This paragraph introduces the S&P Global Second Quarter 2023 Earnings Conference Call, and outlines the participants and materials available. It also provides a warning regarding forward-looking statements, and mentions the use of non-GAAP adjusted financial information.

In the second quarter, S&P Global reported 7% revenue growth, excluding the impact of Engineering Solutions. This was driven by acceleration in revenue growth in Market Intelligence, Ratings and Indices, while growth remained in the high single digits for both Commodity Insights and Mobility. Additionally, S&P Global took decisive action to protect margins beginning in the second quarter of last year, leading to a contraction in adjusted operating margins year-over-year. However, their focus on delivering profitable growth and prudently managing their capital allocation resulted in double-digit growth in adjusted earnings per share this quarter. European investors who have or expect to obtain ownership of 5% or more of S&P Global should contact Investor Relations for more information.

S&P Global is expecting positive revenue growth and double-digit adjusted EPS growth for the remainder of the year. They are focusing on innovation and have launched a conversational AI assistant called ChatIQ. They are also in dialogue with private equity and private credit customers to explore ways to apply their expertise, and have seen signs of stabilization in the macro environment. Lastly, they completed the divestiture of Engineering Solutions in the second quarter.

S&P Global has seen an 8% growth in subscription revenue, 40% growth in energy transition revenue, and 8% growth in global billed issuance. Customers have expressed trust in S&P Global and are emphasizing strategic priorities such as private markets, climate, energy transition, and AI. Interest rates among central banks are stabilizing and there is more refinancing activity. S&P Global is confident in the long-term growth of the company.

In the second quarter of the year, S&P saw strength in corporate issuance with both high yield and investment grade issuance increasing year-over-year. Rating withdrawals were down, illustrating the strength of the S&P brand. The June release of updates and enhancements of Capital IQ Pro was one of the largest and most significant in years, and customers have shown a positive reaction. The Sustainable1 team launched a new nature and biodiversity risk data set, and Vitality revenue held steady at 11% of total revenue.

The top four contributors to Vitality revenue in the quarter came from four different divisions, demonstrating the commitment to innovation and growth in the organization. S&P Global's advantages in artificial intelligence include their datasets, proprietary technology, and trusted brands. The company will use prudence and discipline when implementing AI, allocating capital based on the strategic and financial impact on the company. They will leverage leading technology from Kensho, other divisions, vendors, and partners.

S&P Global demonstrated their commitment to transparency and accountability through the publication of their Annual Sustainability Impact Report and TCFD Report, as well as their first Diversity, Equity and Inclusion Report. They have also received recognition for their efforts in sustainability, governance, board oversight and civic contributions. Financially, they saw positive revenue growth across all divisions in the second quarter, although their trailing 12-month margins have contracted. They expect the trend to improve as they progress through the year.

Doug Steenbergen of S&P Global discussed the macroeconomic factors that have been impacting their business in the first half of the year and how it is expected to continue. Despite the global economic slowdown, S&P Global is confident in their multi-year financial targets for divisions and the consolidated company. Billed issuance is expected to be up 4-8% for the full year, and S&P Global's refinancing study has found over $8 trillion of debt rated by S&P Global maturing through 2026 and nearly $13 trillion maturing through 2028. This gives them confidence in their ability to drive profitable multiyear growth in Ratings. Ewout Steenbergen then took over the call to provide additional insights into their financial performance and outlook.

S&P Global reported an 11% increase in adjusted earnings per share for the second quarter, driven by 4% revenue growth and a 6% reduction in fully diluted share count. Revenue was driven by growth across all divisions, including Ratings, Market Intelligence, and Indices. Sustainability and energy transition revenue increased 17%, driven by climate and physical risk products and CI's energy transition products. Customers are shifting away from buying pure ESG scores towards more purchases of raw data, which is expected to benefit S&P Global in the long run. Adjusted expenses were up 6%.

In the second quarter of 2023, revenue from sustainability and energy transition was only a low single digit percent of total revenue, however, it is a strategic driver of long-term growth. Private market solutions revenue increased 5% to $106 million, while Vitality revenue increased 14% to $343 million. Synergies recognized in the quarter were $144 million and the year-end run rate is expected to be $600 million. Despite some short-term market sentiment impacting revenue growth, the company believes these headwinds are temporary and the growth drivers are secular.

In the second quarter, $17 million in revenue synergies and a $23 million favorable impact from FX were achieved, while the divestiture of Engineering Solutions was favorable by $50 million. Additionally, cost synergies lowered expense growth by $80 million. Incentive compensation and commissions were the largest contributors to expense growth. The company is investing to drive long-term growth and is expecting an expansion of 50 to 100 basis points of adjusted operating margin for the full year.

Market Intelligence revenue increased 6% due to strong subscription growth and Credit and Risk Solutions saw double-digit growth in credit analytics. Adjusted expenses increased 7% year-over-year and operating profit increased 4%, with a 220 basis points improvement on a trailing 12-month basis. Ratings also saw a 7% increase in revenue due to a spike in issuance activity in May. Despite this, the company has slightly lowered its guidance due to heightened uncertainty.

In the third quarter, transaction revenue increased, while non-transaction revenue increased 4% due to annual fees and growth in CRISIL. Operating profit increased 4%, though margins decreased 180 basis points to 57.7%. Transaction revenue outlook has improved, though non-transaction revenue is weaker than anticipated. Commodity Insights revenue increased 8%, though Upstream data and insights declined 2%. Upstream subscription ACV growth is positive, but one-time sales have been deprioritized, leading to expectations of flat to slightly down growth for the full year.

CI's Price assessments and energy and resources data and insights saw strong performance in the quarter, resulting in 12% revenue growth and a 160 basis point increase in operating margin. Mobility division revenue also increased 10% year-over-year due to new business growth, price increases, and recall activity. Adjusted expenses increased 13%, resulting in a 5% increase in adjusted operating profit and a 160 basis point contraction in operating margin.

The Market Scan acquisition is expected to contribute to revenue growth in the full year, but will be dilutive to margins in 2023. Revenue for S&P Dow Jones Indices increased 3%, driven by strong growth in exchange rated derivatives volume and data subscriptions, partially offset by a modest decline in asset-linked fees due to a mix shift into lower priced index ETF products. Operating profit decreased 2%, and the operating margin decreased 330 basis points to 68.6%. Expenses are expected to increase in the third quarter before moderating in the fourth quarter, allowing the company to reach its new higher guidance range of 67.5-68.5%.

Economists are forecasting global GDP growth of 2.9% in 2023 and have stopped calling for a recession. Inflation is expected to remain above the target rates of central banks and energy prices are expected to stay high. The company's guidance for headline metrics and revenue and margin guidance by division has largely remained unchanged. The second quarter saw strong double-digit growth in both Ratings transaction revenue and adjusted diluted EPS. Despite market variables, the tailwinds tend to impact the company's largest parts of their business while the headwinds are impacting relatively small contributors. The company is looking forward to a strong second half of the year.

Doug Peterson explains that the lengthening of the sales cycle in S&P Global Mobility is mainly due to cautious expense management in the financial services sector, which has been further exacerbated by inflation and low interest rates. This trend started in the fourth quarter of the year and stabilized in the second quarter.

Doug Peterson and Edouard Tavernier discussed the trends they are seeing in the Mobility sector, which has seen a slight softening of retention rates and a slight lengthening of sales cycle. Ewout Steenbergen clarified that the company is not backing away from its $800 million target for sustainability and energy transition, despite the near-term challenges they are facing.

Ewout Steenbergen explains that the margin development in Ratings is in line with their expectations. He states that this is due to the short-term expense headwinds, as well as the continued growth of their climate activities, ESG raw data, and energy transition products. He also expects a reacceleration of their sustainability and energy transition revenue growth in the second half of the year.

Seth and Doug Peterson discussed the Ratings business and its performance, with a trailing 12-month margin of 55.2%, guiding for 56 to 57 this year, and 58 to 60 in 2025 and 2026. Manav Patnaik asked about the Market Intelligence revenue, which was lowered by 50 basis points due to sustainability trends, mainly in the financial services end market. Ewout Steenbergen responded that the business was performing in line with expectations.

Douglas Peterson has been traveling around the world and has noticed that sustainability, climate, ESG, and energy transition are all topics of conversation. He explains that Market Intelligence is in a good shape with ACV growth, closing rates, retention rates, and user growth all being good. He also notes that the shift from scores to data may have pricing implications and that Trucost is a high-quality, proprietary data brand that gives ESG an advantage.

S&P Global has seen high growth and demand for its proprietary data and modeling services, such as Trucost and Climate Service, as well as Climate Credit Analytics Model with Oliver Wyman. This shift in the market is due to investors and regulators wanting to have their own opinion based on their own analysis and building models from the bottom up. S&P Global is also able to unlock opportunities in the automotive and mobility sector with its S1 partnership.

Douglas Peterson explains that the Commodity Insights business is not very sensitive to oil prices, as it does not need to get too high or too low for it to have an effect. He also mentions that there is a lot of growth and interest in sustainability and climate change products, as well as energy transition products within the Commodity Insights business.

Ewout Steenbergen discussed the growth of the Index business, noting that there had been strong U.S. equity and fixed income flows in the quarter. He also discussed the interest and growth in combining the product sets from the old Platts business with the E&R from IHS Markit, as well as the use of artificial intelligence tools and analytical capabilities. Additionally, he noted the sensitivity to the price of oil and the mix impact on the fees associated with the AUM related revenues.

The company has raised their guidance for the Index business for the second time in a row and they are optimistic about the outlook for the remaining of the year. With respect to the Market Intelligence guidance, the company is officially lowering the guide but not trying to signal anything.

Ewout Steenbergen clarified that the Market Intelligence business is performing in line with expectations and there has been no deterioration in any of the underlying business lines. However, due to uncertainty about sustainability and energy transition, the company has lowered its guidance range. Despite this, the company is optimistic about the outlook of Market Intelligence and sees positive trends such as increased value realization with customers and a slight pickup in pricing. Additionally, they should benefit from trends of consolidation of data vendors.

Douglas Peterson asked Ewout Steenbergen about Market Intelligence's margins, as the adjusted operating margin guidance implies a steep ramp in the second half of the year. Steenbergen explained that there is seasonality in margins in Market Intelligence, as well as other segments, due to incentive compensation in the second and third quarter of last year. He also noted that expenses for the company as a whole are expected to be in low single digit growth territory, and that there will be 60 to 160 basis points margin expansion for the company as a whole.

Douglas Peterson of S&P Global discussed the company's strategy for allocating resources to developing AI capabilities across their segments. He noted that the company had already made an investment in Kensho six to seven years ago with the expectation that AI and machine learning would be used to assist decision-making in five to ten years. Recently, the company has also embraced generative AI across the company.

Kensho has developed expertise in different types of generative AI models and has a governance approach to ensure that customers are protected and data is secured. Ewout Steenbergen is excited about the innovation acceleration that generative AI and large language models can bring to the company and Kensho is focusing on certain areas that will have the biggest impact.

Kensho has been working with AI for the last five years and has experience in collecting data for large language models. To upskill people and make sure they are familiar with the new technology, Mobility launched an internal solution called Autopilot which has already seen dozens of use cases developed in the past few weeks.

In the last quarter, there was an 8% increase in debt issuance, but there was a lot of volatility in the different markets. Corporate debt in the US increased by 80%, investment grade debt globally increased by 20%, and high yield debt increased by 90%. However, structured credit CLOs decreased by 46% in Europe and 42% in the US, due to uncertainty surrounding ratings, interest rates, inflation, yields, and spreads.

The U.S. Fed and the ECB have both raised interest rates by 25 basis points, leading to a search for stability in the markets. Billed issuance is expected to grow in the mid double-digit range for the rest of the year, with corporates growing at 13%, financial services staying flat, structured finance down 13%, and U.S. public finance down 5%. M&A has been weak, but this could improve if inflation, interest rates, and spreads start to improve.

Ewout Steenbergen stated that expenses are under control and in line with expectations, with the main driver of growth this quarter being a swing in incentive compensation. This is expected to create elevated expenses in the third quarter, but will then significantly decrease in the fourth quarter. Banks are expecting M&A to pick up again at the end of this year and into the first quarter of next year, due to a large backlog and pipeline of potential deals.

DouglasPeterson explains that S&P has been considering their AI strategy for seven years and have decided to pursue an in-house AI, such as Kensho, or a hybrid approach. This decision was made based on the plus and minus of using an in-house AI compared to outsourcing it to a large tech firm, with the plus being strategic investment spend and BAU growth, and the minus being the cost of additional data for product development.

The company has experience in using AI as a productivity tool and for driving growth and new product ideas. They have been developing their datasets and have over 225 tiles with information and data. The company is pursuing a hybrid approach to deliver the most valuable insights and solutions to customers by stacking different capabilities and solutions as models. They have strong relationships with AWS, NVIDIA, Microsoft, and are developing their own LLM model.

Edouard Tavernier explains that CARFAX has relationships with most of its potential customers in North America, Europe, and other global OEMs. They have a portfolio of offerings, including mature products, and are continuing to invest in new subscription products and services like CARFAX for Life. They have controls in place to manage and track their AI investments.

S&P Global sees a major opportunity for growth in the fixed income indices space due to the increased demand for information and the acquisition of IHS. They are investing and innovating in their products, such as CARFAX for Life, used car listings, Mastermind, and supply chain and technology, to capture this demand and reach full penetration. This could potentially help them reach their 10% medium-term growth ambition for indices.

The merger between IHS Markit and Capital IQ Pro is driven by the global transformation of capital markets. In the U.S., corporate financing is represented by 70% of the market, while in Europe it is 35-40% and in Asia it is 20%. Capital IQ Pro provides data services on 13 million securities, loans, swaps, and other fixed income products. Additionally, it is able to expand into the private credit asset class, which is currently $1.5 trillion and growing. It also covers credit ratings, private market information, pricing information, and issuance data.

Douglas Peterson thanked everyone for joining the call and asked Edouard to join them. They discussed their Wall Street Office (WSO) which provides products, data services, software services, and credit products for the markets. They are investing in their index business to deliver double-digit growth in 2025 and 2026 and margins in the high 60s. They are also investing in fixed income data, multi-asset class, sustainability, factor based thematics, and Kensho.

S&P Global is making great progress in growth and innovation, especially in AI and gen AI, as well as in global markets and sustainability. The speaker has been able to travel and meet with the passionate and committed employees in various locations. They are doing great work and the speaker encourages everyone to enjoy the rest of the summer. A PDF version of the presenter slides is available, and replays of the call will be available in two hours. The webcast with audio and slides will be maintained for one year, and the audio-only telephone replay will be maintained for one month.

This summary was generated with AI and may contain some inaccuracies.