S&P Global Inc. (NYSE:SPGI) Q4 2023 Earnings Call Transcript

S&P Global Inc. (NYSE:SPGI) Q4 2023 Earnings Call Transcript February 8, 2024

S&P Global Inc. misses on earnings expectations. Reported EPS is $3.13 EPS, expectations were $3.15. S&P Global Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to S& P Global’s Fourth Quarter and Full Year 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 instruction 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 fourth quarter and full year 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 Adam Kansler, President of S&P Global Market Intelligence; and Martina Cheung, President of 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.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 US 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 contains reconciliations of such GAAP and non-GAAP measures. The financial metrics we’ll 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 of S&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?

Doug Peterson: Thank you, Mark. 2023 was an exciting year for S&P Global a year of innovation and growth. Our results in 2023 serve as a testament to strong execution and S&P Global’s unique position at the center of the global markets. Excluding Engineering Solutions which was divested in the second quarter of last year revenue increased 8% year-over-year. We expanded adjusted operating margins by almost 300 basis points year-over-year in the fourth quarter to finish the year with approximately 100 basis points of margin expansion and we surpassed our $600 million target for cost synergies by $19 million. We delivered adjusted EPS growth of 13% to come into the high end of our guidance range as we continue to benefit from strong revenue growth, disciplined expense management and a commitment to strong capital returns.

On the topic of capital returns, 2023 marked the 50th consecutive year that S&P Global has increased its cash dividend and we’ve already announced the Board approval to make 2024 the 51st. In 2023 we returned $4.4 billion to shareholders through dividends and buybacks, representing more than 100% of our adjusted free cash flow. In addition to strong financial performance, we created a formal artificial intelligence leadership team in 2023, which we’ll discuss in more detail shortly. We also delivered double-digit growth and significant innovation in key strategic investment areas. Private market solutions and sustainability and energy transition both delivered double-digit growth in 2023 and we’re well positioned to continue growing in these important areas in 2024.

Our Vitality Index which we target to remain at or above 10% of company revenue actually exceeded 11% in 2023 and also increased at a double-digit rate. In 2023, we delivered key wins in each of the five strategic pillars we introduced at the end of 2022. We look forward to accelerating that success in 2024 and continuing our track record of creating value for our customers and our shareholders. We know that our success depends on creating value for our customers and we delivered for them in 2023. We improved customer retention rates in several of our divisions last year while continuing to introduce new products and features more quickly and more frequently. Through deep engagement with customers around the world, tens of thousands of customer touch points, we saw continued adoption of enterprise contracts in Market Intelligence and acceleration of enterprise agreements in Commodity Insights.

We know that certain customer verticals, particularly Financial Services and regional base had unique challenges in 2023. While we discussed longer sales cycles through 2023, we were able to keep our sales pipeline moving and continue to demonstrate value for our customers even in challenging times. As we look to 2024, we continue to see macroeconomic market and geopolitical challenges. Our customers need unique and differentiated data sets and key insights for the markets they serve, which means our role as a trusted and strategic partner is more important than ever. Now nearly two years after the merger, we’ve put the work of operational integration behind us. And we have fully turned to the exciting work of growth, innovation and execution.

We remain committed to balancing margin expansion with strategic initiatives and long-term growth. We will also look for ways to optimize our portfolio of products and services. With the merger integration behind us, we plan to continue reviewing and optimizing our portfolio of assets to meet our customers’ needs either through tuck-in acquisitions or potentially further divestitures as you’ve seen us do historically. Turning to the 2023 issuance environment. We saw strong growth in billed issuance in 2023, particularly in the second half. In the fourth quarter, we continued to see issuers returning to the market, with billed issuance growth driven primarily by strength in bank loans, structured finance and high yield. This contributed to a successful rebound for the full year 2023, with billed issuance increasing 8%.

Turning to Vitality. We’re pleased to see the continued outperformance in our index to close out 2023. As we shared with you when we introduced this metric a little over a year ago, our goal is to make sure at least 10% of our revenue comes from new or enhanced products each year. As products mature, they’ll naturally age out of the Vitality Index, even if they continue to grow rapidly. But we remain committed to that 10% target, as a steady stream of innovation takes the place of any products that graduate from the index. We view the Vitality Index as a direct measure of the value our customers are realizing from the improvements we’re making in our products and services each year. With 18% growth in revenue from Vitality products in 2023, we ended the year with more than 11% of our total revenue coming from these new offerings.

This is an incredible achievement by our product development and commercial teams, as they not only build great products and features in 2023, but also make sure our customers were aware and equipped to benefit from the innovation we are bringing to the table. Across divisions, we’ve seen new products in 2023 that demonstrate our commitment to powering global markets in a world of rapidly evolving technology. First, in another compelling example of our cross-divisional development between Market Intelligence and Commodity Insights, we launched our Power Evaluator tool. It’s already received great feedback from power utility market participants. Additionally, in Commodity Insights, we combined the most powerful features of two leading commodity platforms, Platts Dimensions Pro and IHS Connect to create Platts Connect, which we believe is the market’s most holistic source of data insights and tools custom-built for commodity market participants.

In Market Intelligence, we also significantly enhanced Capital IQ Pro. June saw the release of one of the largest and most important updates in years. And we’re thrilled with the preliminary release of our new generative AI solution ChatIQ to a set of pilot customers in December. We’re excited for more customers to get access to these proprietary tools as 2024 progresses. We also launched powerful new tools with our new supplier risk indicator and Entity Insights offerings. In Ratings, we continue to deliver assessments and insights to help market participants evaluate different assets. And we leveraged our expertise in blockchain technology and cryptocurrencies to launch the first stablecoin stability assessment in late 2023. 2023 saw the launch of several new indices as well, including the S&P B3 corporate bond index in Brazil, multiple cross-asset indices and new sector, factor and thematic indices that we believe will contribute to strong growth in the years to come.

As we mentioned last quarter, we want to provide an update on our AI strategy. We’ve elevated the focus on artificial intelligence to make sure we have executive leadership, governance and sponsorship at the enterprise level. In late 2023, we announced internally that our former Chief Information Officer, Swamy Kocherlakota would take on the new role as Chief Digital Solutions Officer, including executive sponsorship of AI and Kensho. Bhavesh Dayalji, CEO of Kensho has expanded his role to now lead cross-divisional AI initiatives as our first Chief Artificial Intelligence Officer. These changes to our leadership structure around technology and especially around AI are the next logical steps in the commitment to AI that began with our initial investment in Kensho nearly seven years ago.

As part of this strategy, we’ve developed an AI accelerator to fast-track high-priority AI initiatives and build common capabilities that can be deployed and used by teams across the enterprise. There are four important ways that we expect our AI to impact our performance. First, through the development of new products and services; second, leveraging Kensho to accelerate and automate manual processes and data operations; third, amplifying the productivity of our internal experts, freeing up more capacity for higher order work; and fourth, embedding AI functionality in existing products to increase customer value and improve user experience. We’re committed to keeping you informed about these initiatives. So we’ve launched a new AI page on our public website, spglobal.ai, which includes important research, our key thought leadership and insights into our developments.

At S&P Global, we have a strategic vision of the importance of AI to our industry and the world going forward as we believe that AI will quickly become embedded in everything we do. And we have a framework to deliver the best capabilities in as many products as we can and by extension into the hands of as many customers as we can as fast as we can. Fortunately S&P Global starts with some of the most powerful proprietary data sets in the world sourced from all five divisions. Our proprietary data layer is a key differentiator that we believe sets us apart. As we’ve outlined for you in the past we remain committed to sound governance, protecting this proprietary data and preventing third parties for monetizing or commercializing our data independently.

A challenge that even data-rich companies will face is that much of this data isn’t ready to be ingested or used by large language models. The data requires traditional machine learning preprocessing, things like data cleaning, data transformation, data reduction and data integration, but it also requires tokenization and tagging, which can be very resource-intensive. This is the Kensho layer. The proprietary tools developed over the last several years by the teams at Kensho automate much of the preprocessing work for both structured data like financial reports, but also unstructured data like the transcript from this very earnings call. Tools like Scribe, NERD, Link, Extract and Classify do much of this heavy lifting and allow our proprietary data to be leveraged more easily and update it more quickly and frequently.

This leads to the third element of our framework; the open ecosystem. As we’ve shared with you before we aren’t dependent on any individual technology partner. Having so much AI expertise in-house, means that we can leverage infrastructure and compute platforms from multiple hyperscale cloud providers, third-party LLMs, our own proprietary LLMs and a wide array of other vendors without having to lock ourselves in or cede economics to one ecosystem or another. Ultimately, the goal is to have generative and traditional AI capabilities embedded everywhere that makes sense. We’ll track our progress through improving customer win rates, retention rates, price and ultimately growth. It should also show up in our own workflows to improve productivity and efficiency, improving our unit economics and our operating margins over time.

We’re excited about the significant progress we’ve made in 2023 and even more excited about what this company will accomplish in 2024 and beyond. Our innovation also extends to the efforts we make to develop our people and improve our communities. In 2023, we held an internal event called Accelerate Progress Live to reinforce our commitment to our teams around the world and highlight our purpose and values as a global employer of choice. We provide dedicated time for our people to pursue volunteer opportunities. We saw an 89% increase in the number of S&P Global people who took advantage of these programs in 2023. And as more of our people return to our offices around the world our global people resource groups saw a nearly 50% increase in engagement.

We also demonstrated our commitment to continuously improve our reporting and transparency around our sustainability and related initiatives. In 2023, we published our 12th Annual Impact Report and our fifth Annual TCFD Report. We also published our first-ever Diversity Equity and Inclusion Report, taking much of the information that we’ve been reporting for years enhancing our disclosures, and making that information more accessible in a dedicated report. We’re very pleased that our efforts have been recognized by many external organizations in the last year. S&P Global has iconic global brands and is well known as a desirable destination for highly skilled professionals around the world. We look forward to building upon that hard-won reputation in 2024.

Turning to our financial results. Ewout will walk through the fourth quarter results in more detail in a moment, but the headline numbers tell a strong story for 2023. We’re pleased to see accelerating growth and margin expansion in almost every division in 2023. The 2023 results and the 2024 guidance, we’re introducing today give us confidence in our trajectory towards the growth and margin targets we introduced at our 2022 Investor Day. As we approach the two-year anniversary of the merger, we can definitively say it has been a success. In the last two years, not only have we brought together two world-class organizations but we’ve delivered through a challenging period against our aspirational and ambitious targets. We integrated major software systems in record time and consolidated our offices around the world.

We’re able to close many of our data centers due in part to a transformational partnership with AWS. We’ve maintained a disciplined approach to managing our product portfolio. And we demonstrated this commitment through the divestiture of Engineering Solutions and the aftersales business in our Mobility division and also through the decommissioning of a number of low-margin or slower-growth products. Lastly, since the merger closed we’ve returned $17.5 billion to shareholders through share repurchases and dividends. We initially set a target of $480 million in cost synergies then raised that target to $600 million and have now exceeded that higher target by $19 million. We’re ahead of schedule on our revenue synergies to date and we’ll continue to report our progress there.

Lastly, we told you when the merger closed that we believed it would be accretive to adjusted EPS by 2023 and I’m pleased to confirm that we have delivered. Both our internal analysis and independent external analysis indicate that in 2023 we delivered higher adjusted EPS than we likely would have generated with S&P Global as a standalone company. I’m thrilled to be able to call the merger a success and to move forward to powering global markets as one company. Now, I’ll turn to Ewout to review the financial results. Ewout?

Ewout Steenbergen: Thank you, Doug. We closed the year with strong fourth quarter performance overall as we saw growth across all five of our divisions. Adjusted earnings per share increased 23% year-over-year. Reported revenue grew 7% in the fourth quarter, but excluding the impact of the Engineering Solutions divestiture, and the small tuck-ins done earlier this year revenue growth was 11%. We also expanded adjusted margins by nearly 300 basis points and reduced our fully diluted share count by 3%. Moving to our strategic investment areas. I’m pleased to report, we saw growth across all categories. Sustainability and energy transition revenue grew 17% to $84 million in the quarter driven by strong demand for our energy transition products and benchmark offerings.

Sustainability and energy transition’s full year revenue grew 24% to approximately $301 million. As we introduce more products and continue to innovate in the space we remain committed to this important growth driver for the business. Moving to Private market solutions. We saw revenue increase by 18% year-over-year to $113 million driven by strong growth in Ratings private market revenue as improved market conditions increased bank loan issuance, private credit estimates and MI’s software solutions. As we progress towards our goal of $600 million of private market solutions revenue by 2026, I’m pleased to report full year revenue grew 10% to $430 million for 2023. Vitality revenue, which is the revenue generated by innovation through new or enhanced products from across the organization was $380 million in the fourth quarter, representing a 19% increase compared to the prior year.

Importantly, Vitality revenue represented 12% of our total revenue in the quarter again surpassing our index target of at least 10%. Now turning to synergies. As Doug mentioned earlier, we have completed our cost synergy program associated with the merger and outperformed our stated targets. In the fourth quarter of 2023, we recognized $156 million of expense savings due to cost synergies. And our annualized run rate exiting the year was $619 million exceeding our goal of $600 million. For the full year, we recognized $581 million in cost savings from synergies. We had been targeting 85% of total cost synergies realized in 2023 and I’m pleased to see that we not only achieved that target but that we surpassed it by more than $70 million. We continue to make progress on our revenue synergies as well, with $40 million in synergies achieved in the fourth quarter and an annualized run rate of $152 million exiting the year.

Now turning to expenses. Our total expenses grew approximately 2% in the fourth quarter, primarily driven by increases in our core and investment growth areas and compensation expenses, which were partially offset by benefits associated with the Engineering Solutions divestiture and cost synergies. On core and investment growth, we continue to make the necessary investments in our strategic initiatives, which includes hiring the right people for key roles and investing in new and existing avenues of growth for our businesses. Within compensation there are two factors I would like to call out. First, our salary expenses remained elevated due to hiring activity and inflationary pressures throughout 2023. Second, our benefit costs were higher due to finalization of benefits realignment of IHS Markit employees in the fourth quarter.

As we go through the divisions you will see these factors impacting expenses and margins this quarter, particularly in Market Intelligence and Mobility. This drove slightly higher expense growth than we were expecting but total adjusted expenses still grew only 2% year-over-year in the fourth quarter while revenue increased 7%. Now let’s turn to the division results. Market Intelligence revenue increased 9%, driven by strong growth in Data & Advisory Solutions and Enterprise Solutions. Desktop accelerated to 7% growth in the fourth quarter as continued product innovation, introduction of new content sets and improvements to speed and performance supported strong subscription growth. Data & Advisory Solutions and Enterprise Solutions grew 8% and 10% respectively.

Both benefited from double-digit growth in subscription-based offerings. Credit & Risk Solutions grew 10% in the fourth quarter supported by strong new sales and price realization. While renewal rates remain strong overall for MI, we did see slightly elevated cancellations in the fourth quarter, as customers particularly in the financial services vertical continue to see some budgetary constraints. Combined with the modest softness in non-recurring revenue, this resulted in total revenue for MI slightly below our expectations though we continue to see accelerating growth for the division in the fourth quarter. Adjusted expenses increased 4% year-over-year, primarily due to higher compensation expense an increase in royalties and data costs, partially offset by cost synergies.

Operating profit increased 18% and the operating margin increased 280 basis points to 34.2%. For full year 2023 margins improved by 120 basis points to 33%. The margin results are below our guidance range and are a result of a combination of an admittedly strong topline falling short of our expectations and expenses being slightly higher due to the reasons I mentioned. Now, turning to Ratings. In the fourth quarter we saw refinancing activity drive issuance as improving market conditions reduced borrowing costs and macroeconomic indicators gave issuers comfort coming to the market even in December, which is historically a very quiet month for debt issuance. Revenue increased 19% year-over-year exceeding our internal expectations. Transaction revenue grew 35% in the fourth quarter as heightened refinancing activity increased bank loan and high-yield issuance.

Non-transaction revenue increased 10% primarily due to an increase in annual and program fees and growth at CRISIL. Adjusted expenses increased 6% driven by higher compensation, which includes hiring associated with growth initiatives at CRISIL and higher incentives due to financial performance. This resulted in a 32% increase in operating profit and an impressive 540 basis point increase in operating margin to 53.4%. For the full year 2023 margins increased by 60 basis points to 56.5%. And now turning to Commodity Insights. Revenue growth increased 10% following a third consecutive quarter of double-digit growth in both Price Assessments and Energy & Resources Data & Insights. Upstream Data & Insights revenue grew by approximately 3% year-over-year benefiting from strong demand for software product offerings as well as significant improvement in retention rates.

The business line continues to prioritize growth in its subscription base. Price Assessments and Energy & Resources Data & Insights grew 12% and 13% respectively. Growth was driven by continued strength in our benchmark data and insights products. Both business lines continue to see robust subscription sales driven by strong commercial momentum and enhanced value being delivered to customers. Advisory & Transactional Services revenue grew 8% driven by strong trading volumes across all sectors in Global Trading Services and strength in energy transition-related product offerings. These market-driven volumes helped GTS deliver its strongest quarter of 2023. Adjusted expenses increased 10%, primarily driven by higher compensation and continued investment in growth initiatives, partially offset by cost synergies.

Operating profit for Commodity Insights increased 10% and operating margin contracted 20 basis points to 44.4%. There are a few factors I would like to call out that contributed to CI’s very modest margin contraction in the fourth quarter. In addition to the compensation drivers I mentioned earlier, we saw an increase in performance-related compensation due to the topline outperformance. We remain very confident in the growth opportunities for Commodity Insights and also wanted to make sure we continue to adequately invest to capture those opportunities. Trailing 12-month margin, which we believe is the best way to assess the performance of our divisions increased by 180 basis points to 46.1% in 2023. In our Mobility division, revenue increased 9% year-over-year.

The dealer segment marked its fourth consecutive quarter of double-digit growth, while manufacturing and financials and other continued to deliver solid results. Dealer revenue increased 14% year-over-year driven by the continued benefit of price realization within the last year and new store growth particularly in CARFAX for Life as well as the addition of Market Scan. Manufacturing grew 2% year-over-year, driven by planning solutions and marketing solutions. Financials and other increased 5% as the business line benefited from strong underwriting volumes and price increases. Adjusted expenses increased 10% driven primarily by higher compensation due to the benefits alignment already mentioned and also due in part to higher commissions related to revenue outperformance in our OEM and dealer businesses.

We also incurred some inorganic expense growth on the Market Scan acquisition. In aggregate these drivers resulted in an 8% increase in adjusted operating profit and 30 basis points of operating margin contraction year-over-year in the fourth quarter. For full year 2023, margins contracted 20 basis points to 38.8%. Now turning to S&P Dow Jones Indices. Revenue increased 5% primarily due to strong growth in exchange-traded derivatives revenue and new business activities within Data & Custom Subscriptions. Revenue associated with asset-linked fees were relatively flat in the fourth quarter. This was driven by higher ETF AUM, which benefits from both market appreciation and net inflows leading to higher ETF fees and declines in OTC products. Exchange-traded derivatives revenue grew 22% primarily driven by strong volumes in SPX and fixed products and strong price realization.

Data & Custom Subscriptions increased 4% year-over-year, driven by continued strength in end-of-day contract growth. During the quarter, expenses decreased 6% year-over-year, primarily driven by lower outside services and incentive expenses. Operating profit in Indices increased 11% and the operating margin increased 390 basis points to 66.1%. For the full year 2023, margins expanded 50 basis points to 68.9%. As we reflect on 2023 as a whole, I’m incredibly proud about the many things we’re able to accomplish. We returned more than 100% of adjusted free cash flow to shareholders. We also continue to make the right investments in our strategy, allocating approximately $140 million to the enterprise initiatives that we have discussed with you.

And we are encouraged by the fact that approximately 10% of the company’s revenue growth came from those initiatives in 2023. On an inorganic basis, we executed a disciplined M&A strategy with tactical acquisitions immediately adding value to the enterprise. The optimization of our capital and liquidity structure completed earlier in the year provided $750 million of capital. Due to the prudent and strategic application of rate swaps we’re able to execute that debt issuance in a rising rate environment, while avoiding an increase in our average cost of capital. With a team that can deliver impressive accomplishments like these in 2023, I’m confident this will continue under the leadership of the future CFO of S&P Global. Now, I’ll turn it back to Doug to cover the 2024 outlook.

Doug Peterson: Thank you, Ewout. We’re updating our outlook to reflect our economists’ view of the most important economic and market factors that will impact 2024. While this isn’t meant to be an exhaustive list, these are some of the key factors we’ll be tracking this year. We’re currently expecting a soft landing scenario with a base case assumption that we avoid a global recession. So we expect geopolitical uncertainty to persist. We also expect energy transition and higher interest rates to remain factors. For the equity markets, we expect the secular tailwind that flows from active to passive management to continue. Though changes to market volatility can impact our ETD business and Indices and fluctuations in asset prices will have a lagged, but potentially meaningful impact on our asset-linked fees revenue, early signs in 2024 indicate market optimism with the market currently pricing in multiple rate cuts in 2024.

The timing of these potential cuts is unpredictable, but we expect the issuance environment to be stronger in the first half of the year than the back half. We expect continued focus on energy transition in the commodity markets with volatility in the evolving regulatory landscape having the potential to impact our results this year. Our financial guidance assumes global GDP growth of 2.8%, US inflation of 2.4% at an average price for Brent crude of $83 per barrel. We’re also forecasting billed issuance growth in the range of 3% to 7% in 2024, with stronger growth expected in the first half. While we’ve included a market issuance forecast in the past, we will only report on billed issuance going forward, when discussing our outlook for our financial performance, as it historically has been a better indicator of our revenue growth and aligns with our monthly disclosures.

Turning to our most recent refinancing study. When we compare these refinancing walls to last year’s study, we see that current year maturities, meaning 2024 maturities now compared to 2023 maturities measured at this time last year are more than 10% higher than they were at this point last year. The maturities expected over the next two and three-year periods are more than 12% higher. While we can’t be certain how the higher rate environment will impact these maturities or issuers’ likelihood to delever, we’re confident that this puts us in a strong position to achieve the Ratings revenue targets we’re outlining today for 2024. Now, turning to our initial guidance for 2024. This slide illustrates our initial guidance for GAAP results. For our adjusted guidance, we’re expecting revenue growth in the range of 5.5% to 7.5%, driven by strong growth in all five divisions.

We expect organic revenue growth excluding the impact of 2023 divestitures in the range of 7% to 9%. We expect to deliver at least 100 basis points of adjusted operating margin expansion in 2024. This will require us to maintain discipline around expenses and productivity, while ensuring that we are making the necessary investments to drive growth and innovation in vital strategic areas like generative AI, sustainability, energy transition and private markets. We expect to deliver adjusted EPS for the full year in the range of $13.75 to $14, which represents double-digit growth at the midpoint. It’s important to note that our expected adjusted tax rate is nearly two percentage points higher in 2024 than in 2023. If our tax rate were to remain unchanged from 2023, we would expect adjusted EPS growth approximately two to three percentage points higher, consistent with the low to mid-teens growth rate we pointed to for 2025, 2026 at our Investor Day.

As you saw in our supplemental materials earlier this morning, we also expect adjusted free cash flow excluding certain items of approximately $4.4 billion. We expect growth in adjusted free cash flow to be driven primarily by strong growth in revenue and profitability though free cash flow growth will be tempered somewhat by the timing of working capital items and the full year impact of the $750 million debt offering completed in the third quarter of 2023. With the geopolitical, macroeconomic and market risk and opportunities, we’ve discussed on this call we expect that the financial outlook we’ve provided today likely has more upside risk than downside. And you can count on our focus determination and discipline over the coming year. Our outlook for 2024 calls for further acceleration in revenue growth compared to 2023, and continued margin expansion even though we will no longer have the benefit of the vast majority of our cost synergy actions going forward.

Our financial outlook for 2024 illustrates our continued progress toward the targets we outlined at our Investor Day just over a year ago and we remain committed to those targets. Moving to our division outlook. For Market Intelligence, we expect revenue growth in the range of 6% to 7.5% with expected growth to be slightly higher in the back half than in the first half of the year. We expect adjusted operating margins in the range of 33.5% to 34.5%, as we continue to invest in key growth initiatives while maintaining rigorous discipline around expenses. For Ratings, we expect revenue growth in the range of 6% to 8% driven by billed issuance growth of 3% to 7%. We expect revenue growth rates to be stronger in the first half of the year than the second half as comparisons are easier in the first half.

We expect some level of pull forward given the uncertainty around the timing of any potential rate actions by central banks. We expect adjusted operating margins in the range of 57.5% to 58.5%. For Commodity Insights, we expect revenue growth in the range of 8% to 9.5% and adjusted operating margins of 46.5% to 47.5%. For Mobility, we expect revenue growth in the range of 8.5% to 10% and adjusted operating margins of 39% to 40%. Lastly for S&P Dow Jones Indices we expect revenue growth in the range of 7% to 9% and adjusted operating margins in the range of 68.5% to 69.5%. As you saw in the press release earlier this morning, our Board has authorized the repurchase of shares totaling up to $2.4 billion, which we expect to execute throughout the year.

And with that, I’d like to invite Adam Kansler, President of S&P Global Market Intelligence; and Martina Cheung, President of S&P Global Ratings and Executive Lead for Sustainable1 to join us. And I will turn the call back over to Mark for your questions.

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

Operator: Thank you. Our first question comes from Faiza Alwy with Deutsche Bank. Your line is open.

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Q&A Session

Faiza Alwy : Hi. Thank you. Good morning. So I wanted to start with a big picture question on Ratings take advantage of Martina on the call. Maybe you can talk a little bit about the drivers behind the Ratings top line outlook. Doug mentioned 3% to 7% billed issuance growth but give us a bit more color around transaction versus non-transaction growth and the various components whether it’s corporate structured. You mentioned greater private assessment. So just a bit more color around what’s underlying the revenue outlook. Thank you.

Martina Cheung: Hi. Thanks very much for the question. So as Doug mentioned in his remarks, we do expect a stronger first half of this year, 2024 compared to the back half of the year. And I’ll break it down a little bit. First on the transaction revenue and our billed issuance estimate in the 3% to 7%. We’re expecting to see continued refinancing activity that we saw build up in the back half of last year with high yield and bank loans and we saw that consistent in January. So we would expect to see that continue throughout the first half of this year. We would also expect to see some investment grade, although not as robust as last year. And part of that is just because some of the investment-grade issuers tapped the market last year.

Another potential factor there is the fact that we would see some investment-grade issuers being able to wait until the rates come down. Now some of the factors driving first half versus the second half, I would say anecdotally we’re hearing that issuers are looking to come to market to take advantage of strong investor appetite to lock in rates once they’re higher and before the rates come down and ahead of potential volatility in the back half of the year. On transaction revenue we would actually expect to see stronger frequent issuer program issuance this year than we saw last year. You won’t see that in our billed issuance estimate for example. And we would also expect to see continued strong performance in our surveillance book across CRISIL, our royalty and other products such as RES or Ratings Evaluation Service.

Overall, though as Doug said, we do expect stronger first half compared to second half. All of these factors that we take into consideration including pace and timing of rate cuts volatility, et cetera these are all baked into our overall outlook. It is early in the year and we will definitely seek to become more precise as we go throughout the year but that’s I think a good summary of where we’re at.

Operator: Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.

Manav Patnaik: Thank you. Good morning. I just wanted to touch on the revenue synergies. You said I think it was $152 million annualized exiting the year. I think that’s a number higher than what we would have thought of. I was just hoping you could give us some color on where – what kind of areas those are coming from what you’ve kind of baked into 2024 also perhaps?

Doug Peterson: Thank you, Manav. This is Doug. Well we’re really excited about what we’ve been able to achieve with the merger. And you’ve heard us talk about the power of the merger, the capital return that we had, the accretion to EPS, the cost synergies which we now have delivered $619 million. And going forward we’re going to keep talking about the revenue synergies. When we look at the revenue synergies, they started off traditionally with cross-sell, cross-sell within divisions. This is where we were selling Commodity Insights products from the Platts customers to the IHS Markit customers and vice versa. Same in the Market Intelligence business where we’re selling financial services products to corporate customers for Market Intelligence.

But now we’re starting to deliver the new products as well. And a combination of both of these has allowed us to be ahead of the schedule. We’re very excited about the new products coming out. Let me give you one example from the Commodity Insights division something called Platts Connect. Platts Connect is a product that took the platform of Platts Dimensions Pro and took the IHS Markit Connect platform. We put them together. We now have a very unique single holistic platform for prices, for research, for forecasting. But let me hand it over to Adam, since he’s on the call and he can give us some more color for Market Intelligence.

Adam Kansler: Great. Thanks, Doug. The revenue synergy is obviously one of the most exciting parts of the combination of businesses. As Doug mentioned, the early successes have been in going to our customers, with combined product capabilities that strengthen what we were already providing to those customers. We’ve seen outsized performance there, even against our own expectations. What’s really exciting as we get now into the years, where we’ve landed those early merger synergies is the launch of new products. Doug mentioned a few. Over the course of 2023, we launched seven new products just within Market Intelligence. We have 14 new products set to come to market across 2024. These will increasingly become part of what we’re offering out to customers, whether it’s just putting our bond pricing in together with our credit analytics capability looking at our economics and country risk data across our Desktop, incorporating sustainability data into our private markets portfolio management capabilities.

These are all exciting areas that will continue to add to the growth of the business. You’ll also see us announce some increasing generative AI capabilities across broader data sets of the combined businesses. I’m sure we’ll talk a little bit more about that later on the call.

Operator: Thank you. Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.

Unidentified Analyst: Hi. Good morning. This is Greg on for Toni. Thanks for taking our question. Adam, just want to go back to you talk about Market Intelligence 6% to 7.5% revenue growth guide similar to last year. Is — a selling environment has that improved at all? Or is that still a bit of a headwind? And then on the capital markets piece of the business I think some of the Ipreo assets seeing some increased activity to start the year. So is there upside from that? Or are you still a little bit cautious? Thanks.

Adam Kansler: Okay. Thank you for the call. We’re very optimistic about continued growth in the business. And you’ve seen that progression from 2022 to 2023 and you see our guidance for 2024. Our end markets have had a pretty challenged period through 2022 and 2023 right? You’ve seen 30-plus percent declines in M&A activity 34% decline in private equity investment activity. But even through that period we’ve been able to deliver the solutions that our customers want. I think that will continue into 2024. We do see some early activity in capital markets, but I think the way the full year will play out is yet to be seen. For us going into the first quarter, we see more challenging comps. So we’ll see a little bit slower start to year than we’ll see towards the back half of the year.

I am cautiously optimistic that as markets stabilize that presents opportunity for us. But we want to be careful, because our largest customer sets continue to be under pressure. You see that in the news every day. As we go into the beginning part of this year, we want to see how that ultimately plays out, but we feel pretty good about the guidance range we’ve put out.

Unidentified Analyst: Thanks. Great.

Operator: Thank you. Our next question comes from Andrew Nicholas with William Blair. You may proceed.

Unidentified Analyst: Hi. Good morning. This is Tom on for Andrew. I wanted to ask about ChatIQ. You mentioned you started piloting that in December. I was wondering what kind of customer feedback you’re getting so far? And what kind of benefits you can expect? Can it help increase pricing on the Cap IQ platform or some other benefits you’re seeing there? Thank you.

Adam Kansler: Tom, thanks for the question. We’re very excited about the early responses on ChatIQ. That’s a tool that lets our customers get into our Desktop and get back actionable insights lets them actually click through directly down to the source documents on what’s one of the most robust data sets available to financial markets and corporate participants in the world. ChatIQ, very exciting. We are out with a few pilot customers. We’ll start to release that out more broadly to our customer set over the course of 2024. But it’s also not the only thing that we’re doing with generative AI. You may have seen a press release in the last couple of days. We’ve actually launched now widely available to customers the ability to use generative AI to search in the S&P Global Marketplace, which is the place where you can go and look at all the data sets available across all of S&P Global.