Earnings Call Transcript - MCO Q3 2023

Operator, Operator

Good day, everyone, and welcome to the Moody's Corporation Third Quarter 2023 Earnings Conference Call. This conference is being recorded. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.

Shivani Kak, Head of Investor Relations

Thank you. Good morning and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the third quarter of 2023 as well as our revised outlook for select metrics for the full year 2023. 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 and U.S. GAAP. I call your attention to the safe harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the Management's Discussion & Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2022, and in other SEC filings made by the company, which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I'd also like to point out that members of the media may be on the call this morning in a listen-only mode. Rob Fauber, Moody's President and Chief Executive Officer, will provide an overview of our results, key business highlights, and outlook. After which, he'll be joined by Caroline Sullivan, Moody's interim Chief Financial Officer, to answer your questions. I will now turn the call over to Rob.

Rob Fauber, President and CEO

Thanks, Shivani. Good morning, and thanks to everybody for joining today's call. I'm excited to share our strong financial results as well as some key business highlights. And that's going to include some notable innovations and investments, progress on our GenAI strategy, and a spotlight on our fastest-growing business in MA, which is our Know Your Customer business, or KYC as we commonly refer to it. Before I get started, I just want to say how proud I am that Moody's has again finished #1 in the Chartis RiskTech100. That is the most comprehensive global ranking of risk and compliance technology providers. And it is a great recognition of the breadth and depth of our solutions based on both market research and customer feedback. I also want to take a moment to recognize the incredible resilience and dedication of our people. I've really appreciated how our people have come together recently to support each other and to continue to deliver for our customers. As you all will have seen from this morning's earnings release, we reported 15% overall revenue growth with strong top line performance and improved adjusted operating margins from each of our businesses. This contributed to a 31% increase in adjusted diluted EPS in the third quarter. MA revenue grew 13% while achieving its fourth consecutive quarter of 10% ARR growth. MA's growth continues to be led by our KYC business. We now have over $300 million of annualized recurring revenue, or ARR, and that's growing at 18%. MA also produced an adjusted operating margin of 33.6%. Now, MIS grew 18% in the quarter as the leveraged finance issuance markets continued to improve from last year's subdued levels. MIS revenue is now expected to grow in the mid- to high single-digit percentage range for the full year, acknowledging the current uncertainties in the capital markets. Last week, we published our annual refinancing wall study, which showed a 21% increase in the total U.S. nonfinancial corporate debt coming due over the next 5 years. As I've mentioned on prior calls, these refinancing walls are a very important component of our long-term growth algorithm, and that remains firmly intact. As those of you who attended our Innovation Open House last month heard, we're moving quickly to integrate our broad data and analytic capabilities across our product suite and to leverage the power of GenAI to develop new and cutting-edge solutions to empower both our customers and our employees. The pace of innovation is clearly accelerating across our businesses. We're investing, launching new products, entering into strategic partnerships, all that will enable us to continue delivering market-leading growth. If you look just at the third quarter, we announced some really interesting things. I want to take you through a few of those. Let's start with ratings. We've talked before about deepening our participation in developing capital markets, specifically domestic issuance markets, which is important for our long-term growth algorithm. This includes Latin America, where Moody's Local has grown its customer count by more than 20% this year. The Asia-Pacific region also has exciting opportunities, which is why in September, we extended our domestic ratings business with the opening of VIS Rating in Vietnam, a small but fast-growing domestic bond market. I've also discussed how the relevance and importance of our voice in the markets is critical for making MIS the agency of choice for both issuers and investors. Last month, we published a groundbreaking cross-industry report on cyber risk and practices that leveraged our relationship with BitSight. We had nearly 2,000 companies provide data and inputs, highlighting the more than $20 trillion of rated debt that is at a high risk from cyber threats. This emphasizes the importance of a multidimensional view of risk, in this case, understanding how cyber risks impact credit risks. Moving to MA, we're launching our first GenAI-enabled product, called Research Assistant. We've already previewed it with over 150 customers. Our strategy is to commercialize the launch as we head into the year-end renewal cycle, initially thinking Research Assistant will be sold as an add-on to our flagship product, CreditView. Leveraging the power of a large language model with Moody's trusted proprietary content allows customers to generate rich credit insights in just seconds and with capabilities in multiple languages. We also expanded our coverage in CreditView to now include 12,000 new unrated names, allowing us to better serve the private credit market. Customers purchasing that module will have a seamless, integrated experience that includes financials, ownership structures, credit scores, sector research, interactive scorecards, and peer analysis. This is a great example of content integration to serve new customers and new use cases. Additionally, we're constantly investing in our data estate, which includes Orbis, one of the world's largest databases on companies. We've expanded our partnership with BitSight by integrating their cyber data and scores for about 250,000 entities into Orbis, enabling our customers to better understand cyber risk. We also have several exciting product launches across Decision Solutions. In banking, we launched a new module in CreditLens that integrates a bank's loan-level data with Moody's content. This portfolio module provides a dynamic view of a bank's loan portfolio by monitoring and measuring performance and providing early warning signals. We're integrating RMS's physical and transition risk models with our proprietary ESG and climate data into various banking solutions, empowering our customers to make better, more informed decisions around lending, portfolio management, stress testing, and regulatory reporting. These are some of the original synergies we envisioned with the RMS acquisition, and it's great to see this in practice. At a major insurance industry gathering in Europe last month, I came away very excited about what we're doing with the industry. Together with BitSight, we launched the Moody's RMS Cyber Industry Steering Group with major market players, Munich Re and Gallagher. We're also partnering with Lloyd's of London to develop a carbon emissions accounting platform for their ecosystem. In addition to these recent product launches and initiatives, we're continuing to leverage GenAI across our organization. Our colleagues are actively innovating and driving change. In fact, over 70% of our people have used our in-house CoPilot tool for tasks like coding, preparing reports, or improving internal processes. This adoption reinforces our early-mover advantage as we're benefitting from an internal feedback loop, allowing us to share learnings from our own GenAI journey with our customers. We've been engaging extensively with customers around our GenAI strategy, including the relevance of our curated and proprietary data and research and our approach to data integrity and security. Since July, we've demoed our Research Assistant with numerous customers, and nearly every one of them believes that this product will have meaningful benefits for both their productivity and insight. We're revving up the work we've been doing as part of our partnership with Microsoft and leveraging their secure Azure OpenAI Service. We're building new functionality and content sets and entitlement capabilities into Research Assistant while also expanding the ways we use Microsoft Teams for internal collaboration. Importantly, we're seeking to expand our joint go-to-market opportunities, broadening the appeal of this partnership to new customers and market segments. This includes creating Teams plug-ins that will be available to Microsoft's 300 million monthly users and infusing Moody's content into their Dynamics and Power Platforms to enable CRM and workflow integrations. Additionally, we're exploring migrating our content sets to Microsoft Fabric to enhance content delivery and insights to our shared customers. Taken together, we are very energized by the progress we've made and excited about the opportunities that lie ahead. In addition to Microsoft, we're working closely with other leading cloud and software players, leveraging our respective strengths to deliver new and innovative GenAI solutions. Partnerships can take many forms, including joint product development, go-to-market activities, or direct commercial opportunities. A good example is our recent announcement with Google, where we will explore creating LLMs and AI applications specifically to help financial professionals perform faster and deeper analyses of financial reports and disclosures. We're excited to be at the cutting edge of GenAI innovation with leading partners. Recently, we've spotlighted one of the three cloud-based SaaS businesses within Decision Solutions. I want to cap off that series with KYC, which is relevant to our entire customer base. An important objective for many of our customers is to understand who they are doing business with, whether it’s making a loan, underwriting an insurance policy, onboarding a customer, or monitoring a supplier. Over the years, we've added capabilities to build a business that is generating over $300 million in ARR and growing at 18%. The acquisitions of BvD and RDC are foundational elements of our KYC solutions and have both outperformed their original acquisition targets. Several thematic drivers have contributed to the KYC business growth, including the digitization and automation of compliance processes, the growth in online transactions and payments, and the increasing regulatory requirements. This combines with the need for better analytics and insights not just about customers but about all business associates. By combining our proprietary data on companies and people with analytics through a modern cloud-based SaaS platform, we are delivering compelling solutions for our customers. Our KYC solutions provide varied access through data feeds, APIs into customers’ in-house systems, and full end-to-end workflow that incorporates both proprietary and third-party data supporting customer acquisition onboarding, screening, monitoring, and third-party risk management processes. We acquired PassFort Pack in 2021 to enable this transition from being a data provider to a full-service provider in the space, a combination that’s increasingly recognized across the industry. We're seeing notable growth beyond the financial sector, and we are investing to enhance our offerings’ relevance in the corporate and government spaces. This includes the recent launch of Sanctions360, allowing customers to comply with regulatory requirements regarding their customers, counterparties, and suppliers by understanding the implications of sanctions. Building solutions that reach a broad set of customers is a key aspect of our land-and-expand strategy. Notably, about 25% of MA's new customer ARR growth in the last year came from KYC, fostering opportunities to cross-sell from within other parts of MA. Likewise, our existing customer base presents significant potential for future growth, as only about 20% of MA customers—approximately 3,000—currently utilize one of our KYC solutions, leaving plenty of room for cross-selling to the remaining 13,000 customers. Transitioning to MIS, in the third quarter, issuance was consistent with normal seasonal patterns, though activity was relatively subdued in July and August, with stronger volumes in September. Growth was bolstered by leveraged finance following the strongest leveraged loan volume since the first quarter of 2022. Although global issuance rose about 12%, MIS transactional revenue increased 31% year-over-year, alongside 5% growth in recurring revenue, leading to an 18% overall revenue increase in MIS for the quarter. Heading into the fourth quarter, general market sentiment appears fragile, prompting an updated guidance expectation of modestly lower issuance volumes, particularly in investment-grade and structured finance, compared to earlier estimates made in July. Ongoing geopolitical turmoil and macroeconomic concerns surrounding a prolonged high-rate environment will continue to generate volatility and uncertainty regarding yields and spreads, notably impacting opportunistic investment-grade issuers. Consequently, our outlook for investment-grade issuance has been revised to approximately 25% growth for the full year 2023. We further anticipate a decline in structured finance issuance by around 25% year-over-year. Consequently, we now project overall issuance growth for the year to be in the low to mid-single-digit range, with MIS experiencing mid- to high single-digit growth. While headwinds to issuance growth are anticipated in the short term, increasing refinancing walls remain a key element supporting medium-term growth. Our annual refinancing study, which was recently published, forecasts nonfinancial corporate maturities in both the U.S. and EMEA to approach approximately $4.4 trillion over the next four years—10% higher than last year's figure. Notably, expected maturity walls in the U.S. are projected to increase by about 21% compared to last year's research, with leveraged finance as the primary contributor, growing by approximately 27%. Such forward maturities play an important role in supporting future issuance and remain integral to our long-term MIS growth algorithm. Overall corporate debt velocity, which measures total corporate issuance as a percentage of total corporate debt outstanding, remains significantly below historical norms, indicating the potential for pent-up demand for future issuance. I will pause here and open the call for questions. Operator?

Operator, Operator

Our first question comes from Heather Balsky with Bank of America.

Heather Balsky, Analyst

I was hoping you could talk about the refinancing wall that you've just addressed and how you're seeing your customers manage through the higher-for-longer rate environment. Are they delaying refinancing right now? Is more getting pushed into 2024? And when you look at those potential customers who may refinance, are there concerns about some of that debt not being refinanced, putting those companies under some stress?

Rob Fauber, President and CEO

Heather, yes, I'd say that, first of all, just in terms of how our customers are thinking about financing and tapping the market, and you've probably heard me say this in the past, volatility is really the biggest challenge for a CFO or a Treasurer. At the end of September, we saw a little bit of that with the jobs print and questions about rates and how much higher for how much longer. Certainly, geopolitical events can also erode confidence. I don't think we are in a risk-off mode at the moment. I would say there is some caution, but I don't think we are in a risk-off mode. In fact, where we see the most leveraged issuers, which is bank loans, is where we're actually seeing some issuance at the moment. So that's good. When I think about the maturity walls, Heather, it's interesting. Overall, they're up about 10% between the U.S. and Europe. If I focus on investment-grade maturities, they're also up around 12%. One interesting thing here is that the share of U.S. investment-grade maturities within the first 3 years of that 5-year study has increased, up to the low 60s percent from the kind of high 50s last year. I think this implies that companies have opted for shorter financing tenors due to higher rates dissuading some refinancing. Do I think some issuers may opt not to refinance? For many, that will be difficult. Although there may be select companies with enough cash to do so, I don't foresee that being a widespread trend.

Operator, Operator

We'll take our next question from Faiza Alwy with Deutsche Bank.

Faiza Alwy, Analyst

Rob, I wanted to stick with issuance and ask you if you've evolved your view in terms of what normal issuance might look like in the current higher-for-longer rate environment.

Rob Fauber, President and CEO

Yes, as I said, a couple of things lead us to believe that there is some pent-up demand. I mentioned corporate debt velocity, which is at a decade-plus low and continues to be this year. That suggests further opportunity for issuance. I talked about the refinancing walls, which look promising in the medium term. Typically, M&A serves as a catalyst for issuance, and it's been a spotty year for M&A—about what we expected. However, private equity firms hold a tremendous amount of dry powder, approximately $2 trillion to invest. M&A issues probably won’t be a story until 2024, at which point we could see a shift in issuance trajectories.

Operator, Operator

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

Alexander Kramm, Analyst

Just staying on the ratings side for a minute, can you talk about how your commercial interactions have changed at all with issuers in this environment? I guess, what are you doing to drive new issuers? Anecdotally, I've heard that some companies in Europe, due to the higher interest rate environment, are considering ratings for the first time. I’m wondering what you're seeing that feeds into continuing to feed the business outside of the macro environment.

Rob Fauber, President and CEO

Yes, Alex, I would say two things. We have really active engagement with issuers on both sides of the ratings business. First, as you'd expect, we have very active engagement with the analysts, especially when there's economic uncertainty and lots of questions from investors. This makes the experience of having experienced analysts crucial. They effectively communicate with issuers, understand their credit stories, and relay them to investors—essential to our value proposition. Secondly, we’ve broadened our product suite to engage not just public issuers but also private companies considering a rating. We developed something called a Private Monitored Rating to establish analytical relationships on a private basis, enabling companies to understand their credit profiles before opting for public ratings to tap into markets.

Alexander Kramm, Analyst

But not seeing any change there, given the higher rate environment?

Rob Fauber, President and CEO

No, I mean, in fairness, the first-time mandates are down from the highs of 2020-2021, but we're still looking at something in the range of 500 FTMs for this year. We've seen a slight uptick in that last quarter.

Operator, Operator

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

Andrew Nicholas, Analyst

I wanted to ask more about the monetization plans for Research Assistant. I think you mentioned it would be an add-on cost. Can you provide any additional color in terms of the potential opportunity? Of the 150+ customers who previewed the tool, what is the expectation regarding uptake?

Rob Fauber, President and CEO

Yes, these are great questions. I expect that many of our users will get some basic functionality while others will opt for full functionality. We envision this as an add-on, and we're preparing for the annual renewal cycle, which will give us a clearer picture of uptake. Our goal is to expose those customers to different content sets they may not already access. For instance, if a customer of CreditView wants to understand the impact of extreme weather on credit profiles, we'll provide that. Access to new content sets will be key to monetization.

Operator, Operator

We'll take our next question from Toni Kaplan with Morgan Stanley.

Toni Kaplan, Analyst

Given that we're in late October now, this is usually the call where you give some color on how you're thinking about '24 issuance. Rob, can you give us your initial thoughts?

Rob Fauber, President and CEO

Thanks, Toni. I'm happy to do that. I'll share what's on our minds. We expect some further economic deceleration in the U.S., Europe, and China, but there is a reasonable probability of achieving a soft landing and avoiding a recession. Inflation has moderated, but uncertainty over rates persists. Generally, the market is concluding that we've peaked in rates, though inflation prints and job reports can present headline risks. We expect default rates to modestly increase in 2024 but only slightly above long-term averages. This should maintain well-behaved spreads, which are correlated to default rates. M&A is likely more of a 2024 story. We’ll have a better understanding of that as we enter the new year, but we see sound structural support.

Operator, Operator

We'll take our next question from Scott Wurtzel with Wolfe Research.

Scott Wurtzel, Analyst

Could you go over any specific products, verticals, or solutions that drove strength in R&I and D&I?

Rob Fauber, President and CEO

Thanks, Scott. We continue to see strong demand and utilization, which is essential for value capture. We recently expanded our coverage within CreditView, integrating it with Orbis, our company database, and credit score. Demand is strong for economic data and forecasting during uncertain times. There's also increased interest from the government sector, contributing to growth in that segment.

Operator, Operator

We'll take our next question from Craig Huber with Huber Research Partners.

Craig Huber, Analyst

What are your updated thoughts on the private credit market, and how significant do you think it could be for your ratings business? Is there a potential headwind to ratings growth if a lot of the issuance remains unrated? Also, what's your incentive comp for the first three quarters?

Rob Fauber, President and CEO

Yes, I'm going to let Caroline answer that second part. But first, regarding the private credit question, we've seen an increasing trend where companies opt for private credit over public markets, which could present a headwind. However, I am increasingly positive about the opportunity for Moody's in this market due to rising demand for credit assessments. We're actively engaging with private equity firms, alternative asset providers, and their fund investors. We find new ways to serve this sector. Now, Caroline, could you take the compensation question?

Caroline Sullivan, Interim CFO

Sure. We expect our incentive comp to be between $370 million and $390 million for the year, with approximately $90 million for the fourth quarter. For Q1, it was $89 million; for Q2, approximately $100 million; and for Q3, approximately $100 million.

Operator, Operator

We'll take our next question from Owen Lau with Oppenheimer.

Owen Lau, Analyst

Going back to MA, the margin was strong at 33.6%. I know you maintained the margin guidance for MA. Given that you've been investing in GenAI, how should we think about the sustainability of your margin?

Rob Fauber, President and CEO

Owen, great question. I would caution against getting too focused on the margin in any single quarter. We have some seasonal spending patterns in MA that can impact margins quarterly. We are disciplined about reprioritizing resources across the business to support the highest opportunities. While we've invested in GenAI, we are committed to growth, even as costs might increase around computing capacity and capabilities. We want to ensure we capture customer relationships by investing in products and sales distribution. Meaningful scale will lead to margin growth over time.

Operator, Operator

We'll take our next question from Seth Weber with Wells Fargo.

Seth Weber, Analyst

Can you just discuss the trend line for KYC in terms of wallet share? Are they typically new wins, existing customers, or conquest opportunities?

Rob Fauber, President and CEO

Yes, it's a great question. Historically, our KYC customer base began with financial institutions, primarily banks, which then expanded as corporates started complying with various sanctions. The push to better understand who they're doing business with has fueled demand for foundational master data and analytics. We see further growth in the corporate and government sector as we engage more with our customers about their data needs and analytics to optimize business operations.

Operator, Operator

Our next question comes from George Tong with Goldman Sachs.

George Tong, Analyst

On Slide 10, you've trimmed your issuance guidance from mid-single-digit growth to low to mid-single-digit growth. Could you elaborate on how your updated issuance outlook reflects refinancing needs versus discretionary factors influenced by the macro environment? And does the refinancing pipeline, particularly in high yield, indicate how quickly issuance might expand next year?

Rob Fauber, President and CEO

George, I'll provide some insight into our fourth-quarter assumptions regarding issuance and revenue. Overall, we anticipate a low to mid-single-digit decline in sequential issuance growth for Q4 versus Q3 of 2023, leading to high-teen growth year-over-year. Corporate issuance is expected to grow mid-single digits quarter-over-quarter, translating to similar mid-single-digit revenue growth in corporates. For other ratings lines, we anticipate flat revenue growth versus Q3. Thus, the overall MIS revenue growth for Q4 will be in the low-single-digit range relative to Q3. Our key assumption revolves around corporate issuance growth in Q4, which we expect to be mid-single digit. While there’s more downside than upside currently, we’ll see as the quarter unfolds.

Operator, Operator

We'll take our next question from Ashish Sabadra with RBC Capital Markets.

Ashish Sabadra, Analyst

Any disclosures on revenue or growth within your ESG climate businesses at Moody's Analytics? Is it still primarily RMS, or are there cross-sell opportunities?

Rob Fauber, President and CEO

I’ll flip that over to Caroline first.

Caroline Sullivan, Interim CFO

Sure. We expect $150 million of RMS-related incremental run rate revenue by 2025, and for 2023, we anticipate about $200 million in annual revenues from climate and ESG, growing at a double-digit pace. Continued high demand for climate-related information from our customers is driving this growth.

Rob Fauber, President and CEO

Yes, and I would just add that the majority of what we've discussed pertains to RMS. Beyond that, we have ESG scores and a sustainable finance franchise producing second-party opinions on labeled bond issuances. Healthy demand for our climate and ESG offerings is bolstered by integrating RMS transition and physical risk data into banking solutions, further promoting revenue growth.

Operator, Operator

We'll take our next question from Andrew Steinerman with JPMorgan.

Andrew Steinerman, Analyst

What RMS growth did you see in Q3? How much of RMS revenue is now coming from outside core P&C insurers? Are the products different when providing RMS data to banks versus insurers?

Rob Fauber, President and CEO

We don’t disclose RMS growth on a quarterly basis, but we are still on track to grow RMS revenue, including synergies, in the high-single-digit range for 2023. Core RMS growth is picking up. While there are cases where we capture synergy revenue, some of that may not register in the insurance segment. To clarify, we work to take RMS climate data and deliver it differently for banks. We've created a product called Climate on Demand that offers average annual loss estimates at 10-meter resolution. Banks may underwrite loans secured by commercial real estate and want insights over longer periods, thus requiring different data delivery methods to meet their needs.

Operator, Operator

We'll take our next question from Russell Quelch with Redburn Atlantic.

Russell Quelch, Analyst

I noticed there was a minor uptick in your expected restructuring charge for ’23. What's driving that, and is there room for further restructuring in ’24 if the economic environment doesn't pan out as expected?

Rob Fauber, President and CEO

Russell, I'm going to hand that over to Caroline.

Caroline Sullivan, Interim CFO

We expect our restructuring program to be substantially complete by the end of the year. We're forecasting up to $205 million in charges—roughly $100 million-$110 million in MA and $90 million-$95 million in MIS. The charges relate to real estate rationalization and workforce optimization. We anticipate $20 million-40 million in restructuring charges over Q4, primarily from real estate. We currently don't plan to extend restructuring into 2024.

Rob Fauber, President and CEO

I’d add, back when we announced this, I received questions about why we were proceeding with restructuring. That feedback has noticeably shifted; we took decisive actions after a thorough review, and our priorities have continued over the year. Although we won't pursue further restructuring, we'll continue processing resource allocation.

Operator, Operator

We'll take our next question from Shlomo Rosenbaum with Stifel.

Shlomo Rosenbaum, Analyst

I have an operational question for you, Rob. Observing the operating profit spike in MA from Q2 to Q3, could you provide details on what contributed to this increase? Was it exiting numerous leases, or what specific factors might have caused this?

Rob Fauber, President and CEO

Thanks, Shlomo. I would reiterate a health warning: I don't want to get overly fixated on any one quarter. It was a good margin quarter, but we still have seasonal expenses in MA impacting quarterly margins. As the year ends, numerous ongoing projects aim to finish by year-end, contributing to selling activity. Increased investment and interventions regarding our GenAI initiative were meant to support this repositioning.

Operator, Operator

Our next question comes from Jeff Meuler with Baird.

Jeffrey Meuler, Analyst

I have a long-term question on corporate debt velocity. After a period of material interest rate increases, does corporate debt velocity tend to remain low, or is that correlation absent?

Rob Fauber, President and CEO

This question stumped me a bit. We do have the data but not at hand. However, we've analyzed issuance during periods of higher interest rates, where challenges arise mostly during transitions. Rates usually associate with healthy economic growth, ultimately supporting issuance levels. Looking across decades, the difference in market sizes complicates comparison. We could explore the topic further.

Operator, Operator

Our next question comes from Ryan Griffin with BMO Capital Markets.

Ryan Griffin, Analyst

I had a clarifying question about the quarterly changes in rated investment-grade issuance volumes and revenues on Page 5 of the release. Issuance was up 6%, but revenue fell 6%. Can you explain this disparity?

Rob Fauber, President and CEO

That was a mix issue. We typically differentiate between frequent issuers on issuer programs and less frequent opportunistic issuers. This quarter leaned towards more frequent issuers, which makes sense in a rising rate environment; opportunistic investment-grade issuers remain on the sidelines, which was the crux of the issue, not pricing.

Operator, Operator

We'll take Craig Huber's question with Huber Research Partners.

Craig Huber, Analyst

Could you quantify what pricing is doing this year for your two main segments? How should we think about that for '23?

Rob Fauber, President and CEO

Pricing is steady and around 3% to 4% this year, contingent upon issuance mix. We don’t apply a blanket price increase across the issuer community; our pricing strategy accounts for regions, asset classes, value, and surveillance costs. The average price increase of 3% to 4% holds true, as we expect that to continue next year.

Operator, Operator

There are no further questions at this time. I'd like to turn the call back over to Rob Fauber for any additional or closing comments.

Rob Fauber, President and CEO

I appreciate everyone joining the call. We look forward to connecting in February. Thank you, and goodbye.

Operator, Operator

This concludes Moody's Third Quarter 2023 Earnings Call. 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 Moody's IR website. Thank you.