Good day, everyone. And welcome to the Moody's Corporation Fourth Quarter and Full Year 2023 Earnings Call. At this time, I would like to inform you that this conference is being recorded, and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers following the presentation. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.

Thank you. And good 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 fourth quarter and full year of 2023, as well as our outlook for full year 2024. The earnings press release and a presentation to accompany this teleconference are both available on our Web site at ir.moodys.com. During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for a reconciliation between all adjusted measures referenced during this call in US 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 Web site and on the SEC's Web site. These, together with the safe harbor statements, 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.

Thanks, Shivani. Good morning. And thanks to everybody for joining today's call. We're here from a snowy New York City. I'm going to start with some highlights from 2023 and then discuss our expectations for 2024. And after my prepared remarks, Steve Talinko, who is the President of Moody's Analytics; and Mike West, the President of Moody's Investor Service, will be joining me along with Caroline Sullivan, our Interim CFO for the Q&A portion of the call. And before we get into it, I have some very exciting news. As you may have seen this morning, we announced the appointment of Noemie Heuland as our new Chief Financial Officer, and she's reporting directly to me. And Noemie brings a wealth of knowledge to Moody's after nearly 25 years in senior roles at global public companies, including most recently as CFO of Dayforce, formerly Ceridian, and over a decade with global enterprise application software provider SAP, during which it transitioned to a global software as a service business model. So as CFO, she's going to lead the global finance organization that includes accounting and controllership, financial planning and analysis, financial systems, Investor Relations, strategic sourcing and procurement and tax and treasury. And her firsthand experience in scaling high growth category leading public software companies, along with her extensive global experience, I think, really make her the ideal CFO for Moody's as we invest in and grow our subscription-based analytics businesses and continue to expand our ratings business around the world. So it's an exciting time for Moody's and I look forward to Noemie jumping in beginning April 1st, and of course she's going to be a regular fixture on this call going forward. Before we get into the results, I also want to thank Caroline Sullivan, who is here with me…

[Operator Instructions] Our first question comes from the line of George Tong with Goldman Sachs.

I wanted to ask about your planned incremental strategic investments in GenAI products and platforming. Can you talk a little bit more about the timing of these investments as well as benefits you're expecting and the margin impact for 2024?

Yes, I might start by -- maybe I'll just give you a little more insight into kind of what's in those three main components, and then we'll talk about some of the timing and margin impact. As it relates to GenAI, we've got a generative intelligence team, we've stood up an MCO infrastructure, we've got some incremental engineering costs, we've got additional licenses. I mentioned, GitHub Copilot. We will get the benefit of that, but we had costs upfront. And of course, we have incremental cloud costs and token costs relating to large language models. On the product development side, really, it's about the build-out of our customer and supplier risk offerings for the corporate and public sector and that's data, workflow and go-to-market. And then on technology and platforming, as we talk about building out that MA platform, it's things like engineering around single sign-on and entitlement. So as I said, we can get those benefits faster. Let me turn that over to Caroline and see if you want to just help George around the timing of all of that.

So we anticipate, if you look at both MIS and MA, to deliver -- MIS has delivered an operating margin in 2023 of 54.5%, roughly in line with our target of 55%. And in 2024, we're expecting adjusted operating margin to increase by about 200 basis points. MA's margin is going to remain consistent with what we saw based on 2023. Without that $60 million that we talked about in Rob's comments related to the investments, MA margins would have been on track to increase and expand by 120 basis points.

Your next question comes from the line of Toni Kaplan with Morgan Stanley.

Rob, I wanted to take a step back for a second, and not asking about '24 at all, just in general. Where do you think a normalized level of issuance is? How much upside is there from here to get back to a more normal growth environment, and maybe particularly with rates at maybe at a higher level than they have been in the last couple of years?

So maybe a couple of ways to kind of triangulate around this. I think as far back as 2022, you remember, we had that significant decline in issuance from the pandemic years. On the call, I talked about how total -- when we look at total global issuance, it was modestly below what was a, I'll call it kind of a 10 year average from, at the time it was, I think, 2012 to '22, excluding the two pandemic years. And I think total issuance in 2022 was something like 5% below that average. So it's not a big number. And remember, that was in the context of like a 30% decline in issuance that year. But we drilled down, and I think we made the point that corporate issuance was something like 15% below that long term average excluding the pandemic. And if you actually drilled even further and got into leverage finance, it's even farther. And as you know, corporate issuance, and in particular leveraged finance issuance, is quite favorable to our revenue mix. So it's interesting, Toni. Now as you as you kind of go forward and when you look at where 2023 ended relative to that average, it's roughly in line. Corporate issuance was closer to in line, I'd say, modestly below that long term. And with 2024, actually issuance will be slightly above that long term average, and that holds true for corporate issuance, where obviously, we have a little bit stronger growth expectations. So from that aspect, I think you might say, well, we're getting back to something that feels more like a normalized level of issuance. The caveat to that, I guess, this idea of debt velocity. So over that period of time, there's been an enormous amount of debt issued, right? So the stock of debt has grown significantly. And when we look at annual issuance as a percent of the total stock outstanding, that's what we think of debt velocity. That number still looks a good bit lower than the averages over, call it, the last decade, which would imply that there's still room for issuance growth. And the last thing I'd say is if you look at where structured finance is at the moment, that's significantly below kind of that 10 year average for reasons that we may get into later in the call. Hopefully, that gives you some insight.

Your next question comes from the line of Manav Patnaik with Barclays.

Maybe I could just ask about 2024 in terms of the cadence of issuance you've assumed either the first half or the back half, and then maybe just some color on how we should think about your nontransaction piece of the MIS business, how that should grow, I guess, this year?

Manav, I think I might ask Mike to give us some color around how think about first half, second half, and then I might be able to put kind of a finer point on that.

So first of all, I think we're expecting here issuance in the first half to be stronger than in the second half, and that's a common pattern if you actually look over previous years. Some of that is due to the constructive conditions that we're seeing at the moment with spreads tightening and sentiment improving. And these issuers are trying to lock in the rates that they want before any potential volatility. Some of it is actually seasonality that we see each year given that we do expect a slowdown in the second half through summer, and sometimes it tails off when we get into December. The other important factor when you think about issuance is that some of those more frequent issuers in investment grade in corporate and the banks tend to come earlier in the market to secure their funding and manage their balance sheets. Infrequent issuers, on the other hand, can be opportunistic and will wait for those opportunities and windows that they see fit. Consistent with the comments I've just made is what we've discussed with the market. And just picking up on Rob's comment, structured finance actually tends to be more balanced between the first half and the second half. So while we do expect first half to be busier, we do expect the activity will continue into the second market. So Rob, I don't know if you want to just put a finer point on that one.

And I know people want to have a good sense in forming their models. So last year, as Mike said, issuance was more front end loaded. We had a rising rate environment, something like, I don't know, call it, 56% of 2023 annual issuance was in the first half of the year. And while we do expect a rate decline in the second half year, as Mike said, we still think that issuance will be front end loaded. And our current assumption for issuance is pretty similar to the pattern that we saw in 2023. Now then we got to translate it to MIS revenue, and the impact there is a little bit less pronounced in terms of first half, second half. And I would say that we're expecting just a little over half, maybe low 50s percent of MIS revenue in the first half. And that's a little lower than the issuance mix. Why? Because banks are the ones that tend to issue and do more front end loading of their issuance, and there are different economics for frequent bank issuers. So hopefully, that gives you a sense. One of the things, Manav, I might say, just specifically for the first quarter, I'd say we expect probably close to 30% of annual issuance and probably closer to somewhere between 25% to 30% of MIS annual revenue.

Your next question will come from the line of Faiza Alwy with Deutsche Bank.

So I wanted to ask about MIS margins. I think, Rob, you alluded to some investments, but maybe put a finer point around that, because I would have thought you would have better sort of margin flow through given the revenues that you're expecting. So is it all investments, is there some mix, and just give us a bit more color around those investments?

So just to follow on to what Mike and Rob just said about the phasing of our revenues, because of that, we are forecasting higher margins in the first half of the year versus the second half of the year. So that's what we will see for MIS. But overall, we're expecting adjusted operating margins to increase by 200 basis points.

Your next question will come from the line of Ashish Sabadra with RBC Capital Markets.

I just wanted to better understand how we should think about the ROI for the strategic investments. Obviously, the investments that you made in the prior year has accelerated the MA revenue growth. I was wondering, how should we think about the growth accretion from these investments? And maybe just a follow-up on that one is how should we think about the GenAI monetization in '24 but also midterm?

Maybe I'll start with that and then hand it to Steve. I'd say just in general, as you think about the return on these investments, I would say that we're investing in the highest growth parts of our business. So GenAI products, that's going to augment growth across our SaaS and hosted solutions. And Steve will touch on that in just a second. We're investing, as I talked about, in enhanced solutions for corporates and the public sector around customer and supplier risk. And I had a data point that we've had 14% CAGR in terms of sales growth over the last two years from those sectors. And we think we can even enhance that growth at scale as we invest in products specifically for those customer segments. And then lastly, platforming. We expect revenue growth from our SaaS and hosted solutions to grow something like low teens this year, that's in line with our medium-term targets. And the growth has been even higher in decision solutions, it's been more like high teens from SaaS and hosted solutions we're looking for this year. So yes, I think there's a pretty strong case for investment in these high growth parts of our business. But Steve?

Maybe just a couple other comments. We're doing what we do well, developing good, solid product development pipelines; creating new product life cycles to generate revenue growth and support customer value propositions; continuing to invest in the sales force. And then what we've said today is making even more an incremental investment in GenAI and especially in areas where we think we can land new blue chip customers, maybe outside of financial services. We have such a tremendous franchise with the financial services sector, we see great opportunities and have demonstrated great growth trends with some new customers in corporations that may be are nonfinancial in their orientation or public sector entities. I think you'll see lots of new products coming online this year, in the GenAI space in particular. Rob mentioned a couple that are coming down the pike in the next quarter or so, maybe second or third quarter. We are actively engaged throughout the product development and engineering teams to build more value propositions and leverage GenAI to support our customers and help them not just do their business faster and save some money, but be more effective and be more productive when they're doing it, actually make better decisions, develop better analyses. And the Research Assistant, which we've launched already, I would expect you'd start to see some contributions in the research and insights line toward the end of this year, because as the sales start to ramp up, our growth numbers will start to move as well. So we expect to see actual contributions in the numbers before we turn the page on 2024.

Your next question comes from the line of Alex Kramm with UBS.

This is actually a direct follow-up to the prior question. Because Rob, I think a couple of quarters ago, I asked you about this GenAI being potentially part of your guidance already for this year in terms of revenue contribution. So it would be helpful to give a little bit more specificity in terms of both revenue and ARR. What are you actually budgeting in terms of contributions here for the year since you obviously raised some pretty high expectations? And maybe just related to that, I mean, you mentioned some early feedback. So just obviously very interested in your ability or signs of your ability to actually upsell people, and people not just coming back to you and saying, like, look, you're asking for more money all the time. Of course, you should enhance all products, but we're not going to be willing to pay up as much as you think you can. So a little fleshing out there would be helpful.

So I think we’ve learned a good bit over the last few months as we've been engaging with customers, as we've been signing customers, as we've been building the pipeline, and all of that is informing how we're thinking about our guidance. I think, Steve, why don't I hand it to you just to give some insight into what we've learned and how we think about that then flowing through the MA business.

So just a quick short answer to your question, Alex, is the research and insights line is where you'll see the biggest contribution coming from GenAI related products, because that's where we’ve got a product in market already. Sales cycle takes some time to develop. We are seeing some pretty interesting patterns, to Rob's point. It's interesting. Maybe investment managers and hedge funds that are smaller teams, a little bit more agile and able to make a decision right now are the ones that are buying this product literally right away. So our first sales that are coming in are coming in from these players where the boss is sitting at the table with the people who are the users, the boss maybe a user. And they're saying, wow, this is really going to make a difference. Let's just do it right now. Some are locking into multiyear agreements, by the way. So they're believers in this as a productivity enhancer for them. On the other side of the spectrum, where we have big customer relationships with large banks, we're engaging very differently. The character of the conversation is a lot more like what we've seen over the years in the software and workflow sales dynamics. So we're engaging very senior levels. They're talking about leveraging what we're doing as a transformational tool to change the way they do business. They see the opportunity to cut cost, maybe lower their cost of goods sold, maybe lower their increased productivity through platforming and using our capability as an element in their platforming efforts, like what we're doing in terms of leveraging GenAI throughout the organization. And we're seeing transformation projects where people are looking forward to working with us, evaluating us very, very intentionally. And we're engaging with scores of users to get a reading on can they really make a difference leveraging this tool or can we make a difference leveraging us in their organization. And we're seeing some really interesting conversations often at the C level. So this isn't your run of the mill add-on to the research service, which we've been doing for decades. This is a, gosh, this might really change the way I do investment research. This might really change the way I think about doing credit research at scale. And that's one of the reasons we're very excited about that dynamic. So the first couple of months have been interesting. Smaller, faster decisions are happening, and people are buying the product at a rate that's above our normal rate of sales patterns. The patterns are faster than normal. And at the top end, we're seeing really good engagement in a way that I say, I think, is going to be quite profound for us.

Your next question will come from the line of Jeff Silber with BMO Capital Markets.

I think earlier in the call, you gave a little color on cadence for first half versus second half in terms of revenues and margins for MIS. And I'm wondering if you could do the same thing for the MA division.

Caroline, do you want to take that?

So for MA, we see a slightly different picture to MIS with regards to both revenue and with regards to expenses. So if we start at the fourth quarter for MA, we recorded just under $800 million of MA revenue and we're expecting just above $800 million in Q1, and then steadily ramping up by $20 million to $25 million through quarter four. The MA margin will kind of follow a similar path. However, Q1 will be influenced just by some seasonality to our expenses associated with our annual compensation programs with our employees. So we'll see higher payroll taxes associated with the vesting of employee stock grants and bonus payments. But then the margin is expected to follow a similar pattern to revenue, steadily ramping from a couple of percentage points below our full year guide of 30% to 31% in the first quarter to a couple of points above it by the time we get to Q4.

And while we're on the topic of -- now that we've covered MIS and MA calendarization, maybe let me just add a little bit in terms of thinking about then kind of pulling this together and thinking about what it might mean for adjusted diluted EPS. So we've got a little bit front end loaded issuance pattern that we talked about, the cadence that Caroline just touched on. From an adjusted diluted EPS standpoint, we think that the first quarter will be our strongest quarter in terms of absolute adjusted diluted EPS, followed by the second quarter. And maybe the easiest way to think about it is this. If you take the average quarterly EPS at the midpoint of our full year guide, and I think that's somewhere between $2.60 and $2.70, then given the stronger front half issuance that we've talked about, we'd expect first quarter EPS to be something like $0.15 to $0.20 higher than that average for the first quarter.

Your next question comes from the line of Craig Huber with Huber Research Partners.

Mike or Rob, I'm curious, with the ongoing massive problems out there in the commercial real estate market out there, I'm curious what your thought is on the potential impact for your CMBS issuance for this year, ratings there? And also, more importantly, on your banking client potential impact this year on the commercial real estate market out there, what are you sort of expecting for issuance there as well? And just my quick housekeeping question, what was the incentive comp in the fourth quarter, please, and also for the full year last year?

We'll get Caroline teed up on that incentive comp question. I think, Craig, commercial real estate, actually, if you think about it kind of threads through a bunch of parts of our business, in terms of impact to the ratings business and it's not just the CRE sector but the banking sector, and then the tools needed by folks in the market and sales cycle. So let me start with Mike.

So on the structured finance, just to try and put that into context. I mean, we are anticipating overall that structured finance will grow mid single digit. And when you look into that, there's different types of assets. And when we think about CMBS, let me just pick on CMBS first for your question. We believe that will still be muted given what's going on in the CRE market, particularly in office. It is a viable funding alternative to bank finance, particularly as borrowers face restrictive lending standards. But I do want to emphasize that when we look at our structured finance business we are expecting still a active market in ABS and CLOs. I'm very happy at some point on the call to talk a little bit more about CLOs. RMBS, on the other hand, again, muted because of the asset formation, which we expect to improve as the year goes on. But with that, I might just pass it to Steve about the MA side of CRE.

So I mean, I think we've been talking a lot in the firm and with our customers about the impact of, I'll call it, stress in the CRE sector, particularly in the office sector. And we all know many of the causes there. We've had really good interest from our banking customers especially. We launched -- you may remember at the Innovation Day back in September, we highlighted the CreditLens CRE module, which was really a credit decisioning tool, software application that combines all of our data and analytics capabilities in the commercial real estate space to help lenders do their jobs more effectively. And we've seen really good growth there in the banking segment, that was one of the big drivers of growth for us. So I would say that's exactly what you would expect. As people start to be more aware of risk, they start to call us a little bit more. And this is one of those dynamics in MA where risk goes up, people call us more often. Risk goes down, they start to think about taking more chances, so maybe looking for more alpha perhaps. So we get called there, too. So the CRE segment and the CRE, I'll call it, stress is something that we find an attractive dynamic for the business overall.

There's almost like a tipping point where when there's too much stress in the banking system, it can ultimately become a headwind for us. As Steve said, when there's the need for real insight and better understanding around credit, that's a positive. And I think what we saw in March of last year was just about going over that tipping point. Caroline, do you want to answer the second part of Craig's question?

Craig, with regards to incentive comp, for the fourth quarter, we recorded about $100 million. So that got us to about $400 million for all of fiscal 2023. And just with regards to 2024, we expect incentive comp to be between about $400 million to $420 million, so think about $100 million to $105 million per quarter.

Your next question comes from the line of Owen Lau with Oppenheimer.

So going back to your MIS revenue guidance, you guided to high single digit to low double digit percentage, which is higher than your peers and mid to high single digits. And I know you have limited information about your peers. But could you please try and talk about some of the potential drivers for the difference?

I think, Mike, why don't I hand that to you?

I'll start at the macro level. And as Rob mentioned, overall, constructive outlook for 2024. And underpinning this is that, first of all, market uncertainty that we've experienced over the last couple of years starts to subside. And if you think that transmission is to a lower execution risk in the primary markets and also improved secondary trading that leaves more opportunity for issuance, and that's what we're seeing at the moment. We have an assumption around a rate decrease in the second quarter and that's unchanged despite some of the CPI print today. We've already seen that spreads have come in meaningfully, both in investment grade and sub-investment grade, which leaves the market open for the rating scale from investment grade down to the lower rated credits. And that's important as one of our expectations here is that leverage finance improves and recovers during the year from historical lows over the last couple of years. In here is also the 10% increase in the refinancing walls, we talked about that on the last call, and a modest recovery in M&A. That's still uncertain but there's certainly sizable dry powder and cash on the corporate balance sheet. There's also a backdrop here. Even though we've got moderating economic growth, we are assuming an avoidance of a deep recession and therefore, economic resiliency, and looking towards that growth in 2025 as people think about deploying long term capital. At the same time, as spread comes in, that is also a key assumption in our default study. And as we get over that peak default period during the year, as spreads come in, that is a more favorable environment for the lower end of spec grade. So that's underpinning a lot of our macro picture. But Rob, do you want to add anything?

And we can -- if people want to get into the asset level guidance, we're happy to do that in another question. I also -- I think it was Manav that asked a question about recurring revenue in MIS, and maybe let me just come back to that. That continues to be -- our view on that is it continues to be in that kind of low to mid-single digit range for revenue. This ties in part to first time mandates. Obviously, first time mandates are what build the stock of rated issuers that we surveil. So just a little insight there. We saw a pretty significant slowdown in first time mandates since, I'd say, third quarter of 2022. The fourth quarter, first time mandates were about in line with the fourth quarter of 2022. We are expecting that to start to pick back up. And that's not surprising given what you see as our expectations for high yield and leveraged loans. And so that will support a slight uptick, I think, in recurring revenue growth for MIS.

Your next question comes from the line of Scott Wurtzel with Wolfe Research.

I just wanted to go back to the Research Assistant. I understand it's only been a couple of months since you launched the product, but wondering if you could maybe share some feedback since the launch and anything you've learned about the product in the last couple of months?

I would say we are happy about a couple of things. One, the product development process, the work we did in engineering and product development to get this thing out happened more quickly than maybe some of our previous product launches. So we're really excited about some of the changes we've made and we were able to get to market faster, that's partially because of the fact that we're leveraging GenAI tools and partially because we have some platform engineering elements that make us able to move a little bit more quickly. So that's one good note. In terms of take-up among customers, it's early days. Oftentimes, the initial stage of the sales cycles I would measure in months. But we have more units in the first six weeks than we've seen among virtually any other product we've launched in the past. So the people are making buying decisions quickly. Remember, we started with a December 1 commercial launch. So they're making decisions within six weeks. Oftentimes, you would look at a sales cycle being measured in months. So that's a really good sign. And again, I mentioned earlier that we're really encouraged by the engagement at the senior levels, CEOs. I literally know one of the largest banks in the United States. We were the topic of conversation at the CEO's table within the last few weeks where they literally were thinking and talking about this is one of the elements in their transformation program. COOs, senior levels of investment managers and banks and insurance companies, where I'm talking to people and our sales reps are talking to people at a different level than we've seen in the past. So I would say we're very encouraged by that. Those sales cycles, I think, will go faster than maybe they might have in previous product launches. But you still need to engage with people and their technology groups, their cyber groups, their compliance groups, to make sure when you're making this big of a decision that this transformational that you've got all your bases covered. So we're pretty encouraged by that. Hopefully, that's a good sense for color on the demand environment.

Your next question comes from the line of Shlomo Rosenbaum with Stifel.

I wanted to ask a little bit -- we talked a lot about GenAI, but I wanted to ask about general sales cycles. Like what are you seeing, are things -- cycles getting shorter, staying the same, getting longer? What do you see more on a sequential basis? And then I just want to touch back on the last question about incentive compensation, and ask if there's any change in the mix of the incentive compensation between the two units, just getting back to kind of the margin expansion in MIS?

So on the sales cycle -- in the spring last year, we got a lot of questions around are you seeing elongated sales cycles. And I think we gave a pretty good sense for what we were seeing. Sales cycles were lengthening maybe just a little bit, nothing material measured in a number of days perhaps, but we were also seeing higher price points in the proposal and richer value propositions composed in that proposal. So it was consistent with what we'd expect. I'd say that trend has actually extended through 2023. So we're running right around the same numbers we were in the spring. I looked at this closely the other day. So sales cycles are maybe slightly longer than they were maybe a few years ago, but only because we're seeing bigger price points and richer value proposition. So pretty happy about that. Let's see here, sales cycles, yes, that's probably a good way to finish that one, yes.

And then on the question on incentive comp, we're not seeing anything materially different between the segments compared to '24 versus '23.

Your next question comes from the line of Seth Weber with Wells Fargo.

I guess I just wanted to follow up on the MIS margin question again. I'm trying to just just balance some of the investments that you're making versus some of the investment spend that you're doing versus longer term technology benefits, cost saves there. Can you just remind us or update us on how we should be thinking about incremental margins for the MIS business going forward, if there's been any change to just the incremental margin framework for that business?

And maybe I'll also go back to fourth quarter MIS, because I think we've been getting some questions about that. And I think fourth quarter to me really illustrated the tremendous operating leverage that's in the business. If you look at -- to give you a sense of what we were seeing in the fourth quarter for MIS, and then I'll take it forward into 2024 and beyond. Revenues came in lighter than we had expected, expenses came in almost exactly online in terms of what we had budgeted. I think it was something like 1.5% expense growth over the prior year quarter. So essentially, the entire revenue miss dropped right down to adjusted operating income. And again, that's what we love about this business. And think about what was going on, this was in the last few weeks of the year, there's virtually nothing we can do in regards to the expense base at that point. The majority of our expense base in MIS is people. Also, we have obviously a constructive view on 2024 issuance. And you've heard us talk about in the past that we try to think about are things cyclical or structural, and we saw that as a brief air pocket in issuance. And so that then did -- again, that dropped right to adjusted operating income. It was not an expense issue. And then you see 200 basis points of margin expansion from that jumping off point at the end of the year. And I would say this and, Mike, feel free to add. So we've got our low 60s percent margin target. We still feel very comfortable about that. We believe that this 200 basis points is solidly on track for that. But we are investing back in that business. I talked a little bit about in my prepared remarks, in particular, we've been investing in resources in some of these areas like domestic debt markets, like digital finance and private credit, make sure we've got the resources. And then we've also been investing in the technology. It's so important for us to get the technology enablement of the analytical teams for a variety of reasons that I touched on the call. Mike, anything to add to that?

Not really. But just on the technology element, it's about driving efficiencies in the future by investing today and having a very well controlled business. So that's the only point to add.

The bottom line is, as we get more technology enablement, we have surges in issuance, we'll be better able to handle that without having to to add people.

Your next question comes from the line of Jeff Meuler with Baird.

It's Steven Pawlak on for Jeff. I guess going off that last point, you talked about the GenAI tools that you're deploying internally. Can you describe some of the ones that have gone live, what efficiencies are being harnessed, where do you think you can get the most benefit towards the medium-term targets from those GenAI tools? And then is there like an enterprise wide committee handling decision to build or deploy or are some of these things being handled within individual departments?

Steve, you want to start?

So we're doing a lot of the innovation work and trying to accelerate the innovation work through a central team, a team that is really a pretty agile team. Sometimes it's bigger -- it gets bigger and smaller, depending on which project we're working on. That team is in MA where we're doing a lot of the experimentation and then developing value propositions that we can use externally and internally. I'll just give you a simple example. Summarizing a PDF, which is something that you would expect you could do with GenAI tools, you might be able to do that with some tools that are offered through external folks, not just through Moody's. But leveraging that so you can use it in an industrial strength way, make it a part of your compliance apparatus, make it a part of the way in which you build products, the way in which you do your job every day requires some engineering work as well. So we're summarizing maybe a 300 page document. We're developing summaries across multiple documents at once. We're incorporating a document that you're reading today into our other GenAI tools in order to generate inference across not just what you might get from the OpenAI models we're working with Microsoft on, but also through the content that you're introducing to your analysis right now and you're right here. So an experiment that could see being very helpful for the folks in MIS might be I am doing work on this particular industry, there's three or four documents I might be interested in reviewing and maybe I can incorporate them into understanding, reading them more quickly, taking in gathering data from that much more quickly. So the central team is there to create critical mass in terms of engineering and roll out tools in a compliant way in a way that's been tested from an industrial strength perspective and is consistent with all of the normal processes that we would want to adopt as a rating agency where it's appropriate.

Just maybe a couple of points for MIS. I mean we're pretty excited about the potential of GenAI in the ratings business and internally with obviously leveraging the Moody's Copilot. But we also do envisage that using GenAI across the workflow and doing that to actually enhance our appliance as well as improving the overall efficiency in the business and seeing that GenAI that Steve just referenced as an enabler to human judgment in the ratings process. So again, exciting opportunities for MIS to navigate with this technology.

And the only thing I would add, and I've said this when this comes up, is that we're going to be deliberate and transparent in the rating agency in terms of how we leverage generative AI. We're in dialog with our regulators to make sure that they understand how we're going to do that.

Your next question comes from the line of Heather Balsky with Bank of America.

Just with regards to your midterm margins, you talked earlier about that you didn't -- that the path wasn't necessarily going to be linear to get there. But can you help us bridge kind of as we think out over the next couple of years how it could look, especially given some of these areas that you're investing in? And how comfortable are you kind of -- if the opportunity presents itself, would you spend more now for top line growth or I guess, just the commitment to those margins given what you're seeing in the environment?

So I think that's what you're seeing us do, right? And we've got to make -- the investment has got to come before the sales and ultimately, the revenue growth comes. And I feel like we have some ambitious medium term targets that mean that we're going to continue to accelerate revenue growth in the MA business. And so we're making the investments that we talked about today to be able to support GenAI product development and platforming, which we think are going to support that acceleration for the reasons we talked about. We continue to feel comfortable with those medium term targets, particularly the -- I mean you mentioned the margin. It's just that in this case, the investment is coming before the ARR growth.

Your next question comes from the line of Andrew Steinerman with JPMorgan.

This is [indiscernible]. Could you just talk more about the 20% increase in D&A, is there any change of accounting assumptions or methods? And will D&A kind of stay in this general vicinity as a percentage of revenues?

Let me just -- I'll start with that and then I'll turn it over to Caroline. I think, in general, what you're seeing with D&A represents the -- we've been talking about the investments that we've been making in our SaaS products, you've seen some increased capital expenditures over the last few years, that's now starting to come through in the form of capitalized software. And I also talked about the higher growth rates that we are seeing with those SaaS products. And I think that's -- you want to be able to look at those two things together. Across all of MA, we're expecting our hosted and SaaS solutions to be growing in kind of the, call it, low double digits to parts of the MA portfolio like decision solutions, we expect to be growing more like high teens. And that's where that investment in software development is going. Caroline, do you want to talk a little bit about it from an accounting perspective?

So certain development costs linked to the SaaS based solutions are capitalized and then they're depreciated over the useful life of those underlying assets. And that's usually around four to five years and that's all in accordance with US GAAP.

And should it stay in this vicinity, DA, as a percentage of revenues going forward?

I think if you look at it as a percent of revenues, I mean, obviously, we're bumping up the CapEx here a little bit. But I think as we get the increase in revenue growth and corresponding increase in capitalization it should stay relatively in line from a percent -- I think a percent of revenue basis.

[Operator Instructions] And your next question comes from the line of Craig Huber with Huber Research Partners.

My follow-up here, for 2024, can you just talk a little bit further about your outlook specifically for investment grade, high yield, maybe bank loans and financial institutions in terms of the debt issuance outlook for this year that's embedded in your overall company outlook? And then also, can you maybe just throw in there, what is your cost ramp assumption over each of the four quarters for the rest of the year?

Craig, I'll take the first part of your question before handing off. If I go by segment, the investment grade issuance growing at 5%, that comes off a 20% growth last year. Underpinning this, steady uptick with regard to upcoming maturities. M&A is supporting in certain key sectors but I would see that as a variable to the upside. As I mentioned earlier, the spreads at the moment are creating favorable conditions at the higher end of the rating scale and down into the Baa. So that's really on investment grade. For corporates, high yield, again, back to this market uncertainty that's subsiding, spreads have come in materially over the last 12 months. There's been some delayed refinancing that's now coming due. And these tend to be higher quality, spec-grade issuers that will get that opportunity to come into the market should those spreads remain favorable. And again, still coming off a low base, as Rob highlighted earlier. Leverage loan driven primarily by refinancing, including the amend and extends. There is also a refinancing in the public market of certain deals that got done in the private market, which is nice to see. And again, these tend to be more sensitive at the lower end. So our spreads again coming at lower end that market access to those around the single Bs is there. So again, 20% for the leverage loan. FIG, on the other hand, as we mentioned, a heavy proportion of FIG is frequent issuers. We've kept that relatively flat. There are some different variables there. There's some different central bank support facilities that will start to shrink in '24, therefore, leading banks to come to the capital markets. And that will also be a focus on their buffers and broader capital needs, but stable year-over-year. PPIF, mid single digit, largely made up of infrastructure financing and access by some of the larger US PFG issuers. When we think about the transition of monetary policy and the tightening that has occurred that we will probably see an increase in infrastructure projects that are really long dated as they want to lock into some lower rates going forward. And I touched on structured finance earlier at the mid single digit percentage. And you've got to look inside structured finance to look at the different asset classes, but really ABS leading in that particular area. So hopefully, that helps.

I'll now turn the call back to Rob for any closing remarks.

Okay. One public service announcement for those of you in Europe. We're looking forward to seeing you at our London event and our offices on February 29th. I know that Steve and Shivani and some of our other senior leaders from Moody's Analytics will be there to provide a spotlight on our MA business like we did in New York in September of last year. So with that, I'm going to bring the call to a close. Thanks, everybody, for joining and we'll talk to you next quarter. Bye.

This concludes Moody's Corporation fourth quarter and full year 2023 earnings call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Investor Resources section of the Moody's IR homepage. Additionally, a replay will be made available after the call on the Moody's IR Web site. Thank you.