Good day, everyone, and welcome to the Moody's Corporation third quarter 2022 earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions- and- answers following the presentation. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.
Thank you, and good afternoon, everyone, and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations. This afternoon, and this morning, Moody's released its results for the third quarter of 2022, as well as our revised outlook for full year 2022. The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moodys.com. During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for a reconciliation between all adjusted measures referenced during this call in U.S. GAAP. I call your attention to the safe harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
In accordance with the Act, I also direct your attention to the Management's Discussion and Analysis section and the Risk Factors discussed in our annual report on Form 10-K for the year ended December 31st, 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. Rob Fauber, Moody's President and Chief Executive Officer, will provide an overview of our results and outlook, after which he'll be joined by Mark Kaye, Moody's Chief Financial Officer, to answer your questions. I will now turn the call over to Rob Fauber.
Thanks, Shivani. Good afternoon, and thanks to everybody for joining today's call. Like I did last quarter, I'm gonna start with a few takeaways. As everybody's aware, during the third quarter, macroeconomic and geopolitical conditions continued to deteriorate, and that further suppressed the global debt issuance markets from the already subdued levels that we had seen in the first half of the year. At the same time, these conditions supported increasing customer demand for data and analytics to identify, measure, and manage risk. Against this backdrop, our MA business continued to perform well, with strong revenue growth of 14%, while MIS revenue declined by 36%. Overall, Moody's generated $1.3 billion in revenue with an adjusted operating margin of 39%.
We expect that low issuance volumes, particularly in the leveraged finance space, will persist through the remainder of the year. As a result, we're revising several of our 2022 outlook metrics, including our guidance for total Moody's revenue, which is now expected to decline in the low double-digit range. We're also updating our outlook for full-year adjusted diluted EPS to now be between $8.20 and $8.50. Now, in response to the expectation for continued economic headwinds, we're also taking decisive steps to reduce our expense run rate by at least $200 million by year-end. The cost savings will be realized across the company and include a more than doubling in the size of our previously announced restructuring program, as well as various additional cost efficiency initiatives.
Collectively, these actions put us in a position of strength as we head into 2023, and I'll provide some additional details later in the call. Now, for the third quarter, MA recorded both strong revenue growth of 14% and a 9% increase in annualized recurring revenue or ARR. With over half of MA's business outside the U.S., foreign exchange rates had an outsized impact on MA's revenue growth, lowering it by seven percentage points. For MIS, the 36% decrease in revenue against the record prior year period was driven by a 41% reduction in issuance. Altogether, this resulted in a 16% decline in Moody's revenue, and the negative impact of foreign currency movements on total Moody's revenue was four percentage points.
Now, expenses grew just 1% in the third quarter as we continued to execute efficiency initiatives and emphasize cost discipline, and the net impact of lower revenue and controlled expenses translated to adjusted operating income of $497 million for the quarter and adjusted diluted EPS of $1.85. Now, let me provide some additional context on the conditions impacting the issuance levels and our revised full-year outlook for MIS. At the beginning of the year, like others in the market, we anticipated that elevated levels of inflation would be transitory and slowly abate over the course of 2022. Instead, the conflict in Ukraine further impacted market confidence and commodity price shocks pushed inflation higher.
These factors prompted central banks to raise interest rates further and faster than expected to levels we haven't seen for more than a decade, and resulting in ongoing uncertainty and volatility in the capital markets. Meanwhile, corporate balance sheets remained robust following a surge in opportunistic pandemic-era financing, allowing issuers to stay on the sidelines given market conditions. We expect that these macroeconomic and geopolitical conditions will continue to mute issuance levels at least through year-end. In light of this, we're updating our guidance for 2022 MIS-rated issuance to decline in the mid-30s% range. Full year MIS revenue is now projected to decrease by approximately 30%. While the outlook for next year will depend on the pace and scope of market stabilization and recovery, we're confident that conditions will improve over time and that the key growth drivers for issuance will resume.
This year, only a little more than a quarter of the first-time mandates that we've signed have gone to market. Meaning there's a backlog waiting to tap the markets. To leverage those opportunities, our teams have been engaging extensively with investors and issuers, and we haven't been sitting still. We've been building our domestic rating franchises, including in Africa, with the majority acquisition of GCR and across Latin America through Moody's Local. We've made significant progress in digitizing our content to both improve the customer experience but also to drive increased usage. As we look ahead, our pricing opportunity remains intact, and we know there are over $4 trillion in refunding needs that will likely be refinanced over the coming four years. In short, we're continuing to deliver on our differentiated strategy to be the agency of choice for our customers.
While current conditions for MIS are challenging, as those ease, issuance will accelerate, and we will be well-positioned to capture growth and operating leverage through our extensive market presence. Now turning to MA, which despite the challenging market conditions, delivered another impressive quarter of revenue growth and margin expansion. 59 consecutive quarters of revenue growth. MA has proven to be a cyclical, and the third quarter was no different. MA reported 14% revenue growth or 9% on an organic constant currency basis. With best-in-class retention rates and growing customer demand, MA also achieved 9% ARR growth for the third quarter, and that's inclusive of RMS. We're confirming our top line revenue guidance for 2022. MA full year revenue is expected to increase in the mid-teens percent range, and that's despite a five percentage point headwind from foreign exchange rates.
We expect ARR to accelerate to low double-digit percent growth by year-end. We're also raising the MA adjusted margin guidance to approximately 30%, and that's 100 basis point increase over our prior guidance, reflecting ongoing expense efficiency. Let me take a moment just to highlight our fastest-growing business, and that's KYC and compliance solutions. In recent years, we've invested, and that's been both organically and inorganically in acquiring, developing, and integrating data analytics and technology to create a world-class set of solutions. This combination supports new use cases around counterparty verification. That's enabling us to grow with existing customers and add new customers in areas like the Fintech corporate and government sectors. We continue to receive industry awards and recognition, including, most recently, a top right quadrant positioning from Chartis.
We also won the AI Breakthrough Award for our innovative solution for fraud prevention, and that's one of an increasing number of places where we're being recognized for the integration of artificial intelligence into our solutions. Also, as we pass on the one-year anniversary of the RMS acquisition, let me give a quick update on that. We're on track to achieve the financial targets announced last August, and I'm excited about the opportunities that are in front of us. We are laser-focused on maximizing our synergy opportunities by launching new products and pursuing markets that leverage our combined capabilities and strengths. For example, this past quarter, we launched our ESG underwriting solution for property and casualty insurers, which integrates Moody's extensive data to help them operationalize ESG risk assessment into their insurance underwriting workflows.
I also want to recognize the great work being done by our colleagues at RMS. In my meetings with customers over the last few months, I've heard firsthand about how important our solutions are in helping the industry address an increasing array of risks, including recently as we assisted our customers in rapidly quantifying the financial impact of Hurricane Fiona and Hurricane Ian. Now, moving to the restructuring plan that I mentioned earlier. On our last earnings call, we said that we would take additional actions to manage expenses and improve operating leverage if we observed further deterioration in the external environment. Given our view that the weakness in the issuance market will likely persist through at least the fourth quarter of 2022, our teams have undertaken a careful review of prioritization of ongoing initiatives, and we've identified several avenues for meaningful savings.
We are expanding our restructuring program to more than double, providing up to $135 million in savings in 2023 from a combination of rationalizing our real estate footprint and reducing our global workforce to reflect the reality of the current market environment. We have also undertaken a careful prioritization of ongoing initiatives in light of our current business priorities, and that has identified up to $100 million in additional savings. So collectively, these are projected to lower our 2023 expense run rate by at least $200 million. As we take these decisive actions, we will be mindful to invest and allocate resources to maintain the rigor and quality of our ratings and processes.
Look, these are challenging and uncertain times, and we are prioritizing financial discipline today and making sure that we're well-positioned to capture growth opportunities tomorrow. That concludes my prepared remarks, and Mark and I would be pleased to take your questions. Operator.
Thank you. If you would like to ask a question, please dial star one on your telephone keypad. If you are on a speakerphone, please pick up your handset and make sure your mute function is turned off so that your signal reaches our equipment. We will ask that you please limit yourself to one question. You will have a chance to rejoin the queue for a follow-up. Again, that is star one to ask a question. The first question is from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.
Thanks for taking my question. I was just wondering if you, as we think into 2023, if you could provide any initial color on how we should think about issuance. There was obviously an expectation that we may see a big bounce back in issuance. Is that still an expectation as we get into 2023? Or just given the higher interest rate, is it more reasonable to think about a gradual recovery? I was just wondering if you could share some initial thoughts. Thanks.
Hey, Ashish. It's Rob, and I'm pretty sure we're gonna get multiple questions around issuance environment and issuance outlook. Maybe let me start with kind of a big picture view, and then as the call progresses, we'll continue to kind of drill down, and I know we'll talk about 2023. You know, you've heard me oftentimes on these earnings calls, when I said that I thought that the market could absorb rate increases as long as they were well anticipated by the market and they were accompanied by economic growth. That's not what we have had this year. The tightening cycle is really the steepest of the past two decades.
I think that initially surprised the market, and it has been accompanied by decelerating economic growth. You know, back on the last call, I talked about the factors that were causing the disruption to the market at the time. I noted that, despite those factors, we expected that, at the time, 2022 issuance was gonna come in roughly in line with the average of issuance from that 2012-2019 period that excludes those pandemic years of 2020 and 2021. Given the weakness in the third quarter that, as you heard me say, we expect to continue into the fourth quarter, we now think that the overall global issuance is gonna be down something like close to 10% from that historical average.
What has really changed is that we now expect corporate issuance, and I'm including investment grade and leveraged finance, to be down almost 30% from that historical average ex-pandemic. This is no longer kind of just down off of two unusual and record years for issuance, but now we see corporate issuance down meaningfully from its ex-pandemic average going back to 2012. I think that kind of illustrates the depth of the cyclical contraction that we're dealing with at the moment. As I think about, you know, for the remainder of the year, I think the key is for the market to be able to get some certainty before it starts to get volatility. I think that's gonna be the key.
Let me pause there, and I'm sure we're gonna have some other issuance questions as we go forward.
Your next question is from the line of Manav Patnaik with Barclays. Please go ahead.
Yeah. Maybe I'll follow up as you anticipated there, Rob. You know, you talked about $4 trillion of refi needs over four years. I was hoping you could just, you know, help us how that breaks out. It looks like more of it might be in 2024, but just curious on your numbers. Then, you know, in a typical year, how much is refi as part of the given issuance, compared to, I guess, you know, the rest of the categories which might just be more on capital allocation as a group, if that's correct.
Yeah. Hey, Manav. We included, I think a slide in the supplemental materials around the maturity walls. You know, as you said, you know, it's $4 trillion, $4 trillion-$4.1 trillion, very significant amount of debt that's got to get refinanced over the coming four years across the United States and EMEA. It's interesting. We actually as we kind of normalized, you had about $200 billion of debt that fell out of the study due to withdrawing ratings in Russia. So the refi walls actually did actually grow this past year. It grew something like 4% on a like for like basis.
I think what's really interesting, Manav, if you go back just, you know, you just look at the slides back to 2019, those maturity walls have grown 28% from 2019. If you actually go back another year, 2018, they're up 54%. We're looking at a few things. One, just the absolute maturity walls are significant, and they've continued to grow despite the fact there was obviously some refinancing activity that was going on when rates were ultra-low . If you look at U.S. spec grade for a moment, if you look at the first two years in our refunding studies, they're about 18% of the five-year total. That's the highest percentage since we started tracking it in 2010.
The other thing I would say, Manav, just to also try to triangulate to your question, you know, if you look at the maturity walls for 2023, and you look at what our expectation is for corporate issuance for 2022, and I understand that's a little apples to oranges, but it represents about 50% of what we expect to be the global corporate financing activity in 2022. That's a pretty big number. Remember, 40% of the MIS business, thereabouts is recurring revenue. Now we're talking about the support for that other 60%.
Our next question is from the line of Alex Kramm with UBS. Please go ahead.
Yeah. Hey, good morning, everyone. Good afternoon, everyone, rather. Wanted to shift gears to the cost base. Understand the restructuring program, but would be helpful if you, I guess Mark, fleshes out a little bit more. The $200 million achieved by the end of the year, how much of that is gonna be actually impacting this year's full year cost base? Then, I guess, into 2023, how much on a net basis will be incremental as we think about the outlook there? Then more importantly, I guess, if we expect growth to accelerate next year, hopefully, how should we be thinking about incremental margins on the ratings business and are the low 60s% targets medium term still intact?
I know that's a three-part question, but I think it's all important.
Alex, good day. Good afternoon. I anticipate we may get a couple of questions on expenses, during our Q&A session today. I'll start off maybe by talking broadly about the restructuring program and addressing some of your margin-specific questions, now, and certainly we can take further, ones later on. The market disruption and downturn, as you heard from Rob, you know, has extended for longer and has been more severe than what we anticipated early in the year. Because we're primarily thinking that this will extend at least through the fourth quarter, we're taking actions, consistent with our prior commitments and comments around being financially prudent and expense decisive. That really means expanding the 2022-2023 globalization restructuring program that we established last quarter.
Specifically, through year-end 2023, we now expect up to $170 million or an approximate $95 million increase in aggregate charges related to additional real estate rationalization as well as reduction of staff. That's gonna include further utilization of alternative lower cost locations, where the requisite skills and talents exist. That's all while ensuring that our focus and resources remain firmly allocated to protecting the high quality of our core ratings business and continuing to strategically invest in growth areas within both MIS and MA. For the full year 2022, as we take these additional personnel related actions, as well as exit and cease of certain leased office space, we plan to record up to approximately $85 million in estimated pre-tax restructuring charges.
That's gonna be inclusive of the $33 million pre-tax restructuring charge that we've recorded year-to-date. That means the remaining portion of up to $170 million in restructuring charges will be recorded then in 2023. These actions are now projected to result in an annualized savings in a range of $100 million-$135 million. That's more than double the $40 million-$60 million annualized savings that we forecast under the restructuring program that we established last quarter. Furthermore, as you heard Rob mention just a minute ago, we have evaluated other opportunities for cost reduction, and that includes adjusting compensation policies, certain salary bands, reducing select non-compensation expenses, as well as reassessing some of our business strategies.
Those additional cost reductions, along with this $100 million-$135 million in savings from the upsized restructuring program, that will generate at least that $200 million run rate of savings as we enter into 2023. We plan to use these savings, to your second part of your question, to really support profitability and business margins as we take action towards achieving our medium-term financial targets and to a lesser extent, plan to redeploy towards strategic investments, including workplace enhancement. You know, while we'll provide official guidance for the full year of 2023 in February, these expense actions are anticipated to increase and stabilize MIS's 2023 adjusted operating margin in at least the mid-50s percentage range, and they'll continue to expand MA's adjusted operating margin, as well.
All right. That's good start. Thank you.
Your next question is from the line of Kevin McVeigh with Credit Suisse. Please go ahead.
Great. Thanks so much, and congratulations on the proactive expense management. I don't know if you alluded before, but can you give us a sense of what level of conservatism you have in the 2022 guidance based on the adjustments you've made kinda year- to- date?
Yeah. Hey, Kevin. Thanks for joining us today.
You're welcome.
So-
Sure.
You know, the way we kinda put together the guidance for the remainder of the year. You know, you're talking about the remainder of the year. You know, we've essentially assumed a continuation of what we're seeing right now into and throughout the fourth quarter. Just to give you a sense, our revised guidance for issuance implies that fourth quarter rated issuance will be down in, I'd call it kind of the low 40s% range. You know, if we have another quarter of assumed unfavorable mix because of the softness in the leveraged finance markets, that would mean MIS transaction revenues would be down greater than that, right? They'd be down in the kinda low 50s% range.
When you triangulate that back to revenue, implies that, you know, fourth quarter MIS revenue would be down in the mid-30s% range. You know, that feels about right to us that we're gonna continue with, you know, this environment. We've got a pretty muted environment at the moment.
I think, you know, the rest of the year in a way because we're assuming that this continues, kind of thinking of it as a bit of a wash because I think we're gonna be in a holding pattern until the market can get some more confidence about inflation peaking, and in turn some certainty around the pace and trajectory of Fed rate increases.
Yeah. Maybe just briefly add two quick points. It's worth highlighting that the confidence intervals around our modeled outlook are wider relative to what we've seen in prior periods. That's simply reflecting the heightened market uncertainty and volatility that we're currently experiencing. Then in contrast, MA has shown significant resilience to the current market disruption, you know, really as our customers continue to elevate and improve their level of risk resiliency, which underscores the mission-critical nature of our products.
Thanks so much.
Your next question's from the line of Toni Kaplan with Morgan Stanley. Please go ahead.
Thanks so much. Wanted to ask again on the sort of outlook on issuance long term. You highlighted the refunding needs that's supportive. Just wanted to understand if there's anything that you've seen so far that would lead you to think that companies will try to delever in the coming years or anything that would sort of change the structural versus cyclical debate. I know, Rob, you already said that you still think it's cyclical, but just any data points that you're looking at that would maybe influence that decision or debate.
Yeah. Toni, sure. We'll kind of zoom out here and if we need to kind of zoom back into 2023, I'm sure we'll, you know, do that. As you said, Toni, you know, there's some pretty deep cyclical issues at the moment. We've talked about all the macro uncertainty. You know, you've obviously got the market working off some of the excess supply of issuance over the two pandemic years. You know, there are a few things I think that we're looking at that we feel are providing some I would say structural support for recovery in issuance markets. I talked about the refinancing walls, and those are very significant.
You know, there was some concern during the pandemic with ultra-low interest rates that, you know, that we were eating into those maturity walls. It turns out they're intact and in fact continuing to grow and will provide support for transactional revenue. I'd also say, you know, there's been no change to the relative attractiveness of debt financing. You remember on various calls over the past where we've been talking about potential changes to tax codes and other things. None of that is out there. We've also seen, you know, there's been a lot of focus on cash balances. Certainly U.S. corporates were building cash during the pandemic years. We've started to see that come down. Our cash flow report shows about a 7% decrease over the last year.
Cash levels are similar to where they were in 2018. I would also say, Toni, that, you know, I'm gonna zoom in on the U.S. for a moment, but U.S. corporates are in pretty good shape from a leverage standpoint. When we look at free cash flow to debt, that's one way to look at it across our rated U.S. corporates. It's at about 11%. That's the best that it's been since 2011. That to me means that corporates still have some room to take on some additional leverage. The last thing maybe I would say is, you know, at the moment we're continuing to see some stability of spreads kind of remaining around historical averages. You heard me talk about a backlog of FTMs.
Despite all of this, maybe that's not a long term, maybe that's a shorter term. We are seeing a lot of interest from issuers who wanna tap the markets. As economic growth picks up, we expect all of that to be, you know, positive for issuance. I do think this is, as I said, mostly cyclical. Cycles, you know, come and go, but we feel good about our leverage to a recovery in the markets.
Super. Thanks.
Your next question's from the line of Andrew Nicholas with William Blair. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. Just wanted to clarify a few things on the restructuring program. First wanna make sure I'm looking at the slide ten. Wanna make sure that incremental savings of up to $100 million on the non-restructuring related expense actions, wanna make sure that that's something that's baked in as opposed to a contingency plan. Then also if you could give any color, and I apologize if I missed it, in terms of the split of those cost savings between corporate expenses versus MIS versus MA. I think it'd be helpful to understand that mid-50s MIS range that you alluded to, Mark, how much of that is a consequence of cost savings versus or cost actions versus maybe some baked in growth next year. Thank you.
Good day. Good afternoon. In terms of the incremental savings of up to $100 million that we list on page 10 of the supplemental slide set, those are not contingency-based savings. Those are certainly actions that we will anticipate taking. Maybe, Andrew, let me take your question from the perspective of the expense levers that we have in the business, and I'll try to group this in really four primary buckets, and that will give you a feel for how ultimately those savings are gonna translate through to the two different segments. The first lever is very much related to our hybrid and purpose-driven work environment. This environment really enables us to be equally effective and productive as we were pre-pandemic with a much smaller physical office footprint.
Last quarter, we announced plans to exit certain office space. After further assessing the best use of our real estate footprint, as well as gathering feedback from our global employees on their workplace preferences, we have identified additional opportunities for real estate rationalization as part of that expanded global restructuring program. That real estate rationalization range that we're looking at is between $50 million-$70 million in total. The second category I'd point you to is certain non-compensation costs like T&E that are primarily business facing, and those have increased compared to the prior two years. Now, although we anticipated these expenses to rise, there are others that we are prioritizing and reducing through supplier cost avoidances, rebates and volume discounts, as well as negotiating for comparable levels of service with more favorable terms.
That's gonna include assessing whether any existing external services can be absorbed into employees' day-to-day responsibilities. The third category is really the largest, and that's our largest expense, and that's people. Approximately 60% of our expense base is compensation and benefits. We've already taken aggressive actions to prioritize hiring and open positions in key areas. Really, as part of our expanded restructuring program, we plan to increase our utilization of some of the alternative lower cost locations. Again, where those requisite skills and talents exist, but protecting ultimately the high quality of the ratings and continuing to invest. Those actions themselves is really what's going to lead to a higher MIS adjusted operating margin, at least in that mid-50s range that I mentioned earlier.
Fourth and finally, you know, we also have naturally occurring expense levers in the business, for example, through our incentive compensation accruals. Those are going to flex based on the actual performance, as compared to the financial targets that we set at the start of next year.
Yeah. Just to reinforce, not contingent. Those are actions that we're taking now to make sure that we can realize those savings for full year 2023.
Great. Thank you.
Great.
Your next question's from the line of Jeff Silber with BMO Capital Markets. Please go ahead.
Thanks so much. Want to get back to the issuance environment. I'm just curious what you think will be the first sign that issuers are looking for to come back into the market and where in terms of which verticals we might see those green shoots? Thanks.
Maybe this is a good time to kind of talk about 2023 and how we see issuance starting to evolve over the coming quarters. I'll touch on what those triggers are as I talk about that. As we always do, we're gonna provide our official forecast and guidance on our fourth quarter earnings call in February. It's just too early, I'm sure, as you can appreciate given all of the uncertainty. The first trigger is I think we've got to get some certainty into the market.
I mentioned earlier that means that the market has got to get confidence that inflation is peaking so that the market can then get comfort with the pace and trajectory of Fed rate increases. That is really, really important. I don't think we've seen that yet. You know, our view is that Fed funds is gonna peak sometime in the first quarter of 2023. You know, the headwinds that we've got now are not just gonna disappear overnight. We think that it's gonna take into early 2023 to resolve some of that, and we're still gonna have a relatively tough issuance comp in the first quarter.
Maybe it's worth me just kind of saying just in terms of where do I think we are in all of this. I think that the third and fourth quarters of this year are really kind of the trough for us in terms of the rate of issuance decline from prior periods. I think that's gonna gradually improve throughout 2023, and particularly in the second half of 2023 when we get some easier comps. I think we're gonna look for that certainty. As I said, what we typically see in terms of the markets opening up. You see the big investment grade issuers.
You start to see opportunistic investment grade issuance, and then you see higher rated leverage finance issuers starting to tap the market and really start to open the leverage finance market back up. We're gonna wanna have default rates that are under control, spreads that are. As I said, that's why it's important to look at spreads around the historical averages. Then we'll start to see that leverage finance market open up. As I said, we've got a lot of backlog. We've got a lot of first-time mandates that have not tapped the markets, and we know there's a lot of private equity dry powder waiting to get deployed. That's how I would think about, you know, what it's gonna take to start to kind of unlock the market.
All right. That was really helpful. Thanks so much.
Your next question's from the line of George Tong with Goldman Sachs. Please go ahead.
Hi. Thanks. Good afternoon. Sticking with the topic of debt issuance, your guidance implies 4Q issuance will be down in the low forties range, similar to 3Q. If you look at how 3Q progressed, did it get worse progressively moving through the quarter? The first couple of weeks of October were quite weak, much steeper declines than in the low forties. Just curious, what assumptions are you baking into 4Q? Are you assuming the exit rates from 3Q and early 4Q will reverse?
Get better such that you land at overall average 3Q levels, and if so, what are you seeing in the markets that would prompt that?
George , good day. Good afternoon. This is Mark here. I think your underlying hypothesis and thesis is very consistent with the scenarios that we looked at in setting our guidance for the remainder of the year. We definitely overweighted the September and October month-to-date issuance in forming our outlook for the remainder of the year. However, there really are two key points I want to stress here. One, the bands are wider now thinking about the outlook for the year than what we've historically seen. And second, we do believe this disruption is predominantly cyclical in nature. You heard Rob talk about it minutes ago that we may be at the low point of the cyclical cycle.
While we may see a transactional revenue declines in the first half of next year, they're unlikely to be that same level of severity that we've seen in the third quarter and are implied for the fourth quarter. Those are the kind of things that we're thinking about sort of as we develop the full cost for the year and as we're thinking about the first half of next year.
Got it. Thank you.
Our next question's from the line of Owen Lau with Oppenheimer. Please go ahead.
Thank you, and thank you for taking my questions. Could you please talk about how the private credit markets have impacted your results? Is there any area that Moody's can still get a piece of it? How do you think about your ability to achieve your medium-term targets based on current backdrop? Thank you.
Hey, Owen. Thanks. It's an interesting topic, and you know, we've been getting some questions from investors about this. Let me share a few perspectives on this. First of all, you know, just kind of the size of the market, about $1.2 trillion in 2021. It's expected to continue to grow, assuming that this asset class continues to hold up. The segment of the market that represents, I think, the potential cannibalization risk are loans, I'd say, $300 million and up. That's kind of broadly the minimum threshold for, you know, deals that get done in a public market.
In 2021, something like $50 billion of those loans done in the private credit market versus a leveraged finance market that was, call it at $1.3 trillion. This year we've had, you know, severe dislocation in the public leverage finance markets. That figure for that cohort of loans, you know, could be as high as, you know, kind of $90 billion-$100 billion. You know, yes, the private credit market was able to step in and provide some financing for certain transactions while the public markets were dislocated, but I think that actually brings us to an interesting question about risk and sustainability. Private credit market clearly has more flexibility to provide higher leverage than public markets, meaningfully higher leverage.
The private, you know, the cost of private debt is, you know, it's typically higher yielding, right? more expensive than public markets. leverage companies with expensive debt, you know, typically have high default rates during periods of stress. I'd be wary of people that tell you that, you know, this time or this sector is different. it remains to be seen how this asset class is gonna fare if we've got a meaningful increase in credit stress. I think it's probably gonna be hard to get a true apples to apples comparison on default rates, given that private lenders may be able to renegotiate you know, agreements in times of credit stress. that growth and that opacity in this market is leading some people to start to call for, you know, regulation.
It's also where I think that growth and opacity is where we can add value. You know, first, as I said, you know, given the cost of private debt, I think as corporate borrowers, as their credit profiles improve, you know, I think we're gonna see some of these companies wanna move from the private credit markets into the public credit markets. That growth of the private credit markets, I think, does represent some future first time issuers into the public markets over time. Second of all, you know, we're actively engaged in outreach in this market to see how we may be able to provide things like private ratings or credit assessments before those companies do in fact tap the public markets.
The other thing I'd say is we're starting to engage with investors in these credit funds who are looking for more transparency as to the credit quality of the funds that they're invested in. They're saying, "Hey, rather than the, you know, the internal risk ratings that these credit funds are using, you know, we wanna get an independent assessment of credit risk of the portfolio that we're invested in." I think we're really well-positioned to serve that particular need. We've got our RiskCalc and EDF credit models that are really considered, you know, the gold standard for corporate portfolio credit analysis around the world, and we're starting to develop a sales pipeline around that.
The last thing I would say is, yes, private credit has been a meaningful source of leverage finance funding this year as public markets were challenged, but we are seeing the market dynamics in that market starting to shift a bit as well. I mean, you know, private credit is not immune to what we're seeing in the market. You see credit funds cutting back on debt packages or increasing, you know, the equity component of deals or pulling back from big buyouts. While we're engaged with private borrowers, private equity, credit funds and investors to see how we can play a more important role by bringing transparency to this market. Stay tuned.
Owen, on your second question, just on the medium-term target. We introduced medium-term guidance in February of this year, and we said 2021 is the base year. That was obviously prior to the very significant geopolitical shocks that have resulted from the Russia-Ukraine conflict, as well as the unforeseen degree to which inflationary pressures, driven, you know, by post-pandemic demand supply mismatches would emerge. You know, in establishing our medium-term targets, we intentionally assumed a period of economic stress following two historically strong issuance years. Our assumptions included foreign exchange rate stability as well as the expectation for interest rates to gradually rise over this period, with global GDP gradually decreasing.
However, as we know, this is certainly not how 2022 has unfolded in this space, and the degree of macroeconomic headwinds, with inflation at levels not experienced in decades. You know, as a result, you know, we've seen central banks rapidly raise rates in an attempt to curb inflation expectation, and we've seen FX rates react quite significantly with the flight to quality. Those factors collectively have contributed to a lot of what we spoke about on the call this morning, really that extended and more severe market disruption. Now, fundamentally, we believe the underlying factors and drivers of our business remain firmly intact.
The key to achieving our medium-term targets is gonna be heavily influenced now, not only by the macroeconomic outlook, but also efforts around expense prudence and discipline, and the issuance recovery pattern that we're gonna see in 2023, and beyond as issuers return to the market to refinance those existing obligations, fund their working capital needs and really invest for growth. Given those developments, we'll be revising select medium-term guidance metrics, when we hold our fourth quarter earnings call in February.
Thank you very much.
Your next question is from the line of Faiza Alwy with Deutsche Ban k. Please go ahead.
Yes. Hi. Thank you. So I'm gonna sneak in two. Just one is on MA margins. I believe you increased your outlook for 2022, and I'm curious if that, like, what's the reason for that, if you're maybe deferring some investments that you were originally planning to make this year and sort of if you can talk about, you know, any sort of broad outlook on that for 2023. Just my second question is, I believe you have some interest rate hedges in place where you've swapped your fixed rate for floating. So curious if you could share some perspective around what your exposure is to that and sort of when those hedges expire. Thank you.
Faiza , good afternoon, and thank you for the questions. On MA's margin, I'll speak really about 2022. After expanding MA's adjusted operating margin to be above 30% year-to-date, we obviously are pleased to raise our guidance to approximately 30%, which is up from approximately 29% last quarter. That includes 100 basis points of margin compression from unfavorable foreign exchange translation rates and approximately 30 basis points of net headwinds from recent acquisitions, primarily RMS. What that really means is that the underlying MA margin is expected to expand by over 500 basis points off of 2021's actual result of 26%.
I will note that the 100 basis points improved full year margin outlook does reflect new and ongoing expense control initiatives, primarily supported through actions from our corporate or shared service areas. We're still investing back in the business, and we still expect expenses to increase in support of growth opportunities in MA in the fourth quarter as we capitalize on our existing revenue momentum. On your second question around floating rate exposure, we seek to maintain a floating rate exposure of between 20%-50% of our overall debt portfolio. Although we initially issue all debt at a fixed rate, we do maintain a basket of interest rate and cross-currency swaps that convert a portion of our outstanding fixed rate exposure to floating rates. As of September 30th, our floating rate debt was approximately 32% of the portfolio.
Most importantly, that's apportioned as 28% euro exposure and just 4% U.S. dollar exposure. Our swap portfolio has performed very well historically. It's reduced annual interest expense by about $55 million in 2021 and an anticipated $40 million this year. It also brings our weighted average cost of capital down by about 20 basis points to just over or just under 3.1%. If I try to think forward now about the impact to our P&L, from the latest forward curves and what they imply for euro and U.S. dollar moves, you could think about the swap portfolio as moving to a more neutral rather than positive impact.
Taking that into account, plus the fact that we issued debt this past August, I would expect the actual interest expense in 2023 to be higher by between $40 million and $60 million.
Yeah. Just to kind of reemphasize, you know, the balance that we're trying to get right is being financially disciplined while at the same time making the investments that we need to make to continue accelerating ARR growth in MA.
Great. Thank you so much.
Your next question's from the line of Craig Huber with Huber Research Partners. Please go ahead.
Yes. Hi, thanks. Two quick housekeeping questions on pricing and incentive compensation costs. Historically, you guys raise prices usually 3%-4% on average across the portfolio. What's it gonna be this year, please? And is it materially different for the ratings business versus the overall? What's your outlook for pricing maybe next year? Maybe it's too early to talk about that, but if you touch on that, I'd appreciate it. What was the incentive comp in the third quarter versus what it was the first two quarters? Thank you.
Hey, Craig, it's Rob. On pricing and I'll touch you know first of all, as we always say, you know we're looking for kind of a 3%-4% you know annual price increase across all of our business. I would say that if anything, you hear us talk about this all the time. You know, the volatility and uncertainty has really reinforced the importance of what we're doing and the value of what we're doing. In MIS as we do every year you know we conduct a very detailed review of our pricing across sectors and regions.
You know, based on that work in the coming year, our list prices will probably reflect a bit more of an increase than our historical average. Our actual pricing realization, as it always does, is gonna depend on issuance mix. You know, where does the issuance actually come from? In MA, we always think about our focus on, you know, kind of value-based pricing. That's why product development and, you know, integration of our content is so important. We're looking to integrate, you know, new analytics and data sets into our offerings 'cause that allows us to support both price increases, but also, you know, upgrades and add-ons. That's why we actually think about those two things together.
We're continuing to see some very good usage and demand for our products. That continues to support the pricing opportunity going forward.
The third quarter and year-to-date incentive compensation accrual was approximately $60 million and approximately $180 million respectively. For the full year 2022, we're expecting incentive compensation to be approximately $240 million, and that implies obviously approximately $60 million in the fourth quarter. That's around 30% lower than the total incentive compensation we accrued for in 2021. That's primarily driven by a downwardly revised outlook for rated issuance.
Great. Thank you.
Your next question is from the line of Andrew Steinerman with JP Morgan. Please go ahead.
Hi, Rob. I'm gonna ask you about that trough comment. If you could just be a little more specific what you meant when you think fourth and third quarter is likely to be a trough for debt issuance, noting, you know, that we still have unfavorable mix in the fourth quarter. Like, when would you expect MIS revenue to start to improve?
Yeah. What I really meant was the year-over-year quarterly declines in revenue in MIS. We would expect a trough in the third or fourth quarter of this year. Even though we've got a tough comp in the first quarter of next year from an issuance perspective. We think that the rate of declines have probably bottomed out here in the third or fourth quarter, and we'll start to see gradual improvement throughout the balance of next year.
Right. Okay. That's a revenue comment. I got it. Thank you.
Your next question's from the line of Shlomo Rosenbaum with Stifel. Please go ahead.
Hi. Thank you for taking my question. I wanna touch on both what Manav talked about and, you know, Toni talked about. With the refi walls that we keep talking about, how much real support is there from these refi walls for MIS revenue? Like, if I were just to flat out say, "Hey, you know, 2022 midpoint of revenue guidance, if we just have our refi walls, you know, that would provide X percent of revenue." You know, is that something you could provide so that we can get some kind of sense on that?
Just on the refi walls, I mean, most of the people on this call are you know, were on a call earlier this morning that heard you know, the CFO saying, "Hey, with the rates going up, we're gonna start you know, paying down more debt." I'm just trying to understand what you know, leverage measured as you know, debt divided by EBITDA doesn't take into account the interest expense. You know, CFOs you know, they want their earnings to increase besides just you know, looking at debt- to- EBITDA. How are you kind of factoring that into your refi wall expectations?
Yeah. Maybe just to try to come back and triangulate to see if this can help. You know, if you think about, there's the first part of your question. If you just think about, let's talk about in the corporate space. If you think about the maturities that are coming due in 2023, right? We do our maturity walls. We've got four years of forward maturities. Then when we look at what our expectation is for corporate global corporate finance issuance for this year, and I understand the 2023 maturity walls are gonna get refinanced next year. But just given current levels of activity is about 50%. Right? That I think is how you can start to size, right?
Then you can say, "Okay, well, now as I think about the way to build to MIS revenue, well, 40% of it roughly is recurring revenue. Then I've got 60% is transaction. How much is corporate, and how much of those maturity walls there in corporate?" Because, you know, that thing tends to be much more stable with financial institutions on kind of more regular issuance calendars and so on. Hopefully that kind of gives you a sense of the size relative to the current activity levels in the market today.
Let me just on the deleveraging for a second. The dearth of issuance that we've seen, obviously, as a result of the year-to-date cyclical market disruption doesn't indicate or lead us to believe or expect a trend of deleveraging. Just think about this factor, you know, when estimating future refinancing activities, one factor is certainly rising rates. That's gonna deter individual company treasurers from necessarily retiring debt, for example, through the use of any excess cash on the balance sheet.
The rationale for thinking there is that as the cost of debt increases, companies are gonna be more likely to retain debt that was borrowed at more favorable interest rates rather than pay off those borrowings and then incurring the potential risk of being required to reissue in the future at higher rates and therefore potentially lower investor demand.
Your next question's from the line of Russell Quelch with Redburn. Please go ahead.
Yeah, thanks for having me on the call. A couple of questions. First, am I right in saying that the ARR for Decision Solutions has fallen quarter-over-quarter from 11% previously to 10% this quarter? If so, why? Maybe start there. Thanks.
I understand. Hello, and thanks for joining the call. I understand how you've drawn that conclusion, but I think there's some nuance here that we need to be able to provide to you. ARR is an organic number, and it always has been for us. We have not had RMS in our ARR number that we have been reporting. Decision Solutions' ARR grew about 10% in the quarter, but that's with RMS now included. It was not previously. That created a three percentage point drag on Decision Solutions' ARR. That would have been 13%. If we go back to the last quarter, Decision Solutions, now on a like-for-like basis, was 11%. We look at this as actually an acceleration of a like for like ARR.
I think everybody on this call knows that, you know, RMS has had a lower growth profile. We're confident about our ability to enhance that growth profile. The ARR growth in RMS today is lower than MA, so it has a dilutive effect now that we're including it in the ARR metric. I would say the same thing is true if we zoom out at the MA level, and I think that's important to understand too. RMS was about a one percentage point drag on overall MA ARR. Again, on a like for like basis, MA ARR, if we had not included RMS, would have been about 10%, up from 9% last quarter. As you know, we're guiding to low double digit for the full year.
you know, you heard me mention acceleration of ARR. That's why we feel that there's an acceleration of ARR.
Okay. Yeah, that makes sense. Thanks. Just as a follow-up, I mean, given the experience of 2022, is now the time to look more seriously at scale M&A opportunities in MA as a way of sort of reducing earnings volatility in the business? I just wondered what your appetite for deals in this environment would be. Thanks.
Yeah, we have a very active approach to corporate development. We always have. We have some very well-defined product roadmaps and what we call business blueprints about, you know, what our customers are looking for across our various product suites and where we have gaps. We're obviously pretty active last year and over the last several years, and we feel really good about, you know, bringing in RMS and really bulking up our capabilities around insurance and climate. We think we feel pretty good about the portfolio that we got. Sometimes it's harder to transact in these markets than you think because there's a bid-ask spread between what the sellers think is their valuation and what the buyers are willing to pay.
You know, I would view us, I always have, as a disciplined buyer. You know, we've got to make sure that you know, we can achieve the synergies to make sure that we get you know, the return hurdles that we want. I guess I would say, we're always looking. We're very disciplined in this market, and we've been using this time to really integrate what we've acquired over the last several years and really make sure that we're getting the value out of those acquisitions that we were seeking to get. Frankly, we feel pretty good about the integration and the progress we're making around a number of those deals that we've done over the last few years.
Okay.
Your next question's from the line of Jeff Meuler with Baird. Please go ahead.
Yeah, thanks for taking the question. Maybe if you could put some additional commentary around enhancing RMS's growth profile. So I caught that it's on track from a financial target perspective, but for instance, like, how are the upgrades for the new platform going? Where are you in terms of integrating the heritage Moody's capabilities and leveraging MA's go-to-market? And I guess related to it, you know, I think there's some that think ESG has taken a bit of a hit in 2022. Is that showing through in terms of demand for your ESG solutions from clients and prospects or not? Thank you.
Yeah. I'd say I'm pretty encouraged by where we are with RMS. We've got a number of things that we're making some real progress around integration. We're on track certainly for the financial targets that we announced at the time. We're a year in, we have confidence over our ability to continue to accelerate sales and revenue growth next year. You had asked about some of the tangible things that we're doing. Let me just touch on a few. We've had some really nice traction around what we call ESG for underwriting, and that's taking Moody's ESG content and then being able to integrate it into the underwriting and portfolio management processes of RMS customers.
One of the things that our customers were looking for is just very broad coverage. That's been. We've made some very good progress there. Second, we've been integrating RMS' life risk models into our existing life offerings. On climate, as you know, when we announced this deal, you know, we wanted to be able to move much more substantively into insurance, but we also wanted to be able to leverage their climate capabilities. We're developing a pretty thorough product roadmap around what we call Climate on Demand. We've been engaging with a lot of customers in the banking and commercial real estate space about what they need and want around climate.
We're building out that capability, leveraging the RMS IP and models, and we're building a sales pipeline for that. Another area that we see a lot of synergy is around commercial real estate. You know, you've got RMS has a depth of information, obviously, about the physical risk relating to properties. We have enormous amount of information about a wide range of aspects of any given property in terms of market, location, creditworthiness of tenants and so on. We're pulling all of that together to create what we call kind of a high definition view of real estate. We think that that's gonna be a very, you know, very interesting offering for us.
I'm only gonna touch on ESG very briefly 'cause there's a lot more I could get into. Around ESG, what we're starting to see is that there is more and more demand to be able to translate ESG and climate specifically to financial risk with the rigor that the market wants and needs. I kind of think of that as version 2.0 of what the market is looking for. Second, the market needs very broad coverage, and this is where we're having some great conversations with our bank and insurance customers who say, "I need to understand the ESG profile of, say, 150,000 companies." Well, we've got coverage on 300 million companies leveraging the Orbis database and our modeling and ESG capabilities. That is a source of real competitive differentiation for us.
There's just growing demand for understanding the physical risk related to extreme weather and climate change and transition. With RMS, we've got that at scale.
Maybe just two quick numbers around that. We are maintaining our expectation for a 2022 RMS sales growth to be in the mid-single-digit percent range, and that's obviously up from RMS's historical growth rate in the low single-digit percent range. We also now expect RMS to become accretive or moderately accretive to adjusted diluted EPS in 2023. That's a year earlier than what we previously projected in our deal model and as we communicated previously to the market. Finally, you know, expectation for ESG and climate related revenue is for a low double-digit percent growth this year to approximately $119 million.
Yeah. Maybe the last thing I'd add, kind of beyond the numbers, but this stuff's important, is we've just found that the marriage with RMS has been a great cultural fit, and our teams are working really well together. I think that bodes really well for our ability to kind of deliver on, you know, integrated risk assessment together.
Got it. Thank you both.
Your next question is a follow-up from the line of Alex Kramm with UBS. Please go ahead.
Oh, hey, thanks. Hello again. I know it's late in the call, but just coming back to my original question from earlier, Mark, your mid-50s comment on MIS was helpful, but I think as somebody else said, there's probably some sort of growth assumption embedded in that. If I may come back to the specifics I asked about earlier, like, can you give us a little bit more help when it comes to the net impact of the $200 million restructuring this year and next year, and then how we should be thinking about incremental margins in MIS, as we think about 2023? I think that would be helpful as we have our own growth assumptions, clearly.
Alex, I appreciate you coming back into the queue to ask this question. We would like to intentionally not front run our MIS revenue outlook for 2023. I think what we're comfortable committing to as a management team is what we're able to control, and we certainly are able to control our expense base. I think what we're also comfortable to commit to you is that we'll get the 2023 MIS adjusted operating margin at least in that mid-50s% range. In other words, as you consider modeling this out, we don't want you to take the approximately 51% that we're guiding to for 2022 and assume that's a new baseline.
I guess, Alex, I would say, you know, we don't want to base that on just hoping that there's growth in order to get to that level. Hope is not a strategy. We've really tried to think about the expense base without having to think that the only way that we can get to that margin that Mark is talking about is by having a huge snapback in revenue. Hopefully that gives you a little bit of insight.
No, I appreciate it very much. Thank you.
Our next question is a follow-up from the line of Manav Patnaik with Barclays. Please go ahead.
Yeah, sorry. Maybe I can just follow-up to that question. The $200 million savings, is that all in the MIS business? Is that how you get to the mid-50s? I guess any kind of margin commitment for MA in the same regard.
Manav, $200 million or at least $200 million in run rate savings off of our 2023 expense base will benefit both MIS and MA. As you can anticipate or you can probably infer, the benefit to MIS may be larger than the benefit to MA given how we're targeting expenses. We're being very deliberate and very thoughtful around how we manage the expense base for the two businesses as well as the allocation of corporate expenses. On the MA adjusted margin as we think about it, I think the way I'd propose to think about this is through our medium-term lens here. There I would say that we remain on track to achieve our medium-term adjusted operating margin for MA of a mid-30s% range within that three-five years.
That's primarily due to, as you heard on this call, increase in the proportion of subscription-based product sales. They provide improved operating leverage, especially as recurring revenue becomes an increasing proportion of MA's total revenue base.
Okay, thank you.
Your next question is a follow-up from the line of Kevin McVeigh with Credit Suisse. Please go ahead.
Great. Thanks so much. Hey, there's been a lot of questions on corporate issuance, but I wonder, Mark, if you could talk about your own debt. It seems a little high. Anything to kind of call out there? Just, is it timing? Maybe you could just frame that for us a little bit.
Kevin, thanks very much for the question. We remain committed to anchoring our financial leverage around the BBB+ rating, which we believe provides the appropriate balance between ensuring ongoing financial flexibility and lowering the cost of capital. You know, capital management really does extend beyond prudent allocation. We are thoughtful about our leverage and liquidity levels as well as maintaining a strong balance sheet. You know over the last years, we've enhanced our capital position and reduced our cost of capital, both by structuring a well-laddered debt maturity schedule and by extending our debt maturity profile to take advantage of, you know, at the time what was a relatively flat yield curve and historically low rates.
Although our net debt to adjusted operating income, and I think this is the point that you're getting at, was 2.3 x as of September 30th, and that's well within the BBB+ rating range, when accounting for our cash position. We have seen an uptick in our gross debt to adjusted operating income range, which is approximately 2.9 x as of September 30th. That means we are considering the possibility of perhaps executing a very small or very limited debt repurchase strategy in the coming months, just allowing us to opportunistically take advantage of current market conditions to marginally delever our balance sheet, and improve our gross debt position.
It's helpful. I know it's getting late, but Mark, just any comments on CapEx for the balance of the year?
Absolutely. We expect CapEx for full year 2022 to be approximately $300 million. As a reminder, there are a number of factors underpinning our CapEx guidance, including our strategic shift to developing SaaS-based solutions for our customers, continued acquisition integration activities specifically around our recent KYC and RMS acquisitions, as well as ongoing enhancements to our office and IT infrastructure associated with some of our Workplace of the Future programs. You know, we're not providing guidance for 2023. However, we do currently foresee absolute dollar CapEx to remain at similar levels to 2022, especially as we continue to emphasize developing hosted solutions.
Very helpful.
Your next question is a follow-up from the line of Craig Huber with Huber Research Partners. Please go ahead.
Yes. Hi, Mark. Do me a favor. Can you just dig in a little bit further on your 2022 expense bridge attribution, and also curious what's your currency sensitivity right now on costs? Thank you.
On the 2022 expense outlook, we are lowering our full year 2022 operating expense guidance from growth in the high single-digit percent range to the upper end of the mid single-digit percent range. Our outlook for the year assumes additional expense accruals in the fourth quarter of up to $55 million related to the expanded restructuring program that we've spoken about. If I were to exclude these restructuring related charges, our outlook for the full year operating expenses would have been at the lower end of the mid single-digit percent growth range. That's just demonstrating, you know, the ongoing expense discipline and prudence, especially compared to our full year guide back in February, which was for an increase in the low double-digit range for expenses at that time. Specifically to your question, Craig-
For the full year 2022, we anticipate expense growth of approximately seven percentage points related to acquisitions completed in the last 12 months. It's primarily RMS. Approximately three percentage points related to the restructuring program, and then ongoing growth in investments net of cost efficiencies and lower incentive compensation is approximately flat. Then there's a small partial offset from favorable movements in foreign exchange rates of approximately four percentage points. That should get you to that answer. On your second question, just on FX, we have seen significant moves this quarter in FX, and so if I were to update the annualized impacts of further foreign currency movements for modeling purposes, they would be every $0.01 movement between the U.S. dollar and the euro will impact full year EPS by approximately $0.03 and then full year revenue by approximately $10 million.
Every $0.01 FX movement between the dollar and the pound impacts full year revenue by approximately $2 million, and then full year operating expenses by $2 million. Call that effectively neutral on an EPS basis.
Great. Thank you.
Your next question is a follow-up from the line of Owen Lau with Oppenheimer. Please go ahead.
Thank you for squeezing me in. Could you please talk about is there any impact from the Inflation Reduction Act on your share repurchases program? Thank you.
I don't think we expect any material impact, tax impact, at least, on share repo.
Okay. Thank you very much.
Yep.
Your next question is a follow-up from the line of Shlomo Rosenbaum with Stifel. Please go ahead.
Hi. Thank you for squeezing me back in. Hey, Rob, MA revenue has been remarkably resilient. I was just wondering, is there any areas within there that you would think if we head into, like, a real, you know, significant recession, that we would start to see some kind of changes in the growth rates over there? Like, how should we think about that on a component basis?
Yeah, Shlomo, great question. You know, I mentioned in the opening remarks that, you know, MA's, it's been pretty acyclical and, you know, I know it might sound trite, but it is because they're providing, you know, these mission-critical products that are helping organizations deal with risk. In times of stress, the value prop of our offerings actually increases. You know, we see that with things like our CreditV iew usage that's up, you know, on a year-over-year basis. I you know, I have to say, I've been meeting with a lot of customers and, you know, this strategy to help customers with this multidimensional and integrated perspective on risk, it really does resonate, and I think it resonates more now than ever. We're having some really great conversations with our customers.
We feel good about that. You know, if you think about like a severe downturn, you know, let's take the global financial crisis. In that case, you know, what we saw was that we had some bankruptcies. We had, you know, some consolidations in certain sectors. You know, the banking sector obviously was under, you know, pretty severe stress. At the time, you know, a much bigger proportion of MA's customer base was banking. You know, we were more exposed to the banking sector at that time. We did see, you know, that we, you know, retention rates would tick down a little bit, you know, as we lose customers. You know, we've talked about on the calls before, our retention rates are pretty high right now.
we could also see some lengthening of sales cycles. I think others, you know, would see the same kinds of things, more challenging pricing discussions, which is why, you know, back to that point I made around pricing, it's so important to be thinking about, you know, what is the value that you're driving into the products to be able to support pricing. It's really important to be able to communicate that to your customers in times like this. You know, I guess the last thing I'd say, Shlomo, is it's a pretty challenging environment right now, and not only are we not seeing that, but as I said earlier, we're actually accelerating ARR growth in MA in the current environment.
Okay, great.
At this time, there are no further questions. Please continue with any closing remarks.
Okay. With that, thank you everybody for joining. I appreciate the questions, and we'll talk to you on the next earnings call. Have a good day.
This concludes the Moody's third 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 will be made available immediately after the call on the Moody's IR website.