Mark Kaye
Chief Financial Officer at Moody's
Thank you, Rob. In the first quarter, MIS revenue declined 20% from last year's record level as geopolitical concerns, rising yields and elevated economic uncertainty contributed to a 25% decrease in rated issuance.
Corporate finance, financial institutions and public project infrastructure revenue declined 31%, 19% and 14%, respectively, with many issuers remaining on the sidelines due to unfavorable market conditions and existing levels of balance sheet liquidity.
Structured finance revenue increased 24%, supported by 10% growth in issuance, primarily from commercial and residential mortgage-backed securities, offset by a decline in CLO refinancing activity.
MIS' adjusted operating margin was 58.6%. Revenue was adversely impacted by the noted absence of opportunistic issuance in the quarter, while operating expenses, excluding those related to the Russia-Ukraine conflict remained relatively flat.
Moving to MA. First quarter revenue grew 23%, delivering the fifth consecutive quarter of double-digit growth. Excluding the impact of recent acquisitions, revenue and recurring revenue were up 9% and 11%, respectively.
In Decision Solutions, revenue increased 48% or 14% on an organic basis. This is driven by robust demand for KYC banking, as well as Insurance and Asset Management Solutions. Research and Insights revenue rose 7%, reflecting strong demand for our credit research analytics and models, underpinned by a 97% customer retention rate. For Data and Information, revenue grew 6%, driven by new sales of the company's data and ratings fees.
MA's adjusted operating margin expanded by approximately 350 basis points from incremental operating leverage net of ongoing organic investments. This is offset by approximately 430 basis points of margin contraction due to acquisitions completed within the last 12 months.
Over the past few years, we have successfully transitioned the MA business to a predominantly subscription-based model, with strong recurring revenue, which now accounts for 94% of total MA revenue. This quarter, we are pleased to introduce a new forward-looking performance metric for our MA business, annualized recurring revenue or ARR, is the annualized run rate of recurring revenue for active contracts at a point in time. Renewable contracts include subscriptions, term licenses and software maintenance. The ARR metric provides insight into the trajectory of MA's recurring revenue, with visibility specifically into the growth of the subscription business from both our acquisition of new customers and expansion of existing relationships. As of March 31, 2020, MA's ARR of $2.6 billion reflected 25% growth from the prior year period or 9% on an organic basis. In addition, we are guiding to low double-digit organic ARR growth for year-end '22, reflecting our expectation for accelerated renewable sales through the remainder of the year.
Turning now to our revised guidance. Moody's updated outlook for full year 2022 as of May 2nd reflects assumptions about numerous factors. These include, but are not limited to, the effective interest rates, inflation, foreign currency exchange rates, capital market liquidity and activity in different sectors of the debt markets. The articles reflect assumptions about general economic conditions, global GDP growth, the scale and duration of the crisis in Ukraine, and the impact of COVID-19 as well as the company's own operations and personnel.
Our updated full year 2022 guidance incorporates the following specific macroeconomic assumptions, the 2022 U.S. and euro area GDP to expand by approximately 3.5% to 4.5% and 2.5% to 3.5%, respectively, and global benchmark rates to increase from historic lows with U.S. high yield spreads moving slightly above the historic average of approximately 500 basis points and inflation rates to remain elevated and above Central Bank targets in many countries.
By year-end, the U.S. unemployment rate is expected to remain low at approximately 3.5% and the global high yield default rate will initially decline before gradually rising to approximately 2.7%.. Our guidance also assumes foreign currency translation and for the remainder of 2022 reflects exchange rates for the British pound of $1.32 and $1.11 for the euro.
We are updating our full year 2022 guidance across several metrics to reflect both first quarter results and our revised expectation for the remainder of the year. We now forecast Moody's revenue to remain approximately flat to the prior year and for operating expenses increase in high single-digit percent range, down from our prior guidance as we prudently manage and prioritize investment activity through the cycle. Consequently, we now project Moody's adjusted operating margin to be approximately 47% and have lowered the diluted and adjusted diluted EPS guidance ranges to USD9.85 to USD10.35 and USD10.75 to USD11.25, respectively.
We decreased our free cash flow forecast to be between USD1.8 billion and USD2.0 billion and maintain our expectation for full year share repurchases of at least $1.5 billion, subject to available cash, market conditions, M&A opportunities and other ongoing capital allocation decisions. Please refer to Table 13 of our earnings release for a full list of our guidance.
Turning now to our issuance outlook, which we have updated in light of market disruptions in the first quarter and the expectation that opportunistic activity will likely remain constrained heading into the second quarter of the year. We forecast global rated issuance to decline in the mid-teens percent range and investment-grade activity to decrease by approximately 10%.
Leveraged finance issuance has been acutely impacted by market uncertainty with over 20 days of no high yield activity during the quarter. We now project full year 2022 high yield and leverage loan issuance to decline by approximately 40% and 30%, respectively. Similarly, we forecast a 10% decrease in financial institutions activity and a 5% decline in public project and infrastructure finance activity.
In structured finance, we expect wider spreads and a weaker future leverage loan supply to impact the financing and creation of new CLOs for the balance of the year. We are, therefore, revising our outlook for structured finance issuance to decline by approximately 10%.
And finally, we are reducing our full year guidance for new mandates to a range of 850 to 950 despite a strong new mandate result of almost 240 in the first quarter.
Due to our revised rated issuance outlook, we now forecast MIS revenue to decrease in the low double-digit percent range. We have proportionately lowered MIS' adjusted operating margin guidance to approximately 59%. This outlook remains above the pre-pandemic levels of 2018 and 2019, reflecting prudent spending on strategic investments and employee recognition, carefully balanced with ongoing cost efficiency initiatives.
For MA, we are reaffirming our guidance for high-teens revenue growth supported by tailwinds from recent acquisitions, strong customer retention rates and ARR outlook, as well as robust demand for our subscription based products as we successfully execute on our integrated risk assessment strategy. We are maintaining MA's adjusted operating margin guidance of approximately 29%, as we organically invest in the business to further accelerate topline growth.
I would like to provide additional insight into our disciplined approach to expense allocation and management, which we believe is critically important to ensure long-term sustainable growth as we move through the current short-term cyclical volatility impacting the MIS business.
In the first quarter, operating expenses rose 16% over the prior year period. Approximately 13 percentage points of this growth were attributable to operational and integration related costs associated with acquisitions completed in the prior 12 months. Operating growth, including organic investments and annual compensation increases, net of ongoing efficiency initiatives, contributed approximately 6 percentage points. Lower incentive compensation accruals and a strengthening U.S. dollar offset expense growth by approximately 1% and 2 percentage points, respectively.
For the full year, we expect expense growth to be more than $100 million lower than our previous forecast, an increase now in the high single-digit percent range. This includes approximately 9 percentage points of growth attributable to acquisitions completed within the last 12 months.
We remain committed to invest an incremental $50 million and $150 million in 2022 to attract and retain world-class talent, as well as to enhance our product capabilities and expand distribution to capture these new opportunities, respectively. We anticipate that these investments will be partially offset through our ongoing cost efficiency programs and lower incentive compensation accruals.
Last, we strongly believe that the market volatility in the first half of the year is cyclical in nature and that the business fundamentals of both MIS and MA remain firmly intact. Therefore, it is especially important that we prudently manage our expenses and continue investing through the cycle in order to realize our medium-term growth prospects.
Before turning the call back over to Rob, I would like to highlight a few key takeaways. First, despite the challenging market environment, we delivered over $1.5 billion in revenue and an adjusted diluted EPS result of $2.89. Second, while short-term volatility and market cyclicality are affecting issuance levels, our business fundamentals remain strong. Third, MA's robust recurring revenue growth and high customer retention rates reflect the strong demand for our integrated risk assessment solutions and provide balance to Moody's overall results. Fourth, our new ARR metric provides further insight into our momentum towards achieving our medium-term targets. And finally, we remain focused on investing through the cycle to build market leading products and capabilities in key strategic growth areas and balancing disciplined expense management with the return of stockholder capital.
And with that, let me turn the call back over to Rob.
