Q2 2024 S&P Global Inc Earnings Call
Hum.
Hmm mm.
Hum.
Hum.
[music].
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 instructions will follow at that time.
Speaker Change: 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 Mr. Mark Grant Senior Vice President of Investor Relations for S&P Global Sir you may begin.
Good morning, and thank you for joining today's S&P Global second 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 Martina Cheung President.
Speaker Change: S&P global ratings.
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 <unk> S. P Global dotcom.
Speaker Change: 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 filings with the U S Securities and Exchange Commission, including our most recently filed Form 10-K.
In today's press 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 companys operating performance between periods and to view the company's business from the same perspective as management.
The press release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures were providing and the press release and the supplemental deck contain reconciliations of such GAAP and non-GAAP measures.
The financial metrics will be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise.
I would also like to call your attention to certain European regulations, any investor who has or expects to obtain ownership of 5% or more are best in 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 release.
At this time I would like to turn the call over to Doug Peterson Doug.
Douglas L. Peterson: Thank you Mark S&P global delivered an incredible first half in 2024 is 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.
But revenue from all our subscription products across the company also increased 8% year over year in the second quarter. Despite some of the market headwinds 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 cap IQ Pro included significant enhancements and we launched new benchmarks in quantity insights, we continue to accelerate our deployment of generative AI and launched 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 in centric, 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 ratings more than one trillion dollars to build 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 ratings services, and 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 markit 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 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 is headwinds can often be offset by tailwind.
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.
Douglas L. Peterson: 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 a private market solutions, and our sustainability and energy transition offerings.
Turning back to build issuance increased 54% year over year in the second quarter, we continue to see tight credit spreads contributing to favorable market conditions. We also saw a modest improvement in some of the important macroeconomic indicators, particularly in North America that have lent strength to the issuance environment, we continued to see.
<unk> strength in bank loans, and structured finance, along with robust growth in high yield investment grade bonds.
Douglas L. Peterson: 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 'twenty 'twenty four 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 'twenty two.
Douglas L. Peterson: For.
Just continues to inform our view that the second half will be softer than the first half in terms of build issuance and transaction revenue a ratings business.
With the timing and likelihood of any rate cuts in the U S market is 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 cortex listings and the car facts banking and insurance group. We also see strong growth in energy transition climate products from a commodity insights division and sustainable bonds from ratings.
As you'll recall from last quarter key contributors from a pricing valuations and reference data as well as several schematic and factor based indices matured out of the vitality index at the end of the year.
We're encouraged by the continued acceleration in 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 chat AI on Platts connect launched as a new platform combining plants 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 and the platform, we knew users would need and intuitive way to navigate and find the information that will be critical to their daily workflows.
Speaker Change: AI is a powerful customer tool developed through a partnership with 10 show in 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.
Speaker Change: Our plants team introduced five daily price assessments for beef and for daily price assessments for poultry as well as the new report with up to date coverage of the proteins market. These.
These continue to broaden and strengthen our position in agriculture commodities.
Speaker Change: We also continued 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 and 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 14000 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 off.
<unk> code rewrite configuration files for software migrations and summarized complex documents. We've also used it to aggregate and digest feedback and ideas that we received through our employee engagement surveys and town halls, empowering leadership to more effectively act on what matters the most to our people.
We believe this crowdsourced approach to developing tools shortens the time to discover and develop new applications using gen AI models.
Leveraging L. L. Ms from multiple sources allows us to benefit from the rapid innovation, taking place across the technology ecosystem without being locked into a single vendor.
Speaker Change: Lastly, the June release of cap IQ pro but 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, Markit, which brings data on more than 19 million government agency and corporate fixed income securities and makes it readily available through the cap IQ Pro platform.
Speaker Change: 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 and cap IQ pro.
The June release also included a complete re imagining of the charting and visualization capabilities within cap IQ 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 cap IQ 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 Ken show four years ago.
I want to take a moment to discuss an important acquisition that closed in the second quarter.
Physical 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.
[noise] visible alpha compiles highly detailed financial models via direct feed through over 200, contributing brokers with over 6000 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 alpha in private equity.
<unk> and consulting and driving further penetration in asset management and research.
<unk> the strength of S&P global's relationships brands 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 see numerous opportunities to leverage the visible alpha platform in conjunction with a differentiated datasets throughout S&P global to create unique deep sector content, we look forward to sharing new developments in the coming quarters.
Speaker Change: Now turning to a very exciting announcement, we made in the second quarter that fittingly comes under our fourth strategic pillar 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 one.
Martina Cheung the president of ratings and sponsor a sustainable one will become the 11th CEO of S&P Global since we were listed on the New York Stock exchange over 90 years ago.
Speaker Change: 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 they worked with Martina on a comprehensive transition plan before she takes over in November as.
As you might've seen I'll stay on the board until the next shareholders' meeting and on as an adviser until the end of 2025 Martinez 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.
<unk>.
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've expanded our operating margin by 300 basis points now.
Christopher Craig: Now, let me turn to Chris Craig our interim CFO to review the financial results Chris over to you. Thank.
Thank you Doug we finished the second quarter of 'twenty 'twenty four with exceptional performance across the entire company with three of five divisions, achieving double digit growth in both revenue and operating profit reported.
Reported revenue grew by 14% year over year to a record $3 $5 billion in the second quarter.
While parts of our market German businesses benefited from the tailwind as Doug highlighted earlier, we are also seeing strong performance across strategic investment areas, which I'll touch on shortly.
Adjusted diluted earnings per share increased 30% year over year to $4.04. This was driven by a combination of our strong revenue growth margin expansion of 450 basis points and a 2% reduction in fully diluted share count.
Now turning to strategic investment areas, where I'm pleased to report we saw growth accelerate across all initiatives sustainability and energy transition revenue grew 23% to $87 million in the quarter driven by strong demand for commodity insights energy transition advisory services and subscription offerings are sustainable one.
<unk> team continues to expand the company's sustainability and energy transition offerings, while leveraging cross divisional industry expertise to provide our customers with broader solutions.
Christopher Craig: In private market solutions revenue increased by 26% to $134 million growth was driven by that bank loan and CLO ratings and demand for our private market solutions within market intelligence, which includes products like SKU Val and eye level for revenue synergies, we exited the second quarter with an annualized run rate of 199.
<unk>.
Christopher Craig: During the quarter, we recognized $54 million in revenue synergies, which came from a mix of cross sell activity and revenue generated from new products.
Turning to our divisions market intelligence revenue increased 7% in the second quarter desktop grew 6% or 2% when excluding the impacts from the visible Alpha acquisition growth in the quarter was impacted by the continued softness in the financial services end market that we've highlighted previously nevertheless, we're focused on adding value for our customers by improving.
Christopher Craig: <unk> performance in introducing new content and capabilities, including the recent integration of markets fixed income Securities data data Advisory solutions grew 6% driven by expanded coverage and continued investment in the high growth areas of our market data in valuations and industry and company data product offerings Enterprise solutions grew.
11% as loan platforms, such as clear part in our primary markets group, we're beneficiaries of stronger equity and debt capital market activity in the quarter for modeling purposes. It's important to note that the enterprise solutions business line includes student centric.
Credit risk solutions grew 5% due to demand for our ratings express and ratings direct distribution platforms in North America and Europe ratings direct is also benefiting from user adoption of capital IQ Pro adjusted expenses increased 6% year over year, primarily driven by an increase in compensation and the impact of the visible Alpha acquisition.
Partially offset by reduction in expenses associated with head count and outside services.
Christopher Craig: Operating profit increased 9% and operating margin increased 60 basis points to 32, 9% trailing 12 month margins expanded 90 basis points to 33.3%.
Now turning to ratings, where we saw exceptional revenue growth of 33%, which exceeded our internal expectations transaction revenue grew by 63% in the second quarter fueled by increased bank loan and bond issuance non transaction revenue increased 9%, primarily due to an increase in annual fee revenue and an increase in new mandates, particularly.
Lee from the return of high yield issuers.
Christopher Craig: Adjusted expenses increased 8% driven by higher compensation, including incentives as well as investments in strategic initiatives. This resulted in a 52% increase in operating profit in the 810 basis point increase in operating margin to 65, 8% for the trailing 12 months ratings margin expanded 570 basis.
Points to 69%.
And now turning to commodity insights.
Revenue increased 12% driven by strong performance across all business lines with price assessments and energy and resources data and insights both growing double digits.
Notably this marks the fifth consecutive quarter of double digit growth in our price assessments business.
[noise] assessments and energy and resources data and insights grew 11% and 12% respectively.
Both businesses benefited from strong performance in crude and refined products. In addition, we continue to see favorable commercial conditions across both segments, including strong subscription sales across Middle East Africa and Asia.
Pfizer in transactional services had an exceptional quarter with revenue growing 32% or 27% when excluding the impact from the world hydrogen leaders acquisition.
This was driven by strong trading volumes across key sectors, and global trading services and a pickup in consulting activity, particularly for energy transition related initiatives.
Upstream data and insights revenue grew by 5% year over year benefiting from meaningful contribution from organic investments, including our upstream energy transition offerings as well as continued improvement in retention rates.
Christopher Craig: For the full year, we expect low single digit growth for upstream.
Adjusted expenses increased 8% C to higher compensation costs ongoing investments in growth initiatives and the acquisition of world hydrogen meters.
Operating profit for commodity insights increased 16% and operating margin improved by 170 basis points to 47, 3% trailing 12 month margin increased by 130 basis points to 46, 8%.
Now turning to mobility.
Revenue increased 8% year over year or 9% when excluding the impact of the divestiture of the after sales business.
Speaker Change: Revenue increased 11% year over year, driven by new business growth in products, such as new car listings and continued success in car packs.
Factoring declined modestly by 1% driven by a decrease in one time transaction revenue, particularly in our recall business, which can fluctuate based on the level of recall activity in any given period.
This was partially offset by another strong quarter of subscription sales financials and other increased 13% as the business line benefited from historically high underwriting volumes adjusted expenses increased 7% due to planned investments in strategic growth initiatives, partially offset by a reduction in incentive compensation expense.
This resulted in operating profit increasing by 10% for the quarter and operating margin improved by 60 basis points to 49%.
Trailing 12 month margin contracted by 10 basis points to 38, 8%.
Now turning to S&P Dow Jones indices.
<unk> increased 12%, primarily due to strong growth in asset linked fees, which benefited from higher AUM and growth in our data and custom subscriptions offerings asset linked fees were up 16% driven by market appreciation and inflows.
Impressively the global ETF market saw a record inflows in excess of $300 billion on a trailing 12 month basis, highlighting the continued shift to passive investing in opportunities for future growth.
Change traded derivatives revenue grew 4%, primarily driven by strong volumes across our equity complex products getting customer subscriptions increased 6% year over year, driven by new business growth in end of day contracts and real time data.
Speaker Change: Expenses increased 4% year over year, driven by investments in strategic growth initiatives and an increase in incentive compensation expense indices operating profit increased 15% and impressively operating margin expanded by 210 basis points to 77%.
Speaker Change: On a trailing 12 month basis indices operating margin expanded by 150 basis points to 69, 8%.
Looking at the quarter Holistically, we saw broad strength across the business market factors like issuance volumes and asset price appreciation contributing to strong growth in our market driven businesses and our subscription business lines benefited from the continued investment in our differentiated data content and workflow capabilities.
We are pleased with the profitable growth delivered by the combination of strong customer demand and disciplined execution in the quarter.
And with that I will now turn it back to Doug to discuss our outlook for the second half of the year Doug.
Thank you, Chris our financial guidance assumes global GDP growth of 3.3% U S inflation of 3% and an average price for Brent crude of $84 per barrel, we continue to see fluctuations in the market expectations for rate cuts door base case still assumes there'll be one rate cut in the U S. In the second half of 'twenty 'twenty four.
While the macroeconomic indicators that help inform our guidance are very similar to last quarter were significantly raising our financial outlook for the full year.
We're increasing our build issuance forecast 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%.
And our most recent study of debt financing, we examine the volume of that 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 its 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 [noise] out more than seven years as of July 1st in each of the last three years as you can see there is very little that 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.
Speaker Change: We now expect revenue growth in the range of 8% to 10% adjusted operating margin expansion of 125 to 175 basis points and adjusted diluted EPS in the range of $14 35 to $14 60, representing a 50 cent increase from our prior guidance additional.
Speaker Change: Details on our consolidated financial guidance can be found in 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.
Speaker Change: 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 physical Alpha which closed in may largely offset by the loss of revenue following the divestiture of concentric later this quarter.
Speaker Change: Importantly for models visible alphas reported in the desktop business line for market intelligence, which should accelerate on a reported basis in the second half while fin centric as 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.
Speaker Change: For the second half the favorable market conditions, and improve visibility and form a slightly more optimistic view around the third quarter and a modest year over year decline in both build issuance in the ratings transaction revenue in the fourth quarter, our revenue guidance for commodity insights is unchanged were.
Speaker Change: We're slightly lowering and tightening the guidance range for mobility revenue growth as we noted last quarter and this morning. The recall business has been abnormally soft year to date, and we expect that softness to continue in the second half.
Speaker Change: The recall business is nonrecurring and difficult to predict but the lowered outlook means that the remainder of the revenues 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%.
Speaker Change: 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 Alfonsin centric 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 out performance, partially offset by higher expected incentive compensation expense.
Commodity insights margin guidance is unchanged.
Speaker Change: For mobility, given our expectations for software 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 merchant expectations for indices are unchanged. Despite the higher expected revenue growth as we plan to continue investing to position the business for growth through 'twenty 'twenty four and beyond.
Martina L. Cheung: With that I'd like to invite Martina Cheung President of S&P global ratings and executive lead for sustainable one to join US I will turn the call back over to Mark for your questions Mark.
Thank you Doug 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 Star two participants will be limited to one question in order to allow time for others. During today's Q&A session. Operator, we will now take the first question.
Thank you. Our first question comes from Ashish <unk> with RBC capital markets. Your line is open.
Thanks for taking my question congrats to both Doug and Martina.
I just like it does kick off with the M I.
As we think about I was wondering if you could talk about the pipeline. There also if you could talk about.
What youre seeing on the sales cycle and how do we think about the desktop business going forward. Obviously, you can see the acceleration from the table as Baalbek, just underlying quoting that business with the gap of it getting all the info.
Thanks.
Martina L. Cheung: Thank you Ashish. This is Doug first of all thank you for the question, let me start by mentioning that the softness that we saw was something that we expected as you know there were over 60000 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 <unk>.
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 the M&A.
Martina L. Cheung: But we we do see that within the large banks. So basically the sell side that there is some talk about vendor consolidation. There is 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 or not negotiated every single year we.
Martina L. Cheung: See that we have a strong opportunity to bring more and more data to the discussion is 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 with the desktop by enhancing it with new services and new products, but with that let me turn very quickly.
Martina L. Cheung: Two a couple of the of the products themselves as you know the desktop was enhanced with physical alpha visible Alpha is a must have product and service.
As I said the prepared remarks, probably everybody on this call is using it we've seen a great increase in people coming to the to the product when we close the deal. We had 180 contributing brokers now we have over 200. We also saw that with the new release of the of the desktop really good results from the new visualization tools that we added.
Let me mention one other one of the other sub segments on the enterprise solutions, which grew at 11%.
That also was very much driven by what we saw happening with the capital market's improving so we see as you know many different aspects to market intelligence. The Alaska. One I mentioned is we did reiterate our guidance of which is in line with what we'd said earlier this year. Thanks for the question.
Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.
Manav Shiv 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 Concentrix and just along those lines.
What we should anticipate in terms of your continued participation in this spend their consolidation and other things like concentric that could be cleaned up there as well.
Yes, let me start with what we believe is really important for US is our is our capital allocation model. As you know we believe that it's really important to continue and we'll be looking at our portfolio to ensure that everything thats in part part of S&P global contributes to the hole that helps the enterprise be stronger that we see opportunities for some sort of.
<unk> either through technology through sales cycles through product research et cetera. So we believe that this was both of these transactions visible alpha coming in in fin centric coming going out were both really valuable for overall for S&P Global now when you think about the modeling that we did I mentioned on the prepared remarks visit.
We'll also roughly adds about 1% of growth and it's.
<unk> centric basically takes out about 1% of growth as I mentioned also they are in different segments. The visible alpha is in the is in the desktop segment in the fin centric because in the enterprise solutions segment, so you're going to see a slightly different growth rates in each of those based on the visible elfa coming in and fan centric going out to the second.
Part of your question about vendor consolidation or discussions with the different organizations, we bring incredible strength because of the data and the analytics, we have across the entire platform not only do we have the traditional market intelligence and financial services desktop and other solutions. We also have information for example for example, which we've been <unk>.
Manav Shiv Patnaik: <unk> and private credit private markets, we have a really strong sustainability platform, which is becoming more and more important. So we can bring data services data sets from across S&P global it make it very relevant to any discussion we're having as people look at consolidating their data relationships.
Mark is going to add to this yeah, hey, manav just to be make sure. We're really clear here the percentage points impact that we're talking about where to market intelligence revenue growth to the company as a whole. Thanks.
Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open.
Alright. Thanks. Good morning, you raised your build issuance outlook from six of the 10% to about 25% for the full year.
In terms of issuance category oriented your outlook for the year changed the most or build issuance and what were the drivers.
Martina: Hi, George it's Martina. Thanks, so much for the question I would say we saw growth in the build issuance our outlook for the full year across all categories, but I would say.
Accelerated growth in high yield and bank loan ratings, we did see very strong issuance in the first half in investment grade, but that was characterized more by an acceleration in Q1 slightly tapering off in Q2.
That refinancing activity.
Investment grades was done last year and in Q1's, a bit of a bit of a taper off their overall, it's more modest expectations for investment grade for the full year.
Martina: High yield the DLR.
Speaker Change: Very strong growth I would say, maybe a couple of South Africa classes to highlight.
Bose is as.
It's expected to have a very strong year from an issuance standpoint for example.
Number of other sub asset classes within structured finance that are seeing quite a bit of growth. For example for example data center securitization.
Speaker Change: Hope that helps thanks for the question.
George: Thanks George.
Faiza Alwy: Thank you. Our next question comes from Faiza <unk> with Deutsche Bank. Your line is open.
Yes, hi, good morning.
I wanted to ask about the index backlog and what you are seeing that.
And subscription.
At one point, we had talked about sort of growth accelerating here. So just curious on what type of.
Generally yes.
Subscription right.
Yes, So let me start with what we're seeing at thematic Lee as you know and as Chris mentioned in the prepared remarks, we've seen massive flows from active to passive that continues to be a trend and within that space. There are a lot of the flows go to U S equities and within U S equities S&P Dow Jones indices picks up the bulk of that.
You've seen that coming through last quarter in terms of volume. There was also some increase in the value of the AUM value. So we benefited from that with the 16% growth in the asset linked fees as you know some of those fees are going to be seen on a lagged basis. So we expect that we built into our guidance the expectation that tomorrow.
It was going to remain flat for the rest of the rest of the year, but we would see some increases those average flows continue to come through the rest of the year in terms of themes. We continue to see a lot of interest in different types of asset classes. So within even the asset class of the S&P 500, large cap U S. We've had new partnerships with some large.
Asset managers with new types of S&P 500 funds. The S&P 500 quality. The S&P 500, economic Etfs, we also see a lot of innovation around fixed income and credit through the CBOE I box emerging market Bond index. We've also seen some really interesting new products coming out that bring in mid <unk>.
Faiza Alwy: Using our indices the Vanguard S&P global 1200, ADR so across the board, we're seeing a lot of new interest.
Classes, another one which we want to mentioned very briefly relates to the private markets in private credit. This is an area, where we have a lead we already have strong positions in private credit indices, and we'll be building that out much more as we take advantage of this asset class, which has a lot of interest in the markets. Thanks Faiza.
Thank you. Our next question comes from Heather <unk> with Bank of America. Your line is open.
Alright, Thank you very much.
Speaker Change: When you ask about investment and especially given the success you're seeing in terms of your strategic investment.
Or are you thinking about the pace of spending going forward, especially at issue and continues to recover.
Philosophy there.
Speaker Change: 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, where it's at about a 10%.
Speaker Change: Broach too, but we want to see for 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 as you know we've been investing in a couple of key areas private markets is one another relates to sustainability and energy transition artificial intelligence is one.
Speaker Change: And there's many other subcategories 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.
Over the last few years that doesn't mean that we are successful in everything we do but we're very pleased with the track record. We have thanks. Thanks, so much for the question Heather.
Speaker Change: Thank you. Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Thanks, So much I wanted to ask about AI. It had a very early head start when you bought can shell, but maybe just talk about how you're viewing that comtech competitive position now.
Speaker Change: Have competitors close that gap by working with Microsoft and also maybe just talk about your opportunity to 80 is your proprietary data.
New AI products. Thanks.
Thanks, Tony for that I'm going to start and then hand, it over to Martina who can give some practical.
Practical applications as you know when we first bought it can show six years ago, we had a vision that artificial intelligence tools, we're going to be used by people like us on this call to enhance our decision making to make us allow us to make decisions faster with more data and we're seeing that play out, especially now that artificial intelligence is moved into generative.
As you know we have in place a system of governance, where we have achieved AI officer for the company. We have an AI counsel, we have a system towards ensuring that we have the right kind of training across the entire company. We have an accelerator if we see a really good opportunity that we want to move fast on but really at the foundation of everything as an open architecture.
Protects your model, we've built something called S&P spark assist which is now used by over 14000 users S&P spark assist allows us to bring our models into our model garden and use it as a co pilot. It means that we can be agnostic towards which model is best we think that as spring has all kinds of new <unk>.
Opportunities you saw this quarter, we announced the launch of chat AI on Platts connect this is a really good product I actually used myself this quarter. The transcript summaries on capital IQ cap IQ pro those are really valuable, but I think Martina can add something to this with applications that she is seeing on the ground in ratings.
Yeah, 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 Jennie O I to improve quality to create efficiency and time to market for our core ratings business and one example, I thought it'd be interesting is EV.
Speaker Change: <unk> mentioned in the past that we had focused in on a tool to help our CLO credit analysts with that 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 our CLO 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 D&O. So they can focus in on the important jobs are getting the ratings sterling.
Just send other minor point for us more more major point for market intelligence, but as a rating agency and with a very large pool of credit analysts using ratings direct on cap IQ Pro we're super excited about the work that Mark consultants is doing to build out our Jennie O interface on ratings and cap IQ pro and we've been helping them do that.
Well thanks for the question.
Thanks, Tony.
Speaker Change: Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.
Alexander Kramm: Hey, good morning, everyone just wanted to come back to market intelligence and the performance they are and I'm, particularly interested in the cyclical upside and downside. We obviously you all realize that since markets came in the business is a little bit more cyclical and when I look at this quarter, our non subscription and recurring variable both up double digits or more than double digits. So it seem.
Speaker Change: Like the cyclical side is helping you a little bit already so can you maybe just talk about where you think you are on the more cyclical elements in that business and what the biggest things we should still be looking for I E. IPO markets opening up et cetera to drive cyclical upside even higher and maybe you could you can dimensionalize that in terms of revenue potential.
<unk> sites from.
As markets open up thank you.
Speaker Change: Yeah. 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 Subsegment, almost 11% and this included some revenue that came from some non subscription revenue things like we had strong growth.
Speaker Change: The lending solutions in markets with very strong growth in regulatory and compliance.
These were these are some of the areas that are really are driven by volume.
If you asked 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 it 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 showed that they would have.
That they would have up to three 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 as M&A revenue and M&A activity in the investment Bank M&A is still relatively weak it's not on track for what we would normally have seen it was incredibly strong in <unk>.
Speaker Change: 2000, 22021 ever since then it's been quite weak and so we did see some green shoots of M&A activity this quarter, but theres a lot of pent up capital a lot of firepower in private credit and 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 theyre 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 tailwind to it would benefit us, but that's not built into our guidance for this year.
Yeah.
Alexander Kramm: Thanks, Alex.
Thank you. Our next question comes from Scott <unk> with Wolfe Research. Your line is open.
Hey, good morning, guys. Thanks for taking my question 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 can 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.
Yes.
Thank you Scott Let me, let me take that and talk about what we are what we're seeing are really important we still mostly see crop cross sell that's the most important source of our growth, but we are now very successfully launching new products. We had over 21 products that were launched so far this year and market intelligence, we have nine in the commodity insights area.
And then we have a good pipeline between the rest of the year of another about 15 between those two divisions in indices. We've launched a series of of new approach to providing custom indices using the fixed income and credit indices that were from IHS markit.
Alexander Kramm: But as I said the cross sell has been really really important we know we probably underestimated the value and the power of the S&P Global brand and we also probably underestimated the diversified relationships that we have if you think about the financial services business at IHS market. It was a financial services business, but it is SAP.
Global we've always had a very strong corporate business governments academics, all sorry, all types of <unk>.
Financial services, its buy side sell side, its sovereign wealth funds et cetera. So we believe that we've had the opportunity to bring that very powerful set of clients diversified clients and bring them to many many more products and services for the financial services products. That's been one of the big Upsides, but let me just take one step back and point to a couple.
Things you already talked about adding $19 4 million prices bond prices into cap IQ pro that was one of our synergy opportunities. That's something that's tangible you can see that we've also had in commodity insights a whole new set of products. We talked earlier about chat AI, which was added to our feature so that takes.
Alexander Kramm: What we have from artificial intelligence layered on top of commodity insights platform that platform was a merger of platts dimensions pro and connect which was the IHS Markit platform. So there you can see it everywhere in the company. We are at $199 million run rate that was $54 million in the quarter and we're on track we're actually ahead of.
Of track and we're very very pleased with that and so keep asking and we will keep delivering thank you so much.
Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open.
Hi, Good morning. This is Tom rush on for Andrew.
In the first quarter, you guys talked about a number of private deals being refinanced in the public markets. I was wondering if you could provide any color on what you saw this quarter in the sense of Refis coming from private to public markets and if you kind of see that trend continuing where more data is coming from the private markets the pubs.
Thank you.
Hey, Tom This is Mike. Thanks for the question Yeah. It's been it's been interesting certainly some different trends in the two quarters as he said, we certainly saw more in in the first quarter go from a private to public we actually saw.
Going both directions in the second quarter some of that we see.
He is being a more attractive pricing in the private markets compare 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 had around private markets, which is number one we see that opportunity we've had a very specific strategy around it and we have.
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 market and you see that strategy on the private side play out with the results in Q2 are the 70% growth in our private market revenues.
Alexander Kramm: Ratings, obviously as well as the broader public market bond rating crowds that are we seeing on the transaction side as well so.
Alexander Kramm: This is a good story for US. These two trends are complimentary 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.
Tom: Thanks, Tom.
Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.
Hi, Good morning. Thank you for taking my question. So full rating one of your competitor has guided to high teens growth for the full year.
Around 40% to 16% growth I mean, it's not that way off but I'm curious to see if you've done any analysis to try to understand the delta and different assumptions.
And also how much impactful one way cut I think at the end of the fourth quarter assumption what impact you're all waiting perhaps in your guidance. Thanks.
Speaker Change: Thanks, So much Alan as you know we don't.
Plan with competitors of mine to if that's if that's a clear way to say it we feel very good about the strategy that we set out obviously.
Performance comes in a variety of ways first it is.
Very strong markets.
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 thought we preserved and less capacity and expertise over the last couple of years and we can handle the additional volumes.
So we feel very good about that I would say overall our growth rate with the new guidance 14, 16% reflects a couple of key a key drivers that.
Doug highlighted in his remarks. The first is that we continue to hear anecdotally from the market that issuers are avoiding in particular Q4.
So that certainly has a tapering effect on the back half of the year. After I said were all I would say we've also I think he I think he maybe alluded to this a little bit of a tougher comp in the back half, whether it's lapping that onetime CP.
Revenue from <unk> from the second half of last year, but also a very very strong Q4 from last year and as Doug said, we'd expect modest year over year decline in Q4, but overall if you look at the full year, we feel really good about it reflects growth not just on the transaction side, but on the key strategic areas.
Wrong outperformance 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 and good growth in other areas such as new mandates. So a great story for US overall I think thanks for the question.
Thanks Owen.
Thank you. Our next question comes from Craig Huber with Huber Research Partners. Your line is open.
Great. Thank you I believe three months ago, you guys said in market intelligence that you've expected to perhaps see some improvements in the growth rates of market intelligence revenue in the second half of the year. You. Obviously have your <unk> guidance you kept flat for the revenue outlook for the full year given what's happened in the first half of the year do you still feel that's possible just given the new product side.
Here.
Okay.
Craig it's possible as you heard a couple of questions ago, I talked about some of the potential tailwind 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 the way we've got it for the top.
Speaker Change: <unk> growth to be consistent where it was the last time, we provided guidance.
Thanks, Craig.
Speaker Change: Thank you. Our next question comes from Andrew Steinman with Jpmorgan. Your line is open.
Hi, Doug.
Could you guys tell us directionally, how MRI organic.
The growth.
In the second quarter compared to the organic revenue growth.
With the possibility of acceleration. My question is is organic ACB growth accelerating.
Speaker Change: Accelerating.
Speaker Change: Well, we don't report on a C V. It's not a metric that we use we report on revenue. We obviously, we do look at our sales pipelines and we're very pleased with what I mentioned earlier with the opportunities we see in cross sell with the power of the brand with the ability to open doors for new clients, we have a very strong pipeline of.
And that's coming through.
Speaker Change: We're incredibly pleased with visible Alpha I can't just I almost can gush about it what the what the opportunities are there and what it means for our ability to cross sell because of visible alpha. So I think that for us to keep looking forward. This is a this is a really powerful franchise.
Speaker Change: It's in the desktop area the data and advisory the industry research that we're providing it's in the enterprise solutions and then in the credit risk solutions, we know credit and risk solutions is an area that is in growing demand because of what's happening the volatility to the market. So across the board. We're quite pleased with our progress you can also see it from what we are.
Delivering from the synergies, but we don't we don't use a S V. That's not one of the that's not one of the metrics that we use for that we report on.
Thanks, Andrew.
Thank you. Our next question comes from Jeff Miller with Baird. Your line is open.
Yeah. Thank you I just want to make sure theres nothing in mobility beyond the recall weakness or variability.
I get it the subs growth looks good metallurgy product sounds good but the reason I ask is you also lowered the segment margin guidance and I know, there's a range of products there, but I think a lot of the recalled products are lower margin. So I'm just trying to confirm there wasn't a change in the subs bookings trajectory or trends from the city.
D K ransomware impact on some of your clients or anything else. Thank you.
Speaker Change: Hey, Thanks for your question.
Sure when we look at the subscription growth its actually been tremendous this quarter. When you look back 81% of the revenue is driven out of subscription growth and backlog up 10, 5%.
In terms of the recall activity is actually very high margin business that comes through so when we do see that loss and slowdown and recall that actually does impact.
Martin it's fairly significantly.
Thanks, Jeff.
Thank you. Our next question comes from Jeff Silber with BMO capital markets. Your line is open.
Thanks, so much.
Jeffrey Marc Silber: You don't provide specific guidance by quarter, but I was wondering if you can provide any color between what youre expecting <unk> anything to call out.
Mentioned, you expect a decline in issuance in the fourth quarter, but anything else on the revenue or expense line that'll be helpful for us. Thank you.
As you mentioned, we don't provide guidance by quarter you already mentioned the one thing that we've seen which relates to some some.
<unk> potentially between the third and fourth quarter, but there is nothing else, Chris do you want to add anything.
Okay, great. Thank you thanks, Jeff.
Thank you. Our next question comes from Russell clubs with Redburn Atlantic Your line is open.
Yeah, Hi, guys.
Let's see inside.
This is the fourth quarter of double digit top line growth.
The midpoint of our guidance implies six 7% growth to H two I'm wondering why you're expecting such a strong slowdown in H two in commodity and thought it seemed much more than a tough comp and if I look at seasonality is normally the other way round is in the second half is going to be stronger than the first half.
Can you just address.
Yes, let me mention first of all commodity insights has had a really good run it's an important area for the global markets you see that everywhere. We go kind of every single conversation I ever have we're talking about energy transition, we're talking about ESG, we're talking about what's happening with the future of metals mining as you see we launched some new products related to.
Egg beef and poultry benchmarks, but when you look at the overall dynamic in the business. We've had a really really strong performance in the advisory and transaction services area grew at 32% in the quarter. This is an area that is it's more volume driven its transaction driven we don't want to unnecessarily.
<unk> for the rest of the year that that kind of level of transaction services is going to continue.
So we've guided to the level, which is more of a blend of the rates coming from upstream from price assessments from energy resources and data and insights. So that's what that's what you can see the difference the brought us back down to a level from the 8% to 9%.
Thanks Russell.
Jeffrey Marc Silber: Yeah.
Thank you our final question will come from surrendered thin with Jefferies. Your line is open.
Thank you just a big picture question on in terms of when you put together guidance overall, how do you think about visibility in the current environment relative to maybe where it's been in years past.
Behavior, a bit more difficult to project across the different line items or how should we think about that the quality of the forecast at this point.
Well I think that's a half a year left we believe that we've got a pretty good view on what the timeline is for the rest of the year as I've 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 was 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 a informal and formal way together 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 surrender. Thank you very much for joining the call and let me, 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 Hirsch here. She is 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 is always we have tremendous people in this company that delivered.
Strong quarter, we've got incredible really good initiatives.
Developing and delivering an 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 sometime over the summer and I look forward to seeing everyone on the next call. Thank you all very much.
Sure.
That concludes this morning's call a PDF version of the presenter slides is available for downloading from Investor Dot S. P. Global Dot 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.