Q1 2022 Moody's Corp Earnings Call
Please standby we're about to begin.
Good day, everyone and welcome to the Moody's Corporation first quarter 2022 earnings conference call. At this time I would like to inform you that this call is being recorded and then all participants are in a listen only mode.
At the request of the company, we will open the conference up for questions and answers following the presentation.
I will now turn the call over to Siobhan Cook.
Head of Investor Relations. Please go ahead.
Thank you and good morning. Thank you all for joining us to discuss Moody's first quarter 2022 results and our revised outlook for full year 2022, I'm sure Arnie Coke head of Investor Relations.
Morning, Moody's released its results for the first quarter of 2022 as well as our revised outlook for full year 2022 of the earnings press release and a presentation to accompany this teleconference are basically available on our website at IR adult movies don't come.
Saba, Moody's President and Chief Executive Officer will lead this morning's conference call also making prepared remarks on the call. This morning is Mark Kaye, Moody's Chief Financial Officer.
During this call we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end about earnings press release filed this morning for a reconciliation between all adjusted measures referenced during this call and 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 and analysis section.
And the risk factors discussed in our annual report on Form 10-K for the year ended December 31st 2021, I mean, 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 statements set forth important factors that could cause actual results to differ materially from those contained in any such forward looking statements.
I would also like to point out that members of the media may be on the call. This morning in a listen only mode I will now turn the call over to Rob Saba.
Thanks Giovanni.
Good morning, and thanks, everybody for joining today's call I'll begin by providing a general update on the business.
<unk>, our first quarter 2022 results and following my commentary Mark Kaye will provide some further details on our first quarter 2022 performance as well as our revised 2022 outlook.
After our prepared remarks as always.
Mark and I will be happy to take questions. So.
Against the backdrop of geopolitical turbulence in volatile markets.
First quarter revenue was $1 5 billion, that's down 5% from the prior year period.
With the decline in issuance in the first quarter and our expectation for continued subdued levels of opportunistic issuance for the balance of the year.
We've updated our full year 2022 guidance and we now project Moody's revenue to be approximately flat relative to the prior year.
We've also lowered our adjusted diluted EPS guidance to be in the range of $10 75 to $11.25.
And they continue to be a strong source of.
Consistent growth, while market disruptions impacted issuance activity as investments to meet customer demand for our mission critical suite of tools and solutions drove revenue growth of 23%.
Recurring revenue this quarter this growth, which is why we're introducing a new reporting metric annualized recurring revenue or <unk> and we expect this new metric to provide greater transparency into the growth trajectory of <unk>.
And as recurring revenue.
The temporary impact of market uncertainty on our financial performance does not change our expectations for the medium term.
Time and time again in periods of uncertainty like these markets and organizations looked annuities for expertise and insights increasing the demand for integrated risk assessment offerings and so we remain confident in the fundamental drivers of our growth.
Moody's revenue was down just 5% from a year ago, reflecting the diversity and resilience of our business portfolio and while <unk> revenue decreased 20% EMEA revenue was up 23% or 9% on an organic basis, driven by strong customer demand for our solutions adjusted operating income fell.
20% to $734 million adjusted diluted EPS was $2 89.
A decrease of 29% year on year and Mark will provide some additional details on our financials shortly.
Now turning to Miss the issuance factors, we highlighted during our fourth quarter earnings call really remain unchanged as elevated inflation and the prospect of additional interest rate increases combined with the impact of the Ukrainian conflict.
Contributing to uncertainty and volatility in these factors have adversely affected debt capital markets activity, including opportunistic refinancing and M&A transactions, particularly in the leveraged finance markets.
And as we've said over the years periods of market disruption needs to be put into historical context.
I would argue that this period is no different and this chart illustrates our rated issuance over the last decade with the gray bars, representing periods of market volatility and it shows that activity typically rebounds after periods of market disruption and has grown steadily over time.
Though there is uncertainty as to how long the current disruption will last we.
We believe that the market will eventually reset amidst higher interest rates.
And we will eventually resume issuance growth supported by economic expansion.
Substantial financing financing maturity walls.
The medium term drivers of debt issuance and our business remains strong and as we've said in the past issuance as a function of several macroeconomic factors. The most significant of which is economic expansion.
Looking ahead, we do expect global GDP growth for the remainder of the year I'll be albeit at.
A modest pace the underpinnings of the economy remains sound and consumer and corporate balance sheets remain healthy and U S. Unemployment remains at near historical lows.
While several rounds of interest rate increases are expected this year as the fed addresses inflation rates will remain low by historical standards.
Volatility in the credit markets has been reflected in spread fluctuations.
<unk> also remained well below the 10 year average and taken as a whole the cost of borrowing remains historically low.
And in addition to these factors theres, a healthy stock of debt, which needs to be refinanced more than four trillion dollars over the next four years and.
And we expect to continue to build up in our first time mandates will drive growth in our recurring revenue as demonstrated over the last two years.
Now pivoting to Moody's analytics.
We are driving robust growth across the breadth of our products and solutions in the first quarter revenue was up 23% supported by organic revenue growth of 9% and a 96% customer retention rate.
We're now including annualized recurring revenue or <unk>, and our reporting to give an indication of our revenue expectations for the future organic <unk> was up 9% for the first quarter demonstrating the strength of our recurring revenue across the business.
Again, Mark will provide some additional details on air or shortly.
I'd like to take a moment to share a story that illustrates how offerings across our three reporting lines and MAA come together to provide value for our customers.
As a result of the acquisition of Bureau Van Dijk in 2017, we had a modest relationship with a large multinational insurance underwriter that was using our orbis database to support sales and marketing activities.
Following the acquisition, we had a series of discussions with this and other customers about ways to address a wider range of their needs, which in this case included their process for underwriting trade credit insurance.
We were able to package, our orbis data, our credit research and credit scorecards combined with our AI enabled spreading offering to provide a set of integrated solutions that transform their workflow helping.
Helping them to eliminate 70% of their manual task and our trade credit underwriting process and increasing their efficiency and enhancing their effectiveness.
This also resulted in approximately 300% increase in annual customer revenue.
And today, we're having discussions with them about further expanding our relationship to serve additional use cases and solutions, including integrating ESG into their underwriting processes.
It's just a great example of our ability to expand our customer relationships by bringing together the full capabilities across Moody's analytics.
As you know, helping the market makes sense of the risks and opportunities posed by ESG and climate change is a priority for us.
And we're increasingly delivering solutions that help companies incorporate these critical factors into their decision, making and that's an important reason for our acquisition of RMS last year.
In addition to building our business, serving the insurance industry, RMS Springs scaled world class weather and climate data and analytics, which we are bringing to a much broader customer audience.
Inclusive of revenue from RMS as climate related offerings are.
Our combined revenue for our ESG and climate solutions was approximately $170 million in 2021.
We expect this revenue to grow in the low double digit percent range. This year. We also expect our climate revenues, which today are predominantly from RMS.
To accelerate as we continue to integrate its best in class models to meet our customers' growing needs.
Going forward, we will update you on this revenue number is it provides I think a good sense of our scale and impact in this area.
Our growth is supported by a number of key innovations and award winning product launches.
Last month, we launched ESG $3, 60, which is a powerful platform that delivers decision relevant ESG data and insights to portfolio managers.
We're also launching new climate change models in the U S and Asia that'll.
That will help address the growing need for climate change analytics, including supporting increasing regulatory demands.
We're proud to have received recognition from customers for our ESG and climate related products and services, including being named ESG opinion provider of the year by the international financing with you I'm.
I am excited about the opportunity ahead as we continue to play a meaningful role in helping companies decode risk and unlock opportunity.
And speaking of decoding risk our customers turn to us even more in times of stress and uncertainty and we saw that during the throes of the pandemic and as you can see on this slide the relevance of our offering offerings has probably never been higher.
With significant leadership of our research and usage of our solutions. Our research reports have been read over 200000 times, while ky's screenings are up 70% year over year as our customers.
A critical need to better understand and monitor their own customers and suppliers and thats geopolitical conflict and sanctions.
With that I will now turn the call over to Mark to provide further details on Moody's first quarter results as well as an update to our outlook for 2022.
In the first quarter <unk> revenue declined 20% from last year's record level as geopolitical concerns rising yields and elevated economic uncertainty contributed to a 25% decrease in rated issuance.
Corporate finance financial institutions, and public project infrastructure revenue declined, 31%, 19% and 14% respectively with many issuers remaining on the sidelines due to unfavorable market conditions and existing levels of balance sheet liquidity.
Structured finance revenue increased 24% supported by 10% growth issuance, primarily from commercial and residential mortgage backed securities offset by decline in CLO refinancing activity.
Mic's adjusted operating margin was 58, 6% revenue was adversely impacted by the noted absent of opportunistic issuance in the quarter, while operating expenses, excluding those related to the Russia, Ukraine conflict remained relatively flat.
Moving to EMEA first quarter revenue grew 23% delivering the fifth consecutive quarter of double digit growth.
Excluding the impact of recent acquisitions revenue and recurring revenue were up 9% and 11% respectively.
In decision solutions revenue increased 48% or 14% on an organic basis. This is driven by robust demand for <unk> banking as well as insurance and asset management solutions.
Research and in science revenue rose, 7%, reflecting strong demand for our credit research analytics and models.
By 97% customer retention rate.
For data and information revenue grew 6% driven by new sales of the company's data and ratings feeds.
It means adjusted operating margin expanded by approximately 350 basis points from incremental operating leverage nature of ongoing organic investments. This was offset by approximately 430 basis points of margin contraction due to acquisitions completed within the last 12 months.
Over the past few years, we have successfully transitioned the MA business to a predominantly subscription based model with strong recurring revenue, which now accounts for 94% of total revenue.
This quarter, we are pleased to introduce a new forward looking performance metric for our EMEA business.
This new metric annualized recurring revenue.
Is the annualized run rate of recurring revenue for active contracts at a point in time renewed.
Renewable contracts include subscription term licenses and software maintenance.
A metric provides insight into the trajectory of <unk> recurring revenue with visibility specifically into the growth of the subscription business from both the acquisition of new customers and expansion of existing relationships.
As of March 31, 2020, <unk> of $2 6 billion.
<unk>, 25% growth from the prior year period, or 9% on an organic basis.
In addition, we are guiding to low double digit organic AOR growth from year end 2000, Q, reflecting our expectation for accelerated renewable sales through the remainder of the year.
Turning now to our revised guidance Moody's updated outlook for full year 2022 as of May 2nd reflects assumptions about numerous factors.
These include but are not limited to the effected interest rates inflation foreign currency exchange rates capital market liquidity and activity in different sectors of that market.
Outlook also reflects assumptions are general economic conditions local GDP growth the scale and duration of the crisis in Ukraine, and the impact of COVID-19, as well as the Companys owned operations and personnel.
Our updated full year 2000 to 2020 guidance incorporates the following specific macroeconomic assumptions.
2020 to USD Euro area GDP to expand by approximately three and a half to four 5% in two and a half to three 5%, respectively and global benchmark rates to increase from historic lows with U S high yield spreads moving slightly above the historical average of approximately 500 basis points and inflationary.
To remain elevated and above central bank targets in many countries.
By year end the U S. Unemployment rate is expected to remain low at approximately three 5% and the global high yield default rate will initially declined before gradually rising to approximately two 7%.
Our guidance also assumes foreign currency translation and for the remainder of 2022 reflects exchange rates for the British pound of $1 32.
And $1 11 for the Euro.
We are updating our full year 2022 guidance across several metrics to reflect both this quarter results and our revised expectation for the remainder of the year.
We now forecast Moody's revenue to remain approximately flat to the prior year and operating expenses to increase in the high single digit percent range down from our prior guidance as we prudently manage and prioritizing based on activity through the cycle.
Consequently, we now predict Moody's adjusted operating margin to be approximately 47% and have lowered the diluted and adjusted diluted EPS guidance ranges to $9 85 to $10 35.
And $10 75.
To $11 25, respectively.
We decreased our free cash flow forecast to be between one eight and two points of our $1 billion.
Our expectation for full year share repurchases of at least one $5 billion.
Subject to available cash market conditions, M&A opportunities and other ongoing capital allocation decisions.
Please refer to table 13 of our earnings release for a full list of our guidance.
Turning now to our issuance outlook, which we've updated in light of market disruptions in the first quarter and the expectation that opportunistic activity will likely remain constrained heading into the second quarter of the year.
We forecast global rated issuance to decline in the mid teens percent range in investment grade activity to decrease by approximately 10%.
Leveraged finance issuance has been acutely impacted by market uncertainty with over 20 days of no high yield activity during the quarter.
We now project full year, 2022 high yield and leverage loan issuance to decline by approximately 40% and 30% respectively.
Similarly, we forecast a 10% decrease in financial institutions activity and a 5% decline in public project and infrastructure finance activity.
In structured finance, we expect wider spreads and a weakened future.
Bridge loan supply to impact the financing and creation of new CLO the balance of the year.
We're revising our outlook for structured finance issuance to decline by approximately 10%.
And finally, we are reducing our full year guidance for new mandates to a range of $850 to 950 <unk>. Despite a strong new mandate result of almost 240 in the first quarter.
<unk> revised reaching rated issuance outlook.
Now forecast Ma's revenue decrease in the low double digit percent range.
We are proportionately lowered <unk> adjusted operating margin guidance to approximately 59%.
This outlook remains above the pre pandemic levels of 2018 in 2019, reflecting prudent spending on strategic investments employee recognition carefully balanced with ongoing cost efficiency initiatives.
For EMEA, we are reaffirming our guidance of high teens revenue growth supported by a tailwind from recent acquisitions and strong customer retention rates in our outlook as well as robust demand for our subscription based products as we successfully execute on our integrated risk assessment strategy.
We are maintaining ma's adjusted operating margin guidance of approximately 29% as we organically invest in the business to further accelerate top line growth.
I would like to provide additional insight into our disciplined approach to expense allocation and management, which we believe is critically important to ensure long term sustainable growth as we move through the current short term cyclical volatility impacting the mis business.
In the first quarter operating expenses rose, 16% over the prior year period.
It's approximately 13 percentage points of this growth were attributable to operational and integration related costs associated with acquisitions completed in the prior 12 months.
Operating growth, including organic investments and annual compensation increases net of ongoing efficiency initiatives.
We did approximately six percentage points.
Lower incentive compensation accruals and a strengthening U S dollar offset expense growth by approximately 1% and two percentage points respectively.
For the full year, we expect expense growth to be more than $100 million lower than our previous forecast an increase now in the high single digit percent range. This includes approximately nine percentage points of growth attributable to acquisitions completed within the last 12 months.
We remain committed to invest an incremental 50 and $150 million in 2022 to attract and retain world class talent as well as to enhance our product capabilities and expand distribution to capture these new opportunities prospectively.
We anticipate that these investments will be partially offset through our ongoing cost efficiency programs and lower incentive compensation accruals.
Last we strongly believe that the market volatility in the first half of the year is cyclical in nature and that the business fundamentals both M I N and.
In EMEA remain firmly intact.
It is especially important that we prudently managed our expenses and continue investing through the cycle in order to realize our medium term growth prospects.
Before turning the call back over to Rob I would like to highlight a few key takeaways.
First <unk>.
Spike the challenging market environment, we delivered over one and a half billion dollars in revenue and an adjusted diluted EPS result of $2 89.
Second while short term volatility and market cyclicality RFP issuance levels, our business fundamentals remain strong.
Third.
<unk> robust recurring revenue growth and high customer retention rates reflect the strong demand for integrated risk assessment solutions and provide ballots to Moody's overall results.
Our new <unk> metric provides further insight into our momentum towards achieving our medium term targets.
And finally, we remain focused on investing through the cycle to both market, leading products and capabilities in key strategic growth areas and balancing disciplined expense management with the return of stockholder capital.
And with that let me turn the call back over to Robyn.
Thanks Mark.
Rose by <unk>.
Recognizing the efforts of our people and their continued dedication and hard work remain key to driving growth and resilience.
And delivering on our strategy as an integrated global risk assessment firm.
And Thats, an additional reason despite the turbulent times in the issuance markets that I remain confident and optimistic about earnings growth fundamentals. Our mission is even more critical as our customers rely on us to provide trusted insights and standards that.
That helped to help them make decisions with confidence in this environment so that <unk>.
Concludes our prepared remarks, and Mark and I will be pleased to take your questions operator.
Yeah.
Thank you if you would like to ask a question simply press the star key followed by the digit one on your telephone keypad and if you're using a speaker phone. Please make sure. Your mute function is turned off to a liar signal to retire equipment.
We will ask that you. Please limit yourself to one question with a brief follow up allowing others a chance to ask a question.
Again, Thats star one on your telephone keypad.
Well first hear from Manav Patnaik of Barclays.
Thank you. Good morning, I was just hoping on the issuance forecast if you could give us some color on kind of the.
Seasonality that you assumed I guess.
Is this current quarter is going to be similar to the first quarter and then improve to the back half just any color there would be helpful.
Sure Manav.
And there may be a way to think about this.
Kind of what's going on year to date and how do we think about what's going to happen here to go what's implied in our in our outlook and obviously, we're projecting full year issuance to be down mid.
Mid teens for 2022.
Issuance was down 25% in Q1, so that implies a deceleration of issuance decline.
Through the rest of the year, meaning that our year to go issuance will be down in the.
It kind of low teens versus 2021 year.
Year to go.
And I would say manav in arriving at that outlook most of the downward adjustment relative to our prior outlook user in Q2, and Q3 and Q4 represent much.
Much more modest decreases versus versus our original outlook.
And if I, if I carry forward those remarks, and thinking about adjusted diluted EPS the lower Mis revenue results in the first three months of 2022 impacted the adjusted diluted EPS by approximately 80% versus the prior year period, and our latest full year 2022.
Outlook guidance of $11 at the midpoint implies an average quarterly diluted EPS result of $2 78 for the remainder of the year and that includes an additional approximately 70.
Assumed adverse impact.
From issuance to the EPS result in the second quarter.
Okay got it that's always helpful.
I was just hoping you could give us a little bit more color on your new ESG and climate revenue breakout how much is the climate piece is coming from RMS and our it's Todd.
Low double digit growth sounds conservative, but just curious maybe its just a matter of putting the offerings together.
Yes, Manav, it's Rob I'm going to start and then I might see if mark wants to build on this but.
If you think about just climate for a moment.
There are really two core components I think to how we're thinking about commercializing.
Around climate the first is.
Helping customers understand the physical risk relating to climate change and there we have some very substantial capabilities with RMS and then second is around understanding carbon transition.
And in understanding how companies are going to get.
To net zero, obviously, we've got an ESG component in this as well and just to touch on just briefly in terms of the growth rate and then I'll hand, it to mark.
RMS being a big part of this obviously, we just acquired RMS recently so.
We're just in the process of extending the product suite beyond their core insurance customer base. So I think you'll see an acceleration of growth over time.
We also looked and pull through several considerations in determining what was the appropriate classification of climate source revenue and then include utilizing the guidance provided by the ACC and a proposed rules for climate related disclosures, which really reflects the impact of severe weather events direct and indirect greenhouse gas emissions.
Some of the climate related targets and transition plans and we also did leveraging of the industry standard publications from the TC FTE et cetera, and so when we think about the combined ESG and climate, we really only captured the revenues associated with climate related parallel like floods Hurricanes typhoons wildfires and agriculture.
And as we mentioned in the prepared remarks, you know in April we did launch our new platform Moody's ESG 360.
And that will enhance the way investors and asset managers across our ESG and climate and portfolio are able to get insight and that's really to a very user friendly platform that deliver sort of that comprehensive decision useful data scores and assessments and the last thing I would say I mentioned it on the.
The prepared remarks, but we want to break this out because we want the investor community and I have a sense of the scale that we've got across not just ESG. The climate climate is a very very important part of the E. In ESG and as you heard Mark described we have a real product suite. There that we're going to continue to to build on so we wanted to give some visibility.
To investors in that regard.
Okay.
And next we'll hear from Alex Kramm of UBS.
Yeah, Hey, good morning, just coming back to the to the issuance outlook of course.
In your prepared remarks, it sounded like you are pretty confident that all of the medium term indicators.
Still intact and it almost sounds like you feel like the second half of the year should almost normalize again, so I'm just wondering.
What the risk is that you are being a little bit too optimistic here.
When you meet with when your analyst meet with with Corporates are you hearing for example, more appetite for deleveraging and would that be something where that four trillion in refinancing wall at some point becomes irrelevant because we're going into this deleveraging cycle. So any any color of what you're hearing that there may be a little bit more of a structural change.
I know it's early.
Yes, Alex good to have you on the call.
So.
As I said in the coming year to go we do it we have adjusted the forecast for each of Q2 Q3, and Q4 off of our original outlook. It's just that there's a more significant downward adjustment in Q2, and so we think that.
Conditions will therefore improve through the balance of the year, but maybe what would be helpful. Alex.
There was a question obviously for many on the call are we being too aggressive too conservative right and so maybe to help you answer that.
Let me give you a little bit of our thinking in terms of what could provide some upside here and what can provide.
Downside.
I think it's it's.
The quickest.
Resolution to some of those market volatility would be.
Our resolution of what's going on in Ukraine, and obviously, that's significantly impacted the European markets and we've seen the high yield market in Europe shut down.
For a long length of time and just just recently opened and that would allow these infrequent issuers who've been sitting on the sidelines.
Potentially come back to market and Alex you know an interesting stat.
In the U S issuance from infrequent issuers was down almost 50% in the first quarter of 2022 versus the prior year.
The big numbers. So a lot of companies were sitting out the volatility and as you said you now have their balance sheets are in good shape.
They are the impacts of interest rate hikes and and of course, we've got the maturity walls that you mentioned and a real question is are we going to start to see some pull forward.
As issuers.
Realize that rates are increasing and we really haven't seen that to any material extent in the first quarter, because I think the market volatility kind of overwhelmed.
Those that wanted to potentially get into the market and pull forward.
Our leveraged loan expectation.
It's still down pretty significantly off of a record year.
But we do have a healthy first time mandate pipeline.
And so actually the first quarter of this year was our second strongest first quarter for first time mandates.
That we've had but a lot of those issuers just haven't come to market again because of the volatility. So we've got I would say there is kind of a backlog and of course, we also haircut or our M&A driven issuance assumptions as well. So those are the kinds of things that I think could provide a little bit of upside in terms of headwinds.
One thing that's on everybody's minds.
As you know.
Depending on what the fed does.
Could we see the economy move into recession, we don't see that from where we sit right now, but that's a question mark.
Second and I've talked about this on the call is.
Another risk is just the market understanding the actions of various central banks and obviously, there's been an enormous amount of stimulus put into the markets over the last several years.
And so it's when the market is surprised or doesn't understand that youll see.
Real volatility in the markets and we saw that with the temper tantrum <unk> seen a little bit of that in the first quarter and that that then creates these open.
<unk> opened and closed windows of issuance.
I would also say that.
Just in thinking about you know kind of a bigger picture and of course, we.
We've talked about stagflation scenario would be something that would be negative, but where we've got an increase in interest rates, but.
But it's not because of economic growth and so again, we don't see that from where we sit today, but that's something that we're keeping an eye on.
Okay. It's helpful. Thank you I'll make my follow up a quick follow up then.
On the recurring revenues.
Any outlook you can be a little bit.
Is it specific on I mean, we've had a lot of issuance over the last couple of years I would expect recurring revenues in that segment still some benefit from that but just wondering with your new adjusted outlook. You are or is there any implication as recurring revenues may start to come off a little bit in EMEA as to how should those trend. Thanks.
Alexander This is mark just answering your question with respect to MKS, and then I'll give a little bit in EMEA wasn't sure which segment you are referencing.
But on the Mis side, we are looking for an increase.
In recurring revenue from obviously 2020 one's mix at to 2022, you can think about it almost as a two thirds one third.
Is embedded within the outlook for the full year on the MA side Youll see remarkable consistency that really from the first quarter of 2022 through to the full year guidance that we're giving in terms of that mix between recurring and transaction based revenue.
Again, as we develop more SaaS based solutions, which we can discuss later on.
Yes, it wasn't mis, but I appreciate it thank you.
Next we'll hear from Toni Kaplan of Morgan Stanley .
Thank you.
Hey, Laura.
MS margin guide and you gave a good bridge of how that compares to 21.
Just in terms of the quarter itself, you know where there are specific areas that we're seeing cost pressure outside of the revenue flow through and then just thinking about the rest of the year you know obviously incentive comp will be helpful to offset.
You know as as issuances, all that weaker this year, but any other additional areas, where you can find some efficiencies to help the margin.
Sure.
In the first quarter. The adjusted operating margin was 58, 6% and that was in line with what we saw in the pre pandemic margin levels. If you think about 2018 or 19 of around 58% the contraction from the record prior year period was primarily driven by decline in <unk>.
Revenue attributable to volatility in the capital markets, which is really resulting from that heightened uncertainty given sort of the quarter's geopolitical events. If we exclude some of the onetime expenses related to the Russia, Ukraine conflict in the quarter, which reflected personnel related costs and provision for bad debts in my <unk>.
This would actually be flat.
Year over year, and that's inclusive of the financial cost of attracting.
Retaining best in class analytical talent across the <unk> lines of business.
As well as strengthening we're taking actions to strengthen our relevance and support future growth as certainly at the incentive compensation does act as a natural ballast.
I'll say to that but we do continue to look for additional opportunities.
Operating efficiency in the business such that we can then reinstate invest that money back into our ratings processes.
Great and then it.
It looks like you increased the capex guidance for the year.
Yeah honestly.
I was just wondering what kind of initiatives that youre ramping up their as it related to just.
Gross opportunities or is it more related to you know.
Acquisition or just anything else. Thanks.
Tony absolutely the answer is a little bit of both but maybe let me broaden out your question a little bit and then I'll get directly onto the Capex part of the answer so Moody's has a very strong track record of free cash flow generation.
Cumulatively between 2018 in 2021, our weighted average free cash flow to U S. GAAP net income version net income conversion was over 100% and this conversion rate holds based on our revised full year 2022 free cash flow guidance range, which at the midpoint of $1 9 billion imply.
<unk> approximately 100% conversion ratio.
We have also revised our full year 2020, capex guidance to be within the range of $250 million to $300 million and Thats really to reflect a combination of a number of factors and those include sort of the ongoing investment, especially around SaaS based product development for both new and upgraded customer solutions.
Our integration activity.
Office enhancements related to our workplace of the future program, and then really corporate asset purchases as we refresh our PC hardware and some of the associated peripherals.
Maybe one last comment here.
<unk> four EPS and for cash flow at the midpoint.
Does imply sort of a little bit of a disconnect and you were able to resolve that by considering really the following two factors really free cash flow is expected to outpace the adjusted diluted EPS. When you correct for the tax payments in 2021 associated with the potential U S corporate tax rate changes, which ultimately.
Did not occur as well as some of the changes associated with the non U S tax settlement in the fourth quarter of last year.
Very helpful. Thanks, a lot.
Next we'll hear from George Tong of Goldman Sachs.
Hi, Thanks, Good morning, just wanted to dive into the margins a little bit youre, seeing obviously higher input costs wage inflation, how do you balance that.
Higher input costs with investments.
Over the next year.
Would you see puts and takes on either side of the equation.
George.
<unk>.
We continue to carefully evaluate opportunities to invest for sustainable revenue growth, while balancing those investments became cost efficiency initiatives that really buttress will further expand our adjusted operating margin and this is especially important in volatile market conditions given.
We do view today's prevailing market dynamics as cyclical rather than structural in nature, we plan to invest through the cycle to support our medium term growth ambitions and these investments are going to be focused on customer enhancements.
New products go to market activities and really growth in our sales force and collectively they ensure execution.
All of our strategic roadmap in the high priority markets like Hawaii, and compliance ESG and climate banking insurance for example.
Incentive compensation accruals as we mentioned a moment ago, we'll flex based on the actual performance as compared to the financial targets that we set at the start of the year. So they do act as a natural expense leader and we've also learned since the beginning of the pandemic that many business activities can be successfully perform promoting and.
While travel and entertainment costs worldwide compared to the prior two years, we will prioritize some of the customer facing travel when needed and then lastly, I'd like to add we will look to continue to create incremental cost efficiencies through the utilization of lower cost locations and pain management strategies as well as further rationalization.
All of our real estate footprint.
Yeah.
Got it Thats helpful.
And to the extent that you are potentially.
Adjusting your investments.
To lower them a bit in the <unk>.
Context of rising input costs, which areas would you potentially invest lesson.
As you look to adapt to the current changing input cost environment.
We remain on track.
To spend approximately $150 million on our organic strategic investments in 2022.
Which like 2021 will be weighted towards the second half of the year.
And those investments are really going to be focused on again increasing.
Our sales force our go to market initiatives et cetera.
We also as mentioned in the script maintain our expectation for an additional $50 million of investments in our employees to attract and retain the best talent in order to achieve our growth aspirations, so that that will not change.
Our guidance for expenses over the full year.
Assumes an increase in spending from the first to the fourth quarter.
In the range of about $70 million to $90 million and Thats, because we anticipate steadily increasing organic investment activity through the cycle and that will be weighted towards the second half of the year and within that ramp you should expect the growth from the first to the second quarter to be in the range of $30 million to $40 million and thats going to be drilled.
And in part by the timing of our annual Merit.
And promotional increases which took place in April .
Next we'll hear from Andrew Steinman of J P. Morgan.
Hi, it's Andrew two questions.
On a current rated issuance forecast of down mid teens for a year are you assuming that issuance is down each of the quarters of 'twenty. Two that's my first question. My second question is I wanted to know how RMS revenues grew like for like in the first quarter I assume RMS revenues in the quarter were 77 million I got.
That by just looking at the M&A contribution for the a decision solutions sub segment for first quarter.
Andrew its Rob so to answer the first question yes.
And again in line with some of the earlier.
Commentary, we would expect most of that to be in the second quarter most of that.
Kind of downward adjustment.
Your question. Your second question was about RMS growth and.
I guess I would say just at a high level.
We have an expected Rms growth to accelerate through the balance of the year and in fact safe.
Sales are performing.
As or even slightly better.
Then than we have expected so from our perspective RMS is performing exactly as we have planned and I guess I would point out a couple of important things that are going on there.
Obviously, we've got the corporate integration, but we've really been focused on aligning our sales teams and I've mentioned in the past we've had some very good dialogue with some of our mutual customers about things that we can do.
Together, so we're seeing a lot of excitement from our customers.
And we've started now on some of the joint product development and.
One interesting example, maybe at a highlight is around commercial commercial mortgage backed securities.
We have mapped every property that's got an outstanding loan.
NSC MBS security with RMS data and and and that allows us to cure.
Help our customers better understand the physical risk associated with there.
Their portfolios.
And really we're now leveraging that in both our ratings and research in a way that I think is very differentiated.
It's taking that that RMS capability, and then and then being able to bring that to both our issuers in our investor customers. So again, we believe that we are on track we're feeling good about it.
The integration and product development and sales execution is.
Is growing at pace.
Thanks, Rob.
[noise].
She is Sebastian <unk> of RBC capital markets.
Thanks for taking my question. So maybe just drilling down further on the Ams transaction revenues historically, the revenues grew faster than issuance because you have the pricing tailwind, but here given that some of the higher revenue you'd like high yield and leveraged loans are under pressure how should we think about the dynamic of transaction revenue growth.
This issuance growth for this year any color.
Yes.
So you know we frequently talk about on this call the impact of mix as it relates to issuance and this is one of those quarters, where mix worked against us.
A revenue growth standpoint.
In this case, our transaction revenues were a little bit lower.
The decline was a little higher than the decline in.
In issuance activity, obviously in turn our 20% down.
Benefited from recurring revenue growth, but really what was going on here Ashish is.
The leveraged finance markets were pretty anemic.
In the first quarter and you heard me talk about the dearth of infrequent issuers all of that stuff contributes then to an unfavorable mix for us in the first quarter.
Yes.
That's very helpful. And then maybe as we think about maybe it Rob as we think about the victim guidance right.
Given the 22 is going to be worse compared to what your prior expectations, where how should we think about that as a base for the midterm guidance does that help you get a bigger piece of our out years.
Do you think this headwinds and muted growth continues or the Midtown so any color on that low to mid sorry, low to mid single digit revenue growth guidance or to make them. Thanks.
Yeah Ashish.
Mark and I were having a conversation about this.
It's interesting if you step back and compare.
Our revised 2022 guidance to the last pre pandemic year of 2019, and I think we all understand that 2020 in 2021 were pretty unusual years.
But if you compare our 2022 guidance to 2019.
The issuance will be up double digits in mis revenues will be up in the high teens percent range over 2019, now if you annualize that so.
Turn that into a a CAGR.
That's something like low single digit growth for issuance and mid single digit growth for revenues.
And that is remarkably similar to both the.
Periods.
But before the pandemic I look back at kind of 2012 to 2016, we had a revenue CAGR in the mid single digit range, but it's also very similar to our medium term guidance I talked about the things that we believe are still intact that support the medium term guidance and on the last call. We talked about hey look in the in the first.
Year or two of those medium term horizon, we expected the growth to be more muted and in fact, I think we're certainly seeing that but for the reasons I described.
We still feel good about the medium term growth outlook for <unk>.
That's very helpful. Thank you very much.
Andrew Nicholas William Blair.
Hi, Good morning, Thank you for taking my questions.
One I had was just on some comments you made in the prepared remarks and in the press release about your risk management offerings, providing increased value during uncertain times I was just wondering if you could maybe expand a bit more on that and maybe how how you would expect that to kind of flushed its way through in terms of finance.
The performance of our growth is is that leading to more productive pricing conversations or new clients coming to you with with that in mind and in a choppy market too to have new product or upsell conversations that you might not have otherwise had just just trying to figure out what that could mean in terms of performance for the business.
Yeah, Great question and the answers.
<unk> when you think about it from our customers' perspective, we've talked about this.
They're just dealing with a wider range of more interconnected risks and having to figure out how to how to.
How to how to deal with all of that and so increasingly our customers are wanting to be able to kind of connect the dots and so.
I think that.
The expansion of our capabilities and thinking about it from this concept of providing integrated perspectives on risk.
<unk> is adding is allowing us to do two things, it's allowing us to add.
New logos, so new customer segments customer types as well as deepen our relationships with existing customers. So I'll give you an example.
We have been expanding into now serving social media companies that have e-commerce platforms.
We want to better understand who's transacting on our platform we have been.
Now extending into serving crypto and digital asset companies same thing.
We so there is a great example of new customer segments that we're able to serve but also you take our.
In our core customer base so.
Thinking of.
And Asia Bank that we serve and we help them around stress testing and they came to US and said Hey can you help us measure and manage ESG and climate risk because we're going to have to comply with regulatory.
The regulatory stress tests that incorporate these factors.
And the answer is absolutely we can help you with that and so that's a great example of then being able to broaden and deepen the relationship with that.
With our customers so well.
I said I think youre going to see it two ways, new customer segments and <unk>.
Expanding our relationship with existing customers.
Got it thank you and then.
My follow up just curious I know your <unk>.
Confident that this is more of a cyclical headwind in the near term to issuance than secular does that change your appetite for M&A in the near term or at least until M.
S revenue, our issuance trends stabilize or is it pretty much.
As usual on that time, thank you.
Yes, I guess I would say.
Kind of our M&A program, there is not really kind of dictated by whats going on in the issuance markets.
We're very much focused on.
The product Roadmaps that we've got in terms of what our customers want and need in fact, you've actually seen us make an investment in the mis business.
In the first quarter with our acquisition of.
<unk> in Africa.
That is.
A very long term play for us.
So we're going to keep investing in that franchise, it's a great business and on the MA side will be guided by by customer needs and product Roadmaps.
Craig Huber Huber research partners.
Great. Thank you my first question, Rob and Mark.
So I'm curious what sort of macro environment are you expecting here say by year end for the U S Treasury rate or do you think Jeremy and also.
If the fed rate at year end, and what's sort of embedded in your mind. When you put out this global debt issuance outlook of down mid teens. That's my first question.
Craig I think as we think through to the.
The outlook for the year, and then a little bit beyond our central case.
Does model continued GDP expansion.
In part over the year, but also part of the medium term at a slightly higher level than what prevailed prior to the COVID-19 pandemic.
Based on the GDP forecast that we use internally for meetings at Moody's analytics. So you could think about between 21% and 26% average annual real GDP growth in the range of around two 5% as we look out.
On your question around interest rates.
We are again apply sort of the insights from Moody's analytics data buffet.
And we model out an increase in the 10 year rates.
Approximately 23% this year to around 4% by 2027.
To answer your question.
What about the fed interest rate by year end.
What's sort of embedded there your macro outlook here. We are we are assuming approximately six interest rate increases during the course of the year and that would be consistent I think with consensus in the market and we're not looking to model anything different or distinct from that.
Jeff simpler.
BMO capital markets.
Thanks, that's close enough I know, it's late I'll ask one question you mentioned some of the spending youre doing.
Staff retention staff recruiting can we talk about the environment Hasnt changed over the past few weeks or months, given what's going on in the overall economy.
Yes, I'd say just at a very high level I mean, it's still a competitive job market. So yes, there has been a.
Some form of kind of correction in the equity markets.
But we're very focused on I'd say kind of broadly our employee value proposition and compensation is a very important part of that and mark talked about the.
The investments that we're making to make sure we have competitive compensation in the market, but there are a number of other things that go into it as well.
We are finding that workplace flexibility is really important and we have leaned into flexibility we've done a great job over the last two years.
And so we're going to continue to do that and we think that that's going to be a competitive advantage for us in terms of attracting talent.
Okay I appreciate the color. Thanks.
Owen Lau of Oppenheimer.
Good afternoon, and thank you for taking my question I want to go back to Emma.
Your organic.
<unk> was 9% for the quarter and I think he introduced the target of low double digit growth. This year, maybe could you. Please talk about the driver of this acceleration for the rest of this year is it more driven by like Ky's and comply and swap you talk about or ESG and <unk> or any other product.
So if you can.
Quantify for us that would be great. Thank you.
Yes.
Good to hear from you. So we had very strong performance.
Really across the board.
And maybe I would highlight.
Just a few things.
This hopefully will give you a sense for.
The momentum that we have in the business but.
The growth in decision solutions.
There, we had 20% organic constant dollar recurring revenue growth. So that's when you think about <unk>.
Organic recurring revenue growth ex the impact of FX and we're just seeing very strong demand for <unk> and compliance solutions ongoing.
And.
There if you think about what's happening with our customers. There is an intense demand right now for.
Tools that help with not only sanctions compliance, but just better understanding the risk of who you're connecting to who you're doing business with so customers of course, but also thinking about supply chain and so we're really leaning into that you've heard that the usage stats are up significantly thats, a very good kind of leading indicator Owen.
And then when you see heavy usage.
Can expect that youre deepening the value prop is youre customers are realizing the value proposition of your solutions that ultimately can lead to supporting pricing I can support cross sell and upsell our customers our sales activity is picking up.
We had a need program, where we were doing actually screening our customers' portfolios for them. So that they can get a sense of what they might be missing in their own screening processes. So.
On top of that we made several investments last year as.
As you know we made several acquisitions, but also we've been investing heavily in internal product development and so.
The passport workflow platform that we acquired we've now been really working on integrating our content sets into that working on rolling out some new products, where our customers are.
Continue to need help in terms of efficiency and effectiveness and.
And not only around <unk>, but also around supplier so.
I could probably go on across the portfolio, but it gives you a sense or enough very good performance in the quarter, but very good momentum as well.
Okay.
Got it Thats very helpful. And then go back to the buyback.
And have you.
We'll maintain that guidance.
I know Rob you answer the question around M&A criteria, but the valuation of many assets has come down so at this point.
How do you think about the pace of share buyback versus M&A, which can also drive a long term value of the company. Thank you.
And just one thing.
Around the M&A department for a bunch of years here and.
Youre right the value of public assets has come down, but I will say that a lot of assets in our space.
If you have got.
Companies that don't have leverage capital structures.
We're in no hurry to sell right. So.
It doesn't always mean that it's a.
A more conducive M&A market when you see a kind of a downturn in public market valuations.
We do remain focused as a management team on project capital planning and allocation and I've spoken about this several times I just to reinforce we do try to identify opportunities for organic and inorganic investments in the high growth markets first and then to the extent there are additional investment dollars, we will seek to return that capital to our stockholders through share.
<unk> and dividends.
Our M&A framework as Rob mentioned earlier is really structured in a manner such that we pursue the right investments to.
To enhance the services, we deliver to our customers and return capital to our stockholders and our approach incorporate business and strategic plan development.
Other factors such as market attractiveness, which you mentioned as well as a competitive review and that only enables us will allows us to pursue new deals where there is a clear set of transaction core elements.
Among for supporting and advancing our global integrated risk assessment strategy second reinforcing so as the development of a standards based business and then 30 sort of leveraging our brand and distribution and analytical capabilities to create more as a whole rather than distinct and separate elements.
Yes.
That's very helpful. Thank you very much.
And our next question comes from Simon Collins of Atlantic Equities.
Hi, everyone.
Everyone. Thanks for taking my question.
I wanted to jump back to the guide for issuance I'm for Mris revenue I was just wondering if you could talk a little bit about.
The levels of visibility you have in building your guidance for those.
Those two outlooks and.
And just give us a sense of how much is based on just looking historically and seeing how things have trended in the past to actually what you can actually see ahead of you.
Hey, Simon it's Rob.
So.
Maybe just to give you a sense of.
Some of the data points and color that goes into how we thought about the outlook maybe that'll be helpful. For you and I can also maybe you can touch on a little bit just kind of kind.
Kind of current market conditions, obviously, we don't have great visibility into the full year, but we do have some visibility.
Into the into the current market.
But first of all just from investment grade, obviously, we've got that down.
<unk> down for the year.
<unk>.
<unk> got it down.
Down 10% for the year versus down mid twenties for Q1.
But there are we think we will see some increased issuance to support.
The opportunistic refi and M&A so <unk>.
Some of those issuers, we're just sitting on the sidelines when you think about.
The high yield and leverage loans, where the decreases that we're seeing for the year are substantially greater.
And even though we think there'll be a little bit of improvement through the balance of the year.
The broader market conditions, including the equity market volatility wider spreads continued uncertainty around in our resolution of Russia, and Ukraine all of that impacts the leveraged finance markets.
More than investment grade when you see a lot of equity market volatility that is typically very challenging for leveraged finance markets.
When we look at.
The kind of.
Public and infrastructure.
By area.
We expect that to be down something like mid single digits.
Year to go roughly flat so some modest improvement baked in there again, I think kind of like what we expect with the investment grade issuers, we expect that those infrastructure issuers are going to return.
From sitting on the sidelines in the first quarter I think we will see lower supply from sovereigns.
We've done a lot of kind of pre funding over the last couple of years combined with some horizon.
<unk> cost, let me just touch on structured for a second tier because there.
We had a very strong first quarter obviously.
Our revenues were up 24% and structured finance, but you heard that we're actually looking for issuance to be down for.
For the year, so what's going on there.
One you had some spread widening in some of these asset classes and concerns about rate increases. So there. We did we do think we saw some.
Paul forward of issuance.
That supported that really strong first quarter, but see MBS.
Very strong and we expect that to continue for the year, but cielo as you think about what's going on in <unk>.
Frequently tied to what's going on in the leveraged loan market, so with leverage loans down meaningfully theres less less not only less leverage werent creation for new CLO formation, but with spreads widening that'll put a little bit of damper on refinancing activity. So.
That's generally.
How we're thinking about the outlook and then in terms of.
Just the best visibility. We've got is just kind of what the current market looks like and I would say that the markets are open for business, we would expect in.
In investment grade.
Would expect may to pick up off of April April was it was a real mixed bag. There was more financial issuance than there was corporate we had some blackouts and some of the corporates continue to sit out the volatility.
There's a lot of dry powder for M&A, but again volatility will dictate how much of that comes to the market high yield is pretty sluggish as I mentioned earlier the European high yield market has finally reopened after 11 weeks of no issuance. So.
So we may see some M&A backlog there come to market.
Leverage loans are certainly stronger than high yield but off of a torrid pace.
Mentioned, we've got a good FTM backlog first time mandate backlog. So hopefully some of that will come to market and the last thing I would say Simon is just looking at funds flows.
We've seen five consecutive weeks of fund inflows in leverage loans, while we've seen.
Fund outflows for high yield almost through the through the balance of the year. So hopefully that gives you a sense of.
The data points that we're looking at and kind of building to our forecast.
Yeah.
Thanks, ROE that's really really helpful. I see thank you.
And as just a quick follow up I was wondering if you could.
Just give us a sense as well I mean with all that.
Impressively strong momentum youre getting in.
Moody's analytics.
How should we think about the economic sensitivity of those recurring revenues.
If we were to contemplate.
Recent harvests example.
Is this revenue stream actually going to be much more resilience than people think.
What are the sensitivities for me to answer that.
Yes, Simon it's interesting if you look all the way back to the global financial crisis and as revenues.
<unk> proved to be.
Pretty durable and resilient and I think that would be the case here. If we have an economic downturn when we've talked about this stuff about.
In times of uncertainty when customers need us most.
That really is that's true you know you see that with M&A.
Youre not going to see banks, turning off their cable IC vendors.
Running risk of <unk>.
Regulatory noncompliance, because theyre trying to cut costs, so I don't want to be glib about.
About it but I would just say that the fundamental value proposition will remain intact during times of stress and uncertainty I do believe that will be true.
Okay.
Our next question comes from Shlomo Rosenbaum with Stifel.
Yeah.
Factors that you have going into the guidance, particularly with the U S. GDP of three five to four 5% and what are you seeing that.
Has you put that out there as part of the assumption when we had a negative one 4% for the first quarter. So.
What are you what are the kind of the puts and takes around that and then afterwards I have one follow up.
Yes, Shlomo heads, it's Rob so.
The first quarter.
GDP was quarter over quarter trend so that was good.
Growth relative to the first of the to the fourth quarter of 2021, and obviously in the fourth quarter of 2021, you had very strong GDP growth that was almost.
7% and so I think we had expected some pullback in the first quarter, which happened if you look at it on a year over year basis for the quarter, you actually had positive GDP growth.
I think in the kind of.
Three five percentage range, which is.
It kind of still within the range that we're looking at.
The balance of the year there were some technical factors to that.
But in general.
Yeah.
I would say that the.
The key variable for us in terms of GDP growth as you know thinking.
Thinking about the geopolitical dynamics.
Dynamics policy response to it and there's still a lot of uncertainty around it but.
In General we think our forecasts are in line with with a number of other.
Other prognosticators.
Okay, great. Thank you for that clarification and then.
In terms of what we're seeing in the rate environment.
It seems that there is likely to be less of what we've seen a lot in the last few years of pull forwards in terms of opportunistic refi can you talk a little bit about how that assumption.
Assumption has changed in the last quarter.
The words.
Typically have seen as rates have gone down some more kind of opportunistic refi and you can't kill me.
Maybe give a little bit more color about how that impacted the level of kind of take down that you assume now for this year.
Yes so.
Rising rate environment like we've we've got here.
We would expect to see Cfos and treasurers start to look at pulling forward issuance to get ahead of those rate increases.
I mentioned earlier that we really didn't see much of that in the first quarter and thats, because I think the market volatility kind of overwhelmed.
The desire to kind of pull forward and be opportunistic in the market. It was just a very difficult market to access if you didn't need to so.
We have not built in substantial pull forward into our forecast, which is why I mentioned that earlier as a possible upside.
Imagine if the market volatility comes down a bit we could see some of this pull forward activity and some part of the drivers there could really be the elevated cash balances that would temporarily constrained issuance in the first quarter just to put a couple of numbers around that in terms of investment grade we sold globally around 11% of eligible investments.
Rate issue is actually come to the market in the first quarter and Thats meaningfully below what we've seen over the last two years, but interestingly enough of that 11% that came to the market. Two thirds of those had issued last year. So not so much opportunistic issuance, but more for regular ongoing financed Conversely on the high yield fund at just 2%.
Eligible issue is issued in the first quarter and that's meaningfully probably two to three standard deviations below what we've seen in other first quarters, but a third of those.
We're at repeat issuers from 2021 sort of emphasizing that point around opportunistic issuance that Rob was making.
Okay great.
Our next question come from.
Comes from Kevin Mcveigh of credit Suisse.
Great. Thanks, so much hey it.
It seems like the margins are behaving a lot better, particularly given.
The meaningful downward revisions and a little bit of that is that makes them a versus M. Mere so maybe talk to that a little bit and if you can give us a sense of where the margin sit within M. A more specifically if theres a range to think about mark or.
I wanted to kind of start there if I could.
Kevin Thanks for the question. So maybe if I just spend a minute on some of the financial characteristics of some of the new MA <unk> first and then I'll get on to the specific question sort of op margin by <unk>.
Data and information revenue further for the first quarter was 100% reoccurring and that was up from approximately 99% recurring as of year end 2021, and thats, what the customer retention rate of 95%.
Research and insights in the first quarter.
Which is 100% organic.
Revenue was up 7% and a recurring revenue rate of 99% and that was consistent with 2021 and had increased customer retention at rate of 19, 7%, which is up 1% from the year before.
Decision solutions recurring revenue is 87% of the total with a 96% customer retention rate.
Both recurring revenue and retention rates were up from $84, 93%, respectively compared to 2020 months of very strong sample set.
If you look at the MAA <unk> now from an operating leverage perspective, given that both.
Data and information and research and insights are businesses with very high recurring revenue.
Naturally expect those to <unk> to have a stronger margin profile than EMEA overall.
Decision solutions, which includes RMS intrinsically methane have a lower margin profile and that really results from the higher proportion of existing on premise solutions and transaction based services as well as the relatively.
Outsized concurrence of investment dollars.
In that LRB as we develop software and workflow tools to meet robust customer demand and then over time as we execute on our plans to achieve <unk> medium term adjusted operating margin target of mid <unk> you could expect the majority of that margin expansion to really result from improving operating leverage in this.
Vision solutions, while the margin profiles of data and information and research and insights should be relatively stable.
Very helpful and then I guess, either mark or Rob.
I know you tweak the GDP, but it's still pretty strong GDP relative to other cycles. So as you think about the issuance is it more that the macro uncertainty in terms of where we are as opposed to the base GDP and in that kind of factors into some of the recovery in the back half of the year, because it seems like youre coming up against tougher.
Comps and you're still seeing some inflection so just any more puts and takes in opiate books has been a lot of time on that but is that a fair way to think about it.
Maybe the way I'll purchase Kevin as we alluded to this a little bit during investor David given the uncertainty.
Around the duration and the severity of the Russia, Ukraine conflict as well as what we know to be ongoing central bank actions to address inflationary concerns how central case assumption is really that the shortfall in first quarter revenue.
Which has resulted from the lower than expected issuance, which we've discussed it is unlikely to be recovered as the year progresses and yes. We think this is a short term cyclical headwinds and as we translate that into Mia's transaction revenue.
We expect that to be balanced really between the first half in the second half of 2022, when historically and I think thats the point Youre getting at on average the second half is only contributed <unk> 46 ish percent of the years aggregate revenues, that's sort of the big driver of that differential and thats driven by several assumptions some of which we spoke.
Conducting the call, including monetary policy.
<unk> policy.
Energy prices are going up really make sure that we are observing sort of oil prices, where they may stabilize and the implications. Therefore, any recessionary conditions in the second half of the year.
Okay.
Our next question comes from Faiza <unk> of Deutsche Bank.
Yes, hi, thank you so much.
Covered it covered a lot of topics I just wanted to ask a quick clarification question around margins on the analytics business.
We did see a pretty significant sequential acceleration.
And you know your guide assume some deceleration I believe it might be all investments Mark that you talked about earlier on the call, but if you could give us any more color around the dynamics around investments inflation pricing.
Maybe the maybe any mix as it relates to the new <unk> that you've talked about that would be really helpful.
Hi, Faiza, it's Rob.
Welcome to the call. It's great to have you on them and I'm going to let Mark take this one.
For the full year 2022.
Our reaffirming all EMEA adjusted operating margin guidance of approximately 29% and that includes around 150 to 200 basis points of margin compression.
From recent acquisitions, primarily Rms.
As well as foreign exchange translation.
Our guidance implies that the margin on average for the remainder of the year will be 28% and that reflects the impact of our annual promotion and merit increase cycle at which commenced in April as well as continued targeted organic investments to expand up a stink.
Class Salesforce and to focus on cross selling opportunities across multiple product lines.
Similar to 2021 seasonality, we'd expect organic investments to steadily increased throughout the year.
And thats going to be commensurate with our ongoing revenue growth and those investments to be primarily weighted towards the second half of the year.
We have demonstrated I think our ability to grow MA organic constant currency recurring revenue over the past year from 9% to 10%, we're still projecting sort of that low double digit growth in 2022, and it's these ongoing multi year investments that we're making that will support the achievement of our targets and finally, just to sort of close out.
This one a path to our medium term margin target is mid 30 is not expected to be linear.
Actually as we continue to make opportunistic investments as time goes on.
Great. Thank you so much very helpful.
And our next question comes from Patrick O'shaughnessy messy of Raymond James.
Hey, Good afternoon, just one question from me. So you guys lowered your operating cash flow projection you left your share repurchase guidance unchanged and you boosted your capex outlook does that imply incremental debt issuance relative to your prior forecast.
It does not if I think about for those data outstanding you've got cash cash equivalents and short term investments on the balance sheet as of the end.
End of March of approximately $1 9 billion.
Carrying value of data.
As of the same date is around seven 8 billion and if you take the net debt, which is five nine divided by the trailing 12 months adjusted operating income of about $2 9 billion and get a netback to adjusted operating income ratio of about two point of that we feel very comfortable with that ratio.
It's not anywhere near sort of that triple B plus threshold debt.
Official S&P uses to evaluate Moody's Corporation.
So it helps address your question.
Thank you.
That does conclude the question and answer session for today at this time I would like to turn the call back over to our presenters for any additional or closing comments.
I just want to thank everyone for joining us today, and we look forward to speaking with you next quarter. Thank you very much.
Okay.
This concludes Moody's first quarter 2022 earnings call as a reminder, immediately following this call. The company will post C. M. I S revenue breakdown under the Investor resources section of the Moody's IR homepage. Additionally, a replay of this call will be available after 330.
P M Eastern time on Moody's IR website. Thank you.
Yeah.
[music].
Yeah.