Good day, everyone, welcome to the Moody's Corporation Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, I'd like to inform you that this conference is being recorded. I would now like to turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us to discuss Moody's fourth quarter 2021 results and our guidance. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the fourth quarter of 2021 and our outlook for full year 2022 and the medium term. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com. Rob Fauber, Moody's President and Chief Executive Officer, will lead this morning's conference call. Also making prepared remarks on the call this morning is Mark Kaye, Moody's Chief Financial Officer. During this call, we will 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 31, 2020, and in other SEC filings made by the company, which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to point out that members of the media may be on the call this morning in a listen-only mode. I will now turn the call over to Rob Fauber.

Thanks, Shivani, and good morning, everyone. Thank you for being here today. I will start by summarizing Moody's full year 2021 financial results and then discuss our business and strategic direction. After my comments, Mark Kaye will delve into more details about our fourth quarter 2021 results and our outlook for 2022, along with our new medium-term financial targets. As always, we will be happy to answer your questions afterward. I am proud to report that our employees' dedication and hard work led to remarkable results in 2021. For the first time, we exceeded $6 billion in revenue, achieving record revenues in both MIS and MA. Adjusted diluted EPS increased by 21% in 2021. Over the past few years, we have made significant investments to strengthen our presence in the high-growth risk assessment markets. In 2021, we capitalized on attractive growth opportunities, particularly in the fourth quarter, with substantial investments. Across the company, we are launching various new products and solutions to assist customers in identifying, managing, and evaluating risk while unlocking opportunities, and the pace of innovation is picking up. We are balancing these investments with capital returns, aiming to return around $2 billion to our shareholders this year through dividends and stock buybacks. For 2022, we anticipate Moody's revenue to grow at a high single-digit percentage. This growth will be fueled by strong performance from MA and high levels of global debt issuance for MIS. I am also pleased to announce that we are introducing new medium-term guidance based on investor feedback, with expected revenue growth of at least 10% on an average annualized basis, and an adjusted operating margin in the low 50s percent range. Our recent acquisitions, together with organic investments, position us well to deliver on our integrated risk assessment strategy and meet these targets. Lastly, I want to remind you that Moody's will host our next Investor Day on March 10 in New York City, where we will highlight key aspects of our business, and I look forward to meeting many of you in person. For those unable to join us, there will be a virtual option. Now, moving to our full-year results. Both MIS and MA revenue grew by 16%. MIS rated over $6 trillion in issuance and generated over 1,100 new mandates, averaging almost 5 new mandates each working day of the year. This achievement, combined with MA's 56th consecutive quarter of revenue growth, contributed to our second consecutive year of over 20% adjusted EPS growth. 2021 marked a significant acceleration in our strategy to become the leading integrated risk assessment business, focusing on growth, purposeful innovation, and delivering value to our stakeholders. Throughout the year, we made several acquisitions to enhance our capabilities and broaden our offerings. Our largest acquisition, RMS, established a world-class insurance data and analytics franchise, along with advanced weather and disaster modeling capabilities, enabling us to help a wide range of customers better understand climate-related physical risks. This is a vital component of our broader ESG offerings. We also invested to strengthen our ratings presence in key international markets. In 2021, we began offering local credit ratings in Brazil as we expand our Moody's Local business in Latin America. Just last week, we announced our plans to acquire a majority stake in GCR ratings, the leading credit rating agency in Africa, providing us with unmatched presence on the continent and positioning us well for the future. In 2021, we also enhanced our suite of award-winning offerings, launching more than 15 significant products. For example, PortfolioStudio, our new cloud-native Software-as-a-Service credit portfolio management tool, offers a comprehensive view of risk that recognizes the interconnectedness of risk finance and lending solutions. Additionally, we rolled out the next generation of supply chain catalysts, equipping our customers with an enterprise view of their critical supply relationships by integrating our Orbis database with their internal data for a cohesive risk assessment across their supply chains. We remain committed to serving our employees, customers, and communities, with our DE&I initiatives receiving notable external recognition, establishing Moody's as an employer of choice. This is particularly important now. In addition to the accolades shown on this slide, we were recently recognized for our inclusion in the Bloomberg Gender Equality Index for the second consecutive year, and for the 11th year, we received a perfect score from the Corporate Equality Index. We have also garnered recognition from customers for our products and services, being named the best credit rating agency by Institutional Investor for the 10th consecutive year and ranking second overall in the Charters RiskTech100. Now, let's review our segment results, starting with MIS. Favorable market conditions led to our strongest year yet in revenue and rated issuance. Investment-grade supply moderated from a record 2020 but remained substantial. The leveraged loan market experienced a sharp rebound, supported by low default rates and an increase in private equity buyout activity, as well as greater investor demand for floating rate debt amid rising inflation. This robust leveraged loan market also fueled impressive CLO growth. More generally, structured finance issuance rebounded this year, thanks to ongoing favorable market conditions and tight spreads, driving new CLO and refinancing activity in CMBS and RMBS issuance. Looking ahead, the economy has shown resilience to Omicron's impact, with GDP growth, strong corporate performance, and job creation boosting business, investor, and consumer confidence. Nonetheless, there are challenges; inflation remains high amid supply chain constraints and a tight labor market, although we anticipate easing price pressures throughout the year. Uncertainty regarding future interest rate movements may cause periods of market volatility, which we've seen at the beginning of this year. Historically, rising interest rates in conjunction with robust economic activity have been advantageous for MIS. It's important to note that even with the potential for interest rate increases this year, financing rates overall will remain modest from a historical standpoint. We anticipate tight spreads, M&A activity, ongoing refinancing needs, and the move toward disintermediation will sustain global debt activity above medium-term historical levels, though issuance may decline slightly from record levels seen in 2021. Mark will share more on MIS's 2022 issuance expectations later in the call. Now, turning to Moody's Analytics. In 2021, MA's revenue increased by 16%. We also significantly raised our recurring revenue mix, which now makes up 93% of MA's total revenue. This strong performance is attributed to 9% organic revenue growth underpinned by a 95% retention rate, over 2,000 new customer accounts acquired through global sales efforts and acquisitions, and targeted investments in prioritized markets. This momentum gives us the confidence to continue capitalizing on strong demand and opportunities in MA through ongoing organic and inorganic investments. In 2021, particularly in the fourth quarter, we made strategic investments to enhance and expedite the launch of several product offerings. For instance, we acquired PassFort in the fourth quarter and invested to accelerate its integration, aiming to significantly improve our customer screening and onboarding capabilities by automating the KYC and AML processes, thus streamlining our workflow with data from our Orbis and GRID databases. We are building a highly efficient and interconnected suite of tools that deliver added value to customers in this still relatively fragmented market. Additionally, we are enhancing our product capabilities in commercial real estate. I previously mentioned our launch of CreditLens for commercial real estate, a SaaS workflow platform crafted for commercial real estate lenders. In the fourth quarter, we advanced enhancements to this platform, including upgrading the user experience, as well as fast-tracking the launch of our portfolio monitoring solution for commercial real estate investors, integrating and iterating on the acquisition of RealX data. This commercial real estate portfolio manager is now available to customers in North America. We also invested in the ongoing SaaS conversion of our banking software products to support growth among our existing clients and deepen our presence in the midsized financial institution sector. We expect this conversion to drive our recurring revenue growth rate to low double digits in 2022 and into the low teens in 2023. With overall 24% sales growth, including a 20% increase in organic recurring sales, we achieved significant traction across customer segments. This strong sales growth, along with our financial capacity, instilled confidence in making opportunistic investments towards the end of the year in these areas. For the broader MA business, we are undertaking foundational investments to enhance both revenue growth and operational efficiency. In the fourth quarter, we invested in integrating RMS, which will be addressed shortly, as well as refining our sales capabilities to deepen customer engagement, expand cross-selling efforts, and optimize our go-to-market strategy. Our organic recurring revenue growth rate has steadily improved, and we expect this trend to continue, contributing to our goal of achieving total revenue growth in the low to mid-teens percent range within five years. This focus on expanding organic recurring revenue is central to our MA business strategy. Other factors also support this medium-term outlook. We are intensifying our focus on customer satisfaction, which supports strong retention rates and fosters recurring revenue growth. Our product enhancements enable us to increase revenue per customer through cross-selling, upgrades, and pricing opportunities. The continued transition to SaaS in our Enterprise Risk Solutions segment provides opportunities for revenue growth from existing clients while also attracting new customers. We are prioritizing the development of tailored products and solutions for both existing and potential customers. Last year during our fourth quarter earnings call, we highlighted various use cases we were addressing within what was then a $35 billion market opportunity. Since then, we've expanded this to $40 billion by incorporating RMS. There is growing demand for assessing a broader array of risks, which, as you can see, has resulted in four areas within MA generating over $100 million in organic recurring revenue with double-digit growth rates. This brings me to our acquisition of RMS. Although we are still in the early stages of integration, I am excited about the opportunity to serve the insurance industry more comprehensively, leveraging RMS's leading data, models, and expertise to meet our clients' increasing needs related to disaster and climate risk. We have aligned and cross-trained our sales teams, and the SaaS migration at RMS is in progress. Importantly, both RMS and Moody's insurance customers have responded positively to our collaborative approach, expressing enthusiasm about our ability to offer more comprehensive solutions for both the asset and liability sides of their balance sheets. We are identifying new product opportunities to evaluate weather and climate risks to present to the broader Moody's customer base, particularly in commercial real estate, CMBS, and banking. To illustrate this, I want to share a recent example involving a large P&C insurer that has been a customer of both RMS and, to a lesser extent, MA for many years. I recently met with them to explore how we could deepen our strategic partnership. We discussed their interest in incorporating ESG considerations across their processes, including underwriting, investment, regulatory compliance, scenario analysis, and portfolio management. Ultimately, our ability to provide a comprehensive view of ESG risk, particularly concerning climate change, distinguished our offerings. This engagement was facilitated by our robust RMS relationship combined with Moody's broader ESG capabilities. I believe this showcases the type of discussions we're having with many RMS and Moody's insurance customers regarding how we can enable a unified view of risk to foster profitable growth, reduce insured losses, and minimize volatility. I will now turn the call over to Mark to share further details on Moody's fourth quarter results, as well as our full year 2022 and medium-term outlook.

Thank you, Rob. In the fourth quarter, MIS revenue grew 19%, supported by a 28% increase in transaction revenue as rated issuance rose 23%. Corporate Finance was the largest contributor to revenue, growing 20%, supported by a 21% increase in issuance. This was driven by demand for leveraged loans as issuers opportunistically refinance debt and fund M&A. Heightened investment-grade activity also contributed to growth, while high-yield bonds declined due to a pivot to floating rate debt. Structured finance revenue registered its strongest quarter in a decade as revenue and issuance grew 66% and 148%, respectively. Investors' search for yield and favorable market conditions, including historically tight spreads, drove activity across all major structured finance asset classes. Financial institutions revenue increased 6% as issuance grew 22%, while frequent U.S. and European bank issuers took advantage of the attractive rate and spread environment. Public project and infrastructure finance revenue declined 2% despite a 24% decrease in issuance. Non-U.S. infrastructure finance activity was offset by lower U.S. public finance and EMEA sub-sovereign issuance as financing needs were largely addressed in prior quarters. The MIS adjusted operating margin expanded over 500 basis points to 53.6%. Robust business performance resulted in higher incentive compensation, impacting the margin by approximately 200 basis points in the fourth quarter. Moving to MA, fourth quarter revenue grew 20%, or 7% on an organic constant currency basis. RD&A revenue increased 12% as we benefited from high demand for KYC and compliance solutions, as well as credit research and data feeds. Revenue was further supported by record retention rates of 96%, level with the prior year period. ERS revenue was up 42%, fueled by the acquisition of RMS, with recurring revenue comprising 89% of total revenue, up from 81%. For the full year 2021, U.S. organic constant currency recurring revenue grew by 9% as we executed on our strategic shift away from one-time sales. MA's adjusted operating margin of 14.9% reflected the impact of recent acquisitions, higher incentive compensation, and the intentional pull forward and acceleration of select organic product investments into the fourth quarter. Excluding these three items, MA's adjusted operating margin expanded by over 100 basis points. The increased investment in high-growth markets and product development directly supports our expectation for organic recurring revenue growth in the low double-digit percent range in 2022. This slide provides further insight into our operating expenses for both full year 2021 and our outlook for 2022 as we balance cost efficiencies with investments to accelerate future growth. For the full year 2021, operating expenses rose 13%. Of this, 7 percentage points were attributable to operational and transaction-related costs associated with acquisitions during the year. Organic strategic investments related to product innovation and technology initiatives contributed another 5 percentage points. Additionally, we invested in our employees. Operating growth, which is primarily comprised of hiring, annual wage increases, and other retention-oriented spending as well as higher incentive compensation accruals contributed to an aggregate 6 percentage point increase. This cost was directly offset through a combination of ongoing cost efficiency programs and lower severance and restructuring-related charges. For full year 2022, we forecast expenses to increase in the low double-digit percent range, mostly attributable to acquisitions completed within the last 12 months. We expected incremental spending on organic strategic investments and operating growth, primarily related to merit and promotional increases as well as talent acquisition and retention, will be balanced through savings from lower incentive compensation accruals and ongoing expense discipline and efficiency initiatives. 2021 provided a unique opportunity to accelerate our investments in high-growth markets, including KYC, CRE, banking, ESG, emerging markets, and technology enablement. We ultimately invested approximately $150 million to enhance our capabilities and capture new opportunities for revenue expansion across the business. We expect to sustain this level of investment in 2022 as we execute on our long-term integrated risk assessment strategy. Finally, we also plan to invest over $50 million in 2022 on our most important asset, our people. Our employees connect deeply to our mission to provide trusted insights and standards that help decision-makers act with confidence. We want to attract and retain the best talent to achieve our growth ambitions. Turning now to our corporate guidance for 2022. Moody's outlook for the year is based on assumptions regarding many geopolitical conditions, macroeconomic and capital market factors. These include, but are not limited to, the effects of interest rates, inflation, foreign currency exchange rates, capital markets liquidity and activity in different sectors of the debt market, as well as the impact of the COVID-19 pandemic and subsequent responses by governments, regulators, businesses, and individuals. The outlook also reflects assumptions regarding general economic conditions, the company's own operations and personnel, as well as additional items detailed in the earnings release. Our full year 2022 guidance incorporates the following specific macro assumptions. 2022 U.S. and Euro area GDP will each expand by approximately 3.5% to 4.5%, and global benchmark interest rates will gradually rise with the U.S. high-yield spreads moving slightly above the historical average of approximately 500 basis points. By year-end, the U.S. unemployment rate will decline to about 3.5% and the global high-yield default rate will gradually decrease before gradually rising to approximately 2.4%. Global inflation is projected to decline over the course of 2022 yet remain above Central Bank targets in several countries. Our guidance also assumes foreign currency translation. Specifically, our forecast for 2022 reflects U.S. exchange rates for the British pound of $1.35 and $1.14 for the euro. These assumptions are subject to uncertainty, and results for the year could differ materially from our current outlook. In 2022, we expect Moody's revenue to increase in the high single-digit percent range in operating expenses, including the full year impact of acquisitions to grow in the low double-digit percent range. Moody's adjusted operating margin is forecast to be in the range of 49% to 50%. We estimate net interest expense to be between $200 million and $220 million and the full year 2022 effective tax rate to be between 20.5% and 22.5%. Diluted EPS and adjusted diluted EPS are projected to be in the range of $11.50 to $12 and $12.40 to $12.90, respectively. Free cash flow is forecast to be between $2.3 billion and $2.5 billion, and we plan to return at least $1.5 billion to stockholders through share repurchases, subject to available cash, market conditions, M&A opportunities, and other ongoing capital allocation decisions. Included within this outlook is our intention to execute a $500 million accelerated share repurchase program in the first half of the year. For a full list of our guidance, please refer to Table 12 of our earnings release. Turning now to our issuance outlook. We expect total MIS-rated issuance to decrease in the low single-digit percent range compared to record activity in the prior year. However, 2022 activity is anticipated to remain well above the prior 5-year historical average of $5.1 trillion, inclusive of record issuance in 2021. We project that investment-grade activity will increase by approximately 15% following the sharp contraction in 2021. While funding conditions for leveraged loans and high-yield bonds will remain supportive, we estimate that issuance will decline by approximately 10% and 15%, respectively. This is due to strong prior year comparables and an expected decrease in opportunistic activity, particularly in high yield as global benchmark rates rise. We forecast a 5% increase in public project and infrastructure finance activity, and financial institution issuance will be approximately flat. After a year of robust structured finance activity, issuance is expected to decline by approximately 5%. For 2022, we estimate 900 to 1,000 first-time mandates, which will contribute to both transaction revenue and future recurring revenue growth. We expect MIS' full year revenue to increase in the low single-digit percent range, reflecting both our strong new mandate estimate and recurring revenue base, which will offset a moderation in issuance. We forecast MIS' adjusted operating margin to be approximately 62%, in line with the prior full year result. Turning to MA, we anticipate revenue will increase in the high teens percent range, building on strong 10% growth in organic constant currency recurring revenue in 2021. This reflects our ongoing focus on expanding our subscription-based products and is further supported by approximately 10 percentage points attributable to previously announced acquisitions. We forecast MA's adjusted operating margin to be approximately 29%, inclusive of a 150 to 200 basis point headwind from recent acquisitions and foreign exchange movements. As Rob mentioned earlier, in response to investor feedback, we are replacing our existing long-term targets with new medium-term guidance. This demonstrates our commitment to delivering multiyear value to our stakeholders as well as our confidence in capitalizing on the growth opportunities available to us while maintaining an attractive margin profile over the next 5 years. For MIS, we project revenue to increase in the low to mid-single-digit percent range, coupled with an adjusted operating margin in the low 60% range, as we continue to invest in meeting our customers' needs in emerging markets and evolving areas of risk, including ESG. For MA, we are targeting revenue in the low to mid-teens percent range and an adjusted operating margin in the mid-30% range within 5 years. We expect this increase to be driven by organic investments in our products, solutions, and distribution capabilities, as well as operating leverage from expanding recurring revenue. As such, over the coming 5 years, we project Moody's revenue to grow by at least 10% on an average annualized basis and adjusted operating margin to stabilize in the low 50s percent range. We also anticipate that diluted EPS will increase in the low double-digit percent range. Before turning the call back over to Rob, I would like to highlight a few key takeaways. First, in 2021, Moody's delivered over $6 billion in revenue and an adjusted diluted EPS growth rate above 20% as our customer-centric approach continues to address their evolving needs. Second, following a record year of issuance in 2021, we expect activity to remain robust this year. Third, MA's high recurring revenue growth and retention rates will continue to support strong financial results. Fourth, our strategic investments in high-growth markets will strengthen our financial performance in 2022. Finally, the introduction of medium-term targets reflects our conviction in the momentum of our business as well as our commitment to capitalize on multiple opportunities for growth. With that, let me turn the call back over to Rob.

Thanks, Mark. Before we take questions, I again just want to recognize the efforts of all of our people at Moody's. Our entire organization remains focused on putting our customers at the center of everything that we do. In 2022 and beyond, we're going to continue to invest and execute to provide our customers the solutions they want and need to manage a wider range of interconnected risk, and that will reinforce our medium-term growth opportunity. Thanks for listening to our prepared remarks. Before we go to Q&A, I've been asked to give a brief public service announcement about our Investor Day. We're going to be sharing some videos that spotlight various parts of Moody's leading up to the event. So stay tuned for that, and we look forward to seeing everybody on March 10. That concludes our prepared remarks, and Mark and I would be happy to take your questions.

And we'll go ahead and take our first question from Kevin McVeigh with Credit Suisse.

Can you hear me now? Sorry about that. A lot to unpack here, but I didn't want to let the kind of one-year anniversary of your tenure go by without maybe giving us a little puts and takes over the last year because you've really moved the organization forward in all different types of environments. So I'd love to get your recap on kind of the first year in office, if you would.

Yes, Kevin, thank you. That's a perfect way to start the call. When I became CEO just over a year ago, our business was in excellent condition and ready for the next phase of growth. Reflecting back on my initial thoughts from a year ago, I outlined three strategic priorities that I believed would significantly reinforce and accelerate our growth. You'll likely hear the word "growth" a lot today. We've been actively pursuing this focus over the past 12 to 14 months. The first priority is to deepen our understanding of our customers, which is essential as their needs regarding risk are evolving quickly, largely due to the pandemic. Risks are now more complex and interconnected, and organizations are facing a broader spectrum of challenges. By better understanding these needs, we can create new offerings that our customers appreciate, leading to increased revenue per customer and attracting new clients in various market segments. The second priority is to invest strategically to grow and scale. In 2021, we made several strategic moves to enhance our offerings and strengthen our competitive position in key markets such as insurance, climate, KYC, and commercial real estate. Our aim is to offer more comprehensive solutions, deepen customer engagement, and attract new clients to drive faster growth. The third focus area is on collaboration, modernization, and innovation. We are working across the company to provide our customers with a more integrated and comprehensive view of risk. This includes improving workflow platforms for customers, connecting them in valuable ways, and emphasizing technology enablement within the organization to enhance efficiency and utilize tools available throughout the company. Looking forward this year, we believe our strategy and roadmap are well-defined. We've communicated this clearly over the last year, and our current aim is to engage our workforce and accelerate growth. You will see us concentrating on several key areas that will create long-term shareholder value: surpassing customer expectations by better understanding their values and providing an improved experience; reaping the benefits of the significant investments made over the past year; developing what we internally call our risk operating system to offer distinct integrated solutions; and finally, ensuring that Moody's is an attractive place for employees to join and remain. As we pursue these objectives, we are confident that we can provide value to all our stakeholders, including employees, customers, investors, and communities.

That's super, super helpful. Just real quick, Mark. On the buyback, it looks like you're going to be about 2x what you were in '21. Any thoughts as to what drove that decision? Is that just capital allocation within the context of potential M&A? It obviously underscores the model.

No, Kevin. Absolutely. Let me provide some context first, and then I'll address your specific question. We're focused on prudent capital planning and allocation. As a management team, we first identify opportunities for organic and inorganic investments in high-growth markets, like we did in 2021, to enrich the ecosystem of data, analytical solutions, and insights required to serve our customers. After deploying those investment dollars, we seek to return capital to our stockholders through share repurchases and dividends. In 2022, we plan to return at least $2 billion, about 80% of our global free cash flow to our stockholders, subject to available cash market conditions, and so on. This will include our expectation to repurchase at least $1.5 billion in shares, including executing a $500 million accelerated share repurchase in the first half of the year, along with approximately $500 million in dividends through a quarterly dividend of $0.70 per share, a 13% increase from our prior quarterly dividend of $0.62. Importantly, we remain committed to maintaining our financial leverage around a BBB+ rating, providing an optimal balance between lowering the cost of capital and elevating our financial flexibility.

We'll go ahead and take our next question from Andrew Nicholas with William Blair.

I guess my first one would just be to hone in a bit more on issuance and the outlook for '22. You spoke a little bit about this in your prepared remarks, obviously. Could you spend some time just kind of talking about the biggest swing factors that could affect issuance this year and how you think about the range of potential outcomes around the 2% issuance decline figure with those factors in mind?

Yes. Sure, Andrew, happy to do that. I talked a bit in the prepared remarks about some ongoing tailwinds, and we've got a positive macroeconomic backdrop. We've got a healthy M&A pipeline, along with continuing refinancing needs. However, we have a tough comp. For 2022, we're looking at issuance to decline in that low single-digit percent range. I want to highlight that the outlook centers on leveraged loans. We expect leveraged loans to be off something like 10% off a really strong year last year. However, there's a significant amount of private equity money that still needs to get deployed, which will continue to drive leverage loan activity. We've seen that in January, despite some volatility impacting investment-grade and high yield. Leveraged loans have continued to maintain a robust pace, so we'll be watching that closely. In terms of downside factors, Omicron reminded us that COVID variants can still affect recovery and supply chain issues that exacerbate inflation, potentially impacting interest rates. As central banks start to tighten and move away from previous monetary stimulus, unexpected surprises may occur, resulting in bouts of market volatility, which we've already observed. So, while we expect some declines in issuance, the underlying structural drivers are still intact for MIS revenue growth over the medium term. I think we should expect growth to gradually pick up to the mid-single digits as we progress through the medium-term horizon.

Great. That's really helpful, particularly on leveraged loans. For my follow-up, could you provide an update on the ratings business in China and your expectations for when that could be material? How much growth in that business or market are you embedding in the low to mid-single-digit growth expectation for MIS over the next 5 years?

Yes, Andrew. Let me talk more broadly about how we're addressing the Chinese credit market. First, we’re serving international investors who are investing in bonds issued by Chinese companies in the cross-border market. We have a strong position through MIS, and we expect it to continue. Second, international investors in local currency bonds issued by Chinese companies in the domestic bond market, we recently launched China CreditView, which covers about 1,000 Chinese companies with ratings, model-derived ratings, and financial statements. Early reception has been very pleasing, with almost 100 active prospects from our core international investor customer base. Third, domestic Chinese investors in the local currency domestic bond market are addressed through CCXI, which remains a market leader despite facing challenges last year. They completed several thousand ratings, including both fundamental and structured finance. The scale of that business is significant. This is factored into our outlook for both MIS and MA.

And we're going to turn to our next question from Toni Kaplan with Morgan Stanley.

I wanted to ask about the new medium-term or five-year guidance. You're looking for revenue of low to mid-teens in MA despite RMS historically having been lower growth. I know you're expecting a lot of synergies there. Can you talk about what has to go right versus the biggest risks to the medium-term guidance for MA?

Toni, good afternoon. The MA medium-term revenue outlook we provided of low to mid-teens percentage growth really reflects our confidence in significant opportunities given customer demand for our integrated risk assessment products and solutions. We believe there are multiple pathways to achieving this target, including continued investment in organic product development and sales distribution capacity. Through these organic investments, along with projected growth in our recurring revenue base, we expect total MA organic revenue to grow toward the higher end of low-teens percentage range, for example, to at least $4 billion by year-end 2025. Any incremental bolt-on M&A that accelerates or advances our capabilities and product offerings, hypothetically similar in size and scope to historical acquisitions, could elevate us to mid-teens percentage revenue growth. Strategic success is not only about revenue growth, but also concurrently expanding the margin, and we reaffirm our outlook that we issued today for the mid-30s MA adjusted operating margin as subscription-based products provide more operating leverage, with recurring revenue becoming an increasing proportion of MA's total revenue over the medium term.

That's great. I also wanted to ask about ESG. Last quarter, you mentioned revenue for this year being around $26 million to $30 million. Could I get an update on where that ended up? Is 20% the right growth rate to think of moving forward, or should it be higher? What are the fastest-growing areas for ESG growth?

Yes, Toni. I'll start with where we’re focused this year around ESG, and then Mark can provide specifics. Our goal is to build and scale the relevance of our ESG offerings. Companies and investors want us to play a meaningful role in the ESG space as they value our transparency, comparability, and trust in our methodologies and analytics. We're expanding coverage across the rating agency; ESG and climate are vital considerations for credit, and sustainable finance is central to many issuers’ funding programs. At the end of last year, we had nearly 2,000 ESG credit impact scores, reflecting the impact of E, S, and G on an issuer's credit profile. These scores have a transparent methodology with engagement from issuers and our analysts. We will expand coverage by thousands over this year, giving ESG credit impact scores across a broader part of the MIS-rated portfolio that benefits from analyst engagement. We will also assist in sustainable finance needs for our issuers, likely expanding our coverage of second-party opinions on sustainable issuance around mid-year, with plans to roll out net zero and sustainability rating offerings in the second half. This is on top of the ESG measures covering thousands of companies with public information and our ESG score predictor for over 140 million companies supporting sustainable sourcing and counterparty needs. On ESG revenue, Mark?

Absolutely. In 2021, our actual ESG revenue was approximately $29 million, reflecting $22 million in stand-alone ESG revenue related to our Climate Solutions Sustainable Finance in ESG research products, along with an additional $7 million from integrating ESG-related solutions into MIS and MA products. This is a 36% year-over-year growth. For 2022, we expect to further increase direct and attributable ESG-related revenue by an estimated $35 million to $40 million. The drivers for our estimated 2022 ESG performance will include increasing demand for climate solutions, along with the need to include and integrate ESG factors into credit analysis and investment decisions. It's worth noting that we also have significant climate-related revenue from RMS, which we are considering reporting later this year alongside our ESG-related revenue to provide a holistic view.

We'll move to our next question from Alex Kramm with UBS.

I wanted to ask another one on the medium-term guidance. I’m sorry if this is specific, but I may not have understood correctly. On the medium-term top-line guide, you mentioned the 10% plus and the MA guide of low to mid-teens. In your question just now, you referred to the recurring organic growth rate. Is that guidance actually 100% organic, including recurring and nonrecurring? Or can this potentially include some M&A? I wasn't 100% clear.

Sure, Alex. The MIS and MCO medium-term target includes the combined MA and MIS medium-term revenue guidance of at least an annual 10% revenue CAGR. We see a path to achieving that organically. For MA specifically, we expect organic revenue growth to be at the higher end of the low-teens percentage range, with any bolt-on M&A above that possibly moving us into the mid-teens percentage range. Rob, would you like to expand on MIS and how we think about that medium term?

Yes, the other aspect of this is the MIS kind of a medium-term outlook. We understand we're at the tail end of a period of ultra-low interest rates. We've just finished two years of enormous issuance, and we enter a tightening cycle. This would naturally imply some headwinds versus issuance over the last several years, and you can see that reflected in this year's guidance for MIS revenue growth. We've put out a range for MIS revenue growth and expect to be at the lower end of that range in the short term. As interest rates and growth expectations normalize, we expect to see a pickup in MIS revenue growth towards the higher end of that range. Thus, on average, over the five years, we're targeting low-to-mid single digits, happy to provide more context on that outlook, but I'll pause on that for now.

This next one probably dovetails, and I may be scrutinizing here, but I see that you used to provide a long-term outlook that called for low-teens EPS growth. Now that your medium-term adjusted EPS guidance is in the low double digits, should we consider this a lower growth outlook? Is that related to the concerns on the ratings side? I want to understand how to compare your long-term to this new medium-term guidance laid out.

Alex, we expect to grow adjusted diluted EPS in the low double-digit percent range over the medium term by balancing both organic and, to the extent possible, inorganic investments with returning capital to stockholders. The revised medium-term adjusted EPS target, compared to the prior long-term EPS guidance, is primarily driven by the expectation for increased organic strategic investment along with reduced capital leverage from share repurchases, based on the assumption that Moody's share price continues to increase. Additionally, lower discrete tax benefits on a percentage basis as adjusted net income itself grows also play a role.

We'll move on to our next question from Ashish Sabadra with RBC Capital Markets.

So Rob, I'll just follow up on the question you just answered. I'm wondering if you could provide more detail around what's baked into your issuance assumption because I would have expected issuance on a more normalized basis to grow more in the low to mid-single digits plus you have pricing power, recurring revenue growth, and getting more to high to mid-single digit over the next few years versus mid-single digit over the midterm. Any color on that front would be helpful on the issuance side.

You bet, Ashish. You've got the algorithm right. Let me talk about the factors as we develop that range. As you know, we generally see issuance activity highly correlated to GDP growth over the medium to long term. However, if you look back at the past couple of years, in 2020, we faced economic contraction but experienced a significant issue. This year's issuance outlook reflects economic growth, yet we predict a slight decline. There's an element of digestion and normalization taking place as we emerge from the pandemic and the unprecedented amounts of monetary and fiscal stimulus that have driven all this issuance. On average, we expect that historical relationship to hold. However, we now have numerous debt maturing that will have to be refinanced, providing some support or ballast for our transaction-based revenues. We previously discussed the forward four-year refunding needs, which have increased approximately 9% to $4 trillion for U.S. and European issuers, which represents 19% for U.S. leveraged loan maturities. Some of this is due to the pull forward in the fourth quarter; however, it remains within historical ranges. There is good visibility and confidence around recurring revenues, especially with the addition of first-time issuers coming into the market. Additionally, the recent strength of the leveraged loan market indicates disintermediation is still alive and well. Your core point about supporting and enhancing the value we deliver is crucial; you’re right about sustainable finance—it’s a direction we're focusing on to expand our offerings and contribute to pricing. We expect near-term normalization followed by structural drivers supporting MIS revenue growth through the medium term. Given that, I expect growth to gradually increase from low single digits to more like mid-single digits as we progress.

That's very helpful color, Rob. Mark, could I ask a question on the multiyear investment? Thanks again for that slide with the detail. As we think about '22, we're looking at a total of $300 million of organic investment. How should we think about that going forward in '23 and the midterm? Should that come down as we go from elevated organic investment to a more normalized investment cycle? Is that the key driver for significant margin expansion on the MA side?

In 2022, we anticipate our spending on organic strategic investments to be around $150 million, aimed at capturing incremental market opportunities we are seeing. This implies our planned spending over the two-year period is approximately $300 million. These investments are focused on bolstering our sales force and go-to-market activities and will continue our strategic investment roadmap in high-priority markets—specifically KYC, CRE, banking, ESG, and climate—along with ongoing technology enablement and product development initiatives. Additionally, we expect an increase in employee investment, contributing to ongoing hiring, annual wage increases, and retention efforts. Overall, our goal is to position ourselves for both revenue growth and expanding margins not just in 2022, but over the medium term.

And we'll take our next question from Jeff Silber with BMO Capital Markets.

I'm sorry to go back to medium-term guidance, but I wanted to clarify. Can you talk more broadly about the capital allocation priorities embedded in this, especially concerning internal investment and shareholder returns?

Certainly. Capital allocation priorities will focus on organic and inorganic investments back into the business, targeting the highest growth opportunities and working to enhance our solutions. Any incremental inorganic investments will depend on opportunities we identify. Regarding capital return to shareholders through repurchases or dividends, it will be executed post any organic or inorganic investments. Our objective is to maintain a BBB+ rating, as we believe this balance between capital return and our cost of capital is ideal.

That's great. If I could just follow up with one quick one. Looking back at the fourth quarter, if I specifically focus on MA margins, I think you talked about the annual impact of some investments on the prior call. What was the impact on a quarterly basis? How would margins have looked without those investments?

Compared to our implied fourth quarter margin from the last earnings call, we accrued for a few factors. The higher incentive compensation and commissions impacted margins of about 300 basis points, alongside additional acquisition-related costs worth about 200 basis points. Notably, we pulled forward select investments from 2022 into the fourth quarter, amounting to around 400 basis points.

We'll move on to our next question from Andrew Steinerman with JPMorgan.

I just wanted to ask one more question about the underlying assumptions with the MIS medium-term revenue growth target of low single to mid-single-digit revenue growth. When looking back at the correlation between MIS revenue growth and issuance growth, MIS revenue growth seems to have historically outperformed issuance. Over the next five years, do you feel the amount of outperformance will be less than it has in the past? If so, what is your underlying issuance outlook for that MIS revenue outlook?

Yes, Andrew. When considering revenue outperformance versus issuance, several factors are in play, including mix and recurring revenue. We've generally assumed a consistent mix with previous years, which has generally been favorable. Our recurring revenue continues to grow, while pricing and new issuers through disintermediation add to our revenue. However, given our current circumstances, we anticipate being near the lower end of our target range in the near term. Elevated cash balances and leverage may restrict opportunistic issuance, leading to slower growth in this five-year period.

We'll move on to our next question from Craig Huber with Huber Research Partners.

Rob, could you begin by discussing the RMS acquisition and what you view as the significant long-term opportunities as you shift that business beyond just serving the insurance market? Talk about the upside long-term.

Craig, we share that view of the potential in RMS. We see two key opportunities: enhancing our insurance business while also extending the capabilities around weather, climate, and disaster models to our broader customer base. When interacting with banks and asset managers, there's a strong demand for assessing climate risks in portfolios. Many are trying to hire individuals with expertise in climate, which is a challenge. RMS has world-class expertise, and we're leveraging that to provide solutions to various sectors, including commercial real estate, CMBS, and banking. You can imagine the government sector will also look for ways to understand vulnerability to climate change and risk mitigation investments. We’re actively discussing what those opportunities would look like and how we can deliver on them.

For 2022, we expect RMS revenue growth in the mid-single-digit percent range, consistent with our transaction model, inclusive of emerging synergies, and from 2022 to 2023, excluding the impact of 2022 deferred revenue haircut, we expect RMS revenue to grow in the high single-digit percent range.

That's helpful. I also want to ask about your medium-term guidance. Sorry to go back to this again, but most people might be very bullish about your prospects to grow at least 10%. You're indicating margins in the low 50s here, but they're nearly present. Is there anything specific about growth? Are you cautious about margins not improving over the medium term?

We're looking to hit our medium-term targets without specific time lines. Some metrics may be achieved earlier than others. For example, we expect the 2022 MIS adjusted operating margin at 62%, which is within our medium-term range. Generally, we prefer to maintain or modestly expand MIS' adjusted operating margin within low 60s while reinvesting to drive growth. As MA business grows compared to MIS, we may see an impact on the emergence of our target margin applications in that low 50s range.

We'll move on to our next question from Owen Lau with Oppenheimer.

Could you discuss your investments in SaaS solutions for banking customers? Are you planning to develop more software solutions, or are you migrating existing data solutions to the cloud to change contracts to be more recurring? Any additional color on the SaaS front would be appreciated.

Owen, it's Rob. We're moving customers from legacy on-prem solutions to our new SaaS-based solutions. This transition provides more revenue uplift, penetration, and integration of offerings. We're building a connected SaaS-based ecosystem supporting banks around origination, risk, finance, and planning. Our focus is on enhancing customer workflows to facilitate cooperation across departments and leverage tools throughout the firm.

Got it. A housekeeping question, returning to the MA margin in 2022, 29%. Could you help us understand the trajectory of these margin expansions in each quarter? Should we expect gradual advancements each quarter, or are you anticipating stability around the 29% mark in 2022?

Regarding the MA adjusted operating margin guidance announced today of 29%, it includes 150-200 basis points of margin compression from recent acquisitions and fluctuations in foreign exchange rates. Additionally, we’re targeting ongoing investment in high-growth markets and strengthening a best-in-class sales force. Our first quarter of 2022 will see expenses approximately $120 million to $140 million lower than in the fourth quarter, primarily due to lower incentive compensation accruals and reduced organic investments since we expedited certain spending in Q4. Throughout the year, we expect expenses to ramp up by about $80 million to $100 million due to merit increases, talent acquisition, and continued organic investment activities.

We'll move on to our next question from Manav Patnaik with Barclays.

Mark, could you expand on that seasonal topic? What are the other moving pieces when assessing the first quarter compared to the rest of the year? We don't want to overestimate the full-year guidance based on the Q1 run rate.

We considered historical issuance patterns while crafting our 2022 projections. For MIS, revenue should generally be stronger in the first half, reflecting issuers’ tendency to secure funding before potential interest rate and inflation-related headwinds. Similar dynamics were seen in 2020 and 2021, where 59% and 56% of total full-year issuance occurred in the first half, respectively. MA's revenue is highly recurring and expected to trend consistently over the year, similar to our actual 2020 and 2021 results, with just under 50% of total revenue in the first half. Our 2022 strategic investment spending of $150 million is intended to be more heavily weighted towards the second half.

Manav, we had a busy 12 months. We are focused on realizing our investments' benefits, particularly RMS, which has a lot of internal work. However, we also made three smaller acquisitions in the KYC space in the fourth quarter and are committed to integrating them efficiently so that we can quickly offer our new workflow solution. We feel good about our capabilities and customer acquisition across the board. While we are observant of market opportunities, we are focused on executing these existing growth strategies.

We'll go ahead and take our next question from Shlomo Rosenbaum from Stifel.

Rob, could you discuss the medium-term guidance, particularly the 10% goal for revenue growth? It seems to be an improvement over historical trajectories, so can you detail how your internal or external strategy has changed to bolster this performance? Are acquisitions effectively supporting this growth, or is it mainly related to organic development?

Yes, we have a path laid out for us and confidence in achieving our goals. The core reasons behind this outlook stem from our investments and the attractiveness of the markets we serve. We are both in attractive neighborhoods and focused on investing in areas that provide strong growth. To that end, we have aggressively invested in our capabilities through recent acquisitions that enhance areas like climate, KYC compliance, and commercial real estate. These investments—enabling us to meet evolving customer needs—position us well for scalability and efficiency in growth.

Understood, thanks. Just to clarify again on deal-making: would you indicate last year’s busy M&A engagement as an anomaly or as a reflection of your capability to pursue similar acquisitions moving forward? Or do you feel you need to digest some of the bigger acquisitions before pursuing more?

I believe we executed well around the strategy and investment needs, particularly through our significant recent acquisitions. We're currently focused on realizing the returns of those investments quickly. However, you should understand that we have the capacity for ongoing opportunities, from small to larger ones. We’ve continuously evaluated the market with our corporate development team, and while we’re cognizant of execution, our gains in capabilities and strategy remain paramount.

We’ll move to our next question from George Tong with Goldman Sachs.

Historically, pricing has added 3% to 4% to overall revenue growth. How do you foresee pricing trends evolving in light of rising inflation, and what are the increases you're observing in labor costs, especially within the more labor-intensive MIS segment?

George, I believe that our pricing opportunities remain typically consistent, but with inflation, there may be some additional upside. However, we want to maintain a long-term view on pricing across the firm. Our focus is to reinforce the value provided to customers. For MIS particularly, we anticipate that sustainable finance will be important in supporting the value proposition. Additionally, regarding labor costs, the industry at large is experiencing challenges in talent acquisition, especially in high-demand roles. We are focused on retaining our key talent and making competitive compensation increases to continue our trajectory of growth.

Understood. You've made notable investments in the MA segment, particularly in KYC. Looking ahead, what are some focus areas for you in the MA segment regarding potential M&A?

Across MA, we are focusing on several key areas driven by high growth potential and a well-established market presence. KYC is one such area due to its fragmentation and demand for robust solutions. We'll explore additional investments, either organically or through acquisitions, to build our capabilities across various sectors, including KYC, banking, commercial real estate, and the growing need for climate data integration.

And we'll go ahead and take our last question from Christian Bolu with Autonomous Research.

Not to dwell on the topic, but regarding the 2022 outlook, I see lower issuance and a potentially negative mix shift with high-yield and structured finance generally yielding higher revenue. You seem confident in your revenue growth outlook for '22 despite these factors. Could you clarify what's expected to bridge the gap? Is it due to pricing, or are you expecting stronger onboarding of new customers?

Christian, the outlook for 2022 considers a similar, if not as favorable, mix of infrequent issuers, leading to slight revenue opportunities. However, leveraging loans serve as a funnel for structured finance CLO creation, which we see as upside potential as well.

Indeed, transitioning from issuance to revenue growth does take into account a more modest spread than the previously witnessed periods. However, markets remain strong, and we're optimistic about our existing and new customer segments, especially around recurring revenue and pricing potential.

Switching gears to MA, your slides refer to discussing the MA business in terms of end markets. Given this context, do you foresee plans to give more data to help understand end-market growth, to better model long-term business evolution?

We are considering refreshing the reporting structure for our MA revenue to better reflect business performance across segments and the feedback received. This will be addressed as part of the Investor Day materials, with potential sub-segment reporting under data, research, insights, and decision solutions categories. This should provide a better understanding of where our growth is coming from.

Christian, we will provide insights into our growth strategies in various markets at Investor Day, which will be key for you to attend.

That does conclude our question-and-answer session. I would now like to turn it back to Rob Fauber for additional or closing remarks.

Thank you, everybody, for joining today's call. We look forward to talking to you at Investor Day on March 10. With that, we'll bring the call to a close.

This concludes Moody's Fourth Quarter and Full Year 2021 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 home page. Additionally, a replay of this call will be available after 3:30 p.m. Eastern Time on Moody's IR website. Thank you.