Robert Fauber
President and Chief Executive Officer at Moody's
Thanks, Shivani, and good afternoon, and thanks to everybody for joining today's call. As we typically do, I'm going to touch on a few takeaways from our first quarter results and provide some insights into what's supporting our growth outlook. And this quarter, I'm also going to drill down a little bit on our Decision Solutions line of business in MA, as that's a very important growth area for us. And then, of course, Mark and I will be happy to take your questions.
So, while the first quarter experienced some market turbulence from the stress in the U.S. banking sector, and as is frequently the case, this heightened market uncertainty drove some strong demand for both our insights and our risk assessment offerings, and we saw some very strong upticks in usage this quarter. We're also continuing to unlock the potential of MA and its great assets and businesses, and those include one of the world's premier credit and economics research businesses, a Data and Information business that includes one of the world's largest databases on companies, and our award-winning Decision Solution businesses serving KYC, banking, and insurance workflows. And together, MA delivered 10% ARR growth as we continue to enhance and extend our mission-critical data, analytics, and workflow solutions.
Now, while MIS revenue declined 11% from a pretty robust first quarter of 2022, as we talked about on prior earnings calls, the anticipated rate of revenue decline did indeed moderate from what we experienced in the third and fourth quarters of last year, as MIS really capitalized on strong investment-grade issuance in the first quarter. Improvement in issuance activity combined with our decisive expense actions that we took last quarter, together, enabled us to deliver more operating leverage as reflected by the meaningful increase in MIS's operating margin to almost 57%. And notably, the adjusted operating margin for the first quarter is up about 500 basis points over the margin for full-year 2022. At the same time, we're maintaining financial flexibility while funding strategic investments in things like product development, sales and go-to-market initiatives, modern cloud-based workflow platforms, data interoperability and accessibility, and AI innovation, all to position us for the future.
So now, let me move on to some of the results. And there are a few key things I want to highlight amongst the performance numbers that you see on the screen. First, MA revenue grew 6% or 9% on a constant-currency basis. ARR grew 10% and we had solid growth across the board in Data and Information, Research and Insights and Decision Solutions. I'm going to touch on that in a little bit more detail in a few minutes.
And as I mentioned just a couple minutes ago, MIS revenue was down versus a challenging Q1 2022 comparable before issuance volumes really decelerated through the balance of last year. And corporate finance accounted for most of the decline this quarter, particularly in bank loans, and that was followed by structured finance as we saw some deals delayed amidst the market volatility in the quarter.
So, despite overall revenues down 3% in the quarter, our overall adjusted operating margin was 44.6%, and that was up approximately 200 basis points versus our full-year 2022 margin, again, reflecting the benefit of those cost efficiency initiatives. And adjusted diluted earnings per share was $2.99 and that includes $0.75 of aggregate benefits from the resolution of several outstanding tax matters.
So, I mentioned earlier the upticks in usage that we experienced across several products in the first quarter. And on the screen, I think, you can get a sense for that. During the recent stress in the banking sector, traffic to our flagship website, moodys.com, was up approximately 20% from the prior year period, and that's important for a few reasons. First, as you've heard me say before, we've got the most experienced analytical teams in the industry and that is why we have been recognized as the best credit rating agency by Institutional Investor magazine 11 times in a row. And that experience allows us to be the industry's thought leader, which is even more important in times of stress and uncertainty like we experienced in the first quarter. And that thought leadership also drives increased demand for our insights, for our research, and for access to our analysts. And together, that all supports our value proposition and our growth opportunity for both ratings and research.
Now, demand for our solutions during times of stress and uncertainty goes beyond ratings and research, and you can see it across a range of MA offerings. And during the peak period of banking stress last month, usage of our cloud-based Asset, Liability Management solution, which enables banks to model and manage their maturity interest rate and liquidity risk, rose nearly 50%. And with -- as we were witnessing unprecedented deposit flows moving across banks, the use of our screening and risk monitoring KYC solutions grew by almost 30%.
We've also more than doubled the number of in-person customer sales meetings over the last year and that's been supported by investments to expand the size of our sales team by almost 20% since the beginning of 2022 and you've heard us talk about that on these calls. And together, the increased usage and the sales engagement give us confidence in our full-year low-double-digit ARR growth outlook for MA.
Now, this past quarter, MA delivered 10% ARR growth, which as I mentioned, was consistent and strong across all lines of business. I'll start with Data and Information. That includes Orbis, one of the world's largest databases on companies, plus our ratings and news feeds and 300 million ESG scores, that grew ARR at almost -- at around 9%. And in addition to the very strong standalone demand for private company data in Orbis, it's the integration of this data across MA's offerings that's helping to drive growth in other lines of business. And this includes the integration of Orbis company data into our CreditLens lending solution for banks and the integration of our ESG scores into insurance and banking underwriting and portfolio solutions.
Now, moving to Research and Insights, which includes our leading credit and economic research business and a growing suite of predictive analytics, also grew ARR by 9% this quarter. And we're seeing some strong and sustained demand for our economic data, research and models, particularly amidst the stress in and, I guess, I would say, around the banking sector. And this includes our new EDF-X platform, which combines our award-winning risk models with Orbis to analyze credit risk for any company in the world. And we recently completed the integration of EDF-X alongside CreditView into the moodys.com gateway, which provides direct access to a growing suite of Moody's products and enhances our customers' experience, and enables further cross-selling opportunities.
And finally, Decision Solutions, which includes our businesses serving KYC, insurance, and banking workflows, grew ARR by 11%, and given this is our fastest growing segment, I want to provide just a little bit more visibility into these offerings, and what is driving growth. And these are really three great businesses because they support mission-critical workflows across financial institutions. And the virtuous cycle of data network effects, and the high switching costs, translate into industry-leading retention rates, which are typically in the low to mid-90s.
And we've discussed our KYC business on earnings calls before. This business supports customer onboarding, perpetual KYC monitoring, and sanction screening on customers, suppliers, and other third parties. And the strong growth in this area has been driven by our ability to cover really all aspects of KYC and anti-money laundering activity, bringing together our vast datasets on companies and people, plus AI-enabled risk intelligence, and cloud-based workflow orchestration that's delivered through our new PassFort Lifecycle platform.
So, moving on to insurance, the addition of RMS has now given us a considerable business serving underwriting, risk and capital management, and regulatory reporting workflows at insurers and reinsurers. And like banks, insurance companies are moving towards greater automation and digitization, as well as the integration of more third-party data and analytics to enhance their risk management processes. And the RMS Intelligent Risk Platform is really a cutting-edge, cloud-based platform, that supports a growing range of workflow, and data and modeling capabilities for insurers.
And the latest product launched from this platform is our new Climate on Demand solution. That integrates RMS's climate and physical risk models with our extensive Orbis and commercial property datasets, to provide a sophisticated on-demand financial quantification of physical risk, that enables a holistic view into a company's exposure to extreme weather events, and climate change, through its customers, suppliers, and properties. And not only will this be useful for insurance underwriting, but we're seeing robust demand for this beyond the insurance sector, including with banks, corporates, governmental entities, and professional services, as we expected when we announced the deal almost two years ago.
So, third is our business-serving banking workflows, which are quite similar actually to those served in insurance. They include lending, risk management incorporating credit, portfolio, and asset liability management risk, and finance and planning, which includes things like impairment accounting, and regulatory capital reporting. And our most significant recent product launch in this space, and one that is contributing to our double-digit ARR growth in banking, was CreditLens for commercial real estate, which you've heard me talk about on prior calls, and that integrates our market forecast, our commercial property data with our SaaS lending solution CreditLens, and it really significantly extends our ability to serve the commercial real estate lending market.
And stepping back, what sets our offerings apart from many of our competitors is that, it's not simply software, but instead, we deliver integration of our proprietary data and analytics through modern cloud-based architecture, and this is further enabled by the use of sophisticated machine learning, and artificial intelligence across many of our solutions, including our automated financial spreading platform and our KYC AI Review, which helps customers be even more effective and more efficient. And it's that combination of data, analytics, cloud-based tech, and innovation that powered us to the Number 1 ranking in Chartis RiskTech100 back in November.
So, let me talk just briefly about how this translates to a typical customer relationship, and in this case, it's a Top 50 regional bank in the United States. And as I mentioned, our workflow solutions combining data analytics, and cloud-based software help banks really throughout their value chain, interconnecting what are often siloed use cases across departments, from lending to risk management, to finance, and planning. And it's common for us to start by serving one of those use cases, and then to expand the relationship over time, as the bank looks to connect its various functions, leveraging our interconnected data, models, and solutions.
So, our relationship with this particular customer started back in 2019 when they began to use our models, and that includes the EDF model that I just talked about, as foundational capabilities to really create a common language of risk in the institution. And in this case, they deployed our models to support a new internal risk rating program, that enabled quantitative, unbiased, and consistent internal practices for credit assessment across the bank. And over the next two years, we deepened that relationship by providing the bank with a workflow solution that leveraged these models, and combined economic data and business analytics models, with our ImpairmentStudio software to upgrade their current expected credit loss, or you've heard us say CECL on these calls, to upgrade those processes.
And in 2022, again, leveraging some of the same data and analytics capabilities, we broadened the relationship further to support their lending needs, through a combination of our AI-enabled spreading tool, and our CreditLens loan origination software that includes credit score. So, we did the same to support their forecasting and stress testing needs, bringing together another five Moody's products and drawing on some of the data analytics the bank was using elsewhere. And this resulted in expanded licensing of several existing products, but also subscriptions for new products. And in just three years, we've -- three, four years we've grown the ARR from this relationship fivefold.
And as you can see on the far right, this ARR then shows up in different MA lines of businesses, with 65% in Decision Solutions, and 35% in Research and Insights, but really all for the same customer for a set of lending, risk and capital management, and finance and planning use cases. And there's still further potential, and we're in active discussions with this bank about supporting their KYC needs. So, this is really just one of really hundreds of instances of how we've expanded relationships with our banking customers in recent years, and accelerated growth by offering comprehensive solutions that leverage capabilities across all three MA lines of business, and really more broadly across all of Moody's. And that is our integrated risk strategy at work. That is what makes our solutions so valuable and so sticky.
So, let me move to MIS for a moment. Issuance was stronger in the first quarter of 2023, compared with the fourth quarter of 2022, and while volatility and uncertainty constrained the structured and bank loan markets, we did see robust activity in the investment grade sector. And in the first quarter, issuance represented almost 30% of our full-year outlook, which is a pretty typical historical seasonality pattern. And as you can see, growth was higher for investment grade and lower for leveraged finance.
As we said on our last earnings call, we would expect markets to open up with higher quality credits before those further down the credit rating spectrum, such as high yield and bank loan issuers, and that is, in fact, what we saw in the first quarter. If markets continue to improve, we'd expect to see leveraged finance issuance pick up, and the degree to which that happens is going to be based on a number of factors and that includes, macroeconomic risks and policy actions, market sentiment and credit spreads, and economic growth and private equity activity, among other things. So, staying on MIS just for a moment, over the course of the last several months, we've gotten a number of questions about MIS's growth drivers, especially over the longer term. So, Mark and I thought it would be helpful to talk about how we think about the building blocks to MIS revenue growth over the long term. And while the short to medium-term outlook can be impacted by cyclical factors, the long-term growth algorithm, as we like to think of it, for MIS revenue, we believe remains firmly intact.
And first and foremost, debt issuance growth over the longer term is driven by global GDP growth, as issuers invest and grow their businesses, and we expect global GDP growth in the 2% to 3% range over the long term, and that's in line with historical average over several decades. Second, the value proposition for ratings remains firmly intact, particularly for MIS ratings, and that supports an annual pricing opportunity, consistent with the broader opportunity across all of Moody's in the 3% to 4% range.
And third, there are long-term tailwinds from the ongoing development of capital markets around the world, and this includes slow and steady levels of disintermediation in developed markets like Europe, as well as higher rates of growth in smaller capital markets in developing countries. And together, this gives a sense for what we believe is the long-term growth profile of this business. While I acknowledge, over shorter time horizons, the growth rate may be above, below, or within this band, depending on the nature of the headwinds and tailwinds that we're showing at the bottom of the page. So, I hope that gives you a sense of how we're thinking about growth, and how that may triangulate with our medium-term outlook.
And as we look toward the rest of the year, we're confident in the prospects for our business, that's supported by strong demand for our solutions and our expertise, and a robust product development pipeline. So, we're reaffirming the majority of our guidance with select updates to expenses, as well as our diluted and adjusted diluted EPS metrics. GAAP diluted EPS and adjusted diluted EPS are now expected to be between $8.45 and $8.95, and $9.50 and $10.00, respectively.
So, to close, I want to acknowledge that our growth and resilience as a firm, rests on the shoulders of our people across the Company, and I want to thank them for their continued commitment and efforts, and dedication to serving our customers, to supporting each other, and to delivering for our shareholders.
So, this concludes my prepared remarks, and Mark and I would be happy to take your questions. Over to you, operator.
