Q2 2023 S&P Global Inc Earnings Call
Good morning, and welcome to S. M. P. Global second quarter 2000, twenty-three 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 too.
Access the webcast and slides go to Investor Dot S. P Global Dot Com, if you need any additional technical assistance. Please press star zero and I will assist you momentarily.
I would now like to introduce Mister Martin Grant Senior Vice President of Investor Relations for S. M. P. Global Sir you may begin.
Good morning, and thank you for joining today's S&P global second quarter 2000, twenty-three earnings call presenting on today's call or Doug Peterson, President and Chief Executive Officer, and Eva Steenburgen Executive Vice President and Chief Financial Officer for the Q and a portion of today's call. We will also be joined by.
Edward to Barney a president of S&P global mobility.
We issued a press release with our results earlier today. In addition, we have posted a supplemental slide deck with additional information on our results and guidance. If you need a copy of the release and financial schedules or the supplemental deck. They can be downloaded at investor Dot S. P Global Dot 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.
Additional information concerning these risks and uncertainties can be found in our forums 10-K, and 10-Q 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 companies operating performance between periods and to view the company's business from the same perspective is management.
The earnings release contains financial measures calculated in accordance with gap that corresponds to the non-GAAP measures were providing and the earnings release and the supplemental deck contained reconciliations of such gap and non-GAAP measures.
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 SMP 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 release.
At this time I would like to turn the call over to Doug Peterson dogs <unk>.
Thank you Mark as we look at this quarter's highlights I want to remind you that the financial metrics will 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 and market intelligence reading.
As in indices, while grocery made in the high single digits were both commodity insights and mobility as you'll 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 and 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 and adjusted earnings per share. This quarter. We expect positive revenue growth in all divisions for the remainder of the year as well as continued double digit adjusted E. P S growth.
In addition to strong financial results, we remain focused on executing our long term strategy with an emphasis on innovation. We continued to drive a rapid advancement in our AI initiatives will 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 chat IQ on Capitol IQ prolapse for internal testing will have more to say about Chad I Q as we get closer to a form of lunch to external customers, but it's the first example of how <unk> will deploy L. L N 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 in private credit customers. We're currently exploring many ways that we can work together to apply or expertise in ratings analytics and pricing across the credit markets will have.
More specifics to share here as well is this dialogue develops into commercial opportunities.
We're seeing some early but encouraging signs of stabilization the macro environment, which leads to a modest improvement to the macro outlook, helping to inform our financial guidance lastly, illustrating our commitment to discipline stewardship of the business. We completed the divestiture of engineering solutions in the second quarter.
We continued to align our goals and operations against the five strategic pillars, we introduced an 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'd seen some linked to any of the sales cycle, which we believe was driven by customer sensitivity around spending.
Our cross Hill 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 in customer conversations had been very constructive we continue to see very 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 market's rely on is being recognized by our customers in the challenging and sometimes confusing macro environment.
Customers are also emphasising many of the same strategic priorities that we are namely private markets climate energy transition and a I.
This is evidenced in the 40 per cent growth in energy transition revenue, we saw in or a 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 SMP global and they want to do more with US we've worked hard to build that trust and wears confident as we've ever been in the long term growth of the company.
Related to ratings global build issuance return to positive growth, increasing 8% year over year in the second quarter, we began to see some signs of stabilising 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 <unk>.
Eluding, our own expecting only one or two more rate hikes from major central banks over the remainder of 20 twenty-three.
Overall issuance 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 adjust 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.
This strength is offset somewhat by a software environment for bank loans and structured finance and.
Importantly rating withdrawals, which are a measure of churn in ratings are down this year that illustrates the strength of the S&P bread 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, some updates and enhancements of capital a cute pro was one of the largest and most significant in years, we completely reinvented ratings direct on capital <unk> Pro and launched loan pricing and analytics as well.
Customers have already shown an incredibly positive reaction to the enhancements on capital a cute pro and these new features if contributed to key competitive displacement and enhanced our competitive positioning.
Incommodity insights. We also launched the first offering a base shipping rates incorporating alternative fuel pricing. This is significant as we expect a maritime sectors use of alternative fuels, including liquid natural gas to grow significantly in the coming years.
Are sustainable one team launched a new nature biodiversity risk dataset 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 as investor customers, a greater ability to quantify both dependency and impact on location specific ecosystems.
As we introduce last quarter, our vitality revenue metric consists of revenue derived from her new or substantially enhanced products.
We're pleased that in the second quarter vitality revenue held steady at 11% of total revenue I'm.
I'm, both pleased and impressed that the top four contributors tour vitality revenue in the quarter came from four different divisions <unk>.
Clearly demonstrating their commitment to innovation and growth spends 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 SMP globals key advantages and the guiding principles that will govern are used in the implementation of AI, both internally and within our products were thrilled with the progress that our teams in the building testing and <unk>.
Implementing tools and various use cases across the organization well can show gives us an incredible advantage in this arena it isn't our only one.
The data sets, we have large proprietary and truly differentiated create a remarkable advantage for SMP 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 embraced 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.
<unk> was deeply engaged in AI research with an SMP global we want to make sure we aren't dogmatic in our approach will leverage leading technology, regardless of whether it was developed a kinship developed elsewhere within the divisions or comes via vendor a partner.
Lastly, we want to continue or practice of aggressively defending and protecting our intellectual property in our data we have safeguards 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 will provide regular updates on a new product launches as they take place will move fast and will 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 T. C. F. D report. We also published for the first time, our annual diversity equity and inclusion report highlighting our commitment.
To building more diverse equitable and inclusive company and world.
We're honored that so many respected organizations of recognize the efforts that we have made to build a company that always pursues excellence.
As you can see on the slide we've received recognition not just for efforts and 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 the SMP global.
Of course discipline leadership means delivering on our ongoing operational and financial outcomes. We're 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 and market intelligence ratings and indices.
While our trailing 12 months 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.
Well, we no longer expect a technical recession globally, we do expect headwinds to persist from an economic slowdown primarily in financial services and 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.
While these market expectations are mostly unchanged from the first half we wanted to reiterate our confidence in the multiyear financial targets, we put out for the divisions and for the consolidated company and Investor Day.
As you know our ratings financial results and guidance are closely tied to build issuance and for 2023, we now expect build issuance to be up approximately 4% to 8% for the full year up one point from a prior expectation or.
Our latest ratings research group forecast calls for decline in global market issuance they'll also slightly improved from last quarter. As a reminder, market issuance can differ materially from build issuance with divergence. This year driven by declines in unrated dead and sovereign International public finance, which don't impact build issuance.
We've completed our July 2023, global refinancing study and you can see one of the reasons for optimism for weddings business over the next several years there was over eight trillion dollars of debt rated by S and P. Global maturing through 2026, and nearly 13 trillion dollars 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 multi year growth and ratings.
And now I'd like to turn the call over to Eva Steenburgen, who's going to provide additional insights into our financial performance and outlook <unk>.
Thank you Duck as a reminder to financial metrics that will be discussion today refer to Gnome got adjusted metrics unless explicitly noted otherwise replete with a financial performance of the business in the second quarter to clear indicator is that a second or two wins continued to drive growth across our largest products do some <unk>.
Minor headwinds impact smaller parts of the business adjusted earnings per share increased 11% year over year. This growth was driven by a combination of 4% revenue growth and a 6% reduction in fully diluted share count partially offset by approximately 100 basis points of operating margin compression.
Excluding the impact of engineering solutions in all periods, but including approximately $10 million from this year stuck in acquisitions revenue growth would have been 7% <unk>.
Revenue in the quarter was driven by growth across all remaining deficience, including ratings Withdrawl, a pick up in issuance activity and a quarter, while the debt markets will remain a challenging environment for issuers. This is the third quarter in a row of sequential improvement as Doug mentioned, we also saw acceleration and revenue growth across market intelligence in it.
<unk> with continued impressive growth in commodity insights and mobility, who will walk through the deficient in more detail in a moment.
Just that expenses were up 6% year over year, which will also discuss a more detail.
Starting to our strategic growth initiatives sustainability, and energy transition revenue increased 17% to $70 million in the quarter, driven by climate and physical risk products and see ice energy transition products. We continue to see a shift in customer appetites away from buying pure ESG scores and toward.
Two more purchases of raw data, which we believe will benefit SMP global in the long run we consistently hear from customers that are true cost data set is higher quality that the data from many competitors and the breath of our offerings across the commodity markets and E. S. G indices will contribute to strong growth for multiple years.
<unk> <unk>.
That set we're seeing some signs of its first market sentiment, particularly from large financial institutions in the United States that are impacting our revenue growth in the short term as others into space have also cold out we believe <unk> or temporary while the growth drivers are sechler, even doses staying ability and energy transition.
<unk> currently represents only a low single digits percent of our total revenue it isn't important strategic dry for of longterm growth will continue to make the necessary investments and people data product development and partnerships to drive long term growth given the uncertainty around to regulatory landscape.
And the political climate, particularly in the U S. We can no longer confidently reiterate the previous 2026 targets of $800 million and sustainability and energy transition will continue to report this metric on a quarterly basis, and we will assess the potential for long term revenue contribution from dis important <unk>.
X as the market continues to evolve.
Private market solutions revenue increased 5% to $106 million driven by strong growth and market intelligence products for private markets offset by declines in ratings private markets revenue vitality revenue with just a revenue generated by innovations through new or enhanced products from across the organization.
A $343 million in the second quarter, representing a 14% increase compared to prior year.
Now turning to synergies in the second quarter of 2023 recognize $144 million of expense savings due to cost synergies and hour and your likes to run rates exiting to quarter was $574 million and we continue to expect a year ends run rates to be approximately 600 million.
<unk> dollars, we continue to make progress on our revenue synergy says well with $17 million in synergies achieved in the second quarter and an annualized run rates of $68 million.
Turning to expense growth total adjusted expenses increased 6% year over year as we are beginning to lap the pro active expense management action stay can laugh here, we shall a 23 million dollar favorable impact from FX into quarter and did that first stitcher of engineering solutions was favorable by $50 million will also.
Generated incremental cost synergies that lowered expense growth by approximately $80 million relative to last year. As you will recall, we lowered accruals for incentive compensation in the second quarter of last year. This was dumped to reflect the headwinds where we're facing predominantly in our ratings business incentive compensation resets each year.
<unk>. So we're seeing that natural increase in dose expensive beginning disorder incentive compensation and commissions were the largest single contributor to expense growth in the second quarter.
The year over your impact of incentive compensation will be a similar dry for of expense growth in the third quarter, though we expect expense growth to moderate meaningfully in the fourth quarter Esther comparison becomes more favorable the year over your impact of the reset of incentive compensation was a key driver of expense growth in each of our deficient.
And we expect to see the same quarterly facing an hour deficient margin results in the third quarter and fourth quarter as well <unk>.
Lastly, we continued to invest to drive longterm growth and that's what's reflected this quarter core investment growth represents the investments, we're making and strategic initiatives people clout as well as to incremental investments, we're making defend our AI development that can show and within the Deficience. Most importantly, we.
Continue to expect approximately 50 to 100 basis points of adjusted operating margin expansion for the full year.
Now, let's turn to the deficient results market intelligence revenue increased 6% driven by strong growth and data and advisory solutions and enterprise solutions desktop route 4% in the second quarter driven by strong subscription growth S. A C fee growth outpaced revenue growth in the quarter, though this was offset by some.
Mulder softness and non-recurring sales renewal rates remains strong in the myths too high nineties data and advisory solutions and enterprise solutions, both benefited from solid growth in subscription based offerings credit and resolutions continues to see strong new sales for ratings express and ratings direct products as well.
Double digit growth in credit analytics, adjusted expenses increased 7% year over year due to the drivers previously discussed operating profit increased 4% and you're operating margin decreased 70 basis points to 32.3 per cent on the trading 12 month basis marches improved too.
Hundred and 20 basis points.
As we mentioned last quarter, we know the comparisons will get easier as we progress through the year and we continue to expect improvements in dos products with an enterprise solutions that defense of capital markets activity. We also expect revenue synergies to begin positively impacting results in the back half of the year last quarter, we signaled of it.
May come in at the low end of our previous guidance range, we're not trying to signal deterioration since April though we do see modestly elevated risk to the Beck have given the heightened uncertainty, particularly within sustainability and energy transition. We're taking the formal step at this point to modestly lowered the guidance by 50.
Basis points on revenue and operating margin.
Now turning to ratings in the second quarter, we saw a spike in issuance activity, particularly in may which from a seasonality perspective is a very important month for that markets revenue increased 7% year over year. This marks to third quarter in a row of sequential improvement in transaction revenue official investment great and how you.
Activity pick up known transaction revenue increased 4%, primarily due to annual fees and growth and Crystle do known transaction growth was tempered by continued declines in ICR revenue.
Adjustments expenses increased 12%. This resulted in a 4% increase in operating profit and a 180 basis points decrease in operating margin to 57.7% on the trading 12th month basis margins are still impacted by last years revenue declines.
We raced hour built issuance assumptions for 2023 and expect issuance to increase in the range of 4% to 8%, reflecting the stronger issuance trends in the first half hour outlook for transaction revenue for the full year has improved somewhat though some of this is offset by non transaction revenue due to greater.
Listen ICR than we initially anticipated that netware assault is a one point increase in our ratings revenue guidance range and we now expect ratings revenue growth, 5% to 7%, while we expect expense growth to moderate as we progress through the year, we are reiterating our margin guidance.
And now turning to commodity insights revenue growth increased 8% driven by double digit growth in both price assessments and energy and resources data and insights growth was tempered somewhat by declines in the upstream business upstream data and insights declined to approximately 2% year over year low subscription Asia.
Growth is positive we have deprioritized, one time sales and upstream as we focus on higher quality recurring revenue products are such where a lowering our expectations modestly for upstream for the full year and now expected that business line to be flat to down slightly for the full year compared to our previous expectation for <unk>.
<unk> single digit growth.
Price assessments, and energy and resources data and insights grew 12% and 11% respectively compared to prior year driven by strong performance in crude oil and fuels and refining products and strong commercial momentum as subscription products across both business lines at.
At five three in transaction revenue also glue, 12% driven by strengths and global trading services and strong performance in confidence revenue in the quarter <unk>.
Justice expenses increased 5%.
Creating profit foresee I increased 12% operating margin improved 160 basis points to 45.6% trailing 12 month margins have improved 220 basis points, you see strong demand trends for our benchmarks data and insights and we enjoy a position of trust in the commodity markets.
We continue to expect strong subscription growth through the second half and there's no change to our outlook for revenue or margins.
In our mobility deficient revenue increase 10% year over year, driven by continued to new business growth in car fix the contribution from markets, Ken within the dealer segment and strong underwriting <unk> into financials and other business line dealer Avenue increased 12% year over year, driven by the continued benefits of price increases within the law.
Last year, and new store growth, particularly in car fixed for life and you scar subscription products manufacturing grew five per cent year over year, driven by elevated recall activity and continued strength and marketing solutions.
Financials and other increased 9% is to business line continues to see healthy underwriting for use in a favorable pricing environment similar to last quarter.
Justin expenses increased 13% due primarily to the drivers I discuss previously but also due to the inorganic contribution to expenses from the market's scan acquisition. This resulted in a 5% increase in adjusted operating profits and 160 basis points of operating margin contraction year over year <unk>.
Failing 12 months margins have contracted 60 basis points as we noted last quarter. We expect the markets can acquisition to contribute approximately 150 basis points of revenue growth in the full year, though we expect it to be modestly dilutive to adjusted margins in 2023, our guidance for mobility for the full year.
<unk> is unchanged.
Turning to SLP Dowjones indices revenue increased to three per cent, primarily due to strong growth in exchange rate, it's arithmetic volume and data subscriptions, partially offset by a modest decline in SF link fees as I think fees for down 1% year over year, primarily driven by mix shift into lower priced index E. T F products.
[noise], partially offset by market appreciation and modest year over year net inflows importantly, this decline was due to mix shift not due to price concessions or renegotiated contracts.
Exchange traded derivatives revenue increased 17% an increase trading volumes across all key contracts data and custom subscriptions increased 3% year over year driven by continued strength in end of day contract growth.
During the quarter expenses increased 15% year over year due to recent previously discussed operating profit and indices decreased two per cent in the operating margin decreased 330 basis points from last year's high watermark 268.6 per cent trading 12th month margins have contracted 30 <unk>.
Basis points as reflected in today's results, we've seen market appreciation the mixture of a U M is playing an increasingly important role in essence link fee revenue in net inflows remains somewhat unpredictable in the near term all of this is reflected in our new hire guidance range as we mentioned last quarter.
I will continue to investments to drive a long term growth as well as the timing of expense recognition will impact a quarterly facing of our margins. We expect relatively high expense growth and indices into third corps to as well before expense growth moderates in the fourth quarter. This will ultimately allow us to deliver margins within the new.
Hiya guidance range of 67.5% to 68.5%.
Now, let's move to the latest views from our economists were forecasting global G. D. P growth of 2.9% in 2023, we're no longer calling for a global recession do we do expect lower than normal economic activity through the remainder of the year. We continue to expect inflation above the target Rachel central banks and.
Energy prices like crude oil to remain a both a store called effortless as well.
As we consider how all of this will ultimately impact our financial performance in 2023, let's turn to our guidance. This slight represents our got guidance for headline metrics.
Adjusted guidance would accompany reflects the results through the first half as well as our most recent fuse on the macro economic environment and market conditions or a full year guidance is largely unchanged on the consolidated basis is outperformance in ratings in in this this is offset by slightly lower expectations for market intelligence.
[noise] has begun to signal last quarter, we have provided the granular guidance on corporate and allocated expense do related amortization interest expense and texts raped into supplemental deck bullshit to our I R site.
The final slights in this deck illustrate our revenue and margin guidance by deficient reflecting to dry first that I mentioned previously.
In conclusion, we're pleased with the results from the second quarter, particularly with a return to strong double digit growth in both the ratings transaction revenue in our justice diluted EPS with multiple variables at play in the markets were encouraged by the fact that a tailwind sent to impact the largest parts of our business while.
The headwinds are impacting relatively small contributors to our financial results. It takes to Mendez effort for many tell us of people to deliver results like these and it would like to thank my colleagues so around the world for their relentless drive to power global markets. We're looking forward to delivering a strong second half of the year and with that I would like to and.
Fight It worked Avenue President of STP global mobility to join Us and it will turn to call back over to Mark for your questions. Thank you about for those on the line. If you would like to ask a question. Please press star one and record your name to cancel or withdraw your question simply press start to participants will be limited to one question a note.
To allow time for others during today's Q&A session. Operator, we will now take our first question.
Thank you. Our first question comes from Ashish <unk> with RBC capital markets. Your line is open.
Thanks for taking my question in the prepared remarks that was a reference to <unk> off the field cycle. I was wondering if you could provide any incremental kind of area that explicitly you're seeing it.
Which particular division or it's been across the board. Thanks.
Ashish. This is can you. Please repeat the question you talked about the sales cycle for all divisions were for a specific product I'm, sorry, I didn't I didn't pick up your question.
Sorry about that yeah. I was just wondering if you could provide more color on bad you're seeing that <unk> off the scene cycle has it been focused on a particular division or is that being across the board.
Got it. Thank you well first of all we've seen that in the last quarter and going forward that people are thinking very cautiously about expense management, especially in the financial services sector. This is an area where people had been looking at how they're going to be managing their own expenses, they're looking at the environment, which we described as is quite difficult give.
And inflation given the interest rate environment, there's not a lot of deal flow. So this is where we're mainly sing slow down in some of the sales cycle. Although this stabilized in the second quarter. It. It actually we started singing in the fourth quarter and first quarter of this year and now we're seeing it in the second quarter, but it did stabilize as you recall we.
You also have some cases, where it's taking us longer to renegotiate with our customers because we're bringing them more value, where we're bringing together multiple products. So sometimes consolidating products and consolidating contracts takes a little bit more but let me hand, it over to Edward since he's on the call as well to tell us a little bit about what are you seeing in the in.
Mobility, except during the same same sense.
Thank you, Doug and high C. So in the ability effects I would see and try and submit to once doctors described in the sense that in the first couple of quarters at the yeah. We did see a slight softening of retention rates and a slight <unk> cycles, and what not pertain to us the normalization of the sector. After a couple of years of really really elevated can never return.
Right. So so at this point, we feel the situation is normalized stabilized.
Tension rates remain very very strong by historical standards slightly less elevated another past couple of years.
And business kind of new business momentum is now stabilized. Thank you. Thanks Ashish.
Thanks to you. Our next question comes from <unk> Bank of America. Your line is open.
Hi, Thank you for taking my question.
On the call and he talked about 10 near term challenges and and climate and sustainability and some of the pressure you're seeing any talked about.
Essentially he pulled her ear longterm target, but also earlier in the call you reiterated your fee one midterm grocery or different that's S. S. I'm curious you know given the pressure you're seeing and sustainability area Kinda what do you see off setting that that gives you confidence in your target.
Good morning, Heather. This is ewald welcome first of all to to to call. So just to be very clear about sustainability and energy transition, we're not backing away from the 800 million dollar targets. We're currently backing away from the timing around <unk> 100 per cent short in any more that we can hit that by 2026.
Six why because we're still continuing to see very positive trends with respect to the longer term sheckler trench around he or she we think that all of those under <unk> driving underlining drivers are still there but in the short term we are impacted by some uncertainties uncertainties about the regulatory landscape to <unk>.
Political climate, it's mostly in the U S or seeing some on the buy side firms reconsidering, what they want to do around sustainability, but she continued actually pockets of strength in our business think about our climate activities think about your T. Raw data energy transition all of these brothers continued to grow very well.
I also would like to point out that we expect eerie acceleration of hours sustainability and energy transition revenue 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.
[laughter].
Thanks Heather.
Thank you. Our next question comes from Seth Weaver with Wells Fargo Securities. Your line is open.
Oh, Hi, good morning, Thanks for taking my question I wanted to ask you about the ratings there was a <unk>.
Operating margin and the ratings business, which came down he you know with revenue growing up I know you address some of the kind of short term.
<unk> headwinds there, but can you just talk a little bit more about your confidence for margins to to get a terrific hires root back half of the year in the ratings business specifically thank you.
Yeah. Good morning shift first of all I think this is exactly in line with our expectations the margin developments in <unk> and let me explain why that's the case the same what we shed for the company as a whole we are shooting I'll also <unk> with respect to the expense reset open incentive compensation compared to last year last.
You're in the second quarter, we saw a large change into your cool for incentive compensation across the board with Olsen ratings, both for the short term and the long term incentive compensation accruals and we're resetting desk for this year based on the strong performance of the company and the strong performance off the radio business as well. So we're overall very positive.
About the medium and long-term perspective and outlook. If you look at where we are from a trailing 12 month perspectives four margin for raping towards 55.2 were guiding dishy or 256 to 57 and then it's you know we have our <unk> for 2025 and 2026 <unk>.
58 to 60. So you will continue to continue to see strong margin improvement of ratings over the next few periods.
Thanks, Seth and welcome.
Thank you. Our next question comes from Manaf patent react with Barkley Your line is open.
Hi, Good morning, I, just wanted to focus on the market intelligence revenue I guess, you know it by 50 basis points did I hear you right by thing most of that is because it the I guess the sustainability Trans you talked about and I was just curious like you know that you mentioned the weakness mainly in the financial so.
You know in the state of all the vendor consolidation and those kinds of things they pick up a dispute that any you know I guess <unk> strategy to be a winner in that in that area.
Good morning, <unk>, you're absolutely right, where we are with the business at this moment is exactly the same place where we felt 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 it gives you a little bit more color around it. If you look at some of the key drivers of market intelligence Itchy feet growth is good closing rates are goods retention rates are goods user growth is good we see a lot of new product.
<unk>, bringing to the being brought to the 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 market intelligence, particularly combining the two companies together in that segment and the potential it will have with respect to commercial growth and before.
Expect to hit the hour Investor date targets for market intelligence.
Thanks <unk>.
Thank you. Our next question comes from Tony Kathleen with Morgan Stanley . Your line is open I think.
So much I wanted to go back to the sustainability revenue streams.
Mentioned seeing the shaft from scores Tech data I wanted to understand better if that has pricing applications and also is it harder to build <unk>. When it's the data not either ratings are scores that are being demanded by customers and then maybe you know I know true <unk>.
Cost is very high quality data, maybe you could talk about how it's proprietary and other data brands with an E. S. T where you have an advantage. Thanks.
Thank you Tony Let me just take a step back one second and talk about what we're hearing in the markets I've been travelling this year and I've been in every continent.
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 E. S. G energy transition. This is on everyone's minds and depending on where you are in the world, it's either moving faster, maybe a little bit slower than the U S and it had been before but there's also.
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 <unk> investors and regulators no longer want whoever's, managing their money or who's there 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 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, 2030 years true cause last quarter glue, 38%.
Our climate service, which is something that people using for modelling climate change in physical risks 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 in high demand. As you know we also build a climate credit analytics model with Oliver Wyman that grew over 50.
Per cent in the second quarter, and so we see across the.
Globe that people are starting to make decisions themselves and they 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 headstart by having bought true costs seven years ago, We had the S&P Dow Jones sustainability of products, which started over 20 years ago, and let me hand it over.
To Edward who can give a little bit of color also for the automotive that mobility sector.
Hi, Tony I'm with a couple of good examples actually wants a dog was talking about in the ability and opportunity is we're able to unlock now <unk> in partnership with S. One a.
Doug mentioned climate Nomex, we launched in June a version of climbing on mixer, which assesses physical risk for the automotive sector, where we were able to feed <unk> I'll supply chain dates on the automotive sector within the climbing unacceptable. That's one example, the bigger one actually is we are now building a carbon accounts.
<unk> data set for them ability sector and as you know in an automotive, but the key question Mark is kind of scope free emissions potato into vehicles on the road and the upstream supply chain of the battery in this space, we have a unique opportunity with all products of data to become the source record of carbon accounting data for the automotive industry.
So a couple of examples here about how raw data itself combined with all that's what expertise can lead to create some unique and indefensible products.
Thanks, Tony.
Thank you. Our next question comes from George Tongue with Goldman Sachs. Your line is open.
Alright. Thanks. Good morning, you have 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.
Thanks, George well as we've talked about over many years that the sensitivity to the price of oil in the commodity insights businesses actually not very important to get to really low oil prices like below the sixties into the fifties and forties and similarly, the same thing happens it needs to get it well over $100 before it star.
Creating sensitivity to the to the markets into the industry well, we're actually seeing is a lot of interest in a lot of growth outside of what would be oil and gas as you know we have a large sustainability set of products and climate change products energy transition within commodity insights. We also see a lot of interest in a lot of growth and what we've done done it.
Terms of combining the product sets from the old plants business with the E. In our business from I just mark. It this is where you're taking prices and benchmarks and adding and forecasting and researching analytics. So we see a lot of interest in what we're doing our customers are asking for more and we're layering on top of that artificial intelligence tools.
Analytical tools better vision, a better better charging capabilities ability to use our platforms more simply we've taken multiple products and combined them into one or two solutions. So across the board, where we're seeing that our clients need more they need to understand more about what's happening in the energy market. So the sensitive.
<unk> to the price of oil really doesn't kick in until the oil price drops a lot where it gets really really expensive.
Thanks George.
Thank you. Our next question comes from all the with Deutsche Bank. Your line is open yes.
Yes, hi, good morning. Thank you Uhm I wanted to ask about the index business. It in a couple of questions. There first I wanted to get a sense of what you're assuming in terms of you know your AUN and how you are thinking about you know <unk> E. T D revenues in the back half of the year.
Alright. Thank you had previously talked about a pretty significant decline uhm. So curious if if that's still the case and then just last question around that is you know you you talked about a mixed impact on the fees associated with the <unk> you know AUN related revenue, so give us a bit more perspective on on what's going on there <unk>.
Thank you.
Absolutely <unk> and let me combine all three of your questions in the in one N. Sorry. So first of all the businesses seeing very healthy flows we've seen very strong viewers equity flows at 53 billion. We have also seen very shoulder fixed income flows for for the corridor that was at 600.
Half billion dollar. So you think the business is seeing really deposit the the impact from the old rule pulse with their sentiments around to markets. We have seen over the last couple of weeks and 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 30th level <unk> and we have also looking at D. E. P. D for <unk>, we have assumed that <unk> E. T. DS remain as opposed to take place, but coming down slightly from wherever 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 <unk> perspective, we're about 90 per cent up compared to a point, where we're at the end of the second quarter of last year certainly the starting point for the second half of this year. He said he's very strong if you look at mix yeah.
There's always going to be some kind of a mix inflows to sharpen products person other product 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 the outflow. She <unk> she used analogy, but from a medium or long term perspective, we believe that there's still a correlation between <unk>.
<unk> as a key dry for overall AUN feast 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.
Thanks for <unk>.
Thank you. Our next question comes from Alex Cram with you B S. Your line is open.
Yes, hi, good morning, everyone. Just wanted to come back to the market intelligence guidance. I think you made this comment and hopefully I'm not misquoting here. That's you know you're lowering the guides officially but you're not trying to signal anything I'm not sure what that really means so maybe you can flush it out a little bit you you you talk to the low and last quarter, a six and a half.
Now you're you're lowering the the range, but you're still leaving it's very wide. So theoretically you know the mid point is actually higher than what you said before so maybe just help us kind of like say, what what has changed if anything and then maybe just thought about the modern ones off the guide as well thanks.
Happy to clarify that the Alex So what I've set at before is we think the business and all the aspects is performing in line with expectations. Once 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 are we <unk>.
It would be at this point in time and also with respect to the book of business. The ACC Grove retention levels sales cycles, and so receipt exactly what we would expect to see at this moment.
That's S. We have highlighted it's during the cold there is uncertainty about sustainability and energy transition, particularly ear <unk> part of the revenue stream for the market intelligence business and we're a bit prudent here deliberately in order to change the guidance here, we're not point to any point in this guidance range or just <unk>.
Lowering the guidance at this point in time, but as we upset we're 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 get another couple of examples of that the combination of the capabilities just working so we're seeing a.
A lot of new products and developments with respect to combining market intelligence and financial services. So I just markets wishy increased value realization with customers naturally a slight to pick up and pricing in the business. You should also benefits from friends of consolidation of data fenders, and we're one of the beneficiaries or.
That so many positive things that are opposed to the transfer market intelligence, we're just really prudent and that's the main reason around to sustainability revenue in the near term.
Thanks, Alex.
Thank you. Our next question comes from that Jeff Silber with BMO capital markets. Your line is open.
Thanks, so much I'm, sorry to keep honing in on market intelligence, but I wanted to focus on margins.
Lightly lowered the adjusted operating margin guidance, but it's still applies a pretty steep ramp in the second half of the year are there any timing issues or cough cuts that are impacting danced and if not how do you expect to see that margin acceleration in the back out.
Yes. Thank you so much for that for that question, you're absolutely right that was she quite some seasonality and margins and market intelligence, but by the way also and several of our other segments. During this year and that has to do with the reason that I mentioned before around incentive compensation, where are we saw a large pool that can sir.
Conversation 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 comes and just to give you a data 0.4 for the company as a whole that would mean that we are expecting from an expensive perspective that expenses for the company as a whole for this year.
<unk> will still end up in low single digit growth <unk> for the company as a whole. So you would expect the or put a reason that the fourth quarter margins are going to be really strong and the <unk>. The fork order is going to be really low in order to achieve those outcomes. So also let me get you. Another data point in terms of March and <unk>.
Pension for the company as a whole we still expect 60 to 160 basis points margin expansion for the company as a whole and full market intelligence. You're also looking at quite a significant increase in margins over the next two quarters from a trading 12th month level now of 32.4 to arrange a 33 and a half 230.
Four and a half at for the whole year of 2023, so yeah third quarter still a little bit depressed Buddy Buddy expense at seasonality, but for quarter very strong margins and expenses really low that's the overall trend that you should expect for market intelligence and the other divisions.
Thank you Jeff.
Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open.
Hi, Good morning. This is Tom Rush on furniture, Nicholas I wanted to ask a question around a I and I was curious about what your strategies for allocating capital resources to assist with developing a I capability to cross the segments given nothing can expand the portfolio. It seems like resources can be stretched in there. So I was wondering if you guys take more of like a holistic.
Ouch for there's universal capability to cross the segments developed in the eye or if there are specific segments, where you are focusing hey, I development. Thank you.
Andrew Let me start and then I'm in hand, it over to eat out I Wanna go back to a period six and seven years ago. When we first made our investment in Ken showing around B and we started thinking about what the future is going to look like and we actually see that future playing out right now we felt it in five years from then which is now and 10 years from now.
Which is five years from now that people like us would be making decisions assisted by artificial intelligence machine learning tools and then the last year or so it's become apparent that there's another leg to that stool. It's not just started official intelligence and machine learning. It's also <unk>.
We've been embracing that across the company can show his develop an expertise in different types of gender to the I model. There a go to source of 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 D. I, which is to ensure that we're always thinking about.
Our customers, we have a hybrid methodology, a philosophy about using multiple types of models and sources, whether that's internally driven from Kim show or the divisions or externally from open sources or from partnerships. When you look at the needs for.
Developing a I solutions, you ended 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 in the right way and then the third part of our governance is to ensure that we're always protecting our data. This is one of the first things we did when we started.
General <unk> models, we took a step back to make sure that we can protect our data and I P. But let me hand, it over to <unk> and then over to Edward to talk a little bit more about some of the things we're seeing in the company.
<unk> one of the things that I am really excited about is that on the one that has <unk>, which is a relatively small group, but really any innovation accelerator within the company and then we have all of our colleagues around the world because we have so many data scientist technology engineer data experts.
Experts and a lot of specific areas and fields around with the company and you have to bring all of those together in order to get the acceleration with the opportunities. The general Tuesday, I enlarge language moles are begging for us as a company. So can show is focusing on a couple of areas that will have the biggest impact for the company is.
A whole this could be use cases that we are developing but also think about collecting the data and structuring the data and <unk> that are the best readable for large language models and that's actually from a technical perspective are really important challenge, but the good thing is schedule has been doing that kind of work already for the last five years, we have experience.
We're working with a I for the last five years, we know how to prioritize days for the last five years, we know how to direct economic benefits and we haven't been doing that for the last five years. So we have a lot of experience around dealing with this and we're not trying to incentive for the first time at this <unk> at this moment, but then they're all their hands. We also have to crowd sourcing. So we have.
A lot of cold each that are contributing to these kinds of initiatives to collect data for large language moguls and many other initiatives and we're experimenting across the board. So let me hand, it over to Edwards because there's also a lot of great experimentation and developments going on in mobility.
Thank you <unk>. Thank you, Doug and just to add to what you said I want to bring up. One example of how we're thinking about <unk> with a new technology like general <unk> and as as Doug said I'm experienced in earlier forms of the AI and I'll count investment over the past few years I think puts us in good stead to harness this new technology.
But I think we have to recognize that as a step change here and so as we think about how do we enable an organization one of one of the big <unk> is the upscale Arab people and make sure we familiarize them with with this technology.
In July within the ability, we actually launched in tunnel solution <unk> auto pilots, which is all about bringing the tool to hundreds of all colleagues within the ability division and and we've already seen dozens of use cases develop over the past two or three weeks and we learn every day from this particular solution, we not not just about the large language models.
But we learn about data curation, we learn about what kind of <unk> 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 when learning and we're honasan. This new technology. Thank you.
Mmm. Thank you. Our next question comes from Cranky Bear with research partners to your line is open.
Good morning, Thank you I'd like to hear more about your outlook for ratings.
For the <unk> for the year. Please if you could just kind of go into investment grade high yield bank loans, and a particularly like to hear about if you're overly concerned of what's going on the commercial real estate market not so much what the impact is on the C. M. B S market, but if things continue to get worse. There do you think there could be some negative domino effects and whole banking sector financial set.
You're out there. Thank you.
Okay. Thanks, Craig Let me give you some color just on the issuance market generally and then dig into a couple of questions. You asked overall as you know in the last quarter of the issuance was strong it was up 8% build issuance, including bank loans bank loans is actually quite weak during the quarter, but the we saw on.
The other hand, a lot of volatility in a lot of lumpiness in that issuance. There were some characteristics of markets like corporate in the U S is up 80% overall investment grade globally was up 20%. It was up in the U S. Overall is that 19% et cetera, and then overall high yield was up 90%.
During the quarter, but on the other hand structured credits yellows were down 46% in Europe 42 per cent in the U S. So there's a lot of lumpiness in the markets and that has to do with uncertainty as to ratings, what's happening with interest rates, what's happening with inflation yield et cetera spread so there's a lot of <unk>.
The ability still out there we saw yesterday the U S. Fed raised interest rates by 25 basis points. This morning, the ECB raised interest rates by 25 basis points. So the markets are looking for some stability of rates and spreads and growth rates et cetera, now with that backdrop. Let me give you what are a couple of the forecast that we have for the rest of the year.
We've increased our range.
Range for build issuance for the rest of the year from a range of 4% to 8% the previous <unk> three to seven at the last quarter and the quarter before that is actually two to six so we've seen it improving throughout the year, what we expect for the rest of the year and if you look at the what we're expecting for the rest of the year. If you look at the <unk>.
4% to 8% and with the with the guidance range. We just gave it means that we're gonna be growing and kind of mid single <unk> double digit range for the rest of the year and build issuance a couple of the different areas I can share with you as you know our ratings research team produces forecast and summaries of what they're gonna see going forward.
We use that as one of the inputs for build issuance, it's a different methodology than the bill the issuance, but I Wanna give you that information any way, we see the corporates growing at about 13% for the rest of the year with a range between five and 20 financial services flat for the rest of the year with a range that could be down as much as five.
Per cent up 4% structured finance down about 13% for the year with a range of down 18 to down eight and then U S public finance could be down about 5% with a range downturn or up two per cent. So these are the factors that were using we are expecting that once we see these factors and.
<unk> like inflation interest rates spreads et cetera is that starts to.
Improve we think we'll see a better outcome one last thing what I mentioned as M&A M&A has been incredibly weak this last quarter second quarter. It was one of the weakest levels. We've seen it was as low as the second quarter of 2020, when we saw the <unk> the beginning of the pandemic when everything came to a halt I.
Been speaking with a lot of banks to understand what their outlook is for M&A, because that's a big driver of Levered loans.
The lending market of the of the high yield market. It cetera, we're seeing from the bankers that we're speaking with it they're expecting that at the end of this year and into the first quarter of next year, they're expecting that M&A will pick up again as the market conditions improve they they've told me that there's a pretty large backlog in big pipeline waiting to.
For people to start doing deals, but it's not happening as long as there's still some uncertainty in the markets.
So thanks, Craig Thanks for the question.
Thank you. Our next question comes from Andros Diner men with J P. Morgan.
<unk>.
Yes, Hi, this is Alex tests on for Andrew Steinman, just wanted to ask about the adjusted expense maybe sort of cadence for the year you guys spoke to incentive Comping elevated your on your two Q, maybe what does that look like for the back half of the year and then also if you could maybe more qualitatively flesh out what.
Went into core investment gross and overall compensation expense that would be very helpful. Thanks all.
Brian Clough, Alex just generally I would like to say expenses are under control. They are in line with expectations and we expect your overall expense growth for the full year to be relatively modest. So let me give you a little bit more of color around around dish. So the key dry for all of the <unk>, what's the swing.
India incentive compensation that we already discussed as I mentioned, we also expect that's too Kuwait elevate it's expensive in the third quarter and then we will see you at significantly significantly coming down in the fourth quarter.
We're still expect to hit our margin targets for this year and as I said before I think it's also maybe goods two point that overall, we're looking at expenses absolute <unk>. That's R. On a declining trend. So we have now seen two quarters in a row, that's an absolute dollars a hour expenses coming down and actually the <unk>.
We expect sequentially, Florida, with our expenses and there'll be down relative to the second quarter. So very much in line with expectations. Your question about what is going into the Grove buckets. It's a couple of areas that go into Grove blockage. The first is our strategic investment spent so that is the 150 million dollar.
Budget that we have for this year to invest in some <unk> some of our key initiatives to drive future growth. The second is the additional spent with respect to clout and also the additional usage old Gpu's flower Jen AI development that we are buying from our cloud providers and then the third.
That has to be a you grow. So these are costs related to be you grow things for example, about additional data that we'd have to purchase for additional product development within an hour deficience. So those elements go into the Grove bucket, but overall, we don't see that really as an expense, we see that as an investment in the future I'm cute.
The growth of our businesses.
[laughter].
Thank you. Our next question comes from Owen.
Your line is open.
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 using an <unk> an in-house K I compared to outsourcing it to a large tech firm.
Hi, Inhouse area I suggest cancel or the hybrid approach fits into S. M. P. O four strategy. Thank you.
Yeah. Thank you Owen and this is something we thought a lot about and as I started my last come in a few minutes ago, we've been thinking about the AI strategy for over seven years. This isn't something that we're just jumping into right. Now we've had a lot of experience of how we can use a not only is it productivity tool, but also as a tool.
To drive growth and new product ideas. We've also been developing our datasets and as you recall the same time when we acquired Ah Kin show. We also came up with the market place in the marketplace. Now has over 225 titles, which have information and data, which not only can markets used in new ways. We can also use that so.
We've been on an approach to cleaning up our data, making it usable and we feel that the the need for us I I use the word before stacking different capabilities and solutions as models is gonna be the way that you can deliver the most valuable insights and solutions to our customers. As an example, you might need to take your data and turn it.
From being raw data into something that can be used by a model to learn or to be used in order to develop a new application that data might the application might then need a different application on top of it so that the customer can use it. So it has capabilities to be able to used and spreadsheets to be downloaded too sir.
China et cetera. So we feel that there is a need to have multiple applications and that's why the hybrid approach is the one that we're gonna be pursuing that doesn't mean that we're not going to work with the some of the providers that you. Just described we already have a really strong relationship with AWS in our cloud strategy, they're developing a really compelling AI strategy we've.
Been using over the past Nvidia chips, we were one of the first groups that ever were using them in the way. They are being used now for a I. We have a really strong relationship with Microsoft. There's also open tools open tools that are being used we also have people developing our own L. L. M model. So we think that we can use this we think that we have a real.
Really good network of people across the company that Eva just described that or they're using different types of models. So we believe that we can have governance, we can have controls.
We've had controls in place for the last five years since we've owned ketchup to manage and track everything we're doing a day I, we're going to continue to use that same discipline for everything we're doing an AI to make sure that we're also controlling where we're investing and how we're moving forward. So it's our belief that a hybrid model is the right one for us and something that's gonna create the most value for our show.
[noise] holders.
Thanks Owen.
Thank you. Our next question comes from Jackson Waler with Bird Your line is open.
Yeah. Thank you Edward April It said I think in the description of mobility growth that there was a new store growth for car faxed to you subscription products, that's always a little surprising maybe but good day here given that I think of it as a more penetrated product. So just maybe if you can give us some color there is this.
Further penetration of the heritage products or is it something in terms of innovation or new versions of the used car products that are going through an upgrade cycle and then just any other drivers you want a highlight for car facts I think there was a call out of the service find opportunity or car extra <unk>. Thank you.
Thanks, Jeff Uhm, So <unk> I can give you a quite a simple answer to that question, you'll write that we work with most dealerships in North America, we work with most global Oems and we work with most of the plaza in that sense, we we feel quite penetrated because we have relationships with most of the potential customers out there but.
We also have a portfolio offerings, whether it's a <unk> elsewhere and within that portfolio. We have more mature offerings that we have lots of fairly young offerings, which has been developed over the past five or six years and we just have a lot of mock market penetration to go. So if you. If you if you take a look at the examples of the Avon mentioned products like contacts for life.
So we used to call. These things Master mind, we'll supply chain and technology, all products, which have a huge amount of run way ahead of them right.
Younger products, they've all been very fast and we have a long way to go before we get too full penetration. So so think of so if I take a step back and now think about those secular drivers think of them as as follows we have a lot of product innovation them, then from a commercial execution with a lot of white space with all of these offerings, we've developed over the past five or six years.
Which I'll, maybe 30 40 50 per cent penetrated him and then we have one of these circular tailwinds, which all those massive disruptions going on in the industry, which I'll quit in demand for information and wish you were very well positioned to capture that the month. Thank you Jeff.
Thank you I last question comes from Russell Cloud with Redburn. Your line is open.
Yeah, Hi, Thanks for a squeeze me that they have the a question on fixed income indices. Please uhm, giving you have lots of data on quote for that appointment issuance.
And you know I would any come to Brian and the space <unk> Chess acquisition.
And the underlying market full bench, marking fixed income is accelerating as we see sort of great to participation in that space do you see this is a major change if the SMP could I bill and perhaps if so can you talk about what you're doing to invest behind the opportunity and the speed at which do you think that can start delivering increased revenue growth.
And the degree to which.
<unk> attempts sent medium sounds great ambition for indices 90.
Yeah. Thank you Russell Thanks for joining the call today, we if you take a step back in one of the key drivers of our merger with I just market was a look at what we think is happening with the transformation of capital markets globally. As you know in the U S. The capital markets for corporate financing is somewhere north of 70% of the market is probably even higher there.
And that in Europe , it's probably only about 35% maybe 40% at the most and an eight cross the agents in the 20% range, we think that that transition of capital markets globally is going to continue we see the United States has a very sophisticated set of institutional investors that can go across the.
Tire stack of capital in Europe , we're starting to see more of that in fact, one of the signals, which is positive for a business in Europe is the withdrawal of liquidity programs like the L. T. R O from the Central Bank from the ECB. We're also know now with a combination of the products and services, starting with Mark and intelligence we have.
The data services from DVA, which provide prices on over 13 million securities loans swaps other types of fixed income products and loans. That's a really incredible set of data, which we've now added into capital I Q pro and that kind of data is used by the markets, we have the ability to expand into private.
Credit as well the private credit asset classes right now about 1.5 trillion dollars of which one trillion is probably out in the market and placed in there's another 500 billion, which is dry powder, which is gonna be available is that asset class continues to grow we have ways. We can serve that so if I look across the entire stack of <unk>.
Capital, but let's now look only at the debt and credit side and the dead and credit side, we have credit ratings, we have private information private market information, we got pricing information about bonds and loans and swaps. We also are now.
Covering the issuance with issuance data with Wall Street office W. S O, which is supporting the underlying underwriting of loans et cetera. So we have we're covering products data services software services across the entire stack of debt and credit and finally also in our in our index business you asked.
About we also have a set of credit products I tracks C. D X, it's cetera that are providing information for the markets and we can use those for indices and we're seeing opportunities there not only in the fixed income indices themselves, but also extending into E. S. G fixed income indices as well as multiasset.
<unk> indices, but let me hand, it over to Eva who can supplement some of what I just said.
Yes, let me give you a couple of additional data points. In addition to what their accent. If you think about <unk> expenses 40 index business actually this is the only deficient worried the growth initiatives, we're a little bit higher than the incentive compensation reset and that's for a good reason <unk> highlighted there's so many areas of <unk>.
With initiatives in our index business think about fixing <unk> data that we can sell together with your indecision. So multi <unk> sustainability effects are based in Netflix you can show and so on and so forth, but the most important thing here H as we are told you at our Investor Day. This is going to be a business that we're committed.
To deliver double digit growth in 25, and 2026 at the level of margins in the high sixties. So of course phenomenal outlook for this business getting older growth initiatives. So we think it's the right thing to do to invest into dish in two days business line. Both in fixed income, but also many of the other category.
Reset that just mentioned so thanks for also.
Thank you Russell and I want to thank everyone for joining the call today and your excellent questions and also want to thank Edward for joining us today I'm. So excited about the progress that we're making a desk and 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 Ginny I and that we've got can show that is <unk>.
Help lead us and bring that together.
I'm also very excited towards the centre of what's happening in global markets and in particular sustainability and energy transition. This is something that's changing everyday and we're having the most important dialogues in 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.
Or people in Tokyo, Dubai, London in Denver, and I'm always inspired by their passion and their commitment to have some 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.
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