Moody's Corporation (NYSE:MCO) Q1 2024 Results Conference Call May 2, 2024 11:30 AM ET

Company Participants

Shivani Kak - Head of Investor Relations
Rob Fauber - President and Chief Executive Officer
Noemie Heuland - Senior Vice President & Chief Financial Officer

Conference Call Participants

Heather Balsky - Bank of America
Manav Patnaik - Barclays
Toni Kaplan - Morgan Stanley
Ashish Sabadra - RBC Capital Markets
Andrew Nicholas - William Blair
Scott Wurtzel - Wolfe Research
Faiza Alwy - Deutsche Bank
Jeff Silber - BMO Capital Markets
George Tong - Goldman Sachs
Craig Huber - Huber Research
Jeff Meuler - Baird
Andrew Steinerman - JPMorgan
Russell Quelch - Redburn
Owen Lau - Oppenheimer
Craig Huber - Huber Research
Shlomo Rosenbaum - Stifel

Operator

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. At the request of the Company, we will open the conference up for question and answers following the presentation.

I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.

Shivani Kak

Thank you. 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 first quarter 2024 as well as our revised outlook for select metrics for full year 2024. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com.

During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for a reconciliation between all adjusted measures referenced during this call in U.S. GAAP. I call your attention to the safe harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

In accordance with the act, I also direct your attention to the Management's Discussion & Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2023, and in other SEC filings made by the Company, which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I'd also like to point out that members of the media may be on the call this morning in a listen-only mode.

I'll now turn the call over to Rob.

Rob Fauber

Thanks, Shivani. Good morning and thanks, everybody, for joining today's call. Before I touch on a few key takeaways from our first quarter results. I'm going to start by saying how excited I am joined today by Noemie Heuland, who officially joined Moody's on April 1.

And as I mentioned on our last earnings call, Noemie 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 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. 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 for the quarter.

Now starting with MIS. Obviously, a great quarter. 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 inventors and issuers, and in turn, position us to capitalize on more robust issuance periods. And in the first quarter, we did exactly that, and we showed the tremendous operating leverage in our business with the second highest quarterly revenue on record, up 35% year-over-year and an adjusted operating margin of 64.6%.

Meanwhile, MA reported another quarter of 10% ARR growth, growing across all lines of business, including double-digit ARR growth in both Decision Solutions and Data & Information. And during the quarter, we executed on our strategic investment road map across platforming, product innovation and GenAI enablement.

And this quarter highlights the unique strength of our business model. 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, all while we expect to return over $1.6 billion to stockholders this year through share repurchases and dividends. That is the power of the Moody's compounding machine.

We're also updating a few of our guidance metrics, and Noemie 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.

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. And as I've said before, MIS really is one of the world's great business franchises. It's widely recognized as best in the industry with strong global coverage in cross-border and domestic debt markets, and it has a growing range of offerings to support growth areas like private credit and transition finance.

And maintaining that leadership position really is critical in order to capitalize on the resurgence and opportunistic issuance that we experienced during the first quarter. And that's what played out during the quarter. MIS delivered, as I said, growth of 35% in the quarter, including 57% growth in transactional revenue. And a key driver of this growth in the quarter was the leveraged finance markets, a real strength for MIS, where revenue was up 144% versus the prior year quarter. That's quite a growth number.

And as I explained a few quarters ago, we established a dedicated private credit team in MIS, and that's starting to pay dividends as we're 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 encouraged by interest in our transition finance offerings, and that includes our second-party opinions and our new net-zero assessment. And we already have several major issuers like Électricité de France that have published our net-zero assessment.

And with discipline around expenses, MIS delivered an adjusted operating margin of almost 65%, again demonstrating the tremendous operating leverage in this business. 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.

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, ongoing tensions in the Middle East and uncertainty around U.S. inflation and central bank rate cuts. So consequently, we have not changed our full year issuance and revenue growth guidance targets. However, our updated outlook now centers on the upper end of both ranges. And there are some things that we're watching to determine if we've got some upside to our current outlook.

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 range between 3% to 3.5% 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 we're keeping a close eye on, and I'm sure we're going to discuss that a little bit further in the Q&A.

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 ARR growth. Retention rate has held steady at 94% for the last two years and yet again for the first quarter of 2024. And that's a real testament to the stickiness of our solutions.

As we look across our reported lines of business in MA, we can see our land-and-expand strategy in action. So, starting with KYC, which I think you can see on the bottom far left of the webcast slide. About 1/4 of our 18% ARR growth in the first quarter is from new customer acquisitions. So, a lot of new logos adopting our solutions in this space.

On the other end of the spectrum, about 90% of our insurance ARR growth of 10% is from really strong execution of our cross-sell strategy across our existing customer base. 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 platform and really activating our cross-selling strategies. And that includes things like climate models to banks and conversely selling data and analytics and other Moody's solutions to the RMS customer base. So, when we take all of this into account, in 2024, the ARR for RMS, including synergies, is expected to grow at a low double-digit pace.

Now switching gears a little bit. Last year at this time, we were just starting to mobilize around GenAI. In fact, we hadn't even deployed our internal Copilot 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 GenAI-enabled solutions that we're rolling out 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 are going to have some distinct economics. So navigators leverage an AI-powered natural language user interface 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 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.

Then we've got skills. Those are specialized GenAI 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 credit memo; and our Quick Alert, which is our surveillance and early warning system.

And then we're going to have a set of assistance for a number of our major customer personas, which are going to be a combination of skills and prompt engineering that are most relevant to their jobs to be done. So, this go-to-market framework, I think, is going to address the needs of our customers as they move up the spectrum of GenAI adoption in their daily work processes. And while it is still too early to quantify, we now have a pipeline 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.

So on that note, I am very happy to hand it over to Noemie to provide a little more color on our results.

Noemie Heuland

Thank you, Rob. 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 an honor and a thrill.

As we get to know each other, I'd like to take this opportunity to share with you my Moody's thesis that drove my decision to join. Throughout the process, everyone I met has consistently told me what an exciting time it is to join the firm. Moody's has been a trusted source of financial insights through various economic cycles, and every actor in the global capital markets benefits from the value of Moody's products and services.

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. Also in my pre-CFO role, I 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. Moody's ratings is a powerful franchise with sustainable growth prospects, unparalleled reputation and an impressive industry knowledge and expertise.

Now in addition to that, Moody's built a great set of assets based on proprietary data that goes back over 100 years. The value of that historical data is unmatched. And it is my strong belief that Moody's is well positioned to leverage GenAI capabilities as a result. Whether it's credit, KYC, climate or many other use cases, Moody's has integrated and innovated with our customers' needs at the core.

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. As you can tell, I'm really passionate about that.

Also, as you would expect as a CFO, I spent some time studying Moody's financial profile before joining. From obvious attributes, this is a very profitable business, which has delivered 13% of adjusted diluted EPS growth in Q1 with a high return on tangible assets and over 100% of free cash flow to net income conversion expected this year. This is an outstanding set of fundamentals, but they are also unique in that they provide flexibility for investing and innovating to fuel growth.

Another CFO priority is execution of a disciplined capital allocation plan. I am very impressed with our focus and results. You saw us 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. 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. In my experience, the operating leverage of this business and track record of long-term sustainable growth are simply remarkable.

I conclude, before I get to the 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, I'm very proud to have joined the team that puts risk management at the center of what we do with resilient operations and a fantastic culture.

I spent some time with Rob, his leadership team, the Board and many folks in finance and beyond. The culture, warmth and sharp intellect of the people at Moody's and the sense of belonging is very special. And for all these reasons, I could not think of a better place to be.

Now turning to the first quarter results. As you heard from Rob, we started the year strong with reported revenue growth of 21% and adjusted EPS growth of 13% over the first quarter last year when, as you may recall, we saw a significant nonrecurring tax benefit.

Strong growth and inherent operating leverage while making selected investments in strategic areas led to an adjusted operating margin expansion of 610 basis points at about 51%, which translated into a free cash flow conversion to GAAP net income of over 120%. Our quarterly free cash flow of close to $700 million was the highest on record.

Now let me touch on segment results. As Rob said, the issuance rebound led to MIS delivering its second highest quarter on record. We saw a strong start across all lines of business as tightening spreads and investor demand propelled opportunistic issuance. Corporate Finance grew 49% predominantly from issuance by leveraged loan issuers and pull-forward activity. Financial institution issuance was the strongest since the financial crisis with an elevated level of infrequent issuer activity, which then led to revenue growth of 37%.

On the margin front, the operating leverage of our ratings business, coupled with our initiatives to drive operating efficiencies, has allowed us to capture the significant rebound in issuance and slow the upside through the bottom line with a 780 basis point expansion of adjusted operating margin year-on-year.

Turning to Moody's Analytics. First quarter revenue was up 8%. Growth was driven by strong demand in our Data & Information line of business with revenue growing 13% year-on-year and continued demand for our KYC and compliance solutions with revenue growing 24%. As for Research & Insights, where revenue grew 3%, 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, affected the growth rate a bit this quarter as well as a modest but expected uptick in CreditView attrition from banks and asset managers.

If you look at the revenue from hosted software solutions, though, the growth is trending closer to ARR growth. And overall, we expect Research & Insights ARR growth to tick up to the high single-digit range by year-end, particularly with pipeline momentum picking around Research Assistant and unrated coverage expansion in recent months.

Speaking of ARR, MA ended the first quarter with annualized recurring revenue of $3.1 billion, up 10% from the prior year. Of note, we saw a sequential acceleration of growth within two of our three lines of business. Decision Solutions ARR grew 12%, up from 11% in Q4 '23; and Data & Information grew 11%, up from 10%, supported by higher retention amongst banks and public sector customers. These two lines of business represent about 71% of total ARR, so we're really pleased to see the growth there accelerating. You heard earlier that our retention rate remains best in class at 94%, demonstrating the stickiness of our solutions.

As communicated in February, we are actively balancing strategic investments that we believe will drive future growth, including in our cloud platform and product road map, with operating efficiency initiatives. 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.

Let me now turn to our assumptions around issuance that underpin our fiscal year outlook. 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. 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 pull-forward.

That said, we are making modest revisions to select asset classes to account for what we saw in the first quarter. Specifically, we now expect big issuance to increase in the low single-digit percent range, up from approximately flat, driven by the elevated infrequent issuer activity in the first quarter that I mentioned earlier, and SFG to grow now in the high single-digit percent range as a combination of jumbo transactions and increased CLO refinancing activity fuel growth. Our guidance for first time mandates in the range of 500 to 600 remains unchanged.

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 '24 remains largely unchanged. As such, we're maintaining our MIS revenue guidance of high single digit to low double-digit growth for the full year. Our updated outlook incorporates various specific macroeconomic assumptions, which are detailed in our presentation.

We are also adjusting our FX assumptions to reflect the appreciation of the U.S. dollar against the euro and the British pound. We now expect the euro to U.S. dollar exchange rate and the euro to GBP exchange rate to be $1.08 and $1.26, respectively, for the remainder of the year. With that background, we are making the following updates to our full year outlook.

Moody's Analytics revenue is now expected to increase in the high single-digit percent range, primarily reflecting the strengthening of the U.S. dollar, I just mentioned. That said, our ARR growth expectation in the low double-digit range for fiscal year '24 is unchanged from our prior guidance.

Of note, we are maintaining our full year operating margin outlook for Moody's Analytics in the range of 30% to 31% as there is a partial FX natural hedge on our expense pool, coupled with ongoing disciplined expense management. 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. And we demonstrated in Q1 that we can capture the increased volume of issuance in MIS and at the same time expand our margins, which gives us confidence to raise MIS adjusted operating margin to a range of 56% to 58%.

Last, we told you in February that we would narrow the EPS guidance range with increased visibility, and that is precisely what we're doing. We are narrowing the adjusted diluted EPS range for the year to $10.40 to $11.

And that ends our prepared remarks. I'm happy to open the call to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Heather Balsky at Bank of America.

Heather Balsky

I was hoping you could dig in a little bit more on what you saw in MA during the quarter, particularly in terms of some of your customers where you said you saw pressure and how you're thinking about that and how you think that trends for the rest of the year. Is it 1Q-specific? Is it assuming that a continued part of the reason you reduced the guide there?

Noemie Heuland

Yes. Heather, maybe let me start with the Q1 revenue performance and what we're seeing for the rest of the year, and I'll pass it to Rob to provide some color on pipeline and sales. In the first quarter, we delivered revenue growth of 8% and ARR growth of 10%. We had strong demand for our data solutions and KYC. Those are the two that grew, respectively, 13% and 24%.

As I said in my prepared remarks, Research & Insight was a little unusual this quarter. We had revenue growth of 3%. That was affected by some of the mix between a lower share of on-premise transaction and a shift into more SaaS subscription.

But if you look at the ARR growth, we haven't changed our outlook for the full year. We still expect ARR growth to be in the high single-digit growth and then -- low double-digit growth, sorry. And then we have just adjusted the revenue outlook to account for lower euro and GBP against the dollar. That's primarily what we're doing.

There's a little bit of seasonality in sales as well, more towards the back half of the year, which drives a bit of the revenue updated outlook as well. But our retention rate remains very strong at 94%. Our ARR, again, which is an indicator of the strength of our underlying business, remains strong as well.

Rob, anything you want to add?

Rob Fauber

Yes. Heather, just to double-click a little bit, I mean you asked about retention. I'd say we're seeing -- obviously, at the MA portfolio level, very strong overall retention. I'd say we do see a little bit of pressure from banks and asset managers. We saw a little bit of an uptick. Noemie just mentioned it in the research business, but some improved retention in other areas.

I would say, kind of more broadly, you asked about the kind of sales pipeline. I'd say the sales pipeline is quite healthy at this point. 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, GenAI has opened a whole new front in that regulation, 360-degree view of risk. So, the sales pipeline, again, healthy and supports our comfort with the overall guide for the year.

Operator

We'll move next to Manav Patnaik at Barclays.

Manav Patnaik

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 MA in terms of the client pressures. We're seeing a lot of the other financial information services companies obviously call out pressure from both the buy side and the sell side. So just if you could help us out there going forward, if we should be keeping an eye out on anything.

Rob Fauber

Yes. Manav, let me take that. I guess I would kind of come back and say, while certainly, there are cost pressures at financial institutions, corporates, like the one on the phone at the moment, everybody's focused on having discipline around expenses. I'm sure we can all understand that.

There are also some really important drivers of demand. And I'm going to double-click on what I 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 it, decade and now they're looking at GenAI as a way to really accelerate, and in some ways, de-risk 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. 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 tool for our financial institutions customers to really address those cost pressures. So, I think while the adoption of GenAI 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 -- because this is a discussion, I have with literally every single customer I talk to, which is this desire to have a 360-degree view of who they're doing business with. I mean this is everyone that we talk to. And you want to understand it -- so to think about optimizing your sales and marketing efforts, you want to understand what comers you want to take on. You want to monitor those customers. You need to understand much more about your supplier network.

So, 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 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 way.

So again, I feel quite comfortable, Manav. Despite the fact that we've got to face off with procurement departments from time to time, the value prop around our solutions, I think, is pretty compelling given what our customers are focused on.

Operator

We'll go next to Toni Kaplan at Morgan Stanley.

Toni Kaplan

Very strong 1Q issuance quarter. Obviously, that was expected. And you raised FIG and structured marginally, but kept corporate sort of the same. And you're calling out sort of improved M&A activity and seeing the guide being towards the high end of the range. I guess, what gives you sort of reservation not to fully raise the MIS guide? I know you talk about sort of election uncertainty and rate uncertainty later in the year and the comps get harder. But just talk through the factors because I feel like 1Q would have given a little bit of room for having cushion in doing that.

Rob Fauber

Yes. Toni, thanks for the question. And I think part of this just comes back to it's 1Q. So let me talk to you maybe, Toni, about kind of what we see in the year in terms of both what I think could be tailwinds for issuance, so where there could be some upside, as well as where we maybe have a little bit of uncertainty or caution.

And first of all, I would just say that there has been a significant amount of pull-forward. And there's two kinds of pull-forward, right? There's pull-forward of 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 open, spreads are tight. So, we're seeing that.

The second kind of pull-forward is really the pull-forward of -- from maturity walls and refinancing. And we are seeing some of that as well. And in general, as we kind of step back, Toni, I guess, as I think about where could there be upside -- and you heard that we are kind of centering around the higher end of the guide at this point. So, I think there is a bias to the upside. But stronger economic growth without inflation increasing, that's going to be very positive, in particular for the leveraged finance markets. They're 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 a lot of the financing that's been done in the first quarter 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, I think that could be an upside for issuance for the year. And that would -- not only would we see that come into leveraged loans, but I think you will also see that in terms of new CLO formation. So, the commercial benefit of that will be meaningful.

I think just in terms of downside risks, obviously, there are more questions now about inflation prints and the timing and trajectory of Fed moves than 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 -- not only the U.S. election, but they're -- we've talked about this before. Many countries are going to the poles 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 furthering of geopolitical tensions, you can imagine a widening of a regional conflict in the Middle East, that kind of thing. And so, we're hearing issuers get in front of that. So, at this point, Toni, 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 the, I think, the M&A environment.

Operator

We'll go next to Ashish Sabadra at RBC Capital Markets.

Ashish Sabadra

I just wanted to follow up on the pull-forward comment. As we understand the second half pull-forward in the first half, but I also wanted to better understand the pull-forward from '25-'26 is the refi wall look now for '25 and '26, even with the pull-forward, is there still a much bigger refi wall in '25-'26 compared to what we are seeing in '24? And then as we think about the M&A, where are we trending? Or what's the assumption for M&A as a percentage of overall issuance this year? And how does that compare to an average year?

Rob Fauber

Yes. Ashish, we'll have a little bit better insight later in the year when we publish our updated maturity refinancing study, as we always do. But I would say that, certainly, you've seen issuers who are addressing upcoming maturities, particularly in loans. And there's still some maturities for 2024 that have got to get done, not a lot, as you'd expect. It's possible that we start to see some additional pull-forward from 2025 perhaps and beyond in the second half of this year if markets remain supportive. So, we're going to be looking after that.

But it's interesting. I think -- if you think about -- I mean to take leverage loans for just a moment, maybe just zero in on that for a second. There was a massive amount of pandemic-era issuance in leveraged loans, and that really does provide a very solid underpinning for future issuance. And when you kind of zero in on leveraged loans, there was something like $1.15 trillion of '20 and '21 maturities, and almost 70% of that matures in '27 and beyond.

And what that's telling me is that, that money -- that financing was done at very tight spreads and low rates. So, I think that those are not great candidates to be pulled forward, right? Where you may see the pull-forward is there was something like $1 trillion that was issued in 2022 and 2023. So, some of that may be candidates, depending on 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, as a net positive. So, I'm not concerned that all of this -- all of future years are being pulled into this year because when we think about debt velocity, which is issuance, and I'm looking at the corporate markets issuance over total debt outstanding, debt velocity as a percent versus kind of the 15-year average, quite -- is still well under that 15-year average. So, I think there's still a good bit of issuance.

On M&A, 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. All that is encouraging. I talked about why sponsor-backed M&A is so important. So, we're expecting, I would say, a modest recovery in 2024. That's what's built in. But this really is, I think, a wildcard.

The one other thing I would say is that our rating assessment service, which gives us some visibility into M&A pipeline because that then comes into issuance, that we have seen a pickup -- a very nice pickup in our rating assessment service. So that does give us some confidence that the M&A market will continue to improve for the balance of the year.

Operator

We'll move next to Andrew Nicholas at William Blair.

Andrew Nicholas

I wanted to ask about the AI frameworks that you outlined in the presentation on the 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 that comment and maybe on progress in terms of monetization or even a better understanding of the type of impact that could have, whether it's in '24 or in the out-years.

Rob Fauber

Yes. So, the first thing we wanted to do is make sure we had a framework. We have a lot of innovation going on, and we wanted to make sure that we're able to be thoughtful about how we go to market with that innovation for our customers.

And I think you're going to see us deploy in a -- across a spectrum with our customers. Because our customers -- we're either going to deliver GenAI-enabled workflow software right? So those are our customers who are using our software, and that's where we'll have GenAI 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.

Some of our customers are going to want to integrate either our GenAI APIs or our RAG APIs into their own internal workflow or just raw data feeds and other content with additional rights to be able to use in their own AI platform. So, there will be different ways that we are going to be delivering our AI-enabled solutions. And of course, there's also third-party platforms. We're working to build out an even larger ecosystem of partners so that our customers can also access our content in systems where they're making decisions.

So, I think as I talk about kind of navigators and skills and assistance, maybe one -- a 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. And I think that will be -- that will support value proposition, and ultimately, the pricing...

Noemie Heuland

And retention.

Rob Fauber

But also, the retention, exactly. I think that's where that's going to -- and again, I think we're going to see -- that will be table stakes. Everybody is going to have -- use chatbots and other things to make their solutions easier to use. It's the skills where we're taking the proprietary Moody's content and then delivering that into the 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 you'll see us -- we're thinking about how we're going to price for that, whether it's going to be -- I think we'll have different models. But you can imagine, in some cases, it will be an increase to the overall subscription. In some cases, you can imagine an element of a consumption model based on how much you are consuming across these skills and our various data and content sets. So, it's still a little early. And I know everybody wants to get some visibility on that, but hopefully, that gives you a little insight.

Noemie, anything to add there?

Noemie Heuland

Yes. The other thing I would add, reflecting on the conversations we're having with customers, they want to partner with firms that can be trusted when it comes to data integrity that have a strong reputation for robust analytics and modeling skills. They're still assessing their own framework when it comes to dealing with vendors on GenAI-enabled solutions. And that's why I think we differentiate ourself given our reputation, our history, and all the work we've done to build that framework. So, I just want to add that.

Andrew Nicholas

That's helpful. And welcome, Noemie.

Noemie Heuland

Thank you.

Operator

Our next question comes from Scott Wurtzel at Wolfe Research.

Scott Wurtzel

I just wanted to go on to margins. And just given the outperformance in the first quarter and in the context of you sort of reiterating and holding the total company operating margins for the year, I was just wondering if there was any element of reinvestment plan the upside that you saw in the 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?

Noemie Heuland

Thanks. I can maybe take that. 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 revenue headwind. That's because we are very mindful in our spend. We're investing strategically, but we're also building efficiencies into the system. So, all in all, the outlook in terms of the consolidated level hasn't really changed. We've moved the lit up in our range, but we remain within the 44% to 46% range that we've communicated before.

Rob Fauber

Yes. And I guess the only -- the double-click on that is given what we've seen in the first quarter, we have not upsized our investment program.

Operator

We'll go next to Faiza Alwy at Deutsche Bank.

Faiza Alwy

I wanted to go back to MA and the change in the revenue guide. Just want to clarify, like is the change entirely FX? Or is there something else to keep in mind as it relates to just to converting ARR to revenues? And I'm curious if you can talk about how much FX impacted MA this quarter.

Noemie Heuland

Yes. I'll take that. 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. The update in the outlook for MA revenue, it's primarily FX-driven. There's 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. But what -- as Rob talked about, our pipeline is very strong. We have -- can you hear me? Yes. We have a strong pipeline. Our meetings -- sales meetings are very -- going very well. So, it's primarily FX with a little bit of sales seasonality as well.

Faiza Alwy

Okay. So just to be clear, sorry, just to -- there's no change? You're not sort of lowering the -- within the low double-digit range per ARR? ARR is still pretty much in line with?

Noemie Heuland

Yes, that's correct. We -- the ARR is a forward-looking measure of the health of our recurring revenue business, and the underlying health of that business hasn't changed from what we said before.

Operator

Our next question comes from Jeff Silber at BMO Capital Markets.

Jeff Silber

Wanted to continue the discussion on MA, focus a little bit more on Research & Insights. You talked a little bit about the slowness in the quarter. I think you said there was some timing and there were some other things. But if I can just clarify that. And then also, why do you expect growth to accelerate specifically in Research & Insights in the back half of the year?

Rob Fauber

Yes. So over the past year or so, we have seen a little bit of deceleration in ARR growth in Research & Insights. And obviously, fixed income research is a pretty mature market. And that's really one reason that we focused on these two new enhancements to CreditView that we have talked about over the last quarter or two. That's the Research Assistant and the unrated coverage expansion. It is going to take a little time for us to see the benefits of that in ARR growth.

We have seen some modest retention pressures with CreditView. Some of that has come from the recent banking consolidation. We had expected that, frankly. And we expect ARR to pick back up in the second half of the year and accelerate towards high single digits, again for a couple of reasons.

One, the CreditView coverage expansion. And we have a good sales pipeline there and have actually seen some particular interest in Europe and also from those in the private credit market. And then second, Research Assistant. So, we've seen sales really start to pick up in the quarter. We're now at 37 sales. We expect that to -- we have a very nice pipeline.

And what I mentioned earlier, the earlier adopters of Research Assistant tend to be smaller companies where there's less of a kind of a regulatory risk and control environment that they have to contend with. So, we're having some really encouraging discussions with some very large institutions, but those take a little bit more time. And so, we've also seen a very nice uptick in user requests and also engagement. And those are really very good leading indicators for us in terms of the market's interest.

And so, when we've got people that we're turning on to Research Assistant and we see very strong upticks in usage, that gives us a lot of confidence. And so, I think together, these things, we think, are going to help us pull that ARR growth back up and back into the year.

Operator

Next, we'll go to George Tong at Goldman Sachs.

George 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 in the back half of this year and beyond?

Rob Fauber

I guess, George, maybe the best way I could quantify it is still the meaningful majority of issuance in the quarter was refinancing. 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 refinancing activity. Does that give you some -- does that help?

George Tong

Yes. Yes, that helps. And I guess, what's the view on new money over the next several quarters in the back half of the year?

Rob Fauber

Yes. George, so that's where I come back to. If -- for us to really have confidence that the first quarter is not kind of a one-trick pony of pull-forward of issuance, either in new opportunistic issuance from the second half of the year or a pull-forward of maturity walls, 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 because there is a mountain of money at these private equity firms that has got to get deployed. So, there's actually two things going on.

The private equity players have got to exit, and the last couple of years have been very difficult for sponsor exits because of a very soft IPO market and obviously a quiet M&A environment. So, the sponsors are looking to exit, and you've also got sponsors with a huge amount of dry powder that has got to get deployed. And so, we have started to see some of that in -- 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 into the second half of the year, that's going to give upside, I think, to our current issuance outlook.

Operator

We'll go next to Craig Huber at Huber Research.

Craig Huber

Noemie, I'm curious, you're new CFO here. You're falling roughly 20 years, very strong, the prior two CFOs, your company there and stuff. What are you thinking you can improve upon at the Company that you're willing to talk about publicly here?

Noemie Heuland

Thanks for the question. I think the -- if I think about stepping back a bit about the Company's priorities and where we're headed, I think my priorities are very much aligned with where the Company is going and what we're focused on to accomplish our medium-term targets and beyond.

The first thing I'd say is continuing to focus on very thoughtful capital allocation, balancing the investment spend to drive future growth and really move from legacy onetime 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 evolved their business model from on-premise, lower margin, into SaaS recurring and scale businesses. And I think that's an area that really excites me. What I've seen so far really resonates with me, 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 as well, spend some time with you all to understand what are the things you're looking at, what things you think we're doing well, things where you'd like us to see do differently, and I'm really much looking forward to that as well.

Rob Fauber

Yes. And Craig, I will add. I think Noemie is also going to bring a wonderful perspective and I think help communicate to the market the real value of this business and using the perspective that she's had from software and SaaS businesses in the past. So, we're really excited about it.

Operator

We'll take our next question from Jeff Meuler at Baird.

Jeff Meuler

Great to hear the progress on RMS. On the revenue acceleration, does the revenue lift come 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 on the synergies bit, it sounds like, correct me if I'm wrong, but mostly two-way cross-sell synergies between heritage RMS and Moody's products. Where are you on, I guess, net new product synergies that combine the capabilities from each of the firms?

Rob Fauber

Yes. Jeff, great question. RMS is really turning into a nice story for us. And I guess I would -- maybe I'll call it core RMS ARR that is now growing in line with MA ARR. And that is a far cry from the quite low single-digit percent growth when we acquired the business. And part -- there's a couple of things going on there just with the core business, excluding the synergies.

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 we -- RMS struggled with a prior SaaS rollout. The Intelligent Risk Platform is the real deal, its industrial strength. And we're really seeing some very nice migration.

And to your question, there are -- there's two things. So, one, there are commercial benefits as we move customers over. And two, exactly as you said, Jeff, once you're 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 driving customers to migrate to the SaaS platform and to continue to grow their relationship with RMS.

The second thing is just good old-fashioned sales blocking and tackling. We moved our -- one of our most experienced sales managers in to be the Head of Sales and really have even more discipline around the RMS sales program, and that has also paid dividends.

And then the nature of the synergies, I mean, you're 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 as a customer of the Cat model.

So, this isn't even kind of our Climate On Demand for banks. This is literally the full Cat models. So, this is a bank who wanted to have a very sophisticated view of the impact on -- 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 on supply chain who want to do exactly that, the physical risk relating to climate and extreme weather. And then the other is the inbound cross-sell.

Again, a very nice story. And a lot of that is around the KYC, know your third party, leveraging our master data in our data solutions team. So, we have a very nice very nice momentum there. So, all in all, I feel quite good about what's going on at RMS.

Operator

We'll go next to Andrew Steinerman at JPMorgan.

Andrew Steinerman

I just wanted to get with the current guide for credit issuance. Are you assuming that issuance on transaction basis will be down in the fourth quarter this year? And also, I just wanted to check your pulse on if you thought we were in the midst of a multiyear issuance recovery following the pullback in '22?

Rob Fauber

Andrew, great questions. So, thinking about, I guess, a year to go, obviously, we've held the issuance forecast range. I mentioned that we expect to be in the higher end of that range. And so obviously, that invites questions about, okay, given the strong first quarter, what does that imply then about the second half? And it does, in fact, imply a, I'd say, for year to go, so that's three quarters a, call it, mid-single-digit decline in issuance for the balance of the year.

And to your point, Andrew, I would say, more focused on the fourth quarter, where we would think the issuance would be down more in the mid-teens range. And part of that again is because some of the uncertainties I talk about and -- one of those being elections. And so, we just assume that people are going to pull out of the fourth quarter where they can.

So, for the most part, I'd say our forecast represents really just a change in the calendarization of issuance. But I talked earlier about some of the drivers that we're going to be looking for. And then maybe, Andrew, to your second point about are we in the midst of a multiyear -- I can't remember the term you used, issuance...

Andrew Steinerman

Issuance recovery given the pullback in '22.

Rob Fauber

Yes. I do think we are. And I think that's consistent with -- we obviously updated our medium-term targets for MIS, and I think that's part of that. And I will go back to that point, Andrew, around what -- one of the things I -- that leads me to that conclusion is -- and while we may have -- again, we may have a little volatility in the quarters here in the year. But I think the trend line is up.

And again, I go back to that debt velocity. Just to give you a number, at least the numbers we work with, when you go back to, like, okay, let's say, 2009, so just post-global financial crisis, corporate issuance over total corporate outstanding was all the way back down to something like 14%. And we're well below that still. So that tells me we've got some room just, again, given the huge amount of issuance over the last few years.

The one other thing I would say, Andrew, is I get asked -- we've gotten asked a lot on these calls about private credit and is this disintermediating the public markets. I actually have started to think it almost as another form of maturity wall because look what went on in the quarter. We had 45 deals that got slipped from private markets 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're seeing there's a lot of just deferral because the private credit players are rational financial actors. And if they can get cheaper financing in public markets, they're 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 that will be supportive of this, as you say, recovery in issuance.

Operator

We'll go next to Russell Quelch at Redburn.

Russell Quelch

Wanted to ask a balance sheet-related question. I see that your gross leverage is now down at around 2.2%, which is the lowest level we've seen from you guys in years. And you also slowed the pace of the buyback in Q1. Perhaps that cash on the balance sheet went up by about $300 million in the quarter. That actually was quite stable through 2023. And start the break in trend there. Is there a change in how you're thinking about capital allocation or the cash you need to hold on the balance sheet? And are you perhaps making room for acquisitions here? Can you just give a bit of color there?

Noemie Heuland

Yes. On capital allocation, we are maintaining our approach, and it's my intent to continue that. We -- on the share buyback, which I think is where you're going, we -- it's just been one quarter of execution. The pace isn't out of line with our planned cadence. We expect to catch up in the second quarter and the second half to hit our targets. So, I wouldn't read anything into that. And then last year, we focused on deleveraging because we had picked up in 2022.

Operator

We'll move next to Owen Lau at Oppenheimer.

Owen Lau

So, I have two housekeeping questions for modeling purpose. The first one is I want to go back to the margin. Would you be able to provide more color on the seasonality for the margins of MIS and MA for the rest of this year? And then the second one is on the migration to cloud revenue. My understanding is it will impact your upfront revenue growth, but you'll be better off longer term. Should we expect your MA revenue growth to run below your ARR growth until you completed your migration in RMS and also research?

Rob Fauber

Owen, this is Rob. I'm going to take the first one. No, I don't think so. I don't think you're going to see us kind of have what I would call kind of a big valley as we're moving from customers from on-prem to SaaS. So that's not something I would anticipate.

And your first question was around the calendarization of MIS margins, I believe.

Noemie Heuland

Yes. MIS margin, we saw a -- the top line, we expect this to be growing low single digit in the remainder of the year. For the margin for MIS, we're forecasting the expenses to decline slightly in the second quarter in the low single digit sequentially from the first quarter. First quarter MIS adjusted operating margin of 64.6%. 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.

Especially for the second quarter, if you want to use that following purposes, we expect that to be slightly higher than the upper end of our fiscal year guidance before then decreasing sequentially each quarter through the end of the year, which is pretty much in line with the MIS revenue cadence as well, which is expected to decline in -- throughout the year. For MA, we -- again, we expect the margin to evolve in the same pattern as the revenue with an uptick of 30% to 31% in the back half of the year.

Operator

And we'll take a follow-up from Craig Huber at Huber Research.

Craig Huber

You sort of touched on this, but can you just talk a little further about your expectations for the whole company cost ramp for the remaining three quarters in light of your guidance for cost for the year? That's my first housekeeping question. The other thing I want to ask you, in the past, you guys have given us your incentive compensation that you booked in the quarter. What's your outlook for the year there?

Noemie Heuland

Yes. On incentive comp, first of all, we recorded $105 million for the first quarter. We expect, on average, $100 million for the second and third quarter and slightly up in the fourth quarter. So that's for the incentive comp.

And on the expense cadence, we expect the second quarter expense to be flat sequentially in the second quarter versus Q1 and then gradually increasing by about $20 million to $30 million between Q2 and Q3 and then by $15 million to $25 million in the fourth quarter. That reflects our strategic investment, some merit increase, as well as some other variable costs, which are in line with the business growth.

Craig Huber

And one more quick thing. Your private credit as a percentage of revenues and ratings right now, Rob or Noemie, I mean, where does that sit right now? How small is that?

Rob Fauber

Craig, it's -- that's an interesting question because I think we could get into a bit of a battle of definitions here. As I kind of step back and think about serving the alternative asset managers, these are the Blackstones, the Apollos, they're both in the public markets and the private markets. And we have, as you'd expect, very significant relationships with a broad range of players in that market.

In fact, when you -- going back to the FIG revenues for the quarter, 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 BDCs and other folks who you would think of as being in the private credit market. So, I guess, Craig, it's a little bit of a tough question for me to answer because I think of serving the Apollos and the Blackstones, and I think of that as public and private. And that's quite significant.

We -- as you know, we did roll out a dedicated private credit team. We do have an expanded offering for specifically things that you would think of as private credit. So, we've got credit estimates for BDCs. We've got a number of different kinds of offerings to support fund finance. In fact, we just rolled out a subscription line methodology, and we have a very nice pipeline that I would think of as primarily private credit-related. All of that stuff is growing quite significantly.

So, I would say, maybe to cap it off, our relationship with the big -- with the alternative asset management community in -- and I'm -- just in MIS for the moment, is quite significant. As it relates to specifically private credit, yes, for now, considerably smaller, but growing quite quickly. I hope that gives you some sense.

Craig Huber

Yes. You went a couple of different ways I didn't think you were going to go, but that's helpful.

Operator

And we'll go next to Shlomo Rosenbaum with Stifel.

Shlomo Rosenbaum

Rob, can you just talk a little bit about the KYC growth? It was 18% in 3Q, 20% 4Q, 23% in -- now this last quarter. You are 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 you're seeing the ARR kind of still around the 18% -- 17%, 18%. And maybe you could talk about that in the context of the revenue growth?

Rob Fauber

Shlomo, thanks for the question. Yes, this is a powerful growth engine there. And it's -- they're just -- there's a number of demand drivers. You probably heard me talk about on the call before that I've gotten to a point where I think KYC is not doing this justice in terms of the name because it talks about know your customer. And you heard me earlier on the call, say, the theme with literally every customer I talk to is know your -- who you're doing business with and being able to connect the dots.

So that is a big opportunity for us. And KYC is right in the middle of it. And we are broadening out our solution set, leveraging all of the content that supports KYC. So that's the massive company database that we call Orbis. It's all of the people and PEP information. It's the AI-curated news. That supports what you would think of as traditional KYC.

And then people want to understand, okay, well, I need to have that information about my suppliers plus other information. And so, the demand for what you would think of as KYC solutions just continues to broaden out, and we're selling into that. And that's one of the areas of investment for us, Shlomo.

We talked about really wanting to serve corporates because historically, this has been serving financial institutions. But this theme of know who you're doing business with is a big theme with large corporations, and we have some fantastic customer wins that really validate our right to win in that space.

The other thing, I may have mentioned this on some prior calls is, especially in the back half of last year, we had a lot of product innovation going on in that space. You may have even seen like some articles about Moody's and the number of shell companies that we had identified around the world that got a lot of press.

Well, that shell company indicators is one of the products we created. We also have something called an entity verification API that pulls together a bunch of our different data sets and allows our customers to do real-time checks. So, product innovation, broadening of demand, all of that together, Shlomo, is continuing to drive some very strong growth, I think, for the foreseeable future.

Shlomo Rosenbaum

Should we see the ARR kind of ticking up a little bit? Where we're seeing the revenue ticking up, should we see ARR ticking up as well? I know it's pretty healthy as it is, but revenue is moving ahead.

Rob Fauber

Yes. I mean we don't guide on that, but I think...

Noemie Heuland

I'd really look at the ARR as the best indicator 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.

Rob Fauber

I'd say, Shlomo, we've gotten positive momentum there in the ARR, I believe.

Operator

And that does conclude the Q&A session. I'll turn the conference back over to Rob for any closing remarks.

Rob Fauber

All right. Well, thank you, everybody, for your questions. And I appreciate you joining the call, and we'll talk to you next quarter. Have a great day.

Noemie Heuland

Thank you.

Operator

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 the Moody's IR website. Thank you.