Q3 2022 Moody's Corp Earnings Call
Good day, everyone and welcome to the Moody's Corporation third quarter 2022 earnings conference 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 questions and answers following the presentation.
I will now turn the call over to <unk> head of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone and thank you for joining us today I'm sure <unk> head of Investor Relations. This morning. This afternoon and this morning, Moody's released its results for the third quarter of 2022 as well as our revised outlook for full year 2020 to the earnings press release and a presentation to accompany this teleconference are both available.
And 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 in 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 1095 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.
Port.
Form 10-K for the year ended December 31, 2021, 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.
Saba, Moody's President and Chief Executive Officer will provide an overview of our results and outlook after which we'll be joined by Mark Kaye Moody's Chief Financial Officer to answer your questions I will now turn the call over to Rob Saba.
Thanks Ronnie.
Good afternoon, and thanks to everybody for joining today's call and like I did.
Last quarter I'm going to start with a few takeaways and as everybody is aware during the third quarter macroeconomic and geopolitical conditions continue to deteriorate.
And that further suppressed the global debt issuance markets from the already subdued levels that we had seen in the first half of the year.
At the same time these conditions supported increasing customer demand for data and analytics to identify measure and manage risk and against this backdrop, our MA business continued to perform well with strong revenue growth of 14%, while <unk> revenue declined by 36%.
Overall, Moody's generated $1 $3 billion in revenue with an adjusted operating margin of 39% and.
And we expect that low issuance volumes, particularly in the leveraged finance space will persist through the remainder of the year and as a result, we're revising several of our 2022 outlook metrics, including our guidance for total <unk> revenue, which is now expected to decline in the low double digit range.
We're also updating our outlook for full year adjusted diluted EPS to now be between $8 $28 50.
No.
Response to the expectation for continued economic headwinds. We're also taking decisive steps to reduce our expense run rate by at least $200 million by year end.
And the cost savings will be realized across the company and include a more than doubling in the size of our previously announced restructuring program as well as various additional cost efficiency initiatives.
And collectively these actions put us in a position of strength as we head into 2023 and I will provide some additional details later in the call now.
Now for the third quarter <unk> recorded both strong revenue growth of 14% and a 9% increase in annualized recurring revenue or <unk>.
With over half of MH business outside the U S. Foreign exchange rates had an outsized impact on <unk> revenue growth lowering it by seven percentage points.
I asked the 36% decrease in revenue against a record prior year period was driven by a 41% reduction in issuance.
And altogether. This resulted in a 16% decline in Moody's revenue and the negative impact of foreign currency movements on total Moody's revenue was four percentage points now.
<unk> expenses grew just 1% in the third quarter as we continued to execute efficiency initiatives and emphasize cost discipline and the net impact of lower revenue and controlled expenses translated to adjusted operating income of $497 million for the quarter.
And adjusted diluted EPS of $1 85.
Now let me provide some.
Some additional context on the conditions impacting issuance levels and our revised full year outlook for mis and at the beginning of the year like others in the market and we anticipated that elevated levels of inflation would be transitory and slowly abate over the course of 2022 and instead the conflict in Ukraine further.
<unk> market confidence and commodity price shocks pushed inflation higher and these factors prompted central banks to raise interest rates further and faster than expected to levels, we haven't seen for more than a decade, and resulting in ongoing uncertainty and volatility in the capital markets.
Meanwhile, corporate balance sheets remained robust following a surge in opportunistic pandemic era financing, allowing issuers to stay on the sidelines given market conditions.
We expect that these macroeconomic and geopolitical conditions will continue to mute issuance levels at least through year end.
And in light of this we are updating our guidance for 2022 Mis rated issuance to decline in the mid 30% range.
Full year Mis revenue is now projected to decrease by approximately 30%.
And while the outlook for next year will depend on the pace and scope of market stabilization and recovery, we're confident that conditions will improve over time and that the key growth drivers for issuance will resume.
This year only a little more than a quarter of the first time mandates that we've signed have gone to market, meaning there is a backlog waiting to tap the markets and to leverage those opportunities. Our teams have been engaging extensively with investors and issuers and we haven't been sitting still.
<unk> been building, our domestic rating franchises, including in Africa with the majority acquisition of GCI and across Latin America through Moody's local and we've made significant progress in digitizing our content to both improve the customer experience, but also to drive increased usage as we look ahead, our pricing opportunity remains intact and we know.
There are over four trillion and refunding needs that will likely be refinanced over the coming four years in short we're continuing to deliver on our differentiated strategy to be the agency of choice for our customers.
While current conditions for Mr challenging as those he's issuance will accelerate and we will be well positioned to capture growth and operating leverage through our extensive market presence.
Now turning to M&A, which despite the challenging market conditions delivered another impressive quarter of revenue growth and margin expansion 50.
<unk> 59 consecutive quarters of revenue growth EMEA has proven to be a cyclical in the third quarter was no different.
EMEA reported 14% revenue growth or 9% on an organic constant currency basis, and with best in class retention rates and growing customer demand. It may also achieved 9% IRR growth for the third quarter and Thats inclusive of RMS.
And we're confirming our topline revenue guidance for 2022.
Full year revenue is expected to increase in the mid teens percent range and that's despite a five percentage point headwind from foreign exchange rates.
We expect <unk> to accelerate to low double digit percent growth by year end. We're also raising the MAA adjusted margin guidance to approximately 30% and that's 100 basis point increase over our prior guidance, reflecting ongoing expense efficiency.
So let me take a moment just to highlight our fastest growing business in <unk> and compliance solutions and in recent years, we've invested and that's been both organically and inorganically and acquiring developing and integrating data analytics and technology to create a world class set of solutions.
And this combination supports new use cases around counterparty verification and thats, enabling us to grow with existing customers and add new customers in areas like the fintech corporate and government sectors.
We continue to receive industry awards and recognition, including most recently a top right quadrant positioning from charters. We also won the AI breakthrough award for our innovative solution for fraud prevention and Thats one of an increasing number of places where we're being recognized for the integration of artificial intelligence into our solutions.
Also as we as we pass on the one year anniversary of the RMS acquisition, Let me give a quick update on that.
We're on track to achieve the financial targets announced last August and I'm excited about the opportunities that are in front of us.
We are laser focused on maximizing our synergy opportunities by launching new products and pursuing markets that leverage our combined capabilities and strengths. So for example, this past quarter, we launched our ESG underwriting solution for property and casualty insurers, which integrates Moody's extensive data to help them operationalize ESG risk assessed.
<unk> into their insurance underwriting workflows.
And I also want to recognize the great work being done by our colleagues at RMS in my meetings with customers over the last few months I've heard firsthand about how important our solutions are in helping the industry address an increasing array of risks, including recently as we assisted our customers and rapidly quantifying the financial impact of Hurricanes, Fiona and Ian.
Now moving to the restructuring plan that I mentioned earlier on.
On our last earnings call, we said that we would take additional actions to manage expenses and improve operating leverage if we observed further deterioration in the external environment.
And given our view that the weakness in the issuance market will likely persist through at least the fourth quarter of 2022.
Our teams have undertaken a careful review and prioritization of ongoing initiatives and we've identified several avenues for meaningful savings.
We're expanding our restructuring program to more than double providing up to $135 million in savings in 2023 from a combination of rationalizing our real estate footprint and reducing our global workforce to reflect the reality of the current market environment. We.
We have also undertaken a careful prioritization of ongoing initiatives in light of our current business priorities.
And that has identified up to $100 million in additional savings. So collectively these are projected to lower our 2023 expense run rate by at least $200 million.
And as we take these decisive actions, we will be mindful to invest and allocate resources to maintain the rigor and quality of our ratings and processes.
Look these are challenging and uncertain times, and we are prioritizing financial discipline today, and making sure that we're well positioned to capture growth opportunities tomorrow.
So that includes that concludes my prepared remarks, and Mark and I would be pleased to take your questions operator.
Thank you if you would like to ask a question. Please dial star one on your telephone keypad, if you're on a speakerphone. Please pick up your handset and make sure. Your mute function is turned off so that your signal reaches our equipment. We will ask that you. Please limit yourself to one question you will have a chance to rejoin the queue for a follow up again.
It is star one to ask a question.
And the first question is from the line of Ashish <unk> with RBC capital markets. Please go ahead.
Hi, Thanks for taking my question.
I was just wondering if you as we think into 2020 to be if you could provide any initial color on how we should think about issuance there.
There was obviously an expectation that we may see a big bounce back in issuance is that still an expectation as we get into 2020, but.
But just given the higher interest rate is that is it more reasonable to think about attach of the company I was just wondering if you could share some initial thoughts.
Hi, Ashish, it's Rob and I'm pretty sure we're going to get multiple questions around issuance environment in issuance outlook. So.
Maybe let me start with kind of a big picture view and then as the call progresses, we will continue to kind of drill down in and I know, we'll talk about 2023, but.
You've heard me oftentimes on these earnings calls.
When I have said that the I thought that the market could absorb rate increases as long as they were well anticipated by the market and they were accompanied by economic growth.
And Thats that is not what we have had this year. So the tightening cycle is really the steepest of the past two decades, I think that initially surprised the market.
And it has been accompanied by decelerating economic growth so.
Back on the.
The last call I talked about the factors that were causing the disruptions in the market at the time and I noted that.
Despite those factors we expected that at the time 2022 issuance was going to come in roughly in line with the average of issuance from that 2012 to 19 period.
It excludes those pandemic years of 2020 in 'twenty one.
But given the weakness in the third quarter that as you heard me say, we expect to continue into the fourth quarter. We now think that that the overall global issuance is going to be down something like close to 10% from that historical average, but what has really changed is that we now expect corporate issuance and I'm, including investment grade and leveraged finance.
To be down almost 30% from that historical average ex pandemic.
So this is no longer kind of just down off of two unusual on record years for issuance, but but now we see corporate issuance down meaningfully from its ex pandemic average going back to 2012, and I think that that kind of illustrates the depth of the cyclical contraction that we're dealing with.
At the moment and as I think about for the remainder of the year I think the key is for the market to be able to get some some certainty before it starts to get volatility I think thats going to be the case. So let me, let me pause there and I'm sure we're going to have some other issuance questions as we go forward.
Your next question is from the line of Manav Patnaik with Barclays. Please go ahead.
Well, maybe I'll follow up on stable EBIT.
You talked about for us.
<unk> needs of our full year goals I was hoping you could just.
Help us parse that.
<unk>.
It looks like more of it might be in 'twenty four but just curious on your numbers and then in a typical goal how much is <unk> as filed with the given issuance compared to I guess into the rest of the target users might just one more on capital allocation as a group Thats correct.
Yeah, Hey, Manav.
So we included a slide in the supplemental materials around the maturity walls and.
As you said <unk> four trillion dollars $4 to $4 one trillion.
Very significant.
Amount of debt, that's got to get refinanced over the coming four years across the United States.
In EMEA.
And it's interesting we actually as we kind of normalized you had about $200 billion of debt that fell out of the study due to withdrawn.
Ratings in Russia, So the rethought refi wall is actually did.
Did actually grow this past year grew.
It grew something like 4% on a like for like basis.
But I think what's really interesting manav. If you go back just if you just look at the slides back to 2019 as those maturity walls have grown 28% from 2019, but if you actually go back another year 2018, there up 54% and we're looking at a few things. So one just the absolute maturity walls are significant and they've continued to.
Despite the fact, there was obviously some refinancing activity that was that was going on when rates were ultra low.
If you look at U S spec grade for a moment.
So if you look at the first two years and our Refunding studies.
There are about 18% of the five year total that's the highest percentage since we started tracking it in 2010 and the.
The other thing I would say Manav just to also try to triangulate to your question.
If you look at the maturity walls for 2023, and you look at what our expectation is for corporate issuance for 2022, and I understand thats, a little apples to oranges, but but it represents about 50% of what we expect to be the global <unk>.
Corporate financing activity in 2022.
That's a pretty big number and remember 40% of the Mis business.
Thereabouts is recurring revenue. So now we're talking about the support for that other 60%.
Okay.
Your next question is from the line of Alex Kramm with UBS. Please go ahead.
Yeah, Hey, good morning, good afternoon, everyone rather.
I wanted to shift gears to the to the cost base.
And the restructuring program, but that would be helpful. If you I guess mark.
She is out a little bit more so the $200 million achieved by the end of the year.
How much of that is going to be actually impacting this years.
Full year cost base, and then I guess into 2023.
On a net basis will be incremental as we think about the outlook there and then more importantly, I guess.
Yes.
We expect growth to accelerate next year, hopefully how should we be thinking about incremental margins on.
On the ratings business.
At the low sixties target medium term still intact. So I know thats a three part question, but I think it's all important.
Alex Good afternoon.
The fate, we make it a couple of questions on expenses during our Q&A session today, and so I'll start off maybe by talking broadly about the restructuring program and addressing some of your margin specific questions and now and certainly we can take further at ones later on so the market disruption and downturn as you heard from Rob has extended.
For longer.
And has been more severe than what we anticipated early in the year and because we're primarily thinking that this will extend at least through the fourth quarter.
We're taking actions consistent with our prior commitments and comments around being financially prudent and expense decisive and that really means expanding the 2022 2023 Geo location at restructuring program that we established last quarter. So specifically.
Through year end 2023, we now expect up to $170 million or an approximate $95 million increase in aggregate charges related to additional real estate rationalization.
As well as reduction of staff and Thats going to include further utilization of alternative lower cost locations, where the requisite skills and talents exists.
And thats, all while ensuring that our focus and resources remain firmly allocated to protecting the high quality of our core ratings business and continuing to strategically invest in growth areas within both mis and Ma.
For the full year 2022.
As we take these additional personnel related actions as well as exit and cease use of certain leased office space that we plan to record up to approximately $85 million in estimated pre tax restructuring charges and thats going to inclusive of the $33 million pretax restructuring charge that we've recorded at year to date and that means the remaining portion of.
The up to $170 million of restructuring charges will be recorded in 2023 and these actions are now projected to result in annualized savings in a range of $100 million to $135 million and thats more than double the 40% to 16 annualized savings that we forecast under the restructuring program that we established last quarter.
Furthermore, as you heard Rob mentioned, just a minute ago, we have evaluated other opportunities for cost reduction and that includes adjusting compensation policies certain salary bands, reducing slick non compensation expenses.
Well as reassessing some of our business strategies.
And those additional cost reductions along with its $100 million to $135 million of savings from the Upsized restructuring program that will generate at least at $200 million run rate of savings as we enter into 2023 and we plan to use these savings to your second part of your question to really support profitability and business margins as we take action.
Towards achieving our medium term financial targets and to a lesser extent plan to redeploy towards strategic investments, including workplace and Huntsman and while we will provide.
<unk> guidance for the full year 2023 in February .
These expense actions are anticipated to increase in stabilized.
<unk> 2023, adjusted operating margin in at least the mid 50 percentage range and they'll continue to expand ma's adjusted operating margin.
As well.
Alright. Thank.
Thank you.
Your next question is from the line of Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, so much and congratulations on the proactive.
Expense management.
I don't know.
I said before but.
Can you give us a sense of what level of conservatism you have it in the 2022 guidance based on the adjustments you've made made kind of year to date.
Yeah, Hey, Kevin.
Thanks for joining us today so sure.
The way, we kind of put together the you're talking about.
The remainder of the guidance for the remainder of the year, we've essentially assumed a continuation of what we're seeing right now.
Into and throughout the fourth quarter.
And just to give you a sense.
Our revised guidance.
For issuance implies that fourth quarter rate additions will be down call it kind of a low 40% range.
And.
We have another quarter of assumed unfavorable mix because of the softness in the leveraged finance markets that would mean Ms transaction revenues would be down greater than that right. So they'd be down in the kind of low 50% range and then when you triangulate that back to our revenue implies that in our fourth quarter and minus revenue would be down in the mid 30%.
Range.
And so that feels about right to us that we're going to continue with.
With this environment, we've got a pretty muted environment.
Environment at the moment.
And I think the.
The rest of the year in a way because we're assuming that this continues to kind of think of it as a bit of a wash because I think we're going to be in a holding pattern until the market can get some more confidence about inflation, peaking and in turn the some certainty around the pace and trajectory of fed rate increases maybe just briefly add two quick points.
Worth highlighting that the confidence intervals around our modeled outlook.
Our wider relative to what we've seen in prior periods and that simply reflecting the heightened market uncertainty and volatility that we're currently experiencing and then contrast, EMEA has shown significant resilience to the current market disruption really as our customers continue to elevate and improve their level of risk resiliency, which underscores the.
The mission critical nature of our products.
Thanks, so much.
Your next question is from the line of Toni Kaplan with Morgan Stanley . Please go ahead.
Thanks, so much.
Wanted to ask again on the sort of outlook on an issuance long term.
Highlighted the refunding needs that.
Support is and just wanted to understand if there's anything that you've seen so far that would lead you to think that companies will try to delever in the coming years or anything that would sort of change.
The structural versus cyclical debate and I know Rob you already said that you still think it's cyclical but just any data points that you are looking at that would maybe.
Fluids that.
Okay.
Right.
Yes, Tony sure. So we'll kind of zoom out here and if we need to kind of zoom back ended 2023 I'm sure will.
I'll do that.
But as you said, Tony Theres, some pretty deep cyclical issues at the moment, we've talked about all the macro uncertainty you've obviously got the market working off some of the excess supply.
Of issuance over the two pandemic years.
But.
There are a few things I think that we're looking at that we feel are providing some.
I would say structural support for recovery in issuance markets.
I talked about.
I talked about the refinancing walls and those are very significant.
There is some concern during the pandemic with ultra low interest rates debt.
We were eating into those.
The maturity wall as it turns out there there are intact and in fact, continuing to grow and we will provide support for transactional revenue.
But I also say this is there's been no change to the relative attractiveness of debt financing and you remember on various calls over the past or we've been talking about potential changes to tax codes and other things none of that is out there. We've also seen there's been a lot of focus on cash balances.
Certainly U S. Corporates were building cash during the pandemic years, we've started to see that come down so our cash pile report that shows about a 7% decrease over the last year, our cash levels are similar to where they were in 2018.
And I would also say Tony that.
I'm going to zoom in on the U S for a moment, but U S. Corporates are in pretty good shape from a leverage standpoint.
When we look at free cash flow to debt, that's one way to look at it across our rated.
Corporates, it's at about.
11%, that's the best that it's been since 2011 so.
That to me means that corporates still have some room to take on some additional leverage and then the last thing maybe I would say is at the moment, we're continuing to see some stability of spreads.
Remaining around historical averages you heard me talk about our backlog of STM. So despite all of this and maybe thats not a long term maybe that's it.
A shorter term, but we do have.
We are seeing a lot of interest from issuers, who want to tap the markets.
So as economic growth picks up we expect all of that to be positive for issuance.
Do think this is as I said is mostly cyclical cycles come and go but we feel good about our leverage to a recovery in the markets.
Super Thanks.
Your next question is from the line of Andrew Nicholas with William Blair. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Just wanted to clarify a few things on the restructuring program first I want to make sure I'm looking at the slide Slide 10, I want to make sure that incremental savings of up to $100 million on the non restructuring related expense actions I want to make sure that that's something that that's baked in as opposed to a contingency plan and then also if you could give any.
And I apologize if I missed it in terms of the split of those cost savings between corporate expenses versus mix versus M&A I think it'd be helpful to understand that mid <unk> range that you alluded to mark how much of that is a consequence of cost savings versus our cost actions.
Versus maybe some some baked in growth next year. Thank you.
Good day good afternoon.
In terms of the incremental savings of up to $100 million that we listed on that page 10 of the supplemental slide state those are not contingency based savings. Those are certainly actions that we will anticipate taking maybe Andrew let me take your question from the perspective of that expense levers that we have in the business and I will try to group. This.
Really full primary buckets and that will give you a feel for how ultimately those savings are going to translate through to the two different statements.
Labor is very much related to our hybrid and purpose driven work environment and this environment really enables us to be equally effective.
And productive as we were pre pandemic with a much smaller physical office footprint. So last quarter, we announced plans to exit certain office space and after further assessing the best use of our real estate footprint as well as.
Gathering feedback from our global employees on their workplace preferences, we have identified additional opportunities for real estate rationalization as part of that expanded global restructuring program and that real estate rationalization at range that we're looking at is between that $50 million to $70 million in total the.
The second category I'd point, you to is certain non compensation costs like at <unk> that are primarily business facing and those have increased compared to the prior two years.
Now, although we anticipate these expenses to rise there are others that we are prioritizing and reducing through supplier cost avoidance is at rebates and volume discounts as well as negotiating for comparable levels of service with more favorable terms and that's going to include assessing whether any existing external services can be absorbed.
And Tom employees at day to day responsibilities at.
The third category is really the largest and that's our largest expense and thats people and approximately 60% of our expense base is compensation and benefits and we've already taken aggressive actions to prioritize hiring and hiring and open positions in key areas and really as part of our expanded restructuring program, we plan to increase our <unk>.
<unk> of some of the alternative lower cost locations again, where those requisite skills and talent exists, but protecting ultimately the high quality of the ratings and continuing to invest and those actions themselves is really what's going to lead to a higher amount.
Adjusted operating margin at least in that mid <unk> range that I mentioned earlier, and then fourth and finally, we also have naturally occurring expense leverage in the business for example, through our incentive compensation accruals and as Theyre going to flex based on the actual performance as compared to the financial targets that we set at the start of next year and just to reinforce not contingent.
Those are actions that we're taking now to make sure that we can realize those savings for full year 2023.
Great. Thank you.
Your next question is from the line of Jeff Silber with BMO capital markets. Please go ahead.
Thanks, So much wanted to get back to the issuance environment I'm. Just curious what you think will be the first sign that issuers are looking forward to come back into the market and where in terms of which verticals we might see those green shoots.
Yes, so maybe.
Maybe this is a good time to kind of talk about 2023, and how we see.
Issuance starting to evolve over the.
The coming quarters.
And I'll touch on what those triggers are as I talk about that so.
As we always do we're going to provide are.
Our official forecast and guidance on our fourth <unk> fourth quarter earnings call in February It's just too early I'm sure as you can appreciate given all of the uncertainty.
But the first thing so the first trigger is I think we've got to get some certainty into the market and I mentioned earlier that means that the market has got to get confidence that inflation is peaking so that the market can then get comfort with the pace and trajectory of of fed rate increases and that is really really important.
And I don't think we've seen that yet.
And so our view is that fed funds is going to peak.
Sometime in the first quarter of 2023.
But the.
The headwinds that we've got now we're not just going to disappear overnight, we think that it's going to take into early 2023 to resolve some of that.
And we're still going to have a relatively tough issuance comp in the first quarter.
And maybe it's worth me just kind of saying just in terms of where do I think we are in all of this.
I think that the third and fourth quarters of this year are really kind of the trough for us in terms of the rate of issuance decline from prior periods and I think that's going to gradually improve throughout 2023, and particularly in the second half of 2023, when we get some easier comps. So I think we're going to look for that certainty.
As I said, what we typically see.
In terms of.
The market's opening up so you see the investment Big investment grade issuers, you start to see opportunistic investment grade issuance and then you see higher rated leveraged finance issuers starting to tap the market and really start to open the leveraged finance market back up so we're going to we're going to want to have.
Default rates that are that are under control spreads that are as I said that was important to look at spreads around the historical.
Historical averages and then then we'll start to see that leverage finance market open up as I said, we've got a lot of backlog. We've got a lot of first time mandates that have not tapped the market and we know there's a lot of private equity dry powder waiting to get deployed so that's how I would think about.
When we can what it's going to take to start to kind of unlock the market.
Alright that was really helpful. Thanks, so much.
Your next question is from the line of George Tong with Goldman Sachs. Please go ahead.
Hi, Thanks, good afternoon sticking with the topic of debt issuance your guidance implies <unk> issuance will be down in the low <unk> range similar to <unk>. If you look at how <unk> progressed did it get worse progressively moving through the quarter and the first couple of weeks of October were quite weak much much.
Steeper declines.
In the low $40. So just.
Curious what what assumptions are you baking into into into <unk> are you assuming the exit rates from <unk> and early <unk> will reverse and get better such that you land at overall average <unk> levels and if so what are you seeing in the markets that would prompt that.
Joe Jay Good day, good afternoon, and this is mark here I think your underlying hypothesis in thesis is very consistent with the scenarios that we looked at in setting our guidance for the remainder of the year and we definitely overweighted that September and October month to date issue.
<unk> informing our outlook for the remainder of the year. However, they really are two key points I want to stress here one the bands are wider.
Now thinking about the outlook for the year than what we've historically seen and second we do believe this disruption is predominantly cyclical in nature and you heard Rob talked about a minute ago that we may be at the low point of the cyclical cycle. So while we may see at transactional revenue declines in the first half of next year, they are unlikely to be that.
Same level of severity that we've seen in the fourth in the third quarter and our implied for the fourth quarter. So those are the kind of things that we're thinking about as we developed the forecast for the year and as we're thinking about the first half of next year.
Got it thank you.
Our next question is from the line of Owen Lau with Oppenheimer. Please go ahead.
Thank you and thank you for taking my questions could you. Please talk about how the private credit markets have impacted your results.
Is there any area that Moody's can still get a piece of it and also how do you think about your ability to achieve your medium term target space on current backdrop. Thank you.
Hey.
Thanks.
This is an interesting topic and we've been getting some questions from investors about this so let me share a few perspectives on this first of all just kind of the size of the market at about $1. Two trillion. In 2021 is expected to continue to grow assuming that this asset class continues to hold up but the segment.
A market that represents I think.
The potential cannibalization risk, our loans, I'd say $300 million and up.
That's kind of broadly the minimum threshold for deals that get done in the public market and in 2021, something like $50 billion.
<unk> done in the private credit market versus the leveraged finance market that was call it $1 three trillion.
So this year, we've had severe dislocation in the public leveraged finance markets and that figure for that that cohort of loans.
Could be as high as you know kind of 90 to 100 billion. So.
Yes, the private credit market was able to step in and provide some financing for certain transactions, while the public markets were dislocated but.
But I think that actually brings us to an interesting question about risk and sustainability. So private credit market clearly is more flexibility to provide higher leverage than public markets meaningfully higher leverage.
The private.
The cost of private debts, it's typically higher yielding right, so more expensive than public markets and leverage companies with expensive debt typically.
Typically have high default rates during periods of stress so.
I'd be wary of people that tell you that.
This time or this sector is different so it remains to be seen how this asset class is going to fare. If we've got a meaningful increase in credit stress I think it's probably going be hard to get a true apples to apples comparison on default rates.
Given that private lenders may be able to renegotiate.
Agreements and signs of credit stress so.
That growth in that opacity in this market is leading some people to start to call for regulation, but it's also where I think.
That growth in our past these where we can add value so far.
First as I said, given the cost of private debt I think is corporate borrowers.
As their credit profiles improve.
We're going to see some of these companies want to move from the private credit markets into the public credit markets. So that growth of the private credit markets. I think does represent some some future first time issuers into the public markets over time second of all.
We're actively engaged in outreach in this market to see how we may be able to provide things like private ratings or credit assessments for for those companies do in fact tap the public markets.
The other thing I'd say is we're.
We're starting to engage with investors in these credit funds, who are looking for more transparency as to the credit quality of the funds that are invested in and they're saying hey, rather than the internal risk ratings at these credit funds are using we.
We want to get an independent assessment of credit risk of the portfolio that we're invested in so I think we're really well positioned to serve that particular need we've got our risk calc and EDF credit models that are really considered the gold standard.
Standard for corporate portfolio.
Portfolio credit analysis around the world and we're starting to develop our sales pipeline around that so.
The last thing I'd say is so yes private credit has been a meaningful source of leverage finance funding. This year as public markets were challenged but we are seeing the market dynamics in that market starting to shift a bit as well.
Private credit is not immune to.
What we're seeing in the market. So you see credit funds cutting back on that packages are increasing the equity component of deals or pulling back from from big buyout. So while we're engaged with private borrowers private equity credit funds and investors.
To see how we can play a more important role by bringing transparency to this market so stay tuned.
On your second question just on the medium term targets. So we introduced medium term guidance in February of this year, and we said 2021 as the base year.
And that was obviously prior to the very significant geopolitical shocks that have resulted from the Russia, Ukraine conflict as well as the unforeseen degree to which inflationary pressures.
Driven by post pandemic demand supply mismatches would emerge.
In establishing our medium term targets.
We intentionally assumed a period of economic strength following two historically strong issuance Harrison our assumptions included foreign exchange rate stability.
As well as the expectation for interest rates to gradually rise.
Over this period with global GDP gradually decreasing.
However, as we know this is certainly not how 2022 has unfolded in the space.
And the degree of macroeconomic headwinds with inflation.
Levels not experienced in decades.
As a result, we've seen central banks rapidly rise rates and attempt to curb inflation expectation and we've seen FX rates at react quite significantly with the flight to quality and so those factors collectively contributed to a lot of what we've spoken about on the call. This morning, really that extended and more severe and market disruption.
Fundamentally we believe the underlying factors and drivers of our business remain firmly intact.
And the key to achieving our medium term targets is going to be heavily influenced now not only by the macroeconomic outlook a bit we'll sell efforts around expense prudence and discipline.
And the issuance recovery pattern that we're going to see in 2023 and beyond this issue has returned to the market to refinance those existing obligations and the working capital needs and really invest for growth.
So given those developments will be.
Revising select medium term guidance metrics, when we hold our fourth quarter earnings call in February .
Thank you very much.
Your next question is from the line of Faiza <unk> with Deutsche Bank. Please go ahead.
Yes, hi, thank you.
So I'm going to sneak into just one is on margins I believe you increased your outlook for 'twenty, two and I'm curious if that.
What's the reason for that if you would maybe deferring some investments that you were originally planning to make this year and sort of if you can talk about.
Any sort of broad outlook on that for 'twenty three and just my second question is I believe you have some interest rate hedges.
In place, where you have swapped to fix.
Fixed rates for floating.
So curious if you could share some perspective around what your exposure is to that and sort of when those hedges expire.
Thank you Faiza good day, good afternoon, and thank you for the questions.
On EMEA margin I'll speak really about 2022, so after expanding <unk> adjusted operating margin to be above 30% year to date and we obviously are pleased to raise our guidance to approximately 30%.
Which is up from approximately 29% last quarter and that includes <unk>.
100 basis points of margin compression.
From unfavorable foreign exchange translation rate in.
And approximately 30 basis points of net headwinds from recent acquisitions, primarily <unk>.
RMS and what that really means is that the underlying margin.
Is expected to expand by over 500 basis points off of 2021 actual results of 26%.
I will note that the 100 basis points improved full year margin outlook does reflect new and ongoing expense control initiatives, primarily supported through actions from our pulp hurdle shared service area. So we're still investing back in the business and we still expect expenses to increase in support of growth opportunities in EMEA.
In the fourth quarter as we capitalized on our existing revenue momentum.
On your second question around floating rate exposure. So we seek to maintain a floating rate exposure of between 20 and 50% of our overall debt portfolio.
Although we initially issue all data at a fixed rate, we do maintain a basket of interest rate and cross currency swaps that convert a portion of outstanding fixed rate exposure to floating rates.
So as of September 30th our floating rate debt was approximately 32% of the portfolio and then now most importantly, that's a portion is 28% euro exposure and just 4% U S dollar exposure.
Our swap portfolio has performed very well historically.
Reduced annual interest expense by about $55 million in 2021, and an anticipated $40 million this year.
And it also brings our average weighted average cost of capital down by about 20 basis points to just over with just under three 1%.
If I try to think forward now.
About the impact to our P&L from the latest forward curve and what they imply for Euro and U S. Dollar moves you could think about the swap portfolio is moving to a more neutral rather than positive impact so taking that into account.
Plus the fact that we issue debt. This past August I would expect the actual interest expense in 2023 to be higher by between 40 and $60 million.
Just to kind of reemphasize the balance that we're trying to get right is being financially disciplined while at the same time, making the investments that we that we need to make to continue accelerating our growth and M&A.
Great. Thank you so much.
Your next question is from the line of Craig Huber with Huber Research partners. Please go ahead.
Yes, hi, Thanks, two quick housekeeping questions on pricing and incentive compensation costs.
Historically, you guys raised prices, usually 3% to 4% on average across the portfolio.
What's it going to be this year. Please.
Is it materially different for the ratings business versus the overall and then.
What's your outlook for pricing maybe next year, maybe it's too early to talk about that but if you could touch on that I appreciate it.
What was the incentive comp in the third quarter versus what it was the first two quarters. Thank you.
Hey, Craig its Rob.
So on pricing and I'll touch.
First of all as we always say we.
We're looking for kind of a 3% to 4% annual price increase across all of our business.
And I would say that if anything the.
When you hear us talking about this all the time the.
The volatility and uncertainty has really reinforced the importance of what we're doing and the value of what we're doing in <unk> as we do every year.
We conduct a very detailed review of our pricing across sectors and regions.
Based on that work in the coming year, our list or list prices will probably reflect a bit more of an increase than our historical average, but our actual pricing realization.
Really as it always does is going to depend on issuance mix, where does the mix, whereas the issuance actually come from <unk>.
In M&A, we always think about our focus on value based pricing and that's why product development and <unk>.
Integration of our content is so important.
We're looking to integrate new analytics and datasets into our offerings because that allows us to support both price increases but also.
Grades and add ons and Thats why we actually think about those those two things.
Together and so we're continuing to see some very good usage and demand for our products that continues to support the pricing opportunity going forward.
Third quarter and year to date incentive compensation accrual was approximately $60 million and approximately $180 million respectively for.
For the full year of 2020, we're expecting incentive compensation to be approximately $240 million and that implies obviously approximately 16 in the fourth quarter and that's around 30% lower than the total incentive compensation, we accrued for in 2021, and Thats, primarily driven by a downwardly revised outlook for it rated issuance.
Okay.
Yes.
Great. Thank you.
Your next question is from the line of Andrew Steinman with Jpmorgan. Please go ahead.
Hi, Rob I'm going to ask you about that trough comment. So if you could just be a little more.
Specific what you meant when you think for us in the third quarter is likely to be a trough for that issue.
Adding that we still have unfavorable mix in the fourth quarter or like when would you expect Ms revenue to start to improve.
Yeah, So what I would.
What I really meant was the the year over year quarterly declines in revenue in Mis, we would expect the trough in the third fourth quarter of this year.
Even though we've got it so we've got a tough comp in the first quarter of next year.
From an issuance perspective, but we think that the rate of declines have probably bottomed out here in the third or fourth quarter, we will start to see gradual improvement throughout the balance of next year.
Right. Okay. That's a revenue comment I got it thank you.
Our next question is from the line of Shlomo Rosenbaum with Stifel. Please go ahead.
Hi, Thank you for taking my question I wanted to touch on both what Manav talked about and.
Tony talked about.
With the refi walls that we keep talking about how much we will support is there from these refi walls for mis revenue like if I were just flat out say 2022 midpoint of revenue guidance. If we just have a refi walls.
That would provide X percent of revenue.
Is that something you can provide so that we can get some kind of sense on that and then just on the refi walls.
Most of the people on this call or were on a call earlier. This morning that heard the CFO , saying, hey, with the rates going up we're going to start paying down more debt in I'm, just trying to understand what leverage measured as debt.
Debt divided by EBITDA it doesn't take into account the interest expense and CFO .
They want their earnings to increase besides just.
Looking at debt to EBITDA and how are you kind of factoring that into your refi wall expectations.
Yes, so maybe just to try to come back and triangulate to see if this can help.
If you think about the finished the first part of your question.
Just think about.
Let's talk about.
Corporate space.
If you think about the maturities that are coming due in 2023 right. So we do our maturity walls. We've got four years of a forward maturities.
And then when we look at what our expectation is for corporate global corporate finance issuance for this year and I understand the 2023 maturity walls are going to refinance next year, but just given current levels of activity.
It's about 50%.
So that I think is how you can start to size right and then you can say, okay, well now as I think about that the way to build to mis revenue, while 40% of it roughly as recurring revenue than I've got 60% transaction, how much is corporate and how much of those maturity walls, they're in corporate.
Yes.
<unk> tends to be much more stable with financial institutions on kind of more regular issuance calendars and so on so.
Hopefully that kind of gives you.
Our sense of the of the size relative to the current activity levels in the market today.
And just finally, just on the deleveraging for a second.
The dearth of issuance that we've seen obviously as a result of the year to date cyclical market disruption doesn't indicate will lead us to believe or expect that trend of deleveraging and just think about this fact, when estimating future refinancing activities are one factor is certainly rising rates and that's going to deter.
Visual company treasuries from necessarily retiring use for example through <unk>.
And that for example through the use of any excess cash on the balance sheet and the rationale that we are thinking there is that as the cost of debt increases.
Companies are going to be more likely to retain debt that was borrowed at more favorable interest rates rather than pay off those borrowings and then incurring the potential risk of being required to re issue in the future at higher rates, and therefore potentially lower investor demand.
Okay.
So we'd ask questions from the line of Russell <unk> with Redburn. Please go ahead.
Yeah, Thanks, Amit Nicole a couple of questions. Firstly am I right in saying the al Ralph with decisions solutions has fallen quarter on quarter from 11% previously to 10% this quarter.
So why maybe start there.
I understand.
Hello, and thanks for joining the call I understand how you draw that conclusion, but I think there is some some nuance here that we need to be able to provide to you. So <unk> is a is an organic number and it always has been for us. So so we have not had RMS in our IRR number that we have been.
Reporting.
So decision solutions.
<unk> grew about 10.
10% in the quarter.
But thats with RMS now included it was not previously so that created a three percentage point drag on decision solutions.
So that would have been 13% if we go back to the last quarter decision solutions now on a like for like basis.
It was 11%. So we look at this is actually an acceleration of a like for like <unk> and I think everybody on this call knows that.
RMS.
Had a lower growth profile, we're confident about our ability to.
To enhance that growth profile, but the AOR growth in RMS today is lower than MAA. So it has a dilutive effect now that we're including it in our metrics I would say the same thing is true if we zoom out at the MAA.
Level and I think that's important to understand too.
RMS with about a one percentage point drag on overall MAA IRR.
Again on a like for like basis.
If we had not included RMS would have been about 10% up from 9% last quarter and as you know, we're guiding to low double digit.
For the for the full year. So you heard me mentioned acceleration of IRR. That's why we feel that there is an acceleration of IRR.
Okay.
Thanks.
And then just as a follow up I mean, given the experience of 2022.
Is now the time to look more seriously at scale M&A opportunities in M&A as a way of reducing earnings volatility in the business and I was just wondering what your appetite for deals in this environment would be.
Yes so.
We.
We have a very active approach to corporate development, we always have.
We have some very well defined.
Product Roadmaps and what we call business blueprints about what are our customers.
Customers looking for across our various <unk>.
Product suites, and where do we have gaps.
We were pretty active last year and over the last several years and we feel really good about bringing in RMS and really bulking up our capabilities around insurance and climate.
So we I think we feel pretty good about the portfolio that we got.
Sometimes it's harder to transact in these markets than you think because there is a bid ask spread between what the sellers think as their valuation and what the buyers are willing to pay.
And.
<unk> always had as a disciplined buyer.
Got to make sure that.
We can achieve the synergies to make sure that we get the return hit the return hurdles that we want so I guess I would say we're always looking.
We're very disciplined in this market.
And we've been using this time to really integrate what we've acquired over the last several years and really make sure that we're getting the value out of those acquisitions that we were seeking to get and frankly, we feel pretty good about the integration and the progress we're making around a number of those deals that we've done over the last few years.
Okay.
Okay.
Your next question is from the line of Jeff Mueller with Baird. Please go ahead.
Yes, thanks for taking the question, maybe if you could put some additional commentary around <unk>.
<unk> rms's growth profiles, so I caught that its on track from a financial target perspective, but for instance, like how are the upgrades to the new platform going where are you in terms of integrating the heritage Moody's capabilities, and leveraging <unk> market and I guess related to it.
Theres some that think ESG has taken a bit of a hit in 2022.
Is that showing through in terms of demand for your ESG solutions from clients and prospects or not thank you.
Yes so.
I would say.
I'm pretty encouraged by where we are with RMS.
And we've got a number of things that we're making some real progress around integration.
We're on track certainly for the financial targets that we announced at the time, we're a year and we have confidence over our ability to continue to accelerate sales and revenue growth next year. I mean, you had asked about some of the tangible things that we're doing.
Let me just touch on a few so.
Had some really nice traction.
Around what we call ESG for underwriting and Thats, taking Moody's ESG content, and then being able to integrate it into the underwriting and portfolio management processes of RMS customers and.
One of the things that.
That our customers were looking for is just very broad coverage and so that's been we've made some very good progress there second we've been integrating rms's life.
Risk models into our existing life offerings and then on climate.
And as you know when we announced this deal we wanted to be able to move.
Much more substantively into insurance, but we also wanted to be able to leverage their climate capabilities and.
Develop developing a pretty thorough product roadmap around what we call climate on demand.
And so we've been engaging with a lot of customers in the banking and commercial real estate space about what they need and want around climate.
And we're building out that capability leveraging the Rms.
And models and we're building our sales pipeline for that another area that we see a lot of synergy is around commercial real estate you've got.
<unk> has a depth of information obviously about the physical risk related to properties, we have enormous amount of information about.
About.
A wide range of.
Aspects of any given property in terms of market location, a credit worthiness of tenants and so on and so we're pulling all of that together to create what we call kind of a high definition view.
<unk> of real estate.
And we think that thats going to be a very very interesting.
Offering for us I'm only going to touch on ESG very briefly because theres a lot more I can get into but around ESG, what we're starting to see.
Is that there is more and more demand to be able to translate ESG and climate, specifically to financial risk with the rigor that the market wants and needs. So I kind of think of that as version two <unk> of what the market is looking for a second the market needs very broad coverage and this is where we're having some great converse.
Patients with our banking insurance customers, who say I need to understand the ESG profile of say 150000 companies.
Well, we've got coverage on $300 million companies, leveraging the Orbis database and our modeling and ESG capabilities. So that as a source of real competitive differentiation for US and then lastly, there's just there's growing demand for understanding the physical risk related to extreme weather and.
And climate change and transition and with RMS We've got that at scale, maybe just two quick numbers around that so we are maintaining our expectation for a 2022 army sales growth at to be in the mid single digit percent range and Thats, obviously up from arguments. This historical growth rate in the low single digit percent range we.
Also now expect RMS to become accretive will moderately accretive to adjusted diluted EPS in 2023, So that's a year earlier than what we previously projected.
In our deal model and as we communicated previously to the market and then finally our expectation for.
ESG and climate related revenue is for a low double digit percent growth. This year to approximately $190 million, yes, maybe the last thing I would add kind of beyond the numbers.
But this stuff is important as we've just found that the marriage with RMS has been a great cultural fit and our teams are working really well together and I think that bodes really well for our ability to kind of deliver on integrated risk assessment together.
Got it thank you both.
Your next question is a follow up from the line of Alex Kramm with UBS. Please go ahead.
Oh, Hey, Thanks, Hello again.
I know, it's late in the call, but just coming back to my original question from earlier.
Mark Your your mid fifties comment on EMEA as was helpful. But I think if somebody else said, there's probably some subtle growth assumption embedded in that so.
I may come back to the specifics I asked about earlier can you give us a little bit more health when it comes to the net impact of the 200 million restructuring.
This year and next year and then how we should be thinking about incremental margins in Ms. As we think about 2023, I think that would be helpful. As we have our own growth assumptions caylee.
Alex I appreciate you coming back into the queue to ask this question, we would like contingency not front run our mis revenue outlook for 2023, I think what we are comfortable committing to the management team is what we are able to control and we certainly are able to.
Control our expense base and I think what we're also comfortable to commit to you is that we'll get the 2023 mis adjusted operating margin at least in that mid <unk> percentage range in other words as you consider modeling. This out we don't want you to take the approximately 51% that we're guiding to for 2012.
Two and assume that say a new baseline.
I guess Alex.
Yes.
I would say.
We don't want a base that I'm, just hoping that there is growth in order to get to that level. So.
Yes.
The hope is not a strategy. So we've really tried to think about the expense base.
Without having to think that the only way that we can get to that margin that mark is talking about is by having a huge snapback in revenue hopefully that gives you a little bit of insight.
No I appreciate that very much. Thank you.
Your next question is a follow up from the line of Manav Patnaik with Barclays. Please go ahead.
Yes, so maybe I can just follow a complete follow up to that question. So with 200 million in savings is that all in the MRO as well how are you.
The good news.
Yes.
Any any kind of margin.
And in the same regard.
Is that the $200 million of at least $200 million in <unk>.
<unk> savings of about 2023 explain space will benefit both.
And EMEA.
As you can anticipate or you could probably infer the benefit to miss maybe larger than the benefit to MA given how we're targeting expenses, we're being very deliberate and very thoughtful around how we manage the expense base for the two businesses as well as the allocation of corporate expenses.
The MA adjusted margin.
Margin as we think about it I think the way I proposed to do you think about this is through a medium term.
<unk> here and there I would say that we remain on track to achieve our medium term adjusted operating margin for EMEA.
At mid 30% range within that three to five years and that's primarily due to as you heard on this call increase in the proportion of that subscription based product sales. They provide improved operating leverage, especially as recurring revenue becomes an increasing proportion of total.
Total revenue base.
Okay.
Your next question is a follow up from the line of Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, so much hey, theres been a lot of questions on corporate issuance, but I wonder Mark if you could talk about your own debt. It seems a little high anything to kind of call out. There just is a timing maybe you could just frame that for us a little bit.
Kevin Thanks, very much for the question. So we remain committed to anchoring our financial leverage around the triple B plus rating.
Which we believe provides the appropriate balance between ensuring ongoing financial flexibility.
And lowering the cost of capital and capital management, Moody's really does extend beyond prudent allocation, we are thoughtful about our leverage and liquidity levels as well as maintaining a strong balance sheet and you know the last two years, we've enhanced our capital position and reduced our cost of capital both by structuring a well lettered debt maturity.
Scheduled and by extending our debt maturity profile to take advantage of at the time was a relatively flat yield curve and historically low rates.
Although our net debt to adjusted operating income and I think this is the point that you were getting at was two three times as of September 30, and Thats well within the Triple B plus rating range.
When accounting for our cash position, we have seen an uptick in our gross debt to adjusted operating income range, which is approximately two nine times as of September 30th, but Thats. A direct result of the significantly weakened global economic conditions again relative to our first and second quarter outlook and that means we are considering.
The possibility of perhaps executing a very small or very limited <unk>.
Repurchase strategy in the coming months, just allowing us to Opportunistically take advantage of current market conditions to marginally marginally marginally delever, our balance sheet and improve our gross debt.
Disposition.
Okay. That's helpful. And then I know, it's getting late but mark just any comments on capex for.
For the balance of the year.
Absolutely.
We expect Capex for full year 2022 to be approximately $300 million.
As a reminder, there are a number of factors underpinning, our capex guidance, including our strategic shift shipped to developing <unk> based solutions for our customers' continued acquisition integration activity specifically around our recent <unk> acquisition as.
As well as ongoing enhancements to office and it infrastructure associated with some of our workplace of the future programs, we're not providing guidance for 2023. However, we do currently foresee absolute dollar capex.
To remain at similar levels to 2022 <unk>.
Especially as we continue to emphasize developing hosted solutions.
Very helpful.
Your next question is a follow up from the line of Craig Huber with Huber Research partners. Please go ahead.
Yes, hi, Mark can be favorite can you just dig in a little bit further on your 2022 expense bridge attribution and also curious what's your currency sensitivity right now on costs. Thank you.
On the 2020 to explain to outlook, we are lowering our full year 2020 to operating expense guidance.
Growth in the high single digit percent range to the upper end of the mid single digit percent range.
And our outlook for the year assumes additional expense accruals in the fourth quarter of up to $55 million related to the expanded restructuring program that we've spoken about.
If I would exclude these restructuring related charges our outlook for the full year operating expenses would have been at the lower end of the mid single digit percent growth range and it's just demonstrating the ongoing expense discipline and prudence, especially compared to our full year guide back in February which was for an increase in the <unk>.
Low double digit range for expenses at that time, specifically to your question great.
For the full year 2022, we anticipate expense growth.
Approximately seven percentage points related to acquisitions completed in the last 12 months, that's primarily army.
Proximately three percentage points related to the restructuring program.
And then ongoing growth and investments net of cost efficiencies and lower incentive compensation is approximately flat.
And then there's a small partial offset from favorable movements in foreign exchange rates of approximately four percentage points mentioned get you to that answer on your second question just on FX, we have seen significant moves to set this quarter in FX and so if I were to update the annualized impact of further foreign currency movements from <unk>.
<unk> purpose as they would be.
Every one movement between the U S dollar and the Euro will impact full year EPS by approximately <unk>.
And then full year revenue by approximately $10 million and in every one cent ethics movement between the dollar and the pound impact full year revenue by approximately $2 million and then full year operating expenses by 2 million so call that effectively neutral on an EPS basis.
Great. Thank you.
Your next question is a follow up from the line of Owen Lau with Oppenheimer. Please go ahead.
Thank you for squeezing me in could you. Please talk about it is there any impact from the inflation reduction Act on your share repurchases program. Thank you.
I don't think we expect any material impact tax impact at least.
On share repo.
Okay.
Okay.
Okay. Thank you very much.
Yes.
Your next question is a follow up from the line of Shlomo Rosenbaum with Stifel. Please go ahead.
Hi, Thank you for squeezing me back in Hey, Rob MAA revenue has been remarkably.
Resilience I was just wondering is there any areas within there that you would think if we head into like a real.
Significant recession that we would start to see some kind of changes in the growth rates over there how should we think about that on a component basis.
Yeah, Shlomo Greg Great question.
I mentioned in the opening remarks that it's.
It's been pretty a cyclical.
And.
I know it might sound trite, but it is because they are providing.
These mission critical products that are helping organizations deal with risk. So in times of stress the value prop of our of our offerings actually increases and we see that with things like our credit view usage that's up.
On a year over year basis.
And I have to say I've been meeting with a lot of customers and.
This strategy to help customers with its multi dimensional and integrated perspective on risk. It really does resonate and I think it resonates more now than ever we're having some really great conversations with our customers.
So we feel good about that.
If you think about like a severe downturn.
Let's take the global financial crisis.
In that case.
What we saw was that we had some.
Some bankruptcies, we had some consolidations.
In certain sectors the banking sector, obviously was under.
Pretty severe stress and at the time, a much bigger proportion of <unk> customer base was banking.
We were more exposed to the banking sector at that time and.
And we did see that retention rates would tick down a little bit.
As we lose customers.
And we've talked about on the calls before our retention rates are pretty high right now.
But we could also see some lengthening of sales cycles I think others.
You would see the same kinds of things are more challenging pricing discussions, which is why back to that point I made around pricing. It's so important to be thinking about what is the value that youre driving into the products to be able to support pricing.
It's really important to be able to communicate that to your customers in times like this so.
But I guess the last thing I would say Shlomo is yes, it's a pretty challenging environment right now and not only are we not seeing that but as I said earlier, we're actually accelerating our growth in EMEA.
In the current environment.
Okay great.
Okay.
And at this time there are no further questions. Please continue with any closing remarks.
Okay with that thank you everybody for joining.
<unk> the questions and we'll talk to you on the next earnings call have a good day.
Yes.
This concludes Moody's third quarter 2022 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. Additionally, a replay will be made available immediately after the call on the Moody's IR website. Thank you.
Please wait the conference will begin shortly.
Okay.
Sure.
Okay.
Okay.
Okay.
Yes.
Okay.