Operator: We’ll take our next question from Russell Quelch with Redburn Atlantic.
Russell Quelch: I noticed there was a small uptick in the expected restructuring charge to ’23 versus what you said in Q2. I know it’s very small, but wondered what’s driving that. And maybe sort of broader question, is there room for further restructuring in ’24 if the economic environment doesn’t pan out like you laid out in response to Toni’s question?
Rob Fauber: Yes, Russell, I think I’m going to hand that to Caroline.
Caroline Sullivan: Sure. So we expect our restructuring program to be substantially complete by the end of the year. We are forecasting up to $205 million for about $100 million to $110 million in MA and $90 million to $95 million in MIS. And the charges relate to both real estate rationalization and workforce optimization. And we inspect — expect to incur restructuring charges between $20 million to $40 million in the fourth quarter, over 65% of that being related to real estate. So with regards to expanding this into 2024, we have no plans for that.
Rob Fauber: Yes. And Russell, I would just — to add to that, it was interesting, back when we first announced this, I think it was on this call a year ago. And I got some questions from people like, “Hey, why are you all doing that?” And I don’t get those questions anymore. We really took some hard decisions and took a hard look at the business and figured out where we wanted to reprioritize. And as Caroline said, we’ve continued to do that through the course of the year. But I think in terms of restructuring program, we’re done. There will still be — and you heard me talk about this. We’re still going to be thinking about where we move resources and prioritizing things. But I think as far as restructuring, I think we’re done.
Operator: We’ll take our next question from Shlomo Rosenbaum with Stifel.
Shlomo Rosenbaum: I had kind of an operational question for you, Rob. Just looking at the operating profit going up pretty substantially in MA from 2Q to 3Q, I was wondering if you could just discuss more kind of detail around what actually happened there. I don’t usually see that kind of move in your business. Was it getting out of a lot of leases at one point in time? Or can you just give us some on-the-ground thoughts of that? Because usually, I think of your business is very much in that area. Your costs, a lot of them are people. And I’m not sure that you had that kind of movements within your headcount.
Rob Fauber: Yes. Thanks, Shlomo. And I guess, I’ll reiterate the kind of health warning of I don’t want to get overly fixated on 1 quarter. Obviously, it was a good quarter from a margin perspective. But we do have some seasonal spending patterns in MA. This year, I think, is no different. And obviously, you’re looking at then our full year guidance and what that implies for the fourth quarter. And obviously, that means that kind of margin will be a little bit lower in the fourth quarter than it was in the third quarter. So kind of why is that? And I would just say that as we go into the end of the year, we’ve got all sorts of projects that start to — people are trying to get them done by the end of the year. And we also have a good bit of increase in selling activities, just a huge renewal and sales period for us.
And the other thing I might say is that, again you’ve heard me talk about this reprioritization. You saw that we took some additional actions that were reflected in that updated restructuring charge. So there was — there were some things that went on over the course of the summer. That was part of that reprioritization. And some of that went into that restructuring charge. Some of that then flowed through — we saw that flow through. But then in the fourth quarter, as I said, we’ve got a plan for investments. We know we’re going to have a lot of selling activity. And the other thing I’d say is if you think back to the call back in February of — earlier this year, I mean, GenAI wasn’t even a thing. And so we’ve had to figure out how are we going to get after GenAI?
How are we going to have the right resources with the right skills and really go after that and fund that internally? And so again, that was all part of the kind of the reprioritizing and repositioning within the business. So hopefully, that gives you a bit of a sense. But I wouldn’t get too caught up just in this quarter.
Operator: Our next question comes from Jeff Meuler with Baird.
Jeffrey Meuler: Want to ask a long-term question on corporate debt velocity. I hear you that it’s the lowest it’s been in a while. There’s a lot that’s impacted issuance. We should see cyclical recovery. And refi wall should be supportive. But if you look at the very long term, like a multi-decade view, I’m curious what the data shows in terms of correlation. After a period of a material interest rate increase, does corporate debt velocity tend to persist at a low level? Or is that correlation not really there?
Rob Fauber: Yes. This may be — you may have stumped the professor on this one. I’ve got the data, but I don’t have it handy. But what I would say is that we have looked at issuance — and so I’m not going to necessarily come at this from a debt velocity standpoint, but we have looked at issuance in periods of higher interest rates. And I think it’s during the period of transition is when we typically see more challenge to issuance. So it’s not simply an absolute higher level of rates that is the headwind. Typically, higher rates are also accompanied by economic growth, which ultimately is positive for issuance. So over the longer term, we tend to see that correlation, which is supportive of issuance. Maybe the other thing is, I mean, just thinking out loud here is if we go back decades, the size of the markets, just vastly different.
So I just don’t know how comparable that really would be. But you know what, there might be something we can follow up on with you and dig in on.
Operator: Our next question comes from Jeff Silber with BMO Capital Markets.
Ryan Griffin: This is Ryan on for Jeff. Just a quick clarifying question, looking at the quarterly changes in rated investment-grade issuance volumes and revenues on Page 5 of the release, I saw issuance was up 6%, but revenue is down 6%. Can you just explain the disparity there and how the pricing comes into play there?
Rob Fauber: Yes, that was a mix issue. So in investment grade, we have typically two types of issuers: those who are on kind of frequent issuer programs; and those who are less frequent, opportunistic issuers. And so in this quarter, that mix tended more towards the frequent issuers and less towards opportunistic, which in some ways makes sense. As you’ve got kind of a rising rate environment, the opportunistic investment-grade issuers are going to sit on the sidelines if they can. So I think that was primarily what was going on there. It really wasn’t a pricing issue.
Operator: And we will take Craig Huber’s question with Huber Research Partners.
Craig Huber: Rob, I’ve got a follow-up question, on pricing, can you just quantify what pricing is doing this year for each of your two main segments, up about 3% to 4%? How should we think about that for ’23?
Rob Fauber: Yes. It’s pretty steady Eddie. And I guess, Craig, the real devil is in the details because it does depend to some extent on the issuance mix. So as you know, we don’t just have a blanket price increase across the entire issuer community. We’re really, really thorough and thoughtful about how we do this. And we think about regions and asset classes and the value and the costs to support the surveillance. And so all of that goes into how we think about pricing. So again, you don’t have a blanket price increase. So depending on where we have more or less price increases that average out to 3% to 4%, it depends on what effectively kind of our pricing take is in any given year. But I would say the idea of kind of 3% to 4% on average across the portfolio is true this year. And we expect it to be true again next year.
Operator: And 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: Okay. Well, I think that does it. I really appreciate everybody for joining the call. And we’ll talk to you in February. Thank you. Bye-bye.
Operator: And this concludes Moody’s Third Quarter 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 immediately after the call on Moody’s IR website. Thank you.
