Moody’s Corporation (MCO) Q1 2022 Earnings Call Transcript

Moody’s Corporation  (NYSE: MCO) Q1 2022 earnings call dated May. 02, 2022

Corporate Participants:

Shivani Kak — Head of Investor Relations

Robert Fauber — President and Chief Executive Officer

Mark Kaye — Chief Financial Officer

Analysts:

Manav Patnaik — Barclays — Analyst

Alex Kramm — UBS — Analyst

Toni Kaplan — Morgan Stanley — Analyst

George Tong — Goldman Sachs — Analyst

Andrew Steinerman — JPMorgan — Analyst

Ashish Sabadra — RBC Capital Markets — Analyst

Andrew Nicholas — William Blair — Analyst

Craig Huber — Huber Research Partners — Analyst

Jeff Silber — BMO Capital Markets — Analyst

Owen Lau — Oppenheimer. — Analyst

Simon Clinch — Atlantic Equities — Analyst

Shlomo Rosenbaum — Stifel — Analyst

Kevin McVeigh — Credit Suisse — Analyst

Faiza Alwy — Deutsche Bank — Analyst

Patrick O’Shaughnessy — Raymond James — Analyst

Presentation:

Operator

Good day everyone and welcome to the Moody’s Corporation First Quarter 2022 Earnings Conference Call. [Operator Instructions]

I will turn the call over to Shivani Kak, Head of Investor Relations.

Shivani Kak — Head of Investor Relations

Thank you and good morning. Thank you all for joining us to discuss Moody’s first quarter 2022 results and our revised outlook for full year 2022. I’m Shivani Kak, Head of Investor Relations. This morning, Moody’s released its results for the first quarter of 2022 as well as our revised outlook for full year 2022. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com.

Rob Fauber, Moody’s President and Chief Executive Officer, will lead this morning’s conference call. Also making prepared remarks on the call this morning will be Mark Kaye, Moody’s Chief Financial Officer.

During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for a reconciliation between all adjusted measures referenced during this call and GAAP.

I call your attention to the safe harbor language, which can be found toward 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 31, 2021, and in other SEC filings made by the company, which are available on our website and on the SEC’s website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to point out that members of the media may be on the call this morning in a listen-only mode. I will now turn the call over to Rob Fauber.

Robert Fauber — President and Chief Executive Officer

Thanks, Shivani. Good morning, and thanks everybody, for joining todays call. I will begin by providing a general update on the business, including our first quarter 2022 results. And following my commentary, Mark Kaye will provide some further details on our first quarter 2022 performance, as well as our revised 2022 outlook. And after our prepared remarks, as always, Mark and I will be happy to take questions.

So against a backdrop of geopolitical turbulence and volatile markets, Moody’s first quarter revenue was $1.5 billion, that’s down 5% from the prior year period. With the decline in issuance in the first quarter and our expectation for continued subdued levels of opportunistic issuance for the balance of the year, we have updated our full year 2022 guidance and we now project Moody’s revenue to be approximately flat relative to the prior year. We have also lowered our adjusted diluted EPS guidance to be in the range of USD10.75 to USD11.25.

MA continued to be a strong source of consistent growth, while market disruptions impacted issuance activity, as investments to meet customer demand for our mission-critical suite of tools and solutions drove revenue growth of 23%. Recurring revenue is core to this growth, which is why we are introducing a new reporting metric, annualized recurring revenue or ARR and we expect this new metric to provide greater transparency into the growth trajectory of MA’s recurring revenue.

The temporary impact of market uncertainty on our financial performance does not change our expectations for the medium-term. And time and time again, in periods of uncertainty like these, markets and organizations look to Moody’s for expertise and insights, increasing the demand for our integrated risk assessment offerings and so we remain confident in the fundamental drivers of our growth.

Moody’s revenue was down just 5% from a year ago, reflecting the diversity and resilience of our business portfolio and while MIS revenue decreased 20%, MA revenue was up 23% or 9% on an organic basis, driven by strong customer demand for our solutions.

Adjusted operating income fell 20% to $734 million. Adjusted diluted EPS was $2.89, a decrease of 29% year-on-year and Mark will provide some additional details on our financials shortly.

Now turning to MIS. The issuance factors we highlighted during our fourth quarter earnings call really remain unchanged, as elevated inflation and a prospect of additional interest rate increases, combined with the impact of the Ukraine conflict are contributing to uncertainty and volatility, and these factors have adversely affected debt capital markets activity, including opportunistic refinancing and M&A transactions, particularly in the leveraged finance markets.

And as we have said over the years, periods of market disruption need to be put into historical context and I would argue that this period is no different. And this chart illustrates our rated issuance over the last decade with the gray bars representing periods of market volatility. And it shows that activity typically rebounds after periods of market disruption and has grown steadily over time. There’s uncertainty as to how long the current disruption will last, we believe that market will eventually reset amidst higher interest rates and will eventually resume issuance growth supported by economic expansion and substantial financing maturity walls. But the medium-term drivers of debt issuance and our business remains strong, and as we said in the past, issuance is a function of several macroeconomic factors, the most significant of which is economic expansion.

Looking ahead, we do expect global GDP growth for the remainder of the year, albeit at a modest pace. The underpinnings of the economy remain sound, and consumer and corporate balance sheets remain healthy and U.S. unemployment remains at near historical lows. While several rounds of interest rate increases are expected this year, as the Fed addresses inflation, rates will remain low by historical standards. Volatility in the credit markets has been reflected in spread fluctuations. Those spreads also remain well below the 10-year average, and taken as a whole, the cost of borrowing remains historically low. In addition to these factors, there’s a healthy stock of debt, which needs to be refinanced, more than $4 trillion over the next four years. And we expect the continued buildup in our first-time mandates will drive growth in our recurring revenue, as demonstrated over the last 2 years.

Now pivoting to Moody’s Analytics. We are driving robust growth across the breadth of our products and solutions. In the first quarter, revenue was up 23%, supported by organic revenue growth of 9% and a 96% customer retention rate. We are now including annualized recurring revenue or ARR in our reporting to give an indication of our revenue expectations for the future. Organic ARR was up 9% for the first quarter, demonstrating the strength of our recurring revenue across the business. Again, Mark will provide some additional details on ARR shortly.

Now I’d like to take a moment to share a story that illustrates how offerings across our three reporting lines in MA come together to provide value for our customers. As a result of the acquisition of Bureau van Dijk in 2017, we had a modest relationship with a large multinational insurance underwriter that was using our Orbis database to support sales and marketing activities. Following the acquisition, we had a series of discussions with this and other customers about ways to address a wider range of their needs, which in this case, included their process for underwriting trade credit insurance. We were able to package our Orbis data, our credit research and credit scorecards, combined with our AI-enabled spreading offering, to provide a set of integrated solutions that transform their workflow helping them to eliminate 70% of their manual tasks in their trade credit underwriting process and increasing their efficiency and enhancing their effectiveness. This upsell resulted in approximately 300% increase in annual customer revenue and today we are having discussions with them about further expanding our relationship to serve additional use cases and solutions, including integrating ESG into their underwriting processes. And I think it’s just a great example of our ability to expand our customer relationships by bringing together the full capabilities across Moody’s Analytics.

As you know, helping the market make sense of the risks and opportunities posed by ESG and climate change is a priority for us and we are increasingly delivering solutions that help companies incorporate these critical factors into their decision-making. That’s an important reason for our acquisition of RMS last year. In addition to building a business serving the insurance industry, RMS brings scaled world-class weather and climate data and analytics, which we are bringing to a much broader customer audience. Inclusive of revenue from RMS’ climate-related offerings, our combined revenue for our ESG and Climate Solutions was approximately $170 million in 2021. We expect this revenue to grow in the low double-digit percent range this year. We also expect our climate revenues, which today are predominantly from RMS, to accelerate as we continue to integrate its best-in-class models to meet our customers’ growing needs. And going forward, we will update you on this revenue number as it provides, I think, a good sense of our scale and impact in this area.

Our growth is supported by a number of key innovations and award winning product launches. Last month, we launched ESG360, which is a powerful platform that delivers decision relevant ESG data and insights to portfolio managers. We are also launching new climate change models in the U.S. and Asia that will help address the growing need for climate change analytics, including supporting increasing regulatory demands.

We are proud to have received recognition from customers for our ESG and climate-related products and services including being named ESG Opinion Provider of the Year by the International Financing Review. I am excited about the opportunities ahead as we continue to play a meaningful role in helping companies decode risk and unlock opportunity.

And speaking of decoding risk, our customers turn to us even more in times of stress and uncertainty and we saw that during the throes of the pandemic. And as you can see on this slide, the relevance of our offerings has probably never been higher with significant leadership of our research and usage of our solutions. Our research reports have been read over 200,000 times, while KYC screenings are up 70% year-over-year, as our customers have a critical need to better understand and monitor their own customers and suppliers amidst geopolitical conflict and sanctions.

With that, I will now turn the call over to Mark to provide further details on Moody’s first quarter results, as well as an update to our outlook for 2022.

Mark Kaye — Chief Financial Officer

Thank you, Rob. In the first quarter, MIS revenue declined 20% from last year’s record level as geopolitical concerns, rising yields and elevated economic uncertainty contributed to a 25% decrease in rated issuance.

Corporate finance, financial institutions and public project infrastructure revenue declined 31%, 19% and 14%, respectively, with many issuers remaining on the sidelines due to unfavorable market conditions and existing levels of balance sheet liquidity.

Structured finance revenue increased 24%, supported by 10% growth in issuance, primarily from commercial and residential mortgage-backed securities, offset by a decline in CLO refinancing activity.

MIS’ adjusted operating margin was 58.6%. Revenue was adversely impacted by the noted absence of opportunistic issuance in the quarter, while operating expenses, excluding those related to the Russia-Ukraine conflict remained relatively flat.

Moving to MA. First quarter revenue grew 23%, delivering the fifth consecutive quarter of double-digit growth. Excluding the impact of recent acquisitions, revenue and recurring revenue were up 9% and 11%, respectively.

In Decision Solutions, revenue increased 48% or 14% on an organic basis. This is driven by robust demand for KYC banking, as well as Insurance and Asset Management Solutions. Research and Insights revenue rose 7%, reflecting strong demand for our credit research analytics and models, underpinned by a 97% customer retention rate. For Data and Information, revenue grew 6%, driven by new sales of the company’s data and ratings fees.

MA’s adjusted operating margin expanded by approximately 350 basis points from incremental operating leverage net of ongoing organic investments. This is offset by approximately 430 basis points of margin contraction due to acquisitions completed within the last 12 months.

Over the past few years, we have successfully transitioned the MA business to a predominantly subscription-based model, with strong recurring revenue, which now accounts for 94% of total MA revenue. This quarter, we are pleased to introduce a new forward-looking performance metric for our MA business, annualized recurring revenue or ARR, is the annualized run rate of recurring revenue for active contracts at a point in time. Renewable contracts include subscriptions, term licenses and software maintenance. The ARR metric provides insight into the trajectory of MA’s recurring revenue, with visibility specifically into the growth of the subscription business from both our acquisition of new customers and expansion of existing relationships. As of March 31, 2020, MA’s ARR of $2.6 billion reflected 25% growth from the prior year period or 9% on an organic basis. In addition, we are guiding to low double-digit organic ARR growth for year-end ’22, reflecting our expectation for accelerated renewable sales through the remainder of the year.

Turning now to our revised guidance. Moody’s updated outlook for full year 2022 as of May 2nd reflects assumptions about numerous factors. These include, but are not limited to, the effective interest rates, inflation, foreign currency exchange rates, capital market liquidity and activity in different sectors of the debt markets. The articles reflect assumptions about general economic conditions, global GDP growth, the scale and duration of the crisis in Ukraine, and the impact of COVID-19 as well as the company’s own operations and personnel.

Our updated full year 2022 guidance incorporates the following specific macroeconomic assumptions, the 2022 U.S. and euro area GDP to expand by approximately 3.5% to 4.5% and 2.5% to 3.5%, respectively, and global benchmark rates to increase from historic lows with U.S. high yield spreads moving slightly above the historic average of approximately 500 basis points and inflation rates to remain elevated and above Central Bank targets in many countries.

By year-end, the U.S. unemployment rate is expected to remain low at approximately 3.5% and the global high yield default rate will initially decline before gradually rising to approximately 2.7%.. Our guidance also assumes foreign currency translation and for the remainder of 2022 reflects exchange rates for the British pound of $1.32 and $1.11 for the euro.

We are updating our full year 2022 guidance across several metrics to reflect both first quarter results and our revised expectation for the remainder of the year. We now forecast Moody’s revenue to remain approximately flat to the prior year and for operating expenses increase in high single-digit percent range, down from our prior guidance as we prudently manage and prioritize investment activity through the cycle. Consequently, we now project Moody’s adjusted operating margin to be approximately 47% and have lowered the diluted and adjusted diluted EPS guidance ranges to USD9.85 to USD10.35 and USD10.75 to USD11.25, respectively.

We decreased our free cash flow forecast to be between USD1.8 billion and USD2.0 billion and maintain our expectation for full year share repurchases of at least $1.5 billion, subject to available cash, market conditions, M&A opportunities and other ongoing capital allocation decisions. Please refer to Table 13 of our earnings release for a full list of our guidance.

Turning now to our issuance outlook, which we have updated in light of market disruptions in the first quarter and the expectation that opportunistic activity will likely remain constrained heading into the second quarter of the year. We forecast global rated issuance to decline in the mid-teens percent range and investment-grade activity to decrease by approximately 10%.

Leveraged finance issuance has been acutely impacted by market uncertainty with over 20 days of no high yield activity during the quarter. We now project full year 2022 high yield and leverage loan issuance to decline by approximately 40% and 30%, respectively. Similarly, we forecast a 10% decrease in financial institutions activity and a 5% decline in public project and infrastructure finance activity.

In structured finance, we expect wider spreads and a weaker future leverage loan supply to impact the financing and creation of new CLOs for the balance of the year. We are, therefore, revising our outlook for structured finance issuance to decline by approximately 10%.

And finally, we are reducing our full year guidance for new mandates to a range of 850 to 950 despite a strong new mandate result of almost 240 in the first quarter.

Due to our revised rated issuance outlook, we now forecast MIS revenue to decrease in the low double-digit percent range. We have proportionately lowered MIS’ adjusted operating margin guidance to approximately 59%. This outlook remains above the pre-pandemic levels of 2018 and 2019, reflecting prudent spending on strategic investments and employee recognition, carefully balanced with ongoing cost efficiency initiatives.

For MA, we are reaffirming our guidance for high-teens revenue growth supported by tailwinds from recent acquisitions, strong customer retention rates and ARR outlook, as well as robust demand for our subscription based products as we successfully execute on our integrated risk assessment strategy. We are maintaining MA’s adjusted operating margin guidance of approximately 29%, as we organically invest in the business to further accelerate topline growth.

I would like to provide additional insight into our disciplined approach to expense allocation and management, which we believe is critically important to ensure long-term sustainable growth as we move through the current short-term cyclical volatility impacting the MIS business.

In the first quarter, operating expenses rose 16% over the prior year period. Approximately 13 percentage points of this growth were attributable to operational and integration related costs associated with acquisitions completed in the prior 12 months. Operating growth, including organic investments and annual compensation increases, net of ongoing efficiency initiatives, contributed approximately 6 percentage points. Lower incentive compensation accruals and a strengthening U.S. dollar offset expense growth by approximately 1% and 2 percentage points, respectively.

For the full year, we expect expense growth to be more than $100 million lower than our previous forecast, an increase now in the high single-digit percent range. This includes approximately 9 percentage points of growth attributable to acquisitions completed within the last 12 months.

We remain committed to invest an incremental $50 million and $150 million in 2022 to attract and retain world-class talent, as well as to enhance our product capabilities and expand distribution to capture these new opportunities, respectively. We anticipate that these investments will be partially offset through our ongoing cost efficiency programs and lower incentive compensation accruals.

Last, we strongly believe that the market volatility in the first half of the year is cyclical in nature and that the business fundamentals of both MIS and MA remain firmly intact. Therefore, it is especially important that we prudently manage our expenses and continue investing through the cycle in order to realize our medium-term growth prospects.

Before turning the call back over to Rob, I would like to highlight a few key takeaways. First, despite the challenging market environment, we delivered over $1.5 billion in revenue and an adjusted diluted EPS result of $2.89. Second, while short-term volatility and market cyclicality are affecting issuance levels, our business fundamentals remain strong. Third, MA’s robust recurring revenue growth and high customer retention rates reflect the strong demand for our integrated risk assessment solutions and provide balance to Moody’s overall results. Fourth, our new ARR metric provides further insight into our momentum towards achieving our medium-term targets. And finally, we remain focused on investing through the cycle to build market leading products and capabilities in key strategic growth areas and balancing disciplined expense management with the return of stockholder capital.

And with that, let me turn the call back over to Rob.

Robert Fauber — President and Chief Executive Officer

Thanks, Mark. I want to close by recognizing the efforts of our people and their continued dedication and hard work remain key to driving growth and resilience and delivering on our strategy as an integrated global risk assessment firm. And that’s an additional reason despite the turbulent times in the issuance markets that I remain confident and optimistic about Moody’s growth fundamentals. Our mission is even more critical as our customers rely on us to provide trusted insights and standards that help them make decisions with confidence in this environment.

So that concludes our prepared remarks and Mark and I would be pleased to take your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] We will first hear from Manav Patnaik of Barclays.

Manav Patnaik — Barclays — Analyst

Thank you. Good morning. I was just hoping on the issuance forecast, if you could give us some color on kind of the seasonality that you assumed, I guess, is this current quarter going to be similar to the first quarter and then improve to the back half, just any color there would be helpful.

Robert Fauber — President and Chief Executive Officer

Yeah. Sure, Manav. Maybe a way to think about this is kind of what’s going on year-to-date and how do we think about what’s going to happen here to go, what’s implied in our outlook. And obviously, we are projecting full year issuance to be down mid-teens for 2022. Issuance was down 25% in Q1, so that implies a deceleration of issuance decline through the rest of the year, meaning that our year-to-go issuance will be down in the kind of, call it, kind of low teens versus 2021 year-to-go. And I would say, Manav, in arriving at that outlook, most of the downward adjustment relative to our prior outlook is in Q2, and Q3 and Q4 represent, I’d say, much more modest decreases versus our original outlook.

Mark Kaye — Chief Financial Officer

And Manav, if I carry forward those remarks and thinking about adjusted diluted EPS, the lower MIS revenue results in the first three months of 2022 impacted the adjusted diluted EPS by approximately $0.80 versus the prior year period. And our latest full year 2022 outlook guidance for the $11 at the midpoint implies an average quarterly diluted EPS result of $2.70 for the remainder of the year and that includes an additional approximately $0.70 assumed adverse impact from issuance to the EPS results in the second quarter.

Manav Patnaik — Barclays — Analyst

Okay. Got it. That’s very helpful. And then I was just hoping you could give us a little bit more color on your new ESG and climate revenue breakout. How much is the climate piece that’s coming from RMS, and I would have thought low double-digit growth sounds conservative, but just curious maybe it’s just a matter of putting the offerings together?

Robert Fauber — President and Chief Executive Officer

Yeah. Manav, it’s Rob. I am going to start and then I might see if Mark wants to build on this. But if you think about just climate for a moment, there are really two core components, I think, to how we are thinking about commercializing around climate. The first is helping customers understand the physical risk relating to climate change and there we have some very substantial capabilities with RMS. And then second is around understanding carbon transition and understanding how companies are going to get to net zero, obviously, we have got an ESG component in this as well. And just to touch on just briefly in terms of the growth rate and then I will hand it to Mark. With RMS being a big part of this, obviously, we just acquired RMS recently. So we are just in the process of extending the product suite beyond our core insurance customer base. So I think you will see an acceleration of growth over time.

Mark Kaye — Chief Financial Officer

Yeah. And Manav, we also looked — thought through several considerations in determining what was the appropriate classification of climate source revenue and then included utilizing the guidance provided by the SEC and their proposed rules for climate-related disclosures, which really reflects the impact of severe weather events, direct and indirect greenhouse gas emissions and some of the climate-related targets and transition plans. And we also did a leveraging of the industry standard publications on the TCFD etc and so when you think about the combined ESG and climate. We really only captured the revenues associated with climate related perils like floods, hurricanes, typhoons, wildfires and agriculture. And as we mentioned in the prepared remarks, in April, we did launch our new platform, Moody’s ESG360 and that will enhance the way investors and asset managers across our ESG and climate portfolio are able to get insights and that’s really a very user-friendly platform that delivers sort of that comprehensive and decision useful data scores and assessments.

Robert Fauber — President and Chief Executive Officer

Yeah. And Manav, the last thing I’d say, I mentioned it on the prepared remarks, but we want to break this out, because we want the investor community. I have a sense of the scale that we have got across, not just ESG, but climate. Climate is a very, very important part of the E in ESG, and as you heard Mark described, we have a real product suite there that we are going to continue to build on. So we wanted to give some visibility to investors in that regard.

Operator

And next we will hear from Alex Kramm of UBS.

Alex Kramm — UBS — Analyst

Yeah. Hey. Good morning. Just coming back to the issuance outlook, of course, in your prepared remarks, it sounded like you are pretty confident that all the medium-term indicators are still intact and it almost sounds like you feel like the second half of the year should almost normalize again. So just wondering what the risk is that you are being a little bit too optimistic here? When you meet with or when your analysts meet with corporates, are you hearing, for example, more appetite for deleveraging and would that be something where that $4 trillion in refinancing wall at some point becomes irrelevant, because we are going into this deleveraging cycle? So any color of what you are hearing that there may be a little bit more of a structural change, I know it’s early.

Robert Fauber — President and Chief Executive Officer

Yeah. Alex, good to have you on the call. So as I said in the kind of year-to-go, in Q2 we have adjusted the forecast for each of Q2, Q3 and Q4 off of our original outlook. It’s just that there’s a more significant downward adjustment in Q2 and so we think that conditions will, therefore, improve through the balance of the year. But maybe what would be helpful Alex is, there’s a question obviously from many on the call, are we being too aggressive or are we being too conservative, right? And so maybe to help you answer that, let me give you a little bit of our thinking in terms of what could provide some upside here and what could provide some downside. And I think the quickest resolution to some of this market volatility would be a resolution of what’s going on in Ukraine, and obviously, that’s significantly impacted the European markets. And we have seen a high yield market in Europe shut down for a long length of time and just recently opened. And that would allow these infrequent issuers who have been sitting on the sidelines to potentially come back to market. And now an interesting stat, in the U.S., issuance from infrequent issuers was down almost 50% in the first quarter of 2022 versus the prior year. That’s a big number. So a lot of companies were sitting out the volatility, and as you said, their balance sheets are in good shape. There are the impacts of interest rate hikes, and of course, we have got the maturity wall that you mentioned, and the real question is, are we going to start to see some pull-forward as issuers realize that rates are increasing. And we really haven’t seen that to any material extent in the first quarter, because I think the market volatility kind of overwhelmed those that wanted to potentially get into the market and pull-forward. Our leveraged loan expectation, you heard still down pretty significantly off of a record year, but we do have a healthy first-time mandate pipeline. And so actually, the first quarter of this year was our second strongest first quarter for first time mandates that we have had. But a lot of those issuers just haven’t come to market, again, because of the volatility. So we have got — I would say, there’s kind of a backlog, and of course, we also haircut our M&A driven issuance assumptions as well.

So those are the kinds of things that I think could provide a little bit of upside. In terms of headwinds, look, one thing that’s on everybody’s minds is depending what the Fed does, could we see the economy move into recession. We don’t see that from where we sit right now, but that’s a question mark. Second, and I have talked about this on the call is, another risk is just the market understanding, the actions of various central banks, and obviously, there’s been an enormous amount of stimulus put into the markets over the last several years. And so it’s when the market is surprised or doesn’t understand that you see real volatility in the markets and we saw that with the temper tantrum. You have seen a little bit of that in the first quarter and that then creates these open and close windows of issuance. I would also say that, just in thinking about kind of the bigger picture, of course, we have talked about a stagflation scenario would be something that would be negative, where we have got an increase in interest rates, but it’s not because of economic growth. And so, again, we don’t see that from where we sit today, but that’s something that we are keeping an eye on.

Alex Kramm — UBS — Analyst

Okay. Helpful. Thank you. I will make my follow-up, a quick follow-up then. On the recurring revenues in MIS, any outlook you can be a little bit specific on? I mean we have had a lot of issuance over the last couple of years, I would expect recurring revenues in that segment still to benefit from that. But just wondering with your new adjusted outlook here, is there an implication that recurring revenues may start to come off a little bit in MIS, too, or how should those trend? Thanks.

Mark Kaye — Chief Financial Officer

Alex, this is Mark. Just answering your question with respect to MIS, then I will give a little bit on MA. I wasn’t sure which segment you are referencing. But on the MIS side, we are looking for an increase in recurring revenue from obviously 2021’s mix to 2022. You could think about it almost as a two-third, one-third embedded within the outlook for the full year.

On the MA side, you will see remarkable consistency really from the first quarter of 2022 through to the full year guidance that we are giving in terms of that mix between recurring and transactional revenue, again, as we develop for SaaS-based solutions, which we can discuss later on.

Alex Kramm — UBS — Analyst

Yeah. It was on MIS, but I appreciate it. Thank you.

Operator

Next we will hear from Toni Kaplan of Morgan Stanley.

Toni Kaplan — Morgan Stanley — Analyst

Thank you. You lowered the MIS margin guide and you gave a good bridge of how that compares to 2021. Just in terms of the quarter itself, were there specific areas that we are seeing cost pressure outside of the revenue flow-through? And then just thinking about the rest of the year, obviously, incentive comp will be helpful to offset as issuance is a little bit weaker this year. But any other additional areas where you could maybe find some efficiencies to help the margin?

Mark Kaye — Chief Financial Officer

Sure, Toni. So, in the first quarter, the MIS adjusted operating margin was 58.6% and that was in line with what we saw in the pre-pandemic margin levels, if you think about 2018 or 2019 of around 58%. The contraction from the record prior year period was primarily driven by a decline in revenue attributable to volatility in the capital markets, which is really resulting from that heightened uncertainty given sort of the quarter’s geopolitical events. If we exclude some of the onetime expenses related to the Russia-Ukraine conflict in the quarter, which reflected personnel related costs and provision for bad debts, MIS expenses were actually been flat year-over-year. And that’s inclusive of the financial cost of attracting, retaining best-in-class analytical talent across the MIS lines of business, as well as strengthening — we are taking actions to strengthen our relevance and support future growth. Certainly, the incentive compensation does act as a natural ballast all set to that. But we do continue to look for additional opportunity for operating efficiency in the business such that we can then reinvest that money back into our ratings processes.

Toni Kaplan — Morgan Stanley — Analyst

Great. And then it looked like you increased the capex guidance for the year. Obviously, it — I am just wondering what kind of initiatives that you are ramping up there. Is it related to just growth opportunities or is it more related to acquisition or just anything else? Thanks.

Mark Kaye — Chief Financial Officer

Toni, absolutely. The answer is a little bit of both, but maybe let me broaden out your question a little bit and then I will get directly on to the capex part of the answer. So Moody’s has a very strong track record of free cash flow generation. Cumulatively between 2018 and 2021, our weighted average free cash flow to U.S. GAAP net in conversion — net income conversion was over 100%. And this conversion rate holds based on our revised full year 2022 free cash flow guidance range, which at the midpoint of $1.9 billion implies approximately 100% conversion ratio.

We have also revised our full year 2022 capex guidance to be within the range of USD250 million to USD300 million and that’s really to reflect a combination of a number of factors. And those include sort of the ongoing investment, especially around SaaS-based product development for both new and upgraded customer solutions, RMS integration activity, office enhancements related to our Workplace of the Future program and then really corporate IT asset purchases as we refresh our PC hardware and some of the associated peripherals.

Maybe one last comment here, guidance for EPS and for cash flow at the midpoint does imply sort of a little bit of a disconnect and you are able to resolve that by accustom really the following two factors. Really free cash flow is expected to outpace the adjusted diluted EPS when you correct for the tax payments in 2021 associated with the potential U.S. corporate tax rate changes, which ultimately did not occur, as well as some of the changes associated with the non-U.S. tax settlement in the fourth quarter of last year.

Toni Kaplan — Morgan Stanley — Analyst

Very helpful. Thanks, Mark.

Operator

Next we will hear from George Tong of Goldman Sachs.

George Tong — Goldman Sachs — Analyst

Hi. Thanks. Good morning. Just wanted to dive into margins a little bit, you are seeing, obviously, higher input costs, wage inflation. How do you balance the higher input costs with investments over the next year? Where would you see puts and takes on either side of the equation?

Mark Kaye — Chief Financial Officer

George, we continue to carefully evaluate opportunities to invest for sustainable revenue growth, while balancing those investments against cost efficiency initiatives that really buttress or further expand our adjusted operating margin, and this is especially important in volatile market conditions. Given that we do view today’s prevailing market dynamics as cyclical, rather than structural in nature, we plan to invest through the cycle to support our medium-term growth ambitions. And these investments are going to be focused on customer enhancements, new products, go-to-market activities and really growth in our sales force, and collectively, they ensure execution of our strategic road maps in the high priority markets like KYC and compliance, ESG and climate, banking, insurance, for example. Our incentive compensation accruals, as we mentioned a moment ago, will flex based on the actual performance as compared to the financial targets that we set at the start of the year. So they do act as a natural expense leader. And we have also learned since the beginning of the pandemic that many business activities can be successfully performed remotely and while travel and entertainment costs will rise compared to the prior two years, we will prioritize some of the customer facing travel when needed. And then lastly, I’d like to add, we will look to continue to create incremental cost efficiencies through the utilization of lower cost locations and vendor management strategies, as well as further rationalization of our real estate footprint.

George Tong — Goldman Sachs — Analyst

Got it. That’s helpful. And to the extent that you are potentially adjusting your investments to lower them a bit in the context of rising input costs, which areas would you potentially invest less in as you look to adapt to the current changing input cost environment?

Mark Kaye — Chief Financial Officer

Yeah. We remain on track to spend approximately $150 million on our organic strategic investments in 2022, which like 2021 will be weighted towards the second half of the year. And those investments are really going to be focused on, again, increasing our sales force, our go-to-market initiatives, etc. We also as mentioned in the script, maintain our expectation for an additional $50 million of investment in our employees to attract and retain the best talent in order to achieve our growth aspirations, so that will not change. Our guidance for expenses over the full year assumes an increase in spending from the first quarter to the fourth quarter in the range of about USD70 million to USD90 million, and that’s because we anticipate steadily increasing organic investment activity through the cycle and that will be weighted towards the second half of the year. And within that ramp, you should expect the growth from the first quarter to the second quarter to be in the range of USD30 million to USD40 million and that’s going to be driven in part by the timing of our annual merit and promotional increases, which took place in April.

Operator

Next we will hear from Andrew Steinerman of JPMorgan.

Andrew Steinerman — JPMorgan — Analyst

Hi. It’s Andrew. Two questions. On the current rated issuance forecast of down mid-teens for the year, are you assuming that issuance is down each of the quarters of 2022? That’s my first question. My second question is I wanted to know how RMS revenues grew like-for-like in the first quarter. I assume RMS revenues in the quarter were $77 million. I get that by just looking at the M&A contribution for the Decision Solutions sub-segment for first quarter.

Robert Fauber — President and Chief Executive Officer

Andrew, it’s Rob. So to answer the first question, yes, and again, in line with some of the earlier commentary, we would expect most of that to be in the second quarter, most of that kind of downward adjustment. Your question — your second question was about RMS growth. And I guess, I would say, just at a high level, we have expected RMS growth to accelerate through the balance of the year. And in fact, sales are performing as or even slightly better than we have expected. So from our perspective, RMS is performing kind of exactly as we have planned, and I guess, I would point out a couple of important things that are going on there. Obviously, we have got the corporate integration, but we have really been focused on aligning the sales teams. And I have mentioned in the past, we have had some very good dialog with some of our mutual customers about things that we can do together. So we are seeing a lot of excitement from our customers and we have started now on some of the joint product development. And one interesting example maybe to highlight is around commercial mortgage-backed securities. We have mapped every property that’s got an outstanding loan in a CMBS security with RMS data, and that allows us to help our customers better understand the physical risk associated with their portfolios. And really we are now leveraging that in both our ratings and research in a way that I think is very differentiated. That’s taking that RMS capability and then being able to bring that to both our issuers and our investor customers. So, again, we believe that we are on track. We are feeling good about it. The integration and product development and sales execution is going at pace.

Andrew Steinerman — JPMorgan — Analyst

Great. Thanks, Rob.

Operator

Ashish Sabadra of RBC Capital Markets.

Ashish Sabadra — RBC Capital Markets — Analyst

Thanks for taking my questions. So maybe just drilling down further on the MIS transaction revenues, historically, the revenues grew faster than issuance, because you have the pricing tailwind. But here given that some of the higher revenue yield like high yield and lev loans are under pressure, how should we think about the dynamic of transaction revenue growth versus issuance growth for this year? Thanks. Any color.

Robert Fauber — President and Chief Executive Officer

Yeah. Ashish, so we frequently talk about on this call the impact of mix as it relates to issuance and this is one of those quarters where mix worked against us from a revenue growth standpoint. In this case, our transaction revenues were a little bit lower or that the decline was a little higher than the decline in issuance activity, obviously, in turn, our 20% down benefited from recurring revenue growth. But really what was going on here, Ashish, is the leveraged finance markets were pretty anemic in the first quarter and you heard me talk about the dearth of infrequent issuers. All of that stuff contributes then to an unfavorable mix for us in the first quarter.

Ashish Sabadra — RBC Capital Markets — Analyst

That’s very helpful. And then maybe as we think about — maybe Rob as we think about the mid-term guidance, right, given that 2022 is going to be worse compared to what your prior expectations were, how should we think about that as a base for the mid-term guidance? Does that help you get a better base for out years or do you think this headwinds and muted growth continues over the mid-term? So, any color on that low- to mid-term, sorry, low-to-mid single-digit MIS revenue growth guidance over the mid-term?

Robert Fauber — President and Chief Executive Officer

Yeah. Ashish, it’s — Mark and I were having a conversation about this. And it’s interesting if you step back and compare our revised 2022 guidance to the last pre-pandemic year of 2019. And I think we all understand that 2020 and 2021 were pretty unusual years. But if you compare our 2022 guidance to 2019, the issuance will be up double digits and MIS revenues will be up in the high-teens percent range over 2019. Now if you annualize that, so I turn that into a CAGR, that’s something like low single digit growth for issuance and mid single digit growth for revenues and that’s remarkably similar to both the periods before the pandemic. I look back at kind of 2012 to 2016 we had a revenue CAGR in the mid single-digit range, but it’s also very similar to our medium-term guidance. I talked about the things that we believe are still intact that support the medium-term guidance and on the last call, we talked about, hey, look, in the first year or two of this medium-term horizon, we expected the growth to be more muted, and in fact, I think, we are certainly seeing that. But for the reasons I described, we still feel good about the medium-term growth outlook for MIS.

Ashish Sabadra — RBC Capital Markets — Analyst

That’s very helpful color. Thank you very much.

Operator

Andrew Nicholas, William Blair.

Andrew Nicholas — William Blair — Analyst

Hi. Good morning. Thank you for taking my questions. The first one I had was just on some comments you made in the in the prepared remarks and in the press release about your risk management offerings providing increased value during uncertain times. I was just wondering if you could maybe expand a bit more on that and maybe how you would expect that to kind of flush its way through in terms of financial performance or growth. Is that leading to more productive pricing conversations, are new clients coming to you with that in mind in a choppier market to have new product or upsell conversations that you might not have otherwise had? Just trying to figure out what that could mean in terms of performance for the business?

Robert Fauber — President and Chief Executive Officer

Yeah. Great question and the answer is, yeah, absolutely. When you think about it from our customer’s perspective, we have talked about this. They are just dealing with a wider range of more interconnected risks and having to figure out how to deal with all that and so increasingly, our customers are wanting to be able to kind of connect the dots. And so I think that the expansion of our capabilities and thinking about it from this concept of providing integrated perspectives on risk is adding — is allowing us to do two things. It’s allowing us to add new logos, so new customer segments, customer types, as well as deepen our relationships with existing customers. So I will give you an example. We have been expanding into now serving social media companies that have e-commerce platforms who want to better understand who’s transacting on the platform. We have been now extending into serving new crypto and digital asset companies, same thing. We — so there’s a great example of new customer segments that we are able to serve. But also you take our core customer base. So I’m thinking of — we had an Asian bank that Asian bank that we serve and we helped them around stress testing, and they came to us and said, hey, can you help us measure and manage ESG and climate risk, because we are going to have to comply with regulatory stress tests that incorporate these factors? And the answer is absolutely, we can help you with that. And so that’s a great example of being able to broaden and deepen the relationship with that customer. So, like I said, I think, you are going to see it two ways, new customer segments and expanding the relationship with existing customers.

Andrew Nicholas — William Blair — Analyst

Got it. Thank you. And then for my follow-up, just curious, I know you are confident that this is more of a cyclical headwind in the near-term to issuance than secular. Does that change your appetite for M&A in the near-term or at least until MIS revenue or issuance trends stabilize or is it pretty much business as usual on that front? Thank

Robert Fauber — President and Chief Executive Officer

Yeah. I guess, I would say, kind of our M&A program is not really kind of dictated by what’s going on in the issuance markets. We are very much focused on the product road maps that we have got in terms of what our customers want and need. In fact, you have actually seen us make an investment in the MIS business in the first quarter with our acquisition of GCR in Africa and that is a very long-term play for us. So we are going to keep investing in that franchise. It’s a great business. And on the MA side, we will be guided by customer needs and product road maps.

Operator

Craig Huber, Huber Research Partners.

Craig Huber — Huber Research Partners — Analyst

Hey. Great. Thank you. My first question, Rob and Mark, what sort of — I am curious what sort of macro environment are you expecting here, say, by year end for the U.S. treasury rate or do you think trying and also the Fed rate at year end, what’s sort of embedded in your mind when you put out this global debt issuance outlook of down mid-teens? That’s my first question.

Mark Kaye — Chief Financial Officer

Craig, as we think through to the outlook for the year and then a little bit beyond, our central case does model continued GDP expansion in part over the year but also in part of the medium-term at a slightly higher level than what prevailed prior to the COVID-19 pandemic. And that’s really based on the GDP forecast that we use internally from Moody’s Analytics. So you could think about between 21 and 26 in average annual real GDP growth in the range of around 2.5% as we look out. On your question around interest rates, we have again applied sort of the insights from Moody’s Analytics database and we model out an increase in the 10-year rate from approximately 2% to 3% this year to around 4% by 2027 to answer your question.

Craig Huber — Huber Research Partners — Analyst

What about the Fed interest rate by year end? What sort of embedded there in your macro outlook here?

Mark Kaye — Chief Financial Officer

We are assuming approximately 6 interest rate increases during the course of the year. That would be consistent, I think, with consensus in the market. We are not looking to model anything different or distinct from that.

Operator

Jeff Silber, BMO Capital Markets

Jeff Silber — BMO Capital Markets — Analyst

Thanks. That’s close enough. I know it’s late I will ask one question. You mentioned some of the spending you are doing. I don’t know if staff — retention staff recruiting. Can we talk about the environment? Has it changed over the past few weeks or months given what’s going on in the overall economy? Thanks.

Robert Fauber — President and Chief Executive Officer

Yeah. I’d say just at a very high level. I mean it’s still a competitive job market. So, yes, there’s been a some form of kind of correction in the equity markets. But we are very focused on, I’d say, kind of broadly our employee value proposition. And compensation is a very important part of that, and Mark talked about the investments that we are making to make sure we have competitive compensation in the market. But there are a number of other things that that go into it as well and we are finding workplace flexibility is really important. And we have leaned into flexibility, we have done a great job over the last two years and so we are going to continue to do that. We think that that’s going to be a competitive advantage for us in terms of attracting talent.

Jeff Silber — BMO Capital Markets — Analyst

Okay. Appreciate the color. Thanks.

Operator

Owen Lau of Oppenheimer.

Owen Lau — Oppenheimer. — Analyst

Good afternoon and thank you for taking my question. I want to go back to MA. Your organic ARR was 9% for the quarter and I think you introduced the target of low double-digit growth this year. Maybe could you please talk about the driver of this acceleration for the rest of this year, is it more driven by KYC and compliance. What — you talked about ESG and climate or any other products, if you can quantify for us, that would be great. Thank you.

Robert Fauber — President and Chief Executive Officer

Yeah. Owen, good to hear from you. So we had very strong performance in MA really across the board. And maybe I would highlight just a few things and this hopefully will give you a sense for the momentum that we have in the business. But the growth in Decision Solutions, there we had 20% organic constant dollar recurring revenue growth. So that’s when you think about organic recurring revenue growth ex the impact of FX and we are just seeing very strong demand for KYC and compliance solutions ongoing. And there, if you think about what’s happening with our customers, there’s an intense demand right now for tools that help with not only sanctions compliance, but just better understanding the risk of who you are connecting to, who you are doing business with. So, customers, of course, but also thinking about supply chain. And so we are really leaning into that. You heard that the usage stats are up significantly. That’s a very good kind of leading indicator. Owen, of when you see heavy usage, you can expect that you are deepening the value props, your customers are realizing the value proposition of your solutions that ultimately can lead into supporting pricing. It can support cross-sell and upsell at customers. Our sales activity is picking up. We had a need program where we were doing actually screening our customers’ portfolios for them. So that they can get a sense of what they might be missing in their own screening processes. So and on top of that, we made several investments last year. As you know, we made several acquisitions, but also we have been investing heavily in internal product development. And so with the PassFort workflow platform that we acquired, we have now been really working on integrating our content sets into that, working on rolling out some new products where our customers continue to need help in terms of efficiency and effectiveness and not only around KYC, but also around suppliers. So I could probably go on across the portfolio, but it gives you a sense, Owen, of very good performance in the quarter, but very good momentum as well.

Owen Lau — Oppenheimer. — Analyst

Got it. That’s very helpful. And then going back to the buyback, $1.5 billion, you maintained that guidance. I know, Rob, you answered a question around M&A criteria. But the valuation of many assets has come down. So at this point, how do you think about the pace of share buyback versus M&A, which can also drive long-term value of the company? Thank you.

Robert Fauber — President and Chief Executive Officer

Hey. Owen, just one thing. I ran the M&A department for a bunch of years here and you are right, the value of public assets has come down. But I will say that a lot of assets in our space, if you have got companies that don’t have leveraged capital structures, they are in no hurry to sell, right? So it doesn’t always mean that it’s a more conducive M&A market when you see kind of a downturn in public market valuations.

Mark Kaye — Chief Financial Officer

And Owen, we do remain focused as a management team on prudent capital planning and allocation and we spoke about this several times. So just to reinforce, we do try to identify opportunities for organic and inorganic investments in the high growth markets first and then to the extent there are additional investment dollars, we will seek to return that capital to our stockholders through share repurchases and dividends.

And our M&A framework, as Rob mentioned earlier, is really structured in a manner such that we pursue the right investments to enhance the services we deliver to our customers and return capital to our stockholders. And then approach incorporates business and strategic plan development, among other factors such as market attractiveness, which you mentioned, as well as a competitive review. And that only enables us or allows us to pursue new deals where there’s a clear set of transaction core elements among, first, supporting and advancing our global integrated risk assessment strategy, second, reinforcement sort of the development of our standards based business, and then third is sort of leveraging our brand distribution and analytical capabilities to create more as a whole rather than distinct and separate elements.

Owen Lau — Oppenheimer. — Analyst

That’s very helpful. Thank you very much.

Operator

Our next question comes from Simon Clinch of Atlantic Equities.

Simon Clinch — Atlantic Equities — Analyst

Hi, everyone. Thanks for taking my question. I wanted to jump back just to the guide for issuance and for MIS revenue. I am just wondering if you could talk a little bit about the levels of visibility you have in building your guidance for those two outlooks. And just give us a sense of how much is based on just looking historically and seeing how things have trended in the past to actually what you can actually see ahead of you?

Robert Fauber — President and Chief Executive Officer

Hey. Simon, it’s Rob. So maybe just to give you a sense of some of the data points and color that goes into how we thought about the outlook. Maybe that will be helpful for you and I could also maybe even touch on a little bit, just kind of kind of current market conditions. Obviously, we don’t have great visibility into the full year, but we do have some visibility into the current market.

But, first of all, just from investment grade, obviously, we have got that down for the year. We have got it down 10% for the year versus down mid-20%s for Q1. But there, we think we will see some increased issuance to support opportunistic refi and M&A. So you had — some of those issuers were just sitting on the sidelines. When you think about high yield and leveraged loans, there the decreases that we are seeing for the year are substantially greater. And even though we think there will be a little bit of improvement through the balance of the year, the broader market conditions, including the equity market volatility, wider spreads, continued uncertainty around resolution of Russia and Ukraine, all that impacts the leverage finance markets more than investment grade.

When you see a lot of equity market volatility, that’s typically very challenging for leveraged finance markets. When we look at the kind of public and infrastructure area where we expect that to be down something like mid-single digits but year-to-go roughly flat, so some modest improvement baked in, there again, I think, kind of like what we expect with the investment grade issuers. We expect that those infrastructure issuers are going to return from sitting on the sidelines in the first quarter. I think we will see lower supply from sovereigns who have done a lot of kind of prefunding over the last couple of years combined with some rising funding costs.

Let me just touch on structured for a second, too, because there we had a very strong first quarter, obviously. Our revenues were up 24% in structured finance. But you heard that we are actually looking for issuance to be down for the year. So what’s going on there? Well, one, you had some spread widening in some of these asset classes and concerns about rate increases. So there, we did — we do think we saw some pull-forward of issuance that supported that really strong first quarter.

CMBS, very strong and we expect that to continue for the year. But CLOs, you think about what’s going on CLOs, frequently tied to what’s going on in the leveraged loan market. So with leverage loans down meaningfully, there’s less, not only less leverage loan creation for new CLO formation, but with spreads widening, that will put a little bit of damper on refinancing activity. So that’s generally how we are thinking about the outlook. And then in terms of just the best visibility we have got is just kind of what the current market looks like. And I would say that, the markets are open for business. We would expect in investment grade, I would expect May to pick up off of April. April was a real mixed bag. There was more financial issuance than there was corporate. We had some blackouts and some of the corporates continued to sit out the volatility. There’s a lot of dry powder for M&A, but again, volatility will dictate how much of that comes to the market. High yield is pretty sluggish. As I mentioned earlier, the European high yield market has finally reopened after 11 weeks of no issuance. So we may see some M&A backlog there come to market. Leveraged loans are certainly stronger than high yield but off of a torrid pace. I mentioned we have got a good FTM backlog, first time mandate backlog. So, hopefully, some of that will come to market. And the last thing, I would say, Simon, is just looking at funds flows, we have seen five consecutive weeks of fund inflows in leveraged loans, while we have seen fund outflows for high yield almost through the balance of the year. So, hopefully, that gives you a sense of the data points that we are looking at in kind of building to our forecast.

Simon Clinch — Atlantic Equities — Analyst

Thanks. That’s really helpful actually. Thank you. And just a quick follow-up, I was wondering if you could just give us a sense as well, I mean, with all the impressive strong momentum you are getting in Moody’s Analytics, how should we think about the economic sensitivity of those recurring revenues, if we were to contemplate a recessionary scenario, for example? Is this revenue stream actually going to be much more resilient than people think or what are the sensitivities [Technical Issues]?

Robert Fauber — President and Chief Executive Officer

Yeah. Simon, it’s interesting. If you look all the way back to the global financial crisis, MA’s revenues proved to be pretty durable and resilient and I think that would be the case here if we have an economic downturn. When we talk about this stuff about it’s in times of uncertainty when customers need us most, that really is — that’s true. You see that with MA and you are not going to see banks turning off their KYC vendors in running risk of regulatory noncompliance, because they are trying to cut costs. So I don’t want to be glib about it. But I would just say that the fundamental value proposition will remain intact during times of stress and uncertainty. I do believe that will be true.

Operator

Our next question comes from Shlomo Rosenbaum of Stifel.

Shlomo Rosenbaum — Stifel — Analyst

Factors that you have going into the guidance, particularly with the U.S. GDP of 3.5% to 4.5%, and what are you seeing that Q, like, as you put that out there as part of the assumption when we had a negative 1.4% for the first quarter? So what do you — what are the kind of the puts and takes around that and then afterwards I have one follow-up.

Robert Fauber — President and Chief Executive Officer

Yeah. Shlomo, hi. It’s Rob. So the first quarter GDP print was a quarter-over-quarter trend. So that was growth relative to the first — to the fourth quarter of 2021. And obviously, in the fourth quarter of 2021, you had very strong GDP growth. It was almost about 7% and so I think we had expected some pullback in the first quarter, which happened. If you look at it on a year-over-year basis for the quarter, you actually had positive GDP growth, I think in the kind of the 3.5 percentage range, which is kind of still within the range that we are looking at for the balance of the year. There were some technical factors to that. But in general, I would say that, the key variable for us in terms of GDP growth is thinking about the geopolitical dynamics, policy response to it and there’s still a lot of uncertainty around it. But in general, we think our forecasts are in line with a number of other prognosticators.

Shlomo Rosenbaum — Stifel — Analyst

Okay. Great. Thank you for the clarification. And then in terms of what we are seeing in the rate environment, it seems that there’s likely to be less of what we have seen a lot in the last few years of pull-forwards in terms of opportunistic refi. Can you talk a little bit about how that assumption has changed in the last quarter? In other words, we typically have seen as rates gone down some more kind of opportunistic refi and can you maybe give a little bit more color about how that impacted the level of MIS kind of takedown that you assume now for this year?

Robert Fauber — President and Chief Executive Officer

Yeah. So in a rising rate environment, like, we have got here, we would expect to see CFOs and treasurers start to look at pulling forward issuance to get ahead of those rate increases. I mentioned earlier that we really didn’t see much of that in the first quarter and that’s because I think the market volatility kind of overwhelmed the desire to kind of pull-forward and be opportunistic in the market. It was just a very difficult market to access if you didn’t need to.

So we have not built in substantial pull-forward into our forecast, which is why I mentioned it earlier, it’s a possible upside. You could imagine to market volatility comes down a bit. We could see some of this pull-forward activity.

Mark Kaye — Chief Financial Officer

And so part of the drivers there could really be the elevated cash balances that would temporarily constrain issuance. In the first quarter, just to put a couple of numbers around that, in terms of investment grade, we saw globally around 11% eligible investment grade issuers actually come to the market in the first quarter and that’s meaningfully below what we have seen over the last two years. But interestingly enough, of that 11% that came to the market, two-thirds of those had issued last year, so not so much opportunistic issuance but more for regular ongoing financing. Conversely, on the high yield fund, just 2% of eligible issuers issued in the first quarter, that’s meaningfully probably two or three standard deviations below what we have seen in other first quarters. But a third of those were repeat issuers from 2021, sort of emphasizing that point around opportunistic issuance that Rob was making.

Shlomo Rosenbaum — Stifel — Analyst

Okay. Great.

Operator

Our next question comes from Kevin McVeigh of Credit Suisse.

Kevin McVeigh — Credit Suisse — Analyst

Great. Thanks so much. Hey. It seems like the margins are behaving a lot better, particularly given the meaningful downward revisions and a little bit of that is the mix of MA versus MIS. So maybe talk to that a little bit and if you can give us a sense of where the margins sit within MA more specifically, if there’s a range to think about marker, I wanted kind of start there, if we could?

Mark Kaye — Chief Financial Officer

Kevin, thanks for the question. So maybe if I just spend a minute on some of the financial characteristics of some of the new MA LOBs first, and then, I will get on to that specific question sort of about margin by LOB. Data and Information revenue for the first quarter was 100% reoccurring and that was up from approximately 99% recurring as of the year end 2021 and that’s with a customer retention rate of 95%. Research [Technical Issue], which is 100% organic, had revenue that was up 7% and a recurring revenue rate of 99% that was consistent with 2021 and had increased customer retention rate of 97%, which is up 1% from the year before. Decision Solutions recurring revenue was 87% of the total, with a 96% customer retention rate. Both recurring revenue and retention rates were up from 84% and 93%, respectively, compared to 2021. So a very strong sample set.

If you look at the MA LOBs now from an operating leverage perspective, given that both Data and Information and Research and Insights are businesses with very high recurring revenue. You could naturally expect those two LOBs to have a stronger margin profile than MA overall.

Decision Solutions, which includes RMS intuitively must then have a lower margin profile and that really results from the higher proportion of existing on-prem solutions and transaction-based services, as well as the relatively outsized incurrence of investment dollars in that LOB as we develop software and workflow tools to meet robust customer demand.

And then over time, as we execute on our plans to achieve MA’s medium-term adjusted operating margin target of mid-30s, you could expect the majority of that margin expansion to really result from improving operating leverage in Decision Solutions while the margin profiles of Data and Information and Research and Insights should be relatively stable.

Kevin McVeigh — Credit Suisse — Analyst

Very helpful. And then, I guess, either Mark or Rob, I know you tweaked the GDP, but it’s still pretty strong GDP relative to other cycles. So as you think about the issuance, is it more the macro uncertainty in terms of where we are as opposed to the base GDP and that kind of factors into some of the recovery in the back half of the year, because it seems like you are coming up against tougher comps and you are still seeing some inflection. So is there just any more puts and takes? I know folks have spent a lot of time on that, but is that a fair way to think about it?

Mark Kaye — Chief Financial Officer

Maybe the way I will approach this Kevin is, we alluded to this a little bit during Investor Day, but given the uncertainty around the duration and the severity of the Russia-Ukraine conflict, as well as what we know to be ongoing Central Bank actions to address inflationary concerns. Our central case assumption is really that the shortfall in first quarter revenue, which has resulted from the lower than expected issuance, which we have discussed, is unlikely to be recovered as the year progresses. And yes, we think this is a short-term cyclical headwinds and as we translate that then to MIS transaction revenue, we expect that to be balanced really between the first half and the second half of 2022, when historically, and I think this is the point that you are getting at on average, the second half has only contributed, let’s call it, 46-ish percent of the year’s aggregate revenues. That’s sort of the big driver of the differential and that’s driven by several assumptions, some of which we spoke about in the call, including monetary policy, fiscal policy, where we think energy prices are going up. We have got to really make sure that we are observing sort of oil prices where they may stabilize and the implications there for any recessionary conditions in the second half of the year

Operator

Our next question comes from Faiza Alwy of Deutsche Bank.

Faiza Alwy — Deutsche Bank — Analyst

Yes. Hi. Thank you so much. We have covered a lot of topics. I just wanted to ask a quick clarification question around margins on the Analytics business. We did see a pretty significant sequential acceleration and your guide assume some deceleration. I believe it might be all investments, Mark, that you talked about earlier on the call, but if you could give us any more color around dynamics around investments, inflation pricing, maybe the — maybe any mix as it relates to the new LOBs that you have talked about, that would be really helpful.

Robert Fauber — President and Chief Executive Officer

Thanks, Faiza. It’s Rob. Welcome to the call. It’s great to have you on and I am going to let Mark take this one.

Mark Kaye — Chief Financial Officer

For the full year 2022, we are reaffirming our MA adjusted operating margin guidance of approximately 29% and that includes around 150 basis points to 200 basis points of margin compression from recent acquisitions, primarily RMS, as well as foreign exchange translation. Our guidance implies that the margin on average for the remainder of the year will be 28% and that reflects the impact of our annual promotion and merit increase cycle, which commenced in April, as well as continued targeted organic investments to expand our best-in-class sales force and to focus on cross-selling opportunities across multiple product lines.

Similar to 2021 seasonality, we would expect MA’s organic investments to steadily increase throughout the year and that’s going to be commensurate with our ongoing revenue growth and those investments to be primarily weighted towards the second half of the year. We have demonstrated, I think, our ability to grow MA’s organic constant currency recurring revenue over the past year from 9% to 10%. We are still projecting sort of that low double-digit growth in 2022 and these ongoing multiyear investments that that we are making will support the achievement of our targets.

And finally, just to sort of close out this one, our path to our medium-term MA margin target of mid-30s, it’s not expected to be linear, especially as we continue to make opportunistic investments as time goes on.

Faiza Alwy — Deutsche Bank — Analyst

Great. Thank you so much. Very helpful.

Operator

Next question comes from Patrick O’Shaughnessy of Raymond James.

Patrick O’Shaughnessy — Raymond James — Analyst

Hey. Good afternoon. Just one question from me. So you guys lowered your operating cash flow projection. You left share repurchase guidance unchanged and you boosted your capex outlook. Does that imply incremental debt issuance relative to your prior forecast?

Mark Kaye — Chief Financial Officer

It does not. If I think about sort of debt outstanding, you have got cash, cash equivalents and short-term investments on the balance sheet as of the end of March of approximately $1.9 billion. The carrying value of debt as of the same date is around $7.8 billion. And if you take the net debt, which is 5.9 divided by sort of the trailing 12-month adjusted operating income of about $2.9 billion, we get a net debt to adjusted operating income ratio of about 2.0. We feel very comfortable with that ratio. It’s not in near sort of that BBB+ threshold that Fitch or S&P uses to evaluate Moody’s Corporation. So, hopefully, that sort of helps address your question.

Patrick O’Shaughnessy — Raymond James — Analyst

Thanks. Thank you.

Operator

That does conclude the question-and-answer session for today. At this time, I’d like to turn the call back over to our presenters for any additional or closing comments.

Robert Fauber — President and Chief Executive Officer

Well, I just want to thank everyone for joining us today and we look forward to speaking with you next quarter. Thank you very much.

Operator

This concludes Moody’s first quarter 2022 earnings call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Investor Resources section of the Moody’s IR homepage. Additionally, a replay of this call will be available after 3:30 p.m. Eastern Time on Moody’s IR website.