穆迪 (MCO) 2017 Q4 法說會逐字稿

Good day, and welcome, ladies and gentlemen, to the Moody's Corporation Fourth Quarter and Full Year 2017 Conference Call.

At this time, I'd like to inform you that this conference is being recorded.

(Operator Instructions) I would now like to turn the conference over to Mr. Steve Maire, Global Head of Investor Relations and Communications.

Please go ahead.

Thank you.

Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's fourth quarter and full year 2017 results, as well as our outlook for full year 2018.

I am Steve Maire, Global Head of Investor Relations and Communications.

This morning, Moody's released its results for the fourth quarter and full year 2017 as well as our current outlook for the full year 2018.

The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moodys.com.

Ray McDaniel, Moody's President and Chief Executive Officer, will lead this morning's conference call.

Also making prepared remarks on the call this morning is Linda Huber, Moody's Executive Vice President and Chief Financial Officer.

During this call we will be presenting non-GAAP or adjusted figures.

To view the nearest equivalent GAAP figures and GAAP reconciliations, please refer to our earnings release that was filed this morning.

Before we begin, I call your attention to the Safe Harbor language, which can be found toward 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 and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2016, and in other SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission's website.

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.

Before I turn it over to Ray, I'd like to remind everyone that Moody's will be hosting Investor Day at the end of this month on February 28 in New York City.

Please contact the Investor Relations team if you'd like additional information about this event.

I'll now turn the call over to Ray McDaniel.

Thank you, Steve.

Good morning, and thank you, everyone, for joining today's call.

I'll begin by summarizing Moody's fourth quarter and full year 2017 financial results.

Linda will follow with additional fourth quarter financial details and operating highlights and I'll then conclude with comments on our outlook for 2018.

After our prepared remarks, we'll be happy to respond to your questions.

In the fourth quarter, Moody's record revenue of $1.2 billion increased 24% from the fourth quarter of 2016, primarily as a result of an increase in rated issuance, the acquisition of Bureau van Dijk and strong organic performance from Moody's Analytics.

Operating expenses for the fourth quarter of 2017 totaled $703 million, down from $1.4 billion in the fourth quarter of 2016.

Operating expenses in the fourth quarter of 2016 included an $864 million charge related to a settlement with the U.S. Department of Justice and the Attorneys General of 21 U.S. states and the District of Columbia.

Excluding the settlement charge, operating expenses were up 27% from the prior year period, including 12 percentage points attributable to Bureau van Dijk operating expenses, amortization of acquired intangible assets and non-recurring acquisition-related expenses.

Operating income was $463 million, up from the fourth quarter 2016 operating loss of $473 million.

Adjusted operating income of $519 million was up 22%.

Foreign currency translation favorably impacted adjusted operating income by 3%.

The operating margin was 39.7% and the adjusted operating margin was 44.5%.

Moody's diluted EPS for the quarter was $0.13 per share, up from a loss per share of $2.25 in the fourth quarter of 2016.

Adjusted diluted EPS for the quarter was $1.51, up 20% and excluded a $1.26 onetime charge related to the net impact of changes in tax laws in the U.S. and Europe.

Additional adjustments included amortization of acquired intangible assets and acquisition-related expenses.

Turning to full year performance.

Moody's record revenue for the full year of 2017 of $4.2 billion was up 17% from 2016.

U.S. revenue was $2.3 billion, up 12% while non-U.

S. revenue was $1.9 billion, up 24%.

Foreign currency translation favorably impacted Moody's revenue by 1%.

Revenue of Moody's Investors Service of $2.8 billion was up 17% from the prior year.

U.S. revenue was $1.7 billion, up 13% while non-U.

S. revenue was $1.1 billion, up 23%.

Revenue at Moody's Analytics was $1.4 billion, a 16% increase over the prior year.

U.S. revenue of $646 million was up 7% while non-U.

S. revenue of $785 million was up 25%.

Organic MA, Moody's Analytics revenue was $1.3 billion, up 8% from the prior year.

Operating expenses for full year 2017 totaled $2.4 billion, down 19% from $3 billion in the prior year, which included the fourth quarter 2016 settlement charge.

Excluding the settlement charge and a restructuring charge in 2016, operating expenses were up 15%, which includes 5 percentage points attributable to Bureau van Dijk operating expenses, amortization of acquired intangible assets and non-recurring acquisition-related expenses.

There was no material impact on expenses from foreign currency translation.

Operating income was $1.8 billion, up $639 million in 2016, which included the fourth quarter 2016 settlement charge.

Adjusted operating income of $2 billion was up 21%.

Foreign currency translation favorably impacted adjusted operating income by 2%.

Moody's operating margin was 43% up from 17.7% and adjusted operating margin was 47.3%, up from 45.5% in the prior year.

The effective tax rate for full year 2017 was 43.6%, which included net charge in the fourth quarter related to the impacts of tax reform in the U.S. and Europe.

The effective tax rate was down from 50.6% full year 2016, which included the nondeductible portion of the settlement charge.

Excluding the net charge in 2017, the effective tax rate was 29.9%.

Excluding the settlement charge in 2016, the effective tax rate was 31.3%.

We're expecting another solid year of growth in 2018, and our outlook is for low-double-digit percent revenue growth.

Diluted EPS of $7.20 to $7.40 and adjusted diluted EPS of $7.65 to $7.85.

Both ranges include an approximate $0.65 benefit from U.S. tax reform.

I will now turn the call over to Linda to provide further commentary on our financial results and other updates.

Thanks, Ray.

I'll begin with revenue at the company level.

As Ray mentioned, Moody's total revenue for the fourth quarter was a record $1.2 billion, up 24%.

U.S. revenue of $614 million was up 15%.

Non-U.

S. revenue of $551 million was up 35% and represented 47% of Moody's total revenue.

Recurring revenue of $581 million was up 23% and represented 50% of total revenue.

Foreign currency translation favorably impacted Moody's revenue by 3%.

And looking now at each of our businesses, starting with Moody's Investors Service.

This was the fourth consecutive quarter of record revenue for MIS.

Total MIS revenue for the quarter was $725 million, up 19%.

U.S. revenue increased 17% to $440 million.

Non-U.

S. revenue of $285 million was up 23% and represented 39% of total MIS revenue.

Foreign currency translation favorably impacted MIS revenue by 3%.

And looking now at the lines of business for MIS.

First, corporate finance revenue for the fourth quarter was $334 million, up 20%.

This result reflected strong issuance activity in the U.S. investment grade and speculative grade bonds, EMEA speculative grade bonds and bank loans and Asian investment grade bonds.

U.S. and non-U.

S. corporate finance revenues were up 16% and 28%, respectively.

Second, structured finance revenue totaled $148 million, up 13% primarily driven by strong contributions from CLOs in both the U.S. and Europe as well as an increase in rated U.S. REIT transactions.

U.S. and non-U.

S. structured finance revenues were up 17% and 5%, respectively.

Third, financial institutions revenue of $119 million was up 34%.

This result was largely driven by an increase in banking issuance from infrequent issuers.

U.S. and non-U.

S. financial institutions revenue were up 36% and 33%, respectively.

Fourth, public, project and infrastructure finance revenue of $119 million was up 16%.

This result reflected increased U.S. public finance issuance, as municipal borrowers accelerated financings ahead of anticipated changes in U.S. tax legislation, as well as strength from infrastructure finance.

U.S. and non-U.

S. public, project and infrastructure finance revenues were up 14% and 18%, respectively.

And turning now to Moody's Analytics.

Total revenue for MA of $441 million was up 32%.

U.S. revenue of $174 million was up 10%.

Non-U.

S. revenue of $267 million was up 51% and represented 60% of total MA revenue.

Organic MA revenue for the fourth quarter of 2017 was $379 million, up 13% from the fourth quarter of 2016.

Foreign currency translation favorably impacted MA revenue by 3%.

And moving now to the lines of business for MA.

First, research, data and analytics or RD&A revenue of $258 million, was up 55%.

U.S. RD&A revenue was up 18% and non-U.

S. RD&A revenue more than doubled.

Bureau van Dijk's revenue contribution of $62 million for the fourth quarter included a $22 million reduction as a result of a deferred revenue adjustment required under acquisition accounting rules.

Organic RD&A revenue was $196 million, up 17% from the fourth quarter of 2016, driven by broad strength in all product lines.

Second, Enterprise Risk Solutions, or ERS revenue, of $143 million was up 10% from the prior year period, driven primarily by demand for products that enable adoption of the International Financial Reporting Standard, or IFRS 9, accounting requirement as well as strong performance in the insurance product line.

U.S. ERS revenue was down 5% while non-U.

S. revenue was up 18%.

Trailing 12-month sales for ERS increased 7%.

We continue to make progress on shifting the mix of the ERS business to emphasize higher-margin products with trailing 12-month product sales up 14% and services sales down 13%.

Recurring revenue represented 69% of total ERS revenue in 2017, up from 66% in the prior year.

And third, professional services revenue of $40 million was up 7%.

U.S. and non-U.

S. professional services revenues were up 6% and 8%, respectively.

And turning now to operating expenses.

Moody's fourth quarter operating expenses totaled $703 million, down from the $1.4 billion in the fourth quarter of 2016.

Operating expenses in the fourth quarter of 2016 included the $864 million settlement charge.

Excluding the settlement charge, operating expenses were up 27% from the prior year period, which includes 12 percentage points attributable to Bureau van Dijk operating expenses, amortization of acquired intangible assets and non-recurring acquisition-related expenses.

Other drivers of expense growth included additional compensation expense for merit increases and hiring, as well as increased performance-based incentive compensation.

Foreign currency translation unfavorably impacted operating expenses by 1%.

And as Ray mentioned, Moody's operating margin was 39.7% and adjusted operating margin was 44.5%.

And now I'll provide an update on capital allocation.

During the fourth quarter of 2017, Moody's repurchased approximately 200,000 shares at a total cost of $36 million or an average cost of $146.85 per share.

Moody's also issued 100,000 shares as part of its employee stock-based compensation plan.

Moody's returned $73 million to its shareholders via dividend payments during the fourth quarter of 2017, and on January 24, the Board of Directors declared a regular quarterly dividend of $0.44 per share of Moody's common stock, which is a 16% increase from the prior quarterly dividend of $0.38 per share.

This dividend will be payable on March 12, 2018, to stockholders of record at the close of business on February 20, 2018.

For the full year 2017, Moody's repurchased 1.6 million shares at a total cost of $200 million or an average cost of $121.21 per share and issued a net 1.9 million shares as part of its employee stock-based compensation plans.

The net amount includes shares withheld for employee payroll taxes.

Moody's also returned $290 million to its shareholders via dividend payments during 2017.

Outstanding shares as of December 31, 2017, totaled 191 million, approximately flat to a year ago.

As of December 31, 2017, Moody's had approximately $500 million of share repurchases with authority remaining.

And at year-end, Moody's had $5.5 billion of outstanding debt and $870 million of additional borrowing capacity available under its revolving credit facility.

Total cash, cash equivalents and short-term investments at quarter end were $1.2 billion, down $1 billion from December 31, 2016 primarily due to the acquisition of Bureau van Dijk.

Cash flow from operations in 2017 was $748 million, down from the $1.3 billion in 2016.

Free cash flow in 2017 was $657 million, down $1.1 billion from 2016.

These declines in cash flow were due to the settlement charge payment in 2017.

And with that, I'll turn the call back over to Ray.

Okay.

Thanks, Linda.

Before discussing our full year guidance for 2018, I'd like to provide some highlights on our progress with Bureau van Dijk integration and synergy activities.

Our integration efforts are on track and we remain confident about achieving the synergy targets that we communicated when we announced the acquisition.

Since closing the acquisition in August, we have enhanced Bureau van Dijk's products with content sourced from Moody's, launched programs across all Bureau van Dijk products, initiated measures to enhance sales productivity and efficiency.

In New York, San Francisco and Hong Kong, Bureau Van Dijk's staff are now co-located in Moody's offices with 6 additional offices in Europe, Asia and South America, set to be combined in 2018.

The Bureau van Dijk business continues to perform well and we are very pleased with the progress we're making as we pursue our various collaboration and integration efforts.

So I will conclude this morning's prepared comments by discussing our full year guidance for 2018.

A complete list of Moody's guidance is included in Table 14 of our fourth quarter and full year 2017 earnings press release, which can be found on the Moody's investor relations website at ir.moodys.com.

Moody's outlook for 2018 is based on assumptions about many geopolitical conditions and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, mergers and acquisitions, consumer borrowing and securitization and the amount of debt issue.

These assumptions are subject to uncertainty and results for the year could differ materially from our current outlook.

Our guidance assumes foreign currency translation at exchange rates as of January 31, 2018.

Specifically, our forecast reflects exchange rates for the British pound of $1.42 to the pound and for the euro of $1.25 to the euro.

As I noted earlier, Moody's expects full year 2018 revenue to increase in the low-double-digit percent range.

Operating expenses are also expected to increase in the low-double-digit percent range.

The company has projected an operating margin of 43% to 44%.

Adjusted operating margin is expected to be approximately 48%.

The effective tax rate is expected to be 22% to 23%.

Full year 2018 diluted EPS is expected to be $7.20 to $7.40.

Adjusted diluted EPS is expected to be $7.65 to $7.85.

Both ranges include an approximate $0.65 benefit resulting from U.S. tax reform.

Free cash flow is expected to be approximately $1.6 billion.

Moody's expects share repurchases to be approximately $200 million, subject to available cash, market conditions and other capital allocation decisions.

Capital expenditures are expected to be approximately $120 million.

Depreciation and amortization expense is expected to be approximately $200 million.

For MIS, 2018 revenue is expected to increase in the mid-single-digit percent range.

U.S. revenue is expected to increase in the low-single-digit percent range and non-U.

S. revenue is expected to increase in the high-single-digit percent range.

Corporate finance revenue is expected to increase in the high-single-digit percent range.

Structured finance and financial institutions revenues are each expected to increase in the mid-single-digit percent range.

Public, project and infrastructure finance revenue is expected to decrease in the low-single-digit percent range.

For Moody's Analytics, the 2018 revenue is expected to increase in the mid-20s percent range.

U.S. revenue is expected to increase in the low-double-digit percent range and non-U.

S. revenue is expected to increase in the mid-30s percent range.

Organic MA revenue is expected to increase in the low-double-digit percent range.

RD&A revenues, expected to increase approximately 40%.

The full year 2018 revenue contribution from Bureau van Dijk will be reduced by an estimated $16 million as a result of a deferred revenue adjustment required as part of acquisition accounting.

Organic RD&A revenue is expected to increase in the mid-teens percent range.

ERS revenue is expected to increase in the low-single-digit percent range, and professional service revenue is expected to increase in the high-single-digit percent range.

Before turning the call over to Q&A, I would like to talk for just a minute about Linda.

As you all know, last month we announced that Linda will be leaving Moody's after more than 12 years of outstanding service as our Executive Vice President and Chief Financial Officer.

We're grateful for Linda's service and wish her every success in the next phase of her career.

We're also grateful that Linda has agreed to remain at the company for a transition period, and I'm confident with the strong team she has built, her successor will be able to hit the ground running.

We're now focused on finding the right person to take on the role and I have begun a comprehensive search.

We'll be looking at both internal and external candidates and have engaged a search firm to assist us in this process.

Of course Linda's departure has no effect on our corporate strategy or financial priorities, which have delivered an unprecedented period of growth for Moody's during Linda's tenure.

This concludes our prepared remarks and joining Linda and me for the question-and-answer session are: Mark Almeida, President of Moody's Analytics; and Rob Fauber, President of Moody's Investors Service.

We'll be pleased to take any questions you may have.

(Operator Instructions) And our first question comes from Toni Kaplan with Morgan Stanley.

Your guidance calls for mid-single-digit growth in MIS after a year where the segment grew 17%.

And it looks like non-U.

S. is really the strong part.

So could you just give us some color on which geographies and products are really driving this high-single-digit growth in non-U.

S. in '18 and just also, just what you're seeing so far in 1Q, just given that it's the toughest comp for the year.

Sure.

Maybe we can kick it off by letting Linda talk about the consensus we used, that we've collected and I know Rob will have some comments on this.

Yes, Toni, thanks for the question.

I'll start with the views from the various banks that we survey and again, these views are the consensus views of those banks and not -- they may not line up exactly with Moody's revenue categorization.

Investment grade bond issuance for '18, the call is for $1.25 trillion of issuance, which is flat-to-down 10% from '17.

Notes include that the market remains robust with tight spreads offsetting rising rates and January '18, the second largest January on record after January of '17.

You probably noticed the growing M&A pipeline among investment grade borrowers, and we note the 87% probability of a fed rate hike in March, with an average expectation of 3 rate hikes in total in '18.

For high yield, the call is for $285 billion of issuance, flat to up 10% from '17.

Notes include high yield fundamentals remaining strong with demand for new issues and improving macroeconomic environment in relatively narrow spreads and issuance remains primarily driven by refinancing.

Year-to-date 2018 issuance is already up 10% year-over-year, and the forward pipeline is characterized as robust.

Potential headwind though is tax reform impact on companies with very high amounts of debt and low EBIT and EBITDA, and I'm sure we'll talk about that later.

On the leveraged loan front, the third category in the U.S., $500 billion is expected for 2018, flat-to-down 10% from 2017.

Notes include that the leveraged loan market remains strong and spreads are narrow.

Full year 2018 is expected to be down slightly from a record 2017 with upside should M&A activity accelerate or if rising rates create further demand for floating-rate paper.

And switching over to Europe.

Investment grade in Europe has had a bit of a slower start to issuance for the year but is expected to pick up post earnings season.

Spreads are near historical lows.

Some concern about the ECB QE tapering, but those are muted, and the euro area continues to see strong growth in GDP and corporate profits.

Speculative-grade in Europe notes include high yield and leverage loan markets are in good shape, with strong forward pipelines, though issuance levels face tough comps as compared to strong 2017.

Spreads are narrow due to strong demand and those are fueling opportunistic issuance.

So again, that's the view from the banks and then I'll ask Rob to comment a little bit more about the various sectors.

Thanks, Linda.

So Linda provided the Street estimates for issuance overall for U.S. corporate, generally flattish to slightly down.

Our forecast is broadly in line with those estimates as you'd expect.

And as you noted, Toni, we're coming off a very strong issuance from the corporate sector in 2017 in really all regions.

Just kind of tying this together, several factors influencing our overall issuance outlook this year.

And Linda touched on a few of these, but expanding global economy, this concept of synchronous growth across the G20.

First time we've seen all G20 economies growing at the same time since 2010.

Modest geopolitical risks, firming in commodity prices, declining default rates that are supporting the tight spreads that Linda talked about, and expect to see some robust M&A activity, which we think will help to offset some of the decline, the expected decline in the refinancing activity that we saw, particularly in the bank loan market last year.

There are obviously some risks, namely the recent increase in market volatility, and concerns about inflation and rate increases.

Currently our outlook hasn't really accounted for any kind of market disruption to issuance activity in 2018.

We didn't have that in 2017.

And then maybe as we take the issuance outlook and then build to the revenue guidance.

So obviously, there are several factors that go into how that then translates into revenue.

First, the issuance forecasts that I talked about, we also have some assumptions around mix, which you hear us talk about on many of these calls.

Then new mandate activity.

I'm happy to talk about the new mandate activity for the year at some point on the call.

Recurring revenue growth from an increase in monitored ratings and I think this is important -- this is about 1/3 of our total revenue, the recurring revenue.

You've seen some pickup in the recurring revenue growth rate over the last couple of quarters and that is due in large part to the growth in first-time issuers that we are now rating.

And then finally, kind of our standard pricing contribution and a bit of a favorability from FX, that gets us there.

That's great.

And just for my follow-up, Linda, I think this is a question everyone wants to know.

But what are your plans and what drove your decision to move on?

Thanks, Toni.

This is my 51st earnings call for Moody's, and I think it's just time to take a look at some other things that are out in the world, and very orderly transition and nothing really too exciting to say.

Don't have finalized plans as of this point.

And we'll go next to Peter Appert with Piper Jaffray.

Linda, I would just like to say thanks for all of your great work here over the last couple of years.

I am missing you already, big shoes to fill, for sure.

In terms of the RD&A business, the organic growth looked particularly strong in the outlook for 15% growth next year, just want to be clear, this is ex BvD, right?

That's one.

Two is, what's driving the -- what seems like better than recent performance in the RD&A business?

And I'm going to ask my follow-up in advance.

The margins in the legacy MA business, can you speak to the trend you're seeing there?

Peter, it's Mark.

So in RD&A first, just to be clear about what's in and what's out.

In '17, there is no Bureau van Dijk in the -- when we talk about organic RD&A for '17, that includes no Bureau van Dijk.

In the '18 guidance, we do have in the fourth quarter, Bureau van Dijk becomes organic.

So we will have Bureau van Dijk in the '18 numbers and reflected in our '18 guidance for RD&A.

So that's the -- definitionally, that's what we're working with.

Just to provide some color around the good -- the very good results we're seeing in RD&A.

I guess, I'd just call out that we had a very solid low-double-digit underlying growth in the credit research and data businesses, which was a result of our work to improve upon and expand the content delivered to our CreditView platform and our data peak.

New business production's been solid, customer attrition has remained very low, and our yield from existing customers generated strong growth as customer institutions are upgrading their usage rights and extending access to our content across more users in their organizations.

So in addition, we gained 2 or 3 points of growth in RD&A in the fourth quarter from one-time projects, which was mostly modeling work for customer stress testing in IFRS 9 requirements.

And our results were further helped in the fourth quarter by about 300 basis points of favorable FX.

So in short, we are seeing very good execution of our product strategy, with strong take-up of the range of our capabilities, plus some FX benefits.

That's what we saw in the fourth quarter of '17 that drove the very good numbers we had.

And as we look into '18, frankly it's more of the same.

We have good momentum going into '18.

We see continued good performance in all of the businesses, especially as we bring our new content delivery platform, CreditView 2.0, to the market in midyear.

CreditView 2 will provide a more modern interface, with expanded content and greater flexibility that accommodates access to a broader range of data, which will enable us to better cross-sell the Bureau van Dijk content.

And in addition, we will get a strong year-on-year contribution from Bureau van Dijk as the business moves into the organic category in the fourth quarter and we also expect continued favorable FX impact, which takes up our already strong full year outlook by another couple of points.

Got it.

And then how about the legacy MA margins and the trend you're seeing there?

Yes, well you saw in the fourth quarter, we had 300 basis points of expansion in the adjusted operating margin.

Most of that is from the legacy Moody's Analytics business, with some additional contribution from Bureau van Dijk.

So we're seeing good success as we continue to rigorously pursue our strategy to drive margin expansion in MA.

You may note that we had no headcount growth in Moody's Analytics next year.

Ignoring the addition of the Bureau van Dijk staff, we literally had 2 more people working in Moody's Analytics at the end of '17, compared with the end of '16.

So the strategy is to deploy the resources that we have against our very best opportunities, which we've identified and are pursuing them, and we expect to continue to pursue that strategy and feel good about where we're headed.

And Peter, it's Ray, I would just add, as we look forward in 2018, Moody's Analytics will be getting a larger allocation of our shared service expense, because of the increased size of the business, with the acquisition of Bureau van Dijk primarily.

So just in terms of what to expect.

Yes, and I think we will dive into that in some detail at Investor Day.

Peter also, it's Linda, just so everyone's aware, we're not helping Mark from the accounting perspective, here.

As we brought on the business we had to -- the BvD business, we had to move through a deferred revenue adjustment.

We handled some of that in 2017 and some of that will remain in 2018, just so there's a bit more guidance for modeling purposes.

We expect that there's about $16 million left of deferred revenue adjustment for Bureau van Dijk in 2018.

Just so you have the detail, quarter by quarter that lays out about $10 million in Q1, $5 million in Q2 and the rest in Q3.

And I think we're done with that once we lap to close the acquisition in August 2018.

So Mark is nodding.

Just a quick addition there, in terms of this deferred revenue haircut, in case it's not as well understood as it should be.

We'll go next to Anj Singh with Credit Suisse.

I was wondering if you could speak on capital allocation a bit, what you plan to do with the proceeds from tax savings.

It seems like you'd probably just delever quicker and faster.

But wondering if any tweaks or changes to your normal capital allocation priorities as we look to 2018?

Sure, it's Linda, and I'll let Ray help me with this one.

I think we announced, when we took on the Bureau van Dijk business that, with the $2 billion of debt we had added for that acquisition, our plans for '17 and '18 really centered on deleveraging after that deal.

In '18 we're planning to reduce our debt by about $500 million and we're ahead of schedule in that process, because we are seeing strong operating cash flow.

We think our capital allocation priorities are going to remain about the same.

We have some very good opportunities to invest in our business, which will always be job 1. In terms of our international cash, we probably have less cash offshore than many corporations do at this point because we spent $1.3 billion of it for the Bureau van Dijk acquisition.

So for Moody's, we may end up with a couple hundred million dollars of offshore cash to repatriate, but not a huge amount, so I think, we're going to stick to our plans and continue to focus on deleveraging.

And as I think Ray had mentioned, about $200 million of share repurchase on the docket for 2018.

Ray may have something else he might want to add.

No, I just -- I agree with how Linda has characterized our priorities.

It is deleveraging first.

We are going to be able to be ahead of schedule, as compared to our acquisition analysis on the deleveraging.

And at the same time, we are going to be able to make necessary investments in the growth of the business.

Okay, got it, that's helpful.

And then, for a follow up, could you just speak to MIS margins down year-over-year in the quarter?

I realize it's up strongly on a full year basis, but this comes despite the strength in revenue growth.

How much is driven by mix versus investments or just incentive comp?

And help us understand how these shape your outlook for that segment as it relates to your 48% margin guide for '18.

Sure, I'll start on this one, it's Linda.

And in fact, that MIS operating margin did decline by 110 basis points despite 19% growth in revenue in the quarter.

And on the full year basis, important to note that the MIS operating margin is up 190 basis points.

So we had some unusual activity in the fourth quarter, we would really point you toward the full year as being more indicative.

But in the fourth quarter, we kind of saddled Rob with some additional expenses here.

As you know, we had very strong performance in the fourth quarter, so we had to increase our performance-based incentive compensation, our stock compensation and we had profit sharing in 2017.

I think the total amount was a little over $10 million.

So all of that hit MIS.

The second thing that was important is, we had a little bit of a severance charge in one of the 9 U.S. businesses.

All that comes to a little bit less than $20 million or so.

So really just the result of a very strong performance and one little item that we rightsized.

But I think you should see, the margin, back to, as Rob had described previously, but I'll let him follow-up on this.

Yes, maybe just to give a little color about what we're going to do to continue to drive on the margin.

You've seen our results over the last several years.

We're continuing to look for further efficiency in managing expenses in a disciplined fashion.

So a couple of things I might just point to, that I think will support that.

First, we just this year completed a reorganization of our junior staff into a dedicated support organization.

That's going to help us manage our staffing more effectively through the inevitable ebbs and flows of issuance and drive up our resource utilization.

Second, we're leveraging technology in a variety of ways across MIS, we just launched our first bot in October as part of our robotic process automation initiative, and these bots are automating manual, repeatable tasks that are currently being done by people.

We're also developing workflow and analytical tools that are going to help the analysts be more efficient, spend their time focused on higher value-added activities, and the last thing I'd say is, we're hiring more staff in low cost locations, like India, and we're looking to open an office in Costa Rica this year through MIS, so that we can make sure we have the right jobs in the right places.

And this past year, to give you a sense, about half of our headcount growth was at our support center in India.

We'll go next to Manav Patnaik with Barclays.

My first question was just around guidance.

I usually -- typically you give guidance in the beginning of the year, it's conservative.

And I guess, is there's a few areas when, where I just need a little more help here.

I think one of the areas was on the corporate finance group, which I think Rob explained with -- mix and new mandates maybe, but similarly, the PPIF group, it sounds like, at least in the U.S. it's going to be down quite a bit, so maybe there's an international mix here, where it helps you down only low single digits, we would have thought more.

And sort of the second part, the guidance part, was just around FX.

(inaudible) Could you tell us the contributions you've assumed on the revenue and margin side, I presume that's a benefit, because your spot -- your guide is above the spot rate, which is unlike prior years, I believe.

Sure.

Why don't we let Rob start off on the outlook around PPIF and corporate.

Yes.

So keep in mind our PPIF segment has several rating lines in it.

We do have a mid-single-digit revenue decline as our guidance, but we have a significant -- we think that the U.S. public finance issuance is going to be significantly adversely impacted from the changes to the U.S. tax law, that's really around the loss of taxes at the exempt status, or advanced refundings in U.S. public finance, which was, depending on the year, somewhere between 20% and 30% of the market.

And the pull forward that we saw in the fourth quarter.

That's right, we saw some pull forward activity.

I think probably a modest slowdown in infrastructure after a very strong year around the globe and a pretty stable issuance environment in sub-sovereign and all that, then, kind of builds to ultimately, to our revenue outlook.

Yes on -- it's Linda, on the corporate side, before we move on away from Rob, I always encourage him to speak a little bit about what he's seeing in new mandates, because analysts have expressed interest in this.

So why don't you go ahead and cover that, Rob.

Yes, sure, and that also is going to touch on, I think one of Toni's questions around, the guidance around non-U.

S. growth.

So a really good story in the fourth quarter, 260 first-time mandates, that's up about 47% on a year-over-year quarter.

So that took us above 1,000 new mandates for the year, it set a new record.

We expect somewhere slightly below that number, but still another strong year for first-time mandate activity.

The strength in first-time mandates that we had, continued into the -- we see that into the pipeline.

And interestingly, as we look at the mix of first-time mandates and the growth, the European and Asian first-time mandates grew at a rate of growth that was about 2x first-time mandates in the United States.

So that then is contributing to that higher rate of growth for non-U.

S. revenues, at least in part.

And Manav, on the FX point, you're right.

FX -- the spots have been moving around quite dramatically.

We expect FX to have a 3% positive impact on revenue in '18, and 3% positive impact on adjusted operating income.

As you know, our main exposures are to the euro and the pound, and we put a pin in it with the pound at $1.42 to the dollar, as Ray said, the euro at $1.25.

And probably for your planning purposes, the rule of thumb here is that a EUR 0.01 decline in the euro takes about $.01 off our EPS, and the GBP 0.01 decline in the pound basically doesn't move our EPS all that much.

So we're a little bit more sensitive to the euro, and hopefully that will help you out.

Yes, we do note that the currencies are moving around a bit.

Okay, got it.

And if I could just have you give us the expense bill that you typically give us, going into the fourth quarter?

And maybe just that 3 point revenue growth, I presume MA has more of that, if you could just help price that out.

Let me give you the expense ramp for next year, which is what I think you're looking for.

For 2018, we're looking for an expense ramp of $60 million to $70 million and I'll get somebody to give me a first quarter exempt number, so we know what we're starting from here in just a minute.

The expense ramp, as you know can be very strongly impacted by timing of expenses, FX movement and as we saw this year, very strong, late period changes in incentive compensation.

So $60 million, $70 million is given what we know now, but we'll look at that as we go through the year.

So let's use a starting number for first quarter of 18, maybe sort of [635] might be a good place to start, and then, look at $60 million to $70 million increasing ramp as we move through the year.

And we'll go next to Jeff Silber with BMO Capital markets.

I hate to go back to tax reform, but I'm going to.

Even in your prepared remarks, or I think maybe (inaudible) remark about the potential adverse impact of tax reform in a high-yield market, I know it's still early.

Are you seeing any of that?

And then, even on the corporate side, or the investment grade side, excuse me, I know there was some noise early on about the limits on corporate expense, interest expense deductibility, and I know that we're watered down a little bit.

But again, are you hearing anything from your potential customers on that front as well?

Yes, Rob, you want to talk about what you've heard from people?

Yes, that's a good question.

As you can imagine, we're in very regular contact with the issuers on this topic.

And I think the general view is it's still very early days in terms of seeing any kind of change to corporate behavior.

The highly leveraged companies that we're speaking with, have not indicated that this is a significant issue, at least not yet, and obviously that remains to be seen because that's where the impact could be more noticeable.

And I would note though that there's an enormous amount of money that's been raised by the private equity firms that needs to be deployed, and we're seeing this in the form of a very active LBO market at this time.

And I'd just add.

In terms of the caps on interest rate deductibility, that is really going to only have an impact for firms that are at the bottom of the speculative-grade rating scale, so say B3 and below, and then obviously the actual impact will vary by individual company.

Okay, that's helpful, and I'm going to stick with the tax theme for my follow-up.

In terms of the guidance, the 22% to 23% tax rate for this year, is that inclusive of the stock-based comp benefit that you're getting in the first quarter?

Or should that be the number that we'd be using on a normalized basis in second, third and fourth quarter?

That's inclusive of the benefits in the first quarter.

I think your point is well taken that, that may weigh a little bit more heavily toward the first quarter, but put the majority in the first quarter, just because that's when we would expect a heavier exercise of options.

And I'd lighten it up a little bit in the second and third quarter, and then we should be pretty much through that.

I think we had a number somewhere around in these documents, approximately $40 million for that.

So you can kind of spread it as a headset.

And we'll go next to Craig Huber with Huber Research partners.

Linda, I just want to say you did a heck of a job and you'll be missed.

Thanks, Craig.

My first question, Ray or whoever would like to answer this, on the bank loan outlook for this new -- you've given the strength the last couple years, can you just talk a little bit further about your outlook for that?

I know you said some investment banks you checked in with for this year, down 0 to 10% or something.

I'm just -- what the puts and takes are to move that number higher or lower this year.

What are we looking for there on bank loans?

Well, I mean, certainly, to the extent that a floating rate debt is relatively more attractive in a more volatile interest rate environment, that could have a positive impact, at least relative to competition from the spec-grade bond sector.

Beyond that, I think so far, we are seeing good activity in the bank loan sector, reasonable pipeline.

But it's very early days.

Yes, and the only thing I would add to that is that we had an enormous refi wave over the last 18 months.

So the question will be, as we see an expected pickup in M&A, will that offset to some extent that -- what we think will be a decline in the refinancing activity?

Okay.

And then also, just real quick if I could, Linda, what was the incentive comp in the quarter versus a year ago?

I might have missed that.

And then also, if I could sneak this in.

What percent of your high-yield rating is outstanding, Ray, or, say, B3 and lower, as you've talked about earlier?

Craig, let me start with incentive compensation for the fourth quarter of 2017.

We've got about $72 million.

That was up from $59.6 million last year.

So call it around $12 million increase, 20% increase or so.

And Ray, may...

Yes.

With respect to B3 and below, I don't have a number for you off the top of my head.

If we can find the number during the call, we'll be happy to get back on and quote it.

The one thing I might say, though, is that the number of B3-and-below credits is a good bit lower now than it was in 2016, which was actually at an all-time high.

So we've seen that proportion decline.

I just don't have that -- the absolute percent on hand.

Craig, I just want to give you some more...

It sounds like you don't think -- go ahead.

I'm sorry, why don't you follow up there.

Go ahead, Craig.

I was just -- sorry, I was just going to ask, and so it sounds like, though, you guys don't think this interest expense deductibility issue from the tax reform is -- have a material impact on your high-yield piece of your business.

Is that a fair statement?

No, I think that is a fair statement.

It's a headwind, but it's not a tremendously strong one in our opinion.

Yes Craig...

And Rob was just telling me that B3 and below was about 14%, 15% of our spec grade.

And Craig, it's Linda.

I just wanted to speak a little bit more about incentive compensation because I think the detail would help.

We had some very lumpy quarters for 2017.

Incentive comp went $52 million, $51 million, and then third quarter was $83.4 million and then about $77 million in the fourth quarter.

But in the third quarter, we added to incentive compensation $5 million of profit sharing for the employees worldwide and $5.5 million in the fourth quarter.

So profit sharing requires that we put up some pretty good numbers in order to have that take effect.

But again, a total of $10.5 million for profit sharing, which falls into incentive compensation for the third and fourth quarter.

If you were looking to model this for next year, for '18, we're kind of thinking maybe $50 million-ish as incentive compensation kind of returns back to more normal numbers.

But again, if we put up really big numbers, the incentive compensation number does move up.

Conversely, if we miss, the incentive compensation number comes down as the bonus pools take the first hit.

So just wanted to make sure you understood the lumpiness there.

We'll go next to Joseph Foresi with Cantor Fitzgerald.

And Linda, congratulations on a good run, and best of luck.

Thanks.

Just to be clear about what's in the issuance guidance, so we're expecting no change to issuance from the tax reform at the corporate level, and you built in some expectations for at least a couple interest rate increases.

Is that a fair way of thinking about it?

Yes, we certainly are expecting interest rate increases this year.

And there are puts and takes to the tax reform.

Obviously, there's going to be repatriation of cash, there are the interest deductibility caps.

But at the same time, we think that this is going to support stronger economic activity, possibly mergers and acquisitions activity boost and investment back in business growth and business expansion.

So it's really going to depend on how those puts and takes balance out against each other over the year.

And Joe, it's Linda.

If you look at the futures, I think the markets are looking, as I said, for 3 interest rate increases with the first in March with an 80%-plus probability on that.

It's pretty important, though, that potential investors in Moody's take a look at times when this has happened before, and we'd point you back to our investor deck.

We've had periods where rates have gone up more than 100 basis points in a year.

We often cite 2008 to 2009 when rates went up 100 basis points; and then 2012 to 2013, rates up went up 120 basis points.

As Mario Draghi had said, he'd do what it takes to hold the Euro together.

In both of those periods, MIS revenues went up.

So it's very important to understand, as Ray had said, that growth is a very positive condition for Moody's, and we haven't had this synchronous growth for quite a long time.

So for us, if things move along as they are predicted to do, this could be very, very helpful for us, but we're going to have to see how things pan out.

And of course, the present volatility is something we're keeping a close eye on.

But as Rob had said, the bond market's reaction to all of that has seemed to be relatively subdued as compared to the equity market's volatility.

So hope that helps you a bit.

Got it.

And then as my follow-up, just as a point of clarification, how has issuance been at the beginning of this year with the markets kind of moving around a little bit?

And maybe we -- I can sneak one more in.

How's the competitive positioning of BvD within MA?

I think you talked about some takeaway wins last quarter.

I’ll just say -- Rob, do you want to tackle the first part?

Yes.

I think in general, we've seen issuance in line with our expectations.

But specifically, very recently in regards to the recent volatility, I mean, first of all, many of the issuers are in blackout periods.

So this is normally a little bit lighter period of insurance.

In general, obviously, rates are up, spreads have widened a bit, but I would say that the pipelines looks steady, and that's -- everything that I'm hearing indicates that, as Mark -- as Linda said, the market -- the bond market took this a bit in stride.

If you think about the spreads, they did move out about 25 basis points, but they were at kind of 4-year tights before they did that.

In the U.S., we've seen a deal or 2 postponed.

And I would say those were on the more aggressive end of structures.

We've also seen some sizable deals get done this week and in this market, one recently for some acquisition financing.

I think the general view is still constructive.

At least that's what we're hearing now.

And issuers, I think, will continue to come to market if they have a financing need.

What we may see is some of the opportunistic issuance taking a bit of a pause to wait on the market to digest some of this volatility.

And in Europe, I think a pretty similar story.

You've got investors with very robust cash levels.

The debt markets, I'd say, they are perhaps being a bit more selective.

But again, a pretty constructive tone is what we're hearing.

The loan market there, a little bit slower to react to this volatility, and we're seeing continued flow of primary issuance in the loan market.

And you know that last year was quite a strong year of issuance in the European loan market.

And unlike 2017 but like earlier years, when we get volatility like this, I think it's particularly important to keep an eye on the pipelines because issuers will wait for relative periods of calm and then they will be poised to go opportunistically.

So the pipeline has become a very important indicator for future health of the market.

Mark, did you want to comment on BvD?

Yes, could you repeat the question please?

I just want to make sure I'm being responsive.

No, looks like we lost Joe.

The business is...

Joe, get back on.

Oh, okay, sorry.

Go ahead.

I think last quarter, you had talked about some competitive takeaways now that you had MA and BvD together.

And so I was just curious if you could give us an update on what's happening in the competitive environment as you go after some market share with the 2 companies now together.

Sure.

It's still -- frankly, it's still relatively early days for us to execute on some of the plans we had and what we could do together with Bureau van Dijk.

But we're making good progress on some joint product development efforts.

Again, there were some products that we had planned to build and launch in Moody's Analytics that Bureau van Dijk already had a reasonably well-developed product in that area.

And so we've been working together with them to complete the build-out of that product and add some of the additional features and enhancements that we had planned to create independently.

So we will be going to market with that product early this year, and we feel very positive about the opportunity and the prospects there.

And we'll go next to Tim McHugh with William Blair & Company.

Just to follow up on that, can you -- if you will -- if you're willing, I guess, any sense for the underlying growth rate of Bureau van Dijk kind of on a pro forma basis and -- I guess in the fourth quarter kind of what you're thinking about going forward into 2018?

Yes, Tim, what I'd say is that Bureau van Dijk has historically been growing at high single digits, low double-digit kinds of rates.

And in the back half of '17 after the acquisition, we saw a sales growth at those kinds of rates, and we see that momentum flowing into 2018.

And that's sort of inherent in our outlook for the business and its contribution to MA overall.

So we see the business continuing to perform well at or maybe a little bit above the overall Moody's Analytics growth rate.

Okay, great.

And I know it's a smaller piece, but professional services, it's picked up lately and the guidance is good.

I imagine currency is impacting that a bit.

But is there a story, I guess, to their improved performance there lately?

Yes, the story, Tim, is that we've got 2 pieces for that business: Our Knowledge Services business, where we outsource our research and analytical staff from our platform in India to our clients around the world; and then our training and education business.

Both of those businesses struggled a bit over the last couple of years, but we've done a number of things operationally to get them on track.

And early in '17 or midyear '17, they both sort of turned it around, and we're starting to see good results coming out of both of those product lines.

Customer attrition is down.

New business production is up.

So we're seeing good progress and good momentum in both of those businesses.

You're also quite right, both of those businesses, particularly the training business, we're seeing some benefit from FX there as well.

But generally, we think we have 2 good turnaround stories there, and we're optimistic going into '18.

Tim, it's Linda.

Just a quick follow-up on that.

Earlier in '17, we turned over the [MAX] business, which I had been running for 2 years to get it up to SOX compliance standards for U.S. public company.

We turned that over to someone in the -- from the sales organization, in Mark's organization.

And quite frankly, we've seen very nice results on the sales front as we've done that.

And now the business is operating very nicely within the Moody's framework and quite safely with an interesting journey from an Indian -- 2 Indian private companies to a U.S. public company standard, and then Mark's team has really turbocharged that on the sales front.

So that has been a happy story, and thank you for noting that change.

And we'll go next to Alex Kramm with UBS.

I'm going to come -- go back to the beginning when you -- when Rob, I think, mentioned the strong issuance last year and how that could lead or should lead to higher recurring revenues in MIS this year.

Can you put a little bit more meat around that?

I think in past years when we had strong issuance, I've seen that like monitoring piece up in like the high single digits.

And obviously, FX helps that, too.

So is high single digits kind of what we should be thinking about on the recurring MIS side here?

Or could it even be better?

Any color?

Yes, I don't think we typically guide on that, but you have seen an acceleration of the growth rate of the recurring revenue over the last few quarters.

And again, it's the -- just because we have issuance doesn't necessarily mean we're going to have growth in recurring revenues because that issuance could come from existing issuers.

So it's really -- you really have to look at the growth of the first-time issuers, first-time mandates, and that really is, I think, the best future indicator of recurring revenue growth.

Yes, I mean, you'll recall that we had a little over 1,000 new rating mandates in 2017, and that rolls forward into monitoring a relationship on a going-forward basis.

Great.

And then just switching to BvD also for a minute here.

I know that you've owned the company for a few months.

I -- you've gone through a few renewals of clients.

So can you just tell us about the pricing opportunities you have seen as you renew?

And then related to that, a, is there actually seasonality in renewals?

Or any seasonality you would call out as we think about modeling '18 for BvD or RD&A combined now?

Yes, well, let me take the first part there -- the second part first, Alex.

There -- no, there's not any particular seasonality in the underlying business.

So I don't think you need to really think about that too much.

And then on the business generally and the opportunities there, the business is performing well.

We are -- we have a Moody's Analytics executive now running the business and applying some of our processes and practices to the Bureau van Dijk business.

But it's a good, solid business, and it continues to perform very well.

It's not as though it's broken to begin with.

We do continue to see some -- substantial opportunities for us on the cross-selling side, on the product development side as we share content between Bureau van Dijk and Moody's Analytics.

And in -- on -- with regard to pricing.

So we have -- candidly, we have not hit that particular lever real hard just yet, but we'll continue to look at that, and we'll look at that in the context of the other work that we're doing on the product development side.

And we'll go next to Vincent Hung with Autonomous.

Just one for me.

So if the fears around high rates persist, would you expect maybe an acceleration of issuance from prefunding of late '18 and '19 maturities?

No, we're not counting on a lot of pull forward from '19 into '18.

It's -- in our view, the positive side of the story is really going to be around economic growth, business expansion, borrowing for business expansion, and around M&A.

So that's where we'll look for the upsides more than pull forward from '19 or even '20.

We'll go next to Conor Fitzgerald with Goldman Sachs.

Just one on the potential impacts of an infrastructure build to your business.

As we potentially at least maybe see a bill makes its way through Congress, what will be the key provisions you'll be watching that could indicate whether it's going to have a meaningful impact on your business or potentially nominal -- not much at all?

Yes, I mean, we've certainly seen the media coverage on the infrastructure build.

It should have a potential positive impact on our PPIF business, but, of course, that depends on how the final legislation is actually structured.

And to the extent that it would allow for use of tax-exempt bonds to finance infrastructure projects, that could increase the sale of debt.

So that would be a positive.

Rob, do you have anything to add on that?

Yes, a few things to look for.

I mean, obviously, there is some -- there's been some discussion about the infrastructure bill.

Talking about $1.5 trillion, not large in the overall scheme of the U.S. economy, but it would be an increase, I think a significant increase over the current level of infrastructure spending in the United States.

And I think we then want to look at the mix of federal versus state and local funding to understand if that will have an impact on how that translates into issuance.

And then another topic is around regulatory approvals and time frames and how long will it take this infrastructure investment to actually make it to the market.

I know there's been some discussion about shortening those approvals, but some are at the federal level and others are at the state and local level.

That's helpful color.

And then I just wanted to ask on the cap -- sorry, the cash position and how to think about the leverage in the business.

Just post-tax reform, any thoughts around changing how you think about how levered Moody's should be just given you convert a higher percentage of your EBITDA into actual cash income?

And then just on the debt paydown, I was looking at your guidance for $1.6 trillion of -- oh, sorry, $1.6 billion of free cash flow, looking at $500 million for dividends and buybacks; $500 million for debt paydown; and then CapEx, another $120 million.

It still feels like you've got some extra dry powder there.

So just wondering and think about how to -- how that could get deployed.

Yes, it's Linda.

I think we intend to proceed, as we had said, on our ratings level and our leverage levels.

We don't like to be right at the edge on any of those things.

But your observation is correct, we probably have a few hundred million dollars of potential additional dry powder if things continue as we're seeing now, which we could potentially use in another way.

In terms of what we're going to do with the interest paydown, and then I'll let Ray add some further observations to this, we've got an additional $39 million in interest expense from BvD throughout '18.

That addition is $11 million in the first and second quarter, and it kind of ramps down to $9 million and then $8 million in the third and fourth quarter.

So probably going to prepay the most expensive debt first, as you would probably imagine.

So that's how you can probably take a shot at modeling that.

But we sort of like our leverage levels.

We like to remain consistent.

And with a little bit of luck, we'll do perhaps a bit better than we had expected, and we could delever a bit more quickly or have a little bit more dry powder.

And maybe Ray would like to expand on that.

No, the only thing I would add is to the extent that we are able to delever ahead of what we had previously been anticipating, we certainly will go back and look at our capital policy and how we want to handle that.

We'll go next to Shlomo Rosenbaum with Stifel.

And the first question, just Linda, would you be able to bracket the tax impact on free cash flow through the tax legislation?

Sure.

We were able to, for '18, add about $150 million to free cash flow from the reduction in the tax rate, which is helpful.

Might be interesting, Shlomo, to take a look at the increase in our '18 adjusted diluted EPS guidance.

And we're moving from, if I got this right, to about $6.07 to a midpoint of a little over $7.70.

I think what we have there is about $0.65 of that from U.S. tax reform, about $0.40 each from BvD and the business and maybe $0.15 coming from FX and other things.

So $0.80 of our increase there is really coming from our business and the acquisition, $0.55 from tax reform and the rest from FX.

In terms of the operating margin expansion, we also got the question about how much of that is from FX.

So if you look at that 70 basis points, only 10 basis points is from FX.

So we're doing most of that the hard way.

So I hope that all of that is helpful to you and thinking about where we're going with '18.

Okay, great.

Just as a follow-up just a little on BvD, they're a prime competitor of yours in Benelux, what was D&B, and they sold that business to a private investor about 1.5 years ago.

Is there any change in competitive environment back then?

I mean, one of the reasons they sold were -- was because they were being challenged by BvD.

I want to know if the old D&B business has become more competitive for you guys over there.

Bureau van Dijk has a terrific market position in Europe and has for a very long time.

We have not seen any meaningful change to the competitive situation there, which is not to say that there isn't competition, but we feel that we're very, very well positioned.

We feel good about where we are.

And we'll go next to Bill Warmington with Wells Fargo.

So Linda, I just want to say phenomenal run.

Congratulations.

And I look forward to when our paths cross again.

Thanks, Bill.

I wanted to ask a question on the -- on RD&A.

You talked about the strong organic growth there and some of the drivers.

A nice pickup in the core research business.

You also highlighted 2 to 3 points coming from onetime projects.

And you also mentioned the BvD deferred revenue adjustment.

So I'm trying to weigh those pieces, and I want to ask for your help in terms of how I should think about the constant currency organic revenue growth to RD&A normalized for all these things kind of going forward.

Yes, I guess, Bill, going forward, I think you can think about the underlying legacy business performing at high single-digit kinds of rates.

That's -- and then we've got a number of things that boost the overall results.

We've got the addition of Bureau van Dijk, we've got the FX impact, which takes us up from there.

Is that helpful?

Got it.

So -- well, not to put words in your mouth, but it sounds like once you've normalized for the factors kind of as you're exiting 2018, it sounds like you're going to be like low teens, maybe mid-teens as kind of an organic growth on that piece.

Is that the way to think about it?

Or am I missing it?

Yes, that sounds a little high, Bill.

I'm not sure how you did that.

Okay, fair point.

All right.

And then on the -- one last question and then for my follow-up on the low single-digit growth on ERS.

Maybe give us some color there in terms of what's driving that.

Yes.

Continuation of the story we've been talking about for a while there, and I guess there are really 2 pieces to it.

There's the very intentional product strategy that we're pursuing, where we've -- we're moving away from a business that was driven rather substantially, where growth was driven rather substantially by lots of one-off project work that we were doing as large customers were asking us to install our software and configure it in a highly bespoke manner for them.

We were moving away from that business now that we've established what I think is a pretty strong market position, moving away from that very customized kind of business to delivering much more standard product where we can sell a larger number of units ideally on a subscription basis and reduce the amount of low-margin services work that we're undertaking.

So we've got the services business declining very intentionally.

We're taking on less and less of that work.

And the product business is growing at a good clip.

But as we make this transition from a services-led business to a product-led business, we have this period where the decline in services is offsetting the growth in product.

As we work through that more this year, that situation will start to stabilize, and then we'll be growing off of a more stable base as we move into '19.

So that's one part of the story, which I guess I would characterize as the idiosyncratic part of the story, And then the market part of the story is that we -- ERS was growing very, very well over the last number of years through 2016, driven heavily by new regulation that banks are dealing with around capital adequacy and liquidity and stress testing, et cetera.

That regulatory wave has matured.

We don't see nearly as much new regulation being placed on banks with respect to those kinds of issues.

So the regulatory driver of demand has dissipated.

And so we're also dealing with a softer market environment at the same time that we're executing this shift in product strategy.

So we have 2 things going on that is constraining growth in the ERS business.

It's Linda.

Also, in terms of other things we're doing to make Mark's life a little bit more tricky, you may have heard about the new accounting standard, revenue recognition standard 606.

We have to bifurcate software subscription licenses.

That requires a lot of accounting work to reclassify some of these things.

And near term, that's going to add a little bit more volatility, maybe 1% negative, on MA's overall results in '18.

As we move through that, that should smooth out as we get later on in the year.

It's pretty technical set of changes, but just wanted to let you know that, that is going on and it's something that all software companies have to adopt.

You'll be seeing more of that -- detail on that as we release our 10-K.

And we do have a follow-up question from Craig Huber with Huber Research Partners.

Can you just flesh out a little bit, if you would, of this very strong growth you had in the fourth quarter in finance institutions and obviously for the year as well in 2017?

You're looking for, I guess, up mid-single-digit revenue growth in that segment this upcoming year.

So decent growth on top of a stellar year.

Just, well, what's going on there, please?

Yes, I mean, a large part of the story was the interestingly titled Issuance From Infrequent Issuers in the fourth quarter.

And that was -- there was strength in that outside the U.S. as well as inside the U.S. Rob, I don't know if there's more detail you have on that.

Yes, that's right.

I mean, in the U.S., it was across banks, insurance companies, cards, securities brokerages.

In Europe, really driven by this continued issuance as part of the move towards building levels of bail-in-able capital as part of TLAC in the resolution regimes in Europe.

So that's been on kind of a full year trend.

And in Asia, we saw some good issuance from Chinese asset management companies, ASEAN.

And we even saw some good issuance activity from our affiliate in Korea, where there was a good bit of issuance from subsidiaries of foreign banks.

So like Ray said, a lot of issuance that tended to come from issuers who aren't hitting the markets frequently.

As you know, Craig, there's a more relationship-based construct, and we expect the -- you can see our guidance.

We would expect to move back to something that looks more like that in 2018.

And that concludes today's question-and-answer session.

Mr. Ray McDaniel, at this time, I'll turn the conference back to you for any additional or closing remarks.

Okay.

I just want to thank everyone for joining the call today, and we look forward to speaking with you at Investor Day on February 28.

Thanks again.

And this concludes Moody's Fourth Quarter and Full Year 2017 Earnings Call.

As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Fourth Quarter and Full Year 2017 Earnings section of the Moody's IR homepage.

Additionally, a replay of this call will be available after 3 p.m.

Eastern Time on Moody's IR website.

Thank you.