Moody’s (MCO 1.16%), a major player in credit ratings, research, and risk analytics, released its latest quarterly results on July 23, 2025, for the second quarter of fiscal 2025. The most notable news was a solid beat on both adjusted earnings per share and revenue, with bottom-line performance at $3.56 (Non-GAAP EPS), well ahead of the $3.39 analyst estimate. Revenue reached $1.9 billion, exceeding consensus and rising from $1.82 billion a year earlier. These numbers reflect strong execution in Moody's Analytics, cost discipline, and expanding margins. The quarter was marked by resilient top-line growth and an improved operating profile, with management also raising the lower end of their adjusted full-year EPS outlook. Overall, the quarter showed expansion in recurring revenues, strong margin gains, and a continued focus on innovation, but signs of softness in select revenue streams and a dip in free cash flow suggest areas for investors to watch.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $3.56 | $3.39 | $3.28 | 8.5% |
| EPS (GAAP) | $3.21 | $3.02 | 6.3% | |
| Revenue (GAAP) | $1.9 billion | $1.85 billion | $1.82 billion | 4.4% |
| Adjusted Operating Margin | 50.9% | 49.6% | 1.3 pp | |
| Free Cash Flow (Non-GAAP, YTD) | $1.14 billion | $1.29 billion | (11.6%) |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Business Overview and Strategic Focus
Moody’s provides credit ratings, risk analysis, research, and financial analytics to customers including banks, governments, corporations, and investors. Its business model relies on two main segments: Moody’s Analytics, which delivers software and data services, and Moody’s Investors Service, which issues credit ratings and related research.
The company’s recent strategic priorities focus on regulatory compliance, technological innovation such as artificial intelligence, expanding into new markets and industries, and incorporating sustainability into operations and offerings. Key success factors include high recurring revenue, disciplined cost controls, strong technological positioning, and navigating changing regulatory demands. Moody's also places emphasis on recruiting and retaining talent, a factor it sees as critical for ongoing innovation and maintaining its reputation in the financial sector.
Second Quarter Highlights: Segment Details and Financial Performance
During the quarter, Moody’s achieved revenue growth above expectations, supported by notable gains in its Analytics segment. Moody’s Analytics posted 11% revenue growth, with annualized recurring revenue expanding 8% to $3.3 billion. Decision Solutions, a family of workflow and compliance software products, stood out with 13% revenue growth, particularly in Know Your Customer (KYC) solutions, which jumped 22%. Insurance analytics and banking workflow tools also contributed, with 14% and 5% growth, respectively. Overall, recurring revenue made up 96% of Analytics sales, reflecting a high degree of client retention and stability.
Operating margins continued to improve. The adjusted margin reached 50.9%, rising from 49.6% the previous year, while Moody's Analytics margin grew 3.6 percentage points to 32.1%. Moody’s Investors Service posted a 1 percentage point improvement in margin to 64.2%, underscoring the effect of cost efficiency programs and technology-enabled productivity gains across the company. These margin expansions occurred even as total operating expenses rose 4%, a result of restructuring costs and acquisition spending offset by productivity improvements.
In Moody's Investors Service, revenue remained flat compared to a year earlier at $1.01 billion, despite a 12% dip in rated debt issuance, which is the process of assigning credit ratings to newly issued bonds. The segment benefited from favorable revenue mix, with more profitable investment grade bond ratings offsetting weakness in other areas such as bank loan activity and financial institutions. Public finance and structured finance ratings provided additional support as some asset classes maintained healthy demand.
Technology investment remains front and center, with management highlighting advancements in generative AI -- a subfield of artificial intelligence that uses data patterns to automate tasks and enhance insights. These tools reduced support workloads, accelerated product development, and powered new offerings in research, insurance, and compliance. Regulatory compliance remained a key area, particularly as requirements for artificial intelligence and financial data oversight intensify in the U.S. and Europe. Despite a minor drag from government and environmental, social, and governance (ESG) contract attrition, the overall sales pipeline for Analytics remains robust. The company also noted an 11% year-over-year increase in the quarterly dividend, now at $0.94 per share.
Looking Ahead: Guidance and Considerations for Investors
Management updated its outlook for fiscal 2025. Adjusted EPS guidance tightened at the lower end to a range of $13.50 to $14.00, implying roughly 10% growth at the midpoint. Revenue growth is projected in the mid-single digits, with Moody’s Analytics expected to continue delivering high-single-digit expansion. Moody's Investors Service revenue guidance now calls for an increase in the low- to mid-single-digit range, slightly higher than its earlier expectation of flat to mid-single-digit.
Free cash flow guidance remains at $2.3–$2.5 billion for the year, with planned share repurchases of at least $1.3 billion. The adjusted operating margin is expected to remain between 49% and 50%. Management recognized that uncertainties around macroeconomics, regulatory changes, and contracting dynamics in some government and ESG lines could influence performance in the second half of the year. Investors may want to watch for developments in debt capital markets and recurring revenue trends, as well as the effectiveness of ongoing cost management programs.
The quarterly dividend was raised 11% to $0.94 per share.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
