# Moody's Corporation (MCO): Business, Risks and Management's Discussion

Amounts are in US dollars as reported. "Organic constant currency" growth and Adjusted figures are the company's own non-GAAP measures. ARR (annualized recurring revenue) is the company's own key performance metric.

## Business

*Source: Form 10-K for the fiscal year ended December 31, 2025 (accession 0001628280-26-009136), Item 1 and Item 7.*

Moody's sells credit ratings, plus data, research and software for assessing risk. Its customers are debt issuers, investors, banks, insurers, corporations and governments. Revenue comes from two reportable segments of roughly equal size. In 2025, Moody's Investors Service (MIS) earned $4,119 million of external revenue, mostly from rating fees paid by issuers. Moody's Analytics (MA) earned $3,599 million, much of it from subscriptions. Total revenue was $7,718 million. The company has about 16,000 employees in more than 40 countries, and about 39% of 2025 revenue was in currencies other than the US dollar, mainly sterling and the euro.

- **Moody's Investors Service (MIS)** rates and assesses debt obligations, programs and facilities worldwide, and the entities that issue them: corporate, financial institution, governmental and structured finance securities. Its revenue is reported in four ratings lines: Corporate Finance (CFG), Structured Finance (SFG), Financial Institutions (FIG), and Public, Project and Infrastructure Finance (PPIF). A small "MIS Other" line covers non-ratings work such as Asia-Pacific pricing services, Second Party Opinions and Net Zero Assessments. Most MIS revenue depends on how many debt securities are issued and their dollar volume. Annual fees from frequent issuers, monitoring fees, commercial paper and medium-term note programs, and bank deposit and insurer strength ratings partly offset that dependence. MIS also owns ICRA, a publicly listed Indian rating agency, and runs domestic rating businesses under the Moody's Local name. In 2025 these expanded into Latin America with the acquisition of ICR Chile. Moody's also holds a 30% stake in CCXI, a licensed domestic rating agency in China.
- **Moody's Analytics (MA)** has three lines of business:
  - **Research & Insights:** fixed-income and economic research.
  - **Data & Information:** a data business that Moody's calls the world's largest database on companies and credit.
  - **Decision Solutions:** cloud-based subscription software for banking, insurance (including catastrophe modeling) and KYC (know-your-customer) workflows.

  The two segments trade with each other. MA charges MIS for products used in the rating process, and MIS charges MA for the right to distribute ratings content and data.

**Strategy and growth drivers.** The 10-K describes Moody's as an "integrated risk assessment firm". Its pitch is that curated proprietary data and validated models matter more as customers adopt generative and agentic AI. In MA, management expects growth from winning new customers, cross-selling, upselling and pricing, a larger data estate, new products and distribution channels, and partnerships. In MIS, the long-term growth formula is economic expansion plus the value of the rating plus developing capital markets. Specific drivers are refinancing needs, limited bank-system capacity, deeper participation in emerging markets, and new areas including private credit, cybersecurity and sustainable/transition finance. Issuance in any one year still depends on interest rates, credit spreads, M&A activity, business investment and securitization.

**Competition and regulation.** MIS competes with other credit rating agencies, with investment banks and brokers that offer credit opinions, and with investors' in-house research. MA competes with software, analytics, economic-research and commercial-data providers. MIS is registered with the SEC as an NRSRO (a nationally recognized statistical rating organization). It is also supervised by ESMA in the EU and the FCA in the UK, and by regulators in Australia, Singapore, Japan and Hong Kong. Its EU rating agencies are subject to DORA, the EU's digital operational resilience law. The EU Regulation on ESG Rating Activities, applicable from July 2026, may bring some MIS products under ESMA supervision. The UK has passed legislation allowing the FCA to regulate ESG ratings.

## Risk factors

*Source: Form 10-K for fiscal 2025 (accession 0001628280-26-009136), Item 1A. The Form 10-Q for the quarter ended September 30, 2026 (accession 0001628280-26-066731) reports no material changes to these risk factors.*

Moody's lists a long set of risks. The ones that bear most on the business are:

- **Dependence on debt issuance.** Most of the credit-rating revenue comes from individual transactions, so it falls when issuers cannot or will not borrow. Causes include volatile interest rates, wider spreads, weak growth, inflation-driven monetary policy, tax-law changes and defaults by large issuers. Issuers are also increasingly borrowing without a rating, using non-traditional evaluators, or turning to non-bank lenders, including private credit. Cost cuts may not keep pace with a downturn because much of the cost base is fixed, including the cost of monitoring outstanding ratings.
- **Regulation of the ratings industry and of MA's customers.** US law (the Credit Rating Agency Reform Act and Dodd-Frank) encourages competition among rating agencies, restricts how information is used, and gives the SEC inspection authority. In the EU and UK, rules cover sovereign ratings, mandatory analyst rotation, cost-based fees and ownership limits. Breaking these rules can lead to fines or loss of the right to rate in a jurisdiction. MA's bank and insurer customers face third-party-risk rules (US banking agency guidance, DORA), which can delay sales or shift more risk onto MA. New AI, data-privacy and ESG-rating laws, including the EU AI Act, add cost and penalty risk.
- **Litigation and investigations.** When rated instruments lose value or default, claims and investigations against MIS rise, as they did after the 2007-2008 financial crisis. The 10-K adds possible inquiries into ratings of private-credit instruments. Generative AI products bring new liability and regulatory risks. Rules that lower liability standards or relax pleading requirements make lawsuits against MIS more likely to succeed, and insurance or reserves may not cover the losses.
- **Competition, pricing pressure and AI disruption.** Competitors, including faster and AI-native entrants, and customers' own in-house systems could replace Moody's methods. Free or cheap information, now easier to get through generative AI, can reduce demand. The 10-K says competitive pricing pressure has intensified, and that new NRSROs or government-backed local rating agencies could add to it.
- **Reputation and credibility.** The business depends on trust in its ratings. That trust can be damaged by perceived conflicts of interest, poor rating performance, methodology changes, compliance failures, errors in data or AI outputs, and criticism of how climate and ESG factors are used in ratings. The 10-K also cites the rise of "anti-ESG" sentiment in the US.
- **Cybersecurity and technology dependence.** Moody's holds material non-public information on the issuers it rates and is a prominent target, including for state-sponsored attackers. It and its vendors regularly experience cyber-attacks and breaches of varying degrees, and the 10-K says generative AI is making threats more sophisticated. Moody's also relies on a concentrated group of third-party cloud, data and software vendors, some of which are competitors.
- **International operations.** About 52% of assets were outside the US at the end of 2025, according to Item 7. Risks include sanctions and blocking-statute conflicts involving China and Russia, tariffs and trade barriers, data-localization rules, limits on converting and repatriating currency, tensions between the US and China and between India and Pakistan, and large staff concentrations in India and New York City.
- **Acquisitions and impairment.** At December 31, 2025, goodwill was $6,368 million and acquired intangibles were $1,866 million. About 94% of the combined total sat in the single MA reporting unit, so a shortfall against MA's plans could trigger a large non-cash write-down.
- **Talent, tax and intellectual property.** Moody's depends on skilled analysts, data scientists and engineers, and on CEO Robert Fauber. It is exposed to Pillar Two global minimum tax rules, changes from the 2025 US tax law (OBBBA), and tax audits. Its intellectual property is weakly protected in some jurisdictions, including against unauthorized use by AI.

## Management's discussion: fiscal 2025

*Source: Form 10-K for fiscal 2025 (accession 0001628280-26-009136), Item 7.*

2025 was a strong year for both segments. Revenue rose 9% to $7,718 million, while operating and SG&A expenses grew only 3%. Operating margin therefore widened 280 basis points to 43.4%, and Adjusted Operating Margin widened 300 basis points to 51.1%. Operating income rose 17% to $3,351 million. Net income attributable to Moody's rose 19% to $2,459 million. Diluted EPS was $13.67 (up 21%) and Adjusted Diluted EPS was $14.94 (up 20%).

- **MIS** grew external revenue 9% to $4,119 million, with every ratings line up, helped by tight credit spreads and strong investor demand. Its Adjusted Operating Margin widened 350 basis points to 63.6%.
  - **CFG** rose 9% to $2,132 million. Investment-grade issuance increased, including several very large technology-sector deals, and high-yield issuers refinanced.
  - **SFG** rose 8% to $558 million, with growth across all asset classes.
  - **FIG** rose 4% to $759 million on bank issuance, partly offset by lower insurance-sector volumes.
  - **PPIF** rose 13% to $635 million, driven by US public finance and investment-grade utility issuance.
- **MA** grew external revenue 9% to $3,599 million, or 7% on an organic constant-currency basis. ARR rose 8%. Its Adjusted Operating Margin widened 240 basis points to 33.1%, which the company attributes partly to savings from its restructuring program.
  - **Decision Solutions** rose 12% to $1,692 million. Insurance grew 15%, helped by demand for catastrophe models and the acquired Praedicat and CAPE Analytics businesses. KYC grew 19%. Banking grew 3% as customers moved to cloud subscriptions and transaction revenue fell 18%.
  - **Research & Insights** rose 7% to $995 million.
  - **Data & Information** rose 7% to $912 million.

Below operating income, two related items offset each other. A $79 million indemnification asset was released, with lower tax-related interest, when the statute of limitations lapsed on tax exposures inherited in an earlier acquisition. These amounts were offset by a matching tax benefit, so they had no net effect on EPS but lowered the effective tax rate to 21.3%. Moody's also booked a $23 million gain on selling the MA Learning Solutions business in the fourth quarter.

**Cash flow and capital.** Operating cash flow was $2,901 million and Free Cash Flow was $2,575 million. Moody's spent $1,607 million on buybacks and paid $701 million in dividends. It also repaid $700 million of notes. At year-end it had $7.2 billion of debt, $2.4 billion of cash and short-term investments (about $1.8 billion of it outside the US), and $1 billion of undrawn capacity under its commercial paper program. The commercial paper program is backed by a $1.25 billion credit facility. In October 2025 the Board authorized a new $4.0 billion of share repurchases. The 2025 10-K expected the Strategic and Operational Efficiency Restructuring Program, approved in December 2024, to deliver $250 million to $300 million of annualized savings.

## Current quarter: third quarter of 2026

*Sources: Form 10-Q for the quarter ended September 30, 2026 (accession 0001628280-26-066731), Item 2 and Notes 8, 9, 11, 13 and 14. Third-quarter 2026 earnings release furnished on Form 8-K (accession 0001628280-26-066594), Exhibit 99.1.*

**Results were flat at the top line but higher at the bottom line.** Third-quarter revenue rose 1% to $2,023 million, or 3% on an organic constant-currency basis. MA grew 3%, while MIS fell 1% against what management called a record prior-year quarter. Operating margin narrowed 90 basis points to 44.8% and Adjusted Operating Margin narrowed 30 basis points to 52.6%, as operating expenses grew faster than revenue. The faster expense growth came from technology infrastructure, AI usage costs and higher incentive pay. Net income nevertheless rose 14% to $734 million and diluted EPS rose 18% to $4.24. Two things drove this: a $115 million gain on business divestitures, and about 4% fewer diluted shares after buybacks (173.3 million, against 179.6 million a year earlier). Adjusted Diluted EPS, which excludes the gain, rose 6% to $4.14.

**MIS: a shift in issuance mix.** Corporate Finance revenue fell 8% to $530 million. High-yield transaction revenue fell 40% and leveraged-loan transaction revenue fell 27%, on market volatility and fewer refinancings than in the strong prior year. Investment-grade revenue rose 18%, supported by AI-related financing, including by hyperscalers. Other ratings lines grew:

- PPIF rose 11% to $179 million, driven by US public finance, sovereign issuance and data-center project finance.
- SFG rose 5% to $153 million, on asset-backed securities, RMBS and covered bonds.
- FIG rose 2% to $213 million.

MIS transaction revenue fell 5% to $714 million, while recurring revenue rose 8% to $373 million. MIS Adjusted Operating Margin was 64.4%, down 80 basis points.

**MA: underlying growth faster than reported.** MA revenue rose 3% to $936 million, but 8% on an organic constant-currency basis, because two divested businesses dropped out of the reported figure. ARR rose 8% to $3,688 million, and recurring revenue was 99% of MA revenue.

- **Decision Solutions** was flat as reported at $426 million but grew 12% organically. ARR in the line rose 10%.
  - Insurance grew 9% to $186 million.
  - KYC grew 8% to $122 million.
  - Banking fell 16% to $118 million because of the divestitures, but grew 19% organically.
- **Research & Insights** grew 3% to $260 million.
- **Data & Information** grew 7% to $250 million, on demand for ratings data feeds and company data.

MA Adjusted Operating Margin widened 100 basis points to 35.3%.

**Nine months.** For the nine months to September 30, 2026:

- Revenue rose 8% to $6,287 million. MIS grew 10% to $3,500 million and MA grew 5% to $2,787 million.
- Operating margin widened 140 basis points to 45.7%, and Adjusted Operating Margin widened 190 basis points to 53.7%.
- Diluted EPS rose 27% to $12.98, and Adjusted Diluted EPS rose 16% to $13.14.
- Operating cash flow rose $428 million. The main reasons were $293 million of growth in operating income, together with working-capital changes, and about $70 million less in incentive compensation payments than a year earlier.
- Cash used in financing activities rose $736 million, mainly because buybacks were $1.4 billion higher than a year earlier. About $1.4 billion of the October 2025 repurchase authorization remained at September 30.

**Portfolio reshaping.**

- **MA Regulatory Solutions sale.** Moody's agreed in December 2025 to sell this business, which it had classified as held for sale at year-end 2025. The sale closed in the second quarter of 2026. The contingent part of the price is recognized only when it becomes realizable. At September 30, $154 million of consideration was receivable after post-closing conditions were met. The filings do not name the buyer or state a headline price. The 10-Q describes the sale as part of the expanded restructuring program below.
- **Acquisitions.** On the acquisition side, MIS added $32 million of goodwill in 2026 from two businesses. Fintellix is a data-driven risk and analytics provider for banks, acquired through ICRA. MERIS (Middle East Rating & Investors Service) is an Egypt-based domestic rating agency, acquired in the first quarter of 2026. Cash paid for acquisitions in the nine months was $23 million, and no separate price is given for either deal.

**Restructuring expanded.** In July 2026 Moody's widened its Strategic and Operational Efficiency Restructuring Program to include exiting certain businesses and products, among them the Regulatory Solutions sale. Expected annualized savings are now $300 million to $350 million, up from $250 million to $300 million in the 2025 10-K. Expected pre-tax personnel and related charges are now $285 million to $330 million, up from $210 million to $230 million. The program is now expected to be substantially complete by the end of 2027, with cash paid through 2028. Charges were $86 million in the nine months and $239 million cumulatively.

**Other items affecting the year.** Two items are excluded from Adjusted results:

- A $36 million reserve recorded in the first quarter of 2026 for an international non-income tax obligation.
- Duplicate rent while Moody's moves into a new New York City headquarters. It signed this lease in the fourth quarter of 2025 and had taken possession of about 90% of the floors by September 30, 2026.

**Balance sheet.** At September 30, 2026 Moody's had $7,120 million of debt principal, with nothing due before 2027, when $568 million of 1.75% euro notes mature. It held $1.6 billion of cash and short-term investments, about $1.3 billion of it outside the US. Purchase obligations had risen to about $1.2 billion, mainly for data-center and cloud hosting and IT licenses.

**Guidance.** On October 21, 2026 Moody's left every line of its full-year 2026 guidance unchanged. The EPS, free-cash-flow and buyback ranges appear with the third-quarter results in this period's events. The remaining lines are:

- Revenue growth in the high single digits.
- Operating margin of 44% to 45%, and Adjusted Operating Margin of 52% to 53%.
- Operating cash flow of $3.15 to $3.35 billion.
- MA revenue growth in the mid single digits, or high single digits organically, with MA Adjusted Operating Margin of 34% to 35%.
- MIS revenue growth in the high single digits, with MIS Adjusted Operating Margin of about 65%.

Management assumes rated issuance worldwide grows in the mid single digits. Three macro assumptions changed: the US Federal Reserve and the ECB are each now expected to raise rates once more by the end of 2026, US high-yield spreads are expected to widen to about 300 basis points in the coming quarter, and the global speculative-grade default rate is now expected to finish the year at about 3.8%, up from about 3%.

## Subsequent events

*Sources: Form 10-Q for the quarter ended September 30, 2026 (accession 0001628280-26-066731), Liquidity and Capital Resources and Part II. Form 8-K/A filed October 15, 2026 (accession 0001059556-26-000041). Earnings release furnished on Form 8-K (accession 0001628280-26-066594).*

The 10-Q has no separate subsequent-events note. It discloses no acquisition, divestiture or new borrowing after September 30, 2026. Post-quarter items disclosed in the filings are:

- **October 7, 2026: change of bond trustee.** A Nineteenth Supplemental Indenture appointed U.S. Bank Trust Company, N.A. as successor trustee, replacing Computershare Trust Company, N.A. (successor to Wells Fargo Bank). It is filed as Exhibit 4.1 to the 10-Q, and the exhibit as described covers only the change of trustee.
- **October 2026: other events.** These were the October 12 retirement of director Jorge Bermudez, the October 20 declaration of the $1.03 quarterly dividend, and the October 21 reaffirmation of 2026 guidance. They are recorded in this period's events, from the Form 8-K/A of October 15, 2026 and the third-quarter earnings release.