Operator:

Good morning, and welcome to S& P Global's Second Quarter 2024 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation and instruction will follow at that time. To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions] I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Doug Peterson:

Thank you, Mark. S&P Global delivered an incredible first half in 2024 as the second quarter saw accelerated revenue growth, significant margin expansion, and the highest quarterly adjusted EPS in our company's history. Total revenue increased 16%, excluding the divestiture of engineering solutions. Transaction revenue in our ratings division continues to drive significant outperformance at more than 60% growth. The revenue from all our subscription products across the company also increased 8% year-over-year in the second quarter despite some of the market headwins that are common across our industry this year. We delivered 450 basis points of margin expansion year-over-year and 30% growth in EPS as we captured market demand and contained our expense growth. As you saw last month, we also announced our CEO succession plan which I’ll discuss in a moment. We’ve been cultivating more than just our leaders at S&P Global and we’re pleased with the product innovation coming to the market in the second quarter. The June release of CapIQ Pro included significant enhancements, and we launched new benchmarks and commodity insights. We continue to accelerate our deployment of generative AI and launch new capabilities both at the division and enterprise level. We also continue to optimize our portfolio of businesses and products, with Visible Alpha closing in the second quarter and the recent signing of an agreement to divest Fincentric, which we expect to close in the third quarter. We're excited that we get to cover key developments in each of our five strategic pillars this quarter, beginning with our customers. S&P Global rated more than $1 trillion of billed issuance in the second quarter. Growth was diversified across public and private markets, as private market participants increasingly turned to S&P Global for expertise in assessing credit risk. Revenue from rating services in the private markets increased more than 70% year-over-year in the second quarter. We continue to create new products from the combined data sets and solutions of S&P Global and IHS Market to create incremental value for our customers. In the second quarter, we achieved nearly $200 million of annualized run rate revenue synergies. As Chris will discuss in a moment, this puts us ahead of the pace to achieve the $350 million in revenue synergies we're targeting in 2026. It's remarkable that we're able to deliver these strong results despite the well-known market headwinds that continue to impact pockets of our business. Our diverse customer base and broad product portfolio provide for more stable financial performance for the company overall, as headwinds can often be offset by tailwinds. As an example, while renewal rates were slightly lower than last year in market intelligence this quarter, renewal rates were slightly higher than last year in commodity insights. These market dynamics are not unexpected, and the financial impact was largely included in our initial guidance. Despite macroeconomic cyclicality, we continue to find ways to help our customers achieve their goals using our differentiated data and product offerings. This ability to align our product innovation and investment with customer needs was further demonstrated in the second quarter by the acceleration in revenue growth from our private market solutions and our sustainability and energy transition offerings. Turning back to billed issuance, it increased 54% year-over-year in the second quarter. We continue to see tight credit spreads contributing to favorable market conditions. We also saw modest improvement in some of the important macroeconomic indicators, particularly in North America, that have lent strength to the issuance environment. We continue to see particular strength in bank loans and structured finance, along with robust growth in high-yield investment-grade bonds. Refinancing activity was very strong in the quarter as we saw a pull forward of issuance from investment-grade issuers refinancing 2024 maturities, as well as speculative-grade issuers refinancing 2024 and future-year maturities. This leaves some uncertainty around the back half as we wait to see how much of the out-year refinancings get pulled into 2024. This continues to inform our view that the second half will be softer than the first half in terms of billed issuance and transaction revenue in our ratings business. With the timing and likelihood of any rate cuts in the U.S. market still uncertain, our base case still assumes a modest year-over-year decline in issuance in the fourth quarter. Turning to Vitality, newer enhanced products generated $375 million in the second quarter. This represents 11% of our total revenue and an improvement from the 10% we reported last quarter. Key contributors to our Vitality Index are unchanged from last quarter as we see strong demand for CARFAX listings and the CARFAX Banking and Insurance Group. We also see strong growth in energy transition and climate products from our Commodity Insights Division and Sustainable Bonds from Ratings. As you'll recall from last quarter, key contributors from our pricing valuations and reference data, as well as several thematic and factor-based indices, matured out of the Vitality Index at the end of the year. We're encouraged by the continued acceleration and the pace of innovation of S&P Global and look forward to maintaining our Vitality Index at or above the 10% target. As we look to examples of that innovation, a common thread running through many of the products we're bringing to market is our enterprise expertise in generative AI. In the second quarter, we launched ChatAI on Platts Connect. Launched as a new platform combining Platts Dimensions Pro with IHS Connect, the Platts Connect platform provides access to a truly massive amount of data, research, and insights to power the global commodity markets. With the depth and breadth of information in the platform, we new users would need an intuitive way to navigate and find the information that would be critical to their daily workflows. ChatAI is a powerful customer tool developed through a partnership of Kensho and Commodity Insights that uses generative AI models to provide real-time responses to conversational user queries to help them quickly find the necessary data to make informed, faster decisions. In addition to this AI-powered interface, Commodity Insights continues to bring new benchmark Price Assessments to market. Our Platts team introduced five daily Price Assessments for beef and four daily Price Assessments for poultry, as well as a new report with up-to-date coverage of the protein's market. These continue to broaden and strengthen our position in agriculture commodities. We also continue to scale new functionality in our differentiated energy transition offerings. We significantly enhanced our global integrated energy model in the second quarter, which now enables modeling and scenario building for energy demand in over 140 countries using deep data sets going back more than 30 years. With our enterprise focus on artificial intelligence, we've continued to develop internal tools, including new functionality in the S&P Spark Assist platform we introduced earlier this year. Approximately 14,000 of our people are using Spark Assist internally after just a few short months. As we shared with you last quarter, this platform is designed to be cost effective, vendor agnostic, highly scalable, and secure by design. By encouraging collaboration across the enterprise, we're able to quickly iterate on time-saving use cases and share those developments across the company. We're already seeing users leverage S&P Spark Assist to optimize code, rewrite configuration files for software migrations, and summarize complex documents. We've also used it to aggregate and digest feedback and ideas that we receive through our employee engagement surveys in town halls, empowering leadership to more effectively act on what matters the most to our people. We believe this crowd-sourced approach to developing tools shortens the time to discover and develop new applications using GenAI models. Leveraging LLMs from multiple sources allows us to benefit from the rapid innovation taking place across the technology ecosystem without being locked into a single vendor. Lastly, the June release of CapIQ Pro brought powerful enhancements to the platform that we believe will strengthen our competitive position and create meaningful value for our customers. We fully integrated the fixed income data from IHS market, which brings data on more than 19 million government agency and corporate fixed income securities and makes it readily available through the CapIQ Pro platform. This was a tremendous undertaking made possible through the merger that will benefit our existing customers and help potential customers more easily see the incredible value in CapIQ Pro. The June release also included a complete reimagining of the charting and visualization capabilities within CapIQ Pro, deploying the technology and expertise that came to us through the Chart IQ acquisition. Back to the theme of generative AI. We also introduced transcript summarization within CapIQ Pro. This new tool was built organically and not only provides a quick summary of earnings calls, it also organizes topics and sentiment and empowers the user to immediately click through and find the direct quotes behind the summaries. And it's built on a foundation of Scribe developed by Kensho four years ago. I want to take a moment to discuss an important acquisition that closed in second quarter. Visible Alpha is well known and highly respected among both our customers and our investors. And we're excited to see the progress the market intelligence team has already made since closing the deal in May. Visible Alpha compiles highly detailed financial models via direct feed from over 200 contributing brokers. With over 6,000 contributing analysts including most of the analysts joining us on this call, Visible Alpha has the most detailed and comprehensive consensus estimates available anywhere in the world. We frequently hear from customers that they could not do their jobs without it. S&P Global's position as a trusted partner across the financial markets is opening doors for visible health and private equity, banking and consulting, and driving further penetration and asset management and research. Leveraging the strength of S&P Global's relationships, brand and commercial teams, we've already seen a 5% increase in number of contributing brokers in just the last three months. In addition, we've generated over 150 sales leads and closed 10 deals already. We've seen numerous opportunities to leverage the Visible Alpha Platform in conjunction with the differentiated datasets throughout S&P Global to create unique, deep sector content. We look forward to sharing new developments in the coming quarters. Now, turning to a very exciting announcement we made in the second quarter that fittingly comes under our four strategic pillars, Lead and Inspire. In June, we announced that I will be retiring from my role as President and CEO of S&P Global effective November 1st. Martina Cheung, the President of Ratings and Sponsor of Sustainable1, will become the 11th CEO of S&P Global since we were listed on the New York Stock Exchange over 90 years ago. We are very pleased to see our succession plan work the way it was designed, with development of strong internal leaders resulting in a unanimous decision from our board of directors. I'm focused on delivering strong results over the next few months as I work with Martina on a comprehensive transition plan before she takes over November. As you might have seen, I'll stay on the board until the next shareholders meeting and on as an advisor until the end of 2025. Martina has already joined the board of directors and is working hard to get ready for November. We will have more to say on the transition next quarter, but it's been wonderful to see the outpouring of support and appreciation for Martina from customers, employees, and shareholders. Turning to our financial results, with strong growth across every division, we continue to meet increasing market demand while maintaining expense discipline. We saw accelerating revenue growth in the quarter, and on a trailing 12-month basis, we have expanded our operating margin by 300 basis points. Now let me turn to Chris Craig, our interim CFO, to review the financial results. Chris, over to you.

Doug Peterson:

Thank you, Chris. Our financial guidance assumes Global GDP growth of 3.3%. U.S. inflation is 3% and an average price for Brent crude of $84 per barrel. We continue to see fluctuations in the market expectations for rate cuts. Though our base case still assumes there'll be one rate cut in the U.S. in the second half of 2024. While the macroeconomic indicators that help inform our guidance are very similar to last quarter, we're significantly raising our financial outlook for the full year. We're increasing our build issuance forecasts for 2024 by nearly 20 percentage points. Given the dramatic increase in issuance in the first half, we now expect growth in build issuance to be approximately 25% compared to our prior range of 6% to 10%. In our most recent study of debt financing, we examined the volume of debt set to mature over the next several years. We're presenting this data in a slightly different way than we have in the past in the hopes it's more easily interpreted by analysts and investors. Here, we compare the amount of S&P global rated debt set to mature over the next six months, 18 months, and so on out more than seven years as of July 1st in each of the last three years. As you can see, there is very little debt set to mature over the second half of 2024, though this is consistent with what we've seen in prior years. On a cumulative basis, the maturity walls coming over the next several years gives us confidence in the long-term strength of our business. Though the timing of that refinancing activity remains difficult to predict on a quarter-by-quarter basis, all of these factors impact our new full-year guidance calling for higher growth, stronger margins, and substantial generation of free cash. This slide illustrates our current guidance for GAAP results. We're once again raising our enterprise outlook for the full year on all headline metrics given the strength of the second quarter and our improved outlook for the second half. We now expect revenue growth in the range of 8% to 10%, adjusted operating margin expansion of 125 basis points to 175 basis points, and adjusted diluted EPS in the range of $14.35 to $14.60, representing a $0.50 increase from our prior guidance. Additional details on our consolidated financial guidance can be found on our press release, but I also wanted to note that we've increased our guidance for adjusted free cash flow to approximately $4.7 billion, up $200 million from our prior guidance, and reflecting the strong results year-to-date. Moving toward division outlook, our revenue guidance for Market Intelligence is unchanged, and we continue to expect revenue growth in the range of 6% to 7.5%. This guidance reflects the contribution from Visible Alpha, which closed in May, largely offset by the loss of revenue following the divestiture of Fincentric later this quarter. Importantly for models, Visible Alpha is reported in the desktop business line for Market Intelligence, which should accelerate on a reported basis in the second half, while Fincentric is reported in the enterprise solutions business, which should see a corresponding deceleration in the second half following the divestiture, particularly in the fourth quarter. We're raising our outlook for Ratings Business substantially, following the second quarter performance. We still expect the second half to be softer than the first, reflecting normal seasonality, but exacerbated by the level of pull forward that we believe took place thus far this year. For the second half, the favorable market conditions and improved visibility and form a slightly more optimistic view around the third quarter in a modest year-over-year decline in both build issuance and ratings transaction revenue in the fourth quarter. Our revenue guidance for commodity insights is unchanged. We're slightly lowering and tightening the guidance range from ability revenue growth. As we noted last quarter in this morning, the recall business has been abnormally soft year-to-date, and we expect that softness to continue in the second half. The recall business is non-recurring and difficult to predict, but the lowered outlook means that the remainder of the revenue is more predictable, recurring subscription, which gives us confidence in the tighter range of 8% to 9% revenue growth compared to the prior range of 8.5% to 10%. We've also seen significant outperformance in our indices division in the first half, and we're raising our guidance again. We now expect revenue growth in the range of 10% to 12%, up from 9% to 11%. Importantly, this guidance assumes market levels are essentially flat from levels at the end of June. Turning to our margin outlook, for Market Intelligence, while the revenue impacts from Visible Alpha and Fincentric, are largely offsetting, the net impact is expected to be modestly dilutive to margins in 2024. As such, we're lowering the margin guidance for Market Intelligence to a range of 33% to 34%. For Ratings, we're raising the margin guidance by 100 basis points to reflect the strong revenue outperformance, partially offset by higher expected incentive compensation expense. Commodity Insights margin guidance is unchanged. For Mobility, given our expectations for softer revenue from the recall business, we now expect margins in the division to be slightly lower in the range of 38.5% to 39.5%, down 50 basis points from prior guidance. Our margin expectations for Indices are unchanged despite the higher expected revenue growth as we plan to continue investing to position the business for growth through 2024 and beyond. With that, I'd like to invite Martina Cheung, President of S&P Global Ratings and Executive Lead for Sustainable1, to join us. I'll turn the call back over to Mark for your questions. Mark?

Operator:

Thank you. Our first question comes from Ashish Sabadra with RBC Capital Markets. Your line is open.

Douglas Peterson:

Thank you, Ashish. This is Doug. First of all, thank you for the question. And let me start by mentioning that the softness that we saw was something that we expected. As you know, there were over 60,000 seats that were eliminated from banks and investment banks since the COVID cycle. We saw softness as the interest rates had gone up. They spiked in 2022 under with underlying inflation. We do see some of that business starting to come back. You saw very strong debt capital markets, equity capital markets. Some of the investment banks signaled that there was going to be a return of M&A. But we do see that within the large banks, so basically, the sell side that there is some talk about vendor consolidation, there's a slowdown in the negotiation of contracts. So let me talk about a few of the ways we think about it. First of all, as you know, we have enterprise contracts. The enterprise contracts are not negotiated by seat. They're not negotiated every single year. We see that we have a strong opportunity to bring more and more data to the discussion as people look at vendor consolidation. As we enhance our technology, we improve all of our different products and services that we have. You heard us talk about what we've been doing with the Desktop by enhancing it with new services and new products. But let me turn very quickly to a couple of the products themselves. As the Desktop was enhanced with Visible Alpha. Visible Alpha is a must have product and service. As I said in the prepared remarks, probably everybody on this call is using it. We've seen a great increase in people coming to the product. When we closed the deal, we had 180 contributing brokers. Now we have over 200. We also saw that with the new release of the Desktop, a really good results from the new visualization tools that we added. Let me mention one other sub segments on Enterprise Solutions, which grew at 11%. That also was very much driven by what we saw happening with the capital markets improving. So we see, many different aspects to Market Intelligence. The last thing I want to mention is we did reiterate our guidance, which is in line with what we said earlier this year. Thanks for the question.

Manav Patnaik:

Thank you. If I could just follow up on that in Market Intelligence. Firstly, could you help us with the annualized contribution both from Visible Alpha and I guess what's lost from Fincentric? And just along those lines, what we should anticipate in terms of your continued participation in this vendor consolidation? And are there other things like Fincentric that could be cleaned up there as well?

Mark Grant:

Yes, Hey Manav, just to make sure we're really clear here, the percentage points impact that we're talking about were to market intelligence revenue growth, not to the company as a whole. Thanks.

George Tong:

Hi, thanks. Good morning. You raised your build issuance outlook from 6% to 10% to about 25% for the full year. In terms of issuance category, where did your outlook for the year change the most for build issuance and what were the drivers?

Doug Peterson:

Thanks, George.

Faiza Alwy:

Yes. Hi. Good morning. I wanted to ask about the index business and what you're seeing there specifically with data and subscriptions. I know at one point we had talked about sort of growth accelerating here. So just curious on what type of trends you're seeing generally in the index business and on the subscription side.

Operator:

Thank you. Our next question comes from Heather Balsky with Bank of America. Your line is open.

Douglas Peterson:

Heather, let me take that. And as you know, we always believe that it's important for us to have investment in new products, new areas, new services. You saw the benefit of many of those this quarter. Our Vitality Index, which is revenue that we start the beginning of the year with about a 10% approach to what we want to see for the percentage of our revenue, that grew this quarter to 11%. That's a very important indicator for us to see growth in the innovation, the investments we're making. We've been investing in a couple of key areas. Private markets is one. Another relates to Sustainability & Energy Transition. Artificial intelligence is one, and there's many other subcategories that are important for us. We know that the ability to continue to have loyal customers, the ability for us to generate positive pricing is always going to be based on the value that we bring to our markets, the value we bring to our customers. So you're going to see us continuing to set aside capital to invest. And fortunately, we've been very successful in the last few years. That doesn't mean that we are successful with everything we do, but we're very pleased with the track record we have. Thanks so much for the question, Heather.

Toni Kaplan:

Thanks so much. I wanted to ask about AI. You had a very early head start when you bought Kensho, but maybe just talk about how you're viewing the competitive position now. Have competitors closed the gap by working with Microsoft? And also maybe just talk about your opportunity to use your proprietary data within new AI products. Thanks.

Martina Cheung:

Yes. Great. Thanks, Doug. Thanks for the question. I would say in Ratings that we've had, like most other organizations, dozens of pilots underway. We're very excited overall about the potential for GenAI to improve quality, to create efficiency and time to market for our core Ratings business. And one example I thought would be interesting is what you've mentioned in the past that we had focused in on a tool to help our CLO credit analyst with making sense of very complex CLO documentation. And that proved to be fortuitous, given the very, very busy year that we've seen so far in CLOs. And we're excited about this tool which we're deploying out into production for our analysts over the second half of the year and its ability to help save time for the analysts so they can focus in on the important jobs of getting the ratings done. Just other minor point for us, more major point for Market Intelligence, but as a rating agency and with a very large pool of credit analysts using RatingsDirect on CapIQ Pro, we're super excited about the work that Market Intelligence is doing to build out a GenAI interface on RatingsDirect and CapIQ Pro, and we've been helping them do that as well. Thanks for the question.

Operator:

Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.

Douglas Peterson:

Yes. Thanks, Alex. As you know, we already built in our expectation into the guidance that we gave. But when we look at some of the cyclicality that took place, we grew in the Enterprise Solutions sub segment almost 11%. And this included some revenue that came from some non-subscription revenue, things like we had strong growth in lending solutions and markets. We had very strong growth in regulatory and compliance. And these were -- these are some of the areas that really are driven by volume. If you ask me, what are some of the key factors that we're going to be watching very closely, obviously, interest rates is number one. We gave you our expectation of one interest rate decrease of 25 basis points at the end of the year would be in the fourth quarter, more likely towards the end of the fourth quarter. We see that the markets have different views on that. In the recent earnings calls, a couple of banks show that they would have that they would have up to 3 interest rate declines this year. But we're not including any of that into our own guidance. The other factor we're going to look at quite closely is M&A revenue and M&A activity in the investment banks. M&A is still relatively weak. It's not on a track for what we would normally have seen. It was incredibly strong in 2020, 2021. And ever since then, it's been quite weak. And so we did see some green shoots of M&A activity this quarter, but there's a lot of pent-up capital, a lot of firepower in private credit, in private equity. There's a lot of private equity that's sitting on the sidelines getting ready for exits. There's a lot of M&A activity that's ready, we believe, from corporates. We're going to be looking at how they're going to be managing their own balance sheets and their own capital positions. So it's our view that over time, these are going to be some tailwinds that would benefit us, but that's not built into our guidance for this year. Thanks, Alex.

Scott Wurtzel:

Hey good morning guys. Thanks for taking my question. I wanted to ask on the revenue synergy side. Obviously, it seems like you're making very good progress there against your targets. I know going back the last few quarters, we've talked about maybe a little bit more shift from cross-sell to new product development. So just wondering if you could maybe help contextualize a little bit more in terms of the synergies that were recognized during the quarter in terms of new product versus cross-sell? Thanks.

Operator:

Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open.

Martina Cheung:

Hey Tom, this is Martina. Thanks for the question. It's been interesting, certainly some different trends in the two quarters. As you said, we certainly saw more in the first quarter go from private to public. We actually saw going both directions in the second quarter. Some of that we see as being more attractive pricing in the private markets compared to what might have been available in the first quarter. But I think all of this goes to the original thesis and strategy that we've had around private markets, which is, number one, we see this opportunity. We've had a very specific strategy around it. And we have continued to say since Investor Day that we will be ready to serve the debt wherever it comes, whether it's the public market or private markets. And you see that strategy on the private side play out with the results in Q2, the 70% growth in our private market's revenues and Ratings obviously, as well as the broader public market bond rating growth that we've seen on the transaction side as well. So this is a good story for us. These two trends are complementary for us. We've got the right capacity. We've got the right expertise around this, and we feel good about our position to serve the debt either way going forward. Thanks for the question.

Operator:

Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.

Martina Cheung:

Thanks so much, Owen. As you know, we don't plan with competitors in mind if that's a clear way to say it. We feel very good about the strategy that we set out. Obviously, the over performance comes in a variety of ways. First, it is a very strong market revenues, but we've also been able to meet that demand either because we've had a specific strategy as in the case of private markets, but also in other cases where we've preserved capacity and expertise over the last couple of years, and we can handle additional volumes. So we feel very good about that. I would say overall, our growth rate with the new guidance 14% to 16% reflects a couple of key drivers that Doug highlighted in his remarks. First is that we continue to hear totally from the market that issuers are avoiding, in particular Q4. And so that certainly has a tapering effect on the back half of the year for us overall. I would say we've also -- I think you maybe alluded to this a little bit of a tougher comp in the back half, whether it's lapping that onetime revenue from the second half of last year, but also a very, very strong Q4 from last year. And as Doug said, we'd expect a modest year-over-year decline in Q4. But overall, if you look at the full year, we feel really good about it. It reflects growth not just on the transaction side, but on the key strategic areas, strong performance and growth as reflected in the second quarter, things like our annual fees where we continue to align the value with the economics that we have with the customer and good growth in other areas such as new mandates. So a great story for us overall, I think. Thanks for the question.

Operator:

Thank you. Our next question comes from Craig Huber with Huber Research Partners. Your line is open.

Douglas Peterson:

Craig, it's possible. As you heard in a couple of questions ago, I talked about some of the potential tailwinds that we could see in the business, whether it's related to rates, to M&A activity, but we don't build the guidance based on wishful thinking. We have to build on what we see, what our expectations are. So the guidance is built right now based on what we see in the market, and that's why we've guided for the top line growth to be consistent where it was the last time we provided guidance. Thanks, Craig.

Andrew Steinerman:

Hi Doug, on MI, could you just tell us directionally how MI organic ACV growth did in the second quarter compared to the organic revenue growth? And with the possibility of acceleration, my question is, is organic ACV growth at MI accelerating?

Operator:

Thank you. Our next question comes from Jeff Meuler with Baird. Your line is open.

Christopher Craig:

Thanks for your question. Well, for sure, when we look at the subscription growth, it's actually been tremendous this quarter. When you look back, 81% of the revenue is driven out of subscription growth, and that grew 10.5%. In terms of the recall activities, actually very high-margin business that comes through. So when we do see that loss and slowdown in the recall, that actually does impact margins fairly significantly.

Operator:

Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Douglas Peterson:

As you mentioned, we don't provide guidance by quarter. You already mentioned the one thing that we've seen, which relates to some issuance potentially between the third and fourth quarter. But there's nothing else. Chris, do you want to add anything?

Douglas Peterson:

Okay. Great. Thank you. Thanks, Jeff.

Russell Quelch:

Yes, hi guys. In Commodity Insights, this is the fourth quarter of double-digit top line growth. The midpoint of the guidance implies 6.7% growth for H2. So I'm wondering why you're expecting such a strong slowdown in H2 in Commodity Insights. It seems much more than a tough comp. And if I look at seasonality, it's normally the other way around in the second half is normally stronger than the first half. So can you just address that for me, please?

Operator:

Thank you. Our final question will come from Surinder Thind with Jefferies. Your line is open.

Douglas Peterson:

Well, I think that's half a year left. We believe that we've got a pretty good view on what the pipeline is for the rest of the year. As I mentioned throughout, there are certain factors which are maybe a little bit more market driven like interest rates and M&A. There's always going to be uncertainty around that. We have to work closely with our analysts that are close to the market. There's analysts that are working all the time with the buy side, the sell side. We get feedback from them. We also have relationships directly with bankers to understand what they're seeing in their pipelines of debt capital markets, equity capital markets, M&A. So we have an informal and formal way to gather information to use for our guidance for the rest of the year, and we look very carefully at that. And it's something that we've built into this year. You see the results of that. Overall, we're incredibly pleased with where we are. But with that, Surinder, thank you very much for joining the call. And let me wrap it up and close the call. And I want to thank everyone again for joining the call today and for your questions. I also want to thank Martina for joining us. Martina, thank you very much for being on the call. I want to congratulate her here, she's in the room, for appointment as the next CEO of S&P Global. At the next earnings call, you're going to hear a lot more about the transition, which is starting to take place, and it's going incredibly well. I also want to thank all of our people, as always. We have tremendous people in this company that delivered a strong quarter. We've got incredible, really good initiatives that we're developing and delivering in energy transition, sustainability with private markets, with generative AI. We continue to make great progress on our synergies from the merger, and we're very pleased with all of that. So I also hope that everybody gets a little bit of time this summer. So enjoy some time over the summer, and I look forward to seeing everyone on the next call. Thank you all very much.

Operator:

Good morning, and welcome to S&P Global's First Quarter 2024 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. [Operator Instructions]

Mark Grant:

Good morning, and thank you for joining today's S&P Global First Quarter 2024 Earnings Call. Presenting on today's call are Doug Peterson, President and Chief Executive Officer; and Chris Craig, Interim Chief Financial Officer. For the Q&A portion of today's call, we will also be joined by Adam Kansler, President of S&P Global Market Intelligence; and Martina Cheung, President of S&P Global Ratings.

Operator:

Our first question comes from Toni Kaplan with Morgan Stanley.

Operator:

Our next question comes from Manav Patnaik with Barclays.

Operator:

Our next question comes from Heather Balsky with Bank of America.

Operator:

Our next question comes from Faiza Alwy with Deutsche Bank.

Martina Cheung:

Thanks for the question. Well, as you know, we've said numerous times in the past, we're solving for long-term sustainable margin in the Ratings business. And we are a very disciplined stewards of capital in the business. So our guidance for the year, which we reiterated at 57.5% to 58.5%, as Doug said in his remarks, at the midpoint represents about 150 basis points of margin expansion year-over-year.

Andrew Steinerman:

Martina, it's Andrew. I just wanted to ask you a little bit about issuance pull-forward. Just you're talking so much about it intra-year kind of second half pull-forward to first half. Just broadly, aren't we still in the midst of a pretty large issuance recovery after the big declines of '22?

Operator:

Our next question comes from Alex Kramm with UBS.

Douglas Peterson:

Thank you, Alex. Well, as you know, we run the company with an approach to budgeting and management, where we always start the year with a positive jaw. That's just our philosophy. We look and see how we're going to do in our core businesses. We go out to see our customers. We understand what we can build as a forward-looking pipeline, forward-looking expectations for the market. We then ourselves say, "What would be the expense level that we want to have to support that growth?" On top of that, we then come back and say, "How much can we afford to invest?"

Ashish Sabadra:

I just wanted to drill down further on Market Intelligence, both the recurring variable and the subscription growth. We've seen some really strong 13% growth in recurring variable the last 2 quarters. How should we think about those tailwinds there? And is that mostly contributed from Ipreo and WSO going forward?

Adam Kansler:

Thanks, Ashish, for the question. So we watch our recurring revenue growth very carefully in this quarter, more than 7% growth in our recurring revenue. Some of that comes from volumes in our businesses that are affected by capital markets volumes. Over the years, we've sought to actually temper that a bit using more fixed contracts. Our customers in most of those markets prefer it. And for us, it adds a little bit more stability and regular growth to the business.

Operator:

Our next question comes from Jeff Silber with BMO Capital Markets.

Martina Cheung:

Jeff, it's Martina. Thanks for the question. So to your point, billed issuance was up 45%. But transaction revenue, which is the revenue portion or revenue category that is most closely correlated to billed issuance, was up 54%. So we grew faster than billed issuance in the quarter. Overall revenue growth of 29% represented both the transaction revenue growth of 54% and the non-transaction revenue growth of 8%. So really just the evening out of the performance across those to get to the 29% growth.

Operator:

Our next question comes from Scott Wurtzel with Wolfe Research.

Douglas Peterson:

Thanks, Scott. Let me start, and then I'm going to hand it over to Adam. When it comes to our tracking of the revenue synergies, it's something that we look at every quarter. We look at them. We actually looked at it with our Executive Committee earlier this week. We have a combination of cross-sell as well as new products.

Adam Kansler:

Thanks, Doug, and thanks, Scott. It's Adam. We're very excited about our synergy progress. We've got 15 more new products that will come to market in 2024. The combination of businesses, the strength that we have in the marketplace, the receptivity of our customers to what a combined offering can do, that's all been a tremendous uplift, and I think it's given us the path to achieve the revenue synergy targets that we outlined.

Shlomo Rosenbaum:

Doug, maybe you could talk a little bit about -- touch on both Market Intelligence and Mobility. Just talk about the sales cycles, what you're hearing from your on-the-ground guys sequentially from last quarter and then also year-over-year. And has there been any change in the competitive landscape with some of the new products you've put in there? If you can kind of touch on those ideas, I'd appreciate it.

Craig Huber:

On your AI investments, obviously, you're doing that to enhance the products you have but also improve the ongoing efficiency of the company, which is already at a high level and stuff. I'm curious, as you guys think out over the next couple of years, your internal investment spending behind AI, you've been able to do it so far within your technology budget, not a huge increase where it puts downward pressure on your margins near term. I'm just curious, do you think you can continue that going forward here?

Operator:

Our next question comes from Jeff Meuler with Baird.

Adam Kansler:

Yes. Thanks, Jeff. Appreciate the question. We do have a number of unique solutions and a pretty diversified set of solutions to the marketplace. So you do see dislocations in the market or volatility affecting parts of our business differently than other parts of the business. You mentioned some of our capital markets platforms.

Russell Quelch:

Doug, another really good quarter in Commodity Insights. So I was wondering if you could share what drove the 14% growth in Price Assessments in the first quarter. Is that maybe new product-related? Any early feedback on Platts Connect? Is that helping drive more cross-selling?

Douglas Peterson:

Yes. Thank you for that, Russell. When you look at Commodity Insights, we've continued to advance incredibly well. We've had -- this is one of the home runs when it comes to the integration of the ENR business and the Platts business. We very quickly been able to bring together products like Price Assessments. Cross-sell has been strong if you think about being able to sell in ENR products to Platts clients as well as selling Platts clients to ENR clients. So that was, right out of the gate, a very strong approach.

Keen Fai Tong:

In your updated Indices guidance, can you talk about how much of the growth comes from flows versus market performance? And what you're seeing from a pricing and mix perspective from customers?

Operator:

Our last question comes from Owen Lau with Oppenheimer.

Douglas Peterson:

Thanks, Owen. Yes, we think that, that volatility is something that helps drive more people to try to understand what's happening in the markets. But as we've seen over time, the volatility doesn't seem to go away. There's always something else that comes up to create interest in the area.

Operator:

That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about 2 hours. The webcast with audio and slides will be maintained on S&P Global's website for 1 year. The audio-only telephone replay will be maintained for 1 month.

Operator:

Good morning, and welcome to S& P Global's Fourth Quarter and Full Year 2023 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation and instruction will follow at that time. To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions] I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Doug Peterson:

Thank you, Mark. 2023 was an exciting year for S&P Global a year of innovation and growth. Our results in 2023 serve as a testament to strong execution and S&P Global's unique position at the center of the global markets. Excluding Engineering Solutions which was divested in the second quarter of last year revenue increased 8% year-over-year. We expanded adjusted operating margins by almost 300 basis points year-over-year in the fourth quarter to finish the year with approximately 100 basis points of margin expansion and we surpassed our $600 million target for cost synergies by $19 million. We delivered adjusted EPS growth of 13% to come into the high end of our guidance range as we continue to benefit from strong revenue growth, disciplined expense management and a commitment to strong capital returns. On the topic of capital returns, 2023 marked the 50th consecutive year that S&P Global has increased its cash dividend and we've already announced the Board approval to make 2024 the 51st. In 2023 we returned $4.4 billion to shareholders through dividends and buybacks, representing more than 100% of our adjusted free cash flow. In addition to strong financial performance, we created a formal artificial intelligence leadership team in 2023, which we'll discuss in more detail shortly. We also delivered double-digit growth and significant innovation in key strategic investment areas. Private market solutions and sustainability and energy transition both delivered double-digit growth in 2023 and we're well positioned to continue growing in these important areas in 2024. Our Vitality Index which we target to remain at or above 10% of company revenue actually exceeded 11% in 2023 and also increased at a double-digit rate. In 2023, we delivered key wins in each of the five strategic pillars we introduced at the end of 2022. We look forward to accelerating that success in 2024 and continuing our track record of creating value for our customers and our shareholders. We know that our success depends on creating value for our customers and we delivered for them in 2023. We improved customer retention rates in several of our divisions last year while continuing to introduce new products and features more quickly and more frequently. Through deep engagement with customers around the world, tens of thousands of customer touch points, we saw continued adoption of enterprise contracts in Market Intelligence and acceleration of enterprise agreements in Commodity Insights. We know that certain customer verticals, particularly Financial Services and regional base had unique challenges in 2023. While we discussed longer sales cycles through 2023, we were able to keep our sales pipeline moving and continue to demonstrate value for our customers even in challenging times. As we look to 2024, we continue to see macroeconomic market and geopolitical challenges. Our customers need unique and differentiated data sets and key insights for the markets they serve, which means our role as a trusted and strategic partner is more important than ever. Now nearly two years after the merger, we've put the work of operational integration behind us. And we have fully turned to the exciting work of growth, innovation and execution. We remain committed to balancing margin expansion with strategic initiatives and long-term growth. We will also look for ways to optimize our portfolio of products and services. With the merger integration behind us, we plan to continue reviewing and optimizing our portfolio of assets to meet our customers' needs either through tuck-in acquisitions or potentially further divestitures as you've seen us do historically. Turning to the 2023 issuance environment. We saw strong growth in billed issuance in 2023, particularly in the second half. In the fourth quarter, we continued to see issuers returning to the market, with billed issuance growth driven primarily by strength in bank loans, structured finance and high yield. This contributed to a successful rebound for the full year 2023, with billed issuance increasing 8%. Turning to Vitality. We're pleased to see the continued outperformance in our index to close out 2023. As we shared with you when we introduced this metric a little over a year ago, our goal is to make sure at least 10% of our revenue comes from new or enhanced products each year. As products mature, they'll naturally age out of the Vitality Index, even if they continue to grow rapidly. But we remain committed to that 10% target, as a steady stream of innovation takes the place of any products that graduate from the index. We view the Vitality Index as a direct measure of the value our customers are realizing from the improvements we're making in our products and services each year. With 18% growth in revenue from Vitality products in 2023, we ended the year with more than 11% of our total revenue coming from these new offerings. This is an incredible achievement by our product development and commercial teams, as they not only build great products and features in 2023, but also make sure our customers were aware and equipped to benefit from the innovation we are bringing to the table. Across divisions, we've seen new products in 2023 that demonstrate our commitment to powering global markets in a world of rapidly evolving technology. First, in another compelling example of our cross-divisional development between Market Intelligence and Commodity Insights, we launched our Power Evaluator tool. It's already received great feedback from power utility market participants. Additionally, in Commodity Insights, we combined the most powerful features of two leading commodity platforms, Platts Dimensions Pro and IHS Connect to create Platts Connect, which we believe is the market's most holistic source of data insights and tools custom-built for commodity market participants. In Market Intelligence, we also significantly enhanced Capital IQ Pro. June saw the release of one of the largest and most important updates in years. And we're thrilled with the preliminary release of our new generative AI solution ChatIQ to a set of pilot customers in December. We're excited for more customers to get access to these proprietary tools as 2024 progresses. We also launched powerful new tools with our new supplier risk indicator and Entity Insights offerings. In Ratings, we continue to deliver assessments and insights to help market participants evaluate different assets. And we leveraged our expertise in blockchain technology and cryptocurrencies to launch the first stablecoin stability assessment in late 2023. 2023 saw the launch of several new indices as well, including the S&P B3 corporate bond index in Brazil, multiple cross-asset indices and new sector, factor and thematic indices that we believe will contribute to strong growth in the years to come. As we mentioned last quarter, we want to provide an update on our AI strategy. We've elevated the focus on artificial intelligence to make sure we have executive leadership, governance and sponsorship at the enterprise level. In late 2023, we announced internally that our former Chief Information Officer, Swamy Kocherlakota would take on the new role as Chief Digital Solutions Officer, including executive sponsorship of AI and Kensho. Bhavesh Dayalji, CEO of Kensho has expanded his role to now lead cross-divisional AI initiatives as our first Chief Artificial Intelligence Officer. These changes to our leadership structure around technology and especially around AI are the next logical steps in the commitment to AI that began with our initial investment in Kensho nearly seven years ago. As part of this strategy, we've developed an AI accelerator to fast-track high-priority AI initiatives and build common capabilities that can be deployed and used by teams across the enterprise. There are four important ways that we expect our AI to impact our performance. First, through the development of new products and services; second, leveraging Kensho to accelerate and automate manual processes and data operations; third, amplifying the productivity of our internal experts, freeing up more capacity for higher order work; and fourth, embedding AI functionality in existing products to increase customer value and improve user experience. We're committed to keeping you informed about these initiatives. So we've launched a new AI page on our public website, spglobal.ai, which includes important research, our key thought leadership and insights into our developments. At S&P Global, we have a strategic vision of the importance of AI to our industry and the world going forward as we believe that AI will quickly become embedded in everything we do. And we have a framework to deliver the best capabilities in as many products as we can and by extension into the hands of as many customers as we can as fast as we can. Fortunately S&P Global starts with some of the most powerful proprietary data sets in the world sourced from all five divisions. Our proprietary data layer is a key differentiator that we believe sets us apart. As we've outlined for you in the past we remain committed to sound governance, protecting this proprietary data and preventing third parties for monetizing or commercializing our data independently. A challenge that even data-rich companies will face is that much of this data isn't ready to be ingested or used by large language models. The data requires traditional machine learning preprocessing, things like data cleaning, data transformation, data reduction and data integration, but it also requires tokenization and tagging, which can be very resource-intensive. This is the Kensho layer. The proprietary tools developed over the last several years by the teams at Kensho automate much of the preprocessing work for both structured data like financial reports, but also unstructured data like the transcript from this very earnings call. Tools like Scribe, NERD, Link, Extract and Classify do much of this heavy lifting and allow our proprietary data to be leveraged more easily and update it more quickly and frequently. This leads to the third element of our framework; the open ecosystem. As we've shared with you before we aren't dependent on any individual technology partner. Having so much AI expertise in-house, means that we can leverage infrastructure and compute platforms from multiple hyperscale cloud providers, third-party LLMs, our own proprietary LLMs and a wide array of other vendors without having to lock ourselves in or cede economics to one ecosystem or another. Ultimately, the goal is to have generative and traditional AI capabilities embedded everywhere that makes sense. We'll track our progress through improving customer win rates, retention rates, price and ultimately growth. It should also show up in our own workflows to improve productivity and efficiency, improving our unit economics and our operating margins over time. We're excited about the significant progress we've made in 2023 and even more excited about what this company will accomplish in 2024 and beyond. Our innovation also extends to the efforts we make to develop our people and improve our communities. In 2023, we held an internal event called Accelerate Progress Live to reinforce our commitment to our teams around the world and highlight our purpose and values as a global employer of choice. We provide dedicated time for our people to pursue volunteer opportunities. We saw an 89% increase in the number of S&P Global people who took advantage of these programs in 2023. And as more of our people return to our offices around the world our global people resource groups saw a nearly 50% increase in engagement. We also demonstrated our commitment to continuously improve our reporting and transparency around our sustainability and related initiatives. In 2023, we published our 12th Annual Impact Report and our fifth Annual TCFD Report. We also published our first-ever Diversity Equity and Inclusion Report, taking much of the information that we've been reporting for years enhancing our disclosures, and making that information more accessible in a dedicated report. We're very pleased that our efforts have been recognized by many external organizations in the last year. S&P Global has iconic global brands and is well known as a desirable destination for highly skilled professionals around the world. We look forward to building upon that hard-won reputation in 2024. Turning to our financial results. Ewout will walk through the fourth quarter results in more detail in a moment, but the headline numbers tell a strong story for 2023. We're pleased to see accelerating growth and margin expansion in almost every division in 2023. The 2023 results and the 2024 guidance, we're introducing today give us confidence in our trajectory towards the growth and margin targets we introduced at our 2022 Investor Day. As we approach the two-year anniversary of the merger, we can definitively say it has been a success. In the last two years, not only have we brought together two world-class organizations but we've delivered through a challenging period against our aspirational and ambitious targets. We integrated major software systems in record time and consolidated our offices around the world. We're able to close many of our data centers due in part to a transformational partnership with AWS. We've maintained a disciplined approach to managing our product portfolio. And we demonstrated this commitment through the divestiture of Engineering Solutions and the aftersales business in our Mobility division and also through the decommissioning of a number of low-margin or slower-growth products. Lastly, since the merger closed we've returned $17.5 billion to shareholders through share repurchases and dividends. We initially set a target of $480 million in cost synergies then raised that target to $600 million and have now exceeded that higher target by $19 million. We're ahead of schedule on our revenue synergies to date and we'll continue to report our progress there. Lastly, we told you when the merger closed that we believed it would be accretive to adjusted EPS by 2023 and I'm pleased to confirm that we have delivered. Both our internal analysis and independent external analysis indicate that in 2023 we delivered higher adjusted EPS than we likely would have generated with S&P Global as a standalone company. I'm thrilled to be able to call the merger a success and to move forward to powering global markets as one company. Now, I'll turn to Ewout to review the financial results. Ewout?

Doug Peterson:

Thank you, Ewout. We're updating our outlook to reflect our economists' view of the most important economic and market factors that will impact 2024. While this isn't meant to be an exhaustive list, these are some of the key factors we'll be tracking this year. We're currently expecting a soft landing scenario with a base case assumption that we avoid a global recession. So we expect geopolitical uncertainty to persist. We also expect energy transition and higher interest rates to remain factors. For the equity markets, we expect the secular tailwind that flows from active to passive management to continue. Though changes to market volatility can impact our ETD business and Indices and fluctuations in asset prices will have a lagged, but potentially meaningful impact on our asset-linked fees revenue, early signs in 2024 indicate market optimism with the market currently pricing in multiple rate cuts in 2024. The timing of these potential cuts is unpredictable, but we expect the issuance environment to be stronger in the first half of the year than the back half. We expect continued focus on energy transition in the commodity markets with volatility in the evolving regulatory landscape having the potential to impact our results this year. Our financial guidance assumes global GDP growth of 2.8%, US inflation of 2.4% at an average price for Brent crude of $83 per barrel. We're also forecasting billed issuance growth in the range of 3% to 7% in 2024, with stronger growth expected in the first half. While we've included a market issuance forecast in the past, we will only report on billed issuance going forward, when discussing our outlook for our financial performance, as it historically has been a better indicator of our revenue growth and aligns with our monthly disclosures. Turning to our most recent refinancing study. When we compare these refinancing walls to last year's study, we see that current year maturities, meaning 2024 maturities now compared to 2023 maturities measured at this time last year are more than 10% higher than they were at this point last year. The maturities expected over the next two and three-year periods are more than 12% higher. While we can't be certain how the higher rate environment will impact these maturities or issuers' likelihood to delever, we're confident that this puts us in a strong position to achieve the Ratings revenue targets we're outlining today for 2024. Now, turning to our initial guidance for 2024. This slide illustrates our initial guidance for GAAP results. For our adjusted guidance, we're expecting revenue growth in the range of 5.5% to 7.5%, driven by strong growth in all five divisions. We expect organic revenue growth excluding the impact of 2023 divestitures in the range of 7% to 9%. We expect to deliver at least 100 basis points of adjusted operating margin expansion in 2024. This will require us to maintain discipline around expenses and productivity, while ensuring that we are making the necessary investments to drive growth and innovation in vital strategic areas like generative AI, sustainability, energy transition and private markets. We expect to deliver adjusted EPS for the full year in the range of $13.75 to $14, which represents double-digit growth at the midpoint. It's important to note that our expected adjusted tax rate is nearly two percentage points higher in 2024 than in 2023. If our tax rate were to remain unchanged from 2023, we would expect adjusted EPS growth approximately two to three percentage points higher, consistent with the low to mid-teens growth rate we pointed to for 2025, 2026 at our Investor Day. As you saw in our supplemental materials earlier this morning, we also expect adjusted free cash flow excluding certain items of approximately $4.4 billion. We expect growth in adjusted free cash flow to be driven primarily by strong growth in revenue and profitability though free cash flow growth will be tempered somewhat by the timing of working capital items and the full year impact of the $750 million debt offering completed in the third quarter of 2023. With the geopolitical, macroeconomic and market risk and opportunities, we've discussed on this call we expect that the financial outlook we've provided today likely has more upside risk than downside. And you can count on our focus determination and discipline over the coming year. Our outlook for 2024 calls for further acceleration in revenue growth compared to 2023, and continued margin expansion even though we will no longer have the benefit of the vast majority of our cost synergy actions going forward. Our financial outlook for 2024 illustrates our continued progress toward the targets we outlined at our Investor Day just over a year ago and we remain committed to those targets. Moving to our division outlook. For Market Intelligence, we expect revenue growth in the range of 6% to 7.5% with expected growth to be slightly higher in the back half than in the first half of the year. We expect adjusted operating margins in the range of 33.5% to 34.5%, as we continue to invest in key growth initiatives while maintaining rigorous discipline around expenses. For Ratings, we expect revenue growth in the range of 6% to 8% driven by billed issuance growth of 3% to 7%. We expect revenue growth rates to be stronger in the first half of the year than the second half as comparisons are easier in the first half. We expect some level of pull forward given the uncertainty around the timing of any potential rate actions by central banks. We expect adjusted operating margins in the range of 57.5% to 58.5%. For Commodity Insights, we expect revenue growth in the range of 8% to 9.5% and adjusted operating margins of 46.5% to 47.5%. For Mobility, we expect revenue growth in the range of 8.5% to 10% and adjusted operating margins of 39% to 40%. Lastly for S&P Dow Jones Indices we expect revenue growth in the range of 7% to 9% and adjusted operating margins in the range of 68.5% to 69.5%. As you saw in the press release earlier this morning, our Board has authorized the repurchase of shares totaling up to $2.4 billion, which we expect to execute throughout the year. And with that, I'd like to invite Adam Kansler, President of S&P Global Market Intelligence; and Martina Cheung, President of S&P Global Ratings and Executive Lead for Sustainable1 to join us. And I will turn the call back over to Mark for your questions.

Operator:

Thank you. Our first question comes from Faiza Alwy with Deutsche Bank. Your line is open.

Martina Cheung:

Hi. Thanks very much for the question. So as Doug mentioned in his remarks, we do expect a stronger first half of this year, 2024 compared to the back half of the year. And I'll break it down a little bit. First on the transaction revenue and our billed issuance estimate in the 3% to 7%. We're expecting to see continued refinancing activity that we saw build up in the back half of last year with high yield and bank loans and we saw that consistent in January. So we would expect to see that continue throughout the first half of this year. We would also expect to see some investment grade, although not as robust as last year. And part of that is just because some of the investment-grade issuers tapped the market last year. Another potential factor there is the fact that we would see some investment-grade issuers being able to wait until the rates come down. Now some of the factors driving first half versus the second half, I would say anecdotally we're hearing that issuers are looking to come to market to take advantage of strong investor appetite to lock in rates once they're higher and before the rates come down and ahead of potential volatility in the back half of the year. On transaction revenue we would actually expect to see stronger frequent issuer program issuance this year than we saw last year. You won't see that in our billed issuance estimate for example. And we would also expect to see continued strong performance in our surveillance book across CRISIL, our royalty and other products such as RES or Ratings Evaluation Service. Overall, though as Doug said, we do expect stronger first half compared to second half. All of these factors that we take into consideration including pace and timing of rate cuts volatility, et cetera these are all baked into our overall outlook. It is early in the year and we will definitely seek to become more precise as we go throughout the year but that's I think a good summary of where we're at.

Manav Patnaik:

Thank you. Good morning. I just wanted to touch on the revenue synergies. You said I think it was $152 million annualized exiting the year. I think that's a number higher than what we would have thought of. I was just hoping you could give us some color on where – what kind of areas those are coming from what you've kind of baked into 2024 also perhaps?

Adam Kansler:

Great. Thanks, Doug. The revenue synergy is obviously one of the most exciting parts of the combination of businesses. As Doug mentioned, the early successes have been in going to our customers, with combined product capabilities that strengthen what we were already providing to those customers. We've seen outsized performance there, even against our own expectations. What's really exciting as we get now into the years, where we've landed those early merger synergies is the launch of new products. Doug mentioned a few. Over the course of 2023, we launched seven new products just within Market Intelligence. We have 14 new products set to come to market across 2024. These will increasingly become part of what we're offering out to customers, whether it's just putting our bond pricing in together with our credit analytics capability looking at our economics and country risk data across our Desktop, incorporating sustainability data into our private markets portfolio management capabilities. These are all exciting areas that will continue to add to the growth of the business. You'll also see us announce some increasing generative AI capabilities across broader data sets of the combined businesses. I'm sure we'll talk a little bit more about that later on the call.

Unidentified Analyst:

Hi. Good morning. This is Greg on for Toni. Thanks for taking our question. Adam, just want to go back to you talk about Market Intelligence 6% to 7.5% revenue growth guide similar to last year. Is -- a selling environment has that improved at all? Or is that still a bit of a headwind? And then on the capital markets piece of the business I think some of the Ipreo assets seeing some increased activity to start the year. So is there upside from that? Or are you still a little bit cautious? Thanks.

Unidentified Analyst:

Thanks. Great.

Unidentified Analyst:

Hi. Good morning. This is Tom on for Andrew. I wanted to ask about ChatIQ. You mentioned you started piloting that in December. I was wondering what kind of customer feedback you're getting so far? And what kind of benefits you can expect? Can it help increase pricing on the Cap IQ platform or some other benefits you're seeing there? Thank you.

Doug Peterson:

Thanks, Tom.

Alex Hess:

This is Alex Hess on for Andrew Steinerman. I was hoping you guys could walk us through a little bit of the incremental margin outlook embedded in your guide, especially for Market Intelligence Commodity Insights, and maybe Mobility, just helpful to know sort of in those higher subscription businesses what the puts and takes are on expenses and how we should see that flowing through to operating income? Thank you.

Adam Kansler:

Sure. Just commenting briefly on margins within Market Intelligence. We do expect to continue to see expansion as we go into 2024. It's important for us to keep balancing the need for continued efficiency, looking for where we can operate more effectively and continue to drive margin expansion. We expect to do that on course to the levels that we laid out in the 2022 Investor Day, but also balancing that with making the right investments to drive the increased top line growth that we also expect to deliver as we get towards those target dates that we laid out in the Investor Day as well.

Operator:

Thank you. Our next question comes from Alex Kramm with UBS. You may proceed.

Adam Kansler:

Thanks, Alex. Confidence level, high. We set those targets for 2025, 2026. I think we're well on track to get there. Even in this current year, while coming in behind our goal, we're still right near the very bottom of that 7% to 9% growth range, right? We delivered a 6.9-or-so percent year. You've seen in our guidance like we'll continue to push towards that. You identified actually a couple of the important factors. That synergy growth will continue to build. And we always said, we start to see the real impact of that in years three through five and that's the period that we're just starting to enter. So, you will see that continue to be a factor. The second biggest factor is, we've gone through in 2022 and 2023, one of the toughest macro environments that we've seen, particularly for our customers over the last certainly five to 10 years. So, as that macro environment improves, conditions for that customer that improves for us. It also sets us up to continue to accelerate towards those growth levels. Even through that challenging period, as I mentioned, we're delivering actually pretty close to that range and on a pretty straight line path into it and pretty high confidence that we'll get there.

Ashish Sabadra:

Thanks for taking my question. I just wanted to focus or drill down further on the Index business. There was a mention of declines in OTC products. I was wondering, if you could provide some color on that front. And then as we get into 2024, I was wondering if you could provide some color on what are your assumptions around AUM growth. And then fees which were a headwind this year, how should we think about those potentially becoming a tailwind in '24? Thanks.

Operator:

Thank you. Our next question comes from Scott Wurtzel with Wolfe Research. Your line is open.

Martina Cheung:

Hey Scott thanks for the question. We did see some pull forward more for 2024, a little bit of 2025 into 2023 not just in Q4 I would say. I mean I think the sort of the repricing and other refinancing activity starting to pick up momentum in the back half overall and we've certainly seen that continue into this year. But I would maybe take a step back and perhaps sort of characterize how we build our outlook for the year. So, absolutely refinancing is very important. And as Doug mentioned in his remarks, the refinancing wall continues to grow nicely which is a very healthy indicator for us. But we also look at a number of other factors, including the overall macro picture whether it's GDP growth pace and timing of interest rate cuts. We also look at opportunistic issuance. We know that's been historically very hard to predict and that's become even more difficult in the last two years. And candidly M&A, we don't have historic or heroic assumptions around M&A. As Adam mentioned earlier, it was down quite a bit. last year. And while we're hearing a little bit of positive market sentiment, we need to see how that plays out throughout the course of the year. We also look at investor appetite fund flows and how that could impact issuance across different asset classes. So, for example as I mentioned earlier, we would expect to see higher frequent issuer issuance this year than we did last year. And then we keep an eye on this throughout the course of the year, a lot of contacts with investors. I think we did -- we increased our investor meeting frequency quite a bit last year so we're between the 25,000 30,000 range of meetings with investors. So, a lot of work goes into building up the bond up. It's not just the refinancing piece of it, although of course, that's a good long-term indicator for us. And then just to kind of recap or draw a line under it. As Doug said, we would expect slightly faster first half than second half. And as we go throughout the year, we can come back to you with greater precision.

Operator:

Our next question comes from Jeff Silber with BMO Capital Markets. You may proceed.

Doug Peterson :

Thank you Jeff. As you know we always apply a discipline to looking at our portfolio, looking at top line growth, looking at the margin expansion, also looking at how it fits across the portfolio. During the year last year, we didn't make a lot of noise about it but we did shut down some very small products. We shut down 8,000 indices that were subpar subside across the businesses within Commodity Insights Market Intelligence or some small products that we moved on. We also had a couple of small divestitures. But when you ask the question to us, we're constantly looking at the portfolio trying to understand what fits best. We have different themes. You've heard us talk about the key themes private market, sustainability, supply chain, analytics, risk and credit. These are the sorts of areas that we're always looking to expand our presence to make sure we have the best capabilities possible to meet the needs of our clients. But within looking at the needs of clients we look at the shareholders. We look at how we're going to put this portfolio together with the best way to leverage our technology. We will always apply the discipline as well to how we're going to look at the portfolio in the future.

Operator:

Our next question comes from George Tong with Goldman Sachs. Your line is open.

Martina Cheung :

Hi, George. Thanks for the question. So, maybe I could start with transaction versus nontransaction and how we think about both of those. And as you know transaction is a somewhat lower proportion of our revenues compared to let's say pre-pandemic. On the transaction front and specific to billed issuance, as I said, in my last response, we look at a variety of factors. Refinancing is a critical one. I covered that in my last response, as well as the key macro drivers when rate cuts could start for example what the exit rate on those looks like this year the potential challenge in predicting opportunistic issuance. And there we really do not have heroic assumptions around opportunistic issuance for this year. So we're being cautious on that. And then I would say as, I mentioned as well that we would expect to see more frequent issuer issuance this year, which wouldn't show up in our billed issuance estimate of 3% to 7%. So I think with all of that you have to take into consideration the potential wide range of outcomes, whether it's rates, whether it's almost half the world's population voting and elections and potential for greater volatility in the back half of the year. So that informs both the overall outlook of 3% to 7% billed issuance, but also the timing that Doug has mentioned, which is a stronger first half versus second half. On the transaction side, we see strong performance across all key areas there. So that would include our surveillance book. It would include the res portions of the book for example CRISIL, as well as the royalty payment that we get from Market Intelligence. So maybe again I would just reiterate strong first half and tapering off in the back half. And then as Doug mentioned, it is early in the year. There is potential for upside in the range and we would look to get more precise on this as we go throughout the year.

Operator:

Thank you. Our next question comes from Craig Huber with Huber Research Partners. You may proceed.

Doug Peterson:

Thanks, Craig. As you saw when we put together our information, we put in our slides what are the key factors that we look at. And when you take a step back, we know that GDP growth is always the number one driver. It's the highest correlated factor to our long-term revenue growth. We've looked over the years to see what are those factors that drive it the most. We see some potential slowdown in the economy in the US and EU. We're planning for what we call we're planning against what we call a soft landing which means that there could be some sort of slowdown in the economy. As you heard we've seen some slowness and a little bit of longer sales cycles in certain segments. But that's – those are some of the downside factors. What would happen with the geopolitical factors, how long will it take before central banks begin to cut rates, we've taken those into account as we built our guidance with some conservatism. So if we saw a much quicker return to lower interest rates, if we saw much quicker a geopolitical environment that was more stable, these are the kinds of things that create some upside for the company. We also look at segment by segment. We know that the automotive segment is going through a lot of change. We know that the energy transition which is changing the commodity cycle. So we've taken into account all of these different factors as we've looked at the – overall at the guidance. So to your upside risk – upside opportunities we think that it could come if interest rates move down lower faster, if the interest rates if the economies grow faster than we think, et cetera. But these are all the factors we take into account across the divisions, as we're setting up our guidance for 2024. Thanks, Craig.

John Mazzoni:

Thank you, good morning. Could you just help us understand how you're thinking about the longer-term generative AI monetization specifically around cross-platforming as well as potential kind of upsell and cross-sell from kind of new products?

Adam Kansler:

Great. Thanks Doug and thank you for the question. As Doug mentioned, we do think generative AI has a transformative potential across almost all of our products. Remember we are one of the largest data providers in the world. And the one thing we have is a highly trusted, highly developed accurate set of data across our businesses whether that's in Market Intelligence or the other divisions of our business. We're also deeply embedded in the workflows of our customers. The combination of those two and when you really understand the power behind generative AI to unlock the potential in massive data sets that may correlate to each other, may have unique insights and the ability to process through that in a very rapid time frame. For us thinking about portfolio monitoring workflows, research and insights, credit assessments, risk assessment, looking across broad sets of data for insights and what's developing in various sectors or regions or how it could impact the portfolio. Those are all opportunities for us for making the data sets and workflows that we already provide today to our customers all the more powerful. When we look at the opportunity set in front of us and even just our product launch sheet for 2024, we're pretty encouraged that we're well-positioned to take advantage of the technology, increase the penetration we have with our customers and expand the kinds of services and insights we're able to give them efficiently. That also increases the efficiency of their own internal workflows, which obviously comes with significant value. We'll see how that all materializes and how we're able to monetize that. But we do think it's a tailwind for us.

Operator:

Thank you. Our next question comes from Jeff Meuler with Baird. Your line is open.

Ewout Steenbergen:

Yeah. Thanks Jeff. So let me explain what is benefits realignment. So benefits realignment is that we brought as of January 1, 2023, all of our employees across the world to the same benefits package, because we think it is fair that we should treat everyone the same in every country around the world. So think about the medical plans, think about the retirement plans. We have made estimates about the expenses for 2023. And for the first three quarters, the expenses came in exactly in line with our expectations, but they exceeded the expectations in the fourth quarter. And benefits costs are always not 100% certain because just to give an example, the medical costs in the US were self-insured. So they can be higher if we have higher medical claims or the matching for 401(k) contributions can be higher. So we're seeing this more as a onetime step-up cost and that should be in our baseline going forward from 2024 onwards. Your second part of your question about the tax rate, we saw in 2023 a bit of a benefit in the tax rate in the third quarter and the fourth quarter. And then we are seeing some upward pressure in the tax rate in 2024. So to expand on that on the third quarter of 2023, we had some favorable new guidance with respect to the utilization of foreign tax credits. And then in the fourth quarter, we had the conclusion of certain state tax audits that led to some reserve releases. So it brought the effective tax rate a little bit down in 2023 compared to a normalized level. And what we're seeing in 2024 the implementation of Pillar 2 global minimum tax in several jurisdictions as well as the UK statutory tax rate is going up. So 2024 is I think the right level to think about this. Where tax rate will go from a longer-term perspective is really hard to say because it really depends on government finances and where that will go around the world in the future. Thank you, Jeff.

Russell Quelch:

Yeah. Thanks for having me on the call. Sorry to go back to this but on the Ratings business and your macro forecast are implying I think is the soft landing conducive for rate cuts. And as I understand that the maturity walls built throughout the year, I appreciate some of that could be pulled forward into the front end. But I'm still struggling to square this sort of front-end loaded observation when you discuss revenues relative to your macro guidance. So maybe you could explain that again, please? And also, what you're assuming for the non-transaction revenue growth in 2024. Sorry if I missed that. Thanks.

Mark Grant:

Thank you, Russell.

Adam Parrington:

Hi. This is Adam on for Shlomo. Can you discuss the level of incentive compensation in the quarter and what is implied in 2024 versus 2023? And how much does this impact the margin guidance for 2024 as well? Thank you.

Mark Grant:

Thank you, Adam.

Unidentified Analyst:

Hi. This is [indiscernible] on for Heather Balsky. You talked about elevated cancellations in Market Intelligence. Could you give us some details on what type and maybe size of customers you're seeing cancel? And what kind of discussions you've had so far this year?

Mark Grant:

Thank you.

Owen Lau:

Hey, good morning. Thank you for squeezing me in. I just want to go back to AI. And I think AI it's great and there are lots of potential, but it looks like whether clients will actually pay extra for it, it's still uncertain. I'm just wondering, what makes you confident that you can develop a killer app that people will use it and pay for it. Thanks.

Operator:

Thank you. That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating and wish you a good day.

Operator:

Good morning, and welcome to S&P Global's Third Quarter 2023 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation and instruction will follow at that time. To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions] I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Doug Peterson:

Thank you, Mark. As we look at this quarter's highlights, I want to remind you that the financial metrics we'll be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise. We're pleased to report 11% revenue growth in the third quarter, excluding the impact of Engineering Solutions. We saw acceleration in revenue growth in every division this quarter. As we discussed last quarter, we took decisive action to protect margins in the second and third quarters last year. And while lapping that impact contributed to our expense growth this quarter, we're pleased to see margins expand approximately 100 basis points despite that headwind. Adjusted EPS increased 10% year-over-year, and we're raising our adjusted EPS guidance by approximately $0.10 at the midpoint to reflect the better-than-expected results through the third quarter. Strong financial results like these come as a result of continued innovation and execution, and we're excited about the rapid pace of product launches coming from S&P Global this quarter. We'll be discussing a few of them on the call, but I encourage you to look through the releases available in our online press center to get a better sense of the sheer volume of new products and features we've introduced this quarter. We've seen acceleration in each of the strategic growth areas we've been reporting since our Investor Day. We also saw our Vitality Index reached 12% of total revenue in the quarter as new products continue to generate value for both customers and shareholders. We also made progress on our AI initiatives, which I'll touch on briefly today, but we plan to provide a more holistic update on our progress next quarter. We continue to align our goals and operations against the 5 strategic pillars we introduced at Investor Day. I'm thrilled with what our team was able to deliver for our customers this quarter. As we lean into our customer conversations and continue to provide innovative solutions to the problems that most need solving, our customers are increasingly viewing S&P Global as a trusted strategic partner. In the third quarter, sales cycles were consistent with the longer cycle we've seen in the last few quarters, though we're encouraged that these conversations with customers are often leading to larger deals. In times of market volatility, uncertainty or change, the global markets has learned to count on S&P Global for differentiated data, powerful workflow tools, important insights and unrivaled benchmarks. We're seeing confirmation of our strategic emphasis on private markets as well as sustainability and energy transition as revenue growth accelerated meaningfully in both those areas this quarter. As we continue to engage with customers, we hear clear indications of long-term optimism despite the near-term uncertainty and volatility in the markets. Our conversations with financial institutions, corporates and others generally revolve around interest rates in the short term with everyone interested in identifying peak interest rates. Large maturity walls along with other factors contribute to our optimism about the multiyear growth trajectory for S&P Global. Related to Ratings, global billed issuance saw a very strong third quarter with 21% growth year-over-year. With credit spreads tightening through the third quarter, issuers were more comfortable coming to the market, though refinancing activity continues to drive the majority of issuance. We also saw better-than-expected activity in bank loans particularly around amend and extend transactions, which we expect to continue in the fourth quarter, though perhaps not to the same extent. We also saw our relative position CLOs improve again in the third quarter, marking a continuation of the trend we've seen all year. Vitality revenue is another area of accelerating growth for S&P Global this quarter. Our Vitality revenue metric consists of revenue derived from new or enhanced products. These innovative products contributed 12% of revenue in the third quarter and grew a combined 22% year-over-year, a significant acceleration from the 14% growth last quarter. You'll notice that the largest contributors to our Vitality revenue are unchanged from last quarter. While products can and will move out of the Vitality Index over time as they mature, it's encouraging to see growth from these products remain steady and resilient. We're also encouraged by the early signs of growth and traction among many of the smaller products that will likely scale to be the top contributors in the coming quarters and years, including the trends we see in private markets for more transparency in valuation and benchmark products. I'd like to turn to some of those new product launches now. We're seeing strong cross-divisional collaboration driving new ideas with much of that innovation now turning to generally available products. In the third quarter, we introduced multiple data sets from our Mobility division to our Market Intelligence Marketplace, making crucial vehicle forecast and registration data available via both Xpressfeed and Snowflake. We also launched a new single unified platform that marks the product integration of both Platts and IHS Connect. The new platform is called Platts Connect and allows customers access to a comprehensive range of products, benchmarks, data and insights from one easy-to-use interface on desktop and mobile. These 2 products, Mobility and Marketplace and Platts Connect, also highlight 2 of our early opportunities to integrate new AI capabilities. In the coming months and quarters, we'll be introducing intelligent search and other AI-powered functionality that we're currently developing and testing within Marketplace and Platts Connect. We'll have more details on that as we get closer to launching those new features. We also introduced Entity Insights in the third quarter, which brings data from Sustainable1 to our network and regulatory solutions to power KYC third-party risk management and vendor management within a single workflow tool, leveraging data for 27 million global entities. I also want to provide an update on our development of ChatIQ. As we've shared with you, ChatIQ is a generative AI product developed jointly between Kensho and our Market Intelligence team. During the third quarter, we had a new beta release that we continue to test internally, but this is a step function improvement over our last internal release. Given our strategic focus, I wanted to provide a bit more detail on the acceleration of our sustainability and energy transition products as we expected in the third quarter. Customer needs have evolved away from ESG scores and moved towards climate and energy transition. We believe we are uniquely visioned to win in this market. When we talk to customers, we hear clear trends. Customers don't just need a set of opaque scores. They're building internal sustainability frameworks, and they need high-quality raw data. With Trucost, we have what we believe to be the most robust and comprehensive climate data set in the world. We also offer detailed sustainability data on 17,000 companies, including approximately 3,500 that provide robust granular data through our corporate sustainability assessment survey. Companies are seeking to operationalize the risk management around climate, and we have the largest set of real asset level data available with emissions data and climate hazards mapped to 1.6 million physical assets. We also hear consistently from customers that they need help with energy transition, including developing and executing a viable energy transition strategy. We have solutions that cater to customers in different industries, including our automotive value chain carbon accounting solution and the power evaluator solution for energy transition strategies within the crucial power utility sector. We see this customer need across all industries. So this quarter, we also launched the Sustainability Starter Pack. This is a comprehensive solution to help companies start from scratch or from wherever they may be as they develop sustainability strategies. We help them assess materiality, measure greenhouse gas emissions and develop the reports necessary to comply with disclosure requirements and stakeholder demands. Customers need help generating things like a TCFD report and measuring things like greenhouse gas emissions. They need help benchmarking their own progress against peers, and they need help managing the transition to renewable energy sources. We're confident that S&P Global is unparalleled in its ability to provide both the breadth and the depth of offerings necessary to adequately cover all these areas. We're continually increasing the data that we make available through Xpressfeed, and we're pleased to be adding data sets around net zero commitments and biodiversity before year-end. Clearly, we're meeting customers at their point of need, and that's showing up in our results. Trucost revenue growth accelerated to 55% year-over-year. Energy transition continues to grow nearly 40%. And our total sustainability and energy transition revenue growth accelerated to 36% year-over-year in the third quarter. While we're very encouraged by these results, we will not rest on our laurels. We remain committed to accelerating product leadership in this vital area and look forward to many new exciting products to come in future quarters and years. Of course, our commitment to innovation and customer value also powers our ability to generate value for our shareholders. This is an incredible quarter of accelerating growth. We also continue to demonstrate discipline around expenses as margin expansion in the third quarter helped keep trailing 12-month margins relatively flat year-over-year. Trailing 12-month margins improved sequentially from the second quarter, and we expect margins for the full year to expand more than 100 basis points based on the midpoint of our guidance as Ewout will explain in more detail. The economic factors facing the company are largely unchanged as we look to the final few months of 2023. Secular trends continue to serve as strong tailwinds for the company, while cyclical trends can impact different parts of the business in different ways. Despite increased geopolitical uncertainty and evolving regulatory landscape around things like sustainability and continued uncertainty around the timing of the capital markets recovery, S&P Global remains committed to delivering value in all market conditions. Turning to the conditions of the debt markets. We're tightening the range of our expectations for billed issuance as we now expect growth of 5% to 7% compared to our prior expectations of 4% to 8%. As we've discussed previously, we introduced the billed issuance reporting metric this year as well as a full year forecast to provide context for the issuance assumptions embedded in our Ratings revenue guidance. Billed issuance remains the issuance metric most tightly correlated with our transaction revenue in Ratings. Our latest forecast from the Ratings Research Group now calls for positive market issuance growth for the full year, up from last quarter's expectation for a full year decline. As a reminder, market issuance can differ materially from billed issuance with divergence this year driven by declines in unrated debt and sovereign in international public finance, which don't impact billed issuance. And now I'd like to turn the call over to Ewout Steenbergen to go through more details around our financial results and outlook. Ewout?

Mark Grant:

Thank you, Ewout. [Operator Instructions] Operator, we will now take our first question.

Ashish Sabadra:

Really strong billed issuance momentum in September of 35%. There was a comment around IGB potentially weak in the fourth quarter. But just wondering if you can comment on the strength that you saw in high-yield and bank loans in the third quarter for the rest of the year? And also, if you can talk about any initial color on the refi wall and share pipeline for '24.

Operator:

Our next question comes from Manav Patnaik with Barclays.

Ewout Steenbergen:

A couple of comments on this. First, if we look back at last year, we took very decisive actions in terms of pulling back expenses when the market turns more south in the second and the third quarter in several areas, among which also incentive compensation. So we have some difficult comps for this year. Having said that, number two, point number two, we acknowledge that MI can do better with margins. And we're seeing several opportunities to expand margins as we have also guidance for the full year and implicitly for the fourth quarter. So that brings me to my third point is that we expect margins actually to improve significantly beginning with the next quarter due to the easier compare but also due to several management actions that we are putting in place, including tight management of headcount and other expenses, while we still continue to invest in growth and other strategic initiatives.

Toni Kaplan:

This one's for Martina. Your billed issuance was markedly ahead of our industry data during the quarter. And so I was hoping you could discuss if you've seen any notable share gains in particular Ratings categories this year? And just any color around share gains.

Operator:

Our next question comes from Faiza Alwy with Deutsche Bank. Your line is open.

Ewout Steenbergen:

Yes, of course. First of all, I would like to comment that if we think about expenses, we have a very volatile comp in 2022. So it has moved around a lot in the quarters last year due to the good reason that we put back very hard, and we're very on top of expense management when we had the difficult markets last year. This year, actually, our trends are far more stable. So year-over-year, there is a lot of noise, but I think this year actually from a pattern perspective looks much better. I think if you look at corrected expenses actually and if you take out Engineering Solutions, we are having expense growth that is below revenue growth. So we're seeing nice healthy margin expense -- margin expansion if you correct for those same items, particularly for Engineering Solutions. We're very happy to see how expenses and margins have developed in Commodity Insights. You have seen some very nice margin expansion there as well as if we think about incentive compensation swing year-over-year, if you would correct for that, actually we're looking at quite modest expense growth in Ratings, Mobility and Indices as well. For the full year, we are expecting for this full year 2023 expense growth in the low single-digit level. So implicitly, if you then would look at the fourth quarter, expenses should be down in a low single-digit level in order to get to that overall guidance range.

Alex Kramm:

Just coming back to the Market Intelligence discussion from earlier. It's a question that I've asked a couple of times since you've done this deal. But part of our thesis on the IHS Markit acquisition was that, that's a business on the market financial side that had been cobbled together by a lot of acquisitions over many, many, many years. And I think we're kind of hoping that you get in there with your S&P Global viewpoint and say like what businesses make sense or do not and maybe make this a leaner and meaner machine. So just wondering to what degree that's an effort that you guys are focused on right now? And maybe anything that you've seen where you echo that, that there may be some things to do and the business could still look a little bit different in the future or if you're very happy with the business portfolio today?

Operator:

Our next question comes from Andrew Steinerman with JPMorgan. Your line is open.

Ewout Steenbergen:

Of course, Andrew, and I had expected you to ask about organic constant currency revenue. So let me first give that number. That was 10.4% for the quarter. Specifically for Market Intelligence, 7; for Ratings, 18.5; Mobility 8.2; Commodities, 10.9; and Indices, 5.8. In terms of adjustments with respect to acquisitions, there was $3.8 million of correction for Market Intelligence, given the acquisitions we have done there. And for Mobility, $5.6 million. And then there was a correction for Engineering Solutions from last year of $96 million. So if you combine that with the FX impact, which you can find in the supplemental deck, you would come to that organic constant currency growth of 10.4. And as you and I are very much in agreement, that is a very healthy basis to look at the real performance of the divisions.

Jeff Silber:

So your Investor Day was a little less than a year ago, and I'm just curious, can you just compare how you felt about some of the businesses then compared to how you feel about them now? Anything better or worse compared to that time period?

Operator:

Our next question comes from Scott Wurtzel with Wolfe Research. Your line is open.

Martina Cheung:

Scott, thanks so much for the question. Just reflecting the prior question as well when we did the IR Day, I said that 2 points. One is that the private markets were not going away in the sense that they were going to continue to grow. And the second is that we saw that as an opportunity. And both things have played out as expected this year. We're very pleased with our overall performance from a Ratings standpoint in the private markets. It comes in the form of a couple of areas, so increased demand for fund ratings. There's been a real healthy pipeline, lot of dialogue with the sponsors and fund managers. We've also seen quite a bit of demand on the structured credit front, which we had highlighted as a key trend that we thought we would see, and that has certainly played out this year. And as we see the overall AUM and allocation to the asset class increase, we're very well positioned. We're out in the market with credit estimates, portfolio assessments, et cetera, with our Ratings team and then having really, really great dialogue with the market participants. So very pleased from a Ratings standpoint.

Andrew Nicholas:

A lot of really good color on new product development. Vitality Index is ticking higher. Growth there is good. I'm just curious and I don't know if this is one that you can quantify, but just how much of that is a result of investments in product development on the gen AI side? Or is that something that can create kind of a new leg of accelerated growth as you continue to kind of harvest your investments there?

Operator:

Our next question comes from George Tong with Goldman Sachs. Your line is open.

Ewout Steenbergen:

Generally, George, this is coming from multiple drivers within Market Intelligence, not only from sustainability and energy transition. So first of all, the core business is strong. We see healthy growth. We see a good sales momentum. We see that the ACV book is really growing a little bit faster than actually the revenue we are reporting, for example, in Desktop. And as you know, ACV is an early indicator of future revenues. So we're really, really pleased by that. Also, the revenue synergies are becoming more meaningful at this moment. So that really helps to contribute growth. The capital markets volumes are stabilizing. We don't see a lot of pickup of M&A yet. But last year, it was really a headwind, and that headwind is going away. And then also the comps become more easy, for example, from an FX perspective. And then you're right, sustainability and several other factors drive here the growth as well. So we are actually really positive about the outlook for Market Intelligence growth in the fourth quarter and implicitly what you're seeing in our guidance range is that we would expect further acceleration of the growth of the top line of Market Intelligence in the next quarter.

Craig Huber:

Yes. Could you just update us, please, on where you're sitting at right now for the synergies for IHS, both the cost and the revenue synergy, what that run rate is now at year-end and where you aspire to be versus your original expectations?

Operator:

Our next question comes from Seth Weber with Wells Fargo. Your line is open.

Martina Cheung:

Seth, it's Martina. I can take that question. Yes, very pleased with the Q3 results. We saw about 55% growth in Trucost and about 37% in CI. But the growth was actually across all divisions. So we saw inflows into the core climate and sustainability indices, for example, in S&P Dow Jones and really strong demand for the Mobility energy transition products as well as the FPOs in Ratings. So really great progress and momentum across the board. Look, I think the key thing here and we've been saying this for quite some time, firstly, the long-term drivers and the needs in this business have not changed, notwithstanding some of the, call it, the minor slowdowns that we may have seen in the past year for various different reasons. Customers, corporations still need to look at operational risk in their supply chains. They still need to report against their net zero transition plans. If they're exposed in any way to Europe, they have to report against some pretty complicated regulations there, for example. We still have banks who are looking at finance emissions and looking to deploy capital into sustainability. And we have asset owners and asset managers who are obviously either looking for alpha or looking to allocate to the asset class. And so fundamentals haven't changed. We believe we have the best, most comprehensive and deep offerings in this area across all of our businesses. Commodity Insights is a leader in energy transition analytics and advisory, for example. But one of the other things that I would say is -- and this is just what's so exciting to me around sustainability with the merger, we are launching products now bringing together some of the most unique and fantastic IP across the division. So the real asset data that we have launched brings together data from Mobility, Commodity Insights, Market Intelligence and Sustainable1. And it's going to be a real powerhouse in that area going forward as we see more and more needs for much more specific emissions transition, biodiversity and nature data at the real asset level. So that's just one example. Super excited going forward and very pleased with Q3. Thanks for the question.

Owen Lau:

Could you please add more color on the strength in private market and also iLEVEL? Where is the demand coming from? I mean, did you take shares from your competitor or your product can automate a process and replace in wholesale?

Operator:

Our next question comes from Russell Quelch with Redburn Atlantic. Your line is open.

Doug Peterson:

Russell, let me start, and then I'll hand it over to Ewout to talk a little bit about the expenses and what we're seeing on the financial side. But right now, there's also a lot of changes going on in the asset management industry. I just talked about what's happening with the private market side. But at the same time, industries like traditional asset management, we see the shift from active to passive, and what that plays to is one of our strengths. And you asked about the type of products which are coming out. Our [one set] is related to sustainability. There's a whole type of new interest going on. And maybe a few years ago, that was more of ESG. Now it's tending more towards climate and energy transition. We see it with, for instance, our own across divisional index, which is related to battery metals. We also see a lot of interest in the climate -- Paris Accord climate transition indices. So there's a whole set of indices that we've been launching, in particular for European investors and with European asset managers related to climate. We also see a set of indices which are across or multi-asset class industries, which allows us to take advantage of what we have from S&P Global from our Index business, traditional S&P 500 and other equity indices. You bring that along with the credit and fixed income indices that came with IHS Markit, that's a whole new asset class for us is to be able to provide a multi-asset class with the credit aspect to it, credit volatility. There's another set of products which are related to exchange-traded derivatives. They're not direct indices, but there's a lot more interest in risk management and hedging and trading strategies. And with our core foundation and our relationships with CBOE and CME, we're able to develop a whole new set of ETDs. And we've seen strong growth in that area as well. So across the board, it's climate. It's multi-asset class. It's factors. It's a whole set of different types of indices on the fixed income side. And then it's also exchange-traded derivatives and new approaches to products, which we've already been developing there. But let me hand it over to Ewout to give a little bit more color on the numbers.

Operator:

Our next question comes from Shlomo Rosenbaum with Stifel Nicolas. Your line is open.

Martina Cheung:

Yes. Thanks for the question. Yes, look, September was higher than we expected for sure. And we do believe that some of that was essentially pulled forward from Q4. Having said that, I think there's a number of additional factors here that are important to think about Q4 and onwards. And some of those are some that I had referenced earlier. Do we, for example -- will we see some issuers actually pull forward from '24 in Q4 of this year, something we're tracking. And as I mentioned earlier, we're also looking at the amend and extend activity in the bank loan space, which was very strong in Q3 as well as some of the refinancing in bank loans as well. So a lot of factors. The sort of net new factor there, of course, as well is the geopolitical overhang that we have to continue to watch. So overall, we take a prudent look for Q4 and the usual factors that we watch going into next year, we have a handle on all of those as well. One other point that I would just add, and this is something that I think is important since it's a good indicator longer term is the flow of funds into fixed income funds. Q3, for example, into high yield and leveraged loan funds was a net positive. So that's a good thing, good indicator. Through the first half of the year, we saw the inflows back into fixed income funds overall against the huge net outflow from last year. So these are things that we have to continue to watch go into Q4 and into next year. Thanks for the question.

Jeff Meuler:

There was a comment about an improving relative position in CLOs. Martina, how much of that was just about retaining capacity through -- in headcount through a challenging market versus what else are you doing? And are there any kind of like IHS synergy benefits? And then just quickly, Ewout, if you can address what drove the lower tax rate? And if there's any sort of like structural carryforward benefit from whatever is driving it beyond '23?

Ewout Steenbergen:

And just to the second part of your question, our effective tax rate is lower in the quarter, primarily due to some new guidance came out during this quarter with respect to the way how to apply foreign tax credits would help impact our medium-term outlook with respect to the tax rate.

Heather Balsky:

I actually wanted to ask a question about the Commodity Insights business. And if you can just talk about the drivers that you expect to, I guess, help you maintain your current level of growth? And just help put in perspective how much commodity prices do or do not impact the growth in that business.

Operator:

That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about 2 hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for 1 month. On behalf of S&P Global, we thank you for participating and wish you a good day.

Operator:

Good morning, and welcome to S&P Global's Second Quarter 2023 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions-and-answers after the presentation, and instructions will follow at that time. To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions] I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Douglas Peterson:

Thank you, Mark. As we look at this quarter's highlights, I want to remind you that the financial metrics we'll be discussing today refer to the non-GAAP adjusted metrics unless explicitly noted otherwise. We're pleased to report 7% revenue growth in the second quarter, excluding the impact of Engineering Solutions in all periods. We saw acceleration in revenue growth in Market Intelligence, Ratings and Indices, while growth remained in the high single digits for both Commodity Insights and Mobility. As you will recall, we took decisive action to protect margins beginning in the second quarter of last year and lapping those actions led to a modest contraction in adjusted operating margins year-over-year. Our continued focus on delivering profitable growth and prudently managing our capital allocation combined to drive double-digit growth in adjusted earnings per share this quarter. We expect positive revenue growth in all divisions for the remainder of year, as well as continued double-digit adjusted EPS growth. In addition to strong financial results, we remain focused on executing our long-term strategy with an emphasis on innovation. We continue to drive rapid advancement in our AI initiatives. We'll talk more about the guiding principles behind our AI strategy in a moment, but we already have a number of internal initiatives and pilot programs. Additionally, in May, we launched a conversational AI assistant called ChatIQ on Capital IQ Pro Labs for internal testing. We'll have more to say about ChatIQ as we get closer to a formal launch to external customers, but it's the first example of how Kensho will deploy LLM-based technology across S&P Global. We're also very excited about some of the developments in our conversations with the largest participants in the private markets. We have an active and incredibly productive dialogue with private equity and private credit customers. We're currently exploring many ways that we can work together to apply our expertise in ratings, analytics and pricing across the credit markets. We'll have more specifics to share here as well as this dialogue develops into commercial opportunities. We're seeing some early, but encouraging signs of stabilization in the macro environment, which leads to a modest improvement to the macro outlook, helping inform our financial guidance. Lastly, illustrating our commitment to disciplined stewardship of the business, we completed the divestiture of Engineering Solutions in the second quarter. We continue to align our goals and operations against the five strategic pillars we introduced at Investor Day. First, I want to provide an update on what we're seeing and hearing from our customers. We've mentioned over the last couple of quarters that we've seen some lengthening of the sales cycle, which we believe was driven by customer sensitivity around spending. Our cross-sell efforts are also creating larger contracts, which take longer to close. While sales cycles remain a bit longer than normal, we've started to see some stabilization and customer conversations have been very constructive. We continue to see high customer retention rates and contract expansions, evidenced by the 8% growth in subscription revenue across our five divisions. The value of our largest and most well-known products, those key brands and benchmarks that the markets rely on is being recognized by our customers in a challenging and sometimes confusing macro environment. Customers are also emphasizing many of the same strategic priorities that we are namely private markets, climate, energy transition and AI. This is evidenced in the 40% growth in energy transition revenue we saw in our Commodity Insights division in the second quarter. As customers navigate a market with higher interest rates, geopolitical uncertainty and rapidly evolving technology, we hear they trust S&P Global and they want to do more with us. We've worked hard to build that trust, and we're as confident as we've ever been in the long-term growth of the company. Related to Ratings, global billed issuance returned to positive growth, increasing 8% year-over-year in the second quarter. We began to see some signs of stabilizing interest rates among central banks. While we did see some likely event driven issuance in the second quarter ahead of the debt ceiling events in the United States, we're also seeing more economists, including our own, expecting only one or two more rate hikes from major central banks over the remainder of 2023. Overall, issuance saw a higher proportion of refinancing activity with issuers tracking market conditions closely. We expect those pockets of issuance to become more frequent as the market adjusts to the new normal of higher for longer. We're pleased with the strength we saw in corporate issuance with both high yield and investment grade issuance increasing notably year-over-year, though the high yield growth is coming off of a very low comparison. This strength is offset somewhat by a softer environment for bank loans and structured finance. Importantly, rating withdrawals, which are a measure of churn in ratings, are down this year. That illustrates the strength of the S&P brand and the increasing value of a rating in an uncertain credit environment. Next, I'd like to focus on our strategic priority to grow and innovate. The June release of updates and enhancements of Capital IQ Pro was one of the largest and most significant in years. We completely reinvented RatingsDirect on Capital IQ Pro and launched loan pricing and analytics as well. Customers have already shown an incredibly positive reaction to the enhancements on Capital IQ Pro. And these new features have contributed to key competitive displacements and enhanced our competitive positioning. In Commodity Insights, we also launched the first offering of base shipping rates incorporating alternative fuel pricing. This is significant as we expect the maritime sector's use of alternative fuels including liquid natural gas to grow significantly in the coming years. Our Sustainable1 team launched a new nature and biodiversity risk data set, assessing nature related impacts and dependencies across the company's operations. This assessment can be applied across the asset, company and portfolio level, which gives our corporate and investor customers a greater ability to quantify both dependency and impact on location specific ecosystems. As we introduced last quarter, our Vitality revenue metric consists revenue derived from our new or substantially enhanced products. We're pleased that in the second quarter, Vitality revenue held steady at 11% of total revenue. I'm both pleased and impressed that the top four contributors to our Vitality revenue in the quarter came from four different divisions, clearly demonstrating that our commitment to innovation and growth spans the entire organization. Turning now to a topic that I know is on everyone's mind, artificial intelligence. I wanted to provide some color on S&P Global's key advantages and the guiding principles that will govern our use and the implementation of AI, both internally and within our products. We're thrilled with the progress that our teams have made building, testing and implementing tools in various use cases across the organization. While Kensho gives us an incredible advantage in this arena, it isn't our only one. The datasets we have, large, proprietary and truly differentiated, create a remarkable advantage for S&P Global as well. Our trusted brands also allow us to have conversations with industry partners, technology infrastructure providers and customers with credibility. We, through our brands, are known and trusted, and we know that trust will play a huge role in the success of any AI based products that come to market in the coming years. As we more fully embrace the technological advances of our era, we need to make sure we do so with prudence and discipline. Particularly given the investment necessary to develop AI driven tools, we want to take each step with a keen focus on creating customer value rather than simply creating tools because the technology exists. We will allocate the necessary capital to these new projects based on our confidence in the strategic and financial impact on the company. While Kensho is deeply engaged in AI research within S&P Global, we want to make sure we aren't dogmatic in our approach. We'll leverage leading technology regardless of whether it was developed at Kensho, developed elsewhere within the divisions or come via a vendor or a partner. Lastly, we want to continue our practice of aggressively defending and protecting our intellectual property and data. We have safeguards and restrictions embedded in our contracts that ensure third parties and customers cannot independently monetize or build commercial products with our data without our consent and our economic participation. We're committed to transparency with our shareholders, and we'll provide regular updates on our new product launches as they take place. We'll move fast. And we'll also make the necessary investments in time and resources to ensure success. Shifting now to how we lead and inspire. During the second quarter, we further demonstrated our commitment to transparency and accountability through the publication of our Annual Sustainability Impact Report and TCFD Report. We also published for the first time our annual Diversity, Equity and Inclusion Report, highlighting our commitment to building a more diverse, equitable and inclusive company and world. We're honored that so many respected organizations have recognized the efforts that we have made to build a company that always pursues excellence. As you can see on this slide, we received recognition not just for our efforts in sustainability and equality, but also in our governance and board oversight and our civic contributions. I've never been more proud to be part of S&P Global. Of course, disciplined leadership means delivering on our ongoing operational and financial outcomes. We are pleased with the strong execution across all divisions this quarter. We saw positive revenue growth in all of our divisions in the second quarter, including accelerating revenue growth in Market Intelligence, Ratings and Indices. While our trailing 12-month margins have contracted 90 basis points year-over-year, we expect that trend to improve as we progress through this year and lap the issuance headwinds we saw through most of last year. With half of the year behind us, we still see many of the same macroeconomic factors impacting our business through the remainder of the year. While we no longer expect a technical recession globally, we do expect headwinds to persist from an economic slowdown, primarily in financial services end markets. We expect to continue to benefit from secular trends, though near term volatility can impact different parts of the business in different ways. While these market expectations are mostly unchanged from the first half, we wanted to reiterate our confidence in the multi-year financial targets we put out for divisions and for the consolidated company at Investor Day. As you know, our Ratings financial results and guidance are closely tied to billed issuance. And for 2023, we now expect issuance to be up approximately 4% to 8% for the full year, up one point from our prior expectation. Our latest Ratings research group forecast calls for a decline in global market issuance, though also slightly improved from last quarter. As a reminder, market issuance can differ materially from billed issuance with divergence this year driven by declines in unrated debt and sovereign international public finance, which don't impact billed issuance. We have completed our July 2023 global refinancing study. And you can see one of the reasons for our for our optimism Ratings business over the next several years. There is over $8 trillion of debt rated by S&P Global maturing through 2026 and nearly $13 trillion maturing through 2028. This, in addition to assumed improvements in the macro environment over the next few years, gives us great confidence in our ability to drive profitable multiyear growth in Ratings. And now, I'd like to turn the call over to Ewout Steenbergen, who is going to provide additional insights into our financial performance and outlook. Ewout?

A - Mark Grant:

Thank you, Ewout. [Operator Instructions] Operator, we will now take our first question.

Ashish Sabadra:

Thanks for taking my question. In the prepared remarks, there was a reference to lengthening of the sales cycle. I was wondering if you could provide any incremental color where you were explicitly you're seeing it, in which particular division or it's been across the board. Thanks.

Ashish Sabadra:

Sorry about that, Doug. Yeah. I was just wondering if you could provide more color on where you're seeing that lengthening of the sales cycle. Has it been focused on a particular division, or has that been across the board? Thanks.

Edouard Tavernier:

Thank you, Doug. And hi, Ashish. So, in the Mobility sector, we're seeing trends similar to what Doug has described. In the sense that in the first couple of quarters of the year, we did see a slight softening of retention rates and a slight lengthening of sales cycle. And what that pertains to is the normalization of the sector after a couple of years of really, really elevated kind of retention rates. So, at this point, we feel the situation has normalized. They stabilized. Our retention rates remain very, very strong by historical standards, slightly less elevated than the past couple of years and business -- kind of new business momentum is now stabilized. Thank you.

Operator:

Thank you. Our next question comes from Heather Balsky, Bank of America. Your line is open.

Ewout Steenbergen:

Good morning, Heather. This is Ewout. Welcome first of all, to the call. So, just to be very clear about sustainability and energy transition. We're not backing away from the $800 million target. We are currently backing away from the timing around that, because we're not 100% certain anymore that we can hit that by 2026. Why? Because we are still continuing to see very positive trends with respect to the longer term secular trends around ESG. We think that all of those -- underlying drivers are still there. But in the short-term, we are impacted by some uncertainties, uncertainties about the regulatory landscape, the political climate, mostly in U.S. We're seeing some on the buy side firms reconsidering what they want to do around sustainability. But we see continued actually pocket of strength in our business. Think about our climate activities, think about ESG raw data, energy transition, all of these products continue to grow very well. I also would like to point out that we expect a reacceleration of our sustainability and energy transition revenues growth in the second half of this year. So, growth will come back in the second half of this year. And we're still very positive and optimistic about the outlook for the medium and long-term.

Operator:

Thank you. Our next question comes from Seth Weber with Wells Fargo Securities. Your line is open.

Ewout Steenbergen:

Yeah. Good morning, Seth. First of all, I think this is exactly in line with our expectations, the margin development in Ratings. And let me explain why that's the case. The same what we said for the company as a whole, we are seeing now also this quarter for Ratings with respect to the expense reset of incentive compensation compared to last year. Last year, in the second quarter, we saw a large change in the accrual for incentive compensation across the board, but also in Ratings, both for the short-term and the long-term incentive compensation accruals. And we are resetting that for this year based on the strong performance of the company and the strong performance of the Ratings business as well. So, we are overall very positive about the medium and long-term perspective and outlook. If you look at where we are from a trailing 12-month perspective for margin for Ratings, we're at 55.2. We're guiding this year to 56 to 57. And then as you know, we have our IR targets for 2025 and 2026, 58 to 60. So, you will continue to see strong margin improvement of Ratings over the next few periods.

Operator:

Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.

Ewout Steenbergen:

Good morning, Manav. You're absolutely right. Where we are with the business at this moment is exactly the same place where we thought the business would be when we had our last call in April. The business is performing in line with expectations. And the only reason why we are making the change with respect to the guidance range has to do with the short-term uncertainty around sustainability and energy transition. So, to give you a little bit more color around it. If you look at some of the key drivers of Market Intelligence, ACV growth is good. Closing rates are good. Retention rates are good. User growth is good. We see a lot of new product launches bringing to the -- being brought market by Market Intelligence. So, overall, we believe the business is in a very good shape. At the end of the day, we are very excited about the potential of Market Intelligence, particularly combining the two companies together in that segment and the potential it will have with respect to commercial growth, and we fully expect to hit our Investor Day targets for Market Intelligence.

Operator:

Thank you. Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.

Douglas Peterson:

Thank you, Toni. Let me just take a step back one second and talk about what we're hearing in the market. I've been traveling this year. And I've been in every continent -- I've been except for Africa and Australia. But I've been around the world. I've been traveling a lot. And in every single conversation I have, we talk about sustainability, climate, ESG, energy transition. This is on everyone's mind. And depending on where you are in the world, it's either moving faster, maybe a little bit slower in the U.S. than it had been before. But there's also a shift going on in the way that regulators and investors think about their accountability to deliver their own views on climate change and on energy transition. The investors and regulators no longer want whoever is managing their money or who they're regulating to just make a decision based blindly on a score. They want them to have their own opinion based on their own analysis and building models from the bottom up. So, when you think about that shift taking place in the market, you then -- we bring the kind of data which has time series on it. We've had information that goes back 15, 20, 30 years. Trucost last quarter grew 38%. Our climate service, which is something that people are using for modeling climate change and physical risk, that grew 78%. So, we're seeing that some of these -- I call them, proprietary data or modeling services that we have are really in high growth and high demand. As you know, we also built a climate credit analytics model with Oliver Wyman. That grew over 50% in the second quarter. And so, we see across the globe that people are starting to make decisions themselves and they can no longer rely on just one single data input. They need to have the data. So, I think that we have a great head start by having bought Trucost seven years ago. We had the S&P Dow Jones Sustainability products, which started over 20 years ago. And let me hand it over to Edouard, who can give a little bit of color also for the automotive and mobility sector.

Douglas Peterson:

Thanks Toni.

George Tong:

Hi. Thanks. Good morning. You maintained your outlook for Commodity Insights revenue growth for the full year. Can you talk about the sensitivity of Commodity Insights revenue to a pullback in oil prices? What are the puts and takes in the various parts of the business?

Operator:

Thank you. Our next question comes from Faiza Alwy with Deutsche Bank. Your line is open.

Ewout Steenbergen:

Absolutely, Faiza. And let me combine all three of your questions in one answer. So, first of all, the business is seeing very healthy flows. We have seen very strong U.S. equity flows at $53 billion. We have also seen very solid fixed income flows for the quarter. That was at $6.5 billion. So, we think the business is seeing really the positive impact from overall positive sentiments around the markets we have seen over the last couple of weeks and months. So, that's first. Then with respect to the outlook for the remainder of the year in terms of our assumptions, we have assumed no further market depreciation from the June 30 level onwards. And we have also -- looking at the ETD volumes, we have assumed that volumes for ETDs remain at a positive place, but coming down slightly from where we were in the first half of this year. I also would like to point out that if you look at where we ended the quarter from an overall AUM perspective, we're about 19% up compared to the point where we were at the end of the second quarter of last year. So, certainly, the starting point for the second half of this year is very strong. If you look at mix, yeah, there is always going to be some kind of a mix in flows to certain products versus other products. We have seen that in the past as well. That will normally normalize over time. So, we think this is more short-term noise due to that flow seasonality. But from a medium and long-term perspective, we believe that there is still a correlation between AUM levels as a key driver of overall AUM fees growth for the business. So, in other words, if you combine all of these trends together, we're very happy that we could raise the guidance for the Index business for the second time in a row and we're very optimistic about the outlook for the remaining of the year for the Index business.

Operator:

Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.

Ewout Steenbergen:

Happy to clarify that, Alex. So, what I've said before is we think the business in all the aspects is performing in line with expectations what we had a quarter ago. So, we don't see any deterioration in any of the underlying business lines within Market Intelligence. And it is actually exactly where we thought it would be at this point in time and also with respect to the book of business, the ACV growth, retention levels, sales cycles and so on, we see exactly what we would expect to see at this moment. But as we have highlighted during the call, there is uncertainty about sustainability and energy transition, particularly ESG scores is a part of the revenue stream for the Market Intelligence business. And we are a bit prudent here deliberately in order to change the guidance here. We're not pointing to any point in this guidance range. We're just lowering the guidance at this point in time. But as we have said, we are actually really positive and optimistic about the outlook of Market Intelligence. We see a lot of positive trends underneath the business and I've mentioned those before. But let me just give another couple of examples of that. The combination of the capabilities is working. So, we're seeing a lot of new products that is in development with respect to combining Market Intelligence and financial services of IHS Markit. We see increased value realization with customers and actually a slight pickup in pricing in the business. We should also benefit from trends of consolidation of data vendors and we are one of the beneficiaries of that. So, many positive things that are positive trends for Market Intelligence. We're just really prudent, and that's the main reason around the sustainability revenues in the near-term.

Operator:

Thank you. Our next question comes from Jeff Silber, BMO Capital Markets. Your line is open.

Ewout Steenbergen:

Yes. Thank you so much for that question. You're absolutely right that we see quite some seasonality in margins in Market Intelligence, but by the way, also in several of our other segments during this year. And that has to do with the reason that I mentioned before around incentive compensation where we saw a large pullback in incentive compensation in the second and third quarter of last year. So, that is what we are going to lap this year. But then in the end, in the fourth quarter, we have much easier comps. And just to give you a data point for the company as a whole, that would mean that we are expecting from an expense perspective that expenses for the company as a whole for this year will still end up in low single digit growth territory for the company as a whole. So, you would expect there for that reason that the fourth quarter margins are going to be really strong. And the expense growth in the fourth quarter is going to be really low in order to achieve those outcomes. So, also, let me give you another data point in terms of margin expansion for the company as a whole. We still expect 60 to 160 basis points margin expansion for the company as a whole. And for Market Intelligence, you're also looking at quite a significant increase in margins over the next two quarters from a trailing 12-month level now of 32.4 to a range of 33.5 to 34.5 for the whole year of 2023. So, yeah, third quarter, still a little bit depressed by the expense seasonality, but fourth quarter very strong margins and expenses really low. That's the overall trend that you should expect for Market Intelligence and the other divisions.

Operator:

Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open.

Douglas Peterson:

Andrew, let me start, and then I'm going to hand it over to Ewout. I want to go back to a period six and seven years ago when we first made our investment in Kensho and around the -- and we started thinking about what the future was going to look like. And we actually see that future playing right now. We felt that in five years from then, which is now -- and 10 years from then, which is five years from now, that people like us would be making decisions assisted by artificial intelligence and machine learning tools. And in the last year or so, it's become apparent that there's another leg to that stool. It's not just artificial intelligence and machine learning. It's also generative AI. We've been embracing that across the company. Kensho has developed an expertise in different types of generative AI models. They are a go-to source in the company for learning about what we can do and what are the different models we could be applying. As you saw in our prepared remarks, we have a governance approach around AI, which is to ensure that we're always thinking about our customers. We have a hybrid methodology of philosophy about using multiple types of models and sources whether that's internally driven from Kensho or the divisions or externally from open sources from partnerships. When you look at the needs for developing AI solutions, you end up actually having to stack multiple models on top of each other. And you require really careful management of your data, so that you can protect it as well as ensure that it will be then used and displayed in the right way. And then the third part of our governance is to ensure that we're all protecting our data. This is one of the first things we did when we started seeing generative AI models. We took a step back to make sure that we could protect our data and our IP. But let me hand it over to Ewout and then over to Edouard talk a little bit more about some of the things we're seeing in the company.

Edouard Tavernier:

Thank you, Ewout. Thank you, Doug. And just to add to what you said, I want to bring up one example of how we're thinking about innovating at scale with a new technology like generative AI. And as Doug said, our experience in earlier forms of AI and our cloud investment over the past two years, I think, puts us in good stead to harness this new technology, but I think we have to recognize there's a step change here. And so, as we think about how do we enable our organization, one of the big strengths of our strategy is to upskill people and make sure we familiarize them with this technology. Earlier in July, within Mobility, we actually launched internal solution called autopilot, which is all about bringing the tool to hundreds of our colleagues within the Mobility division. And we've already seen dozens of use cases developed over the past two or three weeks and we learn every day from this particular solution. We learn not just about large language models, but we learn about data curation, we learn about what kind of UI do we need to develop, what kind of business governance do we need around it. And that's a great example of one of the ways in which as an organization, we're learning and we're harnessing this new technology. Thank you.

Craig Huber:

Good morning. Thank you. I'd like to hear more about your outlook for Ratings for the for the debt issuance year, please, if you can just kind of go into investment grade, high yield bank loans. And I particularly like to hear about if you're overly concerned of what's going on in the commercial real estate market, not so much what the impact is on the CMBS market. But if things continue to get worse there, do you think there could be some negative domino effects in the whole banking sector, financial sector out there. Thank you.

Operator:

Thank you. Our next question comes from Andrew Steinerman with JPMorgan. Your line is open.

Ewout Steenbergen:

Thanks Alex. Just generally, I would like to say expenses are under control. They are in line with expectations. And we expect the overall expense growth for the full year to be relatively modest. So, let me give you a little bit more color around this. So, the key driver of the expense growth this quarter was a swing in the incentive compensation that we already discussed. As I mentioned, also expect that to create elevated expenses in the third quarter, and then we will see it significantly coming down in the fourth quarter. We still expect to hit our margin targets for this year. And as I said before, I think it's also may be good to point that overall we're looking at expenses in absolute dollars that are on a declining trend. So, we have now seen two quarters in a row that in absolute dollars, our expense is coming down. And actually, the third quarter, we expect sequentially further that our expenses will be down relative to the second quarter. So, very much in line with expectations. Your question about what is going into the growth bucket? It's a couple of areas that go in the growth bucket. The first is our strategic investment spend. So that is the $150 million budget that we have for this year to invest in some of our key initiatives to drive future growth. The second is the additional spend with respect to cloud and also the additional usage of GPUs for our gen AI developments that we are buying for our cloud providers. And then the third, that is the BAU growth. So, these are costs related to BAU growth. Think, for example, about additional data that we have to purchase for product development within our divisions. So, those elements go into the growth bucket. But overall, we don't see that really as an expense. We see that as an investment in the future and future growth for our businesses.

Owen Lau:

Hey, good morning. Thank you for taking my question. So, I have a quick follow-up to your AI strategy. One of the competitors has partnered with Microsoft. Could you please talk about the plus and minus of using an in-house AI compared to outsourcing it to a large tech firm? Why in-house AI, such as Kensho or the hybrid approach fits into S&P overall strategy? Thank you.

Operator:

Thank you. Our next question comes from Jeff Meuler with Baird. Your line is open.

Edouard Tavernier:

Thanks Jeff. So, I'll -- I can give you quite a simple answer to that question. You're right that we work with most dealerships in North America. We work with most global OEMs, and we work with most suppliers. So, in that sense, we feel quite penetrated, because we have relationships with most of the potential customers out there. But we also have a portfolio of offerings, whether it's at CARFAX, Mastermind or elsewhere. And within that portfolio, we have more mature offerings. But we have lots of fairly young offerings which have been developed over the past five or six years and which have a lot of mark-to-market penetration to go. So, if you take a look at the examples that Ewout mentioned, products like CARFAX for Life, used car listings, Mastermind or supply chain and technology are all products which have a huge amount of runway ahead of them, right? They're still younger products. They're evolving very fast. And we have a long way to go before we get to full penetration. So think of -- so if I take a step back and now think about those secular drivers, think of them as follows. We have a lot of product innovation. And from a commercial execution, we have a lot of white space with all of these offerings we've developed over the past five or six years, which are maybe 30%, 40%, 50% penetrated. And then, we have all of these secular tailwinds, which are those massive disruptions going on in the industry, which are creating demand for information. And we see we're very well positioned to capture that demand. Thank you, Jeff.

Russell Quelch:

Yeah. Hi. Thanks for squeezing me in at the end there. A question on fixed income Indices, please. Given you have lots of data on corporate debt at the point of issuance and you now own an incumbent brand in the space post the IHS acquisition. And the underlying market for benchmarking fixed income is accelerating as we see sort of greater participation in that space, do you see this as a major opportunity for S&P Global? And perhaps if so, can you talk about what you're doing to invest behind that opportunity and the speed at which you think that can start delivering increased revenue growth and the degree to which it influences your 10% medium term growth ambition for Indices? Thank you.

Ewout Steenbergen:

Yes. Let me give you a couple of additional data points in addition to what Doug said. If you think about the expenses for the index business, actually this is the only division where the growth initiatives were a little bit higher than the incentive compensation we said. And that's for a good reason. Because as Doug highlighted, there are so many areas of growth initiatives in our index business. Think about fixed income data that we can sell together with the indices itself, multi-asset class, sustainability, factor based thematics, Kensho and so on and so forth. But the most important thing here is, as we have told you at our Investor Day, this is going to be a business that we are committed to deliver double-digit growth in 2025 and 2026 at a level of margins in the high 60s. So, of course, phenomenal outlook for this business, given all the growth initiatives. So, we think it's the right thing to do to invest into this business line, both in fixed income, but also many of the other categories that I just mentioned. So, thanks Russell.

Douglas Peterson:

Thank you, Russell. And I want to thank everyone for joining the call today and your excellent questions. And I also want to thank Edouard for joining us today. I'm so excited about the progress that we're making at S&P Global and our focus on growth and innovation, which you heard about. I'm thrilled that we're at the forefront of AI and gen AI and that we've got Kensho that's going to help lead us and bring that together. I'm also very excited that we're the center of what's happening in global markets and in particular, sustainability and energy transition. This is something that's changing every day. And we're having the most important dialogues and building the products and solutions that people need. And as always, I want to thank our people. I feel fortunate that this year, I've been able to travel again, and I've been meeting with our people in Tokyo, Dubai, London and Denver. And I'm always inspired by their passion and their commitment to S&P Global. And I'm always impressed by their great work. So, again, thank you, everyone for joining the call today. And I hope that everybody gets a chance to enjoy the rest of the summer, and have a great day. Thank you so much.

Operator:

Good morning. And welcome to S&P Global's First Quarter 2023 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation, and instructions will follow at that time. To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions]. I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Doug Peterson:

Thank you, Mark. As we look at this quarter's highlights, I want to remind you that the financial metrics we'll be discussing today refer to the non-GAAP adjusted metrics for the current period and for 2023 adjusted guidance and non-GAAP pro forma adjusted metrics in the year ago period, unless explicitly called out as GAAP. We're pleased to report 3% revenue growth in the first quarter compared to pro forma results in the year ago period. We continue to generate substantial synergies and manage our other expenses with discipline, as demonstrated by the 1% growth in total adjusted expenses in the first quarter. Our focus on top line growth and expense management resulted in an expansion more than 100 basis points in the adjusted margin and a 9% year-over-year growth in adjusted EPS. In addition to our strong financial results, we also made progress on many of the strategic initiatives we laid out for you at Investor Day. We continue to prioritize innovation in our technology budgets, and reached important milestones in our cloud migration. We also hosted a record-breaking CERAWeek in the first quarter, and we also expanded our lead in AI with Kensho releasing two more commercially available products built on our proprietary AI and machine learning platforms. We'll discuss these important highlights in more detail in a moment. One of the key messages from our Investor Day last December was the introduction of the five pillars that drive our strategy of powering global markets. Beginning this quarter, we’ll be discussing our results using that same framework. We use these pillars as a lens to inform our decisions on capital allocation and organic investment that impact our people, our customers and the communities in which we live and work. First, I want to start with our customers. Delivering value to our customers drives every decision we make at S&P Global. We constantly hear from our customers that they're focused on the same things we are. During the first quarter in almost every customer conversation I had, we discussed energy transition and sustainability, as well as our products that serve private markets. We continue to see evidence of the value we create for our customers. We saw strong and stable retention rates in the first quarter, with year-over-year improvements in commodity insights and several products and other divisions. As expected and previously discussed, retention rates and mobility have declined modestly, as automotive inventory levels and volumes start to normalize. We also saw some modest lengthening of the sales cycle in certain parts of the business in the first quarter, as some enterprise customers, particularly in financial services, are understandably focused on margin protection and managing their own expenses. This is a continuation of what we saw on the back half of last year. As I've met with customers over the last few months, including large automotive OEMs, retail companies, asset managers, banks and others, the recurring theme is that they want to do more with us. There's a large opportunity to raise awareness of the breadth of our product offerings, and customers have been consistently impressed by the products we've introduced to them. That should ultimately improve customer value and our results. We also look to create quality of life improvements in those customer relationships, and our CI teams have done an excellent job of helping customers migrate to enterprise contracts. That migration reduces contract complexity for our customers, and enhances the overall customer experience in a meaningful way. Turning to our ratings customers. During the first quarter, global build issuance in aggregate decreased 7% year-over-year. While we saw strong sequential improvement from issuance levels last quarter, the uncertainty in the banking sector that emerged in March muted the impact to build issuance for the whole quarter. Refinancing activity was strong in the first quarter, particularly in high yield and bank loans, though opportunistic issuance remained muted. We're pleased that build issuance for investment grade increased in the first quarter, though this was largely due to a few very large deals. We're also pleased with the strength we saw in CLOs in the first quarter. The decision we made last year to preserve capacity and maintain the strength of our analytical organization is already proving to be the right call, as our growth in CLOs was particularly strong. Next, I'd like to focus on our strategic priority to grow and innovate. So far this year, we've launched several new products. An example of our product synergies, teams from Platts and IHS Markit worked together to integrate the Platts forward curve into our real-time analytics platform energy studio impact. We preview this innovation at our Investor Day, which provides clients with the most comprehensive and valuable data and insights in the industry while strengthening our customer value proposition and competitive differentiation. So far this year, we've also introduced new price assessments for black mass in Europe and Asia, and for R-PET in India to improve transparency in pricing of battery raw materials and recycled plastics. We remain focused and disciplined in our M&A, completing the acquisitions of TruSight and ChartIQ within market intelligence and market scan within mobility. These tuck-in acquisitions strengthen our current offerings that we expect even this type of M&A activity to be rare for the rest of the year. As discussed at Investor Day, we're introducing our vitality revenue metric which consists of revenue derived from new or substantially enhanced products. We're pleased that in the first quarter, vitality revenue constituted 11% of total revenue, consistent with our goal of maintaining a vitality index at or above 10%. Much of this growth will be enabled by enhancements to our own data and technology capabilities. As we optimize our technology spend to accelerate the pace of innovation, we're thrilled with the progress made in the first quarter. As we disclosed in February, we announced a strategic partnership with Amazon AWS to collaborate in product development and joint go-to-market initiatives. That partnership allows us to further transition workloads to the cloud and decommission our own data centers, three of which we closed just in the first quarter. Cross organization teams also worked diligently to complete two software systems integrations to ensure that the combined company is operating on unified platforms in the most efficient way possible. Initiatives like these allow us to put more resources behind revenue-generating innovation as well, like the AI-powered products that Kensho has been developing for five years. There is excitement in the field of artificial intelligence, and we're extending our leadership and focusing on innovation that will benefit our customers and increase the value of our products. With the commercial launch of two new products in the first quarter, there are five Kensho branded AI-powered products commercially available today on the S&P Global marketplace. We're very excited about the developments in this field, and we'll discuss our own launches in more detail in the coming months. Shifting now to how we lead and inspire our people, customers and communities. In the first quarter, we launched the ninth iteration of our people-first initiative, and made investments to expand resources for continuous learning, leadership development, and upskilling through our Central Tech programs. These investments in our people help us attract, retain and develop incredibly talented people, which ultimately lead to better financial results for our shareholders too. We also continue to lead and inspire the industries we serve as we power global markets. In the first quarter, we published the inaugural Look Forward Report, which outlines the expectations of our economists, analysts, researchers and data experts. This report is a product of our research council at S&P Global, which was formed last year to help us look beyond the near term, and explore the trends that will shape our collective future. Lastly, as I mentioned earlier, we hosted CERAWeek in Houston, Texas in March. This conference brought together over 8,000 leaders in the energy industry, who participated in over 650 events to help tackle global issues like energy security, energy transition and sustainability, as well as how to navigate the turbulent times in the commodity markets today. Now looking across the company, we're pleased with the strong execution of all our divisions this quarter. While we continue to see the impact of the issuance environment, our ratings division, we're also seeing signs of revenue stabilization as we begin to lap the challenging issuance conditions that began during the first quarter last year. We saw positive revenue growth in all of our other divisions in the first quarter, and continued to balance expense managed with strategic organic investment to make sure we're well positioned to accelerate our revenue growth over the next few years. Expenses can of course be seasonal. So we look at the margins on a trailing 12-month basis, and we expect these figures to improve as we progress through the year. As we look through the remainder of the year, I'd like to touch on some of the factors influencing our company's performance. We continue to expect a mild recession this year, though the timing is more likely a few months later, relative to our initial expectations. We also expect to see volatility in various markets, including equities, credit and commodities. We see no change to the secular trends shaping the future opportunities for us, like the shift from active to passive asset management and energy transition. While these market expectations are mostly unchanged from February, we wanted to highlight the potential impact in the banking market. As we're all aware, the events around regional banks in the U.S. and a major Swiss bank added uncertainty to the markets in March. We do not have material direct exposure to the impacted regional banks, and we do not expect the events in that end market to materially increase the risk to our financial guidance in 2023, or to the medium term targets we laid out in Investor Day. We do see slightly elevated risk of default rates impacting the broader credit markets, particularly in high yield, which will also inform our updated issuance outlook. Our ratings financial results and guidance are closely tied to build issuance. And for 2023, we now expect build issuance to be up approximately 3% to 7% for the full year. Our latest ratings research group forecast calls for a decline in global market issuance. As a reminder, market issuance can differ materially from build issuance, as we've described in recent quarters, with much of the delta this year driven by declines in unrated debt and sovereign and international public finance, which don't impact build issuance. And now, I'd like to turn the call over to Ewout Steenbergen who's going to provide additional insights into our financial performance and outlook. Ewout?

Operator:

Our first question comes from Manav Patnaik with Barclays. Your line is open.

Doug Peterson:

Good morning. Thank you, Manav, for joining the call. The mobility question you have relates to some of the changes that are happening at a structural level in the mobility and transportation business. If you recall the last couple of years, we saw all of the used cars became a very large sales aspect for the dealers and the automotive manufacturers. The OEMs were struggling to actually meet demand. So we're seeing a shift away from used cars to new cars. And we actually expect that there's going to be a lot of growth in the sales of automotive products around the globe this year. And where we're seeing some of the slowdown in subscription relates to dealers, as dealers don't have necessarily the same margin, they might be changing some of their approach to how they're working with the sales force they have. So we're seeing that that's one of the areas where we see some disruption in some retention rates that have started to drop. Other than that across the board and the rest of the company, we do not see any changes whatsoever to retention rates.

Ewout Steenbergen:

Sure, Manav. Good morning. If you look at the dimensions with respect to market issuance and built issuance, actually we're seeing exactly the opposite of the pattern of 2022. So there are two large categories in market issuance that are down more that are not included in built issuance. So this is unrated debt, as well as frequent issuer. So frequent issuers, we don't have in build issuance because as you know they're on the fixed fee construction up to a certain level of volume. So therefore, we expect build issuance to be significantly higher than market issuance for the full year 2023.

Ashish Sabadra:

Thanks for taking my question. I just wanted to focus on the individual segment guidance. You raised the guidance for commodity insights, mobility and indices. I understand MI is more towards the lower end. But even on the ratings front, it looks like the build issuance guidance was raised by almost 1 point. Earlier was 2 to 6, now it's 3 to 7. But you reiterated the full year guidance, so I was just wondering within the full year guidance, do you have increased confidence on the range? Any color on that front will be helpful. Thanks.

Ashish Sabadra:

That was very helpful color. And maybe as a follow up, if I can follow up on the mobility front. Manufacturing in particular was very strong. Overall growth in mobility was very strong, but manufacturing historically which has been more in the 3% to 4% range was up 11% this quarter. So I was wondering has anything changed there structurally, which is driving significantly stronger growth in that segment? Thanks.

Ashish Sabadra:

Thanks, Doug. That was very helpful color, and congrats on such a strong momentum in the business. Thank you.

Operator:

George Tong with Goldman Sachs, your line is open.

Doug Peterson:

Thank you, George. Well, first of all, this was a very lumpy quarter when you look at the issuance. It started out quite strong of issuance. Investment grade had started off strong, but through the quarter in the U.S. it declined 14%, in Europe it increased 3%. A high yield increase in the U.S. 20% but it decreased in Europe 2% and structured finance in the U.S. decreased 48%. And in Europe, it increased 7%. So this was an incredibly lumpy quarter for us. But we've been very adamant about having our sales people and our commercial people out in the markets. We keep our finger to the pulse of what's happening across the markets. We've been involved in supplying information for the structured credit, an area in particular CLOs. We've been strong in the CLO market in the last quarter. We see going forward we think that for the rest of the year that it's going to be mostly refinancing that's going to drive what we see is the issuance. If you take a step back and last quarter, we issued a slide which we show once a year, which is the pipeline of refinancing, which is on the balance sheet of companies, financial institutions and other organizations over the next 5 to 10 years. And you can see there was a lot of financing that took place over the last 10 years with typically five, seven, sometimes up to 10-year maturity. That's starting to mature now. And we're starting to see some of that pull forward. And the question is, what are the right conditions for people to come back to the market? And that's something we're watching very closely, because there is a very, very large pipeline of refinancing that's going to be coming over the next three to five years, and we're going to watch that carefully including what's going to be coming this year.

Ewout Steenbergen:

Of course, George. Thank you so much, and good morning. We are, of course, very pleased with the progress we're making with synergies. This is really a statement of execution of the whole team, of the whole company and the speed of the implementation of all of our programs is really impressive from my perspective. So we are at 550 million run rate cost synergies at this moment. These are cost synergies we're doing in all the categories that we have outlined before. There's of course organizational and duplication of roles that we're taking care of. Then there's real estate consolidation, vendor consolidation, and several other categories. This is all linked to integration. So we like to get the integration behind us as quickly as possible, and that we can fully operate as a combined company going forward. And we're very close to that point now. And that is expressed by the progress we have made with cost synergies, and getting really now not too far away anymore from the 600 million cost synergy mark. And so this is all across the company. With respect to revenue synergies, we see very nice progress in the divisions. The largest growth there we see in market intelligence and commodity insights, but contributions by all of the divisions. We have always said from the beginning that revenue synergies will take more time. At this moment, the focus is mostly on cross sell. And then later this year and the next few years, we will shift to new product development. But obviously the lead time to develop new products into the system, enhancement for that will take a bit longer. But both on cost and revenue synergies we're very pleased where we are at this moment.

George Tong:

Thank you.

Toni Kaplan:

Thanks so much. I wanted to talk about ESG first. Thanks for the quarterly disclosure. We have seen some slowdown in new sales from a competitor of yours talking about the political and regulatory landscape. Have you also noticed any change in investor behavior in ESG, particularly in the new sales, any areas that are slower versus more resilient, because I know it's sort of a topic that spans your whole business. So maybe there are some areas that are doing fine and resilient versus others that maybe you are noticing a new sales change? Thanks.

Ewout Steenbergen:

Toni, when we look at the first quarter revenues for sustainability and energy transition, we actually think that this is really strong for the company. And we are still confident that for the full year outlook, the growth will be in line with our medium-term expectations. And the reason for that is, as Doug outlined, that we have very diverse revenue streams underneath sustainability and energy transition, and all of our decisions contribute to the progress and to the growth. So think about, for example, in mobility what is happening, the huge transformation of the industry around electrification, move to EVs and what that means for the OEMs with respect to thinking about supply chains and new manufacturing and where they sourced the batteries, what is happening in the commodity space with energy transition, what is happening with new price assessments around hydrogen and carbon and biofuels and recycled plastics, what is happening in the rating space with second party opinions? And then Doug already mentioned climate, really there's so much focus now about climate; climate analytics, climate credit analytics, climate data. Just to give you one data point, Trucost actually grew more than 50% in the quarter. So overall, if we added up, I think we have very strong revenue streams. And therefore we are confident about our future growth in this industry and this particular growth area.

Ewout Steenbergen:

Toni, the way how we look at it is, we really believe we're ahead of the game here. We did the acquisition of Kensho five years ago when just very few people were thinking about artificial intelligence. We have already embedded a lot of Kensho's products and tools within our businesses over the last few years. And our intention is really to stay ahead and to really make sure that we continue to implement this and be one of the winners in this market. We told you this morning we have not five Kensho products that are in the market, that's just for external customers. But internally, there are many more products. And actually the efficiency opportunities that Kensho has created for the deficients is very large. Maybe if I may expand on this in one particular area. If we think about large language models and generative AI, actually three areas are really critical. It is compute, which is really expensive. Then there are the algorithms which are more open source and generic. And then it is about training data. And training data is really differentiating. And if you have really good training data, you can improve the algorithms and you can drive down the compute cost. We have at S&P Global the largest training data set for financial markets, plus the best team of Kensho that we already outlined. So we have no need to export our data to someone else models or generic large language models. We can do this in-house. And you may expect that we will have more announcements around this later this year.

Toni Kaplan:

Thank you.

Alex Kramm:

Yes, hi. Hello, everyone. Just wanted to come back to the market intelligence commentary and the outlook there. Clearly, you sound a little bit more cautious. Although, Doug, I think initially you said it should be fine. But I think Ewout's comments are clearly pointing towards the low end. So I guess the question is, what specifically is it that makes this thing a lower end? Is it just an expectation of a slowdown, or is it actually something that you're already seeing in new sales? We're just curious about if this is more an expectation or something you're already seeing in the pipeline I guess, because obviously the uncertain environment? Then specifically, you mentioned the Swiss bank merger, which obviously is something I'm paying attention to as well. Just wondering, you said it wouldn't have an impact, but is it a question about maybe this year not an impact because it may take some time? Or is it just the exposures are very small, just maybe you can dimensionalize it a little bit since it is the first time we've had something like this in like 15 years?

Doug Peterson:

Alex, what I wanted to add is that I've been on the road almost nonstop this year and seeing clients. And it's been incredible the kind of feedback we're getting about the value that the market intelligence team is bringing with the data that's getting built into different platforms. And what Ewout just highlighted that market intelligence customer base is very diversified. We don't just have a financial institution. Client base within financial institutions, we're not just focused on only one single segment. So I've had really interesting conversations with corporates about the data that we have in market intelligence, what we can provide in investor relations coordinator, which is used by different traders, by supply chain. We have a new product which is a supply chain console that corporates are finding incredibly useful for them to understand what would be their needs for managing shipping, supply chain risk, et cetera. So I'm really encouraged by what we're seeing. The client dialogue is what I wanted to highlight.

Doug Peterson:

Yes, thanks for that, Alex. Well, first of all, we have much, much lower exposure to that sector than some of the other competitors in our space. We do watch it very closely, because it does help with some of the -- understanding some of the credit dynamics in the country overall. We do see in the U.S. that there could be some slowdown in credit. And that's one of the reasons that we've been cautious about our own economic forecast for the rest of the year. You heard as Ewout said that we expect that there would be a mild recession or a mild slowdown as we see a dip in the second or third quarter. And we think part of that could be caused by the slowdown in credit. But overall, we have very low exposure to this area. And it's likely that some of the areas that we see that the credit will get picked up by the private markets or securitization, and some of those we might actually benefit from some of the activity on those.

Doug Peterson:

Thanks, Alex.

Craig Huber:

Great, thank you. Can you touch on, if you would, your outlook for bank loan issuance this year and high yield issuance just given the huge uncertainties on the macro side please?

Craig Huber:

Thanks for that. My other question please, mobility obviously had a very strong start to the year with solid outlook for the rest of the year. Can you just touch upon the businesses within that division that you think will help drive it for the rest of the year, and any significant changes from the trend you've saw in the first quarter do you think might go better or worse as the year goes on? Thank you.

Craig Huber:

Great. Thank you.

Operator:

Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Ewout Steenbergen:

Absolutely, Jeff. So the way we look at this is most of our products are must-have products for our customers. We are deeply embedded in their workflows, in their day-to-day activities. Therefore, we add a lot of value to our customers. And that should give us an opportunity to pass on any cost price increases as a result of the inflationary environment in terms of pricing and fees. But obviously, we're doing that in a very responsible way. We're doing that in a very balanced way that will come in gradually over time at the moment of contract renewals. But overall, we think that is reasonable to pass on cost price increases to customers, and therefore we still expect to expand margins in this current environment. I'm looking at maybe one of my colleagues, Dan or Saugata, if you would like to give any particular color for your businesses.

Jeffrey Silber:

All right. Thanks so much for the color.

Operator:

Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.

Ewout Steenbergen:

Thanks, Owen. I will give you a more broader perspective and then hand it over to Saugata for some specific Kensho implementations in commodity insights. So overall, Kensho for the last few years has been very much focused on product development, speed to market, new product design, new design of delivery, customer experience within S&P Global, but slowly is now also turning more externally, again, because many of those products that have been developed are also attractive for external customers. Overall, if you look at the value that is generated, it's both value internally and externally. In terms of external customers, we have now more than 50 external customers in areas like asset managers, large banks, hedge funds, and corporates. And this is all the products that we have highlighted before; Link, Nerd, Scribe, Extract and Classify, so many good products. But let me hand it over to Saugata to give you more details about commodity insights.

Owen Lau:

Got it. That's very helpful. Thanks a lot. And then on indices on the expense, I think it was lower than our expectation, but the margin was higher. Was it mainly driven by lower comp because your revenue line gets lower? And also, could you please give us an update on your key maybe market and also your investment or expense assumption for the rest of this year on indices? Thank you.

Owen Lau:

Okay, sounds great. Thanks a lot.

Operator:

Thank you. Our next question comes from Andrew Steinerman with JPMorgan. Your line is open.

Ewout Steenbergen:

Andrew, we said that for Market Scan, during the quarter, the impact is around 1 point. So it's around $3 million to $4 million. It's overall immaterial for the company as a whole as you understand. The other two sides in ChartIQ really are immaterial for market intelligence. So from a modeling perspective, I wouldn't put any number into your model. But then I would like to point out that the revenues and the earnings were loose in our models. And our plan for the full year by divesting engineering solutions two months earlier is actually net-net going to reduce the overall impact on our plans. So the net of divestiture of engineering solutions and in requisitions is actually a negative, hence my comments earlier during this call that implicitly we're raising the guidance for the full year by holding the range to same for the company as a whole.

Ewout Steenbergen:

Yes, that's correct.

Doug Peterson:

Thanks, Andrew.

Jeffrey Meuler:

Yes, thanks. Doug, Ewout, good to hear from you. But I'll try to continue to incorporate some of those other voices. Within indices, maybe if you could talk about, I guess, like your vitality or what new products are really resonating or you think have the highest potential?

Jeffrey Meuler:

Thank you. And then on commodity insights, there was a comment about an opportunity to further sector leadership. Maybe just a high level comment, like how was CERAWeek different with IHS here being part of S&P now? And then should we look to the event as a meaningful cross-selling catalyst if you just talk about the pipeline build coming out of the event? Thank you.

Jeffrey Meuler:

Got it. Thank you.

Operator:

Thank you. Our next question comes from Russell Quelch with Redburn. Your line is open.

Doug Peterson:

Yes, hi, Russell. Thanks for the question. No, we actually have hit I think probably one of the most notable products in Europe was our Paris-Aligned & Climate Transition launch in fixed income. And so that aligns already what we've done in equities. So that was something we got to market. And there's now demand, we call it, the PACT Indices to do those in other parts of the world and other kind of regional exposures, whether it be emerging markets, global, what have you. So that was a really important product and index that we got to market. As I mentioned as well, multi-asset is really, really important for us too. So to align, again, the IBOX range, for example, investment grade, high yield, but to put that more intentionally alongside our leading equity franchises. So being able to do that on a channel basis, particularly areas like insurance. If you think about the annuity space, being able to go specifically there where multi-asset demand, it's also a channel historically that's had a lot of active management. So this bigger trend of shifting from active to passive, we are a leader in that space, but it's early days. Can we expand kind of our first mover advantage to again bring the IBOX capabilities? And again, we've already launched products I mentioned in Japan on multi-asset. We have development now moving forward really across the globe. But I'd say insurance is interesting. Retirement, I mentioned as well, another area that in some areas historically have been very actively oriented, again, combining fixed income with equity is where we want to be able to move forward. And it's a competitive place.

Russell Quelch:

Thanks. So maybe just as a follow up, I heard all the comments around investment and synergies, particularly Dan's comments around investments. So just wondering if you can speak to the seasonality you expect in the cost line in 2023. Is that likely to be the same as historical average or slightly different to previous years? Thanks.

Russell Quelch:

Thank you.

Operator:

Thank you. Our next question comes from Simon Clinch with Atlantic Equities. Your line is open.

Doug Peterson:

Thank you, Simon. This is Doug. Well, first of all, as you know, we've always been in a competitive environment and we also respect our competitors very, very much. This is an environment where, for us, it's up to bringing the most relevant, the newest, the fastest, the highest quality information, being responsive, as you've heard us talk about Kensho, artificial intelligence, machine learning, all of these types of things allow us to bring information and data and analytics and benchmarks to our customers even faster. So it's a very competitive environment. This also puts us on the -- keeps us on our toes. It makes us better because we have to always respond to the demands of the markets, as well as ensuring that we're faster and ahead of all of our competitors.

Ewout Steenbergen:

Yes, we have said revenue synergies, Simon, are coming in over a period of three to five years, about 45% cross sell, which is more the first two years and then 55% coming from new products, which is more year three to five. So you should see this actually -- see that ramping up over the next period during the course of this year, and we saw actually quite a nice jump from the fourth quarter to the first quarter and we're now at that 52 million run rate level. But you see that going up in quite a nice way over the next couple of quarters. But obviously, revenue synergies take more time to accomplish compared to cost synergies.

Doug Peterson:

Thanks, Simon.

Stephanie Moore:

Hi. Good morning. Thank you. Maybe taking a high level view of just this year and your expectations embedded in your guidance, I think you called out that it does call for a bit of a improvement or somewhat of a macro recovery in the back half. Just trying to think of the levers or opportunities you have to pull, say maybe the macro ends up being a bit weaker. Can you talk about some of those levers as well as some of the counter cyclicality of your business in the various segments that would be helpful? Thank you.

Stephanie Moore:

Great, thank you so much. Appreciate the color.

Operator:

That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replay of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's Web site for one year. The audio only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating. And wish you a good day.

Operator:

Good morning. And welcome to S&P Global’s Fourth Quarter and Full Year 2022 Earnings Conference Call. I’d like to inform you that this call is being recorded for broadcast. [Operator Instructions] I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Doug Peterson:

Thank you, Mark. Welcome to everyone joining today's earnings call. We're looking forward to a very exciting and innovative year at S&P Global. As we shared with you at Investor Day, we're accelerating the pace of innovation and taking advantage of all we have to drive profitable growth over the next three to five years. In 2022, we built on our incredible history at S&P Global to position the company to create significant value for our customers, our people and our shareholders in 2023. 2022 was a year of resilience, decisive action and discipline. As we look at our financial highlights, I want to remind you that the financial metrics that we'll be discussing today refer to non-GAAP adjusted metrics for the current period and for 2023 adjusted guidance. And non-GAAP pro forma adjusted metrics in the year ago period, unless explicitly called out as GAAP. Adjusted results also exclude the contribution from previously divested businesses in all periods. Adjusted revenue decreased 4% or 3% on a constant currency basis. As everyone on this call knows, we saw dramatic decreases in debt issuance, which drove the decline in our revenue and earnings. But what you would not be able to tell from the headline revenue growth rate is that our business has become far more diversified and resilient. While we saw a 26% decrease in our ratings revenue, the vast majority of that decrease was offset by a 6% growth in our other businesses. That growth came despite FX headwinds, and unstable macroeconomic environment and the suspension of our commercial operations in Russia. We also took decisive action to preserve margins in 2022. Despite significant inflation throughout the year, we were able to keep our adjusted expenses relatively flat year-over-year due to outperformance on our cost synergies and management actions around incentive compensation, discretionary spending and the timing and prioritization of strategic investments. Our teams have a lot to be proud of, and we've done a remarkable job setting the company up for a strong 2023. We introduced our initial guidance today, which includes 4% to 6% revenue growth and a 10% to 12% EPS growth. Importantly, we're not moving Engineering Solutions to discontinued operations, so both of these figures include the half year contribution we expect from Engineering Solutions in 2023, excluding the impact of Engineering Solutions, we would have expected revenue growth to be approximately 6% to 8%. Amongst the impactful accomplishments in 2022, we completed our merger with IHS Markit and took important steps to optimize both our operations and portfolio of businesses. We optimized our capital structure as well, lowering our average cost of debt at fixed rates, protecting our earnings from further interest rate volatility. We introduced a bold strategic vision at our Investor Day, Powering Global Markets, and outlined our key growth priorities for the next few years. We're looking forward to updating our investors on our progress against those initiatives as we move forward. We also continue to shape the secular transition from active to passive asset management, and just last month celebrated the 30th anniversary of the first index-based ETF, which was based on our S&P 500 Index. As we look to the strategic initiatives we had at the beginning of 2022, it's clear that we continue to make great strides. We outperform our original 2022 cost synergy targets by more than 20%, generating $276 million in cost synergies fully realized in 2022 compared to original target of $210 million to $240 million. We successfully integrated our major infrastructure software systems, including what our ERP vendor told us was the fastest integration ever for a company of our size. We continued to drive commercial momentum, generating nearly 7,000 synergy cross-sell referrals post-merger. We also made great progress with our strategic investments and our transformational initiative to optimize our technology spend. Lastly, we continued our relentless focus on making sure S&P Global remains a destination of choice for our people and candidates. Our Internal People Survey indicated 90% or more of our employees endorse our culture and our efforts in diversity. We continued to invest for long term growth in 2022. We made several small acquisitions to bolster and round out our offerings in private market solutions, as well as sustainability and energy transition. We also had several important new product launches and upgrades that will drive customer value and financial performance in 2023 and beyond. We took steps to optimize the portfolio of businesses at S&P Global. We made several merger related divestitures that were required by regulators, but we also decided to divest the Engineering Solutions Division and announced an agreement to sell the business to KKR. These decisions help position S&P Global in growth markets where we can leverage our strengths across the entire business. As always, we will continue to be disciplined stewards of the business and periodically review the portfolio of assets to determine the optimal structure at any given time. Shifting to our financial performance, the largest macro contributor to our 2022 results has been the sharp decrease in global debt issuance, which continued to deteriorate as we move through 2022. For the full year, we saw 28% decrease in global rated issuance or a 31% decrease when including the impact of leveraged loans. This is particularly noticeable in high yield issuance, which decreased 77% from the extraordinarily high levels we saw in 2021. The issuance environment certainly impacted our financials in 2022, but we were pleased with the execution from the teams across the company despite those challenges. As I mentioned previously, our aggregate financial results provide clear evidence of our commitment to disciplined execution. Excluding the ratings business, revenue growth would have been 6% in 2022 and adjusted operating margin would have expanded by approximately 200 basis points. Ewout will discuss the fourth quarter financials in a moment. Each of our divisions performed admirably in 2022. We saw positive revenue growth in four of our six divisions and constant currency growth in five of our six divisions. We believe the strength and discipline shown in 2022 sets us up for a return to positive overall revenue growth and margin expansion in 2023. We continue to deliver impressive results in Sustainable1. In 2022, we grew ESG and climate revenue by 50% year-over-year to more than $200 million. As we outlined at Investor Day and as you'll see in the appendix, we've updated our methodology beginning in 2023 to include all of our sustainability and energy transition products and we'll be disclosing sustainability and energy transition revenues rather than just ESG revenue going forward. Under the new methodology, we generated $247 million in 2022 and we expect growth of more than 30% from that base in 2023. We ended 2022 with ESG ETF AUM reaching $40 billion. That growth is particularly impressive when you consider it is the net impact of an 18% increase in AUM from net flows and a 14% reduction in AUM from price depreciation resulting in 4% net growth year-over-year. We continued to launch new indices based on climate or sustainability factors in 2022, including the new S&P/BMV Green, Social & Sustainable Target Duration Bond Index. We also launched new products in market Intelligence, commodity insights and mobility. Within ratings, we completed 133 sustainable financing opinions, 33 green evaluations and 102nd party opinions. At the core of our sustainability efforts are the corporate sustainability assessments. This remains a key differentiator versus our competitors as they enable us to collect an enormous amount of data directly from corporations around the world. For the methodology that ends in March 2023. We have already increased CSA survey participation to more than 2,900 companies, representing a 30% growth year-over-year. We expect more than 3,000 companies to participate by the end of March. The company also continued to advance its own industry leading practices in sustainability. We issued our 11th annual Sustainability Impact Report and fourth annual TCFD Report. We launched $1.25 billion in sustainability-linked notes and adopted the sustainability-linked bond framework. We ensured the long-term funding for the S&P Global Foundation via a onetime grant of $200 million, and our efforts continue to receive recognition from several leading third parties. I'd now like to shift the presentation to our outlook for 2023. The latest global refinancing study was issued earlier this month. The total amount of global debt maturing in this study is $11.1 trillion over the next five years. This is actually up 3% from the study a year ago and up 7% from last year's study when looking out over the full nine years. Importantly, this shows us how the maturities have evolved over the next few years. While 2023 expected maturities have unsurprisingly decreased over the course of 2022, if we look at maturities in the years 2025 to 2027, we see a 12% increase from last year's study. That increase jumps to 23% looking at maturities in 2027 to 2029. The bottom line is that there is a very healthy pipeline of debt maturities coming over the next several years. Now, looking at total rated debt outstanding, we continue to see a compound growth rate of 5% and a continued year-over-year increase in total debt outstanding on a constant currency basis. Historically, outstanding debt usually gets refinanced. And we don't see any reason why this decades long trend would change. After marked declines in issuance in 2022, our ratings research group anticipates that issuance will return to positive growth in 2023. The forecast calls for issuance gains of 8.5% for non-financials, 3% for financial services, 5% for US Public finance, and a decrease in structured finance of 7%. Please note that this is an issuance forecast, not a revenue forecast, and it does not include leveraged loans. Our financial results and guidance are more closely tied to build issuance, which can differ materially from market issuance as we have described in recent quarters. For 2023, we expect build Issuance to be up approximately 2% to 6% for the full year. Now let's move to the latest view from our economists. They're forecasting global GDP growth of 2.2% in 2023. While GDP growth is expected to be positive, we also expect it to be a story of two halves. Right now, we're assuming a mild recession in the first half followed by stabilization in the second half. Each year, we carefully assess the external factors facing the company. This slide depicts those that we think are most important going into 2023. There are a number of potential positive impacts this year and potential headwinds, many of which we've outlined on this slide. There are also a number of factors that could impact our business positively or negatively or different ways in different parts of the business. Volatility in the equities and commodities markets is a great example, as it can be a headwind to certain parts of our business while serving as a tailwind to global trading services and commodity insights and exchange traded derivatives in our indices business. While we certainly aren't immune to the macroeconomic environment, we're confident that investing for growth in these times of uncertainty and through the cycle is the right way to create long term shareholder value. While others may give in to the temptation to hunker down, we want to make sure that we're aggressively taking the steps to position S&P Global for years of profitable growth. That's why I'm so excited to finish my prepared remarks on this slide. We're optimizing our technology spend for growth, and we're leveraging the most powerful platforms available to make sure our product development teams can rapidly bring new features and products to market. We recently announced a long-term strategic partnership with Amazon AWS to further technology vision we laid out for you at Investor Day. This agreement allows us to consolidate contracts and drive long-term savings through a collaborative relationship with one of the world's most innovative technology companies. Kensho continues to be a key contributor to the culture of innovation within S&P Global. We have a bold vision for how to leverage the newest breakthroughs in machine learning and artificial intelligence and not only make those technical technologies available to our customers, but truly embed them throughout the organization to drive growth and efficiency. I visited Kensho's office this last fall and was impressed to see the work that Kensho's R&D team had been doing with respect to large language models and their transformative potential. Since then Kensho has made significant progress on models that leverage unique data across the enterprise, with the potential to power innovation using AI and machine learning to accelerate product and technology agendas across all of S& Global. This is very exciting. We'll also continue to make strategic organic investments in areas like private markets and sustainability and energy transition, and we'll selectively pursue opportunistic acquisitions that enhance our growth and innovation. As we begin reporting our vitality revenue this year, we will continue our long practice of transparency and accountability. It is truly an exciting time to be at S&P Global. And now I'd like to turn the call over to Ewout Steenbergen, who is going to provide additional insights into our financial performance and outlook. Ewout?

Mark Grant:

Thank you, Ewout. [Operator Instructions]. Operator, we will now take our first question.

George Tong:

Hi, thanks. Good morning. You expect 2% to 6% growth in build issuance in 2023. Can you bridge your expectations for build issuance with guidance for ratings revenue growth of 4% to 6%, including how you expect pricing and issuance mix to impact revenue?

George Tong:

Market intelligence revenue growth decelerated in the quarter due to slower growth in desktop and declines in enterprise solutions. Can you elaborate on trends you're seeing in desktop and enterprise and why you believe performance may improve in 2023?

Adam Kansler:

Thanks, George. We're very confident in our desktop business, but our desktop revenue in this quarter didn't perform how we expected. Let me give you a little bit of color on that. Financial services industry obviously under pressure. You see that belt tightening, now some of the largest sell side banks, and they're taking a cautious approach right now, and we're not immune to that. That said, our core desktop offering continued to grow extremely well. Within that desktop revenue line, you have certain products that are non-recurring in nature. Consulting and advisory engagements tied to our desktop offering. These are the products that saw that impact in Q4. As we look out to 2023, we remain confident in our desktop growth, and we're excited about our forward competitive position. We saw active user growth up 9% this year. This is great growth in a challenging year. An important driver for us as we renew and expand our relationships with our customers in 2023. We're delivering significant upgrades in the offering. Speeds increased dramatically. New features being released. You saw we announced our ECR data live on our desktop in 2023. Fixed income and loan capabilities coming. So while Q4 not quite the quarter we expected, we're very confident and excited about that growth forward. I'll just spend two seconds on enterprise solutions. I know you asked about that as well. Understand that revenue line as really two separate components. Software solutions our customers use for workflow compliance and portfolio monitoring. And a section for industry platforms that are really directly impacted by capital markets activity and volumes. That first group performed really well this year, and we expect that to continue to perform really well into 2023. A lot of those are double digit growth businesses. The second bucket, the industry platform, is really impacted by significant drops in capital markets activity that saw a negative double-digit impact in the current year. When we look forward into 2023, we expect that negative impact to moderate as we lap those comparables and as markets stabilize. So we do have a very positive outlook for enterprise solutions as we go forward into ‘23.

Alex Hess:

Yes, hi. This is Alex Hess for Andrew Steinerman. Maybe just start with the 2024 revenue synergy target that was lowered modestly. And I believe it was mentioned that principally reflects engineering solutions. But with the focus of Investor Day having been on innovation, can you maybe update us on where 2022's vitality index came in, how promoter score is tracking, and sort of what gives you confidence that maybe that target remains pretty achievable.

Alex Hess:

Great. Thank you so much. And then maybe to turn to your build issuance assumptions, can you maybe walk us through the degree to which that is weighted to the back half of 2023 versus maybe facing some steeper comparisons in January and the front half of this year?

Operator:

Our next question comes from Toni Kaplan from Morgan Stanley.

Doug Peterson:

Yes. Thanks, Toni. As you know, the basis of the index business that we have is about transparency. It's independence. It's the ability for a client to understand exactly what's in the portfolio at any point in time. Where we're especially seeing multi asset class demand is in the insurance industry. The insurance industry, which has many types of products, is looking to multi asset class. They use it for annuities, they use it for wrappers. And we're also seeing that bank structured product desks are also looking at multi asset classes. So we're seeing a lot of growth in this. You asked the question about what is the difference? The difference is that you can put together a single product which meets the needs of a client. And we're seeing that this is right now very high demand coming from those two industries. As ETFs are built from the multi asset classes, then you start getting trading around them. So we see the entire ecosystem starting to grow. And it's also part of the trend when we see active to passive anyway. So I think it's very important you ask the question. It's one of our growth areas and across all of the index business. This is one of that we're most excited about, finally, because we have within S&P Global now one of the leading franchises of Fixed Income with IBOX, CDX and iTraxx, we can actually produce these products on our own all-in house.

Ewout Steenbergen:

Toni, if you think about the overall market dynamics in the commodity markets, we think that currently those markets are very constructive for our customers and that is going to be helpful also for the growth of the business over the next few years. Well, first, one point to highlight is that in 2022 we saw some headwinds from Russia, from the Russia-Ukraine conflict and the fact that we stopped our commercial relationship with Russian customers. So obviously that headwind is going away going forward. Secondly, what we are seeing is that our customers are both focused on traditional energy resources and new energy resources. So we're benefiting from both trends at the same time where there is of course a lot of activity going on with respect to the current market prices in terms of exploration and additional capital expenditures that we're seeing. But our customers at the same time are also focused on energy transition and needs help from us. So we are providing data, insight, research, advisory, all of that around energy transition at the same time. So we believe this business has a lot of secular tailwinds over the next few years. What we told you is that at Investor Day that we expect this business to grow into 7% to 9% range in 2025 and 2026. And we think absolutely that is possible. We are very committed to hitting that number.

Alex Kramm :

Hey, good morning, everyone. Maybe you can touch on the margin outlook a little bit, but particularly interested in the quarterly seasonality or cadence. I know in the past there's been some surprises here and there in some of the segments. So maybe Ewout you can help us between synergies coming in and maybe typical seasonality, what would you call out in particular as it relates to maybe the seasonality, we saw in 2022? I understand ratings is probably going to be driven a lot by Issuance, but maybe in the other segments. Anything to call out?

Alex Kramm :

Okay, fair enough. And then maybe just a follow up to the market intelligence question to Adam earlier. Maybe you can be a little bit more specific what you expect in the more capital market sensitive areas. I know there were some clearly some headwinds that you discussed earlier. Do you expect those businesses to be kind of like flattish or do you expect capital markets activity to actually recover decently? So maybe you can just talk about that and if you can tie that in with maybe the selling environment a little bit more of what you're seeing right now, that would be helpful as well.

Operator:

Our next question comes from Jeffrey Silber from BMO Capital Markets.

Ewout Steenbergen:

Jeff, the forecast, the guidance we're giving is middle of the road. It's management's best estimates. This is our best expectation for the markets and for the full year at this point in time. I can give you a couple of underlying elements in terms of assumptions that have gone into our plan. So, for example, with our market sensitive businesses, think about the index business. The assumption is flat equity markets this year for the full year. You could say January looks a bit better, and February so far as well. But we're not changing our plan on a month-to-month basis. So on average we're expecting markets to be flat. That is the assumption that have gone into the index outlook, as well as 20% declines in ETD volumes coming from elevated levels last year, as well as flows to be more or less in line with what we have seen in previous years. And then with respect to the other market sensitive businesses, we already gave you some of the assumptions for ratings, so that is has gone into the plan. We think this is our best estimate at this point in time, given everything we know about the company and the markets.

Doug Peterson:

Well, thank you, Jeff. We're very pleased by the investment we made in Kensho, in addition to investments we've made across the entire organization in decision sciences and AI and machine learning. I recently spent some time with Kensho in Cambridge, and they were able to show me some of the R&D they're doing on large language models, which is something that's in the press every day right now. We're seeing that for the financial markets, we've been able to harness the data and the language that we already have inside of the company to develop some very interesting products. But since Ewout oversees Kensho, I think I should hand it over to him to finish the answer.

Operator:

Our next question comes from Craig Huber from Huber Research Partners.

Martina Cheung:

Hi, Craig. Yes, it's Martina here. Thanks for the question. So our outlook for this year is overall up 2.5%. The underlying factors, everything Doug had highlighted in his presentation, but 8.5% on corporates, 3% on FS US Public finance around 5%. And we're projecting a decline in structured finance of about 7%. We don't break out high yield and bank loans specifically, Craig. But what I can say is as you all know, high yield in 2022 was a really low year. And so we see growth in the high yield market this year. I think on the bank loans and CLOs, maybe what I can just touch on is the expectation for the research team underpinning that 7% decline in structured finance does reflect some concern around the pipeline for CLOs which we characterize or capture in the Structured Finance Act.

Ewout Steenbergen:

Craig, in general terms, we always start to think first about what we do for the customer, the value we generate. The good news is that most of our products are must have products with a very high contribution to our customers. And obviously, that is the first element we take into consideration when we start to think about pricing. Pricing obviously needs to reflect also our cost price. Cost price is going up given the higher inflationary environment. So we believe we have across the board, depending on facts and circumstances, customer relationships, depending on certain products in one area or another area. But in general, we have an opportunity to pass on higher price increases given the higher inflationary environment.

Faiza Alwy:

Yes. Hi, good morning. So my first question is I want to take advantage of Martina being on the call. Martina, it seems like the high yield market has really outperformed expectations so far this year. It's only been a few weeks, but I think just today we have a new deal announced for [inaudible], which is high yield and I think has been surprising. So give us your view on has this been surprising for you and how do you expect sort of the high yield market to evolve through the course of this year?

Faiza Alwy:

Got it. Thank you. And then secondly, a bigger picture question around the revenue synergies. Question around revenue synergies. You've talked about an $85 million run rate for 2023. Give us some additional color on again, sort of where you've seen these revenue synergies take place, where you have the best result, and then how do we bridge sort of what's the next step to get to that at $350 million loan term.

Adam Kansler:

Thanks. It's a great question because this is probably the most exciting part of what happens in a merger and bringing together the set of capabilities that we now have. In 2022, this was mostly about cross-sell, selling our products to expanded customer bases that gave us a good early start. And in this first year, we were able to perform on that type of synergy realization. As we move into 2023, as Ewout described, it really becomes about building new products that we're able to now deliver because of a combined set of capabilities. Already in 2023, I think five of our combined product capabilities are already generating revenue. We have over 20 in the pipeline, and this is just in market intelligence alone. These are things like building our sustainability data and capabilities into our workflow solutions, expanding the capacity and capabilities of our desktop with fixed income and loans information, bringing together workflow solutions, and incorporating much larger data sets for customers to think about private markets customer who also wants to look at public company comparables for basic financial analysis. Those types of combined product offerings are what give us a lot of confidence in our total revenue synergy targets over $300 million as we get out into later years. And as I mentioned, the most exciting part of what we're doing.

Owen Lau:

Hey, good morning. Thank you for taking my questions. Could you please add more color on your partnership with AWS, you announced yesterday? And I think it's also somehow related to how you will deploy Kensho in this partnership. But how should we think about the incremental revenue and expense control opportunity here would be great. Thanks.

Ewout Steenbergen:

Good morning, Owen. If you're think about the contractual agreement we're having with AWS, this is about a $1 billion spent in total over the next five years. And to put that in perspective, we will continue with a multi cloud philosophy and in total according to our forecast, we would actually be spending more than a $1 billion on cloud computes over the next couple of years. So this is not an increase in spend in total. This is exactly in line, or actually is our total cloud forecast is actually higher than this particular number. But what this brings to us is two very significant benefits. The first is of course that by combining the S&P Global and IHS Markit contracts at this moment in this new partnership with AWS, we will be able to generate very significant cost synergies as part of the new contract. And secondly, as Doug already said, and this is actually more important from my perspective is the strategic partnership because this will help to advance our technology innovation. We will be able to combine leading technologies and platforms and data sets of both companies. We'll be able to add specific capabilities that we are having on both sides, including the Kensho AI capabilities of course. And the most important that will end up with a really very incredible customer experience that we expect to enhance over the next few years.

Adam Kansler:

Hi, Owen. It’s Adam. Happy to take that. So private markets continue to expand. You're seeing continued issuance of private debt, increasing regulatory pressures for disclosure, needs to monitor, report, test and report against sustainability metrics. Manage large private equity and private credit portfolios that requires things like valuations, reporting tools, portfolio monitoring tools. These are all areas where we already have a significant footprint, and we're well positioned to deliver additional solutions to the market. While you see in this year some tempering and fundraising, I think everyone agrees this is an asset class that will continue to grow. And the types of solutions that I described, workflow solutions, regulatory reporting, valuations, portfolio monitoring, all have significant room for continued growth.

Operator:

Our next question comes from Stephanie Moore from Jefferies.

Doug Peterson:

Yes, Stephanie, this is Doug. When you look at the mobility business, you have to think about all of the different capabilities that we have across the business. And this starts with CARFAX, which you mentioned. There's a set of products, automotive mastermind, Polk Analytics. What you think about is it all the way from the OEMs to the suppliers, to the dealers, to the insurance companies, to the financial institutions that are financing the automotive sector. All of them are looking for data and analytics. And we've seen an incredible digital transformation that has taken place over the last three years with a lot of volatility in the automotive markets. And all of this has driven all of these different types of players to the mobility business for data, for analytics, for research, for forecasting. In addition to that, we see an incredible transformation taking place in the industry with electric vehicles. And so electric vehicles are also introducing a new element which is also bringing all of these types of people back to the markets for more data and analytics. We've seen that we can benefit in different of types of markets depending on whether it's used cars, it's new cars, whether it's, how a dealer is going to be working with incentives. And so we believe that the market is’ that the business is very resilient depending on whatever the factors are. We're watching very carefully and we actually use our own data to forecast our own business.

Stephanie Moore:

Thank you. And then, just given the current market dynamics, do you think that we could expect to see maybe more and potential M&A activity as well as, are there other opportunities as you kind of evaluate your current portfolio for maybe divestitures or sales that might make sense kind of going forward. How would you kind of characterize those opportunities? Thanks.

Operator:

Our next question comes from Manav Patnaik from Barclays.

Ewout Steenbergen:

Good morning. So if you look at the revenue that's we have reported for 2022, under the old definition and inclusion for ESG, $209 million. We're adding three new categories. And therefore we call the new revenue base sustainability and energy transition. You can find the details in the appendix of the slide deck. But the three main categories that we're adding is revenues from e-fees and that is coming from the mobility business, revenues with respect to energy transition for the commodities insights business and then thematic factors coming from the index business. So those three categories we are adding into the new definition that brings the baseline for 2022 to $247 million and then we expect to grow from there with the CAGR of about 34% over the next few years. And our expectation is still that this will become an $800 million business by 2026.

Martina Cheung:

Hey Brendon, it's Martina. I can answer that question. So obviously, as part of our issuance, we look for associate the maturity wall data. It's a little difficult to figure out specifically the precise numbers around things like refinancing, which I think goes to the heart of your question. We know historically much of what gets labeled as general corporate purposes has been used for refinancing. What I would say is we're seeing, as you would have seen in our presentation, about $2 trillion to $2.5 trillion in corporate debt rated by us maturing over the next six years. 2023 still has about $1.8 trillion of maturities as of January 1. So we expect refinancing activity this year with any potential early refinancing coming from 2024 maturities. A couple of the key points in terms of what we hear, we don't see any indication of deleveraging, for example, on a meaningful scale. We also are paying close attention to what we see in terms of inflation and interest rates stabilizing somewhat in the second part of the year. So there's still some room for opportunistic issuance, but it's pretty uncertain, as I'd mentioned earlier.

Jeffrey Meuler:

Yes, thank you. I think, for Martina, how closely our current resources within ratings aligned to recent volume trends. Obviously, there's been a lot of ebb and flow in volumes in recent years. I guess just wondering to what extent you have excess capacity. And we see good incremental margins other than the incentive comp normalization with incremental revenues or I don't know if you're running tighter than it may appear, given that maybe things were stretched in a couple of years ago. Thank you.

Operator:

Our next question comes from Ashish Sabadra from RBC Capital Markets.

Doug Peterson:

Ashish, thanks for the question. First, let me just take the credit and risk solutions piece of the question. We mentioned FRA, this is a business that is a large software delivery, had a large delivery in Q4 of 2021. So you have a year-on-year comparable that made Q4 of 2022 a challenging quarter. So I think that's the thing that Ewout called out earlier that you're referring to, the underlying business remains very strong. This is our ratings direct; ratings express capabilities and they continues to grow as it has historically. Actually it has a really exciting path forward as we move more and more capabilities into our corporate customers and in particularly our credit analytics capabilities. So quite excited about that forward. Second, I think you asked about our data and advisory solutions. This is the broad set of data capabilities that we can bring to bear for our customers. Even just this morning, I saw a large win with an Australian bank where because of the combined sets of data that we now have in the combined enterprise, we're able to respond to very broad RFPs to satisfy needs of customers across a wide range of applications and credit and risk management within their firms. So I do expect that to continue. I think even as the synergies come more to the front and we're able to integrate those data sets together. And this will lead into an answer to your cloud question, I think as we integrate those data sets together more and more, we're increasing the scope of opportunity we have to even further accelerate in our data advisory businesses. On the cloud, many of our applications today already run in the cloud, as Ewout highlighted in the description of the AWS relationship. This is a long-standing relationship. What we're about to do now is to launch the next phase and really complete that full cloud migration. Once all applications and our data capabilities are in the cloud and we've launched a full multi cloud capability across our data sets, this gives us the opportunity to be much more efficient in developing new products, delivering those products out to customers in the way that they want, making available wide sets of data for the application of data science and artificial intelligence. I really do think this is a very important part of the continued acceleration and the broad scope of capabilities we have within market intelligence and you'll see that reflected in that data advisory business and many of the other solutions that we deliver out to customers.

Russell Quelch:

Yes, thanks very much. First question is on buybacks. This may just be a check, but when you return the after-tax capital from the Engineering Solution sale, will that be considered part of the $3.3 billion permissible buyback for 2023, or would this be incremental to that?

Russell Quelch:

Perfect. Thank you. And my second question is probably for Martina, it is for Martina. The chart on slide 15 shows maturities is always expected to be about $1.8 billion, if I get my [inaudible] out for this year. Can you give us an idea of how big maturities were last year in 2022 so we can back out what the impact of maturities is on expected growth versus pricing and new issues?

Russell Quelch:

Okay, yes. Sorry. That's a billion. Yes. So just to check your answer there so the number of $1.8 trillion is higher than what you saw in 2022 or lower than what you saw in ‘22?

Operator:

Our final question comes from Shlomo Rosenbaum from Stifel.

Ewout Steenbergen:

So, if you look at expenses for the index business in the fourth quarter, you should see that in the context of that, this is a business that is investing in the context of driving faster future growth. And one of those things that you see in the quarter is some consulting spend to help the business with a very large transformation to move to more agile working environment, to be much faster in terms of product development, much faster in terms of new entrepreneurial initiatives. And that needed some investments in the quarter from a consulting perspective to make those changes. Also, what you see is strategic investments in new product areas like multi asset class that was already discussed early in the call, but also sustainability, thematic factors, et cetera. So that should position the index business very well to deliver on the double-digit revenue growth in 2025 and 2026 that we discussed during our Investor Day with margins in the high 60s level. So really, I have to say I'm really impressed by the index business. They take very decisive actions. They're transforming their business and setting themselves up on a faster growth trajectory. And the expenses you see in the fourth quarter, you should interpret in the context of that.

Operator:

That concludes this morning's call. A PDF version of the presenter slides is available now for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating. And wish you a good day.

Mark Grant:

Good morning, and thank you for joining today's S&P Global Third Quarter 2022 Earnings Call. Presenting on today's call are Doug Peterson, President and Chief Executive Officer; and Ewout Steenbergen, Executive Vice President and Chief Financial Officer. We issued a press release with our results earlier today. If you need a copy of the release and financial schedules, they can be downloaded at investor.spglobal.com. The matters discussed in today's conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. A discussion of these risks and uncertainties can be found in our Forms 10-K, 10-Q and other periodic reports filed with the U.S. Securities and Exchange Commission. In today's earnings release and during the conference call, we're providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management. The earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with U.S. GAAP. I would also like to call your attention to a specific European regulation. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We are aware that we have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to our Media Relations team, whose contact information can be found in the press release. At this time, I would like to turn the call over to Doug Peterson. Doug?

Ewout Steenbergen:

Thank you, Doug. Doug has already discussed the headline financial results, and I would like to cover a few other items. As Doug mentioned, the adjusted financial metrics we will be discussing today refer to non-GAAP adjusted metrics for the current period and non-GAAP pro forma adjusted metrics in the year ago period, unless explicitly called out as GAAP. Adjusted results also exclude the contribution from divested businesses in all periods. Adjusted corporate unallocated expenses improved from a year ago, driven by a combination of synergies and reduced incentive costs. Our net interest expense decreased 17% as we benefit from lower average rates due to refinancings following the merger. Adjusted effective tax rate was up modestly, but towards the low end of the guidance range we expect for the full year. As most are aware, we exclude the impact of certain items from our adjusted diluted EPS number. Among those items in the third quarter were approximately $108 million in merger-related expenses. The details of which can be found in the appendix. We generated adjusted free cash flow, excluding certain items, of $965 million. We remain committed to returning the majority of this cash flow to shareholders through dividends and share repurchases. Year-to-date, we have deployed $11 billion towards share repurchases, and we expect the final $1 billion of our previously announced ASR program to be completed by year-end. We note that the U.S. dollar remained strong against many foreign currencies, and we've seen a corresponding impact on both our revenue and expenses. As a reminder, approximately 3/4 of our international revenue is invoiced in U.S. dollars, which provides some protection to revenue against FX volatility. In addition to the natural hedges that exist due to the global footprint of our people, we have a hedging program in place that further mitigates the ultimate impact on our earnings. For the third quarter, we saw a $0.03 favorable impact to EPS from foreign exchange and hedging programs. Turning to expenses. We are committed to disciplined expense management in this current environment. And similar to last quarter, we highlight the levers we continue to pull to protect margins where we can while still preserving our investments to drive future growth. Actions taken include pull forward in synergies, a reduction in incentive accruals, adjustments to the timing of certain investments and pausing select hiring and limiting consulting spend in some areas. Through cost synergies and other management actions we have taken so far this year, we expect to generate more than $400 million in expense savings for 2022. Now I would like to provide an update on our synergy progress. In the third quarter, we achieved $165 million in cumulative cost synergies and our current annualized run rate is $311 million. I'm pleased to report we continue to outperform our initial time line on both revenue and cost synergies year-to-date. The cumulative integration and cost to achieve synergies through the end of the third quarter is $641 million. Given the outperformance on the timing of our synergies, we now expect to achieve slightly more than the 35% to 40% of total cost synergies in 2022 that we were targeting previously. Now let's turn to the division results and begin with Market Intelligence. Market Intelligence revenue increased 4% with strong growth in Data and Analytics, offset by slower growth in Desktop and flat growth in Enterprise Solutions. For this quarter, recurring revenue accounted for approximately 96% of Market Intelligence total revenue. Expenses were roughly flat this quarter with increases in compensation expense, cloud spend and outside services being offset by cost synergies and lower incentive compensation. Market Intelligence remains the biggest driver of cost synergies from the merger and the synergy outperformance we have seen year-to-date. Segment operating profit increased 13%, and the segment operating profit margin increased 260 basis points to 33.9%. On a trailing 12-month basis, adjusted segment operating profit margin was 30.9%. The OSTTRA joint venture that complements the operations of our Market Intelligence division contributed $19 million in adjusted operating profit to the company. As a reminder, because the JV is a 50% owned joint venture operating independent of the company, we recognize their results on an after-tax basis and do not include the financial results of OSTTRA in the Market Intelligence division. Looking across Market Intelligence, there was growth in most categories. And on a pro forma basis, Desktop revenue grew 3%, Data & Advisory Solutions revenue grew 7%, Enterprise Solutions revenue was flat and Credit & Risk Solutions revenue grew 7%. For Desktop, we saw slower growth this quarter, driven in part by the timing of certain revenue recognition items, and we expect desktop to reaccelerate in the fourth quarter. For Enterprise Solutions, the business line continues to see headwinds in several of our volume-driven products that rely on equity and debt capital markets activity under variable subscription terms. Excluding the impact of FX and these volume-driven products, growth across Market Intelligence would have been approximately 7% year-over-year. While we remain confident in the long-term growth of all these product lines, we expect deceleration in categories outside of Desktop to persist in the fourth quarter. Now turning to Ratings. Ratings continued to face difficult market conditions this quarter as issuance volumes remained muted with revenue decreasing 33% year-over-year. Transaction revenue decreased to 56% on the continued softness in issuance we highlighted earlier. Non-transaction revenue decreased 6% on a reported basis and 2% on a constant currency basis primarily due to lower Rating Evaluation Services and initial Issuer Credit Ratings, partially offset by increases in CRISIL, ICR and RES revenue are historically correlated with the relative strength of the issuance environment and M&A activity, respectively, and the declines we are seeing here are purely indicative of those market conditions. Expenses decreased 19%, primarily driven by disciplined expense management, including lower incentive expenses, partially offset by increased salary and fringe expenses. This resulted in a 41% decrease in segment operating profit and a 750 basis points decrease in segment operating profit margin to 55.9%. On a trailing 12-month basis, adjusted segment operating profit margin was 57.9%. Now looking at Ratings revenue by its end markets. The largest contributors to the decrease in Ratings revenue were a 44% decrease in Corporates and a 31% decrease in Structured Finance, driven predominantly by structured credit. In addition, Financial Services decreased 20%, Governments decreased 33%, and the CRISIL and other category increased 9%. And now turning to Commodity Insights, revenue increased 5%, driven by strong performance of subscription products, including those within Price Assessments and Energy & Resources, Data & Insights lines. However, that growth was impacted by the Russia-Ukraine conflict. As noted on the slide, revenue related to Russia contributed $12 million in the third quarter last year and made no contribution in the third quarter this year. Excluding this impact, Commodity Insights would have grown approximately 8% in the third quarter. There's no change to the expected impact from this conflict. But as a reminder, on an annualized run rate basis, we expect Commodity Insights revenue and operating income to be lower by approximately $52 million and $51 million, respectively. For this quarter, recurring revenue contributed 91% of Commodity Insights revenues. Expenses increased 1%, primarily due to salary and fringe and an increase in T&E expense partially offset by merger-related synergies, lower consulting spend and lower real estate costs. Segment operating profit increased 9%, and the segment operating profit margin increased 190 basis points to 45.8%. The trailing 12-month adjusted segment operating profit margin was 43.8%. Looking across the Commodity Insights business categories, price assessments grew 8% compared to the prior year, driven by continued commercial momentum and strong subscription growth for market data offerings. Energy & Resources, Data & Insights also grew 8% in the quarter, driven by strength in gas, power and renewables and in petrochemicals. Advisory and Transactional Services decreased 1% in the third quarter. The Upstream business was down 2% compared to prior year, mainly driven by higher comps for Software and Analytics products offerings as well as the impact of Russia. Excluding that impact and the impact of FX, Upstream ACV growth would have been positive in the quarter. In our Mobility division, revenue increased 8% year-over-year, driven primarily by continued high retention rates and new business growth in CARFAX. For this quarter, recurring revenue contributed 78% of Mobility's total revenue. Expenses grew 5% year-over-year as we have yet to lap planned increases in headcounts, and we saw continued cloud expense growth, which were partially offset by lower data cost and favorable FX. This resulted in a 14% growth in adjusted operating profit and 200 basis points of margin expansion year-over-year. On a trailing 12-month basis, the adjusted segment operating profit margin was 40%. Dealer revenue increased 10% year-over-year, driven by strong demand for CARFAX as dealerships profitability remain at elevated levels. Manufacturing grew 4% year-over-year, driven by strength in subscriptions and an uptick in the Recall business. Inventory shortfalls continue to temper growth as OEMs spend on marketing initiatives powered by Mobility products remains muted. Financials and other increased 9%, primarily driven by continued strength in our insurance underwriting products and new business. S&P Dow Jones Indices revenue increased 3% year-over-year with strong margin expansion despite lower assets under management. For the third quarter, recurring revenue contributed 84% of the total for indices. During the quarter, expenses were roughly flat as strategic investments and higher information services costs were offset primarily by lower incentives and other expenses. Segment operating profit increased 5%, and the segment operating profit margin increased 100 basis points to 70.3%. On a trailing 12-month basis, the adjusted segment operating profit margin was 68.8%. Asset-linked fees were down 5%, primarily driven by lower AUM in ETFs. Exchange-rated derivative revenue increased 37% on increased trading volumes across key contracts, including a more than 60% increase in S&P 500 Index options volume. Data & Custom Subscriptions increased 10%, driven by new business activities. Over the past year, market depreciation totaled $472 billion. ETF AUM net inflows were $194 billion. This resulted in quarter-ending ETF AUM of $2.3 trillion, which is an 11% decrease compared to one year ago. Our ETF revenue is based on average AUM, which decreased 4% year-over-year. As a reminder, revenue tends to lag changes in asset prices. Given the declines across equity markets so far in the back half of this year, we continue to expect softness in asset-linked fees as we close out 2022. Engineering Solutions revenue declined 8% in the quarter, driven primarily by the negative impact of the timing of the Boiler Pressure Vessel Code, or BPVC, which was last released in August of 2021. The BPVC contributed approximately $1 million in revenue this quarter compared to approximately $8 million in the year ago period. For this quarter, 94% of Engineering Solutions revenues were classified as recurring. Adjusted expenses decreased 7% due to favorable impact on BPVC royalties. On a trailing 12-month basis, the adjusted segment operating profit margin was 19.1%. Non-subscription revenue in Engineering Solutions decreased 63% year-over-year for the reasons I mentioned on the previous slide, while subscription revenue increased 3% over the same period. Now moving to our guidance. This slide depicts our new GAAP guidance. And this slide depicts our updated 2022 adjusted pro forma guidance due to the continued softening of the issuance environment, we now expect revenue to decrease mid-single digits compared to our prior guidance. Some of that impact is offset by the outperformance in indices. The net impact of our lower ratings revenue expectations, combined with the cost measures and capital allocation measures we have outlined today result in our slightly lower margin outlook and a new adjusted EPS range of $11 to $11.15. This margin outlook reflects our continued expectation for approximately 180 basis points of margin expansion outside of our Ratings business. Interest expense is expected in the range of $345 million to $355 million, slightly lower than our previous guidance due to higher interest on our cash deposits and positive impact from currency hedges. We're also reducing our outlook for capital expenditures to $115 million due to intentional delays in real estate investments. Adjusted free cash flow, excluding certain items, is now expected to be approximately $4 billion. The following slide illustrates our guidance by division. Based on this past quarter's performance, we're updating our expectations for adjusted revenue growth and adjusted operating profit margin for Ratings and Indices. The guidance ranges for our other divisions are unchanged. In closing, despite the geopolitical tensions and a challenging macroeconomic environment weighing on the markets, our portfolio of strong businesses continue to prove resilient. Furthermore, I'm pleased with the progress our teams have made since the closing of the merger earlier this year. We look forward to providing you with a deep dive into our businesses and the longer-term outlook of the company at our Investor Day on December 1. And with that, let me turn the call back over to Mark for your questions.

Operator:

Our first question comes from Owen Lau from Oppenheimer.

Douglas Peterson:

Hi, Owen, this is Doug, and thanks for joining us today. Let me start, first of all, by mentioning that within Market Intelligence, Credit and Risk Solutions has always been a long-term outperformer. It's an area that we see very high demand from the markets for information about credit risk and other types of risk, especially in this market. As you know, the core products in this area are the basic products that are providing information from the Ratings business. So things like RatingsDirect, RatingsXpress. We also have a suite of products like Credit Analytics. And we do see a lot of growth now related to credit climate analytics. This is an area where we're seeing increased interest and demand, especially from financial institutions, especially large global banks. In addition, we're seeing some other growth from areas like traded market risks some names of, I'll say, ex VA, CCR. We have a VAR product, et cetera. And then we have some additional buy-side risk opportunities for clients to look at for market risk and stress scenarios. So if you look at the entire suite of products, we're able to provide the market information at the time when they really want to understand risk.

Douglas Peterson:

Yes. Thanks. On the private markets, as we saw earlier this year, there was a retreat of institutional investors and retail investors from credit funds. So there was really no liquidity at the beginning part of this year. It was a combination of people that were risk averse and also looking at the shift between fixed and floating. There were a lot of moves in interest rates. So we saw a retreat from the traditional loan funds and high-risk investors that left the markets. That left an opportunity for the private credit funds that had traditionally been focusing on mid-market credit. So SME credit was their expertise. Many of them also had started moving into the higher quality, higher level of risk and large-cap companies. So they were there to fill the gap. The gap was filled by private credit at the beginning of the year. And we know that they've also been able to take on loans with a faster, also with a higher risk level. And so we've seen that increase during the year. Now how do we think about that? First of all, we look at that as an opportunity for us going forward. We believe that the private credit funds will be looking over time to have some sort of risk transformation, whether it's related to fixed floating or it has to do with securitization or syndication. We think at that time, they're going to be wanting some Estimate services, potentially Rating services. In addition, we've identified private credit as one of our most important strategic growth drivers. We already have a base of private credit businesses that were part of IHS Markit. And related to that, we have a strong starting point with products like iLEVEL provides information to portfolio managers. So we've identified private credit is a growth area for us for ratings as well as for Market Intelligence going forward. And we're watching the trend very carefully. We know at some point, investors will come back to the markets, and we'll see a broadening of the market again. But we've been watching this very closely and are actually interested in this as a growth area for us.

Ashish Sabadra :

I wanted to drill down further on the Ratings and the issuance guidance. I believe my back of math -- envelope math suggests that you're assuming a similar growth in fourth quarter as third quarter for transaction revenues. I just wanted to see if I'm in the right ballpark I was just wondering if you could provide any color on what your expectations are for issuance for the rest of the year. Are you assuming any rebound? And how are the conversations with the issuers coming along?

Ashish Sabadra:

That's very helpful color. And maybe just switching gears on Mobility, pretty strong momentum there despite what we are seeing in the auto lending space or in the auto space. And so I was just wondering, as we start to see the demand for auto slow down, how should we think about the growth in the business? Is there some counter-cyclicality as well here in the business?

Operator:

Our next question comes from Alex Kramm from UBS.

Douglas Peterson :

Yes. Thanks, Alex. As you say, we produce a report. And what we're looking at right now is, understanding what are going to be the main factors driving us towards the end of the year. We've given you those in that report as well. That showed that issuance was expected to be down by 19% for the full year, which compared to 16% from our last report. As you know, we will wait to provide guidance for 2023 until February when we provide our full issuance report as well as our guidance for the year. What you saw from the report from our team, our credit research team is product research and it's not necessarily geared directly to how we're going to find billed issuance. As you recall, last quarter, we explained very clearly what is included in billed issuance. We take the -- what would be expectations for issuance overall. We add in leveraged loans. And then we extract some debt areas like unrated categories such as MTNs, most of the domestic debt from China. And we also exclude the international public finance from those calculations to come up with our expectations. But maybe more importantly to your question, we're always in the market. As you saw, we talked about having had 3,000 interactions with the markets during the quarter. We are all over the market to understand what are the factors that are going on that are driving issuance and will drive issuance. So we do provide our guidance going forward. But we're looking at the issuance forecast, GDP growth, macroeconomic factors like inflation, interest rates. We're looking at spreads, which have been quite high over the last few quarters. Maturity schedules, which are quite encouraging going forward into 2023, '24, '25, et cetera, M&A pipeline. So as you know, at the time we come out with our guidance, we will have looked at all of these factors. But maybe the most important point is that we're not just standing around and waiting. We're very actively engaged with the markets.

Douglas Peterson :

Yes, Alex, it's very, very early for us to talk about it. But what I'll tell you is going back to the last comment I made that we're incredibly linked into the markets right now. We have all of our commercial teams are out speaking with our customers. What we're finding is that there's a lot of opportunities for us to start with cross-sell. So our initial early wins have been with cross-sell, selling different products within the divisions and sometimes across the divisions. But we are hearing opportunities for moving data into the Desktop, finding some products for data and research and analytics fit together. So to your point, it's a vision that we have, but it's really early for us to give you any kind of detailed analytics about it.

Toni Kaplan :

I wanted to ask about Ratings margins. They were down sequentially, but they were still really resilient just given the environment and especially relative to one of your big competitors. Just wanted to ask you if you could talk about some drivers that enabled you to flex cost outside of incentive comp?

Toni Kaplan:

Great. And this is a little bit of a broad question and you could take it where you want. But just -- could you talk about any changes in customer behavior over the last six months, and this could be elongation of the sales cycle in some places? Or maybe it's just different products that have been more in demand? Just wanted to get a sense of sort of changes in the businesses over the last recent history?

Operator:

Our next question comes from Jeff Silber from BMO Capital Markets.

Douglas Peterson :

There's a few things that I'm focusing on myself, and I know that if we had our Ratings team specifically on the call, they might tell me that there's others that are looking at beyond that. But clearly, there's a set of factors, M&A activity is one for me, which is -- it's kind of an informal indicator. M&A activity has been quite weak recently. Typical M&A has a set of transactions come along with it, may be a bridge loan, which turns into a deal loan, which turns into a bond or rated loan, et cetera. M&A activity has been weak. IPOs is another one. The reason I look at those myself is that those are just their activity, which denotes confidence in the markets that people are willing to invest. But then as you recall, we're having conversations with issuers. We mentioned 3,000 that we had last quarter with issuers. And we see a lot of interest in investing people that have plans for investing in new markets for innovation, for investing in venture capital, ways that they can see new shoots in their own businesses. So we're watching when is it that people actually pull the trigger. And maybe the takeaway is it's not, if it's when. We know that there's a lot of people out there that are ready to go. They have great ideas, but the question is when will those conditions of interest rates, of stability of market confidence, when will those be back when people start going back to the market. Finally, we do look at the maturity schedules, and we know that there's a point starting towards the middle of next year that there will be maturity schedules are going to start kicking in and we're going to watch that carefully as well. We'll there be pull forward from that, but that's another factor we're going to be watching.

Ewout Steenbergen :

Jeff, we are always aspiring to improve margins across all of our businesses. So mobility is not an exception to that. That is because of the fact that we're focused on operating leverage. We always like to see the top line growing faster than the expense line. And of course, aided then by strategic investments to aim for future growth as well. What we are seeing in the mobility business is really a positive overall environment that helps and is very supportive for the business, particularly with low inventory levels, we see margins high for the OEMs and for the dealers and that is driving high retention rates. The offset of that is that we see lower spend for sales and marketing products that we are having, and that's because of the same factor that the inventory levels are low. So you could say there's a kind of an inherent hedge in that business. If the market starts to turn, if we see that the demand supply starts to shift in the car market, then we would also see those different revenue streams moving in opposite directions. But we think that with that, we're insulated from our overall financial impact, and therefore, we can continue to focus on margin expansion as well. And as Doug mentioned before, we also are taking a benefit from used car markets, and that has been proven to be quite resilient the cycle. So yes, overall, we are really happy with the growth of mobility, the margins, and we would see that continuing going forward.

George Tong:

Billed issuance was down 40% in the third quarter. You're assuming full year billed issuance declines of 45% to 50% will be worse than the third quarter decline. What are you seeing that suggests 4Q could potentially be worse than 3Q in terms of billed issuance? Any color there would be helpful.

George Tong:

Very helpful. And related to that, we're likely going to be in a higher interest rate environment for some time relative to pre-COVID. What are your thoughts on whether corporates may enter a phase of balance sheet delevering and implications for issuance performance.

Operator:

Our next question comes from Craig Huber from Huber Research Partners.

Ewout Steenbergen :

Greg. Well, we are always very careful when we speak about pricing in isolation because, first and foremost, we start with customer value. What do we deliver for our customers? And the good news is that based on the very high value of our products and services, we should be able to pass on cost/price increases and to achieve more favorable contract terms and fees over time at renewal. Of course, it depends on facts and circumstances of each and every product, each and every customer situation and of the situation of each and every of our businesses. But that is our overall philosophy. I can't give you specifically a number for across the company, how much price increases are up compared to previous periods, but there are definitely areas where we are looking at price increases or have already implemented price increases that have been higher than in the past. But again, that all has started with that there is a good balance with the overall customer value that we are delivering.

Douglas Peterson :

Yes. We still feel very, very positive, and we're optimistic about the Market Intelligence pipeline. You read every one so about some of the financial institutions here and there that might be slowing down some of their growth, but we're not seeing that in terms of negotiations with clients. But very importantly, one of the propositions of the merger between IHS Markit and S&P Global was to cross-sell the excellent products from both groups to the client bases on the other. We believe that we have a strong diversification of our client base. And as an example, in the IHS Markit businesses, their financial services business was mostly focused on financial services. We're finding that a lot of the opportunities and a lot of our initial cross-sell has been selling IHS Markit products to corporate clients. We think that there is a lot of upside and a lot of opportunity. We are out in the market actively talking with our customers about ways we can bring value through new products, new services through data, et cetera. So right now, we're not seeing any pullback or any kind of major slowdown of our sales activities or pushback from clients.

Manav Patnaik:

Maybe just specific to Market Intelligence and the Desktop side. Can you just help us understand the accounting issue, I guess, that will help reaccelerate the growth? And then just thinking out a little bit longer in there, how do you expect the trajectory of the growth there to play? Because I mean, similar to yourselves, I imagine the sell side and other customers will be tightening budgets as well.

Manav Patnaik :

Okay. Got it. And then can I just ask on the non-transaction side of the Ratings business? It's obviously down 2%, I think you said ex FX. But how long will that keep, I guess, slowly declining? Like when do we lap the Ratings evaluation services, tough comps or whatever it is that's driving that down?

Operator:

Our next question comes from Jeff Meuler from Baird.

Ewout Steenbergen :

Jeff, you're absolutely right that the used car market is a significant component of the overall revenue stream for the Mobility business. And the good news there is that it has been a very resilient market through the cycles. So we're not overly concerned about if the cycle in the car market start to turn that it will have a material impact. And as I mentioned before, we have other revenue streams actually that we expect to pick up if the equilibrium in the car market start to change, particularly about our sales and marketing products where we have seen relatively lower growth in the more recent past. The mobility business in general is a phenomenal business. There's a lot of innovation, a lot of new product developments, a lot of good support for our customers. CARFAX is really a gem from my perspective in terms of growth and in terms of innovation and new business activity, very close to the customers, a lot of new business launches and new product launches. So I think this business is in a very good position, and we would expect -- also if the car markets start to turn and go in a different direction, that we see continued good performance from this segment.

Douglas Peterson :

Yes. Basically, this is a question about pull forward. And we saw in 2020 and 2021 during the pandemic, there was what we felt now was structural pull forward. It was a combination of low rates, but probably more importantly, if you are a CFO of any organization, you were not being criticized for having ample liquidity during what people didn't understand was the pandemic as we went into it. So we did see a lot of structural pull forward during that period. But historically, I think the treasurers and CFOs of organizations are quite thoughtful and looking at their overall funding strategies. And so the funding is not -- when people look at their balance sheet, it's not only just looking at what they have on what their costs are. But the opportunities that organizations have now are much more complex than they used to be. Securitizations, looking at how they're going to use a maturity transformation, what they do in terms of derivatives. So yes, we do see the balance sheets. We do see that there was pull forward into '20 and 2021, but we know the maturities are coming now. And we think that the sort of tools that corporations have to -- and banks have to manage their risk and their liquidity have really changed a lot in the last 10 or 15 years. So it's hard to go back and compare to history, but we do know what happened in the last few years, where we did see pull forward, but the upcoming maturity schedule, which starts in the second half of 2023 going forward, in a sense it's kind of what was all the issuance that came after the financial crisis, in 2013, '14, '15. Just think about that huge boom of issuance that took place, that's going to start maturing next year. It was a seven-year, 10-year paper. We see a lot of that will start maturing and that -- we know that, that's going to be in the queue very soon.

Faiza Alwy :

First, I just wanted to ask about the commodity business. You mentioned climate transition. So it sounds like there are some underlying drivers that are sustainable. I'm curious if you could talk about the cyclical aspects of the business and maybe areas where you're running into tougher comps. And just how sustainable you think the overall growth rate is there?

Douglas Peterson :

Ewout, I just want to add two points. The first is that all of us know that energy transition is on everyone's mind, whether it's a corporation or government, regulator, financial institution. And as I mentioned earlier, almost every conversation we have talks about this. And where else do you want to go to find about -- learn about energy and energy transition? It's commodity insights of S&P Global. We have the expertise. We have the experts that can talk about current markets, transition markets, and we're finding an incredible amount of engagement. We have conferences. It's one of the areas that Commodity Insights excels at. And we see very high demand for people to participate in those conferences and we're now back in person and the attendance is above the charts. But the second point I want to make is that we're launching new products all the time. Just in the last quarter, we launched some new products that were related to energy transition and new ways to find information about markets. As an example, there's -- in the tanker market, we talked earlier in my -- we had one of our points on our slide showed the low-sulfur fuel oil market, which we -- I remember on an earnings call about three years ago talking about when we launched that and now it's become a benchmark in the market. But in addition, there's things like the carbon accounted tanker rate price assessments, there's interest around the world for understanding freight emissions and what would be under the EU emissions trading system. You're going to need to have much more information for every single tanker and what is its carbon output, and we will have a product for that. As an example, there's a whole information that's needed in Brazil and India and Turkey on energy certificates in emerging markets. And then finally, we have some examples. Recently, as you know, in the United States, there was the new climate bill, which was issued by the United States, by the Congress. And we've done very special research which is really industry-leading about the clean energy procurement and what that's going to mean for industry. So when it comes to energy and energy transition, we’re the place you want to go.

Ewout Steenbergen :

Faiza, yes, we're seeing the largest benefit from cost synergies and revenue synergies in the Market Intelligence division. That's because it's the largest division. It's also the largest combination of different businesses that we're bringing together. And also based on the size of that division, it will also benefit, of course, from a large part of the synergies that we're realizing in the corporate center and the allocation of those costs down to the divisions. What you see is, in general, that we continue to invest in Market Intelligence for future growth. So you see new product launches continuing strategic investments in new areas and initiatives. That was already touching on private credit, private markets, ESG investments we're having there as well. We're having expansion still continuing in China, in the marketplace and many different areas that we are continuing to invest as well as cloud expenses. We're also continuing on our cloud journey and Market Intelligence is continuing to invest there as well. But then the opposite factors, there are some of the expense reductions, the expense discipline and the synergies and the combination of all of that led to the significant margin expansion in Market Intelligence.

Hans Hoffman :

This is Hans Hoffman filling in for Stephanie. Could you just comment a bit on what you're seeing across your European revenue base and how that region did relative to your expectations either by segment or overall?

Hans Hoffman :

Got it. That's helpful. And then just on the revenue synergy side, I guess where have you seen the most success so far and then sort of where do you kind of see the most opportunity?

Operator:

Our next question comes from Russell Quelch from Redburn.

Ewout Steenbergen :

Overall, no change with respect to our capital philosophy, capital management targets. We think consistency and reliability there is the most important, particularly in this environment. You have seen us continuing with the $12 billion ASR, even despite that we have seen some impact of the current environment on the rating issuance levels we are able to execute on our plans this year. And you may expect the same from us over the next couple of years. So at least 85% of return of capital to our shareholders, a combination of dividends and share buybacks, dividend payout ratio between 20% and 30%. And M&A, the focus is really on small tuck-in and bolt-on, where we see that we can add a nice capability to some of our core strategic focus areas, but nothing large because we first, of course, need to focus on the integration of the large merger and organically building out our businesses. So no changes at all, and we think that is actually the right approach.

Ewout Steenbergen :

Yes. This is the new run rate with respect to the interest expense on our debt. We were very fortunate with hindsight that we refinanced a large part of the debt at the beginning of March when the 10-year U.S. Treasury was around 1.73 at that point in time. So we are very happy that we locked ourselves in with long-term debt at very low levels. And actually, if you look at the average cost of debt for any player in our industry, we're at one of the lowest levels. So yes, this is the normalized level. If you look, though, at the interest expense line, there's one point that I want to make, it's a net number. So we're generating more interest income on our cash balances. So that is helping us a little bit and obviously, that might fluctuate over time.

Shlomo Rosenbaum :

Ewout, I just wanted to ask you a little bit about your labor cost trends. Obviously, it's a significant component of costs. Everyone in the industry has been dealing with the rising labor costs given what's going on in the market. What's your outlook for that? And do you see that kind of letting up in terms of just how we should think about the costs of the business on a go-forward basis, let's say, over the next six to 12 months?

Shlomo Rosenbaum :

Okay. And then I just want to ask a little bit more about trying to figure out how far we are from the bottom, just in terms of the Ratings revenue. Doug, you talked about refunding laws becoming more meaningful in the middle of next year. if you take the revenue that you would expect from those refunding walls together with your subscription revenue, that you're getting, say, this year. How far away are you from, let's say, 2022 revenue that you're expecting? In other words, how much further downward you really have to go just to kind of hit that number?

Operator:

We will now take our final question from Andrew Steinerman from JPMorgan.

Ewout Steenbergen :

Andrew, as you understand, we're not giving quarterly guidance, so I can't give you numbers by quarter by segment margins. But what we are, of course, trying to do is if we give you a full year picture, we give you a full year outlook, then of course you can backwards calculate what is the expectation for the quarter itself. I do want to point out that the third quarter in general is the lowest quarter for us from an expense perspective. That is due to seasonality. The fourth quarter is higher. But you have seen that in previous years as well. So from a trend perspective, there's nothing different than what you -- that you should have seen in the past. But sequentially, you should expect expenses to roll out. Again, that is normal seasonality.

Operator:

That concludes this morning's call. A PDF version of the presenter slides is available now for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating, and wish you a good day.

Operator:

Good morning, and welcome to S&P Global’s Second Quarter 2022 Earnings Conference Call. I’d like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions-and-answer after the presentation and instructions will follow at that time. To access the webcast and slides go to investor.spglobal.com. [Operator Instructions] I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Doug Peterson:

Thank you, Mark. Welcome to today’s second quarter earnings call. Our second quarter results demonstrate the combined efforts of our truly incredible team. After our first 100 days as a combined company, it’s clear than ever that after the merger S&P Global is stronger, more resilient, more diversified and better positioned than ever. We’re maintaining fiscal and operational discipline and controlling what can be controlled, which is allowing us to post aggregate results in a challenging issuance environment that would’ve been inconceivable prior to the merger. Let me start with our financial highlights. As a reminder, the adjusted financial metrics will be discussing today referred to non-GAAP adjusted metrics in the current period and non-GAAP pro forma adjusted metrics in the year ago period. Revenue decreased 5% year-over-year with growth in five of our six divisions providing significant ballast against a 26% decrease in ratings revenue. Recurring revenue increased 5% year-over-year, representing 81% of revenue in the quarter. Adjusted expenses only increased 1% as continued investment in inflation pressures on compensation and technology were almost entirely offset by cost synergies in the quarter. We’re reinstating our guidance, which reflects the challenging macroeconomic environment. Though, we will be able to offset some of the EPS impact is Ewout will discuss in a moment. Importantly, our updated guidance calls for a smaller than 2% decrease in adjusted EPS at the midpoint, illustrating the resilience of the businesses and the positive impact of our capital allocation strategy. I would also like to share a few other highlights from the second quarter. As I mentioned, we are now more than 100 days past the merger close. Our post integration efforts are proceeding on schedule, but very importantly, we’re outperforming on both cost and revenue synergies. Momentum continues on product development with several areas of innovation that will highlight for you on today’s call. We see benefits from market volatility in parts of our businesses, and we’re able to accelerate our share repurchase efforts relative to our original plan with $8.5 billion near completion at an average share price below $360. We expect to launch an additional $2.5 billion ASR in the coming weeks, which we expect to complete in October with the final $1 billion to be completed by year end. We’ve already seen remarkable progress in our integration efforts in a relatively short period. I’m pleased with our progress in integrating our commercial and marketing teams. We’ve recorded more than 2,000 cross-sell referrals across the divisions. We’re also ahead of expectations on our cost synergies realizing approximately $80 million year-to-date and exiting the quarter in an annualized run rate of more than $260 million. Beyond the transactional milestones related to the merger like the necessary divestitures, we’ve also reached multiple operational milestones. We’ve standardized business practices invested in culture and training and established leadership teams multiple layers deep across the enterprise. We’re moving fast on our office integration plan and consolidated 10 of our office locations around the world lowering our real estate costs. We completed our major New York City consolidation and are on track to complete our London consolidation in the fourth quarter. When we announced the merger, we highlighted our expectation that the combined company would be more agile, innovative, and entrepreneurial. And we’ve seen that in initiatives such as the Data Lake Hackathon led by Kensho’s Head of AI Research and teams of data scientists, machine learning engineers, and software developers. These teams spent two days exploring how to best leverage Kensho tools in other technologies to derive value from the Data Lake datasets and we’re thrilled with what these teams have found in just two days. In addition to finding ways that Kensho solutions can add commercial value to unstructured datasets across the Data Lake. We identified new datasets for training Kensho Scribe, NERD, Link, and Extract, more than doubling current training datasets in some cases. We also identified datasets to improve S&P Global’s country risk assessments and found compelling new ways to classify and improve data for ESG. This hackathon enabled us to better realize the full capabilities of our combined datasets. We also re-launch the cross-divisional S&P Global research council with new leadership and membership to reflect the expertise in our combined company following the merger. This council consists of both research and operational leaders with the core mandate to drive customer value and greater insights for markets. One of the first actions of the council was to align on key research teams that have the greatest potential for large scale disruption and have a meaningful impact on the success of our customers. We’ll be leveraging the full capabilities across the company and engaging meaningfully with customers and other stakeholders across industry and regulatory bodies. There’s incredible demand for insights and thought leadership on topics like energy security, climate, technology and digital disruptions, supply chains, and capital markets. We have unique datasets and insights in all of these areas and we see the research council as a way to make sure that our insights are most impactful for our customers and drive innovation within S&P Global. That focus on accelerating innovation was on full display in the second quarter. We launched exciting new products from commodity insights, including a new basin level methane intensity calculation product for 19 U.S. natural gas production areas. We’re using satellite imagery and data models trained in-house to significantly disrupt what has historically been a very manual process using data extracted from self-reported EPA forms. We also launched carbon intensity measures for all six crude grades in the global Brent benchmark. In Mobility, we saw commercial success from our new auto credit insights product to help deliver insights to financial customers serving the automotive credit space. In Engineering Solutions, we continue to make progress building out our new software platform and have two successful proof-of-concept engagements in market now. We continue to innovate in market intelligence as well, making new datasets available via feeds and introducing new products like PVR Source, which is a diligence platform aimed at helping clients get ahead of the compliance challenges of an ever changing regulatory landscape. Now to recap the financial results for the second quarter, revenue decreased 5% to $2.97 billion. Our adjusted operating profit decreased 10% to $1.4 billion. Our adjusted pro forma operating profit margin decreased approximately 280 basis points to 47% as both profits and margins were negatively impacted by the decrease in ratings transaction revenue and the expense growth I mentioned earlier. Importantly, our non-ratings businesses in aggregate posted strong growth in the quarter, increasing revenue by 7% year-over-year. As you know, we measure and track adjusted segment operating profit margin on a trailing 12-month basis, which is 46.1% as of the second quarter through strong and disciplined execution and prudent capital allocation, we were able to offset much of the earnings impact of the issuance environment posting fully diluted EPS of $2.81, representing a 7% decrease year-over-year. Looking across the six divisions, I’m pleased to report positive growth across five of our divisions with ratings executing very well in an extraordinarily difficult issuance environment. Our more diversified portfolio of products provides many opportunities to thrive in uncertain markets. And we saw double-digit revenue growth in multiple product lines as a result. Within our indices business, we continue to see remarkable strength in our exchange traded derivatives, which grew more than 60% year-over-year, as well as our CDS Indices, which increased 40%. Uncertain in the markets continues to spur demand for our thought leadership and insights and a consolidated platform on which to access information, whether it’s tracking market movements, company performance, or supply chain constraints, our customers continue to come to us for help navigating uncertain waters. This help drive 25% growth in aftermarket research and market intelligence. In the second quarter, we celebrated the second anniversary of the S&P Global marketplace. Customers continue to come to S&P Global as a trusted source for differentiated data around ESG, fundamentals, machine readable text, and workflow tools like our work bench. We’ve seen explosive growth in the marketplace since launch and in the last year, a nearly 30% increase in the content and solutions available, 75% growth in deals closed and more than 200% growth in engagement is measured by page views. Now turning to issuance. During the second quarter, global issuance decreased 37% year-over-year deteriorating further from what we saw last quarter. In the U.S. rated issuance and aggregate decreased 34%, European rated issuance decreased 45%, and in Asia, rated issuance declined 32%. We saw sharp declines in high yield, which was down nearly 80% year-over-year in Asia, and was down more than 80% in the U.S. and Europe. Interestingly, this is the first time that I can recall seeing declines in every category in every region since I’ve been doing earnings calls. We’ve included additional details on the sub components of issuance by region in the slide deck. Each year S&P Dow Jones Indices conducts a survey of assets as depicted in this slide, asset levels and actively managed funds that benchmark against our indices increased 38% to $12.8 trillion as of the end of 2021. Assets and passive funds invested in products indexed to our indices increased 32% to $9.9 trillion. Numerous indices support the $9.9 trillion including the S&P 500, the largest with $7 trillion in assets. We’ve seen strong growth in factor and sector indices as well as many of our ESG and climate related indices. While the S&P 500 still accounts for the majority of AUM, we continue to see strong demand for that historic index among asset managers. We saw even faster growth among our other indices in 2021 evidenced by the fact that the S&P 500 accounted for 71% of indexed AUM in 2021, down from 72% in 2020. While this is historical AUM as of December 2021, we’re very excited about what this slide will look like in the years to come, as we integrate IHS Markit Indices like iBoxx and iTraxx and drive commercial innovation in fixed income and cross asset indices. We delivered extraordinary growth in our ESG initiatives this quarter. ESG revenue growth accelerated on both reported and organic basis in the second quarter, growing 66% year-over-year to reach nearly $52 million. We continue to introduce new ESG related products and product enhancements at a rapid pace. In the second quarter, we saw the launch of multiple ESG and sustainability related ETFs based on our indices. And we ended the second quarter with AUM and ESG ETFs growing 16% year-over-year to approximately $30 billion. Our Indices and Commodity Insights teams continued their collaboration and launched the S&P Battery Metals index. Within ratings, we completed 20 ESG evaluations and 34 sustainable financing opinions driven by strong demand for second party opinions. Lastly, we hosted the S&P Global Sustainable1 Summit with events in several major cities around the world, bringing together leaders from various stakeholder groups to discuss the future of sustainability. Now turning to our outlook. Twice a year, we update our global refinancing study, but given the issuance environment, we wanted to provide a bit more color this quarter. Specifically, there are two impacts to highlight as investors look at total global debt outstanding. The two impacts are average time to maturity and FX rates. When we look at global corporate bond maturities, we see a similar phenomenon to what we have witnessed historically. Over the next three years, we see a decrease in near-term maturities as refinancing push those maturity dates out. We’ve witnessed this phenomena in the July update each year, so we aren’t surprised by it. While total global debt maturing over the next three years is down significantly from six months ago, it’s important to note that debt maturing over the next 10 years is not down significantly, and it starts to increase over the next three to five years. We expect 2024 and 2025 refinancing activity to start next year. This is particularly true for total debt outstanding on an FX adjusted basis. With the strengthening of the U.S. dollar since January, foreign denominated debt is lowered by 1% when converted to U.S. dollars at July rates. This slide shows total global debt rated by S&P Global of all maturities on a constant currency basis, which increased 2% if measured at January FX rates. While we don’t expect a significant rebound in issuance in a back half of this year, this demonstrates that over the long-term, the public debt markets remain very healthy and have a strong history of resilience. They also reinforce our view that the issuance headwinds we’re seeing in the market now will likely moderate, if not reverse in the future. Now for issuance outlook, S&P Global Ratings Research has updated its bond issuance forecast for the year to reflect a decrease in the second quarter and more conservative assumptions around the back half. Global market issuance is now expected to decline approximately 16% year-over-year within a range of down 9% to down 24% in 2022. This forecast implies an approximate 21% decline in the second half compared to the 11% decline seen in the first half. Non-financials are expected to see a 30% decrease in issuance, partially tempered by a smaller, roughly 10% decrease in financial services issuance. U.S. public finance and structured finance are expected to soften by 12% and 14% respectively and international public finance is expected to be roughly flat. As a reminder, the global debt issuance forecast is a product of the S&P Global Ratings Research team and reflects market issuance, including unrated issuance. We wanted to take the opportunity to explain the different categories of issuance that we discussed from time to time. The most frequently cited forecast is out of our S&P Global Ratings Research team, which I just outlined. But our ratings revenue is more closely tied to S&P build issuance, which is a subset of market issuance. Build issuance includes leverage loans, which are not included in the market issuance forecast. It does not, however, include debt from unrated categories, such as medium-term notes and most domestic debt from China, nor would our build issuance include international public finance. While there are other nuances as well, these differences in aggregate bridge the gap between our market issuance forecast and the assumption for build issuance that underpins our ratings revenue guidance for the year. As Ewout will outline, our ratings revenue guidance assumes a 30% to 45% decrease in build issuance. Looking beyond issuance, we see a number of secular trends that stand to benefit the company both this year and beyond. Our experts in Commodity Insights expect oil prices in volatility to remain above historical norms for some time. This volatility often creates more demand among customers for price assessments and benchmarks, as well as our data and insights. Our Mobility team also expects light vehicle sales to increase next year and beyond, returning to levels more in line with pre-pandemic production by 2025. As volumes continue to grow, we expect to see tailwinds in our Mobility segment across multiple product lines, including CARFAX and Automotive Mastermind. As we evaluate the remainder of this year, however, we wanted to discuss some of the assumptions that underpin our outlook. As we noted in June, when we suspended guidance, we’ve seen a deterioration several economic indicators over the course of the second quarter. We expect slightly lower GDP growth, higher inflation, and a lower debt issuance environment to impact not only our businesses, but our customers, as well. As Ewout will discuss in a moment, we’re seeing inflationary pressure on our costs with approximately 70% of our expenses tied to headcount. That pressure is showing up most in our compensation and technology costs. As a reminder, this is not meant to be a comprehensive list of all metrics that inform our outlook, but we wanted to help investors understand the changes in some of the assumptions that we make about the global economy when formulating guidance. While we’re not discussing 2023 or beyond on today’s call, we’re pleased to announce an Investor Day that we expect to hold on December 1 in New York City. We’re looking forward to sharing with you some preliminary views on 2023, as well as a more holistic update on our strategy positioning and medium term financial targets at that time. Before, handing it over to Ewout, I’d like to reiterate how pleased we are with the progress we’re making on integration and the clear proof points we see reinforcing the industrial logic of the merger and the resilience of our businesses. We have a world-class team and appreciate the hard work and dedication of our people in every area across the firm. Our teams continue to execute incredibly well evidenced by our early outperformance on synergies. And we believe we’re positioning the company to accelerate growth, expand margins and deliver innovation in the years to come. With that, I’ll turn it over to Ewout, to walk through the results and guidance. Ewout?

A - Mark Grant:

Thank you, Ewout. [Operator Instructions] Operator, we will now take our first question.

Ashish Sabadra:

Thanks for taking the question. I was just wondering for the issuance guidance, would it be possible for you to provide some color around how we should think about third versus fourth quarter momentum in the back half of the year? Thanks.

Ashish Sabadra:

That that's very helpful color. And then on the cost synergies, obviously pretty strong execution on that front with almost a $260 million run rate achieved in the quarter. I understand you expect to achieve at the high end of that 40% range being realized by 2022, but I was also wondering if you could only provide any color on how we should think about the run rate of cost synergies exiting 2022. Thanks.

Ashish Sabadra:

That's very helpful color. Thanks.

Operator:

Thank you. Our next question is from Manav Patnaik, you may go – with Barclays. You may go ahead.

Ewout Steenbergen:

Manav, good morning. Yes. We have always said that our businesses are very resilient, but of course they're not immune to an external environment. So is some slight impact you are seeing in terms of, for example the Index business, the assumption for the second half of the year is that assets under management will remain flat from the June 30 point. So that will have an impact on the index business. So there's several of those. Another example is the Russia impact on Commodity Insights. But overall these impacts are relatively minimal and modest. So let me give you a few other data points with respect to the assumptions that have gone into the guidance. So as already mentioned, build issuance negative 37%, then for the market appreciation flat to the June 30 level, exchange traded derivative, we expect those to be up about 10% from the second half of 2021 that is lower growth than you have seen in the first half of the year. And the reason is that the comps become more difficult, but also when there is a period of extended volatility, we expect this trading to taper off at some point. And then the brand overall[ph] price to remain in range bound until end of the year. Having said that if you look at the overall performance of the company, we're actually really pleased with the outlook for five of our six division. They are expected to perform very well to be very strong, expenses to be more or less flat year-over-year, which we think is really a phenomenal outcome in a high inflationary environment. And then margins excluding ratings to be up for the full year 180 basis points. So overall we think these are actually really strong outlooks for the company, taking aside of course the market impact for ratings.

Ewout Steenbergen:

Well we are seeing a lot of dynamics in the overall expenses of the company. We have pointed at some inflationary pressures on compensation, on some of our procurement, elements and other parts of the company, but we are in a very fortunate position that we have so many levers as a company, particularly the levers that are being given to us due to the merger with respect to the cost synergies, duplication of roles that we can eliminate, the volume benefits in terms of synergies in the procurement and the sourcing area, some of the consolidation of real estate and many other areas, plus the decisive management actions we're taking at this moment. So being flat with expenses as I just said, in this environment we think is a very strong outcome. The non ratings businesses were achieving about $200 million or north of $200 million of margin expansion in the second quarter. And we think 180 basis points margin expansion for the full year would be a very strong outcome and would position us very well for 2023.

Ewout Steenbergen:

Thanks Manav.

Alex Kramm:

Yeah. Hey, good morning, everyone. Just following up on Manav’s margin questionnaire for a little bit, maybe this is nitpicking, but if I look at two of the segments, Commodity Insights and Mobility you did basically leave your adjusted revenue growth and forecast unchanged from the prior guidance, but the margins are actually now lower. So with everything you just changed as I said, it does seem like some costs are higher. So maybe you can flush it out specifically to those two segments because not sure why the margins would be lower if the revenues unchanged.

Alex Kramm:

Okay. Helpful. Thank you. And then just second just on the Market Intelligence side, hoping that you can give us a little bit more color around the commercial success you're having so far, what I'm asking specifically is I've had some client conversations and it sounds like for at least for some clients, you're not really integrating the sales force, yes. And they are operating basically at two organizations until next year. So I don't know if those are one-offs or this representative of the whole book of business, but I would've expect with all the planning that basically you're going to be operating at as one company. And so maybe just flush out what's been done and why maybe we're hearing that it's not fully integrated quite yet?

Alex Kramm:

Okay. Very good. Thank you.

Operator:

Thank you. The next question is from Toni Kaplan with Morgan Stanley. You may go ahead.

Doug Peterson:

Yeah. Thanks Toni. Well, I feel actually really positive about the projections that we have on the revenue synergies. It's something that we've always known that would take a while to understand the customers, to be able to integrate data sets to have a fully integrated sales force. But to have the ability to already be running it at $15 million run rate which we announced this quarter for me is ahead of what we would've thought we would've been. We still haven't changed the view that a lot of the revenue synergies will be more back-ended in the next two to three years. But the early projections in the early progress is excellent.

Doug Peterson:

Yeah. Thanks Toni. Yeah, you're right about, what's comprised of that solutions group. It includes IPO as well. But there's a portion of the revenues in that business which come from IPOs and as you know, the IPO market has been incredibly weak. So that's the main issue which has seen slowed down of growth, but the underlying business is doing quite well. We're delivering software, we're delivering solutions. This is one of the areas where we've seen some of the early wins on being able to position products, which traditionally have been sold to financial services into the corporate sector. So off to a great start, but having some impact from the very, very weak capital markets in IPO positioning.

Doug Peterson:

Thanks Toni.

Hamzah Mazari:

Hey, good morning. My question is on the non-transactional side of the ratings business, maybe you could just comment on how stable is that business through the cycle and what are your sort of assumptions there for the balance of the year?

Hamzah Mazari:

Got it. Very helpful. And just my follow-up is just on the Indices side of the business, I think the SEC was looking at whether Indices businesses should be treated as investment advisors versus data publishers. Is there anything, I guess on the regulatory front on the Indices side that you are looking at or that investors should be cracking or is this just not really material? Thank you.

Hamzah Mazari:

Got it. Thank you.

Operator:

Thank you. Our next question is from Jeff Silber with BMO Capital Markets. You may go ahead.

Doug Peterson:

Let me start, and then I’m going to hand it over to Ewout to give you some more color. But first of all, we have the assumptions that you saw on Slide 23. We have seen a significant slowdown in growth in the United States, the Eurozone and globally, and China being one of those markets, which is also seemed substantial slowdown given their current policies. This has also been matched with a higher inflation. Each of our businesses have different types of impact in this scenario with the ratings business you’ve already seen is being directly impacted already by the increase in inflation, by the weak issuance environment, by the uncertainty in the markets. If you looked at our commodity insight business, we could see some growth in the volatility from the higher cost of oil, which you saw here, we have a projected that the crude price will be at $106 and a range that’s much higher than it had been in the prior years. That leads to some increase in interest in trading information for risk information and then the overall energy industry does quite well in that positioning. So we could see some benefits from that. Our other businesses market intelligence should see some benefits from people interested in information and data about the risk environment, but at the same time, if we – if our customers start going under stress, we might have to think about how we negotiate with them to accompany them in their – in if they have difficult times. I’m going to hand it over to Ewout to mention a little bit more about indices impact as well as the other businesses.