Q1 2024 Moody's Corp Earnings Call
Good day, everyone and welcome to the Moody's Corporation first quarter 2024 earnings call. At this time I would like to inform you that this conference is being recorded and that all participants are in a listen only mode.
Speaker Change: At the request of the company, we will open the conference up for question and answers following the presentation.
Speaker Change: I will now turn the call over to Giovanni Cock head of Investor Relations. Please go ahead.
Giovanni Cock: Thank you good morning, and thank you for joining us today I'm <unk> head of Investor Relations. This morning, Moody's released its results for the first quarter 2024, as well as our revised outlook for select metrics for full year 2020 call. The earnings press release and the presentation to accompany this teleconference.
It's available on our website at IR Moodys com.
Giovanni Cock: 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 reconciliation between all adjusted measures referenced during the school can you Oscar.
Giovanni Cock: 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.
Giovanni Cock: Accordance with the anti 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.
The December 31st 2023.
The 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.
Giovanni Cock: Also like to point out that members of the media maybe on the call. This morning in a listen only mode.
Giovanni Cock: I'll turn the call over to Rob.
Rob: Thanks, Giovanni good morning, and thanks, everybody for excuse me joining today's call.
Rob: Before I touch on a few key takeaways from our first quarter results.
Rob: I'm going to start by saying how.
Rob: How excited I am to be joined today by Nuomi alone, who officially joined Moody's on April 1st and as I mentioned on our last earnings call Nuomi brings almost 25 years of global financial and accounting leadership experience at some very large public companies with a real depth of experience in technology and <unk>.
Rob: Software as a service and we're really fortunate to have her as our chief financial Officer, and I look forward to all of you getting to know her in the coming weeks and months so with that let me turn to our first quarter results.
Rob: We delivered an impressive 21% revenue growth capitalizing on a strong issuance environment and continued demand for our leading risk assessment solutions, we delivered strong top line performance and margin expansion in both businesses and that translated to adjusted diluted EPS of $3 37.
Rob: For the quarter.
Rob: Now starting with.
Rob: Obviously, a great quarter.
Rob: And over the last several years you all have heard me talk about the investments that we've been making in analytical talent and technology enablement to ensure that we are the agency of choice for investors and issuers and in turn position us to capitalize on more robust issuance periods and in the first quarter we did.
Rob: That and we showed the tremendous operating leverage in our business.
Rob: With the second highest quarterly revenue on record up 35% year over year and an adjusted operating margin of 64, 6%.
Rob: Meanwhile, EMEA reported another quarter of 10% are our growth growing across all lines of business.
Rob: Including double digit growth in both decision solutions and data and information.
Rob: And during the quarter, we executed.
Rob: On our strategic investment roadmap across platforming product innovation and Jen AI enablement.
Rob: This quarter highlights the unique strengths of our business model.
Giovanni Cock: We're tracking to our medium term EPS target of low double digit growth. While we are funding. This investment program that will drive future growth.
Giovanni Cock: All while we expect to return over $1 6 billion.
Giovanni Cock: To stockholders this year through share repurchases and dividends.
Giovanni Cock: That is the power of the Moody's compounding machine.
Giovanni Cock: We're also updating a few of our guidance metrics and Nuomi will give some details on that a little bit later in the call. So we've got our eye on the ball. We're looking ahead and we are focused on our mission to be the leading source of insights on exponential risk.
Nuomi: So with that let's dive in a little bit more on the financial performance of our businesses this quarter and our latest expectations for the full year.
Giovanni Cock: And as I've said before.
Giovanni Cock: This really is one of the world's great business franchises, it's widely recognized as best in the industry with strong global coverage and cross border and domestic debt markets and it has a growing range of offerings to support growth areas like private credit in transition finance and.
Giovanni Cock: Maintaining that leadership position really is critical in order to capitalize on the resurgence in opportunistic issuance that we experienced during the first quarter.
Giovanni Cock: And that's what played out during the quarter.
Giovanni Cock: Mrs delivered as I said growth of 35% in the quarter, including 50, 57% growth in transactional revenue and a key driver of this growth in the quarter was the leveraged finance markets, a real strength for us where revenue was up 144% versus the prior year quarter. That's that's quite a growth number.
Giovanni Cock: <unk>.
Giovanni Cock: And as I explained a few quarters ago, we established a dedicated private credit team in Ms and that's starting to pay dividends as we are better positioned to service. The continued growth of the private credit markets as well as a wave of deals refinancing from the private credit markets into public markets and while it's early we're in.
Giovanni Cock: <unk> by interest in our transition finance offerings and that includes our.
Giovanni Cock: Second party opinions and our new net zero assessment and we already have several major issuers like electricity there, France that have published our net zero assessment.
Giovanni Cock: And with discipline around expenses.
Giovanni Cock: <unk> delivered an adjusted operating margin of almost 65%.
Giovanni Cock: Again, demonstrating the tremendous operating leverage in this business.
Giovanni Cock: Now while the first quarter issuance was very robust. It is still early in the year and there are some uncertainties. So we're a bit cautious in regards to changes to our full year outlook at this point in the year.
Giovanni Cock: Issuance in the first quarter benefited from pull forward given the favorable market environment and questions about the back end of the year in regards to upcoming U S elections.
Giovanni Cock: Ongoing tensions in the middle East and uncertainty around U S inflation in central bank rate cuts. So consequently, we have not changed our full year issuance and revenue growth guidance targets.
Giovanni Cock: However, our updated outlook now centers on the upper end of both ranges and there are some things that we're watching.
Giovanni Cock: To determine if we've got some upside to our current outlook.
Giovanni Cock: The global economy has certainly demonstrated resilience and that's also going to be reflected in declining high yield default rates, which are now projected to.
Giovanni Cock: To range between three to three 5% by year end and we see some strong investor demand for riskier assets, that's kept spreads tight notably we're starting to see M&A activity pick up private equity funds are actively seeking exits and looking to deploy huge pools of capital. So again, there are some things that were keep.
Giovanni Cock: Being a close eye on and I'm sure we're going to discuss.
Giovanni Cock: A little bit further in the Q&A.
Giovanni Cock: So now turning to Moody's analytics as we've seen over the years MA continues to be a very consistent growth engine for us achieving 65 consecutive quarters of revenue growth and now six consecutive quarters of double digit <unk> growth.
Giovanni Cock: Our retention rate has held steady at 94% for the last two years and yet again for the first quarter of 2024, and then that is a real testament to the stickiness of our solutions.
Giovanni Cock: So as we look across our reported lines of business in EMEA, we can see our land and expand strategy inaction, so starting with <unk>, which I think you can see on the bottom far.
Giovanni Cock: Far left of the webcast slide about a quarter of our 18% <unk> growth in the first quarter is from new customer acquisition. So a lot of new logos adopting our solutions in this space.
Giovanni Cock: The other end of the spectrum about 90% of our insurance AOR growth of 10%.
Giovanni Cock: Is from really strong execution of our cross drops cross sell strategy across our existing customer base.
Giovanni Cock: Clearly RMS is an important contributor to that and it continues to deliver against the targets that we set back in 2021, and I think a number of you will remember that at the time of the acquisition RMS was growing at a low single digit pace and it's moved up very nicely as we've made progress on migrating customers to our SaaS.
Giovanni Cock: <unk> platform and really activating our cross selling strategy and that includes things like climate models to banks, and Conversely, selling data and analytics.
Speaker Change: Now switching gears a little bit.
Speaker Change: Last year at this time, we were just starting to mobilize around Gen. AI in fact.
Giovanni Cock: We hadn't even deployed our internal co pilot or announced our partnership with Microsoft at that point and it is interesting to look back because what a difference a year makes and we now have a framework for our suite of Gen. AI enabled solutions that we're rolling out <unk>.
Giovanni Cock: During 2024, it's no longer going to be just about research assistant. So we've categorized our capabilities into three primary buckets that we call navigators skills and assistance and really each of these capabilities deliver increasing levels of value to our customers and we're going to have some distinct.
Giovanni Cock: Economics, so navigators leveraging AI powered natural language user interface.
Giovanni Cock: To help our customers really get the most out of our products and I would expect that almost all of our solutions will have some form of AI navigator or chat what you might think of it as a chatbot and these will be table Stakes I think for both our offerings as well as competitor offerings I would assume in the relatively near future.
Giovanni Cock: Then we've got skills those are specialized gen AI capabilities that connect to Moody's data and content and analytics and we're designing these skills to deliver automation and provide the tools to drive productivity and insight for our customers and that includes things like the planned release of our what we call our quick memo, which is our automated <unk>.
Giovanni Cock: Memo and our quick alert, which is our surveillance and early warning system.
Giovanni Cock: And then we're going to have a set of assistance for a number of our major customer personas, which we are going to be a combination of skills and prompt engineering that are most relevant to their jobs to be done so.
Giovanni Cock: This go to market framework, I think is going to address the needs of our customers as they move up the spectrum of Gen. AI adoption in their daily work processes and while it is still too early to quantify we now have a pipeline.
Giovanni Cock: That is coming to market in the coming weeks and months and we expect that to help drive our value proposition and retention rates and open up opportunities to serve new users.
Giovanni Cock: So on that note I am very happy to hand, it over to Nuomi to provide a little more color on our results. Thank you Rob.
Nuomi: Let me start by saying that in my previous role as a CFO of a public company, which was also an issuer I've been in the building a few times over the years, but being here as Moody's CFO is both in <unk> and are thrilled.
Nuomi: As we get to know each other I thought it's yet to take this opportunity to share with you My Moody's seizes that drove my decision to join.
Giovanni Cock: Throughout the process everyone. I met has consistently told me what an exciting time at <unk> to join the firm.
Giovanni Cock: Moody's has been a trusted source of financial insights through various economic cycles and every actor in the global capital markets benefit from the value of Moody's products and services.
Giovanni Cock: Coming from the enterprise software ecosystem I can tell you that this network effect. If you will is one of the hardest competitive advantages to disrupt.
Giovanni Cock: Also in my previous CFO role.
Giovanni Cock: Got the chance to interact with Moody's analysts and research teams frequently and each time I left more impressed by the depth and rigor of their thinking.
Giovanni Cock: Moody's ratings and a powerful franchise with sustainable growth prospects.
Giovanni Cock: <unk> reputation and an impressive industry knowledge and expertise.
Giovanni Cock: Now in addition to that.
Giovanni Cock: <unk> built a great set of assets based on proprietary data that goes back over 100 years.
Giovanni Cock: The value of that historical data is unmatched.
Giovanni Cock: And it is my strong belief that Moody's is well positioned to leverage <unk> capabilities as a result.
Giovanni Cock: Whether it's credit.
Giovanni Cock: I see climate or many other use cases, Moody's has integrated and innovated with our customers' needs of the car.
Giovanni Cock: In truth I spent the last 15 plus years talking to my peers about having the right data and analytics tools to make smart decisions in support of the business and so I can attest. The many use cases for Moody's analytics solution set.
Giovanni Cock: As you can tell I'm really passionate about that.
Giovanni Cock: Also as you would expect of a CFO I'll spend some time studying Moody's financial profile before joining.
Giovanni Cock: Some obvious attributes this is a very profitable business, which has delivered 13% of adjusted diluted EPS growth in Q1.
Giovanni Cock: With a high return on tangible assets and over 100% of free cash flow to net income conversion expected this year.
Giovanni Cock: This is an outstanding set of fundamentals.
Giovanni Cock: But there are also unique in that that provides flexibility for investing and innovating to fuel growth.
Giovanni Cock: Another CFO priority is execution on a disciplined capital allocation plan.
Giovanni Cock: I am very impressed with our focus and results.
Giovanni Cock: <unk> generate savings from resource redeployment and automation and then redirect investment spending on areas that will enable us to deliver on our medium term targets.
Giovanni Cock: And we are doing that while aiming to return about 80% of free cash flow to our shareholders in the form of dividends and buybacks this fiscal year.
Giovanni Cock: In my experience the operating leverage of this business and track record of long term sustainable growth are simply remarkable.
Speaker Change: I conclude before I get too cute.
Giovanni Cock: Q1 results and outlook that as a CFO of a company that must abide by a large number of regulations and help its customers deal with an increased number of larger more interconnected risks.
Giovanni Cock: I'm very proud to have joined the team that puts risk management at the center of what we do.
Giovanni Cock: With Brazilian operations and a fantastic culture.
Giovanni Cock: I spent some time with Rob and his leadership team the board and many folks in finance and beyond.
Giovanni Cock: The culture warm and sharp intellect of the people at Moody's and a sense of belonging is very special.
Giovanni Cock: And for all these reasons I cannot think of a better place to be.
Giovanni Cock: Now turning to the first quarter results.
Giovanni Cock: As you heard from Robert we started the year strong with reported revenue growth of 21% and adjusted EPS growth of 13%.
Giovanni Cock: Although the first quarter last year when as you may recall, we saw a significant nonrecurring tax benefit.
Giovanni Cock: Strong growth and inherent operating leverage.
Giovanni Cock: While making selected investments in strategic areas.
Giovanni Cock: Led to an adjusted operating margin expansion of 610 basis points.
Giovanni Cock: At about 51%.
Giovanni Cock: Which translated into a free cash flow conversion to GAAP net income of over 120%.
Giovanni Cock: Our quarterly free cash flow of close to 700 million was the highest on record.
Speaker Change: Now, let me touch on segment results.
Speaker Change: As Rob said, the insurance rebound led to Mrs delivering its second highest quarter on record.
Giovanni Cock: We saw a strong start across all lines of business on slide <unk> spreads and investor demand profiled opportunistic issuance.
Giovanni Cock: Corporate finance grew 49%.
Giovanni Cock: Predominantly from issuance by leveraged loan issuers and pull forward activity.
Giovanni Cock: Financial institution issuance was the strongest since the financial crisis.
Giovanni Cock: With an elevated level of infrequent issuer activity, which then led to revenue growth of 37%.
Giovanni Cock: On the margin front, the operating leverage of our ratings business.
Giovanni Cock: Coupled with our initiatives to drive operating efficiencies has allowed us to capture the significant rebound in issuance and flow the upside through the bottom line.
Giovanni Cock: With a 780 basis point expansion of adjusted operating margin year on year.
Giovanni Cock: Turning to Moody's analytics first quarter revenue was up 8%.
Giovanni Cock: Growth was driven by strong demand in our data and information line of business with revenue growing 13% year on year and continued demand for our <unk> and compliance solutions with revenue growing 24%.
Giovanni Cock: As for research and insights where revenue grew 3%.
Giovanni Cock: Timing of revenue recognition of our on premise software subscription and transaction revenue, even though these are a small share of the business of this segment.
Speaker Change: If I could the growth rate a bit this quarter.
Speaker Change: As well as a modest an unexpected uptick in credit you attrition from banks and asset managers.
Giovanni Cock: If you look at the revenue from hosted software solutions, though the growth is trending closer to our growth in.
Giovanni Cock: And overall, we expect research and insights AOR growth to tick up to the high single digit range by year end.
Giovanni Cock: Particularly with pipeline momentum picking up around research assistant and unrated coverage expansion in recent months.
Giovanni Cock: Speaking of AAR and they ended the first quarter with annualized recurring revenue of $3 1 billion up 10% from the prior year.
Giovanni Cock: Of note, we saw a sequential acceleration of growth within two of our three lines of businesses decision solutions. They are 12% up from 11% in Q4 'twenty three.
Giovanni Cock: And data and information grew 11% up from 10% supported by higher retention amongst banks and public sector customers.
Giovanni Cock: These two lines of business represent about 71% of total AR. So we're really pleased to see the growth there accelerating.
Giovanni Cock: You heard earlier that our retention rate remains best in class at 94% demonstrating the stickiness of our solutions.
Giovanni Cock: As communicated in February we are actively balancing strategic investments that we believe will drive future growth, including in our cloud platform and product roadmap.
Giovanni Cock: With average operating efficiency initiatives.
Giovanni Cock: That said I'm pleased to report we delivered 29, 7% adjusted operating margin in Moody's analytics segment, an increase of 80 bps year over year.
Giovanni Cock: Let me now turn to our assumptions around issuance that underpin our fiscal year outlook.
Giovanni Cock: As we said in February our full year issuance outlook of mid to high single digit growth accounted for a stronger first half of the year.
Giovanni Cock: Indeed first quarter issuance was strong across all business lines, but mainly from corporate finance and financial institutions, driven by refinancing activities with a significant proportion of that activity being pulled forward.
Giovanni Cock: That said, we're making modest revisions to select asset classes to account for what we saw in the first quarter.
Giovanni Cock: Specifically, we now expect big issuance to increase in the low single digit percent range up from approximately flat.
Giovanni Cock: Driven by the elevated infrequent issuer activity in the first quarter that I mentioned earlier.
Giovanni Cock: In SSG to grow now in the high single digit percent range as a combination of jumbo transactions and increased CLO refinancing activity fuel growth.
Giovanni Cock: Our guidance for first time mandates in the range of 500 to 600 remains unchanged.
Giovanni Cock: I will conclude on issuance by saying it is early in the year and although we like what we saw in the first quarter, our broader issuance outlook for full year 'twenty four remains largely unchanged.
Giovanni Cock: As such we're maintaining our revenue guidance of high single digit to low double digit growth for the full year.
Giovanni Cock: Our updated outlook incorporates various specific macroeconomic assumptions, which are detailed in our presentation.
Giovanni Cock: We are also adjusting our FX assumptions to reflect the appreciation of the us dollar against the euro and the British pound.
Giovanni Cock: We now expect the euro to U S dollar exchange rate and the euro to GBP exchange rate to be one eight and $1 26, respectively for the remainder of the year.
Giovanni Cock: With that background, we are making the following updates to our full year outlook.
Giovanni Cock: Moody's analytics revenue is now expected to increase in the high single digit percent range.
Giovanni Cock: Primarily reflecting the strengthening of the U S dollar I just mentioned.
Giovanni Cock: That said.
Giovanni Cock: Our growth expectation in the low double digit range for fiscal year 'twenty four is unchanged from our prior guidance.
Giovanni Cock: Of note, we are maintaining our full year operating margin outlook for Moody's analytics in the range of 30% to 31%.
Giovanni Cock: As there is a partial FX natural hedge on our expense pool.
Giovanni Cock: Coupled with ongoing disciplined expense management.
Giovanni Cock: For Mis, we just went through the issuance assumptions and we're maintaining our full year revenue outlook of high single digit to low double digit percent range.
Giovanni Cock: And we demonstrated in Q1 that we can capture the increased volume of issuance in Ms and at the same time expand our margins.
Giovanni Cock: Which gives us confidence to raise mis adjusted operating margin to a range of 56% to 58%.
Giovanni Cock: Last.
Giovanni Cock: We told you in February that we would narrow the EPS guidance range with increased visibility.
Speaker Change: And that is precisely what we're doing.
Speaker Change: We are narrowing the adjusted diluted EPS range for the year to $10 40 to $11.
Speaker Change: And that ends our prepared remarks.
Speaker Change: I'm happy to open the call to questions operator.
Speaker Change: 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 you are seeing more HSR equipment.
Giovanni Cock: We will ask that you. Please limit yourself to one question, you'll have a chance to rejoin the queue for a follow up again that is star one to ask a question.
Giovanni Cock: We will take our first question from Heather Bosky at Bank of America.
Giovanni Cock: Yeah.
Heather Nicole Balsky: Hi, Thank you very much for taking my question I really appreciate it.
Heather Nicole Balsky: Hoping you could dig in a little bit more on what you saw in EMEA during the quarter.
Heather Nicole Balsky: Particularly in terms of some of your customers, where you said you saw pressure.
Heather Nicole Balsky: And how youre thinking about that and how you think that trends for the rest of the year is it is it one specific is it assuming that a continuing part of the reason you reduce either.
Speaker Change: Appreciate it.
Speaker Change: Yeah Heather.
Speaker Change: Maybe let me start with the.
Speaker Change: Q1 revenue performance and what we're seeing for the for the rest of the year and I'll pass it to Rob to provide some color on pipeline and sales.
Rob: In the first quarter, we delivered revenue growth of 8% and a growth of 10%.
Rob: We had strong demand for our data solutions and <unk> those are the two that.
Rob: Grew respectively, 13% and 24%.
Speaker Change: As I said in my prepared remarks research and insight was a little unusual this quarter. We had revenue growth of 3% that was affected by some of the mix between a low share of on premise transaction and a shift into more SaaS subscription.
Rob: But if you look at the AAR growth, we haven't changed our outlook for the full year.
Rob: We still expect.
Rob: Our growth to be in the high single digit growth.
Rob: And then low low double digit growth sorry, and then.
Speaker Change: We have just adjusted the Rev.
Speaker Change: Our revenue outlook to account for a lower euro and GBP against the dollar that's primarily what we're doing there is a little bit of seasonality in sales as well are more towards the back half of the year, which drives even if the revenue upside.
Speaker Change: Updated outlook as well.
Speaker Change: But our retention rate remains very strong at 94%.
Speaker Change: <unk> again, which is an indicator of the strength of our underlying business remains strong as well.
Speaker Change: Rob anything you wanted to Hey, Heather.
Rob: Just to double click a little bit I mean, you you asked about retention I would say, we're seeing obviously at the MAA portfolio level very strong overall retention I would say, we do see a little bit of pressure from banks and asset managers, we saw a little bit of an uptick.
Speaker Change: Nuomi just mentioned it.
Speaker Change: In the research business, but some.
Speaker Change: Some improved retention in other areas.
Speaker Change: I would say kind of more broadly.
Speaker Change: You asked about.
Speaker Change: The sales pipeline I'd say the sales pipeline is quite healthy at this point.
Speaker Change: We haven't seen any elongation of sales cycles, we continue to see some strong underlying drivers for our products around digitization and automation and certainly Gen. AI has opened a whole new front and that regulation 360 degree view of risk. So.
Speaker Change: The sales pipeline again healthy and supports our.
Speaker Change: Our comfort with the overall.
Speaker Change: Our guide for the year.
Speaker Change: Thank you very much really appreciate it.
Speaker Change: We'll move next to Manav Patnaik at Barclays.
Manav Shiv Patnaik: Thank you I just wanted to follow up a little bit on that in terms of if you could help us with some of your end market exposures, maybe in EMEA in terms of unit decline pressures we've seen.
Manav Shiv Patnaik: A lot of the other financial information services companies, obviously called out pressure from both the buy side and the sell side. So just.
Speaker Change: If you could help us out going forward, if we should be keeping an eye out on anything.
Speaker Change: Yes, Manav, let me, let me take that.
Manav Shiv Patnaik: I guess I would kind of come back and say, while certainly there are cost pressures that financial institutions corporates.
Manav Shiv Patnaik: The one on the phone at the moment everybody focused on having discipline around expenses I am sure. We can all understand that.
Manav Shiv Patnaik: There are also some really.
Manav Shiv Patnaik: An important drivers of demand and I'm going to I'm going to double click on what I, just just talked about there. So you've got financial institutions. In particular that are focused on these on the digitization and automation across the entire enterprise and institutions have gone from these transformation programs over the last call.
Manav Shiv Patnaik: A decade and now Theyre looking at Gen AI as a way to really accelerate and in some ways derisk those transformation journeys and so we're having some wonderful conversations around that and I think the opportunity look at the value proposition of some of the solutions that we provide manav.
Manav Shiv Patnaik: When you start to think about labor substitution and the time and efficiency that can be gained from our solutions that is a very important too.
Manav Shiv Patnaik: <unk> for our financial institutions customers to really address those cost pressures. So I think while the this.
Manav Shiv Patnaik: The adoption of Gen. AI technologies is going to take a little bit longer at regulated financial institutions. I think it's a very significant opportunity and then the other thing I would go to Manav is.
Manav Shiv Patnaik: Because this is a discussion I have with literally every single customer I talked to which is this desire to have a 360 degree view of who they're doing business with I mean. This is this is everyone that we talk to and you want to understand it.
Speaker Change: To think about optimizing your sales and marketing efforts you want to understand what customers you want to take on we want to monitor those customers you need to understand much more about your supplier network.
Speaker Change: So.
Speaker Change: Institutions are really investing in that and there are some regulatory drivers that are forcing them to invest in that when I talk to the big banks. They all tell me that the regulators are very focused.
Speaker Change: On the resilience of their suppliers. So again, that's a place that with our data and analytics, we can actually help them and help them in a very cost effective.
Speaker Change: Way, so again I feel quite comfortable manav. Despite the fact that we.
Speaker Change: We've got to face off with procurement departments from time to time the value prop around our solutions I think it's pretty compelling given what our customers are focused on.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We'll go next to Toni Kaplan at Morgan Stanley.
Toni Michele Kaplan: Thanks very much.
Toni Michele Kaplan: Strong <unk> issuance quarter.
Toni Michele Kaplan: That was expected.
Toni Michele Kaplan: And you raised fig and structured marginally, but kept corporate sort of the same.
Toni Michele Kaplan: You are calling out sort of improved M&A activity youre seeing.
Toni Michele Kaplan: I'd being towards the high end of the range I guess.
Speaker Change: What gives you sort of reservation not to fully raise that M. I S.
Speaker Change: Guide.
Speaker Change: I know you talk about sort of election uncertainty and rate uncertainty later in the year and the comps get harder but.
Speaker Change: Just talk through the factors because I feel like one Q would have given a little bit of room for for having cushion and doing that thanks.
Speaker Change: Yeah, Toni Thanks for the question.
Speaker Change: And I think part of this just comes back to its <unk>.
Speaker Change: So.
Toni Michele Kaplan: Let me talk to you maybe Tony about.
Speaker Change: Kind of what we see in the year in terms of both what I think could be.
Speaker Change: Tailwind for issuance of where there could be some upside as well as.
Speaker Change: Where we maybe have a little bit of uncertainty or caution.
Speaker Change: And first of all I would just say that.
Speaker Change: There has been a significant amount of pull forward and there's two kinds of pull forward right. There is pull forward.
Speaker Change: The issuance that issuers were planning to do in a calendar year and we are certainly seeing that in fact, when we engage with the banks. The banks are telling their clients that they should bring forward the issuance that they were anticipating doing in the second half of the year and they should bring that forward into the first half of the year, while the market is.
Speaker Change: Open spreads are tight.
Speaker Change: So we're seeing that the second kind of pull forward is really the pull forward of.
Speaker Change: From maturity walls, and refinancing and we are seeing some of that as well.
Speaker Change: And in general as we kind of step back Tony I guess as I think about.
Speaker Change: Where could there be upside.
Speaker Change: And you've heard that.
Speaker Change: We are kind of centering around the higher end of the guide at this point. So I think there is a <unk>.
Speaker Change: Bias to the upside but <unk>.
Speaker Change: Longer economic growth without inflation, increasing that's going to be very positive in particular for the leveraged finance markets. They are the ones most exposed to fluctuations and changes in economic growth, but a real place that I think we're looking at is around the M&A environment and you know a lot of the financing thats been done in the first quarter.
Speaker Change: Was refinancing and so if we see some what I think of as new money transactions to support M&A and in particular sponsor backed M&A.
Speaker Change: I think that that could be in <unk>.
Speaker Change: Upside.
Speaker Change: For issuance for the year and that would not only would we see that come into leveraged loans, but you also see that in terms of new CLO formation. So.
Speaker Change: The commercial the benefit of that will be will be meaningful.
Speaker Change: I think and just in terms of downside risks obviously, there are more questions now about inflation.
Speaker Change: Inflation prints and the timing and trajectory of.
Speaker Change: Fed moves and then there were at the beginning of the year. So I think people have started to kind of reset their expectations and I think people are just looking at the.
Speaker Change: Not only the U S election, but there we've talked about this before.
Speaker Change: Many countries are going to the polls and particularly in the back half of the year. So I think we're seeing issuers, who say I want to be able to get ahead of that and any.
Speaker Change: Furthering of geopolitical tensions you know you can imagine.
Speaker Change: A widening of our regional conflict in the middle East that kind of thing. So we're hearing issuers get in front of that so at this point Tony that has led us to I'd say probably be a little bit measured in terms of how we think about issuance still early but some things to watch and in particular would be I think the M&A.
Speaker Change: Environment.
Speaker Change: Super Thank you.
Speaker Change: We'll go next to Ashish Malhotra at RBC capital markets.
Ashish Malhotra: Thanks for taking my question I, just wanted to follow up on the pull forward comment.
Ashish Malhotra: As we understand the second half pulled forward into first half, but also wanted to better understand.
Ashish Malhotra: The pull forward from 'twenty five 'twenty six how does the refi wall look now for 25 2006, even with the pull forward is that still a much bigger he firewall in 25 26 compared to what we are seeing in 'twenty four and then as you think about the M&A it may not be trending or whats the assumption for M&A as a percentage of overall issuance.
Ashish Malhotra: And how does that compare to an app in each year.
Speaker Change: Yeah Ashish.
Ashish Malhotra: We'll have a little bit better insight.
Speaker Change: Later in the year, when we publish our updated maturity.
Ashish Malhotra: Refinancing study.
Speaker Change: As we always do.
Speaker Change: But I would say that.
Ashish Malhotra: Certainly you've seen issuers, who are addressing upcoming maturities, particularly in loans.
Ashish Malhotra: And there is still some maturities for 2024, they've got to get done not a lot as you as you would expect.
Speaker Change: It's interesting I think.
Speaker Change: If you think about I'm going to take leverage loans for just a moment, let me maybe just zero in on that for a second.
Speaker Change: There was a massive amount of pandemic era issuance and leverage loans and that really does provide a very solid underpinning for future issuance and when you kind of zero.
Speaker Change: On leverage loans, there was something like.
Speaker Change: One <unk>, one five trillion of 2020, one maturities and almost 70 of the 70% of that matures in 2007 and beyond and what that's telling me is that that money that those finance that financing was done at very tight spreads and low rates. So.
Speaker Change: I think that those are not great candidates to be pulled forward right.
Speaker Change: Where you may see the pull forward is there was something like a trillion dollars that was issued in 2022 and 2023.
Speaker Change: So some of that may be candidates depending on.
Speaker Change: What happens again, a little bit later in the year. So we're keeping an eye on that but in general I would say that I see the just given the absolute amount of debt that's been issued over the last several years.
Speaker Change: As a net positive so I'm not concerned that all of this in all future years are being pulled into this year, because when we think about that velocity, which is issuance and I'm looking at the corporate market issuance over total debt outstanding debt.
Speaker Change: Is that velocity is as a percent versus kind of the 15 year average quite.
Speaker Change: Still well under that 15 year average so I think there is still a good bit of issuance on M&A.
Ashish Malhotra: We have not changed our outlook, but as I said there are some green shoots we've seen some strategic deals we've seen some sponsor backed deals so all of that.
Ashish Malhotra: Is encouraging I talked about why sponsored backed M&A is so important so we're expecting I would say a modest recovery in 2024.
Ashish Malhotra: That's what's built in but this really is I think a wildcard, but one other thing I would say is that.
Ashish Malhotra: Our rating assessment service, which.
Ashish Malhotra: Gives us some visibility into the M&A pipeline because that then comes into issuance that we have seen.
Ashish Malhotra: Pick up a very nice pickup in our rating assessment service, so that does give us some.
Ashish Malhotra: Our confidence that the M&A market, we will continue to improve for the balance of the year.
Speaker Change: That's great color. Thank you. Thank you.
Speaker Change: We'll move next to Andrew Nicolas at William Blair.
Andrew Owen Nicholas: Hi, Thank you for taking my question I wanted to ask about the AI frameworks that you outlined in the presentation and webcast deck and I think Rob you made mention of there being kind of different monetization strategies across each one of those buckets. So I was hoping you could expand on.
Andrew Nicolas: And that comment and maybe on.
Andrew Nicolas: Progress in terms of monetization or even a better understanding of the.
Andrew Nicolas: Type of impact that could have whether it's in 'twenty four and the out years. Thank you.
Ashish Malhotra: Yes.
Ashish Malhotra: So the first thing we wanted to do is make sure. We had a framework we have a lot of innovation going on.
Speaker Change: And we wanted to make sure that we're able to be thoughtful about how we go to market.
Speaker Change: With that innovation for our customers.
Speaker Change: And I think youre going to see us.
Speaker Change: Deploy.
Speaker Change: Across the spectrum with our customers because.
Speaker Change: Our customers.
Speaker Change: We're either going to deliver Gen. AI enabled workflow software right. So those are our customers who are using our software and that's where we'll have gen AI enablement and our skills and our assistance on that we will have our navigators to help our customers get the most out of those offerings.
Speaker Change: Some of our customers are going to want to integrate either our gen AI Apis or a rag apis into their own internal workflow or just raw data feeds and other content with additional rights to be able to using their own AI platform. So there will be different ways that we are going to be delivering.
Speaker Change: Our AI enabled solutions and of course, there is also a third party platforms, we're working to build out an even larger ecosystem of partners. So that our customers can also access our content.
Speaker Change: In systems, where where they're making decisions so I think.
Speaker Change: They talk about kind of navigators and skills and assistance, maybe one high level way to think about this the navigators again I talked about that as probably being table Stakes. This is making our solutions much easier to use.
Ashish Malhotra: And I think that will be that will support the value proposition and ultimately the pricing and also the retention exactly I think that's where that's going to again I think we're going to see that will be table stakes everybody's going to have.
Ashish Malhotra: Use chat bots and other things to make their solutions easier to use.
Ashish Malhotra: It's the skills, where we're taking the proprietary Moody's content and then delivering that into <unk>.
Ashish Malhotra: Workflow for our customers and then aggregating those skills and prompt engineering into an assistant for people in banking for people in insurance for people in compliance and I think youll see us.
Ashish Malhotra: We're thinking about how we're going to price for that whether it's going to be.
Ashish Malhotra: I think we will have different models, but you can imagine in some cases it will be.
Ashish Malhotra: An increase to the overall subscription in some cases, you can imagine an element of a consumption model.
Ashish Malhotra: Based on how much you are consuming across these these skills in our various data and content content sets. So.
Ashish Malhotra: It's still a little early.
Speaker Change: And I know everybody wants to get some visibility on that but hopefully that gives you a little insight nuomi anything to add there. The other thing I would add.
Nuomi: Reflecting on.
Nuomi: The conversations we're having with customers.
Ashish Malhotra: Want to partner with firms that can be trusted when it comes to data integrity.
Ashish Malhotra: <unk> strong reputation for robust analytics and modeling skills. They are still assessing their own framework when it comes to dealing with vendors on G&A I <unk>.
Ashish Malhotra: Enabled solutions and that's why I think we differentiate ourselves given our reputation our history and all the work we've done to build that framework. So.
Speaker Change: I just wanted to add that.
Speaker Change: That's helpful and welcome noisy.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Scott Wurtzel at Wolfe Research.
Scott Darren Wurtzel: Hey, good morning, and thanks for taking my question here I just wanted to go on some margins just given the outperformance in the first quarter and in the context of your sort of reiterating and holding total company operating margins for the year. I was just wondering if there was any element of reinvestment plans from the upside that you saw in the.
Scott Darren Wurtzel: First quarter, that's sort of keeping that operating margin stable or is it really just more about kind of the implied deceleration in mis revenue as we move throughout the year.
Speaker Change: Thanks, So we I can't make it to take that.
Speaker Change: We've increased the mis adjusted operating margin by 50 bps for the full year, we've maintained our MA adjusted operating margin unchanged. Despite a bit of a revenue headwind. That's because we are very mindful in our spend we are investing strategically, but we also are building efficiencies into the system.
Speaker Change: So all in all the outlook in terms of the consolidated level Hasnt really changed we've moved a little bit up in our range, but we remain within the <unk>, 44% to 46% range that we've communicated before.
Speaker Change: Yeah, and I guess, the only the double click on that is.
Ashish Malhotra: Given what we've seen in the first quarter, we have not upsized our investment program.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Ashish Malhotra: We'll go next to Foster Ali at Deutsche Bank.
Foster Ali: Yes, hi, thank you.
Foster Ali: Wanted to go back to <unk> and the change in the revenue guide.
Foster Ali: Just wanted to clarify like is the change entirely FX or is there something else to keep in mind as it relates to.
Foster Ali: Just to converting <unk> to revenues and I'm curious if you can talk about how much FX impacted.
Foster Ali: This quarter.
Speaker Change: Yeah, I'll take that on the on the first quarter, we didn't see any material impact on FX, it's really for the remainder of the year as we saw some strengthening of the U S dollar.
Foster Ali: The update in the outlook for MA revenue, it's primarily FX driven.
Foster Ali: Also a little bit of sales linearity, that's more geared towards the back half of the year than what we initially thought in February.
Foster Ali: But as Rob talked about.
Foster Ali: Pipeline is very strong we have.
Foster Ali: Can you hear me.
Speaker Change: Yes, we have a strong pipeline our meetings our sales meetings are very good.
Foster Ali: Going very well.
Speaker Change: So its primarily FX with the little bit of sales seasonality as well.
Speaker Change: Okay. So just to be clear sorry, you just do it there's no change youre not sort of lowering.
Speaker Change: But then the low double digit range for <unk> is still pretty much in line, but yes, that's correct.
Speaker Change: <unk> is a forward looking measure of the health of our recurring revenue business and the underlying health of that business Hasnt changed from what we said before.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jeff Silber at BMO capital markets.
Speaker Change: Okay.
Jeffrey Marc Silber: Thanks, So much wanted to continue the discussion on M&A focus a little bit more on research and insight.
Jeffrey Marc Silber: You talked a little bit about the slowness in.
Jeffrey Marc Silber: In the corner I think you said there was some timing in there with some other things, but if I can just clarify that and then also why do you expect growth to accelerate specifically in research and insights in the back half of the year.
Speaker Change: Yeah. So.
Speaker Change: Over the past year, or so we have seen a little bit of deceleration in <unk> growth in research and insights and obviously fixed income research is a pretty mature.
Speaker Change: Market.
Foster Ali: And Thats really one reason that we are focused on these two new enhancements to our credit view that we have talked about over the last quarter or two that's the research assistant in the unrated coverage expansion. It is going to take a little time for us to see the benefits of that.
Foster Ali: In <unk> growth.
Foster Ali: We have seen some modest retention pressures with credit view some of that has come from.
Foster Ali: The recent banking consolidation, we had expected that frankly.
Foster Ali: We expect <unk> to two to pick back up in.
Foster Ali: In the second half of the year and accelerate towards high single digits.
Foster Ali: Again for a couple of reasons one.
Foster Ali: Credit view coverage expansion.
Foster Ali: And we have a good sales pipeline, there and have actually seen some particular interest in Europe.
Foster Ali: And also from those in the <unk>.
Foster Ali: Credit market.
Foster Ali: And then second a research assistant so we've seen sales really start to pick up in the quarter were now.
Foster Ali: 37 sales, we expect that to.
Foster Ali: We have a very nice pipeline.
Foster Ali: And what I mentioned earlier, the earlier adopters of research assistant tend to be.
Foster Ali: Smaller companies, where theres less of a kind of a regulatory.
Foster Ali: Risk and control environment that they have to contend with so.
Foster Ali: We're having some really.
Foster Ali: Encouraging discussions with some very large institutions.
Foster Ali: But those take a little bit more time.
Foster Ali: And so.
Foster Ali: In user requests and also engagement.
Foster Ali: And those are really very good leading indicators for us in terms of.
Foster Ali: The market's interest in so when we got people that were turning on to research assistant and we see very strong upticks in usage.
Foster Ali: That gives us a lot of confidence in and so I think.
Foster Ali: Together. These things we think are going to help us.
Foster Ali: Pull that IRR growth back up in the back end of the year.
Speaker Change: Okay. Thank you.
Speaker Change: Next we'll go to George Tong with Goldman Sachs.
Keen Fai Tong: Hi, Thanks, good morning.
Keen Fai Tong: You mentioned seeing some pull forward in refinancing issuance some from the second half of 2024 and some from beyond 2024 can you talk about how much opportunistic issuance may have been pulled forward into the quarter and what that could mean for non refinancing related issuance.
Keen Fai Tong: In the back half of this year and beyond.
Keen Fai Tong: I guess, George maybe the best way I could quantify it is.
Keen Fai Tong: Still the the.
Keen Fai Tong: The meaningful majority of issuance in the quarter was refinancing.
Keen Fai Tong: So the new money there was a combination of I do think there was some pull forward of new money transactions, but a lot of what was getting done was was refinancing.
Keen Fai Tong: Activity.
Keen Fai Tong: Does that.
Keen Fai Tong: Does that give you some does that help.
Speaker Change: Yes, yes that helps and I guess whats the view on new money over the next several quarters and back half of the year.
Keen Fai Tong: George So that's.
George Tong: That's where I come back to it.
George Tong: For us to really have confidence that the first quarter is not a kind of a one trick pony of pull forward of of issuance either in new opportunistic issuance from the second half of the year or pull forward of maturity walls.
George Tong: What we really want to see is the mix of refi to new money start to pick up and that's why I go back to that M&A I think that's going to be an important driver.
George Tong: Because there is a mountain of money at.
George Tong: These private equity firms that has got to get deployed so theres actually two things going on.
George Tong: The private equity players have got to exit.
George Tong: And the last couple of years have been very difficult for sponsor exits because of a very soft IPO market and and obviously.
George Tong: Quiet M&A environment.
George Tong: So our sponsors are looking to exit and you've also got sponsors with a huge amount of dry powder that has got to get deployed.
George Tong: And so we have started to see some of that in <unk>.
George Tong: Towards the end of the first quarter, we started to see some of these multibillion dollar sponsor backed transactions in the public markets. That's the kind of thing we're going to look for if that continues.
Keen Fai Tong: Into the second half of the year, that's going to give upside I think to our current issuance outlook.
Speaker Change: That's great. Thank you.
Speaker Change: We will go next to Craig Huber at Huber Research.
Craig Anthony Huber: Thank you.
Craig Anthony Huber: I'm curious.
Craig Anthony Huber: You do CFO here, you're falling roughly 20 years, a very strong prior to CFO.
Craig Anthony Huber: What are you thinking you can improve upon it the company they are willing to talk about publicly here.
Craig Anthony Huber: Thanks for the question I think the if I think about stepping back a bit about the company's priorities and where we are headed.
Speaker Change: I think my my priorities are very much aligned.
Speaker Change: With where the company is going and what we're focused on to accomplish our medium term targets and beyond.
Craig Anthony Huber: The first thing I'd say is continuing to focus on a very thoughtful capital allocation.
Craig Anthony Huber: Balancing the investment spend to drive future growth and really move from the legacy you. One on one time revenue into full recurring which will then in turn expand the margin I think that's very important I have worked with companies before who evolve their business model from on premise.
Craig Anthony Huber: Lower margin into.
Craig Anthony Huber: <unk> recurring and scaled businesses and I think that's a that's an area that really excites me what I've seen so far are really.
Craig Anthony Huber: Really resonates with me in and that's really what I want to focus on and then obviously continuing to drive efficiencies both internally as well as for our customers and talking to a lot of our customers. The other thing I want to do is well spend some time with you all to understand what are the things you are looking at.
Craig Anthony Huber: What things do you think we are doing well things, where you like us to see do differently and I'm really much looking forward to that as well.
Speaker Change: Thank you.
Speaker Change: Yes, Craig.
Speaker Change: I'll add I think Nuomi is also going to bring a wonderful perspective, and I think help communicate to the market the real.
Speaker Change: Value of this business and using the the perspective that she has had from software and SaaS businesses in the past. So we're really excited about it.
Speaker Change: Great. Thanks.
Craig Anthony Huber: We will take our next question from Jeff Mueller at Baird.
Jeffrey P. Meuler: Yes. Thank you so great to hear the progress on Rms.
Jeffrey P. Meuler: On the.
Jeffrey P. Meuler: The revenue acceleration does the revenue lift to come.
Jeffrey P. Meuler: As the upgraded as they do the platform upgrade or is it that the platform upgrade enables follow on sales just trying to understand the sequencing and then.
Jeffrey P. Meuler: On the synergies that it sounds like correct me, if I'm wrong, but mostly two way cross sell synergies between heritage RMS and Moody's products.
Jeffrey P. Meuler: Where are you on I guess net new product synergies that combine the capabilities from each of the firms.
Speaker Change: Yeah, Jeff Great Great question.
Speaker Change: RMS is really turning into a nice story for us and.
Jeff: I guess, maybe I'll call it.
Jeff: Core.
Jeffrey P. Meuler: RMS IRR.
Jeffrey P. Meuler: That is now growing in line with MA <unk> and that is a far cry from the.
Jeffrey P. Meuler: The quite low single digit.
Jeffrey P. Meuler: Percent growth when we acquired the business.
Jeffrey P. Meuler: And.
Jeffrey P. Meuler: There's a couple of things going on there just just with the core the core business excluding the synergies.
Jeffrey P. Meuler: One is in fact, an acceleration of the migration of customers from on Prem to the intelligent risk platform and those of you who know the history of RMS know that RMS struggled with a prior SaaS rollout.
Jeffrey P. Meuler: Intelligent risk platform is the real deal, it's industrial strength and we're really seeing some very nice migration and to your question. There are two things so one.
Jeffrey P. Meuler: There are commercial benefits as we move customers over and to exactly as you said, Jeff. Once you are there it's much easier to adopt additional solutions because now you've got all the data in one spot you can integrate your own models third party models. So there are a lot of benefits.
Jeffrey P. Meuler: Driving customers to migrate to the SaaS platform and to continue.
Jeffrey P. Meuler: To grow their relationship.
Jeffrey P. Meuler: With our mass the second thing is just good old fashion.
Jeffrey P. Meuler: Sales blocking and tackling we moved our you know.
Jeffrey P. Meuler: One of our most experienced sales managers and to be the head of sales.
Jeffrey P. Meuler: No.
Jeffrey P. Meuler: We have even more discipline around the RMS sales program and that has also pay dividends and then the nature of the synergies.
Speaker Change: Youre exactly right. So I'll give you one very exciting example of what I would call kind of outbound synergies. So this is RMS IP to other Moody's customers. We just signed one of the world's largest banks.
Jeffrey P. Meuler: As a customer of the cat models. So this isn't even kind of our climate on demand for banks. This is this is literally.
Jeffrey P. Meuler: The full cat models.
Jeffrey P. Meuler: So this is a bank who wanted to have a very sophisticated.
Jeffrey P. Meuler: View of.
Jeffrey P. Meuler: The impact of climate and extreme weather events on their portfolio and to be able to do stress testing and all sorts of things. So that's really exciting and we're seeing more and more demand from banks and asset managers and corporates around supply chain, who want to do exactly that the physical risk relating to climate and extreme weather and then the other.
Jeffrey P. Meuler: Is the inbound cross sell again, a very nice story.
Jeffrey P. Meuler: And a lot of that is around the Ky C know your third party leveraging our master data in our data solutions team.
Jeffrey P. Meuler: So we have very nice.
Jeffrey P. Meuler: Very nice momentum there so all in all.
Jeffrey P. Meuler: I feel quite good about what's going on at RMS.
Speaker Change: Thank you.
Speaker Change: We'll go next to Andrew Steinman at J P. Morgan.
Andrew Charles Steinerman: Hi, Rob I, just wanted to get with the current guide for credit issuance are you assuming debt issuance on a transactional basis will be down in the fourth quarter of this year and also I just wanted to check.
Andrew Charles Steinerman: Check your pulse on if you thought we were in the midst of a multi year issuance recovery following the pullback in 'twenty two.
Andrew Charles Steinerman: Okay.
Andrew Charles Steinerman: Andrew.
Speaker Change: Great questions.
Speaker Change: So thinking about I guess year to go.
Speaker Change: Obviously, we've held the issuance forecast range.
Speaker Change: Mentioned that we expect to be in the higher end of that range.
Speaker Change: And so obviously that invites questions about okay. Given the strong first quarter, what does that imply then about the second half.
Speaker Change: And it does in fact imply.
Speaker Change: I would say for year to go so that's three quarters.
Speaker Change: Call it mid single digit.
Speaker Change: The decline in issuance for the balance of the year and to your point Andrew.
Speaker Change: I would say more focused on the fourth quarter.
Speaker Change: Where we would think the issuance would be down more in the mid teens range and part of that again is because of some of the uncertainties I talked about in <unk>.
Speaker Change: One of those being elections and so we just assume that people are going to pull out of the fourth quarter, where they can.
Speaker Change: So for the most part I'd say our forecast represents really just a change in the calendar <unk>.
Speaker Change: Of issuance, but I talked earlier about some of the drivers of that.
Speaker Change: We're going to be looking for and then maybe Andrew to your second point about are we in the midst of a multi year.
Andrew: I can't remember the term you used issuance issue its recovery given the pullback in 'twenty two.
Andrew: Yeah.
Andrew: I do I do I do think we are and I think that's consistent with we obviously updated our our medium term targets for us and I think thats part of that.
Speaker Change: One of the things.
Speaker Change: That leads me to that conclusion is and.
Speaker Change: And while we May have again, we may have a little volatility in the quarters here in the year.
Speaker Change: But I think the trend line is is up and again I go back to that that velocity, just just to give you a number at least the numbers we work with.
Speaker Change: When you go back to like Okay, Let's say 2009, so just post global financial crisis.
Speaker Change: Corporate issuance over total corporate outstanding was.
Speaker Change: All the way back to them something like 14%.
Speaker Change: And we're well below that still.
Speaker Change: So that that tells me we've got some.
Speaker Change: Some room, just again, given the the huge amount of issuance over the last.
Speaker Change: A few years the one other thing I would say Andrew is.
Speaker Change: I get asked we've gotten asked a lot on these calls about private credit and is this disintermediation the public markets.
Speaker Change: I actually have started to think of it almost as a another form of maturity wall.
Speaker Change: Look what went on in the quarter we had.
Speaker Change: 45 deals.
Speaker Change: That got slipped from private market to public markets. So I had mentioned that I thought of this as a deferral of issuance not a cannibalization of issuance in some cases of course, there could be some cannibalization, but we are saying there is a lot of just deferral because the private credit players are rational financial actor.
Speaker Change: And if they can get cheaper refinish cheaper financing in public markets Theyre going to do it and they are doing it. So that I actually think is supported I actually starting to think private credit is actually a tailwind for us.
Speaker Change: That will be supportive of this.
Speaker Change: As you say recovery in issuance.
Speaker Change: Excellent thanks for taking the time.
Speaker Change: Yes.
Speaker Change: Yeah.
Unknown Executive: We'll go next to Russell clubs at Redburn.
Unknown Executive: Yes, hi, thanks for having me.
Russell: Wanted to ask a balance sheet related question.
Russell Quelch: I see that your gross leverage is now down at about $2, two which is the lowest level. We've seen from you guys on yields.
Russell Quelch: Also slowed the pace of the buyback in Q1 <unk>.
Russell Quelch: Cash on the balance sheet went up about $300 million in the quarter.
Russell Quelch: She was quite stable through 2023 set the break in trend there is that a change in how youre thinking about capital allocation of the cash you need to hold on the balance sheet.
Unknown Executive: Are you, perhaps making meaningful acquisition take and you're just going to be to kind of that thanks.
Unknown Executive: On capital allocation.
Unknown Executive: We are maintaining our approach.
Unknown Executive: And it's my intention to continue that.
Unknown Executive: We on the share buyback, which I think is where you're going we.
Unknown Executive: Just in one quarter of execution the pace is an out of line.
Unknown Executive: With our planned cadence, we expect to catch up in the second quarter and the second half to hit our targets I wouldn't read anything into that.
Unknown Executive: And then last year, we focused on deleveraging because we had ticked up in 2022.
Unknown Executive: Yeah.
Unknown Executive: Yeah.
Speaker Change: Okay. Thank.
Speaker Change: Thank you.
Unknown Executive: We'll move next to Owen Lau with Oppenheimer.
Owen Lau: Good afternoon, and thank you for taking my questions. So I have two housekeeping questions for modeling purpose.
Owen Lau: The first one I wanted to go back to the margin would you be able to provide more color on the seasonality for the margins of my answer and maybe for the rest of this year and then the second one is on the migration to cloud Western Neal.
Owen Lau: My understanding is it will impact your upfront revenue growth, but you will be better off longer term should we expect <unk> revenue growth to one below the all growth completely go migration.
Owen Lau: RMS and then also research thanks.
Owen Lau: Hey, Alan this is Rob I'm going to take the first one.
Rob: No I don't think so.
Rob: You know I don't think youre going to see us kind.
Rob: Kind of have what I would call kind of a.
Rob: <unk> Valley as we're moving from.
Rob: Customers from on Prem to.
Rob: To SaaS so.
Rob: That's not something I would I would anticipate.
Rob: Eight.
Rob: And your first question was around the calendar as Asian of Mis margins I believe yeah.
Rob: And <unk> margin.
Rob: We saw a at the top line, we expect it to be.
Rob: To be growing high single low single digit in the remainder of the year for the margin for them is we're forecasting the expenses to be declined slightly in the second quarter in the low single digit sequentially from the first quarter.
Rob: First quarter <unk> adjusted operating margin of $64 six.
Rob: And expanded full year expectation implies an adjusted operating margin in the range of 53% to 56% on average for the remainder of the year.
Rob: Especially for the second quarter, if you want to use that for modeling purposes, we expect that to be slightly higher than the upper end of our fiscal year guidance.
Rob: More than decreasing sequentially each quarter through the end of the year, which is pretty much in line with the revenue cadence as well, which is expected to decline in throughout the year.
Rob: For MAA.
Rob: Again, we expect the margin to evolve in the same path.
Rob: And as the revenue with an uptick in the 30% to 31% in the back half of the year.
Speaker Change: Got it thanks a lot.
Rob: And we will take a follow up from Craig Huber at Huber research.
Craig Anthony Huber: Thank you sort of touched on this but can you just talk a little further about your expectations for the whole company for your cost ramp for the remaining three quarters in light of your guidance for cost.
Craig Anthony Huber: That's my first housekeeping question. The other thing I want to ask in the <unk>.
Rob: Past you guys have given us your incentive compensation that you booked in the quarter and what's your outlook for the year there.
Rob: Yeah.
Rob: On incentive comp Perceval.
Rob: We recorded a 105 5 million for the first quarter.
Rob: We expect an average of 100 million for the second and third quarter and slightly up in the fourth quarter. So that's a.
Perceval: That's for the incentive comp and on the expense cadence we.
Perceval: We expect the second quarter expense to be flat sequentially in the second quarter versus Q1, and then gradually increasing by about 20% to $30 million between Q2, and Q3, and then by 15% to $25 million in the fourth quarter that reflects our strategic investment some merit increase as well as some other variable costs.
Perceval: Which are in line with the business growth.
Perceval: And then one more quick thing you private credit as a percentage of revenues in ratings right now Robert.
Speaker Change: Where does that sit in that right now how small is that.
Speaker Change: Yeah.
Speaker Change: You know Craig.
Craig Anthony Huber: That's an interesting question because I think we could get into a bit of a battle of definitions here.
Craig Anthony Huber: As I kind of step back and think about.
Perceval: Serving the alternative asset managers.
Perceval: The blackstone's the apollo's.
Perceval: They are both in the public markets and the private markets and we have as you would expect you know very significant relationships.
Perceval: With a broad range of players in that market and in fact when you.
Perceval: Going back to the Fig revenues.
Perceval: For the quarter.
Perceval: Part of that opportunistic issuance was coming from our funds and asset management segment subsegment in Fig and part of that was actually coming from.
Perceval: Bdcs and other folks who you would think of as being in the private credit market. So I guess Greg.
Perceval: The little bit of a tough question for me to answer because I think of serving the Apollo and the Blackstone and I think of that as public and private.
Perceval: And.
Perceval: Thats quite significant.
Perceval: As you know we did rollout a dedicated private credit team.
Perceval: Do have an expanded.
Perceval: Offering for specifically for things that you would think of as private credit. So we've got credit estimates for Bdcs.
Perceval: We've got a number of different kinds of.
Perceval: Offerings too to support.
Perceval: <unk> finance in fact, we just rolled out our subscription line methodology and we have a very nice pipeline that I would think of is primarily private credit related all of that stuff is growing quite significantly.
Perceval: So I would say maybe to cap it off.
Perceval: Our relationship with the big with the alternative asset management community in and I'm, just an M. I asked for the moment is quite significant.
Perceval: As it relates to specifically private credit.
Perceval: Yes for now considerably smaller, but growing quite quickly I hope that gives you some sense.
Speaker Change: Yes. Thank you you went to a couple of different ways I didn't think you're going to go but yeah. That's helpful. Thank you.
Speaker Change: And we will go next to Shlomo Rosenbaum with Stifel.
Shlomo H. Rosenbaum: Hi, Thank you for squeezing me in over here, while can you talk a little bit about the <unk> growth was 18% in <unk>, 20% <unk>, 23%.
Shlomo H. Rosenbaum: Now this last quarter Youre kind of accelerating on a larger revenue base. If you can give us some idea as to what's driving that and then also at the same time, you're seeing the revenue growth, but youre seeing the IRR kind of still around $18 17, 18% and maybe you could talk about that in the context of the revenue growth.
Speaker Change: Oh, Hey, thanks for the question.
Speaker Change: Yes. This is this is a powerful growth engine here and it's.
Speaker Change: There's just there's a number of demand drivers I think you've probably heard me talk about on the call before that.
Speaker Change: I've got to the point, where I think <unk> is not doing this justice in terms of the name because it talks about know your customer.
Speaker Change: And you heard me earlier on the call say a theme with literally every customer I talked to is no your who you're doing business with and being able to connect the dots.
Speaker Change: So.
Speaker Change: That is a big opportunity for us and <unk> is right in the middle of it and we are broadening out our solution set leveraging all of the content that supports <unk>. So that's a massive company database.
Speaker Change: That we call Orbis, it's all of the the people and perhaps information it's the AI curated news.
Speaker Change: That supports what you would think of as traditional <unk>.
Speaker Change: And then people want to understand okay, well I need to have that information about my suppliers plus other information and so.
Speaker Change: The demand for <unk>.
Speaker Change: What you would think of as the <unk> solutions just continues to.
Speaker Change: Broaden out and were selling into that and that's one of the areas of investment for our Shlomo we talked about.
Speaker Change: Really wanting to serve corporates because historically this has been serving financial institutions, but this theme of know who youre doing business with is a big theme with large corporations and we have some fantastic customer wins.
Speaker Change: That really validate.
Speaker Change: Our right to win in that space. The other thing I may have mentioned this on some prior calls us.
Speaker Change: Specially in the back half of last year, we had a lot of product innovation going on in that space.
Speaker Change: You may have even seen some articles about Moody's in the number of shell companies that we had identified around the world that got a lot of press will that shell company indicators is one of the products. We created we also.
Speaker Change: Have something called an entity verification API that pulls together a bunch of our different datasets and allows our customers to do.
Speaker Change: Checks, so product innovation broadening of demand.
Speaker Change: All of that together Shlomo is continuing to drive some very strong growth I think for the foreseeable future.
Speaker Change: Should we see the kind of ticking up a little bit where we're seeing the revenue ticking up and should we see they are ticking up as well I know, it's pretty healthy as it is but the revenues moving ahead of that.
Speaker Change: Yes.
Speaker Change: Guide on that.
Speaker Change: But I think I'd really look at the <unk> is the best indicator of the.
Speaker Change: Of the underlying trends in that business as with every other line by the way I think that's the best way to look at it.
Speaker Change: But I'd say Shlomo, we've got some positive momentum there.
Shlomo H. Rosenbaum: And there are I believe.
Shlomo: Thank you.
Shlomo: And that does conclude the Q&A session I will turn the conference back over to Rob for any closing remarks.
Rob: Alright, well. Thank you everybody for your questions and I. Appreciate you joining the call and we'll talk to you next quarter have a good.
Speaker Change: Good day, thank you.
Speaker Change: And this concludes Moody's Corporation first quarter 2024 earnings call. As a reminder, immediately following this call. The company will post the mis revenue breakdown under the Investor resources section of the Moody's IR homepage. Additionally, a replay will be made available after the call on Moody's IR website. Thank you.
Speaker Change: Yes.
Speaker Change: [music].