Good day, everyone, and welcome to the Moody's Corporation Second Quarter 2024 Earnings Call. At this time, I would like to inform you that this conference is being recorded, and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for question and answers following the presentation. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the second quarter 2024 as well as our revised outlook for select metrics for full year 2024. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com. During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release, filed this morning for a reconciliation between all adjusted measures referenced during this call and U.S. GAAP. I call your attention to the safe harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the Management's Discussion & Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2023, and in other SEC filings made by the company, which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I'd also like to point out that members of the media may be on the call this morning in a listen-only mode. I'll now turn the call over to Rob.

Thanks, Shivani. Good afternoon, and thanks everybody for joining today's call. I'm looking forward to talking about this quarter: 22% revenue growth, an adjusted operating margin of almost 50%, and 43% adjusted diluted EPS growth. That's great stuff. As I have said before, and I'm very proud to say it again, MIS is one of the world's great businesses. When issuance activity ramps up, like it did in the first half of this year, and you maintain such a strong position with investors and issuers like we do, as well as our ongoing disciplined approach to costs, we generate a tremendous amount of operating leverage. For the second quarter, MIS delivered 36% revenue growth and a 63.2% adjusted operating margin, up 730 basis points from the second quarter of last year. Following another consecutive quarter of robust performance, we're again raising our guidance for both revenue growth and margin. On the MA side, we delivered a seventh consecutive quarter of 10% ARR growth with a 94% retention rate. ARR growth continues to be led by Decision Solutions, which grew by 13% this quarter. That said, while we see a strong pipeline for the second half of the year, we are widening our ARR guidance to account for the potential for a bit more uncertainty in the buying environment in the second half. And Noemie will expand more on our thinking around this later and I'm sure we'll discuss it in Q&A. In addition to the MIS guidance raise, we're also increasing several of our Moody's Corporation metrics, including upping our expectation for share repurchases for the year from $1 billion to $1.3 billion and raising and narrowing our adjusted diluted EPS guidance to a range of $11 to $11.40. We continue to innovate and invest, launching new products, expanding coverage, extending our partnerships, all to spur growth and position Moody's for long-term sustainable success. Now speaking of growth, MIS has truly established itself as the agency of choice, which allows us to really capitalize on a market environment like we experienced this past quarter. For the first half of the year, we grew transaction revenue by 56%. That outpaced issuance growth of 43%. That was particularly evident in our corporate finance and financial institutions rating groups, which both delivered transactional revenue growth rates north of 65%. When considering recurring revenue, overall total revenue grew by 35%. The investments we're making to streamline and automate our workflows enabled us to meet the surge in issuance and deliver double-digit growth across all asset types while maintaining discipline around expenses. Even considering these investments, we're delivering an adjusted operating margin up 760 basis points through the first half of the year. Now moving to MA, we had a strong first half generating 8% revenue growth and, as I mentioned earlier, the seventh consecutive quarter of double digits ARR growth. We continue to focus on high growth SaaS and subscription products, which are delivering mid-90s retention rates and now represent 95% of total revenue. Taking a deeper dive into MA, the businesses within Decision Solutions continue to deliver very good growth, including KYC, which is delivering new and innovative features and functionality and is the fastest growing business with ARR growth at 18% as of the end of the quarter. Insurance ARR growth was 6% at this time last year, now 14%. Banking delivered 9% ARR growth, with mid-teens ARR growth for its purely SaaS offerings. Meanwhile, data and information delivered its fourth consecutive quarter of double digits ARR growth. Research & Insights ARR growth remains at 6%, but we expect that growth rate will improve in the second half of the year, with high single-digit percent growth expected by year-end. This is benefiting from the momentum with Research Assistant and our unrated company's coverage expansion in CreditView. How are we achieving all this? Simply put, we're delivering mission-critical solutions, tapping into our risk operating system with massive data sets and analytic engines, all helping our customers navigate an increasingly complex and interconnected environment. Last quarter, I gave you a glimpse into our GenAI product roadmap. I'm excited to share that we launched two new skills this past quarter: an automated credit memo, which saves bankers hours of work by assembling a credit memo leveraging the bank's in-house content, Moody's content, and third-party content; and our Early Warning System, which is a cutting-edge, GenAI-powered solution focused on commercial real estate. This solution monitors breaking news and alerts our customers, including lenders, insurers, and asset managers, to risks that could affect their portfolio, allowing them to query a broad range of Moody's data and models to quickly understand the potential impact of a given event. We've got a number of institutions using both of these solutions in private preview mode, and we're receiving encouraging feedback. They're both great examples of how we are unlocking the power of our data, analytics, and insights while leveraging GenAI. In KYC, regulation continues to drive demand for new and targeted solutions. This past quarter, we launched our sanctioned security screening tool, which allows asset managers to look through the ownership hierarchies of their holdings to the ultimate parent and flag those that are sanctioned. We also launched the European sanctions product in under a month to help our banking customers manage new European reporting requirements on certain types of money transfers. Both of these solutions provide critical, timely, and trusted data to our customers, helping them avoid potential reputational or regulatory issues. These are great examples of how we're broadening the use cases we serve by leveraging our massive company, people, and news data sets. These products wouldn't be possible without the investments we've been making in our Orbis database, which we believe is the world's best curated database of public and private companies. We've more than doubled the number of entities we cover since we first acquired Bureau van Dijk and added more than 20 million companies this year alone. In this past quarter, we reached a milestone with over 0.5 billion companies in our Orbis database. This massive coverage is a great source of competitive advantage for us. Now, turning to our ratings business, I always say that if there's an opportunity to invest in one of the world's great businesses, we're going to do it. That's why I'm thrilled to announce that in early July, we completed our acquisition of GCR, the leading African domestic credit rating agency, covering 25 countries across the region. GCR really is a fantastic franchise with a very impressive management team. This investment continues to reinforce our leadership in domestic rating markets around the world. We've got a 30% stake in the leading rating agency in China. We've established leadership positions across Asia in India, Korea, Malaysia, and most recently, Vietnam. We've had great success with our Moody's local strategy across Latin America and now have established a leadership position across the African continent. We've achieved an important milestone in our sustainable finance franchise in ratings this quarter, delivering our 200th second-party opinion in MIS. We have a healthy pipeline for the rest of the year. With the recent launch of our net-zero assessment, we have a compelling set of offerings to support sustainable and transition finance, clear growth areas for the foreseeable future. You may recall back on the third quarter call last year, I talked about how we've established a framework for third-party partnerships to drive the ubiquity of our content in more and more platforms, where people are making decisions about risk, investment, and opportunity. This past quarter, we had some exciting announcements on that front. First is our strategic collaboration with MSCI around ESG and private credit. We are excited to offer our customers MSCI's market-leading ESG scores and data through a range of our solutions, and MSCI will leverage Moody's Orbis database to extend its private company ESG coverage. Together we're going to explore solutions that leverage our company data and credit scoring models and MSCI's distribution and expertise with the global investment community to provide greater insight into the private credit markets. Just to be clear, our collaboration does not impact our ESG work and ratings nor affect our extensive climate and transition capabilities across the firm. Second, in June, we announced a new collaboration with Zillow that further enhances the insights available to both Moody's and Zillow customers. Starting this month, we're adding Zillow's extensive rental property data into Moody's CRE data platform, and in exchange, Zillow will gain access to Moody's CRE market analyses, helping their customers make confident decisions around their multifamily properties. We're also deepening our relationship with Google. Last month, they announced that they tapped Moody's to be one of four foundational data providers that will serve as grounding agents for their enterprise Vertex AI platform. This grounding opportunity is exciting as it dramatically expands the audience for our content and further establishes Moody's as a trusted data source. Finally, back in May, we announced a first-of-its-kind enterprise risk management dashboard in collaboration with Diligent, a leading governance, risk, and compliance SaaS company. That's going to be offered as a separate module. These kinds of partnerships are expanding the reach and mind share of our data sets and analytics to thousands of key decision makers while enhancing our partners' offerings, ultimately serving to help us accelerate long-term growth. On that note, let me hand it over to Noemie to talk more about our financial performance for the quarter.

Thank you, Rob, and good afternoon, everyone. Building on the momentum from the first quarter, I'm very pleased to share that we delivered a very strong performance in Q2. Our revenue was $1.8 billion, up 22% year-on-year, and our adjusted operating margin of nearly 50% improved by 590 basis points, illustrating our strong operating leverage. Turning to segment performance. Moody's Analytics revenue grew 7% or 8% on a constant-currency basis. Recurring revenue, which represents 95% of our revenue in this segment, was up 9% year-on-year. The adjusted operating margin was 28.5%, up 50 basis points from the second quarter last year. Annualized recurring revenue or ARR was $3.1 billion, up $292 million or 10% year-on-year. Our largest line of business, Decision Solutions, grew ARR by 13% with 150 bps sequential growth acceleration from Q1. Growth in this line of business was enabled by mid-and-high teens growth from insurance and KYC, where we continue to see strong customer demand for our best-in-class workflow solution. Data & Information ARR grew 10% with low-teens growth in our corporate and government sectors, while our Research & Insight business grew ARR at 6%, following the similar trend we've seen in recent quarters, showing modest uptick in CreditView attrition from banks and asset managers, as we previously called out. Our overall retention rate remains high around 94%, which is evidence of the stickiness of our solutions. I want to note that while this quarter marked the seventh quarter of double-digit ARR growth, we expect some moderation in our growth rates for this metric in certain areas of our business in the second half, which I will address when I talk about guidance. Switching to MIS, revenue was the second highest on record, growing 36% and topping $1 billion. Transactional revenue grew 56%, outpacing issuance growth of 47% and represented close to 70% of the total revenue for the quarter in MIS. We saw a positive mix from our investment-grade sub-segment with transaction revenue increasing 28% versus a 10% rise in issuance, partly due to a combination of refinancing activity and several large M&A related deals. Our Financial Institutions Ratings Group saw a record level of revenue from insurance customers, primarily due to a favorable mix in infrequent issuers, resulting in a 58% overall increase in transaction revenue against the 17% increase in insurance. Tight expense controls and our increased focus on automation, coupled with the high levels of issuance activity, enabled us to deliver an adjusted operating margin of 63.2%. As Rob mentioned upfront, we are updating our guidance for a number of metrics. I'll start with the biggest change, which is the improved rated issuance outlook. Given the very strong start of the year and a slightly improved expectation for the second half, albeit with a notable slowdown from the first half, we're now forecasting issuance growth to be in the 20% to 25% range and revenue growth to be in the high-teens percentage range. Looking out at the rest of the year, we now expect second half issuance to be roughly in line with the second half of '23 and we continue to expect Q4 issuance to be down in the mid-teens range versus prior year Q4, consistent with our prior guide. What's changed here really is we've incorporated the second quarter beat into our issuance numbers and now expect Q3 issuance to be a bit higher than it was previously. We've provided some additional color on this slide for the various asset classes and we'd be happy to talk about more of this in the Q&A. Given this level of growth, we are raising guidance across revenue and profitability metrics in our ratings business. I'd like to take a moment to provide some high-level context behind our thinking. As we've consistently stated, we expect the first half of the year to be busier than the second half, and this view remains unchanged. From a macroeconomic standpoint, we have a positive outlook for the remainder of the year and expect global GDP to be between 2% and 3% for the full year. Our June default report, published last week, signals that global default rates peaked in April and will continue to decline gradually over the coming twelve months. We are also relatively agnostic to the timing and number of rate cuts expected later this year. With that context in mind, we are raising our guidance for MIS revenue growth to be in the high-teens percentage range. We expect full-year MIS adjusted operating margins to be in the 58% to 59% range. For MA, we are maintaining our guidance of high single-digit growth for revenue and a 30% to 31% margin. However, we are adjusting our expectations for year-end ARR to a wider range of high single-digit to low double-digit percent growth. Our current midpoint estimate for ARR growth is at the upper end of the high single-digits range. But taking into account a couple of strategic changes and more uncertainties that we usually face at midyear, we decided to make this update and provide additional color on the factors that are notable. First, the partnership we announced with MSCI represents a commitment to our customers as well as a strategic shift in our offering. This change may impact our year-end renewals and reduce the sales pipeline for this line of business. Second, while we were optimistic that tight purchasing patterns, particularly in banks and asset managers, would improve over the course of this year, we continue to see very tight conditions in those customer sectors. This trend is most impactful on our banking, KYC, and Research & Insights lines of business. Third, as we look towards the U.S. elections in the fall, we must note that the timing of certain upcoming renewals with U.S. government agencies could be impacted. On a positive note, we also have several newly launched products: Research Assistant, which continues to be enhanced and has been gaining traction at higher price points, along with the new products Rob highlighted earlier. These are all expected to build pipeline and close deals as we head into the back half of the year. So all in all, our pipeline is strong. We're continuing to invest and innovate to drive durable double-digit growth in the years to come. Now bringing all this together, we now expect Moody's revenue to grow in the low-teens percent range, expenses to grow in the high single-digit range, and an adjusted operating margin in the range of 46% to 47%. This expense guidance update of a high single-digit percent increase primarily reflects increases to incentive compensation and the additional charge related to asset development that we will take over the second half of the year related to the shift in our strategy to source ESG data and scores from MSCI. That's a non-cash charge. From a capital allocation perspective, I'm happy to share that we are increasing our free cash flow guidance to a range of $2 billion to $2.2 billion and are also raising our guidance for share repurchases by $300 million to approximately $1.3 billion. In doing so, we plan to return around 90% of our free cash flow to our stockholders in the form of buybacks and dividends for the full year 2024. Finally, as Rob mentioned earlier, we are increasing our adjusted diluted EPS guidance range to $11 to $11.40, a $0.50 increase at the midpoint, representing about 13% growth versus last year. I’ll just wrap up by congratulating my colleagues on a very strong first half, and I'm excited for what looks to be a very strong year. That concludes our prepared remarks. Operator, can we open the call up for questions, please?

And our first question will come from the line of Owen Lau with Oppenheimer & Co.

So I want to go back to issuance. You have provided a lot of good information already. But again, like issuance continued to be strong in the second quarter. You raised the guidance for MIS. But could you please give us an updated view on your pull-forward expectation? And do you now expect less impact on pull forward than you had expected maybe a few months ago? Can you maybe elaborate a little bit more on that?

Great question. I'd say there are two kinds of pull forward. The first is pull forward of planned financing within a given calendar year, and the second is the pull forward from forward maturities. I would say we have seen both this year. As Noemie was touching on a bit in terms of what we think in the second half, we think the fourth quarter, in particular, is going to be much more muted in terms of issuance. That's due in part because a lot of issuers have been guided by the banks to issue earlier in the year while the market conditions are favorable to avoid any election-related turbulence in the fourth quarter. Second, we've seen some pull forward from future years from the forward maturities. That's mostly 2025 and mostly spec-grade. If you go back about a decade, it's pretty common to see pull forward from spec-grade maturities in the immediate year prior to maturity. It makes sense because spec-grade issuers don't want to wait until the last month or two and risk not having market access. That's less true with investment-grade issuers who generally always have market access. So we've certainly seen some pull forward from 2025, a meaningful amount, but also within the ranges we have seen in prior years for pull forward from the immediate year prior for spec-grade. The 2026 pull forward is lower than some of the ranges we have typically seen, probably because issuers want to see rates come down before they pull forward those maturities. 2025 spec-grade maturities at the time of issuance were the highest on record. There's a lot of spec-grade debt that has to get refinanced, contributing to the refi volume. So my takeaway is, yes, there's pull forward. The pull forward from future years appears to be in historical ranges we've seen. I don't think at this point it changes how we feel about next year.

Our next question comes from the line of Andrew Nicholas with William Blair.

I want to follow up on that pull forward question a little more. You hit on a little bit, Rob, at the end, but it sounds like you're expecting a little more muted issuance around geopolitical and macro uncertainty and factors of that sort. But it doesn't sound like you're quite yet baking in any benefit from rate cuts. Just kind of wondering how you think about the interplay of those two dynamics, both at the end of this year and into next.

Yes, I think that's probably right. Our thinking is not particularly dependent on what's going to happen with interest rates. Noemie talked a bit about this. We took the very strong first half of issuance into our outlook and upped our issuance outlook for Q3. We remain cautious, however, about the fourth quarter. I would expect if there are rate cuts that it might catalyze 2025 issuance, but that's not something we can bank on now.

Our next question comes from the line of Toni Kaplan with Morgan Stanley.

This is Greg Parrish on for Toni. To move to MA for a moment, you reiterated your expectations for Research & Insights to accelerate in the second half towards high single digits. Maybe just update us on the drivers, because you lowered ARR partially because of R&I, but you still expect that to accelerate. So help us reconcile that. It sounds like the environment is not improving as fast as you thought.

Yes. In Research & Insights, ARR growth of 6% was in line with what we saw in the first quarter. While we anticipated some modest retention pressures with our CreditView offering, it was expected. Some were due to banking consolidation. We've seen tight conditions and cost pressures within banking and asset management, which put pressure on upsell and pricing retention. That's why we're focused on innovating and investing in our offerings, particularly Research Assistant, which we talked about last quarter. Part of what is going to drive the pickup in ARR growth in Research & Insights is Research Assistant and our coverage expansion. We've seen a strong pipeline for Research Assistant. We've doubled the number of customers for Research Assistant, with average deal sizes increasing and shorter sales cycles. Usage and customer satisfaction are both up, leading me to believe we're moving in the right direction.

Yes. The retention rate for MA in general and Research & Insights is remaining very solid around 94%.

Our next question will come from the line of Manav Patnaik with Barclays.

Rob, I wanted to double-click on the MSCI partnership. Just on the time line, I think the ESG piece is self-explanatory. Just time line and sample of what you envision on the private credit side. And if I could just follow-up, Noemie on the ESG side, just the size of that ESG business you currently have?

Yes, Manav, I'll start and then hand it to Noemie. We are really excited about this MSCI partnership because it is a win-win for our customers. The MSCI ESG scores and data are considered a market standard, and we'll provide that content to our banking, insurance, and corporate customers. There is a good bit of work to do to transition, to integrate the content, and that work has begun in earnest, but it's probably going to take through the end of the year. We've already got good ideas around what we can do in terms of private credit. ESG integration into our solutions is our initial focus. When we return from summer, probably in September, we'll ramp up work around private credit. I don't have a timeline for getting something to market, but the ESG components came together pretty quickly, and given market need, I think we’ll move quickly here as well.

On the relative size of the ESG in our MA business, it's pretty small, a small part of our overall ESG and climate business. It will affect a little bit of the pipeline for the remainder of the year, which is factored into our revised guidance for ARR, but it’s not material for our overall business.

Our next question comes from the line of Scott Wurtzel with Wolfe Research.

I wanted to go back to the strategic investments we've talked about over the course of this year. Can you just update us on where we are in that investment cycle? It seems like you are making progress on the GenAI-related product side, but I’d love to hear about other new products like private credit, digital finance, transition finance, and where we are now.

Yes. We remain on track with what we've communicated earlier this year. Let me give you a bit of color on where we've deployed investments. We established a framework around GenAI development. We have a set of GenAI tools that will be rolled out across our product suite this year. In banking, we've made a small acquisition earlier this year to accelerate building our banking assistant and the end-to-end lending workflow. We've expanded our use of Copilot and other GenAI capabilities internally, rolling out various tools across the business, which has seen strong usage and engagement. We’re bringing our data and analytics together into a workflow platform to support customer use cases around sales and marketing optimization, customer onboarding, and monitoring trade credit supply risk. These are areas that resonate strongly with our customers, and we’re on track to launch additional products later this year. Regarding technology platforming, we have a platform engineering and architecture roadmap to enhance user experience, drive retention, and grow the business. For MIS, we're deploying applications on our platform, enhancing regulatory compliance and processing issuance volumes efficiently, enabling us to deliver increased margins in MIS. We are tracking well against the investment plan communicated earlier this year.

I think you nailed it. I have nothing to add, Noemie.

Our next question comes from the line of Alex Kramm with UBS.

I think I'm going to take the other side of that question just now and stay on the AI topic. It sounds like you continue to do a lot, with a couple of new products you mentioned today. Can you give us an update on revenues that you're seeing so far, the trajectory, and how you expect to have a material contribution here?

Yes, Alex, it's Rob. I think I gave you some data points around Research Assistant, which is one of the fastest-growing products we've ever launched. Starting from scratch, we’ve got a huge revenue base. It’s not material in grand scheme of Moody's Analytics, but there are encouraging signs. We've doubled customer numbers and witnessed deal size increases, and importantly, usage and satisfaction are up. This gives us confidence to monetize further. It’s not just Research Assistant; we’re launching many more AI solutions throughout the back half of the year. We’re extending our partnerships with Microsoft and Google as well. While not yet material, these efforts are promising.

Our next question comes from the line of Jeffrey Silber with BMO Capital Markets.

You talked a little bit about the tighter purchasing pattern you’ve been seeing. Can you provide some examples of what we're talking about?

In general, as Noemie mentioned, we see cost pressures from the banking and asset management sectors. You have to ensure you’re articulating the value proposition. Customers may face pressure in terms of upsells or annual price increases. We have seen some pressure on retention rates in CreditView. Another important factor is the sales pipeline. We have a healthy sales pipeline. Customers are demonstrating strong demand for our products, evidenced by our ARR growth. We had the highest volume of sales meetings post-pandemic this quarter, with a significant portion being face-to-face engagements, which gives me confidence that customers want to engage around our solutions.

We have elevated discussions with the C-suite within banks and traditional customers, becoming more plugged into their digital transformation initiatives. We're also assisting them in building their framework around GenAI adoption, which takes time due to regulations and risk considerations.

Has the environment gotten any worse, better, or stayed the same over the last three months?

I think it's pretty consistent with what we've seen for the balance of the year.

Our question comes from the line of Andrew Steinerman with JPMorgan.

I wanted to understand better the organic constant currency revenue growth of the Data & Information subsegment, which decelerated to 8% in the second quarter year-over-year. It had been double digits in the first quarter year-over-year. It strikes me as odd because the ARR of this subsegment has consistently been double-digit. Can you help me understand the variation between organic revenue growth and organic ARR?

That's a good question. Yes, on a sequential basis, growth went from 12% to 8% this quarter. There is some impact from the mix of product and contract nature, which creates some variability. Twelve percent in Q1 was higher than typical, while 8% is a bit lower than typical. The first half growth of roughly 10% reflects business performance, which is what you can expect for the full year, alongside ARR growth.

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

As we move forward, you've mentioned a few headwinds to ARR as we get into the back half of the year. How should we think about those headwinds for revenues? And given that MA revenue growth has been muted and comps get harder in the back half of the year, should we assume towards the lower end versus the higher end of your guidance for high single-digit growth?

Yes, the second quarter revenue growth was 7% and 8% at constant currency, similar to the first quarter. Recurring revenue, which is 95% of our revenue in MA, grew by 9% for the second quarter, consistent with Q1. We expect similar growth rates for recurring revenue throughout the year. Transactional revenue was down in the second quarter as we continue to trend downward in the second half. We’ll align third quarter MA growth with the growth we saw in Q2 before increasing into the higher end of high single-digit growth in Q4. That's what's behind our guidance.

Our next question comes from the line of George Tong from Goldman Sachs.

Among MIS, you mentioned you saw a pull forward from both within the year and also from 2025. However, your outlook for 2025 issuance hasn't really changed. Can you reconcile those statements? Has your outlook for issuance come down in any future period because of the pull-forward effect?

No, I don't think so because we went back and looked. The pull-forward we see is consistent with a historical range over the past decade. So what's going on this year wouldn't have a material impact on the way I think about the growth and issuance profile going forward. It's not anomalous pull forward. While we talked about in-calendar pull forward, there’s still a 2025 pull forward, but I don’t think that changes how we would view growth next year.

Our next question comes from the line of Craig Huber with Huber Research Partners.

Rob, could you just touch on the commercial real estate market in the U.S.? How concerned are you and your analysts about that? And my housekeeping question for Noemie is what's the incentive comp in the quarter versus a year ago?

Commercial real estate is an area of keen focus for our analytic teams. Concerns are primarily around office space, particularly Class A office, which has held up well. We analyze commercial real estate exposure among our rated banks and stress scenarios around it. Interestingly, the CMBS issuance market this quarter showed signs of life, indicating some investor interest, suggesting a positive investor sentiment.

We recorded about $117 million in incentive compensation in the second quarter. For the remainder of the year, we expect this to be about $110 million per quarter.

I talked about our early warning system, which focuses specifically on commercial real estate. It synthesizes a broad range of content and models to help customers understand the potential impact of market events quickly. This tool generates interest because it allows clients to target resources effectively within their portfolio.

Our next question comes from the line of Shlomo Rosenbaum with Stifel.

I want to probe a little more in the ARR widening of the range because of this MSCI deal. Can you explain again the change in strategy and how to think about the risk in a different administration? Is this mostly the KYC business?

Yes, it's important to note that the ESG scores and data are a small part of our overall ESG and climate business. As we transition to integrating MSCI’s content into our solutions, it will impact near-term sales pipeline and retention. In the medium term, bringing best-in-class ESG content to our customers will be beneficial. We expect to build the pipeline back, likely more in 2025. The message is that the scoring alone doesn’t overwhelmingly affect us.

Additionally, any individual factors are not significant. It’s just the combination of these items that influenced our decision to widen the range. However, the midpoint of our current guidance range remains in the upper end of the high single-digit range.

As for Orbis, it’s about MSCI using it for ESG scores and growing demand from our customers. There may be other opportunities leveraging our Orbis database for MSCI beyond ESG, which could emerge in 2025.

Our next question comes from the line of Faiza Alwy with Deutsche Bank.

I had a similar question but on the government side. Could you remind us how big the government business might be? Is all of it up for renewal? Is it a timing factor?

We don't disclose revenues by customer segment, but government is our smallest segment. However, it's been growing nicely over the last year or two. We’re being prudent about acknowledging potential risks in this sector since we have a few significant contracts up for renewal. We wanted to highlight that there might be risks of slipping these renewals into the following year.

Collectively, these factors led us to widen our guidance range, but the midpoint of our guidance reflects high single-digit percent growth.

Our next question comes from the line of Jeffrey Meuler with Baird.

Beyond the GenAI product launches and scaling that revenue, what are the other factors that contribute to the assumed acceleration in MA’s growth in the medium term?

In a nutshell, it’s our land and expand strategy. There’s significant cross-sell opportunity within banks and insurers, which we’ve focused on for some time. We want to expand revenue generated from banking and insurance customers. We are also landing deals with big corporates around interconnected use cases, driving growth. This is why we feel confident about accelerating growth.

Our next question comes from the line of Russell Quelch with Redburn Atlantic.

You touched on the benefits of migrating to the SaaS platform in RMS. With the forecast for an active weather season in the U.S., do you anticipate that's going to be a tailwind for RMS in the back end of the year? Have you baked that into your guidance?

While we may have an active weather season, I don't foresee an immediate revenue or ARR bump from it. However, the increased frequency of extreme weather events is driving interest in our solutions across various segments. It's crucial for insurers and other organizations to understand the financial consequences of climate change.

One of the competitive differentiators for our risk insurance platform is its openness to third-party models, enriching the algorithms and making it powerful for customers.

We made the acquisition of RMS for two reasons: to enter the insurance segment at scale and to embed their world-class capabilities into our wider offerings, targeting long-term demand.

Our next question comes from the line of Heather Balsky with Bank of America.

I want to ask about MA. Now, considering the tougher environment, have you rethought the targets you laid out at Investor Day? Does the growth algorithm look different now?

This quarter, we achieved our highest ARR growth rate of over 10%. Decision Solutions is growing at a pace consistent with medium-term targets, so there's a lot to feel good about. There's no change to our medium-term outlook as it continues to serve as our North Star for innovation and investments, which we will review annually.

I will now hand the call back to Rob for any closing remarks.

Thanks, everybody, for the questions. I hope everyone has a wonderful summer, and we look forward to talking with you again in October. Take care.

This concludes Moody's Corporation Second Quarter 2024 Earnings Call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Investor Resources section of the Moody's IR homepage. A replay will be made available after the call on the Moody's IR website. Thank you. You may now disconnect.