was too important to do that. So we had 3 simple principles. We're going to have a yes-and mentality. That's pretty important. We're going to have 14,000 innovators at the firm. Everybody is going to be involved in this and we're going to deliver impact. It's not going to be just a bunch of hobbies. And that was an incredibly powerful motivating force for us. We announced the Microsoft partnership. And then we said, "You know what, we're going to launch the first product on research and we're going to do it in December." And we did it. And so I think that has served us well, Christian, because I think it's starting to change the brand with both customers and with people who either work at Moody's or want to work at Moody's.

Great. We're out of time. So thank you very much, Rob. And thanks, everyone, for joining.

Thanks for having me.