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spk23: Good day, everyone, and welcome to the Moody's Corporation fourth quarter and full year 2023 earnings call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers following the presentation. I will now turn the call over to Shivani Kok, Head of Investor Relations. Please go ahead.
spk20: Thank you, and good morning, and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the fourth quarter and full year of 2023, as well as our outlook for full year 2024. The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moody's.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 reconciliation between all adjusted measures referenced during this call in US GAAP. I call your attention to the safe harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the management's discussion and analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31st, 2022, 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 would also like to point out that members of the meeting may be on the call this morning in a listen-only mode. I'll now turn the call over to Rob.
spk02: Thanks, Shivani. Good morning, and thanks to everybody for joining today's call. We're here from a snowy New York City. I'm going to start with some highlights from 2023 and then discuss our expectations for 2024. And after my prepared remarks, Steve Tolenko, who's the president of Moody's Analytics, and Mike West, the president of Moody's Investor Service, will be joining me along with Caroline Sullivan, our interim CFO, for the Q&A portion of the call. And before we get into it, I have some very exciting news. As you may have seen this morning, we announced the appointment of Noemi Hollande as our new Chief Financial Officer, and she's reporting directly to me. And Noemi brings a wealth of knowledge to Moody's after nearly 25 years in senior roles at global public companies, including most recently as CFO of Dayforce, formerly Ceridian, and over a decade with global enterprise application software provider SAP, during which it transitioned to a global software as a service business model. So as CFO, she's going to lead the global finance organization that includes accounting and controllership, financial planning and analysis, financial systems, investor relations, strategic sourcing and procurement and tax and treasury. And her firsthand experience in scaling high growth category leading public software companies, along with her extensive global experience, I think really make her the ideal CFO for Moody's as we invest in and grow our subscription-based analytics businesses and continue to expand our ratings business around the world. So it's an exciting time for Moody's and I look forward to Noemi jumping in beginning April 1st and of course she's going to be a regular fixture on this call going forward. Before we get into the results, I also want to thank Caroline Sullivan who is here with me for her immense contributions and support over the the last few months as Moody's interim CFO and Caroline will remain as our chief accounting officer and corporate controller. So with that, moving on to our results, 2023 was really was a defining year for us here at Moody's. We delivered 8% revenue growth. We grew adjusted diluted EPS by 16%. And we were an early mover in gen AI adoption and innovation. launching our first-ever GenAI-enabled product in December. And I have to say that the energy and excitement across the organization really was palpable throughout the year as we launched new products, we entered into strategic partnerships with some of the world's leading tech companies, and we increased the gap in our Chartas RiskTech 100 number one ranking. And as we grew, we also increased our margin by over 100 basis points for the year, all while investing across the firm in technology, in products, and in people. And amidst what was a pretty challenging operating environment for our financial services customers, MA delivered ARR growth of 10% with retention rates in the mid-90s. And looking at the three reporting lines of business in MA, that's decision solutions, data and information, and research and insights, it delivered ARR growth of 11%, 10%, and 7%. respectively. And as we have upped the pace of product development to meet the strong market demand for tools to better manage risk and to digitize and transform workflows, for 2024 we expect MA revenue to grow at approximately 10% with ARR growth in the low double digit percent range. MIS meanwhile delivered 19% growth in the quarter and 6% for the full year. corporate finance, financial institutions, and public project and infrastructure finance, they all achieved double-digit revenue growth compared to 2022 on gradually improving market conditions. And I think I used the phrase fragile when describing the markets back in our third quarter earnings call. And this turned out to be true for the fourth quarter, where despite a very active November, December issuance was more muted than we had expected. And we've seen a very constructive start to the year and consequently our revenue expectations for 2024 are in the high single to low double digit percent range for MIS. And I'll touch on this a bit more on the call as well as I'm sure some asset specific issuance guidance. So looking out over 2024 and beyond, we're really excited about the great momentum in the business and the tremendous growth potential that we've got in front of us and to capitalize on these opportunities, we're accelerating and increasing the level of organic investment this year in three critical areas. That's gen AI, new product development, and platforming and technology. And this is a delivered investment program to fully capture the power of AI across our business, to expand the reach and connectedness of MA solutions, and accelerate the technology enablement of the ratings agency, all to deliver on our ambitious medium term targets. Now our capital allocation priorities remain unchanged. First, invest in our business whenever we see great opportunities, and we are in fact doing that. And second, return capital to stockholders, and this year we expect to nearly double the amount of capital we return to our stockholders through dividends and share repurchases. And that brings me to our EPS guidance. We're anticipating adjusted diluted EPS to be in the range of $10.25 to $11 for 2024. This incorporates a little bit wider range at the beginning of the year to capture some of the uncertainty around issuance, and we would expect this to narrow during the course of the year. And of note, as you compare 2024 EPS guidance to 2023, you might remember we had some outsized tax benefits in the first half of last year that resulted in a 2023 effective tax rate of 16.9%. And for 2024, we're expecting the rate to be in the range of 22 to 24%. And if you look through the 2023 benefit, at the midpoint of our 2024 range, our 2024 adjusted EPS represents 24% growth rate since 2022, and that's in line with the low double digit percentage growth that we've targeted over the medium term. Now, looking at 2023, I want to take a moment to touch on a few data points that highlight what a powerful franchise we have and also put our 2023 accomplishments into some perspective amidst, as I said, what was a very challenging operating environment for many of our customers last year. And despite relatively modest MIS-rated issuance growth of about 5%, we generated approximately $450 million in incremental revenue growth across our entire company. And today we have a base of recurring revenue of over $4 billion, while our more transactional oriented revenue model across a $74 trillion universe of rated debt gives us upside as debt velocity improves. And together, this underpins our confidence in accelerating our revenue growth to the high single to low double digit percent range in 2024. And over the years, we have really built a customer base that's almost like no other company with 97% of the Fortune 100 and 87% of the Forbes 1000 being a Moody's customer today. And the world's leading companies turn to us. They trust our market-leading solutions. And that gives us a tremendous base to sell into. This shows up in the many external accolades and awards that we've received. We had over 150 last year alone. And I want to give a special shout out to our MIS team as we were awarded best credit rating agency for the 12th year in a row by institutional investor. That is great stuff. I think we all understand our market leading position and ratings, but we've also built a market leading position with our MA business. And for the second year in a row, we were ranked number one in the Chartist Risk Tech 100. And that was supported by category wins in strategy, banking, and insurance. and a number of solutions categories ranging from climate risk to credit risk to financial crime data and a number more. And understanding the critical importance of attracting and retaining the best talent in this environment, we continue to lean into our culture to make this the kind of place where the brightest minds want to build their careers and help our customers address some of the world's great challenges. So to sustain our growth, you frequently hear about the investments that we make in our solutions to help our customers make better, more informed decisions about risk. And we achieved a number of important milestones in 2023, too many to get into on this call. But I am going to focus on just a few of the highlights. In ratings, we continue to expand the markets we serve through Moody's Local. We also develop dedicated teams in digital finance and private credit. so that we're at the forefront of opportunities in the global debt markets. In private credit specifically, we're coordinating across our ratings franchise so that we have the engagement, the methodologies, and the analytical and commercial resources to be the agency of choice for players in this market, ranging from BDCs to alternative asset managers, insurance companies, and debt funds. To further address the private credit opportunity, we added more than 12,000 unrated entities to our credit view research service in November that triples the breadth of our coverage and provides a new runway for growth for our research business. Another growth opportunity in our research and insights business that many of you have heard about is our research assistant product. That's our first GenAI enabled product that we launched commercially on December 1st and it's the first of a number of GenAI enabled tools that we're developing and we're excited about the initial customer feedback and early traction with this product, and I'm sure we're going to touch on this a bit more in the Q&A. We also continue to enhance and expand our massive company database in important ways to create valuable early warning signals for our customers and address the increasing demand for third-party risk management. And there were really three elements to that in 2023 that I'll call out. First was integrating our predictive analytic tools and credit scores on over 450 million companies into Orbis. The second was expanding our coverage of over a million AI curated and scored news stories a day that are available in companies in Orbis. And third, leveraging our investment in BitSight over the course of 2023, we integrated over 6 million cyber scores into Orbis and that number continues to grow. Across decision solutions, we developed new solutions and integrated more data sets to expand the utility of our offerings. And in KYC, Our new entity verification tool combines real-time registry content with our Orbis data to help our customers identify risky shell companies and minimize the potential for fraud and sanctions risk. With the launch of our most recent Sanctions360 tool, we're the only one in the market who can look through multiple complex layers of corporate hierarchies and ownership structures to identify potential sanctions breaches. In banking, we integrated climate analytics into a broad range of workflow solutions from loan origination to portfolio management to stress testing. And in insurance, in just a year, we more than doubled the number of customers using our cloud-based intelligent risk platform. That's a versatile cloud-based risk analytics platform that enables customers to analyze hundreds of millions of commercial and residential locations. It's not just being used by insurers. We're attracting a diverse set of customers who have a tangible and growing need for our more sophisticated climate data and analytics. I have to say I'm proud to report that at the end of January, we signed one of the world's largest banks as a new customer of our climate and catastrophe modeling solutions to support the in-depth climate analysis for required regulatory disclosures and stress testing. And underpinning all of this is our ongoing foundational investments in the business, and these investments will enhance our ability to integrate our data state across all of our customer use cases more efficiently and more effectively. So I hope as you get a sense, there are a lot of exciting things that are happening here at Moody's. And as I take a step back to consider the many opportunities for growth ahead, I really am energized by all that's in front of us. And there are three things that we are doing to really drive future growth. That is land new customers, expand customer relationships, and then innovate continuously to deliver more value. And I just touched on the breadth and quality of our existing customer relationships. We've got a fantastic customer base, especially in financial services, where we've been developing relationships for literally decades, landing new customers, expanding relationships, and innovating with a proven track record of growth. And in recent years, we've been successful in growing these relationships further and diversifying into new areas like KYC and supplier risk management. In fact, our net expansion rate in the financial services sector stands at a healthy 109%, and I think that's a pretty clear indication of our ability to deepen relationships and deliver value. And now, leveraging GenAI and our broader content sets and capabilities, expanding and deepening these relationships will continue to be a significant opportunity for us. Now building on these successes, we've got a great opportunity to expand in new customer segments, supporting new use cases. While financial institutions account for about 70% of ARR and MA, there's been very good demand coming from newer relationships beyond the financial services segment. 14% new sales compound annual growth rate over the last two years in these sectors. And that's the corporate and public sector. And over that period, We've established significant relationships with major companies in the United States and Europe who are leveraging our expertise for customer and supplier risk assessment. Our ratings business also has some opportunities to serve existing and new customers. I think of those as kind of the markets of tomorrow. We've expanded our footprint in domestic and emerging debt markets where the growth is faster than it is in more developed debt markets. And interesting data point, the Moody's Local Initiative in Latin America, which you've heard me talk about, it's a great example of doing that, where organic revenue grew 22% in 2023. So these land and expand opportunities are supported by major secular trends that are driving demand for our offerings. And I would cite a few of those. We're poised to capitalize on the the content unlock opportunity from gen AI enablement and innovation, the widespread digitization and transformation programs across banks and insurers, the growing demand for third party risk management solutions, and the ongoing growth of the private credit sector. And with our wide ranging capabilities that we've put together to deliver this holistic view of risk, I think we are uniquely well positioned at the intersection of these trends. So I can assure you that we reflected a lot on these opportunities as we entered our annual operating plan cycle this fall, and not dissimilar to past years, we were challenged to prioritize and balance organic investments with operational efficiency and productivity initiatives. On the efficiency side, we expect to generate savings from resource redeployment, alternative staffing models, automation and gen AI enablement, and geolocation strategies. And we're prioritizing investment spending on areas that are enabling us to deliver at our current growth rates, including SaaS-based product development, sales deployment, operational resiliency, and ratings workflows. And these initiatives are really funded within what we think of as our regular pace of operating margin expansion. But as we exited the initial sprint around GenAI innovation last year, We reflected on the opportunities ahead of us. We considered the deep customer relationships that I've just touched on, our unique data assets that you hear us talk about, the market trends that I just mentioned together with our growth strategy. And we proactively upped the organic investments that we started in the summer of last year. And we are increasing our budgeted operating expenses for 2024 by an additional $60 million in three primary investment areas. First, and I'm sure this isn't particularly surprising, is GenAI. We're increasing product-related investments across MA that will continue to build on our early mover momentum from 2023 and investments across the company and initiatives to accelerate employee adoption and improve productivity. On the product side, we have a few really interesting things that are moving ahead fairly quickly. So Credit Lens, which is our flagship banking origination solution, will be the next to launch a GenAI-enabled capability to generate a credit memo within seconds, leveraging the digitized information about borrowers and their credit facilities that is stored natively in our software. And we're going to be saving loan officers and credit professionals countless hours compiling information and generating the first draft of the documents that are produced with virtually every commercial loan. We've got our first beta customer already, and we are currently in preview with a number of other customers. I'm also very encouraged by our new Gen AI-enabled commercial real estate early warning system that we believe will significantly enhance commercial real estate portfolio monitoring capabilities for both lenders and investors. And I actually just sat through a demo of this in the last week or two. And the early warning system integrates a wide range of our data sets. It enables the evaluation of news events in real time, running scenarios and calculations that link together market forecasts, listings and property data, tenant data, and valuation and credit models. And again, the early feedback has been very positive, and we're already looking to extend these capabilities beyond just commercial real estate. Now, from an internal perspective, we've rolled out GitHub Copilot. and some other Gen AI tools to more than 1,500 engineering professionals across the company. And as a result of our experience last year, we've specifically planned for efficiency gains in our engineering budgets in 2024. We're also rolling out our next generation of AI-enabled tools for our sales teams across the company over the next several months. So that's the first area. The second area is product development. And as part of our land and expand strategy in MA, we are building on the success and momentum of our KYC business, which has grown to over 300 million of ARR in just a few years. And I think those of you who've been on this call for a while, you've heard me mention before that know your customer is probably too limiting of a term for this business as it continues to expand. So this year, we're increasing investments to develop solutions focused on the growing market demand really for solutions to serve the customer and supplier risk needs. And we're especially encouraged by recent wins with a number of large government and Fortune 100 customers. So this year we're going to make investments in product, technology and data, and go-to-market capabilities to be able to scale in these customer segments. The ratings ecosystem also continues to evolve. In early January, we were just provided with the very first, we just had the very first rating on a tokenized bond fund. And while digital finance is still nascent, we're going to be ready to help our customers delivering our ratings on the platforms wherever they are going to issue. So that's second. And then third is around technology platforming. So we're building on the platforming work that we highlighted in our Innovation Open House event back in September. And as we explained then, this work is critical to strengthening the interoperability of of all of our data estate and improving the synergies across our solutions. By investing in our platforming and engineering capabilities, we're going to accelerate our time to market, enhance the customer experience, better enable cross-sell and up-sell, and deliver engineering efficiencies. The faster this work gets done, the sooner we will realize the revenue and efficiency benefits, so we have decided to hit the accelerator. The same is true in ratings. where more tech-enabled workflow is really key to the quality, speed, efficiency, and compliance. And we've been on a journey to modernize, digitize, and automate our systems. We've made some good headway, but there is still more work to be done. Optimizing our data state and moving more of our workflow into cloud-based applications really has never been more important given the promise of AI and the digitization of financial markets. So here, too, we've decided to accelerate our efforts and this will be critical in achieving our medium-term margin targets. So now, let me turn to our issuance outlook very briefly. We're expecting more constructive market conditions in 2024, and I'm sure, as you have all seen, it was a very busy start to the year, over $150 billion in investment grade issuance in January alone. Underpinning our MIS revenue growth outlook of high single to low double digits, is an increase in MIS rated issuance in the mid to high single digit percent range. For corporates, we expect that leveraged finance will grow faster than investment grade issuance, which should be favorable to revenue mix. And our outlook is built on the macroeconomic assumptions that are detailed on page 20 of our webcast deck, notably incorporating a soft landing here in the US and rate cuts starting in the second quarter of this year. And I imagine we'll dive deeper into both our issuance and macroeconomic assumptions in the Q&A session. Before moving off of MIS, I do want to highlight that early last year we committed to reviewing our medium-term guidance for MIS revenue growth once we saw sustainable improvement in the debt markets. And I'm happy to share that following 6% revenue growth in 2023 and the expectation of at least high single-digit growth in 2024, we have updated our medium-term growth target for MIS revenue growth target for MIS to be in the mid to high single digit percent growth range. Now moving back to our 2024 annual guidance, Moody's revenue is expected to grow in the high single to low double digit percent range. The Moody's adjusted operating margin is projected to be in the range of 44 to 46 percent. That's about a hundred basis points of margin improvement at the midpoint. And the Moody's revenue and adjusted operating margin guidance is ranges incorporate the variability of that MIS transaction-based revenue and then balanced against the subscription base in MA where nearly 95% of our revenues are recurring. In regards to MA, we're guiding to a tighter range of approximately 10% growth, revenue growth, and low double-digit growth in ARR. Now, MA's adjusted operating margin is expected to be in the range of 30% to 31% this year. That's absorbing the impact of the incremental organic investments that I just talked about. In the medium term, we expect MA's adjusted operating margin to be in the mid-30s percent range. And as I have discussed with a number of you, the path to that target is not exactly linear. For 2024, MIS's adjusted operating margin is expected to be in the range of 55.5% to 57.5%. That is a 200 basis point improvement versus 2023 at the midpoint, and that is solidly on track towards the medium term target of low 60s percent. Our expenses overall are expected to grow in the mid to high single digit percent range. A couple factors worth noting. First, we closed out our 2022-23 geolocation restructuring program at the end of 2023. Caroline can talk more about that. Second, we're expecting depreciation and amortization expenses of approximately $450 million in 2024. That's an increase of approximately 20% as compared to 2023. And that growth is largely related to the cumulative effect of our shift towards developing exclusively SaaS-based solutions starting back in 2021 and coupled with the increased capital expenditures associated with the three primary areas of incremental organic investment that I just talked about. And we're expecting free cash flow between $1.9 and $2.1 billion and adjusted EPS to be in the range, as I said earlier, of $10.25 to $11. Again, a 24% increase at the midpoint versus 2022, looking through those tax benefits that I touched on. So I'll wrap up by just saying it was a really great year for us here in 2023. I'm expecting an even more exciting one ahead. I'm energized by our strategy. We've got fantastic engagement across the company. And we believe that now is the time to invest in the opportunity that's in front of us, to fully embrace the power of AI across our business, to accelerate the build out of our technology platform, and to bring together our content to build new solutions with unique value propositions that will accelerate growth. So with that, I welcome Caroline, Steve, and Mike to join me for Q&A. And operator, please open the call up to questions.
spk23: Thank you. If you'd like to ask a question, please dial star 1 on your telephone keypad. If you are on a speakerphone, please pick up your handset and make sure that your mute function is turned off so that your signal reaches our equipment. We ask that you please limit yourself to one question. You will have a chance to rejoin the queue for a follow-up. Again, that is star 1 to ask a question. Our first question comes from the line of George Tong with Goldman Sachs. Please go ahead.
spk06: Hi, thanks. Good morning. I wanted to ask about your plan, incremental strategic investments in Gen AI products and platforming. Can you talk a little bit more about the timing of these investments, as well as benefits you're expecting and the margin impact for 2024?
spk02: Yeah, George, good to have you on the call. I might start by, maybe I'll just give you a little more insight into, you know, kind of what's in those three main components. And then, you know, we'll talk about some of the timing and margin impact. As it relates to GenAI, you know, we've got a generative intelligence team. We've stood up an MCO infrastructure. We've got some incremental engineering costs. We've got additional licenses. I mentioned GitHub Copilot. We will get the benefit of that, but we had costs up front. And, of course, we have incremental cloud costs and token costs relating to large language models. On the product development side, Really, it's about the build-out of our customer and supplier risk offerings for the corporate and public sector, and that's data, workflow, and go-to-market. And then on technology and platforming, as we talk about building out that MA platform, it's things like engineering around single sign-on and entitlement so that, as I said, we can get those benefits faster. Let me turn that over to Caroline and see if you want to just help George around the timing of all of that.
spk00: So we anticipate, if you look at both MIS and MA, MIS has delivered an operating margin in 2023 of 54.5%, roughly in line with our target of 55. And in 2024, we're expecting adjusted operating margin to increase by about 200 basis points. MA's margin is going to remain consistent with what we saw based on 2023. Without that $60 million that we talked about in Rob's comments related to the investments, MA margins would have been on track to increase and expand by 120 basis points.
spk13: Great. Thank you.
spk24: Your next question comes from the line of Tony Kaplan with Morgan Stanley.
spk23: Please go ahead.
spk22: Thanks so much. Rob, I wanted to take a step back for a second. not asking about 24 at all, just in general, where do you think a normalized level of issuance is? How much upside is there from here to get back to a more normal growth environment, and maybe particularly with rates at maybe a higher level than they have been in the last couple of years? Thanks.
spk14: Hey, Toni.
spk02: So maybe a couple ways to kind of triangulate around this. I think as far back as 2022, as you remember, we had that significant decline in issuance from the pandemic years. On the call, I talked about how total, when we look at total global issuance, it was modestly below what was a, I'll call kind of a 10-year average from at the time, it was, I think, 2012 to 22, excluding the two pandemic years. And I think I I think total issuance in 2022 was something like 5% below that average, which is not a big number. And remember that was in the context of like a 30% decline in issuance that year, but we drilled down and, and I think we made the point that corporate issuance was something like 15% below that long-term average, excluding the pandemic. And if you actually drilled even further and got into leverage finance even farther, and as you know, corporate issuance and in particular leveraged finance issuance is quite favorable to our revenue mix. So it's interesting, Tony, now as you kind of go forward and we look at where 2023 ended relative to that average, it was roughly in line. Corporate issuance was closer to in line, I'd say modestly below that long term. And with 2024, Actually, issuance will be slightly above that long-term average and that holds true for corporate issuance where obviously we have a little bit stronger growth expectations. So from that aspect, I think you might say, well, we're getting back to something that feels more like a normalized level of issuance. The caveat to that is this idea of debt velocity. So over that period of time, there's been an enormous amount of debt issued, right? So the stock of debt has grown significantly, and we look at annual issuance as a percent of the total stock outstanding, that's what we think of debt velocity, that number still looks a good bit lower than the averages over, call it the last decade, which would imply that there's still room for issuance growth. And the last thing I'd say is if you look at where structured finance is at the moment, that's significantly below you know, kind of that 10-year average for reasons that we may get into later in the call. Hopefully that gives you some insight.
spk22: That's great. Thank you.
spk23: Your next question comes from the line of Manav Bhatnayak with Barclays. Please go ahead.
spk17: Thank you. Maybe I could just ask about 2024 in terms of the cadence of, you know, issuance you've assumed, you know, either the first half or the back half, and then Maybe just some color on how we should think about your non-transaction piece of the MIS business, how that should grow, I guess, this year.
spk02: Manav, I think I might ask Mike to give us some color around how to think about first half, second half, and then I might be able to put kind of a finer point on that.
spk21: Yeah, thanks, Manav. So, first of all, I think we're expecting here issuance in the first half to be stronger. than in the second half and that's a common pattern if you actually look over previous years. Some of that is due to the constructive conditions that we're seeing at the moment with spreads tightening and sentiment improving and these issuers are trying to lock in the rates that they want before any potential volatility. Some of it is actually seasonality that we see in each year, given that we do expect a slowdown in the second half through summer, and sometimes it tails off when we get into December. The other important factor when you think about issuance is that some of those more frequent issuers in investment-grading corporate and the banks tend to come earlier in the market to secure their funding and manage their balance sheets. In frequent issuers, on the other hand, can be opportunistic and will wait for those opportunities and windows that they see fit. Consistent with the comments I've just made is what we've discussed with the market. And just picking up on Rob's comment, structured finance actually tends to be more balanced between the first half and the second half. So while we do expect a first half to be busier, we do expect that activity will continue into the second market. So Rob, I don't know if you want to just find a point on that one.
spk02: Yeah. And I know, you know, people want to have a good sense for, you know, informing their models. So, you know, last year, as Mike said, uh, issuance was more front end loaded. We had a rising rate environment, um, something like, I didn't call it 56% of 2023 annual issuance was in the first half of the year. And while we do expect a rate decline in the second half of the year, as Mike said, we still think that issuance will be front-end loaded, and our current assumption for issuance is pretty similar to the pattern that we saw in 2023. Now, then we've got to translate it to MIS revenue, and the impact there is a little bit less pronounced in terms of first half, second half. And I would say that we're expecting just a little over half, maybe low 50% of MIS revenue in the first half. And that's a little lower than the issuance mix. Why? Because banks are the ones that tend to issue and do more front-end loading of their issuance, and they're different economics for frequent bank issuers. So hopefully that gives you a sense. One other thing, Manav, I might say just specifically for the first quarter, I'd say we expect probably close to 30 percent of annual issuance and probably closer to, you know, somewhere between 25 to 30 percent of MIS annual revenue.
spk23: Your next question will come from the line of Faiza Ali with Deutsche Bank. Please go ahead. Yes, hi.
spk12: Thank you. So I wanted to ask about MIS margins. I think, Rob, you alluded to some investments, but maybe put a finer point around that because I would have thought you would have better sort of margin flow through given the revenues that you're expecting. So is it all investments? Is there some mix? And just give us a bit more color around those investments. Thank you.
spk00: I can take that question. So just to follow on to what Mike and Rob just said about the phasing of our revenues, because of that, we are forecasting higher margins in the first half of the year versus the second half of the year. So that's what we will see for MIS. But overall, we're expecting adjusted operating margins to increase by 200 basis points.
spk23: Your next question will come from the line of Ashish Sabhadra with RBC Capital Markets. Please go ahead.
spk16: Thanks for taking my question. I just wanted to better understand how we should think about the ROI for the strategic investments. Obviously, the investments that you made in the prior year has accelerated the MA revenue growth. I was wondering how should we think about the growth accretion from these investments. And maybe just a follow-up on that one is how should we think about the GenAI monetization in 24, but also McDonald's? Thanks.
spk02: Yeah, maybe I'll start with that and then hand it to Steve. I'd say just in general, as you think about, you know, the return on these investments, I would say that we're investing in the highest growth parts of our business. So, you know, GenAI products, that's going to augment growth across our SaaS and hosted solutions. Steve will touch on that in just a second. We're investing, as I talked about, in enhanced solutions for corporates and the public sector around customer and supplier risk. And I had that data point that we've had 14% CAGR in terms of sales growth over the last two years from those sectors. And we think we can even enhance that growth at scale as we invest in products specifically for those customer segments. And then lastly, platforming. We expect revenue growth from our SaaS and hosted solutions to grow something like low teams this year. That's in line with our medium term targets. And the growth has been even higher in decision solutions, been more like high teams from SaaS and hosted solutions we're looking for this year. So, you know, I think there's a pretty strong case for investment in these high growth parts of our business. But Steve? Maybe just a couple other comments.
spk03: We're doing what we do well, developing good, solid product development pipelines, creating new product life cycles to generate revenue growth and support customer value propositions, continuing to invest in the sales force. And then what we've said today is making even more incremental investment in Gen AI and especially in areas where we think we can land new blue chip customers, maybe outside of financial services. We have such a tremendous franchise with the financial services sector. We see great opportunities and have demonstrated great growth trends with some new customers in corporations that maybe are non-financial and orientation or public sector entities. I think you'll see lots of new products coming online this year in the Gen AI space in particular. Rob mentioned a couple that are coming down the pike in the next quarter or so, maybe second or third quarter. We are actively engaged throughout the product development and engineering teams to build more value propositions and leverage GenAI to support our customers and help them not just do their business faster and save some money, but be more effective and be more productive when they're doing it, actually make better decisions, develop better analyses, And the research assistant, which we've launched already, I would expect you'd start to see some contributions in the research and insights line toward the end of this year, because as the sales start to ramp up, ARR growth numbers will start to move as well. So we expect to see actual contributions in the numbers before we turn the page on 2024.
spk24: Your next question comes from the line of Alex Cram with UBS.
spk23: Please go ahead.
spk19: Yes, hey. This is actually a direct follow-up to the prior question because, Rob, I think a couple quarters ago I asked you about this Gen AI being potentially part of your guidance already for this year in terms of revenue contributions. So it would be helpful to give a little bit more specificity in terms of both revenue and ARR. What are you actually budgeting? in terms of contributions here for the year since you obviously raised some pretty high expectations. And maybe just related to that, I mean, you mentioned some early feedback. So just obviously very interested in your ability or signs of your ability to actually upsell people and people not just coming back to you and saying like, look, you know, you're asking for more money all the time. Of course, you should enhance our products, but we're not going to be willing to pay up as much as you think you can. A little flushing out there would be helpful. Thank you.
spk02: Hey, Alex. Thanks for the question. So I think we've learned a good bit over the last few months as we've been engaging with customers, as we've been signing customers, as we've been building the pipeline, and all of that is informing how we're thinking about our guidance. I think, Steve, why don't I hand it to you just to give some insight into what we've learned and how we think about that then flowing through the MA business.
spk03: So just a quick short answer to your question, Alex, is, you know, the research and insights line is where you'll see the biggest contribution coming from Gen AI related products, because that's where we got a product in market already. Sales cycles take some time to develop. You know, we are seeing some pretty interesting patterns to Rob's point. You know, it's interesting, the maybe investment managers and hedge funds that are smaller teams, a little bit more agile, and able to make a decision right now are the ones that are buying this product literally right away. So our first sales that are coming in are coming in from these players where the boss is sitting at the table with the people who are the users. The boss may be a user, and they're saying, wow, this is really going to make a difference. Let's just do it right now. Some are locking into multi-year agreements, by the way. So they're believers in this as a productivity enhancer for them. On the other side of the spectrum, where we have big customer relationships with large banks. We're engaging very differently. The character of the conversation is a lot more like what we've seen over the years in the software and workflow sales dynamics. So we're engaging very senior levels. They're talking about leveraging what we're doing as a transformational tool to change the way they do business. They see the opportunity to cut costs, maybe lower their cost of goods sold, maybe lower their increased productivity through platforming and using our capability as an element in their platforming efforts, a lot like what we're doing in terms of leveraging Gen AI throughout the organization. And we're seeing transformation projects where people are looking forward to working with us, evaluating us very, very intentionally, and You know, we're engaging with scores of users, for example, to get a reading on can they really make a difference leveraging this tool, or can we make a difference leveraging us in their organization? And we're seeing some really interesting conversations, often at the C level. So this isn't your run-of-the-mill add-on to the research service, which we've been doing for decades. This is a, gosh, this might really change the way I do investment research. This might really change the way I think about doing credit research at scale. And that's one of the reasons we're very excited about that dynamic. So the first couple of months have been interesting. Smaller, faster decisions are happening and people are buying the product at a rate that's above our normal rate of sales patterns. The patterns are faster than normal. And at the top end, we're seeing really good engagement in a way that I say I think is going to be quite profound for us.
spk19: Very good. Thank you.
spk23: Your next question will come from the line of Jeff Silver with BMO Capital Markets. Please go ahead.
spk10: Thanks so much. I think earlier in the call you gave a little color on cadence for first half versus second half in terms of revenues and margins for MIS, and I'm wondering if you could do the same thing for the MA division. Thank you.
spk02: Caroline, do you want to take that?
spk00: Sure. So for MA, we see a slightly different picture to MIS with regards to both revenue and with regards to expenses. So if we start at the fourth quarter for MA, we recorded just under 800 million of MA revenue, and we're expecting just above 800 million in Q1, and then steadily ramping up by 20 to 25 million through quarter four. MA margin will kind of follow a similar path however Q1 will be influenced just by some seasonality to our expenses associated with our annual compensation programs with our employees so we'll see higher payroll taxes associated with the vesting of employees stock grants and bonus payments but then the margin is expected to follow a similar pattern to revenue steadily ramping from a couple of percentage points below our full year guide of 30 to 31 percent in the first quarter to a couple of points above it by the time we get to Q4.
spk02: And, you know, while we're on the topic of now that we've covered MIS and MA calendarization, maybe let me just add a little bit in terms of thinking about then, you know, kind of pulling this together and thinking about what it might mean for adjusted diluted EPS. So we've got the a little bit front-end loaded issuance pattern that we talked about, the cadence that Caroline just touched on. From an adjusted diluted EPS standpoint, we think that the first quarter will be our strongest quarter in terms of absolute adjusted diluted EPS, followed by the second quarter. And maybe the easiest way to think about it is this. If you take the average EPS quarterly EPS at the midpoint of our full year guide, and I think that's somewhere between $2.60 and $2.70, then given the stronger front half issuance that we've talked about, we'd expect the first quarter EPS to be something like 15 to 20 cents higher than that average for the first quarter.
spk10: All right. That is extremely helpful. Thanks so much.
spk23: Your next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead.
spk25: Great. Thank you for your time. Mike or Rob, I'm curious, with the ongoing massive problems out there in the commercial real estate market out there, I'm curious what your thought is. on the potential impact for your CMBS issuance for this year, ratings there, and also more importantly on your banking client potential impact this year, the commercial real estate market out there. What are you sort of expecting for issuance there as well? And just my quick housekeeping question, what was the incentive comp in the fourth quarter, please, and also for the full year last year? Thank you.
spk02: All right. We'll get Caroline teed up on that incentive comp question. I think Craig, you know, commercial real estate actually, if you think about it, kind of threads through a bunch of parts of our business, you know, in terms of impact to, you know, the ratings business, and it's not just the CRE sector, but the banking sector, and then, you know, the tools needed by folks in the market and sales cycle. So let me start with Mike.
spk21: Okay, thanks, Craig. So on the structured finance, just to try and put that into context, I mean, we are anticipating overall that structured finance will grow mid-single digit. And when you look into that, there's different types of assets. And when we think about CMBS, let me just pick on CMBS first for your question. We believe that will still be muted given what's going on in the CRE market, particularly in office. It is a viable funding alternative to bank finance, particularly as borrowers face restrictive lending standards. But I do want to emphasize that when we look at our structured finance business, that we are expecting still an active market in ABS and CLOs. I'm very happy at some point on the call to talk a little bit more about CLOs, RMBS on the other hand, again. muted because of the asset formation, which we expect to improve as the year goes on. But with that, I might just pass to Steve and talk about the MA side of CRE.
spk03: So, I mean, I think we've been talking a lot in the firm and with our customers about the impact of, I'll call it stress in the CRE sector, particularly the office sector. And we all know many of the causes there. We've had really good interest from our banking customers, especially. We launched, you may remember, the Innovation Day back in September. We highlighted the Credit Lend CRE module, which was really a credit decisioning tool software application that combines all of our data and analytic capabilities in the commercial real estate space to help lenders do their jobs more effectively. And we've seen really good growth there in the banking segment. that was one of the big drivers of growth for us. So I would say that's exactly what you would expect. As people start to be more aware of risk, they start to call us a little bit more. And this is one of those dynamics in MA where risk goes up, people call us more often, risk goes down, they start to think about taking more chances. So maybe looking for more alpha perhaps. So we get calls there too. So the CRE segment and the CRE, I'll call it stress, is something that we find an attractive dynamic for the business overall.
spk02: Yeah, there's almost like a tipping point where when there's too much stress in the banking system, it can ultimately become a headwind for us. As Steve said, when there's the need for real insight and better understanding around credit, that's a positive. And I think what we saw in March of last year was just about going over that tipping point. Caroline, do you want to answer the second part of Craig's question? Sure.
spk00: Craig, with regards to incentive comp, for the fourth quarter, we recorded about $100 million. So that got us to about $400 million for all of fiscal 2023. And just with regards to 2024, we expect incentive comp to be between about $400 to $420 million. So think about $100 to $105 million per quarter. Great. Thank you.
spk23: Your next question comes from the line of Owen Lau with Oppenheimer. Please go ahead.
spk15: Good afternoon, and thank you for taking my question. So going back to your MIS revenue guidance, you guided to high single-digit to low double-digit percentage, which is higher than your peers and lead to high single-digit. And I know you have limited information about your peers, but could you please try and talk about some of the potential drivers for the difference? Thank you.
spk21: Yeah, I think, Mike, why don't I hand that to you? Yeah. Owen, thank you for your question. I'll start at the macro level. And as Rob mentioned, overall constructive outlook for 2024. And underpinning this is that, first of all, market uncertainty that we've experienced over the last couple of years starts to subside. And if you think that transmission is to a lower execution risk in the primary markets and also improved secondary trading that leaves more opportunity for issuance. And that's what we're seeing at the moment. We have an assumption around a rate decrease in the second quarter, and that's unchanged despite some of the CPI print today. We've already seen that spreads have come in meaningfully, both in investment grade and sub-investment grade, which leaves the market open for the rating scale from investment grade down to the lower rated credits. And that's important as one of our expectations here is that leverage finance improves and recovers during the year from historical lows over the last couple of years. In here is also the 10% increase in the refinancing walls. We talked about that on the last call. And a modest recovery in M&A. That's still uncertain, but there's certainly sizable dry powder and cash on the corporate balance sheet. There's also a backdrop here. Even though we've got moderating economic growth, we are assuming an avoidance of a deep recession and therefore economic resiliency and looking towards that growth in 2025 as people think about deploying long-term capital. At the same time, a spread comes in that is also a key assumption in our default study. And as we get over that peak default period during the year, as spreads come in, that is a more favorable environment for the lower end of spec grade. So that's underpinning a lot of our macro picture. But Rob, do you want to add anything?
spk02: Yeah. And we can, you know, if people want to get into the asset levels guidance, we're happy to do that. And another question, I also, I think it was Monoff that asked a question about recurring revenue in MIS. And maybe let me just come back to that. You know, that continues to be, you know, our view on that is, you know, continues to be in that kind of low to mid single digit range for revenue. You know, this ties in part to first time mandates. Obviously, first time mandates are what build the stock of rated issuers that we surveil. So just a little insight there. We saw a pretty significant slowdown in first-time mandates since, I'd say, third quarter of 2022. The fourth quarter of first-time mandates were about in line with the fourth quarter of 2022. We are expecting that to start to pick back up, and that's not surprising given what you see as our expectations for high yield and leverage loans. And so that'll support a slight uptick, I think, in recurring revenue growth for MIS.
spk14: Thanks a lot.
spk23: Your next question comes from the line of Scott Orso with Wolf Research. Please go ahead.
spk04: Hey, good afternoon. Thanks for taking my question. I just wanted to go back to the research assistant. I understand it's only been a couple of months since you launched the product, but wondering if you could maybe share Some feedback since the launch and anything you've learned about the product in the last couple of months. Thanks.
spk03: Yeah, thanks. Thanks, Scott. I would say we are happy about a couple of things. One, the product development process, the work we did in engineering and product development to get this thing out successfully. happened more quickly than maybe some of our previous product launches. So we're really excited about some of the changes we've made and we're able to get to market faster. That's partially because of the fact that we're leveraging GenAI tools and partially because we have some platform engineering elements that make us able to move a little bit more quickly. So that's one good note. In terms of take-up among customers, you know, it's early days. Oftentimes, the initial stage of the sales cycles I would measure in months, but we have more units in the first six weeks than we've seen among virtually any other product we've launched in the past. So the people are making buying decisions quickly. Remember, we started with a December 1 commercial launch, so they're making decisions within six weeks. oftentimes you would look at a sales cycle being measured in months. So that's a really good sign. And again, I mentioned earlier that we're really encouraged by the engagement at the senior levels. CEOs, I literally know one of the largest banks in the United States, we were the topic of conversation at the CEO's table within the last few weeks where they literally were thinking and talking about this is one of the elements in their transformation program. COOs, COOs, senior levels of investment managers and banks and insurance companies where I'm talking to people and our sales reps are talking to people at a different level than we've seen in the past. So I would say we're very encouraged by that. Those sales cycles, I think, will go faster than maybe they might have in previous product launches, but you still need to engage with the people in their technology groups, their cyber groups, their compliance groups to make sure when you're making this big of a decision It's this transformational that you've got all your bases covered. So we're pretty encouraged by that. Hopefully that's a good sense for color on the demand environment.
spk13: Super helpful. Thank you.
spk23: Your next question comes from the line of Shlomo Rosenbaum with Stiefel. Please go ahead.
spk08: Hi. Thank you very much. I want to ask a little bit, we talked a lot about Gen AI, but I want to ask about general sales cycles. What are you seeing? Are things, cycles getting shorter, staying the same, getting any longer? What do you see more on a sequential basis? And then I just want to touch back on the last question about incentive compensation and ask if there's any change in the mix of the incentive compensation between the two units, just getting back to kind of the margin expansion in MIS. Yes.
spk03: So on the sales cycle, thanks, Shlomo. You know, in the spring last year, we got a lot of questions around, are you seeing elongated sales cycles? And, you know, I think we gave pretty good sense for what we were seeing. You know, sales cycles were lengthening maybe just a little bit, nothing material, measured in a number of days, perhaps. But we were also seeing higher price points in the proposal and richer sales value propositions composed in that proposal. So it was consistent with what we expect. I'd say that trend is actually extended through 2023. So we're running right around the same numbers we were in the spring. I looked at this closely the other day. So sales cycles are maybe slightly longer than they were maybe a few years ago, but only because we're seeing bigger price points and richer value propositions. So pretty happy about that. Let's see here, anything else on sales cycles? Yeah, that's probably a good way to finish that one, yeah.
spk00: And then on the question on incentive comp, we're not seeing anything materially different between the segments compared to 24 versus 23.
spk13: Okay, thank you.
spk23: Your next question comes from the line of Seth Weber with Wells Fargo. Please go ahead.
spk05: Hi, good afternoon. I guess I just wanted to follow up on the MIS margin question again. I'm trying to just balance some of the investments that you're making versus some of the investment spend that you're doing versus longer-term technology benefits, cost saves there. Can you just remind us or update us on how we should be thinking about incremental margins for the MIS business going forward if there's been any change to just the incremental margin framework for that business? Thank you.
spk02: Maybe I'll also go back a little bit to fourth quarter MIS because I think we've been getting some questions about that. I think fourth quarter to me really illustrated the tremendous operating leverage that's in the business. To give you a sense of what we were saying in the fourth quarter for MIS and then I'll take it forward into 2024 and beyond. You know, revenues came in lighter than we had expected. Expenses came in almost exactly online in terms of what we had budgeted. I think it was something like one and a half percent expense growth, you know, over the prior year quarter. So essentially the entire revenue miss dropped right down to adjusted operating income. And again, that's what we love about this business. And, you know, think about what was going on. This was the last few weeks of the year. There's virtually nothing we can do in regards to the expense base at that point. The majority of our expense base in MIS is people. Also, you know, we have obviously a constructive view on 2024 issuance. And you've heard us talk about in the past that, you know, we try to think about our things cyclical or structural, and we saw that as a brief air pocket in issuance. And so that then did Again, that dropped right to adjusted operating income. It was not an expense issue. And then you see 200 basis points of margin expansion from that jumping off point at the end of the year. And I would say this, and Mike, feel free to add. So we've got our low 60% margin target. We still feel very comfortable about that. We believe that this 200 basis points is solidly on track for that. But we are investing back in that business. I talked a little bit about my prepared remarks. In particular, we've been investing in resources in some of these areas like domestic debt markets, like digital finance and private credit, make sure we've got the resources. And then we've also been investing in the technology. It's so important for us to get the technology enablement of the analytical teams for a variety of reasons that I touched on in the call.
spk21: Mike, anything to add to that? Not really, but just on the technology element, it's about driving efficiencies in the future by investing today and having a very well-controlled business. So that's the only point to add.
spk02: Yeah, the bottom line is as we get more technology enablement and we have surges in issuance, we'll be better able to handle that without having to add people.
spk13: Got it. Thank you. Yep.
spk23: Your next question comes from the line of Jeff Moeller with Baird. Please go ahead.
spk13: Yeah, thank you. It's Stephen Policon for Jeff.
spk09: I guess going off that last point, you talked about the general or the Gen AI tools that you're deploying internally. Can you describe some of the ones that have gone live? What efficiencies are being harnessed? Where do you think you can get the most benefit towards the medium-term targets? from those Gen AI tools. And then is there like an enterprise wide committee handling decisions to build or deploy or is one of these things being handled within individual departments?
spk02: Yeah. Steve, you want to start?
spk03: Yeah, sure. So we're doing a lot of the innovation work and trying to accelerate the innovation work through a central team, the team that is really a pretty agile team. Sometimes it gets bigger and smaller depending on which project we're working on. That team is in MA where we're doing a lot of the experimentation and then developing value propositions that we can use externally and internally. I'll just give you a simple example. Summarizing a PDF, which is something that you would expect you could do with GenAI tools, You might be able to do that with some tools that are offered through external folks, not just through Moody's. But leveraging that so you can use it in an industrial strength way, make it a part of your compliance apparatus, make it a part of the way in which you build products, the way in which you do your job every day requires some engineering work as well. So we're summarizing maybe a 300-page document. We're developing summaries across multiple documents at once. We're incorporating a document that you're reading today into our other GenAI tools in order to generate inference across not just what you might get from the OpenAI models we're working with Microsoft on, but also through the content that you're introducing to your analysis right now and right here. So an experiment that you could see being very helpful for the folks in MIS might be, I am doing work on this particular industry. There's three or four documents I might be interested in reviewing. And maybe I could incorporate them into understanding, reading them more quickly, taking in, gathering data from that much more quickly. So the central team is there to create critical mass in terms of engineering and then roll out tools in a compliant way, in a way that's been tested from an industrial strength perspective and is consistent with all of the normal processes that we would want to adopt as a rating agency where it's appropriate.
spk21: Yeah, just maybe a couple of points for MIS. I mean, we're pretty excited about the potential of GenAI in the ratings business and internally with obviously leveraging the Moody's co-pilot. But we also do envisage that using GenAI across the workflow and doing that to actually enhance our compliance as well as improving the overall efficiency in the business. And seeing that Gen AI that Steve just referenced as an enabler to human judgment in the ratings process. So again, exciting opportunities for MIS to navigate with this technology.
spk02: Yeah, and the only thing I would add, and I've said this when this comes up, is that we're going to be deliberate and transparent in the rating agency in terms of how we leverage generative AI.
spk14: We're in dialogue with our regulators to make sure that they understand how we're going to do that.
spk23: Your next question comes from the line of Heather Belsky with Bank of America.
spk24: Please go ahead. Heather, your line might be up.
spk01: I, yeah, sorry. I just had to hit the button. Thank you for taking my question. Just with regards to your midterm margins, you talked earlier about that you didn't, that the path wasn't necessarily going to be linear to get there. But can you help us bridge, as we think out over the next couple of years, how it could look, especially given some of these areas that you're investing in? And how comfortable are you if the opportunity presents itself? spend more now for top line growth or, I guess, just the commitment to those margins, given what you're seeing in the environment? Thanks.
spk02: Hey, Heather, thanks for the question. So I think that's what you're seeing us do, right? And we've got to make the investment has got to come before the sales and ultimately the revenue growth comes. And, you know, I feel like we have some ambitious medium term targets that mean that we're going to continue to accelerate revenue growth in the MA business. And so we're making the investments that we talked about today to be able to support Gen AI product development and platforming, which we think are going to support that acceleration for the reasons we talked about. We continue to feel comfortable with those medium-term targets, particularly the, I mean, you mentioned the margin.
spk14: It's just that in this case, the investment is coming before the ARR growth.
spk24: Thank you.
spk23: Your next question comes from the line of Andrew Steinerman with JP Morgan. Please go ahead.
spk07: Hi, this is for Caroline. Could you just talk more about the 20% increase in DNA? Is there a change of accounting assumptions or methods? And will DNA, you know, kind of stay in this general vicinity as a percentage of revenues?
spk14: Yeah, let me just, I'll start with that and I'll turn it over to Caroline.
spk02: I think in general, what you're seeing with DNA represents the, you know, we've been talking about the investments that we've been making in our SaaS products. You've seen some increased capital expenditures over the last few years. That's now starting to come through in the form of capitalized software. And I also talked about the higher growth rates that we are seeing with those SaaS products. And I think that's, you know, you want to be able to look at those two things together. Across all of MA, we're expecting our hosted and SaaS solutions to be growing in kind of the, call it, you know, low double digits to, you know, parts of the MA portfolio, like decision solutions, we expect to be growing more like high teens. And, you know, that's where that investment in software development is going. Caroline, do you want to talk a little bit about it from an accounting perspective?
spk00: Yeah. So certain development costs linked to the SaaS-based solutions are capitalized, and then they're depreciated over the useful life of those underlying assets. And that's usually around four to five years, and that's all in accordance with US GAAP.
spk07: Okay. And should it stay in this vicinity, DA, as a percentage of revenues going forward?
spk02: Yeah, I think if you look at it as a percent of revenues, I mean, obviously, we're bumping up the CapEx here a little bit, but I think, you know, as we get the increase in revenue growth and, you know, corresponding increase in capitalization, it should stay relatively in line from a percent, I think, a percent of revenue basis.
spk14: Okay. Thank you very much.
spk23: Again, that is star one to ask a question, and your next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead.
spk25: Yeah, my follow-up here. For 2024, can you just talk a little bit further about your outlook specifically for investment grade, high yield, maybe bank loans and finance institutions in terms of the debt issuance outlook for this year that's embedded in your overall company outlook? And also, can you maybe just throw in there, what is your cost ramp assumption over each of the four quarters for the rest of the year? Thank you.
spk21: Greg, I'll take the first part of your question before handing off. If I go by segment, the investment grade issuance growing at 5%, that comes off a 20% growth last year, underpinning this steady uptick with regard to upcoming maturities. M&A is supporting in certain key sectors, but I would see that as a variable to the upside. As I mentioned earlier, that the spreads at the moment are creating favorable conditions at the higher end of the rating scale and down into the BAA. So that's really on investment grade for corporates. High yield, again, back to this market uncertainty that's subsiding. Spreads have come in materially over the last 12 months there's been some delayed refinancing that's now coming due and these tend to be higher quality spec grade issuers that will get that opportunity to come into the market should those spreads remain favorable and again still coming off a low base as Rob highlighted earlier. Leverage loan driven primarily by refinancing including the amend and extends. There is also a refinancing in the public market of certain deals that got done in the private market, which is nice to see. And again, these tend to be more sensitive at the lower end, so as spreads again come in at the lower end, that market access to those around the single Bs is there. So again 20% for the leverage loan. FIG on the other hand as we mentioned a heavy proportion of FIG is frequent issuers. We've kept that relatively flat. There are some different variables there. There's some different central bank support facilities that will start to shrink in 24, therefore leading banks to come to the capital markets. And that will also be a focus on their buffers and broader capital needs, but stable year over year. PPIF, mid single digit, largely made up of infrastructure financing and access by some of the larger US PFG issuers. When we think about the transition of monetary policy and the tightening that has occurred, that we will probably see an increase in infrastructure projects that are really long-dated as they want to lock into some lower rates going forward. I touched on structured finance earlier at that mid-single-digit percentage, and you've got to look inside structured finance to look at the different asset classes, but really ABS-leading projects in that particular area.
spk14: So hopefully that helps.
spk24: I'll now turn the call back to Rob for any closing remarks.
spk02: Okay, one public service announcement for those of you in Europe. We're looking forward to seeing you at our London event in our offices on February 29th. I know that Steve and Shivani and some of our other senior leaders from Moody's Analytics will be there to provide a spotlight on our MA business like we did in New York in September of last year. So with that, I'm going to bring the call to a close. Thanks, everybody, for joining, and we'll talk to you next quarter. Bye.
spk23: This concludes Moody's Corporation fourth quarter and full year 2023 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 the Moody's IR website. Thank you.
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