Rob Fauber : Yes. Great question. Decision Solutions was a good story for the quarter, indeed. 15% growth on an organic constant dollar basis in the quarter. You will remember actually, last quarter, we kind of talked about Decision Solutions, a little bit lower reported growth rate print, so we’re talking about the importance of kind of looking through that to ARR. That’s still the case. And so if you look at kind of full year, we had about 11% growth in Decision Solutions ARR. And we’ve really got strength in a number of areas. And I think I used that phrase, it’s not a one-trick pony. And that’s true. In KYC, we’re up in that kind of mid — low to mid-20s range. But we’ve also got a very nice life insurance business and a very nice banking business.
The KYC business, we just got lots of demand not only for the data, but now we’ve got this life cycle product that I mentioned, which allows us to package the data with a workflow solution, gives us the opportunity to have even bigger engagements with our customers. So that’s very, very helpful. And we launched that in the second half of last year. But maybe just to focus in just a little bit more on the other two businesses. People are probably less familiar with it. We have a nice business. Obviously, RMS serves the property and casualty and reinsurance market. But we have had, for years, a business serving life insurance — life insurers. And we’ve got a really powerful actuarial modeling platform and we’ve been able that is used by many of the world’s largest insurers.
And we’ve just been able to do what we’ve done with banking, frankly, which is to build a suite of solutions around risk and portfolio management and balance sheet management and capital planning and reporting. And one of the areas where we’ve had some really nice growth is around our risk integrity IFRS 17 solution. As you may be familiar, insurers are having to implement IFRS 17. So there’s been a lot of demand to help our customers there. And then the other is banking. We’ve just seen some very nice growth with the kind of suite of solutions in banking across origination, risk and portfolio management and capital planning.
Operator: Your next question comes from the line of Andrew Steinerman from JPMorgan.
Andrew Steinerman : I just wanted to jump into that MA organic revenue growth guide of about 10%. When I look at MA’s ARR in the fourth quarter coming in at 10% and then the guide really is for it to accelerate to low double digit in ’23, I just felt with that accelerating backlog, the bias for MA organic revenue growth would be above 10%. Are there any kind of headwinds, maybe non-subscription revenues to note to kind of just kind of keep it about 10%?
Rob Fauber : Yes. One headwind, as you know, Andrew, we’ve transitioned most of the portfolio to recurring revenue. I think it’s something like 94%. But in the banking business is where we do have some — still some kind of onetime. And you’ve heard us talk about moving away. We’ve moved almost entirely away from onetime license revenue. We also have some services work, and we’ve been deemphasizing that and really focusing where you might see a small delta between kind of ARR and then translating to overall revenue.
Mark Kaye : Yes. And Andrew, just to add on to that, if you think about decomposing our guide of 10% organic constant currency growth for MA, you could think about recurring as growing in that low double-digit range when you think about transactional onetime declining in that high teens percent range.
Operator: Your next question comes from the line of Faiza Alwy from Deutsche Bank.
Faiza Alwy : I have two questions on the MIS midterm targets. First, I appreciate the conservatism on the top line. I’m curious that you left your margin target as is despite a lower sort of implied top line. So just wanted some more perspective on that. Is it related to the recent restructuring actions? And then second related question is, you mentioned a private credit market as one of the factors as you think about issuance. We’ve obviously seen significant expansion in that market in ’22. So curious what your thoughts are around private product both for ’23 and as you thought about your medium-term targets.
Mark Kaye : On your question around the MIS adjusted operating margin, we are maintaining our expectation for MIS’ medium-term margin to be in the low 60s percent range. And I certainly acknowledge that, that’s a meaningful step-up compared to our new base year 2022 results and full year 2023 guidance. While this target is reflective of performance within 5 years, the key, and I think this is the point that you were flushing out, the key to achieving it will naturally be influenced by the issuance recovery pattern we experienced in 2023 and beyond. That said, MIS’ medium- to long-term business fundamentals remain firmly intact. And we continue to believe that the disruption in the debt capital markets that we experienced in ’22 was really cyclical.
It wasn’t structural in nature. And that view is informed by several data points and observations. For example, the stock of debt has steadily grown over the last several decades. The price to value is compelling for our customers. There are strong refinancing needs that can help buttress the future transactional revenue base, credit spreads remain around that historical average. And overall, I’d say that the interest burden is still relatively low for corporates. And these factors, in addition to the proactive and decisive expense management actions like we took last quarter, should help to stabilize the ’23 margin in that mid-50s percent range, and that will help us obviously set a good base before expanding to that low 60s over the medium term.
Rob Fauber : Yes. One other thing I want to emphasize just around why we’re talking about MIS margin expenses. And I’ve gotten these questions from folks over the last few months is just around making sure we’ve got the right resources. And I want to assure you that we approached the restructuring exercise very, very thoughtfully. We monitor over $70 trillion in rated debt and it is absolutely critical to us that we make sure that we’ve got the expertise and resources to not only monitor that stock of debt but also to be able to service the flow of new issuance. And so we just — we approached that very thoughtfully, things like a typical span and layer exercise and thinking about initiatives that could be deprioritized and ways to get more efficient.
And we’re committed to getting more efficient in that business, and that’s what you see with the medium-term target. Let me touch just briefly on the private credit space. We talked about that on the last call. The private credit market has experienced some strong growth over the last few years. And I guess the way we’ve stepped back and tried to really think about it is, what is the opportunity for us to address that market and the needs of that market? Because we do think that we have a role to play in helping both asset managers and investors and borrowers. And we’ve got some very large relationships with many of the largest private credit lenders in the world. And you think about our relationships with the asset managers. We’ve got ratings on the asset managers themselves as well as their portfolio companies and CLOs and BDCs. And we also support them with a range of products across MAs. And we’ve been in some very active discussions with a range of players in this space.
And we think that we’ve got more that we can do to serve them around some important use cases. That includes providing independent credit assessments to help investors to understand the credit quality of these portfolios that they’re invested in but also to help the asset managers themselves around credit scoring, company data, benchmarking portfolio management, ESG is another area. So we think there’s an opportunity here for us to do more. And we’ve got a number of things in the works across the company to be able to support the use cases around us.
Operator: Your next question comes from the line of Shlomo Rosenbaum from Stifel.
Shlomo Rosenbaum : I want to ask a little bit about the MIS guidance just for 2023. When you look at the composite and the pieces of that you put in that support your outlook, how much of your guidance is dependent or focuses on kind of the refi walls that are sort of inherent support? And how much is it in terms of just assuming that market conditions tend to come — get better over the course of the year and particularly in the second half of the year or just more dependent on things improving versus things that you can actually see? And maybe you can talk a little bit about that on vis-Ã -vis what you normally do this year. Is there any change?
Rob Fauber : Hi, Shlomo. It’s Rob. Maybe what I’ll do, I mean, refi — let me just kind of talk to you a little bit about the several different things that kind of go into how we think about issuance drivers and also kind of what our visibility and confidence level is around those. Refi is one of them. And the first thing I would say is just around mix, and we’ve talked about that a little bit, that there’s obviously a wide range of what’s going to happen with leveraged finance. And I think we’ve got a little bit less certainty around that. Again, just the fact that there’s a wide range of views across Wall Street means we have a little less confidence about what’s going to happen, and that also contributes to why we have a range in our overall guide.
When you think about the issuance in the — coming from the financial institution space, there, we’ve got much more confidence as it translates to revenue, right, because of the kind of commercial relationships that we have with banks. Around refi, obviously, we’ve got great visibility in the refi walls themselves. There is a question about the extent of pull forward. That’s always a question. And I would say, look, we’ve looked at this before. It’s a really, really rough number, but we kind of tend to think about kind of a little over 1/3 of kind of transaction revenue being supported in any given year by kind of those refi walls. And then you have to look at kind of what do we think is going to happen with market conditions, and that gets into rates and spreads.
Spreads are very well correlated to default rates. We have great visibility around default rates. But obviously, there’s volatility in the market that can make spreads move around at any given time. I talked about some of the headline risk that exists in 2023. And that’s not something that we’re able to capture in a forecast. Those kinds of events are binary. They either happen or they don’t. And a great example is the — kind of the debt ceiling issue. That creates some event risk for the market. So can’t predict the future, but there are some things that we feel fairly comfortable about that give us insight into — that help us kind of build to that outlook. So hopefully, that gives you a feel for it.
