S&P Global Inc. (NYSE:SPGI) Q2 2023 Earnings Call Transcript

S&P Global Inc. (NYSE:SPGI) Q2 2023 Earnings Call Transcript July 27, 2023

S&P Global Inc. misses on earnings expectations. Reported EPS is $2.81 EPS, expectations were $3.14.

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

Mark Grant: Good morning, and thank you for joining today’s S&P Global second quarter 2023 earnings call. Presenting on today’s call are Doug Peterson, President and Chief Executive Officer; and Ewout Steenbergen, Executive Vice President and Chief Financial Officer. For the Q&A portion of today’s call, we will also be joined by Edouard Tavernier, President of S&P Global Mobility. We issued a press release with our results earlier today. In addition, we have posted a supplemental slide deck with additional information on our results and guidance. If you need a copy of the release and financial schedules, or the supplemental deck, they can be downloaded at investor.spglobal.com. The matters discussed in today’s conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events.

Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. Additional information concerning these risks and uncertainties can be found in our Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission. In today’s earnings release and during the conference call, we’re providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company’s operating performance between periods and to view the company’s business from the same perspective as management. The earnings release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures we’re providing and the earnings release and the supplemental deck contain reconciliations of such GAAP and non-GAAP measures.

I would also like to call your attention to a specific European regulation. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We’re 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 Peterson: Thank you, Mark. As we look at this quarter’s highlights, I want to remind you that the financial metrics we’ll be discussing today refer to the non-GAAP adjusted metrics unless explicitly noted otherwise. We’re pleased to report 7% revenue growth in the second quarter, excluding the impact of Engineering Solutions in all periods. We saw acceleration in revenue growth in Market Intelligence, Ratings and Indices, while growth remained in the high single digits for both Commodity Insights and Mobility. As you will recall, we took decisive action to protect margins beginning in the second quarter of last year and lapping those actions led to a modest contraction in adjusted operating margins year-over-year. Our continued focus on delivering profitable growth and prudently managing our capital allocation combined to drive double-digit growth in adjusted earnings per share this quarter.

We expect positive revenue growth in all divisions for the remainder of year, as well as continued double-digit adjusted EPS growth. In addition to strong financial results, we remain focused on executing our long-term strategy with an emphasis on innovation. We continue to drive rapid advancement in our AI initiatives. We’ll talk more about the guiding principles behind our AI strategy in a moment, but we already have a number of internal initiatives and pilot programs. Additionally, in May, we launched a conversational AI assistant called ChatIQ on Capital IQ Pro Labs for internal testing. We’ll have more to say about ChatIQ as we get closer to a formal launch to external customers, but it’s the first example of how Kensho will deploy LLM-based technology across S&P Global.

We’re also very excited about some of the developments in our conversations with the largest participants in the private markets. We have an active and incredibly productive dialogue with private equity and private credit customers. We’re currently exploring many ways that we can work together to apply our expertise in ratings, analytics and pricing across the credit markets. We’ll have more specifics to share here as well as this dialogue develops into commercial opportunities. We’re seeing some early, but encouraging signs of stabilization in the macro environment, which leads to a modest improvement to the macro outlook, helping inform our financial guidance. Lastly, illustrating our commitment to disciplined stewardship of the business, we completed the divestiture of Engineering Solutions in the second quarter.

We continue to align our goals and operations against the five strategic pillars we introduced at Investor Day. First, I want to provide an update on what we’re seeing and hearing from our customers. We’ve mentioned over the last couple of quarters that we’ve seen some lengthening of the sales cycle, which we believe was driven by customer sensitivity around spending. Our cross-sell efforts are also creating larger contracts, which take longer to close. While sales cycles remain a bit longer than normal, we’ve started to see some stabilization and customer conversations have been very constructive. We continue to see high customer retention rates and contract expansions, evidenced by the 8% growth in subscription revenue across our five divisions.

The value of our largest and most well-known products, those key brands and benchmarks that the markets rely on is being recognized by our customers in a challenging and sometimes confusing macro environment. Customers are also emphasizing many of the same strategic priorities that we are namely private markets, climate, energy transition and AI. This is evidenced in the 40% growth in energy transition revenue we saw in our Commodity Insights division in the second quarter. As customers navigate a market with higher interest rates, geopolitical uncertainty and rapidly evolving technology, we hear they trust S&P Global and they want to do more with us. We’ve worked hard to build that trust, and we’re as confident as we’ve ever been in the long-term growth of the company.

Related to Ratings, global billed issuance returned to positive growth, increasing 8% year-over-year in the second quarter. We began to see some signs of stabilizing interest rates among central banks. While we did see some likely event driven issuance in the second quarter ahead of the debt ceiling events in the United States, we’re also seeing more economists, including our own, expecting only one or two more rate hikes from major central banks over the remainder of 2023. Overall, issuance saw a higher proportion of refinancing activity with issuers tracking market conditions closely. We expect those pockets of issuance to become more frequent as the market adjusts to the new normal of higher for longer. We’re pleased with the strength we saw in corporate issuance with both high yield and investment grade issuance increasing notably year-over-year, though the high yield growth is coming off of a very low comparison.

This strength is offset somewhat by a softer environment for bank loans and structured finance. Importantly, rating withdrawals, which are a measure of churn in ratings, are down this year. That illustrates the strength of the S&P brand and the increasing value of a rating in an uncertain credit environment. Next, I’d like to focus on our strategic priority to grow and innovate. The June release of updates and enhancements of Capital IQ Pro was one of the largest and most significant in years. We completely reinvented RatingsDirect on Capital IQ Pro and launched loan pricing and analytics as well. Customers have already shown an incredibly positive reaction to the enhancements on Capital IQ Pro. And these new features have contributed to key competitive displacements and enhanced our competitive positioning.

In Commodity Insights, we also launched the first offering of base shipping rates incorporating alternative fuel pricing. This is significant as we expect the maritime sector’s use of alternative fuels including liquid natural gas to grow significantly in the coming years. Our Sustainable1 team launched a new nature and biodiversity risk data set, assessing nature related impacts and dependencies across the company’s operations. This assessment can be applied across the asset, company and portfolio level, which gives our corporate and investor customers a greater ability to quantify both dependency and impact on location specific ecosystems. As we introduced last quarter, our Vitality revenue metric consists revenue derived from our new or substantially enhanced products.

We’re pleased that in the second quarter, Vitality revenue held steady at 11% of total revenue. I’m both pleased and impressed that the top four contributors to our Vitality revenue in the quarter came from four different divisions, clearly demonstrating that our commitment to innovation and growth spans the entire organization. Turning now to a topic that I know is on everyone’s mind, artificial intelligence. I wanted to provide some color on S&P Global’s key advantages and the guiding principles that will govern our use and the implementation of AI, both internally and within our products. We’re thrilled with the progress that our teams have made building, testing and implementing tools in various use cases across the organization. While Kensho gives us an incredible advantage in this arena, it isn’t our only one.

The datasets we have, large, proprietary and truly differentiated, create a remarkable advantage for S&P Global as well. Our trusted brands also allow us to have conversations with industry partners, technology infrastructure providers and customers with credibility. We, through our brands, are known and trusted, and we know that trust will play a huge role in the success of any AI based products that come to market in the coming years. As we more fully embrace the technological advances of our era, we need to make sure we do so with prudence and discipline. Particularly given the investment necessary to develop AI driven tools, we want to take each step with a keen focus on creating customer value rather than simply creating tools because the technology exists.

We will allocate the necessary capital to these new projects based on our confidence in the strategic and financial impact on the company. While Kensho is deeply engaged in AI research within S&P Global, we want to make sure we aren’t dogmatic in our approach. We’ll leverage leading technology regardless of whether it was developed at Kensho, developed elsewhere within the divisions or come via a vendor or a partner. Lastly, we want to continue our practice of aggressively defending and protecting our intellectual property and data. We have safeguards and restrictions embedded in our contracts that ensure third parties and customers cannot independently monetize or build commercial products with our data without our consent and our economic participation.

We’re committed to transparency with our shareholders, and we’ll provide regular updates on our new product launches as they take place. We’ll move fast. And we’ll also make the necessary investments in time and resources to ensure success. Shifting now to how we lead and inspire. During the second quarter, we further demonstrated our commitment to transparency and accountability through the publication of our Annual Sustainability Impact Report and TCFD Report. We also published for the first time our annual Diversity, Equity and Inclusion Report, highlighting our commitment to building a more diverse, equitable and inclusive company and world. We’re honored that so many respected organizations have recognized the efforts that we have made to build a company that always pursues excellence.

As you can see on this slide, we received recognition not just for our efforts in sustainability and equality, but also in our governance and board oversight and our civic contributions. I’ve never been more proud to be part of S&P Global. Of course, disciplined leadership means delivering on our ongoing operational and financial outcomes. We are pleased with the strong execution across all divisions this quarter. We saw positive revenue growth in all of our divisions in the second quarter, including accelerating revenue growth in Market Intelligence, Ratings and Indices. While our trailing 12-month margins have contracted 90 basis points year-over-year, we expect that trend to improve as we progress through this year and lap the issuance headwinds we saw through most of last year.

With half of the year behind us, we still see many of the same macroeconomic factors impacting our business through the remainder of the year. While we no longer expect a technical recession globally, we do expect headwinds to persist from an economic slowdown, primarily in financial services end markets. We expect to continue to benefit from secular trends, though near term volatility can impact different parts of the business in different ways. While these market expectations are mostly unchanged from the first half, we wanted to reiterate our confidence in the multi-year financial targets we put out for divisions and for the consolidated company at Investor Day. As you know, our Ratings financial results and guidance are closely tied to billed issuance.

And for 2023, we now expect issuance to be up approximately 4% to 8% for the full year, up one point from our prior expectation. Our latest Ratings research group forecast calls for a decline in global market issuance, though also slightly improved from last quarter. As a reminder, market issuance can differ materially from billed issuance with divergence this year driven by declines in unrated debt and sovereign international public finance, which don’t impact billed issuance. We have completed our July 2023 global refinancing study. And you can see one of the reasons for our for our optimism Ratings business over the next several years. There is over $8 trillion of debt rated by S&P Global maturing through 2026 and nearly $13 trillion maturing through 2028.

This, in addition to assumed improvements in the macro environment over the next few years, gives us great confidence in our ability to drive profitable multiyear growth in Ratings. And now, I’d like to turn the call over to Ewout Steenbergen, who is going to provide additional insights into our financial performance and outlook. Ewout?

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Ewout Steenbergen: Thank you, Doug. As a reminder, the financial metrics that we’ll be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise. We’re pleased with the financial performance of the business in second quarter. The clear indicator is that the secular tailwinds continue to drive growth across our largest products, though some minor headwinds impact smaller parts of the business. Adjusted earnings per share increased 11% year-over-year. This growth was driven by a combination of 4% revenue growth and a 6% reduction in fully diluted share count, partially offset by approximately 100 basis points of operating margin compression. Excluding the impact of Engineering Solutions in all periods, but including approximately $10 million from this year’s tuck-in acquisitions, revenue growth would have been 7%.

Revenue in the quarter was driven by growth across all remaining divisions, including Ratings, which saw a pickup in issuance activity the quarter. While the debt markets remain a challenging environment for issuers, this is the third quarter in a row of sequential improvement. As Doug mentioned, we also saw acceleration in revenue growth across Market Intelligence and Indices with continued impressive growth in Commodity Insights and Mobility. We will walk through the divisions in more detail a moment. Adjusted expenses were up 6% year-over-year, which we’ll also discuss in more detail. Turning to our strategic growth initiatives. Sustainability and energy transition revenue increased 17% to $70 million in the quarter, driven by climate and physical risk products and CI’s energy transition products.

We continue to see a shift in customer appetite away from buying pure ESG scores and towards more purchases of raw data, which we believe will benefit S&P Global in the long run. We consistently hear from customers that our Trucost data set is higher quality than the data from many competitors. And the breadth of our offerings across the commodity markets and ESG Indices will contribute to strong growth for multiple years. That said, we are seeing some signs of adverse market sentiment, particularly from large financial institutions in the United States that are impacting our revenue growth in the short-term as others in the space have also called out. We believe these headwinds are temporary, while the growth drivers are secular. Even though sustainability and energy transition revenue currently represents only a low single digit percent of our total revenue, it is an important strategic driver of long-term growth.

We will continue to make the necessary investments in people, data, product development and partnerships to drive long-term growth. Given the uncertainty around the regulatory landscape and the political climate, particularly in the U.S., we can no longer confidently reiterate the previous 2026 target of $800 million in sustainability and energy transition. We’ll continue to report this metric on a quarterly basis. And we will assess the potential for long-term revenue contribution from these important products as the market continues to evolve. Private market solutions revenue increased 5% to $106 million, driven by strong growth in Market Intelligence products for private markets, offset by declines in Ratings private markets revenue. Vitality revenue, which is the revenue generated by innovation through new or enhanced products from across the organization, of $343 million in the second quarter, representing a 14% increase compared to prior year.

Now turning to synergies. In the second quarter of 2023, we recognized $144 million of expense savings due to cost synergies. And our annualized run rate exiting the quarter was $574 million and we continue to expect our year-end run rate to be approximately $600 million. We continue to make progress on our revenue synergies as well with $17 million in synergies achieved in the second quarter and an annualized run rate of $68 million. Turning to expense growth. Total adjusted expenses increased 6% year-over-year as we are beginning to lap the proactive expense management actions taken last year. We saw a $23 million favorable impact from FX in the quarter, and the divestiture of Engineering Solutions was favorable by $50 million. We also generated incremental cost synergies that lowered expense growth by approximately $80 million relative to last year.

As you will recall, we lowered accruals for incentive compensation in the second quarter of last year. This was done to reflect the headwinds we were facing, predominantly in our Ratings business. Incentive compensation resets each year, so we’re seeing the natural increase in those expenses beginning this quarter. Incentive compensation and commissions were the largest single contributor to expense growth in the second quarter. The year-over-year impact of incentive compensation will be a similar driver of expense growth in the third quarter, though we expect expense growth to moderate meaningfully in the fourth quarter as the comparison becomes more favorable. The year-over-year impact of the reset of incentive compensation was a key driver of expense growth in each of our divisions, and we expect to see the same quarterly phasing in our division margin results in the third quarter and fourth quarter as well.

Lastly, we continue to invest to drive long-term growth, and that was reflected this quarter. Core investment growth represents the investments we are making in strategic initiatives, people, cloud as well the incremental investments we are making to fund our AI development at Kensho and within the divisions. Most importantly, we continue to expect approximately 50 to 100 basis points of adjusted operating margin expansion for the full year. Now, let’s turn to the division results. Market Intelligence revenue increased 6% driven by strong growth in data and advisory solutions and enterprise solutions. Desktop grew 4% in the second quarter driven by strong subscription growth as ACV growth outpaced revenue in the quarter, though this was offset by some modest softness in non-recurring sales.

Renewal rates remained strong in the mid to high 90s. Data and advisory solutions and enterprise solutions both benefited from solid growth in subscription based offerings. Credit and risk solutions continues to see strong new sales for RatingsXpress and RatingsDirect products, as well as double-digit growth in credit analytics. Adjusted expenses increased 7% year-over-year due to the drivers previously discussed. Operating profit increased 4%, and the operating margin decreased 70 basis points to 32.3%. On a trailing 12-month basis, margins improved to 220 basis points. As we mentioned last quarter, we know the comparisons will get easier as we progress through the year. And we continue to expect improvements in those products within Enterprise Solutions that depend on capital markets activity.

We also expect revenue synergies to begin positively impacting results in the back half of the year. Last quarter, we signaled that we may come in at the low end of our previous guidance range. We’re not trying to signal deterioration since April, though we do see modestly elevated risk to the back half. Given the heightened uncertainty, particularly within sustainability and energy transition, we’re taking the formal step at this point to modestly lower the guidance by 50 basis points on revenue and operating margin. Now turning to Ratings. In the second quarter, we saw a spike in issuance activity, particularly in May, which from a seasonality perspective is a very important month for debt markets. Revenue increased 7% year-over-year. This marks the third quarter in a row of sequential improvement in transaction revenue, and we saw investment grade and high yield activity pick up.

Non-transaction revenue increased 4% primarily due to annual fees and growth in CRISIL, though non-transaction growth was tempered by continued declines in ICR revenue. Adjusted expenses increased 12%. This resulted in a 4% increase in operating profit and a 180 basis point decrease in operating margin to 57.7%. On a trailing 12-month basis, margins are still impacted by last year’s revenue declines. We raised our billed issuance assumption for 2023 and expect issuance to increase in the range of 4% to 8%, reflecting the stronger issuance trends in the first half. Our outlook for transaction revenue for the full year has improved somewhat, though some of this is offset by non-transaction revenue due to greater weakness in ICR than we initially anticipated.

The net result is a one point increase in our Ratings revenue guidance range and we now expect Ratings revenue growth of 5% to 7%. While we expect expense growth to moderate as progress through the year, we are reiterating our margin guidance. And now turning to Commodity Insights. Revenue growth increased 8% driven by double-digit growth in both price assessments and energy and resources data and insights. Growth was tempered somewhat by declines in the upstream business. Upstream data and insights declined approximately 2% year-over-year. While subscription ACV growth is positive, we have deprioritized one-time sales in upstream as we focus on higher quality recurring revenue products. As such, we are lowering our expectations modestly for upstream for the full year and now expect that business line to be flat to down slightly for the full year compared to our previous expectation for low single digit growth.

Price assessments and energy and resources data and insights grew 12% and 11%, respectively compared to prior year driven by strong performance in crude oil and fuels and refining products and strong commercial momentum in subscription products across both business lines. Advisory and transaction revenue also grew 12% driven by strength in global trading services and strong performance in conference revenue in the quarter. Adjusted expenses increased 5%. Operating profit for CI increased 12%, and operating margin improved 160 basis points to 45.6%. Trailing 12-month margins have improved 220 basis points. We see stronger trends for our benchmarks, data and insights, and we enjoy a position of trust in the commodity markets. We continue to expect strong subscription growth through the second half, and there is no change to our outlook for revenue or margins.

In our Mobility division, revenue increased 10% year-over-year driven by continued new business growth in CARFAX, the contribution from Market Scan within the Dealer segment and strong underwriting volumes in the financials and other business lines. Dealer revenue increased 12% year-over-year driven by the continued benefit of price increases within the last year and new store growth, particularly in CARFAX for life and used car subscription products. Manufacturing grew 5% year-over-year driven by elevated recall activity and continued strength in marketing solutions. Financials and other increased 9% as the business line continues to see healthy underwriting volumes and a favorable pricing environment similar to last quarter. Adjusted expenses increased 13% due primarily to the drivers I discussed previously, but also due to the inorganic contribution to expenses from the Market Scan acquisition.

This resulted in a 5% increase in adjusted operating profit and 160 basis points of operating margin contraction year-over-year. Trailing 12-month margins have contracted 60 basis points. As we noted last quarter, we expect the Market Scan acquisition to contribute approximately 150 basis points of revenue growth in the full year, though we expect it to be modestly dilutive to adjusted margins in 2023. And our guidance for Mobility for the full year is unchanged. Turning to S&P Dow Jones Indices. Revenue increased 3%, primarily due to strong growth in exchange rated derivatives volume and data subscriptions, partially offset by a modest decline in asset-linked fees. Asset-linked fees were down 1% year-over-year primarily driven by mix shift into lower priced index ETF products, partially offset by market depreciation and modest year-over-year net inflows.

Importantly, this decline was due to mix shift, not due to price concessions or renegotiated contracts. Exchange rated derivatives revenue increased 17% on increased trading volumes across all key contracts. Data and custom subscriptions increased 3% year-over-year driven by continued strength in end-of-day contract growth. During the quarter, expenses increased 15% year-over-year due to reasons previously discussed. Operating profit in Indices decreased 2%, and the operating margin decreased 330 basis points from last year’s high watermark to 68.6%. Trailing 12-month margins have contracted 30 basis points. As reflected in today’s results, we’ve seen market depreciation, the mix of AUM is playing an increasingly important role in asset-linked fees revenue.

And net inflows remain somewhat unpredictable in the near term. All of this is reflected in our new higher guidance range. As we mentioned last quarter, our continued investments to drive long-term growth as well as the timing of expense recognition will impact the quarterly phasing of our margins. We expect relatively high expense growth in Indices in the third quarter as well before expense growth moderates in the fourth quarter. This will ultimately allow us to deliver margins within the new higher guidance range of 67.5% to 68.5%. Now, let’s move to the latest views from our economists who are forecasting global GDP growth of 2.9% in 2023. We’re no longer calling for a global recession, though we do expect lower-than-normal economic activity through the remainder of year.

We continue to expect inflation above the target rates of central banks and energy prices like crude oil to remain above historical averages as well. As we consider how all of this will ultimately impact our financial performance in 2023, let’s turn to our guidance. This slide represents our GAAP guidance for headline metrics. Adjusted guidance for the company reflects the results through the first half as well as our most recent views on the macroeconomic environment and market conditions. Our full year guidance is largely unchanged on a consolidated basis as outperformance in Ratings and Indices is offset by slightly lower expectations for Market Intelligence as we’ve begun to signal last quarter. We have provided the granular guidance on corporate unallocated expense, deal related amortization, interest expense and tax rate in the supplemental deck posted to our IR site.

The final slides in this deck illustrate our revenue and margin guidance by division, reflecting the drivers that I mentioned previously. In conclusion, we’re pleased with the results from the second quarter, particularly with the return to strong double-digit growth in both Ratings transaction revenue and our adjusted diluted EPS. With multiple variables at play in the markets, we’re encouraged by the fact that the tailwinds tend to impact the largest parts of our business, while the headwinds are impacting relatively small contributors to our financial results. It takes tremendous effort from many talented people to deliver results like these. And I would like to thank my colleagues around the world for their relentless drive to power global markets.

We’re looking forward to delivering a strong second half of the year. And with that, I would like to invite Edouard Tavernier, President of S&P Global Mobility, to join us. And I will turn the call back over to Mark for your questions.

A – Mark Grant: Thank you, Ewout. [Operator Instructions] Operator, we will now take our first question.

Q&A Session

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

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

Douglas Peterson: Ashish, this is Doug. Can you please repeat the question? You talked about sales cycle for all divisions or for a specific product? I’m sorry, I didn’t pick up your question.

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

Douglas Peterson: Got it. Thank you. Well, first of all, we’ve seen that in the last quarter and going forward that people are thinking very cautiously about expense management, especially in the financial services sector. This is an area where people have been looking at how they’re going to be managing their own expenses. They’re looking at the environment, which we described as quite difficult, given the inflation, given the interest rate environment. There’s not a lot of deal flow. So, this is where we’re mainly seeing slowdown in some of the sales cycle, although this stabilized in the second quarter. It actually — we started seeing in the fourth quarter and first quarter of this year and now we’re seeing it in the second quarter, but it did stabilize.

As you recall, we also have some cases where it’s taking us longer to renegotiate with our customers because we’re bringing them more value. We’re bringing together multiple products. So, sometimes consolidating products and consolidating contracts takes a little bit more. But let me hand it over to Edouard since he’s on the call as well tell us a little bit about what he’s seeing in the Mobility sector in the same sense.

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

Douglas Peterson: Thanks Ashish.

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