Good day, and welcome ladies and gentlemen to the Moody's Corporation First Quarter 2014 Earnings Conference Call. At this time, I'd like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of We will open the conference up for question and answers following the presentation. I would now like to turn the conference over to Sallie Schwartz, Global Head of Investor Relations. Please go ahead.
Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's Q1 results and our outlook for full year 2014. I am Sallie Schwartz, Global Head of Investor Relations. Moody's released its results for the Q1 of 2014 Good morning. The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moody's.com.
Ray McDaniel, President and Chief Executive Officer of Moody's Corporation will lead this morning's conference call. Also making prepared remarks on this morning's call is Linda Huber, Chief Financial Officer of Moody's Corporation. Before we begin, I call your attention to the Safe Harbor language, which can be found towards the edge 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 ks for the year ended December 31, 2013 and another SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission's website.
These together with the Safe Harbor statements 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'll now turn the call over to Ray McDaniel.
Thanks, Ali. Good morning and thank you everyone for joining us on today's call. I'll begin by summarizing Moody's Q1 2014 results. Linda will follow with additional financial detail and operating highlights. I will then conclude with remarks about our outlook for 2014.
After our prepared remarks, we'll be happy to respond to your questions. 1st quarter revenue of $767,000,000 increased 5% from the Q1 of 2013 and reflected continued strength in Moody's Analytics as well as modest growth in Moody's Investor Service despite variable market conditions and challenging year on year comparisons. Operating expenses for the Q1 were $434,000,000 a 4% decline from the Q1 of 2013. Operating income for the Q1 was $333,000,000 a 19% increase from the prior year period. Adjusted operating income defined as operating income less depreciation and amortization was 356,000,000 dollars up 17% from the same period last year.
Diluted earnings per share of $1 for the Q1 increased 20% from $0.83 in the Q1 of 2013 and on a non GAAP basis excluding litigation settlement charge in 2013 increased 3% from $0.97 in the prior year period. We are reaffirming our full year 2014 guidance of high single digit percent revenue growth and EPS in the range of $3.90 to $4 I'll now turn the call over to Linda to provide further commentary on our financial results and other updates.
Thanks, Ray. I'll begin with revenue at the company level. As Ray mentioned, Moody's total revenue for the quarter increased 5% to $767,000,000 The impact of foreign currency translation for the quarter was negligible. 1st quarter U. S.
Revenue increased 4% to $426,000,000 While revenue outside the U. S. Grew 6% to $342,000,000 and represented 45% of Moody's total revenue Recurring revenue grew 12% to $397,000,000 and represented 52% of total revenue, up from 49% in the prior year period. Looking now at each of our businesses, starting with Moody's Investor Service. Total MIS revenue for the quarter was $526,000,000 up 1% from the prior year period.
U. S. MIS revenue of 3 $15,000,000 increased 1% from the prior year period. MIS revenue generated outside the U. S.
Of $210,000,000 also increased 1% and represented 40% of total ratings revenue. The impact of foreign currency translation on MIS revenue was negligible. Moving to the lines of business for MIS. 1st, global corporate finance revenue in the Q1 increased 2% from the year ago period to 264,000,000 and reflected increased U. S.
Investment grade bond issuance as well as higher revenue from rated U. S. And European bank loans. We also saw increased monitoring revenue across all regions as a result of more companies becoming rated to access 5%, while non U. S.
Revenue declined 3%. 2nd, global structured finance revenue for the Q1 was $95,000,000 an increase of 2% from the prior year period. In the U. S. Revenue increased 5% year over year, primarily due to commercial real estate ratings.
International structured finance revenue was down 3% against the prior year period with gains in certain asset classes in Europe more than offset by weakness in Asia. 3rd, Global Financial Institutions revenue of $85,000,000 decreased 1% from the same quarter in 2013. U. S. Revenue declined 3%, while non U.
S. Revenue was flat to the Q1 of 2013. 4th, Global Public Project and Infrastructure Finance revenue declined 3% year over year to 81,000,000 U. S. Revenue was down 14%, primarily due to weakness in public finance.
Non U. S. Revenue increased 19% from the prior year period, reflecting increased infrastructure and Sovereign Rating revenue across all international regions. Turning now to Moody's Analytics. Global revenue from Moody's Analytics of $241,000,000 was up 15% from the Q1 of 2013.
The impact of foreign currency translation on MA revenue was negligible. U. S. Revenue grew by 14% year over year to $110,000,000 Non U. S.
Revenue of $132,000,000 increased 16% from the prior year period and represented 50 4% of total Moody's Analytics revenue. Excluding the December 2013 acquisition of Emba Investment Services, revenue increased 10% year over year. Moving to the lines of business for MA. First, Global Research Data and Analytics or RD and A. Revenue of $141,000,000 increased 9% from the prior year period and represented 58% of total MA revenue.
RDNA's customer retention rate remained in the mid-90s percentage range and we continued to see strong performance in credit research sales and Content Licensing. RD and A's U. S. Revenue was up 7% and non U. S.
Revenue was up 11% as compared to Q1 of 2013. 2nd, Global Enterprise Risk Solutions or ERS revenue of $60,000,000 grew 13% against the prior year period due to growth in subscription revenue and software maintenance fees. U. S. And non U.
S. Revenue increased 14 12% respectively against the same period last year. As we've noted in the past due to the variable nature of project timing and completion, ERS revenue remains subject to quarterly volatility. Trailing 12 month sales and revenue for ERS have increased 9% and 11% respectively. Lastly, Global Professional Services revenue grew 45 percent to $41,000,000 primarily reflecting the December 2013 acquisition Services and continued growth in revenue from Copel Partners.
U. S. And non U. S. Revenue increased 70% and 35% respectively year over year.
Excluding AMBA Investment Services, professional services revenue increased 7% from the Q1 of 2013. Turning now to expenses. Moody's 1st quarter expenses declined 4% to $434,000,000 compared to the Q1 of 2013, primarily due to lower legal expenses, partially offset by increased compensation expenses for additional headcount. The impact of foreign currency translation on operating was negligible for the quarter. Moody's reported operating margin for the quarter was 43.4%, up 510 basis from 38.3 percent in the Q1 of 2013.
Adjusted operating margin was 46.4 percent for quarter, up 490 basis points from 41.5% for the same period last year. Moody's effective tax rate for the quarter was 28.9% compared with 25 excuse me, 28.5% for the prior year period. The Q1 2014 tax rate included a benefit from the resolution of the foreign tax audit, while the Q1 2013 tax rate included benefits from the litigation settlement charge and the retroactive extension of certain U. S. Tax benefits.
Now I'll provide an update on capital allocation. During the Q1 of 2014, Moody's repurchased 2,500,000 shares at The total cost of $202,000,000 or an average of $79.21 per share and issued 2,900,000 shares under our annual Employee Stock Based Compensation Plans. Outstanding shares as of March 31, 2014 were 213,700,000 reflecting a 4% decline from a year earlier. In the Q1 of 2014, the Board of Directors authorized a new $1,000,000,000 share repurchase program, which will commence following the completion of the existing program. Including this new program as of March 31, 2014, Moody's had $1,600,000,000 of share At quarter end, Moody's had $2,100,000,000 of outstanding debt and $1,000,000,000 of additional debt available under our revolving credit facility.
Total cash, cash equivalents, restricted cash and short term investments at quarter end were $2,000,000,000 an increase of $275,000,000 from a year earlier. As of March 31, 2014 approximately 65% of our cash $56,000,000 from the same period a year ago. And with that, I'll turn the call back over to Ray.
Thanks Linda. I'll conclude this morning's prepared remarks by discussing our full year guidance for 2014. Moody's outlook for 2014 is based on assumptions about many macroeconomic and capital market factors, Including interest rates, corporate profitability, business investment spending, mergers and acquisition activity, consumer borrowing and securitization and the amount of debt issued. There's an important degree of uncertainty surrounding these assumptions and if actual conditions differ, Moody's results for the year may differ materially from the current outlook. Our guidance assumes foreign currency translation at end of quarter exchange rates.
As I mentioned earlier, our full year 2014 EPS guidance range remained $3.90 to $4 For Moody's overall, the company still expects full year 2014 revenue to grow in the high single digit percent range. Full year 2014 operating expenses are still projected to increase in the mid single digit percent range. Full year 2014 operating margin is is projected to be 42% to 43% and adjusted operating margin for the year is still expected to be 45% to 46 Effective tax rate is still expected to be approximately 33%. Full year 20 14 total share Capital expenditures are still projected to be approximately $90,000,000 The company still expects Approximately $100,000,000 in depreciation and amortization expense. Growth in compliance and regulatory expense in 2014 is still projected Less than $5,000,000 Free cash flow is still expected to be approximately $900,000,000 We've modified certain components of 2014 guidance to reflect the company's current view of business conditions.
For the global MIS Revenue for the full year 2014 is still expected to increase in the mid single digit percent range. Within the U. S, MIS revenue is still expected to Corporate finance revenue is now projected to grow in the mid single digit percent range. Revenue from structured finance is still expected to grow in the low single digit percent range. Within the U.
S, MA revenue is now expected to increase in the low double digit percent range. Non U. S. Revenue is still expected to increase in the high teens percent Excluding Amba Investment Services, revenue from Moody's Analytics is still expected to grow in the high single digit percent range. Revenue from research data and analytics is still projected to grow in the high single digit percent range, while revenue for Enterprise Risk Solutions is still expected to grow in the low teens Professional services revenue including Amba Investment Services is now projected to grow in the low 40s percent range.
Excluding ANBA Investment Services, revenue for professional services is now expected to grow in the high single digit percent range. This concludes our prepared remarks. And joining us for the question and answer session are Michel Madeline, President and Chief Operating Officer of Moody's Investor Service and Mark Almeida, President of Moody's Analytics. We'll be pleased to take any questions you may have. Thank
We'll go to Manav Patnaik with Barclays.
Yes. Hi. Hi, everybody. So the first question on the Ratings business. You mentioned on the structured finance side that You had some benefit on the commercial real estate side.
I thought the CMBS activity was not that Great this quarter. So I was just wondering is that an implication that there's some share gains happening or maybe there's some other dynamics that I'm not picking up?
Manav, this is Ray. No, you're correct. We did have strong coverage in the commercial Real estate sector in the Q1. So that benefited us.
Okay. And was that specific to, I guess, just the U. S, I mean what is the sort of your outlook on Europe in terms of how that performs?
You're correct. This was A U. S. Story in the Q1. Commercial real estate in Europe and Asia was not strong in the Q1, But the U.
S. Market is substantial and so overall it contributed to the growth in securitization for Q1.
Got it. And then just a question for Mark. In terms of the in sort of a bigger strategic vision for professional services, Is Copal AMBA basically with your testing business whatever the complete suite? Or is there something else that needs to be added on to this long term. Just trying to understand what the vision is for that particular business.
Madam, I think I'd say that we like what we're doing in that area. We like the we added AMBA last year to build out The Copel platform and we like where that business is going. We see a lot more growth opportunity there. In the training and certification business, We similarly we like where we're positioned there. That business has been a little bit soft for us Over the last couple of quarters and I think that mostly reflects some of the banks having other priorities In other areas that they're funding rather than focusing on training and development of their staff.
But I guess the short answer is we like where we are in professional services and we particularly like what we're doing in the outsourced Research and Analytics side of the business.
Mona, it's Linda. I think
we should
probably just point out We own 2 thirds of the Copalamba Group. So I just want to make sure that everybody is aware of that ownership structure.
Okay. Fair enough. And actually Linda, if I can just squeeze in one. On the expense side, I think last quarter you talked about It coming in at $450,000,000 and then ramping up another $40,000,000 by the end of the year. It came in a little better this quarter.
How should we adjust that for the rest of the year?
Yes, Manav, your observation is exactly correct. We did do better than we expected on the expense side in the Q1. So we still expect the same endpoint. So we would ask that you look at a little bit of a steeper ramp. So we'd like you now to look at $50,000,000 to $55,000,000 of ramp, specifically from $434,000,000 this quarter to $490,000,000 for the end of the year.
Okay. Thank you all.
And we'll go next to Andre Benjamin with Goldman Sachs.
Hi, good morning. I first want to follow-up on Manav's last question. In terms of the costs Lower than expected this quarter. Can we get a little more color on what exactly drove that? Was it just a timing issue?
Was it Lower comp accrual, just what makes you believe that you're still going to spend the same amount of money for the full year?
Sure, Andre. The factors to the positive were lower legal costs and lower incentive compensation. I think we have said previously you might want to look at $35,000,000 for incentive comp for each quarter. We ran shy of $30,000,000 this quarter because of the top line was close and EPS was good, but We were a little bit lighter on incentive comp. Those two positives were offset by overall higher compensation expenses, because we've added more people over the course of the year and some consulting and IT costs for some of the things that we're looking to do to Improved efficiencies around here.
So given what we see now, we do think we will have that ramp over the course of the year. We are intending to increase Headcount to support our revenue growth over the course of the year. And again, we can't predict exactly what's going to happen with incentive compensation, but probably that $35,000,000 a quarter is as good a number to use if any.
Thanks. And for a follow-up And on the rDNA business, could you maybe talk a little bit about how much of the growth which has been sustained high single This is for the last year or so on a quarterly basis. How much of that's driven by, say, new product innovation versus growth in demand from Some of the existing products and pricing and are there any things on the horizon that you're seeing as you talk to customers that would make you believe that you can maybe even See a higher growth rate.
Mark, why don't you address that if you would? Yes. Andre, I think that What's been going on in our DNA, which we think has been performing quite well for us is a function of a couple of things. You mentioned Pricing that's been a nice contributor for us. We've done I think some very good work on upgrading the product And providing a more complete product, delivering more content through our core Research delivery platform moody's.com.
So I think that has driven lots of demand. We've seen very good customer retention. Linda mentioned that that was running in the mid-90s. It's as high as we've ever seen it. So that's helped us very well.
So I think just generally the business is doing quite well along all of those dimensions pricing, Coverage and the breadth of the product offering, it's just performing very well. Honestly, the underlying growth in the market is fairly limited. We don't have a lot of new entrants coming into the market. So it's not like we're selling to lots of new customers, but we are finding very good demand with the customers that we've got. And we're finding that they've got a very good appetite as we're able to deliver more content through the platform.
Thank you.
And we'll go next to Bill Warmington with Wells Fargo.
Good morning, everyone. Hi, Bill. I wanted to ask if you could give us some color on your bank clients, specifically where they're spending money, where they're not spending money and how that's Back in your guidance. In terms of banks purchasing services from Moody's Analytics Or in the rating side? The former.
Okay. Sure. I'll Turn this over to Mark in just a moment. But it's really going to touch on all three areas of the Moody's Analytics business And has been a significant driver for the Enterprise Risk Solutions component, but Mark may want to give some more detail on that. Yes.
That's exactly right, Bill. The there's banks represent a very sizable Share of our overall customer base and we've seen very good demand from that customer set. Again, owing to some of the things that I mentioned a moment ago in the RD and A area in response to Andre's question. But also, Ray mentioned Enterprise Risk Solutions. All of the work that banks are doing to meet regulatory requirements, whether that be fossil free requirements outside the United We're stress testing requirements in the U.
S. There's been very, very healthy demand from those customers. We've been doing a lot of work. We've Getting very good traction in that area and we continue to be very optimistic about the outlook for demand for our product offering Across the product portfolio. Okay.
And I also wanted to ask for your thoughts on issuance trends as you're seeing them in the U. S, Europe and Asia. Sure. I think it It was pretty apparent that there was a difference in the Q1 between what was happening in investment grade and speculative grade bond issuance. A lot more strength in the investment grade sector.
Speculative grade was soft really globally. So it hit us in the U. S. And Europe in particular because those are our largest markets for spec grade, but it was also a factor elsewhere around the world. So we were soft on spec grade.
That was offset though by the strength in the bank loan area And the demand for an increase in ratings in bank loans was Very beneficial for us and I expect we're going to continue to see that both in terms of demand for variable rate product like bank loans and the demand for ratings in that sector. I guess the last thing I would add to this is that We also benefited from growth in monitoring fees and those monitoring fees are Growing along with the new rating mandates. And you recall that in 2013, we had a very healthy growth in new rating mandates Globally, a lot of those were spec grade issuers. And so even though spec grade activity was lower, we were gaining From those new relationships in the monitoring fees rather than the bond issuance fees. Linda, I don't know if you had anything you wanted to add to that.
Sure, Bill. If you want to look at U. S. Trends, speaking first about investment grade, long dated U. S.
Corporate bonds were the best returning asset in the Q1 at 7.75 percent despite some very negative initial outlooks on the investment grade sector at the beginning of the year. Issuance for the year, the Q1 in the U. S. Has been about $300,000,000,000 which was up 10% year over year. We're still looking at sort of flattish for the whole year.
Fund flows have continued to be positive into investment grade and we would hope to see some shifting of proceeds toward M and A or CapEx. We haven't fully seen that yet. Year to date issuance has been about financials and the 3 to 5 year part of the curve Has been the largest share of issuance. Investor demand is also very high there, shorter duration because it concerns about a rising rate environment. Now if we had to split it into headwinds and tailwinds, headwinds would be potentially slowing growth in China, reduced stimulus from the Fed, Escalation of Ukraine Russia situation.
Tailwinds would be that rates remain near record lows, 10 year of 2 point This morning, good investor demand. And again, the asset class has been performing well. We've had some signs of strength in Europe as well. The current pipeline is a little bit on the lighter side because of earnings blackouts, but we're expecting pickup on that in May. And then the spec rate side as Ray said, we do see an Set of high yield bonds by leveraged loans.
Leveraged loans fund inflow continues to be strong and we've continued to see that trend for a very long The main drivers of the loan market have continued to be refinancing, but last week we saw Some pickup on the leverage side in M and A. 79% of loans syndicated last week were earmarked for acquisitions. So that's We'll see if that holds.
And
we're seeing M and A activity at about 37% of the calendar going forward and 59% of the combined and announced calendar. So again, we'll see what happens. Yields continue to be helpful. CLO issuance is also healthy. But again, that is an offset to the high yield market for straight bonds.
And we continue to see that that is a little bit weaker $75,000,000,000 of issuance versus 100,000,000,000 last year. So I think that's those are some of the overall trends and what we're seeing in terms of the strength and weakness in the various markets. Any other details you might need?
Very helpful. Thank you.
Sure. And we'll go next Peter Appert with Piper Jaffray.
Hey, Linda, actually I need one more detail please and that is the we saw that mega deal this week or last week, I can't Remember where the international high yield market. Did you read anything into that in terms of maybe easing up the logjam in the high
I think we might want to have Michel comment on that. Michel, any thoughts on whether that is a trend Starter?
Well, I think it's been viewed as really something that is a bit of a game changer in terms of the scale and the size of the deal and The opportunity creates for sending of large transactions in Europe and some other markets. So, from that perspective, I think that was a very Welcome event and you've seen it's been a very successful deal oversubscribed and good condition. So I would Quantify that as a positive sign.
But no indication that the backlog Specifically picking up in the context of the favorable response.
Well, this is an M and A driven transaction. So You've seen there is a number of this is obviously something that tends to be very event driven. And to the extent that we see more M and A activities, what it means is that we'll see more of those transactions. But again, we view that As a positive development for the market.
Understood. And Peter, I would just add that With the ability of potential M and A transactors to see The degree of market appetite for these larger deals, you have to put that in the positive category.
Right. Absolutely. And then I wanted to, if I could ask Mark a question since this is Mark Elmi today on the
Thanks, Carl,
clearly. You saw a year to year improvement in the analytics margins In the current quarter, the numbers have been drifting lower over the last couple of years. I'm wondering, Mark,
if you would call that a trend? Are we at
the point where we're going to start to see some leverage Investments you made in the last couple of years?
Well, that's our goal is certainly to move the business to higher margins over time And we're doing an enormous amount of work to get us there. I'd just caution you a little bit Peter on The timing of that, I think for us to get to the margins that we're aiming for, we've still got A lot of work to do. And we've got to build more scale into the business and also we've got to make A number of our product offerings particularly in enterprise risk solutions more scalable and more easily configurable and replicable So there's a fair amount of work going on there. So again, that's clearly our objective. We're very focused But I'd be reluctant to declare victory on that just on the basis Of what you've seen in this quarter.
I actually thought that the Q1 was interesting because it's with dilution from EMBA correct? That's what was The impact of AMBA on the margin?
Peter, I'm not sure we're going to break out the impact Amba on the margin other than that we said that the Copel Amba Group has Moody's like growth rates and Moody's like Margins, so you might want to do a little reverse engineering there, but I'm not sure we're going to go into
that specifically. So, Amba theoretically was accretive
to the margin.
So, It was accretive to the margin. So I guess Mark the message is that it's really about the risk software business in terms of where the margin leverage is going to come in?
Absolutely. And again, there's a whole program of activity in that line of business to get us there. But that program is a program that's going to start to have meaningful impact on the bottom line over a period The years rather than quarters.
Okay. And then just one quick last thing. Linda, should we assume the share repurchases are relatively Even through the
year? Yes, Peter. We do adjust a bit based on what we've seen from market conditions. A couple of comments there. We do have heavy issuance of shares in the Q1.
That's when we primarily do the issuance for our previous year compensation plans. So that is particularly heavy in the Q1. And as we move through the year, we're Pretty well balanced out. I would say that for the number of trading days we've had in the year, we would note that to this
And we'll go next to Hamzah Mazari with Credit Suisse.
Hi. This is Flavio. I'm standing in for Hamzah today. Thank you for I just wanted to turn back to costs a little bit very briefly. I was just wondering when thinking about the levers you can pull to reduce cost, if If there is any relationship between MIS and Copo in the sense of using Copo services in order to drive down cost of research, if that's something that you have looked into before?
Fabio, it's Linda and Ray or Michelle may want to comment on this. We think we're managing our costs pretty well while making the required investments in the business. As you can see, this quarter, we've had some particularly strong results from Moody's Analytics, but we've always Well, Moody's Analytics has been a little bit undersung in terms of its performance. So we're watching our costs pretty carefully, but we do want to make sure we make those Strategic investments to keep these businesses growing at the pace that they have been growing. For the Moody's shared services side, we do use the Copalamba Group.
We have about 100 people that we're using for shared services and most of the increases in our headcount for shared services would be offshore at this point. So the whole company is making use of those assets, but particularly in Moody's shared services. So we have had tremendous margin expansion year over year. We are also guiding to 50 to 150 basis points of further margin expansion this year. So we like where we are and we're particularly cautious about the rating agency and how we handle Operations and the Rating Agency.
So with that preamble, I'll let Ray and Michelle perhaps add any comments that
Michel, anything you'd like to add to that?
No, I would say that we are effectively looking at The options that the acquisition of Amber and the addition of Copal are bringing to us, we're already using outsourcing to some extent, But there are opportunities and we're working on that.
Perfect. Perfect. That's very helpful. Thank you for the color. And just as a quick follow-up, When we were talking about leverage loans making up for some of the drop in high yield issuance And we know that loans have rating of loans have lower margins.
Should we look this as Also the opportunity of rating those loans when you come back as CLOs and those are additional revenues at a much Higher margin and if you look at leverage loans combined with the potential for the CLOs, is that enough to offset the mix of Lower high yield and more loans that come first.
Fabio, it's Linda. Before we get into the mix issue, One of our jobs here is to correct the urban myth and that is an urban myth. In fact, Leveraged loan pricing, speculative grade pricing in general is helpful to us and does run a bit favorable to investment grade pricing. So You should not make that assumption that margins are lower on leveraged loans. So please make that change.
And in terms of mix, we do like leverage loans because we rate them and then as you said we are able to rate them again if they are packaged into CLOs. But I may have missed a little bit of the color for your to your back to your comment and I'll ask Ray if you wanted to add anything.
No. I Important. But otherwise your observation is correct Flavio about the fact that these loans at least have the potential for Being repackaged into additional securities.
Yes. That's very helpful. Thank you.
And we'll go next to William Byrd with FBR.
Hey, Bill. On your guidance, maybe you can Speak to what accounts for the just slight downward tweak to your corporate finance revenue outlook? Then I have a follow-up. Sure. There are a couple of things.
I would say the first is that The market I would observe that the market has not changed In the direction that I think the consensus view was earlier in the year in terms of higher interest rates characterized By stronger global economic momentum. In fact, we're seeing something of the opposite. Now that's good for refinancing, But refinancing has really been the driver for the last few years. And so while the refi part of that market continues, It's difficult for us to project that as being a source of strong growth in the corporate sector at this point. So what we're really looking at is whether these other Drivers, M and A and capital expenditure are going to take on a more prominent role and we'll see.
There's some reason to be optimistic about what's going on in M and A, but that's pretty recent. So we're as I said On some previous calls, I hope we're being cautious on that, but we'll see. The other two things I would just point to are We have seen some slower growth in Asia and the geopolitical uncertainty coming out of Russia and the Ukraine is not helpful. So again, we've factored that into our outlook. And maybe you could just speak Europe, how would you characterize the state of your business right now in Europe?
Well, I will invite Colleagues to make some comments, but I think the business in Europe is quite healthy. The regulatory situation in Europe has been Somewhat challenging as we've talked about on previous calls. But there has been increased stability in Europe And that is encouraging and stability in the public sector and that is encouraging for increasing Confidence in the private sector and encouraging business activity and borrowing in the private sector. So for the outlook that stability is clearly a precursor To better activity and we're going to have to see whether the economic momentum picks up on the European side. Michelle or Mark I'll start with Michelle just from a capital markets perspective, see if there's anything you wanted to add.
I mean the on point way I would add is something you have put forward in previous calls is really that in Europe the fact that we continue to benefit From disintermediation and that's really a very important favorable development for us. But that's the only point I would make.
Just a quick question. Just given just the spike in your revenue growth in MIS in the year ago quarter, Is it reasonable to think MIS revenues could be down in Q2? Well, I mean, it's certainly possible, but we do think we're going to be able to put points on the Board in Q2. So our central case is for growth. Thank you.
And we'll go next to Craig Huber with Huber Research Partners.
Great. Thank you. First question, can you just comment a little bit further on what you're seeing in the ratings business over in Asia? Yes. I mean, I think we have to separate cyclical from I think the long term story in Asia is very positive.
And I think we feel that we are well positioned in the key Asian markets whether it's through our own offices or through joint ventures or investments in places Like Korea, China, India. Cyclically, we've seen some softness in the Q1. The securitization market in Asia was weak. And really because of among other things The downturn in speculative grade issuance globally, we also saw some weakness in the Asian market on the spec grade side. So I think we're going to continue to be dealing with some of these short term issues in Asia, but the long term story It's something we're very enthusiastic about.
My second question please. Your non transaction revenues within your ratings business had a very strong quarter both sequentially and year over year. Can you just touch upon what's been driving that? Sure. There's I mean the Growth in the monitoring fees is probably I think the most important driver there.
We do have some growth in Program relationships large frequent issuers that are paying annual fees and that's certainly helpful. But the growth in new rating mandates that we've been picking up the last couple of years and the fact that those rating relationships Translate into annual monitoring fees has been a big pickup for us.
It's Linda. Before I get into the usual conversation that you and I have, Having spent the better part of the last 3 weeks in Asia and Michelle may want to comment on this further, we continue to be pleased in what we're seeing regarding our business China both domestic with CCXI and cross border. I think our China compendium says we have about 140 cross border rated companies now Coming out of China. And I think if I've got if my memory serves, we're adding about 30 of those per year. They start off in our CCXI business as Domestic issuers and then as they grow in size and scale, they become cross border issuers as they move over to our MIS business.
On part of both MIS and Moody's Analytics and for that part shared services as well, we are investing in China. It is a growth area for And we have an effort afoot to make sure that we have our Greater China strategy correct and that we're supporting the growth particularly in that part of the region. And before we go on to other things maybe I'll pause for a minute and just see if Michel or Mark want to comment a little bit further on China specifically. Michel anything from your
No, I
think you pretty much covered it Linda.
Mark? Yes.
And I guess we would also note, Craig, that we are tendering for the 55 of our ICRA business in India. Those who are reading carefully page 12 of the balance sheet, you'll see an item on there, which is restricted Cash, which is cash by regulation we have to set aside for that tender, which is for everyone's Information going through its usual regulatory review processes and we will update as we have something further to say as that opens and then So I just wanted to make sure everybody is aware that that's going on, but that would be another indication of our investment in our business in Asia. So with those commercials Craig, what else can we do for you?
As I typically like to ask you, Linda, can you just break down Thanks, Jayson, dollars if you would, high yield versus bank loans versus investment grade within Corporate Finance and then also the other 3
Sure. We'll start with corporate finance for you, Craig. As we've said, dollars 264,000,000 for This quarter that's up from $258,000,000 last year. The percentage breakdown investment grade was 18% of revenues, which is about Flat to last year, spec grade high yield bonds down to $52,900,000 that's 20% of the corporate finance line versus last year's 29%. Bank loans the opposite.
We're up to about $67,000,000 which is 25% of the corporate finance revenue versus 22% last year. And again, those lines offset each other. And other accounts, As you had noted correctly, Craig, that line has moved up to $97,000,000 from $82,000,000 and that's 37 Percent of the total. Again, it's important to call out that globally across All of Moody's investment grade revenues represent only 7% of Moody's corporate revenues and that's Just something that we think sometimes is not fully appreciated. And we do also see an over focus on the U.
S. So it's important that these trends are looked at on a global basis and that spec grade and investment grade are Considered in total.
If we
go on to FFG, Craig, first of all, the total for structured was $95,000,000 up from 93 Last year ABS about flat at 24% of revenue, it's about $23,000,000 RMBS also about flat at $18,000,000 that's 19% of revenue about the same to last year. Commercial Real Estate at 31% versus 28 last year up to $29,000,000 this year and structured credit which includes CLOs, dollars 25,000,000 that's 26% of the Structured revenue line versus 29% at the same time last year. Moving on to FIG, dollars 85,000,000 revenue for the Q1 This year and banking constituted 67 percent of that $57,000,000 insurance constituted 25 percent, $1,000,000 and managed investments up to 8%, dollars 6,600,000 which is up from last year's 4%. And then lastly, Public Products and Infrastructure, dollars 80,000,000 for the quarter. And as Ray had talked about public finance and sovereign, dollars 37,000,000 down from last year's $42,000,000 that's 46% of The PPIS line, Unis $3,800,000 which is 5% same as last year.
And then Project and Infrastructure, dollars 40,000,000 is up from last year and that's 49% of revenues. Again, we've talked about we've seen Project Infrastructure being one of the beneficiaries of the disintermediation that Michelle spoke about. We're seeing that a number of these deals are coming to the bond market in Project and Infrastructure Finance, which previously would have been funded by banks. So that's a helpful trend to us. So I think that's it Craig if we've got everything we need.
Okay. Thank you very much.
And we'll go next to Joseph Foresi with Janney Montgomery Scott.
Hi. My first question here is how should we think about the impact from the Ukraine? What is built into guidance from an outlook in that region? And how do you kind of risk adjust the numbers for that? Well, it's difficult.
It's fairly easy for us to look at our business in Russia And that is modest. So that is not a large driver of any change in outlook. But beyond that, geopolitical tensions are always difficult to address in an outlook, Simply because there is the direct consequence of tension And how widespread that is. And then there's the collateral impact on business confidence and willingness to engage in business and focus on growth during periods of stress. So we've factored that To our modest reduction in outlook for the corporate finance area.
And beyond that, we're really just going to have to comment as views change depending on what happens on the ground.
And Joe, as usual to take the other side of that for you, the flight to quality to U. S. Treasuries Has made them a very strong returning asset cost for the Q1 as well. It's about the same 7.75 that I mentioned for long duration corporate bonds. So the flight to quality bids up the price of U.
S. Treasuries and has resulted in the tenure remaining at 2 point We've been happily surprised to see the tenure at under 2.7, which I think is perhaps a bit different than many pundits have been calling for This point in the year. So a bit of a mixed bag for us in terms of how it affects our business. And I hope that gives you kind of both sides of the story for how we think about that.
Yes. That's definitely helpful. On the analytics business, Obviously, there was a positive uptick there. How sustainable is that step up in the business? Should we think of this as accelerating?
Or is there a reason to be maybe a little bit more modest in our thoughts regarding it? Mark, do you want to address? Sure. I think that I would characterize it as Pretty much in line with our expectations to be honest. I mean, we had a good quarter.
Organically, we were at 10%, Which we feel very good about. But we've always thought of this business as a high single digit growth kind of So, we didn't while we're very pleased with the quarter, we didn't feel like the quarter was wildly out of line with our expectations.
So again Joe to make sure you understand 10% organic, 15% with the acquisitions. Again, we would urge everybody to Another look at Moody's Analytics and what it's able to do. And as we said earlier regarding the fact that one of our major Customers are banks and they are looking to use a lot of our services. We have done very well in Moody's Analytics in the Q1.
And then just the last one for me, just kind of a general question. How should we think about issuance versus rising interest rates environments? Is there any sort of rule of thumb that you could provide as we look out and we hear different commentary from the Fed on the Changes in those rates, is there a base level for this business? And how do we kind of correlate those 2? Yes.
We've looked at this historically. And In our investor presentation, you would be able to see some of the Historical data that we've been able to collect. And long story short is we have had periods in the past of rising interest rates That did have a negative effect on the business in terms of lower or no growth. But more recent periods, we have been able to grow through rising interest rate environments. I think the reasons for that include the The fact that we have a much more global business over the last 10 to 15 years than we did back in the early 1990s.
We have a much more substantial business in Moody's Analytics, which is not as susceptible to volatility based on movements in Just great. But that all being said, I'd still go back to the kind of fundamental idea that In a rising rate environment, assuming that that rate environment is rising because of economic strength, There are going to be substantial bond market activity and borrowing For reasons unrelated to refinancing, so for share repurchase and capital expenditure, Mergers and acquisitions, those are all important drivers of issuance in a stronger economic scenario.
And Joe, it's Linda. I can recite this from memory. In 'ninety three to 'ninety four, interest rates went up 200 basis points over that year long period. And Moody's revenue, which as Ray said was much more U. S.
Centric at that time barely dipped. I I believe it's 97 to 98. Interest rates went up 180 basis points and Moody's revenue continued to trend up. When we do our Q1 slide, you'll see revenues for the corporation up 5%. I'd be surprised if overall global issuance has been up From the Q4 last year, it's probably going to be flat to down.
So once again, global issuance can be flat to down and our revenues move up. So it's very important that you understand that interest rates also continue to have trouble breaking above 3% in the 10 year. We were able See that in January. We saw it in September. But we have not seen the tenure come back through 3% for any sort of sustained period And there's a piece in the journal today that higher interest rates are causing some real issues in the housing market.
So again, rates may move up, but they've suppressed us for being lower longer than perhaps we and a lot of market participants might have expected. So I think we'll end our very long comments there.
Thanks. And we'll go to Doug Arthur with Evercore.
Yes. Ray, just on the legal front, it Seemed like there were some developments in the CalPERS case in the Q1. Can you just bring us up to date on kind of what inning that's in and What's the next step? Thank you. Sure.
You recall that we had filed an appeal in California I'm seeing a reversal of the lower court's decision denying our motion to dismiss the case under this What's called the anti SLAPP statute in California. And there was oral argument on that in early April. I think it was April 9. And according to what I've been told are the rules in California, on that appeal and the oral argument would be expected within 90 days following that argument. So nothing is going to move forward until there's a decision on that?
Correct. And as we've talked about before that is just one small piece of a much Broader case that is still in many respects in very early stages. Okay. Thanks.
And we'll go next to Tim McHugh with William Blair.
Hi. It's Stephen Sheldon in for Tim. Most of my questions have been answered. But just in terms of headcount growth, you've talked before about expecting roughly the same growth In 2014, as you saw in 2013, which I think was roughly 9%. Any changes to that?
And maybe just add some additional Color on where you're planning to add?
Sure. Glad to have you on, Steve. The headcount growth excluding AMBA year over year has grown 10% here at Moody's. And a lot of that growth It has been offshore and lower cost jurisdictions. If you split it out, the majority of the additions have been in the lines of business.
And we do expect probably 9% headcount growth this year. And again, A number of those that growth will be offshore. But again, we're driving 10% To support that, it's important that we are able to add headcount to support both the ratings and the Moody's Analytics side. So, Yes, we would continue to expect that 9% headcount growth, but we're judicious about where we're adding those additional jobs.
Okay. Thanks.
And it appears there are no further questions at this time. I'd like to turn the conference back over to Mr. Ray McDaniel for any additional closing remarks.
Okay. I want to thank everyone for joining us. And I'd also like to remind you that Tuesday, September 30, We'll be hosting our annual Investor Day at our headquarters here in Manhattan. For more information on this, go to the Investor Relations Web Thank you, guys. Thank you, guys.
Thank you, guys. Thank you, guys. Thank
you, This concludes Moody's 1st quarter earnings call. As a reminder, a replay of this call will be available after 3:30 p. M. From time on Moody's website. Thank you.