The operator introduces the S&P Global's Fourth Quarter and Full Year 2023 Earnings Conference Call and provides instructions for accessing the webcast and slides. The Senior Vice President of Investor Relations introduces the presenters and mentions the press release and supplemental slide deck with additional information. He also mentions that the discussion may contain forward-looking statements and directs listeners to the company's Forms 10-K and 10-Q for more information on risks and uncertainties.

S&P Global released their earnings for the fourth quarter of 2023, providing both GAAP and non-GAAP financial information. The company's strong performance is attributed to their unique position in the global markets and successful execution. Revenue increased by 8% and adjusted operating margins improved by 300 basis points. They also exceeded their cost synergy target by $19 million. The call is intended for investors, and media representatives are directed to contact the Media Relations team for questions. CEO Doug Peterson will lead the call.

In 2023, S&P Global had a strong financial performance with adjusted EPS growth of 13% and returned $4.4 billion to shareholders. They also created an artificial intelligence leadership team and saw double-digit growth in private market solutions and sustainability and energy transition. The Vitality Index exceeded 11% and customer retention rates improved. They also had key wins in their five strategic pillars and saw continued adoption of enterprise contracts and agreements with customers. Overall, S&P Global is committed to creating value for both customers and shareholders.

In 2023, the company faced challenges in certain customer verticals, but was able to maintain sales and demonstrate value to customers. The company remains committed to being a trusted and strategic partner for its customers, and has completed the operational integration of the merger. They plan to focus on growth, innovation, and execution, while also balancing margin expansion and strategic initiatives. The company will continue to review and optimize its portfolio of assets to meet customer needs, potentially through acquisitions or divestitures. In 2023, there was strong growth in billed issuance, and the Vitality Index continues to outperform, with the company aiming for 10% of revenue to come from new or enhanced products each year.

In 2023, the company saw 18% growth in revenue from Vitality products and ended the year with 11% of total revenue coming from new offerings. The company's product development and commercial teams have been successful in building and promoting innovative products, such as the Power Evaluator tool and Platts Connect, which are receiving positive feedback from market participants. In addition, enhancements were made to Capital IQ Pro and a new generative AI solution, ChatIQ, was released to pilot customers. The company also launched new tools for supplier risk and Entity Insights.

In 2023, Ratings launched a stablecoin stability assessment and new indices, and elevated their focus on AI with new leadership roles and an AI accelerator to drive growth and improve performance through new products and services, automation, increased productivity, and improved customer value and user experience.

S&P Global has launched a new AI page on their website to keep customers informed about their initiatives. They believe that AI will become an integral part of their industry and are committed to incorporating it into their products and making it accessible to as many customers as possible. They have a proprietary data layer that sets them apart and are committed to protecting it. They have developed tools, such as Scribe and NERD, to automate the preprocessing of their data and make it easier to use. They also have an open ecosystem and are not dependent on any one technology partner.

The company has a strong focus on AI expertise and is able to utilize multiple cloud providers and vendors without being tied to one ecosystem. Their goal is to have AI capabilities embedded everywhere and this progress will be tracked through customer win rates, retention rates, and growth. The company also prioritizes employee development and community involvement, with a significant increase in volunteer opportunities and engagement in 2023. They are committed to transparency and have published reports on their sustainability, diversity, equity, and inclusion efforts.

The company is proud to have received recognition from external organizations and is focused on maintaining its reputation in the future. The financial results for 2023 show strong growth and margin expansion in most divisions, giving confidence in reaching the targets set at the 2022 Investor Day. The merger has been successful, with the integration of two organizations and the achievement of ambitious targets. The company has also made efforts to streamline its operations and return value to shareholders. Cost and revenue synergies have exceeded initial targets.

The merger between S&P Global and another company has been successful, with adjusted EPS increasing in 2023. The fourth quarter saw growth in all divisions, with adjusted earnings per share increasing by 23%. Revenue also grew, excluding the impact of divestitures and tuck-ins. The company's strategic investment areas, including sustainability and energy transition and private market solutions, also saw growth. Revenue in the private market solutions category is on track to reach $600 million by 2026.

In the fourth quarter, the organization saw a 19% increase in Vitality revenue, surpassing their target of at least 10%. They also exceeded their cost synergy targets, with $156 million in expense savings and an annualized run rate of $619 million. They achieved 85% of their total cost synergies and surpassed their revenue synergy target as well. Expenses increased by 2%, driven by investments in strategic initiatives and higher compensation and benefit costs due to hiring and inflationary pressures.

The expenses and margins for the fourth quarter were impacted by various factors, particularly in Market Intelligence and Mobility. Despite slightly higher expenses, total adjusted expenses only grew by 2% due to a 7% increase in revenue. Market Intelligence revenue was driven by strong growth in Data & Advisory Solutions and Enterprise Solutions. While there were slightly elevated cancellations in the fourth quarter, the division still saw accelerating growth. Adjusted expenses for Market Intelligence increased by 4% due to higher compensation and data costs, but operating profit and margins still improved. The margin results for the full year were below expectations due to a strong topline and slightly higher expenses.

In the fourth quarter, refinancing activity drove issuance as market conditions improved and borrowing costs decreased. This resulted in a 19% increase in revenue, with transaction revenue growing 35%. Non-transaction revenue also increased by 10%, primarily due to higher fees and growth at CRISIL. Operating profit increased by 32% and operating margin increased by 540 basis points. Commodity Insights saw a 10% increase in revenue, with double-digit growth in both Price Assessments and Energy & Resources Data & Insights. Upstream Data & Insights grew by 3%, while Price Assessments and Energy & Resources Data & Insights grew by 12% and 13%, respectively. Advisory & Transactional Services revenue grew by 8%, driven by strong trading volumes and energy transition-related product offerings.

In the fourth quarter of 2023, GTS saw its strongest performance yet, with a 10% increase in adjusted expenses due to higher compensation and investment in growth initiatives. Commodity Insights saw a slight decrease in operating margin due to increased compensation and performance-related bonuses. The Mobility division saw a 9% increase in revenue, driven by growth in the dealer segment, manufacturing, and financials. Adjusted expenses for this division also increased, primarily due to higher compensation and commissions related to revenue outperformance and the Market Scan acquisition.

In the fourth quarter of 2023, the company saw an 8% increase in adjusted operating profit and a 30 basis point contraction in operating margin. Revenue for S&P Dow Jones Indices increased by 5%, driven by growth in exchange-traded derivatives and new business activities. Expenses decreased by 6% due to lower outside services and incentive expenses. Overall, the company returned more than 100% of adjusted free cash flow to shareholders and made strategic investments in their enterprise initiatives. They also completed a successful M&A strategy and optimized their capital and liquidity structure, providing $750 million of capital.

The CFO of S&P Global discusses the successful use of rate swaps in debt issuance and expresses confidence in the company's future leadership. The company's outlook for 2024 includes expectations for geopolitical uncertainty, energy transition, and higher interest rates. The equity markets are expected to continue favoring passive management, and market optimism is currently pricing in multiple rate cuts. The company's financial guidance assumes global GDP growth, US inflation, and billed issuance growth in the first half of 2024.

The company will only report on billed issuance going forward as it is a better indicator of revenue growth. The current year maturities are 10% higher than last year, and the next two and three-year periods are 12% higher. The company expects strong revenue growth in all divisions and at least 100 basis points of operating margin expansion in 2024. They also plan to make investments in key areas while maintaining expense discipline. Adjusted EPS is expected to grow by double digits, but the adjusted tax rate will be higher in 2024 compared to 2023.

In 2023, the tax rate is expected to remain unchanged, leading to a two to three percentage point increase in adjusted EPS growth. Adjusted free cash flow is also expected to grow by approximately $4.4 billion, primarily driven by revenue and profitability. The financial outlook for 2024 shows further acceleration in revenue growth and continued margin expansion, despite the completion of cost synergy actions. Market Intelligence is expected to see revenue growth of 6% to 7.5% and adjusted operating margins of 33.5% to 34.5%, while Ratings is expected to see revenue growth of 6% to 8% driven by billed issuance growth of 3% to 7%. Overall, the company remains committed to its targets outlined at the previous Investor Day and expects more upside risk than downside in the financial outlook due to geopolitical, macroeconomic, and market factors.

The company expects revenue growth to be stronger in the first half of the year due to easier comparisons and potential rate actions by central banks. They also expect adjusted operating margins for each division, including Commodity Insights, Mobility, and S&P Dow Jones Indices. The company has authorized the repurchase of shares totaling up to $2.4 billion. The call also featured the President of S&P Global Market Intelligence and the President of S&P Global Ratings, who discussed the drivers behind the Ratings top line outlook, including 3% to 7% billed issuance growth and a focus on corporate, structured, and private assessment.

The company expects a stronger first half of the year compared to the second half, with continued refinancing activity and investment grade issuers tapping the market. This is due to strong investor appetite and the potential for volatility in the back half of the year. The company also expects stronger frequent issuer program issuance and strong performance in their surveillance book. All of these factors are taken into consideration in their overall outlook for the year.

During a recent conference call, Manav Patnaik from Barclays asked about the revenue synergies of the merger between two companies. Doug Peterson, the CEO, responded by saying that they were excited about the results so far, with $619 million in cost synergies and $152 million in annualized revenue synergies. These revenue synergies have come from cross-selling within divisions and new product offerings, such as Platts Connect. Adam Kansler, another executive, also mentioned that the revenue synergies were one of the most exciting aspects of the merger.

The company has seen success in combining product capabilities to strengthen what they offer to customers, resulting in outsized performance. They have launched new products and plan to launch more in the future, which will contribute to the growth of the business. The company is also looking to incorporate generative AI capabilities and expects continued growth in the market intelligence sector. The selling environment has not improved significantly, but there is potential for increased activity in the capital markets segment due to the Ipreo assets. The company remains optimistic about future growth.

The company has faced challenges in its end markets but has continued to deliver solutions for its customers. There has been some early activity in capital markets but the full year outlook is uncertain. The company is cautiously optimistic and has put out a good guidance range. The company has started piloting ChatIQ, a tool that allows customers to access actionable insights and click through to source documents on their Desktop. The company is excited about the early responses and is currently piloting it with a few customers.

S&P Global is planning to release generative AI tools to their customers in 2024. They have already launched a tool to search for data sets and are working on other tools to enhance their customers' workflows. The company is focused on releasing useful solutions and increasing their value proposition. They also discussed their plans for margin growth in the Market Intelligence Commodity Insights and Mobility sectors.

The company focuses on top line growth and aims to invest in innovation while also expanding margins. The Commodity Insights division is expected to see significant growth in energy transition products, and investments are being made in regional expansion and new products. The Mobility division is also investing in new products to drive top line growth. The company has a history of delivering margin expansion and plans to continue this trend. The Market Intelligence division expects to see continued margin expansion through efficiency and effective operations.

At the 2022 Investor Day, the company set revenue targets for 2025 and 2026. While they are making good progress, Market Intelligence appears to be the most behind. The CEO is confident in meeting these targets, but acknowledges that the current macro environment has been challenging for customers. The company expects to balance cost-cutting measures with investments to drive top-line growth. Synergy growth and an improved macro environment are identified as key factors in achieving the revenue targets.

The macro environment improving will benefit customers and help the company continue its growth. Despite challenges, the company is on track to reach its growth goals and is confident in doing so. A question was asked about the Index business, specifically about declines in OTC products. The speaker, Ewout Steenbergen, explained that while AUM fees were flat in the fourth quarter, there were two opposing factors at play: ETF fees were up 8% due to market appreciation and strong inflows, but this was offset by a decrease in OTC volumes. Steenbergen reassured that this is a normal trend and can change in the following quarter.

The speaker discusses the assumptions for 2024, including AUM growth, ETD volume increase, and double-digit subscription growth for the Index business. They also mention seeing some pull-forward activity in refinancing into 2023 and the overall factors that inform their outlook, such as macroeconomic conditions and M&A.

The company is cautiously optimistic about the market sentiment and will closely monitor investor appetite and fund flows. They expect to see higher issuance this year compared to last year and are constantly reviewing their portfolio for potential divestitures. They have already shut down some small products and will continue to optimize their portfolio for top line growth and margin expansion.

The company is constantly evaluating their portfolio and looking for areas to expand their presence. They have different themes such as private market, sustainability, supply chain, analytics, risk, and credit that they focus on to meet the needs of their clients. They also consider the needs of their shareholders and how to best leverage their technology. They apply discipline when looking at their portfolio and have had a couple of small divestitures. In terms of Ratings revenue growth in 2024, they expect 6-8% growth due to factors such as refinancing, macro drivers, and cautious assumptions about opportunistic issuance.

The speaker discusses the company's guidance for the year and mentions potential factors that could impact their performance, such as GDP growth and potential volatility in the market. They also mention a strong first half and a tapering off in the second half, with the possibility of upside in their estimated range. Overall, they acknowledge the potential for uncertainty and the need for more precise information as the year progresses.

The company has identified potential factors that could cause a slowdown in the economy, such as geopolitical issues and changes in certain segments. They have taken these into account when setting their guidance for the future. There is potential for upside opportunities if interest rates decrease and economies grow faster than expected. The company is also considering cross-platforming and potential upsell and cross-sell opportunities for their generative AI monetization in the longer term.

The speaker discusses the importance of strong proprietary data as the foundation for successful AI implementation. They mention their partnership with Kensho and their efforts to turn AI into earnings and growth. They also discuss metrics they are using to measure the impact of AI and their plans to provide more precise guidance in the future. The speaker hands it over to Adam, who talks about the transformative potential of generative AI in their products, given their status as a large data provider.

In Paragraph 34, the speaker discusses the company's highly trusted and accurate data, as well as their deep integration with their customers' workflows. They believe that the use of generative AI will unlock even more potential in their data sets and allow them to offer more valuable services to their customers. The speaker also mentions higher costs in certain areas, such as employee benefits, and a potential increase in the company's tax rate in 2024.

The paragraph discusses the benefits realignment that the company has implemented for its employees and explains that the expenses for this were in line with expectations for the first three quarters but exceeded expectations in the fourth quarter. The company sees this as a one-time cost and expects it to be included in their baseline going forward. The tax rate for 2023 was slightly lower due to favorable guidance and the conclusion of certain state tax audits, but the company expects it to increase in 2024 due to global minimum tax implementation and an increase in the UK statutory tax rate. It is difficult to predict the tax rate in the future as it depends on government finances.

Russell Quelch from Redburn Atlantic asks about the Ratings business and macro forecast. He is struggling to understand the front-end loaded observation and how it relates to revenues. Martina Cheung explains that they expect robust performance in the non-transaction part of the book this year and that the timing of issuance is a little counterintuitive. They are hearing that issuers are accepting the higher for longer and there is strong investor appetite for bank loans and high yield. Pricing is more constructive this year and there is a high volume of repricing. January's bank loan repricing volume was higher than the full year 2023 repricing.

The speaker discusses a decrease in investment grade and attributes it to the high number of issuers last year and the current wait for rate cuts. They also mention that it is still early in the year and their projections may change. The speaker also mentions an increase in incentive compensation and plans for the following year. They mention elevated cancellations in Market Intelligence and are asked for details on the types and sizes of customers.

The company is confident in the potential of AI, but does not expect there to be a single "killer app." Instead, they plan to integrate AI into various aspects of their business to improve productivity and enhance their products.

The speaker discusses the exciting products being tested in the market, including those from Kensho, and emphasizes the company's focus on continuous improvement rather than a single "killer app." They also mention their strong internal team, including a Chief Artificial Intelligence Officer, and their open ecosystem. The speaker thanks listeners for their questions and highlights the success of the company since the merger, with a focus on growth, innovation, and execution.

The paragraph discusses the last earnings call with Ewout, who has been with the company for seven years and has played a significant role in shaping their financial strategy and leading their accelerated growth. He will be leaving the company and will be replaced by Chris Craig as the interim CFO. The company thanks Ewout for his contributions and wishes him success in his future endeavors. The call also addressed the company's performance and plans for the future.

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